The Personal Finance Podcast - How to Build a Financial Foundation The RIGHT WAY! (Money Q&A)

Episode Date: March 4, 2024

In this episode of Personal Finance Podcast, we are going to do a Money Q&A about how to build a financial foundation, the right way. We will be answering these questions: How do you set up your financial life for success? Should somebody pay off a zero balance credit card and how should they? Should I change my target date retirement fund to be more aggressive? What health insurance should I consider with barista fire?  How Andrew Can Help You:  Don't let another year pass by without making significant strides toward your dreams. "Master Your Money Goals" is your pathway to a future where your aspirations are not just wishes but realities. Enroll now and make this year count! Join The Master Money Newsletter where you will become smarter with your money in 5 minutes or less per week Here! Learn to invest by joining  Index Fund Pro! This is Andrew’s course teaching you how to invest!  Watch The Master Money Youtube Channel!  Ask Andrew a question on Instagram or TikTok.  Learn how to get out of Debt by joining our Free Course  Leave Feedback or Episode Requests here.  Thanks to Our Amazing Sponsors for supporting The Personal Finance Podcast. Shopify: Shopify makes it so easy to sell. Sign up for a one-dollar-per-month trial period at  shopify.com/pfp Monarch Money: Get an extended 30 day free trial at monarchmoney/pfp Thanks to Fundrise for Sponsoring the show! Invest in real estate going to fundrise.com/pfp Indeed: Start hiring NOW with a SEVENTY-FIVE DOLLAR SPONSORED JOB CREDIT to upgrade your job post at Indeed.com/personalfinance Thanks to Policy Genius for Sponsoring the show! Go to policygenius.com to get your free life insurance quote. Chime: Start your credit journey with Chime. Sign-up takes only two minutes and doesn’t affect your credit score. Get started at chime.com/  Links Mentioned in This Episode:  Empower (PC) https://fxo.co/FBdJ  Here is the total cost of ownership calculator: https://mastermoney.co/total-cost-of-ownership-calculator/ Here is the total cost of ownership calculator: https://mastermoney.co/total-cost-of-ownership-calculator/ Connect With Andrew on Social Media:  Instagram  TikTok Twitter  Master Money Website  Master Money Youtube Channel   Free Guides:   The Stairway to Wealth: The Order of Operations for your Money  How to Negotiate Your Salary  The 75 Day Money Challenge  Get out Of Debt Fast  Take the Money Personality Quiz Learn more about your ad choices. Visit megaphone.fm/adchoices

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Find your advisor at IG Private Wealth.com. On this episode of the Personal Finance Podcast, how to build a financial foundation the right way. Well, builders, and welcome to the personal finance podcast. I'm your host, Andrew founder of mastermoney.com. And today on the personal finance podcast, we're going to be talking through how to build a financial foundation the right way on this money Q&A. If you guys have any questions, make sure to hit us up on Instagram, TikTok, Twitter, at MasterMoney Co. and follow us on Spotify, Apple Podcasts, or whatever podcast player, you love listening to this podcast on it. If you want to hop out the show, consider leaving a five-star rating and review.

Can I thank you guys enough for leaving those five-star ratings and reviews? Those truly mean the world to us. Now, today, we're going to be diving into a bunch of questions on this money Q&A based on a bunch of different topics. So the first one we're going to be talking about is how you set up your financial life for success. The second one is should somebody pay off a zero balance credit card and how should they think about that process? The next one is, should I change my target date retirement fund to be more aggressive? Great question. We'll dive into that.

And then understanding revocable living trusts in how to add assets under your revocable living trust. And then lastly, what health insurance should I consider with barista fire? Holy cow, this is an action-packed episode. I'm not even going to keep yapping. If you're interested in any of those, let's get into it. All right. So the first question is one that I absolutely love. And here's how it goes. My main question is how I set up my finances after college. I've been in a long-term relationship for seven years now. So we will combine our finances almost immediately after college. We are lucky enough

to come out of college debt-free. And we have both landed full-time offers of over $70,000 per year each with large commissions as well. First of all, congratulations, because you're taking care of the biggest factor overall, which is your income. So absolutely amazing that you are doing that. We are estimated to make around $300,000 in joint commission opportunities each year. Holy cow, that is absolutely fantastic that you were doing that as well. We are both very motivated and want to get financially set right away. What financial advice do you have for recent graduates and newlyweds? Well, first of all, congratulations on going through the steps, going to college, and then at landing a massive paying job because this is going to be something that can set you up for life

