Afford Anything - How One Ex-Inmate is Building a Better Future

Episode Date: May 21, 2024

#507: Robert was recently released from prison and wants to start his life on the right foot. What’s Joe and Paula’s advice for him? Suzy is excited to deploy her first corporate bonus but scared to invest everything in a lump sum. Should she stick with what’s worked in the past and just dollar cost-average? Meghan doesn’t understand how stock pricing affects capital appreciation. Is it always better to buy when share prices are low? Former financial planner Joe Saul-Sehy and I tackle these three questions in today’s episode. Enjoy! P.S. Got a question? Leave it at https://affordanything.com/voicemail For more information, visit the show notes at https://affordanything.com/episode507 Learn more about your ad choices. Visit podcastchoices.com/adchoices

Hey, before we get into today's episode, mark your calendars because Wednesday, May 22nd, we open our doors for enrollment for our premium flagship course, your first rental property. If you want to learn all about rental property investing, particularly in 2024, when interest rates are 7%, interest rates are enormously high, but competition for buying houses is low. if you want to learn how to navigate this market, head to Afford Anything.com slash enroll to learn all about the course. We offer this course twice a year at most. Every enrollment window only lasts for one week. And so starting Wednesday, May 22nd, we open our doors for enrollment.

The enrollment window lasts for one week only. And then after that, we shut our doors for enrollment and class begins. Afford Anything.com slash enroll for tons of information. it'll answer all of your questions about it. Thanks so much. And now, on to the show. Joe, we have a really important final caller today. We do, Paula, and it's so frustrating because for people that have served time, you know how much bias we have in this country against those people who went and served their time for rehabilitation? And yet we have these 13 states have these boxes that say, were you incarcerated? And you know, the second you check that box,

you're screwed. And so we've got an important call that I feel very strongly about. Right. And this is something that we have never addressed before on this podcast, which is a mistake and an oversight and something that we are rectifying today on this show. Because this is such an important topic and this is such an important subset of the community that we need to serve. So I'm really looking forward to the final caller that we have today. Ma'am, me too. Welcome to the Afford Anything podcast. This is the show that knows that you can afford anything, but not everything. Every choice that you make carries a tradeoff.

And that applies not just to your money, but your time, your focus, your energy, your attention. So what matters most and how do you make decisions accordingly? Answering these two questions is what this podcast is dedicated to helping you solve. My name is Paula Pant. I trained in economic reporting at Columbia University and I help you focus on what matters. every other episode, we answer questions that come from you. And the former financial planner, Joe Saul Seahai, joins me to answer these questions. How's it going, Joe?

It's going great. I just got back from your home country. Nepal. Brought a cold with me. Yes. And you hung out with my sister while you were in Nepal. I did. We partied on New Year's Day as if we'd all hung out too long on New Year's Eve.

Right. And to be clear, Nepali New Year's, which takes place in April. Right. Right. We're not way behind on this. Yes. Yeah. The Nepali New Year's, which happens in April. Happy 281, by the way. Oh, thank you. Thank you. You know, the expression I wasn't born yesterday. There's actually a point in time where you can, if you acknowledge both the Nepali calendar and the Roman calendar. I should try to fool you on that day. Yeah. Yeah. There is. There is actually a day in which you were born yesterday. There is actually a day in which you were born yesterday. Well, as we mentioned, Joe, the last call that we're going to take today is an incredibly important call from a 24-year-old who was recently released from prison. Before we get to that call, we're going to answer two other questions. One from Megan, who wants to know about stock pricing, about how to evaluate stocks.

All else being equal, why wouldn't you just buy the cheapest stock? We're going to answer that question from Megan. But first, before we get to that, we're going to answer a question from Susie, who wants to know how to properly invest a big lump sum. Because sometimes you get windfalls, right? You might get a commission. You might get a bonus at work. So how do you deal with some type of lump sum that you've been handed?

We're going to answer that first. Here's Susie. Hi, Paula. This is Susie out of Washington, D.C. I'm a long-time listener and a first-time caller. Thank you so much for the helpful advice you provide to myself and others over the years. Thanks to advice like yours, I have been a moderate saver for my entire career, which until a couple of years ago was entirely in government where I was learning moderate amounts of pay.

