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Visit yamava.com/palms to discover more. It's Friday, and today, live Q&A. ♪ Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge, skills, insight, and encouragement you need to live a rich and meaningful life now while building a plan for financial freedom in 10 years or less.

My name is Joshua Sheets. Today is Friday, March 18, 2022. And today, like every other Friday, when I can arrange the appropriate technology to record one of these shows, we have live Q&A. ♪ I'd like to welcome all of our many new listeners who have recently been joining the show.

If it is your first time here for a Friday Q&A show, you can know that any Friday when I can arrange the technology, we record a live Q&A show. Works just like call and talk radio. Got phone lines with one, two, three, currently five on the line. We're starting a couple minutes early, so we'll see who else shows up.

And it's open line Friday. You can call in and talk about anything that you want, ask any questions that you want, discuss any topics that you want to completely wide open. If you would like to join me on one of these Friday Q&A shows, you do that by becoming a patron of the show.

Go to patreon.com/radicalpersonalfinance or just go to Patreon, search Radical Personal Finance, join us on the Patreon page there. That helps me to screen the calls instead of having to deal with 10 or 15 callers, which would of course take me about 40 hours to deal with. Then I can keep it to somewhere between one and two and a half hours, which is usually what these shows wind up being.

Thank you so much for doing that. We begin today. Let's go to Jeff. Jeff, I think was in here first. Jeff, welcome to the show. How can I serve you today, sir? Hey, Joshua. Thank you so much for the opportunity to connect today. I just wanted to tell you a little bit about my current situation and get some of your thoughts around it.

The predominant issue that I'm kind of facing at the moment, I think is career focused. I'm kind of probably the standard Radical Personal Finance listener, pretty well educated, have about 10 years in the workforce and whatnot, and really have the ability to earn a six-figure income. But on the past couple of jobs I've had that have been at that level, I really found myself pretty burnt out and really just sort of unfulfilled in what I was doing.

Just a little background is I spent probably most of that time in the food delivery business, companies like Grubhub, companies that were acquired by folks like Grubhub, that kind of thing, managing various markets, independent contractors, that kind of thing. And like I said, just kind of burned myself out quite a bit and did so recently as well.

And really just kind of taken the last couple weeks to kind of do a little bit more of an inventory and see if that's the way I want to continue my career. And my immediate thought process is that's probably not a great idea, but also wanted to get your general thoughts just due to the fact that my financial situation isn't great.

I have about 80 grand in credit card debt, and I do have a little bit of a war chest, so glad about that. But just kind of going through a rough time and wanted to talk a little strategy with you. What was the debt from? Credit cards. Yeah, I understand.

But was there -- did you have -- was it just regular overspending? Did you have a big emergency? How did you accumulate the debt? Yeah, it was overspending throughout my 20s, just sort of living beyond my means. So you were making good money, but you were living a big lifestyle during that time?

Exactly. Okay. But the good news is I've largely reined that in. Great. Wonderful. I've started to ascribe to some of the early retirement extreme, little tiny house lifestyle, that kind of thing. So I think we've largely fixed that, but just kind of figuring out if it's best for the mental health side of things to kind of attack that quickly, or if it's a more -- maybe just taking a more eventual approach.

How old are you now? 33. And are you single? I am. No kids, no significant others, none of that. Okay. Do you have any ideas on what you think would be a great career fit for you going forward? What might be better at least than what you've tried thus far?

Yeah. So sort of what I do by trade, I guess, is I've spent some time with various business intelligence tools, things like Tableau, Power BI. And I enjoy that for the most part. I did actually do a role within the last couple of years that I was able to do that.

But it was at a little bit lesser pay grade. I wasn't -- I was largely learning on the job to become better at that. And I enjoy that. But at the same time, I don't necessarily -- I think sort of a more medium level job in that area I think would be a good fit potentially.

How did you come to be currently unemployed? I was at one of those delivery companies and just had started in a role in December or so. And, you know, was really just kind of overwhelmed by the requirements of the job. And, you know, kind of for the mental health side, just decided to step back and not pursue that.

Okay. How big is your war chest right now? About seven grand. Okay. Well, I guess let's talk about kind of big picture focus first. I don't see any reason why if your current career is not particularly attractive to you, the places that you've worked at this point in time, I don't see any reason why you should stick with something that is not a good fit for you.

There's really no point. We live in a golden age of economic choice. There are more jobs, more industries, more professions available today than at any time in human history. And I think that's part of what can be a little bit overwhelming, right? If we were having this conversation 100 years ago, there's virtually no chance that you would be saying, well, I don't like my job and I'm dealing with the stress and the overwhelm and I need a mental health break from my job because your job was one of about a few dozen choices.

And it was probably due to what your dad did and or what was needed in the town and who you could apprentice under. But in today's world, there's tens of thousands of kinds of different jobs available to you that have all kinds of different features and attributes, et cetera.

And one of the best ways to figure out what you like and what you're attracted to is to simply steadily start working your way through the list. We often in the modern age, rightly, are cautious about changing jobs. We don't necessarily want to be a job changer and have a new job every two months because that could put a black mark on our resume.

But I think sometimes that's overstated and we wind up spending too long and things that we know aren't a great fit for us. And so I look at it, let me use a dating analysis, right? You're a single man. If you start dating a girl and two weeks in, you know, this isn't a great fit.

It doesn't help you to just say, well, let me just push it for another 20 months and see what happens, right? If you know this isn't a great fit for you, it's not a great fit for you to move on. And the key is just press on to another job and try something else.

The good news is being a 33 year old single man with a lot of education and having earned a good amount of money in the past, you can change your financial situation just at the snap of a fingers, especially if you're open to extreme ideas. And so I would encourage you in the direction of extreme ideas because I believe it's a powerful way for you to make progress fast and you won't, you won't regret it.

And so by extreme ideas, I mean, get the very best job that you think will be a good fit for you. And you get to define what a good fit means. You get to define what kind of work you actually do. Don't stay. If you, if you've learned, for example, that, hey, I don't like managing people, then don't manage people.

If you've learned that I don't like sitting in front of a computer doing spreadsheets, then go and find a job that doesn't require sitting in front of a computer doing spreadsheets. If you've discovered that I don't like the kind of career that I'm technically suited for by training and education, then go do something totally different.

Have you ever tried a really physical job yourself? Not really. But sort of one of the maybe examples I would ask you about would be, I do enjoy, I've done Uber and Lyft on the side for a long time, really enjoy kind of that connection with people or just kind of being out of the road and seeing things.

So, I mean, you always hear about like these shortages in trucking. I mean, would you recommend, you know, maybe running out and trying to get a CDL and do a long haul trucking for a couple of years? I definitely would. I think Uber and Lyft are a waste of time.

You don't make any reasonable money. They're totally oversaturated and there's such a low barrier to entry that I don't think those are a great way to make money at all, but definitely right now there's a massive shortage in trucking and it's a massive shortage at every level. There's a shortage on the commercial driver level, driving a big rig.

There's also a major shortage with hotshot trucking. There's a shortage with expediters. There's just a shortage of drivers right now. And if you're open to that kind of thing and you enjoy it, then I think it would be an amazing way for you to dedicate a year to a complete and total reset and that you're perfectly suited to do it.

So right now you can probably be on the road in say four to six weeks. You have enough money that you can take a training course in your state. It's usually a good way to get started. You'll find that when you start with your first year, you'll have a lot more job offers with a big company that's over the road.

And if you're a single guy, then over the road is not a bad deal. You can easily make a hundred grand plus this year doing over the road trucking right now. There's such a massive shortage, so much demand. It was not always that way, but you can easily do that and you can do it all within a company truck with, as an employee.

And that if you will, if you're willing to go and put the time in on the road, they'll put you, they'll keep you on the road as much as they can. And I would recommend it to you as a way to dramatically transform your finances. If I woke up in your shoes, I would set a goal and say a year from now I want to be totally out of debt and pay off the 80 grand of debt within the next year.

Just by living on the road, moving constantly hauling loads, do as many miles as you possibly can live in the truck. And if you, if you're out, if you can't, if you're not in the truck, then just grab a hotel room or a quick Airbnb whenever you need it.

When you're not in the truck, live in the truck full time, spend nothing and, and, and pay off your credit card debt in a year. Do a genuine, you know, ERE, a genuine extreme lifestyle so you can transform your position. Because right now when you're looking forward at a career, when you got credit card debt hanging over your head, you're trying to think of things.

It's hard to see past that. It's hard to see how you could take something that might enjoy this more, but I'll make less money. But if you're debt free and you're 34 years old, 35 years old, you're healthy, you're educated and you're debt free. The world is open to you.

And I mean that quite literally, any career, anything that you're interested is open to you. And the second thing I would do is I would do as intense and wide ranging a career search as I can come up with. And I would dedicate myself to that, to exploring areas of interest while I am in the truck.

