RPF0332-QA_Show
00:00:00.000 | Today on Radical Personal Finance, we do a Q&A show.
00:00:04.760 | Joshua, how do I open a discussion on whole life insurance with people who have been taught
00:00:09.560 | to only buy term and invest the difference?
00:00:13.040 | How do we mentor young people toward financial independence, help them to see what their
00:00:19.240 | possibilities and their options are?
00:00:21.320 | Joshua, what's your process of note-taking for books?
00:00:24.560 | Joshua, what about Roth versus traditional and are you confusing the effective tax rate
00:00:29.640 | with the marginal tax rate?
00:00:30.920 | Then if we have time, hey, I'm in the military and I'm being called to do a bunch of expensive
00:00:35.880 | stuff I don't want to do.
00:00:36.880 | Do you have any useful tactics and strategies that might help me overcome?
00:00:57.440 | Welcome to the Radical Personal Finance podcast.
00:00:59.360 | My name is Joshua Sheets and I'm your host.
00:01:01.080 | Thank you for being with me today.
00:01:02.360 | This is the show where we're dedicated to providing you with the knowledge, skills,
00:01:05.920 | insight and encouragement you need to live a rich and meaningful life now while building
00:01:11.000 | a plan for financial freedom in 10 years or less.
00:01:15.040 | Today we seek to fulfill that mission with Q&A.
00:01:29.520 | I've built up an extremely long queue of questions from the audience, many of which are just
00:01:35.040 | great questions that I really want to answer.
00:01:36.920 | So I'm going to do some Q&A shows starting it off with this one.
00:01:40.560 | I hope that you enjoy these.
00:01:42.080 | Happy to receive questions from you.
00:01:43.240 | A couple of ways to do that.
00:01:44.360 | The best way to get access to the questions is to join one of our Friday Q&A calls.
00:01:48.280 | Those calls are open to patrons of the show.
00:01:51.260 | You can find all that information at RadicalPersonalFinance.com/patron if you would like to get on a Friday Q&A
00:01:56.560 | call.
00:01:57.560 | Also, you can email me, Joshua@RadicalPersonalFinance.com, although you might be better served to use
00:02:01.760 | the contact form on the website.
00:02:03.040 | It's a little bit safer.
00:02:04.840 | If you want to email in a question, I get tons of emailed questions.
00:02:07.560 | So those are difficult to always get in the queue or you can leave them on the voicemail
00:02:10.960 | line.
00:02:11.960 | Just look at RadicalPersonalFinance.com.
00:02:12.960 | The best way to do it is just on your mobile phone.
00:02:15.160 | Go to RadicalPersonalFinance.com.
00:02:16.920 | Click the "Leave us a voicemail" button and leave me a voicemail message and I do voicemail
00:02:21.720 | messages shows from some time.
00:02:23.800 | It's been a while since I've done one of those.
00:02:25.440 | I have a queue of those built up and I do intend to do one of those shows.
00:02:29.880 | Before we jump into these Q&As, quick sponsor of today's show is YNAB, the You Need a Budget
00:02:33.760 | budgeting software.
00:02:34.960 | YNAB is awesome.
00:02:36.280 | It solves all of the major problems that have been associated with budgeting in the past.
00:02:41.280 | The most important reason to do a budget is to curb and adjust your future behavior.
00:02:48.080 | The challenge is that most budgeting systems don't do that.
00:02:51.740 | Most budgeting systems that people call a budget are simply tracking systems where they
00:02:55.960 | look back to the history and adjust and say, "Here's what we did and what we spent."
00:03:01.360 | Well, sometimes looking back, it's hard to make a good decision.
00:03:04.640 | Better to make a good decision going forward and YNAB solves that problem by allowing you
00:03:08.940 | to budget the money that you have in your bank account toward the goals that you have
00:03:13.760 | today.
00:03:14.760 | Check it out.
00:03:15.760 | Download a free 30-day trial of the software at RadicalPersonalFinance.com/YNAB.
00:03:20.840 | We affectionately refer to that as YNAB, Y-N-A-B.
00:03:23.480 | It's an acronym for You Need a Budget.
00:03:26.040 | First question on today's show, Joshua, I've been working as a new financial representative
00:03:29.120 | with a large insurance company that has a lot of whole life insurance business.
00:03:32.760 | I've redacted the name for a few months now and have a large market of Christians who
00:03:37.640 | have been exposed to Dave Ramsey's financial peace campaign.
00:03:40.780 | The result is a lot of prospects who are skeptical of the merits of whole life insurance policies
00:03:45.120 | because Ramsey preaches in favor of term and investments and is very much against cash
00:03:50.280 | value altogether.
00:03:51.280 | Of course, no general strategy can apply to everyone.
00:03:54.280 | Each side of that argument has its advantages and it leads to some fascinating conversations.
00:03:58.840 | I'm sure your listeners would be interested in hearing arguments on either side of the
00:04:02.000 | buy term and invest the rest debate and knowing your history in the business, I'd be interested
00:04:05.600 | in hearing your perspective on the topic, James.
00:04:08.280 | James, this question I'm not going to dig into with all of the arguments.
00:04:12.200 | What I am going to do is I'm going to try to answer this to you in the function of a
00:04:16.840 | sales capacity of how I would approach this if I were actually interested in selling insurance.
00:04:23.560 | Here's what I have learned the hard one way.
00:04:28.600 | If you get into a discussion with people on this topic in an early stage, you're done
00:04:36.920 | for.
00:04:37.920 | You've lost already.
00:04:39.120 | The reason is because you're committing the cardinal error of sales which is selling something
00:04:43.560 | that you want to sell instead of planning for a client's needs.
00:04:48.200 | The major problem with life insurance and the debate the way it's done is that people
00:04:54.760 | are going out selling the product that they want.
00:04:58.400 | This whole debate – I shouldn't be too strong but it just angers me because once
00:05:03.760 | you understand what term life insurance is, how it works, its advantages, disadvantages
00:05:08.680 | and its major characteristics and once you understand what whole life insurance is, how
00:05:13.360 | it works, its advantages, disadvantages and its major characteristics, you won't make
00:05:17.680 | the mistake of trying to confuse the two.
00:05:21.400 | They do very different things.
00:05:24.560 | What happens though is that the insurance industry makes the mistake of marching out
00:05:29.080 | there and saying, "Well, we do this.
00:05:30.940 | We believe in this."
00:05:33.200 | Guess what?
00:05:34.200 | I'm all for religious belief.
00:05:35.600 | I think that's very important but don't ascribe religious belief to something that
00:05:39.440 | doesn't need it.
00:05:41.140 | You don't need religious belief when it comes to what kind of insurance do you believe
00:05:44.840 | in.
00:05:47.200 | If you get into a discussion with somebody in an early stage on this topic, you're
00:05:51.600 | done.
00:05:52.600 | You've lost already.
00:05:54.600 | This is a major challenge for those of us who go into financial planning, consultative
00:06:00.360 | selling type of situation and we usually want to dig into these topics.
00:06:07.080 | Guess what?
00:06:08.080 | I did that for years and learned it didn't work.
00:06:09.800 | I'm going to try to save you some time and save any of the rest of you who are financial
00:06:14.440 | advisors and financial planners a little bit of the hard one.
00:06:17.480 | I'll save you some of the time with helping you avoid some of the mistakes that I have
00:06:23.200 | made.
00:06:24.200 | Do not get into discussions with people on product fit.
00:06:28.800 | Are there exceptions?
00:06:31.480 | Yeah, yeah, yeah.
00:06:32.480 | Of course, there are exceptions but think about it this way.
