Mindy: Welcome to the BiggerPockets Money Podcast, show number 318, Finance Friday edition, where we interview Amanda and talk about zooming out and taking a long-term approach to finances.
Guest: I feel like in about 10 years, you know, I said I wanted to scale back working. I feel like I would be able, it would be reasonable for me to make enough through those years to live off of so that I’m not touching anything that I’ve saved. Um, that’s kind of how I was thinking about it is that, you know, if I just covered my living expenses and nothing else, then I’d let everything that I’d invested grow. But I don’t know if that’s a reasonable tactic. It’s I I’m not really sure about my plan.
Mindy: Hello, hello, hello. My name is Mindy Jensen and with me as always is my never going to IMU about crypto co-host, Scott Trench.
Scott: Thank you, Mindy. Well, I’ll never IMU you about crypto. I am the long-lost descendant of a notable royal family, and I just need a few hundred dollars in order to obtain some documents that can help me access that fortune. So, I will DM you about that, and if you could please wire me the money, that would be great.
Mindy: Yes, you can reach out to him as Scott as a big fat liar at biggerpockets.com. Scott and I are here to make financial independence less scary, less just for somebody else. To introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you are starting.
Scott: That’s right. Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate, start your own business or just get a little bit more flexibility 10 years down the line, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams.
Mindy: Scott, today’s guest is Amanda. She is a an accountant, she’s working as an accountant, getting her accounted degree at night and on the weekends and she is looking forward to financial independence in 10 years, something that was not even on her horizon just a few years ago. She’s changed her financial outlook, changed her expenses dramatically, and is now starting the path to financial independence.
Scott: That’s right. Amanda has a really good, um, optimism and outlook, um, and ability and command of her finances. And so I’m excited to see what the future holds for her.
Mindy: Okay, before we bring in Amanda, let’s make our attorney happy by saying the contents of this podcast are informational in nature and are not legal or tax advice. And neither Scott nor I nor Bigger Pockets is engaged in the provision of legal, tax or any other advice. You should seek your own advice from professional advisors, including lawyers and accountants regarding the legal, tax and financial implications of any financial decision you contemplate.
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Mindy: Amanda is a recent empty nester and went from renting a giant house to renting a studio and dramatically decreased her expenses in the process. Hooray. Now she has money to invest and she wants to make sure she’s properly allocating her investments. Amanda, welcome to the Bigger Pockets Money podcast.
Guest: Thank you so much. I’m very excited to be here.
Mindy: I’m super excited to talk to you. Let’s jump right into it. What do you make and where does it go?
Guest: So, um my take home pay after tithing is 3572 a month and I get $1,200 a month in alimony. So my total income is 4772. Um my monthly expenses total 3270. You want me to go over them line by line?
Scott: Yeah, let’s go, let’s do a quick overview.
Guest: Okay, so my rent, it it includes all utilities except electricity, and it is 1425 a month. My renter’s insurance is seven. Electricity is about 15. Um gas, I wrote 200 but it’s getting higher by the minute. Um I commute to work. Car maintenance, I set aside 75 a month. My car insurance is 77. Um groceries, I spend about 250 and restaurants about 250. Um, a lot of that is I still feed my kids. They they don’t live with me but they’re young and don’t know how to cook that well. So I help them. Um, my son is in college and so I help him out with rent, and that’s 450 a month. Um, I got a counseling expense for the kids that’s 100 a month. I spend 22 on Netflix. My internet is 15. Um, the cell phones are 128. My kids each pay for their own payment and the additional to add them. But I pay that base for everybody. And my life insurance is $6. Spend about 25 on laundry. I don’t have a washer and dryer here. Um, I bundled up clothes, hair, makeup, about 75 a month. Uh set aside 50 for Christmas and gifts. And about 100 for entertainment and just miscellaneous things. And so that leaves a difference of 1502 that I’m currently investing in a Roth IRA and index funds.
Scott: Love the complete command to your budget. That’s awesome.
Guest: Thank you. I work in accounting, so I can’t I can’t really help it.
Mindy: That’s great. You mentioned alimony. Does that have an end date?
