Afford Anything - Ask Us Anything #2 - Dollar Cost Averaging, Pay off Debt or Invest

Episode Date: March 7, 2016

#15: Q&A #2 with Paula, the analytical one, and J. Money, the heart of your M.O.N.E.Y. Team  Follow along with the answers: https://affordanything.com/episode15 Learn more about your ad choices. Visit podcastchoices.com/adchoices

Hey, Jay, what's your favorite food? Spaghetti and meatballs. Spaghetti and meatballs? There's something wrong with that? I've never heard anyone over the age of eight say that. What? Welcome to the Paula and Jay Money Show, a podcast about growing wealth and financial freedom. Your host, Paula Pant, is a world traveler who built financial freedom through real estate investing.

She runs the website, afford-anything.com. Host Jay Money is a husband and father of two, striving for financial freedom. He hates real estate but loves to blog for a living over at Budgets Are Sexy.com. Which one resonates with you? Grab a beer and find out as you listen to The Paula and Jay Money Show. Let's just do a quick rundown of some of the questions that we're going to answer in today's episode. We're going to talk about whether you should pay off student loans first or prioritize saving for retirement. We're going to talk about dollar cost averaging into the stock market.

Is it a good idea? Is it a bad idea? And what other alternatives are there? We're going to talk about what you should do if you're in a great spot. You're maxing out your retirement contributions. You don't have any debt. What else can you do to become really awesome? We're also going to talk about how you can build a platform and get your voice heard.

This is a question that came from one of our listeners who wants to go. more into the platform-building entrepreneurial side of making money. And we'll talk about how to process your tax refund. If you're getting a nice check from Uncle Sam, what should you do with that money? So all of this coming up right now. Let's go. Hey, Jay. Hi, Paula Peanut. I'm excited to answer some questions. Yeah, we've got some listener questions. Let's just jump right in, because I want to answer this. We actually have quite a number of them, and this first question is long. Okay.

And it starts with, hey, Jay Money and Paula, Moneypants. Moneypants. I love Moneypants. That should totally be my last name. Yeah. I like it. All right. Maybe you can give some advice to a young struggler, I mean hustler.

Here's the skinny. That's totally what this person wrote. Here's the skinny. I'll give you the short version and the long version so you can give your best advice. Jay, you're losing it already. You sound like one of those hotlines you call. But the long one or the short one? Sorry, continue on.

Here's the short one. We have lots of debt, but despite all the minimums, we're still living beneath our means. I assume I don't think that means what she thinks it means. Oh, like she's living over her means? Yeah. I think that's what she meant to say. I'm going to reinterpret that sentence. Okay.

Despite all of the... You grammar knots. You're a journalist. Okay. Here we go. We have two kids and want another. I want to retire one day. And we're currently putting zip, zero, zilch into my retirement.

My hobby has a pension, though. We're also putting nothing into my kids' college fund. We're also living a lame life of rice and beans all the time. What would you do? Would you continue paying off debt or would you start to invest? We're 27 and 28. And here's the long version. What? Yeah, yeah, that was a short one. The long version of the story is that we have $150,000 in student loans with varying interest rates between 4.45 to 7.68%. We end up paying 1,400 in minimums each month, which is about 16% of our monthly income, just towards those student loans. Other than the house, those student loans are our only debt. Depending on the month, we can put somewhere between $1,600 to $2,100 towards debt, and we've knocked out three of our other smallest loans so far.

That's good. Yeah, it's awesome. We make $6,300 after taxes. Here's our exact budget. Tiving is $10%, or $630. Savings is $10, or $645. And by savings, she's referring to short-term savings, such as Christmas, replacing your tires on your car, health insurance co-pay or health co-pays, things like that. Housing, utilities, phones, et cetera, comes to 17 percent or $1,100.

And I just found out that this is about to go up by another $200 because of property tax increases. Yay! Transportation, only 3% of our budget. It's $160 a month. food is 8% or $500 per month. Student loan minimums is 21% or 1350 per month. I'm going to hit pause. Yeah.

I can't even remember anything you said in the beginning. This is not prime for a podcast details. I like the short of version. Okay. So basically. Yeah, break it down basically. We make $6,300 after taxes. Okay.

92% of that goes to covering our fixed costs. Okay. I try to make sure that that remaining 8%, which is approximately $500, goes to maybe student loans if it can, but we also want to live in normal human life. And, you know, we have to pay for things. The normal one is a tricky part there. Yeah. Normal people spend a lot of money on stuff and they don't care about retirement and stuff, unfortunately. Yeah, exactly. So basically the situation that they're in is that at their current rate of debt payoff, they're going to take another five years to be out of debt.

And that's with no savings and no investments too. Exactly. Or college savings or anything. Exactly. That's with no retirement savings and no kids college savings. I mean, I will say they're in their 20s, even though it's late. So it's good that. they're having this convo now versus 30s, 40s, 50s, you know? Exactly. I think for this particular situation, as lame as the answer is, and this is one that you and I, we debated on before, what's better, spend less or earn more, right?

Like, there's probably things in there she can cut, like, cell phone. I mean, there's stuff that's, like, quote, normal, that she can get rid of if she wanted to. But probably her lifestyle is going to be different that she might not want, or they might not want. So to me, personally, it's just, just a problem of earning, of needing more money. Hey.

Oh, my goodness. Wow. Shocker. Oh, Jay, money, you're coming over to my side. You know, like I said, because I don't see in their given situation, if they keep going as is, they're just not going to be able to retire or, I mean, it's just not possible. They're going to have to make a change and the only drastic change big enough that I see is earning more, right?

