Q&A: We Just Had a Baby and Lost Half Our Income

Summary

Afford Anything Podcast Summary: Q&A Episode - "We Just Had a Baby and Lost Half Our Income"

Release Date: June 17, 2025

Hosts:
Paula Pant | Joe Salsihai
Cumulus Podcast Network

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Overview

In this episode of the Afford Anything podcast, hosts Paula Pant and Joe Salsihai dive into three pressing financial questions from their listeners. While the show's surface appears to focus on money and investing, this episode underscores its deeper mission: helping listeners think critically about their finances, recognize behavioral biases, and make smarter life choices. The episode navigates through topics ranging from managing debt amidst income reduction to understanding and mitigating sequence of returns risk, and balancing mathematically sound decisions with psychological comfort.

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1. Navigating Debt Amidst Income Reduction

Caller: Austin from Minnesota
Timestamp: [00:00] - [21:23]

Austin's Financial Snapshot:

• Age: 31 (caller), 29 (wife)
• Family: Two children, recently had a third
• Income: Transitioning to a single income of $150,000 base plus $20,000 bonus annually
• Savings: $52,000 in emergency and sinking funds
• Expenses: Approximately $7,000 per month
• Investments:
  • $500,000 in retirement accounts (401k, IRA, Roth IRA)
  • $150,000 in taxable investments
  • $12,000 in 529 plans for children
• Assets: House valued between $560,000 - $575,000
• Liabilities:
  • $390,000 mortgage at 5.07% ARM (adjusting in late 2029)
  • $16,000 car loan at 5%
  • $20,000 in federal student loans at ≤4%

Question: Austin seeks advice on whether to pay off an existing $16,000 car loan using a $5,000 windfall (from vacation payouts and bonuses) or to continue managing the loan to eventually purchase a new car in cash. He expresses concern over current high-interest rates on used car loans and the potential burden of monthly payments.

Hosts' Analysis and Advice:

Paula Pant Commends Austin:

“[Austin] has $500,000 in long-term retirement assets at the age of 31 and 29. That’s incredible.”
[04:09]

Key Points Discussed:

• Financial Strength: Austin is recognized as a “coast finisher” (Joe Salsihai) due to his substantial retirement savings at a young age.
• Debt Management:
  • Paula's Perspective: Given the age and mileage of the existing car (260,000 miles), there's a risk it may fail imminently. Thus, prioritizing savings for a new car over paying off the current loan is advised to avoid future debt.
  • Joe's Contribution: Suggests leveraging Austin's well-funded investment pots to supplement the $5,000 windfall, potentially increasing the amount available for the next car without dipping into essential reserves.

Strategic Recommendations:

1. Create a Dedicated Fund:
   Build a separate fund using the $5,000 windfall and contribute the $3,000 monthly surplus (from income minus expenses) to save at least $18,000 for the next car.
   Paula:

   “Create a bucket of money, seed it with the $5,000 initial windfall that you're planning on receiving, continue to contribute to it monthly…”
   [10:50]

2. Avoid Additional Debt:
   Maintain the existing $16,000 loan to prevent the potential of needing to take out new debt soon.
   Paula:

   “Don't pay off the old one until you have a fully funded bucket for the next car.”
   [09:25]

3. Balance Short and Long-Term Goals:
   Recognize that Austin's robust retirement savings provide flexibility to slightly adjust current savings to accommodate short-term needs like a new car.

Notable Quote:

“The reality is that this car with 260,000 miles on it might not make it to next week.”
Paula Pant
[08:13]

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2. Understanding and Mitigating Sequence of Returns Risk

Caller: Paul
Timestamp: [25:16] - [37:51]

Paul's Financial Snapshot:

• Age: 59 (Paul), 52 (wife)
• Retirement Status:
  • Paul retired in 2018
  • Wife also retired (date unspecified)
• Investments:
  • Traditional IRA: $1.6 million
  • Roth IRA: $700,000
  • Wife's Roth IRA: $384,000
  • Wife's SEP IRA: $480,000
  • Brokerage Account: $54,000
  • Cash: $61,000
• Expenses: ~$70,000 annually

Question: Paul seeks guidance on determining when he and his wife have effectively "escaped" sequence of returns risk, a concern stemming from market downturns occurring early in retirement that can severely impact long-term portfolio sustainability.

Hosts' Insights and Guidance:

Paula and Joe Explain Sequence of Returns Risk:

• Definition: The danger that poor investment returns occur early in retirement, diminishing the portfolio's ability to recover over time.
  [27:07]

Monte Carlo Simulations:

• Usage: Tools that run thousands of randomized market scenarios to estimate the probability of a portfolio lasting through retirement.
  [28:07]
• Recommendation: Paul should utilize Monte Carlo simulations to assess the stability of his retirement funds against various market conditions.
• Platforms:
  • PortfolioVisualizer.com is recommended as a free tool to perform rudimentary simulations.
    Joe Salsihai:

    “If you want to get just a first look at that, I think you can just go to portfoliovisualizer.com and it will be free.”
    [32:15]

Rule of Thumb:

• Early Years Critical: Most financial damage from sequence of returns risk occurs within the first 3-5 years of retirement. Surviving these initial years typically mitigates long-term risks.
  [35:47]

Current Scenario Analysis for Paul:

• Time in Retirement: Seven years (since 2018)
• Market Conditions: Predominantly upward trends with minor downturns, enhancing portfolio resilience.

Final Assessment:

• Given the length of time since retirement and favorable market performance, Paul's portfolio is likely well-positioned to withstand sequence of returns risk, especially if he maintains his current lifestyle and avoids overspending.

Notable Quote:

“The most damage to your portfolio happens in the early years.”
Joe Salsihai
[27:07]

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3. Balancing Mathematical Soundness with Psychological Comfort in Investment Choices

Caller: Jonathan from Spokane, Washington
Timestamp: [40:45] - [59:45]

Jonathan's Financial Scenario:

• Savings:
  • Sufficiently invested in Roth and pre-tax accounts to reach retirement goals by 59.5 years old without further contributions.
• Investment Funds: $7,000 annually for the next 10 years, intended for accessibility before age 59.5.
• Options:
  • Roth IRA: Contributions can be withdrawn tax-free, but Jonathan feels psychologically uncomfortable doing so.
  • Taxable Brokerage Account: Higher tax liabilities but aligns better with his comfort levels.

Question: Faced with the choice between allocating additional funds to a Roth IRA (beneficial tax-wise but psychologically taxing) or a taxable brokerage account (less tax-efficient but more comfortable), Jonathan seeks advice on making a decision that balances financial optimization with personal psychological well-being.

Hosts' Responses and Strategies:

Paula Advocates for Psychological Comfort:

“I’m in favor of doing the thing that is psychologically most comforting.”
[43:36]

Key Considerations:

1. Self-Assessment:

   • Identify Core Values: Understanding what spending means to Jonathan beyond numbers.
   • Emotional Barriers: Recognizing the psychological impact of withdrawing from Roth accounts.