Guest: It does. It ends December of 2023, which coincides with the month that I’ll finish my bachelor’s degree in accounting. So I’m just assuming that, you know, I’ll I’ll have a better job and make that up in income around that time.
Scott: Sounds great.
Scott: What um what’s your net worth look like? Where does it where where are your assets and liabilities?
Guest: So, in retirement accounts, I have a total of about 47,000. Um 6250 is in a Roth IRA and that’s invested in index funds. Um I have 22,100 in a rollover IRA, that’s a target date fund. And I have, I work for a school district, so I have a SERVE plan and that is right now at 17,000 and I contribute 10% of my pay every month which is about $610 goes into that. Um I also also have a pension plan and I’ll be fully vested um October 2023. And then I have a VEEVA account that um came from the last job I left and that’s got about 1600 in it. And then for my non-retirement savings, I have 13,000 in a brokerage account in just index funds. And then I have a savings account with um a little over 23,000 and I have that allocated into uh 16,000 for a six month emergency fund. 4,000 for college for myself. Um about 23, 50 for travel, a little over 500 for car expenses and about 500 for Christmas and gifts. So when you add that up, I’ve got a net worth of about 83,000 and no debt.
Scott: Awesome. And and you said you have a pension plan? Can you walk us through what that pension plan looks like from an asset perspective?
Guest: So, um I’ll be fully vested in October of 2023 and that pension plan it’s a school district, so it’s based on length of service and your average uh income over those years. So, so I am so it’ll be five years that I’ve been with a school district at that point. And then it’s I believe it’s 1% times your years of service times your average salary and then you get that as a monthly payment when you retire. So if I if I left that job then at the end of 2023, that would be about 250 a month. If I stay with the school district a long time, it could be a lot higher just depending on my pay.
Scott: Perfect.
Scott: Awesome. Ma- makes makes sense. And and what are your goals?
Guest: Um so I my kids right now are um almost 19, 21, and 23. and my 23 year old’s married. And I feel like in about 10 years, I’ll probably have some grandkids and you know, I’m still I’m 44 now so I’ll still be fairly young then and I want to be able to work less and play with my grandkids and travel and like and live a fun life without having to go to work Monday through Friday. So I don’t necessarily want to fully retire in 10 years. I don’t think that I could. Um and I don’t I don’t know what I would do all day. So I would just like to have the flexibility to work less, probably still in the same field. Um but yeah, just not have not have to work every single day.
Scott: Awesome. Well, let’s go, let’s look at this. Where are you putting your $1,500 that you’re saving each month today? Where’s that where is that typically going?
Guest: So, I’m putting 500 into the Roth IRA. And that that’s part of my question. I have that so it didn’t I this is all new to me. Like I haven’t had extra money until a few months ago. And so my son is the one that told me about the podcast. Um told me that I could be fi and I was like, that’s cute. No, it’s not it’s not what people like me do, you know, I’m just going to work till I’m old and you know, maybe you can be fi, but then I started, you know, looking into it and thinking and you know, listening to your podcast and all of his advice and um and realizing I could do something with this, but then when I opened these accounts, I didn’t know you had to invest them in something, and you had to to pick what you’re going to invest them in. And that was a little confusing. I thought you just open an IRA and it’s just invest itself. So, I put it in index funds, but I don’t know if that’s what I should be doing. Um I I just guess at that and so I don’t so like part of my IRA is in a target date fund. I don’t know if that makes more sense but so the Roth IRA right now is just index funds and then I put about 1,000 a month into an after tax brokerage account that’s just index funds. So it’s all index funds.
Scott: I I think I think that’s great. I think I think that the uh the question is how do you get you your goal is flexibility in 10 years from now. Um and the question is how far do we want to go in order to get that flexibility? I think would be would be how I’d frame it. Let let’s, let’s ask, I have a couple more questions about your background here. So, right now you do not have a bachelor’s degree and you’re doing accounting. Um what will in you said you’re going to get your bachelor’s degree this year, next year?
Guest: Uh the end of 2023.
Scott: And what do you expect to do after you get the bachelor’s degree? What what what will that change about your income for example?
