BiggerPockets Money Podcast - 403: Finance Friday: Stay at Home with Kids or Work to Hit FI Faster?

Episode Date: April 21, 2023

Financial freedom vs. family time. If done correctly, you can have both; but living the best of both worlds is impossible without sacrifice. For new parents, switching from a dual-income household to a single full-time income overnight can be a hard burden to bear. With less money comes lower retirement accounts, a longer time horizon to being debt-free, and financial freedom pushed years, or even decades, away. So, is being a stay-at-home parent worth the financial sacrifice? On this Finance Friday, we talk to Patrick, who recently became a new dad (woohoo!). His wife has taken on the full-time job of being a stay-at-home mom, but with a massive amount of debt hanging over their heads, Patrick is debating whether or not returning to dual income is the right move to make. Not only is this choice a financial one, it’s also an extremely personal debate, as many parents would far rather spend their time with their kids than bring home a bigger paycheck. And while we can’t tell Patrick what to do next, Mindy and Scott can offer the financial options he and his wife NEED to know about. But we’re not just talking about student loan debt in this episode. We also get into whole life insurance policies, HELOCs (home equity lines of credit), car loans, and whether or not buying rental properties is the right move for a new parent. You may be in Patrick’s position soon (if not already), and this topic is one you CANNOT afford to miss if you’re building wealth while raising a family! In This Episode We Cover Student loan debt and what you MUST do to become debt-free  Whole life insurance policies and whether they’re worth the high monthly premiums The true cost of college and what to know BEFORE you finance your degree Rental property headaches and when real estate investing may NOT be the right move Ditching dual income to become a stay-at-home parent and who is in the position to do so Reaching financial freedom as a new parent and the sacrifices you MUST make to retire early And So Much More! Links from the Show BiggerPockets Money Facebook Group BiggerPockets Forums Finance Review Guest Onboarding Join BiggerPockets for FREE Scott's Instagram Mindy on BiggerPockets Grab Scott’s Book, “Set for Life” 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 Money Moment The Money Date: What You Should (And Definitely Should Not) Do to Align Your Finances as a Couple Finance Friday: How to Become Debt-Free 20 Years Faster Than You Thought Is College Worth the Cost? This 30,000 Variable Study Says “Sometimes…” Why 40% of Master’s Degrees Aren’t Worth It (and Which Are) w/Preston Cooper Should You Pay Down Student Debt or Start Investing? Click here to check the full show notes: https://www.biggerpockets.com/blog/money-403 Interested in learning more about today's sponsors or becoming a BiggerPockets partner yourself? Let us know! Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to the Bigger Pockets Money podcast, Finance Friday edition, where we interview Patrick and talk about the best way to position his finances after his wife became a stay-at-home mom. Hello, hello, hello. My name is Mindy Jensen. And with me as always is my sports enthusiast co-host, Scott Trench. And with me as always is my Spike the Football, slam dunk, home run podcast host, Mindy Jensen. Thank you, Scott. 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 create a flexible financial position or have one one spouse stay at home and raise the kids will help you reach your financial goals and get money out of the way so you can launch yourself towards your dreams scott today we have a new segment on the show it's called the money moment where we share a money hack tip or trick to help you on your financial journey.

Today's money moment is, if you have trouble allocating your funds correctly, try the 50, 30, 20 rule. 50% goes to your essential needs like transportation and housing. 30% goes to your wants, like new clothes, eating out, or a gym membership. And 20% goes to savings. If you have a money hack, tip, or trick for us,

please email us at money moment at biggerpockets.com. All right, before we bring in Patrick, let's take it. Tax season is one of the only times all you, 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

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private clients with personal training and physical therapy. Patrick, welcome to the Bigger Pockets Money podcast. I'm so excited to talk to you today. Thank you so much. I'm so excited to talk to both of you guys. This is kind of surreal being on the show. But yeah, really, really excited about this. Okay, well, we have a lot to cover.

So we're going to jump right into. it. Let's look at your money snapshot. I have a salary, or you have a salary of 6450, which is post-tax, so that's good to know, with a raise coming in July to bring you up to 7540. You have a side hustle that brings in about $750 a month, and you get a per diem while traveling for work, which varies during the on-season, off-season, but averages about $800 a month after taxes. So, the income seems pretty solid. We have monthly expenses that total 5190. So right now there's a delta of 1260. For investments, we have approximately $170,000 in various retirement accounts. However, there is $7,000 in crypto, $8,300 in series double E bonds, and $12,400 in a K-1 partnership.

