2020-09-11_Friday

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00:00:30.200 | Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge, skills, insights and encouragement you need to live a rich and meaningful life now,

00:00:37.000 | while building a plan for financial freedom in 10 years or less.

00:00:40.500 | My name is Joshua. I'm your host. Today is Friday. It's a live Friday Q&A show.

00:00:43.900 | I have four callers waiting on the line. If you would like to join me for a live Friday Q&A show, they work just like call-in talk radio.

00:00:50.000 | Go to Radical Personal, go to Patreon.com/radicalpersonalfinance, patreon.com/radicalpersonalfinance

00:00:55.700 | and you'll see all the details that you need there to sign up to support the show and gain access to these calls.

00:01:01.000 | We begin with Zach. Zach, welcome to the show. How can I serve you today, sir?

00:01:04.800 | Hi, Joshua. Thanks so much for taking my call. Before I get started in my question, I'll just give you a brief background on my situation.

00:01:11.600 | So I work as a project manager and for the last couple of years, I've been contracting through a contract firm.

00:01:18.500 | So I was laid off a couple of months ago, obviously due to the coronavirus, but luckily I was able to land a new position yesterday.

00:01:26.000 | In the process of searching for jobs, I spoke to several recruiters,

00:01:29.600 | but one recruiter had brought up the option of receiving my income through my own LLC.

00:01:35.200 | So the way I see it, essentially my options would be to work as a W-2 employee.

00:01:42.000 | So where I would get an hourly rate from the contract firm, I could get paid through the LLC.

00:01:50.900 | This option, so the LLC would be the employer who hires me would be paying me through that firm, that contract firm.

00:02:01.000 | This option would pay, as I understand it, about three to ten dollars more an hour.

00:02:05.300 | This is an hourly rate. So and then the last option, which is something I've been wanting to do,

00:02:11.200 | but want to hear your thoughts on this, is to kind of cut out that middleman completely,

00:02:16.200 | set up my own LLC and maybe pay like a finder's fee to a recruiting company.

00:02:21.700 | So I'm just hoping you could discuss some of the pros and cons of these options and let me know what you think.

00:02:30.100 | It's a good question. The first thing to begin with that you have to start with is, are you a contractor or are you an employee?

00:02:38.700 | This is an area where the IRS has started to become much tighter in recent years and it's an area that's under dispute.

00:02:46.700 | I guess most famously when California recently passed new legislation affecting contractors

00:02:53.200 | and making it even harder to be a contractor in that state where you saw Uber and the various ride sharing services

00:02:59.500 | and affected by that where they're trying to classify the contractors as employees and that is leading to major problems.

00:03:08.400 | But the IRS regulations on the subject are fairly clear and if you'll begin with those regulations,

00:03:16.700 | then you'll get an idea of which path is best to go.

00:03:21.000 | So if I just use these words without actually defining them,

00:03:24.700 | if I just simply use these words of employee and contractor, are you an employee or are you a contractor?

00:03:34.500 | So that's the thing. I could be a contractor. Whether I get paid through a W-2,

00:03:39.800 | I'm still contracting to the contract firm who sets me up with the employer that needs the work done.

00:03:46.900 | Okay. So in this situation, the company, the hiring company is going to hire a contract firm

00:03:54.600 | and either you will be an employee of that contract firm or the employing company will hire your own contracting firm.

00:04:03.600 | Do I understand that? I believe so.

00:04:07.200 | I think what you're saying that second part is they would be I would have my own LLC

00:04:12.100 | and then it's a little confusing but like that that the contract firm is kind of the middleman.

00:04:18.900 | So regardless if I'm paid through W-2 or paid through like a 1099 independent contractor,

00:04:25.100 | it would go through the contract firm. Okay.

00:04:29.300 | So in your situation, this may work out fine for you to be deciding this.

00:04:37.700 | But in my experience answering this question, much of the time when I'm asked this question,

00:04:43.200 | the answer is simple. You just simply go and ask what does the IRS say about whether you're a contractor

00:04:49.500 | or an employee and let's follow that. And I'm going to give you how the IRS defines that

00:04:56.400 | and then move on to answering your specific question.

00:05:00.200 | But the IRS uses three distinct categories to create a set of facts that will lean in one direction or another.

00:05:08.700 | And those three categories are behavioral control,

00:05:12.200 | financial control, and the relationship between the worker and the employing company.

00:05:19.000 | Behavioral control. A worker is an employee when the business has the right to direct

00:05:24.400 | and control the work performed by the worker even if that right is not exercised.

00:05:31.300 | And that is probably the most significant one. By the way,

00:05:33.700 | why is this important? Because there are significant penalties for the hiring company

00:05:39.300 | if they misclassify somebody as a contractor who is actually an employee.

00:05:44.100 | And so the biggest danger is not for you as the worker, it's actually for the company.

00:05:49.200 | But if the company has the right to control the work performed by the worker,

00:05:55.000 | then you are an employee. Behavioral control categories are the type of instructions given,

00:06:00.300 | such as when and where to work, what tools to use, or where to purchase supplies and services.

00:06:06.500 | Receiving the types of instruction in these examples may indicate that a worker is an employee.

00:06:12.400 | Degree of instruction. More detailed instructions may indicate that the worker is an employee.

00:06:17.700 | Less detailed instructions indicate less control,

00:06:21.400 | indicating that the worker is more likely to be an independent contractor.

00:06:25.600 | Evaluation systems to measure the details of how the work is done points to an employee.

00:06:30.500 | Evaluation systems measuring just the end result point to either an independent contractor or an employee.

00:06:37.800 | Training a worker on how to do the job, or periodic or ongoing training about procedures

00:06:43.200 | and methods, is strong evidence that the worker is an employee.

00:06:47.400 | Independent contractors ordinarily use their own methods.

00:06:51.000 | Those are all indications under behavioral control.

00:06:55.300 | Secondarily, financial control. Does the business have a right to direct

00:06:59.700 | or control the financial and business aspects of the worker's job?

00:07:04.600 | Consider significant investment in the equipment the worker uses in working for someone else.

00:07:09.800 | Unreimbursed expenses. Independent contractors are more likely to incur unreimbursed expenses than employees.

00:07:16.600 | Opportunity for profit or loss is often an indicator of an independent contractor.

00:07:22.100 | Services available to the market. Independent contractors are generally free to seek out business opportunities.

00:07:28.000 | Method of payment. An employee is generally guaranteed a regular wage amount for an hourly,

00:07:32.800 | weekly, or other period of time, even when supplemented by a commission.

00:07:37.200 | However, independent contractors are most often paid for the job by a flat fee.

00:07:42.000 | So those are all factors of financial control.

00:07:44.200 | Number three, relationship. The type of relationship depends upon how the worker

00:07:48.800 | and business perceive their interaction with one another.

00:07:51.900 | This includes written contracts, which describe the relationship the parties intend to create,

00:07:56.800 | although a contract stating the worker is an employee

00:07:59.600 | or an independent contractor is not sufficient to determine the worker's status.

00:08:04.000 | Benefits. Businesses providing employee-type benefits, such as insurance,

00:08:09.400 | a pension plan, vacation pay, or sick pay, have employees.

00:08:13.900 | Businesses generally do not grant these benefits to independent contractors.

00:08:18.300 | The permanency of the relationship is important.

00:08:21.400 | An expectation that the relationship will continue indefinitely,

00:08:25.000 | rather than for a specific project or period, is generally seen as evidence

00:08:29.600 | that the intent was to create an employer-employee relationship.

00:08:33.800 | Services provided, which are a key activity of the business,

00:08:36.600 | the extent to which services performed by the worker are seen as a key aspect

00:08:41.500 | of the regular business of the company.

00:08:44.100 | So you need to think about those things with regard to your situation,

00:08:48.000 | and I want other listeners to think about them as well,

00:08:50.500 | that if you are going to classify yourself as a contractor, you need to be a contractor,

00:08:55.000 | which means that you need to go through this list and make sure

00:08:58.100 | that on as many of those things as possible, your structure of work,

00:09:03.200 | the structure of relationship, reflects a contractor status.

00:09:06.700 | On the other hand, if you're an employee,

00:09:08.700 | there are less risks with simply being classified as an employee,

00:09:12.000 | but it would be fairly evident in that list of ways to look at it.

00:09:18.400 | So let's proceed forward on the assumption that you are eligible

00:09:23.000 | to either be hired as an employee of the contracting firm,

00:09:26.100 | or you're eligible to establish your own contracting firm.

00:09:29.900 | How would you decide between these?

00:09:31.800 | There are three major potential areas of benefit.

00:09:35.900 | Notice I say potential.

00:09:37.500 | They're not guaranteed areas of benefit, but they are potential areas of benefit.

00:09:42.600 | Number one is tax, number two is deductions, and number three is benefits.

00:09:49.100 | So let's talk about them.

00:09:50.500 | Tax, deductions, and benefits.

00:09:53.700 | The first thing to understand is the potential tax savings

00:09:56.900 | from being as an employee relate to your employment taxes.

00:10:02.600 | So if you are an employee and you're paid $100,000 per year as an employee,

00:10:09.100 | you pay employment taxes of 7.65% that's deducted from your wages.

00:10:15.600 | So that's $7,650 that is deducted from your $100,000 wages,

00:10:20.300 | and you see that reflected on your paycheck.

00:10:23.200 | Your employer pays an additional $7,650 of taxes

00:10:28.800 | that is not reflected on your paycheck.

00:10:32.300 | So the total cost to them is the cost of salary

00:10:37.100 | plus the cost of the employment taxes that they're paying

00:10:41.300 | plus any other costs or benefits, costs of insurance programs,

00:10:45.200 | costs of maintaining an office for you, etc.

00:10:48.400 | And so you're going to be paying in that situation $7,650.

00:10:53.700 | Now if you generate in your own company

00:10:57.500 | that is listed as a contractor to this employing business,

00:11:00.800 | if you generate a $100,000 profit for this company,

00:11:05.600 | you will owe, if you are a sole proprietorship,

00:11:09.300 | you will owe 15.3% of your total compensation to the IRS

00:11:14.200 | in the form of self-employment taxes.

00:11:17.000 | That would be a total of $15,300.

00:11:20.600 | The opportunity that you have is to take some of your wages

00:11:26.500 | and change the classification, sorry, let me be precise,

00:11:30.300 | I used the wrong word.

00:11:31.800 | The opportunity that you have is to take some of your income

00:11:34.800 | and instead of classifying that income as wages,

00:11:39.100 | rather you classify it as profit,

00:11:42.300 | and you do this within the context of your own S corporation,

00:11:46.400 | then you can possibly classify some of that as profit

00:11:50.800 | and avoid paying employment taxes on it

00:11:53.000 | because you don't pay employment taxes on profits or dividends.

00:11:56.300 | You only pay employment taxes on wages.

00:11:59.000 | So let's assume that you have $100,000 of potential profit

00:12:03.400 | in your business classified as an S corporation,

00:12:07.600 | and you now say, "I'm going to pay myself a $50,000 salary."

00:12:11.500 | With a $50,000 salary, you're going to pay 7.65% as the employee,

00:12:17.300 | but you're also the employer,

00:12:18.400 | so you're going to pay the other 7.65% as the employer.

00:12:23.000 | So your total tax bill is on the $50,000 is $7,650.

00:12:29.400 | However, you can then issue yourself a dividend

00:12:32.400 | reflecting your profit of $50,000,

00:12:35.700 | and that $50,000 would not be subject to employment taxes.

00:12:40.600 | So in that situation, you've now created an opportunity

00:12:43.500 | for you to generate $100,000 worth of income,

00:12:46.800 | but only pay $7,650 of taxes.

00:12:50.600 | Now the reason I use round numbers,

00:12:52.000 | it should be is that on this particular scenario,

00:12:54.600 | it should be obvious to you that you haven't won.

00:12:57.100 | You haven't gained anything here.

00:12:59.300 | So if these numbers are different, for example,

00:13:02.600 | if you were previously being paid a $300,000 salary,

00:13:07.600 | but now you could as an employee,

00:13:10.200 | but now you could change and you could be paid a $30,000 salary

00:13:14.300 | as an employee of your own business with a $270,000 dividend,

00:13:19.000 | now the numbers would be wildly in your favor.

00:13:22.100 | The problem is this is an area that's subject to significant abuse,

00:13:25.700 | and so you need to get the numbers right.

00:13:28.100 | The IRS will not tell you what is their definition of right.

00:13:33.700 | Basically, it's a subjective analysis by an expert

00:13:37.200 | who looks at it and says,

00:13:39.000 | "I think that this is a reasonable amount of compensation."

00:13:43.100 | If you're a doctor working for your own medical practice,

00:13:46.000 | it would be unreasonable for you to pay yourself a $20,000 salary

00:13:51.100 | if somebody that you hired in that position

00:13:54.200 | was going to be earning a $120,000 salary.

00:13:57.600 | But it would be reasonable for you to pay yourself,

00:14:00.300 | say, a $100,000 or a $110,000 or a $120,000 salary

00:14:04.400 | if you would need to hire somebody in that position at $120,000,

00:14:08.500 | and then you could take the additional $200,000 in profit

00:14:12.500 | rather than as wages.

00:14:15.000 | So that's the tax consideration, and it's significant,

00:14:19.000 | but it's not always a clear-cut choice.

00:14:22.000 | And the reason is that if you're going to play this straight,

00:14:24.700 | you need to create a salary that will be reasonable

00:14:28.700 | if subjected to an audit.

00:14:30.800 | Now, there are a few wrinkles associated

00:14:35.000 | with this potential tax savings that many people ignore.

00:14:38.700 | For example, if you do this,

00:14:40.700 | you will need to establish an S-corporation.

00:14:42.800 | That's fairly easy.

