BiggerPockets Money Podcast - 338: Finance Friday: How to Become Debt-Free 20 Years Faster Than You Thought

Episode Date: September 23, 2022

Student loan debt—the gift that keeps on giving with interest, stress, and the overwhelming feeling that you won’t be able to pay them off. The larger the loan, the heavier the weight on your shoulders, but in today’s episode, we go over how to start lightening your load. Focusing solely on your debt makes it seem like there's no way out, but financial freedom is always achievable.  Today’s guests, James and Bianca, have $278,000 of student debt between them. This debt has followed them for a while, and their original payoff plan would last for another twenty-four years. Despite their debt, James and Bianca have a strong financial portfolio with ten cash-flowing rental units. They make over $17,000 a month with only $7,300 in expenses. Even with a strong financial foundation, these student loans have loomed over them and kept them from true financial freedom.  Scott and Mindy introduce James and Bianca to ways they could pay off their debt in the next few years and completely shift their mindset on defeating six-figure debt. Instead of having a burden on their backs for another twenty-four years, they could get their time back and be debt-free sooner. After listening to this episode, there’s a good chance you could too! In This Episode We Cover Living on less than half of your income and how to maximize your unused funds Income-based repayment plans and determining the best loan payoff plan for you Reallocating your portfolio and finding creative ways to pay off your debt  Time management and how to know when you should outsource or delegate tasks Preparing for a career shift and how to create a solid financial foundation Getting into a debt-free mindset and finding financial independence even faster And So Much More! Links from the Show BiggerPockets Money Facebook Group BiggerPockets Forums Finance Review Guest Onboarding Mindy's Twitter Scott's Instagram 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 BiggerPockets FIRE Planning Worksheet Student Loans Update: Repayment, Refinancing, and Potential Forgiveness w/ Robert Farrington Finance Friday: Using Student Loan Forgiveness to Catapult FI w/ Sammie Paying Off Student Loan Debt with a Median Income and Two Kids in Northern California with Kyle Renke Click here to check the full show notes: https://www.biggerpockets.com/blog/money-338 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 338, Finance Friday edition, where we interview James and Bianca and talk about large student loan debts, early retirement, and real estate investing, like always. One thing is, like, I'm fearful of creating just a new job for us, right? Like, right now we're doing all the maintenance. We're doing all the, all the property management, everything. It's all us. And so it feels like time is tight or ready. And so I always have this fear of growing and figuring out systems to make sure that we're not just creating a new job on top of our jobs we already have. Hello, hello, hello.

My name is Mindy Jensen. And with me, as always, is my thoughtful co-host, Scott Trench. Thank you, Mindy. Great to be here. 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 pay off hundreds of thousands of dollars in student loan debt, will help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams. Okay, Scott, this is actually one of my favorite episodes ever, and it didn't start off that way. We have a guest, we have two guests, actually, who have quite a bit of student loan debt. And when I was first reviewing their numbers, I thought this is a really big problem. As we started talking to them, I realized that they have an income-based repayment plan, but they make a lot of money. And at first I was like, hmm, this is interesting. And then we started talking to them, and the whole situation kind of changes.

The way that we were going to go, the direction we were going to go in, actually gets changed quite a bit. So this is, I can hear people saying, oh, I don't want to listen to income-based repaid. payment programs. This is an awesome episode. We went in a completely different direction than what our guests were expecting and really opened their eyes to different opportunities. Yeah, I think the elephant in the room when it comes to James and Bianca's financial situation is Bianca's student loan debt. Now, because she took on so much student loan debt and has a relatively modest income relative to the size of that debt burden, they actually separate their

finances, they feel trapped in their current location, and they're waiting 19 to 24 years for the repayment programs to come in, and they're worried about an income-based problem from a forgiveness perspective after 19 years, some of those loans may be forgiven, and because they're not federal programs, that repayment program may actually count as income for Bianca. So major long-term problems, I think we were able to avoid those entirely, basically, in their financial situation, and I hope that this is eye-opening for folks that are in similar situations or who may find themselves in similar situations in a few years. 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. 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 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 the 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.

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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 Leeners 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 as 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. Scott, I just loved this episode because very soon in the beginning of this show, we change tunes. And it's just a lot of fun. Now, from my attorney, 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. All right, let's bring in Bianca and James. James and Bianca have a fairly good financial situation until you look at the debt. Bianca was a human chiropractor and took some additional coursework to become an animal chiropractor. She's sitting on about $278,000 in student loan debt, which has been in forbearance, for the last few years, but we'll go back to about 6.8% interest once the repayment pause is lifted.

But back to the good. They have 10 cash flowing rental units across four properties. They spend significantly less than they earn. And their only debt is mortgages and that pesky little student loan thing we talked about. Bianca and James, welcome to the Bigger Pockets Money podcast. Thank you. Thank you for having us. I'm super excited to talk to you today. Before we jump into that, let's look at your numbers. You make a whopping $17,310 a month, and this is across both salaries, bonuses, and rental property cash flow. Yay, that is a great. Yeah, that's after deductions, yes. That is, yeah, that's net income. Their expenses are $7,300. So approximately saving

$10,000 a month, which is fabulous. I do see some room for improvement on those expenses. We have a car at 765 a month that includes gas insurance, maintenance, registration, like all of those things. But it's still 765 a month. And if we're going to round up, that's almost $1,000. Clothing at $250. Dogs at $360. Entertainment at 825, gifts, 500.

