BiggerPockets Money Podcast - 188: Finance Friday: Is A Master's Degree Worth The Pay Raise?

Episode Date: April 16, 2021

Being strapped with student debt isn’t easy. It creates a whole new obstacle to hitting financial freedom, but it can be mitigated. So does it make sense to invest on the side and pay the regular monthly payments on student debt, or go all-in and pay off huge chunks of student debt at once? Today’s guest, Robyn, has this exact question (which many of you may have as well).  Robyn lives in the Bay Area, one of the most notoriously expensive housing markets on the planet. That being said, she is paying very low rent, under $700 a month, split with her partner. Robyn has student loans and a small car loan, but wants to go back to school to get her master’s degree so she can hit her career goals. There would be a pay raise after she got her master’s and she loves her job, so she’s keen on staying in her sector for awhile. Scott and Mindy go through a few examples where it may be best for Robyn to go more heavy on investing, instead of paying off the student loan aggressively. This is especially true now that the government has given the option of 0% interest payments on student loans for many students (including Robyn) until at least the last quarter of 2021. So what makes more sense, get rid of debt or go in on investing? In This Episode We Cover Keeping a large savings rate every month for unexpected expenses  Finishing school faster so you walk away with less debt Knowing your student loan and other debt interest rates  Weighing investing against paying off student loans quicker  Having a side-income so you can maximize saving whenever possible And So Much More! Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to the Bigger Pockets Money podcast, show number 188, Finance Friday edition, where we interview Robin and talk about grad school, student loans, and saving for retirement. Do I want to be a, you know, aggressive investor? Do I want to be more cautious? Like, and I personally don't know about things like Roth IRAs and index funds and whatever other funds are out there. So I think a lot of it's just trying to figure out what the, differences are and what is most beneficial to me, like now and in the future. So I think that's the homework part of this for me, I think. Hello, hello. Hello. My name is Mindy Jensen. And with me, as always, is my visionary co-host, Scott Trench. Well, thank you, Mindy, but I think I'm more of a pupil of finance than a visionary. Oh, you went the wrong way with, or the opposite way of vision than I was thinking of. Scott and I are here to make financial independence less scary, less just for somebody else, to introduce you to every money story because we truly believe financial freedom

is attainable for everyone, no matter when or where you're starting. That's right, whether you want retire early and travel the world, go on to make big time investments in assets like real estate, start your own business, or simply just kind of start out on your investing in financial freedom journey. We'll help you reach your financial goals and get money out of the way so that you can launch yourself towards those dreams. Scott, let's get this boring part out of the way first. The contents of this podcast are informational in nature and are not legal or tax advice, and neither Scott nor I nor Bigger Pockets is engaged in the provision of legal tax or any other advice. You should seek your own advice from professional advisors, including lawyers and accountants regarding the legal, tax, and financial implications of any financial decision. You contemplate. Now, let's go ahead and talk to Robin about finances. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch. It helps you

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Today we're speaking with Robin, a 35-year-old woman living in a very high cost of living area. She's in a long-term relationship and would like to adopt a child in the future. She'd love to be financially independent within 15 years, but doesn't really know what that looks like. She's here today to get a few ideas regarding grad school, buying a home, and saving for retirement. Robin, welcome to the show. I'm so excited to talk to you today. Thank you so much for having me.

So let's jump right into it. Let's build sort of a balance sheet. Let's talk about what income you've got coming in and where you're sending it. So I do have a full-time job and I bring home after taxes about 4,100. And then I do have a small part-time job where I bring in anywhere between $7 to $800 really just depends on kind of, you know, the needs of the business. Kind of right off the bat when I get paid, I put money aside into a savings. So it's anywhere between 12 to $1.5.5.

$1,500 a month. And that was really for, you know, they say you should have, what, three to six months worth of savings in like an emergency fund. So I tried really hard to put that away, you know, first before I do anything else. And then I also created where all of my bills get paid within the first five days of the month. So I pay everything, my phone, my car, my insurance, just everything goes within the first five days. And then anything else that I have left over is kind of like, you know, a little bit of my play money. I buy my groceries, my toiletries.

And then usually before the next payday. So let's say if I have another, you know, $200 left over at the end of the month, then I'll just put that back into my savings. And then the money that I make from my part-time job, that automatically goes into separate savings. Like I don't spend any of that. And that is what I have been saving to pay for grad school, just because I, you know, I don't qualify for grants or, you know, it's having a really hard time finding scholarship. So I anticipate having to pay a lot of that out of pocket. So anything for my part-time job just automatically goes into that specific savings. And then my full-time job really

just pays for everything else. How do I kind of think about this at a net level? Are you saying that out of your 4,100 from your full-time job, 200 or so per month is going into savings and you're spending about everything else? And then the other $7 or $800 is going into a separate savings for grad school? Yeah, exactly. So, you know, that 4,100, I would say anywhere between 14 to 1,700 automatically goes into savings and then whatever's left over, you know, goes into my bills. and then my part-time job is 100% just automatically goes into savings.

