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Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions.
This week’s episode is a special live episode that was recorded at a company gathering in Las Vegas over the summer.
Check out this episode on any of these platforms:
If you want to gamble in Vegas — or wherever you are — know what you’re getting yourself into before you start blowing your money. That means understanding that the house always comes out ahead. And set yourself a gambling budget, much like how you would set a budget for any night out. Say you allocate $50 for a night of gambling. Once that money is spent, avoid the temptation to pull more cash to spend. That can help you keep your spending in check.
Also, brush up on the rules of whatever game you’re playing. Some dealers can help you learn how to play a game that you’re new to. And at the end of the day, make sure you’re having a good time. If gambling stops being fun, that’s a sign to move on to something else.
When it comes to getting into investing, the longer you spend in the stock market, the more time you have to grow your money. And investing while the stock market is on a downward trend can help you take advantage of a strategy called dollar-cost averaging. This will help balance out the cost of your investing, since stocks get more expensive when the stock market is doing well.
And if you receive a big financial windfall, take a few simple — but important — steps. First, take a moment to appreciate how this money could change your life and think about your goals. Then, call up a fee-only fiduciary financial advisor. These money pros can help you build and execute a plan to get what you want out of your money. And if you happen to receive a windfall of crypto, make sure you know how to secure your digital wallet.
More about managing your money on NerdWallet:
Sean Pyles: Hey folks. Sean here. We have a really fun episode in store for you today. Over the summer, NerdWallet employees got together in Las Vegas for our first in-person event since the beginning of the pandemic. And Sara and I hosted a special live episode of Smart Money. We had a great time recording this episode and we hope you'll enjoy it, too. Here it is:
So good to see all of you in person. Welcome to the Smart Money podcast live from Las Vegas. I'm your host, Sean Pyles. And joining me for our first ever live episode is my occasional Smart Money co-host, Sara Rathner.
Sara Rathner: Hi, everyone. So for this special live episode of the podcast, we are answering a couple of Nerds’ money questions, including how to manage crypto, if you still want to do that; whether now is a good time to get into the stock market; and we'll also talk about the smart way to lose your money gambling in Vegas.
Sean Pyles: There is a smart way to do that, but before we get into all of that, we are going to play a little game with you guys. It's called “Would You Rather.” We'll have a few of these sprinkled throughout the episode. So pull out your phones, look at that QR code and you'll be taken to a Slido where you'll see a question that is: "If you are given a hundred dollars right now, would you rather spend it at the casino tonight or would you put that in your savings account?" So are you here to have fun, or are you feeling responsible, basically, is the question. We'll give you guys a minute to think that over.
Sara Rathner: Sean, what would you do?
Sean Pyles: I would spend it. Yeah.
Sara Rathner: Yeah. I would save it, because I hate gambling.
Sean Pyles: I'm not a gambler either really, as we'll get into, but I'm here to have fun and we're heading out tomorrow. So Viva Las Vegas, I guess, as they say.
Sara Rathner: What happens here.
Sean Pyles: Yeah. Let's do a show of hands.
Sara Rathner: Bring this back to old technology.
Sean Pyles: If you would spend the money tonight, put your hands up.
Sara Rathner: All right. And if you'd save the money.
Sean Pyles: If you'd save the money.
Sara Rathner: OK.
Sean Pyles: It's kind of 50/50.
Sara Rathner: I would say it's 60/40.
Sean Pyles: I'm not going to fight you over this, but it's fair to say people are here to have fun, but also be responsible, which I appreciate. Great. Well, now, let's talk about the smart way to lose your money gambling in Las Vegas.
Sara Rathner: Yeah. So gambling can be fun, if you're into that sort of thing, which I'm not. So I don't really get it, but whatever. But it's also risky, if you don't know what you're getting yourself into or you go into it without any sort of preliminary planning. And I know it's hard to plan before a night out, but hear us out.
Sean Pyles: Yeah. But understanding some of the reasons why people like to gamble, and how to do it in a very financially nerdy responsible way, can help you make the most of your time gambling. And as I mentioned, I'm not really a gambler. I once lost 50 bucks in an hour on the Dolly Parton slot machine in Atlantic City. And I said, "I'm done with gambling." But I called up my mom before this episode. She’s a behavior analyst and I talked to her about how the principles of behavior analysis can be applied to gambling. And she pointed me to something called intermittent reinforcement, which is basically the idea that when you get a reward, or in this case, an endorphin rush or maybe some money for doing something on an irregular basis, you're more likely to continue doing it versus if you got a regular reinforcement for the same behavior.
And slot machines are the perfect example of this, although intermittent reinforcement is around us all day, every day in our lives. So if you think about a slot machine, you pull the lever or press the button, you're not going to win every single time. But you think, you hope, that there's a guarantee of a win right around the corner. And so, it keeps you going. It's very strong and actually is one of the underlying drivers of problem gambling, which as we know, as is in the name, is a problem for some people.
