Afford Anything - Ask Paula: Should I Quit My Cushy Job?

Episode Date: March 22, 2023

#433: Should “Walker,” an anonymous caller, give up a cushy job to take a year-long sabbatical in Europe? Blue wants to rent out his East Coast home, take a sabbatical from work, travel to the West Coast with his family, and start a YouTube channel and other entrepreneurial projects. How should he manage his money to make this happen? Melissa regrets buying a house two years ago in Ft. Lauderdale. She’s poured $30,000 into repairs, all of which she borrowed. Her home-related debts have mounted. She’s over-extended. Should she cut her losses? Former financial planner Joe Saul-Sehy and I tackle these three questions in today’s episode. Enjoy! P.S. Got a question? Leave it here. For more information, visit the show notes at https://affordanything.com/episode433 Learn more about your ad choices. Visit podcastchoices.com/adchoices

Cheers. Cheers. I'm drinking for two. Perfect. And I'm not drinking until like 70 days from now. And then I'm going all out. I'll celebrate with you. Speaking of celebrating, Joe, let's celebrate the fact that you can afford anything but not everything.

Every choice that you made is a tradeoff against something else. Our tradeoffs fun. And that opens up two questions. what's most important to you, and what are you willing to shelve or sacrifice in pursuit of what matters most? Answering those questions is a lifetime practice. That's what we are here for. My name is Paula Pant. I'm the host of the Afford Anything podcast every other week-ish.

We answer questions that come from you, the community. And my buddy, former financial planner, Joe Saul Seahy, joins me to answer these questions. What's up, Joe? I like the ish on the end of that. I know. You know, kind of. Kind. I'm rounding the corner in this fellowship at Columbia. I'm 70 days away from being done. But, whew, man, I have. You're excited. You're excited about taking the ish off that, aren't you? You know, I read this book once years ago of a mountain climber who summited Mount Everest. And he described the moment at which he reached the peak. He had dreamed of this moment for years, trained for it for years, imagining that it would be this moment. of glory or pride or at least some type of positive feeling.

But in that moment when he stood at the peak, all he felt was tired. He just didn't care. He was like, I made it. Let's go. You know, he did not care. He was too exhausted to care. And when you're climbing Everest to the true finish is not the peak. It's returning to base camp.

Yeah, I think it's often it's months later, right? When you're like, think about what I did. Well, no, it's also, it's literally physically surviving the dissent and making it back to base camp. Oh, yeah, yeah. No. Yeah. I think I don't know how many people, you've heard certainly heard my story, but one of my best friends has done Everest twice. And the way down is really the bigger danger because you're not on your guard anymore.

You're like, oh, I made it. Okay, I'm good. No, you're not good. You've got this big thing. Right. I'm sure we could make some kind of analogy about asset accumulation versus. as asset preservation. But we won't.

But we won't. Because everybody knows. I will tell you this. Everybody knows where we're going with that. I mean, come on. Just think of the best analogy there and we covered it. But let me tell you this, Paula. Do you know the best gift to give somebody after they climb Everest?

Okay. Being Nepalese, I'm going to say, statistically speaking, the person who climbed Everest is probably a Sherpa. So I'd say the best gift to give them is a giant effing tip. because they hauled your oxygen canister up Everest. All the way there, because you just had to haul yourself and they hauled everything else. But I ruined your punchline, Joe. What is the best gift?

But punchline? What? You don't think I was being serious? Uh-huh. It's a broken drum because you just can't beat it. Oh. Come on. Paula, we got a great show today.

Everybody's like, what are they going to start? Yeah. Well, it's all uphill from that. So let's hear from a member of our community named Blue, who wants to Airbnb out his place and embark on an epic adventure and start some entrepreneurial ventures along the way. Here's Blue. Hi, Paula. I'm calling from a suburb outside of Washington, D.C. And I was hoping that you could shed some light on a Coast Five position that my wife and I are hoping to move into. We are in our mid-30s, recently purchased a home for $500,000. Our mortgage is around $2,400 per month. And we were actually able to tap into a homeowner's line of credit.

It's there if we need it. We don't plan to use it. But we do have access to $150,000 line of credit on the home. And we have been investing in index funds pretty consistently and have about $110,000. and index funds in our retirement accounts. We are building up our emergency fund and hope to have that around $12,000 in the next couple of months. And we've also had the home set up for Airbnb

and hope to start renting that in the next month or so as well. And we're going to be camping on the weekends. We don't have any kids or pets holding us down. So we're going to start with the weekends for the Airbnb and then hope that we can establish a solid baseline to see what kind of income we can generate with the home. Our hope is that we can generate about $5,000 a month with the Airbnb, but that leaves us kind of homeless, so to speak.

Now, we're trying to embark on a journey outside of the Washington, D.C. suburb area to maybe make our way out west and pursue some new jobs and just kind of a new lifestyle out there. we're wondering if that's the right decision or not. So I'm kind of hoping you can shed some light on us moving into a Coast 5 position where we've built up our retirement accounts. We have our equity in our home. We have some passive income coming through the home via Airbnb. We can block out some certain dates throughout the year where we can go and stay in that home on holidays, visiting friends and family.

But we're really disenchanted with our current jobs and current. and current area that we're living. I also want to pursue starting a YouTube channel with some of my interests that include bike riding, skateboarding, traveling, and local food movements and farming and so on and so forth. So we're hoping to kind of go on a sabbatical in a sense and see if we might be able to land some new jobs

in a new area that are more in tune with our passions. So anyhow, I was hoping you could shed light on the financial side of things just to see if we may or may not be making the right move. Thank you. Blue, I love your ideas. Let's talk numbers. First, I'm going to dig into this Airbnb proposal. A few things jump out at me right away.

Some are broad macro and generalized and some are specific to you. We'll start with the broad macro. I want you, first and foremost, and maybe you've already done this. Because there's only so much that you can leave in a two-minute or three-minute voicemail. But I want you to deep dive into short-term rental stats in your area. I want you to take a look at how many short-term rentals are out there that are comparable to what you are offering and what type of occupancy rates they have. And do those occupancy rates stay steady? year round. Do they fluctuate seasonally? Do they fluctuate based on certain holidays or events? I want you to take a very, very close look and then compare that information to the information related to midterm rentals, which are rentals that are greater than 30 days, but less than one year. Midterm rentals are often corporate rentals, things of that nature.

