2021-05-28_Friday

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00:00:30.000 | Today on Radical Personal Finance, live Q&A.

00:00:33.000 | [Music]

00:00:49.000 | Welcome to Radical Personal Finance, the show dedicated to providing you with the knowledge, skills, insight,

00:00:53.000 | and encouragement you need to live a rich and meaningful life now,

00:00:56.000 | while building a plan for financial freedom in 10 years or less.

00:01:00.000 | My name is Joshua Sheets. I am your host. Today is Friday.

00:01:03.000 | And we're back to live Q&A, broadcasting today from the beautiful mountains of Costa Rica, Central America.

00:01:12.000 | Thank you for being here, and looking forward to this.

00:01:15.000 | I've been missing these shows. It's been too many weeks, too many travels.

00:01:18.000 | Couldn't arrange the details, but we are here today.

00:01:21.000 | [Music]

00:01:23.000 | One of the things that we do here at Radical Personal Finance is every week that I'm able to arrange the technology

00:01:27.000 | to have an internet connection, I host a live Q&A show.

00:01:32.000 | These Q&A shows are available to patrons of Radical Personal Finance.

00:01:36.000 | You can become a patron by going to patreon.com/radicalpersonalfinance.

00:01:40.000 | It's patreon.com/radicalpersonalfinance.

00:01:43.000 | And I would love to have you join us on the Patreon site.

00:01:47.000 | All right, we go today. Let's go to... I told these guys an order, and I can't remember the order now.

00:01:52.000 | We'll go start with Trey in Texas. Trey, welcome to the show. How can I serve you today, sir?

00:01:55.000 | Two questions. I'll do the first one, and then if you have time, you can just tell me, and we'll do the second one.

00:02:04.000 | I've got a property in southwest Arkansas under contract to buy.

00:02:09.000 | The primary purpose isn't really for income, but if it could cover its cost, then that would be helpful.

00:02:16.000 | I'm mainly buying it to just hunt and play and have a kind of family place.

00:02:22.000 | It's 109 acres. It's got a 10-acre lake or pond, depending on what your definition of a lake is.

00:02:30.000 | Two kind of rough houses that sit on 2 1/2 acres, and the rest, the 96 1/2 acres of mixed hardwood timber.

00:02:39.000 | With lumber being at an all-time high, I may sell some of the timber, especially if it can make the property better,

00:02:51.000 | improve the property by thinning it, and also maybe get a little bit of my down payment back out of it.

00:02:57.000 | My main question was, are you aware, or can you point me to a resource for tax advantages for timberland or farmland?

00:03:08.000 | Also, since it has two houses, I'll rehab them to be good enough cabin-type houses.

00:03:19.000 | Are there any tax advantages there, especially if I use one of them as an Airbnb?

00:03:25.000 | Also, are you aware of any favorable sources for financing and/or grants?

00:03:35.000 | So we'll go in reverse order. Am I aware of any specific favorable sources of financing and/or grants?

00:03:42.000 | No, I am not, but I would definitely be looking around DuckDuckGo as your friend.

00:03:49.000 | Search on Reddit, see if there's a Reddit community, see if there's a Facebook community.

00:03:55.000 | Just look to see if people are talking about this particular type of thing.

00:04:00.000 | Go into a Northwest Arkansas Facebook group and ask if anybody knows about any particular banks that do well with this kind of land, etc.

00:04:09.000 | Try to get some local knowledge and then ask around in the community as well.

00:04:13.000 | So I don't know of anything myself, but that's how I would start the search for the relevant information.

00:04:19.000 | With regard to the first question of taxes, I think the obvious solution is,

00:04:24.000 | can you put this as either some sort of agricultural or timber land and/or is there some kind of conservation easement that you can qualify for?

00:04:34.000 | I don't know. I've never done it, but I know that both of those things are available to you.

00:04:39.000 | So look to see, is there an option for you to be listed as ag land, right, because it's a timber farm?

00:04:50.000 | Will that reduce your property taxes in some way? That's pretty popular.

00:04:55.000 | And fairly, you know, each state has a different set of regulations.

00:04:58.000 | Some states, if you have an animal or if you have a certain size of acreage, you can get your property listed as ag land and get a reduction in your property taxes.

00:05:06.000 | Then look to see if there are any kind of government programs for conservation easements.

00:05:11.000 | You know, there are lots and lots of these conservation easement programs where you can take your 109 acres and say,

00:05:16.000 | well, listen, I've got two little houses, but I'd be happy to devote 30 acres to a conservation easement,

00:05:23.000 | and they'll give me X number of dollars in exchange for locking that up as wild land because I was just going to hunt on it anyway.

00:05:32.000 | So that's what I would look into and see if it's available.

00:05:35.000 | With regard to Airbnb, you're not going to have any unique tax deductions or advantages over and above anything else that I'm aware of.

00:05:49.000 | I would encourage you probably start with John Reed's book called Aggressive Tax Avoidance for Real Estate Investors.

00:05:58.000 | That's usually the tax book that I recommend to most people to start with when they're doing real estate.

00:06:02.000 | He does a good job in that book of going through all of the options for real estate investors to understand how you can avoid your taxes there.

00:06:10.000 | So that's a good option to start with.

00:06:13.000 | The only thing that occurs to me is, which probably won't work, but I always keep my ears open,

00:06:20.000 | is if there's some way that you can use the property and have some of your living expenses included as business expenses.

00:06:28.000 | And you can sometimes do this as an innkeeper.

00:06:32.000 | So generally speaking, your personal living expenses on a property are not generally deductible because they're not business expenses.

00:06:41.000 | They're personal expenses.

00:06:43.000 | But there are some kinds of businesses that do relate to your need to be on the premises.

00:06:50.000 | So there is an exception in the US tax code that says that you can receive tax-free housing expenses if it's required as a condition of your employment.

00:07:01.000 | So an example would be if you're working in a remote gold mine in Alaska and the employer has set up a temporary housing unit there.

00:07:11.000 | And that employer allows you to stay in the housing unit so that you can work in the gold mine.

00:07:16.000 | Well, that's going to be a tax-free benefit for you because it's a necessary component of your employment.

00:07:25.000 | If you're an offshore oil rig, you're not being taxed on the cost of your quarters.

00:07:29.000 | Or if you're working in the military, you're not being taxed on the cost of your quarters.

00:07:33.000 | That's a tax-free benefit for you.

00:07:36.000 | That is available in some businesses that will be a little closer to home.

00:07:42.000 | So farming is a good example.

00:07:44.000 | If you have a farm and it's necessary for your farm that you be on the farm, as it is for many farmers, to be caring for the animals.

00:07:51.000 | And if it's lambing season, you've got to be there in the middle of the night.

00:07:54.000 | Well, then now your farm housing becomes farm property and you're not generally charged.

00:08:01.000 | You're not generally paying.

00:08:03.000 | You can deduct the costs of that housing as part of the overall business situation.

00:08:09.000 | So it will defer and deflect some of the profits from the operation because of your ability to deduct some of your personal expenses.

00:08:17.000 | So farming is a good example, but there are others as well.

00:08:20.000 | So an innkeeper, for example.

00:08:22.000 | Now, there are distinctions.

00:08:24.000 | So some people think of things like home daycare, but there's a whole bunch of specific rules where you can only deduct the portion of the home that's used for a daycare based upon a percentage of use time.

00:08:34.000 | But if you're an innkeeper, you have a little bed and breakfast and you have a, let's say you have a six bedroom house and you stay in one of the bedrooms, but you rent out the other five bedrooms.

00:08:46.000 | Well, now you're in a situation where you have to be on the property.

00:08:50.000 | And so you can deduct most of your housing expenses because that's a component of your business.

00:08:57.000 | This can also go over sometimes into things like personal food, etc.

00:09:03.000 | You know, an innkeeper who's providing breakfast for their employees is going to be taking their meals as part of the overall operating business as well.

00:09:16.000 | So if there was some way that that kind of thing fit into your lifestyle, it's possible that you could put in a little campground, right?

00:09:24.000 | Put in some RV sites and put in a campground and now you could argue and say, "Listen, I've got a dozen RV sites here.

00:09:32.000 | I need to live on the property to welcome RVers as they come through.

00:09:37.000 | And now my personal living expenses associated with this house are now being deducted from the overall business."

00:09:44.000 | That said, when I go through that, although that's technically possible, whether or not it's worth doing for you, you would have to judge if it's worth the hassle, right?

00:09:55.000 | I kind of think of it as like the classic, "I can get six roommates in my house, but do I really want to put six roommates in my house?"

00:10:04.000 | Well, there might be a phase of life.

00:10:06.000 | You're just getting started.

00:10:07.000 | You're brand new.

00:10:08.000 | You bought a house.

00:10:09.000 | You're in college and you enjoy having six roommates and it's really good financially.

00:10:12.000 | Or you say, "Yeah, I'm going to do that."

00:10:14.000 | But at the stage of life that I'm at, I don't want six roommates in my house.

00:10:18.000 | I don't care if it makes me $2,000 a month or not.

00:10:20.000 | I don't want to live with six roommates.

00:10:22.000 | And so you want to just assess and say, "Do I just want to have a hunting property and I can invite my buddies out to it and I can tell my brother and my buddy, 'Hey, let's go out there anytime.

00:10:34.000 | These houses are available and there are things that I can just use in my personal network.

00:10:38.000 | And yeah, I own the land and I've got a mortgage payment and whatnot, but I'll just use it for that or do I want to run a business?"

00:10:44.000 | And frankly, depending on where you are financially, I think you would probably just go with number one.

00:10:51.000 | Recognize, "I own some land.

00:10:53.000 | I own some houses."

00:10:54.000 | Unless it's going to be significant money where it's worth going through all the hassles of dealing with tenants, it's worth going through all of the hassles of doing bookkeeping and recordkeeping.

00:11:06.000 | It might just be simpler if you have another source of income and other investments, it might be simpler just to say, "This is a lifestyle deal.

00:11:13.000 | I want to have this property.

00:11:15.000 | I want to play on it.

00:11:16.000 | I want to be able to hang out with my friends down there and keep it simple."

00:11:19.000 | You'll have to decide what's best there.

00:11:21.000 | Yeah, I totally agree.

00:11:25.000 | And I was leaning towards number one also.

00:11:27.000 | The primary purpose of the property was number one, just a fun place to invite family and friends out to.

00:11:33.000 | I'm not really a wealthy guy though and so at least for a couple of years, if it could help pay for itself or offset some of its cost, that would be helpful.

00:11:42.000 | And maybe even just the tax advantages might be enough.

00:11:48.000 | Do you know if I could use any loss on the property if I'm operating it as a timber farm to offset my W-2 income?

00:11:58.000 | If you have an active business, then you can deduct active business losses against your earned income.

00:12:08.000 | Will this qualify as an active business?

00:12:12.000 | My guess is probably not.

00:12:16.000 | And so if you have a passive activity losses, those passive activity losses are netted against your passive activity gains and you're only able to take up to $3,000 of losses per year.

00:12:29.000 | So what you need to do is check the IRS rules for an active business versus a passive business and see how you could structure your activities in such a way that it would qualify as an active business.

00:12:45.000 | I think the timber idea is a good idea.

00:12:47.000 | If you could take out, let's say you could log 50% of the land and it wouldn't be too ugly to where you didn't want to be there and you could cut off a significant portion of your down payment, then that would make it worth doing.

00:13:00.000 | And then maybe you could do a conservation easement on some other part of it and keep the simplicity of the personal property.

00:13:06.000 | But check the numbers, see what it's worth to you.

00:13:08.000 | Okay, gotcha.

00:13:11.000 | So I actually live eight hours from the property.

00:13:14.000 | I live in Amarillo and the property is in Southwest Arkansas.

00:13:17.000 | So how about my trips down there?

00:13:20.000 | Would that also just be the expense of those trips?

00:13:24.000 | Could I just offset the passive gains?

00:13:28.000 | If you have an active business and let's see if I can pull up the relevant section here on the IRS here on the IRS website.

00:13:39.000 | So if you have an active business, I can't do it here in real time, but you can pull it up.

00:13:51.000 | You need to have, here we go, active and passive material participation, passive activities.

00:14:01.000 | So you're going to refer to IRS publication 925 to read the rules.

