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Afford Anything | Get Smarter With Money
Q&A: Should You Pause Retirement to Buy a Bigger Home?
01:21:24
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- [00:01]
A
Live from the Holiday Inn in Omaha, Nebraska. Joe, thank you for joining us.
- [00:07]
B
Thank you. Happy to be here. The Holiday Inn is attached to a casino. So, Paula, if you want to come visit, we could go play the slots.
- [00:16]
A
Well, I think what we'll do is help people play the slot machine of life, the roulette wheel of life, Joe. That's what we do here.
- [00:27]
B
May the odds be ever in your favor. Afforders.
- [00:30]
A
Today we are answering a question from Hannah. She and her spouse are in their mid-30s. They have two children under five, and they're wondering if they should reduce their retirement savings in order to save for a down payment. We're going to hear from Amelia, a healthcare provider who works part time and is wondering what to do about 401k contributions and IRA contributions. And we're going to hear from Leslie, who has a wonderful question. I won't spoil it, but it's the question that made me go. Aww. Welcome to the Afford Anything podcast, the show that knows you can afford anything, not everything. The show covers five pillars. Financial psychology, increasing your income, investing, real estate, and entrepreneurship. It's double I fire. I'm your host, Paula Pant. I trained in economic reporting at Columbia. Every other episode, ish. I answer questions from you, and I do so with my buddy, the former financial planner Joe Salsihai. And what's up, Joe?
- [01:23]
B
Paula, while I was waiting for us to start today, I was working on my budget.
- [01:26]
A
Oh.
- [01:26]
B
I brought along some of my bills, and I opened my water bill and my electric bill at the same time. A man was that shocking. Oh.
- [01:35]
A
Boom. And with that, we'll go to the first question, which comes from Hannah.
- [01:41]
C
Hi, Paul and Joe. My name is Hannah and I have two questions. I'm in my mid-30s and my spouse is in their early 40s. We have two kids under 5. We make a combined 325,000, with about 60,000 going away in about two years. We pay $2,500 a month for child care, which will be reducing by $1,200 in the fall when our oldest goes to public school. We are both federal employees who currently max out our TSPs, which have a 5% match. I have 275,000 saved and my spouse has 157,000 saved. We will also be eligible for a pension and Social Security when we retire. Question 1. We bought a home in 2020 for about $500,000 with a 2.5% rate. We live in an area next to a college with a high military population. We want to upgrade to a Larger house in about five years and keep this home to rent out. My dad advised that we should lower our retirement contributions to aggressively save for a down payment over the next few years. Right now we have about 20k saved for roughly this purpose. 5,000 in a high yield savings account and 15,000 in a brokerage. We put aside 900amonth, 500 into savings, 400 into the brokerage. If we lower our contributions, we could put in 2000 more and then another 1200 starting in the fall. The goal would be to quickly save up 200,000 so we could afford a single family home, which is around 700 to 900 in our area right now. He argues that we're fairly young and can increase contributions after we've bought the new home, especially since we'll have pensions eventually. Should we reduce our retirement savings? My father also encouraged us to put the money into our brokerage to get the max amount of returns. Is this a good idea? I don't think we have a hard deadline for when we would need to pull the money out. And if we are able to set aside a total of 3,200 by this fall, we should be able to meet our goal fairly quickly and sit on it so that it continues to build returns and we can pull out at an appropriate time. We did discuss our goals and agreed our primary goal is to buy a larger forever home before our oldest is in middle school. But we also think it would be lovely to have lots of money in retirement and be able to travel and help out our kids financially later on. Question 2. We may have the option to move across the country for my spouse's job. The move would happen this year. We would not be ready with a full down payment for a new home. Should we keep our current home in rent in the new city while we continue to save like this? Should we sell the current house if we move or would moving be a bad financial idea? With this goal in mind, the move would be for my spouse's job, but would not guarantee a raise or necessarily better options. Just opens doors and provides good experience. We love our jobs and where we live now, so staying put would not be a hardship. Thank you guys so much. I appreciate all the advice you have to offer.
- [04:29]
A
Hannah, thank you for the question. Let's walk through some of the math on this. First of all, I love the fact that you've got PAT pension eligibility and that you're maxing out your TSPs and you're getting a 5% match on that. Those are both excellent staples of your retirement Plan. And before we even begin this conversation about reducing your contributions, I do not want you to reduce your contributions below the match. I want you to be getting the full match. So my assumption, when you talk about reducing your retirement contributions and redirecting an extra 2000 per month plus another 1200 per month in the fall, my assumption is that that reduction would not be so severe that you would lose the match. Joe, do you think that's a fair assumption?
- [05:18]
B
Yeah, I do, but I have a little different take, of course.
- [05:22]
A
Oh. Oh, okay. Well, I'm going to assume even if you were to reduce your retirement contributions by $3,200 per month, you would still get the full 5% match. Now, you've got 20,000 saved so far. If you save another 2,000 between now and August, and by August, you've got 32,000. And then in August, you begin saving 3,200 per month. That means that in order to reach your goal, so 200,000 minus 32,000, you have another 168,000 to save starting from August forward at a rate of $3,200 per month. That means it would take you 52.5 months, which is a little over four years. About 4.3 years. Which means since your goal is to buy this forever home within the next five years, that puts your timing on track. The plan itself, if the goal is five years, the plan. Plan itself is solid. The only question is, does that disrupt your retirement plan?
- [06:29]
B
It's actually longer than five years because it's by the time he's in middle school, and middle school will be closer to 12, 13.
- [06:38]
A
Yeah, yeah, but she also said five years. So at one point, she said, before the Otis reaches middle school.
- [06:44]
B
Gotcha. So middle school is going to be the back end of that goal. Like the drop dead.
- [06:48]
A
Yeah. Yeah, I see. But at a different point in the question, she said five years.
- [06:52]
B
I actually like that, though, that it's a range. You know what I mean?
- [06:56]
A
Yeah.
- [06:56]
B
Give yourself a better chance of hitting the target and you're not disappointed when life hits midway through your strategy.
- [07:05]
A
Yeah, yeah, exactly. Okay, so, Hannah, the math, maths, in terms of will you hit that $200,000 goal within the next five years at a savings rate of $3,200 per month starting in August and 2,000amonth between now and then? Yes, you'll hit the goal. So the math, Maths, the questions that I have for you. Number one, I do want to make sure that you're getting the full TSP match. Number two, I do want to question the premise of whether or not you need a $200,000 down payment. And I want to question that for two reasons. One is that you said that you expect that the home that you'll buy will be between 700,000 to 900,000. So already we're talking about an over 20% down payment. And I get that you want to have extra for closing costs and for the move and for other ancillary expenses associated with it, but you don't necessarily need a 20% down payment. It is perfectly viable to get an FHA loan with. I mean, for a primary residence, you could do that with as little as 3.5% down, or you could do 5% or 10%. So I do want to question the premise of saving a full 20% because it seems it's not necessary for the goal.
- [08:23]
B
There's another premise later on that I also want to question, which I think is the fun of answering any of these questions, Paula, is when we're like, wait a minute, can we think about this differently? But before we get to that, before we get off the idea of savings rate, I think this is the perfect opportunity to roll out. Do you remember that old RuPaul song goes, you better work. Work it, girl.
- [08:46]
A
I do not. There was that Britney Spears song, you better work. Bleep.
- [08:52]
B
This is the song called supermodel.
- [08:54]
A
Oh.
- [08:54]
B
RuPaul has this great old song called Supermodel where it's about going up and down the dance floor, and it's a song all about modeling. And this is the perfect time to model.
- [09:06]
A
Oh, dear.