You must have flagged the same number I did then. because the number that hit home for me was when he said $5,000 a month. I just thought $5,000 a month seems like an awfully, awfully big number. Not to bring in, but is your take-home pay after all the expenses are paid, all the other stuff? Is that where you got tripped up? Well, initially when he said $5,000 a month, he had just finished talking about how they were initially going to live in the house during the week and rented out on the weekend. And so initially when he said 5,000, I was tying it to that idea and thinking, well, 5,000 only for the weekends. That's never going to work.

When I realized later that what he meant was 5,000 for a full month, you know, that he... I still didn't recognize that. Yeah. So when they move out west, keeping the house and bringing in 5. Okay. Yeah. Now I got it. I was like, that is a big...

Yeah. That is a... I'm sorry, Blue, I'm not running your house for... 1250 a weekend. It's not going to do it. Right, right. So, yes, he means $5,000. And I am interpreting this as your question because it was, I guess, a little unclear to both of us.

But my interpretation of your proposal is that when you move out West, you will rent out the home and you will gross $5,000 at full occupancy or as full of occupancy as you can potentially get. You will gross $5,000 for the full month. That to me sounds reasonable, but I want you to be very cognizant of occupancy stats in your area because there is a lot of variation in the short-term rental market when it comes to occupancy and vacancy. Recently, as the supply of short-term rentals has increased, a lot of short-term rental owners have seen their occupancy rates plummet. And obviously during the pandemic, I mean, occupancy fell to the toilet. but in the recovery that has followed, there still seems to be in many markets an oversupply of short-term rentals, which has resulted in higher than usual vacancy rates and a race to the bottom in terms of fees

as the surplus of owners compete for a smaller fraction of business. By contrast, and the reason that I want you to take a look at midterm rentals, a lot of people are finding that that sweet spot is to rent your home out for three months, six months. It gives you oftentimes a higher income than what you could get if it was a long-term rental, a long-term being defined as 12 months or greater. But you don't deal with the vacancy, the volatility, the high turnover, the need to replace consumables, all of the hospitality-related overhead that comes from short term. So consider both options. And this is not something that you want to do based on intuition. You want to take a good look at the data. And the best way to do that is, you know, you want to be

mining Airbnb, VRBO, all of the websites that are out there. Don't think only Airbnb. But you want to be mining those websites, studying the competition. Look at their calendars. Check in every single day. All right. That comp property over there. Today, I'm looking at their calendar four months out, and I see 12 days booked and the rest are available. Three days from now, I'm going to check that same property for that same month. Have they gotten any bookings in the last 72 hours? Three days, hence, repeat. So you want to be very, very closely studying your comps.

You want to get the heartbeat. Yeah, exactly. And I think when you do that, that's going to provide much better information than the information that you could gather by virtue of renting your place out on the weekends, because weekend demand is necessarily going to be different from weekday demand. And demand changes seasonally as well. So unless you are renting your home out for the weekends for an entire year or more, you're not even going to be aware of seasonal demand. That's something that you can gather in a better way by studying a competition, not only because you can look across a greater span of time, but also, because you can gather case studies that are not just an N of one.

It's not just your own home. You can look across a basket of five, 10, 15 comparable properties to try to gauge patterns. I looked at a few things with his situation outside of the Airbnb. And really, I like to begin, Paula, with just the goal and work backward. And so if the goal is to make a change because you're not happy with where you are, I feel like we overestimate the need to optimize our money, the need to over-optimize our asset allocation to pay less in fees. But we really underestimate our time and about how valuable our time is here.

And if we're chasing the wrong thing, I would begin with, I think, Coast FI or not, let's see if you can make this work. That was my first feeling because I truly think that if he needs to do another path, I would try to find the quickest way to be on a path that I'm at least happy with. I know a lot of people who aren't financially independent yet who are super happy. They love what they're doing. And you and I, just before we hit record, I gave you the names of four people that many people in our audience know who are financially independent,

incredibly unhappy, in my opinion. In my opinion, very unhappy. So I don't know that I worry about Coast Fi as much as Blue does, as much as I worry about, can I just make this viable? Can I make it work? Can I make it so that I'm doing this thing that I feel like I want to do with the rest of my life? You know, I think Coast Fi, and to define that term for new listeners, Coast Fi is, FI is an acronym for financial independence, which in this community for new listeners is defined as the point at which you have enough investments that work becomes optional. Coast FI is an iteration of that. Coast FI is when you have saved enough, or specifically you've invested enough, that you don't need to contribute any more to your investment account. you could allow your investments to exist as they are, allow those investments to coast,

and you know that by the time you reach some desired goal age, maybe it's 50, maybe it's 60, whatever, you know that by the time you reach that age, you'll be set. So you no longer have to worry about contributing to a 401k or funneling money into an IRA. because if you think about if you really truly take retirement contributions seriously, if you truly do, then that's another bill. And it's a big bill. It's a big bill. And it's stressful to have big bills, right? Paula, that's the way that I define KOSFI.

I had a roommate in college. I was in my last years of college. He was working. And he was a guy who was saving just money hand over fist. And I was like, why don't you relax? Why don't you save a little less money? he said, I mean, at that time, nobody talked about Coast 5, but here's what he said. He goes, I hate saving. It is so much money and it's so annoying. I'm saving as much money as I can

so that I can stop. My goal is to just get to the age where I'm still working. I'm still doing all the stuff I like to do. I'm not retiring. I just don't have to save any more money. So he's socked money away as quick as he can. And for me, whenever I think of Coast 5, that's kind of what I think about. Yeah. I mean, from a budgeting perspective, Coast FI means you get rid of a gigantic bill. And that bill is the amount of money that you have to invest every year in order to take care of your future self. It's done. If you can knock that out, check signed, money's in the brokerage, it's done. That's a huge load off your shoulders. So Blue, it sounds to me like the goal of Coast Phi and the goal of Airbnb and your property both share the same route.

