BiggerPockets Money Podcast - 196: Finance Friday: Debt-Free, Great Pensions, But Will it Be Enough?

Episode Date: May 14, 2021

Getting out of debt can be very empowering, which is exactly how Azar and Jeffrey felt when they paid off $83,000 of debt in under 3 years! They thought it may be the best time to start investing in real estate, but with a surprise baby on the way, they need to be sure they’re prioritizing stability over growth. Since they’re in such a great position, they should be able to do both! Azar works as a school nurse bringing in a respectable salary, while Jeffrey gets disability payments. Both have pensions and retirement accounts, but they want something more than just those retirement options. For them, real estate seems like the next step. They’ve taken out a HELOC (home equity line of credit) in order to buy their next property, but need advice on whether or not it’s a smart move to stockpile cash for the new baby or go ahead with the real estate purchase. In This Episode We Cover Getting yourself out of high consumer debt  Refinancing so you can take advantage of far lower interest rates How much should you have in an emergency fund for a family of five? The potential benefits of paying off your primary residence before buying rentals Why HELOCs should be used for short term debt only And So Much More! Links from the Show BiggerPockets Money Facebook Group BiggerPockets Forums Finance Review Guest Onboarding Scott's Instagram Mindy's Twitter Check the full show notes here: https://www.biggerpockets.com/moneyshow196 Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to the Bigger Pockets Money podcast, show number 196, Finance Friday edition, where we interview Azar and Jeffrey and talk about debt payoff and what's next. When we were kind of drowning and he was, you know, purely on the pension and I was, I was a hospital nurse. Like I was working nights. Like we were both kind of like in the grind and our oldest was young. And I think at least I looked at it kind of like it was an obstacle because it was, you couldn't really make that much on top of it. And it only increased to 35,000 recently. I think before that it was like 18,000.

So he was very limited in what he could do. And we were constantly feeling like we were drowning. And it was kind of an area of contention. Like we've had our struggles with this whole situation. But for me, it wasn't until I started kind of like finding FI and all the podcasts and everything that I was like, whoa, this is actually really, really great. Hello, hello, hello. My name is Mindy Jensen, and with me as always is my country music-loving co-host, Scott Trench. Does that mean if you're rewind one of our shows, you're going to get your dog back, your wife back, your life?

No, my mind. That's what they say about country music. Yes. Next time. 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 that financial freedom is attainable, no matter when or where you're starting. That's right. Whether you want to retire early and travel the world, going to make big time investments in assets like real estate, start your own business, or finish out of the journey with a creative approach involving the pension. We'll help your financial goals and get out of the way so you can watch yourself towards those dreams. Scott, I am so excited to bring in Azar and Jeffrey because their story is not that uncommon. When they share their story, I kept hearing obstacles that they're being hit with and issues that they're facing and thinking, yeah, that happens to a lot of people. I see a lot of people get that too.

Yep, that happens to a lot of people as well. And you can wallow in that awfulness, or you can figure out how to overcome the problems and keep on pushing. I think they're in a pretty good position in these guys. They have very stable income. They seem to have no fear of losing the income from the pension. She seems to have no fear of losing her job. And what they've done is they've gone about tackling their debt, becoming debt-free,

and putting themselves in a really good position. And I believe that with, you know, and the discussion We'll get to this. We had a very long show today coming up. But I believe that they're right there. They're right on the cusp of becoming financially free and that that pension is a huge asset that they were wildly underestimating in terms of its importance relative to finishing out the journey to FI. So it was kind of cool to see them laid up a little bit as we kind of explored that and thought about, hmm, if we can get the expenses below the amount of that pension, we're done. If not, we only need a few hundred bucks a month, really, maybe a thousand or so to become

financially free and have all that optionality. So I thought it was a fun show. I think it was really a creative discussion about asset allocation. I think you really enjoy it. Before we bring in Azar and Jeff, my lawyer makes me say the contents of this podcast are informational in nature and are not legal or tax. 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. Okay, Scott, let's bring in Azar and Jeffrey and give them a few financial decisions to contemplate. Tax season is one of the only times all year when most people actually look

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Azar is a school nurse in Massachusetts, and she's 39 years old. Jeffrey is 47 and receiving a disability pension. With monthly expenses less than their income, they're on a really good path, but they've made some financial mistakes in the past. Well, who hasn't, right? They became debt-free last year, yay! And now are wondering what strategy will benefit their financial situation best. Azar and Jeffrey, welcome to the Bigger Pockets Money Podcast.

I am so excited to talk to you guys today. Thank you so much for having us. We're so excited to be here. Thank you. So let's jump right into this. Let's start building your balance sheet, your personal balance sheet. Where is your salary coming in on a monthly basis? So I'm a school nurse, a public school nurse.

So my take home pay is 1985 biweekly. and that's not including any 403B contributions. That's a mandatory 11% pension that gets taken out. So that's after the contributions. Yeah, so my take home after pension contributions and taxes and union dues and whatever else, I get 1985 biweekly. My salary is about 80K a year. Jeffrey gets 2873 a month from the pension,

and that includes full health insurance and dental ordi. removed. So we're also on the insurance end. That's the take home every month. Awesome. Are there any other sources of income that you have, like side hustles or anything like that? Or is that pretty much it? Not right now. Prior to COVID, Jeff was kind of doing some independent contracting work doing property management and project management and kind of general handyman sort of work at a building down the street from us. So, and that's a lot of the reason why we were able to pay off all our debt. So he was like working a lot and I was working and we were able to pay off our debt. But then when COVID hit, his job was like kind of going into a lot of

people's apartments and things like that. And we have a two year old and a 16 year old. The two year old was going to my mom's a couple days a week. But then with COVID, she was home. So my husband has been home since basically COVID hit. Okay. Well, makes sense. It sounds like you have some potential to earn more income, but it's kind of iffy and there's, and it's there's a, it's not, you're not really expecting tons of that in the future going forward. Is that right? That's right. And also, because of the pension, he's capped at what he can make on top of it. So it's around 35K extra that he could make once he exceeds that, which he never has, then they start. We haven't experienced the process, but I think they start kind of docking the pension. And then also kind of unexpectedly, we found out we were

expecting number three, like just a few days ago, which kind of puts a little bit of a twist on this whole, like, everything we were going to ask. Like, there's, so that's kind of another thing. It's like we were just hit with this literally a few days ago. Well, congratulations. Yeah, that's awesome. Thank you. And two can live, what is the, what is this, two can live as cheaply as one or five can live as cheaply as four. Baby number three can take all the hand-me-downs for baby number two. And I mean, have you ever met? somebody who has a baby and is done having babies. They're like, can I give you all the clothes and all the toys and all the things that I don't

need anymore? We actually lucked out my two-year-old. Most of her clothes are hand-me-downs. Her toys are hand-me-downs. Jeff has a couple sisters with, we have a whole bunch of nieces and nephews. So we've been so lucky. Yeah, you've been lucky. As the mom who is done having babies, as soon as I was done with all that stuff, I'm like,

who can I give this to? I can't throw it away. I will give it to the goodwill if I have to. but I want to give it to somebody else. I want it out of my house. So, well, congratulations. Okay, well, that'll put a little bit of a spin on things, but not that much because, I mean, babies are babies are easy, right, Scott? That's right. Like, oh, babies are going to be so easy. It's so easy to raise them. Like, yeah, I says Scott was zero kids. They do exactly what you tell them, and they cost very little, is my understanding. 100% accurate, yes. And I'll just throw this in there.

Our second one, our two-year-old was IVF. So we had infertility for so many years. And so this number three is completely unexpected. So if anyone's listening to this thinking like that they're infertile and had IVF and they're not going to get pregnant, definitely, you know, think twice because we, here we are. Yes, I know a couple of women who have babies that are surprised. Oh, I didn't think I could get pregnant, but I guess I can. Yeah.

Okay. Well, fantastic news. Let's get back into your balance sheet. Let's look at your debt load. They became debt-free. So do you still have the mortgage? We still have a mortgage. So we're in Mass.