00:06:36.000 | If you went to a doctor and the very first discussion with the doctor, they're telling
00:06:42.280 | you that, "Well, my philosophy with cancer is to do surgery," or, "My philosophy with
00:06:47.880 | cancer is to prescribe drugs," or, "My philosophy with cancer is to do a natural nutrition-based
00:06:56.640 | approach."
00:06:57.640 | Wouldn't you be a little bit suspect that perhaps that doctor is trying to bring their
00:07:02.600 | philosophy and promote their agenda instead of actually trying to help you with your medical
00:07:09.360 | condition?
00:07:10.360 | If it were me and my doctor without looking at my x-rays, without looking at the results
00:07:15.920 | of any scans or tests I'd had and they're telling me, "Hey, I believe in this," I'd
00:07:21.080 | get up and walk out.
00:07:22.200 | Now, that doesn't mean they can't have a strong opinion.
00:07:26.160 | If you go to a surgeon, they're obviously going to be skilled with surgery.
00:07:29.720 | It doesn't mean that if you go and consult a holistic, natural-focused person that they're
00:07:35.400 | not going to prescribe nutrition treatments.
00:07:39.680 | You're expecting that and you're probably seeking that out.
00:07:42.280 | But even if you were sympathetic to their approach, you'd still want them to talk about
00:07:49.920 | the situation.
00:07:53.840 | You are the one who is creating these conversations for people.
00:07:58.920 | You're creating this discussion about term life insurance versus whole life insurance
00:08:03.160 | and you're doing it because you think it's an interesting topic.
00:08:10.520 | The reason I know this is simply because I know that the vast majority of consumers do
00:08:14.720 | not have a clue when it comes to insurance.
00:08:20.040 | If you will stop bringing this topic up, your customers and prospective clients will also
00:08:27.120 | stop bringing it up.
00:08:28.680 | You're the one who's creating those conversations and you're creating them because you like
00:08:32.880 | the debate or at least because you think that it's important to talk about.
00:08:37.880 | So I recommend you stop arguing with people.
00:08:41.720 | In the role of a financial advisor, you need to become an expert on finding out what people
00:08:49.440 | want first.
00:08:51.960 | Ignore the product questions that people ask you and figure out what they want.
00:08:56.520 | Now, I'm using strong statements.
00:08:58.600 | We have to do that when making a point.
00:09:00.960 | Obviously there are exceptions.
00:09:01.960 | If someone asks you specifically and says, "Hey, what do you think it is on this subject?"
00:09:06.440 | Well, you need to answer the question.
00:09:07.920 | Don't be evasive.
00:09:08.920 | You're not a politician.
00:09:09.920 | Answer the question but quickly turn it back on trying to find out what is their goal,
00:09:15.720 | what is their situation, what's their solution.
00:09:18.680 | And if you'll spend more time asking questions of people and less time talking about what
00:09:23.280 | you believe about this debate that goes on in the financial business, you'll have much
00:09:28.100 | more success.
00:09:30.400 | You're simply not going to convince somebody who has a strong opinion on what's right
00:09:35.800 | that they're wrong.
00:09:37.360 | So quit trying.
00:09:38.360 | Instead, just listen to them and then find out how you can actually help and serve them.
00:09:43.100 | If you will do that, if you'll ask questions, if you'll find out what their goals are and
00:09:46.800 | then you'll do the process and the hard work of building financial plans, what will happen
00:09:51.200 | is – and then you make professional recommendations to go back to the CFP, financial planning
00:09:56.440 | process.
00:09:57.440 | If you're not a CFP yet, so go and just study what does the process look like.
00:10:02.800 | Listen to people, ask questions, gather facts, gather data, make professional recommendations.
00:10:07.520 | If you do that, what you'll find is that in the majority of cases that you're referring
00:10:12.220 | to, you're a young financial representative, you're working with young families, you're
00:10:15.520 | not a skilled subject matter expert.
00:10:17.680 | In the majority of those cases, you never need to bother with talking about whether
00:10:23.680 | somebody should have term life insurance or whole life insurance because the majority
00:10:27.680 | of your people that you're working with will need a majority of their insurance needs
00:10:31.920 | a return life insurance first.
00:10:34.160 | If you do good planning for people and you help them save for emergency funds and you
00:10:37.360 | help them set up disability insurance policies and you help them set up term life insurance
00:10:41.360 | policies, the majority of those cases, you're going to use up all of the available budget
00:10:46.280 | before you ever get to a whole life insurance policy.
00:10:50.040 | That's the appropriate way to do planning.
00:10:52.620 | Now if you do that, you'll also open up the conversations with those people for whom
00:10:57.640 | whole life insurance might be a good and useful fit for them.
00:11:02.720 | And then having listened to them, made a professional recommendation, because you've listened to
00:11:08.600 | them first and you've understood it and you've spent your time thinking, "If I were in this
00:11:12.400 | person's shoes, what would I buy and why would I buy it?"
00:11:16.520 | Dave Ramsey will never come into the picture.
00:11:20.160 | I promise.
00:11:24.900 | Because that person is not going, the person for whom whole life insurance is an important
00:11:30.720 | component of their financial plan or a viable component of their financial plan, they're
00:11:34.660 | usually not listening to Dave Ramsey.
00:11:38.980 | So I know I'm stepping around the question, but it's a really frustrating question because
00:11:45.500 | once you understand the products, they're as different as a Toyota Camry is from a Ford
00:11:53.180 | F350.
00:11:54.180 | They're very different vehicles.
00:11:56.980 | And you don't accidentally wind up in one when you were looking for the other.
00:12:00.420 | They do different things.
00:12:02.220 | Doesn't mean they can't go and complement one another together.
00:12:06.100 | Doesn't mean they can't fit together, but they do different things.
00:12:09.540 | And so you've got to assess them at different points in the fact pattern.
00:12:14.640 | Hope that helps to you.
00:12:15.640 | That's just a discussion.
00:12:17.720 | If insurance agents would stop selling their pet product and start doing good planning
00:12:25.360 | for people, this whole debate would be severely diminished and that would be a very good thing.
00:12:35.560 | Next question, Joshua, comes from Frank.
00:12:37.560 | "Joshua, I'm mentoring a young fellow, hopefully to leave my office and move on to long-term
00:12:41.200 | financial independence.
00:12:42.640 | For the near term, I'm directing him to take as many classes that my employer offers and
00:12:46.280 | giving him many projects to work on.
00:12:48.560 | Long-term, he's having difficulty in focusing on where to direct his energies, true of many
00:12:52.300 | young graduates.
00:12:53.300 | Do you have any shows that specifically address this issue, if not a good show topic?
00:12:56.640 | This is a bit easier for older folks.
00:12:58.720 | I have plenty of life experiences to draw from to decide on a different career or another
00:13:03.080 | business altogether.
00:13:04.580 | But for younger folks, they have so many options that they have a hard time picking one to
00:13:08.120 | focus on.
00:13:09.120 | Do you have any thoughts?
00:13:10.120 | Cheers, Frank."
00:13:11.120 | I think this is an incredibly important issue and it's really difficult in today's world
00:13:17.280 | and young people have it really, really tough when it comes to actually being able to make
00:13:23.680 | an intelligent decision about this.
00:13:27.040 | Here's the situation, the practical situation that most young men and women face.
00:13:31.100 | They are told, "Follow your passion," right?
00:13:36.060 | This is standard advice.
00:13:37.200 | I give this advice.
00:13:38.420 | Other people give this advice.
00:13:39.920 | It's a cultural context now that we all are told, "Follow your passion.
00:13:43.800 | Do what you're passionate about."
00:13:45.400 | This creates a bunch of people who are saying, "Wait a second.