00:14:06.000 | So passive activities, there are two kinds of passive activities.

00:14:11.000 | One, trade or business activities in which you do not materially participate during the year.

00:14:16.000 | Or two, rental activities, even if you do materially participate in them, unless you are a real estate professional.

00:14:24.000 | And let me interrupt my reading here just to say that from a real estate perspective, there are three classifications of real estate persons.

00:14:32.000 | There are passive real estate investors, active real estate investors, and real estate professionals.

00:14:38.000 | The only people who are able to deduct all of their losses are those who are real estate professionals.

00:14:43.000 | So you can become one if you are regularly involved in the real estate business.

00:14:47.000 | That's your primary thing and you meet the hours requirement, but most people are not.

00:14:52.000 | So there's a difference between the logging business and Airbnb because one is real estate and you fall under the real estate rules.

00:14:59.000 | The logging business is different though.

00:15:01.000 | So active participation.

00:15:03.000 | Active participation is not the same as material participation.

00:15:06.000 | Active participation is a less stringent standard than material participation.

00:15:10.000 | For example, you may be treated as actively participating if you make management decisions in a significant and bona fide sense.

00:15:17.000 | Management decisions that count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions.

00:15:24.000 | And then here are the material participation tests.

00:15:26.000 | You materially participated in a trade or business activity for a tax year if you satisfy any of the following tests.

00:15:36.000 | One, you participated in the activity for more than 500 hours.

00:15:40.000 | So that would come out to a little under 10 hours a week.

00:15:44.000 | Let's say you have a 50-week year, that's 10 hours a week.

00:15:47.000 | Two, your participation was substantially all the participation in the activity of all individuals for the tax year,

00:15:55.000 | including the participation of individuals who did not own any interest in the activity.

00:15:59.000 | Three, you participated in the activity for more than 100 hours during the tax year,

00:16:04.000 | and you participated at least as much as any other individual,

00:16:07.000 | including individuals who did not own any interest in the activity for the year.

00:16:11.000 | Four, the activity is a significant participation activity,

00:16:14.000 | and you participated in all significant participation activities for more than 500 hours.

00:16:18.000 | A significant participation activity is any trade or business activity in which you participated for more than 100 hours during the year,

00:16:26.000 | and in which you did not materially participate under any of the material participation tests other than this test.

00:16:30.000 | This is terrible.

00:16:31.000 | Five, you materially participated in the activity for any five of the 10 immediately preceding tax years.

00:16:37.000 | Six, the activity is a personal service activity in which you materially participated for any three,

00:16:42.000 | whether or not consecutive preceding tax years, and then skipping on,

00:16:45.000 | seven, based on all the facts and circumstances,

00:16:48.000 | you participated in the activity on a regular, continual, and substantial basis during the year.

00:16:52.000 | So what you have to do is, these are all subjective tests,

00:16:55.000 | in order to answer the question of, "Okay, can I deduct my trips down to that?"

00:16:59.000 | You have to say, "Do I have a business? Is this an actual business?"

00:17:04.000 | You would create a business, you would create a business plan,

00:17:07.000 | you would lay out the scope of the business,

00:17:09.000 | and if you create a business and you have business mileage,

00:17:13.000 | then yes, your business mileage is deductible.

00:17:16.000 | But you have to actually create a business,

00:17:18.000 | and you have to make sure that the fact pattern fits what the IRS is getting at for an active business,

00:17:24.000 | and then you have to make sure that you accumulate a set of records

00:17:27.000 | that would indicate that your actions follow this fact pattern.

00:17:31.000 | So the answer is, it all depends on how you actually do it.

00:17:37.000 | If you say, "I'm going to have a timber operation down there,"

00:17:40.000 | and you take just two weekend trips down there, you're with your family,

00:17:43.000 | you're hanging out at the cabin, and you just go and take a walk through the woods,

00:17:48.000 | ain't going to pass, right?

00:17:49.000 | If you get audited, it's not going to work.

00:17:51.000 | There's no evidence of it.

00:17:52.000 | On the other hand, if you say, "I'm buying 109 acres of timber land,

00:17:56.000 | and I'm going to create a timber operation," and you're down there regularly,

00:18:00.000 | let's say, I'm making stuff up, but just, you know,

00:18:02.000 | let's say you're down there three times in a month, or three or four times,

00:18:07.000 | and then the fourth time at the end of the month you take your family with you,

00:18:11.000 | well, now you've got a good argument to say, "I'm traveling there regularly.

00:18:15.000 | I'm communicating on this.

00:18:16.000 | I'm taking care of business.

00:18:17.000 | This is an active business, and so my costs going back and forth are part of it."

00:18:22.000 | Back to what I said, is it worth it?

00:18:25.000 | I don't know.

00:18:26.000 | Calculate the total potential income that you could have from this business.

00:18:30.000 | Calculate the income.

00:18:33.000 | Calculate the losses.

00:18:34.000 | Calculate the value of that.

00:18:36.000 | And then, finally, is this number exciting enough to me for me to do it?

00:18:41.000 | I think that the answer is always it depends on your situation,

00:18:45.000 | but if it's exciting, go for it.

00:18:47.000 | If it's not exciting, find something that is exciting,

00:18:49.000 | and I really don't think you should let the tax issues, you know,

00:18:53.000 | cover the rest of your decisions.

00:18:56.000 | I'm going to move on.

00:18:57.000 | I'll come back for your second question at the end if we have time.

00:19:00.000 | We're going to go to Peter in New York.

00:19:01.000 | Peter, welcome to the show.

00:19:02.000 | How can I serve you today, sir?

00:19:04.000 | Hey, Joshua.

00:19:05.000 | I've got an inflation question for you.

00:19:08.000 | Okay.

00:19:11.000 | You know, I understand what inflation is.

00:19:13.000 | I understand generally what happens to things during inflation.

00:19:15.000 | My question is regarding things like my mortgage and my school loan payments,

00:19:21.000 | how should I think about what I'm doing now with payments versus down the road

00:19:27.000 | if we get into a pretty hefty inflationary cycle coming up?

00:19:32.000 | So when you get into an inflationary cycle, the first

00:19:35.000 | and most important thing to think about is not your expenses but your income.

00:19:39.000 | And let's define some terms, right?

00:19:41.000 | We can have standard inflation,

00:19:44.000 | and I think of standard inflation as anything from zero to 5%.

00:19:48.000 | You can have mass inflation, which is we're making up numbers.

00:19:53.000 | There's no scientific number to these, but, you know,

00:19:55.000 | 5% to 15% or 20% per year inflation.

00:19:58.000 | Then you're going to have hyperinflation, which can be in excess of 20% per year

00:20:03.000 | inflation and potentially up to, you know, a million percent per year.

00:20:09.000 | So there are big differences among those.

00:20:13.000 | If you just have general inflation, you know, just a standard generalized rates,

00:20:20.000 | then, okay, you just got generalized inflation.

00:20:25.000 | It's not going to make a big difference.

00:20:26.000 | If you have mass inflation, that's where what you're talking about,

00:20:29.000 | where you win as long as you can keep your income,

00:20:32.000 | because if you have debt, and especially if that debt is at fixed interest rates,

00:20:36.000 | then you're good to go.

00:20:37.000 | If you have hyperinflation, then everything falls apart.

00:20:40.000 | And so if you have income, you can get your way through.

00:20:42.000 | If you don't, you don't.

00:20:43.000 | So I start with that just as a sidebar, but if you have income

00:20:47.000 | through an inflationary period, you can solve almost all the rest of the problems.

00:20:50.000 | If you don't have income, then everything becomes really difficult.

00:20:53.000 | Now, with that as a foundation, if you have mortgage payments,

00:20:58.000 | in inflation you win because your mortgage payments are fixed

00:21:02.000 | at a certain rate of interest.

00:21:04.000 | Right now, probably pretty low.

00:21:06.000 | And then if those payments are fixed at a fixed rate of interest,

00:21:10.000 | and if inflation is going on beyond that,

00:21:13.000 | and if your income is keeping up with inflation,

00:21:16.000 | and/or if your investments are exceeding inflation in terms of their returns,

00:21:20.000 | then you win as a borrower.

00:21:24.000 | That's the simple answer.

00:21:27.000 | And so if you're looking forward and you have an inflationary period of time,

00:21:32.000 | and if you think your income is going to be safe,

00:21:35.000 | then you win as a borrower, as long as your interest is under fixed terms.

00:21:44.000 | Now, if you look forward and you see that you do have debt that's at a variable rate,

00:21:52.000 | then you have to go and look at the formula for the debt.

00:21:54.000 | A lot of times those debts adjust very slowly,

00:21:57.000 | and so even if you have a variable rate mortgage, for example,

00:21:59.000 | it may not be a death sentence.

00:22:01.000 | So that's my overall comment.

00:22:02.000 | Does that answer the question, or can you give it a little bit more specificity for me?

00:22:06.000 | No, that was pretty much it.

00:22:07.000 | I mean, I've got mortgages fixed, my school loans are fixed,

00:22:12.000 | my wife's school loan is variable.

00:22:15.000 | But my payoff date on my school loans is, gosh, 20 years from now,

00:22:23.000 | and I've already seen some inflation erode that monthly payment by a little bit.

00:22:29.000 | In the 10 years I've been making payments on it.

00:22:31.000 | So, yeah, that was really -- the big question I had is,

00:22:35.000 | if inflation really kicks in, at what point, if you're making fixed payments on a fixed debt,

00:22:42.000 | would you say, "This is inflated enough.

00:22:46.000 | I might accelerate my payments," or would you just stick with your fixed payments

00:22:50.000 | and just see what rides?

00:22:52.000 | I think that's really what I was curious about.

00:22:54.000 | I've never made plans to prepay any of these things.

00:22:56.000 | I've always just stuck with a fixed payment schedule.

00:23:00.000 | But would there ever come a point in the future where you say,

00:23:02.000 | "You know what, this is inflated enough.

00:23:05.000 | This costs like -- my school loan is the same as a loaf of bread.

00:23:09.000 | Let me just pay it off"?

00:23:11.000 | The answer is you would do it at a point -- so when would you prepay?

00:23:17.000 | Let me just state the question clearly.

00:23:19.000 | When would you prepay a low fixed interest loan when you're experiencing a time of inflation

00:23:27.000 | or you expect to be experiencing a time of inflation?

00:23:30.000 | The answer is you would do that if you needed to protect something that you couldn't lose.

00:23:36.000 | So let's give an example.

00:23:38.000 | Go back to the Great Depression.

00:23:40.000 | One of the things that was crazy about the Great Depression was here you had this time of widespread financial chaos,

00:23:48.000 | but people would lose their farms because they couldn't make their property tax payments.

00:23:52.000 | There are abundant examples of people who would lose their farms

00:23:55.000 | because they couldn't make their property tax payments, these tiny amounts of payment.

00:24:00.000 | And so the risk of losing the farm was really significant.

00:24:05.000 | And in that situation, it wasn't an inflationary environment,

00:24:09.000 | but people were genuinely being hurt and they lost their family farms

00:24:13.000 | because they couldn't make a tiny little property tax payment.

00:24:16.000 | So you could expand that line of thinking over to a mortgage payment.

00:24:19.000 | If you have a mortgage payment on a property,

00:24:22.000 | and let's say your mortgage payment is $1,000 a month,

00:24:25.000 | your wages before the inflation are $3,000 a month,

00:24:28.000 | but the mortgage payment is $1,000 a month,

00:24:30.000 | and you're looking forward and you're saying,

00:24:32.000 | "Hey, look, there's an inflationary environment coming.

00:24:35.000 | I'm going to be rich because I'm going to be earning $7,000 a month making a $1,000 a month payment."

00:24:40.000 | That's true as long as you have a job.

00:24:43.000 | So that's why I focused on the income first.

00:24:45.000 | If you have a job and if your income adjusts with inflation,

00:24:49.000 | then yeah, you would be silly to pay off the mortgage.

00:24:51.000 | Just keep making that $1,000 a month payment.

00:24:53.000 | So when you have periods of long, steady inflation,

00:24:57.000 | like we've generally had throughout most of recent history in the United States,

00:25:01.000 | where you have the standard 3% that they look towards,

00:25:05.000 | that's why the argument goes that borrowers win.

