Afford Anything - Ask Paula: How To Prepare for A Layoff

Episode Date: April 5, 2023

#435: Lee is 30 and facing a tech layoff. She can live for a year on her savings. She’s thinking about taking the rest of the year off. How should she prepare her investments? Stacy wants to buy an Airbnb but she’s scared she’ll regret selling her company stock to do it. An anonymous caller is tired of living paycheck-to-paycheck as a freelance artist. How can she stabilize an inconsistent income? Danelle is a DIY investor. She can’t find a financial advisor who gives advice without insisting on managing her investments. Is she looking in the wrong places? Former financial planner Joe Saul-Sehy and I tackle these four questions in today’s episode. Enjoy! P.S. Got a question? Leave it here. For more information, visit the show notes at https://affordanything.com/episode435 Learn more about your ad choices. Visit podcastchoices.com/adchoices

Do you go throw spaghetti at your wall and see if it sticks? You know, I have quite literally done that once or twice. I think largely because I wanted to test whether or not the metaphor made sense. Actually, it worked. Yeah, exactly. It works. But I don't eat the strands of spaghetti that hit the wall. I eat the rest of the pot.

Oh, thanks for clarified. You can afford anything but not everything. Every choice that you make is a trade-off against something else. And that doesn't just apply to your money. That applies to any limited resource you need to manage, like your time, your focus, your energy, your attention. So what matters most? And how do you make choices that reflect that?

That's what this show is all about. My name's Paula Pant. I'm the host of the Afford Anything podcast. Every other episode, we answer questions that come from you. And my buddy, former financial planner, Joe Saul Seahy, joins me to answer these questions. What's up, Joe? Man, Paula, I've been trying to tell airplane jokes lately, but none of them land. Oh, no.

Come on. with me, people. Oh, look. And then you blame other people for not laughing at your joke. Joe, I think you're the problem. No, no, no, no, no, no, no. You have no idea how hard it was to even come up with that one. No, it wasn't hard. How are you, Paula? I am running on, according to my Fitbit, two hours and 45 minutes of sleep. But I'm drinking a latte with a double. I literally violated the don't buy latte's principle, the famous personal finance, don't buy Lattees. And that's what's powering me through. So here we are. What most people don't know is that's an increase of two hours over the night before. So congratulations. That's great. On to people who

also have questions that are keeping them up at night. We're going to kick off with a question from Lee who is facing a tech layoff. Hi, Paula. Thank you for taking my question. My name is Lee and I'm 30 years old. I am about to be one of those tech layoffs. you have been seeing in the news. Technically, my company is doing a, quote, soft layoff by giving me two months to look inside for a job. But the severance package is a little too hard to pass up with three months of pay and eight months of paid Cobra health coverage.

And since I've been on a FI journey for a couple years now, I have a year's worth of expenses saved up. Might take the rest of the year off? I have two questions. One, should I max my next couple paychecks towards my traditional 401k and as a result lower my tax bracket? Or put it towards Roth 401k or zero out my contributions and put it in an after-tax brokerage account? Second, I'm in California and we'll qualify for unemployment. Should I take it?

Will it affect me later in life? Can I take it later? What are your thoughts? Lee, first of all, while I'm sorry to hear that you're facing a layoff, huge congrats to you for being so prepared going into this. You have a year's worth of expenses saved. You have the option to just take the year off if you want to. That is such a testament to proactive, forward thinking, financial planning. So huge congrats to you. Steve, can we get a round of applause? So now to answer your questions about how. How to manage this layoff, first of all, the more money that you can put into any type of a Roth account, the better. One of your questions was, do you max out your traditional 401k and therefore lower your tax bracket or do you invest in a Roth 401k? Shovel as much as you can into the Roth 401k. Shovel as much as you can up to the max in your Roth IRA if you have to make it a backdoor Roth IRA.

But put as much as you can into Roth accounts because your income. this year, 2023, is likely to be lower than it will be in any foreseeable year in the future, especially if you take the rest of the year off or even if you take three months off or six months off. And so because your income is going to be a lot lower than usual, you want to be paying more in taxes, not less. And what I mean by that is by virtue of putting as much money as you can into a Roth, you then have money that is in an account that is tax exempt for life. You don't have to pay taxes on capital gains. You don't have to pay taxes on dividends.

And because you're young, you're 30, you're going to get the benefit of three, four, five decades of growth, depending on how long today's contributions sit in your Roth 401K or Roth IRA. So to be able to exempt yourself from taxes on all of that growth, and to do it when you are in the lowest tax bracket that you foreseeably will be in, take that opportunity. Absolutely. Here's the only thing that I worry about with the Roth.

If she's contributing to the Roth 401K, that money's going to be locked up for five years or 59 and a half, whichever's longer. And at age 30, if she thinks she might need that money ahead of time, then what I might do instead, Paula, especially if she's making less money that year, she might be okay then this year to do Roth IRA instead. With a Roth IRA, she can take the money out at any time that she put in. The interest on it, the money it makes still has that five year, 59.5 rule, but the contributions do not. And in this year where she's making a lot less money, what I might do would be see if she's eligible for the Roth IRA, pop up to the

max and the Roth IRA so that if her leave ends up being longer than she anticipated, she struggles to find a job later, she's got those contributions available that she can then pull out if she ends up needing the money. My only problem with this strategy at all is that when I'm getting ready to leave my job and I don't have another one lined up and I'm not sure about where income's going to come from, I worry about locking up money for the long term. So you're worried about liquidity. See, I'm not worried about her liquidity. She's got a year's worth of expenses saved. No, I love that. But if she has a Roth IRA, Roth 401K, tax-wise, they do the same thing. Right.

And she's going to make less money this year. So she might be eligible for the IRA. I would put the money in a Roth IRA versus the Roth 401K. Or if she could do both, then do both. Yeah, I mean, if she has to choose between one or the other, certainly the Roth IRA is the first option and the Roth 401K is the second. But if she doesn't have to choose, if she can do both, max out both. Just shovel money. into as many Roth accounts as possible. The other question that Lee asked about taking unemployment, the answer is yes, take it. Absolutely take it. There is no downside.

