Budget Rehab: A Debt-Free Couple Plans for a Wedding, House and Baby (Plus: Inside Disaster Betting Markets)

11:08Sean Pyles:That can really help offset the annual fee on an Amex card. So yeah, I encourage you to look into that. A question about your gym, how much is that monthly? So it's between the two memberships combined, it's about$220 a month. Gyms are a category where sometimes a want can become a need because you get locked into a contract there. But if you guys use it regularly, it can really pay for itself just in being healthy and it seems like it brings you guys a lot of joy and fulfillment. So I'm happy with that, But I do want people to always be aware that there are certain areas where something that seems like a discretionary expense can become a necessity if you are locked into maybe a 12-year contract with them or a 12-month contract rather.

11:45Sean Pyles:A 12-year would be extreme for a gym.

11:48Elizabeth Ayoola:Well, before we move on to savings, I want to ask you guys, is there anything in your needs that you feel is too high or that you would like to knock down aside from the subscriptions? I don't really think so. The utilities payment has gone up as it's gotten hotter in D.C. I think when I first submitted this, we weren't really concerned with air conditioning because it was a little nicer outside. But I mean, we're definitely paying more on our electricity bill and our gas bill. But none of that has approached the point where it's like, hey, we need to sit down and really talk about 70 or 72 degrees type thing.

12:20Elizabeth Ayoola:Let's move on to savings. How much do you guys already have saved for retirement and also in an emergency fund? So I'll start with the emergency fund. We currently have a CD with Navy Federal Credit Union that has about$62 ,000 hanging out in it. We're transitioning that into an American Express high-yield savings account because the rate's pretty similar. It's a 3.5 versus a 3 % for Amex, but it's a lot more liquid. We can move that money around faster. We'll have access to it. We're treating that not only as an emergency fund, but also, hey, when we decide to get a car, because we're going to have to at some point, We want to pay a sizable portion of that car off right away.

12:58And that'll probably come from that pot of money.

13:01Sean Pyles:And is that your sole savings account? Or do you have savings buckets, sinkings funds, as we like to talk about? For the most part, it's all in the CD. We did open the high yield savings and that has 15 in it right now. So between the two, I guess it's like 75. And I think that's the majority of the savings. I don't think there's anything else. And then about your retirement savings, how much do you have saved between the two of you? Between our Navy-based, which is called a TSP, and our Fidelity-based accounts, it's around$350 ,000. Okay. And the Fidelity accounts, is that a taxable brokerage account or is that a retirement account?

13:36I've got a Roth IRA and a brokerage, a taxable brokerage. Just for retirement, which includes the Navy side and the Roth, probably$200 ,000.

13:45Elizabeth Ayoola:All right. Now let's look at you guys' retirement savings. Right now you're saving just over$3 ,000 a month into a retirement account. Which account is that going into? That is split between our Navy TSPs and then I just took the monthly average of the$7 ,000 Roth payment. Okay. And then where is this$800 a month going? That is the CD soon-to-be high-yield savings account. All right. And then this one is self-explanatory. We have$1 ,900 going into a taxable brokerage account. Is that correct? That is correct. And then how did you guys come up with the number that you're saving for retirement? How did you decide that you're going to put aside this amount every single month?

14:23You know, I don't think there was ever all that much intentional thought that went into this. Growing up, my parents sat me down and had the conversation, hey, it's good to save money. And before we started dating and we're both single in the States making decent officer pay, I kind of just had more money than I needed. And I knew I needed to do something with it. So I started just making the monthly contributions really without too much thought. until hearing some of your guys' past podcasts when I thought, okay, maybe like the 20 to 30 % range is where I should be hanging out because I have the means to do so right now.

14:55Elizabeth Ayoola:You're doing pretty good in terms of your saving rate, depending on the benchmark. But of course we know how much you should be saving is dependent on what your retirement goals are and how much you need in order to retire. Okay, so we're gonna move on to your debt payments. That's not gonna take long because y 'all ain't got no debt. Congratulations. Sean, do you wanna do the honors of telling them their score? So we usually measure across the 50, 30, 20 for those listening and watching. So for those who are new to the 50, 30, 20 kind of benchmark that we use a framework, 50 % of your income should go to your needs, 30 % to your wants, and 20 % to debt and savings.