00:14:44.100 | The most common way to do that

00:14:46.400 | is simply to establish a single-member LLC

00:14:49.500 | and for that entity to elect to be taxed as an S-corporation.

00:14:53.600 | That brings modest records requirements,

00:14:56.200 | modest filing requirements, et cetera.

00:14:58.700 | But "modest" does not mean "none."

00:15:00.700 | So you still need to keep corporate records,

00:15:03.000 | you still need to file corporate tax returns,

00:15:06.100 | and so there may be additional costs involved

00:15:08.800 | for accounting fees or additional costs of time.

00:15:12.700 | If the decision is simply between

00:15:15.600 | "should I be an employee"

00:15:17.900 | and "should I run my own business"

00:15:21.400 | and the tax savings are of only modest comparison,

00:15:26.600 | there's not an obvious winner, stay an employee.

00:15:29.600 | It makes your life simpler.

00:15:30.800 | Get a WT2, you can do your 1040 in a few minutes

00:15:35.300 | instead of hours,

00:15:36.400 | you have fewer corporate record-keeping requirements, et cetera.

00:15:39.600 | So that's the tax situation.

00:15:42.200 | The second area of potential advantage or disadvantage

00:15:46.000 | has to do with the area of deductions.

00:15:49.000 | And when I use the word "deductions" here,

00:15:52.000 | I mean, are there things that you would be able to deduct

00:15:55.800 | if you were running your own business

00:15:58.000 | that you wouldn't be able to deduct if you were not?

00:16:00.800 | So let's use an example.

00:16:03.300 | Let's assume that as a contractor,

00:16:05.900 | you can choose to live in Salt Lake City, Utah,

00:16:08.600 | or better, Park City, Utah,

00:16:10.700 | or Aspen, Colorado, or Telluride, Colorado,

00:16:14.300 | some beautiful little ski town.

00:16:16.600 | And as a contractor, you can choose to live in that location.

00:16:20.400 | That is the center of your operations.

00:16:22.500 | You do most of your work from that place,

00:16:25.200 | but quarterly, you fly to New York City

00:16:28.200 | and you spend two weeks in New York City

00:16:32.200 | consulting with clients, working with them in person.

00:16:35.300 | Well, now, all of your travel expenses

00:16:38.000 | going from your home location to your client's site

00:16:41.400 | now become deductible expenses.

00:16:43.300 | You're not incurring commuting costs.

00:16:46.400 | It's all part of just simply business travel.

00:16:49.100 | Your hotel expenses, all of that stuff becomes business travel.

00:16:52.300 | But if you were an employee of the company,

00:16:53.600 | maybe they wouldn't let you live in Park City, Utah.

00:16:55.400 | Maybe they wouldn't let you live in Telluride.

00:16:58.700 | And so you, in that situation,

00:17:01.000 | now have to live in New York, maybe New York City,

00:17:04.600 | and now you have to commute to an office,

00:17:06.300 | and it's their headquarters.

00:17:07.500 | And perhaps you incur significant expenses

00:17:09.900 | commuting in from your office.

00:17:11.300 | Well, those are commuting expenses as an employee.

00:17:13.000 | They're not a deductible expense.

00:17:15.000 | And so the question is, if you run your own company,

00:17:18.400 | is there some kind of expense

00:17:20.500 | that you would be able to move over onto the business books

00:17:24.000 | that you wouldn't be able to expense if you were an employee?

00:17:27.500 | And this, again, is also not always clear cut.

00:17:29.900 | It depends very much on the spending profile,

00:17:32.500 | on the lifestyle profile,

00:17:34.200 | and on the individual negotiations

00:17:36.600 | that you might make with the company.

00:17:38.600 | You could, with some companies,

00:17:40.800 | simply negotiate the fact that you work from your home

00:17:43.900 | in Telluride, Colorado,

00:17:45.800 | and on occasion, the company flies you in

00:17:48.200 | for quarterly meetings.

00:17:49.800 | And so you don't have to create your own company to do that,

00:17:54.500 | but sometimes it's the only way to actually accomplish that.

00:17:59.200 | And so if you look at your expense profile and you say,

00:18:03.400 | "There are some deductions that I could take

00:18:05.300 | that could potentially be significant over here."

00:18:08.600 | The common ones that are attractive to people

00:18:10.600 | are travel expenses,

00:18:13.200 | entertainment expenses, etc.

00:18:16.600 | And if you can set that situation up

00:18:19.000 | in an advantageous way by running your own company

00:18:21.500 | such that you can take more deductions,

00:18:24.000 | then it can help.

00:18:25.100 | So now let's go back to my $100,000 example.

00:18:28.300 | Let's assume for a moment that the profit of the company

00:18:32.700 | was probably going to be $100,000,

00:18:36.200 | but through a very careful reading

00:18:38.500 | of the tax deduction laws for businesses

00:18:43.700 | and through an understanding

00:18:45.400 | that you can generate ordinary

00:18:48.100 | and necessary business expenses in your business

00:18:51.700 | that obviously qualify for full deductibility,

00:18:55.000 | and you can do this in a proper way,

00:18:57.300 | you can decrease that taxable profit

00:19:00.500 | from $100,000 to $70,000.

00:19:05.000 | And now you can then make a good argument

00:19:08.600 | that your salary should be pegged at $30,000

00:19:12.100 | with a dividend payment of $40,000,

00:19:14.500 | totaling $70,000.

00:19:16.600 | Well, now, yes, you still are going to incur

00:19:19.000 | a total cost of 15.3% of employment taxes

00:19:22.500 | on your $30,000 salary,

00:19:24.500 | which would be just under $4,600,

00:19:27.000 | total $4,590.

00:19:29.500 | But that's less than the $7,650,

00:19:32.600 | and you did it in an advantageous way.

00:19:35.200 | Your expenses were not expenses that—

00:19:37.300 | you gained some fun, some pleasure from those expenses

00:19:40.900 | by being able to go into the contractor

00:19:42.700 | or some other additional benefits.

00:19:44.900 | So that's where we talk about deductions,

00:19:46.500 | and there may be significant deductions

00:19:48.400 | that you can incur as a contractor that you can't.

00:19:52.100 | And it all has to do with what is the setup

00:19:55.200 | that your company gives you

00:19:56.500 | for unreimbursed employee expenses

00:19:59.200 | versus do they give you an expense account?

00:20:01.300 | You know, what do they actually provide for you?

00:20:03.000 | What's the total compensation of pay,

00:20:05.500 | the package that they're willing to offer to you?

00:20:07.900 | We'll come back to that in a moment.

00:20:09.400 | The third area has to do with benefits,

00:20:11.500 | employee benefits.

00:20:12.900 | And so here we would talk about things

00:20:14.700 | like insurance programs

00:20:16.700 | and also things such as—

00:20:20.700 | things such as retirement programs.

00:20:24.200 | So let's say that you could generate a $100,000 salary,

00:20:28.400 | but the company that you would work for

00:20:30.500 | has a mediocre insurance policy and no 401(k).

00:20:36.100 | But you, on the other hand,

00:20:37.400 | are a whiz with your personal finances.

00:20:39.600 | You can live on $2,000 a month, $24,000,

00:20:43.100 | but you have a daughter who has special needs

00:20:46.100 | and has a massive annual bill

00:20:49.300 | that just generates huge medical costs.

00:20:53.500 | And in addition, you really want to save for retirement

00:20:56.100 | because you think that these medical costs in the future

00:20:58.700 | might force you into bankruptcy.

00:21:00.800 | So what you could do in that situation,

00:21:02.300 | if a fact pattern like that emerged,

00:21:04.400 | would be to establish your own company.

00:21:06.800 | And in your own company, you would do two things.

00:21:09.600 | You would go ahead and secure

00:21:11.500 | a very nice medical insurance policy,

00:21:15.800 | which now would give you large—

00:21:18.300 | the ability to expense large amounts of your medical costs

00:21:21.000 | in a totally deductible way towards your company

00:21:22.800 | because it would cover your minor dependents.

00:21:24.800 | You might also even take it to the point

00:21:26.300 | where you set up a self-reimbursed medical plan

00:21:32.100 | where you could set that plan up

00:21:35.300 | and you could arrange it to—

00:21:36.300 | maybe you have 10 children

00:21:37.600 | and all of your children have the world's crookedest teeth

00:21:40.000 | and you're facing $4,000 per year—

00:21:42.400 | or I'm making up silly facts—

00:21:44.900 | but you have 10 children,

00:21:45.900 | they all have crazy crooked teeth,

00:21:47.400 | and you're going to generate $15,000 a year

00:21:50.000 | of orthodontia bills for the next 10 years.

00:21:53.500 | Well, in that situation,

00:21:54.900 | you would set up a self-reimbursed medical plan in your company

00:21:58.000 | so that you could reimburse all of that massive orthodontia bill,

00:22:01.600 | which is ordinarily not an inexpensable cost

00:22:05.600 | under a standard group health insurance plan.

00:22:09.100 | And so back to the sick daughter,

00:22:10.900 | you get a Cadillac plan,

00:22:12.000 | maybe a self-reimbursed medical program

00:22:14.000 | that you set up that pays you for—

00:22:15.700 | maybe you have to commute, your daughter has cancer,

00:22:17.600 | and you've got to commute two states over.

00:22:19.000 | Well, you go ahead and set up a mileage reimbursement

00:22:21.400 | as part of your medical plan

00:22:22.700 | and you reimburse yourself for all that commuting mileage

00:22:25.000 | to medical appointments.

00:22:27.100 | And then you establish a 401(k) plan

00:22:29.400 | and you set up a solo 401(k)

00:22:31.700 | or you have a 401(k) for you and your assistant

00:22:34.500 | or you and your fellow employees of the company,

00:22:38.300 | and you set that 401(k) up in such a way

00:22:42.000 | that you can defer and contribute the maximum amount

00:22:46.900 | of possibly as much as $50,000-something per year

00:22:50.300 | into that 401(k).

00:22:52.000 | And so a situation like that,

00:22:53.500 | for someone in that weird but not unrealistic fact pattern,

00:22:57.500 | a situation like that would mean

00:22:59.800 | that you could set up a benefit structure in your own company

00:23:03.200 | that would be highly advantageous to you

00:23:06.600 | in a fact pattern like I described,

00:23:08.300 | where you can now deduct massive numbers of medical expenses.

00:23:11.700 | That lowers your profits.

00:23:13.100 | You reduce your taxable income in your company

00:23:16.300 | to a very low level,

00:23:17.300 | possibly that qualifies you for some kinds of subsidies

00:23:20.600 | or government benefits.

00:23:22.000 | And then by establishing the 401(k)

00:23:23.700 | and deferring huge amounts into the 401(k),

00:23:26.000 | you establish a creditor-protected pot of money

00:23:28.700 | so that if your daughter's illness drives you

00:23:30.400 | into bankruptcy in the future,

00:23:32.000 | you have some bankrupt-proof funds,

00:23:35.600 | some exempt funds that you would be able to merge

00:23:38.000 | on the other side of bankruptcy with.

00:23:40.200 | So those are the three levels of analysis.

00:23:43.100 | I know that's complex.

00:23:44.300 | I know that's a lot.

00:23:45.600 | What I would say is,

00:23:47.000 | to keep it simple for your situation,

00:23:49.600 | if you think about those three things,

00:23:51.900 | if there's not an obvious, clear winner

00:23:57.200 | based upon those three factors for you,

00:23:59.000 | and it's kind of a toss-up,

00:24:00.800 | and to me, $3 to $10 an hour sounds like a toss-up.

00:24:03.800 | $10 is very different than $3, but you can do the math.

00:24:06.600 | But if there's not an obvious, clear winner,

00:24:08.600 | just take the employee package.

00:24:09.800 | It'll be simpler.

00:24:10.800 | Your life will be simpler.

00:24:12.200 | And then what you do is take the employee package

00:24:14.300 | and then start your own little business on the side

00:24:16.700 | in something related or something else,

00:24:18.900 | which will give you,

00:24:19.700 | as long as you can generate some income there,

00:24:21.800 | it will give you most of those benefits

00:24:23.800 | without having to deal with all of the hassle

00:24:25.900 | of being a contractor.

00:24:27.400 | Now, I've done this analysis for many clients,

00:24:29.700 | and there have been answers that emerged both ways.

00:24:33.000 | Some people, it's a clear winner

00:24:34.800 | that they should go to being a contractor.

00:24:39.200 | In others, it's a clear winner

00:24:40.300 | that they should go to being an employee.

00:24:42.100 | And I would say that there are other little benefits.

00:24:45.300 | So, for example, are you thinking about buying a house?

00:24:47.700 | Well, if you're thinking about buying a house,

00:24:49.300 | you'll find that your W-2 wages secure a mortgage for you

00:24:53.300 | much more easily than your profits do.

00:24:57.400 | And so those are the three factors

00:24:59.000 | that you'll need to look through to make your decision.

00:25:03.300 | - Okay, yeah, I think that's a very detailed answer.

00:25:05.600 | I think, you know, the third option

00:25:08.300 | is definitely where I was leaning,

00:25:11.200 | meaning if I could make it work,

00:25:12.800 | because I think there are, like in a situation,

00:25:14.900 | I don't necessarily have any medical bills

00:25:16.300 | or children or anything, but the retirement option,

00:25:19.200 | for example, is something that I think

00:25:21.800 | could drop that taxable income significantly.

00:25:25.700 | So I think I need to do a little bit more research,

00:25:28.400 | especially on the how much I can get paid more.

00:25:32.200 | Like you said, there is a big difference

00:25:33.800 | between $3 and $10 an hour.

00:25:36.700 | You know, I think also, and again, you can clarify for me,

00:25:39.600 | I think the reason it is more,

00:25:41.700 | and this is why I want to investigate further,

00:25:44.400 | is because they don't have to pay me those benefits, right?

