BiggerPockets Money Podcast - 106: Planning For Your Future Wealth with Megan Gorman from The Wealth Intersection

Episode Date: January 6, 2020

Megan Gorman started learning about money very early – at age 5 she begged her parents for a Little House on the Prairie Dress. Her parents said we’re not buying it for you, but you can save up for it yourself. 18 months later, she was the proud owner of a new dress – and a bonus bonnet from her parents who were so proud of her for saving up and being so determined. Fast forward to high school, and she got a job at a vacation resort during the summer high season. Her father made it clear she was to save some of her earnings to contribute to her college tuition, and she was able to save $5,000 a summer. Her experiences with money were empowering up through college, but she ended up with credit card debt and eventually had to negotiate with the banks on a payoff. She took a year off between college and law school, choosing a state law school to keep her costs low. Megan graduated from law school, got a job, and had to navigate adulting – getting an apartment, buying a work wardrobe, starting her adult life on very little funds, again trying to not incur more debt after having so recently paid off her credit cards.  Megan’s student loan story is different from others we’ve heard on the Money podcast – while she aggressively paid down her private loans, Megan actively chooses NOT to pay off her public loans because they have such a low interest rate. She feels she can make a better return in the S&P 500, so she leverages her debt and is comfortable with her decision. However, Megan readily admits this strategy is NOT for everyone, and you definitely need to be comfortable with the decision to continue to carry debt. Once her private debt was paid off, she started investing in a Roth IRA and 401k to grow her assets. And because she’s from Generation X, Megan bought a house when she got a HUGE promotion. She watched the value of her home soar, then sold to move to California. She bought in 2007 in CA, and watched that price drop, then rise again. Location location location. Megan now advises high net worth and ultra-high net worth individuals manage their money, because no matter how much money you make, everyone struggles with expenses. And today, Megan shares excellent advice with us for strategically thinking about our money for the present as well as planning for the future. In This Episode We Cover: Megan's journey with money The best way to raise kids How her money story evolved during her high school and college days Her debt planning Interest rate she recommends for those paying off debts The best approach to taxes The first big thing she did when she started making money Her real estate beliefs Helping older parents Planning her own financial future What a position capable of taking risks looks like Her take on high net worth individuals Cash flow management Her opinion on the 4% rule And SO much more! Links from the Show BiggerPockets Real Estate Podcast BiggerPockets Intentional Journal BiggerPockets Money Facebook Group BiggerPockets Money Survey Check the full show notes here: https://www.biggerpockets.com/moneyshow106 Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to the Bigger Pockets Money podcast show number 106, where we interview Megan Gorman from the wealth intersection and get her story of financial independence. So what you're sort of hearing from me is be reasonable on return assumptions, but be aggressive on inflation assumptions and really focus on your spend, because that, regardless of what asset base you have, those three things drive success. Hello, hello, hello. My name is Mindy Jensen and with me as always is my wonderful co-host Scott Trench. Scott and I are here to make financial independence less scary, less just for somebody else, and show you that by following the proven steps, you can put yourself on the road to early

financial freedom and get money out of the way so you can lead your best life. That's right. Wherever you are in your financial or life journey, you can begin rapidly moving towards a position capable of generating a great income, saving a huge percentage of that income, and setting yourself up to make larger and larger investments on your way to financial freedom. So whether you want to retire early and travel the world, go on to make big-time investments in assets like real estate or start your own business will help you build a position capable of launching yourself towards your dreams. Okay, today, Scott, I want to wish you a happy new year. It is January 6th, or that's the day that it's being released.

And it is not only a happy new year, it is a happy new decade. Absolutely, yeah. And this is a big time for goals. As you guys probably know, I'm a big goal setter. I start a new journal every single new year. I relaunched my goals. I revisit my five-year plan, all that kind of good stuff. So definitely encourage you to go out and do that.

And I'll do a little shameless plug for our intention journal, which if you're looking for just a physical thing to do that, you can use the intention journal. Or you can use the free fire starter and goal tracker on bigger pockets if you just sign up and create a free membership. You want to do that online. You can also do it on a piece of paper, right? But just go out and do it somehow, however it works best for you,

and set some goals and tackle them this year. Yes, and we have a new Facebook group. If you go to facebook.com slash groups slash BP money, you can request to join. Please answer the questions so we know that you're a real person and not some random robot just trying to jump into our group. And we also have a survey that we would like for you to take. We've been asking this the last couple of weeks. This is the last time we're going to ask about this.

But we just want to make a show that covers all the topics that you. you want to listen to. We want to make the show that you want to hear. So if you could give us five minutes of your time and go to biggerpockets.com slash money survey, that is going to help us out a lot. And without further ado, Scott, let's get into today's show. We have Megan Gorman from the wealth intersection. And she is amazing. She is unbelievably qualified to talk about money. She is a former, or she is attorney. She's a, she was a congressional page. She used to teach financial planning or head of financial planning at Goldman Sachs, where she talked about taxes and just finance is her life. And she comes in today to share some really great information with us. Yeah, she was an outstanding

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when you sign up for a free 30-day trial at audible.com slash BP Money. Megan Gorman from The Wealth Intersection, welcome to the Bigger Pockets Money podcast and happy New Year. Happy New Year, Mindy and Scott. I'm thrilled to be here. I'm so excited to have you. I met you on an episode of Kirk Chisholm's podcast, and you just, wow, you were really,

really, really, really knowledgeable about money. And then I went into your About Me page, and I see that Megan Gorman is the founding partner of Checkers Financial Management. She's also an attorney, a former congressional page, a former VP of Financial Counseling for Goldman Sachs where he worked on tax planning and estate planning. So this show is being listened to by a variety of people. Our loyal listeners, and thank you so much for coming back, loyal listeners, are on their path to financial independence. But we're also, releasing this the beginning of January, and a lot of people are thinking to themselves, it's a new year, I want to get my finances in order, I want to fix my financial life,

so I too can be on the path to financial independence and live the best life that I want to live. So Megan, let's see if you're qualified to talk about money. Let's try. Where does your journey with money begin? So, first of all, I love the idea of money stories. And my early interactions with money really started when I was about five. And so I'm going to date myself a little bit, but I was five in probably 1981. And I was obsessed with the little house on the prairie books. And I lived in a town that had a country store. And in the country store, they sold little prairie dresses that you could wear as a five-year-old. And I remember we went in the store and the dress was $25. And in 1981, $25 was a lot of money.

