BiggerPockets Money Podcast - 208: Finance Friday: 23 Years Old, Steady Pay, Low Income, Should I Invest?

Episode Date: June 25, 2021

We’ve said it before and we’ll say it again: it’s never too early to start your journey to financial independence. Today we talk to Mackenzie, a 23-year-old college graduate, working a government job and paying for only minor expenses. She has a serious emergency fund she’s managed to save up and has questions on house hacking, setting up retirement accounts, and the fastest way to get to FI. When you start your financial journey at such a young age, you have many different opportunities. Even just maxing out your Roth every year may be enough to make you a tax-free millionaire, but what about more aggressive strategies like owning rental properties or even shooting for a far higher-paying job? These are all questions that Mackenzie wants answers to, so we have Scott and Mindy here to help! In This Episode We Cover Living at home when you’re young to save money on rent and food Graduating debt-free so you can come out of college ready to build wealth TSP accounts, Roth accounts, and the 457 plan House hacking as a way to fund future investments Looking for other jobs or side income that can help you increase your investing rate And So Much More! Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to the Bigger Pockets Money podcast show number 208 Finance Friday edition, where we interview McKenzie and talk about the steps you should take when you're just starting out on your journey to financial independence. I did a full deep dive into all of my current benefits and given that it is a government job, what sort of salary I am going to get into the future. So in my current position, it will take me 20 years from my start date and I've only put in one so far to get to a salary of 53,000. I do not like that number. And so I am trying my best to figure out other career paths within the government job or if I can find another job entirely. Hello, hello, hello. My name is Mindy Jensen and with me as always is my Rothloving co-host, Scott Trench.

You know, Mindy, I know it can be really difficult sometimes to come up with a new adjective to describe me every single week or multiple times a week, I guess. But this one is really, well, it seems like this one was not very taxing. Zing! All right. 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 when or where 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 simply get started on the journey to financial freedom.

We'll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams. Okay, Scott, I'm so excited to talk to McKenzie today because she is in a very enviable position that I think a lot of young people find themselves in just starting out, curious, five curious, but not really knowing which way to go. So we have given her, she's done some research, we've given her some things to think about. And I think if you're listening to this show right now and you are just graduating from high school, just graduating from college, this is going to really give you some things to think about in your own personal financial situation when you are thinking, where should I put my money as I'm trying to grow it for retirement? Yeah, absolutely. I think she's doing wonderful things. She's got wonderful parents, and her parents are a big part of why she's in such a great,

strong position right now. And that's awesome. And I think there's a lot of people out there that are in that position. And this is some, you know, she's thinking about all the right ways to propel her career and get to FI quickly while living a great life. And I think this is going to be a very helpful show for anybody that's getting started or thinking about, you know, the beginnings of the FI journey. Yes.

And if you are not in the beginning of your FI journey, think about it. about who is in your life that could use this information. And after you're done listening to it, if you think it'll be helpful for them, share it with them too. Recent college grads, recent high school grads, I think there's a lot of opportunity for some really serious learning in this episode. Before we bring in McKenzie, let's do that. Disclamer that our attorneys make us 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 engaged in the provision of legal tax or any other advice. You should seek your own financial advisors.

Oops. 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 go give McKenzie some financial decisions to contemplate. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch.

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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 indefiolns. 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. McKenzie is a college grad who is working for the government and knows that she should be saving for the future, but she isn't quite sure how to go about that. She's got some pretty low expenses right now and isn't really sure what her financial independence number is going to be because her expenses will for sure be a lot higher in the future. or will they? Smart decisions about college allowed her to graduate debt-free, which is a huge leg-up on

adulthood. Even smarter savings decisions provide her with a bit of a nest egg. McKenzie, welcome to the Bigger Pockets Money podcast. I'm so excited to run through your numbers. Thank you. It's great to be here. I've been listening to a lot of your episodes, so it's kind of a surreal experience. Well, thanks for listening. Let's start off with a little bit of background. What part of the world do you live in and what is your job? I am in Montana, United States, and my job is working for the government, an office job. And let's look at your income and expenses. Yeah, so currently my salary is $39,311.

Stability of the government allows an exact number, so that's fun. And my expenses usually average about 400 a month, although I've always, only been tracking it for the last six months. Okay. And how are they only $400 a month? Yeah. So I am living at home with my mom and she doesn't charge me rent and she pays for most of the food. I try to stick in there a little bit, but mostly she has time to go to grocery stores. So that's how it works out. How does the rest of that $400 shake out? Yeah. So given that I don't have to pay for rent or food, The rest of it usually goes to gas. I live across town from work, so that is quite a bit of money, but it's only gas.

And then other miscellaneous stuff, I usually spend about $10 each month going out, and my regular subscriptions are around $15 to $20 each month. The other stuff is miscellaneous. You know, looking back on the months that I've tracked, it seems a whole bunch of my yearly subscriptions hit, so that might be bringing my number up a little bit. but yeah it's just miscellaneous stuff as in paying my phone bill for the year uh birthday gifts uh maintenance on my vehicle that sort of thing all right so how much are you able to save at each

month net then um is that is that 39000 take home or is that oh i think we have it here is it's 2,000 per month take-up so are you saving $1,600 per month most months in accumulation yeah basically yeah what are you doing with that what's your assets and debts and what are you with the excess savings right now? Yeah. So in terms of assets, I have a Vanguard. Words escape me currently. A Vanguard index fund, yes, the VTSAX.

And I recently put basically the sum of what we got for the COVID payments into that. So started off with $5,000. And then I have a government 401K. So that's the Thrift Savings Plan, or TSP. and I take the complete match on that every month. So that is 5%, I think. And then in terms of debts, I don't have any. My parents have been very generous in helping me out,

and then just combined with working a little bit to pay for stuff, I cash flowed college and my vehicle is paid off, and I can't think of anything else that would have accrued debt. But yeah. Okay. Well, I'm hearing $1,600 a month in extra money every month. And where is that going? You've got some in a Vanguard VTSAX.