So you're saving $1,400 a month easily going towards your emergency reserve, then, not 200, and 700 or 800 on top of that to what you're considering a separate reserve. So you're saving net 2,100 at least on a bad month, most months. At least, yeah. That's awesome. I feel like I'm in a really good place financially. I just don't know what to do with it. Perfect. Well, I think this is a great challenge for us on BP money. Then how would you, how would you describe your assets, your current savings, any debts, those types of things like loans or investments?

Sure. So I currently have, so in my emergency savings, I have a little over 10,000. My grad school savings, I have about 4,500. My checking currently is about 2,000. And then I do work at a local, community college. So my Kelper's retirement currently is valued at about 23,000. As far as my debt, the only thing I have is student loans, which is about 47,000 to about 48,000. And then I have a car loan, which is about 9,500 at this point. And other than that, it's just bills. Okay, great. And so let's, And then let's revisit your goals. What are you specifically looking to achieve with your financial journey? Are you kind of an all-out, aggressive phi journey? Or are you looking for something more modest?

You really love what you do and just want to make smarter decisions with your money. Are you looking to invest in real estate? How do we kind of frame those? So as far as my goals, you know, I'm, you know, I kind of struggle with this because my boyfriend is really, he's an aggressive saver. You know, he's really into kind of the fire move. So his goal is to retire in 10 years. But I love what I do for work.

I have a lot of, you know, I really want to be in kind of education for the long term. So obviously my goals is to pay for grad school. I'd like to adopt, you know, a child in the future. I'm open-minded to the idea of real estate. You know, my boyfriend and I, we talked about, you know, buying kind of a child like a multi-unit, you know, property, duplex, you know, fourplex, something like that. So maybe one day owning a house of my own, you know, I would like to be able to say I could officially kind of retire at 50 and then just kind of pursue some passion projects that still

keep me in the industry that I'm really enjoying. So I guess I'm just really open-minded to the possibilities. I just don't know what that route looks like to kind of get me to, I don't know, to something where, like I said, I can kind of pursue more of my passion projects. Okay, great. Let's talk about your plans for grad school, because I believe that is the biggest financial decision that you are immediately facing right now or that is currently impacting your financial decision, your situation.

You already have 47,000 or 48,000 in student loan debt. Is that right? Correct. How are you going to finance grad school besides the savings? Well, I'd like to keep my fingers crossed in that I can find some free money. So hopefully, you know, that's obviously a goal, but it's not a guarantee. So outside of that, I just anticipate to either accrue more student loans or try to pay as much out of pocket as I can. Great.

what is the advantage of grad school in your chosen career field? So it's significant. You know, I'd really love to be a dean or maybe a vice president of a college someday. So with having a master's degree, you know, my income increases by 30 to maybe 40,000 at least with just having that master's degree. So you work at a community college. Is there any opportunity to take classes for your master's degree at your community college where I am assuming that you get some sort of discount on tuition? Yeah, so they do offer some classes maybe towards the undergrad, but unfortunately not for the master's program. You know, they do have partnerships with a few local universities, but they're very specific in the degree.

So it would be, let's say, if I was pursuing kind of like a college counselor or, you know, specifically a teaching degree, then I could potentially get some sort of additional assistance. but that's not a degree that I'm interested in pursuing. They do offer specifically in my position I'm considered classified, so more like administrative type roles. So they do offer $1,000 per semester towards continued education. So that's something that obviously I could utilize as well. What do you think the grad school will cost you and how long will it take? And is it full time or part time? Three questions. So I'm pretty determined. I got my undergrad in about two and a half years full time, over full time. I was taking 18 to 20 units a semester all year round in the summer. So I was pretty determined. So my goal is to finish my master's program in a year and a half, maybe two years if I have to. So that's the time.

line. I am anticipating to accrue, not necessarily a crew. I'm anticipating it to cost me anywhere between, it hurts me to say this, about 60, maybe 80,000, you know, depending on the program that I pursue. And I do anticipate, like I said, to be a full-time student. The faster I can get this done, the faster I can secure a higher paying job, move up within the district. So that is my goal. Okay. And what's your annual salary right now? My annual salary right now is, I want to say it's about like 75,000, I believe. Okay, great. The reason I'm asking this is just, I want to give you a mental model about thinking about the cost of the education. It doesn't mean it's a bad, bad choice. It's just here's how to value the investment, right? So if you're making $75,000,

your time is worth, let's round up to $40 an hour, or we can round down to $35 an hour. Let's do 40 because that's easier math for me. So if you think this is going to be full-time, that's about 40 hours a week times 50 weeks. Let's call it 2,000 hours times 40. What is that? That's 80 grand. Sorry, we already know that. So you're going to spend, you're going to invest 80 grand. or two years of earnings or the after-tax value of those earnings into this education, that's what you're foregoing. So that's a part of your cost. So let's call that, let's call it 50,000 after-tax per year. So it's $100,000 that you're going to invest in the education, in the form of not earning income while you're a full-time student. And then you're going to

take on between $60,000 and $80,000, which you could potentially defray if you are able to get a scholarship or free money or somehow reduce those costs. over that time period as well. You can also offset those costs by working a second job, which you're currently doing already, in addition to being a full-time student with that. And so the cost here is going to be somewhere, let's call it $175,000 if you believe those numbers. And you're going to get a $30,000 to $40,000 raise, which is probably about $25, if I'm rounding here per year after tax. Is that sound about right? So that will be a seven-year payback. I'm just curious. Because I do anticipate to continue working full-time while I go through this program. Oh.

