0:00

Today, we are celebrating the second

0:02

annual Financial Independence Day, a holiday

0:04

I totally made up by sharing

0:06

DIY Finance Friday instructions and a

0:08

Google Sheet that helps you organize

0:10

your numbers all in one place.

0:12

Hello, hello, hello, and welcome to

0:15

the Bigger Pockets Money Podcast. My

0:17

name is Mindy Jensen and with

0:19

me, as always, is my number

0:21

nerd co-host, Scott Czecz. Mindy,

0:23

so glad you could budget some of your great time today

0:25

to come here on the show with me. Thanks

0:28

so much. Bigger Pockets has a goal of

0:30

creating 1 million millionaires and you are in

0:32

the right place if you want to get

0:35

your financial house in order because we truly

0:37

believe that Financial Independence Day is

0:39

attainable for everyone no matter when or where

0:41

you're starting. I love it,

0:43

Scott. Yeah, yeah, yeah. Financial Independence

0:45

Day, Mindy's holiday. I

0:48

know that not everybody wants to come in

0:50

and sit down in the hot seat or

0:52

share their information publicly on Bigger Pockets Money,

0:55

so Mindy and I wanted to share

0:57

how we review Finance Friday episodes, what

0:59

we're looking for, all the requirements it

1:01

takes to apply for that, and

1:04

basically give you the toolkit and

1:06

how we think about and assess

1:08

folks' financial situations for entertainment purposes

1:11

only, of course, here on Bigger Pockets Money,

1:13

so that you can

1:15

potentially apply it DIY style, again,

1:17

for entertainment purposes only for yourself.

1:20

To that end, we've created a

1:23

companion download, which includes just

1:25

a two-sheet document that allows you to

1:27

get a quick overview of the cash

1:30

coming into your life, income minus expenses,

1:32

and your balance sheet, the wealth that you have and where

1:34

it's deployed. We've also got

1:36

a handy Google Sheet and spreadsheet that gives

1:39

you some detailed information about what

1:42

information you'll need to do your

1:44

own DIY Finance Friday. You can

1:46

find those at biggerpockets.com/resources, completely free.

1:48

I hope you check them out.

1:51

With that, let's go and get into Finance

1:55

Friday, hypothetical Finance Friday, and how we think

1:57

about it. Yeah, DIY style.

1:59

Scott, you and I started

2:01

Finance Friday because we knew that sometimes

2:03

your head is down, you're focused on

2:06

one goal, and it can be so

2:08

difficult to see any other

2:10

options other than the one that you

2:12

have mapped out for yourself. Pay off

2:14

debt, then start investing, or max out

2:16

retire accounts no matter what. And

2:19

the problem with using superlatives like always

2:21

do this or never do that is

2:23

that it doesn't leave a lot of

2:25

room for alternative ideas. I

2:28

know that my own personal mind will get

2:30

kind of locked in on one thing,

2:32

and I don't even consider any other

2:34

options. So enter Scott and Mindy. We

2:37

take a look at all of your

2:39

numbers and your goals, and

2:41

we share what we would do

2:43

in your situation. So Scott, let's

2:46

go over the numbers that we

2:48

ask our guests for. Yeah,

2:50

sure. And just as another

2:52

part of prefacing this

2:54

situation, I think Mindy, you'd agree

2:56

that you and I, we're not like

2:59

Ramit Sethi on his show where

3:01

he really deals with the emotions.

3:03

He actually labels his podcast as

3:05

a relationships podcast because so much

3:07

of the issues with money that

3:10

he deals with are related to

3:12

the interpersonal dynamics, often with couples.

3:14

We also don't deal with, I think the wacko

3:17

is the word I'll use, situations

3:19

that like Caleb Hammer, who's awesome, you

3:21

should definitely check out his stuff as

3:23

well, does on his podcast, where there's

3:26

all sorts of drama and all

3:28

those kinds of things that are going in there. Our

3:30

DIY process that we're talking about here

3:32

is for someone who's pretty serious about

3:35

achieving financial independence inside of the next

3:37

maybe 10, 15 years, maybe

3:39

sooner, and is really more

3:41

of like the college course level of trying

3:43

to fiddle with their financial plan and think

3:45

about what their investment portfolio should look like

3:47

at a future state in a big way.

3:49

Would you agree with that, Mindy? And that's how we design,

3:51

and that's how your mindset going into designing this? Yes,

3:54

absolutely. I am not here

3:56

to judge your

3:58

past financial. I

4:01

don't want to say misdeeds,

4:04

your past financial transactions and decisions.

4:06

That's in the past and until somebody invents

4:09

a time machine, we're not going to be able to go back

4:11

and change it. But we want to look

4:13

at where you're at now and where you want to

4:15

be and give you some ideas for how to get

4:17

there. Yeah. So the typical

4:20

bigger pockets money, Finance Friday, guest,

4:22

will come to us with usually

4:24

a pretty solid career. Let's call

4:26

it, we rarely have folks making

4:28

less than $50,000. And

4:31

we also really have folks making more than $250,000 a year. So

4:34

typically our guests are coming in that

4:36

$100,000 to $225,000 household income range. And

4:43

you want to list out your income. So that's the

4:45

first place to start. All right. There are four basic

4:47

pieces of information that we need from

4:49

guests in order to begin the

4:52

process of doing a DIY Finance

4:54

Friday. Those are income, expenses, debts,

4:56

and assets. The

4:58

income side of the equation is usually pretty

5:01

easy for most folks. It comes from a

5:03

job, contract work, side hustle, so

5:05

on and so forth. It may come from

5:07

investments as well. The

5:10

expenses are everyone, almost everyone does

5:12

their income the same and knows

5:14

how to articulate it.

5:17

The expenses are much harder. People

5:19

when they don't actually have hard numbers

5:22

often provide estimates of their

5:24

expenses that are wildly different

5:26

and usually underestimate their expenses

5:29

pretty dramatically over the past period.

5:32

A good way, if you're trying to frame

5:34

out your own DIY Finance Friday to think

5:36

about whether your expenses are realistic is

5:39

if your income is $10,000 a

5:42

month and your expenses on your piece of paper are

5:44

$6,000 a month and you haven't accumulated $4,000 a month

5:50

on average for the last six months to a year,

5:53

your expenses estimates are wrong. So

5:56

that's a good way to think about it to

5:58

a large degree in a lot of situations. The next

6:00

piece is debts. Usually people are pretty able

6:02

to pretty easily do the work in maybe

6:04

an hour or two to compile all of

6:06

their debts and the interest rates and the

6:09

balances remaining on them. And then

6:11

there are the assets, which again are usually

6:13

pretty easy to track, although they can be

6:15

sprawling in some of our listeners portfolios because

6:17

many folks are generally good with money. That's

6:19

why they listen to Bigger Pockets Money in

6:21

their free time. Thank you very much. You

6:24

generally have a good idea of that. You might have investment accounts

6:27

spread across a bunch of different 401ks, IRAs, brokerage

6:30

accounts, cash, and those kinds of things. And

6:33

again, those are pretty easy to assess. So

6:35

those are the four numbers that we're looking

6:37

for. It does take time to compute them.

