Are you ready to make your next pro basketball, football, hockey, concert or live event unforgettable? Let Sweet Hop take your game to the next level. Sweet Hop is an online marketplace curating the best premium tickets at stadiums, arenas and amphitheaters nationwide. Sweet Hop's online marketplace makes it easy to browse and book the best seats.

With no hidden fees and a 100% purchase guarantee, you can feel confident when you book your premium LA tickets with Sweet Hop. Visit suitehop.com today. It's Friday, we've got the phone lines open. That means it's time for Q&A. Welcome to Radical Personal Finance. It's a Friday Q&A show. This is the show that's 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.

Friday is where you can call in and talk to me. We can talk about your plans towards financial freedom, talk about any comment or question that you want to talk about. I show up with a calculator, a pen and a notepad and we do our best to come up together with some useful inputs.

Friday Q&A shows are opened up to patrons of the show, about 250-270 of you, something like that, who support the show financially each and every month on a voluntary basis. You can sign up to become a patron at radicalpersonalfinance.com/patron. We'd be thrilled if many more of you would do that.

I've struggled a little bit with the Patreon program figuring out, let me rephrase that, I've struggled a lot with the Patreon program trying to figure out how to set things up and what to offer and what not to offer. I've really struggled with that. It's been one of the things that I've found more challenging to figure out what to do, what I can do.

But one of the best things about it is it has worked out really well for me to open up these Q&A calls to listeners who want to call in. And by opening it up to paying clients, that allows me to keep the number small enough to be manageable, but it allows you, any of you who are interested, to gain access to these Q&A shows.

So today – so if you'd like to call in for a future show, just join on the Patreon program at radicalpersonalfinance.com/patron, radicalpersonalfinance.com/patron. Today, to get started, we're going to go to Kevin in Atlanta, a brand new patron. Kevin, welcome to the show. Let's see what you've – what would you like to talk about today?

Hey, Joshua. Thanks. So my wife just recently left full-time employment to stay at home with our kid. And she's working part-time and she left a 401(k) at her previous employer. She's also running a side business. And at the time, at the present time, we don't really need the money coming in from her side business.

So I'm exploring options for transferring the 401(k) to possibly a solo 401(k) or set IRA and creating an account with our business, or if I should just roll that into an IRA or what my options would be. Okay. How much money do you expect her to be making in this side business, reasonably speaking?

Last year, it was roughly less than $30,000 last year before taxes. So probably in that neighborhood, maybe a little bit more this year. And you guys don't particularly plan to spend her income from the side business? She puts about a third back into the business, and that's it. So the $30,000 was the gross income, and then you had about a $20,000 net profit.

Correct. And you're not planning to spend that $20,000 net profit in your personal budget? We don't really need to at this point. Awesome. What kind of business or what industry has your wife been able to build where she can do this and be focused in her work as a mother?

It's a multi-level marketing company. Wow. Awesome. Very cool. How long has she been working at this? About three years. Okay. So she must have really given it her all then to be able to generate that after three years. She's been working hard. Awesome. So I ask because I know that's an often...

that's a question that many mothers have, is try to figure out, "How can I make a living at home while being flexible so that I can spend time with my children but still bring money into the household?" And to be able to do it with a multi-level marketing company is awesome.

It just requires a tremendous amount of work. So in your question, there are two different questions that should be disassociated. Question number one is, "What should we do with her old 401(k)?" That's an independent question. And question number two is, "What should we do about establishing a new potentially plan, retirement plan for her current business?" And the reason that you should disassociate them is probably there's very little reason to try to bring these plans together.

The simplest thing to do with an old 401(k) is when you leave the job, just simply roll it over into an independently held traditional IRA. Was her old 401(k) invested in a fairly mainstream way? She just has some mutual funds. She was getting a company match, and she just kind of has some normal mutual funds inside of a 401(k)?

Yes, she does, but it's very high fees for the company that manages it. So then that's a compelling reason to move it over. And the best piece of thumb advice, or rule of thumb advice, is that when you leave a job, you should take your 401(k) with you. If you're not at your old job, your 401(k) shouldn't be there anyway either.

And the reason is simply that the number of companies that will work to service you in a 401(k) plan are going to be limited, and her investment options will be limited to whoever that servicing company was. So in the open market, if she goes out and just simply transfers it and rolls it over to a traditional IRA, she can work with any kind of company that's out there.

And there's a lot of competition in that space. So she could get fees very low. She could lower her expenses significantly, most likely. She could have access to any kind of fund investment. There'd be many kinds of fund investments that wouldn't be allowed in her traditional 401(k) at her job, her old one, that you could do in the world of just simply a rollover IRA.

