2021-04-30_Friday

00:00:00.000 | Today on Radical Personal Finance is live Q&A. Welcome.

00:00:02.960 | Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge,

00:00:22.240 | skills, insight, and encouragement you need to live a rich and meaningful life now,

00:00:26.000 | while building a plan for financial freedom in 10 years or less. Man, it's good to be back on

00:00:29.840 | the microphone for a Friday show. I really want these shows to be every single week. Over the

00:00:34.800 | last couple of weeks, I have not been able to get it done. So today we kick it off again.

00:00:38.640 | Friday Q&A live call-in show. I'm so glad that you are here for our Friday live Q&A show. If

00:00:54.320 | it's your first time, welcome. These shows work just like any other call-in talk radio show. I've

00:00:58.240 | got a listener line full of people ready to call in and talk about questions, comments, anything

00:01:02.720 | that you have. I open these shows up today to listeners of the show on Patreon. If you would

00:01:08.080 | like to gain access to one of these Q&A calls, you'll be able to call in, talk about anything

00:01:11.200 | you'd like. I'd be thrilled if you'd go to patreon.com/radicalpersonalfinance. Just search

00:01:15.200 | Radical Personal Finance on Patreon. You'll find the page there and I will open these calls up to

00:01:20.640 | you. I'd be happy to have you join in for one of these Friday Q&A shows. If you need, I always put

00:01:27.280 | timestamps in the description. So if there's a call that you're not interested in, feel free to

00:01:30.720 | flip forward to the next timestamp. But I try to keep them interesting and I certainly enjoy doing

00:01:35.280 | them because we get to cover all kinds of fascinating topics on a week-by-week basis.

00:01:40.640 | So I will open up the phone line as soon as I can get my computer to stop playing the music.

00:01:48.000 | And with a force quit on the music, I think we are ready to go. John in Pennsylvania, welcome.

00:01:54.400 | You are up first today, sir. Welcome to the show. Thanks, Joshua. Thanks for taking my call. Glad

00:02:00.800 | you're feeling better. Thank you. I had two questions. So I'll ask them first one and see

00:02:07.120 | if we have time for the second one. But I had some time to start looking into some projects on my

00:02:13.840 | list that had been there for a while, specifically about external citizenship outside the US or

00:02:22.480 | permanent residency. Specifically, I was looking at citizenship by descent to one of one or two

00:02:30.000 | countries in the EU and potential temporary or permanent residency trying to get that in Mexico,

00:02:36.720 | which I, from what I read, is actually quite easy, but I haven't started taking the steps

00:02:42.560 | towards either of those. Citizenship by descent is actually, I'm waiting on some legislation to

00:02:47.600 | go through a couple of those countries, which might take quite a while. But as I was thinking

00:02:53.760 | about these, I was just wondering, for all the benefits there are for these types of movements,

00:02:58.560 | are there any downsides to consider when, you know, kind of adding another citizenship

00:03:03.760 | for an EU country or even something as simple as a temporary permanent residency for Mexico

00:03:10.800 | or anywhere in general? What are the big concerns you would look at for

00:03:16.480 | why not to do something like that, if any?

00:03:19.040 | - Yeah, the biggest reason why you would not want to pursue a second citizenship or a residency

00:03:25.840 | program would be that if you have some personal involvement with the military, you have a top

00:03:32.880 | secret clearance of some kind, or you're involved in some kind of governmental function, that can

00:03:37.440 | be very, very complicated. It's not illegal to do that, it's just complicated. And it's especially

00:03:43.360 | complicated if it's something that you are actively pursuing. So you have a top secret

00:03:49.040 | clearance with the US military or you're employed in some kind of government job, and you, you know,

00:03:55.760 | your mom is from Russia, and so you qualify for Russian citizenship by descent. But now, even

00:04:01.920 | after you've worked for the military for 10 years, now you start to go and apply for it, it's just

00:04:06.480 | going to make your requalification for your top secret clearance much more complicated. So that,

00:04:12.480 | I think, is the biggest reason not to do it. Beyond that, if you're not involved with a local

00:04:18.400 | government, there are very few downsides. These will vary depending on the country that is involved.

00:04:25.040 | So the second big reason not to pursue a citizenship is going to be if the country

00:04:30.880 | that you're interested in imposes some kind of requirement on you or on your children.

00:04:36.720 | I think the most important ones here would be things like military service.

00:04:40.400 | So perhaps you qualify for Israeli citizenship, but by becoming an Israeli citizen,

00:04:47.600 | your children will be required to do military service in Israel, Singapore, Brazil,

00:04:55.600 | Armenia. These are all examples of countries that have mandatory military service, and that may

00:05:02.400 | affect you or it may affect your children, right? Switzerland would be another example of a famous

00:05:06.640 | country that has that. And so do you want to burden your children with the requirement to

00:05:12.320 | do military service for what is probably going to be a foreign country for you? Now, there is

00:05:18.880 | a sliding scale here with all of these options to say what are the specific, you know, sometimes

00:05:26.320 | there are opportunities to get out of it, right? Many times you can get out of it. Okay, look,

00:05:30.720 | my child is Brazilian, but they go to the Brazilian consulate in the country of registry

00:05:35.760 | and they file the papers and okay, they're exempt from their military service and then they reach

00:05:39.440 | past that age. But that's, I think, another thing that you want to be careful of. In addition,

00:05:44.160 | you want to be careful of entangling yourself in a foreign tax net. I think the biggest one here,

00:05:51.840 | the biggest problem here is for people who want to file for US American citizenship by descent.

00:05:56.720 | If I were an Italian citizen, if I had a consulting client of mine who said,

00:06:03.200 | "I'm an Italian citizen, lived all over the world, lived in the United States for many years,

00:06:07.360 | but his wife and children were Italian, sorry, were dual nationals, Italian and US American,

00:06:14.080 | he was thinking about whether he should get a US American citizenship. Well, my answer to him was

00:06:18.240 | don't. There was no benefit to him of becoming a US American citizen and yet, because of the

00:06:24.480 | financial and the tax implications, there were significant downsides to his being a US American

00:06:31.040 | citizen. And so, I think there, the United States is one of the worst in the world because of the

00:06:36.880 | laws that it puts you under, but there are other countries as well. It's not just taxes though. So,

00:06:41.840 | for example, in the United States, big reasons not to become a US American citizen, the United States

00:06:47.520 | imposes a lot of disclosure requirements. They say that you have to report all of your foreign

00:06:54.400 | bank accounts. And so, there are many countries that, especially in the wake of the United States

00:07:00.240 | aggressiveness on this front, in the wake of the FATCA legislation, many countries around the world

00:07:05.280 | have come together to create the Common Reporting Standards, CRS, on bank accounts and information

00:07:09.840 | sharing held abroad. Many countries do not yet impose the requirements of a country like the

00:07:15.600 | United States, where they say, all right, if you have an account that's outside of our border and

00:07:19.680 | if it's worth more than 10, if you have more than $10,000 in aggregate and accounts that,

00:07:23.440 | count value and accounts that you control, you have to report them all to us, then you

00:07:30.160 | have to tell us about them. But countries are moving in that direction. And so, you might want

00:07:34.640 | to be wary about getting involved with a country that has such significant disclosure requirements.

00:07:40.880 | This, I think, is especially going to be a factor as the cryptocurrency wars become more strong.

00:07:47.040 | Let's say that you're a citizen of a country that bans cryptocurrency for its citizens and residents.

00:07:52.400 | That's happening right now. There are major countries right now that are talking about

00:07:58.000 | banning cryptocurrency holdings. You see right now the United States this year on your tax returns

00:08:03.200 | requires you to disclose if you hold cryptocurrencies. So, that is a factor that you want to

00:08:10.160 | weigh carefully. There may be other laws and regulations that are difficult for you. For

00:08:18.880 | example, the US Foreign Corrupt Practices Act has been a major thorn in the side of many businessmen

00:08:26.640 | seeking to go abroad. The basic US-American perspective on the Foreign Corrupt Practices

00:08:32.240 | Act is that bribing people is illegal and you shouldn't engage in it. And so, when you call

00:08:38.000 | something like the Foreign Corrupt Practices Act and you say, "Is this a bad thing or a good thing?"

00:08:42.400 | then most people say, "Of course, it's a good thing. We don't want people going abroad and

00:08:45.840 | committing foreign corruption." The challenge is that that's a very myopic worldview. Much of the

00:08:52.960 | world functions very broadly on gift culture and on social networks as being the primary thing. And

00:09:01.680 | so, the things that from a US-American perspective are seen as corruption are not always seen as

00:09:06.960 | corruption in other places. And so, if you sign up to become a citizen of a country that has some

00:09:13.120 | kind of legislation like the Foreign Corrupt Practices Act, that can make your business

00:09:19.680 | doings very difficult, where you're not able to participate in the local culture the way that

00:09:23.680 | things are done. So, that would be an example. You would also want to be very careful about

00:09:29.600 | allying yourself with a country that is, I guess, not particularly popular at the moment.

00:09:36.080 | So, in today's world, a good example would be a country like Iran. If you qualify for citizenship

00:09:41.920 | by descent in Iran, you could file for it, but it's going to make your life much more complicated.

00:09:47.520 | If you're living in the United States, you're a US-American citizen by birth

00:09:50.640 | or by naturalization, and you can just simply say, "Yeah, I'm not Iranian," your life internationally

00:09:56.960 | is going to be much, much simpler, not having to deal with the sanctions that many countries

00:10:02.240 | around the world have placed upon people of your nationality. There have been many other examples.

00:10:07.360 | You could think back to the 1980s for South African citizens with the international unpopularity of

00:10:13.920 | South Africans at that time. So, those would be some examples that come to mind. And I think,

00:10:20.480 | finally, with regard to residencies, residencies are a little bit more practical. You don't have

00:10:26.000 | nearly as many requirements placed upon you if you're a resident of a country. So, maybe you love

00:10:31.840 | living in Brazil, but you don't want your children to be subjected to mandatory military service.

00:10:38.480 | Well, you might just get a residency permit, and because you're not a citizen, you don't have to

00:10:42.720 | bother with it. This is the same thing that I advised my client who was Italian living in the

00:10:48.400 | United States. He had a green card in the United States, permanent residency permit. There was no

00:10:53.600 | benefit to his becoming a citizen, other than I guess he could vote, but there was no benefit to

00:10:59.840 | his becoming a US citizen, but there were many drawbacks. But as a resident of the United States,

00:11:05.040 | yes, he's still subjected to the same laws, subjected to the same taxes, subjected to the

00:11:09.200 | same disclosure requirements, but if he wanted to leave, his process and his ability to leave the

00:11:15.520 | system and just simply surrender his residency permit would be much simpler than if he was a

00:11:22.400 | citizen. And so, the residency permit can be a good way to allow you to live somewhere without

00:11:28.000 | being subject to all of the laws. The downsides of a residency permit are far fewer. They're more

00:11:34.000 | practical. Usually, there's the cost of getting it and then the hassle of maintaining it. So,

00:11:39.760 | many residency permits require you to spend a certain amount of time in that country, Canada.

00:11:45.120 | If you have a Canadian permanent residency permit, you have to be there for two out of every five

00:11:49.200 | years to keep it active. The United States, if you have a US-American permanent residency permit,

00:11:53.680 | a green card, you have to be there the majority of your time to keep it active, otherwise they

00:11:57.760 | can revoke it. You know, many places throughout the world, right, you can get a Panama residency

00:12:04.000 | permit, but you're supposed to go back, I think it's once every two years, to maintain that

00:12:07.840 | residency permit. And so, you may not want to go to Panama every couple of years. This is why I

00:12:11.840 | think Mexico is such a good option and why it's one of my first recommendations for US-Americans,

00:12:18.480 | because once you get a Mexican permanent residency permit, under current law, which could change at

00:12:23.920 | any time, under current law, there is no requirement, there's no physical presence

00:12:27.520 | requirement to maintain that permit. So, you can get a Mexican permanent residency permit,

00:12:32.720 | and notice I'm saying permanent resident, when you become a permanent resident in Mexico,

00:12:36.560 | you can maintain that in theory for life without physically being president in Mexico at any time.

00:12:42.640 | And so, that's one of the reasons why it's so powerful. The final thing would be cost, right,

00:12:46.320 | the practicalities of the cost. There are costs associated with every single one of these options.

00:12:53.360 | There's simple costs of plane tickets. You can have low-cost options, right? Mexico is a very

00:12:58.000 | low-cost option if you have savings, but you still have to go there, you still have to pay the

00:13:02.720 | attorney fees and deal with that. There's still the hassle factor. Some residency programs are

00:13:08.240 | much more expensive. You want to become a permanent resident of Singapore, you're going to

00:13:12.880 | be shelling out millions of dollars and sometimes buying things that you wouldn't otherwise buy.

00:13:16.560 | And so, it's got to be important enough to you to actually be willing to do that.

00:13:21.600 | So, on the whole, I think that the advantages far outweigh the costs,

00:13:26.960 | and if you're thoughtful and careful about the particular nations that you work with,

00:13:35.760 | then I think you can diminish those. I guess the last thing I didn't say with regard to

00:13:39.840 | citizenship is that sometimes the cost of becoming a citizen of a country that you're entitled to

00:13:46.640 | is that you have to relinquish your other citizenships. There aren't as many of these

00:13:51.840 | countries who require, who forbid their citizens of being dual citizens as there once was,

00:14:00.240 | but there are still some very prestigious countries that do not permit dual citizenship.

00:14:06.320 | So, you know, in the European Union you have countries like, let's see, Austria,

00:14:14.640 | I think you have a country like the Netherlands, I think is quite strict about it. Germany will

00:14:19.440 | allow dual citizenship, but only with approval from the German government, only with certain

00:14:23.840 | countries. So, you could be a US-American, US-German dual national, but it would be very

00:14:30.480 | hard for you if you're from Ukraine to become a Ukrainian-German dual national. They're going to

00:14:37.760 | want you to relinquish your first citizenship. I think that places like Singapore, right,

00:14:44.880 | Singapore would be probably the most prestigious right now, the most attractive citizenship that

00:14:51.440 | somebody would love to file for, but Singapore does not want you to have dual citizenship.

00:14:55.200 | There are certainly, I'm sure, people who do it and just work hard to make sure the government

00:15:04.480 | doesn't know about it, but that would be the biggest downside. I guess probably the biggest

00:15:07.600 | country right now would be India, that simply India does not permit dual citizenship. They do

00:15:13.680 | have a scheme called the Overseas Indian Citizens. Basically, it's kind of like a second-class

00:15:21.760 | citizenship. And so, for people with Indian heritage, they can file for the Overseas,

00:15:26.800 | I forget the name of it, but the Overseas Indian Citizen Program, and they're given a quasi-Indian

00:15:33.360 | passport that's basically a permanent residence permit that allows them to live in India,

00:15:37.600 | but it's not a full-fledged residence. They can't get a passport that they can travel on, etc.,

00:15:42.160 | because if we're in order for them to, because India officially forbids dual citizenship.

00:15:47.840 | So, in summary, it's worth doing. I think it's one of the simplest things you can do.

00:15:52.800 | And citizenship by descent is slow, usually, but it's worth doing if you can, because it opens up

00:15:59.520 | tremendous options for you. But you just do want to be thoughtful and make sure that you're not

00:16:05.040 | unintentionally entangling yourself with a foreign government that is going to impose

00:16:12.400 | some onerous restrictions on you. >> Yeah, no, I appreciate it. That's a lot of good stuff to go

00:16:19.200 | through and to have enumerated, because that's exactly what I want to do, not to

00:16:23.600 | stumble into something accidentally just from ignorance. And those top things, I'd run into

00:16:30.480 | the security clearance potential question somewhat recently, but the military for children and other

00:16:37.920 | tax entanglements is a good thing to kind of have on my bullet list to check for these particular

00:16:42.960 | countries. So, I appreciate that. Thank you. >> I would simply reiterate that I think here

00:16:48.480 | today it matters what direction the country is going, right? So, let's talk where we are today,

00:16:54.000 | right? Today is April 30, 2021. I think you could look at it and say, "What is the trajectory that

00:17:00.160 | this country is on, and do I want to be exposed to them?" The big topic right now is wealth taxes.

00:17:06.000 | And there are many countries around the world that are actively lobbying for and passing wealth taxes,

00:17:12.480 | and they're passing them on a citizenship basis. And so, now South America, right? Right now you

00:17:18.960 | have Bolivia, Argentina is talking about a wealth tax, or maybe they passed – no,

00:17:23.920 | they passed a wealth tax, I'm pretty sure. So, do I want to claim my – let's say that I'm a

00:17:30.560 | Canadian living in Canada and subject to the laws of Canada. Do I really want to claim my

00:17:36.480 | Argentinian citizenship and be subject to the wealth tax that they are rolling out?

00:17:42.640 | I'm not so sure, right? If I'm not wealthy, then certainly I do, right? If I'm just a

00:17:48.400 | young college student, yeah, I'll claim it. If I've got $50 million in the bank, then no,

00:17:54.000 | I don't want to be associated with that. In that situation, I would not claim an Argentinian

00:17:59.440 | citizenship. I would simply go and get another citizenship in another jurisdiction that doesn't

00:18:04.400 | have that same covetous nature that the Argentinian government has. And so, I think this is the

00:18:12.000 | challenge, especially in today's world, is that countries – I'm trying to be very practical and

00:18:18.640 | not be, you know, ideological here, but you want to just be thoughtful about the direction that the

00:18:24.880 | country is on. So, this was why I, you know, strongly discouraged the Italian guy from

00:18:32.400 | becoming an American. Why? Because the direction of the United States is the wrong direction.