- [09:08]
B
Whether this is going to be. No, I think it's perfect. I think this is a great analogy. I know I had the dad joke earlier. Get away from that. This is the real thing. We want to model this out. And I do think it's sexy, right? To be able to see ahead of time what the future might give us. I don't know if dad's right or wrong when he says, hey, back down your retirement savings. You know why? Because we have it modeled out. If we lower that number, what does it give us? What do we end up with? Do we have enough money? If I can safely get that. You know, she mentioned that she has these two goals that she sees as conflicting. Want to have lots of money, be able to help my kids later. And I want to have this house by the time my oldest is in middle school. And she sees those, I feel like, as diametrically opposed. But are they? Maybe she can have both. They've done a kickass Job saving so far and they have the pensions. So if they have those and she backs down her retirement contribution, is that going to have a material change on her vision for herself for retirement? Maybe she can safely do that and it's fine. And I think if she can safely do it, then that's green lights. Hey, let's go for it. Let's put a bigger down payment down because we can. And now I don't have to take out such a big loan even though it might be suboptimal because I also Paul, a question that premise. I don't 20. No, I don't think you need that. Yeah, but if it materially changes the, that long term goal and she can't have both of those, I think then we get to the most exciting part of any financial plan which is when we have to sit down together, Hannah and her spouse and say which of these is most important? And if, if I am going to derail my retirement by getting that house, how am I going to make that up? What am I going to do differently? What's going to change in the future? So, so while I agree with everything you said, I never want to go below that match. I don't want to give away free money. Like I said, don't, don't give away free money. I want to model this out first. I want to send all my goals down the Runway. I want to look at them very carefully and then I want to discuss which of these goals I'm buying or can I buy both?
- [11:30]
A
Yeah, I agree with you 100%, Joe. The unknowables. At what age do they want to retire? How much money do they want in their retirement? When we're mathing it out and we're solving for X, the how much money do I need in order to retire? Is this unanswered question. And it's difficult. You know, they're in their mid-30s. That is incredibly difficult to answer. So assuming that they want to retire at a traditional age in their mid-60s, it is utterly unknowable what kind of health they're going to be in, what kind of lifestyle they're going to desire, what type of family circumstances they're going to have at that age. All of that is true guesswork. So I love the idea of modeling. I also understand how, how many assumptions get piled on top of assumptions when people who are 30 years away from retirement, again assuming that they want a traditional age, people 30 years away from retirement are trying to plan for the unplannable.
- [12:32]
B
Yeah, I don't know. You know, that sounds to me like an excuse not to do it, which I hear people talk about all the time. But a pilot doesn't get in a plane and go, hey, you know what? Omaha is somewhere over there. But we don't know what the wind shear is going to be. We got no idea what's going on at 30,000ft. So you know what? We're just going to take off and see what happens. That doesn't happen. If I know what the assumptions are, then I know how to counter when my feelings change, when outside forces change. Because both of those things are going to happen, right? Inflation, like pandemic. Who would have seen that coming? When this stuff happens, though, and I have a model now, all I have to do is course correct. If I don't have any model, you know what I do? I start guessing about what I should do with my money next. So setting up these models to me is always number one. I still want to begin with, okay, let's say I feel the way that I feel now, at the very least, and this is what I do. If somebody really could not articulate, and this is people in their 30s all the time, but they're looking at age 60. If you can't articulate what you're going to want at 60, and I totally get that, let's just say this. I don't want it to be worse than it is today. I want it to be what it is today. And if it is, and we make a few reasonable assumptions over long periods of time. Inflation's been 3% over long periods of time. Getting an 8% return on our money is a doable thing given a risk tolerance discussion. I model those two things. I model my lifestyle today. I run out those numbers, and if I find out that I'm grossly behind, then I know I shouldn't do what dad? Sam. Or, or maybe I should. But then I'm going to need to do some course correction later. I need a better plan. But if I'm way ahead of the game, then I know that I have this margin of safety because I am with you, Paula, that all these numbers are going to blow in the wind. Everything's going to be different. But I don't think that means we shouldn't model it out.
- [14:37]
A
Right, Right. I agree with you. Model it out. I thousand percent agree with that. Model out the retirement, but be careful that it doesn't turn into garbage in. Garbage out. One thing I often like to say to my students is that there is a distinction between Precision and accuracy. And sometimes when we model things out, we arrive at a number that is so unduly precise that we conflate it for accuracy. Yeah, Model it out. But when you see those numbers or that range of numbers, do not conflate the precision of those numbers with the accuracy of that information.
- [15:15]
B
Yeah. It's funny. There is a. This simulation. I'm going to get a little bit nerdy. There's this simulation that financial planners use called a Monte Carlo situation.
- [15:24]
A
Simulation. A Monte Carlo situation.
- [15:27]
B
It could be a situation.
- [15:30]
A
We have a Monte Carlo situation on our hands.
- [15:32]
B
Hello, everybody. In a Monte Carlo simulation is this modeling where it takes your model that you put in, but it runs it through different sequences of returns, different interest rate assumptions, different inflation assumptions, Black Swan events happen. And it says over all these different periods of time, all these different ways that things might happen. Let's say it takes a thousand. In what percentage of these would you have been successful without course correcting? Amateurs when they use a Monte Carlo simulation, they always want it to be 100%. I don't want it to not be less than 100% because that means that I shouldn't retire. But people always forget, Paula, the end part of what I said about Monte Carlo, which is without course correction. So if I have a Monte Carlo simulation where 75% of my projected futures, projected outcomes are positive, that doesn't mean the other 25% of the time I don't get my desired result. It means the other 25% of the time there was a pivot in my future. We know there's a almost 100 chance there's going to be a pivot in your future anyway.
- [16:50]
A
Right.
- [16:51]
B
So to your point, we use these modeling tools in a way that they shouldn't be used, but this is a perfect time to model, to go. You know what? If I take Dad's advice and I lower my contributions by X, it still looks like I have a huge degree of probability that I'm going to still reach my goal. Great. Or there's a huge probability I just screwed my retirement, which isn't what we want to hear, but it's still great information. Before I I make this change.
- [17:23]
A
Right. Should we talk about the other piece of Dad's advice, which is put the money in a brokerage account so that it can grow more.
- [17:30]
B
Can I use three words?
- [17:32]
A
Ooh, I hope they're spicy. Will they have to get bleeped? Are you using bleepy words?
- [17:40]
B
I don't know how spicy these three words are together, but word Number one is don't. Number two is do. Number three, it's don't do it. Do not. It's, it's, it's the hot stove. It looks sexy. It's awesome. I'm, I am a couple hundred yards from a casino right now. Paula. That is a casino move. That's a casino move.
- [18:03]
A
The slot machine of life. You know, when the economy is booming, when the stock market is booming, it is easy to mistake the stock market for a high yield savings account that goes on until it doesn't. And when it doesn't, it doesn't in the worst way. Just ask 2008.
- [18:30]
B
Yeah, 2008 said, hey, hold my beer, I'll ruin some goals.
- [18:34]
A
Yep.
- [18:35]
B
But Hannah, to put that in a, in a less flippant way, you know, you said that you're okay with stretching the timeline. And so the max timeline based on middle school sounds like it's about eight years away. And then I would say okay, okay, if you are very serious about eight years, then yeah, then we should talk about maybe some variable, variable tools to use. But if you're on that five year train and you're going to be disappointed when 25% of your money goes away, don't do it.
- [19:10]
A
Yeah, so she said both of her kids are under five. So if we work on the assumption that by the time the oldest is 12. 8 years. So 8 years as that maximum number, do you think that's far away enough that a portion of this would go in brokerage?
- [19:26]
B
It could, yes.
- [19:27]
A
How big of a portion?
- [19:30]
B
I might go 50. 50?
- [19:32]
A
Really? That big?
- [19:33]
B
Yeah, yeah. And I would use a collection of government bonds and really mega cap super value oriented stocks like utilities and railroads. You know, I would not have any small, small value size companies. I wouldn't be playing the AI game.
- [19:58]
A
And then as you feed those out, because you're, then you're sliding that amount out towards the short term. So basically if you think of kind of the bucket of one year, two years, three years, four years, five years, six years, all the way up to eight. Right. As time moves forward and that eight year goal moves to, you know, that eight year maximum threshold shifts down to seven, then down to six, at what pace do you slide those out from 5050 to 100 0?