00:13:47.760 | What am I passionate about?"
00:13:48.960 | Everyone wants to follow their passion.
00:13:51.400 | We're told, "Follow their passion," but the challenge is that – two challenges.
00:13:58.960 | The first challenge is we're told, "Follow the passion," but we often haven't had
00:14:03.080 | to know what it means to follow something.
00:14:05.720 | I'm thinking here of somebody who's not in the work world.
00:14:08.840 | Many young men and women have had so many things given to them.
00:14:11.760 | They don't know the joy of working for something themselves.
00:14:16.920 | The bigger problem is simply that their lives have been very focused on one specific track,
00:14:24.840 | primarily academics.
00:14:27.480 | Most people today, young people who are just coming out of the academic context are basically
00:14:32.960 | one trick ponies.
00:14:34.640 | If you look at how many young men and women today are groomed and sheltered, they have
00:14:38.880 | a single area of experience.
00:14:41.480 | I'm certainly stereotyping here, but I think I'm stereotyping to a useful degree where
00:14:48.160 | it sets the point.
00:14:49.600 | If you think about how we groom people, it's all about academics.
00:14:53.880 | We start them young, get them into the right preschool.
00:14:56.080 | It's all this competition in high society about getting them into the right preschool.
00:15:00.600 | They come through and they go through 12 years of schooling in which they're taught, "Prepare
00:15:04.360 | for college.
00:15:05.360 | Okay, great, great, great.
00:15:06.360 | Prepare for college."
00:15:07.520 | Academics are held as the key area of focus.
00:15:10.400 | If it's not academics, then it's sports or it's some area of specific talent that they're
00:15:15.240 | focusing on, sports or singing or whatever their thing is.
00:15:18.600 | So focus on, build academics, then go to college.
00:15:20.960 | Okay, build academics.
00:15:22.200 | They come out and they have very little broad-based experience.
00:15:27.360 | Many times if you talk to young men and women, the little bit of experience that they have
00:15:31.360 | came from a context that was on the periphery of their schooling.
00:15:35.040 | It came from a football camp that they went and they all of a sudden realized that there
00:15:39.400 | was this other thing available to them or they went to a sports camp and they realized
00:15:43.160 | that they could have this job leading sports camps.
00:15:46.960 | So the challenge here is exactly what you identified in your question where you said,
00:15:52.360 | "This is a bit easier for older folks.
00:15:56.120 | I have plenty of life experiences to draw from to decide on a different career or another
00:16:02.160 | business altogether."
00:16:07.160 | You answered it in your own question.
00:16:08.920 | So I don't have a good answer simply that other than to be aware of yourself and gain
00:16:15.080 | experience.
00:16:16.080 | Now one of the challenges that a lot of people have and I see this changing in popular culture
00:16:19.560 | is that we're taught we need to protect our resumes.
00:16:23.320 | We have to continue to build our resumes.
00:16:25.480 | This oftentimes leads to the very industrious go-getter, 22-year-old graduating from college,
00:16:31.680 | get the job, build it up in the industry, work, work, work, work, work and then you
00:16:34.400 | wind up with this quarter-life crisis in their late 20s where they say, "Wait a second.
00:16:38.680 | I never had a chance to try different things."
00:16:41.920 | I personally encourage people and this is my simple advice is get a broad level of experience
00:16:47.400 | and there are a few ways to do that.
00:16:48.680 | There are ways that are very disruptive and there are ways that are not so disruptive.
00:16:53.240 | Let's go with least disruptive.
00:16:56.080 | Take an interest, a broad interest in life.
00:16:58.600 | I don't know how to do this other than to read.
00:17:00.960 | I guess the non-reading way to do this would be subscribe to interesting YouTube channels
00:17:06.840 | but just follow interests a little bit and go and read and get exposure to different
00:17:12.960 | scenarios.
00:17:13.960 | It's easy for me to go and consider a whole lifestyle and a whole life plan and a whole
00:17:19.760 | change that I could make simply by absorbing somebody else's experience.
00:17:25.160 | When you read broadly as a kid, this is – I wish one way you can really help boys and
00:17:32.800 | girls is give them opportunities to read broadly, especially in fiction where when they can
00:17:39.160 | read in the context of fiction, of a diverse types of fiction, they can get exposed to
00:17:43.680 | all kinds of different lifestyles, different jobs, different careers, different hobbies.
00:17:48.320 | It's very easy to access all these different things when you're reading a book about
00:17:52.960 | it and those ideas will simmer in your mind.
00:17:56.080 | I could give you multiple careers that I would be interested in that I know were influenced
00:18:01.880 | based upon books that I read.
00:18:03.800 | I would enjoy certain types of private investigator work.
00:18:09.240 | I would enjoy being a detective on a police force.
00:18:13.200 | I would enjoy that type of work.
00:18:15.720 | Now of course, it's not all it's cracked up to be as far as every job involves a large
00:18:20.880 | amount of grunt work.
00:18:22.040 | It's not all spies and stakeouts and most stakeouts are pretty boring.
00:18:28.400 | But I would enjoy the net result of bringing justice to the world.
00:18:34.600 | I share this deep feeling of a desire for justice.
00:18:40.040 | So I know that but my exposure to that came through reading Hardy Boy books.
00:18:44.760 | I was obsessed with Hardy Boy books, really enjoyed it, used to get all kinds of books
00:18:48.160 | on private investigator work from the library.
00:18:50.160 | I read all the techniques.
00:18:52.160 | I loved military thrillers.
00:18:54.880 | So I had exposure to this whole field and industry but I never knew anybody who did
00:18:59.640 | it and I've discarded it as not something I want to pursue right now.
00:19:04.000 | But it's there as an option.
00:19:05.000 | It's on my list of, "Hey, this is a career that I would enjoy."
00:19:08.520 | And I would personally – I've met different investigators.
00:19:11.120 | There are a few different niches that I think would be really interesting.
00:19:15.440 | I've gained exposure through nonfiction, just simply reading career books, reading
00:19:22.560 | different accounts of people, reading biographies.
00:19:24.560 | I mean you read biographies, you start to gain different people's experiences.
00:19:29.800 | So this is not disruptive to your life to gain experience vicariously.
00:19:35.820 | You can also gain experience through just simply exposure to a diverse group of people.
00:19:40.700 | One mistake that many people, especially young people make is you get into your circle of
00:19:47.200 | friends or your circle of acquaintances where you're comfortable and they don't branch
00:19:51.600 | out.
00:19:53.100 | We don't do a great job of teaching social skills to young men and women.
00:19:57.680 | So you put people into a diverse social environment.
00:20:00.560 | Many people are very uncomfortable.
00:20:02.760 | Kids are very comfortable with other kids but they often don't know how to talk very
00:20:07.160 | well to adults and this transfers on.
00:20:10.260 | You often see this when – if you look at your company and it sounds like you're working
00:20:14.120 | with a young adult but you often see this where you're looking at somebody who doesn't
00:20:20.800 | know – they don't know how to walk over and have an intelligent conversation with
00:20:24.520 | the CEO of the company.
00:20:26.240 | All the interns gather together with all the interns.
00:20:28.640 | Well, that's a silly plan.
00:20:31.000 | The interns aren't going to give you any life experience that's different than yours.
00:20:33.800 | Go make friends with other people.
00:20:36.000 | Also this can happen just through a focused, dedicated plan.
00:20:40.980 | Just simply by reaching out to people and walking over and smiling and extending your
00:20:45.680 | hand and say, "Hi, my name is Joshua."
00:20:48.080 | It's really all it takes.
00:20:49.720 | But somebody like you has to come along and mentor somebody and say, "Listen, you need
00:20:53.640 | to expand your experience."