And fundamentally, that route is the goal of not having obligations, financial obligations, that hold you down. A mortgage that you're paying out of pocket is a gigantic bill. It's a $2,400 monthly bill. And that's an obligation that holds you down that you have to pay every month. Thank goodness you take retirement planning so seriously that you treat retirement savings. things that same way. You embrace that same mentality. Investing for retirement is as non-negotiable as paying a mortgage. Great as it should be. And so for exactly that reason, you want to hit KOSFI

and you want to Airbnb out that house, right? But I feel like it's also tied to the fact that he doesn't want to have any pressure on his new way of life. Like the less pressure he has on those things, the better. Exactly. Because that means that he can, that he can lean into. it. But I'll say this, Paula, I don't think the pressure is necessarily a bad thing. I am re-listening to one of my favorite books that I can recommend to our entire audience, Stephen Pressfield's The War of Art. And he talks about resistance and about how we don't do the things that we should do because of the fact that we're not putting the actual work into it. And the easier we make it to not put the work into doing what we clearly want to do, like a YouTube channel is an example.

sample. He says when Stephen Presfield would talk about something like a YouTube channel, the amateur to YouTube channel gets obsessed with stats and numbers and being famous and how great it is and then gets discouraged really quickly when fame doesn't arrive right away. But a professional shows up every day because they love the work and they continually do the work. And you know what happens, Paula? When you do the work every day, the fame actually follows. And so giving yourself some reason that you have to show up every day. And I'm not saying that you want to make it incredibly difficult, but that you got to show up every day and you have to have that professional attitude. I don't, I don't think that's necessarily a bad thing. I'm watching a documentary on

Netflix right now from top coaches. And Doc Rivers, one of the top coaches in the NBA says stress, a lot of people run from stress. He said, I tell my team to run toward it because you learn to deal with it. Stress is going to be in your life no matter what happens. The more you're used to it being a piece of your life, the more when stressful situations happen, the better you're going to be in those situations. Well, I think like all things, it's a balancing game. On one hand, you do want skin in the game, right? When you've got skin in the game, when you've got money on the line, time on the line, reputation on the line, you're going to level up and you're going to... You're going to show up. Right. You're going to perform. You're going to perform better than you

would when a healthy dose of stress isn't there. But in excess, it can be detrimental. It's like the right amount of stress builds muscle, but excess stress on a body breaks bones. So I see Blue's goals of Airbnb out his place and reaching Coast FI. I see both of those goals fundamentally as the goal of bill reduction. And the reason that he wants bill reduction is to go out west, have some adventures, start a YouTube channel, experiment entrepreneurially. And necessarily, he's going to still have bills while he's doing that, right? Necessarily, he, okay, let's just say hypothetically, he does his homework and this home

could rent out for 5K a month. That's still the gross figure. He's going to need management. Short-term rental management is very expensive. because turnover is the most expensive piece of welcoming people into your home, whether they are tenants or guests. And this is why, by the way, Paula, I think that's why you were talking about midterm, right? Because that's going to reduce that expense a lot for them. Yeah, I mean, so midterm is not only going to reduce the management costs, it will also reduce the cost of consumables.

When you are a short-term rental host, you have to pay for toilet paper, dish soap, sponges, paper towels, all of these consumables that get gobbled up. You are not in the real estate industry anymore. You are in the hospitality sector. There's a massive distinction between being comparable to a hotel versus comparable to a rental property. And I was a super host on Airbnb. Literally, that was my designation super host. I had the badge. I think you spent you were a really, really good host, but you were that too.

Yes, exactly. Both. So I'm not discouraging anyone from Airbnb. It was quite lucrative for me when I did it, but you need to really know your local market ahead of time so that you have solid estimates of what all of that operating overhead is going to cost and of what kind of vacancy or occupancy. or occupancy you can expect. And I'm really going to emphasize the vacancy occupancy piece of it because that, especially post-pandemic, has been flipped on its head in a lot of markets. And there is a supply glut in many markets.

Again, every market is local. Coming off of that, back to Blue's goal of bill reduction, right, even hypothetically, if he can gross 5K a month, he's still going to have expenses. So his net is going to, let's just say net, he breaks even. So he covers the mortgage. Okay. That bill is taken care of. But he's not going to be pocketing anything.

That means that he would be relying on YouTube income for car insurance, gas money, groceries, camping fees. Yeah, all the day-to-day expenses. Bug-Bugs spray. Bug spray. Yeah. You're going to need bug spray. You're going to go to the laundromat every now and again. or at a minimum get some Dr. Bronner's so that you can, you know.

Paula's getting line item with us now. Right. And that's all going to have to come out of YouTube money. So even if he does rent out his place, if he is really relying on this to feed himself, I think that could be just the right amount of stress, exactly enough to make him come to work every day. Well, and I like the playtesting advice you give him about Airbnb versus midterm rentals and getting the heartbeat. I think he needs to do the same then, Paula, with his future endeavors.

I would start taking some trips out west, hopefully for some extended periods of time, meaning not for a week. But if there's any way, I don't know what he does. But if he could stay for a month at a place, that's even better, right? YouTube channel, you and I know this because we're in that community of creators. he wants to start that YouTube channel now, now. And he wants to begin playing now so that when he's ready to go pro later, that he knows what a lot of these things are that creators talk about that to the average person, we could bore people to tears with the stuff that we didn't know about when we started,

that we know about now that is serious friction. But you got to be in the arena to do that. So I would start the YouTube channel now. I begin playing around as much as he could on weekends, getting things going, starting to build a community, realizing how much it has to do with marketing and not just videos. Man, so many things to learn. Start while he has that income stream going now, playtesting out West and with YouTube. And I think he's going to be a lot happier that way too. Yeah, exactly.

Learn to make good thumbnails. Learn to write good SEO headlines. Which is Chad GBT. It's chat GPD. Right there. I haven't tried that for headline writing. That's a good idea. Ooh, maybe I'll try that for the title of this episode.

But what would I ask it? Literally, what would I ask it? Wait a second. Write a headline in the style of the Afford Anything podcast. We ask it, yeah. I don't have it right in front of me, but for stacking Benjamin's, we ask it something like that. For a stacking Benjamin's episode focused on X, Y, and Z, write us a headline that our audience six specs and that will rate high on SEO. I don't remember the exact words.

