Pod Insights The Moneywise Guys 7/7/25 Building Credit, Budgeting Homes, and Breaking Down the Big Bill About this episode The Moneywise Radio Show and Podcast Monday, July 7th BE MONEYWISE. Moneywise Wealth Management I "The Moneywise Guys" podcast call: 661-847-1000 text in anytime: 661-396-1000 website: www. MoneywiseGuys.com facebook: Moneywise_Wealth_Management LinkedIn: Moneywise_Wealth_Management
Transcript 0:00 Speaker 00 From the Garo Ellis padded radio room off Stockdale Highway, here is Money Wise. Call or text into the show 24/7 at 396-1000.
0:39 Speaker 00 Here is Money Wise. Money, money, money, money.
0:43 Speaker 01 Welcome to the Money Wise Show. We are live from the Garo Ellis padded radio room off Stockdale Highway on ESPN Bakersfield, 1230 a.m., 101.1 FM, and always streaming at MoneyWiseGuys.com. You can call or text into the show 24 hours a day at 661-396-1000. Today, we're your hosts. I'm Sharad Wade and...
1:03 Speaker 00 Sammy Abiyawi.
1:04 Speaker 01 Sammy Abiyawi. Happy Monday.
1:05 Speaker 00 Happy Monday to you too, Sharad.
1:07 Speaker 01 We've got some great listener questions and comments. I think it's a great way to start the show, and why don't we go there?
1:13 Speaker 00 Yes. First one, what percentage of income should people budget for housing costs in the current market?
1:21 Speaker 01 So, this is an interesting question, Sammy. Part of what's interesting to me is in this market. Why would somebody's budget be different in this market versus any other market? I was reminded over the weekend of a really great rule of thumb when it comes to buying a house, and that is, you marry the house and you date the interest rate. When you're looking for a home, you're not marrying yourself to the loan necessarily. You're marrying yourself to the home. Because that's what you're going to be stuck with, even if you end up moving out after a few years.
2:00 Speaker 02 Correct.
2:00 Speaker 01 The interest rate or the financing on it, that can change. And generally speaking, it does change for almost anybody. I know very few people that got a mortgage right when they bought their house and they've had that thing for 30 years and that was it. Many times there was some sort of refinancing or principal down, you know, draw, pay down, acceleration of that. There's always something that changes within the loan. And so I would caution our listeners to get too hung up on buying, you know, whether or not you should buy a house or finance a house based on the current markets because the current market, they're always going to, there's something that's always going to be changing with it. You need to focus on what you can really afford. Like what is your income?
2:45 Speaker 02 Yes, definitely. I think you're correct because even in this environment where interest rates are in the sixes, maybe sometimes in the sevens, they've been fluctuating between low sixes to maybe low sevens in the last year, two years. I think you're completely, you are completely correct and affordability is number one. And I think that's what the listener is wanting to know. What type of percentage out of my income should I allocate just for housing in today's world? Because the prices have gone up, right?
3:18 Speaker 01 Yeah.
3:19 Speaker 02 So the rule of thumb really is about 30%.
3:22 Speaker 01 Yep.
3:22 Speaker 02 This is what typically you want to set aside for just housing. And you can expand it a little bit if you want a little, maybe bigger house. Maybe you're going to have a bigger family and you're planning for the future. You can get to that 35, even sometimes stretch it to 40%.
3:40 Speaker 01 Yeah.
3:40 Speaker 02 Lenders, however, look at a debt to income ratio and they want that whole, your expenditures, meaning your housing, all your daily expenses, monthly expenses to be within that 45 to 50%. Just in case.
3:56 Speaker 01 Yeah. Yeah.
3:58 Speaker 02 That's the debt to income ratio that typically bankers or lenders look at.
4:04 Speaker 01 What's interesting is if you Look at nationwide averages. Currently, the nationwide median housing payment averages about forty-five percent of a household income, which is way above the guidelines that lenders have of that thirty percent. So it kind of, it does tell a story that to get into the home, you know, you generally need to go through traditional lending.
4:31 Speaker 02 Yes.
4:31 Speaker 01 And they're gonna have those strict guidelines based off of your gross income and what your debts are, and they're gonna subtract from that, you know, your debt payments that you may have. And if it's, if it gets below that thirty percent, it's gonna be really tough to be able to finance the house.
4:48 Speaker 02 That's, that's correct. However, we live in one of the most advanced financial markets in the world. So guess what? Bankers and developers are gonna find a way how to sell houses, either through buying down your points or your interest. The developer typically will give you some type of incentives to help you afford and qualify for the loan within the ratios that the banks typically look at. So that's some of the advantages of living here in this country is that we're gonna find a way, we're gonna be flexible, we're gonna be inventive when it comes to lending. We're not gonna be very, very stringent and rigid when it comes to qualified people
5:33 Speaker 02 or selling things.
5:34 Speaker 01 Right, cuz that's how they make their money.
5:35 Speaker 02 That's right. That's right.
5:37 Speaker 01 It's, it's gotta be a win-win. Prices for homes have jumped in the last five years about thirty-three percent, and incomes have grown just under two percent since, in the last five years. So this is, I think, at the heart of what, what maybe the listener's saying is like, how, how the heck are we supposed to afford a house?
5:56 Speaker 02 And that's the problem we have. So we've had an inventory problem for the last, since, since two thousand eight.
6:02 Speaker 01 Yeah.
6:02 Speaker 02 So since two thousand eight, we, we, we did not stop, but we slowed down dramatically growing our housing inventory. For one reason or another, we had a huge debacle in two thousand eight. Our response is to just pull back and pull back drastically. We have yet to recover from the loss of inventory buildup between the years of two thousand ten and two thousand sixteen. We lost six year basically of building inventory or housing inventory. We're just now starting to catch up. And and we'll again, we live in a very advanced capitalistic system where offer and demand do dictate pricing, and that's what we're having right now.
