Afford Anything - The Pay Cut Price of Freedom

Episode Date: April 3, 2024

#496: How much of a pay cut would you take for a lighter workload?  Today we hear from Paul, 35, who’s grappling with that question.  Paul’s boss offered him the chance to cut his hours and salary by 25 percent. He’d love to work fewer hours. He has a decent net worth, plenty of savings, and no debt. Should he grab the opportunity? Or stick with his long-term financial independence and early retirement plans? An anonymous caller and her husband want to retire at 55. They also want a bigger home, a better car, and to start growing their family. Can they afford it all? Tim spent his 20’s missing out on retirement savings as a medical student. He’s eager to catch up. What’s the shortest path to get there? Matthew and his family dream of leaving Florida for the Pacific Northwest. Will they regret selling everything to start over? Former financial planner Joe Saul-Sehy and I tackle these four questions in today’s episode. For more information, visit the show notes at https://affordanything.com/episode496 Learn more about your ad choices. Visit podcastchoices.com/adchoices

Joe, how many hours a week would you say that you work? 55, 60. Your hours per week are catching up with your age. Oh, hey, I'm sitting right here. I'm sitting right here. I wouldn't do that if I didn't love it. I'm that person, they say, that works for themselves because I want to avoid working 40 hours for somebody else.

Oh, yeah, the proverbial, you'll work 80 hours for yourself rather than working 40 for someone else. Absolutely. Well, we're going to hear today from a caller who is interested in going to be going the Benjamin Button route. So this is a caller who wants to potentially go from 40 hours a week down to 30 hours a week. We're going to talk through that decision. We're also going to hear from an anonymous caller and her husband who want to retire at the age of 55, but they also have other goals. They want a bigger home. They want a better car. So they're wondering if they can afford

it all. We are going to hear from Tim. Tim and his fiance feel as though they have missed out on some precious years of retirement savings, and they are eager to catch up. And we are going to hear from Matthew, who he and his family dream of living in the Pacific Northwest. So they're wondering, should they go all in, should they sell everything and start their life over in a new location? And, you know, what if they hate it? What if they go through all this effort and it turns out to not be the right thing. So we're going to tackle those four questions in today's episode. Welcome to the Afford Anything podcast, the show that understands you can afford anything, but not everything. Every choice that you make is a trade-off against something else. And that

applies not just to your money, but your time, your focus, your effort, your attention to any limited resource that you need to manage, saying yes to something implicitly means saying no to other alternatives. So what matters most and how do you make decisions accordingly? Answering these two questions is a lifetime practice and that's what this show is dedicated to. My name is Paula Pan. I am the host of the show. Every other episode, we answer questions that come from you, the community. And we do so along with my buddy, the former financial planner, Joe Sal C-high. What's up? I am so excited about today, Paula. I don't know what it is. We have great questions. I get to sit here with you. So I am buckled up and ready to fly. Awesome. Well, let's kick off then with this

question from Paul. Hi there, Paula and Joe. This is Paul. I would love your input and thoughts on a decision that I have coming up. The primary question is, should I reduce my hours at my W-2 job to 75% full-time, an average 30 hours a week? Here is some background. I am 35, currently single, no kids, and don't plan on having any. My net worth is around 910,000, about 20,000 in cash, mostly in high-yield savings. I would like to have more in cash, and I will build it with time, but I do have safety nets, including a HELOC that I can access in case of an emergency. I have around 390,000 in various investment accounts and around 500,000 in real estate equity across my primary home and five rental properties that I picked up after taking Paula's course. I am about 55% leveraged across all my properties, and that is the only debt that I have after I have aggressively paid off 104,000 in student loan debt.

My bare bones core expenses are around 35,000 annually. I do spend more than that because I like to travel and enjoy my life, but if needed, I could survive on that amount. I've had the general goal of becoming financially independent and work optional, but I'm not trying to get out of my job as fast as I can because I do love what I do for work. I have also had the general goal to reduce my hours eventually, but didn't have a specific timeline attached to it and thought it would probably be a few more years down the road. But when staffing changes coming, this year, I will have the opportunity to change to 75% this summer or fall. I would still be considered a full-time benefited employee, but my salary would drop by 25% to just over 100,000 annually. Clearly, by the numbers, I will be fine, but it will slow down the growth of my net worth and make it harder to grow my real estate portfolio. But after reading the book, Die with Zero,

I think I may need to make more time from my other hobbies. This feels like a really big decision to me, and I greatly appreciate your time and it pains to help me think it through. Paul, thank you for the question. And what strikes me right off the bat is that in the question that you left, you spent most of the voicemail telling us your financial information and very little of it talking about your goals, your hobbies, your interests outside of that. Right. You mentioned die with zero at the end. Now, maybe that's because we are a finance podcast. And so naturally, by virtue of calling into a finance. finance podcast, you figure you should lead with the financial numbers. That makes sense.

You're talking to a former financial planner. So, of course, maybe that's the reason why you're leading with the numbers. But I'm curious as to what you would do with that additional time, right? What is it that you are so excited about that you would reduce your working hours by a quarter in order to have more time to spend on X or Y or Z. If you have a clear answer to that, that's amazing. But if you don't, then there's the risk that that time might slip away, that by virtue of having these extra hours, that unhurried life, you might, you know, puts around and squander it,

not quite know where it's going. And then at the end of a month or two or three, you kind of look back and think, Wait, what did I even do with any of that extra time? Right. That's the risk. Paula, for that reason, I've become a really big fan. And by the way, I think you would love this woman. You would love her work.

Her name's Catherine Price. She is a wonderful TED Talk. And she speaks about the power of fun. By the way, not a TEDx talk, which, I mean, no stink on people who have done a TEDx talk. That's tough, too. but this is a true TED talk that she did. And the reason I'm talking about Catherine Price is that it also strikes me that learning what to do with this time is super important.