It's still a lot of money today, but it was a lot of money then. And for a five-year-old, it was an incredibly large sum of money. And I remember my mother looked at it and she was like, look, you're not really going to wear this. You know, it's just going to be a waste of money. No. And I was very persistent. I was like, no, no, no, I really want this dress. So, you know, when you're five, you really don't have that many money-making opportunities.

So my parents said, look, if you save your birthday money, If you do chores around the house, like cleaning out the dishwasher, you know, putting the water, setting the table, putting water on the table for dinner, we'll pay you for these chores. You can save your birthday money, your Christmas money. And then if you still want the dress, you can go buy it. So over the course of about 18 months, I saved my pennies, literally pennies, because I think my parents pay me like, you know, 10 cents to clean out the dishwasher. You know, we had a whole chart. and I got the $25. You know, I had some birthday money too.

And I remember going down to the country store and going in and buying the dress. And my parents, I think we're so happy that I did this that they ended up buying me the bonnet that went with it. And I got to tell you, I got my money's worth at that $25 dress because I dressed up and played as Laura Ingalls Wilder for years. So it was a great money story. I'll tell you one thing that's interesting. When I met my husband, I asked him his money story, right? Just sort of curious. And he had the exact same story, except he wanted, he's a little older than me, so it was

like 1970. He wanted a 10-speed bike. And he did chores and worked at his dad's store to raise the money. So I always found it was sort of interesting that we found each other with very similar money stories. That's really interesting. I also had a little house on the prairie bonnet because- know what I'm talking about. Yes, I was fascinated with the show. So from a very early age,

it sounds like your parents were not giving you everything that you wanted, which is really the best way to raise kids, in my opinion, because when you give them what they want, they don't appreciate it. If your mom would have bought that dress for you, would you have appreciated as much? Probably not at the level that I did. And look, I mean, it was different times back then, and I grew up in a very small town that was not, you know, most people were middle class. So it was not uncommon for people to be told no, we can't afford this and so on. It was a very common childhood experience with my peers as well. It wasn't like my parents were telling me no and everybody else around me was getting great toys.

Yeah, let me tell you. As a mom now, it's really hard to say no because everybody else is getting everything. I've got a 12-year-old and she's constantly asking for a phone. I'm like, I don't want to buy you a phone. I want a phone, mom, when am I going to get a phone? I don't know, when you can buy it yourself. It's really hard. It's hard to have these boundaries and know what's right, you know, because you're trying

to figure out what's the right values for yourself, for your child, and then you've got community around you. So it's a tough thing as a parent. Yeah, it is. How did your kind of money story evolve over the next couple of years in high school and college? Well, you know, it's interesting. So I grew up in a beach town in southern New Jersey. So I literally, my hometown is the southernmost tip of,

New Jersey. It's called Cape May. And when I was a kid growing up, Cape May had a three-month economy. So think about that because it was a Victorian vacation resort. Now, today it has about a nine to 10-month economy. But what was very common was for us when we were kids to, when we finally got our working papers to become bussers at restaurants and work your way up to, you know, waitressing. And so for me, when I got to the point where I could start busing and then waitressing, my dad, made it a requirement that I had to be able to contribute a certain amount of money to my college education every year. And, you know, at a vacation resort where you're making a couple hundred dollars a night as a waitress, I could save up about five grand a summer. So, you know, for me,

I have always correlated working really hard with making money. And I've always liked the fact that I have that power to do it. Now, to be very honest, when I got to college, I have a lot. I had learned how to make money, I didn't know how to manage money. And when I started college in 1994, I remember getting to my dorm room and I got all these credit card applications. And you're like a kid in the candy shop because you're like, wow, they're offering me money. And I applied for credit cards. And unfortunately, I created a huge credit card debt. And I did not have cash flow to manage it. And so eventually, I had to do payoffs with the credit card companies. And it was a really hard experience to go through because up until that point, I found money very empowering and how I

interacted with money. And this was sort of a shameful moment. And, you know, I think today what I find and when you read about people in their money stories, my experience was actually quite common. But I always sort of learned from that experience, which was I always want to make sure that I didn't spend more than I had. And so that sort of led me to a path with money. Because even though I'm a lawyer, I was attracted to tax law. And out of the gate, I worked for a subsidiary of Goldman Sachs, where money was a very key component of what I did on an everyday basis. So what was your kind of position upon graduating college?

Did that struggle to pay off the credit card debt come before, during, or after your graduation? It came right before. And so I did the payoffs with the company. I worked a little that summer to help finish paying that off. And then, you know, I got rid of the credit card debt. but I am in that last group of people that came out with some student loan debt, but I was able to defer my student loan debt. And I actually took a year off between college and law school before I went to law school.

And I actually ended up picking a state university to go to law school to manage my student loan debt effectively. So that lesson in college taught me a lot for when I was in law school. And then when I got out of law school, because when I graduated law school, I had about, I think with gifts that I got from people, I had two thousand, in my bank account. And I had to figure out how to get an apartment in North Jersey, get a car, buy a work wardrobe. Because back when I started work, you had to wear full suits. You know, today we're much more business casual, but 18 years ago, it was a different story. So it was a lot

of struggling and sacrificing. I mean, when I look back at my 20s, I'm always like, gosh, you know, women today, they dress so nicely and they have the nice purses. And I was just really struggling to get by. But you were struggling to get by because you didn't want to incur additional debt. Is that fair? Correct. I didn't want to incur additional debt. And also my student loans when I graduated law school started to have to be paid. And I had a very limited salary. And I had to make it work. And at that point in time, I was living in Hoboken, New Jersey, which is one of the more expensive metro areas. And I think coming out of law school, you know, I mean, I think when I think back to my salary, I think I was making close to $50,000, but with student loan debt, with paying rent,