6:42 Speaker 01 Yep, yep, exactly. It really does come down to a lack of supply. And the other, you know, the struggle here also is many people are paying rent. But the rent is now getting up there above thirty percent. I'm guessing the rent on average is is well over thirty percent for many people. And so if you're, you know, you're getting by and you're spending forty or forty-five percent of your income on your rent. Well, you could have, you could do that with your own home too. You know, you just have to figure out a way to do it. And for most people, it's probably going to mean maybe not getting that house, that first house, everything that you want.
7:22 Speaker 02 Yes, so one of the things too that to to keep in mind is down payment.
7:30 Speaker 02 We can, we can go from three percent, as minimum of three percent, sometimes even hundred percent financing to you saving money and putting that money to work for you.
7:38 Speaker 01 Right.
7:39 Speaker 02 Right, in house.
7:40 Speaker 01 Right.
7:40 Speaker 02 Which is for the most of us is the biggest investment we're gonna have.
7:44 Speaker 01 Yeah.
7:44 Speaker 02 So down payment will help if you can save a little bit. Or maybe sometimes get family help, mom and dad. Grandma and grandpa wanting to help you with that house after your first purchase. Take, take that.
7:59 Speaker 01 Yes.
7:59 Speaker 02 I think it will help because it will help you reduce your monthly commitment when it comes to your, your loan or your leverage.
8:07 Speaker 01 Yeah.
8:08 Speaker 02 So there's, there are benefits to family help in in that or you just saving money to put it in a, in a house.
8:16 Speaker 01 Yeah.
8:17 Speaker 02 The thing is, it does not, to me at least, it does not have to be a dream house from the get go.
8:23 Speaker 01 Yeah, it can't be. I mean, very few people can get that dream house. I know you and I both have starter homes or had starter homes. You know, I think we both still own our starter home and now we rent it out as a rental, which has been fantastic, you know, for us. But it, it wasn't the home that, you know, it wasn't our dream house in our first homes. And I'm, but I'm still glad we did it because it was sure better than our apartment that we were renting.
8:47 Speaker 02 Yeah. And frankly, I had to squeeze myself to save that for that down payment for a year. I did not go out to eat. Right. That's a commitment my wife and I had made.
8:56 Speaker 01 Right.
8:56 Speaker 02 We did not go out and eat for a year, but we saved enough money to put in a down payment, which now is like you said to your point, is a rental and it's created a passive income for us.
9:08 Speaker 01 Yeah.
9:08 Speaker 02 Which is great.
9:09 Speaker 01 Yeah. It, it is one of the most important financial decisions that somebody can make. And it, it brings more than just financial stability. It brings life stability.
9:18 Speaker 02 Yeah.
9:18 Speaker 01 When you own that home and you're not at the mercy of a landlord that can just keep raising the rent every, every year.
9:27 Speaker 02 That's a very good point, Sher, because once you sign up for that home, especially a 30 year mortgage, now you have a fixed payment for the next 30 years that you can work around.
9:37 Speaker 01 Yeah.
9:38 Speaker 02 As long as you're making that payment, now you can, if you can save a little bit more, or even make one additional principal payment a year, that helps on that interest expense throughout the life of that loan.
9:52 Speaker 01 That's right. That's right. We got another listener message. You have it there, Sammy?
9:57 Speaker 02 Yes. When is the diner opening? We drive by the building every day and it's picking up. Thank you guys so much for keeping it in town. Was nervous the building would get demolished after the family left.
10:08 Speaker 01 Oh, thank you. I'm so glad that building did not get demolished. We, we, coming up on four years that we bought that building. It will be four years here in a couple of months since we purchased that building, the main purpose being to, to house our expanding Money Wise business and, and to provide. Office space for MoneyWise, which is still the primary goal for us here. And that is going to happen on the second floor of the Woolworths building downtown. The rest of the building, fortunately, there's more space than what MoneyWise is needing. And so we have the
10:44 Speaker 00 For now.
10:45 Speaker 01 For now, that's right. We have the last remaining functioning Woolworths luncheonette, which will be opening up on the first floor. And during these last four years, trust me, we have not been sitting on our hands. There has been an enormous amount of work that has gone into this building. First, starting with the National Registration of Historic Places and going through that process with the National Park Service and the city, as well as the state's historical departments that handle all of that stuff. But also just the design, you know, creating the design in an old building, a new design in an old building is very challenging
11:23 Speaker 01 and required a lot of coordinating with our contractors and our subcontractors and with the city and with permits. And so all of that has been happening over the last four years, all to bring us to this point that we're just about ready to open up. We should be completed in mid to late August. And we'll have a soft opening either beginning of September or late August. And that will likely be a kind of a small opening, starting with our clients, our MoneyWise clients. And then we will have a grand opening, which we do have a date for that. Emily just sent that out too. It's in October.
12:02 Speaker 00 Twenty-fourth?
12:03 Speaker 01 There you go. October 24th. It's a Saturday. And so that's going to be for the entire community and we hope that people come out.
12:11 Speaker 00 Twenty-fifth. My bad.
12:12 Speaker 01 Thank you.
12:13 Speaker 00 I don't want her to slap me.
12:15 Speaker 01 Well, we'll have plenty of time leading up to that, but certainly that will be our opening for the entire public. That is because we have an elevator issue. We can't get our elevator installed in time. And without an elevator, we can't really fully open up the entire building to the entire public. But we can have that first floor luncheonette open up. And so that's going to be here coming up in, you know, just about, just over a month.
12:40 Speaker 00 And just a heads up, the Woolworths website and social media is up. Just look them up, Historic Woolworths. You can see all the updates on the social media and their website.
12:50 Speaker 01 Yes, thank you. Thank you for that. Historic Woolworths.com. It's a very well put together website. Again, a lot of thought and energy went into creating that website. There's a ton of pictures and history and and video and you name it. It's on there. And then you can follow us on Facebook and on Instagram, Historic Woolworths. So, thank you so much. We really are really excited for this project and hopeful that this will be a great addition, a great improvement to the city and to the country. We get inquiries from all over the country from people going, "What? Woolworths is the last one? And my mom worked there. My grandma worked there." And it's gonna be great.
