BiggerPockets Money Podcast - How to Stay Rich During FIRE by Dodging the 4 Financial “Horsemen”

Episode Date: March 18, 2025

You’ve worked so hard to finally achieve FIRE (financial independence, retire early); the last thing you want is your wealth to dwindle or disappear entirely. Unknown to most FIRE-chasers, four financial “horsemen” (of the personal finance apocalypse) could steal your wealth right out from under you, without you even realizing it. What are the four horsemen, and how are we protecting our FIRE portfolios from them? To make sure you not only become wealthy but stay wealthy, we brought Whitney Elkins-Hutten, author of Money for Tomorrow, on the show to share the best ways to keep your portfolio safe from the four horsemen. Whitney scaled her portfolio from almost nothing to life-changing wealth, and she could have lost it all if she hadn’t learned how to protect it. Mindy and Scott tag-team to show YOU how to protect your FIRE from these four horsemen, including sharing what they’re doing right now to set themselves up for a successful (and safe) financial future. Don’t let your wealth get drained before OR during FIRE; take these tips to heart ASAP!  In This Episode We Cover The four “horsemen” that could destroy your FIRE lifestyle and disrupt your generational wealth How Whitney went from accidental house flipper to financially-free investor  The overlooked investing “fees” that could cost you hundreds of thousands of dollars Why you’re (probably) paying too much money for insurance (and how to start saving) When (and when not) to pay off debt and which balances to prioritize first And So Much More! Links from the Show Mindy on BiggerPockets Scott on BiggerPockets Listen to All Your Favorite BiggerPockets Podcasts in One Place Join BiggerPockets for FREE Email Mindy: [e-mail] Email Scott: [e-mail] BiggerPockets Money Facebook Group Follow BiggerPockets Money on Instagram “Like” BiggerPockets Money on Facebook BiggerPockets Money YouTube Channel Grab Whitney’s Book “Money for Tomorrow” Save $100 on Real Estate’s Biggest Event of the Year, BPCon2025 Sign Up for the BiggerPockets Money Newsletter Find an Investor-Friendly Agent in Your Area The Points Guy’s Travel Hacking Tips to Fly for FREE in 2025 Connect with Whitney   (00:00) Intro (06:00) "Ownership" Makes You Rich (10:09) Aggressively Investing in Rentals (11:52) This Could Destroy Your Wealth (19:07) Which Debt to Pay Off (23:14) Save Thousands on Insurance (30:23) This Could Delay Your FIRE (37:08) STOP Being Scared of Taxes! Check out more resources from this show on BiggerPockets.com and https://www.biggerpockets.com/blog/money-617 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email [e-mail] Learn more about your ad choices. Visit megaphone.fm/adchoices

We are so excited for today's episode. We are joined by Whitney Elkins Hutton, where she gives a tease of one of the big pillars highlighted in her book, Money for Tomorrow, how to Build and Protect Generational Wealth. We discussed the concept of the Four Horsemen and how these parts could massively impact the longevity of your financial independence portfolio. Scott and I then used this special teaser as a jumping off point for a discussion of what you can do to retain your. your wealth if you're working towards financial independence or have already retired early and you're afraid of losing everything. Hello, hello, hello, and welcome to the Bigger Pockets Money Podcast.

My name is Mindy Jensen. And with me as always is my has money for tomorrow co-host, Scott Trench. Thanks, Mindy. Great to be here with you. We're always in an estate of discussing personal finance topics. All right, whatever. We'll move on from that one. Bigger Pockets is a goal of creating one million millionaires.

You are in the right place if you want to get your financial house. in order and then keep it in order because we truly believe financial freedom is attainable for everyone no matter when or where you're starting. Whitney Elkins Hutton, thank you so much for joining us. Welcome to the Bigger Pockets Money podcast. Thank you so much for having me. This is such a pleasure. Whitney, let's jump into your financial journey. Where does your journey with money begin? You know, it actually starts when I purchased my first property in 2002. I bought a house with a significant other and, you know, I thought I was doing the responsible thing. You know, good job, staple relationship.

You know, let's dive into home ownership, right? But, you know, the relationship ended about a month after purchasing the house. Fortunately, in this case, everything was under my name. All the mortgage, the deed, you know, all the expenses and utilities too. But I've, you know, really, I found myself stuck or I felt I was stuck with all these expenses that I just really couldn't afford. And this house was, you know, we now call it a burr, property, but at the time, I'm just sitting here going, oh my gosh, there's green shag carpet all over the

floors and psychedelic daisies painted all over the walls. And I don't have the skills. Like, what am I supposed to do? So I had two choices. I could panic or I could get resourceful. And so I chose to get resourceful. I rented out every single one in the rooms to cover the mortgage and the expenses, taught myself how to renovate the property. Mind you guys, YouTube didn't exist back then. So I was reading a book, the Home Depot One, Two, Three book. and going to a lot of the Home Depot classes to figure out how to resurface floors and do drywall. About 11 months later, I sold the property. And it was really at that point in time that it clicked for me because I walked away with 52K and cash at the closing table,

which was more than I made in my day job that had me traveling quite often. And that was really a light bulb moment for me because that's when I realized that if I was going to build wealth, I had to figure out how to stop trading time for dollars and make money work for me, not me work for money. And so that just really set me on the path towards real estate investing. You know, the next few years, I was living flipping, house hacking, scaling, single-family rentals, buying multi-family buildings. But I started off with that house hacking and flipping, and if I wasn't doing flipping,

