Afford Anything - Ask Paula: "I Feel Like I Don't Deserve My Success. What Should I Do?"

Starting point is 00:00:00 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. It applies to your time, your energy, your focus, anything in your life. That's a scarce or limited resource, and so the questions are twofold. Number one, what's most important to you? And number two, how do you actually align your day-to-day behaviors to reflect that? Answering these two questions is a lifetime practice, and that is what this podcast is here to explore. My name is Paula Pant.

Starting point is 00:00:34 I'm the host of the Afford Anything podcast, and with me to... today is my buddy, former financial planner Joe Saul Seahai. Hey, Joe. What's up, Paula? Oh, man, you're back from Bavaria. I am. I came back even though, and I got to tell you, I have filled my quota of sausage intake for 2018, 19 and 20. Wow. Yeah. You took one form of junk food, ate all of it for the next three years, and now you can check that off the list. Yeah, but when you add sauerkraut to that whole mix, it just, yeah, it's wonderful. Hmm. AIDS with digestion. It's like the German kimchi. That's right. That's what they called it in fact. Hey, really? Did they? Oh, of course. But that would have been awesome, wouldn't it? Have some sauerkraut, Joe. We call it the German kimchi. Not at all. But it was wonderful. It's a great trip. We went down the romantic road, they call it, which of these old medieval towns between Frankfurt and Fusin down by the border. And then we went across to Salzburg and Vienna.

Starting point is 00:01:37 Vienna, if you've never been there, you've got to go because it's amazing. And I read my fill of one-star reviews for different things on TripAdvisor, because we'd always look stuff up on TripAdvisor. And we read so many bad ones, Paula, that Cheryl and I, my spouse, we started laughing about one-star reviews, like going to visit Mozart's house. One Star, turns out the dude's dead. I recently heard about this so-called composer, Wolfgang Amadeus Mozart, and I decided to stop by and say hello, turns out I had to pay admission to see his house. If I get halfway through it,

Starting point is 00:02:10 and I find out, the dude hasn't been alive in a long time. Spoiler alert, you probably don't want to go. Some of the reviews on TripAdvisor, I'll tell you, some of these people have too much time. But anyway, that's not what we're here for. We're here to answer some questions, apparently. Apparently. So if you're new to this show, every other episode, we answer questions that come from you, the community. We alternate between questions that are specifically about, real estate investing and questions that are about general personal finance, how to improve your money, your work, your life. And so today, Joe and I are answering questions about personal finance broadly. Our first question today comes from Haley. Hey, Paula. My name is Haley. I just graduated from

Starting point is 00:02:55 college with a major in computer science and a minor in graphic design. And the whole time, it was rough. I'm not going to lie. I come from a family that didn't really. have a lot to give me going into this journey of getting a college degree. And so I did it basically on my own and they gave me things here and there, but college is expensive. And I minded up getting scholarships and taking up student loans to do that. But it was really hard. And it was a lot of hard work. And some days, like, I wanted to quit. And I felt like I was never, ever going to see the benefits of what I was doing? Well, I am now at a point in my life. I graduated in May, and I was able to secure a job. A week after I started a week after graduation, making $80,000 a year. Obviously, it's like great. That's what you're

Starting point is 00:03:53 supposed to do when you graduate from college with a computer science degree. But for some reason, I don't know if it's just guilt or shame, but I feel bad. watching my friends struggle, watching my family struggle, and me not really having those struggles anymore. I find myself asking, do you really deserve this? You know, do you deserve to have a nice apartment and have nice things? And inherently, I know that I deserve it because I worked so hard. But I don't know if I do. And I don't know. I guess my question is, do you have any advice for me, any at all to help me understand what it is I'm feeling and how I can feel better about it. Thanks, Paula.

Starting point is 00:04:45 Wow, Paula. What a heartfelt call. Yeah, thank you, Haley, for asking that question. I'm very grateful that you called in. I'm very grateful that you've asked what you did and that you brought that up because this gets to the heart of what really matters. Joe and I were talking about this before we started recording. money is about more than just tweaking expense ratios and it's more than just about moving around digits on a spreadsheet. It's this. And what you have called about is the heart of the heart and soul of what we're all about.

Starting point is 00:05:17 And the thing, Haley, that you're feeling, what we call the imposter syndrome, where you aren't sure that you deserve it, it actually has a name. And a lot of people feel that. They don't just feel it with their financial situation. they feel it with their career. I felt it the first time I got on stage in front of a room full of people. Like, well, how am I qualified to speak to these people? And when I first became a financial planner, I remember telling one of my mentors saying, how am I counseling people on their money? I'm 25 years younger than these people are.

Starting point is 00:05:51 And I'm telling them how to manage their money. It's a difficult process. And Paul, I don't think that there is an easy answer. Like if we gave a trite, go get. get them answer, I don't think, number one, it wouldn't be appropriate, but also it wouldn't be truthful because it takes a long time to work through that process. Truthful is a good word. Haley, what I loved about your question is the truth in it. Because you're not hiding who you are. You're not hiding what you feel. You've worked very,

Starting point is 00:06:20 very hard. You've been through a lot. And you are now, thankfully, getting rewarded for all of the sacrifices, all of the hard work that you've done. And yet at the same time, it is also true that there are millions of people in this world, several of whom are your family and friends who have also worked very hard and also made a lot of sacrifices and who aren't seeing the reward. And they're not seeing it yet. And there's a possibility that they might not see it ever. Paula, that's why I think it's dangerous to think about whether you deserve something or not. what's happened, I think where Haley is right now, is a result of a lot of things that could have gone differently. And I don't know that it's really about deserving it as much as these are the things that I did and they led to this specific result, which is where I am.