And it didn't say how much she earns. Did you say she's with the kids or she has like a side hustle? They make $6,300 per month after taxes. Yeah. Well, I think it's more of the husband, though, I feel like. She didn't break it up into who makes what. Okay. The problem with some of these questions, it's so tricky because it usually comes down to like, yeah, they need a lot more money or they need to cut back drastically, right?

And like if Mr. Money Mustache is here, he'd probably say $6,000, you should figure out how to do it on $1,000, right? But, you know, I'm no Mr. Money Mustache, so I revert to your earn more. Department. The Earnmore Department, EMD. I like that. Yeah, what do you say? Well, first of all, I think that she should give herself credit that she is saving more than she gives herself credit for, because they make $6,300 after taxes. The minimum payment on her student loans is $1,350. And she usually puts in between 1,600 to $2,200. Oh, that's good. So she is saving quite a bit of money, probably more than she realizes that she's saving. It's just that she thinks of it as a bill, so she doesn't give herself credit for saving,

which is actually a good thing. That's exactly how you're supposed to do it. You're supposed to think of debt payoff as a bill so that you give it the priority that all your other bills have. So that's great. It's great that I feel like she's making really good progress towards paying off those student loans. The challenging part is that they're not saving anything for retirement. And so number one, if they get an employer match, I would absolutely. absolutely take full advantage of the employer match because that is, quote, unquote, free money.

And I put free in air quotes because really it's part of your compensation that's just being deferred unless you do this very one specific thing. Very one specific. That's not a phrase. One very specific thing. That's a good one. So absolutely get the full employer match because if your employer's matching 50 cents for every dollar that you put in, I mean, that's a 50% rate of return. It blows the interest rate on your student loans out of the water. Yeah.

And it forces you to save because you're not going to touch it because you get all dinged like crazy, too. Exactly. So totally put in enough in your 401Ks to get the employer match. If you don't have an employer match, I would still start putting more money into your 401k in IRA because there are tax advantages to it. It's important to start saving for retirement when you're in your 20s. And also, the interest rate on those student loans is not that high. She says that it's between four and a half to seven and a half percent. That's, you know, if inflation runs 3 percent, then the lowest interest student loan is not really costing you that much.

So I don't think that that is an urgent priority. At least it's not such an urgent priority that you should defer retirement savings. So, well, and the question she asked is really good because a lot of people have it, is it better to pay off debt? or invest in the future. Right. Invest in retirement. So you, the bare minimum is do the maxing out of your, you know, employer match. But to you, you're a person that say to do both at the same time.

So for her, do the minimum payment and let's say there's 500 left over. Would you do part to investing in retirement and then part into debt? Is that like your general go-to thing or are you one or the other? Well, go with whichever one motivates you more. Yeah. Because if you're motivated towards a goal, you're going to make more progress. If retirement savings is the thing that really lights you on fire and gets you excited, then absolutely put your money there. Hey, that's my answer, you jerk.

We're trading answers today. Yes. Sorry to interrupt. I agree 100%. I mean, it sounds based on her email, like debt payoff is the thing that really gets her going. So I think it's fine to be prioritizing that. I just wouldn't panic about it given the fact that the interest rate on those student loans is so reasonable. Well, and the cool thing, too, that you said that I didn't catch because the numbers started to make me a little fuzzy over here.

Was that if she's paying like $2,000 a month towards debt, you know, once that debt's gone, she's going to have $2,000 freed up. That is a lot of freaking money. Yeah. So then everything escalates. So it could be one of those things where you just suffer through it for a few more years. Then all of a sudden you're like investing like mad, you know, and you get like 100,000 and four years invested up, right? Like it can speedball the opposite way because now you have no debts.

Speedball. That's a good word. But, you know, and I think too, which is the reason why I jumped to earn more money, it's one of those things. And I fall into the same thing where like it all, it comes back to like how bad you want something. Right. So like sometimes I complain about like, well, like I want to earn more.

I want to, you know, like I want to, like, I want to like reach a millionaire for. faster or I want to like early retire faster, right? But it always comes down to like how bad because I'm not doing everything in my power to do that that I should be if that's really like my ultimate goal, right? Like I am lazy sometimes and I do spend more times with my kids versus like hustling all the time. But so I want it, but I don't want it bad enough to like go crazy hardcore and get there faster because I want to enjoy life.

So for her and she said it like she doesn't want to jeopardize quality of life, but it could be that she doesn't want to be out of debt or massive amounts of investments, like enough to take the action to earn more, right? So it always comes back to, you know, like how bad do you want this goal? Because it's going to be annoying, right? Like, most goals are not super fast and easy to get to. Right. Yeah. It's going to be annoying. It takes work. Yeah. So where's the annoying factor, you know, not just her, just to everyone that has a goal, right? Like, there's some people like, I have 100,000 in debt. Like, it just keeps me up at night. This sucks. I'm to spend 20 hours every day and kill it. I'll almost kill myself in the process, but in two years,

I'm going to be done. Right. Like, that's just like hardcore. So that's one extreme. And the other's like, well, yeah, I want it gone. But like, if it's going to be gone in five or 10 years, I'm cool with that, right? It's just different people. Right. And different phases of your life, too. Sometimes you'll have a phase of your life where you're like really hardcore and it'll last for a couple of years. And then after that, you, you let off the accelerator for a bit. Yes. And that's why the answer of doing what interests you the most or excites you or motivates you the most is good because there's times where you don't care about debt and you care about investing. Exactly.

