BiggerPockets Money Podcast - 318: Finance Friday: The Median Earner’s Guide to Fast-Tracking FI

Episode Date: July 15, 2022

The “semi-retired” lifestyle seems to go against everything early retirement chasers have been taught. For years, it’s been pushed into our brains that “retirement” is one stark event. You retire once, do what you want for the rest of time, and that’s that. But life doesn’t always go that way. Today’s guest Amanda has spent the past two decades raising children, working, and focusing on getting an advanced degree. Now, with extra money coming in she’s finally in the position to invest. Amanda wants to have the option to work part-time in her mid-fifties so she can spend time with her future grandchildren. She doesn’t oppose a semi-retired lifestyle but wants to make sure she has the assets to support this financial flexibility she’s chasing. She’s investing in her retirement accounts, saving up a strong cash surplus, but knows that as she makes more money in the future, she should have a better plan on where to put it. Scott and Mindy walk through the ways Amanda can optimize her lifestyle for future retirement. In just a few years, Amanda will have a high income, with the ability to invest in passive income streams like real estate or simply funnel more money into smart stock investments. But at the stage she’s currently at, which is the smartest way to set herself up for a post-nine-to-five life? In This Episode We Cover After-tax vs. pre-tax investment accounts and which to prioritize for early retirement Pensions and whether or not they’re worth working at the same job for HSA vs. FSA investing and how to maximize your tax-advantaged healthcare accounts Index fund investing and how to aggressively invest without making things complicated The four levers of financial independence and which to pull when you don’t have many assets And So Much More! Links from the Show BiggerPockets Money Facebook Group BiggerPockets Forums Finance Review Guest Onboarding Scott's Instagram Mindy's Twitter Listen to All Your Favorite BiggerPockets Podcasts in One Place Apply to Be a Guest on The Money Show Podcast Talent Search! Subscribe to The “On The Market” YouTube Channel Listen to The “On The Market” Podcast: Spotify, Apple Podcasts, BiggerPockets Check Out Mindy’s 2022 Live Spending Tracker and Budget Finance Friday: How to Get to Early Retirement Even Faster Interested in learning more about today's sponsors or becoming a BiggerPockets partner yourself? Check out our sponsor page! Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to the Bigger Pockets Money podcast show number 318, Finance Friday edition, where we interview Amanda and talk about zooming out and taking a long-term approach to finances. I feel like in about 10 years, you know, I said I wanted to scale back working. I feel like it would be reasonable for me to make enough through those years to live off of so that I'm not touching anything that I've saved. That's kind of how I was thinking about it is that, you know, if I just covered my living expenses and nothing else, let everything that I invested grow, but I don't know if that's a reasonable tactic. I'm not really sure about my plan. Hello, hello, hello. My name is Mindy Jensen, and with me as always is my

never going to IMU about crypto co-host, Scott Trench. Thank you, Mindy. Well, I'll never I AMU about crypto. I am the long-lost descendant of a notable royal family, and I just need a few hundred dollars in order to obtain some documents that can help me access that fortune. So I will DM you about that. And if you could please wire me the money, that would be great. Yes, you can reach out to him as Scott as a big fat liar at biggerpockets.com. Scott and I are here to make financial independence less scary, less just for somebody else. To introduce you to every money story, because we truly believe financial freedom is attainable for everyone,

no matter when or where you're starting. That's right. Whether you want to retire early and travel the world, go on to make big-time investments in assets like real estate, start your own business or just get a little bit of flexibility 10 years down the line. We'll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams. Scott, today's guest is Amanda. She is an accountant.

She's working as an accountant getting her accountant degree at night and on the weekends. And she is looking forward to financial independence in 10 years, something that was not even on her horizon just a few years. years ago. She's changed her financial outlook, changed her expenses dramatically, and is now starting the path to financial independence. That's right. Amanda has a really good optimism and outlook and ability and command of her finances, and so I'm excited to see what the future holds for her. Okay. Before we bring an Amanda, let's make our attorney happy by saying the contents of this podcast are informational in nature and are not legal or tax advice, and neither

Scott nor I nor Bigger Pockets is engaged in the provision of legal, tax, or any other advice. You should seek your own advice from professional advisors, including lawyers and accountants regarding the legal, tax, and financial implications of any financial decision you contemplate. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going, and more importantly, where your tax refund can make the biggest impact. Because the goal isn't just to look backward, it's to actually

make progress. Simplify your finances with Monarch. Monarch is the all-in-one personal finance tool designed to make your life easier. It brings your entire financial life, including budgeting, accounts and investments, net worth, and future planning together in one dashboard on your phone or your laptop. Feel aware and in control of your finances this tax season and get 50% off your Monarch subscription with the code pockets. What I personally like is that Monarch keeps you focus on achieving, not just tracking. You can see your budgets, debt payoff, savings goals, and net worth all in one place. So every decision actually moves in a needle. Achieve your financial goals for good with Monarch, the all-in-one tool that makes money management simple.

Use the code pockets at Monarch.com for half off your first year. That's 50% off at Monarch.com code pockets. I love Matt, said no one ever. Nobody starts a business thinking, you know what would make this more fun? Calculating quarterly estimated taxes. But somehow every small business owner ends up doing it. Your dreams of creating, selling, and growing, get replaced by late nights chasing receipts, juggling invoices, and wondering if that bad sushi lunch with Scott counts as a write-off. Change all that with Found. Found is a business banking platform built to take the pain out of managing money.

