Afford Anything | Get Smarter With Money

Latest Episodes:

Q&A: My Insurance Bill Jumped 60 Percent – Should I Drop It?! Aug 20, 2024

Show notes

#533: Kristin is floored by the 60 percent increase in her homeowner’s insurance this year. Should she cancel the policy and self-insure instead?

Susana and her husband are torn. They bought their dream home last year but now need to relocate indefinitely. What should they do with the house?

An anonymous caller wants to help his soon-to-be wife invest a five-figure gift she received in another country. How do they untangle the complexities of managing money from abroad?

Former financial planner Joe Saul-Sehy and I tackle these three questions in today’s episode.

Enjoy!

P.S. Got a question? Leave it at https://affordanything.com/voicemail

For more information, visit the show notes at https://affordanything.com/episode533

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How to Get a Bigger Paycheck Aug 17, 2024

Show notes

#532: We’re diving deep into the art of negotiation, especially when it comes to asking for a raise. The episode is broken down into three main parts, each designed to give you practical tools and insights that you can apply right away.

First up, setting the stage. Before you even think about negotiating, it’s crucial to understand the difference between “interests” and “positions.” You’ll learn why knowing the underlying reasons behind what both you and the other party want is key to finding a win-win solution. We’ll also talk about how to prepare yourself, including knowing your BATNA (Best Alternative to a Negotiated Agreement), your aspiration point, and your reservation point. Plus, you’ll get tips on how to build rapport and strategically frame your requests to set the tone for a successful negotiation.

Next, we move into taking action. Here’s where you get the practical strategies you can use during the negotiation itself. We’ll cover techniques like anchoring—where you set the initial offer to guide the conversation—and how to make strategic concessions. You’ll also learn about the power of silence, managing your emotions, and making sure that any concessions you make are balanced by getting something in return.

Finally, we tackle more complex situations. Sometimes, negotiations aren’t straightforward. Maybe you’re dealing with a difficult negotiator who’s being aggressive, uncooperative, or even deceitful. In this part, we’ll discuss how to handle these tricky scenarios while still aiming for a win-win outcome.

Throughout the episode, you’ll get a clear, actionable framework that you can use to negotiate effectively, whether it’s for a raise, closing a business deal, or even in your personal life. The focus is on preparation, understanding what both sides truly want, and using smart strategies to reach an agreement that works for everyone.

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Timestamps

Note: Timestamps will vary on individual devices based on dynamic advertising run times

1:15 - Introduces negotiation, focusing on asking for a raise

3:45 - Explains interests vs. positions in negotiation

6:10 - Prepares by knowing your BATNA, aspiration, and reservation points

9:30 - Builds rapport and trust before negotiating

12:20 - Frames arguments to align with other party’s interests

15:05 - Introduces anchoring to set the tone

18:40 - Makes concessions while ensuring reciprocity

22:10 - Uses silence strategically in negotiations

25:55 - Manages emotions, avoids triggers in tense talks

29:40 - Creates value by expanding negotiation scope

33:25 - Prioritizes and bundles issues in multi-issue negotiations

37:15 - Deals with difficult negotiators like aggressors and stonewallers

41:00 - Recognizes closing signals to finalize a deal

44:45 - Documents agreements to avoid post-settlement disputes

47:30 - Reflects on each negotiation to improve

For more information, visit the show notes at https://affordanything.com/episode532

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Mastering the Art of Negotiation, with Jeff Wetzler, Ed.D. Aug 14, 2024

Show notes

#531: Let's talk about negotiations. You know, those back-and-forth talks where you try to get the best deal possible on a used car, a house, or a couch on Facebook Marketplace? Or when you ask your boss for a raise? Turns out, asking the right questions can be a game-changer.

According to Jeff Wetzler, Ed.D., people often hold back information when they're negotiating. They might be worried about looking bad or giving away too much. But if you can get them talking, you can learn a lot. It's like peeling an onion – layer by layer, you discover what really matters to the other person.

The key is to be curious and listen carefully. Show the other person you're interested in what they have to say. And don't just focus on what they're saying; pay attention to how they say it. Their body language and tone can tell you a lot.

By understanding the other person's point of view, you can find ways to work together and reach a deal that benefits everyone. It's all about building trust and finding common ground.

