Afford Anything - Ask Paula: How Can I Get My Spouse Interested in Frugality?

Episode Date: December 16, 2019

#231: Avie needs to decide between two options: paying off a rental property, or funding a retirement account. Which should she choose? Lisa wants to know: when should you fund an HSA account? Sofia’s parents have lived with her for the past few years, but Sofia’s job is relocating her out-of-state. How can she transition her home to a rental for her parents? Jim is a saver and his wife is a spender. How can he interest her in frugality? Candice wants to know my thoughts about online real estate investment crowdfunding platforms. Good idea or bad idea? Kristen has a mortgage on her primary residence and a rental property. They have similar interest rates. Which should she pay off first? I tackle these questions on today’s episode. Enjoy! For more information, visit the show notes at https://affordanything.com/epidode231  Learn more about your ad choices. Visit podcastchoices.com/adchoices

You can afford anything, but not everything. Every decision that you make is a trade-off against something else, and that doesn't just apply to your money. That applies to your time, your focus, your energy, your attention, anything in your life. That's a scarce or limited resource. And that leads to two questions. Number one, what matters most to you? And number two, how do you make decisions on a daily basis that supports that? Answering these two questions is a lifetime practice, and that is what this podcast is here to explore.

My name is Paula Pan. I'm the host of the Afford Anything podcast, and today I'm answering questions that come from you, the community. Here's what we're going to tackle. Avey wants to know if she should fund a retirement account or pay off a rental property. Which should she choose? Sophia's parents have been living with her for the past few years, but Sophia's job is relocating her out of state. How can she transition her home into being a rental property for her parents? Meanwhile, Jim is a saver and his wife is a spender.

How can he interest her in frugality? Kristen has two mortgages, one on her primary residence and one on a rental property. Which should she pay off first? Candice wants to know about online real estate investment crowdfunding platforms. What's the deal with those? And Lisa wants to know about the details of funding and HSA account, which is a health savings account, and what the process is for investing the money that's inside of it. We're going to tackle all of those questions right now, starting with Sophia.

Hello, my name is Sophia. First and foremost, I want to thank you for everything that you do and all the knowledge that you share with us. It has been tremendously helpful to me and I'm sure to all of your listeners. My question is related to real estate. During the financial crisis, my parents lost their home. Fortunately, I was in a position to buy a property and they came to live with me. Recently, I have received a job offer at estate and I am wondering how to transition. this property from being a primary residence to an investment property. My parents can cover the

monthly mortgage. However, I would be helping them with like the monthly HOA homeowners association fee. So technically I'm not making any money on this property, but it is my way to help them during their retirement years. I am in the process of looking for an accountant to talk to, but any advice or insights that you can share with me, I would greatly appreciate it. Even if it's just some guidance in terms of like what questions to ask the accountant, I definitely want to make sure I am set up for success and that I, at the same time, that I could help my parents as much as possible. Thank you so much. Sophia, first of all, what you are doing for your parents is beautiful. It's amazing. It's such a

wonderful gift as a daughter, as a human being. what you're doing is so generous and kind and beautiful and heartwarming, and that's exactly why I wanted to lead with your question. To share that example with the world and to commend you for doing something that's so beautiful. So first and foremost, I'm going to call out right now to my editor, Steve. Steve, could we please get a sound effect in honor of Sophia? Sophia, way to go. Good job. You're awesome. Sophia, I know that that sound effect does not even begin to express all of the gratitude and the warm thoughts that deserve to come your way.

But I hope that message comes through. I also want to say very quickly, before we get to the answer to your question, I also want to say there is this tired old trope in the mainstream media that millennials are an entitled generation. And Sophia, I don't know how old you are. maybe you're a millennial, maybe you're Generation X, maybe you're right there on the borderline in what they call the Oregon Trail Generation. But there is this tired trope that we are entitled and lazy and live at home with our parents. And look at this, look at this beautiful example of multiple generations under the same roof, but it's not that the kids live with the parents, it's that the parents live with their kid. It's a two-way street, a give and take,

where assistance flows between generations. So the next time you see some lazy news headline about when, well, when, millennials are so entitled, millennials don't invest enough, millennials aren't saving enough, some lazy headline that's just regurgitated garbage from an underpaid writer who didn't really put any thought into what they're saying, the next time you see that trope repeated, think about this. Okay, that's what I will say in defense of millennials and Gen X and everybody out there. they're in Gen Z. Kids in their 20s who are making money to support their family or to fully support themselves so that their family doesn't have to worry about them. Even though they're only 18, 19, 20,