- [20:32]
B
I don't think you have to be 1000 until the year before. And I think that the year before then we maybe have 20% of our money in Ginny Mays and the rest of it in the high yield savings account. I'm shifting it down I'm shifting out of those stocks four years from now at the latest. I don't know. You know what's funny is I even sit here and hear myself say this and I'm like, is all this worth it?
- [21:01]
A
Yeah.
- [21:01]
B
Worth it?
- [21:01]
A
Yeah. Is it worth it? Like in actual nominal dollars, how much are we talking about?
- [21:07]
B
Well, and here's the thing, not even nominal dollars in behavior, which is now. Now I have this more complex strategy that I have to follow. The propensity for people to begin playing guessing games about do I actually keep following the strategy or do I move it? I mean this was my full time job, was to make sure people kept saving the way that they were saving and putting money into the things they were supposed to be putting money into. And even as a pro, my clients would get me to start guessing. Should we do this now, Joe? Should we really do it now? I'm reading the Wall Street Journal every day, I'm watching CNBC and I'm like, well, you know the Fed's about to make a move next month. Ye, maybe we just wait a month and then I go, what the hell am I talking about? No, let's do it now. Do it now.
- [21:54]
A
Exactly. Based on our interview with Colin Roche, he really sold me on T Bill and Chill. Since hearing that and looking more into it, I am, especially for money that is in a five year or less bucket. Have become a pretty big fan of the T Bill and Chill approach.
- [22:12]
B
It would be easy to model out. I'm not going to do it for, for this, for right now, but it wouldn't be hard to model what the Delta would be, you know, potentially. So what's the risk reward? But there's another model you know about is, is there any efficacy in this grandiose land the plane, get into stocks and not stay in stock strategy.
- [22:33]
A
Right. And I mean if you're modeling that out, you have to model the range of here's the expected return with T Bill and Chill and then here is the range of returns. If you were to put a portion of this into Ginnie Mae's and then you're spreadsheeting all of that and looking at is the juice worth the squeeze?
- [22:51]
B
I think with that time frame, by the way, Ginnie Mae beats T Bill. This is where Ginny May and Chill would beat T Bill and Chill. Because with an eight year time frame, the difference between implicit and explicit backing of the bond has a material outcome in your pocket.
- [23:11]
A
I think it couldn't be Ginnie Mae and Chill. It would be like Ginny Mae and stay. Ginny Mae and stay versus T, Bill and Chill.
- [23:18]
B
TM Gotta trademark that crap. But the short answer is I think your best option is to not do it.
- [23:27]
A
Yeah, it's an interesting mental exercise, but again, I don't like the tendency to fall into the thinking around the market being a high yield savings account. I think psychologically that's a dangerous road to walk down. And the issue that we're all facing is that from 2009 through today, we have essentially been in a non stop bull market. Technically, there was a minute in 2020 when we went into a bear market. But recessions are defined both by severity and by duration. And the recession of 2020 was, although briefly severe, the duration was so short that we've all collectively forgotten about it. And what that means is that we have had the experience of having a continuous or near continuous bull market from 2009 through now. And that can lead people into believing, even subconsciously, that the market is a high yield savings account.
- [24:35]
B
We just did a headline story about this on Stacking Benjamin's. Paula, there are some new studies out that show that the longer this bull market runs and the further away catastrophic losses to a wide swath of people get in the rearview mirror, the more we treat the markets like a slot machine. Going back to this casino right here, this is the reason, part of the reason, not the entire reason, but a part of the reason why so much money is pouring into these. These bet on anything. Daily market, online. What online?
- [25:14]
A
Oh, you're talking about Kalshi and Polymarket and those.
- [25:17]
B
Yeah, yeah, yeah. So much money is going into those because, heck, when there's a ton of winners, people begin getting more and more and more brazen with dollars they can't afford to lose.
- [25:30]
A
Right? And what people, most, many people don't understand is that the winners in those markets are people with some type of an edge. There was a really interesting article, I forget where I read it, but it was an interesting article analyzing why these markets often beat analysts when it comes to market predictions. Why the betting markets, Polymarket and Kalshi, be analysts when it comes to betting predictions. And one of the reasons is that if you're an economist, you are required to make a prediction every month whether or not you have a high degree of confidence in that prediction. Whereas if you are betting on one of these markets, you are not required to do so unless you have a high degree of confidence. And so you have this selection bias in which people tend to, particularly people with an informational edge, tend to Bet only when they have a huge degree of confidence. Which is why over time, in aggregate, the betting markets tend to have a better track record than economists do. That said, the people who win in betting markets are the people with an informational edge.
- [26:36]
B
Yeah, I read a story a couple years ago about the people that run DraftKings have algorithms that take the other side on stupid bets. Because you have a couple beers and sit down with your phone and pop some money into a really Dumb bet on DraftKings and the algorithm takes your money and all the algorithm's doing is looking at probability. Sometimes you beat the algorithm, but the algorithm almost like the casino, right? The casino. 51 to 49 edge on the roulette wheel. It's going to lose a lot. But in the law of large numbers, you come out behind.
- [27:15]
A
Yeah, yeah, exactly, exactly.
- [27:17]
B
Which is funny because, you know, you look at like the stock market, one year in the stock market, and we just looked at these numbers as well. I always compare one year in the stock market to a roulette wheel, but it's 53%, Paula. In an average year you have a 53. So you're actually.
- [27:36]
A
So you're positive, Ev.
- [27:37]
B
Yeah, in one year you're better than the. All you got to do is leave it there for 365 days and it beats the roulette wheel. And then as you know, five years, 10 years, 20 years, it goes up substantially. There has not been in the last 50 years a 20 year period of time where you lost. There hasn't been one. And by the way, this is The S&P 500 we're talking about not betting on a single stock.
- [28:00]
A
Right.
- [28:01]
B
Easy to lose that game.
- [28:02]
A
Yeah, yeah, exactly.
- [28:04]
B
Can we take her question about what if she moves?
- [28:09]
A
Yeah, that was a surprise move at the buzzer.
- [28:13]
B
This question made me question another premise.
- [28:18]
A
Oh, I love questioning premises.
- [28:21]
B
And I mentioned this as a start because you questioned the premise at the beginning. I'm going to question this one. You move across country, she's like, and so we keep our house and do we rent while we're still developing the. And it made me just ask this question and I don't know the answer, Paula, but why hold on to this house? And I know that for some people it's just an emotional decision. Like I want to be a real estate landlord, which is great, but is that the optimal way to get to a return is a return is a return. And if I'm jumping through all kinds of hoops, well, here's what I'm going to Do. I'm going to rent while we're across the country and I'm going to build a fund for another house and I'm going to hold on to this other property. Like, what am I doing?
- [29:10]
A
Well, I think the idea is there's a reasonable likelihood that in our lifetime we may never experience interest rates that are as low as what she's got. You know, she may never again have an opportunity to borrow a significant sum
- [29:25]
B
of money at a two and a half percent rate. Yeah, I'm not questioning whether it's a good deal or not. I mean, I kind of am, but I'm not saying that it's not a good deal. I'm just asking the why question, which gets to a broader question that I think is more important in a podcast setting for Hannah, which is, I think we always have to ask ourselves, why am I doing this? Like, I'm out. I'm out researching individual AI stocks versus investing in the S P500 or the total stock market. Why am I doing that? What's. What's my motivation for this? And I feel like sometimes we make some moves that we categorize as financial moves that really behaviorally or something different than that. And I don't know the answer, but I was like, if I lived halfway across the country. I've never been a landlord before, and now I'm introducing some complexity into my life. And don't get me wrong, there's this amazing person who has a course that will help you get this done. And it's not as hard as you think it is if you follow some standard operating procedures. But I did have this moment where I said, you know, I think it's important to bring up why. Why?
