Afford Anything - Q&A: Breaking Up with Total Market Funds After 10 Years

Episode Date: December 13, 2024

#566: Jackie is sold on Paul Merriman’s “Four Funds” approach, but she’s overwhelmed by the logistics of diversifying her single fund portfolio.. What are the best practices to redistribute her investments, handle taxes, and manage rebalancing? Heidi’s mother recently passed and she’s struggling to decide between distribution options, their tax implications, and investment options for the annuity she inherited.  An anonymous caller and her husband want to buy a second home, pay for their children’s college, buy a car in cash, travel well, and save $3 to $4 million for retirement. How do they prioritize and manage their competing goals? 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 Learn more about your ad choices. Visit podcastchoices.com/adchoices

Joe, you've probably talked to a lot of clients who have a bunch of different goals and they're not quite sure how to set priorities when you've got so many things you want to do and only a limited basket of money. And there might be a solution for that. Is that what you're implying? Yeah, yeah. Well, I mean, you were a financial planner for many years. You've met with literally hundreds of people who have all had this problem, but the details of the problem have differed. It's so hard, right? Because what do I prioritize? How do I make sure the money doesn't get commingled? It's like, I don't want my meat and potatoes to touch. Like, that's gross. Right, because you mentally bucket money for one thing versus another, but then circumstances change. Absolutely.

Well, we're going to talk at the end of today's episode to a listener who has a question that is very much in this vein. How do you juggle between all of these competing priorities? Prior to that, we're going to talk to a listener who has an inheritance and has received some advice about how to handle that and is wondering if they got good advice. All that in one episode? All of that in one episode. Welcome to the Afford Anything podcast, the show that understands you can afford anything, but not everything.

Every choice carries a trade-off. And that applies not just to your money, but to your time, your focus, your energy, your attention, to any limited resource you need to manage. So what matters most and how do you make choices accordingly? This show covers five pillars, financial psychology, increasing your income, investing, real estate, and entrepreneurship. It's double eye fire. I'm your host, Paula Pant. I trained in economic reporting at Columbia.

Every other episode, I answer your questions and I do so with my buddy, the former financial planner, Joe Saul C. Hi. What's up, Joe? How are you, Paula? I am doing great. How are you doing? I'm fantastic. I've got my coffee ready, my Zion mug.

Ah, Zion National Park, one of the most beautiful national parks in the nation, in my opinion. Isn't it gorgeous? Southern Utah. I think Southern Utah is one of the most underrated parts of the country. Let's go. We'll record this later. Let's just go now. All right. Trip to Southern Utah. We're there. But before we board a plane, our first question comes from Jackie. Hi, Paula. My name is Jackie. Thank you for the recent episodes in which you and Joel try to talk people like me, out of our VT.S.X and CHILL strategy. You have me convinced that we need to diversify

based on the Paul Merriman for funds approach. However, I could use some more information on the logistics of exactly how to go about doing this. My husband and I are late 30s and have just under a million dollars in investments. We each have a 401k through our current employers and each have a Roth IRA and a traditional IRA with Vanguard. In addition, we also have a brokerage account

with Vanguard and two different HSA accounts. All of these are invested in a total stock market index fund or S&P 500. So how do we go about diversifying? Do we need to go into each of our nine accounts and choose four funds that seem to match what Paul Merriman is suggesting? Since they are all with different investment firms, this seems more than a little daunting and certainly beyond the 45 minutes a year or whatever Joel suggests this should take. We don't have much experience with choosing investments beyond basically just picking the S&P 500 fund when we opened each account.

Are there tax implications involved in selling one fund and buying a different fund? In addition, we need to rebalance each year, I believe. So if we need to do this for all nine accounts now, do we need to do this again each year? So can you help us out with what approach to take to do this? I must be making this too complicated so I could really use some handholding here. Thank you, and I appreciate all you do. Oh, man. Oh, man. Oh, man. Jackie, I feel for you. But don't worry. It's not as complicated as you might fear it is.

Not even remotely. And by the way, Jackie, I didn't say 45 minutes. I said 15. And in the next 10 minutes, we're going to show you how it's 15 minutes. Wow. All right, with a one minute warm up. That's great. That's right. We're going to get into this, Paula? Let's do it. All right. The first thing, Jackie, is I want to clarify what I said.

And there were a bunch of people, Paula, that maybe didn't hear this episode. And what I was talking about is this. When you start out, it makes sense to keep things simple. People freak out about all the different investment options that are out there. And you shouldn't do that. The reason you shouldn't do that is because what matters the most when you begin, as you know, Paula, is just shoveling money. in get as much money invested as possible. Over time, though, what's going to happen is your investments

are going to reach a point, a tipping point where being more analytical about your diversification matters even more than you shoveling money in. So at that point, we want to be less simple. So we want to start off with exactly Jackie what you're doing, which is the S&P 500 or the total stock market index. Love both of those choices. You get wide diversification. You're buying, let's just take the S&B 500, Paula. You're buying 500 different companies. You've got Nvidia in there. You've got Microsoft in there. Heck, you've got companies that aren't tech like Coca-Cola or Nike in there. So you get broad diversification across a bunch of different asset classes. And it's even more diversification if you use the total stock market index instead. But stick with an index.

don't pick a manager. What that will do is you will go where the economy goes, which means if over long periods of time, our economy continues, it has to expand. People have to make money. If people have to make money, the representation of that is the stock market.

So stick with that broad index. Don't hire a manager. That's going to keep your fees low, and you're just going to go where the economy goes, and life is going to be really good. Once you get to $100,000, I want to clarify between what I said, and what Jackie heard. Because Jackie, you weren't the only one that heard this.

A lot of people heard me going, look at Paul Merriman. You need to go do more like, let me clarify. I don't think Paul Merriman is the Harry Potter of investments when you get to $100,000. And I've heard a lot of people think about it that way. Ooh, there's a different guru. And I got to, don't follow a guru. What I like about Paul Merriman is that Paul Merriman is that Paul Merriman is that Paul

Merriman has done the research, I would have done if Paul hadn't already done it. Paul's amazing. You've had him on the show, Paula. Yeah. He's an incredible man. He's a great thinker, but a heck of a human being. Right. And we'll link in the show notes to the episode with Paul Merriman.

He is absolutely incredible. So for anyone who missed that episode, if you haven't heard it, we'll drop a link in the show notes to it. The reason I reference Merriman was not to say, go follow this. And by Harry Potter, I mean, this magician that can do it. But don't follow a magician because you... I believe Harry was a wizard. So, ooh.

There's a difference, Joe. Back away. Somebody knows there, Harry Potter. Some other stock market wizard, right? Well, what happens then, Paula, is that you get into then this cult of personality. Well, Paul Merriman said it. You don't want to do that. I want to know what's behind what the wizard is doing, which is really why I like the

magician analogy differently, right? Harry Potter did have, quote, magic. But a magician is using sleight of hand. They're doing things that if you pull the veil back and you learn exactly what they're doing, you've got so much more power when it comes to your investing strategy. All Merriman's doing is getting closer to something called the Efficient Frontier than these broad indexes are. All he's doing is getting more analytical with it. So if you can take one more step and actually learn how the efficient frontier works, you're going to be better off.

