← Money Rehab with Nicole Lapin
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- [00:01]
Nicole Lapin
So I have written, count them, five books now. But each time I'm in the writing process, I stay at an Airbnb. I love to stay at an Airbnb. When I was actually first launching this show, I was at an Airbnb in Arizona. It was so peaceful. It was stunning I could be productive and comfortable. The Airbnb was also surrounded by a ton of javelinas.
- [00:22]
Financial Expert
If you know Arizona, you know they're like wild pig creatures.
- [00:26]
Nicole Lapin
But honestly, I love them too. Being away for work, for fun, or both is a perfect opportunity to host your space on Airbnb. And if you think that hosting is overwhelming, I have a solve for you. With Airbnb's co host network, it's easier than ever before to host. It's also a great way to earn some extra cash, which I know we all love. Now you can hire a quality local co host to take care of your home and your guests. They can do everything from creating your listing to managing reservations, to messaging guests and even providing on site support. So if you've got a secondary property or an extended trip coming up and you need a little help hosting while you're away, you can hire eight co hosts to do the work for you. Find a co host@airbnb.com host I'm Nicole Lapin, the only financial expert you don't need a dictionary to understand it's time for some money rehab. You have more than one financial goal. How do I know that? Because we all do. The trick is, how do you work toward multiple goals at once? The answer isn't some money move that your future self will need to make. The answer lies within the money moves you're making right now. And I'll show you how to make one of those money moves with the help of bank of America, whom I partnered with for this episode. First, you'll meet someone who's debating this question right now. A money rehabber named Sarah. She already has some real estate investments, but she's thinking about buying another house.
- [01:56]
Financial Expert
In a few years.
- [01:57]
Nicole Lapin
Plus, her husband wants to retire early. So how does she balance these two goals? The answer is not waiting around until she's ready to buy house or until the eve of her husband's wannabe retirement date. She has to put in the work now. She needs to know how much she can save for these future goals and then start saving. So in this conversation, we do a deep dive into her finances so we can figure out that number together. But like most things in finance, these long term goals are deeply tied to emotion. So in this conversation too, you'll hear about how watching her family go through the 2008 crisis has affected Sarah's thinking and how she takes a step toward overcoming that trauma in this very conversation. Whatever goals you're working toward or short term, bank of America Corporation has the tools to help get you there@b of a.com financial next steps. But for now, let's get into it with Sarah.
- [02:48]
Financial Expert
Sarah, welcome to Money Rehab.
- [02:50]
Sarah
Hi. Thanks for having me. I'm so excited to be here.
- [02:53]
Financial Expert
So you want to buy a house in two years? You found yourself in a little bit, it sounds like, of a Goldilocks house situation. Can you tell me about what's going on?
- [03:01]
Sarah
Sure. So it's a little convoluted. So back in like 2016, fresh out of college, got my first big girl adult job. One of my goals was to just buy a house instead of constantly moving apartments every couple of years. So a little savings scrapping, bought a cute little townhome and where I lived very, very 80s and my family's in the kind of fix and flip construction world, so bought a little help from my parents and then we spent about four years gradually renovating it. Nothing major like new tile in the shower, new cabinets in the kitchen, very minor, some new paint, better light fixtures type of thing. And then I got married and my husband moved into that house with me. And then once Covid hit with the interest rates being super low and we're both like living at home and thousand square feet was not quite enough for us anymore. So we wanted a bigger house and we were unsure of like where our life was. Like we're newly married unto like do we want kids? We wanted to know bigger. And then we found this huge master plan community that was being built outside the city and we're like, we can go there. Because it was great deals on houses. We had like a couple of floor plans and with interest rates being so low, we just kind of like took advantage of that, cashed out a HELOC on my first property, rented it out, moved there, lived in that for about three years. It had unfinished basements. Then we renovated that. So we turned this three bedroom house into a four bedroom house for two people. So it seems like too much house, the two of us. But then he got a job opportunity that then picked us up and moved us out to California where we're currently living and we're renting out both our houses and we're still in this weird limbo of like, you know, we want to move back and we'll eventually just move back into one of our current houses first. But we're like, one's a little too small, one seems a little too. So we're trying to like, maybe we'll just buy another house in a couple of years when interest rates come down a little bit more and just have like our own mini like housing real estate empires. Like our new joke of like, we're gonna be those people and we can retire him early and he can help manage them. We can just kind of live off of those instead of having to deal with the uncertainty of the stock market for our retirement or have it supplement our retirement in 20 years time when those mortgages are paid off is kind of where we're sitting. But now it's like, how do we figure out saving for a house? Because he doesn't want to do the HELOC thing again. Like that still terrifies him of like, why happened? Nothing. He just didn't like. He doesn't like the, of having debt. Like he was brought up in those like cash only houses. So I had to teach him. We got married. Like, here's how credit scores work. Here's how to get a credit card. Like, I had to help buffer him along.
