Mindy: Hello our dear listeners and welcome to the Bigger Pockets Money Podcast. My name is Mindy Jensen and with me as always is my money savvy co-host Scott Trench.
Scott: Thanks Mindy, great to be here with my you can always bank on her. Co-host Mindy Jensen.
Mindy: Oh, I like that.
Scott: All right. Hi Mindy. We’re here to make financial independence less scary, less just for somebody else to introduce you to every money story, including Dan’s today because we truly believe financial freedom is attainable for everyone, no matter when or where you’re starting.
Mindy: On today’s episode, we’re talking to Dan about how he can reach his financial independence goal in 10 years by working strategically to decrease his spending and increase his income. This is a great real life case study of a family that has a solid income and some assets, but needs a bit of a reset on the basic fundamentals and needs to do the hard work of committing to the long-term resource allocation decisions.
Scott: Yeah, I think it’s likely that a lot of people are struggling with the same high level questions that Dan and his wife are struggling with. And specifically, uh we’re in this episode, we’re going to talk about and reveal the struggle and the tough choices you need to make to free up cash flow and fortify your day-to-day financial position, and the equally hard and even more important, arguably, long-term decisions about how to direct the large, often automated flows of cash to the investments that are truly congruent with your long-term goals, right? Is that should you be always on with that 401k or should you be directing those flows to real estate?
Mindy: Dan, welcome to the Bigger Pockets Money podcast. I am so excited to run over your numbers and dive deep into your financial situation. So, let’s jump right in. We are going to look at your income. I see a grand total household of $8,700. That’s $4,500 for you and $4,200 for your wife. Dan, you also have not one but two house hacks. Can you explain the cash flow situation in those house hacks?
Guest: Yep. So the first one is uh completely rented out. That was the my first house hack and uh it brings in about $3,900 a month in rent. Uh and after all said and done, the true cash flow is around 400 a month. Uh and then the second house hack, which is also a duplex and uh about a street over, um is about $4,900 a month in mortgage and I’m getting 2150 uh for rent of the first unit and living in the second unit.
Mindy: Okay, so they’re paying a portion of your mortgage. That’s great. Monthly expenses, I see a total of $6,500 including 2,800 in mortgage, 600 in groceries and eating out, uh 200 in electricity, 100 in internet, cable and subscriptions, $1,500 in fun money, which isn’t really broken down so much. Um, it just says fun. So that’s a category that I would encourage you to really dive into just to see if there’s anything to cut out. But again, $1500 all encompassing doesn’t seem like such a huge amount. Uh $45 for a gym membership, $140 for 529 plan contributions, $500 for debt payback, $500 for savings contributions and the big whopper child care at $2,300 a month. So that all equals up to just about what’s coming in. Not much left over for savings with the exception of the $500 that you are contributing to your savings as part of your expenses. Debts, I have a HELOC on your first property of $33,000, hospital debt of $7,000. Your first property you have a mortgage of $444,000 approximately. And your second property you have a mortgage balance of around $700,000. Your net worth, you’ve got some equity in these houses, $216 in the first property, $100,000 in the second property. Your investments total $215,000 between you and your wife. And that’s split up between the 529 plan, a Roth 401k, a Roth IRA. Ooh, you are singing Scott song. Acorns and coinbase savings and house reserves. So, a total net worth of about $530,000 at age 30. Here’s a spoiler, you’re doing way better than I was when I was 30. So, you’re in a good situation, although there’s not a lot of opportunity for savings right now. Dan, what are you looking to get out of this phone call?
Guest: Yeah, so I’ve always had this idea in my head that I wanted to reach um fire by 40. So, I just turned 30 in September. Um, I am kind of at that weird like early mid-life crisis, I guess, um where I have 10 years where I feel, you know, I want to make the the next 10 years intentional. Um, and I feel that, you know, yes, I’ve done well in my 20s and I’ve figured some stuff out, but I feel like that next step is is just like very confusing and I’m lost in that sense and uh so I, I’m trying to figure out a a good slow-fi, a slow-fi plan for um, you know, a 10-year period, I guess. And yes, my expenses are going up, so that’s why I’m like not 100% sure what to do.
