RPF0564-Friday_QA
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00:00:30.620 | It's Friday and today we do a live Q&A.
00:00:34.620 | ♪
00:00:50.640 | Welcome to the Radical Personal Finance Podcast.
00:00:52.480 | My name is Joshua Sheets and I am your host.
00:00:54.280 | And it's Friday.
00:00:55.020 | On Fridays we do a live Q&A show.
00:00:57.180 | Any Friday that I can arrange to be at an internet connection
00:01:00.060 | and a phone connection.
00:01:01.720 | These are the shows where you call in
00:01:03.120 | and we try to together work out some answers
00:01:05.300 | to your questions.
00:01:07.300 | I hope you are along for the ride.
00:01:09.060 | I've got four callers lined up and today is gonna be fun.
00:01:11.460 | ♪
00:01:22.980 | If you are able or if you have any interest in calling in
00:01:25.420 | for a Friday Q&A show, I would love to do that.
00:01:27.480 | Currently this is your most reliable way
00:01:29.580 | to actually get a chance to speak with me,
00:01:31.580 | talk about your situation, and get the help
00:01:33.660 | and the input of thousands and thousands of other people.
00:01:36.760 | I probably don't speak about this enough,
00:01:39.220 | but I would say one of the benefits
00:01:40.920 | of this particular way for you to ask a question
00:01:43.700 | is getting access to the Radical Personal Finance audience.
00:01:46.040 | Frequently I have made mistakes on the show
00:01:48.000 | and I've been corrected in those mistakes
00:01:50.340 | by intelligent people in the listening audience
00:01:52.540 | who come by and comment on that page.
00:01:54.680 | So if there's something that you feel
00:01:57.340 | that wasn't incomplete or if there's something
00:01:59.020 | that you'd like other perspectives on,
00:02:00.620 | please feel free to ask for other comments.
00:02:02.980 | Frequently there are dissenting comments
00:02:04.760 | or affirming comments or clarifying comments
00:02:07.280 | on the show page for the Friday Q&A show
00:02:09.660 | that you have become a part of.
00:02:11.100 | If you would like to gain access to one of these shows,
00:02:13.520 | come on by at radicalpersonalfinance.com/patron.
00:02:16.100 | Sign up to support the show as a patron
00:02:17.700 | and that will gain you access to the call-in time,
00:02:20.460 | the information, all of that so that you can join the show.
00:02:23.580 | So radicalpersonalfinance.com/patron.
00:02:25.780 | I do that to allow me to slightly limit
00:02:28.720 | the number of callers so that I can create a good show
00:02:31.380 | but not have 47 people calling in each time.
00:02:33.780 | And so far, so good.
00:02:34.880 | We go first to Jacob in California.
00:02:36.420 | Jacob, welcome to the show.
00:02:37.360 | How can I serve you, sir?
00:02:38.620 | - Hi Joshua, thanks for taking my call.
00:02:42.620 | So I, just to give you my background a little bit,
00:02:45.780 | I'm 23 years old and I do have some seasonal employment.
00:02:51.160 | I work in Arizona as a wildland firefighter
00:02:54.080 | for the summer months.
00:02:55.760 | And I've been doing that for,
00:02:57.480 | this will be my third season doing that
00:02:59.680 | and kind of taking odd jobs in the winter.
00:03:02.120 | But last winter I worked at a ski resort
00:03:06.280 | as a supervisor for food and beverage.
00:03:08.960 | And I have about 20,000 or 25,000 in a mutual fund
00:03:13.960 | that was originally a college fund for me,
00:03:17.720 | but I ended up going to a two-year college
00:03:21.280 | so didn't use a lot of that money.
00:03:23.500 | And now I'm kind of looking at possibly
00:03:27.380 | buying a rental property or a home for myself.
00:03:30.400 | But kind of wondering your thoughts on
00:03:34.440 | maybe if there's a better place to put that money for now
00:03:37.160 | or once I figure out if I can qualify for a mortgage,
00:03:41.680 | the best route of going about something like that.
00:03:44.440 | - How much money do you earn on an annual basis?
00:03:47.980 | - Roughly about 40 to 45,000.
00:03:52.260 | - Okay.
00:03:53.180 | And do you intend to increase that?
00:03:55.660 | Do you have plans to increase that?
00:03:57.620 | What's your plan with regard to your income?
00:03:59.820 | - Yeah, I'd like to increase it,
00:04:04.040 | but with the seasonal employment that I have now,
00:04:09.040 | with the government, since it's with the Forest Service,
00:04:11.500 | it would be kind of a standard hourly rate
00:04:14.340 | and it's kind of varying on overtime hours
00:04:16.580 | and everything like that.
00:04:17.460 | So more of that, trying to increase my income
00:04:22.180 | would probably have to come in the winter
00:04:23.580 | or I'd have to kind of shift
00:04:24.980 | where what I want to be doing with my time, I guess.
00:04:29.780 | - So I guess my first concern would be at 23 years old,
00:04:35.440 | I would encourage you to first focus on
00:04:37.900 | building your income.
00:04:40.060 | And it's up to you how you do that.
00:04:43.980 | There's a balance here between me trying to
00:04:46.540 | encourage you to build your income
00:04:48.420 | versus me trying to encourage you to enhance your lifestyle.
00:04:51.700 | But at 23, I would encourage you that
00:04:54.340 | one of the most valuable things you can do is build income.
00:04:57.420 | Now that doesn't have to be at the cost of lifestyle.
00:04:59.900 | You can do seasonal firefighting work,
00:05:02.740 | which is, I would love,
00:05:05.660 | it would be very much appeal to me,
00:05:07.500 | but you probably also need to have some other plan.
00:05:11.020 | Now that plan could be many things,
00:05:12.500 | but you need to have a plan.
00:05:13.480 | That plan could be rental properties.
00:05:15.720 | That plan could be some sort of other seasonal work,
00:05:19.740 | something that happens in the wintertime,
00:05:21.580 | some business that you do during the wintertime.
00:05:23.620 | That plan can be up to you.
00:05:24.900 | You can build your life however you want.
00:05:27.300 | But your first priority at 23 should be to
00:05:32.260 | focus on building a high income,
00:05:35.300 | because that will make a lot of decisions
00:05:37.400 | down the road easier.
00:05:38.860 | Now, once you've built a high income
00:05:40.400 | and then have developed an investment portfolio,
00:05:43.340 | then it's a little bit more appropriate
00:05:44.820 | for you to back off and say,
00:05:45.920 | okay, now I'm gonna do this seasonal employment.
00:05:47.940 | And if you have an investment portfolio behind you,
00:05:50.460 | and you can just work seasonally
00:05:51.860 | and earn $45,000 a year fighting wildland fires,
00:05:55.740 | then that could be great.
00:05:57.460 | But you need that, I think you need that bigger plan.
00:06:00.580 | So if you're just asking the question of,
00:06:02.880 | should I buy a rental property with the money,
00:06:04.620 | or should I buy my own house,
00:06:07.140 | or should I do something else?
00:06:08.880 | My first question is, what's your income plan?
00:06:12.140 | And if you have a way or an idea
00:06:14.820 | about developing an income plan,
00:06:16.460 | and if you need money for that,
00:06:18.060 | then you should save that money for your income plan.
00:06:21.020 | Whether that could be your own business.
00:06:23.020 | Sometimes if you are working seasonally,
00:06:26.400 | one of the best ways for you to be able
00:06:28.220 | to maintain your seasonal work
00:06:30.140 | and to earn during the off season
00:06:32.600 | is to run your own business.
00:06:34.100 | Unless you're working in an occupation
00:06:36.240 | that's naturally only done during the winter,
00:06:38.820 | you drive, I don't know, snow, you're in Arizona,
00:06:40.760 | so you're not gonna drive snow piles.
00:06:42.020 | But the point is, unless you are working
00:06:43.740 | something that's automatically seasonal,
00:06:45.460 | you might need some work that you can really hit it hard
00:06:47.860 | for six months of the year,
00:06:49.660 | you have a month off on the shoulder season
00:06:51.420 | until fire season, then you go and do fire season,
00:06:53.660 | and then you have a month off,
00:06:54.540 | and then you hit your business again.
00:06:56.100 | So if you need the money to develop a business,
00:06:58.820 | that could be great.
00:06:59.820 | But there's no reason why you couldn't also use the money
00:07:01.980 | for a rental property.
00:07:03.700 | If you only give me the two options,
00:07:05.020 | a rental property versus a house to live in,
00:07:06.880 | I don't think you need a house to live in,
00:07:08.140 | I think you need a rental property.
00:07:09.180 | At 23 years old, half the year,
00:07:11.540 | or for the months that you're on fire season,
00:07:13.620 | you're sleeping in a tent on the ground,
00:07:16.700 | or you're in some barracks somewhere,
00:07:18.620 | you don't need a house then.
00:07:19.900 | And the other six months of the year,
00:07:21.440 | just live in a friend's bedroom, spare bedroom,
00:07:25.900 | buy a truck camper and live in that, something like that.
00:07:28.140 | Build your wealth at this stage of life,
00:07:29.500 | I don't think you need a big fancy house.