with getting a car, you know, it ate into it very, very quickly. What was your student loan debt when you graduated from law school? So my student loan debt was about $85,000. So what's interesting is, as I said, on that last group that came out, I graduated law school in 2002. And one of the reasons I went to Rutgers Law is the tuition when I was there was 10 grand a year for law school. In comparison, like Cornell law, where my brother went was like 35 to 40,000. So I was getting a deal. But when I graduated law school, I'm the last group that was able to really

consolidate their student loan debt at a very low rate. So what I did is with my private loans, I aggressively paid them off within three years of graduating law school. But with my public debt, I refinanced them, and I have not paid it off. I still have, I think, $60,000. of student loan debt, but I pay an interest rate of 3%. And so my payments, I mean, they're very, very low. They're less than $500 a month. And so I look at it a little bit differently, and this is one path. I don't think it's the right path for everybody,

but I always look at it as these loans, because they're public loans, at my death, they go away. My spouse does not inherit them. And I think I can make more money in the S&P 500. So I have made a strategic choice to leverage my debt. But I only made that strategic choice after I paid off my private loan debt, which was much more expensive. So there's a lot of nuance, I think, to debt planning. And I feel very comfortable with the debt planning I have. When did you begin making that conscious decision? Or what kind of like in your journey with money after graduation from law school? Was that like,

oh, I'm planning it out from the beginning because I'm good with this right away and I have a clear plan? Or did that evolve over time. It evolved. So a little bit of backstarted how I got into money is when I was in law school, I had to take a tax course. It was a prerequisite at the time. It isn't today for my law school. And I got to tax and it clicked for me. And that opened doors in employers for me because I looked at companies like Price Waterhouse. I looked at companies like Ernst & Young. I looked at companies like Goldman Sacks. And what drew me to Goldman Sachs out of all of them was I was like, well, look, even if it only lasts for a year or two, I'll learn about money. And I don't know anything about money.

So once I started working there and understanding my budget and the fact of how the S&P performs and investing, I embraced investing and had a lot of comfort with it. I knew I had to get rid of the expensive debt, but the cheap debt, I was like, well, look, I'm not going to rush out and do it, pay it off because, one, I can't afford to. And two, you know, at that point in time, I was so desperate to try to fund my Roth IRA and fund a 401K. I really wanted to have actual assets. makes sense to me. Is there an interest rate that you recommend people do start paying off?

You're at 3%. And I am on your side. I think that a 3% loan is like practically free. I am even older than you are. And I remember mortgage rates when they were 14%. And like that's unheard of now. Nobody understands that we've got these ridiculously low rates. I would rather like you not pay off that 3% and put more money in the stock market.

But is there like a threshold where you recommend that they start being paid off? You know, the thing is I think there's a lot of nuance to it. So one, you know, you've got to think about are you able to deduct your student loan debt, right? Your student loan interest. Now, there's an AGI phase out on that. So I think for a lot of people, there are still tax benefits. So, you know, and this goes to some of the things that I really truly believe from a personal finance perspective, which is to really be financially independent and be financially savvy, you have to have

active tax engagement. And so, you know, one of the things I would tell people is when you look at your student loan debt, talk to your tax person. Are you getting any tax benefits from it? Because you might, particularly for young people starting out, there is that student loan deduction. But I would tell you probably I would get nervous with student loan interest rates when they start crossing about 5%. You know, when I build out my portfolio personally, I'm targeting on an annualized basis about six to six and a half percent annualized return. So for me to win in the S&P, you know, over the long term, five would be sort of where I would start to get apprehensive about it. And then the other thing I would tell people is I really did some studies on looking into

my dispositive provisions of my debt, like what would happen when I died? Because I wouldn't want that to be a burden on my family. And I figured out really early on the private debt, my family or my spouse was going to have to deal with it if I passed away based on the loans that I had at the time. That's really interesting. So I think it's something, we, let's do the loan process, not to get on my soapbox. It's so convoluted. And I've had to go through it.

I don't have children. So I'm sort of someone without any skin in the game in this sense, but I've had to go through it with family members, with family friends. And there's no counseling in the beginning of what choices you're making. You know, and when I sat with family members and ran out, numbers for them to make them understand what the repayments would look like. It was really eye-opening for that. And I think we don't, unfortunately, the system doesn't do enough to get you counseling on your way in. And that's, that's a challenge, I think, for most Americans. No, I love it. So you're coming

out of law school with $85,000 in debt and a $50,000 income, and you're thinking, how do I, you know, over a period of a year, a couple years, it sounds like you're evolving this process. And you're saying, how do I acquire assets, assets, assets, and then evolving, be the thing from there. How does your career and wealth progress in that time frame? So one of the things I did, and honestly, I think everyone needs to do it when they're going into colleges, I always knew that making money was important to me. I don't think it's shallow to say that. I always knew I wanted to have a big career, a big job. And I knew that if I invested in my education, it would reap rewards. So I always knew by taking on debt, I would eventually be able to

build the asset base to sustain and manage the debt. And so that was something that was always in the back of my mind. So what I challenge people on, and I do this, and I work with high net worth individuals on a day-to-day basis, but when I sit down with their kids, because a lot of times what we'll do is we'll sit down with my client's child with their 529 plan and we'll show them some of the various schools they want to apply to to see how far the 529 money will go. When it sounds, when it looks like that they won't have enough in the 529 to cover the education. we start to talk about career choices. What is the career trajectory? How does one make money in that career path? And based on that, how do you take that back to your financial decision making

on taking on student loan debt and using your 529s? And I think I came to that conclusion because I did a lot of that with my own process. I knew my 20s. My 20s were going to be about struggle financially, and I knew that. And it was funny because literally when I turned 30, I got a very large salary increase in a promotion that started to change everything for me financially, where I didn't have to budget every last dollar. I could do different things with my money. Well, can you walk us through kind of what that looked like in the workplace then from a career standpoint? What did you do to put yourself in position to get that huge promotion and career boost? Worked a lot. You know, some of it is just getting in there, finding a career path that you're good at, and really learning all aspects of it. And, you know,

at the time I was in my 20s, the gentleman I worked for at the time, I'd be like, I'm ready to take on clients. I've been working for you for three years. I want to take on clients and he would slow me down and say, no, try to gain more experience. It will help you in the long run. And it was frustrating because I was struggling running paycheck to paycheck. And ultimately what he said was right, because by the time I started to take on clients and work directly with clients and have my own book of clients, I had a lot of experience that propelled me quite quickly in growing my income and growing my asset base. And I got to tell you, I always think with financial success, a lot of struggle is a good thing. You know, having the ability to have to say, oh, I really,

like, I remember living in Hoboken and wanting to go out in New York City and only having enough money to pay for my path ticket. I was almost going to say the Bart, which is San Francisco, go my path ticket and a cocktail. And that was all I had. Like I could not go out and, you know, go from club to club when you're in your 20s because I only had a limited amount of money. And so I feel I have a lot more appreciation today because I struggled so much in my 20s. What was kind of the relative size of this increase was in pay and compensation? Yeah, I mean, I've moved into six figures. So that made a very big difference. And for me, the biggest accomplishment was when I could finally max out my 401.

