Amy: Tonight, does an inflation surprise mean maybe we've seen the peak? You're listening to Simply Money. I'm Amy Wagner, along with Steve Sprovach. Steve, we're still spending more every time we go to the grocery store, every time we pay a bill, but the latest data that came in about inflation caught everyone off guard in a good way. You're coming back from vacation, and you're bringing good news with you. Thank you so much.

Steve: Yeah. The least I could do. But it was good news. Let's be serious. It was very good news on inflation.

Amy: It was good news, and honestly, news that I think we've been waiting for month-over-month, hoping it would come in. Joining us tonight to make sense of it as he does every Monday, Andy Stout, the Chief Investment Officer for us right here at Allworth Financial, you know, managing billions of dollars for our clients. So he keeps a close eye on these things. Andy, I like surprises when they're in the positive direction. That's certainly what we saw with these inflation numbers.

Andy: Yeah, we really did. Economists were expecting that inflation consumer prices would have increased a little bit on a month-over-month basis, like for July compared to June by about 0.2%. Instead, they came in unchanged so that we didn't see any increase when we look at things in aggregate. Obviously, if you look under the hood, there's, you know, lots of moving pieces there. But the really good news is you look at that headline number that everybody pays attention to, Amy, it was showing a 9.1% year over year change. Well, that's dropped now down to 8.5%.

Steve: Andy, as Amy mentioned, I just came back from vacation, drove to the East Coast, and gas prices, they're down obviously locally here, but they were down even more on the East Coast. Are gas prices down for good, or is there a chance they may creep back up? Any idea?

Andy: Well, a lot's going to depend on how the Russia, Ukraine War progresses. I mean, that's really been a big driver of energy prices, and that's what caused it to spike, and now we're seeing some slowing of demand, if you will, to help bring that down. If you look at the fuel costs, they're down about 7.6% just over the past month nationwide. So that's certainly a move in the right direction. That was one of the bigger reasons that we saw that inflation number come down, or at least remain flat on a month from a month basis, and come down on a year-over-year basis.

Amy: Andy, as we look at this from a bunch of different directions, and I know that you do, do you feel like we are heading in the same direction? Like, do you feel next month we're going to continue to come down and maybe we have seen the highest? I mean, Steve was just asking about gas, but inflation as a whole, are we coming back down off of this?

Andy: I would not be surprised at all if we have seen peak inflation. So that 9.1% we saw on June on a year-over-year basis, I think that's probably the top if you look at just where...

Amy: I hope you're right...

Andy: ... yeah, where things are removing. I mean, there's certainly some stickier components like shelter costs and rent costs, those are still a little higher than what we would like to see them being at. But with that said, with the interest rates rising, mortgage rates rising, that will somewhat soon probably start to have an impact on those rental price and to push down the month-over-month increases.

Steve: Well, Andy, my big concern is real estate prices, they keep going up, and sooner or later if the Fed keeps raising rates, I think you will see them peter out and maybe even come back down a little bit. But there's such a lag time with rental costs because, you know, leases are usually a one-year lease, and it takes a while for a landlord to be able to implement higher rent prices. That seems to be awful sticky. I mean, most of the inflation numbers don't include gas prices and they don't include food prices. But real estate is in there no matter what index you look at it. I mean, can inflation come down when real estate prices keep going up?

Andy: Well, yeah, it can come down, but the thing is, how quickly will it come down? So when we look at that 9.1%, there's a lot of big numbers on those month-over-month basis lifting that up. But when we look forward, you're going to see that start to, you know, decrease obviously. But that doesn't mean we're going to be back at that 2% inflation rate that the Federal Reserve, which is our NAS and Central Bank where they want to be. I wouldn't be shocked at all if the year-over-year number, come 1231 of this year, is sitting around 7%. But then as we go forward and look at maybe this time next year as some of those larger monthly increases drop out of the year-over-year numbers, then that's when you start to see maybe inflation around three and a half to 4%. So, in other words, this time next year, CPI, consumer prices on a year-over-year basis for the month end July, 2023, I wouldn't be too surprised at all if we see a 3.5% or a 4% number there.