00:07:31.180 | Unless you take a house and you buy a house
00:07:32.900 | and you fill it with a bunch of roommates,
00:07:34.380 | and you just keep one little room on the back corner
00:07:36.420 | and available for yourself,
00:07:37.700 | I don't see any reason for you to own a house
00:07:39.260 | at 23 years old and young and single.
00:07:41.140 | Make sense?
00:07:41.980 | - Right, yeah, that does make a lot of sense, yeah.
00:07:45.900 | That's kind of more towards what I was thinking originally,
00:07:48.900 | also, is, yeah, I wouldn't think it'd be more important,
00:07:52.340 | but I know there are a couple,
00:07:53.540 | or I've heard of things like your first mortgage,
00:07:57.060 | there's certain advantages to it or something,
00:07:58.860 | so I don't know if maybe waiting to buy something
00:08:01.060 | worth a little more money might be to an advantage
00:08:03.300 | tax-wise or something like that later on.
00:08:06.140 | - Yeah, so you could, so it comes down to kind of
00:08:08.660 | what you're buying and how you're gonna finance it.
00:08:11.180 | And here would be the type of thing that would be,
00:08:14.620 | that you should consider,
00:08:16.780 | a couple of different real estate strategies.
00:08:18.260 | So first of all,
00:08:19.220 | you can, if you're buying a house for your first time house,
00:08:24.940 | you can purchase a house under what's called the FHA,
00:08:27.780 | First Time Home Buyers Association,
00:08:30.540 | is that what it's called?
00:08:31.380 | FHA loan, basically it's a loan for your first time house.
00:08:35.940 | And that can be an advantage for you
00:08:37.700 | because you can qualify for the loan
00:08:39.660 | with an income of $40,000, you can qualify for a loan.
00:08:42.460 | It would be a modest loan, but you can qualify for a loan.
00:08:46.340 | One of the benefits of an FHA loan
00:08:48.540 | is you only need to put down a very small amount of money.
00:08:52.540 | If memory is right, it's something like 3%,
00:08:54.860 | but the specific number is easily available to you
00:08:58.340 | with a quick online search.
00:09:00.160 | So you only need to put down a small amount of money,
00:09:01.820 | and now you can control a property.
00:09:03.940 | And as a primary residence that you're living in,
00:09:07.340 | and with a primary residence that you've bought
00:09:09.460 | as an FHA buyer, you could control a property
00:09:13.100 | with a very low outlay of cash,
00:09:15.320 | with good financing terms as a first time home buyer.
00:09:18.420 | And as long as that is your primary residence,
00:09:20.860 | then you put yourself in a situation
00:09:22.580 | where you can rent out a bunch of bedrooms.
00:09:24.820 | And that, I wouldn't, that's just to me,
00:09:27.340 | that's a tactic that you can use
00:09:29.440 | that basically comes down under the idea
00:09:31.140 | of I'm buying a rental property.
00:09:33.220 | That's essentially what you're doing.
00:09:34.860 | And so you can buy that house
00:09:36.540 | and you can park a camper in the back corner of it
00:09:39.220 | and rent out, buy a four bedroom house
00:09:41.420 | and rent out four bedrooms to four of your buddies.
00:09:44.340 | And that can be a very effective thing for you to do.
00:09:47.060 | So that's a tactic that can be used,
00:09:48.900 | but basically you're still buying a rental property.
00:09:51.140 | What I'm trying to discourage you from
00:09:52.820 | is the idea of buying a house
00:09:55.780 | that is gonna be a big three bedroom house
00:09:58.440 | with a beautiful deck out back,
00:09:59.820 | and you're gonna keep the whole thing empty
00:10:01.740 | just so you have a beautiful place to live.
00:10:03.520 | That seems like a waste to me.
00:10:05.220 | At this point in your life,
00:10:07.500 | more important for you to focus on building your wealth
00:10:10.020 | at this point in your life.
00:10:11.620 | If you're handy, one of the benefits I would say
00:10:13.860 | is if you're handy, don't neglect the value
00:10:16.080 | of your being able to apply yourself to your work
00:10:19.220 | on a seasonal basis.
00:10:20.960 | If you're a firefighter, there's a good chance
00:10:22.620 | you have exposure at least to other blue collar type
00:10:26.360 | of people who are experienced in the trades.
00:10:29.460 | And being a part-time handyman,
00:10:31.660 | being a part-time home renovator
00:10:33.580 | can be a very effective way for you to use your off season.
00:10:36.540 | Your firework season can be a stable form of income for you.
00:10:40.300 | And then for the other six months
00:10:41.660 | that you're not doing firework,
00:10:42.940 | then go ahead and apply yourself to fixing up a house,
00:10:46.220 | buying an inexpensive house,
00:10:47.380 | buying a rental property every couple of years,
00:10:49.060 | fixing them up, renting them out,
00:10:50.940 | doing work for other people.
00:10:52.520 | That's a really appropriate form of seasonal work
00:10:55.040 | that's very flexible that could be a good fit
00:10:57.540 | if you've developed some of those skills.
00:11:02.820 | - Yeah, yeah, I agree.
00:11:04.300 | I wouldn't wanna buy a big house or anything like that
00:11:07.420 | and not be renting it.
00:11:09.580 | That would be the primary reason to buy the house
00:11:12.740 | would be to get some, you know,
00:11:14.620 | have it pay it kind of for itself in a sense.
00:11:17.440 | - Right, and the FHA loan can get you there.
00:11:20.820 | My understanding of the rules, it's gotta be your house.
00:11:22.700 | So you gotta plan to live there.
00:11:24.580 | But different people's definitions of living in a place
00:11:26.880 | are certainly subject to interpretation.
00:11:30.140 | I don't have a problem if I'm receiving mail at a place
00:11:33.420 | and I'm there frequently and I'm using that address
00:11:35.380 | for some purposes as far as I'm concerned,
00:11:38.940 | I'm living there.
00:11:40.320 | You can adjust accordingly in terms of how much
00:11:43.180 | you can rent out, how many bedrooms,
00:11:46.140 | how much space you actually need
00:11:47.720 | for the entirety of the year.
00:11:49.300 | Read the contract and make sure you follow it,
00:11:51.500 | but use whatever's subject to your own interpretation
00:11:53.940 | for your own benefit.
00:11:55.060 | Travis in Kentucky, welcome to the show.
00:11:56.460 | How can I serve you, sir?
00:11:59.740 | - Yeah, thank you for taking my call, Joshua.
00:12:01.420 | Appreciate the show, you do a great job.
00:12:03.300 | - Thank you.
00:12:04.780 | - My question is, I just started a small business.
00:12:08.220 | It's an ambulatory veterinary practice here.
00:12:12.180 | And I have yet to set up a retirement.
00:12:15.420 | You are my only employee and I'm the only person
00:12:19.940 | that I ever plan on.
00:12:21.980 | And going through and looking at the different options,
00:12:24.300 | I think that I've arrived at a decision,
00:12:26.180 | but I wanted to make sure I wasn't missing anything
00:12:27.980 | as far as what type of retirement account
00:12:31.260 | to open within the business for myself
00:12:34.020 | in order to maximize the opportunity.
00:12:36.420 | And I guess I just kind of wanted to run by
00:12:39.060 | and get your take to make sure I wasn't missing anything.
00:12:41.900 | I think for my situation that a solo 401k
00:12:46.180 | would be what I would want because I can put the most away
00:12:49.180 | as quickly as possible, which is my goal.
00:12:53.140 | But I wanted to make sure that there wasn't any other reason
00:12:55.460 | to take a second look at doing a SEP or a simple IRA
00:13:00.020 | or something like that.
00:13:01.180 | - Sounds like your analysis is right on track.
00:13:04.940 | So in your own business where you have no employees
00:13:07.780 | and you don't intend to have employees,
00:13:09.980 | then you basically have three retirement plans
00:13:12.820 | available to you.
00:13:14.020 | Those three plans are a SEP IRA, a simple IRA,
00:13:18.500 | and an individual 401k or a solo 401k.
00:13:22.620 | And the benefits largely come down
00:13:25.620 | to how much money you wanna put in
00:13:27.580 | and in what format you want to put it in.
00:13:29.300 | Thankfully today, they're all fairly easy to do.
00:13:32.740 | They're all fairly simple.
00:13:34.460 | So let's start with a SEP IRA.
00:13:36.180 | The SEP IRA is,
00:13:38.260 | SEP stands for Simplified Employee Pension Program, I think.
00:13:41.580 | And the basic benefit of the SEP IRA is it's dirt simple
00:13:45.540 | and you can make your contribution
00:13:47.020 | after the calendar year is over.
00:13:49.660 | The SEP IRA, any investment broker
00:13:51.580 | will have a standard boilerplate SEP IRA
00:13:54.180 | where they just say, "Here's the form,
00:13:55.700 | you sign it and you have an IRA."
00:13:59.060 | You can make your contribution at the end of the tax year,
00:14:01.580 | which is one of the benefits.
00:14:02.620 | The SEP IRA in the financial planning business,
00:14:04.340 | we always called those the accountant's best friend.
