Afford Anything - I’m Earning Extra from my Side Hustle. But Does This Cramp My Chances at Investing?

Episode Date: March 7, 2024

#492: Christine’s business is struggling. She needs more income. If she adds a full-time remote job to her plate, how will her retirement and finances change? Rob enjoyed a banner year in 2023. He made over $1 million. But the sting of income tax has him making moves that violate his investment strategy. Is his tax tail wagging the dog? Gena is excited to make the most of business deductions. Can she contribute 100 percent of her wages to a 401k and have the company match that? Christina is tired of living like a pauper in the name of student loan repayment. Is Public Service Loan Forgiveness the answer? Former financial planner Joe Saul-Sehy and I tackle these four 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/episode492 Learn more about your ad choices. Visit podcastchoices.com/adchoices

Joe, did you ever work with clients who had a pretty late start when it came to managing their money? I did all the time. I felt like that was more the norm than it should have been. Like people always came in way too late because they thought, well, I don't really have much to work with. And then when they had a lot to work with, it was all in the wrong place. It's like, let me finish messing everything up myself before I go get help. Well, the first call that we're going to hear today comes from someone who started late, But turned it around. Hey, oh.

Yeah. So welcome to the Afford Anything podcast, the show that understands you can afford anything, but not everything. Every choice that you make carries a tradeoff. And that doesn't just apply to your money. It applies to your time, your focus, your energy, your attention to any limited resource you need to manage. And that opens up two questions.

First, what matters most? And second, how do you make decisions accordingly? Answering these questions is a lifetime practice. That's what this show is here to explore. I am your host, Paula Pallel. hand every other episode we answer questions that come from you, the community, and my buddy, former financial planner Joe Sal Cahyai, joins me to do so. What's up, Joe? What's happening, Paula? We've got some great questions today. We're going to hear from Christina, who is tired of living

like a pauper in the name of student loan repayment. We're also going to hear from Christine, not to be confused with Christina, whose business is struggling and she needs more income. And she's thinking about adding a full-time remote job to her plate. We're going to hear from Rob, who enjoyed a banner year in 2023. He made over a million dollars, but he is feeling the sting of income taxes. And we're going to hear from Gina, who is excited to make the most of business deductions. We're also going to throw back a little bit. Chris calls with a comment regarding an answer that we gave in episode 467.

467 about Helox and 401K loans. So we got a full house, a full plate. Let's dive right in, starting with Christine. Hi, Paula. I have a late start follow-up. I asked a question in episode of 195 about starting late at age 38 with only a 70K portfolio. Today I'm 43 and still running my business. I've been able to grow my portfolio to 285K, and I'm getting ready to fund my accounts with 46K at the end of the year. bringing my portfolio value to 335K.

The power of a solo 401k is total freaking magic. I'm in love. I wish I had broken up with my SEP sooner. With the economy being a little weird right now, I've had some downturned clients and recently had a friend suggest I get a full-time gig remote while still running my business. I have plenty of extra time each week,

and I think I could do both. My question is this. Would I not be eligible to max out my own 401k if I'm contributing to another employer-sponsored retirement program? What would the tax implications be? Would I not be able to contribute to my Roth, as I'm pretty sure my overall Magi, Magi, no idea how to pronounce this, would be too high? Would this trigger a backdoor raw scenario? I've never done one of those.

Help me think through this from more than just an income perspective. Thank you guys for bringing such well-thought-out and rich answers to us. I love when you disagree. I feel like we all learn more. Although I have to say, I tend to agree with Paula on most everything. Sorry, Joe. Christine, thank you for the question. First of all, congratulations. You started investing at the age of 38 with a $70,000 portfolio. You're 43 now. So five years later, you have grown that $70,000 portfolio to $285,000. And it's about to be $335,000 by the end of this year once you fund your accounts. That is incredible. Like the turnaround that Steve, can. Can we get a round of applause here?

That's huge. So huge congratulations to you. Big congrats on the victory, on the turnaround, on everything that you've done over the last five years that has brought you to where you are today. I feel like that this power of compounding is so difficult for people to, when you look at your portfolio, I don't have anything. And then it grows a little faster and then a little faster. And all of a sudden it takes off.

and you're like, wow, hey. But you know what, Paula? I just think it's fantastic. I think it's amazing what she did. And I actually think that her love of the simple versus the sap, don't play in the tax vehicle. It was you. It was you. You saved the money.

You put the money aside. The tax vehicle didn't put a dime aside. You put the money aside. And, yeah, the tax vehicle doesn't matter. You matter. It's so good. So good. Yeah.

Speaking of tax vehicles, to your questions, you can contribute to both your solo 401k and an employer-sponsored 401K. You can contribute to both plans, but the total amount, the maximum amount that you can contribute as an employee across all plans is $23,000. That is the limit in the year 2024. Now, the employee portion of the contribution is different from the employer portion of the contribution. And so the employer portion stands separate. You as your own employer for your solo 401K, you can make employer contributions. And likewise, the job that you have, the full-time remote work that you have, they can also make employer contributions. But there are limits to that as well.