And then if you flip-flop, like, oh, I've been paying off debt for a while. Now I want to invest or whatever I said, but the opposite. Good. That was a good question. All right. Next question comes from a listener who says, Congratulations on the new podcast. Thank you.

I am game playing for my early retirement at age 55-ish. in Portugal. Nice. I'm already maxing out my 401k and IRA. I recently read that you can live for more than 10 years with a portfolio of about $200,000 in some parts of Portugal. And 10 years will give me enough time before my retirement funds kick in. I'm assuming by retirement funds, he's referring to like maybe Social Security or a pension or something like that. Okay.

So I'm assuming that he's saying that he wants to live on $200,000 for that 10-year span between age 55 to 65 to 65. Okay. With that $200,000, I like to invest in dividend stocks. Is it better to A, buy stocks once a month to lessen the cost of the fees, or B, buy stocks biweekly in which you pay double the fees, but you get more benefit from dollar cost averaging? I have an answer. I have an answer. I know you do. Yeah, you go. I can't see your hand raised.

Go, Paula. My hands up. My hands up. Yeah, we're in different states, Paula. What? Okay. So first of all, if you want to go into dividend investing, there's a way to do that paying no fees. And it's called Vanguard Index funds. Vanguard has two, in fact. There's a dividend growth fund as well as a high yield dividend fund. Both of these are zero fee funds with low expense ratios. And so you could choose either of them or split your money between them, whatever you want to do. But through. these two funds, you can invest money, heck, every day if you wanted to, without paying a transaction cost every time. Other resources that allow you to invest without paying transaction costs include if you wanted to go the individual stock route. There's a website called Loyal 3 that allows you

to invest in large-cap individual stocks with no fee. There's also an app called Robin Hood that allows you to do that. But if you're not going for individual stocks, if you want to go for index funds, Vanguard has fee-free funds, I assume Charles Schwab probably does as well. I haven't specifically looked them up, but that's the type of thing that they also do. The other component of his question, though, he asks about getting the benefit from dollar cost averaging. And here is the important thing to understand. And I wrote an article about this, but I wrote it like four years ago when nobody read my blog. You know, bring it from the archives.

Dollar cost averaging sucks if you're using it as a way to invest money that you already have. So, in other words, if you have a lump sum of cash, let's say from a commission or a bonus, or the sale of an expensive asset like a house, if you have a lump sum, statistically speaking, it's better to invest to that entire. higher amount at one time than it is to keep a portion in cash and slowly ease it into the market. And the reason for that is because your asset allocation, which is the balance of cash versus other invested assets, your asset allocation is totally out of whack during that time that you're like slowly parceling money out into the market. In other words, you are way overrepresented in cash. And as a result, statistically speaking, you, you, lose out on the potential of returns. So I wrote this very detailed article about it, citing multiple

studies that show that dollar cost averaging with a lump sum neither protects you from loss nor helps increase your gains. And again, remember, that's only referring to lump sum cash. So if you're working and you're just investing money as you earn it, nothing can be better than that because obviously you can't invest money that you don't have yet. So every month as you earn money, you put it in the market, that totally makes sense. But don't rely on dollar cost averaging if you already have the funds. So if you have no money, do dollar cost averaging. If you win a lottery, get $10 million, put it all into the market. Yeah. That makes sense. I think Jim Collins had a good article about that too. Recently. That was really good. Yeah, we'll link to these in the show notes. So if you go to themoneyshow.co,

that's themoneyshow.co. There will be links in this episode show notes to both of those articles. Good answer. The only question I had is he said that he heard you only needed $200,000 to live for 10 years. Uh-huh. And the tricky part with that is everyone has different expenses, right? Like I had a friend over the weekend that was like, oh, yeah, I went to my financial advisor. And he said that the average these days that people need is $3.5 million to retire. And he's like, what do you think about that?

I was like, did he ask you what, like, your expenses are? And you said, no. I'm like, well, how the hell does he know you need $3.5 million? Right. Like if you spend 20 grand a month or 200 a month, that's going to be a big difference. Right. You know, like I don't trust anyone that says you need this amount without asking what your expenses are. Because everything, especially in early retirement, right?

Like everything is based on your monthly expenses or a guesstimate of what it's going to be in the future. Right. Right. So you can't just say, oh, the average now is 3.5 million. Maybe for the average spender, maybe that's what it's based on. right, the average household spending, I really have no idea. Well, at the 4% withdrawal rate, so the idea for the listeners who aren't familiar with this, the idea of the 4% withdrawal rate is that you can withdraw 4% of your portfolio safely.

So for every $1 million within your portfolio, you can withdraw $40,000 per year. And that's a small enough withdrawal rate that you have a statistically viable chance of not outliving your money. So 3.5 million in your portfolio would give you $140,000 a year in income. Which you better be able to live off of if you're retired. Yeah, so there you go. What did you say? 140,000? Yeah.

So if you only need 40,000, I don't want to do math. But yeah, you might only be like a million. Right. Which is a big, huge difference. And that's a problem that I have with this, right? And I'm not a financial advisor. And I don't go to them. And I'm sure those that are listening will,

have all these answers. But now I forgot what I was going to say because I started thinking about all the financial advisors out there listening. Okay. Basically don't do your projections based on averages. Yeah. Like your expenses is pretty much like what it all comes down to at the end of the day, right?

So anyways, for whatever, that's worth. If it pops in my mind later, I'll bring it back up. I need more coffee today. All right. Question number three.

