2021-08-20_Friday_QA
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00:00:31.240 | It's Friday, and today, live Q&A.
00:00:34.240 | Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge,
00:00:53.640 | skills, insight, and encouragement you need to live a rich and meaningful life now, while
00:00:58.040 | building a plan for financial freedom in 10 years or less. My name is Joshua Sheets. Today
00:01:01.720 | is Friday, August 20, 2021, and today, we do live Friday calling show. You call in,
00:01:10.800 | we talk anything you want.
00:01:14.200 | If you're new to the show, I want to welcome you to today's episode. Every week here
00:01:26.880 | at Radical Personal Finance, in which I can arrange an appropriate internet connection
00:01:31.160 | and the necessary technology to record the show, each Friday that I can do that, we record
00:01:36.000 | a live Q&A show. It works just like call-in talk radio. You call in, we chat about anything
00:01:40.840 | that you want, any question that you want to talk about, anything that's on your mind,
00:01:44.480 | any topic. Really, I don't screen the calls at all. I just go to the phone lines and we
00:01:49.000 | talk. If you'd like to join me for one of these Friday Q&A shows, I would love you to
00:01:52.560 | do that. The way that you get into one of these is by going to patreon.com/radicalpersonalfinance,
00:01:58.120 | sign up there as a patron of the show on Patreon, and that will gain you access to these Friday
00:02:04.120 | Q&A calls. I do that to keep the numbers to a manageable level, so that they come out
00:02:08.640 | to somewhere between an hour and two and a half, I guess, honestly, but I try to keep
00:02:13.480 | them to about an hour or so, and so that keeps the number of callers manageable. So go to
00:02:18.400 | patreon.com/radicalpersonalfinance if you would like to sign up there. We begin today with
00:02:24.040 | Caleb in Illinois. Caleb, welcome to Radical Personal Finance. How can I serve you today,
00:02:29.240 | sir?
00:02:30.240 | Hi. So I'm 21 and I am engaged and I just bought my first property. It's five acres
00:02:40.440 | in a semi-rural area. And my concerns recently have been on physical preparedness more than
00:02:47.480 | financial preparedness. I've dived into a lot of your episodes going back, talking about
00:02:53.160 | scanning and the alpha strategy. And I was wondering if you had any updated beliefs on
00:02:57.120 | all those systems.
00:02:58.120 | Good question. So in the short answer, yes, I do have updated beliefs. My beliefs are
00:03:07.040 | even stronger that it's a useful tool of preparedness. In fact, just this week, I actually recorded
00:03:13.040 | a podcast episode and I released it. About 150 of you saw it come in and started listening
00:03:19.040 | to it, maybe actually a few hundred of you, called the barbell strategy. And the basic
00:03:24.120 | idea is that I have developed a new personal philosophy of risk management where my single
00:03:33.340 | biggest regret from when I was younger is that I have behaved too conservatively with
00:03:38.120 | my money. I didn't choose to be as aggressive as I could have. I didn't go after opportunities
00:03:43.180 | that I believe I could have. And I just was excessively conservative out of a desire to
00:03:49.600 | not lose money. But in the final analysis, what I've realized is there's really no reason
00:03:56.580 | in the modern world for anybody to be conservative financially. The consequences of failure on
00:04:04.320 | a practical level are quite low. They're very, very low. Now, the consequences of failure
00:04:09.200 | usually that we're worried about are not practical consequences. Rather, they are consequences
00:04:14.240 | that are more psychological, right? I'm scared of failure because I don't want to look like
00:04:18.800 | a loser in front of other people. I want to seem like a winner. And so I'm scared to take
00:04:23.640 | a risk because I'm scared of failure. That's a psychological issue to overcome, not a practical
00:04:29.200 | issue to overcome. So I believe that the consequences of failure have never been lower for most
00:04:34.600 | of us and that it's actually quite easy to ensure against most of the consequences of
00:04:42.920 | financial failure. And so if we can do that and we can put in place an appropriate insurance
00:04:49.840 | scheme to protect ourselves against financial failure, then we can give ourselves more permission
00:04:56.760 | to be aggressive with our investment strategies, aggressive with our speculation, aggressive
00:05:03.640 | with our business buildings, etc. And so one of the pillars of that insurance portfolio
00:05:10.040 | that I see is to take care of the basic needs of all times. And so as I see it, the basic
00:05:17.380 | needs are those things that we worry about. What would I do if I went homeless? What would
00:05:21.000 | I do if I were hungry? How would I feed my children if I ran out of money, etc.? And
00:05:26.520 | so practical physical preparedness, stockpiling of relevant items, I think solves that insurance
00:05:33.680 | need better than almost anything else. So at the beginning stage, if I were 21 years
00:05:37.920 | old, newly engaged, just bought a property, something as simple as putting a debt-free
00:05:43.740 | couple thousand dollar camper that I found, a fifth wheel camper on my property, means
00:05:48.240 | that unless a tornado rips the thing away, I'm always going to have some kind of housing.
00:05:54.760 | Putting in place six months of beans and rice and wheat and corn, setting aside a thousand
00:06:01.440 | bucks worth of long-term storage food so that I will always have calories. This makes a
00:06:07.080 | lot of sense. Putting those basic preparedness items in place makes a lot of sense. And I
00:06:12.440 | think that by doing that, you should put yourself in a situation where you're relatively bulletproof
00:06:21.120 | and thus are able to take more financial risk. As I look at the world, in some ways, we're
00:06:28.160 | more connected to the financial world than ever before. Meaning it's hard to live without
00:06:35.480 | money and making money and having money, etc. But the flip side of that is it seems in some
00:06:41.160 | ways easier than ever before to live comfortably. If you and your fiancé had a few thousand
00:06:50.160 | dollar fifth wheel trailer, you could have a roof over your head on raw land that is
00:06:56.520 | more comfortable than most of our forebears ever had. You could be totally comfortable
00:07:01.360 | and yet for a few thousand bucks, you've secured that. In addition, you can put a cell phone
00:07:07.240 | hotspot there and you have access to the world's best entertainment. You can put a little generator
00:07:14.240 | in the backyard and a little battery backup system and have access to easy electricity.
