Afford Anything - Ask Paula - Retirement Savings in Your 50's, Starting a Side Hustle, Buying Health Insurance, Home Warranties, and More

Episode Date: November 7, 2016

#50: Mark, a 55-year-old listener, has no savings. He's been listening to personal finance podcasts. He recently read Tony Robbins' Money: Master the Game. He called this podcast to tell us that he's feeling overwhelmed by the scope of what's ahead of him. Mark doesn't know how to apply this information -- and he's afraid of needing to work in fast food when he's 80 years old. What can he do? We tackle his question first on today's Ask Paula episode. Next, we take a call from Adalia. Adalia, another podcast listener, wants to earn extra money on the side. She's intrigued by the idea of becoming a virtual assistant -- a side hustle that allows her to work from home, setting her own hours. How should she start? Where can she find clients? Tyler, a podcast listener and fellow FinConner, is carrying $20,000 in credit card debt, with interest rates ranging from 11% - 23%. He also runs a side business on Amazon, making  43-50% returns for every dollar he puts in. Should he focus on reinvesting money back into his lucrative business, or should he pay his credit card debt off? Podcast listener Carlos just purchased his first rental property, and wants to know: are home warranties are worth the money? Todd, another listener, is curious to know if he and his wife should go without health insurance as the cost of premiums increase. He has an HSA, emergency fund, makes a good living, is in good health, and saves everything he can. Could going without insurance really save him money? Our last question comes from listener Lynsey, who has her sights set on financial independence. She works a second job during the cold Minnesota winters, which pays $25/hr. However, she wonders if she should use that time to invest in her future earning potential, by starting a business or getting an advanced degree. Should she go after the immediate cash, or focus on her future? All of these questions are answered in this episode of Ask Paula! Enjoy! -- Paula _____________________ I also want to take a moment to thank the sponsors for this episode. First, huge thanks to Nerdwallet. Their new app lets you have one-on-one conversations with financial advisors. You can chat about anything related to money, such as retirement, investing, insurance, or paying off debt. You'll get personalized, one-on-one advice -- available at no cost to you. Check it out at no cost to you by visiting nerd.me/paula. _____________________ If you've been listening for a while, you've heard me interview many best-selling authors. Before I interview these guests, I need to read or refresh my memory of their books. Sitting down to physically read the books can take a long time. That's why I listen to their audiobooks, thanks to my subscription to an audiobook service called Audible. If you want to give them a try for free, head to audible.com/trynow for a free 30-day trial. _____________________ Want more "Ask Paula" episodes? Head on over the the website and binge all you want: Show Notes and other Ask Paula episodes Learn more about your ad choices. Visit podcastchoices.com/adchoices

You can afford anything but not everything. So what decisions are you going to make about your money, time, career, focus, attention, all of those limited resources in your life? My name is Paula Pant, host of the Afford Anything podcast, where we tackle those questions. Today is the first Monday of the month. So you know what that means? It's time for our monthly Ask Paula episode where I answer questions sent from you. Our first question comes from a listener named Mark.

Hey, Paula. My name is Mark. And to let you know how small the world it is, how I got to you was I was listening to Nathan Chan over at founder who interviewed Joshua Sheets from Radical Personal Finance. And then you interviewed him and he posted his interview on his podcast. And I came over and started listening to your podcast as well. So long story short, 55 year old father of five married 25 years, no savings. Evelyn Connor, who you interviewed, I'm kind of her dad. However, with one exception, I made my first purchase on Audible for 99 cents and got all 21 hours of Tony Robbins' Money Master the game. I understand it, but I don't know where to start, and everything seems so overwhelming.

