BiggerPockets Money Podcast - 352: Common Money Fears That Are Costing You BIG

Episode Date: November 11, 2022

With so much going on—a recession, rampant inflation, rising interest rates—overcoming your money fears can be more challenging than ever before. The world is changing, and many of us feel like we’re being swept along with it. Our dollars are worth less, our retirement accounts have fallen sharply, and our cash is wasting away. What should we do when it feels like every financial move has a benefit and drawback attached to it? Should we even be making moves right now? Don’t get overwhelmed with financial anxiety because today we’re bringing you an episode full of financial fixes for the everyday investor! We posted on the BiggerPockets Money Facebook Group a few months back, asking you which money fears keep you up at night. Now, we’ve got answers! Back on the show are J Scott and Kyle Mast! They join Mindy in giving solutions to your greatest financial fears. J and Kyle give suggestions on topics ranging from rising home prices and the inability to become a homeowner to being nervous about how inflation is eating away at the dollar. We also touch on the age-old question of whether or not we’redoing enough right now to set us up for retirement and how a recession could affect our hard-earned assets. J, Kyle, and Mindy all give their suggestions on these situations and spill some of their own financial fears to show you that even the experts still worry like everyone else. In This Episode We Cover Our biggest financial fears and what we’re doing to mitigate them in turbulent times Growing up with very little and why the “never enough” mentality always lingers Why buying a home isn’t your only option for building wealth in this market Setting yourself up for a plentiful retirement even if you got a late start Whether or not keeping a large cash position is a smart move to make Changing jobs to get more personal time and when flexibility trumps finances Inflation, interest rates, and how to stay sane during a recession  And So Much More! Links from the Show Find an Investor-Friendly Real Estate Agent BiggerPockets Money Facebook Group BiggerPockets Forums Finance Review Guest Onboarding Mindy's Twitter J’s BiggerPockets Profile J’s Personal Website 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 The Money Date: What You Should (And Definitely Should Not) Do to Align Your Finances as a Couple 7 Tips for Successfully Investing in ANY Market Condition With J Scott Syndications: Everything You Need to Know BEFORE You Invest Episode 200 Special: A Personal Finance Masterclass with Kyle Mast How to Find the Best Possible Certified Financial Planner (CFP) for Your Needs with Kyle Mast BiggerPockets FIRE Planning Worksheet Click here to check the full show notes: https://www.biggerpockets.com/blog/money-352 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 where I am joined today by Jay Scott and Kyle Mast to talk about your biggest money fears. Owning a home is a wonderful thing, but it shouldn't define you. You shouldn't necessarily make the decision to own a home just so you can say, I have a house. But for a lot of people, it may be a better decision right now to rent a house, to save up money, and to actually put that money towards an investment property or put that money towards a property like a duplex or a threeplex where you can live in one unit and rent the others to supplement your income. Hello, hello, hello.

My name is Mindy Jensen. Jay Scott, welcome back to the Bigger Pockets Money podcast. I am thrilled to be here. Thanks for having me again, Mindy. Thanks for coming. And Kyle Mast, joining us in the host seat for the first time. Welcome, Kyle. Hey, thanks for having me back.

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30-day trial at audible.com slash BP Money. Okay, let's go back to Kyle Mast for a moment. Kyle is recently unemployed. Kyle, let's talk about that for a minute. Yeah. Yeah, I kind of, I was at a get together the other night, and people were asking each other what they were doing, what they did. And I thought it'd be funny to say, well, I'm kind of unemployed.

And everyone felt really sorry for me. It was, it didn't come off the way I wanted it to. Everyone was like, oh, are you looking for something? So I should explain it. I had a financial planning firm. If people have listened to the podcast before, they probably know that. but I sold it earlier this year and we have some real estate investments too. So essentially I'm, you know, in the financial independence world, I guess financially independent, you know,

as far as managing some of the real estate remotely, we do, I do a little bit of that. But, you know, I've got a five-year-old boy, wife, and one-year-old twin boys. So I'm just spending a bunch of time with them these days. Oh, that's, that's a busy house. It is. It is a busy house. I think my morning, this morning, consisted of collecting eggs with my five, year old changing a diaper. Yeah, that was about it and just trying to put out the fires in the morning. It's good. It's a good morning. One diaper? Yeah, well, just one for me this morning. Yeah, there's more. I'm sure there's something happening right now. And Kyle has joined us in the past on episode 41 and on episode 200. Jay, you have joined us on episode 21, where you talked about

syndications. That was an epic episode two hours long. You were also on episode 70, where you talked about, where you went to episode 70, where you talked about preparing for real estate downturns, preparing for investing in real estate when you don't have any money, preparing for the recession that's upcoming. I don't know if you know this, but perhaps there is a recession coming. Does anybody believe that there isn't a recession coming, Kyle, Jay? I mean, as long as you're willing to wait long enough, there's always a recession coming. I believe someone who shall remain nameless has predicted a recession or a market downturn

every month for the last 14 years. Someday he'll be right. Okay. We posted in our Facebook group, what is your biggest money fear? And holy cow, we got a lot of responses. There are actually quite a few money fears floating around in the world, in the world of our listeners. and I am bringing on Kyle and Jay to help explain and maybe alleviate some of those fears. Kyle and Jay, let's talk about your money fears.

Jay, do you have any money fears? Oh, I have a whole bunch of money fears. But my biggest is actually probably one that's fairly common. So I grew up, we didn't have a lot of money. I mean, we had food on the table and we had a roof over our heads, but not a whole lot more than that. And then I was very fortunate. I was able to put myself through college.

I was able to get a good job. I was able to make a decent amount of money in the corporate world and then got into real estate. And so I've done pretty well over the last couple decades. But I think it's very much my upbringing and the fact that I know what it's like not to have money. And it terrifies me of ever potentially going back to that place. And so I tend to be a lot more conservative than a lot of other people that I talk to in this industry. I'm also a little bit older. I turned 50 last year.

And so between my age and my background, I think I'm a little bit more or maybe even a lot more conservative than a lot of people in this industry. And that's really the result of my money fear. Now, here's the interesting thing. My wife, Carol, grew up in very similar circumstances as I did, maybe even worse off than I was. And she tends to be a good bit more aggressive. And so I'm not saying that it's necessarily my history that led to these money fears. But it's certainly how it manifested in me. And it's made me a lot more conservative than I probably otherwise would be.