I had another job. And so really that's where the whole journey begins for me. That sounds very similar to my journey. I bought a house. Did you buy your house as a primary residence or as an investment? As a primary residence. Our realtor, yeah, Scott's like, yay, how's that? But at that point in time, our realtor put the book,

Rich Dad, Pored Out in our hands. And I read the first two chapters. I'm like, oh, this is really intriguing. hey, great, we've done everything. Check, buy below value. We've got a property in a great part of town. And then I just skimmed the rest of the chapters and I put down the book. I really wish I had read the rest of the book because I never would have sold that property. You know, I've got a lot of properties in my past that I wish I would have kept, but that's not the right way to look at it. It was a great learning experience. It started you on the past. So it is the best thing that you could

have done to see that there's money there. Like if you would have kept that property and just lived in it for a while, maybe you wouldn't have seen the power of how much money you can make in real estate just by fixing up a property. You did a burr house hack, live in flip all like together. And bigger pockets wasn't even around yet to make those phrases up yet. Oh no. And I was a hundred and three percent financed with other people's money in this deal. Yeah. So I borrowed $7,000 from my grandfather, who, God bless him. He cashed out, I'm sure he was making 15% on the CD that he had purchased in the 1970s.

So this was true love. He cashed it out, gave it to me for the down payment. I closed with the first. Guys, this is 2002, very different time. I closed with the first, and then immediately a second. I was able to, you know, to, as soon as the home equity, lending credit closed, I was able to cash back out that 7K and give it to my grandfather.

So when you say you close with the first, you close with the second. You're talking about a first mortgage and a second mortgage. Home equity line of credit. All right. We're going to take a quick break. But before we go, I want to announce that we are now offering early bird tickets for BPconn 2025, which is October 5th through 7th in Las Vegas. You can score that early bird pricing of $100 off by going to biggerpockets.com slash

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At this point, I've logged over 229 audiobook completions on Audible alone, and I still regularly re-listen to the highest impact titles. Lately, I've been listening to Bigger Leeners Stronger for Fitness, the Anxious Generation for Parenting Perspective, and several Arthur Brooks' audiobooks that have been excellent for mental well-being. What makes Audible so powerful as its breadth. Beyond audiobooks, you also get Audible Originals,

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Let's see you mount a little bit here. This is awesome first foray into real estate investing and wonderful success story there. How did you transition from what I would say, you know, treating real estate as a supplement to your job to then building wealth, building really long-term wealth in a portfolio on there? How does your story evolve to that part of the journey? Well, you know, it took quite a bit of time because I only knew living flipping and house hacking. So I did for about five more deals like that. And over that time, that's when I'm realizing if I'm not flipping, I'm not earning a paycheck. Like I can't pay the grocery bill at the grocery store.

I can't play in my utilities. I just have chunks of equity. And so really I pick up a book called Money Master the Game in 2000. And so that book by Tony Robbins really started opening my eyes to like how many works. And, you know, two big concepts that come out of there is one, ownership and which I was like, yes, I own assets. And then two, cash flow. How do you get cash flow at all different stages of the game? And so I'm the jerk that's going to our 401K benefits advisor and going, hey, can we expand our offerings within our 401K?

can I get part of this money back so I can go invest in real estate and have down payments for single family homes? You know, I get shut down left and right. And then I really took matters into my own hands in about 2016. And that's when I bought my first single family rental. I still had not found bigger pockets at this point in time. I did a lot of things wrong on this property, which is I wanted to purchase it for cash low, but I put down an $80,000 down payment. And I think the property cash load $400 with me managing the property. So the first month, the toilet breaks. I'm in the hole the first month. I'm like, ooh. Okay, baby steps. I've proven to myself that this model will work that the tenants will pay the bills, but I don't have cash flow. And so that was

the first property. Quickly switched to out-of-state real estate investing, focused on cash flow. Can I ask a question about that? Because Because if you're cash flowing, if you put $80,000 down and you cash flow $400 a month, that's a 6% cash on cash return. So it's not necessarily as awesome as what we're hoping to get out of real estate investing in there, but it's also not nothing. Are you saying that that was a phantom number because you had not accounted for things like the toilet or those types of things, and that was actually overstating your cash flow?