Amy: You're listening to Simply Money here on 55KRC. We're joined by Andy Stout as we are every Monday, our Chief Investment officer, making sense of these latest inflation numbers. What do they mean to you? What do they mean to your 401k? What do they certainly mean every time you go to the grocery store or the gas station? You make a great point there, Andy. We're at 8.5%, much better than 9.1%, but if we're goal here is 2%, it's going to take a while. And, of course, to get there, the Federal Reserve, making these tweaks with interest rates, and data seems to be all over the place. You've got inflation numbers pointing to the fact that, "Hey, we're heading in the right direction," at the same time, the latest jobs numbers surprising to the positive and the fact how many jobs are opening, or how many openings there are. So what does the Fed do next?

Andy: Well, the Fed's, they're going to stay aggressive, Amy. I mean, they have two goals. One is stable inflation. Well, we're not there, obviously, right?

Amy: Definitely not.

Andy: The other is full employment, and you can argue that we're pretty close to full employment. We had more than 500,000 jobs added last month, which was more than double what economists were looking for. The unemployment rates down to 3.5%, which is matching the lowest reading since 1969. So you can argue we're pretty close to full employment. Now, there are some other things in the data we're watching. There's a slight trend up in initial jobless claims, which are people getting laid off for the first time, but it's still at very low historical levels. So easy to see that we're at full employment, but inflation's at stable.

So what does the Fed do? Well, they're going to raise rates. They're going to keep raising rates. They've raised them a lot this year, a lot more than what most people were expecting heading into the year. Remember, heading into 2022, if you look at what the market expectations were, and we can see this by how certain securities trade, the market was pricing in that the Fed would raise interest rates by a total of 0.75% before all of this year. We've done a lot more than that already. I mean, we're already at about 2.25% in rate hikes, so significantly more. And we look at the next meeting, which will be in September, it's likely the Fed hikes either by 0.5% or 0.75%. It's about a 50-50 chance as of right now.

Steve: So that's already baked into the market, as far as you're concerned?

Andy: Absolutely. I mean, that's what the market's pricing. I don't want to go too far in the weeds about what's called Fed Fund futures, and that shows you exactly what's priced into the market.

Steve: And I want to talk about the market a little bit, Andy, because here's my biggest argument against market timing. June 16th, at least at this point, was the market low, and anybody who will open up their July statement should have been pretty darn happy. The standard imposes up 17% since the June low. So the big question for anybody who went to cash, tried to time the market made radical changes because they were concerned. They want to know, is it too late to get in now, or is this rally really just a dead cat bounce bear trap? Call it what you will, but can we revisit the lows? How do you see it?

Andy: Well, and that's certainly... There's a lot of things to unpack in that statement. So the first thing is once you get out of the market like you were just saying, Steve, it's really hard to get back into because you're now at a new emotional perspective, a new frame of mind where you don't want to buy back into because price is already higher than what you set out...

Steve: Exactly. So getting back in, that's the issue. Yeah.

Andy: So you want to wait till they drop back down to where you were so you can come out ahead. Problem is, you never know if you're going to come out ahead, and you may end up sitting on the sidelines forever. And guess what, if prices do come back down, and they may... Okay, I'm not saying this is whether a dead cat bounce or whatever, bear market rally, whatever you want to call it, may or may not be, but say that prices do go back down lower, well, guess what happens? Fear takes over, right? And then you're too scared to get back in because you're like, "Oh, they're going to go lower and lower." And all that happens as you're just stuck on the sidelines, and inevitably, we will... You know, nothing's ever guaranteed, obviously, but we'll be higher sometime in the future than where we are today.

I mean, if market history is of any guide ever... I mean, just look at it, if you look at over every five-year period, markets are higher, like, 93% of the time or something like that. Over a 10-year period, it's about a 99% to a 100% time markets are higher. So history would suggest we'll be higher from where we are now. But if you get stuck in that mindset and you don't have a plan, you're going to be missing out most likely on some gains in your future because you panic, you made a mistake, so what do you do now? I mean, the best bet, in my opinion, at least, is to go back in, because markets do head higher over time. Yes, you could see more prices lower, wouldn't be shocked at all. But unless you have a plan ahead of time, you're going to get stuck in an emotional trap where fear and greed are just driving you to make some bad decisions, and ultimately driving you to not be able to, maybe enjoy your retirement, or any other financial goals.