Now, Merriman has these different. portfolios that are much closer. So for today, Paula, let's not make perfect the enemy a good. If you follow one of Merriman's portfolios, you will be closer to the efficient frontier. I'd much rather you kind of learned how to do it. We're not going to do that today. But let's talk about just going to one of Paul's four fund approaches. What Paul talks about is if you use four indexes instead of one that follow four

subsets of the market, you will get closer to the. efficient frontier than you are if you just use one. That's all that he's doing. And Paul, like you said, we can link to the websites. People can see there's a few different combinations. Moving from where you're at with one index to four indexes is far more simple than you think that it is. Right. Paul points out what the indexes are. You can just buy those and they can be the same exact index in every single brokerage. I hear you freaking out going, oh my God, I got to find knees on all things. Let's say that one of your indexes is large cap value. You'll find, let's say, the I shares large cap value fund, you'll find the ticker symbol for that fund, and you'll buy

that same exact ticker symbol in all these different places. Even though you have nine different accounts, you're doing one thing. You're just doing it nine times. Last night, I was snapping green beans to put in a steamer for dinner. I was doing the same exact motion, probably a hundred times as I'm snapping off the ends of the green beans for the steamer. That's all that you're doing. It's not going to take a lot of time. You need to know the four funds. That's the hard thing. Guess how many times you've got to figure out what those four funds are once. Because once you figure that out, when you go to rebalance a year from now, you're going to use the exact same funds. And I'll tell you how to do that in a second. I have a question, Joe.

So I know there are going to be some people in the audience who are going, wait a second, what about the importance of asset location? So the concept of asset location for people who aren't familiar with it is the notion that based on the tax treatment of a given account, different types of funds should be held in different accounts. So if an account is tax deferred, then there are different funds that should be held there than an account that is tax exempt or an account that's taxable. What do you think about that in relation to Jackie's question? This is why I struggle with going, hey, I just want to do what Paul Merriman says. Because if I get on this four fund roller coaster, Paula, just in general to broaden out your question, if I get on that, then the question is, if I'm going to spend this money at some point I need to get off that train. And we don't know what volatility is going to be like. So once again, I would rather that you learned how to do this. And it's not that hard. We had a 90 minute session a couple weeks ago with a nice big group of people from the afford anything community. We took people through.

Maybe we'll do it again next year. Yeah, yeah, your efficient frontier training session. Yeah. The idea here is it should be a little bit different, but it's based on your goals, right? And based on when you're going to spend that money. I do like the idea of, okay, if I'm not going to spend the money in the brokerage account right away, let's make it pretty tax efficient. All of these funds and Merriman's approach are going to be pretty tax efficient.

Let's put it this way. I don't think they're going to be less tax efficient that we're, what you're doing with VTSAX or VTI, people that are using the simple approach, right? This is not going to be any more. There's not going to be any more tax accountability than you have right now. But let's take a look at this because Jackie asked specifically about taxes. She is a 401k, Roth, a traditional IRA, an HSA, and a brokerage account. She needs to worry about taxes in one of those accounts, the brokerage account.

So maybe Jackie, maybe you keep it simple. and don't change your allocation away from the simple path in your brokerage account. Maybe you leave that the same and you just make the change in the other accounts. Once again, let's not make perfect the enemy a good. I think by getting eight of your nine accounts in the right spot is going to be far better than where you're at right now. So in all those other accounts, you don't have to worry about taxes. Now, the one that you do have to worry about taxes, I still, and you don't either

Paula, I don't like taxes wagging the let's make more money dog. So what I want to know are two things. Number one is what's the tax actually going to be? So I look at long-term capital gains tax rates. I figure out how much I've made in this account. And I just do some very simple quick math and go, oh, this is what my tax bill is going to be if I sell right now. Yeah.

And I can tell you from experience, I have in many years, the tax bill, when I've made transactions in my taxable brokerage account. The tax bill has been so small that the most annoying part was simply filling out the stupid form. The tax form, right? Right. That is actually the worst piece of it. You're like, why am I filling this form out for like $1.50. $17. Come on. Well, let's go the opposite direction. Let's say, Paula, it is. Let's say she's been doing this for a long time. It is a big tax bill. And listen, that index is done. And this is why there's been so much vitriol handed to me going, this index is done

really well. It has done really well. I'm not saying you're not doing well. I'm just saying you can do a hell of a lot better than you're doing with almost no more work. So let's say she's done really well, Paula. The cool thing is this is a perfect time. If you're worried about this big lump sum of money and you just don't have it or you don't want to pay that in April.

well then guess what you do. Figure out how much you want to pay this year and make a sale right now. And then on January 2nd, make another sale. Yeah. Divide that into two and now you don't have the big huge tax bill all at once. Right. Yeah, that's a great point. December is a perfect time to play some tax games, to make some money moves. Absolutely. Yeah. So that's just a great strategy that works right now for the afford anything community. Jackie, there's one more thing that I inferred in your question, which was this. It's, okay, do I make these all at once? Do I divide them up and do them slowly? Here's the deal. Your money's already invested in the stock market. Your money, so it's on the stock market swing, right? Goes up, goes down.

The places that I'm suggesting you move toward are on the same swing. They're just more efficient on the swing. So this portfolio is going to be down when your VTSAX is down. It just isn't going to be down as much. This portfolio will be up when VTSAX is up. It's just going to be up a little bit more. So they're going to be these little hairs better over short periods of time, which add up to a lot of money over long periods of time.

For that reason, I would do it all at once because all you're doing, you're staying on the same swing, but it's a more efficient swing that gets you there more quickly. If we were changing swings, if I was going from stocks to bonds, or I was going to cash, or I had a bunch of cash and I wanted to put it in the stock market, I might suggest not doing that all at once, sometimes for psychological reasons, other times because it can truly hurt your returns. But in this case, Paula, all we're doing is we're staying on the swing. We're just jump into another swing that's more efficient. So Jackie, I would do this one time. Just do it, do it once. And once you know what those four funds are, it's snapping those green beans like I was doing last night.

You're just boom, boom, boom, boom, boom, boom, bum, bum, bum. Last point, Paula, which is, why is this only going to take 15 minutes? Because once you have those funds and you know what percentage go in each fund. Now let's say, and this isn't going to be your allocation, but let's say it's 25, 25, 25, 25. Once a year, you set a 15 minute date for yourself on your calendar. And all you do is this. you look to see what the drift is has been over the last 12 months on those positions. So let's say your large company value has gone from 25% to 35% of your portfolio.

And your small company value has gone from 25 to 15. It's never going to happen like that. But let's say that it does. All that you're going to do is get those allocations that you started with the year before. And you're going to go back to that same allocation. So you are going to sell off the excess that's above 25%. Once again, really simple math. Figure out what that amount is.

You're going to sell it out of that large cap value fund and you're going to buy back into that small cap value. Now, that sounds really cool. And you will see that that helps your success over long periods of time. Here's Paula, what people really see when they go to do it. And this is where it takes longer than 15 minutes is because you, start doubting your own system and you mess up everything for yourself because you don't follow the rule of just do it. What you do is you go, oh my God, but large cap value's done so well.

