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Afford Anything | Get Smarter With Money
Q&A: What $2.4 Million at 37 Actually Looks Like (It's Not What You Think)
01:00:40
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- [00:00]
A
Joe, have you ever been to California?
- [00:02]
B
I have been to California and man, the difference between Northern California and Southern California, night and day.
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A
Have you been to Sacramento?
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B
I have been once to Sacramento.
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C
Yeah.
- [00:14]
B
It was during COVID It's a long story we don't want to get into, but I got a pepper sprayed in Sacramento. A whole different show.
- [00:22]
A
Joe, I told you not to. Armed robbery.
- [00:25]
D
The target.
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B
Yeah, yeah. Bad day for me, man.
- [00:28]
A
Well, so our caller is someone who I assume has never gotten pepper sprayed in Sacramento, although I haven't asked. Our first caller that we're going to talk to today lives in Sacramento, recently received an inheritance, has some questions about what to do with it. After that, we're going to answer a question from a caller who is having a baby and needs to do some negotiation at work. And then we're going to close by hearing from a caller who is. Who has a comment about a recent
- [00:59]
B
question that we answered all that in one episode.
- [01:02]
A
Welcome to the afford anything podcast, the show that knows you can afford anything, not everything. This show covers five pillars, Financial psychology, increasing your income, investing, real estate and entrepreneurship. Acronym 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 Salce. What's up, Joe?
- [01:26]
B
There's a lot up. The frustrating thing is, is that Cheryl yesterday told me, Paula, that I had to start acting my age. So I went and took a nap and complained about my back all day.
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A
Oh, speaking of acting your age, our next caller is, I think 37. 37. 38.
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B
We're about to find out.
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A
Yes, we're about to find out. Let's find out how old our next caller is.
- [01:49]
E
Hey, Paula and Joe. Anonymous calling in from Sacramento, California with a bit of a unique question for you today. Unfortunately, my mother recently passed, but on the bright side, she left behind a pretty sizable inheritance. I am her only son slash child, and she never remarried. So all of these funds will be coming directly to me. I'd love to get your opinion on what to do with this money. The exact amount is about $850,000. Currently, my fiance and I have a net worth of about $1.6 million. I'm 37 and she's 38. I bring in about $380,000 per year with my tech job, and she brings in about $158,000 per year as a nurse. In our primary house, we have about $300,000 of equity. We have three rentals and across those three rentals we have about $400,000 in equity. The three rentals bring in about $2,500 per month in cash flow. For just my 401k, I have about $500,000. In my brokerage account I have about $300,000. My Roth IRA I have about $16,000. Alternative assets I have about $32,000 and then an emergency fund of about $30,000. With this inheritance, this will bring the total net worth to $2.43 million. In regards to the inheritance, I guess my question is what would you guys do with this money? I like real estate. However, I don't foresee myself being a landlord long term and I'm not comfortable investing out of state. The Sacramento rental economy market is not in a really great state, so I don't really see investing in rentals as an option due to being in our late 30s. We do not need this money now as we are currently making $538,000 a year as a household. So I guess I'm a bit lost and a bit scared as to what I should do with this cash and I don't want to make the wrong decision. Thanks for taking the time to address my question.
- [04:16]
B
So sad to hear about his mother. Yeah, it's always a tough time.
- [04:19]
A
Anonymous Very, very sorry to hear about your mom. Sorry to hear about your loss. The first thing that I would say whenever I hear the word inheritance, the first thing that comes to mind is grief. Because necessarily an inheritance means that this money is clouded by grief. In times of grief, people often don't make the right decision. People often make highly emotional decisions because those decisions are so clouded by grief. So, and I'm saying this not just to you, but to everyone who's listening, who has a similar situation or who may have a similar situation at some point in the future. Anytime you're grieving, it is okay. In fact, it is advisable to not make any major financial decisions. Just put the money in a high yield savings account, give yourself a year. Let yourself process the grief. Let yourself focus on the grief, fully focus on moving through that. And then after the, you know, grief is always there, but after it is not so acute, then you'll be in a better emotional space to be able to make more complex decisions. So that's the first thing I would say. Anonymous not just to you, but to anyone.
- [05:31]
B
Sure. And on that note, Paula, grief is something that you don't often identify. Until it is passed, you may not feel like you're in a state. I mean, I've had this before in my life. I'm sure you have in yours where you're like, oh, man, six months ago, I was not in a good place. But at the time, I didn't see that. It's the type of thing that you don't see until afterwards. So you may even tell yourself, you're like, no, I'm good, I'm fine. I can make a bunch of irrevocable decisions and life will be great. Six months from now future, you may feel much differently. So I think it's important to realize that you may not know the extent of which you are feeling emotions.
- [06:16]
A
Right. In terms of when you do make decisions around what to do with that money. Let's talk through some of the options. First of all, I agree. Do not buy real estate. You are clearly not excited about it, you're not comfortable with it, you don't want to do it. Rule number one of buying real estate, investment property is that you have to want it. I say that to all of my students. I teach a course on real estate investing. The number one thing I say is you have to want it. And if you want it, then we can work towards how do you do it. But it has to start from a place of wanting to do it, and if you don't want to do it, don't do it.
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B
Well, the good news is there's other avenues that you can use. So it's not like you're missing out on something if you don't do real estate.
- [07:04]
A
Yeah.
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B
Like, my son, super excited about it, leans into it, has created a team of people to help him with his real estate. That is fantastic. Like, he lives it and breathes it. It's amazing. Me on the hand, not so much, but you don't have to do it there. There's no reason to feel this fear of missing out on real estate, which you and I have seen from time to time. People like, oh, everybody's talking about real estate, so I need to do real estate, too.
