Nate Reineke (00:13)
Hello physician moms and dads. I'm Nate Renneke, Certified Financial Planner and Primary Advisor.
Chelsea Jones (00:19)
And I'm Chelsea Jones, also a certified financial planner and primary advisor here at Physician Family Financial Advisors.
Nate Reineke (00:27)
I'll say I just thought of something before we got started. β Have you ever tried to, I think your daughter's too young, but my boys are getting a little bit older. And so I'm like, maybe we could watch this show or this thing that I really want you to see. And it's sort of like when your parents used to come back in the room and you're like, I did not know there were so many swear words in the show. Well, I just did that with Hamilton.
Chelsea Jones (00:54)
β yeah.
Nate Reineke (00:56)
I was like, wow. β I thought this was like, you know, mainly American history stuff. β sure enough, we had to do some fast forwarding.
Chelsea Jones (00:59)
Yeah.
Yeah, that's so funny because we're, my daughter's only two. So we don't do a lot of screen time as is, but we did just watch a full movie for the first time like a week ago. And it was Moana because she's been obsessed with Moana ever since we went to Disney. we watched the full Moana movie and really liked it. It's always funny when you hear those, those, β little
Nate Reineke (01:14)
Yeah.
Mm-hmm.
Yeah.
Chelsea Jones (01:34)
they put in there for the adults that just completely go over the kids head.
Nate Reineke (01:36)
for the adults. Yeah,
it was funny. Yeah, it was interesting. yeah, and then β Matteo was like, β he was asking a question about kings. I was like, β don't get me started on America. Why we're here? And then he was like, β like he didn't get it. Right over his head. It's like, anyways, just listen to music. It's good.
Chelsea Jones (02:00)
Yeah. Yeah.
Nate Reineke (02:05)
Okay, we got some questions today from β physician moms and dads. So I'll let you get started.
Chelsea Jones (02:13)
Let's get into it. The first one is from an oncologist in Oklahoma. They said, I received an unexpected bonus from work that we did not work into our original financial plan. I could see us either investing it in our brokerage account or putting it into a 529. What are your thoughts?
Nate Reineke (02:31)
Whenever you ask a planner their thoughts they they go back to the plan, right? So I think this was your question. What did what did you end up doing?
Chelsea Jones (02:36)
Yeah.
Um, ultimately, so some context, their plan was on track because that was my first instinct to go look at the plan, see if they were behind at all. Uh, their plan was on track. also, no debt, no student loans, no mortgage. Uh, but they do have a brand new baby girl that was just born a few months ago. And so they, to my knowledge, hadn't opened a 529 yet, but so that was a
Nate Reineke (02:56)
Mm-hmm.
Chelsea Jones (03:10)
That was an obvious place to put the money. In my mind, it was obvious at least. β And then another layer on there, Oklahoma, the state income tax break is about, is $20,000 for the amount that you can deduct for contributions. And that was about the size of their bonus. So I was like, that's perfect. You get the full tax break for the year. You get to jumpstart your college savings for your brand new daughter. the earlier, the better for contributions to the 529.
Nate Reineke (03:20)
Mm-hmm.
Mm-hmm.
Yeah, that's right.
I hear that. Well, actually, when we get this question, I don't hear most people jumping at the opportunity to stuff it in their 529 for whatever reason. That's just not viewed as like an exciting or get ahead sort of kind of thing. But yeah, the earlier the better, because let's put it this way. How often do we see it where brand new family comes in? They haven't really done much savings and how much more difficult it is.
Chelsea Jones (03:54)
Mm-hmm.
Nate Reineke (04:08)
for them to save for their six year old than it is to save for their one year old. Getting ahead even by $20,000, I mean that $20,000 could, I mean it probably pay for a year of in-state public tuition because the earlier you put it in, the more stocks you're going to own and the more it's going to grow. And then you actually get to enjoy the tax-free growth. So that sounds perfect. Came right when they needed it.
Chelsea Jones (04:31)
Mm-hmm, exactly.
did. Okay, so the next question comes from an OB-GYN in Florida. She said, I know estate planning is something I need to do and I've heard about a trust but I don't really know much beyond that and you tell me how it works. β disclaimer that we have to give out no one here is an attorney so we can't give legal advice and legal advice is all intertwined in estate planning.
Nate Reineke (04:53)
Hmm.
Mm-hmm.
Chelsea Jones (05:06)
So we talk very high level, β but at a high level for people who maybe are not familiar with estate planning, basically the gist of what it is, is you do an estate plan, so your money or whatever assets you own, pass to who or what you want them to go to after you die. And a trust is just a way that you can make that happen. And the main benefits of a trust are one, it bypasses probate.
Nate Reineke (05:24)
Mm-hmm.
