Pod Insights The Clark Howard Podcast 02.16.26 Your Relationship With Money / Self-Employed Retirement Planning About this episode You may be examining your spending habits this year, looking to set goals to improve your financial health. Clark discusses how your money mindset will affect your future in a big way. Are you spending your way into debt misery, or saving your way to frugality regret? Clark invokes finding a healthy balance between discipline and enjoyment. Also - A great way for the self-employed to save tax free for the future. A powerful wealth-building tool is finally getting the attention it deserves: the Solo 401(k) A Balanced Money Mindset: Segment 1 Ask Clark: Segment 2 Solo 401k's Take Off: Segment 3 Ask Clark: Segment 4 Mentioned on the show: The Two Key Pillars to Financial Freedom - Clark Howard How Many Bank Accounts Should You Have? - Clark Howard 1 Day Pass by Sling / Sling’s Subscription Option What Is a Solo 401(k) and How Does It Work? How To Open a Roth IRA Emergency Fund: Everything You Need to Know - Clark Howard 5 Things to Know About New Settlement That Could Change Credit Card Rewards Clark.com resources: Episode transcripts Community. Clark.com / Ask Clark Clark.com daily money newsletter Consumer Action Center Free Helpline: 636-492-5275 Learn more about your ad choices: megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices
Transcript 0:00 Speaker 00 Progressive's Accident Response can contact emergency services if you're in a major accident. The only thing worse than someone you love being in an accident is not being able to help them. So Progressive is here to help when you can't. So get peace of mind knowing your loved ones are protected with Progressive's Accident Response. Learn more at progressive.com. Progressive Casualty Insurance Company and affiliates. Limited availability in California. Driver is responsible for emergency and towing charges not covered by the policy. Coverage subject to policy terms and conditions.
0:29 Speaker 01 Your sausage McMuffin with egg didn't change, your receipt did. The sausage McMuffin with egg extra value meal includes a hash brown and a small coffee for just $5. Only at McDonald's for a limited time.
0:42 Speaker 02 Price and participation may vary. Promotion pricing may be lower than meal pricing.
0:45 Speaker 03 It's my pleasure to welcome you here to the Clark Howard Show where our mission is to serve you with advice and information that empowers you to make better financial decisions in your life. And Happy Presidents' Day. By the way, I usually take today off from the podcast and YouTube show, but Krista said, nope, no day off for you today.
1:17 Speaker 04 Too bad. I'm kidding. Come on. You know, if you really wanted to take it off, you could take it off.
1:23 Speaker 03 No, I do what you tell me. And you told me, hey, we'd already sold ads for that day.
1:29 Speaker 04 Yeah.
1:29 Speaker 03 You gotta work. Isn't that what you told me?
1:31 Speaker 04 Mm-hmm.
1:32 Speaker 03 Okay, so I'm here.
1:33 Speaker 04 The third-party company, because we don't, the third-party company we use to put the podcast online had sold ads.
1:41 Speaker 03 We hadn't.
1:41 Speaker 04 Yeah, you don't sell ads. Well, you yourself have no idea what ads are on any day.
1:45 Speaker 03 I have no idea what ads are. Enough of my whining. All right. Let's talk about something about goals today.
1:55 Speaker 03 Spending habits. I'm going to talk today about something that may feel a little touchy feely in some extent, but it comes to core about our relationship with money. Your mindset has such an impact, I believe, not necessarily on happiness, but can lead you to unhappiness. And later, do you know that something that I started yapping about years ago caused nothing but Clark stinks posts? When I would talk about a way for business owners to save tax-free for the future, and
2:37 Speaker 03 then they'd go try to find a place to do it, they couldn't find one. Now, all the financial firms have caught up. I'm going to tell you what you need to know is a great way for you to stash cash tax-free for the future. So, speaking of cash and money and all that, something I've said over the years, because, I mean, it's true. I am cheap. And it's just the way I'm wired. You know, I feel terrible when I spend money I don't need to spend, when I pay more for something than I needed to, when I spend money on something that later is like an oops, I shouldn't have bought that. I hate that.
3:22 Speaker 03 But money is not a god. And a lot of times, people get to a point where they deprive themselves beyond reasonableness. Usually you hear me talk about the other people who are spending money they don't have and creating real problems. And a lot of times, as I've said in the past, that happens because we're comparing ourselves to others. And we see somebody with the new car, or the new TV, or the new boat, or that they're
4:02 Speaker 03 moving to a new fancier house, and we think, what's wrong with me? Look what's happening with them.