Is any of that going into a Roth IRA? No. So originally before I found all the financial independence podcasts and got on this train, hoot-whoot. I was just putting it right into my checking account that had a debit card connected to it, and that's all I did with it, just sat in there. So that's why I did the entire last year. But recently, I've been transferring it over to a savings account that I have

that is getting around 0.8% in dividends. So yay, that's a lot. And that's really the only place that sits, yeah. So what's your goal here? Short term or long term? Let's do both. What's your short, what's your short and long-term goals here with your finances? Yeah. So within the next year, I would like to begin my first house hack, you know, listening to all the ways to achieve financial independence. That seems like the best way to do it. Credit to Scott. I've read Set for Life and that hooked me. And, you know, a year timeline is I want to stop. I know I'm not a burden and I help out around the house with my mom.

and taking care of my little sister. But I would like to stop living here just to be free of that mindset of I can live here and have no consequences. I want to take on my own responsibilities. And I guess long-term goals is ultimately I want to make my job non-essential. Not that I wouldn't work, but I don't like not having the flexibility to decide whether I want to. All right. And can I ask how old you are and how long you'd like to, how fast you'd like to get to that point, that latter point? Yeah. I'm currently 23. I'm going to turn 24 this year. And I would be fine with any timeline, but, you know, 10 years sounds like a good, a good spot to shoot for. Cool. So we need a strategy to get you to FI in 10 years and assuming a little bit of salary growth, but not like explosion there, at least not with the government career, most like.

but a willingness to house hack and it sounds like try some other creative things. Is that, is that about right? Yeah. I think we can get her there a little bit sooner than 10 years, Scott, based on her lack of spending, her nice nest egg and a little bit of foreshadowing, she's going to get some help with the purchase of her house. So why don't we talk about that for a little bit? And then I'm going to start giving you a whole lot of things to think about. Sounds good to me. So, as I said before, I'm very grateful for my parents. They've helped me out a lot.

And my dad has decided to put down $100,000 for my first house. Wonderful. Love it. That's a great gift and I think a fantastic boost. So awesome, awesome, awesome, awesome for you. And great dad. Shout out to McKenzie's dad. So several questions around that.

I am not in the Montana real estate market, but I do know that it's not nearly as expensive as a New York City real estate market. Could you take the entire $100K and put it into an entire house? Could that be the entire purchase price of the house? And is that a better choice than taking it and making that the down payment on like a four-unit property where you can have your own. space, you have your own unit while you're renting out the other three. In a lot of cases, that scenario has the other three tenants paying your entire mortgage. So then your living expenses are none, which is the same as a $100,000 house that is completely paid for. Or, like, which one of those options sounds better? And do they even have fourplexes in your area?

I guess that's a good question, too. Yeah. So the thing about Montana is, if you you want to live in the middle of nowhere, I suppose you could probably get a house for 100,000 or one bed, one bath. But in the town that I currently live in, I haven't, I've been looking at the market ever since I started to getting on this stuff. Just seeing what I could afford in the future. And yeah, nothing, nothing reasonable less than 150,000. So I would probably have to get a mortgage on anything that I get. And in terms of the fourplex, you said, right? Yeah, so they're mostly single family houses around here. There's a couple duplexes that I've seen, but they're getting out of my price range even, believe it or not, even with $100,000 down.

I'm skeptical that the bank would fund me with my salary. Okay, that's fair. Have you gotten prequalified? I haven't looked into that, no, because my timeline is a year out, so I figured I would keep. keep researching until now, until then. That might be a good thing to talk about with a lender and see, you know, kind of challenge some of those assumptions. I'd imagine with, you know, a $40,000 salary, I would guess that's a ballpark of $150,000 to $200,000 mortgage. Does that smell about right, Mindy?

Yeah, I would think you'd be able to get qualified for something like that at your salary because we've got such low interest rates right now. Mackenzie, I believe that if you have $100,000 down and you can qualify for $100,000. $150,000 to $200,000 mortgage, that puts you into the price range of qualifying for something between $250,000 and $300,000. Is that bigger than what you've been thinking previous to this call, or is that about the range that you've been kind of hunting in? Yeah, I've been looking at rough mortgage calculators, I'm putting in my salary and the down payment and figuring how that would change it.

And that's about what they have been spitting out, you know, around $275,000. but with anything, I was figuring a good target size if I was going single family for the house hacking would be a three two. And recently those have skyrocketed in my area. So you said that your timeline was a year out. And when you applied to be on the show, you said that you needed a minimum of two years of tax returns to be qualifying for a loan. And I reached out to my lender. and said, hey, John, does she need two years of tax returns? I thought it was only six months, especially with the government job. And he said, no, she only needs the six months as long as you got a degree and you're working

within that degree. Okay. So if I have a degree in photography and I work for the government doing an office job, does that still apply? I used the degree to get a higher pay. I'm sorry. I made a mistake. as long as she got her degree and the job is full-time W-2 right away.

It sounds like you should go and reach out to the lender and, you know, a couple of lenders and see if that timeline can be moved up. But let's think about this at the strategic level. Like right now you're not paying anything and you're living at home. And so when you buy a house hack, most likely, you're actually going to assume some sort of cost for living here, right? like, well, actually, let's walk through that. What does a three to look like in terms of rent per room from the other roommates and total mortgage cost for you in this scenario? Yeah, can I ask a quick question?