A listener writes in and says, how and where do I get my voice heard? I'm deeply passionate about personal finance and financial planning, investing, productivity, and helping others. I research stocks. I build financial planning templates, budgets, etc. And I've often thought about creating a blog or a website or educational videos. Yes, do it. I'm not sure where to begin. And any pieces of advice would be extremely helpful. and much appreciated.

Okay, I know. One, do it. Two, do it more. Yeah, that's awesome. Anyone, man, anyone that wants to talk about financial stuff to help people, I think we need as much of that stuff as we can, especially if it's blogging where it's like personal stories. Because everyone relates to like certain people, right?

So, I mean, like people relate to you, Paula, more than they do me. Some people relate to me more. But all of us that have this passion to talk about money, to help people, man, just like, go to like WordPress.com and start a blog for free in like 10 minutes, you know, and just start writing and putting the content out there. I would say do that with the podcast, but it takes a long time to get these stupid things up. But yeah, like just if you're passionate about it, not only do it because you want to get the word out there, but you never know the other opportunities that come from it, right? Like I did it for a hobby.

I didn't know you can get paid money. I didn't know I'd become. friends with Paula, I didn't know it would completely change my life. And, you know, like everything, like how I am now all came out of starting a blog and just talking about my crazy thoughts on money. You know, I didn't spell check. I curse all the time. I have no background in writing or finances for that matter. So anyone that has background and also, you know, some passion to help people, I say, yeah, go for it. Nice. Are there any other tips that you would give to a online beginner. Yeah, I would say,

A, focus on the content. Just write your heart out and try and be as real and just yourself as possible. And this is always hard because people's personalities are so different, right? And that's why you get blogs. They're like, hey, here's how to save $1,000. And they're very, like, action-oriented and very, like, kind of dry. It's just like an informational thing. Whereas other people like me, like, that bores me.

I'm not naturally that way. So I say, well, here's how I came up with a thousand. And then I'd go through crazy stories and, you know, it's more like fun, entertaining, fluffier kind of stuff. But the point is most people have like the personality, like infuse your personality in your writing. Yeah. Or to get your point across. It becomes more of a like of a story and a person to person versus, you know, like a company or here's an how to item.

It's just different. And only you have that story and your story is going to be way different than mine or paulas or anyone's. So only you can tell it. And so just keep writing or if you're podcasting, talking, whatever it is, just pour it out there. A lot of it's going to suck in the beginning. But over time you get better and over time you build your audience and then the opportunities come. So I always say focus on content and story instead of like, well, it has to have a good design and I need my email list up and I need my social media and Facebook and Twitter and all these. these things, it's all overwhelming, and none of it really matters unless your content is good

and you enjoy it. So that's what I always, I wouldn't even deal with anything for like two or three months. I would just write all day long or however long you can and just see if you like it. Whoa, I would start an email list right away. Well, you can do that too if you want, but, but again, none of it matters if your stuff, you know, like if you don't like it or if you don't write well or whatever the case is, right? Yeah. You know, I will say that when I started my blog, putting personality into my writing was the single hardest thing that I had to tackle as a beginner. Because I used to write for a newspaper and newspaper reporters are trained to take themselves out of a story.

Right. So all of my training was to write articles that were like two gunmen held up the 7-Eleven last Tuesday. That detached just the facts kind of writing. And I had to actively work at unlearning that. And it took me a long time. It was very uncomfortable. It was very hard to put myself into the story. But that's the reason that people read blogs.

If you wanted the most efficient route to learning about finance, you would pick up a textbook and learn compound interest charts. But people aren't doing that because when we go on the internet, we want to connect with other humans. Right. And so just, yeah, I agree, be human and start an email list. Yeah, there you go. And also, too, like, there's blog, like, obviously you read one of ours since you sent in the comment. So what you do is you say, hey, I have this blog out. And then you start talking to us or tweeting with us or sending it out to us.

You connect with other people in your little world. And you leave comments. Like when I first started, I read like five or six blogs before I started mine. And I always like was leave comments. And I would get to know them, especially as mine was going. And it built like your little mini community.

And then it made it easier for like all the strategy stuff, you know, get guest posts to get links back. All this stuff that you learned to how to grow something online. Right. All that stuff is learnable. and comes over time, but it all comes back to like enjoying. I mean, most blogs, I don't know what the averages of how long they stay open until they go under.

Like, I would say if you're in it for the money, don't start a blog just for money. That would be my rule number one. Do it because you like it and you're passionate about it. You want to help people or just even if it's just for yourself and you don't care if anyone reads it, do it because you like it not for money. I've never met any, honestly, someone that started a blog just for money and then succeeded. because it changes things. I mean, I'm sure it does happen, but I just don't know anyone.

You know, all that stuff comes later if it's something that you find you're good at and sticks and people like it. Cool. Thank you, Jay Money. Sure. How's a fun one. Question number four. I'm 38. Married with one child.

My wife and I own a house. We have no debt, including no mortgage. Wow. So congratulations. We're both employed and we're saving about 50% of our job. net income after taxes. We max out all of our retirement accounts, and in addition to that, we have all of this additional cash. What do we do with it? Right now, that cash is parked in high-interest bank accounts that are earning about 2% per year, just in a savings account.