And when we hear the word fun, by the way, immediately most adults, especially adults that think they're supposed to be serious-minded and take their life seriously, think fun. Fun is for kids. And Catherine goes through just how much you can truly accomplish when you look for three different things in your life when you look for connection, flow, and a sense of playfulness, and how much serious study you get done when you play in it. So when you take your life seriously enough to get into this flow state where you lose track of time and you're so enthralled by the idea that I'm studying this thing that I'm in it. And certainly study after

study now on longevity have shown that if you're going to truly have a good retirement, you're going to find this flow state in things that weren't your job. So for me, I was also intrigued because learning what to do at that time, I think Paula is a skill. And I think learning that skill early on is fantastic. I would say this, if at all possible, I wouldn't make this 75% move permanent. I wouldn't tell my boss is permanent. Don't get me wrong. I might leave that on the table.

that I could make it permanent, but I want to give myself the door that maybe when I'm done experimenting, I can go back to full time, especially if you love what you do. That's what I often find, and we're seeing it now in public. I'll reference John Stewart right here. John Stewart's back doing what he was doing over a decade ago, right? We figure out the thing that we truly found our purpose in was the thing we let go of. Not always. Sometimes it's great that we let go of it. But if they give you the opportunity to go play and to go learn what to do with this extra time and figure out what you want to do. All huge in the die with zero, Bill Perkins world. I think this is a no-brainer, Paula. And the good news is Paul has set himself up for this, hasn't he? He's done a great job of

saving. Saving buys you the flexibility to figure it out. And Paul, I feel like, is at this great stage where he can take the time early on to figure it out now. I wouldn't wait. I would do this in a heartbeat. For the people in this audience who aren't familiar with Die with Zero, could you explain that book really quickly? The basic premise of Die Was Zero is less about what the title says and more about you have these stages of your life. And if you, if you forego the fun, you forego the experience of this stage in life to have more experience later. you're never going to get it back. You're not going to be able to get back this time of life. So your life has a series of seasons. And while it does make sense to buckle down and work hard,

it also makes sense to enjoy the season that you're in right now. So Diewood Broke is less about having zero dollars when you get done to spending any last dollar as ringing out as many experiences from your life as you possibly can to live a more fulfilling existence. Right. Right. Right. Because the worst thing it can happen is that you give up a given stage of your life, right? You sacrifice your 20s in the hopes that you have a great life in your 30s or 40s or 50s, right? But then you sacrifice your 20s. You build and you build and you build. You accumulate net worth. And then what happens? Maybe there's a calamity and it gets stolen, right? That can happen. Maybe there's an

unexpected black swan type of a market crash. Maybe there is genuine theft or corruption. Like, if you have an attachment to a particular outcome, and I think this is one of the most poisonous things that's taught in the fire, the financial independence retire early community, we are so often taught that it's all about sacrificing and working hard today in order to have a better tomorrow. But when that is deeply internalized and taken to its extreme, we sacrifice the current stage of life that we're in. And yes, if everything goes well, many of us do get a better tomorrow.

But there is, again, always the risk that everything you're building could get stolen. It could get taken from you in a moment. We see that over and over, don't we? That the story that we're building doesn't work out the way. that we think that it will. The story never works out the way that we think it will. Do you remember Paula a long time ago in the personal finance community? There was a wonderful guy. He's around somewhere. I've lost track of him. Adam Baker. Do you remember Adam Baker? Oh, yeah. Of course I remember Adam Baker. I was fan-girling when I met him. That was 2011. Adam Baker made a wonderful

documentary talking to people at the end of their life. And his whole point was, in our head, we die at the end of the story. And his point of his documentary was, you don't die at the, at the end of your story. You die in the middle. Things all of a sudden go off the rails in the middle of your story. He talked to this one woman who was on her deathbed and she was talking about how the bills were going to get paid, who was going to feed the cat. And in his heart, he's like, that's all nice. But she's going to be dead by the time the bills come tomorrow. She has all these things she could be doing. And she's worrying about these things as if life is going to continue for her. and it is not good she's dying in the middle of the story.

And I think once we realize what you're saying, Paul, about how precious this is, it also leads me to this kind of metaphysical discussion around there's no better time to find out who you are and what you really love than right now. There's no better time. And I know that many of us are walking around going, I'm not sure what I love because I'm too busy doing this thing that's about 80% of what I love and we settle.

We need to break out of that. And by the way, the 80% existence is so hard to break out of because on one end, it doesn't completely suck, but it's also not wonderful. And we know it's not wonderful. But because it doesn't suck, we're afraid that we're going to mess up the 80% of our life that's right. We don't make the best of that time. We don't make the best of what we are right now.

And we're so cut up in that we've got five different options. that we don't make the option that we chose as good as it can be, which is why I recommended the power of fun to Paul, because I would do this in a heartbeat, I would figure out what those other things are, and I would use this power of fun framework to go explore and dive into those things that Bill Perkins advocates. This Harvard professor, she's known as Harvard's Mother of Mindfulness.

She's Dr. Ellen Langer. And Dr. Langer says that instead of trying to make the perfect decision, which we will always mess up, instead make the decision that you decided to go with perfect. Get behind that decision instead of living this life of regret that maybe we chose the wrong thing. So we live this 80% existence. You know, where so much of the fire community gets it wrong is, you know, rather than simply plan for the future, there are people who live in the future. Hoping that that future will be an escape from the pressures of today, the realities of today, the grim of today.