- [30:42]
A
Well, I'm glad you asked that question, Joe. My bias is generally to hold onto a home unless there is a compelling reason not to. The reason that I bias in that direction is for the following. Number one, you've locked in a very low interest mortgage. You've also locked this in as a primary residence mortgage. These are the most friendly borrowing terms that you will likely ever be able to get. Number two, there are huge transaction costs associated with selling a home. You take a 6% haircut right off the bat, not even counting the money that you spend in additional repairs, maintenance, staging, professional photography, et cetera, et cetera. There are just massive. I mean, it's like you talk about a mutual fund with a back end load, like a house is just the ultimate loaded fund in that regard. The transaction costs are substantial. And to me, because of the friction, the financial friction around those transaction costs. There needs to be a why around selling as well, not just a why around holding. That why has to operate in both directions. So what I like to do.
- [31:56]
B
Can I stop right there? Because I really like that point and I want everybody to pause in that point for a moment Because I think we also do that with our stock portfolio. Charles Schwab, a number of years ago did a study showing people are more likely to sell their winners then they're losers. Which is more proof that we don't think through our why. Why am I selling the thing that's doing what I want it to do?
- [32:18]
A
Well, isn't that just rebalancing?
- [32:20]
B
No, no, no, no, no, no. Completely. Get out. I want to emphasize this is a clear different thing. This is I'm selling my winner 100% and I'm holding on to my losers. But I hold on to my losers because it's an emotional decision that I think that if I hold on a little longer, this bad decision that I made, which I could have never predicted by the way, that like, there's no judgment in the fact that I didn't predict the future, that this stock was going to do what it did, we're likely to hold on to it, hope that it writes the course. Yet historically, momentum in the stock market is a real thing and winners tend to win and losers tend to lose. And so we're selling the wrong positions and we're holding on to the right ones. So it's funny because I like the fact that you're bringing up the other half of this argument, which is there also should be a reason beyond. Well, I think it done real good and it's time to get out. Like what? Why? Why would I do that? If I'm rebalancing, then I have my why. But if it's just done well and I'm not at this rebalancing point, why am I making that move? Interesting.
- [33:27]
A
But to the question of whether you should hold, whether it's worth holding onto as a rental property, my favorite equation, and I know I talk about this all the time, is cap rate. Cap rate is an equation that helps you calculate the dividend. It's not the total return, but it is the unleveraged dividend on that property. And so if you calculate the cap rate and then you add that to some reasonable appreciation estimate, market based appreciation estimate, and I would say anywhere between 3% if you want to be conservative, 5% if you want to be a little bit more aggressive, anywhere between 3 to 5. Or you could split the difference and call it 4. Tack on between 3 to 5% as a reasonable appreciation. Estimate that number plus the cap rate, which is the unleveraged dividend. That will equal the total unleveraged return on the property. Fancy way of saying how much return you would get if you were to hold this property in cash. The reason that you're calculating that is because you don't want to conflate the financing. And I know I just talked about how beautiful the financing is, but you don't want to conflate the financing with an evaluation of the asset itself, the underlying asset itself. I like to say, if it's not worth holding in cash, then it's not worth taking out a loan to hold. Don't use a loan to make a bad asset look bad better, which, unfortunately, in the financial world, a lot of people do do that. A lot of people will buy underperforming assets because they can use financing to make an underperforming asset look better than it is. But if something's not worth holding in cash, don't use a loan to hold it. So the first thing you want to do is calculate the unleveraged total return. And if that is a decent number, if that is at least 8%. So you're on par with what you would be getting with an S&P 500. But then you're also getting the tax benefits. You're also getting great financing. You're also getting, you know, you get depreciation, You. You get all of these additional wealth building benefits. Plus you just get diversification outside of the market. So you have an asset, you know, you just have diversification in the types of assets that you're holding. And with real estate, you're holding an asset that, you know, if you're worried about inflation or the devaluation of the dollar. Right. You're holding tangible assets. Sure. If you're doing. You're getting all of that diversification and an unleveraged 8% total return. Again, not 8% cap rate. 8% total return. Yeah. Then I think there's a great argument for holding.
- [36:01]
B
I would definitely work through that exercise, Hannah. Yeah, and maybe she already has.
- [36:08]
A
So a lot of our answer. Joe came back to spreadsheeting it up.
- [36:11]
B
Modeling.
- [36:12]
A
Modeling. Work it, work it.
- [36:15]
B
Run the numbers down the Runway. See if they're sexy or not.
- [36:19]
A
Hot or not.
- [36:24]
B
I should do that for another one of my Friday round tables.
- [36:27]
A
Hot or not.
- [36:27]
B
We've done. We've done. Love it or leave it. Right? We've done financial game shows. I should do Hot or Not.
- [36:33]
A
Hot or Not. That's totally it. Ginny May and stay.
- [36:40]
B
We coined a new one.
- [36:42]
A
All right, well, thank you, Hannah, for the question. Please call us back with an update six months down the road. Let us know how this decision shook out. We're going to take a moment to hear from the sponsors who make the show possible. And when we return, we are going to talk to a listener who makes $110 an hour but works 16 hours a week and has questions about retirement savings. If you've been putting off getting life insurance, there's no better time to do it than now. Over two thirds of Americans overestimate the cost of life insurance, but it's more affordable than you think. And fabric by Gerber Life makes it so quick and easy to make sure your family has more financial protection this year. Fabric by Gerber Life is term life insurance you can get done today. Made for busy parents like you. All online on your schedule schedule right from your couch. You could be covered in under 10 minutes with no health exam required. If you have life insurance through your employer, it might not offer enough protection for your family and it might not follow you if you leave your job. Fabric has flexible, high quality policies that fit your family and your budget like a million dollars in coverage for less than a dollar a day. There's no risk. There's a 30 day money back guarantee and you can cancel at any time. They have over 19 1,400 5 star reviews on Trustpilot with a rating of excellent. Join the thousands of parents who trust fabric to help protect their family. Apply today in just minutes@meetfabric.com Paula that's meetfabric.com Paula M E-E-T fabric.com Paula Policies issued by Western Southern Life Assurance Company not available in certain states. Prices subject to underwriting and health questions. When I was in college, just out of college, I had no credit. I just didn't have a credit history. I wanted to rent an apartment and it was a problem. And so if anyone's having that issue, you either don't have a credit history or maybe you have bad credit. I want you to know about ava. Ava is a credit building app that's designed to work fast and help your credit score where it really matters so your credit score can start climbing with almost zero effort. Just pay your monthly subscriptions like usual with the AVA credit builder card and AVA reports your on time payments to all major credit bureaus which helps you build solid credit history quickly. AVA members have improved their scores by an average of 30 points in 30 days. Ava can now report your rent, utility and phone bills automatically, even up to 24 months of past payments. So your everyday payments can help build credit faster. And that's all included in your AVA membership. No hidden fees, no sneaky membership tiers to unlock extra features. Ava has over 2 million downloads and is the highest rated credit building app on trustpilot with the most five star reviews. Take control of your credit today. Download the AVA app a VA and when you join using my promo code Paula, you'll get 2020% off your first year, monthly or annual. Your choice. Again, grab the AVA app and use my promo code Paula so they know you heard it from me. And you'll get 20% off any plan for up to a year. That's promo code Paula. Thanks to ava. Now go get yourself good credit. In business, there's no room for guesswork. Every shipment matters. Every deadline counts. When you're trying to keep operations running smoothly, the last thing you need is uncertainty. That's why reliability is at the core of USPS Ground Advantage. From the moment your package is first scanned in, it moves through a secure nationwide network, aiding in a timely and accurate delivery. You get near real time tracking so you can keep up with your shipments. And with affordable upfront pricing, there are no hidden fees or or surprise surcharges to throw off your cost sheets. It all adds up to predictable deliveries you can depend on because knowing your logistics are handled lets you focus on everything else. Your customers, your team and the future you're building. Visit USPS.com groundadvantage to start shipping with confidence. USPS ground advantage. We mean business. Welcome back. Our next question comes from Amelia.