Sara Rathner: Yeah. This actually explains a lot about my cats’ behavior around the automatic feeder I have. Because they don't understand that it's set to a timer, nor do they understand the passage of time in the same way that I do. So they just hold vigil in front of the feeder for several hours before it actually goes off. And I think they just think that if they stare at it hard enough, their wishes will come true. So anyway, we're all cats as well.
Sean Pyles: We're all cats, lab rats, something like that. So now that you understand a little bit of the psychology behind what drives you to gamble, let's talk about some smart ways to approach it. And one of the key concepts here is something called bankroll management, which is basically a fancy gambler's term for knowing your budget when you're going out to gamble. So Sara, what should folks know about this?
Sara Rathner: You should bring the cash that you intend to lose. Just assume you're going to lose it.
Sean Pyles: Yes.
Sara Rathner: Set a certain amount and bring it with you. And that's it. Once it's gone, it's gone. So you asked your mom for some advice. I turned to family as well. My husband is a blackjack player, not professionally or anything, he's just pretty good at it. And he's been to Vegas like 10 times. So I was like, "What do you do to not anger me when you go to Vegas and you gamble?"
And he takes the cash out at an ATM at home and brings it with him. And that way he's not paying extra fees, because sometimes the casino ATMs charge a percentage of what you take out, not a flat fee, so it can get really expensive. And whatever the cash he has is the cash he has and that's it. So I would highly recommend that route. He also kind of warned me that, given the odds of games, you might want to budget a little higher. Because if you want to come out on top, you actually have to gamble a higher amount and play more hands in order to actually win. So if you go and play like three hands — for the most part, you need to play for a while to recoup your losses.
Sean Pyles: But your husband's tip about taking out the money beforehand goes also to the idea of having a plan beforehand. So know exactly how much you want to spend and kind of think about it like a night out. If you're going out to see a show or go to some bars with a friend, you don't think about having to recoup the 40 bucks you're going to be spending on drinks. It's just not really a thing that happens. But with gambling, you kind of have this idea that, "Maybe, I'm going to make this back." And you just shouldn't think about it like that, because the house always wins, and you're just there to have a good time. So think about it as your entertainment budget for the evening.
Sara Rathner: Yes. And I will say we did talk about how gambling can be problematic. I wanted to share with all of you, and anyone listening, the number for the National Problem Gambling Helpline, it's 1-800-522-4700. So please avail yourself of that, if you need it.
So I talked a little bit about playing a lot of hands because of the odds. So games of skill tend to have better odds than games of luck. So a slot machine doesn't have as good odds as, say, like poker or blackjack, where you actually have to know what you're doing. That's another thing to keep in mind as you're picking which games you want to play.
Sean Pyles: And know the game that you want to play well. So if you're really curious about blackjack, you've never played it before, think about pulling up a YouTube video beforehand. You can also find a table where the person there will teach you how to play as you're going through a game. You don't want to go in with no knowledge at all, because that's a great way to lose your money. That's not a smart way to lose your money gambling in Vegas, so you can approach it a few different ways. If you want to just try out something you've never done before, go in with some knowledge beforehand.
Sara Rathner: The dealers don't operate in this cone of silence. So if you have questions while you're playing, you can talk to them. They want you to win, because then you'll tip them more. So it's really a mutually assured situation, so get their help so you win and then, give them a good tip.
Sean Pyles: And then, also, lastly, when you are going to have fun doing anything, know that's why you're there. You're there to have a good time gambling. And if it hits a point where you're not enjoying what you're doing that evening, if you've lost all of your money that you said you were going to spend, just walk away. It can also help to walk away on a high note. So say that you just had a great game of blackjack. Think about walking away at that point versus one last game where you might lose everything. You kind of want to end things feeling good versus, "Oh crap. I just lost money that I had won." So think about that, too.
Sara Rathner: Yeah. Honestly, it's just good life advice. If you're ever not having fun anymore, go home, leave. Leaving is always an option, so if you're not having a good time with the casino, go do something else.
Sean Pyles: Yeah. Great. So the bottom line basically is — gamble if you want, have fun, but don't expect to come home richer than you entered the casino.
Well, now we have a question for the audience. So I would love to hear your approach to gambling spending, and maybe losing some money at the casino. How do you all Nerds approach this? Kevin — a microphone is being ...
Sara Rathner: Microphone for Kevin.
Sean Pyles: ... whisked over to you as we speak.
Sara Rathner: It's on its way.
Audience Nerd 1: All right. This might be a little controversial, but I think it plays into the strategy of having a plan before you get here. And from the psychological perspective, I would really recommend making a plan for your first night in Vegas that does not include gambling because if you don't have a plan, you're going to end up gambling. And there's something to be said for waking up on day two of your trip having not lost any money.