Groceries, 845. Healthcare 265. Miscellaneous needs, 300. Personal care, 570. travel 2415. I think I see a place we can cut. Utilities 260 for a grant toll of $7,300, $7355. Again, you're making $17,000 a month, not a year a month. So spending $7,000 isn't such a big deal until we go back to the beginning where we have that $278,000 student loans. So I'm not done. I've got more things to talk about. We have a, that's 99.55 left over, which is not really left over. I think that number can be a bit misleading because you've been using it lately to cash flow one of the rehabs on your properties. Investments, we have 401K for James at 120,000, HSA at 4,000, traditional IRA at 298,000, Roth IRA at 59,000, after taxed,

brokerage at 368,000, cash savings at 105,000, which normally I would be like, wow, that's a lot of money in cash, but you do have 10 units over four rental properties. So I think that that's maybe a smidge high instead of like grossly high. Subtotal on that is $954,000, which I think is really great, allocated, very, very diverse. Four rental properties total $1.5 million, for you. Bianca has $7,000 in her Roth IRA, $14,000 in her brokerage account, $5,000 in cash for a total of $26,000 in investments. But you put those all together and you have $2.5 million. So it seems like you're doing fairly well. We go back over to the debt side and we have $847,000 in debts for a grand total of 1.6 million in net worth. So again, it seems like you're doing fairly well once we don't look at those

student loans. Why is health care so expensive? We have a shortage of health care and then it's so expensive to become a health care provider. It seems kind of like that's a self-fulfilling prophecy. Hey, it's so expensive. We're not going to allow you to get in there and learn this. So of course the challenges that I see are the student loans. And clearly if you are allocating so much to that travel fund, you probably like to travel. So Bianca and James, what can we help you with today? Well, I think there's a couple things and you hit the nail on the head. Obviously, the student loans are a big part of what's out there and it's been weighing on us and how to handle it.

We've got some ideas based on the program that Bianca is on for repayment. but also I think that, you know, we're looking at three to four years to try to find a little more flexibility in what we're doing. I don't dislike my job, but it's not something that lights me up every day. It's not something that I go to work and I just can't wait to do. And I know that if we look to do something else, it's going to mean a big step back in salary, right? I mean, because I'd be leaving the industry that I'm in completely to look for something new. And to be able to do that, I want to make sure that we're in a solid position. I don't think either of us has a dramatic urge to retire in the next couple years.

I don't think that's what we're looking for, but understanding that our income could potentially dramatically decrease if I were to explore something else, you know, we want to make sure we're in a good position going forward. Sure. Okay. So let's talk about the student loan repayment plan. Yeah. So I'm on an income-driven repayment plan. We spoke to some consultants. Some consultants, yeah, to kind of figure out the best path forward with that, because obviously it's quite a lot of debt. So currently on an income-driven repayment plan started working with them during the pandemic, but basically my income-driven repayment plan allows me to pay as little as possible. I'm paying after forbearance ends here, I'll be paying close to $0 a month or very low.

and then after 25 years, my debt will be forgiven, but I will have to pay interest, or excuse me, I'll have to pay income tax on the amount that was forgiven. So I've been saving for that, putting money away each month, and just kind of prepping for that giant tax bill at the end. But still, there's a lot of fear and anxiety around, is that plan going to work? Is this the best plan forward? What should we be doing? How far away is the 25-year forgiveness event?

So the loans are split technically between two loans. The first one is about 19 years away, and that's really going to be. I think that one's the bigger, the bulk of it. It's about 200 and it's the most of it. It's over 200. There's about 50 or, excuse me, 70 with the interest left for the other one. And that one is additional five years. So we're looking at like 24 years.

Just to kind of frame what I understand here. The goal here is for James to have flexibility in a general sense, specifically to pursue an entrepreneurial venture, it sounds like, in the next couple of years. Is that really the high-level goal here? And to deal with the student loans in the context of that? I think so. I think that level of flexibility, while also hopefully not taking a huge hit to our lifestyle or, you know, we're looking for whatever that path is to be at least semi-location

independent too, right? Because we have, we have family and friends across the country. Wouldn't mind living by for bits of times. So we're also trying to keep that in mind with whatever path we go forward with. And let's call it some good here. If I were to frame your situation at a high level, let's pretend that the student loans are just part of your rental property portfolio for a second, right? So if you include them in that, you've got 847 grand in debts against a $1.5 million rental portfolio. That's not so bad. And you're, your blended interest rate on that is usually 3% for the mortgages in 6.5, 7% on the, 6.8% on the student loans. Is that right?

That's right in exact terms, but there is some caveats to that percentage on the student loans. The program that she's on, the government offers a forgiveness on the negative amortization that occurs each year. So the fact that she's not paying really anything, and then we have the interest at the end of the year, they actually forgive 50% of that. So really it's a 3.4% equivalent interest rate, which kind of changes the picture as to, you know, what do we do? Because, you know, when you start getting interest that low, is it worth aggressively paying off versus possibly saving for the end? Well, even better then in that situation. And Bianca, what do you want to do over the next couple of years? Do you have any specific goals around flexibility or outcomes for you?

I would also like some flexibility. I enjoy my work currently, but it is very low. location dependent. And that's the thing I don't enjoy about it, I guess, because James and I do like to travel a lot. So my work does not allow me to just up and leave for extended periods of time unless I really want to impact my business. Awesome. And what happens if you do up and leave from that job? Does there any impact on the student loan program? Yes and no, I guess, because it's income based. So my income would change drastically. It would be. would drop to zero technically. So I'm not sure what would happen if I were just unemployed,

what that would do to my income-driven repayment plan. But I don't really want to be unemployed. I like working. I like, even if I wasn't doing this, I'm a busy body and would want to be doing something. I think it'd be a lot harder for us to certify that she does not have access to my income or my saved money if she is completely unemployed. That's part of what allows my income-based repayments to be as low as they are. Okay. Is that we're keeping our finances so separate. Okay.

