Afford Anything - Ask Paula: The 5 Types of Accountants (and Who To Avoid!)

Episode Date: October 12, 2022

#407: Ionnie wants to vet her tax professional as diligently as she assesses her financial advisor – how should she go about doing that? Anonymous needs a career change, and she needs help figuring out how to approach the decision making process when choosing and preparing for her next field of employment MM prefers the simple path to wealth and investing in real estate but is looking for more information on a more intentional and selective approach to investing. Ingrid calls in to ask whether she should include her rental income when trying to figure out how much she can contribute to her Roth IRA. Former financial planner Joe Saul-Sehy and I tackle these four questions in today’s episode. Enjoy! P.S. Got a question? Leave it here. Learn more about your ad choices. Visit podcastchoices.com/adchoices

You can afford anything but not everything. Every choice that you make is a trade-off against something else, and that doesn't just apply to your money. That applies to your time, your focus, your energy, your attention, any limited resource that you need to manage. And that opens up two questions. First, what matters most? Not what does society say ought to matter most, but rather, what's a priority in your life? That's the first question. And the second is how do you put that into action?

How do you make decisions on a daily basis that reflect? That Which Matters Most. Answering these two questions is a lifetime practice, and that's what this podcast is here to explore and facilitate. My name is Paula Pant. I'm the host of the Afford Anything podcast. Every other episode, we answer questions that come from you, the community. And my buddy, former financial planner Joe Saul Seahai, joins me to answer these questions. What's up, Joe?

Paula, how are you? I'm great. How are you doing? I'm fantastic. And you know how last time I was here, we talked about how these, these, these, topics we do tend to self-select themselves into themes. Like the people that call in have a theme and today is no exception. I think we're going to have a theme.

And how would you describe that theme? Advisors and advice. Advisors and advice. All right. Well, on that theme, we're going to kick off with a question from Iani who wants to know, well, you know what? I won't spill the beans. No spoilers.

Here's Ionni's question. Hey Paula and Joe. In all of the wisdom and guidance shared about how to vet a financial advisor, how can we do the same when choosing a tax advisor or prepare? What questions should we be asking to make sure our tax person is knowledgeable and up to snuff? How can we do our due diligence in this area the same way we've learned to do it in the personal finance area? Thanks so much for your thoughts and response. Iwani, thank you so much for that question. And Paula, there's a lot more to know here than the average person thinks.

Because when it comes to tax advisors, it isn't as cut and dried. Financial advisor, there's really, there's a lot of different designations, Paula, but let's be real. Certified financial planner, fiduciary, right? Check those two boxes, you're probably good. When it comes to getting your taxes done or asking for tax, Tax advice, there's so much more to know. So this is a great question because it depends on who you are and what you're really looking for. So let's go over five, five different options you have when it comes to tax advice.

And I'm going to give you the most basic one first. All right. Option number one. Option number one is if you have a very simple financial issue, a surprisingly robust resource is the tax preparation software that you may use to get your taxes done. Because they have... This is for people who have very simple taxes. Very simple taxes.

You can go in, and many of these tax programs now, Paula, they have videos, they even have people that you can access. So if you've signed up for a software package that you pay for, you may have people at that entity that can answer your question. Now, I would make sure those are fairly simple questions. We don't know who's on the other end of that call. call. We do know that these companies, though, because they want to preserve their reputation, want to have at least some level of training and professionalism. But if you have a very simple

W-2-based question that may be about putting money into IRAs or can I deduct this off of my taxes, what charitable contributions count, those types of things, you might be able to get away with that. So an example might be, let's say, a college student who has some W-2 income and no other major assets or no other complicating scenarios. Or let's say somebody who's fresh out of college, they're 22 or 23. They're working a full-time job with a W-2 salary. Maybe they've just opened their first 401K. They rent their primary residence and they have no major assets or invest. or any other complications.

Yeah, could be very straightforward. And resources that have been looked over by professionals and they feel comfortable enough that they can put these, you know, videos or blog post or whatever they might be into a database. And the people that are on the line are people that have been trained. Those people can be a first line of defense. The second one, and I actually think this one is a little bit worse. And this is kind of a legacy group. You have retail tax preparers.

I agree. Number two is worse than number one. Retail tax preparers don't have to have any type of formal education. There's no formal education requirement. Generally have to go through some training maybe for a couple weekends so that they can use the tax preparation companies. This will be your Jackson Hewitts as an example, that they can use their relatively robust software and input things in the right place. They're fantastic at knowing how to use this

robust software. But when it comes to answering your tax question, if it's outside the bounds of where does this go and how do I put it in a box, I would not be asking those professionals questions because they're professional, Paula, at filling out the form. And they certainly have been well trained. They don't want to disparage the company that they work for, But let's be clear, their job is not to understand the tax code. Their job is to understand how to use the very robust software that these companies really are selling. Right. And as a side note, this is a bit of a tangent, but it's relevant. Real estate agents are trained in how to fill in the blanks on pre-printed legal forms. I was a licensed real estate agent in the state of Georgia. My license

has lapsed, but I had a license once upon a time. Prior to getting that license, I always assumed that if a person was a real estate agent, that meant that they had some level of expertise in understanding the real estate market or understanding how to assess a good investment. None of that is the case. Agent training is learning how to fill in the blanks on specific pre-printed forms. That is the heart and core of agent training. And so, Joe, it sounds as though what you're saying is that that is also the core of the training that tax preparers who work for these retail brick and mortar tax preparation establishments. It sounds as though they receive similar training. Yeah, just like for your example of agents, really what they're

trained in is how to navigate the system, not how to make decisions. It's the same thing here. How do I use this system and that's it? Most people then jump because of that to three letters. When they think CFP on the personal finance part, they think CPA on the on the tax front. Let's talk about CPAs because you're just some super smart people with some fantastic background knowledge. To be a CPA, very generally, people may have some other backgrounds, but very generally, most of these people have a master's in accounting. And they have sat and passed this very rigorous six part test to get their CPA license. This test is a bear, and it makes sure that you know taxes. The only problem I have with hiring CPAs, which is initially exactly where people go to,

is that Paula, there are tons of different expertise on this test. It is not based on just, hey, I've got rental property. There is a section on auditing. There's a section on managerial controls. these are things that could be way outside of what Ione's question is about. So they could be an expert in a myriad of things. And because they have that CPA license, they're going to charge a premium. By the way, rightfully so.