13:35 Speaker 00 Yeah, can't wait. Can't wait.
13:37 Speaker 01 Yeah. Why don't we do this, Sam? Why don't we take a break? When we come back, we got another really great message from a listener asking about credit and credit history and how to build up the credit that you maybe missed somehow. So, we're gonna cover that when we come back. Don't go anywhere. We're Money Wise.
13:55 Speaker 00 If you're a business owner who provides a retirement plan for your employees, contact Money Wise Wealth Management to see if you're maximizing your options and minimizing your liabilities. Money Wise 401K plans are customized to you and your company's needs. 661-847-1000.
14:17 Speaker 01 Welcome back.
14:20 Speaker 01 We're Money Wise. Thanks so much for tuning in. So, apparently Ozzy Osbourne is still touring.
14:29 Speaker 00 It's over.
14:30 Speaker 01 Oh, it's over.
14:31 Speaker 00 His last, I'm not an Ozzy Osbourne fan, but I saw that he, I think that was his last Final show. Final show.
14:39 Speaker 01 And how did they, did they just wheel him out and prop him up?
14:43 Speaker 00 Pretty much. They did, they had super groups. They had, you know, they did a couple of songs with Black Sabbath. He did a couple of his solo stuff. But yeah, he had a bunch of bands. out there from the seventies all the way up until now.
14:59 Speaker 01 That's cool.
15:00 Speaker 00 And I I didn't know, but his daughter was actually proposed to by one of the guys from Slipknot in the in backstage. And so his daughter got married is getting proposed to the the final show of his his many years of rocking out. It was very cool to see.
15:18 Speaker 01 Yeah, he is. How old is he?
15:21 Speaker 00 He is in his eighties.
15:22 Speaker 01 Eighties. Unbelievable.
15:23 Speaker 02 Unbelievable.
15:24 Speaker 01 Yeah, it it. So he's saying, how did he sound?
15:27 Speaker 00 Uh, he sounded like he's sounded like the last twenty years. But yeah, it's I I had no idea he had a, I don't know if it's Parkinson's. But he uh, he is unable to walk these days and it's time for him. I mean, he's been rocking for fifty years. Let the guy enjoy the the last decade or so he's got, because it was it was rough to see, but they did it in his homeland. So it was cool. It was out in England and it was a yeah, it it had a lot of people crying in the in the crowd.
15:59 Speaker 01 That's cool.
16:00 Speaker 00 It was a final show.
16:01 Speaker 01 Oh, he's impacted a lot of people for sure, yourself included, right?
16:04 Speaker 00 Yes.
16:04 Speaker 01 Black Sabbath fan.
16:05 Speaker 00 Several times.
16:06 Speaker 01 Yeah, I mean, it's just you can't, even if you don't listen to that music, it's had an impact on uh, on us. No doubt about it. And he was like one of the first reality show people.
16:19 Speaker 00 That's what people are asking. You're gonna come back and do the Osborne show again? He's like, no, get away from me.
16:24 Speaker 01 Yeah, yeah, no way. He really exposed himself there. Literally exposed himself in that show. Sam, we got a little bit of follow up from the listener that we were just, I think it's the same listener.
16:34 Speaker 00 Yes.
16:35 Speaker 01 Was asking about the house.
16:36 Speaker 02 Yeah, so I I want to dive into that first.
16:38 Speaker 01 Yeah, yeah.
16:39 Speaker 02 Yes, that's what I uh, what I meant. Sorry, for example, if I made hundred K a year, how would you break down the percentage we should budget? Everyone is so different when it comes to budgeting, and I figured I'd ask the professionals.
16:53 Speaker 01 Yeah, so thank you so much for listener for, you know, the clarification and you're not alone.
17:00 Speaker 02 Yes.
17:00 Speaker 01 You know, in thinking about how to do this. This is great. Now that we have a little bit more information, hundred thousand dollars a year. Man, if I was making a hundred thousand dollars a year when I first bought my house, my first house in 1999, I would have been, oh wow, I can make this. But fast forward 25 years, hundred thousand a year. We're talking about this 30% rule.
17:19 Speaker 02 Correct.
17:20 Speaker 01 That means thirty thousand dollars. That means what?
17:23 Speaker 02 Yeah.
17:23 Speaker 01 Under three thousand dollars.
17:25 Speaker 02 Your take home on a monthly basis is probably could be around 6,000, 6,500 bucks.
17:31 Speaker 01 Right.
17:31 Speaker 02 Right? So you're at 30%, we're looking at a monthly payment of about 1,900 bucks, maybe 2,000 dollars.
17:41 Speaker 01 So, I'm doing really quick math, but that would be a 200,000 dollar house roughly.
17:47 Speaker 02 Correct.
17:47 Speaker 01 Is my guess. Maybe you could get...
17:49 Speaker 02 Because that payment includes the insurance and the taxes.
17:53 Speaker 01 Right.
17:53 Speaker 02 That, you know, so you're looking at 200,000 dollar type of house purchase.
17:59 Speaker 01 Right.
18:00 Speaker 02 So you can stretch to maybe 250. That's probably gonna, at a square foot price in the 300s today. Um, yeah.
18:09 Speaker 01 It's gonna be, it's gonna be tight.
18:10 Speaker 02 Tight.
18:11 Speaker 01 And so, but don't let that stop you.
18:14 Speaker 02 No, no, it doesn't. That's using the 30% rule. Now, the budget, the way I envision it includes, you know, groceries, car payments, credit card payments, and some savings. So you can move some of these items. If, let's say you don't have credit card payments, then you can apply some of those additional percentage of credit card into the house.
18:37 Speaker 01 Yes.
18:38 Speaker 02 So you can increase it to 35, maybe even 40%.
18:42 Speaker 01 Correct.
18:43 Speaker 02 The rule of thumb here that we always talk about on the radio is limit your leverage. Credit card debt is sometimes what kind of stops you from taking some leaps or investment leaps.
