BiggerPockets Money Podcast - 206: Finance Friday: The 7-Step Plan to Financial Freedom

Episode Date: June 18, 2021

For most people, there tends to be a specific point in your life when you think, “I want to travel” or “I want to spend time pursuing my passions”. For today’s guest Ainsley, this happened about two years ago. She has spent the last decade or so being a stay-at-home mom, but is looking to up her household income by getting a job that will provide an extra $36,000 a year to the family budget. Her main question: what should this extra income be used for? Mindy and Scott come up with a step-by-step approach to hit financial freedom, even if you don’t have a large amount of cash or investments. Lucky for Ainsley, her home in the Pacific Northwest appreciated close to $150,000 in just the past year alone! Plus, she also has retirement accounts that she and her husband actively contribute to. While they’re doing many things right, they could improve on some simple things like boosting their emergency fund, starting an HSA, contributing to a Roth IRA, and getting their income up as much as possible. This is a great episode for those who don’t want to get into real estate, and instead would rather have passive investments growing on the side! In This Episode We Cover Mindy and Scott’s 7-step plan to hit financial freedom  The importance of keeping a healthy emergency fund (and where to store it) The pros and cons of taking out a HELOC on your primary residence  Always getting the 401(k) match whenever presented with one ESPPs (employee stock purchase plans) and how to take advantage of them  Roth IRAs, Roth 401(k)s, and other tax-deferred accounts Investing in a regular brokerage account once you have maxed out retirement  And So Much More! Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to the Bigger Pockets Money podcast, show number 206, Finance Friday edition, where we interview Ainsley and talk about investment strategies. I actually went to Barnes & Noble looking to sell our second home, like, you know, get geared up, and then I found bigger pockets. And then I read your book. I got from the library. I checked it out at the library. And that's when I learned about living on half. And it just, you know, where your brain is like, oh my gosh. I've been conditioned. Hello, hello, hello. My name is Mindy Jensen. And with me, as always, is my straight to the point co-host, Scott Trench.

Oh, thank you, Mindy. I have a joke about a pencil, but it's kind of pointless. So I'll move on from that one. A little dull, too. 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 for everyone, no matter where or when you're starting. That's right. Whether you want to retire early and travel the world, go on to make big-time investments in assets like real estate, start your own business, or back into a retirement about exactly 10 years from today will help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams. Scott, I am really, really excited for Ainsley's story because she is in a position where

she has paid off all of her debt and is now starting the climb to financial independence. And there is a lot of opportunities for her that I think a lot of people listening will also have opportunities similar. And the framework that we give her, I think, is applicable to a lot of different people. Yeah, I would say you'd imagine that their circumstance is among the most common set of circumstances that people will listen listening to the show might encounter in a lifetime. And that assumes a bit of privilege, you know, with that where you've got a reasonable income, you know, a reasonable upper middle class income from one one income earner. And then a path towards retirement that that involves a starting position of very little liquidity

and a lot of money in 401K and home equity, right? And that's a position I think a lot of people, you know, who have families at least are perhaps going to find themselves in over over a decade. So I think there's a, I think this is an approach that, again, a lot of people can resonate with and think about. And I had a lot of fun getting very prescriptive with this, which we're not allowed to give financial advice in this podcast. So it's all educational, informational, not prescriptive, specific detailed advice. Yes, but it was similar to what I would do if I was in the exact same position.

I would, what was your first step? We wrote these all down. you said this a lot. Oh, yes. So we have the emergency fund. Yes. We have a seven step potential plan, hypothetical, not specific financial advice, plan for exactly what to do with your money in this circumstance, right?

This is a circumstance where you have two incomes, one significantly higher earner, those kinds of things with certain benefits. Do you want to walk through that list, Mindy? Yes. The first point that she needs to make, or the first thing that we would do if we were in her position is save a $10,000 to $15,000 emergency fund because life comes at you no matter how hard you plan. Second step is because she has a 6% 401k match or her husband does through his employer, we want to make sure that he is getting the entire 6%, which is a 100% return on his investment

simply by contributing to his 401K. His company offers an employee stock purchase plan, which is, I believe, a 15% discount. they can save up money in from their paycheck into an account that purchases stock and then they can immediately sell it for a 15% gain. We would encourage her to do that and then take that money, save some for taxes and put it into an index fund, which seems to be her preferred method of investing. We want her to max out her HSA if the HSA is an option for her family based on health care and things like that.

We would love to see some Roth IRA contributions. We would love to see those maxed out. That's certainly what we would do if we were in her position. And then we would go back and finish up maxing out the 401K, preferably in a Roth option if available, because we are now both converts to the, well, I'm a convert. You were already there to the Roth option when available.

Finally, number seven is investing any extra money that they have into after-tax brokerage accounts. to help fund their lifestyle between the time they retire and the time that they are eligible to take contributions from their pre-tax accounts. Yeah, so that's a very specific approach. It's a good one potentially, if you're looking at a reasonably long-term 10-plus year, investing time horizon, you don't want to be active in any entrepreneurship or real estate activities.

You're pretty set on that. You're going to want to sustain this for a long period of time, such as you just moved to a good school district and you want your kids. to go finish up high school and college from that school district, those types of things. So this is potentially one, again, that would be applicable to perhaps a lot of listeners who are looking to go with a passive approach. And we thought it was potentially, you know, a really helpful finance Friday. I hope so.

I had a lot of fun recording this. Before we bring in Ainsley, let's talk about what my attorney always makes me say. 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 in. 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 Ainsley. Tax season is one of the only times all year when most people actually look at their full

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mental well-being. What makes Audible so powerful is its breadth. Beyond audiobooks, you also get Audible Originals, podcasts, and a massive back catalog across business, health, parenting, and more, all accessible in one app. If you're looking to turn everyday moments into real progress. Audible has been indispensable for me over over 10 years. Kickstart your well-being journey with your first audiobook free when you sign up for a free 30-day trial at audible.com slash BP money. Ainsley and her husband are recently out of debt other than their mortgage, and Ainsley is looking to transition from a stay-at-home mom to a working mom after 13 years. Initially, her salary will go to their emergency fund, but she's wondering what sort of

investments to make after that. Ainsley, welcome to the Bigger Pockets Money podcast. I'm super excited to talk about your story. Thank you for having me. I'm delighted to be here. Can't believe it. So let's start off with, what do we call this? Scott, not profit and loss balance sheet, income and income. The profit and loss statement, the income statement. How much you bring in and how much you spend? All right. So we bring in, we get 26 paychecks a year. So I just did the math and divided by 12. So it could be like a monthly. So everything involved with our housing is about 3,000 or about 2,965.

We do have an HOA included in that. Utilities is about 600. Food household items, about a grand, eating out about 100, gas, 150. Cell went down a little bit, 145. That's still, I know, expensive, but that's for the family. Car insurance, 40, pest control, 45, streaming 60. Our memberships about 25, like AAA and Costco. We donate a little bit, $10, $20 there a month.

Dog is about 100. Sinking fund, 200. That's Christmas, holidays, anniversary birthdays, close and then we have about left over a thousand and then we do an employee stock purchasing plan after tax for 433 a month okay great so that's investment 433 for yeah but that that's I guess our only after tax okay so so I'm getting a picture of about 5,000 a month in spending here give or take. Is that, is that about where that adds up to? I have 6,873. Oh, yeah, you said spending, yes. Mm-hmm. Mm-hmm. So I have 5,000 in spending and how much and how much income is coming in.