- [05:17]
Financial Expert
And is he first generation American?
- [05:19]
Sarah
No, he's been here his whole life. His dad was just like some old account delicious the way he was just brought up as like cash only, which was great. We first met, like, he was great at savings. Bought his first car for like $8,000 when he was 21 years old type thing. So it's a really big hook for me. It's like, ooh, he's great at savings. I had no clue how to do that at the time. So that was a good book. But he just had no idea how credit works. And he just hates the idea of getting into debt. I'm like, but you can use this money to your advantage. But since we still have our HELOC for my first home and we're paying that off on top of having two mortgages, but all that money comes out of a rental income, so it's not our actual cash out of pocket. He doesn't want to either extend another loan or he's just worried about being debt eyeballs. His like the 2008 recession type thing, I think caught his family off guard as well. I think he just has like this fear of being in over his head at the same time or.
- [06:06]
Financial Expert
But he's not saying buy the house in cash.
- [06:08]
Sarah
Right now. With our big house, we managed to do a 20% down payment because he found out about private mortgage insurance. And he's like, that's a scam. I don't want to deal with that. But, like, the reality of the market is we probably won't be able to do that again, putting that much down the house. And so that's his other big issue is, like, we spent too much time on Zillow looking at houses and playing around with the numbers. It's back like, oh, we could buy this right now. And I'm like, do we really want to buy that? And we have to renovate this. Like, we. He just went full bore. From being like, you buy the one family home, the picket fence, to now I'm just like, we're renovating. We converted. His way of thinking with my family's weird. It's the money. You play with it and this, and we fix it up, and now he's gone full down that rabbit hole. When we first met, he was totally against the idea of painting a house is too much. Work type, huh? Yeah. It's like he was against it. Now he's like, all for the split equity type thing. I don't know.
- [06:59]
Financial Expert
So you guys have renters in both of the houses you own?
- [07:02]
Sarah
Correct.
- [07:03]
Financial Expert
Has it been hard to find renters?
- [07:06]
Sarah
No, we've been pretty fortunate. Where my little townhome is, it's a college town, so there's a lot of influx of, like, young students. And we've been fortunate because both my mortgages are so low that we can actually rent under the market, so we can be a little bit more choosy with our tenants and also not have someone feel strapped for cash. Which makes me feel better knowing that, like, with life uncertainties is like, I don't have someone, like, missing their rent either. So we were playing a little short with the numbers, but I feel better knowing, like, someone's in there, the bills are getting paid. I get a little extra in my pocket to cover in case something breaks. And we call that good versus gouging out the market on that. So so far, it's been pretty good. Where other houses is a huge oil and gas industry out there. So people are moving in and out with the influx of that. And it's just a lot of, like, the hospitals are nearby being built and those kind of things. So we've got a good pool to cover both ends of the market. Like, we have, like, right now, our current one tenants, like, a college student working on, like, her doctorate degree. And it's a family of, like, four, I think. And the husband works in the oil and gas industry and the wife's a teacher. And they seem pretty happy with staying so far. So I'm like, I have no problem with keeping them on as long as they want to stay.
- [08:11]
Financial Expert
What are your interest rates? You said they were really low.
- [08:13]
Sarah
So for big house, we bought it right at the end, like September of 2020. So we were just under that. I think we're like, right that 2%, 2 1/2% mark. And then my townhome, I've refinanced a couple of times. When I first bought it was just like I just wanted to buy a house. So I had an adjustable rate. Then we refinanced and then we refinanced again for the HELOC on it. I think that's at like 3.2%.
- [08:36]
Financial Expert
Okay. Well, sadly the go go days of those low interest rates are over. It is kind of like a double edged sword though. Getting a good interest rate is obviously awesome, but then you end up chasing that high whenever you dip your toe back into the market, which it sounds like is what's going on with you guys. And as we know interest rates are coming down, but experts think it would probably take another pandemic, which we would not want for interest rates to go that close to zero again. They were just so unnaturally low for so long that we got used to it. And weaning off as you have been going through is really hard to do.
- [09:12]
Sarah
So for this husband on that one is like 4%, a great insurance rate, 5% great. He just won't take it. I'm like, no, you're going to accept that if we're going to buy again, like 5% is like the back to.