And I probably make some suboptimal financial decisions. But we can talk about that as we go on. I think it's interesting. You said your age makes you conservative. and I wonder what people who are in their late 20s, early 30s are thinking about this market right now. I mean, I don't really wonder. I look online and I see them sharing their fears.

You know, oh, the sky is falling. Oh, everything is so awful because their history with investing has always been up into the right. I can't fail. Every stock that I buy is going up. Every property that I buy is worth more when I sell it in a couple of years. and they haven't experienced this downturn. And my thought, I was actually talking to my husband as I was preparing for this show.

And I'm like, what is your biggest money fear, sweetheart? He's like, well, honestly, now that we have done so much preparation for our future, we have invested, we have prepared. I'm not, I don't have the money fears anymore that I used to. He grew up financially insecure. and they had food on the table, but his father was a union electrician. And he worked in the spring and the summer and the fall, but in the winter he was laid off. Like clockwork, but this was in the 80s when they didn't have the internet and they didn't have Craigslist and you couldn't just go out and get a side gig.

And so like clockwork, he had no job over the winter every single winter. And they didn't prepare like every single winter. It was like always a surprise that they're. They got laid off. And he remembers, like, his biggest memory as a child was his parents sitting them down and telling them that dad got laid off again and that they were probably not going to lose the house. He's like, wait, there's a chance.

Like, he was so shocked by this. And, you know, when I was growing up, I didn't have this. My parents, I discovered that we almost lost our house, but they never told us this. And I don't know which way is better to, like, share with your kids. that things aren't going great or to hide it from them. But my biggest money fears have now been alleviated because we have been preparing for so long. But I'm also really, really frugal if anybody who has listened to the show can attest. Yeah, I also wonder, I wonder if having kids factors into it as well, because certainly between my growing up, my history growing up and my

age and having two kids that are now almost teenagers, it makes you realize that there's not as much runway ahead of you as there is behind you. And if something catastrophic were to happen, you don't have that time buffer. I think a lot of us that have been able to be successful in this industry recognize that if we lost everything, we could probably gain it back or much of it back or even more by making better decisions the second time around. The problem being is if you don't have enough time to do that, obviously that time pressure can make things very difficult. And Kyle, I think you are younger than Jay and I. Yeah. So yeah, I want to piggyback right off of what you said, Jay, at the end, they're bringing the kids into it. You know, I definitely

think my biggest money fear is that I don't plan well enough that my family is taking care of if something happens to me. I mean, I've, I think I've always felt pretty confident and I can live on, if it's just me, I can live on nothing. Like, I can live in a van down by the river. I can find an odd job. You know, I can do it. But when it comes to my, family and making sure that they're taking care of it, that they're comfortable, not like extravagantly comfortable, but that, you know, like my wife would be able to take care of our boys if something was wrong, you know, something happened to me. That's definitely the biggest thing that I worry about. I grew up, you know, a very similar background. I grew up on a Christmas tree

farm in Oregon. You know, we didn't have much money. And depending on how much, you know, how Christmas trees were doing that year, you know, you make all of your money in a month. I mean, that's it. You know, and you have like a lot of farmers. It's an operating loan throughout the year unless you're somehow able to get ahead and save up a whole load of cash to be able to fund it ahead of time, which most, you know, 90% of farmers cannot do that. So it was tight, but I never remember our family worrying about money growing up. But again, we lived very simply and we didn't, we took long road trips, cheap vacations that I

loved, and it's totally impacted the fact that I have an RV now and I make my, make my wife go on trips with me in the RV. But it definitely comes down to the family. That would be my biggest fear. But, you know, I feel like I've taken care of that. You know, I have probably way too much life insurance. If I were to advise someone as a financial planner, I am over the top on a life insurance standpoint. I don't even want it to be a thought for my wife that there isn't enough to go if something happens to me. And at this point, being financially independent, that really, it's just kind of on top of what the assets that we have at this point, it's not as necessary. But yeah, that's where I would stand.

Yeah, I want to make sure that my kids are taken care of. And that is what we have been doing for the last, I don't know, nine years. Well, for the last my whole life, because we've always been frugal, is to just put it away and make sure that they are taken care of should something happen. let's lighten up and get to the money fears of our Facebook group and our listeners. I did post in the Facebook group and we will link to this in the show notes. What are your biggest money fears? What keeps you up at night?

What makes you lose sleep? And I think this first question is not just a fear of this one person. I think this is a fear for a lot of people. I make more than both of my parents did combined eight years ago, but I can't afford a house. What do I do? How do I get a handle on this market? Yeah, I'll jump in on this one. So this is, this is unfortunately a reality. Back in the 70s and 80s, the cost of living, the cost to buy a house or even to rent a house or an apartment was so much less relative to the typical median salary back then than it is now.

And so I think a lot of us that kind of are a little bit on the older side, we may not recognize how good we have it, but talking to people who are a lot younger than I am, talking to the Gen Zs, the millennials, they're having trouble buying houses. And it's a factor of the fact that housing prices have soared and wages haven't necessarily soared. And so what do I tell somebody that's in that situation? One, I have empathy. Like, it's a horrible situation to be in.

And I'm sincerely hopeful that over the next couple of years, things change, that we see affordability improve either because we bring more supply of housing online. or wages increase. It's a difficult problem to solve. But in terms of tactical solution, the first thing I would say is owning a home is a wonderful thing, but it shouldn't define you.