And I don't want to be with a headset on my face saying, would you like cheese with that at 80 years old? So if you could give me some direction, I would really appreciate it. And I think that there are a lot more people like Evelyn's father out there than we probably realize. But you're doing a great job. And I love your show. Thanks. First of all, for anyone who's listening who isn't familiar with the Evelyn episode that Mark referenced within his question, Mark is referencing an earlier episode that we did with a woman by the name of Evelyn Connors,

who talked about how for most of her life, she thought that she was doing fine, financially because she could pay all of her bills. She was never late on any payments. She had nothing go to collections. You know, she could pay her bills on time and she thought that that meant that she was doing fine. And it wasn't until she reached her mid-30s that she realized that she needed to start saving for retirement and start thinking more long-term. Mark, it sounds like you're very much in that same position, except that you're in your mid-50s rather than your mid-30s. First, let's focus on the good news. It sounds like you're very much in that you're in that same position, you don't have any debt. And that's excellent. You may or may not still have a mortgage,

but from what I can tell based on your question, it sounds like you don't have any car loans or credit card debt or anything that's, you know, waving a big red flag. So if my assumption is correct, then congratulations you're on good footing just being in that position already. It seems as though your biggest priority is getting ready for retirement. So let's talk about how you can do that. I have six specific recommendations. recommendations. Number one, open a retirement account immediately. If you qualify for a 401k, a 403B, a simple IRA, if you qualify for any type of employer-sponsored retirement account, open one of those and get your full employer match. And then once you've gotten that full employer match, open a Roth IRA,

max that out to its fullest, and then go back to contributing everything that you can to your employer-sponsored retirement account. Ideally, you want to be maxed. taxing both of those out. I don't know how much you make, but 401k, you can contribute up to a maximum of 18,000. Actually, at your age, since you're over 50, you can contribute $23,000 to a 401k account and $6,000 to a Roth IRA, assuming that you Roth IRA qualify based on your income level. That means you have the opportunity. And again, I don't know how much you make, but that means that just between those two things, you have the opportunity to contribute almost 30. $30,000 to your retirement accounts. And if you do that every year for the next 10 years, that's $300,000 right there, not counting any continual growth that's going to happen over the course of those 10 years. Now, again, I don't know how much you make and that might be, that might be everything that you make or that might be half of what you make. I don't know. But my broader point is to think in terms of how you can maximize your retirement contributions, because

that is the single most important thing that you can do at this point in the game. So recommendation number one, open a retirement account and open another and max them all out to the fullest. Recommendation number two, and this is actually a don't, you mentioned that you're a father of five and that you've been married for 25 years. So I'm going to assume that your children may or may not be done with college at this point, depending on their ages and their career direction. And this is difficult advice, but don't sacrifice your retirement for the sake of their college. Your kids can take out student loans. You cannot take out a retirement loan. Your kids have the benefit of time on their side.

They have their whole lives ahead of them. You don't have as much time on your side. So you need to prioritize you. And that means not supporting your children into their adulthood. You know, if they're already through with college, that's great. They can take care of themselves. They can pay for their own weddings. They can pay their own rent.

They can buy their own computers. They can buy their own cars. You need to take care of yourself. And I can tell you from my own perspective, from a younger person's perspective, I knew that I was going to have to fend for myself. And that was a big part of what forced me to become responsive. about my finances. I had to, when I was younger, scraped together the money to buy a $400 car because I didn't have the credit to buy a car. My parents weren't going to co-sign on a loan for me. So I couldn't take out a car loan.

So I scraped together money from barely over minimum wage jobs and I bought a car for $400. And it was doing things like that that made me really good at managing money and got me to where I am today. So I tell that story in order to illustrate the broader point that it is often beneficial to children, to young people, to make them support themselves. It's really a win-win. It's good for them because it teaches them responsibility. And it's good for you because hopefully that will free up some more of your money that you can focus on contributing to your retirement accounts because that has to be your number one priority right now. So that's tip number two. Don't sacrifice your retirement for their college. Tip number three, don't make risky investments for the sake of making up for lost time. Now, that can be tempting. That can be extremely tempting because, you know, you look at the graph and you see that some high

risk investments have the potential for high rewards. But don't do it because those same high risk investments also have the potential for serious losses. And again, you don't have time on your side. you do not have 30 years to make up for those losses. So stick to investments that are appropriate for your age and your timeline to retirement. A very simple strategy would just be to open an account with Vanguard and put your assets, put your money into a Vanguard target date retirement account. So at your age, since you're 55, that might be a target date 2025 or target date 2030 retirement account. That's the easy solution.