For example, if you and she wanted to get exotic with your investment plans, you could open a self-directed IRA. You could use that self-directed IRA to invest in certain types of businesses that most people don't get into. You could use that self-directed IRA to invest in real estate or some kind of other strange, unique investment plan.

Or you could roll it over, and you could go as mainstream. You could purchase index funds from the lowest cost provider and just set it up and have it simple. So your options in the world of an independently held IRA are huge. And of course, there are no tax consequences to simply making the transfer from a traditional 401(k) to an IRA, a traditional IRA.

There's no tax consequences to that. And it's very simple to do, roll it directly from the current company over to the new account provider. So that's a simple thing to do. And the only reasons you wouldn't do that is if there were some kind of unique program that you had access to in the company 401(k), if you had some sort of employer stock that was of interest to you to still hold, or if there was some kind of very well-run investment program that were uniquely advantageous, then you would consider still, of course, keeping the money there.

But it doesn't sound like that's the circumstance here. Now, in terms of reasons to roll it over to a traditional IRA, then it's disconnected from any kind of business, any kind of business plan, et cetera. It's hard for me. I can't think of any reason why you would – well, the only reason I can think of as to why you would try to roll it to a new plan – let's say she wanted to set up a SEP IRA with her business.

The only reason I could think of which would be why you might roll it to that type of plan would be if you were very concerned about asset protection but trying to think if it was a state law or a federal law that gives the same asset protection in terms of bankruptcy protection to a traditional IRA as to an employer 401(k).

That would be – I guess that would be – I can't remember if it's a Florida thing. I know Florida, where I live, has a law that says we treat Roth IRAs and traditional IRAs just as sacrosanct as an employer-based 401(k) plan for the purposes of bankruptcy and for the purposes of creditor protection.

But I don't know if that's a federal law. That's the only thing I can think of. And that would be also the only reason why I would leave an old company 401(k) where it was, as if for some reason I were in a contested situation or I were being sued or subject to – well, subject to a potential judgment against me.

So in terms of her options for her new business, it's going to depend on how much money you want to save and how much hassle you want to go through. So there are basically three types of retirement plans that – well, four. Let's go with four types of retirement plans that are going to be simple for her to consider.

The first thing that she could simply do is contribute to a traditional IRA just like any person can. So sometimes there's no reason for someone to go through and go through the hassle of setting up a business plan or a plan that's related to their business if you're only going to save a couple thousand dollars a year.

If somebody wants to set aside $5,000 a year, you could just simply do that in a Roth IRA or into a traditional IRA, and there's no need to go through the hassle of a simple IRA or a SEP IRA or a solo 401(k) plan. It's just simpler to stick with a traditional IRA, an individual IRA that's open to any person.

So you should remember that that is an option. So for 2017, the amount – the contribution limit is $5,500 if you are under age 50 that you can contribute to a traditional IRA, so $5,500. If you only want to contribute that much to a pension plan, that's going to be your simplest option.

Now, your next two options are going to be a SEP IRA. SEP is an acronym that stands for Simplified Employee – now I'm blanking on it. Simplified Employee Pension. I think it's SEP, Simplified Employee Pension Plan. A SEP IRA has a unique feature of having a much higher contribution limit.

In 2017, the SEP IRA contribution limit is $54,000. But a SEP IRA is very simple and easy to set up. The paperwork is standardized. There are almost no administrative responsibilities, so it's very, very simple and easy to set up a SEP IRA. You can do it very, very easily.

The catch with a SEP IRA is your maximum contribution is either $54,000 or 25% of your earnings or 20% of your self-employment earnings. So in order for you to be able to contribute the full $54,000 into it, she would need to be earning a few hundred thousand dollars. So that's going to be harder for her and that's probably going to make it less appropriate for her to do.

That would be the problem with a SEP IRA. But for a business owner who does have high earnings, a SEP IRA is simple – and if 25 – let's just say 25% for easy remembering. If investing 25% of your profit is sufficient for your desire of how much you want to actually get into a pension account, that's the appropriate type of plan.

Your next option would be a simple IRA. And a simple IRA is – obviously, it's – just from the name of it, it works basically like a traditional IRA except that the earnings requirements or the earnings amounts are just a little bit higher. So for 2017, you can contribute to a simple account up to $12,500.

So you can contribute either up to 100% of your net earnings or $12,500. So given her context, this might get her closer to the amount of money that she wants to actually put into there. She's kind of right on the border amount of it. That's the benefit of a simple IRA.