00:14:07.020 | Because if your tax accountant is doing your taxes
00:14:09.140 | on April 14, and they're trying to get you
00:14:11.500 | to put some money in a retirement account,
00:14:13.540 | you can call your investment broker on April 14
00:14:17.020 | and you can open that account online and boom,
00:14:20.020 | it's fundable for the previous tax year.
00:14:23.020 | The limitation for a SEP IRA is the contribution amount.
00:14:27.340 | And there are two ways
00:14:29.620 | that you can calculate the contribution amount.
00:14:31.980 | The first is, and it has to be the lower of these two.
00:14:35.860 | The first is it has to be either 20%
00:14:38.700 | of your business's profit minus the deduction
00:14:42.580 | for one half of your self-employment tax.
00:14:44.540 | So let's just simplify it and say 20% of your profit.
00:14:47.500 | Or it's a cap of, what is it?
00:14:50.700 | 2018, it's like 50, somewhere between 50 to $60,000.
00:14:54.860 | I can't remember, it's like 55 or $58,000,
00:14:56.860 | something like that.
00:14:57.820 | You can check that number in the IRS current amounts.
00:15:02.540 | But it's whichever of those is lower.
00:15:05.300 | So if your profit from your business is $100,000,
00:15:08.180 | then your total contribution is $20,000.
00:15:12.060 | If you are going to,
00:15:16.660 | if you're going to use,
00:15:17.980 | if the $20,000 is enough for you,
00:15:21.020 | then it's hard to get simpler than a SEP IRA.
00:15:24.940 | And that's a really good option for you.
00:15:29.940 | Simple IRAs have a slightly different contribution limit.
00:15:34.940 | It works on a different formula
00:15:39.100 | with has an employee and an employer amount.
00:15:42.740 | But I don't know of any reason
00:15:44.260 | why you would choose a simple IRA over a SEP IRA.
00:15:46.900 | Let me think for a moment.
00:15:49.740 | I can't think of any reason at the moment.
00:15:54.740 | A solo 401(k) is the plan
00:15:58.020 | that will allow you to get the most into it
00:15:59.980 | because you can adjust your contribution formula
00:16:02.540 | and you're not limited to that cap of 20% of your profits.
00:16:05.900 | So with a solo 401(k),
00:16:07.220 | you can adjust your contributions
00:16:08.940 | as far as your employee contributions,
00:16:10.420 | employer contributions, and all that.
00:16:12.180 | And you can get very close to that $55,000 number.
00:16:15.220 | So if you're an aggressive saver
00:16:16.700 | and you're earning $100,000
00:16:18.340 | and you want to put $50,000 into a solo 401(k),
00:16:21.060 | that's your basic option.
00:16:23.380 | I don't think you can do the solo 401(k)
00:16:25.500 | at the end of the calendar year.
00:16:26.660 | Generally, that's the problem with 401(k)s.
00:16:30.900 | I'm pretty sure you can't do it
00:16:31.980 | at the end of the calendar year,
00:16:33.100 | although I don't know that for a fact.
00:16:35.260 | But if you are an aggressive saver,
00:16:37.340 | then you would probably go in the direction
00:16:39.140 | of a solo 401(k).
00:16:40.100 | They used to be fairly rare,
00:16:41.660 | but today almost any investment broker,
00:16:43.180 | it seems like you can just download the forms
00:16:44.700 | and it's pretty simple and straightforward to set up.
00:16:46.580 | They're very popular today.
00:16:47.940 | - Gotcha.
00:16:50.860 | All right, I think that's really all I wanted.
00:16:53.380 | I just wanted to make sure there wasn't anything else.
00:16:55.940 | A clarification on the SEP IRA.
00:16:59.780 | The way that this business is structured
00:17:01.700 | is I have a certain percentage
00:17:03.820 | that I pay myself in a salary,
00:17:05.820 | and then the rest of it is distributed
00:17:07.660 | as an S-corp dividend.
00:17:10.020 | So the limit for the SEP IRA would be 20%
00:17:12.900 | of the business's profit altogether,
00:17:15.500 | not the 20% of what I pay myself in salary, correct?
00:17:19.500 | - That is my understanding, yes.
00:17:21.220 | - Okay, all right.
00:17:23.700 | I'll go back and I'll do the math
00:17:25.300 | and make sure that those numbers are as different
00:17:27.380 | as I think that they will be.
00:17:30.220 | But that's another good thing to take into account.
00:17:32.660 | So I appreciate it.
00:17:33.980 | Thank you.
00:17:34.820 | - My pleasure.
00:17:35.660 | The great thing about it is basically
00:17:36.740 | all of these plans are fairly flexible.
00:17:38.540 | You can adjust them as you need to.
00:17:40.940 | The SEP IRA is great
00:17:42.060 | because you don't have to do it year to year.
00:17:43.660 | You can do it in some years and not do it in other years.
00:17:46.220 | Check with your broker to see whoever's servicing your 401(k)
00:17:51.220 | if you choose that way,
00:17:52.860 | and just make sure it's as flexible as you need
00:17:54.900 | because what you may find in your own business,
00:17:56.820 | don't neglect investing in your own business
00:17:59.780 | so that you can invest in other people's businesses.
00:18:01.820 | And this is one of my big concerns,
00:18:03.300 | especially in the early retirement community.
00:18:05.980 | There's so much of a focus
00:18:07.220 | on investing in other people's businesses.
00:18:08.900 | And I think there are a lot of benefits
00:18:10.500 | of investing in your own.
00:18:11.860 | Remember that with regard to your tax savings,
00:18:15.380 | yes, putting money in a 401(k) is great,
00:18:17.940 | but even better than that
00:18:19.340 | is buying advertising for your own business
00:18:21.820 | or investing in a piece of equipment
00:18:23.940 | that's gonna increase your profit.
00:18:25.540 | You have a 100% tax deduction
00:18:28.020 | on anything associated with your business,
00:18:30.460 | according to the proper categories.
00:18:32.300 | So make sure that you're not shorting your own business
00:18:36.100 | so that you can invest in other people's businesses.
00:18:38.780 | I think that's unwise.
00:18:39.820 | Now, if you can fully invest in your own business
00:18:42.540 | and you can maximize every profit opportunity that you have
00:18:45.140 | and also have money left over
00:18:46.420 | to invest in other people's businesses,
00:18:48.300 | go for it, as far as I'm concerned.
00:18:49.900 | Erin in North Carolina, welcome to the show.
00:18:51.360 | How can I serve you today?
00:18:52.780 | - Hi, Joshua, thank you for taking my call.
00:18:56.260 | I've been a listener now for two years
00:18:57.820 | and really enjoy your content.
00:18:59.700 | I've actually recently started listening
00:19:02.220 | to other Choose FI podcasts
00:19:04.740 | and other financial independence podcasts,
00:19:06.620 | and I am really enjoying their content as well,
00:19:10.540 | but a lot of them really push taxable buckets
00:19:13.900 | and using indexed funds for investing.
00:19:17.460 | And I guess my husband and I,
00:19:18.740 | we don't have access to any taxable buckets
00:19:21.480 | with our employers.
00:19:22.500 | And I guess I wanted to take a second
00:19:24.300 | to kind of share our financial independence plan with you
00:19:27.780 | and maybe to see if we're missing an opportunity
00:19:30.860 | like a Roth IRA or another way
00:19:33.460 | to possibly diversify ourselves
00:19:36.180 | in any of our investment options.
00:19:38.740 | So currently last year,
00:19:40.980 | we actually paid $50,000 off of our debt
00:19:44.940 | and we are just purchased our first house pack house
00:19:49.620 | and it's set up like a duplex.
00:19:51.460 | And we have three leases ready to go in August.
00:19:54.620 | We live in a college town
00:19:56.100 | and we're renovating the top floor
00:19:58.300 | and students will be living up there
00:20:00.580 | and we will be renovating the bottom floor within a year
00:20:03.860 | and basically trying to enforce appreciation,
00:20:06.300 | refinance in a year,
00:20:07.540 | and then pull out some of our capital
00:20:09.100 | to be able to continue real estate investing
00:20:12.820 | and investing in other properties.
00:20:14.740 | And I guess our plan is to continue that route
00:20:17.900 | of real estate investing,
00:20:18.900 | maybe a property every year,
00:20:20.460 | trying to do small multifamily.
00:20:22.380 | We also have access to private investors
00:20:25.840 | as my husband is working kind of as a property manager,
00:20:29.900 | but also as a construction manager
00:20:31.380 | and has worked in construction his whole life.
00:20:33.460 | And he'll be taking over,
00:20:35.900 | basically running student rentals for one of the owners.
00:20:40.580 | And there's three other private investors
00:20:42.300 | that we could have capital
00:20:44.180 | as far as to go and invest in other properties with.
00:20:48.660 | But I guess my question for you is,
00:20:52.180 | should we also try to do like a Roth IRA or,
00:20:56.660 | I don't know, I just hear all these other outside voices
00:20:59.860 | and I know we're supposed to kind of use
00:21:02.700 | our skills and strengths and whatever works for us
00:21:05.540 | and every individual is different.
00:21:07.180 | And I guess I just wanted to get your feedback
00:21:10.780 | on what you think about our plan
00:21:12.420 | and if we're kind of on the right track.