4:12 Speaker 03 What you don't know is, how did they get those things? Did they dig themselves into a huge debt load? I mean, trying to compare yourself to somebody else who bought the new whatever, that's a bad recipe, because it can get you to spend money you shouldn't, based on your finances, and it doesn't make you happy. Things don't make people happy. Having anxiety from what you owe to this person, that person, the other person, that will make you miserable. At the same time, this is all a scale.
4:55 Speaker 03 Like, talking about somebody who unnecessarily deprives themselves of everything. One of my best friends through the last 50 years is somebody I'm always trying to get to loosen up with his spending, because he's got, truth be told, he's loaded with money. And it's so hard to get him to ever part with a penny, and deprive himself of experiences and things. And he's doing better now. His girlfriend has him opening up the wallet some, doing more experiences, doing more things.
5:40 Speaker 03 And he gets so much joy from them. So it's becoming positively reinforcing. But you don't want to be somebody who deprives yourself when you've worked so hard, and you've lived on less than what you make, and you've saved so much, and you're never going to run out of money if you're lucky enough to be that person, like my friend. Enjoy little pleasures that you deferred earlier in life. Enjoy them.
6:09 Speaker 03 So this is all about the tricks our mind plays on ourselves. Not everything in life is about things. Not everything in life is about money. Not everything in life is about any one thing. It's getting that balance right. And if you're a listener or viewer of this podcast, the odds are you're really good at saving money or want to be. And at the same time, once you reach that point that you've really established good financial security, don't deprive yourself of little joys in your life either.
6:53 Speaker 03 And if you are somebody who's aspirational to not be stressed by money, what you owe this person, that person, the other person, meaning I'm saying person, I mean owing this credit card, that bank loan, you get that balance in your life by sometimes you don't buy something just because you want it, because then you're going to have to pay for it. So this is all about how money plays tricks in our head. And balance in life is important. And there are times in my life that I harmed other people by my cheapness.
7:37 Speaker 03 Like the story you told Krista about us on book tour when we were in a snowstorm in Wisconsin and I parked for free on the street and you ruined a pair of shoes walking to the hotel. And then we get to the hotel and the person behind the desk says,
7:54 Speaker 04 Well, first you told, you said, you said, you bragged to them, I found free parking like a mile away.
8:01 Speaker 03 It was not a mile.
8:02 Speaker 04 Felt like it.
8:04 Speaker 03 Not a mile.
8:05 Speaker 04 And they said?
8:06 Speaker 03 Our parking's free at the hotel.
8:08 Speaker 04 Right behind you. You didn't hurt me. You didn't harm me. You harmed my shoes.
8:13 Speaker 03 Yeah, but that look you gave me, I can still see that look you gave me.
8:17 Speaker 04 I really like shoes, but I, you know, that was silly. I should have just said, drop me off, Clark. I don't want to ruin my shoes.
8:24 Speaker 03 Right.
8:24 Speaker 04 Or I should have worn appropriate footwear.
8:26 Speaker 03 If I were a decent human being, I would have dropped you off and gone and parked in the snowstorm.
8:33 Speaker 04 It's a funny story, and you've never harmed anyone by being too cheap. I guarantee you, no one in your life would say that. You're incredibly generous.
8:41 Speaker 03 I don't know.
8:41 Speaker 04 You are. All right. Well, you've harmed yourself, though, because I'll say one thing that's harmed you. Parking your cars in bad parking areas to get free parking, and you've had numerous broken into and had a windshield shattered.
8:54 Speaker 03 I need two hands.
8:55 Speaker 04 Yeah.
8:55 Speaker 03 Six times, six times over the decades, my car's been broken into because I was too cheap to pay for parking.
9:07 Speaker 04 All right.
9:07 Speaker 03 It's true. It's fact.
9:09 Speaker 04 Joseph in Colorado wrote into you and said, I get that one should have at least two bank accounts. Regarding a separate checking account for debit or other sketchy financial transactions, wouldn't a checking and savings account at the same financial institution be low risk if you disabled overdraft protection on the checking account rather than have it at a separate bank? I have checking and savings at USAA with no overdraft protection and keep less than a hundred dollars in there, but quickly transfer more into the account when paying bills. I get that this checking account money can be wiped out by the fraudsters. Thank you. President Clark has a great ring to it.
9:44 Speaker 03 President of what? Garden Club?
9:48 Speaker 04 No.
9:49 Speaker 03 Okay. Yeah, you wouldn't, I mean, since I've been to Astros.
9:53 Speaker 04 That's the last thing I would guess you'd be the president of.