Wow, that is incredible. I'm trying that. I learned from our mutual friend, Len Penzo, about writing headlines. And so usually I will just write them. But Karen, our producer, who you know, she's super. She edits our Friday shows. And generally, I'm not in on that. And she now relies on chat GPT. So anybody who listens to stacking Benjamin's now knows that Friday's episode title is generally created by chat GPD. Wow. Or at least created and tweaked from chat GPD. Are you doing it right now?

Right. And afford anything podcast headline. You'll be surprised for how good it is. For. Title, title, title. Oh, title. Title, episode title. Podcast episode title.

Okay, write and afford anything podcast episode title. Should I give any more detail like for a discussion about Airbnb? Yes. I'm just going to leave it general. Let's see what it says. Write and afford anything podcast episode title. Oh, this is going to be horrible. Yeah, it is horrible.

The power of saying no, how prioritizing your values can help you afford anything. Boring. Thumbs down. You got to tell it the topics that you talked about. Okay. Write and Afford Anything podcast episode title for an episode about renting your home on Airbnb and moving out west to become a YouTuber. From Airbnb to a YouTuber, one woman's journey of pursuing her dreams and affording anything. Wow, that's awful. That is awful. Okay, well, so I'm not worried about chat GPT.

Yet. Yet. But Blue, going actually to your YouTube venture. I didn't know you were still recording. I thought that was just for you, me. Oh, no, no. That's for everyone. That's live. That is live. For your YouTube venture, the one thing that strikes me is that you've, you've, suggested a YouTube channel about bike riding, skateboarding, traveling, local food movements, and I think you said like one or two other things. That's a lot of stuff. And yes, there are

creators who are broad, but most creators, most successful ones, start niche, develop a dedicated niche audience and then expand out more broadly. I don't want to tell you what to do. And of course, You know, caveat could be wrong. Prove me wrong. Please. But I would highly recommend starting with one of those topics, develop a YouTube channel about just local food movements or just skateboarding or just bike riding. And if it's bike riding, is it mountain bike? Is it road bike?

Are you doing bike reviews? Right. Start a YouTube channel about, is it bike maintenance? Just that. develop a core audience. And once you have what Kevin Kelly refers to as your first thousand true fans, once you have that core audience. And that doesn't mean a thousand YouTube subscribers. That means a thousand highly engaged fans.

So that might mean 10,000 YouTube subscribers, right, with a 10% super user rate. Once you have that, then you can start expanding out horizontally. But I think you want to go deep first before you go broad. go vertical before you go horizontal. Yeah, or maybe Paula, it is bicycling through local food movements. How do you bicycle through a movement? If it's moving and you're on a bicycle, you're moving. No?

No. Well, I guess he could go on a bike tour to Farmer's markets. He could. Wouldn't that be a niche? That'd be a niche. Be a big niche. I don't know. I do agree.

Focus on one of these things, especially since this, all you're truly doing is learning how to make the videos. You're learning how to set up the shots. You're learning how to do your scripting. You're learning how to do it. And I wouldn't try to do those with four different things. Do it with one and the knowledge that you gain will last you, no matter what you decide to do. If you decide to pivot or stay the same. But if it goes really well with that one, then you can, then you can expand. A friend of mine, Janice Torres, who has the Yochiero De Niroreiro podcast. I say she's a friend like we go way back we've been friends for exactly a week but jeanice was a food blogger for a long time and paula she pivoted to money discussions and it was her food blogging her food youtube the food stuff she

did she says served her really well when she started having money discussions but she didn't do both right away she did one and then she expanded into the other and by the way once you start youtube Remember, it's not just videos. You're going to be doing live streams. You're going to be doing YouTube shorts. You may be doing subscriber only content or premium only content for your channel subscribers. Yeah, this niche, Paula, even as a niche, it's wide. Yeah.

It's so wide. Because there's people doing skateboard videos, but they're only doing shorts. Exactly. And so these are some of these, these some of these battles that Blue's going to be facing that he may not even know about. Right. Right, right. There are people who do skateboard videos that they only do YouTube shorts and TikTok and maybe some IG Reels. That's it, right? But then by contrast, then you've got people who do longer skateboard videos. Like, you know, they go long form on YouTube and then there's a corresponding podcast that goes with it and a substack. A whole different thing. Don't even consider each other, quote, competitors. I can talk about competitors for a long time. time about how that's kind of BS, but they don't consider themselves in the same realm.

Let's put it that way. Right. I have a friend whose YouTube channel has recently made it big, relatively speaking. He's grown from 20,000 subscribers to over 100,000 subscribers in about four months. Nice. Yeah. Wow. So fantastic, fantastic growth rate.

And does he tell you how? he puts enormous research into every video, just enormous, enormous research into every video. So he is not creating shorts. He's not doing subscriber only content yet. He does videos and he does live streams, but they are researched to the hilt. Well, and you know what?

It's funny you say he doesn't do shorts. The best shorts are like poetry. Right. And as a creative writing guy, I'll tell you, writing poetry is every bit as hard as writing a novel. Like, if you're going to write a really, really, really good poem where every single word matters, that is super difficult. It is so difficult to get all the words correct. There's a famous quote from Mark Twain where he's written a very long letter to a friend. And at the end, he said, I'm sorry, this is so long, I didn't have time to make it short.

That's so good. Right. And what he means is the editing is... And there's another key to YouTube, Paula, editing. Like a lot of the magic, as you're bringing up right now, is in the editing. And then you get into all the different software choices you have and the ways to edit and the techniques to edit and the... Yeah, start it now, Blue. I think what we're both saying is start it now.

Do it now. Yeah. I like this question because this emerges both real estate and entrepreneurship, which are two of my favorite topics. I couldn't tell. I had no idea. Particularly digital entrepreneurship. But not Chad GPT. That loser can't write and afford anything, title. Seriously. All right. Well, thank you for your question, Blue. And best of luck. We'll come back to this episode after this word from our sponsors. Fifth Third Bank's commercial payments are fast and efficient, but they're not just fast and

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Our next question comes from an anonymous caller. Oh, and Paula, you know what that means? While Paula's on her sabbatical and she is at the Columbia School of Journalism, that means that she is finding famous journalists who she respects or wants to, to pay homage to or whatever. And Paula, last time you had me do it, I'm not taking that again. I'm not letting you off the hook. I think you need to get this done.