Absolutely. What would be, I guess, in terms of because I'm a total beginner, how would one walk up to a lender? Do I just go into any bank in my town and say, hey, I'd like to have a conversation. with you about getting a house? You should reach out to multiple lenders. And I like to do it sitting at my desk, picking up the phone, or sending emails, and just call your local bank, call credit unions, call big national chains, call mortgage brokers,

and ask them for what they can approve you at. What is your rate? What are your closing costs? What are, as you start to ask these questions, they'll have answers and, more questions for you. And if you do all of this within a really tight time window, 30 days, I like to do it within the same week just to get it all done at once, because then I'm comparing apples to apples. The market isn't going to change like this within a week, but it could change really drastically within a month. So you're comparing somebody's rates today to somebody's rates

three weeks ago. So I like to do it in a tight time window and just write it down. This is what this lender quoted me, this lender quoted me in a big spreadsheet. You're a finance geek, right? Everybody loves spreadsheets. So you make a spreadsheet of all the quotes that you're getting. And think about who you're talking to, you know, oh, I really like this person. They were very forthcoming or, hey, this person made it seem like I was bothering them. You know, there's a lot to be said for how they treat you as well.

But just reach out to a bunch of different types of lenders and get quotes on how they, get quotes from them. for your particular situation. Yeah, you can phone them or, you know, after you build a relationship, when I need a loan, I just email a couple of the lenders that I already know. And I say, all right, guys, nothing's changed. But here's my income. Here's my credit score. Here's these types of things.

Can I get a quote for a four unit in Denver with this much down and this, you know, this, this rent, this protected rent roll, that kind of stuff. And they'll typically give me a quote back via email without a credit poll for that, assuming those things are correct, and then they will verify all of that before I actually transact or offer on it. But the process of reaching out to a lender is not very high stakes at first. There's no consequence for calling the lender and asking them, hey, here's my income, here's my credit, here's what I have down, these types of things, and what would a rate be, can you kind of get a quote, a pre-qualification, not without pulling my credit or doing anything

like that around the rates. And so it's, I think this intimidates a lot of people, McKenzie, and it's a great question and one that we, Mindy and I look past because we've done it so many times and it's not a big deal to us. But it is intimidating to reach out to the lender. It shouldn't be. Don't worry about it. You can just call up and ask and you can try a few people. Yeah, I'm the one with the power, right? Because I'm the one signing up for it. You're the customer. Yeah. Have you spoken to a real estate agent yet? Or do you know real estate agents in your town? I know of one because it just so happens that my mom has a few rental properties. So I know who she uses and she's a family friend. So she's, she'll be honest with me.

Perfect. Perfect. I would reach out to her and ask her to just send you listings that are in the two, what do we say, Scott, 250 to 300 range? And look at the properties that are selling. Just see what's out there. Yeah. Look at the properties that is selling and see what's out there and see what's going on with that. Do you have any specific properties? You mentioned a three, two. How confident are you that a three, two is kind of like what you're looking for for a house?

Well, I was thinking it because of just the ability to get a roommate's and then, you know, if only having one roommate was enough for me. me, then we would have one extra room to put any of our stuff in. Because the problem that I'm running up with is that I have pets and I have a whole gaming rig. So I take up a lot of space and I don't know how that would fit in any house with the roommate. I'd like to be considerate to what the other person would take up at the same time. Okay. Well, let's zoom out a couple of years here and think about it more broadly because it sounds like you still have a lot of research and thoughts to do about kind of what you want and what's what you can qualify for with that.

So let's zoom out a little bit from the tactics here because I think, I think tactically, you need to do some homework and figure out what's selling, what are the options? Are there duplexes, triplexes and quadplexes in your town that you can buy? Can you do a four-two? Are there properties that have one huge master bedroom in a living space with a gaming rig and then three other bedrooms? Those types of things are all tactical things that I think you'll figure out as you study the market a little bit more and look at those options with that.

But let's think about strategy here. You want to get to 10 years for. to FI and you're willing to house hack. So to me, what that says is this, this first one, you know, it really is a stepping stone. It's not a permanent residence. It's not, you're probably only going to be there for a year or two. If, well, do you plan to have the government job? Let's start there for a long time. Do you think it'll be doing this job for the, for the most of the career? I'm trying my best to figure out other, other solutions because the curse of running into this path, because there are many blessings, but of course there's got to be a curse in there,

is that I did a full deep dive into all of my current benefits, and given that it is a government job, what sort of salary I am going to get into the future. So in my current position, it will take me 20 years from my start date, and I've only put in one so far, to get to a salary of 53,000. I do not like that number. And so I am trying my best to figure out other career paths within the government job or if I can find another job entirely. Okay, perfect. So you're not really in love with your job, it sounds like, and you're willing to think about other creative career opportunities. Yes. Currently, it allows me a lot of free time.

So that is what, you know, when you listed out the benefits in Set for Life, you talked about any of the government matching or any of the employer. your matches for the retirement accounts, the health insurance, that sort of stuff. But what I'm currently getting out of my job is that I have a stable schedule with weekends off and government holidays. So it allows me a lot of time to pursue other things. So that's the struggle that I'm having with if I got another job, would it eat up all that time for the money return? And is that worth it if I could work on other things with this one? I love this question. And here's, here's my my reaction to that. You're not in love with this. This is not a high paying job. It's not, it has no upside downstream. And I think that in general, it's, you are in a great position.

You've got 33,000 in savings. You are thinking about buying a property. You've got all that. I think that this is a perfect position to think about wait. You are working full time and you have weekends and government holidays off. But you're not going to start a business or generate meaningful income in most cases. People can do that, but it's a rare exception in my experience to folks who make a ton of money on the side without some sort of specific skill set with that. And to me, it seems like a better strategy, if you're not in love with the job and those types of things, is to really kind of think about that career and say, like, hey, how do I get to a place where I can actually get a salary that could scale, maybe like a real estate agent or a notary or something like that,

some sort of work. I can't put myself in a position to test that out and move into something that's much higher paying. Or can I put myself in position, you know, to get a much higher paying salary? You know, is there a way, am I willing to go back and learn how to code and become a software engineer or those types of things? With a 10-year horizon and a willingness to kind of rethink and zero-based everything, there are lots of options, I think, that can get you to $100,000.

in annual income within a three to five year period with much higher probability success here or you can try the entrepreneurial route. But I think you're thinking about things the right way. How hard are you willing to look for these opportunities or what have you thought about with this kind of stuff? So given that I flew through all of your guys' episodes and now I'm up to dates and just look for the Monday and Friday releases, I have moved on to other podcasts to spend my time listening to and one of them is ChooseFI.

and one of the things that they talk about a lot on there is the certificate program specifically with Salesforce. Yeah, that's right. Isn't it? Salesforce. So I have just started their five-day challenge where you get basically all the information about that. And I'm going to see if it's a good fit.