Yeah. Well, you know, I know a lot of people self-manage their properties. and so if I were willing to take, you know, just really give my time to the property, I think that, that, yeah, 6% is fine. But at some point in time, I wanted to have the size of real estate portfolio that I could actually hire out property management, which means I did not leave myself enough margin to do that. And so, and also I hadn't set aside proper maintenance in CAPEX, you know, allowance for the property. That became very evident very quickly. $400 a month divided by at times 12 is $4,800, divided by $8,000, divided by

80 is 6%, but we were not actually getting a 6% cash flow is what we're saying. I think I figured like it was closer to like 1.5, like if I figured in property management and I was upside down if I were setting aside the proper allowance for CAPEX and maintenance. And I see a lot of investors actually do that. When they go into their first properties, they are like, oh, I'll manage it myself. And oh, by the way, they're not setting aside two or $300 a month for CAPEX and maintenance. Guys, water heaters break. It can break in the first month of ownership.

It could break in the 48th month of ownership. It's just a matter of when. The water heater thing, yeah, you're absolutely right. It will break. It breaks in the middle of the night. You're welcome. So you know when it'll break. I don't know which night, but it will absolutely break in the middle of the night.

And the thing is, I like to say this about real estate. Something will break as soon as you buy the house. The cost of that repair is inversely proportionate to how much money you have in the bank in reserves. You guys have completely set me up for this transition here. You found yourself in hot water with this property, Whitney. What happens next with your portfolio and how you build things out? I find a website called Bigger Pockets, and I actually learn how to calculate properly, you know, the due diligence of the deal, right? How can I truly underwrite the deal?

How can I actually start understanding, like, you know, how can I build financial independence through real estate? And then it like clicked for me. And I'm like, for me and my goals, I want to be independent in my W2 jobs. So I need cash flow. You know, for some people, their goal is to build equity. Okay, that wasn't my goal. My goal was cash flow. And so I quickly start building out of state.

I went to two markets, Indianapolis, and Kansas City. And so the first year, I secured 10 single-family rentals. The year after that, I got 15. And then the next year I got 15. But in there, I started transitioning from single-family rentals into small, multifamily buildings, then eventually a 52-unit apartment building. Walk us through the transition point, the inflection point of I am aggressively building wealth with as much leverage and activity as I possibly can, and transitioning to a portfolio

that I can really believe will provide money for tomorrow. And what year was this? You know, I'm building very aggressively, aggressively, between 2016, in the latter part of 2019, but when 2019 hits, I'm starting to see a lot of those adjustable rate mortgages that I saw, or it was eerily similar for what I saw in 2016 when I was living flipping and house hacking. So you said you saw the market changing.

How did you see this? What clues were you starting to notice? Yeah, so at this point in time, I'm in a general partnership at a private equity firm, and we're doing, you know, private syndication on multifamily buildings and none of the deals really worked unless there was a short two or three year construction debt piece with adjustable rate mortgages. And yes, the operators, you know, us included were putting, you know, interest rate caps on the property, locking in, you know, I.O for three or four years, you know, interest rates.

But our underwriter was just like red flag, what happens if the interest rate environment shifts at year three? and you cannot exit. And I was like, wait a second, okay, hold on. Show me the math. And he showed me the math. And I'm like, ooh, we've got a storm coming, guys. Like, I don't know what to tell you. There's a storm.

And so many people were, I felt like we're very unprepared. I'm like telling everybody, like, okay, we're going to focus on the core for the four horsemen that are in our portfolio. We're going to fortify our foundation. We're going to get all of our line that's credit, you know, taken out right now. we're going to, you know, shifts part of our portfolio into cash flowing debt. And they're all like, no, Whitney, you're nuts. Like, I've got this equity deal here that I can go into. And I'm like, no, hold on.

Like, we need to balance things out. Okay, what are these four horsemen you're talking about? Yeah, we're not talking about the four horsemen from the viable. But, you know, really what are those big four wealth destroyers and that can destroy anybody's portfolio no matter, you know, you know, how much you scaled, whether you have five figures in your portfolio or if you have, you know, eight, ten figures in your portfolio. In the first one, I really go over six different wealth destroyers in the book Money for Tomorrow, but there's four core ones that anybody can focus on. And one is making sure that we're

using debt wisely, right? Most people assume that all debt's bad, you know, but debt itself isn't the problem. It's the bad debt. You know, a lot of times we're focused on the high interest rate of consumer debt. This can believe. 10s of thousands of dollars from somebody's portfolio over the lifetime. So we talk, I know you guys talk a lot about like, hey, have a cash loading piece of real estate, making sure you have good quality debt on the property where cash lows greater than the expenses on the property. Everything's cool.

That's not the type of debt I'm thinking. I'm thinking about, you know, people who have tons of car loans or credit card loans, private loans, you know, let's not start scaling extremely rapidly until we have a good payoff order of that debt. Simply take the loan balance, your outstanding loan balance, divide it by the minimum monthly payment you need to make. Not what you're actually making if you're overpay, but the minimum monthly payment, and you're going to get an index. And that index, if that number is 50 or below, that debt, you're probably going to make a higher effective rate of return on your money if you pay off that debt as opposed to taking that capital and deploying it. I know people that have taken loans on credit cards all the time to buy real estate, but let's get those things paid off as quickly as possible.