- [41:22]
D
Good morning, Paula. I'm calling from New York. I'm a healthcare provider. I work part time. I work a total of 1616 hours per week. Gross salary is $110 per hour. I'd like to do essentially a 401k with my job as well as a traditional IRA. My question is based on my salary and roughly 40 weeks of work per year at $110 an hour, 16 hours per week. How much per paycheck should I be? Like what percentage per paycheck should be going to my 401k while doing a traditional IRA. In the past, without a 401k, I would put the max in January into my traditional IRA. So this year, now that I have a 401k with my job, I I want to make it tax efficient and easy for my cpa. So, again, my question is, how much should I put per paycheck towards my 401k, and how much can I put in in the month of January, the year 2026, where I think the traditional IRA Max is about 7,000. Thank you and have a wonderful day.
- [42:45]
A
Amelia, thank you for the question. What I would start with, because I want to question the premise of what you've asked. I would start with the question of how much do you need for retirement? This goes back, Joe, to our previous answer with Hannah.
- [42:58]
B
It does. You stole my answer.
- [43:01]
A
Oh, well, I was inspired by hearing your answer to Hannah.
- [43:06]
B
Good save.
- [43:07]
A
Yes.
- [43:07]
B
Nice. Safe. But same thing. Yeah. You don't start with the answer, how much should I save? Should always first be answered with the question, how much do I need to save? And as you pointed out brilliantly, I might add earlier, we don't know that number, but we do know directionally. Right. We know what's going to get us in the ballpark. And that is modelable.
- [43:30]
A
Modelable. So the things that you want to think about, and we kind of talked about this when we were talking to Hannah and addressing her question, when do you want to retire? What do you want that retirement to look like? What do you think your cost of living will be during that retirement? Do you think that at that time you might have any dependents? That doesn't necessarily mean children. It might mean elderly parents that you're supporting or siblings or cousins? You know, is there anybody, any loved one that you might be financially responsible for? How much travel do you want to do? What type of hobbies do you want to engage in? What type of assistance do you think that you might need? So, but during the break, Joe and I, we were talking about this. We were discussing the impossibility of knowing certain things. You know, I was like, how, Jo, how is it that when you're. That you could ever accurately predict that when you're in your 80s, you might need some help with, you know, you might be able to live independently, but you might need somebody to help you with emptying the dishwasher and taking out the trash? And, you know, you can live independently, but that doesn't necessarily mean that you can empty your own dishwasher without straining your lower back. Right. And maybe that you just need help with those types of things, and that means you need somebody to come to your house on a daily basis to help with two hours per day of cooking and cleaning or three hours per day. Right. And you'll need some money for that. But like when you're in your 40s, how do you know that?
- [45:11]
B
Yeah, and you don't. But you do know for yourself the range of expected outcomes. And as those goals get closer, the range gets smaller. Like we can start in your 40s, you can look ahead at your parents and your grandparents and go, how long did they live? What's longevity expectations been in my lineage? Years are going to be different. And for some people they're living longer. Not everybody, but for some people they're living longer. And the propensity then is that we, if we do live longer, we might have a better chance of needing assistance and then needing a facility versus just needing some help at home. I like these things called if then scenarios, which are, I model it without any of that, then I model it with full on care and then I model it with part time care. And these are easy in any robust financial planning software. They're actually probably really fun to do. Like I think this is really fun to do, going, okay, I see that a lot of my family members end up in a nursing home if that happens to me. And prices remain the same, which again, Paula, you gotta know what the junk is. You gotta know what the junk variables are. We're looking at the cost of nursing homes today and what they've risen by. But what if that rate of change changes? Well, then I know kind of what my standard deviation is on this, on this model. But I can begin to narrow the range on this wide swath of things that might happen when I start looking at my family dynamic. And then as I get closer to the goal.
- [46:50]
A
Amelia, I want to elaborate a little bit on why Joe and I are both questioning the premise and why we're starting with how much will you need? And it is because I very fundamentally. And Joe, I'd love to hear your thoughts on this. I so fundamentally disagree with the thing that you read on every freaking clickbait financial article on the Internet that states that the amount that you should save for retirement is some percentage of your income. Because by tying your retirement savings to an income percentage or by making the assumption that the amount that you need for retirement is 85% of your income, right? Which is what we see in these calculators over and over and over, people are tying that expectation to your income rather than to your expected expenses. People are essentially saying, we're going to make the assumption that when you're in retirement you're just going to live on 85% of what you made that doesn't make any sense. A, it doesn't make sense because people's incomes fluctuate throughout their life. B, it doesn't make sense because what people want to do in retirement, the discretionary element is quite variable. C, it doesn't make sense because based on your family health history and your own individual health history, the amount of care that you might need or the amount of medical, you know, medical care and domestic care that you might need is quite variable. Like, there are so many reasons why expenses are not a function of income. And when we talk about savings, frugality, early retirement, the fire movement, the premise of all of this is that your spending rate and by extension your savings rate does not have to move in lockstep with your income. That is the fundamental underlying premise of frugality as a whole, of the personal finance movement, of the financial independence movement. The decoupling of expenditure from income is the underlying premise. So why then, when we plan for retirement, would we necessarily couple expenditure to income? Why not just scrap that? Start with a blank page and say, what do I think I want to spend in retirement?
- [49:10]
B
One of my favorite phrases is the present does not equal the future. And I think we wake up every day, we kind of think, I'm going to do the same thing I did yesterday. But we have this ultimate freedom to not do that. And I think a good financial plan doesn't do that. It embraces change, it gets excited about change. But I am disappointed to hear that those things don't work. So I'm going to throw all mine away. Those magazines save how much you should have saved in your 30s. I like that one.
- [49:38]
A
Oh yeah, exactly.
- [49:39]
B
Your 40s, how much you saved by your 50s?
- [49:42]
A
Right, right. As though every person in their 40s is a monolith.
- [49:45]
B
And they live in the same exact community with the same prices.
- [49:48]
A
Yeah, exactly. They live in the same community with the same prices, they have the same size families, they have the same number of pets, they have the same health related expenses. Yeah, all of it.
- [50:00]
B
Can I tell I'm going to disclose something very personal that that shows you how wide this range is. I'm going to tell you something that's going to make a vast majority of you throw up in your mouth. Oh, I was on my way here to Omaha and I'm sitting at the airport. I get this thing from Redfin all the time about what your house is worth. And I've noticed that my real estate value has gone down. I live in a house that's almost 4,000 square feet I have a golf course behind my house, a private golf course behind my house. I have an acre and a half of land around my house. My house, if I sold it today, according to redfin, is worth $400,000. It is a beautiful home in a beautiful town. It is so nice. And I'm not saying that to, to go, hey, I live in this super place. I'm saying you couldn't buy a van down by the river in Northern California, in Silicon Valley for $400,000. You could not do that. The variability is the ridiculousness. If I even lived in Detroit, where I used to live, and I was going to spend $400,000 on a house, it wouldn't be this house. And I'm okay, by the way, with not living in this house. It's a. I didn't want to have a real estate empire. It was for sale. It was in my price range. It was a beautiful piece of property, and it was cheap as all get out, right? Because I live in Texarkana, Texas. So to have this magazine say that you need X amount of money to get Y goal, it's incredibly ridiculous. It's so, so, so ridiculous.
- [51:56]
C
Yeah.
- [51:57]
A
I live in Manhattan. I live in 600 square feet.
- [51:59]
B
What could you get for. You couldn't come near your 600 square feet for. If I took $400,000, right, and I said, I want to buy your 600 square feet, those developers would laugh me out of the, out of Manhattan.
- [52:12]
A
Exactly.
- [52:13]
B
Like you kidding me. What? It's so variable. It's so, so, so, so, so variable.
- [52:18]
A
Right, Amelia, that's the thing, you know, when you ask, how much should you save for retirement? Do you want to stay in New York, or do you want to retire in a low cost of living rural community, or do you want to geo arbitrage and go to Medellin in Colombia,
- [52:37]
B
or even less expensive.
- [52:38]
A
Yeah, exactly. To Bali, Indonesia. Like we don't know anything about when you want to retire, where you want to retire, what your family health history is.