6:39

And typically that time investment is going to

6:41

be disproportionately weighted for most to categorizing and

6:43

tabulating the expenses that are coming out of

6:45

your life. Do you agree with that, Mindy? I

6:48

do agree with that. And I want to go down

6:51

each one of those again, because now

6:53

I have my own commentary. When

6:55

you are considering income, maybe

6:58

you just have one job and that's great. That's

7:00

going to make it really easy to account

7:03

for your income. But if you

7:05

are married and your partner works, then you've

7:07

got two incomes, but maybe you're married, your

7:09

partner works, and one of you or both

7:11

of you have a side gig. It's

7:14

always better, in my opinion, to estimate your

7:16

income on the lower side. Oh, I make

7:18

between 2,500 and 3,500 every month on my

7:21

side gig. Go

7:24

for the 2,500, because you can always find more

7:27

things to do with that extra thousand dollars.

7:29

But when you're estimating at 3,500 and

7:31

it consistently comes down low, that's another

7:34

way that you're not hitting that mythical

7:36

$4,000 of savings that Scott was referring

7:38

to every month. But

7:40

that's kind of all I have to say about the

7:42

income. What are your income sources? What

7:44

are all of them? Look over the whole year,

7:46

the whole past year. When did

7:48

money come into your bank account and where did it

7:51

come from? Again, if you only have one job, then

7:53

that's super easy. But make sure you're accounting for everything.

7:56

Number two is the expenses. And this

7:58

one, I could not agree with Scott. more.

8:00

This is where so many

8:02

people are guesstimating low

8:04

when they should be guesstimating high.

8:07

If you're not tracking your expenses,

8:10

that's a great place to start. If

8:12

you want an example of somebody who has tracked

8:14

their expenses, I will show you my very real

8:17

expenses at biggerpockets.com/Mindy's Budget. And again,

8:19

we're going to link to all

8:22

of these things in our show

8:24

notes. But the

8:26

real life tracking

8:29

of my spending was actually kind of eye-opening

8:31

to me, somebody who has already been tracking

8:33

spending for a while, in that I estimated

8:37

incorrectly many times. You will see there are

8:39

spreadsheets, in my spreadsheet, there are categories that

8:41

are bright red telling me that I did

8:43

it wrong. And there are categories that are

8:45

green saying, hey, you did a good job

8:47

there. But those are way quieter than the

8:49

bright red ones saying that I'm wrong. But

8:52

I did it publicly to show you

8:54

that it's really hard, even

8:56

if you are a money

8:58

expert in air quotes here, even if

9:01

you're a money expert, it is still

9:03

hard to estimate accurately every single month

9:05

your number. So you guess and you

9:07

constantly work on your expenses.

9:10

But I will say, I can't agree

9:12

with Scott Moore. This is where the

9:14

bulk of the issues come from. And

9:16

you will hear Scott in Finance Friday

9:18

episodes saying, okay, you make 10,000, you're

9:21

spending 6,000. So what are you doing with the 4,000 that you're

9:24

saving every month? And frequently, that

9:26

will be something that they can't

9:28

answer because they're not actually saving

9:30

$4,000 a month because they are

9:32

actually spending more. Yeah, the

9:34

amount of cash that you've invested or that

9:36

has piled up in your savings account in

9:38

the last six months is

9:40

usually a better predictor of the spread

9:42

between your income and your actual budget

9:45

than the numbers that you estimate

9:47

if you're not actually pulling them

9:49

out and doing basically

9:51

zero basing and tying all of your expenses to

9:53

the penny into your historical

9:56

spend. And it doesn't make you a

9:58

bad person that you're doing your expenses wrong. But

10:00

if you want to get an accurate accounting

10:02

of where your money's going, you need to

10:05

have your expenses correct. So start tracking your

10:07

expenses. I don't think that this

10:10

these sheets that we're sharing today, Scott

10:12

can be filled out in

10:15

entirety today by somebody who

10:17

hasn't been tracking their expenses. But you can

10:19

take a guest today and then see how

10:21

close you are with, you know, it'll take

10:23

you five hours at least probably if you're

10:26

completely new to it and haven't looked at

10:28

the stuff to really get it in. And

10:31

that's the better part of an afternoon or weekend or

10:33

whatever in there. They'll take you 10 minutes to guess

10:35

at it. And that's

10:37

as good as starting places any so

10:39

but like every strategy starts with

10:41

hypothesis, right? And then you refine

10:44

and refine that hypothesis until you get to get better

10:46

and better strategy here, which is all we're doing, which

10:48

is all we do on DIY finance

10:50

Friday. So just to throw it out

10:52

there. You have work to

10:55

do, but if you want a 10 minute exercise from

10:57

today, download this to download this piece of paper, fill

10:59

it out with your best guesses in 10 minutes and

11:01

see what that tells you. Because

11:03

you might learn a lot from it about where to look

11:05

for opportunity while you're conducting the five hour grind. Absolutely. That's

11:08

a great point, Scott. So

11:10

my dear listeners, guess away, Scott,

11:13

this is a great place to take a quick break so we

11:15

can hear a word from our show sponsor. But

11:18

when we come back, we are going to get

11:20

into debts and assets as

11:22

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11:25

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12:50

back to the show where we're going to get you

12:52

out of debt and

12:54

into assets. We're gonna look

12:56

at debts now debts like Scott said pretty

12:59

easy to do. Gather up all your debts

13:01

or as many as you can remember right

13:03

now. And then if others pop up down

13:05

the road, oh, I forgot

13:07

about that one. Throw it in there too. It's

13:09

like Scott said, this is a work in progress.

13:12

And we are guessing we

13:14

are getting our best guess.

13:16

If you have the solid numbers, throw them in. But

13:19

if not, estimate and then perfect

13:21

as you go. And on bigger pockets money,

13:23

we're not really like this. You know,

13:25

we have some folks we welcome everybody. But

13:27

most of our people that come on Finance

13:30

Friday on the show are not so novice

13:32

to personal finance that they don't really know

13:34

about all of their debts for

13:37

that. And so that's definitely one that

13:39

most people can knock out pretty easily.

13:41

If you don't know about

13:44

your debts, it's usually some one

13:46

little thing that you forgot about from five years

13:48

ago for most of our listeners. But if you

13:50

don't know about that, then you should definitely think

13:52

about like, where can I go to get basic

13:54

entry level information about my personal finances and

13:56

debts should be relatively easy for most

13:59

bigger your pockets money listeners, unless you

14:01

are a brand new face here. If

14:03

you're struggling to compute all of your debts,

14:05

one of the best resources out there is

14:07

going to be credit karma, which should be

14:09

able to pull them pretty easily for you

14:12

in most cases. Do you agree with that, Mindy?

14:15

I do. I think it

14:17

should be very easy, but I have

14:19

never been one to

14:22

be in credit card debt. I have

14:24

had random other debts, but my mortgage

14:26

is basically my only debt. I

14:30

consider my credit cards to be expenses

14:32

because I pay them off every month.