2. Financial Tools and Calculations:

   • Spreadsheet Analysis: Compare the long-term financial outcomes of both options using scenarios like best-case, worst-case, and mid-case.
   • Monte Carlo Simulation: Evaluate the probabilistic outcomes of investment choices to inform decision-making.
     Joe:

     “Run the Monte Carlo simulation. But if you were good enough to retire then and the math worked out at that time, I think the math is working out a lot better now.”
     [37:13]

3. Behavioral Adjustments:

   • One, Two-Punch Approach: Combine psychological comfort with financial strategy to ensure sustainable financial behavior.
   • Flip a Coin Technique: Use immediate emotional responses to decide, providing insights into true preferences.
     Paula:

     “Flip a coin, see how it lands, and use that as information.”
     [59:21]

4. Professional Support:

   • Financial Therapy: If psychological barriers significantly impact financial decisions, seeking a financial therapist is recommended.
     Joe:

     “If that is you and it suits you and you get incredible joy from that, then great... But if you recognize that that's a problem, then I think it’s time to bring in the financial therapist.”
     [50:14]

Final Advice: Jonathan should prioritize strategies that align with his comfort levels to prevent financial decisions from undermining his quality of life. Understanding the tangible differences between investment choices and exploring behavioral strategies can help him make informed, balanced decisions.

Notable Quote:

“If you’re naturally a saver, if you’re naturally careful with your money, there’s never going to not be a little bit of pain.”
Joe Salsihai
[54:05]

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Community Engagement and Closing Remarks

Paula and Joe encourage listeners to engage with the Afford Anything community through their website, offering spaces based on interests like retirement planning, debt payoff, and financial independence.

Notable Mentions:

• Stacking Benjamin Show: A recommended resource for further financial planning wisdom, particularly valuable for those in the Twin Cities area.
• Upcoming Events: Movie nights and meetups to foster community connections and discussions on financial well-being.

Final Encouragement:

“Focus on turning your passion into a thriving business... How to grow with Constant Contact.”
Paula Pant
[Various timestamps]

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Key Takeaways

1. Debt Management During Income Changes: Prioritize financial flexibility and avoid additional debt by strategically saving for future needs while maintaining essential financial goals.
2. Sequence of Returns Risk: Utilize financial tools like Monte Carlo simulations to assess and mitigate risks, ensuring long-term portfolio sustainability.
3. Balancing Financial Logic with Psychological Well-Being: Make investment choices that not only optimize financial returns but also align with personal comfort and lifestyle preferences to maintain overall well-being.

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Access Additional Resources:

• Download Free Book: Escape
• Community Forum: Afford Anything Community
• Financial Tools: Portfolio Visualizer - Monte Carlo Simulation

Stay Connected: Follow Paula and Joe on their social platforms and join their meetup groups to continue the conversation on making smarter, life-enhancing financial decisions.

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This summary encapsulates the essence of the episode, providing a comprehensive overview of the discussions and insights shared by Paula Pant and Joe Salsihai. For detailed advice tailored to individual circumstances, listeners are encouraged to engage with financial professionals and utilize the recommended tools.

Transcript

[Paula Pant]

Joe, how many miles did your most mileage car have?

[Joe Salsihai]

Oh, I think 245,000. Oh, made it a long way.

[Paula Pant]

Well, our caller today has got you beat.

[Joe Salsihai]

Oh, show off.

[Paula Pant]

260,000 miles and going, wow, there's a flex. Yeah. But this collar is going to have to replace that car soon and has some debt related questions associated with that. We're going to tackle that today. We're also going to tackle a question from a caller who is wondering about sequence of returns risk. We often talk about avoiding it, but how do you know when you're out of the woods? How do you know when you have avoided it? We're also going to answer a question from a caller who's deciding between the mathematically sound decision versus the psychologically comforting one. We're going to tackle all three of those in today's episode. Welcome to the Afford Anything podcast, the show that knows you can afford anything, but 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. What's up, Joe?

[Joe Salsihai]

Hey, what's going on, Paula? Wow, that was a long.

[Paula Pant]

Hey, hey, hey, hey.

[Joe Salsihai]

Wow.

[Paula Pant]

What I like about today's three questions is that even though they're about a wide range of topics, we got sequence of returns, risk, we got math versus psychology, and we've got an old car that just keeps going. I think there's going to be a common thread.

[Joe Salsihai]

We're not even going to tell me what the common thread is.

[Paula Pant]

We're going to have to unearth it on our own. And we'll start with this first caller, Austin.

[Austin]

Hi, Paula and Joe. This is Austin from Minnesota. Shout out to Joe and the SB crew.

[Joe Salsihai]

Of course.

[Austin]

I'm calling because we are at a transition point for our family. We just had another child and decided to go down to one income. I'll share some details before asking the question. My wife's 29. I'm 31. We have two kids. The income after the reduction is going to be $150,000 base with a $20,000 bonus. Savings is at about $52,000. Between emergency and sinking funds. We spend just shy of $7,000 a month. Our investments are about $500,000 in retirement tax. Advantaged accounts to 401 IRA Roth. Pretty even split between pre tax, post tax. Honestly, $150,000 in taxable investments, $12,000 in pros, both 529s for the kids. Our house is valued probably between 560 and 575,000. We've had some recent renovations and things, so I'm not entirely sure of the value there. $390,000 mortgage at a 5.07% ARM that's due to start adjusting in late 2029. We have a car loan at 16,000 at a five point. Student loans that are just around $20,000 at and below 4%. They're all federal loans. So here's the question. With the reduction in income we're looking at, we've identified the car loan as a potential opportunity to improve cash flow. It's $570 a month. We're looking to get a $5,000 windfall from vacation time payouts and other bonuses during this transition. We also have a paid off car running strong at 260,000 miles on it. Love this car to death, but I'd love to get it to 300,000 miles, but you never know. So really, do we pay off the existing loan or should we try to manage it to work to buy the next car in cash? Do you even go as far as taking a few thousand of taxable investments out of the market to pay for this? That's probably the most painful part of the question, but I'm honestly curious. I feel like we couldn't get another sub 6% rate for a used car loan right now and we're likely to spend around 18 to 27,000 on said purchase when the time comes. However, $570 a month would make a big difference and we can get right back to saving most of that amount for the next car, even with the reduction in income. Again, it's about a $16,000 loan we're talking about. Thank you both for all you do. Look forward to hearing what you think.

[Paula Pant]

Thanks, Austin. First of all, thank you for the question and I want to take a moment to highlight some of the achievements that you've made before I get into answering the question. So first of all, $500,000 in long term retirement assets at the age of 31 and 29. So you are, I'm going to call it. Joe, this guy is coastfi.

[Joe Salsihai]

Awesome. Yeah.

[Paula Pant]

I mean because. And here's here for the people who are wondering, how did we come to that? Here's the math behind this. So you and your wife are an average age of 30, right? If you've got $500,000 at the age of 30. Let's use rule of 72. We'll assume an 8% rate. So that means your money doubles every nine years. That means if you've got 500,000 at the age of, you'll have a million at the age of 39, you'll have 2 million at the age of 48, you'll have 4 million at the age of 57. And if you want to call it at that point, you certainly can. But if you want to stay in the workforce for another nine years, you'll be doubling to 8 million by the time you reach traditional retirement age.

[Joe Salsihai]

I don't love generally rules of thumb, but I will say the rule of 72 for me has always been a lot of fun.

[Paula Pant]

Yeah.

[Joe Salsihai]

Just because I can take a look at this stuff that I've done. No matter how old you are, if you're in the first few years of saving, you're like, I haven't done anything. But then you pull out the rule of 72, Paula. And you look at especially for those financial independence goals, when you got a little bit of time, you're like, you know what? This is going to double three times or maybe only twice, or maybe only once. But heck, if it's going to double once and you've managed to cobble together 3,000 bucks, it's really 6,000. And it's a nice confidence booster.