For more information, visit the show notes at https://affordanything.com/episode531

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The Overlooked Power of Stock-Based Compensation, with Brian Feroldi Aug 12, 2024

Show notes

#530: We sit down with financial educator Brian Feroldi to dive into the often-overlooked world of stock-based compensation. This form of compensation is becoming more common, especially in large companies, but many employees don’t fully understand how to make the most of it. Brian helps break down the basics, explaining what stock-based compensation is and why companies use it to attract and retain employees.

We start by discussing why companies offer stock options or restricted stock units (RSUs) instead of just higher salaries or bonuses. Brian explains that stock-based compensation is a way for companies to align your interests with the success of the business. When you own a piece of the company, you’re more likely to care about its performance, which can drive you to work harder and stay longer. This also allows companies to conserve cash while still offering competitive compensation packages.

Brian also highlights the importance of understanding the different types of stock-based compensation. He breaks down stock options, where you have the right to buy company stock at a set price, and RSUs, where you’re given shares of stock that vest over time. Each has its pros and cons, and understanding these differences can help you make better decisions about your compensation.

One of the key takeaways from our discussion is the importance of negotiation. Brian emphasizes that the best time to negotiate stock-based compensation is when you’re first hired. Companies often have more flexibility with stock options than with salary, so it’s crucial to ask for more stock or a shorter vesting period upfront. This can make a big difference in your long-term financial gains, especially if the company’s stock value increases over time.

We also touch on the tax implications of stock-based compensation. Brian explains that different types of stock options are taxed differently, and understanding these tax rules can help you minimize your tax bill. For instance, holding onto stock after exercising options can lead to lower taxes if the stock price rises and you qualify for long-term capital gains.

Throughout the interview, Brian shares practical tips for you, such as targeting companies in industries like technology and healthcare that are known for generous stock-based compensation packages. He advises you to educate yourself on your company’s specific policies and to be proactive in managing your stock options to avoid leaving money on the table.

By the end of the episode, you’ll have a clearer understanding of stock-based compensation and how to leverage it to build wealth. Brian’s insights are particularly valuable if you’re switching jobs and want to maximize your compensation package.

Resource Mentioned:

Finchat.io

For more information, visit the show notes at https://affordanything.com/episode530

Timestamps:

Note: Timestamps will vary on individual devices based on dynamic advertising run times.

2:16 - Explain why companies offer stock compensation over salaries

4:00 - Discuss how stock compensation aligns employee and company goals

7:28 - Introduce types of stock compensation: stock options vs. RSUs

12:24 - Explain the significance of vesting schedules

17:00 - Discuss tax implications of stock options and RSUs

28:00 - Emphasize the long-term impact of stock-based compensation on financial independence

34:00 - Identify industries with high stock compensation, like tech and healthcare

40:00 - Discuss benefits of Employee Stock Purchase Plans (ESPPs)

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Q&A: The Unintended Consequences of Early Retirement Aug 06, 2024

Show notes

#529: Anonymous, 60, recently lost her job and is worried about retirement. She owns a paid-off triplex, living in one unit and renting the others for $30,000 a year. She used her 401(k) funds to buy the triplex and now has $50,000 in retirement savings and $150,000 in cash. She expects only $2,400 a month from Social Security at age 67. After losing her son two years ago, she's seeking advice on managing her underfunded retirement.

Noelle, 40, and her husband, 49, want to cancel his whole life insurance policy. They are debt-free, own their home, and plan to retire soon, relying on Noelle's $80,000 income. They have $504,000 in retirement savings. Should Noelle keep her $100,000 term life policy until she retires?

Sleepless in San Antonio, age 35, plans to retire at 45 but is concerned about how this will affect Social Security benefits, which is calculated based on the top 35 earning years. Should they work longer in order to boost their Social Security benefits?

Former financial planner Joe Saul-Sehy and I tackle these three questions in today’s episode.

Enjoy!

P.S. Got a question? Leave it at https://affordanything.com/voicemail

For more information, visit the show notes at https://affordanything.com/episode529

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The Stock Market is in Panic Mode and the Unemployment Rate Jumped – But Everything’s Fine Aug 02, 2024

Show notes

#528: The Federal Reserve recently decided to hold interest rates steady, leading to significant shifts in the stock market. The Dow dropped over 850 points, and the NASDAQ entered correction territory, falling more than 10% from its peak.

But what do these numbers mean for you? We break down the latest jobs report, which shows a rise in unemployment to 4.3%, triggering a recession indicator known as the Sahm Rule. This isn't just economic jargon; it affects real lives, impacting job security, investments, and financial planning.