We're in a higher cost of living area. But we recently refinanced our mortgage. We owe 293 on our house. And we refinanced it at a 30-year fixed 2.5% just this past January. And that's all we owe. And the house maybe could sell for like $5, $5.50 depending. It sounds like since you mentioned that you became debt-free recently, would you give us like a quick overview of what that journey looked like and how recently

you became debt-free? Sure. It was September of 20 that we paid off the last thing, which was an old home equity loan. But we owed, I think it was, we paid off a total of $83,000 in it was about two and a half years. We started in February of 18 and we ended in September of 20. And that was my student loan from nursing school, a car loan, a home equity loan. I mean, we also cash flowed. Thankfully, our insurance paid for most of the IVF.

We had a little bit of kind of optional testing. We paid for out of pocket. So we did cash flow of some stuff in between and, you know, the birth and all that. And I had some unpaid maternity leave. So the car, the student loan, home equity loan. There was a little bit of credit. There were some credit cards at the beginning. That was kind of the first to go. We did the debt snowball. That's awesome. So you were crushing debt for the last several years and snowballing it. And it sounds like your

accumulation rate was like $3,000 a month or something in that ballpark that you're applying towards this debt every month for a sustained period of time. Is that in the ballpark? Yeah, yeah, I would say so. And it was a lot due to the fact that he was doing, he had like his side hustle going. So we were pretty much taking, I think, most of my income at that point and just throwing it at debt. Love it. Did you build any assets while that was going on? You mentioned that you have 11% goes mandatory to a pension. Are there any investment accounts that were going or those types of things that you have today? So Jeff doesn't have anything except for the pension and it's like totally stable. We don't have any worries about that. So I have my 11% pension and I just check

the balance. I've been at my school. This is a year. or seven. So I have almost exactly 50K in that account, and then you're vested after 10 years, which we can talk about in a little bit. I had just started a 403B, and there's 4,500 in that, and that's all in FX, AIX. It's like an SMP 500 Fidelity Index 1. I have a Roth that I just started that only has 3K in it, and it's mostly in FZROX. It's all through Fidelity. And then I have a traditional IRA, which was from an old 401K, and that has 41K. And that's, I had recently, it was in like some crazy age-based thing. I just a year ago changed it to FCR-O-X.

So that's 100% in there. So can I just jump in here and say it's awesome that you know all the different accounts that it's in? It's in this index fund, in this index fund, in this account. And I love that. I'm a little like crazy obsessive person with this kind of stuff. I just, we, like, we had, I mean, we won't go into all the mistakes we made, but we were kind of, like, clueless. And we also, both of us had different medical things happen in the past. And we were completely drowning. And then once I started, we were getting into paying off debt. I kind of became obsessive about like, okay, like, we're getting older. We need to get our ducks in a row. So I've been just consuming podcasts for years now, like the last couple years and, you know, all the Facebook groups and everything. that are super helpful. So yeah, you can tell because that's what like that's like the slog, the self-educational

grind that you have to go through in order to have command of the situation in every detail the way that you seem to. So I think that's really admirable and awesome that you've clearly done that and absorbed the content over a long period of time across multiple sources to have this beautifully simple clarity on what you're investing in and how it's working out there. Thank you. We said the income is about three. thousand a month for the pension, 2,800. Is that right? Yeah. So I want to call that out as an asset here

as well. If, you know, an annuity, and we expect that to continue for the rest of your life. Yeah. And if he passes, I get, I forget, but some percentage it moves on to me. So I think I've got like the health insurance and everything still too. Great. So an asset like that is very valuable. I would I would think the value of something like that is between 750 and 1.25 million, maybe more if it's low risk. It depends on the state and the stable, the stability of the body behind the pension. But that is a very valuable asset that I want to call out. You probably don't think of it that way as an investment asset in those types of things. But I think an income stream that that is reliable like that is extremely valuable.

Is that kind of a new way of looking at things for you guys? Have you thought about it that way? Just more recently, just because when we were kind of drowning and he was, you know, purely on the pension and I was, I was a hospital nurse. Like I was working nights. Like we were both kind of like in the grind and our oldest was young. And I think at least I looked at it kind of more like a like it was an obstacle because it was you couldn't really make that much on top of it. And it only increased to 35,000 recently. I think before that it was like, it was like, it was like, it was an obstacle because it was, you couldn't really make that much on top of it. And it only increased to 35,000 recently. I think before that it was like, 18,000. So he was very limited in what he could do. And we were constantly feeling like we were drowning. And it was kind of an area of contention. Like we've had our struggles with this whole situation. But for me, it wasn't until I started kind of like finding FI and all the podcasts and everything that I was like, whoa, this is actually really, really great. So I think it's important

to give a little bit of the backstory, not to go into too much detail regarding. like our health issues, but really it was we had, we were comfortable, both comfortable and really good jobs. And unfortunately, you know, with when you have health issues and those health issues become such that you can no longer perform that job, you end up in waters that you're really unfamiliar with. And there's a lot of kind of unsteadiness. And on top of that, we owned a two family that we had originally pulled equity out of. We bought our single family home. We had some bad tenants. That kind of threw us into debt.

So there was kind of like almost like an avalanche of events that had occurred that put us so far back that it was kind of just trying to navigate the waters on a financial level. And I think on an emotional level, we were really just trying to figure it out. And we had gone down to my dad's and my dad gave Azara the book, this Dave Ramsey, book, The Total Money Makeover. And it was from that book and then listening to his podcast that we really understood the snowball effect of paying off debt and how that snowball turned into a bigger snowball. And then it continued to just get so big that we were literally like able to just bang that debt out in a matter of a few years. And really it just all of a sudden to have this flexibility and this sense of freedom and a sense of security, we had never experienced before. So we're kind of,

you know, still experiencing this sense of freedom and flexibility that we've never experienced, and it just so happened to happen all during COVID. So now that we're kind of coming out of COVID, you know, we're in a position where we have some capital. We're kind of thinking, okay, what's that next move that can really maybe push us to that next level where maybe a czar could eventually at some point, you know, leave her job, work part-time, and we have some, you know, so here we are. Thank you for providing that additional context, both of you. I think the way I phrased that was actually thoughtless, given all the context that you had there. So I apologize for that. But I think, I think that it's interesting in the context of the present that there's a limitation on the amount of additional income you can get.

It's almost like you have an asset that is also an anchor in some ways, or could be in some ways, if you have the capability to earn more income. I have not come across this as a challenge before. So I'm interested to think through that with you. And some of it will be exploratory thought with a couple of those things. If there wasn't that anchor, then I think that you could argue that there is a value to that asset that is very high. But I think that there is something else to say that that is, you know, the cost of that is obviously very high. We don't have to go into any details of that. And, you know, there's that limitation, which I think devalues it to some degree.

But there's still, it's still an interesting piece of the puzzle that gives some really cool options to you guys going forward, I think, there. For sure. Okay. Any other assets or I guess you have no debts, but any other assets to think about? No, just our house. And I mean, we have two pay for cars, but they're not anything special. And then just like my fidelity accounts. We have a 529 for my oldest who's 16.

He's a sophomore that has 15,000 in it. And then my two-year-old has just 2,000 in it. Okay. And then do you have, you might have already said this, but do you have, how much do you keep on hand for emergency reserve. Okay. So for cash, we have a $10,000 emergency fund, which was kind of a question that I was going to ask also. And then we have 19,000 cash set aside. But that was kind of earmarked for we have a, our house was built in 92 and our kitchen is still from 1992. So we were planning to rental the kitchen and floors in our main living space. And then also,

we're going to Hawaii this summer. And everything is paid for, except. for the rental, which we travel had. So flights, hotels are all taking care of. I do have to pay for the rental card, which I think is like a thousand. And then it's just going to be food spending money. But my husband, myself and my 16-year-old, we love to eat. And my 16-year-old's a bottomless pit. So I kind of had in my head like a chunk of that 19,000 set aside for purely food in Hawaii,

because I know it's expensive. and $8,000, by the time. I don't know. I mean, if we don't use it all, but out of that $19,000, I was thinking like... They have Costco at Hawaii. Yeah. Yeah, I've actually heard, so. Yeah, depending on what island you're going to, it's right outside the airport.

And for the car, go to auto slash.com and reserve it there. Oh, great. Yeah. Because you keep getting emails. Hey, your $1,000 rental. We found another one for only $8.50. Great, let's do that. I don't have any loyalty to rental car companies or what kind of car I want.