[Paula Pant]

Yeah, absolutely. So I want to commend you on that because to have $500,000 in retirement assets at the average age of 30, that's incredible. So huge kudos to you on that. In addition to that, you've got $12,000 in 529 plans for your kids. And your kids are really young. Right. You've got another $150,000 in taxable brokerage assets. You've got a tax triangle that's built out as well. So you've got a good amount in taxable, and then you're pretty evenly split also between tax deferred and Roth. In terms of the long term game, you're doing a lot of things right now. With all of that said, let's turn our attention to your question, which is what do you do about these cars? Because you've got two cars, one car is paid off free and clear and it's got 260,000 miles on it, which is awesome. Love that. Love that for you. Love that. You love the car and want to drive it until it's beyond 300,000. You've also got another car with a $16,000 note on it at just shy of a 6% interest rate. Don't love that quite as much, but we are where we are. Here's the crux of the issue as I see it. As much as I love the fact that you've got this car with 260,000 miles on it, the reality is that car could crap out tomorrow. When you've got a car that's that old with that many miles, I'm with you. I hope that you can drive it until it hits 300,000 miles. I hope you can drive it till it hits 350,000 miles. But, Joe, you had a car that went to 200, and you said 40,000. 45.

[Joe Salsihai]

Yeah. Made it a long way.

[Paula Pant]

So what happened at the end?

[Joe Salsihai]

We ended up donating it.

[Paula Pant]

No, but how did you know it was time? I should say.

[Joe Salsihai]

Oh, it stopped running completely. Yeah. I mean, it was definitely the time. A friend of mine had joked with me that I was going to bring along a screwdriver to take everything else out of the car, have a screwdriver that I could use to just scratch off the vin number and then take off the license plates and leave it along the side of the road. And it didn't get. It didn't get that bad. But it was a car that definitely had done its work. So we donated it. It no longer ran and got a little text donation. I think it was $300.

[Paula Pant]

But, Joe, I'm betting you had aspirations to drive that car to 300,000 and beyond.

[Joe Salsihai]

Oh, 100%. Normally, if we thought this was an event, that would be maybe a year out, two years out. Getting rid of that loan.

[Paula Pant]

The loan on the other car.

[Joe Salsihai]

Yeah. So you could recapture that 500 bucks, I think, would be a good idea. But this sounds to me like it could be right on top of us. We don't know. Could be. And for that reason, I don't think I go that way.

[Paula Pant]

Oh, Joe, you and I agree on something.

[Joe Salsihai]

Shut the front door.

[Paula Pant]

Yeah, unfortunately, it's true, because I think the exact same thing. The reality is that this car with 260,000 miles on it might not make it to next week. I hope it does. But I think we've got a plan for the idea that that car purchase is imminent. And given that it doesn't make sense to pay off a $16,000 car loan at a 6% rate when there's the possibility of having to take out new debt that might be hovering as soon as tomorrow. I mean, heck, by the time this episode airs, is that car still going to be running. Right.

[Joe Salsihai]

Death is imminent.

[Paula Pant]

I mean, I hate to say it that way, but that's how you've got to plan financially. And so, Austin, my number one priority is that I don't want to see you take out any new debt. And given that you have a car purchase that might have to happen any minute now, I want to see you build a fund for that next car. And I know from your question you've indicated that, hey, you know, if we pay off the existing car, it's got a $16,000 loan on it, we have a $5,000 windfall coming in. So minus that, we've got 11 grand to pay off. If we pay off that additional $11,000, then that's going to free up 570amonth. True, but at 570amonth, it's going to take you 28 months to recoup that $16,000. There's a pretty good chance you're going to need this money sooner than 28 months. Like there's a pretty good chance that that car is not going to last for 28 months. Not to mention that 28 month calculation that only covers the 16,000 that you'd pay off. It doesn't cover the amount that you would pay for the next car, which as you said yourself in the question is 18,000 minimum and could be even higher than that. So we're talking about an additional three years of saving at a rate of 570amonth in order to be able to buy that next car in cash. That's too long.

[Joe Salsihai]

What do you propose he does then? To come up with the 18,000 plus dollars for the next car?

[Paula Pant]

I would first take that $5,000 windfall that they're expecting and put that into a fund that's dedicated to buying the next car in cash. And Joe, I'm curious to see if you and I are going to agree on this. So what I would do, because I really don't want to see him take out any new debt, I would only buy a car, that next car, the replacement car. I would only buy a car at a value at which I could float it in cash. If that means that I've got to buy a $5,000 car, that means $5,000 car. And what I would do with that realistically is the grown up with the kids drives the newer car, which is the $16,000 car. And the grownup without the kids, the grownup who's driving by themselves takes the $5,000 car.

[Joe Salsihai]

Wow. Yeah. I'm on board with that, we could talk more about that and why. I like that. Even though Austin may think initially that that is suboptimal and not at all what he wants to do, there's one thing I might do which is I'm looking at all these pots of money. And to your point, Paula, he is coast fi. Right. So my question is, if you actually begin with the end in mind and you timeline out these goals, are some of the goals possibly overfunded? Because when I was a financial planner, there were times when people with Austin saving acumen would come in and I would go, listen, you're not going to need all this money you have in this pot over here. So we can either increase the goal, we can move it up, or we can dedicate the money to something else. So there is a possibility, Paula, that some of this money that's sitting there might be able to augment the $5,000 that he has coming in so that he could initially start off much closer to that $18,000 number that he really wants.

[Paula Pant]

If we're pulling from money that's sitting there, that would have to come from one of three places. It would have to come from either his cash reserves, which represent about. He's got a $7,000 spending rate. His emergency fund plus sinking fund represents about seven months worth of expenses, give or take. Option A, he could pull from the emergency slash sinking fund, which is seven months worth of expenses. I don't love that because seven months is about where you would want your emergency fund to be. Right. Six months, really? So seven is pretty close of where you'd want your emergency fund to be. So I don't love pulling from there. That's option A. Option B I dislike the most. Right. I love less, I dislike the most. Option B would be pulling from the principal portion of any Roth contributions. I'll put that out there because it is technically a possibility, but I'm going to immediately eliminate it because I can't stand that idea. And then option C is pulling from taxable brokerage account. So of the three ABC Cash, Roth taxable, where should that money come from?

[Joe Salsihai]

Clearly, if he can swing at the taxable brokerage should be number one. But there also is a fourth move that he can also make, which is if he's over funded some of these goals and he can slow down the saving, he might have more cash flow also than he knows that he has.

[Paula Pant]

Ah, but the contribution's not made yet.

[Joe Salsihai]

Yeah. So maybe, maybe there's an opportunity there too, and it might end up being a Combo of those things. So taxable brokerage is number one. Emergency fund for me is number two. If the cash flow thing doesn't end up being a possibility, I do not love, I never have love the name emergency fund. And here's a rant, Paula. I've only done a couple times in the last 15 years.

[Paula Pant]

I've never liked time rant time.