if you do the right things with your income. Your income is the catalyst to building wealth. And your income is what is going to change your trajectory. And if you have an income like this coming out of college, you have so much opportunity ahead of you. I cannot even stress how fast you could become financially independent if you really, really wanted to. So now is the time to really set yourself up, correct. And I love this question for folks who are just or if you're just getting into your finances, if you're listening to this podcast and you are 50 years old and you're saying, I got to get my money right. What do I need to be doing? I'm going to show you exactly some of the things that you need to be doing and how you need to think about your money,

because this is going to be one of the most valuable lessons you can learn to build out that financial baseline. Sure, this should be an entire episode. I'm going to actually condense this down into a money Q&A question for you so that you can take that information and run with it. So really, really excited to go through this. Number one is I want you to think through and live exactly how you do now. So when you're in college, what a lot of people do is when they get their first big job, they go out and they increase their lifestyle significantly. But if you are enjoying college and you're having a good time with how you live in college and you're okay with living the same way that you do now, I would try to do that for as long as you possibly can because living exactly how you do now

with two high incomes will allow you to take a massive amount of that income, a huge, huge chunk and take that and invest those dollars. Now, it does matter where you live. This income could be very different if you live in the middle of Los Angeles and or if you live in the middle of Idaho. These are going to be two very drastically different opportunities based on where you live. But this is still enough money where you can stash a massive amount of cash no matter where you live as long as you hit some of those bonuses and some of those commissions. So if you can live exactly how you do now as a college student, you are going to be able to take a massive amount of that money, even very early on, and put it away. Now, maybe you can only do that for a year, maybe two years,

and then you're like, I don't want to live like this anymore. I'm making all this money. I want to spend some of this money on things that I value. Then maybe you don't value it anymore, but if you could do it for the first couple of years and take those extra dollars and put them towards wealth-building activities, you could set yourself up for life, stress-free just by doing that one thing alone. Number two, with your housing situation, I want you to kind of think, through this as you don't need to run out and buy a house right away. What a lot of people do is they make the mistake of running out and buying a house way too quickly. I want you to think through where do I want to live? Am I okay living in this location? Am I okay renting? And then if you want to buy a house, consider house hacking.

House hacking is one of the best ways to live completely rent free and you can turn that property into a rental property and be able to possibly even cash flow that property in the short term and the long term. So house hacking is a great option. If you don't know what that is, it means that you live in one unit. Say you have a duplex or a triplex, something like that. You'll live in one unit and then you'll rent out the other unit. So when you think about your housing, I want you to consider that early on, especially as you really, really quickly graduate. Now, if you've already been established for a long time, just think through your housing situation and make sure you're spending 30% or less of your income on your housing costs. Because if you spend more than that,

and you don't live in a city like New York where there's subway systems and you don't have to factor in transportation, then you're going to be spending too much money on your housing and you're going to become house poor. And that's the last thing I want for most people because you cannot get ahead financially if you are house poor. So you really need to make sure that you think through that. Now, the next thing is you need to establish a habit of tracking your money flow, meaning money coming in, money going out. Money coming in, money going out. This is what we call your money flow and you need to establish a habit of tracking where your dollars are going. This is going to absolutely change your life. And what a lot of people do is they think tracking their finances is a

restrictive activity. It's something that doesn't allow them for any freedom. I'm going to tell you it is exactly the opposite. Tracking your finances provides you freedom. It gives you freedom to put your dollars towards the things that you actually want them to do. How freeing is that? You can take those dollars and you can move those towards the the activities you actually want them to do. This is completely life-changing, and most people don't understand how life-changing this can be until they start doing it. You've got to track your money flow. You've got to track where those dollars are going and how much income is coming in so that you know what is going on with your finances. You will never know what's going on. You're going to be spending

way too much on frivolous things if you don't track your money flow. Now, you can do this with a reverse budget. You can do this with a spreadsheet. You can do this with all sorts of different tools like Mardark money. All of these are great ways to track your money flow, but you have to track it in one way, shape, or form. Next one, know your numbers. There are certain numbers in the personal finance world that you need to know when it comes to your own finances. These are numbers you absolutely always need to know. We're going to do a whole episode on this just so you know, but I'm going to give you some of them here and then we'll go through more of them as we go in that episode. But some of them are, A, your net worth. Your net worth is your financial scorecard. And it is one of the most important