Oh, it's done so good. Maybe I should just let that run longer. Small cap value, man, that really sucks. Yeah. And by the way, there's a big blogger who's been on your show, who's a friend of mine, Big Earn, who wrote that I'm a small cap value fan boy and small cap value sucked. Earn, I'm not a small cap value fanboy. I'm a fanboy of using the efficient frontier and broadening out things.

And Big Earn made this big huge thing going, small cap value suck. Why would you do what Joe says? Earn, I didn't say do that. And by the way, small cap value would have saved your bacon from 2000 to 2010 while all the stuff that you're talking about is rocking now sucked so bad. I would have written a piece about you and how you're a fanboy about large cap, Earn. Oh, man. So stay off me, Karsten. He's not here to defend himself, but I should bring him on so the two of you can go, like, this is, I'm getting Jake Paul Mike Tyson vibes right now.

Oh, you know, and people that know me and I love Karsten. And I've even said out loud, I think I even said it on your show, Paula, he'd be my financial planner. Yeah, yeah. Because I love somebody that argues with me and he and I argue and it's great. It is fantastic. Thousand percent. So he knows I'm teasing for people that don't know that I'm teasing. But I'm not a small cap value fanboy.

And he does like to stir the pot. So that's what we do. Well, and to your point, Joe, when this year, large cap has really boomed, like the magnificent 7, NVIDIA, like all, you know, all of these really big companies have carried the S&P 500. And of course, this was the year when we heard people over and over. and over and over say, well, why would I ever own anything other than large cap? Yeah.

To your point, it's when an asset class is doing well, it's natural human behavior to find a reason to justify reallocating to a larger position of it. And so the argument this year was, oh, well, the world has changed. We live in the AI era now. And in the AI era, the gains go to the largest companies. So we need to fundamentally rethink. By the way, I don't believe this, but this is what people are saying. Oh, so we need to fundamentally rethink our asset positions because...

The world. Yeah, because the world has changed and we're going into AI and in the era of AI is the era of large cap, right? So you would hear people say this. And I asked Michael Kitsis about this in the interview that we did. He had a great answer, which we'll link to that episode in the show notes as well. They're all related. Yeah. Yeah.

Yeah, exactly. But it was a perfect example of when an asset class is outperforming, people will find ways to rationalize, reallocating to a bigger portion of it. So watch your own behavior to make sure that you're not doing that. In 1999, I was a financial planner, and I think I've told this story. In 2000, I got fired by a client because his portfolio did 45%. And all of his friends were doubling their money. And it was the time of Web 2.0. Right. And Web 2.0 was this. It was company profits don't matter anymore. It doesn't matter. It's just about growth. You don't get it, Joe.

It's just about growth. But then it turned out in 2002, Paula, profits mattered like they always have. And they always will. Like everything changed. And then we saw that again in 2007, right? All kinds of people. They're not making more land. land is the only thing that you need to own.

If you own a bunch of land, why would you own anything other than real estate? And by the way, they're giving away mortgages. So let's just pile on the real estate bandwagon with every dollar you have into a liquid asset. And by the way, large cap growth. You know, Paula's a great place to be. Real estate's a great. I'm not saying these are bad asset classes. I'm just saying I'm going to go with history for the win because historically when you load up on one asset class,

it has never, ever ended well. It's never ended well. Right. So when it comes to asset allocation, the reason, Jackie, it may take more than 15 minutes is because you're not pulling the trigger. If you're trusting the process, you're trusting the fact that your process has worked historically over and over and over and over again through all different economic cycles. Trust the process.

Take only 15 minutes. make the change, don't worry about it for another year, then 50 minutes again next year make the change. That's all it's going to take. Joe, one final follow-up question, which is when you make new contributions into the account. So I'll tell you how I do it. When I'm making you contributions, I sort of eyeball the drift from my ideal asset allocation. When I'm making a lump sum contribution, which is typically going to be somewhere mid-year, I will eyeball the drift and then just make the contribution into the underperforming asset class. Do you think that's a viable way of a little bit imprecise, but a viable eyeballish, rough way of rebalancing mid-year?

I've talked to a hundred different really smart people about this. Nick Majuli comes to mind. I remember the discussion I had with him about this. So many great financial manager. I'm sure Carston, our friend Biggern would agree with this. Filling in the potholes is always the way to go. Because then what you're doing is your dollar cost averaging into the part of your portfolio that's low. And so we don't know when that's going to come back. We just know that it will come back. And when it comes back, I hate gold as an example.

But gold has sometimes rallied. And if you just keep loading up on gold, you know what's going to happen at some point, Paul? Gold will go up. Now over long periods of time, still a crappy asset. which is why the efficient frontier rarely shows gold being more than a couple percent of your portfolio in your portfolio at all. But it will go up. And so if the asset class is going to go up and you know that it's a part of your core

strategy, then filling in the pothole means if it happens before you rebalance time, you're actually going to add a little more what they call alpha. You're going to add in a little more return because you were filling in the potholes at a time. So I love that strategy. And it takes my 15 minutes that Jackie said was 45 minutes. It's only 15. And it turns it into like seven. And maybe even nothing.

Because if you filled in all the potholes, I don't want to do anything. Then you just sit back and have coffee and go, oh, my goodness, this is so much easier than I thought it was. Which Jackie it is. It truly is. Perfect. There is one caveat, which is as you learn over time, and by the way, take your time learning how the efficient frontier works. even in our lesson. I gave people the basics,

and I think that's what people should start with, just the training wheels. How does this work? How do the tools work? How do I dive into this a little bit? Like going toward Paul Merriman, I think is a great first step, which is why I mentioned him,

and he's done so much research already, if you gravitate that way, but realizing that's not the end, I'm going to have to figure out how to extricate money from these as I withdraw money for my goals. I'm going to learn how that efficient front works, the efficient frontier drifts over time. Because to your point, Paula, is actually,

everybody says the whole world has changed because of AI. The world has changed, but the economy's going to move slowly in a way that's going to be affected by AI, not all at once. And so as we see the efficient frontier drift over time, as we have new information, you are going to tweak those percentages. Maybe it's not 25, 25, 25, 25. Maybe now it's 30, 15, 15. 25, 25. As the market drifts slightly, and as your goals get closer, you're going to move down the efficient frontier, meaning you're going to get more safe, which is going to change your allocation. And by the same token, things are going to change in the world, which is going to change your allocation. But you only need to do that, maybe once every five years, where you go,

is this allocation still really working for me. Perfect. Well, Jackie, I think that answered your question. God, I hope so. And Jackie, if it doesn't, feel free to call back in because, as you may know, Paula, I'm a little bit excited about this topic. Yeah. Let me clarify it for you. We can do better. And based on all the people talking online that I'm seeing about this, whether they

mentioned you and I, Paula, or not, I know where this argument started. And I'm very happy that we started it right here. Oh, yeah. Causing chaos since 2024. Can we talk about this a little bit why I want to cause the chaos? Why? Okay. This is not so that you have more money. Don't be wrong.