[Joe Salsihai]

Well, it's not that big. It's not that big a rant though, because when I was a financial planner, I always called it a cash reserve. And in the financial planning community, we called it a cash reserve. When I moved over to this side of the microphone, everybody called it an emergency fund. All the financial influencers called it emergency fund. I don't like emergency fund because I don't think that's what it is. I think it's an emergency opportunity fund. And I see people sit on money that's either losing money slowly to inflation or it's keeping pace barely with inflation, and they're missing out on opportunities because they don't want to spend that money because that's for a quote emergency. I don't think that's what it is. I think truly that, you know, we're going to talk about sequence of returns risk later on. Sequence of returns risk is really bad if you don't have any assets to pull from. Right. Very few assets to pull from. And like we'll talk about with the future color, it gets better. And that's going to be the crux of the question. And it gets better when you have more assets. You don't have to worry about it as much for Austin, Austin does have these suboptimal places he can pull from while he's rebuilding it because of the car purchase. So for me, digging into the quote emergency fund, AKA cash reserve for part of this car purchase, if, and this is the big if, if he's ahead on the goals and we know that pulling from there means I could, if worst case scenario happens, pull even more money that was slated for a different goal and I don't have to worry about it more than pulling from a suboptimal spot. So I pull money from my quote emergency fund for this and then something really bad happens and I need that money and I have to go to this place I don't want to go. Well, that's way better than taking a loan. It's not targeted for that. But it's not the end of the world if he's ahead of the game. I do like pulling from the emergency fund.

[Paula Pant]

You know, Joe, I'm going to throw out another alternative though.

[Joe Salsihai]

Oh, gamble. What about go to casino?

[Paula Pant]

Oof. Exactly. Put it all on red. After you have a reduction in income, your future income, your new income is going to be, you said 150,000 base plus about 20,000 bonus. So your future income is going to be 170,000 a year. Now I assume that you're referring to pre tax income. So ballpark, let's shave 50 grand off of that. That represents around a 30% rate. So that's supposed to represent federal and state and local. Again, I don't know your tax rate. I don't know even what state you live in. So I don't know if you have to pay state income tax or not. But we'll just take a 30% ballpark as a round number. Right, so shave 50 grand off of that, your $170,000 income goes to a 120, technically 119,000 as your take home pay. So 119,000 rounded up to 120, that's 10,000amonth. You've stated that your expenses are 7,000amonth. So after tax you're taking home 10k, you're spending 7k. I see a gap of 3k there. I see where this money for this next car could come from. And Joe, to your point, you're coming at it top down and I'm coming at it bottom up. And maybe we're actually talking about the same pot of money because maybe in his mind that 3k differential is currently what's dedicated to long term retirement assets. Yeah, possibly, I don't know, but maybe that's where that additional 3k is going. But I certainly see a gap of $3,000 between what you make and what you spend. And in addition to that.

[Joe Salsihai]

Yeah, well, but remember, Paula, they're going to one income.

[Paula Pant]

No, no, but the new income is going to be 170 total.

[Joe Salsihai]

Oh, but the new income.

[Paula Pant]

Right, right, right, right, right. The new income is 170total.

[Joe Salsihai]

Yeah.

[Paula Pant]

So yeah, that $3,000 gap, I think that could be put towards saving cash for the next car. And I'd like to see you fully fund a pay cash for the next car bucket before you pay off the other car. Because what would make the least amount of sense in my view is paying off the other car at its just sub 6% rate and then being in a position where you have to take out a loan again three months from now, four months from now. That doesn't make any sense. So create a bucket of money, seed it with the $5,000 initial windfall that you're planning on receiving, continue to contribute to it monthly with the gap between what you earn and what you spend because it sounds as though there will still be a gap. And continue doing that until you have at least 18,000 saved, if that really truly is the lowest amount that you want for that next car purchase, or said differently, continue doing that until you have a sufficient amount of money that that's the money you're going to use for your next car and you're going to pay cash for the next car. And once you've done that and once you have a buy the next car in cash bucket fully filled, then pay off the old one. But Joe, I think this is the first time you and I have ever told a caller to save less for.

[Joe Salsihai]

Retirement, back it down, show off.

[Paula Pant]

Well, and to be clear, we don't mean forever, but you are so well funded for the long term that I think both of us fear that you have funded the long term at the expense of the short term.

[Joe Salsihai]

Well, but here's the thing, Paul, that's for living the same lifestyle it appears he's living now. Maybe he has big goals, big dreams, maybe something that we don't know about there. But I think calculating all that out to make sure makes sense. But yeah, on the surface of it, he can over the short run probably back down the amount that he's saving and put it toward this car and then jack it back up again later.

[Paula Pant]

Yeah. And I will say it took me a long time to get comfortable with the idea of not fully maxing out every single retirement account because for my 20s I took enormous personal pride in that. Like I kind of made it my personality. And as I've gotten older, I've come to realize that there are some years where I have to choose between fully maxing out the retirement coffers and putting money towards other objectives. And particularly when you've done a good job in your twenties of building up those retirement savings, Austin, as you have what you've given yourself in your 30s and beyond, is breathing room to be able to back off of that a little bit because you front loaded it in your 20s. So celebrate that win.

[Joe Salsihai]

It's a great place to be.

[Paula Pant]

Absolutely. So thank you, Austin, for the question and congratulations on the second child.

[Paul]

When I was a kid, I grew up on seven acres of land. And so every day I was in this beautiful backyard oasis with a swimming pool, outdoor tables and benches. It was my favorite place as a kid to go and read books and be outside. And now as a grown up I live in Manhattan where I don't have any personal outdoor space, not even a balcony. So when I want to be outdoors I go to public spaces like the park, but I have no ability to personalize that space. If you have your own outdoor space, take advantage of the opportunity to personalize it. Wayfair has everything you need to level up your outdoor space. Patio sets, lounge chairs, hot tubs, fire pits, gazebos, string lights. It's a one stop shop where you can makeover your entire space with a resort feel. Wayfair is a one stop shop. I use Wayfair to buy items for inside my apartment. I have shelving from them, I have a daybed from them. There's something for every style, whether you like modern, classic, contemporary, every style and every budget. And there's free and easy delivery even.

[Paula Pant]

On the big stuff. Don't wait.

[Paul]

Make your outdoor space your dream oasis today with Wayfair and enjoy it all summer long. Head to Wayfair.com right now to shop a huge outdoor selection. That's W A Y-F A I R.com Wayfair Every style, every home I've been running my own business for over a decade and what I've seen is that there's a lot of instability. The path is not linear and now more than ever with AI, with inflation, with higher prices, there's more instability than ever. And that means the way to take control of your business is by growing. And one of the best ways to grow is with Constant Contact. Their award winning marketing platform makes marketing much easier and more effective for small businesses like yours. And you don't need to know anything about marketing. With their all in one platform you can create and manage attention grabbing campaigns for email, text, social media. They've got hundreds of customizable templates and you get automated sending, real time reporting and tools that actually help drive sales. Pricing is transparent and it's based on your contact list so you're only paying for what you need. And they have a 97% email deliverability rate. And if you ever get stuck, phone support is included with every plan. That's why over half a million small businesses trust Constant Contact to stay connected and top of mind. What I know for more than a decade in business is that marketing can be expensive and time consuming. It's challenging and Constant Contact is a great tool that helps solve that. Get a free 30 day trial when you go to constant contact.com try constant contact free for 30 days at constant contact.com constant contact.com it's an interesting time for business. Tariff and trade policies are dynamic, supply chains squeezed and cash flow tighter than ever. If your business can't adapt in real time, you're in a world of hurt. You need total visibility from global shipments to tariff impacts to real time cash flow. That's NetSuite by Oracle, your AI powered business management suite. Trusted by over 41,000 businesses. NetSuite is the number one cloud ERP for many reasons. It brings accounting, financial management, inventory and HR into one suite, so you have the visibility and control you need to make quick decisions. With real time forecasting and with AI embedded throughout, you can automate a lot of those everyday tasks, letting your teams stay strategic. NetSuite helps you know what's stuck, what it's costing you, and how to pivot fast. If we needed this level of robustness inside of our company, this is what we'd use because it's one system. Full control. Tame the chaos with NetSuite if your revenues are at least in the seven figures, download the free ebook and Navigating Global 3 Insights for Leaders at netsuite.com Paula that's netsuite.com Paula.

