2022-08-26_Friday

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

00:00:32.400 | Welcome to Radical Personal Finance, the show dedicated to providing you with the knowledge, skills, insight, and encouragement you need to live a rich and meaningful life now,

00:00:55.400 | while building a plan for financial freedom in ten years or less.

00:00:58.400 | My name is Joshua Sheets. I am your host.

00:01:00.400 | Today is Friday, August 26, 2022.

00:01:03.800 | And today we do live Q&A. Open line Friday.

00:01:07.400 | Call in. Talk about anything you like.

00:01:11.800 | Here at Radical Personal Finance, each and every Friday that I can arrange the appropriate recording technology.

00:01:24.800 | We need to be in front of a computer, have an active internet signal, etc.

00:01:27.800 | We do a live Q&A show. Works just like a call-in talk radio.

00:01:30.800 | You call in, talk about anything you want, ask me any questions you want, opine on anything you want.

00:01:34.800 | Use it to pitch your stuff sometimes. Anything that you like.

00:01:37.800 | If you'd like to join us in one of these Q&A shows, go to patreon.com/radicalpersonalfinance.

00:01:42.800 | Find the show on Patreon and sign up to support the show there.

00:01:45.800 | That's the method that I use to screen the number of calls so that they are a manageable number.

00:01:49.800 | Today we have one, two, three, four, five, six, seven, eight.

00:01:52.800 | Eight people lined up.

00:01:53.800 | So we'll get through these as quickly as possible, but still try to do a good job.

00:01:58.800 | We begin with Lucas in New Jersey.

00:02:00.800 | Lucas, welcome to the show. How can I serve you today?

00:02:02.800 | Hey Joshua. I had a question.

00:02:06.800 | I've heard you talk about purchasing vehicles under a business name before.

00:02:12.800 | And I have a fledgling business.

00:02:15.800 | We're kind of getting off the ground.

00:02:16.800 | We don't anticipate having revenue of any significant kind for probably the next year.

00:02:22.800 | But it's coinciding with my need to replace my personal vehicle.

00:02:28.800 | So I'm wondering, is there anything that I can do to purchase a vehicle under the business name?

00:02:35.800 | Or would I be better off just claiming mileage on a new vehicle that I purchased that's primarily for personal use?

00:02:41.800 | You can claim the expenses for a vehicle regardless of how the vehicle is titled.

00:02:47.800 | So the reasons to purchase a vehicle in a business name have less to do with tax deductions and more to do with personal privacy.

00:02:58.800 | In some cases, it may also be part of your asset protection plan to purchase a vehicle in a business name.

00:03:05.800 | There are businesses for whom it is obvious that the business should be titled in the name of the business.

00:03:12.800 | If you own a large HVAC company and you have 30 vans that are filled with your crews,

00:03:19.800 | and those vans all say the name of your company on the side of them,

00:03:22.800 | then obviously you yourself are going to purchase those and title them in the name of the business.

00:03:28.800 | Those are clearly business assets.

00:03:30.800 | You're also going to have a commercial insurance policy that's covering the business vehicles and business assets of the vehicle.

00:03:37.800 | There are businesses for whom it is less obvious that the asset, the car, should be titled in the name of the business or not.

00:03:46.800 | For example, let's say that you are an independent insurance adjuster and you have a small business and you're driving your vehicle around,

00:03:53.800 | but you don't put your name on your business vehicle.

00:03:55.800 | It's not anything obvious. It's just your vehicle.

00:03:58.800 | Well, that one you could use a vehicle titled in your name or you could use a vehicle titled in the business name.

00:04:04.800 | The titling of the vehicle is irrelevant for the purposes of tax deductions.

00:04:10.800 | What is relevant is the usage of the vehicle.

00:04:14.800 | So if you run Joe's H, or I guess in your case, Lucas's HVAC company,

00:04:19.800 | and you use one of your company vans to take your family on a camping trip across the state,

00:04:27.800 | then technically those 300 miles that you put onto the business vehicle should be accounted as personal mileage.

00:04:37.800 | The expenses associated with those miles are not supposed to be deducted.

00:04:42.800 | Now obviously, virtually no one does that, but that's the law.

00:04:45.800 | That's what you're supposed to do.

00:04:47.800 | You're supposed to reimburse the business for any personal usage of the vehicle.

00:04:51.800 | And that should be the case for your employee's personal use and/or for your personal use as the owner of the vehicle.

00:04:58.800 | On the flip side, if you are that independent insurance adjuster and you have just Lucas's Honda Accord,

00:05:05.800 | and you this year spend $15,000 of vehicle expenses,

00:05:10.800 | and you know that $14,000 of that is related to your business activities,

00:05:15.800 | you can deduct all of it against your business regardless of what the titling is.

00:05:19.800 | And to prove this to yourself, when you go to fill out your tax forms at the end of the year,

00:05:24.800 | so if you're just having a small business, you'll fill out a Schedule C as a sole proprietor,

00:05:28.800 | there is just simply a section on your form for what is the vehicle, specifically what car is it,

00:05:36.800 | what is the mileage, what's the mileage that's used for business purposes, personal purposes, and commuting purposes,

00:05:42.800 | and/or what are the expenses that are associated with it.

00:05:45.800 | There is no question on it as to who owns the vehicle or what's the titling of the vehicle.

00:05:51.800 | It has to do with the expenses, and you can either use the actual expense method or the mileage method.

00:05:56.800 | So from a tax perspective, it doesn't matter.

00:05:59.800 | Now, it can sometimes matter from an insurance perspective.

00:06:03.800 | So this is where you get a whole bunch of funny little wrinkles that you have to care for.

00:06:11.800 | If you're using a vehicle as a business vehicle but it's titled in your name,

00:06:16.800 | that may invalidate your insurance policy depending on the type of insurance you have.

00:06:22.800 | So I'm not aware of any insurance company that would cause problems if you're an independent insurance adjuster,

00:06:27.800 | but if you're running a livery service like Uber or some other kind of taxi service from your personal vehicle,

00:06:33.800 | that will invalidate some insurance policies.

00:06:35.800 | You need to pay attention to your insurance.

00:06:37.800 | From an asset protection standpoint, your liability is probably going to be based upon your personal activity.

00:06:46.800 | So if you were personally negligent in driving the vehicle,

00:06:49.800 | regardless of whether the vehicle was titled in your name or titled in a business name,

00:06:55.800 | then it's your driving actions that are potentially giving rise to a liability if you were to cause an accident

00:07:02.800 | or if you found liable for damages in some way.

00:07:05.800 | But sometimes you can use the titling of the vehicle as part of your overall asset protection strategy.

00:07:12.800 | So this vehicle here is part of a business asset and therefore it might be set aside from claims against me or vice versa.

00:07:22.800 | Then we come back to privacy.

00:07:24.800 | The reason that I have often encouraged people to title their vehicles in the name of a business has more to do with privacy than it does with anything else.

00:07:41.800 | Because when your vehicle is tied directly to your name, that potentially gives you a fairly significant exposure

00:07:54.800 | if for some reason somebody were accessing your private information.

00:07:59.800 | I'll give you one example where I first started thinking about this and I will read you a short story.

00:08:09.800 | Here's the story and I'm reading from chapter 16 of J.J. Luna's excellent book called How to Be Invisible.

00:08:16.800 | This chapter is titled Hidden Ownership of Vehicles and Real Estate.

00:08:20.800 | Some years back I swung my black Jaguar sedan down the ramp and into a 24-hour high security parking garage at Seattle's SeaTac airport,

00:08:28.800 | snatched the ticket stub from the attendant, raced for the shuttle bus and just barely caught my flight to Phoenix.

00:08:33.800 | Eight days later I returned to SeaTac, caught the shuttle back to the garage and joined the check-in line.

00:08:38.800 | When I presented my ticket stub, the cashier hesitated.

00:08:41.800 | "Sir," he said, "please step to one side. The manager will be right out."

00:08:45.800 | The manager came out, introduced himself and led me to his office.

00:08:49.800 | I had visions of a scratch in the paint or a ding in a fender.

00:08:52.800 | "The same day you left," he said, "your car disappeared."

00:08:55.800 | Disappeared? As in stolen? So much for the 24-hour security.

00:09:00.800 | He explained that the same evening I left, one of the attendants parked a car in the stall where my car had been.

00:09:05.800 | When he turned the number in to the cashier, the computer showed the stall was already occupied.

00:09:09.800 | They quickly searched the entire building to see if it had been parked in another spot in error.

00:09:14.800 | When they failed to find it, they reported it stolen.

00:09:17.800 | The next morning the police spotted it, badly damaged, sitting at home plate on a baseball diamond in a Seattle park.

00:09:24.800 | I have the King County Police Vehicle Impound Report before me, and in the narrative section, line 4, the officer writes, "Unable to contact owner."

00:09:33.800 | Here's why. The car was in the name of an LLC in State A, the address listed for this company was in faraway State B,

00:09:41.800 | and a reverse directory failed to show a telephone number at that address.

00:09:45.800 | Although for many years I had been registering my vehicles in the name of limited liability companies,

00:09:49.800 | this was the first time my security precautions had been put to the test.

00:09:53.800 | No damage would have been done, of course, had the police been able to contact me in this particular case.

00:09:57.800 | However, a short time later, my security precautions were to prove worthwhile.

00:10:01.800 | As soon as the insurance agent handed me a check for my Jaguar, it was too badly damaged to repair,

00:10:06.800 | I bought a year old dark green Lexus and headed east.

00:10:10.800 | A few days later I arrived in Minneapolis and spent Saturday afternoon visiting used bookstores.

00:10:14.800 | It was just getting dark that evening when I pulled out of a parking lot onto West Lake Street,

00:10:18.800 | in a hurry because I had to meet a friend from Madrid who was about to arrive at the airport.

00:10:22.800 | I failed to see an oncoming motorcycle and almost clipped a Harley being ridden by a 300 pound bearded bruiser.

00:10:28.800 | He screamed some obscenities, waved his fist and made violent gestures to have me pull over.

00:10:34.800 | If you've ever been on West Lake Street in South Minneapolis after dark,

00:10:38.800 | you know this is not a good neighborhood in which to pull over.

00:10:41.800 | It was too dark for the rider to see any "so sorry" gestures, had I made them,

00:10:45.800 | so I fed more gas to the 290 horse engine under the hood.

00:10:49.800 | The overweight biker followed me right on to 35 West going south,

00:10:53.800 | with all the time in the world to memorize my license number.

00:10:56.800 | Although I do not scare easily, this time I was seriously alarmed.

00:11:00.800 | Enough to set a new Minnesota speed record between West 35th and the I-494 junction,

00:11:06.800 | where I cut the lights and peeled off at the exit.

00:11:08.800 | Whether he memorized the number or not, and whether he was carrying a gun or not,

00:11:12.800 | once I lost the biker, I was safe forever.

00:11:15.800 | The plates would lead him nowhere.

00:11:17.800 | But my heart was still thumping when I pulled into airport parking.

00:11:20.800 | A few Saturdays later I was in Londonbury, New Hampshire to meet Carl Prague,

00:11:24.800 | an old friend who used to live aboard the Raider,

00:11:26.800 | a 1912 wooden sailboat with Santa Cruz to Tenerife, Canary Islands, as a home base.

00:11:32.800 | A stiff wind was blowing when we stopped at the country market on Highway 102

00:11:35.800 | to pick up some wine and snacks,

00:11:37.800 | and when we came out a few abandoned shopping carts were starting to move.

00:11:40.800 | Just as we were putting the groceries in the car,

00:11:42.800 | a hard gust sent a cart racing past us and across the parking lot

00:11:46.800 | directly toward a parked Honda Civic with a man and a woman in it.

00:11:49.800 | There was no way to stop it, and we watched as it struck the driver's door

00:11:57.800 | with a resounding clang and bounced back.

00:12:00.800 | As we continued to watch, we could see that the woman was obviously screaming

00:12:04.800 | at the man to do something, and the "something" turned out to be a trip over to see me.

00:12:09.800 | Assuming he wanted some help, I lowered my window halfway as he came around my side and said,

00:12:13.800 | "Hello. Your cart hit my car."

00:12:15.800 | "Excuse me? We didn't have a cart."

00:12:17.800 | "Yes, you did, and we saw it come from here."

00:12:19.800 | At least he didn't weigh more than 140, and my friend Carl is an ex-wrestler,

00:12:23.800 | so this time I was just amused, not scared.

00:12:26.800 | "I wrote down your license number," the man muttered, brandishing a scrap of paper,

00:12:30.800 | "and you'll hear from my lawyer. Well, best of luck, buddy, and have a nice day."

00:12:35.800 | And so he goes on and he explains that when you arrange your vehicle ownership in that way,

00:12:41.800 | then you can minimize the risk from all of these really daily risks that can be a factor for you.

00:12:50.800 | So this is not going to get you any kind of serious--you're not going to escape from a crime

00:12:55.800 | because you have a car registered in LLC.

00:12:58.800 | It's not going to do anything serious for you, but registering your vehicle in the name of a business

00:13:04.800 | can be an extremely useful way for you to protect your personal privacy

00:13:08.800 | and have kind of the start of a shield against you, and it's pretty simple to do.

00:13:13.800 | So that's the reason why I recommend registering your vehicle in the name of a business,

00:13:18.800 | to have a little bit of separation between you and the personal information that's reflected in the license plate.

00:13:28.800 | Okay, thank you, Joshua. Comprehensive as always.

00:13:31.800 | I think the liability protections are something I wasn't considering as highly,

00:13:36.800 | but since I'm making this pretty major change, that'll be something that weighs into the decision.

00:13:41.800 | Basically, you have to decide, is it worth it?

00:13:44.800 | So if you actually have liability, if you're running the kind of business that's generating liability,

00:13:50.800 | that should be at the very high end of the list.

00:13:52.800 | If you're changing a vehicle, it's a hassle to set up a company.

00:13:56.800 | It's a hassle, and it can be expensive, to set up a company that has privacy benefits associated with it.

00:14:03.800 | You have to find a registered agent. You have to register in a state that will accept it.

00:14:08.800 | You have to work your way through dealing with the local Department of Motor Vehicles,

00:14:12.800 | especially if it's an out-of-state company.

00:14:14.800 | That's often difficult and tricky, not illegal, to do that,

00:14:19.800 | but some states require registration in your home state, and then you lose all the benefits.

00:14:24.800 | So it's not easily done everywhere, and it's not worth it.

00:14:29.800 | If you've got a $5,000 car, you're going, "It's not worth it."