00:25:46.400 | They don't have to offer the 401(k)

00:25:47.900 | and the health insurance plan, et cetera, et cetera.

00:25:52.100 | And so I can get that back in a higher hourly wage.

00:25:56.700 | - Right, and this is why the IRS is so careful

00:25:59.800 | about misclassification,

00:26:01.900 | why they hold the business responsible,

00:26:04.100 | because it's very much in a business owner's interest

00:26:08.200 | to misclassify people as contractors

00:26:11.600 | rather than as employees.

00:26:14.000 | Because in so doing, they save significant expenses.

00:26:18.500 | They also save significant liability.

00:26:20.200 | So is it the cost of benefits?

00:26:21.500 | Yes, it's the cost of benefits programs,

00:26:23.200 | the cost of health insurance programs.

00:26:24.900 | It's getting classified as a big company

00:26:26.700 | instead of a little company

00:26:27.700 | and having more stringent requirements.

00:26:29.700 | It's the ability to save on paying unemployment insurance,

00:26:33.600 | all of those things.

00:26:35.000 | I don't want, you know, with my business,

00:26:37.600 | I prefer to always avoid hiring employees,

00:26:41.400 | because employees generate significant headaches,

00:26:44.200 | significant administrative problems, and major expenses.

00:26:48.200 | And most employment contracts are structured in such a way

00:26:51.600 | that they require ongoing costs.

00:26:56.400 | You know, you have to pay your employee $5,000 a month,

00:26:58.900 | and you gotta pay your employee $5,000 a month

00:27:01.000 | regardless of how much work they do,

00:27:05.300 | regardless of how much work you do.

00:27:07.100 | So what I have sought to do in my business

00:27:09.100 | is to work exclusively with contractors.

00:27:12.600 | And I work exclusively with contractors

00:27:15.400 | because that allows me to save all of the legal liability,

00:27:19.800 | the administrative expense of providing office space

00:27:22.600 | and equipment, et cetera.

00:27:23.700 | They can provide their own equipment.

00:27:25.400 | It allows me to hire and fire with total freedom,

00:27:29.900 | not to worry about this employee's gonna sue me

00:27:31.900 | for a wrongful termination.

00:27:33.600 | It allows me to adjust the amount of work

00:27:37.900 | that I buy to the amount of work that I have.

00:27:40.800 | So if it's a simple hourly thing,

00:27:42.500 | and I just pay for the hours I use,

00:27:43.900 | if I'm not working, I'm not paying.

00:27:45.600 | And so it's a vast, for a business that can function

00:27:49.800 | on a contractor basis,

00:27:52.400 | from a business planning perspective,

00:27:54.700 | it's vastly superior to hire contractors,

00:27:58.500 | even if you pay a higher rate

00:28:00.500 | because of all of the total savings.

00:28:03.900 | However, only some businesses can function on contractors.

00:28:07.600 | You can't, there's many businesses

00:28:09.500 | that you can't just have a different guy coming in every day.

00:28:11.700 | If you've got a store and you need a manager for that store,

00:28:14.900 | you can't bring in a different manager as a contractor

00:28:17.100 | every week of the year, you need a manager.

00:28:19.300 | And so that system, while superior on paper,

00:28:22.900 | will often be completely destroyed

00:28:24.600 | by the nature of the business.

00:28:25.500 | You have to have employees.

00:28:27.100 | And so yes, it's well within their interest

00:28:30.200 | to pay you as a contractor

00:28:32.200 | because they don't owe you anything at that point in time.

00:28:35.300 | If they lay you off, they don't have to pay you severance.

00:28:37.900 | And obviously, the severance is not a legal requirement,

00:28:40.800 | but it's a custom in certain kinds of industries.

00:28:43.700 | And so from a contractor,

00:28:44.900 | they just don't renew your contract.

00:28:46.300 | So you have significantly less security as a contractor.

00:28:50.500 | And that's why I say the increased compensation

00:28:52.800 | needs to reflect that.

00:28:54.500 | Now, what I would point out to you

00:28:55.900 | is that one additional area of analysis

00:28:58.500 | and with this we'll wrap up,

00:28:59.500 | but I would say you need to also think

00:29:01.500 | about your personal lifestyle benefits as a contractor.

00:29:05.000 | So if you're an employee,

00:29:06.400 | are you required to be there Monday through Friday

00:29:08.700 | from eight to five?

00:29:10.000 | That's a lifestyle cost.

00:29:12.100 | I've never wanted to be an employee

00:29:13.800 | because I haven't wanted to work, trade time for money ever.

00:29:19.300 | The last time I traded time for money was in college

00:29:22.100 | and I didn't like it.

00:29:23.500 | I want to trade money for results.

00:29:25.600 | And so if I can get my results on Monday

00:29:27.900 | from noon till midnight and Tuesday noon till midnight,

00:29:32.000 | and then I can get on an airplane on Wednesday

00:29:33.900 | and travel Wednesday, Thursday, Friday, Saturday, Sunday,

00:29:35.700 | to me, that's a major lifestyle benefit.

00:29:37.700 | And I've never been scared of the insecurity

00:29:40.300 | that comes with being a contractor

00:29:42.200 | because I crave the flexibility

00:29:43.900 | that comes with being a contractor.

00:29:45.900 | And so there may be major benefits to you for doing that,

00:29:49.200 | especially if you're interested in early retirement,

00:29:51.400 | financial independence.

00:29:52.700 | As a contractor, you have the ability to allocate your time

00:29:55.600 | probably more freely.

00:29:57.100 | And so that means that you can always be trading in clients,

00:29:59.900 | trading up clients and massively increasing your income.

00:30:03.400 | As a contractor, you can change your contract prices

00:30:05.600 | at your demand, not at the company's whim.

00:30:09.400 | You have more room for negotiation.

00:30:11.400 | You have more room to prove your value.

00:30:13.100 | So you can potentially increase your income significantly.

00:30:16.300 | Or if you can't increase your income,

00:30:18.400 | you can potentially change your lifestyle flexibility.

00:30:22.400 | In some industries, it's totally reasonable

00:30:24.900 | that somebody could secure four contracts per year.

00:30:28.100 | And the contracts each take them eight months, right?

00:30:32.000 | So they work January, February,

00:30:33.800 | they do a contract and they take March off.

00:30:35.500 | Then they work April, May, and they take June off.

00:30:37.700 | And they work July, August, September off,

00:30:39.900 | October, November, December off.

00:30:41.700 | And so as a contractor,

00:30:43.200 | if you are genuinely working on a contract basis,

00:30:46.600 | then there can be major lifestyle benefits

00:30:48.900 | from that type of approach.

00:30:50.300 | I've recommended this to many people

00:30:51.800 | who are leaving their primary job.

00:30:54.900 | They don't want the personal responsibility

00:30:56.800 | and lifestyle constraints of being an employee any longer.

00:30:59.700 | They have some savings, but perhaps not so much

00:31:01.900 | that they're comfortable living exclusively on investments.

00:31:06.200 | They still want to work.

00:31:07.400 | Well, the natural shift is to move from being an employee

00:31:09.800 | to being a contractor.

00:31:11.300 | And if they can do a few highly paid contracts per year,

00:31:15.100 | then things work out and everybody's happy.

00:31:17.100 | It's a really lovely way to work

00:31:19.100 | if you can handle the perceived risk.

00:31:22.100 | So consider all of that as well as you make your decision.

00:31:26.600 | - All right, that really helps, Joshua.

00:31:28.100 | Thanks so much.

00:31:29.100 | - My pleasure.

00:31:30.600 | - All right, we move on.

00:31:32.600 | We're on the backup recording system today.

00:31:35.000 | So we move on to Jeremiah.

00:31:36.500 | Jeremiah, welcome to the show.

00:31:37.400 | How can I serve you today?

00:31:39.400 | - Hi, Joshua.

00:31:40.800 | Thank you for taking my call and for your show.

00:31:43.600 | I've really appreciated it.

00:31:45.900 | And can you hear me okay?

00:31:47.600 | - Sounds great.

00:31:48.200 | My pleasure.

00:31:48.700 | Thank you for being here.

00:31:51.200 | - Could you, my question's a two-part question.

00:31:54.900 | And if you've already talked about this in the past episodes,

00:31:58.700 | I won't be offended.

00:32:00.300 | If you just direct me to that episode.

00:32:03.300 | But could you possibly explain like negative interest rates

00:32:05.900 | for the average American and how much that would affect them

00:32:09.100 | in their daily life since it's looking more possible

00:32:12.500 | that we could see that in the US in the near future?

00:32:16.000 | And basically, what's your thoughts on the effectiveness,

00:32:20.400 | negative or positive of negative interest rates

00:32:23.200 | on the economy in general as compared to other countries

00:32:26.700 | like Japan and Sweden, et cetera?

00:32:29.900 | How much money do you have?

00:32:34.100 | - Like net worth wise?

00:32:37.700 | About 900,000.

00:32:40.700 | - Okay.

00:32:41.500 | So you're in the range where this is starting to be significant

00:32:44.400 | because it can affect your investments.

00:32:46.200 | The reason I begin with that question is in my experience,

00:32:51.200 | many of the people who obsess endlessly about economic forecasting

00:32:57.100 | and prognostication, et cetera, just simply don't have any money

00:33:00.400 | and it's a waste of time.

00:33:02.200 | The reality is if you don't have a lot of money,

00:33:04.700 | then you need to focus on your income and keeping your income up

00:33:10.700 | and your income will adjust with the economic environment

00:33:13.600 | in a straightforward way and interest rates are really

00:33:16.800 | only an academic concern.

00:33:19.000 | Even if you have modest amounts of money,

00:33:21.700 | they're still just relatively an academic concern.

00:33:23.900 | They're not particularly interesting

00:33:25.700 | that you should focus deeply on it at any one particular time.

00:33:32.900 | On the other hand, when you start to generate more money,

00:33:34.800 | it does make a big difference because the interest rates

00:33:38.300 | that are reflected in the investment prices

00:33:42.300 | that are available are going to drive what returns are available.

00:33:46.500 | If interest rates go negative and you have negatively priced government debt,

00:33:52.500 | then now that's going to affect the risk-free rate of return.

00:33:56.000 | That's going to affect the returns across the board of your portfolio.

00:33:59.500 | It is difficult.

00:34:03.400 | Let me keep it simple and say this.

00:34:05.800 | If you think about why interest rates would go negative,

00:34:08.300 | and so to be clear, we're not talking about somebody

00:34:12.100 | getting negative interest rates on a home mortgage, right?

00:34:14.400 | That's not going to happen.

00:34:15.700 | You're not going to go down to the local mortgage broker and say,

00:34:19.400 | "Hey, can I get a mortgage from you?"

00:34:20.800 | And the guy says, "Yeah, sure, we'll give you $200,000.

00:34:23.100 | And not only that, but we'll send you a check for $5,000 a year

00:34:26.400 | to cover this negative interest rate."

00:34:29.500 | That's not going to happen.

00:34:30.400 | It's not going to happen to your credit card company.

00:34:31.800 | Your credit card company is not going to send you a letter in the mail

00:34:37.600 | that says, "Here's a credit card with a $1,000 credit limit on it.

00:34:41.600 | And if you take the $1,000 and spend $1,000,

00:34:44.800 | we'll cut $100 off your bill and you'll have to pay us $900 back."

00:34:48.000 | So when we use the term negative interest rates,

00:34:50.300 | what are we talking about?

00:34:51.100 | We're talking about the interest rates on the bond market

00:34:54.700 | for government debt, government bonds.

00:34:57.400 | And interest rates do go negative.

00:34:58.800 | They have gone negative at various times over the last few years.

00:35:02.100 | I'm not equipped with the charts,

00:35:03.300 | nor have I recorded a standalone show on this to show.

00:35:06.500 | But they have gone negative over the past few years

00:35:09.800 | in a number of different places.

00:35:12.000 | And so you ask yourself,

00:35:13.400 | "Why would a German investor buy German bonds with a guaranteed decrease?"

00:35:17.700 | Well, the reason is always safety.

00:35:19.800 | The reason that people do it is because you get safety.

00:35:23.000 | And you reach a certain point in the investment markets

00:35:26.200 | where you're just desperate for something that can—

00:35:30.600 | you're desperate for something that can be returned to you.

00:35:33.900 | And so you say, "Well, at least if I put my money here,

00:35:37.600 | yeah, I might lose some in terms of—

00:35:40.000 | theoretically, in terms of the negative interest rates.

00:35:43.400 | Then I'll at least get it back."

00:35:45.700 | So that's how it works.

00:35:47.800 | And you see investors still taking that debt.

00:35:50.400 | Government bond markets function—

00:35:52.700 | it's a free market.

00:35:54.300 | A government has to pay what the market requires

00:35:57.300 | in order for them to get money.

00:35:59.100 | And so Argentina might do a bond offering,

00:36:02.300 | and they have to pay 22% on their government debt

00:36:07.300 | in order to get anybody to trust the government of Argentina.

00:36:09.700 | So they'll just list it as 22%.

00:36:11.700 | And then if history is any advice,

00:36:13.800 | then they will default on it a number of years later.

00:36:17.200 | On the other hand, Germany can offer negative interest rates

00:36:20.800 | on its government debt, and people will lap it up

00:36:22.900 | because they understand the fiscal constraint of the German nation.

00:36:28.800 | Beyond that, I don't have anything intelligent to say

00:36:31.100 | other than to say that if interest rates go negative,

00:36:35.300 | it's a sign that there's a flight to safety.

00:36:39.500 | And what to do in that from an investment perspective,

00:36:43.400 | I don't know.

00:36:45.600 | I don't know.

00:36:46.100 | So I don't think that I have a very good answer for you

00:36:48.300 | other than that little bit of introductory commentary.