00:18:37.280 | And so, becoming a citizen of the United States for somebody who is poor

00:18:41.200 | makes all the sense in the world, right? To gain access to the US labor markets, to gain access to

00:18:46.400 | a more high-quality travel document, etc. But if you're wealthy, then the United States doesn't

00:18:52.080 | offer anything, and yet the direction is the wrong way. So, we're going in the direction of

00:18:55.920 | wealth taxes and increased capital gains taxes, and it just goes on down the road. And so,

00:19:00.000 | you want to be thoughtful and you want to choose places where freedom is increasing,

00:19:03.920 | where taxation is modest, and where they have an appropriate, you know, mindset around it.

00:19:09.840 | I would take a Singapore citizenship all day long. Why? Because they understand that wealth and money

00:19:17.920 | flows where it's treated well. And so, they have a very fair tax regime. They have a territorial

00:19:24.240 | tax system, which I think is the most just and fair tax – income tax system that can exist.

00:19:29.920 | If you're going to have income taxes, it should be a territorial tax system. And even that tax

00:19:35.680 | system itself is low, and there's a culture of respect for wealth and for business people.

00:19:40.720 | And so, I think you just want to be very thoughtful and don't ally yourself with

00:19:45.360 | governments where the culture is going in the wrong direction, because you can't change that

00:19:49.440 | cultural force, that cultural direction overnight. Long-winded answer. John, go with – what was

00:19:56.480 | your second question? Let's do it fast. Yeah, okay. Yeah, good. No, it's good. And you can't

00:20:01.600 | change those forces yourself either. So, that's good to know. The other question was just something

00:20:06.000 | that was on my list for a long time, but you can skip over it. I'd read a book called "Why the West

00:20:12.000 | Rules" for now, and I'd seen – I'd read it a while back, and I saw it somewhere on one of your

00:20:17.920 | social medias at some point that you were reading it or had started reading it. I was curious

00:20:22.560 | what you thought about it in general, but that's probably too open-ended of a question for a quick

00:20:27.440 | one. That would be a fun question for us to talk about, but you're right. We're not going to handle

00:20:30.960 | it. We're not going to do it today. It's too much to handle. No, I appreciate it. Yeah, thanks for

00:20:37.680 | going through the other questions. Thank you very much. My pleasure. It is a topic that I've been

00:20:41.360 | thinking a lot about. You know, where's the trend in the world? What direction is the trend going?

00:20:46.320 | And one of the most fascinating things about any book is the way that that book starts. The book

00:20:51.760 | that he's talking about is called "Why the West Rules" for now, and it starts with just a fabulous

00:20:57.120 | mind experiment, a historical experiment. I won't ruin it for you, but if you're interested in

00:21:01.440 | topics of where's the world going, then I would recommend it to you. All right, we go to New York.

00:21:07.680 | Kate, welcome to the show. How can I serve you today? Hi, Joshua. Thank you for choosing me. I

00:21:13.120 | canceled Netflix. Now I purchased your channel. Great. Okay, so today I have a question.

00:21:20.800 | Yes. So today I have a question regarding the wise use of a large amount of cash,

00:21:25.920 | either towards early retirement or towards putting down as a down payment for a house.

00:21:33.360 | My homework I did is I listened to all of your podcasts on a keywords house and also keywords

00:21:41.280 | portfolio allocation. So I didn't find the answer. So my situation is right now I have

00:21:48.960 | in total 400,000 assets in different portfolios. 30% is in retirement stock, 20% is in emergency

00:22:00.480 | fund, and 50% this one is a little bit high is in investment silver metal. It's accidental,

00:22:06.960 | but when I bought the silver, it was really low. So I was actually already making about 80,000 now

00:22:13.280 | from the silver. I have a belief that the price will go up, but I don't know about that for sure.

00:22:19.760 | So I look at my silver metal investment. There are 200,000 there, whether I should take them out

00:22:28.160 | and then put it as a down payment for a house. I would need that as a minimum in this region

00:22:35.920 | to buy a house for myself or just take it out and put it in stock market and then grow it

00:22:43.120 | towards early retirement. Do you want to retire early?

00:22:47.360 | Yes. Yes. I have a strong interest in doing that.

00:22:51.680 | And do you want to retire based upon having a stock portfolio, spending three or 4% of

00:22:58.240 | your stock portfolio value every year? Is that your plan?

00:23:02.160 | Yes. That's part of my plan and also being able to pursue things that I'm ultimately interested in.

00:23:09.600 | Okay.

00:23:09.840 | Do things that I love to do.

00:23:11.200 | How much money do you need to be financially independent and retire?

00:23:14.960 | If I live in my current apartment, I probably need $4,000 to $5,000 a month.

00:23:28.560 | $4,000 to $5,000 per month if you live in your apartment. Would you keep living in your apartment

00:23:32.800 | if you were retired?

00:23:33.680 | I wouldn't say this is the ideal situation. I wouldn't if I have the choice.

00:23:42.720 | Okay. Is your ideal situation, would there be any cost savings? Would you be able to live

00:23:48.560 | less expensively in your ideal situation?

00:23:53.600 | Yes. I would like to. And I would actually like to purchase a place across the river because I

00:23:58.800 | live in New York City. I would like to find a cheaper place in New Jersey because I like the

00:24:03.760 | community better there.

00:24:05.760 | If you were financially independent, let's just say $60,000 a year, so you had $1.5 million in

00:24:12.560 | the bank, 4% rule, $60,000 per year. If you were financially independent, you had $1.5 million

00:24:18.160 | in the bank, would you live in that apartment in New Jersey?

00:24:20.800 | That question needs a little bit of research because I just started to research the community

00:24:25.760 | in New Jersey. I find a really lovely city. I can see myself living there long-term, but I'm not

00:24:32.240 | sure whether forever I should live there.

00:24:35.200 | Okay. So here is my comment. Number one, I believe that before you make financial decisions,

00:24:44.320 | meaning before you decide, "Should I sell my house or should I buy a house?"

00:24:49.120 | Meaning before you decide, "Should I sell this silver and buy stock? Should I buy a house?

00:24:52.880 | Should I not?" I believe you should solve three things to the very best of your abilities.

00:24:57.600 | Not perfect, right? This is just to get you thinking in the right direction. These are the

00:25:01.040 | three questions that will drive the structure of your life.

00:25:04.720 | Question number one is, "Who do you live with?" Who do you live with? Who is in your house?

00:25:10.160 | Who is in your neighborhood? Who do you live with? Because the person and the people that you

00:25:15.200 | live with is going to make a bigger difference in your life than virtually any other factor.

00:25:21.440 | This involves husbands, wives, boyfriends, girlfriends. This involves parents, right?

00:25:28.560 | I stretch it out. This involves children. This involves all the way out to grandparents,

00:25:34.000 | neighbors, etc. But the first thing I would look at is I would say, "Who do I want to live with?"

00:25:39.040 | and make sure that I've established my ideal lifestyle first. If somebody is not married and

00:25:44.640 | wants to marry, I encourage them to make that a top priority and to invest their time and their

00:25:49.360 | treasure into making that happen quickly. If somebody is married and wants to have children,

00:25:53.360 | I encourage them to have children. Don't wait until you're financially independent or do some

00:25:56.960 | other thing. Just have children if that's what you want. You won't regret it. Have the children.

00:26:01.360 | If you want to have mom and dad live with you, then move mom and dad in with you. If you want

00:26:06.000 | to move away from mom and dad, then move away from mom and dad. Because getting the people in

00:26:10.160 | your life right will make a big difference. I extend this even to local culture. There are

00:26:15.200 | some people for whom living in a small town because the kind of people who live in a small

00:26:19.280 | town make them happy. Other people, big city, right? Or what's the culture that you live in?

00:26:25.120 | But the people in your life are going to make a bigger difference in your enjoyment and your

00:26:29.440 | experience of life than virtually anything else. And so you should try to make sure that your life

00:26:34.640 | is filled with the people that you want to have in it and that the people that you don't want in

00:26:39.120 | your life are not present. Number two question is where do you live? And I apply that on a macro

00:26:45.520 | scale but also down to a micro scale. Where do you live in terms of what country do you live in?

00:26:51.360 | What state do you live in? What city do you live in? What neighborhood do you live in? What house

00:26:55.360 | do you live in? And so if you would in retirement live across the river, then I would encourage you

00:27:01.840 | to ask yourself, "Can I live across the river now?" The answer might be no because it's obvious that

00:27:07.040 | right now you need to go to work and across the river doesn't allow that to happen. But try to

00:27:12.000 | live where you want to live now and try to put your money there now. So if it takes you, if you

00:27:16.880 | don't like where you live now but there's a place that you could move and you could spend $200,000

00:27:21.840 | getting into that place that you would want to live, I would do that before I would start saving

00:27:26.800 | for early retirement because I want to live in the place that I want to live because that's

00:27:30.720 | going to be the structure of your life. Number three question is what do you do for work?

00:27:35.200 | What do you do? And I'm convinced that you should, before you spend time building an early

00:27:40.080 | retirement plan, you should spend a lot of time thinking and working hard to build the very best

00:27:45.360 | plan for a life that you won't want to retire from. And I think this is given very short shrift.

00:27:52.160 | It's given too little attention by many people because retirement seems like the obvious solution,

00:27:58.960 | right? It's like, "Hey, I got a job. I'm making X amount. I can live on Y amount. Thus, I can

00:28:03.360 | save this amount and in 14.2 years or in 7.3 years, I'll be financially independent." Great.

00:28:09.600 | I'm not opposed to that. I think that's fine. But why don't we start by doing a whole lot of work

00:28:14.320 | to say, "Is there a career or is there a job or is there a business that could fit me really well?"

00:28:20.560 | In the year 2021 in which we live, we're no longer in the world where there's only three

00:28:25.120 | job offers available to you. And almost anybody can design a life that they won't ever want to

00:28:30.400 | retire from. And I've simply read too many early retirement stories from people that prove to me

00:28:37.440 | that very few people want to actually just quit their work. And so you can do almost anything.

00:28:43.120 | And I think that it's better to invest money into building a life that you don't want to retire from

00:28:47.600 | before you start making a plan for retirement. And so sometimes that just means, "Hey, I'm working a

00:28:54.640 | job. I like this job. It's fine. It fits me great." But sometimes it means I should go back to school.

00:28:59.840 | I should move across the world and I should get a new degree or get a new certification and get

00:29:03.840 | a new job at a new place. But spend time thinking about it and first invest your money into that

00:29:10.480 | before you think about a portfolio. Now, to the degree that you can spend money on any of those

00:29:17.120 | three things, I'm convinced you should before you start buying stocks, buying real estate,

00:29:22.720 | buying silver coins. I'm convinced you should spend money on those three things because those

00:29:27.520 | three things drive the structure of your life far more than any other financial choice or any other

00:29:33.600 | financial investment. And if you live with the people that you want to live with, the people

00:29:38.240 | of your dreams, the people that make you happy just to be around, and you live in a place that

00:29:42.880 | you love, a city that you love, a country that you love, an apartment that you love, a house that you

00:29:47.760 | love, and you do something that you feel genuine satisfaction from that makes you money, then it's

00:29:53.760 | really hard to get yourself in the position where you actually want to quit that life. That feels

00:29:59.600 | really, really good. And now I'm convinced that in that structure, your financial results can,

00:30:04.800 | in the vast majority of jobs and businesses and whatnot, can really flourish because you bring an

00:30:11.120 | energy and a joy to your life because you're living a life that you've intentionally chosen.

00:30:15.920 | Now, not all choices will financially flourish. You might say, "I want to be a park ranger because

00:30:22.880 | I really love being out in nature, and so I want to get a job working for the National Park Service."

00:30:28.000 | That is not going to financially flourish, but it's still going to be fine. It's going to give

00:30:31.600 | you enough money to live on. You can live in park housing. You can still save money if you're frugal.

00:30:35.600 | You can have access to a retirement program. So it's still fine. But I would say that's the

00:30:41.600 | minor 20%. The guy who's a missionary or the guy who is a mail carrier or something like that,

00:30:48.720 | those jobs are not going to financially flourish the way that most things can. But most jobs,

00:30:54.400 | when you come at them from a place of choice and from a place of thoughtful creation, you can make

00:31:01.760 | a lot of money and reach your early retirement goals faster. So you can still do the financial

00:31:06.160 | independence plan, but it should come after those three things. So if anything in your life in those

00:31:10.880 | three areas is not how you would dream it to be, and if you can spend money to make it better,

00:31:17.040 | then I think that's what you should do. So this is my answer to your house question.

00:31:20.960 | Should you buy the house and use the money for a house, or should you buy stocks? Well,

00:31:25.840 | my answer is it depends on whether the house of your dreams that you would love to live in

00:31:31.360 | would be there, if you could buy that with a $200,000 down payment or not. And I'm not saying

00:31:38.240 | you should spend money excessively. You'll have to decide how frugal you should be.

00:31:42.960 | But if I could spend $200,000 to buy a house that I would love being in, that would be perfect for

00:31:49.840 | me and my family, I would do that before I would go and buy stocks. Now, if you're fine where you

00:31:56.400 | are and you're living where you would dream to live, then yeah, stocks would be fine.

00:31:59.760 | But I would answer it in the context of the personal side of personal finance.

00:32:04.480 | It's not a financial question. It's a matter of a lifestyle. You've obviously worked hard.

00:32:09.920 | You've saved money. So I believe that you should adjust your lifestyle to your ideal lifestyle

00:32:16.560 | and then go ahead and live that life versus deferring all of those things

00:32:22.720 | forever just to reach some vague early retirement goal.

00:32:26.080 | Yes, very illuminating. Make me happy just by listening to you. I would definitely be working

00:32:33.440 | on designing a life of happiness and fulfillment instead of thinking more of the materialistic

00:32:39.040 | side of life. Good. Good. I think that you could see a common thread that the people who are the

00:32:45.040 | best suited for early retirement are the people who haven't sacrificed something that was important

00:32:51.120 | to them along the way. Let me give you an example. If I weren't married and didn't have children,

00:32:58.080 | I would not live in a house. I would live in a van or an RV or something like that. But it's not

00:33:03.360 | because it would save me money. It's because I think it's genuinely fun and it's a lifestyle

00:33:07.840 | that I genuinely enjoy. Or at least I think I've done it for part time, but I think I would

00:33:13.280 | genuinely enjoy it. As best as I can tell, if I were 30 years old and not married, no children,

00:33:19.520 | I would live in an RV. But I wouldn't see myself as suffering. I would use as an advantage of it,

00:33:27.360 | I would use an advantage of I'm spending just a little bit of money and I'm saving money and I'm

00:33:31.600 | becoming financially independent very quickly and I'm building my pathway towards early retirement,

00:33:35.920 | but I'm not suffering for it. It's just simply that's how I'd want to live and that's how I

00:33:40.480 | would live before retirement and that's how I'd live after retirement. It'd just be that would

00:33:45.360 | be fun for me in most circumstances, I think. And so these are the kinds of decisions that for the

00:33:50.960 | people for whom early retirement is right, they're the people who make those decisions comfortably.

00:33:56.080 | They choose to live in a small house because they like the ethic of living in a small house or they

00:34:02.160 | like the lifestyle of being a minimalist and not having a lot of stuff and they just enjoy that.

00:34:07.040 | It gives them a sense of peace and it has the benefit of allowing them to also become financially

00:34:13.760 | independent fairly quickly. The people who suffer though are those who set this goal to say,

00:34:19.280 | "I want to be financially independent. And so what I'm going to do is I'm going to move out of our

00:34:23.520 | big house that we really love that's appropriate for our family and we're going to move in a little

00:34:26.560 | tiny house. And I don't like my job, but I make a lot of money and if I just do this for 8.1 more

00:34:34.240 | years, then we'll be financially independent." And they go down the list, right? "Well, we want

00:34:39.440 | to have children, but not yet because we're just going to... If we just go a little bit longer,

00:34:43.600 | we'll have $2 million and then we can have our children and travel around the world."

00:34:48.320 | And listen, we all make our choices and we all live with the consequences of those choices.

00:34:54.800 | But I don't think it makes sense to approach things that way. I think you first start by

00:34:59.520 | building your life intentionally. And if you don't want to have children, great, don't have children.

00:35:04.000 | If you want to have children, have children. If you want to live in a little house or in a big

00:35:07.520 | house, go ahead. Be aware of the opportunity cost of those decisions. Know them, right? I'm not

00:35:12.720 | running from them, but don't build your life around this deferred gratification that someday

00:35:17.920 | in the future when I have $2 million saved, then I'm going to go ahead and start living.

00:35:22.720 | Because I think you look back and you say, "Well, the last 10 years, right? I could have had both.