Steve: Well, we saw that in 2020. I mean, talk about fear. I mean, it was all over the place in 2020, and at one point, the market was down about 30% in the middle of the lockdown, and the highest degree of fear yet to close it up by the end of the year and up substantially. That was a wild swing. I mean, can we see it again? Can we be positive by the end of this year?

Andy: Could we be positive? Yeah. I mean, we're only down 9%, 10% on a year-to-date basis now. So, yeah, that wouldn't be shocking at all. I mean, it'll really depend on how the economy and earnings progress. But if you look at 2020, I mean, I don't think that's a great comparison.

Steve: Yeah, it's not the same.

Andy: I mean, we had the quickest ever drop into a bear market in just about one month. I mean, literally, it was like February 19th to March 23rd, somewhere around there where the S&P 500 fell 34%. That was the quickest ever drop to a bear market and also the quickest ever time to finding the ultimate bottom. And then the recovery was the quickest ever recovery where just about six months later to the date, it was mid to late August, we had completely recovered all of those losses. So, yeah, I hope we get another 2020 because it ended up being a pretty good year after all.

Amy: Andy, anything that concerns you? I know nothing's keeping you up at night. I know you've got blood of steel, cold-blooded. But when it comes down to it, we've had a number of good numbers coming in about the economy recently. Is there anything that concerns you as to, "Hey, if this comes out, this could drive us back to negative places?"

Andy: You know, the biggest thing is really going to be how aggressive the Federal Reserve is in hiking interest rates. They have a history of hiking us into a recession. And, I mean, they're doing that to slow down the economy on purpose, and they need to slow down the economy, they certainly don't want to push us into a recession. You could argue whether or not we're in a recession or not. I know GDP shrink for the first two quarters of the year. However, with that said, it shrank for these, like, one-off reasons, like, imports were really high, and that was a big drag, and then inventories were a big drag. Neither of those...doesn't give us any evidence as to what the consumer is doing. So if we look at consumer spending and business spending, it's actually been pretty strong in the first half of the year.

Unemployment's still low. You know, we may or may not be in recession, but certainly, if it is, it's one of the most mild ones ever. So what I'm concerned about, to get back to your question there, Amy, is if the Fed oversteps, they get even more aggressive than what's already priced in, I think that could have a negative impact on the economy, and if that does push us into the recession, that's what you'll see earnings come down, and earnings are a driver of stock prices. But with that said though, Amy, I do believe that the craziness we saw in the bond market is likely behind us.

Where I think from going forward, what we're going to see is we're going to see bonds act more like bonds in the future. So if we do get any sort of sell-off in stocks or if we do get any sort of bond market, or where we need to go to that safe haven, I think you're going to see bonds perform better than what they have at the beginning of the year.

Amy: So all eyes remain on the Fed. Here's a Simply Money point. Even though we saw a bit of a market rally last week off of this good inflation news, you can expect more market turbulence ahead. As always though, avoid those emotional decisions. This is going to allow you to stay invested as we expect markets to recover. Coming up at 6:18, why you might want to stock even more money into that emergency fund right now. You're listening to Simply Money here on 55KRC THE Talk Station.

You're listening to Simply Money. I'm Amy Wagner along with Steve Sprovach. If you can't listen to our show every night, subscribe to our weekly podcast. The best of our show, the best of Simply Money, you'll find it on the iHeart app or wherever you get your podcast. Straight ahead at 6:43, what to do with money you don't need. Yes, it happens, and we will explain. Talk about getting more than you bargain for, right? See this crazy real estate market, people are buying houses. This woman thinks she's buying a single-family home. She's paying pretty penny for it, less than $600,000. But the county records, right, she gets the deed and all the transfers that happen, and all of a sudden, she owns 87 pieces of property in an entire neighborhood. Oops.