Chelsea Jones (05:36)
which is a public and can be really lengthy and sometimes expensive process. And you can also be more specific with how and when your estate gets distributed. For example, the most common example we see, we work with families who have young kids and if God forbid something happens while their children are still young, it's not always in the kids' best interest to receive, you know, a million dollars at age 12.
Nate Reineke (05:41)
Yes.
Chelsea Jones (06:05)
or 20 for that matter. mean, our frontal lobes aren't completely developed until 25. So some people build in schedules that just kind of spread the distributions out.
Nate Reineke (06:05)
Right.
Mm-hmm.
Yeah, protect them from themselves, but also give them all all the money that they need.
Chelsea Jones (06:22)
Exactly.
Yeah, the I think the main thing to know about estate planning is when you need to do it. And the biggest mistakes that I see with estate planning is one, you hire an attorney to draft these documents and then you never sign and notarize them. So they're never done. Is you pay the attorney to draft the documents, but they don't get paid to make sure that they're signed. They don't. They might not even care once the documents are drafted.
Nate Reineke (06:41)
Yeah. Right.
Mm-hmm.
Chelsea Jones (06:54)
And so it's kind of on you to get those completed and saved and put in a safe place. Unless you work with us, then we're in your corner to help you make sure that they do get signed. And then the second mistake that I see is that you draft the document to have this trust, but then it never gets funded. So you want to make sure your attorney tells you how to designate your beneficiaries or title your accounts to make sure that your trust actually gets funded.
Nate Reineke (07:14)
Mm-hmm.
Yeah, trust getting funded is it's a little bit like ever so slightly industry jargon. Basically, if you draft these documents and you don't do anything with the documents, they don't mean anything. So the I oftentimes see the documents never get signed, right, and notarized and all that. But then the work really starts on your end, other than the rather than the attorney's end, once the documents are ready. So you.
Chelsea Jones (07:36)
Mm-hmm. Yeah.
and
Nate Reineke (07:53)
then go put the accounts that you know your trust is saying to do certain things with your assets they have to go put the assets in the trust if I zoom out here. β I would say the it's not really a mistake but the up I want to get some coaching on what the approach should be to a state planning but very simple this is like as far as you can zoom out when you go to an attorney they are going to have to be.
Chelsea Jones (08:02)
and
Okay.
Nate Reineke (08:22)
A really good one that cares in order for them to guide you through this process if you don't know what you want. So this is this is the same in our world too. You tell a financial planner what you want and they will build you a roadmap on how to get there. The difference with financial planning is a lot of times you may not have the ability or the resources to to get what you want.
Chelsea Jones (08:30)
Mm-hmm.
Nate Reineke (08:51)
sometimes you do sometimes you don't so that there's some ... back and forth on how to actually get done but in world of estate planning if you say I want person X to get this amount of money and why to get this amount of money and I want them to get it at this time you probably just ... haven't thought about it but you can get the things that you want. So you should at a high level be able to go in there and.
of thought about what do I actually want out of this estate, my estate planning documents that I'm going to be working on. It's not just a box that you check because if you just go through the standard, you know, I'm getting a trust, but nothing in there is according to your wishes, then it's worthless again. So estate planning β is this big mystery to everybody. I think what you do is you start with your attorney saying like, what should I be thinking about?
Chelsea Jones (09:22)
Yeah.
Nate Reineke (09:44)
What are the things that the trust can do for me? And then once you have your options in front of you, say this is what I want and they drop the paperwork. That's really what it is. Think about what you want. They'll tell you how to get it.
Okay, next question.
Chelsea Jones (10:00)
Next question is from a urologist in Oregon. β So they said, we're retired and want to upgrade our house, but we don't have cash to just buy it out, right? So we would need to take money out of our brokerage account or sell our rental property to buy the new house. Should we do it?
end.
Nate Reineke (10:17)
Should we do it?
Chelsea Jones (10:19)
Should we do it? So again, we're planners. First thing you should do is go back to your plan and stress test it to see, you know, and I do it. And my plan withstand me taking a chunk out to buy this house.
And you know, because oftentimes moving is it's a big decision. You have to essentially uproot your life and move it to another place. β And it's really easy to go into problem solving mode on how you can make it happen without actually stopping and asking yourself the question of is this a good idea?
Nate Reineke (10:55)
Right. I think when people want to buy houses or they want to move, it's really exciting. And as soon as you get excited about something, a lot of times, if you just like have the money, you can make a quick decision and buy something. Even if maybe it's a poor financial decision, but with housing, there's a lot of moving parts. And so I think people tend to problem solve backwards. They will instead of saying, is this a good decision, which this client
Chelsea Jones (11:00)
Mm-hmm.