So the total amount of contributions, both the employer side and the employee side, across all of your accounts, cannot exceed $69,000. Now, all of this, I'm saying because you are 43 years old, all of this applies to people who are age 49 and under. There are different contribution limits to those who are 50 and over. So I'm saying that for the sake of the rest of the listeners. If you're 50 and over, you have higher contribution limits. but for those of you 49 and under, which, Christine, which you are, total contributions across all accounts from both the employer side and the employee side can't exceed $69,000, and total contributions from the employee side cannot exceed $23,000.

As far as your question about the Roth IRA, go for a backdoor Roth. To make a backdoor Roth contribution, what you do is you make a non-deductible contribution. into a traditional IRA account, and then from there, you move that money into a Roth IRA account. And that's how you make a backdoor Roth contribution. That will allow you to sidestep the income limitations on a Roth. Making a backdoor Roth contribution, by the way, is incredibly easy. The first time that you ever do it, it might feel a little bit intimidating, but from that point forward, it's like clockwork. You know, it's just...

The backdoor Roth is... Yeah, exactly. It's procedurally very simple. You know, it's amazing, though, Paula? What's that? I've begun asking, we've begun asking a new question when people ask the backdoor Roth question. And that is, are you maxing out your contribution? And what I've been surprised by are the number of people that say no.

They're interested in the backdoor Roth because they've listened to shows. They're super interested. They're like, yeah, how do I do it? Sounds cool. I get money in the Roth IRA. And first question lately has been, are you maxing out your contribution through your workplace plan into a Roth 401K? And the answer, I've been surprised by the huge number of people that go, no, I haven't. But I just thought I do the back door.

Between the two, they get you to the same exact place. And if you're not maxing out your contribution, it is far easier to get to the same place. and you're going to have the same amount of tax due by just putting the money in the easy way. Right. But that's for people who get a Roth 401k through work. For people to do. Yeah, a lot of people don't have access to a Roth 401K, unfortunately. I'm just surprised by the number of people who have it available and are still pursuing the backdoor Roth when they're not maxing out their contribution.

So if you're wondering, how does this work, I'd wait until you max out your contribution. If you have a Roth 401k. If you don't, then do the back to go. You know, being self-employed, what's cool about having a solo 401K if you run your own business is that you can open a Roth 401K, a Roth Solo 401K. And that's, you know, entrepreneurship, business ownership has so many advantages. And one of the multitude of advantages is that you get to set up a Roth 401k for yourself, a Roth Solo 401k. which means you're not beholden to just getting stuck in only a traditional 401K, which is the situation that a lot of W2 employees find themselves in.

Christine, those are your answers. Nice work. Yeah. Big congratulations to you on growing your portfolio from 70,000 to, it's about to be 335,000. That level of growth in five years is incredible. So huge congrats to you for your portfolio. your focus, for your diligence, for your risk-taking, for everything that you're doing to grow your wealth and to stay on track. Paula, it doesn't end there. You know, we talked about

how at this point there's a certain amount of her money that's just on a conveyor belt, like that it's going to do well. Historically, markets over long periods of time do just a little bit over 10%. Doesn't mean they're going to, which is why most financial professionals will tell you to use a number like 8% in your long-term planning when you're talking about diversified stock positions like the S&P 500 of the total stock market index. But assuming that that's where she's at, if she is 335,000 using this rule of 72 at 8%, Paula, nine years from now when she's 52, the money she's already saved is $670,000. It's incredible.

Yeah. At 61, then it's going to double again, right? She's already well over $1.2 million. She has that money locked in. Don't look at the total today. Right. The product of her labor is there. And if you're listening to this and you have the ability to start early,

that's the power of starting early, letting this compounding work for you as much as it possibly can, which, you know, Christine says she thought she got a late start. She's going to all, she's already got over $1.2 million in her retirement basket. It's a powerful place to be. Exactly. And the rule of 72 for those who are unacquainted with it is the notion that 72 divided by the expected rate of return equals the number of years it will take for that money to double. So, for example, if you expect that you're going to get an 8% rate of return, then 72 divided by 8 is 9, which means your money will double every 9 years. Or conversely, if you're expecting a 9% rate of return, your money will double every 8 years. It is fun back in the envelope math.

Yeah. To dream about just how much money you've already got. If you're 30 years old and you've managed to put together $10,000, so you're thinking this is nothing. Use a rule of 72 and you're like, hey, Okay. Right. Okay. Yeah, exactly. At a 72% rate of return. Right.