[Paula Pant]

Our next question comes from Paul.

[Jonathan]

Hi Paula and Joe. My name is Paul. I've been listening for a long time. I love these episodes where the two of you get together and go back and forth on some of these questions that listeners bring to you. I've got one here that I haven't heard discussed and so I'd love to hear your thoughts. We always talk about sequence of returns risk, but how do you know when you have escaped that risk? Here's our scenario. I'm 59 and my wife is 52. This July I'll turn 59 and a half, so I'll get full access to my retirement accounts without penalty. We have approximately $3.3 million spread between my traditional IRA at $1,600,000, my Roth IRA at $700,000, my wife's Roth at $384,000. Her SEP IRA is $480,000. We have $54,000 in brokerage account, $61,000 in cash we own. I left work in 2018 at the age of 52 and at the time we had about 1.7 million spread between the portfolio and cash. My wife also no longer works. So how do you know? How do we feel comfortable enough knowing that we have escaped that sequence of returns risk? Our lifestyle cost us about $70,000 a year. How do we know when we can Just really feel safe and no longer worry about this. Would love to hear your thoughts.

[Joe Salsihai]

Thanks, Paul. Thanks for the question. And this is a big question, Paula, that if people aren't thinking this, they should be wondering about this because it's an important part of good financial planning. So let's talk about what sequence of returns risk actually is. Sequence of returns risk is this idea that you retire on the wrong freaking.

[Paula Pant]

Day, January 1, 2020, 2008, and everything.

[Joe Salsihai]

Goes bad the second that you retire. And now the market goes down and you have a bunch of money that's in the financial markets and you're pulling it out at the wrong time, which under normal circumstances, Paula, our portfolio would be able to heal just through time and not touching it. But you're in the spot where if you don't touch it, you don't eat.

[Paula Pant]

Yeah, exactly. And I think 2008 is the perfect illustration of sequence of returns risk. I mean, if you had retired January 1, 2008, your portfolio would have plummeted 50%. And if you didn't have cash reserves to pull from, you would have had to sell when your portfolio was totally beat up, which means you're selling low, you're locking in the losses, and your portfolio forever from that point will be damaged by the fact that you've had to harvest in October 2008.

[Joe Salsihai]

It could be really ugly if you happen to just choose this wonderful event at the wrong, wrong, wrong time if your timing is really bad. So that's exactly what Paul is worried about. And how do you know when you're above that? Well, and the answer is, you know you're above it when you've so much money to reach the goal that you can have the worst sequence of returns and you're still going to be okay. Like, that is the exciting moment. Well, how do we know when we have enough money to do that? And the cool thing for Paul and for everybody listening, there is some software that will lead you down that path. And it is called a Monte Carlo simulation. And it is this software that some pieces will look at a thousand different iterations of. If the market does this on day one and this on day two, and this on day three, and then it randomizes it again a thousand times, ten thousand times, a hundred thousand times, and different Monte Carlo simulations will look at more and more. So if you really want a thorough one, ask that question. How many different randomized scenarios are you looking at to see whether my portfolio will weather that storm or not? All you do with the Monte Carlo simulation, you put in where all your money is, and then do you have.

[Paula Pant]

To give them your Social Security number and your mom's maiden name?

[Joe Salsihai]

If you do that, it might be a scam.

[Paula Pant]

All right, put in all your money.

[Joe Salsihai]

Yes, put in all your money, the type of account that it's in and then hit go. And it will then run through all these randomized scenarios so it will try to predict the future for you. The output from this is a percentage chance that without changing anything, you're going to be okay. Just based on the past. Right. The past doesn't always doesn't equal the future. But based on all the, all the things that could possibly change about the market, this the percent chance you're going to be okay. Most people, when they look at a Monte Carlo simulation, if they're not used to doing this, very often, are looking for 100% certainty or at least 90, 95% certainty. And I've seen people freak out at 95% certainty could be in that 5%. What professional financial planners will tell you is you're looking for a number closer to between 80 and 85% certainty. And the reason for that, Paula, is the fact that if you find out when you run the Monte Carlo simulation that there's a 20% certainty that you're not going to be okay and an 80% certainty that you will be most of that remaining 20%, where you're not okay, you're off by a little, you're not off by a ton. So you may be able to make some small changes to your lifestyle that have big impact over the fact that you're going to live this change for the next 20 years. So maybe instead of spending $3,000 on a vacation, you spend 2500, you leave the other $500 in the market. Something like that, which doesn't seem like a lot of money, but magnified over 20 years, ends up being a nice chunk of money. So most financial planners will tell you that if they see 80%, they feel really good under normal circumstances. Even if they see 70, 75% chance, they feel pretty good that you're going to be okay. If you're younger and you have a lot of business experience and your expertise are in areas where you could jump back in and go back to work and you're happy with that. Certainly a 70% probability is fine, because if you're okay with going back to work, well, then great, fantastic. If you're not, I think looking at 80, 85% is good. But Paul, to directly answer your question, if you see 90 to 100%. I think you're going to be a. Okay when it comes to sequence of returns risk without changing a thing.

[Paula Pant]

So where can Paul find the software that is available to run a Monte Carlo simulation?

[Joe Salsihai]

The best software is available through financial planners. So you're going to find great stuff there. But if you want to just take a cursory look, we went to portfoliovisualizer.com when we were talking about the efficient frontier, the over the past year, guess what? If you go to Portfolio Visualizer, look off to the right and click down on tools under Portfolio Simulation, Monte Carlo Simulation. And they have some rudimentary tools. So if you want to get just a first look at that, I think you can just go to portfoliovisualizer.com and it will be free.

[Paula Pant]

Right. And we're showing, for those of you listening via audio, if you want to check out our YouTube video, we're showing a demonstration of that on the screen right now.

[Joe Salsihai]

That's a great first place to look. And that's, that's probably where I would send Paul. Well, I won't even say probably because I'm here and I have the microphone. Paul, that's where I'm sending you. I am sending you there. If it's borderline, I think that's when you bring in the pro. And certainly if Paul already works with a pro and Paul gets this as part of his annual fee, ask the pro to do that as part of your overall financial planning.

[Paula Pant]

But let me ask Paul's question in a different way. Paul retired in 2018. It's now breaking news 2025. Given that Paul is seven years out of the workforce and given that his wife, though I don't know how recently she retired, but she's also retired from the workforce. Given that length of time, are there any rules of thumb that say, hey, if you retired January 1, 2000? Well, okay, granted, there was a market crash that happened in 2000, 2001 as well. So that also would have subjected you to sequence of returns risk. But let's say you retired January 1, 2002, and you've got another six years before 2008 happens. All markets started declining in 2007 though. Right. But you've got five years before the market begins declining in what we now know as the Great Recession. For those people who retired January 1, 2002, were they out of the sequence of returns risk window at the time that the Great Recession began in late 2007, early 2008?