But thanks to that sort of advice, feel like I'm in pretty good financial shape when it comes to my retirement. I am getting my first large corporate bonus in a couple of. of weeks and wanted to get your thoughts on it. The slow and steady process that I have used to save has served me well. I am a long-time dollar-cost averaging proponent, but I've also never had tens of thousand dollars hit my account at once. I wanted to get yours and Joe's insights into whether or not I should be dollar-cost averaging this. Letting it sit for a long time in a savings account doesn't seem terribly appealing to me as I do so, but on the other hand, dollar-cost averaging over a

order window, kind of feels not like dollar cost averaging at all. Just a little bit of context about me. I do plan on using a little bit of this to increase the size of my emergency savings. So I plan to buy a larger home in the short term future. But I do plan on putting most of this into a post-tax investment account. That's because I have already on track using dollar cost averaging to max out my 401k and HSA this year, as well as my SEP IRA for a little bit of my side hustle money. Thanks. Would really love your thoughts here. Appreciate everything you guys do. Hope to hear it answer soon. Susie, first of all, congratulations on having been a consistent saver. As you mentioned, for most of your career, you made a moderate income, but you still have

great savings and a really healthy financial picture because you put, personal finance practices into practice. So huge congratulations to you for that. Let's tackle the dollar cost averaging question because this is one of the most misunderstood concepts in the world of personal finance. Dollar cost averaging, which for the sake of everyone listening who may not have heard of it if those of you who are new, dollar cost averaging is the practice of putting some amount of money from every paycheck into your investments, such as your 401k or your IRA. If you are putting in a steady amount from every paycheck, necessarily this means that you're buying fewer shares when stocks are expensive and more shares when stocks are cheap. Because let's say that you put in $500 from every paycheck, necessarily that means that that same $500 is going to buy you fewer shares of an index fund when a share of an index fund is expensive.

And necessarily that same 500 will buy you more shares when that index fund is cheap, right? So dollar cost averaging is a great way to automate contrarian investing, which means that you are necessarily buying more of stocks when they are on sale. One incredibly important piece of this that I want to clarify is that dollar cost averaging works in the context of planning for your paychecks because necessarily you can't invest money that you haven't earned yet. And so when we talk about dollar cost average. averaging as it applies to your future paychecks, paychecks that you have not yet received.

It's a great way to plan for investing a little piece of every paycheck. But it does not apply to lump sums. And the reason for that is because if you have a big lump sum of cash, you're able to put that entire lump sum into the market in one fell swoop. And by virtue of doing so, you have more time in the market. and time in the market is more important than timing the market. If you were to hold this lump sum in cash and then put it into the market slowly, what you would be doing is you'd be tilting your asset allocation such that you would have too much cash for too long.

And that would actually, statistically speaking, give you worse results. There was a study that was done by a couple of professors. And I'm going to, I wrote a blog post about this way back in the day. I'm going to put that in the show notes. The study was actually conducted in 1993, in which researchers from Dayton, Ohio, imagined what would happen if they converted $120,000 from Treasury bills into an S&P 500 index fund. And they ran two scenarios. What happens if they invest the lump sum on January 1st and versus that's scenario A, scenario B, what happens if they dribble out that money over the span of a year? These researchers ran a historic analysis covering every year from 1926 through 1991. The result of that analysis was that the lump sum strategy won two-thirds of the time.

So based on historical evidence, the odds strongly favor investing the lump sum immediately. Now, the following year, the same researchers ran another similar comparison. And they concluded in that study, and I'm quoting here, that dollar cost average quote, is mean variance inefficient compared with a lump sum investment policy. And that's basically researcher lingo for throw all of your chips into the game. Now, right around that same time, there was a different research team, an unaffiliated research team that showed that there is no statistical difference between dollar cost averaging and throwing money into the market at random intervals.

So if in scenario A, you are putting money into money into. the market in precise two-week increments, whereas in scenario B, you're doing so in a randomized manner, there's actually no statistical difference between the two. And a bevy of other studies followed, and by December of 2001, there was a research team that asked the question, all right, fine, we have established from all of these previous studies that lump sum investing may help you gain more, but could it be the case that dollar cost averaging helps you lose less. So in other words, is it a risk mitigation technique rather than a growth technique? Now, these researchers in December of 2001 ran a study based on this question and discovered the answer

is no. And they stated, and I'm quoting, quote, we find a loss of version still does not explain the existence of the dollar cost averaging strategy. And so fundamentally, what all of these studies have done, a meta-analysis of these studies show that if you have a lump sum of money, it is better to put that lump sum in both from a risk mitigation point of view as well as from a opportunity for growth point of view. So both defensively and offensively, it is better in both cases. Dollar cost averaging, again, is great when you're planning for paychecks because paychecks are money that you haven't earned yet. You don't have that money yet. You can't invest money that you don't have. But it doesn't apply to lump sums. Which begs the question then, why would people

people, you know, even consider dollar cost averaging, given all that. And I think, Paula, the answer to that question is we can cover on two fronts. First, there's the economic piece, which you covered. But second is the behavioral economic piece. So the economic piece is over time, the stock market tends to go up. And that's what these researchers showed, right? The stock market tends to go up. And if you just give it enough time, the market will go up. I love this chart. you can look at it up online called an Ibbotson chart, which will show results from the early 1900s till today. And you will see that given even all the ups and downs that happen during any normal market, things tend to go up and to the right. The market tends to rise.