Yay for the $28,000 in emergency fund. Yay! Okay, debts is where we really want to take a peek. 207 on a mortgage at 3.125% interest. I don't care about that. He lock, 8.5% $24,000. We're going to talk about that. Private home loan, $7,600 at 1% interest. I don't care about that. Rental property mortgage at $55,000, 5.6%. I don't really care so much about that. $35,000 at a 0% interest for a private student loan for Patrick. And your wife's student loans is a little bit, the balance is a little bit more there. We're looking at $213,000, currently at 0%, but the aggregate interest is 6.335%. So guess what we're going to talk about, Patrick? And your wife has a car loan of $24,000 and an HVAC loan of $2,000, which should be paid off by May. So we don't care about

that either. And just to summarize that, because there's a lot of numbers, just for my, my own purposes, we've got 260,000, give or take in mortgages against your primary and rental property. And we've got 250,000 in student loans plus another 50,000 in other personal debts between the HELOC and the car payment and a couple of minor debts. Is that a good summary, Patrick? Yeah. No, I think that's a good snapshot of kind of putting things together. Could you give us a quick overview of how we got here, just a maybe a three to five minute overview of your money story and how we arrived at the current state? Sure.

So I guess growing up was kind of like a medium income household. Definitely didn't like struggle, but I also don't think we talked a lot about money. And so I think I did an okay job through the help of my parents of earning some money during high school and whatnot. And so I had some saved up going into college, but then was off to college and did what college kids do and had fun and spent some money. So not to say that I got into a lot of debt, which is great, but I sort of completed whatever savings I had going into college. And then leaving school, started working full time, and then also went back for additional school, which I was

able to sort of cash flow from my job at that time. So I didn't accumulate further debt. And then finishing up my total eight years of school sort of stumbled on to your guys podcast. And that sort of kick-started my enthusiasm, my passion, and my knowledge and learning with personal finance and sort of coming up with a plan of what I was going to do with what money I was making. So a couple, few years later, here I am with a wife and a son and have a primary residence, I think a pretty decent job, and then just a handful of other debts, whether it's educational or other minor consumer debts. But sort of the overarching theme is not having worked until on 60, 65, that sort of thing,

trying to be a little bit more independent and have some of those freedoms from some of the decisions that myself and my wife make now that can help us a couple years down the road. Okay. Your wife recently left her job to stay home with your son. Has this put a strain on your finances? A little bit. And I think like you guys talk about personal finances is personal. And so it was sort of a conscious decision that we made. Because if we were looking at daycare, we're looking at putting half to three quarters of what she'd be making right into the daycare. And so it was sort of one of those, you know, do we want to be spending a majority of what she's making just so she can not help raise our son versus taking a little bit of a haircut on the income front and have her be at home and be able to. spend pretty much every waking hour with him, which is the hardest job in the world, way, way harder than what I do. But it's also extremely rewarding. So the short answer is a little bit, but we are trying to make decisions in terms of what we have going on now that help to

offset some of those differences. And what did she do and how much was she making? So she's an occupational all therapist. She was working at a brain injury clinic and she was taking home about 75,000 in a year. Is there any opportunity for her to work part time or do freelance or anything like that? We've definitely considered that. I think at this point it's still a little bit early. Our son's four months and so he still requires quite a bit of attention. As Scott, I know you know you have a small one at home, so you can kind of attest to that. So essentially we've thought about it, but I don't think the timing is right now. That might be something we're looking at in another year or something like that,

but also considering in the future maybe another little one coming, and so that sort of maybe resets the clock on her being able to do some of those things. So I think for sort of the purposes of today, the answer is no. but potentially in the future, once our Zerickholm situation changes a little bit. Okay. That's fair. I, when I was pregnant with my oldest, was like, what am I going to do with my days? I'm going to be bored.

And then I have my baby. I'm like, when was the last time I showered? Luckily, she gets to shower most days. I cannot say the same about me. Walk us through the student loan debt for both you and your wife. How did that come about? and, you know, especially in your wife's case, why are we looking at such a huge number? Yeah. So for myself, I was lucky. My parents were able to help out with school. So essentially,

whatever I had not earned in terms of scholarships or whatnot, we sort of split expenses and whatever scholarships sort of went towards mine. So we, everything was split half and half. And then I just owe the rest back to my parents. And I'm lucky enough that they gave me sort of a zero percent interest loan. So I've got another probably five years paying those off. So that's about $5.50 a month going towards that. With my wife, she was essentially responsible for all of her student loan or for student payments. So that included five years of undergrad as well as three years of grad school. And that sort of adds up to the larger number we see there. Okay. Awesome. And you're going to receive a large raise in July. Is that, should we consider that

a kind of a moot point for now from the total accumulation perspective because most of that will just kind of offset the side hustle income that you're bringing in now? Or how do you think about it? Yeah, I think that's sort of a fair way to look at it. Based on that increase, I think I'm able to decrease what I'm doing with the side hustle stuff quite a bit. And I think it's actually still going to come out ahead. So we'll be bringing in just a little bit more than what I'm doing now with my W2 job plus the side hustle. So yes, I think short answer is we can offset most of that and it ends up kind of washing out by the end of that. But then additionally hoping to continue to have some of these raises each year.