Steve: I mean, that's like those stories about the people who get their bank statement and there's an extra couple of zeros on their savings account.

Amy: It doesn't happen to me.

Steve: I don't know about you, but if I found out I own 86 lots for the same price in addition to the house I just bought, I'd say, "Not so fast. I kind of like owning this, and I might want to go ahead and sell them."

Amy: Yeah. You go from owning one house to being like a land bearer all in just one copy and paste mistake. And when they went back to the title company, that's exactly what they found. That whoever had done this had just copied and paste four wrong keystrokes, and all of a sudden, she's the owner for $600,000 of 87 pieces of property.

Steve: And it's obviously a mistake. And I'm sure she's going to fess up and say, "Yeah, of course, I didn't buy that," but how does this look on a title search? You know, because there are going to be people that buy those lots, and a couple of them had already been bought, and you're going to see previous ownership that included someone else. It's not a clear title chain of ownership. And that's why when we bought our house, when they ask questions like, "Do you want insurance for this, that, and the other thing?" And the road answer is, "Nah, we don't need that." But when something like this happens, maybe it's worth it. I'm not sure.

Amy: Well, my understanding is it's really at her discretion. I mean, everyone expects that she will, yes, just title this back over to whoever it's supposed to go to, but that's really up to her.

Steve: She can say, "I got proof. I own these. Look, here's my paperwork."

Amy: Exactly. We'll see how this one plays out because some of those lots are already having houses built on them that other people have put money down on. This little copy and paste mistake is a big boo-boo, and they're going to have to be unraveling this one for some time. You know, see, if we talk a lot about the importance of an emergency fund, right, so many things can happen. Having that money on the sidelines makes so much sense. But, now, especially with inflation so high, we would say maybe you want to have a little extra socked away.

Steve: Well, sure. I mean, last time you went to the grocery store, did it cost more, right?

Amy: Way more. Yes. Substantially.

Steve: Last time you filled up your tank, did it cost more than a year ago?

Amy: Absolutely.

Steve: So, you know, we always say, "Okay, at least three to six months of living expenses." Well, that doesn't mean that that number stays static forever. I mean, living expenses today are totally different than they were a year ago, and your money is earning... You know, if your money's earning a 10th of 1%, which is typical for a savings account and inflation is at 9%, you're kind of going backwards and backwards pretty quickly. So, you know, I think you should... We always talk about, yeah, an emergency fund is super, super important, but I think you have to take a look at how much is three to six months of living expenses right now?

Amy: I think you can look at it two ways, a lean, three to six months, or three to six months where you have a little bit of breathing room, right? And when you're putting that money aside, I think it's really easy to say, "Well, it's not in the markets I want to put the least amount in as possible and still kind of have that buffer." But I would say, especially right now, this is a time where maybe you need to think about that breathing room, right? Socking away a little bit of extra so that if, all of a sudden, a job is lost, or a major medical bill start to come in, whatever it is, you feel like it's on a dire situation that you've got a little bit of breathing room.

Steve: Well, yeah. I mean, we're going ahead and telling people, "You've got to save more," at the same time everything costs, not just a little bit more, but quite a bit more. You know, what do you do if you're in that situation? Well, one of the first things I think you need to do, Amy, is... And I just had a conversation with someone this morning about this, how many people have a big chunk of money sitting in their savings account and have no clue what the interest rate is? You know, they just say, "Well, I'm getting nothing. You know, the interest rates are garbage."

Amy: And they essentially are getting nothing. Yes.

Steve: Well, banks are not in a hurry to pay you more. I mean, the less they pay you, the more they're going to show us profits. And it's not unusual for someone to have $20,000 or $30,000 sitting and savings earning 1/100th of 1%, 1/10th of 1%. I mean, that's nothing. I mean, that's pennies. And most of these banks, if not all of these banks, have a money market option that is just as safe as your savings account. Yeah, it may have a $2,500 or a $5,000 minimum balance requirement, but that pay these days maybe four-tenths of a percent, five-tenths of a percent, not a large difference, but it's a difference. You know, and that amount of money, it might be an extra 20, 30 bucks a month.