Mindy: Have you determined what your FI number is? You have a 10-year goal, but do you know what that number is going to be?
Guest: Basically that 10-year goal to me isn’t necessarily like, I guess it isn’t true fire in the sense of where like I’m legit stopping. I’m not doing anything else. I want to reach 10,000 a month in passive income, somewhat passive income, $10,000 a month. And then, um, really just have the ability to, you know, I think I’m, I’m just a worker be. I’m always going to do something that will realistically make money, but is that something that I feel is, you know, has to be $200,000 a year, or is that something that’s, you know, just a $30,000, $40,000 a year extra, you know, of just more that little play money, I guess. So, um, that’s really my goal by 40, $10,000 a month.
Scott: Okay, and you know, just observing, you know, the overall position, it looks like we went from being able to accumulate a few thousand dollars pretty comfortably a month in cash to being break even. Is that is that, you know, feeling stressful a little bit right now or is that another issue we should tackle?
Guest: Yes, absolutely. Um, so my last year, 2023, um, you know, my wife and I were definitely on, um, a a solid pace where we were putting money into our Ally, um, HSA and and uh, tackling some of those, you know, savings costs that we knew were going to come, like our our yearly car insurance or like house stuff or whatever. Uh, and that felt very comfortable and then we were also throwing a lot at the debt. Now we’re at the point where we just had our first daughter, which is very exciting, but um, she decided to come very, very early. So she’s going to be in the NICU the next couple months. Um, and we will 100%, we we pretty much already hit that out of pocket uh in the first month. So we’re expecting, you know, those expenses on top of my wife and I lived in the hospital all December, so that was likely going to hit last year’s out of pocket. So, um, my debt is definitely going to increase uh, and I’m, I’m not a person who takes that lightly. So, yeah, definitely feeling a little bit more constrained now.
Scott: Remind me how much cash you have on hand right now?
Guest: Not ton, honestly. Um, I don’t like to even really think about the house reserves as me having an on hand because it’s for the house, but you know, I have close to $10,000 for that, um, between the two houses. Um, and then personally in savings in my high yield savings account, have about 7,000. Um, and then in just kind of like I guess the random Bank of America account that we just never got rid of, uh there’s probably like two or 3,000. So nothing, nothing crazy. um nothing substantial we’ve been pretty much playing a lot of offense the last couple years I would say and and putting it back into the house and and putting it back into you know paying off the HELOC and stuff um so now I feel like I I need to play a little bit more strategic defense uh but still grow.
Scott: I think that you’re thinking about this in the in the overall right way. like that’s what jumps out to me here is right now, the last few months and the next few months are about how do we preserve the cash position and you know, get baby home from the hospital and set up into a stable, you know, um, the the new the new normal stable environment that we’re going to be um, transitioning to in the next few months. What do you expect your out-of-pocket costs for healthcare to be in the next few months?
Guest: Um, so for the family plan we’re on, uh, it’s it is 6200. So I definitely expect that 6200 to come up. Uh, we’re still trying to figure out what last year technically was because my wife and I both were on separate plans. Um, and we both had, um, HSAs and, um, definitely meet the deductible with all the baby stuff, but then the out of pocket costs, we’re still trying to figure that out because this all happened in December. Um, so there’s about three weeks where like her hospital stay was like $115,000 and obviously we’re not paying all that, but um, there is a chance that we could have to pay a large sum from that for the out of pocket costs. So, um, I would say at least right now, you know, the 6200.
Scott: Okay. So we’ve got 6200, maybe as much as another 10,000. I’m making that number up, but just just to be very conservative, there could be another large expense on top of that that will come out of cash. I assume you do not have childcare yet until baby comes home from hospital.
Guest: Yes, correct. So realistically, childcare, um, so the the budget I have essentially that you guys went through is what we’ll be moving forward once baby, um, Savannah comes home from the hospital and then my wife and I will both be on maternity leave for about two months. So realistically, if all goes well, uh, she’ll come home April. Um, so wouldn’t have to start that till probably two months after, give or take.