It automatically tracks expenses, organizes invoices, and even preps you for tax season without you doing the heavy lifting. You can set aside money for business goals, control spending with virtual cards, and find tax write-offs you didn't even know existed. It saves time, money,

and probably a few years of life expectancy. Found has over 30,000 five-star reviews from owners who say, Sound makes everything easier, expenses, income, profits, taxes, invoices even. So reclaim your time and your sanity. Open a found account.

for free at found.com. That's fowundd.com. Found is a financial technology company, not a bank. Banking services are provided by lead bank, member FDIC. Don't put this one off. Join thousands of small business owners who have streamlined their finances with Found. Audible has been a core part of my routine for more than a decade. I started listening years ago to make better use of drive time and workouts, and it stuck. At this point, I've logged over 229 audio book completions on Audible alone, and I still regularly re-listen to the highest impact titles. Lately, I've been listening to Bigger Leen or Stronger for Fitness, the Anxious Generation for Parenting Perspective, and several Arthur Brooks' audiobooks that have been excellent

for 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. Amanda is a recent empty nester and went from renting a giant house to renting a studio and dramatically decreased her expenses in the process. Hooray! Now she has money to invest and she wants to make sure she's properly allocating her investments. Amanda, welcome to the Bigger Pockets Money podcast. Thank you so much. I'm very excited to be here.

I'm super excited to talk to you. Let's jump right into it. What do you make and where does it go? So my take-home pay after typing is 3572 a month and I get $1,200 a month in alimony. So my total income is 4772. My monthly expenses total $327. You want me to go over them line by line? Yeah, let's do a quick overview.

Okay, so my rent, it includes all utilities except electricity, and it is 1425 a month. My renter's insurance is 7. Electricity is about 15. Gas, I wrote 200, but it's getting higher by the minute. I commute to work. Car maintenance, I set aside 75 a month. My car insurance is 77. Groceries, I spend about 250, and restaurants about 250.

A lot of that is I still feed my kids. They don't live with me, but they're young and don't know how to cook that well. So I help them. My son is in college, and so I help him out with rent, and that's $450 a month. I got a counseling expense for the kids that's $100 a month. I spend $22 on Netflix. My internet is $15. The cell phones are $1.28.

My kids each pay for their own payment, and the additional to add them, but I pay that base for everybody. And my life insurance is $6.00. Spend about 25 on laundry. I don't have a washer and dryer here. I bundled up clothes, hair, makeup, about 75 a month. Set aside 50 for Christmas and gifts,

and about 100 for entertainment and just miscellaneous things. And so that leaves a difference of 1502 that I'm currently investing in a Roth IRA and indexed ones. Love the complete command of your budget. That's awesome. Thank you. I work in accounting, so I can't really help it. That's great. You mentioned alimony. Does that have an end date? It does. It ends December of 2023, which coincides with the month that I'll finish my bachelor's degree in accounting. So I'm just assuming that, you know, probably will have a better job and make that up in income around that time.

Sounds great. What's your net worth look like? Where are your assets and liabilities? So in retirement accounts, I have a total of about 47,000. 6250 is in a Roth IRA, and that's invested in index funds. I have 22,100 in a rollover IRA, and that's a target date fund. And I have, I work for a school district, so I have a SERS plan. and that is right now at 17,000, and I contribute 10% in my pay every month, which is about $610 goes into that. I also have a pension plan, and I'll be fully vested October 2023. And then I have a VBA account that came from the last job I left, and that's got about

$1,600 in it. And then for my non-retirement savings, I have $13,000 in $1,000. a brokerage account and just index funds. And then I have a savings account with a little over $23,000 and I have that allocated into $16,000 for a six-month emergency fund, $4,000 for college for myself, about $2,350 for travel, a little over $500 for car expenses, and about $500 for Christmas and gifts. So when you add that up, I've got a net worth of about $83,000. and no debt. Awesome. And you said you have a pension plan. Can you walk us through what that pension plan looks like from an asset perspective? So I'll be fully invested in October of 2023.

And that pension plan, it's a school district. So it's based on length of service and your average income over those years. So it'll be five years that I've been with a school district at that point. And then it's, I believe it's 1% times your years of service times your average salary. And then you get that as a monthly payment when you retire. So if I, if I left that job then at the end of 2023, that would be about 250 a month. If I stay with the school district a long time, it could be a lot higher just depending on my pay. Okay. Awesome. Makes sense. And what are your goals? And what are your goals? So I, my kids right now are almost 19, 21, and 23, and my 23 year olds married. And I feel like in about 10 years I'll probably have some grandkids. And, you know, I'm still, I'm 44 now,

so I'll still be fairly young then. And I want to be able to work less and play with my grandkids and travel and like, and live a fun life without having to go to work Monday through Friday. So I don't necessarily want to fully retire in 10 years. I don't think that I could. And I don't, I don't know what I would do all day. So I would just like to have the flexibility to work less, probably still in the same field. But yeah, just not have to work every single day. Awesome. Well, let's go through, let's look at this. Where are you putting your $1,500 that you're saving each month today? Where is that, where is that typically going? So I'm putting 500 into the Roth IRA. And that's part of my question.

I have that. So it didn't, this is all new to me. Like I haven't had extra money until a few months ago. And so my son is the one that told me about the podcast, told me that I could be fie. And I was like, that's cute. No, it's not what people like me do. You know, I'm just going to work till I'm old. And, you know, maybe you can be fie.

But then I started, you know, looking into it and thinking, and, you know, listening to your podcast and all of his advice. and realizing I could do something with this, but then when I opened these accounts, I didn't know you had to invest them in something and you had to pick what you were going to invest them in. And that was a little confusing. I thought you just opened an IRA and just invest itself. So I put it in index funds, but I don't know if that's what I should be doing. I just guessed at that. And so I don't, so like part of my IRA is in a Target date fund.

I don't know if that makes more sense. So the Roth IRA right now is just index funds. And then I put about $1,000 a month into an after-tax broker's account that's just index funds. So it's all index funds. I think that's great. I think that the question is, how do you get your goal is flexibility in 10 years from now. And the question is, how far do we want to go in order to get that flexibility, I think, would be how I'd frame it. Let's ask, I have a couple more questions about your background here.