I doubt very highly that being a long-term trucker would be of interest to you. I think that if you have other interests and you're looking for something that can be portable, you can do it wherever you go. Yeah, it's a great way to make a living, but you got to have a way to engage your brain.

And that's the big downside of trucking is it doesn't engage your brain. It doesn't engage a sense of growth. You can grow if you build your own company. I met a guy years ago when I was a financial advisor. I was in a cigar shop and it was my favorite place to go and sit and meet people.

I call it the last bastion of manliness where you can go and you can find, it's like the old time barber shops where you can go and you can find five or six random guys just sitting around talking for a couple hours. So I used to go and hang out in the cigar shop and I met this guy and he told me his story and he had done exactly that.

He'd been a young guy, he'd had nothing and he started as a driver, lived in the truck, spent nothing, saved everything, bought his own truck, expanded and he grew it from just him to a genuine business of, I don't know, I don't remember if he had a dozen or a couple dozen trucks with employees under him.

Then he sold it and he was financially independent and there he was sitting in the cigar shop at 11 o'clock in the morning doing nothing. And he was a neat guy. And so those kinds of things are still available to you at every level of the industry. You can build that kind of business.

But I think what you can also do if you're someone with motivation, you can use that time of focus and you can use it to develop yourself in a new career, to educate yourself in a new direction, to build something fresh and new. I think this is the great opportunity, right?

When a guy's in the military and he's stationed at some remote base, he can either sit around and waste his time and drink all the time. Or he can say, I've got an opportunity where my housing is paid for. My job is straightforward. There's no fun things to do, nothing to distract me, no one here to hang out with.

So I'm going to dedicate myself to learning something. And he can learn a new skill, learn a new trade, indulge an area of interest no matter what it is and ultimately find growth. And we are in a golden age where the truck driving opportunity is a perfect way to do that because all of your time is yours.

Some of your time you need to have the vehicle in motion and so you're going to be learning with audio. But with YouTube University, iTunes University, Audible Audiobook University, we're just in a golden age for learning where you can learn about a subject. And just imagine if you're driving 11 hours a day, is it 11 or 14 hours?

I can't remember. I think it's 11. 11 hours a day. And you've got, say, eight or nine of that dedicated to learning something. That's like being a full-time college student twice over. And yet in today's world, you can have access to literally all of the college courses. And then when the truck is parked for your mandatory rest, you'll still have your laptop, you'll still have an internet connection.

And so that's a time in which you can be building something, whether it's doing a college degree, doing an equivalent of a college degree. I always love here. Years ago I interviewed Scott Young of the MIT Challenge. He was the one who set himself a target to go through all of the MIT computer science courses.

But instead of actually going through them and getting a degree, he was simply going to take the courses on his own time, do all the homework, and then publish it to his website. And that's what he did. And he later wrote a book on it called The MIT Challenge.

There's an interview with him in the annals of Radical Personal Finance. But you have plenty of time. And none of that costs money, but you can set yourself up and a year from now, embark upon a completely new career in something totally new. If you don't know what career you would be interested in, or what particular thing you would like to pursue, then even just simply poking around your areas of interest is a great way to do that.

I would just download, make sure you have YouTube Premium, and download YouTube video after YouTube video after YouTube video that you can listen to while you're driving. Clearly not watch you're driving a missile. But things that you can listen to and diverse exposure to things until you find out what catches your interest.

And then you figure out what catches your interest, then the path is open to you. So if you're open to that, I think that would probably be... If you've liked driving, you don't make any money with Uber and Lyft anymore. And if you like driving, then definitely you can make six figures plus with no training, with no experience once you get licensed.

You can do it in your first year. Live on nothing and be debt free a year from now. I love that as a way to transition. Yeah, that sounds ideal for sure. I had never really considered the self-betterment aspect, particularly while in motion. I think that's very powerful, particularly from a compounding perspective.

If you're doing that for an entire year for eight hours a day, I mean, that just sounds considerable. And I mean, I guess my last question would be, are there any other industries that you might find similar benefits to that are sort of equally as extreme? Or do you think that due to the extreme shortage, but also the potential self-improvement benefits, that that's sort of the clear winner?

I think that if you're looking to make money, which I recommend, if you're looking to make money, then generally speaking, you want to go and find a hard job. So it seems from what you've described in your narrative that the corporate world of kind of corporate-ish stuff doesn't seem like something that you've enjoyed.

The reason I asked you if you've ever done a physical job is because a lot of men just don't think of doing it unless you're raised in that environment. Usually if you're raised in kind of a blue-collar, rural environment, then the idea of going to the Texas oil fields or going to an offshore oil rig or something like that, okay, that's not necessarily foreign.

But a lot of guys who go to college aren't around people who've done that, and they don't consider it. I think that if you're worried about--you said mental health a couple times as far as a trigger, like mental health. Now that can mean a lot of things. But if you want to feel good when you're done with the day's work, then I think one attribute that you should consider cultivating in your work is a job that you go and you do, and you do it physically, and then you work hard, you sweat, you get dirty, and then when you're done at the end of the day, you leave the job there and you go home.

And that kind of environment--I always think of the oil fields. I've met guys all over the United States. A lot of them live in an RV, going after--following the work. They go and work on a pipeline, things like that. Those guys make a lot of money, and they make it in a relatively compact period of time.

And yet the job itself is in many ways, I think, a very satisfying job. Some of the things that make it satisfy--there's usually no nonsense. It's an extremely male-dominated environment, so you've got kind of that sense of male camaraderie that is often missing in an office environment. It's a world where you go and you roll up your sleeves and you work.

That feels really, really good to me. When you're working and you're working hard physically, you can't think about a bunch of other--you can think, but you're not sitting--I remember I used to sit at my computer when I was an analyst in the marketing business, and I used to sit there and think about how much I didn't like it.

Now, you can do that in a physical job, but generally speaking, you're just doing the job. It's not mentally taxing on you. So there's a lot of things like that that you can do. The downside of that is it's not going to be a launching point to anything else.

You can't listen to anything. You can't study anything. You can make a lot of money fast, and it can be a great way to have a transition point in your life and go on to something different, but it can't really learn anything. So my favorite idea-- most of the other things that don't require your brain, just require your presence, are pretty low-paying.

You could go be a security guard at some place, some school or something like that, a nighttime security guard. It doesn't pay any money. You can go be a hotel clerk at a Holiday Inn in the middle of nowhere where you don't have to do anything all night except sit at the desk.

It doesn't pay any money, whereas trucking actually pays money. And the reason it pays money--the reason they have to pay money-- is because the lifestyle sucks for everyone except a single guy who's willing to be away for a long period of time. And so trucking is generally a disliked industry for anyone except a young single guy.

It just so happens that you're a young single guy, and therefore as long as you're willing to deal with the lifestyle sacrifices of knowing I'm going to be on the road, away from my friends, away from stuff, and I'm going to be working a lot, then I think it is the ideal solution for you.

Sounds good. I appreciate the insight. My pleasure. And even if you do something else, even if you do wind up saying, "Okay, I'm not going to do trucking, but I'm going to do something else," I would encourage you, go extreme. Buy a box truck and live in a box truck.

Convert the back of it or something like that. Cut your living expenses to under $1,000 a month all in, and do it by doing some kind of extreme thing, and pay off your debt. Because if you wake up a year from now, and you're in a situation where you're debt-free, now you can say, "What kind of career would I really enjoy?" And then try it.

And as long as you have $10,000 in the bank and you're debt-free, you can go from what you're doing to any career that you think you might enjoy, for any reason that you think you might enjoy it, and be totally free. But it's hard to do that, much harder to do that when you've got the debt hanging over your head.

Pete, welcome to the show. How can I serve you today, sir? Hi, Joshua. Can you hear me okay? Yes, sir. All right. We talked a little bit before about getting a whole life insurance for a child. I was wondering if you could talk briefly about comparing and contrasting getting whole life for a child versus a variable universal life policy, and maybe compare that also to doing things like 529s or some of the custodial accounts for children.

I was just curious if you had any thoughts about that. Sure. Absolutely. So, is that your little one that you're thinking of bringing in? No problem. I got you muted out here. So definitely, let's talk it through. So to begin with, let's stick with a comparison between a whole life insurance policy and a variable universal life insurance.

So I'm going to add--well, actually, this will be useful. So first, we need to compare whole life insurance versus universal life insurance. That's the first thing you need to understand is the difference between whole life insurance and universal life insurance. The second thing that we'll compare is the difference between variable whole life insurance versus variable universal life insurance because you can buy both of them.

Of course, variable universal life insurance is more popular, but it's not necessary. You can buy variable whole life. So that will be the second point of comparison. Then, after I do that, we'll talk about life insurance versus other options. So that's the order that we're going to go into.