00:14:33.800 | On the other hand, if you're buying a brand-new $150,000 motorhome,

00:14:38.800 | then you might as well go ahead and register it,

00:14:41.800 | and go ahead and take the time and the hassle of getting it registered and insuring it properly, etc.

00:14:46.800 | So you have to judge your case accordingly.

00:14:49.800 | But the big important data is, you don't need to have the vehicle registered in a business name

00:14:54.800 | in order for you to take all of your business tax deductions.

00:14:58.800 | >> Okay. Thank you very much.

00:15:00.800 | >> My pleasure. We go on now to Derek in the great state of Maine.

00:15:04.800 | Derek, welcome to the show. How can I serve you today?

00:15:07.800 | >> Hey, Joshua. Good afternoon.

00:15:10.800 | So I have two questions.

00:15:12.800 | One is a simple yes or no, no explanations required,

00:15:15.800 | and another one is a scenario I'd like your input on.

00:15:18.800 | Which would you like me to do first?

00:15:19.800 | >> Let's go with yes or no.

00:15:22.800 | Have you ever considered generating a course along the lines of what some of the background is for becoming an insurance salesman?

00:15:33.800 | >> No.

00:15:35.800 | >> All right. Thank you. Second question.

00:15:38.800 | So I have a scenario with an opportunity.

00:15:43.800 | I grew up in Maine on a lot of land.

00:15:47.800 | My parents own about eight acres.

00:15:49.800 | And since that time, my grandparents, who owned some of the other land that was in this town,

00:15:58.800 | they actually owned a whole plot, like 12 acres across the street.

00:16:02.800 | And so except for the road that goes through it, it's like a 20-acre area.

00:16:07.800 | And they very generously offered no questions asked to if I want any of that land to build on,

00:16:14.800 | that they'll coordinate off, put it in my name, and I can have the land for free, potentially build a house.

00:16:20.800 | Now, I would have to get completely changed jobs.

00:16:24.800 | So I don't know what the near future is for that.

00:16:28.800 | But I'm wondering, given the fact that this is a town that I anticipate over the next 20, 30 years to be --

00:16:37.800 | there's a Navy base there, the Navy base closed back in 2010, and that got replaced with a lot of businesses.

00:16:44.800 | It's kind of an up-and-coming area.

00:16:48.800 | I'd like to own a house up there.

00:16:51.800 | And so I know that a lot of people will buy a home or build a home for the sake of living in it,

00:16:58.800 | but then sometimes later on they'll turn it into an investment property.

00:17:02.800 | How often do you hear about people doing the opposite, where maybe I have --

00:17:07.800 | because I have a decent amount of equity in my home that I could kind of pull out as a down payment

00:17:12.800 | and then push that forward as an investment property,

00:17:16.800 | and then hope in the next -- sometime in the next five years I'd be able to move into it if the right job opportunity comes up?

00:17:23.800 | Is that something you've heard people do a lot of?

00:17:27.800 | I can answer that with a slight sidestep to say that it doesn't matter whether people do a lot of it or not.

00:17:33.800 | The question is, should they, or is it a good idea?

00:17:36.800 | No, people don't do a lot of that because very few people think about ever going and building an investment portfolio.

00:17:43.800 | So to begin with the idea of building -- having an investment asset and then to move into it is unusual.

00:17:50.800 | It's also unusual because oftentimes the investment asset that you would have might not be the kind of house that you would actually want to live in.

00:18:00.800 | The house that's a good rental may or may not be the kind of house that is a good personal residence for you.

00:18:07.800 | But that doesn't mean it's in any way a bad idea, and in fact it can be an excellent idea, a very, very worthwhile idea,

00:18:14.800 | as long as you build the kind of house that would be a good long-term place for you to live in.

00:18:20.800 | The reason I say it can be an excellent idea is, number one, it can allow you, because of the income from the income property,

00:18:27.800 | it can allow you to build the house that you want to build long before you could afford to do it based exclusively on your savings.

00:18:33.800 | Number two, even from a tax perspective, that can be a useful plan.

00:18:38.800 | Having a house that's a commercial property doesn't allow you to eliminate potential gain on it,

00:18:43.800 | but moving into the house, having it as your personal residence, now allows you to qualify a significant portion,

00:18:49.800 | in many cases, of the gain for the tax-free exclusion on the sale of a personal residence.

00:18:56.800 | So if you want to have a house up there, it sounds like a great thing to do,

00:19:01.800 | and having a house that you rent out for a time and then later move into is perfectly reasonable as far as a strategy.

00:19:10.800 | Awesome. That answers the question. I appreciate it.

00:19:13.800 | My pleasure. Anything else?

00:19:15.800 | No, sir. Thank you.

00:19:17.800 | When you get a great offer of land, family land, where you know it and you think it may be good,

00:19:22.800 | it's definitely worth pursuing because that same feeling you have about a town or an area, you know it.

00:19:29.800 | You know it. Your family knows it. And investing in the long-term growth of that area is, I think, a smart and good decision.

00:19:35.800 | Gianna, Pennsylvania, welcome, sir. How can I serve you today?

00:19:39.800 | Hi, Joshua. Can you hear me?

00:19:40.800 | Sounds good.

00:19:42.800 | Okay. Thanks for taking my call. I just had a question about cash position during a period of unemployment.

00:19:51.800 | I am resigning from my job, and I know during my last period, my first and previous period of unemployment,

00:20:04.800 | it was nice to have a strong cash position that I had.

00:20:09.800 | And with things in the market kind of going up and down, I had been putting some more monies into the market recently

00:20:18.800 | and had slowed that up a little bit just based on the fact that I was going to be resigning.

00:20:24.800 | And just kind of wanted a refresher, a new perspective on, or any updated thoughts on having a strong cash position when you don't have an income.

00:20:34.800 | And basically, what I have now is probably about somewhere between 10 or 15% of my net worth in cash, or not currency, but you know, cash-like accounts.

00:20:47.800 | And yeah, just looking for, I know feelings-wise how that made me feel and gave me some various benefits, but I know, I'm just looking for,

00:20:58.800 | is there anything more than just the feeling of having some security of knowing you have cash reserves during a period of no income?

00:21:06.800 | That's kind of what I'm looking for, I guess.

00:21:08.800 | Absolutely.

00:21:09.800 | To make sure I'm not wasting my money looking for inflation.

00:21:12.800 | So let's talk, let's give you a couple of frameworks to think about because it's not an easy question to answer because there's no real precise formula.

00:21:21.800 | So let's begin with why would you not be 100% in cash?

00:21:26.800 | Well, the reason you're not 100% in cash is you believe that there are investments that can go up in value by more than your cash.

00:21:36.800 | And also, there are risks to having cash.

00:21:39.800 | Biggest risk is inflation.

00:21:41.800 | So you want to minimize the amount of cash that you have so that you can maximize the potential for growth, as well as minimize the risk of inflation.

00:21:53.800 | Why would you, what are the offsetting factors though that make you want to have more cash?

00:21:57.800 | Well, you have more cash to provide you with a safety net in your personal affairs.

00:22:02.800 | You don't know when you're going to be getting another job necessarily.

00:22:05.800 | You want to have more cash to be able to cushion any unexpected expenses that occur in your lifestyle and basically to protect you from the unknown.

00:22:13.800 | Cash is the omni-tool that allows you to, that protects you from, you know, virtually any unknown.

00:22:22.800 | So if you look at your affairs and then we could ask a few questions that will identify for you how much money you want to have in cash.

00:22:32.800 | The first one will be obvious but not applicable.

00:22:35.800 | If you have $2 million of savings, investments, cash, etc. and you have decided to resign your job in order to start a business,

00:22:44.800 | and you estimate that you're going to need about $1.5 million to start the business, but you're not 100% sure about that number,

00:22:51.800 | then you would obviously have $2 million in cash so that you could start your business and invest the $1.5 million and have enough left over for overages

00:23:01.800 | or rainy day slush fund, etc. So you would be 100% in cash in that position.

00:23:06.800 | But you would be there because you knew that you needed the money to start the business.

00:23:11.800 | Now similarly, if you know that you're going to do something with the money, right?

00:23:16.800 | I'm resigning my job so I can build a vacation property on my land in Maine.

00:23:20.800 | Or I'm resigning my job and I need, you know, $100,000 to start a business, then that would dictate the amount of money that you would have in cash.

00:23:28.800 | Since that may not apply, we have to figure out is there some other framework.

00:23:32.800 | The other framework I would use would be to put a number that's tangible on it.

00:23:36.800 | I don't know what 15% means, and even the dollar figure is not really helpful, but what I would want to do is I would want to put a number on it that is relevant to my life.

00:23:47.800 | So maybe 15% of your money in cash is 24 months of expenses.

00:23:54.800 | So that's really good, and you can ask yourself, is 24 months of expenses the ideal number?

00:23:59.800 | Or should it be 12? Or should it be 6?

00:24:02.800 | And then you just think about your life and you think about what your plans are, what you're likely to do when you quit your job.

00:24:09.800 | And then use that number to use your plans to drive the decision that you make.

00:24:16.800 | So let me give you two scenarios to put this into focus.

00:24:18.800 | Scenario one is you're resigning from your job and you're planning to get another job.

00:24:23.800 | You've already talked with a couple people.

00:24:24.800 | You might take a couple months off, but you're planning to get another job.

00:24:27.800 | And you have some good leads, you're well-qualified, etc.

00:24:31.800 | Well, then I think having a six-month cash position, a six-month emergency fund would be more than adequate in that scenario.

00:24:38.800 | If you know that you're well-qualified, you can get a job whenever you want one.

00:24:42.800 | You've got opportunities, you know what you're doing.

00:24:44.800 | Six months of cash is enough.

00:24:45.800 | And so you figure out what six months of your expense needs are, and then that's enough cash for you.

00:24:51.800 | On the other hand, let's say that you're quitting your job and you're going to take a year off like you did last time.

00:24:58.800 | I'm going to take a year off.

00:24:59.800 | I'm going to travel around, etc.

00:25:01.800 | And I'm kind of picky these days about what kind of job I take.

00:25:05.800 | I work in kind of a specialized field.

00:25:07.800 | So it could take me a whole other year to find another job.

00:25:10.800 | So now two years' worth of cash starts to feel like the right number.

00:25:14.800 | So there's no answer that someone could give you of how much cash is appropriate, 5%, 15%, etc.

00:25:22.800 | I gave you several scenarios where 100% cash could be appropriate, but also 2% cash could be appropriate.

00:25:28.800 | So you have to think of some other hook that is more meaningful or relevant to how you are envisioning your life

00:25:36.800 | and tie your cash number to that in order that you would know the right number to have.

00:25:42.800 | I appreciate that.

00:25:45.800 | That's a long line.

00:25:46.800 | I guess I've been listening to you long enough.

00:25:48.800 | That's exactly the line I was thinking of.

00:25:50.800 | I can't imagine, John, at this point that I could say something that would surprise you.

00:25:54.800 | Right.

00:25:55.800 | No, but it's good to have the refresher and to keep it in mind because I always go back and second-guess myself.

00:26:01.800 | I'm in a fortunate position where I can both take the time to find my next job and I may even take longer if the need fits me.

00:26:12.800 | I can still carry those cash positions without too many bad feelings, I guess.

00:26:18.800 | Right.

00:26:19.800 | But that's always what I'm fighting, is the feelings.

00:26:21.800 | So, yes, I appreciate it.

00:26:22.800 | And having more cash is not a good thing, right?

00:26:25.800 | Cash is a tool.

00:26:28.800 | In a perfect world, we would have 100% of our money invested at all times.

00:26:34.800 | The only reason we don't do that is because of uncertainty.

00:26:38.800 | And so cash protects us from uncertainty.

00:26:42.800 | So we don't want to have huge amounts of our portfolio in cash.

00:26:47.800 | That's the wrong answer.

00:26:49.800 | We just want to have enough money in cash to protect us from the relevant uncertainties that we face.

00:26:55.800 | And then the wealthier you get, then I think the less and less cash that you need.

00:27:01.800 | If you have no money and you're a father of two children earning $4,000 a month and you have no money -- sorry, you have $10,000 of savings, well, you need all $10,000 in cash.

00:27:15.800 | Because the money that -- you can't afford to invest the $10,000 because at that stage of life, you may have any number of expenses that would wipe out all of your $10,000.

00:27:28.800 | And so you need all the money in cash in that scenario.

00:27:31.800 | On the other hand, if you've got $3 million in investments and those investments are well diversified, then you can get by with $3,000 in cash.

00:27:42.800 | Because especially if you have liquid investments, right, you have stocks or mutual funds that you could liquidate, yes, there's a slight risk that your portfolio could dump off.

00:27:50.800 | But it's less likely that that will happen, that the portfolio will increase because the portfolio generally increases over time.

00:27:57.800 | So the richer you are, the less safety you need from cash.

00:28:00.800 | So you have to find some relevant metric to tie it to.

00:28:04.800 | And you probably don't need as much as you think you do.

00:28:07.800 | But if it helps you sleep well at night, that's the number you should have.

00:28:12.800 | Sounds good. I appreciate it. Thank you so much.

00:28:14.800 | My pleasure. All right, we move on.

00:28:17.800 | He just hung up. So we'll go to the great state of Michigan.

00:28:21.800 | Welcome to the show. How can I serve you today?

00:28:24.800 | Hi, Joshua. Can you hear me?

00:28:26.800 | Sounds good. What's your name?

00:28:28.800 | Hi, I'm Frank.

00:28:29.800 | Frank, welcome.

00:28:31.800 | Thanks. Yeah, I've been on a couple other times.

00:28:37.800 | But so I'm 25 years old and single, and I actually just accepted a tech job where I'll be making over $200,000 a year.

00:28:47.800 | And I was just wondering if you have any advice for me and specifically if you have any tips on reducing my taxable income, especially for next year, because I'd like to be able to qualify for the new EV tax credit if I can.

00:29:07.800 | So to answer that, first, congratulations on a wonderful job.

00:29:13.800 | Will this represent a significant increase in pay for you?

00:29:17.800 | Yes, I've basically quadrupled my pay.

00:29:21.800 | How did you do it?

00:29:24.800 | That's a good question. I mean, I've kind of just been hungry kind of to keep moving forward and keep looking for something better every step of the way.

00:29:41.800 | The past four positions I've had, I have been at them for like a maximum of six months.

00:29:48.800 | And then like each time I, you know, increased my pay.

00:29:54.800 | That's awesome. So you aggressively job hunted and you searched for employers who would be willing to pay you more.

00:30:00.800 | Yes.

00:30:01.800 | Did you increase your qualifications as well?