00:35:29.920 | I could have done both things." And I say, "Why not do both? Why not live the life now that you

00:35:35.920 | want to live while also knowing that in the fullness of time, you can achieve financial

00:35:40.640 | independence, which will put you in a different stage of life." I don't see any reason why it

00:35:44.320 | has to be one or the other. - Got it. I think the biggest learning is that if you answer

00:35:50.320 | the calling of your life in terms of happiness and fulfillment, then those financial questions

00:35:55.360 | will be answered naturally. So I don't need to struggle over because there's no definitive

00:36:01.200 | answer. It depends on how you want to design your life. - Right. And so here would be one exercise

00:36:07.280 | that I'll give you as you're thinking about this. And I frequently do this when I consult with

00:36:11.360 | people. How old are you right now, Kate? - I'm 42. - You're 42. Okay. So at 42 years old, you have

00:36:20.720 | $400,000 saved. So let's put this in and start with $400,000. And let's say that you invest

00:36:27.520 | from 42 to 67, would be 25 years, right? 25 years. Let's say you invest all your money in your whole

00:36:35.840 | savings into stocks and maybe you make 7% on your money and you don't save another dime for

00:36:42.080 | retirement. Okay. At the age of 67, you would be predicted to have $2,170,000 in your portfolio,

00:36:52.080 | given those constraints that I said. Does that make sense? - Yes. - Okay. At 67, would $2,170,000

00:36:59.600 | be enough for you to live on for the rest of your life? - I think so, unless I decide to live until

00:37:06.160 | 120. - I think even if you live till 120, you'd be fine. And I think you should live to 120 and

00:37:12.160 | you'll be fine. Okay. So when people have saved a lot, one of the tools that I use to try to get

00:37:18.000 | past this mental block is I say this. Let's say that you release yourself from the responsibility

00:37:24.560 | of saving money and you say, "I'm fine. I have enough money saved that if I just put all of this

00:37:33.120 | aside and I leave it alone for the next 20 or 30 years, I'm going to be fine for the rest of my

00:37:39.360 | life. I've covered my old age when I don't want to work and when I can't work." And so let's say

00:37:45.120 | that we now redesign your life and I give you two rules. Number one, you need to choose for

00:37:50.800 | yourself a life that you genuinely want to live and you need to support that life from your daily

00:37:57.440 | actions. That's rule number one. Rule number two is you cannot save any money. You are forbidden

00:38:04.480 | from saving any money. You have to spend all of the money that you make. Now, if I give you those

00:38:11.440 | rules, could you build for yourself a really cool and exciting life that wouldn't have you deferring

00:38:19.440 | forever the fun things that you want to do? - Yes. Could you explain the purpose of rule number two?

00:38:27.200 | - The rule number two is this. The rule number two is this. You have said no for many years to

00:38:34.000 | specific consumption items that you would have enjoyed doing because you were pursuing this

00:38:40.560 | personal goal of building wealth. And I think that's fine. By the way, this is a mental experiment.

00:38:46.960 | You can do this if you want to. I'm trying to use this as a mental experiment, right? So, what I'm

00:38:52.720 | trying to get at is to say that you have denied yourself consumption, financial consumption,

00:38:58.720 | that you've otherwise thought would be fun because of your focus on building wealth. I applaud you

00:39:03.600 | for that. I think that's well done. But because of that, you're used to thinking not from an

00:39:09.840 | abundance mindset but from a scarcity mindset. You're used to thinking, "You know what? I could

00:39:15.520 | fly to... My girlfriend invited me this weekend to go to Colorado with her and go skiing at Vail,

00:39:21.920 | but that's going to cost a lot of money. And after all, I could just see her here in the city.

00:39:26.320 | Why do that?" Right? Or I could... So and so, my parents wanted me to come and visit for

00:39:32.160 | a family holiday, but I don't really want to spend the money to go see them. And so, I'm just going

00:39:38.800 | to not do that. And you know what? It would be really nice to have a fancy new bag, but I don't

00:39:44.640 | need it. And after all, it's silly consumption. So, you said, "No, no, no," again and again and

00:39:49.040 | again to things. And so, what happens is it gets you stuck in this mindset of scarcity,

00:39:54.160 | where you have your income and you have to save money and you have to spend just as little as you

00:39:58.320 | can. And you're not good at thinking about the things that you really want or the things that

00:40:02.400 | you would really enjoy, the lifestyle you really want, because you've said, "No, no, no, no, no,"

00:40:06.400 | to everything along the way. So, here's my point. You're 42 years old. You may not make it to 50.

00:40:12.320 | You may not make it to 60. You may not make it to any of those things. And so, what if you just

00:40:17.200 | played this game and you said, "I'm going to take all the $400,000. I'm going to set it aside. I

00:40:21.360 | have it for retirement. And now, I'm going to make money." How much money do you earn right now, Kate?

00:40:26.080 | I'm making $150,000 a year.

00:40:30.480 | So, I'm going to make $150,000 per year. I'm going to pay my taxes. I'm going to pay my expenses.

00:40:36.080 | And my goal is I... My rule is I have to spend all the money. I have to spend it. Now, I don't

00:40:43.360 | have to spend it all this week, but I have to spend it all this year. If I don't spend all the

00:40:47.600 | money this year, then it goes away. And you start funding the things that you would really like to

00:40:51.920 | do. Now, the people who are the happiest are the ones who fund all the things they would like to

00:40:56.480 | do and still have more left over. And my guess is you could do that, right? You could save $30,000,

00:41:01.040 | $40,000, $50,000 a year every year for the rest of your life and still spend the rest of it.

00:41:06.080 | So, let's play the game slightly different, okay? Let's say that the only money you were allowed to

00:41:11.120 | save, right? You have $400,000 in savings, and you're going to save for the next 25 years,

00:41:16.640 | you're going to make 7%. But all you can do is put money in a 401(k). Do you have a 401(k)?

00:41:21.760 | Yes, I do.

00:41:23.520 | So, you can put... I'm just going to use a flat $20,000 per year into that account,

00:41:29.360 | just a flat $20,000 per year. And I'm ignoring employer matches and anything like that,

00:41:34.720 | just $20,000 per year flowing in. Well, now in 25 years, that would be $3.4 million, okay?

00:41:42.160 | So, $3.4 million. And that would be more than enough at age 67. And so, if you dial down your

00:41:51.520 | savings, then I think you can dial up your lifestyle and you could choose something that

00:41:58.080 | you would really want to do. Now, let's say that you decided, "I would not take this job. If I were

00:42:02.960 | financially independent, if I had $2 million in the bank, I would not take this job. I definitely

00:42:07.120 | wouldn't." Well, what would you do? And maybe you would say, "I would really love to run a mountain

00:42:13.520 | bike shop in the mountains of Italy." We're just talking about Italy, right? "I would love to run

00:42:18.800 | a mountain bike shop in the mountains of Italy." Okay, well, maybe you do that. And then you don't

00:42:22.880 | make a ton of money, but you make enough money to live on, and you make enough money, and you have

00:42:27.280 | to spend it all because you know you're financially independent. And so, this way of thinking is my

00:42:32.880 | tool to say, "Why should you wait until you're 50 to live like you're financially independent,

00:42:38.720 | when you can start living like you're financially independent at 42?"

00:42:41.600 | Right? At 42, you're rich. So, when are you going to start thinking like a rich woman?

00:42:47.040 | -

00:42:50.280 | I never thought I'm rich.

00:42:51.520 | -

00:42:52.160 | You are rich. You are rich. You're in the top... I don't have the chart here,

00:42:56.560 | but I would say, what, the top 20 to 30% of US American households, in terms of your personal

00:43:01.840 | wealth. There is nothing that you could tell me. There's not a goal that you could put in front of

00:43:06.080 | me that with $400,000, I can't figure out a plan to achieve. There's nothing. Nothing.

00:43:11.680 | -

00:43:13.280 | Yeah, I think I was always having a little bit aspirational anxiety because I didn't really

00:43:18.640 | prioritize my life based on what I absolutely love to do. So, this is really illuminating.

00:43:26.320 | -

00:43:26.720 | Good. Good. Give some thought to this. Go back and listen to the recording and do that exercise I

00:43:34.160 | said. And again, this can all be done mentally. You don't need to change a thing with what you're

00:43:38.400 | doing externally. But what I would say is, try some of the exercise. Okay, if I were financially

00:43:45.280 | independent today, what would I do? And here's how I approach that. Okay? Let's pretend that today,

00:43:52.640 | you had to stop working. What would you do? Now, give it a year later. Just imagine yourself,

00:43:58.560 | you spend a whole year reading, right? I love to read. If you said, Joshua, you can't work,

00:44:02.240 | what would you do? I would go and I'd spend 30 hours a week reading. But I'm not going to do

00:44:07.040 | that 30... I mean, at some point, you got to do something with what you're learning. The whole

00:44:11.280 | point of learning something is so that you can use it. It's like, I love to sit... I love to read a

00:44:17.680 | novel on a vacation. Give me a big, thick novel for a vacation. I'll finish it in three days.

00:44:24.720 | And then I'm ready to be done with novels. I don't want to read any more novels once I've

00:44:28.880 | read one for vacation. And so, give yourself a year in your head to de-stress. Write down

00:44:34.960 | everything you would do. I would go to a such and such retreat on the shores of Mexico or wherever

00:44:39.920 | you would go. Now, what would you do when you came back a year later? Would you write? Would you go

00:44:45.440 | to a coffee shop? Would you take a job? Would you arrange flowers? Would you restore classic cars?

00:44:51.200 | What would you do? So, imagine the kinds of things that you would do. And then ask yourself,

00:44:56.800 | what if I gave myself this rule? Instead of working another eight years at this job,

00:45:01.680 | this $150,000 a year job I don't like, what if I just went and I worked at this other job that

00:45:07.040 | would allow me to live this lifestyle I want to live? And maybe I make $70,000 per year, but my

00:45:12.160 | rule is I can spend the whole 70. I don't have to put in my 50% savings rate. I can just spend the

00:45:17.920 | whole 70. What would that allow me to do? And I think that this is a really good way to live.

00:45:24.080 | And it gets at, I think it's a good responsible mental game that gets to the heart of some of

00:45:30.320 | the options that really are available to you. - Wow, I didn't even know I've already had this

00:45:36.080 | kind of freedom in my life. Because when you're climbing certain corporate ladder,

00:45:41.040 | you didn't realize because you always look up and realize, oh, maybe you are not climbing high

00:45:45.520 | enough. And then you forgot to look down and realize, oh, you actually have already have a

00:45:51.200 | free playground. You can play a little now. - Right, yeah, you do. And finding the balance

00:45:57.840 | that's right for you, I think just takes a little bit of time and practice. But for me,

00:46:03.440 | this is some of the change I've gone through, is I used to say, well, it's all about saving for the

00:46:09.120 | future. But I've learned to give myself more permission to just, it sounds so corny, to live

00:46:16.160 | in the present. And to say, there's no rule that I have to save a huge amount of my income. It's

00:46:23.600 | okay to spend it. And I've seen enough examples of people that I admire that live that way to say,

00:46:30.880 | they live better. And at the end of the day, it's not the amount of money that you die with.

00:46:34.960 | The end of the day, it's much more about the life that you live. And so many of us have plenty of

00:46:41.360 | money to fund the life that we want to live, but we're stuck in that traditional model.

00:46:45.840 | And in the same way that the classic retirement concept of work, work, work for 40 years so you

00:46:51.200 | can retire and live out your 30 good years, that can be a form of bondage. So also can the early

00:46:56.960 | retirement model be a form of bondage? It's just a different form. And so I think that any life plan

00:47:03.360 | can be fine for the person who chooses it thoughtfully. But once you've accumulated some

00:47:08.160 | basic capital, as you have, I don't think there's any reason to wait to think about more of how

00:47:16.160 | you're going to live. All right, we move on now. Thank you, Kate, for being here. And I'd love to

00:47:20.800 | keep, call in in a month and let's chat about it again and see. I have got to go fast. Let's go

00:47:27.120 | to Eric. Eric, welcome to the show. How can I serve you today?

00:47:29.360 | Hey, Joshua, how's it going? First of all, I'll try and make it quick. I appreciate your

00:47:34.400 | podcast that you posted on Wednesday about when things aren't working out. I think that's always

00:47:40.560 | great when somebody who seems to have everything figured out can kind of come back down. Because

00:47:44.640 | that's what it sounds like when you're talking, you're hearing you talk a lot of times like,

00:47:48.400 | man, he just has everything figured out. This is crazy. So it is always great to hear that. So I

00:47:53.600 | appreciate that. Thank you. My actual question comes back to crypto. I feel like I was calling

00:47:58.480 | with crypto questions. And real quick, I think I have the idea of what's going to happen. I do a

00:48:03.760 | lot of work for cryptocurrency. I mine, I get paid in it. And I assume with all my taxes, like the

00:48:10.720 | way that it works is that I pay all my taxes on income on the crypto when I got it and the value

00:48:16.640 | that it was at as like my normal income tax for, you know, just as if I were paid in cash. And then

00:48:23.440 | obviously things have spiked in the past couple of years. And in which case now I assume that if I

00:48:28.880 | were to liquidate any of that or, you know, if I were to convert any of that into cash, then I'm

00:48:34.080 | also going to have to pay capital gains on on the increase in price of that. Does that sound about

00:48:39.920 | right to you? It does. Okay, cool. That that was, you know, after talking to a couple tax people and

00:48:45.040 | reading IRS guidance and all that stuff, that was that is pretty much where I landed at. And so I'm

00:48:50.160 | just I'm basically where I'm at right now is I don't need any of my crypto investments in order

00:48:56.160 | to live my normal life. But watching that number tick up and up and up and up, I just wonder,

00:49:01.440 | you know, given the United States current current, you know, seeing how how potentially crypto is

00:49:09.840 | going to be treated in the future. You know, I just wonder, like, gosh, is this something that

00:49:13.920 | I should just leave locked up for a long time and just see, hey, in the next decade or so,

00:49:17.920 | you know, what is the landscape going to look like versus, you know, cutting and running now

00:49:21.680 | that the price is so high? My personal belief is that it's going to go a lot higher in the next

00:49:28.080 | decade. But but again, just kind of want to hear your thoughts on that. Sounded accurate to you.

00:49:32.480 | It does sound accurate to me. I would seriously consider if if it's possible for you,

00:49:41.040 | since you are in such a high potential marketplace, I would consider all of the

00:49:47.840 | different ways that you could legally change your circumstances in order to change your tax regime,

00:49:53.360 | going moving to Puerto Rico, moving abroad, all of those options, you should consider them.

00:50:00.320 | If we assume that you're not going to pursue any of those because they are lifestyles that you

00:50:05.680 | don't want to live, then I think that you you yeah, you just press forward. You do as you decide,

00:50:12.800 | if you as you've said, in terms of paying declaring taxes on the amount of payment that you receive

00:50:19.360 | at the time that you receive it. That's the basic IRS doctrine. And that's I don't expect

00:50:23.280 | them to change that at all. Right. Doesn't matter whether you get paid with Bitcoin,

00:50:26.800 | whether you get paid with US dollars, whether you get paid with Swiss francs or whether you get paid

00:50:30.880 | with, you know, dump truck loads of apples. It's all the same. Right. If you are picking apples

00:50:37.280 | for an apple orchard and you as a daily part of your pay, you receive four bushels of apples

00:50:44.480 | as a benefit of your job. That's not tax free just because it's bushels of apples.

00:50:49.760 | The IRS wants you to declare the value of the bushel of apple and to and to pay it.

00:50:56.720 | Now, the benefit I think that you get is with the bushel of apple analogy is the same that you get

00:51:02.320 | with potentially crypto. So if you are declaring the value of the four bushels of apples that you

00:51:09.360 | receive from the local farmer that you spent the day picking apples for, you can declare that value

00:51:14.800 | at the wholesale price. So you're not taxed on that on those four bushels as if they are being

00:51:21.040 | sold one apple at a time at Whole Foods for five dollars a piece, you're being taxed on that as

00:51:26.480 | the bushel price that the farmer sells them to the wholesaler for, which is certainly a lower price

00:51:31.600 | than you could then go down the road and sell them for, you know, out of the back of your truck in

00:51:36.560 | front of the Whole Foods at four dollars a piece. And so that's the analogy that I understand to be

00:51:41.920 | the same with cryptocurrency. It's the same as with apples. If you receive the apples at a wholesale

00:51:47.440 | value of two dollars per apple, you know, based upon the bushel price and you go and you sell

00:51:52.400 | those from the parking lot across the street from the Whole Foods for four dollars an apple,

00:51:56.160 | then when you receive those apples, you when you receive them, you pay, you declare taxes based

00:52:03.680 | upon four bushels at two dollars an apple, whatever that comes out to per bushel. When you then sell

00:52:08.320 | them and make a profit, you incur a second tax based upon your gains and that the only difference

00:52:14.160 | would be it'd be a capital gain instead of an increase in instead of a business gain. And so

00:52:20.240 | then now, should you sell or should you not based upon the tax regime? I consider the United States

00:52:26.880 | very unfriendly to wealth at this point in time, not the most unfriendly country in the world,

00:52:32.480 | but I consider it to be unsafe for wealthy people to rely on the United States for the long term.

00:52:37.440 | We can see that with President Biden's speech this last week. He expressed interest in some

00:52:42.800 | that made proposals for something like six trillion dollars of new spending programs.

00:52:47.760 | He has made verbal proposals for massive tax increases, absolutely huge. And so,

00:52:55.440 | at least if you are a person of wealth. And so the question is, what's the direction? Now,

00:53:02.800 | first of all, the taxes that are proposed are not nearly enough. The numbers don't work. Go back

00:53:10.000 | and listen to the shows that I did almost two years ago now, where I talked about the ticking

00:53:15.440 | bomb that no one wants to talk about or whatever it was, where I talked about the numbers. And then

00:53:19.520 | put two years of hindsight into the play and listen to what I talked about two years ago

00:53:25.920 | and ask yourself, has this gotten better in the last two years or worse?