Sounds like we were getting a sneak peek on that one. Um, 6,873. Okay, great. And right now, is that just one income? Yes. Okay. And that's set to expand, do you think, in the next couple of months, but to some amount? What do you think that's going to expand to? to 2,000 to 2,500 take home. Okay. So you're in a great spot from a savings perspective with that in a general sense. You're obviously you have a huge amount of money going towards your housing in this. Nearly 60% of your spending is going on just your mortgage.

And then another, you know, 600 you can call it for the utilities. So that's, that's a, you know, that's 3,600 a month out of 5,000, give or take, and spending is all going towards your housing with that. What part of the country do you live in? The Pacific Northwest. We live like 10 minutes from Portland, Oregon. Ah, that makes sense. So knowing I already knew that when you said how much your mortgage was, so I was not surprised because that is a more expensive area to live in. Your utilities are really the only thing that pops up that might be out of the ordinary. Is that normal? Is that normal? in the area. I know some places have way more expensive utilities than others.

Well, we don't use a lot of anything. So we, I wash the clothes in cold water and we keep it warm. Like we, you know, seasonally we don't run the AC very much. We just try to keep things low in that sense, you mean? So we're pretty gentle on the house because I'm a budgeter and I have have been for so many years. So I know how those things can make a difference when we're just dealing with like having to work within a budget. So we try to try to make sure. But I think that Washington is pretty fair though, because we're just over the bridge from Oregon. I don't know about Oregon, but we're near right next to Vancouver. And so I think it's pretty fair priced here. Okay.

Let's walk through your balance sheet next, your assets and liabilities, investments and liabilities. What do you have there? Well, mainly we have our 401K, which is $245,000. We just have one and my husband's. And that we have 9% going toward every paycheck. His company matches up to 6%. And then we have...

it invested in a Vanguard Target Day fund for 2045. And I just listened to the simple path to wealth and J.L. Collins said, if you want to be more aggressive with that, you just, you know, put out the date for further. So that's one of the questions I had. Should we make it for like 2065? I think that's as far as we can go into the future with a target date. But we don't have the the option of picking and choosing outside of that, something through the Vanguard, because the company uses, I think, fidelity or something like that. Okay. What about you? It sounds like you have a house.

Oh, yes. Can you walk us through that, the home value and the mortgage as well? Yeah. We bought it for 535 one year ago. it is now worth about 687. We bought it for literally it's booming here. That's amazing. Booming.

I hate real estate. I know. It's crazy because it's like now I'm so glad we got in. We literally bought this house sight unseen coming from Florida during the pandemic. We bought one year ago. So we, that was another question I had. I don't know what I don't know. So if we wanted to accelerate our FI and all that, and we can talk about that.

But, you know, we lived for many years in a very small house, like under 800 square feet, and the bubble happened, and we were just going to live there and sell it in two years. We ended up having to stay there for 13 years because of the big recession. And that was back in Florida. And so since then, we purchased another home in Florida. stayed there a couple of years, but always had the idea of moving out west. And so we did that during the pandemic. And we bought a house out here, but 535 isn't crazy out here. And we needed a little more square footage. So I think after 13 years, I don't know if this is like being

luxurious, but, you know, we wanted like 2,000 square feet or a little more. So this is about 2,543, we bought it at 211 a square foot and now the average in the neighborhood is 246 a square foot in one year. So you have, yeah, the property value is 687 and you owe 500 on the mortgage? Yes. Okay. And do you still own your other home in Florida or do you own any other real estate? No. And did you roll most of the equity in your former home in the form of a down payment on this property or liquidity, that kind of stuff? $27,000. Because we paid off, in order

for us to pay down our other debt, we used that money for that. Okay, so you sold your home in Florida, and it sounds like some of that went towards the down payment for this property, and the others went towards cleaning up other general debts that you accumulated in various places. Is that right?

All the rest, yeah. Okay, so the big assets we have here are the home, and then the 401 Are there any other assets we should be aware of here? No, I don't count my car. It's 2006. It's cut 210,000 miles on it. And we don't have another car.

So we're pretty good in the transportation end of it. What about cash or liquidity? We only have a, that's the thing. We only have $1,000 in our emergency fund. So that's where we're at is to boost that. and I wanted ideas on that. Should we do like, you know, six months all in a savings account or should half of it go, like, let's say, 15 grand in that and then 15 in something that accrues interest?

I don't know. It just seems like a lot with inflation, you know, to just be sitting there. I didn't know what to do with that, but we don't have cash. We only have a critical plan, whatever they call it, you know, like the thousands. So I'm gathering a picture of a financial position where maybe this, maybe you had had some debts or those types of things and you really recently turned your attention to really kind of intentionally building wealth, maybe moving towards FI or those kinds of things. Is that true? Very true. Very true. Because like I said during the, we had plans. I didn't really have like the big picture like a FI community paint. and I didn't happen upon that until like a couple years ago. I actually went to Barnes & Noble looking to sell our second home, like, you know, get geared up.

And then I found bigger pockets at Barnes & Noble. And then I read your book. I got from the library. I checked it out at the library. And that's when I learned about living on half. And it just, you know, where your brain is like, oh, my gosh, I've been conditioned. And so it's only been the last couple of years that I've been thinking in these terms. It's really been just riding the economy because we had plans of, you know, my mom was a real estate agent, you know, every two years, buy a house, you know, upgrade or, you know, make money off of that.

But because of the big recession, we had to stay in our little house for 13 years, which wasn't a part of our plan. So we're just kind of like where we, I don't know, we just are kind of starting over, but also out west right now. Okay, great. So to me, what I'm gathering is you are just finishing up what seems like a several year journey to really clean up your balance sheet and all that kind of stuff. I imagine you've just come out of paying off a lot of tic-tack debts, it sounds like, most of them driven by that, that the home sale perhaps are accelerated by that. You've just moved across the country. You're thinking about getting another job.

You're in a great position to begin having a lot of excess cash flow into your life. And the question is kind of, what do I do with it? And why do I do it that way? Is that right? Right. Like in 10 years, I would like to have us not have to work, even though my husband wants to work. So I went, when we met back in 2000, we loved to travel, we, you know, we just want to return to those days in a way.

And in 10 years, our kids will be just finishing college. So that's kind of our projected goal there is to set ourselves up for, you know, choosing our life, not having to work. but wanting, you know, everything in our life choosing that and that freedom that comes along with it. Awesome. Okay. So here's the hand we're playing here. You've got a great situation with no debt. You don't have an emergency fund, but you've got a good amount of home equity, thanks 2021 housing market. And you've got $245,000 in the stock market. So what's the approach that backs you into wealth in 10 years? next question is how much wealth do you think you'll need at that point and how hard are you willing to work to get that so do you want to for example do you want to just stockpile

$4,000 a month, which is what you will probably be able to accumulate once you bring in an additional $2,500 after tax here? Do you want to just stock that into something passive like index funds? Or are you willing to think about things like real estate investing and entrepreneurship on top of that? Index funds. We're we don't like confrontation. So I don't know if becoming, you know, having tenants is our thing. Okay. That is a, that's a valid response. Not everybody has to invest in real estate.