For those of you who are watching on YouTube, we've got this chart showing on our YouTube video. So YouTube.com slash afford anything. Please follow us there. But here's the problem, Paula. The problem is, is that if you're investing in a down market, and this is where the behavioral piece comes in, you just have to give it time. You have to give it time. Because what I saw when I was an advisor was, if you lump sum your money in all at one time,

which all research shows what you just pointed out is the right move, you'll second guess your strategy. And two weeks, three weeks later, you go, I just got so-and-so's inheritance. she saved this money and gave it to me and I now am throwing it down the drain. So I'm going to second guess my strategy because it's losing money two weeks in. You can't do that. You can't do that. You have to look bigger.

So behaviorally, the only issue we have is not the research. The research is solid. It's that you will blow up your own gain. So you just have to have patience. You have to not look at it. You have to base your investing on a wide index based on your goal timeframe, right? Start with the end of mind. Look at what investment historically has gotten you there.

Put the money in that spot and leave it alone. So what I would do sometimes, Paula, and this was just for behavior, it had nothing to do with the facts besides the fact that you might blow the strategy up. And that is, rather than dollar cost average, we might do the thing where we try to avoid the black swan event, meaning that we happen to pick the stupidest day to invest. So instead of investing it all at once, we may take a day today and then take a day maybe two weeks from now and invest the second half.

And to Susie's point, it's not dollar cost averaging. We're just picking two days instead of one so we avoid the black swan. So Susie and to everyone else who's listening, I hope this answers that question. If you have a lump sum of money, put it in the market right away. Get it in. Yeah, exactly. Because if you are holding that money, you're necessarily allocating far too much to cash for far too long.

And that is going to create more damage to your portfolio over the long term. If you find yourself... Statistically speaking. Absolutely. Yeah. If you find yourself worried ahead of time that you won't be able to take the market fluctuation or you're going to be very unsure of the market fluctuation. As Paula and I were talking, you're like, I don't know. Here's a great resource. Go to morningstar.com and look up the fun that

you're going to put it in. Go to the tab, which is risk measurements, and look at something called standard deviation. And what I love Paul about standard deviation is, and I'm going to put this very simplistically and people that are math majors are going to come on glued that I'm not 100 percent right. I'm just trying to make it so that the average person can use it. If the standard deviation is 12 in a normal market, this is where the math nerds are going to come unglued, but for the vast majority of us, in a normal market, you'll go 12 percentage points higher than what the expected return is or 12% below. And what's cool about that, Paula, is I know this thing can swing 24% from its normal straight on ride.

And I know that's normal. And if I look at that ahead of time, it's almost like the pilot coming on the plane. If the pilot doesn't come on the intercom and say, we're going into turbulence and turbulence starts on the plane, I get jittery. But you know when I don't get jitteries when the pilots goes, hey, I'm going to turn on the seatbelt sign because of the fact that I know we've got

turbulence coming ahead. And then that turbulence hits. And I'm like, oh, yeah, it's exactly what the pilot said was going to happen. I like standard deviation for nervous investors because it's like that pilot. You can show yourself, oh, you know what? It dropped 12% from what I expected. That's normal. I'm still okay, which has helped me so many times when I was an advisor, keep my passenger, the investor, to stick with the right thing instead of blown up their strategy. Right. And again, for those of you who are watching on YouTube. We're showing on the screen an example of what standard deviation looks like in a

Morning Star chart. So again, if you want to see visually some of the things that we're talking about, just watch us on YouTube. Susie, thank you for asking that question. And I hope that we've clarified some of the research around dollar cost averaging. And I do want to emphasize all of the research that we are describing. Again, we are speaking probabilistically. So even that study running scenarios, running a historic analysis from 1926 through 1991, even in that study, lump sum won two-thirds of the time. That means it lost one-third of the time, right? All we can do is speak in probabilities, knowing that, as they say in the world of finance, your individual results may vary. But the most data-driven decisions that we can make have to come from probabilistic

reasoning that's based on historic analysis, because when it comes to the markets, that's the best that any of us can do. That said, to Joe's point, if putting this in on two different days rather than one, if that helps you sleep better at night, then there's a lot to be said for the behavioral component because we aren't logic machines. Oh, thank you, Susie, for asking that question. Fifth Third Bank's commercial payments are fast and efficient, but they're not just fast and efficient, they're also powered by the latest in payments technology, built to evolve with your business. Fifth Third Bank has the big bank muscle to handle payments for businesses of any size. But they also have the FinTech Hustle that got them named one of America's

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is from Megan. Hey, Paula and Joe, this is Megan. I have a question about shares, number of shares, price of shares, and how that works when it comes to capital appreciation and compounding. I know that we talk about compounding when it comes to stock market investing, but I also know that really it's called capital appreciation. So when you own one share of a company, that share increasing in value is actually what gets you paid in the end. And that got me thinking, say I have two different index funds. They both track the total stock market, but one index funds shares cost $200 and the others, costs $100. Is it better to invest in the index fund whose shares are cheaper than it is the index fund whose

shares are more expensive? I'm trying to figure this out on my own, but I'm having a hard time because this is a level of math that I'm not that great at. To me, it feels like the percentage of the return is still going to be the same, but I wanted to see what you guys thought. got this question from one of my followers. I am also a personal finance educator and somebody asked me this and I wasn't even sure how to answer it and Googled it and couldn't really figure out an answer because it's kind of all over the place. So I love your take. Thanks so much. Bye.