As a foundation, the reason we're not talking about term life insurance for children is simply that it's not available. With the exception of a small, basically, burial rider, which you can add onto an employer contract, life insurance program of some kind, you cannot get term life insurance for children.

Once your children turn 18, you can, but you can't for children. Over the years, I've never found a company offering it real term life insurance. The reason--I'm not going to go into the reason. This doesn't exist. So if you want to have a small burial policy and you don't want to have any kind of expensive whole life insurance for your children, you do that by signing your children up for the child rider on your group insurance policy at work.

So when you're buying insurance for children, it's going to be some kind of permanent insurance. So let's begin with comparing whole life insurance to universal life insurance. A whole life insurance contract is a contract with an insurance company for them to pay you a guaranteed death benefit when the child--or when the insured--let's use proper insurance language-- when the insured dies.

That's what it is. At this point in time, those contracts are scheduled to be in force until age 120. And so when you go to the insurance company with a one-year-old baby, they will calculate the cost of insurance and they'll calculate the premiums out to age 120. This is called an ordinary life insurance policy, an ordinary whole life insurance policy.

As long as you pay the premiums that they charge you for that contract, that insurance policy is guaranteed to stay in force for the rest of the insured's life. It's guaranteed to stay in force no matter what. And there is a contractual maximum to the premiums. If the insurance company were to go bankrupt, then the general--what do they call it--the general guarantee funds-- the insurance company has basically a self-insuring program that they all pay into to guarantee bankrupt life insurance companies.

So if the life insurance company went bankrupt, the guarantee fund would take over the contract and they would keep it in force and they would pay out forever. That's how whole life insurance works. Now you can play a little bit with the term of the premiums. So ordinary whole life would charge premiums from age 1, in our example, or maybe even 0, age 0 to age 120.

Or you can purchase a different kind of whole life insurance that has a shorter time of payment premium. So you could pay premiums to age 90. Or traditionally you would have a policy where you could pay premiums to age 65. And what they do is they just accelerate the cost of the premiums and you pay them up front.

But they're flat level premiums, and as long as you pay those premiums, they will be in force. What about universal life insurance? Well, universal life insurance was developed as a solution to the inflexibility of whole life insurance. Because people said, "Wait a second. What if I don't want to pay premiums every single year?

What if I want to have a year where I don't pay a premium and then maybe make two premium payments the next year? After all, I got all this cash value here. Couldn't I just skip a premium and pay a premium for my cash value, etc?" And so it was out of this, out of recognizing the inflexibility of traditional whole life insurance, that a product called universal life insurance was created.

And universal life insurance is designed to be very, very flexible. It can be almost as flexible as you can imagine. The way it works is you have a term life insurance contract. It's held inside of the whole life policy. But if you were in front of me, I would draw basically a geometric curve showing how the premiums of that term life insurance contract are going to increase.

If you could buy a term life insurance policy for your zero-year-old child, the premium would be pennies because the risk, statistically, the actuarial risk of your child dying within the next year is virtually nothing. On the other hand, if your child is 100 years old, then the risk of your child dying within the next 12 months is astronomically high.

And so if you think of--imagine in your head a graph with an x and y axis and a very low, steady growth over time and then a massive increasing geometric growth. That's what happens to the risk of dying. And so the universal life insurance policy has inside of it a term life insurance contract that works on that basic principle.

There's a premium payment every single year for a one-year term policy that needs to be paid to keep the life insurance policy in force. Then, if you were sitting in front of me, I would draw a sack of money. And so just imagine a money sack, an old burlap sack with dollar bills on it.

This is your investment account. And every single year--imagine an arrow going from the sack of money to pay the term life policy premium--every single year, there's going to be an amount of money that comes from that sack of money and goes over and pays the term life premium inside of your universal life insurance contract.

And in the beginning, those premium payments are tiny because you have a very young child or a young adult, and the risk, statistically, of dying in any one year when you're young is very, very low. But as you get older, then those premium payments are going to be much, much bigger.

And then the third thing is your premium payment that you pay in. So every year, you pay a premium payment, but the premium payment doesn't go to pay life insurance. It goes into that sack of money, the investment fund. So every year, you put a premium payment into the investment fund, and then the investment fund has investments that it owns.

And those investments will grow based upon how well they do, how well they're invested. So what you can see here is that if you put a bunch of money into that sack in the beginning of a policy lifespan, then there could be plenty of money in there, and you decide, "You know what?

I don't want to pay a premium this year." You don't have to pay a premium this year. It could wait five years, and if you put a bunch of money into that sack, so there was plenty of money in there to pay those premiums, you could just wait five years and not pay any premium payments.

And so this is how universal life insurance was designed. It's designed that you can start premium payments, you can stop premium payments, you can change the amounts of premium payments. This year, you pay $1,000 a year. Next year, you pay $1,000 a year. Then the third year, you just pay $500.

And maybe there's enough extra left over in that sack of money that the insurance policy can go in force. So what happens if you don't pay enough premium payments? Well, then the insurance policy lapses. So if that sack of money is ever emptied, then the insurance policy will go out of force.

And why would the sack of money be emptied? Well, it could be emptied because, either, number one, you didn't put enough money into it, because, after all, it's a flexible policy. You don't have to put the money into it. And you could have decided, "Eh, I want to do something else." Or it could be emptied because the performance of the investments wasn't what was anticipated.

And so if that happens, then the term insurance contract inside of the universal life policy will basically send you a bill, and it'll say, "Hey, Mr. Insured, you're 69 years old. To keep your million-dollar insurance policy in force, we want to check for $5,000. Would you like to pay that?" If you don't pay it, the insurance policy lapses.

If you do pay it, the policy stays in force. Fast forward 20 years later, right? Maybe you didn't put enough money in, and all of a sudden now you're 87 years old. And they say, "If you'd like to keep this policy in force, that'd be great. Just send us a check for $62,000." And so what happens is universal life insurance is an incredibly flexible product, but it often doesn't last because it's often underfunded.

The insurance industry was heavily burned on this, and many people got burned on this during the 1980s, because what they did was they sold variable contracts based upon stock market performance. Come back to that in a moment. Remember, I'm still just comparing universal life insurance to whole life insurance.

They came in, and they said, "You're going to pay this premium, but you're going to earn 15% every year on your money." And they showed all these illustrations that showed people having tons and tons of money in there and just making these low premium payments, and the insurance would be in force forever with no problems.

And then the market performance didn't equal that. So the sack of money ran out. Somebody bought a policy thinking it was going to be around for a long time, and then they got a letter from the insurance company that said, "Oh, by the way, you owe $6,000 this year." "What?

I'm not paying you $6,000. I got snookered on this." So that's what happens with universal life insurance. So I'll give you the good things about a universal life contract in a moment, but my first warning is generally that universal life insurance contracts are appropriate for sophisticated insurance buyers. Whole life insurance contracts are appropriate for all buyers, but they're especially suitable for unsophisticated insurance buyers.

If somebody understands the costs of a whole life contract, if they understand that when they buy it, they're not going to have any meaningful cash value in the first few years because that's when the expenses are paid, but then over time they keep paying it, it's almost impossible to get screwed on a whole life policy.

I guess people who say it is would be, "Well, you're going to get a low return." We'll talk about that in a moment, which is true. A poorly performing whole life policy may not return much, but you're not going to lose money. And the most important thing here is the insurance benefit.

There's no surprises that are going to come to you. They're going to simply say, "Yes, you can continue to have the contract as long as you pay the premium, and you know what the premium is going to be because it's guaranteed out for the rest of the life of the contract." So let's talk about where universal life insurance is actually really wonderful.

There are a few ways that it's wonderful. It has tremendous applications in business life insurance and sometimes in estate life insurance. So because of the flexibility of the premiums, a universal life insurance contract is an ideal contract for when you use life insurance for investment purposes, for example, to fund some form of non-qualified deferred compensation plan.

So if I'm setting up a non-qualified deferred compensation plan for a key executive or a team of the VIPs or the board of directors at a company, I will almost assuredly use a universal life insurance contract because I can change the amount of money that goes into it every year because I can set in place a compensation program that says, "If you can increase our profits as a company by 10% this year, then we'll allocate X number of dollars to your retirement program here that's being funded with this life insurance contract." So the flexibility of being able to go up and down with payments is very, very useful.

Similarly, sometimes in an estate application, we can do a similar thing where we say, "We're going to fund this contract in certain cases and we're not going to fund it in other cases, but we have a permanent contract that's enforced forever." So the flexibility of universal life insurance can be really great.