So whatever it is, buy show tickets, go out drinking with your friends, go to a karaoke bar, but have a plan for night one, and actually try not to gamble, because then you wake up day two and you're like, “I have not lost any money at the casino!” And most Vegas trips, right, for normal vacations two, three days. So then you can take your stab on day two. There's nothing worse, and I speak from experience on this, there's nothing worse waking up on day two and you're like, "I'm already like a hundred dollars down or $200 down." It just puts a damper on your trip. So, if you can make a plan, just don't gamble day one.
Sean Pyles: OK.
Sara Rathner: Kind of like my philosophy. I'm never getting sunburned on the first day of a beach vacation, which I've done. Don't do it.
Sean Pyles: Yeah.
Sara Rathner: Day two's going to be real bad.
Sean Pyles: And day three and four after that.
Sara Rathner: Every day thereafter.
Sean Pyles: Until you're done peeling. Yeah. OK. Any other Nerds want to share their gambling tips over here?
Sara Rathner: Oh, I got a microphone coming.
Sean Pyles: Someone's running, running, running.
Audience Nerd 2: Yeah. Hi, everyone. I actually lived here for a long time and the big advice that I always used to hear is not that you should only have a budget for what you're willing to lose, but also, "If I win this much, then I will quit." Because otherwise you start with this idea that, "No matter how high up I'm going to get, I might still get higher and I could still spend more and try more." But if you say, "If I win 500 bucks, I'm going to call it good and I'm excited, I'm going to quit" — you have more of a chance then of walking away with your money instead of just keep frittering it away.
Sean Pyles: Yeah. People call that their walkaway number. And so, knowing what your high point is, where you're going to say, “I'm going to go do something else besides gambling now.” OK. Well I think we can move on to the next segment. And in between that we have another “Would You Rather.” Sara, do you want to tee up the question? Everyone, get your phones maybe ready.
Sara Rathner: This is not a Vegas related question at all. So this time, the question is: "Would you rather own your dream home but not be able to invest in the stock market, or rent in your favorite city and be able to invest as much as you want?"
Sean Pyles: While the Nerds think over this complicated question with technical difficulties, perhaps along the way, what would you do, Sara?
Sara Rathner: I would rent.
Sean Pyles: OK. Why is that?
Sara Rathner: I am a homeowner. I didn't buy my first home until I was in my mid-30s. So I spent a long time renting. I kind of rented my starter home. So it's not ... People say renting, “Oh renting is throwing money away.” It's not. You have a roof over your head; it serves a purpose.
Sean Pyles: Gives a lot of flexibility.
Sara Rathner: It gives you a ton of flexibility, and you have a landlord who changes the light bulbs for you. If you have a good landlord.
Sean Pyles: If you're lucky.
Sara Rathner: If you're lucky.
Sean Pyles: If you have a good landlord.
Sara Rathner: Sometimes you have landlords who are like, "Oh, roach problem — that's not a big deal."
Sean Pyles: Yeah, “Your problem.”
Sara Rathner: It's a big deal. But yeah, and I would much rather rent and location is really important to me, too. So if it means living where I really want to live and being able to invest then, plus my house is 105 years old and I'll be damned if that thing doesn't take a lot of work.
Sean Pyles: OK.
Sara Rathner: I'm OK losing that responsibility.
Sean Pyles: Wow. Look at this. OK. The results are trickling in. It seems like “dream home, can't invest” is the winner.
Sara Rathner: Yeah. A lot of you disagree with me.
Sean Pyles: People, Americans love to buy a home and we're international. So who knows?
Sara Rathner: I don't know.
Sean Pyles: Yeah. Honestly, I kind of lean that way, too. I love having my home and my safe, cozy space, and owning a home is an investment in a sense.
Sara Rathner: It's true.
Sean Pyles: Depending on when you got into the market. OK. Wonderful.
Sara Rathner: Speaking of investing ...
Sean Pyles: Speaking of investing, let's get to our next segment, which is a money question from a Nerd. The question is: "If I would like to start investing, is it a good time now with the market moving down almost every day or is it better to wait a year?"
Sara Rathner: So we will start by reminding you all that we are not investment advisors. So nothing we say is personalized advice, do whatever you want, we don't care.
Sean Pyles: Yes. Shout out to the NerdWallet legal team. We will not tell you what to do with your money.
Sara Rathner: I don't know. I don't know if I phrased that in the way that our legal team would prefer, but I'll repeat it again at the end.
Sean Pyles: Do what you want. We're not responsible, basically.
Sara Rathner: Yeah. Do what you want. I'll sleep at night.
Sean Pyles: But that said, a financial advisor would probably say that you might as well get into the stock market now because the longer that you have to invest, the more time you have for your wealth to grow and that just gives you more money over the long run.