00:30:06.800 | Barely. I mean, like, so I guess, yes, I finally graduated with like a bachelor's degree in cybersecurity and then got a like IT certification.

00:30:22.800 | But I, at least with this job, I honestly don't really know how much it really mattered.

00:30:28.800 | I mean, the main thing was just having like a security clearance.

00:30:32.800 | Awesome. I just want to point out that it's important to take a moment, especially on a personal finance podcast, it's important to take a moment and figure out what you did.

00:30:41.800 | Because I didn't ask you to call in, right? I'm not interviewing you. You're just a normal guy who's calling in with a question.

00:30:46.800 | And yet you've quadrupled your income and you went from a median wage to a top, probably at least a top quartile wage.

00:30:54.800 | I don't have those bands memorized, but to a very high wage.

00:30:58.800 | And by doing that at the age of 25 years old, you have now completely differentiated or completely transformed the rest of your life.

00:31:09.800 | While it's possible that you might get out to your new job and discover that you actually don't like it and you want to go and get a job that pays you less, that's unusual.

00:31:18.800 | So now that you've gone from, again, $50,000 a year of income to $200,000 a year of income, most likely, if you're like other people, most likely you will earn that extra $150,000 a year every single year for the rest of your life.

00:31:33.800 | And more. Because just because you did this several times doesn't mean that now you're going to get the $200,000 job and be stuck there.

00:31:39.800 | You can go and you can pursue a $400,000 job will be your next rung on the ladder.

00:31:44.800 | So your aggressive job changes, your aggressive marketing, you're looking for opportunities, you're qualifying yourself, getting the necessary credentials, has already made an impact in your lifetime earnings of probably at least $10 million.

00:31:59.800 | You're already in the position where maybe 10 is a little high, but you're likely to be earning millions and millions of dollars more over the course of your lifetime.

00:32:10.800 | If we just do $150,000 a year over an expected lifespan of 40 years, that's $6 million of additional earnings not accounting for inflation.

00:32:20.800 | If you just started with your $200,000 base at 25 and you increase that just at cost of living adjustments, let alone continuing your aggressive career path, it's almost certainly in excess of that $10 million number.

00:32:34.800 | So kudos to you and congratulations.

00:32:38.800 | Keep up the great work.

00:32:39.800 | I want to make that very clear before I answer your question.

00:32:43.800 | Yeah, thank you so much.

00:32:46.800 | I mean a large part of it is honestly from listening to you though.

00:32:51.800 | I can definitely say that.

00:32:53.800 | Good.

00:32:54.800 | Well I hope that there's another 10 guys in the audience that will follow your lead and take those steps.

00:32:58.800 | So let's go back to your question.

00:33:00.800 | The question is are there things that I can do to lower my tax bill and especially is there something I could do that would allow me to continue to qualify for the electric vehicle credit which is based upon my not exceeding a certain income threshold.

00:33:15.800 | Is that the question?

00:33:17.800 | Yeah.

00:33:18.800 | Okay.

00:33:19.800 | As an employee of a company, there are only a few things that you can do to lower your tax bill.

00:33:25.800 | Fortunately, you're going to have a great salary.

00:33:29.800 | Unfortunately, people who earn salaries pay the highest level of taxes in the United States.

00:33:35.800 | What can you do to lower your tax bill as an employed salary earner?

00:33:42.800 | The first thing is you can maximize your retirement account contributions.

00:33:47.800 | So you want to immediately start contributing the maximum amount possible to your retirement accounts because that will defer your tax bill from now to later.

00:33:57.800 | Depending on the specific retirement plan that the company offers you, you may be able to get in excess of $50,000 per year into that account and lower your annual income by $30,000 to $50,000 per year depending on whether they allow you, depending on the contributions that they allow for you.

00:34:17.800 | So that will be your first step.

00:34:19.800 | The second step is to go through all of the other programs and plans that your company offers and maximize those as well.

00:34:27.800 | So if your company offers you access to a health savings account with a high deductible health plan, then contributing to that will lower your tax bill.

00:34:35.800 | Other fringe benefits, perhaps they have some kind of transportation credit or other things, health insurance, etc.

00:34:43.800 | Taking advantage of all those fringe benefit programs will lower your tax bill.

00:34:48.800 | That's the first thing that you can do and the most impactful thing.

00:34:52.800 | What else can you do?

00:34:54.800 | Well, you won't do anything for the purposes of tax deductions.

00:35:00.800 | And as a single man, you are single it sounds like, right?

00:35:05.800 | Yeah.

00:35:06.800 | Okay, so as a single man with no children, you won't have any tax credits for your children.

00:35:11.800 | You won't have any other deductions for child care or things like that.

00:35:16.800 | And so you're pretty much limited to investment activity, investment losses to lower your tax bill, or you're limited to losses in a business to lower your tax bill.

00:35:30.800 | Probably you shouldn't pursue any of that stuff.

00:35:33.800 | You're probably just going to pay the taxes that you have after taking all of your retirement account deductions.

00:35:38.800 | You're probably just going to pay the tax bill.

00:35:40.800 | But if at some point in time you notice that you have an expensive hobby that could be converted into a business,

00:35:46.800 | or if you notice that there's some plan that you could take some kind of loss on a business that's just a paper loss but in reality will pay off in the long term,

00:35:55.800 | then that can be worth considering as well.

00:35:57.800 | But most likely your tax bill is just going to be what it is.

00:36:01.800 | And whether or not you qualify for the electric vehicle credit will depend upon what is used to calculate that and whether your retirement account contributions will get your adjusted gross income low enough for you to qualify for that credit.

00:36:13.800 | Gotcha. Yeah, that makes sense.

00:36:17.800 | Yeah, so for my situation with the retirement contributions, I'm definitely going to max out the pre-tax 401k and then my company has the option to do an automatic backdoor Roth.

00:36:32.800 | So I'm just going to max that out too.

00:36:34.800 | So it'll be over 60 grand of retirement savings and it's not even going to hurt.

00:36:41.800 | No, no.

00:36:44.800 | What about charitable donations though?

00:36:47.800 | I was thinking of definitely increasing those and maybe even front loading next year what I would donate the following year.

00:36:58.800 | Does that make sense?

00:36:59.800 | Yeah.

00:37:00.800 | Will I get more of a deduction next year?

00:37:01.800 | Sure, sure.

00:37:02.800 | So with charitable donations, if you want to direct your charitable donations to a tax-deductible entity, then that's a great way of potentially lowering your tax bill.

00:37:13.800 | In order to get that lower tax bill, you'll need to itemize your deductions.

00:37:17.800 | And now that the standard deduction is so high, most people just take the standard deduction because it is so high compared to the itemized deductions.

00:37:28.800 | But if you front load them, and certainly a valid strategy that people do is, "Okay, this year I'm going to donate 15% of my income to charity."

00:37:39.800 | Well, 15% on a $200,000 income will be $30,000 per year.

00:37:44.800 | So if you want to get your maximum tax deduction, then you say, "This year I'm going to donate $60,000 to charity and take a $60,000 itemized deduction.

00:37:56.800 | Next year I'm going to donate $0 to charity, take my standard deduction.

00:38:00.800 | The following year I'm going to donate $60,000, take a $60,000 itemized deduction, etc."

00:38:06.800 | That is an excellent tax strategy, and that can also be a useful tool for you to hit the number for your EV credit as long as it counts for after charitable contributions.

00:38:19.800 | Right, yeah, the details of that still haven't really been released.

00:38:24.800 | Okay, cool. Thank you. I appreciate it.

00:38:28.800 | My pleasure. Anything else?

00:38:31.800 | Well, I guess one other thing would just be like, part of my goal too is I would like to save a lot of money now so I would have the freedom or the option down the road to take a lower paying job that I would potentially like more or be more passionate about.

00:38:54.800 | So I'd be able to supplement my income at that point with the savings I'm making now.

00:39:02.800 | Are you moving to go get your new job? Are you moving in order to get your new job?

00:39:07.800 | No.

00:39:09.800 | Okay, so it's in the same place where you're already living?

00:39:12.800 | Yes.

00:39:14.800 | Well, so, I mean, at 25 years old, you have a huge possibility if you can continue to keep your expenses low.

00:39:24.800 | And especially if you are single, there is a very low cost to you of living a modest lifestyle.

00:39:31.800 | And it will be easier for you to live a modest lifestyle now than ever in the future.

00:39:38.800 | So for you to rent a single room in somebody's house for $500 per month, for you to drive a simple basic car, for you to live frugally has the lowest possible lifestyle cost for you now.

00:39:56.800 | And if you can live on, you know, if you were earning 50 before and saving money on that, if you can live on say $3,000 a month, then, and you can save everything above all the difference between $36,000 and your $200,000 less taxes, that will quickly buy you freedom.

00:40:17.800 | For every year that you, on those numbers, for every year that you live on $3,000 a month, you'll have basically three to four years of money going into the bank, which immediately buys you huge amounts of freedom.

00:40:31.800 | In addition, you can hugely impact your investing power in a very, in very short order, right?

00:40:40.800 | Depending on what market you're in, so undoubtedly, for example, let's use real estate because it's tangible and practical.

00:40:47.800 | If you max, I think you should maximize your retirement account contributions in the way that you have, and that would be plenty of money in stocks.

00:40:56.800 | I think the rest of your money should go to being invested either into real estate in your area or some other kind of private business investment or other venture that you're interested in.

00:41:08.800 | But at your numbers, you can purchase, you can make a down payment on a house every year, probably two of them.

00:41:14.800 | If you imagine five years of focused frugal living and of focused investments, five years from now at the age of 30, even if you can't increase your income again, you could potentially own somewhere between five and ten houses, which will probably all be cash flowing for you.

00:41:34.800 | Then you would also have enough money in the bank that you probably would never need to save for retirement ever again.

00:41:40.800 | Let's say between your contributions and your company contributions, you wind up putting $60,000 into your retirement accounts for the next five years.

00:41:52.800 | That would be $300,000 and you would be age 30.

00:41:55.800 | If we project that money from age 30 to age 35, over 35 years, we grow it at 7% per year and you make no more payments into it, you would potentially be, under those assumptions, you would have about $3.2 million in your retirement accounts at age 65.

00:42:14.800 | That's probably more or less enough to make you financially independent with retirement.

00:42:22.800 | That would be enough to live on if you had $3.2 million at age 65 under those assumptions.

00:42:28.800 | Even if you couldn't increase your income again, if you put aside that $60,000 for the next five years, you would be in a position to where you could just say, "I'm going to quit investing for retirement for the rest of my life and I'll have enough that's there again forever."

00:42:42.800 | Let me redo it for more.

00:42:44.800 | Let me give myself an extra five years.

00:42:46.800 | What did I say? $60,000 times five was $300,000.

00:42:51.800 | That's the present value.

00:42:52.800 | Let me put in 40 years of investments at $300,000.

00:43:02.800 | 40 years, 7%, no more payments.

00:43:13.800 | That would be $4.5 million.

00:43:15.800 | $4.4 million over a 40-year time span.

00:43:20.800 | By front-loading your retirement contributions heavily from 25 to 30, if you called me up in five years and you said, "Joshua, I'm going to quit my job.

00:43:29.800 | I've put in $300,000 into my retirement accounts.

00:43:32.800 | I'm going to quit. I'm never going to contribute to retirement again, but I'm going to leave the money alone until age 70," I think you're golden with $4.5 million.

00:43:40.800 | Now, add to that, let's say that you own, again, five years from now, let's say you own five rental houses.

00:43:46.800 | They certainly wouldn't be paid off, but let's say that you own five rental houses and they're all cash flow positive.

00:43:51.800 | You've got good renters in there and maybe you're making $1,500 a month net cash flow, something like that, $2,000 a month net cash flow.

00:44:00.800 | You've got basically in that situation two retirement accounts because in the future, when all your mortgages are paid off on those five rental houses,

00:44:09.800 | you'll wind up being financially independent from that.

00:44:11.800 | So you're financially independent twice over.

00:44:13.800 | So now you go and you say, "What job or lifestyle would give me the most pleasing job or lifestyle?"

00:44:21.800 | And now I simply need to give myself permission not to save any money.

00:44:25.800 | So whatever I do, I'm going to go be a travel photographer and I'm going to spend every dollar I make traveling the world taking pictures or I'm going to be a farmer or whatever it is.

00:44:34.800 | And you're freed from the burden of saving money for your future for the rest of your life because you're financially independent twice over.

00:44:40.800 | So five years invested at this stage of your life can buy you freedom for the rest of your life, genuinely.

00:44:48.800 | Yeah, that's pretty powerful.

00:44:53.800 | Awesome. Yeah, thank you for that.

00:44:56.800 | Yeah, walking me through that and that illustration there, it gives me a lot to think about for sure.

00:45:01.800 | Good.

00:45:02.800 | Thank you.

00:45:03.800 | Well, congratulations on your success.

00:45:04.800 | Be in touch.

00:45:05.800 | Call me in a few weeks and along the way and let me know how things are going because it's a dream scenario you are in and I think you can continue.

00:45:12.800 | We go to the great state of Kansas.

00:45:13.800 | Welcome to the show.

00:45:14.800 | How can I serve you today?

00:45:19.800 | Come on, Kansas.

00:45:20.800 | That's you.

00:45:24.800 | Going once.

00:45:26.800 | Kansas, can you hear me?

00:45:30.800 | All right, we'll come back.

00:45:31.800 | Go to Ohio.

00:45:32.800 | Welcome to the show.

00:45:33.800 | How can I serve you today?

00:45:34.800 | Hi, Joshua.

00:45:35.800 | Thanks for taking my call.

00:45:37.800 | So my question is around a second, a second home, really.

00:45:41.800 | So back in December, you had kind of two back to back episodes on the value of a vacation home and then kind of a second home.

00:45:49.800 | And your thought process really resonated with my wife and I.

00:45:52.800 | The points you made, I thought were just awesome.

00:45:54.800 | We've been kind of talking about it ever since.

00:45:57.800 | We've been kind of debating whether we want to move for it.

00:46:00.800 | We currently live in the city and debating moving out.

00:46:03.800 | We recently decided that we're not going to leave the city.

00:46:07.800 | So that's kind of renewed our interest in buying some sort of property cabin with some with a little bit of land kind of further out outside of the city.

00:46:19.800 | So we're interested in that. I'm exploring kind of running the numbers, looking at using it as a short term rental, which just to earn some income from the property while we're not using it, which would be, you know, more much more often than we are using it.

00:46:33.800 | And I guess my question is, how do you think about I'm not a real estate. I'm not a real estate person.