00:07:18.800 | And so you can insure yourself pretty easily against those things. And then my concept
00:07:24.820 | is that now you should feel more comfortable knowing that your basic needs are met. You
00:07:31.160 | should feel more comfortable speculating. You should feel more comfortable investing
00:07:35.400 | aggressively. You should feel more comfortable really going for it financially. So instead
00:07:40.080 | of sitting back and worrying about building up a few thousand dollars, then you're really
00:07:43.640 | going for it with big investments where you're headed for an eight-figure net worth.
00:07:50.720 | Now the one thing I would say is I don't believe that it's necessary here to be excessive.
00:07:57.800 | So you could lay out and say, "What is my alpha strategy?" Well, the classic concept
00:08:05.840 | of the alpha strategy is basically buy everything you're going to need for the rest of your
00:08:09.960 | life. I do think that at 21 years old, that would be a mistake because what that would
00:08:15.160 | probably do is encumber you with a significant investment into physical possessions, which
00:08:23.120 | could lead to decreased mobility and a general kind of heaviness of living. A friend of mine
00:08:31.120 | calls his lifestyle the low-drag lifestyle. I've always loved that. Living low-drag, having
00:08:36.360 | simplicity in your personal effects. That's hard to do if you've got three extra sets
00:08:42.240 | of tires in the barn because you wanted to buy a lifetime supply of tires. And so I don't
00:08:46.880 | think that a 21-year-old really should go hardcore and try to go in the sense of buy
00:08:53.960 | everything you're going to need for the rest of your life. But I do think that having some
00:08:58.040 | focus on physical preparedness is actually a valuable strategy to free you up so that
00:09:03.000 | you can move much more aggressively in your business and investing affairs.
00:09:07.440 | Yeah, that makes total sense. That's kind of what I was wondering is, do you believe
00:09:18.200 | that if you have almost a Dave Ramsey 1,000 saved, should you switch over to the physical
00:09:24.400 | and then worry afterwards? So you've got three months of supplies saved up, then you can
00:09:29.840 | go to those more risky investments?
00:09:32.080 | How much money do you earn per year at the moment?
00:09:36.640 | Combined it's about $65,000.
00:09:40.240 | And this land that you bought, you said you bought five acres, does it have a house on
00:09:43.000 | it?
00:09:44.000 | It does.
00:09:45.000 | Great. So do you have a mortgage on the property?
00:09:48.720 | Yes.
00:09:49.920 | And how big is that?
00:09:50.920 | It's $180,000.
00:09:51.920 | Okay. Yeah, so I think $1,000 is too little. There's no question that having $1,000 is
00:10:01.640 | very, very useful. But I think my number is $10,000. It's hard for me to... With $10,000,
00:10:10.480 | there's not a lot that I can't see you're able to do. At under $10,000 though, it starts
00:10:18.120 | to get a little bit thin. And so I think the first number I would say is you should build
00:10:24.440 | up to $10,000 in savings should be a first goal before you do any kind of investments,
00:10:30.400 | right?
00:10:32.040 | Physical preparedness though is kind of a mixed bag, right? What are we talking about?
00:10:36.200 | Are we talking about going and... I'm not talking about really anything that's expensive.
00:10:41.980 | You probably have already some stuff. If you're buying a house, one of the first things you're
00:10:46.600 | going to need is a few tools to work on it and fix on it, et cetera. And if you're moving
00:10:50.640 | into semi-rural five acre environment, that's probably normal. And so get good at buying
00:10:54.800 | things cheap, paying for things for cash. Okay, a little bit of food stockpile, but
00:11:00.280 | a couple thousand bucks buys you a lot of food for two people. And I would focus in
00:11:04.920 | the early years, I would focus on just doing that the cheap way, right? Get the sacks of
00:11:11.680 | beans and corn and wheat and rice and put them in a Mylar bag, put them in a bucket
00:11:19.360 | and stick them aside, right? A little bit of extra normal food in the pantry type of
00:11:24.120 | thing. Don't go and spend thousands of dollars on the expensive, fun, freeze-dried storage
00:11:29.640 | food. Grab yourself a little generator, but you pick up cheap at a garage sale. At $65,000
00:11:35.080 | of income, I think that your best bet is to stockpile money. And then when you find good
00:11:42.000 | deals, spend a few thousand dollars here and there on physical preparedness. But I think
00:11:45.800 | money is in most cases your most useful tool. So I don't have a formula that I would give.
00:11:51.000 | I would just say if you find a good deal, get it. If you come across a great deal on
00:11:54.960 | a backup generator, meaning not a whole house, just a little portable generator somewhere,
00:12:00.040 | pick it up. It doesn't matter how much savings you have. Because at this level of finances,
00:12:04.360 | these things that we're talking about are easily turned into money if you want to. And
00:12:09.280 | so I look at, let's say you're on Facebook Marketplace and somebody's selling a little
00:12:14.200 | 2,000 watt Honda generator, and you can pick it up for $350. Well, that's as good as money.
00:12:19.460 | You can put that thing back on Facebook Marketplace any day you want, and you can turn it into
00:12:23.520 | $350 and you won't lose much. And so I don't have a formula to say here's all the things
00:12:28.640 | that you need to buy. I just know that having some things covered is useful. But then what
00:12:36.320 | I would do is create some stability, save $10,000 or so, and then focus and say, "How
00:12:43.560 | can we go for it?" This is what I wish I had done at 21, is how can I go for it, not
00:12:49.880 | be conservative, knowing that I might lose money, my businesses might fail, my investments
00:12:54.080 | might fail, but how can I go for it? Because at 21, there will never be a time in your
00:13:00.840 | life where the risk is easier to handle. There will never be fewer obstacles in your way.
00:13:07.160 | And so when you go for it, as whatever that means in your context, go for it in your career,
00:13:12.720 | go for it in your investments, whatever it is, go for it. Because if it fails, it's no
00:13:19.320 | big deal. You're going to be fine. That philosophy really is the same at every stage, but it
00:13:26.280 | becomes more psychologically difficult down the road. So I hope that was clear enough.
