Ask Me Anything: Financial Insight – Episode 4
It’s time for another chapter in our “Ask Me Anything” series! So many amazing questions have come in over the last few weeks that it’s hard to keep up (in a good way). Today marks Volume 4, and I’m excited to dive into five more fantastic questions that cover everything from savings accounts to prenups.
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Let’s kick this off with a very common but essential topic: Where should you park your money to maximize your savings?
High-Yield Savings Accounts: Your Online Money Machine
When it comes to stashing your cash, not all banks are created equal. You’ve probably noticed the minuscule rates offered by traditional brick-and-mortar banks—barely enough even to notice, right? That’s because real magic happens online these days.
What About Interest Rates?
As I’m posting this, the Fed just dropped their rates by 50 basis points. I know it sounds like a bunch of economic jargon. But in simple terms, that means interest rates on things like savings accounts may start shifting downward. That’s why you must stay on top of constantly changing rates. If you’re reading this after September 2024, rates will probably be different from what I mentioned. So, always double-check!
That being said, the main takeaway here is clear—don’t let your savings stagnate! Always aim for a high yield, and usually, that means moving to online banks over those traditional brick-and-mortar ones. But which online banks should you consider?
My Top 3 High-Yield Savings Accounts
- Ally Bank
Ally is one of my personal favorites and a go-to for my own household. Right now, they’re offering an interest rate of about 4.2%. While they occasionally lower their rates ahead of Fed announcements—almost like they have insider knowledge—they’re consistently a solid option. - Marcus by Goldman Sachs
If you’re someone who likes to know a big-name bank has your money, Marcus is a fantastic option. Marcus is currently sitting at around 4.4%, and with the power of the Goldman Sachs brand behind it, it delivers trust with strong returns. - Laurel Road
This one’s especially popular among physicians, but it’s open to everyone. Initially known for its student loan refinancing, Laurel Road also offers a competitive high-yield savings account—currently around 5%. Just know that a drop may be on the horizon post-Fed decision.
Why Choose Online Banks?
You might be wondering, “Why bother with online banks?” Well, it’s simple: They’re way ahead of traditional banks in terms of interest returns. If you’ve been holding your money in a local bank offering you 0.01%, take a long, hard look at these online alternatives. Your money works hard for you, so make sure you’re putting it in the right place.
Rethinking the 4% Rule for Retirement
One of the most well-known guidelines in retirement planning is the good ol’ 4% rule. In case you’re not familiar, here’s the gist: It says that once you retire, you can safely withdraw 4% of your total retirement savings each year and never run out of money. Sounds perfect, right? Well…
The Old 4% Rule vs. A New 3% Rule?
The 4% rule is based on historical data through multiple market cycles, but times are changing. With interest rates so much lower now, more expert conversations are leaning toward a new standard: the 3% rule.
This means adjusting your withdrawals to just 3% instead of 4% to compensate for today’s slower growth—especially from bonds, which don’t perform the way they used to back when the 4% rule was devised. Basically, it’s all about lower returns on safe investments, which means leaning on a slightly more conservative withdrawal rate.
Stay Flexible to Maximize Your Money
Here’s the bottom line: No “rule” is set in stone. What works today may not work next year. That’s why flexibility is key. If the market thrives, maybe you can wiggle over 3% some years, but during tough times, keeping your withdrawals under 3% might protect your future.
Remember, these are just guidelines. The market’s unpredictable nature means even financial planners, armed with all their fancy tools, are just making some really educated guesses. The trick is building a withdrawal strategy that keeps you agile. Check-in regularly with your financial planner and adjust based on what’s happening in the market.
Talking Money and Relationships: The Prenup Debate
One of my favorite questions comes up over and over, both online and in person. And no, it’s not about stocks or bonds—it’s about prenups. If this makes you squirm a little, you’re not alone! But kudos to you for thinking about it because this conversation doesn’t happen as often as it should.
Are We Really Talking About Prenups?