It will somehow complete you, right? Yeah, exactly. It'll save you from an incomplete today. Yeah. I think this is definitely something, Paul, I would jump on. Right. Yeah, exactly. So notice that in Joe, neither Joe nor I, even.

talked about the money. Like you gave us our, you gave us your numbers. It looks great. Who cares? Right. Well, that does buy inflexibility. I'll go back to that. One thing. He's brought himself the ability to do this. Like if he had $25,000 in credit card debt and, you know, no retirement savings. I go, Paul, you know what? Right. You got to get your house in order first and then go do it. You know what it is? It's a difference between playing defense versus playing offense, right? If you play a strong defense, you don't, you don't have consumer debt, you have savings in the bank, you have retirement savings, right? You've played a strong defense. The safety net is built out and you are secure. Now go do what you want, right? But I think what you don't need to do

is once you have a really secure foundation, once you've played defense well, you don't need to keep playing offense. You don't. Like at that point, your strategy can shift. into, Paul, into exactly what you're suggesting, work 75% of the time, right? Go down to a three-fourths work schedule and then spend the extra time doing something really fun. But just make sure you know what that really fun thing is because, again, there's always the risk that you might putts around and fritter it away if you don't have a good plan for it. And you see so many retirees do this. People who don't necessarily retire into something. and so their retirement is really a lot of putzing around and frittering away the last of their years.

Yeah. Remember, Paul, if you're sad now. It's so great. I saw that so long ago and it still resonates. Every time I hear somebody going, man, the future is going to be great. And I immediately hear Adam Sandler go, you know. Yeah. The holidays are right around the corner.

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That's your commercial payments of fifth third better. Your next caller is anonymous, and Joe, you know what that means. Oh, I get to name her or you get a name her. You're naming her. Fantastic. I've got a great one, Paula. As you know, I try to go through and watch as many of the Academy Award, movies as possible before the Oscars hit.

And so I can, you know, have an idea. And generally, that's a good first screening of maybe it's a good film. That sounds like a demanding second job. It is so fun. It sounds incredibly time-consuming. It is, but it's so entertaining. And you see, you know, some of the, what a lot of people in Hollywood call the best movies of the year.

Well, I watch the movie Maestro starring Bradley Cooper. as Leonard Bernstein, the famous composer, and Carrie Mulligan as his spouse. This movie sucked. I love Bradley Cooper. Carrie Mulligan was fantastic in this movie. I think Carrie Mulligan's a great actor. Don't recommend the movie, but Carrie Mulligan's amazing. So let's call her a carry.

Carrie. All right. Well, then our next caller is Carrie. Hi, Paula and Joe. Thanks for all the financial wisdom. have been sharing over the years. My husband and I leave in New Mexico and we bring home about 200K per year. We don't have any kids yet, but we are planning to start growing our family next year. We want to plan a financial future where we can both comfortably retire at 55 and we're currently

in our late 30s. Here's the situation. We have 200k in home equity, about 60k in savings and 30k in a rollover IRA account. We both work. in the public sector with pension retirement plans. We have one-car payment, about $400, and our student loans total to approximately $500 per month, now that student loan payments have resumed. Our mortgage is $1,500 per month. We max out our HSA accounts, and we both have a term life insurance policy. Our monthly expenses are between $45,000 to $5,000 per month. Now that we feel we're more stable, we are thinking about upgrading to another home,

perhaps in the next three years, and we also want to trade our current car for a new one next year, but stay within the range of $400 to $500 max per month. Do you think that's a good idea? We are also thinking about changing our life insurance policies to a universal life insurance. Any thoughts about that? Lastly, we think we have enough liquid to start investing through a brokerage account at $500 a month with an initial investment at $1,000 and continue to save $1,000 per month through our high-yield savings account that's currently

have $60K. Are we making the right moves to set us up for a financially stable future? We really want to make sure that we take and make the best financial decisions, although we're starting late in the game. Please help. Thanks for all you do. Carrie, thank you so much for the question. And congratulations on everything that you've done to set yourself up in such a great financial place already.

So let's talk through your next moves. Number one, you want to trade your current car for a different one, but keep the payment. at about $400 to $500 a month. So currently, your car payment is $400 per month. And if you swapped out this car for a different one, you would keep the payment to around $400 a month, maybe $500 a month at the most. Cool.

Awesome. The payment stays the same. So get whatever car you want so long as the payment stays roughly about the same. I think that's a great idea. Get the car that you like. Well, but can I dive into that just a second, Paula? Sure. Because I think to your point, we could probably move off this fairly quickly.

Okay. I would not think about the car in terms of monthly payment. Yep. Monthly payment is the way dealers like to talk. It's the way car salespeople like to talk. And it's the way they get you to buy more vehicle. You want to make your best deal for a car, period. Find the car you want, find your best deal, and then make the $400 payment fit.

So you know what your payment is, but that's the last way I want to think. I have seen way too many people end up with a car that overstayed its welcome or understate its welcome maybe where the payments went on and on and on forever because we thought about monthly payment and not about our best deal. Make your best deal first. Right, right, right. Yeah, the difference between a $400 monthly payment that lasts for 36 months versus one that lasts for 60 months is huge, huge, right, huge. So, but that said, I mean, it sounds like if, if, if, If they have, you know, if their current car is just not serving their needs and it's older and, you know, it sounds as though they need to or they want to trade out anyway and they've got a lot of financial stability to do so. Time to go.

Yeah, if it's a priority for them, I have no objection to it. But I agree with you, Joe. Dealers want us to think in terms of monthly payment and that is the worst way to think when it comes to a car. You want to switch out your term life insurance policies for universal life. I don't want to go too far down this rabbit hole because we can talk about this for an entire episode. But the short answer is, I think term life insurance is great. I think universal life policies and whole life policies are for most people, including you, not a good idea.

There are very small edge cases in which whole life policies. in which whole life policies or universal life policies make sense. For example, if you have millions upon millions upon millions of dollars and you are worried about estate planning and you're looking for some sort of tax-advantaged estate planning, sure, whole life can play a role in that, but you need many, many millions of dollars before that ever becomes an issue. Likewise, if you are in a position, we had a caller once a few years ago, Her father had bought a whole life policy for her 20, 25 years prior when she was a baby.