00:21:14.580 | - Sure, what a great question.
00:21:15.780 | Congratulations to you guys
00:21:16.940 | for all of your wonderful progress.
00:21:19.120 | That is exciting.
00:21:20.720 | What an exciting-- - Thank you, thank you.
00:21:22.660 | - You are weird in a great way
00:21:24.380 | and I'm excited for you because you're doing,
00:21:27.820 | sounds like you're focused, you're clear,
00:21:29.220 | you have ideas, you have a plan.
00:21:31.060 | And the things I listen for are not any specifics,
00:21:34.280 | but rather a way of thinking,
00:21:35.980 | a way of approach and a way of analysis.
00:21:38.580 | When you are out searching for information,
00:21:41.780 | when you're out searching for inspiration,
00:21:43.560 | when you're out searching for example,
00:21:44.900 | as you clearly are by listening to a show like mine,
00:21:47.660 | to other excellent personal finance podcasts
00:21:50.380 | or other resources,
00:21:51.700 | you will find and develop your own plan
00:21:54.060 | that is appropriate for you.
00:21:55.260 | So I'll give you a couple of comments
00:21:56.780 | and then I'll explain my approach to your situation
00:21:59.780 | and hopefully help you clarify.
00:22:01.780 | So first, with regard to other podcasts,
00:22:04.880 | I actually, I have a confession I'll tell you.
00:22:07.820 | I don't listen to any personal finance podcasts.
00:22:12.260 | And I do that intentionally
00:22:14.140 | because I'm very good at remembering what I hear
00:22:16.860 | and what I learn.
00:22:18.460 | And I don't want to inadvertently steal other people's stuff
00:22:22.220 | because so if I hear someone else's idea in a podcast,
00:22:26.760 | I try to give credit for the book where I read something
00:22:30.220 | or where I learned something.
00:22:31.620 | And I don't, so I don't,
00:22:33.020 | I try not to listen to other personal finance podcasts
00:22:35.820 | because I don't want to steal other people's stuff.
00:22:37.900 | The second reason I don't do it
00:22:39.440 | is because I don't want to inadvertently
00:22:41.760 | try to copy someone else.
00:22:43.820 | I don't want to listen to someone else's show
00:22:45.700 | and say, well, that sounds great, I want to do it.
00:22:47.580 | I want to create something that is uniquely mine
00:22:51.300 | and then encourage other people to create things
00:22:53.260 | that are uniquely theirs.
00:22:54.520 | That said, I do know a lot of the people behind
00:22:56.740 | a lot of the other podcasts and they do a good job.
00:22:59.500 | Choose FI, they're doing, I mean,
00:23:01.440 | going gangbusters right now and they're doing a great job.
00:23:03.700 | And there are other,
00:23:04.540 | lots of other great personal finance podcasts.
00:23:07.220 | Each person that, each podcast host
00:23:10.980 | will bring a certain flair to their work.
00:23:15.980 | And this is the same whether they're a podcast host
00:23:18.220 | or an author or a speaker or just your next door neighbor.
00:23:21.780 | They're all going to bring a certain flair to their work
00:23:24.980 | based upon what they believe,
00:23:27.660 | what they've experienced and what they do.
00:23:30.820 | And so this is one of the reasons why I would,
00:23:33.540 | my guess would be that what you hear me talk about
00:23:35.940 | is different than other people.
00:23:38.260 | In the, what's frequently referred to as the FIRE community,
00:23:41.240 | the Financial Independence Retire Early Podcast community,
00:23:44.540 | or not, or just online community,
00:23:47.220 | the basic path seems to be,
00:23:49.900 | is usually brought down into earn a high income,
00:23:53.680 | save a lot of money and then invest that money.
00:23:56.620 | And the most common investment is to use mutual funds,
00:23:59.780 | specifically index funds.
00:24:01.860 | And that path is awesome.
00:24:03.940 | It's wonderful.
00:24:04.900 | It really is good.
00:24:07.020 | I have nothing bad to say about it.
00:24:09.300 | It can work.
00:24:10.580 | But the reason why this is so common
00:24:13.300 | is because the type of person who is in this community
00:24:16.700 | is likely to be somebody who is a high income earner
00:24:20.280 | at a corporate job.
00:24:21.780 | And for a high income earner at a corporate job,
00:24:24.680 | that's one of the major opportunities they have.
00:24:26.840 | Somebody who's working 50 hours a week as an engineer,
00:24:29.460 | a software engineer,
00:24:30.740 | and who's earning $140,000 a year,
00:24:33.840 | it's unlikely that they have a lot of time
00:24:35.800 | to devote to other things.
00:24:38.100 | And so they can work,
00:24:39.520 | they can keep a very modest expenses,
00:24:41.640 | they can earn a high income,
00:24:43.000 | they can save money into mutual funds,
00:24:45.880 | and it works wonderfully well.
00:24:48.000 | They have access to a 401k,
00:24:49.840 | and that's a very effective way for them to save $20,000
00:24:52.980 | a year, sheltered from taxes.
00:24:55.000 | They often have other matches as well.
00:24:57.160 | And that's a very effective plan.
00:24:59.240 | I don't know of a lower stress plan
00:25:02.940 | with regard to actually being fully independent
00:25:05.240 | than that one.
00:25:06.320 | People often say, what is passive income?
00:25:08.320 | The only form of passive income that I actually know about
00:25:11.720 | is living on dividends from publicly traded companies.
00:25:16.440 | That's the only form of passive income
00:25:18.180 | that I actually know about.
00:25:19.480 | Real estate is not passive income.
00:25:21.160 | Investing in tax lien certificates is not passive income.
00:25:23.600 | Your own business is not passive income.
00:25:26.480 | That is truly passive income.
00:25:28.600 | Now, I actually prepared an outline
00:25:31.960 | for a whole series one time
00:25:33.400 | called "Why I'm Not Part of the FIRE Community."
00:25:36.760 | And I decided not to record it to this point.
00:25:40.840 | I probably should record it,
00:25:42.240 | but I'll give you a couple of points
00:25:44.880 | as to why I don't particularly,
00:25:46.840 | although I've spoken to the FIRE community,
00:25:48.640 | I probably am part of the FIRE community.
00:25:50.480 | I like the FIRE community.
00:25:51.800 | I have no problem with the FIRE community.
00:25:53.600 | I don't personally identify
00:25:55.320 | as being part of the FIRE community
00:25:57.420 | because I have a few frustrations with it.
00:26:01.540 | So first of all, let me give you the first thing.
00:26:04.240 | I think that that's not necessarily
00:26:06.080 | the most efficient approach.
00:26:08.000 | For somebody who is a high income earner,
00:26:11.100 | yes, it is an efficient approach
00:26:12.560 | for them to save money into index funds.
00:26:15.840 | But regardless of how much they do that,
00:26:19.160 | they're going to have to work for a lot of years
00:26:21.880 | in order to save enough money
00:26:23.000 | to declare themselves financially independent.
00:26:24.880 | And I think that's unnecessary.
00:26:26.440 | I think the first step should be to transition
00:26:28.780 | into a career that you wouldn't want to retire from.
00:26:31.640 | And if you do that, you can get there in a year.
00:26:34.960 | You don't need to save 10 years.
00:26:36.920 | You can get there in a year
00:26:37.880 | if you just transition into a career
00:26:39.560 | that you don't want to retire from.
00:26:41.720 | So that's one of the first things.
00:26:43.080 | And I feel like it's a much wiser decision,
00:26:46.480 | especially for somebody who's wrestling
00:26:49.400 | with the reward of their work.
00:26:51.980 | And they're saying, "I don't love this work,
00:26:54.040 | but I'm just going to grip my teeth
00:26:55.380 | and do it for another eight years
00:26:56.760 | so that I'm financially independent."
00:26:58.320 | I say, "Why not just go ahead and move to something
00:27:00.600 | that you would really, really feel important about?"
00:27:03.560 | One of these things comes down to philosophy.
00:27:06.560 | I believe that work is meaningful and important
00:27:09.640 | for reasons that are outside of income.
00:27:11.860 | Much of this is from my own personal religious philosophy
00:27:14.640 | and ideology.
00:27:15.800 | I don't believe it's permissible
00:27:17.480 | or advisable for people to stop working.
00:27:20.620 | I think you can change the nature of work,
00:27:22.480 | but I don't ever want to stop working.
00:27:24.120 | I think that's fundamentally bad
00:27:25.440 | for the human soul to stop working.
00:27:27.800 | And so because of that,
00:27:28.920 | I have no intention of ever stopping working
00:27:32.200 | at any point in my life.
00:27:33.560 | And so I see no reason.
00:27:34.880 | Why should I work, work, work to save in a 401k
00:27:38.360 | and pile up a million dollars in mutual funds
00:27:40.560 | so that I can quit working and goof off?
00:27:42.340 | I don't see that anybody actually does that.
00:27:45.340 | Rather, I see that people who are in that situation,
00:27:49.100 | they keep working and do something else.
00:27:50.460 | So I say, "Why not just do it now?
00:27:51.960 | Why not transition?"