This person has two questions. Number one, actually, is like the dollar cost averaging episode. Question number one is, do I buy everything all at once or dollar cost the amount into the market in fixed intervals? And number two is if I do put the money in the market, and this is the part that really kind of scares me. This is the thing that kind of got me like, he says, if we had put the money into the market, then given the January 2016 kind of market drop, we would have lost a bunch and I would have lost my mind. I'm a low risk. kind of guy. Yeah, that's an important one to know about yourself. Yeah. Especially before dumping a large pile of cash. Exactly. And so I emailed him back, actually, before we

recorded this podcast and I said, all right, well, the question number one is easy to answer. All at once. From a purely statistical probability perspective, investing the entire amount in one lump sum has a higher probability of a positive outcome. Dollar cost averaging, might provide emotional peace of mind, and there is value to that, but statistics don't back that up. I can give you the facts about dollar cost averaging, but you'll have to make a decision as to, you know, what would allow you to keep more peace of mind. That being said, though, if you're the type of person who says that just a short-term loss of 5% or 10% in the market would be traumatic, wow, that's scary.

Like, you might not be cut out for the market. Yeah. People who are traumatized or who panic by short-term market volatility, those are the people who turn paper losses into real losses. That's because they'll have the money there. It'll crash and then they'll take it out to preserve it and then they'll wait until it's high again and invest it. But then you're selling low and then buying high. Exactly. And then it just repeats. Exactly.

So that really concerns me that this guy is, he's 28, sorry, 38, so he's young. I want his risk tolerance to be higher, but, you know, if he, if it's not and if he recognizes that it's not, then that's that. You really, you have to invest in a way that's in accordance with your risk tolerance. You know about this stuff more than I, Paula. What would you invest in? So you wouldn't obviously invest in individual stocks because those fluctuate too much. Yeah, definitely not for this guy. Index funds, which is more conservative because it tracks everything still drops drastically and goes up drastically.

So that's off the table. I don't know much about bonds, but I feel like when bonds are safer and pay more than 2%, is that like a nice place to look into? Well, so the thing is, stocks and bonds, equities and bonds,

tend to move an inverse correlation, which means that when one goes up, the other goes down. By counterbalancing your stock position with a hefty bond position, you can smooth out that volatility. So that's a good option. The general rule of thumb,

is 110 minus your age is the percentage of your portfolio that you should put in bond funds with the rest in stock funds. But if you are very conservative the way this guy is, you could just do 100 minus your age, which is effectively the same thing as just saying your age in bonds. So he could do, he's 38, he could do 38 percent in bond funds and the rest in stock funds. Or heck, if he's super conservative, he could even ratchet that up to, you know, 48%. He could go like 50-50 stocks and bonds just to really smooth out the ride. Some other things that he could do in order to smooth out the ride. There's a thing called Tips. It stands for Treasury, Inflation Protected Securities.

And that's just a really fancy way of saying that you buy these federal government-backed securities that are inflation protected. So you don't have liquidity. You have to hold them for a certain duration. But when they mature, you get, you are guaranteed by the federal government to get the inflation-adjusted amount back. And inflation is the silent killer of wealth. So, you know, tips will at the very least protect your money from the ravages of inflation. So that's another possibility. CEDs are not really right now.

They're not really a great thing because the rates just kind of suck too much. to make him a good deal. What about real estate? I don't think this guy has the risk tolerance for that. That's too risky. Yeah, well, I mean, it's not risky. It's not actually risky. It's just perceived that way. Right. You know, particularly buy and hold rental properties. The great thing about rental properties is that even if you do make a mistake, that mistake gets kind of smoothed out over time. So I could make a $5,000 mistake. But if I'm holding that property for 10 years, you know, that thing is going to get smoothed out over time, assuming that I have a mistake. So I could make a $5,000. So I could make a have, you know, the liquidity to support it and all of that. And assuming, of course, that I bought

the right property and I have a good strategy for it, you know. Right. Real estate investing is kind of a hybrid between investing and owning a business. So there's a lot more strategy and system development on the front end. But if you do it, if you nail it, then it's freaking amazing and it's not that risky, particularly if you're buying a house in cash, which it sounds like this guy is in a perfect position to do. So, but I'm, I'm not going to suggest rental property investing to him because, I mean, if he can't stomach a 5% index fund drop, I mean, he's got some risk tolerance. He's not like the phone calls that come in when things break. Oh, no, you never get phone calls when things break. But I will say, though. If you, hold on. I got to say something to that.

If you are getting phone calls when things break, you are not managing your business properly and you're not doing it right. The thing about real estate investing in order to take the risk out is that you have to really run it like a business. So if you're getting a 2 a.m. toilet call, you're not running it like a business. Are you saying like you'd have a system where that person would have reported it during the day or to a property manager or something?

And so things still break. Yeah. But you just, you wouldn't be getting it at crazy hours or something. You'd have a system in place. Yeah, exactly. Do you think that the owner of a hotel chain is getting phone calls about like a guest complaints?

Yeah, right. That's the difference between having a hobby versus having a business. Right. Well, and, like, obviously, I'm not, I don't enjoy real estate investing. The reason I brought it up was twofold. One, you have more control over a lot of the stuff versus the market. Right. So if you want, like, to do, like, if this guy's diligent and does the research and picks it and, like, spends like a year or whatever, right, finding the perfect one because he's in control, it minimalizes a lot more of the risk, I feel like.

And also, most people that are conservative, even though, like, to me, it's risky home ownership and all that. people understand a house and they know if the value goes down it's still a house and you can still get rent. So it's like a weird or not weird. It's just one of those things. People get it, you know, versus like, oh, my money's in the market digitally somewhere and goes up and downs and the markets are going crazy. Like, it's easier to understand and to grasp. I feel like if you're more conservative. It would be interesting if this person listens to this and then tells us if we're bonkers or not. Bonkers is a great word. Yeah, it is fun.