- [09:24]
Financial Expert
The 80s of 20%. The next property that you want to buy in two years, what's your goal with that property? To live in it for a while, to flip it, use it as an investment.
- [09:37]
Sarah
I think it'd be more of like a live in long time. I'm a little, little over moving. I was doing the math and we've moved four times in about four years. And I'm just like a little, a little sick of that. We fig if we move back to Colorado, we'd probably go back to one of our houses. If leasing timing works, we can just sit and we can like sit, spend six months and like hunker down and figure out our budget and then find another, probably another townhouse. Actually like less upkeep of like the maintenance and the landscaping because we're not outdoorsy. People, which was a big learning curve. With the first house in the suburbs, my husband realized that law. He wanted a big yard for that stereotype. Then he realized he hated mowing the lawn. I'm like, yeah, and I refuse to do it too. And I told him from the jump that I didn't want to mow a yard. So we might go more a townhome type route again, just for simplicity's sake. But I think it'd be more of like a permanent, permanent home that we can live in under. Under our means and then be like that. Retirement homes. We can just live off of our incomes when the two mortgages get paid off down the road.
- [10:34]
Nicole Lapin
Okay.
- [10:34]
Financial Expert
So something you can live in that doesn't have a yard that needs to be mowed. Got it. So that's going to help us look at this house goal against your entire financial picture. We got some of your details in advance. Thank you for sharing. Because we want to dig into it. Let's talk about income, expenses, and debt. Start with debt, because that's, you know, not the most fun. So let's just get it over with. You have $128,000 left on your mortgage, on your townhouse, $285,000 on the other house, 20k in student loans, and that $35,000 HELOC or home equity line of credit balance. Am I right so far?
- [11:16]
Sarah
Yep.
- [11:17]
Financial Expert
So that, Sarah, is $468,000 in debt. Again, this isn't bad debt. Mortgages can be considered good debt, but that's in the liabilities part of your assets, liabilities, net worth chart, and then your monthly expenses. I'm going to list those out. Rent, 2900 mortgage on your townhouse, 867. And the HO fees are 266. The mortgage on the bigger house is 1871. Your HOA fees are $25. That's pretty low.
- [11:53]
Sarah
Yeah, it's just the trash. They do it. They bill it annually. So I just like did the math and like it's like $300 for the year and it just covers trash pickup is all it is.
- [12:01]
Financial Expert
I was like, maybe you're missing a zero, but no. Okay, cool. Life insurance is 53 and 37 dol bucks. Monthly groceries is 150 a week. So that's 600 bucks a month. You said gas is around 110amonth. And for the fun stuff, you said you're between 200 and 300 bucks a month. Let's work with the bigger number. Have a little more fun and call it 300amonth. Does that sound right? So you have a total of $7,030 a month going out in expenses. Let's talk about what's coming in so we can see the entire picture. You and your husband make 110k pre tax, but you're also renting out the two properties you own. And the rent you're earning is more than your mortgage payment, which is great. So you're both making a profit there. You said you're net making $1200 a month from both properties. So let's add 1440 to your annual income and say you make 124400 pre tax. You live in California like I do, so your state taxes are probably very high. But putting state taxes aside and just thinking about federal taxes, your take home pay is probably closer to 95k, perhaps more depending on what you're writing off. So 95k a year is 7900 bucks approximately a month. And we said that your burn rate is about 7k a month, which leaves you about 880 bucks a month. And that's not counting your debt repayment for your HELOC or your student loans. But would you say after expenses you're probably keeping around 800 bucks a month?
- [13:38]
Sarah
Yeah, I actually think that sounds higher than what I have been like seeing put in this. If everything just anything left goes into savings, I think we're putting less in the savings. So that seems a really good number.
- [13:47]
Financial Expert
Well, let's talk about those savings. So you have $19,500 in a savings account. You also have retirement savings. You told us that you have $44,000 in your IRA and you're not sure about what's in your husband. So maybe we're going to want to check on that. But you think it's probably near $20,000. So that's $64,000 approximately. When do you think you'll retire? How old are you guys now?
- [14:13]
Sarah
I am 34 and he's 33.
- [14:17]
Financial Expert
But you mentioned you your husband might want to retire in 20 years. Is that right?