Is that part? I mean, are you incorporating that in kind of your thinking? I am not. I think I asked that question poorly. It sounds like I thought that I was trying to get to with the part-time full-time was whether or not that was going to be in place of your job. But if it's not in place of your job, then you're just hustling, and you're probably going to replace your second job with that.

And so a huge chunk of the cost that I just described are no longer part of the equation. So now your payback is three years, which is more attractive with that. But that's not about what the specifics of that are. It's just knowing that's the framework. Your time is worth something, and there's an opportunity cost there. and the cost of it is real. And you've got to think about it after tax. And whatever you can do to shorten the timeline, reduce the cost,

advance the time when you're able to realize the benefit of the degree, the better off you're going to be. And I think that a two or three-year payback is wonderful. I think a five, seven, eight-year, ten-year payback is tough, and you need to change those numbers. But based on what we just discussed, your payback is probably only three, four years. And the faster you can accelerate it, the better off you'll be. And so there's no right answer to it.

I just wanted to give you that model to think about it in terms of as you move towards that. I think that will be a helpful way to think about it because you'll be able to, I think, save some money and keep those numbers in mind and know the cost. I have a couple of things to have you think about as well. Back on episode 80, we interviewed Rich and Regular. And Julian said that he worked at a college while he was attending the college. And he said that I will never forget this. He said it was $25 a semester. And I said, did you mean $25 an hour?

He said, no, $25 a semester. And I couldn't, I had never heard that before. That was unfathomable to me. I said, you gave him a $20 bill and a $5 bill and they let you take classes. He said, yeah, I think there was a cap. Like he could only take 20 hours or something like that for 25 in time. I'm like, I want to stay there for my entire undergrad. I don't care, or graduate college or whatever. I don't care how much I hated the job if it was $25 a semester. So in your situation,

I don't think we've gotten to your expenses yet, but I have a sneak peek. So you have subsidized housing based on your college, so or based on your job. So if you were to separate service with them, your housing expenses would go way up. So I'm wondering if there are other colleges in the area that have the same or similar subsidized housing options, because that is huge in your area, but would also have the master's degree that comes with the discounts. And I'm not sure how tied down to your, to his job, your partner is, but is there any opportunity to potentially move to another college in a different area that's maybe lower cost

of living or maybe has these opportunities so that there's less money coming out of your pocket. I don't really think it does you many favors to leave the subsidized housing with this job to go spend way more money on housing and slightly less on college as well. So I don't know. These are just things to think about. But are there any other colleges near you that have this subsidized housing option? From my understanding, we might be the only district that offers it. Honestly, I haven't really looked at any other schools. I've been with this district now for five years.

So I'm not quite sure whether other colleges or university have the same, same opportunities, but it's definitely something that I would consider looking into. The other thing that I'm kind of looking into as well is I know that there are, a lot of businesses that offer tuition reimbursement for undergrad programs. Like, for example, Starbucks, they offer free tuition reimbursement for students who are enrolled at Arizona State online. Same thing like Pete's coffees. They offer tuition reimbursement for Oregon State University. So I'm trying to figure out, and I know that these are specifically towards undergrad. I don't know about master's program. So I'm trying to figure out if there are employers that do offer that

because if there's a will, there's a way. And if I have to work the minimum of 15 hours a week to get tuition reimbursement for my master's program, I will squeeze it into my schedule some way and somehow. So I'm sorry to my boyfriend, you can eat peanut butter and jally sandwiches for the next two years. I am not making dinner because I'm working or going to school. we all make sacrifices here so you know so i'm trying to figure out some other options but uh it's just it's just a lot of work to figure out which you know that that in align with the degree that i want to pursue you know how that degree is going to impact my future and it's just a whole bunch of pieces that i kind of need to tetris together to make the the time the money you know worth worth it

in the long run. You know, and then something else that I was, I kind of found out about. So a coworker of mine just bought a house, and about three months ago, she paid off all of her student loan debt. And this drastically impacted her credit because I guess her student loans were the oldest account that she had. So when she paid that off, it shortened her credit history. So she was saying that that also negatively impacted her kind of ability to get the new house.