However, I've run into people that don't need this huge level of knowledge that a CPA has because they have a very narrow focus of what they need. I'm not bad mouth in CPAs. I think CPAs are fantastic. Just know what the CPA is actually versed in. And I know there's CPAs out there who are nodding their head. They're a CPA. They haven't done a tax form in years, Paula.

They've done auditing for the last 25 years and haven't helped anybody with any 1040 related tax questions or vice versa. You know, they've done one area and not another. The area of tax is so vast. And CPAs after they sit for that test go. into one area, you want to make sure you know what that area is. So I don't know if this is a good analogy or not, but Joe, your wife as a doctor, do you think that it would be analogous to say, hey, just because you have a medical degree, you know, you might be a podiatrist, you might be a

cardiologist. You don't want to go to a cardiologist for a foot problem. Yeah, somebody gave me some snark the other day because I have a problem with my foot actually. And a friend of mine had some snark and said, well, you know, I don't have a doctor in the family like you do. And I said, no, my problems with my foot and I'm a 54-year-old man. My wife is a pediatrician. She has no idea. And she'll be the first one to tell me and you also don't treat your family. But that's right. Yeah, if I was a seven-year-old, she's my first line of defense. Fifty-four-year-old man trying to get back into marathons that has this weird lump on his foot, not going to Cheryl. Yeah. Right. Yeah. Yeah, exactly. don't go to a pediatrician when you're 54 precisely.

So CPA could be absolutely fantastic and nails it exactly what you want, but Ione, you have to ask the question. So what do you do exactly? What's your specialty? And does that specialty line up with what I want? There's an overlooked group of people, though, Paula, who may save our listeners some money and at the same time are really good at what they do. And these people are called enrolled agents.

Now, enrolled agents also are sitting for a test. However, this is a test that the IRS has that's specifically on the 1040 and how the 1040 works. And it's on filing taxes. So if your question is on specifically filing taxes, an enrolled agent is somebody who can be an expert in helping individuals navigate the tax code and they've passed an IRS test on this. issue, they often have tons of knowledge on that area, but they may not be a CPA. They may be a CPA. They may be a CPA. But for some people, I've known some enrolled agents that are just super duper smart on tax tricks and tax accounting and more than how do I navigate this piece of software are experts in how the tax code works. if you're somebody that is maybe a small business owner who really has a complicated tax form, an enrolled

agent might be a good opportunity. A CPA who deals with that same issue may also be a great resource. There's a fifth one. And the fifth one is also a tax expert. And this is a tax attorney. and I've seen some tax attorneys that charge bagillions of dollars because becoming a tax attorney is difficult and they deal with very, very complex problems. In my opinion, I only go to tax attorneys when I have a very specific, incredibly difficult problem

because the cost benefit of what I'm trying to achieve and hiring a tax attorney, I'm not having a tax attorney fill out my 1040 for me. me. I'm not bringing them my receipts and having a tax attorney work on that. What would be an example of something that you would go to a tax attorney for? I have a gray area with my business and I need to negotiate with the IRS about this gray area on the tax form. I think I'm right. The IRS says that I'm wrong. I need to find out where this gray area is. So if the IRS challenges you on something? Absolutely. The IRS challenges me.

I need an attorney anyway. I want a tax attorney. I don't want a Swiss armed. Army knife attorney who deals with a lot of different issues. I don't want just a plain vanilla contract attorney. These types of attorneys are great for other things. But man, if I'm running a business and the IRS challenges me on some deductions and I think they're right, I want a tax attorney in my corner. But I'm not asking a tax attorney about another question we're about to answer here in a few minutes about whether my Roth IRA contribution is going to have to change. because I have rental income. Right.

So those are the five, as you can hear, my preference is because of the cost-benefit analysis, if I can find an enrolled agent that is super smart and has a lot of experience working on the things that I want, I want that. If they're a CPA as well, bam, that is absolutely fantastic. But again, that supposes that we're dealing with 1040-based problems, which I'm assuming the majority of our audience, those are the types of things we're looking for. At what point would a person know if they need a CPA or if they could go to an enrolled agent? What I'm imagining is that many people in this audience are probably in a situation

in which they're married, they and their spouse both have W-2 full-time income, but they also have some type of a side hustle or some type of 1099 income. They own their primary residence, perhaps they own one or two rental properties. They have a 529 plan for their child. They have a traditional IRA and a Roth IRA and a 401K through their work. If that's the profile of a typical person who's listening to this, and I actually don't know that for a fact, we haven't conducted the surveys, but just anecdotally from a lot of the questions we've received, if that's the profile of a lot of the people who call in with questions, at what point would a person like that know that, hey, my situation is simple enough that I can use an enrolled agent

versus, hey, my questions are specific enough that I should go to a CPA. And if so, what expertise should I look for in said CPA? I think either way, enrolled agent or CPA, they have to have experience. with people that have side hustle income, that have income that's not going to be W2 income. If they have 1099 income, if they work with people that are S-Corp, C-Corp, LLC, if that's who they work with, then either way. I would always want, if I'm going to go with an enrolled agent, Paula, because of the fact that they don't have that master's degree and they don't have that CPA, I'm going to want a lot more experience from an enrolled agent. But I think the best solution

of all is to interview both. I never liked it. Even, you know, now I'm going to flip hats and go back to my financial planning days. It always really frustrated me when somebody would come in to my office, would meet with me and would hire me on the spot without interviewing other people, especially if they didn't really ask any questions. Because I think you learn what questions to ask when you interview more people. And I'm not saying you got to interview 40 people, but I think if you interviewed an enrolled agent with 15 years experience and then a CPA who went through all of the licenses and you compared their fees and the breadth of their service. I think you start to give an idea. You get an idea on two things. Number one, you get an idea about how much that experience