[Joe Salsihai]

The answer to that is yes. These simulations show that the most damage to your portfolio happens in the early years. So what some professionals will do early on in a portfolio's life, meaning the time that you retire, if you're close to your goal, you barely have a safe withdrawal rate. They will lower the risk in your portfolio to compensate for the first few years because of the fact that when you look at surviving a long period of time, damage upfront is by far the biggest damage you can do. And if your portfolio isn't damaged during those early years, damage to it in subsequent years because you survived those first few years are not going to be nearly as big. Now, if you've overspent and you're still at that maximum safe withdrawal rate, the sequence of return risk will persist. What the Monte Carlo simulation will show in those instances where you're not going to make it most of the time, the reason you didn't make it is because those first three or four years were awful. Were absolutely awful. So in other words, during those years, if you survive those years and you actually had a good market and up market, now you have fewer years to live. Well, I mean, none of us gets out of here.

[Paula Pant]

Life financial planning is the only field in which that's considered a good thing. Well, the good news is. The good news is you've got fewer years to live.

[Joe Salsihai]

That's right. That's great news. Let's put that a better way. Your portfolio doesn't have to withstand as much. How about that? That's the kind of gentler way to say you're not going to live forever.

[Paula Pant]

You'Re going to die soon.

[Joe Salsihai]

Sooner. Hopefully not soon, but sooner, sooner. So your portfolio doesn't have as long of a trek anymore, and it lasted those years, which means your safe withdrawal rate number is probably higher now, Paula. But you're happy living on the amount that you're living on currently. That being the case, you're going to be fine if you continue to maintain the same lifestyle that you had when you began retirement.

[Paula Pant]

With all of that said, I mean, this might be too simplistic, too reductive, but could we state that. You mentioned three or four years? Could we state that three, four, five years is a rule of thumb barometer, assuming that you don't overspend.

[Joe Salsihai]

If. If you don't overspend. Yes, yes. So if Paul did these calculations that said I'm going to be okay to retire and I'm under that safe withdrawal amount and I haven't seen the sequence of return risk, I would bet if he ran it today, he's much more certain the Monte Carlo simulation will look way better today than it did then.

[Paula Pant]

Yeah. And given that he retired in 2018 and has seen, with the exception of short duration events in 2020 and 2022, Paul has for the most part between 2018 and 2025, seen predominantly an upmarket in his first seven years of retirement.

[Joe Salsihai]

Oh, yeah. And cumulatively, it's been up into the right. Right.

[Paula Pant]

Yeah, yeah. In a, in a big way. So based on the timing, he's probably looking good. Yeah.

[Joe Salsihai]

Yeah. Paul, run the Monte Carlo simulation. But if you were good enough to retire then and the math worked out at that time, I think the math is working out a lot better now.

[Paula Pant]

So thank you, Paul, for that question and congrats on your retirement and on your wife's retirement. Next, we're going to answer a question from a caller who's wondering should he pick the mathematically sound decision or should he pick the psychologically comforting decision? We're gonna address that next. Okay.

[Paul]

I have to admit, I'm kind of obsessed with R.L. stine. He's the author of the Goosebumps books and the Fear street books. I read them both as a kid. I particularly loved Goosebumps. And I never, as a kid, you know, it was engrossing, but I never.

[Paula Pant]

Dissected it to figure out why.

[Paul]

What makes it so engrossing? What makes it such a page turner? So I've been watching R.L. stine's class on Masterclass and now I have a much better understanding of the writing technique behind what he's created and understanding that helps me become a better writer. So with Masterclass, you can learn from the best to become your best. With plans starting at $10 a month billed annually, you get unlimited access to over 200 classes taught by some of the world's best business leaders, writers, chefs and more. You can learn about business from CEOs like Bob Iger or Howard Schultz. You can learn about negotiation from CIA hostage negotiator Chr Voss or sports super agent Rich Paul. And every new membership comes with a 30 day money back guarantee. Right now, our listeners get an additional 15% off any annual [e-mail] afford that's 15% [e-mail] afford masterclass.com afford a f.

[Paula Pant]

F O R D.

[Paul]

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[Paula Pant]

There.

[Joe Salsihai]

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[Paula Pant]

Welcome back. Our final call today comes from Jonathan.

[Caller]

Hey Paula and Joe. This is Jonathan out in sunny Spokane, Washington and I have a financial psychology question for you. So here's the situation. I've invested enough into my Roth and pre tax accounts such that I don't need to contribute to them anymore. They'll grow to the number that I need by age 59 and a half. I'm sure there's a term for this situation. Wink wink. Anyhow, I've got 7,000 per year to invest for at least say, the next 10 years and I want that money to be accessible before age 59 and a half. So I could put it into a Roth. I could take those contributions out tax free or I could put it into a taxable brokerage. I know if I put it in the brokerage I'm going to pay more in taxes. But I know if I put it into the Roth, I'm going to struggle a lot psychologically pulling money out of that Roth. Do I bite the bullet, pay the taxes, not deal with the psychological stress? It won't be that significant, but still. Or do I just put it in the Roth and save myself a few bucks on the tax side of things? How should I think about this? Thanks in advance.

[Paula Pant]

I love this question, Jonathan, because I feel your pain. I alluded to this in my answer to Austin's question earlier in this episode when I talked about how, in theory, putting money into a Roth account and then withdrawing the contributions is a possibility. But in practice it's a possibility that I and pretty much everybody who's listening to this in the afforder community all collectively feel queasy about. If I can be so bold as to make an assumption about the majority of people listening, I think we all really don't at a gut level like that idea, because money in a Roth, we're so conditioned to keep it in the Roth since the Roth has such amazing tax treatment. So the idea of pulling contributions, we all know that we can do it penalty free, but we don't want to.

[Joe Salsihai]

That's frustrating. It's even more frustrating with annuities because annuities, traditionally high fee instruments, they don't all have to be, but most are. And the annuity industry knows, Paula, that with annuities, it's first in, last out, meaning that annuities are tax deferred, not tax free like a Roth. And when you grow money, you've got to take out all the growth before you touch your principal. And the annuity industry knows that the science behind that is once you put money in an annuity, you don't take it out because you're going to pay a ton of tax on any dollar that it makes, which fortunately is a lot less than other places because the fees are so high, you make less money. But. Oh, I know, right? Oh, man, a little sarcasm there.

[Paula Pant]

Joe's idea of good news.

[Joe Salsihai]

I know, right?

[Paula Pant]

Right.

[Joe Salsihai]

Great news is your product sucks so bad that there's not going to be much, but. But it is a problem.

[Paula Pant]

Is that the through line of these answers, Joe has a weird idea about what constitutes good news.

[Joe Salsihai]

Right. Good news, you're gonna die. Great news, your product sucks. Yeah, no, not at all. I'm like the grim reaper today. But seriously, there is a mental issue with, I've got this tax treatment. What if I need it more next year than I need it this year? So I'm going to go ahead and I'm going to leave that alone because of the tax treatment. And then you don't end up ever spending that money and whatever joy it might have brought you, how I think.