That makes sense. I'm calling this out because I think that when I look at your position is at a very high level, the student loans are really, they probably feel like a big, you know, like the big, you know, the story here. But I don't think they are. I think the story is that you guys are worth $1.6 million, have a cost. cash flowed rental portfolio and save $10,000 a month and have a very responsible debt-to-equity position across your overall portfolio in a general sense. And I think that what I'd hope to do at a

first point is to free you from this mindset that the student loans are really this crutch that are holding back your financial position. Here's several ways to frame it. One is, yes, there are advantages you currently have with this. But in the worst case scenario, you have a 6.8% student loan debt that you need to pay off. And you can crush that in about two years with your current cash flow situation. So you have a two-year debt here from that. And you could also cash out refinance your rental properties, probably at a similar debt at this point, that level at this point to pay that off at any point as well. So I just want to call those things out because the tradeoff there of spending 19 years with this as a boogeyman in your financial profile may be fairly

steep. Yes, that's advantageous, but you may not need to do that, and you may find that there's a freedom from just being rid of this thing in an earlier time period. Not to say that's what we're going to end up on. I just want to paint that perspective because it's really not that big of a deal in the context of your financial position. It would be a huge deal to someone else, but when we combine your finances for the purpose of this show, you've got a really strong position. What's your reaction to just that observation? It comes back, I think for me, the math versus the personal finance side of it, right? Because like there's a certain, it's a weight off your shoulders to think about having it paid off and having it gone, not having it sitting there and worrying about it for the

next 19 years to see what happens. But then I sit down and do the math based on what the interest rate is and what we could do with that money and what the opportunity cost is. And I feel like, well, if I could just somehow ignore it and pretend it isn't there, we may end up in a much better position down the line. But down the line isn't five miles down the line. It's 19 years down the line. How much of your current job do you want to deal with so that you don't have to pay this off? I mean, I was looking at this and I saw $278,000 as at first glance. I'm like, that's a lot of money. And then I'm like, wait a second, you have $10,000 extra dollars every month. And there's no such thing as extra dollars. But you have 10,000 currently unallocated dollars every month. What is 200,000 divided by 10,000? Because I think

that's not that much. And I did the math on the calculator just to double check myself. That's 20 months. That's less than two years. That is, then you've got 17 years to build up the biggest pile of cash you can and you still come out so far ahead without the stress. You don't have to do it for 19 years if you don't want to. Whereas if you go. with the income-driven repayment plan, you have to do it for 19 years and 24 years for the additional $50,000, which you could then just like knock out whatever. But I really would encourage you to sit down with the spreadsheets and like talk about your goals. This isn't a decision you have to make in the next 27 minutes while we're recording this show. It's just something to think about.

Why do you want to spend 19 years at a job? very location dependent. And even though we're not sharing publicly where you live, I know where you live. And sometimes it's not the most delightful to be outside where you live. So you would have to be there for 19 years or, you know, take some time off,

which will further, you know, I think that's something that's really worth sitting down with a calculator and a spreadsheet and a lot of different scenarios and just look at it. How could we make this happen? Could we buy another house that solely pays off these loads? Could we buy another house that helps us, you know, figure this out a little bit more?

I just think that that's really worth pursuing. Yeah. Another way to think about this is, let's look at this way. You spend about $7,300 bucks a month. That's a little over $80,000 a year. I'm probably doing that wrong. Someone will correct me. I'm going to do it real quick.

that's $87,000 a year, right? You pay off these student loans, you crush these student loans in the next two years, and you just pay them off with your cash flow. You're at $2 million in net worth because you've reduced your student loan balanced by that much. You're now FI at the 4% rule, right? So boom, there it is. That's one way to think about it from a simplistic standpoint to potentially reframe that. So, yes, there's optimization in the student loan program,

And we can definitely go there and talk about that with that. But I think, but my instinctive read on your situation, if just a few minutes in, is that this is the boogeyman that we need to tackle. And if you knock this thing out, then all of a sudden you can combine finances. You can think, okay, in three years, I could be sitting on a beach for six months out of the year in this beautiful location. In the other six months, you know, fixing animal backs. or those types of things,

doing what I love in this area, and we're done, right? And that's like a freeing thing, and that's the power of personal finance and the privilege that you guys have built because of the incredibly strong financial situation that you have, this item aside. So with that, would you rather talk about, would you like to talk about that angle

or do you want to talk about how to optimize this didn't loan debt paid off or both next up here? I don't know. You've thrown a little bit of a ranch things, right, in terms of, I guess I was coming in the mindset of like, how are we going to do this most efficiently? But, you know, there is, there's something that I can't, I can't quantify in the idea of it being gone. Right. I agree. It's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, like you tell me to look at the spreadsheets, but I can't see that in a spreadsheet, the, the,

feeling of just not having it there. Yeah. I wonder if there's a way to set up some sort of, I mean, some spreadsheet genius that'll do this in a minute. It's not me. But have your 250, and your interest payment, and I think it would be a lot like a mortgage calculator, where it shows you, oh, I'm paying $10,000 a month, or $8,000, give yourself some buffer. I'm paying $8,000 or $5,000 a month towards this debt. Look at, watch this debt just go away. It's not $200,000 for a super long time. It's $200,000, and then all of a sudden it's $185.

And that is like, wow, I paid off a lot. And then it's $175, and then it's $150, and then it's $100,000. and you're like, holy cow, I just paid off so much debt. And my time horizon now isn't 19 years. It's another year and I can be debt-free. You mentioned in the intro that maybe we were sitting on a little more cash than is necessary or that maybe we deed. So part of the question comes to it.