Again, these are – not to say simple too many times, but these are – SEP and simple IRAs are very simple and easy to establish. The third – the fourth option would be an individual 401(k). The trick with an individual 401(k) is that it's possible because the way that the contribution limits are calculated, it's possible that she might be able to get more money into an individual 401(k).

The reason for it is depending on how the documents are written, she can make both an employee and an employer contribution to the account. So as an employee, she could contribute up to $18,000 per year and defer up to $18,000 of her income, her wages, into the account if she's under age 50.

Of course, that would be $24,000 if she were over the age of 50. And then additionally, she can set aside and stipulate that there is also an employer contribution to the account and that employer contribution can be calculated and possibly, based upon the formula that's used, allow her to put a significant amount of money in there.

Theoretically, it could be possible even for her to put in place a plan that could allow her to essentially contribute all of her earnings into the – into an individual 401(k) because she wouldn't technically have to take the wages out from her business and pay them out to herself.

She could set it up so that her employer contribution and her employee contribution went into the account and the total contribution limits are about $54,000-ish between those two. So when you line that up, that one might be the best way for her to go about getting the most money in it.

Individual 401(k) is a little bit more complicated than a simple ORSEP, but it's not impossible and it's grown in popularity. But it's definitely going to be more complicated than that. The final option would be time of year that she's going to do it. Remember that a 401(k) has to be done during the tax year.

So if she's going to make 2017 contributions, they all need to get into the account during 2017, whereas the other plans can be done after the tax year. So she could sit down in March of 2018 or April of 2018 while filing her taxes and allocate and designate her previous year's contribution at that time.

So those are some differences between those. Does that clear things up for you, Kevin? Make sense to you? Yeah, it does. One thing, would the solo 401(k) offer a tax advantage? I mean, would that go in pre-tax? How would that work? The tax implications of all four of those accounts that I mentioned, a traditional IRA, a SEP IRA, a simple IRA, and a solo 401(k) are identical.

All of them are allowing you to put pre-tax money into the account, and then she'll pay taxes on the money when she takes it out of the account. Right. Okay. Yeah, that sounds good. That kind of helped me narrow it down, get an idea of what my best approach should be.

Awesome. You're going to want to obviously go based upon the advice that you get. If you sit down with your accountant, your accountant can guide you through. The SEP IRA is the accountant's best friend. If you do a solo 401(k), you'll need to work with your various plan providers so that you can get those documents set away.

But it's become much more popular and much simpler. Any large brokerage company is going to be equipped to help you with the documentation, the sample documentation for that. Awesome. John in Pennsylvania, welcome to the show. What do you want to talk about today, please? Hi, Joshua. Thanks for taking the call.

I wanted to talk to you and ask your advice on how to help a friend who seems open to improving their personal finance situation. My friend, she's a late 20s woman that's living in Los Angeles, and she works in a fairly small design space for fashion, some kind of sales role that she's in.

And it was a very small company. She called me with her immediate crisis was trying to decide, should she go to a new job that was soliciting her, it was a bigger corporation, but making less money immediately. I had advised her to go to the big corporation because of some other things she had told me.

But in the end, she ended up staying under some pretty weird circumstances, like her employer, either being evil or very kind, had one benefit where they pay off the consumer debt of their employees very slowly. I'd never heard of that before. But anyway, there was some really weird things going on there.

But for better or worse, she stayed with the company, the small company. And that led to a discussion of want to get out of debt and just do more things better as an adult, I guess you could say. She's very smart girl, but she just doesn't have some of those basic personal adult skills down pat yet.

And I was hoping to help her with some of those. But since she showed some interest and inclination to be open to learn and things like that, I didn't want to scare her away by saying, "Okay, let's attack your expenditures right away. I don't want to have her running for the hills." So I'm just wondering what your approach would be to help a person along to start exposing them to some of these things.

I don't really know personally, like Dave Ramsey's bodies of work at all to point her to any of that. I thought your stuff might be a little too much at first to point her to this podcast. So I don't know, I'm just looking for a general approach on how to help someone without scaring them away.

Or maybe I should just start on showing them the importance of why this stuff is important. - What is your relationship with her such that she came to you for a money discussion? - Sure. So I was trying to be a little vague, but yeah, she's my sister-in-law and that's important because she really doesn't feel like she wants to go to her family for all the reasons that probably family carries weight with.

And I think I'm kind of a good in-between where maybe I'm not as judgmental as her family would be, or maybe I have more knowledge than them in certain areas, but I'm also not directly related by blood. So I don't know, maybe I'm just a good in-between. And she's come to me for some advice in the past and I've given probably varying qualities of advice, but for some one reason or another, she called me about this job thing and that led to kind of some high-level discussions over finances.