Starting point is 00:07:13 It could have ended differently than it did. Obviously, it's great that it ended or that you're at the spot where you're at today. But I don't like thinking in terms of, do I deserve this and other people don't have it. I think that's a very good point because I can see a framework for the notion that none of us really deserve anything. I mean, if you think about why do I have a U.S. citizenship, which gives me all of the opportunities that come with it, why do I have that when I've done nothing to deserve it? Why do I have my health? I'm 34 years old and I've been in good health for my entire life. Why do I have that when I've not only done nothing to deserve it, but also actively work together?

Starting point is 00:07:57 against it in many, many times. I've actively slept too little and eaten bad foods and drank too much. I've actively damaged my own health, and yet it keeps being good. So do I deserve any of that? No. So maybe none of us deserve anything, but we have it. And so then the question becomes, what do we do with it now that we have it? It can be useful to think of any good fortune in your life, whether it's your health or your money or your relationships, as, and I know I'm contradicting myself, maybe not as something that you have, but as something that you are stewarding over for the moment. It is this temporary thing that has been granted into your hands for a temporary period of time. So long as you hold the responsibility for it, you have the responsibility for it.

Starting point is 00:08:49 What are you going to do with the good fortune that you have? Yeah, I think where Haley's at allows her to see the respect that you have to have for the dollars that you make. And it's funny because you'll see people that are making $80,000 like Haley is and money's just flowing through their fingers because they don't have the respect that Haley clearly has for that money. And I love your terminology of being a steward of the money because you can decide. Is it yours fleetingly, or are you going to be a good steward of that money and make wise choices? I actually look at it as a process that has a certain amount of gravity, but it's also that process that for me makes it exciting. The fact that you have the opportunity, which your friends hopefully will have at some point, too, that you have the opportunity to do the right thing with your money and to be a good steward with your money. And I think that one way that you may, and you didn't ask for this advice, but by being responsible with it, as you have it, you're able to then help your friends see you in a leadership capacity.

Starting point is 00:10:01 Like role modeling, yeah, you have the opportunity to role model how to responsibly handle money. You have the opportunity to invest for future generations if you chose to have kids, which you may or may not. you have the opportunity to today start building the investments, start building the foundations such that they will not have to go through as much hardship as you did when they are in college. And the big thing that Haley already understands, too, inherently by her question, is what baloney it is. And Bologna, by the way, was not the first word that came to my mind. But what baloney it is when people lowered over other people that they have more money than somebody else has, that we use that as some type of a chip that we play. And obviously, Haley, clearly, is not going to be somebody

Starting point is 00:10:51 who's in that camp. You know, Haley, if you choose to live on a fraction of your income and use the rest to build a sustainable foundation, use the rest to build a self-sustaining stream of passive income that could one day grant you time freedom and time independence, if you chose to do that, there's inherent humility that comes with that. Like, there are some inherent. Humility that comes with the practice of making 80,000 but only living on 40, if that's what you choose to do, which you may or may not. Because it is a way of saying, both to the world and to yourself, hey, I do not tie my sense of self-worth to the things that this $80,000 can buy me. I don't tie my inherent sense of self-worth to having nicely manicured fingernails and a car that's newer and all of the other. Stuff.

Starting point is 00:11:46 Yeah, the stuff. I believe that wasting money is disrespectful to money. If you're throwing it away, you're showing money that you don't value it. But on the other hand, if you save it, if you invest it, if you find ways that you can use it to benefit the lives of others in ways that are sustainable and not enabling, in ways that are empowering but not enabling. If you do that, then that's a way of honoring money. And oftentimes when you honor money, you end up being able to steward even more of it. I think a lot of what it comes down to is integrity. Are you handling money with integrity or not?

Starting point is 00:12:31 And Haley, it sounds to me as though you are. Based on the fact that you ask that question, that's an indicator that you hopefully probably are, and that's something that you can continue to check in with yourself about. through the coming months and years, because you're going to get raises. $80,000 is the floor. There will be a time in your life, most likely, barring any sort of catastrophe. There will be a time in your life when you make $100,000, $120,000, $150,000. But there will also possibly be times in your life when you get laid off and you're unemployed and you struggle to find your next job, or you have some major health crisis, or you have a spouse or a child.

Starting point is 00:13:12 child with some major health crisis, there will be massive ups and downs throughout your life. And so handling money in a way that is focused on the long term, that establishes a foundation that allows money itself to become self-sustaining and a renewable resource. And bottom line, that is fueled with integrity. That's the way that you rise to the challenge of what you've been given. Yeah, totally agree. Joe, how have you, you mentioned imposter syndrome in the beginning. Do you have any tips for how to deal with imposter syndrome? It is surreal. And the way I counter it myself is making sure that it's a human connection that I have with any of those people. And I also found that in my public speaking, just expressing the humanity makes it more tolerable for me. So telling people kind of what Haley did today,

Starting point is 00:14:09 telling people when I'm nervous on stage makes the whole audience kind of get behind me and feel the same nerves I'm feeling. And it becomes a much more comfortable room then if I tell them, hey, this is how I feel about it. So expressing those feelings is one thing. The second thing, though, is also realizing what you did to get to the point where you're at. Once again, it's not that you deserve it, but walking through the training that you did that got you to the place where you are. and when you walk through that training and then you realize when you look at the other people, for me it was other people on stage or other people doing what I do.