14:35

And assets, again, most of

14:37

our listeners have a general idea of

14:39

where their assets are. It's

14:41

work to tabulate them and compute them. Sometimes your

14:44

guesses can be pretty wrong, which is why I

14:46

actually love the idea, now that I've said it,

14:48

of everyone should just put down a guess right

14:50

away before they actually look at their

14:52

numbers if they haven't started looking at them and see how far

14:54

off that guess is from your actual net

14:56

worth, debts, liabilities, all that kind of stuff,

14:58

and your income and expenses. I

15:00

think that'll probably be a really good exercise that'll open your eyes

15:02

to a lot of things. But generally, again,

15:05

those assets are going to be in places like your

15:07

401k at work, your home,

15:10

savings accounts, if you have an after-tax

15:13

brokerage account. And generally speaking, people are

15:15

pretty aware of these things. What

15:18

I think you should not count

15:20

in your net worth for this

15:22

exercise are things like your car,

15:25

or your boat, or

15:27

your other toys that you're not

15:29

intending to use for your computer,

15:31

or your fancy suit collection. These

15:33

are not assets that are going to generate

15:35

investment returns. And here at BiggerPockets, money, we're all

15:37

about financial independence. And so I do

15:40

not include any of those items in my personal

15:42

net worth statement, although they technically do contribute to

15:44

my personal net worth, but something to consider there.

15:46

I also don't have a boat just for what

15:48

it's worth. Thank

15:50

you for clarifying, Scott. I have two suits. Yeah.

15:53

Really? I don't think I've ever seen you in a

15:55

suit and I've known you since, well, since

15:57

God was a boy. I've got a black suit for wedding.

16:00

and a blue suit for rehearsal

16:02

dinners. Oh, there you go. That's kind of all you

16:04

need. And board meetings,

16:06

of course, yeah. All right, so with the

16:09

assets, I would encourage you to

16:11

break them out into 401k

16:13

traditional and 401k Roth if you

16:16

have both. And by 401k,

16:18

I also mean 403b, TSP, all of those accounts.

16:22

However, I am gonna ask you for your 457 account.

16:26

If you have one, consider me jealous. That

16:28

should go in a separate line because we're

16:30

gonna treat that a little bit differently. And

16:32

if you have a 457 plan, holy cannoli, I

16:35

hope you're maxing it out as much as you can.

16:37

Anyway, we'll get into that in a little bit.

16:39

But I definitely want, rather than, here are all

16:41

of my assets on one line, I think it's

16:43

helpful to spread them out, show what is in

16:45

your Roth IRA, what is in your 401k, what

16:48

is in your after-tax brokerage account. How

16:50

much cash do you have, sitting

16:53

around isn't the right word, but how much cash

16:55

do you have liquid ready to go? And this

16:57

will help you get a very holistic

17:00

view of your financial

17:02

situation. And if

17:05

you decide that once you get all these numbers

17:07

together, you wanna be a guest on the Finance

17:09

Friday, it will help us have a holistic view

17:11

of your numbers as well. Okay, Scott,

17:13

now that we have shared with

17:15

our listeners, what are the

17:17

numbers we're looking for? That's

17:19

not the end of our story. You and I've

17:21

been doing this for a long time, so I

17:23

think it's more second nature for us. But we

17:26

have some biases towards specific situations that

17:28

we see when we see the numbers.

17:30

We've been looking at these numbers for

17:32

so long, we can just screenshot the

17:34

numbers in our head and be like,

17:36

oh, I see the issue right here.

17:39

I'm curious about your biases,

17:41

Scott. Yeah, so I mean, I come

17:44

into a lot of these with a clear

17:46

bias in mind, and I'm surprised every once

17:48

in a while. So that definitely happens. But

17:51

I have the biases for a reason, they generally

17:53

reflect the pattern that I've seen over hundreds of

17:56

conversations, both on bigger pockets money and one-on-one with

17:58

people. So look, when someone... has a

18:00

net worth of less than $500,000, less than a

18:02

million, certainly less than $500,000, the

18:05

first place I look is what's the spread between your income and

18:08

expenses. Whether that net worth is zero, negative $150,000 or $400,000, that's

18:10

the biggest lever. If we can

18:15

take the 100K in salary minus $65,000 in expenses and take,

18:17

we have now a 35K a year,

18:22

that 35K a year times 10

18:24

years is 350 grand.

18:27

That's a major asset to deploy in a major part

18:29

of the strategy. I want that

18:31

number to be as big as possible. We can increase up to 40

18:33

a year, that's $400,000 to play with over the next 10 years and

18:35

invest. I'm

18:38

really looking for that and I think that most

18:41

of the opportunity for people in that stage of

18:43

the journey is going to be on the expense

18:45

side. That's the next

18:47

bias I have is that I'm going to

18:49

look for expense opportunity to cut back, generally

18:51

in the big three, housing, transportation and food.

18:54

Certainly, there's many situations where there's

18:56

another WACO category like

18:59

Amazon shopping that comes up in

19:01

there. The income side I'm

19:03

generally biased away from unless the person

19:06

is really excited about different opportunities or

19:08

ideas. Typically, most folks are optimized on

19:10

the income front or they're optimized relative

19:12

to the constraints in their life. I

19:15

make $85,000 a year in this job.

19:19

If I could make $125,000 a year doing the same

19:21

job, I'd have already jumped ship and

19:25

be doing that job instead. Usually, the income

19:27

opportunities comes with major sacrifice or extreme volatility

19:30

or those types of things for

19:32

folks. While that is occasionally an

19:34

opportunity, I typically shy away from that from

19:36

a bias perspective. Once people

19:38

get past about a million dollars in net worth and

19:40

certainly about two and a half million dollars in net

19:43

worth, then my focus really goes

19:45

to the balance sheet. Not a

19:47

lot of folks come in on Finance Friday, earn more

19:49

than $250,000 a year household income and

19:52

a 10% yield on a $2.5 million portfolio is $250,000,

19:54

which is more than almost everyone's

20:00

annual income. And so it's really about

20:02

where you invest and are you investing

20:04

in a way that actually unlocks freedom?

20:08

We see a lot of people trapped in

20:10

the millionaire status where they've got $500,000 in their home equity and $700,000

20:12

in their 401k and Roth retirement accounts and

20:18

no passive cashflow. So they essentially have

20:20

no freedom. And so it's how do

20:22

we make major reallocations of where we're

20:24

investing or where we're putting our, where

20:26

we have our assets deployed in order

20:28

to actually generate spendable passive

20:31

cashflow or equivalently

20:33

reduce cash outlays. Right? So

20:36

a great example of this is someone has a

20:38

five, someone has a $1.7 million dollar

20:40

net worth and a $300,000 mortgage,

20:43

right? Their portfolio generates very little cashflow, but

20:46

if they paid off that mortgage, which is

20:48

not good investing advice that would

20:50

dramatically decrease the amount of cash and

20:52

income they need to realize in order

20:54

to enjoy a lot of freedom and

20:56

their retirement is generally paid off. So

20:58

those are the areas of those are

21:00

the biases I typically come into conversations

21:02

with. And where I'm usually surprised

21:04

when I'm surprised is when someone has something

21:07

an ace up their sleeves in the form

21:09

of a business opportunity. So like a side

21:11

hustle that should be their main business or

21:14

a skillset that would allow them

21:16

to buy a business or they're 22. And

21:19

they should go try their hand at something before life gets

21:21

in the way and really makes it impractical for them to

21:23

take on something with huge upside,

21:25

but so much uncertainty. So those

21:28

are the things I come into and where I'm looking

21:30

at a general sense and would definitely encourage you to

21:32

start there if you have a fairly typical

21:34

situation. But there's tons of

21:38

gotchas out there. And I think what Mindy does

21:40

really well is coming with less bias, which

21:43

is a great yin yang for this,

21:45

because usually what I'm surprised Mindy has

21:47

susted out with her excellent questioning for

21:49

members. Well, thank you, Scott. I

21:51

appreciate that. My focus

21:54

is usually on their expenses because

21:56

what I have seen

21:58

over and over and

22:01

over again is that expenses

22:03

are misrepresented. And

22:06

one of my, one of the easiest

22:08

ways that I can tell that your expenses

22:10

are misrepresented is when everything ends in zero.