- [14:21]
Sarah
Yes. Yeah. So he's in the beer industry which is just very physically domain on his body. Like one of our like joking things is if I can make over 85k a year myself, he can retire and be like a house husband. Like that's one of our low key kind of fun plans because he's just this jobs you have a very like he loves the industry, he loves brewing, he enjoys doing it. But it's just so hard on his body and I'd rather have him functioning for longer as just like a healthy adult. So if we can retire him early or he can do something more like a part time earlier on in life and then we can stay home and take care of me because he's in like the baking and cooking and like all that stuff. So I'm like, I have no problem. Work. Yeah. I'm so spoiled. It's great.
- [14:59]
Financial Expert
Love that for you. Okay. I mean, I'm. I'm really going to zero in on the retirement part of your overall picture because I think it's important to look at how that big purchase would affect what that retirement plan is, especially since you want it to be accelerated compared to what people typically think is a retirement age. Is that fair?
- [15:18]
Sarah
Mm, for sure.
- [15:19]
Financial Expert
So putting real estate aside, let's say you're keeping about 800 bucks of your paycheck per month and you put that toward retirement savings.
- [15:27]
Nicole Lapin
Now, for most people, their burn rate in retirement is much lower than when they're working. The fact that you own your property means that you have minimal housing expenses when you're retired. And of course that would bring down your burn rate dramatically. Or, I don't know, maybe you guys want to live in a Four Seasons esque retirement community when you're older. That's something you maybe need to get on the same page about. And it's an important thing to consider, especially an important thing to talk about with your husband. Getting really clear about what you both envision for those retirement years.
- [15:53]
Financial Expert
Is that something you've started discussing?
- [15:57]
Sarah
We have, we kind of go back and forth on like what it could be like he has some family property that he's supposed to inherit, he's going to share with his brother in like, sounds more but like, Honestly, in like 10, 15 years, he'll come into another house himself that him and his brother will share ownership of. And then my family extended for me is like an LLC where we have seven or eight rental properties that my dad manages along with real estate, other like franchise investments and stock markets that my siblings and I will also inherit from them. I know down the line that will also increase and grow as well. So it's hard to like really come with a hard and fast number knowing we both have like other assets that we will end up inheriting in, down the road as well. So I have a hard time being like, oh yeah, we just need our 401ks tire. I know I have other stuff coming in that could be up to like the million dollar plus range depending on how inflation shakes out in like 20 years time.
- [16:50]
Financial Expert
That sounds awesome. I love, I love a million dollar windfall. I would say it's important though to start planning assuming that that's not going to happen.
- [16:59]
Sarah
Yeah. Which is the hard part of like I have other weird things like I don't know what it's going to look like. I think the biggest thing is like our worst case scenario is like life gets hard. We move back into my little townhome because it is so small and it is so cheap and we're doing that bi weekly payments on both our houses so we know the mortgages are going to get off in less than their 30 year fixed loans. Which is another thing of like we're hoping in like 25 years or once my student loans get paid off, take that extra cash and throw that into the mortgages more to, to help pay them down so the sooner those are cash flowing we can live off of those incomes. Is our 15 year, 20 year plan for sure is to start getting to that point regardless of what our jobs are.
- [17:36]
Financial Expert
I mean yeah. And you don't know what's coming and we hope that you get all the windfalls but God forbid maybe that doesn't happen. Maybe something else happens. I would kind of view it as a nice to have not a need to have and then operate your own plan independently. So if it happens it's great. But it you're not relying on that. Okay, so I want to double click really quickly on something that you mentioned that you don't know how much your husband has saved for retirement. Are you guys really talking about money? Are you getting granular with each other?
- [18:10]
Sarah
We are. I actually asked him like a week ago if he knew what his 401k was and he said he guessed this. I'm like oh, we should look into. He's like I will and he just hasn't.
- [18:19]
Financial Expert
Okay, so it's not a symptom of you guys not talking about money. You do.
- [18:24]
Sarah
Yeah, no, I, I have a lot of anxiety around money. I turn my account all times a day to make sure there's no like surprise expenses and things like that which he gets annoyed by because he can't surprise buy me things even for very cheap because I will see it within like the day or get notifications on our cell phone. So like I'm very much like how much we're spending and I'll recount do our budget like every three months being like we need to save up more because we want to take a trip to Europe. So I'M like, okay, we got to reassess all our spendings. We can save more so we can do that. Or Christmas is coming, so we're saving money to buy all our extended family gifts. And like, I constantly am recalibrating our budget based on short term goals. I just have a hard time doing the longer term thinking that far ahead, like what retirement will look like because I can't decide what I want to do. Do I want to live my little house or do I want to live in like those really fancy, like, you know, four seasons retirement communities where you just showed a little apartment and they have a buffet that they feed you and all that duties. Like, I go back and forth on.