00:25:08.000 | Because in 1982, you took out your mortgage payment and it was $480 a month,

00:25:14.000 | and that was hard for you, but over time, it was fixed at whatever--

00:25:18.000 | I shouldn't have used that year.

00:25:19.000 | It was fixed at whatever the rate it was fixed at,

00:25:21.000 | and then in time, your wages increased and you had more money.

00:25:25.000 | Now, your $482 a month mortgage payment is laughable.

00:25:28.000 | But when you get into a period of something like hyperinflation,

00:25:31.000 | where the economy falls apart, your business collapses, you lose your income,

00:25:36.000 | now all of a sudden, that previously low payment looks insurmountable.

00:25:41.000 | And now if in the middle of the hyperinflation, you lose your family farm,

00:25:45.000 | you lose your house, then you've got a real problem.

00:25:48.000 | And so something like a house, I would be quicker to pay that off

00:25:53.000 | if it provided me with a stable place to live.

00:25:57.000 | If this was the family farm or this is where my children were

00:25:59.000 | and I need to provide stability for them.

00:26:01.000 | I think there are good reasons to pay it off,

00:26:03.000 | even if you did expect inflation in the future.

00:26:06.000 | On the other hand, maybe you have something like student loans.

00:26:10.000 | Student loans, what are they going to do?

00:26:11.000 | In the time of inflation, are they going to really come after you for everything

00:26:15.000 | if you lose your job and can't pay it?

00:26:18.000 | Go back to what are the laws of my state with regard to my house, etc.

00:26:23.000 | In conclusion, what I want to make simply clear is inflation doesn't help you.

00:26:30.000 | It hurts you.

00:26:31.000 | Inflation is a problem.

00:26:34.000 | It hurts you.

00:26:36.000 | Now, if we recognize that inflation is likely,

00:26:42.000 | because we look at history and we realize that this is likely,

00:26:45.000 | this is a stated aim of our economic managers,

00:26:51.000 | then how do I work within this system to the best way possible?

00:26:56.000 | If there is modest inflation, either regular inflation or,

00:27:03.000 | if not regular inflation, you're just simply dealing with mass inflation.

00:27:07.000 | If there's modest inflation, that's fine.

00:27:11.000 | To work within that, you want to have a secure source of income.

00:27:14.000 | And if you have a secure source of income, and if you borrow at low fixed rates,

00:27:18.000 | borrowers win in that scenario.

00:27:21.000 | But it doesn't mean that it's dumb for you to pay off debt.

00:27:24.000 | If there's something that would really hurt you if you lost it,

00:27:28.000 | like the family farm, then, yeah, pay it off,

00:27:31.000 | even if you do expect inflation,

00:27:33.000 | because you don't know what could happen with your income.

00:27:36.000 | That's the basic argument I'm trying to make.

00:27:39.000 | All right, we move on to John in Pennsylvania.

00:27:41.000 | John, welcome to the show. How can I serve you today?

00:27:44.000 | Hi, Joshua. Thanks for taking my call.

00:27:47.000 | I had a question about learning languages.

00:27:51.000 | I know you've talked a lot about learning Spanish and teaching your son Spanish.

00:27:55.000 | And you recently talked about learning French.

00:28:00.000 | The question I had, I was curious about different apps like Duolingo or LinkU

00:28:05.000 | that can help with these things.

00:28:07.000 | I know for Spanish you had kind of a basic level already of understanding,

00:28:10.000 | and then you expanded that from reading novels and different things and different methods.

00:28:16.000 | How do you kind of get over that first hump of just general vocabulary?

00:28:23.000 | Like I'm trying to learn Spanish, and I had one year in high school,

00:28:26.000 | but I've forgotten all of it.

00:28:27.000 | I mean, I think what's most frustrating is I can pick out a couple of vocabulary words,

00:28:31.000 | but even putting together basic sentence structures becomes really difficult.

00:28:36.000 | When I try to proceed through an app like Duolingo or something like that.

00:28:41.000 | Do you have any kind of get-started tips for very, very beginners?

00:28:46.000 | Yes. It will depend upon your experience with languages,

00:28:52.000 | and it will depend upon the language that you are learning.

00:28:56.000 | There is a big difference between being a beginning learner of Spanish

00:29:01.000 | versus being a beginning learner of Mandarin Chinese for an English speaker.

00:29:07.000 | And so your approach will vary depending upon what you're doing.

00:29:14.000 | In addition, you have to learn kind of what you like as a language learner.

00:29:20.000 | That has been one of the big lessons for me is what works for you may not work for me

00:29:27.000 | because I don't like it. I don't like what you do.

00:29:30.000 | And where I like what I do.

00:29:32.000 | And so you have to find something that you like.

00:29:34.000 | You have to find almost any method can work if you do it.

00:29:39.000 | But the reason people often don't follow through with their chosen method is they lose interest.

00:29:45.000 | And so the most important thing for a language learner is their personal motivation

00:29:49.000 | and their ability to keep interest and to find some kind of methodology that keeps them interested.

00:29:55.000 | So, for example, and I'll give you some specific suggestions in just a moment.

00:29:58.000 | But for example, you see an app like Rosetta Stone, very widely popularized.

00:30:05.000 | Many people buy it.

00:30:06.000 | I tried to use Rosetta Stone years ago and I couldn't stand how boring it was.

00:30:11.000 | I just sat there and was it a good, useful tool?

00:30:15.000 | I'm sure some people have learned some languages with Rosetta Stone.

00:30:19.000 | I was bored stiff by it. I didn't want to do it. And so I quit.

00:30:23.000 | And so at the beginning level, the first thing you've got to do is learn some words.

00:30:28.000 | Now, with something like Spanish, you probably know far more words than you think you do.

00:30:35.000 | So, for example, John, let's test your Spanish vocabulary.

00:30:41.000 | If I say to you, "Oh, John, buenos dias. Como estas?"

00:30:44.000 | What do you think that I said?

00:30:46.000 | "Hello, how are you?"

00:30:50.000 | Good. Perfect.

00:30:51.000 | Now, if I say, "John, oye, yo tengo hambre. Quieres salir a comer conmigo?"

00:30:59.000 | Any idea what I said?

00:31:01.000 | No, I heard comer, maybe something about eating.

00:31:04.000 | Perfect. Perfect.

00:31:05.000 | Okay, so you're proving my point.

00:31:07.000 | So I said, "Yo tengo hambre," right? I'm hungry.

00:31:09.000 | "Quieres salir a comer conmigo?" Would you like to go out to eat with me?

00:31:13.000 | And so you actually know, because Spanish is a language that a lot of US Americans have connection to,

00:31:19.000 | because you studied it in high school, you know that comer means, you know, means eat.

00:31:26.000 | And so you actually know more.

00:31:28.000 | So you can start at a different place than if I say, you know, "Sabajl'hir, John."

00:31:36.000 | You don't know what sabajl'hir is, but you do know what buenos dias is.

00:31:41.000 | It's the same thing, just a different language.

00:31:43.000 | And so you have to have a start – a point where you start.

00:31:47.000 | Now, what can work?

00:31:49.000 | What most skilled language learners will do is they'll find a preferred resource that they like.

00:31:56.000 | Usually this is an introductory book of some kind.

00:32:00.000 | For example, a very popular one is a series called Asimil, right?

00:32:04.000 | It's designed for total novices to get a language book,

00:32:07.000 | and you see simple little dialogues written in English,

00:32:10.000 | and then you can see them written in Spanish beside it.

00:32:12.000 | Asimil is very popular.

00:32:14.000 | Teach Yourself is another popular brand name, so teach yourself Spanish if you're interested in that.

00:32:20.000 | I have used at various times Pimsleur audio programs.

00:32:23.000 | I think that they're okay for some people, right?

00:32:27.000 | You know, I've never studied Arabic, but I did the first couple of CDs of Pimsleur Arabic,

00:32:32.000 | so I can say, you know, "Sabajl'hir, John."

00:32:34.000 | I don't speak Arabic, but I can say good morning because I did Pimsleur.

00:32:38.000 | And so you can practice Pimsleur, which is audio only.

00:32:42.000 | Or there are any number of apps that will work fine for you.

00:32:45.000 | So if you like Duolingo or Babbel or--what's the big popular one that's free that everyone uses?

00:32:54.000 | I guess it's Duolingo, yeah.

00:32:56.000 | So the apps will work fine.

00:32:59.000 | And so you start to examine--start to get some words.

00:33:02.000 | Now, if you're highly motivated, I think one of the most effective ways to do it is probably to do some flashcards.

00:33:11.000 | So, you know, something like in Gabriel Wynn's book, "Fluent Forever,"

00:33:16.000 | he gives his list of 625 words to learn, and he encourages you to make flashcards for them.

00:33:21.000 | So you can sit down with that word list, and you can make flashcards according to his system

00:33:25.000 | and learn those flashcards, either physical flashcards or putting them into a spaced repetition program like Anki and studying them there.

00:33:33.000 | You can use--if you like flashcards, you can, of course, make your own Anki deck,

00:33:39.000 | or you can go to a platform like Memrise and just simply work through one of their decks,

00:33:46.000 | or you can use different materials.

00:33:50.000 | And so I recently--I'll tell you what I'm doing right now.

00:33:53.000 | So I recently started studying German.

00:33:55.000 | I'm not sure how committed I am to it, but I thought, "Okay, this will be fun.

00:33:59.000 | It's on my list of languages to learn.

00:34:01.000 | It shouldn't be that difficult."

00:34:02.000 | So I recently started studying German.

00:34:04.000 | Now, German is a little bit more removed for me than Spanish is, right?

00:34:08.000 | For me, studying French was easy because it was a romance language compared to Spanish.

00:34:12.000 | It was simple.

00:34:13.000 | And so I could start at a more advanced level.

00:34:15.000 | With German, I have to start with beginner content.

00:34:17.000 | And so what--the tools that I'm using that I like are Glossika, G-L-O-S-S-I-K-A.

00:34:25.000 | Glossika is a flashcarding app that is pretty well done.

00:34:32.000 | I like it a lot.

00:34:33.000 | It's not cheap, but it's effective for people who are committed to studying it.

00:34:38.000 | And it's just--it's called a mass sentence method of language study.

00:34:42.000 | And so I like that.

00:34:43.000 | And--but it's--I have the motivation to use it, so I'd recommend you check out Glossika,

00:34:49.000 | see if you like that.

00:34:51.000 | And I'm also using the LingQ stories.

00:34:54.000 | What you said is LingQ, L-I-N-G-Q is the app that I love to read in.

00:34:58.000 | I'm using the LingQ mini stories.

00:35:00.000 | And so in LingQ, as part of the--when you buy into the LingQ package,

00:35:05.000 | then there is a--there is a--what they call mini stories.

00:35:12.000 | There's these little stories that have a text and an audio going with them.

00:35:16.000 | And so I listen to the text--I read the text and I listen to the audio,

00:35:20.000 | and I just go through it and I learn the words little by little.

00:35:23.000 | And I just--I listen to the story again and again and again

00:35:26.000 | until I start to learn the words, figure them out,

00:35:28.000 | and then I add them to my database and I start to learn them.

00:35:31.000 | And so I think with that, since I'm willing in the beginning,

00:35:34.000 | I'm willing just to force my way through, I know, listen,

00:35:37.000 | if I'll spend 50 hours with this language, then--and with these basic materials,

00:35:42.000 | I'll probably have a couple thousand words under my belt that I can recognize.

00:35:47.000 | And then with those couple thousand words under my belt that I can recognize,

00:35:50.000 | then I can move into more interesting content.

00:35:53.000 | So those are--and then I guess the final tool that I'm using right now with German

00:35:57.000 | is I went ahead and I bought the Rocket German language course.

00:36:01.000 | I think the Rocket language courses are pretty well done,

00:36:03.000 | and so I went ahead and bought the Rocket German one

00:36:06.000 | and went through that--going through that one with the actual lessons.

00:36:08.000 | And so those are some resources that I like,

00:36:11.000 | but if you find something that you like and you can do it, do it, right?

00:36:14.000 | I've used some of the different apps.

00:36:16.000 | I usually just find the apps really boring.

00:36:18.000 | And so because then my motivation suffers, I'm not interested.