It's a six-month certificate program that is projected a 60 to 80,000 beginning salary. Perfect. That's awesome. Yeah. So within six to eight months, if you put your heads down and go after it, you can get, you can double your salary effectively, or at least increase it by 50%, and probably with good of career prospects in the five years following that change. Is that right? Yeah, and it kind of looks like a blue Mindy's mind there for a second.

Yeah. Yeah, I think with all of the information. Yeah, I don't know what this is. Oh, yeah, she's looking up right now. Here we go. Yeah, I'm looking at out. Yeah, just a, the, lowest, lower salary I've seen with that job starting out is 53. So it would still be a couple of years ahead of my current pay grade raise. So I don't really see many downsides unless I get through the training. And it's not a good fit in terms of enjoying the job,

at least a little bit. Love it. I think it's fantastic. I think, look, the four levers in finance are earn more, spend less, invest, or create. And my belief right now, based what you're telling, is that earn more is the number one place to begin thinking about this. You've got no debt, you've got the savings account. This is a perfect move. It's, I think that taking a risk in

your career or at least exploring some new options makes a ton of sense if you're not in love with your job and know that the game you're currently will not maximize that upside. You're not far enough along to have any meaningful vesting interest in the pension or anything like that or those types of perks that come with government salaries or government jobs in many cases. So this, this to me, is a perfect way of strategically thinking and very high probability with that. You know, you're not spending anything. So there's no budget to cut with $400 a month for this. So to me, that suggests that the areas of opportunity are going to be in earning more income and then creating or investing. But I don't think right now,

based on what I've heard, do you feel like you've got an entrepreneurial skill set? Do you feel like you've invested a lot of time learning about entrepreneurship or that you're you would be, you know, willing to or wanting to take your crack at a business or a serious side hustle? Yeah. So I go back and forth on that because I have a lot of hobbies that could be turned into a side hustle, but none of them seem scalable. You know, I knit and I thought about for a time I was like, oh, I make these hand-knit blankets,

It's really soft. You know, people seem to like those so I could sell those, but it's, you know, a lot of time put in. I game, so there's a big opportunity for doing gaming YouTube videos or streaming. And I play music. I actually just yesterday released my first album. That was kind of more for myself. But so, you know, there's a lot of those options where I could make money with it, but I don't know if that would sour my love for the hobby, and I'm not sure if I want to take that chance. The gaming YouTube videos was my first thought after you said that you're a gamer. Are there currently, and I'm not a gamer at all, everybody knows that.

Are there currently female game YouTubers out there? Because I just hear about the guys. I mean, gaming is, you know, in quotes, it's really male dominated. And I don't know why that is. But I mean, I know that I don't like video games. I don't. My daughters both love them. So, you know, I would much rather have them watch a female game YouTuber to see that it's like it can be done.

I'm really stumbling over all of this. But do you know what I'm saying? Like, if that's an opportunity, that could be a really interesting opportunity. And you already like playing the game. Don't people like, isn't there a thing where you can people just watch you play video games? Yeah, that would be an option if I got into a place, a house that had better internet. That really is the limiting factory here, but my old place, I was on satellite internet. So this is a great step up from that.

At least I can play online. But yeah, it is dominated by males, the gaming sphere. And there's a lot of different barriers to entry for women and young girls. And I don't know if you want to get into that. It's kind of a whole other section. But yeah, I think I could do it. It just takes the time put in. I think this is a low probability approach.

I don't think it's hard for me to see a high probability path to financial freedom through making videos for gaming on YouTube. I imagine that's a very crowded space with a lot of people who are attempting to do that and are willing to lose a large amount of money in the process of doing that or make no money for that. So I just, to me, that doesn't smell like a good, a good option here. It doesn't sound like your entrepreneurial pursuits are very serious at the moment. I, I don't want to, is that, is that, is that, is that, is that, is that, is that, is going too, too far with that, or is that? She made an album. Yeah. Yeah, come on, Scott. I made an album. But it sounds like that was for her. She released an album. How many albums did you release, Scott? We will link, we will link your album on the show notes at biggerpockes.com

slash Money Show 208. But you weren't sounding like this was like a big commercial project that sounded more like it was for your Odin personal interests. Yeah, yeah. The album was, see, the problem is I'm still changing my mindset from before I discovered this fear because I was never the type of person who set goals. When I went to college, I was undecided. I did the first semester and took a photography class.

I was like, yep, that's it. It just clicked in my head. So, and then I chose that and just went with it for the rest of the time that I was there. So I've never been a person who approaches a starting line with an end goal in mind. And I don't, you know, I don't know what you can attribute that specifically. But since discovering this space, it has made me a lot more determined to do stuff. And along with listening to BP Money and Choose FI and all those, I've also dabbled in the real estate podcast by Bigger Pockets. And one of the first episodes I listened to was the 12-week-year goal-setting episode. And they talked about close to how Brandon Turner does it is, you know, the 90-day goal

challenge where you set out a goal that you want to finish in the 90 days and then you break it down week by week and day by day until you can accomplish it. and that I had been trying to complete my album for about half of last year. And in January, I found FI and started the 12-week year, that first Monday that I started listening to the financial podcast because I figured, if I already know about it, why not start it now? And almost made it. I didn't have one song recorded by the end of the 12 weeks, but it worked. And, you know, now I'm looking out all these different goals so I can accomplish.