Megan, thank you so much for the question. The good news is it is straightforward. But what we have to look at, Paula, is the difference between an index fund and how that works versus an individual stock and how an individual stock works. And once we know the difference between the two of those, the answer becomes clear very quickly. I can go to any brokerage house, Fidelity, Vanguard, Schwab, wherever, and I can purchase shares of an index fund. I can purchase shares of a stock. Let's take a stock like Microsoft. The stock price is based on the value of Microsoft as a company divided by the number of investors. So one share of Microsoft is going to be based on the number of shares outstanding

and the valuation of Microsoft and what investors think it's worth and your little sliver of that it's going to go up and down. An index fund is not the same thing. An index fund is created to track the performance of a set of positions that are in index. So just to keep it very simple, the S&P 500. is the roughly the 500 biggest companies in America. Currently, it's a few more than that. It's 503.

Right. Well, it's 500 companies representing 503 ticker symbols because some companies have multiple stocks. We end up with, though, the biggest companies in America. And the value of the S&P 500 is the aggregate of all of these positions each day and how they perform. So the only thing an index fund is trying to do, it's trying to replicate two things. The risk level of that fund, so we talked about standard deviation earlier with Susie, it's going to try to bounce the same way up and down that the individual positions would, that the index would. And at the same time, end up with the same return minus the very, very small fee that they charge to give you that return. that is the goal so because it's a tracking device paula the share price actually is irrelevant which is what i

believe megan is thinking the share price is irrelevant whether you're buying one of these funds for a hundred dollars a share or two hundred dollars a share they're going to go up and down based on the same percentage return. Not the case when it comes to buying individual stocks. If you buy a, if you buy a micro cap stock that's trading for 20 cents, studies show that you're going to either lose your money way quicker or gain money way quicker. So for a stock to go from 20 to 40 versus a stock to go from $500 to $1,000 is crazy. But when it comes to an index fund, it's not crazy because all it's trying to do is mimic the exchange that it is trying to replicate the results of.

So, Joe, let me ask you, as we were prepping for this question, we looked up two ETSs that both track the S&P 500. One is ticker symbol SPY. the other is ticker symbol IVV. As of the time that we are recording this, despite the fact that these two ETFs both track the S&P 500, they have different share prices. On the day that we're recording this, IVV is trading just over $500 a share. And SPY tracking the same S&P 500 is trading for below that, $497 a share.

So there's a difference. So you would think SPY is the smarter buy. But you know what, Paula? It isn't. And the reason it isn't, we can go to Morning Star again and we can look up what the fee is to purchase these funds. Because as I've said before, when I rant about fees, that we pay way too much attention. But where's a spot, Paula, where we should pay attention. We should pay attention if we're getting the exact same thing.

And literally, when it comes to buying the S&P5, My goal is to buy the SP 500. Give me the cheaper one, please. If they are very much the same thing, and you will find that ticker symbol IVV has a lower cost than ticker symbol SPY. So in this case, IVV, which tracks the S&P 500, has an expense ratio of 0.03%, according to Morningstar. ticker symbol SPY tracking the same exact thing doing exactly the same thing 0.095 so three times over three times more expensive than buying IVV by the way back to my rant about fees you're going to be

okay either way you're going to do fine if you go with SPY however if I'm thinking about fees I'm buying an IVV, even though it appears on paper, if I'm looking at them as if they're stocks, like it's a pricier thing. It's not a pricier thing. It is, it's actually a much cheaper thing than ticker symbol SPY. So big picture, don't get overly hung up on expense ratios, which we sometimes see people within the personal finance community do, but all else being equal, and this is a perfect example of two ETFs that track the same underlying index, all else being equal, go for the one with the lower expense ratio. Yeah.