I see ya. And this show is for you. So, with that said, Sophia, here is the answer to your question. Sophia, in terms of structuring this, the big question is whether or not you have to fill out IRS Form 709, which is a form that's called the gift tax return. Here's basically the deal. The IRS defines a gift as a transfer of any type of property or asset from one party to another while receiving either nothing or receiving less than full market value in return. Now, frankly, and I am not an accountant, but in your case, I really don't think this is going to be issue because as you mentioned, your parents are going to pay the monthly mortgage, and you'll be

stepping in to help with the HOA. You didn't mention who might handle any repair issues that arise, who's going to pay for the cost of fixing the dishwasher if it breaks, nor did you mention who's going to handle routine maintenance, like gutter cleaning, dryer duct cleaning, resealing and staining the deck, those types of things. You also didn't mention who's going to cover the cost of utilities. But even if you were to pay for all of these, if you, Sophia, paid for repairs, maintenance, utilities, and HOA, and your parents paid for the mortgage, you still, and check with a CPA, but you may or may not have to fill out a gift tax form. The operative question is whether or not your parents are paying significantly less than fair market value. If they're paying just kind of slightly less than the rent that you could collect if you were to. rent it out on the open market. So in other words, if they're receiving a bit of a discount,

but not too too significant of one, if that's the case, then you don't even have to worry about declaring this as a gift. But if they are paying substantially less than fair market value, the next question to ask is how substantially less, how much, what is the quantifiable value of that, because you are allowed to give a person, an individual, up to $14,000 per year without having to fill out a gift tax return. And that's $14,000 per parent, which means that you can give your parents a total of $28,000 worth of value per year without having to fill out one of these forms. So if the amount that you are subsidizing for them is more than than $28,000 annually, then you as the giver might have to fill out Form 709 and declare it as a gift.

If the value of the portion that you're subsidizing is less than that, then you don't have to worry about it. With all of that being said, I know we've just talked about the gift tax return for several minutes. Honestly, don't let that scare you. All you have to do is fill out a form. So there's a bit of additional reporting that goes on, but that's it. Neither you nor your parents will have to pay taxes on that gift. And that's because any gift amount over 28,000 can then qualify under the lifetime exemption. And right now, as of 2019, that lifetime exemption amount is $11.4 million, which means that if you have not given gifts totaling over $11.4 million in your lifetime, then you don't have to worry about paying taxes on the whole thing.

But you do have to report it. So depending on the market value of what you're subsidizing, there may be a reporting requirement, but either way, you're not triggering any additional taxable event. Now, in terms of the general process of how you'll organize all of this, what I would encourage you to do is open a separate business bank account in which you collect all of the rent for the property, if your parents pay you that rent directly, and from which you pay all of the expenses for the property. Now, since in your case, the expenses by design, the expenses are going to exceed the income, that's fine. You can make what are called owner contributions into that business. So when you open the account, you can cede it with an initial owner contribution. And as time goes on, you can continue to make owner contributions at whatever pace is comfortable for you, monthly or in big lump sums, whatever you want to, however you want to fund it. You can continue to make owner contributions into that business. account, just be sure that in your bookkeeping, those owner contributions are clearly marked as owner contributions and not as income. Now, the reason that you're doing this, the reason that you're opening a separate bank account in which you'll collect all income and from which you will pay all expenses is because this simplifies bookkeeping a lot. Rather than have your

expenses for that property commingled with your groceries and your toothpaste and everything else in your life. You have one account that runs this one property and you can link that account to bookkeeping software like QuickBooks Online or whatever other software that you want to use. And boom, just like that, you have all of your income and expenses separated from everything else and contained in one place in its own account that's linked to its own bookkeeping software. And so that way, when you go to send that information to your CPA, it's organized, and contained and as automated and hassle-free as possible. Now, I'll also note that the rent that your parents pay, yes, it will be filed in the books

as income, but you will have so many expenses. I mean, not only will you have the operating expenses of HOA and possibly, depending on whether you or your parents pay for it, possibly you might also have the expenses of repairs, maintenance, utilities. but in addition to that, your CPA is also going to be able to depreciate the property. And so between all of the expenses that you have plus the depreciation, I mean, disclaimer, I'm not a CPA, this is not official tax advice, always consult with a professional. But based on all of that, the likelihood that this will create a additional tax burden for you is very, very low.