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The strategy for achieving FI, I would suggest that you put together a formulaic approach. boring, doesn't have to do with gaming on YouTube or selling a million copies of your album. Okay, but I'll get back to that, I promise, in one second here on with this. I love the approach to take this course and try to upgrade your income by 50% to 100% over the next six months with that thing. I would make that the top priority and I continue to think about that house hack with this. I think those are great fundamentals. They're going to move you. You're not going to get rich real quick with that, but that is a really good, one-two punch and moving towards your 10-step target or your 10-year target of five and you keep

doing that and you keep saving at this rate, you're going to be able to dump a lot of money into index funds and build a solid real estate portfolio if you house hack a few times and get your numbers right. In addition to that, if you are very driven like this, I love that. That's the perfect way to approach it. With these businesses that you're suggesting, they're long shots. doesn't mean that they're bad, but nine out of ten businesses fail. And so to me, the answer to nine out of ten businesses failing is start ten businesses. So this is perfect with that. So what I would, what I would do then is I would say, okay, every 12 weeks perfect like you're doing, I'm going to either double down on one of my things that seems to be working. Maybe maybe I'm just being mean

and a little silly with this. And your album is going to sell a million copies with that, in which case you need to double down with the music. I haven't listened to perhaps it's really wonderful with that, right? And so you would know after you release it, whether that's the time to go and double down and move on for that or pursue another angle. Or maybe it's not even like, hey, I don't really care about the money on this one. Like, I'm just doing it because I love it and it gets fun. It's part of something I want to develop with that. But if it's a financial and a business outcome, maybe that's a good framework for approaching it with 10 businesses over the next two and a half years, one every 90 days. What do you think to that? What do you think about that? Yeah, I think

that's a great way to look at it because with the house hacking and increasing my W-2 income, hopefully with the certificate program, those are how you put it, tried and true ways that I can improve it. And any of my hobbies that I try throughout the 90-day goals would just, if it gives me returns, great. If it doesn't, I accomplish something that I wanted to do anyways. So it's a good deal. That's right. Yep. And I have video game goals every once in a while inside of those 90-day goals as well. I'm a little bit of a gamer as well. So sometimes I'm like, I want to get my rank in this game up to this level or whatever in the next 90 days. So you can put those in there. That's perfectly legit. You got to have a hobby and I love those things. And if it has an opportunity to make money, all the better with that. That's actually one right now. Sorry. Perfect. What is Salesforce? Salesforce? So I actually just heard about it on, what is it, Thursday today, and I heard about it on Sunday, I think, is when I listened to that ChooseFi podcast.

So I'm still in the beginning of research, but it's a CRM customer relations manager, I think is what that stands for. and what you would basically do is you manage a business's means of communicating to customers, managing their data, what they collect on customers, that sort of thing, sales that they have relationships and when people buy stuff, how they buy stuff, that sort of thing. And you're kind of like the behind-the-scenes person who fixes all the problems magically, taking spreadsheets in and putting answers out. from what I can understand so far. Okay, so this would require a change of employment.

Yes. I'm positive the government is not on top of it to employ something like this. All of our systems. There's a few of them I open and it's like, I am traveling back to 2002. But, yeah, it would be changing employers. So it's an interesting experience. Is this a work from home type of job? Or is this a I'm going to have to move someplace kind of job?

I think it depends on who you hire with because some of the positions are remote and some of them you go into the company, you know, that you are hired onto. Okay. So that might change my. Is taking a person, say, I'm the employee, and the business uses Salesforce, their products, to manage customer relations. And then people see that I got the Salesforce certificate, businesses do. And they pull me in specifically to their company to help work with them on that specific customer relation. Okay, so this is going to change my advice a little bit then.

If you don't know if you're going to be living in the same city in the next three years, I may not want you to buy a house right now. On the other hand, if you bought a house now and you were able to comfortably afford the mortgage payment on the current salary, you could get your one-year owner occupancy requirement that most loans have out of the way while you're doing your sales force stuff. You can keep it as a rental, move out to wherever you're going to be hired at, or live there and work remotely. But if you need to move, then you've already got your owner occupancy requirement.

You move, you buy another house and repeat, repeat, repeat, and create McKenzie's real estate empire. Yeah, that, I think I love that, Mindy. I think if you're going to, if you're going to do this, what you kind of just described to maybe move, then that ups the stakes for making this next property if you purchase one in your town, really an investment property, even if it's not really meeting all your lifestyle goals necessarily with that, because you're going to be moving in a year if that's the option and you're going to need it to be cash flowing more than you're going to want it to be like your perfect house. Right. So then on that, I guess given that I can improve in both,

of the areas, getting the house hack and getting the job with a higher paying salary, if those deadlines butt up against each other, would you suggest one way or the other, you know, prioritize the house hack on my current salary or, you know, try to pursue the higher salary and move? I would pursue the higher salary and move and keep an eye out on the real estate market in case something amazing pops up. But with you making twice as much potentially on the low end, that's the better play, in my opinion, because you can't, I mean, you're saving 99% of your salary now. You could save 199% of your current salary if you doubled your salary and we're still, you know, living at home. You're probably not going to save 190% of your salary, but it's

it's a better play to generate more income. Okay. That's good to know. Yeah, I completely agree. The strategy here is income and career. You're saving plenty. You've got a good approach for the investment approach, you know, with this. I think you're thinking about all these things the right way.

You're clearly educated on the subject, thanks to BP money, go us. You're, you know, you've got some entrepreneurial stuff. You're setting goals with all this kind of stuff. go take some shots there, I think, and think about on the real estate side, you know, if you're going to be in a place for a little bit of time, then the house hacking is the perfect opportunity. But right now, like, it's not really that much better, a bigger, it's not really, like, house hack's great.