Starting point is 00:14:47 I remember when I first became a financial planner. I told that story earlier. I remember my mentor walking me through that saying, listen, just with the licensing processes that you went through and the training classes you went through, you already know so many things. Even though you haven't worked with clients yet, you already know so many things that the average person doesn't know, which is true. I knew everything from how an IPO happens to why a stock split happens. I knew how to read stock charts. I knew how to the fundamentals about those things. I knew about insurances. I knew about how insurances get monitored by the state. Like I knew all the rules and the facts. And that's what people hire you for. And it said, Joe, it's, it's time to just

Starting point is 00:15:31 start using that knowledge now. Now, now make sure that you're always doing what's in your client's best interest and bring that knowledge to bear on their situation. And that's specifically what they're hiring you to do. So are they hiring you to do what you know? And my answer was yes. Well, then okay. Then you're not a posture, you know? So I think Haley may be going back through her degree and the things that she knows from her degree. And then looking at the Bureau of Labor Statistics or glass door or any of the other places and seeing what other people get paid that are doing the same thing she's doing and focusing more on that can help lead her through the imposter syndrome. Joe, I'm glad you brought that up because that's a point that I hadn't previously considered.

Starting point is 00:16:15 Haley, there are two aspects of what you are now encountering. There's your pay, which is fantastic. There's also the fact that you occupy a role, a particular role within a particular company that is well regarded and that gives you some degree of influence and the core. corresponding power that comes with that, right? If you are earning $80,000 at a company, that means that you at least to some extent have the ability to use your position in that company, use your role in that company in a way that is in the best interests of the customers, the clients, your fellow co-workers, you have an environment that you are working within

Starting point is 00:17:04 where you have a greater degree of authority to be able to make that a really good environment for the people around you. So beyond just what you're getting paid, you've been trusted with a high position in a company and you can improve a lot of people's lives by maximizing your opportunities within that. So Haley, thank you for asking that question.

Starting point is 00:17:30 As I said, I'm glad that you're thinking about this and I'm glad that you connect with the heart and soul of money, the heart and soul of what this is all about. Joe, let's go to the next question. But before we do, Joe, do you enjoy reading? I love reading. Do you have enough time to read? I never, I never, ever, ever have enough time to read.

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Starting point is 00:18:50 That's Blinkist spelled B-L-I-N-K-I-S-T, Blinkist.com slash Paula to start your free trial or get three months off your yearly plan. Blinkist.com slash Paula. As creatives, we're in the business of turning our ideas into value for our customers, but we need time to cultivate fresh ideas. And that's where our sponsor, FreshBooks, can help. FreshBooks makes cloud accounting software for creative professionals. It's so straightforward to use that you as an entrepreneur will save hours every week and have more time to let your creativity flourish.

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Starting point is 00:19:56 And when they ask, how did you hear about us? Enter afford anything. Again, that's a 30-day free trial, no credit card required, freshbooks.com slash Paula. Our next question comes from Chris. Hi, Paula. My name is Chris from Virginia. I'm 45, and my plan is to retire early, not real early, but early, at 57. To keep number straight, I'm hoping to have a million dollars in a 401k and a million dollars in a taxable account with stock.

Starting point is 00:20:38 My thought was to at 57, since I won't have any income, to convert the 401k over to an IRA and then start converting that over to a Roth at the max, keeping me in a 12% tax bracket, which is roughly 77,000, potentially more, and live off of the stock, which will be a 15% tax. and that shouldn't go against my adjusted gross income because it's an asset. Then at 67, I would start taking full retirement, Social Security, and then hopefully by age 70, I would have very little to none in the 401k, and most of that money would be in the Roth. What's your thoughts? Am I overthinking this? Love your show.

Starting point is 00:21:26 Thanks a lot. Chris, thanks for the question. And this is something that most people don't think about. So I'm so happy that Chris called in with this question. Because I'll tell you, Paula, a lot of people spend a lot of time talking about asset allocation or the correct diversification of investments. But they don't spend nearly enough time thinking about the taxability of the portfolio. And I think it's wonderful that with 12 years to go, Chris is already looking at this thing that Stephen Covey from 7.5. habits of highly affected people says is looking at the other end of the stick. When you put money into

Starting point is 00:22:05 something like a 401k or a Roth IRA, at some point, you've got to pull the money out. And when you pull the money out, Chris is already thinking about the tax consequences of pulling that money out. So when he first said he's going to retire at 57 and move the money to an IRA, I initially went, no, no, no, no, no, Chris, that's all wrong. You don't want to do that because you can pull out of 401k at 57 without a penalty in IRA. You got to wait till 59.5 or you got to use some specific rules that we've gone through on other podcast on other episodes. But then he immediately said, well, I'm going to take money out of this other bucket.

Starting point is 00:22:45 And that's why I have money in the taxable brokerage so that I can do that. And then he talks about moving the money to a Roth IRA and paying attention to tax brackets. So here's the cool thing. Chris is going to have his money in a. a spot from the time that he starts to the time that he finishes, he's going to be converting money over to a spot where he's not worried about having to pull money out later in life according to specific rules. Right now, by the way, it's 70 and a half. And in Congress, there's been some talk about making that move, extending that to a later date. And by the way,

Starting point is 00:23:20 that might come up sooner rather than later. We might see that 70 and a half rule when you have to take money out of a IRA called Requirementum Distributions. We might see that change. even as early as in the next few weeks, which is pretty exciting. So stay tuned. So are they talking about moving it to a later age? Like RMDs would not be due until you're 71, 72? Yeah, it might be 75. Whoa.