Amy: Yeah. Something to keep in mind. Here's a Simply Money point. If you want your emergency fund to keep up with inflation, the real solution, stock more into it. Coming up, can you make money turning your house or your apartment into an Airbnb? Yes. Right here in the tri-state area we've got the pros and the cons next. You're listening to Simply Money here on 55KRC THE Talk Station. You're listening to Simply Money. I'm Amy Wagner along with Steve Sprovach. Would you ever go on vacation and stay in someone else's house? I feel like several years ago, maybe a lot of people would've said no. But Airbnb, Vrbo have come the norm.

But here's the question for you, what about renting out your own home? Joining us tonight is a real estate expert, Michelle Sloan. Of course, she owns RE/MAX Time, and you can catch her radio show right here on 55KRC every Sunday afternoon. Michelle, I think this is an interesting concept, and I do remember... You know, I mean, going back several, several years me thinking like, "I would never stay in someone else's home," now I don't think twice about it. But are we at a place here in the greater Cincinnati area where we could rent out our homes?

Michelle: We can, which is surprising because, again, I've done a little bit of research, and it surprises me all of the different kinds. And so if we say Vrbo, sorry, or Airbnb, it really just means a short-term rental. So it means you are renting out your home for a night, two nights, maybe it's just part of your home, maybe it's just a room. It's very, very interesting. And do you stay... My question to you is do you stay at an Airbnb when you go travel?

Amy: We do, I would say, half of the time. It depends on where we're going. It depends... Like, the last vacation, we didn't because we moved around a few places. But, otherwise, if we were, like, at a beach for a week, we absolutely would. There are six of us. It's nice to have room for everyone to spread out and a common area for everyone to be. In fact, we're going to the lake in a few weeks with family, and we're renting a house for that so we can all be together at night.

Michelle: And I think that makes perfect sense. You know, Scott and I and the kids and family, we went and rented a big house in North Carolina a few years ago, and it was a perfect situation. It was, like, three floors, plenty of bedrooms, our own swimming pool, and within walking distance to the beach. Now, we don't really have a beach in Cincinnati.

Amy: That's what I'm wondering, is there enough to attract people to want to stay here?

Michelle: Absolutely. With our sports teams and, you know, especially, we have soccer, and baseball and, you know, all of that going on.

Amy: So maybe the Bengals more than the Reds a little bit, but you're right. I mean, the Bengals are in a great place, and I can imagine a lot of Bengals fans who live out of town want to come back for games and things like that.

Michelle: Exactly. So there are some weekends or days that are booked higher than others. I know that we did a staycation downtown and met some friends a few weeks ago, which we like to do. We will stay in a hotel, but a friend of our is like, "I'm just going to get an Airbnb." They could not find one. They were completely booked all around the city. And so, you know, it's super interesting if you go on one of these websites to see. So the big question... And the differences are, obviously, if you're renting a home, it's definitely more personal, more intimate, right?

It's like living in your own community. It can be a little cheaper too, and everybody can be together. Hotels, more expensive, you know, maybe more convenient because they could be closer to the attractions that you're going to see, or maybe a festival that you're going to go do or something like that. So, you know, different pluses and minuses. But there are over 6 million Airbnb listings in 220 countries and regions. The growth of this type of rental, short-term rental...

Amy: It's a thing, right?

Michelle: ... since 2008 has been through the roof. And so I know that a lot of people are like, "Okay. Maybe I'd like to rent my home." And, you know, you have to decide, can you rent your home and still live in it? Is there a place in your home that you can stay? Or do you have to then vacate so someone else can live in your home? Do you need a second home in order to have an Airbnb or something like that?

Amy: You're listening to Simply Money tonight here on 55KRC. We're joined by Michelle Sloan, our real estate expert. Have you ever thought about renting out your home, right, Vrbo, Airbnb? Talking through the pros and cons of that tonight, I remember several years ago, we went to a Notre Dame football game, and, of course, you know, homes there, people could rent them. These people paid their mortgage by renting out their home just on home game weekends, right, in South Bend, Indiana, and then they would go stay at grandparents' house. And I think if you have an option like that, it becomes really interesting. And I think also, I sometimes question demand in Cincinnati, but every time a new list comes out about cool cities to visit, and good places to eat, and best places for livability, and things like that, Cincinnati's at the top of the list right now.