00:46:39.800 | I don't see myself owning real estate outside of my primary residence and then a possible vacation home.

00:46:46.800 | But what what do you what do you think about when considering a short term rental in this case, I guess how how willing.

00:46:53.800 | Would you be in terms of finances to lean on that expected revenue to be able to cover the costs of the property.

00:47:01.800 | And then, you know, how do you I guess how do you think about maybe excess room in the budget that you might want to have to cover, you know, unexpected expenses or, you know, a fund set aside to cover unexpected expenses that might arise on account of the property.

00:47:19.800 | I guess any any wisdom you can provide around that would be would be awesome.

00:47:23.800 | Sure. Give me a quick overview. Very general.

00:47:26.800 | Household income is what?

00:47:28.800 | Sure. A total high. It's variable depending on how the business performs. But let's let's say for this year around 130.

00:47:36.800 | OK. And you own a home. Do you have a mortgage on your current home?

00:47:40.800 | We do. The home's worth about 250 and we owe about 120.

00:47:45.800 | OK. And if you got a cabin, what price range are you considering pursuing?

00:47:52.800 | It's it's hard to say. Really, it depends on how much land we want to attach. And I haven't really I haven't thought that through enough to say one or the other, but certainly certainly no less than 400.

00:48:05.800 | That way. OK. So for you to spend four hundred thousand dollars on a vacation cabin would be significantly more than your your your personal residence.

00:48:15.800 | And so that would need to make sense for you. Most of the time.

00:48:19.800 | Go ahead. Yeah. If I could add quickly to we're also we're also probably going to be upgrading our primary residence here in the next in the next year or two.

00:48:30.800 | OK. So you'll have to think about what makes more sense for you to do the cabin first, the primary residence.

00:48:36.800 | But you're generally going to want to get the most bang for your buck, which means I want to live in the nicest house that is appropriate for me.

00:48:43.800 | And especially when you recognize that both properties can genuinely be reflected as part of your real estate portfolio.

00:48:52.800 | And by the way, this is something I've I've changed. I was heavily influenced by the classic Robert Kiyosaki rich dad, poor dad perspective of view your house as a consumption item, not as an investment for many years.

00:49:09.800 | Because I think there's a great truth to that, that many people ignore. However, undeniably, your house can also be a great investment.

00:49:17.800 | So over the last couple of years and especially over the last, I don't know, six months now since I read John Reid's book on investing in your principal residence, I've changed my opinion on that.

00:49:29.800 | And I think that you can and should genuinely view your personal residence for its investment qualities in addition to its lifestyle qualities.

00:49:37.800 | So I think you you you will want to invest your money into the best portfolio of real estate that has the best long term potential for growth.

00:49:45.800 | For context, right, Reid's commentary on single family residence is the best investment you have is the house that you live in.

00:49:54.800 | And so one of the best ways of investing in real estate that has the lowest hassle factor but can actually pay off with the highest financial return is every few years, whenever makes sense, you systematically upgrade your personal residence.

00:50:08.800 | You move from a less desirable area to a more desirable area, upgrading your house by going from a less desirable area of town to a more desirable area of town.

00:50:18.800 | Not necessarily going to a bigger house but often going to a nicer house and a more expensive house. And he makes good arguments for that.

00:50:25.800 | So I don't know whether it makes sense for you to focus first on your primary residence or on your secondary residence, but you'll want to think about that strategy.

00:50:34.800 | Back to your original question. If you had all the money in the world, I don't think you would pursue a short term rental.

00:50:40.800 | It's a hassle. Who wants to have their house rented out to strangers who show up, who break things, who invade your personal space, who don't take care of the property, who make dumb mistakes.

00:50:52.800 | Who wants to do that? So if you had all the money in the world, you would go ahead and just have the property for yourself.

00:50:58.800 | So the reality is though, we don't have all the money in the world and so sometimes committing a house to some seasonality of short term rentals can be the difference between owning the house and not owning the house.

00:51:11.800 | And if you are willing to deal with the hassle of managing the rental and if you're confident in the numbers, then it's probably better to own the house than to not own the house.

00:51:24.800 | So I'm fine with short term rentals being the difference maker. If the choice is I'm going to have a lake house that I can use for four months out of the year for my family and I'm going to rent it for eight months out of the year to others

00:51:40.800 | and that allows me to have the four months covered while simultaneously allowing me to own a $400,000 piece of real estate that my rentals are paying down, etc.

00:51:49.800 | I'd rather have that than not have anything and have no lake house to use, no $400,000 real estate, etc. if the difference is being able to do it or not.

00:52:00.800 | So I'd rather have it than not if I'm willing to deal with the hassle. But if I can afford it either way, then maybe I don't want to deal with the hassle.

00:52:08.800 | So if I can afford it either way, I might just not do it. So what numbers make sense for you?

00:52:14.800 | Well, first, do you have the borrowing ability? So you'll need to talk to a mortgage company and ask them, "What kind of mortgage can I qualify for? What can I qualify for on a personal residence? What can I qualify for on a secondary residence?"

00:52:27.800 | And this is important to do, especially as you're thinking about upgrading your primary house, because you'll want to be clear and they're certainly going to lend you more money for a primary residence than they will for a secondary residence and they'll lend it to you at a better rate.

00:52:44.800 | So you want to get a good idea of your borrowing capacity from the mortgage lender's perspective. You want to get a good idea on your monthly payment.

00:52:52.800 | If you earn $130,000 a year, give or take, having two mortgage payments that are less than say 30%, 40% of your income would probably be perfectly fine and perfectly safe, knowing that you're going to have some of that covered by short-term rentals.

00:53:09.800 | And so if you have a mess up in the rental market, if a pandemic comes through and all your clients cancel on you and all your money is given back by your short-term leasing company, as happened to Airbnb renters during the early days of the pandemic, then you can just tighten up your belt in another aspect and pay it.

00:53:33.800 | And you just want to choose how many months of reserves you want. So maybe you still want to be able to say, "I want to be able to pay my mortgage for six months. I'm going to set aside this sum of money so that even if I have no income from the lake property or I have some catastrophe, I still have everything covered for six months."

00:53:49.800 | But as long as those numbers feel right to you and you're willing to deal with the hassle, then I think it's perfectly fine to count on some level of rental income to cover those expenses for you.

00:54:00.800 | That's really helpful. And that's really what I'm trying to... I don't feel comfortable with the numbers as they're modeling now, which doesn't mean they won't look better a few years from now, but I couldn't get comfortable with where they are now.

00:54:13.800 | And hearing you talk about still using the 30% threshold against both mortgages, that gives me a good reference point or a number to stay under for the two because I was really trying to understand how much can I lean on the revenue from the home to make the payment.

00:54:39.800 | It sounds like your recommendation is still keep those two payments under that 30% threshold.

00:54:45.800 | Well, I'm saying that you want to look at it in terms of a percentage of your income and be very aware of what those ranges would be. You're not going to know until you actually get the property, you actually get it on the market. You're not going to know what your occupancy is. You're not going to know the rates that the property can bear, etc. until you start to get that market feedback.

00:55:06.800 | So you're going to want to have some guesses, but you just simply want to avoid having a scenario in which you're sunk by the property. So I don't think it needs to be a strict rule that it has to be less than 25% of your income or 30% of your income. We just all know that it would be a little uncomfortable for you to have, say, 65% of your income committed in mortgages. That doesn't leave you a lot of wiggle room in your finances if you have that much committed to mortgage payments.

00:55:31.800 | So if you could get it lower, obviously that's going to be more comfortable. And then what I would do is probably say, what would a low occupancy estimate look like? Maybe the low end is that no question we'll have at least $10,000 of revenue from this property. Okay. Maybe a median probable scenario looks like, yeah, no question, probably we'll have $25,000 of revenue from the property.

00:55:58.800 | And then a high end would say, well, maybe we could have as much as 35 or 40. And so then put those into your annual budget and get a clear sense on a percentage basis of what it feels like and what those numbers would be. So I'm not saying it has to be below 30%. No, as a strict rule, I think that it's fine to rely upon rental income to offset the expenses.

00:56:22.800 | But you need to understand in a percentage basis what the scenario would be like if you had no renters and you want to make sure that you're willing to accept the worst case scenario, whatever that looks like.

00:56:33.800 | Got it. That makes a lot of sense. Thank you for taking the call.

00:56:38.800 | Good. My pleasure. All right. We go to Tyler in New York. Tyler, welcome to the show. How can I serve you today?

00:56:44.800 | Hey there, Josh. Can you hear me well?

00:56:46.800 | Sounds good.

00:56:48.800 | Great. So I've been casually following some of what's going on over in China economically with particularly their banking system and hearing stories of people being denying the ability to withdraw their money and all of it tied to the real estate investment debacle going on over there.

00:57:08.800 | So obviously there's a whole lot more to that issue. But the presenting issue is really where my question is.

00:57:14.800 | So just some things I'm thinking about. One, have you followed any of this and do you think there's any realistic potential that some of that is going to spill over into our banking system here in the US?

00:57:24.800 | And the reason I'm asking is I've been stockpiling some cash, primarily earmarked for real estate investment to buy deals when they come available, which have been limited of late.

00:57:36.800 | And I'm just kind of wondering, do you have any recommendations? Should I be concerned about relying on the FDIC insurance if something like that were to happen and precautions I could take?

00:57:49.800 | Obviously, withdrawing cash kind of nullifies the use of that for real estate because it has to be seasoned and I'm not really comfortable holding a large amount.

00:57:57.800 | I do have right up to about the FDIC limits in the one account that I'm using.

00:58:02.800 | And I know that previously in the beginning of COVID, listening to you, you were just mentioning capital controls and doing that kind of stuff.

00:58:09.800 | So I'm wondering if you've had your ear to the ground and had any recommendations on this front.

00:58:12.800 | Yeah. What an interesting question and I love the conversation.

00:58:16.800 | So first, I'm not the world's expert on it. I'll give you my opinions because that's what you're paying me for.

00:58:22.800 | But I will defer on this subject very much to the subject matter experts, but I'll give you my opinions and my thoughts.

00:58:30.800 | So have I been following it? Yes. Not exceedingly closely, but I have been following it and it is a huge mess.

00:58:40.800 | There is no question that it is a huge mess.

00:58:43.800 | And I think it's a very illustrative mess because there are many questions that we need to learn from the affair.

00:58:53.800 | So I am pretty comfortable right now saying that China is facing massive problems.

00:59:03.800 | And while I shy away from extremist language such as it's unrecoverable or something like that,

00:59:12.800 | the problems they're facing are so significant that I don't expect to see a huge, huge positive change at the moment.

00:59:21.800 | What that means on the ground, I don't know, but let's go through some of the problems so that we understand.

00:59:27.800 | So first, China has had a huge economic growth, obviously, over the last couple of decades.

00:59:37.800 | A huge economic miracle. So the question is why?

00:59:40.800 | Was it true economic growth or was it some form of a bubble in some way?

00:59:46.800 | Basically, as I understand it, China took advantage of just incredible financing that was available for it

00:59:53.800 | and they massively built out everything and papered over huge inefficiencies and huge errors with giant amounts of cash

01:00:03.800 | and using a kind of a funny credit system that exists in Asia.

01:00:07.800 | And a lot of it is really phony.

01:00:11.800 | That's why you have such weird misallocations of capital in China, where you have these huge ghost cities

01:00:18.800 | with huge skyscrapers, completely empty.

01:00:21.800 | And you look at it from a Western perspective and you watch a video of them blowing buildings up and toppling them down

01:00:27.800 | and you watch the guys go through the ghost cities and you think, "How on earth does this exist?"

01:00:32.800 | It's just so uncommon for us. I genuinely don't even understand it.

01:00:37.800 | But it's a giant misallocation of capital.

01:00:41.800 | But China was the fastest industrializing country in the history of the world

01:00:46.800 | and a lot of that capital was poorly allocated.

01:00:51.800 | I think you also have, fundamentally, an absolute rot at the core of the country

01:00:57.800 | and at the core of the financial system. And that rot is centralized planning.

01:01:02.800 | And so there are some things that a centralized government can do better than anyone else.

01:01:09.800 | I've been fascinated recently in digging deeply into the Chinese high-speed rail expansion.

01:01:15.800 | Over the last decade, it's one of the most incredible stories in the world of taking a country

01:01:19.800 | and massively linking it with incredible high-speed rail.

01:01:22.800 | And the speed at which they've moved and the infrastructure projects that they have done,

01:01:26.800 | the only way you can possibly do that is with a centralized, a central planner

01:01:34.800 | who has absolute authority to basically say to everybody, "Get out of here. We're done with you."

01:01:39.800 | And ignore everything, eliminate all environmental regulations, just eliminate all that stuff and just do it.

01:01:45.800 | And so the amount of growth of China has been really incredible.

01:01:49.800 | But you also have the lunacy of the centralized planning system

01:01:55.800 | that although China is in no way a pure communist system,

01:02:00.800 | in no way is it a purely centrally planned economy,

01:02:03.800 | you just have at its rot that philosophy and that ideology is terrible with regard to long-term business.

01:02:12.800 | China is also facing an absolute demographic collapse.

01:02:16.800 | And the more that comes out about it, the worse it is.

01:02:22.800 | It's vastly underappreciated how bad the Chinese demographics are.

01:02:30.800 | But ever since they implemented their one-child policy decades ago,

01:02:36.800 | they sealed their fate to demographic collapse.

01:02:40.800 | Because a one-child policy, while the reason they did it makes sense if you are evil

01:02:49.800 | and think that it's your right to control people's lives like that,

01:02:52.800 | the reason they did it is to say, "We have to control this birth rate, so we're going to limit childbearing."

01:02:58.800 | If you just think about what we know about demography in terms of the pure numbers,

01:03:02.800 | a one-child policy guarantees a 50% reduction in population over time.

01:03:09.800 | So just for context, remember that we usually use a number of 2.1% as what you need as a replacement rate.

01:03:16.800 | So you need a population maintenance rate.

01:03:20.800 | So in order to maintain a population, every single woman in the population needs to have 2.1 children

01:03:28.800 | throughout the course of her lifetime in order for a population to be stable.

01:03:35.800 | So if we look around and you think about the women that you know at all levels,

01:03:41.800 | young women, middle-aged women, old women, etc.,

01:03:44.800 | and you ask yourself how many of the women that I know personally have had more than two children,

01:03:49.800 | you can see why we have such bad demographics in much of the world.

01:03:55.800 | For every single woman who has one child, you would need some other woman to have three children.

01:04:02.800 | For every woman that has zero children, you would need some other woman to have four children

01:04:07.800 | in order to have population stability.