I just said I hate real estate because of your ridiculous increase in price on your house in one year. You shouldn't get $100,000, what is it, $150,000 in increase in one year? That's nuts. But, I mean, great for you. but I am a primarily buyer's agent, so I hate this market right now. I digress. You originally said that you get 26 paychecks a year. Do you live off of the individual paychecks because that's 24 or one or two a week? And then the two extra paychecks could be used to either jumpstart your emergency fund or boost an investment.

do you plan around that or do you just plan it as divided out by 12 months? Both. So because we are starting over and we've been paid like that for the last few years, I did plan on, because we upgraded, we don't have a lot of furniture and we didn't want to put it on credit. So like the next time in October when we get that third paycheck, I was like, we're going to IKEA, you know, like fill in some of these gaps because we look like we live in a dorm right now, but a big dorm.

But I'm going to introduce you to Facebook Marketplace. Oh, okay. And an app that someone sent me called Freebie Alerts. People give away so much stuff. You don't need to go to IKEA and buy a bookshelf. You can find 57 on this freebie app. And it's a crapshoot on Facebook or on Freebie alerts because we needed a fish tank. And my husband's like, one hasn't come up.

I'm going to go buy one. Three days later, there's a fish tank on freebie alerts with all the stuff inside. So, you know, if you know what you want, I need seven bookshelves. Great. Keep track and just respond when it pops up and you can go pick it up. And that's a great way to get a lot of free furniture. People are also selling a couch. I just sold a couch.

I didn't pay this much for it. It is a $15,000 couch if you go and buy it in the store, which is utterly absurd to me. I got it for $200. and I sold it on Facebook Marketplace, you know, I just flipped it because it turns out it's too big for my house. But people are selling really nice furniture for really low prices. And, you know, you want to know if it's in a smokehouse or a pet house. But otherwise, otherwise, I mean, there's some really good quality furniture that's being given away. So before, you know, you don't have to wait until October.

Set up freebie alerts. Well, you know, popping back out a level here, you've kind of just given us a lot of the information. that we need to kind of conduct a strategy with this where you're like, no, I'm not willing to do real estate or entrepreneurship, really. I just want to invest in index funds and save and invest. Is that what we're hearing correctly? 100%. Okay. So, I mean, that gives us a really simple philosophy that I think that, you know, for us to attack here, it's about how much after tax cash flow, how much of your income can you save

and apply towards these investments over the next couple of years with that. How can you fix your spending at where it's at right now or keep it below a certain threshold by budgeting very tightly and then bring in as much as income as possible? And that's how you just pile it into the, you know, you pile it on bit by bit by bit over the next couple of years into this. So for example, right now you say you bring in $6,800 a month after tax and you spend $5,000.

that's $1,800 per month in savings, right? So that's over the course of a year, that's $18,000 plus 36. What is that? $21,600 per year that you're saving, that you're able to put into your index fund. And there's probably a little bit of nuance here where you have 9% of your income going into the 401K pre-tax that you're not counting in that $6,800.

Is that right? Right. Okay, so I would say that you're probably saving you have the ability to save or invest on the ballpark of $22,000 per year right now. And when you start bringing in another $2,500 a month, that's going to increase your ability to save from $21,000 or $22,000 to $50,000 annually. Okay. Over 10 years, that's $500,000 that you will be able to have piled into your investments.

And you'll be doing that on a regular basis, month by month, year by year. So the early country... Is that without the return? that's without the return yes so each part during that journey you know the stuff you invest now will have 10 years to compound the stuff you invest at the bottom at the end will have no time to compound um right so um that's generally the approach the next piece to it to layer in top of that and it sounds like you're all you're all in on the index fund philosophy which i think mendi and i are aligned with we like we like index passive passively managed index funds for the long run with that so

from there, the question is, how do I use tax-advantaged accounts like the 401K and Roth IRA to my advantage during this process in combination with that approach, right? And so I think that's where perhaps the meat of the discussion today could be, is in thinking about how to do that. Your core fundamental is how much you can save. And that's your budget and those types of things in your big roadblock there, if you want to dramatically accelerate retirement, is your housing expense. If you can figure out a way to lower the housing expense, in the next couple of years, that would dramatically increase your savings rate. Everything else is kind of small potatoes in comparison to that from what I'm seeing in your budget.

Okay. But with that, that should be good news. Hey, we could save $50,000 per year right now. Very realistically after you get back to work full time with this kind of stuff. Thank you for doing those numbers because that's what I wanted help with. And so that's not going to put you all the way over to like multiple millions, but it'll put you pretty darn close to a million. I can't do the mental math in my head around the curve that you're going to be riding

there. But it'll put you pretty darn close to being a millionaire, if not well beyond that, especially if you get a couple of raises and increase that income without increasing the spending too much during that period as well. Well, that's what I think my husband's been at the same job for a couple of years. And in the middle of that COVID hit, he has been getting a lot of great feedback from his bosses and all that. It's a very strong company. So we're hoping, you know, we'll see that income scale as well. Great. And that's the whole fun part about this is that, you know,

if nothing changes and you're able to do what I just said, that's 50 grand a year easily that you could potentially pile on the investments with that. But the, the likely what will happen over the next 10 years is if you guys are being intentional, you'll probably find some ways to not accumulate additional expenses, cut back on some things. increase that gap a little bit more on the expense side and likely receive some big raises there increasing your savings rate from 50,000 maybe to 60, 65, 75,000 per year. That's how you kind of really make a massive impact on your financial position over time with this. So the fun part, though, with this is what do we do with the cash that you're about to start stockpiling and droves here

if all goes according to plan? So my first step for that cash would be emergency fund. I think I think you I would imagine your situation is a little stressful right now. And effectively, you're almost paycheck to paycheck with some of your expenses here because of the fact that all that wealth is in the 401k and home equity right now. So I would build yourself up a buffer of three to six months of spending. You know, you could probably get away with closer to three if you're planning on going back to work here because you'll have two incomes. That'll be a little bit more stable. But Mindy, what do you think? I see several things. First of all, I see, I mean, you're doing great. You have a lot of options. Have you thought about opening a helock? And that's a home equity line of credit. You go to a bank. You give them your information.

They say, we will give you a credit line of $50,000 or $100,000 or whatever. It's based on the equity in your home. You have $150,000 that's just kind of sitting there. That could be a good way to buffer your emergency fund just in case something happens. You don't have to take any money out. It's just there. And you can access it if you need it. So your car dies tomorrow.

You've got this helock. You can take it out, pay for the car, and pay the money back. Or, I mean, you know, do the math and see which if the car company is offering a lower interest rate, you know, go with that one. But having the helot can be a nice buffer. for short-term money just in case until you have your emergency fund open. I don't, Scott, that doesn't count against your debt to income, does it? I think it will impact that a little bit. And I'll all slightly differ from Mindy here, where it seems like you just paid off a lot of debt

from various sources here. And given that, if, you know, that context, I'd be wary of relying on your HELOC as your emergency fund in this situation because you have no liquidity acts you have no ability to access liquidity right now unless you liquidate your 401k or sell your house and and i think that's a that's a tough that's a stressful spot to be in and so the first bit of this shouldn't for me be about returns it should be about let's put a little buffer between you guys in the world you got a you got a couple of kids you got a car with 210 000 miles all that kind of stuff i like having 10 15 000 in the bank that you can spend on there rather than having to tap into a credit line for to manage the day-to-day

life. Now, in the immediate future, while you're building that up, if that's where Mindy's saying, that that would be a reasonable place to go rather than like a credit card if you have an emergency. But I would really kind of, with a sense of urgency, be piling money up in the bank right now. That's why I'm trying to get a job so we can get to that place. But this is all like literally two months ago we paid off all our debt. this is very fresh. First time, it's always seemed like we've been $35,000 in debt outside of our mortgages. So it's new to us, but also we've only been here one year. So would we be eligible for a HELOC or do you have to? Yeah, you'll be eligible for a HELOC, I think. If your credit's good and you've got equity in your house, I think you'll be able to get one. Okay. Yeah, we have good credit. And that's where I was going, Scott, is while you are building up your emergency funds. fund, see if you can open up a heloc because a helic is going to be, and I'm not a banker,

so I don't know for sure, but like three, four, five percent interest as opposed to a credit card where if you have to put a big purchase on a credit card in an emergency, that's 12, 14, 21 percent interest. So I wouldn't open up a helock and immediately start borrowing from it. I would open up a helock as a backup emergency fund while you are looking for a job, while you are after you found the job growing your emergency funds. So thank you for the clarification, Scott. Because I had that in my head.