- [52:50]
B
Amelia, we can help you design some, though. Looking at the two types of plans you have, I think that for ease of management, assuming the fees are low inside your 401k and you're eligible for the 401k. So I, I would manage around the 401k. It's easy to put money in, it's easy to do your saving there. Assuming that you have a Roth option, you can do whatever gymnastics you want to do with the tax triangle there. Meaning you can have some in the roth, some traditional if you want. You have a lot of flexibility there first. We could talk about your tax help in a minute, but that makes it super easy, not just for your tax help, but for you. I get paid before I get my paycheck. The money's already taken out. I think I design around the 401k.
- [53:41]
A
It depends on what kind of selection you have inside of that 401k.
- [53:44]
B
Well, that's why I design around the 401k, though, Paula. I mean, it doesn't negate that, which is why I said depending on if we assume that the fees are low. And I think having 45 choices in your 401k is not a reason to love it. I think having the right choices inside your 401k, because the tsp, which is what Hannah has, doesn't have a huge number of choices, but for the vast majority of people, they are the right choices and they're low fee. So I don't think 60 choices. I've seen plans with 60 choices and they're all just absolutely.
- [54:19]
A
Yeah, yeah.
- [54:20]
B
Feed laden garbage.
- [54:21]
A
Yeah, yeah. No, it's quality of choices, not quantity of choices. Absolutely. But it still depends on what the selection is inside of your 401k.
- [54:29]
B
Yeah.
- [54:29]
A
With regard to which one you prioritize.
- [54:32]
B
Yeah. I'd begin there, though.
- [54:34]
A
In terms of building out that tax triangle, I do want to note that there is no Roth component. Amelia, you're talking about a 401k, which I assume is a traditional 401k. There's no Roth 401k element that you've mentioned, and a traditional IRA. So all of your savings seem to be in tax deferred accounts. I'd like to see you build out a tax triangle. So you have a mix of tax deferred, tax exempt and taxable. Just so that when you are in retirement, you have variety. You've got different types of tax treatment buckets so that you can design a withdrawal strategy in retirement around that.
- [55:12]
B
Can we talk about her tax help? She said she wanted to keep things
- [55:16]
A
simple for the cpa. Yeah.
- [55:19]
B
What struck me, Emilia, and to be clear, I love having a board of directors and smart people in your corner. And I'm going to talk about that more later on in the podcast. Based on the situation that you told us, you might have other things going on which have extenuating circumstances. But if you have a W2 job, a traditional IRA and a 401k, I've got to tell you, tax software is amazing now, and if you haven't tried it, it's so straightforward. Now, if you've anything at all complicated, having that CPA in your corner is a great idea. What I heard it isn't what you said, but it's what I heard was you may be grossly overpaying for education and advice that isn't serving you because of your circumstances.
- [56:18]
A
And I do want to emphasize, Amelia, we're operating on the assumption that your tax situation is as simple as you've got a job and you've got a 401k and an IRA. If it's that simple, yeah. You don't need a CPA. If maybe prior to your current role, maybe when you were in your 20s or early 30s, you had a business that you later sold, but now you still get residuals from it. And maybe you have a couple of rental properties that you haven't mentioned because it's not relevant to this particular question. And maybe you wrote a book when you were 32 and you're getting royalties from it, or you wrote a piece of software and you're getting payouts from it. You know, if there are other elements that make your tax situation more complicated, then yeah, absolutely, get a cpa. But if you've just got a. A job and a couple retirement accounts, you certainly don't need a CPA for that. Even if you wanted to use a. Talk to a. A human person, you could go to an ea. And an EA is going to be a lot cheaper than a cpa.
- [57:27]
B
And they also have very rigorous standards. They know a ton about the tax form specifically. That is what an EA does. They might not be qualified in all the huge tax planning areas that a CPA is, but when it comes to knowing that tax form like the back of their hand, as mom says, they're really good at that.
- [57:50]
A
Yeah. In fact, a lot of CPAs hire EAs to work in their firm.
- [57:54]
B
Yeah.
- [57:55]
A
So even if you do go with a cpa, there's a good chance that an EA is going to be handling a lot of that filing with the CPA there to. To look over it and to manage the ea.
- [58:05]
B
And those big tax firms that you see in every town in America, the H and R blocks, the Jackson hewitt's, and now TurboTax, by the way, is going into brick and mortar as well. Those are staffed with EAs. That's the heart of their business, is EAs.
- [58:28]
A
Yeah. So at a minimum, even if you do want to use a person, I would switch from a CPA to an EA because the, the savings are going to be substantial again, unless There are some other complications that you haven't mentioned. But Amelia, to your core question of how much should you put aside for retirement? Start with the end in mind. As the author Stephen Covey says, start with how much money do you want to have when you retire? How big do you want that portfolio to be? You know, what retirement income do you think you need? And then how big do you want that portfolio to be? And then work backwards. That is a much better approach than looking at your income and, and trying to extrapolate some percentage of your income, which is a very fundamentally flawed approach. And unfortunately, that's the approach that we read about online and so in article after article. But Joe and I both agree that the, the conflation of income and expenses in that approach is misguided. And if you can decouple income from expenses and look purely at what do you think your spend will be and work from there, that is a true start with the end in mind approach. So thank you, Amelia, for the question and best of luck. We're going to take one final break, the last one of the episode in which we hear from the sponsors who make the show possible. And when we return, Joe, you know what question's coming next. Oh, man, it's a beautiful question and I can't wait to share it with you. That's up next. Last year, probably around six months ago, I looked into small business lending. I wanted to grow, and that requires hiring more people. You know, with small business, you need revenue in order to hire people and you need people in order to produce revenue. And it's this rock and a hard place situation. Sometimes it can be hard to accelerate, especially without the proper funding. So anyway, so I look into small business lending and the first thing that I meet is immediately notice is that there's a lot of garbage online. It can feel impossible to find a lender that you actually trust when you're a small business. A lot of the big banks say no, they're not interested in small businesses. There's like sketchy offers, really high rates, they won't stop emailing or calling you after you indicate any interest whatsoever. But there is something better out there. It's a small business marketplace Fundera. Powered by NerdWallet. It's a free, easy to use platform that lets you compare real financing offers from trusted lenders all in one place. No spam, no bait and switch, just personalized options that fit your business needs. So the next time I need funding, I'm going to be looking at them. And here, here's the best part for a limited time when you visit nerdwallet.compaula and fill out the no obligation form, you'll get VIP treatment and talk with a real person who knows all the ins and outs of small business lending. Don't risk your business on unreliable lenders. Go to nerdwallet.com Paula to learn more and find the funding you deserve. Fundera Inc. NMLS ID number 1240038 so I watched the Masterclass with Chris Voss on how to negotiate and what's interesting because I teach negotiation, but Chris has a very unique and valuable take on it because he's coming not from the business side but rather from the FBI hostage negotiator side. And that's a different set of circumstances. What does an FBI hostage negotiator learn on the job? That someone who comes from the business world and is doing deals, they're going to learn something differently. And when you can learn ideas from a variety of people and then synthesize it all together, you end up with this more well rounded education. That's one of the things that is great about Masterclass. You can learn from a huge variety of voices. For example, in addition to Chris Voss, you can learn about atomic habits with author James Clear, who's a former guest on this podcast. You can learn how to apply the principles of improv to your life with Amy Poehler. You can learn how to tell a great story with Michael Lewis, the author of Moneyball and the Big Short. With Masterclass you get thousands of bite sized lessons across 13 categories. Plans start at $10 a month billed annually and you can learn wherever you are on your phone, laptop or your TV. Right now our listeners get an additional 15% off any annual membership@masterclass.com afford. That's 15% off@masterclass.com afford masterclass.com afford a F F O R D this episode is brought to you by indeed. Stop waiting around for the perfect candidate. Instead, use Indeed sponsored Jobs to find a right people with the right skills fast. It's a simple way to make sure your listing is the first candidate. C According to indeed data, Sponsored jobs have four times more applicants than non sponsored jobs. So go build your dream team today with Indeed. Get a $75 sponsored job credit at Indeed.com podcast terms and conditions. Appreciate welcome back. Our final question today comes from Leslie
- [64:05]
B
Paula.