01:04:10.800 | When you mandate a one-child policy, you guarantee that your population is going to be cut by 50% in the fullness of time.

01:04:19.800 | Now, central planners obviously think, "Oh, well, we can change this when we think we need to."

01:04:24.800 | But they kept that policy in place for decades.

01:04:27.800 | Along the way, they also experienced broad-scale industrialization and a broad-scale move to the cities.

01:04:35.800 | So while prior to the one-child policy, it was normal for women to have more children, basically the global average,

01:04:43.800 | now you move into a very industrial city-based lifestyle,

01:04:48.800 | and you remove the imperative to have children,

01:04:53.800 | and children become an annoying feature to many people who don't want to have children.

01:05:01.800 | China, I researched this the other day, I just don't remember the years off the top of my head,

01:05:06.800 | but they said, "Okay, one child, we'll let you have two."

01:05:09.800 | Now, official policy, I think, as of three years ago, something like that,

01:05:13.800 | is you can have three children.

01:05:18.800 | But nobody's responding to that.

01:05:20.800 | Very few people are responding to the idea that we want to have more children

01:05:23.800 | because you have the same trends that have affected the rest of the world,

01:05:25.800 | a broad-scale industrialization, people living in cities, they don't want to have children.

01:05:30.800 | But we all have underestimated how destructive that population decline is.

01:05:37.800 | Because what happens is, if you miss half of a generation of people,

01:05:42.800 | meaning you say, "Okay, there should be two children for every woman,

01:05:50.800 | but now there's one child for every woman."

01:05:52.800 | Well, that happened more than 30 years ago.

01:05:55.800 | So now, all of those children who were just single children, fast forward,

01:06:01.800 | they're now supposed to have children.

01:06:03.800 | Well, regardless of the lifting of the policy,

01:06:08.800 | remember that even though, "Okay, you can have three children now,"

01:06:12.800 | regardless of what the law now is in China,

01:06:15.800 | there just aren't enough children to have enough children

01:06:17.800 | to even get back to your other population.

01:06:19.800 | It's not possible.

01:06:21.800 | If you don't have enough children, your children have no chance of having enough children.

01:06:26.800 | That's what's happened across China,

01:06:28.800 | is that there is a whole legion of young people who would ordinarily be having children

01:06:35.800 | who aren't having children, partly because of the law, partly because of the culture,

01:06:39.800 | and then partly because of just the inability to get married.

01:06:42.800 | In China, you have broad-scale sex selection abortions.

01:06:46.800 | So you had millions and millions of girls murdered,

01:06:49.800 | either through abortion or through infanticide,

01:06:52.800 | so that the parents could have boys.

01:06:54.800 | So you have a massive imbalance of too many men and not enough women.

01:06:58.800 | That puts extreme pressure on a society,

01:07:02.800 | and you have people who just don't want to have children.

01:07:04.800 | And so all the data--

01:07:07.800 | The other comment on this is that the data on China

01:07:10.800 | is basically turning out to be largely lies.

01:07:14.800 | So it's hard to know, because that's what the Chinese government does.

01:07:19.800 | They make up the data that makes them sound good, and they lie,

01:07:21.800 | just like they did in the beginning of COVID,

01:07:22.800 | just like they've done with their demographics.

01:07:24.800 | But there are--

01:07:28.800 | I am not the expert. I need to be careful with my numbers.

01:07:31.800 | There are probably at least 100 million people missing

01:07:34.800 | from what the Chinese government said that they had

01:07:36.800 | versus what they have right now.

01:07:38.800 | And so good population estimates are that

01:07:42.800 | China's population is going to be halved by 2070,

01:07:48.800 | possibly sooner.

01:07:50.800 | So the idea that--

01:07:52.800 | And I just shared an article.

01:07:53.800 | Let me pull that up while I'm speaking.

01:07:57.800 | I just shared an article last night on my Twitter page

01:08:01.800 | from a Bloomberg article.

01:08:04.800 | Let me quote some data from it.

01:08:05.800 | This is why it's fresh on my mind,

01:08:07.800 | because if you have the actual data,

01:08:10.800 | it makes it make a lot more sense.

01:08:16.800 | Here we go.

01:08:18.800 | Neil Ferguson's article, Bloomberg News from last week,

01:08:22.800 | "China's Demographics Spell 'Decline' Not 'Domination'."

01:08:28.800 | So let's go to the China information.

01:08:34.800 | All right.

01:08:35.800 | "China's Demographics Spell 'Decline' Not 'Domination'"

01:08:37.800 | by Neil Ferguson.

01:08:39.800 | First, he starts by talking about the American demography

01:08:44.800 | and the fact that demographics in the United States of America

01:08:46.800 | are not great, but they're not as bad as some others.

01:08:50.800 | Let me pick this up in the middle of the article here.

01:08:57.800 | So talking about declines,

01:08:58.800 | "Does all this mean that the declinists are right after all

01:09:02.800 | and our best years are behind us?

01:09:04.800 | Is it only a matter of time before we all admit

01:09:06.800 | that the post-American world has arrived

01:09:07.800 | and the Chinese century has begun?

01:09:09.800 | Should we just throw in the towel and let China have Taiwan?

01:09:12.800 | Well, no, because if you think we"--meaning we Americans--

01:09:15.800 | "because if you think we've got problems,

01:09:16.800 | I can assure you that those of America's principal rival

01:09:19.800 | are worse, much worse.

01:09:21.800 | And unlike our problems, China's do not have the solution

01:09:23.800 | that obviously exists for the United States,

01:09:26.800 | namely immigration reform of the sort

01:09:28.800 | that has already been achieved elsewhere in the Anglosphere.

01:09:31.800 | In the latest edition of its World Population Prospects,

01:09:34.800 | the United States Department of Economic Affairs

01:09:36.800 | offers various possible scenarios

01:09:38.800 | for countries' populations.

01:09:40.800 | In the case of the United States,

01:09:41.800 | both the low fertility projection

01:09:43.800 | and the zero migration projection

01:09:45.800 | see a decline in population by the end of the century

01:09:48.800 | of around 16%,

01:09:50.800 | from the current 336.5 million to around 280 million.

01:09:55.800 | But that is not the UN's base case.

01:09:57.800 | In its medium fertility variant,

01:09:59.800 | the U.S. population rises 17% to 394 million by 2100.

01:10:05.800 | In a high fertility scenario, it rises to 541 million.

01:10:10.800 | By contrast, the United Nations offers no scenario

01:10:14.800 | in which China's population does not decline.

01:10:17.800 | Best case, it falls by a fifth.

01:10:20.800 | Base case, it declines by 46% to 771 million.

01:10:25.800 | Worst case, it falls by nearly two-thirds to 494 million.

01:10:31.800 | You will notice that would be below the end-of-century total

01:10:34.800 | for the United States in the high fertility scenario.

01:10:37.800 | So I repeat, best case scenario,

01:10:39.800 | according to the United Nations,

01:10:41.800 | is that China's population falls by a fifth

01:10:44.800 | by the end of the century.

01:10:46.800 | Base case, almost half of a decline,

01:10:49.800 | of a 46% decline to 771 million.

01:10:53.800 | Worst case is a decline by nearly two-thirds to 494 million.

01:10:58.800 | And it seems increasingly probable

01:11:01.800 | that some of the worst-case scenarios

01:11:06.800 | are even excessively optimistic.

01:11:08.800 | As Nicholas Eberstadt and Peter Van Ness

01:11:10.800 | of the American Enterprise Institute have pointed out,

01:11:13.800 | this is major revision by the United Nations.

01:11:16.800 | Twenty years ago, the population prospects

01:11:18.800 | projected China's population to rise

01:11:21.800 | from 1.28 billion in 2001 to 1.43 billion this year,

01:11:27.800 | and then to keep rising to a peak of 1.45 billion in 2031.

01:11:31.800 | The 2031 peak was still there

01:11:34.800 | in the 2019 world population prospects.

01:11:37.800 | Now, according to the United Nations'

01:11:39.800 | latest median projection,

01:11:40.800 | the peak will be in just two years' time,

01:11:42.800 | and the 2050 population will be 100 million less

01:11:45.800 | than previously forecast.

01:11:47.800 | The explanation is certainly not COVID

01:11:49.800 | or any other source of increased mortality.

01:11:52.800 | The main reason for the change can be found

01:11:54.800 | in the most recent birth data

01:11:55.800 | published by China's National Bureau of Statistics,

01:11:58.800 | which point to a swan dive in births since 2016,

01:12:02.800 | as Eberstadt and Van Ness put it.

01:12:04.800 | The paradox is that 2016 was the year

01:12:07.800 | the one-child policy, introduced by Deng Xiaoping in 1979,

01:12:11.800 | was replaced by a two-child policy.

01:12:13.800 | The timing is indeed curious,

01:12:15.800 | not to say counterintuitive.

01:12:17.800 | So what is going on?

01:12:19.800 | The Chinese government has stopped denying

01:12:21.800 | it has a demographic problem.

01:12:22.800 | Last month, Yang Wenchuang,

01:12:25.800 | the head of population for China's

01:12:27.800 | National Health Commission,

01:12:28.800 | admitted that his country's population

01:12:30.800 | would start to shrink before 2025,

01:12:33.800 | according to a report in the state-run Global Times.

01:12:36.800 | "This is an inevitable result of a long period

01:12:40.800 | of low fertility rate,"

01:12:41.800 | Huang Wenjing of the Center for China and Globalization

01:12:44.800 | was quoted as saying.

01:12:46.800 | "It can be predicted that China's birth rate

01:12:48.800 | will continue to shrink for more than a century."

01:12:51.800 | But even this admission understates the problem,

01:12:54.800 | according to Yi Fushan of the University of Wisconsin

01:12:57.800 | at Madison, who has argued for years

01:13:00.800 | that we should not trust China's official birth statistics.

01:13:04.800 | His book, Big Country with an Empty Nest,

01:13:06.800 | which was banned in China when it was published in 2007,

01:13:09.800 | predicted that the Chinese population

01:13:11.800 | would begin to shrink in 2017,

01:13:14.800 | not in the early 2030s.

01:13:16.800 | In 2019, Yi argued,

01:13:18.800 | on the basis of vaccination and other data,

01:13:20.800 | that China's population had already begun to decline in 2018,

01:13:24.800 | one year later than his estimate.

01:13:26.800 | Now he has been vindicated.

01:13:28.800 | Earlier this summer,

01:13:30.800 | the Shanghai Police Department

01:13:31.800 | accidentally leaked the records

01:13:33.800 | of over 1 billion Chinese citizens.

01:13:35.800 | An anonymous hacker released a sample

01:13:37.800 | of about 750,000 of the stolen records.

01:13:40.800 | Yi's analysis of this sample leads him to conclude,

01:13:43.800 | "that post-1990 births

01:13:45.800 | continue to decline faster than I had predicted,

01:13:48.800 | and in fact did not peak in 2004 or 2011.

01:13:52.800 | That means China's real population

01:13:55.800 | is not 1.41 billion, the official figure,

01:13:58.800 | and could be even smaller

01:14:00.800 | than my own estimate of 1.28 billion."

01:14:03.800 | Like many governments around the world,

01:14:05.800 | the Chinese government is trying to counter its baby bust.

01:14:08.800 | In May last year,

01:14:09.800 | the central government announced

01:14:10.800 | that all couples would be allowed to have up to three children,

01:14:13.800 | and launched a nationwide drive

01:14:15.800 | to boost the number of affordable nursery care slots.

01:14:17.800 | According to the People's Daily,

01:14:19.800 | new measures at the local level

01:14:21.800 | include tax deductions

01:14:22.800 | for expenses on children under age three,

01:14:24.800 | fertility subsidies,

01:14:25.800 | extended maternity leave,

01:14:27.800 | and favorable housing policies

01:14:29.800 | for couples with more than one child.

01:14:31.800 | But such incentives are no more likely

01:14:33.800 | to be successful in China

01:14:34.800 | than they have been elsewhere in East Asia,

01:14:36.800 | where similar plunges in fertility happened earlier,

01:14:38.800 | for example Taiwan and South Korea.

01:14:40.800 | The root causes, as in the United States,

01:14:43.800 | include the increasing educational

01:14:45.800 | and employment opportunities for women

01:14:47.800 | compared with the perceived costs of raising children.

01:14:49.800 | But in China, the baby bust has other drivers.

01:14:52.800 | First, marriage itself is out of fashion.

01:14:55.800 | According to a 2021 survey by the Communist Youth League,

01:14:58.800 | 44% of urban young women aged 18 to 26

01:15:02.800 | say they don't plan to marry,

01:15:04.800 | compared to 25% of urban young men.

01:15:06.800 | Asked for their reasons,

01:15:08.800 | 61% of respondents said it was

01:15:10.800 | "difficult to find the right person,"

01:15:12.800 | while 46% said that

01:15:14.800 | "the financial cost of marriage was too high,"

01:15:16.800 | and 34% said they didn't have

01:15:19.800 | "the time and energy to get married."

01:15:21.800 | Nearly a third said simply that

01:15:23.800 | they "did not believe in marriage."

01:15:25.800 | Such sentiments are understandable.

01:15:27.800 | Unlike in the United States,

01:15:28.800 | where divorce has been in decline,

01:15:30.800 | in China it has surged in the past 20 years.

01:15:33.800 | All this helps explain the popularity

01:15:35.800 | of the Weibo hashtag,

01:15:37.800 | "Why aren't you getting married?"

01:15:38.800 | Pressuring their children to get hitched,

01:15:40.800 | a phenomenon known as "Qiuhun,"

01:15:42.800 | is what middle-aged Chinese parents do.

01:15:44.800 | Yet China has a further difficulty,

01:15:46.800 | the chronic imbalance in the population

01:15:48.800 | between men and women,

01:15:50.800 | a direct consequence of the selective abortion

01:15:52.800 | of female fetuses that the One Child Policy

01:15:54.800 | made possible.

01:15:56.800 | In 2018, there were 5.9 million more boys

01:15:59.800 | than girls aged 0 to 4,

01:16:01.800 | and 112 men aged 15 to 29

01:16:04.800 | for every 100 women in that age group.

01:16:07.800 | That imbalance is only going to widen

01:16:09.800 | in the next 10 years.

01:16:11.800 | In short, America has a fertility problem,

01:16:14.800 | but China's is already, since 1991, worse.

01:16:18.800 | America has an aging problem,

01:16:21.800 | but China's will soon, from 2034, be worse.

01:16:25.800 | And it goes on and describes more.