There's no way it's going to hurt her later. No employer's going to go, oh, you took unemployment when you were unemployed? It's there specifically for that reason. It does. Speaking as a small business owner, it hurts your company because your company's unemployment insurance premium will then rise, you know, in the same way that anytime somebody makes a claim against, say, a homeowner's insurance policy or a car insurance policy, you know how your insurance premiums rise after you make a claim? Same thing happens with unemployment insurance.

But that's not your problem. That's a problem that your employer deals with. And if she's part of a mass layoff anyway, Paula, they're going to get hit already. It's not going to change it if Lee takes it. Yeah, yeah. This is not some family-owned small business. So there is no reason not to take unemployment. Go for it. Enjoy it. I also love the chill that Lee has. She might take the rest of the year off. Like, take the opportunity to make this a little mini-retirement or sabbatical. This is what planning does. The fact that she's planned ahead, it's not about the money. It's about now she's in this situation. And that chill where other people would panic is because she has the ability to be flexible and to not panic to be able to go, I'm.

I'm in the driver seat here. What I like is this opportunity now that a lot of people don't have to kind of test drive some of her five dreams. So when she's financially independent, what does she want to do? Even if she's not there yet, she could test drive some of those things. I've told you, Paula, that when Cheryl and I decided to become nomads, it lasted a heck of a lot shorter than I thought it would because I didn't like it. I didn't. A month at a time, yes, forever, not for me.

So the fact that we got to test drive that before, you know, we finally decided was a real blessing. And Lee can now do some of that herself. Yeah, exactly. You know, I have a friend who was recently laid off. He was laid off in December. And he's just started all these cool projects that were always brewing in the back of his mind, but he never had time to pursue them. Now he has a runway. He's a good saver.

So he's got a solid runway of savings ahead of him. he's got Cobra Health Insurance. His was only covered for three months, so Lee, yours is much better at eight. And he now has the freedom to pursue all of these different projects. Statistically, recessions and other times of high unemployment tend to be the times when the most small businesses start. So in the last recession, for example, Airbnb, Uber, You know, those were little startups at the time, but they got their kickoff when talent was available and people who were in a good cash position had the bandwidth to be able to experiment with creative ideas. Heck, afford anything started in the last recession or just after it. So times of unemployment are actually times of massive opportunity. if you have the ability to not have to think about the short term and where you're going to get your next meal from. Because Lee's done that.

Yeah. Yeah. Huge opportunities. This is such a testament to good financial planning and good financial health. It's a testament to taking the principles of financial independence and making that a lifestyle. And can we, Paula, just pause a second on why this is so awesome? because at first she's like, this severance seems really tempting. I'm like, ooh, she got a huge severance.

And then she said three months. And I went, that's not a great severance. That's like an average severance. That's nothing. But the fact that she could see the same opportunity, but for her and her situation, it's a big, huge win. That's where I flipped. That's where I went. Oh, yeah, yeah.

Right. Exactly. Because she's got a year's worth of savings. plus three months of severance, plus she qualifies for unemployment, plus eight months of paid health insurance. But it wasn't that she was lucky, quote, lucky to work at a company that had a huge severance where they gave her, you know, six months a year, whatever it might be. That's what I was expecting.

It wasn't about luck. She created her own luck. Yeah. So congratsly. I think we've answered your questions. Prioritize Roth accounts, definitely take the unemployment. you asked about how to organize your investments, make sure that you have enough liquidity, enough cash that you have a runway. You have a good emergency fund and safety net to keep you

going for the short term. Beyond that, everything else you're investing for the long term. And because you're going to be in a low tax bracket this year, prioritize Roth accounts. You don't need to do anything different with your asset allocation because the time horizon for your investments is still the same. The money that you're investing for retirement still has the same time horizon. So you don't need to change up any of that. Well, thank you, Lee, for your question. And congrats. Our next question comes from Danielle. Hi, Paula. My husband and I've managed our own investments for years and are now approaching retirement. We'd like to talk to a financial advisor so we can bounce some questions off them concerning our strategy and anything that we should be careful of as we

transition from working to retirement. In financial podcasts like yours and websites, people in a situation like ours are frequently advised to speak to a fee-only financial advisor who's a fiduciary. However, we've been trying for three years to find such a person, and it seems as if everyone really wants to manage our money for a fee and claims there's no way for them to be able to offer comprehensive advice if they aren't managing our money. That's not what we want. So how does someone actually find a fee-only advisor that simply offers advice and perspective for a flat fee. Thanks. I appreciate it. Danielle, fantastic question. By the way, you have an amazing voice.

Seriously, I don't know if you've ever considered podcasting or doing voiceover work, but you have a fantastic voice. All right, to your question, there are two elements to the answer that I'm going to give you. One is, how you can find fee-only financial advisors, and the other is how you approach the conversation. I had a similar experience. Mine didn't last for three years. But when I was going through my divorce, I wanted a few sessions with a financial advisor. I didn't even want a long-term ongoing relationship. I was open to that. But I specifically wanted guidance for this particular event because it's a high-staffirmed. stakes event that hopefully happens only once or never, but for me, hopefully, it happens only once.

And so given that I'd never gone through it before and there was a lot riding on it, I looked for a financial advisor and I was absolutely not willing to put any assets under management. I just wanted somebody to review everything with me and give me sound advice and feedback. And so right out of the gate, I was very forceful. As I was interviewing financial advisors, I was pretty forceful in stating that up front, making it known in the initial contact that, hey, I am not open to placing any of my assets under your management. And if you're going to try to convince me otherwise, then that's a non-starter to such an extent that we, to end this conversation right now. It was a very forceful open. I communicated that deal breaker right out of the gate. You've been trying to find an advisor for three years, so I imagine you

probably have taken that tactic. But I'm sharing that also for the sake of anyone else who's listening, who is also dealing with the same issue. Now, as far as where to find one, the XY planning network is a great resource. It's a directory of fee-only financial planners. It is owned by Michael Kitsis, who was a former guest on this podcast. In the show notes, we'll link to his episode. He's brilliant. He's an absolutely brilliant financial advisor. So it is co-owned by Michael Kitsis and Alan Moore. Alan Moore is actually the ex of Sophia Bera, who was also a guest on this podcast. We'll link to both of their episodes. So it's co-owned by people inside of this community who are well-known and well respected, and it's a nationwide directory of fee-only financial planners where you can

sort based on a variety of criteria. Yeah, I think, Paula, that you can even make it less confrontational if during your initial call, you just ask that question ahead of time before we meet. Just even say, before we meet, do you do fee for advice only, an hourly rate for advice? And the reason why I need to parse this is because when people talk about fee-only financial advisors, that's where Danielle will sometimes run into a problem because fee-only does mean that there's a fee for assets under management. A lot of fee-only advisors, frankly, the only fee they charge is that fee for assets under management. But you will still see fee only, which makes it frustrating. They don't parse by hourly fee, unless it might say that on a website that they'll charge an hourly fee.