Scott: All right, so so look, we’ve got $10,000 in cash. We’ve got uh, we’re going to be cash flow negative for the next several months uh, while we figure out the hospital bills. and then we’re gonna be cash flow neutral following that and that’s the that’s the challenge I think that I think we have two challenges here to to work through. One is how do we manage cash flow for 2024 so that you’re not dipping into investments or doing that as minimally as possible and feeling comfortable like you’re on a pace to accumulate. and the second is how do we then transition that to a 10 year plan that’s going to put you well beyond millionaire status so that you’re five by 40. Is that is that the game in a nutshell?
Guest: Yep, pretty much.
Scott: Okay. So so here are some observations I have about your cash situation. We have 10, you said $10,000 in total cash for house. $10,000 in reserve yeah, I guess I got $15,000 in total cash right now. The second piece is cash flow. Walk me through your rationale for why you’re contributing, why you’re maxing out your Roth um, right now with 15 and 18%.
Guest: Yep. So it’s, I’m actually not maxing it out because I make, so I make 88,000 a year in salary and then my bonus can definitely fluctuate, but it’s usually 10 to 20-ish percent. So I make a little over 100. Um, so I’m doing 15% of mine, which isn’t the 21 or 22, I think right now maxing out and my wife’s doing uh, about 18. Um, we’ve just been doing that for years now, which is a definitely something I would love your opinion on today too is, you know, do I go that route and continue to be pretty diversified with like doing a a decent amount in index funds every paycheck and then also trying to build somewhat of a real estate portfolio, or is that actually hurting me the fact that I’m kind of doing half and half? Um, but yeah, it’s just been something we’ve always, we’ve always done.
Scott: Look, I I think it’s a great move, right? I I I love contributing to the Roth 401k. This is a this is not a 401k. This is a Roth 401k, correct?
Guest: Correct.
Scott: So I love the move up until now. and because of what we just discussed, right? You are going to have a cash flow bind for the next year, right? You’ve got a little one that’s in the hospital, you’re going to have hospital bills, and then you have child care to figure out and smooth out and until you resolve your core fundamental cash flow, how much cash is coming into your life, um, I think you’re going to be very stressful and you’re going to be faced with increasingly difficult uh, uh, problems there. And one so there’s there’s one of two choices you can make here to resolve that. One is to just stop those contributions for one or both of you and put all that cash flow back into your after tax, um, take home pay. That would go a long way to smoothing out your cash position in the next couple of months. You’ll lose those six months or year, whatever it is of investing, which is going to hurt, but it may be a lot less painful than trying to figure out like we’re going to be break even and we’re not going to make progress on the HELOC and these other debts and we’re going to have very little in the savings account. So that’s one option. The second option is kind of in between, which is to switch it, just make it a a 401k contribution instead of a Roth 401k contribution. So it’s pre-tax and that will also increase the amount of after tax take home pay. I can’t run that math easily in my head, but you might get, you know, 40% or something like that or 30 to 40% depending on what state you live in, um, and your your marginal tax bracket back into your your cash flow situation of the combined total amount that you’re currently contributing to your Roth. So I love the Roth, um, but that those would be two Mindy looks like she’s going to say something. I’d love to hear what she says and your reaction to that as a one one easy first step.
Mindy: Well, I would like to get Dan’s reaction to what you just said first because I’m gonna go in a different direction.
Guest: Yeah, so I hadn’t thought about the doing a wrath to a um just a traditional one. So that I agree I’d have to look into and see what I would actually get out of that. Um I have thought about the option of just pretty much completely pausing it for the time being. Um which I mean I guess at the end of the day is something I will realistically could have to do uh with these bills and everything. You know, I’ve just obviously been trying as long as possible to not do that. So, but I understand the situation, you know, doesn’t necessarily give me that option.
Mindy: You have a property with $216,000 in equity that brings in $400 a month. That’s not going to help with your cash flow issue necessarily. But it if you sold that house, there’s $216,000 in your pocket. That was a house hack, so I’m assuming that that was purchased as a primary residence and you would get the, if you have lived there for two of the last five years, you would get the, um, Section 121 exclusion. Did you live there for two years?