Yes, we are! Prenups (and postnups, for that matter) might feel awkward, but it’s crucial for anyone thinking about marriage—especially if there’s a noticeable difference in income or assets between you and your soon-to-be spouse. No one likes to imagine the worst, but financial agreements can prevent heartache later on.
Understanding that life happens and that it’s always better to be prepared helps keep us grounded. If you’re already married, don’t forget that options like postnuptial agreements can be equally useful for organizing finances mid-marriage.
Here’s What You Should Do
- Have the conversation. Honesty is essential, and while bringing up a prenup won’t score you any “fun partner” points, it shows you’re thinking about both of your futures.
- Get a lawyer—and get it in writing. Both parties should feel the agreement is fair, and more importantly, having a legally sound document avoids years of pain later.
- Don’t view it as a bad thing. It’s a practical financial discussion, like having life insurance or creating a will.
Prenups might not ignite romantic sparks, but they spark responsible financial planning!
Backdoor Roth IRA: Clearing Up Confusion
If there’s one concept that constantly trips people up, it’s the Backdoor Roth IRA. Let me clear something up right now: the Backdoor Roth IRA isn’t a special account you open at your favorite brokerage. You don’t walk into Vanguard asking for a “Backdoor Roth.” Nope, it’s just a process.
How Does the Backdoor Roth Actually Work?
Here’s how it goes down: You contribute money to a traditional IRA first. Once the funds are in there, you quickly convert them into a Roth IRA. That’s called a “backdoor” conversion. There are some technical steps in between, but the essential bit is this: You’re allowed to work around contribution limits with this conversion because you initially fund an IRA, not a Roth IRA directly.
What About Contribution Limits?
One question I get a lot is whether the contribution limits to a Backdoor Roth are the same as a regular Roth IRA. The answer: Yes, they are. It doesn’t matter if you’re making a direct Roth contribution or going the backdoor route—the yearly limits are the same. As of 2024, you’re allowed $7,000 per year, with an extra $1,000 if you’re over 50.
But here’s my pro tip: Remember to invest the funds once they’re in the Roth. Seriously, you don’t want that money just sitting in the account because it’s missing out on potential growth. People often overlook that last step, and it’s a costly mistake.
Books That Will Change Your Approach to Money
Wrapping up, I always enjoy talking about personal finance books, which I love. And no list would be complete without highlighting some of the best resources out there.
Top 3 Financial Books You Should Read
- “The Psychology of Money” by Morgan Housel
This one’s a standout for a reason. Housel digs deep into the emotional side of money—why we think the way we do, how behavior impacts financial decisions, and why knowledge alone isn’t enough. It’s insightful, approachable, and easily one of the best books out there on personal finance. - “I Will Teach You to Be Rich” by Ramit Sethi
Ramit Sethi’s book challenges the old-school financial norms. While some financial advisors might not love Ramit’s take on things like fees, he breaks down a lot of essential rules. It’s geared toward young professionals and emphasizes that taking control of your money doesn’t have to mean sacrificing everything. - “The One-Page Financial Plan” by Carl Richards
Carl Richards simplifies personal finance like no one else. This book is more for the planner in all of us—helping you create a concise, actionable financial game plan without getting bogged down in complexities. Plus, Carl’s known for his iconic sketches, visualizing financial concepts in ways that actually make sense.
Why Reading Is Essential for Financial Growth
You don’t have to be a financial expert to get started on growing your wealth. Sometimes, it’s just about picking up the right book to give you a new perspective. Start with any of these three books, and you’ll be equipped with invaluable insights to take your financial game to the next level.
Questions? Keep Them Coming!
That’s it for today’s round of questions. Thank you so much for sticking with me through Volume 4! We’ve done it! Four episodes, four sets of great questions, and I already have enough lined up for Volume 5 next month.
These are all critical topics that can impact your pocketbook and financial future. Keep questioning, stay curious, and never hesitate to seek advice.
Looking for a more thorough all-in-one spot for your financial life? Check out our free eBook: A Doctor’s Prescription to Comprehensive Financial Wellness [Yes, it will ask for your email 😉]