If I put the money all on black and I win five times in a row. All right. Well, thank you, Christine, for your question. Our next question comes from Rob. Hello, Paula. I've been an avid listener of choose by and afford anything since 2018. and I'm truly grateful for the wealth of knowledge I've gained from your podcasts. Your insight in index fund investing, retirement accounts, the three or four percent rule,

and asset allocation have been invaluable to me and many listeners. In particular, your guidance answering my question on your podcast in 2019 about the ideal percentage split between real estate and Vanguard's VTI index fund for full-time real estate investor and broker like myself really shaped my financial strategy since it was the only place I've ever found an answer to that question in financial media. I currently have a net worth in excess of $10 million comprised of vacation rentals, apartments by the beach in San Diego, and VTI. And my income as a full-time real estate broker and consultant focusing on ultra high net worth

investors varies between $250,000 and $1 million per year. This year, I'm having a record year and my income is substantially in excess of 900,000, and passive income from real estate investments was in excess of 250,000. So that really compelled me to look for additional tax savings this year by buying another apartment building for bonus depreciation offset income. I diligently have been working towards achieving a 50-50 balance between VTI and real estate equity from 2017 to 2020. However, with the introduction of bonus depreciation and cost-zag opportunities,

with the 2017 tax cut jobs act that allowed for 100% bonus depreciation for full-time real estate professionals. I expanded my real estate portfolio significantly in 2020 and 2021. After that, I was trying to get back to or close to 50-50, although now I'm going to be going far towards the real estate direction again by closing on a new apartment building for that additional bonus depreciation offset income. This strategic shift means veering away from my targeted asset. allocation, and I want your thoughts on that for achieving the tax savings. Obviously, in order to pay cash for this apartment building, I need to sell off VTI. That's where all my money is that's not in

real estate, which means selling $2.1 million in VTI. This would further skew my asset allocation towards real estate deviating from my preferred asset allocation and goal of $50.50 split. The property is located in a prime coastal neighborhood close to the ocean in San Diego. It offers over $700,000 an upside after remodeling. It's a trust sale, and it's being purchased by me significantly under the market value with an opportunity to add ADUs for additional income. The acquisition aligns with my professional experience and expertise, offers substantial tax benefits through the cost-sag study, and I really need it this year with my income. I'm curious if that's something you would do as well, or would you just focus on maintaining the

50-50 asset allocation and pay the taxes. Thank you for the question. Congratulations on everything you've built. That's incredible. And also, thank you for being such a long-time listener to this show, to choose a phi. You've clearly been in the fire community for a very long time. And I think your story, your example really goes to show what a dedication to fire can do for a person's net worth and their wealth and their financial security. So big congrats to you. To your question, is this particular purchase a good

idea? And obviously, I haven't done an exhaustive run of the numbers of this particular property, but from what you've told me, right, assuming that you're modeling this out correctly, it sounds as though, even if there were no tax savings, it sounds as though in a hypothetical world with no tax savings, this sounds like a good investment based on what you've told me. Now, I'm not definitively stating that it is a good investment. I, of course, want you to run the spreadsheet really well and do the due diligence really well. As you know, this is your professional expertise. You know that already. But assuming that this is a really, like a fantastic investment, which, you know, it's under market value. You can add ADUs. It has a lot of upside. It's in a

prime area, this sounds like a great investment, even if in a hypothetical world there were no tax savings involved. And if that's the case, then it sounds like a great idea to go into this investment. Now, separate from that, you know, the one hesitation with going into this investment is, but it will pull me off of my ideal asset allocation. And I think that that's okay. Sometimes straying from your ideal asset allocation for the sake of pursuing a great opportunity, go for it. Go for it. You can always reallocate back to your ideal asset allocation. You can always reallocate back into VTI later as you increase your cash flow and then use that cash flow to rebuild your VTI coffers.

Let's imagine that that tax question didn't exist. if in a hypothetical world where taxes were not an issue, if you would still get this investment in that world, then do it. Because then you know that you're not letting the tax tail wag the decision dog. If you would make the same decision even in a world where taxes weren't an issue, go for it. And it sounds like with the ADUs, with the fact that you're getting this undermarket value, sounds like there's a lot to this particular property that's worth pursuing. The reason I like that, Paula, is because for any investor, leading with what you know and then diversifying around it is a fantastic strategy. And I'll give you a different example. Like, Rob clearly knows what he's talking about when it comes to these real estate investments.

He knows the lay of the land. He knows exactly what it's getting into. He knows how to do his due diligence. I only heard Rob's three-minute question. But I think that even from that, I get the feeling that the chance of him step. in it because he missed a step is not going to happen when it comes to real estate. Right. I had a client who invested with his dad in a herd of cattle, which sounds ridiculous to 90% of us.