She's apparently, and her consumer debt's not insane. From what I know of other people's debt, it's 3,000 or so in consumer debt with like a 14% interest rate, and she has about 10,000 in student loans. But I'd like to help her kind of tackle that before going on to other things, maybe more other things I might be better at coaching her through.

I wanted to get this kind of debt thing tackled first, but maybe. I don't see any way for you to win by getting involved. I appreciate your heart to want to help her. And obviously, you want to help her to do what's best, but I don't see any way to win by really getting involved.

Let me expand on what I mean. I don't think that you should not help, but in terms of the way that you help, I think that you got to think very carefully about it. So general rules that I think are really important. Number one, we don't give help to people unless they're asking for help.

People don't have a question, don't give an answer. So obviously, she's satisfied that and she's come to you and asked for your help. So she asked you a question. So that means that you do have a place to help her. Rule number two is don't give away advice for free.

I don't give advice for free. Make sure that she's paying for it or anybody is paying for advice in some way, because if you give advice away for free, people basically think that it's worth about what they paid for it, which is nothing, and they're likely not to take any action on it.

Doesn't mean they have to pay financially, although that's fine. It'd be a little bit weird for you to charge your sister-in-law for talking to you for an hour, but at least you want to make sure that they're paying for the advice by doing something with it. So I would be very slow in a family relationship to offer advice and then continue offering advice unless I'd put a test of some kind in place to see is this person actually going to do something with the advice.

If somebody's not going to do something with the advice that you give, then there's no point in you continuing to give advice. You're just simply going to sour the relationship, turn them off, possibly just go far beyond the relationship. There's just no benefit to it. So the other thing that makes it tricky is when you get into individual specifics in family relationships, it gets trickier still.

I have financial conversations with some of my family members, and obviously now after I've been giving professional financial advice for basically 10 years now, in this context that now sometimes people come to me and look to me, but I really do not ever want to get involved on a detailed level with people because what happens is if I, let's say I go through somebody's budget, when I do this, when I'm asked for advice, when people are paying for it either financially or by actually doing something or demonstrating to me that they're serious, I have to be so careful not to tell them what to do.

I had to be so careful not to say, "You spent how much at Starbucks?" or "You did that? Are you kidding me? You went to Whole Foods. Don't you know that if you had gone blah, blah, blah, blah, blah, you could have done this?" I had to be so careful because that kind of thing just destroys relationships.

So when I give advice to friends and family, I do it very broad-based and I try to not get into specifics of telling them what to do because if you tell somebody what to do, then in a sense you've gained a certain responsibility to a degree for the outcome of their decision.

So I try to teach principles and I have the benefit, of course, that I can usually say, "Well, listen, I did a podcast on this. So if you're interested in this, but you may not have that place." So the best way that I would give advice in that situation is happy to have a phone call, talk her through a decision, kind of in the same way that I'm doing right now on a Q&A call.

Maybe you can ask some thoughtful questions and you can lay out the pros and cons of different approaches. You can say, "Well, the advantages of this are this, the disadvantages are that." That would be good. If she has an additional follow-up call on a specific question like, "Hey, should I invest my money or should I focus on paying off my credit cards?" You might give her your thoughts on that.

I would try to accurately represent the different positions. Well, some people would say this, here's why, some people would say that. But I think the best way that you could help her would be by trying to put in front of her an external third-party educational resource that would be helpful to her.

So if it's in the context of a book, what I would try to do is – or if she's a reader and you think she might read a book, what I would try to do is I would try to think what type of commentator would connect with her. If she's young and female, I would look through the Susie Orman books and I would say, "Is there a Susie Orman book that would kind of give her – get her started?" Or something like a David Bach book, very, very vanilla entry-level personal finance.

If she's struggling with debt or if she has – I don't know in her earning structure, it doesn't sound like she has a lot of debt, but she has a lot of debt. Certainly Dave Ramsey, you can't go wrong with giving out your total money makeover to her. That book has been hugely persuasive to other people.

If she's not really a reader, I would look around and maybe just suggest a podcast for her. As you said, my show might be useful or there might be another show. As far as I don't know – what's the girl? Not Farnoosh. Money Girl, I haven't listened to her in a long time.

But there are other podcasts that are going to be more entry-level, more kind of vanilla stuff that might have that. But I think your best bet is to suggest to her some resources and buy a book and say, "Here's why I bought this," or "Here's what was super useful." If she's looking for more comprehensive advice, Liz Weston has written so much – so many good books, just more encyclopedic type of books that are useful.