But short answer is yes. And can you tell us a little about this rental property? How's that going? What's the kind of projection going forward for it? Absolutely. So after doing a ton of research and a ton of listening, reading, all that stuff on all sorts of bigger pockets. forums and everything. We bought our first rental in May of last year. And as you guys know, that's sort of the time where rates were going up, inventory was flying off the shelves. And to be

completely honest, I got a little impatient, which everyone says not to do. And so sort of bought something that was not exactly what we were looking for, had an inherited tenant that we struggled with getting rent from at times. And then that person ended up moving out sort of without telling us at the beginning of February. So it's actually been vacant for about two months now. And so we're actually finishing up some work, some contractors going through and get sort of fixing it up. And our plan as of right now is to try to sell that, try to recoup losses, essentially just break even and then move whatever proceeds from that into our next sort of real estate venture. And definitely really interested in the midterm rental, medium term rental,

strategy. We have a decent hospital network system where we live. And so I think there's some opportunity for that. But short answer is, it hasn't gone great, but it's been a good learning experience. And I think we haven't gotten too badly financially, but certainly looking to kind of hit the reset button on that. Got it. Okay. Let's go to your house next. Do you have any plans for your primary residence. Are you going to live there for a long time? Or should we consider the equity there? Kind of locked in and you're happy with it and you're there to stay. Yeah, I think the plan for now and for the foreseeable future is to stay here. You know, I think knowing a little bit more now about sort of house hacking and all that, my wife and I both read Set for Life, which sort of

helped to kickstart us a little bit more. And I think we're, you know, maybe a few years past to where that might be applicable to us just because of the newborn and, and a couple other factors. So it's, I think we're here for the medium to long term, depending on just my job and everything. But the interest rate is nowhere close to what we'd be getting right now. And so I unfortunately think the equity in that is probably best accessed through a helot like we've done versus like a cash out refi.

Because I think whatever money we might take out of that is just going to go into a higher monthly payment. And I don't really think we come out of. head on that. So that's sort of how we view the house. I think we're in a pretty affordable area of the country. So the payment's not crazy, but it's obviously a pretty big expense in terms of where we're at. But again, one of those where just because of our family situation and again, personal decisions that we've chosen to make, it's not necessarily something that we are looking to monetize or help us out. If that's fair.

Okay. You have a whole life insurance policy. Is this a new policy or is this an older policy? So that's a policy that was taken out for me by my parents when I was about five. So it's got about 25 years of growth in there. And so I hadn't really known what to do with that. And I actually remember listening to an episode with Eric Brotman years ago with you guys that talked about like the infinite baking concept and, you know, drawing from that or taking loans out. And so from then I started to think about it and I just haven't done anything with it. And then after reading separate life, sort of the situation described in that in, hey, here's where you're at. Here's where you want to be in five, 10, 10, 15 years and taking out a term policy that sort of lines up with that versus a whole life. That's, you know, the death benefit of that is not going to be life changing. It'll help with, you know, end of life circumstances, but it's not something that can kind of help if, you know, something terrible

happens and I end up gone next year. What we've set in place with our term policy is, is something that could, in theory, to replace whatever we would make and what we would need to live off of. So long way to say that the whole life policy is not something I foresee being in place for a lot longer. Our plan has been to surrender that, liquidate that. And most likely pay off the helock, and then using whatever proceeds we might get from selling the rental property to then move into our next one. Agreed completely with that approach. All right.

Yeah. And I appreciate you saying that. That's very wise. Yes. The goal is flexibility in five, day, years. That policy is going to be with you for life. That's the whole life policy. You're going to be paying into it.

I think that coming out with a small gain is, you know, not the worst thing in the world. And you can deploy that to you have 8.5% heloc right now. Guaranteed better return than putting more money into the whole life policy. For sure. Yeah. And initially that helock was a variable rate, intro rate was like 1.9. So for the first six months, we're hardly paying anything on it. But then that jumped up in like January.

So it's been a bit of a stressor. So any cash flow we might have had while the tenant was paying has been wiped out by paying on that HELOC. So for sure, trying to get that taken care of as quickly as possible. So I'm glad to hear you agree with our plan. We will go ahead and execute that tomorrow. I would double check the numbers, run everything. But yeah, I see a whole life insurance policy cash value, $24,000. Primary residence HELOC, $24,000.

It seems like that. those two could wipe out each other. Yes, exactly. And that's sort of how we thought about it. And ideally, selling the rental would net about the same if we're getting what we think we could pour it. But again, not worrying about how long that might sit on the market and how long it would take the clothes. I think doing the whole life and just wiping that out is the move. So I appreciate the session on that.

Yeah. So I'm going to start crossing off these debts once we figure out a way to get rid of them. the HELOC, we just figured that out. Primary home mortgage, I'm not concerned about Scott, are you? No, it's 207,000 at 3.125, 3 and an 8th. I think that's great. That's a good one to not touch. Okay. Rental property mortgage, he's going to sell that so we don't need to discuss that. And how much equity are we going to harvest when you sell that property? It depends on what source you're looking at. We are hopeful it's worth between 100 and 110. We bought it for 75 last May. Okay, so we'll clear about $50,000 in cash, give or take.

After all expenses. $40,000 in cash after expenses. Sure. Hopefully. Fingers crossed. Okay. You have a private home loan of $7,600 at 1% interest. I don't care about that.