22:13

I spend a hundred dollars on gas. No,

22:16

you don't. You never spend a hundred dollars on gas. You

22:18

spend $98 on gas or $104 on gas. And

22:21

when you're not using actual exact numbers, and

22:24

again, we said to guests in the beginning,

22:26

but once you have started to refine your

22:28

numbers, your numbers won't be round numbers. They

22:30

might every once in a while come up

22:33

to a round number, but you

22:35

need to know your expenses. And

22:37

that is the number one problem

22:40

when your income minus your expenses

22:42

doesn't equal your savings. It's because

22:44

your expenses is incorrect, not your

22:46

income, not your saving. Well, your

22:48

savings is incorrect because your expenses

22:50

are incorrect. So I almost don't

22:53

even care what your income or

22:55

debts are. When I'm looking at

22:57

a finance Friday, I really focus

22:59

on those expenses. And I have

23:02

also been surprised. There are several times I'm like, wow,

23:04

your expenses seem really out of whack. And Scott's like,

23:06

yeah, but they make $400,000 a year. Does

23:09

it matter? Well, you

23:11

know what? You're right. They're not spending $400,000 a year. So

23:14

every once in a while

23:17

that is an incorrect focus

23:19

of mine. But if your

23:21

guesstimated numbers are incorrect, I'm

23:24

gonna send you to your expenses. I

23:26

just wanna agree. That is the most common problem we

23:28

have with folks that have a net worth of less

23:30

than $500,000 is

23:34

not having that control over expenses or

23:36

not having enough time pass to allow

23:38

that. We often get folks on the

23:40

finance Friday show that are like, you

23:43

seem like you're doing almost all the right

23:46

things here, carry on. It's just that something

23:48

changed recently. Like they finally finished residency and

23:50

are now a doctor. And like, guess what?

23:52

Like sometimes the right financial plan

23:54

is in place and you just need time to

23:57

pass. And that can be frustrating.

23:59

We need, you know, it's a... there's a grind

24:01

component to it. But generally, if you want to

24:03

accelerate it, it starts with expenses. And it's not

24:05

just the people

24:07

under $500,000 a year. It

24:09

can also be the multi-millionaires in some

24:11

cases, because they forget that the expenses

24:13

are the number one variable in the

24:15

financial freedom equation. The less you spend,

24:17

the more cash you accumulate, and

24:20

the lower your asset base needs to

24:22

be. So if you have a $3,500

24:24

a month mortgage payment for principal and

24:26

interest, that's $40,000 a year. If

24:29

you wipe that out, you need a

24:31

million less dollars in your asset base per the 4%

24:34

rule to achieve financial independence, for example.

24:36

That's one example of this. Again, bad

24:38

math if it's 3%, but good math

24:40

if it makes you feel free. Good

24:42

in the context of freedom, bad in

24:44

the context of the ultimate long-term end

24:48

of life net worth number,

24:50

which is usually not what people are

24:52

optimizing for when they go through this

24:55

exercise. Exactly. All right, Scott, you just

24:57

alluded to portfolio imbalances or

24:59

the middle class trap of

25:01

having most of your wealth

25:03

in home equity and retirement

25:05

accounts. How would you advise

25:07

people in this situation who

25:09

have their Finance Friday numbers

25:11

all set out? How would

25:14

you advise them to craft

25:16

their portfolio moving forward so

25:19

that they don't have this reach

25:21

retirement and have nothing? The easy

25:23

answer to the question is reduce

25:26

your spending and continue maxing out.

25:28

I'm going to use an example of a household that makes

25:30

$140,000 a year, has a $400,000 or $500,000 primary residence, and

25:37

all of their wealth is in their home equity and

25:39

their retirement accounts, maybe worth $600,000. Look

25:42

like they're doing pretty well on paper, right? Many years

25:44

have passed here with this, probably live a nice life

25:46

here. Well, the issue is that you're not going to

25:49

be able to use your 401k or

25:51

your home equity to fuel your financial

25:53

independence date, which is what we're all

25:55

about on Bigger Pockets Money, right? This

25:57

is not, hey, here's how to plan for a

25:59

traditional retirement and be set at that

26:02

point, you're on track to do that. If you're listening

26:04

to Bigger Pockets Money, you want something different, most likely.

26:06

And in order to get something different, you have to

26:08

make a change. Because you only make $140,000

26:10

a year, and you have a

26:14

family and a house and all those kinds of things,

26:16

you probably only have about $20,000, $25,000

26:22

of proceeds after expenses left over to

26:24

invest in any given year. Imagine

26:27

the late 30s, early 40s, a

26:30

couple in family here. So

26:33

what do you do with that? Well, what

26:35

you are doing currently is paying off

26:38

your mortgage and placing it all into

26:40

the 401k. That's where the investment dollars

26:42

are going. And if you

26:44

want to achieve early financial freedom, something about

26:46

that has to change. One option is to

26:48

just reduce your expenses dramatically in all these

26:50

other areas so that after maxing out the

26:52

401k or Roth, there's

26:55

still tens of thousands of dollars a year left

26:57

over to invest in after-tax brokerages or real estate.

27:00

That can be very difficult and will require huge sacrifices.

27:02

You can wait

27:06

and just allow your fixed expenses to

27:08

stop the goalposts moving and your job

27:10

and income hopefully to increase in

27:12

order to use the additional spread

27:14

to begin doing that. But that creates

27:16

a decades-long journey to invest. So

27:19

this person is kind of stuck and it's

27:21

a really hard situation. If they actually want

27:23

to make changes, they have to make one

27:25

of two pretty hard choices in most cases.

27:27

One is sell their house and

27:30

downgrade their lifestyle to some degree, consider

27:32

house hacking or whatever, because that's really

27:34

where half of their liquidity is going.

27:37

And the other is to stop investing in the 401k,

27:40

which can also

27:42

be problematic because there's often a match and that's the

27:44

easy button and that feels safe and secure. And it

27:46

is a time-tested thing. You know you're going to get

27:49

to financial independence in 30 years if you do that.

27:51

But unless you're willing to do some sort of major

27:53

sacrifice on the income or expense front, you're kind of

27:55

stuck. And I think that's one of the things that

27:57

I'm super passionate here about Bigger Puckets money is helping

28:00

people. avoid. You avoid that

28:02

situation in the first place by never moving

28:04

on that trajectory and saying, no, from the

28:06

age of 25 or early in life, I'm

28:08

going to set myself on a different trajectory

28:11

so that my spread between my income and

28:13

expenses is large after any retirement

28:15

expenses. So I can invest that in after tax

28:18

stock accounts, or I can invest it in

28:20

real estate, or I have enough liquidity to

28:22

buy a small business, or try some of

28:24

these alternative investments that can actually produce spendable

28:27

cashflow early in life and allow

28:29

you to declare your independence day

28:31

in your 30s or 40s instead

28:34

of at 65. And so

28:36

that's the big middle class trap. We

28:39

don't have an easy answer for that

28:41

at bigger pockets, other than don't set

28:43

yourself on that trajectory from the beginning.