And again, this is not tax advice. This is for entertainment purposes only. but you're going to be collecting below market income. You're going to have a bunch of expenses by design, and you're going to have depreciation. So I wouldn't worry about a tax bill. What I would make sure that I would do if I were in your shoes is set it all up separately so that the bookkeeping is clean.

Thank you so much for that question, Sophia. And thank you for doing such a great thing for your parents. And congratulations on being in a place in your life in which you can do that. Speaking of people who have done some impressive things, our next question comes from Avey. Hi, Paula. My name is Avey, and I am 49 years old.

I paid off my primary home and have the ability to pay off my rental property in three years. My household income is approximately 80,000 and I have no consumer debt. My issue is that I am not currently maxing out my retirement fund. My employer contributes to approximately 10,000 a year to the fund and I currently have about 325,000. I stopped contributing approximately four years ago

so that I could fund my daughter's way through college. She has graduated and we have no student loans to repay. I currently have about 100,000 in a high yield savings account. My question is, should I continue to pay off my rental property, which would take me three years or less or stop and try to max out my retirement account? Any help in this matter would be great. appreciated. Thank you. Avey, congratulations. Both you and your daughter are debt-free. I mean, you're completely debt-free. Even your mortgage, your primary residence mortgage, is completely paid off. At 49 years old, that's huge. And on top of you being debt-free, your daughter also graduated from

college debt-free. That's incredible. So huge congratulations to you for taking care of that. And for having this fantastic debt-free lifestyle. And then on top of that, you've got a very, very big emergency fund. Well, you said you had $100,000 in a savings account. I don't know if all of that is an emergency fund or if part of that is earmarked for something specific, some big ticket purchase in the future. Maybe a portion of that is your emergency fund and a portion of that is money that you have set aside so that you can pay cash for your next car. In any event, regardless of how that is allocated, I think that's absolutely wonderful that you have no debt and a very strong cash position. Now, normally when people ask questions such as yours, your question fundamentally is,

do I focus on paying off my rental property or do I focus on making contributions to my retirement account? Normally when I get a question like this, I list the pros and cons on both sides and then I allow the listener to make their own decision based on those pros and cons. In your case, I'm going to do something that I normally don't do. I'm going to take a stance on one of those two. And my stance is, I would encourage you to max out your retirement accounts. And here's why. Number one, the annual tax advantages of retirement accounts are use it or lose it. So in 2019, the annual 401k contribution limit is $19,000 for people who are age 49 or under. And the deadline to make those contributions is tax day of 2020, which is $1,000.20, which is $19,000.

April 15, 2020. So you have until that deadline to make prior year contributions that could apply to the 2019 tax year. Now, if by April 15th, 2020, you don't max out that full $19,000 for the 2019 tax year, if you don't max that out, you don't get to roll it over. It's gone. That window of opportunity has closed. And you can make contributions and try to map. out your 2020 limits, but in the spirit of pumping as much money into your retirement accounts as you can, you have an opportunity from now through April 15th, 2020, you have an opportunity to pump even more money into your 401k to get to that $19,000 limit. And if you don't take that opportunity, that limit for 2019 goes away forever. I don't mean to like play to your loss

aversion here. But the reason that I bring this up is because you're 49 years old, which means that you are approximately 15 to 20 years from retirement if you retire it somewhere between the ages of 65 to 70. And remember, many people, even if they intend to work longer, end up retiring earlier than they wanted to, either because of a health-related reason or because they got laid off and had trouble finding another job, there are a lot of people who, due to circumstance, end up getting forced into an early retirement. So as you think about the age at which you'll retire, remember that external limitations, and most notably your health, is sometimes the decider. So given that you are quite possibly only about 15 years away from retirement, I want to see you

give your investments as much time as possible to compound and grow. And here's why compounding interest is so important. So there's this notion that's called the Rule of 72. The Rule of 72 is easy back of the envelope, mental math shorthand for estimating roughly how long it'll take an investment to double. And so the idea is that 72 divided by the rate of growth annually equals the number of years it'll take for an investment to double. So for example, if your investments grow 8% annually, they'll double in roughly nine years. If your investments grow 10% annually, they'll double in roughly 7.2 years. Rate of growth multiplied by number of years equals 72. And for those of you who are listening to this, who are math nerds, the actual

number is 69.3, but we don't use that because that's a lot harder to crunch in your head. 72 is an easy number. 72 is evenly divisible by 3, 4, 6, 8, 9. It's a super easy number to divide in your head and a very, very easy number for mental math while using the number 69.3 requires actually taking out your phone and opening the calculator app. For that reason, we use 72. So fun trivia there. Anyway, the point is, Avey, let's say that your investments grow at an overall 5% rate. And when I say that overall 5% rate, I'm talking about your total portfolio because that growth rate is going to be reflective of your mix of stocks and bonds.