- [64:05]
E
I am just listening to episode 678. One of the callers who was anonymous just mentioned that even the guests that you have on your show benefit from your Articulation of ideas. And I couldn't agree more. And one of the questions I've been wanting to ask for. For a long time, since listening for years, I guess, to both you and Joe as you answer the questions with such wisdom and precision. And I'm so curious, is there any aspect of either of your lives that you would love some kind of community wisdom from? Because you give such articulate and thoughtful and deep responses in a way that balances each other. And I'm curious, what are you grappling with? And I wanted to ask that for years, but I've only had the courage to ask that since I recently had brain surgery and I faced my own mortality and it was a benign tumor. And thank God. Anyways, now I finally have the courage to ask you, what do you want to know from your audience? Is there anything in your life, financially, personally, career, anything that you're grappling with that you would like some kind of collective wisdom on? No pressure. No pressure. But I'm super curious. Anywho, thanks for considering this question.
- [65:18]
A
Oh, Leslie, thank you. Thank you so much. I'm. I love that.
- [65:24]
B
I know this is an audio podcast and you can't see Paula right now, but I can.
- [65:28]
A
Well, this is also on YouTube, Joe. Oh, the whole thing. The whole thing.
- [65:34]
B
Oh, no. Yeah. For those of you not on YouTube, go to YouTube. Watch Paula's reaction.
- [65:40]
A
It's very sweet. Thank you so much. And congratulations on developing that courage. I'm sorry it took such a scary situation for that to happen, but what a beautiful gift on the other end, the courage that you've developed. I hope that you express that courage every single day in ways both big and small. That's the key to unlocking a great life for yourself and for the people around you.
- [66:06]
B
So let's do it. Paula. What?
- [66:09]
A
Yeah.
- [66:09]
B
You've had some time to think about this.
- [66:11]
A
For me, the biggest question that I would want to ask to all of you is, is how can I best serve you? What should I be doing? Or conversely, what should. What am I currently doing that I should not be doing that would allow me to serve you better? And how do we grow this community? You know, I think about all the people who could benefit, could really benefit from hearing these discussions, from learning about. You know, just in this episode when we were discussing Hannah's question, we kind of touched. I don't think we use the phrase recency bias, but, you know, we kind of touched on the recency bias of when the last market crash was in 2008. It's so far away that we tend to forget the lessons that came from it. Right. So that's financial psychology. And then of course, we talked about investing in this episode in ways that are fairly obvious. We talked about, well, we didn't really talk about increasing your income, but we talked about real estate. We didn't really talk about entrepreneurship in this episode. But when I think about these five elements, financial psychology, increasing your income, investing, real estate, entrepreneurship, these are the elements that most people never learn about and that if you have a good understanding of, of them, and that doesn't mean you have to be an entrepreneur, but if you know how to think, how to have that mindset and apply it to whatever you do, if you know how to think like an investor, a long term investor, this is information that can change lives, that does change lives. And then I go out there into the real world and the average person that I talk to doesn't know anything about this, about any of this. And they'll say, hey, what do you do? And I'm like, oh, I'm a podcaster. I host a personal finance show. And the answer is always the same, oh, yeah, I really need to learn about that. But then they don't because if you're not in this world, it kind of sounds boring. Like, oh, you learn how to balance a checkbook.
- [68:21]
B
Yeah.
- [68:23]
A
So how do I spread this message to more people? You know, how do we grow? I'm not good at short form. I'm just not. I'm not big on TikTok and in a world of short form social media content, which I'm not good at, I don't really know how to spread this message and grow this movement.
- [68:47]
B
Yeah. My main goal is what you alluded to, which is finding that person who thinks that these discussions are boring and that, you know, we don't talk about money in public. We don't have these discussions like they grew up with either these mores or just lack of knowledge or assumptions that this can't be fun. Which is why, you know, Paula, we've known each other a long time. I mean, my teaching method, which is anathema sometimes to money geeks who want more tips per hour, is to incorporate a lot of humor into my products. But it's specifically because when you talk about growing the community, I want to reach the person that we're not reaching. And I don't think we can do and say the same things we've always done and said to reach those people. So when I get the negative comment from a money geek that we mess around too much. My immediate thought is you probably are looking for something deeper. My job is to get somebody interested who is not yet a member of the community. So I think my answer to this is kind of a offshoot of yours, like being able to find that person. How do we find that person? Because truly, my answer to this question is pretty nuanced, Paula, and it's wrapped up in the reason why I'm here with you today. And it's that I believe very strongly in surrounding yourself with people who know you but are experts in the area where you ask the question so that you get phenomenal help. And I'm here because I know that a lot of the people in this community are still developing that list of people. And in that vacuum, I would much rather have you and me than have what I saw yesterday. I was in an online forum where the person running the forum, I'll leave this blank because it's actually a really nice person, was telling the member of their community stuff that wasn't right, wasn't true, was based on anger and. And a bunch of shortcuts. And I had to go in there and calm everybody down, which is something that I normally just stay away from. You know, forest fires on the Internet, people asking strangers for advice, and I don't know their background, I don't know their ability to even answer the question. And they're all giving me this wildly incorrect answer to questions. And really, you could see the person getting upset in their answers, and you could see them getting more confused in their answers. I don't want this community to have that. I'm hoping that you find your who, which is this whole idea that I learned way too late in my life of ask who, not how, ask who can help me with this. Who is the person that knows me and knows the answer so we can get the shorthand of Joe. This is exactly what you need to do for you behaviorally and for the answer to this question. This is the answer that you're looking for, at least. This is the path to the answer. We need those people so bad. When I was in the late 90s, in my pit of despair, and I was at the bottom of. I had dug my hole as far as that shovel would dig. I had this realization. And the realization was the same brain that got me into this mess is not the same brain that can get me out. And this is a core part, right, of like 12 step programs as well. It's the same if you're in debt. It's the Same of any time when you're facing difficulty. My brain figured out a phenomenal way to build a debt hole. My brain was not going to be able to get me out. Now. My brain could help get me out, but I needed help. I needed to change the who's around me. And when I did that and I got better help, I was able to find the ladder and get there much more quickly, much more confidently to money success than I ever believed was possible. But you're not going to do it talking to a bunch of strangers that don't know what the f they're talking about. So I very much am here because of the fact that in the area of money, there's a bunch of crap I don't know. But in the area of money, this is an area I care deeply about and I know a bunch about. And I'm happy to be your who along with Paula while you develop your who's in different areas of your life. So I would say that by definition, there is nothing I want to ask you, and I don't want to say that flippantly, but it's because I don't know you, and it's because I don't know your expertise. And Leslie is an example. If I had gone through a situation or I was getting ready to go through a situation that was similar to what you were going through, I would want to ask you how you navigated that, because I know that you've been there, because I know you're. You are now an expert in this awful area of life. So I love the question.
- [74:26]
A
What I hear in that is it sounds like your ask is an invitation for every person listening to at the individual level, in their own circles, in their own communities, to spread the wisdom that they have, you know, for each person listening to spread the wisdom that they have to the people around them who could benefit from it.