01:16:28.800 | It's an excellent article linked on my Twitter

01:16:30.800 | at twitter.com/joshuasheets.

01:16:33.800 | But basically, if you understand

01:16:36.800 | the underlying demographics of the country,

01:16:39.800 | that the population has peaked,

01:16:41.800 | and they have destroyed their ability

01:16:44.800 | to have more children,

01:16:46.800 | because of these 30 years of One Child Policy,

01:16:51.800 | that basically, demographically,

01:16:53.800 | China is finished.

01:16:54.800 | And that writing is crystal clear.

01:16:57.800 | So now, you have a society

01:17:00.800 | that has industrialized rapidly,

01:17:02.800 | that doesn't have enough young people,

01:17:04.800 | doesn't have a culture of young people,

01:17:07.800 | doesn't have, really, even the possibility

01:17:10.800 | of replacing itself at this point,

01:17:12.800 | let alone growing again.

01:17:14.800 | You're going to have a huge, graying population.

01:17:17.800 | China is now the fastest aging population

01:17:21.800 | in the world.

01:17:22.800 | And now, bring that back to housing.

01:17:24.800 | Now, you understand why you have,

01:17:27.800 | you know, giant cities that are empty,

01:17:30.800 | and why you have some of the housing problems.

01:17:36.800 | Which then brings it back to

01:17:38.800 | the financial issues that are associated

01:17:41.800 | with the housing,

01:17:42.800 | of the bust of investments,

01:17:44.800 | of people, just everything that we've seen

01:17:47.800 | over the past few months.

01:17:49.800 | Then, add on to that COVID,

01:17:51.800 | and all of the massive impact of COVID,

01:17:55.800 | of basically China shutting down its country,

01:17:58.800 | completely, and basically destroying itself

01:18:02.800 | on the world stage,

01:18:04.800 | from an actual business perspective,

01:18:06.800 | to say nothing of the massive amounts

01:18:09.800 | of mistrust generated by lying about

01:18:12.800 | the pandemic in the beginning,

01:18:14.800 | concealing and covering up and obstructing

01:18:18.800 | any genuine investigation into the origins

01:18:21.800 | of the pandemic,

01:18:23.800 | and you have a nightmare scenario.

01:18:26.800 | So, that's what I see happening in China.

01:18:29.800 | I guess one more point, and again, on this,

01:18:32.800 | I'm simply going from one source on this.

01:18:38.800 | I've been listening to and reading recently

01:18:42.800 | Peter Zaihan's book on China,

01:18:45.800 | and some of the conversations,

01:18:48.800 | or the ideas that he's expressed.

01:18:50.800 | He's a geopolitical analyst.

01:18:52.800 | The book has impacted me a lot,

01:18:53.800 | as I've been thinking about all of the issues.

01:18:55.800 | In fact, I just finished recording an interview

01:18:57.800 | with Stephen Harris that will be released on Monday,

01:18:59.800 | where we talk extensively about the book

01:19:02.800 | and about his perspectives.

01:19:04.800 | But the comment that he makes on China,

01:19:06.800 | which I have no reason to doubt,

01:19:07.800 | he's more informed than I am,

01:19:09.800 | is, in addition to all of the issues

01:19:11.800 | that I have just stated,

01:19:13.800 | that President Xi has basically

01:19:19.800 | developed a cult of personality around him,

01:19:21.800 | and has basically sealed himself off

01:19:24.800 | from anybody telling him the truth.

01:19:26.800 | And so you have the incompetence

01:19:29.800 | of a very centrally planned society,

01:19:33.800 | mixed with massive paranoia,

01:19:35.800 | where almost certainly President Xi himself

01:19:38.800 | is not even getting good data.

01:19:40.800 | Because if you shoot the messenger too many times,

01:19:43.800 | people stop bringing you messages.

01:19:45.800 | And that's the problem of an authoritarian dictatorship.

01:19:48.800 | So, although China is not to be written off,

01:19:52.800 | because it is currently still so big,

01:19:55.800 | and these trends are so long-term,

01:19:58.800 | you're dealing with a huge country,

01:20:00.800 | you're dealing with a giant economy,

01:20:02.800 | and so to wave your hand and say,

01:20:04.800 | "Ah, I'm just writing off this economy

01:20:06.800 | and this country," would be silly.

01:20:08.800 | But in terms of the future,

01:20:10.800 | it's very hard to see a bright future for China.

01:20:14.800 | And in many ways, I think the safest bet,

01:20:17.800 | if I'm putting money on it,

01:20:19.800 | I'm going to bet my money on that China has peaked,

01:20:22.800 | and China is in decline and is heading towards collapse.

01:20:26.800 | That doesn't necessarily apply to the rest

01:20:28.800 | of its Asian neighbors,

01:20:30.800 | but China itself is not looking great.

01:20:33.800 | So what does that mean to the United States?

01:20:35.800 | I don't think it means anything,

01:20:37.800 | or to the US banking system,

01:20:38.800 | which is the key question that you asked.

01:20:40.800 | I don't think it really means anything

01:20:42.800 | to the United States,

01:20:43.800 | in the sense of creating some kind of crisis,

01:20:46.800 | and I don't personally think it means anything

01:20:49.800 | to the US banking system writ large.

01:20:52.800 | While perhaps there are firms or banks

01:20:55.800 | that may be impacted by it,

01:20:57.800 | it's not particularly common that US banks,

01:21:01.800 | at least to my knowledge,

01:21:03.800 | that US banks and investment funds have gone

01:21:07.800 | and gotten exposed large amounts of their portfolio

01:21:10.800 | to Chinese real estate.

01:21:13.800 | I haven't pulled a source or a chart on that,

01:21:16.800 | so I could be mistaken,

01:21:17.800 | but I'm not aware of that being any kind of trend.

01:21:20.800 | And in terms of the US banking system,

01:21:22.800 | I don't see the US banking system

01:21:23.800 | as in any way dependent on China.

01:21:26.800 | China has been a source of cheap offshoring

01:21:31.800 | for a while,

01:21:32.800 | of a place to get cheap, low-quality exports from,

01:21:35.800 | but the United States is not dependent on China,

01:21:38.800 | and I think the trend,

01:21:40.800 | especially since the beginning of the pandemic,

01:21:43.800 | has been that many American companies

01:21:45.800 | have seen the major risks they're exposed to

01:21:47.800 | by having their production in China,

01:21:49.800 | and China has lost all of its low-wage competitiveness.

01:21:53.800 | It's my understanding at the moment

01:21:55.800 | that China for many years

01:21:58.800 | had a low-wage competitiveness,

01:22:00.800 | and then they extended that competitiveness

01:22:03.800 | by shipping millions and hundreds of millions of people

01:22:06.800 | from rural areas into cities

01:22:08.800 | to use them as workers,

01:22:09.800 | in some cases as slave workers.

01:22:12.800 | But that is now gone,

01:22:14.800 | and I've heard analysts say recently

01:22:19.800 | that there's nothing that can be made cheaper in China

01:22:22.800 | at this point in time in many ways

01:22:25.800 | than even can be made in the United States.

01:22:27.800 | And so if you bring in Mexico, etc.,

01:22:29.800 | I think you see very good evidence to say

01:22:31.800 | that China is losing

01:22:34.800 | and will lose a lot of business in the future.

01:22:37.800 | So we're dealing with huge trends

01:22:39.800 | that I don't--

01:22:41.800 | how can anyone actually encompass

01:22:43.800 | and fully understand it?

01:22:45.800 | We're talking about many industries,

01:22:47.800 | billions of people, etc.

01:22:49.800 | So take my comments for what they're worth,

01:22:52.800 | but I'm not concerned about this as a risk,

01:22:54.800 | and I'm not in any way concerned about FDIC insurance

01:22:57.800 | on American bank accounts myself

01:22:59.800 | based upon the evidence that I have seen.

01:23:01.800 | So there's my rather extended

01:23:03.800 | and complicated answer for you, Tyler.

01:23:09.800 | Thank you.

01:23:10.800 | So in terms of maybe just thinking through good practices,

01:23:14.800 | if I was to want to have some semblance

01:23:18.800 | of maybe my own security policy

01:23:20.800 | on not relying on FDIC or something like that,

01:23:25.800 | are there any other strategies

01:23:26.800 | that you would employ on a small scale now,

01:23:29.800 | maybe just until we're kind of in the clear on this?

01:23:32.800 | Absolutely.

01:23:33.800 | So I think--

01:23:34.800 | but the strategies don't sound any different

01:23:37.800 | because of any particular event.

01:23:39.800 | These are the strategies that I believe are smart strategies.

01:23:42.800 | Number one, you always want to have

01:23:45.800 | an appropriate amount of physical currency

01:23:47.800 | in your possession

01:23:49.800 | that's not in the banking system.

01:23:51.800 | An appropriate amount would be an amount

01:23:52.800 | that's relevant to your life,

01:23:54.800 | to your lifestyle,

01:23:55.800 | and to your living circumstances.

01:23:57.800 | So I would say a college student

01:24:00.800 | who's having a shared dorm

01:24:02.800 | should have $500 stuck in a deodorant container

01:24:06.800 | in a travel bag in the trunk of his car.

01:24:09.800 | A multimillionaire who lives in a safe house

01:24:13.800 | in a safe neighborhood with a gate on it

01:24:15.800 | and has a nice in-floor safe in his living room

01:24:19.800 | should have $100,000 of physical currency

01:24:21.800 | stored in the safe

01:24:22.800 | in case he ever needs access to physical currency.

01:24:24.800 | So you fill in the details of your situation,

01:24:26.800 | but everybody should be able to get their hands on

01:24:28.800 | a little bit of physical currency

01:24:30.800 | for opportunities or for emergencies,

01:24:33.800 | for bank holidays, for power outages,

01:24:35.800 | for any number of things that can happen.

01:24:38.800 | Number two, the way that you solve for capital controls

01:24:41.800 | is by moving your money

01:24:43.800 | across the international border

01:24:46.800 | before the capital controls go in place.

01:24:48.800 | So I think that depending, again,

01:24:52.800 | on the details of your financial planning

01:24:54.800 | and where you are,

01:24:56.800 | everybody should have at least one bank account

01:24:59.800 | that's not physically located

01:25:01.800 | or that's not with a bank

01:25:03.800 | that is located in the country in which you live

01:25:06.800 | so that you have some money that's in another country.

01:25:09.800 | This is easy to do.

01:25:11.800 | And whether you put a lot of money there

01:25:15.800 | because that makes financial sense for you

01:25:17.800 | or you put a little money there,

01:25:19.800 | that's to be decided on,

01:25:20.800 | but you should just simply put money

01:25:22.800 | into a foreign bank account.

01:25:24.800 | And there are many high-quality banking jurisdictions

01:25:27.800 | that will allow you to bank in US dollars

01:25:30.800 | in those banking jurisdictions

01:25:32.800 | as well as another currency other than US dollars.

01:25:36.800 | And so that is how you avoid capital controls,

01:25:38.800 | is by having the money prepositioned

01:25:41.800 | across the international border.

01:25:43.800 | In addition to that,

01:25:44.800 | you want to have some physical assets

01:25:46.800 | that are not exposed to the banking system.

01:25:49.800 | Physical assets can include your house.

01:25:51.800 | It can include valuable personal property.

01:25:53.800 | You might have an expensive watch.

01:25:55.800 | You might have an expensive gun.

01:25:56.800 | You might have a bag of gold coins.

01:25:59.800 | And where it makes sense,

01:26:01.800 | you want to position those physical assets

01:26:04.800 | in a foreign country as well.

01:26:06.800 | So obviously, your expensive watch that you wear,

01:26:08.800 | okay, you're probably just going to wear that on your wrist.

01:26:10.800 | But if you've got a bag of gold coins,

01:26:12.800 | then you would keep some gold coins at home

01:26:15.800 | for emergencies, opportunities, need, etc.

01:26:18.800 | But if you have a collection that is beyond that,

01:26:20.800 | then you would put those into a bank vault

01:26:21.800 | in another country.

01:26:23.800 | That way, when the capital controls go into place

01:26:25.800 | and you can't get out,

01:26:27.800 | excuse me, that way,

01:26:28.800 | when the capital controls go in place

01:26:30.800 | and you can't get your money out

01:26:31.800 | across those capital controls,

01:26:33.800 | at least if you can get your body out,

01:26:35.800 | you already have some money positioned

01:26:37.800 | in a foreign country.

01:26:38.800 | This can include a vacation home, right?

01:26:41.800 | A nice place in Italy

01:26:44.800 | that you like to go to in the summertime.

01:26:46.800 | That's a perfectly reasonable way

01:26:48.800 | to have some of that money abroad as well.

01:26:50.800 | And then depending on your country

01:26:53.800 | as you're watching the situation,

01:26:55.800 | if you see people actually talking

01:26:57.800 | about capital controls,

01:26:58.800 | then now you might start to take more aggressive action.

01:27:00.800 | You say, "I did have $400,000 here

01:27:03.800 | in my home bank account

01:27:04.800 | that I was planning to save for a house,

01:27:07.800 | but you know what?

01:27:08.800 | I'm really worried,

01:27:09.800 | so I'm going to go ahead and wire $300,000 of this

01:27:11.800 | to my foreign bank account."

01:27:12.800 | And as long as you've got the account

01:27:13.800 | already established,

01:27:15.800 | then that should be fairly easy to do

01:27:17.800 | and fairly easy to move quickly

01:27:19.800 | if you see hints of capital controls

01:27:21.800 | going into force.

01:27:22.800 | And then from there,

01:27:23.800 | you need to be very careful

01:27:24.800 | about what is actually happening

01:27:29.800 | in terms of the country

01:27:35.800 | that you are exposed to.

01:27:36.800 | So let's talk about China

01:27:38.800 | versus the United States.

01:27:41.800 | China, I'm very concerned

01:27:43.800 | about the Chinese government

01:27:46.800 | instituting capital controls

01:27:48.800 | because they already have capital controls

01:27:51.800 | that are in place now.

01:27:54.800 | And I think Chinese citizens

01:27:56.800 | are limited to, what is it, $35,000?

01:27:59.800 | Something like that

01:28:00.800 | that can be taken out of the country.

01:28:05.800 | And so Chinese citizens

01:28:07.800 | have been very, very diligently

01:28:12.800 | stocking their money away.

01:28:14.800 | Canada is the perfect example.

01:28:16.800 | You go to a city like Vancouver

01:28:19.800 | and the entire city's fundamental economics

01:28:24.800 | have been completely upset and disrupted

01:28:27.800 | by Chinese citizens using their money

01:28:31.800 | made in China

01:28:32.800 | and investing it into Vancouver real estate.