- [19:15]
Financial Expert
That myself and that that makes sense. And I'm glad you're driving those short term conversations, but we're gonna think about the long term together. And so the good news, Sarah, is that from my perspective, you have a lot of options here. I would just consider the fact that the golden rule of finance is diversification. And right now you're pretty concentrated in real estate. You know what I mean?
- [19:37]
Sarah
I guess I am. I didn't really think of it that way, but we kind of, we kind of are compared to like my little, what is it, my brokerage account and my IRA and stuff like that. I don't think of that because I feel like it's just always there. But yeah, that old, whole old fashioned thing about all your minds in real estate. I'm like, no, all our money's in real estate. But at least I know one of them could be a quick sale. I'm just against the idea of selling them. Like I'm emotionally attached to my first house and I will never, like I told him, I don't care else we do, but I'm never selling that. And he's like, we just sell it super quick. I'm like, I know we could and almost more than double what I paid for it type thing.
- [20:09]
Financial Expert
Finances are emotional.
- [20:11]
Sarah
I'm emotionally attached. I won't give it up.
- [20:13]
Nicole Lapin
But yeah, I mean, it's definitely emotional. Definitely makes sense that it's anxiety provoking. It happens to a lot of people. But you know, selling a stock is probably not as emotional as buying a house if you need the money. So let's talk about ways you could diversify some of your investments since you've already decided that you really want to buy a house. Another house. Have you heard of a 2:1 buy down?
- [20:33]
Sarah
I have not.
- [20:35]
Financial Expert
So this is something for your husband when he is missing the 2020 interest rates. This is a way to basically get the seller to give you a credit that effectively subsidizes your mortgage for the first two years of your home. So in a 2:1 buy down, it's standard for the seller to give you a credit that covers 2 percentage points off the first year of your mortgage and then 1 percentage point off the second year of your mortgage. So if your interest rate, let's just say is is 6.5%, it would be 4.5% in the first year and then 5.5% in the second year. So then the 6.5% would only fully kick in in the third year. So it's important to remember that the interest rate is temporary unless you finance, but it is another option for you.
- [21:19]
Sarah
Okay. Yeah. I've been kind of seeing different things online about like if someone bought their house, I think it's like an FHA versus conventional thing of like they bought their house during COVID You can kind of assume the loan under those lower interest rates. I've seen mixed reviews on like that or versus new stuff about like if you have a good credit score, you're going to have to pay more points to get better interest rate. I'm like how much is that real versus fake? And I just kind of want to like prepare myself for that kind of stuff too. Especially the conventional versus FHA stocks. I know if we do the townhome route, there are rules around owner occupancy versus tenant occupancy which can prevent you from getting one of those loans. I want to say I think it prevents the FHA loan for a townhome, like complex and stuff like that too.
- [22:01]
Financial Expert
But you wouldn't be first time FHA loans would be for first time homebuyers.
- [22:07]
Sarah
Okay. I wasn't sure. I can't remember.
- [22:09]
Financial Expert
Well, no, the assumable mortgages, you know, those are often for VA loans or you know, assumable loans that you would take on the interest rate, which is great, but you also have to take care of what they've paid into the mortgage. So you may have to fork over a bunch of cash. But there are definitely options and I'm glad you're considering them. The second thing I'd consider is tweaking your spending plan so that you can be saving more money over the next two years for that down payment with your HELOC and your student debt and your two mortgages. If I were you, I feel like that's a lot to juggle. So I'd probably try to make my Next down payment through savings rather than with the debt. I'm sort of with your husband on this one. That's just me. That makes me more comfortable.
- [22:56]
Sarah
Yeah. The big thing is like, I think I originally had a plan to have a student loan. Should have been gone by next year. Like I had a whole plan, but between coven and buying a house, I procrastinated them. And actually last summer I was laid off. And so I just got back into the workforce full time myself a couple months ago. So we, the whole like repayment plans change. So like there's been no interest on them for the last few years, but I don't feel any payments on them either. But for the most part, our rental income covers both our HELOC payments and my student loan payments. So I've been trying to hit those a lot harder now that I'm back employed. And we didn't need to actually live off of our rental income for the past eight months or so, which has been nice.