I mean, I care about it, but that'll get paid off. 1% interest as a gift. And is that 1% fixed for like as long as you have it or is that going to vary? It is. was actually a gift slash loan from my parents to get us to 20% to wipe out PMI. And then I just agree for, you know, again, that 1% interest is ridiculously low. But that was sort of generous of them to help us out with that. So give us the lump sum to get us to 20% to wipe out PMI. And now I'm just paying that. So just over four years left on that, just over three years. Sorry.

And your student loan is at 0% through your parents until it's paid off. Correct. So I don't care about that one, which leaves us with your, the HVAC loan. I don't care about that because that's almost done at zero percent interest, which leaves us with your wife's auto loan and your wife's student loans. Let's zoom out for a second here before we get into this and acknowledge that we've got a boogeyman, I think, to deal with here. So wife has $213,000 in student loans and a $25,000 auto loan and does not work in this situation. So like, you know, and I know this is a personal choice, but has that, have we had this discussion and kind of talked through that, that this is a real barrier to that?

I mean, your cash flow for your whole, your whole family on an annual basis, if we're, if we're not including, you know, CAPEX allowances is about $25,000 a year. And so that's a decade. That sets you back a decade, these two components for that. And so I just love to hear that I want to confront that issue really quickly and we'll deal with it as after we have that discussion. For sure. And it's definitely, we've had discussions on it, a lot of discussions on it. And I guess we can we can start by talking about the car alone. So that was a decision that we made when we knew we were expecting our first child. So we ended up selling the car that my wife was in and upgrading to, you know, a new car with, you know, a little bit bigger and more safety features and all that. So again, sort of a conscious decision that we made. Yes, this is maybe not the ideal way to go

about getting a new car or getting a car, especially if you're running around the five community. But it made sense to us at the time, especially with my car paid off. And so, you know, the payment's not wiping us out every month. And that's something that we'll have for another five-ish years, and then that's done. And we obviously could pay more towards that, but I think with the rate at just over 4%, it's one of those kind of in-between is you're not, you know, it's not 1% but it's also not 8.5%. So I think at 4 we can be using whatever excess money to make us more money rather than paying

off that loan. So does that make sense? Is that fair? Can I know where I'm coming from on that? Or do you have more? Oh, I completely understand it. And frankly, I did something very similar in my personal life. I just, I guess where I'm, where I'm, I'm asking the tough question of this combination of decisions is really, in my opinion, locking you into like one path here. We can re- we can position a few of these assets. But it's really, I'm looking at it. And there's, the math is,

is pretty straightforward here. You're going to save at most 20, $25,000 a year. I think we agree with Mindy that after you clean up the HELOC situation with either the whole life policy or the sale of the rental property, there's no reason to pay off the other debts in an early fashion. And with a 4% interest auto loan, there's no reason to pay that off early either. That leaves your student loans, which I think are 6% interest, but they're paused because of the forbearance. And so that's kind of the, I feel like the crux of this financial... Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening.

That's why I like Monarch. It helps you see exactly where your money is going, and more importantly, where your taxed refund can make the biggest impact. Because the goal isn't just to look backward, it's to actually make progress. Simplify your finances with Monarch. Monarch is the all-in-one personal finance tool designed to make your life easier. It brings your entire financial life, including budgeting, accounts and investments, net worth, and future planning together in one dashboard on your phone or your laptop. Feel aware and in control of your finances this tax season and get 50% off your monarch subscription with the code pockets.

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Get more with Northwest Registered Agent at Northwest Registered Agent.com slash money free. Of this of this Finance Friday is kind of understanding that decision because if we continue with the status quo, you don't really have much more in the way of options other than to slowly let this debt amortize, save up the $25,000 a year and build, again, $250,000 to $300,000 in wealth over the next, you know, 10 years in various passive investment vehicles. And so that's where I wanted, I wanted to go right there for what I see as the big leverage point and, yeah, you know, see if there's any flexibility in a couple of those choices.

I could see wife returning to work and bringing in some income there. I could see a house hack, which would be a sacrifice. I could see selling the car and going back down in order to free up some cash flow. But I can't see all of these things going this with the choices that have come out and there being a path to really getting ahead. And that's where I wanted to be frank and just ask. Sure. And I guess it might be helpful if I explain a little bit more about those. So those are all income-driven repayment loans, which is a specific type of loan that you're basically paying from what you're making, what your income is. And obviously they've been paused for, you know, three plus years now and those payments have all counted, which is great. But now that my wife is

not working, her payments are effectively zero once those do resume and they still count. That is as long as we file our taxes separately. If we are filing jointly, then obviously my income is counted and we'll end up, our monthly payment will be whatever that is. And so based on that, I sort of ran the numbers to the math and knowing whatever we don't, pay off at the end of 20 years is going to be essentially given to us as loan forgiveness, which is essentially seen as like, here's this check for however much, $150,000, whatever it is, and paying taxes on that. And so what we are currently doing in the after-tax brokerage that I had mentioned, we're putting $300 a month into that with the hope that that is growing over time.