01:28:35.800 | And they're doing it

01:28:36.800 | to escape the capital controls in China.

01:28:40.800 | So you have here an authoritarian government

01:28:44.800 | that already has capital controls

01:28:46.800 | that doesn't allow immigration.

01:28:49.800 | For example, during COVID,

01:28:51.800 | the Chinese government

01:28:52.800 | stopped issuing passports

01:28:53.800 | and they refused to allow Chinese citizens

01:28:56.800 | to leave the country

01:28:58.800 | unless they could pass a test to say,

01:29:01.800 | "Yes, this is genuinely

01:29:02.800 | what we consider to be a reasonable answer."

01:29:09.800 | So I think that if we look at

01:29:11.800 | what countries did in COVID,

01:29:12.800 | we get a pretty good indication

01:29:14.800 | of their authoritarian tendencies

01:29:17.800 | and where you're safest

01:29:19.800 | and where your money is safest.

01:29:20.800 | So if your country locked down its borders

01:29:22.800 | and your country made you,

01:29:25.800 | for an extended period of time,

01:29:27.800 | stop people from coming in,

01:29:28.800 | if your country required you especially

01:29:31.800 | to not be able to leave,

01:29:33.800 | looking at you, China,

01:29:34.800 | looking at you, Australia, etc.,

01:29:36.800 | then that's a big sign

01:29:38.800 | of the way that your government thinks.

01:29:40.800 | Now, no country is perfect.

01:29:42.800 | Mexico was vastly freer

01:29:44.800 | in terms of that stuff

01:29:46.800 | than the United States.

01:29:47.800 | The United States still today

01:29:49.800 | has significant requirements

01:29:51.800 | for vaccination,

01:29:52.800 | for entering tourists, etc.,

01:29:54.800 | but the United States

01:29:55.800 | was far better than many other countries.

01:29:57.800 | So I'm concerned about capital controls

01:30:01.800 | for Americans

01:30:03.800 | because I'm concerned about capital controls,

01:30:06.800 | but I'm vastly less concerned

01:30:08.800 | about capital controls for Americans

01:30:10.800 | than I am for capital controls

01:30:12.800 | for Chinese or for Argentinians, etc.

01:30:17.800 | So it is a "all governments are equal"

01:30:20.800 | in the sense that they go

01:30:21.800 | to the same playbook

01:30:22.800 | that they always do.

01:30:23.800 | And when the country faces a crisis,

01:30:25.800 | that's one of the things

01:30:26.800 | that they implement to try...

01:30:28.800 | It's a set of bad laws

01:30:29.800 | that they implement to try to stop things.

01:30:31.800 | And so I'm just as worried about it.

01:30:33.800 | I'm worried about it

01:30:35.800 | because it's what they do,

01:30:36.800 | but I think you have a better hope

01:30:39.800 | in the United States

01:30:40.800 | versus other countries.

01:30:41.800 | And then finally,

01:30:42.800 | I think that the fundamentals

01:30:45.800 | for Americans

01:30:46.800 | and the American economy,

01:30:47.800 | as I outlined in the recent show

01:30:49.800 | that I did on my changing views

01:30:51.800 | on the United States,

01:30:52.800 | I think the United States

01:30:53.800 | is positioned to win

01:30:55.800 | in the coming decades

01:30:57.800 | and that of any region in the world,

01:31:01.800 | North America has more things

01:31:04.800 | going for it in the coming decades

01:31:06.800 | than most other regions of the world.

01:31:08.800 | And so I think myself,

01:31:11.800 | I'm not worried

01:31:13.800 | about a precipitous collapse

01:31:14.800 | of US banking.

01:31:16.800 | I'm not worried

01:31:17.800 | about a precipitous collapse

01:31:18.800 | of the US dollar.

01:31:19.800 | I'm not worried

01:31:20.800 | about any kind of precipitous crisis

01:31:21.800 | at the moment.

01:31:22.800 | I think they are possible

01:31:24.800 | and I want to be prepared for them.

01:31:25.800 | I am prepared for that as best I can,

01:31:28.800 | but I'm not worried about it.

01:31:29.800 | And I think the trend

01:31:30.800 | is probably in the other direction.

01:31:32.800 | - Appreciate it.

01:31:35.800 | Consistent advice

01:31:36.800 | from stuff you said before

01:31:37.800 | and thanks for a thorough answer.

01:31:38.800 | - My pleasure.

01:31:39.800 | Let's see if we've got Kansas on the line.

01:31:44.800 | Go ahead.

01:31:45.800 | Can you hear me this time?

01:31:46.800 | - I can.

01:31:48.800 | Thank you very much, Joshua,

01:31:49.800 | for putting up with my computer issues.

01:31:51.800 | - That's all right.

01:31:52.800 | We're here now.

01:31:53.800 | How can I serve you today, sir?

01:31:54.800 | - Yes, sir.

01:31:55.800 | Well, so it actually tags on

01:31:56.800 | to the last caller.

01:31:58.800 | So if you're looking to invest in gold

01:32:02.800 | or silver or other precious metals,

01:32:05.800 | how do you determine a reputable organization,

01:32:09.800 | source, locally, nationally?

01:32:11.800 | You just talked about foreign entities, et cetera.

01:32:14.800 | Can you help me out a little bit

01:32:16.800 | with guiding me in that process?

01:32:18.800 | - Yeah, absolutely.

01:32:19.800 | So there is a slight risk

01:32:22.800 | in any kind of precious metals investing,

01:32:24.800 | especially for novice investors.

01:32:26.800 | There is a slight risk

01:32:27.800 | that you may get ripped off,

01:32:29.800 | but that risk is very, very low

01:32:32.800 | as long as you're not dealing

01:32:33.800 | with a back alley,

01:32:35.800 | like a Craigslist deal of some kind.

01:32:38.800 | And here's how you minimize your risk.

01:32:41.800 | Number one, you have to identify

01:32:44.800 | what risk you're concerned about.

01:32:46.800 | So in this case,

01:32:47.800 | I'm specifically referring

01:32:48.800 | to the risk of purchasing fraudulent

01:32:50.800 | or counterfeited coins

01:32:51.800 | or fake gold bullion, things like that.

01:32:55.800 | So the way that you minimize the risk

01:32:57.800 | is number one,

01:32:58.800 | do business with reputable dealers.

01:33:01.800 | A reputable dealer might be an online outfit.

01:33:04.800 | That's fine.

01:33:05.800 | There are lots of reputable dealers

01:33:06.800 | that are wonderful.

01:33:08.800 | If you go to appbex.com

01:33:09.800 | or any of the other JM bullion

01:33:13.800 | or goldmoney.com

01:33:15.800 | or any number of the places,

01:33:17.800 | even just a place that you see advertising

01:33:19.800 | on your local TV station,

01:33:21.800 | they're not gonna sell you fake gold.

01:33:23.800 | They're not gonna sell you fake silver.

01:33:25.800 | They're gonna sell you real legitimate stuff.

01:33:28.800 | If you go to your local coin shop,

01:33:30.800 | which is my preference,

01:33:31.800 | is find a local coin shop.

01:33:33.800 | They're not as easy to find as they once were,

01:33:35.800 | but if you go to your local coin shop,

01:33:36.800 | you're also not gonna be dealing

01:33:38.800 | with fake gold and fake silver.

01:33:41.800 | The way that you minimize your risk even more,

01:33:44.800 | especially in your early purchases,

01:33:46.800 | is by buying bullion coins.

01:33:48.800 | Bullion coins such as an American Eagle,

01:33:52.800 | a South African Krugerrand,

01:33:55.800 | an Australian or a Canadian Maple Leaf,

01:33:58.800 | something like that.

01:33:59.800 | If you buy these kinds of gold and silver coins,

01:34:01.800 | they're difficult to counterfeit

01:34:03.800 | because of the intricacy of their designs

01:34:05.800 | and they're also relatively easy

01:34:07.800 | to test the authenticity of.

01:34:10.800 | There's a set of basic tools, right?

01:34:12.800 | You have your fish scale

01:34:13.800 | and you have your different things.

01:34:14.800 | You have all your reference books.

01:34:15.800 | There's a set of basic tools

01:34:17.800 | used for verifying the authenticity

01:34:19.800 | of these kinds of coins

01:34:20.800 | that every experienced, knowledgeable

01:34:23.800 | coin investor has

01:34:25.800 | and every experienced, knowledgeable

01:34:26.800 | coin dealer has.

01:34:28.800 | So they'll make sure that

01:34:29.800 | the measurements of the coin are appropriate,

01:34:31.800 | that the weights are appropriate, etc.

01:34:33.800 | So there are counterfeit coins out there,

01:34:35.800 | but they're pretty well weeded out

01:34:38.800 | and I think you can be pretty confident

01:34:41.800 | as long as you're dealing with a reputable source.

01:34:43.800 | And where you do get more risk

01:34:46.800 | is in some cases if you're dealing with

01:34:48.800 | generic bullion coins.

01:34:50.800 | So you're buying generic one ounce rounds

01:34:52.800 | from a mint that's just stamping their own.

01:34:55.800 | But even there, if the mint is well known,

01:34:56.800 | there aren't that many mints

01:34:57.800 | and they're producing real stuff.

01:35:00.800 | And if you're getting it from a reputable dealer,

01:35:02.800 | they probably got it directly from the mint.

01:35:05.800 | And then if you get into the world,

01:35:06.800 | depending on the amount you're investing,

01:35:08.800 | if you get into the world of gold bricks,

01:35:11.800 | gold bars and bricks,

01:35:13.800 | the kind that you see in the Fort Knox's full of,

01:35:16.800 | then those again, those are x-rayed,

01:35:17.800 | those are assayed, they're tested, etc.

01:35:19.800 | And if you're dealing with a reputable outfit,

01:35:21.800 | there's not a high risk of having a problem.

01:35:26.800 | For counterfeiting,

01:35:28.800 | the only place you would be,

01:35:29.800 | the place you would be extra careful

01:35:31.800 | would be if you're buying gold from,

01:35:33.800 | say, a local pawn shop.

01:35:35.800 | Even there, I think that,

01:35:38.800 | be careful, do I believe that?

01:35:40.800 | I was going to say that I think most pawn brokers

01:35:42.800 | are kind of pretty honest.

01:35:45.800 | I think I believe that.

01:35:47.800 | Of course, that could be a questionable statement.

01:35:49.800 | What I mean is that

01:35:51.800 | although they want to drive a hard bargain,

01:35:53.800 | I don't think that a pawn shop dealer

01:35:56.800 | is going to intentionally sell a counterfeit coin.

01:35:59.800 | Maybe it slips through, etc.,

01:36:01.800 | but that would be a higher risk.

01:36:02.800 | And then, of course, doing online transactions,

01:36:04.800 | buying something on eBay,

01:36:06.800 | doing a Craigslist transaction,

01:36:07.800 | that's a higher risk for you.

01:36:09.800 | And so if you're engaging in that,

01:36:10.800 | then what I would do as part of the transaction

01:36:12.800 | is go to a local coin shop,

01:36:14.800 | go to a local dealer who has the necessary tools

01:36:17.800 | and have the product assayed

01:36:19.800 | to ensure its reliability.

01:36:23.800 | So I don't think that it's a big risk

01:36:25.800 | of buying counterfeit gold and silver

01:36:28.800 | as long as you're dealing with a reputable dealer.

01:36:30.800 | Thank you.

01:36:33.800 | Great information.

01:36:34.800 | Appreciate it.

01:36:35.800 | My pleasure.

01:36:36.800 | Let me add one more layer to it.

01:36:39.800 | So my recommendations on gold and silver

01:36:41.800 | is that,

01:36:43.800 | and these numbers are not hard and fast,

01:36:45.800 | they're directionally right.

01:36:46.800 | I think your first $10,000 or so

01:36:49.800 | should be bullion coins

01:36:52.800 | by your country of residence.

01:36:54.800 | So if you're American, buy American Eagles.

01:36:56.800 | If you're Canadian, buy Maple Leafs.

01:36:58.800 | If you're in another country,

01:36:59.800 | if you can't find bullion coins from your country,

01:37:02.800 | then buy one of the big international standards, right?

01:37:04.800 | Buy Krugerrands.

01:37:05.800 | So your first $10,000 or so

01:37:08.800 | should be bullion coins

01:37:10.800 | from your country of residence,

01:37:11.800 | and you should buy those locally.

01:37:13.800 | After that, then I think it makes sense

01:37:16.800 | to start thinking about,

01:37:17.800 | does storage in another country make sense for me?

01:37:20.800 | And while I haven't verified

01:37:23.800 | everybody on the internet,

01:37:26.800 | I'm not aware of there being any widespread fraud

01:37:30.800 | for bullion dealers who sell foreign storage.

01:37:34.800 | And so there are many good companies

01:37:36.800 | that you can find with various web searches,

01:37:37.800 | various advertising, et cetera.

01:37:39.800 | There are many good companies that offer offshore storage

01:37:42.800 | in any number of ways,

01:37:44.800 | and I'm not aware of it being a very fraudulent business.

01:37:48.800 | So, you know, checking,

01:37:50.800 | finding a company that has a product

01:37:51.800 | that you think is appropriate,

01:37:53.800 | checking them with web searches

01:37:55.800 | for the name of that company

01:37:56.800 | and scam or ripoff, ripoff report, BBB, et cetera.

01:38:00.800 | I think you'll discover enough,

01:38:02.800 | and it's safe enough even to buy coins in another country.

01:38:07.800 | So good luck to you.

01:38:09.800 | All right, Peter in New York.

01:38:11.800 | Welcome, Peter.

01:38:12.800 | How can I serve you today?

01:38:14.800 | - Hey, Joshua.

01:38:15.800 | I am trying to figure out

01:38:16.800 | what to do lease end with a vehicle.

01:38:18.800 | - Okay.

01:38:21.800 | - And I'm wondering if the arbitrage

01:38:25.800 | between the trade-in value

01:38:27.800 | and the blue book value is a way to look at this,

01:38:30.800 | or if just the residual value of the car

01:38:34.800 | as an inflation hedge is a way to look at it.

01:38:37.800 | I'm just kind of trying to frame up the lease end.

01:38:41.800 | I've normally leased cars in the past

01:38:43.800 | and just keep leasing a new one.

01:38:45.800 | This is the first time I've considered keeping the vehicle

01:38:50.800 | and, you know, those other financial considerations.

01:38:53.800 | It's the first time it's been relevant.

01:38:54.800 | - Sure, sure.