You shouldn't necessarily make the decision to own a home just so you can say, I have a house. And I would think in terms of there are other ways to put a roof over your head and some ways might actually be more financially advantageous at this point in your life. And I don't know how old you are. But for a lot of people, it may be a better decision right now to rent a house, to save up money, and to actually put that money towards an investment property or put that money towards a property like a duplex or a threeplex,

where you can live in one unit and rent the others to supplement your income. But owning a house, the nice thing about owning house, obviously, is it provides. some comfort and some security, but the downside is you have an asset that's not generating any income for you. So even if you can afford it, it's not necessarily a great purchase for a lot of people. And so what I would say is hopefully things will change over the next couple of years, but in the meantime, think about whether there might be a better financial decision than buying a house anyway, whether it be buying a rental property, whether it'd be investing in something else to build a nest egg, whether it might be to buy a property that you can live in and you can rent another

unit or a room to somebody else so that you can share in the costs in the hopes that one of two things happens. Either the affordability issue in real estate fixes itself over the next couple years and or you build up enough of a nest egg that you can build a house even though that there are affordability issues. Yeah, I'm kind of glad Jay went first on this one. I think he was a lot more empathetic than I was when I first read the question. He was a lot nicer. So maybe I'll try to still be nice. But I just want to be encouraging too. Anytime I see the word can't in a question, it's really hard for me to go forward on it. So I'm kind of put my financial planner hat on here a little bit. There's a lot of details that we don't know of the situation. You know, like the parents' income

might have been really, you know, really low, you know, the penny, you know, eight years ago, he makes more than twice, you know, both of his parents combined. How do I handle this market? You know, my first thing would be to say, you know, just make sure you're thinking very creatively. And Jay already touched on some of these, you know, the house hacking thing that bigger pockets talks about all the time. Waiting, you don't have to buy right now, you know, finding some way to rent and save up some of that money. Life is tradeoffs when it comes to finances. You're always trading something for something else.

You know, maybe you need to trade the place where you're living and find a place that has a lower cost of living. If buying a house is very important to you, which it sounds like from this question, I'm going to make that assumption. It might not be necessarily true. And you might want to think outside the box like Jay said for sure. But if that's important to you,

maybe you move an hour south of the metropolitan area that you're living, and you're not super far away and over time you buy a house there. And there are a lot of programs, you know, as long as you don't get yourself too deep from a cash flow standpoint, there are a lot of like even 0% down, 5% down programs depending on your income level and depending on the area. But in rural areas, there are some of these loans that can get you started. And maybe if you start an hour or two away from a metropolitan area that you want to be in, in a year or two, you can then move to a house that's,

20 minutes closer and then 20 minutes, you know, you can move yourself into a situation slowly where you want to be. But my suggestion would be to just think a little bit more creatively than thinking, okay, interest rates are really high and where I live right now, everything is really expensive. Those are probably very true things. But now let's expand the possibilities here. You know, can you live with your, I hate to say this, can you live with your parents and sock away a whole bunch of money for two years for a down payment? What parent would not encourage their kids to do that. If you're responsible and you can do that, it's going to take a little bit of reduction of pride on your part, probably. And it definitely depends if you have a family,

if you're single. There's a lot of things here that, you know, I'm not, we don't have the information on, but just try to think outside of what everyone says you should do, especially, you know, on the news, housing is so unaffordable. Man, things right now, if you want to try to find a deal or be able to get a place, we're in a pretty good spot, at least compared to six months ago. things are still high from a pricing standpoint and interest rates are high, but there's wiggle room as a buyer. You can get sellers to actually give you some concessions, maybe pay down an interest rate for you. There's some things, there are some things that you can do. So I would just encourage you to, you know, like don't get down on yourself. Just because you missed buying two years ago, I think that's

the fear or sometimes that's what people hang on to. It's this, this fomo, you know, I think I missed out. But, you know, five, ten years from now, if you can make something work now that doesn't, strap you financially. And again, that would be maybe moving to an area that's a little bit more affordable. And again, you know, it depends on what your job is. You know, if you can take a job with you or take a job that as similar pay in another area, remote working. You know, there's just a lot of variables that you might want to check into. But just be encouraged that there are things that you can always do. There's always levers that you can pull to try to make it work. If that's something that's really important to, but I really like what Jay said about, you know, don't pigeonhole yourself

to thinking that you have to buy a house. You know, maybe your first buy is a property in Cincinnati, Ohio, that's a rental property. And it's not going to go up a ton over time maybe, but it's a cash flowing property and you can continue to rent in the area that you like to live. I want to tag off of what Kyle said. He said, consider moving. And this is something I have lived in, I think I'm in my 29th or 30th house. So moving is like super easy for me.

But I can understand why people don't necessarily want to move. it can be scary. But when the cost of living is so much less with moving to a different location, moving an hour south, moving across the country, moving to a different state, you could potentially continue working in the same company, making the same income, but now you work in a different, or you live in a different place that is so much less expensive, that could be a really great way to become a homeowner for a while. Investing in different ways, you both touched on that. That's great. Increase your income. If you can't afford a house, are you doing the most that you

can to increase your income? We keep hearing how there's all these jobs, people are struggling, companies are struggling to hire. Can you go and get a better job? It's you have a better chance of increasing your income by leaving your current company and going with a new company than you do by asking for a raise at your current company. Another couple of tips is to keep an eye on the market. Like Kyle said, there's a lot of deals happening right now. Prices are getting lower because sellers are getting a little bit more desperate. Houses aren't selling in five minutes like they were in the spring. And people still need to sell. They're reducing their prices. You can get concessions, like Kyle said. Another thing to do is to look.

properties that are ugly that needs some work. A fixer-upper doesn't mean that the whole thing is about to fall down. It could mean that the carpet is from 1972, which is really disgusting. But you can pull that up, vacuum everything out, put new carpet down, and bam, you have a whole brand-new looking house. Maybe just add one thing on that. You know, I want to make sure that, like, I'm not suggesting, like, trying to time the market in any way as far as like buying, you know, like we're talking like the market is softened a little bit. But, you know, Jay talked about kind of we do have an issue of like low housing we don't have enough housing and most likely a lot of the builders are starting to pull back right now too because they don't want to get stuck with properties

but i i'm worried that in six months to a year because they don't bring things online we're going to be in a similar place with really low supply um so i would encourage whoever you know is asking this question or someone a similar situation look at your circumstances right now and the circumstances right now are it's you have more leeway as a buyer than you've had in the last two years to try to buy a house. So maybe you take advantage of that. Maybe you don't. But that's something to consider. And the geographic moving thing, a lot of times people think, I got to move from California to Ohio. And you don't. You know, like you can a lot of times moving an hour and a lot of times family and friends plays into that. If you can move 30 minutes to an hour away from where you're at,

