00:00 Speaker A
Joining me now are John and David Auten-Schneider, the Debt Free Guys and hosts of the podcast Living Not So Fabulously. Welcome, guys. Let’s jump right in with the first question. Is it better to pay off debt or save for an emergency fund first? David, let’s start with you. What do you think?
00:18 David
Definitely. I think that as with most financial questions, it depends. I think one of the important things to remember is whether you’re paying off debt or you’re funding your emergency savings, both are working in the positive direction. They’re both improving your net worth. But we encourage people to look at a dual approach. First, build emergency savings enough to cover your major deductibles for things like car insurance or home insurance, then work on building paying off that credit card debt. While you’re building your emergency savings though, make sure that you’re making those minimum payments on those credit cards.
00:56 Speaker A
And second question, someone asks, “How much money should I keep in an emergency fund?” John, you can take this one.
01:03 John
Well, that’s a great question to ask. Uh, Vanguard recently came out with a study that showed that respondents said that if they had $2,000 in an emergency savings account, their financial anxiety decreased by 21%. So, maybe that is something to strive for. We have always said shoot for having a minimum of at least $1,000. And keep in mind that if you have contributions into a Roth IRA, you can withdraw those contributions without penalty or taxes. Uh, so that could always be your emergency savings account on top of your emergency savings account. And maybe contribute enough to an emergency savings account and to your Roth to be able to use a dual approach, as David said.
02:01 Speaker A
And question number three is about investing. The viewer asks, “How can I invest for retirement if I don’t have a 401K at work?” David, what’s your advice for them?
02:14 David
You know, this is a really common question because there are a lot of individuals working for small companies that can’t afford to fund a 401K. So, the best approach is to look towards your traditional or Roth IRAs. Obviously, Roth IRAs or some income, uh, uh, limits on those. But the nice thing is is you can contribute up to $7,000 if you’re under the age of 50. If you’re 50 or older, you can contribute $8,000. And if you have a side gig, you’re able to set up a solo 401k. And if that’s doing really well, you can contribute to that up to $23,000 a year, or if you’re over the age of 50, that’s $30,500 a year, which, that’s a pretty good side gig.
03:18 Speaker A
Yeah. And final question here. Should I use a robo-advisor or pick my own investments? John, are you pro bot or not?
03:30 John
If you’re a lazy investor like I am, I am pro bot. Hire the robots all you can. If you’re a more active investor or more engaged investor like David is, maybe not necessarily a robo advisor is for you. But keep in mind that if you do decide to manage your money on your own, um, financial advisors and robo advisors earn their keep, right? It takes a lot of time and effort, um, to be able to find the right stocks or mutual funds and to manage your portfolio. And most fund managers can’t beat the stock market two years in a row. Um, so, if you’re not able to, uh, up to par with that kind of a competition, maybe hire the robo advisor, but make sure that they’re low cost and that they keep the cost of your investments below a half a percent. And make sure that, of course, that they also invest in a diversified portfolio of low-cost index funds or ETFs.
04:42 Speaker A
All right, John and David, thank you so much. You can hear more from the debt free guys on their podcast, Living Not So Fabulously. That’s out every Wednesday at 3:00 p.m. Eastern on Yahoo Finance or wherever you get your podcast.