And by the way, as you get more esoteric, Paula, you can still run into problems here. And let me tell you a recent story that happened just a few years ago in the oil sector. And you've invested in the oil sector in the past. I've invested in the oil sector. And when the price of oil a few years ago went through the floor, a lot of investors got caught in a trap. A company called Power Shares had a version of an ETF that was less expensive than another one. However, expenses were not the only difference. There was a material difference in how the two funds operated. One was actually buying derivatives and was buying futures contracts,

while the other was purchasing the underlying position. So if all you looked at was Vs, you got sucked into buying an exchange trade of fund that actually lost more money in a speculative spot when the more expensive looking one actually was doing what you wanted to do. So there's still more research to do. Now, I wouldn't let that worry you if you're going with a broad index like we like 99% of us should do. We should be buying the total stock market index. We should be buying the S&P 500. We could even buy the small cap value index. We'd still be okay. But we start getting into biotech, healthcare, we get into, you know, technology ETFs or some of these more obscure ones, you got to know how they're investing because companies will just sell you on the name of some

of these really, quote, sexy products. And you could end up owning something that you have no idea, really what you're buying. Which is where the all else being equal caveat comes in. Right. Because, right? Because oftentimes what seems to be an equivalent purchase on the surface is not when you look at the underlying composition of what you're getting. And Megan, honestly, you know, Joe and I were discussing this question before we started recording. My original interpretation of your question was that that might be what you're asking about. Now, the way that you phrased your question was all else being equal, what happens if I buy two. index funds that appear to be identically composed. And so if we accept that assumption as fact that these two index funds do have identical composition, then it becomes a matter of, as Joe just described, evaluating the fee structure. But my original interpretation of your question was to wonder if perhaps you might be approaching a situation in which

the funds that you are evaluating actually do not have materially similar composition, meaning they may be marketed in similar ways, but when you look under the hood at the composition of these funds, you actually discover that these index funds are comprised of different baskets. And where we see this sometimes is in the world of index fund, investing, which underlying index a particular fund tracks is relevant. So there are multiple underlying indices that cover the same type of asset class. For example, there is one that's called the MSCI World Index, which represents large and midcap stocks across 23 developed

markets, 23 countries. So the MSCI World Index is a global equity index, but it is not the only global equity index out there. There's a different one that's called the MSCI All Country World Index. And so you might be looking at two different funds that both promote themselves as tracking a global equity index, but because they are tracking different underlying benchmarks, they are not actually giving you the same thing. But the marketing at the surface level might make it appear as though they are. And so my original interpretation of your question was that perhaps that might be one of the challenges that you or your followers are dealing with as you're trying to weigh some of these different index funds against one another.

In that case, I think, Paula, it's important for an investor to go into that same resource, Morningstar, and to look at the underlying holdings, a big point of contention for people investing internationally. People will use a fund that is a World Index versus an International Index. Well, World will include much of the S&P 500 in it, which you already, own. So to be truly diversified internationally, you want to make sure it's X U.S. that there isn't United States in there if you're going for an international approach. And investors will often miss that. But if you go to Morningstar and you look at the underlying holding, you go, wait a minute, I'll go back to Microsoft. Microsoft isn't here. Well, that's a U.S.-based company. Yes,

that's because you're investing in a world index. And then you start getting an idea of what you own and it makes it easier to see, not always easy, but easier to see whether you're doing something that is truly diversifying your portfolio or if you're buying more of the same. So as always, it comes back to... All things being equal. But what if they're not? What if they're not? Precisely, precisely.

It comes back to that. But what if they're not? Thank you, Megan, for the question. We're going to get to the final question in just a moment, but first, we're going to hear from Orvis, who quadrupled his income and quadrupled his retirement savings. Hey, Paul and Joe, this is Orvis. I found Joe when I was trying to figure out what to do with my landmark artist's hourly wage of $15 an hour in 2015. I started my Roth IRA and have been an avid fan of both of you since then, jumping on the money show later called afford anything as soon as it aired. I love y'all's complimentary approaches to financial education,

personal financial education and entertainment and bad jokes. I love you both. I just finished the Michael Kitts' interview rerun and it reminded me of how far I've come listening to y'all. When I heard it the first time, it was a perfect push for me to invest in my personal capital. I upgraded my skills over the next few years and made a big career pivot to engineering in 2021 after maxing out my career as an artist at $25 an hour with $100K in retirement savings built over six years. You'd be amazed at how well skills built from building puppets translated to software engineering. Who knew? Three years later, I've nearly quadrupled my income and retirement savings.

Help friends and family start investing and now different kinds of FI and life goals feel so much closer and more tangible. So no question for you. Just thanks. Thanks for the education. Thanks for the entertainment. Thanks for the interviews. Food for thought. And thanks for sharing your enthusiasm and brilliance with everyone. Orvis, thank you so much for the note. And huge congratulations to you for taking action and doing the things that led to such great financial growth. I mean, we can we can give financial education. We can teach you what to do, but you're the person who actually puts it in action. And so I want to applaud you and I want to applaud everyone who's listening who actually converts

knowledge into action because that's how you grow wealth. And like you said, in three years, you've quadrupled your income and you've quadrupled with your retirement savings. That's an enormous, enormous testament to the action that you've taken. So, congrats to you and congrats to everyone listening who has also improved their lives as a result of learning and then implementing. Our final question today is an incredibly important question that comes from a member of our community who was recently released from prison. and wants to know what financial advice we would give to recently released inmates.