if you draw a line around where you're at and you look at the towns and the properties that are there, you're going to find stuff that's a lot more affordable than where you're at if you're in an expensive area. And it just doesn't, you don't have to go that far. It requires some trade-off, which would be driving more if you need to commute or driving more to see family and friends, potentially. But if you look at it, you know, Mindy's a great example. You know, being willing to move so much, it can be a great financial move for you. And it can be a lot of adventure for your family too. It doesn't have to be permanent. And then when the kids, when the kids get to a point where you want to settle down and maybe that's your goal of trying to

get to that point over time, but in the meantime, try to make those steps that can push you there. Yeah, and I have a feeling that a lot of what we discuss in this episode is going to boil down to exactly what Kyle said, which is it's tradeoffs. There are a lot of tradeoffs when it comes to making good financial decisions, and you need to figure out what your priorities are. So, yes, having to drive an extra half hour to work is not fun for a lot of people. but if owning a home is that important to you and it's higher on your priority list, then that's a tradeoff you may need to make. And so everybody needs to decide what they're comfortable with personally, what their priorities are, what they're willing to give up to get other things.

And that's going to drive a lot of these decisions. I think for most of the things we talk about in this episode, there's not going to be a right or wrong answer. There's going to be a right or wrong answer for each of us depending on our situation, our priorities, and the sacrifices we're willing to make. Oh, that was a good thing. good wrap-up day. 100%. 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,

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 an needle. Achieve your financial goals for good with Monarch, the all in one tool that makes money management simple.

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agent.com slash money free. Okay, moving on. My biggest money fear is not having enough money saved or not making the right choices now in my mid-40s that could affect my retirement. Do I have enough money for retirement? And I think this is a question that everybody listening has had at one time or another. Yeah, I'll jump in on this. My biggest money fear is not having enough money saved or not making the right choices in my

mid-40s, you know, making the right choices, that is a, you can, you can do the right thing to a certain extent. You know, you, listening to this podcast, obviously, whoever put this question in is researching and listening or reading to at least some personal finance information. And that is a huge step in the right direction. That's going to save you from 80%. You know, that's like the 80-20 principle. You've just hit the good 20% of where you're going to get some information from what you're bring it into your life that's going to help you make those better decisions. Beyond that, you're always going to look back 50 when you're 50, 60 or 70. Whenever you quote, retire, if that's what your goal is, you're always going to look back and have some regrets and say,

I wish I would have done this. I shouldn't have done that. But in the meantime, you just do the best that you can do and educate yourself right now. So I think, you know, you can kind of give yourself a little bit of grace in that sense, I guess, from the decision standpoint. you know, do I have enough money for retirement? And sometimes this kind of comes down to something in a lot of the financial planning research. They talk about the 4% rule. You know, do you have enough saved up as a nest egg to be able to draw from that pile of funds for the rest of your life? And this question is just, it's just not that easy to answer because there's so many variables. and the good thing about it is it's not that easy to answer. So what's your vision of retirement? Do you want to

like save a pot of money, stop and travel, you know, for 30 years or just not do anything? Then you need to have enough saved in your nest day to completely fund everything. Are you going to save and when you retire, maybe you'll go work part-time at your local library and make $20,000 a year? That's huge. That's a big variable. You know, that has, that gives you any part-time work that you do in your quote retirement makes an incredible difference in the viability of that. So sometimes people don't put that into their plans. And it's actually a really good thing because you're, you're made to do something. We're not made to just like shut it down. And a lot of times people think of retirement that way. And I know in the financial independence community, it's nice because I think that the word is out

there that you need to be careful that you don't do that. I think that has come around to where you need to have something to do when you get to that financial independence point, because if you're motivated enough to become financial independent, you're going to need some motivation to continue doing something and feel some purpose in your life. So I, there's some variables there that, you know, if you're trying to calculate, do you have enough saved for retirement, you can use something as simple as a 4% rule off of like, you know, say you have a million dollar 401k. You can kick you off 40,000 a year roughly for the rest of your life. You know, the 4% rule research is really deep and listen to the Kitsis podcast that Mindy and Scott did with Michael Kitsis.

It will blow your mind. That guy is a genius when it comes to this stuff. But that's basically based on a 30-year retirement time frame, kind of your general retirement thought process, not your early retirement. But there's so many other factors that you can, you know, I like to have a plan, A, B, C, D, you know, several plans. Before we got on the recording, Mindy asked if I was going to keep my CFP because I don't have my firm anymore.

I'm not doing financial planning for clients. And I really should put a disclaimer. You know, I don't know people's situation. I am a professional. Usually in these podcasts, they say, we're not professionals. We don't give advice. I am a professional, but I'm not giving you advice because I don't know your whole situation. But that, I'm keeping my CFP credential, which takes a fair amount of CE, but it was a lot of work to get.

And it's my plan D, I told Mindy, you know, if I need to go back into the workplace and even do some part-time work for some reason or full-time work, it's a huge credential. that I do not want to let go. I don't see myself doing that, but who knows? You know, that could happen and need to happen. I would say, you know, without knowing more of your situation, I can't give you like, do you have enough for retirement? But those are some thought processes you need to think through the different revenue streams. And Mindy, you know, they just had someone on about Social Security.

That's something that people kind of throw out there that it's not going to be available for you. And that is not true. You need to make sure you think about that. you know, for someone who becomes financially independent before Social Security, it's kind of like icing on the cake, but it's also something that will be there in some form, maybe not in the high amount that it is today, but it's not going away. There's too much voter power to have it completely go away in some form or fashion. But it's a good question. This is a really good question. I wish it was easier to answer specifically. Well, I think there's a lot of things that this person

who's asking this and anybody who's thinking about this can do to plan ahead. And I think that there's a lot of people who hear the concept, ooh, financial dependence retire early. I'm going to do that. Okay, well, what does that look like? Oh, I'm not sure. So I created a document called the fire planning worksheet. And you can download that at biggerpockets.com slash fire plan. And it is an interactive worksheet for you to fill out. I don't see any of your answers. This is between you and your computer. And it just asks you questions like, what is your risk tolerance? And what does your financial independence life look like? What does retirement look like? Why do you want to be financially independent? Why do you want to retire early? What are you going to do when you're retired? Where are you

going to live? What kind of home are you going to live in? Are you going to own? Are you going to rent? Are you going to be like nomadic travel? And I think that's a really great way to get you started thinking about this. I don't know if you could tell him, a huge nerd. I loved reading Bill Bagan's original article in the Journal of Financial Nertory or whatever about the 4% rule. It was originally published in 1996. I really wish I could remember the name of it. I can't. But I have it. I will link to it. It's a PDF that I will link to in the show notes. It's like 12 pages long. And if you listen to this show, if you like this stuff, you will love reading this. And I think that people hear the 4% rule and they're like, okay, that's cute.