Michelle: There's a lot of great things going on downtown. And then even if you stay downtown, maybe you're going to cross over to Covington and hang out over there. There are so many great restaurants, and bars, and things to do, and music events, and all kinds of stuff. Like, Blink is coming up in a few months. And so there's so much going on downtown. So here's the big question, right, how much can a homeowner make when renting their home? The income absolutely varies quite widely.

Because if you're renting a one-bedroom flat or something, you know, you're not going to be able to put as many people in it. But, on average, the website says that you could earn between $900 to $1,000 per month. So not bad, right? If you have a mortgage that pays for a good chunk of it, for sure. And, of course, the income, and you can raise the prices. So if there is a Bengals game, and normally you get, you know, I don't know, $150 a night, you could probably increase that to $250 and still have it rented for those big out-of-town guests that want to, you know, have a home.

Amy: And when you think about it, hotels are raising their rates on those nights anyway.

Michelle: Absolutely.

Amy: So it's probably still going to be cheaper, and then you can hang out with friends and, you know, not be in separate rooms. You know, I think it's interesting, Michelle, I live in Villa Hills, and as you know, we recently built a house in a newer neighborhood where they're building a community building here. And we were talking to the developer and asking, "Well, what's going to go in the community building?" There's going to be a couple of Airbnb apartments there.

And I was like, "Why would you do that? Why would you put that in Villa Hills? Like, we're not super close to downtown." And they said, "Well, think about it. If people want to visit someone who lives in this community in this area, they don't necessarily have to stay with them, but they can live in an Airbnb for a weekend or whatever." Which got me thinking, "Even if you're not necessarily right by downtown, there might be people who want to come in and visit family but want to have their own space too."

Michelle: Absolutely. Weddings, we have people coming from all around the country, all around the world to come to weddings, and, you know, they want to be somewhere maybe with some additional loved ones that they don't get to see very often. So the one thing, if you're planning to use your home as a short-term rental, or an Airbnb, or Vrbo, whatever, you want to make sure that you're allowed to use your property. Right now in Milford, they're looking at banning this type of short-term rental in the residential areas because they feel as if it might make it a little bit transient in the fact that, you know, people are moving in, moving out, coming in, coming out, and you don't know who's there, who's supposed to be there.

So some neighborhoods and some people are concerned about this trend. But it's definitely, if you're thinking about it, you should double-check with your homeowner's association, you should also double-check with the area of town. I know in downtown Cincinnati, they limit the number of Airbnbs that you can have. So there's a limited number, and then you have to pay them, you have to pay the city. You know, you have to have some sort of...

Amy: License, or registration, or something.

Michelle: Exactly. Yeah. And as far as rent goes, how much you can get, it's all about the location and what makes your home unique. I have actually, a property on the market right now. It is about 10 minutes from Miami University. So that's the location it has for it, but it has seven acres, it has a swimming pool, it has five bedrooms. You can probably put about 10 people in there. They will get, and this is per night, $1,000 per night for a Friday or Saturday night. And so that's big income. And the way that they have this property set up is, they live in the basement, the lower level, while their guests are staying on the first and second floor and enjoying the rest of the property, and all that. So it's interesting once you start looking into it, what's available, and all of the different kinds of properties that are available, and the cost, of course.

Amy: During a time, right, when so many people are worried about inflation, and the cost of groceries, and gas and how to make ends meet, well, maybe you look no further than your own home as a source of income if you live in an area where this makes sense. Great insights tonight, as always, from our real estate expert, Michelle Sloan. You're listening to Simply Money here on 55KRC THE Talk Station.

You're listening to Simply Money. I'm Amy Wagner along with Steve Sprovach. Straight ahead, how to save yourself some grief now before you might have to do some major home repairs later, what you need to think about. You know, Steve, this isn't something that we run into all the time, but there are times when we start...