00:53:30.880 | And the answer is, it's gotten far worse than even the most pessimistic prediction would have

00:53:39.920 | been two years ago. And so the numbers are even worse now. And I'll give an episode number here

00:53:47.360 | in just a moment. The numbers are even worse than what I said two years ago.

00:53:53.040 | Standby. All right, found it. It's episode 628 and 629 of Radical Personal Finance,

00:54:01.280 | published in March of 2019, called Federal Debt, the Ticking Bomb that No One is Willing to Diffuse.

00:54:06.800 | So the problem is even worse than what it was then by a massive order of magnitude because of

00:54:15.280 | the coronavirus pandemic and all of the spending there, all of the declines in tax revenue there.

00:54:21.680 | And then now there's a massive political change. Now, let's just play this from-- this isn't

00:54:26.640 | exactly what you said, but it's a topic of interest, I know, to you and to all listeners.

00:54:31.360 | What can happen from here? Well, let's say, first of all, the cultural wins are in the favor of the

00:54:37.360 | tax and spend crowd, not in the favor of the let's not tax and not spend crowd. There's not a lot of

00:54:44.720 | actual weight that the words of any fiscal conservative has at this point in time.

00:54:50.080 | President Trump presided over one of the largest increases in federal debt of anybody. And most

00:54:59.520 | Republicans didn't open their mouths because of the heavy consequences of doing so. And so I don't

00:55:05.360 | think that people who were in the fiscal conservative camp have much credibility at this

00:55:09.920 | point in time to talk about much. And so Republicans somehow seem to do better when they're in the

00:55:16.240 | opposition rather than the leadership. And so maybe they can slow down spending a little bit.

00:55:22.880 | That was the example with President Obama. President Obama wound up being an extraordinarily

00:55:27.040 | fiscally conservative president, not because he wanted to be, but because Republicans were in

00:55:32.720 | opposition. And once he lost his majority in Congress after the first two years, then he

00:55:39.120 | basically got nothing done. And that seems to be the way that politics in the United States goes

00:55:44.320 | at this point in time, as you have gridlock, you can have a change. President Obama had two years

00:55:50.480 | of a Democratic House and Democratic Senate, and then everything changed. President Trump had two

00:55:54.880 | years of a Democratic House and Democratic Senate, and then everything changed. And so President

00:55:59.520 | Obama got nothing done except his Affordable Care Act. President Trump got basically nothing done,

00:56:06.560 | I guess, except the Tax Cut and Jobs Act. That was about it. And so we'll see what President

00:56:11.520 | Biden does in the two years. And if history is any indication, there's a good chance that he'll lose

00:56:15.760 | maybe the Congress, but maybe the Senate, depending on what happens two years from now.

00:56:20.880 | And then he'll be stymied in his efforts as well. So you have political gridlock,

00:56:25.600 | but the general theme is more spending, more spending. It just always goes up.

00:56:32.400 | So what can happen? Well, I think let's just play it with three scenarios.

00:56:37.280 | The first scenario would be all of the people who for the last 50 years have been ringing the bell

00:56:42.800 | and saying, "This is unsustainable or right." And there's some kind of massive crisis, massive

00:56:48.080 | financial crash of some kind. And somehow everyone's all of a sudden proved right,

00:56:53.840 | that you can't spend, you can't borrow $28 trillion, it's just going to continue on,

00:56:57.920 | and there's a massive crash. Okay, well, that would certainly be a crisis, and you should be

00:57:03.680 | prepared for that. But that's probably unlikely. On the flip side, let's say that the people who

00:57:10.320 | say there's no limit to the amount of money that you can spend are right. I'm currently reading,

00:57:16.720 | what's her name? The Deficit Myth by Stephanie Kelton. I have here my thing, The Deficit Myth.

00:57:25.120 | And this is the best, it's funny, we basically all in the modern world, we basically accepted

00:57:31.760 | what's now called modern monetary theory. And so I've been trying to grab my hands around,

00:57:36.560 | is there any actual theory to this? And early results are not promising, saying there's any

00:57:41.280 | actual theory to this. Basically, as I understand where we are right now in 2021,

00:57:45.520 | really nobody knows what's happening or why things are the way that they are. And there's not really

00:57:51.360 | anybody who can give a cogent explanation as to why everything hasn't collapsed. And so the

00:57:56.000 | direction we're going is in the direction of, well, it doesn't matter, governments can just

00:58:00.000 | make up as much money as they want. Because after all, government has unlimited taxing ability,

00:58:06.160 | unlimited spending ability, etc. I think some kind of middle ground morass is most likely.

00:58:14.320 | I don't think that in the long run, at least the US American people are going to go for a hardcore,

00:58:19.840 | "Okay, we can just spend as much money as we want." At some point in time,

00:58:23.280 | there's some limit. I do not believe that we're living in a fundamentally new world where there's

00:58:27.920 | simply no limit, as Ms. Kelton would say. I don't believe that's true. I don't believe that makes

00:58:33.360 | any sense. And so while I might be the voice crying in the wilderness, and I might be embarrassed for

00:58:37.760 | the next five years, I still personally retain my conviction that you cannot tax and spend and tax

00:58:44.720 | and spend and make up money and expect that to be a long-term, you know, best interest. I'm actively

00:58:51.040 | questioning myself if I'm right, but I still don't believe it. But I also don't think a massive just

00:59:00.160 | collapse is likely, because I think there's simply too much raw horsepower at the moment under the

00:59:06.320 | hood of a country, a powerful economy like the United States and like many countries in the

00:59:12.240 | world. What I think is likely is I think is more likely is the constraint. I think it's more likely

00:59:19.920 | that you have just this ongoing morass where everyone is upset. You don't have enough ability

00:59:26.800 | to lower taxes to get, you know, a widespread economic engine going, but it's not so bad that

00:59:32.800 | people are leaving in droves. Although I see it, the thing's picking up, right? There are a lot of

00:59:38.000 | people moving out of California and a lot of people who are doing actually doing it that I

00:59:42.400 | wouldn't have expected to do it. And I think that even people who haven't done it yet are thinking

00:59:47.120 | about it. I watched this show. I watched this YouTube channel called Producer Michael, and it's

00:59:54.400 | this guy, I forget his last name, but this music and film producer named Michael so-and-so, British

01:00:00.400 | originally, lives in California. He's a big luxury goods consumer, and it's fun to look at his

01:00:06.560 | millions of dollars of watch collections and things like this. And even he was recently saying

01:00:14.080 | that he's looking at options of how he can move outside of California, looking at different

01:00:18.240 | options. And I thought, man, if this guy who is a Hollywood producer who lives, you know, the

01:00:23.760 | straight-up Hollywood lifestyle, if he's talking about how awful it is, then this must go farther

01:00:29.520 | than I thought. It must go farther than I thought. And I see tons of people moving to Puerto Rico.

01:00:35.840 | There still aren't many people disentangling themselves from the United States, but there are

01:00:38.880 | a lot of people moving to Puerto Rico, and I got to imagine there are a lot of people making plans.

01:00:42.960 | So, let me land this plane. What I'm saying for you is I wouldn't worry too much about the

01:00:48.640 | long-term taxes because they're unpredictable. I don't know, but I think the taxes are probably

01:00:53.680 | going to go up. And so, what I would – and also, you live in a volatile world. I would just look at

01:00:57.680 | it and I would say, "All right, at every level, is there a point to level up? Is there a point at

01:01:02.480 | which I go ahead and cash out some amount of this and stabilize it? Because with this, I can always

01:01:09.680 | be free." My best analogy that I use is think about who wants to be a millionaire. In "Who

01:01:15.840 | Wants to Be a Millionaire," there were times in the game where it made all the sense in the world

01:01:19.440 | to play, and there were times in the game where it didn't make any sense in the world to play

01:01:23.280 | aggressively because you had those ratchet points. So, in your first few questions,

01:01:28.640 | there was no reason not to just guess randomly on a question because you wanted to get to the first

01:01:34.000 | level of money. And so, for someone who doesn't have a lot of money, there's no reason not to be

01:01:39.040 | hardcore aggressive. Balls to the wall, everything in crypto, risk it all. Why not? Because the risks,

01:01:47.520 | you know, if you do fall, you don't fall that hard because you're falling down to zero.

01:01:51.520 | But there are certain points in your lifestyle where you reach certain ratchet points where it

01:01:57.280 | would be really tough if you actually went down below that. You know, once you become a millionaire,

01:02:02.320 | you don't ever want to not be a millionaire again. And so, maybe you reach and you've got $2 million

01:02:07.120 | of crypto, but you know that your $2 million of crypto could turn into $200,000 overnight.

01:02:11.760 | Well, I'd like, once I'm a millionaire, I'd like to be a millionaire for the rest of my life.

01:02:15.840 | And so, think about, all right, if things win, what would that do for me versus if things lose,

01:02:20.400 | what would that do for me? And just be thoughtful about the big swings and what could happen over

01:02:24.960 | the long term. And then go to your portfolio and make the decisions from that perspective,

01:02:30.000 | not the tax perspective. - Cool. That sounds great. And I mean,

01:02:34.560 | that's basically what I'm doing right now is just, and talking to you is a piece of that, like, okay,

01:02:39.360 | let's just get another person's opinion on the landscape, what could happen,

01:02:42.720 | tax implications, and just pulling from many sources. So, I appreciate your thoughts on it.

01:02:47.760 | I mean, take up so much time. - No, it's not you, it was me. I just

01:02:50.160 | thought it was, it's an important question that people are asking and it's something I'm actively

01:02:54.160 | thinking about. Again, I don't like to be wrong. Of course, none of us do, but I don't like to be

01:03:00.880 | wrong and especially don't like to be wrong publicly 'cause it hurts my pride. But when I'm

01:03:04.880 | wrong, I wanna know why, because if I can learn from it, then I don't waste the experience of

01:03:11.600 | being wrong or of failing. And so, whenever I get something wrong, then I just wanna know. And so,

01:03:18.240 | my question is this, why is it that fiscal conservatives, and I identify myself as a

01:03:26.400 | fiscal conservative, why is it that fiscal conservatives have been screaming with terror

01:03:31.760 | for decades about every trillion dollars of increased debt and yet there has been no disaster?

01:03:38.560 | Why have they been wrong so far? Is it because they were completely wrong? And maybe Stephanie

01:03:46.240 | Kelton is right? Is it because they were just wrong until now or what is it? And I still don't

01:03:50.720 | have the answer, but that's why I just take a moment to talk about it, 'cause I think it's good

01:03:54.960 | to acknowledge why have we been wrong so far when talking about the disaster. And that's why I don't

01:04:01.520 | personally think there's gonna be an overnight disaster. I don't think the United States is

01:04:04.720 | Zimbabwe. I hope that the United States is not Venezuela. But having watched Venezuela and having

01:04:10.960 | seen how fast things can collapse in a 10-year period, I do get increasingly concerned by the

01:04:16.080 | day. And when you see the sea change with regard to your own taxation, depending on how many figures

01:04:22.880 | are in your crypto portfolio, if President Biden's proposals become law quickly, your tax bill just

01:04:33.360 | got a lot bigger. And when you have something as insane as the concept of taxing people on their

01:04:38.720 | capital gains, what did the US government do to deserve a piece of the pie? They didn't provide

01:04:45.200 | anything. They didn't do anything that would in any way cause them to deserve a piece of the pie

01:04:50.160 | of the growth of your crypto value. Then you see how insane it is. I just think that's a...

01:04:55.120 | You should consider it, count your numbers, think about your plans, and then make whatever

01:05:01.600 | decision's right for you. - Well, and one last thing on the crypto note too, of at least kind

01:05:06.880 | of my strategy going forward as well, is looking at how there's so much clamoring for proof of work

01:05:11.760 | and now how proof of stake looks like it's gonna be... Probably going forward is gonna be more of

01:05:19.280 | a popular option and then using what crypto assets I do have in a proof of stake model.

01:05:24.720 | And then potentially, basically using that as something that's gonna generate revenue for me

01:05:31.280 | with the amount of crypto that I have. So that's one of the other models that I'm looking at going

01:05:34.960 | forward as well. - Go for it.

01:05:35.600 | - But yeah. - Love it.

01:05:37.040 | - Yeah. Anyways, I'll stop the crypto talk for now.

01:05:39.920 | - Oh, good. Have a great day, Eric. Appreciate it. All right, let's go to

01:05:44.080 | John in Chicago. John, welcome. How can I serve you today, sir? John in Chicago, are you there?

01:05:50.880 | Going once. Jeremy in Ohio. Welcome, sir. How can I serve you today, Jeremy?

01:05:56.880 | - Hi, Joshua. So for the past 12 years, I've been teaching at an American public school,

01:06:02.880 | but recently accepted a job teaching abroad. And so once I leave the current job, I have to decide

01:06:08.880 | what to do with the money I have in Ohio's pension system for teachers known as STRS. And I was just

01:06:15.280 | hoping you could provide some guidance on how I should approach the decision and potentially offer

01:06:20.160 | your opinion on what I should do. - Is this a defined benefit pension

01:06:24.400 | or is this a defined contribution program where you have an account?

01:06:27.680 | - Benefit. - Okay. What options are they giving you

01:06:32.640 | when you leave that job? What are they proposing to you?

01:06:35.840 | - Yeah. And I guess to provide some context, there's approximately my account withdrawal

01:06:41.840 | value is $140,000 in the pension system, which I could just rolled into a pre-tax retirement account.

01:06:48.320 | My wife and I are in our mid thirties. We don't have kids.

01:06:52.960 | Our net worth, not including money in the pension is around $900,000.

01:07:02.320 | - If the rest of your money that you have is invested in stocks, in stocks and real estate,

01:07:10.080 | what is the rest of the money invested in? - The stocks bonds.

01:07:13.600 | - And when you move abroad, will you be earning a good income for your labor?

01:07:17.040 | - Yes. -

01:07:19.640 | How stable do you think the Ohio pension system is?

01:07:24.160 | - It is 76% funded, which doesn't seem great to me, but I think is pretty close to the

01:07:33.040 | quote unquote gold standard in the space. I'm quite confident it will never be any

01:07:38.960 | better than it is today. It will only get worse, but it's hard to say.

01:07:44.240 | - Do they offer you, if you don't take the $140,000,

01:07:48.240 | what's the benefit that they're offering in the future?

01:07:52.720 | - Every year it sits there, it earns 3% interest each year. And then potentially, when I cash out.

01:08:00.720 | - But don't they have an income benefit that, "Hey, John, if you're 65 years old,

01:08:06.400 | you can take this amount of money." Or sorry, Jeremy, "You can take this amount of money."

01:08:10.560 | - Oh, yes. -

01:08:13.280 | Okay. So what is that figure? -

01:08:17.280 | And that's, yeah, it's so, currently, if I were to not work another day,

01:08:25.600 | 12 years, it's about, it's 20% on the average of my highest five years,

01:08:35.440 | which annually, sorry, that's like very hard to do.

01:08:42.960 | - That's okay. That's good enough. -

01:08:43.760 | Let's say 12. - Okay. So what I,

01:08:46.000 | I can't tell you, of course, what to do, but I'll tell you how I would get to what to do.

01:08:50.720 | So let's start with the non-math answers. Non-math answer number one is the catastrophist model.

01:08:58.480 | The catastrophist model says, "The state of Ohio is dumb. The whole world is going to collapse.

01:09:05.040 | People are leaving Ohio. It's poorly managed. I'm just going to take my money and run."

01:09:09.680 | I don't think that's the case, but like that, some people, their reasons for leaving a place

01:09:16.080 | are pretty clear. And without question, pensions, government pensions, are number one, they're a

01:09:23.040 | political tool, and they are sometimes poorly run. And that varies on a state-by-state basis.

01:09:31.280 | And so the first thing I would do is I would try to get a little bit of understanding of

01:09:35.120 | how well run is the Ohio pension system, and how likely is this thing to fall apart?

01:09:40.800 | My answer is the chance is not zero, but it's not too high, right? There's going to be some

01:09:48.720 | benefit there. So now I go to your overall portfolio. If you only had $140,000 in savings,

01:09:55.600 | then I would say, "This is a really big deal to get right." In your situation, though, you and

01:10:01.440 | your wife have been financially productive enough to save quite a lot of money in other sources.

01:10:05.840 | And so here, I'm not so concerned, because even if that pension did go completely belly up,

01:10:12.240 | which is, of course, very unlikely, but let's say it went completely belly up,

01:10:16.160 | you're going to be fine, right? You would still have enough other assets growing. You're young,

01:10:19.760 | you have time, you have other assets that can grow potentially significantly, you're good savers.

01:10:25.600 | I'm not too worried about it. And so I wouldn't just take the money and run.

01:10:30.320 | What I would do is I would try to get a sense of what this pension is actually worth in the open

01:10:35.680 | market. So you would take the value and you'd say, "Okay, let's say I took $140,000. What would I do

01:10:41.360 | with it?" And here's where you need to do some math. If I take $140,000, roll it into an IRA,

01:10:46.880 | what would that money potentially grow to by 65, using what I understand to be appropriate

01:10:54.000 | numbers? And what you're trying to do is you're trying to get a sense of how good

01:10:59.600 | the returns that are being promised to you are. So you need to project, "All right, at 65,

01:11:05.200 | they would pay me $1,500 per month. Is that affected? Is there an inflation rider? Is there

01:11:10.800 | not an inflation rider? How much of a return would I need to get from my stocks if I take the $140,000,

01:11:17.280 | put it into the stocks in order to have the same amount of money available to me for my portfolio?"