18:53 Speaker 01 Yep.
18:54 Speaker 02 Including the house.
18:55 Speaker 01 Yeah, and that's a, that's a very different debt than a mortgage. And I know there's different lines of thinking like this. I know Dave Ram. For example, is against almost any kind of debt, but you do want to make a distinction between a mortgage debt and a credit card debt, or what we call consumer loans. Consumer loans are generally not good because you're putting stuff on your credit card. That is an asset that generally either evaporates immediately because you just, you know, you went to the park. You went to the movie or whatever, it's gone. But the mortgage is actually an investment. It does add to your estate. Now, yes, you have that debt there, but you immediately start building up equity.
19:40 Speaker 02 Equity and appreciation of the asset.
19:43 Speaker 01 That's right.
19:44 Speaker 02 So a lot of the time we don't focus or we don't pay attention to that. But if the appreciation is one and a half to 2% per year for the next 10 years, and that adds up.
19:56 Speaker 01 Yeah, it definitely adds, and it adds up against the alternative of paying a rent and paying your landlord's mortgage. You're not keeping any of that principal and you gotta pay to live somewhere anyway. So there's a value in just getting a home and having a place to live, having a roof over your head.
20:15 Speaker 02 And also at 100K, you're gonna hopefully help, the mortgage is gonna help with your taxes because you're gonna be able to write off that interest.
20:25 Speaker 01 Yeah, yeah.
20:26 Speaker 02 That's something to account for too. So whenever you talk to your CPA or whomever does your annual taxes or books, that's something they're gonna look into that.
20:34 Speaker 01 Yeah, to see if you can now itemize your deductions and not just take that standard deduction.
20:39 Speaker 02 Correct.
20:40 Speaker 01 And then the other thing to be aware of is you kind of mentioned it, Sammy, is that you can either save up for a down payment. So let's say you qualify for a $250,000 mortgage. And that means if you want a $300,000 house, you're gonna have to put $50,000 down. You might think, well, how am I ever gonna save $50,000? Well, you're not gonna do it overnight. You're not gonna do it in one or two years, but maybe you could do it in three or four years.
21:08 Speaker 02 Correct.
21:09 Speaker 01 And that's doable on $100,000 a year. You gotta be strategic.
21:15 Speaker 02 That's right, and you just have to budget. Like, the thing is when we budget. The tricky part is we don't stick to the budget.
21:22 Speaker 01 Yeah.
21:23 Speaker 02 Right? Something comes up, hey, well, I want this pair of glasses or this new phone or this new tires, whatever. No. The clue here or the thing here, stick to that budget.
21:35 Speaker 01 Yeah.
21:35 Speaker 02 Like you're gonna have to like squeeze the belt and just stick to the budget if you really wanna get into that house.
21:41 Speaker 01 Which there's some budgets that some people have used that kind of forced them to stick to it, like the envelope or the jar system. So you, the idea is essentially you have whatever, how many budget categories you have, let's say you have five categories. You have food, entertainment, debt, you know, housing, maybe car, there's other, there's other budgets. But you have these, these things that are categorized and they're envelopes where you write on the outside what that is. And you take cash and you put it in those envelopes and that is all you can use. This works great for discretionary spending. So let's say, you know, you're, you're, you have a $300 a month discretionary.
22:22 Speaker 01 That's just fun money. You can do whatever you want with it, but you put that $300 in that envelope and when you run out, it's it. That's over. You don't have any more money that can go into that envelope until the end of the month. And you can look at all your envelopes and maybe you were under budget and other things and so on. And so then you can kind of, kind of move your money around to, to supplement yourself.
22:43 Speaker 02 Yes, I agree with you. It's the, the idea of budget is not just the creation, but the execution on the budget. That's where we fail, most of us.
22:52 Speaker 01 Yeah. And, and where we fail, it's similar to dieting, I think. You, you make it too complicated or you're just trying to find perfection instead of a lifestyle shift. And you do have to make a lifestyle shift, like your example of you, you and Mary Ann not going out to eat for a year. While you're saving up for down payment for your house.
23:11 Speaker 02 Yeah.
23:11 Speaker 01 You just both sort of accepted that. Your date nights were a little different.
23:14 Speaker 02 And believe me, we like to eat. You know, I love my
23:17 Speaker 01 Fortunately, you also like to cook.
23:19 Speaker 02 I like my steaks. I like my, you know, eating out. I like good food.
23:22 Speaker 01 Yeah.
23:22 Speaker 02 But it it it's it's served us and it helped us.
23:26 Speaker 01 You know, there's a great Warren Buffett quote that says, do not save what is left after spending. Instead, spend what is left after saving. This came up on our wealth box, you know, when we sign into web box every day, it has a different quote on there. So that that was today's quote. Again, I'll read it. Do not save what is left after spending. Instead, spend what is left after saving. And that's just those simple sort of mind tricks that you you need to play with yourself, play with to be able to get through changing your relationship with money, just like you would with food.
24:01 Speaker 02 I agree. I think that's really, really cool. What you just said, change your relationship with money.
24:07 Speaker 01 Yeah.
24:08 Speaker 02 Cause we
24:10 Speaker 02 look, the society around us pushes us to spend. We're a spending society where I think our consumer debt last week I checked was in the 18.3 trillion dollars.
24:21 Speaker 01 Yeah.
24:23 Speaker 02 That's that's and everything is easy when it comes to buying stuff and financing stuff. You can just do everything online now, Klarna, other things. So changing your relationship with money, setting up the envelope system, setting up a savings account where automatically things go out of your checking as soon as the money comes in from your salary. It goes into your entertainment. It goes into your clothing. It goes into whatever buckets you create. That's, I think, one way for us to get off the spending mentality and move into the saving mentality.