00:20:57.280 | Most people have not done something as simple as taking a class on social skills or read
00:21:01.420 | a book on social skills or how to be a good conversationalist.
00:21:04.800 | And so they don't know how to enter into these engagements and they can't gain from
00:21:08.400 | other people's experience.
00:21:10.180 | So all you simply need to do is teach somebody, be interested in somebody else's experience
00:21:14.680 | and all of a sudden you'll find all these options open up to you.
00:21:20.080 | I'll tell a story that specifically relates that happened about 30 minutes ago before
00:21:25.200 | I hit record on the recorder here.
00:21:31.220 | Right before I was – I was just sitting down to record this show.
00:21:34.160 | My wife had taken the kids out for a walk and she had just come back and she said, "Hey,
00:21:39.080 | by the way, there is a van down the road and you might want to look at it."
00:21:43.680 | She knows I have an interest in these – in vans and different ways that they can be configured.
00:21:49.880 | I like big vans.
00:21:50.880 | I like campers.
00:21:51.880 | I have an interest in that.
00:21:53.000 | It's like it's two doors down.
00:21:54.000 | You might want to like take a look and see how it's configured.
00:21:56.040 | I know you have an interest in those things.
00:21:57.800 | So I humored her and I didn't think I'd be interested.
00:22:01.740 | I walked out and I look – I was just kind of doing this casual stroll by to see what's
00:22:08.160 | going on.
00:22:09.160 | I thought it was a construction van.
00:22:10.160 | I get closer and realized that the person had a bed in the back and they had built a
00:22:15.600 | bed and it was kind of a homespun camper van.
00:22:18.040 | Well, now that really engaged my interest because I have a weird fascination with living
00:22:23.040 | in vehicles.
00:22:24.280 | So I'm looking at this thing and I go over and talk to them and I make a little comment,
00:22:29.680 | just a polite introductory comment to see if he wants to talk to me or not and wound
00:22:33.940 | up standing there talking to the guy for about 30 minutes.
00:22:37.220 | He is a man who travels all over the US and he sells headlight restoration products and
00:22:43.060 | services at flea markets and different places.
00:22:46.060 | He has the van just very simply fixed up.
00:22:49.020 | He's got a little air conditioner in there.
00:22:50.620 | He's got a little bed in the back, a little generator.
00:22:52.620 | He's got the van fixed up that he can live in it while he travels.
00:22:55.640 | He makes a lot of money going to these flea markets and selling headlight restoration
00:23:02.420 | and doing headlight restoration.
00:23:03.420 | He told me how much he made and he makes a lot of money.
00:23:08.700 | I just asked him how and why and all the skills and immediately, I gained access to a whole
00:23:15.900 | new different lifestyle that I thought, "Oh, that's really interesting," and I got all
00:23:19.860 | the details on how he prices his stuff and how he sells it and how he sets up his booth
00:23:24.300 | and how he does it and we looked at the products and now I've got another business idea as
00:23:28.420 | a backup business idea to file away in the back of my head if I ever need it.
00:23:32.140 | I can take that and as I walked home, I was thinking, "Oh, here's another thing that
00:23:35.320 | could be applied."
00:23:36.320 | Well, if I knew a young person that were looking for – let's say that they knew they had
00:23:41.340 | a passion for windsurfing or paddleboarding and they want to kayak all over the place
00:23:51.700 | but they need a way to make a living on the road.
00:23:54.020 | Well, here's a business that with the right skill and the right experience can be established
00:23:59.020 | and this guy makes a ton of money and he works on his own schedule.
00:24:02.420 | He just identifies the shows where he wants to go and lives this itinerant lifestyle.
00:24:07.180 | So the point of that story is to say that a little bit of interest in somebody, a little
00:24:12.740 | bit of conversation skill to ask somebody some engaging questions so they open up and
00:24:18.340 | all of a sudden, here's a whole another lifestyle that I have exposure to that I can
00:24:22.740 | take and incorporate in.
00:24:24.820 | This is not hard to learn.
00:24:26.340 | Anybody can do it.
00:24:27.340 | It just takes taking an active interest in other people.
00:24:30.920 | That doesn't – it's not disruptive to your life.
00:24:34.300 | Volunteering in different organizations as a way of testing things or volunteering in
00:24:39.340 | different – trying different activities as a way of trying things and being exposed
00:24:43.140 | to things is another excellent, less disruptive way to do it.
00:24:47.640 | Go and try new hobbies.
00:24:48.860 | Go and take a class in something that you have never had exposure to.
00:24:53.300 | The famous example of this, of how these things build over time is Steve Jobs and his calligraphy
00:24:59.520 | courses in college which then went on to affect his design ethic for the rest of his life.
00:25:04.900 | In the Apple design, you still see the impact of it from him taking somewhat happens – by
00:25:11.700 | happenstance a calligraphy class.
00:25:14.340 | So encourage the young man to try different things.
00:25:17.540 | Try different things with no intention of finishing them.
00:25:19.700 | Just address different things.
00:25:20.940 | Take some classes.
00:25:21.940 | Go join some clubs.
00:25:22.940 | Go to some local meetups.
00:25:24.020 | Meet some different people from a diverse background.
00:25:27.540 | This helps him to gain experience from other people.
00:25:30.900 | Then you can get to the base place where you start to change jobs.
00:25:35.920 | Working different jobs I think is very important.
00:25:37.820 | I don't see how it's possible in a work environment to know yourself without having
00:25:47.140 | been exposed to different approaches.
00:25:51.140 | You want to work for good bosses and bad bosses.
00:25:53.360 | You want to work at constraining companies and free companies.
00:25:56.360 | You want to work at jobs from different perspectives.
00:25:59.140 | If you can get that exposure over time, it makes a huge difference.
00:26:04.720 | One of the biggest benefits that I had was that my parents put a lot of work into giving
00:26:09.480 | me the opportunity to be exposed to different jobs and that helped me.
00:26:12.580 | I've always felt like I know myself much more than most of my peers know themselves.
00:26:18.860 | I understand who I am, what I like, what are good fits, what's a good fit, what's not.
00:26:22.940 | I understand my values, my vision, all of those things much better.
00:26:26.020 | Well, it just comes from working different jobs.
00:26:29.220 | I don't know that experience can be fully gained vicariously.
00:26:33.700 | I think a lot of it's got to be done personally.
00:26:38.780 | Experience is the common advice is they don't come by accident.
00:26:42.900 | They come from exposure.
00:26:46.060 | Those are some ideas of some ways that you can encourage this young man to get some experience
00:26:52.420 | so that they are able to make a better decision.
00:27:00.420 | Again, I quote from your note, "This is a bit easier for older folks.
00:27:06.540 | I have plenty of life experiences to draw from to decide on a different career or another
00:27:11.220 | business altogether.
00:27:12.300 | But for younger folks, they have so many options that they have a hard time picking one to
00:27:16.180 | focus on."
00:27:17.940 | The reason they have a hard time is because they have very little experience.
00:27:23.020 | Next question comes from Tyler.
00:27:24.020 | "Hey, Joshua, would you describe your note-taking for books?
00:27:26.660 | I follow you on Instagram and I noticed that you use a combination of various colors of
00:27:30.820 | highlighters underlining with a pen, stars.
00:27:33.420 | I'd love to get more out of the books I read based on what you recommend on the podcast.
00:27:37.380 | Any method of the madness?
00:27:38.740 | Thank you for all that you do and for being the best personal financial teacher around.
00:27:42.100 | Kindly, Tyler."
00:27:43.100 | Tyler, thank you for the compliment.
00:27:45.420 | I do sometimes.