So right now you do not have a bachelor's degree and you're doing accounting. What will change, and you said you're going to get your bachelor's degree this year, next year? The end of 2023. And what do you expect to do after you get the bachelor's degree? What will that change about your income, for example? Well, I'd really like to stay with the school district that I'm in, or at least in school district work. and it just would automatically make me eligible for better positions. And so that's where all my experience is at.

And I've spoken with my direct supervisor and kind of told her what my goals are with the district. And, you know, I think there's a really good path to stay in accounting with the school district once I, you know, as I get my degree and to just keep going up. So from my estimation, I feel like I will be making, you know, maybe $40,000 more a year in the next five-ish years. 40,000 more per year. Okay, awesome. Right now you're saving $1,500 per month. And at the end of 2023, you will be eligible for promotion, but you'll also be losing alimony on a report basis. So net, I wouldn't expect a big change in cash flow coming out of finishing your bachelor's

degree. It will be basically a bridge to continuing your current savings rate at that point in time. But then I feel like from there it's just going to be a runway up. Perfect. Yep. Walk me through your commute. How far are you traveling every day? It's about 20 miles each way. And what part of the world you live in? So I live in Seattle and I actually commute to a suburb. So kind of the opposite commute of everyone else. But okay, let's let me think through something here. How much do you like your house? It's an apartment. It's a studio apartment that I pay about the least amount you could pay anywhere in the area for. And I love it. I don't want to live in the suburbs and it would cost me more to live in the suburbs. So for that reason, I really love it. Fair enough. I was just going to, I was going to encourage you to consider the idea of a house hack close to work. You don't have any kids living at home anymore. So if you were to buy a place that was

nearby to work and have, you know, and rent out a couple of the bedrooms or the other, you know, duplex or triplex, that could meaningfully reduce your net payments for rent, give you a rental income property that you could have flexibility with, and reduce your commute time, which is a major factor in your budget here for the 200 bucks a month and gas. Right. And I thought about that. Where my work is is a upscale suburb. And I don't I don't know that I could afford any sort of house there that, I mean, I haven't seen anything less than maybe $800,000 for just a house that I could rent a bedroom out of. So I don't, that was kind of one of my questions for you too, is the cost of living is so high here. I don't know about, I don't know how I can get back into real estate.

I had a house that was actually in the same city where I work now. that's where I raised my kids and we sold it in 2019 right before the market went up and from that point it's almost doubled in value and it's that house is close to a million dollars in value and it was not something I would consider a million dollar house what about within a five mile radius of your school district um yeah if I told you where it was you could probably understand that Not really. Yeah, I don't know that I could get, I mean, I could probably find something in a suburb that's maybe equal distance from where I live now. So I'd still have a commute, but I could maybe buy a house.

What about the school district itself? Is there a particular advantage to this school district or this area versus switching the job to a different location? So I was at a different school district doing this exact same job that I have now. and then I moved to this particular school district because the pay was about $10,000 more a year for the same job. So that's why I'm here now. I just started at, let's see, the beginning of February. So, I mean, if there was an opportunity at another district that paid higher, I mean, I would be all for that, but I just started here. So, you know, but I mean, I've talked to my boss about it and she knows, you know, that once I have that my degree that I'm open.

into going anywhere, you know, or whoever's going to pay me the most. Okay. Well, here's what I'm trying to figure out. You have $1,500 a month in cash savings, and that's likely to continue for the foreseeable future. There'll be some puts and takes with the bachelor's degree. You might be able to save a little bit more, might be a little bit less net of the alimony and the raise that you'll get at that point in time. But that gives us $18,000 per year with which to invest and play with. We can accelerate that a lot if we can play a game with job and housing situation, which is the elephant in the room. Half of your expenses are going to housing right now. So, you know, actually half of them, more than half, are going to housing and

commute as a combo. And so if you could live in a place that you could Airbnb, you know, the main unit or live in a multi-unit property and rent out a few of the other properties, that would have, you know, a net $1,600 per month impact on your financials, which would, you know, what does that come out to? That comes out to like $18,000, $19,000 per year, which could mean that you could accept a lower paying job, for example, to some degree in order for that to offset. So just something to noodle on. If that's not an option, we can go elsewhere in your financial profile and look for the basics

of investing. So with my salary, is that, I just would wonder how I would qualify for a loan to buy a house. Yeah. What is your annual income right now? My salary is about $72,000 a year. Okay. So I would imagine that would qualify you for $300, $350, $375 in housing. Is that about the lines, what you expect? Yeah, there's, I couldn't buy anything for that here. I mean, I could maybe buy a condo. So that's kind of, you know, where I'm trying to figure out how I could do that. I mean, if I move to an extreme suburb, then maybe I could, you know, in the real outskirts of the city,

but then I just can't see commuting or finding a position that pays that much here. So that's where I'm kind of stuck, is just figuring out, you know, I can only afford, I could only qualify for so much of a loan and there's not really anything available right now in that price range in this. Seattle, greater Seattle area. And is your family all in Seattle? Is that way you want to be in Seattle?