So who's it going to be? There was a photojournalist who became well known for documenting the Great Depression and has produced some of the most compelling images of the Great Depression that lived through history. And so in honor of him, his name is Walker Evans. Our next caller is going to be named Walker. Hi, Paula and Joe. This is anonymous, and I have a question on the topic of sabbaticals. My family and I live in a town we love, and we both have jobs that allow us to work very little and still earn a reasonable standard of living. We have the opportunity to take a year-long sabbatical in which neither of us would work, and we plan on.

spending this time in Europe. We would like to do this because we want to spend more time with our kids and we want our kids to experience a different culture while they're still young. The catch is that while we currently have a great quality of life, we have achieved that by being with our company for a long time. And if we leave that company to take the sabbatical, we would likely be able to return to that company, but we would likely start at the bottom floor. so to speak. Our income wouldn't take a hit, but we would likely not be able to work the very few hours that we work currently. So my question is, what do you think about this? Should we take a year off at the expense of potentially coming back to the U.S. and having to work long hours? Or since our life is so good now, should we not let Great be the enemy of good, as they say?

curious to hear your opinions. Thanks so much for everything you do. Walker. Wow. What a fantastic question. Let's explore this from a variety of angles. So the first thing that came to mind as soon as I heard the question was framing it with regard to probability.

Because if you were to take this sabbatical, there is X probability that you will return to the same position that you are in, and there is Y probability that you will return to a worse position, worse defined as you might make the same amount, but you'd have to work longer hours for it. And so probabilistically, the value, if you think of those as two separate formulas, the value of each formula is the cost of the specific event times the probability that that event will happen. And to put that in simple terms, so let's, let me take a step back just to explain this concept, not only for you, but for the sake of everyone listening.

This is a true story. Over the summer, I went to Greece. It was a windy day, and my friend, he wears a baseball cap because he's bald and his head would sunburn without the baseball cap on, right? So it's a windy day, and this baseball cap blows right off his head. And it's gone. And I have a fairly expensive, I mean it was like 40 bucks, you know, so for my baseball cap standards, that's kind of expensive. So I have this fairly expensive baseball cap with me. And I'm like, hey, dude, you're welcome to wear this.

But if you lose this, you're buying me another one. And so right there on the spot, he actually did the calculation. He was like, all right, let's say there's a 60% probability. that I'm going to pay zero, and there's a 40% probability that I'm going to pay $40. So what is the value of borrowing this baseball cap? And he did it right. I should note for context, this friend is a Stanford graduate. He was a math major.

So this is the way that he thinks. And so this is what we do and we're on Greek islands. These are the kinds of conversations we have. This is daily lexicon. Yeah. No, see, seriously, this is like this is a 100% true. story. My baseball cap was bright pink, so he, like, really did not want to buy. He did not want to spend 40 bucks on a bright pink baseball cap in the event that he would have to replace it. But yeah,

he stood there and he did the math on site to determine what the value of borrowing that cap for the day would be. Because then he could compare it to buying a cheap cap from a souvenir stand and determine which was going to be the better decision. This is, I'm giving you a lot of insight into what my friends and I talk about when we're on vacation. Exciting. Yeah. Super exciting. Yeah.

This is truly what we talk about on Greek islands. It's, um, wow. We're doing these statistical models as we're exploring the world's oldest, uh, ancient civilization temples. And it was hilarious. Hey, Greece was a bastion of education then and now. You know, it's interesting that you went right to a cost benefit analysis. That's where your head took you immediately. Well, that was my knee-jerk instinct. By the end of his question, I had strayed from that, but that was my initial goals. Yeah. Okay. But wait, there's more.

But yeah. Yeah. And I imagine that my, where I got to by the end of his question is probably where your head is at, which is how much do you want it? That's exactly where my, that's where my head always starts. That's my financial planner training, which is let's cut to the chase. What do you want to do? And let's see if it, works. What do you want to do and will it work? Why do the thing you don't want to do? Why spend a bunch of time analyzing stuff that you really is the suboptimal path in your head? Let's see if that thing that you want is viable. And if it is, then actually, Paula, I love the cost benefit analysis second. You know what I mean? Because I think what we have to do before we actually build the highway to his dream is we have to see what the chances are that that might not work out the way that we thought it might. And so looking then at cost benefit analysis after we figure out

that it's possible, is it probable? Is I think some good analysis to go through? But to your point, though, I don't think we can answer this question because I think it all does hinge on what does he want to do. But we can tell him how to think, and that's what I would do. I would start off with How bad do you truly want this? And then number two, I love where you were going with the cost-benefit stuff. You know, what strikes me with the, how much do you want this? Because sometimes that can be hard to know, even in yourself. Walker, you said that part of your motivation is that you want to expose your children to another culture while they are young.

And by virtue of moving to another culture, you would be doing so in a very immersive way. there are two lines of questions that I will develop from that statement. On one branch of the fork, my line of questioning is, what are the attributes associated with exposure to other cultures that you want to impress upon your children? And in what other ways could you teach them those attributes? So if there are attributes related to, for example, open-mindedness, adaptability, the consistent questioning of assumptions, social agility, if that is what you're after, then I would, at a minimum, as a thought experiment, spend some time thinking about other ways that you could

achieve that same underlying goal, i.e. teach those same concepts to your kids, without necessarily taking this trip. And to be clear, I'm not telling you not to take the trip. I'm stating, the trip is the solution, and I often warn people against starting with the solution. Start first with the quote-unquote problem or the goal. Start first with the objective before you arrive at the solution. So if the objective, and I'm emphasizing the if, if the objective is to teach your children certain values, then what are the other ways in which you could do that? If it's helpful, imagine that you didn't have a U.S. passport, right? Imagine that you had a Nepalese passport, which means that you basically can't go anywhere without applying

for a tourist visa. And my brother-in-law, Bikil, he lives in Kathmandu. He applied for a tourist visa to come to the U.S., there is a one and a half year wait for the interview. Really? One and a half year wait for the interview for a tourist visa. So just as a thought exercise, imagine that you were in a comparable situation. Imagine that you had the type of passport that functionally didn't really allow you to leave your country. But you still wanted to teach your kids about other cultures or wanted to teach your kids a certain set of character attributes. how would you do that?

