US National Debt Mega Savings Strategies & More: Cut Through The Noise

How does the increasing US national debt affect me? What are some mega savings strategies for my excess cash & More

In this episode of Cut Through The Noise, Anthony Saffer, CFP®,CKA® and Alex Okugawa, CFP®, CEPA®, CKA® tackle the hottest topics in financial markets, financial planning, and life, including:

► How Will The National Debt Affect me?  With the increase in government spending, how will this affect individuals?

► Mega Savings Strategies If I’m doing the basics (cash reserve, 401k, etc.) where else should I be putting my money? Check for mega backdoor Roth. Taxable account contributions.

► Are we seeing actual inflation or just reflation from pent-up demand?  It’s easy to get sucked down the rabbit holes of what inflation will be. The main takeaway is don’t be caught off guard.

► What do you guys make of bitcoins and cryptocurrencies being accepted as payment through PayPal and Tesla? How is this any more efficient or faster than Venmo or Zelle for the end-user?

Watch Here:

Audio Version Here:

Show Notes:

• Mega Backdoor Roth: What It Is and Who Should Consider the Strategy

 

Full Transcript:

Alex Okugawa 0:00
Hi there, and welcome to our segment Cut Through the Noise where today we answer your questions that we’ve been hearing throughout the month.

Today we are going to be talking about the national debt, cryptocurrencies, inflation, and what you should be doing with extra cash. Stay tuned.

 

Alex Okugawa 0:25
Alright, so let’s dive right on into it. So one of the questions that we’ve been hearing a lot in general, is, how is the national debt going to affect me?

Anthony Saffer 0:35
It’s a big question that I think people have like, hey, do I need to worry about something right now, like national debts going up to about the same level that we’re at after world war two?

So I don’t know if that’s good news, bad news thing that yeah, it’s high. But maybe we’ve been there before?

Alex Okugawa 0:50
Yeah. Well, and when I talk to folks about this a lot, I look back and I say, Okay, well, you know, during World War II, the national debt was high, but how do we get out of our problem then?

We kind of grew, we grew and we expanded, it was wartime. So that was how we got out of our problem, then.

Fast forward to now is that necessarily how we’re going to be getting out of our problem,this time around?

Anthony Saffer 1:12
Taxes are probably going up, inflation is creeping up a bit. But it’s really this financial repression scenario that we talked about.

It’s like this stealth tax on savers where if you look at your bank account, you’ll see you’re just earning pennies, and interest rates are going to be kept low.

And inflation runs slightly above that, if that’s done long enough, it does chip away at the debt.

Alex Okugawa 1:32
So the main takeaway for you know, normal people, you and me is just being aware of how much cash we have at the bank. Because over time, right, like Anthony saying, You earn pennies at the bank.

Meanwhile, the cost of goods of everything around you will slowly creep up over time your purchasing power is getting eroded.

Anthony Saffer 1:49
Yeah, absolutely. Alright. Question for you, Alex. If I’m doing the basics, such as cash reserves, 401. k, where else should I be putting excess money?

 

Alex Okugawa 1:58
Yeah, that’s a good question. I mean, that first of all, it’s a very, it’s a great situation to be in, you know, a blessed situation. So I would say one of the first things you can do you mentioned 401k.

So if you are working and you have a 401k, one of the options to look at is what’s called a mega backdoor Roth strategy. And I actually wrote about this not too long ago. So we’ll link to that below.

But essentially allows you to put in more money into your 401k and save that away into a Roth than you would traditionally be allowed to do to normal contribution limits.

And then beyond that, I would say, just take a look at your overall household finances. Are there ways for your unique situation that you could be saving?

I know, a great way for high-income earners to save that are beyond, you know, their normal limits, and they have a lot of cash, just save in a normal taxable brokerage account.

There are no contribution limits, there are no income limits. And so you can really stock way a lot of money for the long term.

Anthony Saffer 2:56
And you can tailor the risk if you if you want it as more a second layer of reserves and don’t want to take a ton of risk, but still keep up with inflation or you know, slightly outpace it. You don’t need to be really risky with it, or you could go for growth.

 

Alex Okugawa 3:09
Well speaking of inflation. Another question we have here is, are we seeing actual inflation? Or is this just you know, reflation from pent-up demand from COVID? Things being so, so suppressed?

Anthony Saffer 3:21
Yes, definitely the latter. I mean, there is pent-up demand you’re seeing reflation. So we’re going to let at least what a lot of economists are saying is that you will see inflation certainly tick up more in the near term.

How much actually sticks in terms of inflation is to be seen.

Anthony Saffer 3:47

Got it. Alright, next question. Last question here. What do you guys make a Bitcoin and other cryptocurrencies being accepted as payment through PayPal and even from Tesla?

 

Alex Okugawa 3:47
So here’s what’s interesting is I actually looked at this, and specifically for PayPal, because I think PayPal announced, they’ll be like, kind of being the intermediaries who allow you to use Bitcoin to make small purchases, like really, really small purchases, beyond just a large purchase, like a Tesla car.

The problem is, if you read into it, and I’m reading a quote, it says sales of crypto assets via checkout with crypto are taxable, just like all other sales of crypto assets.

So the real problem here is a potential tax liability, potential taxation, right?

If you go to the store and you pay with cash, that’s not a taxable event. If you go through Pay Pal, and you pay for, you know, a candy bar through, you know, with a Bitcoin that will result in a sale of your Bitcoin, which will then turn into potential taxation.

So I’d say that’s really the bigger issue here. I’d say the other thing is, I mean, what problem are we really solving for here?

Because if you look at things like Zelle, or Venmo, I mean that has radically changed the way we pay with dollars.

People get paid very, very quickly. From the end-user perspective, it’s easier than ever. things move very, very fast. I’m just not really sure what problem paying with Bitcoin is solving at this point.

Anthony Saffer 5:10
Let me ask you this as an add-on question, then the fact that it’s being more accepted, cryptocurrency, does that bring it more validity? Taxes aside.

Alex Okugawa 5:21
Perhaps again, I’m no expert in this area. But my basic understanding of all this is that the number of retailers that accept Bitcoin is so incredibly small.

Yes, we’ll see a headline that, oh, you know, Tesla’s accepting Bitcoin but the overall adoption of using cryptocurrency as a form of transaction and payment is like fractions of a percentage point.

So I just, you see big headlines. I just still don’t see it moving the needle right now.

Anthony Saffer 5:49
Yeah. It’s hard to say. It’s an interesting story, though.

Alex Okugawa 5:53
Well, this was our segment cut through the noise. We hope you enjoyed it. If you have questions that you would like us to answer, please feel free to email us at admin at one degree advisors.com. We look forward to talking to you soon.

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