I just didn't share that with anybody. Step one is build an emergency reserve. Step 1A is open up a helock just in case, but ideally never spend a bit of it. Yeah. So we have a 0% interest for 12 months card that was just sent to us by Discover. because we had another one open with them that we did a balance transfer a year or so ago during the move and all of that that we paid off. And they just put it in the mail and sent us a letter saying,

we're sending this to you. So that has 12,500 on it. Is that a 0% interest for 12 months on any new purchases or on balance transfers? New purchases. Okay. that isn't necessarily a bad option either again just for the emergency fund but then what is it joy what does it jump to oh you know it's probably 14 percent or something like that yeah so i i get i think i think we're getting you know i i like the the concept of the helock here with some of these things

and and access to credit but that's not really the game here you guys just pay it off all the debt, you should be able to accumulate at least $1,500 a month right now without your working. And when you start working, you'll be able to accumulate $4,000 a month easily, you know, plus. And so you should be able to build up an emergency fund very rapidly to the $10,000 to $15,000 mark. And you won't have to worry about these problems anymore. When the car, you know, needs a repair, you just put that on that.

You're not worrying about carrying a credit card balance or tapping. into your Helac. That should be priority one, and I would make a goal to knock that out in the next three to six months. With those types of things, life will always get in the way in the first little stages of that. But that would be, step one for me would be crush that and build that up without, I don't think you have to change anything about your company match or anything like that. Keep taking that. But just focus all of your excess cash on building up the emergency reserve. From there, I think we beginning and getting interesting again. And there we have to say, you know, questions like, does your husband's job have a Roth 401k option or a 401K?

Which one are you selecting amongst the two of those? I don't remember them or ever reading anything about a Roth 401K. We're in a 401K. Okay. Well, that might be a good research thing. It's just to double check and see if there's a Roth option for that. And we've had a number of discussions recently on the Bigger Pockets Money podcast where we've talked about Roth versus 401k option.

I think we've converted Mindy to the true faith of the Roth IRA with some of those things. And I think there's a lot of advantages that I like about the Roth and would like, even in your situation where your income is about to increase. I'm gathering your annual income is somewhere in the ballpark of like 100 pre-tax. Is that right? It's 115 base. And then at the end of the year, he does get like an 8,000 bonus sometimes. Okay. And then your job would add in another 40, 50,000 on top of that? 36?

Yeah, I think so because, like, out here, most jobs, they're about 18 an hour, 18 to 22 an hour. And then full-time, I've done the math. It would be about 2,800 before tax. Yeah, for full-time. Okay, great. So that would add another. and it's kind of already kind of gone over at the high level of those things, but I think you'll still be eligible for a Roth IRA at those levels. And if it's offered through the company, you'll definitely be eligible for it if it's through a Roth 401K. If your new job, and could you remind us, I think we talked about it right before we started recording, but could you remind us

of the jobs that you're considering for yourself? Library aid, and that is through a city. So it's a city job, but because it's on call, it's not benefits. that could change if a regular position opens up. So I'm not really considering that one. But the other one has a pre-tax annuity. That scares me away instinctively, but I have to know more details. Yeah, I don't know what an annuity is. Oh, it's like an insurance that pays you for the rest of your life.

My belief is that if you are paying into that and funding that, it my my instinct is to say be wary of that as a program if it's a pension that's offered from as as a perk of the position that then that changes things with that that's just another benefit layered on top of your your your hourly or annual yeah i think it's like for non-profits or something i think it's a retirement vehicle for a non-profit or something like that it's t iAA okay so i would say now is a really great time to research that because if you're working for the city, chances are good you have the 401k or similar option and a lot of city employees have a 457 option, which is my favorite and I wish I worked for the city, but they don't, they won't hire me to talk about real estate.

I think that's right. I think really understand these. And where I would be wary if I were you is, is what is it going to look? you said your goal earlier in this call is in 10 years to be a to be retired right and be able to travel all that you'd like and sometimes the benefits of these types of jobs are such that they really kick in into overdrive after like a 15 year cliff or a 20 year cliff or whatever and you find a lot of people who are halfway through that vesting period who don't want to stop until that that benefit program or the pension kicks in and so it would be really wise to do that research that

really boring and horrible reading through those documents right now to fully understand what it is you're getting yourself into with these benefits programs and figure back into hey 10 years from now when the kids are out of the house I want to be in a position where I'm not five years away from vesting into all of my key benefits like my pension. Oh right right. So you want to be done at that point and that and that can change the math for you to a certain degree about which jobs you kind of select and are entering into with these things, especially if you're looking at certain government positions. So I'd be, I'd just be really smart about those benefits and understand, hey, this job is going to pay me a little more, or this job might have a bunch bigger benefit that kicks in

after 20 years, but I don't want to do that because my goal is 10 years from now. So in that case, it would be wise to do the brokered accounts, like after tax index fund in that sense, with my paycheck. If you have a company. that offers benefits full-time, then you will likely, I believe you're wise to look at what is offered through your company because you may get a match, you may have a Roth 401k option, you may have other things available to you through that employer that will be superior to what you can get on the open market outside of that. If you go with the library assistant job that you said had no benefits, that job would be one where you would then need to turn to brokerage accounts that you'd

set up yourself for for your Roth or your 401k and I would I would encourage that you to look at the the Roth IRA option perhaps open through a brokerage um in the event that you you go down that path um that's not a bad alternative but employer benefits are often superior to those those options in my experience Mindy what do you think do you have anything to add to that am I going on the wrong track? No, I like what you're saying. And I think there should be a little bit of clarification. What I heard her say is that right now she has the on-call position, which doesn't have benefits, but there could be a full-time position that opens up that would have benefits. So I would look into, if she does get this other job that she was talking about with the annuity, I would look into see what exactly are their

benefits versus, you know, and then keep the on-call position. And then if an opening comes up, maybe they have such better benefits that that would make more sense to take that position over the other one. But just, you know, to be aware of that and keep that in mind. So the four tenets of financial independence are spend less, increase savings, earn more, and start a business. We've already discussed that starting a business really isn't something that you have a lot of interest in. Spend less. I think you're doing good on your spending. I don't think your housing costs are going down unless you move out of the Pacific Northwest. You are, and I don't want to say this is unfortunate, you're kind of locked into what you are in now.

Because prices have gone up so much, last year in June, the housing market was just starting to kind of come out of this COVID shock. And then it started going straight up. And then this year it's been even worse. So I don't know that there's a lot of opportunity to change your housing costs while staying in the Pacific Northwest. Of course, keep an eye on the market, see what's going on. If the market starts to change, maybe there's an opportunity. But I think that that's not going, there's not going to be a lot of levers you can

pull in the spend less category. The increased savings is going to happen when you get the new job. The earn more. I heard you say that your husband has a lot of great feedback. from his bosses. Yeah. And this is something that I think it's overlooked a lot by a lot of people. They don't want to tooth their own horn.