There are other authors that have done a good job of trying to bring together the advice. I think it's far safer to point her to a resource. If she asks you a question, how I would answer it, I would say, "Here's what I would think," but I would point her to a resource by somebody who's writing on that.

That way, you've absolved yourself of a little bit of the personal responsibility that might get very touchy in a relationship to say, "You should do this." To the extent that you do say that, which there's a place for it, I would be careful to respect her autonomy – what's the word?

– her sovereignty over her own life and her own decisions. If she wants to borrow money and use credit cards and put cars on payments and things like that, you have to be very careful that you don't bring a sense of condemnation to your personal relationship with her just because you think that that's an unwise decision.

If you do that, what'll happen is it can sour the relationship, and then she doesn't come to you in a time where, if she were to do that, everything is falling apart. I would be very careful, and I would seek to give resources rather than to get personally involved on a detailed level.

>> Steven Rubinstein Okay. Yeah, I think that's great advice on sort of why I was cautious about getting into this. I have seen her brother help her out in situations in the past. I've told my wife, "I don't want to get directly involved because I feel like, whether this is right or wrong, I feel like if I'm helping someone directly with money, if that's something that I just give them, then it's a gift.

If it's a debt that I expect them to pay back because it was due to some stupid life decision or whatever, then I'm going to be feeling like I own that person's income until I'm paid back, and that's probably not a good way to get into letting out money." I just didn't ever want to have that kind of dichotomy between the two of us.

My instinct is, when I hear her kind of delving into these things and wanting help, my instinct is to say, "Let's seize this moment and really help her out." But who knows? It could have faded. The whole interest in it could fade in a couple of weeks, and I'm still left there having written out a whole plan to help her, and she's just lost interest.

So I guess a slow trickle of third-party advice, like you said, is maybe the best way to go and just see what she grabs onto or just try to keep exposing her to things without rolling my sleeves up and getting into her finances intimately myself. So yeah, I think that's a good approach.

- There may also be a place where maybe you want to buy her a session with a financial advisor. If she's young, I would look in the XY Planning Network gang, look on their website, and there's probably a young advisor who might really click with her, possibly in her area where she could see in person, and maybe you could buy her a consultation, an hour, a couple hours of time with a financial planner.

Obviously, you want to help people. - That's a good idea. I like that a lot. - Awesome. Yeah. Obviously, you want to help people. But when it's your sister-in-law, I would be very careful, very, very careful to not overstep the boundaries of sovereignty. She's not your wife. She's your sister-in-law.

And as such, I want to be careful to allow her to make her own decisions, share with her what I've learned along the way, share with her some of the lessons that have been useful to me. But I think you're better served by focusing on giving her resources so that she can look to other people and you can continue that place of friend and brother-in-law.

That's how I'd approach it. All right. Final call of the day, Jim in Seattle. Welcome to the show. - Hey, thanks for taking my call. - What would you like to talk about today, sir? - Yeah, I wanted to spark a little bit of a conversation about the benefit of liquidity when paying off moderate interest rate, moderate balance debt.

- Moderate is always hard because you go right off the middle and the answers are never obvious. Tell me more. - Exactly, exactly. So I guess frame of reference has been me and my wife, millennials, we're used to very low interest rate environment. And we've paid off a lot of our student loans, four out of five that have all been, we've been able to say, "This makes sense to just save up the money and pay it off," because they've all been either high interest rates or higher interest rate around the 10% mark, lower balances under $15,000, household income's about 150 years.

So it hasn't been a big deal. And it's been nice to be able to save up each chunk because it gives us the flexibility to choose to allocate that money whenever we are ready to pay off a balance. The last one we're staring at is a 6.8% interest rate.

Like the majority, I think a lot of federally insured student loans are, and a balance is about $70,000. So with that being in my mind, high interest rate is my credit card high, but it's not like our mortgage. It hurts to see that balance of interest going out each month, but it's sizable enough to where it's going to take a few years to pay off.

And we lose a little flexibility. I've got some thoughts, but I wanted to hear your input considering some of the ways you've tackled this question before, how you've talked about how, at this point, if you're ever to get a mortgage, you either finance as much as you could, or you'd pay it all in cash just for the flexibility.

Granted, that's a little bit of a different type of debt as far as it being secured and impacting your life. If I default a student loan, it doesn't ruin my life as much as if I default on my mortgage and I get foreclosed on. But I just wanted to hear your input.

You do also have a difficult situation because let's just call it 7%. A 7% interest rate is, as you identified, it's not low. It's not a 3% where you just say, "It's under the rate of inflation. It's not hurting us too big." But it's not 25% on a credit card.