Guest: Well, I’d really like to stay um with the school district that I’m in or at least in school district work. Um and it it just would automatically make me eligible for better positions. Um and so I’ve, that’s where all my experience is at and I’ve spoken with my um direct supervisor and kind of told her what my goals are with the district and, you know, I think there’s a really good path to stay in accounting with the school district once I, you know, as I get my degree and to just keep going up. Um so from my estimation, I feel like I will be making, you know, maybe $40, $50,000 more a year in the next five-ish years.
Scott: 40 $50,000 more per year. Okay, awesome. Um, right now you’re saving $1,500 per per month. And at the end of 2023, you will be eligible for promotion, but you’ll also be losing alimony on a go forward basis. So net I wouldn’t expect a big change in cash flow coming out of finishing your bachelor’s degree. It will be basically a bridge um to continuing your current savings rate at that point in time.
Guest: And then I feel like from there it’s just going to be a runway up.
Scott: Perfect. Yep. Walk me through your commute. How far are you traveling every day?
Guest: Um it’s about 20 miles each way.
Scott: And and uh what what part of the world do you live in?
Guest: So, I live in Seattle and I actually commute to a suburb. So kind of the opposite commute of everyone else, but
Scott: Okay, let’s, let’s, let me, let me think through something here. How much do you like your house?
Guest: Um It’s an apartment. It’s a studio apartment that I pay about the least amount you could pay anywhere in the area for. And I love it. I don’t want to live in the suburbs and it would cost me more to live in the suburbs. So, so for that reason, I really love it.
Scott: Fair enough. I was just gonna, I was gonna encourage you to consider the idea of a house hack close to work, right? You you you don’t have any any kids living living at home anymore. Um so if you were to buy a place that was nearby to work and have, you know, and and rent out a couple of the bedrooms or the other, you know, a duplex or triplex, that could meaningfully reduce your net payments for rent, um give you a rental income property that you could have flexibility with, and um reduce your commute time, which is a major factor in your budget here for the 200 bucks a month in gas.
Guest: Right, and I’ve thought about that. Um where my work is is a upscale suburb. And I don’t know that I could afford any sort of house there that I mean, I I haven’t seen anything less than maybe $800,000 for just a house that I could rent a bedroom out of. So I don’t that was kind of one of my questions for you too is the cost of living is so high here. Um I don’t know about I don’t know how I can get back into real estate. I had a house that was actually in the same city where I work now. And that’s where I raised my kids, and we sold it in 2019. So right before the market went up. Um and from that point, it’s almost doubled in value and it’s that house is close to a million dollars in value and it was not something I would consider a million dollar house.
Scott: What what what about within a five-mile radius of your school district?
Guest: Um yeah, if I told if I told you where it was, you could probably understand that not really. Um yeah, I I don’t know that I could get, I mean, I could probably find something in a suburb that’s maybe equal distance from where I live now. Um so I’d still have a commute, but I could maybe buy a house.
Scott: Well what about, what about, what about the school district itself? Is there a particular advantage to this school district or this area versus switching the job to a different location?
Guest: So I was at a different school district doing this exact same job that I have now. And then I moved to this particular school district because the pay was about $10,000 more a year for the same job. Um so that’s why I’m here now. I just started it uh, let’s see, the beginning of February. Um so, I mean, if there was an opportunity at another district that paid higher, I mean, I would be all for that, but I just started here. So, you know, I but, I mean, I’m I’ve I’ve talked to my boss about it and she knows, you know, that once I have that my degree that I’m open to going anywhere, you know, wherever’s going to pay me the most.
Scott: Okay, well, well here here’s what I’m trying to figure out. You have 1,500 a month in cash savings and that’s likely to continue for the foreseeable future. Um there will be some puts and takes but the bachelor’s degree, you might might might be able to save a little bit more, you might be able to save a little bit less uh net of the alimony. um and the and the raise that you’ll get at that point in time. Um but that gives us $18,000 per year with which to invest and play with. We can accelerate that a lot if we can play a game with the job and housing situation, which is the elephant in the room. Half of your expenses are going to housing right now. Um so you know, actually half of them, more than half are going to housing and commute as a combo. um And so if you could live in a place that you could Airbnb, you know, um the the main unit or um live in a a multi unit property and and rent out a few of the other properties, um that would have, you know, a net $1,600 per month impact on your financials, um which would, you know, what what’s that come out to? That comes out to like 18, 20, $18, $19,000 per year, um which could mean that you could accept a lower paying job, for example, to some degree in order for that to offset. So just something, something to noodle on. If that’s not an option, we can go elsewhere in your financial profile and look for um the basics of investing.