Yeah. My kids are all here. That's, yeah. So I want to look outside of school districts. And I understand that you're about to be fully vested in your pension, but we're talking about $250 a month when you retire. So it's not, I don't want to dog your pension because a pension can be a really great thing, but you don't have, like you're not sitting on a huge pile of cash that you're about to walk away from if you change jobs. And accounting jobs, I don't have an accounting job, but I know that some can pay really, really well. What sort of outside the school district jobs are available? What kind of income could you make in that scenario? And, you know, when you get your degree, you're probably have a bump up in salary opportunities outside in the private.

sector. I also imagine that you will have a lot more free time after you graduate. You're probably, I've heard that getting an accounting degree is really, really intense. So after you graduate, you'll have time to do side jobs. And I know a lot of accountants, and they can never find a good bookkeeper. And I don't know what bookkeepers make, but I know that there's always a demand for good bookkeepers. And that's a remote job. You could do bookkeeping. working work for people in California who pay more or people in New York who pay more. If you're a good bookkeeper, you're going to make great money and have way more clients than you can possibly handle simply because finding a good bookkeeper is so hard. And having accounting principles

is going to help you become a really great bookkeeper. Even now you could start that, although you've got your school work, so that may not be the best use of your time right now. Yeah, I'm very open to anything. The reason that I kind of, you know, have thought about staying with the school district is just because that's where all my experience is at. And I already know, like, it's public what people, what salaries are. So you can go on the website and find out what everyone makes. And I know what those jobs pay.

And I actually have looked a lot in the last couple years at different accounting jobs, and it's a huge range. So I'm definitely open to work anywhere. I mean, I would, you know, I just, yeah, once I have that degree, I will definitely be looking at whatever field I can make the most money at. I mean, accounting is not my passion. It's just to make some money. So what I'm kind of gathering here is we're kind of just accepting the current situation

is the status quo right now. We're not really ready to make a big change on the income front. And that change is predicated and finish. the degree and you're not not willing to move to another location. I have a lease so I can't. Yeah. That is far away to change the housing cost. So that leaves us what the reality is, you're going to save $18,000 over the next year. And that's going to be the wealth accumulation here. And coming into 2023, we're going to be in roughly the same position, but with the added option of being able to at least expand the search radius for a new line of work.

Right. So I think we have to zoom out from our timeline here, if we're going to accept that and say, okay, what do we want to be in three years? What's a realistic position from that? So with the $18, or let's call it $36,000, 18 times two, that you're going to save over the next two years, where do we want to put that, I think, is the next question. And right now, you've got a very sizable cash position that seems super reasonable, plenty of cash. you're not going to run out of cash or have any emergencies anytime soon. You've got your brokerage account and your Roth IRA. I like the idea of just kind of contributing to the Roth and maxing that out in this situation

and then contributing the rest to brokerage accounts at that point. Mindy, do you have anything that you would add on that? No, I like the opportunity that we have here to grow the after-tax investments because that's what's going to give you the optionality. if all of your investments and net worth is in your pre-tax accounts, then you are going to find yourself in a conundrum. I'm super rich, but I can't do anything with it unless I access those retirement funds early. And the mad scientist has a really great article called How to Access Your Retirement Funds Early,

including the Roth IRA, the Roth conversion ladder, the 72T, separate but equal payments, and just taking the hit and paying the fee and, withdrawing early. But why do that when you can make a more conscious decision when you're starting from, you know, basically the beginning? Because do you know what your FI number is? You know, that's the thing that's hard is it's hard to say in 10 years where I'm going to be, you know, if I will still be single, if I will still be living here, if my whole family moves somewhere low cost. I mean, to me, it's such an up-in-the-air scenario, you know, kind of living life that it could go in any direction. So, you know, I know that the million dollars is kind of the

single person, you know, target, and then you can, and the 4% rule gives you 40,000 to live off of. But it's hard to say. I don't, I'm just, you know, the bigger or the better, but I don't really No, other than that. Well, sure, we'd all love to win the lottery. Let's see. So expenses of $3,2.70 a year, a month. Ooh, that'd be really great to get him. That includes helping my son with his rent.

But he did the Running Start program. I don't know if that's nationwide. But basically, you finish your last two years of high school at community college. So you graduate high school with an AA degree and a high school diploma. So he did that and it's free. And so he is now in college. He's a junior, about to finish his junior year. And so he'll graduate with his four-year degree next June.

And so I won't be helping him with this much once he graduates. So then he'll have a job. He can take care of himself a little more. So that will change too in about a year. So I think you are thinking about it in great terms. the million dollars is a good starting point because you are spending around $40,000 a year. So you are, you know, a million dollars is a great place to aim for. And then as your life circumstances change, you can alter your plan.

But you have to have something towards that you're working towards. So, you know, work towards the scenario that you have right now, the situation that you're in right now. I think at the highest level, what I'm looking at your situation, it's like you have a tight budget. Your expenses are essentially, that you could potentially move are going to be your son's rent assistance, which will end next year. You've got puts and takes the alimony and the degree. It doesn't seem like I imagine you're working crazy hours between your job and the undergraduate degree most of the year. Is that right? Yeah.

I mean, I have a regular, you know, eight to four jobs. and do school as I can every night. It's online, so it's pretty flexible. But, you know, it takes up a big chunk of my time right now. It's a lot of work. Okay. So, I mean, we have four levers in personal finance. We can earn more.

We can spend less. We can invest and we can create assets. So right now, what I'm hearing is there's not really any leverage to earn more because you already work a full-time job and are getting your bachelor's degree, which is your path to earning more money. to earning more money. And from a spending less side, you already have a really tight budget, and the expenses you do have are really helping your kids out to get a start in life.