And so because of that, the monthly cost for the whole life policy was like 50 bucks a month and it gave her a payout of several hundred thousand dollars. And so I told her, hey, for $50 a month, you now have the opportunity to give a guaranteed 300,000, 400,000, however much the payout was, to a charity of your choice, right? So why not? Right? So in cases like that where it's a very old policy or where you have a huge net worth, in those edge cases, these types of policies can make sense. Also, if you want to be cryonically frozen, if you want to be cryonically preserved, rather than being buried or cremated, I think that's a very edge case, but that could be a case where a whole life policy makes sense if you don't have the assets

to pay for cryonic preservation out of your estate. Other than those very tiny edge cases, I think for the most part, whole life and universal life don't make any sense at all. And most people, yourself included, are better off staying in term life. I would say that for 99% of the afford anything community, if you think about buying a universal life policy, take two aspirin, wait for the fever to go down. Yeah.

And then get back on the term train. I think the three words are, oh, God, no. Right. Yeah. Yeah. So avoid. Avoid. Steve, can we get a sound effect of some type of like an alarm?

Like, yee, me. That's not an exit. Stay away from that door. Exactly. Exactly. You want to start investing in a brokerage account. You want an initial investment of a thousand. $1,000 and ongoing contributions of $500 a month.

Now I'm listening. Yeah, beautiful, beautiful. But then you said something else as well. You want to continue saving $1,000 a month in a high-yield savings account. Now, you already have $60,000 in savings, and your current monthly expenses are at the most $5,000 a month. You said your expenses range between $4,500 a month to $5,000 a month. So the $60,000 that you have in savings,

already represents 12 months' worth of expenses. Why do you need any more money in savings? You already have one year's worth of expenses in a savings account. I don't see any reason to keep any more money in cash savings, unless there is like a particular big ticket item that you want to buy in cash in the next year or two, but that does not seem to be the case. You talked about upgrading your home within the next three years, but you have a mortgage.

You're not a first-time home buyer. So you're not trying to save up for a first-time home buyer's down payment. And so I don't see any reason to keep building the cash coffers. That money, you know, the $60,000, the one year's worth of expenses, that's great. Hold that there. Beyond that, everything else can go into investments, not into cash. I hear a lot of different competing goals, which happens, by the way, especially for people starting late. I'm so excited that they're on this train.

They're on the saving train. But, you know, just the further you get into life, the more you have all these demands. You've all of these things. I mean, wanting to start a family, the house thing, the car thing, and the long-term savings all at the same time. Are you kidding? This is real life adulting, right? And I think what this demands is, and what I highly advocate is take out a piece of paper

and let's timeline out all these things and put them against each other. Because truly, I think, Carrie, what you need to know is how much. do each of these different goals demand. We talked about salesmen trying to talk to monthly payment. Let's be a salesperson for ourselves and talk ourselves into, well, my retirement goal has a monthly payment demand of X amount of money per month. And then I'm going to get that goal when you talk about retiring in your 50s. Same thing goes with the next car, not this car, but your next vehicle.

I love the idea of putting aside money for the next vehicle so you're not making the same decision. Then maybe you can even pay cash for it, let's say. So all these different goals that you have, I would put them on paper and then I would figure out what the monthly payment is on each of those and then take your existing budget, which it sounds like you really have a handle on. You talk a lot about we've got this much cash flow going here, this much cash flow going there. Then I think you're going to be very happy with where your cash flow goes because you're going to know that all of those goals in the timeline are covered. And I don't have to worry about the long. term, the long term is taking care of itself while my brain is fully focused on this growing

family that you've got coming on in the near future. Right. Exactly. It's an exciting time for them. Right. It is. And of course, your budget, your entire financial picture is going to change significantly when you start growing your family. Your expenses are going to change dramatically. And so a lot of these other goals that you're talking about may shift depending on how large that family is. I mean, you talked about growing your family, but is that one kid, is that three kids? That's all going to make a big difference in the way that these things play out.

But the good news is, you know, you've got, you're in your late 30s and you already have $200,000 in home equity. I mean, I would argue that you're not starting late. I know plenty of people in their late 30s who have never owned their first home yet. That's incredibly common. You're in your late 30s. You're already homeowners. And you have $200,000 in home equity. And you have $30,000 in an IRA.

And you max out your HSA accounts. And you have pension retirement plans. That to me does not sound like a late start at all. That to me sounds like an on-time start or perhaps even an early start. I mean, do you know how many people are 40, 45 years old and rent their primary residence and don't have much saved for retirement? And really only in their 40s start looking around and saying, well, what's this 401K thing? Maybe I should pay attention. Yeah, for people wondering, because it doesn't sound like Kerry has a lot of money in 401ks, the cash flow that that pension is going to produce represents a ton of money.

Carrie, I'd say congratulations because I don't think that you had a late start. I really don't. And the fact that you see it that way tells me that you have high expectations of yourself, which is great. People who are high achievers have high expectations of themselves. That's what motivates strong achievement. So I think it's great that you have set a high bar for yourself, but I also would want to congratulate you and encourage you to congratulate yourself on everything that you've built. This idea about being late in retirement savings, this idea is contagious because our next caller is Tim, who is 20. and describes himself as late on retirement savings.