If you read this document, you'll be like, oh, he really went deep. He really ran every single number possible. He didn't just pull this number out of thin air. This is the safe withdrawal rate. This takes into account the Monte Carlo scenario and the Black Swan event and all of these fancy financial terms that everybody loves to throw around, but doesn't really know what they mean. He took all of that into account. Does it sound like I'm fan-girling over him?

Oh my God, when he was on this show, I was like, this is Bill Bagan. I was like such a nerd. But like that's a really, really great starting point. There are several retirement calculators and fire simulators in that fire planning worksheet that I linked to or that I shared that are linked in there that will help you run your numbers and show you what retirement could look like for you. you. And your biggest fear is not having enough money saved. Do you know how much money you need in the first place? People throw around like Kyle did. I'm not throwing you order to the bus, Kyle,

because I use this number two. But people throw around a million dollars means you can spend $40,000 a year. That's super easy math. Two million dollars means you can spend $80,000 a year. Are you spending $80,000 a year? Do you know how much money you're spending? I mean, I thought that I was going to be spending $40,000 a year, and then I publicly announced that I was going to track my spending, and lo and behold, I am not spending only $40,000 a year. I'm spending way more. And my nest egg has grown, so it's okay. But if it hadn't grown, and I thought I was going to be spending $40,000 a year, and I'm spending, you know, $75, I'm going to run out of money. So if your biggest fear is not having enough money saved, step one is knowing how much you need.

And that is, I'm going to send you to that fire planning worksheet. Okay. Let's move on to losing buying power by keeping too much in cash. This sounds like a J. Scott question for me. I am nervous about losing buying power by keeping too much money in cash. However, having a large cash cushion is what helps me sleep at night. So, Jay, let's talk about where to keep emergency funds and where to keep your need in the short-term funds. Sure.

Before I get there, I want to kind of talk about the first part, which is the I keep cash because it helps me sleep better at night. And I talk about this a lot. And I think this is a super, super important concept. And this goes back to what I was saying before about tradeoffs. It's real easy in the financial world to say, I'm good at the math, I understand the numbers, and I'm making smart financial decisions every time I make a decision. But at the end of the day, there's, again, tradeoffs. And making good quantitative decisions is one piece of living a smart financial life.

The other piece is the qualitative decisions. the decisions to do things that might be suboptimal financially, suboptimal from a mathematical perspective, but that allows you to sleep well at night. And I talk about this all the time, and we each need to figure out what our level of risk tolerances. And so for me, I value sleeping well at night. And people are probably surprised to hear this, but I make a lot of suboptimal financial decisions purposefully, I decide to make suboptimal financial decisions because there are certain things that I need to do to allow me to sleep better at night. So the first thing I'm going to say, and you guys feel free to disagree, anybody out there feel for you to disagree, but I'm a big believer

in that you need to decide what you need to do to sleep well at night and prioritize that over your financial, your mathematical financial decisions every single time. Now, of course there's going to be a middle ground and we shouldn't be so conservative that we're making really bad financial decisions. But don't ever feel bad saying I'm making this decision because it's going to help me sleep better at night. Okay. Now, where should people be keeping their money right now? I think this is probably a great question for Kyle because as a certified financial planner, he probably deals with this every day. But as somebody who probably has more cash on hand than I should, again, because I like to sleep well at night.

Here are some of the things I'm thinking about these days. Number one, we all know inflation is super high, and it's unlikely that any of us is going to, with a low level of risk, be able to beat inflation with most investments. Some of us as real estate investors, maybe we can get close to that 7, 8, 9% return rate at relatively risk-free.

But for most of us, we're going to have to settle for something less than inflation, which means, yeah, we're going to be losing a little bit of buying power every day. But again, if we sleep better at night, that's okay. So what can we do to kind of straddle that fence of getting the best returns possible, but not taking too much risk? Number one, this is being recorded in October of 2022. So if you're listening to this five years down the road, things may have changed. But as of right now, bond yields are extremely attractive.

Over the last couple months, bond yields have kind of gone up. And so for those who are looking for a nice, safe place to keep money for three, six, 12 months, maybe even a little bit longer, there are things like treasury bonds, which are higher than they have been in a few years. But one thing I really like is municipal bonds. You're going to get some tax benefits for municipal bonds. And in a lot of places, these bonds are returning somewhere between 4% and 5%. With the tax benefits, you might be getting somewhere.

I mean 2.5 to 3% returns, which again, you're not keeping up with inflation, but that's still a pretty good return on a three or six or 12-month investment. So municipal bonds is a good place. For really small amounts, like a $10,000 emergency fund, consider iBonds. So an iBonds are these inflation-adjusted bonds. They're not as great as a lot of people think. There are some downs. But basically, the government provides these or the Treasury provides these bonds called iBonds, where you can invest up. to $10,000 a year, and these bonds are indexed to inflation.

So right now I think they're paying like 9% per year. They readjust every six months. So the next time it readjust, which I think is April, maybe inflation's down and they re-adjust downwards. But as long as inflation's high, this is a great place to be keeping your money to hedge inflation. Now, the downside to eye bonds is that you have to keep your money there for at least a year. If you take it out to less than five years, you're going to lose a quarter of interest,

three months of interest. So there are some downsides. But if you have short-term money up to $10,000 a year that you're looking for a place to keep it for at least a year and maybe even five years, eye bonds are a great place. There are things called tips, which are Treasury. Inflation protected securities. Treasury inflation protected securities, which is similar to eye bonds, fewer restrictions, but you actually lose money. money when inflation goes down, but it's just another way to basically hedge inflation if you need to keep some money short term that you want to hedge inflation. So look at eye bonds, look at tips.