00:27:53.920 | The other thing that I've observed
00:27:55.180 | is due to my life experience,
00:27:57.080 | I've seen so many other people
00:27:58.620 | become financially independent
00:28:00.620 | as measured by independent of other people's constraints
00:28:03.700 | on their time through things
00:28:05.100 | that just seem a lot more efficient to me
00:28:07.340 | than saving millions of dollars.
00:28:12.340 | I look at, I have friends,
00:28:16.440 | I know a guy who's a beekeeper
00:28:18.120 | and he started keep caring for bees
00:28:20.180 | and make tons of money
00:28:21.640 | just with this random side business caring for bees
00:28:25.180 | or people who do all kinds of things
00:28:27.820 | that are different than what is described.
00:28:31.160 | The final point is this.
00:28:32.460 | I don't talk much about that
00:28:36.400 | because I don't actually invest in,
00:28:38.420 | I'm not currently invested in any publicly traded companies.
00:28:41.540 | And this is a personal hangup for me
00:28:43.940 | that I don't talk a lot about publicly
00:28:45.900 | because I don't have a lot of easy solutions.
00:28:48.100 | I used to sell stocks for a living.
00:28:50.840 | I used to sell publicly traded companies
00:28:53.200 | and earn my income from commissions
00:28:55.340 | on the sale of those stocks or the management of assets,
00:28:57.620 | commissions and fees from the sale of stocks.
00:29:00.720 | But over the last few years,
00:29:02.380 | I have become so concerned
00:29:04.360 | with the ethics and morality
00:29:07.280 | of many large modern US American companies
00:29:10.580 | that I just came to the point
00:29:11.980 | where I felt like I didn't want to earn profit
00:29:16.580 | from many of their activities.
00:29:18.900 | Now, each person is going to have a different level
00:29:22.460 | of tolerance for this type of thing.
00:29:25.300 | And I have never encouraged anybody
00:29:27.460 | to take the same conclusion that I have had.
00:29:30.500 | But when I look at it,
00:29:32.380 | I've become very concerned about some of the,
00:29:35.800 | I became concerned about some of the dividends
00:29:38.000 | that I was receiving in my stock portfolio.
00:29:40.780 | And I just came to the point where I couldn't do it anymore.
00:29:45.200 | And so I sold all of my stocks.
00:29:46.960 | I don't currently own any publicly traded companies.
00:29:49.800 | Now, I have been working very diligently
00:29:51.800 | the last few years on developing alternatives
00:29:54.520 | for how to profit and how to invest
00:29:57.120 | without the use of publicly traded companies.
00:29:59.680 | But it's not an easy path.
00:30:01.680 | And I don't know how to teach it yet
00:30:03.100 | because I'm still working at it and still figuring it out.
00:30:06.080 | So that's partly what influences my own thinking.
00:30:09.320 | And I'm much more excited about investing
00:30:12.320 | in smaller businesses that are in my local community
00:30:16.480 | where I can see them, where I can impact them,
00:30:19.120 | where I can see them impact lives,
00:30:21.520 | and where I can have some form of input and control
00:30:25.400 | into the activities of that business
00:30:27.400 | so that the corporate activities
00:30:29.160 | are not things that are evil and immoral,
00:30:32.040 | but rather the corporate activities are positive,
00:30:34.200 | that they're of benefit to a community
00:30:37.620 | rather than a leech on a community.
00:30:39.720 | I don't know how to teach that.
00:30:40.800 | And so I usually stay fairly quiet about it
00:30:42.960 | because I'm still working hard in my own life.
00:30:45.720 | And if or when I feel like I'm competent to help others,
00:30:50.720 | I will do that.
00:30:52.120 | But until then, I prefer to be quiet about it
00:30:54.200 | and just go about it in my own life.
00:30:56.640 | So back to your situation.
00:30:57.920 | That's the background to understand.
00:30:59.360 | And let's go back to your situation.
00:31:01.200 | In your situation, here's the analysis you have to make.
00:31:03.920 | Number one, what will give me the highest rate of return
00:31:08.800 | for my activities?
00:31:10.240 | At the end of the day, you should look at your investments
00:31:13.360 | and you should calculate the rate of return.
00:31:16.000 | In general, the more involved you are in an activity,
00:31:20.080 | the higher the return you will get
00:31:23.120 | or the higher the return that you should get.
00:31:25.840 | If you have a $10,000 investment portfolio
00:31:29.120 | and I give you two investment options,
00:31:31.280 | investment option A is to put it into an investment
00:31:35.040 | that you don't have to pay any attention to.
00:31:37.440 | Let's just say it's a certificate, an annuity,
00:31:40.340 | a guaranteed fixed annuity,
00:31:42.120 | and an insurance company offers you a 7% return
00:31:44.960 | on your money.
00:31:45.920 | And they say, here's a 7% guaranteed fixed return
00:31:50.480 | if you'll just invest your $10,000 with us.
00:31:53.280 | Now, across the street,
00:31:55.000 | I give you another investment opportunity.
00:31:56.680 | And I say, hey, look, here's a real estate project
00:32:00.000 | that will have, it's gonna be wonderful.
00:32:03.120 | We've got all these great potential options.
00:32:04.800 | If you invest $10,000 from us,
00:32:07.000 | and if you come over here and you work every weekend
00:32:10.320 | for the next three years on this property,
00:32:13.920 | and then on Tuesday night,
00:32:15.320 | you take a phone call from a tenant,
00:32:17.080 | and on Thursday morning, you meet a prospective tenant
00:32:19.240 | and take applications.
00:32:20.360 | And you do this every week for the next three years.
00:32:23.560 | At the end of three years,
00:32:24.600 | we guarantee you'll earn 7% on your money.
00:32:27.560 | Which of those two investment options would you take?
00:32:30.200 | - Right.
00:32:33.000 | The second one?
00:32:35.640 | - No, but they're the same 7% both ways.
00:32:39.120 | So would you take-- - Oh, I'm sorry.
00:32:40.960 | Yes.
00:32:41.800 | - Exactly. - The first one.
00:32:42.620 | - You take the one, the first one.
00:32:43.920 | And the reason is,
00:32:44.760 | why would I put all of my blood, sweat, and tears
00:32:48.320 | into this real estate idea
00:32:50.120 | just to earn a measly 7%?
00:32:52.320 | That's absurd.
00:32:53.720 | When I can just walk over and they give me an annuity
00:32:56.600 | with a guaranteed 7%.
00:32:58.680 | So what I've just clarified, hopefully clarified for you,
00:33:02.680 | is the difference between passive investing
00:33:05.000 | and active investing.
00:33:06.480 | Now, usually this is done solely or discussed solely
00:33:09.720 | in the context of the stock market.
00:33:11.420 | The idea between something that's a passive investment,
00:33:14.520 | somebody that creates an index fund
00:33:16.200 | that just seeks to strive to maintain the index,
00:33:19.080 | versus an active investment manager
00:33:20.840 | who's going around looking for good deals.
00:33:23.400 | That's what I've just determined.
00:33:24.640 | And what the science behind that simply says
00:33:27.840 | that the proponents of active investing say,
00:33:30.960 | "Look, we're gonna cost more money,
00:33:33.040 | "but we're gonna get a higher return
00:33:34.300 | "because we're much more involved in the market.
00:33:36.120 | "We're doing the work to find good deals."
00:33:38.440 | And the passive investors say,
00:33:40.300 | "Well, you can't get a return
00:33:42.100 | "that's in excess of what it costs you to do that.
00:33:44.140 | "You can just sit back and kick your feet up
00:33:45.780 | "and just take the market return."
00:33:47.760 | But here's the thing.
00:33:49.000 | As an individual, you're not limited
00:33:51.320 | to just choosing between active mutual funds
00:33:53.520 | and passive mutual funds.
00:33:55.220 | Your investment horizon,
00:33:57.020 | your investment opportunities are huge.
00:33:59.660 | You can take your money and you can buy an index fund.
00:34:02.720 | You can take your money and you can buy real estate.
00:34:05.000 | You can take your money
00:34:05.840 | and you can buy old broken down vacuum cleaners
00:34:08.160 | that you find on Craigslist
00:34:09.760 | and you can fix them up and you can sell them.
00:34:11.880 | You can buy farmland and lease it out.
00:34:14.460 | You can buy cows and raise them.
00:34:16.800 | You can buy old fixer-up beater trucks
00:34:19.160 | and paint them and sell them to collectors.
00:34:22.200 | I've just not even scratched the surface
00:34:24.120 | of the things that you can do with money.
00:34:25.800 | But you have to analyze that
00:34:27.280 | in terms of how much time do I have available,
00:34:29.600 | what skills do I have available,
00:34:31.320 | what's the market around me, what does it offer,
00:34:33.640 | and you have to go from there.
00:34:35.200 | Now, I think if I were totally broke today
00:34:38.640 | and I wanted to be financially independent
00:34:40.920 | and I were starting with nothing,
00:34:42.440 | I would go into something like real estate
00:34:45.160 | long before I would ever buy an index fund
00:34:48.360 | because of the fact that one,
00:34:50.640 | I can leverage financing other people's money.