Let's hear from Tim. Hi, Paula and Joe. My name is Tim. I'm 28 years old, and I have a question as it relates to a retirement savings plan for both high earnings and self-employment. For context, I will be marrying my fiancee in May of this year, so we will plan to file jointly for the 2024 tax year. She makes roughly 140,000 a year in W-2 income, and I make between 100,000 and 130,000 a year in self-flexia. employed income. We have minimal student loan debt, own our own cars, and rent for housing. Last year, we both maxed out Roth IRAs. My fiance contributed to her employer-sponsored Roth 401K,

and I contributed to my individual Roth 401K I have for my mental health therapy practice. We do not currently have access to HSAs. My question is, what use of retirement accounts accounting for tax treatment would be best for us? I'm not exactly sure what our income will be in retirement, but given our current income and anticipated withdraws in retirement, it would be lower than now, but not drastically, as we would like to continue our current lifestyle. This would support continuing contributions to Roth 401Ks, but I'm also interested in building out more of the tax triangle to prepare for future uncertainties. I'm just not sure if this is that year for us, or if we're ready to transition into that. Would you put our planned 15% of pre-tax income

into Roth 401Ks, or would you strike a balance and have my fiancee contribute to Roth and me to traditional to get some tax deductions now? If it helps in decision making, we're late to retirement savings due to years of low income and medical training. Last year would have been our biggest contribution year by far, but I'm wondering if contributing to Roth 401Ks is the move because we are still not close to funding our later years yet. We have no dependence and we can stomach a full tax bill given our expenses and lifestyle. However, extra tax savings could be helpful in saving for newer cars and a house in the next five years. It looks like we also will not be contributing to an IRA this year unless we reach a max on our 401ks because of income limits on Roth IRAs and

deduction limits on traditional IRAs in 2024. If you think this is a mistake, I would love to hear your feedback. You have both taught me so much about finances in your podcast, and I can't thank you enough. Bye. Tim, I'm thrilled to hear that we've both taught you a lot. Thank you so much for the question. I'm going to jump right in with my take, and Joe, I would love to know whether or not you agree, but I can give you my take very quickly. Oh, I disagree. Already I disagree. Totally 100% disagree. All right. Here's my take. It's super quick. Number one, if you are in your 20s, you do not get to describe yourself as late to retirement savings. Okay, I have to agree.

Damn it, I got to agree. And I think that it is wonderful that in the fire movement, we drill into people so much, like start early, start early, start early. You're 14. Why haven't you started yet? But if you are, and this is, Tim, this is not directed at you. This is everyone who's listening, repeat after me. If you're in your 20s, you don't get to describe yourself as late.

You could be 29 and 11 and a half months. And if you open a retirement account for the first time at that age, you are not late. So that's number one. Number two, put as much money into Roth accounts as possible. Max out every possible Roth option available to you. And then for the money that you cannot put into a Roth account, that money you can put into tax deductible accounts. or taxable brokerage accounts later, but first and foremost, put as much into a Roth as possible. And the reason for that is as follows.

Number one, by virtue of making Roth contributions, you are effectively making additional contributions above and beyond what you would put into a tax deductible account. And here's what I mean by that. So if the raw dollar amount is the same, right? If, just for the sake of using a round numbers in a simple example, the scenario A, you put $10,000 into a Roth. Scenario B, you put $10,000 into a tax deductible account. In both scenario A and B, you're putting the same raw dollar amount. We'll use $10,000, but the number does not matter. This would be equally true if it was $1.00. It would be equally true if it was $25,000. So long as the raw dollar amount contribution is equal, then what you are doing by virtue of making a Roth contribution is you are contributing more of your total compensation this year.

And because you are contributing more of your total compensation, you are in effect making a bigger contribution, even though the raw dollar amount is the same. And that's why it's advantageous to put as much money into a Roth as possible. Now, where this wouldn't be the case, there are some people out there in the world who will make an adjusted contribution to their Roth accounts that is equal to what their take-home pay would be if they had made a tax-deductible contribution, meaning the effect on their take-home pay. is the same, but the raw dollar contributions that go into the two accounts are different. Now, if that's the case, then you lose the advantage of the Roth. You do gain the advantage of having that tax triangle diversification, but you lose the special advantage that a Roth offers you in that a Roth effectively offers you the opportunity to make a bigger contribution than you otherwise would have or could have if you only use tax deductible accounts. So I said this is going to

a quick answer. Wow, if that was quick. But yes, for that reason, my answer is put as much money into a Roth as possible. And then for anything that you can't put into a Roth, then target the deductible. Oh, so annoying that I have to agree. So annoying, I have to agree. I don't like it. I don't like it, but I have to agree. But let me talk to this, Tim, because you reference the tax triangle, which is having money in different tax buckets for people that are new to the community, which is something I've advocated for a long time. And it is having some money that's pre-tax. That's one part of the triangle.

Money goes in pre-tax. And when it comes out, you're going to pay tax. That'll be like your pre-tax 401K, a traditional IRA that you wrote off, that kind of thing. And then you have the Roth IRA. We talked about life insurance earlier, universal life, where you can take money out of those policies tax-free. Roth IRA can take it up tax-free. Municipal bonds can the interest in many cases is tax-free. Most cases is tax-free. So you get this tax-free treatment. That's another tip of the triangle. The third tip is no special treatment at all. You just have, you don't have to worry about all

these shelters and about getting your hand slap because you hit the account at the wrong time and ended up getting a penalty from the IRS or from an insurance company or whatever. So those are the three different tax treatments. We mentioned that a lot. And Tim, I'm glad that you picked up on the fact that we mentioned that. It was a response to the fact of the huge number of people that used to put money only in pre-tax positions. And my whole tax triangle thing was like, whoa, whoa, wait a minute. Hold on. You're getting into this huge trap where now you're got to pay tax on all the money coming out. And what the tax triangle was meant to represent was flexibility. Tim, at 28 years you're already thinking about flexibility with the tax triangle.