00:36:22.000 | I find I'm doing too much repetitive stuff, and so I move on.

00:36:26.000 | The final thing I would say is the switch that I have made for now

00:36:31.000 | is I'm not spending any time trying to speak or to produce the language anymore.

00:36:36.000 | So it used to be when I first started studying a language,

00:36:40.000 | then I wanted to speak the language, and so I was trying to create it.

00:36:44.000 | And now I've just stopped, and I've--I'm pretty much converted--

00:36:48.000 | at least from right now, I'm pretty much converted to the idea

00:36:52.000 | that the beginning stage is for me to absorb the language

00:36:56.000 | by listening to it and reading it and being able to recognize it,

00:36:59.000 | and then in time I'll produce it.

00:37:02.000 | But I'm not going to bother wasting any time trying to produce anything right now.

00:37:06.000 | So I'll say the flashcards when they're going through,

00:37:08.000 | but I'm not trying to have a basic conversation with anybody.

00:37:11.000 | I'm not that interested. I'm just reading and listening.

00:37:13.000 | And so what happens for me is if I can recognize a word right now,

00:37:17.000 | that's good enough for me.

00:37:19.000 | I don't need to be able to produce the word.

00:37:22.000 | All I need to be able to do is recognize the words.

00:37:25.000 | And then as I recognize the words, I can continue presenting to myself

00:37:28.000 | interesting content, and as I continue presenting interesting content,

00:37:32.000 | I'll little by little absorb the words, and then when I'm ready,

00:37:35.000 | and when I want to, and when I have an opportunity,

00:37:37.000 | then I'll go ahead and put myself in a situation where I can speak,

00:37:40.000 | and when I can speak, then it'll activate the language.

00:37:43.000 | There are people who have a very different philosophy,

00:37:46.000 | but that's what I'm learning that works for me.

00:37:48.000 | So part of it is just figuring out what works for you.

00:37:50.000 | But those are some resources I'd suggest to you.

00:37:53.000 | I appreciate that. That's really good information.

00:37:57.000 | One thing I tend to fall down on is when I'm using these apps,

00:38:01.000 | whatever it is, the motivation to stick with it,

00:38:03.000 | I always come back and say maybe I'm not committed enough yet to do it,

00:38:08.000 | but I fall down on things like conjugations and basic sentence structure,

00:38:12.000 | and even hearing something versus reading it.

00:38:15.000 | Like when you said I'm hungry, what I heard was I'm a man, like hombre.

00:38:20.000 | Exactly.

00:38:21.000 | I think that's how I kind of – so I get these little differences,

00:38:24.000 | and then I get frustrated.

00:38:25.000 | The other thing is I do have a five and a seven-year-old,

00:38:28.000 | so I know you had mentioned the resources of some children's books,

00:38:32.000 | the five, the Amazing Five or whatever it was for Spanish speaking.

00:38:38.000 | I'm not too proud to teach them by reading to them in Spanish,

00:38:43.000 | but I don't think those books are Spanish and English,

00:38:46.000 | so I'd have to get a very low level of understanding to be able to translate for them

00:38:52.000 | if I get that serious to read to them as a storybook.

00:38:57.000 | So, yeah, no, it's good to have all those resources

00:39:00.000 | and all those things you mentioned to look into.

00:39:03.000 | I appreciate it.

00:39:05.000 | My pleasure.

00:39:06.000 | I think just two comments.

00:39:10.000 | If you – what my experience has been,

00:39:13.000 | if you try something and you don't stick with it,

00:39:16.000 | there's really no point in beating yourself up about it.

00:39:20.000 | One thing you can consider doing is just trying something else.

00:39:25.000 | I have found – I used to feel bad about this,

00:39:27.000 | but I have found that a lot of times for me to find something that works,

00:39:31.000 | I'm going to go through five or six or seven different things that don't work.

00:39:35.000 | I've used all kinds of apps.

00:39:37.000 | I buy this.

00:39:38.000 | I spend a little money here.

00:39:39.000 | I spend a little money there.

00:39:40.000 | And what happens is if I focus on, "Oh, I didn't like that one,"

00:39:44.000 | then I feel bad and I think there's something wrong with me.

00:39:46.000 | If I just look at it and say, "At the end of the day, I've figured out what works for me,

00:39:50.000 | and now I'm getting results," that's all that matters if I get results.

00:39:54.000 | And so it doesn't matter if I go through three or four or five different resources,

00:40:00.000 | then as long as I work my way through them, then I'm good.

00:40:04.000 | The other thing that I learned, I have learned about myself,

00:40:07.000 | is I tend – my moods tend to fluctuate a lot.

00:40:11.000 | And so I try to have enough different resources that I can do something

00:40:17.000 | based upon how I'm feeling at the time, so with my language studies.

00:40:23.000 | I have more German resources than what I described to you.

00:40:27.000 | I bought a couple of Olly Richards books.

00:40:30.000 | He's big on the story method, and he has some stories for beginning learners.

00:40:34.000 | I have the flashcards.

00:40:36.000 | I have Easy German right on YouTube.

00:40:39.000 | And so I can find different things, and then I just say, "Okay, well,

00:40:43.000 | I'm kind of tired of that app over there.

00:40:45.000 | I don't really want to do a lesson there, but what I can do is I can put on the Easy German video."

00:40:50.000 | And you're not going to get worse.

00:40:52.000 | With something like language learning, you never get worse.

00:40:55.000 | You always get better.

00:40:56.000 | And so the key is finding some kind of input that you like, that you're interested in,

00:41:01.000 | that will allow you to be exposed to the language.

00:41:04.000 | And so it's fine for you if you want to listen to a Spanish song, you know,

00:41:07.000 | and put the subtitles on so you can listen to it.

00:41:09.000 | That's fine.

00:41:10.000 | Any kind of input, just pick things that you enjoy, and don't beat yourself up

00:41:18.000 | because you're bored with Duolingo.

00:41:20.000 | I've given up on most of the apps just because they're boring to me,

00:41:24.000 | and I don't enjoy them.

00:41:26.000 | I think that they're effective, but they're boring to me,

00:41:30.000 | and so because of that, they're not effective for me.

00:41:33.000 | With the kids, I would not try to jump into Los Cinco right now.

00:41:39.000 | I think that's--kids' books and kids' materials are not simple language.

00:41:46.000 | What I would recommend to you is invest in some graded readers.

00:41:50.000 | So start by using the resources I said, and then go ahead and buy for yourself

00:41:53.000 | some graded readers, and then the graded readers will have simpler language

00:41:57.000 | that you can start reading to the children.

00:42:00.000 | It'll be better than kids' books

00:42:01.000 | because kids' books don't have simple vocabulary.

00:42:04.000 | They don't have simple structures.

00:42:05.000 | They're complicated.

00:42:06.000 | They have lots of vocabulary that you won't understand,

00:42:09.000 | and so that's not--even though you would think a kids' book is beginning material,

00:42:14.000 | it's really not.

00:42:15.000 | But good for you for doing it, and you're making yourself smarter

00:42:17.000 | by studying your Spanish.

00:42:20.000 | All right, we go on to San Diego, California.

00:42:23.000 | Welcome to the show.

00:42:24.000 | How can I serve you today?

00:42:26.000 | Hi, Joshua.

00:42:27.000 | Can you hear me okay?

00:42:28.000 | Sounds good.

00:42:29.000 | Go ahead.

00:42:30.000 | I had a question about vacation rental.

00:42:33.000 | I actually emailed you the other week, and you invited me to hop on the show

00:42:37.000 | so you could answer it live.

00:42:38.000 | Great.

00:42:40.000 | Cool.

00:42:41.000 | So just to give you a quick background, my wife and I bought a vacation rental.

00:42:45.000 | It's about two hours away from our current house,

00:42:47.000 | and we enjoy our maintenance trips going to it and working on that property,

00:42:53.000 | trying to improve it, and also renting it out to our community faculty

00:42:59.000 | from our alma mater that I'm still connected to and church community,

00:43:02.000 | stuff like that.

00:43:04.000 | Okay, so we're running it--I mean, projectively,

00:43:08.000 | we're running it at a loss this year on paper,

00:43:11.000 | and we're planning on deducting some of those losses against our regular income.

00:43:17.000 | But the update on that is my wife just got a raise,

00:43:21.000 | which puts our total household income over $150K for this year, which is great.

00:43:28.000 | But there's an issue with something about having our W-2 income over $150K

00:43:35.000 | that affects the way we're able to deduct losses from a rental property.

00:43:41.000 | So I just wanted to get clarity on sort of like that rule, I guess,

00:43:45.000 | and then also just if you were me, what would you do,

00:43:49.000 | or is there anything that you can do to still get tax efficiency

00:43:53.000 | out of this situation?

00:43:56.000 | Is the rule based upon modified adjusted gross income, or is it based upon--

00:44:01.000 | I believe so.

00:44:03.000 | Okay, so if you increase retirement account contributions,

00:44:06.000 | will that lower your modified adjusted gross income below $150,000?

00:44:12.000 | I believe it will, yes.

00:44:16.000 | That's my first thought, is if you can increase--

00:44:20.000 | and I wish I could pull this perfectly off of my memory--

00:44:27.000 | my first instinct is to look and say,

00:44:29.000 | "Okay, can you increase your retirement account contributions

00:44:32.000 | to lower your income back below the $150,000 threshold?"

00:44:37.000 | And then see if that then opens things back up to you.

00:44:45.000 | That would be kind of thing one.

00:44:47.000 | Thing two would be to say, "Well, can we change our--

00:44:51.000 | does it make any sense for us to change

00:44:54.000 | and try to move into working as a real estate professional?"

00:44:59.000 | Could one of us become a real estate professional?

00:45:01.000 | Would that fit our kind of family vision?

00:45:04.000 | Those are the two ideas that occur to me right now to do that.

00:45:09.000 | Otherwise, can you just simply keep those losses for later?

00:45:14.000 | Can you recognize, "Hey, our income might change two years from now,

00:45:18.000 | so can we defer something to later?"

00:45:22.000 | Those are the things that occur to me right now.

00:45:26.000 | Yes, may I please ask a follow-up?

00:45:28.000 | Please do. Yes, go ahead.

00:45:30.000 | Okay.

00:45:31.000 | So, yeah, it's my understanding that we can just hold on to the losses

00:45:34.000 | and deduct them in the future,

00:45:35.000 | and that's also what I'm kind of curious about if you were in my situation.

00:45:39.000 | We're not strapped at the moment.

00:45:42.000 | We're kind of doing fine,

00:45:44.000 | and it's more about just looking to optimize and stuff.

00:45:47.000 | Right now, we both typically max out Roth IRAs,

00:45:51.000 | and we've been doing that at the beginning of the year,

00:45:53.000 | like the first of the year since we've been married,

00:45:57.000 | which is almost five years now.

00:45:59.000 | That's been kind of fun to do, but with this sort of situation,

00:46:02.000 | when we bought the property in November, we skipped--

00:46:05.000 | we didn't skip this year,

00:46:07.000 | and we held off until we got a bit of cash back from--

00:46:10.000 | back into a more comfortable zone.

00:46:13.000 | So we're about to do the same thing in May,

00:46:16.000 | when I realize that maybe it's better to go down the traditional IRA path

00:46:20.000 | this time around, at least for me,

00:46:24.000 | and then have her switch from a Roth 401(k),

00:46:27.000 | which is offered by her work, to traditional if she can,

00:46:31.000 | kind of like what you're talking about,

00:46:33.000 | and then trying to get as much deduction in the current year now as possible.

00:46:39.000 | My only thing with that is I'm kind of curious,

00:46:42.000 | is it like--is it that big of a deal

00:46:45.000 | if we're just going to potentially going to be able to deduct in the future,

00:46:49.000 | even when we end up selling the property, if any--you know, if nothing else?

00:46:54.000 | Should we even worry too much about that,

00:46:56.000 | or should we stick to our other plans?

00:46:59.000 | I also have hesitations about having too much money just in Wall Street, I guess.

00:47:07.000 | Like right now, she contributes enough from her job to get her employer match.

00:47:13.000 | I don't have any retirement benefits from my job, but I make a lot more,

00:47:16.000 | so it evens out.