If you have more money, you're going to be financially able to take care of yourself, and that's what Paula, you and I are after. Right. But there are a lot of people in the personal finance community who say this BS of, I have enough for me, and that's good. We live in these awesome communities that we want to be better. And in whatever way we choose, because we have this gift that we know how this stuff works, we can take this compounding interest that we create and make compounding interest for the

community in the world around us. And that's what I'm interested in. So while I'm happy for the afford anything community to have more money, let's be clear, I want our communities to have more. And it's so easy. It's so much easier than we all think. And that's what gets me really excited about this. Yeah, investing is so much simpler.

Many people understand. And I think that's because there are a huge number of people out there. There are whole industries out there who get paid to make you think that it's complicated. That they are a wizard. Yeah, exactly. There are huge industries that make their money by convincing you that investing is complicated. And therefore, they intimidate you and make it. and make you kind of throw up your hands and say, here, just take my money.

You handle it. There's the analogy, Paula, right there. They want you to think they're a wizard. We know they're a magician. Right. We know there's sleight of hand going on. And if you know what the slight of hand is, how much more powerful are you? They're not a wizard.

Yeah, you're not Harry Potter. You're just a... Yeah, you're a muggle. Muggles are great, too. No one here is anti-muggle. But if you're pretending to be Harry Potter and you're a muggle. Yeah. Yeah, yeah, yeah.

You're not truly Harry Potter. You're just someone who's learned a couple of card tricks. Yeah, there it is. Well, thank you, Jackie, for the question. We're going to take a break to hear from the sponsors who make this show possible. And when we return, we will hear from a listener who just received an inheritance and is wondering if the advice that they got is sound. And we will also hear from a listener who has questions about. about how to juggle a whole bunch of different priorities.

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distribution at around $5,000 monthly, but I'm considering a 15-year option to reduce the tax impact. My husband and I are in early 30s and in the 22% tax bracket with a combined income around $160,000. I love your insight on which approach might be beneficial, as well as investing this money. Thank you so much for your time. Heidi, thank you for your question. And first of all, I'm very sorry to hear about your loss. With regard to how you handle this annuity, what I heard you talk about were the numbers and also a concern about the tax implications. what I didn't hear, and what I'm curious to know is, what are your goal? What do you want to do with this money? What legacy or imprint do you want it to leave?

You and your husband have a combined income of 160,000, and I don't want to make any assumptions about your bills or your spending, but in the absence of any other information, I'm going to assume that you're perfectly able to maintain your current quality of life. to pay your bills, I'm going to assume that you don't have any significant financial stress. The assumption that I'm working from is that this money is purely discretionary. And it's not going to pay any outstanding medical bills that you have or anything of that nature. If that's the case, if this is discretionary money, then what you don't want to do is get into a situation where you have a couple thousand extra every month or a few thousand extra.

And as can so easily happen, when you have just a few thousand extra in your budget, it starts to get lost quickly. It goes to like an extra Uber here, an extra Uber there. It goes to ordering on DoorDash just a couple extra times. It goes to buying a few more sweaters in the winter than you otherwise would. what I don't want to happen is that 10 years passes and you look back and you're not quite sure where that money went and it all went to Uber and DoorDash and clothing.

I'm not finger pointing at that type of spending if it's conscious, but more times than not, it's unconscious lifestyle creep that allows money to flow away. So where I would start is by asking yourself, specifically what do you want to do with this money? If you want to invest it for retirement, I think that would be a beautiful use of the money because then the legacy that your mom has created

can remain with you into your senior years. If you want to use it to take a couple of very well-planned trips, I'm not just talking weekend on the beach, I'm talking core life memory. I don't know what interests or passions or hobbies or hobbies your mom had, but if you want to use it to do something in that vein, maybe your mom was really passionate about animals, and you want to spend it on the added costs that it would take to foster dogs from the local

shelter. That's where I would start. What use of the money are you looking for? I would start with that, and then once you've determined that use, then pull out that money in the most tax-efficient manner possible. But start with the use first. I love that approach, too, not just for tax consequences, which I think we can dive into even more, Paula, but I also like it because if that money's invested in a way that meets those goals, then I move it quickly. And then you can worry much more about tax efficiency.

But if it's not meeting those goals, or if like a lot of annuities, it's a high expense account and you can do it much more cheaply and that offsets a lot of the tax bill you're going to have to move it more quickly, then hell yeah, let's get it out of there quickly. So starting with the goal, I think to your point, solves all that stuff. Yeah. I think the first tax question that I had, which is a really important one, is this. A lot of annuities, Heidi, have been sold inside IRAs or insolades or in some. retirement plans. And if it's inside an IRA or a retirement plan, that's going to have a different tax strategy than if it's just an annuity that's on its own. Annuities for many different

reasons get sold inside of IRAs. Most of them aren't very good reasons. There's only a couple good reasons. But if it's inside of an IRA, then we're following IRS rules on beneficial IRAs. If it's just an annuity, which is what you said it was. So again, Paula, in the absence of other information, that's what I'm going to assume is this is just an annuity. Here's how annuities get taxed when the money comes out. So in the absence of any other information, we'll assume that this is an annuity outside of a retirement plan or an IRA, Paula. If that's the case, annuities do not get what's called a step up and basis, meaning that the tax treatment of your mom taking the money out is the same exact tax treatment for the beneficiary.

So how does the tax work? Annuities are taxed in what's called the LIFO manner. LifeO is just short for last money in first out. So what's the last money in? The last money in is the interest that the annuity makes. this is another reason a lot of people don't like annuities is because annuities become a big tax trap the longer you have it the more interest that accumulates that's the first thing that comes out and so because of that people often leave annuities and take money from other places because of the

same question we're answering here paula they don't want to pay the tax i don't want to pay the tax so yeah by the way for people so i just want to clarify with lypho i took an accounting class and I had some classmates who were struggling with FIFO and LIFO. They called it F-My-Lifo. So good. And that's how everybody feels, right? They're like, oh, crap. Yeah.

And so I was actually kind of, because I've been doing this show for so many years, I was actually able to explain that concept to them. And so I wanted to share that with this audience. So the way to think about FIFO and LIFO is, all right, you've got three chipmunks. You've got Alvin, Simon, and Theodore. Never heard of them. You get Alvin in October. You get Simon in November and you get Theodore in December. In the new year, if it's FIFO, you're taking Alvin out. And if it's LIFO, you're taking Theodore out. That's how you think through it. There it is. Beautiful. Now I've got that song in

my head, too. The chipmunk song? Earworm. Yeah, the Christmas Chipmuck song. I can't even think of what that sounds like. I guess that's for the best. Christmas, Christmas time I'm here. Time for joy. Oh. No? Yeah. Yeah. Anyway. Oh, yeah. Back on LIFO. Back to the show. Back to LIFO. The first money out is going to be the interest. So the first thing that I want to know, Heidi, first thing you want to know, how much interest is there? Because you might be. worried in your head about a lot, lot, lot of money that's going to come out of this thing that's going to be a big tax when maybe it's one time if I just rip out $10,000 at once and it's all in my same tax bracket I'm in today. It doesn't matter if I take it out now or if I take it out

10 years from now. Because really, if we're playing the tax bracket game, Paula, what we're doing is we're figuring out how much income I have right now, which Heidi already said she's done. and then I look at where the top of that tax bracket is and I can take out the rest of that tax bracket without any additional tax penalty above what I'm already paying. I would consider going into another tax bracket to be something I probably don't want to do. But heck, if I can take out all the interest and still be in my same tax bracket, then let's do it. And I would also then make the plan around that tax bracket situation too. I wouldn't make it set 5, 10, 15.