And just play with that idea because that invites you to come up with alternate solutions and it allows you to grapple with the underlying objective without assuming the solution or hewing too tightly to that first solution. So that's one line of the fork. The other line of the fork that I would propose, the other branch of that fork is if you do really value total immersion, can you create that here at home? in the context of immigrant communities. You know, how often have you and I come up with a third solution, which wasn't on the menu?

And that may very well, Paula, to your point, be the case here. There might be a third solution, which is a greater chance of probability that they don't have to accept the downside consequences of this idea. And at the same time, they get more of the upside. So there might be, you know, he quoted, I think it was my mom who said, don't make, don't make great the enemy a good. Because, man, my mom said that a lot. But he could have those two ideas closer together. Yeah. You know, it strikes me that the exposure to different cultures part, a lot of people go abroad for it, despite the fact that even in small towns, there are immigrant.

bubbles where I'll use another example for my family. I have an uncle and aunt who came to tour the United States. It's back in 2007, 2008. They came for three months. My aunt doesn't speak a word of English. My uncle does. And so I was worried about them because she doesn't speak any English at all. I asked them after they had been here for about a month. I was like, hey, how's it been traveling? They were going from city to city, you know, going all over the place. I was like, how's it been doing all of that,

not knowing any English? And she was like, it's fine. Everywhere you go, people speak Nepali. Duh. Everywhere. Everywhere. Like Chicago. Or no, Kearney, Nebraska.

I mean, there's a huge Nepalese population there. That's right. Here in Texarkana. I mean, come on. But it's like, it goes to show that, depending on the people that you surround yourself with, you very well could live in a bubble of your own making, right? You very well could live in a little bubble where you're in the United States, but every person you meet is fluent in Nepali. And I'm not suggesting that, like, that's how you want to live your whole life.

I know plenty of people who have lived their lives like that do not recommend. but obviously, Walker, you're not at risk of that. You, by contrast, have the opportunity to befriend some of those communities and expose your children to other cultures inside of those communities. And I don't know if there's a large Nepali population where you live, but there might be a large Lausian population or an Eritrean population or a Hmong population or a Hmong population. And maybe they have playgroups for kids that are targeted to kids who are the same age as your kids.

And that's a way of meeting them and starting to form those relationships. I guess he said Europe. So I don't know. Portuguese population. Italian? Norwegian? Luxembourgian? I was just thinking Luxembourg.

I was literally just thinking that. And then I was, what is, there's a country that's even smaller than that. It's that tax haven country. What is it? Monaco. No. Lichtenstein. Lichtenstein.

That's the one. Lichtenstein. Yeah. 61 square miles. Yeah, both the people in Lichtenstein love it. And I mean, you know, that said, there are certain elements of being abroad that you never be able to replicate here. But how many short trips can you go on? Not vacations where you're hopping from place to place to place, but, you know, how many recurring trips to the same

village that happen at four-month intervals, where you're there every four months for a week at a time, and you're in the same place so you start to develop the same friends, and more importantly, your kids start to develop the same friends. I don't know. It sounds like the longer I talk, it sounds as though I'm trying to talk you out of the idea, and I'm truly not. No, not at all. Yeah, I love the idea. I think it's a great idea. I would not discourage you from doing it. So if on the surface I sound as though I'm trying to talk you out of it, I hope you understand that I'm not. What I'm trying to do is introduce alternates and then invite the question, what are the underlying elements that you're trying to achieve, and are there alternates that could achieve

those same underlying elements? I think the answer might be found there, Paula. I think the answer might be in some sort of a middle ground. What I'm most excited about, though, Paula, is that neither option he laid out in front of us sounds horrible. I mean, having the great job that they have now and maybe having to cut back a bit, they'll still be able to do some of the education with their kids that they want to do or this new world. I think they both sound great, but it does feel like there might be another solution. But I still, though, Walker strongly think I think the place you begin here is what do you want to do and work backward from that point, fully realizing that what Paul is talking about, that there may be other solutions. Don't get locked into the solution.

get locked into what the objective is, which I think there's an important distinction there between objective and the solution. Yeah, don't get locked into the solution. Well, said. Well, thank you, Walker, for that question. Have fun with whichever choice you make. We'll come back to the show in just a second.

But first, or final question today comes from Melissa. Hello, Paula and Joe. I am a new listener, so please forgive me if I'm asking a question already previously answered. My name is Melissa. I am 44 years old. I live in Fort Lauderdale, Florida, and I am in a major financial rut. I earn $112,000 a year, but I have no savings and nothing for retirement. I purchased my first home two years ago, but I believe I picked the wrong house. I just had enough to get in the home with the FHA loan, but within 18 months, I have had to do $15,000 in repairs. And yes, I have to get loans. I was recently told I have to do another

$15,000 electrical repair, which is another loan. My debt to income is about 45% already. I would like to retire at 60 years old and I need to start somewhere. My question is, can you give me some advice as to where I should start? Melissa, welcome to the Afford Anything community and thank you for your question. A couple of things strike me right away. One is that if you purchased this home two years ago with a 3.5% FHA loan, that means you locked in an ultra low interest mortgage rate compared to the mortgage rates of today. So that's the good news. You got a home two years ago that was offered on a very significantly lower interest rate than anything that you could find today. And you're in Fort Lauderdale, Florida, where home values have appreciated significantly.

You didn't mention what you paid for the home, but your home is likely to have a good deal of equity growth that has taken place over the last two years. Your DTI, your debt to income, is high, and that concerns me. But the specific repair loans themselves, do not. And what I mean by that is, functionally, what you have borrowed slash will borrow to be in this house is the amount of money that you borrowed to purchase the house plus an additional $30,000, the 15K in repair loans that you've already had to make, and the 15K in repair loans that you are about to make. So the total amount of money that you have borrowed for this home is the amount that you initially borrowed plus. an additional 30K. And sometimes if you look at it like that, you rather than thinking of these as three separate disparate loans, if you look at it as a basket sum, this is what I borrowed for this house, it feels a little bit more manageable because then you're thinking of it as one loan or one basket of loans, like this is the loan for the house, rather than as three