- [23:34]
Financial Expert
Okay. I mean, what I would recommend as your house hunting is doing an exercise with your husband where you can sit down and make a V1 retirement plan. It's V1, so you're not signing a contract. You can always make changes, but it's always easier to edit than to write. Right. So just have something that could be your map for retirement. Just put something down so we could start planning for that. And of course there are going to be detours and life and you know, what else happens all the time. So it can and will change. But having something down gives you more direction than what you have right now. So what I would do is think about what your burn rate would be in retirement, which also involves deciding whether you want to live in one of your properties that you own or if you want to live in the four seasons or, or wherever. And then once you have your burn rate, you're gonna have to do something that feels uncomfortable, which is multiply that by how many years you think you'll be in retirement, AKA how long you think you're gonna live.
- [24:34]
Nicole Lapin
You'll also wanna consider the potential for inflation and increased healthcare or long term care to actively prepare for what you might need down the road.
- [24:42]
Financial Expert
You know, it feels really ick and uncomfortable, but this is an exercise that just avoids the situation where you run out of money in retirement. Is that something that sounds feasible?
- [24:54]
Sarah
It sounds feasible. I kind of talk about that a lot of. Just because we have all of our families, I'm already like, how do we avoid taxes and real estate, all that stuff and he gets really creeped out by, like, no, we got to figure out living trust now. Like, talk to your dad of letting sure we don't get settled with taxes when he passes away because he's not doing well. And I got grandparents. I'm like, they own a business. It's like, my dad's siblings are going to assume this business when they pass away. And, like, we start talking about this. Like, my family is very medical, so we're like, yeah, we talk about death, like, on the regular injuries, and it just grosses him out. I'm like, no, we gotta start thinking about this for ourselves now too. And he just gets very, very queen. He's like. I was like, you know, you don't talk about these things in polite company. I'm like, but we have to talk about them. So it's always me trying to, like, push those conversations up until he, like, hits his breaking point and has to walk away. Yeah.
- [25:40]
Financial Expert
I mean, it makes sense. There are uncomfortable conversations. I'm surprised that he feels queasy about them considering, you know, where he's coming from around debt. I think that having a revocable living trust in order, you know, helps prevent you from going through probate, which, you know, is. Is probably what you're saying to him. It's not like, hey, babe, let's talk about dying. But it's like, hey, babe, let's talk about how not to get stuck in probate. Right.
- [26:09]
Sarah
Yeah.
- [26:09]
Financial Expert
Maybe that's the language he can.
- [26:11]
Sarah
I had to convince him for the life insurance. Then we got married, and he fought that for so long. Like, no, we are young enough. Let's get life insurance early. Because he works in a tough industry. I'm like, you can get in a car accident and I'll be screwed. And, like, he bought that for months too. Like, it's just like those insurance.
- [26:27]
Financial Expert
Yeah. You guys have low premiums on that.
- [26:29]
Sarah
Yeah. Which is great.
- [26:30]
Financial Expert
So once you get to your number, you can then reverse engineer how much you need to get there. But first, we need to get to that number. What is that magic number? The V1 magic number. And once you do those calculations, I think things will be a lot more clear where you should put your money, whether it is in the third house or maybe it's in another investment vehicle that's not housing related. How does that sound?
- [26:56]
Sarah
It sounds really good. I. Yeah, I still kind of struggle with just. I understand the concept of the stock market. My biggest issue is, like, how do I live off my dividends and not get taxed on the capital gains of that. Like the one thing I've not been able to understand conceptually, I've had to mildly cash out some stuff from like old employer stock options to we had some major car issues we had to fix. I'm like, buy a couple thousand dollars, I can cash that out. And investments is like an emergency fund. We were younger and like we didn't pay taxes on it. So it's just a low amount. But like living off the dividends of my investments, I'm like, how, how do I do that? How do I know I have enough? Because I don't want to just be selling stocks. Do I rather live off the dividends of my stocks instead of having them being reinvested down? I just don't understand how what that looks like or what that could look like down the road if they're going to make changes to that process.
- [27:45]
Nicole Lapin
Well, we don't know what changes might be on the horizon for capital gains, long term capital gains or if you hold it for longer than a year and those could be more favorably taxed. But if we're talking about retirement savings, we're talking about tax free income.
- [27:57]
Financial Expert
Okay, if you're investing in a Roth IRA for example, or Roth 401K because you would pay the taxes now so you don't have to pay taxes later. Do you have a Roth?
- [28:07]
Sarah
I have a traditional ira. It was from. I rolled over all of my old prior employers, 401ks into an IRA if I got laid off because I didn't want them holding it. So I just. My bank had an IRA option so like I can roll it in here, I can deviate a bung up to like S P 500 and a few other stocks that I'm personally just like curious about. The companies type thing and a little art, some REITs and things like that. It's where it's all sitting in.