We can't predict the future that much. Let's just see how much I can take out without it costing me more than what I'm normally doing would cost me. Unless you know for certain that three or four years from now, let's say you're going to have a significant decrease in income. If that's going to happen, well, then maybe we wait for then. But then I'm still not doing 15 years, Paula. if I have a year where I have a heck of a smaller income coming in,

is that the only case when you say hallelujah, by the way? Oh, good news. I didn't make any money this year. Here's what I can do. In that case, then I still take out as much as I possibly can at that lower tax bracket. So I think that's the way I design the tax game. Let me tell you if the person you're talking to,

because you're talking about the advisor, If the advisor is the person who sold the annuity, they may be being paid based on that asset staying where it is. And if they think you're moving it from them, well, then they may be all about, let's leave that money for 10 years. Now, the good news is it sounds like the advisor's telling you to take it out quicker and you want to maybe go longer. So that may not be the case. But I always want to know, how's the person being paid that's giving me that advice? I think that's the most important thing, though, is, is the money invested in a way right now that meets my goal?

If so, then I feel comfortable slow playing it. If not, and it's invested in a way that is not going to be part of my asset allocation, well, then I want to get it there faster because I think I can make up for this short-term tax bill over the long term by having it in the right place. When I look at the taxes, is it inside an IRA or outside an IRA? If it's inside an IRA, I'm going to play by those rules. It's a whole different thing with an accountant. Or if it's LIFO, then I need to look at how much interest has this actually made and what's the tax bill going to be.

And then how much room do I have until I hit the next tax bracket? But all of that, Paula, wrapped up in specifically where you started, which is see how all of what I just said is around what you said, which is what's the money for? really starting off with what the goal is. Right. Is what's the money for. And we're going to get back to that with our next question too. Right. That's true.

Yeah. So that core question, what's the money for? It's fundamentally the question of conscious spending. Joe, you and I yesterday, we had a conversation about regret. Often, when it comes to financial regrets, people tend to regret money that they have spent unconsciously that they've spent without a plan. When people say, I don't know where that money went, somehow it just slipped through my fingers, people often tend to regret money that was spent in that absent-minded, unconscious,

non-thoughtful way. It's very rare that a person is thoughtful and deliberate about the use of money and that they later end up regretting that. Even if your priority shift, right? I know people who maybe at one phase of, of their life, they were really into scuba diving. And later in their life, they lose interest in it and they're not into scuba anymore. But they never regret the money that they spent scuba diving, even when their interests shift,

because they recognize that that was deliberate, thoughtful money that they spent at a specific stage of their life when that was their passion at that stage. So even after that fades, even after they're like, I'm done, I never want a scuba again. don't even want to look at the ocean. And sometimes that happens. They still don't regret it. That's the difference between conscious versus unconscious spending. And particularly, when it comes to an inheritance, spending that money on very specific, discrete things that you can point to. So you can say, I spent my, the inheritance that I got from my mom on X, whether that X is your own retirement, whether it's a house that you pay for in cash, whether it's setting up a charity that

addresses some type of issue that both you and your mom are passionate about, like, whatever that might be, having a very, very discreet and specific X answer to what that money was spent on, that often can give people the psychological, I, I know. know that I honored that legacy. I love the idea of spending the money in a way that not only is prioritized based on your goals, but also honors the person. Right. It's just amazing. Even as you're talking, Paula, I'm just reliving this idea that money has, money itself has no emotion. It's this green and white bill with a bunch of funky pyramid and eye on it and some president. Yeah. It is no emotion. And yet we bring so much emotion to it.

Yeah, because it represents life. It represents time. It represents energy. So honoring somebody's money is honoring their life. Well, thank you, Heidi, for the question. We're going to take one final break to hear from the sponsors who make this show possible. And when we return, we will continue this conversation with a question about how to set priorities when there are a lot of things that you want to spend on. Stay tuned. with the PC Holiday Insiders Report. Try this PC Porchetta, crackling, craveworthy. You gonna eat that? Who are you? I'm the voice for the next ad, car commercial. But I noticed that show-stopping roast and... Help yourself.

Mmm, designed for indulgence. Precision crafted to navigate every corner of my mouth. All for just $18. Okay, okay. Try the season's hottest flavors from the PC Holiday Insiders Report. Please feast responsibly. Welcome back. Our final question today comes from an anonymous caller.

Oh. Joe, what should we name this anonymous caller? I know not all of our audiences into all of these Hallmark Channel movies this time of year. Ooh. The Christmas movies. But for people who are, there is a movie that has kind of defied the odds. In fact, there's been a lot of media about this film. It's called The Best Christmas Paget Ever.

It's after a book that a lot of people have. have really liked. It's a community that has the same Christmas pageant every year. And this year, the worst kids in the world, the Holman's, somehow become the main people involved with this and try to ruin and take down the Christmas pageant. It's hilarious. It's funny. It makes you realize for people that celebrate Christmas what the season maybe should be about versus all this stuff. But the woman who's the mom in this wonderful movie, she is. Her character's name is Grace. Oh.

And she's just trying to hold it all together while everything is coming down. And so as you're going to hear from our caller, she's trying to hold a lot together, Paula. And so I think we should call her Grace. Oh, Grace is such a beautiful name. I've always loved that name. Nice. Joe, you never struck me as a Christmas movie guy. I prefer to talk about my love of diehard and, you know, manly man movies.

Yeah. But yeah, this one, I looked at Cheryl at one point. I'm like, I'm not crying. You're crying. Shut up. I just recently learned that Die Hard is a Christmas movie. I had no idea. Oh, those are fight words, Paula.

You just opened up a... Oh, I've never seen it. That is a wound. I made the mistake of showing my kids when they were maybe eight years old. I'm like, oh, yeah, this is a Christmas movie. They're having a Christmas. Oh, and there's a little bit of action. I totally forgot the main line in the movie is yippy kye.

Bleep. Yeah. How old were your kids at the time? Eight years old. Oh. Yeah, my twins are eight. And Cheryl's looking at me going, what the hell are you doing, Joe? What are you doing?

Showing our eight-year-olds, yippie kai. Oh, yeah. I forgot how violent that movie was, too. So lesson learned. Do not show your eight-year-olds die hard. They turned out okay. They're doing all right. Not scarred for life.

All right. Well, our final question today comes from Grace. Hi, Paula and Joe. I'm calling with a question about how to prioritize financial goals. A little bit about me. I'm 34. My husband is 40. We have two kids, one and a half and five years old.

we make about $265,000 pre-tax. I have $200,000 in a traditional retirement account, and my husband has $100,000 in a traditional retirement account. We both have 5% match, and we would both be eligible for pensions when we retire, but we're not sure how much we would make in our pension. We have $8,000 in a taxable brokerage account, $9,000 in a $529 for the 5-year-old, and $1,000 in a $5.259 for the 1.5-year-old.