But yeah, it's an interesting, good problem to have, having lots of cash and trying to figure out the best way to make more off of it. And honestly, I mean, if I had to choose between being super risky and conservative, like if you can choose your personality, I'd probably choose conservative, to be honest with you. You can't help your feelings up to a point, you know. All right. Are you ready for the next one? Hit me. I can't hit you, Jay. You're in another state.

Lay it on me. I'm not even going to go there. All right. This listener says, I am 31 and have worked in my professional career for five and a half years. Over the past year, year and a half, I've slowly started resenting my career and the situation that I'm in. I make a good salary and I live very comfortably while saving about 50% of my income. We live in a rural area, so jobs and other related local opportunities are pretty scarce. I go through some days thinking that I just need to work for five to seven more years, and then I'll be financially independent.

While my partner is in graduate school, which slows down our savings rate, but while she works, that will allow me to become financially independent sooner. But I'm frustrated with my full-time job, and I want to be financially independent as fast as possible. That's awesome. It's only five years away. I know, right? You'd be exact. I'm 36. Man, yeah, that'd be awesome if I was financially free right now. Yeah, she must be miserable at her job that she's like, five years is not long enough or not soon enough. Maybe that speeds it up that you get out of there quicker.

Yeah. So she says, I've attempted a side hustle twice now. She and both times she tried to start a blog, but it's not for her. I just can't publish anything. And because you went for the money. You started the blog for the wrong reasons. Oh. Right? Because she said a side hustle blog. That's what happens.

You can start stuff online like businesses or other stuff perfectly fine to make money. People do it all the time. It's not a blog though. Yeah, I would agree with that. All right. She says, I have cut our living expenses to the lowest that we're comfortable going. I've picked up hobbies over the past few years, mainly woodworking and gardening. And I sometimes feel guilty for having these hobbies because they use up resources. I think monetizing these hobbies would take away some of the enjoyment, and frankly probably wouldn't be that profitable either. But if I sold my tools and stopped buying wood, I would be incrementally closer to financial independence. I'm currently in my third attempt at a side hustle. I'm trying a slightly different tactic and I have a different goal and it's a bit more of a

passion project. And I hope this will be successful. But I guess this whole email is a long way of saying that I would love to hear your trials and tribulations from people who've gone down a professional path only to find that it wasn't what they expected. Hmm. That's an interesting one. It's an interesting email because it's sort of a question, but it's sort of a, hey, here's my story. Help.

The only thing I know for sure is that, and we know, because we had, like, Brandon from mad scientist on here, right? And other, and people in general, when you chase money, solely and you optimize everything, it doesn't make for a very happy lifestyle, right? Like she already said, like, she's going to pretty much be miserable if she cuts out hobbies, right? And she feels bad. But everyone needs hobbies and everyone needs that release. Like, you can't go full throttle on everything. It just doesn't work out that well, you know? Right.

So I would keep doing the hobbies and figure out a way to feel a little better. Maybe instead of spending five free hours, you know, four free hours and freeing up one hour or something or waking up an hour earlier and working on a hustle, but still keeping that release and that enjoyment. Because also with all this stuff, as number of people, oh, we'll be retired in five years and 10 years and 20 years. But the truth is, A, like we might die tomorrow, right? And B, like, even if that's true, you're kind of wasting five years of like feeling

miserable just to be able to feel good later and things change. I know it's easy for me to say, oh, just enjoy like your free time and not stress out about it because she is stressing out. Right. But see if there's ways to make you feel better or free up time elsewhere. That's kind of like free time, you know, like waking up an hourly example, where you can focus on these hustles more, you know, but yeah, that's a tricky one. You know, I agree with you, Jay. I think that based on her email, it sounds like she already has a great savings rate and she, so I don't think that saving more is the answer. And she should definitely continue woodworking and gardening because those are the things that make her happy. And like she says,

if I sold my tools, I'd be incrementally closer to FI. Yeah, but you'd also be miserable. Right. Yeah. An increment means tiny, I feel like. Exactly. Exactly. She's like it would have a, there'd be incredibly marginal utility. I mean, it would probably put her, it'd be a rounding error. You know, don't make yourself miserable for a rounding error. Ah, I like that. That's an interesting way to put it. Yeah, stick with your hobbies and keep working on a side hustle. And I'm happy to hear that this new side hustle is more of a passion project. Probably the reason that the last two, and granted I don't have details about those last two, but I'm guessing that part of the reason that the last two attempts that side hustling didn't work is because he weren't that passionate about it. Yeah. That being said, however, I will also say, to a certain extent, passion.

develops as the result rather than the cause. So you need a baseline level of interest in something. But once you have that minimum baseline threshold, if you show up every day and you continue to do the work every day, passion often emerges as the consequence of doing that work. Yeah, I guess that's true because when I started my blog, it was eight years ago, I had enough passion and fun doing it. But then once I kept doing it and opportunities came and friendships developed and then money eventually came, like my passion got amped a lot. You know, and it kept making me want to do more and be better and challenge myself. So yeah, I can see how that would come. You know, the interesting too about like even blogs and stuff, right, and I say don't do for the money,

but there's other benefits too, like let's say woodworking, right? If you create a blog on woodworking and there's tools and you get good like you become I hate the word expert but you become like known in your world for like this type of woodworker and then you start building these communities or that all the tools that you're buying there's like home depot's like hey let me sponsor these tools and so you don't have affiliate links to the tools on amazon yeah or affiliate so you can still get free stuff you know let's say home depot's like hey we want to teach classes on this type of woodworking you're due let us pay you for that so you can get all these cool opportunities based on something you're good at that you're passionate about and built a community around.