Starting point is 00:23:42 Yeah, yeah. So we may see a later date. So stay tuned, pay attention. A lot of baloney goes on in Washington all the time, and the press pays a lot of attention to that. This is the one thing in Washington going on that a lot of us are kind of excited about. But he's paying attention to tax brackets, Paula, because when you convert money from an IRA to a Roth, you're going to have to pay the tax on that this year.

Starting point is 00:24:04 So he only wants to convert up to the tax bracket line every year, which is brilliant. Chris, I can't find anything wrong with what you're doing. That whole discussion that I just had about what you're doing is to kind of explain to everybody who's listening why this is so important. Because maybe even when people listen to Chris's question, they're like, maybe I think he is overthinking it. Chris even thinks he might be overthinking it. I think Chris is doing the exact right thing by thinking heavily about the taxification of these investments. So high five, Chris. Nice job. Yeah, absolutely. Chris, what stands out to me about your question also, as you said, Joe, there are so many people who ask about contributions that they should make to a retirement account. And there are so many people

Starting point is 00:24:48 who ask about how to manage money once it's inside of that account. But very few people ask about how to strategically withdraw that money. So if you compare it to something like frequent flyer miles, there's a lot of talk about how to accumulate frequent flyer miles. There's very little talk about how to redeem those miles. I feel like that same thing happens with the retirement accounts. Lots of talk about how to make contributions, lots of talk about how to asset allocate those contributions. Almost nobody talks about how to intelligently withdraw in a tax efficient manner. And Chris, you have done that. You've thought about that very carefully. and you've come up with a plan that sounds sound. It sounds solid. So congratulations for what appears to be doing it right.

Starting point is 00:25:35 Yep, fantastic work. Love seeing this. And by the way, when it comes to Freakum Flyer Miles, I totally mess those up at first. You messed up the redemption part or the accumulation part? Yeah, I was spending my miles on silly trips when I learned later on that there's a whole art to redeeming those. So totally, yeah, great analogy. Are there any resources that you recommend for the learning the art of redemption? Just as you know, the standard ones, the points guy. Our friends over at Club Thrifty talk a lot about points redemption. Lee at Bald Thoughts talks a lot about travel and points redemption. But I generally lead with the points guy. Awesome.

Starting point is 00:26:16 And we will link to all of those in the show notes. Points Redemption is something that I've wanted to learn quite a bit more about. I'm very good at the accumulation phase. I have about half a million frequent flyer miles right now between Advantage and Mileage Plus. My saving tendencies bleeds through with my treatment of miles. I don't like spending them. So I tend to just accumulate them in my account and then never fly with them. And that's not totally true.

Starting point is 00:26:42 I will fly with them on international trips. I don't use them on domestic trips. But I would like to get better at redemption because there's an art to it and there's a strategy to it, just as there is with retirement planning. All right. Well, thank you so much, Chris, for asking that question. Our next question comes from Rose. Hi, Paula and Joe. My name is Rose. Thank you so much for the podcast and blog. I listen every week and I'm always learning new things from you. My question is about robo advisors. My goal is financial independence in about five years. After maxing out my 401k, I make automatic monthly deposits into a robo-advised fund, specifically a Schwab Intelligent portfolio. I like that it rebalances and has tax lots harvesting because I'm in a high tax bracket. To me, it feels somewhat safer than putting everything in BTSAX because it's diversified, but I don't fully understand all of the different funds that I'm invested in through the Robo Advisor.

Starting point is 00:27:39 Should I keep putting money into the Robo Advisor or should I switch to VTSAX? Does your answer change at all with ongoing economic uncertainty and the benefits of being balanced across stocks and bonds? Thank you. Rose, that is an awesome question. Now, first of all, as background for everybody who's listening, so Schwab Intelligent Portfolios, as you mentioned, is an example of a robo advisor. And fundamentally, what a robo advisor does is they first ask you questions that give them an idea of your age and risk tolerance and timeline to retirement. It gives them an idea of what track you should be on. And then a robo advisor will periodically rebalance your portfolio for.

Starting point is 00:28:20 you in a way that keeps your assets allocated and in a way, ideally, that is tax efficient, and that is that tax loss harvesting that you are referring to. Now, with Schwab Intelligent portfolios, what's great about specifically them, as well as several others, like Betterment, is that they don't charge excessive fees. And that's the one thing that you would want to look for. That's one big red flag that you would want to look for in any Robo Advisor. The Schwab Robo Advisor does not charge advisory fees, no commissions, no account service fees, and they put you into low-cost ETFs because really there's kind of two questions that you want to ask. Number one, what are the underlying funds that I'm going to be invested in? And are those low-fee funds? And number two,

Starting point is 00:29:06 how large are the fees on top of that? So a robo advisor like Betterment, for example, puts you in Vanguard funds. So those underlying funds are awesome. But then Betterman also charges a service fee on top of that. And so when people call in and they say, hey, should I be in betterment, we know the underlying funds are good. So then the question just becomes, is it worth paying that additional fee? Yes or no. And with Schwab, same deal. We know that the underlying funds are good because Schwab puts you in low-cost ETFs. Those are the underlying funds within those. So we know that those are broadly diversified low-fee funds. And so then the question becomes, is it worth paying the additional fees on top of that to, have the Robo Advisory Service. And in Schwab's case specifically, because those fees are relatively low, I wouldn't tell people to run into them, but I wouldn't tell people to run out of them either. Yeah. My feeling is almost like we talked about on the last question with Chris is to begin with the end of mind. And the thing that I worried about most when I was a financial planner with my clients was not the market or the potential downturn of the market. It was you.