If we wanted to, we could get really nerdy about asset allocation. We could dive into those weeds. But if you're looking for a place to start, you really can't go wrong, in my opinion, with a Vanguard Target Date Retirement Fund. It's simple. It's low fee. And it gets the job done, you know. So much of what we talk about on the show when we get super nerdy about asset allocation, we're tweaking around the margins. To those of us who are complete dorks and who

are fascinated by this kind of stuff, that tweaking is fun, but that's really tweaking around the margins. It's not necessary. Done is better than perfect. Right now, I want you to just get that job done, get those, that money working for you in the market in a tax advantage retirement account. Tip number four, don't try to time the market. Continue to contribute to your retirement accounts every month, regardless of whether the market is up, down, sideways, or diagonal. Because if you try to time the market, you have to be right twice. You have to be right when you sell and when you buy.

And the probability of being right multiple consecutive times, it's probably not going to happen. As we've seen through the Great Recession, a lot of people who tried to time the market ended up doing worse than people who just stayed the course and continued contributing a regular amount of money every month. And if you think about it, if you contributed, say, $30,000 a year into retirement accounts,

that would break down to $2,500 per month. If you put in the same $2,500 per month, then naturally when the market is high, that 2,500 will buy fewer shares. And when the market is low, that same 2,500 will buy more shares. So just by virtue of putting in the same amount of money every month, you're naturally going to pick up more shares when the market's low and cheap. And you're naturally going to pick up fewer shares when the market is on a high. So don't even worry about market timing because a steady,

contribution strategy dollar cost averaging will organically do that for you. So that was tip number four, don't try to time the market. Tip number five is to build an emergency fund because you mentioned that you have no savings. This is something that you should have on hand since an emergency fund. It's not meant to create returns. It's only meant to be a buffer between you and credit card debt. So keep at least $1,000 just to begin with. And over time, you can begin building that up. Ultimately, you want that fund to be between three to six months of your bare basic living expenses. But just to begin with, just to get that small win, start by building a $1,000 emergency fund and keep this in a savings account. Finally, tip number six,

spend five to ten hours a week earning extra money on the side. Just spending an extra five to ten hours a week, building your side hustle can bring in a significant amount of additional money. Since you don't quote unquote need this money in the sense that you're currently living fine without it, pour every penny of this money after taxes into savings. And by savings, I mean your emergency fund and your retirement accounts because the contributions that you make right now will be the biggest determinant of how well you're doing at the age of 65. Remember, you can do a lot in 10 years. So good luck. And congratulations on being in as good of a position as you are, because quite frankly, a lot of people aren't doing as well as you. You know,

a lot of people are deep, deep in debt at the age of 55. So, you know, you sound like you're on solid footing and now you just need to think about retirement. Our next question comes from a caller who is interested in developing a side business as an online assistant. Hi, Paula. I have a question about a virtual assistant. You mentioned that you had one. How'd you find her? I'm considering maybe doing that as a bit of a side hustle, but I'm not really sure how to get started so that I can get clients.

So the first question that I want you to ask yourself is who needs my services? If you were a VA, a virtual assistant, who would need to hire you? And the answer to that is entrepreneurs, people who run businesses, very small businesses, and people who are self-employed. Those tend to be the people who hire virtual assistants. And specifically digital or online entrepreneurs often are people who hire digital or online assistance. Usually if a person runs a brick and mortar store, then a lot of what they're going to need is going to be geographically local. So your target client, your target market are online entrepreneurs.

Great. You've identified the client. So the next question is, where do your clients hang out? Go where your clients are. And the answer to that is to look in specific niche communities of online entrepreneurs. So, for example, find a niche community of fashion bloggers or graphic designers or bookkeepers. Find niche communities based around people who are self-employed and earn their living online. A, because they're your target market. and B, because people hire people whom they know, like, and trust.

And the fastest way to develop the no like trust factor is by joining a tribe, joining a community. Just to give you an example for my own life, I'm very involved in a community that's called FinCon. And FinCon is an online community based around people who blog or podcast about personal finance and related topics. Sounds super nerdy, but, you know, hey, that's what I'm into. And within the FinCon community, there are many freelance VAs, freelance virtual assistants who actively network within that community. They're very well known to us. We all know who they are.