That was a huge goal for me. And even today, you know, I'm fortunate. I get to max out my 401k and my IRA. I'm no longer able to do the Roth, but it's such a big deal to be able to put, you know, for 2019, it was 25,000. But if you think about it, 25,000 over a decade, it's quarter of a million dollars. And to me, that feels like such an accomplishment. And I tell people that all the time because I work with really wealthy individuals. And people think the wealthy have it easy. It's the same problems. We all deal with the same issues. What they are able to do is do more of the piecing together of all the small savings that makes it seem big. And that's sort of the secret I've learned over the years. So is that what the surplus all went to maxing out the 401k and other assets? Or how did your kind of pieceing together of assets change after your income changed? Yeah. So first of all, I'm a total gen Xer. So what is the first big thing I did when I started to make money? I bought a house.

And I bought a place in Hoboken. So I would always tell people, you know, I love real estate. I have a lot of comfort with real estate, but it's all about location, location, location, because I ended up taking advantage of the first-time home buyer roles, which is, you know, you could put 3% down on a house. Now you have to take on PMI and so on. But I got into a place in Hoboken that had a parking spot. And as anyone can tell you in some of these cities, parking spots are where the real value

in a property is. And I basically was cash poor with the house. This is right before I got the big promotion. And unbeknownst to me, I doubled my money in the house in about three years. And that was a big eye-opener because I was able to scrimp and save to get the house and have myself propel forward. And that has helped me buy houses since then. We're getting awfully close to 2008, 2009 in this timeline. What year did you buy your house?

So actually, I bought the house in 2004, sold it in 2007. and then I bought a house in California in 2007. So I did go through the downturn. I did watch my house drop in value. And this is really important. I'm playing the long game, right? And I didn't have the money in 2008, but I was advising very wealthy individuals in 2008.

And what did I do at that point is I said, well, if I had my clients money, what would I do? I'd be buying. And I had more clients buy second homes in late 2008, early 2009 than any other point in my career because they had the opportunity to do it. And so, you know, the thing that I did in 08 and 09 is I was able to buy, you know, by the S&P. I actually have it in my Roth IRA and I like to look at it every month's not because I can see the actual return on it from the piece that I bought. And I actually bought, I bought in my Roth IRA on March,

I think it was like March 12, 2009 and the market had bottomed on the ninth. It was just accidental, but I'm very proud of the fact that I did buy at the bottom. And I had a lot of clients do that. And some of my clients didn't want to do anything. And then I had other clients that plowed a lot of cash into the market and they were rewarded for taking on that risk. And so a lot of the work I'm doing right now with clients and granted, I'm dealing with the high net worth space, but I think this is true for everyone is, you know, a lot of the economists see a recession coming. And so today it's about batting down the hatches, you know, making sure you're out of allocations working well that you're at the right fixed income target. But it's also about thinking about,

okay, if we have a pullback and your fixed income allocation gets larger, where do you want to deploy to? Is this the time to take cash and buy a house, to buy a second home, to buy a rental property? Is it to deploy back into equities? This is about, you know, for those of us who live through 08, it's really important to remember the experience and learn from it on how we can try to take advantage of when market valuations come down. I think these are awesome points. With respect to your journey with buying the house, did you start buying other rental property? Like, what was your overall asset allocation? You were putting money into the S&P 500 on a regular basis? Yeah. And then buying houses after you sold your Hoboken property. Yeah, I bought a property. How to that journey go. Yeah.

Yeah. So I have a big belief in real estate that I like to own in nice locations. I believe that any time there is is a chance that the, you know, if you buy in a good location, even when the market drops, you have a good chance of coming back. So I was very fortunate. I ended up being able to buy in on the beach in Southern California. I bought the worst house on the best street. So I literally, and I still own the house today, it is the tiniest house on the best street, but it has actually increased in value. And so that's what I look for in terms of owning real estate is location, because I do believe that in certain places, they're not making any land, more land, right?

So, you know, today I own four properties in very different locations, but all of them are in locations that I believe over the long term will sustain themselves. Got it. And so, first of all, where are these properties? Are they places that you lived

or are they kind of like... Yeah, so they are in Southern California, in the Bay Area, in Lake Tahoe. and then I have a family member living in a house in the East Coast that I own, which I think is more common than people realize, particularly being a member of the sandwich generation. As we go through the pension crisis, and what I say, the pension crisis, meaning the elimination from the pension from the American financial system, I think more and more of us have to take steps to help family members, particularly older family members, live in their houses. And so that was sort of one of the

things I had to make a decision on. And I think, it's funny, as I talk to more people in their 40s and 50s and 60s, a lot of us have taken those steps to help family members. I think it's an interesting perspective that will probably apply to a lot of people who are listening to the show, especially if you kind of start putting away money and that kind of stuff, you're going to have this power and this ability to help others. And, you know, that's got to be something that's on the radar in terms of how you're planning and thinking. Just think about most people, sorry to interrupt, but most people, but most people, can afford the monthly payments. It's getting them in a property or helping them subsidize the monthly payments. And with interest rates so low, you know, when you think about helping older family

members like your parents, right, you can send checks home, right? But doing some things where maybe you can pick up appreciation on an asset over the long term is something that to sort of factor into your decision making. It's not the right choice for everybody. But when we're faced with these decisions, particularly in working with our parents, I try to encourage people to be strategic and not tactical. And what I mean by that is most people when they're handling issues from the generation that are above them, they're making decisions to sort of stop a crisis in a moment, right? To sort of, you know, fill in a little gap to make it try to work. And I think it's good to take a step back and think strategically, which is, look, when you, because we're all living

so longer, money is intergenerational. If one person is financially successful, but the generation above them or below them or not, that's going to pull on the person. person in the middle. And vice versa, right? If the person above you is financially successful and you're struggling, you've got to work together. It's an intertwined web. And so I think when you think about working with the different generations in your family, try to be strategic because you want to also take some benefit from it as well, because sometimes it's the use of your capital. I think it's great. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, and