9:55 Speaker 03 Thank you for your faith and confidence in me, Joseph, and thank you, if you're a USAA member, for having served or obviously a relative has served our great nation in the US military. So I don't know the answer to USAA Federal Savings Bank. It's one of the largest banks in the country now. And I don't know if they have in your service agreement with them, if they have a cross default clause, which I've explained before. Most financial institutions, if you have two accounts with them and one of them overdraws, and let's say a criminal fraudulently gets into one of them and they're taking money,
10:38 Speaker 03 they automatically go to the other account and start seizing money. And so you can get wiped out even with two separate accounts. So you'd have to know if USAA does practice what's known as cross default.
10:54 Speaker 04 All right. Paul in Florida says, I wanted to know if Clark knows about the new day pass feature in Sling TV.
11:00 Speaker 03 I do.
11:00 Speaker 04 Now you can buy a one day pass, three day pass, or seven day pass. I think it's a great feature and curious to see if their revenue goes up. For anybody wanting to have access to different channels, but mainly ESPN sports programming, it's a great alternative to just pay $5 for a 24 hour pass to watch a game.
11:15 Speaker 03 Yes, thank you for mentioning that. I have never mentioned the short term passes from Sling. They do it to try to get people to subscribe to Sling. It's like a sampler pack. Instead of having a free trial offer, you just buy it for a period of time. And people do it very heavily during college basketball season. There's a game they want to watch and they'll buy that one day pass or multi-day pass for college basketball.
11:48 Speaker 04 Mike in California says, what is your opinion on 0% interest financing? My thinking is it's the same, if not better than paying cash. Not having to outlay large amounts of money all at once and reduce what you've saved seems like a smart idea. For example, if a furniture store offered 0% financing for three years on a new $5,000 sofa and love seat, is it a worse idea in your opinion to spread out the $5,000 over 36 monthly payments than it would be paying the full amount on the spot at the time of purchase? I'm only talking about 0% financing deals. Once an interest charge is introduced, I no longer like the idea. No, no, no plans.
12:26 Speaker 03 Mike, Mike, you're killing me. You're killing me because it is the rarest of rare individuals that will take out what's known as a no, no, no plan in the trade that are all based on people not getting the final dollar of payment in before the payment, 0% payment holiday ends. Because almost 100% of these no, no, no plans.
12:53 Speaker 03 Do interest retroactive to day one, usually mid 30s percent, like 35, 36% on every last penny of it, even if just $1 left open when the payment holiday period ends. You would have to be the rarest of rare individuals that gets every payment done on a no, no, no plan before that period ends. Like you gotta keep a really solid digital or paper calendar that you never mess up on it. If you are that individual, go for it. But it's, I don't know, it's maybe one in a thousand people.
13:37 Speaker 04 I don't know. I bet on this podcast, there, there are a lot more people that would handle it right. I have done this before. I don't do it now just because I don't want to deal with it. But I did it when I bought my Peloton bike.
13:47 Speaker 03 I remember.
13:47 Speaker 04 And I was just like, why wouldn't I keep the money in a savings account, earn the interest there? And what I did was I just calculated how much it was to pay it off in less, I think it was a two-year thing. So I made sure I paid it off in like a year and a month or something like that. So there was no question. So I just made the monthly payments that way. And I liked it. But it is, you have to, you know, but I didn't have to keep like a record. I just divided it out and made sure it was paid off, you know?
14:09 Speaker 03 How often do you ride a Peloton now?
14:11 Speaker 04 All the time. I love my, I love the Peloton bike. Even though I belong to a gym that has classes, I don't like the cycle classes. I love, Peloton has a lot of features that others don't. And so I love that thing.
14:24 Speaker 03 Cause you know, Pelotons went from being like a COVID puppy in 20 and 21, and they were very hard to get. And then a lot of people who got them during that cycle, cycle, that was such a bad word, during that time, then dumped them. And so used Pelotons have been a real deal.
14:45 Speaker 04 I'm in like Peloton groups on Facebook. Yeah, you can buy used Peloton bikes really inexpensively on Facebook Marketplace if you think you'll use it. And then I have a card that does give me, credit card gives me $10 back a month on the membership. So if you got, if you're a Peloton user out there, we can follow each other. My username is It's Krista. I T S C H R I S T A.
15:05 Speaker 03 Great. Should we be on a Peloton right now while we're talking? Anyway, coming up ahead, I want to talk about something. If you've got a side gig, or you've got, there are millions and millions of people who have a one-person entity they do.
15:21 Speaker 03 There's a way for you to save money tax-free and save up to big amounts of money every year. I want you to know about that I've talked about for years now widely available.