00:13:30.920 | I don't have a perfect answer for you. I would do both. If I came across a great deal on
00:13:34.760 | something that fit into my personal physical stockpiling strategy, I would grab it. And
00:13:40.640 | I would do it, but I would just be cautious that I don't overdo the physical stuff and
00:13:45.560 | underdo the money. Money is a valuable preparedness tool, and it's the thing that buys everything
00:13:52.320 | else that you need.
00:13:54.000 | Yeah, that sounds reasonable to me. Would you say someone at this life or at this stage
00:14:03.560 | in life, would it be better to, in my free time, try to find something else to create
00:14:08.660 | more income?
00:14:09.660 | What kind of work do you do?
00:14:10.660 | Get the money, or would it be... I do design for construction.
00:14:16.860 | Design for construction, meaning like architectural drawings, CAD stuff? What does that mean?
00:14:23.440 | CAD stuff and conceptual stuff.
00:14:26.320 | Do you feel like this is a career that you're well suited for?
00:14:31.320 | Currently. Long-term goals are very different.
00:14:36.800 | Tell me about your long-term goals then.
00:14:43.160 | Longer term would be establish small-time spin farming or getting to my own homestead
00:14:50.340 | and just basically having enough to coast on and satisfy my needs with that profit.
00:14:57.480 | So your vision is to work a very modest amount, earning just enough money to cover your needs
00:15:04.440 | and doing that in activities that kind of give you a general lifestyle that you prefer.
00:15:09.280 | Is that right?
00:15:10.280 | Yes. And this current job that I'm in, what career that I'm in, would be the initial bank
00:15:17.760 | role for most of the things that I would need, land and equipment, to hopefully not take
00:15:22.800 | on debt right at the beginning.
00:15:26.240 | So why don't... Do you have a desire to... Why at 21 years old do you want to do just
00:15:35.360 | enough to get by?
00:15:40.040 | I'm not very much into luxuries. I feel comfortable at a frugal level. So if I were to have enough
00:15:49.200 | to buy myself a certain acreage that I could just work on, that work is a fulfilling work
00:15:54.480 | to me. I know you always talk about work towards something that you don't want to retire from
00:15:59.440 | and that's something I could see doing for the rest of my life.
00:16:03.680 | I think one of the things that you'll have to do here is you have to test this. And so
00:16:07.760 | the advice I would give is as quickly as possible, get yourself into the lifestyle that is your
00:16:15.160 | ambition and try it out and do it as quickly as possible so that you can see if that's
00:16:21.320 | actually for you.
00:16:23.200 | I'll just simply share what I think is probably the case in many circumstances that are like
00:16:29.840 | yours. Notice I'm trying to be cautious. I'm trying to not tell you what your goals are,
00:16:34.960 | what your desired lifestyle is. But here's what I have learned.
00:16:40.880 | I think that if I put 10 young men in a room and of those 10 young men that told me, "I
00:16:52.280 | want to do just enough to get by. I don't have big materialistic ambitions. I'd rather
00:16:58.560 | kind of live a day-to-day existence." I think that 2 of the 10 probably actually mean it
00:17:05.920 | and 8 of the 10 simply have not found something that turns them on yet. They haven't found
00:17:11.280 | something that they genuinely want to do. They haven't found something where they believe
00:17:15.960 | they could actually contribute.
00:17:18.160 | I understand the desire to live a simple lifestyle like you're describing. I had it when I was
00:17:27.920 | in my early to mid-20s. I had a goal. I was like, "I didn't like being at work and if
00:17:33.760 | you told me at that time that I could build and develop a self-sufficient homestead and
00:17:39.160 | that would be kind of what I did." At the time, it seemed like a dream that I had and
00:17:43.760 | I thought that was what I really wanted.
00:17:46.200 | What I have learned though, continuing on the process, is it was actually a lot simpler.
00:17:51.880 | I wasn't in a job that gave me any opportunity to really indulge my sense of ambition and
00:17:58.800 | I was trying to escape from a daily schedule that I didn't like. At this point, it's obvious
00:18:05.240 | to me that just working on a self-sufficient homestead was not for me. Rather, what was
00:18:10.600 | better and more important was for me to get into a job where there was more of an opportunity
00:18:14.160 | to grow and that I was just in a bad job for me, not that I needed to get out of the work
00:18:19.040 | world.
00:18:20.040 | This was some of my own thinking as it changed over time with regard to the financial independence
00:18:25.600 | space. A number of years ago when I was in my mid and late 20s, I would sit and consume
00:18:32.240 | nothing but early retirement blogs because I thought I wanted to retire early. Once I
00:18:40.000 | discovered the concepts of it, then it felt like, "Wow, this is my ticket out." But now,
00:18:47.080 | in hindsight, I see that I was simply in a career that didn't match my ambition and that
00:18:53.240 | had me too constrained.
00:18:55.040 | At this point in time, I have walked away from any ambition of retiring early. I've
00:19:01.560 | walked away from any ambition of living on a farm and just farming every day because
00:19:08.360 | I've realized that I need much bigger challenges. Since I've now created a lifestyle where I
00:19:14.440 | have the freedom to do what I want on a daily basis and I'm not constrained by someone else
00:19:18.080 | telling me something, now my goals have gotten a lot bigger.
00:19:22.720 | I don't know if that's you or not. All I can say is test it as quickly as possible. The
00:19:28.680 | two examples I would give would just simply be this. A lifestyle business, for example.
00:19:35.520 | When I started Radical Personal Finance, my goal was to build a lifestyle business. I
00:19:39.200 | wanted something where I could earn $100,000 a year from a laptop. I did that. It took
00:19:44.920 | me a couple of years, but I did it. Once I got there, then I thought, "Wait a second.
00:19:50.000 | Is this what I want?" I realized, "No, I want to have a bigger impact on the world.
00:19:54.480 | I want to make a bigger mark. I want to be more useful."
00:19:58.040 | This isn't cutting it. This feels good. Yeah, okay, because I'm hanging out, but why am
00:20:01.800 | I going to waste my youth hanging out? I'm not tired. I'm not worn down. Why am I going
00:20:07.240 | to waste my youth and my strength hanging out? I want to make a bigger impact on the
00:20:10.920 | world. That doesn't have to be money, but money is a really good marker of how well
00:20:17.880 | you're serving the community around, how well you're serving people that you love. It's
00:20:23.480 | a really useful marker. I'm glad that I achieved it relatively quickly so I could realize,
00:20:28.480 | "No, I actually want to make a bigger impact."