or a consulting fee. And some advisors don't want to work with people in a short-term basis. They want to, you know, Roger Whitney, the retirement answer man, talks about walking life with people, right? And he wants clients that he's going to have for long term. And he's not interested in working people short-term. And what I like is, as this industry matures, that you're seeing people that are working with very specific groups of people that they really like. So finding out, number one, do they charge just an hourly rate on that initial phone call to the place before you go into a meeting, before you look even more deeply into them? I would do that first. Second thing, I would also ask is, do they have a specialty, people that they work with? And do you fit that group of people? Are you a member of who they want to work with? Then I think, to your point, Paula, the X-wide Planning Network is nationwide. And if you're just looking in Rochester, New York,

it's going to be very difficult to find some of these great planners. And the cool thing that the pandemic taught us is that we can now get advice and have meetings with people all over the world. Geography is not a barrier, which is pretty awesome. So I like the fact that using that's why Planning Network as an example, you can widen your search by a lot if you're okay with not meeting face to face. Right. And, Joe, to go back to what you are saying about specialties, I'm looking at the drop-down list of specialties right now. And there's everything from people who specialize in certain career stages to people who specialize in gender and identity focus and the way that that impacts your financial planning. There are people who specialize in marital status and family structure.

There are those who specialize in a faith focus, like Christian faith-based. There are those who specialize in some type of planning need like elder care or if you have a special needs child or student loan debt or if you're an expat. So that's pretty cool that you can find planners who specialize in your unique situation because that's one of the benefits of meeting with a planner in the first place. The mass market information that you hear isn't necessarily tailored to your particular situation. You know, I was just having a conversation with somebody about this yesterday, in fact, about how in South Asian culture, it's incredibly normal. to have big multi-generational households.

And so right now you might be like a Desi Nuclear family from the South Asian continent, but you are sending foreign remittances back. And you know that as soon as you can sponsor grandma or mom for a visa, you're going to bring them over to the United States and they're going to move in with you because obviously you're not going to put them in an apartment. They're going to live with you. That's just how it works. Traditional financial planning doesn't make those assumptions.

They don't assume that you're sending foreign remittances back. They don't assume that you're planning on having your parents live with you, even if they're perfectly healthy. They don't assume that you might take in a cousin who might end up staying with you for six months. Because, heck, sometimes that happens. That's just one of many examples in which the specifics of a huge. human life. And the way that we want to live it doesn't play to the one-size-fits-all that you hear in mass media. Yeah. I thought of a place, Paula, while you were talking, that might be a good spot to start. Investopedia posts a list of the top 100 advisors on social media. Most big firms throttle

their advisors with their compliance department. So a lot of big firms are not going to be on that list, meaning you're not going to get a lot of the asset gathering people on that list. Now, don't be wrong. There's some good people at those firms, but they'll also probably not work the way that Danielle wants them to work. So to get somebody who's a little more flexible, I'd start with that Investopedia top 100 list. Now, I'm not just looking at those 100 advisors. What I do is see what association those advisors are in because there's other planning networks like the XY planning networks that some of these top advisors are in as well that you can also use to explore. And this is a great way to open your national search. Top advisors tend to hang out with other top advisors. So when you find

an association that has people who meet your criteria, you'll find other advisors who also meet your criteria. And that'll give you some room to take a look at picking and choosing between a wider array without being stuck with who's in Rochester, New York. Okay. But last thing I'm going to say, and this is inspired by the list of top financial planners. Investopedia is a fantastic, highly reputable site. In fact, just yesterday I met with two editors from Investopedia, both incredibly impressive people. One had come from Bloomberg after 30 years at Bloomberg. A lot of their team actually comes from Bloomberg. You know, Investopedia is absolutely top notch. But there are other, shall we say, less credible. organizations that also put out lists, right? If you think about it, anybody can put out a list. My cat can put out a list. Sure. And so if you are going to look at a list of top advisors or top financial planners, make sure that it comes from a reputable organization like Investopedia

versus just whatever you find in a Google search because the entity that's putting together that list, the non-credible ones sometimes assemble those lists as essentially a money-making ploy. So they will... Like these who's-who books that you can buy your way into. Right. One guy decided that he wanted to shine a light on this. He is an investment advisor named Alan Roth.

He lives in Colorado Springs. He paid $183 to the Consumer's Research Council of America, which promotes these lists that are called the Guide to America's Top, blank, like guide to America's top and then XYZ profession, he paid $183 and had them name his dog as a top financial planner. So he has an award in the name of Max Tailwagger. Oh, man.

And there's this adorable photo of his dog posing with the black. Oh, no. Yep. we'll link to that in the show notes as well. You can subscribe to the show notes for free at afford anything.com slash show notes. I look at this list, Paula, and when you look at the Investopedia list, remember, this is organized by how the information people give on social media. This is not what they do on a one-on-one basis.

This is just purely them spreading knowledge to other people. So this is just, frankly, a starting point. Investopedia is not doing your due diligence for you. Michael Kitsis, I know, rarely meets, I believe, with individual clients anymore. He's number one. Taylor Shelty in San Diego, listed is number two. Lizetta Braxton's on this list. Margarita Chang, Mary Beth Stor, Johan, Peter Lazaroff, Ron Carson, Lauren Sprung,

our own OG from the Stacky Benjamin Show on this list. Stephanie McCullough, who's fantastic outside of Philadelphia. Lots of great planners on this list. And lots of people who have a national reputation that I look down a list like this and I can easily tell Danielle, this is a great place to start. Not just with these people, but see what affiliations they have and then dig in. Because you're much more likely to find those fee only advisors with these people. And if all else fails, Max Tailwagger is available. I hired the dog.