They're the people who participate in the FinCon Facebook group. They attend the FinCon conference. And in fact, many of them, they do more than just attend. And the best way to go to a conference is by being a speaker, even if you have to speak for free. So they'll go to the conference and they'll give a speech relating to being a freelancer or being a VA. So we all know who they are. And because we know them, because we've met them in person, we hire them. That's where I found my VA's.

I looked in the community first. Here's another example. Steve, the guy who edits this podcast. Hi, Steve. The reason that I found him is because he came to FinCon for several years and he made presentations about podcasting at the conference. And so I knew two things about him. Number one, I knew that he was a member of our community. And number two, I knew that he was passionate about podcasting.

Those were really the only two things that I knew about him before I started working with him. Now he works with my podcast. He also edits the stacking Benjamin's podcast, which is another financial podcast that I have a close relationship with. And he's blown up, man. He's started working with several other podcasts all within the financial space, all within the personal finance space. And a lot of that has come through word of mouth. Because if someone has a question about Steve, it's highly likely that that person already knows me and they're going to come to me and say, hey, what's it like working with Steve? and I'm going to be like, it's awesome.

And that's how he gets work. And that's also how my VA found me slash I Found Her was also that word of mouth that came about within a community. A third example is my tech guy, the guy who does all of the behind the scenes, like when my website goes down, the guy that I call. The reason that I found him is because there are two people within the financial blogging community who have made it very well known that they are, your freelance IT department. Specifically, they are freelance IT people. So when it came time for me to hire a freelance technical person, I was going to hire one of those two people. You know, I didn't look at 10 different candidates. I looked at two people and I chose between those two. And if I ever lost the guy that I'm currently working with, I would go to the other guy. It's that simple.

By the way, let me give you one more recommendation. When you're first getting started, and your first networking within a niche community, if somebody says that they want help, here's what I would recommend that you do. First, ask clarifying questions. Okay, can you tell me specifically what you're looking for help with? If they say, for example, that they want help with social media, then you can come back to them after a day or two and say,

okay, great. I took a look at your Twitter, Facebook, and Pinterest profiles, and here are three specific suggestions that I would make for improvements. So you're demonstrating value right off the bat. You're not asking for a job. You're demonstrating value by bringing them suggestions for improvements about the specific things that they have asked for help with. And then, if you need a close, say, you know what, my normal rate is $25 an hour, but I'm willing to reduce my fee to half price for the first five hours, just so you can

try me out and see how you like me. Then over-deliver to them in those five hours. Once you get hired by one or two people within a community, that's when word of mouth really starts to spread. You can go to other people within that community and say, hey, I work with Jane Smith and John Doe. I could also help you. And now you've got credibility tied to Jane Smith and John Doe's name,

specifically if Jane and John are some of the bigger names within that community. You get that credibility by association. So that's what I would recommend. Find one or two people in the community, work with them, and don't ask for a job, deliver value. Speaking of communities, our next question comes from somebody who I met at FinCon. His name is Tyler, and here's his question. Hey, Paula, it was awesome to meet you at FinCon.

I know you told me that I could just call in and say, I really want to be on the Asked Follow episode and you would put me in, but I actually thought of a question. I don't remember the exact episode, but I know that you had discussed with one of your guests that if you're working on a business and you're making a high enough profit on the business, then it would make more sense to do that than to pay down your credit card debt. So my question is this. I currently have about $20,000 in credit card debt. with the interest rate ranging from about 11% all the way up to 23%.

I'm also running an Amazon business that's making on average about 43 to 50% on every dollar I put in. So my question is, should I focus on the Amazon business building that up, or should I try to get the credit card debt gone as quickly as possible? Really appreciate everything you do, Paula. Love the show. and I hope to get my question asked. All right. Short answer, pay off your credit card debt, but long answer. Let's run some math on that. Your Amazon business is producing on average between 43 to 50 percent returns on every dollar.