24:58 Speaker 01 Yeah, yeah. We've given also the tool of the 50 30 20 rule, which this is a real simple way to budget 50 30 20. 50% of your income goes towards things that you have to have, like your your everyday costs and expenses. 30% goes towards savings or or debt, things that are are costing you. And then you have 20% that Is just set aside for, you know, long-term, long-term savings and just set aside for emergency and for, and for, you know, long-term savings. Real simple way to divide up. And for our listener here, you can kind of think of that this way, you know, you got, you're going
25:42 Speaker 01 to have to dig deep within, understand where your money is going and recognize you're either going to have to cut back on some things so that you can start saving up for a down payment. Or also, don't forget your, your most valuable asset being your ability to make money yourself. And maybe there's some things that you can do, getting a certification or more education and, you know, heighten your skills in a way that might allow you to make more money. Side gigs are a big thing right now. We're fortunately, we're in a gig economy where you can, you know, Uber or Lyft for a while on top of your job. And you know that all of that money is going away, you know, to save up for that house, but there's ways to do it.
26:25 Speaker 02 We, we have huge marketing machine here in this country that shows you life is too short. Spend. Life is too short. Spend. But also, life is too short where you, when you don't save.
26:36 Speaker 01 Right.
26:37 Speaker 02 Because the finance, the stress of finance, the stress of not having the ability to meet your, your, your commitment, financial commitments, whatever that is, you know, your, your kid's education or activities or just something that you're just like, hey, I cannot afford this. But when you save, let's, and maybe you even invest, Sherid. That's, that's a concept that sometimes we omit. We have the ability to invest as little as little dollars.
27:07 Speaker 01 Right.
27:08 Speaker 02 And, and watch it grow to help you eventually with the house purchase or whatever. So changing the mentality from spending into saving and limiting the leverage, I think is what eventually is going to help whomever is wanting to get into a house or make some financial decisions.
27:26 Speaker 01 Very good, very good. Well, we're going to get now, and we're going to take a break. When we come back, we will get to this listener question asking about how to build up your credit after a divorce, or even if you don't have a divorce. What are, what are some ways that you can sort of start from scratch, even if you're in your 40s? We're going to cover that when we come back. Don't go anywhere. We're Money Wise.
27:57 Speaker 01 Welcome to the Money Wise Show. Thanks so much for tuning in. Appreciate your comments and questions. Keep them coming our way 661-396-1000. Today we're your hosts. I'm Sharad Waite along with Sammy Abiyawi. Sammy, let's get to this next question.
28:10 Speaker 02 Yes, this is probably embarrassing, but I'm 45 and going through a divorce. My ex handled all our finances and now I'm finding out my name wasn't on most of our accounts. I basically have no credit history of my own. I've got a stable job at Mercy, but how do I build credit from scratch at my age? I feel like all the advice I see is for college kids.
28:32 Speaker 01 Wow, this is really interesting. You know, good news. It doesn't take much to build up your credit, even if you're 45 and you're just starting.
28:41 Speaker 02 I would argue that you are much credit risk than somebody that just graduated from college.
28:46 Speaker 01 Correct.
28:47 Speaker 02 Because first, you've got life experience. Second, you have a steady job.
28:52 Speaker 01 Right.
28:53 Speaker 02 Which banks and credit cards companies look at and look for. So yeah, we'll dive into that, but definitely not a negative.
29:03 Speaker 01 Yeah, and you should not be embarrassed about this either. If it wasn't divorce, it would be, it could be something else. I've had, over the years in my experience as a financial advisor, situations where either the husband or the wife passes away, they're in their 80s, and whoever's left behind says, "I'd never even filled up our gas tank." It was always, it was always my wife that did it. It was always my husband that did it. And literally, I had to go and learn how to pump gas, you know. And it's, I think that it's one of the most beautiful things about marriage or about partnerships. It's also can be one of the most challenging things is that you become... Dependent on that other person and that's a nice, that's nice to have somebody that you can depend on and that can,
29:49 Speaker 01 that can take up some of the slack and do some of these things so that you're, you're doing other things and.
29:54 Speaker 02 As, as, as an ex-banker, the fact that you're not on the accounts is not a bad thing either.
29:59 Speaker 01 Right.
29:59 Speaker 02 Because now you don't have to go and just split the credit cards.
30:03 Speaker 01 Correct.
30:04 Speaker 02 Or, or how about if there's a past due payment for something you did not even do.
30:08 Speaker 01 Right.
30:08 Speaker 02 Now you're on that credit card. So it's not a negative also.
30:11 Speaker 01 Yeah.
30:11 Speaker 02 The fact that there is no common accounts is not a negative. I, I understand there is no credit history, but we're going to talk about how we, you can help yourself build one.
30:20 Speaker 01 So I think the first thing that you want to do, I'm assuming that you, I'm talking to you listener about this credit question, have already actually checked your credit report. If you haven't, go and do it. Everybody listening gets a free annual credit report. In fact, that's the official government website where you can go and get your annual credit report. It's annualcreditreport.com. It's free. We get it once a year. It's a law that passed many years ago. So you can go and.
30:49 Speaker 02 For all three bureaus.
30:50 Speaker 01 That's right. And it checks everything that's in your name. And it will look for any joint accounts or old loans and those types of things. So you may be surprised. There may be more there than you realized. And if, anything that is there is helpful because it start, it starts the clock in terms of history and your history of having any credit at all, which is a big part of your credit score.
31:13 Speaker 02 So if you, if you do run your credit, on which we advise you to, now you're going to see if there's anything in common with, with your ex. First, you want to tackle those and maybe get rid of them or argue or close them or have him take over, whatever the case is. So you can start on your own.
31:30 Speaker 01 Yes.
31:30 Speaker 02 Because you don't want any problems going forward.
31:33 Speaker 01 The, the, there's a, there's a really great life hack that we've brought up on this show over the years. I've done it for my own kids. And the listener mentions that, that a lot of the advice you see online is for college students. Well, the, actually I, I'm guessing any advice that they was given to college students applies to us too.
31:50 Speaker 02 Yes.