Sara Rathner: So there's this concept called time value of money, which involves a whole lot of algebra, so I won't really get into it, but a dollar today is worth more than a dollar tomorrow. That's the idea. So whenever you're given the option of investing sooner, rather than later, that typically is beneficial to you mathematically speaking to do it on the earlier side. And also it's just the whole idea of timing the market. For most people, it's not going to lead to success. Most of us simply don't have the knowledge that is required to be able to thoroughly analyze investment options and come to some sort of intelligent conclusion on a course of action, based on the information that you found. Most of us aren't going to take the time to do that. We don't have the knowledge to do that. So you kind of want to take your lizard brain out of it a little bit.
Whenever I talk to friends who try and time the market, I ask them, "What's your philosophy? What's high for you? What's low for you? What are you looking for in order to take action?" And it's just operating on vibes. They have no idea what they're doing. So I'm just like, "Take yourself out of it." We have the technology to automate a lot of these things and it's OK to admit to yourself and others that you would much rather just let robots make decisions for you instead of trying to tinker with your investments all the time.
Sean Pyles: And getting started as soon as you can also helps you take advantage of the strategy called dollar-cost averaging, which is a very jargony way of saying that you can average out the price that you're paying for stocks over the course of your investment lifetime, basically. So right now stocks are actually what some people are calling "on sale" because the stock market's been going down. But a year ago, buying the same stock would've cost you a decent amount more, so if anything, now is an excellent time to get into the stock market.
Sara Rathner: And if you already contribute to the 401(k) that we have here at NerdWallet or another retirement account, then congratulations, you're already dollar-cost averaging, so ...
Sean Pyles: Potentially.
Sara Rathner: ... you've done it.
Sean Pyles: Yeah.
Sara Rathner: That's it.
Sean Pyles: You fund the account, but then you have to choose the investments, that's the first thing ...
Sara Rathner: Yeah, OK, OK. So this is, oh God, this is a mistake that I have seen. I used to work for a financial planner, so I saw this with clients and I saw this with friends: A 401(k) or an IRA is merely an account. It is not investing. It is an account that holds your money and then you can do things with that money. So the default, when you deposit that money, is it's held in cash and you have to tell it where to go. And I know people who didn't do that second half of the process and their money sat in cash in a 401(k) for a decade. So don't do that. That is a bad move there.
Sean Pyles: Yeah.
Sara Rathner: So that's ...
Sean Pyles: Spiel done.
Sara Rathner: Spiel done, off my soap box, just don't screw it up.
Sean Pyles: Yeah. Well we should also talk about investing when the stock market is on a downward trend, which is kind of the crux of our Nerd’s question here. And unfortunately, whether we're going into a recession or not, the verdict is out, there's no such thing as a recession-proof portfolio, but there are some companies and sectors that savvy financial investors will look into when the economy is not doing so great. So mutual funds that track sectors like consumer staples, groceries, as we know, have been getting more expensive and also utilities tend to be pretty popular during recessions, because they're more stable.
Sara Rathner: Yeah, and just really just think long term with investing. Typically, we recommend if you have money you need in the next five years, don't invest it. So it's really more for a longer, middle to longer term goals that you might have. And time in the market helps smooth out volatility. If you look at how a stock or an index is performing in a month, and then you zoom out and look at it over 10 years, the month view is like a roller coaster. And then you zoom out and look at 10 years and it's just this smooth upward trajectory, hopefully. So something that feels like a massive dip over the course of one day just has a way of feeling a little less intense, and that's true of so many things.
Sean Pyles: Yeah.
Sara Rathner: You just want to take a long view.
Sean Pyles: Right. Well, now we would like to hear from some Nerds about how you think about and manage investments when the stock market's not doing so great or the economy seems like it might be tanking. So Nerds, what do y'all think?
Audience Nerd 3: Hi, I'm Elina.
Sean Pyles: Elina, hi.
Nerd 3: The travel team. Hi, how are you?
Sara Rathner: Hi.
Nerd 3: So I think that when the market goes down, you just kind of have to ignore it and just stay with it. And before NerdWallet, I worked in banking. So I have an outside view of the investing process in the market, but there's always cycles. And if you take your money out when the price is low and then it goes up, you're going to regret it. So if you have a long-term vision, then you could be confident that our economy's strong in the U.S. and that eventually it will rebound. And then you can really take advantage of that.
Sean Pyles: And one thing that we probably should have mentioned before is that now's a great time to not look at your 401(k).
Sara Rathner: Don't do it.
Sean Pyles: Ignore all of your accounts.
Sara Rathner: Oh, God. I did that a few days ago and oh, it's not doing well.
Sean Pyles: It's not going to feel good. So just maybe forget your credentials. Don't forget them, but store them elsewhere and don't look at it.
Sara Rathner: Yeah.
Sean Pyles: OK. Anyone else?
Sara Rathner: We have one down here.
Sean Pyles: All right.