First of all, as a little bit of a side tangent, are you paying yourself? Because if you're not, then I would argue that your profits aren't really between, 43 to 50 percent. You need to pay yourself for your time at a fair market rate. So pay yourself 25 an hour, 30 an hour, whatever it would cost to hire someone to replace yourself. Whatever money is left over after you pay yourself is your profit. So I'm going to make that note. But for the sake of answering your question, let's leave that aside for the moment to refocus back on your original question, which is, should you pour money into the Amazon business or should you focus on paying off your credit card debt? Now, you said you're making between 43 to 50 percent

returns. I'll take that at face value and I'll pick the midpoint between those two numbers. I will assume that every $1 that you invest in this company yields $1.47. Now, I don't know what time horizon that happens with it. So, for example, do you invest $1 in January? and get $1.47 in December? Or do you invest a dollar in January and get $1.47 in February? I don't know that piece of information about you. But since the interest on credit card debt is expressed as an annual percentage, I'm just going to make the assumption that you're also discussing annual returns

within your Amazon business. So let's run some hypothetical numbers here. Let's say that you've invested $5,000 into your Amazon business and you make a 47% annual return. By the end of the year, you've invested $5,000 in January. By the end of that year, you'll have $7,350. Let's say that you then reinvest to the entire $7,350 the following year. By the end of that year, you'll have $10,804.

So that's the end of year two. The beginning of year three, you repeat this. And at the end of year three, you've got $15,882. And then at the beginning of year four, you do this one more time. And at the end of year four, you would have $23,347. So that would be enough money to pay off your $20,000 credit card debt plus additional interest that you will have accrued by that time. I'm leaving taxes out of this for the sake of simplicity. So given what I've just said, on the surface, it might sound like I'm making an argument in favor of investing heavily into your Amazon.

on business. But what is the likelihood that you can sustain 47% returns year after year for four consecutive years? Unlikely because businesses have a lot of volatility. The market might be wildly different four years from now than it is today. So I would advocate paying off your credit cards first. And there are actually two approaches that you could choose between. Approach number one is just pouring every penny into your credit cards. Approach number two, which I assume you'll probably take, since you've already started this Amazon business and it's going well, is more of a hybrid approach,

which is to keep reinvesting the initial principle, but use all of the gains to pay off your credit card debt. So let's say that you have already invested an initial seed funding of $5,000 into your Amazon business. Well, that 5,000 with a 47% return turns into 7350. You could reinvest 5,000 back into the Amazon business, but then take the 2350 of gains and put that towards your credit cards. That would be a more hybrid approach, and it would kind of straddle the best of both worlds. You can choose whichever one of those two you're more comfortable with. There's certainly nothing wrong with just hurling every penny at the credit cards right away.

The broader point that I'm trying to make is not to put yourself in a situation in which you depend on getting these outsized returns on a regular basis. It's great to strike while the iron is hot. Just remember that the party doesn't necessarily last forever and that your personal finances need to be in a position that can comfortably accommodate the risks that you're taking in your business. All right. Well, thank you so much for asking that question and good luck. Have you ever wanted to chat with a financial advisor, but you don't want to sign up for a long-term commitment? I understand. NerdWallet has a really cool app that lets you get advice from a financial advisor directly from your phone. There's no jargon, no pressure, no hard sell, none of that.

You'll just get a financial advisor who gives you a simple answer to your specific personal finance question. The conversations are encrypted, so you've got to you. You can feel safe and secure, and all of it is available at no cost to you. To download this app at no cost to you, head to nerd.m.m. slash Paula. That's nerd-n-e-r-d-d-m-E-slash Paula, P-A-U-L-A. Our next question comes from Carlos. Hi, Paula. My name is Carlos. I'm from South Texas. I love your podcast. I've listened to all.

all the episodes. I just want to give a shout out to Jay Money. I hope he's doing well. Anyway, I'm 29 years old. I just bought my first rental property. My question for today is about home warranties. A home warranty is basically an insurance policy. It's separate from homeowners insurance. It's meant to protect you from the high cost of major systems or appliance failures. So let's say your water heater breaks, you would contact the company and they would send a repairman. You would pay them a service fee, which I believe is $75, and they fixed the water heater. They either fix it or replace it. Obviously, they cover more than just water heaters.