I will tell you that's right if you're in your 40s or your 50s. If you're 28 years old, I think the supreme most flexible thing you can do is what Paula just said, which is putting money in that Roth, because that piece represents not a lot of great tech stuff today, but it's the best tax treatment ever tomorrow. And I agree with some of these people that think about this all day, every day. There's so many people out there that in a very nonpartisan way, just look at the way that the tax rate now versus the debt that the United States has. And for our people in the United States that are listening, we're going to have to raise tax rates. It's just math.

Something's going to have to change. While we don't know what's going to happen with your income in the future, we do know that tax rates will be most probably higher if we're ever going to solve the debt problem. if you're a U.S.-based investor. So for those of us in the USA, putting money in that Roth position makes even more sense, even though, to your point, Tim, you don't know what you're going to make in the future. So, Paul, I'm 100% with you. I don't know that the tax triangle applies as much as you're 28 years old, Roth, Roth, David Lee Roth, all the way to the bank.

Even if tax rates don't increase, even if tax rates were to stay the same, right? I mean, I think there's a low likelihood that they will significantly decrease. Yes. Right? Tax rates are already, historically speaking, quite low relative to what tax rates were back in the 1970s. Tax rates historically are relatively low. It's unlikely that they will decrease any further. So they are likely to either stay the same or go up.

And to your point, if it stays the same, it's already a good deal. Yeah. The Roth IRA is already a great deal. So without even having to look into the crystal ball, which both you and I hate doing, it's a good deal. But to your point, knowing that there's more leverage on the go-up side, there's more pressure on the go-up side than there is on the go-down side, the odds are even more in your favor, to quote the Hunger Games.

May the odds be ever in your favor. We have to go with the hunger game. For those of you playing bingo at home, Joe just filled in the hunger game square. Love it, Tim. Love it. Damn it, you're not starting late. Yeah, you know, the thing about, if you don't mind me taking a moment to be Grandma Paula over here. Let's do it, Grandma.

The thing about being in your 20s is that you're so young that you don't yet have the experience to realize how young you are. And so I remember when I was 24, I was like having a meltdown about turning 25 because I'm like 25. That's quarter life. And that rounds up to 30. And I can't go to college parties anymore because then I would be the 25 year old at the college party. Right. And so I remember thinking like, wow, I'm turning 25. That's so old.

And similarly, you know, there's that same experience around turning 30. You're like 30. That's unimaginable. But life is long. It's really long, right? I think that popular cliche of life is short. I mean, there's an element of truth to that, but it's also equally true that life is really freaking long,

if you're lucky. And in the grand scheme of things, if you're in your 20s or 30s or even your 40s, you're a baby. This past weekend, I was down in Arizona with a bunch of personal finance bloggers and podcasters. And Mr. Money Mustache, who is well known in the financial independence community, he and I were talking about this. And I said to him, I was like, you know, they say 40s is the old age of youth and 50s is the youth of old age. And he was like, maybe that's how it's.

used to be, but 50 is the new 40. So he said, you know, I think 50s is the old age of youth and 60s is the youth of old age. And I'm like, yeah, you know what? I can see that. It's changing. I can totally see that. Yeah, exactly. But I also wonder, this is what I wonder. I wonder if people like him and I get older, like we prefer to think of it that way. I prefer to think of it as the old age of youth because I'm still young and spry, right? So is it That or is it truly, is it truly changing? Well, I think two things are happening. One is there are advancements in medical technology and increases in lifespan, such that there are a lot of people who are listening to this podcast who are likely to live to the age of 100.

Hopefully both of us included. It is true that in aggregate, average life expectancy in the United States is actually decreasing, which is horrible, but true. But it's also true that life expectancy outcomes are increasingly K-shaped. And while in aggregate overall life expectancy is decreasing, largely due to the obesity epidemic, as well as fentanyl and other causes of early mortality, K-shaped life expectancy distributions means that there is a percentage of the population that will live. substantially longer than Betty White did, who died at 99. Yeah, it's a disturbing statistic, isn't it?

Right. Well, the disturbing piece is the difference between the haves and the have-nots. Correct. I look at the research from Ken Dykewald, Gail Sheehe, if you go back and look at those numbers, you know, people born maybe 15 years ago that will live to be 130 years old. And those numbers aren't being disproven anytime soon. but even the more recent research that for a segment of the population, it's way cheaper to eat in the center of the grocery store than it is around the edge of the grocery store.

And for that reason, we have to fill ourselves with things that are decreasing the life expectancy. And I find that highly disturbing. But for a portion of the population, if you're lucky enough to be able to eat around the edge of the grocery store, the healthier foods, then you're, then you're, You really need to deal with the biggest problem in financial planning land, which is longevity. Exactly. Exactly. There are going to be some wild retirement planning implications around. Tim could have 100 years to go.

Exactly. Exactly. And so that, to your point, is why 50 is the new 40 and 60 is the new 50, right? That is why among people who are healthy as they enter their 50s and their 60s, 50 is still youthful. 50 may be the old age of youth, but 50 is still youth. And 60 is the youth of old age, right? Because people in their 60s are running marathons.

That didn't used to happen, not in the numbers that it does today. People in their 60s are running marathons and they're deadlifting and they're squatting and they're benching. You want to hear something really cool? I take part in a local nonprofit. I love doing things in my hometown because I work online with people across the world every day. So it's really fun to get involved. And I'm part of this, this trail building effort called Partnership for the Pathway in Texarkana. Well, our biggest event, Paula, is a half marathon that we put on.

We had the half marathon as we record this just a couple weeks ago. A gentleman, I'm just going to call him out because he's a badass. Frank Bright. ran our half marathon this year, won the 60 and over division, and he's 80, Paula. He's 80 years old and he won the 60 and older division. Frank Bright from Shreveport, Louisiana, you are a badass. And by the way, just getting to meet this guy and everybody who knows him, he is not what we used to think about 20 years ago as an 80 year old.