And as you near retirement, you want to decrease risk and invest more conservatively and have a bigger percentage of your portfolio allocated towards bonds or other fixed income investments. So at a long-term annualized average of 5%, the money that you invest today will double in roughly 14.4 years, which is right around when you might be retiring. But if you delay maxing out your retirement accounts, if you wait for three years or five years, you're pushing back that clock. And you're giving the money inside of those accounts less time to accumulate compounding, tax-advantaged, growth. I mean, that being said, of course, it isn't that you withdraw your entire portfolio on the day that you retire. Oftentimes in these conversations around retirement, people act as though on the day that they retire. They convert their whole portfolio into cash and all growth ends.

Of course, that doesn't happen. So there's going to be a portion of your portfolio that stays invested until you're 80 or 90 years old, which means if you make a contribution at the age of 50, there's a portion of that that stays invested for 40 years until you're 90. The good news is you might have more time than you think, but the urgent news is you don't have time to waste. And given the fact that you are obviously very motivated to pay off debt, which I can tell based on the fact that you have a completely debt-free lifestyle, I have absolutely no doubt that this rental property that you're holding, which is so close to being paid off anyway, I have no doubt that you will figure out a way to pay it off sooner than later, even after you max out your retirement accounts.

And you might not do it in three years. It might take a little longer, but you clearly have a strong debt payoff motivation. so at a behavioral level, I'd max out your retirement accounts so that then you are taking home and working with a much smaller pot of money. And then once you adjust to working with that smaller pot of money, I'm pretty sure that you're going to figure out a new schedule for paying off that rental property. Maybe not in three years, but soon enough. Also, final thing that I'll say in further support of prioritizing your retirement accounts is that as you get closer and closer and closer to the end of a mortgage, the bulk of the payments that you're making towards that property get applied to principal. As I'm sure you know, Avey, mortgages are amortized, which means

that you pay the majority of the interest up front. So as you get down to the final few years of a mortgage, or the final few payments on a mortgage, you encounter less and less of an incentive to pay off that mortgage because those payments are predominantly principal. And in the case of a rental property, it's a little bit different because, of course, once you wipe out those payments, your cash flow increases and you can then use that cash flow for making more investments. But if the goal is to make more investments, let's start there and let's max out those retirement accounts.

So thank you so much for calling in with that question. And congratulations on being in such a great position. We'll come back to this episode after this word from our sponsors. Do you run a small business? If so, you want to get your books organized before the start of the new year, so that that way, when the clock strikes midnight on New Year's Eve, you know that you're going into the new year, with your invoicing and your accounting, totally set up and ready to go. That is where Fresh Books comes in.

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Try it free 30 days. Do you run a small business or a side hustle and you're not sure exactly what to do about paying and filing your federal taxes, state taxes, local taxes, how do you handle 1099 miscellaneous contractors? What are the reporting requirements? What are the forms that you need to send? Well, Gusto is made for small business owners who want to deal with things like filing taxes and running payroll. So if you have a side hustle or you're a sole. or you have a small business, they can help you with all of your payroll processing, your reporting. Basically, they handle payroll taxes and HR support for small business owners.

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I just wanted to say, I love your podcast. I listen to it every morning. It's so inspiring. You've completely changed my life with your podcast and your ideas and how you rule your business. Anyways, I had recently listened to one of your episodes about your HSA account and how at the beginning of the year

you put the total amount of contributions into that. And then the contributions from your HSA, you put into your TD Amerit Trade account. Now, question is, I guess, when do you actually put that money from your HSA into your TD Ameritrade account? Is it in December before you put the money in in January? or do you put the money, all the money in in January and then re-put the money back in January too? I guess you can elaborate a little bit more details on your strategy and your system on that. I would really greatly appreciate it. Anyways, thanks so much.