I read that they covered electrical, cooling, even plumbing. Although there is a catch, because there's always a catch, Paula. there's a monthly fee to keep the policy, which is between $45 or $70. So I was just wondering what you think of this. And if it's something you would get for your own home or even your rentals, I mean, is it worth it? Thanks, Paula. In general, I think that home warranty policies are not worth the money. Here's why.

Number one, home warranty policies have many exclusions. lot of policies, and of course you'll have to read the fine print of every policy, but many policies do not cover pre-existing conditions or pre-existing problems, which means that if you buy a used home, a previously lived in home, anything that's not new construction, there's a chance that the company could deny just about any claim you make based on the assertion that that was a pre-existing problem. Most policies also won't cover something if the company says that you have insufficiently maintained it.

And again, home warranty companies often use this, the insufficient maintenance rationale to deny many, many claims. Even if your claim is granted by the company, you will still have to pay a service provider fee. you don't get to choose your service provider, and many people are often unhappy with the providers who come out to the home, the quality of work, the speed of work, etc. And to top all of that off, the warranty will often only cover a small portion of the cost. So basically, you end up fighting for this claim and maybe making an appeal for a claim in order to get service from a company that may or may not do a very good job.

so that you can get a small discount that you had to pay up front for. Like, it's basically just not a very good deal. The only home warranty that I have ever had, and I own a total of eight units, seven rental property units plus my own home, my owner-occupant home that I live in, the only home warranty that I've ever had was the one that came with the purchase of my home. I didn't buy it. The seller threw it in, not at my request. It just came with the purchase of the condo. And you know what? I actually used my or tried to use my home warranty once when there was duct work that needed to be done. And of course, they didn't do it. First of all, it took them forever to even send somebody out. Oh, yeah. When you call them, you're going to be on hold with them for like half an afternoon, or at least I was. And yeah, and then they came out and they made all these excuses. Like, oh, there's nothing but blah, blah, blah. Anyway. there are, if you go online and you start reading about home warranty policies and you read about complaints or criticisms, you will find a never-ending list of people who are very unhappy with the service that they have received from their home warranty policies and companies.

Now, partially, partially this is buyer beware because a home warranty policy is not an insurance policy. And so it is the responsibility of the buyer, you and me, to have realistic expectations as to what the policy would cover and what it wouldn't. And, you know, when I read the fine print, when I read the exclusions, when I read about the service fees, when I read about my lack of choice in determining who those service providers are, I develop those realistic expectations. And the end result of those realistic expectations is I'm not going to buy the policy. So it's just my opinion. Speaking of insurance, our next question is a very interesting one comes from a listener named Todd. Here we go. Hey, Paula, this is Todd from Washington State, and I'm calling with a health insurance question.

I have an HSA. I have an emergency fund. I make a good living. I sock away all the money that I can. Hopefully that's going to answer some of the questions that you might have for me once I get to my question. with open enrollment fast approaching and our health care costs going up with really very little in return

except the once a year obligatory physical my wife and I are considering not carrying insurance and banking the money now we have overall good health we haven't had any accidents we're not in debt there's nothing going on that would give me a tremendous amount of pause short of the catastrophic incident that could occur at any time. Granted, that's something that we can't necessarily plan for other than having an emergency fund set aside, blah, blah, blah.

I'd like to hear your thoughts on this, not insuring myself, my wife, saving that money, which we can easily do, and going without. Please do tell. I look forward to your answer. Bye-bye. Todd, don't do it. Get a high deductible health insurance plan. I understand that you think that you are saving money by not buying health insurance, but you're not saving money. When you buy health insurance, you are not paying for the freedom from ever paying a medical bill.

As you know, you seem to be very money savvy. What you're really purchasing is decreased risk. functionally, you are purchasing a decrease in the likelihood that you will be bankrupted by a catastrophe. And catastrophes happen. You could get hit by a bus. You could get diagnosed with stage four cancer. I'm sorry to be so blunt, but that happens all the time. So go on health care.gov and buy the lowest premium policy that you can find, the policy with the cheapest monthly payment.

and that'll probably mean it has a super high deductible, and that's fine because you're not going to use this for medical expenses. You're going to use this only as protection against bankruptcy in the event of a catastrophe. With that being said, there is one alternative that I will briefly discuss, and it's something called Christian Health Ministries. This is only available to Christians, and it is not an insurance plan. It is a nonprofit health care sharing ministry. And basically this is how it works. A whole bunch of people pay a monthly premium, similar to what you might pay on an insurance plan, and those premiums create a shared pool of money.