15:32Sean Pyles:And the goal of this framework is to have balance in your budget. And sometimes your needs score might be closer to 60 if you're in an expensive area, but sometimes it actually might be lower. Like, Lauren, with you and Jack, your must-have score, your need score is actually closer to 33%, which is great. It means that you're having a pretty affordable way of living just based on what you're putting in for your groceries and your housing. So I love to see that. And your savings score is also a little bit below average, technically, at 28%. Usually that's around 30%. But still, because you don't have any debt, that's still a really solid number.

16:08Sean Pyles:You're putting a lot away. And your want score is closer to 38%. So a little on the higher end. And when you wrote to us initially, you'd mentioned that you were concerned about not having enough money to enjoy your day-to-day life and maybe have some of those wants expenses. How are you feeling about this category of your spending based on what you're seeing here and what you might want to do with your wants money?

16:31Elizabeth Ayoola:One of our questions definitely was about how much we're saving versus how much we're using day-to-day, especially because this first year it was moving into the townhouse and there was a little bit of furnishing that came with that. But it's the wedding party this fall. It's the possibility of maybe needing a car here in six to eight months. And then a couple travel trips. And then maybe a kid in the next year or two.

16:57Sean Pyles:Okay. Is there a lot of goals?

16:59Elizabeth Ayoola:A lot of goals in the next maybe 48 months, maybe less, 36 months. Yeah. I think part of our wants started a blending into the needs when we started getting used to lifestyle back in America. and like how much realistically is it going to cost for you to go out with your friends two times a week? What if it's three times a week? How often do you feel lazy and you order food in? One of the first times that we did a, hey, we've been here for a couple of months now, maybe we've established a bit of a more consistent routine. What does our spending actually look like? And we came to a situation where we were really going, okay, maybe we're going a little crazy.

17:30Maybe even with that cushion, maybe we're at a point where we have found the cushion's edge and it might be a good idea to kind of rein it in a little bit.

17:40Sean Pyles:I think that might be a fair conclusion based on your want score being 38 % and your various savings goals. We talk about sinking funds a lot on smart money because of how helpful it is as a strategy to make progress on multiple savings goals at once. So as you begin to put money into your new high-eld savings account, I would encourage you to look into maybe having three or four based on these different goals that you've just laid out, kind of backing yourself into them thinking, okay, if we do want to buy a car, in 10 months time, what kind of down payment do we want so we can feel comfortable with a monthly payment?

18:12Sean Pyles:And then you can begin to allocate specific money just for that. And same with having a kid and maybe even a vacation fund. This will help you stay organized instead of just having a general pool of money to pull from. And also get really clear on what your emergency fund number should be too. Have you guys looked into that, whether it's going to be three or six months of expenses for you? I think when I first started putting money into it, the idea was probably like six to eight-ish months.

18:36Elizabeth Ayoola:And then considering you all would like to have a child sometime in the medium-term future, I think, you know, especially when you have kids having six months to a year, an emergency fund can be extremely helpful. So in other words, the more the merrier. I also want to say, based on our conversation, I think it might be really helpful, kind of echoing what Sean said, to have a number for each of those buckets that you're working towards. So, you know, for the car fund, we need to save 50 grand. For the travel fund, it needs to be 20 grand. And then you can kind of reverse engineer and save. And let me tell you, that's also going to reel you in when you are doing YOLO and trying to have five nights out a week and just overspending because you're going to remember, hey, you're going to look at those different savings buckets and say, hey, we're not at our goal yet.

19:18Elizabeth Ayoola:And that money could go towards that.

19:20Sean Pyles:But crucially, you two are maybe thinking about pulling back on your retirement savings to help make your day-to-day life a little more comfortable and also make progress on these other savings goals. Talk us through your thinking there. That was so what Lauren kind of brought up earlier, the litany of major expenses coming up. We crunched the numbers on what that would look like. And I think the big part of that is it's very concentrated. We're looking at, you know, an eight month span where there's going to be serious costs that are hopefully just one time costs, but are sizable. And we were thinking, okay, this wipes out the high yield savings pretty quick.

19:55We don't want to tack up a whole lot of high interest debt knocking any of these payments off. So where might that extra money have to come from? And so then we were talking, hey, we're doing pretty well with our saving goals right now with a couple our age. If we do have to make a sacrifice somewhere, do you want to sacrifice some of the short term fun while we're still in our late 20s, early 30s? Childless. Oh, please say that again.