And again, love your show. Lisa, you absolutely nailed it with that description. So yes, I put money into my HSA, my health savings account, for those of you who are, are listening who aren't familiar with it. Mine is held at a place called hSAbank.com. An HSA bank has a relationship with TD Ameritrade in which money that's put into an HSA at HSA bank can then be transferred into a custodial account at TD Ameritrade and invested in the overall broad market. So instead of the HSA funds just sitting there in cash, that money through TD Ameritrade can be invested in a broad market index fund.

Now, Lisa, to your question as to when that transfer takes place, my preference is to transfer it immediately. So when I initiate the contribution into HSA Bank, it takes a while for that transfer to post to the account. And when I'm organized and when I'm at my best, ideally what I would do is I set a Google calendar reminder to check back in three days. and if the contributions posted, I then just process the transfer into TD Ameritrade. Ideally, that's what I do.

And some years I'm on my game and then some years I'm not. So I actually went back and I looked through my account records. And this year in 2019, the transfer that I made between HSA Bank and TD Ameritrade, that TD Ameritrade transfer happened a month and a half after the deposit posted to HSA Bank. And that was not by design. I guarantee that was sheer laziness. That was me transferring the money into HSA Bank, then forgetting about it, and then a month and a half later being like, oh, man, I forgot.

And then logging into the account and transferring it over. I looked back through my records. In 2016, I did the same thing. There's a one-month gap between when the contribution posted to HSA Bank and when I transferred it into TD Amerit Trade. But the year before that, 2015, I was on my game. I made a full contribution into HSA Bank on January 6th. And I transferred it to TD Ameritrade on January 9th.

So that's how I roll when I'm at my best. And I'm guessing that the reason that you're asking this question is because you're wondering, what would that ideal time frame look like? That ideal time frame was exactly what I did in 2015. Transferred it in January 6th. I put in the full year's HSA contribution right up front. And three days later, on the 9th, I transferred it into TD Ameritrade. That is ideal because then the money,

has that entire year, that maximum amount of time to grow and to be in the market. So in the years when there is a delay, you know, if there's like a one-month delay in between the two, that's not by design at all. That's just sheer forgetfulness on my part. So thank you, Lisa, for asking that question and enjoy making contributions to your own HSA. Oh, and by the way, before I end this answer, I just want to throw something out here for the sake of everybody who's wondering about how to manage the funds inside of their HSA. So the reason that I invest the funds in my HSA is because I do not spend that money. I let that money accumulate tax-deferred growth because when money is inside of an HSA, it grows tax-deferred. And so my thinking

is, why would I take money out of a tax-advantaged account? Why would I take money out of an account that allows the investments, the underlying investments to have tax-deferred growth, if instead I could just pay cash for my health-related expenses, take a photo of the receipt, and save that documentation so that if I ever were to need to take that money out of my HSA account, like if I ever got tied on cash and as a result of just sheer cash flow management, I needed to take a distribution from my HSA. I have a record of the receipt to back it up. So I pay cash for my medical expenses,

take a photo of the receipt, save it in Dropbox, but I don't actually pay for it with the funds from my HSA. I don't actually take that distribution from my HSA. I let it compound with tax-deferred compounding growth. Now, in order to be able to carry out this strategy, for the sake of anyone who's thinking about doing the same thing, the way to carry out that strategy requires having enough money, that you can pay cash for your medical expenses outside of the money that's in your HSA.

So if you don't have enough cash for that, if there's not enough wiggle room in your budget, and you are actually planning on spending the money that you have inside of your HSA, then you'll want to keep that money in cash because you do plan on spending that money. So in that regard, your HSA is essentially an emergency fund. It's an emergency fund that's specifically for health-related expenses. My strategy of investing the money hinges upon having sufficient cash to be able to just use the HSA essentially as a de facto supplemental retirement account. And so for everyone listening, the strategy that you take, whether you're using your HSA as an emergency fund or whether you're using your HSA as a supplemental retirement account, depends entirely on your cash flow and your budget. But if you do have the cash to be able to pay for your own health expenses, then why not let the money inside of your HSA continue its tax-deferred growth?

So thank you, Lisa, for asking that question. We'll come back to the show in just a second, but first, one of the major themes of this show is lifelong learning. Because everything that we talk about, whether it's investing, entrepreneurship, side hustles, even time management, there's a big lifelong learning component to all of this. And that's why I'm proud to have Skillshare as a sponsor of this show. Skillshare has thousands of classes in everything from photography to creative writing to design to productivity. So regardless of whether you want to start a side hustle or just get involved in a passion project, Skillshare is a great resource that can help you develop those skills and learn what you need. Mike Vardy, who is also a previous guest on this show, teaches a class on Skillshare called productivity habits that stick.