28:45

So you're not in that position. And

28:48

instead, your position looks like I

28:51

have way less equity in my house,

28:53

but way more in rental properties or

28:56

way more in after tax brokerage accounts.

28:58

And I have a huge business and

29:00

investment portfolio and relatively modest 401k balance.

29:02

That's where a lot of really good

29:05

options come into your life, in my

29:07

opinion. So how am I doing next?

29:09

Explain the middle class trap. I think

29:11

you're doing great. And I am going

29:14

to share that I myself am, I'm

29:16

not in the middle class trap. We

29:18

do have a fairly balanced portfolio in

29:20

that some of our stuff is in

29:23

retirement accounts and some of our stuff

29:25

is in our home equity.

29:27

I think it's like a third, a third,

29:29

and slightly less than a third. I think

29:31

we're more heavily weighted in after

29:34

tax stocks than 401k

29:37

balances. But last year I

29:39

turned 50 and I thought

29:41

to myself, I'm sorry, two years ago, I

29:43

turned 50. It's hard when you get old,

29:46

your mind wanders. I thought you've been doing

29:48

this for nine decades, Mindy. Who said that

29:50

on one of the shows? I have been

29:52

doing this for nine decades, but I'm only

29:54

50. The math doesn't work, but don't worry

29:57

about it. Trust me. But

29:59

when I do turned 50, I was so excited because

30:01

I could put an extra $6,000 in my 401k for

30:03

the over 50

30:07

catch up. And then I finally realized,

30:09

you know, all this money that I keep putting

30:11

into my 401k is

30:13

great. It's reducing my taxable income,

30:15

but I'm going to be subjected

30:17

to RMDs when I turn 72

30:19

or 70 and a

30:21

half or whatever the age is for RMDs. I'm not there

30:24

yet, so I don't know the exact age.

30:27

But that's going to be a lot

30:30

when I start, you know, if

30:32

I continue to contribute

30:35

to my 401k and

30:37

oh, I assume that

30:40

everybody knows everything I'm talking about. RMD means required

30:42

minimum distributions. And when you turn, I want

30:44

to say 72, 72 and a half, 73, something

30:46

like that. When

30:50

you turn that age, the IRS

30:52

requires you to start taking distributions

30:54

from your 401k, even

30:56

if you don't need the money. So you

30:58

are paying taxes on these distributions if

31:00

they are traditional 401ks. And

31:03

I don't want to take out money according to

31:06

the government. I want to take out money according

31:08

to me. So we have shifted, even

31:10

though I get an extra $6,000

31:12

to max out my 401k with

31:14

every year, we have shifted to

31:16

more after tax brokerage account investing.

31:19

So if you find yourself in the

31:21

middle class track after you've looked through

31:23

all of your numbers and you discover

31:25

that your 401k balance is significantly larger

31:28

than your after tax account,

31:31

perhaps just shift a little bit.

31:33

Again, you have to take into consideration

31:35

your taxable income and what you're doing

31:37

with all of your investments. It would

31:40

be a great idea to talk to

31:42

a tax strategist just to get a

31:44

clear picture of what

31:47

could happen to your finances

31:49

in the future. But definitely

31:51

start looking into after tax

31:53

brokerage account investing. Absolutely. And one

31:55

of the things you said at the beginning of that, I think

31:57

is critical. You said my net worth is

31:59

roughly a third to third to third in these buckets. And

32:02

that is a critical exercise to do

32:05

in the context of this plan. So take that sheet

32:07

of paper, the DIY Finance Friday

32:09

sheet that we've talked about with your income,

32:12

expenses, assets, and

32:14

liabilities, and then on

32:17

the back of it, flip over one of those pages, and

32:19

on a blank sheet of paper at the back of it,

32:21

think, okay, in five years, 10 years,

32:24

pick your time horizon, I should have

32:26

a net worth of X. Let's

32:28

call it a million bucks. Where do you

32:30

want that million bucks? And

32:32

not many people who are starting from scratch

32:34

will tell me, oh, I want that million

32:36

bucks to be $500,000 in my $750,000 primary residence and

32:40

$500,000 in my 401k, $10,000 in my savings account, and

32:45

$7,000 in my credit card balance. No one

32:47

says that, right? They all say something different. And

32:50

that's the problem that we find with middle-class traps. So

32:52

many people are in that position, literally

32:54

a millionaire, but feel completely trapped. And you need

32:56

to look at that and say, okay,

32:59

that's what I'm on track for. What

33:02

do I need to change to make that not

33:04

become a reality? And that's all we do on

33:07

Finance Friday, essentially. That's all I do on Finance Friday,

33:09

is say, okay, I understand,

33:11

I think I know where you want that to be,

33:13

but let me take a couple of guesses. What do

33:15

you like better here? Okay, now

33:17

I've got that. Okay, they want a half real

33:19

estate, half stock portfolio with enough cash to make

33:22

them feel comfy. Okay, let's back into that. Now

33:24

we can say, okay, that $40,000 a year are

33:27

gonna accumulate for the next 10 years, 400 grand.

33:30

I'm gonna deploy 200,000 of that into

33:33

rental properties, probably two rental properties, maybe

33:36

one, depending on where you live, maybe four, if

33:38

you're in a fortunate part of the country where you

33:40

can actually afford real estate and

33:42

rental properties with $50,000 down. But

33:45

that's how I back

33:47

into the overall thought process. And it's as

33:49

simple and as hard as

33:52

guessing at what you're gonna want 10 years down

33:54

the road from your portfolio and then making the

33:56

decisions there. And then one part takes off like

33:58

a real estate explodes. you divert more to

34:01

stocks. And if stock market

34:03

explodes, you put more into real estate.

34:05

Right? And over the time you find

34:07

tune backing into that pie chart you

34:09

drew for your

34:11

net worth statement and at the end state. LESLIE KENDRICK Perfect,

34:13

Scott. Thank you for clarifying. But I was

34:15

sort of thinking in my head, but not

34:17

really. You're very good at that. And

34:20

I did look it up while you were sharing that. Your

34:23

required minimum distributions are

34:26

starting at age 72, unless you

34:28

turn age 72 after December 31st,

34:30

2022, which will probably apply to

34:32

most people listening, in which case

34:35

it's age 73. So you are

34:37

required to take required minimum distributions

34:39

starting the year that you turn

34:41

age 73. Okay, so Scott, we

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have to pause for another quick

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All right. Welcome back to Bigger

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Pockets Money. Mindy, let's talk about

39:33

the grind that we find many

39:36

Finance Friday folks in the midst of. Yes.

39:38

So the grind, Scott, is the

39:41

middle. The point of time between

39:43

discovering financial independence and actually reaching

39:45

it. Scott, what is your advice

39:47

for somebody to get through that

39:49

grind? Yeah. So the grind is

39:51

like, like, let's say we talk

39:54

to somebody who has a net

39:56

worth today of $250,000 is. couple

40:00

of years into their career and wants to

40:02

retire in 10 years with a

40:04

net worth of $1.5 to $2 million. They're

40:07

going to need to accumulate $75,000 a year, so it's going

40:09

to be a relatively high income earner. And this is not

40:11

atypical of the guests that we would have on a finance

40:13

Friday. And they need

40:15

to deploy it pretty reasonably, and hopefully the

40:17

investment portfolio doubles in that time period. And

40:20

that gets them pretty close back soon. Well,

40:22

during that time period, if they're watching their

40:25

budget, working hard, enjoying life,

40:28

they're just slowly getting rich. Mr. Money Mustache

40:30

wrote a great article about this. He's

40:32

like this like, I remember reached out to

40:34

him 10 years ago, and that always just

40:37

stuck with me. And they were complaining

40:39

about, hey, I'm doing all the right things. I'm spending very

40:41

little. I earn a good amount. I stick my money in

40:43

index funds every month. And it just

40:45

goes by and it ticks up. What am I doing wrong?