15:36 Speaker 00 Life is all about making decisions. Sometimes you make questionable ones, like buying a new TV that's too big for the wall because the electronics store employee was a little too good at their job. Then sometimes you make great ones, like protecting your home and auto with Progressive. You get customized coverage options so you can be sure you have the right coverage. Get your quote today at progressive.com. Progressive Casualty Insurance Company affiliates and other insurers not available in all states.
16:05 Speaker 01 Your sausage McMuffin with egg didn't change, your receipt did. The sausage McMuffin with egg extra value meal includes a hash brown and a small coffee for just $5, only at McDonald's for a limited time.
16:17 Speaker 02 Price and participation may vary. Promotion pricing may be lower than meal pricing.
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17:49 Speaker 03 All right, we've had something that's been available officially, but not practically in wide availability for so many years, I can't remember, called a self-employed or solo 401k. It's referred to both ways. And it's a tool that's available for you if you've got something to do. Maybe you used to work for a company, you retired, and now you're a one-person consulting firm. It's all key to be one person. You're doing some side business, just you, whatever it is, when it's just you. And I saw an estimate
18:30 Speaker 03 of how many people out there, and I forgot how many millions it is, it's a lot of people who do something either on the side as a self-employed individual, just you, no employees. You can have ICs, you can have independent contractors doing stuff for you. But you've got to be the only employee to take advantage of a solo or self-employed 401k, which with the Roth version of it, you're able to shove massive amounts of money aside, depending on how profitable what you do is, up to over $70,000 a year can be stashed, grow tax-free,
19:13 Speaker 03 and then spent tax-free, once you're eligible retirement age. It's phenomenal. If you are somebody who makes a huge amount of money from what you do, and you're in a mega tax bracket, you can do a solo 401k that's the traditional, that reduces the amount of your income, subject to tax in that year, grows tax-free, and then you pay tax on everything in it, when you spend it. Here's the big change. Now, like my three favorite children, Schwab, Vanguard, and Fidelity, they all offer these. It's pretty much widespread everywhere in the investing world. If you just contact
19:54 Speaker 03 one of these firms, people who you reach on the customer no service line, may not even be aware this exists. So it might require a little digging on a website of one of whatever investment house you use. But this is a great money-saving benefit you get when you're working for yourself. A lot of things about working for yourself are great. Some things not so great. You take vacation, you're not getting paid, right? But the solo or self-employed 401K is the most unknown, underutilized tool out there for tax benefit for you when you
20:39 Speaker 03 run your own place and it's just you. So remember that if you're trying to build financial security long-term, and it's just you, solo 401K, self-employed 401K, some firms call it one, some firms call it the other, it's the same thing. Go with a low-cost firm. Do not go with any bank-based brokerage operation. They will rip you off with fees to the end of the earth. These accounts are so simple, you can set them up with one of the discounters, and your money's working for you, not for some high-commission outfit. Krista?
21:23 Speaker 04 All right. Here are some questions for you. Beau in Rhode Island wrote in with this one. "Thank you so much for helping strangers. Roth investments are often described as tax-free on withdrawal. Is this a simplified explanation of Roth assets, or would I literally owe $0 in federal and state income taxes as I withdraw them?"
21:41 Speaker 03 Yeah, I don't know of any state, anywhere in these 50, that taxes Roth IRA withdrawals.
21:51 Speaker 03 Just as they're federally tax-free, they are state tax-free as long as you wait till you're age-eligible on that Roth IRA.
22:00 Speaker 04 Logan in California says, "After five years, I've fully funded my six-month emergency fund."
22:06 Speaker 03 Fantastic.
22:07 Speaker 04 However, now I'm wondering if my six-month fully-funded emergency fund should also include the potential cost of COBRA coverage in the event I lose my job, which would be about another $1,000 a month for me.
22:20 Speaker 03 Yuck.
22:20 Speaker 04 And I know those with families would pay way more. Should the cost of COBRA be included in your fund calculation?
22:26 Speaker 03 Okay, so Logan, you want to prepare for every possible eventuality, and you've saved what, six months of living expenses are for you? If you want to get as close to perfection as possible, yeah, you could add an additional six grand into yours to cover potential COBRA costs that you would face. But here's my thing on emergency funds. It's hard for me, you know, there's those studies that come out every year that say how few Americans could even handle emergency expense of $400. That's the number most often used.
23:07 Speaker 03 Probably needs to be inflation-adjusted to 500. So what you've done is extraordinary and rare to have an emergency fund equal to six months of living expenses. So you could keep looking for things, "Well, I should save for that. I should, what if this happened? What if that happened?" You're good. You saved six months' living expenses. You should be proud, relax, and be happy. If it'd make you happier to put another 6K in it, go for it. But I wouldn't say of financial goals in your life, it's a high priority.