00:36:51.200 | If you want to specify your question more, fine.

00:36:53.600 | What I would say is my answer is always going to come down

00:36:56.500 | not to what the particular interest rate environment

00:36:59.500 | happens to be at a certain time,

00:37:01.600 | but rather, do you have an investment plan

00:37:04.900 | that will satisfy that interest rate environment?

00:37:08.300 | Last week, I posted on Twitter

00:37:11.400 | that I've become much more of a fan

00:37:15.700 | of the old Harry Brown permanent portfolio concept

00:37:19.600 | because of its ability to give people something

00:37:22.600 | that is understandable

00:37:24.700 | so that they don't bail on their investments in bad times.

00:37:28.100 | And I've done several shows on the permanent portfolio

00:37:32.200 | that I've talked with Jake DeSilis about it,

00:37:34.700 | did a standalone show on it.

00:37:36.100 | It's just one of those very interesting concepts.

00:37:38.100 | The concept for the uninitiated is that you divide

00:37:40.200 | your investment assets into four different investment classes.

00:37:45.400 | You invest 25% into stocks.

00:37:47.800 | You invest 25% into government bonds.

00:37:50.000 | You invest 25% into gold.

00:37:51.700 | And you invest 25% into cash.

00:37:54.000 | And you maintain that 25% ratio.

00:37:56.700 | And the idea is that you have part of your investment portfolio

00:38:01.100 | that will function effectively for you in any market condition.

00:38:06.200 | And so if you have negative interest rates,

00:38:08.100 | number one, of course, you'll have older bonds that are—

00:38:11.900 | I won't go through all the permutations.

00:38:14.100 | So what I like about that,

00:38:15.700 | while I don't know that the permanent portfolio

00:38:17.700 | is the world's greatest approach,

00:38:21.200 | people have tweaked it and taken that concept to a diff—

00:38:24.600 | you know, famously Ray Dalio,

00:38:26.900 | you know, built off of that with his ideas.

00:38:31.500 | But what I like about it is it gives people the confidence

00:38:35.000 | to know that they own an asset

00:38:36.600 | that will function in every economic circumstance.

00:38:40.300 | And that's what your question makes me think of,

00:38:42.900 | is simply if interest rates go negative,

00:38:45.200 | look at your asset classes and say—

00:38:47.000 | your investments and say,

00:38:48.600 | "Do I have something that will continue to perform in that period?"

00:38:52.600 | But beyond that, I'm not particularly concerned beyond that.

00:38:56.700 | - Okay, that makes sense.

00:38:58.100 | So do you think banks would charge a fee

00:39:01.600 | for storing your cash in their institutions?

00:39:06.500 | Because that's my main concern,

00:39:07.800 | is working on the $100,000 savings

00:39:13.200 | that you had mentioned in previous episodes

00:39:17.700 | to hopefully retire here early in the future.

00:39:23.200 | And I mean, obviously getting zero interest is horrible,

00:39:27.500 | but having to pay them money to save my money is even worse.

00:39:32.900 | So I'm concerned about that aspect of it.

00:39:37.400 | - This has happened repeatedly over the past years.

00:39:40.800 | This is nothing new.

00:39:43.200 | This has happened repeatedly over the last few years.

00:39:48.300 | I don't have the articles at my fingertips,

00:39:51.000 | but there have been a number of banks in Europe

00:39:54.100 | that have charged for this.

00:39:56.600 | There have been a number of banks in the United States

00:39:59.000 | that stopped taking large accounts.

00:40:01.200 | And what they do is the bank says,

00:40:06.300 | they send you a letter, right?

00:40:07.300 | They said, "Now we're going to start, I'm sorry,

00:40:09.300 | but for now we're going to start incurring

00:40:11.300 | a monthly service fee on your checking account,

00:40:14.400 | your savings account, your CD, et cetera."

00:40:17.900 | And so when that happens,

00:40:21.500 | and that's where the bank has to protect themselves

00:40:23.700 | because if interest rates go negative,

00:40:25.000 | what do people do?

00:40:25.600 | They withdraw cash.

00:40:27.000 | And so they withdraw cash and they sit on cash,

00:40:29.600 | which wipes out the bank's reserves

00:40:31.400 | and make things very difficult for them.

00:40:34.200 | And so this has happened repeatedly

00:40:35.900 | over the past few years.

00:40:38.100 | What I would say is you basically come down to,

00:40:41.200 | in that situation, you come down to what do I do?

00:40:46.900 | You know, I just found an article.

00:40:48.100 | This one's from 2016 with just a quick search,

00:40:51.200 | but from the Telegraph.

00:40:52.000 | "Savers fear negative interest rates as NatWest,"

00:40:54.200 | that's a UK bank.

00:40:55.300 | "NatWest warns businesses

00:40:56.600 | they might have to pay to hold cash."

00:40:57.900 | I'm sorry, I can't pull them in real time

00:40:59.900 | from the United States,

00:41:00.700 | but search for how this has happened.

00:41:02.400 | You'll find a number of times this has happened,

00:41:04.600 | mostly with large accounts.

00:41:07.800 | Mostly with large accounts is the primary thing.

00:41:10.600 | Here's one from Reuters from a couple years ago.

00:41:15.200 | "Jyske Bank, Denmark's second largest bank,

00:41:17.100 | said it would introduce a negative interest rate

00:41:18.800 | of 0.75% for all corporate deposits

00:41:21.300 | and for private clients depositing

00:41:22.700 | more than 750,000 Danish crowns,"

00:41:25.600 | which is $111,100 U.S. dollars,

00:41:28.800 | "from December 1.

00:41:30.200 | A month ago, it said clients depositing

00:41:31.700 | more than 7.5 million crowns

00:41:33.500 | would be charged negative interest rates of 0.6%.

00:41:36.800 | Last week, Denmark's central bank

00:41:38.300 | cut its key deposit rate to -0.75%,

00:41:41.500 | a record low among developed economies.

00:41:43.500 | Earlier the same day,

00:41:44.700 | the European central bank cut interest rates

00:41:46.400 | and resumed buying bonds.

00:41:48.100 | The rate cut means that Jyske Bank

00:41:49.600 | now loses even more money.

00:41:50.900 | Chief Executive Anders Dam

00:41:52.400 | said in a video statement on the bank's webpage,

00:41:54.200 | "It is a lot of money and we have to pass on

00:41:56.400 | part of this bill to our customers," he said.

00:41:58.700 | "I don't hope that we will have to go lower,

00:42:00.200 | but I don't dare to promise it."

00:42:02.700 | Denmark was among the first to introduce

00:42:04.300 | negative rates in 2012.

00:42:06.300 | In August, Jyske became the first to offer

00:42:08.300 | a negative rate on a home loan.

00:42:09.800 | Well, here we go.

00:42:10.900 | In effect, paying customers 0.5%

00:42:13.000 | to borrow money for 10 years.

00:42:14.900 | Maybe I need to check what I said earlier

00:42:16.200 | because maybe I got it wrong.

00:42:17.600 | Denmark's largest bank, Danske Bank, blah, blah, blah."

00:42:19.900 | So the point is that this has been happening

00:42:22.500 | all around the world,

00:42:23.300 | so it's not a hypothetical concern.

00:42:26.000 | What I'd say is that in that situation,

00:42:27.400 | why does the bank want the money out of there?

00:42:29.800 | Well, they want the money out of there

00:42:31.100 | because it's costing them more money to have it

00:42:33.100 | than to not have it.

00:42:34.300 | And so in your situation,

00:42:35.200 | if you're only dealing with $100,000,

00:42:36.900 | and I understand that word "only"

00:42:38.400 | is a relatively loaded term,

00:42:42.300 | but you're not going to have a problem.

00:42:45.400 | If you have a million dollars in your bank account,

00:42:48.100 | this is going to have a problem.

00:42:49.100 | $100,000 is probably not a problem.

00:42:50.600 | If you're in doubt, take out $50,000 in cash

00:42:54.500 | and put it in a safety deposit box

00:42:56.200 | and just sit on the cash,

00:42:57.000 | and then negative interest rates are not a problem.

00:42:59.000 | And then when they start paying you money again,

00:43:01.200 | then you can go ahead and start depositing money again.

00:43:05.000 | But it's a simple solution when you're in that world

00:43:10.200 | where you can simply take out a $50,000 withdrawal

00:43:13.100 | and store it in physical cash.

00:43:14.700 | No problem there.

00:43:16.200 | - All right, thank you very much.

00:43:17.900 | - My pleasure.

00:43:19.200 | - All right, we move on to...

00:43:24.200 | Let's see.

00:43:25.500 | This should be Benjamin.

00:43:28.300 | Benjamin, welcome to the show.

00:43:29.100 | How can I serve you today?

00:43:30.400 | - Hey, good afternoon, Joshua.

00:43:31.600 | Thank you for all you do.

00:43:33.000 | And also thank you for doing a show

00:43:36.000 | on the Facebook group.

00:43:38.400 | Question.

00:43:39.400 | - Oh, my pleasure.

00:43:39.900 | Are you the Benjamin that asked the question there?

00:43:42.000 | - Yes, yes, I am, Joshua.

00:43:44.300 | - How did I do on my answer?

00:43:46.000 | - You nailed it, Dylan.

00:43:48.000 | Thank you so much.

00:43:49.100 | That cleared a lot of things up.

00:43:51.000 | I'm one of your listeners who, like,

00:43:52.800 | when you say something, I'm writing it down

00:43:54.900 | and I'm telling my friends

00:43:56.100 | and anyone I could tell about it.

00:43:59.200 | - I appreciate that.

00:43:59.900 | - For years now, and I very appreciate what you do.

00:44:02.300 | And just to clarify, that cash position,

00:44:06.400 | it's actually brought a lot of opportunities,

00:44:08.100 | I think, to clarify, put on that comment.

00:44:12.200 | Like, opportunities we would have never even seen before.

00:44:14.700 | And even though we have lost,

00:44:17.300 | theoretically would have lost market money,

00:44:21.100 | we've gained a lot of opportunities

00:44:22.800 | and investment opportunities.

00:44:24.600 | And the peace of mind has just been,

00:44:26.800 | I don't know if I could put a price tag on that

00:44:28.800 | through this last six, seven months now,

00:44:32.300 | with my family and extended family

00:44:34.000 | knowing that worst case scenario,

00:44:36.300 | we were good for years in certain situations.

00:44:40.500 | So.

00:44:42.400 | - I'll comment on what you're saying there

00:44:44.400 | because to me it is,

00:44:48.700 | it's something that I'm learning in real time

00:44:51.900 | that nobody taught me.

00:44:53.500 | And so I'm a little bit on thin ice

00:44:56.600 | generating ideas that are,

00:44:59.600 | I'm not saying they're exclusively original to me,

00:45:02.600 | but I'm generating ideas in an original way

00:45:04.700 | based upon my experience

00:45:07.000 | with regard to holding savings.

00:45:10.700 | I was trained in what I would call

00:45:14.500 | the mainstream school of financial planning,

00:45:18.000 | which has a few basic tenets that are generally accepted.

00:45:22.700 | Number one, you want to invest money continually.

00:45:27.500 | And the best and often only type of investment

00:45:31.100 | that is discussed is stock market investments.

00:45:35.200 | Buying mutual funds, often within a retirement account.

00:45:38.300 | That's usually what people think of

00:45:39.800 | when it comes to investing.

00:45:41.900 | The second thing is money that's in the bank is unproductive.

00:45:45.500 | So you want to minimize the money that's in the bank

00:45:48.100 | because it's not earning you very much.

00:45:49.900 | And this has been especially true

00:45:51.300 | throughout my financial planning career.

00:45:53.300 | I wasn't around in the 80s when you could get,

00:45:55.900 | I was around, I wasn't working in the 80s

00:45:58.600 | when you could get double digit rates of return

00:46:00.500 | on your savings account.

00:46:02.000 | My entire life, I have gotten less and less and less

00:46:05.500 | and less and less and less interest on my accounts.

00:46:08.100 | I remember when I opened my first money market account

00:46:09.800 | when I was 18 years old.

00:46:11.100 | And I don't remember what it was, but it was a few percent.

00:46:13.900 | And I would get these online banking things of,

00:46:16.100 | I think, 4% and 3% on my online bank.

00:46:19.000 | And then it's just gone down, down, down, down, down, down, down.

00:46:21.600 | To the point where today it's practically 0.0.

00:46:24.500 | Basically for all intents and purposes.

00:46:26.900 | So, and then the third tenet of mainstream advice

00:46:30.300 | is you should have savings and emergency funds

00:46:34.400 | that provide you with three to six months worth of expenses.

00:46:38.300 | And what I was taught in my certified financial planner training

00:46:42.200 | is that you tell a client that it's six months of expenses

00:46:46.200 | if, for example, you have a single income household,

00:46:49.500 | if you have, everyone's relying on one job.

00:46:52.500 | But then on the other side is three months worth of expenses

00:46:55.100 | if there's a dual income household

00:46:56.500 | because it's more likely that if one person loses their job,

00:46:58.600 | the both aren't.

00:46:59.400 | So it's three to six months of expenses.

00:47:01.500 | And I don't have a problem with that advice.

00:47:04.100 | I don't think it's bad advice.

00:47:05.400 | I don't think it's wrong advice.

00:47:08.200 | What I think it is is short-sighted at times.

00:47:12.400 | And there's a whole other side that I didn't understand.

00:47:16.600 | And for me, this has been personal.

00:47:18.200 | It's been personal experience.

00:47:20.900 | When I realized that by having money,

00:47:24.700 | I could change my lifestyle into a lifestyle

00:47:27.200 | I didn't want to retire from,

00:47:30.200 | it changed my perspective.