compares to the test. And the CPA is going to have experience also. But you'll also see the ROI that you can expect based on the fees that they charge and the difference in the fees that they charge. And then the third thing actually is that you'll see the way they sell their service. And you'll start to get a feel for the nature of their sales pitch. Because even if, you know, even if somebody just charges a fee, every advisor, no matter who they are, has a way that they pitch potential new clients. And hearing that advisor A pitches this area, but kind of downplays this other versus advisor B that really loves that. area that advisor A downplays, I start to get a feeling for the sales pitch and I also get a feeling

about how I'd work differently together with those people. When I heard agents for my book, you know, this is a similar thing. I interviewed three different agents and I figured out by the third one, you could feel the difference in exactly what they would do for me. And I feel like it was the fact that we interviewed three different agents. And by the way, the third one was the one we went with ultimately too, which I never would have gotten to had I hired the first one, who by the way was also awesome. The first agent we interviewed was incredible. But the third one was definitely a better fit. The only way I knew it was because I interviewed both. And I think sadly, it's what you got to do. But you know what? Here's the thing, Paula. And this is a great thing

when you hire any advisor. This extra legwork that you're going to spend at the beginning of a relationship is going to pay dividends later on. It's going to pay huge dividends later on. It's going to pay huge dividends later on. And the problem that I see when people downplay tax advisors because of course, you can just look this stuff up on Google or financial advisors because you can manage your money yourself or diet advisors or fitness advisors because of course, who needs somebody yelling at you while you work out. Often it's because they had a bad experience with advisors in the past. and instead of thinking about the fact that they may not have interviewed enough people and they may have made a bad decision about the people they surround themselves with, they instead, Paula, go to the blanket, advisors are bad. Right.

So spend a little more time interviewing more people and I think it's going to pay off a ton. Right. And you see this with any field. You see this with therapists. You see it with counselors. anything that requires a very close and trusting client relationship or patient relationship, these are relationship-based services, as much as they are skill-based services. And that means that not only does the provider need to possess a basic level of knowledge and expertise, but beyond that, the two of you also have to be a good fit. and similar to dating, sometimes you don't know who's going to be a good fit until you've been on a bunch of dates. And you have a sense that you enjoy spending time with person X more than

you enjoy spending time with person Y. I think about this, Paula, from the people that you and I interview, because while we interview different people, I mean, sometimes they overlap. We ask them very different questions that we've talked about before, which I think is awesome. I think we can agree that the people that you and I interview for our podcast, best in class, top at what they do, super smart, clearly people because we've vetted these people strongly, and I've learned that over time. I've become even more brutal about the way that I vet the people that are going to appear on my show. Even though they're all phenomenal at what they do, I think it's probably same for you. You got to tell me this because we've never talked about this before. There are people

I interview and I'm like, I would go to the, if this person were my neighbor, I may not have a liver left because I would want to go to the bar every day and just chat with this person because they're so damn interesting. And we've got this connection going on that is phenomenal. It is just, it is beyond an interview. I just found a new friend because of my podcast. And then there's other people I interview where it was a great interview and they definitely helped our community, but it was so flipping transactional. It was just, it's not the kind of person where it's going to be a long-term relationship. I just, we got done.

I got what I needed. They got what they needed. And it's going to appear on the show. And you know, and it worked out well, but this is not somebody where I would, you know, want to be meeting with them every six months. Right, right. And, you know, you can tell as interviewers, you can tell when somebody is giving you the standard boilerplate responses.

I can hear it. When I'm interviewing a guest, I can hear when I'm getting a boilerplate rehearsed reply. Yeah. And my job as the interviewer is to figure out a way to push past that. And then take that boilerplate reply, cut it out of the episode. The joke is fix it in post. Yes. There's a lot that we chop.

For as long as our episodes are, there is a lot that ends up on the cutting room floor. I chop 10 minutes off of every Stackin' Benjamin show. I don't know how much you chop, but it is a big number. But back to that, I guess my bigger point, though, Paula, is I can tell when it's a fit. Right. I mean, there's the expertise. And so you're going to vet for expertise first, and you're still going to review few people for fit. And certainly, that first agent that I talked to, she was an expert.

she was phenomenal, but the third agent I talked to, equally as professional, but definitely a better fit. So I guess, Iani, the answer to your question is the more you interview tax professionals, the better of a sense you'll have for what to ask them or what to discuss during the interviews. I would not hire a tax accountant unless you're having a tax dispute. I would not hire a tax attorney unless it's a dispute or I'm worried about tax law specifically. I also would probably not go to the retail person. If it's incredibly simple, I may go to the software program and see if they have professional people that I can talk to, that they have as professional representatives. If it's super simple. And if it's not, I need to know that the CPA, while these are incredibly smart people, it's a wide range of things.

things they're, they're professional about. So I want to make sure it's my things. That's where your question should be. When you ask what questions and how to vet and do your due diligence, question number one is CPA covers a lot of stuff, which one of those is yours? And then if it's something that pertains to anything around the 1040, how to, how to do tax planning for your business, I may even open your search up to enrolled agents because those can be pretty good people too. How about that, huh? Well, that was a great thing. Thank you, Joe. I learned a lot from that answer.

So thank you for that very thorough answer. And thank you, Iani, for asking that question. We're going to take a break to hear a word from our sponsors. And when we come back, we're going to hear from an anonymous caller who needs a career change. And she needs help figuring out how to decide about her next field of employment. We're also going to hear from Ingrid, who's curious as to whether she should include her rental income when trying to figure out if she can contribute to her Roth IRA. And we're going to hear from M.M., who has been following the J.L. Collins' simple path to wealth

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Our next question comes from an anonymous caller, and Joe, we give every anonymous caller a nickname. And typically this nickname is based on some type of media that you're consuming, because we all know I don't consume media. And now, I mean, I'm deep into course of business journalists. study at Columbia University, so now I'm really not consuming any media. We could name Anonymous after a great journalist. Maybe in the future we should do that. Have you think of some great journalists? But I do have one today. I was prepared. Oh, fantastic. I'm trying to get caught up with this series that everybody has recommended.