20:21Elizabeth Ayoola:When them kids come, they eat your money. You know, versus when a kid is in the picture and a lot of those kind of YOLO activities, they're kind of in the past at that point. So trying to find a way to like maximize the amount of fun without doing something radically out there that might actually damage your long term earnings and then investment account or retirement account.

20:42Sean Pyles:I think that makes a lot of sense, especially on a short-term basis. I mean, as a financial planner, although not your financial planner, I'm always loathe to see people pull back from retirement savings entirely, especially since you guys are pretty young and you really do have time on your side here. But numbers can be really helpful just to make this a little bit more concrete. So I put your information into NerdWallet's Retirement Calculator, and based on your income and your current retirement savings, if you contributed not a dollar more to your retirement accounts, by the age of 67, you would have about$1.8 million saved.

21:16Sean Pyles:Although based on your current expenses and your income, you would need about 7.8 saved. So a bit of a gap there. However, if you continue to save the amount you're saving now, you would have about 8.3 million saved. So you would have more than you need. An eight month gap of not saving anything, That's just going to be a short-term pause. And I don't think it would totally derail your retirement savings. I would encourage you to think about balancing savings, some for retirement still, while putting money into the other retirement accounts. So it's not completely all or nothing. But yeah, you're still on a good path.

21:54Sean Pyles:And based on your age, you guys are doing great in terms of retirement savings.

21:57Elizabeth Ayoola:So in other words, we give you permission to live a little. Of course, you don't need our permission. We're just kidding. Now on to the last thing you guys wanted to cover for your budget, which was preparing to have a child. Talk to us about that. How are you trying to fit that into your current budget? The biggest thing we've been looking into is we have the health care benefits right now. We see the scary numbers about having a kid outside of TRICARE. So that's something that we're using a lot in our family planning.

22:27Sean Pyles:What is TRICARE? Can you explain that?

22:29Elizabeth Ayoola:TRICARE is the military health care that we're afforded. It's immediately included in our salary. So we don't see a number being taken away every month, which is a nice feeling. Hopefully having a kid in the next couple of years, if at least one of us is still active duty, I don't want to say is free, but. It's very close. You're looking at like a copay of maybe$30 for having a child. Not bad. Huge benefit of staying in a little bit longer.

22:55Sean Pyles:And what about child care longer term? Is there daycare included?

22:59Elizabeth Ayoola:Not exactly. They did change some things the last couple of years where they have 12 weeks for each of us that is paid parental leave, which is really awesome. It doesn't have to happen at the same time, so we can stagger that, which gives us a little bit of time where we shouldn't need daycare. However, after those 12 weeks, we've started looking into what D.C. infant, toddler, preschool age daycare looks like, and those aren't pretty numbers. We do have the added benefit of D.C. has a large military posture. So you've got a lot of bases and a lot of these bases. It's understood that a lot of people have families.

23:32And so there are child care centers on a number of those bases. As you can imagine, they're usually long wait times to try and get a kid in there. But they do subsidize it. It's not free. You're still paying some money. But the average cost of child care in D.C. for like quality child care is like twenty four, twenty five hundred dollars. If you can get that through the military, it's a significant chunk reduced. There are certainly still ways to reduce it, but I mean, it's still real money. Even if you get that, you know, the child care cost alone with that benefit, you're probably still paying$1 ,500 a month.

24:04Elizabeth Ayoola:I appreciate that you guys are doing research and thinking ahead because I did not. I was like, oh, I'm pregnant. Wow. And then the chaos began. So there are so many things that I wish that I did ahead of time. One of them is started saving for college earlier. I was just playing around with a calculator to see if I'm on track for saving enough for my son's college education. And to be quite honest, not really, you know, but he still is going to have a good chunk of money for me to give to him. And I'll continue to increase the contributions as I go along. Something else I wish that I did was open an UPMA or UGMA account for him earlier during the pandemic.