01:11:22.160 | I would also compare this to a private annuity. I would sit down with an insurance salesman,

01:11:28.640 | and I would run some numbers on an annuity. Because I think that if you run numbers on an

01:11:33.600 | annuity, you're getting an apples to apples comparison. The problem with just saying,

01:11:37.840 | "I'm going to take the money and put it in stocks," is that a pension is much more valuable

01:11:43.600 | than a stock account. Because a pension has a guaranteed income benefit. It comes in every

01:11:50.480 | month, no matter what happens to the stock market. It comes in every month for the rest of your life

01:11:55.040 | if you take it as an income. Whereas the stocks, you can outlive them. It comes in potentially

01:12:00.000 | every month for the rest of your life and for the rest of your wife's life. It comes in oftentimes

01:12:03.920 | with a cost of living adjustment rider on it, inflation rider. And so it's extraordinarily

01:12:08.880 | valuable. And so what I would do, if possible, if you can find an insurance agent who will quote

01:12:14.320 | some annuities for you, is I would try to get a sense of what the annuity cost would be for me to

01:12:21.360 | get an annuity that's equivalent to this annuity that they have for you. Probably a lot higher than

01:12:27.760 | $140,000. Most of the time it is. So in general, when you run the numbers, usually what you find

01:12:35.120 | is that your employer pension is much more valuable than almost anything else you can do with

01:12:41.440 | the money. Because the numbers of that guaranteed benefit work out really well.

01:12:50.000 | So I would guess, this is just a guess, but having done this a number of times, I would guess that

01:12:55.760 | the answer is going to be keep the money in the Ohio pension system, just leave it alone,

01:13:03.120 | and it's going to grow to be a good amount of money. Assuming that Ohio doesn't go bankrupt,

01:13:11.120 | which I don't think it is, it's not as poorly managed as say Illinois,

01:13:16.320 | then it's probably going to be fine. And then this will provide you with a very useful

01:13:21.040 | backup plan to the rest of your portfolio. And potentially you just view this as some

01:13:25.520 | of your fixed income or some of your cash of your overall portfolio. And I think that being

01:13:31.280 | in your mid-30s with another $760,000 of investable assets, I think that's plenty to have available

01:13:37.840 | to invest in stocks. I'm probably going to keep it. I'm going to leave it alone. I'm just going

01:13:41.040 | to have it there as a long-term retirement benefit. Okay. That's very helpful. I was just

01:13:48.160 | curious, is there a quick resource or formula I could search for to find the total cash value

01:13:55.840 | of my pension, like looking at projected benefits and things? No, you would have to,

01:14:00.320 | you mean the current present value of those benefits down the road?

01:14:05.680 | Correct. There's no quick formula. You can put it into a, I mean, I could do it on a financial

01:14:13.040 | calculator. So if you can find someone who can run a financial calculator for you, you can do it.

01:14:16.240 | You can build a spreadsheet for it and do it that way. It's not hard to do. All you need to do is,

01:14:23.600 | I mean, no, I'm not going to do it right now. Call me up on another show and I can do it for you

01:14:29.440 | on the show. And it's kind of a semi, it'd be pretty boring audio. All you need to do,

01:14:34.480 | okay, so it's just two, if you don't know how to run a financial calculator, you're a teacher,

01:14:38.400 | go ahead and do it. Actually, someone is telling me on the chat, John says on the chat of this call

01:14:44.000 | that ChooseFi just did an episode on Monday on pension calculations. So go check out what they

01:14:47.760 | did. Maybe that would be helpful for you. Oh, okay. Perfect.

01:14:50.400 | What I would do is take your stream of payments and let's just say, okay, at 65, I'm going to

01:14:57.840 | get $1,000 a month. Then use, decide what time range you're going to choose to value that as.

01:15:05.040 | So I'm going to take it from 65 to 75 or from 65 to 105. Then what you need to do is you're going

01:15:13.280 | to do a present value calculation starting at the age of 65. So you calculate your stream of payments,

01:15:19.040 | your terminal value is zero, so your ending value is zero. You calculate your stream of payments,

01:15:24.800 | you adjust those payments based upon whether they have a cost of living adjustment in them. So if

01:15:31.120 | they have a 3% benefit or something like that, you maybe you inflate the payments at 3% to get

01:15:35.520 | your total present value. So you first calculate... This one does not.

01:15:39.280 | Okay, so then it's even easier. So calculate your present value at age 65 and then discount

01:15:45.920 | that present value to today, to your current age, say 35. So you take a 30-year discount for today

01:15:52.800 | to $140,000 and that'll give you your projected rate of return over the course of the next 30

01:15:57.840 | years. So it's just two very simple present value calculations. You first do a present value

01:16:03.120 | calculation of the pension stream at the date of receiving income, say 65, and then you discount

01:16:08.880 | that. You make that your future value and then you discount that today based upon your discount rate.

01:16:13.840 | Okay, great.

01:16:17.120 | Great. And where are you going to teach? You said you're going abroad. Where are you headed?

01:16:20.400 | Tokyo.

01:16:22.400 | Fun. Enjoy.

01:16:23.280 | Very cool. A lot of people love Tokyo. I hope to be there

01:16:27.120 | potentially later this year. So we'll see what happens. All right, we go now to...

01:16:31.760 | Just a moment. We'll go back to John. John has his headset. Should have a headset. John,

01:16:41.520 | are you there?

01:16:42.000 | Hopefully.

01:16:42.640 | Yeah, you're in.

01:16:43.200 | 50/50.

01:16:44.080 | You're in. How can I serve you today, John?

01:16:46.000 | You kind of touched on it when you were talking to Kate earlier. So I just recently

01:16:51.920 | got out of the military last year. Basically tripled my income overnight. Kind of grew up poor,

01:16:58.640 | so it's been completely disorienting being able to afford everything that I've ever wanted.

01:17:04.480 | Wanted resources, books or whatever on kind of dealing with that mindset shift, I guess.

01:17:12.320 | Yeah, don't know how to better phrase it than that.

01:17:18.400 | I don't know if it's books. I'm blanking on a book just to say that...

01:17:23.600 | Yeah, I don't know if there's a book. But what I think there is, is just simply

01:17:29.680 | you basically make your own. You recognize the changes that you're experiencing in your own life

01:17:37.440 | and then my strategy is simply get it out of your head. Get those experiences, get those thoughts

01:17:44.320 | out of your head to where you can actually analyze them. So you write them down. Are you struggling

01:17:50.880 | with spending too much money? Are you struggling with saving too much money? Is there some way that

01:17:56.240 | you feel you're handling this transition poorly? I'm definitely overspending and that's curbed a

01:18:02.000 | bit. But yeah, I don't know. It's hard to describe other than just disorienting.

01:18:07.040 | I was making like $50,000 a year six months ago.

01:18:11.760 | Right. And now you're making $150,000?

01:18:14.320 | Yeah. Yeah. So I don't know that it's a bad thing to splurge a little bit. I really don't.

01:18:20.320 | As long as a lot of those splurges don't kind of lock you in. So maybe we'll just talk about

01:18:28.240 | a few of the things that happen. You can recognize, first of all, recognize that what you're going

01:18:33.280 | through is common to lots and lots of people. But you personally are handling it better than

01:18:39.440 | lots of people handle it because you're listening to a personal finance podcast like mine

01:18:43.600 | I'm sure you're listening to others looking for other resources and you're doing something like

01:18:47.120 | calling in and talking about it with someone like me. And so just that you should give yourself a

01:18:52.880 | pat on the back right there because just that act, that practice is probably enough to avert

01:18:58.240 | disaster for you personally. When people come into a lot of money, there is a temptation to

01:19:05.760 | start spending it all. And my answer is spend some but not all. I think that there can be danger

01:19:12.880 | points, kind of like two gutters of a bowling lane. Gutter number one on the left is don't

01:19:19.440 | spend any of it. And that can be really frustrating because you've worked hard to take yourself from

01:19:24.240 | an income of $50,000 to $150,000. And I don't see why you wouldn't reward yourself for that hard

01:19:29.680 | work. But gutter number two is if you go from $150,000 and now you lock in $180,000 per year

01:19:36.800 | spending lifestyle, then now all of a sudden that's also going to be a disaster. And certainly

01:19:42.560 | that's your bigger risk. And so how much money have you spent in the last six months? How much

01:19:47.680 | money have you made in the last six months and how much money have you spent in the last six months?

01:19:50.800 | Oh God, I'd have to do the math. I mean- Ballpark.

01:19:54.560 | Six, yeah, 6,400 after taxes every month and then I've maybe saved 10 grand of that.

01:20:01.520 | Okay. So you haven't spent more than you've earned in the last six months. Is that right?

01:20:05.360 | Right. I think so.

01:20:08.320 | You don't have more debt today than you had six months ago. Is that right?

01:20:10.880 | With the exception of a mortgage, yes.

01:20:14.080 | Okay. So mortgage is kind of a unique thing. So the first thing that you want to do is you

01:20:18.560 | want to avoid debt or at least you want to avoid debt that's not secured by property.

01:20:24.240 | So you want your net worth to increase. Has your net worth increased over the last six months?

01:20:30.160 | Oh yeah.

01:20:31.520 | Good. Okay. So you're doing the things right. So that's the first thing is as long as your net

01:20:35.440 | worth is increasing, you're doing okay. The second thing I would say is what you want to

01:20:40.720 | be cautious about is am I buying things that are going to go down in value or buying things that

01:20:47.360 | are going to go up in value? So if you've gotten a mortgage and that's a good asset and there's

01:20:52.320 | good debt associated with it, then you've bought something that's probably going to increase in

01:20:56.160 | value. That's different than going out and buying a new car that is going to go down in value and

01:21:00.640 | having debt on the new car. So where people really screw it up is if they lock themselves in and they

01:21:05.680 | start buying stuff that's going to go down in value, furs, jewelry, cars, things like that.

01:21:12.160 | So avoid that. I think the other thing that you want to look at is am I locking myself into a

01:21:16.640 | higher level of expenses for life or for a long time or these temporary consumption items? So

01:21:23.280 | I would spend $6,000 to go skiing for a week if I wanted to go skiing. That's a one-time expense.

01:21:29.520 | I know I'm spending a lot of money. I'm going skiing and I'm going to have a great week of

01:21:33.680 | vacation. This is going to be fun. But what I wouldn't do is go out and sign myself up for

01:21:38.320 | a payment on a new car of $1,200 a month because now I'm going to be paying for that for the next

01:21:43.280 | six years. And so that's going to be kind of a lock-in. And yeah, so those are the errors to

01:21:51.760 | avoid. Where I think you solve it is the same. It doesn't matter where you came from. It doesn't

01:21:57.280 | matter that you grew up poor. What it comes down to is what's my vision going forward? What are

01:22:02.240 | my dreams going forward? What's the kind of lifestyle that I want to live? You heard me when

01:22:06.000 | I mentioned with the first, I think the first or second caller, I talked about the three questions

01:22:10.160 | and I talked about getting yourself settled. If you've gotten yourself into a much higher earning

01:22:16.080 | job, then I think the first step is, number one, who do I want to be with? Number two,

01:22:20.560 | where do I want to be? Number three, what kind of work do I want to do? And make sure that those

01:22:24.720 | things are right. Ask yourself, do I like this work? If I like this work, great. Buying a house,

01:22:29.280 | great. Settle your life. And then after you settle your life in as best you can, then build a

01:22:34.720 | financial plan up. I'm just going to, I'm going to save 20% of my income. And it should be pretty

01:22:39.520 | easy for you to save 20% of my income. What I would suggest for you is, I think just because

01:22:45.920 | of the simple rule, there's nothing magical about it. Save half, spend half. So if you went from 50

01:22:50.160 | to 150, recognize that what you can do, I'm ignoring taxes here, but save half of the

01:22:57.680 | increase and spend half of the increase. So if you've added $100,000 to your income,

01:23:03.360 | then set up your finances now so that you're saving $50,000 per year, and then add another

01:23:09.760 | $50,000 per year of spending. And to me, that's the right number, is you double your lifestyle,

01:23:16.880 | which will be a big, very welcome, fun change. But you also are increasing your savings. And I

01:23:24.320 | don't, I think that's kind of the prudent middle road. It's not too extreme where you're living

01:23:27.680 | like a miser. It's not where you're spending too much money. Just as your income goes up,

01:23:32.160 | save half, spend half. That way you double your lifestyle and you double your savings.

01:23:35.920 | - Gotcha. Makes sense.

01:23:38.080 | - Anything else? That's all I got.

01:23:43.520 | - No, I wish I had more.

01:23:45.600 | - Well, Colin, let's keep in touch as you work it through. And by the way, congratulations.

01:23:49.920 | What kind of work, so you went from the military, what kind of work did you go into

01:23:53.040 | out of the military?

01:23:53.840 | - Yeah, so I was a network engineer in the military, jumped into software.

01:23:58.480 | - Perfect.

01:23:59.120 | - Yeah, dropped out of college, got a bachelor's and master's in the military. So

01:24:03.360 | - Well done.

01:24:03.680 | - Weird path, but it turned out.

01:24:05.040 | - Well done. I'm glad it worked out for you.

01:24:06.800 | - Thank you.

01:24:07.040 | - All right, we go on to Memphis, Tennessee. Welcome to the show. How can I serve you today?

01:24:11.120 | - Hey, Josh, I missed the first part of your call. I hope this doesn't repeat any questions.

01:24:16.560 | I got a stock market question for you.

01:24:17.840 | - Go ahead.

01:24:18.400 | - I just broke a million dollars in the stock market. It's 70%. Yeah. The 70%

01:24:28.720 | stocks and about 30% treasuries. I've been 100% stocks for 20 years.

01:24:32.560 | I feel like the market's their value. And I'm not on Facebook, but I've gotten the impression that

01:24:38.400 | you've been talking to people on Facebook and that you're out of market. And I was thinking about

01:24:42.720 | Dallio's all weather portfolio and the permanent portfolio theory, which we talked about before.

01:24:47.360 | And so my question for you is, you know, Dallio's negative on Barnes now. What do you think of

01:24:53.200 | Dallio's all weather? What do you think of the permanent portfolio in today's market?

01:24:57.200 | And whatever value or is it just reflecting inflation? And then I want to know if you're

01:25:04.000 | out, where'd you move your money? - I am not competent to say what the market

01:25:09.360 | is going to be some months from now or not. I tend to look at things and it feels if where we are

01:25:21.040 | right now isn't a bubble, then I don't know what a bubble would feel like or how you would predict

01:25:27.600 | a bubble. That's where I'm at right now. So if I just see too much evidence to say that,

01:25:36.320 | to look at the world and just, again, I said it the way I want to say it. If where we're at right

01:25:43.120 | now is not inflated, if we're not in some kind of valuation bubble, then I don't know what a bubble

01:25:51.360 | would look like or what it would feel like. So maybe the things are different, right? I've

01:25:58.240 | asked myself a lot of these questions over the last couple of years. Maybe things are different

01:26:01.440 | now because there's more people participating in the stock market than ever before. I don't know.

01:26:07.200 | I think that there's a lot of money in stocks because there's not really, there's a lot of

01:26:11.200 | money forced into stocks because you can't get any return on your money in the bank. That's part

01:26:16.160 | of the whole reason why you have interest rates at these artificially low prices. It doesn't make

01:26:20.800 | sense to me from the perspective, broadly speaking, a lot of things don't make sense to me from a

01:26:24.720 | fundamental perspective. But because I don't know whether, where we're going to be, three or six

01:26:30.960 | months, et cetera, the only safe place I've ever found to plant my feet in any of this is what I

01:26:37.280 | call financial planning, which is simply the old, the same wisdom reflected in the idea that you

01:26:44.160 | invest money in the stock markets that you're not going to spend in the next five years. So where

01:26:48.080 | are we going to be five years from now? If I had to bet, I would bet that markets will be higher

01:26:52.320 | five years from now than where they are today. That doesn't mean, however, that they were going

01:26:57.760 | to be higher a year from now. And so I'm happy to bet that they'll be higher five years from now.

01:27:02.080 | And so if you've got a five-year time horizon, I wouldn't run away. The second thing is, if you're

01:27:08.320 | going to get out, you've got to have something to go to. So you've got to have some kind of personal

01:27:12.480 | strategy, some kind of personal plan that makes sense to you of what you're going to go to.

01:27:17.280 | Getting out to go to cash, unless you have a specific metric that you're watching, a particular

01:27:24.160 | strategy that you have in mind of, or a specific company that you want to work in, just doesn't

01:27:27.920 | work. That kind of fear-based run for the hills doesn't work when you get to investing. And so

01:27:34.880 | if you need some money in the cash to sleep well, maybe you've got a million dollars and you need

01:27:39.040 | to put $200,000 in the bank because that's the money that makes you sleep well at night so that

01:27:43.280 | you could let the other $800,000 ride, go for it. Again, I can plant my feet very firmly on these

01:27:49.120 | personal financial planning techniques to say, how much money do you need in the bank to sleep well?

01:27:55.120 | Now, where do you go? I think that you need to develop something that would make you feel good.

01:28:01.040 | If you feel good having an all-weather portfolio, I think you should do that.