And one class that I think would be very useful is Emily Simcox teaches one called bookkeeping for freelancers, how to handle your finances. So if you want to check out these classes and many more, you can get two months free when you sign up at skillshare.com slash paula. That's two months of unlimited access to thousands of classes for free. You can get that at skillshare.com slash paula. Again, two months free at skillshare.com slash paula. Are you thinking about starting a side hustle or starting a business in the new year? Maybe there's an idea that's been kicking around in your head that you always thought would be an interesting, side hustle, but you haven't really taken any action on it yet. The new year is a great time to get

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anything.com slash blue host for this special deal. That's afford anything.com slash blue host. Our next question comes from Kristen. Good morning, Paula. I have a question that I was hoping you could help me with. I am currently trying to figure out where to put my extra funds. As of right now, I have a mortgage that is about $100,000 on my personal property at 3.875 interest rate. And I also recently purchased a rental home that I have a mortgage of about $61,000 at 4% interest. So that rents for about $8.50 and the mortgage payment is somewhere around $420, so cash flowing about $370 after my property management fees. So the cash flow obviously is paying for the mortgage,

and then I have extra left over. So my question to you is, prior to buying the rental property, I had really been focusing in on paying down my primary mortgage. But now I'm wondering your opinion on focusing in on paying off the rental at the 61,000 or the 100,000 primary residence. Just as a little background information, I do max out my retirement vehicles, HSA, have a hefty emergency fund saved up, and have money that I also invest in taxable accounts. But it's just a question of priorities and what makes more sense to focus in on paying off first. So I love your opinion on that if you'd be willing to help me. Thank you. Kristen, that's a great question.

And first of all, congratulations on being in such a great financial position. You've got an emergency fund. You've got retirement accounts. You've got great financial security. And you also have low outstanding mortgage balances on both your rental property and your primary residence and a great interest rate and fantastic cash flow on your rental property. So big congratulations. I would prioritize between your primary residence versus your rental property, between those two loans, I would prioritize paying off the rental property. And I say that for three reasons.

Number one, your rental property has the smaller balance of the two. The rental property has $61,000 remaining on the mortgage. Your primary residence has $100,000. So you'll be able to wipe out the debt on your rental property first and fastest, because of the fact that it has a smaller balance. And once you pay off the rental property, you'll be able to take that money that you were making as a mortgage payment on that rental property.

You said the mortgage payment is $420 a month. Of course, some of that is escrow for property taxes and insurance, and the other portion of that is the principal and interest. So the portion of that $420 per month that is currently going towards principal and interest, you'll be able to take that and throw it at your primary residence. So you'll be able to wipe off the smaller balance first. And because you've reduced your monthly payments and increased your cash flow, you can then accelerate the debt payoff towards your primary residence. So reason number one, it's got a smaller balance. Reason number two, you increase the cash flow that you're collecting from the property. And reason number three, your rental property also has to be a small balance. You have to increase the cash flow that you're collecting from the property. And reason number three, your rental property also has a higher interest rate. It's not often that I see a situation where the debt that has the smaller outstanding balance

is also the debt that has the higher interest rate. But in this case, that's exactly what's going on. Your rental property has the smaller balance and the higher interest rate. So on both of those fronts, it makes total sense to pay off the rental property first. So thank you for asking that question, Kristen. And congratulations on being in such a good financial position. Our next question comes from Jim. Hi, Paula. My name is Jim.

I grew up and live on the east side of Cincinnati, Ohio. So from that standpoint, I feel like I can already relate to you. I grew up in a frugal and money-wise family, but my wife, however, did not. My question is, how can I get her on? her own to want to embrace the frugal lifestyle and possibly go into business on her own so that she might be able to stay home with our two kids and still enjoy the lifestyle that we have right now while both of us are working. Thank you for taking my call. Jim, great to hear from a fellow Cincinnati. For those of you who are listening who don't know this, I grew up in Cincinnati.

It's my hometown, so I have a very warm spot in my heart for all of you out there who are from Cincinnati. Now, as to your question, Jim, it's very hard to stay motivated unless there is an overriding why, a sense of purpose. There are some people, and I'm guessing you probably fall into this category, who enjoy saving money for its own inherent sake. We enjoy the feeling of getting a good deal. We enjoy the feeling of knowing that we didn't unnecessarily spend more than we could have. But that only applies to a segment of the population. There are other people for whom that intrinsic joy of saving, they don't connect with it. They don't feel it.