23:44 Speaker 04 Okay, Sven in Pennsylvania wrote in with this. "For the third time in as many months, I paid for a restaurant tab with cash due to the 3% up-charge for using a credit card. And every time, the restaurant rounded up the bill to the nearest dollar and only furnished change on the rounded-up amount. It's not about the 42 cents extra..."
24:03 Speaker 03 Wait, wait, wait, wait.
24:06 Speaker 03 Let me get this right. So if you're saving the 3% and the bill is 8.50, they're only giving you from a 10, they're only giving you back a buck? Not a buck fifty?
24:19 Speaker 04 I'm guessing they don't keep any coins.
24:21 Speaker 03 Oh, wow. I've not heard that before.
24:24 Speaker 04 Me either. They only furnish change on the rounded up amount. It's not about the 42 cents extra I paid. It's the principle that restaurants are rounding without advising patrons beforehand. They notify patrons on the bill that there is an additional fee for using credit cards. Should they not be required to notify on bills about the rounding up when paying cash? When I inquired about this to the server after being shortchanged after my last meal, she shrugged her shoulders and said, "We don't give coins and change." What are your thoughts?
24:52 Speaker 03 Okay, so that's so weird to be precise and say, "You pay with a credit card, we're going to charge you 3% extra. But if you pay with cash, we're going to charge you extra for whatever the amount would be beyond just a solid dollar." Oh, my goodness. That is not a way, if people are cheap enough, because restaurants know very few people are going to pull out cash. And if you're thrifty enough, I said cheap, but this is really thrifty, that you're wanting to save that 3%, then they turn around and they don't really honor you saving 3%. That's uncool.
25:34 Speaker 04 Maybe if they rounded down.
25:36 Speaker 03 Yeah, if it was up to 49 cents, they round down and then above that they round up, then everybody would be square. Everybody would be fine. But it doesn't sound like from your post that that's the way it plays.
25:49 Speaker 04 And so many places, I just went to a restaurant the other night, that big sign on the door, "We no longer accept cash."
25:56 Speaker 03 Well, I mean, that's happened in a lot of places because of crime. They don't want to be tempting for an armed robber and you know, I don't know if you remember, I talked about how armed robberies are down so much because so few people have cash anymore.
26:14 Speaker 04 Mm-hmm.
26:15 Speaker 03 So, 3% though, seems to be becoming so common for so many different businesses now. And it's really the fault of the Congress that they allowed the dirty money from the banks to allow the establishment of this Visa, MasterCard cartel we have, where we have the highest merchant processing fees in the world. It's just not fair to businesses. So, if I want to use a reward card and they tell me I'm going to have to pay 2% extra or 3% or whatever, I then have to make that decision and I'd have to start carrying cash again. Do you carry cash at all anymore?
26:58 Speaker 04 I always have some.
27:00 Speaker 03 I only have money for tips for people in hotels or shuttle drivers or something like that. That's the only cash I-
27:09 Speaker 04 I always like having a couple of twenties on me just in case something happens.
27:13 Speaker 03 Really?
27:13 Speaker 04 I don't know. Yeah.
27:14 Speaker 03 Oh, can I borrow a twenty?
27:15 Speaker 04 Of course you can, Clark.
27:16 Speaker 03 Oh, we're done for today. Aren't you glad? So, have a wonderful rest of your day. Know what we're about. This is all about you. It's all about your wallet and giving you knowledge in a life where so much feels like we're not in control of. I want you to have the knowledge that gives you power for more control and that you can use that so you can save more and spend less and never, never, never, not ever, let somebody rip you off. And we'll see you on Wednesday.
28:01 Speaker 07 Progressive's Accident Response can contact emergency services if you're in a major accident. The only thing worse than someone you love being in an accident is not being able to help them. So Progressive is here to help when you can't. So get peace of mind knowing your loved ones are protected with Progressive's Accident Response. Learn more at progressive.com. Progressive Casualty Insurance Company and affiliates. Limited availability in California. Driver is responsible for emergency and towing charges not covered by the policy. Coverage subject to policy, terms, and conditions.
28:31 Speaker 01 Your sausage McMuffin with egg didn't change, your receipt did. The sausage McMuffin with egg extra value meal includes a hash brown and a small coffee for just $5.00. Only at McDonald's for a limited time.
28:43 Speaker 02 Price and participation may vary. Promotion pricing may be lower than meal pricing.
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