00:27:46.420 | I like to post quotes.
00:27:47.420 | I go on Kix.
00:27:48.620 | Sometimes I post a bunch and sometimes I don't post for a long time.
00:27:51.500 | But I post quotes and interesting things I read on Instagram.
00:27:54.460 | You're welcome if any of you are Instagrammers.
00:27:56.460 | @JoshuaSheets, spelled S-H-E-A-T-S, you can find me there.
00:28:00.620 | I post pictures of my kids and pictures of things that I read.
00:28:04.020 | But Tyler, I have a very simple system.
00:28:06.380 | I would not – if you hadn't asked me the question, I wouldn't personally have tried
00:28:10.860 | to teach the subject.
00:28:11.980 | I don't think I'm particularly brilliant at this.
00:28:14.540 | I'll just tell you what my system is.
00:28:15.980 | But I have a very simple system but I do have a little bit of thought behind it.
00:28:20.100 | First, I read paper books.
00:28:21.620 | I don't read e-books.
00:28:23.260 | I find that reading on a phone or a computer or an iPad or whatever is way too distracting.
00:28:29.020 | Now, of course, that's not to say that there's not a place for that.
00:28:34.980 | Reading novels, that's fine.
00:28:36.980 | But when I want to read a nonfiction book, I just – I found that my level of attention
00:28:42.540 | span has suffered so much over the last decade and I've been working really hard to get
00:28:47.100 | it back.
00:28:48.100 | It really bothered me because I used to be a really good student.
00:28:51.500 | I could sit down with a nonfiction book, go cover to cover, not get distracted, not get
00:28:56.420 | – just not get distracted.
00:28:58.740 | Over the last decade, I lost a lot of that skill and that really frustrates me because
00:29:04.660 | in order for me to feel confident with the work that I'm trying to do, I need to be
00:29:12.420 | an excellent student.
00:29:13.860 | And so I've been working hard to regain that focus.
00:29:16.620 | One of the things is I need to read in a focused way where I am not distracted by dings and
00:29:22.820 | anything.
00:29:24.780 | Reading on a device, reading on my phone or whatever, it's just too easy to flip to
00:29:31.100 | something else.
00:29:32.100 | It's too easy to follow that path and look up that word, etc.
00:29:35.060 | So I like to read on a paper book.
00:29:36.380 | I try to leave the phone and the computer in the other room, that kind of thing.
00:29:40.020 | That way, I can stay focused.
00:29:42.300 | Paper books, I've made this decision that I want to be able to destroy the books that
00:29:48.340 | I read with my – they call it marginalia.
00:29:52.620 | Marginalia, the stuff that you put in the margin.
00:29:54.420 | So I like to – I want to destroy the books that I read with my marginalia.
00:29:58.580 | So I don't get nonfiction books from the library unless I'm just going to just flip
00:30:03.100 | through them.
00:30:04.100 | I just buy them used on Amazon.
00:30:05.860 | Amazon used book marketplace is so fantastic and at this point in time, it's usually
00:30:12.020 | you can find a book for a buck plus $3.99 shipping.
00:30:15.260 | Paying four bucks or eight bucks or whatever for a book is relatively inconsequential.
00:30:19.600 | So I try to just get the book, had it shipped to my house and it's done.
00:30:24.320 | So getting them used on Amazon helps me and then I can destroy it.
00:30:27.460 | I can write in it.
00:30:28.460 | I can keep my notes, etc.
00:30:30.580 | I am a – well, I always write my name on the book.
00:30:34.860 | I've gone to the point of trying not to lend out books.
00:30:38.700 | I'd rather just buy somebody a copy than lend the book.
00:30:41.420 | It's not the most frugal thing but I want – it's important to keep my books.
00:30:47.300 | I write my name and I write the date that I read it the first time and if I come back
00:30:50.980 | through again, I write the date that I read it again.
00:30:53.260 | So if it's April 2016, I'll write just this morning, I'm starting a new book.
00:30:59.260 | May 2016, I'll write in the front cover of the book.
00:31:02.820 | I am a generous highlighter and I do it for a couple of reasons.
00:31:08.540 | I do it to help me pay attention.
00:31:10.820 | By having something in my hand, I'm more focused and I'm less distractible and that's
00:31:15.660 | helping me to regain and rebuild my – the skill of reading, rebuild the attention span
00:31:20.580 | that I used to have.
00:31:22.060 | I don't – so that's the first reason.
00:31:24.380 | The second reason that I highlight is that I want to be able to simply skim my highlighting
00:31:28.940 | if I want to absorb the book in the future.
00:31:31.500 | I'm unlikely to read most books twice.
00:31:35.680 | Most books are simply not great books.
00:31:38.220 | Great books are books you're going to return to again and again.
00:31:41.100 | Well, most books, you're not going to return to them.
00:31:44.300 | But if I am going to return to them, I just usually want to just skim my highlighting.
00:31:48.220 | And so I do highlight extensively to the point where if highlighting is just intended to
00:31:55.580 | bring attention to the important things, I probably overdo it.
00:31:59.620 | But it helps me and I like it because then I can come back and I can just skim the highlighting
00:32:04.260 | and get all of the important points from the book.
00:32:06.820 | There's no method to the color of highlighting.
00:32:10.340 | That method is just simply I buy highlighters and they usually come in packs of whatever.
00:32:14.260 | So whatever one is not run out at the moment.
00:32:15.980 | A lot of my books will have four or five colors in them.
00:32:19.060 | There's no method or color coding to the highlighting.
00:32:21.940 | I do also sometimes underline important points as well.
00:32:26.100 | I will – in my marginalia system, I will outline books sometimes as they go.
00:32:31.900 | So if they're pointing one, two, three, I will just put a little one, two, three.
00:32:36.180 | So that way I can come back and just real quick look here.
00:32:40.580 | Those are the one, two, three points.
00:32:42.180 | I also will – well, I also try to converse with the author as I read.
00:32:51.180 | I think of books as a conversation between me and the author and I try to argue with
00:32:55.700 | authors.
00:32:56.700 | I think authors are the best people to argue with.
00:32:58.740 | So generally because you don't hurt their feelings when you disagree with them.
00:33:02.700 | So I write down the questions.
00:33:04.580 | I make comments.
00:33:06.140 | I point down things that I'm thinking of.
00:33:08.620 | I try to just keep a note of my thoughts on the page so that – again, helping me stay
00:33:13.460 | focused and helping me to interact with it.
00:33:17.980 | All the highlighting and the marks also help me to know how far I got in a book.
00:33:23.340 | I have a habit.
00:33:25.460 | I don't know whether it's good or bad.
00:33:27.140 | It just is but I'm often reading multiple books at once.
00:33:29.540 | I'd probably say I'm reading – there's about nine books on my desk right now.
00:33:36.620 | I don't finish all the books.
00:33:37.620 | I try to follow a little bit of my interest when I'm reading and a lot of it is based
00:33:41.940 | upon mood.
00:33:42.940 | If I'm going to read something heavy or if I'm going to read something light, I
00:33:46.180 | just go based upon the mood.
00:33:48.780 | So I don't finish all the books.
00:33:51.780 | There's no reason to finish all the books.
00:33:53.980 | If a book is not worth finishing, just dump it and move on.
00:33:57.100 | I circle words I don't understand.
00:33:59.180 | So if it's a new word, I always circle it.
00:34:01.180 | I look it up and then I write the definition at the bottom of the page.
00:34:04.700 | That helps to build my vocabulary and it helps me to make sure that I'm engaging with it
00:34:10.740 | and really understanding.
00:34:12.340 | Then sometimes I'll write notes, takeaways, actions, questions in the covers.