Nate Reineke (11:24)
that asked you this question is problem solving the correct way they came to you for such is this a good idea is essential what they're saying before we get into like how would we do it most people start the other way how would we do it they get married to the idea of doing it and then now that they've done all this work to do it they're either let down when they find out they can't really afford it or they are so invested in the process that they start to make poor financial decisions to make it happen.
Chelsea Jones (11:29)
Yes.
Mm-hmm.
Nate Reineke (11:54)
So before you even start say like you know baked into this question is we have to sell this and we have to do that in order to make this work. β They're already problem solving on how they would do it before they answer the question should we do it right and so. Very emotional buying houses very emotional moving you're falling in love with houses on Zillow I never thought as. β
Chelsea Jones (11:54)
Mm-hmm.
Yeah.
Nate Reineke (12:23)
financial planner financial advisor that I would give any advice like this but I remember years ago there was several β families I was working with that wanted to buy houses and they just weren't ready and I had to β ask them to delete Zillow off their phone. Hey get Zillow off your phone because you're gonna fall in love with a house and you're gonna do something dumb you know and then the answer is always or β the reality
Chelsea Jones (12:40)
you
Mm-hmm.
Nate Reineke (12:52)
Is that there will always be another house always and everyone thinks that there won't but there always will and I know this because people who have bought their dream homes five years later find another dream home. There's lots of dream homes right there's lots of houses that you will like so first start with the plan. And the things that get lost when you're when you're doing the plan obviously there's like can we pay this house off this is a retired family.
Chelsea Jones (13:05)
Mm-hmm.
Nate Reineke (13:20)
If you're Chelsea's client your retired family she's going to ask you to pay off your house so you have paid off home the house was already paid off and they have a rental so they're trying to combine assets here so is it a good idea one to put more money into a house when you're retired that depends on how much money I have. β But to it's good to know that moving is expensive. Moving is really expensive and so when you sell a house you don't just get all the money the real estate agent get some.
Chelsea Jones (13:42)
Mm-hmm.
Nate Reineke (13:49)
Right. You have to pay a bunch of fees to sell a house. And then the same thing happens when you buy a house. And so you want to be careful when you're making these big moves because there's a good chance that once again, you'll have to move again. Right. So it's expensive. Let's just leave it at that. It's expensive to buy and sell houses. And then you have the just the fact that the house is more expensive. Property taxes are going up. You're buying a new house that somebody selling. You don't know what's wrong with it.
You need a lot of money to feel comfortable buying a new house. Okay. So do that planning first. Let's say you did this plan with them and they're squared away. They could do it. The question is how now that you found out you can. Question is how do we actually do it? And once again, I'm hearing over and over and over. This is what I'd have to do. I'd have to, you know, off my arm.
Chelsea Jones (14:23)
Okay.
Nate Reineke (14:48)
in order to buy this house without selling my current home. OK, well, here's an option. Don't know if your arm. Right. Just buy the house contingent on the sale of your own house. Instead of cashing in investments and doing frantic things just to buy this house, you take a step back, you realize another house will be available if this doesn't work out.
Chelsea Jones (15:03)
Mm-hmm.
Nate Reineke (15:17)
You also realize that if you make an offer to a seller and they say, no, you can't, I will not accept the contingency and you still really want it. You can take the contingency back if you want. You can say, all right, I'm going to update my offer. No contingencies. I wouldn't recommend it, but if that really happened, you're not going to be to the point where they're going to look at an offer that you were wanting to make contingent on selling the house you're in.
Chelsea Jones (15:32)
Mm-hmm.
Nate Reineke (15:45)
And then they just say you've insulted me so much I'm not going to accept another offer retake the contingency away just ask for what you need and adjust if they say no. Okay so that's one just buy it with a contingency the second would be. There's still a lot of offers out there with mortgage companies where you can recast your loan but for this family they wouldn't even need to recast you just hold a mortgage until you sell your house. Right you put 20 % down.
You can take a home equity line of credit on your current home to get the down payment. If you even need a large one, make a mortgage payment for a few months while you're selling your house. And then once it's sold, you clear the loan. The big β the big planning question here is should we sell our rental? Which once again, you don't got to sell your rental just to get into the new house. You could put it on the market. And that is impossible to answer.
on a podcast, you have to actually do some real planning and decide, is it worth it to sell this income producing property or to sell money out of my brokerage account just to buy this house? Because you're transferring an asset into another asset, but an asset that doesn't give you any income, which is your primary residence. So lots of planning, but the biggest takeaway here is determine if you should.
Chelsea Jones (16:44)
I don't know.
Nate Reineke (17:11)
before you start thinking about how would I do it.