separate loans. I don't know how you borrowed the money for the repair loans. And the reason that that matters is because the way in which you borrowed the money would have implications for what kind of interest rate you're paying. Did you take a personal loan? Did you take out a home equity line of credit? Those are going to have interest rate implications, but assuming that the interest rates on your two repair loans are relatively low and knowing that the mortgage interest rate on your house is definitely low because you bought it two years ago. The overall picture doesn't seem too bad. You know, the DTI could be lower,

but the overall picture doesn't concern me as a debt story. What does worry me more is that you want to retire in 16 years. You're 44 years old. You want to retire at 60. At any age, starting from zero and retiring in 16 years, is a huge undertaking. That's true whether you're starting at the age of 20 and you want to retire at 36, or whether you're starting at 44 and you want to retire at 60,

or whether you're starting at 60 and you want to retire at 76. Doesn't matter the age. Going from zero to retirement in the time span of 16 years is a very big goal. Yeah, I don't know that there's an easy solution here. I think that this is where diving into ever, everything begins to really count. And so I think this is where, Paula,

we really have to get great at some of the fundamental things. Because I don't think there's anything that she can really do about this repair beyond what you talked about, right? I mean, this repair is going to happen. She'll probably have to take on more debt. That is not good. And even in the question, I can feel of frustration.

So I think that we begin doing the foundational stuff. And we don't look so much long term as we do, short term. So number one, are there expenses that she can cut for the inevitable debt repayment that's coming? And there are three main areas to look at. Housing we already talked about. We can't really do a lot there. I mean, she could try to move out of this house. She's locked in such a great interest rate. I know, I know. But still, she could try to move. That is always the number one. It's always the most difficult, right? There's three things. And Paula, you already know what I'm going to bring up.

So there's number one. But when you lock in number one, it's always the difficult one. Second is transportation cost. I don't know what that looks like. Third is grocery bill, right? Those are the three big things. And one thing that just the average person does is they throw out about a third of the food that they have. So everything for a meal planning.

I mean, this is when we're looking at really little things. So those are the three basic expenses to cut. but as Paula, you've heard me say before, you can't shrink your way to greatness. Greatness is through income streams. So what can we do there? Study after study shows that we are not making as much as we possibly could by doing one of two, one of three moves, really. First one is asking our boss for a raise.

Studies show our bosses want to give us a raise, but we haven't asked. And they're not going to go volunteer that. So that's number one. number two is looking at a company using your skills and using the lateral move to get do the same type of work but make more money and the third is much like blues talking about having some sort of a side hustle you don't have to do skateboard videos but you might have some side income that's coming in that will help you raise the income stream and then we can start working on a few things we know this is going to happen again it will happen again there is no way

way that Melissa's going to go the rest of her life and bad things aren't going to happen again. So we begin to build an emergency fund for the next time. The mistake will be, Melissa, you're going to want to take every dollar that you bring in and you're going to want to repay that debt. And over the short run, when you look at the interest, you go, yeah, I don't want that interest around. But that is a huge mistake because life happens and this will happen again. I would split your debt repayments and to get the debt paid down and put money to the side that's for the next time that this happens.

Joe, I'm curious what you think about this. She's 44. She wants to retire at 60 years from now. If she were to pretend that she had a 15-year mortgage, I know she's got a 30-year, or at least I assume she does. It's an FHA loan. But let's say, and Melissa, there are tons of free online calculators, right? Play with these online calculators, figure out what would the payment be? And remember, the total amount that you've borrowed is the initial borrow plus 30K extra, right?

What would the payment be to pay that off as though it was a 15-year mortgage? Play with the online calculators, figure out that number. And then construct a budget in which you are paying off this home as though it's, It's a 15-year mortgage. You're not going to refinance the mortgage. You're going to keep what you've got, but you're just going to pretend it's a 15-year mortgage and budget like it is and pay it like it is. And by doing that, that means that when you are 59 years old, one year shy of your goal retirement year, this home will be paid free and clear.

If you can go into your goal retirement year with a fully paid off home, you're not going to have a whole lot. lot of other expenses. You've got transportation, so, you know, car, gas, car insurance, you've got groceries. Those are the other two major expenses that a person has. You have property taxes on the home and homeowners insurance. You know, those never go away. You live in Florida, which is a state with no income tax. So once this home is paid off, you could maybe not stop working completely, but perhaps go to part-time to cover transportation, food, property taxes, and take a partial retirement at 60. I think that accelerated payoff of this home will do two things. It will both reduce your debt-to-income ratio and kind of like what we were talking about at the beginning of

the episode, how Blue wants the goal of bill reduction. I'm not a fan of this. It would also reduce your bills. Yeah, tell me, Joe. I'm not a fan for a few reasons. Number one is I think she needs this fundamental bedrock that I described first. But then second, is it the interest that she's going to save by paying off that mortgage early versus the fact that if she took that same money and invested it? By the way, I don't like playing that game. I don't like playing the invested money versus the versus the debt payoff game. I prefer to always pay off debt, except when I really, really need that return bad. So I will make the suboptimal move of going toward a debt payoff strategy when I can,

but here I feel like we need the optimal move. And the optimal move is get money invested, forget about the debt. It's at a low interest rate. You're going to have that payment. We got to beat the payment over a long period of time. We do that through a strategy of buying index funds. We get money invested. And to do that, she still needs this fundamental stuff that I talked about earlier. So I'm not, in theory, I'd be like, yeah, in this particular situation from what we know here, I'm not a fan. Yeah. I, I 100% see the logic in that. The thing that is, the sticking point for me is this 16 year retirement goal because that 16 years is so aggressive. Well, but it's because it's aggressive that we need the higher interest rate. Like, that is the

optimal, optimal move. It can't just feel better. It's got to be more. Like, we, We're going to need more with a capital M-O-R-E. So to get more, we've got to have a high interest rate with 16 years. I'm going to bet on that index fund. I'm going to bet on the economy to do what it's done over 10-year periods of time. And that's going to beat the heck out of a payoff-the-deat early strategy. Yeah. I mean, that's true.

I mean, mathematically, that is true. I suppose it depends on what type of retirement you want, Melissa, when you are 60. do you want to completely retire and not bring in any income or maybe bring in like 20% of what you're currently making? Or do you want to scale back, maybe go to part-time, bring in 50% of what you're making? You know, what is that retirement going to look like? And how much money, if any, will you be bringing in past the age of 60? Because that to me is, you know, Joe, so I think where you're coming from is math. and where I'm coming from is risk.