And I've done the Steve Martin Masterclass on comedy as I continue to learn about comedy and get better at comedy stuff, which people listening to afford anything. I'm like, why the hell would you need that? Because on stacking Benjamin's, we try to make sure the show is very light. And I realize we know a lot about finance, but in terms of the entertainment value and the comedy background, we want that. So I continually am taking courses there. But because of that, I started watching this series on Hulu called Murders in the Building. Have you heard of Murders in the Building? Oh, yes, yes. The only murders in the building. Only Merritt. With Steve Martin and Selena Gomez. I have not watched it, but I have seen the ads for it everywhere. Imagine that you're Selena Gomez and you're being cast with Martin

Short and Steve Martin, two of the greatest comedians of all time. Like, how freaking intimidating would that be? Especially when Selena Gomez's background, not as much in acting as it is in music. I mean, she's done some acting, but I would just be so intimidated. with these two legends. And she kicks ass. She is amazing in the show. And it's fun. It's funny. It's interesting. So I thought we should call her Selena. Oh, I like that. In honor of a great singer who has now proven herself to be multi-talented. Yeah. Especially if somebody's looking at, well, that foreshadows a little bit. Maybe we should just listen to it. Oh, that is some foreshadowing, a little career change. There we go. All right. Well, then our next question comes

from Selena. Hey, Paula and Joe. I have a question around frameworks for career changing decisions. For context, I am 29 years old. I am currently working as a high school administrator where I make $70,000 a year. I like parts of my job. I like parts of my job. but I don't see it as something that is going to be sustainable for the long term due to the stress and workload. So I am interested in changing to a different career. I'm wondering about your recommendations for frameworks in figuring out how to choose a career. I think the things that I've looked into the most so far would be changing a career to tech or changing a career to something involving data analysis. Those are just really the two things I've looked at most recently. Additionally,

how would you recommend choosing a way to transition to a different career? So I'm thinking when I choose what career I want to be aiming for, how should I tackle the problem of getting any additional education that I might need or getting certifications? What do I do to actually make that career change happen? Another factor that I'm thinking is that I completed an AmeriCorps program, and I have two years worth of AmeriCorps grants, which equal about $11,000. And I can spend those on education. So that's an option or resource that's available for me, too.

The first of those AmeriCorps is going to expire next year, and the second will expire the year after next. So there is a deadline on those. Selena, thank you so much for this question. I'm excited for the big adventures that inevitably lay ahead in your future. We're going to talk about both of your questions. So the first element of your question is how do you decide what new career to go into? And then the second one is once you've made that decision, how do you approach going into it? So where do you go and how do you get there? We'll start with where do you go. I'm going to refer you to two previous

podcast episodes. One is episode 321 with Ashley Stahl. I'm going to summarize what we talked about in my answer to your question, but you should listen to episode 321 for the full explanation, beyond the synopsis. The second episode I'll refer you to is episode 313, 313, with Gorick Ng. He is a career advisor at Harvard. He's a graduate of Harvard Business School. He was a first generation college student. He's a member of the Afford Anything community, and he published a book about the secrets to kicking off your career. It's called The Unspoken Rules, is the name of his book. I'd recommend both of those episodes. You can navigate directly to them at affordanything.com slash episode 321 and afford anything.com slash episode 313. But that said, let's talk about

some of the advice that Ashley Stahl gave in episode 321. She discussed the concept of determining your core nature, your core skill set, and your core values. And we're going to distinguish between each of these three things. Let's start with your core nature. Your core nature references the ways that people describe you, who you are when you are in your most natural, relaxed, honest state. How would your family and friends talk about you? How does a room feel different when you walk in. If your core nature, for example, is super outgoing and extroverted, very performative, very showbiz, very limelight, that's going to inform the type of career that you choose. If your core nature tends to be bold, curious, funny, then you'll know that there are

certain types of careers that are better fits for people with that nature. So that's one element to consider. The next is core skill set. And the 10 core skill sets are words, innovation, building, or creating, technology, motion, or kinesthetics, service, beauty or aesthetics, coordination, analysis, and numbers. Each of these are skill sets, core skill sets. And that doesn't necessarily refer to what you've been trained in. It's what are you naturally good at. Do you, you, Do you have an eye for aesthetics, an eye for design? Are you naturally great at coordination? Are you super hands-on?

These don't relate to the training that you have. These are simply skill sets that are innate. Those are your core skill sets. And finally, there are your core values. So your values, for example, might include lifelong learning. It might include courage. It could be creativity. It could be empathy, faith, family, prosperity, authenticity, self-expression, perseverance, growth, health, friendship. So there's a long list of values. And when you sit down with this list of values and prioritize, circle the three or the five that are most important of this list of values. That in conjunction with, with your nature and your skill sets, that can point you towards the types of careers that could be a good fit. I love that, Paula, the contemplating that you do up front about all these

different areas and the different pieces of your personality, because I think that we get a few ideas in our head about what we want to do, what we may want to do, and we exclude other things. I have nothing to add there. What I will say is, I'm a guy who did this. I mean, at 39 years old, I decided to sell my financial planning practice. And my original goal was to go back to school to become a high school English teacher and a track coach. What I would do differently up front was something that old Greek philosophers have talked about, which is widen what your desire is because when I narrowly focused on being a teacher, as I dove into that more, I found out that that really wasn't what I wanted to do as much as I just wanted to teach people about

these topics that I really cared about. So becoming a formal teacher, it turned out, wasn't as interesting to me as teaching. And when I broadened things later on after I, by the way, took all the tests and took classes for a year. I realized that I needed to broaden my perspective because this was not the path that I wanted to go down. Had I broadened it earlier on, Paula, I probably would have gotten there more quickly. So I might start off with the idea of teacher as an example and then think about all the ways that you could teach if that's your goal. Had I had more of an open mind instead of, oh, I like teaching. Bam, I'm going to become a teacher. I like real estate. I'm going to become a