We also have 12,000 in savings, and we own a townhome, which is worth about $600,000, with $415 left on the mortgage. Now, here are our priorities. We'd like to retire well and have enough for travel and to live an enjoyable retirement without having to worry at all about finances. We've calculated that out to be about $3 to $4 million between the two of us by the time were 60. We'd also like to buy a new home in the next five to 10 years. That would be bigger than our town home, but we have a very nice interest rate of 2.5%. So if possible, we'd like to keep the town

home and rent it out because we live in an area with a lot of college students. The other priority we have is we'd like to buy our next car with cash. We'd also like to fund our children's 529 so that we can pay for their college tuition. And then lastly, we'd like to travel and have at least two vacations each year, one in the summer and one in the winter for Christmas to visit family. We're really struggling right now with trying to figure out how to prioritize these different financial goals. I understand that we need to be saving more and building up our savings for multiple goals, but I'm not really sure how to visualize how to save. We, we need to be saving more and building up our savings for multiple goals, but I'm not really sure how to visualize how to save. Should we just be dumping as much money as possible

into a general savings account? Should we be focusing on one goal over another? Is it based on time horizons or is it based on the amount of money we need? Any help you could give would be really beneficial to us. We're considering looking into a fee-only financial planner to help was prioritize and built out of plan. But I figured I'd ask you guys first. Thank you. Grace, I love this question. This is the heart and soul of financial planning. Here's a limited pool of resources and here's an unlimited life. And how do I make these limited resources fit this big, wide, beautiful unlimited life? Right. This is really the heart of what money management is all about. I just wish, Paula, we knew somebody who wrote a book about this topic.

Joe is not so subtly pimping his own book right now. If only there were a book that addressed this. Oh, man. Because this is, this is my favorite question, too, Grace. It's my favorite question, Paula. You know it's my favorite question. Yes, absolutely. People think I get excited about the efficient frontier. This is awesome. Grace, I'm going to say a couple of things right off the bat because I can tell that Joe is, he's about to go wild. Joe Godwild. I can see it in his eyes before I unleash Joe upon this microphone. Few things I'll say right away.

One is this is very kind of tactical, but if you can for your shorter term goals for money that you're saving, use a bank that lets you put that money into. different savings sub accounts. Basically, if everything is commingled together into one big giant savings account, it doesn't feel like money that's being used for X and Y and Z. If X, Y, Z is all commingled together in the same account, it just feels like a giant big pile of money that you haven't mentally bucketed and assigned emotional weight to. So any bank that has sub accounts, I know, I don't know what the current ones are. Ally Bank, I think, did that first a while. They may still do. They may not. Ally does it. That's what I use.

Okay, perfect. I know my credit union, a lot of credit union accounts will do it. All of those are either FDIC insured or the similar insurance that. The credit union equivalent, yeah. That credit unions have, yeah. There was a bank. I don't know if they even still exist, Smarty Pig. And their whole bread and butter was that. The whole concept of Smarty Pig was the user interface was like a giant piggy bank. and they would have these separate sub accounts and you could label every single one. And you could get really granular with it.

You could be like, these are the funds that I'm setting aside to pay to go to my best friend's wedding. You could be as granular as these little $700 goals or you could have bigger goals, whatever it was. And what was great about that is by virtue of putting a label, putting a name on every single one those buckets, it really allows you to mentally see what pools of money are being saved for what goal. So it avoids that jumble. Smarty Pig, not only, Paula, is still a thing. Yeah. It's a product of Sally Mae. Oh, look at that. So big name, big name agency. Big name acquisition. Yeah. Yeah. Oh, good for them for getting acquired. I knew them back when. I remember when they were young. My kids growing up. The other thing that I will say.

Before you do this, Paula, let me expand upon what you said, because it's not about ally, which is what I use, or smarty pig, or your credit union, whatever. Yeah. It's actually about when you give your fund a name, all of the behavioral studies show that that makes the money stickier. if I don't say this is my Smarty Pig account, I say this is my sub account that is for my next car fund. I love this for the next car fund, right? Yeah, I love that next car fund. This is my next car fund account. I don't think of it as Smarty Pig anymore.

I'm going to not only leave that money there when the next thing happens. So I'm not going to touch it. I'm also going to continue to put money in it more aggressively because it's the car fund and not just a savings account. So labeling your account is phenomenal for better behavior. Right. Yeah, exactly. And with the car fund, the way that I like to reframe it is making a car payment to myself. Right?

It's like, well, I just have a car payment every month. And so you just make that car payment, but you make it to yourself. That's what Cheryl and I do, yeah. Yeah, yeah, exactly. And so by virtue of doing that, by calling it a car payment, it feels more like a bill. And so you're less likely to skip out on it because you're less likely to skip out on it. you're like, I got to make my car payment this month. So good.

Yeah, it's money that you're sending it straight into a savings account. The other thing I would say, and this is where there's some difference in opinion about tactics, Dave Ramsey has this debt payoff method called the debt snowball in which he makes a minimum payment on the majority. If a person has five debts, you make the minimum required payment on four out of the five. and then you throw every spare penny that you have into the smallest of those five debts. And by virtue of doing that, you wipe one of those five debts off of the board really quickly. And that creates a psychological victory that keeps you going. I like to take that model and apply it to savings and turn it into a savings snowball in which you make the quote-unquote minimum payment.

And so that's you get the employer match on your retirement accounts. Maybe you have a certain minimum threshold of the amount of money that you want to put into a kids college fund. Like you never want to go under $200 a month per child. Right. So you have a certain like quote unquote minimum that you give yourself. You make that minimum payment to all of these different goals. And then every spare penny gets concentrated towards one goal. And that could be the goal that either has the smallest amount of money, similar to the Dave Ramsey debt snowball, or it could be the goal that has the shortest time frame.

But either way, you get the psychological victory of maxing out a goal and then just checking that off your list and being done with it. And I think there's a lot of power to that. Yeah, I think it's really interesting to see how often behavior Trump science, right? I mean, especially, you talked about debt paydown. Look at all the smart people out there that had a mortgage at less than 3% and still paid it off early anyway. Yeah, me. Yeah. I mean, it sounds like the dumbest, dumbest thing when it comes to math, but it's not all about math.

It's about mind share. Yeah, exactly. I had a lot of very, very, very low interest mortgages. I paid them all off and I do not regret it for a second. It's fabulous. When you get to the point that it's no longer about math and it's, can be about mind chair. I think for people really, really close to the goal, it has to be about the math, right? But when you get to the point that you don't have to worry about the math,

and instead, I can just do the thing that makes my heart sing, that's the ultimate place to be. Yeah. There were times that I'm like, hey, listen, I don't want to slow play this thing, but if we don't, you're not going to make it to the big goal. Yeah. Well, and not to talk about myself too much, but the reason that I, just to clarify this for everyone, the reason that I specifically made the decision to pay off all of the mortgages on my seven rentals was because I'm an entrepreneur. I run a small business. So not only am I self-employed, but I also employ others, a small team.

And that is inherently a risky way to earn a living. If I'm not mistaken, too, it was also the time that you decided to move to Manhattan, which was going to be adding a bunch of new expenses. that would also be because you're in Manhattan, you're closer to opportunities. Honestly, Manhattan hasn't actually added expenses. It shrank the square footage that I got for the same amount of money. My housing payment in Manhattan is pretty similar to my housing payment in Las Vegas. Okay.