They don't want to talk about themselves. They don't want to, you know, oh, hey, I'd like a raise. Why do you deserve a raise? And in show 169, we interviewed Aaron Lowry again. Aaron Lowry, I always mispronounce her name. Sorry, Aaron. And she said what she does is in her inbox is keep a folder for successes or, you know, client thank yous or whatever. And anytime somebody praises her, she saves that to that folder.

So that when she can, when it's time to go ask for a raise, she's got all of this information right there. Hey, I had 400 instances of client success. Here's all of them. I had this. I had that. And so I would encourage you and your husband to start keeping track of successes. What did his boss say? Oh, I'd like to see you increase sales by 13%. Hey, I did it by 18%. And here's how I did it. Or, you know, whatever it is, his job is, whatever his boss is looking for, Scott can attest to this. Bosses like numbers. They like success and they like for you to be able to prove it. So here's all the stuff. And it can, it can feel a little daunting when you're like, oh, I really don't want to talk about how like my customer was just happy. Yeah, your customer's happy. Let them know.

Scott, how easy is it for people to be doing my job as community manager at Bigger Pockets? I'm the best there ever was because... Yeah, she's very good at it. It's, you know, but I also love it. But it feels weird to be like, hey, somebody was really happy with me. But you have to keep track of these things in order to be able to prove I would like a raise because it's been a year since I got one. Well, nice for you.

That's not how you get a raise. I would like a raise because I increased performance. I did this. I did this, I did this, I did this. And here's the stack of proof to show you what I've done. So I think that is a really good lever. I think the timing too with COVID has been strange about that is when do you ask for a raise with coming out of something like this? That's an excellent point.

You know, but I know that the company has the profits 23% since last year. And so they've done pretty well. despite the pandemic. So yeah, I think I think you're right. It's hard to toot your own horn. And especially with my husband's personality, he's very, he just gets along with people. And he just really enjoys his work. So it's just not a part of his nature to do that. But I'm the one who has to kind of have to push him because I'm like, I'm at home. You know, it's my job, I guess, to push him. I don't know. But yeah. Well, I can see his point exactly. I have a job. In a time where everybody's losing their job, I have a job. Why would I rock the boat and ask for a raise? Well, here's that stack of reasons why. Because I'm so good. Company, you're up 23%. You don't want to lose me. Maybe you'll go down a few percent because I left because I'm so awesome. So, you know, I understand both sides, but I'm not here to say, hey, it's okay to not ask for a raise. I'm here to say, ask for that raise and show them why.

Yeah, I think that that's wise. And I think that this year is a good, you know, wages are going up in 2021. So there's probably a good opportunity there. Your husband will probably know when the timing is right if the company does the annual reviews at a certain time of year, for example. A lot of companies do that because otherwise the person who asks is the one who gets the raise rather than, you know, a more equitable distribution of those types of things. but but but i would definitely i think that and mindy has a lot of good points with that i want to go back

to what i think is the central problem or opportunity for you which is an investment philosophy or an approach that you a playbook for what to do with the cash that you're about to accumulate when you go back to work with this right so again we have 50 000 a year give or take that you guys should in theory be able to begin accumulating and investing right and we think that that's actually a reasonable ballpark number, right? That's not a crazy high number. The only thing is is that $400 and some odd dollars of that per month is the employee stock purchasing plan. Okay, great. And you're buying that stock at a discount, right? 15%. Yeah. Okay. So I love that. I think that's free money and I would start with that. I would, if you can do more on that, do more on that. And if you

don't want to hold the stock long term, sell it as soon as you can and then just put it into your index fund. But if I can buy stock for, that's a price at $100 for $85 and then turn around and sell it, I just made $15. Right. And so when I had the employee stock purchase plan at my first job, I maxed it out. I made $48,000 a year and I put $25,000 into the company stock. And then I sold it right away. And yes, I paid tax on the gain because it's a short term gain, but I put it right into my index fund. And that's an easy arbitrage for you. So I really like that. I see no reason not to completely max that out and take the gains there. You might lose once or twice over the course of 10, but over the course of 10 years, you're going to average 15% or probably a little

better by doing that type of return and selling at the earliest opportunity or leaving it invested there. So I like that as the number one place. The first step I do, before I even do that, is I'd put $10,000 to $15,000 into an emergency fund. Whatever, you know, three to six months, those, you know, 10 to $15,000 is a range. You could go a little lower, a little higher. But I'd get some cash in the bank that you can spend to account for emergencies. Then I like that employee stock per ESPP with that because you're likely buying it at a 15% discount

can turn around and sell it. So I think that's a great spot to go. Do you have an HSA option at work? Yes. Okay, I would max that next and invest that. So we had a long discussion about why we like the HSA with the mad fiantist and then again with Kyle Mast on episode 200. And there's a lot of good reasons why the HSA is really, really, maybe the ultimate retirement savings plan with that. Right.

It's triple tax sheltered or something. Actually, before that, before we get to HSA, you have a max. match, a 6% match in your 401k, right? That's free money. Take the free money in the 401k match before you even do the ESPP. But I'm doing 9% right now. So should we reduce it to 6 and then use the other money for these other things or just keep it? I don't think you'll have to. I think you'll be able to do many of the things that I'm describing here today. So you won't have to necessarily make too many tradeoffs until we get farther down the list. But if you have to make tradeoffs. The first thing I would do is save 10 to 15,000 in the emergency fund. The second thing I would

do would be to take the match in the 401k, the 6%, right? The third thing I would do is take the ESPP 15% discount. The fourth thing I would do is max out the HSA. The fifth thing I would do would be to max out the Roth IRA contributions. The sixth thing I would do is to then, if there's, if I don't have the Roth option and I have ability to continue to put a little bit more in, think about tax deferred, like the remaining 401K contributions with that, and then if there's money left over after that, which there may be in your situation, even though it seems like a lot that I just outlined, then I would put that into a after-tax brokerage account with those types of things.

And this will be a really tax-advantaged approach to building wealth, I think, for a lot of reasons if you have a 10-year timeline and plan to stop working at the end of those 10 years and do a lot of things. So, Mindy, what do you think? I got a seven-step playbook there. Wait, one, two, three, four. What do we think? Oh, I only have, I only, how did you get seven out of that?

I have seven. So let me repeat it. Step one, 10 to 15,000 emergency reserve. Step two, take the 401k match up to 6%. Step three, max out the contribution to the employee stock purchase plan, where you're literally buying the stock at a 15% discount, and then either keep the stock or sell it at the first available opportunity and put it into the options downstream,

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All eight episodes now streaming. Only on Disney Plus. Okay. The question about the employee stock purchase, You said 433 a month, which I did the math, and it's 5196. Is that the most that you can buy from the employee stock purchase plan? No, that's, we just did 5%. What is the most you can buy and how frequently can you buy it?

Because like Scott said, you can flip that to make a 15% profit. Do you have to hold it for any specific amount of time? I don't have an employee stock purchase plan. So I don't know all the ins and outs. But I've heard, you know, you have to hold it for a certain amount of time or it's invested for a certain amount of time. So I'm just wondering. And more for if you don't know the answers for these. So you go look at these answers.

Because if you can buy it today and sell it tomorrow and make 15%. You can afford to put all your money in there because tomorrow you're getting it all back plus 15%. And then... The way it worked for mine, just for context, is I could purchase up to $25,000 in the stock per year, or maybe $25,000 minus 15%. I can't remember the specifics. But let's say I put in $25,000 and then I could sell it for $25,000 plus 15%. So that would be like $2850 or something like that, right?