that you need to be tracking. A, it keeps you motivated. B, it tells you exactly what's going on. C, it tells you how financially healthy you are. And so tracking your net worth is one of those numbers that you cannot go without tracking. Now, I like a tool called Personal Capital because it's absolutely free, but we're also working on one where we'll just put it in a spreadsheet for you so that you can track it in a spreadsheet if you don't want to use something like Personal Capital and link up all your bank accounts. But Personal Capital is free and we'll track it automatically and you can link up your bank accounts there. That is one. Number two, is your savings rate. Your savings rate is your investments plus your savings into your emergency

fund. It is those two numbers are what are combined there. That is the savings rate that I want to know because I want to know the wealth building savings that you're putting together. If you're saving up for a down payment on a house or you're saving up to buy a car, that I do not factor into that 20% number. I want you to be saving 20% or more on wealth building activities so that you can retire so much faster. You are fueling that fire. Now, in your your situation based on this question, I think you can save a lot more than that, depending on where you live,

but I think you can be saving 50, 60, 70% of your income and then living like you do right now and you can really make a huge impact, even if it's for a couple of years, even if it's for two years, you can take those dollars and you have no idea how valuable that compound interest can be

unless you run those numbers. So run the numbers on compound interest on some of those dollars and see how much you can save. Number three, so you have your net worth, you have your saving, rate. Those are two very important numbers that you definitely, definitely need to know. And then you also need to know your spend on the big three. This is housing. This is food. This is transportation. I want you to

know those numbers for a couple of different reasons. One of which is you can make really cool tweaks with housing, food, and transportation if you know those percentages. And you can allocate a lot more dollars towards the things that you actually value. So these are just some of the numbers that you really need to know. But you need to know your numbers when it comes to your personal finances so that you can stay on top of everything that you are doing. Now, next tip is stay out of high interest debt forever. Just make the commitment now. We are never going to take on high interest debt.

That's any debt above a 6% interest rate. We are going to stay below that 6% interest rate, and we're going to stay high interest-free. I want you to be high-interest debt-free. I'm the Dave Ramsey of high-interest debt-free, meaning that Dave Ramsey wants you to be debt-free completely. I don't care if your mortgage is 2.5% and you're paying it off, and it is less than 30% of your income.

that you are spending on housing, more power to you. You can take those extra dollars. You can invest those dollars. But high interest debt, I want you to be completely high interest debt free. I don't want you to take on any high interest debt. So if your student loans are high interest, if you have a personal loan that's high interest, if your mortgage is high interest, let's get those bad boys down so that we can make sure that we reduce some of that high interest debt. Now, when it comes to raises or when it comes to those bonuses coming in, or if you get large lump sums of cash, I want you to think about it this way. I want to create a balance when it comes to your finances. I don't want you to become some frugal weirdo who only just doesn't spend any money.

But what I want you to do is create this beautiful financial baseline of save half, spend half. So every time you make more money, maybe you get those big old bonuses outside of your $70,000 per year salary. And that money is going to come in. When that money comes in, I would say save half, spend half. So spending is a number of different things. It could be saving up for a vacation. It could be saving up for that dream car. It could be eating out.

If you're a foodie and you love to eat out, it could be putting more dollars towards eating out. It can be putting more dollars towards your hobbies. Maybe you love to go to different workout classes or you're really interested in craft beer. It can be putting money towards those different activities. And then saving half is going to be things like investing more into your retirement accounts, investing more into your taxable brokerage account, making sure you're maxing out your HSA, making sure you're taking those dollars and maybe you're investing in rental properties. You're putting them in all these different places that are going to produce more income for you

so that you can have financial freedom because this balance allows you, to still have lifestyle creep, still increase your lifestyle, but in addition, allows you to save more for retirement over time. What most people do is they don't increase the amount that they save, and they increase the amount that they spend. They don't increase the amount they save. They increase the amount that they spend. It's very important to know that differentiation and not fall into that trap.

Next one, never buy anything where you don't run total cost of ownership numbers on that thing. Now, this goes for housing, and we have a total cost of ownership calculator for housing if you've never used it. It is one of my favorite tools that we have ever put out. We will link it up down in the show notes below. But outside of that, we also want you to run total cost of ownership every time you buy a car, for example. I made the mistake of not running total cost of ownership when I bought a luxury car. And boy, oh boy, was that a mistake? Because the total cost of ownership was significantly higher than the actual purchase price. I've had a really good deal on a luxury car. And I bought it years and years ago. I still have it today. It is the Thorn and