realtor. I like taxes, so I'm going to be a CPA. Like, there are so many different ways that you can tackle these things. Right. Exactly. I mean, because what you do right now as a podcast host is very much in the role of teacher. That, and now, that's expanding, right? You and I both have community. People ask us questions, the books, the blog posts. Yeah, it's full on teaching. Selena, to the second part of your question, which is when you decide what you want to do, how do you start doing it? My recommendation for that is to look at people who have the ideal career that you decide that you want and see how they did it. But don't follow their path

in a prescriptive manner. Instead, widen the lens to see not what they did, but rather why they did what they did. And I'll give you an example from my own life. So at the beginning of my career, I decided I wanted to be a journalist. The conventional path for that is to get a master's degree in journalism and then get a job at a major news organization. But I knew coming out of undergrad that I, at that time in my life, did not have the experience or the achievements to be able to go to a place like Columbia, which is the best journalism school in the nation. That was my dream. And I knew that straight out of undergrad with a major in sociology and a minor in philosophy, there was no way I was getting there and no news experience. So I talked my way into getting a job at the local newspaper in Boulder.

I worked at that local newspaper, daily newspaper, for three years. During those three years, it became clear to me that the future of news media was going to be online and independent. And so I transitioned from working at a daily newsroom to becoming a full-time freelancer. And from there, I transitioned from being a freelance writer to running a content management agency. From there, I transitioned to developing my own brand and platform, which is afford anything. And it started as a blog back in the days when blogs were bigger than they are now. From that, it transitioned into becoming a podcast. and it was after that iteration, you know, you can trace the flow from newspaper reporter to

freelance writer to blogger to podcaster. You can trace that flow, but it seems like quite a departure when you compare where I started from to where I ended up. And now that the podcast is established, now that Afford Anything has a reputation in the personal finance space, we have more than 400 episodes. We have over 22 million downloads. Now that we're established, I then took all of that experience and standing on that experience finally achieved the dream that I had back when I was 21, which is to go to Columbia

University and get formal training, master's level training in journalism. But I'm not doing it to work at a news organization, which is what I would have done had I had I done this at the age of 21, I'm not doing it for the sake of working at a news organization. I'm doing it for the sake of learning for the sake of learning so I can take all of the skills that I acquire there and bring that back to afford anything and continue to do exactly what I'm doing now, but just be better at it, right? That's pure following my curiosity. It's pure learning for the sake of learning. I'm putting myself through this training through the most rigorous and best journalism training in the nation so that I can keep the exact same job in the exact same role

that I currently have. I just want to be better at it. I just want to be better at what I do. And so if someone were to ask, how do you get the job that you have? A lot of people either take a traditional path and get lucky because traditional paths are cluttered with gatekeepers and you have to be lucky enough to get past those gatekeepers. So either you take the traditional path and gatekeepers like you, or you take a non-conventional path. And if you take that non-conventional path, as I did, then when you reverse engineer it, the question isn't what did you do. The question is, why did you do it? Why did you make each choice in that moment? And once you understand that, and you can understand that just by talking to those people, once you understand why they made the choices

that they did, that will inform how you approach getting the job or developing the career that you want. And one last thing, you don't necessarily have to go back to school. The fact that I'm going back to school right now is the reward rather than the precursor. I get to go study journalism not in order to become a podcaster, but rather because I am a successful podcaster. It's very reversed. I developed success in my field first, and the success that I developed in my chosen field became the basis of my admissions rather than vice versa. And that's the inverse model of what most people assume. And I think that highlights that not only do you not need formal education in order to succeed in your field, but sometimes if you do

want that formal education, it'll come at the end of your career or it'll come when you're 10, 15, 20 years deep into your career, mid career. And you get it because you're already good at what you do and you just want to hit pause, take a one year sabbatical and deep dive into becoming even better. I do not regret any of my time in the post-BA teaching program, although I'd say that only about a third of it ended up being usable when it comes to what I do now because of the fact that I learned so many things that help what I do now. That piece that is valuable is incredibly valued. And I feel like it gives you confidence that you can do it. The interesting thing is part of the reason for that, Paula, is that I'd already had a career. And this is where Selena, I think, is going to be in a position of power. She's already had a career.

She'll know why she needs the education. Studies show that people that are mature and have some work experience are more likely to get high grades. And I had a straight A, my one year back in college, straight A student, Paula. And the reason it wasn't, and I'm not bragging. The reason is I knew why I was there. I was paying for it. I had a focus that was pretty laser sharp about what I was looking for from that. And I would guess that during this educational experience that you're embarking on, you're going to have the same thing, where you're going to know exactly what you're taking from this and why it applies. And you're also going to know the pieces that don't really apply. What was funny for me was that my professors, because of the fact that they're they came to the class with a bunch of experience, the test questions that we had were always aligned with the stuff that actually mattered, which was incredibly interesting. Like, I knew what I was trying to get out of it. And the teacher knew what you really needed to know.

And I think the reason I did so well was because I had had some life experience. So I think you'll do really well at this program because of that. And I think that Selena will probably need some education. in whatever she goes into, but this idea of designing the curriculum that fits what you're trying to do versus just, quote, going to school and then some parts fit, some parts don't. I really like designing a curriculum. I mean, ever since I started as a podcaster, I consistently have a curriculum of things that I'm studying to get better at what I do.