00:34:53.680 | I don't necessarily have to borrow the money.
00:34:55.440 | I could just leverage other people's money.
00:34:56.800 | I could be a bird dog and I could have signed contracts.
00:34:59.260 | I could figure out how to leverage other people's money
00:35:01.480 | in building up in partnerships arrangements.
00:35:04.520 | And so I could use other people's million dollars
00:35:07.000 | to control a $2 million portfolio.
00:35:09.400 | I can maintain full control of my time,
00:35:12.360 | full control of my investment activities,
00:35:14.160 | and I can use the power of leverage
00:35:16.800 | to build more wealth quickly than I could with index funds.
00:35:21.500 | But that would assume that I didn't have a satisfying job.
00:35:24.160 | So if you already had a satisfying job,
00:35:25.760 | then just work the job and buy index funds.
00:35:28.240 | That's my method of analysis,
00:35:29.760 | is you have to say what gives me the highest rate of return
00:35:32.760 | with an appropriate lifestyle
00:35:34.200 | based upon what we want to do.
00:35:36.360 | In your situation,
00:35:37.240 | it sounds like that's probably real estate.
00:35:39.240 | But in many other situations,
00:35:40.640 | especially somebody who is working a corporate job
00:35:43.440 | or who is a professional,
00:35:44.680 | and those opportunities, they're not interested in them,
00:35:48.880 | they don't have the time,
00:35:49.760 | they don't want to learn about them.
00:35:51.720 | For them, an index fund and a 401(k)
00:35:53.600 | is a beautiful solution and it works very well.
00:35:56.040 | Does that make sense?
00:35:57.800 | - Yes, it does.
00:35:58.640 | - So what do you think is the best for you and your husband?
00:36:02.280 | Real estate or buying mutual funds?
00:36:04.120 | - Definitely real estate, just because of our time.
00:36:09.320 | Because like I said, he recently changed jobs,
00:36:12.600 | and right now it's very busy
00:36:14.200 | and they're working on projects.
00:36:15.360 | But in six months in the winter,
00:36:18.280 | I mean, the owner told him,
00:36:20.560 | who he's gonna be taking over his position,
00:36:22.480 | said, "You will feel like you're retired
00:36:25.120 | "because you will have maybe 15 or 20 hours of work a week."
00:36:29.280 | And basically he's giving him the opportunity
00:36:31.640 | to go and work on his own projects.
00:36:33.800 | So I definitely feel like real estate is our avenue
00:36:36.600 | and what we should continue to pursue.
00:36:38.880 | And I guess I was just wanting to have the affirmation
00:36:42.880 | that we were doing the right thing
00:36:44.240 | 'cause you hear all these voices around you,
00:36:45.840 | but you definitely have confirmed that.
00:36:48.680 | - Good, good.
00:36:49.720 | So the key is to understand why
00:36:52.240 | that's the right thing for you.
00:36:53.880 | And to understand also why you could listen
00:36:56.000 | to another podcast or talk to a friend
00:36:58.880 | and that's not the right thing for them.
00:37:01.560 | And when you're clear on that
00:37:04.040 | and you're comfortable with that,
00:37:05.640 | then you have the opportunity
00:37:07.480 | to just rest in your decisions and you feel good about that.
00:37:10.560 | So I don't feel the need to try to get other people
00:37:13.560 | not to invest in stocks.
00:37:15.520 | Not my business, but I'm not gonna invest in stocks
00:37:18.880 | for my own personal reasons.
00:37:20.560 | And I can explain to you why stocks are great.
00:37:22.960 | I can teach you all the theory.
00:37:24.120 | I used to sell stocks for a living.
00:37:25.800 | And so the same thing with real estate.
00:37:28.200 | Real estate may be wonderful,
00:37:30.560 | but recognize that that also could change.
00:37:33.640 | I've known a number of people
00:37:35.120 | who have gotten into real estate
00:37:36.560 | thinking that that was their surefire ticket to wealth.
00:37:40.240 | And then over time, they realized
00:37:41.800 | that that wasn't actually the best move for them.
00:37:44.400 | And then they moved on.
00:37:45.280 | And so the key is self-awareness
00:37:46.720 | and understanding why you're doing what you're doing.
00:37:49.160 | And then you'll work out the right plan through.
00:37:51.160 | But you guys are on the right track and it sounds awesome.
00:37:53.200 | And I'll say this,
00:37:54.360 | I love the lifestyle of real estate
00:37:59.280 | and privately owned business
00:38:01.520 | because you don't have to be, to use a pejorative term,
00:38:06.480 | you don't have to be a corporate drone for 15 years
00:38:10.640 | just so that you can escape your soul-sucking job.
00:38:13.560 | You can, in real estate and in private business,
00:38:15.880 | you can choose any day what you wanna do.
00:38:18.220 | Now you have a lot of responsibility
00:38:20.000 | that that other person may not have on the weekend,
00:38:22.540 | but you have also a lot of freedom and flexibility.
00:38:25.680 | And so I like, my bent is always towards private business,
00:38:29.800 | towards private investment, and towards private,
00:38:33.360 | well, private business and investment activities,
00:38:35.540 | because that allows me today
00:38:37.600 | to live a lifestyle of freedom and liberty
00:38:40.000 | that I didn't have when I was a corporate employee.
00:38:42.280 | So great job, Erin, keep up the great work.
00:38:44.840 | - Thank you so much.
00:38:45.800 | - Let's help those other podcast hosts.
00:38:47.320 | As you've listened around,
00:38:48.480 | what have become your favorite personal finance podcast?
00:38:51.120 | Who's doing a great job right now
00:38:52.280 | that you want other people to be aware of?
00:38:54.320 | - Absolutely, well, I mean, I listen to your podcast
00:38:59.720 | on a regular basis, and then I listen to Choose Fi,
00:39:02.960 | and I think that their stuff is amazing.
00:39:05.240 | And then the other podcast that I listen to
00:39:07.240 | is Bigger Pockets.
00:39:08.080 | Those are the three that I stick to on a regular basis.
00:39:11.400 | - And both of those are, Choose Fi
00:39:14.160 | and Bigger Pockets are awesome.
00:39:16.060 | They do a great job.
00:39:17.840 | I know all of them, casual friends with all of them.
00:39:20.340 | They do a great job, and I wanna see them build up.
00:39:22.360 | And I want to encourage tons and tons of people
00:39:25.160 | to build more podcasts, more things.
00:39:27.640 | I wanna do that, because it all helps.
00:39:29.680 | And there are people who click with what I do,
00:39:33.600 | and there are people who don't click with what I do.
00:39:35.840 | And there should be a huge diversity
00:39:38.360 | of voices and ideas and opinions.
00:39:40.280 | So if you're looking for good podcasts,
00:39:43.720 | I check out both of those that Aaron just recommended,
00:39:46.600 | and see if those will also help you with good ideas,
00:39:48.560 | either to challenge you or to help you.
00:39:50.600 | Finally, we go to Ed in Virginia.
00:39:52.400 | Ed, welcome to the show.
00:39:53.240 | How can I serve you today, sir?
00:39:54.740 | - Josh, what a long-time listener.
00:39:57.920 | Really enjoy your podcast.
00:39:59.320 | I'm calling the situation my son is in.
00:40:02.680 | He's worked for a regional real estate sales company,
00:40:06.960 | and he recently took another job
00:40:10.120 | and negotiated a departure date.
00:40:13.300 | And then about a week later,
00:40:16.400 | the company changed his departure date
00:40:19.000 | to two weeks to the left,
00:40:20.840 | which significantly affected his pending commissions.
00:40:25.240 | We just wanted your thoughts on approaches
00:40:27.480 | of what he could do and how he could approach the company
00:40:31.120 | to discuss that.
00:40:32.920 | - So let me clarify the facts of the case.
00:40:36.880 | So he's moving, but because the new company
00:40:41.240 | that he's moving to wants him to start two weeks earlier,
00:40:44.000 | that's impacting the closing out of his current deals?
00:40:46.800 | - No, what happened was he gave his two weeks notice,
00:40:52.680 | and the company said,
00:40:55.480 | "Great, we'll give you two weeks of vacation at the end,
00:40:58.540 | "and we'll accept your two weeks."
00:41:00.720 | And then about a week later,
00:41:01.880 | they sent him an email that said,
00:41:04.640 | "Well, you're not getting to leave
00:41:08.200 | "on the day we negotiated.
00:41:09.520 | "We moved it back to the day you told us."
00:41:11.960 | - Got it.
00:41:12.800 | - And that affects the commissions
00:41:14.400 | by roughly $3,000, I believe.
00:41:17.280 | - That's frustrating.
00:41:20.340 | To the best of your knowledge or to your son's knowledge,
00:41:24.480 | has he acted in good faith?
00:41:26.760 | Has he upheld his duty?
00:41:28.920 | Has he been a useful and reliable employee?
00:41:33.440 | And this just seems like bad faith on their part?
00:41:36.560 | - Yes, and he kind of, I would offer up
00:41:40.840 | that he attributes it primarily to his direct manager
00:41:45.360 | more than the company in general.
00:41:48.240 | And he's approached his direct manager,
00:41:51.040 | supervisor in the HR department.