my side. It's not what I drive. It's what my wife drives. But this car has maintenance costs that are out the wazoo. It is the most frustrating thing. Is that even a saying? This is the most frustrating thing that I have ever had in my entire life. And every repair costs $4,000 every single time. It is one of the most annoying things. A simple oil change if you take it to the dealership is going to run you around $1,500. And so this is the thing where I did not run total cost of ownership. I will never make that mistake again. and I hope you don't either. Learn from my mistake. Run total cost of ownership on housing, which is more important, and run it on your transportation. And anything else that you buy, make sure you understand total cost of ownership. Invest as much as you possibly can in the early

years. Because the more dollars that you can invest in the early years, the more life changing this number is going to be, and the more this money can compound over time. So it can really, really change your financial trajectory if you invest as much as you possibly can in the early years. Next one. Build a big old fat emergency fund, especially in year one and year two. You got this extra income coming in. I want you to take that money and I want you to build up that six month emergency fund. Not three months, not four months, not two and a half months because you feel like you can find another job really quickly. Six month emergency fund is going to protect you when life throws things at you. And it's always going to throw stuff at you. It throws stuff at me

every single month now. It literally has not ever ended over the course of the last 18 months. I feel like every month I have a surprise and I've been dipping into that emergency fund, funding it, dipping in, refunding it. So it is one of those things that you want to build a big old fatty emergency fund and make sure that thing is at least six months of your monthly expenses. And lastly, like I said, don't buy a house until you're ready. Making sure that you wait until you're ready to buy a house and thinking through your housing situation is going to be really, really important. So listen, those are some of my tips to set up your financial baseline, to have that financial foundation that you truly, truly need. If you follow some of these tips, you are going to be

wealthier than most people around you. And if you have that, extra income and you invest those dollars into things like index funds, ETFs, or real estate, or things that really are going to help you compound and you're patient over time and you're not getting crazy with your investments. You're just a boring old investor who is consistently investing over time. You will become very, very wealthy with your setup. So really excited for you guys. Congratulations on getting your career set up with the right start. And I cannot wait to see what you do with some of this money. I remember when I needed to hire someone. I, someone fast, but finding the right person quickly felt impossible. And if you've ever been there,

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Whatever you want, wherever you're going, start your search at autotrater.ca. Canada's car marketplace. The next one is I recently got married six months ago, and I regrettably needed to put some expenses from the wedding on a credit card. I moved the balance to a balanced transfer credit card with a 0% APR for the first 18 months, and I've been paying it off each month, but it's around $600 for 10 months or so. My question is, should I treat this as the same pants-on-fire emergency as a high-interest debt,

or because of the 0% deal, just make sure it's paid. off beforehand. I'd like to be able to invest those dollars and allocate them elsewhere, but my thought was it's better to pay what I need and get my bunny to work in a Roth rather than pay this off and hold off investing. So here's what I would say about this is most of the time, it depends on your financial situation. So if you're someone who has no emergency fund, for example, or you have no dollar set aside in order to recover financially from anything that could happen in life, that would be the number one priority as you were paying off this debt, is to make. make sure that you have at least that starter buffer emergency fund set up with like $5,000 set

aside to help you protect you against anything in life. So having that first five grand set up is going to be really important. Number two is that would make sure that at least you're getting your employer match when you're investing because it's 100% rate of return on your money unless there's a vesting schedule where the vesting schedule is like, you know, it takes a really long time and you don't think you're going to stay at your company. That's a different story. But usually I would get that 401k match or that employer match, whatever it is, at your current employer. So those two I would do first. And then I would accelerate my path on these to make sure that you are at least paying off this credit card early. And it is really, really important because you do not want

that money to kick in long term past that 0% interest rate. The last thing that you want to do is, say, for example, God forbid, you lose a job or you lose an income and you're not able to make the payments on this. And then that interest rate kicks in. That's not something I'm interested in doing. So what I would do in your situation is I would try to pay this off faster. Now, if you're looking to max out of Roth as well and you're not investing at all, then what I would do is, you know, look to accelerate this path to where you're paying it off sooner than the 18 months. And in addition, you can take some of those dollars and put them in a Roth if you want to as long as you're pacing way ahead of this 18 months. Because you got to give yourself some leeway in order to ensure that this is going

to get paid off if anything would happen to your job, you know, three, four, five months. So the goal here would be making sure that you pay this off in 12 to 15 months so that you have some leeway in those final couple months to figure out how you're going to pay the rest off if something were to happen. Now, if it was me, I would just try to pay it off as fast as possible, then move on to investing. But at the same time, if you are interested in doing both the same time, that is how I would think about it. I would make sure that I am paying it off at an accelerated rate where I am getting this paid down at least in 12 to 15 months, preferably 12, and get this completely paid off so that you have that six month buffer in case anything ever happened to your income. And then outside of that,