01:38:55.800 | And it's especially relevant

01:38:56.800 | 'cause it may even be that you can't get the vehicle

01:38:59.800 | that you would like due to the chip shortage

01:39:01.800 | that's been alleviated a little bit.

01:39:03.800 | It may be that it is a unique time.

01:39:06.800 | So how old is the vehicle

01:39:07.800 | and what are the numbers involved

01:39:09.800 | with this particular vehicle?

01:39:11.800 | - So it's a 2020 car.

01:39:15.800 | So we started the lease end of 2020,

01:39:18.800 | or excuse me, the end of 2019.

01:39:21.800 | It was a 2020.

01:39:22.800 | And the lease ends end of this year, December of 2022.

01:39:27.800 | - What kind of car?

01:39:29.800 | - It's a BMW X5.

01:39:31.800 | - And what's the lease buyout value?

01:39:35.800 | - It's about 41,000.

01:39:39.800 | - And the market value of the car, how much is it?

01:39:44.800 | - It's about 51,000.

01:39:46.800 | - Would a $10,000 profit in your life

01:39:50.800 | be meaningful and important to you?

01:39:51.800 | Would that be something that's important to you?

01:39:54.800 | - It would be nice.

01:39:56.800 | I don't know how critical it is.

01:39:58.800 | And I think if it were a hassle, it would not be worth it.

01:40:03.800 | If it were easy, it'd be fine.

01:40:06.800 | - Have you asked BMW what they would offer you for it?

01:40:11.800 | - I have not done that yet.

01:40:15.800 | - So I think that the balance is,

01:40:17.800 | you're not a car dealer, right?

01:40:18.800 | That's not your job.

01:40:19.800 | So, and it can be a real hassle,

01:40:22.800 | but there is a real mix up in car values.

01:40:25.800 | And so if you call the BMW dealership

01:40:27.800 | and you say, listen guys,

01:40:29.800 | I've got a buyout on this vehicle of $41,000.

01:40:33.800 | I may buy it out,

01:40:34.800 | but obviously I know that it's worth more.

01:40:37.800 | What would you offer me for it?

01:40:39.800 | And that dealership themselves may offer you,

01:40:41.800 | say 46 or 47.

01:40:43.800 | And that eliminates all the hassle factor.

01:40:45.800 | If you want to get rid of it,

01:40:46.800 | it eliminates all the hassle factor and you're done.

01:40:48.800 | Or you could go to a CarMax outfit

01:40:50.800 | or some other outfit that's known

01:40:52.800 | for just giving you an offer, buying the car

01:40:54.800 | and see what they would give you.

01:40:56.800 | I've got a friend of mine,

01:40:58.800 | he's got a Land Rover, right?

01:40:59.800 | And the Land Rover dealership has contacted him

01:41:01.800 | multiple times and said,

01:41:03.800 | here's our offer for your car.

01:41:04.800 | We know you have it.

01:41:05.800 | You service it with us.

01:41:07.800 | So we know the car is in good shape

01:41:09.800 | and they've given him great buyout offers.

01:41:11.800 | He hasn't gotten one

01:41:12.800 | because he can't get another car that he likes,

01:41:14.800 | but he hasn't taken the offer.

01:41:16.800 | But I would start by contacting the dealership

01:41:19.800 | that you bought it from

01:41:20.800 | and see if they give you an offer.

01:41:21.800 | 'Cause then you'll know,

01:41:22.800 | 'cause if it's $51,000 in the open market

01:41:27.800 | where you have to list it,

01:41:29.800 | you have to have people come into your house,

01:41:30.800 | look at the car,

01:41:31.800 | but it's $47,000 from the dealer,

01:41:33.800 | you'd probably just take it to the dealer

01:41:35.800 | and skip the $4,000 worth of hassle.

01:41:37.800 | But it would be nice to know that number

01:41:40.800 | from the dealer or from an outfit like a CarMax.

01:41:44.800 | - Okay.

01:41:45.800 | - Can you replace the car?

01:41:48.800 | - Um, eventually.

01:41:51.800 | I haven't started to look into it since,

01:41:55.800 | you know, A, we normally just lease,

01:41:57.800 | and B, we liked it and we're thinking of keeping it.

01:42:02.800 | So beyond that, you know,

01:42:04.800 | we haven't looked into what a replacement would be.

01:42:08.800 | - So that would be the other important point,

01:42:11.800 | is you should shop for what you would replace it with

01:42:15.800 | and see what is available.

01:42:18.800 | So I'm not in tune with the BMW marketplace,

01:42:20.800 | but it may be the fact that you may not be able to get

01:42:24.800 | an X5 that has the features that you've wanted, right?

01:42:27.800 | I had a client of mine who had bought a brand new car,

01:42:29.800 | but it was shipped with, I think it was the seats, right?

01:42:32.800 | It had the buttons for the heated seats,

01:42:34.800 | but there was just no system installed in it

01:42:36.800 | because it didn't have,

01:42:38.800 | it had the button there,

01:42:39.800 | but they couldn't get the chips,

01:42:40.800 | and so they just sent the car,

01:42:41.800 | and eventually at some point,

01:42:42.800 | maybe they'll send out the equipment,

01:42:43.800 | and you can take it to the dealership and get it put in.

01:42:45.800 | But things like that are a hassle,

01:42:47.800 | and so I don't know if that's affecting

01:42:49.800 | the makes and models that you're interested in,

01:42:51.800 | but I would shop and see what's available.

01:42:53.800 | Also remember that we have a major change in interest rates,

01:42:57.800 | and interest rates drive your leasing deals

01:42:59.800 | in addition to your purchase deals,

01:43:01.800 | but they also drive your leasing deals.

01:43:02.800 | That fundamental base rate is a big deal.

01:43:04.800 | So the financing on a new lease deal

01:43:08.800 | may just not be attractive right now.

01:43:10.800 | 2019, you probably got a screaming deal.

01:43:13.800 | You got a great car that was,

01:43:15.800 | before the pandemic, before the chip shortage,

01:43:18.800 | before all the shipping issues,

01:43:19.800 | you had basically probably 0% financing costs

01:43:22.800 | because of extremely low interest rates,

01:43:24.800 | whereas if you go back at the end of 2022

01:43:26.800 | and you try to renegotiate that same deal,

01:43:28.800 | it may be a very different deal.

01:43:30.800 | And so if you like the car,

01:43:32.800 | I mean, it's practically brand new,

01:43:33.800 | this one might be a good one to go ahead and buy,

01:43:36.800 | and then in two, three, four years,

01:43:38.800 | sell it and go ahead and get a new car at that point

01:43:41.800 | if potentially things have smoothed out

01:43:44.800 | and they have something available that you like.

01:43:47.800 | So I would shop and see what's available

01:43:48.800 | because this might be the best car

01:43:50.800 | that you can get right now.

01:43:52.800 | - Yeah, that's a good,

01:43:54.800 | we hadn't looked too hard

01:43:55.800 | and we kind of figured that may be an issue.

01:43:58.800 | One other thing that we've heard,

01:44:00.800 | which I also need to check with the dealer on,

01:44:01.800 | is I'd heard, I don't know if this is still a problem,

01:44:03.800 | but I heard some dealers

01:44:05.800 | were not letting people buy out their lease

01:44:08.800 | due to car shortages.

01:44:10.800 | I don't know if it's still that extreme,

01:44:12.800 | but I'd heard that had happened

01:44:14.800 | with some folks with leases earlier this year.

01:44:18.800 | - I don't know.

01:44:20.800 | I don't know how they could do that,

01:44:21.800 | but maybe, I haven't read the contract,

01:44:23.800 | but it's so hard right now to get information.

01:44:25.800 | I hear anecdotal information from all sides,

01:44:28.800 | and you'll hear anecdotes from one place

01:44:30.800 | where they say, "Oh, this is really bad,"

01:44:32.800 | and then you hear a different anecdote where it's great.

01:44:35.800 | And so even things like the chip shortage,

01:44:36.800 | I don't know anything about BMWs or whatever,

01:44:38.800 | even a different brand you might replace it with,

01:44:41.800 | but in some places it's fine,

01:44:43.800 | some cars it's fine,

01:44:44.800 | and others there's a major shortage.

01:44:46.800 | So I don't think you'll know an answer to that

01:44:48.800 | until you shop it and talk to the dealer.

01:44:50.800 | That would be my first call,

01:44:51.800 | is call them up and see what they would offer you for it,

01:44:53.800 | and then see what you would actually replace it with.

01:44:55.800 | But I'm gonna, here's my guess,

01:44:58.800 | we can lay $5 on it,

01:45:01.800 | that I bet you're gonna keep this

01:45:03.800 | because if you've got a great car

01:45:06.800 | that you've had since new,

01:45:08.800 | there's nothing wrong with it,

01:45:10.800 | it's clearly, I'm sure it's a great car,

01:45:12.800 | and if you could buy it out for $41,000

01:45:14.800 | and drive it for a few years

01:45:16.800 | and avoid the significant increase in new cars,

01:45:19.800 | avoid the changing financing on lease deals,

01:45:22.800 | I bet you'll wind up just buying it

01:45:24.800 | and driving it for a couple more years

01:45:26.800 | and then trading it in or switching out it then.

01:45:29.800 | - Yeah, you're probably right.

01:45:31.800 | - Good luck, let me know what you decide,

01:45:33.800 | I'd be interested to find out.

01:45:35.800 | - Yeah, will do.

01:45:36.800 | Do you have 30 seconds for one quick comment?

01:45:39.800 | I don't know if you guys talked about that,

01:45:41.800 | I listened to your show about loan forgiveness yesterday,

01:45:43.800 | I don't know if anybody called in earlier to discuss it.

01:45:45.800 | I just had a comment,

01:45:48.800 | I had graduate school loans that I was paying off

01:45:54.800 | and my payoff date was way in the future,

01:45:56.800 | I had a low interest rate, blah, blah, blah.

01:45:58.800 | I was grandfathered

01:46:00.800 | into the Public Service Loan Forgiveness Program

01:46:02.800 | that was extended by an act of Congress

01:46:05.800 | that's up in October

01:46:07.800 | and actually got the balance of my loans forgiven

01:46:09.800 | just recently.

01:46:11.800 | Yeah, it was great.

01:46:13.800 | I had never planned for that in any of my planning,

01:46:17.800 | I was just paying it back to the terms of the loan.

01:46:21.800 | The only thing I would advise everyone out there is

01:46:24.800 | in their planning I think it's important

01:46:27.800 | to not bank on any of these programs.

01:46:30.800 | I think whatever, if it comes along,

01:46:33.800 | if you're going for a public service loan forgiveness,

01:46:35.800 | that's great.

01:46:36.800 | I think it's important to not bank on it

01:46:38.800 | 'cause who knows what's gonna happen.

01:46:39.800 | This was a surprise, I'd never planned on it,

01:46:42.800 | it helped my financial planning a lot.

01:46:44.800 | However, it came out of nowhere

01:46:46.800 | and it wouldn't have mattered if it didn't happen to me.

01:46:48.800 | So I think that's important for people

01:46:51.800 | who are out there with everything that's happening.

01:46:53.800 | I mean, who knows what's gonna happen in the future.

01:46:55.800 | However, it shouldn't impact your planning,

01:46:58.800 | if you ask me.

01:46:59.800 | It's someone who's just inadvertently

01:47:01.800 | gotten his loans forgiven and never planned on it.

01:47:03.800 | - Yeah, I agree.

01:47:04.800 | I think that we basically face the same problem,

01:47:07.800 | the same uncertainty exists

01:47:09.800 | with so many government programs.

01:47:11.800 | Everything from a student loan forgiveness program

01:47:15.800 | to social security.

01:47:16.800 | And I think there's definitely,

01:47:19.800 | basically you can't plan until it gets close enough

01:47:23.800 | to where you're making a decision.

01:47:24.800 | I find, when I was doing financial planning

01:47:27.800 | with people of all ages,

01:47:28.800 | I found that basically nobody in their 20s and 30s

01:47:32.800 | counts on having any social security income.

01:47:35.800 | And they know that there's probably something,

01:47:38.800 | but I didn't ever do retirement planning

01:47:40.800 | for anyone in their 20s and 30s

01:47:42.800 | that wanted to plan on social security.

01:47:44.800 | That was different, right?

01:47:46.800 | If you're a 60, then of course,

01:47:48.800 | I'm gonna plan on social security

01:47:49.800 | because it's close enough that at least for now,

01:47:52.800 | we can have a good estimate of it.

01:47:54.800 | And so I think basically the idea is,

01:47:57.800 | because there's so much certainty in government promises,

01:48:00.800 | because there's so much political instability,

01:48:03.800 | plan as though you're not going to need the programs

01:48:07.800 | or not going to use them.

01:48:09.800 | And then when the decision is close enough,

01:48:13.800 | then go ahead and say, "Hey, this is great."

01:48:16.800 | If you've got loans,

01:48:17.800 | if you've got graduate school loans at 2.72%,

01:48:21.800 | well, no, don't pay them off, right?

01:48:22.800 | String them along as long as you can.

01:48:24.800 | And then, "Oh, look, I got paid off

01:48:26.800 | "by the public service program."

01:48:28.800 | Great, but don't plan on that in the initials.

01:48:32.800 | It's too far away to know for certain what will happen.

01:48:35.800 | - Yep, couldn't agree more.

01:48:37.800 | - Awesome, thanks for calling in, Peter.

01:48:39.800 | Have a lovely day.

01:48:41.800 | And with that, I have finished all the callers

01:48:44.800 | and I had a minor technical issue in the middle of the call,

01:48:47.800 | so I don't even have closing music.

01:48:48.800 | Thank you so much for listening to today's Friday Q&A show.

01:48:51.800 | What a great range of topics.

01:48:52.800 | I enjoyed that one.

01:48:53.800 | I hope you did too.

01:48:54.800 | If you would like to join me next Friday on a live Q&A show,

01:48:58.800 | go to patreon.com/radicalpersonalfinance,

01:49:00.800 | sign up to support the show there on Patreon,

01:49:02.800 | and that will gain you access to next Friday's call-in.

01:49:06.800 | patreon.com/radicalpersonalfinance,

01:49:08.800 | and I'll be back with you very soon.

01:49:10.800 | - If you are looking for an exciting role

01:49:12.800 | in customer service, food service, or retail,

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01:49:23.800 | while you work in a vibrant, exciting environment

01:49:26.800 | where security is a priority.

01:49:28.800 | - The airport has it all.

01:49:29.800 | - You can have it all too.

01:49:31.800 | - Visit cmhserviceindustry.com to learn more.

2022-08-26_Friday_QA