Guest: It may have been just under two years to be honest. I think it was just under. We’ll move back in. Yeah, it was, it’s, I, like it was not, is this a property that you see yourself holding long term? What’s the condition of this property? Yeah, so I, I love this property. Honestly, that one’s my baby. If I had to kill off one of them, it would be the, this one that I’m currently in. Um, you know, not that it’s any worse or anything, but that one I love, that one, I’ve always been the buy and hold kind of guy. I’ve never really made moves for short-term stuff. Um, the condition’s great. Uh, we spent, you know, a lot of money renovating it pretty much when we first got there, did a lot of stuff as we’re living there too and everything. So it’s in great condition, it’s a great area, a solid, you know, 2-1 in each unit that runs really easy. Um, you know, so I haven’t even had to flip or, uh, you know, switch out tenants at any point either. So that one I’ve always thought I will never get rid of and I’ve always had the intention with properties that I’ve always told myself I want one per kid. Um so that I could have the option to either A, leave it for them or B, have that pay for their college so you know in my world I probably have two to three kids. After how this has gone with everything, maybe Savannah will be an only child, I don’t know but um definitely I’ve always said to myself like, okay, three, three properties for sure, you know, one for each kid or whatever.
Mindy: The uh issue that we are seeing that Scott alluded to was a cash flow problem. And selling that house like I said doesn’t really change the cash flow issue. What is your job and are there any opportunities to increase your income? And what does your wife do?
Guest: Yep. So my wife is in um, HR. Uh, she likes her job a lot. She’s, um, you know, we both roughly make around 100. I don’t see her wanting to leave anytime soon. Um, that particular job. My job, I’m in marketing research and I make roughly around 100. like I said that bonus is a huge chunk of it. Um, you know, so that’s can really sway the the needle too. The last couple years we’ve done really well, so my bonuses have been like 20 to 25%. Um, but this year was definitely a slow year, so I am kind of waiting for that and a little bit nervous that it’s going to be substantially lower. It will I, you know, we still are getting it, but not, I don’t think it’ll be that 20. And that’s definitely something too I’ve been really um, having a hard time with is I do like my job, I like my team, I like the work life balance, but I’m really just unsure if in the marketing research world, how it works is you’re either supplier side, or which is like an agency or client side, which would be like a Coca-Cola or like, you know, like a home Depot or something, like the corporate side. And on that client side, you make a lot more. and I’m on that agency side right now and I’m, I’m just not sure, you know, realistically if I should make that switch. I’m, I’m at kind of that pivotal part where, you know, I’m, I’ve, I have the experience under my belt that, you know, it, it could potentially, it could, it could honestly make me 50 to 90k more if I, if I were to switch into one of those client roles and and do relatively a similar role and everything. So I’ve had a hard time with that because I also have my real estate license which I got a couple months ago thanks to the advice that I got from Mindy a couple years ago. I just didn’t get off my butt and actually do anything about it. But um, that’s always been on my mind and and so I go back and forth too like, do I just want to solely focus on that one income or do I want to take the fact that I do have a a a good job that the the pays, you know, could pay more, but, um, you know, like, I’m not working 90 hours a week, you know, I’m, I’m I’m comfortable, I’m happy. I, you know, love the team I’m with and everything, but obviously it’s like, do I want that or do I want to work just, you know, one job and because I do a lot of side hustles and stuff like that. So I’m just like, okay, is like the 10 jobs worth it when I could be making that much at the one and even more realistically? Um, so that’s definitely something I’ve had a lot of issues with lately.