I just need it to sit for people. And, yeah, that auto slash is awesome. So on the emergency reserve, it sounds like you had a question there. And I think there will be some with the expenses. But do you want to go ahead and ask that? So $10,000. We're in a high cost living area. I know it's kind of low for a family of almost five.

We also have a dog. The reason that I kind of kept it low was because we have the pension and I have zero risk of losing my job. It's really just for anything. I don't have a sinking fund for the car or the house or anything, but I was kind of thinking like $10,000 would cover anything car, house related, with the exception of if there was some kind of major medical issue or like accident or, you know, some kind of terrible thing. I kind of was keeping it at $10,000. I don't know. Yeah, personally, I think that makes a lot of sense. I mean, you have very, very stable income at this point.

I don't think you need, you can be on the very, very low end in your situation, from what I see, on the emergency reserve. If you want to quit your job at some point in the future, then you'll need to bump that up, I think, to feel really comfortable with that. But in the period of time where you don't, you don't want to do that, it's, I mean, it sounds like in the worst case, I got a little preview of your expenses here, but, you know, we'll go through them in a second. But it sounds like you would really be able to survive for at least six, seven months based on just the pension and the arbitrage between the difference between the spread between that and the, if your pension is like three grand and your expenses are four or $4,500, then you're going to spend $1,500 a month. You've got like six months reserve right there because of the stability, the highly predictable stability of that income stream. And you seem very confident that there's a low probability of you losing your job for an unexpected reason. So to me, that seems like a very reasonable emergency reserve in your context. Yeah, and I would agree with Scott.

But let's look at your expenses because there could be, you know, when you, if you were to both lose your jobs. Or well, if you were to lose your job, you still have the pension. But then if you were to lose your job, you would also significantly reduce your expenses just, you know, oh, we're going to cut back and we're not going to go out to eat and we're not, we're going to be more conscious of what their spending. So the total expenses that you have now would probably be different if you lost your job, which you said is probably not a real pressing issue. So let's look into where your money is going. Okay. So our fixed expenses, so like the mortgage and electric bill, all that type of stuff, is about $20.50 every month. And that's all housing related?

Yeah, so it's, you know, it's the mortgage, electric, heat, life insurance. Yeah, life insurance. It's just all fixed expenses. So, like, our car insurance, life insurance, our internet bill, we do water and sewer quarterly. Like, we have, like, HBO Max and Apple Music and things like that. Do you plan to live in the location you're living in for the foreseeable future for a long time? For the foreseeable future, but it's not our forever home. Okay.

Yeah, I want to come back to that as a strategic concept here. I'll show you why in a few minutes with this. But how much of that $2,800 or how much the fixed cost would you say is just related to your housing category? Oh, I'd have to do the math. So the mortgage is 1676. I can't do math in my head. So mortgage is 1676. Internet is 80.

Heat and electric. I mean, it's depending. but like maybe 300 a month on average for both of them. Okay, so your housing alone, not counting internet, is probably in the ballpark at 2000 a month. Yeah. Yeah. Our mortgage alone is 1676.

That's what I figured. I was thinking around 2000. Okay, great. Sorry. I'll come back to that and we'll see if I have anything going there. Basically, I'm interested, I'll give you a preview with this. I think that one of the interesting challenges, given your pension situation, and the details behind and that nuance with the lack of ability to earn income to still be eligible

for it on ongoing basis is the trick is to get that housing expense as low as possible. And in this case, this might be a good potential area, and I'm not sure, but it might be a discussion point, to think about a paid off house, because if you have a paid off house, then all of a sudden that 3,000 covers everything and you're good to go and you're done, right, and to a certain extent with some of that. And normally paying off the house early can be a low return investment, but given your situation and the fact that you already have that asset, I'm interested in that as a strategy if you feel like, hey, if I paid off house and I'm just paying the utilities and the taxes and insurance and those kinds of things, that might be an interesting strategic

option for you guys that would be available and more promising or more interesting to explore given the specifics of your non-ons. Any reaction to that before we get to the rest of your expenses with this and think of through that? I'm totally open to that. I've always thought paying off the house would be the best thing. But once again, like because of some of the research that she's done, Yeah, normally I don't think that paying off the house early is like a really great financial move because you're getting your, when you, and I'll go into a tangent here for for 30 seconds on this. When you buy a house and you put down 10%, and it's $300,000 and that property appreciates by 3%. So it goes from 300,000 to $300,000 to $9,000. You have made a $9,000 return on $30,000 down.

Make sense? So that's a, what is that, 10, it's a 30% return. If you own the house in cash and it goes up 3%, from 300,000 to 309,000, you've made a 3% return. So as your property appreciates and as you pay down the mortgage, you get closer to that lower rate of return. You know, your house on average will go up with inflation at 3, 3, 3%, 4%. in 2020, it goes up by 11%, I guess, or 2021. But in most years, it'll go up by that average inflation amount. And so what happens is in the early years, you get this huge return just because of the fact

that you're leveraged so high on average. And of course, that can go both ways. You can also lose a lot of money very quickly or go underwater in some cases. But on average, the paid off house isn't returning as much for you, and you're putting all that money into one giant asset that's not producing a ton of income over time. And so that's why I don't like housing as an investment, as an investment compared to things like index funds or rental property real estate where I'm going to continuously use that leverage, capitalize appropriately, and run it like a business for that compound annual growth rate. And so that's a trap a lot of folks fall into with the math behind that. If you can imagine a curve that you're riding down to that 3% level over 30 years on average, you can get there.

I'm going way, way in the abstract for the math here. but hopefully that concept is is there. That's what's happening here. And that math is correct that it's probably not the best investment. But in your case, I think it's an interesting one from a simplicity standpoint because you've already got the pension. You've already got the major asset in the room. And if you can just pay off the house and continue to build the second pension or the secondary asset, you might have so much more income than you need to live on with a paid off housing situation

that the game becomes extremely simple and easy conceptually for you. And you have a moving target there, which just as soon as you pay off the house, game over. And so that and that is more, I'm not able to put this together all on the spot here, but I think I'm seeing a path in my mind too where if you can do that, and in your case, because of the fact that your pension prohibits you from earning more, that this could be a great potential strategy. I'm butchering this right now, but hopefully we can all see you with the direction

that I'm trying to steer the ship in. I get it. I totally understand. I mean, just to, I guess it would just create a lot more liquidity for us. Is that what you're kind of getting at? That we would have just a tremendous amount of flexibility because what we would be putting towards a mortgage would no longer exist.

That money now could get reinvested and grow quicker. over the long term. Well, no, I'm saying, I'm saying more simply that right now you spend $4,300 a month. $2,000 of that is just on your house. I'm sorry, 1,600 of that is just on your housing expense, right? With a few tweaks to your spending, your pension covers everything else. So there's no, like, so in the, the assets minus liabilities, the pass at the cash flow minus liabilities, you've completed the play with just your pension if you don't have that

mortgage payment. Now, that's too simple. You have taxes and insurance in there. So there might be, you might be on that bubble, but you might be right there with just a few hundred dollars and more passive income if you can eliminate the housing payment, which I think is an interesting nuance for your situation in particular here and why I'm interested in the housing payoff in your case. And it is because of that pension. Does that make sense? Yeah. Yeah, totally. So our mortgage, It's like 1676. About 500 or 550 of it is insurance and taxes. So it's about like $1,100 or $1,100 to principal.