Can an ordinary person use universal life insurance well? I think so. One of the ways that you can use a universal life contract to win is if basically you're trying to make it be a form of extended term life insurance with a money back rider, in essence. So universal life insurance contracts are permanent, but they can be-- let's say someone goes in and says, "I think I'll want life insurance for 30 years." Well, you could buy a term life insurance and you could have a rider on it that says, "If I live for 30 years, then return my premiums," or return a premium rider.

But that's generally pretty expensive because it's just a mathematical calculation that an insurance company can invest the money into a side fund, etc. But you can often do that yourself. You can say, "I'm 25 years old. I think I'd like to have life insurance for at least 35 years," and you can just pay the policy as if it were a 35-year term policy.

But you have the flexibility of knowing that you're not committing to the policy disappearing in 20 years like you are with a 20-year term policy, or in 30 years like you are with a 30-year term policy. So if somebody has the cash flow and they would like to put some of it into a universal life contract, that flexibility can be useful because you still have your cash value.

You can cash the policy out at any time, and it allows you to have a form of permanent life insurance that you can keep for longer with more choices down the road and yet still get your money back in terms of the cash value back. But that's kind of sophisticated.

It takes some time to work that through, and you've got to make sure that someone understands this is not going to last forever, and it's got to be the right fit, they've got to have the right cash flow needs, etc. So most insurance advisors--many insurance advisors, I should say properly-- will be tempted, or at least I learned over the years when I used to sell insurance, I like things simple.

Term insurance is simple. Whole life insurance is simple. You don't get in trouble with either of them. They make sense. And so the universal life contracts, I just found that people couldn't explain it. Here I've been answering your question for--we're going on 15 minutes now, and I haven't even gotten to variable universal life insurance, and only a small portion of the audience has been able to follow my explanation.

And so what I learned over the years as an insurance agent is that people don't understand life insurance. They only remember what they think they want to know about it, and I think that universal life insurance contract is a dangerous product for non-sophisticated people. And so that's why, generally speaking, I would revert to whole life insurance and term life insurance because they make sense.

Nobody will get messed up. So that's the first thing as we're comparing whole life versus universal life insurance. Quick, one last point I need to emphasize. The premiums that are required from whole life insurance are often quite high. They're high because you have to front load the policy to give time for the investment accounts to grow so that the insurance company can keep the policy premium level for the life of the policy.

And so they're quite high. Universal life insurance contracts, because the policy owner is given a choice, they're often lower. And this creates, I think, a tremendous conflict of interest in the insurance industry, both for the agent and also for the person. So if I come to you and I say-- and usually how it works when I used to sell insurance is I would explain to everybody, "Here's how a term life insurance policy works." I would go through all the details, go through all the numbers, etc.

Then I would say, "Here's how a whole life insurance policy works." I'd go through the illustration, I had a presentation I would use, you explain it all, here's how it works. Then at the end, I would ask someone, "Which do you want to have?" And without question-- I mean, 95% of the time, if not more, when someone has gone through a good insurance presentation-- and good means factually correct, but clearly identifying the benefits of the policy-- everyone always wants whole life insurance.

Everyone wants whole life insurance. Nobody wants term life insurance. That will sound like heresy to the buy term, invest the difference folks in the audience, but I would do it again and again and again. I'd have the biggest Dave Ramsey fan totally sold on buy term and invest the difference, and they would sit down with me and I would go through my-- about a seven-minute, eight-minute explanation.

Here's how the policy works, here's all your different options. They would inevitably get to the end and they'd say, "Wow, that's pretty cool. I understand now." So what's the problem? Well, the problem was a million dollars of term insurance was going to be $40 a month. A million dollars of whole life insurance was $900 a month.

And so I would always-- people would always say, "I want the whole life insurance, but I don't have $1,000 a month." And so what I would do is I'd say, "Okay, well, that's fine, but you do have $150 a month. Let's do $900 of term-- sorry, $900,000 of term life insurance and $100,000 of whole life, or $950 and $150, get them to fit their budget to make sure that they could afford it." But universal life insurance has a sexier solution because I could say to you, "Look, you can buy this universal life insurance contract for a million dollars, and I've just shown you a big, fat, beautifully performing policy where you're putting $1,000 a month in it." And I could say, "Your minimum payment on this universal life insurance policy is $100, but if you could commit to, say, $250 or $300 today per month now, but then knowing in the future that you're going to increase it as your income increases, then this policy will work out for you." And so what the client is thinking is they've been blinded by, "I'm getting the policy that works amazingly with all this money and all this insurance because it's $1,000 a month, but I can start today with $300." And so they think they're buying the million-dollar policy for $300, but inevitably two days after or two weeks after or two months after the life insurance agent is not there, they lose that sense of excitement about how wonderful the life insurance presentation was, and they forget about the fact that I said, "For this thing to work, you need to increase." So 15 years later, they're sitting down for an insurance review, and someone's saying, "Yeah, this universal life insurance policy is going to lapse in about 15 years." And they're like, "Lapse?

It was going to be on forever." "Well, that was if you paid $300 today and then $1,100 next year." And then the conflict of interest is the insurance agent's commissions calculated by a percentage of premium. And so there are a couple different scales to which it is judged based upon the amount of base premium in the policy, the amount of additional premium, et cetera.

There's different rates that are done by. But at the end of the day, if you're going to make more money as an insurance agent, you make the money based upon how big the monthly premium is for the client. And so in my example, if I walk in and I show you a plan that's $40 a month, but then I show you the plan that is $1,000 a month, you're excited about the $1,000 a month, and then I pull it back from $40 a month to, to make my math easy, $400 a month, I will 10X my commission by selling you on the $400 a month plan.

And that's a very tempting thing to do and it's hard to pull back, especially when you can argue that it is genuinely good for the client to have this option. And so there's a big potential conflict of interest for the insurance agent when he's presenting it to say, "Let's do one of these halfsies plans and Universal Life Insurance works really great as a halfsies plans." So let's go on.

You have to know that and you have to be aware of it. And this is difficult, sophisticated stuff that most people are not equipped to handle. So let's go on now. First point of comparison to answer your question was Whole Life Insurance versus Universal Life Insurance. In both products, we're getting a stable, consistent, conservative rate of return.

When you look at insurance products, you have to ask yourself, "Is this what's called a portfolio-based product or is this a variable product?" A variable product is a product that is exposed to investment risk. In a Whole Life Insurance product, the insurance company takes your premiums, they invest that money into what is called their general account.

It is a large investment fund that the insurance company manages, and the goal of that investment fund is to have liquid money available to pay claims when they come in. That is the insurance company's responsibility and that is the stated investment objective of the fund. So the fund is by definition a stable, conservative, consistent portfolio.

Insurance companies do not take significant risk with their general account because their job is to be positioned to pay an insurance claim. Their job is not to maximize your cash value. Their job is to pay the death benefit. That's what they do. So the money is invested to pay claims.

Now, people get upset about that because they say, "Listen, I'm getting 5% over here from the insurance policy, but I got 12% in my mutual funds. Why can't I have some mutual funds inside my contract?" And the answer is you can. You can have that by having a variable contract.

So a variable contract is a contract where instead of the insurance company guaranteeing you a certain amount of money based upon the performance of their general account, they allow you to buy an insurance contract, and the performance of that contract will be driven by the investments that are in it.

Usually, those investments are basic standard mutual funds. Most large insurance companies will have a— basically what they do is they take a standard mutual fund and then they create a different version of it for the insurance company. And so in technical language, it's called a subaccount, but it's a variable subaccount.

So if you go through the list of the variable subaccounts that are offered to you in your prospectus and you take them, you'll see the names are almost exactly the same as the mutual fund class A shares that are offered. So you can have your BlackRock account, you can have your Fidelity account, your Vanguard, any account that you want is available to you.

It's just called a variable subaccount. And the insurance company will say— they say, "Here's our mortality and expense charge that we're going to charge to the contract to cover the actuarial risk of dying. And then here is our— then our performance is going to be driven by the underlying performance of these accounts subject to these limits, these performances, etc." And so you're not exclusive to that.

There is a whole and fascinating world of private life insurance. So you can go out and you can set up a private life insurance contract and you can hire an investment manager to manage your private life insurance contract and you can actually fund it with all kinds of— really almost anything.

There are very few things that are forbidden depending on whether it's a U.S.-based contract or a foreign contract, etc. But the world of—at the very high end, some very high-end investors and some very high-end financial advisors will create some very interesting, exotic private life insurance companies with private portfolio managers and they will simply use the life insurance wrapper as a way of establishing those benefits of life insurance that we often all want.

Benefits such as tax deferral, benefits such as creditor protection, and death benefits and the advantageous tax nature of the death benefits. So the point is that it doesn't have to be mutual fund subaccounts. There's no legal reason. It's just that that's what most mainstream life insurance companies will offer you is the mutual funds that you'll recognize everywhere else, in this case, based upon a mutual fund subaccount.