Is it worthwhile dipping into that a bit and running a little thinner on cash? So because, I mean, that would make a big dent. We can make a pretty big dent right away. if that's the row we went. Yeah, like a 50% debt. Oh, look, now you're one year away from combining finances and quitting your job and living on a beach and like just with, so 105 to go from 105 cash to zero cash might give you a little bit of heby-jeebies, although you make $17,000 a month and you spend $7,000 a month.

You actually, you only spend $5,000 a month unless you're traveling all over the place. So, I mean, look at what you could knock out. Gosh, I know that this is not where you were thinking this was going to go, but I like that a whole lot more. And yeah, is it awesome to pay $200,000 when you could just spend 19 short years of your prime life working in a place that isn't always awesome? weather-wise when you could just have it for free. But no, I mean, what kind of stress is going to go through? What kind of life changes have happened in the last 19 years that you didn't account for, that you didn't plan for, that just kind of happened.

Like, you can't predict what's going to happen in the next 19 years. Get it over with, pay it off, and then, like, go nuts. You look at your position. Yeah, I'm becoming more and more convinced that this is the way I, I, I view the situation here because it's just like, it's just like, this is your boss, right? This is your, this is your bad boss that you have to deal with on a regular basis. That's just always there with, with this.

And like, you, like, I said two and a half years earlier. We have $110,000 in cash. So 100%, like, that's a great option right there. You also have, you know, 401Ks in those types of things you can borrow against to do that. If you want to arbitrage the interest rates just a little bit with that. I mean, that could free up a lot of this. And then all of a sudden, now you're combining. So I think that a good exercise here for this would be, where do you like to travel?

What's your favorite place to travel to? I don't know that we have favorites. We haven't picked a favorite yet. Yeah, we try to do different things all the time, right? Oh, how would you like to go to so many different places that you could finally pick a favorite? But what's one of your favorites? The beach, mountains. What's your kind of go-to?

I'm beach, she's mountains. I like the beach, too, though. We can't say beach. Yeah. Okay. Great. So this is, I've now done this a few times. So I probably sound like a broken record on a couple of the recent shows. But go to the beach. When's your next beach trip? I guess we have to plan one. Yeah. We don't have one plan right now. Permission to plan one. Okay. Go plan a beach and spend a few grand on. Okay. And go there and sit there and, you know, have your coffee in the morning or whatever. What makes you, you're, you know, 10, 10 o'clock, you're on the beach. Someone's bringing in you a coffee, maybe your first drink of the day or whatever. And then write down, like, what do I want to be in? two years, three years from now, right? Put three years. This is where we want to be.

And just like write a half page, right? If you want to use a planner, you can bring a draft, call it draft on there, and I encourage the other one to manage that and say, what do I want to be in three years? And I think that that exercise will be really powerful here because you're thinking, what do I want to be in 19 years, right? 19 years, life's going to be a whole lot different, right? There's going to be a whole different capability set that you're going to be able that you're going to have physically and going to go into all these places. And like,

I think if you think about it in a three-year picture, a lot of this will become crystal clear. And I'll be, I'll be pretty surprised if you don't find a way to it. I don't know if you pay off this student loan, but to free yourself from it as a constraint in your situation, right? It could be paying it off as the easiest way. But I think, you know, combined finances where we don't have to do this all, you know, Bianca doesn't have to work all year round for. or most of the year in order to keep qualifying or for that to be a factor and constraint. I think that without that student loan debt, you'll have a position that's two million or two and a half million in equities between real estate and stocks and in cash

and 500,000 in mortgage debt, super conservative position. That's a position that's really strong from which to start a business, for example, right? Without student loans overhanging, one income is probably going to come pretty darn close to covering all of your expenses from Bianca. And I think your rental properties will easily cover the remainder with that. So, you know, I think that will be a really helpful exercise to come through and say three years from now. This is where I want to be. Maybe those are some starter thoughts, but only you guys can decide that. But I would not do it from where I want to be in 20 years.

That's way too far out. And you're going to be way wrong on that. So like no one knows that they want 20 years from now, right? Mindy's laughing at me because I went too far again. You know, one question I have, though, is we look at that. And if that was a route we were to take it, try to aggressively attack these and pay them off, is then it comes back to allocating where the money is going right now. Like right now, I max out my 401K every year.

There's slight details on mine is to have a 3% dollar-for-dollar match. And then at the end of the year, if I'm still employed, my company adds an additional 3% regardless of my contribution. So, you know, given what our cash flow is, is it worth? worth backing off on those contributions if we were to go this route or is do I still want to take those tax advantages to put them money away. 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,

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I'm sorry I'm using that word. I think it's funny. But I think that's the real issue here is that this student loan has too much power in your life from that. But I think that that's a balancing act, right? There's an art to that. You know, one school of thought is if you chose to pay off the student loan debt to just go all in and stop everything else and crush that. And that's effective, right?

That's a lot of people, that's better than a math approach. For you guys, it may be, you know, I like my match. I'm going to take the match. There's a couple other things here. If I have a great rental property deal, I'm going to pounce on it in the meantime, maybe one or whatever because that's our. portfolio and that's what we're, you know, we're obviously very proficient at at generating income and building wealth through real estate. So, so maybe there's a balance there. But I think that's again, that comes down to that like that, this exercise of just figuring out, what do I

want to be in three years? Do, do I want that so badly that I'm willing to just accelerate it and forget math? Or am I willing to take a more balanced approach to get there? That's, that's right for us. So I don't think there's a right answer to that. There will be a mathematically right answer to that. But I, again, I don't think I have a math problem here. James, how old are you? I'm 41. And Bianca, how old are you? 35. Okay. So at that age, you still have several years before traditional retirement. I would absolutely contribute as much to get the full match as possible. I think you're in such a great position. I mean, let's look at, you've got the 110k, you throw that at your debt, Now you've cut your debt essentially in half.