Then it turns out that Danielle's retirement went to the dogs. Come on. Can we get a hallelujah? Oh, no. No. Absolutely not. All right. Well, I would tell you to stick around for our next question, but clearly everyone's going to be heading to the hills after that, Joe.

They'll get better. I promise. Well, Joe's humor may not, but we have coming up a question from Stacey, who wants to get started with real estate investing. but needs to sell her company stock in order to do it. And we have a question from a listener who is 54 years old and has never had a traditional or full-time job, has always been a self-employed artist. And now at 54 has some questions heading into retirement.

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That's W-A-F-A-I-R.com. Sale ends December 7th. Our next question comes from an anonymous caller. You know what that means, Paula? Every time we have an anonymous caller on this show, if you're new to the Afford Anything podcast, we have been naming after a journalist this year because Paula is currently at Columbia in this special journalism program. And we're celebrating journalists. So, Paula, who do you got?

A few weeks ago on this show, I mentioned a fantastic BBC documentary about the Indian Prime Minister, Narendra Modi, and his role in the 2002 riots in Gujarat. That documentary has been incredibly censored to such a new one. extent that people trade around the link to it, like you're watching something pornographic practically. Wow. I mean, yeah, exactly. I got a BBC documentary.

Yeah, exactly. When the documentary came out, among other things, the Modi government decided to raid the BBC offices in New Delhi and Mumbai. Wow. Wow. Yeah. And so the International Press Institute, among other organizations, press organizations all the world, of course, condemned that crackdown on free speech. I am going to name this anonymous caller after the director of advocacy at the International

Press Institute. Her name is Amy. And she is symbolic of the many, many people around the world who are trying to simply stop the censorship of a documentary that was produced by, of all entities, the BBC. BC. I mean, this is not a fringe group. This is such a mainstream channel. Right. Yeah. So this next caller will be Amy. Dear Paul and Joe, I really enjoy your podcast, even though I'm not part of fire or really interested in investment or real estate. But it's really fun. I have a question that I've not

heard you discuss really, and that's budgeting as a self-employed artist. I'm an author, actress, playwright, audiobook narrator, professional writer, mentor, and recently I've added screenwriting to my long list. I'm 54. And I've never had what you might call a traditional or even a full-time job. My late husband was a musician, so there's never been a real regular paycheck in my household. That said, I own my house, free and clear, in a desirable vacation spot, but it is rural, so the taxes are reasonably low, which leaves me with just insurance, maintenance, and repairs, but so far nothing too big, although it will need a roof in the next couple of years.

My entirement fund is negligible, but I am putting stuff in it. Because I live in Canada, I will have old-age pension, guaranteed income supplement, plus a little bit of Social Security because I'm a total citizen. I'm not really worried about retirement because I plan to just keep working and writing and creating. My whole life has been paycheck to paycheck, and sometimes that can be $250, and sometimes it can be $25,000, and I just don't really know. The problem is that when a paycheck comes in, I've been living off my line of credit, which is technically against my own savings. And when a paycheck comes in, I use it all and pay it off on the land of credit and start the cycle over.

And so I'm always either at zero debt or in debt against my savings, but I never have any cash being clear. So I was thinking of taking retirement and taxes and tithing off the top and then trying to live off the cash and make regular payments on the debt. But what do we do when, you know, the years where I just don't have very much income. Some years I have plenty and some years I don't. I know that increasing my income is a good idea, and I'm working on that. I've cleared my line of credit twice since 2018 through income, and then the cycle just starts over again. But right now I'm in real debt. And yeah, in addition to my using most of my savings, I have some credit card debt.

I have some things I could cash out like gold and vintage instruments, and my accountant suggests I should. my living expenses are pretty low. I could get by $1,500 would be more comfortable on $2,000. But I just don't know like how to organize this. What's the best thing to do with the money when I do get it? And like I feel like I just need a plan. Thank you so much. Amy, thank you so much for the call.

And Paula, I really feel for Amy because you can hear the tension. You can hear the frustration. in Amy's voice. And it just reminds me why you and I do the show, right? Yeah. If we can help her allay some of that. The big issue with a lot of people, and I guess I'll start here because there's 40 places to start.

But if we're looking for foundational things that will help Amy alleviate stress, one of the best ones for people who have inconsistent income streams is to try to change that. Now, she's not going to change it by the way she works. We don't want to change Amy's vocation. Don't want to change the way that she makes money because she clearly likes it. She said she likes it so much, Paula, she's going to do it forever, right? So we definitely don't want to do that.

But a lot of people who have inconsistent income, they live paycheck to paycheck because they don't know when the next paycheck's going to come. And so there's this boom-bust lifestyle that I've found people over the years have lived. It's ramen noodle, ramen noodle. I get a huge paycheck, steak dinner, and I buy a big screen TV, ramen noodle, ramen, ramen, noodle. So instead of that, if we can find a middle ground, that's where we want to start. So here, Amy, is a strategy that's worked for a lot of people.

When you get paid your first larger than normal amount of money for the very first time, put that in an account that is not going to be your main. checking account, but a separate account. This account's going to be your holding tank account as the business owner of Amy. And what we're going to do is we're going to use, you know, Paula, earlier, you were talking about your divorce and divorce can be horrible, but this is a divorce that's great. We're going to divorce your paychecks coming in from your clients with the amount of money you give to yourself. We want to take those two actions. and make them separate.

That's the first thing. The way that we do that is, we're going to take a number that you know you're going to be able to sustain until the next big paycheck. Or there's a high probability you're going to be able to sustain that. Then in whatever time frame works best for you

in your budget, weekly, biweekly, monthly, semi-monthly, whatever, create a paycheck where you're going to go to this other account and grab the same exact amount of money every week or every two weeks, or every month, whatever it might be. And you're going to create a paycheck now that is the same. And that, Amy, that single thing alone is going to change everything for you.