So you can have both a variable whole life policy or a variable universal life insurance policy. Either are available. Variable universal life insurance is infinitely more common, but there's no technical reason why you can't have both. So the question you have to ask yourself in analyzing this is, "What kind of investments do I want in my life insurance contract?" "Do I want mutual funds in my life insurance contract?" "Do I want stocks in my life insurance contract?" "Do I want bonds in my life insurance contract?" Now, it can be fine.

You can look at it and if you go and you take a survey and you say, "What do people not like about whole life insurance?" Usually, they don't like the seeming underperformance. The reason the underperformance is there is that the insurance company is investing for safety and the ability to pay premiums, not for gain.

And so if you say, "I want to invest for gain," you can do that. So you can take the same mutual fund that you can own in your IRA and own it inside of a life insurance contract. The performance of the life insurance contract will underperform the IRA because of the mortality and expense charge that the insurance company is going to impose to maintain the policy.

But for the right dollars, that can still be worth it because you're gaining benefits such as tax deferral, gaining benefits such as tax-free transfer on death, gaining benefits such as creditor protection, more control, etc. So now we get to the question of, "Are these benefits something that we want and need?" I'm going to begin with investments and then we'll go to the other accounts.

From an investment perspective, since most people are not maximizing the kinds of accounts that are superior to a life insurance contract, generally, I don't love people going into variable contracts. As I'll talk about in a moment, a 401(k), a Roth IRA, an ESA, a 529 plan, these are better places for you to own your stocks than a life insurance contract.

So what I see as the big benefit of a life insurance contract is that it's basically safe and conservative money. If you choose from a company that does a good job with the safe and conservative money, then it fills a really valuable need. So I don't myself own any variable permanent life insurance.

I use the word "permanent" to include whole life and universal life. I don't own any variable life insurance because I can own stocks easily enough in so many other places, but what I actually want is I want some of my money to be in safer dollars. So I view my permanent life insurance, my cash value life insurance, as basically my emergency fund.

A significant portion of my emergency fund is there. Why? Because I get much better performance than I get in a savings account. I get much better safety than I get in a savings account. I get money that's guaranteed to go up, that's not exposed to the risk of a market crash, but yet it outperforms a bond portfolio, both in investment performance as well as outperforming it in terms of features.

So what I teach as a really smart emergency fund is have some money, have some cash, both physical currency and cash savings, and then have a portfolio of 0% credit cards. So if you have an emergency, you have the credit cards, and then back those up for your ability to pay off your debt if you need to, back it up with your life insurance cash values.

And so I use it simply as creditor-protected, tax-efficient, safe money, and I don't ever expect it to outperform stocks and mutual funds. Some people want it to outperform--they want the variable investments. So now let's go to your options, which is where we go to Part 3 of the analysis, the question you asked about life insurance versus other things.

The problem with life insurance when it owns mutual funds is, generally speaking, in my opinion, you take an investment that is really tax-efficient and you make it non-tax-efficient. So this is often a--not a misstatement, but an omission. It's an omission by a life insurance agent. When life insurance agents talk about whole life insurance, they present it factually.

They say, for example, if you ever want to have your premiums back out of the policy, you could get those premiums back tax-free, which is true. Then they say if you ever want to take a policy loan against the contract, you can take a policy loan tax-free, which is true.

But you have to--in order for those funds to continue to be tax-free, in order to enjoy those tax-free "withdrawals" from the contract, the contract has to stay in force. If the contract stays in force, that's fine. The money is genuinely tax-free. And this can be useful. So if I have a million dollars in cash value in a life insurance contract and I loan half a million out and I use that money to supplement my retirement, as long as I keep the contract in force until death, then when I die, the death benefit will pay off the loan and then the balance will go to my beneficiary.

But what if I have a million dollars in a life insurance contract and I take out $999,000 and then the next day the policy lapses? At that point in time, I'm immediately considered to have a taxable gain of all of the growth of the contract less the premiums that I put in.

And that gain is taxed to me as ordinary income. And so it's on this basis that you never want to put a contract that could be-- you never want to put an asset that's a capital gains asset into a life insurance contract unless you really are sure of what you're doing.

You're sure of what you're doing for the long term. You're sure that you're going to keep the contract in force, etc. But most people are not sophisticated. They're not sure of that. And so what you do if you take your mutual funds is you take a genuinely-- a generally a very tax-efficient vehicle.

An index mutual fund is incredibly tax-efficient. But then you take it from a very efficient long-term capital gains asset, which is taxed at, in some cases, zero, but in many cases 15% or 20%, and then you move it over into ordinary income, which could be potentially, depending on the state, state tax, etc., 50% if the policy lapses.

And so I don't love the idea of maximizing capital gains assets inside life insurance contracts. You have to offset the tax costs with other benefits. So here we get to creditor protection, or here we get to high contribution limits. Again, this goes back to the sophistication. If you're coming up with a contract and you're saying, "Joshua, I'm going to put $300,000 a year into this life insurance contract," I love it.

Wonderful. Because you're at an income level, and it's an interesting enough opportunity for you that you don't have the ability to maximize tax-advantaged accounts anymore, and we've got enough money going in that we can use that policy in a really interesting way. But for an ordinary person, my answer is do your Roth IRA first, do your IRA if you don't qualify for a Roth, maximize your 401(k), look at college accounts if they're appropriate for you, and then come back to life insurance and see if it plays a role in your life.

But most people are not maximizing those things, and so it basically comes down to a question of sophistication and money. If you bring me somebody who's got $5 million a year income, then I am undoubtedly going to be recommending some big, fat life insurance policies, and I'm undoubtedly going to be including them in that.

And there may be some-- there probably will be some universal life insurance, there'll probably be some variable life insurance, etc. But that's a radically different financial planning scenario than a guy making $100,000 who's saying, "Yeah, should I buy this variable universal life insurance policy over here?" So I'm going to stop there, because I don't want to go down the whole list of 529s versus others.

But when you look at it, what you come away with is a mixed bag, meaning life insurance has a set of attributes that in the right circumstances can make it useful. But there's so much background knowledge, so much professional insight, so much goal setting and clarification that needs to be done that it can't be dealt with on a straightforward way.

I've taken going on over 30 minutes to answer this question, and I haven't even scratched the surface of the type of analysis that needs to be done. I haven't run a single illustration, I haven't looked at a number, etc. So I believe that if you're starting off, generally start simple.

I think that everybody benefits by having their-- first, you always meet your insurance needs with term life insurance, because you can always convert it later, get the insurance in force. With a child, you can't have term life insurance. So I say go with a small traditional whole life policy, and as I've talked about elsewhere, make sure it has a disability benefit, a waiver premium benefit, make sure that it has an additional purchase benefit on it.

And then just ignore the cash value. Pretend the cash value is zero, because that kind of contract, because of the expense of the waiver premium and the additional purchase benefit, which are pure insurance costs, that'll be most of your premium. So more than half of the premiums for my children's policies goes to that, which means the cash value in those policies stinks.

But what it means is that there's always life insurance in force and they can always get more. Now, after that's done, then come back and say, "Do I need more pots of money?" And then think about not, "Okay, I want this life insurance," but think about goals. What are my goals?

I had two consulting calls last week. I had more than that, but I'm thinking of two people. In one of them, two of my clients asked me about whole life insurance. In one of them, I strongly advised against it, and in another, I strongly advised for it. Now, I'm not an insurance agent, so I can't say, "Buy the policy." I explained the logic, and I said, "After you go through this logic, this is why I think a whole life insurance contract for you would be a great thing." And then to the other one, "This is why I think a whole life insurance contract for you would not be a great thing." But as you're looking, that's how you have to analyze it.

Start with the insurance. Number one, do I need insurance? Do I want insurance? Number two, what do I want to invest in? And don't--if you haven't maxed out your 401(k), if you haven't maxed out Roth IRAs, if you want your child to go to college and you want to save for that, a 529 account or an educational savings account is going to work better than a life insurance contract that's created for education.

Now, they don't--I have never seen a premium--an illustration where I came away saying, "Yeah, I'm going to use a whole life insurance contract for college." I've been trying to get over the years--I need to get back to it. There's some people who are using a company, and the company's basically built it.

I just--I'm pretty skeptical. But once you do those things, if you come back and you got more money, yeah, life insurance can play a role. Pete, I'm going to unmute you now. There was 35 minutes. I hope I didn't confuse you more, but it's not an easy question to answer in the short term.

Was that helpful? You want to ask any clarifying questions? - No, it was super helpful. The exposition was helpful. I think the main thing--this idea was floated to me when I was discussing, you know, "Hey, should I get a whole life policy on my newborn?" And a financial planner that I trust said, "Have you considered a variable universal life policy?" However, he couldn't articulate the real risk benefits between the two of them, and I came away from it saying, "If you're trying to get returns from being in, let's just say, an S&P 500 index fund, how is it I just can't do that by doing that in my brokerage account?" - Exactly.