So that's one, learning how to order off the payoff of our consumer debt. Number two is leveraging insurance appropriately. So it's really tricky with insurance. You can either over The two big issues I see people is either they're overpaying for the insurance or they're underinsured. And so we want to make sure they're hitting the proper balance there. And so insurance is the big one. I mean, we've got two more horsemen really quickly, you know, taxes. That's one of the reasons why we love investing in real estate or if you're here listening.

You're probably curious about investing in real estate, but taxes can be a huge wealth leak. And so are you making sure that you're working with the strategist that's helping you leverage the depreciation, you know, on the portfolio, maybe, you know, helping you organize your investing to invest in tax-advantage investments and pair it with tax-advigant vehicles. And then just more just being proactive about the tax plan. I see so many investors that try to master taxes themselves because they don't like hiring a professional. I'm all about asking the question, how can I? And when you ask that question, how can I solve this problem? It doesn't always mean I have to require the skill. Sometimes it means I go find the person that can help me solve the situation.

In this case, making sure that you've got a good tax strategist on your side. And then my favorite one, and Scott, I love to get your insight on this, especially in the fire movement, is the big horseman that I see draining people's portfolios is investment fees, right? It can come from like banking fees or loan origination fees, prepayment penalty fees, but I'm talking about retirement fees. And so for people who have like a traditional 401K,

they're probably losing about 31% of their portfolio over a 21 year period to just fees alone. And the average person investing in a 401K is, I don't know, I haven't looked up that stat in a while, but I think 35, 40 years. So 31% is probably a huge underestimate, underestimation of that. And for context,

if you're just maxing out your 401K at say $21,000 a year, you're getting a modest 7% in the stock market, which I know we were just having a conversation before, probably not the case right now, but like average returns over time and you don't get a match from your employer, you're probably still losing a solid six figures, $100,000 or more just a fees in your portfolio.

So be intentional about your investing. And this is where, you know, I help people in the book Money for Tomorrow to lay out this blueprint, lay out this plan so they can make some of these really, truly minor adjustments in their portfolio to help them save and keep money in it and grow the wealth for themselves and not somebody else. Whitney, it was so amazing to connect today. Thank you so much for your time. We don't want to talk about any of the other concepts in the book because you can find that book,

Money for Tomorrow, how to build and protect generational wealth, in the BiggerPockets bookstore. So just go to BiggerPockets.com slash M4T, the letter M, the number four, T. Also, if you want to learn more about Whitney, you can listen to Episode 889 of the Bigger Pockets podcast. That was a quick tease with Whitney Elkins Hutton.

And now, Scott, I am excited to dive in a little bit deeper into the concept of the Four Horsemen. These aspects of your portfolio are really important to look critically at, to retain your wealth if you're working towards financial independence or are already retired early and you're afraid of losing everything. Thanks for sticking with us. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening.

That's why I like Monarch. It helps you see exactly where your money is going, and more importantly, where your tax refund can make the biggest impact. Because the goal isn't just to look backward, it's to actually make progress. Simplify your finances with Monarch. Monarch is the all-in-one personal finance tool designed to make your life easier. It brings your entire financial life, including budgeting, accounts and net worth and future planning together in one dashboard on your phone or your laptop. Feel aware and in control of your finances this tax season and get 50% off your Monarch subscription with the code pockets. What I personally like is that Monarch, keeps you focused on achieving, not just tracking. You can see your budgets, debt payoff, savings goals, and net worth all in one place. So every decision actually moves in Edle. Achieve your financial goals for good with Monarch, the all in one tool that makes money management simple. Use the code pockets at Monarch.com for half off your first year. That's 50% off at Monarch.com code pockets. You just realized your business needed to hire someone yesterday. How can you find amazing candidates fast? Easy. Just use Indeed. When it comes to hiring, Indeed is all you need. That means you can stop struggling to get your job notice on other job sites. Indeed's sponsored jobs

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And all services are handled in-house because privacy by default is their pledge to all customers. Visit Northwest Registeredagent.com slash money-free and start building something amazing. Get more with Northwest Registered Agent at Northwest Registeredagent.com slash money-free. In communities across Canada, hourly Amazon employees earn an average of over $24. 50 cents an hour. Employees also have the opportunity to grow their skills and their paycheck by enrolling in free skills training programs for in-demand fields like software development and information technology. Learn more at aboutamazon.ca. Let's start with the first one, Scott, interest. So she says that interest, I don't think she's really talking about your, your, the interest on

your mortgage. I think she's talking about your consumer debt interest, the high because I didn't pay off my credit cards interest, the high because I don't have good credit interest that you are paying and shouldn't have to pay. It's not that hard to have good credit. It's not that hard to pay off your credit cards on time. If you can't afford it, then don't charge it. I mean, unless that's your emergency fund, which it shouldn't be. But, you know, if you need tires and you don't have anything, you have to put them on the credit card. But I think that interest can sneakily suck out a lot of money from your wealth that you're not even really paying attention to because it's, I think it happens more for people who aren't as educated about their money