I'm just looking at the 200s. I should also consider the 50. So 250. Now you've got 140 left over. That is now 14 months of your super crazy payments. I'm sure that Bianca might be able to work more hours. Maybe you could pick up only if it's worth it. Like, don't do side hustles that are going to pay you an extra $5.

Like, that's not worth it. But if you can find ways to generate more income to get this paid off, I think you could do it in, I mean, 14 months. Now we're talking one year of not making 401K contributions. The market's been all crazy. So I don't know how frequently you can change your contributions. If you see that the market has just been going down, down, down. maybe you do want to jump in and buy when it's on sale.

Maybe you want to stick with it and say, you know what, for this next year, I'm just doing my 3% to get my total match from them. And that's all I'm going to do. And every single dollar is going to go to the debt. And then now in one year, at the end of 2023, you are debt free and you can do whatever you want. So instead of 19 years and 24 years for the 50,000, you now have to reevaluate what you're going to do in one year.

And that is just, I know that's not the way you thought the show was going to go. It's not the way I thought it was going to go either. But I'm so excited for the possibility of you being from $278,000 in debt to $0 in debt, because I don't count mortgages as in one year. Yeah. I think if you came in and you said, we're making $80,000 a year combined and we're saving $400 a month on that, we'd be like, okay, we need to cut the spending a little bit and move the money. things forward there. And then, yeah, we're going to figure out how to optimize around this student loan situation. It's not your reality. Your reality is that this is this is not 10 times, you know, multiple times your income. This is one and a half times your income. Maybe,

maybe two times your after tax. Framing it in terms of one year changes a lot in my mentality. In terms of like, you know, every time we've talked about it, every time we've looked at it, even the thought of aggressively paying it down, it's always been, boy, it's going to be five years. to be eight years where we're going to have to skimp by and completely back off in any lifestyle inflation we've allowed to happen and you know and that's been something's been really difficult to swallow for me you know framing in terms of well in 12 to 16 months starts to change that picture yeah great that's what that's what that's our that's our job right um hopefully that's helpful i i i i i think that's honestly how i feel here i again i you know it's probably

going to cost you money in a sense that you could optimize your finances more by doing the plan you kind of came in with around how we're going to spend, you know, we're going to keep our finances separate. But I think you're going to miss out on the point of the personal finance, which is flexibility with this hanging over yet. And like life is going to be much better without it. You said it's going to cost them money. It's going to cost them so much less time. They're going to get so much time back. So here. let's play some more financial monkey business, just throwing it out there. Scott suggested you have a 401k you can take a loan from, I believe you can borrow up to $50,000. So now you have $10,000 plus $50,000. That's $160,000.

So now you're left with what? $120,000 in debt, 160,000 you pay off right now. And now you are, what is it, $220,000? $250, $160,000 is now you're $90,000. Now you are paying off your loan in nine months. That's wild. What if you could do it by before next June? What if you were debt-free before next June? And is that something that you're comfortable with? Maybe, maybe not.

That's a conversation that you guys have to have outside of this phone call. But that's, I mean, how huge is that? Next June, you have no more student loan. debt. And then, of course, you would have to replenish your, you know, your cash reserve, and there may be some things that come up. And like Scott said, if you made $80,000 a year, I wouldn't be telling you all of this. But you make a lot more. So let's say, let's go nuclear and say, okay, all four properties, the HVAC system, all blue and the roof's all blew off. And now you need to put stuff back on there. You have places you can go to borrow. Maybe you don't

borrow from your 401k and now you're back up to the end of 2023 and all of that happens and now you can borrow from your 401k to cover that expense or you know you take 75 of this 105 110 that you have and put it towards that and you keep a little bit more of a buffer is the reverse true here are there sources of income that could be bonuses like an annual bonus or these things that that could come in above plan or is the cash flow and your rental property is conservatively calculated and and could be better in the next year. The bonus is accounted for in those numbers that we provided. It's paid pretty well the last couple of years,

and it may be a little less next year based on how we're trending, but it turns out it's not going to be as significant less as I thought it was going to be. So that's already accounted for. I think that the properties, it's reasonably conservative on that cash flow. I think we have a little room for rent growth that we haven't completely taken advantage of. We've jumped up because we've taken on some new properties in the last two years,

and we've been working on getting rents fully to market. I think we were a little too conservative on this rehab and where we came in on rents. It turns out we have one unit left, and when that's done, I think we'll get more for it than we expected. So there's some opportunity there as well. Yeah, I'm not surprised with that. When your financial position looks like this, it seems very likely that you're conservatively estimating general things when you've built this much cash and have this much

monthly cash flow and this much wealth. James, what do you do for work? I am in an administrative role for health care. So I, operations role, right, I have like a P&L responsibility for several locations that roll up to me. So it's, you know, it's health care as well as it's been stressed for the last couple years, which is part of the reason where, you know, again, thinking about is there something else that maybe is fun that I could do instead of, instead of dealing with health care. And I don't know, it's, it's tough to think about rotating out of that because it's what I've done for so many years.

But I think I've done my best here. What would you do instead? What's your inkling? That's the problem is I feel like I invest so much of my time into this job that I haven't even explored the possibilities or the hobbies to really know what that looks like, which is why we talk about the position I want to be, and I want to be in a position where we have a lot of flexibility, knowing that likely there'll be almost no income for me for a little while until I figure out what that looks like. Yeah. That sounds like a good exercise for your vacation

that you're going to schedule after this, after this call. Let's figure out, figure out what that looks like and start noodling on that. So I think it's a hard problem, right? Because you guys, your heads down. You're probably, it sounds like you're, you're fairly successful at that, at that role and it's got a lot of responsibility and its heads down. And that's where your mind share goes. But you're like, I don't know if I want to. do that for long term. Again, I think that going back to, you know, beating a dead horse here and painting the picture in two, three years, this debt is paid off. You've stock rebuilt your cash position to $50,000 to $100,000. That's super reasonable with a $2 million net worth.