- I've maxed out the other stuff. And he didn't give me a reasonable answer, so I just said, "This just sounds insane. Why are you mixing apples and oranges here? I'm not getting a good explanation of why you would choose to do this." - So let me give you the reasonable answer and help your buddy.

So to begin with, the first thing you have to look at is, "Do I want a significant amount of insurance for my child?" Because remember, you can't buy term life insurance for your newborn. So if you come to me as a client, and I say to you, "You want insurance for your child, right?" You say, "Yeah, I carry $3 million on me, I got $3 million on my wife.

I'd like to have at least, what, maybe let's do $300 grand on each of my kids." I can't do that with term life insurance, and I think that is, in many situations, a really good move. Not for everyone, but in many situations, it is a really good move for many people.

But the premium on $300,000 of whole life insurance might be more than you particularly want to pay. And so if I come to you with a $300,000 whole life proposal, that would probably be one option. And here's the other thing you need to know. Most financial advisors aren't insurance agents.

Remember that 30 years ago, prior to, I think it was 1999, the Financial Services Modernization Act, I believe it was '99, but that's off the top of my head without verification. Prior to the Financial Services Modernization Act, all insurance agents were insurance agents, and they couldn't sell investments. All investment advisors were financial advisors, selling stocks, mutual funds, etc.

They couldn't sell insurance, and bankers were bankers. After the FSMA, then now everyone's in everyone's business. And so we've all tried to pick up each other's business. So your insurance agent sells mutual funds, your financial advisor sells insurance, and your banker sells both, plus credit cards. But what it means is there's a very different level of expertise.

And so I've never met a financial advisor who has a deep, deep level of knowledge in insurance, just like I've never met a primary insurance agent who has a deep, deep level of some sophisticated financial techniques. So he may not know. So back to the point. Number one, if you want to buy a significant amount of life insurance for your child, it has to be a permanent product.

It can't be a term product. Number two, if you want to buy a whole life product, that's going to commit you to a high set of premiums that are not flexible. You can't go up and down, but it's going to commit you to relatively low amounts of performance if you're buying a portfolio-based product.

So if you're comparing apples to apples, the idea of investing in a mutual fund, let's just say an index mutual fund, versus buying a life insurance policy that holds an index mutual fund, the life insurance policy is going to underperform. But it's underperforming because of the cost of insurance.

It's underperforming because of the mortality and expense charge imposed by the insurance company to keep the insurance in force. And it also includes the expenses of the policy and the M&E. It's included in the mortality and expense charge. So if you put $100,000 in the Vanguard Index Fund and you put $100,000 in the variable life insurance with Vanguard Index Fund, you will have less money in the life insurance contract because you have the insurance.

Now if you pull that out, and most people would say, "Well, that's why you buy a term policy." That's fair for an adult, a fair comparison, but not for a child. So now the next level is, "Okay, I want to invest for my child's benefit, but how do I do that?" Are you going to open a custodial account for your child?

So there's some significant problems with trying to open a separate account that has your child's name on it. Your child is a minor. Your child is not competent, legally speaking, to sign contracts. So what kind of account are you going to open for your child? Are you going to open an account that has your child's name on it?

Then it's going to be an UTMA account or an UGMA account, a UTMA, Uniform Transfer to Minors Act, or UGMA, Uniform Gift to Minors Act. So now you can open one of those accounts, and you can be the custodian, but your child legally owns the money. I don't like those accounts.

I've never opened one of them. And the reason is that you can't control the money. Once the child reaches adulthood, the child is legally entitled to the money. And there are some horror stories through history of people owning-- of people opening a UTMA account and then the child finding out that they had access to the money and taking it, and they weren't ready when they became an adult.

They weren't ready, and they took the money at 21 years old, and they blew it all on drugs, wasted it all, et cetera. So then the parent says, "Well, I'm just going to not tell my child about it." I don't know if--this was years ago. I used to hear--listen, when I was very young, Dave Ramsey would talk about this, and he was like, "Well, my children aren't going to know about it." Well, there are court cases where children have sued their parents for not telling about the money that they legally were entitled to.

So those kinds of custodial accounts are difficult to do. So what's your next option? Well, your next option is just to say, "Well, I'll tell you what. I'm going to open my own taxable account in my own name, and I'm going to have it here for my child." Well, now it's your asset, and you probably have a significant legal liability exposure.

You're worried about your asset protection. Now you have it. How are you going to give it to your child? You're making a gift to your child yourself. And so what happens is a life insurance can solve some of those problems. Why? Well, you could take out a universal life insurance contract on your child's life.

Your child can be--your child will be the insured. You can be the beneficiary of it, and then you can be the owner of it, which means you have full control over it. As the owner of a life insurance contract, your child has zero policy rights. And so you can own the contract until your child is 21, or you can own the contract until your child is 61, and your child has zero rights over it.

And so you can look at it as basically a cheap way to control it, and if you also are going to gain benefit from having the insurance in force, it can be a good deal. And it's simpler than going and setting up a separate trust and making gifts to the trust and having the trust purchase assets, and then even there, life insurance can still be a useful asset for the trust to own.

So it's not that your advisor is without--your advisor is not without reason. It's just you require a comprehensive look at your goals, your finances, and you have to weigh all of these factors to figure out, "All right, what's the best fit for me?" So you can do very well if you just want to open an account, and in your mind it's allocated for your child, and you're just putting money in there, that's fine.

As the father, you can spend the money anytime. It can be very flexible. You can spend it at any time. It's very tax-efficient. But there are genuine reasons why you would consider doing life insurance. It's just--it's complex. It doesn't fit well into a two-minute brochure. But that's to help your advisor out.

Those are some of the factors that immediately occur to me. Great. Thank you. Very, very thorough explanation. I really appreciate it. Life insurance is not simple. People don't understand it. And so for that reason, I think there are good reasons to be careful on all sides. All right, Adriana, welcome to the show.

How can I serve you today? Hi, Joshua, can you hear me? Yes. Excellent. Thank you so much for the time today. I have a couple of rental properties. I just bought another piece of land. It has an old house on it. It probably needs to be torn down. I'm running some numbers for building a barn dominium or a shop house, and based on what potential rent I could get for it, it doesn't look like this rental would cash flow.

But I know the other side of rental properties is appreciation. So what are your thoughts about moving forward with building this shop house as a rental and then just being okay that it's not going to cash flow? Rent will cover the expenses, but I will not be taking any money out of it and then just kind of holding it for the appreciation.

I'm not a huge real estate guy, so you need to make sure that in addition to my thoughts, which I'll explain clearly so that you can judge them with your own analysis, you should talk with people who are more involved in real estate than I am. But I'll tell you my opinion.

Number one, there's a difference between not cash flowing with some margin of safety, with a normal margin of safety versus not cash flowing. So if you're going to build it and your expenses are going to be $1,500 a month and the property is going to rent for $1,500 a month and you've got no margin, then I think that's pretty dangerous.

Now you could say, "Well, I've got some margin. Let's say that my expenses are $1,500 and I'm going to do a 20% allowance for vacancies, 20% allowance for repairs," whatever your number is. The rent is $1,800, so I'm not going to expect that I'm going to get any actual profit from the cash flow, but I have some margin of safety.

That would be slightly different, especially if you were to combine that with the idea that my expenses are going to be fixed for the most part because most of the expenses is financing cost and I can increase my rents in years to come, so then in time I may get some cash flow.

So clarify for yourself very carefully the use of those terms. The second thing I would just say is that if a property doesn't cash flow, a property doesn't cash flow. It may not be a smart thing to do to get into it. We always forget in every investment cycle, we forget that investments come in cycles and there are times in which properties are overvalued and times in which they are undervalued.

The only way you protect yourself by that is usually by cash flow. So what happens right now, I look at different markets in the United States, I look at different markets and I look at it and I say, "Are markets overvalued or not?" Prices are high, people can barely get houses, people are getting rejected from houses with full-price cash offers, immediate closing and they're coming back and saying, "I want 10% more." So the question is, is that real or is that not?

Meaning, is there a forthcoming market crash coming or not? I don't know. We can talk that through but I don't know. So how do you protect yourself as an investor? You protect yourself as an investor by only doing deals that make sense. In your situation, I think that counting on appreciation is usually not a great move.

Certainly we know that there will be appreciation but counting on appreciation is usually not a great move. And so I myself, I would not do a real estate deal that didn't cash flow with at least some positive cash flow unless I had a strong compelling argument to offset it.