Mindy: So, we interviewed financial mechanic on episode 97 and a Purple Life on episode 110. And I’m telling you both of these numbers on purpose because I want you to go back and listen to them. Both of them have a similar story where they would essentially job hop to higher paying jobs and they went from, it’s been a minute since we did these episodes. This is like episode 500 and something. So, uh, but they went from like 35,000 to 60,000 to 100,000 to 150,000 just because they job hopped every year, every other year and it can be very lucrative to your bottom line and solve this cash flow problem if you change jobs. And having this opportunity, if there is an opportunity to go from one team to the other team that has such a different income is something that I think would be worth uh looking into and exploring just to make sure that the income is there and the opportunity is there. If you’re doing really well on your current team, you can still have lunch with those guys and girls and go make more money on the other side. Um, just an observation uh because that would solve your cash problem with an extra $50,000 a year. I’m looking back at, you said your wife really likes her job right now and that’s awesome. liking your job is really, really, really important. Uh have either of you asked for a raise recently? And if you haven’t, why not? And if you have no idea why you haven’t, or you know, it’s uncomfortable to ask for a raise, make a list of what the things that you have done that have contributed to your company. Aaron Lowry was on talking about her third book, how to have uncomfortable money conversations and one of them was the asking for a raise conversation. And what you, what her recommendation was is have in your inbox a praise folder and every time somebody emails you, thank you so much, Dan, your contribution to XYZ project really moved the needle. I’m so thankful for you. You save that in your praise folder. I mean, you say thank you, but you praise, you save that in your praise folder. and then when it’s time to go in and ask for a raise, you go to that praise folder, you print out every one of them. You don’t just forward them to your boss, you print them out and you present them to your boss along with the request for why you want a raise, how much you want, why you think you deserve it, etcetera, etcetera. So, I’m sure your wife has been the recipient of raise requests and could help you, you know, formulate this. But if you haven’t had a raise in a while, that could be something worth exploring as well. but I really like the idea of going, um, I’m sorry, did you say two client facing, is that the one with the more money?
Guest: Being the client. So right now I am client facing. Now, I’m the one who’s working with the client and helping them do whatever they need to do. If you’re on the other side of that and you’re the client, then you, you make a lot more for sure.
Mindy: Yeah, so I wonder what it would take to get on the other side and how you could seamlessly, I mean, have a conversation with your boss.
Scott: I want to go back to your expenses here. Walk me through the math on where you currently live. How much how what is your mortgage and utilities and all that kind of stuff and what is the rent you’re getting from the house half?
Guest: Yes. So, um, we used an FHA uh loan to get into this second house hack. It’s the, the mortgage which does include um, the taxes and the um, insurance is uh 49.38 a month. And the reason we did get this house was because we were living in the other duplex, which was a 2-1 on each unit and we knew we wanted to start a family and we knew we wanted to be in this area and we knew we needed more space. So we had it in our mind that like, okay, the next house hack is going to be one that we can see ourselves in for probably five to 10 years, honestly. um whereas the first one I was gung ho on trying to get out of there as soon as possible, not because I wasn’t comfortable but just because I wanted another one, you know, under the belt. um so this one is a duplex and the unit we rent is a 2-1 and the unit we live in is a 4-2. But yeah, so it’s about $4,900 a month and we get 21.50 for from the tenants, which is just a uh a young couple. Um, but yeah, so other than that, you know, I get a stipend from work for for for internet, um, so it’s really like 185 but I I get a 100 bucks for it. Um, and then the electricity is about 180.
Scott: And does the tenant share in that cost?
Guest: They have the, uh, they have their own electric bill. So, honestly, in terms of expenses here, so I spent last year about $14,000 between both rentals, both properties, uh for like maintenance and repairs. So I do spend a couple grand a year on oil. The first house was only needed to fill it twice a year. It’s great. It heats up, it’s small, it’s easy. This house is much bigger. Um, so I fill it up a couple times a year and obviously we all know how expensive oil is.
Scott: And where’s this located?
Guest: It’s uh, just north of Boston, Massachusetts.
Scott: Yeah, so expensive area to boot. Not not a lot of, I don’t think a lot of places around the country uh, are, you know, think it’s normal to just fill up the oil for a house for heating. Like we don’t, we don’t do that out here in Colorado, right? Um, so that’s just an interesting way they do it in the Northeast.
Guest: Yeah. It’s expensive. It’s not fun. But uh, yeah, so not too bad. I mean, like I tell people too, like we’re we’re kind of past that like what I refer to as that like stabilizing period when you get a house hack, like, you know, you live in it and you like see what’s going wrong and things you need to fix and how much it actually takes to maintain it and everything. And on the first one, it really doesn’t, doesn’t take that much. doesn’t take that much to maintain. There’s not a lot of, there’s really never any issues or whatever. Um, you know, the second one, spent the last year and a half kind of learning like, okay, I’ve went through all the seasons. I see all the things that need to be fixed or replaced or whatever. So, uh, I am hoping that honestly this year, you know, one of my goals is to keep that maintenance, you know, the that maintenance um bill under 10,000 and I do think that’s doable with what I have.