And so that's also something I'm concerned about, you know, as I kind of go through this journey of, one, accruing more student loan debt possibly, but also helping, you know, trying to pay that off if like how that's going to impact me in the long run when I try to buy a house or maybe a duplex or things like that in the future. I guess where I'm kind of like wondering how to be most helpful here is it sounds like you're really on top of how you're willing to put in lots of hours be a full time, you work your full time job and go to school full time and maybe even work part time on top of that to reimburse tuition. You're going to find a way to creatively get those costs down as much as possible and you're thinking through that. And so, like, I think you've got a lot of good things there. We have some tips, like, you know, potentially thinking about can you work at, can you change jobs?

But, you know, in your circumstance, there's probably a barrier to that because of the great housing benefit you have. I guess what we could think about is, like, what happens after this, you know, and what do you do outside of the planning for the graduate degree? Because for my seat, it seems like you've got that down. Mindy, I don't know if you're thinking about anything else, but I think I think you've got a great. framework for approaching the next couple of years in terms of getting the degree and you've got a reasonable payback period on it and you're willing to bust it to crank out that degree. So I think that's amazing. What would be the best place that we could, you know, advise or help? Or Mindy, do you have anything else to add about the graduate degree stuff?

No, I think the graduate degree has a good amount of thought put into it. And I love that she's willing to do whatever it takes to put herself in the best possible financial position to attend college, to work during college. I mean, this rent subsidy is huge. She lives in the Bay Area, so that's very expensive. Her rent, we haven't really gone through expenses yet, but her rent is $687 a month. That is unheard of in the Bay Area. So leaving the job to pursue college full-time doesn't really seem like a smart maneuver on many levels, but most specifically because of the housing is so inexpensive. I am more concerned about the lack of any investments outside of the pension system that she's paying into and would like to look at how we can get

her started investing in after-tax investments. And I'm not sure what the right answer is right now because she is saving for grad school. And that would be a huge amount of money that she would be accruing as debt. However, student loan debt is typically pretty low interest rates, whereas, you know, time in the market is so important. All right. So let's think about the capital. allocation here. This is great. Right now you have student loan debt. What is the interest rate on that student loan debt? Right now it's at zero percent. And part of that is just because of the pandemic. They placed a hold on, you know, the interest that student loans were accruing. So

I think I've kind of got that through the end of the year, if I'm not mistaken, or at least until September, October. Actually, I tried to log into the website to see what the interest rate was or would be, and I couldn't seem to find what that interest rate was prior to coming on the show. What do you think it would be? Do you have a guess at what the interest rate will be once it returns, once it goes back from zero? Honestly, I'm not quite sure.

To be 100% honest, I was very frivolous with my money. I didn't really pay attention to things like interest rate or, you know, to savings. So I couldn't even tell you what I was paying in interest prior to I would save in three, four years ago. Okay. And what do you think the grad school interest rate will be when you find, when you, when you know if you finance that? Again, I'm not quite sure. I think because the financing doesn't necessarily go through the college. it's through the Department of Education. So whenever, you know, once the pandemic is over and they start accruing,

it's kind of up to the Department of Ed as far as what they set as far as the interest rates. Yeah. So what I'm trying to get at here is, and what I don't understand, what I'm trying to think through is you've got emergency savings and you're saving for grad school, but you have a debt right now with an interest rate. And so the only way it would make sense to save for grad school, given the fact that you already have student loans, is if the grad school interest rate is going to be way higher than your current student loan interest rate, which seems unlikely to me. Does that make sense? So right now you're right now the interest rate is zero, but it will go up to something above zero. Mindy just looked this up. Do you know when that will be Mindy?

That'll be through September 2021, the end of September. of this year so far. I mean, they may extend it. They've extended it several times due to the COVID Relief Act. But right now, at 0%, I really like the idea of throwing a lot of money at that student loan so that it could come down. Scott, what do you think about that? Well, well, I think that right now you're arbitraging a 0% interest rate for 0.01% in your savings account interest or whatever it is that you're getting in your savings account interest, which is not a very good spread. and you're not really arbitraising the 0% of your student loan debt, you're going to begin paying that interest rate at a later date. So I think that it makes more sense to pay off the student loan debt from my seat than it does to put that into additional savings beyond your emergency reserve, which I think is a great, it's great to have the emergency reserve that you have. But I think that an addition, whatever you're comfortable with for your emergency reserve, anything beyond that, it makes more sense to, that into against your current debt load and then just take out more debt for grad school,

and then it does to save up separately for it from where I'm sitting. Any reaction to that? Is there a nuance that we might be missing before you, Robin? Yeah, I mean, I guess I'm just kind of curious, like, instead of putting this money into kind of like a bank savings account, do I use that to, you know, just invest? And so once I'm, and then just kind of accrue, you know, it's, I hate to say this, but just accrue the dead and make my monthly payments. And then once I have an opportunity to maybe take some of these funds out and turn around and just pay it all off at one time, I don't know. I just, that's kind of just something I was thinking about or, yeah, do I just use that $4,500 to pay and then, you know,

continue to just invest that money afterwards. I'm not sure. Yeah, so here's how I like to think about it. If you're going to invest it in an index fund, for example, or a long-term stock investment, you might expect from that return over a long period of time anywhere from 8 to 10%, depending on who you ask and who you argue with. Maybe some folks will go as high as 12%. So let's call it 10% for our purposes here. But you're also going to get a lot of volatility.