00:20:31.280 | The second thing was I remember a number of years ago. My goal personally was oftentimes
00:20:35.920 | I always saw myself living out in the country on a little ranch. A few years ago, a little
00:20:42.680 | ranchette that came for sale in the United States, and I was like, "This is perfect
00:20:46.920 | for me." I flew back to the United States. I went and looked at the ranch. I just remember
00:20:52.280 | just walking around the ranch. On paper, it was everything that I had ever dreamed. I
00:20:58.120 | looked at it and I said, "You know what? This isn't for me. I used to think this was,
00:21:03.480 | but it's not for me." Those two experiences gave me a sense of clarity of the future where
00:21:08.720 | it allowed me to say, "Okay, I'm going to abandon those goals and go backwards."
00:21:13.880 | To me, it's strange that a 21-year-old man wouldn't be burning with ambition to make
00:21:20.100 | a mark on the world. Now, whether or not that includes finances, whether or not that includes
00:21:25.280 | making millions of dollars or spending millions of dollars is kind of beside the point. I
00:21:31.280 | want you to be filled with a sense of passion and impact and purpose to the extent that
00:21:36.280 | you can find it. That could be spin farming. That could be managing a property. I think
00:21:42.080 | just be careful and as quickly as possible test yourself actually doing those things
00:21:47.800 | so that you can see if that's actually a good fit for you, even to this point. Knowing what
00:21:52.960 | I now know, if I were 21 years old and I were working in a job that I wanted to retire from,
00:21:57.200 | like construction, I wanted to go be a spin farmer, as quickly as possible, meaning less
00:22:02.320 | than a year, I would put myself in a position where I could just go and do it so I could
00:22:06.320 | get a sense if that was actually for me. If so, go for it or if not, build a different
00:22:11.080 | plan and a different goal. You may be one of the two of the ten that is contented with
00:22:14.960 | that kind of lifestyle. I'm not. I thought I was. I'm not. I'm one of the eight out of
00:22:19.760 | ten that wants to have the opportunity to grow and be bigger. I'm not saying one is
00:22:25.720 | right or one is wrong. I am saying test those things as quickly as possible. Especially
00:22:32.480 | in your youth, the quicker you can achieve parts of your goals that will help to show
00:22:38.680 | you whether they're actually your goals or not so that you can move with greater and
00:22:44.000 | greater certainty going forward in the future. Those are my thoughts. All right.
00:22:49.840 | >>Jay: Yeah, sounds good. It sounds like maybe I should look more into developing something
00:22:57.440 | along the lines that Jack Spierko would have done instead of just being a personal farmer,
00:23:04.000 | maybe doing what I can to help others and educate if that's what I actually want to
00:23:09.120 | do.
00:23:10.120 | >>Steve: You can create it, whatever it is that you want to do. I just believe that you
00:23:17.160 | want to make the bigger the goal, the more exciting it is for me. Again, this has been
00:23:24.320 | the theme of my life over the last couple of years, I've thought. I've realized I was
00:23:27.600 | too conservative. I was too conservative with my goals and too conservative with my finances
00:23:32.240 | and too conservative with my abilities. I have realized that playing a game at a bigger
00:23:39.000 | level is simply more fun. When you realize that it's all a game, then why not have the
00:23:45.840 | most fun possible? The bigger that you can go, the better. There are arguments against
00:23:54.320 | it. I'm the guy who has a podcast called Why You Should Probably Lower Your Financial Goals.
00:23:58.000 | I stand by the thinking in that, but I have changed and grown and I've realized that the
00:24:07.920 | time that I feel the most alive is when I'm right on the edge of my ability. We all have
00:24:14.080 | different levels of ability, but the time that I feel the most alive is when I'm right
00:24:17.120 | on the edge of my ability. I want to spend more and more of the coming years not pulling
00:24:22.720 | back to where I'm comfortable, but I want to spend more and more of the coming years
00:24:26.160 | growing and living continually on the edge of my ability so that when I look back decade
00:24:32.500 | by decade by decade, I can chart massive growth. That's my ambition. What that looks like has
00:24:40.560 | lots of different answers, but that's my personal ambition is to live on the edge of my ability.
00:24:47.040 | Caleb, I love talking to you. Thank you. I think you're a new caller, new patron. I'd
00:24:51.680 | love to keep you keep calling in regularly and chat about some of this stuff because
00:24:55.280 | it's so exciting for all of us. I think that most of us who are 15 years or senior, you
00:25:00.800 | think, "Oh, if only I'd known at 21." It's exciting to hear from you. I'd love for you
00:25:05.720 | to call in regularly. All right, we've got a Trey in Texas. Trey, welcome to the show.
00:25:08.840 | How can I serve you today, sir?
00:25:10.840 | Hey, Joshua. That was a great conversation you guys just had. My question is going to
00:25:15.480 | be really boring compared to that. When you told them that you feel your best or you live
00:25:23.400 | your best when you're at the edge of your ability, I've always felt the same way. I
00:25:25.840 | always say the same thing differently. I say I'm at my best when I'm in over my head.
00:25:31.280 | Right.
00:25:32.280 | I totally agree. Mine will be pretty easy. I wanted your recommendation. It actually
00:25:41.120 | kind of ties into what you guys were just talking about, but I actually did buy the
00:25:43.600 | little ranch yet about a month ago. It's 109 acres. It's got two houses on it and a 10-acre
00:25:53.000 | pond. It's timberland. We're going to hunt out there. I'll have family and friends hunting
00:26:00.200 | and fishing. There's nobody that lives out there year-round. In the back of my mind,
00:26:07.600 | I've kind of felt this little bit of liability. What if some teenagers go out there and are
00:26:13.800 | swimming or something and something happens when nobody's around? I wondered if you had
00:26:19.520 | any specific sort of asset protection strategies for that scenario. Maybe hold it in an entity
00:26:29.600 | rather than my personal name or different insurances and that kind of thing.