The greenfield from there is going to look pretty open to you at that point in time. So I have a comment. It's more of a homework assignment for, you, James. I was at Camp Mustache and somebody was giving a presentation and she said she wasn't, she was talking to a counselor and they were, she wasn't sure what she wanted to do. And they said, okay, write down the list of 100 things, 100 ways to make money. And I want to say that this came from the Cheryl Sandberg book, but I wasn't, I think I spaced out when she said that particular part. So I can't, I don't want to like not give credit, but I don't know where I came from. But anyway, so I want to give you the same assignment. One hundred things.

that you want to do. And you're not going to put down 100 things because you'll put down like five and you're like, oh, I can't write fast enough. And then you get to number 14 and you're like, I can't think of anything else. But just what are things you like? Do you want to go teach horseback riding

or you're allergic to horses? Or do you want to go be an animal chiropractor with your wife? Or do you want to... Don't do it. You'll be in a lot of debt. Yeah, don't go to school. Yeah, you want to take another 300 grand to do that.

Yeah. I'm definitely not recommending that, but you could go work for her. Maybe that would help generate a lot of income that you're not paying somebody else. Maybe you want to learn how to knit or go skydiving or like there's all sorts of ways that you can generate income when you can think about it. Take a huge vacation. Take a whole week. A huge vacation a whole week. But like really think about this.

What are some ways I can generate? rate income or what are some ways that I want to spend my time when I no longer have this job? Because that, like, I don't think you've even given yourself permission to think about that yet because you've got 19 years to pay off this debt. But now we're paying off your debt in nine months. Now you can think about it a little bit more. And I do think that nine months is like super aggressive. I don't know that nine months is actually the right choice for you.

But that's like now you've got two things to start with. Here's nine months and here's 19 years. Now you can figure out where your comfortable repayment plan fits because I like two years, three years, way more than 19 years. I love this so much. I'm so excited. I'm sending notes to our producer. I'm like, this is going to be the best show ever. We had the life editor guys on recently, and that might be a good read for you as well.

That's a good book that will have a, it's a short, quick read, and it has a short, little quick perspective changing of get rid of the math problem and start introduced a life problem with that. And I think that that's a, I'll go ahead, Mindy. Do you own one property free and clear? Yes. Yes, we own one property free and clear. Could you get a mortgage on that property? Yes. This was been part of the conversation where I thought we were going. It would have been something like that, or realizing we're really conservative as far as our loan. to value position in general overall with real estate, I think we'd actually like to do is dump that property and leverage into something larger, but I understand where you're going, right?

Like we could leverage that and just use that to pay off and then have our tenants pay off that loan. Have your tenants pay off your student loan debt. So, yeah, that's another thing. Like, what are the crazy things we can do to pay off this student loan debt? because then your freedom is so tangible. It's right there. That is, and I love, I mean, we're not celebrating enough the fact that you have a fantastic

financial position, the fact that you are so conservative in your numbers. I really get the heby-jeebies when people come on the show and they're like, I'm going to make $1,000 a month in this property, even though everybody else is only renting theirs for $750. I'm like, you're not going to make $1,000 a month on that property. I love that you're conservative. Do you have any properties that you don't like? I wouldn't say that I don't like, but the property that is fully paid off

would be the property that we like the least. Yeah. They don't like it. It's just... Out of all, on the four properties, it's probably in the least favorable area. Not that it's in bad or it. It's just in the least favorable area,

and we probably would dump that one before any others. That's another angle is you dumped that one by another property that you'd like. a lot and then use some of the proceeds for that down payment, some of the proceeds for the student loan debt as well. So just repositioning some of your assets. It's the same is no different than the other things that we just discussed around using your cash flow for the next couple of years, although it's a lot harder to be comfortable

with that concept intellectually or in practice with that. But that would be yet another angle here to be able potentially arrive at that outcome soon. You know, what I think our original plan, not for student loans debt, actually, but original plan was to refinance the units we're currently working on once they were finished. But that was going to also be part of my questions to you is that is worthwhile at this point, you know, given where mortgage rates currently sit. And knowing that one is, I forgot what is like for foreign change right now, it would be worth pulling that equity out at the end.

Yeah, I think that the, you know, what do you think the mortgage rate would be when you pull it out. Probably mid to upper fives, you know, 55, 575, somewhere in there. And so the interest rate on the student loan debt is 6.8, but effectively 3%. Yeah. Because with the way you have that. So you're arbitraising 200 basis points. It's only effectively 3% if you do the student loan repayment, right? Yes, as long as we stay on that program. Or the student plan, the income-based repayment plan. What would be the cash flow of the property after you do that? I have to do the math on that. I haven't done that yet. Home work assignment.

Yeah, I think it's really hard because you technically have a 3% interest rate, but you really have a 6.8% interest rate just with the game that you're playing around the finances there. So, but I think from your life freedom perspective, I'm already mentally bucketing it as a 6.8% interest rate. So that's positive arbitrage, in my opinion, because you then immediately after doing that can merge your finances and do whatever the heck you want, almost whatever the heck you want. almost whatever the heck you want.

You're like almost fie with once that's completed. You still have probably another two to three years to finish the play with your current run rate on things. But I think that there's advantages in that. I don't know. I think you have a two or three year play to fully finish the game. Finish the game here with your current situation. So I don't know.