So that does make it difficult. So your household income is $150,000. You and your wife own a home. How much is the home worth? Home is worth about $275,000. And what's the balance on the mortgage? Recently purchased, probably around $260,000 on a 15-year fixed at 3-8% interest. Great. And other than this $70,000 in student loans at 6.8% interest, do you have any other debt of any kind?

That's the very last one. And investments, total retirement accounts, 401(k)s, IRAs, traditional IRAs, etc., add up to about how much? About $35,000. And cash that's liquid, savings accounts, checking accounts, money in the mattress, etc., adds up to about how much? About $10,000. I'm worried about a month expenses. I'd like that to be higher.

So you're spending then, the next question was, about $10,000 a month right now? Yeah, I guess we're probably closer to, I think we probably spend about $6,000 a month. Okay. All right. And in the past, when you've been saving up money, do you have any to pay off debt?

Do you have any idea how much extra money you were able to save and accumulate on a yearly basis or monthly basis and throw towards debt? On a monthly basis, if we're really focused on it, we can probably save about $5,000 a month. $5,000 a month. Both you and your wife are employed in traditional, generally considered to be stable jobs?

Yes. So $5,000 a month, we're talking on $70,000, 14 months. That's not very long. What are your thoughts on the situation? I'm going to cheat. What are your thoughts? And then I'll give you mine. My thoughts have been, and this does involve a little more detail than I've given you.

My wife's a teacher, so a lot of this debt is off of her master's degree. And as teachers get recruited in the spring as they're graduating, you don't get your first paycheck till the fall, but loans from undergrads start becoming due. And what we ended up doing was because we hadn't listened to your episodes where you talked about all the wonderful options and deferment, there were a couple of interviews you've done that were really helpful there.

But we ended up refinancing that, doing our one-time refinance through whichever agency they're with, I think it's Aviant, and stretched them out onto a 20-year term just to lower it so we could make it through the summer at the time our income was probably about $40,000 a year combined.

So my thoughts were to refinance this down to a five-year note. Payment would not quite double, but come close to doubling. Drop the interest rate significantly, and then pay them maybe slightly accelerated or just as written on the 60 months. Do you have, other than your just kind of mutual funds and your 401(k), etc., do you have any really exciting investment opportunities that you're really concerned about in the next year or so?

I've been going back and forth about starting my own business, which is why liquidity would be nice. And to get that ball rolling, I would probably need in the neighborhood of $50,000. But I don't know how serious I am. It's kind of at this point a fleeting thought that I've been flirting with, but have not actually made real commitments or progress towards to myself.

Is your potential business idea time-dependent for any reason? Is it the kind of business that will probably be just as good of an opportunity two years from now as it is today? Yes. Okay. So I guess my thought would be, I did the show recently, we've got to talk about the financial aspect of paying off debt and then the kind of lifestyle aspect of paying off debt.

So financially speaking, let's stay strictly there. That 7% interest rate is a big deal because it's very hard to think of any other kind of normal traditional investment that you're going to make that's going to basically get you what in essence is a 7% guaranteed return on your money by paying off that debt.

Certainly there may be options where it could pay more, but with headwinds looking strong and broad-based US stock funds, things like that, certainly for all of our guesses, it certainly seems like the coming decades, the headwinds are stronger than they've been the past few decades. So when you've got a 7% guaranteed return, that's pretty strong.

When you look around at safe things you can do with money, you can't find a 7% return in today's world. So that's a compelling interest rate to clear out. And for that reason, I would give this a high priority. Would I stop retirement investing? Would I stop 401ks? Probably not.

I'd probably keep at least the match, but I'd give this a high priority. And I'd also give it a high priority for the lifestyle considerations, just in terms of having it cleared. The problem that you face is if you go and start a business today, you've got this debt and if you sell your house, yeah, you're still at a negative net worth.

You still owe more than you're technically worth because of the student loan. If you had that student loan cleared out, you would have a significant amount of – if you had the student loan cleared out, you'd have a significant more freedom, especially mental freedom and financial freedom. Mortgage debt in some ways is kind of the easiest debt to have because it's secured by the value of a house.

And if you ever want to clear it, well, you can list the house for sale and you can clear it. Student loan debt is that debt that's secured by the value of an income and a person. And that's really hard to get mentally free from until it's gone. So I think there's a compelling case in your situation to move towards paying off the debt aggressively.

If I woke up in your shoes, I would have this as a big, big goal. Let me get free of this student loan debt as aggressively as possibly. Now, in terms of liquidity, what about this business? If you had a business or a business idea that you were convinced was appropriate for you, and if you were convinced that the timing was important, six months from now, I've got to start this business because it's a good time in the market or it's a very important time in our lives, then I would consider not paying off the debt and I'd consider starting the business.