40:48

And Mr. Money Mustache is like, that feeling

40:50

you have there, the dull, boring, obvious

40:52

feeling, that's the feeling of getting rich.

40:55

That's the grind. That's what

40:57

it is. Time passes and you add to

40:59

the pile and you move towards your freedom

41:01

number in there. And so what

41:04

we have with a lot of folks is,

41:06

hey, you have one or two choices while

41:08

you're in the grind. You can continue to

41:10

upheave your life and make

41:12

huge sacrifices, burn the midnight oil to start

41:14

a business or side hustle or try to

41:17

accelerate that journey. You can

41:19

sacrifice and cut back on your lifestyle,

41:22

back as far beyond

41:24

the point of reasonableness. Or you

41:26

can sit there and let time pass. And for

41:28

many people, that's the most reasonable

41:30

option. I just met with a couple recently

41:32

in the Denver area. They're

41:34

doing great. Multiple rental portfolio,

41:36

probably a little bit under between

41:39

one and a half, $2 million net

41:41

worth, that kind of situation. A couple

41:43

of properties in various stages of debt

41:46

to equity, they're leveraged reasonably. They make good money and

41:48

they're like, what do we do now? It's

41:50

like, well, you can either start

41:52

paying off your 3% interest rate mortgages and

41:54

generate more cash flow from your rental properties.

41:57

You can sell your nice home.

41:59

in your nice neighborhood and house hack and move

42:01

your kids out of school. Or you can say,

42:03

great, we're doing great. We don't have to worry

42:05

about accumulation that much anymore. Let

42:07

this portfolio do leverage and not bite

42:10

into the investment portfolio. We're coast-fi. So

42:12

there's all these options. That's probably the

42:14

right option for that particular couple there.

42:17

And that's totally okay in the context

42:19

of the grind. But just know sometimes,

42:22

some of you, many of you listening to

42:24

the show perhaps, may be optimized to the

42:26

point of reason in your portfolio.

42:29

And it's just let time pass and start

42:31

enjoying life. You did it. I

42:34

don't know about how you feel about it,

42:36

Mindy. I think that's great advice. What I

42:38

advise people to do is to start planning

42:41

what happens next. Don't be

42:43

so caught up in the, I

42:46

have to get to fi, that

42:48

you don't make any plans for

42:50

afterwards. And unfortunately, this is actually

42:52

really common. People are so, and

42:54

like Carl and I found

42:57

ourselves in this problem. We

43:00

retired to nothing.

43:02

We were gonna, like we have two

43:04

kids, trust me, the days get filled

43:06

up, but we didn't have any real

43:09

plans. We were just so focused on

43:11

the number itself. So I want you

43:13

during the grind to start thinking about

43:15

what comes next. Create

43:17

a bucket list. Put down everything,

43:19

the wild things. If you want to climb Mount

43:22

Everest, put it on the list. I don't want

43:24

to climb Mount Everest. I'm not going to go

43:26

with you, but if that's something that you want

43:28

to do, put it on the list. Put little

43:30

things on the list, like try out this new

43:32

restaurant in town or try out these 75 restaurants

43:34

in town. Whatever

43:37

you want to do, put it on your

43:40

list and start crossing those off now. One

43:42

of the things that Carl and I really got,

43:45

one of the, one of the best

43:47

things that we got out of our

43:49

conversation with Ramit was that we haven't

43:51

been focusing on our current lives and

43:53

how to make it better.

43:56

So that's what we're doing now. We're using

43:58

the money that we have to to make

44:00

our life better in the now. You

44:03

can do that while you're grinding through. I

44:05

mean, does it matter if you reach financial

44:07

independence in 2030 or 2031, if you have

44:09

an amazing experience all

44:13

the way to 2031, or you have a super crap experience

44:16

all the way to 2030, pardon my French, focus

44:19

on how you can make your life

44:22

better while you're in the grind and

44:24

focus on what you're gonna do once

44:26

you quit. Completely agree with that.

44:28

I talked to another person recently who

44:31

was, the

44:34

household makes a really high income, like this one was north

44:36

of several, like several hundred

44:38

thousand dollars a year. And guy

44:41

drives a 10 year old car. He's

44:43

asking me if he should buy a $30,000 Tesla Model Y

44:48

to replace his, I think it was 10 or 20 year old car.

44:51

I think he had one 10 year and one 20 year old car. And

44:54

I was like, dude, buy the car

44:56

in that situation, right? And

44:58

like, if the income was $80,000 a

45:00

year, I'd say no. But

45:03

there, or no, that's a

45:06

real trade off. But in this case, like

45:08

delaying financial freedom by one month to

45:11

spend the next 10 years driving a

45:13

better car is probably a

45:15

really good trade off. And so there's like

45:17

lots of those things of like, there's too

45:19

much optimization that can happen in some cases,

45:22

I think. And Mindy

45:24

probably, you may feel

45:26

that you may have made too many optimizations in

45:29

prior years. I certainly probably did in a couple of

45:31

cases. Yes, I think that we could

45:33

have loosened our purse strings. We could have

45:35

done, I mean, hindsight's 2020, Scott. Of

45:38

course there's a billion things we could have

45:40

done, different or better. And you make the

45:42

best decision with the information that you have

45:45

on hand at the time. And at the

45:47

time, the entire personal finance community was like,

45:49

get to fi as fast as you can

45:52

and be super frugal. And you know, it's

45:54

all about getting there. And now I think

45:56

there's a lot more focus on, it's

45:59

all about the journey. And really, if

46:01

you're going to be living for the next 10 years

46:03

anyway, wouldn't you rather enjoy those 10 years? Absolutely.

46:07

Mindy, I want to

46:09

talk about another framework that I encounter

46:11

a lot in Finance Fridays here, which

46:13

is this concept of process or

46:15

event in the world

46:18

of personal finance. And occasionally,

46:20

we'll come across couples, for

46:22

example, who have radically different

46:24

views on this, right? So

46:27

for example, we had maybe 250 episodes

46:29

ago or something like that. We had

46:31

a couple where the

46:34

man wanted to build a business.

46:36

He was always having a new entrepreneurial idea that

46:38

was going to be the next breakthrough component here.