then I would take those extra dollars, build out my emergency fund, and build out the Roth or whatever else you want to invest those dollars in. So that's how I would think about it. For the love of God, please do not take this past those 18 months, but I think you have the right idea, which is to try to get some dollars invested so that those dollars can grow over time as well. So I really commend you for paying this down. A lot of people out there would just kind of try to forget about this and let the interest kick in. So you are doing the right thing here. And I think trying to pay it down quicker and then also getting some of those dollars invested is going to be really important, depending on how much you have saved up in cash in your emergency fund.

So all of those typically matter, and that's how I would think about that. All right. The next one is I'm 31 and invested in Fidelity's 2016 index target date fund. Two questions here. Should I change it to the newer 2065 index target date fund for more aggressive approach, or will five years difference not really matter? And then the second question is, can I change? change target date funds easily without any penalties or loss of money. So to answer your second

question, yes, typically you can change them very easily without penalties or loss of money. If they charge you a penalty to change your target date retirement fund, then they really, really have you in a really bad 401k. So if that is the case, make sure it's not. But if that is the case, they have you in a really bad 401k. So typically you could do that fee free. You don't have to worry. You can go change where your dollars are allocated. So to answer your second question, that is very, very simple. and it's not a big deal. You just go in there and change the percentages inside of your 401K.

And the next episode that we actually have coming up is going to be how to choose your 401K investments, by the way. So make sure you stay tuned and you're subscribed to this podcast because our next episode is the exact steps on how you can actually set up your 401k and choose your 401k allocations. But as we look through these,

I'm going to look at these two funds and see what the major differences are. So I will actually do this on air so that you guys can see how I actually think about this typically. Because usually, if there's a, five-year difference between the two funds, there's not going to be much of a difference whatsoever, specifically if you look at how they are set up. So we can look at the 2060 fund, for example, and the 10-year return for the 2060 fund is 12.62 percent, and the tenure for the 265 fund

is 12.62%. So typically when you're looking at these, A, there's not much difference between the two, and B, there's really not much going on. Now, one thing to note here is that the expense ratio, for the 2065 fund looks to be lower than the 2060 fund. So the 265 fund has an expense ratio of 0.06% and the 2060 fund has a 0.12%. So if you're really on the fence between the two, look at those expense ratios as well because if you're paying less in fees, more power to you means that you should most likely just go to the one that has less fees than would the other ones there that are available. So one thing I really want to note, though, is I want to see how much do they have in stocks and equities, and then how much do they have in bonds total? So what I do

is I go to Fidelity.com and I look at their different funds here, and I see what is the composition of this fund? And there's a button down there that says composition that you can look at, and you say, what is the composition of this fund? So when I look at the differences between the two of these, they have the exact same composition of U.S. equity. So 54.65 percent between the two, and the amount of bonds that they have is 9.9%, 9.9% for both of them. And then non-US equities is 35.43 and 35.43. So to answer your question quickly is I can look at this pretty quickly just based on the composition and tell you there's not much difference outside of that expense ratio. Now go see what your expense ratio is on the one that you have in your fund. But I am looking at the Fidelity Freedom Fund 2065. And these definitely,

can have a different levels. So just making sure those fees are exactly the same. And if those fees are exactly the same, if they're in the same classification, then all you have to do is really, you don't have to change anything because they're exactly the same. Now, when they're five-year differential, they really don't make a shift for the next couple of years. So every couple of years, you can keep checking these and making sure they're on the same target. And if you want to get more aggressive, or if you just want to get ahead of it now, you can move to the 2065 and not really have to worry about that. If aggression is your biggest goal is making sure. that you have more U.S. equities in there, then you can do that. So this is basically a

Warren Buffet portfolio right now. It is a 90-10. It has more exposure to international funds than I personally would construct myself, but it is a safer way to construct this over time. So over the last 10 years, both of them 12.62%. And since inception, about 8.25% for the 2065 fund, and about 7.9 for the 2060 fund. So that's just, because they were started in different years because they are funds at different times. And so that might be a little bit different as well. But that's kind of how we would look at it. I would look at A, the expense ratios, B, look at the rate of returns for the long run. The short run does not matter. And so the short term is not something I look at. Then I look at the composition of the fund as well.