- [07:28]
A
Yeah, no. FOMO is the worst reason to get into any investment. So if you don't want to do it, which you clearly don't, then don't do it. So I would take that off the table. That actually leads to a second point, though. A second question. What do you plan to do with the three properties that you currently hold? Are you going to hold those? Are you going to sell those? Because one thought that came to mind was, well, you could use this to pay off those properties and I don't know what the interest rate on those three properties are. Maybe you got them in the low interest rate era and they've got like a two handle or a three handle. If that's the case, then you might want to hold on to that mortgage. Then again, if you don't want to be in real estate, how long do you want to continue holding the properties? That's my question. Back to you. Definitely don't buy any new real estate, but make a decision as to the three properties that you do hold. Do you want to continue holding them for the long term or do you just want to sell them?
- [08:23]
B
That just leads to a bigger question, Paula. I think that little question, what do you want to do with the properties? There's a similar question that's bigger. But before I even tell you what that is, we got to give this guy a name. Tired of talking to somebody who's anonymous. Know when you think about inheritance, the very first thing that comes to mind is the old Richard Prior movie about inheritances. Brewster's Millions.
- [08:48]
E
Ah.
- [08:49]
B
Oh, come on. No, really. Brewster's Million is a story of a minor league baseball player who inherits $300 million with a stipulation, Paula, I believe it's 300 million he has to blow through in a very short amount of time. I don't remember how short it is. Let's say a month, $30 million. He's got to blow through a tenth of it to get most of it. So all of his friends are trying to tell him to be a prudent investor and saver, and he's trying to blow cash as fast as he can. But the other rule is he can't tell them that he has to blow the cash. He just has to blow the cash. And he learns with one tenth of the money. This is, you know, if you haven't seen Brewster's Millions yet, is it spoiler alert? Yeah, you'll still like the movie if I spoil it.
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A
All right, spoiler.
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B
But the point is you take a small amount of the money and you do the wrong thing and you learn how to handle the bigger emotion. So what he learns is how to be a good steward of money by doing all the wrong things with a very small portion of the money. It's a good, good take home lesson that's interesting.
- [09:59]
A
Anecdotally, there are a lot of people in the personal finance community, in the afforder community who became really good at money because they went through a period of time in their life in which they were, quote, unquote bad at money in which they were mismanaging it. Yeah, yeah, you're a great example, Joe. You shared your story on previous episodes because they went through that period of time in which they were mishandling it. That was the impetus for them turning around and becoming amazing.
- [10:28]
B
Now, besides that, this story has nothing to do with Brewster's millions, but it's the only thing I think I've inherited. So let's call him Brewster.
- [10:37]
A
All right, Brewster. Brewster.
- [10:39]
B
So this opens up for Brewster, though, there's a bigger question, not just what, what does he want to do with the real estate? What does he want to do? The one thing he told us, where all the assets are, which was very helpful. So we know he doesn't need emergency fund. We know that.
- [10:53]
A
I have a comment on that one, actually.
- [10:54]
B
Oh, good. We know that he's. He's doing well financially, especially given his age. He's done a great job of saving, but we don't know what he wants to do. And I think for me, then that is everything.
- [11:10]
A
What he wants to do with regard to, like, maybe travel or early retirement or buying a primary residence for himself. You mean goals like that?
- [11:19]
B
Yep. You know, Morgan Housel's the Psychology of Money gets a lot of press, but his latest work, the Art of Spending, I think, holds a lot of keys to this universe.
- [11:31]
A
How do you spend?
- [11:32]
B
Well, yeah, if you're not spending based on what you want, this money, that's a tool to get what you want, starts doing the wrong thing. You know, if you're using it to impress other people or you're using it to do things that you think you should do versus what do you want it for? I think if you begin with what do you want it for, not only will you be happier, but you'll also find the right investment for that money. Because what you want to do with that money will invariably include some type of time frame. And that time frame, once we know the growing season of the investment, we can take this huge world of investments that are out there, and we can narrow it then to investments that historically have fit that time frame.
- [12:17]
A
Okay, so for a small portion of the money, like, let's just say, hypothetically, five years from now, he'd like to take a really big trip. Maybe two years from now, he would like to replace his car. I don't know. We'll take a number of goals that have a particular amount of money associated with them and a given time frame associated with them, and then it's just a simple matter of division to See how much he would have to save for each one. And based on that time frame, keep it in cash or put it into some kind of conservative investment, super easy. And that'll account for a small portion of the money. But this is such a large sum of money that there's going to be quite a bit that he's going to be investing. There's going to be a significant amount that he's going to be investing.
- [13:03]
B
Well, I disagree with that because I also think that by what do you want to do with the money? He may already have a financial independence vision. What is that vision? How much money per month does that mean that he needs to spend? We also know that retirement is not a one time event like a lot of people think it is. It's, it's a whole phase of your life. So you've got the, the go go years, the slow go years and the no go years. How is that funded right now?
- [13:33]
A
Yeah.
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B
You don't know any of that?