So at the end of at this point 13 years, that number in that brokerage will be however much we are anticipating we're going to owe in taxes and we'll just have that. We can liquidate that account, pay the taxes that won't be this big, huge burden. And so running the numbers, doing what we're doing now, paying whatever that amount is, and this scenario was based on what she was making at her job. And so if that continues to be zero, if she's not going to work for the next handful of years, it changes it a little bit. But at the end of the day, that math has us paying less over the course of all of our loans than if we were to, say, accelerate these payments and try to actually pay off that entire balance.

So when does this come due? Or when does the 20 year period end? Yeah. So it was 20 years from when she started paying, which I believe was June of 2015 or 16. So we have about 13 years, 14 years left. Okay, if she returned to work full-time and you had child care, what is the net spread against how much money she'd, like how much more cash flow would come into your household? That number, I'm not sure of. It's a little bit hard to say.

So if we had $75,000 in household income and we allocate $2,000, that was where salary before she left, right? And that's pre-tax. So, yeah. So pre-tax, $75,000. is, we'll take out, we'll assume a 25% household income tax bracket. So that pulls out 18,750, leaving us with 56 grand. And then 56 grand after tax that assumes no contributions to retirement accounts or anything like that. And what's child care in your area full time? We don't have an exact number on that. But we are anticipating it would be at least a few grand a year, probably between two and three. A month. A month. Yeah, sorry. I'm like a $2,000 a year. Take it. No, it's going to be like

$24,000 to $36,000 a year. So now we're at $25,000 to $30,000 that she's bringing home. Yeah. So that is significant. That doubles your household cash flow accumulation. So it may not feel that significant at the end of the day, but that it doubles your net cash flow. And so again, I don't, it may be a personal finances personal situation, but we got to run the math and understand that that is a major, it's not a, it's not a gimmee. Like, it's not a, oh, it's not really much that we're going to bring in here, the net spread. It's a big spread. So aside from the fact that aside from the benefits or not, I don't like it as a lay for financial decision because, again, not choosing not to pay it off for the next 13 years. Yeah, your spreadsheet may work out one way or the

other, but you're not going to be free that entire time. It's going to mean that, hey, there's an incentive here not to work for 13 years for your wife to earn any income. Otherwise, the income will push up the balance. So that'll make that decision very hard. You're going to file separately, which is going to impact your ability to borrow or use opportunities or have your wife, again, pursue options in the future. It's going to reduce your ability to offset some of your income on your tax returns. And I think it's just not very freeing. And so as much as, like, I understand the situation and I can empathize with the choices that you've made, I really, it seems to me, like, with $200,000 in debt,

eight years in education and really high income opportunities here that you guys should strongly consider having your wife go back to work and produce that 25 to 30,000. It probably will be a little more if you're tax efficient with that and just pay this thing off sooner than that. I think you'll get a much more flexible financial position. If you do that, you're going to increase your income, your take-home pay from $250,000 of the next 10 years to 500,000 plus not factoring any raises, promotions or anything like, anything like that, that's going to provide a much, much more flexible position. And this thing will be gone in five years. It will be a grind. It will not be fun, but it'll be more fun backing into that position in five to 10

years with much more options for your life, I think, than ignoring it the way that you're not, not ignoring it, but just essentially setting up a situation that has you doing nothing with it for the next decade plus and having you be the sole red winner to put cash in there. How is this sounding? Is this too blunt or harsh of an assessment on the situation? What do you think in response to this? I certainly appreciate the blunt mix. I think it's something that is important for me to hear, for us to hear. And it's maybe a little bit difficult to hear, but I think it makes sense. and to your point about her working in some capacity, we have talked about her sort of being like the property manager for additional rentals we might bring into our portfolio and whether

that in itself is enough to offset a little bit of this. And if that necessitates us having to put him into, you know, child care or whatnot. But that also having certain, you know, tax implications for what I am bringing home. So it's definitely something that we will have to discuss based on some of your feedback. But it's, yeah, no, it's, it's a good reminder of sort of the reality of our situation in terms of what this, sort of this bogeyman that you that you reference looks like with with the form of these laws. Yeah, and I get it. Like you just don't want to, you don't want to attack it because what I'm saying here is no, like your financial position and your goals are not compatible with staying home with your

son. And so I think it's a reframing of what's realistic. I think what's realistic in the next 10 years for you without that is again, a financial position that increases by about 250 to 300 grand on your your income. And that's fine. That's not a bad outcome. You're ahead of most people with that. But it's not a path to financial independence. If you, if you guys are looking to be financially independent, there's a path there that puts you perhaps pretty close within 10 years. Because again, that's assuming no raises from either of you guys. That's assuming I'm not factoring in investment returns. That's just straight cash accumulation going on with that. But I think that that's the crux. That's the big decision is right now, are we going to play this

game, and I'm calling a game, where we're going to delay, we're going to have no income, we're going to file separately on this and allow the income-driven repayment of forgiveness here and plan for the tax benefit in 13 years. Or are we going to go after our financial situation intentionally, bust our butts, work hard for the next, you know, five to 10 years, and pay off these debts, clean up and simplify this financial position, have, and in five years, have essentially no consumer debt. Your HELOC's gone. Your car payment's gone.