00:47:31.900 | When I realized what I have taught in public

00:47:35.100 | is that if I tell a 24-year-old,

00:47:38.400 | "Listen, if you got 10,000 bucks in the bank,

00:47:40.300 | even if you don't have any savings,

00:47:41.700 | but if you got 10,000 bucks in the bank,

00:47:43.100 | you can do anything."

00:47:44.400 | And then I see those 24-year-olds

00:47:46.200 | pursuing all these interesting paths.

00:47:48.800 | Some people buy a motorcycle

00:47:50.500 | and ride a motorcycle for a year.

00:47:52.800 | But out of that, they generate the creative inspiration

00:47:55.100 | to go and start some business.

00:47:56.900 | And I recently was reading a story

00:48:01.300 | that Kevin Kelly wrote.

00:48:02.500 | He's the founder of Wired Magazine.

00:48:04.200 | And he was writing an article about...

00:48:07.700 | Kevin's just a fascinating guy.

00:48:10.300 | If there's one person that I would just enjoy

00:48:12.300 | spending a few days with, he's the kind of guy.

00:48:14.900 | And he was writing this article about him

00:48:17.500 | back in, I think, the '70s,

00:48:18.900 | traveling around Asia by himself.

00:48:21.400 | And he went and, again, traveled Asia by himself

00:48:26.200 | for a very long period of time

00:48:28.100 | in a day when there were no guidebooks.

00:48:29.800 | He didn't speak any of the languages.

00:48:31.100 | He didn't have any money.

00:48:32.300 | He was just bumming around.

00:48:33.700 | And yet he came back

00:48:34.900 | and then proceeded to build a fascinating career.

00:48:37.500 | I've been reading the autobiography of Steve Jobs.

00:48:40.500 | And I learned in that autobiography

00:48:42.200 | something I hadn't previously known,

00:48:43.400 | that Jobs spent a significant amount of time in India

00:48:47.700 | when he was younger.

00:48:50.800 | I don't remember exactly, at least six months,

00:48:52.900 | bumming around India, maybe longer.

00:48:55.900 | And then he came back and went through a series of jobs

00:48:58.500 | that later ended up in his career work.

00:49:02.700 | What I regret is that I didn't have the clarity of mind

00:49:06.700 | to do more of that when I was that age.

00:49:11.000 | I did a lot.

00:49:12.000 | Compared to most people, I've done more.

00:49:14.500 | But in hindsight, I could have done a lot more.

00:49:18.300 | But I was so focused on invest money.

00:49:21.000 | And I put so much money in my Roth IRA,

00:49:23.700 | which I then invested.

00:49:24.600 | And I knew I couldn't touch the money in my Roth IRA,

00:49:26.900 | that I said no to a number of experiences

00:49:29.900 | that in hindsight I wish I'd said yes to.

00:49:34.500 | And so when I recognized that the problem was

00:49:38.400 | that I was so focused on putting money into mutual funds

00:49:41.700 | in my Roth IRA,

00:49:43.300 | and that if I'd had more money in my checking account,

00:49:45.400 | I would have done more interesting things.

00:49:47.200 | And who knows where those interesting things would have led.

00:49:49.900 | Those interesting life experiences

00:49:51.500 | are wildly unpredictable.

00:49:53.300 | I can't tell somebody,

00:49:54.800 | "Hey, if you go and buy a motorcycle,

00:49:58.400 | then you'll travel and travel for three months,

00:50:00.700 | you'll have some experience."

00:50:01.700 | I have given that advice.

00:50:03.400 | Last year I was counseling a friend of mine,

00:50:06.400 | and he had lost his job,

00:50:09.600 | but he had a lot of money saved.

00:50:11.200 | And we were talking about career options,

00:50:13.900 | and he had no imagination.

00:50:16.500 | He had no interesting ideas for his life.

00:50:18.600 | He had no idea what he wanted to do.

00:50:19.900 | He didn't want to marry.

00:50:21.000 | He wasn't interested in...

00:50:24.500 | But there was nothing he was interested in.

00:50:26.100 | And so I counseled him very strongly.

00:50:27.700 | I said, "You need to go.

00:50:28.700 | You need to load up a pickup truck,

00:50:30.700 | put a truck camper on the back,

00:50:32.200 | and you need to go and work your way across the United States

00:50:34.800 | for six months, a year, a year and a half,

00:50:36.900 | just doing odd jobs.

00:50:38.000 | Grab a job here as a waiter for a few months.

00:50:40.900 | Be a...

00:50:41.600 | Work in the local skate shop that some guy...

00:50:44.300 | You need to meet some people

00:50:45.600 | and have a little life experience."

00:50:47.200 | Now, he didn't do it.

00:50:49.400 | He tried to, but then he wasted all his money partying

00:50:51.700 | and ran out of money and got a job.

00:50:53.400 | But what I saw in that situation

00:50:56.200 | was that life experience

00:50:57.500 | would have helped him to see more interesting avenues.

00:51:00.600 | So when I reflect on the life experience

00:51:02.300 | of some of these men that I admire,

00:51:03.900 | men like Steve Jobs or Kevin Kelly,

00:51:07.400 | who...

00:51:08.700 | And I see the impact of their life experience,

00:51:10.800 | I believe it's important

00:51:12.600 | to spend money on things like life experience.

00:51:15.300 | Now, when we add on all the other things

00:51:17.000 | that can be done with money,

00:51:18.200 | the things that I didn't conceive of,

00:51:20.100 | because I was so busy,

00:51:21.300 | I didn't have somebody come along

00:51:22.500 | and trained me on how to flip washing machines

00:51:25.900 | and dryers on Craigslist.

00:51:27.600 | I could have made a bundle at that.

00:51:29.600 | And when I think about the dumb jobs

00:51:31.300 | that I did in college,

00:51:33.000 | that where I was paid, you know,

00:51:34.300 | 10 or 12 or 15 dollars an hour,

00:51:36.700 | versus what I could have done

00:51:37.800 | if somebody had given me

00:51:38.700 | a little bit of entrepreneurial training,

00:51:40.800 | it would have been so much more profitable,

00:51:42.300 | but I needed money to start that stuff.

00:51:44.600 | And so...

00:51:45.600 | And time, out of my own frustration

00:51:48.600 | with taking the mainstream path,

00:51:50.300 | I've changed some of my philosophies

00:51:51.900 | and I've tested them.

00:51:53.200 | And the farther I go in testing them,

00:51:55.700 | the more convinced I am

00:51:57.100 | that I'm right, at least for me.

00:51:59.400 | I wouldn't presume to tell someone else

00:52:01.300 | that they're wrong for working a job

00:52:03.700 | and putting their money aside

00:52:04.600 | and having a three-month emergency fund.

00:52:06.400 | I would just explain that in my experience,

00:52:08.600 | this has been something helpful to me

00:52:10.400 | and I've accumulated enough stories

00:52:12.500 | and data and observations from other people

00:52:15.100 | that I see the value in this

00:52:16.400 | and you can consider it.

00:52:18.600 | And this is where,

00:52:19.500 | when it comes to holding cash,

00:52:21.700 | an interesting conversation emerged

00:52:23.400 | in the Radical Personal Finance Community Facebook group

00:52:25.600 | a month or so ago.

00:52:26.900 | And some of the members of the community

00:52:29.200 | were commenting on the statement that I had made,

00:52:31.700 | that where they said...

00:52:33.500 | I had made a statement on a show where I said,

00:52:35.400 | "The $100,000 emergency fund

00:52:37.900 | is going to be the new status symbol of choice

00:52:39.500 | in the wake of the COVID pandemic."

00:52:41.300 | That it's going to...

00:52:42.300 | People realize how vulnerable they are

00:52:45.500 | to significant events.

00:52:47.300 | And it feels like,

00:52:49.100 | in the modern age,

00:52:50.200 | it feels like the pendulum of change

00:52:53.100 | is swinging bigger and faster.

00:52:55.400 | The pace of change today is faster than it's ever been

00:52:58.400 | and we seem to have these

00:53:00.900 | really significant crises more frequently.

00:53:04.300 | Now, is this guaranteed?

00:53:05.900 | I don't know.

00:53:06.400 | But what I mean is that

00:53:07.400 | there've been economic crises throughout history.

00:53:10.100 | But many times they're separated by centuries,

00:53:12.400 | if you go back and study the history.

00:53:14.000 | Or they're localized, they're not global.

00:53:16.600 | But if you look at the modern world,

00:53:18.100 | we're living in an age of global,

00:53:20.900 | massive crises and tremendous instability.

00:53:24.800 | I remember long-term capital management,

00:53:26.500 | when all of Asia was about to implode.

00:53:28.400 | And then you've got 2001,

00:53:30.600 | then you've got 2008,

00:53:32.100 | and now you've got 2020.

00:53:33.700 | And in my lifespan,

00:53:35.800 | being a millennial,

00:53:37.200 | I know nothing but crisis to crisis.

00:53:39.800 | That doesn't mean that

00:53:42.400 | the market doesn't, you know,

00:53:44.300 | recover in five months.

00:53:45.500 | That doesn't mean that we don't have a historic bull market

00:53:48.000 | from 2009 to 2020.

00:53:50.600 | That doesn't mean any of those,

00:53:51.500 | that there's anything wrong.

00:53:52.900 | It just means that our lives are filled.

00:53:54.800 | Whereas our grandparents

00:53:57.600 | and great-grandparents

00:53:58.700 | would go through decades of their life with,

00:54:02.600 | I guess I want to be careful in saying that,

00:54:03.800 | you think about World War I and World War II,

00:54:05.600 | but you could go through periods of time of great stability.

00:54:08.800 | I've never known a world of stability.

00:54:10.800 | I've only ever known a world of instability.

00:54:13.200 | And so when you realize how these crises

00:54:16.000 | seem to be getting bigger, more significant,

00:54:18.800 | who knows why, right?

00:54:20.500 | Some of us have some ideas, but who knows?

00:54:23.300 | Then having more reserves makes sense.

00:54:26.400 | And so I made that comment,

00:54:27.600 | and it was being discussed,

00:54:28.500 | and several listeners said,

00:54:30.200 | "I think Joshua's just gone too far.

00:54:32.000 | Like, there's a big cost to maintaining that much cash."

00:54:35.500 | And the idea was,

00:54:36.500 | "Well, if I'm getting 0% on my cash,

00:54:39.500 | but I can go and I can get 7% or 10% on my investments,

00:54:44.000 | that's too big of an opportunity cost

00:54:45.800 | to hold $100,000 of cash."

00:54:48.600 | I grant the argument,

00:54:50.200 | but I rejoined with this comment.

00:54:53.100 | I said, "I don't see it,

00:54:55.700 | the difference as 0% versus 10%.

00:54:58.800 | In my experience,

00:55:00.500 | when people start to accumulate cash reserves,

00:55:03.600 | they start to realize the options

00:55:06.100 | that they have for investment

00:55:07.700 | that they didn't previously see.

00:55:10.000 | And so I could very easily see somebody

00:55:12.300 | who didn't have cash,

00:55:14.100 | then they started to save cash,

00:55:15.700 | then they realized, "I don't like this job."

00:55:18.100 | And they quit their job,

00:55:19.500 | and they go get another job that they do like.

00:55:21.800 | How do you measure that in a rate of return?

00:55:24.000 | I'm convinced it's significant,

00:55:25.400 | but I can't put a number on it.

00:55:26.900 | Or somebody who says,

00:55:28.300 | they're driving past,

00:55:30.100 | I'll pick on,

00:55:30.900 | I've been enjoying the food truck CEO,

00:55:34.400 | Brent on Twitter,

00:55:35.700 | and I've watched his story.

00:55:36.900 | And he and his wife got out of debt,

00:55:39.600 | and then he was working in a corporate job,

00:55:41.200 | and he started making pizzas on the side.

00:55:42.800 | And then a year or so ago,

00:55:43.800 | he quit his corporate job.

00:55:45.100 | And now he's got two pizza wagons,

00:55:46.600 | and he's selling tons of pizzas,

00:55:48.600 | making lots of money,

00:55:49.400 | growing all over the place,

00:55:50.900 | and just loving his new business.

00:55:52.000 | And I've often thought,

00:55:54.000 | I can imagine one of my listeners

00:55:56.400 | driving to work on a Monday,

00:55:59.800 | on a dreary Monday morning again,

00:56:02.000 | driving past the food truck

00:56:03.300 | with a for sale sign in the window,

00:56:04.800 | and saying, you know what,

00:56:06.200 | I'm going to do it.

00:56:07.200 | And they go, and they take 30 grand,

00:56:08.700 | and they go and buy the food truck,

00:56:09.900 | and start a new business.

00:56:11.600 | And those kinds of lifestyle changes

00:56:13.600 | are accessible to people with money,

00:56:17.100 | that they're not accessible to others.

00:56:19.100 | What I have found, simple things,

00:56:20.400 | and I don't talk much about my own life,

00:56:22.000 | but simple things like

00:56:25.700 | having $100,000 in the bank

00:56:27.900 | means that you can emigrate

00:56:29.100 | into most countries in the world.

00:56:32.800 | Things that aren't previously available to you.

00:56:34.500 | I've been thinking about doing a show on,

00:56:35.800 | I did a show on immigration to Canada

00:56:39.100 | with my friend Brandon,

00:56:40.100 | that was very well received.

00:56:41.300 | And by the way, I've heard

00:56:42.900 | that many of you went to him,

00:56:44.300 | and got his book,

00:56:45.000 | and engaged his services,

00:56:46.400 | and I think that's great.

00:56:48.400 | But I've been thinking about,

00:56:49.000 | okay, maybe I should do a show

00:56:50.000 | on some of the other places, the UK.

00:56:51.400 | The UK has this fabulous,

00:56:52.700 | fabulous new visa program,

00:56:54.500 | startup visa, and an innovator's visa,

00:56:56.800 | that in the wake of Brexit,

00:56:58.000 | they're trying to encourage

00:57:01.600 | new entrepreneurs to move to the UK.