There are also plenty of equity solutions that are inflation-adjusted equity solutions. You can invest in ETFs that are indexed against things like energy and commodities that tend to do well during inflationary periods and are more likely to do well. Higher risk than bonds, obviously, because they're more like stocks, but still lower risk than a lot of things out there. And then certainly for those of us that have some level of expertise or skill in some investing area, don't be ashamed to put those skills to use. Maybe you're a real estate investor and you know about investing in real estate. Go find some good deals and find something that's relatively low risk that you can put your

money in for a couple of years. I have a feeling that the market's going to shift a good bit over the next six, 12, 24 months. So for anybody that's looking to keep cash right now, I'd say focus on just six to 12 to 24 months, focus on hedging inflation. And then as the economy starts to hopefully improve again in a year or two, we can start to think about some more aggressive but still relatively low risk strategies. Yeah. I mean, man, Jay covered all the instruments that I would even throw out there. You know, it's just, it's an interesting thing to think about your short-term money and where to put it. And the thing that I always tell clients is it's supposed to be boring. You're not supposed to make money on it.

Like, that's just it you don't want to, don't try to make money on your safety money. It's just there to help you sleep good at night. What this person was talking about that, you know, there's a couple of questions I would have for this person. You know, what's your age? You know, how old are you? What is your other investment mix? If you have 200,000 sitting in cash and you don't have a. other investments. I don't know. That's not a good idea. You need to, you know, if you have 200,000

sit in cash and you have two million in investments, real estate, stocks, bonds, other stuff, that's fine. You know, that's a large allocation to cash. But if it lets you sleep good at night and you have other, a good investment mix, that's, that's great. I'm, over the years, I've become more and more of the mind of just a, like, the higher cash cushion is okay, depending on what your other investment mix is. And by that, I mean, you can, take if you're balancing the risk out. So say you have a large cash portion and you're a real estate investor that likes to leverage properties at the 80-20 leverage. You know, like you could, the max that you can do when you're buying like a single family home investment property to rent

out. You like to put as little amount of cash in that investment property as possible. It's not going to cash flow very much. You know, maybe it's 100 bucks a month, but that's like your long-term investment. You get some appreciation over time. That's fine. You know, it's okay to be that way, but that's in that scenario, say you have several of those properties, say you have five of those properties. Let's put a number on it. That's a situation where it might make sense to have a good cash cushion because then you can cover mortgage payments for a year or two. You know, like having a large cash portion is great with something like that and it's being offset with the risk that you're taking on those properties to leverage them out and get the long-term return. You're in turn

offsetting that leverage risk with your boring cash reserves. So there's, you know, it just really depends on kind of what that mix is there. The interesting thing is, too, you know, you see these advertisements. Oh, it's so great. Now we can actually get some interest on our savings accounts or we can actually get CD. Yeah. Well, if inflation's 9%, you're getting 2.5% in your savings account, what's the, you know, the math is 6.5% that you're losing, which is just the way it is.

But, you know, two years ago when inflation was, quote, 2%, or maybe 3%, you're getting nothing in your sales. savings account, you were only losing 3% at that point. So it's good to make some money on your money and not lose all of it. But that's just like Jay was talking about, you know, we're not going to beat inflation on that money and that's okay. That's not where you take the risk at. One thing I think is interesting about the way this is worded is I'm concerned about losing buying power by keeping too much in cash. But if you put that money in the stock market, going back to my comment about people in their late 20s and early 30s maybe don't have any experience

with an economic downturn. And so they take this money and they put it in the stock market because the stock market only goes up. And then the stock market hits March 2020 and has a big downturn. You're losing buying power if you need those funds and you have put them into the stock market over which you have zero control. And then you need to access those funds for some reason. Now you have lost whatever buying power you had.

You put in 20,000 and now it's worth 15. Well, you just lost 5,000, like, actual dollars, as opposed to taking that $20,000 and putting it in bank, you still have $20,000. It's worth less due to inflation. And that I get that it's real, but it seems like ethereal almost, like, like, intangible because you still have the $20,000 in your hand. It just doesn't go as far at the grocery store. But it's not going to go as far when it's only 15 in the stock market. Yeah. We didn't touch on, we should have touched on that a little bit more, the purchasing power of it.

I think that also comes back to what the other investment asset mix is. You know, what else does this person have? It's okay to have that boring cash position and to lose purchasing power on it if you have something else that is hedging you against inflation and purchasing power. And, you know, that's equities, stocks in the market over time, you know, this year down 30%, you know, but we're talking long-term investments here. Or real estate, you know, real estate that you're holding that appreciate, you know, you have some leverage on it. It appreciates on average three to four percent a year historically, if you do nothing to it. So those are the, if you have some of that other stuff that hedges your inflation risk down the road. And I should back that up when you leverage real

estate and people probably know this, but just to, so we don't lose some people that, you know, if you're, if you're earning 4% on the real estate, but you have it leveraged, you know, four to one or five to one, you're going to make anywhere from 10 to 20% on long term appreciation. And we're not talking about playing the market, one year appreciation. We're talking about the long term of a real estate investment. And that's how you hedge inflation. That's one of the benefits we have in the United States of these amazing 30-year mortgages that you can get on long-term investment real estate in the residential space. But it really does come down to what, what is this all of the person's funds, you know, losing the purchasing power. If this is a

retiree who's 65 and they move their $500,000 and in retirement funds into cash, I would be worried. You know, and that's if that's all they have, that's, that's not going to be a sustainable thing in the long run, unless unless they have a completely paid for house. They live super simply. They can live on his and hers social security is fine. It's totally fine. You know, it just really depends on the situation. That's where Mindy's frugality is like your secret weapon that you can implement whenever

you need to in like years like this. You know, that's what retirees do a lot of times. They'll just dial it back on things for a year or two. And then you can, when the market kind of comes back and some of their investments recover, then you can go back into it. Yeah, I think that's really important. It's just to be aware of what. going on and, you know, think about it from different angles. I think we've given people a lot of

things to think about with regards to keeping too much in cash, in quotes. Okay, I'm wondering if changing jobs and taking a pay cut was worth it for more personal time or if I should have grinded it out a little longer. And I, again, I think we need a little bit more information with this one. But for me, personally, take the pay cut and get more personal time. because we don't get enough personal time. And when you, especially working from home these last few years, when you work from home and you're online, oh, it's really easy to start as soon as you wake up and be there all day. And it's dinner time.