00:47:18.000 | And then we just do IRAs, and then everything else we've done with our money

00:47:22.000 | has been outside of traditional investing, I guess.

00:47:26.000 | So the question's coming, I promise you.

00:47:31.000 | The last thing is that I'm curious about if you think it's wise in a situation like this.

00:47:40.000 | We've thought about maybe changing our habit with IRA investing

00:47:44.000 | to hold on to our money until the very end of the year,

00:47:48.000 | and maybe even consult a tax professional for contributing for the year before

00:47:53.000 | instead of getting ahead of it on the first year like we have been.

00:47:57.000 | So I'm curious to hear all of your thoughts about that.

00:48:01.000 | I shouldn't be overthinking it.

00:48:03.000 | It's probably fine to just lose a couple thousand dollars of deduction this year

00:48:09.000 | and potentially get it in a future year when our income dips down,

00:48:13.000 | or how much gymnastics we should do to try to get, like, the perfectly optimal thing.

00:48:21.000 | We should get the max out in a 401(k) this year to be able to get all the advantage out of it

00:48:27.000 | when that wasn't really our plan beforehand.

00:48:29.000 | It would only be kind of an adjustment that we would make in light of this specific issue.

00:48:34.000 | I'm just struggling to think through it all.

00:48:37.000 | So let's back it up, and I'll try to give you the way I would approach it,

00:48:41.000 | which I think will be helpful to you.

00:48:43.000 | First of all, I want to affirm you for asking these important and valuable questions.

00:48:50.000 | The fact that you are asking these questions, that you're thinking through your options,

00:48:55.000 | these are extremely valuable analytical skills which are going to serve you very well.

00:49:01.000 | And they indicate to me that you and your wife are going to do very well financially.

00:49:06.000 | You're going to be very wealthy in the long run

00:49:09.000 | because you're asking the questions and looking for the answers.

00:49:12.000 | So first, congratulations.

00:49:15.000 | The second point is a point of personal frustration.

00:49:20.000 | I will simply answer it, but one of the -- I'll just point it out.

00:49:26.000 | I don't want to frustrate you with it.

00:49:27.000 | I just want to point it out for any listeners.

00:49:30.000 | These tax questions at this point drive me crazy

00:49:34.000 | because if you see the massive amount of waste that we have in our society

00:49:41.000 | because very smart people have to sit down and figure out,

00:49:45.000 | "How do I change my activities to follow some weird, wacky little tax rule?"

00:49:51.000 | It's such a waste of human capital.

00:49:54.000 | And I get so tired of it.

00:49:55.000 | It's one of the things that -- it's one of the reasons why I talk --

00:49:59.000 | I have talked a lot about offshoring

00:50:01.000 | and one of the reasons why I left the United States

00:50:03.000 | because it's just so frustrating to waste your time and energy on this stuff.

00:50:07.000 | I just listened to a presentation by -- a couple weeks ago,

00:50:14.000 | I was in Mexico at Nomad Capitalist Live,

00:50:16.000 | and they had the former president of Georgia, Mikhail Saakashvili,

00:50:21.000 | and when he was president of Georgia,

00:50:22.000 | they cut their number of taxes from something like 27 different taxes down to six,

00:50:28.000 | and then they cut the tax rates, if I'm remembering correctly,

00:50:32.000 | from something like 40% down to 25% down to 15% down to like 10%.

00:50:37.000 | So they have one of the simplest tax codes in the world now,

00:50:42.000 | and they went from being very low, something like 84th or something like that,

00:50:48.000 | in terms of ease of places to do business, up to eighth,

00:50:53.000 | some of the eighth easiest places to do business in the world.

00:50:56.000 | And the economy boomed because of it.

00:50:58.000 | And when they came out with all these tax cuts,

00:51:01.000 | they came in and they said -- the World Bank was giving them a bunch of money.

00:51:05.000 | The World Bank said, "You guys are going to go bankrupt."

00:51:07.000 | And Saakashvili said, "Well, we're bank--" according to the speech that he gave,

00:51:10.000 | said, "Well, we're bankrupt already, so we're just going to try this and see what happens."

00:51:14.000 | And tax revenues boomed in the nation.

00:51:17.000 | I forget if they tripled, but something like that.

00:51:20.000 | They boomed, just a massive boom in tax revenues.

00:51:23.000 | And I think that in these questions that you're asking here,

00:51:27.000 | you see this basic frustration.

00:51:31.000 | Here's a smart couple trying to invest, trying to work, et cetera,

00:51:36.000 | bending over backwards to follow some crazy idea.

00:51:40.000 | And I'm sitting here. I'm a certified financial planner.

00:51:43.000 | I'm a Chartered Life Underwriter. I have a master's degree in financial planning.

00:51:46.000 | My Internet is down. I'm on the backup system.

00:51:48.000 | And I'm sitting here desperately trying to remember,

00:51:51.000 | does modified adjusted gross income include add-backs of retirement accounts

00:51:58.000 | or exclude add-backs of retirement accounts?

00:52:01.000 | I cannot remember the question.

00:52:03.000 | And I humble myself and admit it.

00:52:05.000 | I can't-- sorry, I can't remember the answer.

00:52:07.000 | I can't remember it without going to the Internet and looking at it.

00:52:09.000 | And it's ridiculous that a guy like me,

00:52:13.000 | with my experience and my professional experience,

00:52:16.000 | all my academic qualifications,

00:52:18.000 | I can't answer your question because I can't remember what MAGI includes

00:52:23.000 | and whether or not retirement account contributions are added back or not

00:52:27.000 | without the Internet.

00:52:28.000 | So there's my little rant just to say that it drives me nuts

00:52:33.000 | that we spend so much time on this tax stuff.

00:52:36.000 | And yet you have to because the tax rates are what they are.

00:52:41.000 | And it's important.

00:52:43.000 | So, all right.

00:52:44.000 | Now, with my personal rant aside,

00:52:46.000 | let's come back to your question.

00:52:48.000 | What I would encourage you to do is set aside all the details

00:52:53.000 | and start with your big picture.

00:52:55.000 | Because if you focus on the details first,

00:52:58.000 | you're going to get lots and lots of answers.

00:53:01.000 | And people are just going to give you answers that may not be right for you.

00:53:05.000 | I'll give you an example.

00:53:07.000 | You mentioned in your string of facts, you mentioned, well, Roth 401(k)

00:53:12.000 | or Roth IRA or traditional IRA,

00:53:14.000 | but then you said that you don't really like investing through these.

00:53:17.000 | You're just investing to get the employer match

00:53:19.000 | and you're doing your investment elsewhere.

00:53:21.000 | So you have to stop and think,

00:53:24.000 | what are my personal opinions about what I want to do?

00:53:30.000 | So as I would say, number one, with your income,

00:53:33.000 | is your income actually going to go down for something that you foresee happening

00:53:39.000 | or is it unlikely to go down because you're going to continue working hard?

00:53:43.000 | So for example, maybe you're earning more than your wife is earning right now,

00:53:47.000 | but you're planning to have a baby,

00:53:49.000 | and in two years she's going to stop earning income outside the house.

00:53:54.000 | Okay, well, now you have a plan and you know, hey, two years from now,

00:53:57.000 | our income is probably going to go down by $70,000 per year,

00:54:00.000 | and that's going to open up a range of tax planning options to us.

00:54:04.000 | But I don't encourage you to plan on having your income go down.

00:54:07.000 | Plan on having your income go up.

00:54:10.000 | Don't try to make less money just so that you can pay lower taxes.

00:54:17.000 | Focus on making more money and doing what's best for your family.

00:54:22.000 | Number two, this property is what it is.

00:54:25.000 | You're getting benefits from it.

00:54:27.000 | You're going to try to make it the best for you,

00:54:29.000 | but don't try to stress yourself out for every single dollar.

00:54:34.000 | I find it very exhausting to try to maximize every last dollar.

00:54:43.000 | Good enough is good enough sometimes.

00:54:45.000 | Number three, on retirement accounts,

00:54:48.000 | do you fundamentally think that investing in retirement accounts

00:54:52.000 | is a good fit for you or it's not?

00:54:56.000 | Now, most financial planners would say, of course it's a good fit.

00:54:59.000 | This is what you should do.

00:55:01.000 | I've pretty much stopped investing in retirement accounts.

00:55:04.000 | I don't want to be involved with the system anymore.

00:55:07.000 | I want control of my money, and I want control of my money.

00:55:12.000 | I want to invest in whatever I want to invest in,

00:55:14.000 | anywhere in the world that I want to invest it in,

00:55:16.000 | and I don't want a bunch of wacky rules telling me what I can and can't do

00:55:20.000 | and when I can get the money out and what I have to use it for, et cetera.

00:55:24.000 | Now, I understand the utility of those rules.

00:55:27.000 | I concede that I might pay more money

00:55:29.000 | because I may not have a certain tax deduction,

00:55:32.000 | but I largely just want to be out of that system of control that exists,

00:55:38.000 | and it sounds like that might be you as well.

00:55:40.000 | So if you want to be out and you want control over your money,

00:55:44.000 | then just pay the tax, right?

00:55:46.000 | Pay them the money to be free of them and move on,

00:55:50.000 | and then focus on the next step.

00:55:52.000 | Now, that's, as I see it, an ideological thing.

00:55:55.000 | That's a point where you look and you say,

00:55:57.000 | "Here's what I want to do," or, "Here's what I don't want to do,"

00:56:00.000 | and then you just simply deal with the consequences of whatever it is.

00:56:06.000 | You just accept that I'm going to pay $2,000 of tax this year

00:56:11.000 | that I don't have to pay if I were to invest my money

00:56:14.000 | into this government-sanctioned retirement account,

00:56:18.000 | but I don't want to invest my money in the government-sanctioned retirement account,

00:56:21.000 | so I'm going to pay the $2,000.

00:56:23.000 | And more and more, I think that this is a healthy thing to do.

00:56:26.000 | I'll give you an example.

00:56:27.000 | I actually received a question that never answered in the Facebook group.

00:56:30.000 | Somebody was talking about applying for PPP money back during the relief.

00:56:36.000 | I looked at that program, and I think that, number one,

00:56:41.000 | if you qualify for a program, there's no reason not to take advantage of it,

00:56:46.000 | but you should understand what strings come with it.

00:56:50.000 | I looked at the PPP program.

00:56:52.000 | I looked at the strings that came with it,

00:56:54.000 | and I came to the conclusion, I don't want these guys in my business.

00:56:58.000 | I don't want to be in bed with them.

00:57:00.000 | I don't need their money.

00:57:01.000 | I don't want the strings that come with it.

00:57:03.000 | I'd just rather take it myself.

00:57:05.000 | And so maybe I could have had some few thousands of dollars of money because of it,

00:57:11.000 | but I don't want the strings that come with it.

00:57:13.000 | And so what you're describing, for you, retirement accounts might be the same thing.

00:57:16.000 | If you don't want the strings that come with retirement accounts,

00:57:19.000 | then pay the tax and then just move on.

00:57:22.000 | Now, to the specific questions,

00:57:24.000 | I think your answers are going to be driven by your ideological questions.

00:57:28.000 | What's going to happen with our income?

00:57:30.000 | What's going to happen with, do we want to participate in the retirement accounts?

00:57:35.000 | If you do, then, yeah, you would maximize your traditional accounts.

00:57:41.000 | I would prefer, it sounded like you said your wife is involved with a Roth 401(k).

00:57:45.000 | Personally, I would prefer that she use a traditional 401(k) at work

00:57:50.000 | and a Roth IRA personally.

00:57:52.000 | And I think that's a better move for you,

00:57:54.000 | is to do a traditional 401(k) at work and a Roth IRA personally.

00:57:58.000 | But if you don't want to participate at all, there are good reasons not to.

00:58:02.000 | Is that, I don't know if my layers are right,

00:58:06.000 | but I would encourage you just to do that in your own thinking,

00:58:08.000 | to step back from all these specific details and form your own philosophy.

00:58:12.000 | This is what we want to do.

00:58:13.000 | This is what we want to invest in.

00:58:14.000 | This is how we want to build our wealth.

00:58:16.000 | And then the answers will be more obvious.

00:58:20.000 | Super helpful. I really appreciate it.

00:58:22.000 | Can I ask one last quick follow-up?