00:26:35.640 | I think the first thing is you start with the practical stuff. Before you ever talk
00:26:40.780 | about ownership, which certainly is an important topic, but with liability, you start by protecting
00:26:48.660 | your – the way that you begin liability planning is you lower your liability by doing
00:26:55.120 | the stuff you know you need to do. The first thing you do is you go out and you post the
00:26:59.080 | property with appropriate signage, right? No trespassing. Keep out. You make sure that
00:27:05.240 | you have a proper gate if possible. Put a gate on your road. Even if there's no fence
00:27:10.600 | around it, put a gate on your road. You go out and you make sure there are no major hazards.
00:27:15.440 | There's no antique well that's uncovered. Go through and think what's all the bad stuff
00:27:20.440 | that could happen and then put in place protection for yourself. I really believe that's 80%
00:27:26.880 | of the battle is actually just doing stuff. One of the things that has bothered me so
00:27:32.200 | much over the years studying asset protection and looking at asset protection is this. You
00:27:38.600 | can find abundant horror stories, genuine cases where somebody got sued for something
00:27:46.880 | so ridiculous and you say, "How on earth did this ever get to court? How on earth did
00:27:51.640 | this person ever win?" Sometimes when you dig under the hood, you find that it's not
00:27:56.320 | as frivolous as it first appeared. The time-worn example of this is the classic McDonald's
00:28:02.200 | hot coffee case. I had grown up in my high school years hearing about the fact that somebody
00:28:08.500 | had sued McDonald's and won because this person poured hot coffee in her lap and she got burned
00:28:18.040 | and then she sued McDonald's. I thought, "Oh, frivolous lawsuit." Then in my business law
00:28:22.800 | class in college, we read the case, the case notes, the briefing, etc. We talked about
00:28:29.520 | it and I came away saying, "Wow, you know what? She was totally right. If I had been
00:28:34.840 | on the jury, I would have awarded her damages based upon the facts of the case, based upon
00:28:42.480 | the way that McDonald's dismissed her claims. She was totally right. This wasn't a frivolous
00:28:48.880 | lawsuit." Then when you actually follow the money through and everything, you realize,
00:28:52.240 | "You know what? The justice system in the United States worked. It actually did work.
00:28:57.560 | It did what it was supposed to do. It wasn't just a farce." I think my experience even
00:29:02.900 | talking to other people who've gone through law school is often similar. You go through
00:29:07.320 | training and you realize, "You know what? This system may be imperfect, but it generally
00:29:12.800 | works." When I read these frivolous cases in books selling asset protection planning
00:29:22.080 | ideas, I always ask myself, "How representative is this?" My answer is, "I don't know. I
00:29:28.960 | have never found somebody who could tell me. I haven't found any way to analyze it."
00:29:33.960 | But I believe, just because it makes sense to me, I've got to believe that yes, there
00:29:39.440 | are cases where if I were on the jury, I would disagree with the outcome. There are clearly
00:29:44.680 | those cases. Often I'm scandalized when I actually do follow a case closely, something
00:29:50.440 | that's in the news and I sit and I watch the briefings every day and I listen to the arguments
00:29:54.640 | and then the jury comes to what I consider to be the wrong decision. I'm often really
00:29:58.720 | frustrated by that and it chips away at my faith for justice. But on these kinds of things,
00:30:04.840 | I still think 80% of your battle is won by simply paying attention to things. Go out
00:30:10.900 | to the property, look at it and say, "What are all the things that could happen and how
00:30:14.040 | do I do it?" Put in place an expectation of privacy. That's what signage is about. That's
00:30:18.720 | what putting a gate up is about. That's what making sure that you lock the doors is about,
00:30:23.280 | etc. And if you'll do that, you'll probably put most of the things that you need. So I
00:30:28.240 | think first of all, that's the first step. Second of all, I think minimize the target.
00:30:33.920 | One of the problems with rural property is simply it's going to be broken into. There
00:30:38.960 | is no lock that can keep someone out if they have enough time and if they have privacy.
00:30:45.280 | There is no lock, there is no door, there is no security system that can keep everyone
00:30:49.760 | out if they have enough time. So most security thinking is simply designed around slowing
00:30:57.840 | people down for enough time either for an alarm to activate and for law enforcement
00:31:03.280 | to arrive or slowing them down and making it frustrating enough that they're too worried
00:31:07.640 | about getting caught and so they leave. You know, the classic example, why do you go and
00:31:12.420 | buy a gun safe and put one in your basement to stick your guns and your passport into?
00:31:18.240 | You can get into a gun safe and the actual laboratory ratings are rated in something
00:31:23.820 | like five minutes, ten minutes, fifteen minutes. The standards, when you actually look at the
00:31:28.800 | ratings and you look at a rated safe and you realize, oh, this safe is designed to keep
00:31:35.600 | two guys with ordinary tools out for ten minutes and thus it gets a level two rating. Forgive
00:31:41.840 | me, I can't give all the numbers off the top of my head, but I have looked at all the ratings.
00:31:47.260 | And you say, wow, that's ridiculous. But still, it's valuable because if you can keep two
00:31:53.080 | ordinary guys out with ordinary tools for ten minutes, that gives ten more minutes and
00:31:59.600 | it dramatically cuts down on the amount of time that stuff is stolen. And so with a rural
00:32:04.080 | property, that problem comes into high relief because the thing that people have in a rural
00:32:09.460 | property is time and privacy, which means that you want to be very thoughtful about
00:32:17.000 | theft and what you have out there. If you had abundant personal property held at this
00:32:24.280 | location, then you need a caretaker. You need some way to have eyes on it. So if there's
00:32:28.340 | a neighbor who can't see it with 109 acres, perhaps not, you just need to be careful and
00:32:33.660 | make sure that nothing valuable is out there. If there is anything valuable, it needs to
00:32:37.780 | be hidden and concealed more than secured. Security is good, but hidden and concealed
00:32:44.260 | is better. And so you can strategize depending on the property. You can strategize different
00:32:49.440 | ways to do that. There are ways to conceal things in a home, ways to conceal things in
00:32:54.120 | a barn, ways to conceal things, etc. So I don't want to go too deeply into that. Just
00:32:59.040 | recognize that there's a good chance that that stuff is going to be taken.
00:33:02.000 | Now, holding it in an entity. There are many good reasons to hold real estate in an entity.