Audience Nerd 4: There's a few things that helped us. One is that we are fortunate enough that we have our six-month emergency cushion. So we're able to just automatically deposit some amount of our money into an investment account every month. And that it's helpful to know that there's at least money there that's available. The other thing is that I stopped looking at my Fidelity app about a month ago and I'm better for it. Part of it is a psychological game.
If you're worried about losing too much money, it's important to note that most brokers will let you do things like stop-loss trade, meaning you can set a price target and if that stock hits that price target, you can sell stock. So if you are worried about losing money or you have a walkaway number and the stock pops beyond a certain point, you can set an automated trade. Kind of like what Sara was talking about with automation. And doing things like that have really helped me manage the stress of investing, essentially my future — not thinking too much about it.
Sean Pyles: Yeah.
Sara Rathner: Yeah, you make a good point about having an emergency fund. So having some amount of money — whether it's a few hundred dollars or a month of your living expenses or three to six months of your living expenses, or even more than that in a savings account in liquid cash, essentially — so you can withdraw that money when you need it in an unexpected situation without too much financial consequence, unlike selling investments where there are tax consequences. So that's the foundation before you begin investing in other things. So get that set up first. So if you're wondering where to start with the emergency fund, and then from there, you can make a list of your other financial goals, but at least you can act knowing that if something were to happen, you don't have to go into debt to deal with the problem.
Sean Pyles: Right. Sara, how do you think about investing?
Sara Rathner: I am super lazy about my investing, actually. Does that surprise anyone? I hate gambling. I'm like a cat.
Sean Pyles: Yeah. Risk averse.
Sara Rathner: I'm not risk averse.
Sean Pyles: Oh.
Sara Rathner: But I do invest. I've got some time till I retire. So it's not like all in bonds or whatever, but I know what I don't know. And I don't know what's going to happen to the economy. So I just put money in the market every month, an amount of money that I feel comfortable with and it's an amount of money that I know I can back off from, if I have other goals that are more pressing. So I've sort of structured my money in such a way that it's like, I'm aggressive as I can, when I can be aggressive — in terms of the amount of money I put in, not necessarily the investments. And then if I have to put the brakes on it and pay for something else in my life, then I can do that. And then I just don't check anything. Except when I checked my 401(k) a week ago, like an idiot.
Sean Pyles: Right, yeah. So lesson learned.
Sara Rathner: Yeah. How about you?
Sean Pyles: Very similar. I contribute to the 401(k), get a match, have the Roth and then I have a robo-advisor account, which is a really easy way to invest for those who are lazy and new to investing. It helps fix investments for you largely based on your own criteria. And I just have automatic deposits into that account. So I don't think about it. I hardly look at it. I make sure things are good and on track every quarter to six months, depending on how lazy I'm feeling. But beyond that, I just let things do what they're going to do and so we'll see.
Sara Rathner: Yeah. I think, with that, it's time for our final “Would You Rather” question.
Sean Pyles: Our final one, you guys.
Sara Rathner: Yeah, this is a bit of a math question: "Would you rather get $10 million today, or $100 million over the course of 30 years?"
Sean Pyles: Math.
Sara Rathner: Math.
Sean Pyles: The content team is scared right now.
Sara Rathner: Time value of money.
Sean Pyles: Too many numbers.
Sara Rathner: Quick, somebody calculate the rate of return.
Sean Pyles: You're actually decent at math, Sara, you did this calculation.
Sara Rathner: I have a calculator that, especially for things like this, I will tell you what the answer is afterwards, but I'm curious ...
Sean Pyles: Was that the calculator you got for CFP [certified financial planner] classes?
Sara Rathner: Yes.
Sean Pyles: Yeah. I have the same one.
Sara Rathner: Yeah. It's weird.
Sean Pyles: It's collecting dust.
Sara Rathner: Well, there's an app on your phone, too.
Sean Pyles: Oh.
Sara Rathner: I don't even know where my calculator is.
Sean Pyles: Yeah.
Sara Rathner: It was $80.
Sean Pyles: Yes.
Sara Rathner: I don't know where it is. Everybody's talking, they're ...
Sean Pyles: Yeah. How did you first start thinking about how you would answer this question? Was it the numbers or did you have certain personal criteria?
Sara Rathner: So I had a hunch, but then I ran the numbers and it confirmed my hunch.
Sean Pyles: OK.
Sara Rathner: So that's ... Yeah. OK.
Sean Pyles: All right. It seems like folks are kind of settled on $10 million today.
Sara Rathner: Yeah.
Sean Pyles: Sara, will you show us the numbers?
Sara Rathner: OK. Not everyone's ... Everyone's still like ...
Sean Pyles: Yeah. People are still doing it. We'll just …
Sara Rathner: Settling it.
Sean Pyles: OK.