Guest: So with my salary is that I just would wonder how I would qualify for a loan to buy a house.
Scott: Yeah, what is your annual income right now?
Guest: Um my salary is about $72,000 a year.
Scott: Okay, so I I I would imagine that would qualify you for 300, 350, 375 in in housing. Is that about the lines what what you expect?
Guest: Yeah, there’s I couldn’t buy anything for that here. I mean, I could maybe buy a condo. Um so that that’s kind of, you know, where I’m trying to figure out how I could do that. I mean, I if I moved to an extreme suburb then maybe I could, you know, on the real outskirts of the city, but um then I I just can’t see commuting or finding a position that pays that much here. So that’s where I’m kind of stuck is just figuring out, you know, I can only afford, I can only qualify for so much of a loan and there’s not really anything available right now in that price range in the Seattle, greater Seattle area.
Mindy: And is your family all in Seattle? Is that what you want to be in Seattle?
Guest: Yeah, my kids are all here. That’s yeah.
Mindy: So, I want to look outside of school districts and I understand that you’re about to be fully vested in your pension but we’re talking about $250 a month when you retire. So, it’s not I I don’t want to dog your pension because a pension can be a really great thing, but you don’t have, like you’re not sitting on a huge pile of cash that you’re about to walk away from if you change jobs. And accounting jobs, I don’t have an accounting job, but I know that some can pay really, really well. What sort of outside the school district jobs are available? What kind of income could you make in that scenario? And, you know, when you get your degree, you’re probably have a bump up in salary opportunities outside in the uh private sector. Um I also imagine that you will have a lot more free time after you graduate. You’re probably, I’ve heard that getting an accounting degree is really, really intense. So, after you graduate, you’ll have time to do side jobs and I know a lot of accountants and they can never find a good bookkeeper. And I don’t know what bookkeepers make, but I know that there’s always a demand for good bookkeepers and that’s a that’s a remote job. You could do bookkeeping work for people in California who pay more or people in New York who pay more. If you’re a good bookkeeper, you’re going to make great money and have way more clients than you can possibly handle, simply because finding a good bookkeeper is so hard and having accounting principles is going to help you become a really great bookkeeper. Even now, you could start that, although you’ve got your school work, so that may not be the best use of your time right now.
Guest: Yeah, I’m I’m very open to anything. Um the reason that I’ve kind of, you know, I’ve thought about staying with the school district is just because that’s where all my experience is at. And I already know, like it’s public what what people what salaries are. So you can go on the website and find out what everyone makes and um I know what those jobs pay. And I’ve and I actually have looked a lot in the last couple of years um at different accounting jobs and it’s a huge range. So, I’m definitely open to work anywhere. I mean, I would, you know, I I just uh yeah, once I have that degree, I will definitely be looking at whatever field I can make the most money at. It’s not, I mean, accounting is not my passion, it’s just to make some money. So,
Scott: okay, so, so we’re we’re kind of what I’m kind of gathering here is is we’re kind of just accepting the current situation as the status quo right now. We’re not we’re not we’re not really ready to make a big change on the income front, um, and that that change is predicated on finishing the degree and you’re not, not not willing to move to another location, um,
Guest: I have a lease, so I can’t.
Scott: Yeah, at at at as far away to change the housing costs. So, so that leaves us with the reality is, you’re you’re going to save $18,000 over the next year and that’s going to be the wealth accumulation here. And coming into 2023, um we’re going to be in a roughly the same position but with the added option of being able to at least expand the search radius for a new line of work.
Guest: Right.