I didn't hear that. I heard, "I've got this business idea. I don't know if I want to do it for sure, but I might or I might not, and it's not particularly time-dependent. I'll be there in a couple of years." Well, if you could pay off $5,000 a month on a $70,000 loan, basically a year from now, just over, basically a year from now, you can have the student loans paid off.

If it were me, I would focus on having the student loans paid off and then celebrate in a year, save up for another six months or another year while building the foundation of the business, and then launch the business. I would launch it with that mental freedom of not having the student loan hanging over my head.

Then the third kind of comment is, "Well, is it valuable to save up the money to chunk towards it or is it valuable just to pay it off as quickly as possible?" Factors in favor of you're paying it off as quickly as possible, if you and your wife are working in relatively stable jobs, then I would – you'd go ahead and just pay chunks.

If you could put $5,000 a month at it and have it gone in 12 to 15 months, that's in favor of just throwing it at it rather than accumulating it because that's – it's super motivating to look down at a debt balance and see that thing dropping every month and put a chart on the refrigerator and celebrate, "Hey, we're down under 60, under 50, under 40." That causes you to make changes in other areas of life and I've always found it to be very motivating when paying off debt to do that.

So I think those are things in favor. I'm a little nervous about you only having $10,000 liquid. If you're spending $6,000 a month, if I woke up in your shoes, I'd probably pretty quickly increase my emergency fund first. I'd maybe save a couple of – a couple more months of expenses in case you or she were to lose your job and then maybe you can compromise and do it in chunks.

But a lot of it is going to come down I think to that business. If you didn't have a business idea, I'd say save $20,000 in the emergency fund and pay off all the debt in the next year. Since you have that business idea, you might want to hedge yourself a little bit as the months go by just to leave that door open to quit and start a business before you have the debt paid off.

So we're right up the middle in my advice. I don't know if that was helpful or not or if all I did was talk around the issue and say, "It depends," which you already knew. Yeah, and that was kind of one of the considerations I had with posing the question.

Every single thing of course comes down to everybody's specific situation and that's why rules of thumb are frequently not useful. So that address, it's in line with where I wanted to head as far as definitely building up savings and attacking it. How excited is your wife about the potential business idea?

Not. And I go back and forth on it as well. It wasn't something that I brought into the consideration because I knew that even if I did want to approach it, it's something I would do after the loan was cleared anyway and savings were bolstered just because... I mean, I don't know the percentages off the top of my head that how many small businesses fail.

It's not one that I'm convinced of. I think it's an excellent five-year plan to start the business, but I don't know how sustainable it's going to be in the long term and that's probably something that'd be good for a consulting call with you. Yeah. And especially also you should consider the fact that it sounds like this $150,000 income is relatively new.

If a few years ago you were living on 40 and now you're making 150, this might be the time just to stay put, make hay while the sun shines and stash aside some money because not everybody can just bumble into $150,000 household incomes. So if you've got a good thing, don't immediately just jump for a potential.

Stack up some money and you'll find that starting the business is a lot easier. Are you and your wife the type of people who spend money once it comes into your accounts and it starts piling up and you start to get an itch to buy an RV and go on vacation?

Or are you the kind of people that don't really judge your – base your financial decisions based upon how much money is in the checking account? I would say it's just like most relationships, opposites attract. And so there's the saver and there's the spender. And – Which are you and which is she?

I'm the saver, she's the spender. And that's why it's been really easy to get her excited about paying a lot of the smaller loans off because we've been able to get that immediate traction and we've been able to do it while making a lot of changes in our lives, buying a house, taking over some lifestyle creep.

With the jump in income, we've been able to, in a way, have our cake and eat it too. We've been able to get the house, we've been able to pay cash for the car, we've been able to go on vacation, but we've also been able to fairly – not aggressively, but still quickly pay off debt to where it feels rewarding to do so.

And as we stare this last loan in the face, we need to submit to a plan and be great to get it paid off. But we've also enjoyed lifestyle creep. Okay. I'm convinced – It would have been more intelligent to avoid it altogether, but – I'm convinced I know what I would do with a high degree of confidence.

If I walk up in your shoes, based upon especially that final factor that has kind of opened up – if I woke up in your shoes, here's what I would do. I would try to set aside $1,000 a month transfer from my checking account to my emergency fund savings account, an automatic transfer with the goal of adding to that at the rate of $1,000 a month until we get it to $18,000, $20,000 a month, something like that.