Our final question today comes from Robert. Hi, Paula. Hi, Joe. My name's Robert, and I'm 24 years old. I've been listening to your podcast for about two years, and it has helped me a lot in my knowledge. I've also been released from prison recently. I want to be able to move out of my mom's house within a year. My plan is, once I start working, is to save $510 a week and also invest into index funds once my savings is adequate. Eventually, I want to get into real estate, possibly looking into foreclosed properties to get started. But first, I need to get my life on track. Is there any advice you can give to any recently released inmate who listens to this podcast or any inmates who

are still in prison listening to this podcast. But more importantly, you give me the advice so that I can get my life started. Thank you. Robert, thank you for being a member of this community. Thank you for reaching out with that question. And I am so excited for the future that you are about to build and everything that is going to come next for you. Let's address your question. The first thing to focus on is career development. Now, I don't know what type of skills you have. I don't know what kind of work you do. I don't know what any of your training or your interests are, but the number one asset that you have is your ability to earn an income, your ability to develop and sharpen your skills in order to make money.

And you're 24. So time is on your side. The more that you can focus on skill development in some way that will increase your earning potential, the better. Because there are two ways to make money. Number one, you can trade your time for money. And number two, you can use. your money to make more money, right? So your time can make money and then your money can make

money. When you're 24 or when you're at the beginning of your career, you typically have more time than money. And so increasing the value of that time, increasing the value of every hour or every week or every month or every year, focusing on that side of the equation yields the biggest bang for your buck, particularly when you're just getting started. Eventually over time, the more that you increase your earnings potential and the more valuable every hour of your time becomes worth, you start to accumulate enough money that deploying that money so that it can go to work for you becomes the equivalent of sort of having this invisible other person who is also working on your behalf, right?

When your money is allocated out there and your money is making money, you're basically doubling yourself. But that is the second phase. It's an important second phase, but it's the second phase. The first phase is making sure that you increase the value of an hour of your time or a year of your time so that that compensation is as high as it possibly can be. And again, I don't know what kind of work that you do. But choosing a high paying field and developing skill sets within that high paying field is the backbone of everything that follows.

Robert, you have a strike against you, which has nothing to do with you. There is a movement underway called ban the box. And as you may know, Paula, in 13 states and in many communities, there is a box which is allowed on employment applications that says, have you been incarcerated? And if you check that box, your chance of being employed de facto goes pretty close to zero. And so in these states, it takes your jail time, which was meant to be paying your debt for whatever the situation was. And it makes it really punitive. And so this ban the box movement, whether you join it or not is up to you. But you have to know whether the state where you're living in the area you're living, if this box exists or not.

Because that will tell you how difficult the interview process is going to be. It's going to be difficult no matter what. It's going to be even more difficult if there is no ban against that box on your employment application. So I think that something that works for you, which doesn't work for a lot of people, I agree completely 100% with what Paula says. But there's something that used to work a lot for people in the workplace that doesn't work for most anymore. But I think Robert works for you. And that is the idea of loyalty. when you get your first job, you're going to really need that employer to write a glowing

recommendation for your next job. And so being an employee who is known as going above and beyond is going to be super important because of the fact that you have this knock already against you. And once again, whether it's justified or not, not really important. What is important is that it's there and that people are going to judge you based on that. And that the best way to overcome that, the best way to overcome that is to have people write glowingly about you. But this is where it gets annoying for me. It gets annoying that you have to even play that game, which means that for me, I think we need more people advocating for people that have fulfilled their obligation, that have paid the price,

that government asked them to pay. And now it's time for them to move on with their life and build a future, which is exactly what you called us about. I think we need more people advocating for that. And I think that until that day comes, it's still going to be difficult. But I really like entrepreneurship. I super like entrepreneurship. That's exactly what I was about.

I was biting my tongue. That's exactly what I was about to say. because you don't have to think about checking a box when you are the owner of the company. And the customer doesn't care? The customer's not even going to ask. The customer's not even going to think about it. Let's say, again, Robert, I don't know what you do. I don't know what your skills or interests are. But let's just say hypothetically that you learn how to code, right?

You learn a particular type of computer programming. And I know there are going to be people saying, well, you know, AI is changing things. All right. I get that. But let's just run with this example here. Let's say that you learn to code and you take on some freelance programming projects. That box becomes irrelevant. I can't imagine any client.

I've spent a decade as a freelancer. That question never came up, right? There is no client that I'm aware of unless you are doing some very highly sensitive project for maybe a government project or something like that. But for 95% of projects, particularly if your clients are small to mid-sized businesses, that question just never comes up. So you could be a freelance programmer or a freelance graphic designer or a self-employed corporate recruiter matching other job applicants with jobs, right? There are so many services that you can provide. You can specialize in a niche of working with a particular CRM or SaaS product, right? Specialize, you know, they say the riches are in the niches.