[Paula Pant]

I would approach this is with a one, two punch. I'm in favor of doing the thing that is psychologically most comforting. Because at the end of the day, we as messy, imperfect humans are our own biggest obstacle. And the more that we can work with our nature rather than against it, the more we set ourselves up for success. That being said, the reason I say I take a 1, 2 punch here is I also would interrogate the premise that you will always feel the way that you do right now. Remember how earlier in this episode, actually in the answer to Austin's question, I talked about how when I was in my 20s, I took a lot of pride in maxing out every retirement account every year, max out my 401k, max out my backdoor Roth IRA, max out, my HSA. I took so much pride in that. It was beyond an activity, it was an identity. Partially. It's because for a big chunk of my 20s, I couldn't, I just didn't make enough money to be able to do so. So once I finally could, that was, why wouldn't I, right? That, that was my status symbol. Look at, look at me with all of my maxed out retirement accounts. And part of it was a deep, deep sense of identity as the type of person who does that. The notion of not maxing out, fully maxing out all available long term tax deferred or tax advantaged accounts was at its core a threat to my own core sense of self. So of course I would never do that. Of course I would never suboptimally contribute to all my tax advantaged accounts. Right. That's not who I am. But over time, my sense of identity shifted and with that shift in identity came a deep and true shift in my attitude, my feeling, my approach to how much money I need to put into tax advantaged accounts today. BackDoor Roth IRA, HSA, workplace tax deferred account, all of the above.

[Joe Salsihai]

It's funny because when you look at the CFP's list of different types of risk, that risk, Paula, which I think is a huge risk, that often frightens me when I'm in online forums and I hear people talking about things in a very permanent way really isn't addressed in their list of risks. Like the closest might be horizon risk where the horizon of you needing this money changes. But, but, and it's because for some reason or another you needed it differently. But what I love that you got to there was what's behind it, which is I've changed. My life has changed so much through the years and my feelings about security, my feelings about my risk tolerance, my feelings about what makes me happy have certainly changed. There's things that no longer bring me joy that used to bring me a lot of joy. And then there's other stuff that I absolutely love. Who knew that I would get to 57 years old and realize how much I like olives? I didn't like olives at all and now I just freaking love olives. I'm so excited to go to Greece and just have so many olives. I can't wait. But I think that's a real thing. When people talk permanently about I'm 27 years old and I think I would love for the rest of my life living in a tent in the woods. And so I'm going to drop out because I'm financially independent on that lifestyle. I'll tell you, at 27, I felt that way. At 57, I couldn't do that in a million years. So I think it's difficult for us to re rail back onto where we're headed. With Jonathan's question into I think that if you're naturally a saver, if you're naturally careful with your money, there's never going to not be a little bit of pain. Like you don't overnight become a spender, don't overnight go yolo. You're just, it's not going to happen. It's not going to happen. It's part of your gene pool. So for me, Paula, I don't know. I think that this all begins with how you look at spending. I think this is a deeper conversation on how you think about spending money much more than it is a tax question. Because frankly, if I make the thing that I'm spending money on valuable enough that it is a core to that personality that you're talking about, I don't care what account it comes out of. This is the thing I've wanted to do my entire life. And you know what? It is worth it no matter what pot it comes out of. And if we're spending money that way, then certainly I want to get the best tax treatment possible. But I think I have to work through that roadblock first.

[Paula Pant]

Right? Because if Jonathan does the most mathematically sound thing, he would put all of this money, as he stated in the question, into Roth accounts, enjoy the tax advantage that accrues, and he'd withdraw the contribution. And to the extent that he would have to withdraw the contribution for basic food, shelter and clothing, anyone would do that just for the need to survive. I think where the challenge comes in is can he overcome the psychological barrier that would perhaps prevent him from going anything above subsistence? Because the risk is that he hamstrings himself and he hamstrings his life because he just can't bring himself to take out anything above subsistence. And that's not a life that we want for him. And that's not a life I assume that he wants for himself. Right? It's not an optimal life. Now remember the distinction between being optimized and being optimal.

[Joe Salsihai]

I think in that scenario, by the way, that very much deserves professional help.

[Paula Pant]

From a financial planner or from a therapist.

[Joe Salsihai]

I think a financial therapist, I don't think a financial planner. Financial planners, since I've left the business, are finally getting what we needed all along, which was help on the behavioral side. And now the behavioral component is one module of the certified financial planning coursework. But ask any cfp, it still isn't anywhere near the amount of behavioral work they do. And so they're not adequately trained. I think most want to be. And over time they get a lot of experience in that area, so you might find decent help. But I think in that case, Paula, we go with somebody who's been specifically trained to deal with this because this is not a financial issue.

[Paula Pant]

Right. Jonathan, One thing that I would probably do is, and this is my answer to a lot of questions is spreadsheet it out or run it through a couple of calculators. Assuming certain set of assumptions around what your contributions are and what your return assumptions are, what would be in dollars and cents, the actual difference between scenario A and scenario B? The difference between the Roth scenario and the taxable scenario. If you were to make those contributions and let them accrue in these two different types of accounts with different tax treatments, this is going to be an exercise of making assumptions. And maybe you run a couple of different scenarios so that you find a range of possible outcomes. So a best case, worst case and mid case range. But I want to know what is the actual dollar amount that we're talking about? How much more would you make if these were Roth contributions? So I'd want to know what that number is. And then on the flip side, I would want to continue to interrogate the question of how certain are you that you will feel in the future the way you feel today with regard to that reluctance to take out Roth contributions and to ask that same question in a slightly different way, what could you do to make yourself more comfortable with the idea of withdrawing Roth contributions? And if you think through that and you think, you know what, here are a list of things I could do here, a list of tactics, but I'm not entirely sure that these tactics are going to be effective. You come up with that list of tactics and then assign a probability to it working out. Maybe you go through all the tactics and at the end of all of those tactics, you still feel the same. No amount of self hypnosis or affirmations or, you know, any list XYZ tactic here, Right. Maybe no amount of those tactics are actually going to work out and you think that there's a significant probability that even with effort, with concerted effort, you might still feel that reluctance to ever pull that money out of Roth accounts. If that's the case, then I think you have a probabilistic answer.

[Joe Salsihai]

I am no expert in this area, but I have had a lot of experience, like a lot of people that have guided people through the saving and spending process. I think when the goal is bigger than the money, then that's your fulcrum. That's the leverage you need to apply to the situation. If it's not, then I think we go back to Vicki Robin. Why am I spending the money in the first place? If it doesn't matter which account you pull it out of, then I think the goal was bigger. If it does matter, then my question is, was it worth even pulling out your wallet? If this account was better than that account, like really? I continue to return to spending based on your value system.

[Paula Pant]

You know, Vicki Robin is notoriously frugal, but our mutual friend Paulette convinced her to buy a hot tub. Yeah, even Vicki Robin convinced her to buy a hot tub.

[Joe Salsihai]

That's what a great, persuasive writer Paulette perhaps is. That's why she gets the big gigs with the New York Times.

[Paula Pant]

Yeah, but it was exactly that question of your money or your life.

[Joe Salsihai]

Which is funny. Just repeating Vicki's words back to her. Mm, that is funny, but it's not, not true.

[Paul]

Right.

[Joe Salsihai]

If I think about the biggest things in my life that I truly want to do, I'm not going to obsess about Roth versus non qualified. But if I'm buying something that I'm a little sketchy on, well, then I start parsing that more.

[Paula Pant]

But to your point, Joe, that is actually the thing that worries me. Because why? What if Jonathan gets to that point and he decides, not worth nothing, nothing is worth it.

[Joe Salsihai]

Nothing's worth it.

[Paula Pant]

And so then he lives this very pauper, ascetic subsistence lifestyle.