- [13:35]
A
Yeah, well, I think the major thing that we don't know, and this ties to the emergency fund, the major thing that we don't know is what his monthly spending is. When you said, Joe, that his emergency fund is good, is it, his emergency fund is $30,000. How does that compare to his monthly spend? That's the piece that we don't know. $30,000. Is that three months worth of spending? Is it five months worth of. We don't know how much he spends per month and so we don't know how big that emergency fund is. So Brewster, I don't know how much you spend, but raise the emergency fund to represent minimum of between three to six months of spending separately. Make sure that you have cash reserves for each rental property. And this is separate from your personal emergency fund. Have cash reserves for each rental property and those cash reserves should be a minimum of three months of gross rent per property. And if you want to get even more sophisticated, this is assuming that you choose to hold on to the properties. Another way that you can handle cash reserves for each rental is, is through anticipation of major capex that's going to come up in the next five years. And so what you would do is for each rental property, do an assessment of how old is the roof, how old are the windows, how old is the siding, how old is the water heater, how old are all of the major components? You have a checklist of components, right? Based on that checklist of components, what is the lifetime? What's the expectation of how long each one will last? And how old is each one? And so how many years of life do you think you have remaining on each one? And then how much is it going to cost to replace and how many years from now do you think that's going to be? So you, you document all of that, and anything that you think you're going to have to replace in the next five years, set that money aside as well. So that's a slightly more sophisticated method of maintaining cash reserves for each rental. It's more sophisticated than the three months of gross rent, which is just sort of a crude heuristic. But remember, the cash reserves for each rental is separate from your own emergency fund.
- [15:41]
B
Yeah, I don't like the catch all either. The more specific and granular you can get, the better that's going to be.
- [15:46]
A
Yeah, yeah. But Joe, going back to when I say, you know, most of this is going to be in investments, I mean, all right, even if he has a financial independence goal, that still means this money is going to last regardless of when he retires. He's 37 and he wants to plan for this money to last until he's 90, 95, 100. So a lot of this money is going to get invested. You know, there's going to be a bit that's siphoned out for short term goals. There's going to be a bit that siphoned out for cash reserves and emergency fund, but the bulk of 850,000 is going to go into investments. And given that he doesn't want rental properties, index funds, this is largely going to go into index fund funds. I want to call out index funds specifically because, Brewster, I don't want you to think that you need some type of fun, exotic investment, alternative asset class.
- [16:43]
B
Esoteric.
- [16:44]
A
Yeah, exactly. Like resist the temptation to put this into some kind of high variance, high volatility flyer.
- [16:54]
B
I was speaking with Ben Carlson from Ritholtz Wealth Management the other day, and he said a line, Paula, that I loved and I'm going to borrow here, which is that you find money like this and you start thinking hedge funds. You start thinking these wild tax break investments, these crazy, you know, I'll call them schemes with your money. And Ben said, know what's wild? Is that at some point every hedge fund manager decides to take time off to spend time with their family. An index fund never has to take time off to spend with its family. Never once.
- [17:37]
A
Brewster. So your Roth IRA is $16,000. That feels low.
- [17:43]
B
Yeah, maybe based on his income, Paula, he thinks, you know what, I need the tax break today making $380,000 per year. I'm going to take pre tax money. I think a great use of the inheritance might be to maintain his lifestyle, but have this go into the Roth bucket instead.
- [18:03]
A
Yeah, just because I'm sure there's some people listening who are going, why are they recommending Roth given that he is a high income earner in a high tax bracket in a high tax state, none of which are likely to be permanent conditions? I mean, I don't know how long you're going to live in California and I don't know how long you plan on working. So it might be those might be fairly durable conditions for many, many decades to come or they might not be. And I'm certain there are some people listening to this who are thinking, whenever you're in a high tax bracket in a high tax state, tax defer as much as you can. And so to those people who are wondering that, my response is you want to build out a tax triangle. You want to have tax flexibility because when you get to retirement, you want to look at what the tax law is at that point in time, which is something that we cannot know now. And based on whatever the tax law is at that point in time, you want the flexibility of being able to choose your strategy because you have tax deferred, tax exempt and taxable. So you want, you want the tax triangle, meaning allocations in all three buckets so that you have maximum flexibility to draw from.
- [19:15]
B
And those three buckets are taxable money that you can just pull whenever you want. You're going to pay a capital gains tax. Possibly, but that money's already been taxed money in the tax free bucket with which you pointed out, Paula, he has very little. And then the pre tax bucket, which is big. If you take just the way he seems to be going right now, he's creating this tax trap which is the only tax planning he's going to be able to do later. Paula is going to be decide whether he eats or not.
- [19:46]
A
Right, Right.
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B
Do I take the money out and pay the tax or do I not pay the tax? Now he does have some brokerage of money that he can use for some flexibility. But I, I'm with you. Getting away from a future tax trap is probably job one.
- [20:04]
A
Yeah, I would absolutely contribute to a backdoor Roth. See if your job offers Roth 401k, see if Mega backdoor is available to you. See how much you can use this within your tax planning to make some Roth conversions.
- [20:24]
B
I think the game on how much you do that though depends on when do you want to leave work and rely on this money. Then I take a harder look at that brokerage account at that point and I start thinking about strategies around creating those early income streams.
- [20:42]
A
Right.
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D
Yeah.
- [20:43]
A
Well, in addition to not knowing what his monthly spend is, the other piece that we don't know is, again, does he want to retire at 50 or 80? And yeah, I keep using those as two extremes, illustrative extremes. But the reason I say it is because, Brewster, if you do want to retire prior to the age of 59 and a half, then you'll want to use a chunk of this money to fund the pre 59 and a half bucket. So if, and I don't know if you want to retire early or not, but if you do, this is a great opportunity to earmark a piece of this for the money that you will spend prior to the age of 59 and a half. There's one more thing I want to talk about, Jo. Well, two more things. One is estate planning. Because you have significant assets currently you have no that I'm aware of, designated heirs or beneficiaries. So I think one of the things you're going to want to think about is if something were to happen, where would you want your money to go? You know, are there particular charities that you want to highlight? So estate planning is one thing. The other, be very conscious about what is considered separate property and what is considered community property and be extremely careful in terms of commingling. We had a family law attorney named Aaron Thomas on our show, and we'll link to that show in the show notes. Inheritances are often considered separate property, except what often happens is that people will accidentally commingle that separate property and by virtue of doing so, they will turn it into community property. So if you pay joint expenses, pay a joint mortgage, and if you title your fiance's name on accounts holding the inheritance, those can can turn separate property into community property. And what happens oftentimes is that people do that without being aware of the fact that they're doing that. So you will want to work with a family law attorney and design a prenup that explicitly identifies how you want this designated. Because there are a lot of people who don't realize that they have accidentally turned separate property into. They've commingled what was once separate property.