It's a dangerous position to put yourself into when you commit yourself to something where at the beginning, under the very best of circumstances, you're already upside down. That can be a dangerous position, especially if it's repeated many times. Now, you'll have to look at your own finances. If this is one rental house and it's $200 a month under and you've got a million dollars in the bank, well, just fine.

Maybe you go ahead and plan on the appreciation. But as a general strategy, if properties aren't cash flowing, I question whether anybody should be investing in that market. I was recently watching this great Canadian guy. What was his name? Mike someone or other. I'll look it up in a second.

But he has an amazing financial independence story. He started when he was 19. He was financially independent at 24. He's extremely wealthy. Mike Rosehart, that's who it is. I've watched his analysis on the Canadian market. Here was a guy who made his fortune, an eight-figure fortune, going to nine figures, he made his fortune in the Canadian real estate.

Starting about a year and a half ago, he made the commitment to completely divest himself of all Canadian real estate. He's halfway there. He's gotten rid of half of his portfolio. His point is, and I've enjoyed seeing his, because I've questioned about the Canadian market, trying to figure it out, that the increases in value in the Canadian market make no sense, no practical sense whatever.

But he went through his analysis and his point was that no investor in the Canadian market is making money. They're just fooling themselves. His analysis was very, very sound. By the time you actually account for the expenses properly, the investors aren't making money. So he has divested himself and is divesting himself of all of his Canadian portfolio.

I think that as an investor, you should make sure that you're thinking with a sound head and you're willing to do that, willing to say, "I can't make any money." If your property is not cash-flowing up front, you're not going to make any money. Meaning in the traditional residential sense.

You can come in and say, "I'm going to build a 50-unit apartment complex. It's not cash-flowing because I have zero tenants, but I'm going to make money because I'm going to sell it." But in your situation, a fairly typical single residence, even if it is a barn dominion, if you can't make money, you can't make money.

So don't do it. Wait until you can find a place where you can make money. All right. Excellent. And then if you have time for just another quick question, one of my other properties, I'm thinking about taking out some equity and I'm trying to figure out what's the best option.

Is a home equity loan, a HELOC, cash-out refi? They've all got their pros and cons. Do you have any information one way or the other how I should make that decision? I can't give you a framework for that at the moment. I can't tell you, "Oh, this is the one that's going to be best," without seeing the numbers, without doing analysis.

I would simply say lay them out. Get a proposal from a banker that's inclusive of the costs. All of the costs. Look at the amount of money. Look at the costs. Look at the taxes. And then line them up and the answer should emerge. But I don't have a framework as to which of those three would be better without digging deep into the details.

Okay. Excellent. Thanks for your time. My pleasure. All right. We go now to Luke. Luke, welcome to the show. How can I serve you today, sir? Luke, you're up. All right, Luke, we'll come back to you in a moment. And we'll go to Dylan. Dylan, you're up. Welcome to the show.

How can I serve you, sir? Hi, Joshua. Thanks for taking my call. I'm a new listener and a new subscriber, and I want to say I appreciate all the work you do. I'm glad you're here. Thank you for being here. My question, I guess I have kind of a good problem and then two very related questions.

The problem is, you know, I have a slug of money that I'm trying to figure out what to do with. The question is, my wife and I have one child currently and one on the way. We own our home, and we know that in the next kind of three to five years, we want to upgrade our home to something much larger that would, you know, be fit for more children.

I guess my question is, you know, with that money, is there anything I can be doing now to set ourselves up to be in a better place to afford that home sooner or to make that transition a little easier, or, you know, do I really just have to wait until, I guess, income alone can afford the next home, if that makes sense?

Is there a way that you can invest the money into increasing your income substantially? Not in – there is, but not in the short term. The big opportunity would be to invest it actually in the company that I'm employed with. It's kind of a unique opportunity, and I'm directing money that way, but that would be a very, very long-term investment, and it wouldn't be kind of over the next, you know, three-ish years, which is the horizon that we're looking at.

Why would it be such a long-term play in investing in the company that you're employed with? It's invested – it's a private company, and it's invested in a series of small private businesses. Right, but if you were to invest into that, is there not some way that you could move yourself up and make an impact on the short-term profits of the company?

You mean in terms of income? Right. Oh, absolutely, yes, absolutely, yeah, and in terms of income, I'm working very hard, you know, obviously daily to increase the income as much as possible to be able to afford kind of the next home quickly. I guess I'm curious if there's anything I can be doing, you know, outside of that with that kind of extra savings that we've accumulated, you know, if it would be better to put that on our existing home or, you know, certain investments that might be available for a three-year period.

So let me give you a framework to think about this. What I'm not going to do is tell you here's what you should invest in. Because what would be great is if I knew that Bitcoin was going to the moon in the next two months, then I would say, "Bro, put 100 grand in Bitcoin, and in two months you'll have all the money you need to pay cash for the house," right?

That'd be wonderful, but I don't know that. And so the best I can do is help you think it through and consider what the risks and rewards of it might be. To begin with, the best investment that any of us have is usually in ourselves. So that's why I asked the question, "Is there something that you could do to invest it into yourself and into your income?" By investing it in yourself, into your company, it kind of fits that.

Investing into yourself has different ranges. If you came to me and you said, "Joshua, I'm making $25,000 a year at a dead-end job, and I've got $20,000. Is there something I can invest my $20,000 into so that I can afford a bigger house?" Then, well, let me ask you, what would you say to invest the $20,000 into in that scenario?

Sure, into earnings potential. Yeah, I would say go to college. Get a college degree. Get a certification. Get a Microsoft Systems Analyst certification. I would say something related to that. Invest into yourself. If you come back now and you say -- I'm going to skip example after example after example.

You get the point. If you came back -- I'm going to give just a couple of examples of what I was trying to say instead of going through all the scenarios. If you came in and you said, "Joshua, I own a company. I run a company, and we're making $200,000 profit this year, and I've got $100,000 sitting here on the side, but I want to be able to build a bigger house three years from now.

What should I do?" Well, after talking it through, I'm pretty much going to wind up saying, "Dude, put $100,000 in the company." Hire a key person. Invest in a better marketing program. Hire a consultant. Some way, invest that into the company because depending on the industry, depending on all the factors -- you have to go through it in detail -- most of the time, your best investment you're ever going to have is in a company because you have the ability to control the process.

Those are your first two options, into yourself and into your income-generating ability, and then into a company. Depending on the amount of money that you have and depending on the opportunities that are available to you, you ask yourself, "Is there a way I can invest this money into it profitably?" Now, when you start to get to a point in your career at which you are more well-established and when you start to get into bigger dollar figures of savings, it becomes difficult to be able to say, "Here is the perfect investment for me," and so you have to be more creative.

If you say, "I've got $400,000 and I'm earning an income at a job, and I've maximized all my certifications and my education," you can't invest $400,000 into yourself in that scenario unless you went out and pursued something more aggressive and started a business, started something totally different. Once you get past that is the point, and you don't have an entrepreneurial venture, you don't have something there, then you go and you say, "Okay, well, what are my options for investments?" After you, I always divide it into three things to help me think.

Number one is I look and I say, "Is there a way that I can invest into business? Do I have a friend of mine who's starting a web startup, and I just totally believe that he's going to sell this thing and flip it for $30 million a few years from now?" That could be a great thing to do.

There have been opportunities that have been presented to me over the years to do things like that, and sometimes I haven't taken them for fear, and sometimes I've taken them. But you look around and say, "Is there a business? Is there a business that I can put money into?" I think here people often think too fancy.

A lot of times, find a blue-collar business around you that you can buy or something that's poorly run. I have several clients of mine who run simple businesses and make money like you wouldn't believe. But what they do is they come in, they buy a franchise or they buy a business, and they just simply run it better.

You can take $100 grand or $200 grand or whatever your numbers are, and you can come in and you can buy a local business of some kind and start doing things better and wind up making a cash flow of--I'm not exaggerating. You can take $200 grand, come in, buy a business, and three years from now have an annual cash flow from that business of $200 grand.

There are lots of opportunities like that out there, but that might conflict with your primary career trajectory. But those you should consider, "Is there some kind of business that I would like to do? Is there something I know of? Do I want to be involved in something else on a different level?" Then we move to physical investments.

Physical investments includes real property, but it also includes any kind of physical, tangible asset. You can look around and you say, "All right, I got $300 grand here. Is there some piece of land I could buy and develop and flip it and over the course of the next three years potentially turn my $300 grand into a million dollars?

Or is there a house that I could do a rehab on because that still works in my market? Let's take this money and let's use it as a down payment on a rehab house. I'll just manage this at night and I'll rehab it and we'll flip it a year from now.

Then I'll do it a couple more times with the goal of coming out the other end three years from now with our big, giant house." You could do it in real estate, real property. You could also do it with some other tangible investment asset. You might have a thing for fountain pens.