We should all, like, I think it's the best way to start. But it's not really that much more advantageous than living for free with that. So it could actually cost you more money to house hack in the short run if you're not careful. But if you move away, then it's almost certainly going to be the best option for that as well. And so that timeline, I think, does change the house hacking strategy part of that. Yeah. I would definitely keep an eye on the real estate market, especially, you know, do some research and see what our house is selling for currently. And then you know when a good deal comes

on the market, if you already know what everything's going for, when a good deal comes on, you're able to recognize it and act quickly. Maybe some smoking hot deal comes on that makes sense. to stay there, you know, for a couple more months before you transfer out. Also, the owner occupancy agreement or the only occupancy requirement has some leeway in it. If you get a new job that's more than 100 miles away, you can leave and not be penalized. Yeah, but you're intent, I think. I think it's all about intent, and you can't intend to want to move within a year. I don't know the nuance of the law, but I imagine it covers like, you can't just get the, get the property and then move immediately afterwards.

If that was kind of your plan all along, I think that, that's getting dangerous to close to mortgage fraud. So if your intent is not to live there for a full year, not of that commitment, that I would, I would be careful about that one. I don't know. But that would be my reaction. No, that's true. And I'm, I'm thinking of her buying the house right now. She's just starting to look right now. And if she's, you know, if she finds a house in three months and three more months later, she's got a new job. That might not work out. You're right, Scott. Thank you for bringing that one up. We have not talked about the big R yet, the Roth. The Roth IRA, the Roth. You said that your TSP is split about 50-50 between traditional and Roth.

So I actually had to do a lot of research into the TSP because, believe it or not, it's funky, like anything else government related. So they match 5% of which I have taken since I switched to a permanent position. And they automatically contribute 1% whether you want it or not. And that is subject to a vesting period of three years. So if I leave before I hit the three year period, I don't get to take that 1% with me, but I get to take my other four. So that was a nice little thing.

And it is set up so that I have 4% going towards the Roth currently and 1% too traditional. I did that because I've heard that Roth is better and I didn't know anything else when I set it up. But I didn't want to be all into one. But one of the big questions I had for you guys is if it would be better for me to open up an individual Roth IRA and just fully, switch my TSP over to traditional sense what I take out anyways has to be an equal balance of the both accounts when I withdraw whenever that happens. Ooh, that's a really good question. Okay. I'm going to answer this kind of in a bunch of different ways. So yes, I think you should open up a Roth IRA. I think you should work on maxing

that out for as many years as you can. As we said with Kyle Mast on episode 200, he in almost all instances, recommends the Roth over the traditional because we have been giving out a lot of stimulus checks and pumping a lot of money into the economy. And there is almost assuredly a period of inflation coming our way. And one of the easiest things to cut is a Roth program. he's not, of course we can't predict the future, but he believes that the Roth program could see some cuts or even some, you know, some pullbacks. And that's a pretty easy thing to do. So as long as you can contribute to a Roth, that's a really great plan. After listening to him on episode 200, I've actually changed the way that I contribute. And I am all Roth right now as well. So I would love to see you get a Roth IRA. right now where you can max out up to $6,000 a year.

I like the way that you're thinking about the split between the TSP and the Roth. So, Scott, what do you think about transitioning her TSP contributions to 100% traditional instead of Roth to kind of even it out a little bit? I think I'm in the Roth camp here. I think that the Roth has so many advantages for someone starting young with this kind of stuff. You don't earn a lot of income.

You can't be in a high tax bracket with this kind of stuff. So, you know, saving money on the taxes with the pre-tax stuff just doesn't make sense right now. And it probably still won't even make sense when you make 60 to 80 with the big raise that you're going to give yourself coming up here shortly with that. So to me, I think the Roth is, I think that the balance makes sense. can make some common sense when you're trying to think about it with those kinds of things. I think if you zoom out and think about the 30 year or the 10-year plan, I would, I like the Roth. I put 100% of my contributions into the Roth, and I'm in a higher income tax bracket with this stuff today. Just because I think inflation is going to occur, I think taxes are going to be higher in the future and all that kind of stuff.

So I like, I like the Roth. I'm all in on the Roth for personally. I just opened up the show notes on Kyle's episode because I wanted to get his quote right. He said, think of paying the taxes on your Roth contributions as an investment in self. And I just thought that was so brilliant. I am paying, I mean, you're in probably one of the lowest tax brackets. You're paying taxes on that money now. And it's growing tax-free until your, when can you access at 55 or 59 and a half? or something. So you've got 30 years

of tax-free growth, potentially. I wanted to see what Scott said, and I should have just known that he's Roth because he's Roth right now. Yeah, I wouldn't alter your contributions, except to maybe put it all into a Roth if that's possible. Yeah, I think that's entirely possible. Yeah, the main thing was

funky, I guess it hasn't been seen in regular 401Ks, that Yeah, when you hit the retirement age and you're drawing from it, no matter what you're paying taxes, because you either have the employer contribution that they tax, because it's automatically it's not what you do. Or if you had put in a mix of traditional and rot, they pull out a proportional amount from what the balances are. So I guess that was my name. Do you have to put it in the pre-tax one in order to get the match?

Not that I know of. I looked at my balances and it looks like the employer matches is based off of both of them. Yeah, to me, I think that the fact that the employer, you're saying the employer contribution piece, even if it's in going into a Roth, is going to be taxed upon distribution at the end state whenever you withdraw from the account, right? correct but the the gains are going to be not are not going to be taxed or they shouldn't you know that's the point of the Roth is that the gains shouldn't be taxed so let's say let's say that your employer is max is contributing 5% to your uh uh uh account here so and that that's going to be $400 no that's going to be $200 what am i doing i doing terrible math here 10% is 4,000 5% is 2000. There we go.

Wow. All right. So they're contributing $2,000 to this plan. All right. In 30 years, you put in that 2000, it's going to go, it's going to double every seven years. If it's, if you'd like the rule of 72. So you've got two, four, six, or two, four, eight, 16. 32, 64.