00:41:54.760 | And he's sorting through that.
00:41:58.720 | And he wanted your thoughts on what he might do
00:42:01.560 | because he's also a listener.
00:42:03.160 | - Okay, well, so here's my philosophy.
00:42:06.720 | I don't know if this is, this is just a philosophy,
00:42:10.320 | just an operating framework on things.
00:42:14.400 | So number one, I think the best course of action
00:42:18.680 | is always to approach any situation,
00:42:21.300 | including any negotiation or contentious point
00:42:24.640 | of disagreement with as much honesty,
00:42:29.480 | with as much openness and with as much clarity as possible.
00:42:33.660 | And you can't change another person,
00:42:35.700 | but you can change yourself.
00:42:36.920 | And so looking honestly to say, have I done a good job?
00:42:40.520 | Did I do something wrong?
00:42:42.200 | Now, assuming that's the case is no,
00:42:43.840 | then going and saying, well, how can we work this out?
00:42:47.000 | And I think in general, people respond to somebody
00:42:49.960 | who's willing to go and have an in-person discussion
00:42:54.360 | and to talk and say, listen, this is unfair.
00:42:56.980 | So if he has been treating,
00:42:58.240 | if he is being treated unfairly, for example,
00:43:01.560 | if the commissions that they're saying he's not gonna get,
00:43:05.100 | if he did the work and those deals were closing
00:43:08.800 | and he were entitled to that because he did the work,
00:43:14.680 | then that's unfair for them to withhold those commissions
00:43:16.560 | just because they're working through the payout cycle.
00:43:19.160 | Now, if his leaving is causing a problem
00:43:22.400 | that now someone else has to finish the work,
00:43:25.640 | and so that's why they're saying
00:43:26.720 | you have a less of a commission, a lower commission amount,
00:43:31.120 | then he's gotta assess that.
00:43:34.160 | But assume that everything is on his side.
00:43:36.880 | Well, in that case, I would go to an in-person
00:43:39.780 | and I would just appeal first to whoever it is
00:43:43.880 | that I have the most interaction with.
00:43:45.800 | Appeal to them first and say, please, I did this work.
00:43:48.760 | These were my deals.
00:43:50.040 | I gave you a two-week notice.
00:43:52.160 | I should have been paid out for that two-week notice.
00:43:55.240 | These were my commissions.
00:43:56.280 | I'm entitled to these and make an honest, heartfelt appeal.
00:44:00.820 | It also would probably be appropriate to do it in writing.
00:44:04.240 | It's important to do things like this in writing
00:44:06.440 | or to take good notes on them
00:44:07.960 | in case you ever end up in a legal case
00:44:10.360 | or a lawsuit of some kind
00:44:12.200 | so that you have the data to present as evidence.
00:44:15.660 | So if you can make an in-person appeal
00:44:18.160 | and also deliver a written letter,
00:44:19.580 | I think that's a useful way to approach it.
00:44:21.880 | If you're denied by the person who's a direct superior,
00:44:25.280 | then going up, I don't see any reason not to go up a level
00:44:27.840 | or go to another person and say,
00:44:29.160 | listen, I'm being treated unfairly here.
00:44:31.160 | I'm entitled to these commissions.
00:44:32.800 | Would you please pay me these commissions?
00:44:36.280 | Here's why I think I'm entitled to them and make your case.
00:44:39.640 | In general, I think people are pretty fair
00:44:41.840 | and they wanna be treated fairly.
00:44:43.280 | And if they don't treat you fairly,
00:44:45.240 | then they should know that they're opening themselves up
00:44:48.180 | to a much bigger cost.
00:44:49.820 | You start shorting people on commissions they're due
00:44:52.540 | and you open yourself up to a much bigger cost
00:44:55.060 | than just the $3,000 of the bad reputation that you get,
00:44:58.960 | the ability for your son to open a website.
00:45:02.220 | He can put up a free website
00:45:03.660 | and explain his story of the situation.
00:45:05.580 | And that bad publicity would haunt that company much more
00:45:09.100 | than just paying them the $3,000.
00:45:11.420 | So I would go and make a series of appeals.
00:45:14.080 | And then if they won't listen to him,
00:45:17.340 | I would try to think,
00:45:18.620 | is there someone else that I could appeal to, a friend?
00:45:22.060 | I don't personally think there's any point
00:45:23.940 | in threatening legal action.
00:45:25.700 | In some business disputes, that's obviously appropriate,
00:45:30.040 | but I prefer to approach it in a good faith manner
00:45:33.540 | and go from there.
00:45:34.900 | Now, he should of course consider
00:45:36.500 | if he has grounds for a potential lawsuit,
00:45:40.700 | whether that's of whatever basis.
00:45:44.020 | I would guess that for 3,000 bucks,
00:45:46.540 | I mean, it's hard for me to imagine that being worth it.
00:45:49.940 | I would probably, if I've made a number of appeals
00:45:55.100 | and if I've really asked them
00:45:57.580 | and the answer is just simply that these people are,
00:46:00.980 | if they're crooks, I would probably just choose
00:46:04.180 | to walk away from the money and let it go
00:46:09.180 | and never do business with them
00:46:10.580 | or anyone associated with them ever again.
00:46:13.260 | Because when people will show their hand like that,
00:46:15.760 | then you know that there's no point in doing business.
00:46:19.380 | But it's just hard for me to imagine
00:46:20.780 | that 3,000 bucks is worth legal action,
00:46:23.340 | it's worth the hassle, probably easier for them
00:46:25.980 | just to move on, him just to move on to the next company
00:46:29.260 | and earn the money out in no time.
00:46:31.380 | But I don't know that I have anything
00:46:32.740 | more intelligent than that.
00:46:34.100 | - So that's essentially consistent
00:46:37.620 | with what we've talked about.
00:46:39.220 | And the one final question I'd ask is,
00:46:42.260 | if it gets to the point where they're not willing
00:46:44.620 | to talk to you, is that something that's worth
00:46:47.580 | an afternoon in small claims court without a lawyer?
00:46:51.620 | - Probably so.
00:46:52.460 | - Is that something that you--
00:46:53.740 | - I think so.
00:46:54.580 | For this type of thing, if you can do it,
00:46:59.580 | yeah, I think so.
00:47:01.540 | For $3,000, if you've got the evidence
00:47:03.940 | and you've got things together,
00:47:05.500 | then that probably is worth an afternoon
00:47:09.180 | in small claims court.
00:47:10.100 | Just to say, here's the facts of the case,
00:47:12.220 | here's what happened, I'm entitled to these commissions.
00:47:15.100 | He's gonna need a paper trail,
00:47:16.180 | he's gonna need to prepare his presentation,
00:47:17.540 | but I think there is.
00:47:18.620 | I struggle with that, knowing how to answer that,
00:47:21.060 | because on the one hand, it often just feels easier
00:47:23.580 | just to walk away.
00:47:25.060 | But on the other hand, if you do that,
00:47:27.780 | sometimes you're letting somebody who is immoral
00:47:32.780 | or a crook continue on without establishing
00:47:36.180 | a paper trail of a lawsuit.
00:47:37.860 | And I recently had interaction with somebody
00:47:40.220 | and it was a landlord-tenant dispute.
00:47:43.140 | The tenant acted in good faith
00:47:44.820 | and the landlord absolutely did not act in good faith.
00:47:48.700 | And the facts, in my opinion, the facts were clear.
00:47:52.980 | And I gave the advice in that situation,
00:47:54.740 | I said, "I think you have a duty and an obligation."
00:47:57.380 | In that situation, the person had the bandwidth.
00:47:59.780 | I said, "You have a duty and an obligation
00:48:02.620 | "to take this to court so that you can,
00:48:06.020 | "at the very least, establish a reputation
00:48:10.140 | "against this landlord, 'cause this landlord is a crook.
00:48:13.220 | "And we have a duty to stand up against and oppose those
00:48:17.340 | "who are committing injustice."
00:48:20.220 | And oftentimes, if more of us would be faithful
00:48:24.740 | to seek to expose those who are doing evil,
00:48:28.340 | who are committing injustice,
00:48:30.060 | when that evil and that injustice is small,
00:48:32.780 | then I think many times we could possibly minimize
00:48:37.140 | their ability to commit larger injustice
00:48:40.180 | and larger evil at a later date.
00:48:42.100 | Now, that's a very big kind of consideration,
00:48:45.060 | but I think we do have the responsibility
00:48:47.340 | sometimes to do that.
00:48:48.500 | And so an afternoon of small claims court,
00:48:50.620 | yeah, I think it's a good idea.
00:48:53.340 | And at the very least, there's gonna be facts of the case
00:48:56.300 | that'll be there and he'll feel like he's done his best.
00:49:01.300 | - That's a great answer and I really--
00:49:04.940 | - Go ahead. - And I really appreciate it.
00:49:06.660 | - Absolutely. - It's a great answer
00:49:07.660 | and I really appreciate it.
00:49:08.980 | - Good. - So final thing is
00:49:11.580 | you're one of my top podcasts that I listen to.
00:49:14.420 | And the episodes that I enjoyed the most
00:49:16.220 | were the one about how to avoid being arrested.