You have the skill of going out and finding fountain pens for $500, cleaning them up, fixing them up, and putting them out for $1,500 on eBay. You might invest into watches. The watch market is going crazy right now, but you have some in, some ability that you have to go and find these things or gold coins or guns, any number of physical things.

Ask yourself, "Is there some kind of play that I see with a physical asset?" Go through the lists of things you're interested in, things you're aware of, markets you have access to, etc. Then the third thing is some kind of paper asset. You might just say, "You know what?

I think that right now stock prices are depressed, and I'm going to go ahead and bet that three years from now we'll have this war behind us. COVID will be behind us. Things will be roaring. I'm going to go ahead and buy." Buy an index fund share with a three-year time horizon.

That could work. It would have worked well if you'd done it three years ago. Or you can go and say, "I really believe in Bitcoin," or "I'm going to be dedicated to learning how to be a DeFi miner." The amount of money that people are making in some of these markets right now will make your jaw drop.

The question is, "How long does the Ponzi scheme go, and is it a Ponzi scheme at all?" There are some plays to be made in some paper trades right now that could be amazing. Or you may have some other area of interest, some other point of trading. There are so many things that you can invest your money in with regard to paper assets.

You could become a lender. You could say, "I've got this money. Who could I lend it to and charge them 15%, 20% interest in my local area so that they can go and rehab their own houses?" I can't tell you which of those opportunities are right for you, but that's pretty much what I go through.

I think that if you go through in a systematic way and you ask yourself good questions, this is what I do. If I asked you, "Three years from now, I want you to make double the income," let me just pause for a moment and ask you. It's a good question.

"Three years from now," I said, "Dylan, you must be making twice as much money as you're making today. What would you do with your cash flow to make sure that three years from now you had doubled your income?" One of the first things you mentioned, you gave the example of buying simple businesses in your area that might be poorly run.

That's actually exactly what my employer does and what I have the opportunity to invest in. I think I would absolutely take that route that you described. All right. Why don't you go to your employer and say, "I'd like to get some skin in the game. I got some savings.

How could we get something where instead of just being an employee, I can be a partner or I can be a subcontractor in some way?" Go and explore and explain your ambitions and say, "My goal is three years from now to double my income. I'm willing to invest. I'm willing to be a partner.

I want to be involved. How could I do that?" and start those conversations and see what could open up for you. That's great. I haven't thought of investment as leading to the income. I've more been thinking of it as kind of a forever investment, so to speak, but that's a really helpful perspective shift for me.

Good. If I could tack on a follow-up quickly, a related follow-up. The other option that we're considering is, like I said, I have a one-and-a-half-year-old and one on the way. Does it make sense to take some portion of it and fully fund a 529? I guess when I say fully fund, I mean put in as much that would lead to as much that we would want them to have upon graduation.

How much are you earning now? $90,000. How much savings do you have now? The chunk of money I'm talking about is $70,000. I wouldn't. I think it would be dumb to do it, and I would work very hard to try to dissuade you from doing it. The reason is I think the opportunity cost of that decision is too high.

If you have an opportunity where you're working with a company that goes and buys blue-collar businesses and fixes them up and flips them and whatnot, then either you need to get some skin in the game with that company and use it to invest and become a partner, buy a business, etc., or just simply learn what you can at that company and two years from now go and start doing it yourself.

529s, there's nothing wrong with them, but they are inherently limited. I'll give you my arguments first and foremost. Number one, the way that you're describing of doing it, putting in a good sum of money up front when your children are very young, this ticks my box of saying, "Hey, the tax savings on that can be useful." But what is the money going to be invested in?

It's either going to be invested in prepaid tuition from a bloated organization that who knows if it's going to exist 18 years from now, or it's going to be invested in mainstream mutual funds. That's it. And so you're going to get some kind of market returns from mainstream mutual funds.

You're not going to get any really big benefit, any really big juice. It's going to be whatever the market returns are. But almost certainly you already have market participation in your other accounts. You have market participation in your 401(k), IRAs, etc. So what's the point of putting more money into something that's going to be there?

Why not go for it? Why not say, "My goal three years from now is to go from $90,000 to $180,000. How can I do that?" Why not say, "I'm going to be aggressive with this because what happens"— and this is what angers me so much about what I got suckered into and what I used to do as a financial advisor.

You have been trained, you have been conditioned by an industry of salesmen selling financial products for you to think that somehow they are good at doing something, that your best investment is to buy their financial products. And this is why I started Radical Personal Finance in the first place.

I realized that the reason I was a financial advisor was because I wanted to make a million bucks a year with a business that took me 10 hours a week to run, and I learned how to do it by figuring out how to gain access to other people's money.

That's what the financial industry is. You gain access to other people's money, you scoop a little bit of it off the top, and then you use the leverage of access to other people's money for you to set up a million-dollar-a-year business 10 hours a week. It's one of the best, most consistent ways of making money is you figure out how to make the leverage, and that's what the financial advice industry does.

But then I looked around and was like, "Who's actually making money?" Well, financial advisors can make money. I was making money. But my clients don't ever do it the way that we say they do it. If I got a guy that comes up and he's like, "Oh, look, I got $200,000 in a 529 fund," guaranteed.

The guy has millions and millions and other things. And so I looked at who my clients were, and I was like, "Oh, wait a second. My clients all either make a lot of money, a lawyer making $5.5 million a year or something as a litigator, or he's running a – one guy was running an estate firm and he had 10 lawyers working for him, and he made $4 million a year, or he's a business owner, right?

And a business owner can be almost any business, but that's who makes money." And I just realized there's this massive incompatibility between buying financial products and actually getting wealthy. And I became convinced that if you actually want to get wealthy, you don't get there buying financial products. You get there by actually investing into something that can grow.

And so you have the opportunity to do that. You've saved hard. You've done it. Don't take your hard-earned savings and dump them in a mutual fund that's going to pay for your kid's college. And that's all just simply based upon the return. Go and buy a subway, right? Go buy a mechanic shop, right?

Go and buy an oil change place. Go and buy a restaurant. Go buy a McDonald's, right? Do something that's actually going to grow your money that you're going to be involved in because you've got better opportunities than just buying products from the financial industry. That's completely independent of the idea that I do not believe college will exist in any way, shape, or form like it does today 17, 18 years from now.

The entire concept of college being important from a financial perspective is fundamentally breaking. College is not preparing workers for the work that they need. And so there's not going to be the same support from industry with the exception of hard sciences, right, engineers, et cetera, engineers, architects. People who go to college are not prepared for the work world, generally speaking, unless it's in a hard science.

And so there's much more access for people doing the fast route. And then if you're going to use college for, for example, the social sorting function, I think that's a very valid reason for you to save for college. But that's not just – you're not going to get there with a 529 account.

That's not going to do it. So sorry for being a little bit impassioned. It's just that it annoys me that people think, "Oh, I'm going to invest money. What product can I buy instead of where can I triple my money fast?" And I'm not saying involve in a get-rich-quick scheme.

I'm saying take some – Elon Musk did not become the wealthiest guy in the world because he went and bought a mutual fund. He took his talent and his insight and he went into an aggressive part of the market where he saw opportunity. Then he took every dollar he had and he did it again.

And that's how he got the fast growth. I will never be Elon Musk. I will never be as rich as – as far as I can tell, I can never be as rich as Elon Musk is. But I can still do it in the way that it's appropriate for me and my family rather than just thinking that investing means buying financial products from the investment industry.

That's really helpful. Very helpful insight again, Joshua. I appreciate it. Thank you. Go talk to your boss. Say, "Listen, I'd like to double my income in three years. I have this amount of money to invest. What can you do?" And see what kind of opportunities. All right, Luke, coming back to you to see if you're back on the line.

Luke, are you there? Luke going once. Luke going twice. And Luke is out of here. That's it for today's show. Luke calling next week. I'm sorry that you weren't there but I understand after that lengthy of a show. Thank you all so much for being here. I want to remind you as I go.

Yes, if you'd like to be here for next week – I meant to do my ad earlier for Bitcoin privacy course. I would love for you to join me on the Patreon page, patreon.com/radicalpersonalfinance. And then in addition to that, make sure that this weekend if you haven't signed up yet, go to bitcoinprivacycourse.com and sign up.

We've had a huge turnout for people signing up for the course. But remember, next week starts the live classes. There will be two live sessions this coming week and then the week after. And then following on, of course, those will be available. So if you're missing it, then make sure you do it.

The best thing to do is be involved in the live classes. Huge turnout but we still got more space. So go to bitcoinprivacycourse.com. Sign up today. Make sure you're in there by this weekend because we've got your first homework assignment already posted in the course. Go to bitcoinprivacycourse.com. I will see you in there.

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