And then if somebody gets sick, the money from that shared pool goes to help cover those bills. Many Christians are attracted to this because those monthly premiums are always, often quite a bit cheaper than health insurance premiums. However, the two things to note are, number one, this is only available to practicing Christians. And I would not recommend, if you, I don't know what religion you are, but I would not recommend faking a religion in order to get into it. That just opens up a whole Pandora's box full of other problems. And number two, it is not an insurance plan, which means that they have. the right to deny your claim for reasons that an insurance company might never be able to deny your claim.

For example, there was one case in which a person who had a Christian healthcare sharing ministry plan got into a car accident and the authorities found that his blood alcohol level was not 0.00. He wasn't necessarily drunk, but, you know, he had been drinking prior to driving. And so they denied his claim. They didn't pay anything. And he ended up having to pay for everything out of pocket. And the reason that they denied his claim was based on moral grounds. This is a religious health care, cost sharing service. Those types of exclusions are not something that an insurance company has the right to make. but again, but these healthcare sharing ministries are not insurance plans. And so they operate by a different set of rules. Not saying it's bad or good, it is what it is and you just need to know what that is before you go into it.

So, long story short, resist the temptation to not purchase health insurance at all because you are risking personal bankruptcy if you do that. And you have clearly worked very hard to build the net worth that you have, to build the assets that you have. Why would you risk all of your worldly assets just to save a couple of hundred bucks a month? That doesn't make any sense. So get yourself the insurance that will protect you from bankruptcy. And number two, if you're really on an anti-insurance kick, then you can look into a health care ministry service if you're a Christian, but know what you're getting into and know that it's not going to provide you that same level of, again, bankruptcy protection in the event of a catastrophe that a traditional insurance plan would. By the way, in the show notes, I will link to a couple of articles that are about this topic.

So if you'd like to read more, you can go deeper into depth about this. Those links will be at the show notes, which are available at podcast.offord anything.com. There's one more question that I want to answer, and it comes from. from a listener by the name of Lindsay, and she actually sent in a very nice email. Here's what she said. Hi, Paula. I know I'm supposed to leave a voicemail. But number one, I hate the sound of my voice on recordings.

And number two, you're always encouraging us to be rebellious. So I'm emailing you a question that I hope you'll weigh in on for one of your podcast episodes. I'm focused on growing my wealth, saving 50% of my income. and I have my eye on the prize of financial freedom and early retirement. However, I often find myself in this tug of war game with myself about earning immediate side hustle money now or using that time to invest in my future earning potential. I'm from Minnesota, where the summers are short and sweet and the winters are very long. So during the winter, I commit my extra time to a part-time job to make some extra

cash, since it's too cold to do anything outside anyway. Typically, I can make about 25 per hour as a server or bartender after tips. This is really pretty good money, and it makes a big difference in my bank account after five months of winter. But where I keep getting hung up is, I feel like if I took the time I spent bartending and used it to work on investing in my future earning potential, such as starting my own business or earning an advanced degree. I could get away from this concept of selling my time for money, something you touch on frequently.

Then, I change my mind and feel it's not really worth it if I'm going to be retired in 12 years, and that I should just go after the immediate cash-in-hand scenario. Hence the tug-of-war reference. Clearly, I need some outside perspective. Care to weigh in? I'd love to hear what you and your listeners think. by the way, I'm 28 in a relationship with no kids in case that affects your answer. As always, keep the great info coming. Thanks, Lindsay. So, Lindsay, this is a fantastic question. If you had, and I'm saying this for the benefit of all of the listeners,