01:28:05.600 | If you feel good having a permanent portfolio, I think you should do that. I think that those

01:28:10.480 | portfolios can make a lot of people feel better than a 100% stock portfolio because they solve

01:28:20.160 | these needs, they solve these fears. If I know that I've got $200,000 in gold coins sitting

01:28:26.240 | somewhere, and if I know that I've got $200,000 in long-term treasuries, and if I know I've got,

01:28:32.480 | going on down the list, if I know I've got $200,000 in cash, then I'm not worried so much

01:28:37.760 | about all the money in the portfolio. And so I like those strategies. I like any strategy that

01:28:43.360 | somebody believes in that makes sense to them based upon their numbers because what you've got

01:28:49.680 | to make sure you have is a plan that's not made in the heat of battle but that's made beforehand

01:28:55.440 | so that when the market starts tumbling, you know what you're going to do with it.

01:28:58.080 | So if you told me I'm going to take a million dollars and I've got my eye on 10 companies

01:29:04.960 | that I've worked out a value estimate of what I think these companies are worth per share,

01:29:09.520 | and so I'm going to just wait and I'm going to watch my pick list, and when their value

01:29:13.360 | is go below – when their share prices go below what I think they're worth, I'm going to go ahead

01:29:17.360 | and start buying. I'm convinced, yeah, that makes sense. But I think that you want to go in that

01:29:25.520 | direction instead. My reasons for getting out of the stock market were primarily personal financial

01:29:32.160 | planning reasons and personal philosophical problems, not valuations. I sold stocks far

01:29:40.560 | below what they are now. So if we're counting how Joshua's stock getting out of the stock market

01:29:46.960 | thing did, I got out lower than where they are right now. But I don't regret that personally

01:29:52.800 | because I didn't make the decision based on valuations. I didn't predict a crash and then

01:29:56.400 | get out. I made the decision because I object philosophically and morally to many of the actions

01:30:03.200 | that the companies were taking with my money and I didn't want to have their blood on my hands.

01:30:11.520 | And number two, when looking at my personal financial plan, I realized that stocks were

01:30:19.120 | much less likely to ever make me wealthy than other things that I could do. And so after years

01:30:25.840 | of selling stocks, I realized that stocks very rarely make anybody rich, meaning mainstream

01:30:30.960 | stocks. And so what I decided to do was to pursue – I guess we could call it a barbell strategy,

01:30:38.720 | right? Where – no, that wouldn't be the right characterization. I basically decided to say,

01:30:44.960 | "I want to bet on myself and on my personal abilities, not the stock market. I want to bet

01:30:54.400 | on my own businesses that I can build. I want to bet on my own businesses that I can turn around

01:30:59.600 | because I believe that I can make tens of millions of dollars per year if I invest my own money

01:31:05.040 | rather than giving it to Wall Street to invest." And so when that's compounded with my own personal

01:31:11.520 | philosophical frustrations with the way that many large companies conduct their affairs,

01:31:16.800 | then I'm satisfied with my decision. But I don't think that's right for most people.

01:31:22.080 | Make sense?

01:31:28.560 | Yeah, it does. I appreciate it. Yeah, I can sympathize with the moral positions of the

01:31:34.960 | companies that you're on a part of. That's a part of it, but it's more that it seems like there's a

01:31:39.520 | great deal of exuberance that there's about the markets and there's a time to make a decision

01:31:44.480 | and be now rather than at the most depressed points of the market.

01:31:48.400 | I don't disagree with you. And one thing – forgive me for interrupting you. I am trying to – I'm

01:31:55.920 | trying in my response to you, and I want to make this crystal clear because an expert investor will

01:32:01.120 | recognize what I'm doing, but I'm trying to respond and tread a very thin line here.

01:32:07.760 | All academic research indicates that the average investor has no ability to predict the direction

01:32:15.760 | of the markets, generally speaking. So that's the general academic consensus. And because I'm

01:32:23.760 | somebody who believes in the power of academic research, who believes in the power of good data,

01:32:28.400 | that influences my decisions, is that I always question myself. Do I think I'm smarter? Do I

01:32:34.960 | think I can time the market? The data indicates that I probably can't. Now, the other fine line

01:32:41.200 | is that I have spoken to many people who can make good investment decisions. I've known enough

01:32:47.840 | people, clients of mine, listeners of mine, who are very keen traders. But the key is you have

01:32:53.760 | to have a strategy that you understand and know what you're doing. And so I feel a sense of

01:32:58.400 | professional responsibility that if you're not calling me up – and like the people who can do

01:33:03.200 | it aren't calling me and asking me if the stock market is overvalued. They're just doing it based

01:33:07.200 | upon, "Hey, I've researched this. I understand this strategy. My metric says that this is not

01:33:11.680 | a winning strategy, and I'm going to pay it, bail and go out." And so this is a very complicated

01:33:16.800 | world for me to live in because if the average person calls me up and says, "I got a 401(k),"

01:33:21.920 | well, the answer is buy and hold, right? Buy and hold. But buy and hold really sucks a lot of times,

01:33:27.360 | and it's really painful, and I don't believe that you have to buy and hold to win.

01:33:31.040 | And so I'm trying to thread this narrow path between these to say, "You need to understand

01:33:36.720 | your own strategy. I personally think stocks are overvalued, but since I don't have any skin in the

01:33:42.240 | game in the moment, it's easy for me to say that because my businesses are doing fine, and I'm not

01:33:47.920 | interested – that interested at the moment – in buying more stocks because I think that there are

01:33:53.600 | far more interesting ways and places to make money in the world than the U.S. stock market."

01:33:58.720 | So I hope that that's clear. I'm trying to make it very obvious that I'm trying to thread a line

01:34:03.040 | between the academic research that says you should buy and hold and we shouldn't try to predict

01:34:07.200 | whether stocks are overvalued while also recognizing that I think individuals can

01:34:12.000 | actually look at their situation and say, "Hey, this doesn't make any sense,"

01:34:17.840 | and then it's your money. No one's going to care about it. You do what you need to do to sleep well

01:34:23.520 | at night. Right. There is some psychology there because if the stock is not a true value, then

01:34:30.960 | trying to sell is to capture a gain. It wasn't really yours to begin with.

01:34:34.960 | So I can understand the psychology of the buy and hold. It doesn't really matter if it goes up or

01:34:39.360 | down. Eventually, it's going to reflect true value. It just may be a number smaller than what you have

01:34:44.240 | right now. But I was trying to think of something that was a little bit more durable and less

01:34:49.360 | fluctuation at the height. Do you have any idea why Dallier is so negative on bonds right now?

01:34:53.760 | Is he talking about government bonds or is he talking about corporate bonds?

01:34:59.520 | I haven't followed exactly what he has said, but the reason why anybody would be negative on bonds

01:35:06.080 | right now is obvious. With interest rates at depressed historical lows for a very long period

01:35:15.280 | of time, with expansionary money supplies and economic crises, it's hard to believe that

01:35:24.080 | interest rates can be kept down for the long term. If interest rates rise, then bond prices will fall.

01:35:32.720 | So prices of bonds – sorry, value of bonds and interest rates always work in an inverse

01:35:40.080 | correlation. If interest rates go up, the value of bonds fall. If interest rates fall, the value

01:35:47.840 | of bonds increase because that's the relationship between them because it's on what companies can

01:35:53.280 | refinance themselves at. So any investor who's looking at the world would say at some point in

01:36:01.440 | time, interest rates are going to have to increase, whether that's because we're in an

01:36:06.720 | inflationary environment due to excessive supplies of money. You can argue your own thing, but then

01:36:13.440 | in that scenario, bond prices would fall. So that would be, without having seen what Dallier has

01:36:18.720 | written recently, that's the answer as to why any person would be bearish on bonds at the moment.

01:36:24.880 | Okay. Yeah, that was a gist of it. Okay, I appreciate it. Thanks for your help.

01:36:31.200 | Yeah. So my only comment would be I do like these structured portfolios like all-weather portfolio,

01:36:40.880 | like permanent portfolio, because they're designed to solve these mental problems you're

01:36:48.960 | wrestling with. You can think about what you think is the best, but they are fundamentally designed

01:36:55.120 | to try to alleviate this sense of agitation that you have because they allow you to say,

01:37:01.520 | "Listen, we don't know what's going to happen in the future, but we know that by diversifying our

01:37:06.160 | assets across these different asset classes, we can participate in where there's growth,

01:37:13.360 | and we can limit the decreases where there are declines, and they allow you to sleep well at

01:37:19.360 | night." And so you need to find a model that you believe in that will allow you to sleep well at

01:37:25.040 | night so that also fits your personal financial goals, your personal financial constraints.

01:37:32.560 | You need to find something you believe in so that when the market goes up and down,

01:37:35.840 | you're going to be happy and comfortable with it. And whatever that model is, is up to you

01:37:42.640 | to decide, but that's what you need so that you don't bail at a bad time.

01:37:47.440 | Thanks, Joshua. I appreciate it. Always enjoy listening to your insights.

01:37:54.880 | My pleasure. Thank you for being here. All right, two callers left. We go to California. Welcome

01:37:59.440 | to the show. How can I serve you today? I think that's me. My name is James.

01:38:03.840 | Tell me your name again, please. James.

01:38:06.320 | James, glad you're here. Go ahead, sir. Yeah. So I'm in California. I have concerns

01:38:12.400 | about California and the US. I'm not looking to move. I'm running the family farming operation,

01:38:19.760 | but I'm looking to build ties to other countries specifically and kind of understand where I should

01:38:26.880 | go with that. I kind of got two ends of this. My wife is from Belarus and I enjoy Eastern Europe

01:38:32.480 | and that, but I don't really see any opportunities there. The visa stuff and that's not real appealing.

01:38:37.920 | There's also countries like Panama and Malaysia and whatnot that offer appealing visa and

01:38:44.640 | investment things, but I don't have any particular ties to these countries or

01:38:48.720 | other interests in them aside from these programs they offer. So I'm kind of going back and forth

01:38:54.800 | between these things and wondered your thoughts on building ties to other countries and

01:38:58.800 | how to pick where to go to. Okay. So let me give you a couple of models that you can apply.

01:39:04.560 | So the first thing is you are living in California. You're running a business that

01:39:09.360 | simply cannot easily be relocated. You're running a farm and you're happy doing that.

01:39:15.120 | And while you might be a little bit annoyed with some of the trends that are affecting you

01:39:19.360 | personally, while you might be a little bit concerned about the future, you're not going

01:39:23.120 | to pick up and go and start a farm in Belarus. Okay. So if that's the first, agreed, do I

01:39:30.400 | understand correctly? That is the situation. Perfect. Okay. So in this situation, we're just

01:39:37.200 | simply doing plan B planning, right? While things are not bad enough that we want to leave, we could

01:39:43.120 | actually understand that in theory, there's a point in time at which things could get bad enough

01:39:48.320 | that we would actually want to leave. And so if that happened, it would be better to have a plan

01:39:53.280 | in place beforehand rather than waiting for the last minute. We don't want to be on the last train

01:40:00.720 | out wondering if we have enough pieces of jewelry sewn into the lining of our coat to bribe the

01:40:06.160 | guards to let us out. Right. Better to be a little bit early and not be on that last train. So we're

01:40:11.360 | trying to do plan B planning. Okay. So let me break it into some components because the reason

01:40:17.760 | this is overwhelming to you is simply that you don't, first of all, it needs to be broken down

01:40:23.760 | into small pieces and then you need some ideas that are available to you. So I think the most

01:40:29.520 | useful opportunity for you with regard to personal international planning, sorry, the most useful

01:40:36.640 | model is simply the classic five flag theory. The classic theory that Harry Schultz invented back in

01:40:44.640 | the 80s of the PT theory, flat flag theory. And so what he would teach is that there are five basic

01:40:51.280 | flags that you can plant around the world. And so you have your citizenship flag, what country are

01:40:56.720 | you a citizen of? You have your residency flag, what country are you a resident of? You have your

01:41:03.120 | banking flag, where do you store your money? You have your business flag, where do you operate your

01:41:09.760 | business? And then you have, they would call it your playground flag, which I'm happy to use.

01:41:14.880 | You can just simply call it your living flag. Your playground is what they would say. Where do

01:41:18.960 | you like to go and spend time? And so the challenge is when you do international planning is that

01:41:24.400 | right now all five of those things are related. So you have your citizenship in the United States,

01:41:29.440 | you have your residency in the United States and in California. You probably have most of your

01:41:33.200 | money in the United States, your business is in the United States and you spend most of your time

01:41:37.600 | in the United States. So you can start to decouple those one at a time. So with regard to citizenship,

01:41:43.360 | you probably don't have to have a second citizenship. But I do think it's very valuable

01:41:49.040 | if you could have it. If things got really bad, the most important thing for you would be to have

01:41:53.920 | a residency. And so you might want to just think about where would I actually want to go? Let's say

01:41:59.120 | that things got bad in California. Imagine a scenario in which it would be bad enough to make

01:42:03.360 | you want to leave California. I don't know what it is, I don't know what you're worried about,

01:42:06.240 | but just imagine a scenario where you say, "If they did this, I would leave. If they did this,

01:42:12.400 | I would leave." And then ask yourself, "Where would I want to go?" Now, if you don't have an

01:42:17.040 | answer for that, then just say, "I don't know where I would want to go." And start looking around.

01:42:23.040 | Would I want to go from California to Nevada? Would I want to go to Utah? Would I go to Colorado,

01:42:30.800 | Montana? Would I go to Texas, Florida, South Dakota, North Dakota, et cetera? One thing you

01:42:35.680 | can do is you can just very easily diversify some of your life and your business inside the United

01:42:41.440 | States. So you might have most of your property in California, but maybe you could afford to buy

01:42:46.560 | a little bit more land. Maybe you buy a little piece of land in another state. That would be

01:42:50.800 | one option for you. If you don't know where else you would go, then think about more broadly. Do

01:42:57.520 | you like going to Mexico? Do you like going to Canada? Do you like going to Panama? Have you

01:43:02.800 | ever been there? If not, if you haven't ever been to any of those places, then the first thing to do

01:43:06.720 | is just book yourself a vacation and get on an airplane and go. And go spend a little time in

01:43:10.720 | Alberta and say, "Well, maybe I would like to buy a ranch here in Alberta. Maybe I'd like to buy some

01:43:14.480 | farmland in Mexico. Maybe I'd like Panama City, et cetera." And just think about some different

01:43:19.440 | places. And if you're going to get residency, try to get residency in a place you'd actually want

01:43:23.680 | to spend some time because you might actually wind up spending some time there. The easiest flag to

01:43:29.760 | move is your banking flag. It's very easy to go and open a bank account. It's not hard at all. You

01:43:36.160 | just simply choose a country that will allow you as a tourist to come in and open a bank account.

01:43:40.640 | You go there, you open a bank account, then you fly home and you wire money into the bank account.

01:43:45.760 | And so everybody should have at least one account outside of their country of residence.

01:43:50.640 | If you have substantial reserves, you can think about moving more of those reserves.

01:43:56.720 | Now, this gets complicated depending on how those reserves are held. If you have a million dollars

01:44:03.200 | in your bank account, you can move easily a million dollars from the United States to a

01:44:07.120 | million dollars in a foreign bank account in practically any high-quality banking jurisdiction

01:44:12.640 | in the world. If you have a million dollars in your 401(k), it doesn't work so well. And so you

01:44:17.920 | have to look at what assets you have, but you have to think about where you store your money.

01:44:23.200 | With regard to your business, you want to analyze your business and say,

01:44:27.200 | "Is there an opportunity that I have to move my business or any part of my business?"

01:44:32.160 | So, do I want to have something going in Mexico? Do I want to have something going in Guatemala?

01:44:40.160 | Do I want to have something going in Brazil? Do I want to buy farmland? Is that the kind of guy I am?

01:44:44.560 | Or if not, let me just ignore it for now.

01:44:49.680 | This is hard with farming because you're trying to use a productive piece of land, and usually

01:44:56.240 | farmer's shadow is the best fertilizer. So, it's not the kind of thing that's easily run from

01:45:00.960 | abroad. But there can be the kind of thing where you might set up operations in other places and

01:45:05.520 | move some component of your business. Residency, you could, if you were going to buy land, you can

01:45:13.760 | often use land to negotiate a residency for you. So, there are many places in the world that if

01:45:19.040 | you have money and you want to buy some farmland, you can come in and you can use that purchase to

01:45:23.840 | actually get yourself a legal residency. So, you can come and go back and forth. I don't know if

01:45:27.600 | that works with the style of farming or with your personal lifestyle interest, but that's something

01:45:30.640 | you can do. On the citizenship front, there's no downside to having a Belarusian citizenship.

01:45:37.120 | Your wife is Belarusian?

01:45:38.720 | Yes. I've looked into it and it doesn't look like there's a way I could be without

01:45:44.560 | moving there for like a decade.

01:45:46.400 | Right. Yeah, they're probably pretty tight given the culture of Belarus. So,

01:45:51.840 | can you get a residence permit in Belarus?

01:45:56.880 | I don't. I should look into that further. I think I'd have to be working there too.

01:46:03.680 | Because I'm married to a citizen, under the current rules, I could go there on a tourist

01:46:09.120 | visa and then file paperwork once there to stay there and work. There's no way I've found to line

01:46:15.600 | it up in advance. Of course, no guarantee they won't change the rules, but those are the current

01:46:20.560 | rules.