It sounds like your wife is one of those people. And so for them, the way to stay motivated around a more frugal lifestyle is connecting it to a bigger goal, a bigger why, a bigger purpose. So for example, you mentioned that she might be interested in staying home with the kids. All right, let's sit down and crunch the number. what are the cuts that would be required in your budget, in your lifestyle, in order to make that a possibility? Heck, what are the cuts that are required in order to make going down to part-time a possibility? And is that her goal? Is that something that she truly wants to do? If it is, then you can sit down, crunch the numbers, and say, hey, look at this.

If we downsize our home, maybe move to a different home that's smaller and less expensive, and if we get rid of this two-year-old car and replace it with a 12-year-old car, and if we buy groceries from Aldi instead of Whole Foods, well, if we make the following changes, then in dollars and cents, here's how it's going to affect the budget, and here's what it means in terms of lifestyle. Here's what it means in terms of the number of hours that we have to work. Here's what it means in terms of the amount of time that we can spend with our family.

So that connection to a why in which frugality is a means to an end that enables some purpose, some like motivating overriding purpose, that's the key. So I would start by asking her what her goals are. If money weren't an issue and she could do anything, whether it's launch her own business or make a career change or anything, If money weren't an issue and she could do anything, what would that be? And then once you arrive at that answer, then the next question is, all right, how do we try to get closer to that now? What helps is to not think of or frame or talk about frugality as deprivation. I am not a fan of people who talk about frugality as though it's delayed gratification. because the moment that we begin thinking of frugality as deprivation or sacrifice or delayed gratification, all of a sudden, the focus turns to what we don't have, what we're missing out on.

And from there, from that point, it becomes easy to then want the things that we don't have. So instead, I would flip the script and say, hey, what do we want and how do we get it? And when you frame the conversation around what you want, then you're using your money to buy time. You're using your money to buy opportunity. You're using your money to buy the things that matter most. So it isn't that you're deprived of a newer car or a bigger home or nicer clothes. It's rather you could have that. But instead, you choose to buy the same.

other thing, and maybe this other thing is more time, or maybe this other thing is less stress. That's what you want to spend your money on. That's what you're buying. And in that regard, you're not cutting back on your spending. You're spending your money on different things. You're spending your money on purchasing time. You're spending your money on purchasing additional financial security. You're spending your money on index funds and on investments, like straight up shopping spree. And those indexes. funds that you're spending your money on, that's a gift that you're giving to your 65-year-old self. So that's how I would frame it. Connect it with a Y, connect it with what motivates you, and then

frame it as this is what we're going to choose to purchase. So thank you for asking that question, Jim. Our final question today comes from Candice. Hi, Paula. I'm currently doing a house hack which pays for half of my mortgage and property taxes. And now I'm interested in true real estate investing. Aside from the buying and renovating model, what are your thoughts on real estate investment platforms like Fundrise? Thanks so much. Candace, congratulations on doing your first house hack. That is a fantastic way to get started in the world of rental property investing. Now, to your question about real estate crowdfunding platforms. So the way that a platform such as Fundrise works is that,

you contribute money to a particular project in a particular location. So for example, you might contribute some money towards an apartment complex in Fort Myers, Florida, or a commercial property in Texas. I'm looking at their website right now. There's a commercial renovation in Brentwood, Maryland. There are stabilized apartments in Greenville, South Carolina. So my question to you is, how much do you know about Greenville, South Carolina, or Brentwood, Maryland, or Fort Myers, Florida? In your estimation, does it make sense to have a new apartment development in this particular neighborhood, on these particular streets, and at this particular time, does it make sense to invest in this particular, this specific apartment complex, at this specific level? location in Greenville, South Carolina. How much do you know about the area? How much do you know about the people who are putting the deal together? How good is the management? What type of performance

have they had? What other projects have they done? What are their goals for the project? What kind of decision-making framework do they use? What is the risk-reward profile of this particular project? And how well do you trust the judgment of its management team? What do you think about the cost estimates that they have declared for this project, does it sound too high? Does it sound too low? How does the cost per square foot compare to other apartment complexes in the area? Is the management team pursuing a strategy that's based more around long-term capital appreciation, or are they pursuing more of an income strategy? In what ways are they demonstrating this with regard to some of the decisions that they've made about this project? If you can answer those