We discuss potential ripple effects on various sectors, such as real estate, where interest rates influence housing affordability.

We also examine the technology sector's volatility and how recent market corrections might influence tech stocks and the overall investment landscape. Understanding this can help you make informed decisions about your investment portfolio.

Every First Friday of the month, we bring you our "First Friday Monthly Economic Report," where we help you make sense of these trends.

We aim to make complex economic concepts accessible. Join us as we explore these pressing economic issues.

Timestamps

Note: Timestamps will vary on individual listening devices based on dynamic advertising run times.

1:23 - Discuss the Fed's decision to hold interest rates steady and its economic impact.

3:15 - Explore how recent economic changes affect the Dow and NASDAQ for investors.

5:30 - Explain the SAM rule and why unemployment rising to 4.3% matters.

7:45 - Analyze how interest rates affect housing affordability and real estate.

10:05 - Examine tech sector volatility and its impact on stocks and investments.

12:30 - Look into how economic trends influence consumer spending patterns.

14:42 - Offer tips on managing debt, building emergency funds, and smart investments.

17:03 - Stress the importance of informed decision-making and understanding trade-offs.

19:27 - Highlight the role of "First Friday Monthly Economic Reports" in understanding trends.

21:15 - Wrap up with insights for applying knowledge to financial decision-making.

For more information, visit the show notes at https://affordanything.com/episode528

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Q&A: Can They Be Financially Independent in Five Years … By Breaking the Rules? Jul 30, 2024

Show notes

#527: Luke and his wife are breaking some personal finance rules in the name of financial independence. Are they right to take this approach or is there a better way?

Christina is worried. She’s retired with a paid-off condo in Florida. But rising fees, insurance rates, and a major HOA assessment are killing her cash flow. Is it time to become a renter?

Les is surprised by Paula and Joe’s allocation recommendations for international equities. Based on market capitalization, it makes no sense. What’s he missing?

Former financial planner Joe Saul-Sehy and I tackle these three questions in today’s episode.

Enjoy!

P.S. Got a question? Leave it at https://affordanything.com/voicemail

For more information, visit the show notes at https://affordanything.com/episode527

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The Real Reasons People Make Bad Investment Decisions, with Finance Professor Meir Statman Jul 26, 2024

Show notes

#526: Recorded LIVE on stage at the Morningstar Conference in Chicago! We chat with behavioral finance professor Meir Statman. He breaks down the differences between standard finance and behavioral finance, making it clear that understanding human behavior is an essential part of investing.

Statman starts by explaining that standard finance assumes people are rational. They make decisions purely based on logic and aim to maximize wealth. However, behavioral finance sees people as normal, not always rational. We often act on emotions and cognitive shortcuts. For instance, people might prefer receiving dividends over selling shares, even if both result in the same financial gain. This is because dividends feel like income, while selling shares feels like dipping into savings.

He uses a great metaphor to explain how investors view their portfolios. Think of a dinner plate: behavioral investors like their investments separated, like mashed potatoes on one side, vegetables on another, and steak in the middle. Rational investors don’t care if it’s all blended together because they only focus on the total nutrients. This shows that normal investors have different needs and want to balance safety with growth.

Statman talks about the importance of diversification. He recalls a lunch with Harry Markowitz, the father of Modern Portfolio Theory, who supported the idea of having a mix of safe and risky investments. Markowitz himself had municipal bonds to avoid poverty and stocks to grow wealth. Diversifying helps investors manage risk and meet both their safety and growth needs.

We then dive into how people manage money across their life cycle. Statman points out that young people know they need to save but are tempted to spend. They often control this urge by putting money into retirement accounts like 401(k)s. As people get older, they become so good at saving that they sometimes forget to spend and enjoy their money. Statman gives a funny example of his mother-in-law, who refused to replace an old sofa because she didn’t want to dip into her savings.

Statman also touches on asset pricing and market efficiency. He explains that while traditional finance focuses solely on risk, behavioral finance considers other factors like social responsibility. Some investors are willing to accept lower returns to stay true to their values. Additionally, he argues that market prices do not always reflect true value, and it’s hard to predict when they will.

Towards the end, we discuss the broader aspects of wellbeing. Statman emphasizes that financial wellbeing is just one part of a happy life. Family, health, work, and community are also crucial. He believes financial advisors should help clients achieve overall life wellbeing, not just financial success.