Steve: We do see it.

Amy: ... looking at retirement, right? We start running numbers, and all of a sudden, we say, "You're going to have some extra money lying around. What do you want to do with it?"

Steve: You know, every once in a while, run a plan, and it's showing. And this is playing it out to, you know, both a husband and wife living to 92, 94, something like that.

Amy: Right. A conservative way of looking at it, right?

Steve: Maybe, you know, even with some conservative assumptions, they may have $6 million, $8 million, $10 million left over at that age after the shell shock of, "What do you mean I'm going to have that much money?" And going through the reasons that there's a strong likelihood you're going to have somewhere in that neighborhood left over. The question is, "Okay, what do you want to do with it? Do you want to gift it to the kids? You know, do you want to spend it all before then?" You got some work to do if that's the case. And that becomes a very serious conversation, Amy, because most people, when they realize that they've been that successful at investing and saving over the years, they don't think about what to do with it afterwards. They just don't think of what's going to happen after they're gone to a substantial amount of money.

Amy: Yeah. File this one under good problems to have, right? And it doesn't happen all the time. But, again, we deal with a lot of super savers, people who are just kind of in that mindset of saving, saving, saving. They're often pretty frugal people, and so getting to the point where all of a sudden you're learning, "Okay, wait. I'm going to have this extra money even after we've got these really conservative plans." Of course, one option, to your point, is gifting it to the kids or the grandkids. I love 529s. I think if you've got grandkids, you know, who could use some help with college, it's a great thing as grandparents to be able to set up and help them with that.

Steve: And you can give without any estate tax issues, you can give $15,000 a year away. Everybody says to your kids...I mean, technically you can give it to anybody, but, you know, usually, you're thinking of your kids, and that means $15,000 per person. So a husband can give $15,000 to each child and a wife can give another $15,000 to the same child. And that causes, you know, basically no estate tax issues. By the way, just to cover some estate tax concerns, a lot of people say, "Well, wait a second, the government's going to take it away if I don't spend it." No, currently, the Federal estate tax does not hit you until you've got well north of $12 million in your estate. It's a big number.

Amy: Another problem to have, right?

Steve: Yeah, exactly. And the State of Ohio has no estate tax anymore. They did years ago, but if that's your concern, and you do have more than $12 million, fine, you can talk to an attorney. But less than $12 million, don't worry about estate taxes.

Amy: Yeah. And another thing is, too, there's lots of people who look at it and say, "All right. Well, my kids are taken care of. I already have a plan for my kids." You have an option. And this is difficult, I think, for a lot of times for people who are in this place where you've saved and saved, and that is flip the switch, and you can start spending. If you go to Florida once a year for two weeks, maybe you go for a month, maybe you even fly first class, right? I mean, all of a sudden you have these options opening up to you that maybe you hadn't thought about before.

Steve: But, you know, if you've been a saver your whole life...

Amy: It's not easy...

Steve: ... do you know what the percentage of people who are savers turning into spenders is? It's close to zero. I mean, that's what got you there. You can't change. And I know a lot of people listening are saying, "Oh, I can change in a heartbeat," but, you know, it's awful...

Amy: When it comes down to it.

Steve: Yeah. If you can fly for $230 or $1,400 first class, you're most likely going to say to yourself, "Why would I blow that kind of money?" Well, that's where you start enjoying what you've accumulated over the years, and not everybody can go ahead and do that. And I'll tell you, one of the big distinctions is if you have children or don't have children, totally different a situation on, "Do I need to set up a trust? What do I need to do? Do I give it to charity?" I mean, that's a big consideration of, "All right. I want to start planning on what to do with the money. I don't have children. How do I set up? You know, do I set up a foundation? Do I talk to an attorney? What do I do?"

Amy: Yes. Another option too, if you feel like your kids are taken care of, and maybe you're spending a little more on yourself, and that's about as much as you're comfortable with, where can you give it away? Like, what are you passionate about? My husband and I over the weekend just did a little, like, anniversary getaway. We went to this tiny little town, Berea, Kentucky. And super cool Berea College there. The kids who go to school there do not pay anything for tuition. They can't afford to go there.