Great. So that puts you at $3,200 in total other expenses besides that principal and interest piece. To me, that seems like an achievable gap. $400 a month in cash flow seems manageable to achieve during the timeline in which you pay off your house if you choose to go that route, for example, that's not a very large amount of cash flow to have to generate on top of what you're doing there. And you may be able, you may, anyways, that's where I'm going with this. We should probably get to the rest of your expenses and all that kind of stuff to see if that's reasonable. But that's where my brain

jumped in the context here. And we can completely throw that out and go a different direction. I'm totally open to it. I honestly hadn't like I had thought about it, but then just everything I heard it was kind of like, you know, where we were able to refi at 2.5 for 30 year. I was like, oh, we won't, we'll just pay the minimum. And especially where we don't plan to, like, retire here in this house. That was a great move. I'm not, I don't think, I think, I don't think that was a bad move to refy the house, but that kind of stuff at all. Yeah. You can still have that option to pay it off early. But yeah, I think that was a great move. That was one of the reasons was we, we looked at it as if like, because my sisters,

they all refinanced. Everybody did 15 and 20. How come you guys didn't do that? And I kind of felt like, well, you know, by. reducing them just the monthly mortgage, it's just going to give us that much more security. And if so, we decide to really attack the mortgage, we still can do it. But we're not pigeonholing ourselves. And I just didn't want to do that. I love that strategy. I don't think that was inappropriate at all. But now we've got if the is is the goal to just cross the finish line to FI at the end, the most reasonable time period possible without like is that is that kind of a goal that you guys have? Or is there a different goal? No, that's like absolutely the goal. And I'm not embarrassed.

to say this, like we all love being home. I love my summers off. Like, we all, we go camping. We love being outside. We love, like, just the lifestyle of all being home together. And especially with like another baby in the picture potentially, definitely like the goal is as quickly as reasonably possible. Yeah. Well, I think, I think there's two things here. And this is, There's, you know, depending on how long you want to live in this house. If this is your forever home, you pay off the mortgage. I think that that if you go through the, if you keep going through the budget and reanalyze a few things, you could be there tomorrow.

Well, after I haven't paid off the mortgage, you know, the $291,000. So, but or, or there's a chance to potentially rejigger the housing situation in general. If that's something out, that out there, if you like that, if you like that format with the, with that, if you can, if you can figure out a way to, if you have equity in the house, for example, and you can arbitrage that to a different location. But I'm not sure that that's probably a different conversation. That's, well, actually, let's talk about that because I just did some very quick math. Did you say it would be roughly worth 550,000 if you put it on the market today?

Yeah. Okay. So with 293,000 in the mortgage, that means you've got 257,000 in equity, which is awesome. And of course, there's costs to selling a house and blah, blah, blah. but that's a lot of money in a lot of places. That's a paid off house in a lot of places, or at least a huge chunk of a paid off house. And the way that Scott described his suggestion of paying off the mortgage, I think is, I thought it was pretty good. But when you don't have that, well, you said that you've loved it.

I wasn't able to get all my thoughts out. Yeah, yeah. Well, let me see what I am hearing you say, Scott. So I don't normally suggest to pay off your mortgage either. And when Scott first said that, I'm like, really? But then he explained it. I'm like, oh, okay. So here's the thing.

The reason I don't want you to pay off your mortgage early when you've got two and a half percent interest is because instead of throwing extra money at that, you can put extra money into the stock market and into index funds to save for retirement. But you've already got the pension, which is pretty much. your entire living expenses when you don't have the mortgage. So if you went to another place, you said this isn't your forever home, maybe you want to live in Florida. You can get a pretty nice house for $200,000 in Florida or not.

You can live someplace else. That's my Florida. Okay. So this geo-arbitrage idea, we've explored it and talked about it. And like, I have this dream of moving to Portugal and buying a paid-for house and it has a super low cost of living and like living this whole life. However, and he'd be totally cool with geo arbitraging anywhere pretty much. I have parents and two sisters and my parents were immigrants. So my immediate family is the only family that is here. And I'm the only one of my two sisters

who have children. And I could never, ever move us and move the grandchildren away from my parents. So unfortunately, we're kind of stuck in this area for right now. And we're not, it's not because, like, we love it here either. Like, it's because of family, really. And I grew up without any extended family around and without any grandparents. And I don't want to do that to my kids. Okay. That is a valid, that's a valid feeling.

So you would stay in this house for a while. Throw all the money at this mortgage, throw some extra. money. And it looks like there's extra money in the difference between what you're making and what you're just randomly, not randomly, what you're regularly spending to start paying off the mortgage faster. Another thing you could do is make the minimum payment on the mortgage and then start saving aggressively to have the ability to pay off the mortgage without actually paying it off. So you could invest it in other ways. That's something that my husband and I did. two houses ago, we said we don't want to pay off the mortgage because it's such a low rate,

but we do want to have the ability to pay it off. This was before he quit his job. So we had, I think we owed like $120,000 on it. So we put $120,000 in an account that was specifically for paying off the mortgage should he decide to quit. And then, you know, we went in a different direction completely. But that was something that we did. So you still have the low rate, the low payment.

Yeah, I just want to chime in that your five. I number, if you can get your lifestyle expense below the 36,000 that appears to be coming in after tax with the pension, that that's game over from this. That might be too light. You might need to add more assets onto that depending on what you guys want. But that's like, but the paid off house, you know, that's another asset that just piles on it. Now great. Maybe if you're if I need to pay the housing payment and that's 60,000 a year that I need, if I don't have the housing payments, it is 35. And so again, that's where I just keep coming back to the the, the, the, the mortgage. in your case, in your specific situation. You will, in my opinion, I would bet you have less wealth 20, 30 years from now by paying off your house rather than investing in index funds and continuing your retirement strategy according to the philosophy that you have so diligently put together. But you could also, again, and get to FI by reducing the housing expense there. So I think that's an interesting tradeoff there. It's not the right mathematical equation 25 years from now, but it's game over. Next, I keep using that

term in the next couple of years potentially. And that's what we're looking for is game over. Yeah. So I think, I think the nice thing is, and I just like I keep always telling, bizarre, is that we have choices. And the fact that we have these choices is that in itself, I think kind of a, you know, it's a plus. And many people, I think, pigeonhole themselves due to the lifestyle choices they make. And then they kind of are stressed to be scrambling constantly. And I feel like we've done that. And now we're kind of, you know, so anything that we do would be, like, would not be to do to chase any type of lifestyle choice that's out of our, you know, know, scope or anything like that. It would just be to have like a sense of security always, always have that feeling that we can fall back on something that, you know, the mortgage being what it is. It's less than what, you know, you would pay for rent and things of that nature.

So we're just always trying to err on the side of caution on so many levels. Yeah, I love it. I think I think you guys are in a good spot. And I think that the big, I hope that a potential new framework is the idea of thinking about your pension as an asset inside of your net worth equation with that and how maybe that changes the rules of the game from what most people in the five community are doing for you guys with that. So we haven't gone through the rest of your expenses. My hunch is that you guys are in pretty good command of your spending overall in order to pay off $83,000 in debt in two and a half years.

But do you think that there's other areas that there's something interesting to look at? inside of that the rest of that budget? Yeah, so like fixed expenses, fixed bills right now, it's about $28.50, our variable expenses, like groceries, household gas, going out to eat, and then just miscellaneous slash entertainment, which we don't usually spend a ton on, but I'm going to throw like clothes, maybe people's birthdays coming in. In total, I would say around like $2,200 a month for variable spending. And a big part of that is our groceries.

We spend on average, it's lately it's been like 1,200 a month on groceries. And I'm just going to reiterate, we have a 16-year-old bottomless pit. So who like loves to eat super healthy. So like he'll go to the grocery store and buy like packages of berries, like strawberries. They're gone like the next morning. He stays up to like 10, 11 o'clock and he'll just eat entire containers. Um, so I know that's super high compared to most families, but that's where we're at. Is he an athlete?

Um, he works out. I mean, he runs and stuff for school. Cross country and track and he likes to just do some regular maintenance in a sense. No, I, I think that that's awesome that that, uh, I was a bottomless pit. So thank you mom and dad. Uh, for, for, for fueling me. I don't, I can only imagine what that. grocery bill was. But I think there's probably something in that grocery bill then to think about

can you find ways to buy in bulk and bring that down. Do you feel like you're doing an efficient job with that shopping and that it truly is a bottomless pit or that there's nuance or ways to kind of bring that down by being a little bit more strategic with the shopping there? I mean, I know we could always be more strategic. We buy like, I don't know, I feel like we also buy kind of like, like my mom. It's our weak point. We definitely kind of like to just eat good food. Yeah, yeah.