I just have a fraction of the square footage for that. Right. Like a friend of mine says, it's really spacious. I can fit a water bottle and a pencil. Yeah, exactly. So yeah. And in Manhattan, I don't have a car. So if you look at the amount of money that I was spending when I lived in Las Vegas,

if you look at my mortgage plus the amount that I spent and my car I bought in cash, but there's still insurance, there's still gasoline, there's still maintenance and repairs, I don't have any of those expenses anymore. And so if you look at the amount of money when I lived in Las Vegas, that I spent on my mortgage plus my car-related expenses. If you add those two up, that's crazy. That's the rent that I'm paying in New York right now.

So actually, it moving to Manhattan did not increase my costs. It definitely shrank the square footage. Thousand percent it shrank the square footage. I had to learn how to live in a much tinier footprint. What freaks me out is always looking at, heck, even hearing Grace, Paula, go through all these goals. You can see why you'd be overwhelmed. You're like, I want this thing from my one-to-half-year-old.

I want this thing for my five-year-old. I want to keep the town home. I want the house. I have these pensions. I don't know how they're going to work. I want to retire at 60. We want to travel twice a year. We've got all of these competing goals.

Like, how do I make sense of any of that stuff? And the thing that has been so effective for me, and back when I was a financial planner for my clients was this idea grace called timelining your goals. And by timelining everything out, you will see, you'll put them out in front of you in a way that they're not listed like we just did because when you list, that makes my heart rate go faster and faster and faster and my blood pressure go higher and higher and higher because I'm like, oh, another one. And oh, yeah, and oh, yeah, and another and another one.

If I lay it out graphically, then I can see them. And the magic of these goals is this. And this is basic Stephen Covey stuff, right? Seven Habits of Highly Effective People. When you pick up one end of the stick, the other end of the stick comes with it. Meaning, in this case, Grace, what you do toward one of these goals also affects what happens with the other goals. So, as an example, let's look at age 60 and the fact that you have a one and a half year old and a five-year-old. You're going to be in your early to mid-50s when your kids start going to college.

and you want to retire at 60, those two goals are going to have friction against each other. They're totally going to have friction against each other. And then if you're trying to look at this hugely expensive cost of college, this five to 10 years townhome, if the townhome is 10 years from now, your oldest is 15. At 15, you're starting to think about those college wheels. That's going to play against these goals. The car to stand ahead on your next car is going to affect all of these things, right? Can I do that?

Can I not do that? So with a limited check, how do I look at the relationship between all these goals and the best way to do it is graphically? Because I found it's the only thing that decreases the blood pressure because now we see, oh, this is happening here, this ball of money I need for my five-year-old. And then three years later, I've got the one and a half-year-old. that now is entering college. Am I going to have two in at the same time? Depends on birthdays, right? Depends on what happens then,

but maybe I've got two in the same time. I don't know. But when I see these things start to intersect, my conscious mind and my subconscious mind begin working on the goal together. And Paula, this is where it gets really powerful. Because then on that timeline, so I've got me as a stick person over here on one side

of just take a regular piece of copy paper. And then across the bottom put your timeline. with you passing away on the far other side, way, way, way on the other side. And then put ages that these things are going to happen and put these little balls of money I'm going to need. I'm going to need a ball of money when I retire at 60. I'm going to need a ball of money when my five-year-old goes to college. I need a ball of money when my one-half-year-old goes to college.

I need a ball of money for the townhome. And then I look at those. And they bring up, Paula, then, some obvious questions. Obvious question one. Let's take retirement. Retirement then is, okay, what's that going to cost? Well, she's already predicted what she thinks it's going to cost, but we don't know because she doesn't know what the effect of the pension is, which you and I both know, hugely important to find that. That is job number one to find out what that pension is going to be conservatively. I also want to know how secure is that pension.

Absolutely. The institution that is providing that pension, how secure are they? What are the risks of insolvency? Yeah. I mean, think about that. that already. We think about the way we say for it's going to change based on what happens with that pension. So solving that pension is going to look at that one bubble. And then I can take a look once I get some idea of what my plan would be. Okay, based on all these factors, I think I'm going to need to save this. I can draw a line back to today. And I can do this. I'm going to need to save X amount of money times Y rate of return. And the cool thing about that, that also then sets up benchmarks

along the way. Because when I look at these, some of our listeners, it might be 25, 30 years old, you hear a number of like $5 million, Paul. You freak out. Like, you kidd me? Even a million dollars. Like, I'll never get there. But you and I know how quickly that compounding works over time. So celebrating the fact that you got to $2,000 is a big celebration if that's your first milestone and you're number one to get there. I got to get to $2,000. The next year I got to get to 5,000. Then the next year I got to get to whatever. Celebrate these small milestones along the way.

But once I know what that is, I do the same thing then with college because she said college is important. So these 529 plans, we know how much money she's going to want for the new house, ostensibly. The same thing. Draw a line back to. And that will tell me, okay, I need to save X for my retirement. I need to save Y for these college. I need to save Z for the new car, and then I need to save whatever the next letter would be for the house goal.

Omega? I should have started a W. Yeah. I should have started earlier. I know now. But now I know what my saving amount is that I need for all four of those things. And then I look at my budget, and either I can do it or I can't do it. And if I can't do it, this is where I can't do it.

this is where the magic starts. Because in most of the cases, when I was a financial planner, my client couldn't do all these things. They couldn't do it. We had to start making some decisions. And these decisions are lovely. And this is when Joe Sol See High and Paula Pant start to intersect with our friend Vicki Robin. Because this is not about money again. This is about priorities.

And I want to put all these priorities in a cage, like it's an MMA match. And I want to say this, if I can't get that high. house the way I want or when I want. And I can't pay for all of my kids college and I can't retire age 60, which one gives first? And the cool thing is, is everybody listening to this has the answer that. Well, of course, I'd give rid of the college or of course I'd retire later or of course the new house isn't that important. Like everybody has their thing, but it's different for everybody. But when you would tell me that when I was your financial planner, now I know, oh, that's not the priority, this is the priority. And so let's say we push back retirement from 60 to 62 because you don't

care. Now we can fully fund the kids college. And now I know college is the main goal, retirement's the number two goal. Or maybe the house is made, whatever it is, you've got priority one, priority two, priority three. And with that third priority, you might be able to make it work in other ways you haven't thought of. Maybe I can find a way to expand the budget by either decreasing expenses are increasing my income, right? I know if only somebody had a negotiation class here, speaking of Hock and products. Thank you, Joe. Thank you, Joe. We're running it through beta right now and it's going through a huge number of improvements. So it's not going to be fully ready until sometime in early 2025. But that's still good news, right? Yeah. It's going to be

fantastic. Yeah, yeah. We're going through it with the beta testers right now, getting a lot of feedback. So, and you and I know, Paula, all the studies show your boss wants to give you raise. They have other priorities. And they're not just going to throw you money. You need to make your case. So increasing your income, maybe starting that side hustle you've thought about is an option. The second is to decrease expenses. Really look at, do I value these things? But now it's not so much about a budget. Everybody hates a budget. But if I tell you, Paula, if we can find another $200 you can retire when you want to, guess how motivated you are if that's your number one goal. Right.