00:57:04.800 | And so there's this really interesting wrinkle

00:57:06.900 | in the UK immigration system,

00:57:08.900 | where you can come in,

00:57:10.300 | and if you can come in on an innovator's visa,

00:57:12.200 | and bring a business to the United Kingdom,

00:57:14.200 | and you can demonstrate 50,000 pounds,

00:57:16.500 | which is something like 80-something thousand dollars,

00:57:18.200 | I think, about 50,000 pounds of reserves.

00:57:20.900 | By the way, on the startup visa,

00:57:21.900 | you don't need the money,

00:57:22.600 | but there's different sources.

00:57:23.700 | I won't get into the details of the visa program.

00:57:25.700 | But it opens up the opportunity for you

00:57:27.400 | to emigrate to a new country.

00:57:29.100 | And so, how many people's lives would be improved

00:57:32.600 | if they could leave one country

00:57:34.500 | that's not a good fit for them,

00:57:35.800 | and go to another country?

00:57:38.100 | You can easily get a visa to Mexico,

00:57:40.500 | a person of means visa.

00:57:42.400 | And so if you want to go to Mexico,

00:57:43.700 | having $100,000 in the bank

00:57:45.100 | makes it easy for you to do things like immigration.

00:57:47.700 | And so I know that these are the non-common things,

00:57:49.700 | but I'm convinced that the rate of,

00:57:52.300 | that the analysis,

00:57:53.100 | the opportunity cost on holding the cash

00:57:54.700 | is not 0% versus 10%.

00:57:57.200 | It's some significant number versus 10% or 7%

00:58:01.100 | in the stock market.

00:58:02.700 | And the more I experience it myself,

00:58:05.500 | the more convinced I am of that,

00:58:07.200 | and the more stories I hear of guys like you,

00:58:10.300 | the more convinced I am of it.

00:58:11.600 | So go ahead.

00:58:12.600 | I cut you off a little, Benjamin,

00:58:13.900 | but if you had more stories to share, go ahead.

00:58:16.300 | - Oh, no, exactly that.

00:58:18.500 | I'm sure there's opportunities that we had

00:58:21.900 | been around that we'd be able to see and analyze them

00:58:25.500 | and actually think do we want to pursue these or not?

00:58:28.800 | And it feels great.

00:58:30.600 | We've had just a, I don't know, it's a weird thing.

00:58:33.800 | When we first did it, it was kind of like,

00:58:35.800 | ah, like, what are we doing?

00:58:38.600 | The more that time has gone on,

00:58:40.500 | I can't see any other way at this point.

00:58:45.100 | (laughs)

00:58:46.800 | It has felt so good.

00:58:47.700 | And there's been this strength level

00:58:49.900 | through all this, it's dropped a cup completely.

00:58:53.200 | And we've actually made a lot more money

00:58:55.600 | and more opportunities since we made that decision.

00:58:58.300 | Oddly enough, I don't know how that works, but.

00:59:00.600 | (laughs)

00:59:02.000 | - Well, it's encouraging.

00:59:03.100 | That's how it should happen.

00:59:04.200 | I'll give one more example.

00:59:05.200 | By the way, Benjamin, did you have a specific question

00:59:07.200 | or you just wanted to share your story?

00:59:09.100 | - I just wanted to reach out to you

00:59:10.700 | to share a story and say thank you.

00:59:13.400 | - Good, good.

00:59:14.200 | So I'll just, I'll wrap up and move on to the next.

00:59:16.700 | Thank you for calling in and for asking the question

00:59:18.800 | and for doing that.

00:59:20.600 | I enjoy, one of the things that I've always tried to stress,

00:59:23.000 | I enjoy pushback.

00:59:24.600 | It forces me to be better.

00:59:26.100 | And so I encourage any listener who disagrees

00:59:28.400 | with anything I ever say, call me up on a Friday show

00:59:31.300 | and we'll chat about it and have a positive conversation.

00:59:35.000 | And the commitment that I made

00:59:37.900 | before I ever started speaking in public

00:59:39.400 | was simply that if I'm wrong, I'll just admit it.

00:59:41.500 | And so I really appreciate the comments and the suggestion.

00:59:46.400 | What I would add is, like, here's a practical way

00:59:49.000 | that I think people's lives change.

00:59:50.600 | I've watched a few people that I follow online

00:59:52.900 | who've recently needed new cars.

00:59:54.800 | And they've needed to get new cars

00:59:56.400 | because their previous cars were failing.

00:59:59.400 | And a simple thing that can have, I'm convinced,

01:00:02.800 | significant financial impact in your life

01:00:05.600 | is simply buying cars before they're needed.

01:00:09.400 | Buying cars before they're needed.

01:00:10.600 | We know that things like cars have a useful lifespan.

01:00:15.200 | And so I have a practice that anytime anybody I know

01:00:19.900 | is selling a car, I always consider buying it.

01:00:23.300 | And the reason is, the biggest risk that you have

01:00:25.900 | in the used car marketplace, which is, of course,

01:00:28.600 | in many markets, especially North American market,

01:00:31.000 | where there's an abundance of high quality used cars,

01:00:33.700 | not the same on a global basis, but in North America it is.

01:00:37.000 | The biggest risk that you have in the used marketplace

01:00:39.500 | is purchasing a car that is either a lemon from the factory

01:00:44.500 | due to that model in some way

01:00:46.000 | or that particular unit in some way,

01:00:48.300 | or a car that's been abused or not taken care of.

01:00:51.100 | And you can't control for that

01:00:52.900 | when you buy used cars with an unknown history.

01:00:56.100 | If you go to the auction

01:00:58.500 | where a car dealer accumulates their cars,

01:01:01.100 | there's nothing said at the auction

01:01:04.000 | as to why the car is there.

01:01:06.100 | The car may be there

01:01:07.100 | because the guy got to the end of his three-year lease

01:01:09.000 | and decided he was done with it.

01:01:10.600 | On the other hand, the car might be there

01:01:11.900 | because the guy had put $15,000 into it

01:01:14.900 | and still couldn't get the thing working right.

01:01:16.500 | And he said, "I'm just gonna take it."

01:01:18.000 | And car dealers dump cars all the time at the auction.

01:01:20.800 | Now, the car dealers take that risk on.

01:01:23.600 | They buy cars, then they try to inspect them,

01:01:26.200 | fix them, et cetera.

01:01:27.600 | And then to some degree, they take some of the risk

01:01:29.800 | of providing you a working automobile.

01:01:32.200 | So it's not that buying a used car at a dealer

01:01:34.300 | is forever a problem,

01:01:36.100 | but it's certainly something that is fraught with danger.

01:01:38.700 | On the other hand, if you know your buddy

01:01:41.800 | has a car that he bought new seven years ago,

01:01:45.000 | and now he's just decided to upgrade,

01:01:46.700 | if you can go to your buddy and say,

01:01:47.700 | "Listen, can I buy that car from you?"

01:01:49.500 | You know the history.

01:01:50.700 | Your buddy will give you a fair price,

01:01:52.300 | might give you a little discount

01:01:53.400 | from what the dealership will give, might not,

01:01:55.500 | but I would rather pay a premium

01:01:57.700 | to buy from somebody that I know

01:01:59.800 | versus a car that I don't know.

01:02:01.800 | And so as a simple car-buying strategy,

01:02:03.800 | I think the most intelligent strategy

01:02:06.200 | is to not drive a car into the ground necessarily.

01:02:10.500 | Some I think it's wise to, but not necessarily.

01:02:13.900 | But buy cars in the second-hand market

01:02:16.600 | that you know the history of,

01:02:18.700 | drive them for a number of years,

01:02:20.300 | and then when another replacement car

01:02:22.100 | emerges on the market, go ahead and buy it,

01:02:23.700 | and then sell your car at a high retail price.

01:02:26.200 | And it's a lot easier to sell a car

01:02:28.600 | when you don't know anything wrong with it,

01:02:31.000 | when everything is working fine.

01:02:32.900 | You know that certainly there's gonna be

01:02:34.500 | some maintenance items that are due,

01:02:36.100 | but it just makes more sense to sell the car

01:02:38.200 | rather than to wait until you have $1,500 of expenses.

01:02:41.100 | Then you have to go and buy the other car.

01:02:43.100 | Then you have to fix up the car.

01:02:44.700 | Then you have to go and sell it at that point in time

01:02:47.700 | and talk about all the new things that are done to it.

01:02:50.900 | But in order to do that, you need money.

01:02:52.400 | But most people don't have any money.

01:02:53.800 | And so there's a way of saving

01:02:55.100 | thousands and thousands of dollars

01:02:57.000 | by simply having money.

01:02:58.600 | And instead of waiting until you need a car,

01:03:00.600 | or instead of necessarily waiting

01:03:01.700 | until you've budgeted for a car,

01:03:03.500 | you just recognize, "Hey, here's a good car

01:03:05.400 | "that's available.

01:03:06.100 | "I'll go ahead and upgrade us now."

01:03:07.700 | And you do this regularly when good cars

01:03:09.800 | come into your network, and you're ready to go.

01:03:12.500 | So there's just an example for other people to consider.

01:03:16.900 | And I appreciate hearing your story,

01:03:18.700 | and I appreciate hearing the question.

01:03:20.400 | All right, we finish out today's call-in show with,

01:03:24.800 | it was Lenore, Lenore in California.

01:03:26.400 | Oh, looks like we may have changed.

01:03:28.500 | Is that Peter or is that Lenore?

01:03:31.200 | - Hello?

01:03:33.600 | This is Lenore. - Yep, Lenore.

01:03:34.800 | Okay, go ahead.

01:03:35.400 | I've got another caller that jumped on after you,

01:03:37.000 | so I didn't realize.

01:03:38.300 | Go ahead, Lenore, you're up.

01:03:40.000 | - Okay, great, thanks.

01:03:41.900 | Thanks for having me on.

01:03:43.100 | It's interesting that you're just talking about vehicles

01:03:45.600 | because my question sort of has to do with that.

01:03:48.300 | - Okay. - My husband and I

01:03:49.800 | are homeowners.

01:03:51.200 | We live in the Redwoods just north of Santa Cruz, California,

01:03:54.800 | and we were recently evacuated for two weeks

01:03:57.300 | because of the surrounding wildfire.

01:04:00.100 | Our home was spared, but this event kind of had us wondering

01:04:03.200 | if the money that we've saved to renovate our house

01:04:05.500 | could be better spent on making

01:04:07.700 | sort of a tricked-out evacuation vehicle

01:04:09.800 | that we could both store our valuables in

01:04:12.200 | and sort of live in temporarily

01:04:14.100 | rather than living in our friend's spare bedroom.

01:04:17.300 | We don't have any children, but we do have a parrot,

01:04:19.500 | so it would kind of be nice to be able to roll her cage up

01:04:21.700 | into like a customized wheelchair-accessible passenger van

01:04:25.500 | and take that with us.

01:04:26.800 | But of course, we have enough money to buy an already-made RV

01:04:33.200 | that has everything set up already.

01:04:35.900 | We're engineers, so we like the idea of a project,

01:04:38.100 | but at the same time, we don't want to sink a bunch of money

01:04:40.400 | into something that could take us a long time to complete

01:04:43.800 | since we are still in fire season.

01:04:45.700 | So I wanted to know sort of am I crazy for switching gears

01:04:50.000 | from increasing our home value to buying a vehicle?

01:04:53.200 | And as an RV-prepping newbie, just kind of wondered

01:04:56.200 | if you had an opinion on the bus versus the RV.

01:05:02.200 | - Let's pretend you bought an RV,

01:05:06.100 | maybe something modest, whatever your ideal version of an RV is.

01:05:09.300 | Pretend you bought one.

01:05:10.900 | Do you think you would use it for fun?

01:05:13.100 | Like, would you and your husband take trips in it for fun,

01:05:15.800 | or is this exclusively an emergency thing?

01:05:19.800 | - No, we were actually thinking about getting one for fun before

01:05:22.800 | because my family is located on the East Coast,

01:05:25.300 | and my husband is from Europe,

01:05:27.800 | so we do have like major road trips across the US

01:05:31.000 | planned for the near future.

01:05:33.200 | - Okay, so that to me is really worth thinking about.

01:05:38.800 | I don't care for the, that was too strong.

01:05:42.600 | I believe it's hard and dangerous to focus exclusively

01:05:47.500 | on doing something for an emergency

01:05:51.100 | because the chances of an emergency happening to you

01:05:56.600 | are always so relatively low that if you spend a lot of money

01:06:00.300 | on something for an emergency,

01:06:02.900 | and then the emergency doesn't happen,

01:06:04.600 | you can feel foolish.

01:06:06.600 | So if you bought a $100,000,

01:06:08.500 | maybe a beautiful road-trek camper van, right?

01:06:11.100 | I like road treks.

01:06:12.200 | Just a great little, for two people,

01:06:14.700 | that's what I would recommend is like something like the road treks.

01:06:17.700 | And so you buy a nice road trek,

01:06:19.500 | maybe you get a used one, but you spend $100,000 on this,

01:06:22.000 | or $80,000, or $120,000.

01:06:23.600 | Of course, you can do it cheaper,

01:06:25.200 | and then you park it in your driveway

01:06:28.100 | so that you have something to live in.

01:06:29.500 | If a fire comes through your house,

01:06:32.100 | you're going to hate the thing

01:06:33.600 | because it's going to sit there,

01:06:35.900 | you know it's sitting there rotting,

01:06:38.200 | you know it's fading in the sun,

01:06:40.000 | you know you got to put new tires on it every five years,

01:06:42.300 | whether you put a single mile on those tires or not.