Like he, like we, we buy like seafood and I'll go to Costco and buy like the bags of frozen salmon and have it in the freezer. And so whenever we want it, we can just throw it in. certain things we buy organic, like the, not everything, but like fruit, eggs. We like slowly drink almond milk, any sort of like meat product we get like, we try to get organic or free range. So I know that that kind of drives it up. But, you know, I shop around like we do Costco a lot and things like that.

But I mean, I know we could maybe try a little harder to buy things that is more kind of from scratch versus, you know, the easy, like, oh, it's just frozen and we'll throw it in in the oven. Not like frozen process, but, you know, I know we could do a better job, but we're also kind of picky and I'll reiterate. We all like to eat. So I am, I am no expert in this category. So I'll let Mindy. So I might, when I'm hearing you say is, I mean, you guys are eating really healthy, which is fantastic. And that is going to cost more than eating processed junk. But it's better for you. So I wouldn't apologize for that. I would look at shopping the sales and doing a little bit of meal planning. And we had Aaron Chase from $5 dinners on episode

three. And she said, what I do is I build my grocery list around what's on sale. Chicken breast, when you go to the store, chicken breast can be $1.99. It can be $8.99. Don't stock up when it's $8.99. Stock up when it's $1.99. Or, I mean, I don't know if that's probably not the organic price. But watch the prices and pay attention to the prices. And as it is on sale, that's when you really want to stock up and fill the freezer because you've got the bottomless pit. I've got two bottomless pits.

I feel your pain. I would also attack your grocery list the way that we attack spending in general. Just keep a really detailed list of what you're buying. over the course of a month. Oh, we buy a lot of carrots. Okay, great. Look for sales on carrots. We buy a lot of berries. Let's make sure to stock up when they're $1.99 a box and maybe not buy so many when they're $5 a box. And my kids will eat the whole box too. It's awesome. I'm like, I just bought this. Why is this in the recycle bin? Oh, I ate those all. Thanks. Yeah. So, you know, there's meal planning the dinners is going to help a lot because then you can make a really big batch of inexpensive

chicken dish or whatever and then kind of direct to your son, hey, berries are not on sale this week. Let's eat chicken, which will keep him filled faster for longer. But, you know, $1,200 for organic and free range is not horrible. I bet you could get that down to $1,000. pretty easily without having it consume your whole life trying to cut, you know, a penny here and a dollar there. I think the meal plan, Mindy, is wonderful. I think that that's something that is always in the back of my mind, but I'll be honest with you, I'm not a particularly good planner like she is. So I kind of just, you know, every night she comes home, she usually is the one to whip food up,

and I do all the dishes. But I definitely think it would be a good thing for a. us to talk more about the meal plan. I think that that would be a wonderful way to, you know, eat and then also have leftovers and just to kind of have your week kind of planned out in that sense. I could see how that could definitely make a dent on the grocery budget. Yeah. And today's Wednesday, you know, when we're done recording, go downstairs and see where, or go upstairs and see where the, you know, what's in the refrigerator now. What do you have planned for tonight. Do you have all the ingredients? What are you going to make for tomorrow night?

Do you have all those ingredients and kind of like eat out of your refrigerator in your pantry? And by the way, I talk a good game. I have way too much food in my pantry and in my refrigerator and freezer. So I definitely need to take my own advice with this. Yeah. I think I am not doing such a good job on this either. But for you guys, it's very important. It's a do as we say, not as we do kind of thing. But but for you guys, what I think this is. I think this is a, is important is because, again, in the context, if you're liking what we talked about earlier with eliminating the housing payment and being close to the finish line, the discipline here might be that last piece of the puzzle in completing that. If you can feel good about this

at $600 a month with a planning cycle that is relatively regimented, that's $6,000 a year, that might be the cost of moving over the finish line in conjunction with the housing. the housing payment elimination, which is why I think that that's one, you know, like, of course, it is less fun to have to plan out your meals in advance and drop your brochure bill from 1,100 and not have exactly what you want each day, the day that you're feeling it. But if that's the price of crossing the finish line, it might be worth it in your case. So again, I'm not trying to be hypocritical in something that I don't do personally. But just if that's the big bogey, that's outside of your fixed expenses, might be worth

trying to reset the program there. Yeah. And if you have favorite meals that, you know, oh, I know this meal costs me $8 per person. Great. Don't have that every week. I have a meal. It's a Japanese curry. I need potatoes, like three potatoes, five carrots and an onion, which is, I mean, practically free.

And this box of Japanese curry mix, which I'm sure is processed. And that's okay. It's delicious. That's my meal and everybody in my house will eat it. That's another thing. Everybody in my house will eat it so I can have a vegetarian meal. I think this is a $5 meal that makes two servings. So it goes really far and it's really cheap and we make a plan to have that every week.

So look at what you're spending on. Is there anything that makes a really cheap meal? Plan to have that every Monday or every Friday or whatever. And make your own pizza. It's super cheap. You make it yourself. With non-bread. And it's fun.

It's super cheap. It's fun. The kids think it's great to make all this stuff. And then you pop it in the oven. You've got pizza movie night. We do that every Friday when it's cool outside. Not when it's 90 outside. I'm not putting the oven on $450 when it's 90.

But I digress. So, you know, just attack the grocery budget as you have the rest of your budget. And I think you're going to see some pretty big gains. easily. Yeah. 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.

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but before we get there, any other expenses that you think we should be thinking about or that are obstacles or potential? No, just I have, I wrote all this out. So just our income, what was in my retirement accounts, what we have saved cash, our fixed expenses and our variable expenses. And then the past couple months, so like when we paid off our debt and then we refied the house,

my thinking was we paid the minimum on the mortgage. And because we weren't, I wasn't putting anything extra into any retirement accounts while we were in debt payoff, which I do regret. So I've been putting 500 a month into my Roth, which only has like 3,000 in it right now, like I just started. But so every month, like I kind of, I know it's not an expense, but I have. $500 going into my Roth, $25 going into $1.5.25 going into $1.5.29, $100 into my sons. And then $200 towards Christmas. So we have like some Christmas a Christmas sinking fund. But that's pretty much it. Okay. And are those expenses included in the $4,300? Is that amount included in the $4,300 total? Like the $500? to the Roth? No. So like we so it's like 2850 a month fixed expenses around $2,200 for variable. And then what is this? 825 into, you know, the various savings. Oh, okay, okay. Which leaves us. Yeah.

So it leaves us about like $1,000 a month left over. Got it. Okay. What one of the things that I want to, I think what you're doing with the money makes a lot of sense. I don't know. have too many tips there. But one big problem in your situation is the fact that you can't generate income, Jeff, right? And so that's, that is the, that's challenge. But let me ask you this. Are you guys handy at all? Oh, yeah. Well, yeah, that's pretty much like what he does. Yeah. So, so this might be a really good case for potential live in flip over the next two years. Mindy style. And here's why. It sounds like you don't want to live in your area for a long period of time. You can't earn more than $35,000 a year in income. But if you can take a property and fix it up pretty

nice over the next two years, maybe your son can help to a certain degree with that, and you can add $200,000 in value to that property over a two-year period, when you sell that property, that's all tax-free, right? If the long as you live there for two years, right, and and sell it within three years after that. And that is all not taxable income that will not, I, you know, you have to check in the rules of your pension situation, all that kind of stuff. But if you're looking for a way to create a lot of value in a way that won't impair your ability to, um, to continue receiving the pension, that might be a really good

loophole or trick to play with, with that because you can fix up the place, make it look really nice. And then maybe that will turbocharge a lot of what you're trying to do here over a two to three year period. If you can do that. Mindy has some great before and after pictures of her most recent live and flip. That went really well. So any reaction to that as a framework? I actually hadn't thought about that. I love that idea. And the real estate loophole does exist as far as I read on the website. So he's capped at like around 35,000, but it does. doesn't include any real estate earnings. So we actually pulled a 75K helock on our house, which we haven't touched. We were thinking about getting into buy and hold rental properties.