Joe, I know you and I have talked behind the scenes many times about what my next course is going to be because I've never wanted to be pigeonholed as a real estate person. I've wanted to build multiple courses so that I can teach this community not just about real estate, but about a multitude of topics. I am incredibly interested in cryptocurrency. It's here to stay. It's going to be a bigger and bigger part of our future. And I know everybody is like, oh, but it crashed. Yeah, well, don't think in one year terms. Think in 10 year, 20 year, 30 year terms. Can we talk about that for just a second, because I know you're going to talk about our things, I think the fact that it crashed, and not just that it crashed, but we talked about this the last time I was here about the fact

that all those so-called teachers washed out, right? All the BS artists, not all of them, but the majority's BS artists washed out. I think that happens as any field matures. You get these people to think they're going to make a quick buck and they're going to teach you the snake oil. And when it becomes clear that that's not it, you really need a fundamental knowledge, then the real teachers begin to appear. So I think we need teachers in crypto more than ever. Yes, exactly. And that's because of the experience that I have in this field, the experience that I have as a podcast host for afford anything, I've been able to see that. And that's my focus of study at Columbia. I'm writing my master's thesis on cryptocurrency. So I want to put myself in a position where I can be a true teacher

of crypto, not just one of those... Diamond Hands All In. Exactly. Cryptok influencers, right? There is a distinction between someone who writes their master's thesis on cryptocurrency at Columbia University versus a Cryptok influencer. It's because I've spent 11 years running the Afford Anything brand and platform, six years of which I've been the host of this podcast.

It's because of all of that. that I've come to recognize the value of this. So, Selena, to your question, how do you know how to get the career that you want? Again, it's an iterative process. You're never done. Your career is not going to be stagnant. It's not static. It will be dynamic and it will be iterative.

And each step that you take will lead to the next. But to get started, look at the people who have the role that you want. look at how they got there and don't follow their formula prescriptively, but rather ask yourself, why did they make the choices that they made in that moment, given the historic conditions at the time, and given the resources that they themselves had at the time, why did they make the choices that they made? And once you can understand the why behind their decision making, that will inform the way that you choose to navigate approaching a given set of doors. So thank you, Selena, for asking that question. And best of luck with whatever career you go into next.

We are going to take one final break for a word from our sponsors. When we return, we're going to hear from MM, who has been following an index fund path and is now interested in beating the market. And we're also going to hear from Ingrid, who is curious about whether or not rental income has an impact on Roth IRA eligibility. Stick around. Our next question comes from MM.

Hey, Paula. Hey, Joe. This is Anonymous calling from Minnesota. If you want, you could call me anonymous. Well, heck, you could call me MM, if you so choose. Hey, I'm really excited to ask you all this question. And I'm going to frame the question first and tell you a little bit about my scenario. So I've never been interested in anything other than the simple path to wealth since I just governed it in probably early 2019. And we fired a financial planner in 2019 and took over our investments ourselves and said goodbye to his one and a half percent assets under management and the super expensive mutual funds that he had two thirds of my money in. And then about a third of it, oddly enough, was in a S&P 500 index fund. But I digress. So I've been on the simple path

to wealth. But listening to your podcasts, I've heard you talk about the efficient frontier. And, you know, you talk about individual stock picking once in a while when you get questions. And I'm not interested in stock picking per se, but I've read the Paul Merriman approach now, the ultimate buy and hold portfolio where you use a target date fund and add in small cap value. And I think there's some other alternative methods within that book that are a little more enticing to someone like me. Then I'm reading this other book called the little book that beats the market, or that still beats the market by Joel Greenblatt. And I'm curious if either you're familiar with it.

They talk about some pretty awesome returns. and it certainly requires more effort. This is not the simple path. There's no question about it. So I wouldn't call it tinkering, but it's certainly being intentional. I'm just curious if either of you have been familiar with this work or done any research into it or know anyone in the community that has or maybe even a resource you could point me to that has done a third-party, very open-minded review.

Now, full disclosure, I'm halfway into the book. And so far, they're only talking about about a 17 or a 20-year time period, which I think is a joke and thus why perhaps this method is not something I'll ever pursue, but I am curious. So here's my situation. My household income is probably just over 300,000 in 2022. I'm a high earner. I earn about a quarter million myself. And then the rest of that is some income from my wife and some real estate income. We would be doing this strategy or implementing a different strategy only within a tax-deferred account. So it's our IRAs, our Roth IRAs and our 401ks. We don't have any money in a taxable

brokerage. So we max out every option that we have. And then after that, we do our other investing. Instead of having a taxable brokerage, we really like real estate. So I just got into my first syndication. I'm trying to get into another syndication in the next 30 days. And if not, if this one doesn't work out, then I'm hopeful to do one by the end of summer or early fall to get into our second syndication. And that's where we're going to continue to dump our aftermarket, or I'm sorry, after-tax money, because I like the diversification. I love real estate. We've done really well on our two single-family rentals that we own.

And this is really just a strategy to help sharpen up our, you know, maybe 10-year money. We do intend to do Roth conversion ladders whenever we take the work optional path and use that money for that. So curious if you guys are familiar with this method or any strategy similar. And I appreciate you taking the time to listen to this. I will leave you with this. I have just started listening to your episodes in the last, I don't know, two months, something like that. I'm aware of you, Paula, I've heard you on other podcasts.

And I've just never jumped over and listened to yours other than the infamous Susie Ormond episodes. But I recently started listening to your newest stuff and working my way backwards as well. And I'm currently listening to the two of you pontificates your way through March and April of 2020. So things are a little bit different. Hope I hear back from you. Thank you so much for the help. You guys put on a great show.

I love listening to you. Thanks a lot. Bye. M.N., thank you so much for your question. I'm thrilled to hear that you are clearly an enthusiastic member of the personal finance and financial independence community. You have embraced the simple path to wealth. And for the listeners who are not aware of what that is, the simple path to wealth is a reference to the title of a book written by J. L. Collins. J. L. Collins was also a guest on this podcast. In the show notes, we will link to our interview with him. And specifically,

he sings the praises of a total stock market index fund, such as the Vanguard Total Stock Market Index Fund, VTSAX, and emphasizes the value in simplifying your holdings to the point where it could be as simple as a total U.S. stock market fund and a total U.S. bond market fund, and perhaps it might even be as simple as just that. Now, it is important to note that the title is the simple path to wealth and not necessarily the most optimal path to wealth. There's a distinction between simplicity and optimization. Joe, when you and I talk about the efficient frontier... My favorite topic. Exactly.