And then if you want to dive in deeper, you can go to like Morning Star, for example, and look at some of the ratings they have on Morning Star. And those are some great places to just do some additional research. But that's how I would quickly do research on these is just look at some of those and make sure they line up and they're very close to the same. If the composition is the same, if the top holdings are the same, all of those are really, really going to matter overall when it comes to figuring out if this fund is right for you. So if you want to get on top of it, you want to stay aggressive for a longer period of time. Considering jumping over the 2065 fund is more power to you. This is not investment advice. I'm just kind of talking through this. And then 2016, if you just

want to stay the course and don't really want to move yet, you don't have to because it looks like these funds are very, very similar. So they are very similar at this point in time. And then as time goes on, then you can make adjustments based on if they change. All right. So the next one is we are in the middle of struggling to understand revocable living trusts as we are setting one up now. The process of creating the trust seems simple enough. But what comes next? What is the process like to move our assets like our home, our checking account, etc., into the trust? And does this affect how we file our taxes in the future. So first of all, when it comes to this kind of stuff, definitely have a CPA and even an attorney in your corner, if you want to make sure, especially with trust stuff,

you want to make sure that you have an attorney in your corner. Trust and will is also a great place that you can open this stuff. But when it comes to taxes, when it comes to your revocable living trust, you have to have a CPA look at your current situation and make sure this is even the right move for you a lot of times as well because some people can overcomplicate their tax situation and it drives their CPAs nuts because they've overcomplicated. I did that early on. I knew way more than the actual wealth that I had. So I knew way too much about wealth in my early 20s. I was learning all this stuff. And I was like, oh, I'm going to overcomplicate my financial situation. And he's like, what are you doing? You have a financial situation that looks like you make $10 million a year,

but you're making $45,000 a year. And that is when I realized, oh, I'm going to simplify my finances as long as possible so that I don't have to go through this crazy tax situation. So double check that first. but it's great that you're opening this up and you are doing this estate planning because you've likely already done that step. And so there's a lot of cool things that you can look at here. So if people who don't know what a revocable living trust is, it's a legal entity that is created to hold ownership of an individual's assets during their lifetime. But the cool thing is it has flexibility that you can actually amend or revoke as long as the individual, whoever started the trust, is alive incompetent. So if you and your spouse start this trust and you are alive

of incompetent, you can amend this trust as you are alive. So that is one cool thing about a revocable living trust. And it's a really powerful tool for estate planning. And it's there to manage and protect your assets as part of an individual's estate. And then it specifies exactly how those assets are going to be distributed upon the owner or the grantor is what they call them, the grantor's death. And so the main benefit to this is just to avoid probate, which probate is a long, lengthy process and you can avoid probate with a couple of different things, but this helps you avoid probate and so that your assets actually go to exactly where you want them to go. So there's a lot of key features here. It allows flexibility because when you're alive,

you can make changes, you avoid that probate. And you also have privacy. So unlike a will, which becomes a public document through probate, a trust operates privately. So you have privacy. If you're really interested in privacy, a will allows you to have that privacy. And that is one big reason to set up a will is if you want more privacy when it comes to this stuff. Now, we mentioned a couple of things here to fund a trust like this. Make sure you, again, talk to your attorney if you're going to do this, but if you're going to fund a trust like this and you want to put real estate into your trust, then you need to prepare and sign a new deed transferring ownership from yourself to your trust. So when you're

putting assets under a trust, it is somewhat complicated. You're going to have to have some of these extra steps. It's not something that you really need to do alone, but you're going to have extra steps if you want to make sure that you do this right. And so a lot of places like attorney, or trust and will, they'll walk you through that kind of stuff. But once you create that new deed, then the deed must then be recorded with the county's recorder's office or the appropriate government body based on where you live. So this is slightly different from where you live. But if you can go to the county's court and you can say, hey, I want to transfer this real

estate under this trust. What are some of the steps that I need to follow in order to be able to do that? So that is number one. Now, when it comes to financial accounts, if you want to put financial accounts in a trust, things like checking or savings accounts, you need to visit your bank. with a copy of your trust agreement. And the bank will have you fill out a bunch of forms where you can change the ownerships of the account to the trust. So maybe you want a specific bank account for the trust, then you can actually transfer accounts over to that trust by filling out some