01:46:21.060 | Right. So, if possible, I would try to go ahead and negotiate a residence permit for you,

01:46:27.280 | simply being married to your wife, so that if you ever did need or want to go there,

01:46:30.800 | you have that as an option. And then I would look and see how worth it is to get at other places.

01:46:36.400 | My answer is, if you're in California, you should get a Mexican residence permit. I think that's

01:46:42.560 | the obvious first step. You go to the Mexican consulate, you say, "Look, I have enough money

01:46:47.760 | in the bank. I can get a person of means visa." They give you a person of means visa. You go into

01:46:52.160 | Mexico, you do the conje, turn it into a temporary permit. You go and take your vacations in Mexico

01:46:57.120 | every year for five years, you become a permanent resident of Mexico. Now you can always go to

01:47:00.560 | Mexico. So, that would be, I think, the simplest thing to do. And then, as a farmer, there'd

01:47:06.640 | probably be a lot of options for you in terms of potentially moving things to Mexico. Where I would

01:47:13.120 | spend most of my time is I would just spend most of my time not on necessarily each of these details

01:47:19.600 | because they're so hard for you as a farmer, but I would spend time investigating and saying,

01:47:24.880 | "Is there more opportunity somewhere else?" Probably it's going to be hard for you to find.

01:47:30.400 | Farming is a pretty good deal in the United States, especially in California, you've got

01:47:35.200 | great weather, you've got tremendous subsidies, tremendous support. You're probably not going to

01:47:40.720 | be the guy who's going to be out leading the front on international relocation. But what you might do

01:47:46.960 | is just simply look and keep your ears open for other opportunities. Maybe a year or two from now

01:47:51.920 | you buy some farmland in Venezuela. Maybe, I don't know, but if you don't have something better,

01:47:59.280 | there's no reason to leave where you are, work your way through those five flags and see,

01:48:04.720 | "Okay, can I get another citizenship somewhere? Do I qualify for something in my own family? If not,

01:48:10.080 | am I willing to pay for it to buy one? Is it worth it to me? Do I think that the concern is

01:48:15.440 | significant enough? What if I just get a residency permit?" I think for most people,

01:48:19.600 | having a residency permit in Mexico or in Panama or someplace simple like that,

01:48:23.600 | maybe you get yourself a little condo in Colombia, get a residence permit there that can lead to

01:48:28.880 | citizenship. I think that's sufficient for most people. But think about how you would get out of

01:48:35.840 | the farm at some point in time if you needed to. >> Yeah. Okay. Well, that's helpful. I've

01:48:43.920 | looked all over the world and done business in Chile and in Spain and haven't found anything

01:48:51.280 | better but then have concerns with where I'm at. So I've been trying those two.

01:48:55.760 | >> It's really hard. And it's a lot easier for a guy like me with an internet business to just

01:49:01.920 | trot all around the world and to wax eloquent about how great internationalization is. I like

01:49:06.400 | it, right? But that's very different than if you're a farmer and you're tied to land.

01:49:09.600 | The last thing I was going to say is you should consider disentangling yourself from the land.

01:49:15.440 | So I don't know with your particular farm whether this would work. And this is also hard because of

01:49:20.800 | the taxes usually embedded in most farm property. But if you see that things, let's say that you're

01:49:27.360 | looking at it around and you're saying things are going badly, all right? What you do is start

01:49:33.520 | stripping your equity from the place where things are going badly and try to move it to a place

01:49:38.640 | where things are going better. And so here, the obvious example is can you go ahead and mortgage

01:49:43.600 | up your farm and then go ahead and move that money somewhere else? You don't want to endanger

01:49:49.360 | your business, but if you can mortgage up your farm and move that money somewhere else, then that

01:49:53.920 | could potentially be very helpful for you in the future. And that would help to protect your biggest

01:49:59.920 | asset. So I would look very carefully at mortgaging my farm and see what I could do to strip some of

01:50:05.280 | the equity there and if I have a better place to put it. Okay. For sure. All right. Well,

01:50:13.200 | that was my question. I've got some things to look on. If I remember right, Harry Schulte

01:50:17.920 | has wrote a couple of books on Flagsters. Is that correct? Yeah, it wasn't Schulte himself

01:50:22.720 | who wrote them. It was another author. I'll look up his name here for a moment. W.G. Hill was the

01:50:29.760 | name he wrote under. He wrote a number of books. He wrote a book called PT. He wrote a book under

01:50:34.800 | that label. He wrote a book called The Invisible Investor. He wrote a book on second passports, etc.

01:50:43.360 | Later under another pen name, he wrote a book called something about escaping big brother.

01:50:50.800 | But they're good. You can find them online. You can find them. I read them all and they're quite

01:50:56.480 | fun. They're just at the end of the day, your constraint is going to be your farming operation.

01:51:00.240 | You're not a good candidate. You're not a good candidate for that kind of globe-trotting

01:51:05.040 | lifestyle if you are required to be there with the land. And so your options are more limited

01:51:13.120 | than they are for some other people. What do you do? Let me run through them again real fast.

01:51:16.400 | Okay, number one, you can strip the equity off your farm, move the equity somewhere else if you

01:51:20.880 | have to be there. You can redesign your farming operations so that they can flourish without you

01:51:25.440 | physically being there and you can start another operation somewhere else. Maybe you can start a

01:51:29.840 | farming operation in Chile and then you spend 20% of your time in California, 80% of your time in

01:51:35.280 | Chile. Or you can just be prepared and watching for what those factors would be when things got

01:51:41.280 | bad enough that you would actually would want to sell your land and move. But I think the biggest

01:51:46.560 | challenge is you're tied to the land and so the threats would have to be pretty big for it to be

01:51:52.000 | worth it for you to pull the trigger, sell your land, move your equipment operations elsewhere.

01:51:56.320 | They have to be pretty big. Okay, well thank you much. Wish I had better answers. And with that,

01:52:03.200 | appropriately enough, we move on to, well you said anonymous, we'll go with Kevin. It's easier.

01:52:09.200 | I feel a little bit weird saying welcome to the show anonymous. So go ahead, Kevin.

01:52:13.360 | Kevin's good. Can you hear me?

01:52:15.920 | Yeah, I'm not so into, yeah, absolutely I can hear you. It makes me feel more normal talking

01:52:21.280 | to Kevin than it does talking to anonymous, like my screen says.

01:52:24.480 | Perfect. Well, I'll be Kevin then.

01:52:26.160 | Good.

01:52:26.660 | So I guess two questions. I'll give you what might be the shorter one first. Going into

01:52:34.320 | a business with a family member, close family member, no concern that they will

01:52:39.120 | up and leave or rip me off or anything. They will be full time working toward this business

01:52:49.120 | before, well, coming up here pretty soon. And in terms of compensation, would it be beneficial

01:52:59.040 | for me to pay them out of, in another way, via a tax free gift or using other funds or to have

01:53:10.240 | them as a registered employee of the business? What would be the advantage of doing either?

01:53:15.360 | What is the relationship between you and the family member?

01:53:18.000 | It's a parent.

01:53:19.120 | Okay. So let's stick to the letter of the law to start with.

01:53:28.640 | Okay.

01:53:29.140 | When somebody works for you and they receive compensation, then that's compensation.

01:53:38.160 | Compensation is compensation no matter how it is structured. And the way that they should be

01:53:44.080 | compensated is very carefully and legally defined. For example, if so and so is a contractor,

01:53:51.760 | there are a set of guidelines that you can look at and say, yep, this person is a contractor.

01:53:56.080 | On the other hand, if someone is an employee, there are a set of guidelines that you can look

01:53:59.200 | at that are pretty clear. This is an employee. There's not a lot of gray zone between who is

01:54:03.840 | a contractor and who is an employee. And so it's fairly self-evident. If you read the criteria for

01:54:11.040 | a contractor versus an employee, it's fairly self-evident. Now, depending on someone's

01:54:16.560 | relationship with you in the business, then the way that they're compensated from the business

01:54:21.360 | will be fairly obvious. You can make them an employee of the business or you can make them

01:54:26.320 | an owner in the business. Either is fine. But the actual legal impact of each of those decisions is

01:54:34.800 | certainly self-evident and obvious. If they're an employee, they're going to receive wages.

01:54:39.440 | If they're an owner, they're going to receive profits and dividends from the company. And so

01:54:44.640 | all of the tax characteristics of that transfer are going to be quite obvious.

01:54:50.480 | The only benefit for a family member working for another family member, I guess we should note that

01:54:58.320 | if you have a minor child who is working for you, then there are some tiny little benefits. For

01:55:03.760 | example, you can avoid paying employment taxes for a minor child that's working for you in a

01:55:08.640 | sole proprietorship and maybe in another structure too. I can't remember the rule on that right now.

01:55:13.760 | But that's not going to apply with a parent. What you can, of course, do is you can

01:55:19.120 | have somebody who is working for you that's being paid a relatively high wage for a relatively easy

01:55:26.720 | go of it. Now, you can't abuse it. There's the old saying, "Pigs get fat, hogs get slaughtered."

01:55:34.480 | And I think the same thing applies here. If your father is working for your business and he shows

01:55:40.080 | up to the office one hour per month, but he receives a paycheck of $100,000 per month,

01:55:47.840 | then as wages, he's not earning $100,000 for his one hour of work. Now, if he's showing up to the

01:55:57.760 | office 20 hours a week and he's doing some stuff for you here and there, running some errands,

01:56:01.920 | and you're paying him $5,000 a month, no one's going to bark at that, even if it's better than

01:56:06.560 | he could make somewhere else. So it all comes down to, all right, what benefits am I getting

01:56:12.480 | for him versus someone else? Well, the first thing is, if the amount of compensation that

01:56:19.040 | you're paying him is the same with whether you have a college-aged child working for you or your

01:56:24.480 | father or your sister or whatever, you can pay him an amount of compensation that's relatively low

01:56:30.320 | from a tax perspective for him, but yet is significant in terms of its tax deduction for you.

01:56:38.000 | So let's say you're paying him $30,000 per year. Well, he's not going to be incurring a lot of

01:56:43.760 | income taxes of $30,000 per year working for you, but you can lower your tax burden by $30,000 of

01:56:54.000 | money that otherwise you would gift him. And so in this scenario, it would actually be better for

01:56:58.880 | him to be working for your business, probably, than for you to be gifting him $30,000 per year.

01:57:04.800 | Let's say that you're making $300,000 per year. So your top $30,000 of income is being taxed at a

01:57:11.200 | fairly high bracket. I don't remember the bracket off my head, so let's just say it's being taxed at

01:57:15.280 | 30%. Okay, so that top $30,000 is being taxed at 30%. But if he gets $30,000 of wages, he's probably

01:57:24.720 | at an effective 10% bracket. So by paying him $30,000 from the business to show up to the office

01:57:30.720 | a couple times a week, run some errands for you, do some work from home, et cetera, be available to

01:57:34.560 | you when you need him, then you are moving $30,000 from a 30% bracket to a 10% bracket in my example.

01:57:42.880 | Same thing you can do with a college student, right? You want your child to go to college,

01:57:47.600 | and you want to pay for it, but you'd like to be able to deduct it. Well, how do you deduct your

01:57:51.280 | child's college tuition? Well, your child works for you, you pay them wages, and then they use

01:57:56.320 | those wages to go and pay for the college tuition. And so again, you want to make sure that there's

01:58:01.440 | enough evidence that they're actually working for you. Otherwise, in theory, if you get audited,

01:58:06.640 | then this can certainly... And they just say, "Well, you're paying them $30,000, and they never

01:58:10.400 | showed up. They don't have a business phone. They don't do anything." What do they do for you?

01:58:13.680 | "Well, it's just tax fraud, buddy. We're going to tax you on this at the 30% rate. We're going to

01:58:20.080 | disallow this $30,000 deduction because they're not genuinely an employee." So it's probably better

01:58:25.440 | for you to have your dad as an employee versus giving gifts. Now, let's talk about gifts. So

01:58:31.200 | any person can give another person a gift. The question always just comes down to,

01:58:35.760 | is it actually a gift or is it not? So you can have your dad as an employee, and you can also

01:58:42.080 | give him a gift. You would just want to think about how and what is better to structure at it

01:58:47.520 | and make sure that there's enough... Make sure that you can look yourself in the mirror and say,

01:58:52.480 | "Yeah, this is actually genuinely structured the way that I want it to be structured,

01:58:55.840 | and that it's actually honest, so I don't have to worry about an auditor trying to undo something."

01:59:00.880 | But that's how I would approach it. Did I answer the question or did I muddy the waters?

01:59:04.480 | No, you answered the question. To be clear, they will be doing real full-time value-added work,

01:59:11.760 | but since it is in its infancy stages, this business, I wasn't sure if there was a better

01:59:18.480 | way to do it without incurring a lot of additional costs that I don't need just yet.

01:59:22.960 | Yeah. So if they're actually doing work for you, then you just want to have them do the work for

01:59:27.680 | you. And it all comes down to how much the profit is, right? If you're thinking about this from a

01:59:34.080 | tax optimization, which I don't think you should always think about, I think that you should focus

01:59:38.400 | first on a lifestyle optimization. So having your dad work with you or your mom work with you could

01:59:43.520 | just be awesome because it's fun, you're able to work together. Sometimes you can deliver them from

01:59:49.200 | a really bad situation. They have a job they don't like, well, why don't they come and work with you

01:59:56.640 | and have a job that they like better, where they just is a better way to work with your parents.

02:00:00.880 | I would much rather see my parents working with me versus working with someone else, as long as I

02:00:05.680 | could provide something that would be appropriate for them. But if the business is just getting

02:00:12.160 | started, I don't think you have much of a tax consideration. And then you have to... So

02:00:16.960 | there can be reasons to do it both ways. Look at your financial plan, your business plan,

02:00:25.920 | your tax plan. Look at your parents' situation and tax plan. And then it should probably be fairly

02:00:33.600 | obvious what the best move is. If your dad has a $100,000 a year pension income, and he's coming

02:00:41.600 | to work with you and you're building kind of a struggling little company, you don't have any

02:00:45.760 | taxes, well, then it would be silly for you to start paying him wage income in exchange for his

02:00:51.840 | work. He doesn't need any more income. He's in a high bracket because of his $100,000 a year pension.

02:00:57.360 | He just wants to help you. In which case, I think the better situation is you go ahead and put him

02:01:02.320 | on a nominal... Maybe he works for free, but you put him on a nominal salary. And then you take

02:01:08.880 | him on a nice family vacation every year, or you buy a boat and your dad gets to use the boat

02:01:13.440 | whenever you want to do it. On the other hand, if you're in the high tax bracket and he's in the low

02:01:18.000 | tax bracket, now it makes a whole lot more sense to go ahead and pay him wages and whatnot because

02:01:25.040 | of the tax arbitrage opportunity that I said. So it's the same with any family member. These are

02:01:30.000 | tax shifting strategies. Remember the classic tax planning shows I did way back in the beginning

02:01:34.640 | where you have shifting strategies, timing strategies, and conversion strategies. So here,

02:01:38.800 | you're simply trying to engage in a tax shifting strategy, and you're trying to move the tax

02:01:43.280 | liability to the lowest cost taxpayer. Very clear. Thank you.

02:01:48.560 | My pleasure. Anything else? Last one. I have scoured... Well, what I thought was scoured,

02:01:57.520 | the annals of radical personal finance for a show on universal life insurance.

02:02:02.160 | And I've come up empty-handed. Is there one that you can point me to that explains why someone

02:02:07.440 | might choose that form of life insurance over another? Yeah, let me do it right now. So the

02:02:12.080 | answer is no. I started to do some life insurance stuff. Universal life insurance is one where a

02:02:16.640 | visual makes all the difference in the world. But I can answer the question for you right now

02:02:20.800 | in a way that'll make it simpler for you. Why would somebody choose universal life insurance

02:02:27.600 | instead of... Well, I guess let's go two directions. So first, why would somebody

02:02:32.640 | choose universal life insurance instead of term life insurance? Well, they would choose universal

02:02:38.320 | life insurance instead of term life insurance because they wanted the ability to keep the

02:02:42.640 | life insurance for a longer period of time, and they wanted the ability to have some kind of

02:02:47.520 | cash value inside of the life insurance policy. But yet they wanted some flexibility. So you can

02:02:55.280 | look at it... Let's say you look at a life insurance planning program and you say,

02:02:59.200 | "I think I'm going to need life insurance for 20 years, but I could buy term insurance,

02:03:06.000 | a flat 20-year term policy, or I could buy universal life insurance for 20 years. And

02:03:12.720 | I can fund the universal life insurance policy with these higher premiums. And then in 20 years,

02:03:17.280 | I'll just cancel the policy. I'll take whatever cash I have, and it'll be lower than the net cost

02:03:22.960 | of the policy that you had from a term perspective, lower than the premiums of the term

02:03:28.000 | perspective." In order for that plan to work, you need to get high enough returns on the universal

02:03:32.560 | life insurance policy where it makes sense. And you need to... The opportunity cost of the

02:03:38.640 | universal life insurance policy needs to be low enough that it makes sense. But you can do that,

02:03:43.120 | right? You can structure a universal life policy, keep it for 20, 30 years, cash it out,

02:03:47.520 | and then be on your way. Why would somebody buy a universal life insurance policy instead of a

02:03:52.720 | whole life policy? They would buy it for flexibility. Whole life insurance policies

02:03:57.520 | are not flexible, generally speaking. But a universal life insurance policy is. You can

02:04:02.880 | change the premium every year. You can frequently change the death benefit. They're designed to be

02:04:08.080 | flexible. They're designed to give people options. So with that flexibility comes, in my opinion,

02:04:13.280 | the major problem with the universal life insurance policy for most people. For most people,

02:04:19.040 | universal life insurance is the single most complex insurance product that exists.