Starting point is 00:30:18 and how you'd react to a downturn in the market. And certainly a more diversified portfolio, like you'd see in a robo-advisor, will buoy the market. But over a longer period of time, your sticking with stock approach is an approach that will garner higher returns. But you may see more volatility than you will in some of these more diversified portfolios. So for me, it's about when you need the money, and as long as it's still a long time from now when the market goes down, holding in a single

Starting point is 00:30:55 mutual fund, or a single, in this case a single exchange traded fund, is completely an appropriate place to be. But if you're somebody who really worries about market fluctuation and you're not going to be able to sleep at night, then a more diversified approach makes a lot of sense. Just to be clear, you said completely an appropriate place to be? Yeah. I realized even after I said that, I'm like, it almost sounded like, I said inappropriate. Yeah, that's what I thought you said, but then contextually it didn't make sense. It can be a very appropriate place to be. Now, let me also talk about one other thing, which is the numbers get bigger, the portfolio I think should be fanned out more just because

Starting point is 00:31:34 the chance that you will see the absolute numbers go down much more becomes really, really worrisome. And I'll give you an example. If the market goes down 30%, and you know, you think about 2008. We certainly saw worse than that. We also saw worse than that in 2000 to 2002. So a 30% downturn, something that could definitely happen. If you've saved $10,000,

Starting point is 00:32:01 that means you lose $3,000. And in absolute terms, Paula, okay, you know, I think I can hang in there. I lost $3,000. I'm not feeling great about that. I hate that. But hey, I get long-term investing. When that number

Starting point is 00:32:16 becomes a million and you lost $300,000. The difference emotionally that I saw from investors was substantial. And it's because the absolute number is so big. You can tell people all day that hanging out in VTSAX is a great place to be and that long term you should be there. I'll tell you, you're going to continually say to yourself, but I just lost $300,000. Things get tough when you frame it in the context of a house. Right. Yes. Yes. So I... Of course, a house is I buy are 30,000. But still losing 30,000. I mean, think about the pit in your stomach there. So, but as the numbers get bigger, that's why I think a more appropriate diversified portfolio, based on your goals, much more than just a robo advisor makes sense to me. One thing that I do want to note, so you mentioned tax loss harvesting for the Robo

Starting point is 00:33:17 Advisor, the Schwab Intelligent Portfolio Robo Advisor. That tax loss harvesting within Schwab is only available to taxable portfolios of $50,000 or more. So I just want to make that little note there for anybody who's thinking about them. There's also specifically, I mean, you talked about the fees with Schwab. There's one worry that I've always had with Schwab's account that I have never frankly gotten a great answer about. That's the high percentage of cash they have. So you talk about fees. This is a typical Paul and Joe episode. Paula talks about fees. I'll talk about diversification. I don't get why they keep so much cash in those portfolios for any other reason except based on historical agreements. I think they can take that money and then loan it to other people. That's how

Starting point is 00:34:02 they can keep their fees low is by keeping a high cash percentage that they can then use in other ways. I really don't get it. So your concern is that the asset allocation would be thrown off a little bit because they have too high of a cash allocation. Yeah. I mean, why do we keep these big percentages in cash? Yeah, it's a fair question. I mean, that's the tradeoff with Robo advisors is on one hand, they're doing the work for you of rebalancing, and that's the benefit. But on the other hand, they're making the decisions for you, and that's also the drawback.

Starting point is 00:34:34 It's two sides of the same coin. The feature is also the bug. The fact that they make decisions on your behalf frees you from making those decisions, but also binds you to the decisions that they make. Yeah, I'm looking right now on the Schwab website as you're talking, Paula, cash at 9%. I put together a lot of portfolios over 16 years for lots and lots of families. On a piece of the portfolio that's intended for investment, not intended as an emergency. fund, I've never recommended 9% of your money be invested in cash. Yeah, that is high. I guess it might make sense if it were more of a barbell allocation, 9% in cash and then 91% in equities. But yeah, that's high. And I get the rest of it. I mean, 21% fixed income, 5% commodities, 65% stock. I get all that. I understand all that. And by the way, when it says stocks, 5% of that stock is in reits in real estate investment trust, which are... That's interesting that that's not filed as commodities.

Starting point is 00:35:38 Yeah, collected real estate. So it might be because it's publicly traded reits and they trade like stocks. So technically then they probably have it as a stock. But still looking at that, the rest of this portfolio makes a lot of sense to me. Yeah, so that's what you'd want to consider. I mean, broadly speaking, the question really is to robo advisor or not to robo advisor. And so that is what you would want to consider. That is the question. Right. How come you didn't say that?

Starting point is 00:36:10 I'm sure that was where you were going. And so that is what you would want to consider. You know, I understand that you don't want an all VTSAX portfolio, but do you want the portfolio that the robo advisor will put you in? Or do you want to assemble your own? And there's no right or wrong to that. I mean, there is validity to both choices. Thank you, Rose, for asking you. that question. We'll come back to this episode after this word from our sponsors. By now you've heard

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Starting point is 00:39:17 Our next question comes from Juan. Hey, Paula. I'm 24 years old and I live in New York City. I have just graduated from engineering school here in the city and found a full-time position earning 75K a year for taxes. There is possibility of overtime so I might be able to make another 5 to 10 more a year. I have $15,000 saved in cold hard cash. I have $6,000 in a Robin Hood account, which is doing well, and I have $5,000 in a wealthfront account. I am planning on maxing out my Roth RIA, so the $5,500 a year starting now, and I have maybe

Starting point is 00:40:07 2K in there already. I also plan on participating in the employer's contribution for the 401 traditional, which I think is maybe 4% match. So I plan on doing that. But my question is, I don't know where exactly I should put the money that I'm going to be saving to get the best out of it, to get at least that 2% to beat inflation and hopefully a little more in the next two to five years. 75 after taxes is probably about 55K.