Like, why would a financial planner say it's okay to invest in cattle? You know why? Because he and his dad knew every single thing that could go wrong with those cattle. And he could very easily crank out a 14% rate of return full well-knowing. all the problems that could make it so there wasn't a 14% return. I still recommended diversifying around that. And he did a great diversified portfolio. But he led Paula with cattle,

which is something I wouldn't tell you to do or me to do. But for Brian, it was the perfect thing. So I do like that, leading with what he knows. And also, the main reason for his question is he knows he might be stepping in it. By going,

you know what, I'm going over my allocation here. But I really think I got a, winter. Yeah. Yeah. I'm with you. I would totally do this. I would totally do it because he knows as Achilles. Every plan has an Achilles heel. Rob knows exactly what it is. And I love that. I love there's no play. If you think your plan is foolproof, the problem is not. Then you're the fool. Yeah. Exactly. Yeah. The problem is you haven't thought out the plan because no plan is foolproof. I'm tweeting that. If you think your plan is foolproof, then you're the fool.

said Joe Salsi hi. Okay. Of course. Average Joe money. Average Joe money on Twitter. It quote, if you think. But all right, I'll tweet this later. Right now we're recording a podcast. Oh, are we? So again, Joe, you said it really well.

Hey, I've got a winner here. And this winner is going to make me stray from my asset allocation. But I really think that this one is a winner. Dude, if you think that after doing the due diligence, if you really think that this is a winner, then pursue it. But I'm just going to just the big asterisk here is don't let tax considerations enter into that decision. Just is this property a winner as a, as an investment, even if there were no tax considerations, yes or no?

And if the answer is yes, that even if there are no tax considerations, this property is a winner, then go for it. I think there might be another consideration here, Paula, for the future. And this is for anybody, not just for. for Rob, but your asset allocation needs change as your portfolio grows. And clearly, Rob is in a different place than he was a few years ago. And I always want to be thinking about my asset allocation and where does it go from here. And so because an asset allocation of 50-50 was great for you five years ago or three years ago, it might not be today. And I think we always got to be

thinking about, based on my goals, based on where I'm at, is that still the asset allocation. Now, I do that once a year. I have this big, like, you know, meeting where I'd look at my goals. I look at my milestones. Am I achieving them? Where am I at? And to the point of, you know, people that are very smart in this area like Nick Majuli, you've had Nick on the show.

Yep. You know, as your portfolio grows, your asset allocation need changes and probably gets a little more technical than it was in the past. So, Rob, I would continue to look at that and go, is 50-50 where I need to be? might want to look at that too. Yeah, necessarily your timeline is going to change. It's totally going to change. Over the years, right? Yeah. And by definition. Yeah. Right. And that's also, Paula, why we call it planning and not a plan because no plan I ever worked on ended up where we started. There was never a plan. You know, life happens. And, uh, and then we

roll with those punches. Oh, by the way, I tweeted it. See, it's right here. For those of you watching on YouTube, you're seeing an overexposed phone that you can't read right now. Wow. For those of you watching on YouTube. I'm just flashing a bright screen at you. Sorry about that. I'm by the light. Yeah. But I've tweeted it. Average Joe money. If you think your plan is foolproof, then you're the fool. By the way, I'm on Twitter. I'm very active there at afford anything. I'm on Instagram. We're very active there. Oh, you are. You've been Instagramming live every Thursday, right? We do every Tuesday and Thursday now. Wow. Look at you. And often with with great guest over there as well.

Yeah. Which is the cool thing about Instagram Live that I love is people hang out with us and ask questions live of the guest. Like, I'm not in the way. I'm just moderating. Nice. Very cool. It's super fun.

Not as fun as Paul on Twitter. I have a great time on Twitter. All right. Well, thank you, Rob, for the question. And congratulations on everything that you've built. 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.

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episode. We're going to link to all of those in the show notes. So our next caller is also referencing a previous episode. This is Chris. Chris has a comment related to episode 467 in which we answered a question from a caller named Knoxville, who asked about a HELOC loan versus a 401K loan. Hi there. Regarding episode 467 about the HELOC loan and the 401K loan, one thing that I think was possibly missed was the risk of having a 401k loan if she separates from service or gets fired for many plans that loan needs to get paid back immediately. And if not, then it is distributed as ordinary income. So then she's going to have to pay ordinary income tax on that rate.

So I was curious on your thoughts as far as including that on a risk on a 401K loan. Chris, thank you so much for that. And you know what, Paula, I didn't go back and listen, but I know you and I enough. I know where we come down on 401K loans. And we probably had 85 reasons why you should not do the 401K loan. Yep. If we missed it, Chris, it was reason 867. And I love that you bring that up.

That's an important thing people need to remember, Paul. It's exactly what Chris is talking about. If you, for some reason, separate from that job and you got this massive 401k loan, uh-oh, I got to pay it all back now. What a nightmare. Yeah, I'd say reason number 4,872 as to why to avoid a 401K loan. Do not do it. So, Chris, I'm glad you piled on for us because just bad idea.

Yeah. Very bad idea. Yeah, 401K loans, avoid. When I was a financial planner, and actually even lately, I will get questions, Paula, people going, hey, this quote, you know, guy at work or this woman at work. said, I can just borrow for my retirement. I'm paying myself back with interest. Horrible, horrible place to borrow money from.

I'll encourage people to go back and listen to us on episode 467 and how we answered Knoxville's question. But add Chris's comment to that fire. Exactly. Avoid 401K loans. That's the takeaway here. Turning our attention to student loans. Our next question comes from Christina.