Sara Rathner: All right. So I think a lot of you took my "Dollar today is worth more than a dollar tomorrow" advice to heart and you picked $10 million today. So here's the deal with that. If you were to invest $10 million today for the next 30 years in the hopes of getting a hundred million dollars at the 30-year mark, you need a rate of return of 7.98%. Point being, if you were hoping to turn that $10 million today into a massive windfall, it's going to have to invest it pretty well, which you can't predict, as we've discussed. So I will be OK with that.
Sean Pyles: Also, there's something to be said about just having a bunch of money immediately and doing whatever the hell you want with it. I'm kind of leaning towards the $10 million personally.
Sara Rathner: Oh yeah? Yeah, that's OK.
Sean Pyles: I want instant gratification it turns out.
Sara Rathner: Well, neither of us are going to get what we want, so ...
Sean Pyles: This is a hypothetical; no one's getting any money.
Sara Rathner: Nobody's getting any money. I'm sorry. We aren't going to be like, “Look under your chairs!”
Sean Pyles: Yeah.
Sara Rathner: “Everybody has a wad of cash!” I'm sorry, this isn't Oprah.
Sean Pyles: I wish. No.
Sara Rathner: I don't know what you're hoping for.
Sean Pyles: All right. Well, now we are moving on to our next Nerd money question and we're actually going to be joined on stage by the Nerd for this conversation. Skylar, please join us.
Skylar: Wow, it is really bright.
Sean Pyles: Yeah.
Sara Rathner: Yeah. Hi, Skylar.
Sean Pyles: Welcome on stage, Skylar.
Sara Rathner: We haven't met before, but I admire your cats on Slack.
Skylar: Thank you. Thank you. The cats channel, everybody go there.
Sara Rathner: Oh, totally.
Sean Pyles: Yeah. OK, so you reached out a few months back because you had a pretty interesting story about some Bitcoin that you received. So can you tell us the story of how you received a nice amount of Bitcoin?
Skylar: Yeah. So an old friend of mine that I'd known for a decade from college came over one day. First time we saw each other in like a year, because pandemic, and we were making fun of cryptocurrency. And I was like, "Hey, I think I remember you saying you had some from way back in the day,” which is only seven years ago. And he's like, "Yeah, I think I do. I think it’s on a hard drive somewhere." So we ended up going on a treasure hunt through a big pile of hard drives, and we found a substantial amount of cryptocurrency.
Sara Rathner: Nice.
Sean Pyles: Very nice. And you ended up acquiring some of it by their own generosity.
Skylar: Yes. Yes. So as a thank you gesture for being like, "Hey, you have these files that you should have checked before they wither away," I received a nice sum of money, which helped me buy a house that I've been moving into before this event.
Sean Pyles: Congratulations.
Sara Rathner: Yeah.
Sean Pyles: Very nice. So getting this Bitcoin was a life-changing moment for you. You were able to buy a house, and I imagine that was an amazing feeling, but you also probably had a lot of questions in the immediate aftermath. What were your initial concerns?
Skylar: So our initial concerns were, "What do we do, and are we going to tank something just by moving funds places?" So I actually ended up reaching out and we have the Slack channel at NerdWallet — I'm saying this as if the audience — “Ask a content nerd,” and I was like, "Can somebody just explain it like I'm 5? I just don't know where to even begin."
And some of the questions that ended up coming out with that are like, "OK, what do we do? Do we cash it all out right now? Do we save it? It's a gift. What does that mean?"
Sean Pyles: Are you in trouble with the IRS? All of a sudden.
Skylar: Yeah. Am I on a watch list right now?
Sara Rathner: Probably.
Sara Rathner: Sorry.
Skylar: Yeah, probably also before that.
Sean Pyles: For other things to be clear, shout out to Nerd writer Andy Rosen for helping Skylar with this. Thanks, Andy. So there are some very complicated intricacies of cryptocurrency as you were kind of alluding to, but in essence, you received a big windfall. And there are some general principles of getting any kind of windfall that NerdWallet likes to recommend, one is just taking a moment and realizing, "Holy crap, something huge just happened to me." And just sitting with that before you do what you should do next, which is make a plan: short-, medium-, long-term goals. What was your process for thinking through, "OK, I'm going to buy a bunch of crap immediately, versus 50 years from now, here's what I want that money to be doing for me."
Skylar: Well, I mean, to be perfectly honest, the big concern was that this happened on the downtrend of everything. So it's like, "What do I do right now?" And I did take the advice and sat with it. Andy actually recommended to me some crypto-focused financial advisors. I reached out to them. Finding a financial advisor was kind of interviewing people that you'd be working with. It literally is; you're hiring them. The value of what I had did drop during that time. But I'm thankful that I did that because it ended up making me realize what this can do and what it can do for me later. But the immediate plans that were like, "What happens if I cash out too much of it? What are those implications? This was a gift. How are gifts taxed?" The other thing about this is that this is all Bitcoin that was mined in 2009 when the value was $0. What does that mean for a gift? How do you explain that to a financial advisor or even the IRS?