You can specialize in a narrow subset of being particularly talented at working with very specific software programs. and then you can offer that service-based business model to clients, all of which can be done remotely, all of which can be done in your own time. And because it's not a traditional W-2 employment type of situation, because that's 1099 freelance work, the question of that Vox, Joe, that you're talking about, it just never comes up. That doesn't come up in a 1099 contractor situation. And then, you know, we're talking right now about freelancing, but I think the thing that people often forget is freelancing is just the first step towards building an agency, right? Because what happens is you begin as a freelancer and it takes maybe a year or so to like get started and get going and build a reputation and get word of mouth referrals. But eventually your reputation as a freelancer grows to the point where you start getting more job offers than you can handle. And so what do you do?

You hire another freelancer to work under you and take a cut from what they're making, right? And you do that enough. You hire freelancer A, freelancer B, freelancer C, who are all working under you. And now all of a sudden what's happened is you have just sort of naturally, organically, developed an agency model where now you're running a service-based agency. You're running a service-based business, which means that you can then sell that business. Absolutely. And selling the business is where the riches lie. Right. I wouldn't advise you, though, Robert, to become an entrepreneur immediately at 24 years old. I would still go that very difficult route of working for someone else because I think that you will learn the marketplace. But what's cool about that is when you have this job and you're a model employee for someone else, you have a clear cut agenda.

you're looking at the systems, the processes, the clients, the way they operate so that you can do it yourself. And I think that gives your career a direction. It gives you a focus. It gives you a clear desire to wake up every morning and not have it be like the morning before, which is a pretty exciting place to be when you putting on your clothes to go to work every day. And by the way, Paula, what I want to also mention is when Robert owns this business and he has people working for him, he can then become that advocate that I'm talking about. And what's cool here, Paula, is there's a couple of programs I want to point to, not just for you, Robert,

but for other people that might employ people, because there are tons of studies about the great work that many people that have been incarcerated can do for your business. And the government will give you some help if you decide to hire these people. There are two programs I want to point to specifically. The first one is called the Work Opportunity Tax Credit, and that is a federal government program that gives a tax credit to incentivize employers to hire previously incarcerated individuals and applicants from other groups with work entry barriers, such as veterans and receipts of temporary assistance and food stamps. Other people that sometimes, believe it or not, there's a bias. against. And then second, there's also a federal bonding program where if an employer is worried

about hiring someone who's been incarcerated, the federal government will sell the employer in insurance policy at a very, very, very, very low price, which lowers the risk to the employer of hiring a person who's been incarcerated. We know statistics are actually against anything bad happening. I mean, it is amazing the statistics of hiring people who have been incarcerated. And I love those statistics, but people don't follow those. They follow their emotion. And if you want to get around the emotion, the federal bonding program is another thing. So those two programs, not just for Robert as a potential future employer of people, but also for any other employers out there, you can use those two programs to really, really help this direction.

Right, right. So, yeah, I think. Robert, your first step is develop a skill set that's going to get you a good paying job and develop a niche skill set. The more specialized your skill set is, the more it tends to be valued in the marketplace. So develop a particularly niche skill set. Go temporarily work for an employer, as Joe said, but also freelance during your time off. You spend 40 hours a week working for somebody else, spend another 10 to 15 hours a week working for yourself, building out that client roster. Because that's going to do two things. It's not only going to bring more money into the door, but it's also going to start that flywheel spinning that can eventually grow to the point where you can be the boss of yourself and then you can start hiring others.

And that, A, circumvents the questions that arise when, you know, if you're constantly dependent on an employer for a paycheck, then you're always going to have to, unfortunately, answer these questions about your past. When you no longer have to depend on an employer for a paycheck, when you only have to depend on yourself, you don't have to talk about that anymore. You don't have to answer those questions. You're the boss. It takes a while to build, but start building that. And that's what's beautiful about service-based businesses in particular that are built around a niche skill, is that service-based businesses have such low barriers to entry because you don't have to go through product development. If you think of there are product-based businesses and there are service-based businesses.

Product-based businesses have higher costs associated with product development. There's a higher cost to starting that. A service-based business is a time-for-money model that eventually grows in scales into an agency model. So the entry costs are substantially lower. And it's something that you can do remotely so it's very flexible and it can work around your day job. The other thing, Robert, you mentioned that you mentioned that you. you have a goal of moving out of your mom's home within a year? I don't know your situation there. I don't know how good of a relationship you and your mom have. I don't know how comfortable

that home is to live in. I don't know anything about that situation. So, but the one thing that I will say in a very broad, generalized sense is that if, and this is a, you know, it's an if, if you and your mom have a good relationship, if she's happy to have you there, if you enjoy living there, if there's no compelling reason to leave, I would try to stay there for as long as possible because that is a fast track to saving as much money as you can. If you can avoid having a rent payment, avoid having a rent payment, avoid it for as long as you can. In the United States, there is this cultural construct that states that people in their 20s are supposed to be living on their own. And that is, you know, in many Asian and Latin American cultures, that cultural construct isn't there. And it's always been a little difficult for me to understand why Americans seem pretty attached to this idea and seem to have a lot of identity built around it. Because in the Nepalese culture and in many other Asian cultures, even if you have the money to move out of your parents' home, it's considered sort of insulting to do so. You know, it's frowned upon by the community.

