reader Q&A from long live
i don't have favorite clients but erika's a favorite
Hey fam and welcome back to dumb rich! Erika from Long Live did an AMA for all things money related. I was thrilled when she asked me to help answer these questions! It was a lot of fun and her audience is top notch, which is obviously no surprise because she’s amazing. I really admire how open she is about the business behind the brand. I am very lucky to be a small part of that <3 I thought I’d share her post here for you guys!
I like to keep my answers (mostly) light because I know money can be an anxiety-inducing topic for many. It’s crazy that we learn trigonometry in high school but never take a course on filing our own taxes LOL. So I just want to preface this by saying that no question is a dumb question, we’re all in this together, and this is a no judgement zone. End of my woo woo rant.
A common theme in these questions made me think many of you are HENRYs (high earners, not rich yet). Maybe your career is hitting its stride and you’ve built some savings — but you’re not quite sure what to do with it. Let’s start there.
How much of an emergency fund would you recommend for a couple living in NYC in their 30s paying $7k per month in rent? No kids, one dog.
The general rule of thumb is 3-6 months of living expenses. This should include your rent, utilities, food, student loan payments, car payment, childcare (doggy daycare), etc. In today’s world, I feel like 6 months should be the minimum. With people experiencing a bit more instability, I’d feel more comfortable with a little extra cushion. If you have a steady W2 job, you can stick to the lower end of the range. However, if you are self-employed or commission based, I’d try to save 6+ months. I highly recommend keeping these in a high yield savings account, so you’re at least earning interest and it’s easily accessible.
After saving an emergency fund, what’s next?
Nicely done!!! After that, ask yourself if you have any big financial purchases on the horizon in the next 3-5 years. Many people in this circumstance may be looking to purchase a home, which will tie up a ton of your liquid savings (yay). In that case, your money needs to be ready to go. Have you seen the housing market lately? You need to show up with a suitcase full of cash (jk, but actually). If you put your money in a retirement account and need it fast for a bidding war, you’re paying a hefty penalty to take that out. If you put your money in the stock market and need to sell fast, you may be paying capital gains tax.
Okay — back to the tangible advice. If you are saving for a home as your primary goal, I’d recommend working with a financial advisor to put this money to work but keep it readily available with minimal tax consequences. My favorite types of investments for this are municipal bonds, corporate bonds, or money market funds.
Now maybe you already own a home or you’re a forever NYC renter <3 and don’t need to worry about having access to your funds. In that case, I’d suggest the following:
Employer 401k match — FREE MONEY ALERT. Actually though. Many companies will offer a match on your 401k contributions up to a certain amount. Also, any money you contribute to a Traditional 401k isn’t taxed.
Retirement accounts at large — After the match (or if you are self-employed or don’t have an employer match), I’d assess if you want to maximize your remaining retirement accounts. Think long and hard about this one. You cannot access these funds until you are 59ish. Only put money here if you’re truly willing to part with it for a bit. If you try to take money out beforehand, you are taxed on it and hit with a 10% penalty. So if you are taking out $30,000 early for a new Volkswagen Beetle (just me?), you’re clearing less than $20,000 depending on your tax bracket.
Let’s pause here and do a retirement example (using round numbers!). If you make $200,000 and put the max $24,500 in your 401k and your employer matches 4% of your salary ($8,000 — FREE MONEY), you’d contribute $32,500 per year.
If you did this every year for 30 years, you will have contributed $735,000 and your employer will have given you $240,000 for free. If this grows at 7% per year, you’d have approx $3 million to chill when you’re 60. BRB texting my friends to determine retirement plans right this minute.Brokerage Accounts — Where the fun begins! This should also be considered long term savings, because if you choose to sell your stocks, there may be tax consequences. I would recommend investing in funds that mirror a major index, such as the S&P 500. These are steady and earn approximately 8% per year. The good news is, this can grow at the same rate as the retirement example described above, but you can access it much earlier.
Strategic moves — Ultimate fun. Perhaps you’ve been interested in real estate? Angel investing in start-ups? Once you feel comfortable with the savings in your other accounts, you can use a smaller portion of your savings on something you’re really excited about! These can both be super illiquid and even have potential to fail, so I would only recommend doing this if you’re comfortable losing the money.
What is your favorite investing platform? I’m ready to get started but overwhelmed by options. A few options below depending on your goals:
Traditional platforms with low fees — Fidelity, Charles Schwab and Vanguard
User friendly with mobile apps — Robinhood, SoFi
Automated platforms that are goal oriented / motivating — Betterment, Acorns
How do you think about the tradeoffs between maximizing 401K and other tax saving strategies v. liquidity for immediate life milestones (home, baby, etc)?
This person obviously read my mind as we touched on this above. One thing I will say is you can absolutely be saving for multiple goals at the same time. Don’t underestimate the power of compound interest. So once you figure out a savings plan for your short-term goal, I’d put anything leftover (even if it’s small) in a 401k or brokerage account to get those market returns.
My wife and I want to start thinking about planning for kids. What do you recommend as the best financial prep?
Congratulations!!!! I’d ensure all of your personal finances are in order first, and then consider my guide to raising rich kids to set up accounts for baby upon arrival!
Nicely done, team. We’re all adulting properly. Moving on to some non-monetary questions or ones that are a little shorter to answer or are just for “funsies” .
I get so anxious around anything money-related. What are you best ways to combat this? - Every single one of my clients, friends, colleagues, etc. says this to me. It’s all about exposure therapy which sucks big time. Check your accounts on a weekly basis. Bite the bullet and check the credit card balance after a long weekend. Don’t be afraid to ask questions when you hear people talking about money around you. Try not to be avoidant. Reward yourself with a sweet treat or a glass of wine after reviewing your expenses. Educate slowly. You got this!
Do you have a strategy around buying designer goods while abroad? Planning my Euro summer
Very much yes. And now more than ever. Because I have no idea what’s going on with the tariffs. First, it is cheapest to buy the luxury item in the country of manufacture. Gucci, and Prada in Italy, Chanel and Saint Laurent in France, Loewe in Spain, etc. Then while in the US, I will go on the website and change my location to the location I am traveling to and convert the prices to USD and calculate the VAT refund. Of course there’s a spreadsheet involved. I swear I’m fun sometimes but this is serious business.
How did you know you were ready to work for yourself?
This is good inspiration for a dumb rich post. In short, my side hustle was outperforming my day job big time and I wanted to lean into that. I was also at a place in my personal life where I felt like I had the financial stability and the support of a partner (with health insurance and a steady W2 job!) to make this move. Less practical, I felt like I couldn’t devote 100% of my attention and be REALLY good at one thing. I was just okay at a bunch of things. It’s nice to be able to have one goal/mission I’m working toward.
Are gifts I send people I work with a tax write off?
Only up to $25 per person. LOL. I did send my friends of Substack / clients Valentine’s chocolates this year and I can’t even deduct the full amount. How totally insane.
Chat next week xoxoxox