Because where you couldn't budget before, now you will be able to budget. You'll also won't feel that that hunger paying that makes you when you get a big paycheck, go out and spend it. And I'm not even saying that you're spending money on. Stakes. And big screens are metaphors. Yes, right. They're not meant to be taken literally.

Yeah. Right. Not that you're doing anything dumb with your money. It's just I've worked with plenty of people and I've no idea how it works. It just works if you turn into a consistent paycheck because now we can do a similar budget every week. And now we can do things like you can take your grocery bill. You know the same amount of groceries you can buy every week. You can now set that budget to be the same. You can set the budget amount you send to your credit cards to be the same. You can make it be this so you can have a payoff strategy for your credit cards. You can plan out vacations. You can plan out all this stuff that's so. so difficult when it's this boom-bust lifestyle. I think, Paula, that one move is going to solve a lot of it. It won't solve them all, but I think that's a good place to start. Right. Because with that move, Amy, what you're doing is you're essentially mimicking the experience of having a regular, stable, steady paycheck. You're creating a system in which your business, and you don't worry about like it doesn't have to be formal or fancy, but conceptually, your business earns sporadic, volatile income, but you, Amy, the individual, Amy, the employee of that business, so to speak,

you earn a steady paycheck. Maybe it's $350 a week or $400 a week. Start with that. And then you know that I, Amy, regardless of what my business, does, I, Amy, make $400 every week, and that's what I'm budgeting from. It's pretty exciting. And when money then accumulates in that account, give yourself maybe two dates a year, four dates a year, whatever amount you want, whatever time frame you want, and pay yourself a bonus if there's extra money. And what's funny is a lot of people that I used to work with when I was a planner, Paula, and they'd have inconsistent income,

they would get so excited about the boss giving them a bonus. And the boss is, them, right? Right. But it's so empowering, it changes a lot. So that's an accidental emergency fund that we build up then. But then take some of that money you're budgeting and build a real emergency fund. That's going to be step number two. Emergency funds in some way stink because, you know, your money is in a savings account that's earning less than inflation, what inflation is. So it loses a little bit of earning power. But you know that if things, go wrong and you actually go over that budget that you just created this amount of money you're paying yourself, that you have this well of money that will get you through those tough times. And then you can

also take advantage of some opportunities if they come around. I don't like it to just be for emergencies. I like, hey, if there's something I want to do, I'm going to dip in there and I'm going to grab some of that money and I'm going to do it. There's a great deal. And it's something that really fills me full of joy, I am going to spend my money on that. And I know some people feel guilty about that. But that's what that money truly is for, which is why I prefer the term cash reserve, but that's splitting hairs. But I would do that second, Paula, that's the second thing.

The third thing that I would do is I would begin analyzing the business of the art that you make, the things that you do, and see if there are opportunities to increase your income. most people look at ways to cut. It sounds like, Amy, you've found 50 million ways to cut. I believe just from your voice, you have cut so much. You're asking your accountant about other ways you can make money. I would not go selling assets, by the way. It sounds like you're at the point where you're going to start selling off stuff.

And don't get me wrong. I agree, Paul. I saw a Gary V video recently saying, there's enough stuff in the average person's home where you can get by for a couple months, right? You can just put that stuff on eBay and resell it. And you can make some money. So yes, if it's vintage instruments that you don't want anymore, things that are just sitting in a closet that nobody's ever looking at, you're not looking at, then go sell it.

But as an example, you mentioned the gold. Well, gold's an asset that goes up in value. Not my favorite asset to accumulate. But if you sell gold, you're mortgaging your future for today. And I don't, I don't love that. Right. I would highly analyze finding other income streams. And study after study shows that there often is money available out there.

There are employers that will pay you more. There's clients that will pay you more. There's opportunities to do your craft in a different way that will pay you more. So I think looking at income streams, Paula, is the third thing I do. Yeah, that was what struck me because what I heard in Amy's question were a few different problems that I think should be distinguished from one another. She started the voicemail by saying that inconsistent income was an issue. And Joe, I think you've done a great job of solving that with the structure of mimicking the experience of getting a regular paycheck. But it also strikes me.

You know, she said that her expenses can be as low as $1,500 a month. $2,000 a month would be more comfortable. Given that, it struck me that inconsistent income would not be an issue if she was living on $2,000 and she was. inconsistently earning somewhere between 4,000 to 6,000 a month after taxes, right? Right. The gap between what she earns and what she spends, that fundamentally is the issue. And the fact that the income is also inconsistent exacerbates that issue, but the issue itself is not the inconsistency.

I mean, to use a more extreme example, Amy, if you were making somewhere between $10,000 to $20,000, every month and living on 2000 a month. Again, the inconsistency of, I don't know if I'm going to make 10 this month or 20 this month, not a problem. And so that goes to highlight that the gap between what she spends and what she earns needs to widen. And there are only two ways to widen that gap, either earn more or spend less. And Amy, given the fact that you're already living on as little as 1,500 a month,

you really can't frugal down any further. The fact that you can live on that little shows me that you likely don't have a spending problem. You likely have an income problem. So I think the one-two punch of leaning into your most profitable forms of art. You know, you mentioned you do a lot of different things. I assume that within this basket of things that you do, some are more profitable than others. So leaning into the ones that pay more, at least temporarily, combined with Joe's strategy of mimicking the experience of having a regular paycheck. And I think, Amy, I think it

should start as a weekly paycheck. When you're first learning how to budget off of a stable, steady paycheck. I think a weekly budget is a very good one to give yourself because it gives you rapid feedback. If you go over budget this week, you can very rapidly see what's happened and adjust course. Can we talk about looking at her income streams, the ones that pay more? and you said at least temporarily do the ones that pay more. Yeah. So I think evaluating which work she does brings in the most money is a phenomenal exercise.