As you know, I'm not kidding. Exactly. It is. It really is. Someone should play a drinking game where they take a tequila shot every time you say the word efficient frontier. But when we talk about that, we are discussing a strategy for boosting risk-adjusted returns while staying in the context of not trying to beat the market, while staying in the context of continuing to prioritize passively managed index funds.

We're not talking about individual stock picking, but we are talking about asset allocation strategies that go beyond the simple path to wealth. So J.L. Collins, as the name of his book, overtly states, is prioritizing simplicity above optimization. And from a behavioral perspective, that works for millions of people. Because as we know, behavior supersedes rigorous mathematics when it comes to long-term returns. And I think the next person to define for people who aren't familiar with this work is Paul Merriman. And Paul Merriman takes J.L. Collins, simple path to wealth and frankly just adds the next step, Paula, where instead of one or two funds

has a three fund approach that is also very simple, a little bit more toward the efficient frontier. So as people start to decide to maybe get a little more optimal portfolio, Paul Merriman is the next step on that ladder just so people know who these names are that he's referring to. Right. And Paul Merriman was a guest on our show in episode 300. You can navigate to that at Affordanything.com slash episode 300. J.L. Collins, by the way, was a guest on our show way back in episode 31. Back in the day, that was 2016. So we will link to all of these in the show notes. You can subscribe to the show notes for free at Affordainthing.com slash show notes. You know, I think these are important people on the ladder, too, Paul. And I love the way that you frame the show notes. You know, I think these are important people on the ladder, too, Paul. And I love the way that you frame the show notes. discussion because I love also the simple path to wealth and I love it for one reason. I mean, my whole MO is that we leave too many people behind. And I think the simple path to wealth makes us all realize that it doesn't have to be complicated and it gets rid of this freak out

that people have when they're investing money for the first time. Which one do I pick? It seems so important to me when I hear in the media that I'm investing, quote investing, that I pick the right thing. I love, love the fact that J.L. Collins says, don't pick, buy everything. And you can do it with one, one investment. You can buy all of it. And you know what? Not only is that okay, it's pretty damn good. And I love the fact that that gets rid of so much of this pinup anxiety that people get about getting invested and getting in the market. And then you can start to feel the feelings as somebody who has actually invested and been through a downturn or been through an upturn where you felt really good. You can start to feel those feelings without being worried whether you're in the right things or not, which is so much less important than just getting going. I mean, our mutual friend, Nick Majuli, said this great in his recent book, which was that it's far more important that you just shovel money in in the beginning.

Just shovel money in. Brand new investors spend way too much time thinking about what they're putting it into and not enough time thinking about how they're going to save. I do think, though, and this is important for MM. I do think that as your portfolio grows, correct asset allocation becomes more important. And after you felt the feelings and you know a little bit more about your goals and your time frame and how different investments affect that, that graduating out of the simple path to wealth is also an important thing for people to do if they want to pick up some fairly easy money for a seasoned investor.

And Nick Majuli was a guest on the show in episode 375. We're going to link to him in the show notes as well. I think that this is why MM's question, Paula, is exactly why people have advisors and people hire good advisors. It's because I feel like there is almost no reason, no reason at all for MM to be searching for a stock picking strategy that smokes the market. and what a good advisor does is not what his advisor did because when he's comparing just the fees and the fact that his advisor is an index fund, that sounds like he abdicated the throne and handed the money over to somebody else. And let's be clear, that's not my definition of a good advisor. A good advisor is somebody who makes you smarter and make sure that you don't step in bad decisions

who sees your blind spots. But you can't abdicate. You have to still be the CEO of the company, the queen or king of your financial future. You've got to know what's going on. So firing that advisor was probably a good idea. But I also think, Paula, that the hand-wringing that he may go through as he implements Joel Goldblatt's strategy of beating the stock market versus spending more time on his unique ability and his unique talent, whatever that is, the risk premium for most people to go stock chasing versus investing in an index and spending time in their unique talent, is it an ROI that's optimal? Right. Yeah, he makes $250,000 at his day job. If he leans into that with the same amount of effort, I would imagine that that's higher ROI. You know, maybe he

bumps it up a little bit if he's lucky. History shows most people don't do that. And by the way, I'm familiar with Joel's book. I haven't read it. I've seen it on store shelves. There are people who are stock pickers that I enjoy talking to. Phil Town is one. He has a couple of New York Times bestselling books himself and really has an approach of individual stock picking that is far more passive and learning how balance sheets work. focusing on that. And frankly, when you talk to Phil, he doesn't spend a ton of time on his portfolio. So there are strategies like that, but I still don't think that pursuing any of that. It just, it just seems to me, Paula, the MM is kind of bored and is looking for the next thing.

I'm not clear on what this strategy is. So I've never read Joel Greenblatt's book, the little book that beats the market. I've looked at the reviews of it. I've looked at a written interview with Joel Greenblatt. Nothing that I've read actually explains what the strategy is. There is something that's quote unquote called the magic formula. That's literally what he calls it with capital M, capital F, magic formula. He describes it as a long-term investment strategy designed to help investors by a group of above-average companies at below-average prices. Great.

Yes, that's what everybody will. wants. In nothing that I've read, including any of the interviews that I've read of him online, does he actually explain what this strategy is? So I don't know how to comment on his so-called magic formula, given that in his interviews, or at least in no interview that I found, he has actually described the mechanics of how this is supposed to work. And as I've unfortunately had to tell a few people, you know, people will often DM me on Instagram and they'll say, hey, watch this 40-minute video or read this article or check out this book and then let me know what you think of it. And it happens all the freaking time. People give me homework assignments.