00:34:17.020 | Then if I'm really a good student, which usually I flake out and move on to the next
00:34:21.380 | point, then I'll try to outline and put a little something in the covers.
00:34:25.500 | So I just flip to the back cover and I write the notes, takeaways.
00:34:28.820 | I use a simple system of if there's a question that I have about something, I'll write
00:34:33.580 | a big question mark.
00:34:34.900 | If I have an action step, I'll write a checkbox there that helps me to take an action step.
00:34:40.340 | Those are the two basic symbols that I usually use.
00:34:43.980 | So if somebody references in the bibliography this other book and I say, "Hey, that sounds
00:34:48.500 | interesting.
00:34:49.500 | I want to go and follow that book up."
00:34:54.720 | So that's my system I guess.
00:34:58.540 | Not fancy.
00:34:59.540 | I'm not going to claim that it's great even but that's the system.
00:35:04.460 | I will conclude with this question simply that reading is a skill and it's a skill
00:35:09.820 | that has to be developed consciously and proactively.
00:35:14.020 | If you can read it and if you can get through it, a good place to start is the classic book
00:35:18.920 | by Mortimer Adler called How to Read a Book.
00:35:22.020 | The reason I say if you can get through it is because the majority of people who would
00:35:25.540 | probably consider themselves fluent readers can't get through the book because it's
00:35:30.060 | just a totally different style and a totally different approach.
00:35:33.700 | It makes you think just to read the book on how to read a book.
00:35:36.580 | The major takeaway and the major premise is simply that reading is a skill that has to
00:35:42.460 | be developed.
00:35:43.980 | The unfortunate case of what you see is that the vast majority of people are illiterate.
00:35:50.260 | They might be able to read but they can't gain the information and grasp from the book.
00:35:57.140 | So what I would encourage you is don't be – if you're working to become a more
00:36:02.940 | skillful reader, expect it to take time and don't expect it to come easily.
00:36:08.380 | You will have to work with books and your fluency with different books will vary depending
00:36:15.940 | on the subject matter.
00:36:22.900 | So when you're reading something that's a subject that you're very familiar with,
00:36:26.740 | you can jump through it.
00:36:28.140 | If you're reading a subject matter that you're not familiar with, you can – it's
00:36:32.780 | going to take you some time.
00:36:33.780 | I'm going to go ahead and – there's a question further down my list.
00:36:36.180 | I'm going to go ahead and pull it in here because it's relevant to what I'm saying
00:36:38.740 | here.
00:36:39.740 | It comes in from Alan.
00:36:40.740 | He says, "Josh, I'd like your thoughts on if you recommend gulping or savoring information.
00:36:44.540 | Savoring is reading many books at the same time, sort of skimming and grabbing the golden
00:36:47.940 | nuggets, listening to many, many podcasts, reading book summaries, etc.
00:36:52.180 | Savoring is slowly engorging yourself in a single topic at one time, perhaps reading
00:36:56.180 | one single book at a time and only listening to podcasts on that same topic while reading
00:36:59.740 | it.
00:37:00.740 | I tend to savor stuff but I saw an interesting video by Tai Lopez on this where he says he
00:37:04.860 | prefers gulping.
00:37:06.020 | He has a point and he seems to be quite successful."
00:37:09.980 | So tying in to that question and – because it's important.
00:37:15.740 | The skill of reading is developed over time and you're going to want to apply that skill
00:37:20.900 | depending – differently.
00:37:23.440 | So there's an initial stage.
00:37:25.780 | I think kids should read a lot of fiction to build a love for reading.
00:37:31.540 | Maybe there's a better way but I find that fiction is the way that you get people engaged.
00:37:36.700 | So if you're not a reader at all, you might want to just start by reading fiction and
00:37:40.700 | not necessarily read nonfiction.
00:37:42.900 | But find some books, find some genres, find some things that engage you and build that
00:37:47.820 | basic skill of being able to understand the words and being able to read quickly.
00:37:52.440 | If you get to that point, then you'll be able to read quickly.
00:37:55.220 | In fiction, you can build your reading speed.
00:37:57.900 | I can sit down.
00:37:58.900 | I don't allow myself to read a military thriller except if I'm on vacation.
00:38:03.620 | I know I'm going to have time to read because it destroys my life.
00:38:07.420 | I find it difficult to put down.
00:38:09.740 | But when I was younger, it was Tom Clancy.
00:38:11.900 | I always had a soft spot even though the novels were just terribly repetitive for Clive Custler.
00:38:17.620 | Today it might be Brad Thor or who's the other guy, the guy that died in that genre.
00:38:23.980 | There are some really great writers writing this type of – this fiction.
00:38:28.420 | Well, I could sit down with a thousand-page Clancy book and get through that in a couple
00:38:34.380 | days on vacation if I've got time to read during the day.
00:38:37.540 | My lifestyle is different now that I have kids.
00:38:41.020 | So you can learn to read very quickly when you're reading a subject that you are engaging
00:38:46.180 | with.
00:38:47.180 | That's the basic level of skill.
00:38:48.740 | Then you go over to the level of skill of engaging with the content and the topic.
00:38:52.900 | And so here's where I think it's important to learn the skill of gulping and reading
00:38:57.620 | a lot of different books from a lot of different genre and also savoring.
00:39:01.740 | And here's my answer to Alan's question.
00:39:03.420 | They're both important.
00:39:04.900 | My personal practice is to gulp a lot of information from a lot of different genres simply based
00:39:12.380 | upon interest.
00:39:14.380 | I just go to the library, check out 30 books, 40 books, browse through them, browse through
00:39:20.900 | the books at the bookstore and you can look through – the majority of nonfiction books
00:39:24.900 | are a few hundred pages.
00:39:25.900 | You can look through them in about 15 minutes, grasp a lot of what they're about.
00:39:30.980 | Gulping is good to get exposure to a diverse area of topics.
00:39:34.860 | But gulping is useless if you actually want to do anything with the information.
00:39:39.820 | The danger with gulping, and I'm susceptible to this, is that you're always taking in
00:39:44.460 | and never doing anything.
00:39:46.860 | If nothing changes in your life, you're no better.
00:39:50.200 | So if you're reading a book on a subject, you don't actually do something with the
00:39:53.100 | information.
00:39:54.100 | It hasn't actually done anything more than give you information.
00:39:58.700 | And so Tai Lopez, his claim to read a book a day is silly.
00:40:03.220 | You're not reading a book a day.
00:40:04.580 | You're skimming a book a day.
00:40:06.180 | I can do that.
00:40:07.180 | Anybody can do that.
00:40:08.180 | But you don't retain the information.
00:40:09.180 | You just get exposure to a diverse area of topics.
00:40:11.860 | If you don't follow that up with savoring, with an intense focus into a different area,
00:40:16.500 | you don't wind up with anything – you can't really make an impact.
00:40:20.340 | So the specialists are usually the ones who make an impact.
00:40:24.740 | And so we're always balancing that generalized knowledge with the specialist knowledge and
00:40:28.500 | it's good to bring these two together.
00:40:30.340 | So you choose an area, a focus based upon the impact that you're trying to make.
00:40:35.420 | Now this could be something related to a goal that you have.
00:40:38.660 | This could be something that's related to the business that you're in, to a cause
00:40:42.840 | that you're working in, to something that's important to you.
00:40:45.700 | And then you dig deep and you focus on consuming the majority of the literature that's within
00:40:51.180 | that genre.
00:40:52.420 | And that's where you should slow down your reading speed, where you should engage much
00:40:55.820 | more seriously and critically with the topics and not try to just go through lots of things.
00:41:01.980 | You should read systematically.