It's going to go up and down over 30 years. So I believe that if you want to get that kind of return or you want to invest in those types of things, you've got to be willing to just think of it as a really long-term investment, something you're not going to touch in the interim. So if you're willing to do that, maybe you can assume an 8 to 10% return on that, which implies, hey, isn't that better than paying off my student loan debt if it's at 3, 4%, 5%. Sure, but there's also risk involved in that assumption. You know that the student loan debt interest is going to be whatever it's going to be. Let's say you look it up and you find out it's 5%. you're getting a guaranteed 5% return by paying off the student loan interest a debt instead of investing in the market. And so it just depends on how you want to approach it and what your time horizon there is.

I think that the way I would kind of frame it is debts below like 4% are kind of like, maybe it's almost better to invest long term because it's so likely that I'll probably get a better 30-year return than the 4% interest on that debt. 5, 6, 7%. It's kind of in this gray zone where I don't think there's a right answer. I think it's kind of a hard decision. You kind of got to go with a gut check and figure out what's right there. 7, 8, 9%, and I know I'm overlapping. That's intentional because this is an art. This is not like a rule here. But like when you get past like 7%, that's like a guaranteed return. Why, you know, and that's really high. Let's, how do we either refinance it to a lower

interest rate or probably pay that instead of investing? So I think that's where like the research on what your interest rate now is going to be and what you think the interest rate on the future debt is going to be. If you find out like, hey, there's no way to finance grad school or anything less than 10%, which is not going to be the case, most likely, then it would be like, okay, let's continue saving for grad school because I'm going to get a good arbitrage there and put that towards defraying very high interest debt. But it's going to be, I bet you, you know, without knowing more about this, that it's going to be close to the same interest rate as your current student loan debt. In which case, to me, it wouldn't, it would definitely make sense.

sense to pay off your current student loan debt rather than your grad school, say you've to pay off your grad school debt later if the interest rates are very, very close to the same. But it could make more sense to invest in something like a Roth IRA in an index fund than paying off either early. And that's going to be that kind of art and personal knowing yourself and knowing your risk tolerance and your time horizon decision there. You know, on paper, it'll probably pencil out better to do Roth, but it's a guess at where things will be 30 years in an index fund investment than it, you know, versus paying off the student loan debt. Now, one thing there is you've probably heard, like Craig Curlop, who's been on the show here,

I think had a similar problem. He was like, I've got 80,000 in student loan debt at some interest rate like that 4, 5, 6%, I can't remember what it was. And his idea was, hey, I'm going to house hack instead. And why house hacking is special is you buy a duplex. You put down 5% on like a three or four hundred thousand dollar property. That's, you know, $15,000, $20,000. And now you're leveraged at 95% debt to equity, which means that if the property appreciates

3%, you're getting that times 20, right? So that's a 60% return on an average 3% appreciation rate because of that. So there's some investments that are just so absurdly profitable on average. You can still lose, by the way, leverage cuts both ways. But the average is so high for that. And you're also not paying rent, those types of things. You're paying down the mortgage. You can get like a 200% ROI is not unreasonable for the first couple of years of house hacking in some cases.

That's not a good option for you because of what we discussed earlier, where you're getting your housing offset by the college, right? It sounds like that would be you're going to drastically increase your risk and you already have low housing costs. But the point of that example is that if you can, if you see a way to get a really high return in something that's not paying off the debt, maybe like a side business that you have or a house hack

or something like that, that's just so astronomically better than the interest rate on your debt, it can make sense, I think, to invest in those cases. And then, you know, what he did is he did that two or three times and then just paid off all his debt in one lump sum from the profits he made with that. So there's certainly a case for that if you're willing to do something like that where you see an opportunity to make an investment with your time or money that can dramatically outperform either of those alternatives.

But you've just got to be realistic with yourself about whether those are present in your life. And sometimes it's a creativity thing. And sometimes it's just, hey, this is my circumstance. And in your circumstance, you've got a great reason for not being able to house hack. Okay, awesome. Thank you. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch.

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All eight episodes now streaming, only on Disney Plus. Do you have any plans to move away from your current location? We have the opportunity to stay here at the rate that we're at for the next seven years. We don't have to be here for seven years. So we would like to take advantage of this for as long as we can. To be honest, at this rate that you're paying, I would rather see you pay your $687 in rent. Take the difference from the $1,000 that you were paying, you know, previously. Throw that into, you know, throw that at your debt or throw that into your down payment for a house for in seven years when you're looking to buy a house that maybe isn't in the Bay Area, that isn't a more affordable cost.