00:49:19.660 | - Oh, great. - And I've actually
00:49:20.740 | put into practice some of those things, not all of them.
00:49:24.340 | - Good, good.
00:49:26.140 | Well, I appreciate that.
00:49:27.260 | It's always funny because whenever I do shows like that,
00:49:31.340 | there's a mixture.
00:49:32.180 | I get good people like you who say, "Wow, I enjoyed that."
00:49:34.980 | And it's the kind of thing that doesn't,
00:49:37.020 | a lot of people would never expect
00:49:38.180 | in a personal finance podcast.
00:49:39.540 | But I also have, I always get a rash of angry people
00:49:42.900 | who say, "I can't believe you, blah, blah, blah."
00:49:45.340 | And I've learned that there are a lot of people like you
00:49:49.900 | who do enjoy it.
00:49:50.820 | And these are the things that I think make a big difference.
00:49:53.740 | And as I said in that episode,
00:49:57.860 | those issues are very important to me
00:50:00.780 | because they're the kind of thing
00:50:02.300 | that you don't get advice from
00:50:04.380 | from a money magazine type of scenario.
00:50:07.220 | But yet if you've ever worked with somebody,
00:50:08.980 | I've worked with a couple of people
00:50:10.380 | over the last couple of years
00:50:11.740 | who have just, who have been on that electronic plantation.
00:50:16.300 | And it's so heart-wrenching when you see somebody
00:50:19.140 | who they made mistakes
00:50:21.660 | and they have sought to atone for those mistakes.
00:50:24.660 | And yet they're still on the electronic plantation
00:50:27.900 | and they get buried so deep.
00:50:29.820 | And it puts such impediment in them
00:50:34.580 | when they have sought to make decisions that are right now
00:50:38.100 | and they've sought to put things together,
00:50:39.460 | but they're buried so deep.
00:50:41.060 | I can see the temptation for them to just say,
00:50:43.300 | "You know what, I'm done.
00:50:44.460 | I'm going back to the life of crime
00:50:47.020 | that at least it was simpler
00:50:48.820 | and at least it was easier than this road."
00:50:50.780 | And I think we have a duty to work with those people
00:50:53.860 | and to help them because I understand why the recidivism,
00:50:58.340 | I understand a little bit why the recidivism rate is so high
00:51:01.260 | and I think we really fail people
00:51:02.900 | when we don't stand with them.
00:51:04.500 | None of us pull ourselves up by our bootstraps.
00:51:08.500 | We all need help,
00:51:10.500 | but it's our responsibility to help those
00:51:12.460 | who are being diligent to fix things that they can.
00:51:15.060 | So I'm glad that that show helped you
00:51:16.420 | and my only request for you and every listener
00:51:19.140 | is take that and teach it to other people.
00:51:21.100 | 'Cause the number of people that I can reach
00:51:22.940 | in a podcast like this is very small,
00:51:25.140 | but you can pass those ideas along little by little
00:51:28.340 | and that will have a huge magnifying effect.
00:51:31.380 | So thank you for the nice words, I appreciate that.
00:51:34.580 | - You're welcome.
00:51:35.580 | Sorry about the airplane noise,
00:51:37.020 | I'm on the flight path to Dallas.
00:51:40.340 | - And I am sitting on a busy street corner
00:51:42.260 | in front of a laundromat
00:51:43.980 | while my family waits in the trailer
00:51:45.740 | while I figure out how to run my business
00:51:47.900 | and run these Q&A shows from the road.
00:51:51.380 | And I'm stalling here because the sunshine
00:51:53.820 | has gotten so intense that I can no longer
00:51:55.580 | see my computer screen to start my closing music,
00:51:58.820 | which, there we go.
00:52:00.260 | Welcome to the joy of learning how to record
00:52:03.900 | and publish a podcast while traveling.
00:52:06.140 | We've been traveling in a very remote part
00:52:09.220 | of the Rocky Mountains and I came down to the city
00:52:13.100 | to find a data connection so that I could record
00:52:15.020 | today's show.
00:52:15.900 | Thank you to all of you who called in
00:52:17.100 | for today's podcast Q&A.
00:52:19.220 | If you would like to join us on next week's show,
00:52:21.500 | please do so at radicalpersonalfinance.com/patron.
00:52:24.780 | Become a patron of the show there
00:52:25.900 | and you'll gain access to the Q&A calls.
00:52:28.220 | I should be able to do another show this next week.
00:52:30.300 | It's a very high priority for me.
00:52:31.820 | I love doing them and I thank you for listening.
00:52:35.460 | Thank you for being along on this adventure.
00:52:37.020 | It is so fun for me to be able to speak with you,
00:52:39.740 | share these ideas.
00:52:40.660 | I hope you'll take them.
00:52:41.820 | And as I so frequently play that little blurb
00:52:44.420 | at the end of the show,
00:52:45.260 | I hope that you'll take these ideas,
00:52:46.660 | put them into practice in your own life
00:52:48.540 | and teach them to others.
00:52:50.300 | Because there are a lot of people who are very weak
00:52:53.900 | and only the strong really can help the weak.
00:52:56.900 | And so my hope is to help you to be in a stronger position
00:53:01.140 | in your personal finances,
00:53:02.660 | stronger position in your own life,
00:53:04.580 | so that you can then move from that place of strength
00:53:06.700 | and reach out a helping hand to others
00:53:08.220 | who are in a weak place.
00:53:09.820 | Take the time and free up your time
00:53:14.780 | so that you can be involved,
00:53:16.420 | not only in your own situations,
00:53:18.420 | but you can be involved in other people's situations
00:53:20.540 | in whatever way is available to you.
00:53:22.540 | There's really no limit to the number of opportunities
00:53:25.180 | that are available to you.
00:53:26.540 | But I encourage you, if you do so,
00:53:28.540 | you'll find opportunities for charity
00:53:30.940 | and opportunities for you to really impact other's lives
00:53:33.580 | at a very granular level.
00:53:35.020 | It's much more effective for you to take some time
00:53:40.100 | and bail your friend out of jail
00:53:41.780 | and go and work with them
00:53:42.860 | and help them to pay their court costs
00:53:44.940 | and help them to get off the electronic plantation.
00:53:47.540 | That's probably gonna be a more meaningful
00:53:49.300 | and satisfying thing than for you to write another check
00:53:52.180 | to the big anti-this campaign
00:53:55.100 | just because they need more money.
00:53:56.620 | I encourage you, get involved at the levels
00:53:58.220 | that you can do so.
00:53:59.180 | This is of course just building on that last caller.
00:54:01.500 | But one of the benefits of wealth,
00:54:03.300 | of stability and strength
00:54:04.940 | is your opportunity to reach out and serve others.
00:54:07.220 | So this weekend, look for an opportunity to reach out
00:54:10.500 | and to serve others.
00:54:11.380 | And I'll be back with you next week.
00:54:13.180 | Thank you for listening.
00:54:16.700 | You've honored me with your time and attention
00:54:19.100 | and I'm grateful for that.
00:54:21.180 | And I hope that I've effectively served you today
00:54:23.660 | with some ideas and strategies and tactics
00:54:26.180 | and techniques and tools
00:54:28.020 | that will help move you towards your goals.
00:54:30.580 | Before you go, three simple requests.
00:54:33.500 | One, if there's an idea that's been helpful to you
00:54:36.500 | in today's show, make a plan to take action on it.
00:54:40.540 | Listening does lead to learning,
00:54:43.620 | but learning in and of itself
00:54:45.220 | doesn't automatically lead to a life change.
00:54:48.540 | It's action that leads to a life change.
00:54:52.580 | So take action.
00:54:54.300 | Two, take something that was helpful to you in today's show
00:54:58.340 | and share it with somebody that you care about.
00:55:01.700 | I'm depending on you to be a co-laborer with me
00:55:05.540 | in helping me to propagate the message
00:55:08.820 | that I'm seeking to share.
00:55:10.260 | That helps the person that you are engaging with.
00:55:14.460 | And it also helps you because teaching others
00:55:17.500 | is one of the most effective ways for you to learn
00:55:20.440 | and for you to cement your learning.
00:55:24.160 | Three, if there's an idea
00:55:25.980 | that's been specifically helpful to you
00:55:27.860 | and if you're gaining financial benefit
00:55:29.680 | from Radical Personal Finance,
00:55:31.460 | I'd be grateful if you'd consider paying me
00:55:33.700 | for this work voluntarily.
00:55:36.460 | Come by radicalpersonalfinance.com/patron
00:55:39.220 | and you can sign up there to support the show
00:55:40.940 | at whatever level you feel is right for you.
00:55:43.960 | This is a voluntary support.
00:55:45.680 | That's my Patreon page.
00:55:47.380 | You can support me with a dollar a month,
00:55:49.260 | $5 a month, $10 a month,
00:55:51.260 | any number that seems right to you.
00:55:53.060 | But if you're gaining financial benefit from this show
00:55:56.500 | and if it's achieving financial results in your life,
00:56:00.460 | I'd be grateful for your financial support
00:56:03.020 | at radicalpersonalfinance.com/patron.
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