All of a sudden you're on a mission. You're like, oh, yeah, I don't need to eat at restaurants twice a week. I'm good without that. If you tell me that I can make this happen earlier, heck yeah, because that's my number one goal. All of a sudden, your money starts lining up with your priorities. And that's where this gets fun. So I would timeline these out again, look at then what does that mean I have to do today for each of these, look at my budget and see if that's possible, and then set up your plan for each one

individually realizing that they're all part of a unified hole. I like the MMA analogy. I know I laughed when you made it, but it truly is a battle of resources. And it should be, shouldn't it? And the stronger goal should win the resource. Right. And how, often are we not doing that? Yeah, exactly. And within that battle, goals get either modified or their timeline gets extended. It's pretty exciting to know that you have all these levers. I can either set a more aggressive asset allocation, which is fraught with risk, I can push the goal back, I can lower the goal. So instead of paying for all of my kids college, go, okay, they're going to have to figure out a quarter of it and I'm going to just do two-thirds.

Nice math, Joe. Not a math major in college. Wow. We're leaving that in, by the way. Thank you. Paula's like, that's what an idiot I work with right there. Oh. That's funny.

Let's go with three quarters, Paula. Maybe I fund three-quarters. quarters of it. Or maybe I do two-thirds and they get scholarships for that piece that Joe left out and then the other quarter of whatever. Yeah, yeah. But you know what I mean? I can lower the goal. I can push it back. Like people think there's no options. Right. But when it is the MMA thing, to your point, then we realize we have lots of options around these goals. Yeah. And you know what It strikes me when it comes to the time around the goals is there are certain goals. Many parents, and you certainly don't have to do this, but many parents want to be prepared for their children

to start college at the age of 18 straight out of high school. Obviously, every family is different and some plenty of people don't go to college at 18. Plenty of people go when they're 22 or 25 or 30 or older. But a lot of parents for planning purposes will hold that as a goal that has a fixed time frame, whereas there are certain other goals like when you purchase a home or when you retire that have a much more flexible time frame. And Joe, to your point about you can dial up the risk, but that makes it riskier. It makes it riskier when the time frame is fixed. With college, that time frame, depending on your set of values, for many parents, that

time frame is fixed. And so the risk has to be dialed down due to the inflexibility of the goal date. Whereas other goals that have a flexible timeline, all right, you can actually keep that risk high, even if the timeline is relatively short because it's also a flexible date. We would have this happen in non-risky asset classes. So what a fan. I am of Jenny Mays. You like Jenny Mays, but you and I also know that Jenny Mays have some pretty bad years sometimes. And sometimes for like that house goal, Paula, that's in the middle of that five to 10 year region, I would use a Ginny May knowing that we can beat FDIC insured rates over long periods of time, but also knowing and making sure my client knew very well that, hey, this thing could

go down by 5% a year. And then we'd have to make it up later. But if the goal of the new house didn't have a specific date. We're okay with living where we are another two years if that happens. If we're going to have more money by doing it that way, well, then heck, yeah, I'm going to take that risk, which is not a huge risk to take. Right. So even in the non-risky part of your investing, you can flex a little bit if the goal is flexible. This is exciting, though.

I love where Grace is at. I love the questions. They're the right questions to be asking. It's the right time to be asking them because these goals are still far enough away that there's plenty of things that you can do to meet them all. I would have people come into my office at 55 and go, I want to retire at 60. What can I do? And there are some things a 55-year-old can do, but not as many things as you can do in your 30s. It's a powerful time to be asking these questions. Well, so thank you, Grace, for the question. And I do recommend Joe's book. Can we supersize it,

Paula? Oh, yeah. Absolutely. Go for it. Last year for the first time, I took a small number of people. This is not going to be for everybody. But Gray said that she's looking at hiring a financial planner. Maybe she wants to do that. If she wants to understand how all this works before she makes that decision, I'm taking a small cohort of people again this year, starting in late January, through my book, and we're getting all the achievements. The book has all these achievements like you're in Cubs Cuts.

And so we're going to start with things like timelining and setting up your dashboard. We're going to talk about investing the same stuff we talked about early on today, about keeping it easy and then the efficient frontier and how that works. Estate planning, maximizing. Heck, a lot of the stuff we talked about today, we're going to go through how to understand all of these things. 90 minutes with me and a small group of people, and we work together to build your financial plan over a 10-week period.

If you can't make it live, we will record it, but you really want to try to be there live. It's going to be not, like I said, not for everybody. But if you want to know how this works, it's stacking benjamins.com slash book club. And this is not like my mom's book club where she has some friends over and they, it's really about drinking wine, Paula, for my mom. So stacking benjamins.com slash book club if you want to dive in. Or if you just want to read the book, just go get stacked.

You know what, it's the holiday season. Have somebody else buy you stacked. And definitely read, what is it, page 17. Is that the one? It's so weird that Paula has the exact page that she's on. Yes. Was I right? It's either page 13.

or 17. I can't. I think it's 13. Is it 13? Okay. Yeah. And what's cool is, is that an audio book actually is really good too because you have the actual interviews, but we take audio from actual interviews that I've done with experts in these different areas. And Paula, that section of the book is a transcription from you and I in the Afford Anything show and you leading a discussion around timelining. Oh, wow. I should listen to the audiobook. Yeah. Yeah. And so on the audio book, it's you and me answering somebody from the Afford Anything community's exact question about kind of like Grace's question. But we also have at the end of every chapter of either a transcription in the book of something from the podcast from the Stacking Benjamin show usually, except for this one, Afford Anything, from either the Afford Anything show or from stacking Benjamins. And so you'll hear people like Laura Adams Money Girl.

you'll hear Gene Chatsky, Jill Schlesinger, lots of the big names in finance talking about their expertise in the area that we just went over in the book. And plus, there is a cameo several times throughout the book from my mom. My mom is in the book. Yes. And actually, what's funny is I'll even pull the curtain back further. It's not really my mom. It's the actor who plays my mom. That's a whole other story. Well, Joe, I would ask where people can find you if they'd like to hear more, but I think you've just told us. But I think that was it. Yeah.

Come join me, stacking benjamins.com slash book club. And again, it's not going to be for everybody, but if you want to be in the small group doing this, I'd love to hang out with you for 10 weeks and build your financial plan. Nice. Well, Grace, thank you for the question. And to all of you, thank you for being part of this community. This is the Afford Anything podcast. If you enjoyed today's episode, please sign up for our newsletter, Affordaintingting.com.

slash newsletter. It's active again, finally. Woohoo! I know, right? I have tried and tried and tried to revive this newsletter and we're finally doing it. So this newsletter is now active again. You will be getting insights delivered, hot and fresh to your inbox. This is not stuff that's on the podcast. You will only get it on the newsletter. So afford anything.com slash newsletter absolutely zero cost. Affordanithing.com slash newsletter. Thank you so much for tuning in. This is the Afford Anything podcast. I'm Paula Pant. I'm Joe Salcihi. And we'll meet you in the next episode.