Hi, Paula and Joe. My name is Christina. I recently asked a question on your podcast about my loan repayment plan. And at that time, I was planning on, you know, throwing as much money at my loans as possible once I graduated and trying to get it done as fast as possible. But since then, my plans have changed a little bit, sort of tired of living in squalor, so to speak. And so I've decided to try to pursue PSLF. I just graduated PA school, and so now I am a physician assistant. I'll get started with work in March, making about $100,000 a year. And so PSLF and trying to get on the SAVE plan and saving as much money that way seems to be the way to go. My question is what I should do with my grace period. And, you know, if SAVE isn't starting until June of next year, I heard that somewhere, and I'm not sure. you know, if it's already in place or it's starting next year, if it's worth consolidating and skipping the grace period now, or if I should just wait the six months, maybe wait until the safe plan kicks in next summer, or what I should really do with that.

Additionally, if you guys have any thoughts about whether this plan is good or not, I would appreciate that as well. Thanks so much. Bye. Christina, first of all, congratulations on graduating. Congratulations on starting your career as a PA. And congratulations on starting work in March, making six figures, making $100 grand a year. That's incredible. Let's go through. You threw out a couple of acronyms that the broader audience may not be acquainted with. So let's define what you're talking about first for the sake of everyone listening. PSLF is public service loan forgiveness. And the save plan is the saving on a valuable education plan. It is the replacement for, the repay plan, R-E-P-A-Y-E, the revised pay-as-you-e-e-e-e-e-erne-e-a-e-a-e-to-the-revised-e-e-e-erne-e-on, right? So that's the previous plan that a lot of other listeners might be acquainted with, because that's

the plan that we have had. The save plan is the new plan. Now, the save plan is based on your income and your family size. So you have a certain monthly payment based on income-and-family size, and it typically lowers your payments as compared to other types of income-driven repayment plans because your payments are based on a smaller portion of your adjusted gross income, your AGI. So the safe plan is an income-driven repayment plan, but compared to other types of income-driven repayment plans, it generally tends to lower your monthly payments. And the safe plan, as you mentioned in your call, goes into effect this summer.

And the calculation, Paula, for how they come up with what that income amount is, which I'm sure some people are asking. The government has come up with, frankly, a very simple calculation where they estimate how much of your discretionary income that you have. For undergraduate loans, it's going to be 5% of that number. So it's a fairly simple calculation. That 5% for some people could end up being zero, where you're not paying anything. For graduate loans, by the way, that goes up to 10% of that number.

people that have both graduate and undergraduate loans, it's going to be somewhere in between depending on the ratio of graduate to undergraduate loans. Your loans are discharged over 20 or 25 years depending on exactly what type of loans they are. And great news, if you've borrowed less than $12,000, your repayments could end as soon as 10 years from now. Right. And that has gone into effect. So we are recording this in February of 2024. That's gone into effect this month. So as of February 20204, if you've borrowed $12,000 or less, you can get forgiveness in as few as 10 years. However, the other benefits, the additional benefits of the save plan, those go into effect in July of 2024. I have a piece pulled up right now, Paula, from the Wall Street Journal. And I just love this quote. so I'm going to quote it directly. This is written by Rebecca Safier,

and the piece is called Everything You Need Know about Income Driven Repayment, including the new Save Plan. And there are four different ways, Paula, to qualify for income-driven repayment. And Rebecca writes, it can be tricky to determine which plan is best for you.

However, it's safe to say the new Save Plan is likely to be your best bet. Specifically your best bet because of the fact that it most probably lowers your payment, your monthly payment by the highest amount, which if you're looking for income-driven repayment anyway, that's probably what you're looking for, is just to minimize your monthly payment. And so I, as a general practice, whenever I'm trying to find details about any given plan or program or policy, I tend to go to dotgov sites, go to go to.gov sites, to get information directly from

the federal government. And, you know, so, for example, if I want information about taxes, I tend to go to IRS.gov. With student loans, I've got a page we'll link to it in the show notes from student a.gov, which is the official federal student aid website created by the Department of Education. And it says exactly the same thing that the Wall Street Journal article says, which is, the safe plan is likely to give you the lowest payment, the DOE, corrupt. operates that. Her question specifically is what do I do in between now and June when her payments begin? I would put this money, Paula, in a separate account. I would, I would not put it on the income repayment side because if the loans end up being discharged, she just put more money

toward that plan. But I would leave it available for that and have that money earmarked toward repayment if something goes wrong with her and the save plan. Because some people, Sometimes your life changes. When your life changes, I want to make sure I have that money available for repayment. So I would get repayment started, but do it into a separate fund. And then allocate that as 10 years out or longer money because it's going to be 10 years at least until you know whether you're going to have these loans, the remainder discharge or not. When you get to that point, if they're not discharged, put that money into the pot toward your repayment. If they are discharged, then feel free to use that money toward a different goal.