It's sort of seen as a, well, what? Do you not love your parents? Why would you want to move out? In fact, in the Nepalese community, it's actually very normal to have multi-generational homes where you have the grandparents, plus the husband and wife, plus their kids, plus sometimes even green. great grandkids all living in the same home. And not that I'm suggesting that people do that, but I'm sharing that story to reflect, A, the cultural set of norms that informs my viewpoint, but B, that I just don't understand why there's any shame around living with your parents. I really don't understand this cultural construct that we have in the U.S. Now, I do understand that some situations are untenable. I do understand that, sometimes you've got three people or four people all living in a studio apartment, or sometimes

there's a rift between two family members, and there's animosity there. I do understand that there are logistical barriers. So I don't want to discount those. And certainly if there's a circumstance in which a family member is toxic or abusive, then yes, absolutely get out. But if, in the best case scenario, if everybody gets a family member. along and everyone is happy to live together. I don't understand what the hurry is to move out. And again, Robert, I don't know your situation there at all. This is more of a general statement. This is a statement

that may or may not specifically apply to you. But in a vacuum, the most expensive parts of your life are housing, transportation, and groceries. And so by lowering the cost of housing, if he wants to get into buying foreclosed homes or entrepreneurship. Right. Could be both. Then staying at home could be the answer, again, not knowing his situation. Exactly. Exactly.

And the final thing I'll say, Robert, I want to congratulate you on the specificity. You said that once you start working, you want to save $510 per week. There is a specificity to that number that I know. reflects the fact that you have carefully looked at what you expect to be earning, what you expect to be spending, and precisely to the dollar, $510 every week, precisely how much you can save. And $510 a week is a lot, right? That's going to accumulate fast. We're talking about a savings of $26,520 per year, which is enough to max out a Roth IRA. It's enough to put money away in other retirement accounts if you choose to do so. It's enough to start saving up for that down payment on a foreclosed rental property. And it's enough to pay for any specific skills training that you might want to obtain. It's a substantial amount. And so I want to congratulate you on the fact that you have this clear plan for precisely how you are going to use your money to improve your net worth.

So keep saving the 510 per week. And as your skills develop, as your income grows, to the greatest extent possible, keep your expenses where they are now, keep them as low as you can for as long as you can so that that delta between what you spend and what you earn keeps increasing. In other words, as your income increases, keep your lifestyle fixed so that, that 510 per week grows to 610 and 710 and 810 per week because that is going to fast track your progress. Please call back from time to time and give us updates. Let us know how you're doing. Well, Joe, we've done it.

I can't believe that, yeah, what great questions. Just great, great questions. Well, Joe, thank you for being the former financial advisor on this show. Where can people find you if they would like to hear more from you? You know, one aspect of stacking Benjamins that I think even some of our, some of our longtime listeners don't know about is that my incredible spouse, Cheryl and I have begun detailing our journeys around the world. And so our Nepal trip is definitely going to be a travel log that we'll have. But we're just putting the finishing touches on a six-part series of our trip to Jordan and Egypt. Egypt that you just went to as well, Paula.

But we did a trip. We used a travel agency. We talked about what we like, what we didn't like. So if you're thinking about traveling to Jordan or to Egypt, you can stop by the Stack and Benjamins blog and just put in Jordan or Egypt as a keyword. And you'll come across this six-part series where we dive into our experience, the good, the bad, and the ugly. Because we had all the above on that trip. Mostly great, though.

Highly recommend seeing some of these amazing sites in antiquity. But come read our travelogue. Fantastic. Well, thank you, Joe. Well, thank you, Paula. And thanks to all of you for being part of the Afford Anything community. If you enjoyed today's show, please subscribe to our show notes at affordanything.com slash show notes.

And when you do so, hit reply to, any of the emails that you receive and let us know what you want to hear us cover in more detail. Please support this show by following us in both Apple Podcasts and Spotify, as well as on our YouTube channel, YouTube.com slash afford anything. Finally, chat with other members of our community at afford anything.com slash community. A no-cost way to have conversations that continue beyond this podcast about everything from paying off debt to planning for retirement to buying real estate to long-term travel. We discuss everything inside of that community, completely no cost.

Affordanithingcom slash community. Thanks again for tuning in. I'm Paula Pant. I'm Joe Sol-Ci. And I'll meet you in the next episode.