You know, it doesn't have to be money necessarily. It could be other stuff. Yeah. And, you know, she mentions that she lives in a small town. So online-based type of opportunities are probably the best in her situation because, you know, she doesn't need to go out and sell some product that she made, some physical product. You know, when if, yeah, that blog on woodworking is a perfect example or a website on woodworking. If she produces that and grows it and then has, you know, affiliate links to tools and this and that and the other. I mean, that's definitely a way that she could be monetizing that that isn't limited by the rural location.

But again, try it. And if that passion emerges as a consequence, that's what you need. There's a book by Cal Newport called, oh, what's it called? He wrote a book called So Good They Can't Ignore You, but he also wrote several other books. I don't remember exactly which one it was in. But in one of those books, he talks a lot about this concept, the importance of going deep into an area of study and not worrying about whether or not, you know, your muse is already there. You just go deep into that area of study. And once you're deep in it, then the muse appears. That's the same dude that'll, like, sit there for five or six hours or nothing turned on in the woods and write, right, right?

Like, and wait till stuff to come. Like he, like, secludes himself for chunks of time. I don't know if he does that. He's, he is a proponent of deep thinking. So he's a proponent of shutting off all your distractions and, um, not fooling yourself into thinking that you're being productive simply based on the fact that you're crossing small things off of your to-do list. That's my favorite. I cross off like 10 things before we talk today. You're right, though.

You never really, it only feels good in the moment. It's like a little high. Exactly, exactly. So he's a proponent of like really taking that time and space to go deep into a field of work. The other part of our question is like the trials and tribulations, like the stuff where you fail and stuff like that. The thing that I want to start doing more, even for this podcast is I want to feature a lot more failures and stuff we suck at and stuff other people suck at. Because the problem is that a lot of stuff that people put out there is all like the good stuff, right? like, oh, I made a million dollars when I was 30 and, oh, like, I have a successful site or a blog or whatever.

But they always, on purpose, usually leave out all the crap that they took to get there, right? Like, lives were miserable at this part or they started 10 other blogs that failed before they hit the big one. Yeah. In the last eight years, I've probably launched at least seven, no, probably like eight or nine different blogs or online projects. Every single one of them are gone or dead besides two. And they failed, right?

Whether it was because I didn't do it right or people didn't like it or my time was spread thin or it was a horrible idea, right? Like, or a mixture of all that. You know, and they all died. Even at one point in the beginning, like I was successful at like two things. And then I thought, wow, like I started feeling bad that like I wasn't failing. I was like, everyone says that you need to fail so you can learn, you know? But I was like, I haven't failed at anything.

So I don't know if this was. subconscious or what, but around the same time, I had the chance to invest in two different online projects. I put like 5,000 and one and I think almost 10,000 in another. It's like 15 grand. By the end of the year, both projects were killed. I lost 15 grand. And I thought, this sucks. I don't want any more failing. Like, these people suck, right? But like that happens, a lot of us fail or do something stupid. I mean, the whole online, everything for me was based on buying a house. at the peak of the market, which I shouldn't have with no money down. The stupidest decision of my life financially created everything else.

So my life is based on me. That was the trigger for you to start your blog, right? Yeah, that was the trigger to go online and research money because I was a being a dummy. And I just say this for Paula and I, I want us to get better at talking about the failures and even when we're interviewing people to ask them about the stupid stuff they've done because the reality is a lot of people do a lot of stupid stuff or make mistakes before they ever hit the big win or whatever it is. So the answer is we all have like these problems, right? And the only difference is like, do you keep going? Do you stop? Do you switch or pivot?

It is like a new term everyone says now. And the nice thing is once you're successful with the one project, I feel like it gives you confidence where all these ideas pop up and you know that you can at least do it once because you've done it. And so it's a lot easier or you take more risk to do other projects. Right. Like I've been able to do more because I know I always have budgets. are sexy worst case, like at least succeeded on one. Hopefully this podcast would be another, right? So all successful people fail miserably at some point. The problem is a lot of them don't share it, which sucks for all of us.

All right, Jay, one last question. My wife and I got a nice tax refund this year, about $4,000. What do you suggest we do with it? Is it better to pay off debt or invest? Well, we already answered this. Do it up in sight to it, right? That's hard, though. What's interesting, I mean, with this particular question, we don't have any of his background.

Exactly. I will say this, though, before, I love it. And this is like one of those controversial issues with taxes. I love it when people, like, magically get these tax refunds at the end. Because most people, right, you have two sides one. No, you should never have a refund because that means you're managing your money well and you're using it well throughout the year and you're not giving a free loan to the government.