He's a vibrant. He doesn't look 80. He doesn't act. What you think of is, quote, 80. this guy's out there doing stuff, taking part in the community. He's running half marathons. It's crazy. I love that.

So exactly what you're talking about, Frank, and bodies. And we're seeing more Franks show up all over the world. I couldn't even run a half marathon. My favorite text. I can't even run a 5K. My favorite text from you was when you had to run like two blocks and you're like, this is awful. Worst two blocks of my life. like, this is what you do for fun? What kind of sicko are you, Joe? I could hear you calling me

names as you're running like to get to the microphone on time. That was the best text ever. I should have kept it. At any rate. So, Tim, you are not starting late. And to everyone else who's listening, who's in their 20s or even your 30s, start now, of course, start investing for retirement today. But don't kick yourself about not having started prior to today because in your 20s and even in your 30s, you are still very, very young. Instead of bemoaning the fact that you didn't start earlier, which is where that comes from, I go back to Dr. Ellen Langley.

It's a useless emotion. Make the best out of what you did. And what you did was you called up the Afford Anything podcast and you're rolling. Like that truly is where you're at. And it's great. Make the most of that. So thank you, Tim, for the question. And the answer became a lot more philosophical than I had imagined it would be.

Including a long discussion on running. Right. It was a marathon of an answer. Even Frank Bright's like, how did I get in that answer? Where did I get to? Where did I come from? All right. Well, our final question today comes from a 40-year-old with four kids named Matthew.

Hi, Paula, Anjo. I'm hoping that I can get your insight on how I can manage a move across country. My wife and I are 40 years old with four children aged 10 through 3. I've comfortably reached Coastify and should be able to walk away from work in about 15 to 20 years without accounting for Social Security income or putting in more to our retirement accounts, although I still contribute. We've decided that our afford anything is to move from Florida to the Pacific Northwest. I'm an intensive care nurse and should be able to readily move jobs. As a rough goal, I hope to be making about $120,000 a year after the move. We have $10,000 in cash on hand and should be getting another $7,000 back on our income tax return. I have three monthly loan payments,

a $500 a month payment at 5% with $20,000 outstanding, a $600 month payment at 6% with $25,000, thousand dollars outstanding and the two hundred dollar month payment with six thousand outstanding at zero point nine percent if we can find a home close enough to work i'll be able to sell my current car and get rid of the six hundred dollar debt payment our target area is the suburbs of portland oregon rentals would likely cost us around two thousand five hundred dollars a month purchasing a home that would just meet our family's needs would be around four hundred and twenty five hundred and five hundred dollars or more for one that we would just meet our families needs would be around four hundred and twenty five hundred dollars or more for one that we feel would really make everyone in the family happy. I should be able to purchase a home using a VA loan with little down and below market rates of about 6.5%. Real estate websites estimate that our home is worth $400,000 and we owe another $170,000 on our mortgage at 3.5% with $1,400 monthly payments. By those same websites and neighborhood comparables, we estimate that we could rent it out for as much as $2,700 a month. To paraphrase the old saying about when is the best high

to invest? The best time for us to have moved was 2019. The second best time for us to move is now. How can I make this happen? Should we rent our current house or sell it outright? We are committed to living at least two years at our next location. But if we sell, I'm very concerned that we will be priced out of ever returning to Florida. We very much prefer to own the house that we live in. Though if we have to rent for the first year or two, I would be willing. Thank you for any insight that you have. Matthew, thank you for the question. And I love the goal. Congrats on having a vision and being committed to pursuing that vision.

That is the afford anything ethos. So I love what you're doing. To jump right into the answer to your question, I love the idea of holding on to your home in Florida for a couple of reasons. Number one, you're committed to living in Portland, Oregon for at least two years. You do not know what you're going to do after two years. You may return to Florida. If you want to return to Florida in two years' time, it makes sense to hold on to the home just for that reason alone. The transaction cost of buying and selling a piece of real estate is enormous.

And the fact that you are going to be away from a given piece of real estate for only two years is functionally an extended vacation. You don't sell your home for an extended vacation. So if you're going to go to Portland to spend two years there and then potentially come back, hold on to it so that you don't have to bear the transaction costs of selling this home and buying another one. Now, in addition to that, and obviously I don't think that people as a general rule should base their life decisions around interest rates. But it is true that the home that you have in Florida has a mortgage at a 3.5% interest rate. and that is not an interest rate that you are likely to ever recoup at any point in the near future. Now, I do not, and this is, I'm saying this for the sake of everyone listening, I do not advocate the tail wagging, the dog. Do not make major life decisions based on interest rates alone.

But Matthew, in your particular case, there's a reasonable likelihood that you are coming back to Florida two years from now regardless. And so holding on to a home that has a three and a half percent interest rate makes even, more sense. And again, I want to give the disclaimer, if you had left a voicemail that said, we're never, ever, ever, to paraphrase Taylor Swift, we are never, ever, ever getting back together, right? If you had left a voicemail that said we are never, ever, ever going back to Florida. And also, we hate the idea of being landlords. Should we hold on? You know, in that case, yeah, sell the home, get rid of the three and a half percent interest rate, right? If you neither want to go back to Florida, nor want to be an out-of-state landlord. Sure, right? That's where

life decisions say this home is no longer a fit. But in your case, that's not your situation. In your case, you may move right back into that home in not that long, two years goes by in a flash, right? So in not that long of a time period from now, you may move right back into that home. Don't give it up. I don't disagree with any of that. I think that the thing that, three and a half percent interest rate is compelling. I also think, Paul, I want to play a different game, not for him, but for everyone else in the community. Often we'll see people sell this house. And in this particular environment, I think there's a big opportunity you're missing when you do that. You know, we talk a lot. We talk in the real estate game about seller financing. This would even

be an opportunity to say that he didn't think he was coming back. I guess it would be an opportunity. You have to look at how your mortgage is structured. But if you did a seller financing deal with somebody to buy that house and gave them a current interest rate of 7%, 7.5%. If they can't get a conventional loan and they need a loan through you, you can really work, I think, that distant. There could be some arbitrage here. So let's say he didn't want to be a landlord. He didn't think he was coming back. I would explore that option, a seller financing option where I will sell it to them. I will use the money. You pay me. to make my mortgage on the property as I'm selling the property to you on a sort of a land

contract kind of basis. Once again, you're going to have to work on how does that really work. But I think this is a weird time where a lot of people listening could go down that road if they're making the move and not coming back. Right, right. Now, he mentioned that he can also access a VA loan with a small down payment and a below market interest rate. And so that would be a great option for a home in Portland if you were to choose to buy one.