Sean Pyles: Well, that's why it's important to find a financial advisor who knows the stuff in and out. And when you're shopping around for a financial advisor, as I'm sure you probably were aware of at the time, it's really important to find a fee-only fiduciary financial advisor. And there are a lot of jargony terms in that title. So let's break it down a little bit. Fee only means that they get paid by a fee; you pay them not based on a commission for things they sell you, which as you can imagine, might create a conflict of interest. And fiduciary just means that they're an advisor that has your best interest first, rather than their own bottom line.
Sara Rathner: And in your situation you did right by finding somebody with crypto experience. That is still a very niche kind of specialized thing for a lot of people in the finance world and not everybody has that expertise. So you really want to find somebody who can walk you through all the different ramifications of holding crypto, selling it, storing it, gifting it, leaving it to beneficiaries, all of those things.
And speaking of beneficiaries, it might also be helpful, especially if it's a very large amount of money, to talk to an estate attorney and work your cryptocurrency into your estate plan. You need to have things in writing: your keys, who can access them if something were to happen to you because crypto is stored on a tiny thumb drive that you should keep in a fireproof safe, by the way, if you don't — don't leave it in a drawer and then hide your keys somewhere and lose them.
So you want to talk with people with this expertise because they can help you think, "How am I going to use this windfall now and in the near future? But if it's big enough that I can think about, what's my legacy going to be with this money?" Then somebody can help you organize your thoughts and develop that legacy and create that plan.
Sean Pyles: So after you talked with your advisor, how did you make a plan to do what you ended up doing, buying a house?
Skylar: Well, I kind of just went, “OK, how much do I need to put down?" I ended up being really lucky actually, because the house that I bought was on the market for five weeks, it was overpriced and it was right when the market was cooling off in Chicago. And I was able to start that process right before the latest interest rate hike. That was also another question that I had: “Do I need a mortgage? Is that a good idea? What does that do for me? I don't know.” I've told many people at NerdWallet, I was financially illiterate up until five years ago when I found the website. But, yeah.
And then the other thing, too, Sara just touched on storage of cryptocurrency. There's many different ways to do it. There's a lot of heated drama online about where you should store it, how you should hold that. Sara mentioned a hardware wallet, keeping that in a fireproof safe. There's also the idea of your recovery seed phrase. I know our InfoSec team, they know all about that. But what I ended up doing with that was, the whole point of us looking for all of this was, "How do we protect this from a hard drive that's going to fail to something that can last longer?" So we bought hardware wallets. We also bought fireproof devices that we can keep those storage keys on and put those in safe deposit boxes. I have one of my backup keys with a trusted family member. That sort of thing.
Sara Rathner: Sounds like you got it all tied up with a bow.
Skylar: Very. If there's one thing that I've taken seriously for the past decade it's information security, so ...
Sean Pyles: Great.
Sara Rathner: Awesome.
Sean Pyles: How did you think about gift taxes, if at all, on this process?
Skylar: I had no idea what that was. So the thing is, my friend and I, we were trying to be as private about this as possible, because this is as what decided was a windfall of change, I realize I'm talking about this publicly in a big room of people, we have a podcast.
Sean Pyles: Thousands of listeners, who'll be hearing this later on.
Sara Rathner: We're all going to your house after this.
Sean Pyles: Yeah.
Skylar: Oh, I mean the house is great. I don't have furniture yet.
Sara Rathner: Then it'll fit us all better.
Skylar: But so the question was like, "Do we treat this as found money? Do we treat this as a gift? What does that mean?" And hiring a financial advisor that was actually really helpful, and again, this is not financial advice that I'm giving you, but if we were to claim it as found money, we would've had to claim it as income. Whereas if it's a gift — because of the specific parameters around this gift, it being that the original value of it was $0 — that at the time of cashing out, as I understand it from the fiduciaries I've talked about, this is really just a long-term capital gains tax thing. So that's why it was important, but can somebody actually explain a bit more about gift taxing because I've heard multiple different things about it?
Sean Pyles: Yeah, well the good news is, you don't owe taxes on this and neither does your friend.
Sean Pyles: Yes, but if you give someone more than $15,000 in a year, if you're generous enough to do so, you are supposed to file a gift tax return. And that basically subtracts the amount from the total that you can give over the course of your life, which is $12 million. So again, a lot of money. So you're good, don't worry about it.
Sean Pyles: But again, this is not advice, talk to a tax pro.
Sean Pyles: They'll be able to help you, especially next year when it comes time to file your taxes.
Sara Rathner: We're not accountants, either.
Sean Pyles: No.
Skylar: Yeah, no, that's actually next on my agenda is finding a CPA [certified public accountant].
Sara Rathner: Yes.
Sean Pyles: Yeah. Awesome. OK. Well now we would like to talk with the audience a little bit. How would you approach receiving a life-changing financial gift? What would be the first thing that you do? Which is a big question, so chew on it a little bit. Sara?