Chelsea Jones (17:14)
Right. Okay. So the next question is from a family medicine doctor in Minnesota. Another housing question. I bought my house. That's a trend lately. We've had a lot of housing questions. β They said I bought my house about eight months ago. Should I refinance?
Nate Reineke (17:21)
Yes.
Mm-hmm.
Yeah. The family medicine doctor in Minnesota, if you're listening, you are just the most recent because I think I've gotten this question 10 times in the last month. And honestly, I haven't even really gotten it as a question as much as I've seen it as an opportunity. β The reason we are getting these housing questions is because the market is shifting a bit.
Chelsea Jones (17:43)
Mm-hmm.
Nate Reineke (18:00)
interest rates are lower. They're lower than they were eight or 12 months ago. And β I think this is a very good opportunity to refinance. And that's difficult for me to say because it seems like what I'm doing is making an assumption about what rates will be or if they'll go down any lower. I want to make it clear I'm not making an assumption about that. But I know all too well the crappy loans that people were taking
with the hope that they could refinance soon and the time is now if you get the chance to refinance again that's okay right you're going to pay some costs but I think now is a great time because eight months ago 12 months ago I was seeing people take out six and a half percent mortgages on an adjustable rate. So 6.3 6.5 6.6 I saw this week.
on five one arms meaning after five years they can adjust the rate and they can adjust it every year after that that is. β Not all that scary to me as a financial planner but it weighs on people they hate having arms they don't like thinking that they need to refinance other house soon so I've seen at least four people in the last month go through a refinance and I even saw someone go through a refinance before they were.
two or three months into their original mortgage. That's how fast these changed. So there's two things I want people to think about. One is this is an opportunity to get out of a higher rate, get out of an arm. Okay. The second is if you were a client of mine or if you're a client of Chelsea's, you would have bought this house even with a high interest rate on a payment that you can afford.
Okay, so let's imagine you bought a 30 year mortgage β on a but it was a payment you can afford. The rate is six and a half percent. And now you're seeing five and a half percent on a fixed rate mortgage. I did. β I looked at this with a family. This isn't for everybody, but this could be a reasonable opportunity to get a really low rate by getting a 15 year mortgage.
And that is because if you refinance from a six and a half to a five and a half and you could afford the six and a half, dropping that rate down to five and a half is going to save you some money. But if you go to a 15 year mortgage, it might not be all that more expensive to get a 15 year and drop the rate even lower. So I'm seeing 15 year rates in the mid to low five percent range. You can save almost a full percent. And so you kind of have β two options to go here, but
I want you to consider getting out of a higher rate and getting out of an arm, but also consider a 15 year mortgage, the 15 year mortgage and then consider paying points as well. If you pay points, that's where you buy down your rate. It gets even lower. I saw someone going to buy down their rates to four and a half. Four and a half. So this is. Two full percentage points. Now they had to pay quite a bit to buy down their rate.
Chelsea Jones (21:10)
Wow. Possibly saving two full percentage points on your, you know.
Nate Reineke (21:19)
And I want to make it clear, the only reason you would buy down your rate is if you thought probably rates won't go a whole lot lower. And second, you're going to stay in the house for a while because you want to be able to recoup the amount that you put toward the mortgage. It's nice seeing four and a half percent. But if it cost you 20 grand to do it, you want to get your 20 grand back. And if you're only going to stay there 12 more months, you're not going to get your 20 grand back, most likely. So some analysis. But now is a great time. If you bought in the last year.
It's a great time to refinance. β Five and a half percent rates are very common right now. Low fives are very common and β rates in the five and a half percent range. I hate to say this, but to me that seems like a very healthy, healthy rates for our country. So five and a half, β if it gets a whole lot lower than five and a half, there's other problems with the economy.
Right. When rates were at 2 or 3 percent, that's nice. If you own a home, you want to refinance. But what that means is that that the feds are low, artificially lowering rates. Right. They're making our economy seem more productive, but we're not actually producing anything. We're just making debt cheaper, which is a means to an end. So what that tells me is that rates in the fives is good and you can pay the money to refinance. If they get lower, you'll just
Chelsea Jones (22:29)
Yeah.
Yeah.
Nate Reineke (22:46)
across that bridge when we get there.
Think that's it for today, right?
Chelsea Jones (22:50)
Yeah, think we're ready to close up.
Nate Reineke (22:52)
All right. Thank you everybody for listening. If you like this show today, please be sure to subscribe so you don't miss when we release new episodes every week. You can leave a rating for us. You can visit us at PhysicianFamily.com to either schedule an interview β or just get started with us. You can do it right on the website. If you're not ready for that, send us a question at podcast at PhysicianFamily.com. We promise to answer your question even if it doesn't make it on the show. Until next time, remember...
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