24:39Elizabeth Ayoola:When some of us got that stimulus check, I opened an account for him and put that in there. And it's more than doubled now. So that's just to remind you guys the importance of saving early. And I remember back in the day when I was single and childless, I was talking to this guy who was trying to date me. And I remember him going, oh, I already have a savings account for my future kids. And I was like, what? Who are you? An angel. So, yes, just an example of how good it can be to start saving now. And in terms of how much, it's hard to say how much you should save towards having a kid. But I think, as Sean said earlier, having those sinking funds, it's not too early to start a sinking fund for child care, a sinking fund for anything for your kid, even just regular baby expenses, everyday expenses.

25:18Elizabeth Ayoola:Heck, you guys may need date nights. Do a date night sinking fund, whatever. But it's just not too early to start saving. Elizabeth, I got a question. So when you started saving money for your child's college, are you using a 529 for that or are you doing something else? I am using a 529. And I was lucky for anyone listening out there. My son is on the spectrum. So look out there for grants. I somehow came across grants in a mom group. And luckily, I don't know how I missed that I received the grant. I found out almost a year later when they were like, hey, if you don't spend this money, we're going to get rid of it.

25:49Elizabeth Ayoola:And I was like, wait, what money? But I was able actually to put the money into a 529 account for him to jumpstart his college savings. That's just a little side note for anyone listening. But yeah, I put it in a 529 account. I look for the account with the lowest fees. So it's not actually in my state. So you don't also have to open a 529 in the state that you live in. Let's say your child decides either he doesn't want to go to school or they decide they're going to get an ROTC scholarship and you're going to get it all for free. What happens to the 529 funds? Well, it depends. But thanks to the Secure Act 2.0, some of those funds may be able to be rolled into a Roth account.

26:24Elizabeth Ayoola:And not all of them. There's a limit to how much you can roll in. But that's actually what sold me also on opening the 529 because I worried about that, too. What if my kid doesn't go to college? What happens to all the money? And it can also be given sometimes if you have another child, it can be given to another child or a family member. So there are other things that can be done with the fund if your child doesn't go down the path that you think they will.

26:45Sean Pyles:And 529 funds can also be used for trade schools, too, which is a great advantage. You have a decent amount of flexibility with these accounts.

26:51Elizabeth Ayoola:OK, well, we have covered so many things during this episode. What do you guys think you're going to do next? Maybe what are your next top one or two things or changes you're going to make? I like the idea of kind of the specialized saving accounts. So knowing, hey, this is the car account. This is the travel account. We're pretty good normally about setting goals together and knowing how to execute those goals. But we haven't done it for those things yet. We just kind of have the big pot and we're like, the big pot will figure it out.

27:20Sean Pyles:So we all rely on the big pot until life gets a little more complicated and we need to get a more specific and tactile. Well, thank you both so much for being so open with your finances. We really hope this was helpful for you guys and we appreciate your time. Also, we always want to hear what you guys do afterwards. So please keep us posted on any and all big life things that you guys do together. Of course. Yeah. Thanks for having us, guys.

27:44Elizabeth Ayoola:And have fun at the wedding party. Send us pics. Thank you. Yes.

27:47Sean Pyles:We will. Very exciting. Up next, this week's Money News, where we explore how lucrative it can be to try predicting the unpredictable natural disasters. Stay with us.

28:03Sean Pyles:Today's episode is sponsored by Quince. You know, Elizabeth, I'm not big on trends, but I am big on clothes that feel good and last. That's why I keep going back to Quince. Their lightweight layers and high-quality stables have become my everyday essentials.

28:16Elizabeth Ayoola:And actually, Quince has all the things that you want to wear this summer. It is super hot in Texas, so I appreciate the organic cotton silk polos, European linen beach shorts, and comfortable pants that work for everything from your backyard hangouts to nice fancy dinners.

28:32Sean Pyles:I've been loving using my European linen duvet cover every night. I'm such a warm sleeper. And in these hot summer months, I need it just to get to bed at night. And it's so soft, so comfortable. And the color is delightful.

28:45Elizabeth Ayoola:I have only just realized that there are levels to towels. I got my first set of classic organic Turkish cotton bath towels. Very fancy. And I must say they are so soft and fluffy. And honestly, it's changed my perspective on buying cheap ones.

29:02Sean Pyles:Look, Quince is helping us live our domestic bliss. I love that.

29:05Elizabeth Ayoola:Stick to the staples that are going to last with elevated essentials from Quince. Go to quince.com slash smart money for free shipping on your order and 365 day returns. Yep, that's all year.