- [74:48]
B
It's so fun. And you know what's funny, Paula, is that, you know, when I'm a kid around the holidays and our family, you know, celebrates Christmas and my birthday and when I was a kid, I thought it was phenomenal getting gifts. I just had a birthday recently. I told my friends, if you bring a gift to my party, I am going to be mad. I'm going to be. There's nothing you can give me besides your time and who you are. Right. It is far more important for me. It's far more fun for me to give. And. And having that switch is so freaking amazing. It is so amazing. And I'll tell you, even When I was climbing out of my hole, I began mentoring other people that were deeper in the hole than I was. It made my path easier. And I think this is also why in 12 step programs, they do this right. You have a sponsor who's walked this path ahead of you and is still walking the path ahead of you. Being able to help somebody else makes you stronger at the thing. Me showing up to this recording today makes me stronger and being able to talk about money with people. I had this woman reach out, this young woman graduating from Southern Arkansas University, wonderful woman named Jalen who wanted to pick my brain. I said, let's go to breakfast. She happened to be in Texarkana. She's local to me. I had the most wonderful time with this woman who's at the beginning of her career, helping her avoid all the mistakes I made. Paula, it was so, so, so fun. So, yeah, 100%. 100% go. I didn't mean to diatribe. Go do that. Go take the thing that you're good at and teach it to somebody else. And I can almost guarantee that no matter who you are, you will light up.
- [76:39]
A
Yeah. Teach everything you know. Share every piece of wisdom you have. And that's my question is how. How do we reach more people? How do we grow this? And. And that's why, you know, in every episode, we've kind of turned it into a joke where we say, you know, share it with friends, family, neighbors, colleagues. And then oftentimes we'll we turn it into a fun joke where we reference very obscure people in your life. The mailman, the barista at Starbucks, the person wrapping your burrito at Chipotle, which
- [77:12]
B
does bring up one thing on this, Paula. When you leave us a review, this is something I would ask when you leave Paula or I a review. And I don't know how you feel about this, Paula, but I'll tell you how I feel about this, which is strongly. I really like Spotify. I can't stand Apple. And the reason I can't stand Apple is when somebody leaves me a review of something they don't like, I can't have a discussion with you. As the creator of the product, I'm
- [77:44]
A
the opposite of you, Joe. I have made the decision not to get involved in any of those, because on the occasions that I have, and this is particularly when online comments turn very judgmental or negative, on the occasions where I try to engage in good faith, the end result is that it ends up sounding defensive. And I realize it's better. You know, they say Never complain, never explain. Yeah, shorter is stronger. It's better to not explain yourself, to have confidence and integrity in the decisions that you make and to not try to be understood. Because some people are committed to not ever understanding you. Some people are 100, 100. Some people are really, really devoted to never wanting to understand you. Even the most good faith attempts to engage will simply result in escalation. And so I don't want to spend my time there. I've made the decision not to spend my time there. I'm going to spend my time serving this community in long form, content in the best way that I can.
- [79:02]
B
Let me be clear then about what I'm saying, because I 100 agree with everything that you say. And there are times when, you know, a mentor of mine told me a long time ago, stay away from clusters of misery. And you can see them from a mile away. People just want to be miserable. They want me to be miserable. That life is miserable. Stay away from those. You can't be a good leader and not be an optimist. You have to be an optimist. And it's so difficult for me to be an optimist when I'm in this cluster of.
- [79:31]
A
Right. Yeah.
- [79:32]
B
But if you truly want to help me make my show better, don't leave me the negativity on a review that I have to wonder, are you a cluster of misery or are you hoping for better? If you're truly hoping for better, I don't care if you leave me the review or not. Write to me. Write to me and say, you know what, I really wish that you did this. When I get an email from somebody that is like, hey, I was wondering about this thing on your show. I love that back and forth like, that is fantastic. Because I know this person truly wants to help me be better. When somebody leaves me a one star review with a bunch of garbage in it, I'm like, okay, you do you, whatever. I don't know why you're wasting your time with this. Good luck with that approach to life. Like, fine, but I guess that's what I'm saying. Paula, you said, help me reach more people. I think I can reach more people. If you truly are interested in the product. Paula knows there's nothing I like better than talking about the creative process. Like, nothing I like better. I like talking about that more than I like talking about money.
- [80:41]
A
Hmm.
- [80:42]
B
Write me and let's have that discussion.
- [80:45]
A
Joe, you and I are a bit different. More than anything, what I'm interested in is reaching that segment of people. You know that that new segment of person who needs this information. You remember recently we answered a question from someone who, his brother in law went on vacation in Mexico and came back all fired up about buying an investment property in Mexico, right. And I see this type of thing over and over and over. People who don't have structure around their thinking when it comes to investing, you know, when it comes to specifically a rental property in Mexico. As anyone who listened to that episode knows, the answer is not a definitive yes or no. Do it or don't do it. The answer is here's how to structure your thinking around it. And I think there's so many people who could benefit from having more. You know, it's. It's not about what you think, it's about how you think. I've. I've often said afford Anything is a show about thinking about how to think. It's a show about metacognition, about interrogating your own thought processes disguised as a money show. That's why for so many of the questions that come in, what's the first thing that you and I do?
- [82:06]
B
Joe, question the premise.
- [82:07]
A
We question the premise. That is the very first thing that we do. With the bulk of questions that come in, it's because this is not a show about what to think. It's a show about how to be a better thinker told through the lens of money. And that could benefit particularly in this world that we live in. A world of short form media, A world of scrolling, a world of outrage, manufactured outrage. A world where there are major, major vested interests who make a lot of money by keeping you angry. The ability to think clearly and critically is, is crucial. That's the message. That's a skill set that I want to spread. But how, you know, knowing that by definition nothing I do will likely ever go viral because it is not made for virality. How do we stand out as long form, deep think content in a short form, noisy, an outrage baited world? I simply go on the faith that this will spread by word of mouth. Which is why I always ask you to share this with your friends, family, dog walker, babysitter, second cousin, third grade teacher. Yeah, that is my question. In a world full of influencers and spectacle, how do you spread a message of intellectual rigor, of critical thinking, of interrogating your priors of first principles thinking? That is the question that I have. That is probably the single most critical question of my professional life. Well, Jo, I think that's the episode.
- [84:04]
B
No way already.
- [84:06]
A
Yeah. What a Beautiful question to end on, Leslie. Thank you so much for asking it.
- [84:11]
B
I was, I love all of these questions, you know, thinking about your thinking, modeling the importance of modeling, but not expecting your model to be predictive as much as to have it show you
- [84:27]
A
a scope of possibilities, a range of possible outcomes.
- [84:32]
B
Yeah, there was a lot here.
- [84:34]
A
Joe, where can people find you if they'd like to learn more?
- [84:37]
B
Well, I can tell you what's coming up on tomorrow's show. I'll give you the preview here. The scoop, the scoop tomorrow on Stacking Benjamin's our Wednesday mentor is a amazing woman named Amy Minkley. Amy created the five Freedom Retreat Financial Independence Freedom retreat in Bali. I spoke at this retreat the first year that it happened. And at the end of this retreat, Paula, I couldn't stop crying. I was so overcome emotionally with the deep discussions about what's really important. It's funny how an entire conference can be about so much more than money. Ostensibly, financial independence is about money, but it truly is a deeper conversation. And Amy and I don't talk about the retreat we talk about. Now that she's been a creator in the space for a while, we have a really wide ranging discussion about how her feelings about financial independence have changed over the past few years. And not just because she's in a different place. So she's had her own journey that we talk about, but also because she's on the side that you and I see that most people don't see, which is now that you see a wider range of people and where they're at in their journey. How has her feelings changed? And she agrees with me that often we're chasing the wrong things. Especially when we start off on this journey, we're chasing the wrong stuff. So it's really fun. If you want just two creators like you and I just talked about with Leslie's question. Talking about this idea of financial independence and personal journey meets a lot of clues. Kind of a case study of what could be coming up for you and your future. I think you'll love this discussion with our friend Amy.
- [86:29]
A
Wonderful. And that's at the Stacking Benjamin's podcast, wherever the finest where the finest podcasts are found. Well, thank you so much, Jo, and thanks to all of you for being part of the afford anything community. I've already said the thing about sharing it with your third grade teachers, dog walkers, second cousins, mailman. So but please do and please leave us a Review up to 5 stars. We also have a newsletter that I would love for you to join. It's affordanything. Com Newsletter. Thank you so much for being an afforder. I'm Paula Pan.
- [87:03]
B
I'm Josal Sehai and we'll meet you
- [87:06]
A
in the next episode.