But I think it's a great idea to spend at least for the first six months that you're in Portland. At least. Rent for the first six months. See whether or not you like living in Portland. See if the reality of living there matches up to your expectations or matches up to your imagination, right? Because there's going to be a difference between what you think living in Portland is like versus what it's actually like. Well, and even if it is great, Paula, how many times have you moved to a town and your expectation of this is the area of town I want to live in? Right.

And then you realize six months later, like, oh, wait a minute. There's this other area. I really like better that didn't even know existed. Yeah. I love. I love that. I think it's the biggest mistake people make is moving to a new city and just arbitrarily buying right away. Yeah.

Yeah. because that cost, the upfront cost of buying real estate is so high that, you know, it's really difficult to undo. So it's much better to use the flexibility of at least six months to rent. Right, right. Exactly. So yeah, when you move to Portland, rent for a minimum of six months, maybe even a year, get to know the place, have an idea of what you want. And then use the VA loan to buy a place in Portland. And then you can have two places, maintain the place in Florida, have a new place in Portland, collect rental income. come on whichever one you're not living in at the moment. Enjoy below market rate,

interest rates on both. I think in Portland it's all about knowing which of the coffee shops you want to live close to, right? Isn't it? I'm sure there's a variety of factors, but that may be one of them. Yeah, I think that's a big one. I know there's a lot of home team people. People get really passionate about their coffee in Portland, which is always one of my favorite things about going to Portland is trying out the different coffee shops because there's some awesome coffee shops in Portland. And then you go down to the Columbia Valley and you see all those waterfalls or over to Lammett Valley and try out all the great wines. Right.

Joe, it sounds like you're going on a food tour. Okay, I'm moving with you. I'm moving with you. I know. It's not you and your family, just your kids. You're going to need an extra bedroom for me because I'll go there with you. you. I have this love affair with the Pacific Northwest, too. I'm glad my son lives in Seattle for that reason. Seattle's a great. If I ever lived on the West Coast, I would live in Seattle. So, so fun. Well, and Matthew, going back to some of the other numbers that were in your question, you know, you are hoping to make $120,000 annually after the move. You've got 10 grand saved in cash. I'd like to see that number get boosted a little bit. You mentioned that you're getting an income

tax return that should give you another 7,000 back. I'd like to see you add that to the cash coffers. And the more that you can boost the cash savings, the better. Beyond that, the debts that you have sound totally reasonable. I mean, one of your debts has a 0.9% interest rate. So only make the minimum payments on that. There's no reason to accelerate paying that one off. The other two debts have a 5% interest rate and a 6% interest rate. Both of those are not onerous. And as you said, you could potentially sell your current car and get rid of the debt that has a 6% interest rate with a $600 per month payment. So if you can do that, even better. But generally speaking, the numbers that you laid out sounds healthy.

It sounds good. I just like to see you boost your cash coffers a bit. And ideally, if possible, sell that current car to get rid of that car payment. And beyond that, you're Coast FI and you're about to start collecting some rental income from your place in Florida. So that will, at a minimum, allow you to continue growing equity in your Florida home, even as you and your family go off on this adventure in Oregon. Bam. Yeah. Congrats.

And thank you for the question. All right, Joe, we did it again. I love these questions this week. I love the questions on all the episodes, but I especially love these. A little more philosophical. You know, there's a lot of people experiencing some pretty big life changes this week. And I think for a lot of us, it's just making sure we've got some of the numbers figured out so we can get behind these big life choices that we're trying to make. Right.

Exactly. The heart of financial planning is truly life planning. That is for me the fun. I mean, the math, I know there's lots of people that get into the math. I love the math as the means to an end. Joe, where can people find you if they would like to hear more of you? You can find me Monday, Wednesday, Friday on the Stacking Benjamin show, often on Friday with our good friend Paula Pant, who is amazing at trivia.

Not. She's amazing in so many ways, except for our trivia question. And, you know, like. here we I really enjoy talking to very smart people about the philosophies behind money and we've got a couple great interviews paula that are that are coming up on the show we're going to be speaking with uh former uh Pepsi CEO grace puma and the former uh Nike president of consumer direct uh christiana smith she about um about really having a better existence at work you know a lot a lot of lot of us want to love our work. We want to do great things at work. So two people who kind of

know what they're doing talking about better work. And then also noted investor Peter Malook, Peter Malook, who a long time was affiliated with Tony Robbins. And so Peter Malook, who's done phenomenal things with money, going to talk about great money management and really having a great mindset with money coming on the show. So three great mentors, Paula, coming up on stacking measurements. Oh, that's wonderful. Thank you all for tuning into the show.

If you enjoyed today's episode, please share it with a friend or a family member. It's a single most important thing you can do to spread the message of good financial health. Please subscribe to our show notes, afford anything.com slash show notes, so you can get updates of new episodes along with timestamps of all these questions.

And please chat with other members of the community at afford anything.com slash community. Thank you again for tuning in. My name is Paula Pant. I'm Joe Salci. Hi. And we will catch you in the next episode.