- [23:06]
B
It's like a hidden tripwire.
- [23:08]
A
Yeah, exactly. Then you go through a divorce. And divorce is hard enough, but that gets compounded by an added layer of, of ugliness when money that was passed down to you from a deceased relative, ends up going to your ex, who at that point is with somebody else. Right. And I'm not saying that that's going to happen to you, but like that has happened to millions and millions of people. And that is something that you should be aware of. And I know the pushback that I get on this often is, well, we're not going to get divorced, so it's not applicable to us, which is what every married couple says. My response to that is you have a prenup already. The prenup that you currently have are the laws of the state of California. So do you want the prenup that has been assigned to you by the state? Like, do you want your government assigned prenup, or do you want to design something that is true to both of you and that reflects the values, the principles, the priorities, the positions that both of you hold? You know, you personalize everything else for a wedding. You personalize the napkins and the gift baggies that you give to the guests. Like, why not personalize you have a prenup one way or the other? You either have a government assigned default prenup or you personalize one. So why not personalize it in the same way that you personalize all of your other wedding related things? The rest of your wedding. Yeah.
- [24:44]
B
The rest of your life.
- [24:46]
A
Yeah. Yeah. But we'll link to the interview with Aaron Thomas. It was an excellent one. Joe, you got anything else?
- [24:53]
B
I still want to know just what the actual goals are. I can't get around the thing that's going to create an eye roll for longtime listeners, which is begin with the end in mind,
- [25:08]
A
creates the eye roll because he. Joe, you say it on every episode.
- [25:12]
B
Every episode. All I got to do is get in King Lear and Sun Tzu and
- [25:15]
A
we'll have all the bingo cards, the whole bingo film.
- [25:19]
B
Oh, I can't forget the E myth too.
- [25:22]
A
Oh, yeah.
- [25:23]
D
Total.
- [25:24]
A
Total bingo. Total Joe bingo for all of the longtime listeners. Well, thank you, Brewster, for the question. We're going to take a break to hear from the sponsors who make the show possible. When we return, we're going to hear from someone who is having a baby and needs to negotiate with her employer about going to part time. And that's coming up next.
- [25:46]
D
In the summer, you don't want to be indoors going through a bunch of paperwork, doing a bunch of routine tasks. You need to do those tasks. They're necessary.
- [25:54]
A
But that's not what you want to
- [25:55]
D
spend your time doing. My niece, she lives in Sydney, Australia. She's coming to visit in New York. I'm really looking forward to taking her around the city, showing her the Statue of Liberty, going to an Off Broadway show.
- [26:06]
A
That's how I want to spend my summer.
- [26:07]
D
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- [28:50]
A
Welcome back. Our next question comes from Anonymous.
- [28:57]
C
Hi Paul and Jo, this is Anonymous from Pennsylvania. Here's some background. I'm 35, married and we currently save about 40% of our income. We don't have a specific fine number or date. Instead, we're focused more right now on setting ourselves up to have flexibility by not having a big mortgage or other fixed expenses. I currently work full time at a big company. The context of my job performance is relevant to my question. I'm a top performer, I was recently promoted and my manager is already fast tracking me for the next promotion. I enjoy my job and well suited for it. It's fully remote, has flexible hours and good work life balance. I'm pregnant with our first child and as long as things go smoothly, I'll take a four month fully paid maternity leave from next January to April. We don't want to send our baby to daycare and I know I don't want to return to work full time at the end of maternity leave. I do enjoy working though, so I could definitely see myself returning to full time once the child is school age. However, I'd like to try to negotiate returning to this job with a half time schedule. My role can be easily split in half and I'd have significant flexibility around my hours given the nature of my job so I could coordinate childcare with my husband who also works a flexible remote job. While I'm very excited to have this special time with our child, I think having some regular work would be a good fit for me. It would also help us maintain our savings momentum and I'd still have full benefits working half time, which would be good because my insurance is much better than the options through my husband's job. I'm confident I could find other part time work if they say no. But trying to find a new flexible part time remote job while sleep deprived and recovering postpartum would be much harder than returning to a job I already know how to do well and efficiently. I have two questions. Number one how and when should I approach my manager with a halftime proposal? If the decision were just up to my direct leadership, I'm confident they'd say yes. The potential hurdle is the highly bureaucratic central HR team and I honestly have no idea if they'd approve a part time arrangement for someone in my position. In terms of timing, my annual bonus of about $15,000 will be paid out in the middle of my leave. My strong lean is to wait until after that bonus hits the bank to propose this part time proposal, but I'd love your take on the optimal timing and strategy. 2. How should we allocate our savings between now and next spring while we await an answer? Our savings every month are currently split pretty evenly between retirement accounts and a taxable brokerage. Should we keep aggressively funding retirement in the brokerage or pivot to building a larger cash cushion just in case HR says no and I either take a full career pause or take several months to find other part time work? We typically keep about four to five months of expenses in cash and we also have about 350k in brokerage accounts we can tap into for true emergencies. Thank you both so much for taking my questions. I hope others can benefit from them.