But what am I? I have, I have eight four compounding periods. So two, four, after seven, 14, eight, then 16 at 21. 32. So you have 32,000. You're going to withdraw that all tax free. And then you're going to pay tax on $2,000 in income. So at the end state, it's just a no, it's just like, it's inconsequential from the

income tax perspective relative to the benefit there versus you save, you know, to, in this case you would put in you put it into the pre-tax so now you're putting in 2000 pre-tax you're saving 200 bucks in in uh in taxes right now and that's going to grow to 32,000 over over the years and then you're going to pay tax at 40% of that 32,000 right like that's to me there's I'm probably doing something here I'm trying to get the mental math right but the example there it seems like so much more tax advantage to put it in into the Roth for me in this this circumstance. Yeah. Yes, I agree that you're doing some sort of weird mental math, but I can see where you're headed. And paying the taxes up front is a better choice.

So I would like to see, I would like you to consider going fully into the Roth or as much as you can into the Roth. If they insist on putting it in the traditional, then put their part of the traditional and your part in the Roth. Do you have access to a 457 plan? that I do in all the times that you've mentioned that I'm still not in turn. It's kind of like a 401K light or a TSP light. Government employees can contribute to it if it's part of their retirement package, but when you separate from service, you can withdraw the money from that account immediately and you're not paying any penalties.

You're just paying taxes on it. So you can reduce your taxable income, which isn't a huge deal for you right now. but then you have access to it right away. So you could, if it was an option for you, contribute as a government employee. And then when you separate from service, maybe you separate from service and you go travel a little bit and you can pull some of that money out or leave it in there and let it grow. It doesn't grow tax-free. You pay taxes on the other end of it. But it's another way to contribute to the retirement accounts.

So if you were married to a computer programmer who was making $100,000,000,000. $150,000 a year, it's a great way to reduce your marital, taxable income by contributing to that as well. And I don't know, is there a Roth 457 plan as well, Scott? Are we really getting into the weeds here? I think we are. I have no idea if there's a Roth 457. I think somebody said there was. So that's an assignment for you, McKenzie.

Read through and see if a 457 plan is an option for you. if it is, listen to the millionaire educator episode that we released recently. I guess not that recently. And he talks about the 457 plan. He also has a really great article about the 457 plan. And we'll link to that in the show notes for this episode, which can be found at biggerpockets.com slash money show 208. Scott, do you have any other suggestions or assignments for McKenzie to look into before we let her go?

Yeah, I think the last thing here is, look, the game is you got to increase that income. If you want to retire in 10 years, you got to increase the income. You probably need to do a couple of house acts on the way and you need to invest consistently. And, you know, maybe you can shorten that period considerably if one of these side bets takes off that that you're doing with that. I love the goal setting. I think you're doing everything right here. The biggest, the last thing I think is some sort of strategy of what to do with all of that cash and savings. you've got a really strong emergency reserve.

Right now it is 10 years of expenses in savings. Even if you move out and start spending $2,500 a month, you've got over a year in savings. So I think it's time to kind of think about like, hey, you know, I've got some excess here. Probably don't need to be contributing to dumping more cash into that. I can probably begin thinking about investing that, even if it's after tax or something.

And maybe begin sliding a few of those chips in at a time. nothing, you know, no big moves, but thinking about how to either use that to fund or accelerate one of your 12-week goals, one of, you know, putting that into an investment or, you know, dumping into stocks or whatever. But I think, I think you've got a lot of cash and it's time to kind of figure out, you've got more cash coming in than what you know what to do with is what that signals. So I think that that would be a good thing to write down kind of what you want to do with cash going forward as well. That's a good problem. That's, that's a side that you're doing all the right things.

Yeah. What? Approves a break. I love it. Yeah. Vindy has a sticky note. Yeah, with that. So, yeah.

Invest in your Roth. I do think that with you, given your age, having the Roth and all of the years of the tax-free growth that you have ahead of you is just a no-brainer. I really, really love the Roth plan. And you have to have earned income in order to contribute to the Roth. So once you, let's say in 10 years, you decide, oh, okay, I don't want to work anymore, you can no longer contribute to it. So assuming that it's still available. So that's another reason to contribute to the Roth right now.

So, okay. Sorry, go ahead. The risk of sounding again, to open a Roth, you just go to a brokerage firm, right, on your own? Carter Fidelity. Yes, you can call up Fidelity and or go to Fidelity and open up an account on their website. Yep. You can do this through Vanguard. You can do it through Fidelity.

You can do it through e-trade. You can do it through, I forget the one I had. I used to have Scott Trade because, you know, I liked that it was Scott Trade. But then they sold to some other firm. And now I have to work. So I don't remember the name of it. But yeah, they've got one there. There's like, we, I think Mindy and I would probably be agnostic about the brokerage there.

You know, one of you guys can call us to sponsor us and then we'll be your favorite. But I think in general, you can just Google any one of those and they're all going to be good choices, I think, for the Roth. And it will be as simple as you Google it. You choose one of the big names that's got a good brand and all that kind of stuff. And then all you're going to do is you're going to go through some paperwork and some sign-up flows. And then you're going to connect your bank account and transfer the money and invest it in your index fund or whatever. it is that you would like to invest in through that account, just like you would through like a Robin Hood app or, you know, one of their after-tax brokerage accounts. So mechanically, you will

not find it too difficult if you set it up through any one of those things. And Mindy does have a favorite. It rhymes with pedality. Fair enough. So would it be for me since I already have the... their brokerage account in index funds? Did it go with Vanguard with both of them? Or is there a benefit to be? That is a really good question. And I don't know that I have an answer for it.

Scott? The question is, do you go with Vanguard? What was it? Charity has a Vanguard index fund. Is it better to just keep everything in one pot? Or should she split them between the two providers? I think if you go with Fidelity, they're going to have an equivalent to Vanguard. It's like the expense ratio is going to be like 0.6 versus 0.06 versus 0.07.

