For married couples, disagreeing on finances can be one of the quickest ways to lead a relationship into ruin. On the latest episode of “Money Court,” O’Shares ETFs chairman Kevin O’Leary is tasked with helping a husband and wife who have drastically different ideas of what to do with the $200,000 they have in savings.
James and Michelle Bethe have built up significant savings during their 22-year relationship, and lately James has decided that it is time to put their money to work by paying off a chunk of their mortgage. Michelle, meanwhile, wants to keep the money right where it is in case of emergency.
With their life’s savings hanging in the balance, the couple have turned to O’Leary to help guide them.
The case
James is a self-described super saver who for years has kept the couple’s spending on a tight leash. Despite the pair’s $220,000 combined annual income, he insists that his wife never buy coffee out of the house and even decided to sell his gold wedding band for cash and wear a $10 ring instead. But after a recent health scare, he is trying to convince his wife that it is time to make a major change.
“I’m done with eating peanut butter and jelly sandwiches. I need an upgrade,” James tells O’Leary. “I don’t need to be rich, I just want to live a good life.”
His main gripe is the couple’s mortgage, which costs $2,400 each month. James wants to put $150,000 toward the mortgage to take it from 26 years at $2,400 a month to 30 years at $1,400 a month. The remaining $50,000 in savings will stay in the bank, and the money they would be saving on their mortgage will go toward investing in the stock market.
“The house doesn’t feel like a blessing,” James says. “It feels like a nightmare.”
Michelle, meanwhile, doesn’t want to slash the amount they have in savings so drastically. She is also apprehensive about investing their money because she doesn’t know much about stocks and is worried they might lose it.
“I want to hold onto it a little bit longer so we have that safety net just in case,” she says. “Let’s say something happens with the house. I want to make sure we can pay for it with cash.”
O’Leary’s reaction
After hearing the couple make their arguments, O’Leary has a blunt assessment about Michelle and James’ finances.
“They’re not building a nest egg,” O’Leary says. “They’ve just got a bunch of cash in a savings account that is slowly becoming worth less over the years.”
He says that their money is losing value to inflation by sitting in a traditional savings account. If they invested in low-cost index funds, which are less risky because they hold a wide array of companies, their $200,000 “would be $3 or $4 million by the time you retire.”
When he learns that Michelle also pays 7% interest on the $20,000 in debt she took on when she bought her truck, he adds that by not earning interest on her savings and paying interest on her car, she is effectively losing money every day.
The verdict
Ultimately, O’Leary sides with James. He orders the couple to take $130,000 from their savings to pay down their mortgage, and use another $20,000 to close Michelle’s car loan.
He also tells them to download any investing app they want and begin putting $100 a week into an index fund to begin their investing journey.
For Michelle’s peace of mind, O’Leary orders the couple to keep $50,000 in their savings account, telling her not to worry about seeing such a drastic decrease in the number.
“Both of you are cash-generating machines,” he says. “That $50,000 is going to grow right back”
Don’t miss new CNBC series Money Court featuring Kevin O’Leary Wednesdays at 10P ET.
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Read More:Kevin O’Leary reacts to a couple fighting over their savings
2021-09-08 21:11:01