31:50 Speaker 01 You're in your 40s or 50s, it still applies. And one of. Those hacks is to is to be an authorized user on another credit card. That doesn't mean that you have to use it. So for example, my three boys, I authorized them as users on our family credit card. But I never gave them the card. I didn't want them to need to, I don't want them to worry about, I don't even want them to use it.
32:13 Speaker 02 Yeah.
32:13 Speaker 01 I just want them to be on it. So that it it gets reported to the credit agencies. And now they start building up their credit history. Even if they're not using it, I'm using the card, so they get the benefit from it. So maybe you have, you know, a family member or somebody who would be willing to put you on as an authorized user. But you don't need to have access to it. And you say, you keep the card, I don't even need to know the number. Just put me on as an authorized user. And that's a fast track way to start optimizing your credit.
32:44 Speaker 02 That's correct. That definitely have one, one very good way to start. Uh, building your credit is becoming a an authorized user. The other one, if you want to do this on your own, is to get a secured credit card. With a department store or even your bank. If you're banking at any bank, Bank of America, to to Valley Strong, whatever retail bank you're at. They offer secured credit cards. Go and get one.
33:10 Speaker 01 Yeah.
33:11 Speaker 02 Start with $250. That's what I did. When I first started my credit, I had no credit history, none whatsoever, because I came here to this country when I was 24. So I had to start from scratch. Bank of America gave me a $250 secured credit card.
33:26 Speaker 01 And it was, you had to deposit $250.
33:29 Speaker 02 So I was borrowing my own money, but that was my first, my first credit card ever. Then I, I didn't, to your point, I didn't even use it.
33:37 Speaker 01 Right.
33:39 Speaker 02 I just had it. And I didn't close it. Until later, like years, like 10, 10 years from, from when I got that card. That's when I decided I had too many credit cards because I was young and.
33:50 Speaker 01 Yeah.
33:50 Speaker 02 Acquired too many, so I shrunk them down to about two, three cards.
33:54 Speaker 01 Yeah.
33:55 Speaker 02 So that's, that's, that's apply for a secured credit card, 200 to 500 and start, start there.
34:03 Speaker 01 Yeah, those are available, I believe, to anybody.
34:05 Speaker 02 Correct.
34:06 Speaker 01 Because you, you just have to put the money down, but it still counts on your credit as if it's a credit line. And even though it's like your money that you're getting back to yourself, they're just wanting to see that you're showing some
34:17 Speaker 02 Activity.
34:17 Speaker 01 Responsibility.
34:18 Speaker 02 And responsibility, yes.
34:19 Speaker 01 And that's, that's the last advice that I think I would give is you want to be aware of what makes a credit score. And that is the biggest factor is being able to make those payments. You don't want to ever be late on a payment. If you want to be really good, don't ever carry a balance on your credit card. It's, that's very rare that that makes financial sense. The average interest rate across the country is over 20%. You're going to lose money every time if you are carrying a balance.
34:49 Speaker 02 It's a vicious cycle.
34:50 Speaker 01 It's just so vicious.
34:51 Speaker 02 It's just a vicious cycle. If you do get into a lifestyle where you're using your credit cards, it's just a vicious cycle.
34:58 Speaker 01 Yeah.
34:58 Speaker 02 Definitely something you don't want. So going back to just the advice, I think summarizing it, secured credit card, having an authorized or, or being added as an authorized user for an existing credit card and monitor your credit. That's, that's key.
35:15 Speaker 01 Yeah. Thank you so much, listeners. Really, really appreciate the comments or questions. I want to get into now, Sammy, the big, beautiful bill. This is a
35:25 Speaker 02 Huge.
35:26 Speaker 01 Huge. Biggest bill ever. This was signed into law on the 4th of July at the White House. It miraculously, I was really surprised actually how quickly it went through the Senate, the House, the Senate and back to the House. They were able to work through some differences. This is an enormous bill. This is a bill that's going to affect pretty much every American. And fortunately, Congress doesn't have to go through these bills too often. The reason why this bill needed to get pushed through is because the previous bill, which was set in 2017, back when President Trump's first
36:05 Speaker 02 Presidency.
36:06 Speaker 01 Presidency. Was going to expire at the end of this year.
36:10 Speaker 02 Mm-hmm.
36:11 Speaker 01 And so now Congress needed to do something, otherwise the sunset of those laws was going to be incredibly detrimental to a lot of people. Now, there is a lot of, we're not going to get into the politics of this.
36:24 Speaker 02 No.
36:25 Speaker 01 Because there's definitely a lot of politics involved in the, in the bill. What we do want to point out though, Sammy, is how is this going to affect our, our pocketbooks? How, how are, how are we as Americans, or most of us, and we can differentiate, how we're going to be affected? How is this going to impact what we're going to be paying in taxes? And that's what I'd like to cover, is just sort of give some of the highlights of what this big, beautiful bill might mean to us. There, what's fascinating about this, Sammy, is this, this was just a massive, massive bill that is, you know...
37:01 Speaker 02 Nine hundred pages of documents.
37:04 Speaker 01 Of law.
37:05 Speaker 02 Yeah.
37:06 Speaker 01 And, and it, it is trillions of dollars. It's trillions and trillions of dollars we're talking about. And so, I always, I always hesitate talking about some of these numbers because most people don't know the difference between a billion and a trillion. It just seems like, oh, it's just a lot more.
37:20 Speaker 02 We went, we went over the difference last week with Justin.
37:24 Speaker 01 Oh, did you?
37:24 Speaker 02 Mm-hmm. And, and, and if you stack up hundred dollar bills on the top of each other in blocks.
37:29 Speaker 01 Yeah.
37:30 Speaker 02 It's, it's, gets you out of the atmosphere almost close to, to the moon.
37:36 Speaker 01 That's in a billion?
37:37 Speaker 02 That's, that, that's the, the, the trillion, the 3.3 trillion dollar size of this bill. That's how big this thing is.
37:43 Speaker 01 It's, it's, it's a huge bill.
37:46 Speaker 02 It takes you 75 years of winning the lottery, every day.
37:50 Speaker 01 Yeah, that's right.