Your student loans could be gone. Your what is the other one? The HVAC loan and the auto loan all paid off and gone. You just have rental property mortgages or primary mortgages, and you've got 500,000 inequity investments. That's the position that I would encourage you guys to have the hard conversation around starting in a few months. frankly, from what I'm seeing on this.

And I think that that's a good situation, five, ten years from now, like that's passive cash flow. That's $2,000, $4,000 a month. Now we're in a really responsible position to stay home and have lots of cushion here. And the situation that's capable of sustainably continuing to build $50,000, $60,000 a year in investable liquidity if just one of you works. And I think, you know, that's a really interesting way to hear it and think about it because for sure it is, you know, that is a sacrifice immediate term and the short term

in the midterm. But then having some of that flexibility, like you mentioned in five years, eight years, 10 years is definitely something that is sort of what we're looking to do with the longer term projection, whether or not that's a sacrifice in the immediate term. For sure, for sure. And I guess my question about how you're envisioning going about this is this, we are throwing absolutely everything we have on top of what our expenses are at these and in that case, deferring some of what our goals are in terms of our real estate investments. Or is there sort of a balance between, hey, you're throwing X amount at the loans, you're throwing X amount into a savings account to build up your rental portfolio?

What are your thoughts on some of that? Great question. So look, I think that that's really, like that's going to be the crux of the asset. allocation question. Your variable interest rate, Helock at 8.5%. I mean, I consider 8.5% guaranteed return after tax to be one of the highest and best use investments you can make. So we already have a plan to clean that up. I think your whole life insurance policy is a great reallocation decision to go with that. I think it's a much higher return than what you'll get there. I think that when you get into your car loan, no sense in paying that off early.

The student loans, that's a really interesting one, right? So we got 6.3%, but it's at 0% right now, not accruing interest. If you agree with my diagnosis that this boogeyman needs to be confronted in the next couple of years, at some point that what's the term that they were using, forbearance? Is that what they're calling it for student loans? I'm not sure if that's what it's, I think either is calling it a pause, but essentially, yes, you're not having to pay. they're counting and the payments are zero.

Yeah. So while that's at zero, there's no real, you just stick it in your emergency account and get 4% or some other type of debt. I think that in your situation, I would stockpile assets outside of that, maybe real estate, maybe even lending to get to get some sort of arbitrage there, maybe the stock market. And then, you know, after a few years, potentially consistent. or borrowing against that to knock out these student loans, for example. So that might be one approach to knocking these things out, because it's in this gray zone. Like, can you earn more than 6%? Yes.

Is 6% a reasonably high return guaranteed? And especially after tax, yes. So I think it's a really hard call in an art. So I don't know if I would necessarily invest. I think that's going to be up to you guys. I don't think there's a wrong way to go about it. I think one school of thought is just sock all the extra cash and pay it off. Again, after tax, we're looking at probably a seven and a half, eight percent return because that would be what you have to earn in order to earn a 6.3% return after tax on debt like that. But I think it's really in that coin flip space. Mindy, what do you think? My thoughts are multiple. First, Are her payments paused for the length of the government payment pause, whatever forbearance, moratorium? I can't remember what it's called either. Or do they continue to be paused for as long as she does not work?

So the current pause is strictly from the government pause. And so those are expected to restart. It has to do a little bit with what the government decides to do with the laws that were passed and now, you know, contentional or not. So essentially, those are expected to resume between June and October of this year. And that will be now the payments are still zero and they count, but now the interest is continuing to accrue, which it hasn't been for the last three years. That's really the only difference as we're doing it currently, if that's helpful. So, yeah, the interest will kick back in in a couple few months. Okay. So for right now, I would not make any payments, but I would start collecting that.

agree with what Scott said, this is going to be a burden in your mind, on your shoulders until you pay it off in 13 years when you get the repayment or if you start paying it off beforehand. But if you can pay it off and not take the forgiveness, it's freeing so much faster. I truly believe you can pay off these student loans. before the end of the 13-year payment. And if you can't, then you still get them for, you get like whatever's left over forgiven, right? Correct.

Yeah, essentially how I understand it at the end of 20 years, whatever is left is forgiven. And I think there are certain stipulations about making qualified payments and whatnot, which, you know, currently we are, even if we're making the zero, you know, $0, that's quote unquote qualified payment. So I believe anything we contribute in access to what we need to contribute would be considered a qualified payment. We'll have to check on that because there's some certain language in her account or whatnot that has some of that. So we'll have to look at that.

But I think it should, like you said, whatever is not paid off will be forgiven at that time. Yeah, I like the idea of pushing through and paying it off. And it's, I mean, it's a lot of money. But it's a lot of money. You'll work towards paying it off. It's 10 years of your earnings. It's five years of your combined earnings. Okay.