And I don't know if it's okay to say this here, but we just signed up for Paula Pants course. I also signed up for the Bigger Pockets website and everything, but we signed up for Paula Pants course, which just started yesterday because we're totally like greed of it. Yeah, of course. So we just did like the first. first class last night, but that was kind of a strategy we were thinking about in especially where he's handy. We were thinking if, although it's too high here, we were thinking if we could find something within like a three hour drive. Maybe he could go up, put a little sweat equity in, kind of get it going and then pass it off to like a property manager and generate income that

way. Yeah. Look, I'm all for rental property investing with bigger pockets and all that kind of stuff. For me, though, I just wonder if a simpler strategy, and again, this is bold, so you feel free to reject it with that, but sell the current house you're living in, take the proceeds, fund your emergency reserve a little bit more, buy a dilapidated shack in the middle of a cornfield nearby, just, you know, something that needs a little bit of repair nearby where you live, where you, where that, like, that's where you want to live and add value there because you can sell the property for a tax-free capital gain after that. And that's a, you can might be able to stack a hundred or two hundred or two fifty of just pure after tax not

it's you buy a rental property and add value and then sell it you're going to pay tax on that it may not it's great that it may not count against the pension income but tax free is is even better and given your situation that might be enough to buy that house in cash outright somewhere else or or whatever it is or stack up a couple hundred extra thousand dollars in there so that that might be too far or too extreme of an example, but there's a spectrum along there that might be interesting for you guys to think about as a framework because of your situation. I think it's a really interesting idea. I guess basically it kind of goes back to what I was, it's just lifestyle choice. I mean, where we currently live is like, that reason we haven't moved is we can't replicate our current situation anywhere else.

I mean, we live on an acre of land with watering behind us that we don't necessarily have access to, but there's eagles that fly by. And it's tough to, like, say, oh, let me sell this and then go buy something and kind of be in this kind of state of limbo for maybe the foreseeable future for a period of time with no real roots would be such a, I don't know, like, I think it's really interesting. I can see how that maybe over like a five or 10 year period would be really lucrative. But I think it would be a tough one, honestly, on my ego. Yeah, yeah, fair enough. You don't need to do it. It was an extreme example there.

No, I think it's. Like, I love the idea and we're really good about staying off the hedonic treadmill. But we're kind of, we're not super stoked on the town we live in, but our, like, when we walk out this basement door, have this like gorgeous backyard that's huge and fully private. And we're, we always say like we're kind of spoiled. We're so lucky. I mean, the sun sets, the sky, all the colors. It would be really hard. We wouldn't be able to, I think we would have a hard time like downgrading not even so much the house. Like we don't even care. Like our house is just, it's like a box boring looking colonial. It's the, it's the yard that we, we would have a really hard time

kind of downgrading that, unfortunately. Okay. Well, well, fair enough. Then it sounds like what you're interested in doing, more interested in doing is taking a helock, buying a rental property, adding value to the rental property and in the free time there, and then figuring out a way to convert that into value downstream from that. Is that what I'm hearing? Yes. Yeah.

For that, I think that's a great approach. Just one caution with the helock, a trap that we've seen some listeners fall into. and had to, had to, uh, in, and past finance reviews is think about the he lock as a short term financing solution. Three to five years at most, ideally less. And what I mean by that is if you buy, let's say, uh, you get a $60,000 helock at a five percent interest, right? Well, in just the principal payment, forget the interest is $1,000 a month to repay that

over a five year period. And so if your property only generates $200 and, or $300 in cash flow, you're a effectively squeezing cash out of your life by getting that HELOC out or you're not repaying it in any timely manner by using that to finance the purchase and then also getting a mortgage on the property. Does that make sense? I'm probably not explaining it totally. No, no. And so this is kind of we were planning basically like the cash that we currently had was sort of earmarked for other things, but we were planning to have by like fall, maybe end of the year like another 10k in cash that we were going to use to buy a property, like, in a much cheaper area,

and then have the HELOC, like, maybe to do any repairs or whatever, and then refinance the property. However, now with the, this is where the baby... That's a great use of the HELOC. So, but now with this baby coming, that, like, original 10K cash that I was going... So I was planning to use around 10K cash plus the HELC to get into a single or preferably multifamily in a low cost of living area that was within a two or three hour drive. However, now with this baby situation, I feel like that 10K may have to cover some unpaid maternity leave.

I don't know. And this is kind of where all of a sudden, like, we're stuck and, like, not sure where to move or if we should just shelf this real estate investing idea or what to, I don't know. This is where I'm like, I don't know where to move forward from here. So I would say right now start looking for the market that you think would be a good investment in the two or three hour drive window. And looking doesn't mean you have to go buy a house. It just means that you're checking out the different areas. And when you have found a couple of areas, take a drive up there, check out the area.

Really look at it. Get into houses and smell them and see what other houses are renting at and see if there's a lot. and see if there's an opportunity for cash flow, really, you know, explore the markets, narrow in on a couple of them and then reassess your situation. That's not like a one weekend trip. That is a, you know, several month process. And you could be still looking by the time the baby comes. And everything's fine.

You don't have any unattain maternity leave. You can go back and continue your job and everything's great. Then you invest. or you've done your research, the smoking hot deal comes up, you're able to jump on it because you know it's going to be a good deal. And then it's not such a big deal that it might take up some of the $10,000. Or maybe it doesn't take up the $10,000, which is what makes it such a good deal. I would definitely continue to look at all your options and do some research. And even if now is not the best time to buy, you have narrowed in on a couple of cities and you can continue to watch the

market so that when a good deal pops up, you can snatch it, even if it's in the future, you know, one or two years down the road. I do like the idea of rental real estate sending you back some, what do they call it, mailbox cash? Yeah. Oh, I just want to, I want to chime in in addition to that and say, I'm going to change what I said from earlier and say that if this is your plan and you have some uncertainty around the baby and the real estate stuff you want to do, then I think that your extra cash, you know, I think the Roth is great in some of the IRA stuff, but I think you need to continue buffering up your emergency reserve because it sounds like you're thinking about how to get opportunistic and creative about things and entering real estate.

And I think you'll have a lot more confidence to act if that's bigger, even though it will be returning zero in the short run. I actually think that you're going to get a really, you might have a chance of getting really great returns and sleeping a little bit better and being able to do both have the emergency reserve for the baby, the uncertainties around the baby and go into real estate with that. So that to me actually makes me want to revisit that assumption about whether 10,000 is enough, given all the cool things you guys are thinking about doing. So you think just like stack the cash for now, hold on to it and for either baby or

real estate investing and not pay down the mortgage? Well, I think that I would, I think that the emergency reserve, yeah. I think you have several moving parts of the strategy here in an unusual situation that I think has some really cool options. So I don't know, you're going to have to make a choice about which direction you want to go and whether there's going to be a timeline. Am I always going to push, shove all the chips towards the mortgage and try to finish out the game really quickly?

In that case, you just keep doing what you're doing and shove all the chips at the mortgage, right? If you're going to go into real estate, then I don't think you do that. I think you have to build up the emergency reserve and capitalize the investment in the real estate appropriately and move into that. And that will change your timeline, but give you more income at the end of it, most likely, than if you go this route. So, you know, I think you've got a couple, you know, if you want to say, hey, I'm going to forget all this and go on a 15 year timeline and just stack wealth, then you don't pay down the mortgage and you do exactly what you're doing with the investment approach and pile the money into the Roth and the IRA passively and find a creative way to add value somewhere else. So you've got several different options, but I think you have to kind of frame out your strategy and will change how you allocate your excess cash flow.

I like that. I actually like that the most kind of letting the mortgage be what it is because it is so low and it's fixed and we've got a nice interest rate and just building capital, just saving, saving, saving. And then when we do find that rental property like Mindy was saying, you know, after doing a lot of research and really going to places and getting a good understanding, of where it is we want to buy, we will have like a nice nest to like basically put down, bring that mortgage way down.

Now like when you are renting it, you're getting good cash flow on a monthly basis, which seems like that's security. Yeah, especially if you can add value in a handy world by actually rehabbing the property to a certain degree. That is where I think all the value. you add is right now and a lot of leverage is with that. So I think I think that that can be a really lucrative option for you guys if you're if you're able to do that. And because that will not translate to taxable income in the short run for you, that there's a lot of power to that

if that's a way you want to build wealth. But again, I think what's interesting about you guys is you could just shove all the chips to the mortgage like we talked about earlier. I'd pay that dad. You could do this and you could continue doing what you're doing with the investment approach. you're going to win in all three scenarios. You have no bad option here based on the, you're accumulating $83,000 in cash every two years at this point, right? Or two and a half years at this point. So you're going to continue to get wealthier over time.