00:41:04.220 | In almost any field, if you would just read systematically through a dozen books in that
00:41:08.420 | area, you'll be a world-class leading expert.
00:41:10.940 | There's almost no topic that you can't become a world-class leading expert to.
00:41:16.140 | And if you apply this to a few areas, it can – people think you're really smart.
00:41:23.660 | You say, "I'm not smart.
00:41:25.380 | I just read a book on it.
00:41:26.820 | I just read a dozen books on it."
00:41:29.020 | So I think that you do have to choose and then once you choose an area, you dig into
00:41:33.620 | it.
00:41:34.620 | So those are my thoughts on the reading system.
00:41:36.820 | Let's do one or two more.
00:41:38.620 | This comes from Joseph says, "Joshua, I was listening to your podcast about Roth versus
00:41:43.700 | traditional the other day and there was something that was bothering me about your explanation.
00:41:47.300 | I like the fact that you're bringing light to a common misconception.
00:41:51.140 | It seriously drives me nuts when people claim that you don't pay taxes on the gains in
00:41:54.620 | a Roth.
00:41:55.740 | But your math is based off of a faulty assumption, which is that you will be paying the same
00:42:00.300 | effective tax on your contributions as your withdrawals.
00:42:04.500 | The problem is that the taxes that you pay on a Roth are at the marginal tax rate at
00:42:09.260 | the time of earning and the taxes that you pay on a traditional are at the effective
00:42:14.100 | tax rate at the time of withdrawal.
00:42:17.140 | You said effective for both, but the way you were talking about it, it almost sounded like
00:42:20.940 | you meant marginal.
00:42:22.660 | The main difference is that all of the money is contributed at the highest tax bracket,
00:42:27.180 | but money being withdrawn has the benefit of receiving a new standard deduction and
00:42:31.260 | personal exemption as well as being able to take advantage of the 10% and 15% tax brackets
00:42:36.900 | each year.
00:42:38.300 | So while an individual making $60,000 might pay a marginal tax rate of 25% on that $5,500
00:42:47.220 | contribution to a Roth, an individual withdrawing $60,000 will pay $0 on the first $10,300,
00:42:54.860 | 10% on the next $9,275, 15% on the next $28,375, and 25% on the last $12,050.
00:43:08.860 | That totals to $8,196.25 on $60,000 for an effective tax rate of 13.7%.
00:43:18.820 | Because of our progressive tax system, someone in the 25% tax bracket can never have an effective
00:43:24.420 | tax of 25%.
00:43:26.460 | They will need to be withdrawing enough money to get into the 33% tax bracket to pay a 25%
00:43:33.540 | effective rate.
00:43:34.540 | I just wanted to point this out because I thought that it might confuse some listeners.
00:43:37.860 | I thought it might be beneficial for you to clarify this point.
00:43:41.940 | Joseph, you are absolutely correct.
00:43:45.460 | That's exactly the case.
00:43:47.980 | That's exactly the math behind it.
00:43:50.340 | I regret ever doing that show.
00:43:54.060 | That show was a spur of the moment show.
00:43:55.980 | I sat down and I said, "You know what?
00:43:58.500 | I'm trying to figure out what's the right type of show to create for Radical Personal
00:44:03.260 | Finance.
00:44:04.260 | I create sometimes these just huge long shows.
00:44:07.340 | I'm just going to create one short show on one specific topic.
00:44:11.620 | I'm going to be laser-focused.
00:44:12.620 | I'm not going to dig into the Roth versus IRA question.
00:44:16.980 | I'm just going to point out that the math is the same."
00:44:20.740 | So I sat down to do the show and I have received more feedback from listeners on that show
00:44:26.940 | about all the things I left out than any show in a while.
00:44:33.500 | I regret doing it because it makes me think I just got to create these mountains of shows,
00:44:41.660 | every pro and every con.
00:44:42.660 | I guess that's kind of the style I've developed here.
00:44:45.380 | But you are absolutely correct.
00:44:47.880 | What this points out – so just in summary, I'll just summarize it.
00:44:52.380 | When you put money – when you defer money using an IRA, a traditional IRA, you're
00:45:00.020 | deferring money at the highest possible marginal rate.
00:45:05.900 | Later when you take it out, you're probably going to be taking it out at a lower rate.
00:45:12.220 | This is why mathematically, I think most listeners will almost always be better off with some
00:45:20.620 | sort of system of a traditional IRA or traditional 401(k) as compared to the Roth.
00:45:29.060 | For many people, this would be one reason.
00:45:30.820 | I'm generally not in favor of something like a Roth 401(k) contribution.
00:45:36.420 | Now the problem is there are so many other factors.
00:45:40.520 | What is the actual tax rate that the person is in?
00:45:43.420 | What are their plans for their career?
00:45:47.260 | What other assets and resources do they have?
00:45:51.020 | Simple example, I think there's a very compelling argument to be made for people putting money
00:45:56.620 | into the Roth IRA simply that they can get it out again if they need it.
00:46:00.880 | So you can use a Roth IRA and you have simple access to your contributions if you have an
00:46:06.860 | emergency.
00:46:07.860 | That's really powerful and really compelling.
00:46:10.280 | So – but mathematically, I think that most people will be better off using a deferred
00:46:16.420 | system.
00:46:17.420 | Now I've tried to actually figure out if I could figure – find a way to prove this.
00:46:21.380 | I've never found anybody who has done the simulations.
00:46:24.020 | I invite you very smart listeners to do it and send it to me or to show me where somebody
00:46:29.140 | has done it.
00:46:30.140 | But what I would like to see is somebody do a simulation and see if it's even possible
00:46:36.620 | to come out ahead with Roth contributions.
00:46:41.420 | So for example, run it as a Roth 401(k) versus a traditional 401(k), to come out ahead with
00:46:45.660 | Roth contributions under normal circumstances and under the same tax rates and tax chain
00:46:52.420 | codes that we have.
00:46:54.740 | The reason why I can't just do the analysis is for the reasons that you said here, Joseph.
00:46:59.980 | But what I would love to see modeled – and I know there's some tax software.
00:47:02.780 | At one point, I tried to look for some and I tried to – I did a – to get some complex
00:47:07.580 | tax software to do it.
00:47:09.180 | But I'd love to see it modeled to say – let's say you have somebody who is working – take
00:47:16.420 | median plus 50 percent.
00:47:17.900 | So let's just say that a $75,000-a-year job, median income I think is somewhere around
00:47:24.380 | $52,000 currently.
00:47:25.380 | Take a $75,000, $80,000 a year.
00:47:28.380 | Put – save $15,000 and model it with a traditional 401(k) contribution and then model it with
00:47:36.700 | a Roth 401(k) contribution and then model the distributions throughout the retirement
00:47:43.420 | and tell me the total taxes paid on either of them.
00:47:46.820 | The reason it's so complicated, I can easily get to the balance.
00:47:49.660 | I can do that in a minute.
00:47:52.040 | But what I can't do is I can't model the standard deduction.
00:47:55.500 | I can't model the brackets.
00:47:57.060 | I can't model the social security income, et cetera.
00:48:00.300 | I can't model those things easily enough to get a good handle on it.
00:48:05.500 | But I think the Roth, most people, if they're prioritizing Roth contributions, most people
00:48:11.180 | would be paying a far higher tax – total taxes than using the traditional scenario
00:48:16.780 | for the reasons you said.
00:48:19.220 | It's really difficult to know how to convey that to somebody because it's got to be
00:48:25.320 | done on an individual basis.
00:48:28.660 | Most people are not going to accrue portfolios that are going to leave them in a larger income
00:48:36.900 | bracket at retirement.
00:48:38.260 | That's the simplest way to sum up the point.