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I imagine you have passive income. You have an incredible career, all this kind of stuff. What was the point at which you maybe crossed the hump? You know, it seems like an income. It happened in your 30s. But when you said, hey, my asset position is going to snowball from here. Yeah. So, I mean, I'm aware.

or you're by nature. So you never fully feel that you are at a point where you're in a great situation because you're dealing with things both big picture and then the day to day. But I would say probably around 36, 37 years old. Because of how my career grew, I was able to do that. Now, I will tell you what I have gotten more comfortable with as my asset basis stabilized is taking on risk. I'm far more comfortable to be, you know, when I look at my investment portfolio, I'm pretty aggressive. You know, there's a lot of writing out there, particularly in personal finance, that women are not aggressive investors. You know, I find that women, if encouraged, can be great, really aggressive investors, but it's about getting comfortable with the risk.

But I also then started to get into more complicated investments. So I do, you know, I've been very fortunate. I get to do some private equity. I do some angel investing. And then at the same time, I was able to take some of my savings and I started my own personal firm. So I wanted to make sure that in having my own business, I always owned my own business. But these were things I felt long and hard about and took risks on. And I will tell you, I don't have children.

So that also changes the dynamic because I'm taking risk that impacts me and my husband, but I'm not funding 520. Well, I do help fund 529 plans for nieces and nephews, but I do not have an education obligation to be worried about. What is a position capable of taking on risks like what you just described look like to you? So look, when I start working with clients, I always want them to follow the traditional rules of cash flow management. So I like people to have six to nine months worth of cash in a savings account. Now, as your income grows, that number grows.

So for me, the ability to have a significant amount of dry powder on the sidelines is important. And look, I say this because I think we all are, I think one of the most truest traits of being American is to be aspirational, right? And so, you know, whether, when I started out my 20s, trying to get a couple thousand dollars in the bank, that was a big deal. For me, it got to the point of, okay, could I have $25,000, $50,000, just sitting in dry powder just to have cash? Because there's nothing that feels better than opening your bank account and seeing a really lovely number there, right? So that started to shift my mindset. And then honestly, it's about talking to people, right? I'm fortunate. I work with high net worth individuals, so I get to debate ideas with them all the time. And what I love about working with them is they challenge me as much as I challenged them about how to look at the markets, about how to take on risk. And, you know, it just, you start to do the math and you realize, okay, if I take on this, it's 1% of my portfolio. If it went to zero, how would I feel? And usually when I start to look at this, I say, well, if it went to zero, at least I'd get the tax loss out of it, right? So it does have

value. You know, but look, I mean, it's all about finding your comfort level. And the one thing I've always believed about myself and about money is I've always wanted to be financially successful. Even when I was the five-year-old buying my little little house in the prairie dress, I knew I wanted to be financially successful. And I also know today that I'm probably going to live a long time. So that at 43, taking the risks I take today by, you know, investing in asset classes like emerging markets or cannabis or things like that, I'm not expecting them to pay off today. I'm expecting them to pay off when I'm 70, 80 years old. And I'm willing to look at it from that perspective. And I think that it's all about the long game. Earlier in this program, you said that you expect a six and a half

percent annual return on your capital, right? And that's where you start. Yeah, that's, you analyzed your confidential growth rate, right? But it sounds like what you're saying is I'm going to have a large bucket of cash in a really airtight financial position. So I have a question, maybe I'll just ask it a bloody. Do you really expect six and a half percent or are you aiming much higher than that and conservatively underwriting your performance to six and a half percent? So most of my clients are corporate executives. They own businesses that they sell. Great wealth is created by concentration, right, by taking on a lot of risk, high standard deviation, right? I believe diversification preserves growth over the long term

at a reasonable rate of return. So I truly believe 6 to 6.5% my target, that is the best way to approach it. And that's because I have very reasonable expectations. Now, a year like this year, where we're getting, I haven't run my performance yet on my portfolio, but I would say probably, you know, I know I'm in double-digit returns.

Now, some of it is I have REITs in my portfolio, right? This has been a fabulous year to be in REITs, but it also makes me apprehensive because I'm like, okay, I've got to trim that position because there's no guarantee that REITs will continue at this rate of return going forward, right? So it's more about having a reasonable expectation of what my money will do over the long term

that I think allows me to stay grounded and be practical. You know, and look, I mean, I'll give you an example. My husband and I, so the house next door to us in Southern California came on the market. And it was a steel because it needed to be renovated. And we were like, wow, we could buy this and renovate it and then sell it and make great profit. But what we did is we actually ran the numbers. And what would it cost for us to buy it, renovate it, and actually sell it. And net net, when we looked at the return on our invested capital, we were like, it's not. It's not, for the risk we were going to take on, we were not going to be rewarded at the level we would want to be net net, ones factored in the tax. So I just try to be very pragmatic about what I'm doing

and set reasonable expectations. And that's also what I do with clients. You know, diversified portfolios, it's slow and steady wins the race, right? It's the tortoise, not the hair. And I tell clients that anyone who comes to work with me and says they want constant double-digit returns, it's unrealistic with how the markets work. It can happen on certain years is a great year. 2019 was a great year, but we don't know. Yeah. You know, this brings up a very interesting point.

I don't like to lose money at all. And I love to project that I'm going to have a 25% return, but that's not realistic. Whereas if you project a 6.5% return and you get a 25% return, like, that's amazing. I think that being realistic is the best course of action. And you're doing this for returns 30 years down the road. I think that people need to keep that in mind when you're investing, it is for the long term. You should use other vehicles to invest for, you know, shorter term cash flow, like you said. Or have a play account, right?