in general. What is your thought on the interest? No, I completely agree. And I will go further, but this is bigger pockets money. If you have consumer debt with high interest, like, you've listen to the wrong podcast. Like we don't, we don't do that here at Bigger Pockets Money. That's an emergency. We pay it off. We don't even think about it, right? So when I think about, I don't have any consumer debt out there, but besides the balance, I pay off in full each month on my credit card so I can amass those points I never spend that we talked about with the points guy a few weeks ago on there. But so when I think about interest, it's home, it's interest that's backing assets or that's extremely low, low rate against, you know,

maybe like a car loan, for example. Sometimes you can get those at 2%, although I don't have any on my cars right now. But when we talk about that, like I think minimizing interest expense comes down to that interest for me. If I'm going to use interest to finance the acquisition of an asset I intend to hold for a long period of time, it must be fixed rate and it must be very low interest, below ideally 5, 6% in those areas. I may go a little higher, but I'm starting to get wary of it. If I've got seven or eight percent interest rate debt, I'm paying it off. I'm not like, I just don't think that I'm good enough of an investor to beat a guaranteed

seven, eight, nine, ten percent interest rate return over a long period of time. And I just take it. That's a win. Like, if someone offers me eight, nine, ten percent after tax, because that's what most types of this interest are in most situations, outside of business expenses, I just take it. So if it's between 5 and 8%, then we've got a little bit of a gray area. But at this point in my life, I'd lean toward paying it off. If I was an aggressive accumulation mode, I would be potentially fine with it.

And below 5%, I'm not, I don't pay off my rental mortgages, for example, at below 5% interest rate. So that's how I think about minimizing the impact of interest while also using it sparingly as a tool, especially now later in my fire journey. How about you? I don't have any consumer debt. I don't pay any interest except my current mortgage, which is in the high 2%. I don't pay it. Single cent more on my mortgage payment. Love it.

Yep. I don't either. But if it crossed that threshold, I would go all in on it. But if it doesn't cross the threshold, I pay the minimum. Same as you. So I do own two houses. One I own free and clear and one I have a mortgage on. And the reason that I own it free and clear is because I bought it with, well, actually, no, we did pay it off.

Okay. So I bought it with a line of credit against my stock portfolio when interest rates were a horrific 5% after being 2% and 3% forever. And I didn't think that interest rates would stay so high so long. So we just paid cash for it, cash and air quotes, because it was going to, it was, I pulled it out of my line of credit. And then we have been paying that down. We just paid it off completely. And that leads me into our next horseman insurance. So I have these two properties.

They're actually located in the same neighborhood just around the corner from each other. The house that I'm sitting in is my primary residence. I have a mortgage on this property. And I tried to raise my deductible on my homeowner's insurance. to the highest that the insurance company offered was $10,000. And I think they do this to kind of protect their customers. How many people outside of, you know, the fire community is a bunch of frugal weirdos, how many people can come up with $10,000 to pay for the repair on the house?

You know, let's say you need a new roof. It's $20,000. Well, you're going to foot 50% of that bill. So $10,000 was the highest I could go. I locked it in. I was saving significant money on. my premiums every month or every year. And then I get a letter from my mortgage company that said, oh, you can't do this. You can only have a $5,000 deductible. And I'm like, but I'm really good

with money. I can, please let me have this $10,000 deductible. And they said, absolutely not. If you don't drop it down, we will get you a different insurance policy and bill you the difference. What was the premium difference? You know, Scott, it's been a couple of years and I don't remember, but it was a couple of hundred dollars. It might have been $500 a year. So, I mean, that's, that's, that's one of the benefits of owning property free and clear. And this is, is there's no mortgage person that's requiring you to do this stuff. My, my philosophy on insurance is I want a good carrier who will pay out the claim with full coverage. And I'm never going to call them unless it's a disaster that threatens into the tunes of, you know, high,

single, high five figures or at least six figures, if not seven figures, is where I'm, I'm, I'm going to be calling for that. I'm going to keep a cash position that will cover a solid deductible into the tens of thousands of dollars. My deductible is actually north of $30,000 on my primary, and I have a similar situation for a paid off rental that I recently purchased. And that is a wonderful, wonderful situation. It increases cash flow on those. And, you know, I don't know how about you, but I've been doing this for 10 years. As a rental property investor, I've never filed a claim. I've had to replace roofs in those types of things. But it's not, for my situation with the roof replacement, it was not an insurance thing. The roof needed a replacement.