Scott: So, I think we have to zoom out from our timeline here, um, if we’re going to accept that and say, okay, what do we want to be in three years? What’s a realistic position from that? Um, so with the 18 or let’s call it $36,000, 18 times two, that you’re going to save over the next two years. Where do we want to put that? I think is the next question. And right now you’ve got a very sizable cash position that seems super reasonable, plenty of cash, you’re not going to run out of cash or have any emergencies anytime soon. You got your brokerage account and your Roth IRA. Do you, I I, I like the idea of just kind of contributing to the Roth um and maxi that out in this situation and then contributing the rest to to brokerage accounts at that point. Mindy, do you have anything that you would add on that?
Mindy: No, I like the the opportunity that we have here to grow the after tax investments because that’s what’s going to give you the optionality if all of your investments and net worth is in your pre-tax accounts, then you are going to find yourself in a conundrum. I’m super rich, but I can’t do anything with it unless I access those retirement funds early and the mad Fientist has a really great article called how to access your retirement funds early. Um including the Roth IRA, the Roth conversion ladder, the 72 T, separate but equal payments and just taken the hit and taking the the paying the fee and and withdrawing early. Um but why do that when you can make a more conscious decision when you’re starting from, you know, basically the beginning because do you know what your fi number is?
Guest: You know, that that’s the thing that’s hard is it’s hard to say in 10 years where I’m going to be, you know, if I will still be single, if I will still be living here, if I my whole family moves somewhere, low cost. I mean, it’s to me it’s such an up in the air scenario. Um you know, kind of living a life that it could go in any direction. So, you know, I I know that a million dollars is kind of the the single person, you know, target and then you can, you know, and the 4% rule gives you 40,000 to live off of. Um but it’s hard to say. I don’t I’m just, you know, the bigger the better, but I don’t really know other than that.
Mindy: Well, sure, we all love to win the lottery.
Mindy: Um let’s see. So expenses of 3270 a year, a month.
Guest: That includes um helping my son with his rent. Um but he he did a running start program. I don’t know if you if that’s nationwide, but basically you finish your last two years of high school at community college. So you graduate high school with an AA degree and a high school diploma. So, so he did that and it’s free. Um and so he’s now in college. He’s a junior, about to finish his junior year. And so he’ll graduate with his four-year degree next June. And so I won’t be helping him with this much um once he graduates. So then he’ll have a job. You can take care of himself a little more. So that will change too in about a year.
Mindy: Um so I think you are thinking about it in great terms. The million dollars is a good starting point because you are spending around $40,000 a year. So, you are uh you know, a million dollars is a great place to aim for. And then as your life circumstances change, you can alter your plan. But you have to have something towards that you’re working towards. So, you know, work towards the scenario that you have right now, the the situation that you’re in right now.
Scott: I think um at the highest level, what I’m looking at your situation is like you have a tight budget, your expenses are essentially um that that are are that you could potentially move are going to be your son’s rent assistance which will end next year. You got puts and takes with the alimony and the degree. It doesn’t seem like I imagine you’re working crazy hours between your job and the undergraduate degree most of the year. Is that right?
Guest: Yeah, I mean, I have a regular, you know, 8 to four job and do school as I can every night. Um it’s online, so it’s pretty flexible but it takes up a big chunk of my time right now. It’s a lot of work.
Scott: Okay. So, I mean, we have four levers in personal finance. We can earn more, we can spend less, we can invest and we can create assets. So, right now, what I’m hearing is there’s not really any leverage to earn more because you already work a full-time job and are getting your bachelor’s degree, which is your path to earning more money. Um from on the spending less side, you already have a really tight budget and the expenses you do have are really helping your kids out to get a start in life. And those will go away in a year, but we don’t really have much leverage. You spend essentially excluding that $2,800 per month to live. Um and the only leverage we’d have there in a practical sense would be gas and rent, but we’re not ready or able to make a move right now because of the income sacrifices that would that would that would create. On the on the investing side, we’ve got real estate, stocks, other businesses, but you can’t really do a very actively managed investment right now if you’re working and you’re getting your degree. And real estate’s out of the question because you can’t afford to to find a place that um that you want to that you want to buy in Seattle until perhaps you’re earning the higher income after you complete your bachelor’s degree. And then that leads us with starting a business, which is also impractical if you’re working a job and getting a full-time degree at this at the same time. So, I think at the end of the day, we can we can acknowledge like you’re doing great, right? You’re saving as much as you can in your situation. I think you plow it into index funds and you look up in the at the end of 2023 and say, okay, now I can begin playing the game a little bit by buying this next property um or or making these other moves.