And so they worked at the hotel where we stayed, and they worked at the restaurant where we stayed, and there's people who donate money to give kids these educations that they wouldn't have to get otherwise. The more I learned about this story, the more I thought, "Okay, if I am lucky enough to be in a place later in life, right, where being able to, you know, give people educations who wouldn't otherwise, what a cool thing to be..." There's so many different organizations and things that, you know, so many people are passionate about. It's great to start thinking along those lines as well.

Steve: I agree, and I think the most important thing if you're in that situation to do is sit down with your investment advisor and your attorney, and figure out, "Okay. Here's what I want to do. You guys figure out what I need to sign to accomplish my philanthropy, my goals after I'm gone." And that's got to be in writing, in a will, a trust, beneficiaries, a combination of all of the above. But you need to talk to the professionals to make sure it's going to happen the way you want it to happen.

Amy: Here's the simply winning point. If you end up with extra money, right, more than you thought you would ever need, well, first of all, good luck for you, that's a good problem to have. But finding a good purpose for it can lead to personal fulfillment, and certainly enriching the lives of others. Coming up next, does your budget include money set aside for major home repairs you're going to need? We'll tackle this topic next. You're listening to Simply Money here on 55KRC THE Talk Station.

You're listening to Simply Money. I'm Amy Wagner along with Steve Sprovach. You know, for many, it's funny, Steve, you're out to dinner, you're at a game, you're talking to someone, and there's something that they're talking about, "The furnace went out, it's costing me this much." It always seems to catch people by surprise, which is funny, because, you know, these things do tend to break down.

Steve: Well, if you own a house, it's going to happen.

Amy: Yes, inevitably.

Steve: And our warranty in our house was for a year, and guess what happened a year and a half later? The furnace went...

Amy: Usually, it's 366 or 367 days later everything falls apart.

Steve: Yeah, exactly. Well, the furnace went out, and it was one of those things, you know, okay, well, you can leave the air conditioner alone and save some money, but it's the same age as the furnace. And we happened to be running the special, and we bit the bullet, and it was not cheap to replace a furnace, and an air conditioning unit.

Amy: The average homeowner, and this is some new research out there, spending an average of 2,300 bucks on emergency repairs every year. You know, and I think that's not really surprising when you think about it. And to your point, Steve, oftentimes, you can look at a new furnace. They'll say, "Oh, the average lifespan of this is 15 years, 20 years." Okay, well, I'm five years into this, I'm going to start setting aside 100 bucks a month."

Steve: Well, outside of you, how many people are doing that, you know? You just don't think that way.

Amy: Well, that's the thing. You know, when I say that, and I don't really do it, I wish I did. Sometimes I'm like, "Do as I say, not as I do." But really, what ends up happening to me is I will buy a new something and they'll say, "Okay. You're going to have this service and, you know, it's going to be great, and you're going to have years." And then two years later, that thing is going kaput, you know?

Steve: Yeah, exactly. Exactly. And that's why, you know, we're always talking about emergency funds, because that's an emergency if you've got to replace a furnace or, you know, something as simple as the caulking below a window that you don't notice is cracked letting water in, and you call in a repairman, "Okay. What's that going to be? You know, 20, 30 bucks to re-caulk it?" "No, we've got to replace everything. Matter of fact, we have to take those windows out to replace what's under them." And now you're talking maybe a couple of grand, it can add up quick.

Amy: Yeah. Well, these are the kinds of things, like, "Hey, I'm going to call someone in, and I'm going to see how much this is." And then when you get that bid back and it makes you nauseous, right, and you get a few other bids and they're all pretty consistent, having this money set aside can be a huge difference, right, between not putting on your credit cards, not pulling money out of your 401(k). So that emergency fund becomes absolutely critical for things like this. And also, so you're you thinking through retirement, you know, how many times you're going to have to replace the HVAC, and the roof? And things like that have to be part of your retirement plan as well. Make sure you're thinking through all of those things. You're listening to Simply Money here on 55KRC THE Talk Station.