Starting point is 00:40:37 And I plan on saving around 50% of that. So I plan on saving around maybe 30K a year for the next three to five years. I live by myself, but my expenses are not high. And I am very good with budgeting and everything is pretty much right on track. So I just want to get your suggestions or any advice about where to put my money or what to do with it. Starting now. I am going to open up a savings account, an online savings account, which I know I can get at least 2%. But I want to see if there's anything else that you can suggest.

Starting point is 00:41:12 All right. Thanks, Paula. Juan, thanks for asking that question. Now, first of all, congratulations on being 24 years old and making $75,000 a year, plus possibly an extra up to up to an extra 10,000 in overtime. So at the age of 24, you might be making $85,000 per year. That's incredible. So you're starting with a super high salary. You're on a great path. And the fact that you plan on saving 50% of that is, I mean, you are on the fast track of financial independence with both. your high income and your high savings rate, that's the formula to do it. And the fact that you have, at the age of 24, you've got $28,000 between cash, Robin Hood, Wealthfront and your Roth IRA. You've got $28,000 already saved. You're ahead of schedule and sprinting fast. So congrats on the position that you're already in. Yeah, great work. To answer your question, if you're looking simply to beat inflation, there's a lot of opportunity for that. So I suppose,

Starting point is 00:42:14 I'm a little bit confused by your question because if you were to go into a broad market index fund, such as, well, such as VTSAX or such as a Vanguard or Schwab total market index fund, then over a long-term aggregate average, you are, historically speaking, likely to receive somewhere between 7 to 9% returns, which is significantly greater than the 2% that you asked about. So I don't know if I'm missing some component of your question. I guess fundamentally what I'm saying is beating 2% should be so easy to do that I'm not quite sure what the objections are around the many opportunities there are to do that. And you don't just have to go into a total stock market index fund. You could buy a REIT. You could buy a diversified portfolio of various types of stocks, some large cap, midcap, small cap, value, growth, some, international, some domestic, any of those approaches would over the long term be historically likely to yield significantly more than inflation. Yeah, the thing that I'm missing here, Paula,

Starting point is 00:43:25 is what the time frame is for the goals. And I know that at 24, of course, having a set timeframe for all the goals, I get that that's not going to be the case. But what I didn't hear is five years from now, I want to buy a house. So I want to have some money in this house fund. at some point the market will go down and when that happens any goal within two to five years there's a good chance that you could lose money and not have the money available when you need it so we talked earlier about beginning with the end in mind i would start off i like drawing one as a stick figure like on the left side of a graph and then like a line out with different dates and then put times that you're going to need some of these buckets of money maybe it is to buy a house maybe it is to have

Starting point is 00:44:09 financial independence and not have to work? What are those dates? And then historically, there's types of investments that have done best during those time frame. And I'll give you an example of what I'm talking about. Over 10 to 15 years, stocks and real estate have been the two asset classes that more reliably than any other have kicked inflation's butt over those amounts. So go with stocks or real estate. If it's a five-year goal, stocks and real estate, estate both have some big issues around that shorter time frame. With real estate, it's more that if you're buying physical property, your ability to sell it in a quick time. We don't know what the market's going to be in the future. We also know that there's some transaction costs there that you're going to have to

Starting point is 00:44:57 overcome. Those can be a problem. With stocks, they're so volatile that we don't know if they'll be up or down during that time. So going with something like a regular bond fund for the five-year time frame, You can be a little more aggressive on the bond side for five years. For two to three years out, you know, you could go with treasuries or Ginny Mays, something that's more backed by the U.S. government where you know that there's a great, great chance that you're going to at least keep up with inflation. Right. Yeah, and that's the part that kind of confuses me about the question, right?

Starting point is 00:45:29 I think the component that we're missing, as you said, to your point, are the goals. Because when he talks about saving 50% of his income over the time span, of five years, that sounds to me like a formula for reaching financial independence. I mean, 50% of your income for 10 years will certainly do it, assuming that you want to continue living at that same standard. 50% of your income over 10 years is the boilerplate, rubber-stamped formula for reaching early retirement, right? But is that his goal? That's the part that I'm not sure about it. It sure sounds like it based on what he's saying. It does. But you're correct in that he's 24 years old. Maybe he does want to buy a house or maybe he doesn't. He lives in New York City. Maybe he wants to have a big pocket of money and then move to the Bahamas and live on a beach. Who knows?

Starting point is 00:46:22 But that definitely, Paul, that definitely is the answer. Once he gives us that piece of information, then we know what the end goal is. We know how far away that is. And then we look at which investments historically have been the best place to be. And by the way, for everybody listening, that's the cool thing is that people when they're just starting out investing, they're like, what should I invest in? Because there's so many different things. You know, I got to know about all these different large companies, midsize companies, small companies, value stocks, growth stocks, a blend. annuities, bonds, all the different types of bonds that are out there.