That's what I'd recommend. Yeah. Perfect. Perfect. That way you've got the money on hand in case you need it. And you're building up the muscle now. You know, you're getting used to that payment in your life. Get used to it right now.

I mean, the number of people, we've seen the amount, Paula, that credit card debt has gone up since student loan repayments began again back in October. Like the number is frightening and you have this feeling that even though everybody saw October coming, there must have been based on the huge increases in an outstanding credit card debt as reported by TransUnion and the other credit authorities that a lot of people still caught surprised. Like, oh yeah. Right. That snuck up on me. It's like that O'Brien Riegan joke where he talks about being in fourth grade. and he wakes up one day and goes, oh, the science project, due today. I've had all semester.

Haven't thought about it once. And the repayments is happening. So I would start getting that muscle working of I'm paying this money toward my student loan today. And by the way, that practice of getting the muscle working, do that. This is a note to everyone who's listening. Do that prior to any major budgetary shift. So if you think, for example, that you want to upgrade from your current starter home into a bigger home, right? And that's going to require a bigger monthly mortgage payment.

Get into the habit of making that payment today. So make that payment to yourself, right? Get in the habit of seeing that money leave your checking account. Part of it goes to your normal current mortgage payment. The other part of it goes into a savings account. a separate savings account, ideally at a separate bank that's out of sight, out of mind. But get in the habit of seeing that money leave your checking account so that your budget, your day-to-day budget, adjusts to that. And that's true. I'm using the example of upgrading your home, but that's true for any major life decision.

If you're going from being a renter to being a homeowner and that's going to involve a change in the monthly payment for housing, right? do it there. If you're going to go from, as a couple, maybe you're currently sharing a car, but you each want a car of your own. So you're going to bring a new car into the household. Okay, cool. Practice making that payment for a few months before you do it. Just make that payment to yourself. Any major shift that you want to do, practice making the payment to yourself for a few months before you take on the expense. That's my tip for everyone listening, no matter what is that you want to add into your budget. Thank you, Christina, for the question and congrats again on graduating. Our final question today comes from Gina. Hi, my name's Gina, and I have a question for you

about paying for your own retirement with an LLC. For background, my spouse is starting to build up a side hustle consulting business, and I'm going to be helping with office management stuff and billing on the side. As I'm helping make the business plan, I'm trying to decide how much to include for my wages is 401k self-employment self-employed retirement contribution and company match. I've been reading that I could do as much as 100% of my wages, and I haven't been able to find a specific limit for a percentage of a company match. I don't anticipate reaching the $22,500 cap for personal contribution because I'll just be helping a little bit while I'm in law school.

I will be helping either way, and this looks like a great way to reduce our tax liability, while further building our retirement. Anything I should be paying attention to, particulars to worry about, other tips do you think are importantness, scenario to think about. Thanks again for all that you do, and I look forward to any feedback you can provide. Thanks. Gina, thank you for the question. Before we answer, I want to make one factual correction. This is for the sake of everybody who's listening. You mentioned within your

question that you don't anticipate reaching the limit, and you cited that limit as $22,500. That was the limit in 2023. The limit in 2024 is $23,000. So I want to fact correct that for the sake of everybody else who's listening, just to avoid any confusion. Now, to your question, if you don't need the money and you're okay with losing the liquidity, meaning that you're okay with locking it away into an age-restricted account, which is by definition what any retirement account is, then, hey, may as well. You know, you may as well contribute as much to the retirement account as possible if you don't need to access it, you aren't going to need the liquidity, you're okay with the age-related restrictions on tapping that money.

Cool. Put it all into a retirement account. The only reason to not do so would be if there is a risk that you might need that money in the short-term future, right? So if you think of broadly any given retirement account, 401K, 43B, IRA, any, like, forget the word retirement because the word retirement is an occupational status. But these accounts have nothing to do with your occupational status. These accounts have everything to do with your age. These accounts, 401K, 43B, IRA, these are simply deals that you make.

with the government in which the government agrees to give you a tax advantage in exchange for your agreement to not tap this money until you reach a particular age, right? That's all these accounts truly are. It is a mutual exchange of age restriction for tax advantage. So if you don't need this money at any point in the near term, and if there's no risk that you might, and you're okay with that age restriction, then there isn't any reason not to get the tax advantage. And also, if you think about this, and I love the way that you stated that, Paula, if we think of buckets of money for different periods of our life, if we know we're going to need money in that bucket, the most efficient way to get it there. And we talked about this with Christine earlier and using that rule of 72 to make more money, even if you feel like you can't, can't put a lot of way when you're younger because you're at this earlier, I need a lot of money

in the today bucket. You still want to put some money in that later bucket. And if you're going to put money, if you think you're going to be alive after 59 and a half, which is the age for most of these plans, well, then I want to use those tax shelters that the government gives me to make sure that I have as little friction between now and then as possible. And I do want to put at least a little there to get on that 70 rule of 72 bandwagon to begin having my money grow money. So even if you think you can't, you think you need it, but by all means, try to put it a little away. And of course, with the power of compounding, the more, the better.