You just have several cool avenues to explore that I think will change the way that you want to allocate with this. So it sounds like real estate's, if real estate's the option, then my belief is that you might be wise to cut back a little bit, maybe continue with the Roth or one or two of those. I always like the Roth with that. But some of those IRA investments and put more into the savings account that specifically geared toward the real estate because that will allow you flexibility. You won't have to finance that with the HELOC the whole way and have the stress of the leverage there. I just wanted to make a note like my pension from the research I did it. It kind of, it

of sucks. Like they, they mandatory take 11% out. But just like, I, so there's this whole chart you can go by. And if I'm making, so I'm year seven, if I get vested at year 10 and walk away, like if I do three more full years and then leave, I can't pull on it till I'm 60. And it's only like $12,300 a year that I would start getting at 60. And then if I stayed for 30 full years, I would be 63. It's only like 60%. It's not like the full 80%. They changed everything in Massachusetts. I think it was after 2012 and I started in 2014. So the pension, like, I don't even want to rely on because I'm not, I do not want to, I like my job, but I'm not like in love with it. And I definitely have no intention to work there till I'm 63. I agree. Your pension's not

nothing, but it might as well be on the moon for the conversation we're having with regards your fire journey with this. So I think that's the right way. Exactly. Yeah. So. $1,200 will feed your, there you go. Our $12,000 a year is $1,000 a month.

There's your groceries. Because you have one bottomless pit. Well, when the little one who's two grows up to be 15, she will be a bottomless pit. And then this next one will be a bottomless pit as well. I do want to go back to the live in flip concept that Scott talked about. people hear my story and equate me with live in flipping and think that you have to just take the whole house to the studs and replace everything. Those are the kinds of flips that I do. And I don't always take it all the way to the studs, but I do a lot of work.

You don't have to do a lot of work to make the house look a lot better. 1992 was not the golden age of kitchen design. So I know what your kitchen looks like and I've never seen it before. but I'm envisioning a lot of brass and a lot of oak. And that can be changed completely for not that much money. IKEA has some really great cabinets. I'm actually doing an IKEA kitchen right now. And there's cabinets at Home Depot that are considered off the shelf that are still pretty nice cabinets.

So there are opportunities to make little changes to your house. Or, I mean, a kitchen's a big change. Don't get me wrong. But there's opportunities to make small improvements that can go a long way. And if you're planning on being in the house for 15 or 20 more years, making the changes, you know, right now maybe don't do the kitchen because you might have to do it again in 20 years before you move. But, you know, fix up the bathroom, get rid of the pink toilet and put in a white toilet with a low flush. You know, maybe it's, I don't think they had pink toilets in the 90s.

But, you know, paint the walls, the current color scheme. Or there's a lot of things you can do to upgrade a house. Flooring is huge. If you can get rid of carpets and put in hardwood floors. There's a lot of things you can do that aren't as disruptive as it may seem when somebody suggests that you do a live-in flip. But if you've got this gorgeous backyard, making the house as desirable as the backyard will help you sell it faster when you do decide to move. And people will be fighting to buy it from you because it's so gorgeous. inside and out. But again, if you're going to plan to be there for a long time, you don't have to

jump into everything and strip your house to the studs and then start rebuilding it. So just something to think about there as well. That's a great way to build equity or force appreciation without having to live in a total construction project for the rest of your life, which is what I'm doing. Yeah, we were planning to do the IKEA kitchen and he was going to do it all himself anyway. So yeah, it's a really easy system to do. It's, I was surprised at how quick the cabinets go in. So yeah, you got to put them all together. But they're not even that hard.

Like, I don't know if you've ever put together IKEA furniture. You're like, oh, man, here's like a huge pile of parts that I have to figure out. With the cabinets, it's really, really easy and it's just repetitive. I've got, you know, oh, this is how a drawer goes together. It's done. This is how the cabinet goes together. It's really, really a lot easier than regular IKEA furniture. I'll stop.

I'm kind of excited to do it to tell you the truth. Well, if you want to learn, you can come visit me and help us with our kitchen. That's like $10,000 to $15,000 in wealth that you generate with activities like that on your house, whether it's a new one or the one you're living. It sounds like you're going to stay where you're at for very good reasons with that. Yeah. What are some other areas, you know, here that you want us to touch on or things to think through either things that have popped

into your head as a result of the discussion or areas that we haven't covered yet. That would be helpful. I think really it was my biggest question was, you know, moving forward with doing real estate investing and buy and hold and in what manner to use the HELOC because on one hand, I'm like, oh, yeah, we have this like 75K HELOC. It's at three, it's variable, but it's like 3.25% right now. So I'm thinking like, oh, we could buy a property. You know, we found this town in Vermont. And there's some multifamilies for like the low 100s or like 150s.

And I'm like, oh, we could use the HELOC to put the down payment, do some repairs and then refinance it later. But then I'm a little nervous of being those people that borrowed way too much money and got in over our heads. And I mean, that's why we're kind of taking the course. too is just because I you know we're this is all new territory um that we're learning about but I guess I'm a little nervous about pulling from that he lock and in what manner to use it and what's okay and what's you know not the smartest idea to do yeah I think I think that I would I would just reinforce that the he lock is you should think of a short term debt it's a great short term debt solution it's much better than hard money or private money or anything like that um because

of the low interest rate but I would not think of it as equity that can sit in the property for 30 years. If you're going to do that, you know, this is not like my favorite choice, but I would rather cash out, refy the house and use that if I'm going to use it as equity in the property, then use a HELOC because of the short term, first long term nature of that with the interest only thing. But I think it's a, I think it can be a great strategy. Yes, you're taking leverage and taking risk if you pull out the HELOC and then put it down

to rental property and put a mortgage on the rental property and then go to town working on it. So if you're going to do that, you've got to mitigate that risk by operating as efficiently as possible, adding the value as quickly as possible, and getting the money, you know, getting the tenant placed and stabilizing the asset as soon as you can to refinance back out. It doesn't mean it's not a good strategy, but it is a risk, and you can mitigate that risk by operating professionally against that as running a business while you're doing that project there. But I don't think it's, I don't think it's necessarily a bad choice. I do think you'll have a lot more comfort with that choice if you have more straight up liquid cash. It'll reduce the amount of helic you need to take. And I think you'll feel better about it if you have it there rather than having the extra 10K and the IRAs or whatever it is in that. If you choose to go the real estate route, that would be my tweak.

It's not a super high stakes tweak, but that would be where my mind jumps. And then so like for my retirement accounts, I only have. almost like 50K in my various Fidelity accounts and then there's about 50K in my pension account, which I mean, I don't know, again, coming back to the baby, I'm not sure like if I'll end up taking a leave of absence or, you know, leaving my pension money in there or pulling it out. But in total, I have about 100K in various retirement accounts and that's it, except, you know, not including his pension that he gets every month. So would you suggest should I say, I've been doing the $500 a month to my Roth IRA, like keep doing that and then just stack the rest of the cash in a savings account in going the real estate route?

I think that if I think that you got different avenues, right? And there's no wrong answer, like I said earlier. So you're not wrong to just put a pile of the money in the retirement accounts. You're going to win with that strategy. It's just it's just that's a different approach than buying real estate. So if you want to buy real estate, then I think the 500 maxing out the Roth every year is great. And then the excess cash goes to the savings account. If you want to pile up the money in the retirement accounts, I think that that just creates a riskier, tougher, more stressful situation for you when you enter into the real estate world, if you don't have liquidity and excess savings there. And if you want to just like, if you like the,

hey, like, let's just make this simple. And it's not really a math problem anymore about like, what's the best returns. We're just done as soon as we pay off the house. Then you have still another avenue to go with with, with just shoving all the cash toward the house payment. So there's no wrong approach there. I just think you have to figure out the strategy and then adjust the accumulation there.

But I do like the Roth, basically, regardless of which one you go with. I think that's always, I always like the Roth, the, max out the Roth, the $6,000. I like the Roth. I had to scream with that, actually, about a user via email. We really got into it a few times. I forget the person's name. But there's actually, there's some good reasons why the Roth may not be. But I like the Roth as part of that strategy.