And those will go away in a year, but we don't really have much leverage. You spend essentially excluding that $2,800 per month to live. And the only leverage we'd have there in a practical sense would be gas and rent, but we're not ready or able to make a move right now because of the income sacrifices that would that would that would create on the on the on the investing side we've got real estate stocks other businesses but you can't really do a very actively managed investment right now if you're working and you're getting your degree and real estate's out of the question because you can't afford to find a place that um that you want to that you want to that you want to buy in Seattle until perhaps

you earn the higher income after you complete your bachelor's degree and then that leads us to starting a business, which is also impractical if you're working a job and getting a full-time degree at the same time. So I think at the end of the day, we can acknowledge like, you're doing great. You're saving as much as you can in your situation. I think you plowed into index funds and you look up at the end of 2023 and say, okay, now I can begin playing the game a little bit by buying this next property or making these other moves. So I'd still encourage you. I challenge you and say, throw out that assumption that you can't house hack or make a move right now with this, that there are games you could play by moving school districts or moving into different suburbs

or doing those types of things. If you want to build wealth and have more optionality in three to five years, those are levers I would reconsider and come back to. But I think that's, like, for my position, I think that's what you're, that's the reality of your situation. You're doing great. You're going to save a really healthy amount of your income and build wealth over the next five, 10, 15 years with what you're doing.

And it's just a matter of accelerating it year by year as these milestones pass and your son's rent payment goes away. Your bachelor degree is completed. You're getting your raises and promotions. So one thing I was wondering is, is so I can get, I can start a 403B at my job, but I don't know if that's something I should bother doing. I mean, I do think that the thousand dollars in after tax is what I should continue and just in the 500 in the Roth. I think that your investment allocations right now, you had mentioned that you were, you know, everybody talks about open a Roth IRA, but they don't tell you that you have to actually allocate them into index funds.

You're not the first person I heard say that. So I'm glad that you brought that up. We need to continue to share with people that you do have to pick which index funds you're going into. I'm guessing that there's people who are listening who don't know that there are multiple different index funds. It isn't just one index fund and say, oh, I want this in index funds. And that's it.

There's a ton of different options to choose from based on what your goals are, what you're comfortable with, et cetera. Jim Collins, Jail Collins goes with VTSAX. And he's been quoted as saying, buy as much of it as you can, as often as you can. that's the simple path to wealth. My husband is in tech stocks, VTI, because that's his big passion. He has the opportunity to do the research. You had mentioned, oh, I'm not sure if index funds is the right place to be.

I think index funds are a great place to be when you don't have the time, the history, the research, the information about a specific stock. This is going to be, like, I'm sure you've heard me talking about Tesla and how my husband is completely obsessed. He listens to like three Tesla podcasts every day. He reads all the Tesla news. That's like his number one news alert. Anything that comes up about Tesla, he is consuming with the raging passion, the burning passion

of 10,000 sons. He's so excited about this. I'm not. I'm excited that he's excited, so I don't have to do the work. But he is, I think, educated enough to choose to invest in Tesla because he understands what's going on. And just because he's investing in it doesn't mean you should. You don't have the same goals that he does. You don't have the same circumstances that he does. You don't have, you need to be able to do your own research and be able to do that. And if this isn't something you want to do, and most people don't, I'm not saying that you're a bad person for not wanting to listen to 27 Tesla podcast a day.

But if this isn't something that you have time for, then an index fund is a great choice. And VTSAX is the Vanguard total stock market index fund. Fidelity has a version if you want to go with Fidelity instead of Vanguard. But I think an index fund is a great place to put your money. You mentioned a target date fund. So here's a bit of research opportunity for you. What is a target date fund and why did you put your money in there? Do you feel comfortable once you really research what a target date fund is?

Do you feel comfortable still having your money in there? You are 44 years old. They are going to start decreasing your risky investments and increasing your bond-safe investments in this target date. fund. The great thing about this is that you're not going to be at risk of losing a lot of money. The bad thing is you're not at risk of gaining a lot in these target date funds. They pull away the risk. So since you're essentially just getting started, maybe a target date fund isn't the best place for your money. Or maybe not all of it should be in a target date fund. Maybe there should be some

sort of allocation separation where you've got some of it in a target date fund. So you feel a little comfortable with it. I'm sure that a target date fund is an actively managed fund. So I'm sure that gives you a sense of security that somebody who knows what they're doing is looking at these funds. But index funds are so set it and forget it. You don't really have to do any research. It's every stock.

Yeah, the target day fund is, that was from a rollover IRA. And so I got that in the divorce and just, they just asked me, what do you want to do with it? How about a target date fund? And I was like, sure, that's great. And then I just left it there. So that's the oldest investment that I have. And I, yeah, I only am in that because that's where they put it. So when I knew nothing, yeah, so that's good, good advice to rethink that.

So that is it. Yeah, and that's rethink it. It might be the best place for your money for you and your goals and your, you know, your comfort level. But know what you're investing in. So go and research not only target date funds in general, but the specific one that you're in. And, you know, is this really where I want this money to be in? Based on my comfort level, based on my goals, based on, you know, how much more I'm going to continue to contribute to this and to my retirement funds in general. Is this really where I want this money to be? I think your investing approach makes a lot of sense. You could shift more towards index funds, the target date funds. Those are good. You're obviously very well researched on this and have a good foundational opinion of this. When we take your position and zoom out based on what we just discussed, you're going to save $18,000, $1,500 times 12 over the next 12 months and likely continue that, perhaps slowly increasing that amount of savings in the, you know, years 3, 4, 5, 6, 7, 10. So let's round that up and say we're going to save between $250,000 and $300,000 over the next decade. And we're going to invest that the entire time in these items that are generating ideally a 10% average return.