Just random people in the audience give me homework assignments. And the answer is no. So I have not read this book, but MM, if you are interested in finding other people who have read it, I would encourage you to go to the community, afford anything.com slash community. There may be somebody there who's read it, who has some thoughts or feedback on it. But nothing that I have found in any of his written interviews online actually describes the mechanics of what this magic formula is supposed to be. Paula, and if anybody's thinking about implementing something like this or even a, you know, I referenced Phil Town, so I bring him up again just as another one, if you are interested in a strategy of choosing individual stocks, and you just want to explore it, and it is fun for you,

it's interesting for you. The thing that I would advise you to do is begin first with your goals, find out using any of the calculators on any of the popular investment houses website, approximately how much money you're going to need toward those goals and make sure that you have your goals all locked down. Then do this with your sandbox money, with money that's over and above those goals. So even if it messes up or you don't get it, you screw something up. maybe the strategy is good, but you blow it, you're not wrecking your goals. I would not take my entire portfolio and put it into something like this, or even half or a quarter your portfolio. So I would build your portfolio on something that's Nobel Prize winning like the Efficient Frontier. I would choose my optimal asset allocation strategy. And then I would put that money

in passive index funds related to those categories and then rebalance them either once or twice a year, period. Build yourself an investment policy statement about how you're going to do that, how you're going to make those moves and determine if your asset allocation is correct. I think that that would be not only a lot of fun, but also paid dividends building an investment policy statement like a professional does. But then take your sandbox money and use it for a solid amount. strategy like this. That's what I'd advise. I would agree with that. I'm also looking online right now,

and I've just noticed that he is an adjunct at the Columbia Business School, and I'm up there pretty frequently. So, heck, maybe I'll take him out to coffee. Stay tuned to M. There may be more. See if he can describe the magic formula to me with any degree of specificity that is beyond what he's given any interviewer. Because fundamentally, What he has described in this so-called magic formula is simply the concept of value investing. Value investing is the notion of buying great companies at a discount and holding them for the long term. And that's not a new idea. But could be also, though, Paula, very valuable.

Like knowing how to look fundamentally at a company and knowing it truly is a value. It could be a good read, being able to read a balance sheet and income statement. Yeah, Philip Fisher. has written quite a bit about that, the late Philip Fisher, Benjamin Graham, you know, if you read the two of them, you'll get a good overview on both growth investing and value investing. I would just be wary of anyone who claims to have some specific knowledge. Something about the phrase magic formula rubs me the wrong way. I can't figure out what it would be. What would it be? I mean, a capital M. Right. Yeah, exactly.

Seriously. There's something about that. And the lack of specificity, the lack of describing to an interviewer what that is, I'd have to buy the book to find out. I mean, there's, there is just something about that that immediately raises a red flag for me. But again, there might be people in the community who have read it who would be able to describe what that is. I would refer you to the community to see if someone's read it. it. But Joe, I agree with the outline that you gave. If this is a path that you go down, do it only with dumpster fire money, or as you call it, sandbox money, beer money. So thank you, M.M., for asking

that question. Enjoy exploring these new investing avenues with some reasonable allocation and seeing where it goes. Our final question today comes from Ingrid. Hi, Joe and Paula. I have a question regarding income limitation calculation to qualify for a Rost IRA contribution. I have a rental income of about $7,000. Do I have to add this rental income to my W2 income when I calculate my other ROS IRA qualification for the income limitation? I'm just curious because our household income is 200,000 and the rental income is like 7,000 something. Thank you very much. And I appreciate everything that you do. Thank you. Bye.

Ingrid, this is a fairly simple question and it's a good news, bad news thing. The good news is this is not considered W2 income, but it is part of your total. income and goes against your modified adjusted gross income. And modified adjusted gross income is the number that the IRS uses when they calculate your Roth IRA contribution. So Paula, the answer to Ingrid's question is, unfortunately, it does count and it may change her strategy. But I come here bearing good news. You ready to hear this, Paula? I'm ready. All this means is that Ingrid simply just needs to use the workaround. If that doesn't work, Ingrid, just make a non-qualified traditional IRA contribution and convert it. And she's exactly where she's exactly where she wants to be, Paula. So while it does matter and it does, that rental income does affect her ability to use a straightforward method where there's a will, there's a way, as my mom says. And it is very simple to make a backdoor Roth contribution.

You make, as Joe said, you make a non-deductible contribution to your traditional IRA, and then you move that money from a traditional IRA into a Roth IRA. I just did it earlier this year. It took 10 minutes. And I think that's it. I think it's that simple, Ingrid. Bam. Thank you, Ingrid, for asking that question.

Enjoy making that contribution. Well, Joe, we've done it. That was fabulous. And again, great theme. Advisors, tax advisors, financial advisors, good stuff, career advisors, career advice. Yes, exactly. Joe, where can people find you if they would like to hear more of you and your ideas? We had some fun in the month of September on the Stacking Benjamin show. Your friend of mine, or meet Sadie drops by, who's always incredible entertaining. Nicole Lapin, famous for her New York Times bestseller, Rich Bskin, rich boss. Nicole has some choice words for Mr. Dave Ramsey. And we wanted to chat with her about that.

And Sam Dogen from Financial Samurai, who is a very controversial dude in our space, wrote a new book that is a really good book. We talked to him about the controversy around Sam being Sam, and we also talk about, by this, not that. So some good stuff on the Stecky Benjamin Show every Monday, Wednesday, Friday, wherever you're listening to us now. Fantastic. Well, thank you so much for tuning in. If you enjoyed today's episode, please subscribe to the show notes.

You can do so for free at afford anything.com slash show notes. you'll get a synopsis of every episode, including timestamps, where you can quickly refer to any question or answer that you want to jump straight ahead to. Plus, all of the resources that we mention, any time that we mention some other podcast episode, some previous interview that we've done, all of that is contained within our show notes. So you can subscribe for free, afford anything.com slash show notes. It's also a great way to share these episodes or questions or snippets with a friend or a family member. If you want to chat about today's episode with other members in the community, head to afford anything.com slash community. And we have a book club, fable.com slash afford anything, where we read books written by authors who have been on this show, people like Morgan Housel, Ken Honda,

Dr. Susan David, James Clear. So come join our book club. I'm in there with you, commenting on different chapters, discussing some of my favorite sections as we, as a community, read the books written by guests who have been on this podcast. Fablefabelle.fabelle.co. slash afford anything. Thank you so much for tuning in. My name is Paula Pant. And I'm Joe Saul-C-Hi. This is the Afford Anything podcast, 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

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