00:58:24.000 | Yeah, go for it.

00:58:26.000 | Okay. The last thing with this rental property is,

00:58:29.000 | I read Lowery Taxes big time based on your book list.

00:58:32.000 | Really liked it, but was curious if you had anything to throw out there or add to it.

00:58:37.000 | If you don't, that's totally fine.

00:58:38.000 | I don't feel like you have to make anything up.

00:58:41.000 | I'm making a good faith effort for routing dollars towards sales and marketing

00:58:46.000 | for this rental property.

00:58:48.000 | And having events or different dollars that we spend in our life,

00:58:54.000 | be able to apply in a way that makes sense to a good sales and marketing effort

00:59:00.000 | that we'd be able to use to, again, add expenses toward that cabin.

00:59:07.000 | Does that make sense?

00:59:08.000 | Yeah. So your idea is we want to market this cabin,

00:59:11.000 | so could we host some kind of big event?

00:59:14.000 | We're primarily -- our renters are primarily coming from our social contacts.

00:59:19.000 | So should we go ahead and host a big event, invite all of them there

00:59:23.000 | for a sales presentation, let them see how beautiful the cabin is, et cetera?

00:59:26.000 | Is that the basic idea?

00:59:28.000 | That's exactly right.

00:59:29.000 | And the book talks about it a little bit,

00:59:31.000 | but I've never really thought through it

00:59:33.000 | and just didn't know if you had any ideas about that.

00:59:35.000 | Yeah. At the end of the day, it can be perfectly fine.

00:59:39.000 | The important thing, I think, is always -- it's always kind of a question

00:59:44.000 | because it comes down to who can paint the better story.

00:59:47.000 | So if you can say, "Look, this is an ordinary and necessary expense for the business.

00:59:53.000 | This is something that I'm investing into."

00:59:56.000 | And if you can stack together the insight that shows somebody

01:00:03.000 | that then you have a good case.

01:00:06.000 | So I think the example that Botkin gives in that book is the use of your home

01:00:12.000 | to make sales presentations for your business.

01:00:15.000 | Let's say that you're a real estate agent

01:00:17.000 | and you want to have a great big holiday party, right?

01:00:21.000 | Well, you can host a holiday party

01:00:24.000 | and you can deduct all of the expenses of the holiday party

01:00:28.000 | if that holiday party is a sales event for your real estate business.

01:00:36.000 | And so let's say you're going to do a big shindig, right?

01:00:39.000 | You're going to hire a band, you're going to hire a bartender,

01:00:41.000 | you're going to spend $10,000 on a holiday party.

01:00:44.000 | Well, you can do that in your home and you can deduct all of that,

01:00:47.000 | but it's got to be a sales presentation.

01:00:49.000 | And so if you just have a big Christmas party

01:00:51.000 | that you're inviting all your friends to

01:00:53.000 | and if you just -- you're giving your toast and you say,

01:00:57.000 | "Hey, remember that we sell real estate.

01:00:58.000 | If you want to sell real estate, that's not going to cut it, right?

01:01:00.000 | Those expenses are going to be disallowed."

01:01:02.000 | On the other hand, if your dining room is filled with pictures

01:01:06.000 | of all of the houses that are for sale,

01:01:09.000 | if there is sales paraphernalia there,

01:01:11.000 | if people are reminded that this holiday event is being sponsored

01:01:16.000 | by Joshua Sheets Realty,

01:01:18.000 | then all of a sudden now you have a good argument in favor of it.

01:01:21.000 | And so with your cabin, I think it could work.

01:01:23.000 | I think that what you would need to do

01:01:25.000 | is you would need to create a clear sales presentation.

01:01:30.000 | You would want to make it clear that your invitations, right,

01:01:34.000 | are that we have this rental property

01:01:36.000 | and we want you to come check it out,

01:01:38.000 | come for a barbecue to preview the rental property, right?

01:01:41.000 | You want to make sure that you have invitations that are in your files

01:01:43.000 | that you could show an IRS auditor that,

01:01:46.000 | "Look, it wasn't that we had a 4th of July party.

01:01:49.000 | We had a property preview day that was also on 4th of July weekend."

01:01:57.000 | And so you just got to build your case for it and then follow through.

01:02:01.000 | But if you do that, everything is deductible, right?

01:02:05.000 | When, I don't know, XYZ Big Company sponsors the local stadium

01:02:14.000 | and books Vox VIP suites with open bar and gourmet food

01:02:23.000 | and sends their employees and their customers to the suites,

01:02:27.000 | they deduct every single dime of that.

01:02:30.000 | And there's no reason why you can't do the same thing

01:02:33.000 | just because your business is a little bit smaller.

01:02:36.000 | That's the basic point.

01:02:37.000 | But it needs to be clear and obvious that this is a business event.

01:02:41.000 | That's the rule.

01:02:44.000 | Awesome. Thank you so much for your time.

01:02:46.000 | I really appreciate the help and I appreciate the affirmation

01:02:49.000 | that you gave me. It felt really good to hear.

01:02:51.000 | And I love the show and wish you the best.

01:02:53.000 | My pleasure. Keep going. Keep applying that thinking.

01:02:56.000 | Just don't get lost in the weeds.

01:03:01.000 | Think about what's important.

01:03:02.000 | And I think it's very –

01:03:04.000 | I don't know how to talk about this very well,

01:03:06.000 | but I want to point it out.

01:03:08.000 | Your energy is probably the most important thing.

01:03:11.000 | And sometimes, at least for me,

01:03:14.000 | getting bogged down in all of the details drains my energy

01:03:19.000 | and keeps me not making money.

01:03:21.000 | And so if you're sitting down chasing a tax deduction,

01:03:26.000 | it's going to save you $100.

01:03:28.000 | But the frustration of chasing down that tax deduction

01:03:31.000 | that's going to save you $100 means that you don't do something else

01:03:36.000 | that could make you $1,000.

01:03:38.000 | I think that's your mistake.

01:03:39.000 | So do what you can do, but guard your energy very carefully.

01:03:44.000 | All right. To Washington. Welcome to Radical Personal Finance.

01:03:47.000 | How can I serve you today?

01:03:51.000 | Hey, Josh. Are you able to hear me?

01:03:53.000 | Yes. Go ahead.

01:03:55.000 | I wasn't sure if I'm the only one from Washington.

01:04:01.000 | Hey, my name is Shiv.

01:04:03.000 | I have been a regular listener to your call.

01:04:05.000 | So, firstly, thanks for all the things that you do.

01:04:09.000 | Today, I have a question about RVing.

01:04:14.000 | So this summer -- generally, we like traveling,

01:04:22.000 | particularly going in the nature, camping, et cetera.

01:04:27.000 | But this is the first time we are doing RVing,

01:04:31.000 | so we are not driving vehicles ourselves, staying in RVs, that kind of stuff.

01:04:37.000 | So we did a couple of trips where we just stayed in a camped RV.

01:04:44.000 | Now this weekend, Memorial Day weekend,

01:04:47.000 | I'm doing another trip where I'm driving RV for the first time.

01:04:54.000 | I want to extend this and do more trips in the coming summer.

01:05:00.000 | So my question to you is, do you have any tips on RVing,

01:05:08.000 | mistakes to avoid, and how do we keep exploring places without going bankrupt?

01:05:16.000 | Particularly because I'm renting an RV, and it's very costly.

01:05:25.000 | So what are the financial aspects that I should be careful about while exploring this hobby?

01:05:33.000 | How many people are you traveling with?

01:05:37.000 | Just three in my family, my wife and kids.

01:05:41.000 | And how old is your child?

01:05:42.000 | In my club, he's six.

01:05:45.000 | Six years old. Okay, great.

01:05:47.000 | Six is a really great age to travel.

01:05:52.000 | And you're based in the Seattle area?

01:05:56.000 | Yeah.

01:05:57.000 | Okay.

01:05:58.000 | So you live in an outdoor paradise.

01:06:03.000 | From the Seattle area, there are so many wonderful places that you can travel to

01:06:11.000 | that are just really, really -- it's just a beautiful place.

01:06:16.000 | You can go -- of course, you have the coasts, you have the mountains, you have the deserts.

01:06:21.000 | It's just an amazing place to be based for outdoor exploration.

01:06:26.000 | Now, when you have rented RVs thus far, you've said that you've rented a few RVs that were set up at a campground,

01:06:34.000 | and this weekend you're renting one that you're driving for the first time. Is that right?

01:06:38.000 | Correct.

01:06:39.000 | Okay.

01:06:40.000 | And what have you most enjoyed about your experience so far, and what has your wife enjoyed?

01:06:46.000 | So what I enjoyed was just staying close to the nature.

01:06:54.000 | And being in an RV, I could stay productive.

01:06:57.000 | So I used to work during the day and join these guys in the afternoon,

01:07:02.000 | while they were enjoying more during the day and even in the evening.

01:07:09.000 | When my wife was cooking, I was spending more time with my son.

01:07:12.000 | So just the freedom, nature, animals.

01:07:19.000 | And did she enjoy the RV experience as well?

01:07:22.000 | Yes.

01:07:23.000 | Great.

01:07:24.000 | What kind of vehicles does your family already have at home?

01:07:29.000 | We have standard cars, sedans.

01:07:31.000 | Okay.

01:07:33.000 | So, renting an RV is a great way to try it out and get the experience of staying in a campground and trying it out.

01:07:44.000 | But it is exceedingly expensive to rent an RV for a significant period of time,

01:07:51.000 | especially if you're renting a larger RV, because larger RVs are expensive to rent and they're expensive to operate.

01:08:00.000 | So my comment would be that if there are three of you, you, your wife, and a six-year-old boy, I think you said,

01:08:09.000 | you don't need a very big RV and you can still be very comfortable.

01:08:14.000 | Now, my only hesitation here is you have to see what you need, what you'd like.

01:08:20.000 | For example, how much space do you need to be productive?

01:08:23.000 | What kind of working environment do you need to be productive if you're going to be working from on the road?

01:08:28.000 | And then you need to see what does your wife need?

01:08:31.000 | Because if she feels better with a bigger RV, then it's worth it for you to get a bigger RV.

01:08:38.000 | On the other hand, because there are only three people in your family,

01:08:42.000 | a small RV can be wonderful for you and allow you to travel significantly.

01:08:48.000 | Another thing that you'll want to test is you'll want to see, do we like being in more standard campgrounds?

01:08:55.000 | Where, of course, the infrastructure in your area of the United States is wonderful for standard campgrounds.

01:09:03.000 | But, or do we like to be more off the beaten path?

01:09:07.000 | Do we like to go actually out into the woods and be away from where there are any facilities?

01:09:12.000 | No bathrooms, no paved roads, no electricity, etc.

01:09:16.000 | If you like campgrounds and campgrounds work for you,

01:09:19.000 | then kind of a standard RV or motorhome or travel trailer will work well for you.

01:09:25.000 | If you like to be more off the beaten path, then something else might be really good for you.

01:09:33.000 | What I would probably do, assuming that you have a little bit of money that you could spend on this,

01:09:40.000 | I would seriously investigate a small four-wheel drive pickup truck and a truck camper

01:09:47.000 | and see if that would be a good fit for you.

01:09:50.000 | Because of where you're located, it could be really, really a wonderful way to travel.

01:09:54.000 | And you have so much government land in that part of the country

01:10:00.000 | that if you have a four-wheel drive vehicle, you can explore it really well.

01:10:06.000 | I would rather have a smaller RV that was more flexible rather than some big coach

01:10:12.000 | that I can only stay at an improved campground.

01:10:14.000 | If you have... So for me, what I would look at is I would look at a small,

01:10:20.000 | either something like a Toyota Tacoma or a half-ton pickup truck.

01:10:26.000 | What might work better would be a four-door half-ton pickup truck.

01:10:30.000 | And then I would look at a small pop-up truck camper.

01:10:33.000 | Something, the most common brand name for that would be four-wheel camper.

01:10:38.000 | But if you had a four-wheel drive half-ton pickup truck, a Ford F-150,

01:10:43.000 | a Toyota Tundra, something like that, and a pop-up camper in the back,

01:10:50.000 | that would allow you to go down so many of the trails.

01:10:53.000 | That would allow you to camp in the campgrounds.