of living place. But I just, I want to move and have your job so I can pay $687 and rent. That's pretty sweet. I mean, it's a decent place, right? Yeah. Well, it's up three flights of stairs. So we literally just moved in. I feel like I got hit by a bus. My entire body hurts. We moved everything ourselves. So outside of that, yes, we have a beautiful, beautiful apartment. I got my office, a beautiful Bayview. So it's a pretty sweet deal. And, you know, my commute was, is significant. I'm about 20 minutes from work. And prior to that, and obviously pre-COVID, it would take me anywhere from an hour and a half to two hours to get one way, you know, so I'm definitely saving on toll fees. I'm saving on gas. You know, so I'm, there's a lot of advantages to

being in this new spot. I would continue to pay those tolls and gas into an account for your future house, maybe even a little bit for grad school, although I do agree with Scott that you should throw enough money, as much money as you can at the 0% student loans right now and really crank those down. Well, I think she should find out the interest rate to those student loans and then make a decision based on her values and risk tolerance about whether it makes more sense to throw it all at that or to begin investing it. But I don't think it makes sense to save for grad school in your situation with this. It can make perfect sense to pay off the debt. It can make perfect sense to invest, but I don't think that, and this is not to say you shouldn't have an emergency reserve. So if you're

targeting a 15,000 emergency reserve, just put it in your emergency reserve. And that also is a good use of the cash. But I don't think, I don't think specifically saving on the side for grad school is benefiting you right now would be my, my thoughts. Let's fast forward three years. So where are we at in three years? You've probably, when do you start grad school? When do you, when's your target? So I can either start this fall, so this September, October or next September, October. and part of the only reason why I would consider waiting was just to save as save more money. My thoughts, if you agree with what we're doing, and this is obviously something to think about and decide, but if you agree with kind of what we're discussing here, then I think if you're going to

go forward with the grad school choice, that it makes sense to just do it as soon as possible with this and begin kind of racing towards that next thing. So let's say we're in three years from now and you've gone into grad school in September. you graduated and you're a year out. You're now earning $110,000 a year, between $100,000 to $110,000. Your savings per month before paying any debts or anything like that, you're now saving, instead of $2,000 a month, you're saving $4,000 a month with the extra income. And you've got a debt load of, let's say you'd knock that down the debt load.

Let's say you choose to pay off the debt. And before you start grad school, you've probably paid off $7,000. $7,000 before you start grad school and begin accumulating the next debt there. I'm going at a lot of things here. You probably graduate grad school with about $110,000 in debt, and that's a two or three-year payback at your current, at the $4,000 a month savings rate. Is that in the ballpark? Maybe people will beat me up in the comments and tell me if I'm wrong on that.

but that's, is that kind of like around where we, what we expect to be? As far as income? Yeah. Yes, with the masters and, you know, putting out that good energy for a promotion, I can anticipate to make anywhere between 100 to 120. Great. So, so let's say we're saving 40,000 a year then on that net. That can all go be applied to the debt.

It can be partly applied to, you could probably max out, you know, contribute to a retirement account, play some tax advantage games, maybe, you know, something tax deferred, or you could still max out a Roth at that level and have plenty left over for a between two and five-year payback, depending on how much you want to invest versus aggressively pay off your student loan debt. So you'll be in a good situation because your fundamentals are so strong. Your savings rate is so high, and you have such command over your budget, it seems, it seems here. But that would be, you know, the basics there. Do you have any questions about, like, the investing or does that or the the strategy from from that point on yeah i think my big question

you know is you know obviously with a little over 10 000 in my emergency savings i kind of just leave that as is you know don't put anything else into that and then for the income that i do have that i'm able to put towards a savings i could then turn around and just utilize that towards maybe splitting that in half between paying off student loan and then the other half investing in some way? Is that kind of what I'm understanding? That's right. Yeah, I think that you will have a debt load that will take you at least a couple of years to pay off after grad school is done, even if you're pretty good about managing the costs there. And so the choice you'll have to make at that point is do I want to just pay this off and forego investing? Or do I want to do some sort of a hybrid

approach, which the hybrid approach will probably pencil out better depending on your student loan interest rate, but it'll take you longer to knock out the debt. And for the hybrid approach, things to consider are things like the tax advantaged retirement accounts. Hey, I've got a 401k match from my employer. Great, that's free money. Let's take that instead of paying off the student loan debt. Okay, there's a Roth, I can contribute to a Roth IRA and get the tax-free growth downstream. That might also be better than the student loan debt, but that's only 6,500. So maybe I've now contributed 9,000 to investments. Now I've got another decision. Do I want to continue putting money into the 401k or pay off the student loan debt? Well, I've got 30,000 left. Maybe