That's going to put your net worth in the ballpark of $500,000 farther ahead 10 years from now than it is today if we carry that plan out and extrapolate to that point. the question is what does that portfolio look like in 10 years that gives you options and makes you feel good what would you do you have 80,000 is right now if you were to say here's $580,000 how do I want that allocated in 10 years do I want that all in my retirement accounts and pensions do I want it in an emergency reserve do I want it after tax there are tradeoffs with all of those things. And remember, in 10 years, we're 54. So we want to make sure that that's, you know, that we're keeping in mind that, hey, that's not a very long bridge to, you know, 59.5, 65, where I'll be able to make use of this retirement accounts. So I think there's some nuance

that we need to plan for there and think through about a balancing act. There's enough flexibility in there to keep your, your options open to allow you flexibility. But we're also playing a really smart tax-advantaged game. Yeah, because I mean, I feel like in about 10 years, you know, I said I wanted to scale back working. I feel like I would be able, it would be reasonable for me to make enough through those years to live off of so that I'm not touching anything that I've saved. That's kind of how I was thinking about it, is that, you know, if I just covered my living expenses and nothing else, then I'd let everything that I'd invested grow. But I don't know if that's a reasonable tactic. I'm not really sure about

my plan. Well, if you keep your living expenses the same right now, they're $3,200 a month. So if you get this, if you're earning $40, $50, $60,000 more per year at that point in time and your expenses are holding relatively flat, moving up slightly with inflation, then you'll be easily able to work part-time and cover your living expenses while allowing that investment nest egg we just discussed to begin to compound. That would give you some flexibility because you at least have the investment nest egg that's compounding and you don't need to keep adding aggressively to that pile necessarily. So that would be one way to think about it. Are you going to school during the summers too or is it just like a traditional school year? No, it's self-paced. It's WGU. So you just take one class at a time and it's

competency based and you just never stop until you have your degree. So yeah, at the pace of about one class a month that's when I'm figuring my graduation date. So it doesn't really end. Does your work ebb and flow with the summers, like a traditional school district or is yours year-round? My job is year-round, so our hours don't fluctuate at all. There's, you know, I think, so one thing I've been doing is I have worked some overtime, and so I've saved that overtime into a vacation fund. So that's kind of who I'm paying for vacations and travel that I'd like to do. And so there's, you know, I think there's more opportunity for overtime during the school year than there is.

summer, but that's pretty much the only fluctuation of workload that we have. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going, and more importantly, where your taxed refund can make the biggest impact. Because the goal isn't just to look backward, it's to actually make progress.

Simplify your finances with Monarch. Monarch is the all-in-one personal finance tool designed to make your life easier. It brings your entire financial life, including budgeting, accounts and investments, net worth, and future planning together in one dashboard on your phone or your laptop. Feel aware and in control of your finances this tax season and get 50% off your Monarch subscription with the code Pock. What I personally like is that Monarch keeps you focused on achieving, not just tracking. You can see your budgets, debt payoff, savings goals, and net worth all in one place. So every decision actually moves an needle. Achieve your financial goals for good with Monarch, the all-in-one tool that makes money management simple.

Use the code pockets at monarch.com for half off your first year. That's 50% off at monarch.com code pockets. You just realized your business needed to hire someone yesterday. How can you find amazing candidates fast? Easy. Just use Indeed. When it comes to hiring, Indeed is all you need. That means you can stop struggling to get your job notice on other job sites. Indeed's sponsored jobs helps you stand out and hire the right people quickly.

Your job post jumps straight to the top of the page where your ideal candidates are looking. And it works. Sponsored jobs on Indeed get 45% more applications than non-sponsored posts. The best part? No monthly subscriptions or long-term contracts. You only pay for results. And speaking of results, in the minute I've been talking to you, 23 people just got hired through Indeed worldwide. There's no need to wait any longer. Speed up your hiring right now with Indeed. And listeners of this show will get a $75 sponsored job credit to get your jobs more visibility at Indeed.com slash bigger pockets. Just go to Indeed.com slash Bigger Pockets right now and support our show by saying you heard about Indeed on this podcast. Indeed.com slash bigger pockets. Terms and conditions apply. Hiring, Indeed is all you need.

When you want more, start your business with Northwest Registered Agent and get access to thousands of free guides, tools, and legal forms to help you launch and protect your business all in one place. Build your complete business identity with Northwest today. Northwest Registered Agent has been helping small business owners and entrepreneurs launch and grow businesses for nearly 30 years. They're the largest registered agent and LLC service in the U.S. With over 1,500 corporate guides who are real people who know your local laws and can help you and your business every step of the way. Northwest makes life easy for business owners. They don't just help you form your business. They give you the free tools you need after you form it, like operating agreements, meeting minutes, and thousands of how-to guides that explain the complicated ins and outs of running a business. And with Northwest, privacy is automatic.

They never sell your data. And all services are handled in-house because privacy by default is their pledge. to all customers. Visit northwest registeredagent.com slash money-free and start building something amazing. Get more with Northwest Registered Agent at Northwest Registeredagent.com slash money-free. Okay. Well, got it.

What else can we help you with today? Well, another question I have is I have a high deductible health insurance plan, but I didn't really know that I had that. And so I just have an FSA account, but I could get an HSA account. account next year. But I don't really know how that, you know, how much I should put into that. And, you know, I hear people talk about it a lot, but I'm not fully educated on how it works. And if that's something that I should be putting more money into. Okay. Well, the mad scientist says that the HSA is the hidden retirement account or the

best retirement account or something. I probably should have looked that up. But he's a super huge fan of it, and I'm a super huge fan of him, and it's a great account because you are allowed to put money in there tax-free. And there's a max of, I think, $3,500 if you're single, and $7,000 or $7,100 or $7,100 or whatever, if you're married, basically, or family, it's just doubled. So you can put this in tax-free. It grows tax-free. You can withdraw it tax-free for qualified medical expenses, which is pretty much anything on the FSA list, doctor's visits, prescriptions, any of your out-of-pocket expenses, or you can cash flow your out-of-pocket expenses if you're able to and just let this money continue to grow while saving receipts for all of these things.

So then you can withdraw this money at a later date. So let's say that you have, you're cash flowing all of these, you're saving all of your receipts, You're contributing to the max of your HSA, and at the end of the year, you have, or at the end of 10 years, let's say you have $40,000 there. You can take your $5,000 worth of receipts and withdraw it and pay no taxes on that. You've already paid those bills, so that money just goes in your pocket. Very oversimplification of the way that it works. You have to make the decision based on your finances and your health. Are you a generally healthy person?