information. Now, when it comes to personal property, so maybe it's tangible personal property with titles, things like furniture or art or jewelry, all of these can go into a trust. You might have to just draft a simple assignment document and officially transfer these items into a trust. So you can find these assignment documents online for free. There's a couple of different websites that are going to allow you to do that. If you go through places like Trust and Will or your attorney, they'll draft these up for you. And that way you can put in things like maybe you have fine China, for example, that you want to put under this revocable living trust. You can go ahead and do that. Or maybe you have jewelry or maybe you have a bunch of other things that you really want to

stay within the family. Then you can put what you want and your wishes in there. And then you can put in an assignment document. Now, when it comes to vehicles, maybe you have vehicles, you have a classic car or you have vehicles that you want to stick around or you just have your regular old daily drivers that you want to stick in the trust. They can also be transferred into the trust, but it really will complicate your insurance situation. So if you have like a daily driver, I probably wouldn't do this myself, but if you want to, you can. It just complicate your insurance situation. So what I would do is contact your agent to whatever auto insurance you have. I would contact that agent specifically and make sure you talk through that. I think it would make

it way too complicated, but it's up to you if you want to do that. And then when it comes to like things like life insurance and retirement accounts, generally you just assign beneficiaries for those. So things like life insurance, you can change the beneficiary to the trust if you wanted to, depending on specific life insurance you have. And then for retirement accounts, most people, most professionals will tell you to keep those out of the trust. So again, talk to professionals in your life, but most of them will advise you don't put your retirement accounts because of tax considerations, but you want to make sure you look at that personalized advice. Now, when it comes to taxes, again, talk to your CPA when it comes to taxes, but for a revoke,

living trust, there's generally no change to how you file your income taxes while you're alive. And then the trust is considered a grantor's trust for tax purposes, meaning it does not file its own tax return. Instead, you continue to report any income generated by the trust assets on your personal tax returns. So it all trickles down to your personal, especially when you're alive. Then when you pass away, the trust becomes irrevocable and all the tax filing requirements can change. So you need to obtain a tax ID number. And so when this happens, then the trust will need a tax ID number. It'll file its own tax returns.

And the specifics can vary based on what's in the trust and the income in terms of the trust documents a bunch of these different things. So during your lifetime, it trickles down to your personal. Then it changes when you pass away. And so making sure you have the right documentation in place is really, really important. And this is the situations

where definitely bringing professionals into play is going to be really, really important for a lot of folks because this can be daunting for you. And if this is a overly complicated process, what I would do is at least have some conversations with a couple of attorneys. Maybe you already have the trust open. And so the hard part is started, and they can help you move the assets that you want under that trust if it's difficult. Now, sometimes, like I said, with housing, you can probably call up the county office and talk it through

with them, and they can help you with that process. But if it's more complicated stuff, like if you want to move more complicated stuff in there, then I would maybe have that conversation. But a lot of this you can kind of think through and say, hey, okay, I got to go to the bank to move my checking and savings account in there. They're going to give me the forms and I'm going to move them in. If I want to move personal property, it's a fairly simple, straightforward one, two, three page assignment agreement form that I can put into the trust. There's some of these things that you can definitely do on your own and some of these that you would definitely want to have somebody else help you. But always consult professionals with this kind of stuff and just make sure that even if you're just doing

an hour fee, make sure you just get your questions answered and then you can go do it yourself if you want to pay the total amount, but just get that hourly fee done. And then CPAs on the tax side or for 100% something that I would be interested in as well. So that's what I would do when comes to this revocable living trust. If you guys have any other questions on that, just let me know. All right, so the last one is insurance options when you become financially independent. So good morning, Andrew. Just wanted to say I'm a regular listener and I appreciate your work to help people get their finances and check. Also, I have a question. I ran my numbers a few weeks ago on the Wallet Burst website and I was quite surprised and ecstatic that my wife and I are less than four

years away from hitting our Coast Fire number. First of all, absolutely amazing that you are four years away. Congratulations. That is some hard work. Hitting that Coast Fire number early on is not an easy thing to do. I had no clue we were so close. And now I'm starting to plan and set goals to hit my next step of barista fire. That is absolutely amazing. And it is so cool to see people actually taking this flexibility seriously when it comes to their money. For reference, my wife and I are 34 and 35 respectively and make around 100K. She's a nurse and I'm a firefighter. And while we both enjoy our professions and helping others, we have two young children that we want to spend more with. So now my question is, when someone reaches barista fire or beyond, what are the options for