And a lot of business owners don't know that. In fact, I remember the first time, Paula, when I was a fairly new business owner, somebody said, how much money do you need to make every day to keep the lights on? And I went, oh, I have no idea. That was aha number one. Then aha number two was of these different processes I do, which one brings? in the most in the least amount of time. Where's the low-hanging fruit? You mean which most and least amount of money for your time? No, which one in the least amount of time? So which one, which one can I do

quickest to bring in money now, right? Mm, got it. So least amount of work brings in the most money, which are great. But I would also say that just, especially if Amy's creative, I think focusing a ton on that single task is probably going to be incredibly monotonous. and may take the joy out of something that she wants to do forever, make it so that she doesn't want to do forever. So what I would do, Paula, is only modify it slightly. I would make sure that there is enough of the high-paying gigs to finance the time that you're going to spend doing the low-paying gigs

that may give you an equal amount of joy so that you're able to sustain the pace. Because I see this is a marathon, right? And if it's a marathon and she creates a pace, she might be able to temporarily do this and have some short-term pain for long-term gain, but she might be able to long-term have both, where she knows the X pays so much money. So I'll give you an example, a Hollywood example, since she talks about doing acting. Actors will do a studio movie, and then they'll go do Broadway, and they'll do a little tiny movie that is poorly funded.

And that Broadway experience and the tiny movie give them joy. And they get a fair amount of joy from doing the big Hollywood blockbuster, but not quite as much. It's much more of a corporate gig. But that corporate gig buys them the time the rest of the month, the rest of the year, the rest of whatever amount of time to do those projects that give them that along the way. So it's almost like she's getting her sabbaticals of doing the cool stuff. You know, every third gig, she's doing the cool thing. But she's bringing in enough with the corporate gigs that it subsidizes that.

and she can continue that pace for a good long time. Right. You know, Amy, the other red flags that I hear, the things that worry me, one is that we were pretty deep into your voicemail before you mentioned the credit card debt. In fact, you mentioned the line of credit first before you mentioned the credit card. And the credit card necessarily is going to have a much higher interest rate and greater danger overall. So I'd like to see you, within the context of the budget that you're going to make for yourself when you mimic the experience of having a regular weekly paycheck, I'd like to see you pay off

that credit card and then chop it up. Because I think that cutting yourself off from the temptation to reach for it is a good move. And eventually, I'd like to see you cut yourself off from that line of credit as well. That's what I had to do. When I had my money issues, in the 90s, I had to live in all-cash lifestyle. Yeah. Yeah, once you remove the option, your mind figures out a way to make it work. I'd like to see you just remove those options from yourself. This will be interesting on this show especially, because do you know where the inspiration

that I had came from for that? I am not a fan of a lot of things that this person says, but I absolutely love this from their first book, Susie Orman, in her first book, talks about organizing the dollar bills inside of your wallet because too many people, and this was me, I didn't have enough respect for a dollar and what it took to earn a dollar, the work it took to earn a dollar and how I needed to respect that and how I spent that dollar. Like this, you know, Vicky Robin thing of trading time for money, fine. But when Susie talked about organizing your money and just spending time with it and going,

you know what? I'm kissing this money goodbye forever on what? on what? And when I did that exercise, it led me to, I need more respect for my cash. I could not out-earn my bad spending habits. I couldn't do it. And I'm not saying Amy has bad spending habits. I did. I had horrible spending habits. So I couldn't out-earn them. I needed more respect. So I cut myself off from credit. I got a healthy respect for money. I lived without any credit or credit cards for six years, maybe. And then I went back. And when I went back, now it was with a much, much different approach and then pay off the credit card in full, get the maximum points that I can get, get myself as much free stuff, use the hell out of these people that abused me back when I didn't understand money.

Abuse them back so that I can claw back some of this money they took from me. So I love the idea, regardless, though, of going all cash. Right. In fact, if I can request a cameo from our producer, Steve, Steve, you have lived debt-free without a credit card, without any loans at all. For how long has it been now? Hey, everybody. It's Steve, that guy who does stuff for Paula. Paula, that's right. Cut up the credit cards in 2008. We have no credit since then. Paid off the mortgage in 2015. My wife quit her toxic job in 2021. And up until last month, was basically retired. And now is working a dream job. Three minutes from our house at the local library. She loves it. And I love what I do. So, hey, no complaints. Living a cash free lifestyle, great for us. Highly recommended. So there's a lot to be said for removing the option, because once you don't have a credit card, once you don't have a line of credit, once those choices are just not available, we figure it out. Final thing that I'll say is, I love that you want to work forever, but most retirements are involuntary. most people are forced to retire earlier than they would prefer to because of a health condition.

So I absolutely love the ethos of wanting to work into your 70s, your 80s, your 90s. I share the same goal. My hope and prayer is that I remain healthy enough to work when I am 105 and that I love the work that I do and want to do that. and do it purely out of the fact that my work brings me joy. But retirement funds are a form of self-insurance against the possibility that you might not be able to work even if you want to. And I know you have dual citizenship and can get Social Security from the U.S. and a pension from Canada. but I would sit down and crunch through those numbers and add a little bit more of a defensive buffer to be sure that you have enough. Because you're still young, 54, super young.

You have time on your side right now that you won't have when you're 84. So take care of your 84-year-old self. Well, thank you, Amy, for that question. best of luck on the new budget, the debt pay off, and the joy of living your calling. We'll return to the show in just a moment. Our final question today comes from Stacey. Hi, Paula. Thanks for taking my call.

Let me share a little bit about my situation and my question. I'm a senior executive assistant in tech based in the Bay Area, California. My previous company had an IPO back in September 2021 at the high-referral. of the market, and I had exercised my shares far in advance because I knew the company had the potential to go public. I only exercised the stock at about $1.50 a share back then. At one point, it had gone all the way up to $70, and as of today, it's now at a measly $12 a share. I was lucky enough to have sold about $70,000 worth of stock back in December 2021 to pay off all of our credit card debt. I have no idea if or when the stock price will go back up to where it was a year ago.

However, I only spent about $15,000 total exercising all of my shares, so I figure I'm still winning even if I sell at this point. I now have 11,000 shares, 9,000 of which I could sell anytime, 2,000 shares, which I need to wait another six months until I could sell for tax purposes. I have wanted to buy a short-term rental for the longest time. I know I'd be great at this because it's something I'm super passionate about. I have a hospitality background, and out of all the real estate routes, this is the most intriguing to me. My question is, do you think it's a good idea to sell my shares to put a down payment on a short-term rental? My idea is that I could sell the 9,000 shares and hold on to the other 2,000 shares indefinitely until maybe someday the stock price does go back up.