29:18Sean Pyles:That's q-u-i-n-c-e dot com slash smart money to get free shipping and 365 day returns. Quince.com slash smart money. Time now for our weekly Money News Roundup, where we break down the latest in the world of finance to help you be smarter with your money.

29:35Elizabeth Ayoola:Today, we're talking about a corner of the prediction market world. People betting on weather and natural disasters. Say what? Our news colleague, Ana Helhosky, is here with some research on these markets. Ana, talk to us about this. Why are we betting on the weather? A quick primer on prediction markets before we get into the natural disaster contract specifically. A prediction market is basically a market where people buy and sell contracts based on whether a future event is going to happen. You can bet on whether the Fed's going to cut rates at its next meeting, who wins the World Series, or whether a certain kind of natural disaster is going to occur.

30:10Sean Pyles:OK, so how does that actually work price-wise? The price of the contract is basically a probability. So if a contract trades at$0.30, the market is saying there's roughly a 30 % chance that an event could happen. And that price will move in real time. So people are buying and selling based on whatever information that they think is relevant, and that can affect the price. So you've got a bunch of people with different information, different opinions, different incentives that are all being priced into one market. Now, the theory here is that the price becomes a kind of real-time forecast of what those people collectively think could be coming.

30:46What kind of things are people betting on, Ana? It really runs the gamut. So you've got things like how many major hurricanes will make landfall in the U.S. this year? how many tornadoes there will be in any given month, or how many major earthquakes or volcanic eruptions will happen in a year. As of this recording, Calci has more than 100 active weather markets, and Polymarket has close to 500.

31:07Sean Pyles:So what do proponents say these markets can tell us? Because they're not exactly the weatherman, right? Proponents say they aggregate information really quickly, and that's a benefit. So if people have money on the line, they've got an incentive to do their homework and bring whatever that they know into that market. So the price becomes this real-time probability estimate. And in theory, it can update faster than a traditional forecast. I talked to Robin Hanson, an economist at George Mason, and he made the calibration argument. Basically, if a market says something has a 70 % chance of happening, then you want that event to actually happen about seven times out of 10.

31:44Elizabeth Ayoola:Well, what do the critics say, Ana? What are the opposition saying? Critics say that these markets can create a false sense of precision. Now, back to that 30 cent example that I had earlier, it can look like we know there's exactly a 30 percent chance of something happening. But that number isn't necessarily coming from experts or a scientific model. We don't know who it's coming from, except that they use a prediction market. Now, with something as chaotic as a natural disaster, there's only so much information that any of them actually have. Jamie Petruska, a historian at Rutgers, put it pretty bluntly to me that it's, quote, not a truth machine.

32:17It's just aggregating public opinion, and it's really not clear how informed that these traders actually are.

32:22Sean Pyles:OK, so what does this actually look like when you have real money on the line? One of the weirder ones happened in Paris in April. There were two separate contracts that were tied to temperatures recorded at Charles de Gaulle Airport, which Polymarket uses to gauge temperature readings for those markets. Now, two unusual readings led to some pretty wild payouts. In one case, someone reportedly turned a$119 bet into more than$20 ,000 because they correctly called an unusual temperature spike. Huh. OK. And there was actually an investigation into those readings, right? The readings were pretty suspect, and they were so unusual that French authorities looked into whether the sensor had been tampered with in some way.

33:03And Polymarket, as a result, eventually dropped that sensor and switched to another airport nearby. But it gets at one of the biggest questions around these markets. Once you put money on an event happening, can you create an incentive for someone to actually influence the outcome?

33:18Elizabeth Ayoola:Well, Ana, temperature readings are one thing, but natural disasters, to me, seem pretty out of people's control. Well, mostly, Elizabeth. Now, take a wildfire, for example. Imagine there's a contract on the possibility of a wildfire in, let's say, San Diego County. In theory, somebody could start a fire and profit off the income. Now, last year, Polymarket actually ran contracts tied to the 2025 LA fires with more than$1.2 million wagered across these markets. There was a lot of public pushback from those contracts, and neither Polymarket or CalShane now offer wildfire markets. But if they wanted to, they could because the CFTC hasn't specifically banned them.