And like you didn't work nine to five. You worked like seven to eight. And it's super easy to just keep grinding it out. The word grinded it, the phrase grinded it out makes me think that this person had absolutely no personal time and it was 100% worth it to take a pay cut. Now, I will caveat that with if you were making $100,000 and you took a pay cut to $20,000, no, that wasn't worth it at all. But if you were making $100 and you took a pay cut to 90 and now you have a whole lot more free time to enjoy your life, totally worth it. Okay, our final question I think is something that's on everybody's mind.

My concern is more big picture stuff like inflation, government spending and printing too much money. My personal microeconomy is okay. But what's going on in the bigger picture? I get the feeling you want me to take this one, how, Mindy? Well, I want you both to answer this one. Okay. Kyle, do you want to go first or do you want me too? Oh, man.

You go for it. I'll just say, I'll just piggy back off of all your good answers. So, yeah, obviously this is the billion or trillion dollar question. Where's the market headed? where's the economy headed? One thing I will say is that a lot of us, especially those of us who are younger, we have this, there's this idea of recency bias

where we tend to put more weight on things that happen more recently because they're more ingrained in our memory. We have more visceral response to them. And so for a lot of us who are younger, the last real recession that we remember, ignoring 2020, because I don't think of that as like a real recession,

is 2008. And for anybody who thinks of 2008 as kind of a prototypical recession, they're going to have a very skewed perspective. 2008 was certainly a recession. It was the second worst recession we've ever seen in this country. It was probably the worst recession from a real estate perspective. And I know a lot of people listening to this are real estate investors that this country has ever seen.

But 2008 isn't representative of what. what a recession typically is. We've had 34 recessions over the last 170 years, 35, if you want to think we're in one right now. 32 of them have been relatively, I don't want to call them mild, but 32 of them have been very different than 2008. The two exceptions were obviously 2008 and then the big crash in 1929. But with the exception of those two, the other 32 have been painful. people have lost their jobs. We've seen unemployment go up. We've seen the stock market go down. We've seen wages go down. We've seen a lot of not fun stuff happening. But it's not what you think of when you think of 2008. You think of typically short-term pain. Typical recession in this country lasts anywhere from six to 18 months. So it's not like the three or four years that we saw in 2008. Typical recession

is again a relatively quick and kind of not fund, but it's an event that we recover from pretty quickly. And so for any of us that remember 2001, that remember back in the early 90s or the late 80s, those are typical recessions. And I have a feeling what we're going to see this time around is that, historically speaking, statistically speaking, we're most likely to see this time around,

is one of those typical recessions where the next six to 12 to 18 months, months are not fun. We're going to see a spike in unemployment. We're almost certainly going to see that due to what the Fed's doing by raising interest rates. And we're probably going to see the stock market drop. But I have a feeling that in 12, 24 months, we're going to see things get back on track. And given, again, historical precedence, I think two or three years from now, we're going to be in the midst of another economic expansion. In terms of inflation and interest rates, The Fed has indicated that they're willing to take some pretty severe action to kind of quell inflation. I'm not going to go into the details, but I've predicted a lot recently that I think come November, we're going to see inflation start to drop. And by the middle of next year, we're going to see inflation back where it should be. I think we're going to see mortgage interest rates start to drop.

And I have a feeling that by the end of this year, interest rates are going to actually be lower than where they are today. And I know a lot of people think I'm crazy for saying that. but I have some, I think, sound logic behind it. And historically, what we tend to see is that this cycle of the Fed raising interest rates leading us into a recession and then dropping interest rates, that's happened 10 times over the last 60 years. All 10 of those times, from the time the Fed started to raise interest rates to the time the Fed started to lower interest rates, the average period of time was 2.2 years. the absolute longest period between the Fed hiking rates and lower rates, starting to lower rates, has been three years. So again, unless we're seeing something that's completely unprecedented, the likelihood is that in the next two years, we're going to start seeing interest rates come down again. Interest rates tend to come down a lot faster than they go up.

And I wouldn't be surprised if come 2024, maybe the middle or the end of 2024, we're right back in the next expansion and things are good again and everybody's happy. again. I've never wanted anybody to be more right than you right now. And here's the funny thing. I mean, anybody that's that's listened to me over the last 15 years knows that I've been pretty bearish on occasion. I mean, 2018, I was probably on this show or the other podcast talking about how I was fairly certain we were getting ready to head into recession. And maybe we did. Maybe we didn't in 2020. I don't know if I can take credit for predicting that. I certainly didn't predict COVID. But I've been bearish on occasion. And I think for the first time in a long time, I'm probably more bullish than a lot of people going into this recession.

Yeah. And honestly, I tend to agree with you. I'm going to agree with you because you sound so confident in all of those numbers that you're throwing out there. But we are still something like four million housing units short. And that's not going to change. It's only going to get worse. As Kyle said, the builders have stopped. building. They've pulled back. They're only honoring what is, you know, already under contract.

It is really just going to contribute to the housing problem that we currently have by them pulling back again. We stopped building in 2008 and didn't start again until what, 13, 14, 15? Yeah. They started building again. It takes a lot of time to get these plans put into place and build out these subdivisions. I know earlier this spring. I know earlier this spring. Builders were having an absolute field day, taking deposits and building houses for people who could not throw money at them. I don't have any research done on interest rates like Jay does, but I can't imagine that we had 20 years of 3% and 4% interest rates and they will stay at 7% and 8% where they are now. Yeah, here's the other thing with housing. I mean, if you just want to look at the most basic data, over the last 10 years, we've

averaged about 1.1 million new housing units, single-family housing units built per year. Over the last 10 years, we've seen about 1.7 million household formations per year. So basically new households forming, whether that's somebody moving out of their parents' house or somebody getting divorced or whatever. And so let's say we get, we have 1.7 million new housing household formations every year. Our home ownership rates about 66%. So two thirds of that 1.7 million people that form new households every year are going to need to or want to buy a house.