37:51 Speaker 02 To get 3.3 trillion.
37:51 Speaker 01 Like every lottery that's available in the country.
37:53 Speaker 02 Yes, every lottery, yes.
37:54 Speaker 01 It's huge, it's huge. So the biggest part of this bill is the extension of, of the tax, of the Trump era tax cuts. Those are all, almost all of those that were passed in 2017 are going forward, with some other addition, additional tax breaks, including overtime and tips. This is now going to be... Not federally taxed up until 2028. So for the next three years, then those who are, again, it's not for everybody. It has to be for those who make less than $150,000. Then you have the option there to not have your tips or your overtime counted. That could
38:39 Speaker 01 be pretty substantial for for middle income earners.
38:42 Speaker 02 Yes.
38:43 Speaker 01 For sure.
38:43 Speaker 02 Yeah. I mean, in in in numbers, workers can deduct up to $12,500 or 25,000 joint joint filers, starting in 2025. And that's like an additional take home approximately up to $10,000 for some.
39:02 Speaker 01 Of extra income. So that is that just is that with regards to tips and overtime?
39:07 Speaker 02 And overtime, yes.
39:08 Speaker 01 Yeah. So that I mean, that's that's pretty significant for those who are receiving tips. When this was being argued in Congress, I thought, and I think I may have said this to John Duffield, our CPA, I said, Well, what you know, what's going to stop everybody from just claiming it's not a wage, it's a tip, you know? And he says, Well, yeah, it's a good question. I don't know.
39:25 Speaker 02 Or overtime.
39:26 Speaker 01 Or overtime. Yeah. And part of the part of what it what what will will help with this is this, if you know, those high earners of over $150,000, well, it doesn't matter if it is tips or overtime. It's not you're not going to be able to deduct it. And it's going to be counted. All of your income is going to be counted. What did happen is the expansion of the SALT deduction. So for those who don't know, it's not the SALT, like the table SALT, it's the state and local tax. The the taxes that you pay in California that are state and and local taxes that you may pay to the city or the county, before this bill, or, you know, before, this is several years ago, you could deduct that
40:08 Speaker 01 off of your federal tax return. You said, this is, these are expenses that I'm paying. I'm paying these state and local taxes. I'm going to deduct that from my income and I'm filing for my federal taxes. Well, the law changed and it put a cap on that. And this this happened under under Trump's first presidency. And the cap is $10,000. So that means if you paid, no matter how much you paid above that $10,000, you're not able to deduct that from your federal.
40:32 Speaker 02 Yeah.
40:32 Speaker 01 Now that's been increased to 40,000. So that's a pretty significant
40:36 Speaker 02 Oh, wow.
40:37 Speaker 01 deduction for a lot of people that. You know, are claiming that, you know, that that pays significant amount in taxes and state taxes. It's not easy to pay a lot. It's easy to pay a lot of state taxes in California.
40:50 Speaker 02 That's right.
40:50 Speaker 01 Very high income tax. And then for, you know, for business owners, there are some enhanced business incentives. This is mostly regarding around the extension of section 179, which allows businesses to expense 100% towards certain research and development.
41:10 Speaker 02 So has that been kept on or?
41:12 Speaker 01 It's just been, it's been extended. Extended, yeah. So that is good for business owners that, you know, you make large purchase. You're buying equipment, for example. You're able to deduct those, you know, much quicker than you could have before.
41:28 Speaker 02 That's the bonus depreciation, allowing you to depreciate 100% of whatever piece of equipment you buy year one of the purchase.
41:35 Speaker 01 Right, yes. And there's also a section there that is more for research and development write offs, which, you know, the government's trying to incentivize small businesses to, to, you know, to make those investments. And, and so, you know, there's some, there's some extensions for that as well. Now, the, the.
41:56 Speaker 02 Some of the, I, I don't want to steal your thought, but some of the losing sectors is the EV, I believe, and the solar.
42:05 Speaker 01 Yes.
42:06 Speaker 02 Like the purchase power agreement. Those things are going to go away, I think, immediately.
42:13 Speaker 01 It's September, the end of September is when the electric, electric vehicle credit, it's that $7,500 credit that the federal government has been offering, that is going to go away at the end of September. So that means that if you want to get an electric vehicle and you want to qualify and the electric vehicle has to qualify for that $7,500 credit, then you're going to have to do it before the end of September. And that's going to be significant. You're seeing a lot of headlines today about the beef between Elon Musk and Tesla and the White House.
42:50 Speaker 01 And I think that rumors have it, this is one of the things that Elon was really ticked off about is because they Tesla essentially has been subsidized by the federal government by offering these credits. Seventy five hundred bucks go a long way.
43:04 Speaker 02 Oh, yeah.
43:05 Speaker 01 For a new car.
43:07 Speaker 02 Correct.
43:07 Speaker 01 This this credit also applied to used cars. So, you know, that is, you know, that's, that's, that will be going away. And that's going to have an impact for sure on electric vehicles.
43:19 Speaker 02 The affordability of it.
43:21 Speaker 01 At least, yeah, it's, it's, you know, definitely going to be harder for somebody to justify buying an electric vehicle without being able to get that credit. And certainly, certain companies like Tesla are going to suffer from that. There are also, you know, as you brought up, some of these cuts, Sammy, a lot of healthcare and nutritional cuts. So Medicaid and the benefits that the federal government pays to the states to help with Medicaid coverage is expected to lose close to 12 million people by 2034, including SNAP, which is the food stamps program, is being cut by about $200 billion over the next 10 years.
44:05 Speaker 01 That's about 3 million people who will lose benefits. They, there are now work mandates and that mandate age has been raised to age 64. And that certainly is going to impact a lot of people. There's been also some changes in the student loan forgiveness programs. And that is, that is basically going away as well. All existing income-based repayment plans like SAVE or PAY are going away after July 1 of next year, that's 2026. And instead, they are introducing two options, just a standard payback, which is between 10 and 25 years.