01:06:45.200 | Everything in an RV starts breaking if you don't use it.

01:06:49.300 | And so now you're paying to have the thing maintained,

01:06:52.300 | and it'll sit there in your driveway for four years,

01:06:54.600 | and then you'll be like, "This was stupid.

01:06:55.900 | I should have done something else,"

01:06:57.300 | and you'll sell it and you'll be annoyed with yourself

01:06:59.200 | because you're not using it.

01:07:00.600 | On the other hand, if you bought an RV

01:07:02.500 | that you really liked and you used it,

01:07:06.000 | and it was the kind of thing that,

01:07:07.600 | hey, let's go ahead and go across to the East Coast,

01:07:09.800 | or let's go up and down the Pacific Coast Highway,

01:07:11.900 | or you know what, it's Friday night,

01:07:13.300 | would you like to go to the lake for the day tomorrow?

01:07:15.300 | And you buzz out Friday night

01:07:16.400 | and you go to the lake on Saturday.

01:07:18.000 | I mean, RVs are awesome to have

01:07:19.900 | if you could imagine using your lifestyle.

01:07:22.000 | In that situation, you'll be thrilled to have it.

01:07:24.100 | You'll go to a concert and you'll say,

01:07:26.400 | "Well, let's just take the RV,

01:07:27.400 | and that way we can stay on the lot

01:07:29.800 | when we go and see the big band,"

01:07:31.600 | or, "Let's go up to the mountains and go skiing,

01:07:33.700 | and we'll just stay in the ski lot.

01:07:35.400 | We'll make it a quick trip," and you'll love it.

01:07:37.600 | Like, having an RV is awesome

01:07:39.100 | if you could imagine yourself using it,

01:07:41.000 | and to me, that's where I would begin.

01:07:43.800 | So if you begin with whether you'll use it or not,

01:07:48.400 | then that'll drive you in one direction or another.

01:07:52.600 | Let's assume that you are going to use it.

01:07:54.300 | Well, if so, then I would say

01:07:56.300 | keep the fire evacuation idea in the back of your head,

01:07:59.500 | but keep the primary idea simply,

01:08:01.800 | what kind of RV would we like to have?

01:08:04.200 | And there are so many good options

01:08:06.700 | of things that you would like to have

01:08:08.700 | that you don't need to have something fancy.

01:08:13.700 | Any RV will work for fires

01:08:16.900 | and a fire evacuation plan if you're early enough.

01:08:20.400 | I guess the only area where things get risky

01:08:22.900 | is if you bought a trailer, a towable RV.

01:08:26.000 | You know, you see some of these horrible videos

01:08:28.600 | of people driving through a fire,

01:08:30.100 | and I imagine myself towing

01:08:31.300 | some 30-foot trailer through that.

01:08:33.500 | That's not very good, but what I would do

01:08:35.600 | if I were in that situation, if I bought a trailer,

01:08:37.800 | and because I decided a trailer RV was best for me,

01:08:40.300 | is I would say, "If there's a fire threat,

01:08:43.100 | "we're gonna leave any time it looks like

01:08:45.500 | "there's any kind of fire threat

01:08:46.700 | "because I don't wanna be stuck here

01:08:47.800 | "trying to get a trailer out on the roads,

01:08:49.100 | "and we've got a trailer, so it's easy.

01:08:50.700 | "So we're gonna choose four locations,

01:08:53.100 | "one in each direction, of four cool little parks

01:08:55.800 | "or friends' houses that we could park at,

01:08:57.900 | "a nice little state park with cell phone access

01:08:59.700 | "so we can work, and if there's a fire threatening our area,

01:09:02.400 | "we're just gonna go to that park that's one hour away,

01:09:05.200 | "and that's gonna be our destination."

01:09:07.600 | So you can solve for that.

01:09:09.300 | What I would say is if you just wanted an emergency vehicle,

01:09:11.300 | being engineers, you can do it much more efficiently

01:09:14.700 | and provide the basics with all individual components.

01:09:18.500 | So it doesn't take much.

01:09:21.600 | Depending on how much fanciness you want,

01:09:24.800 | you probably, being a household of two engineers,

01:09:28.200 | you, I'm sure, earn a decent income,

01:09:31.200 | you have money, you're probably not the kind of people

01:09:34.500 | who would be totally thrilled about camping regularly

01:09:38.400 | in an old cargo van that you converted into a camper.

01:09:43.400 | In that situation, you'll enjoy having

01:09:45.600 | some of the creature comforts of a purpose-built RV.

01:09:48.700 | But for an emergency plan, that's what I would do,

01:09:50.600 | is I would just get an old cargo van,

01:09:52.600 | I would put in that cargo van a bed,

01:09:54.700 | I would install the bed, I would put in it,

01:09:57.500 | I would use camping gear that could be taken out,

01:09:59.500 | so I wouldn't install a standalone stove,

01:10:02.400 | I would just put a simple little Coleman propane stove,

01:10:05.200 | the kind that you camp on the picnic table with,

01:10:06.900 | and I'd put some propane bottles in there.

01:10:09.200 | I might just put in a simple 12-volt refrigerator

01:10:12.300 | or a cooler, and I would make sure that I had,

01:10:16.300 | that I had just the basics that I needed to be comfortable

01:10:21.500 | if it were just an emergency thing.

01:10:23.900 | The other thing that I think you should consider

01:10:25.300 | is even before you do all that,

01:10:27.600 | I think that you should consider,

01:10:29.700 | rather than evacuating with your stuff,

01:10:32.600 | I think you should consider installing

01:10:34.000 | a fire shelter in your home,

01:10:36.000 | and especially if you're doing some home renovations.

01:10:38.200 | I don't know if you've thought about this or priced it,

01:10:41.100 | but you could install a fire shelter in your home,

01:10:44.900 | and the ideal system would be an underground shelter

01:10:50.500 | buried in the slab with a good solid hatch on it

01:10:55.200 | that you could store things and that would be fireproof

01:10:57.300 | even if your home burned down.

01:10:59.400 | If you think about the options,

01:11:01.200 | so of course you can install a fireproof safe,

01:11:03.400 | but those fireproof saves are heavily due to,

01:11:07.500 | subject to actual, the time and the intensity.

01:11:11.600 | A fireproof safe is not always fireproof,

01:11:13.500 | but it's a good start, and so that can be a good way

01:11:15.800 | to protect some of your valuables.

01:11:17.600 | You could, and I think this would actually be a real asset

01:11:22.300 | that you could possibly increase your home value,

01:11:24.100 | but you could purchase and install

01:11:26.000 | a purpose-built bunker of some kind in your home.

01:11:29.900 | There's a company that's well-known in the bunker space

01:11:31.900 | called Atlas Survival Shelters.

01:11:34.000 | They sell a specific fire bunker

01:11:37.100 | that's designed for this purpose.

01:11:38.700 | They call it the FireNATO.

01:11:40.400 | Now the FireNATO is not designed for human use,

01:11:44.100 | so you could install a proper bunker into your home,

01:11:47.400 | and a proper bunker with a filtration system,

01:11:53.100 | with beds in it, with a sink, whatever.

01:11:57.100 | You can just do a small one or a big one,

01:11:59.400 | and if you have a proper air system built into it,

01:12:02.400 | then that would be safe as a retreat for you

01:12:05.000 | if a fire came to your place.

01:12:07.200 | I think this, if I lived in a fire-prone region

01:12:09.900 | and I was living in the urban interface

01:12:11.800 | where there were a decent chance

01:12:13.100 | that a forest fire would take my house,

01:12:15.800 | and if you had the money and it wasn't a crazy expense,

01:12:19.000 | I would look at that and I would seriously consider

01:12:20.800 | installing a proper bunker with an air system,

01:12:25.200 | an air filtration system,

01:12:26.700 | that would be a safe place of retreat.

01:12:28.500 | So if the roads are blocked, and this, of course,

01:12:30.800 | if you lived in a place

01:12:31.900 | where maybe you didn't have a good escape route,

01:12:33.400 | if you got four good escape routes in four directions,

01:12:35.200 | you don't need it, but if you lived in a place

01:12:36.800 | where you didn't have a good escape route,

01:12:37.900 | I would install a proper bunker for people,

01:12:39.600 | for human habitation during a fire.

01:12:43.000 | But if you just wanted the basics,

01:12:45.300 | you could install the fire bunker,

01:12:47.200 | which is a lot cheaper

01:12:48.100 | because it doesn't have an air filtration system.

01:12:50.800 | You bury it in the ground, preferably in a garage floor

01:12:55.800 | or maybe an addition that you're adding to your house,

01:12:57.600 | although you could just put it in the backyard

01:12:59.200 | and put a little shed over it,

01:13:01.000 | and then make that the place

01:13:02.100 | where you store most of your valuables.

01:13:03.900 | So your fire bunker can just be the place

01:13:06.200 | where you store your guns, your paintings, your jewels,

01:13:08.300 | whatever valuable items that you have.

01:13:10.500 | So it's always protected.

01:13:12.000 | And then if there's a fire threatening,

01:13:14.400 | then you go ahead and just move your belongings

01:13:17.000 | into the more of your belongings,

01:13:18.500 | into the shelter to protect them

01:13:19.800 | from the possibility of fire, and then you leave.

01:13:23.500 | And so I would consider doing something like that

01:13:25.800 | in addition to the RV.

01:13:28.700 | I think that would be, it would be sensible to combine them

01:13:30.800 | if it makes sense for your family financially.

01:13:36.200 | - Yeah, great. Thanks.

01:13:37.100 | I just took a lot of notes on that.

01:13:38.700 | I hadn't even considered a fire shelter for our things,

01:13:43.200 | but we were considering building an addition on our house.

01:13:46.000 | So I think like you said, maybe budgeting,

01:13:48.600 | see how much it would cost to put that under there

01:13:51.000 | is a good option.

01:13:52.700 | - That would be ideal.

01:13:53.800 | And that's one of the reasons I wanted to mention it

01:13:55.400 | because if your renovation costs were including an addition,

01:13:59.100 | it would be really ideal.

01:14:00.400 | So there'd be a number of different ways that you could do it.

01:14:03.100 | If you just wanted to protect some small valuables,

01:14:05.900 | then right away you could install an in-ground safe.

01:14:10.300 | A recessed hidden in-ground safe of high quality

01:14:14.500 | is the safest home safe

01:14:16.700 | that you can have to protect your valuables.

01:14:19.400 | It's much better protected from, and that's for two reasons.

01:14:23.800 | So you can, if you install a large safe,

01:14:27.000 | even a large fire safe,

01:14:28.400 | picture like a big gun safe in your basement somewhere.

01:14:32.400 | The problem with that is it's very hard to conceal

01:14:35.700 | something like that.

01:14:37.200 | And it's exposed to the full heat of the fire.

01:14:39.700 | Less if in the basement, of course,

01:14:41.200 | but it's generally, the fire is all around it,

01:14:43.500 | and so it's exposed.

01:14:44.900 | And it's vulnerable to a thief breaking into it.

01:14:48.700 | You can break into most gun safes,

01:14:50.900 | even of popular brand names,

01:14:53.800 | if you have enough time with a crowbar.

01:14:55.400 | All they do is slow people down.

01:14:57.400 | They don't stop thieves necessarily,

01:14:59.100 | they slow people down.

01:15:00.500 | But the safest option, if you have significant valuables,

01:15:03.800 | personal valuables, is to install an in-ground safe,

01:15:08.200 | and then to do it in an area of the house

01:15:10.000 | where it wouldn't be looked for, and to conceal it.

01:15:12.800 | So if in your dining room, if you're installing an addition,

01:15:15.400 | and in your dining room,

01:15:16.900 | you go ahead and install a small safe,

01:15:18.900 | and when I say small, I mean, you know,

01:15:20.000 | a couple feet deep, something like that,

01:15:23.200 | two feet around, and you install it under a hatch,

01:15:26.400 | and you put a, you know, a curio cabinet or a table over it,

01:15:33.400 | then, and a piece of carpet,

01:15:35.100 | that's the kind of thing that would be very unlikely

01:15:36.800 | to be seen by a thief,

01:15:38.400 | and it's significantly protected from fire.

01:15:40.800 | The big threat to an in-ground safe is flood,

01:15:43.500 | because if water, you know,

01:15:47.400 | firefighters douse your house with water,

01:15:49.700 | everything in it is going to be flooded.

01:15:51.000 | So you need to be very careful about water damage

01:15:53.700 | for an in-ground safe, but that works really well.

01:15:57.600 | If you step up to a bunker,

01:16:00.600 | then it's ideal to install one at the time

01:16:02.500 | that you do your addition,

01:16:03.700 | and so you just simply excavate underneath it,

01:16:06.800 | underneath the slab, install the bunker,

01:16:09.500 | and then you pour the slab on top of it,

01:16:11.300 | and now you've got the fireproof room,

01:16:13.600 | which can, as I said, be a full-on blast shelter.

01:16:17.300 | You can do a bunker with bomb blast capabilities.

01:16:20.900 | You can do a bunker with radiation capabilities.

01:16:24.400 | I mean, there's all options available,

01:16:25.700 | or you can just put a simple fire storage bunker,

01:16:27.700 | which would be your cheapest option,

01:16:29.300 | but if you're doing an addition,

01:16:31.000 | you definitely should consider doing that at that time.

01:16:34.600 | And then I guess the third thing, which is possible,

01:16:37.100 | is I think it would be simplest to buy

01:16:39.500 | and best for your resale value

01:16:41.000 | if you purchase a high-quality, commercially-made one,

01:16:43.600 | but you could think through the engineering,

01:16:45.900 | and you guys are engineers,

01:16:47.200 | you could just think through and engineer

01:16:48.800 | a fireproof room in your home

01:16:51.300 | that would give you a place to store things,

01:16:53.900 | and so maybe you just dug out a traditional basement,

01:16:56.400 | but you went ahead and engineered it to be fireproof

01:16:58.900 | with your own engineering prowess.