I work with wealthy individuals and a lot of these people have a little account on the side that they have fun with. And they try to go for short term return. But then the bulk of the assets are put in more long-term facing investments. Well, yeah, and what if you said earlier, oh, if I take 1% and I risk it, if you've got a $100,000 portfolio, that's only $1,000 that you're risking. And if it goes to zero, like the lowest it can go is to zero, right? It's not going to go negative and then you owe money. Right.

It's just going to go to zero. Right. And maybe you take the tax loss and the tax loss is worth $400 to you, depending what bracket you're in. So you got to think about it in that context. Or the other $99,000 that you have is presumably. in safer assets or a mix of riskier and safer assets. So at six and a half percent, which is I feel low, but I don't have the money expertise that you do and all the tax expertise that you do. But at six and a half percent, you've already made $6,500. You've

covered your loss on this riskier thing, but the risk has a greater reward. So I like, how much of your portfolio do you risk or put into risky? So we're probably, I'm thinking about the portfolio, we are probably about 30% fixed income. So I do believe fixed income is the ballast of the portfolio. I'm a Californian. So I do have municipal bonds. I do have high credit quality total return bonds. And then it's about 70% in the equity market, both public and private. When you talk about your high net worth clients, I'm sorry, I'm kind of transitioning here. No, no worse. You know, what is a high net worth client? what is the definition of that?

Well, first of all, when you tell them their high net worth, they're just like, no, I don't feel that way. You know, it's a really tricky situation. I think a lot of it depends also where you live in the country because someone could have an asset base here in San Francisco and not feel that they have a lot of money and then move to a place like my hometown and it would be a large sum of money.

I think that high net worth really starts about 5 million of assets and above and ultra high net worth, 25 to 30 million and above. And I'll tell you one thing about working with that group. Most people find surprising is the biggest thing I spend most of my time on is cash flow management, which is this the high net worth way of saying budgeting, right? And people are always surprised when I tell them this. Yeah, we call it cash flow management. It sounds fancier. But everyone, whether you are making 30,000 or 3 million a year, everybody struggles with expenses. And I have to have some very difficult discussions with people where I say, you know, it sounds crazy to most average Americans when I'm saying, look, you're living on $700,000 a year and we need to scale it back. And they're saying, I can't, right? But truth of the matter is everybody struggles with this budgeting. And partly is because it's so psychological, right? The idea of self-sacrifice, the idea of working for the future self,

But what I tell everyone is, and I've talked about this on this right now, which is playing a long game, it's also looking at your expenses over the long term. And when you run long term modeling, you have to try to blow it up. And what I mean by that is right now, we're in a low inflationary period, right? I mean, inflation's like what, 2%. That's, I mean, I'm 43. If I make it to 90, we're going to go through some high inflation periods. So what I try to show clients, and I suggest this to anyone who's modeling out their money, is show periods of time of high inflation over the long term and see on your spending how that starts to implode your asset base. And really, that's what you're, you know, some of the savings you're doing is to help you, help yourself in those tough periods of time. So what you're sort of

hearing from me is be reasonable on return assumptions, but be aggressive on inflation assumptions and really focus on your spend. Because that's, you're sort of hearing from me is, you're not. And that, regardless of what asset base you have, those three things drive success. Okay, so the financial independence, retire early movement is largely predicated on the 4% rule, the study that William Bangin did about the past performance and all of that. What's your opinion of the 4% rule? So, first of all, I mean, and that's the rule from the 90s. You know, I sort of subscribe more to the dynamic withdrawal theory, which is sort of the evolution

of the 4% rule, which is that there is a band of, you can withdraw from your portfolio within a certain band and be okay, because not every year is going to be a static 4%, right? You know, give you an example. This year I had to get my roof fixed. Roofs are expensive, right? So that means my cash flow expanded this year. So I believe there's a reasonable band of returns. Now, when I work with clients, what I work with them on, and I actually illustrate it out, is I find they can usually go as high up as 6%. Because remember, a lot of client portfolios we're targeting between 6 and 7%.

So I find that they can go about 6% a year annually on withdrawal before they start to implode or unwind the portfolio. But I think for most people, starting at 4, what I like about it is it gives you some room for error. And life is uncertain, right? Things happen to all of us at all times. So if you're targeting 4%, and it means you took 5% out

because something happened like the roof where your child needed something or your parent needed something, you're keeping yourself in a safe step out. Okay. No, I think it's great. I think that there, I think that's a great way to look at it and to kind of, it's just, and, you know, it goes down to cash flow management or budgeting in relation to your return profile that you're getting in real time, right? I think it's kind of what I'm hearing from you. Yes, yes. For these high net worth individuals, five million or 25 and 30 million, what kind of percentage of that, cohort that you're working with is self-made in the sense that it didn't inherit it. Yeah. So it's interesting because I do have a mix of both. I would tell you my firm is about

85% self-made. Now, what I don't know is if I attract that, right, because I see myself as self-made. So you attract who you are, right? But I love the stories. So you talk a lot about money stories and I focus a lot of money stories. When I get to work with really successful people, I love to hear how they made their money and what happened. And what I find is it, what happens is a lot of time it's ambition, there's smarts, but there's always to make this big jump, a lot of times there's a moment of luck. It's taking the right job at the right moment. For a lot of corporate executives, it's deciding to move overseas for a few years with your family. That often propels them forward. But there's always just,

just one indescribable moment that makes a huge difference. But if that moment didn't occur, they would still be financially successful because a lot of them, one, had high income and two, have discipline. And wealth is that intersection of opportunity and discipline. Because why people hire me, you know, you can read a lot in a book about what I do. My job is to make sure you have discipline and put framework around the high income. and to coach you and to say to the client, look, you really should be doing deferred compensation, saving your money this way. Or, look, I know you just got that bonus. Let's put some of it in the bond portfolio. Let's put some of it in the equity market. That's the discipline that I put around

people. And I think for everybody, right, whether you use a professional or you have a friend or a family member that you two can coach each other with or listening to great shows like this, you know, that's what you need is you need at the moment to have someone inspire you and push you to execute on a financial plan. That is the hardest thing to do is to actually move forward. And I'll give you a great example. HSA's health savings accounts, we talk about them all the time. They're really cool vehicles. How many times do I run into people and I say, hey, we talked about the HSA. Do you want to do it? And it's a friend or a family member and they'll say, you know what, we had open enrollment. But it just was too complicated. I didn't have the time to really read it. And I didn't have the time to really read it. And it. And it's a friend. And it's a friend. And it's a friend. And it. And it's a friend. And it. And it. And it's, so I just stuck with my regular health care plan, right? The moment of execution is the hardest part in financial planning to actually go forward and do it. And when I give people credit for it in the fire movement is that the movement, it's a great, I love the camaraderie of it, but it's about execution. They are believing to get to this point and they're doing it.