- [31:55]
B
Love this question, Paula.
- [31:56]
A
Should we kick off by giving her a name? We've been leaving the name to the middle of the answer we have.
- [32:04]
B
We don't want to have another hey buddy situation going on. At the risk of of naming both of our people today, I think I have one.
- [32:13]
A
Paula all right, let's hear it.
- [32:15]
B
I've been watching this cool show on Netflix called the Night Agent, and if you watch season one of the Night Agent, you might be going, oh, it wasn't that good. It was okay. It was decent. But it was good enough that I watched season two, which was really good. And now they're in season three. Usually as, you know, shows, you know, the second version is a little worse. The third version, they're just cashing in because so many people are watching. This show has had a different trajectory. It's really, really been good. So the Night Agent, big thumb up. But there is a woman, she said she's a top performer and there is a woman who's a reporter who's a top performer who early in these early episodes. I can't wait to see where her story arc goes because she's kind of taking the bull by the horns and she is, she's strategizing, she's helping in all the best ways. I don't want to give up any spoilers because this is a spoiler heavy show. But her name, the character name is Isabel De Leon, so I think maybe we call her Isabel.
- [33:17]
A
All right, Isabelle. Beautiful name, Isabelle. In terms of timing, I agree. Wait until the bonus hits your account before you start any negotiation. I also, and Joe, I'm curious what you think about this. I am a fan of her negotiating before she returns from leave. So I would enter into the negotiation a few weeks prior to when her leave ends, assuming that she has received her bonus by that time.
- [33:48]
B
Yeah, I like that too. I think being away makes the heart grow fonder.
- [33:54]
A
Yeah.
- [33:55]
B
People as well.
- [33:55]
A
Yeah. Yeah. Makes the heart grow fonder.
- [33:58]
B
Yeah. Trying to train somebody new to do what Isabelle is doing, I think is always a struggle for any person. You know, employers forget that the amount of money they have to spend training a new person for a role is a huge expense. And managers who are new managers kind of view that flippantly. But man, having good top performers.
- [34:22]
C
Yeah.
- [34:23]
B
Worth its weight.
- [34:24]
A
Yeah. Onboarding is no joke. Recruiting, hiring, like screening, onboarding. I mean, it's a huge, huge time suck and, and therefore money suck. So here's how I would frame it. This is not a personal ask. It is not a personal request. It is a continuity solution that you are bringing to your employer. Because you are going to be available to help train and guide whoever takes on the other half of your role. That's a benefit to them. You are going to be the institutional knowledge, the person who has already done the job and knows how to do the job. And because you'll be duplicating yourself by virtue of mentoring and training this new person who takes on the other half of your role. Great. Now they no longer have single source failure. So one of you is sick. Now there are two of you who will be trained in how to do this. So this makes your employer more resilient. It gives your employer more continuity. That's how you want to frame it. These are all of the benefits to them. Don't talk at all about why it's a benefit to you. They don't care. The conversation is entirely why this is a benefit to them. The other thing that you want to do is build a presentation that quantifies your value to the company and document every way that you have either increased revenue or decreased expenses. You'll want to show them why. Replacing you entirely replacing you is going to be a lot more expensive. What's it going to cost in recruiting, in onboarding, in inefficiencies during that training period. Like, you want to build the case as to why keeping you part time is going to be a lot more cost effective than losing you entirely. And cite that case with as many facts, numbers, data as possible, either internally, from inside of Your company or by using well respected studies.
- [36:33]
B
And the emphasis here is on what benefits the company. You want to leave with what benefits the company, not what benefits you. The cool thing about this, I worked with clients that were in very rigid, very staid organizations in Detroit. These are old automotive companies, right? Been doing things the same way forever. Not very open to change. Paula, I saw when I was a financial planner, two people do exactly what Isabelle's talking about doing. Want to come back, want to come back part time. And guess what happened in both cases? They said, heck yeah, we would rather have you partially than that. Listen, if we can get you part time, but we don't think we can get you full time, then yeah, we'll take you part time. And then the fact that you're going to help train, I love that because then maybe we get two people and there's this boss's feeling that two people sharing a role, they might actually get higher productivity because both people might overdo the 20 hours where in 40 hours you got to take some breaks, you know. So if they're really thinking about productivity, they might think, wow, I might get more productivity from two 20 hour people than I will from a, from one full time person.
- [37:54]
A
Right? Well, there are studies out there that show that for knowledge workers in particular, most people have about four to five good hours a day in them. Like good, focused hours. I mean, you look at people who do deep work, writers, programmers, like podcasters, I was going to say editors. But people who have to do deep, focused, concentrative work. Most people will say that if they can get three great hours a day, that's a win. A lot of writers, novelists will say, you know, like, I have three really good hours of writing in me per day. And the rest of the time they're doing administrative work, they're taking walks, they're drawing inspiration, they're listening to things. All of that is to say that even if you've got two people and each person is working 20 hours, if you've got 20 focused hours, highly focused hours, that can often be more cost effective to your employer than 40 hours, where you're like a little bit sloppy, not as an affront, but like, that's just how human energy waxes and wanes throughout the day.
- [39:06]
B
And as an aside, I don't want to oversell this too much to my employer, because when you decide to go back to 40 hours, you sold them, oversold them on the fact that me part time is better. We don't want to go too far.
- [39:17]
A
You also don't want to imply that the people who work there who are full time are being. You know what I mean? Yeah, yeah.