Do you have a lot of medical bills or are you making, you know, do you have a lot of medical bills? The, you mentioned an FSA plan. If you have an HSA, you can have a like, it's like dental and, dental and vision FSA. So if you need contacts, you should put some money into the FSA. If you have, you know, ongoing dental work or even just like regular. dental checkups that aren't completely covered by your dental insurance or you have no dental insurance, you should put some money into the FSA for that. If you don't have those options,

like I have terrible eyes and need contact. So I put money into FSA. My FSA plan, and it may not be the same as yours, so you need to read your plan documents. But my FSA plan has $500 that rolls over every year. So I make sure that I look at my balance and I know, okay, contacts are going to be $150. So I need to have at least $650 in that account. And then I will take out the $150 for my contacts. And then I still have the $500 that'll roll over. If it's dropped below that because I've had some other random things like two kids going through the braces plan at $6,000 a pop, then I've put more in my FSA. But make sure that FSA is a use it or lose it plan.

Right. I've been really conservative with it because of that. And I don't think that my plan rolls over because I got all these emails about spend your money or lose it. You'll get those emails, even if it is a roll over, if there's any amount that rolls over. Talk to your HR department, read the plan documents and make sure if there's any rollover that you're, you know, roll it over, see what.

happens. But the FSA, the HSA plan is a really great way to save additional money tax-free that grows tax-free. And then I think it like, I want to say 65, 75, 80, whatever, you can start pulling it out just for random expenses. Yeah, I think the HSA is a powerful tax-deferred wealth building vehicle that can you can put the money in tax deferred. You can withdraw any contributions and gains tax-free for qualified health expenses, and you can treat it like a traditional 401k after a certain age limit is reached. So it's a really powerful both-building tool if you have good investment options available inside of your plan in particular.

So I think those will all be things to research. Your challenge will be, okay, the HSA maximum contribution is 3650 per year, So that's a lot for you. That's going to be two and a half months of your savings are going to go just to filling out your HSA. Then if you want to do your Roth, that's another, what, 6,600? What's the limit this year, Mindy? Oh, Roth. Limits this year are 6,000, sorry.

So now you're at 9,650. That is more, that is more than half of your annual savings. That leaves you with the 9,000 left to either put into these retirement, the tax-deferred retirement accounts, or begin putting into after-tax things. So there's a trade-off that you'll have to get clear on and say, what does that ideal portfolio look like in 10 years from now when I want that optionality in my life? And what are the trade-offs I'm going to make?

Am I going to max out the HSA, the Roth? In an ideal world, we can do all of the above and still have lots of liquidity, but we're going to have to make trade-offs in your situation. Right. So that's, I guess that's kind of what I'm wondering. Is it worth doing it all? or should I just believe it as an FSA for now and keep investing as I am? Because it's not something I can change until January,

but I don't know if it makes that much difference or if that's something to save for when I have a higher income. Yeah, I guess from my standpoint, personally, how I'd approach it, would I'd be like, okay, I'm not, I need to crush this bachelor's degree and get this raise. And you do that as soon as possible. That's the biggest lever in my financial position right now. If I can speed that up to two classes a month or one class every three weeks,

I'm going to figure out how to do that and advance that graduation date because that's the biggest lever in my financial position. After I get that, I'm going to get the wage increase and leverage that to either be able to find a house hack in the local market or get a new job in a different market. where that is conducive and begin adding real estate or at least offsetting my housing expense to some degree with that. And then I'm going to look up in 2024 and be like, okay, I don't have that $1,400 a month in rent and I don't have the $200 in gas every month. I've brought those down. And now my net is just $200 to live. So I'm now saving another $1,400, $1,500 per month on top of my,

Now my savings rate is $3,000 a month, plus I have a raise from my job, which is another to $1,000, $2,000 a month. Okay, now I'm saving $4,000 a month. That's $50,000 a year. Now over the next eight years, I'm going to generate $400,000 in investable liquidity. And I'm going to place that into stocks and or real estate investments, either by continuing to buy, like, live in flips or house hacks or by just buying rental prices. properties in some location, in addition to my investing in index funds, which may go on in after-tax brokerage accounts or these retirement accounts. So that's kind of how I would be trying to think about the situation is how do I leap forward to those inflection points where I actually have some of these options? If you're going to go down that route, if you like what I just said, then the after-tax liquidity is going to be relatively important because in the next

year, right now you have $23,000 in cash. And the next year, you could save up another 20. That gives you $40,000, that's a reasonable position to buy, I think, a property with. So that would be a powerful, like that would be one way to think about as, I'm going to forego the HSA contributions and being really heavy in the Roth or my tax deferred plans. And I'm going to instead focus on after tax liquidity to pursue that plan. But if I'm thinking, I'm just going to be at the school district for the next 10 years, kind of doing what I'm doing, maybe working some side jobs. Okay. And I just really don't think that the house hack or live and flip options are realistic for me. Then I think you leave your cash position the way it is and start going down this ladder from an HSA, Roth IRA and tax deferred account investing perspective.

So if I were to do that to try to buy real estate after I graduate and get a better job, so in the meantime, would I put my money in just a savings account or in index funds still? Yeah, I think it's a savings account at this point because your time horizon is too short, right? You can't, if you're, if the, if the needle mover, if you decide the needle mover is going to be one of these, this real estate investment, then, and you can't save up your down payment in an index fund, because it's too volatile. If you were, if you were saving three, four thousand dollars a month and we're able to easily qualify for property. in your area, I'd have a different opinion because you'd be able to invest it in the index fund

or whatever. And you're still saving so much that the down payment is not a two-year, three-year, huge high-stakes decision. But I think in your case, it's a high-stakes decision because it's going to require essentially all of one-year savings to put down for that property. And you're going to want some reserves to handle things. So does that make sense? Yeah, that makes perfect sense. I hadn't thought about that as an option. Yeah, thank you for helping me think differently. Awesome. What else can we help you with today?