Sara Rathner: I would never fly coach again. No joke, with the flight here, I was seated next to somebody for whom deodorant was apparently optional. And I was seated in front of a man who was very tall and took his shoes off and then just had his foot like this. So his bare foot was just right in my peripheral vision in the aisle. I would live a life where there was more space between me and my fellow passengers whenever I traveled.
Sean Pyles: And then you would call in the team of advisors and they would …
Sara Rathner: Yes, I would assemble my financial dream team. I'd have the financial planner. I would have the tax professional. I would have the estate attorney and knowing myself, I would take a couple months just to sort of process everything. But yeah, I would basically talk to the financial planner and be like, "Make it so that I never fly coach again." Just, that's my call. Please make it stop.
Sean Pyles: Yeah.
Sara Rathner: Yeah.
Sean Pyles: Well now let's hear from some folks in the audience. Anyone want to share what they would do first if they got a nice amount of Bitcoin. All right, Andy?
Sara Rathner: Andy, I want to know.
Sean Pyles: Mr. Rosen.
Sara Rathner: He's like, "I would buy all the Dogecoin." I'm kidding. I don't think you'd do that.
Audience Nerd 5: Well, congratulations by the way. I'm really glad to hear it worked out so well for you. I don't know, what I'm thinking of, I mean, we keep talking about this as part of this discussion, which is you have to make a plan. So even if your plan changes because you get more money, you want to think about what kind of lifestyle enhancements you might be able to afford. You might get a windfall of money and potentially you want to just spend it all right away, buy a giant house that you're going to have trouble paying off, or you can see what about your financial life needs to be fixed.
If it was me, I'd be looking at exactly how I can get everything set up the way I want it and be comfortable in the life that I have now. And then I would say, "OK, what can I afford that I wouldn't be able to afford before? What are my values? What do I really want to do with this money?" And it might turn out that I have a lot less to spend than I think I do. So the first thing I would do, I think, is make that plan just like we've been talking about in all these other scenarios.
Sean Pyles: Great advice. Other Nerds?
Skylar: I want to hear something fun.
Sean Pyles: In the back? Back there.
Sara Rathner: And then we're all so responsible like, "I'd invest it."
Sean Pyles: Who would blow all of it in one day.
Sara Rathner: I want somebody to go out and buy a Tesla.
Audience Nerd 6: All right. Hey folks. As far as my ideas on what would happen if you were to get a huge windfall of money, I think outside of having, of course, a plan to figure out how you're going to actually handle this money, I think you need to figure out your — not to get meta here — but your idea or your philosophy behind money. Because it's one thing to get a ton of money and then just spend it on two Teslas or something, I don't know. But what I think one should do is, and this is just me personally, pay it forward to folks who are important to your life or something. Maybe your parents, maybe your partner, maybe your kids, for example, if you have any, and, because not everyone gets a windfall and if you can look out for others, then I say do it.
Sean Pyles: Yeah. I love that. Budgets are documents that reflect your values, so if you want to contribute and help people who aren't as fortunate, it's a thing everyone should do, I think. Anyone else? Let's hear from one more person. If you received a nice amount of life-changing money, what would you do first? Amanda? Amanda in the front row here?
Audience Nerd 7: Well, I don't know about y'all, but me and my husband have these talks and we're laying in bed at night, going "The lottery is $500 million, what will we do?" And we play this game in our head where, "We'll pay off the house, we'll buy a car, we'll pay off our parents’ mortgages." Thinking about the do for yourself, do for others. But then I think there's got to be a certain amount of money where you just go ball at the mall.
Sean Pyles: Yeah.
Nerd 7: Where you say, "We each get 5 grand or whatever." I don't even know.
Sean Pyles: At least.
Nerd 7: The scale of this money is just like the space photos from NASA. It just seems so foreign, anyway, but you just go ball at the mall.
Sean Pyles: Absolutely. Ball at the mall.
Skylar: And I just want to share one last thing. The thing that I did when this happened to me was I turned to the Nerds.
Sean Pyles: Great. Thank you for the plug. Thanks for talking with us, Skylar.
Skylar: Thank you.
Sean Pyles: All right. And that's all we have for this first ever live episode of the Smart Money podcast. Thank you all for joining us. Thank you.
So as always, if you guys have money questions, turn to the Nerds, call or text us on the Nerd hotline at 901-730-6373, that's 901-730-N-E-R-D. Or email us at [email protected]
Sara Rathner: Before we go, though, a quick reminder and more formal way to say the disclaimer that I said earlier. This is from the brilliant minds on the NerdWallet legal team. Your questions are answered by knowledgeable and talented finance writers, hi there, but we are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes, and may not apply to your specific circumstances.
Sean Pyles: And with that said, until next time, turn to the Nerds.