- [39:23]
B
Right now, we also had this, where I worked at American Express, we had this fantastic employee at American Express who did not love the role she was in. This is a little bit different thing than what Isabel's talking about, but I think that it's important for the community. She wanted to stay with American Express. She saw a need at the company, Paula. She went to her boss and just created a new role. And then she negotiated her salary, she made the new role work. And now, as far as I know, knowing people that still work in that organization, that role is still a role in the company. But she just went, you know what? We need this. I'm the perfect person for it. I think this will add X, Y and Z. She created a new position. So even for State hr, I guess, I guess the through line here is she talked about stayed hr. American Express is a company that's been around for a long time. General Motors, a company that's been around for a long time. I've seen this work in many stayed organizations where they actually got this through. So I think the chances happening are maybe better than she thinks.
- [40:31]
A
Yeah. A few other tips if this would be appropriate given your company culture, and only you can answer that because only you know your company culture. But if it would not be overstepping, then I might even go as far as write up sample or mock job descriptions that, that outline the deliverables, the scope of work, the responsibilities, the qualifications. If you were to take your role and separate it into two different roles, do their job for them. Right? Like, because if they were to turn this into two roles, they would be tasked with the responsibility of coming up with that separation of scope. And those new job descriptions, take that off their plates. Do that in advance or create at least a sample or a mock up in advance. If your comp. I mean, again, this depends entirely on your company culture. Some companies would love that. Some companies would see that as overstepping. So if your company culture is the type of place that would be amenable to something like that, then that's an option. Because what that does, A, it decreases their workload and B, it creates specificity around deliverables and outcomes and the KPIs that would be used to measure, you know, that everyone would be held to. It creates clarity. And the greater clarity that you can create, the better.
- [41:57]
B
Would you like to pivot to the second half of her question then?
- [42:01]
A
Yeah. Let's do it.
- [42:03]
B
So allocating savings. This is an interesting question. I love the fact, Isabelle, that you're solving for flexibility. You want as much flexibility as you can get. And for all the afford anything community, we often put things into little buckets trying to optimize. But the best thing to optimize for is this. Especially when the world looks cloudy like Isabel's does right now. Making sure that you've got enough flexibility is good. So I don't know about your take, Paul. I'd love to hear it, but here's mine. Number one, my impetus would be she's deciding between part time income or no income. So beefing up the short term money I think makes a lot of sense. Putting money in a place she can get at it makes sense. Which means lowering the amount into the 401k. But before I make that move, I want to know what the impact is going to be. I just want to know ahead of time. It might not change my strategy, but that's data that doesn't take a long time to get and might. So more data is always better. I would look at, I'm putting X amount in my retirement account now, in my 401k. Now if I back that down, I back it down. The first number I'd look at is what is the match? Just get the free money.
- [43:22]
C
Right.
- [43:23]
B
So if I draw this back to the match line, how does that impact my retirement vision, my retirement goal? And if it doesn't materially change it, then that would be what I would want Isabel to do.
- [43:37]
A
Oh, Isabel, I did want to commend you. I meant to say this at the beginning. I wanted to applaud the 40% savings rate. What an incredible savings rate. I don't have much to say on allocating savings other than I love that she's got four to five months of expenses in cash. I might, I would probably beef that up just a little bit given that there are questions about employment duration on the horizon. So yeah, I would beef up the number of months of expenses kept in cash. But also, Isabel, you've got 350,000 in brokerage accounts. That gives you an in case of dire emergency break. Glass bucket. Generally you don't want short term money invested, but you could in case of dire emergency that is there as well. So.
- [44:30]
B
Well, and Paula, that's actually an interesting point that I hadn't considered, which is why I love us kind of bouncing these off each other, which is once we know what is in those brokerage accounts, what actually the investments are, there There might be some investments that could move fairly easily, which means that there then is no case to back down the 401k at all.
- [44:56]
A
One other final, final point that I want to make, Isabel, is before you go into that negotiation. So there's this concept I teach the students in my negotiation course. It's called Bat Nuts. Best alternative to a negotiated agreement. And it's basically like, I wasn't sure
- [45:15]
B
where that was going. I was. What are you teaching in these sessions, Paul? But I like this. Yeah, continue.
- [45:27]
A
I'm sorry, but your batna is basically like, if, if this doesn't work out, what happens next? And so I want you to think about, if they say hard no, would you return full time, temporarily, while you're searching for an alternate job, or would you ask for an extension of your leave in the event that they say no, what would you do? Like, what is that alternative? And if you go into the conversation knowing what your best next alternative is, what is your ideal Plan B? Then that gives you mentally, internally a benchmark to compare whatever offer they're making, you know what to benchmark it against because you know what your ideal plan B is. So have that in mind before you go into the conversation. All right, well, thank you, Isabel, and please call us back and let us know what happens. We're going to take one final break to hear from the sponsors who make the show possible. And when we return, we are going to hear from a caller who has a comment on a previous question and some very, very good advice for that caller. That's up next.