- [28:30]
Financial Expert
So it's currently more. More real estate. Real estate investment.
- [28:35]
Sarah
This is what I was brought up on. Like I'm a product of my own upbringing is all about the real estate.
- [28:39]
Financial Expert
Will you keep us posted? With what? That magic number that you guys come up with.
- [28:44]
Sarah
Oh, for sure. I think we're gonna fight over that.
- [28:47]
Financial Expert
Oh no. Well, I'm happy to break up a fight about money.
- [28:51]
Sarah
I can do it like both ways. I'm like, ooh, we can. How cheap can we live and how nice can we live? And like I can do. My brain does both. That's my biggest issue is like I can find a way to make both Work and it's just. And he just kind of, he goes along with a lot of my plans, which is super great. But I'm like, what do we really need and want? Like travel a lot more but also live as inexpensively as possible. Is like are two and traveling is expensive. And it just doesn't seem two very conflicting ways to do life to me.
- [29:18]
Financial Expert
Well, I think once you make a decision, you know, science shows us that we love the decisions that we make. So you'll probably really double down once you just make a call.
- [29:29]
Sarah
I think it's be more expensive than I anticipate it being. I'm a little scared.
- [29:32]
Financial Expert
Well, you don't have to be scared if you have a plan.
- [29:35]
Sarah
It's true. I like plans.
- [29:36]
Financial Expert
I like knowing it sounds that way. So it just seems like this one area, it seems like you have some block around long term planning but not short term planning.
- [29:50]
Sarah
Yeah.
- [29:50]
Financial Expert
Do you know where that comes from?
- [29:52]
Sarah
Oh, probably family stuff. Like my dad was super, he tried to do long term planning. So I mentioned he's in the fix and flip industry. So my whole childhood was him. Like from 2000 in the 90s we had like rental properties. Like I remember being 7 years old, we're cleaning out apartments because we had to pick somebody and scrubbing like cigarette smoke off the walls type stuff. But then he got into this up and coming area that was like outside of the major city, but they were building a new hospital and it was closer to the airport. He's like, we're gonna buy these little like two bedroom ranchers and fix them up. And his whole plan was to sell them to the incoming doctors and nurses for this new hospital that was being built. And it was like, like long term plan. It sounded great. But between 2003 and 2008 we did a house a year and it was just my siblings and my dad. Like we were, there's a family of five of us and we were the workforce doing it. And it was like every year it's like he couldn't sell them so you'd rent them. And he had some buddies he was borrowing the money from to buy another cheap house for like $80,000. And we renovate it on our weekends and school holidays and year after year is doing that. And then 2008 hit and all of our money was in real estate and it crashed. And like it's his, it's paid off now. They actually now they now live in that area where they were renovating these houses back in 08. And the price of these Houses are just absolutely insane. It's like the long term plan made sense. It didn't work out. And it's like, it's all he thought was the long term down the road of like, this will be our retirement. This is how we're going to live. And like, we could, but we couldn't pay our electric bill. Like, we were an llc. Like he pay us for the weekends of working. And we've gotten several bank accounts because that's, that's. I know there's some weird tax thing with that, but I remember we had bank accounts that he created for us and paid us for our weekends. And then like, oh, we can't afford to pay the heat for the house we lived in, so we're going to borrow the money from you guys. It was like seven or $800 to pay the bills type thing. And it was very much Robbie Peter to pay Paul. I think we had four mortgages on the house we were living in.
- [31:46]
Financial Expert
Wow.
- [31:46]
Sarah
It was, it was, it was. All he was was long term type stuff.
- [31:50]
Financial Expert
So you're overcompensating. Yeah.
- [31:52]
Sarah
As we all do with trauma. For sure.
- [31:55]
Financial Expert
For sure, Absolutely. But I think you just recognized where this block is coming from, which is the most important next step you can possibly take. You know, we say all the time, as you know, on money rehab, the only financial problem you can't fix is the one you don't admit you have. And getting to the root of what that issue is is a huge step for you to confront it. And to say, just because it was done a certain way doesn't mean that's how it needs to be for me. And you get to decide now.