I had a thought, and I mean, this might sound a little outlandish, but I was thinking because the retirement on her end isn't all that robust and, you know, at 60 percent having to work till you're 60. And what if she cashed those out? And then we put that back into the mortgage, reducing the mortgage, possibly maybe refinancing, forgetting about the HELOC, refinancing, pulling equity, $100,000 of equity out of the house. Now you're back to the $293, or $300 right around where we already are. And then you're using that equity to then put down on real estate. And now that it's, you're basically right, we're still where we are. She's just doesn't have that, that those two retirements that she's. But in the long term, I could see that being more lucrative.

Yeah, I love it. First, I love the strategy turning on with the thoughts and these types of things. I don't know if we have time to get all the way into that from that. But I think that's the right type of question. I don't know if that's actually going to be good in practice. When you liquidate a 401K, for example, you have to pay income on the 401k. And then you have to pay a penalty for accessing the funds early if you do it incorrectly or inartfully. I don't know if those, what rules would apply to this pension, if there are similar rules or types of things like that. And there may be lots of gotchas in the process of attempting to do that. But I think that that is, that would be one avenue worth exploring. But if you're going to begin making those kinds of moves, that's where you really need a CPA to advise you on the specifics of that, because you could be making a $10,000 tax mistake and then a $10,000 penalty mistake.

And you're left with $30,000 instead of what you thought you had there. So I think that's where I would be really cautious, but I love that. But what I think, what I love is that, okay, great. Now we've got like a couple of moving pieces to play with here to move the strategy forward. You know, they're all right answers. Again, because you save so much on a monthly basis. So you're going to win regardless of which path you choose. You don't have a wrong one.

I just think it's about playing the game and optimizing state. marking the goalpost in the finish line and marching towards it. And each one of those three, the fourth one might be a good one. There's tons of right approaches for you guys. Nice. My concern with paying off the house, though, is it would take us a long time. And it would only wipe out the principal, which is like 1,100. And that's still not enough.

Like, the goal is like, I don't want to, I mean, I don't mind working per diem. And that's kind of the beauty of being a number. Like I could I could quit my job and work per die, work a day a week, a day a month, whatever I want to do, depending on the job. But it would, I mean, it's a significant amount, but it would free, it would only free up like 1100. And my current income now, granted, there's some extra in there. Like, I bring home up almost 4,000.

So, I mean, a thousand of it's kind of left over. Some of that, like eight something goes to savings. So let's even say like 2,000. So it would be a. long time to pay it off, I feel like, and it would still be a situation where I would still have to continue doing something. And I don't, like I said, I don't mind, but I feel like it would just take so long to pay it off and it wouldn't be a 100%. Yeah, it'll take you about three, four, five years to pay it off. That's right with that at your current model. But if you can

jack that up by adding value to rental property and selling it or cash out refying or whatever that is or doing a live and flip. That was where I was kind of going with that. And I think that what I'm trying to say is if you eliminate the $1,100 in fixed mortgage expense plus $500 or $500 in the variable component, starting with that food budget, that would be real borderline able to be covered with just the pension was where I was kind of jump into with my mind. So yeah, you're right.

You would need something extra. You either need more income or you need to fine tune the stuff coming out on the budget. But I was just kind of thinking around that as the asset. But again, again, your number might just be higher than that. And you might need $4,000 a month, $50,000 a year, in which case you need to build more assets. And you can either do that through the retirement account stuff that you're currently doing or the real estate stuff that you're considering actively. Both are great options as well. Yeah.

I think it's important to not make any like sudden changes today. But there's a lot of things that we've talked about that, you know, oh, if we go down this avenue, it, you know, it frees up this amount. And if we go down this avenue, it generates this much. And if we go down this avenue, we can do these things. And it's, you know, neither Scott nor I are certified financial planners. So we're not giving you advice. We're just opening up your mind to different possibilities. And I think that you guys are going to sit down and have a money date for a few weeks coming up and just talking about it. And hey, what do you think of this? Well, I like this idea, but, or I love this idea, let's go to here.

And I'm super excited for the possibilities that you guys have. And when I was reading your application, it seemed like you felt you weren't far enough down the path to financial independence because you're getting a late start. You're doing awesome. You've got no debt outside of your mortgage. That's huge. Do you know how many people who are 39 and 47 and have a lot of debt? their mortgage and aren't making as much money as you and aren't saving as much money as you or any,

you guys are doing really well. What you're, the part of your fire journey that you're on right now is the boring part. The, okay, I've paid off my debt. Why am I not fine? Well, because now you're in the building process. And the building process takes a while. And it would be awesome to be like, now I'm fine. But outside of winning the lottery, which I do not suggest you play on a regular basis.

I never have. It's just going to go. And it takes a while. And let's be real about something else. Like you have this asset in the pension that does have those constraints with that. And that's earned. And that's something that you built and deserve there. And probably haven't been thinking about the value of that with that as well.

So, you know, that's something to be, that's a part of your wealth that you've been building somehow over this, over this time that I think you should be proud of and realize. as an asset that changes the equation for you guys and how you're approaching the your overall financial position. You're not, you're not worth like a hundred or a couple hundred thousand dollars. You guys are close to millionaires when you put in, if, if not more, when you, when you include that, that asset. So I think that's, that's, that's a fun thing to, I think, realize or think about, you know, in spite of, you know, obviously there's been some, some, some tough things that created that that as the output there. And also just the health insurance aspect of it, how lucky we are.

You know, I see in like the groups all the time, people are posting questions about, you know, what do you do for health insurance? And I know that something we're so lucky that it's, and it's a good insurance too. So, I mean, I guess as good as it can be here. But yeah, I feel very lucky about that too. As are and Jeffrey. Thank you so much for coming on the show today. We appreciate it. We had a great conversation, really excited about for all the options we discussed here. And I'll be really interested to see what you

guys end up deciding here. Thank you so much for having us, Scott and Mindy. We've really enjoyed it. Thanks, guys. You guys are wonderful. And we really look forward to exploring these creative choices you've laid out. I want to come back in and check in with you in a few months or maybe even a year and see what path you've decided on or what levers you've decided to pull to see where your financial future is going because I'm super excited for what your future holds. Thank you. We would love to check back in. Perfect.

And I want baby pictures. Oh, for sure. For sure. Thanks, guys. Okay. We'll talk to you soon. All right. Bye.

Bye. Have a great day. Bye-bye. Have a good day. You do. Thank you. Okay. That was Azar and Jeffrey.

Scott. What did you think of their show? I thought this was a fun one. I, you know, if you listened, you probably saw how much I got going in this. I think it's really fun when there's a couple of creative and unusual circumstances, and when there's a variance on the formulaic approach to FI that some people take. You know, if you're starting from zero and you have a full-time job, you save X amount, you've invested in stocks, you maybe learn a couple of real estate investments,

and maybe try a few pot shots and some side hustles, there you go. But when you have a pension, when you just became debt-free, when you've got all of the different, you know, when your time is available for certain things, but you can't earn above a certain level. Otherwise, your pension goes away. I mean, what a creative and interesting set of challenges from a financial planning perspective. And so I think we just had a lot of fun talking about those types of things. And hopefully some of the ways that the discussion was framed began to, you know, it was interesting or creative or helpful. and maybe you might apply to your situation if you're listening. Yeah, especially if you have a pension.

I didn't know that you could only make a certain amount of money per year before your pension starts to not pay the entire amount. And that just seems kind of silly, but also, you know, if you know those rules, then you can operate within them. We should congratulate them on becoming debt-free because that is huge. Yay, they're debt-free. The debt-free scream. It's more of a debt-free, hooray.

And congratulations on the upcoming new edition. That's very exciting as well. And I just see amazing things happening for them and a wide open future, even with a brand new baby on the road, on the way. They've got so much that they are, maybe not even with, maybe because of a new baby that they have on the way. They have so much to look forward to and so much fun coming their way. Scott, should we get out of here?

Let's do it. From episode 196 of the Vagher Pockets Money podcast, he is Scott Trench, and I am Indy Jensen saying make new friends on the sidewalk.