00:33:07.760 | Asset protection planning might be one, but it will depend on the state. I think, is this
00:33:17.440 | property in Texas?
00:33:18.440 | No, it's in Arkansas.
00:33:21.440 | Arkansas. So I'm just not competent enough to discuss the state level discussion of property
00:33:29.360 | in Arkansas. I think because, if I remember from a previous call, you own this with family
00:33:34.600 | members. I think here there is a good case for asset protection because you can put in
00:33:39.520 | place multiple owners. And so you can put in place a trust, depending on what your local
00:33:46.480 | legal advisor would recommend to you. Perhaps a land trust, perhaps a land trust mixed with
00:33:52.200 | an LLC in some capacity. I don't know the details on Arkansas law, but I would put it
00:33:58.480 | into an entity held and then distribute the shares among you and your co-owners so that
00:34:03.720 | there is multiple ownership. And so now you have a much higher protection from liability.
00:34:12.800 | And then just make sure that the insurance is in place properly as well.
00:34:16.560 | So is there going to be anything airtight? No, there's nothing that's airtight. But I
00:34:22.080 | think that 80% of the battle is just go out on the property and make sure that the stuff
00:34:26.240 | that should be done is done. And then put in place proper insurance protection with
00:34:31.960 | liability insurance and then put it into ownership. And that's as good as you're going
00:34:36.880 | to get.
00:34:37.880 | Yeah, that's actually exactly what I did the very first weekend after we closed. I went
00:34:45.400 | down there and locked everything up and put the signs up and did that kind of thing. So
00:34:48.280 | I guess I'm 80% of the way there then.
00:34:50.280 | Yeah, and then just fix the stuff.
00:34:52.680 | Do you have an opinion on how much personal liability is reasonable? How much personal
00:34:58.480 | liability insurance protection?
00:35:00.000 | I think you would answer that depending on the value of the property and then the value
00:35:04.040 | of your other assets that are not protected otherwise. So if you've got a million dollars
00:35:08.440 | sitting in cash in your personal bank account for whatever reason you have that, then you're
00:35:13.600 | well served by increasing your liability insurance across the board to a high number. If you
00:35:21.000 | got a million dollars sitting in a 401k, which is already protected from liability and no
00:35:25.920 | cash assets, then now I think you can be a bit more modest with your liability coverages.
00:35:32.080 | So I would solicit the advice of a local property and casualty insurance agent and I would look
00:35:37.360 | at – I'm not trying to just backstep it, but there's no other answer – and I would
00:35:40.640 | look at my assets and say what's exposed and then what makes sense to protect based
00:35:46.120 | upon the amount of assets that are exposed.
00:35:48.040 | All right, perfect. Thanks, Joshua.
00:35:50.600 | Yeah, my pleasure. Congratulations on the property. I think there's a lot of cool stuff
00:35:54.360 | that you can do with a rural property and a lot of stuff – there are a lot of good
00:35:59.880 | ideas. What I would do is ask around in the prepper forums. There's some great prepper
00:36:04.960 | forums online and talk about the situation and see what ideas people have come up with
00:36:11.480 | for how to secure things at a rural property. Everything from totally underground shipping
00:36:17.360 | containers and bunkers and all kinds of stuff. You can put in place stuff to protect whatever
00:36:23.480 | it is that you want to have out there. But I think there's a lot of ideas. Just be
00:36:27.640 | aware of the fact that a lot of times when you have a rural property, there's going
00:36:33.240 | to be people wandering on it, right? Your local 15-year-old boys are going to be on
00:36:37.200 | the property. Most of them aren't there to cause trouble, but they're going to check
00:36:40.280 | it out. And if there's something really juicy looking, they'll check it out. And if there
00:36:45.320 | is something that someone knows is of value, then they have time and privacy, which means
00:36:50.840 | they ultimately can gain entrance. So anything that you put out there, you want to do it
00:36:54.920 | with that thought in mind.
00:36:57.320 | We go to James in Georgia. James, welcome to the show. What can I serve you today, sir?
00:37:01.960 | Hey, Joshua. Really appreciate the good work that you do. And I had a couple of questions.
00:37:08.040 | I can start with the first question, maybe if we have time to go to the second. The first
00:37:13.480 | question that I have is around saving for retirement now versus saving up for a house.
00:37:21.400 | And a little bit of context for you. I'm 27 years old. I make about $80,000 per year and
00:37:27.720 | spend about $40,000 per year in after-tax expenses. And then right now, in terms of
00:37:35.840 | how much I'm saving for retirement, I max out a Roth IRA each year, about $6,000 a year.
00:37:42.840 | And then I also have an HSA that I've also been maxing out. And then I do about 8% in
00:37:50.120 | my 401(k) enough to get the employer patch. And then I also have $15,000 emergency fund,
00:38:02.640 | and then about just $100,000 in relatively conservative investments. And my goal is to
00:38:08.280 | get a down payment of $150,000 saved up within the next couple of years as my girlfriend
00:38:13.800 | and I are on the track towards engagement and marriage within the next couple of years.
00:38:20.840 | How much of a house do you want to buy?
00:38:24.320 | Yeah. Just thinking in my area, probably about half a million.
00:38:32.040 | And let me look here. Are there any more details that I need?
00:38:41.880 | Yeah, I think that's about everything number-wise. I guess the question is, do I think about
00:38:52.840 | maxing out retirement savings now or saving a little less for retirement and save up more
00:38:58.800 | for the house quickly? And then how do I really go about saving effectively in terms of what
00:39:04.640 | investments to look at, where to park the money, that sort of thing?
00:39:09.160 | Are you stable geographically? Do you think that you might move away from where you are
00:39:14.440 | in the future?
00:39:18.040 | I think we both want to stay in the Georgia area, Atlanta area.
00:39:25.920 | Can you buy a house with a smaller down payment?
00:39:33.080 | Probably so. I think that's an area that I need to do some more research, some more looking.
00:39:38.760 | So the question to your answer is not clear-cut. I'm sorry, the answer to your question is
00:39:45.920 | not clear-cut as I see it. There are good arguments to make on both sides. So let me
00:39:53.480 | present a few of those arguments to you and then try to draw a couple of conclusions.