- [32:27]
Sarah
Yeah. Slow, slowly working through it a little bit. Like, personally, like, how I view life, I can do slightly longer long term. So I'm just like, it. We'll. We'll figure it out. Like, I'm very much, like, I'm just being scrappy. Like, I had. It was like, I graduated high school, my parents were going bankrupt. So it was like our code if we got poor at the right time because it made college a lot less expensive for my siblings than I. But like, we had to be scrappy for years. I'm like, I can be scrappy. That's all I want to know how to do now. So trying to like, relax in the peace of having money and comfort, it feels, it feels very weird. I think you remember, I'm like, oh, no, life's good. We are okay. We are safe and it's, it'll be fine. Like even me being laid off, I'm like, no, we were okay with me being laid off for like six months, just moving to a new state and living well below the poverty line, but could not qualify for any financial help in California, which was very, very weird for the cost of living out here and how little my husband was making.
- [33:22]
Financial Expert
Yeah. I mean, constantly reminding yourself that it's going to be okay is, you know, not necessarily something that ever ends for people with financial trauma. I can tell you that from firsthand experience. So you're on the right track. You're doing great. How do you feel now after we've. I've poked a little bit into you, your financial trauma and weakness.
- [33:46]
Sarah
I think trying to figure out actually burn rate feels better than what it was. Like, I feel like we've been, we're making this recovery period. So I feel pretty good about that. I'm especially knowing more about like different options, really. This two on buy down. Like, if we wanted to buy a house of like, how can I do it like a regular person? Like, I want to buy the nicest thing for as inexpensive as possible, but type stuff. But then knowing like the options for like, how to calculate the numbers for retirement, like what that actually could look like off of our current living situation would be is really helpful to make sure because I think that is something he occasionally worries about. But I'm like, it's fine. We have all this other stuff that will come in, but maybe I shouldn't be relying on my family's LLC or his supposed inheritance. I think his dad might be inflating. But we do know it's a house that's going to need a ton of work because it's from the 60s and that's going to be a mess. But I want to safeguard us from that stuff. I'm going to safeguard from something bad.
- [34:39]
Financial Expert
Going wrong with an influx that's really smart. I think when you hear something like supposed, you'll definitely want to safeguard yourself, which is what you're doing for sure.
- [34:50]
Nicole Lapin
Awesome.
- [34:51]
Financial Expert
Thanks, Sarah.
- [34:53]
Sarah
Well, thank you. This has been wonderful. I've enjoyed chatting with you. I've been loving your podcast and your books for years.
- [34:58]
Financial Expert
Thank you.
- [34:59]
Sarah
Like a little like meeting your heroes moment in the best way.
- [35:01]
Financial Expert
Oh, well, I'm so. I. You know, they say don't meet your heroes because they usually disappoint you, but hopefully I didn't.
- [35:07]
Sarah
No, this has been better than I thought. I was a little nervous and this was just a fun little conversation. I enjoyed it.
- [35:13]
Financial Expert
I'm so glad I'm so glad. And now you're gonna go have this conversation with your husband. Good luck. If you need me, patch me in.
- [35:23]
Sarah
Danger say I'll just. I'll just. I am you. It's fine.
- [35:25]
Nicole Lapin
Perfect. For today's tip, you can take straight to the bank. If you're like Sarah and you like mapping out short term goals, check out bank of America's short term savings Calculator. Bank of America is the one stop shop where you can get guidance, tools, solutions, view your bank of America banking account and manage your Merrell investing accounts online in one place. To learn more go to BofA.com FinancialNextSteps which I have linked in the show notes. The views and advice expressed by Money News Network are independent and not endorsed by bank of America Corp. Investing involves risk. The information presented here is not intended to be either a specific offer to sell or provide or a specific recommendation to buy any particular product or service. The speaker is not a tax professional. Please seek advice from your tax profess. Brokerage services are provided by Merrill Lynch, Pierce, Venner and Smith Incorporated. A registered broker dealer, registered investment advisor member SIPIC and a wholly owned subsidiary of bank of America Corporation, bank of America and a member fdic. Money Rehab is a production of Money News Network. I'm your host, Nicole Lapis. Money Rehab's executive producer is Morgan Lavoy. Our researcher is Emily Holmes. Do you need some Money Rehab? And let's be honest, we all do. So email us your money questions moneyrehaboneynewsnetwork.com to potentially have your questions answered on.
- [36:51]
Financial Expert
The show or even have a one.
- [36:52]
Nicole Lapin
On one intervention with me. And follow us on Instagram, MoneyNews and TikTokoneyNewsNetwork for exclusive video content.
- [37:00]
Financial Expert
And lastly, thank you.
- [37:03]
Nicole Lapin
Seriously, thank you. Thank you for listening and for investing in yourself which is the most important.
- [37:09]
Financial Expert
Investment you can make.