So I would, in the first quarter, I would basically put as much as I could in there. Let's call it $10,000. and then I'd sell it for 11,100 with that. I'd make 1,500. The rules were I had to take it out of each paycheck and it kind of like sat in a holding account until the end of the quarter. Then it all purchased at once, and the next day I could sell it immediately after it purchased.

So I was kind of like not seeing it in my paycheck for a temporary period of time, but I wasn't exposed to the volatility of the company's stock either in that. It was just kind of going into a holding account. So for me, I was just like kind of putting it aside, making no interest, and then all at once at the end of the quarter, making a 15% return because I could just sell it the same day. What are the chances the stock's going to implode by a huge percentage in one day? It's the equal chance that it's going to go up in one day.

It's probably going to move like one or two percent at the very most or even less. And so for me, that was a huge winner for me. And you'll get burned once or twice in 10 years doing that strategy over the course of the quarters, but you'll make tons more money, I believe. doing that to the largest extent possible with that. I mean, it's just a mathematically crazy optimal approach with that. So that was how mine worked. And I think that that is advantageous to every other type of investing you can do,

except for the 100% free money match in the 401K, which is a better, the first 6% match in the 401k. Okay. All right. Because you can just take that money afterwards and then put it into a 401K. So you're not, it's not like you're even, You're even risking that opportunity if you choose to sell it right away. Right.

Yeah, you take all that money. When you have income coming in, then you're, if you increase your employee stock purchase by the amount of your income, you're still at a net net zero. Is that how you say that, Scott? You're still even. And then at the end of the quarter when you sell it, boom, here's this huge amount of money that you can then put into your emergency fund, your. stock purchases, your Roth IRAs, your HSAs. I do want to caution that the HSA really doesn't work

well for people who have chronic illnesses. So if you guys are super healthy, it could be a great option. If you have chronic illnesses that you need the great health insurance, or if your company just has really bad health insurance. So just look at the HSA and make sure that's a good option for you. But if it is, it is the best tax advantage thing. And then as if you can cash flow your current medical expenses down the road, you can cash all those in. You have to save your receipts and save them to the cloud because all those receipts are printed on thermal paper, which goes away. It disappears. Right.

Yeah. So definitely take a picture and have a whole folder just for receipts. But that's a really great way to boost your income as soon as you retire. I don't disagree with the way that Scott is lining all these up. I think I, well, I didn't account for the max 401k match. So I did some math that isn't correct. But it still seems like there's money left over for investing in aftertax. And this is all your husband's salary.

So when you start your own job and have income, there's going to be a lot more opportunity to increase your savings rate. You want your husband. I believe you want your husband's income to go to the investments in the order that I kind of outlined earlier. And then your job may expose additional options. So, for example, if you have a government job, you may have access to, you know, one of their savings plans. And we can go down a whole rabbit hole, the advantages of some of the very wonderful

retirement plans that the government are offered through government jobs with that, if that ends up being a path that you go down. Yeah. With that. So there may be additional options that would then pop up and impact this priority order. Now, let me just caveat all this by saying that this sounds very complicated and it is. It's very strange, this world of American finance with this kind of stuff. If you screw it up or don't do it in particular in this order and you just dump it all into

index funds, you're probably going to still do pretty well over a long period of time and after tax brokerage accounts with those types of things, or you put it all in the Roth of the 401k. There's nuance and debate, and there's no right answer to this kind of stuff. So if you're worried about one theme, it's save that $50,000 and invest it according to what you think is the right philosophy inside some or all of these tactics, don't get too hung up on the specifics because it's a guess. You're guessing all of what I just outlined above is predicated on a set of assumptions about how the world will look in 30 years, right?

Whether tax rates will be higher in 30 years than they are today or not with that kind of stuff. So there's a lot of guesses going on with that. But the big key, I think, is to save and invest and can do that consistently over the next decade. And you're going to be directionally in the right shape. But I also think that caveat aside that this approach might give you better odds of reaping tremendous tax advantages in a fairly optimal way for a lot of nuanced reasons. the key would then be to go and really understand the nuance behind why that order is so important, right? The 401K match first and then the Roth and those types of things.

And that will take a couple of podcasts and maybe a couple of books to continue to wrap your head around with that. So I think that that's, it's taken me five years of going back and forth on this to really kind of arrive at that type of approach with that. And I think it's important to understand all the detail behind it. I do have a question. How does it work if people do retire before 65? How does the investments that you've done work to cash flow your life versus the like 401K and all that, which you can't really access until, right, 65?

Outstanding question. So you have said that your goal is to, in 10 years when your children are out of college, for both of you to retire and travel the world. Is that right? Mm-hmm. That's a very specific thing there. But in your case, I see no intent to retire in the next three years or to stop working yourself in three years and begin cash flowing that, right? If you had said that was the case, I would be recommending a different allocation and more in that after-tax brokerage account and maybe really kind of pushing you harder in the real estate avenue.

Because real estate and after-tax brokerage accounts can be spent on your day-to-day life without having to play weird games. but over 10 years, if you're going to be investing in index funds and stacking it out in those types of things and you have that long of a time horizon, I think that's where you can begin thinking about looking at some of the mad fientists stuff. And that's both on his website at madfiantist.com. And he's been on our podcast, I think twice or thrice now. And he has a strategy for how to access those retirement funds early. And there's a pathway to do that through something called the, Roth conversion ladder, which would be one way to move it from your 401k to your Roth. And because this strategy that I outlined has a very heavy Roth allocation, you'll be able to

likely withdraw the contributions to those Roth IRAs, not the gains, but the contributions as part of your strategy. And then lastly, ideally, you're going to have a large amount of excess cash even after you max out the 401k and the Roth IRAs that you will. will still be investing in that after-tax brokerage, which should bridge you from your early 50s when you are planning to retire to traditional retirement age of 59 and a half and 65. So how's that for a complicated, convoluted answer? No, no, no, this all makes sense.

And then when you say Roth, Ira, as I think it was step five, is that my husband and I or just for me? I would suggest you both. I like the Roth IRA a lot. And so the Roth IRA limit is $6,000 per person, I believe, in 2021. Is that right? Mendeer is at $6,500 now? That is correct. Okay. So that would be $12,000 that you could combine contribute to that. Now, you may be close to the income limit when you get your job with that. So you need to double check on that. I forget what how that looks for married couples. You might be phasing out slightly. So you may not be able to do, let's say you earn like $100. and the cutoff is 150, you might not be able to contribute all 12,000 to that. You might have to contribute eight or something like that to the Roth, depending on. Cutoff is 206 or 208.

For married couples who filed jointly your, what does MAG modified adjusted gross income? So after your income minus your 401K contributions and your HSA contributions, and then sometimes you have to add stuff back in, but it's really, really strange, and you would know if you have to add stuff back in. Yeah, so you're not in danger yet, but after your husband gets the big raise, that's when you're going to be approaching the limit there. Yeah, that'll be a good, bad thing. That's a good problem to have.

Yeah. And that's where the Roth 401k option through work comes in, because I believe you can get around the limits with that, and you can actually contribute 195 to a Roth inside of a Roth 401K. So that's why it's important to kind of just double check that, even if there's a 5% chance that you have that at work, that would be really powerful with that. So between that, let's suppose that your job didn't offer that and your husband's did, right? That would allow you to contribute 195 to the Roth through the husband's work.