01:10:55.000 | It would also allow you to cover just so much area.

01:11:03.000 | To me, that would be what I would do,

01:11:05.000 | would be to get a pickup truck with a truck camper.

01:11:13.000 | If you didn't do that and you wanted... Have you ever...

01:11:16.000 | By the way, have you looked at one of those?

01:11:17.000 | Have you spent any time in one of those?

01:11:20.000 | Yeah, actually, I have been thinking about it.

01:11:25.000 | But you correctly picked on the requirements when you were talking.

01:11:32.000 | I'm okay being at this table with whatever conditions or resources I have,

01:11:41.000 | as long as I can go and explore the nature.

01:11:43.000 | But my wife is not.

01:11:45.000 | She needs some space.

01:11:47.000 | Okay.

01:11:48.000 | Yeah.

01:11:49.000 | So she's more in favor of, yeah.

01:11:52.000 | All good.

01:11:53.000 | Trust me, you want to make sure that you have a vehicle that your wife will love.

01:11:57.000 | Because you don't want to be a lonely single guy with a cool rig off by yourself.

01:12:02.000 | You want your family to be with you.

01:12:04.000 | So, okay.

01:12:05.000 | So if you're going to go in that direction, then you have...

01:12:09.000 | Your first choice is do you want something that is drivable

01:12:12.000 | or do you want something that is towable?

01:12:15.000 | You can...

01:12:16.000 | If you're willing to change out one of your family sedans for an SUV or a pickup truck,

01:12:22.000 | probably an SUV would be, I think, probably best for you.

01:12:26.000 | If you're willing to change out one of your family cars,

01:12:28.000 | you can get the most space for the least money by buying a trailer.

01:12:33.000 | And something in like the 15 to 20-foot range, you could get very comfortable,

01:12:39.000 | a nice bed for you and her, a good kitchen, a bathroom, and a bed for your son,

01:12:45.000 | and yet still tow that with a mid-sized SUV.

01:12:50.000 | That's where I would start because that'll be your best, least expensive thing.

01:12:55.000 | You won't be able to get way off the beaten path with that kind of towed vehicle,

01:13:00.000 | but you can enjoy all of the campgrounds and be very comfortable.

01:13:06.000 | The other thing I would look at is is there some kind of Class B camper that would work for her,

01:13:12.000 | either a small Class C or a Class B?

01:13:15.000 | Do you know the classifications in RVs?

01:13:18.000 | Do you understand that system yet?

01:13:20.000 | Yeah.

01:13:22.000 | I just know by looking at it like there's a Class B or Class C.

01:13:26.000 | Okay.

01:13:27.000 | So the Class B is vans, but large vans that don't have the coach built out.

01:13:33.000 | Class Bs are more expensive, but they're really nice because you can cover a lot of ground,

01:13:38.000 | you can be comfortable, you can be in the vehicle, they're easy to drive,

01:13:42.000 | and they're comfortable.

01:13:43.000 | So Class Bs are really nice.

01:13:46.000 | A Class C is where there's an actual coach that's built on the back of the vehicle.

01:13:51.000 | And there are lots of those that are of different sizes.

01:13:56.000 | The point is that you want to be big enough to be comfortable, as she defines comfort,

01:14:01.000 | the level of comfort that she needs, but you want to be small enough to be nimble and agile.

01:14:07.000 | And so I don't like to have a big vehicle because then I can't go places easily,

01:14:12.000 | and then it's frustrating because I'm spending so much money on fuel.

01:14:15.000 | I don't want to drive it because it's a hassle to drive.

01:14:18.000 | So you want to be big enough to be comfortable, but small enough to be agile.

01:14:22.000 | And if you're looking for the best deal, I think that you can get a pretty good deal

01:14:27.000 | on one of the Cruise America former rentals.

01:14:30.000 | Have you rented from Cruise America yet?

01:14:32.000 | This weekend will be the first time I'll be renting from them.

01:14:36.000 | And which model of their RV are you renting?

01:14:40.000 | I think it is standard one, so 27 feet, I believe.

01:14:44.000 | Probably 25.

01:14:46.000 | So you have a 28 foot, a 25 foot, and a 19 foot.

01:14:49.000 | And so if you're renting the 25 foot, see how you like that.

01:14:53.000 | And you can buy one of those from their used market.

01:14:56.000 | They're about five years old.

01:14:58.000 | You can buy one for just over about $30,000.

01:15:00.000 | And so if you like that particular vehicle, it can give you an idea.

01:15:03.000 | You can get something nicer.

01:15:05.000 | The thing about the Cruise America is they work, but they're not luxurious.

01:15:08.000 | You can find lots of those vehicles in the open market as well.

01:15:12.000 | My only point would be try different things and see what you like

01:15:15.000 | and expect that you're going to buy something.

01:15:20.000 | And when you buy something, you're probably going to buy multiple vehicles

01:15:24.000 | until you find one that's the best fit for your family.

01:15:27.000 | But it is a progression.

01:15:28.000 | If you're going from no camping to doing some camping,

01:15:31.000 | that's where you are right now, then renting is the smart choice.

01:15:35.000 | See what you like. See what's available to you.

01:15:37.000 | Then you'll buy a vehicle, but get something that's small enough

01:15:40.000 | that you can use it more regularly without feeling like,

01:15:44.000 | "It's too expensive to drive. It's too much of a hassle.

01:15:47.000 | It's too physically large."

01:15:49.000 | Get something that is small enough for you to use regularly

01:15:54.000 | and then expect a change over time.

01:15:56.000 | Your style will change over time.

01:15:58.000 | Makes sense.

01:16:01.000 | That's really insightful.

01:16:04.000 | If I can ask, what's the recommended budget to stay within

01:16:15.000 | if I'm looking to buy, let's say, a resale from Camp Cruise America

01:16:24.000 | or a SUV or pickup truck for these?

01:16:29.000 | Here's where we get to how much of your money can you afford

01:16:34.000 | to put in stuff that's going down in value.

01:16:37.000 | I think the number would be somewhere between 10% to 50% of your income

01:16:42.000 | keeps you on the wealth-building track.

01:16:45.000 | If your annual income is $100,000 and you have $50,000 in vehicle,

01:16:51.000 | if you're super hardcore set on, "We're going to retire fast,"

01:16:56.000 | then 10% of your income in vehicles and stuff is going down in value.

01:17:00.000 | But I think 50% or thereabouts is perfectly fine.

01:17:04.000 | If you have $100,000 income and you have $50,000 worth of vehicles,

01:17:09.000 | then you're still going to be fine.

01:17:11.000 | You're going to be having depreciation on those vehicles,

01:17:15.000 | but you're going to have more assets that are growing elsewhere.

01:17:19.000 | You're going to be totally fine.

01:17:22.000 | It's hard to buy RVs for $50,000.

01:17:25.000 | It's really hard.

01:17:27.000 | You can do it, but it's hard.

01:17:29.000 | I think that here it comes down to how nice of an RV do I need

01:17:35.000 | for my wife to go camping with me.

01:17:39.000 | I want my wife to go camping with me, so I want to have a nice enough RV

01:17:43.000 | that she at least doesn't dread it and ideally wants to do it.

01:17:48.000 | So I would be willing to break some of my rules

01:17:52.000 | to have something that is nice enough that it allows me to accomplish my goals.

01:17:58.000 | The reason I say the Cruise America,

01:18:00.000 | I don't think the Cruise America is a good point from a resale perspective.

01:18:03.000 | You're getting a rig that's a rental.

01:18:05.000 | Anybody can go out and buy a rig for $30,000.

01:18:08.000 | So I think that basically on the day that you buy it,

01:18:11.000 | you're going to pay $10,000 of depreciation.

01:18:15.000 | You're never going to be able to sell it for more than $20,000.

01:18:18.000 | So I don't think it's a good deal from a retail perspective,

01:18:23.000 | from a perspective of buying and selling it.

01:18:26.000 | I think you can do much better in the used market

01:18:29.000 | if you just simply buy something that someone else has had.

01:18:32.000 | But the reason I use that as an example, especially here on the show,

01:18:36.000 | is it's a good budget.

01:18:38.000 | You can buy those RVs all day long between $30,000 to $35,000.

01:18:42.000 | That's what they cost.

01:18:43.000 | And they're reliable.

01:18:45.000 | You're not going to get a lemon.

01:18:48.000 | Most of the time if you're buying used RVs, you're winding up often.

01:18:54.000 | They're expensive.

01:18:55.000 | They're expensive to own.

01:18:57.000 | So I think your simplest thing would be where I would recommend you start.

01:19:01.000 | If you're comfortable trailering or you can learn to be comfortable trailering,

01:19:04.000 | trailering is really accessible.

01:19:06.000 | What you do is you sell one of your sedans

01:19:08.000 | and you buy a good mid-sized SUV that has a good tow rating.

01:19:14.000 | Any examples that you have in mind?

01:19:17.000 | So let me think.

01:19:23.000 | So you would have things like a Chevy Tahoe would be ideal,

01:19:28.000 | a Ford Expedition.

01:19:29.000 | All of those are rated, and I'm just doing this off the top of my head,

01:19:32.000 | but those can pull 7,000 and 8,000 pound trailers.

01:19:35.000 | So something like an Expedition or a Tahoe would I think be ideal.

01:19:40.000 | You could maybe find a Toyota Sequoia, something like that.

01:19:45.000 | I think that if you get things like a Honda Pilot,

01:19:49.000 | those things are traditionally mid-sized.

01:19:52.000 | Their towing ratings are not enough to allow you to have the margin that you want.

01:19:56.000 | So you've got to really look at the numbers.

01:19:58.000 | But if you bought something like a Ford Expedition or a Chevy Tahoe,

01:20:02.000 | that would be I think a good range to be in.

01:20:06.000 | And then try a small trailer.

01:20:08.000 | If you browse around on Facebook Marketplace,

01:20:10.000 | you should be able to pick up a small trailer in the 18 to 22-foot range for $10,000

01:20:16.000 | to $15,000, two to three years old, something like that.

01:20:20.000 | There are people selling them all the time.

01:20:23.000 | And so that kind of range would be a good range to look at.

01:20:28.000 | If you don't like the SUV, I would say with a family of three,

01:20:31.000 | go ahead and just get a half-ton pickup, a crew cab half-ton pickup.

01:20:35.000 | An F-150 would be perfect for you.

01:20:38.000 | It gives you plenty of cab space.

01:20:40.000 | It gives you the bed of the truck where you can put bicycles.

01:20:43.000 | And then you can have plenty of tow rating to have a trailer.

01:20:47.000 | I think that would also be an ideal kind of vehicle for you.

01:20:51.000 | Perfect.

01:20:52.000 | That's so helpful.

01:20:53.000 | Thank you so much.

01:20:54.000 | Yeah.

01:20:55.000 | And then my added comment, so here would be -- forgive me,

01:20:59.000 | it takes me time to get to things.

01:21:01.000 | If you have an F-150 and you buy a crew cab F-150,

01:21:05.000 | you have room for your wife and for your son,

01:21:08.000 | but get a four-wheel drive model, and now you have multiple options.

01:21:13.000 | If you have a modest-sized trailer,

01:21:15.000 | you can comfortably and easily tow a 22-foot trailer with an F-150

01:21:20.000 | really comfortably.

01:21:22.000 | And you can have enough space for the three of you.

01:21:24.000 | It's simple, it's small, it's inexpensive, won't cost that much to use,

01:21:29.000 | be really good.

01:21:30.000 | But if you add on the F-150, now you have another option.

01:21:35.000 | And so one of the things that you can do is put a topper on the back,

01:21:39.000 | and of course you can use that for your bicycles and your stuff.

01:21:42.000 | It's a really good way to take bicycles with you.

01:21:44.000 | But now if you do want to go out more to the woods,

01:21:47.000 | maybe you and your son want to take a guy's trip

01:21:51.000 | and go do more backwoods stuff,

01:21:55.000 | now you have a good vehicle to do that with as well.

01:21:58.000 | You can take a ground tent,

01:22:00.000 | or you can sleep in the back of the truck very comfortably,

01:22:03.000 | and that might be a way for you to have the best of both worlds,

01:22:06.000 | a trailer for when you want to do campgrounds,

01:22:08.000 | and then also be able to explore some of the government land

01:22:11.000 | that is so plentiful around you.

