Financial Advisor Answers Money Questions From Twitter 💰| Tech Support | WIRED

Summary

In 'Money Support,' Kevin Matthews II addresses financial queries from Twitter, explaining the current recession indicators, credit score factors, and the importance of early retirement savings. He discusses wealth accumulation through business, stocks, and real estate, critiques the tax system's bias towards the rich, and advises on college ROI, treasury bonds, debt management, budgeting, and investment strategies. Matthews emphasizes the value of compound interest, the risks of high debt ratios, and the benefits of index funds and ETFs over mutual funds.

Takeaways

• 📉 A recession is technically defined by two consecutive quarters of negative GDP, and the U.S. has experienced this in 2022, although it is not officially declared by the National Bureau of Economic Research.
• 💳 Your credit score is influenced by payment history (35%), credit utilization (30%), credit length (15%), new credit (10%), and credit mix (10%).
• 💰 Start saving for retirement as early as possible to take advantage of compounding interest, which allows your money to grow exponentially over time.
• 🏆 Becoming a millionaire often involves business ownership, stock market investments, or real estate, and requires patience and the benefit of compounding interest.
• 💼 The U.S. tax system has loopholes that disproportionately benefit the wealthy, such as mortgage interest deductions and lower capital gains tax rates.
• 🎓 Despite a negative ROI in the first 10 years, the median lifetime return on investment for a college degree is 287%, making it a worthwhile investment over time.
• 🔒 A treasury bond is a loan to the U.S. government with a guaranteed return of principal and interest on a maturity date, considered a safe investment.
• 🚫 A debt-to-income ratio exceeding 43% is a red flag for lenders, indicating too much debt relative to income.
• 📊 A realistic budget follows the 50/30/20 rule, allocating 50% for necessities, 30% for discretionary spending, and 20% for savings and investments.
• 📈 Investment benchmarks like the S&P 500 are used to measure performance, and a buy-and-hold strategy with index funds and blue-chip stocks is recommended for long-term growth.
• 🤔 When investing in stocks, define clear goals to determine the type of stocks to buy and when to sell, and conduct thorough research on the company's performance and potential.
• 🚫 The phrase 'if you can't buy the dip, just survive it' suggests holding onto investments during downturns instead of selling, but it's important to understand the risks and set limits.

Q & A

What is the technical definition of a recession?

A recession is technically defined as two consecutive quarters of negative GDP (Gross Domestic Product), which reflects the total output of goods and services produced by a country.

Why hasn't the National Bureau of Economic Research officially declared a recession despite two negative quarters of GDP in 2022?

The National Bureau of Economic Research considers multiple factors beyond GDP, such as unemployment and consumer spending, before officially declaring a recession.

How is a credit score calculated?

A credit score is calculated based on five factors: payment history (35%), credit utilization (30%), credit length (15%), new credit (10%), and credit mix (10%).

Why is it important to start saving for retirement early?

Starting early allows you to take advantage of compounding interest, where the interest earned on your money also starts earning interest, significantly growing your savings over time.

What are the most common ways to become a millionaire?

The most common ways to become a millionaire include business ownership, investing in the stock market, and real estate. Patience and time are also crucial factors in building wealth.

Why is the tax system often perceived as rigged in favor of the wealthy?

The tax system is seen as rigged because there are tax breaks that disproportionately benefit the wealthy, such as the ability to write off mortgage interest and the lower capital gains tax rate compared to income tax rates.

What is the median return on investment for a college degree over a lifetime?

The median return on investment for a college degree over a lifetime is 287%, though the return can be negative (-41%) in the first 10 years.

How can you explain a treasury bond to a five-year-old?

A treasury bond is like lending money to the U.S. government, which promises to pay you back on a certain date with some extra money (interest) for letting them borrow it.

What is a realistic debt-to-income ratio to maintain?

A realistic debt-to-income ratio should ideally be below 36%, and hitting 43% or higher is considered a red flag that indicates too much debt relative to your income.

What is the 50/30/20 rule in budgeting?

The 50/30/20 rule is a budgeting guideline where 50% of your income goes to expenses, 30% to fun or discretionary spending, and 20% to savings and investing.