For more information, visit the show notes at https://affordanything.com/episode526

Timestamps

Note: Timestamps vary on individual listening devices based on advertising run times.

1:23 - Explain the differences between standard and behavioral finance.

4:30 - Discuss Harry Markowitz's influence on modern investment strategies.

6:08 - Highlight life cycle investing and saving/spending behaviors over a lifetime.

10:02 - Explore mental accounting and differentiating between income and capital.

11:14 - Talk about common trading mistakes due to cognitive errors.

14:26 - Discuss utilitarian, expressive, and emotional benefits of financial decisions.

17:41 - Explain the difference between System 1 and System 2 thinking.

21:39 - Discuss how emotions and moods impact investment decisions.

25:59 - Explore the concept of regret and how it affects financial decisions.

30:21 - Emphasize the importance of human touch in financial advising.

44:00 - Discuss the impact of AI on different industries and investment decisions.

48:24 - Highlight the need to balance financial wellbeing with overall life wellbeing.

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Michael Kitces: Is the Economy Worse Than We Think? Jul 23, 2024

Show notes

#525: We chat with renowned financial advisor Michael Kitces at the Morningstar Investor Conference in Chicago.

Kitces answers a big question: Is the economy worse than we think? He explains that a few big companies like Nvidia, Meta, and Alphabet are holding up the S&P 500. But this doesn’t mean the economy is bad. It's common for a small group of companies to drive the market. Since it’s hard to predict which companies will do well, he stresses the need for diversification.

Kitces tells us to focus on long-term growth instead of trying to time the market. He shares a famous quote from economist John Maynard Keynes: "Markets can remain irrational longer than you can remain solvent." This means it’s better to invest broadly and wait for the market to grow over time.

Kitces also says that career development is important. He believes boosting your income through career advancements can have a bigger impact on your financial health than trying to get the highest returns on your investments. He says, "Spending more time focusing on my career and getting a raise... will actually be more meaningful than trying to improve the returns on my own money."

We discuss the importance of index investing and proper asset allocation. Kitces advises owning a diversified portfolio that includes international and small-cap funds. Even if these funds aren’t performing well in the short term, diversification helps spread risk and capture growth from different sectors and markets.

Kitces talks about the cyclical nature of markets. Some people worry that the market will go down just because it’s been up for a long time. He explains that markets don’t "die of old age." Many factors influence market cycles, and it’s hard to predict when a downturn will happen. This reinforces the idea that staying invested and diversified is usually the best strategy.

Finally, we talk about inflation and interest rates. Kitces explains that it’s hard to predict when inflation will return to the Fed’s target rate of 2 percent. This means that interest rates might stay high for a while. It’s important to keep a long-term perspective and not make drastic changes based on short-term market movements.

This episode offers practical advice on investment strategies, the importance of diversification, and why focusing on your career can be more beneficial than trying to outsmart the market. Kitces’ insights help anyone who wants to reach financial freedom.

Timestamps

[Note: Time codes will vary on individual listening devices based on advertising run times.]

1:23 - Becoming a famous financial advisor.

2:08 - Role of a small number of companies in holding up the S&P 500.

5:11 - NVIDIA's role in AI and cryptocurrency.

7:38 - Importance of diversification.

11:27 - Irrationality and efficiency of markets.

16:26 - Role of international and small-cap funds in diversification.

18:10 - Impact of regulatory frameworks on AI development.

32:11 - Demographic advantages of emerging markets.

40:01 - Cyclical nature of markets and investor fears.

51:30 - Inflation and wage growth.

For more information, visit the show notes at https://affordanything.com/episode525

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Q&A: Don’t Waste Your Inheritance! Here’s How Jul 19, 2024

Show notes

#524: Mark and his partner will soon inherit an IRA worth over a quarter million dollars. With today’s elevated interest rates, would throwing it all at a primary residence be the smartest play?

An anonymous caller and his girlfriend are musicians who dream of building a home with a monetizable recording studio. How do they untangle personal wants from business needs?

Will feels stumped about the options in his defined benefit pension plan. When should he choose a guaranteed annuity over a lump sum payment?

Former financial planner Joe Saul-Sehy and I tackle these three questions in today’s episode.

Enjoy!

P.S. Got a question? Leave it at https://affordanything.com/voicemail

For more information, visit the show notes at https://affordanything.com/episode524

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