I put another 15,000, max out my 401k at 195, and takes a tax advantage. Great. Now I've maxed out my retirement accounts. And I still have 10, 15,000 in savings. left over each year. Do I want to apply that to the student loan debts, or do I want to continue making the minimum payments and then begin and apply the rest to after-tax or not tax-advantaged investments there? And so that's kind of the art of the set of questions that you'll have once you've graduated is like, what's the right answer to that? There is no right answer. There's just an answer depending on your preferences and what you want to do there. And so that, I'm just, again, I'm just trying to like download a framework here for making those

decisions. But again, this is all in the abstract for three years zoomed out. I want to know a little bit more about this second job that you have that's giving you $7 to $800 a month in side income. Is there, what is it? Can you talk about it? And is there any opportunity for either growing that income or farming it out to somebody else? So you're expelling no energy on it, but it's still producing some income. income? It's retail. So if I wanted to make more money, I get more hours. Yeah. So it's just currently what I'm doing at the current moment. And then if it's retail, I'm sure there are ways to, like maybe you leave that one to go to work at Starbucks or pizza or wherever you can get, you know,

find the tuition reimbursement. Scott, doesn't Home Depot have some sort of tuition reimbursement? Oh, I'm not sure about that, but I know many corporations do have that. It's something to research there. Oh, I'm going to put a note in these show notes to go post when this posts, when this releases, to post in the Facebook group. Do you know of any company that has a tuition reimbursement plan? Please, you know, share this with us in the Facebook group. So I will be sure to tag you, Robin, in that post so you can keep track of it as well. But yeah, if you know of a company that has a great or even decent, maybe even sort of commission reimbursement program, that would be really awesome for like a part-time employee. It's great when it's a full-time employee, but Robin already has a full-time job that has its own form of reimbursement in the subsidy for the housing. Okay, well, that, it sounds like we've given you a lot of things to consider.

Do you have any additional questions that you want us to give you more things to consider about? Have we answered all of your questions? Yeah, I definitely think, you know, I have the right questions. Like I think you guys really propose scenarios and, you know, like Scott said, just specific frameworks that kind of really force me to like, okay, like let's look at this more holistically, right? It's not just like a quick fix. It's really like what are the ramifications of this particular decision. So if I was to go this way, what would happen, right?

So I feel like I really have kind of the questions that I never thought about asking myself when it comes to, you know, going down path A, path B, path C. So that was super helpful. And I think I have a better idea of because I feel like I do have this kind of disposable. cash that I need to figure out where to put in a way that's going to be most sustainable, but also beneficial in the long run. You know, I think the only thing that I need to do now is figure out, you know, and I know that my boyfriend is really trying to educate himself in all these different, you know, do I want to be a, you know, aggressive investor?

or do I want to be more, you know, cautious? Like, and I don't know, I personally don't know about things like Roth IRAs and index funds and whatever other funds are out there. So I think a lot of it's just trying to figure out what the differences are and what is most beneficial to me, like now and in the future. So I think that's the, that's the homework part of this for me, I think. Yeah, so it sounds like you've got a lot of, like a lot of these things are still, still new and you're kind of still kind of like learning about all the frameworks that is this

ridiculously and unreasonably complex world of personal finance with this. And so while you're thinking about these things, I wouldn't do anything like extreme or whatever, and so you've got the frameworks really figured out. And I think also just continuing to absorb content like the Bigger Pockets Money podcast or a couple of books on personal finance that you like, you could ask, the money group for a set of recommendations there. And just like maybe absorbing a few hours a week or over the course of the spring and summer here, that might greatly help you with kind of getting familiar with some of these things

that are another language right now, like Roth versus 401k versus Roth 401k versus index fund and all that kind of stuff. Like those terms after a while will become, oh yeah, I get what's going on there, but they're completely overwhelming in the, in the, in the, uh, in the first couple of stages here, um, with some of those things. And I think that's, that's where it's just like, how do you absorb that content in a sustainable way? Um, that's reasonably fun. Um, if you, you know, um, as you go forward here. Yeah, my boyfriend is actually a huge fan of your guys this podcast. Um, I think he listened to every single one of your episodes in a week's time, I think. Um, so he, and he, that's how I, uh,

He recommended me to email in because he had heard Mindy, you know, asking for more female guests. Yeah. Well, great. Well, thank you again for coming on the show. And we're very grateful to him for referring you here. But yeah, I think that just like a couple, like something that's sustainable on your commute, can you put on three days a week a podcast? It doesn't have to be ours, although you're welcome to listen to ours.

But on these things or an audiobook or something, I think that will make a world difference and make a lot of these things a lot more clear and less overwhelming because they are. It's just otherwise it's at some point you have to just go through a couple of dozen hours of kind of learning about all this stuff. But it makes a huge difference, I think, in your life and how comfortable you are with these financial decisions over time. Yeah. And I'm going to give you a couple of episodes to listen to.

Number 35 is Craig Curlop. And it's him telling his story of having the $80,000 in debt and choosing to make the minimum payments while starting to house hack. And then just at, what was it, three years later, he just threw a huge pile of money down on this student loan and paid it off. Episode 41 with Kyle Mast talks about financial planners. Maybe that's a little, like push that off for a little bit. But episode 35 is going to be really great.