Which brings up, you know, obviously the other side of that equation, which is if it turns out you needed that money. Yep. And then it might be a little ugly. Exactly. So those are the factors that you need to weigh. the risk of tapping it, risk of needing to tap it. It's funny how this goes back then to emergency fund, right?

Yeah, exactly. Well, it goes to emergency fund. It also goes to something that you often talk about, Joe, which is timelining your goals, right? What are your goals, what are your five-year financial goals, your 10-year financial goals, your 20-year financial goals, and then your 40-year goals, right? And so when you timeline all of those out and you see how much money you need, within five years, maybe you want to replace your car. And maybe you want to, ideally, you'd want to avoid an auto loan.

So maybe you want to pay cash for your next car. Okay, cool. That means you start making a car payment to yourself every month. Maybe in 10 years you want to buy a home. All right, cool. That means you start putting money into a down payment fund and you do that every single month for the next 120 months and then 10 years from now you're ready to buy a home. once you timeline out those goals and you see that what goes in the five year bucket,

the 10 year bucket, the 15, the 20, the 40, right? You have a good sense of how much can I lock up versus how much will I need. And this is interesting, Paula, because it's another way in which the world of investing is a little bit different than the maxims that apply to the rest of your life. And let me explain what I mean by that. We've all seen that multitasking is a horrible idea, right? If I'm doing two things at once, I'm not giving any, any, any honor to any of them. I'm not fully engaged.

It ends up taking me longer to complete a lot of those tasks. I get less satisfaction from those tasks. But when it comes to saving for our goals, it is much better to multitask. It is much better to put some money because if, if I do what humans normally do, which is I look at the next thing, and I do that, the thing that we say, don't multitask, focus on that one thing. We will focus on the next closest thing. And then only when we get that goal achieved, will we then look at the next one. And what ends up happening is, is these life goals get bigger and bigger and bigger and bigger. We need more and more money to reach the goal. We're not right in front of it.

We haven't saved any money for it. We haven't let that rule of 72 work for us and build money on its own. So multitasking, which is a horrible idea everywhere else, is fantastic here. The other place that this applies, and this one's a little bit of a non sequitur, but it certainly is a place where investing is different than everything else. If you have the investment that meets your goals, the right thing to do with that investment between now and the goal is nothing. And generally, action produces results. In investing, often in action is what produces results. over trading your account is a huge problem that we have. We get all nervous.

We think there's a huge, quote, opportunity, and it's because I had a tuna fish sandwich that disagreed with me. So all of a sudden, because of my mental state at that time, I make some pretty dumb moves. And we end up blowing up our own goals because of that. So I love how with investing, multitasking, and inaction are often your best two things to do. Right. It's beautiful.

It's the exact opposite. of the rest of life. Which is why so many people fail at it. Right. Yeah. It goes against all of our training in every other way. You're like, what? Wait a minute.

The market's down huge. I need to get out of this. Right. No. I remember a guy told me once early in my career. He said, imagine, imagine if the directions on an elevator were the same as the way that the popular press talks about the market on a given day. because it's never down a little or up a little, Paula.

We use words like plummet and soar. The stock market soared today. The stock market plummeted today, which makes you go, oh, my goodness, what do I do? Imagine if you got on an elevator every time and it said, would you, do you want to plummet or sore? I'd take the stairs. Immediately. Yeah. Yeah.

So it's even the verbiage we use when we talk about. it that produces the wrong thing. And that's why so many people get it wrong with money. It's, it's unfortunate that people spend years and years and years in jobs that they dislike. Now, I'm not talking about people who are lucky enough that they love their work. That is one of the biggest wins in life, is to love your work, to be doing work that is your calling. But there are so many people who are in jobs that they dislike, who stay in those jobs because they haven't taken the time to learn how to invest. And just a little bit of financial education, particularly investing and also learning how to run a business, how to have a side hustle, how to have

an ideally a side hustle that could eventually grow into a full-time business that they would enjoy more, whether that's being a novelist or building out their own product or offering a service or, you know, whether it's a creative field or a product or whatever it is, right? There are a lot of various ideas out there. There are a lot of callings that people have, but people don't learn entrepreneurship and they don't learn investing. And for those two reasons, a lot of people end up stock. Two great life skills.

You know, you talk about, we talk about those foundational skills. I think if you know how to work for yourself, even if you work for somebody else, learning entrepreneurship inside of any corporation you work for is huge. I learned this even working with American Express, even working with a big corporation, realizing that I don't want to wait for my manager to train me. I should train myself. And then my manager's training is additional was a huge win, just this big wake up. Like, why would I wait for somebody else to train me to be great at my job?

Why wouldn't I go seek that out? And then when your manager finds out that you went and seeked out that training, that's even better. But that's not the end result. The end result is I now have this lifelong education plan that I'm on that I created for myself, which is truly the entrepreneur's way of learning. Right. Exactly. And especially in a small business environment, really entrepreneurial employees are the best ones. Because if you're in a small business, you need your team to be entrepreneurial minded, right?