Versus 13 years of having it on your, like weighing on your psyche while you're not filing jointly and you're not, you know, investing in whatever. Now, let's talk about real estate. This is the Bigger Pockets Money Podcast. And we're all gung-ho about real estate. But is real estate the right investment? investment for you at this time. I think that your HSA, if that's an option, is the right investment. I think your Roth IRA is the right investment. I think 401k, if there's any sort of match,

is the right investment. But I'm not sure that real estate with your demanding job and a baby and travel and your side hustle and and and and. I'm not sure that throwing another log on that fire is the right choice at this time. Because you could, I mean, I can talk you into a great real estate investment. Oh my goodness, it's going to be amazing and your tenants are going to pay on time and blah, blah, blah. But reality says that that's not always what happens. How long has your property been vacant? About two months now. Yeah. Does that feel awesome? Not so much. Yeah. It kind of sucks. And it gets worse the longer it's vacant. And you start thinking, oh, I'll just put anybody in there. And let me tell you, the bigger pockets forums are filled with people who just put anybody in there to get a warm body in there.

And all of the money you're putting in there now, when they start playing hammer darts in the kitchen, you're going to feel even worse about putting anybody in there. So if you love real estate, continue thinking about it, continue investing in your education about it and continue looking at the properties that are coming up. really learn your market. Know when, you know, what properties are coming up, how much they're selling for, what are they renting for, go to open houses for rental properties, go to open houses for actual properties and just really, really learn your market. There might be such a smoking hot deal that pops up that you have to snap on it. But I wouldn't buy a house that you, just because you get impatient and they don't mean to throw that back at you. But no, I think that's totally fair. That was for sure what happened. And my wife and I've had multiple discussions about that.

That was definitely what happened. Did you use the HELOC to buy the rental property? I did. Yes. Yeah. So that's a real killer here too, because even let's forget the 8% interest. If that, if you just had 30 grand in that helock, it's 24, but I'm using 30 grand for easy math. And you want to pay that back over two and a half years or, you know, that's $1,000 a month or five years, it's $500 a month before the interest payment. And so even if it was a good deal, that would kill your cash flow. It wasn't going to produce more than $500 at this purchase price unless your, you know, real estate investing God. So that's a big issue here.

And that's where I think selling this and restarting with a stronger financial position will be helpful. But I disagree with Mindy that real estate's not for you. Again, I want to zoom out and say the goal that you came in was I want a flexible position five to eight years from now so that I can do the things that I want to do in life. right. And so if we just stack $25,000 into the Roth IRA, that doesn't get us there unless you're willing to tap the Roth IRA to live your life. That's a great way to have five, six, you know, three to 500,000. You already have like 160. So let's call it even four to 500,000 after investment returns in five years inside your retirement accounts. But that wasn't your stated goal. Right. So I think a better financial position would be something that looks something like this. I want $50,000. If we keep the status quo and

I am the only breadwinner, I'm going to have $50,000 in cash. I'm going to have one to two rental properties with, let's call it, $100,000 to $200,000 in equity producing $1,500 to $1,500 a month in cash flow. That's a realistic outcome for you. If you save diligently and put some aside in real estate over the next couple of years, and make some smart decisions, maybe do a little bit of creative finance. I think that's a reasonable possibility for you in five years. If you and your car payment will be paid off, your HELOC will be paid off, you'll slowly kind of get this consumer debt, your student loans, maybe your student loans, maybe paid off to your parents, that's a good outcome. And again, if we layer on top the much bigger decision, which I think is the real crux

of the decision you and your wife need to make. If she works and is able to bring in something close to what I just described there, that adds another three to four, maybe more $100,000 on top of that position, all of which could be invested in real estate or some could be spread across those retirement accounts. Again, bringing that flexible position, let's call it in that case, to $50,000 in savings, $4,000 to $400,000 in passive cash flow, and $250,000 to $300,000 in retirement accounts. So those would be the two kind of outcomes I think you could back into over the next five years. Do those sound realistic to you, Barry back of the napkin math? I think so.

And I think like you said, it's going to come down to us discussing having conversations about what do we want our life, our financial position to look like in, you know, currently this year, next year, five years, 10 years, 20 years, and what gets us there? because I think I've sort of had a little bit of tunnel vision in that like, hey, real estate is like the thing. It has all these great benefits. It's, you know, there's four or five different ways to make money in it. And I would like to think I've done a decent job in kind of keeping the pulse on the market that I'm in. I've tried to do everything kind of local. I'm not looking to do long distance or anything like that. So, so I think. And I guess clarifying something, Scott, you said, you said real estate can be a part. You think in five. years or you think at some point in the nearer future. Again, this is where I thank you for coming on the show because you're given us such a hard financial. And I can completely empathize with the struggle you're probably having across all this because your position is so complicated on the debt side in particular that, you know, what I'd love to do, there's multiple schools of thoughts.