00:39:59.640 | The first thing is, I think you have to seriously question, is a house useful to me at this
00:40:06.760 | point in life? And some people find a great deal of joy and value in being a homeowner.
00:40:14.860 | Some people don't. So that would be the first thing is, are you the kind of person who sees
00:40:18.840 | yourself gaining tremendous value in being a homeowner, especially a homeowner of a $500,000
00:40:27.200 | house?
00:40:28.720 | I understand people who are like that. I know people, they're real homebodies. They love
00:40:34.120 | to use their home. They use their home frequently with entertaining. They just enjoy being in
00:40:38.400 | there. I think there are some lifestyles where that makes a lot more sense. I don't know
00:40:43.480 | if you work at home, if your girlfriend works at home. I observe that a lot of people buy
00:40:49.720 | houses that they barely use. There are many people, many young couples who own a beautiful
00:40:57.120 | home and they go there and sleep and much of the time they're not there. They might
00:41:02.320 | entertain once a month. They spend their days at jobs, at offices. On the weekends they're
00:41:08.840 | frequently out with their friends and sometimes you wonder, is this really worth it? There's
00:41:13.840 | a big difference. My wife and I married at 26. There is a major difference in the usefulness
00:41:21.480 | of a house for us today with four children in our mid-30s compared to at 27. Now when
00:41:31.480 | we bought a house, I bought a house when we were 27, so right at your age, it felt like
00:41:36.840 | the last checkmark on that life success chart. I was glad that I bought it, but then when
00:41:45.800 | I sold my house, I was glad that I sold it. I can go back and forth. I do continue to
00:41:51.560 | believe that houses are often overrated for a lot of people. Not everyone, but overrated
00:41:56.880 | for a lot of people. When it comes to buying a house, one of the challenges is you're often
00:42:02.760 | buying more than you need at this point in time. A young couple, let's say that you marry,
00:42:09.840 | you have a young couple, late 20s, you only need a house of about three rooms. You need
00:42:15.480 | a bedroom, a kitchen, and a dining room/living room. But often when you're buying a house,
00:42:21.280 | you're buying a house for future ambition. It's just kind of an inefficient approach,
00:42:25.160 | right? So you wind up buying a three or four bedroom house and it's an unnecessary expense.
00:42:30.880 | So there are a lot of good reasons not to buy a house now and just simply to wait. If
00:42:35.560 | you go back in the early part of the annals of Radical Personal Finance, I've done multiple
00:42:39.980 | shows on should I buy a house or should I rent? And in many cases, the raw costs of
00:42:45.360 | buying a house are simply higher than the raw costs of renting, if you're willing to
00:42:50.800 | rent a simpler property. And I'm not at all scared of not owning a house. Now, the flip
00:42:59.480 | side argument in favor of home ownership is there are many good advantages to owning a
00:43:05.600 | home, especially for those who are geographically stable, if you can do it at an early age and
00:43:11.560 | if you can stay put for a long time. If you could buy a house at 28 or 29 years old that
00:43:19.680 | you then were in for the next 30 years, and if you bought a house that was suitable for
00:43:24.480 | your anticipated family structure, etc. locking that in at today's prices, setting it up on
00:43:30.560 | a fixed rate mortgage means that your financial life is abundantly simple. If you have money
00:43:36.840 | saved, you have a job, you have a house and you pay off the house over just a normal time
00:43:41.800 | period, it's hard not to become wealthy in the United States if you do that. And for
00:43:46.680 | many people, their own home is one of their best investments. In fact, John T. Reid, the
00:43:54.560 | real estate author, just wrote a new book called "Why Your Own Personal Residence Is
00:44:02.680 | the Best Real Estate Investment You Can Make". I haven't read the book yet, I just ordered
00:44:06.560 | it, it hasn't arrived yet. But here's a guy who made his career as a real estate investor
00:44:14.800 | followed by a secondary career as an extremely prolific and well-respected real estate author
00:44:22.160 | writing something like almost 20 books on real estate, various aspects of real estate
00:44:27.840 | investment with piercing clarity. And at the very end of his career, he owned no rental
00:44:34.360 | properties and he wrote a capstone book basically stating why your own personal residence is
00:44:41.680 | your best real estate investment. And I'm familiar with a few of his arguments because
00:44:46.160 | I watched him develop the book. I look forward to reading it because I think there are good
00:44:49.820 | arguments to say that hey, even if you don't have the perfect house, even if you just have
00:44:53.480 | it for a few years, owning your own house can be a really productive thing to do financially.
00:44:59.520 | I could go more but that's enough on the back and forth. So I'm not going to answer that
00:45:03.840 | question for you today. What I will tell you is the way that I would negotiate this tension
00:45:08.820 | you feel between retirement savings and house savings is simply I would put in place a smaller
00:45:13.880 | down payment. I see no reason to make large down payments on personal residences. I see
00:45:21.320 | every reason to pay cash for a house if you want to and if you can. I also see every reason
00:45:28.560 | to put the smallest down payment possible that allows you to get good financing terms.
00:45:36.440 | But I see no benefit in putting large down payments in place. And so if I were in your
00:45:41.660 | shoes and if upon reflection I decided we do want to buy a house, I would put down the
00:45:48.740 | minimum down payment necessary for us to get good quality financing, modest interest rates,
00:45:58.200 | etc. across the board. I would very seriously consider simply doing an FHA loan and putting
00:46:06.460 | down quite literally the minimum using an FHA loan. That will come with some costs that
00:46:11.880 | you need to calculate, things like private mortgage insurance, etc. But I think that
00:46:16.920 | you will retain your flexibility career-wise, life-wise, etc. if you keep most of your money
00:46:23.600 | in savings and I believe that you should maximize your retirement account contributions versus
00:46:29.720 | money that goes into the home. And the reason I say that is a few things. Number one, the
00:46:36.040 | United States of America has easy credit for homeowners and when people want to throw you
00:46:40.720 | hundreds of thousands of dollars at low interest rates and they want to do that secured by
00:46:45.400 | an asset with pretty good terms, a high degree of safety, I think you take them seriously
00:46:52.680 | and you consider taking their money. When you do that, you compound that by putting
00:46:57.960 | your money into retirement accounts which saves you money and that money in retirement
00:47:02.240 | accounts is very, very safe from the protection from creditors. The amount of money you have
00:47:11.160 | paid down on the house does not affect your rate of return on the property. If you put
00:47:18.520 | $5,000 down to buy a $500,000 house and that $500,000 house increases in value to $600,000,
00:47:30.080 | it would not have been a better investment if you put $150,000 down on the same $500,000
00:47:36.160 | house. And in fact, it's far worse from a numerical perspective. So, most of the arguments
00:47:43.340 | are put down the minimum down payment on the house and keep your money in another place
00:47:49.520 | where it can grow and be productive. And this makes a lot of sense for a personal residence
00:47:55.680 | where you're not depending on income from a tenant to pay it, etc. So, from an investment
00:48:00.560 | return standpoint, the argument is on minimal down payment and from a safety perspective,
00:48:08.280 | the argument is also on minimal down payment. Let's say that you put down $150,000 and your
00:48:13.280 | monthly payment winds up being $3,000 a month on the balance. It would be a little high.