- [46:49]
G
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- [47:49]
I
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- [48:21]
A
Welcome back. Our final question today comes from Tim
- [48:27]
J
hi Paul and Joe. My name's Tim and I'm calling in response to a question you answered on episode 722 from an anonymous caller. You guys called Jane. Jane's a federal employee with mandatory retirement age at 57, which in all likelihood means she's a federal law enforcement officer such as myself. Jane reported being constantly focused on her numbers and neurotically checking her account balances even though she's on really solid footing and still years from retirement. You guys usually offer really great insights in response to caller's questions, but I actually laughed out loud when Paula told Jane that it could be the looming mandatory retirement age of 57 that's contributing to her stress and lack of peace. As a fellow federal agent, I can tell you that the number of my colleagues that see mandatory retirement age as a source of stress is approaching 0.95percent or more of us plan to retire close to the earliest possible moment and then immediately turn around and begin a second career while simultaneously drawing your federal pension. A much smaller number of us plan to completely walk away from full time work when they retire from their federal work. Like Jane, that's me, though I'm much closer to the finish line. Like Jane, I spent years maxing my tsp, building up my Roth accounts and tracking my expenses. So here's what I think could be contributing to Jane's sense of stress. It's not the mandatory retirement age. It's the opposite. It's her minimum retirement age. In her case, she knows she has no choice but to keep working to age 53. In my case, it's age 50. I know I've done everything right. I've checked and rechecked my numbers a thousand times. I could go tomorrow, except I can't. If I were to resign my position before I'm eligible to retire, millions of dollars of benefits go up in smoke. From what Jane said, she's on the same path. She knows without a doubt that she'll be financially ready to retire probably by the time she's 45. But the government says she has to stay until 53 or she'll pay a stiff penalty. So in terms of advice for Jane, I'd say she's early enough in her career that she really needs to focus on finding rewarding work within her agency. Find a mission you believe in and throw yourself into it, probably for the next 10 years. Hopefully, her agency allows for some degree of job mobility. Alternatively, she's also junior enough that walking away at this point and changing careers wouldn't be as crushing as it would be for someone like me. With only two years to go, I was lucky to land in a job that I love for the first 15 to 20 years of my career. The last couple years have been hard. I'm no longer in love with my job. I can see the finish line, but there's no way to speed it up. So I took what little control I could. I stepped down out of a supervisor job. I got out of management and went back to the field to finish out my time. Even though I'm no longer in love with my career on a daily basis, I know in the big picture, I'm proud of the work that I've done. And when I can finally walk away, I'll do so confident that I'm ready for what comes next.
- [51:21]
B
I love the clarity there, Paula, because for 99.9% of the world, things are one way. But I love the fact that Tim can give us some insight. So when he said I laughed at first, I was like, well, wait a minute, how are we to know? But then that's exactly why he's laughing. We would had no idea that they're in the 1% of the world where it's not that. It isn't that I'm. I'm getting out too soon. It's that I'm. I'm. I kind of have these handcuffs.
- [51:57]
A
So it goes back to what we were saying about company culture. Yeah, every company has a distinct. Yeah, when I say company, I mean every organization, every group of people has a distinct culture.
- [52:10]
B
Yeah. It's super clarification, Tim. Does that change what you said to Jane, though, at all?
- [52:16]
A
Well, I think the common thread between minimum retirement age and mandatory retirement age, I think the common thread is lack of personal agency. That's incredibly stressful. And Tim himself, also, you said something to the effect of I took control in the way that I could. It was when you were describing your decision to step away from management and into. Go back into the field. You are exercising personal agency. You are exercising a degree of control in a situation in which you lack that control. And I think the situation that causes stress is lack of control over your life, lack of personal agency over your life. You know, that's the common thread between the two. But thank you, Tim. I love the advice that you gave, which is find a mission you believe in. That's beautiful advice. And I, I wholeheartedly support that. Find a mission that you believe in, because that's what's going to make this time meaningful.
- [53:21]
B
You know, we hear a lot about company culture and about what company culture is like. CEOs like to talk about company culture. I spoke with a gentleman who was in charge of company culture at Cisco Systems for a long time, Ashley Goodall. He and another gentleman, Marcus Buckingham, wrote a piece a few years ago that blew up the work world on Harvard Business Review. Everybody read it. Everybody was talking about it. In fact, so much that they wrote a book about it. But Ashley's whole position here, Paula, is that corporate culture is baloney. If a CEO talks about corporate culture, it's salesmanship. Your corporate culture truly is the five or six people that you work with every day, people you have lunch with, your direct boss, maybe your boss's boss to some degree, but those few people that allow you to make the widget, to consult with the client, to do whatever the job is that you do every day, that is your culture. Which means that what? And the reason I bring it up is because Tim said that he was able to change his corporate culture by moving to an area that he believed in, to a job that he wanted to do. And I think that's really important that we see often, especially in the financial independence, retire early community, people get really excited about retire early because they think that that's unicorns and rainbows. And yet, Paula, with what you and I do, talking to experts in the area of retirement, for a lot of people, it's not unicorns and rainbows because we haven't thought enough about it. We haven't done the homework to know what that culture actually should be for us. We have all these preconceived ideas which we've talked about in previous episodes. A lot of them are wrong, are completely wrong about what a successful retirement really looks like. So I think finding that meaningful work and changing your corporate culture is a big step toward maybe getting rid of some of the angst that Jane was feeling.
- [55:36]
A
So it's that Jim Rohn quote about you become the average of the five people that you spend the most time with. But the five people that you spend the most time with at your organization, whatever organization, whether it's a private company or a government organization, the five people that you spend the most time with, that is the culture that you live in on a day to day basis
- [55:58]
B
and even on a more colloquial basis. I had a great coach tell me this at one point in my career, and I've held it for the past 25 years, which is in any company. Just beware clusters of misery. They are these people that get together in the break room outside, they go to lunch together, and all they do is about the company. Whether you agree or disagree with this group of people, nothing good happens when you hang out with them. Nothing good happens either A, you hate your job more or B, your boss ends up hating you and these people. So nothing good happens. And almost every company, when you get to a certain size, has a group of people. Almost everybody listening to this or hanging out with us on YouTube is thinking about specific people right now that are the cluster of misery in their life.
- [56:52]
A
And, you know, I would say that applies to friend groups as well.