33:58Sean Pyles:So I do see how there's a bit of a perverse incentive to maybe start a wildfire if you are so inclined. But how likely is that in practice? Because arson seems like a pretty extreme jump. It is extreme. And that was actually one of my sources points. So Robin Hanson compared it to the stock market question of whether someone would sabotage a company that they'd shorted to make money. Now, people have worried about that kind of thing for ages. And his argument is that it almost never happens. However, there is evidence that people can gain an advantage in these prediction markets, having information other people don't have.

34:30Now, in April, the Justice Department charged a U.S. Army Special Forces Master Sergeant with using classified information about the capture of Venezuelan President Nicolas Maduro to make more than$400 ,000 on Polymarket.

34:44Elizabeth Ayoola:Well, Ana, now I'm wondering whether there are any hard boundaries that these platforms can't cross. Like, for example, could you bet on a death toll? No. Both Calci and Polymarket explicitly don't allow contracts that bet directly on loss of life. So you can't bet on whether an earthquake kills more than 500 people, for example.

35:03Sean Pyles:But there's still quite a big ick factor to all of this, at least for me. It seems like there's a really big lack of empathy. Betting on a hurricane feels different than betting on a World Cup. And I'm thinking here, too, about a news story I heard recently about how you can bet on whether pharmaceutical trials will succeed or fail. And that is essentially could be betting on whether someone will live or die based on an illness they have. Sure. And that's basically the ethical crux here, right? Now, Petrushka, who's writing a book on natural disaster betting, said it feels, quote, ghoulish to bet on catastrophic natural hazards where people are going to lose their lives and property on the same dashboard where you're going to bet on whether Taylor Swift drops her next album.

35:44And she referred to it as, and I think quite appropriately, as the casualization of catastrophe.

35:50Sean Pyles:Yeah, ghoulish is a great word for this. Yeah, it does feel that way. Now, a Calci spokesperson I talked to pushed back on that framing. His view is that these markets are valuable because they aggregate information, not because they're replacing traditional forecasts. And he did make an interesting distinction on the wildfire question we were talking about earlier. He said there's not much informational difference between wildfires and hurricanes, but there is one big difference. A human can't start a hurricane, but a human can start a wildfire. But that's still why Calci doesn't list wildfire contracts.

36:20Sean Pyles:So Ana, where is this all heading? Is it a niche thing or is it going to get bigger? What are your thoughts? For perspective, both platforms are still dominated by sports betting. So disaster and weather markets are just such a small slice. But there are signs that they're growing. I'd also found that an investment firm, Morin Capital Partners, is hiring analysts to build prediction market trading models across a whole bunch of different categories, including environmental events. And that suggests that institutional investors are starting to take these markets more seriously. There is a structural wrinkle here, too, that I want to point out.

36:54Calci makes money on transaction fees. So the more the people trade, the more the platform is going to make. And Petrushka said that it creates an incentive to add more disaster-related markets over time. And she referred to that as disaster capitalism.

37:08Elizabeth Ayoola:At the end of the day, Ana, how much weight should people actually put on these markets with all things that you've mentioned? They can give you a sense of how people are pricing a particular risk, but that number isn't necessarily the truth. And when you're talking about something like a natural disaster, you wouldn't want to rely on it alone when making a decision about your own safety, for example.

37:27Sean Pyles:Well, Ana, thank you for breaking this all down for us. Yeah, you got it. And that's all we've got for this episode. Remember, folks, that our job as nerds is to answer your money questions, so keep them coming our way. You can leave us a voicemail or text us on the nerd hotline at 901-730-6373. It's 901-730-NERD. You can also email us at podcast at nerdwallet.com or drop a comment on Spotify or YouTube.

37:50Elizabeth Ayoola:And the YouTube link is in the show description. Meanwhile, come hang out with us next time to hear about a potentially scammy form of life insurance that you might be seeing in your social media feeds. Follow Smart Money on your favorite podcast app that includes Spotify, Apple Podcasts, and iHeartRadio to automatically download new episodes.

38:09Sean Pyles:I'm going to say it again.

38:10Elizabeth Ayoola:We're on YouTube.

38:12Sean Pyles:Here's our brief disclaimer. We are not your financial or investment or prediction market advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. Some companies mentioned in this episode may be NerdWallet partners, but it does not influence how we talk about them.

38:27Elizabeth Ayoola:And with that said, until next time, turn to the nerds.