Starting point is 00:46:57 Real estate, a real estate investment trust. There's all these different ways to invest money, which one's best? And if you look at the whole field of investments, you'll go crazy. Instead, if you begin with the goal and you say, okay, my goal's 15 years away, you eliminate about 70% of the choices that are out there. And then you can get really good at the 30% that, left. And then you don't have to worry about the whole field of investments, only the ones that are appropriate. Right. Exactly. And it is important to note that it's true, the stock market is not a

Starting point is 00:47:33 high-yield savings account. And so... Hashtag spoiler when you say that. I know, right? So I guess part of the question is, in terms of what this money is going to be used for, because he talks about up to a five-year time frame, are we talking about some modified form of early retirement in which his portfolio balance would be maybe not enough to be fully financially independent, but enough that at least he could quit his job and go backpack around South America while doing freelance work. If we're talking about something like that, then he needs a portfolio that is sufficient enough that it gives him runway, but he does not need to draw down that entire portfolio in one big lump sum. He just needs it to be there as a safety net. And that is a very different context than I want this money to buy a house, in which case you do have to pull out all of that money as one big lump sum to make a giant down payment. And that's going to happen on one particular day or in one particular month. So that's part of kind of where the question marks arise. Even when we talk about my goal is X number of years away, when you reach that X year, do you need the money in a lump sum or do you need to draw it down gradually over time? Or do you just need it to sit there as a safety net for your psychological peace of mind, but not actually tap it?

Starting point is 00:48:54 Kind of like your frequent flyer miles. Yeah, exactly. My half a million frequent flyer miles that just sit around doing nothing. Helping with your peace of mind. I could totally fly to Cape Town tomorrow if I wanted to. What are we doing? Well, it's winter there now. I suppose I'll wait until summer.

Starting point is 00:49:12 I like chasing endless summer. Right. The other thing that I would say is tips, Treasury, Inflation Protected Security. these, Juan, if your goal is to beat inflation, that's in the name. What's great about Treasury Inflation Protected Securities is that they are designed to beat both inflation and deflation. So when you put money into tips, when that investment matures, you will receive back your initial principle adjusted for inflation.

Starting point is 00:49:43 And if we are in a deflationary environment, you will still receive back your initial principle. So you're protected from both outcomes. If that's your goal, if your goal is to keep pace with inflation or maybe slightly better, you could put some of this money into tips and then some of this money into something that is marginally riskier, such as Jenny Mace. Yeah. Thank you so much for asking that question. And now I want to turn this over to a listener success story. And this success story comes from Valerie. Check it out. Hello. Hey, Paula. This is Valerie from Alance at Georgia. I just had to call or send a message in. I came across your blog yesterday, literally, from a real estate Bigger Pockets website. And I went to the website.

Starting point is 00:50:34 I started reading. I signed up. And everything that you write and said about being able to afford anything or the lifestyle that you want, I've heard it a thousand times. But for whatever reason it clicked and I was so it was so funny I was on Instagram um the other day and I was sending these people travel and we travel my husband and I make a very good living we make over 200,000 after taxes and but I still felt like we needed more I'm like more more more so after I read your blog I went to my bank account and you know I did some numbers and I was like basically I'm missing $100,000. And I told my husband, I was like, you know, I said, where is our money going? Where does our money go? And I sat down, so from January until July, I sat down and went through

Starting point is 00:51:27 every line of my bank account that wasn't like savings or, you know, wasn't a bill that wasn't accounted for. And could you believe that we have spent $41,049 in the span of seven months on miscellaneous items. One thing I realized, I was like, well, there's my dream vacation. There's my husband's new car. He wanted to get, well, a 1974 Mustang that he has that he wanted to get repaired. There's that. That's my remodel and my home.

Starting point is 00:51:59 And it didn't seem that big because, why? Because we're spending $100 here, $100 there. And I just cannot believe it. I cannot believe it. and I was so shocked that I had spent that much money in that short amount of time. So what I did, I did an absolutely overhaul of our budget and just realized that the life I want I obviously can have without having to do more, just readjust what it is that I'm doing. And I just want to say thank you.

Starting point is 00:52:31 I'm so happy I stumbled upon your blog and I look forward to your emails. Thank you. Bye-bye. Awesome. Wait till she hears the podcast now. Yes, I am so excited for you. Congratulations on opening your eyes, on waking up, on seeing where you were and taking charge of where you're going.

Starting point is 00:52:51 I am so happy for you. That is absolutely fantastic. Yeah. Great success. And now, now I think the key to go to the next step. It's funny. I'm like, hey, high five. Okay, now next step.

Starting point is 00:53:03 Joe, slow down and celebrate. I know. But now it's about communication, right? because the thing that I always worry about, especially with a great success story like this, is obviously everybody in the family's got to be on the same page. She didn't spend $40,000 extra all by herself. Maybe she did. That'd be a great time.

Starting point is 00:53:23 But Cheryl and I have weekly money meetings, and it's 15 minutes. Usually involves a glass of wine, very quick. But I'll take that meeting over a spreadsheet any stinking day. Because that communication that we get in more of a strong. structure environment. All we do is we walk through the Clarity Money app, which is the app that we use to manage our money. We look through our expenses on the app and talk about what we spent money on. We talk about where we're going to spend money on the next week. We go over big things that are coming up in the next few months. Like when we took this trip, I just got back from to Europe.

Starting point is 00:53:59 We set aside a fund where we saved money for that trip specifically. So we'd make sure that we just had the money set aside for the trip that we didn't have to interrupt anything else that we were doing. But that communication keeps that high five we're already giving her and I think takes it even to the next level. Absolutely. The other thing is it can be hard to save money if there's not a goal attached to it. So Valerie, you mentioned a couple of goals that you have, that you and your husband have. Write them down and hang them up somewhere. Make those visual. Remind yourself of them. Or if you don't want to do that, if you want something a little bit more beautiful, print out a picture of what that would actually look like. Just search online, get some kind of a picture, print that up, hang it up.