- [56:55]
B
It does, yeah, it does. Yeah.
- [56:57]
A
Yeah. There are definitely some friend groups that are clusters of misery. There are definitely social circles. If you have a very large family there, there are people within your family. Just avoid the complainy pants.
- [57:10]
B
Yeah. Optimism is so, so healthy.
- [57:13]
A
It is. The attitudes are contagious, you know.
- [57:17]
B
Yeah. And for that reason, I absolutely love Tim, your points here because, you know, truly what we want to do is find meaning in our life. And I think you, you really shone a light on a lot of that.
- [57:31]
A
Yeah. Thank you, Tim. I love your advice. Find a mission. Find a mission that you believe in and get fully behind that mission and embrace that. Because that's, you know, there's research that shows that the three attributes that most closely correlate to a person's job satisfaction, three qualities are autonomy, mastery, and purpose. Find that mission that you fully believe in and embrace. That's purpose. Right. And then when you have a strong purpose, you want to develop mastery. And mastery is a lifelong pursuit. You're never done, but you want to increasingly improve. So that's the mastery component of it. And then autonomy, as we just discussed, the sucky thing is to lose that personal autonomy, that personal agency over the timing of some of those major decisions in your life. But to the extent that you can have autonomy over who you work with or what you do, or the mission that you get behind, or maybe some of the day to day aspects of how you handle your job, the more that you can express autonomy within your work, the better. Right. And so autonomy, mastery, purpose, that's going to. Those correlate to job satisfaction more than anything else.
- [58:43]
B
Paula always has the technical terms, too. Sucky thing is the very technical piece of this whole argument.
- [58:51]
A
Yeah.
- [58:52]
B
But I think we all know exactly. Stay away from the sucky thing.
- [58:57]
A
Yeah. Stay away from things and people that suck. All right, well, thank you, Tim. We will reach out to Jane. We'll send her an email and make sure that she hears this episode. Joe, I think we did it already.
- [59:10]
B
I can't believe we did this already.
- [59:12]
A
It flies by. Joe, where can people find you if they'd like to learn more?
- [59:15]
B
I mentioned Ashley Goodall. I talked to Ashley Goodall specifically about this. So if you want to dive in deeper with me and Ashley on corporate culture, go into your search engine and just put in Ashley Goodall, G O O D A L L. And the title of that episode was Nine Lies About Work. It was a few years ago. We weren't numbering the episodes yet. Then, Paula, we realized that we needed to start numbering them. And so just put in Ashley Goodall, nine Lies About Work, Stacking Benjamin's, and you'll find it. We dive in.
- [59:46]
A
Haven't you had, like, 1800 episodes or something?
- [59:49]
B
Yeah, we're coming up on 1900 episodes. Yeah. Yeah.
- [59:53]
A
Wow. To think there was a time that you weren't numbering them.
- [59:56]
B
I know. I'm going back. I don't have that many fingers, Paula. Like, figuring out what episode we're on took a little work.
- [60:03]
A
Geez, you've done more than double the amount of episodes that we've done. And.
- [60:07]
B
Well, we.
- [60:07]
A
I mean, we think we've done a lot.
- [60:10]
B
Started earlier and it's three days a week.
- [60:12]
C
Yeah.
- [60:14]
A
Yeah. That's bananas. You started earlier. I started in 2016 and you started earlier than that.
- [60:20]
B
It's funny. I have a friend, Glenn Hebert, who, if you love horses, you want to listen to his shows. His main show is called Horses in the Morning, and they record it live on YouTube like we are now. And so you can hang out with them. And it's like a morning drive radio show, but all about horses. And they have this huge audience of horse lovers. Glenn started in, I believe, 2010, and they go five days a week. And the only reason I bring that up, Paula, is a Horse lovers should listen to Glenn. He's amazing. Him and the whole team over there at Horse Radio Network. But second is because Glenn is one of the few people, when I see him at podcasting conferences can look at me in almost 1900 episodes and go, oh, how cute. That's so nice. So you, you little starter, when you get to my like, I always look at Glenn and I'm like, I am not worthy.
- [61:12]
A
Awesome. Well, thank you all for joining us and thank you for being afforders, being part of this community. If you enjoyed today's episode, please do three things. First, go to YouTube. Subscribe to our YouTube channel. Please YouTube.com afford anything subscribe to our channel. Hit the little bell for notifications so you will get notified when we go live. And you'll get notified about new videos as well if you did not previously from last week, we had this exercise called the four cornerstones. Joe, you led us through that exercise. We have a worksheet that walks you through the four cornerstones. If you haven't downloaded that yet, it's totally free. Go to affordanything.comstonestone. that's affordanything.comstonestone. you can download the cornerstones. You can map out today's money and tomorrow's money and put your money in its appropriate bucket and place plan. Big picture how you want to think about your financial life. So again, afford anything.comstonestone to download that free worksheet and follow along and. And fill it out and map out your money. So that's number two. And number three is share this with your friends and family.
- [62:22]
B
Sounds good. That's a lot. I remember all three of them.
- [62:27]
A
Wow. Oh, can you name them?
- [62:29]
B
I can name them. First of all subscribe. And then number two on YouTube. On YouTube to see these. Smash that subscribe button. Then number two is download the free four cornerstone sheet that I led you through. And then the third one.
- [62:46]
A
Oh, yeah, the URL affordanything.com cornerstone.
- [62:49]
B
There it is. And then the third one is share it with friends and family and your friends that are into horses.
- [62:56]
A
Nailed it. Well, thank you so much for tuning in. I'm Paula Pant. I'm Joe Salsihai and we'll meet you in the next episode.