[Joe Salsihai]

If that is you and it suits you and you get incredible joy from that, then great. Make sure that you've got a donor advised fund or some good charitable organizations or a nice estate plan and live that life. But if you recognize that that's a problem, then I think, Paula, then it's time to bring in the financial therapist. They're wonderful. You and I have have talked to financial therapists before on our shows and in our careers. These people can really help and they have a lot of compassion. They've seen this situation a thousand times. So where it feels very unique to you and me, to them, they understand what you're dealing with. You can have the comfort of working with somebody who not only has the training to help you, but they've seen it before. And I'm glad, by the way, Jonathan asked this question because there are tons of people, especially in a community that loves to nerd out about the stuff you and I talk about. Paula. Yeah, these are the people that worry enough about the types of questions Jonathan asked that we think a lot more about our money and not enough about the value train.

[Paula Pant]

Yeah. Not enough about what's it all for.

[Joe Salsihai]

Yeah, yeah, yeah, yeah. Sometimes it gets so fun keeping track of optimizing our money and doing the right thing that we forget there's a reason why I'm actually doing this thing.

[Paula Pant]

But I follow a lot of the fire related subreddits. Oh, you know what it was in a Henry subreddit actually. The high income, not rich. Yet someone posed a question he made. I think if my memory serves me correctly, somewhere something along the lines of 500,000 a year and his expenses were under 3,000amonth. I mean there's this massive, massive, massive delta between his income and his expenses. And he was asking if he should buy a fancy car, like a really fancy car. It was something that he was kind of dreaming of, which he could easily do in cash a bajillion times over. And people were recommending like maybe buy less of a car. Maybe buy, you know, have you thought about getting a used one? Right. Like so many people in the comments were missing the notion that this was an indulgence that he could easily afford to buy three or four of them and were instead in the comments trying to find ways for him to frugal back or cheap out on this one splurge that he really wanted and that he easily could get. So I think that's a perfect illustration, Jo, of what you were talking about. People will often deny their own dreams because, well, I know it's my dream, but it costs a lot.

[Joe Salsihai]

Were people saying just buy the car, buy the car, buy the car. Like 500 comments.

[Paula Pant]

A few people were, but a lot of people were saying maybe buy a lesser car.

[Joe Salsihai]

See, that doesn't do it for me. Yeah, it's either buy the car, don't buy the car. At that point, don't buy the car because the car doesn't mean anything. But having a lesser car that you don't care about as much to spend the money on, something that you're always going to view as suboptimal.

[Paula Pant]

Yeah, it's like the worst of both worlds.

[Joe Salsihai]

I think it's a horrible answer. Yeah, either buy the thing that lights you up or don't buy anything.

[Paula Pant]

Right. If you're gonna Go, Go all out.

[Joe Salsihai]

Yeah, yeah, that's. Just buy the lesser car is the worst answer. That's so bad.

[Paula Pant]

So, Jonathan, we don't have a clear answer for you, but we have a few different prisms through which you can look at this.

[Joe Salsihai]

Yeah, I think that gives him some direction on how to look at it and think about it. I don't know that he would have said, put the money in the Roth. Like, he would have accepted that as.

[Paula Pant]

Yeah, flip a coin.

[Joe Salsihai]

That's right. Next question.

[Paula Pant]

Yes, heads Roth, tails, taxable.

[Joe Salsihai]

And we're out of here.

[Paula Pant]

But that could be part of the answer, too. Flip a coin, see how it lands, see how you feel about how it lands, and use that as information.

[Joe Salsihai]

Well, you've heard me. You've heard me talk about how I use that in client meetings, right?

[Paula Pant]

How do you want the coin to land?

[Joe Salsihai]

Yeah, I flip a coin. They can't decide. And then when I flip the coin and ask them, which one do you Hope it is? 99% of the time had an answer. And then they get pissed at me because I take the coin and put it in my pocket and they go, whoa, whoa, what was it? And I go, it doesn't matter. We figured it out.

[Paula Pant]

Yeah, you wanted it to be heads, but you don't know until the moment of the coin toss. I do a modified version of that. I see how it lands, and then I immediately assess what you're feeling about it. Yeah, because there's an immediate instantaneous feeling about the outcome of how that that coin flip landed. Right. So what is the immediate visceral reaction? Are you disappointed that it landed heads? Are you disappointed that it landed tails? Like, what's that instant gut feeling? I take stock of that because that feeling is information. That's a data point. So thank you, Jonathan, for the question. Thank you for inspiring this discussion. Joe. We've done it again.

[Joe Salsihai]

Such great questions. And I love the fact that we had a psychological question in there. We had, with sequence of returns, how to use the tools, and a really good financial planning question around purchasing the car.

[Paula Pant]

And so much of what we talked about in the answer to Austin's question was foreshadowing around what we ended up discussing in the answer to Jonathan's question.

[Joe Salsihai]

One led to another, led to the next one.

[Paula Pant]

Exactly.

[Joe Salsihai]

Just like we planned it. Just exactly like we planned it.

[Paula Pant]

Joe, where can people find you if they'd like to hear more of your planning wisdom?

[Joe Salsihai]

The Stacky Benjamin show is a great place to find us. Three days a week, every Monday, Wednesday, and Friday and on Fridays you will find the Paula pant on most of those episodes. Rocking in these great discussions, these chatty discussions about financial planning topics. Often the same topic we talked about all week long and just kind of bringing it to a nice warm community close on Fridays. And also rocking the trivia in the worst way possible. Yeah. The thing I do want to draw attention to though is Austin gave a shout out to Stacking Benjamin's. And I know why he did that, Paula. He did that because he's in Minneapolis St. Paul or at least he said he was. And that's where we have.

[Paula Pant]

He said he.

[Joe Salsihai]

It's where everybody wants to be from.

[Paula Pant]

He claims to be from Minneapolis St. Paul.

[Joe Salsihai]

Right. He probably is in Des Moines.

[Paula Pant]

We all know he's from Lexington.

[Joe Salsihai]

He's throwing us all off. But at Minneapolis St. Paul we have the Stacking Benjamin's meetup group. And so they meet once a month. They have a Facebook group if you just put in Stacking Benjamin's Twin Cities. If you're in the Twin Cities. I talked last week about these great documentarians, Pete and Rebecca Davis and their great movie Join or die. In August they're going to do movie night. They're going to get all the stackers together, the afforders together in the Twin Cities and have popcorn and have fun watching this great documentary that in the first half is about how we need to join things more for our community. But the whole second half is forget community. You are 50% less likely to die this year if you belong to one of these clubs, a group, something that's bigger than you, a phenomenal movie about what it truly means to have a happy retirement.

[Paula Pant]

But Joe, that takes away your good news. You're gonna die sooner. Good, right?

[Joe Salsihai]

So come watch, come watch this movie.

[Paula Pant]

Watch the movie because we want more longevity. Oh, wow.

[Joe Salsihai]

Yes.

[Paula Pant]

Way to raise the stakes.

[Joe Salsihai]

You're welcome, America. Especially Twin Cities. So if you're in the Twin Cities, join our meetup group, a great group of people that meet once a month.

[Paula Pant]

Awesome. Awesome. Well, thank you so much for being part of this community. Thank you for being an afforder. If you want to talk virtually online with other members of this community, go to afford anything.com community. That's affordanything.com community. Completely free. You can organize into different spaces based on what you're interested in. Maybe retirement planning, maybe debt payoff, maybe saving for college, maybe general pursuit of fi or fire. So you can organize based on interests. And it's a great place to meet. Meet like minded people, share ideas, ask questions. Again, that's affordanything. Com community. Thank you so much for being an afforder. I'm Paula Pant.

[Joe Salsihai]

I'm Joe Salsihai and we'll meet you.

[Paula Pant]

In the next episode.