Scott: So look, I I’m just going to zoom back out again and reframe the situation as I I’ve come to understand it through our our conversation. You and your wife both bring home more or less 100k each, right? Uh, fluctuates with bonuses or whatever. Um, you’re putting in about $30,000, um, maybe even higher, maybe $35 to $40,000 into your Roth 401k on an annualized basis right now. Is that about right?
Guest: Yeah, about 30. Yeah.
Scott: To live, your your house property number one produces a modest cash flow, net of all expenses using reasonably conservative assumptions. So, it’s a non-factor in the situation. We could just call it zero for now because a little cash flow is probably lumpy uh enough where you can’t really count on it, but it’s not also not burning a hole in your pocket at this point. So you don’t need to sell it to get out of a negative cash flow situation. It will build wealth and with, you know, over time from appreciation and rent growth, most likely over the next 10 years. Um, house hack number two costs you at least $2,000 a month to live in the kind uh net of mortgage and and um, rent received. but probably really realistically another thousand on top of that between maintenance um, and oil and those other types of things. So we got a $3,000 monthly housing bill. How am I doing so far?
Guest: Yeah, that sounds pretty correct.
Scott: Okay. Groceries, you guys have mastered your grocery eating out budget with $600 a month. Good job. Uh, kudos to you guys. Your electricity bill seems reasonable, your cable and internet seems reasonable. You spend $1,500 a month on fun and for a household earning $200,000 per year, spending $1,500 a month on fun and basically everything else is not unreasonable. You’ve also got $1,000 a month that are coming in that is debt payback and savings and contribution um, savings contribution. So those are discretionary, those are building wealth, right? in the sense that paying down debt is the equivalent of investing depending on the interest rate, it can be uh one of the most lucrative types of investments. How much of that $500 debt repayment is mandatory versus uh your voluntary going above and beyond?
Guest: Yeah, it’s 342 right now, dollars minimum month. Um, yeah, it’s at 10%, you know, interest rate, but, um, so that’s obviously gone up too. It was like I think three and a half when I opened it. Um, so that’s definitely where I go back and forth. like I want to use that and it’s the the total of it, the total of the HELOC is um 55. Um, so we’ve been paying it down um, since November 2022.
Scott: So here’s the problem with that, right? and and when you use a HELOC to buy a property or finance renovations or whatever, you have to think of it as a short-term loan. and the shortest you can think of a short-term loan in my book, reasonably is five years, right? Otherwise it’s a long-term loan, right? So five years is 60 months and if you take out $60,000 on heloc, you’re going to be paying back $1,000 a month in principle, right? 1,000 or times 60 is 60. What am I doing here? I’m being silly. The uh, you’re going to be paying back $1,000 a month in principle on a on a $60,000 HELOC over five years, plus interest, right? and right now, in today, this is causing the the this is a root cause of the problem we have around your temporary cash flow situation, right? Again, you’re doing great. We just have to figure out like, hey, 2024, how do we to buff up, we’re gonna buff up the reserves and we got to pay back this debt before we can invest. and so I think your big challenge around real estate investing is cash accumulation because if you don’t accumulate a lot of cash to put down on the down payment, you’re going to have to use other sources of debt and that’s actually going to make that next property suck cash out of your life for the next several years, which compounds the string on it versus if you could put down 150 grand, now you don’t need to, now now the property puts cash into your pocket day one with that. and so that I think is your fundamental challenge for real estate investing in in in the local areas. How do you divert enough a sizable chunk of cash over the next two years, maybe away from these Roths, maybe by getting that extra, that that that additional job, uh, pay off this debt, fortify your position and, you know, spend the the 24 months needed to probably accumulate 70, 80, 100, $120,000 to to buy that next property so that it puts money in your pocket day one. That is a much, that is the approach that I’d feel really comfortable with if I was going to take real estate investing in your shoes and you do that over a period of years, the snowball keeps moving and you probably get reasonably close to your $10,000 a month in passive cash flow after five, six properties that way uh over the next couple of years.