And that's what's so hard. And it should be commended that they're doing it. No, I think the way you just phrase that, right, it's, it's, these folks are high-income earners, disciplined, and then a opportunity presents itself that they're able to take advantage of that propels them to wealth. That is the best answer

and the most believable answer to how people become wealthy in one generation that I've ever heard. And I'm very grateful for it. It was like, I've never heard that phrasing before, but it's perfect. And ultimately,

I can relate a little bit, right? Because when I started this journey, I was making a reasonable income and saving my pennies, and I house hacked. I bought a rental property, rents out the other rooms, those kinds of things. And I like to think that if I just kept that up for five, ten years, that I would have built a reasonable position.

I also happened to join a startup called Bigger Pockets as the third employee and find myself as the CEO of this company now, and we went through a recapitalization with a private equity firm, all that kind of stuff in the last year. And so I find myself perhaps on track to be in this cohort of high net worth individuals relatively early in life because of that moment and that particular catalyst moment in time, that one decision that really propelled it in advance to that. And so I just wanted to kind of, that was, I was wondering how you would kind of phrase how these people have become,

have kind of gone on there. And I thought that that may, I can just, that makes a lot of sense to me what you described. So. Yeah. No, and we have some clients that talk about the struggle. They remember the years where they and their wife were trying, you know, their husband and then we're trying to figure out how to how to make ends meet. And now they're sitting there and they've got $40 million. And it's a crazy story. But the crazy part about it is a lot of these people who have a lot of large asset bases, they still spend like they did when they didn't have a lot of money.

They have that discipline. Warren Buffett lives in the same house. His one extravagance is to have a driver. But he lives in, I mean, it's when people say that he lives in the same house, it's a nice house. But it's still like the same house. from what 60 years or something like that he's he's lived in that house so yeah that's my parents are i don't know that they're high net worth as regards to your description but there's certainly

ultra high net worth in their own minds and they still are let's use the word frugal and say they're extremely frugal people now something about scott that he is scott's story that he's not sharing is scott also had that little bit of luck you were oh yeah i joined a startup as a third Boy, that was the... No, no, no, no. To join the startup was luck. You happened to be in the space that Josh was working at. You're like, oh, wait, I know Bigger Pockets.

I listened to their podcast. You introduced yourself. You offered to help him. And then Josh had, wasn't there something going on that weekend that like screwed him up or something? And he called you and he's like, I need you to be here. Can you start? Yeah, I don't remember that part, but he did call me in for the job after that. But yeah, I think that that's the key.

This whole thing is like you talk about risk profile, right? You have a large cash position, where you say, hey, here's what I'm going to, that'll allow me to take these other risks where I don't care if I lose that percentage, right? I think that's what good financial habits do in general,

not just on the investment side, but maybe on the career side, right? You can't go on and take that overseas position or that whatever, if you're living paycheck to paycheck and are unable to spend your money, or unable to keep a budget or manage your cash flow,

depending on how much income you earn. I guess that's the terminology that evolves. I love that, by the way. But that's, I think, a key to this is how do you put yourself in position for that luck? Yeah, and I think the other thing I'll say is that's where I think, you know, we also have to think about it along gender lines because I think women often have less moments to take risk or like decide to take a different job because of so many of the different, you know, societal pressures and family pressures upon us, right, to have kids and

and so on. And so, you know, what I try to encourage younger women when I, when I mentor them is don't be afraid in your 20s to be aggressive with risk because you're trying to also keep up when you're going to have to maybe take a step back in your 30s when you're having kids and so on. And so women embracing risk earlier allows that luck to happen earlier. Yeah. I think that makes a lot of sense. But I think that the other part of it is it's a relational thing where you say, where it's just it's what is that number and that relationship to your psyche in terms of your risk profile, right? For you at six to nine months, for some people maybe two years, for some people maybe one month.

And I think that's kind of where the psychology of this stuff comes in. Exactly. Exactly. You've got to find the right fit for yourself. What was your cushion when you jumped ship from worst company to work for in America to the best company to work for in America? I had saved up, I would make in $48,000 a year and I saved up about 20, 25,000 of that, depending on the exact time frame of that, yeah. Oh, okay. So you had a good six-month cushion. Oh, yeah. I think that's absolutely critical to my ability to make that

decision. So I would not have joined a startup with seven days PTO and no no notion of their financial stability without having some savings. Yeah. Scott, you know, when I started my firm, I didn't take a salary in the first year. It just, I lived off my savings because, again, I had to take the risk and had to get it going. And we're about to be five years old in March. And it's, you know, been constant growth, knock wood, every year since. But that first year, the sacrifice, if I didn't have the savings, I couldn't have made the sacrifice to start the firm. Yeah. I love it. I think that's the price of entrepreneurship and be able to take that risk is whatever you're comfortable with there.

that and gray hair One day, I'm working on that. I will say having a red-headed father has helped me not have any gray hair. Oh, you're lucky. Very lucky. I didn't get his red hair, but I got the no gray hair jeans.

That was pretty nice. Nice. Okay, Megan, is there anything else you want to share with our listeners before we move to our famous four? Yeah, you know, the one thing I'm going to say is because this is the first show of 2020, and a lot of the writing that's going to be out there is what you should be doing for this year.

And I think just remember, this is the long game. So I'd rather that instead of doing financial planning for yourself for the year ahead, do it for the decade ahead. And really think about where you want to be in 2030. And I know it's sort of hard to think that way. But if, you know, you look at just where the S&P was on January 1, 2010 and where it ended, you know, December 31st, 2019, and see how much it grew and how much you participated in it, take that and apply it to your life on where you wanted to go over the next decade. Where do you want your asset base to be?