One good option is I'm just going to pay off these debts, right? They're all reasonably high interest rates except for the ones that are at zero. And if you just pay them off and start with a fresh slate, that's going to be tremendously freeing and really turbocharge your ability to accumulate wealth. It's not a bad option. Dave Ramsey is a great potential choice for you. Another reasonable choice is you just bought the wrong rental property here and you bought it with a helock, which compounded the pressure that this property has brought on your life instead of generating cash flow for you. If you were to reuse your whole life policy to pay off the HELOC. You have 28 grand. In a year from now, you could probably buy a property similar to this

with a responsible financial position with a true cash down payment that does put money in your pocket. And that would be a reasonable choice. So I think it's an art and there's no right answer here. And that's why you're going to really struggle with it. I think you should either pick one or the other. And again, the major component here that's going to put you determine the level of flexibility you have in five years is how much cash flow. Your family. family is generating. And that's the function of your job and whether or not your wife chooses to go back to work. Even though I know that was kind of settled coming in, I do think it's it's such a big deal because of the amount of the student loan debt and the size of the 100% the potential to double

the family's cash flow. Yeah. No, I think I think you've definitely given us a lot to think about and to talk about. So it is a good way to think about it in that, hey, if we are paying off XYZ loans, some of which don't make sense to pay off like the super low interest ones and some of which are kind of that gray zone, like you said, what that does on the backend in terms of what we're bringing in on a monthly basis and how we can then scale what we're accumulating in different type of accounts, in different type of assets such as real estate to then have a strong financial position in a handful of years, you know, five-ish

plus years. So, yeah, this is not where I thought the conversation was going, but this has been, I mean, super helpful. Definitely gives us some tough stuff to talk about. But, yeah, it'll be, it'll be fun. No, I appreciate it. And I'm sorry, we didn't have a more painless approach for you to solve. solve some of these problems. That's not a fun conversation to think about. And the tradeoffs in your

life that that discussion has. Yeah, these are just our opinions. Talk to your wife, listen to the episode with her, and see, you know, maybe 60% of this makes sense to both of you together. I think the most important of all of this is that you're both on the same page. I do appreciate your time today, Patrick. I appreciate you sharing all of this information. with us. I think that you have a lot of great opportunities ahead of you. This has been really helpful. I'm appreciated your time. Awesome. Well, thank you so much, Patrick, for listening and coming on on the show and sharing your situation. Awesome. Thank you guys again. All right, Scott, that was Patrick. That was

interesting. Yeah. It's a tough situation. And I think, you know, if we're being blunt about it and really attacking the problem head on, we can't take out hundreds of thousands of dollars in student loan debt, not work, have a new car, not house hack, and expect to move to financial freedom. Patrick and his wife are in a great financial position. They're going to, they're cash flowing their lives. They have some cleanup work to do on a couple of debts and those types of things, but they're in a middle class position. And they can cash for their lives and live comfortably with the choices they're making. They're just not going to progress toward financial freedom rapidly without, I think, confronting head-on the student loan

boogeyman. And we talked about a very parallel problem to this in episode 338, become debt-free 20 times faster than you thought, with a very similar problem, a very similar couple that was looking to basically delay the payment of student loans until the forgiveness program came out in about 15 to 20 years. And look, I just, I get that there's a spreadsheet where that works, but I really hate that way of attacking financial freedom. I really prefer attacking the big problems in a financial position head on and defaulting to hard work, sweat, grind, and fundamentally increasing the cash flow after tax of a household. I think that produces a better financial outcome, a more sustainable approach, one that's within your control. and, you know, I'm sure people will strongly disagree with me.

I'm sure there's a spreadsheet that can strongly disagree with me. That would prove me wrong. And I bet you that the government does end up forgiving a lot of that tax burden for folks that do get student loan debt forgiven. But I still bias people, I think, heavily towards attack the problem, do the hard work, cash flow, pay it off, invest and build in and move toward financial freedom. I agree with you, Scott. there's a lot of tough decisions to make.

What is most important, I'll say this again, is that Patrick and his wife talk about it and are on the same page. That's right. This is a team effort. And I think that their situation was one of those really hard ones to diagnose. I have my opinion and my bias towards that approach. But from a financial lens, there are three or four different approaches that are all reasonable in his position. And it's not just in paying the choice to pay down that student loan debt or, you know, file taxes separately for the next decade and look for the payoff at the end of that. It's also the resource allocation decisions. Does he pay off debts that are in that bubble zone or does he invest those assets? Does he put it into the retirement accounts or into after-tax investments? Those are all hard choices with no right answer. and there's a like you can read the textbooks be written on why you should do any one of the variety of approaches we appreciate patrick coming on and sharing a situation that has no

particular right answer and if you want to debate email scott at biggerpockets.com not mindy at biggerpockets.com and i would love that i i'm not sure on this one and i'm i would love strong feedback if there's different approaches that folks had i'm sure we'll get a couple on the whole life insurance policy advice as well. Yeah. And you can call Scott at, just kidding. All right, Scott, should we get out of here? Let's do it. That wraps up this episode of the Bigger Pockets Money podcast. He is Scott Trench and I am Mindy Jensen saying don't be a stranger. If you enjoyed today's episode, please give us a five-star review on Spotify or Apple. And if you're looking for even more money content, feel free to visit our YouTube channel at

YouTube.com slash Bigger Pockets Money. Bigger Pockets Money was created by Mindy Jensen and Scott Trench. Produced by Kaylin Bennett. Editing by Exodus Media. Copywriting by Nate Weintraub. Lastly, a big thank you to the Bigger Pockets team for making this show possible.