00:48:41.440 | If you look at what would be required to pay – if you look at what would be required
00:48:51.000 | for the Roth IRA – for the Roth 401(k) to be better than a traditional 401(k), you would
00:49:00.000 | have to model a system where in retirement, somebody is receiving more money, perhaps
00:49:10.080 | even substantially more money as their retirement income than they were during their working
00:49:15.220 | income or during their working years.
00:49:17.760 | That's just simply impractical.
00:49:19.840 | It's not going to – it's not going to happen for mainstream savers.
00:49:27.020 | Some of you extreme savers, could it happen?
00:49:29.520 | Yes.
00:49:30.520 | Somebody who's built – building a great business and experiencing substantial – yes,
00:49:34.720 | you guys are the outliers.
00:49:35.720 | But for the mainstream saver, that's not going to happen.
00:49:40.640 | Just the common life cycle of the common person, you don't make more money in retirement.
00:49:46.600 | You need more money earlier in life because you have more years of life to fund.
00:49:49.800 | You have higher expenses.
00:49:50.800 | You have higher lifestyle expenses, family expenses, et cetera.
00:49:54.760 | The retirement years, you often need less.
00:49:58.480 | The people who don't need less are the ones who are living a high retirement lifestyle
00:50:03.400 | based upon intentionality and I think it's something that the financial planning industry
00:50:09.160 | doesn't talk about enough.
00:50:11.120 | So I invite any listener who has the tax software that can – if you can model that.
00:50:15.760 | If you can model it for me, say from 40 to 65 and then model the distributions, model
00:50:21.960 | in retirement – excuse me, social security income and use current tax expectations, current
00:50:27.800 | tax rates, current tax brackets and model that for me through retirement, I would love
00:50:32.320 | to see that.
00:50:33.320 | I've never been able to build it myself.
00:50:34.680 | I'd love to see it.
00:50:36.680 | The reason that this is often pushed down – I apologize for the dog barking.
00:50:43.840 | My software should moderate the sound so it won't blow out your eardrums but I don't
00:50:48.480 | have time to edit that today.
00:50:50.800 | The reason I don't buy the arguments about – the major argument that people make is
00:50:54.760 | well, remember, tax breaks are going to go up in the future.
00:50:58.160 | After all, we have this major – we have all this major debt.
00:51:01.840 | We have all this major – we're going to have to raise taxes in the future.
00:51:05.920 | That's the argument that the people make.
00:51:08.280 | Personally, I have no crystal ball.
00:51:10.200 | I am unconvinced of those arguments.
00:51:13.200 | I don't think that – number one, I don't think that debt will ever, ever be paid.
00:51:19.360 | It's simply never going to be paid, neither the official on-budget debt nor the unfunded
00:51:24.560 | liabilities.
00:51:25.560 | I see no way for it to be paid.
00:51:28.280 | Second, I see no way that the US American population is going to accept any major changes
00:51:37.200 | in tax rates.
00:51:40.280 | We could play some games at the corners.
00:51:42.920 | We could play the political games about the 1%, blah, blah, blah.
00:51:46.440 | They'll change it 5%, 10% but everybody agrees.
00:51:51.200 | The Democrats and the Republicans all agree that raising taxes is a bad idea for business.
00:51:55.680 | It's just a matter of what they argue about in the election cycle.
00:51:58.960 | But the reality is when times get tough, they know they got to cut taxes.
00:52:03.040 | The actual effective taxes across the country have been 20% of GDP and they haven't changed
00:52:08.420 | in decades.
00:52:09.420 | So, when I look at that chart and I say, "Okay, put aside all the four-year – every four-year
00:52:15.000 | arguments that obsess people during election season.
00:52:18.720 | Put aside all the talk that gets votes and look at what people actually do," I don't
00:52:23.320 | see it happening.
00:52:24.600 | So I don't think we should – I don't think that that should be the compelling reason.
00:52:31.560 | Ed Slott makes a big deal of this of get all the money out into the Roth.
00:52:34.480 | I'm going to have him on someday and talk about that.
00:52:37.480 | But I don't buy the argument anymore.
00:52:38.960 | Let's do one more and – no.
00:52:41.960 | I'm going to quit for the day there since I did that other extra question.
00:52:47.320 | We're going to save this question about how to fit in in a military context without
00:52:55.680 | breaking your budget for another Q&A show.
00:52:59.480 | Thank you all so much for listening today.
00:53:02.440 | Thank you for listening.
00:53:03.440 | I apologize if my delivery wasn't as smooth.
00:53:05.360 | I've been out of commission the last few days.
00:53:07.400 | That's why there's been such a paucity of shows and so I'm working on getting
00:53:12.320 | back to that.
00:53:13.800 | Sorry about the dog barking.
00:53:16.920 | Podcasting is real.
00:53:17.920 | Again, if you'd like to have me answer a question from you on a show like this, feel
00:53:22.800 | free to send it in to me.
00:53:25.160 | You can use the contact form on the website at RadicalPersonalFinance.com.
00:53:28.040 | That's a great way to get the question in to me.
00:53:31.040 | Happy to hear from you at any point in time.
00:53:33.880 | Thank you to those of you who are patrons of the show, supporting the show on Patreon.
00:53:36.600 | Super, super important to me, especially right now.
00:53:38.880 | If you gain value and benefit from this show, please consider becoming a patron.
00:53:43.160 | I don't like to oversell it, overemphasize it, and turn the whole show into a pledge
00:53:50.520 | drive.
00:53:51.520 | Just know that, put simply, it's very important.
00:53:54.240 | It's helpful to me.
00:53:55.240 | It's very important to me.
00:53:56.640 | If you benefit from the content that I distribute on the show for free, please consider becoming
00:54:01.520 | a patron.
00:54:02.520 | RadicalPersonalFinance.com/patron.
00:54:03.520 | A couple of benefits there for you.
00:54:05.760 | Hey, one quick thing as we go.
00:54:07.040 | I need to do a standalone question.
00:54:12.080 | Either way, if you would like to be of help to me, I don't like to make the show all about
00:54:17.480 | "Hey, here's how you can help me."
00:54:18.480 | But I know many of you write to me and say, "Hey, is there something that you can do?"
00:54:23.320 | Reviews for the show would be extremely useful in a couple of different places.
00:54:27.200 | First, if you listen on an Apple device, please do a review on iTunes.
00:54:32.720 | That's super, super important.
00:54:33.840 | The reason it's important, it helps a little bit with rankings and activity.
00:54:37.360 | But the reason it's important is new listeners will come through and they'll browse the shows
00:54:40.740 | and they judge based upon the number of reviews.
00:54:43.320 | I haven't focused heavily on trying to get lots of reviews, and so I could gain a lot
00:54:47.600 | more.
00:54:48.600 | So please, one or two sentences is all that's needed.
00:54:50.320 | You can do it right on your phone.
00:54:51.800 | So it takes no more than about two minutes.
00:54:53.680 | Just one or two sentences.
00:54:55.080 | Give it a star rating.
00:54:56.080 | Say you hate it, you love it.
00:54:57.080 | Do it right on your phone.
00:54:59.000 | Some of you are Google users.
00:55:02.080 | Supposedly, Radical Personal Finance is available in some of your Google Play Music apps now.
00:55:08.160 | Not on the Radical Personal Finance app, but on the Google Play Music app.
00:55:12.080 | It's being rolled out in stages, but if you're a Google user, could you check?
00:55:15.240 | And if you find that the show is there, could you email me and let me know?
00:55:18.400 | And I'll leave a review?
00:55:19.400 | I'd really appreciate it.
00:55:20.840 | Have a great day, y'all.
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