It was part of the deal of buying that property. It's why I got a good deal on that property, in part, because there were some deferred maintenance. So I have paid those types of expenses out of my portfolio reserves and the cash flow produced by it. And that's my plan going forward. Maybe I'll never file a claim or maybe I'll file two across a lifetime, hopefully, in there. But when that day comes, I want that to happen. So I completely agree. Interest, I minimize. by making sure I only have long-term fixed rate, low-interest rate debt in my portfolio. I may take on additional interest, but then I would prioritize paying it down if I were to do that on a specific deal because I'll take my 8 plus percent return, enjoy it. And then insurance,

it's about making sure I have quality coverage from a real provider who'll pay it out, but sending a clear message that I'm never going to call them unless it's, I really need the insurance to kick in in a significant way. And I think that that's a very massive advantage that those in the fire community will rapidly have access to because you should be accumulating a lot of wealth very quickly. And here, and having access to liquidity that would allow you to self-insure smaller claims to a large degree, smaller being less than $25,000, $50,000. My deductible on my paid off house is 10% of the value of the home, which you can do when you

don't have a mortgage. Yeah. And when you do this, the insurance brokers will think you're crazy. They don't even, they don't do this very frequently. And it's a new concept. You have to educate them on that. Like I, I'm shopping for insurance. I have to educate the broker and say, here's what I'm trying to do.

I literally want this to be there. And they're like, well, the highest we can go is 1% or 3% or 5% of your home value or whatever. I'm on there. So it's a very unusual way of shopping for insurance, but it'll save you huge. If you're willing, if you know that when you do file a claim, you will have a large deductible as part of it. And over time, that math, I think, will work out in your favor. Now, one thing, I do not maximize this to the point of insanity. So in some cases, you add on 50 bucks, and now you can cover your car for collision or whatever

around there for a year. Like, I'm going to do that, those kinds of things and take reasonable ones there. So it's not a pure, how do I take this to the ultimate extreme? There's a little bit of common sense you have to apply for these quotes on a line item basis as well when you're shopping for insurance. Yeah, but I mean, sit down and take the time to what I like to do is email. I don't like to talk on the phone with insurance brokers. I want to get them on email.

I want to ask them the exact same thing. Copy paste it into a bunch of different companies and compare quotes, written quotes, right next to each other. I think that's easier for me personally than to try and take notes as they're talking and trying to explain stuff to me. Yeah. But if you've got more than one house and one vehicle, you should be looking at. at changing your insurance company if you've been with them for more than one year. I've got, actually, if you have insurance, you should be looking to get quotes every single year. The end.

I'm not going to caveat that with how many you have. I recently went from a homeowner's company that I thought I was paying a decent rate for, and they had my car insurance as well to a new company because a friend recommended them telling me how much great coverage she, got. I went from kind of bad coverage on my house and really bad coverage on my cars to significantly better coverage on the cars and brought my house value up to replacement value instead of what I purchased it at and I purchased it at a huge discount and added an umbrella policy all for less than what I was paying at the other company for worse coverage. Yeah, it's remarkable. You know, I think you got to shop this around with four or five different carriers once every

two to three years, right? Because otherwise, you know, if you just keep renewing, it's amazing how in my experience at least they just, it's just like, whoa. Like I'm getting, I got a quote now. My, my, the insurance carrier on my house that I bought a year ago increased my premium 90%. And I'm now shopping around. I'm getting quotes that have better coverage for one third of the annual cost of the premium on my current provider. It's ridiculous on there. And so I think it's, it's a, you have have to be willing to shop this stuff every couple of years. I think as part of it, and it's a real pain and I got nothing for you yet. You're going to spend an hour at least on the phone with four or five different carriers

to shop this across home auto and home auto and umbrella if you choose to get an umbrella, which I think a lot of people should in there. And I think it's just a time you gotta spend because it's several thousand dollars a year. And it's a very high hourly wage you're paying yourself to make sure to keep those costs low after tax. Okay, let's talk about fees. I think about minimizing fees, right? There's two major investments that I participate in, right? It's the stock market and real estate, right? So the stock market, you know, I think by this point, bigger pockets money listeners and those pursuing fire know well and good not to use a money manager

that charges an AUM fee of 1% of assets under management. And the math on how crazy those fees stack up to over a lifetime in terms of helping your financial advisor become financially independent instead of you has been well documented. I'm sure we'll talk about that in a minute. The other part, though, that I want to talk, so you just buy ETFs or directly invest through like mutual funds, like through Vanguard or Fidelity and Stockmark low fee index funds. That's how you avoid all those fees essentially over a long period of time

and aggregate a lot more wealth for yourself. In real estate, though, fees can really begin to add up as well. And so as a real estate investor, I encourage folks not on their first deal, necessarily, but if you're going to do three, four, five, ten real estate deals across your lifetime and begin massing a rental portfolio, get your license. Go get your license. And after the second or third deal, you can, you know, really begin representing yourself to a large degree. So this is what I do here. And when I need advice, because I don't transact, like,

like Mindy's a real agent, right? You help people buy and sell real estate all the time. But when I need to transact on properties, I then pay Mindy an hourly fee that she's happy with. I still owe you actually, I have a free to check for the recent property here that you help me with. But I pay you a fee, and it's a good fee, right? It's a good hourly rate, I think, for you. Yeah, it's great. I'm on there. And a lot of agents would be willing to accept that. And then I save the two and a half percent fee that I need to, what would otherwise need to pay a buyer's agent over a long period of time. So again, I would never do that in my first deal or even my second deal. But by this point, This is my sixth property I purchased, right?