That's interesting. Would that be an owner? No, no. We are owner occupying one of the properties. That's the one that's sitting at the lowest rate that you see there. Okay. I would say I'm not sure that you can get a five seven five rate on a non-owner occupied property unless you've gotten a quote really recently. The quotes that I'm getting are high sixes. Oh, okay. Low sevens. I'm not in the same state, but they are. preventing me from getting a loan on my property. Yeah, I think that's really hard right now. I think you're going to get a better interest rate as a source of debt from your IRA.

And I think you're going to, you might have a better one from your personal residence. Could he borrow from his IRA? He has a 401k and an IRA. But can he borrow from his IRA as well? Because then you've got your 110 now, 50 from your 401K, 50 from your IRA. That's 210. you're practically debt-free by September. Well, yeah, they still have the debt against the IRAs.

But you're paying that back to yourself. That's a way different debt than pay in student loan debt for 19 years or working for 19 years. So just more options to think about. What are your thoughts here? What are some other things that we can help you out with today? I know before we kind of went this direction, we were also talking a little bit about looking into bigger investment properties at some point. And just we don't really have experience with anything larger than a four unit,

but we would like to. And just any thoughts that you might have on that. And I want to, one thing is like I'm fearful of creating just a new job for us, right? Like right now we're doing all the maintenance. We're doing all the property management, everything. It's all us. And so it feels like time is tight. or ready. And so I always have this fear of growing and figuring out systems to make sure that we're

not just creating a new job on top of our jobs we already have. Well, I think that property management is a great one to start. So one of the issues here is what was your financial position like when you bought your first property? Yeah. So I was not far out of school at that time. So it wasn't great. You know, I mean, it wasn't bad by any means. I was fortunate enough to pretty much have no student loan debts myself. So I when I saved up the down payment, I bought the, duplex that we currently live in. And that was the first property, the only property that I owned for probably 15 years. And then we just happened in the other ones really in recent history. So here's what's going on right now. You earn, I would imagine, 25K a month before taxes.

Might be a little aggressive, but close. Okay. Let's call it 250. Little less, but yeah, close to that. Yeah. We can call it 250. Okay. Then we have another 100K at least in wealth accumulation from your portfolio. On average, that's going to completely depend on the market conditions and other things. But on average, we at least expect 100K. So the value of your time, if you were an individual, right, if we were emerging as an individual, that's $350,000 or $350,000 per year in wealth accumulation. And you divide that by 2,000 hours.

What is that? That's going to be $175 an hour. So when you started your journey, you were not earning $175 an hour. You were earning substantially less than that, probably $20 or $25 an hour. And so it made perfect sense to do all of these things yourself, right? Property management, managing contractors, those types of things. But you have at some point in the last five, ten years, clearly crossed a hurdle where you're probably doing too much of the work yourself and negatively arbitraging the value of your time,

at least as it's currently valued for some of these activities. And so I think that would be a really good exercise to say, what am I doing right now? And let's cut you in half because you know you're two people. But what are you doing right now that's less than $100 an hour in terms of value of time? And how do you make sure that that gets outsourced? You start hiring that out. You can maybe take a tax discount and say it's $80 an hour.

Okay, I'm going to hire all those items out. And when I have items that are above $100 an hour, I'm going to make sure I'm doing those personally. And I think that will be a good mental model for you on that. And you should start underwriting your properties to that, putting that management cost, for example, into the property analysis, especially when you underwrite the next larger property. Otherwise, you're right, you're going to create, you're going to continue compounding this problem of more and more income and less and less time, which, again, I think is a solution that you can solve for with your nice vacation and coming up and saying,

Here's exactly what I would like my life to look like on a day-to-day basis in two or three years. And you'll be able to, I think that framework will be helpful. I think so. And I think that she has opportunity with her business, too, on a dollar per hour average to we should probably be looking at that too. Yeah. Yeah, that could be, that's true as well in the, sorry, Bianca, do you own this business or do you have control over the income generation? Yeah, I own the business. Awesome.

So that's perfect, right? That's a great, that's a great framework for that. to think about how to how to do exactly that that same activity set. I think it's a common problem that entrepreneurs have, Bianca, where folks are continuing to do work that is not very high value when they could be outsourcing that and doing the things that are high value. So constant struggle that everybody faces when they go into business for themselves. And a struggle to give up that control too,

which is, I think, part of why you want to be an entrepreneur, but then it's hard to give up that control when the time comes to to take advantage of that. And the first time you do it or the first couple of times, you're taking a big risk and you may very well have it be more expensive than if you're doing it yourself. But over the long run, it will be cheaper. What else can we help you with? Did that answer your question about real estate? I mean, I think so.

I think that part of what we were struggling with is time management in trying to understand when is it appropriate for us to start allowing somebody else to do some of this, right? So I think that we have an exercise look through and try to figure out when we could or maybe now we start hiring some of that out instead of doing it all ourselves. And you're in an interesting sweet spot. You're not, you're not an area where you can do outsource everything. You're in an area where you should outsource some things and do other things yourself still. That hurdle where it's obvious you should do outsource everything is you have not crossed that yet. But you're not too far away.