Guest: I think I do understand from your point. it sounds like for me, it sounds like, it sounds like like my 20s were really where about like learning, you know, like learning as much as I could, getting set up there and it sounds like my 30s just need to be about earning and earning as much as I can and, you know, putting those back into investments and everything and and, um, but yeah, and that I I do agree.
Mindy: All right, thank you Dan. Thank you so much for your time today and we will talk to you soon.
Guest: Yeah, thank you guys so much.
Mindy: Scott, that was Dan and that was an interesting set of scenarios that he has going on right now. I really loved your outside of the FI scenario suggestion of stopping his retirement account contributions right now or at least stopping the Roth portion, which is quite shocking, Scott. You’re a big proponent of the Roth plan.
Scott: Yeah, well, well look, I I I I just ground the journey to financial independence and wealth building and it always goes back to the very beginning, right? of do I have any bad debts? Okay, I’m going to pay those off. Do I have an emergency reserve? Okay, I’m going to build that up. Then what am I investing in and is it congruent with the goal of early financial independence. And I think, I think that before we even get to, you know, his overall position, yes, the guy’s worth $500,000. Yes, he’s doing great, but his base baseline financial situation is not strong right now because of the various circumstances that are affecting his life in the back half of 2023 and early part of 2024. And so we got to go back to basics, reset that, and then resume our long-term strategy. Um, and that’s that’s just my my overall framework. And then, you know, like we said a couple times on the show, I I just think like, you know, folks in this income bracket, right? This is kind of like 100 to 250 range, right? for a household, household income, depending on where you live. you know, you’re it’s great, you’re earning six figures, you’ve got the income to build wealth, but you can’t do it all. You cannot max out your HSA and your take your 401k match and max out your Roth and have a lot left over to invest in real estate in most cases. and you have to choose and that choice is not being made and I think that that’s creating a compounding uh uh scenario of risk creation if he continues to go down the real estate path without making the conscious choice to actually divert several hundred thousand dollars in cash flow to real estate over the next couple of years. And that’s a problem, I think a lot of people listening to Bigger Pockets money and Bigger Pockets in general have because it is a painful trade-off. Like it doesn’t, it’s like very uncomfortable to not contribute to your 401k and instead divert that into cash for your down payment of $90,000 on a rental property in a couple years. But that’s what actually moves you toward that financial freedom state as a real estate investor and that’s the conscious choice I think people need to make if they want to go all in on real estate like Dan said he does.
Mindy: I like what you just said, Scott, the conscious choice. Don’t just stop contributing to your 401k because you heard Scott say it one time on the show. Make a conscious decision. He’s potentially, Dan is potentially going to stop contributing to his 401k to free up some cash flow in his current scenario. He’s got a great income. He’s got a goal in mind and he has a plan to make this happen. He’s not just going to stop contributing to his 401k on a whim and I like that you said that Scott, I hope that people hear the rest of it too.
Scott: Yeah, and and last, I just want to call out, you know, I love it, right? Dan’s a a bigger pockets money listener and so investments are a huge priority. You can tell that because they’re contributing such a huge percentage of their income to their Roth 401Ks and have otherwise gotten into real estates, house hacking, all that kind of stuff. But at some point, right, life comes along and you have to interrupt that flow of investing to some degree and that point is hit for Dan’s family and he’s just needs to take a break here and pause, sit back and say, look, we just had a baby, she came very early, we’re gonna sit back and we’re gonna just pile up a little bit of cash and take a breather for a few months and we’ll resume the investing goals and still get to our path over the next 10 years once we reset.
Mindy: Absolutely. All right, Scott, should we get out of here?
Scott: Let’s do it.
Mindy: That wraps up this episode of the Bigger Pockets Money podcast. He is Scott Trench and I am Mindy Jensen saying, “TTFN baby hen.”
Scott: If you enjoyed today’s episode, please give us a five star review on Spotify or Apple. And if you’re looking for even more money content, feel free to visit our YouTube channel at youtube.com/BiggerPocketsMoney.
Mindy: Bigger Pockets Money was created by Mindy Jensen and Scott Trench, produced by Kalyn Bennett, editing by Exodus Media, copywriting by Nate Weintraub. Lastly, a big thank you to the Bigger Pockets team for making this show possible.