questions, if you can answer all of those questions about this apartment complex in Fort Myers, Florida, in that case, I will be very impressed and in that case I will say, all right, you've done your due diligence. But unfortunately, a lot of people have this attitude that crowdfunding is a get-out-of-due diligence-free card, that you can just throw your money at a project and figure, meh, they'll handle it. I'm sure they'll be fine. They're professionals. They know what they're doing, right? investing doesn't work that way. You can't just throw money at a fund and hope that everything's going to work out despite your complete lack of due diligence. And so if the reason that you're interested in a crowdfunding model is because you're hoping that the psychological comfort that comes from the fact that other people are putting their money in this too absolves you from the responsibility of doing due diligence about how you're going to invest your own money, well, don't approach it if you're looking for a get out of due diligence free card, not if you want to do it right. In fact, one analogy that I like to use is think about investing in an actively managed

mutual fund. Now, I know in this community, actively managed mutual funds are heresy. In the afford anything community, we don't like to talk about actively managed mutual funds. Those funds are not our friends. Those funds are not where we like to invest our money. But there are people, not me, definitely not me, but there are other people out there who decide that part of their strategy is that they want to invest in actively managed mutual funds. And if they're doing it right, these are the people who spend hundreds of hours studying things like the underlying holdings, the churn, the fund manager, the soundness of the decision-making, the fund structure, the strategy, the people who are responsible in their pursuit

of investing in actively managed mutual funds, don't just throw some money at a fund and trust that the professionals will take care of it. They put a lot of time and effort into studying these funds so that they can make a much more informed decision. And if you want to invest in a crowdfunded project, you need to put that same level of time and effort into studying each project so that you know exactly what you're getting into and why. Now, the reason that I don't invest in crowdfunded platforms is because if I'm going to put that much time and that much effort into due diligence, I would rather own the property myself. So that way, I get to execute judgment. I get to make the decisions. I get to set the course of the strategy.

and I have greater control over how my investment is handled. If that doesn't appeal to you, that's fine. Just remember, crowdfunding is not a get-out-of-due diligence-free card. That's the primary lesson that I want you to come away with. For more on this topic, on episode 144 and episode 174, we talk about this as well. You can access both of those at afford-anything.com slash episode 144 and at afford-anything.com slash episode 174. So thank you for asking that question, Candice.

And again, congratulations on your first house hack. That is our show for today. I want to say a huge thank you to everybody who left us a rating and a review on iTunes, which is now known as Apple Podcasts. As of the time of this recording, we have 2006 ratings on iTunes. My goal was to get to 2,000 ratings. by the end of the year, and we did it! We did it! So thank you, thank you, thank you so much. And if you have not yet left us a review or a rating, please open whatever app you're using to listen to this

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And if you want to discuss today's episode or if you have any questions that you want the community, the other people who are listening to this podcast to answer, head to afford anything.com slash community. That's afford anything.com slash community. That's where we have a community platform in which we discuss everything from real estate to the stock market to building better habits. We talk about side hustles. We talk about finding a CPA for the new year and tax planning. We talk about all kinds of questions and topics related to personal finance and self-improvement. And you can customize what topics you want to follow. For example, if you're really interested in learning about real estate, but you're not interested in side hustles, you can follow the topics that you're into and ignore the stuff that you're not.

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setting up your website and your books and your invoicing and getting everything, all your ducks lined up in a row, so that you can start the new year strong. If you would like to see a complete list of all of our sponsors, including all of the deals and the discounts that they offer, the coupon codes and the freebies that they offer, you can get a complete list of all of this at afford anything.com slash sponsors. That's afford anything.com slash sponsors for all of the discounts and deals and coupon codes and promo codes. Thank you so much for tuning in. My name is Paula Pantt. You can follow me on Instagram at Paula Pant, P-A-U-L-A-N-T.

Make sure that you're subscribed to this podcast so that I can catch you next week. See you then. By the way, my lawyer says that I need a disclaimer, so here we go. This is purely for entertainment purposes. Basically, imagine that this is the least funny comedy show that you've ever listened to. We are not professionals. We barely can brush our teeth in the morning. And so we don't hold ourselves out to be experts, or really, for that matter, even adults.

give us the same amount of respect that you would give, say, a goldfish. And always, always consult with a real grown-up before you make any decisions. That means consult with a tax advisor, consult with a lawyer, consult with a financial planner, consult with people who actually have credentials and who know what they're talking about, because that is definitely not us. All right, you've been warned.