Starting point is 00:54:43 When I was saving up to go travel, I hung a big world map in my room. Every night, the last thing I saw before I fell asleep and the first thing I saw in the morning when I woke up was that world map. And it just motivated me to keep saving so that I could travel because I would look at that map and I would think, Look at how big the world is. I want to go see it. That's awesome. I was about to tell a similar story. I would often advocate that clients put a photo.

Starting point is 00:55:13 I love the imagery, Paula, of the map. I love just seeing it because when our eyes see it, then the brain believes it. I would always tell people to put it on the bathroom mirror because it was you're brushing your teeth when you get out of bed in the morning. And then as you're brushing your teeth before you go to bed at night, you see that the first thing and the last thing. So very similar. That's funny. That's awesome. Thank you, Valerie, for calling in with that story. I want to invite anyone else who's listening to please call in Affordanything.com slash voicemail and leave us a voicemail with your success story.

Starting point is 00:55:47 Tell us about where you are, where you're going, what you're doing, what your goals are. Please, afford anything.com slash voicemail. Let us know what's happening in your life. And we will play it on the air. share it with the whole community. Let's all celebrate the wins and the journey along the way. It's not just the destination. It's the journey too.

Starting point is 00:56:07 So let's celebrate it all. Thank you so much, Valerie, for calling in with that. Well, Joe, I think that is our show for today. Wow, I can't believe it's over already. It goes by so fast. It's so fun. Joe, where can listeners find you if they want to know more about you? Well, the cool thing is, Paula, as you know, because you'll be with us in Orlando,

Starting point is 00:56:26 they can find us in three cities because we're taking the Stacky Benjamin show on a three city live tour. Woo! Yes. So you'll be with us in Orlando, Florida on September 25th at the improv. Paul and I will be playing the improv. How well else is that? I never thought I'd say that out loud.

Starting point is 00:56:42 Nice. And then we'll be two weeks later in Kansas City playing the improv there. That's on October 9th. And then October 24th will be in Detroit with a live show at the Go Comedy Improv Theater in fabulous Furndale, Michigan, just north of Detroit. So tickets are at stackybedjimins.com forward slash tour. I hope Paula, a bunch of people come out and say hi and have some fun talking money with us. Yeah.

Starting point is 00:57:08 When you and I play the improv in Orlando, I'm going to see if my parents can come to that, actually. Oh, that's awesome. Yeah, I'm going to finally, I don't think they totally understand what I do. They're 77 years old. So I don't think they, I mean, they listen. Do they listen to my podcast? Oh, I taught my dad how to use Stitcher. Yeah?

Starting point is 00:57:28 Yeah. So I think they're starting to get the hang of what I do. But I'd like for them to see it in person. I think that'll make it a little bit more real. I'm going to try to bring them to FinCon. I'm going to bring them to Orlando. Oh, that is great. Yeah.

Starting point is 00:57:40 Well, that'll be a great time. Paula specifically is going to be doing this segment of the show with us. We're going to have people in the audience to ask questions. And Paula and our mutual friend, our mutual friend, Ellie Kay, from the Money Millhouse, is also going to help us answer questions. So that'll be a fun part of the show. Awesome. Well, I'm excited, Joe. And Joe, guess what I'm going to wear when I am in Orlando? Your stacky Benjamin swag?

Starting point is 00:58:05 No, even better. I am going to wear my afford anything t-shirts. They don't actually say afford anything. Well, one of them, there's three shirts. One of them says, you can do anything when you stop trying to do everything. Oh, that's good. One of them says, take radical responsibility. And then one of them says eat, sleep, invest, repeat. And guess what, Joe? What? The sale of these shirts, 100% of the profits from the sale of these shirts, goes to benefit charity water, which is an organization that brings clean drinking water to communities around the world where people don't have it, where people are drinking dirty water and kids are getting sick from dirty water. Yes, how much we have raised so far? $6. $3,778. Have you really? Yes. That has not auction. come from t-shirt sales, the vast majority of that has come from people who have heard about

Starting point is 00:59:02 our fundraising campaign on this podcast and have made a direct donation. So if you want to buy a shirt, afford anything.com slash store is where you can do that. And if you want to bypass that and make a direct donation as part of the Afford Anything community to the Afford Anything fundraising campaign, you can do that if you go to afford anything.com slash water. That will redirect you to a page on the charity water website where you can make that happen. My goal was to raise between $10,000 to $12,000 by the end of this year. I don't know if we're going to get there because the end of this year is coming up in four months and we're only a third of the way there. But never say never. Wow. Yeah. 3,000. Can you believe $3,778? Doesn't it make just your soul feel good? Yeah, it does. That's a fabulous thing. Absolutely. So again, afford anything.com slash store where you can pick up a shirt. I'll be wearing those shirts. Orlando, you'll be able to check it out there or check it out online. Thank you so much for tuning in. If you have a question that you want aired on this podcast, Affordanything.com slash voicemail is the place to go to ask your question. My name is Paula Pant. I am the host of the Afford Anything

Starting point is 01:00:13 podcast. If you enjoy today's show, please hit subscribe in your favorite podcast player so that you won't miss any upcoming episodes. Thanks for tuning in and I will catch you next week. Yeah, absolutely. Chris, what stands out to me about your question also, as you said, Joe, is to your point, Joe. People wondering why we're cracking that joke. That's specifically for listener John. We even got Paula doing it now. So to your point, Joe, I totally forgot what I was going to say next.

Afford Anything - Ask Paula: "I Feel Like I Don't Deserve My Success. What Should I Do?"

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