00:48:18.800 | Let's say it's $2,300 a month on the balance. But you have $0 left after you put down $150,000.
00:48:26.280 | Well, in that situation, you wind up with needing to make $3,000 every single month.
00:48:34.460 | But if you put $50,000 down, you keep $100,000 in reserves, and you have now a $3,500 a month
00:48:43.940 | payment, well, at $100,000 total divided by $3,500, you have 28 months of safety. And
00:48:54.020 | so, I would keep $100,000 in my emergency fund, probably positioned inside retirement
00:49:01.860 | accounts, if I can get it in there. I would make my contributions to the retirement accounts
00:49:05.980 | every year, maximizing those, because every year that passes, you lose the ability to
00:49:11.700 | contribute to that account. Once this year passes, you will no longer be able to maximize
00:49:17.220 | those $401k. You can maximize next year's $401k, but these $401k are lost. And so, I
00:49:24.100 | would maximize retirement accounts and buy the house with the smallest down payment possible,
00:49:30.660 | knowing in the future that I can always pay down more, and I can always refinance. But
00:49:35.940 | that way, I keep maximum flexibility, etc. While keeping in mind that perhaps by purchasing
00:49:42.980 | a house, we're less flexible, less able to move for opportunity, more tied down. These
00:49:47.740 | things can be benefits, but I would consider those downsides to home ownership as well.
00:49:53.260 | Yeah, I think that that's a good book recommendation too. I think maybe a good follow-up is I really
00:50:02.660 | don't know the first thing about the real estate market. So, what would be some good
00:50:05.860 | places to look to begin that education?
00:50:09.860 | So one of the beauties of that idea, the idea of just simply owning your own house, is you
00:50:15.460 | don't need a lot of education for the real estate market. And most of the real estate
00:50:20.460 | market is set up to serve you without education. And so, it's actually quite simple. Now, I
00:50:26.940 | don't know how aggressive your goals are. I have also been an advocate for simply purchasing
00:50:32.980 | a series of homes, planning to live in them for a short period of time, and then rent
00:50:39.060 | them out as rental properties, the so-called Nomad Strategy. I've recommended James Orr's
00:50:44.980 | book, O-R-R. He has a free book online that he published and a free series of lectures
00:50:49.360 | on this. Basically, the idea is you buy a house, plan to live in it for a year, and
00:50:53.340 | then after a year, you rent that house out and you go buy another one and you move into
00:50:57.180 | that. And you repeat that three, four, five, six times, however many times, and then you
00:51:01.340 | quit and you just let your tenants pay down those mortgages for you over time. I'm an
00:51:04.860 | advocate for that as well. But you'll have to decide if you're willing to wait in and
00:51:09.740 | go for it. And so, I think the key books that I recommend for people to start with, Read
00:51:18.140 | the Book is probably a good one. Again, it's on its way to me. He just got them published,
00:51:23.420 | printed and he has shipped them out. So, it's on its way to me and I look forward to reading
00:51:27.100 | it and reflecting on his comments. You can read, I've been an advocate for John Shob's
00:51:34.380 | book called Building Wealth One House at a Time. Kind of a practical approach to say,
00:51:39.620 | "Hey, let's buy some rental houses." I've also been an advocate for, as I just mentioned,
00:51:45.100 | James Orr's book on Nomad Strategy. I think there are some other good books. Brandon at
00:51:53.580 | Bigger Pockets published a couple of good introductory real estate books. John Reed
00:51:57.380 | has a good real estate book. I don't have one book for anything. I find that generally
00:52:03.340 | I buy five books on a subject, read all five of them or flip through all five of them.
00:52:06.660 | Then I get a pretty good grasp of what the issues are and then I can narrow in on what
00:52:09.700 | my questions are and find the book that answers those questions. So, if you are open to that
00:52:15.540 | approach I think it's really good and I think it's a powerful. If you have a W-2 income
00:52:20.620 | and your girlfriend has a W-2 income, later your wife, one of the powerful ways to leverage
00:52:27.060 | that W-2 income is using the financial markets in the United States. Banks love to lend to
00:52:31.020 | people with W-2 income. So, you can buy a house and just buy a house that you're going
00:52:35.620 | to live in and then turn it into a rental a year from now. You can also do multifamily,
00:52:38.420 | right? We buy a fourplex, live in one unit, etc. So, there are many good strategies. Hopefully
00:52:44.140 | this gives you a taste of some of the options open to you and then if one of those strategies
00:52:48.380 | piques your interest then I'd be happy to discuss it further, maybe another call where
00:52:52.100 | we talk about it and say, "Hey, let's express this strategy to its maximum and see if it's
00:52:56.500 | exciting enough to you to want to go all the way with it."
00:53:00.580 | Cool. That's a lot of good stuff to chew on. Thank you.
00:53:06.260 | Thank you all for listening to today's recording of Radical Personal Finance. I'm so grateful
00:53:11.980 | that you are here as you see. We're trying to do everything we can to get into it and
00:53:18.540 | be willing to talk about whatever it is that you want to talk about. If you'd like to join
00:53:21.540 | me on next week's episode, go to patreon.com/radicalpersonalfinance. I will be with you very soon.