01:17:01.300 | That could accomplish the same thing,

01:17:02.900 | but without purchasing the commercial options.

01:17:05.100 | - Yeah, that sounds like a fun project in itself.

01:17:14.700 | - All right, Lenore, thank you.

01:17:17.100 | Anything else before I go on to the last caller?

01:17:19.800 | - Nope, that's it. Thank you so much.

01:17:21.600 | - Thank you for calling in,

01:17:22.400 | and I'm glad that you guys are safe,

01:17:23.500 | and I'm glad that your house is safe,

01:17:24.700 | and may it continue in that way.

01:17:27.600 | All right, final call of the day.

01:17:29.000 | We move now, Peter, you just got in.

01:17:30.400 | Peter in New York, welcome to the show, sir.

01:17:32.500 | - Hey, Josh, how are you?

01:17:34.000 | - Very well, sir.

01:17:34.800 | - Quick one.

01:17:36.900 | I just took a loan from a whole life insurance policy.

01:17:40.800 | Now what do I do?

01:17:41.900 | - What did you use the money for?

01:17:46.300 | - I used it for a down payment on a house.

01:17:50.300 | - Okay, so what I would do is I would just wait,

01:17:54.600 | secure the house, wait.

01:17:56.600 | If you have other funds,

01:18:00.000 | and it makes sense to pay it back from other funds, fine.

01:18:03.300 | But what I would do is I'd wait a couple of years,

01:18:05.400 | see if the house appreciates in value.

01:18:08.000 | If it does, calculate the cost of a refinance,

01:18:11.200 | and if your house appreciates,

01:18:12.500 | and you have additional money,

01:18:13.900 | then I would refinance the house,

01:18:15.400 | and then take the mortgage and pay back the loan.

01:18:18.000 | Otherwise, depending on your income flows,

01:18:24.000 | if this is the thing that makes sense for you,

01:18:26.000 | is just from your income, set up a repayment plan,

01:18:29.100 | and set out a modest timeline.

01:18:31.500 | You don't have to do it right away,

01:18:33.600 | but at some point over the few years,

01:18:36.000 | depending on the ratio of loan, income, et cetera,

01:18:39.400 | set up a payment plan to pay it off within a few years,

01:18:42.500 | so you restore the cash values in the policy.

01:18:44.700 | - Okay.

01:18:47.200 | The policy is pretty old, actually,

01:18:50.200 | so the interest rate on it is 8%, interestingly.

01:18:54.200 | - That's not due to the fact that the policy is old.

01:18:56.800 | You can buy a life insurance policy today

01:19:00.000 | that will have an interest rate of 8%.

01:19:02.900 | What most life insurance companies will do

01:19:04.800 | is they'll offer you the choice

01:19:06.200 | of either a fixed interest rate

01:19:08.100 | or a variable interest rate,

01:19:10.000 | and you need to choose at the time

01:19:11.600 | that you take the loan out.

01:19:13.100 | So the 8% gives you the knowledge that no matter what,

01:19:16.100 | I'll always be able to take out the 8% loan.

01:19:18.700 | But if you take the variable interest rate loan,

01:19:21.900 | right now the variable interest rates

01:19:23.300 | are far lower than 8%,

01:19:25.000 | and so you need to call your insurance agent

01:19:27.200 | and see what the current variable interest rate loan rate

01:19:31.300 | is on your policy,

01:19:32.900 | and if it makes sense to decrease it,

01:19:35.600 | which probably does right now,

01:19:38.400 | it's probably 4%, something in that range,

01:19:40.600 | maybe five right now,

01:19:42.800 | depending on the insurance company that you have,

01:19:44.700 | decrease it to the variable interest rate.

01:19:46.500 | That'll drop your interest payments.

01:19:48.300 | The risk of going variable

01:19:49.900 | is that if interest rates adjust significantly,

01:19:53.200 | then you may wind up,

01:19:54.500 | because that's now an indexed rate,

01:19:56.700 | you may wind up paying 10%,

01:19:58.900 | where you could have borrowed at 8%.

01:20:00.900 | So what I do with all my whole life insurance policies

01:20:03.400 | is I always keep it at 8% as a standard,

01:20:06.200 | because that way, if interest rates are,

01:20:09.700 | if we're back in the 1970s,

01:20:10.900 | and interest rates are 15%,

01:20:12.000 | I know I've got a source of an 8% rate

01:20:15.200 | on my whole life insurance policy.

01:20:18.500 | But I would keep in mind,

01:20:20.700 | if I were gonna take a policy loan,

01:20:21.900 | especially a significant one,

01:20:23.100 | like for a home down payment,

01:20:24.300 | is I would probably switch to the variable rate,

01:20:27.300 | which would be lower, especially right now.

01:20:29.700 | So that would be my suggestion.

01:20:31.300 | - Sounds great, thank you.

01:20:33.600 | - Okay, one other suggestion for you to consider.

01:20:35.900 | I don't know, have you taken my credit card course yet

01:20:38.500 | on how to borrow? - Absolutely, yes.

01:20:40.400 | - Okay. - Yep.

01:20:41.200 | - So assuming that you've taken that course

01:20:43.300 | and you've captured the knowledge from that,

01:20:47.300 | if your credit profile,

01:20:49.000 | once the house is all done, you're in it,

01:20:51.500 | like everything is done, right?

01:20:52.500 | 'Cause you wanna be really careful

01:20:53.800 | when you're qualifying for a mortgage

01:20:55.100 | or playing the credit card games.

01:20:56.800 | But once you're in that situation,

01:20:59.200 | what I would do is I would start the process

01:21:02.900 | of moving that whole life insurance loan

01:21:05.400 | onto credit cards at 0%.

01:21:08.400 | For that to make sense,

01:21:11.200 | you need to, I mean, you've taken the course, right?

01:21:13.800 | It needs to be at 0% or something close to 0%.

01:21:16.600 | I'm happy to pay 3% balance transfer fees.

01:21:18.900 | That's cheaper than the loan on my life insurance.

01:21:21.200 | But life insurance and the credit card game

01:21:24.900 | are perfect partners

01:21:27.100 | because you have no variability

01:21:29.100 | in your life insurance cash values, right?

01:21:31.200 | They're only going up.

01:21:32.400 | And so you know the money is there.

01:21:34.300 | And you can put it in and take it out willy-nilly.

01:21:37.300 | And so what I would do in that situation

01:21:40.800 | is I would go ahead,

01:21:43.100 | apply for a swath of new 0% cards

01:21:46.800 | with the goal of, in the ways that I teach in the course,

01:21:50.000 | with the goal of moving the balance

01:21:52.000 | out of the whole life insurance loan

01:21:53.500 | onto the credit cards.

01:21:55.200 | I would extend those credit cards for the maximum period.

01:21:58.300 | And then if I need to pay down the credit cards,

01:22:01.300 | let's say that you've maxed out your borrowing limits,

01:22:04.200 | you got a bunch of 0% cards,

01:22:05.900 | you moved your money over onto there,

01:22:07.300 | but your credit score is starting to go down.

01:22:08.900 | And now you need to surf the balances again.

01:22:11.400 | You just simply take the money back out of the life insurance,

01:22:14.200 | pay down the credit card balances,

01:22:16.000 | wait for the balances to cycle through,

01:22:18.100 | wait a couple of months for your credit card,

01:22:22.000 | sorry, for your credit score to recover.

01:22:25.500 | Once your credit score recovers,

01:22:27.000 | apply for a new swath of credit cards.

01:22:29.500 | Once those cards are issued,

01:22:31.200 | use them in the way, you know, in the appropriate way

01:22:34.400 | by the, based upon the terms of the cards,

01:22:36.600 | use them to max out the financing

01:22:38.900 | and then pay down the policy loan again.

01:22:41.200 | And so this is one of the best uses

01:22:43.500 | that I like with whole life insurance.

01:22:45.400 | I think it works awesome in this application.

01:22:48.800 | I use whole life insurance policies

01:22:51.000 | for the bulk of my emergency fund.

01:22:53.100 | And the reason I do that

01:22:54.700 | is because it gives me all the advantages of having cash,

01:22:57.900 | but it eliminates some of those disadvantages

01:23:00.100 | that I was talking about earlier in the show of a low rate.

01:23:02.800 | And, but the way I would access the money,

01:23:04.600 | could I access the money with a policy loan?

01:23:06.600 | Certainly.

01:23:07.700 | But the first move that I would make

01:23:09.500 | is I would access the money with a 0% credit card loan

01:23:12.700 | before I would access it with the policy loan.

01:23:15.300 | And you can surf this back and forth, back and forth.

01:23:17.700 | You got a hundred thousand dollars of credit card,

01:23:19.100 | of policy values,

01:23:20.900 | and you got a hundred thousand dollars of credit card debt.

01:23:23.200 | Well, because you have no investment variability

01:23:25.800 | with that policy,

01:23:26.800 | with that whole life insurance policy,

01:23:29.300 | because there's no fluctuations,

01:23:31.200 | like there would be if you were doing a 401k loan

01:23:33.300 | or something like in this purpose,

01:23:34.800 | because there's no fluctuations,

01:23:36.400 | you always have that as a source of funding.

01:23:38.500 | And so it always works to, if the credit,

01:23:40.900 | if you come to the end of a 0% cycle

01:23:43.300 | and you can't surf the balance over

01:23:45.500 | to another 0% card with a 0% balance transfer

01:23:48.800 | or a 3% balance transfer or a 5% balance transfer,

01:23:52.000 | then you just simply take the money

01:23:54.000 | from the life insurance policy.

01:23:55.600 | You pay off the credit card that ends that contract.

01:23:58.800 | You wait, as I said, go ahead and get a new one.

01:24:01.300 | So if you've taken that course,

01:24:03.600 | and if you understand the concepts that I taught in there,

01:24:07.000 | that's what I would do while you're waiting

01:24:09.200 | to either refinance the house

01:24:11.400 | or to either waiting to refinance the house

01:24:14.800 | and take the money from there to pay it down,

01:24:17.000 | pay it off totally and have no credit card debt

01:24:19.200 | and no policy loan,

01:24:20.400 | or whether you're just paying it down out of income.

01:24:22.200 | I think both of those are really good solutions.

01:24:24.600 | - Great, awesome idea, didn't think of it.

01:24:27.700 | - Thank you all so much for listening to today's show.

01:24:30.000 | If you'd like to gain access to next week's Friday Q&A show,

01:24:33.400 | I would encourage you to do that.

01:24:35.200 | Just go to patreon.com/radicalpersonalfinance

01:24:38.300 | and sign up to support the show there.

01:24:39.500 | And as you can see from the content of today's show,

01:24:41.900 | we can talk about all kinds of interesting things.

01:24:44.200 | You gotta give me this,

01:24:45.500 | I may not be the world's best podcast host.

01:24:48.100 | I may not be the easiest person to listen to.

01:24:50.400 | I may actually be too long-winded.

01:24:52.600 | All of those criticisms that are very fair,

01:24:55.500 | I may have strong opinions, but tell me this,

01:24:59.100 | is there any other podcast,

01:25:00.700 | a financial podcast in existence on the marketplace?

01:25:04.300 | Is there any other podcast on the marketplace

01:25:06.800 | that you can begin with a question on contracting

01:25:11.200 | versus being a contractor versus an employee?

01:25:14.300 | You can talk about negative interest rates.

01:25:16.500 | You can talk about buying cars and having cash on hand.

01:25:20.000 | You can talk about evacuation vehicles from a fire

01:25:23.400 | and bomb shelters in your basement,

01:25:25.600 | and then finish it up with a conversation

01:25:27.300 | on whole life insurance and credit cards.

01:25:28.900 | I mean, you gotta give me that.

01:25:31.300 | I hope that this is the most interesting

01:25:33.000 | personal finance show that you listen to.

01:25:35.400 | So in addition to supporting show on Patreon,

01:25:37.500 | in addition to buying my wonderful products,

01:25:39.600 | which are available at radicalpersonalfinance.com/store,

01:25:42.000 | including the course called

01:25:43.600 | How to Borrow Money Safely

01:25:44.600 | and Never Pay Interest Using Credit Cards,

01:25:46.500 | which I have said again and again,

01:25:47.700 | if you have a credit card

01:25:49.000 | or if you think you will ever have a credit card,

01:25:51.100 | or if you've ever had a credit card,

01:25:52.200 | you need to buy my course,

01:25:53.400 | because I just heard from the telephone call there with Peter.

01:25:56.500 | It can be a phenomenally useful system.

01:25:59.200 | You heard everything I said there.

01:26:02.200 | It's a very, very good system.

01:26:05.200 | What I just described.

01:26:06.500 | But in addition to all of those things,

01:26:09.600 | it's been a while since I've asked for reviews.

01:26:11.700 | If you would take a moment

01:26:12.900 | and just simply go to whatever platform that you use

01:26:17.800 | to listen to this podcast on

01:26:20.500 | and simply review the show,

01:26:22.900 | that would be awesome.

01:26:23.900 | So if you're listening on iTunes,

01:26:25.600 | go to iTunes and leave a review on iTunes.

01:26:28.300 | If you listen on Spotify, leave a review on Spotify.

01:26:30.800 | Say whatever you want.

01:26:33.600 | But I would be grateful if you would do that.

01:26:35.900 | Leave a review now.

01:26:36.700 | It takes you 30 seconds to click the stars

01:26:39.400 | and write one sentence saying,

01:26:40.600 | "Joshua is the bomb."

01:26:43.100 | I'll take a five star.

01:26:44.400 | And have a great weekend.

01:26:45.100 | We'll be back with you guys soon.

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2020-09-11_Friday_QA