Right? Like the smart people and the people that, you know, pay attention to numbers a lot, like all go that way, right? I'm the opposite. I love it when people get refunds because, A, like it's like a forced savings on the side, you know, and it excites them at the end of the year, they know they're going to get a refund. It's always like a nice, they don't know how much,

but it always makes them happy. And it forces them to save it. And honestly, like a $4,000 or $1,000. loan to the government. Like, it's not costing you that much money. You know what I'm saying? Like, that's like, it doesn't even matter. Yeah. But the problem is with that route is that most people will get that money and then spend it on something ridiculous because it's a big chunk of money, right? So that's the only problem with it. Although if you're like, you know, getting $100 a month, it's probably going out the window anyways. But anyway, so anytime I hear someone that gets a refund, I love it because

I remember that feeling when I used to do that and it was such a good feeling. It gives you a spark of hope, you know and then it's nice right like oh look at let's think about all the ways that I can use this money which is a really good feeling to have right and then hopefully you pick one that that grows your wealth right whether it's pay off debt invest invest in a company whatever it is as long as your it gets your net worth to go up to me is a fine answer very nice jay we need to answer the question so what I would do if your debt has an interest rate of 8% or less. And if it doesn't really bother you that much at an emotional level,

then I would hang on to that debt and invest the money. I mean, that's what I personally would do. I would take it out $4,000 and put it as a big lump sum contribution into an IRA. In 2016, the IRA contribution limits for either a traditional or a Roth are $5,500. So that tax refund alone gets you most of the way towards your annual IRA contribution. That's a good financially nerdy answer, yes. Would you blow any of that money? Like, would you take some and say, oh, I'm going to drew myself to a nice dinner and then invest the rest?

Or does that not really, you already have enough fun? Yeah. I think I already, I build enough fun into my normal life that I actually really enjoy getting these lumps, sums because it's so, you can so clearly earmark the entire thing for one specific purpose. So I actually do that with, I kind of artificially create lump sums for myself in which I'll just accumulate savings for a particular period of time. And once it reaches a certain arbitrary number, then I'm like, woo, I have a given arbitrary number of amount of money. And then I make a decision about what to do with it. I'm like, oh, should I make this a giant lump sum?

some payment towards a mortgage, or should I max out my entire solo 401k contribution in one big swoop? You know, like, well, what should I do? And so, yeah, and I mean, I do that. Like, in January, I will put $18,000 into my individual 401K. And I'm like, woo-hoo, in like, one transaction, I've just maxed out my whole 401K for the year. Yeah, I love that.

And, like, realistically, that's not, you know, in reality. reality, that's not one transaction. It was actually me accumulating savings over a period of time. But because I put the entire amount in my 401k all at once, you get the psychological thrill of like, and that's the motivation to do it again next year. Well, Anne, interesting because throughout these Q&As, you've said dollar cost averaging is better if you're getting it in chunks. So technically, if you're being financially prudent and not going with the most, that you get, which I agree with you. I'd do the same thing you do. You'd put it in monthly, and then it would be dollar cost average and yada, yada, yada, and you'd get 1.5 more percent, right?

Yeah, or I don't know. That's not necessarily the percent. So, yeah, don't quote that as the percent. You would theoretically get a higher payout by virtue of investing money as you get it. Yeah, and the reason I bring it up is just because dollar cost averaging is better in that case, you still choose the emotionally charged one because for whatever reason, makes you happy and excited and keeps you going. Yeah, because it's psychological motivation. And that's the most important key to any of this money management stuff. Yes. Yes. So anyone asking questions or what should I do, you have to make sure that the answers you're getting. And there's some people that are all emotion and there's some people that are all factual, right? Like, which debt should

I pay off? Well, what is the interest rate? Like, that tells them everything. They don't understand why you would ever do one that's like a lower or a higher interest. Like, they don't understand how you can get emotional. So when you're asking, asking these questions, not to us, but to anyone out there, keep in mind that the emotional part plays a big role and just know yourself, you know, how emotional you are when you get the answers to it. Good for you for getting a nice chunk of money. I don't know.

All I know is think about all the awesome stuff you could do with it before you choose an answer. And another cool thing about saving money that I like to do is the saving the money versus paying off debt, the nice thing is you could always change your mind on an instant and then pay it off or invest it or put it somewhere. So it's kind of like you get a twofold. Like, all right, I have four grand. I'm going to save it for a month. And then after the month's over, you can then say,

all right, now I'm going to pay off debt or now I'm going to do this. It gives you like a double win. Right. And it's not like that bad case to just wait a month. Right. You know, whereas if you paid off debt, you can't just get the money back real quick because now it's gone, kind of, right? The cost of keeping your options open.

Yeah. And the options, you're right. The options are really motivating and empowering. It's just the options are awesome. Yeah. So take your time in and, enjoyed and soak it in before you release it into the world. Awesome.

Well, Jay, Money, I think we just answered some cool questions. If you're listening, this is your question. Tell us what you think about it. If you're ever going to listen to the show again, if you give more questions. Cool. Well, I will catch you on the flip side, Jay and all the listeners. This was fun. I enjoyed this episode.

Thanks for listening, everyone. We appreciate all your support. Thanks for all the likes and the retweets and reviews. and everything. You guys are amazing. Yeah, absolutely. Take care. Bye. We'd like to thank our sponsors. Nobody.

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That's themoneyshow.com. How many different colors has your Mohawk been? It's been blue, green, hot pink, platinum. Platinum's the color? Oh, you know, like white-ish, yellowish. Oh, like platinum blonde. Oh, yeah, yeah, yeah, yeah. Not silver. Yeah, I was like totally trying to picture that.

Although that would be really cool. I always say that when I get older, I want like really cool silver hair, you know. It's like a distinguished look. Not with the Mohawk, but just in general. You should totally be the guy at the old folks home rocking a Mohawk. I've been doing it for, man, like 15 years or something crazy. In my 20, early 20s and now I'm in my mid to late 30s. I don't know if it's going to start being ridiculous.

It hasn't been ridiculous yet. I hope not. I hope people would tell me if it was and not just, you know, be nice to me.