And then another 6,000 through one that you would open up perhaps at a brokerage like Fidelity or something like that, right, with a Roth. And so that's 26,000 some odd into that. you're taking the 6% match in the 401k and you're maxing out the ESPP. So you're probably at your maximum at that point with those types of things. You probably don't have a lot left over. But here's what happens with the ESP because if you follow the strategy outlight, let's say your limit is $25,000, right? You're contributing $25,000, which means that you can't invest that $25,000 elsewhere.

But once you sell the stock, then you actually have all that cash, the $25, $27,000. you then can cascade it down the rest of your your plan here into the the Roth IRA and the 401k and the after-tax brokerage stuff. So you'll still have, you're just flipping it basically in the short run if you like that strategy. You can also choose to invest it in the company or leave some of it invested in the company if you like the company stock. If your husband likes the company stock, for example, and it thinks it's going to do well, that would be an option to leave large chunks of it invested in that. I don't know. It's, really up to me. He doesn't do any of this stuff. So I don't know what the smart. This is our first

time ever doing an employee stock purchasing plan. So is your, is your company involved, or is your husband involved in any insider information at the company? Like, is he a finance person or something like that? No, he's an engineer. Okay. So just, just as one caveat, I was in finance. So I, I had to set up my plan in advance to sell automatically. So, so that I could not trade the stock based on insider knowledge, for example, with that. So there may be some nuance there to explore, and it might be a little pain to set a few of these things up with it. But I think there's a lot to like about the approach. I think there's a lot to like about my approach to this investment. So you say, so you're saying max that out

if you can, because it sells twice a year. Like, okay, so then. And you won't be able to invest and other things while the money is sitting in those accounts, waiting for it to be available from the sale. After you sell it, that is when you will then have all the cash, and then you can apply the rest of the approach downstream here in maxing out the HSA, the Roth IRA, the 401K, and those types of things. You're going to have to trigger your benefits in kind of an interesting way. Your HR system is not going to be set up to handle this very well, so it's going to be a little manual, but I think it's a highly optimized approach potentially to doing this. Cool. Awesome.

Question Scott. The 15% that she is making in profit when she sells it instantly, is that, that's taxable, right? That is taxable. So if you sell, if you buy $25,000 in stock and you sell it for $28.50, then you're going to owe taxes on the $3850 in gains. And that's going to be short term and it's going to be taxed at a high rate, your ordinary income tax, just like W2 income. But that's like getting a raise. Why would you say no to getting a raise just because you're going to pay a tax on some of the gain? How confusing is that tax-wise at the end of the year when I'm doing the taxes? Not that confusing, I think. I think you'll be able to tell the basis at which you bought the stock and then the basis of which you sold the stock. And I believe the broker, either your company is going to facilitate that exchange or you're going to have some brokerage that does that for you.

like Fidelity's ESPP branch that handles that for you. And you should get a statement, I believe. That's what they said. Yeah, they'll send a statement. Okay. Wonderful. And then anything with, like, for instance, with the house, the, like, I could sell it whenever, just so we could keep going.

But my kids want to stay here until they graduate college. So I figure we're in a centrally located area with really good school. We're near Washington State University, Vancouver campus. We're near a lot of the Oregon schools. So I figure we won't have to pay for dorms or anything like that. What about anything with the house

other than the HELOC for the emergency fund? Any... Just keep it. Keep it. Because that was the other thing. Like we were thinking of selling it in 10 years when that happens for us. us the, you know, in 10-year goal.

I think your house right now is your biggest anchor to building wealth right now. And it seems like that's not up for debate. You're not willing to kind of change up where you're living or how you're living with those kinds of things. So I've ignored it for now. I think what will happen over the next 10 years is likely your house will increase in value to some degree, probably not $150,000 a year like it did last year, but that probably you'll be left with a gain at the end of that.

And my belief is that you probably... not buying a house, you probably don't own a house right now that you would have like, that would be the best rental property on the block. There's probably other better rental properties that you could purchase. So at the end of it, if you're going to move out, you might as well sell it and then you don't have to pay, you can take advantage of what is currently, we hope it stays in place in 10 years, but what is currently a law that allows you to exclude 200,000 or 500,000 if you're married in capital gains from your home sale. So let's say your house is worth a million dollars in 10 years.

Your mortgage is paid down to 350. You'll sell the house. You'll pocket 650, the difference between the value. And because it increased by $500,000 or less, you won't owe any taxes on the capital gain there, which will be that nice last push over the edge to early five for you. And you were asking how you're financed things. That would be one major source of cash with that if you don't borrow against it.

So that would be, you know, that would be another piece of the puzzle coming together with that. I'm having a lot of fun with this one right now, Mindy, with this. By the way, all this is educational. All this is educational and informational in nature. None of this is actually financial or tax or legal advice. It's all entertainment purposes with this. Just to...

This is what we would do if we were in your same situation. Well, I thank you because it's just, you know, everything has changed this last year for us. And I just want to make sure that we're on the right path. And also, just I want to teach my kids these things as well because growing up I did not have, you know, my parents both were suffered like bankruptcy, went through bankruptcy. And I just never had a plan until like 2012. I think it was a couple years after my second child was born. I took a Dave Ramsey class.

And that was the first time I was like, oh, there's like a blueprint or a framework to work within. And, you know, so I ever since then learned to budget really well, but now it's like learning about the FI took me to that next level of thinking outside of the box about what we could do. Because I know people who have waited until retirement to live out their dreams and then some crazy thing happens. And I'm like, I don't want to do that. I want to travel and do things before we, you know, health issues and that sort of thing.

So one kind of just I want I know I've already said it multiple times, but I just want to keep pounding it in here is that emergency reserve I think is so critical as your next step. I just outlined. I think what is it sounds like a pretty exciting rabbit hole to explore with with some of the ways to invest. But if you're going to do things like an ESP, that's going to reduce your paycheck for like six months it sounds like until that that that stock is actually purchased and you have access to it. Right. You can't do that with $1,000 in the bank and to arbitrage that with credit cards, for example, in the meantime, is super risky. So given that we have the ESPP, I would really encourage you to really get aggressive about building up that emergency reserve before you do any of the fun stuff downstream that I outlined with that because you're going to, you could, you really run a risk of running into liquidity problems if you don't have that set up. And maybe based on that, I'd even bump it to like 15 to 30,000 as your emergency reserve. Just thinking 30, yeah.

Giving that ESP. Yeah. But utilizing that ESP to do that? Maybe, but if you do that, remember, you're not going to be getting that from your paycheck during that period while it is being invested and you're only going to get it in a lump at the end. So making really sure that you're tight on your cash flow management that you've got that job lined up in those kinds of things, I think that would be really key. But if you can get into a rhythm where you can responsibly sustain this for years in a row,

you're going to mint a lot of money, I think, with this and have a problem. pretty good position at the end of the 10-year journey with this. Okay, wonderful. Borrowing how the market works, of course, you can have a big market crash next year. You're exposed to the market with index fund investing in a general sense, and you're exposed to the company's risk, depending on the timeline with that. But this is what I think could be a good approach for this. Yeah, definitely lots to think about.

I'm glad you recap that, Scott, because, yeah, we talked about a lot of fun things, but I do agree 100 percent that emergency fund is really important. And it'll come together really quickly as you, you know, after you have a job and you start just funneling all your money in there, you'll be surprised at how fast it grows. Scott, where do you hold an emergency fund? I would put it in, I have a bank account through Ally. They're not a sponsor. Call us up if you want to sponsor us, Ally Bank. But I like Ally Bank.