And write it down and send yourself a letter. Let's put it in an envelope and open it in 10 years. And really figure out over this decade, am I able to achieve the financial independence I was hoping for? And it could be as simple as I want to make sure my asset base is worth this, or I want to make sure I can continue to be focused on being organized, but have some goals for the decade because it's all about the long game. Love it.

That's like the whole job of like a CEO and you're a CEO of your whole life, right? Like what is my 10 year goal? What do I need to do consistently to take action towards that every single day, this next year, this next quarter, this next month, this next week, and then you implement and implement and implement and implement. And it compounds forever. Exactly. Exactly. Okay.

So we're ready for the famous four. We are, well, we're always ready, but now it's your turn. Megan, what is your favorite finance book? My favorite finance book. Oh, that's tough. Okay, so you're going to laugh, but I don't really read finance books. I read a lot of books about people. And so I would tell you that currently, I would say my favorite finance book is the book

right now, Hillbilly Elegie. And I bring it up because it's not that I'm learning a lot about finance in it, but we're at a very unique inflection point in American society. The generations before us had a lot of ability to propel themselves forward. And when you read that book, what it really tells me more about is how hard it is to propel forward. Now, I'm sitting in San Francisco. We are overpopulated. We're overemployed. We're overemployed. I could plan a quarter in the street and grow a money trade. But that's not the case around the country. And so that really lays out to me the struggle to achieve the American dream, the struggle

to stave, and then also the struggle to get education. And I really believe that over this next decade, the United States has to rethink our education system in terms of being able to recreate the American dream. It is not the same. It is not as easy today to succeed. as it was 20, 30, 50, 100 years ago. And that's a problem. So I would tell you that book tells me a lot

about personal finance and the struggles we all have. That's very interesting. I'll have to go check it out. I have not read that one. I haven't heard that book. JD Vance, it's a great book. But the story of it, by the way, is it's about a boy who grows up in Appalachia.

And his grandparents came home from the war. They took factory jobs in the auto industry and were able to move to the middle class. And then in the 70s and 80s, his parents dropped in social status, and it's about that struggle. What was your biggest money mistake? Ask me in it in 30 years. You know, I think that, I mean, the credit card thing was probably one of the biggest.

I don't know if I feel that people have mistakes, as much as everybody has to understand that their money goes through, you have positive and negative experiences. and there have been some negative experiences that I wish I hadn't gone through, but has helped me overall, you know, just trying to think, you know, I think that one of the things that just came to mind when you asked me that question is I got divorced about 10 years ago. And at the time, you know, I was very giving about the settlement, right? Because I believed it was better to end things amicably. And at times I kick myself because I'm like, well, did I pay too much? Right. So those types of things come to you at times. But beyond the credit cards, there's nothing I really

regret besides the fact I wish I had started my firm earlier. A bit of a boring answer. That's a great answer. That's a great answer. I wish I would have taken the leap sooner. Maybe somebody who's listening now is thinking about doing something and they hear you say, I wish I would have done this sooner, and they do it sooner. So it's all, there's no bad answers. What is your best piece of advice for people who are just starting out? The best piece of advice is you need to start out saving and budgeting, and it should be made a ritual in your life.

So carve out an hour once a month and sit down and look at what you're spending and look at what you're saving. And it's really hard to do, but it will make a deal. difference. And for anyone who's in their 20s, start saving as early as possible. It is so integral. That money will grow and grow and grow, but it gets you trained to save. And that's a big, it's basic info, it's basic advice, but it's key. And you know what? We hear this basic advice that you're giving all the time. And eventually somebody's going to hear that and say, oh, yeah, I should track what I'm spending. I should make sure I'm saving money. And,

it's basic, but it's not like it's not true. You know, that's what it is. There's no easy button. And one of the things to keep in mind is wealthy people have their kids start doing this in their teenage years and in their early 20s. They make sure that their kids start saving and having these discussions. So it's funny, I write for Forbes. And any time I read an article about what the wealthy do, it gets so many hits.

But that's, I mean, a lot of it is they just make sure the big. basics are covered with their kids. All right. This last question is the most personal and challenging question. So, and I think you're going to be surprised by this question. Okay. All right. What is your favorite joke to tell at parties?

Oh, God. I'm not really a joke person. I don't think I have one. I'm not a typically funny person in that sense. I have one for you. You do? Okay. I was writing something the other week and I got Yakuza and jacuzzi confused.

And now I'm in hot water with the Japanese mafia. Oh, that's so cute. That is so cute. Oh, my goodness. Thank you for saving me. Usually Scott has 10,000 jokes. He is the joke master. But I thought that was very cute.

It's so cute. Where can people find out more about you, Megan? Sure. So if you want to find out more about me, my writing and my speaking is at www. Thewealth Intersection.com. I'm on Twitter at Wealth Intersect and on Instagram, The Wealth Intersection. And then my practice is Checkers Financial Management and we're in San Francisco. And Checkers is with a queue because it represents a house in England that is the intersection of both family wealth transfer and self-made wealth. Oh, interesting. I was wondering why. it was spelled that way. Okay, and we will have all of these links in our show notes,

which can be found at biggerpockets.com slash money show 106. Megan, you did not disappoint. This was fantastic. I was very surprised at the beginning when you said, oh, I didn't know anything about money when I first started working. So I learned. I'm like, wow, you didn't know anything about money. You sure overcame that quick.

Well, I always joke, I'm a tourist. So in the astrological world, tourists are lovers of luxury builders of wealth. So maybe it's just astrologically preordained that I would be good with money. I don't know. I thought you said you were a tourist. I'm also a tourist, but I am a tourist. The both. All right.

Well, this has been awesome. I really enjoyed our conversation in the show today. And thanks. I think it's going to be help a lot of people. I do too. Yeah. Yeah. And thank you for having me on.

Thank you. And happy New Year. And May 2020 and this whole next decade just, treat you phenomenally. You too, Mindy and Scott. Thank you again. Happy New Year. Thanks.

Happy New Year.