46:41

And so they weren't saving. And

46:43

his partner wanted to contribute to

46:45

the 401k in there. And

46:49

this can be a major conflict, right? Because like, why

46:51

are we putting all the money into the business when

46:53

that's going to actually blow things up? And

46:56

well, we're not actually seeming to get ahead because

46:58

the business never takes off and we can't go

47:00

here. And I just want to chime

47:02

in that I think they're both right, like

47:04

those ideas. There needs to

47:07

be a formula for moving towards wealth. Like

47:09

your spreadsheet needs to say, I'm going to

47:11

accumulate this much every month, and that is

47:13

going to be moving me towards financial independence

47:15

at a very reasonable clip. And

47:19

if you're serious about getting there

47:21

fast or have that entrepreneurial itch,

47:23

you should be taking shots on

47:25

a regular basis and setting aside

47:27

funds for that side hustle or

47:29

small business. I think it's

47:31

not one or the other

47:33

for most people after the very first

47:36

bits of the Financial Foundation are set

47:38

up, like an emergency reserve and

47:40

no bad debt, for example. But I

47:42

actually think that that's a really good thing

47:45

to keep in mind is if you're really

47:47

craving financial freedom early in life, you probably

47:49

should be doing both. You should be spending

47:53

your expenses should be highly controlled. You

47:56

should have a stable source of income that

47:58

generates a good spread. And there

48:00

should be something in your repertoire that

48:02

has the potential to really deliver a

48:05

huge outcome for you. Again, like a

48:07

small business, like real

48:09

estate projects, like a

48:11

side hustle combo

48:14

with a small business that can take

48:16

off. I really think that's the X

48:18

factor that I see consistently across folks

48:20

who really get there fast. But

48:23

again, I think the trap that people can fall into

48:25

is if they think it's all event, only

48:27

a few, usually and often

48:29

in their 20s, some

48:31

things really seem to pull off a

48:34

business, a huge business outcome without

48:37

having that underlying formula and

48:39

strong financial foundation. What

48:41

do you think, Mindy? Do you agree with that

48:43

overall observation? I absolutely agree

48:45

with that. And everything you

48:47

were saying makes me think

48:49

of your investment philosophy worksheet.

48:51

It is a one pager

48:53

and it is a

48:56

document that we have, we will

48:58

include it in our show notes.

49:00

You can also find it at

49:02

biggerpockets.com/resources. It is called the investment

49:04

philosophy worksheet. It is Scott's design

49:06

and it just covers your

49:08

goals, your cash

49:10

management, your core tenants,

49:13

your investment asset classes.

49:15

And this is something you've got a target

49:17

date, bonus considerations. This is something that you

49:19

work on. If you

49:21

are not partnered up, you work on

49:24

it by yourself. If you are partnered

49:26

up, you work on this with your

49:28

partner so that you each have an

49:30

investment philosophy that you can agree on.

49:33

And I really

49:36

love this document. It's not something that

49:38

it's a one and done. Scott comes

49:40

back and revisits. Scott, is this an

49:42

every year you revisit or is it

49:44

an every quarter? My investment philosophy I revisit

49:46

about once a year. Once a year.

49:49

So once a year you just check in. Maybe

49:51

you and your partner have decided, like Scott said,

49:53

one of you wants to do a business. One

49:55

of you wants to do 401k. You

49:58

come to an agreement. Okay. I,

50:00

we have 20,000, I don't like

50:02

the term extra dollars, but we have 20,000 extra dollars

50:05

to put towards this. And I would feel really

50:07

comfortable with 10,000 going to the 401k and 10,000

50:11

going to the business. Great. Then let's

50:13

do that. And then next year that

50:15

business has all of a sudden gone

50:18

crazy. It's exploded and you're making so

50:20

much money. Maybe you can afford to

50:22

put more into your 401k while also

50:25

continuing to

50:27

fund the business, or maybe the business

50:29

fell apart. It was not a

50:32

good concept. It didn't pan out. It

50:34

was the wrong timeframe, whatever. Then you can

50:36

revisit and shift more into the 401k, but

50:38

having it written down, having something that

50:40

you both agree on, you know,

50:42

Scott, we talked about having the money date. I

50:45

absolutely think that's a great time to fill

50:47

out your investment. Philosophy

50:49

workshops. So that's another tool that

50:51

you can use just to have

50:53

conversations with your partner about your

50:55

money and where you want it

50:57

to go. Scott, something

51:00

that I have in my mind, but I

51:02

want to hear your answer first. What is

51:04

the number one consideration you're looking for when

51:06

you see the finance Friday numbers? I

51:09

believe that you're on bigger packets money or coming

51:11

to us for finance Friday to

51:13

pursue early financial freedom. So,

51:15

you know, like we're not like, this is not how

51:18

to like retire at 65, starting at

51:20

30 with a million dollars by contributing $200 a

51:22

month, year 401k. You want that? You could do

51:24

that. This is how to get there early. And

51:27

so one of the biggest considerations that

51:29

I have is this concept of spendable

51:32

liquidity. How are you actually going

51:34

to harvest your portfolio in

51:36

the future end state in a

51:39

way that you're comfortable with retiring on early?

51:41

And what one of the biggest thing I'm

51:43

looking for is, is that are we moving

51:45

towards a picture that looks like,

51:48

Hey, there's a hundred thousand dollars in

51:50

actual passive income that are coming into

51:52

your life typically. Or are we

51:55

looking at a portfolio like this one that

51:57

came into me a while back? This person

51:59

was. They had

52:02

a million dollars in stocks, they had a million dollars in real

52:04

estate equity, they had a $750,000 life insurance policy, 250K in cash,

52:06

and 500K in home equity in their million

52:11

dollar home with a mortgage payment

52:14

of $3,300 a month. And

52:17

this person reached out to me and said, how do I generate

52:19

60K in passive cash flow? And

52:22

it's almost like it's not comical

52:24

because this person is really struggling

52:26

with this question. If

52:28

I handed you a pile of cash with $3.5 million, you can stick

52:30

$1.5 million into your savings account

52:33

at a bad bank that

52:35

only offered 4% APY and generate $60,000 a year

52:38

in passive cash flow. But

52:40

that's the thing that I'm always on

52:42

the lookout for is, is your plan

52:45

going to result in that person's portfolio

52:47

where you're stuck making $250,000

52:49

a year and feel trapped? That's

52:54

what I want to avoid for people. And

52:57

I'm always looking for that. And the

52:59

cost is lack of

53:02

optimization. That person was optimized.

53:04

Stocks are optimized, but they produce no income.

53:07

And most people don't

53:09

want to sell equity in their stock

53:11

portfolio at 40 to live off of.

53:15

They want to spend income. Their real

53:17

estate portfolio is levered to the point where it

53:19

doesn't produce any cash flow. That

53:22

optimizes long-term wealth, but

53:24

doesn't provide any freedom. The mortgage is not

53:26

helping them and the life insurance policy don't get me started.

53:29

But that's what I'm looking for when I'm looking for

53:31

these portfolios. That's the number one thing I'm looking for

53:33

is, is that your portfolio or is that where you're

53:35

headed? And can I help you avoid that? Because

53:38

if you're not building any wealth, we'll fix that first.