I'm really eager to get started with real estate investing, and I know this is a good time for people to buy that are not scared to invest during this time. Some other facts about me. I'm married. I make $164,000 a year at my current company, and my husband makes $125,000 annually. We have zero debt. We max out our 401ks. We have about $16,000 in single stocks like Apple and Google that we dollar cost average,

and we own our own home with a comfortable mortgage. I do have stock options at my current company, so the hope is that maybe I'll get another small windfall in a few years. I'm scared I'll have major regret selling most of my shares if the stock price does go back up a huge amount. But I also know that it's out of my control. So I just wanted to ask my question to someone outside of our personal circle for a sanity check. Thanks for all that you do, Paula. I look forward to hearing from you. Stacey, thank you for that question. I I love A, your enthusiasm, and B, that you have a background in hospitality. That line jumped out at me because many people, when they enter the short-term rental market, don't have the hospitality background, so they don't have a good sense of what they're getting into. I'm saying this for the sake of everyone who's listening. I've seen many people get into the short-term rental market thinking that it will be analogous to having a rental property, when in fact, as you know, it's far more analogous to the hospitality sector.

So the fact that you know that, the fact that you have that background, the fact that you're so enthusiastic about it, I love it. And I agree, this is such a good time to acquire houses. Remember in 2020 when listings were flying off the market, a home would get listed and within 15 minutes it would be tied up, right? Back then, sure, interest rates were low, But the moment a property hit the MLS, it would instantly go into a bidding war. Realistically, the bidding war started before the property hit the MLS as a pocket listing. And so you'd have these homes that sell within a day of getting listed at 30, 40, 50 grand higher than the asking price. You know, when money was practically free, when the inflation-adjusted cost of capital was essentially zero, assets were getting leveraged up and people had license to speculate. And now that money costs money, now that money is expensive to obtain, there's less incentive for speculation.

There's less incentive or fuel for an asset bubble. One of my professors calls it asset inflation. She says we had asset inflation before we had cost of living inflation. There's less fuel for that. And there's more of a drive for true fundamental long-term investing. I love your enthusiasm for short-term rentals. And I love that you recognize that this is a very good time to buy real estate. Let's pause for a second before we go into the next step, Paula, on decision-making.

Because I think Stacey brings up a really important point, which is whenever we make a decision or we fear making a decision because history is going to prove that we made the wrong decision. And then she's going to sell these shares of this company and the stock price is going to go up. And I think all of us have had this happen to us. And you wonder, so how do I make the optimal decision? And after tons of reading and interviews and speaking with smart people in the financial planning industry, the approach that I have adopted and that I think served my clients really well was let's go into this as if we made the wrong decision.

Regret minimization. Absolutely. Whichever decision we make, we're going to make the wrong one. And how does that make us feel that we made the wrong one? And I will go back and forth between both of these and say, if this was the wrong one or if this was the wrong one, which gives us the least regret and with the most upside. And my feeling is the stock market in a one year period of time is very close to 50-50. Now, over long periods of time, it's closer to 70, 30 up, like over a 10-year time frame.

And even more so, 70, 30, if we look at 20, 30, 40 years, that we get much more consistency. But over the short run, it is a lot less consistent. So I think it is a safer bet to take that money out now and do the things she's excited about, especially since she still gets to leave some money there. I think the fact that she has to leave some money there for at least another six months gives her this mitigation of this risk that she's going to lose out on upside because she's still going to own a little bit of this position. She's still going to share in the upside just not as much. And frankly, by doing this, Paula, she has more upside, which is that she is going to be diversifying

her positions, which I also like, instead of having all this money in one risk, now she's taking two different risks with that. So I think we have to factor in all the other risk. I believe we get fixated so much on one risk, we don't back up and think about all the other risk. Let's give her another one. Real estate she was thinking about buying continues to go up and price all the time. If she doesn't buy it today, there is also the risk that the real estate she was going to buy goes up faster than the stock she was going to use to buy it with. And now, even if the stock goes up, it goes up less than the real estate and she loses out

that way. So she ends up having less money to put down on it. For me, that's what I think. But I would, Stacey, go through this, which one makes me feel less bad, assuming that I made the wrong decision. You know, the other thing, Stacey, that what we don't know is how much that short-term rental property is going to cost and therefore how much money you're going to need for a down payment and closing costs, as well as any upfront repairs that you might need to make. we don't know what those numbers are. And so it's possible that you might be able to take a split approach. You have 11,000 shares outstanding. You're eligible to sell 9,000 of those right now, but that doesn't mean you have to sell all 9,000.

If the property that you end up buying requires only selling maybe 5,000 or 6,000 shares, then essentially you can sell half of your holdings, hold the other half, and that way you get both. I was going to say you get to have your cake and eat it too, but that expression never made any sense. If you have your cake, you might as well eat it. Yeah, exactly. I mean, come on. I'm not going to sit here on the cake. Right, exactly.

Yeah, what else would you do with cake? Obviously, you have cake. You're going to eat it. Anyway, so. If only there were a device where we could look up what that really means. Wouldn't that be cool? Yes. It's called a fork.

And I use it to transport cake into my mouth. That's the device. So, Stacey, you, depending on. the cost of real estate might not have to choose. You might be able to split the difference, hedge your bets, keep some company stock, and also get this property. I'm also wondering if there might be other solutions, if there's other, you know, she listed off her assets in her income stream with income streams as nice as she and her husband have. I wonder if there's a way to maybe cash flow bankroll some of this, build up

of fund to help buy it over a short amount of time? Like, is there another answer outside of this single asset that she's looking at that she's worried about maybe giving up on? Right. I was thinking that as well because they have a combined income of $289,000. They have no debt other than a very reasonable mortgage on their primary residence. Their credit card debt is totally paid off. They max out their 401ks. So it seems as though, if not all, then perhaps some of that down payment might be able to come from old-fashioned savings, especially now that their credit card is paid off. And Stacey, if you know yourself better than anyone, so this is an introspective question, but noticing that your credit card debt was 70,000, which is quite high, is there any risk that you might go back into credit card debt again? This is a behavioral question.