if you had said that you were in debt and you needed to pay off that debt, especially if it's a high interest debt, like credit card debt, I would tell you to just take the immediate cash and hand route so that you could get rid of that burden. But since it sounds like you're not in any debt and you're earning money primarily for the sake of early retirement and building your assets and building your investments, I would go with the long-term route. And here's why. Yes, it's true that this winter you might make significantly less than $25 an hour. as you start your own business. And so by the time the springtime comes around,

you're going to be like, Paula gave me terrible advice. I could have had X amount of money and instead I merely have Y. But what you will have done is planted that initial seed that will grow to be ultimately larger than the amount of money

that you could have made as a bartender. Let's put some actual numbers with this so that we can illustrate in a more mathematical sense what I'm talking about. You mentioned that you make about $25 an hour. I'm going to assume that you work, say, 10 hours a week, four weeks per month for five months. Really, that would end up being about five and a half months, since a month isn't precisely four weeks long.

But anyway, the point being, at the end of a five-month, five-and-a-half-month winter, you would end up having 25 times 10 times 4 times 5, you would end up having $5,000 in your pocket at the end of that winter. Let's say that this winter, instead of earning $5,000, you started building your own online business. And let's just say you break even. You've got a little bit of hosting costs, a little bit of this, a little bit of that, and you don't earn any money this winter.

And by springtime, you're totally hating me, and you think you just got the world's suckiest advice. Over the summer, you don't want to work that much on your business, so you do the bare minimum just to keep it going, but not to actually grow it. And so it continues to not earn very much money. But then the following winter, winter 2017, this project starts sprouting legs.

Winter 2017, your website earns, say, $5,000. So now, at the end of year two, you're still behind where you otherwise would have been, and you're still hating me and thinking that I gave you some pretty terrible advice. But the following winter, the income from that site doubles. Your project makes 10,000. Now you've broken even.

You're at the end of year three, and you're the exact break-even point. In both scenarios, you would have at this point earned a total of $15,000. And then in year four, in your business, that business growth doubles again. Year four, your business brings in $20,000. And now you're significantly ahead.

And then year five, it doubles again. Year six, it doubles again. Now you're significantly ahead. And since you mentioned in your email that you think that early retirement is still about 12 years away, 12 years is a long freaking time. What is the upside potential of, earning $5,000 per year, an extra $5,000 per year on the side over the course of 12 years. I mean, at max, at best, you'll make $5,000 times 12, which is $60,000.

Plus, you'll put that into, say, an index fund and make another 7 or 8 or 9% on that. That's your upper limit of your potential. If you start your own business, your upper limit is going to be far, far greater than $60,000 or $70,000 or $80,000 or $100,000. It's not going to happen right away, but over the course of 12 years, I mean, billionaires have been made in less time than 12 years. I'm not saying that you'll be a billionaire, but I am saying that you'll probably, if you run your business well, you've got a pretty solid chance of doing better than a 12-year earning cap of $60,000. Now, notice the example that I use is starting your own business. I use that example because I wouldn't necessarily go back to school to get an advanced degree, since that, I assume, will cost money and require a much more significant investment.

Either you'll either have to take out student loans or you'll have to dig deep into your savings for it. And so that investment might not be worth it given that you clearly aren't passionate about a topic. topic. It's one thing to pay $30,000 for a degree if that represents some dream that you have, if it's a passion that you have. It's quite another to spend $30,000 on a degree that you don't really care about. So I wouldn't recommend making a heavy investment in your earning potential. And that advanced degree is a heavy financial investment. But starting your own business, something that you're bootstrapping and something that has relatively low startup operating costs, yeah, go for it. Over the course of 12 years, I think,

you can make much more than 60K doing that. All right, so those are our questions. Thank you so much to everybody who called in with a question. If you would like to ask a question for the next Ask Paula episode, please head to Affordanithing.com slash voicemail. Again, that's afford anything.com slash voicemail, where you can record your question. We do these Ask Paula episodes on the first Monday of every month. Thank you so much to everyone who submitted a question and to everybody listening.

If you enjoyed this show, please head to iTunes, subscribe to this podcast, so that you can get notified of new episodes fresh out of the oven as soon as they appear. And while you're there, leave us to review as well. This is Paula Pant. Thank you so much. I'll catch you next week.