53:40

But once you are building wealth, is it actually

53:43

going to be congruent with this

53:45

goal of freedom and bettering your life early? Which I

53:47

think is what we're all about here. How am I

53:49

doing, Mindy? I just said the

53:51

G word, which is my most important

53:54

consideration, is that your

53:56

goals, because your goals

53:58

are going to drive. the,

54:01

I can't say advice, the

54:03

suggestions that I would make

54:06

based on your situation and your goals

54:09

are part of your situation. I have

54:11

this much income, this much expenses, this

54:13

much debt, this much assets, and this

54:15

is my goal. Well, if your goal

54:18

is different than somebody else's goal with

54:20

the exact same scenario, the

54:22

advice is going to be different. I'm sorry,

54:24

the suggestion. It's always a suggestion. It's just

54:26

a suggestion. This is for entertainment purposes only,

54:28

but your goal is

54:31

what we're working towards. So driving you

54:33

down, like think of a destination as

54:35

you're driving. Google maps is going to

54:37

take you down this road if you're

54:39

going to that spot. But if you're

54:41

going over here, Google maps is going

54:43

to take you this way. So I

54:45

need to know your end destination

54:48

so I can give you the right

54:50

map to get there. So I think

54:52

it is very important to really

54:55

think about what your goal is

54:58

and make sure that it's attainable. If you're making $25,000

55:01

a year, you have $400,000 in student

55:04

loans, you're not going to retire next year. That's

55:06

just a fact. So make sure that

55:09

your goal is attainable. And if it's not attainable

55:11

with your certain, with your specific current situation, then

55:13

how can you change your current situation in order

55:15

to get where you want to be? I love

55:17

it. And Mindy, this is why you and I

55:19

make such a good team is because when

55:22

someone doesn't have a clearly defined goal, I give it

55:24

to them, oh, you're going to become financially free with

55:26

this portfolio that could spend this at the earliest possible

55:28

time. And I'm going to back into that and engineer

55:30

everything backwards from there. And that

55:32

is often what people want. That's what that's like

55:35

what we're what we're doing here, but not always.

55:37

And, you know, we get there. And I think

55:39

you're much better than me about actually sussing out

55:41

what what somebody wants at the highest level, because

55:44

then you have a totally different engineering approach to

55:46

getting there. If that if what

55:48

I just said is not your goal. So

55:51

yeah, absolutely. Scott, I used to feel

55:53

really bad when we had different answers

55:55

to a question, because I'm like,

55:57

Oh, well, clearly, Scott's right. And I'm wrong. No,

56:01

we're coming at it from different places.

56:03

Scott is in his early 30s. I'm

56:06

in my early 50s. We

56:08

are, he's the CEO of the company.

56:10

I'm a lowly employee. And it's not

56:12

like, I don't mean it like that,

56:14

but he's got a different set of

56:16

life skills and a different set of thought

56:20

processes than I do. I have two

56:22

kids who are in their teens. Scott,

56:25

they're both gonna be in high school this year.

56:27

Can you imagine? Stephanie was

56:29

starting kindergarten when I started at Bigger

56:31

Pockets. And now she's in high school.

56:33

This is crazy. But yeah, and Scott's

56:35

daughter is one and a half.

56:37

Yep, almost, she'll be two in October.

56:39

She'll be two in October. So there's,

56:41

we've just, we come at it from

56:43

different places, but I think that's why

56:45

it works so well because we've got

56:47

different ideas. And you might agree with

56:50

me sometimes and you might agree with

56:52

Scott sometimes. And that's great. We're just

56:54

giving you something to think about. So

56:56

when you are thinking about your own

56:58

Finance Friday, your DIY Finance Friday, try

57:00

to think of what I would say.

57:02

Try to think of what Scott would

57:04

say. Feel free to post in our

57:06

Facebook group, Bigger Pockets. Nope,

57:08

Bigger Pockets Money Facebook group, which

57:10

is facebook.com/groups slash BP money, or

57:13

post in the forums on Bigger

57:15

Pockets. Email Scott and I, Scott

57:17

at biggerpockets.com, Mindy at biggerpockets.com, and

57:19

ask, hey, what would you do

57:21

in this situation? Or how about

57:24

this, join us for a

57:26

Finance Friday. Now we have had Finance

57:28

Friday guests who use their real name,

57:30

use their video, share all their numbers.

57:32

They're very transparent, but we have

57:34

also had Finance Friday guests who use a fake

57:37

name. I'm not gonna tell you who it is

57:39

cause it doesn't matter. We've had

57:41

people decide they don't wanna use their video.

57:43

We just want your story, your scenario, and

57:45

we wanna share your numbers. So if you

57:47

would like to get our advice, we would

57:49

love to have you. So

57:51

if you would like to

57:54

join us on a Finance

57:56

Friday episode, apply at biggerpockets.com/finance

57:58

review. There is a place

58:01

to let us know your level of anonymity

58:03

that you would like to have, if you

58:05

would like to have some anonymous-ness. Anonymity

58:08

I guess is the correct English word, but you could also make it

58:10

up as long as you can use it in a sentence, you can make

58:12

up a word. I just did

58:14

anonymous-ness. Let us know what you want. All right,

58:16

Scott, this was super fun. I love talking about

58:18

money. I don't know if you know that. Again,

58:21

all of the resources that we've

58:24

shared can be found at biggerpockets.com/resources

58:27

more linked to in the show notes,

58:29

including the money date episode that I

58:31

referred to just a moment ago, and

58:34

the episode where we walked you through

58:36

Scott's investment philosophy worksheet. That

58:39

was a lot, Scott. Yeah, that was, I

58:42

love talking about this stuff and hopefully you found some

58:44

value if you're listening to

58:46

the way the frameworks that we

58:48

use to approach the problems. They're

58:51

not always going to be correct. Usually

58:54

not always. Usually there's not

58:56

some tactical maneuver or advanced

58:58

technique like a mega backdoor

59:01

Roth or a converging

59:03

ladder or all this other stuff that's

59:05

going on. Usually it's very

59:07

simple questions about how much is coming in, how

59:09

much is coming out, where can we turn

59:12

the levers and drive things forward, and

59:14

what is the asset base going to

59:16

look like at the time of the

59:18

end goal? Those high-level decisions can

59:20

be made on a piece of paper. They

59:23

should be informed by the spreadsheet, but

59:26

the strategy is usually

59:28

very simple or the simple ones are

59:30

the most effective. The tactics only multiply

59:32

it. I love talking about this

59:34

stuff. We'll get into the tactics occasionally, but it's

59:37

just fun. It's fun to think about

59:39

it and it's fun to optimize for freedom

59:42

and optionality in people's lives. All

59:45

right, Scott. I think that's a great place to end. Should we get

59:47

out of here? Let's do it. That

59:49

wraps up this episode of the Bigger

59:51

Pockets Money Podcast. He of course is

59:53

the Scott Trench and I am Mindy

59:56

Jensen saying happy financial independence day. Bigger

59:58

Pockets Money was created by Mindy. Denson and Scott

1:00:01

Trench. This episode was produced by

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Eric Knudsen. Copywriting by Calico Content.

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Post-production by Exodus Media and Chris

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Machen. Thanks for listening. Whether

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you're a solo entrepreneur, landlord, house flipper, Airbnb

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host, or something in between, you've got to

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know about critical tax laws before you can

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start raking in the cash. Mess them up

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and you could be hit with some massive

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penalties come tax time. But don't

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worry, there's a way to save yourself thousands, maybe

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even tens of thousands, by partnering

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with a real estate, investor-friendly tax pro.

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Tax and Financial Services Finder from BiggerPockets

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can help you find that pro in

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no time. This awesome tool

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accountants, and financial planners who know the

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ropes around real estate investing. Plus,

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they're backed by ratings and reviews

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from BiggerPockets members who have worked

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getting the best of the best.

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Don't let tax laws trip you up.

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Head over to biggerpockets.com/TaxPro today and

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find the perfect financial partner to

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create a tax-efficient portfolio and make sure

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your investments are working for you,

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not the other way around. That's

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biggerpockets.com/TaxPro.