01:22:14.000 | - Makes sense.

01:22:18.000 | - Cool, Shiv, keep in touch.

01:22:20.000 | I love hearing you doing that.

01:22:22.000 | And you live in just an outdoor paradise,

01:22:25.000 | and so really take advantage of it.

01:22:27.000 | It's a wonderful place to travel from the Seattle areas.

01:22:30.000 | - I'm totally looking forward to it.

01:22:32.000 | I'm inspired by all the traveling you're doing.

01:22:36.000 | - Indeed, indeed.

01:22:38.000 | All right, sir, thank you so much.

01:22:40.000 | And with that, we'll go back, and let me pick up Trey.

01:22:43.000 | Trey, you still hanging on for your last question?

01:22:45.000 | - Yes, sir, I am.

01:22:47.000 | - All right, let's do it.

01:22:48.000 | - Yeah, thanks for taking it.

01:22:50.000 | So my last question was about life settlement contracts.

01:22:54.000 | I wondered--I know they're generally only available--

01:22:57.000 | and I'm really talking about the funds

01:22:59.000 | made up of life settlement contracts.

01:23:01.000 | I know it's generally only available

01:23:03.000 | or maybe exclusively available to accredited investors,

01:23:07.000 | but I'm kind of approaching that level

01:23:09.000 | and trying to figure out some sort of alternative vehicles

01:23:13.000 | to try to get a little better return.

01:23:15.000 | And in my research, they seem to perform pretty well

01:23:18.000 | with death and taxes being, you know, the only two certainties.

01:23:21.000 | So I just wanted to hear your comments on those.

01:23:25.000 | - So you are interested in investing in a fund of some kind

01:23:29.000 | or in the contracts directly?

01:23:32.000 | - Well, I guess either.

01:23:35.000 | What would your recommendation be or against?

01:23:39.000 | - I don't know.

01:23:40.000 | I have not researched that area of investments.

01:23:45.000 | I'm not familiar with the options

01:23:47.000 | or with the rates of return.

01:23:50.000 | And so I can't provide you with any useful advice on it.

01:23:56.000 | I wish I could.

01:23:58.000 | It is interesting.

01:23:59.000 | It's something I should have probably looked into.

01:24:01.000 | The only thing that I've--

01:24:03.000 | the only involvement I've ever had with life settlements

01:24:06.000 | is always keeping it as an option for people

01:24:09.000 | who are diagnosed with a terminal illness

01:24:12.000 | to potentially sell their insurance contracts.

01:24:15.000 | But in terms of investing in life settlements

01:24:17.000 | and viaticals and whatnot,

01:24:18.000 | I have never done any research into that marketplace.

01:24:21.000 | So I'm more interested in asking you a bunch of questions

01:24:23.000 | than in potentially having any answers for you.

01:24:26.000 | Have you found anybody marketing products,

01:24:28.000 | like investment products based around that?

01:24:31.000 | - Well, it's kind of difficult to find anyone marketing actively

01:24:35.000 | because, like I said,

01:24:36.000 | they're generally only available to accredited investors.

01:24:39.000 | And so I think it's more of a you need to call up a firm.

01:24:42.000 | But from my research, they seem to perform--

01:24:46.000 | obviously, they're not correlated with the market

01:24:50.000 | because people live and die in all kinds of markets.

01:24:55.000 | They--to me, the best approach would be

01:24:58.000 | rather than purchasing one or two or three contracts directly

01:25:02.000 | would be to try to buy a fund.

01:25:04.000 | And I think these kind of funds are available

01:25:06.000 | that have hundreds or thousands so that--

01:25:08.000 | - Yeah, of course.

01:25:09.000 | - --you kind of normalize out the rights.

01:25:11.000 | You're not sitting around on the sidelines for 20 years,

01:25:13.000 | you know, waiting for your payday,

01:25:14.000 | which is a little bit morbid,

01:25:15.000 | but it also is kind of a good service.

01:25:17.000 | And you would know-- - Yeah, absolutely.

01:25:18.000 | - --the benefit that it can offer certain people.

01:25:21.000 | But, yeah, I've found, like, 10% to 13%

01:25:24.000 | is kind of expected and normal across all markets.

01:25:29.000 | - And the fees?

01:25:30.000 | Do you know anything about the fees, that net of fees?

01:25:33.000 | - Yeah, and that's one reason why the--

01:25:36.000 | a fund of multiple--of many contracts

01:25:40.000 | would be more advantageous than a few--

01:25:44.000 | voting a few contracts outright

01:25:46.000 | because you can kind of normalize out those fees as well

01:25:48.000 | because if someone lives beyond their life expectancy significantly,

01:25:53.000 | then you're going to be paying those premiums

01:25:55.000 | for much longer than you would have expected.

01:25:56.000 | But kind of the law of large numbers would dictate

01:25:58.000 | that if you have enough of those,

01:26:00.000 | then, you know, the median life expect--

01:26:04.000 | actual lifespan would be pretty close to the life expectancy.

01:26:09.000 | - Right. - So I think if you have a fund,

01:26:11.000 | it's pretty rare to have a capital call

01:26:12.000 | to end up paying premiums because it's pretty predictable.

01:26:15.000 | - Right. Agreed.

01:26:17.000 | Yeah, I wish I knew more.

01:26:19.000 | And so if I--I've never researched that.

01:26:24.000 | It's never been something that's attracted me,

01:26:26.000 | other than, as I said, as an option for somebody

01:26:28.000 | who needs to sell their own life insurance policy.

01:26:31.000 | I'm aware that they exist,

01:26:32.000 | but from an investment perspective, I've never looked into it,

01:26:35.000 | and I don't know how it compares to other opportunities.

01:26:37.000 | It's never attracted me personally, so I've never looked into it.

01:26:40.000 | I wish I had more info for you.

01:26:42.000 | I don't see any problem with it.

01:26:44.000 | I would contact the funds that you find,

01:26:47.000 | find out what their answers are.

01:26:48.000 | I would certainly think that this would be the market

01:26:50.000 | to just simply invest in a fund,

01:26:52.000 | unless you have some kind of inside knowledge.

01:26:56.000 | I would think that--I mean, any--

01:26:59.000 | if I just think from the perspective

01:27:00.000 | of being a former life insurance agent,

01:27:03.000 | if I had somebody who needed to sell their life--

01:27:06.000 | or wanted to sell their life insurance contract,

01:27:08.000 | I would not go looking for an individual.

01:27:11.000 | I would look to say, "Where are the funds?"

01:27:13.000 | And we would call the funds,

01:27:14.000 | and they would have a standardized process.

01:27:16.000 | And so I would think that, almost certainly,

01:27:20.000 | the fund would be the best solution.

01:27:22.000 | So the question is, can you find a fund

01:27:24.000 | that has the appropriate administrative infrastructure,

01:27:28.000 | and the fees are low enough to make it worth it?

01:27:31.000 | And 10% to 13%, if that's what they're telling you

01:27:34.000 | that they've been making,

01:27:35.000 | that would seem to make sense to me,

01:27:37.000 | based upon the numbers involved.

01:27:39.000 | Like, that's what I would expect.

01:27:41.000 | I wouldn't expect--I don't see any way

01:27:43.000 | that you would have any kind of home run

01:27:46.000 | with life settlement investments.

01:27:49.000 | I mean, we're dealing with insurance policies,

01:27:51.000 | and there's just virtually no way--

01:27:54.000 | we're dealing with whole life insurance policies.

01:27:57.000 | There's virtually no way to get any kind of home run

01:28:01.000 | from a life insurance policy like that.

01:28:05.000 | But I can believe the 10% to 13% number that you said,

01:28:09.000 | based upon the discounts

01:28:12.000 | for doing a life settlement with somebody.

01:28:14.000 | So I can believe that very much.

01:28:17.000 | But I don't know anything more about it.

01:28:19.000 | Interesting question.

01:28:20.000 | You're giving me something to dig into.

01:28:21.000 | I'm sorry you stayed for an hour,

01:28:22.000 | and I gave you nothing useful.

01:28:24.000 | But I'll poke around and educate myself a little bit.

01:28:28.000 | - No, no worries, man.

01:28:29.000 | I would have been listening to the podcast

01:28:31.000 | this afternoon anyway, so thanks for letting me listen early.

01:28:34.000 | - Good deal. My pleasure.

01:28:35.000 | All right, Trey, I wish you all the best.

01:28:38.000 | And with that, we close out our show for today.

01:28:42.000 | Thank you so much for listening.

01:28:43.000 | Let me just think if I have any closing comments to make.

01:28:46.000 | The only closing comment I would make

01:28:48.000 | would be what I already said about the taxes.

01:28:52.000 | We've had several in-depth tax questions about this.

01:28:56.000 | And I'm trying to be very careful

01:28:58.000 | and not become the anti-tax guy.

01:29:02.000 | I'm trying not to just adopt that.

01:29:05.000 | But I will say this.

01:29:07.000 | Since I spent years studying all these little tax things

01:29:12.000 | that we've talked about, and I grew so frustrated with it.

01:29:16.000 | It's like, why can't we just have a fair tax?

01:29:19.000 | If the United States of America said,

01:29:22.000 | "We're gonna tax you on every dollar of income

01:29:25.000 | "and profit you make.

01:29:26.000 | "We're gonna tax you a flat rate of 10%.

01:29:29.000 | "There's no deductions for anything.

01:29:31.000 | "We're just gonna give you a flat 10%

01:29:33.000 | "and we're gonna exempt anybody making under $30,000 a year

01:29:37.000 | "from taxes entirely."

01:29:39.000 | I would sign up for that in a heartbeat.

01:29:43.000 | I'd take it any day of the week.

01:29:46.000 | But unfortunately, we have this crazy tax code

01:29:49.000 | that makes us do all this wacky stuff.

01:29:53.000 | And one of the things that I have found

01:29:55.000 | since leaving the United States,

01:29:57.000 | since I have now more flexibility, more margin,

01:30:00.000 | I have foreign earned income exemption,

01:30:02.000 | I have foreign company, et cetera.

01:30:04.000 | Since leaving the United States,

01:30:06.000 | I don't think much about the deductions anymore.

01:30:09.000 | I just think about, "What do I wanna do

01:30:11.000 | "and how can I make more money?"

01:30:13.000 | And for me, that has been incredibly valuable.

01:30:15.000 | And I've talked to other people

01:30:16.000 | who had the same kind of thing.

01:30:18.000 | And I think there's gonna come a day,

01:30:20.000 | I would think that there's gonna come a day probably for me

01:30:24.000 | when I'm no longer a US citizen and I'm living in Dubai

01:30:28.000 | and running a business in Dubai.

01:30:30.000 | And I think that probably when I get out

01:30:33.000 | from all of these crazy stuff that we live in,

01:30:35.000 | I think my business is gonna go up significantly

01:30:38.000 | just because of the mental energy

01:30:40.000 | that comes with having a simplified approach.

01:30:43.000 | And maybe I'm living in some place

01:30:46.000 | where we have a 5% or a 10% rate.

01:30:49.000 | I think those things are reasonable.

01:30:51.000 | But I don't say that to make you jealous.

01:30:55.000 | I just say to make you think.

01:30:56.000 | I really wish there would be some opportunity

01:30:59.000 | to make some kind of political change

01:31:01.000 | and move away from this crazy thing

01:31:03.000 | that keeps smart people like you spending hours and hours

01:31:07.000 | trying to figure out how do I save a few bucks.

01:31:10.000 | I still don't understand why we can't do it.

01:31:12.000 | I don't understand why nobody,

01:31:13.000 | why I'm in the extreme minority with just saying,

01:31:18.000 | "Let's just have, can we just have one flat level tax, 10%?

01:31:21.000 | "And can we cut the size of government

01:31:23.000 | "to make it fit within that?"

01:31:26.000 | But I don't see any political future

01:31:28.000 | for those kinds of ideas.

01:31:30.000 | So I don't know what to do other than to leave.

01:31:33.000 | I wish I had a more positive note to end on.

01:31:35.000 | I wish you tremendous prosperity

01:31:38.000 | and I'll be back with you very soon.

01:31:41.000 | Most awkward show ending ever.

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2021-05-28_Friday_QA