A little bit more comfortable than $10,000 a month. You guys have the money where that's really important. And since it sounds like the job is new, just given potential fluctuations in economic conditions, et cetera, I'd be nervous without having at least three months of expenses set aside, especially when you just have this one big debt.

So I'd set aside $1,000 a month to go into that. I put a big chart on the refrigerator showing the debt amount, and I would put every – with the exception of the $10,000 in my emergency fund and with the exception of accumulating a little bit more there, I would focus 100% on every month writing as big of a check to the student loan company as I possibly could.

And because having that focus, my gut is that your wife would be willing to stay committed with you to this goal for a year. You could put off redoing the bathroom and building the back deck for a year. You just bought the house. You could put it off for a year.

And if you just focus for a year, she'll be willing to continue with the belt tight for a year. Five years would be really hard for her to say, "Yeah, we can do that for five years." She's going to have lots of plans, lots of dreams that she's going to want to fulfill in five years, but a year you could do that.

And if you've just got this one last thing, you're on a roll, keep the inertia going and write as big a checks as possible to the student loans every single month. And if at the end of a year, I woke up and saw that I had $18,000, $20,000 in my emergency fund, and if we could pay this thing off by her birthday, which is August 1st or some such thing, I might just write a final check and have it gone and then schedule a big celebratory conversation.

But if she's the spender, and she's got a whole list of things she wants to do, great things she wants to do with the family, great things she wants to do on the house, and those things are super, super important. And if you stretch this out for years and years, there's going to be this constant tension.

Whereas if you say, "Listen, let's keep our belts tight for the next year and a half, get the student loan gone." Then what you can do is just open up the budgets. You can loosen the belt, add an extra $15,000 a year to lifestyle that can be spent on the new deck and the things that the kids want, et cetera.

And you'll still be able to save plenty while being free of it and staying focused. So that's what I would do. Does that make sense why, how I got there with the focus and trying to help her stay focused on paying off the debt so that you can get there quickly?

Oh, absolutely. Absolutely. Yeah. I think you owe it to her with making this, you guys have obviously worked hard. You're establishing careers. I'm sure buying the house is exciting and things like that. And I think you owe it to her to sketch out the clear plan where she doesn't have to live like a miser forever.

But of course, you're concerned about what are we going to do? We're going to start spending all of our money. And so just say, "Hey, let's live like misers for another year and a half." And then, I don't need to repeat myself, then we'll have an extra $1,000 a month or $1,500 a month that we can spend on anything, any of the budget categories that we want to open up.

Perfect. Thank you. You're welcome. Not an easy question to answer. Somehow, marriage and money things are hard. I find those questions about debt and what to prioritize, I find those things really, really hard to answer because it's so much, it depends. But the 7% I paid off. Also, Jim, while you're doing that, don't forget, it's always going to be in your best interest to cut your interest rates.

There's no reason to pay interest if you can't get it. So just look around. Sometimes, you can get a credit card offer from time to time if your credit scores are good. From time to time, you can get a credit card offer that's not only a 0% introductory rate, but also a 0% balance transfer fee.

Of course, that's where they always get you as the 3% or 5% balance transfer fees. But from time to time, you can get that. So maybe you can use that to cut the interest rate. I'd still say focused on it, but it never hurts to play the games to get the 7% drop down as quickly as possible.

Or if you can go down to your local credit union and just get a personal loan, they'll give you a personal loan at 3% or 4%. That's not a bad idea as well. Always a good plan to do anything you can to keep interest rates low. But the power of the motivation, put the chart on the refrigerator, celebrate how much, and plan a great big celebration of family vacation or giant party or something when you get that final student loan payment paid off just to commemorate it.

I think that's really, really valuable. That's it for Q&A on today's show. If you would like to join on a future show, please become a patron of the show, radicalpersonalfinance.com/patron. You can sign up to become a patron of the show there. That gains you access to these Q&A calls, wherein you can call and talk about anything you want.

I love doing them. These are my favorite shows. A lot of times I'm struggling and I'm like, "Oh, okay, I got to go to the Q&A show," and I get in charge of talking with you guys and trying to figure out some of the answers. So I hope this was fun and useful, and I will be back with you very soon.

This show is part of the Radical Life Media network of podcasts and resources. Find out more at RadicalLifeMedia.com. Let's see what AI knows about football. Hey, chatbot, should I bet on my team to win the big game this year? Bet on Valley High Toyota to get you a great deal on a new 2023 Toyota.

What? I'm talking about football, not a new car. Well, your team is trash and will never make it. Save your money and spend it on the car you need. Ouch. Score big on a new 2023 Toyota this season at Valley High Toyota. It's way easier than you think.