Maintenance is harder than achieving a specific goal. For example, reaching a certain body weight or reaching a certain fat muscle composition is tough, but maintaining that for the long term is much harder. And similarly, paying off all your credit card debt, becoming debt free, that's tough. But maintaining that forever, much harder. So this is a know-thyself question, because I don't know what the source of your previous credit card debt was. Maybe you had a big medical emergency. That was a one-time thing. But if you think that there is a risk of it, then you might want to heed the same advice that we gave to Amy and live card-free for a little while.

Because the situation that I don't want to see you in, like right now, we're talking about choosing between. between two really good options, keeping your company stock, which has upside potential, or getting a short-term rental property, which you're really excited about. So we're talking about choosing between two assets. And anytime we're talking about which asset should I hold, it's a win either way. The question fundamentally is which is more of a win. Magnitude, yeah. Yeah, exactly. By contrast, you mentioned that you sold a bunch of stock in December 2021 to pay off credit card debt. The situation that I don't want to see you in is that you end up needing to do that again. If you do sell this company stock, you know, trade an asset for another asset. Don't trade an asset to offset a future liability that you don't have yet. and the way to make sure that that happens is to protect yourself from the risk of that liability forming, which is to say, get rid of the credit card. Stacey, I was thinking about what great advice apologist gave you, and that's much better advice than you would have gotten from Max Tailwagger right there.

Way, well, maybe marginally better. I don't know. I mean, Max Tailwagger, I bet Max Tailwagger is a pretty good financial planner. Yes. He's got very much a demeanor. him. It's excited and happy to see you. Fun to be around. It's got that bedside manner, Paula, with a good advisor needs. Thanks for throwing me a bone, Joe. Oh, but can we get a... We've already done that sound in this episode. We need a new sound. 18 times. Well, I only have a few,

and this one doesn't... Oh, that was the sound that opened the episode. It's so sad. We need different sounds throughout. We do. Yeah, yeah. I think repeating a sound in an episode is just boring. We need a fresh sound effect every time. Yes.

We got to pretend we're a high-budget podcast. Well, thanks for playing fetch with me, Paula. Anytime. I'll jump through hoops. Joe, speaking of jumping through hoops, where can people find you and the three-ring circus that you put on every week? Oh, when I'm trying to have fun, I hang out here with Paula. And when I can't, I do my own circus, to your point, at the Stacky Benjamin Show for Monday, Wednesday, and Friday.

Really a 101 guide to podcast, to the headlines, ways to think about your money. And then we get the deeper conversations over here and afford anything. Absolutely. Yeah, stacking Benjamins is fun and light. And in approximately 52 days, I will be back on it. which we're so looking forward to. I detect a note of sarcasm, but I'll let it go. I did not mean that.

I got halfway through that. I'm like, this doesn't sound as enthusiastic as I totally mean for it to sound. That's not good. Yes, yes. We wholeheartedly welcome you with open arms. Well, thank you, Joe, for being part of this show. And thanks to all of you for being part of the Afford Anything community. We mentioned a bunch of resources during this episode.

We talked about our episode with Michael Kitsis, our episode with Sophia Bera. We talked about... Investopedia list? Yes, and the Forbes article about Max Tailwagger. And you can find links to all of those by subscribing to our show notes. It's free. Sign up at afford anything.com slash show notes. Thanks again for tuning in.

You can find me on Instagram at Paula P-A-U-L-A-P-A-N-T. make sure that you hit subscribe in your favorite podcast playing app, share this episode with a friend or a family member, and please leave us a review. I want to give a shout out to a couple recent reviewers. Farmer Kisha left us a five-star, Joe. We got a five-star. T-ding! That says, Afford Anything's approach to finance highlights the importance of a balanced life. The podcast is more than a finance podcast and a welcome departure from the old

financial model of suffering on our way to fire. Oh, thank you. Thank you. I'm glad you hear that. And Kevbot said, very entertaining and educational podcast, afford anything, is amazing. Thank you. Oh, Joe, and you're in this one. What?

Terry 22 says Paula, along with Joe on the Q&A episodes, provides entertainment while giving accurate and useful financial and life info. Highly recommend this is not a boring money show. Fantastic. Thank you. Yes, thank you. Thank you for including me. The true star of the show, Joe. Absolutely.

Yeah, right. Sure. You are. You are. You hold it together for us. Stop. Keep going. Stop.

Keep going. Thank you to everyone who's left us a review. If you haven't done so yet, please do so in your favorite podcast playing app. Thank you so much. This is the Afford Anything podcast. I'm Paula Pant. I'm Joe Sal C-Hi. And we will catch you in the next episode.

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The financial media, including this show, is fundamentally part of the media. And the media is never a substitute for professional advice. That means any time you make a financial decision or a tax decision or a business decision, anytime you make any type of decision, you should be consulting with licensed credential experts, including but not limited to attorneys, tax professionals, certified financial planners or certified financial advisors, always, always, always consult with them before you make any decision. Never use anything in the financial media, and that includes this show, and that includes everything that I say and do, never use the financial media as a substitute for actual professional

advice. All right, there's your disclaimer. Have a great day. Stacey, thank you for the question. And Paula, before you get too far, I don't know about Stacey, but I heard Stacey's mom has got it going on. Oh, no. Stacey, I'm sorry for this guy who's on the show with me. I just heard that.

It was a song. No idea. Stacey, I'm so sorry. Wow. Why, that her mom is cool? You're sad that Stacey's mom is cool. Stacey sounds cool. Why can't her mom be cool, too?

Hey, Joe. Yeah. Do you have cotton in your eye? No comment. Where'd you come from, Joe? Where'd you go? Cotton eye, Joe. Why do I feel like line dancing all of a sudden?

Do you feel like line dancing? No. No? The one I always get is, hey, Joe, where you going with a gun in your hand from Jimmy Hendricks? I don't know that song. A song about Vietnam. Yeah.