And another piece of homework that I wanted to give you and anybody listening who has not already done so is to. to get a copy of your benefits and options for retirement packages from your HR department and read through them. If you come across something that you don't understand, ask the HR department or throw it up in the Facebook money group, the Bigger Pockets Money Facebook group, and ask people for, you know, translations, because some of the stuff is pretty complicated, but people in that group are really helpful at, I've started to ask everybody, explain it like I'm five. What does this mean? So there's a lot of people in the group that can help break down those concepts. But there are

a lot of people, I mean, let's be honest, nobody ever reads those, except nerds like Scott and I. Nobody ever goes through all those things and sees all the options and really knows what they're looking at. They either decide to contribute to their 401K or they don't. And that's kind of it. But as As a public employee, you may have access to a 457 plan. Anybody listening to me talking about the 457 plan is going to be like, oh, she always talks about this. I love the 457 plan because it is kind of like a bonus 401k or 403B where you get to contribute money to it.

$19,500 is the limit this year, just like with the 401K and the 403B plans. But when you separate service with that company, you can. have access to that money, you pay taxes on accessing the money, but you don't pay any fees. So you are getting the tax advantage of reducing your taxable income, if that's something that is important to you by contributing to the 457, although somebody also told me that there's a 457 Roth option. So this is like, I know I'm throwing so much at you. Look and see if a 457 option is available, and then I'm going to post a link to the millionaire educator's article on the 457 plan and how he thinks it's the best thing in the world.

And if that's an option for you, you can read through that. And I'll post a link to that in the show notes for this episode, which can be found at BiggerPockets.com slash Money Show 188. Okay, Scott, it seems like we've given Robin a lot to think about. Robin, I would love to check back in with you after you start school and see if you found a place to work that has tuition reimbursement, see what sort of grants or scholarships you were able to come across, and you just see what's going on with you. I would love to check back in. So please, I'm going to make it on my calendar a note to go in and check back in with you in September

and see if you started school and then again the following September if you did it and just see what's going on because I am excited about your path. Awesome. Thank you guys for all the information. It was, you should see my little notepad right now. It's just a hot mess. So I appreciate you guys taking time for me this morning and, you know, giving me some really valuable things to think about. Yeah, it's, it's a whole new world that's kind of just opened up to me. And, you know, I was not raised to think about money in this, in this way, right? We spent money very frivolously. And so, you know, I know that I'm kind of a late bloomer in this. And so I'm, but it's never too late to start, right?

So I'm really excited for this new journey. Awesome. And I just want to compliment you on the fact that your savings rate is so strong. That fundamental, the fact that you're able to save $2,100 a month, that is what's going to get you help you win on this journey, really regardless of how you decide that it's just everything else is a matter of degree. But that fundamental being so strong is very impressive. and obviously the outcome of a lot of great choices that you've made.

So I look forward to seeing what you accomplish. Thank you so much, you guys. Yes, thank you for your time today. This is a lot of fun. And I know you're going to kill it. You're going to absolutely crush it in life. Okay, that was Robin talking about a lot of different things. Grad school, student loans, saving for retirement.

Scott, what did you think about Robin's story? I thought it was great. I think it's awesome that Robin came on the show because she's still learning about some of these concepts. And I think that there's so much going right for her in the sense that she's spending much less than she earns. She's got a great housing situation. She's clearly making a lot of decisions. She's clearly very, very smart and intuitively grasps a lot of these financial frameworks. And I'm just excited to see how things evolve for her as she kind of gets more of like,

the actual language and frameworks for investing down. And I think that's just a little bit of an educational process with it. And I think she's going to be off to the races if she, you know, reads a couple of books and listens to a couple podcasts on this and just kind of fully fleshes out her approach to money. So I think it's awesome. And I hope this was helpful for her. You know, I love her determination and her willingness to cobble together a bunch of different

options rather than, oh, I'm going to go to school and that's the only thing that I can do. And I am going to get student loans and that's the only thing I can do. She's looking for different ways to pay for those so she doesn't have to get so much in student loans. She's continuing to work while she's going to school, which is huge in many different ways. She'll be able to continue to save. She'll be able to get that huge subsidy for her housing. And I just, I love her flexibility.

in her approach to this. And I think that is going to take her far down the road to financial independence once she reaches, when she graduates from grad school, she's just going to crush it. And she's obviously got a great boyfriend who's a BP money fan. So shout out to Robin's boyfriend, who should probably apply to be on the show to tell his story as well. We'll just just encourage him that way. Okay, listeners, Scott and I love this new addition to the show lineup. We really, really enjoy talking to people about their finances, and we want to hear from you. We, in the beginning of the show, we say that we are wanting to introduce you to every money story. So if you have a story that you haven't heard on this show before, we would love to talk to you. Please apply to have your finances reviewed at www.biggerpockets.com slash finance review. view or to be a guest on the Monday episode to tell us your journey to financial independence,

Robin's boyfriend, please fill out the form at biggerpockets.com slash guest. Scott, should we get out of here? Let's do it. From episode 188 of the Bigger Pockets Money podcast, he is Scott Trench and I am Mindy Jensen saying we'll see you at the restaurant at the end of the universe.