44:48 Speaker 01 But there is also a forgiveness program that is, some people are eligible for after 30 years, which that is insane, isn't it, Sammy?
44:58 Speaker 02 Like 30 years, like you gotta be making payments for 30 years before you qualify for the.
45:04 Speaker 01 Forgiveness, which is like, how is that even possible? You know, you're making a, talk about like slavery.
45:12 Speaker 02 We can, we can make a full episode of just affordability of education in America and how, you know, it's, it's sometimes counterintuitive to me that we're not making it affordable. But then it's hard for us to bring talent from overseas. I think something's gotta give. And what I would like to see is maybe creating some type of a system that makes it affordable for our kids to go to school here in this country.
45:38 Speaker 01 Right.
45:39 Speaker 02 That's what's gonna make, make America great again is our kids going to college and getting some type of an education to compete. I mean, we had Congressman Fong here and he talked about our challenge. And make no mistake that we have challenge in, in China, in Russia, and others that are competing and cutting edge of technology. We need to invest in that, in my opinion.
46:00 Speaker 01 Yeah. In, in the meantime, there are some things that parents can do to try to minimize some of those costs. In-state tuition is always more favorable than out-of-state tuition. You might be enticed by whatever ranking that college has. But, you know, you, you need to be careful that you don't put yourself in financial risk. You don't want your kid to be in a, a risk financially because they've just, you know, wanted to get to this elite college. It's, it's more and more now that not as necessary to go to an elite college. You can go to a state college. We're fortunate in California, we've got a lot of them. The Cal State system has some really, really great universities. And the community college system is fantastic, especially here in Bakersfield.
46:41 Speaker 02 And I think it sets you up for success, in my opinion. Having graduated from high school, you still don't have the experience to, to go away from your family and live away, two states away. Start with the community college, get a little bit of experience, two years, maybe a year and a half, and then go. And, and, and by the way, it increases your chances of getting into much better university. Anyways.
47:05 Speaker 01 Right. Yeah.
47:07 Speaker 02 That's been my experience with my own nephews and nieces. That's what they've done. That's the route they took.
47:11 Speaker 01 That's right. Two of my three kids went to community college first before they went on to the four year university. And they both are doing very well and had a great experience at their community college. And one of my sons went to Taft College and had a really great experience there. My other son went to Bakersfield College, had a wonderful experience at Bakersfield College. And they both were able to go on to, to good universities and, and to good jobs. So you def, you do not have to spend a lot of money to get a good, get a good college education. Part of this bill, Sammy, does put a cap on how much you can borrow, which I think is a good idea. Hundred thousand dollars for graduate school, two hundred thousand dollars for law school or medical school. And then the parent plus program is capped at sixty five thousand dollars.
47:52 Speaker 01 So there, it's good to see the government make some effort to put, you know, not put families at risk, you know, financially too much. That there's, you know, some of the more controversial parts of this bill, I know they were debated on and during Congress is the debt ceiling.
48:06 Speaker 02 Yeah, five trillion dollars.
48:07 Speaker 01 Five trillion. I, I, the debt ceiling rule drives me nuts because every year when we come up against the, the debt ceiling, politicians go crazy about, you know, you know, playing, playing games and, and, and they wait till the last minute before it's extended. And they find some way to fund the government up until then. The problem is.
48:28 Speaker 02 It's a show. It's, it's becomes a show in front of the American people for political gain. But it puts us in jeopardy with our investors that are buying bonds.
48:38 Speaker 01 Yes.
48:38 Speaker 02 Right. Every time.
48:40 Speaker 01 Every time you're doing it.
48:41 Speaker 02 We look stupid. That's just, just what the, the bottom line.
48:44 Speaker 01 It's disingenuous because they're arguing over whether or not they should pay the, the, the, the bills that they've already committed themselves to.
48:51 Speaker 02 Yeah.
48:51 Speaker 01 It's like, you have to do that. You're the ones that are doing it. So they're the ones that are deficit spending. They're the ones that every year are, you know, passing these budgets that are a trillion, a trillion and a half over than what we're receiving in tax revenues. Like that's what they're doing. They do it every year. That's the problem. The problem isn't that we've put a limit on how much we can borrow. Why are you putting a limit on it? You need to put a limit on when you're passing these bills as to what you're willing to. Spend, don't pass a bill saying that you're going to spend this money and then later argue whether or not you really want to do that. That's really frustrating. So I'm glad that it's been raised. So hopefully it's not an issue with Congress, at least for a while until.
49:29 Speaker 02 Yeah, whatever. When we reach that, some of the other things that I read was the $150 billion for the defense.
49:37 Speaker 01 Yeah.
49:40 Speaker 02 I have mixed feelings, but I actually like that personally, as far as our expenditures in that in that sector, because regardless, we're not, I don't think we're war seeking in this case. When we increase the defense, it's just making it, technology wise, it creates a lot of opportunities for youth to go into AI, into new technologies that are typically, defense is the first to start, a lot of the time. That's what I'm excited about, is new technologies that our kids can maybe dive into and learn more about.
50:13 Speaker 01 Yeah, you know, there, there, some of the other things also that we haven't mentioned is the child tax credit. That's been boosted to $2,500. And then that is for the next three years. So that, that's money in people's pocket. If you get that child tax credit, that's, that's literal credit. That's money in your pocket. So to the fact that that's been increased. Also, we have the Trump account, which is introducing a thousand dollar savings at birth and future maximum contributions of $5,000 a year. I'm always a fan when the government makes it easier for us to save. And I think that's a great way to introduce a lot of the population into this idea of time value of money and just putting money
50:55 Speaker 01 aside. It could incentivize them to start saving for themselves and saving for their, for their kids in a way. So there's, there's, there's good and bad. There's good and bad in all of this. Well, we want to thank all of our listeners so much for tuning in. If you'd like to listen to this show or any of our past programs, go subscribe to Money Wise Podcast, commercial free and all podcast platforms like iTunes, Apple and Spotify. Also, remember these three things. Be smart, be safe and always be money wise.
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