Like if she's going to be in a position... Yeah, you're clearly avoiding risk. Yeah, I am. I'm avoiding... The reason that I want her to pay off this home before she turned 60 is because holding a mortgage after retirement carries a lot of risk.

And so where my brain is at is I want her to get rid of her risk prior to her retirement date. Which is funny because I only have taking the risk when I think the math is not going to work because the math truly works. If the math truly works, I'm going to go with the suboptimal payoff the debt. I do the exact opposite. If I think we need returns, returns, returns, well, then certainly we're going to use math

to get that. If I think that we can go suboptimal, then I'm going to do that. So in this case, that's why I'm diametrically opposed. Hmm. All right. Well, Melissa, you've got, you've got Joe and I who have completely, so essentially I'm saying pay off the home in the next 15 years. And Joe is saying. And I'm saying, Melissa, my way's way better. Yeah. Joe is saying, Melissa, make the minimum payment on all of your debts. Just be okay with making that minimum payment. And then shovel every penny that you can into retirement accounts and investment accounts. And if that retirement account gets big enough, Paula, what you do is use that retirement. retirement account then to make the debt payment, right? So you get to the point that that money will actually fund the debt repayment for you. That is the goal. We have the same goal. We want to get rid of that thing. But mathematically, I think we can do it quicker by establishing a S&B 500 fund or a total market index fund. I'm kind of agnostic as to which one of those two you use. And that is your

debt repayment strategy. Take all that extra money. Don't throw it in the 15 year. Let's use some math. Let's use some history. Let's use the fact that the economy needs to continue for us all to continue. And let's put that to work. And Melissa, I don't disagree with Joe. I want to make that clear. Even though we are advocating to different things, I think that what Joe is saying is very smart, totally spot on. So I don't disagree with him at all. I simultaneously endorse his position while also. I'm just incredibly nervous about Melissa holding on to a loan after she retires. And that's why I really want to answer the question of after the age of 60, is she going to be bringing in money or not? Because Melissa, if, you know, everybody has a different definition of the word retirement, if what you mean is at the age of 60, you want to go to part time and you're still going to be bringing in half of what you currently make, in that case, I'm much more comfortable with going with what Joe is suggesting, because I'm much more comfortable. comfortable with you having a mortgage past the age of 60 if, if, if, if you also have part-time work past the age of 60. Where my risk tolerance starts to really flare up is the idea that you would have outstanding debt but no income. You could pull early money from retirement accounts at the age of 59 and a half, but you can't even claim social security benefits at the age of 60,

nor would you want to. I mean, ideally you would want to be delaying your Social Security withdrawal for as late as you possibly can. That's one of the best, quote, unquote, returns that you can ever get is delayment of Social Security. So you want to push that off, which means that if you retire at 60, you know, what are you going to be drawing from? And so that's why it makes me very nervous that the idea that you would have outstanding debt while simultaneously not having an income and while while. also having not much to draw from. But, you know, the more I talk through it, Joe, the more I like your idea. I am pretty brilliant. I know mathematically yours is the one that checks out. It's just that math doesn't always account for risk, you know? Well, and the other thing that it doesn't account for,

and let me tell you, this is important for Melissa to know too. It also doesn't account to the fact that human behavior is the key. And the path that I'm recommending, not the piece about building a foundation or looking for more income or cutting expenses, I think those are just basic. But this piece about not paying off the debt quickly and instead investing it is a behavioral thing. And I think the thing Paula also will believe is that my strategy is an easy one to abandon. when things start to go bad. Yeah.

Because it will be a roller coaster ride if you take my advice there. It will be a roller. There is no doubt. Historically, it always has been. Historically, you always won, but historically, it's always been a roller coaster ride getting to the win. And by the way, historically, looking at all the big companies, Fidelity has done this research before. Schwab has done this research. TIA has done this research.

So many companies have done it. Behavioral economists talk about it. The problem is not my strategy. the problem is you will abandon it too soon. You will abandon it. People abandon strategies that are like this one. And while the market continues on, people don't because they give up on it. So if you do take my advice, I think you have to be aware that it's going to be a bumpy ride. So, Melissa, I know this wasn't a clear answer to your question, but essentially, Joe has given you the mathematical answer. I have given you the behavioral answer. I have given you the behavioral. slash risk averse answer. Right, right. The behavioral answer. The one you will stick to. And maybe a hybrid of those two is what you end up pursuing. Maybe you aggressively pay off the 30K in repair loans and pay off the mortgage until you can get rid of the mortgage interest payment that's associated with an FHA loan. So you pay it off until you get to that 20% equity and then switch the strategy. right? Maybe that's the solution. But one way or another, the two buckets that you want to be

aggressively filling is the investing bucket and the debt paydown bucket. And I'll add a third leg to that. Start thinking about what income you might want to make past the age of 60. That's going to be the key. So thank you for your question, Melissa. Best of luck with your retirement. And also, congratulations on the home. Florida is a rapidly appreciating market. Property values in many parts of Florida have gone up significantly over the last two years, and you've locked in a fantastic interest rate. So congratulations on that purchase. Joe, we've done it.

I can't believe we did it. Thank you for joining us. Where can people find you if they would like more of you? You'll find me at the Stacking Benjamin's podcast every Monday, Wednesday, and Friday. We've got some great guests coming up. We've got some interesting discussions coming up, Paula. So join us over there for what we call the Greatest Money Show on Earth. It's very much a light variety show about financial planning.

So come say hi. Excellent. That's at the Stacking Benjamin's podcast available wherever finer podcasts are downloaded. Only, only the finer ones. Only the finest. Well, thank you so much for tuning in. My name is Paula Pant. This is the Afford Anything podcast.

If you want to chat about today's episode, any thoughts that you had any opinions, come share that with the Afford Anything community. That's affordanything.com slash community to tap into an amazing group of like-minded people. And don't forget to subscribe to our show notes. Affordanithing.com slash show notes. Thanks again for tuning in.

My name is Paula Pant. I'm Joe Sal C-Hi. And we will catch you in the next episode. Here is an important disclaimer. There's a distinction between financial media and financial advice. Financial media includes everything that you read on the internet, hear on a podcast, see on social media that relates to finance.

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