I don't, I don't, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I feel like, the, the, the, uh, of, of education I did to get my real estate license, plus the continuing education and the three-ish thousand dollars per year to get that license has totally been overwhelmed by the hundred plus thousand dollars in fees that I have saved to buyers, agents over the last several transactions. So I completely agree with the philosophy of minimizing fees, and that's my approach. I get my license and maintain it as a real estate investor in order to avoid those over a long period of time. I will say that there is more to having a real estate license than just taking your continuing ed every year. It is a big commitment

up front, and you need to have some level of real estate knowledge. I had been flipping house for, I don't know, 15 years when I got my real estate license and then took the real estate exam and took the real estate coursework and was shocked at how frankly, unvaluble it is to have that information in your head. And I don't even have that information in my head anymore. Let's be honest. The coursework teaches you absolutely nothing about buying and selling real estate. But Scott is a real estate investor.

He's the president and CEO of Bigger Pockets. He knows real estate. So he uses my help for the contracts part of it. You definitely need somebody's guidance if you're not going to be doing this as a full-time job. But even giving up a little bit of the commission as a, you know, hiring somebody to guide you through the transaction is a great way to save on fees. But I would caution that this is for somebody who is buying and selling a lot of real estate. You got to buy a property every year or two or every year or three in order to justify this, right? If you're not going to do that, then don't get your license.

But I think if it's part of your major part of your portfolio over a long period of time, that absolutely keeping fees down makes a huge difference over a long period of time. Fees, Scott, are not just for real estate. They are for the stock market too. I would like to read something that Rameet wrote. Ramit's 80. I will teach you to be rich. He says, think a 1% fee isn't much.

Here's the surprising math behind paying 1% to a financial advisor. Let's say you're 30 years old and you invest $50,000 and contribute another $1,000. a month. The first thing you want to do when picking your funds is to minimize fees. Look for the management fees or expense ratios to be low around 0.2%. And you'll be fine. Most of the index funds at Vanguard T-Roe price and Fidelity offer excellent value. In 35 years with a low 0.2% management fee and assuming a 7% return, which is a reasonable assumption, you'd have just over $2 million. But if you pay a financial advisor 1%, you would only have $1.7 million. that's that he says that's more than $380,000 going into your advisor's pockets in fees.

That's right, 1% because you're multiplying 1% of the portfolio value every year. So it can take up, it will make you almost 30% poorer to pay a 1% fee every year for 30 years. It's a remarkable impact on your long-term wealth, this 1% AUM fee. I'm just questioning his math because you had 2.2 million and now you have 1.7, so that's only 30. thousand that's three point or that's 300,000 hundred thousand not uh three hundred and eighty thousand but either way that's three hundred thousand dollars going into your advisor's pockets by the way if you pay two percent that's over 750 thousand dollars in fees this is what i mean when i say that a one percent fee can cost you 28 percent of your lifetime returns by the way even even his

even his example of the low fee point two percent is a very high fee for some of these passively managed funds. Like Vanguard's total market index fund has an expense ratio of 0.03%. That's a major difference. It's almost 10 times less expensive from a fee perspective than the 0.2%. Right. 0.2% versus 0.03% for an ETF like VTI or its equivalent VTSAX or VO, the S&E, the S&P. 500 version of that. So there are funds out there that have very low ones. Fidelity has similarly

low expense ratios. They're like one hundredth of a base, they're one basis point, one hundredth of a percent higher in some cases than Vanguard. But there's some extraordinarily low fee index funds, and that's the easiest way to avoid these fees. So, yeah, when you think, oh, it's only one percent. It's not only anything. Yep. Now let's talk to taxes, Scott. I loved what Whitney said about having a tax plan. have a conversation with you, look, if you have a W-2 and that's it, you have a W-2 and a 401k, and that's it, you probably don't need to have a conversation with a tax planner. But Scott, I hope you're having conversations with a tax planner because you've got a real

estate portfolio and you've got a stock market portfolio and you've got a lot of other investments. You're invested in bigger pockets. You're invested in a lot of things. It would be very helpful to you. And I bet you would make up the money that you spent on the tax planning session. way more so with the savings that they provide to you just because you don't know everything. I, as much as it pains me to admit, don't know everything.