So that's about 1.2 million people, 1.1, 1.2 million people. So just the new households that are going to be adding to housing demand each year is, covers the number of out covers is more than the number of new housing units we have coming online every year. So you can talk about do we have a housing shortage? Do we have, is there going to be a lot of supply coming online? The reality is we're forming a lot of new households in this country every single year. And that adds a lot of demand every single year. And it's not just existing buyers looking to buy a second home or investors looking to buy a second home.

there's just a whole lot more demand out there and like you said there's not a ton of supply so I don't think while I do think we're heading towards a recession while I do think the stock market's going to take a hit while I do think unemployment has to take a big hit and spike up I think housing is going to be

relatively resilient and I'm not saying that prices aren't going to drop in some places they almost certainly will they may even drop across the board but it's not going to be a 2008 thing maybe it's a couple percent maybe it's 5 percent and so yeah I'm again pretty bullish and especially when it comes to housing yeah wow I mean Jay just dropped a lot of really good stuff this is I I think I fall in the camp pretty much with

with Jay and Mindy on this one I a lot of times in situations like this I feel like in the next year or two maybe three years we're going to look back and this was the opportunity like the next six months. If from a equity, stocks, retirement planning standpoint, this is the time when you convert to Roth IRAs. This is the time when you do, when the market's down, if you're willing to pay the tax hit, depend on your financial situation, you, you take the opportunity that a quote, potential recession gives you and go with it. You know, as far as interest rates and, you know, I'm not going to reiterate all the good housing data that Jay is talking about, but millennials are not going anywhere. Demographics don't change on a whim like interest rates do. Like I'm a millennial. I'm on

the older end of the millennials. We're still here. And there's younger ones that are going to keep forming those households and that pressure is going to keep pushing on that housing demand whether interest rates go down or not. Even if, you know, there could come a point even where six to seven percent gets normalized again for interest rates, which it has totally been that in the past. We just aren't normalized to it because of how we grew up in the last 10 years as millennials. So that could be something that changes. People are going to want to buy a house and they will figure out a way to do it. There's that 66% that Jay was talking about is not going to go anywhere and wanting to buy their houses. They're going to take a pause with this,

you know, the greatest and fastest increase of interest rates in our history. But that's going to change. Like people are still having kids. They're still having twins, still changing diapers. It's going to keep happening. And we're also, the other thing, too, and this is not political, but we will be coming up on a presidential election cycle. And when the Fed is pushing interest rates up and it pushes towards a recession, whether you actually get into one or not, and if unemployment ticks up and if the stock market continues to do bad, whether, even if your opinion is that the Fed acts completely independently of

politics, I think you're wrong. You can disagree with me, but that they're supposed to be an independent entity. But either party, there is pressure that is put. And when a presidential election cycle comes around, they want the economy to do a certain thing. And there will be pressure for the Fed to reduce interest rates at some point. And they are pushing up against that. And it also makes it harder for, you know, part of this question, I think, was the government spending money. And that's kind of a loaded question.

And, you know, that can mean different things. But when the Fed raises interest rates, it actually makes it more expensive for the government to re-borrow its own. debt. The other thing that we have going for us, though, too, is that a lot of the rest of the world is in worse shape than we are. Our currency has gone up in relation to a lot of other currencies. So we have some leeway as far as the U.S. goes. But there's definitely some, I agree with Jay. I feel like this is not, it's definitely not a 2008 thing. The equity that people have in their homes and the creditworthiness of homebuyers is so different than it was back then. And that that was a big, cause of the crisis. And I think that's people, we also have this, the other thing that I've been looking at is

this, the idea of the rate, what do they call it? Rate lockdown, rate where people are going to stay in their homes longer because you have a 2.95% rate. And originally that wasn't really thought of as such a big thing. But now rates are more than double that. And I think that's going to be, like if you think yourself personally, anyone listening to this podcast, think, you know, if you have a 3% mortgage, And you're looking to maybe buy another property and the property you have is okay. It's not your ideal. But to buy another property, you either have to pay a lot more in your mortgage payment or to get the same mortgage payment.

You got a downsize by 20 to 30% of land or property that you're moving into. You're going to stay where you're at. And that's going to hold on longer. You know that I can't, Jay, you might know this. The typical average that people stay in their homes is somewhere from like five to seven years. But I think that's going to get stretched out because of this rate. lockdown, and that's going to push demand even more where you're not going to get this turnover for current housing availability, not to mention new builds that you already talked about.

So those are just, you know, I don't have a crystal ball, but I do think this recession is maybe more typical of historical ones where real estate is something that helps pull out of it. But, and it's not going to look like 2008. I don't, it just doesn't seem like there's, has any of the indicators of that. I completely agree. I think that 2008 is way different than 2022. I think that people who say, oh, this is just like 2008, I'm going to wait until the housing market crashes, and then I'm going to buy houses. I think that that is wishful thinking.

I think people are going to find themselves on the other end of whatever we're in right now and say to themselves, oh, man, I should have bought in 2022 when prices were down and then refinanced. I got a tip from my favorite lender in local lender in Colorado. He said, ask if your loan can be recast. Ask if you can do a rate and term refinance and get into a loan now, get these, take advantage of the lower prices now. And then when rates change refinance or rate and term refinance, lock in a new loan interest rate in two years on the same house that you. you're in now that you got the lower purchase price on. So something to think about if you are

in the position where you have to buy a house right now. Your current payment won't last forever. Okay. Well, I hope that it's completely obvious why I brought on Jay and Kyle today. I wanted rock solid commentary and advice from very knowledgeable people. But I'd also like to hear from you. please take a moment to join our Facebook group if you have not. You can find it at Facebook.com slash groups slash BP money. And I would like to talk about your biggest money fears and the specific fears that we discussed today. We're going to have a thread in the group starting today when the episode is released

to discuss this particular episode. And I would love to hear from you. That wraps up this episode of the Bigger Pockets Money podcast. Jay Scott and Kyle Mast, thank you so much for joining me today. Kyle, tell people where they can find out more about you. Man, just KyleMass.com. If I'm doing anything, it goes up on there. So I'm not doing a ton these days, but that's where it goes if I am.

That's the right way to do retirement. And Jay Scott, tell people where they can find out more about you. I'm doing it the wrong way. www. connect withjiscott.com. we'll link you out to everything you need to know. Okay. I am Mindy Jensen saying, I hope you stay a dreamer, lemur.