02:04:23.600 | And this is especially complex when you get into a world of an indexed universal life insurance

02:04:29.120 | policy. It makes people's eyes glaze over. Non-insurance agents simply don't understand

02:04:33.520 | how permanent life insurance policies work. They try. They don't get it. They don't understand.

02:04:37.920 | And so it's hard for a lay person, a non-sophisticated person, to fund a universal

02:04:47.280 | life insurance policy high enough for it to really work out for the long term. And this is where,

02:04:53.280 | when I used to sell life insurance, I would generally try not to sell universal life

02:04:58.160 | insurance to an unsophisticated person. Because what happens in the sales scenario is that,

02:05:04.800 | generally speaking, the person, most people, if you sit down with the average person

02:05:11.600 | and a good insurance agent, if I sat down and I proved this time and again, I'd have the biggest

02:05:16.160 | Dave Ramsey fan sitting across from me. And they'd be like, I'm only going to buy term life insurance

02:05:21.440 | because Dave Ramsey says whole life insurance sucks. I'm only going to buy term life insurance.

02:05:24.560 | And my deal was always, listen, I think it's fine. I said, but let me just explain to you how it

02:05:28.240 | works. And I would go through about a 10-minute presentation. I would explain how term life

02:05:32.320 | insurance works. I would explain how whole life insurance policy works. I never had somebody,

02:05:38.800 | I guess maybe, I almost never had somebody come and not want to buy whole life insurance at the

02:05:44.480 | other side of it. Because a good whole life insurance presentation is really compelling

02:05:48.960 | when you actually understand it. So the vast majority of people want to buy whole life

02:05:53.840 | insurance when it's compared to term life insurance. Now, I had many people that didn't

02:05:57.840 | buy it because they shouldn't have, and I told them they shouldn't. But I would also just have

02:06:02.720 | people, well, I'm just going to buy term life insurance and invest the difference. Fine.

02:06:05.840 | But when you understand how, when you get a good whole life insurance presentation,

02:06:09.440 | you understand its options, it's very hard not to want to buy the product.

02:06:14.240 | So what's the problem with whole life insurance policies? Well, the premiums are just

02:06:18.640 | scandalously high. And I would always make them scandalously high, right? Here's a million dollars

02:06:24.240 | of term life insurance. Here's a million dollars of whole life insurance. A million dollars term

02:06:27.360 | life insurance, $600 a year. Whole life insurance, $11,000 a year. And so nobody can afford the

02:06:32.960 | $11,000 a year. So this is where universal life comes in. And there's a very slippery slope here,

02:06:38.640 | where for both the agent selling the policy and also the buyer buying the policy,

02:06:44.160 | they want the whole life, but they can't afford the $11,000 a year.

02:06:47.680 | So the agent says, well, what we could do is we could get this universal life policy.

02:06:52.880 | We could start it with six, and then down the road, you could go ahead and put 15 once your

02:06:58.640 | income comes up. Now, can you do it? Absolutely. But what happens is the buyer is thinking about

02:07:05.920 | all those great benefits of the whole life policy with the $11,000 a year premium. Meanwhile,

02:07:11.200 | they're paying the $6,000 a year premium for the universal life insurance policy.

02:07:15.760 | And in the very beginning, the agent shows them, they say, look, this policy will blow up in 47

02:07:22.560 | years. There's not going to be enough money in it if you only put in $5,000. So you can put in

02:07:27.040 | five or $6,000 now, but you have to put in more money down the road. And the person says, yeah,

02:07:32.880 | yeah, yeah, that is going to be easy. I'm going to be making more money. It's just going to make

02:07:35.280 | all the sense in the world. And so then what happens? Well, there's a big incentive for the

02:07:40.000 | agent to sell the universal life insurance policy instead of the term policy because they make a lot

02:07:43.760 | more money on commission. $600 a year term policy, maybe the agent makes $450 of commission.

02:07:49.440 | $6,000 a year universal life policy, $4,500 of commission. Feels a lot better to get that

02:07:55.120 | paycheck. There's also a big incentive for the individual to buy the universal life insurance

02:08:03.200 | because they're getting the feeling, the dopamine hit of, yeah, I'm saving for my future. I'm going

02:08:07.840 | to buy this and it's going to be great. But underneath in the policy, as the cost of providing

02:08:13.200 | the death benefit increases, it eats up the cash values. And then the policy starts to run out of

02:08:18.000 | money right when the individual often doesn't have any money. They get in their 70s, they're

02:08:22.400 | retired, they forgot all about it. When they were 55, they had $182,000 in the policy, but now they

02:08:27.920 | wake up at 75 and they're getting a bill from the insurance company saying, "You owe us $4,000 this

02:08:33.920 | year to keep this insurance in force." And now they're just angry across the board. "What do you

02:08:37.840 | mean? This was whole life insurance I was going to have." No, it was universal life insurance.

02:08:41.920 | And if you still want the coverage, you need to pay a payment of $6,000. So they come in and they

02:08:46.480 | say, "Why is this policy falling apart? Why is it that my cash value last year was $172,000 and I

02:08:51.760 | sent in my $5,000 premium and this year it's down to $164,000?" And then you tell them, "Well, you

02:08:56.800 | need to put in $20,000 this year to catch the thing up." And so this is the slippery slope with

02:09:01.440 | universal life insurance, why I don't personally recommend it for unsophisticated people.

02:09:05.680 | Now, universal life insurance is the very best tool in a financial planner's arsenal for a

02:09:13.440 | sophisticated buyer, somebody who understands, somebody who's managing a business deal, and they

02:09:20.720 | want to put in $3,000 for the next six years, but then they want to put in $33,000 for the following

02:09:27.280 | 20 years. Well, universal life insurance is your ticket. It's really good for a retirement program,

02:09:34.320 | right? If you're funding kind of a Coley, some kind of retirement benefit. Well, universal life

02:09:39.920 | insurance with the flexibility allows you to change the premiums every year based upon the overall

02:09:49.360 | structure of how much money is available, how much profit is available from the company.

02:09:53.600 | Universal life insurance can be a very useful tool for estate planning because of its flexibility.

02:09:58.080 | Again, "Okay, we're going to start this policy now. We're going to use our crummy limits to

02:10:03.360 | get money into the trust. We're going to fund the policy with these crummy donations. And then in

02:10:09.040 | the future, we're going to have these other assets come in." And then we go, "Well, universal life

02:10:12.880 | insurance is the ticket." So it's an incredible, flexible approach to life insurance, but it only

02:10:18.960 | works for somebody who is sophisticated enough to understand how to arrange the premiums.

02:10:23.120 | And so in general, I caution against it. If somebody walks in and says, "Should I buy a

02:10:31.280 | $500,000 universal life insurance policy or something else?" I would say, "Buy $400,000

02:10:40.080 | of term insurance and buy a $100,000 whole life policy," because then the whole life policy works

02:10:45.200 | as intended. It doesn't fall apart. It doesn't blow up. You always have the money there. You pay

02:10:49.360 | your flat premium until the premiums go away. It just works. It's 150 years old. It works every

02:10:56.000 | single time, whereas the universal life insurance policy only works if you get your predictions

02:11:01.040 | right, if you get your growth rate right, if you get your premiums right, and if the person

02:11:04.400 | understands. And very rarely do you find someone who's actually willing to come along and put a

02:11:09.200 | lot more money in in the future. The hell, or did I lose you?

02:11:17.200 | Impressively succinct. It's probably the best description of pros and cons I've heard.

02:11:24.000 | Good. It didn't feel succinct, but I did my best. It's, yeah, I hope it helped.

02:11:32.240 | What you're not seeing is my three hours and three hours plus of research into the topic.

02:11:36.080 | All right, good.

02:11:36.400 | I'm coming up with those results.

02:11:37.680 | Good, good.

02:11:37.920 | Thank you for that.

02:11:38.800 | Yeah, my pleasure. It's one of those things that for the right, this is where, I mean,

02:11:43.600 | just talk to your insurance agent, right? Insurance planning is usually fairly obvious,

02:11:49.040 | just like all, I mean, really all financial planning is pretty obvious to an expert.

02:11:52.880 | Now, I'm limited in what I can do for you here. I always try. But if you sit down with an insurance

02:11:58.400 | agent and you say, here's what I'm trying to do, right? I'm trying to use the insurance policy for

02:12:05.440 | these financial planning purposes. I need the insurance for this period of time. This is the

02:12:11.520 | money that I have available. This is, here's the situation. Here are my assets. Here's my plan.

02:12:17.120 | Then the right policy is a fairly obvious choice in general. There may be a little tweaking here

02:12:25.280 | and there, but it's really fairly obvious. And so once you realize that, it should take it out.

02:12:32.640 | And then I would just say is that don't do another three hours of internet research.

02:12:37.040 | Go talk to an insurance agent. That's what they do. And you're clearly armed enough to

02:12:42.320 | make a good decision. Talk to a couple if you need to. But this is what, it's just simpler

02:12:48.560 | if you can find someone who could say, tell me your situation and then, yeah, tell me your

02:12:58.640 | situation and here's what fits. It'll save you the time to do it. So I'm not opposed to a universal

02:13:04.800 | life insurance policy, but it's got to have a whole lot of caveats and there's got to be a

02:13:10.480 | very clear understanding. And I'm personally very skeptical that most people can understand it

02:13:19.600 | enough to be, so that 20 years from now, where they haven't seen their agent retired 20 years

02:13:23.920 | ago, they haven't seen it, where they actually understand, oh, you know what? When I was 73

02:13:28.320 | years old, that was the time that I was going to go ahead and cash this policy in. And yeah,

02:13:32.640 | I don't have much money in it, but that's okay. It's just a refund and my other assets worked out.

02:13:37.120 | And so this, everything happened like it was supposed to. So that would be my recommendation

02:13:41.680 | for you. And I tell this to insurance agents, right? And here's things, every now and then I do

02:13:47.520 | training and talk to like financial advisors. And the comment that I make is simply this.

02:13:53.440 | I used to, when I got into the insurance business, I was excited and motivated to learn how to be a

02:14:00.720 | good salesman. I had read, I forget the name of the guy who wrote it, but he wrote the book called

02:14:06.480 | How I Raised Myself from Failure to Success in Selling. And I had read this book when I was in

02:14:10.880 | my late teens, early twenties, super excited. I'm going to go learn to sell and I'm going to

02:14:15.360 | learn to be a salesman. And I read all this stuff on sales and I was like, I'm going to learn how to

02:14:19.360 | do the closes and I'm going to learn how to do a one call close. I would take sales books and study

02:14:26.160 | sales techniques and what, cause I thought it was all about sales. And then I got into the business

02:14:30.880 | and I realized that it wasn't about that kind of selling. It is still selling, but it's much more

02:14:36.160 | of a consultative selling. And I realized that the insurance game, the insurance business is very

02:14:41.440 | simple. It's so simple is that when you're an insurance agent and you're talking to someone,

02:14:46.800 | you're simply asking yourself one question. You're simply asking yourself, is the sale

02:14:53.920 | presenting itself to exist? I know it sounds wordy, but that's how I think about it. Like,

02:14:57.440 | is the sale presenting itself to exist? And so when an insurance agent is out doing an interview

02:15:03.520 | with a prospective client, they're taking all the facts down. They're simply thinking like,

02:15:07.520 | where's the sale? Is it here or is it not? And sometimes it's there and sometimes it's not.

02:15:11.520 | And so the first question is, is the sale presenting itself to exist or is it not? And

02:15:18.320 | if it's not, then they move on their way. I try to give some advice. I used to carry around Dave

02:15:23.920 | Ramsey books in my trunk. It's like, okay, I'm here with you. You're deeply in debt. You don't

02:15:27.920 | have any money. I can't help you, but here, take a free book and read this and do this and then come

02:15:31.920 | back in a couple of years and I can help you. Right. But there's nothing I can do. Then if the

02:15:35.760 | sale reveals itself to exist, then you're simply asking yourself the question, what is the sale?

02:15:44.960 | What is it that's going to fit this person's need? Is this a disability insurance sale?

02:15:50.240 | Is this a life insurance sale? If it's a life insurance sale, is it a term life insurance sale?

02:15:55.280 | Is it a whole life insurance sale? Is it a universal life insurance sale? Is it a second

02:15:59.440 | to die estate planning deal? Is it a buy-sell agreement deal? Is it a policy on my kid?

02:16:06.240 | What's presenting itself? And it's rather obvious to an insurance agent with a little bit of

02:16:13.600 | experience, what's there and what's not there. And so, it's funny, people still talk about the

02:16:19.760 | high pressure insurance stuff. Maybe it does still exist, but I think that's much more of

02:16:24.080 | an artifact of like the 1970s and the 60s that has somehow flowed over into 2021. I don't think

02:16:31.200 | it really exists anymore. And so, if you sit down with an insurance agent and you just say,

02:16:34.640 | here's what I'm trying to accomplish, can I do it? They'll tell you if you can do it and they'll tell

02:16:38.720 | you what the best way to do it is. Don't do any more internet research, talk to a couple insurance

02:16:43.360 | agents, this is what they get paid for. Great. Thank you, Joshua.

02:16:48.000 | My pleasure. And with that, we wrap up our final call of the day. As we go, I guess I would just

02:16:56.800 | say that this is one of those things that does that I think you can do. I was just talking with

02:17:03.040 | someone earlier about kind of a sense of sometimes I get the sense of frustration working with

02:17:07.520 | professionals, right? I'm suspicious of a lot of professionals. But the older I get, the more I

02:17:12.160 | learn to be less suspicious of people and just to talk to them and ask for their opinion and get an

02:17:17.760 | expert's advice. And so, I think being armed with information and expertise is good, right? Doing

02:17:24.640 | internet research, reading books, these things are all good. I'm glad you're here listening to me.

02:17:30.640 | But at the end of the day, the older I get, the more I just want an answer and I want to pay

02:17:35.920 | someone for their answer and just simply get advice that goes straight to the point. And I think

02:17:40.720 | that's what professionals in many industries give you is they can summarize their years of learning

02:17:47.600 | and give you an answer that's clear and that's direct and that makes sense. And so, if you're

02:17:53.280 | the kind of person who's scared of financial professionals, financial advisors, financial

02:17:57.200 | insurance agents, et cetera, you're scared to be sold. I understand that. I used to feel that way

02:18:02.000 | before I got in the business. But then once I got into the business, I found that there were a lot

02:18:06.240 | fewer sharks in the water than I ever thought. Now, are there sharks in the water? I think there

02:18:10.960 | are. I think there really are, especially when you're money. Money is like blood in the water

02:18:16.000 | to a shark. I guess that was a myth. The MythBusters busted that one. But money does attract

02:18:22.800 | swindlers. It always has. But in today's world, I think that if you go out and you talk to a couple

02:18:31.120 | of financial professionals and you just tell them your problems and what you're working on,

02:18:35.440 | they'll probably be able to point you in a better direction than hours and hours of internet

02:18:39.680 | research. And I could and probably will make this into a whole show, but I'm in a lot of financial

02:18:45.600 | groups, a lot of retirement groups, money groups and whatnot on Facebook. And I often see people

02:18:49.680 | ask these questions and I think, why are you posting the question here in a Facebook group?

02:18:55.440 | Now, on the one hand, I love the opportunities that we have to get people's feedback. And you

02:19:00.560 | can get some good advice. The problem is this. Most people don't have the ability to discern

02:19:08.240 | good advice. And most people in the Facebook group are simply reflecting the general culture

02:19:15.280 | of that group. This is the buy term, invest the difference group. This is the whole life insurance

02:19:20.800 | group. This is the bank on yourself group. Well, you can take the same question and you can go and

02:19:25.760 | you can post it in the personal finance group and in the bank on yourself group and you get two

02:19:32.320 | opposite answers, just absolutely obvious opposite answers. It's not because everyone's well-meaning,

02:19:39.200 | it's just people coming at it from a very different perspective. And so what you need

02:19:42.080 | often is personalized advice. I don't know how you can get that other than from a professional,

02:19:46.800 | to find a professional, someone who's knowledgeable and who give you personalized advice.

02:19:51.280 | Sometimes that professional can be someone you know who's well-read, great. But even there,

02:19:57.280 | I think there's often a lot of biases that are just simply unknown. And I really think more and

02:20:02.960 | more, there is a lot of value in professional advice. It's hard to tell you how to find it.

02:20:07.200 | I'll do my best to point you in the right direction. Like you just heard, I did my best to

02:20:10.800 | give you an answer and say, heck, here's the pitfalls, here's what can happen. But at the end

02:20:17.520 | of the day, don't waste too much time on research. Do the amount of research that you need to do to

02:20:21.920 | get comfortable and then talk to the professional so that you can potentially save yourself some

02:20:27.520 | time because the ultimate limited resource that we all have is time. And with that, I will close

02:20:34.080 | it out at two hours and 20 minutes. I hope that this last two hours and 20 minutes has been a good

02:20:38.080 | use of your time. I thank you for listening. Have a great weekend and I will be back with you very

02:20:42.800 | soon.

2021-04-30_Friday_QA