I realize this might not make the podcast, but can I take a minute to celebrate my wife and what she's contributed? Because if you look at just the numbers, like you're looking at, oh, she's only got $20,000, at about $278,000 of debt that she's brought into the relationship. And I want to be very clear about how she's also contributed in other ways. So, you know, in two aspects, really. For me personally, my job, I was at Crossroads probably about three or four years ago, and I could have either stayed with the company I was at in advance or jumped to a different company. And for me, like, level of comfort, you know, I'm like, I'm just going to stay arm at,

even though I know that that company was not long for this world. She encouraged me to leave, which led to multiple relationships and changes that led me to where I'm at now. And probably in the last three years, I've seen a 35% increase in my income based on those changes. So, you know, that was a huge contribution alone. But also then somehow with real estate, she convinced me to buy a duplex a couple years ago that was well beyond my comfort level. It was a real dump. Well beyond my level of expertise to fix it up. And somehow she convinced me to buy it. And with her help and with some very generous family members, we did fix that one up. We ended up selling it last year, 1031

into the 40 unit that we just bought, which she also identified that property through a client. So through both of those things, I just want to make sure I give her props for everything she's brought financially. And honestly, we've probably turned about 200,000 in equity to about 400,000 equity in those two moves of real estate. So I'm trying to make up for all the money that costs you. So thank you. I love it. And for what it's worth, I don't think Mindy or I, hopefully no one listening to this has had any doubt about the fact that this is a partnership that has, that has contributed to the wonderful situation that you have right now. And these are a great couple and a great team on this journey.

And, you know, the only reason we're looking at the finances separate is for the... Absolutely. Because of the boogeyman that we've identified that we're going to try to conquer soon, hopefully. I knew the only reason you were successful was because of Bianca. And that's absolutely going into the show. That's awesome. That's lovely. But yes, I think that it can sometimes seem a little impersonal with the show.

We're like, hey, we're really only looking at. at the numbers. I could make this a 19-hour show and talk about lots of different things. I love that you celebrated her and I love that you shared this. That's very, very important. And that says a lot about your relationship. It's not just, you know, wow, I think of her as this burden. She's so great. Here's all the things she's doing. I don't think of this as a financial issue at all. So yay. I love this. I am making notes all over the place. I love this show. I am so excited for this show. This is it definitely went in a different direction and I'm so, so, so happy for the opportunities that you have.

I think that it would be a lot of fun to just sit down. I am very visual. So I would want to sit down with the big opportunities and, okay, we can pull 50,000 from this account and 100 from this account and 20 from this account and we can like mix and match and be out of debt tomorrow or we can do it a little bit slower and be out of debt in two years or we can do it, you know, all these different ways we can do it and just think like how would that free up all this time? How would that free up all this mental headspace? I really think it would be fairly easy to be out of debt conservatively in two years without making a ton of changes. But you could be

out of debt like tomorrow if you really wanted to pull the nuclear option without really changing a whole lot of your future trajectory because you've got $4,000 in monthly income from your rentals. And you've got the almost, and that's, let's see, yeah, that's more than half of what you would need for your spending. And then you've got the other half in your brokerage accounts. I completely agree with Mindy. And I would just say that the three-year picture is probably the easiest one to start with because it's so believable to have it all paid off and have a strong cash position and have your $4,000 in rental income. And if, you know, Bianca wants to keep doing her, running her business between the $4,000 in rental income and the income from her business,

that's a, and easily a $50,000 to $100,000 cash position if you choose to maintain that or rebuild that, you have a complete freedom from there to consider, you know, doing something entrepreneurial with an infinite runway. So, and a nice cash reserve. So that, and that could be a real estate, be whatever else your exploration of your passions takes you over the next couple of years. I think that's a really realistic position. And then you can just say, how do I accelerate that bit by bit? Is there acceleration that I'm comfortable with that I would be willing to do to make that happen faster? Because you just let the current run rate happen.

And that will happen to you if you just reallocate it towards that, those outcomes. This was so much fun. I'm so excited for all of the options you have. Thank you so much for your time today. I really appreciate you taking the time to chat with us because this is a really, really fun show. Thank you for having us. This was really eye-opening and helpful and gave us both a lot of peace of mind, I think, to look at it that way. Awesome. Well, send us a postcard from your beach vacation where you're going to talk about all of these things. We'll do. Okay, we'll talk to you soon. Scott, that was such an awesome episode. I loved how we started. it down one path and then we're like, wait a second, you could just pay this off now in the next

couple of years and then have, you get 17 years of your life back to do whatever you want. And yes, you only can spend a dollar once. So you are going to pay off the student loan instead of buying a house. But you are only, they have potentially the ability to repay all of these loans in like one year with all the financial monkey business that I suggested. And yes, that would put them in a slightly less than super, super secure position by using up all their current cash savings. But they make so much income, I don't really have a problem with that. There are other options I would have given people in different situations. If they had three years left on their repayment plan, if they were making $80,000 a year or $50,000 a year, if they were making $80,000 a year, if

they were in all sorts of other debt, but they're not. For this particular situation, I think aggressively paying off these loans is the best choice for them so that they can get this huge amount of time back in their lives. Yeah. I think that the ultimate goal here, and it probably comes after around $2 million plus net worth, but Mr. Money Mustache has a great analogy. He says the way you feel about money should be like how you feel about tap water, right? You're not going to like turn on the faucet and waste it and all that kind of stuff,

but, you know, it's just a utility that you're going to access here. And they, these guys, James and Bianca, are so close or should be, they're just on the cusp of being able to view money through that lens. They just need a little bit more work. They're almost there with their current spending. And in a couple more years, they're going to easily crest that threshold just by paying down the student loan, for example. And you get to that point, and instead, coming into today's show, they were thinking, I've got this monkey on my back for 19 more years or 24 more years for the second part of the student loan debt.

It's like, no, no, we can so easily just zoom out, take your whole portfolio, say, where do I want to get to? What's holding me back? And reallocate, right? and think through, reallocate both your existing portfolio or reallocate where you're sending the cash that you accumulate on a monthly basis. Okay, Scott, that is great. I can't argue with that at all.

Should we get out of here? Let's do it. From episode 338 of the Bigger Pockets of Money podcast, he is Scott Trench, and I am Indy Jensen, saying, ooh, take the money and run.