They're online. They're easy to use. There's probably a couple of other good online banks out there. I think the, I can't remember where the interest rate is on the state. account, but it's like close to 0.1 or 1%. It's like close to 0.5 to 1%. Something in that range that was like the best I could find at the time a couple years ago. And I think it's probably still up there. So you're not going to earn any real money on your emergency fund. The way your emergency refund is going to return a really nice return to you because you're not going to have

any emergencies. One, and two, it's going to allow you the option of doing that ESPP and some these other creative things with your investing, that would be much more risky for you without the emergency fund. So I think it's like a necessary, it's a nice, it makes you sleep better. It's not a necessary evil. It's a necessary good in your financial journey. Security. It's a very first step. Right. Yes. Yes. I wanted to make sure that we said that that doesn't go into the stock market.

That doesn't go into an index fund that doesn't go into, you know, anything that's volatile. I wonder if you could get more return in a bond on something like that and how easy it is to sell. We should look into that, Scott. But for right now, put it into a bank account and just let it like high yield interest rate, which is like 0.2. I don't know where you're getting your 0.5 and 1%. You have an incredible amount of games you can play to move your financial position forward thanks to some of those benefits at your company, your husband's work. and you haven't even figured out the ones that your future employers. That's where I'd play the games to try to earn more return,

not with hunting around for the emergency fund. The difference between 0.5 and 0.7% interest, not really worth it, my opinion, for shopping around with that kind of emergency reserve. If you have a business that is worth $1 billion and you have $100 million in cash, okay, now we'll shop for the 0.2%. But I don't think it's the real needle mover for your situation right now in a place to use a lot of brain power.

Use the most convenient bank that in your area or one that you like online that's got super good service rather than the highest return there. So like I said, I like Ally. I got a great experience with Ally. They should call us up and sponsor the Money Show. Wonderful. Yeah. Right now I have the $1,000 in a credit union and they're really nice. So easy.

And I don't have it involved with any of our other funds. So it's like I don't even look at it. So I was thinking if I did get a job, because the emergency fund is the next step for us is just to give them that information. So it just goes right to that. And I don't really even deal with that account very much. Yeah. You know, I think today we outlined an approach that I think would be very similar to advice Dave Ramsey would give for your situation with this as well. So that might that might have another resource for you with some of this stuff.

the only exception being that we are, I do not think Mindy or I believe that there's an advantage for you in a meaningful sense to paying off the mortgage early in your circumstance. So that would be one area where we would differ on that one. But I think generally speaking that this is a really conservative way to build wealth, except for the allocation that's going to be heavy to index funds if that's what you believe. And for 10 years, what would you say just as a final question, the allocations to be like 90% stocks, you know, however much bonds, however much cash. I would look to Bryce and Christie from Millennial Revolution and maybe read up on some of their

stuff and go back to, we had them on the podcast a while back. And they have a really good framework for how to think about that, where they had an approach that involved a really aggressive allocation for the first seven, eight years. And then the last two years, they began allocating it to their retirement portfolio, which had a much heavier bond allocation, and began testing the waters to generate and see, hey, is that income actually materializing my bank account? How do I feel about it? Does that make me feel confident with the move there? And so that might be a really good approach there. I think Mindy just actually found the shows for us. Yeah, Bryce and Christi were on episode 55 and 55 and a half. And yeah, that's a really great suggestion, Scott. I'm not a huge

fan of bonds, but I'm also looking for growth. So that, I think, is a question for you to consider how comfortable are you with risk? And as you get older, how comfortable are you with risk? Yeah, we should try to find a bond expert right now because I would love to get debate some of those points with that. I think bond yields have been falling for 50 years and they're about to increase, which is why I don't like bonds at all and think they're actually really high risk right now. But because the yields are so low, paradoxically, people are making a lot of money with bond portfolios right now, because when they go down by 20%, when interest rates go down by 20%, bond prices, the equity in the bonds goes up a lot. So right now you're seeing bond portfolios

do pretty well over the last couple of years, but I think that they're at a very, very risky point right now in spite of their very high yield or higher overall returns for some of those portfolios in recent years. So a very interesting paradox. I'd be love to debate that with somebody, but I don't like bonds for me right now. Yeah. So if you are an expert on bonds, can explain them like I'm five. Please email me, Mindy at biggerpockets.com. Okay. I think this was really, really great. I hope it was informative and helpful. It was. It puts things. into perspective. I mean, I knew that I'm in the emergency fund slog period, so that's kind of, you know, what it is. But I'm motivated and I wanted to have a clear picture of what we should

do once we accomplish that stage. And I really appreciate it. Yeah, congratulations on what we didn't talk about it enough, but it sounds like you really went through a nice hard slog here of a lot, with a lot of discipline and a lot of cleanup to get to your current position, which is crisp, clean, and really clear. I got house 401K, $1,000 on emergency reserve. That masks the hard work, I think, that you've done for a while to clean all the other debts and those items up. And so congratulations on where you're at right now.

You're in a great spot. And I think you're going to, you have a really good shot at building substantial wealth over this next decade here with this. And I hope this plan was reasonably useful. Yes. think it is. Thank you. Awesome. Thank you, Ainsley, for joining us today and we'll talk to you soon. Okay. Bye. Okay, that was Ainsley. I really, really, really love talking to her today. Scott, what did you think?

Yeah, I thought it was, I thought it was great. I think, you know, I, I just want to encourage folks. I think we didn't get a lot from her about a journey with money that I think started a few years ago and has really been grinding it out to pay off a lot of debts and clean up a lot of things with that. And she presented us a really clean position from which to get started on the next wave of the financial journey, which is really kind of that aggressive investment approach. It sounds like, you know, she's starting to go back to work and all that kind of stuff. I just want to encourage folks to, you know, you don't have to clean up your whole financial position to come on the show here. If you have a situation that's work in progress with some of those things, you can come on as well. We'll be happy to chat about

that. I don't know where I'm exactly going with that, but I just, I just want to say that that's, I think we missed a good chunk of the really hard work that she's put in over the last two years and good on her for doing that to get to this spot where she can, you know, probably be in really good position to build a lot of wealth over the next couple years here. Yes, I think that she would have also been a very fascinating Monday episode where she tells the story from the beginning until just right about now. But I had a lot of. of fun talking to her. I am excited to continue these episodes. They're there's so much fun to think about all the possibilities for people. Yeah. I think there's and it's so much nuance and

so much discussion goes into these like things that you know, that kind of help help you, you know, figure out exactly the right approach, not the right approach, but exactly the approach that you think, you know, in great detail is the right reason for a variety of, a variety of idea of set of odds. It's just fun to see it all come together for this situation, um, um, for some of these things. We've already, we, we had a very similar discussion with Kyle mast, uh, on episode 200, just a few weeks ago that I think really, um, helped me kind of put together, put together a lot of pieces that might have been, might have been helpful for Ainsley today. I agree. I hope she listens to episode 200. Um, okay, Scott, you alluded to not having to

have your finances in order to be a guest on the show. If you would like to be a guest on the Finance Friday review, please fill out the form at biggerpockets.com slash finance review. And if you would like to be, tell your money story on the Monday episodes, you can fill out the form at biggerpockets.com slash guest. Scott, should we get out of here? Let's do it. From episode 206 of the Bigger Pockets Money podcast, he is Scott Trench and I am Indy Jensen saying, see you soon, baboon.