So having somebody who does have so much expertise in one subject tax, and the tax code is like four billion pages long or something like that, it's huge. It's enormous. It's meant to be confusing. Having somebody who has sifted through that and gone through and said, oh, this is how you use this. This is how you use this. I mean, I have had people, Scott, talk to me about they need a new advisor. I'm sorry, they need a new accountant because their last accountant didn't have them taking depreciation on their rentals for the last five years, which makes my heart break because

their accountant didn't know anything about it. Yeah, absolutely. I want to just kind of, this is the one where I think I would actually diverge with Whitney and many other investors from a philosophical perspective while completely agreeing that this needs the advice of a tax planner from a long-term perspective. So one of the one of the things that I think traps people's thinking, right? And this is fire specific is this I want to absolutely minimize my tax bill in the near term, right? And my goal is not to have a hundred million dollars in wealth at 90. My goal is to build a portfolio that allows me to enjoy Tuesday in my 30s and 40s. And a consequence of that philosophical difference, I believe, is not fearing paying taxes today. Right. If my wealth, if I have a,

if I, if I've been investing for a long period of time in index funds, for example, and I want to start harvesting some of that wealth beyond just the principle I committed into those, into those funds, at some point, I've got to be willing to pay taxes. I've got to be willing to realize, that gain so that I can spend it on a trip, on a house, on whatever that I want to do there. And so I'm not afraid to realize that gain. I'm also not afraid to realize that game when I can't sleep at night, right? So I paid taxes when I sold my index fund portfolio out of fear for high prices in the stock market in February of this year. And that those taxes will get paid to Uncle Sam. I will do my part to reduce the National Treasury here. And I sleep better at night. So I'm

just not afraid to do that from a one perspective. Second, I have a long-term bet in place that you can disagree with, but I think that taxes are going up long-term. So wallet is true. So if I have a $100,000 invested in the market and I pay a $100,000 gain, right? And I pay taxes on it and then reinvest it right away. In Colorado, that high, that marginal tax rate could be as high as 25%, 24.555%, 20% federal for capital gains and four and a half percent for Colorado. But if I realize that gain and then put it right back into the market, then I will be less wealthy in 30 years after tax, even after I sell it, because the way the bath works.

You can go play with that concept if I'm losing people on that. But I believe that tax brackets are going to go up over the next 30, 40 years from where they are at today. So I believe that when nobody knows what that's going to look like. So I believe between the combination of me realizing a gain when I feel like it's the best move for my portfolio, paying taxes, potentially getting a better risk-adjusted return with whatever I then reinvest the proceeds into, and combining that with the second fact that I believe tax rates will go up long-term. And third, the fact that I want to use that wealth to enable me to spend Tuesday how I want in my third. and 40s, I'm not afraid to pay taxes. That said, I always understand the impact of the moves that I'm going to make from a tax perspective. I'm going to stay in an asset class. I want a 1031

exchange something, right? I want to think through those types of decisions here. I also want to point out another thing here that why you need a tax planner on this. I was recently talking to somebody who wants to sell, I think, $200,000 worth of stocks in order to fund a home improvement project. That's their choice. So I see you don't like that as a, philosophical item, but that's what they want to do. Let's think about the tax implications they're like, I want it to all be long-term capital gains. Well, if you invested $100,000 in November, 2024 in the stock market, and it's up one, that has grown to $101,000 right now, and that's part of the piece that you sell here, that $1,000 gain will be taxed as a short-term

game at your marginal income tax bracket, right? Now, if you sell $100,000, of stock that you bought with a basis of $50,000 several years ago, you're going to have a $50,000 gain that you're going to pay taxes on with a long-term capital gains rate at 15 to 20 percent, depending on your income tax bracket. So you see what I'm going with this? Right. Wouldn't you rather realize the short-term gain of $1,000

and pay $400 or $500 in taxes to access some of that wealth today than to pay the long-term capital gains by selling the chunk that you invested in five, 10 years ago. That's the kind of thing that people miss and don't think about when they're thinking about the tax planning perspective here, right? There's the amount of the gain and there's the type of realized income, right, on there. And so that's something that you've got to really be careful of when you're thinking about this. It's not as simple as, oh, I'm going to realize the long term capital gain except the short term one. And the thinking behind both of those sides that you just shared is absolutely solid. Oh, I want to do long term capital gains because that's a lower tax bracket than my

current tax bracket of, you know, 30% or whatever, but it's not necessarily the right move like you just highlighted. So yes, that is a great point. And that is absolutely what tax planning can help you figure out. Yeah. So like when I sold some of my stocks recently, I put that into place. And I will have short term capital gains. That'll be taxed at a marginal income tax, uh, income tax bracket here. And they'll have some long term ones. But I made the, the move. it was a very complicated exercise, frankly, into some of these to think about it, simple toggle inside of the Schwab trading account there. But it was a complicated exercise to kind of figure out how do you minimize that tax hit in year on this? And there's also that philosophy. Like,

do I want to pay, am I just cool paying a portion of taxes here to have a lower basis on the next of investments that I'm going to invest here? Those are all things you've got to think about here. And it's the place where I diverge from Whitney philosophically, but also agree completely with the sentiment. You've got to really understand what you're doing here and minimize taxes and with respect to the goal that you have. When do you want to use that money? This is super fun. I like these four horsemen. And I encourage our listeners to check out the book, Money for Tomorrow, How to Build and Protect generational wealth.

This is a bigger pockets publishing book. You can buy it on our website. site at biggerpockets.com slash store or wherever books are sold. All right, Scott, should be out of here? Let's do it. That wraps up. This episode of the Bigger Pockets Money podcast. I am Indy Jensen.

He is the Scott Trench saying, Tudaloo, Mountain Dew.