Those are really my biggest things. I kind of just, you know, I'm a really, like, I like to plan what's going to happen 20 years from now because I like to overthink. So I just kind of wasn't, I kind of wanted an idea in my head of as I make more, what should I be doing with it? Should I keep the percentages I have invested the same way? Should I invest more heavily in just retirement accounts and that kind of thing? So I just kind of wanted this overall picture of, you know, in the next 10 years, what direction do I go with each thing? But I hadn't really thought about real estate a whole lot.

So that is kind of just a different option. But if I didn't do that, if I just just, invested in retirement and after-tax broker's accounts, then what would your advice be for the next 10 years, like as to how to, is how much to invest in each of those, like, percentage-wise? Well, well, I think, okay, so I think, I think you say at 55, what do I want my portfolio to look like? And so if you, if you do, if you carry out the plan as it kind of looks like it's prescribed here, I get the bachelor's degree, and I go into the job, and I, get my raise and these raises over time. By 10 years from now, you're earning 140 a year,

hopefully, and you're saving, what is the difference there? That's going to be $40,000, $50,000 a year. So cumulatively, we'll have saved $300 to $400,000 and your portfolio will be worth $500 to $600,000 in a strong scenario. So that brings you to $500,000 to $600,000 in total net worth at $55. Given that scenario, I would go really heavy into the retirement accounts because I think that you're close enough to retirement age at that point where you're going to want to be building that wealth tax efficiently. So you have, you know, you got a plan for the next, you know, 50 years following that because you're going to live to be 105. And so we got a lot. So I would actually be really biasing towards the retirement accounts at that point. I'd go down, I'd figure out what's my ladder look like.

You might say, HSA is the first thing I'm going to max. Then I'm going to do the Roth IRA. I'm going to do that until I begin approaching the income limit. And I'm going to begin shifting that more towards the 401k at that point as I move into higher and higher tax brackets. Or I'm sorry, not the 401K. What's the tax deferred version that you guys have? 403B. The 403B, yes.

So I'm going to have the 403B in there. I'm going to be vesting into my pension. I'm going to be 10 years further along with my pension at that point, and that's going to be a more meaningful part of my net worth, and I'm going to begin building wealth in that more traditional way. So that won't give you the optionality to really preserve income at that same, but if you're able to go part-time and earn half the income, you'll still be able to easily cover your expenses and still invest to some degree.

So that would be the way I would think about it if you're going into the money. the more traditional route without making kind of those bigger changes to accelerate income or cut back on the lifestyle expenses with real estate. That makes sense. I was definitely looking for some direction there because I just had no idea. Like I said, I never thought I would be in this spot that I could have these conversations. I just thought I'd work forever. So this is, it's fun to talk about for sure.

You've got the savings because you're in such clear command of where your money is going. So you've got the defense down so in such a strong way right now. And that's going to give you the option to build lots of wealth here. So it's a matter of where you build it and how you, how you want to do it. And in case one, I'd go all out on trying to build a accessible, controllable after-tax position. And that's if I'm going to use real estate and other inside businesses or whatever to aggressively build wealth on the side. And I'm not going to do that. Then I'd go down the more traditional path of thinking about Maxney's retirement accounts and investing and building that pension benefit.

Okay. Yeah, that makes a lot of sense. Awesome. Mindy, you have anything to add? I don't. I think we've covered it. I think we've got some things to work on and some research opportunities. And, you know, I think we're in kind of a waiting game right now with the college

degree and the, you know, helping the son with his rent and, you know, you know, and, you know, know, those are going to free up space in your budget and increase income down the road. So I think 2022 and 2023 are just keep on the same track and, you know, think about where you want your funds to go and, you know, research some of these things, the target date funds, the specific index funds that you want to be involved in. I would also say read the book, A Simple Path to Wealth by J.L. Collins. That's a great, easy to understand he doesn't get really deep in techno, like technical mumbo-jumbo. It's really easy to understand path to index fund investing and, you know, the wise behind it.

Okay. We'll do that. Okay, great. Well, Amanda, thank you so much for your time today. This was a lot of fun. And we'll talk to you soon. Yeah, thank you so much. All right.

Thank you. Okay, Scott, that was Amanda with an interoperable. interesting and unique story that we haven't heard before on this show, where she's got about 10 years on her financial independence journey. Yeah, I think it just depends on what action she's willing to take, right? You have to, there's four levers, as I stated earlier in the show. You can spend less, you can earn more, you can invest, and you can create. And right now, Amanda does not have a large amount of assets with which to invest. Starting a business or creating seems a little bit out of reach while she's working a full-time job and pursuing

her bachelor's degree. And so it's really about focusing what she can control and working step by step to finish this bachelor's degree, open up options, and then decide, does she want to be aggressive and creative as an investor and go the more risky or potentially more scalable route of real estate investing or side businesses or those types of things? Or does she want to go all in on the career with the school district? And that will provide stability. the ability to build wealth, a pension that will grow over time, and can be a really good option for her over the next couple of years. So I'll be interested to see kind of how that unfolds for her over the next couple of years and which path she goes down. Yeah, that'll be very interesting.

Should we get out of here, Scott? Let's do it. From episode 318 of the Bigger Pockets Money podcast, he is Scott Trench and I am Indy Jensen saying, in the immortal words of Darth Vader, live long and prosper. What? I know. Yeah, that was Spock. I know. Okay.