health care? My goal is to leave the fire service while my body isn't too beat up and help others with personal finances like you. That is amazing. But I'm curious on how to provide health care for my family. Thanks. This is a fantastic question. And first of all, congratulations to both of you that you're even thinking through this stuff. And there are some options. Healthcare is one of the biggest factors when it comes to financial independence that trips a lot of people up. And the reason why it trips a lot of people up is because it can get really expensive out there if you don't have those employees sponsored benefits. Now it is starting to slowly improve. I'm seeing plans pop up now that are a little cheaper than they used to be, where it used to be costing you an arm and a leg thousands

of dollars a month just to be able to insure your family. So it's really, really important to do this. So the first option, especially since you are talking about barista fire here, is the original reason that people would go and find barista fire is, A, they'd get an additional income, but B, they could also find a part-time job that had the benefits. So you or your wife could go out and find a part-time job that would allow you to be able to have that health care benefit. Now, this is not always ideal. This is not always what you want to do. Maybe your barista fire goal is to start your own little business that earns enough to make up the difference.

And so for folks like that, that may not be something that you can do. The second option is if your spouse is going to continue to work, you could look at your spouse's employer plan and see if they have health care coverage that would cover you enough. So maybe not in your situation, but if somebody else is listening here and you're thinking about retiring early, but your spouse is not going to retire early, then making sure that you check their plans, have them add you to their plan is going to be really, really helpful. Because sometimes there's plans out there that if your spouse has the option to have health insurance with their employer, then you can't add them. So if that changes, that that dynamic changes, then you can go on your spouse's employer plan. Another way, though, is the health insurance marketplace, which this is where a lot of people will go. And so there are things that change here. So if you are an early retiree and you look at some of the health care coverage that's out there on the insurance marketplace, a lot of times what you may

find is if you're younger, you may actually be paying even more for your health insurance or the same amount that you would when you were working. But as an early retiree, you might discover that your deductibles and co-payments could be much cheaper over time as well because that's because certain household sizes and income amounts result in premium tax credits and savings. So you could have tax credits and savings if your income lowers during specific times. And so healthcare.gov can help you look through that. But what I would also do is when you're factoring in your barista fire number, is I would start to get quotes now and start having these conversations, especially in the marketplace, if you did not have an income or if you can estimate what your income is going to be because

you need to know how much that's going to be. Why? Because you need to budget that in to your plan when you retire early. Because say, for example, health care is an extra one to two. thousand dollars that you did anticipate well that is going to take a dent in your retirement plan that could be 12 to 24 thousand dollars you have to make sure that you are actually getting some of these quotes now and talking to people and i would look in your local area and say what are some of the options that i have based on this now some other less common things are things like health sharing plans so there are medical cost sharing communities which do not have insurance and this is not a way that i would go but they do make this really really affordable but they do not guarantee payments so

those are ones that I would not look at. There's also Cobra, which is continuation of previous employers plan. So if you leave a job that provided health care, COBRA allows you to continue your current coverage for up to 18 months. So for the first 18 months, if you can't find coverage that is exactly the same, then maybe you can look more into Cobra. You will have to pay the full premium, which can be expensive and is less ideal than the long-term solution. So that's another thing. And then you can look at high deductible health plans with HSAs and pairing those two together, especially since you guys are younger, if you're in good health, high deductible health plans with HSAs combined is another great option. And I would look at starting to fund out that HSA just in case to

have some of those funds available and make sure you have an HSA that you're rolling with, especially in early retirement, so that you can utilize some of those dollars A and reimburse yourself. But B, you also have that additional coverage in case anything else comes up. That was going to help you over time as well. So having those dollars double up benefits. So typically what I would do is I would start to look into this now like you are. you are doing an amazing job at looking at this now. And I could tell you're going to be good to teaching personal finance because you're looking at this four years ahead. And so really, really important to make sure that you kind of price this out early so that you know exactly

what this is going to cost. And then you can factor that into your retirement number and make sure that that is very close to your retirement number is factoring all that in. So absolutely amazing what you guys have accomplished thus far. And it is really, really cool to see that you're already thinking about this. So congratulations to you guys. And listen, thank you, everybody for listening to this episode. We truly, truly appreciate you listening to this episode. Our entire goal with this podcast is to bring you as much value as we possibly can. So if you got value out of this episode, consider sharing this episode with a friend. And don't forget to subscribe to this podcast because that is the number one way that you can learn how to become a wealth

builder and continue building wealth over time. Thank you guys again so much for listening this podcast episode. And we will see you on the next episode. Sounds like Ojo time. Let's play. Feel the fun with Play Ojo, the online casino with all the latest slot and live casino games. What you win is yours to keep with no wagering requirements, instant payouts, and no minimum withdraws.

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