It's going to be almost indistinguishable, I think, between some of these things. And Midi likes Fidelity because she thinks it has better customer service, I believe. I have not experienced yet, but I've heard that to be the case in some cases. But I think it doesn't really, like the index fund is so inherently diversified that the provider, Fidelity versus Vanguard, diversifying amongst them, to me, has no real advantage. So you could just stick with what you know or whatever. It's an index fund. It's matching the market with those types of things. If you're thinking about diversification among index funds, I would really think instead of, hey, VTSAX is what you have, right? That is the entire market,

all big and small stocks, right? Another alternative, and this is not investment advice, we would never give a specific one. But like another alternative would be V-O-O, which is basically the S&P-500 version of it with larger companies. They're going to, they perform almost exactly the same over a long period of time where they have historically. Who knows what the future will bring. But like that's, if you're thinking about you want to diversify amongst index funds, you could pick like a small cap, a small company's index fund and a large company index fund or the whole market index fund. But you're about as diversified as you ever going to get with VTSAX.

at least among stocks. So that's a, I don't think there's any reason to think about more diversification amongst that personally. Okay. And then, sorry for jumping around. I know we had moved on

from the TSP, but another one of my questions was they automatically invest you in a light. But you can get to a specific area on the market, international stock market,

that sort of thing. So would it be worth for switching it over? to change how that is invested or leave it as a lifestyle. So I would look at the expense ratios in there. Your plan should provide like, hey, this, this, you know, are you familiar with what expense ratio is in these index funds? They agree.

Or these funds? So they charge you to trade everything, right? To keep a balanced and invest. Close. What it is is, let's say you have 10,000 invested. The fund will charge you, let's call it 1% of that every year, to manage those funds for you within a plan. And inside of retirement account funds, those fees can get really high. And that's ticking away real wealth from you.

$100,000, that's $1,000 every year. $10,000, it's $100 every year. That's a meaningful expense. And the reason we like index funds, or a lot of us like index funds, is because the expense ratio, instead of being 1%, is 0.06%. So instead of spending $100 on $10,000, I'm spending 60 cents on $10,000, right? And so that's the big advantage of an index fund over those types of things. And so inside of these 401Ks, or I don't know about the TSP, but typically even the index funds have like 1% or whatever,

and there's a fee for the retirement account management or whatever it is. And so I hunt for the index fund inside of these accounts when I have them through my employer. And I look for the one that has the lowest active fees. So if I can get like the index, I used to have one that was called like a Great West index fund and one of our former providers simply because it had the lowest, it was the closest thing to an index fund with the lowest management fees. And those tend to outperform actively managed funds. That's how I go hunting in there. and the target date funds often can have a little bit more fees or whatever it is.

So that would be a framework to begin thinking through. But to get specific, we'd have to look at all of the funds inside the plan and think about what's in there. But is that helpful? Yeah, that was very helpful. All of your advice apart has been extremely helpful. Oh, great. Fantastic.

Well, McKenzie, this has been a super fun talk. I love when people are just starting out. You're asking all the right questions. honestly, you're going to be a millionaire in a minute. This is going to, actually, this is not going to be so much fun. It's going to be the slog. Now you start your slog where you're like, okay, I put in $1,000. I put in $500.

And now I've got $1,500 more. It's the slow march. But then once the snowball hits, it just starts going and going and going. I'm moving up. Snowballs go downhill. But, you know, it's just going to, your net worth is going to go up and to the right. rapidly. And I'm super excited for what the, what the world has in store for you. I'm going to make a note to check back in with you in about eight months and see how that Salesforce thing went,

see what's going on with your real estate journey, and see how your completely Roth retirement accounts are going. It's good to me. I look forward to talk to you again. Okay, wonderful. Well, we will talk to you soon. Thank you so much for your time. Yep, thank you. Okay, Scott, that was McKenzie. What did you think of her story? I think she's off to a great start and she's thinking about lots of the right things. I mean, this is, this is it. This is like the, this is always the fun part of the journey, right? Like she's discovered, FI, she's gone down the rabbit hole, she's reading the book, she's setting a bunch of goals, she's got no debt, she's got a big savings account, she's got a

path to making more money and like all the options are on the table. It's just exciting to be in that position, I think, and I'm really, I'm really excited to see how things progressed for her. I hope some of the advice was, you know, my advice is stay aggressive. It's exploit some opportunities while you're in this position and increase that income. Take a shot at a house hack. Try some businesses with that, right? She's got every option available to her in the world. And I think it's, I think it's awesome. Yeah, exploit some opportunities, especially while you have this safety net of your parents can catch you if you fall. You're not in such massive debt that you can go ahead and try a different job and see what happens

if that's what you want to do. So, yeah, I'm super excited for her. I would like to ask the listeners if they know anything about, we mentioned Salesforce, and that seems to be an opportunity for a high-paying job with very little, I don't want to say education, but very little training. And you could be making a very decent salary. Do you know of any other jobs like this? Minimal input maximum advantage. And if you do, please share in our Facebook group. I'm going to go and start a thread at the top of the group asking for these really great opportunities for people who are looking for ways to increase their income. So that can be found at Facebook.com slash groups slash BP money. Okay, Scott, should we get out of here? Let's do it.

From episode 208 of the Bigger Pockets Money podcast, he is Scott Trench, and I am Indy Jensen saying, Asta Lista, baby. Oh, I should have done that in an Arnold accent. Asta la vista, baby. Nice, I like it. Was that good? Yeah. Did I sound like a robot?

I was going to do something about TSP reports. That was way better. TPS. TSP, whatever. Okay, moving on. Oh, I don't get that. TSP report. I thought it was going to work because she has a TSP, but there's TPS.

Okay, we're moving on. Goodbye, everyone. Yeah. Thank you for listening.