The worst type of hire that you can have as a small business is someone who expects to be told what to do and only does highly specified regimented things, like somebody who's extremely inside the box. Yeah, learning to think about as an employee, what is truly the intended result that I want, not just what my boss told me. what is the true result we're looking for. Yeah. And this is where better communication, you know, we call communication, Paula, a soft skill. Communication is such a hard skill. It's everything. Yeah.

Such a hard skill. Yeah. It is the skill that delineates success from failure. And Gina's like, so I put money in the retirement plan? Yeah, I know. Yeah. We've strayed very far from speaking of communication. We've gone way far from her question.

But I think we've answered her question, which is. Yeah, the answer is yes. Yeah, the answer is yes. Put as much as you can in their retirement plan, assuming that you don't need it for shorter term purposes. Fabulous. So thank you, Gina, for the question. And Joe, we've nailed it once again, five questions this time. We're really four questions in one. Bam. Fantastic. It's a great hour. Joe, where can people find you if they would like to hear more of you? You can find me on the Stacking Benjamin show every Monday, Wednesday, Friday. Friday's often with our good friend Paula Pantt. But we have had some fantastic. We call the mentors on Stacking Benjamin's show because we asked them to do something to talk to our stackers about what they're really good at. We had Charles Duhigg who wrote The Power of Habiton

recently. Ah, nice. And Charles talking about being a super communicator. We had a wonderful discussion. Speaking of communication, Charles is such a great communicator. We also, Liz Elting, created a billion dollar company and sold it. And then talks about all of the things. it takes to build a billion dollar company. So if somebody's striving for bigger results, it's, it's funny how when Liz did what she thought she was supposed to do, the company went nowhere. When Liz did what she thought she should do and really followed her own North Star, the business took off to the tune of a billion dollars.

So two fantastic mentors we've found lately on stacking benchmarks. That's great. And you know, founders often have good gut instincts. They really do. And sometimes the skill is to learn to listen to your own gut, to learn to listen to your own instincts. Because founders will often have very good business instincts that are contrarian or that go against the grain of what others are doing. But there isn't nobility in being contrarian for contrarian's sake. The real value is understand. when other people are giving you advice that reflects the fact that they are playing a different game than the one that you're playing. And they might not even get the game that you're playing. Well, they often don't. They only see the side of you that they get to interface with. They don't see the entire picture. It's almost like, you know, Paula, we're about to have this full-on eclipse in Texarkana. And people are going to see from, this perspective, a different piece of that eclipse and in a different way than somebody will see

a thousand miles from here. Right. They'll see it differently. And I think just to realize that every discussion is a cube and every person is looking at a different side of the cube, I think to understand there's a side of the cube that you don't answer or you don't know and to try to figure out what this side of the cube is that I don't know, to ask instead of, instead of defending, how am I right to ask. ask, what's the side of this argument? I don't know. I think it's a pretty powerful,

pretty powerful place to play any communication that you are involved in. Absolutely. All right. Well, stacking Benjamin's podcast is where people can find you. And for those of you who have not yet heard, we here on the Afford Anything podcast are about to become a twice a week show. And so, Joe, you're going to be joining us weekly. starting at the end of April. And we're doing that specifically so Christine can disagree with my opinion more often. Oh. That was, we had this team meeting and we're like, how can Christine agree with Paula Moore?

That was how. We just have more episodes. So Christine, we're doing this for you, for you. And that will start after episode 500. So episode 500 is going to air 42424. And from that point forward, effective episode 501, we are a twice a week show. Fabulous. So Joe, we're catching up.

I don't know how you do three times a week. That's insanity. Twice a week is super fun. Even twice a week has me nervous, but three times a week, man. It is super fun. I'd rather be doing nothing else. You know how the thing about love your job? I'd rather do nothing else.

That's amazing. That's beautiful. Well, thank you for tuning in. If you enjoyed this episode, please subscribe to our show notes. Afford Anything.com slash show notes so you can get a synopsis of every episode. You can also chat with members of the community at afford anything. And hey, follow us on Twitter. I'm on Twitter at Afford Anything. And Joe, you are average show money.

I'm average show money. Yes. Thanks again for tuning in. I'm Paula Pant. I'm Joe Solcihi. And we will catch you in the next episode. Hey, Joe, do you think we're going to disagree on something today? Oh, it's been like five shows on the calendar since we've disagreed.

Right? Yeah, it's about time for one. You want to take the right position or the wrong one? You want to flip for it? For the coin flip again? Yeah, yeah, we're going to do a coin flip. Why can't we just have Joe gets the right position for once? Okay, call it.

I've got a coin. Joe, call it while it's in the air. Sure. All right. Three, two, one. Heads. It is heads. Oh, after all these years.

Congrats, Joe. Now you're thinking about what I can be right about.