Guest: So, if I were to to do that, to to try to buy real estate, you know, after I graduate and get a better job, um so you in the meantime, what it be, would would I put my money in just a savings account or in index funds still?
Scott: Yeah, I I think, I think it’s a savings account at this point because your time horizon is too short, right? You can’t if if you’re if if if the if the needle mover, if you decide the needle mover is going to be one of these this real estate investment, then you and you, you can’t save up your down payment in an index fund um because it’s too volatile. If you were, if you were um saving three, 4000 a month and were able to easily qualify for property in your area, I’d have a different opinion because you’d be able to invest it in the index fund or whatever um and you’re still saving so much that the down payment is not a two year, three year huge high stakes decision. But I think in your case, it’s a high stakes decision because um it’s going to require essentially all of one year’s savings to put down for that property. and you’re going to want some reserves to handle things. So, does that make sense?
Guest: Yeah, that makes, that makes perfect sense. I hadn’t thought about that as an option and it’s yeah, it’s thank you for helping me think differently.
Scott: Awesome. Well, what else can we help you with today?
Guest: Um well another question I have is I have a high deductible health insurance plan, but I didn’t really know that I had that and so I just have an FSA account. and I but I could get an HSA account next year. Um but I don’t really know how that, you know, how much I should put into that and you know, I hear people talk about it a lot but I’m not fully um educated on how it works and if that’s something that I should be putting more money into.
Mindy: Okay, well, the mad Fientist says that the HSA is the hidden retirement account or the best retirement account or something. I probably should have looked that up, but he’s a super huge fan of it and I’m a super huge fan of him, and it’s a great account because you are allowed to put money in there tax-free. And there’s a max of, I think $3500 if you’re single and 7,000 or 7,100 or whatever, if you’re married, basically, it’s or family if it’s just doubled. So, um, you can put this in tax-free, it grows tax-free, you can withdraw it tax-free for qualified medical expenses, which is pretty much anything on the FSA list. Um, doctor’s visits, prescriptions, you know, any of your out of pocket expenses, or you can cash flow your out of pocket expenses if you’re able to and just let this money continue to grow while saving receipts for all of these things. so then you can withdraw this money at a later date. So, let’s say that you have, you’re cash flowing all of these, you’re saving all of your receipts, you’re you’re contributing to the max of your HSA, and at the end of the year, you have, or at the end of 10 years, let’s say you have $40,000 there. You can take your $5,000 worth of receipts and withdraw it and pay no taxes on that. You’ve already paid those bills so that money just goes in your pocket. Very oversimplification of the way that it works. Um, you have to make the decision based on your finances and your health. Are you a generally healthy person? Do you have a lot of medical bills or are you making, you know, are you are you do you have a lot of medical bills? Um, the, you mentioned an FSA plan, if you have an HSA, you can have a like, it’s like dental and I, dental and vision FSA. So, if you need contacts, you should put some money into the FSA. If you have, you know, ongoing dental work or even just like regular dental checkups that aren’t completely covered by your dental insurance, or you have no dental insurance, you should put some money into the FSA for that. If you don’t have those options, like I have terrible eyes and need contacts, so I put money into FSA. My FSA plan and it may not be the same as yours, so you need to read your plan documents, but my FSA plan has $500 that rolls over every year. So, I make sure that I look at my balance and I know, okay, contacts are going to be $150. So, I need to have at least $650 in that account. and then I will take out the 150 for my contacts and then I still have the 500 that’ll roll over. If it’s dropped below that because I’ve had some other random things like two kids going through the braces plan at $6,000 a pop, then I’ve put more in my FSA. Um but make sure that FSA is a use it or lose it plan.
Guest: Right, I’ve been really conservative with it because of that, and I don’t think that my plan rolls over because I got all these emails about spend your money or lose it. So,
Mindy: You’ll get those emails even if it is a rollover, if there’s any amount that rolls over. Talk to your HR department, read the plan documents and make sure if there’s any roll over that you’re, you know, roll it over, see what happens. But um the FSA, the HSA plan is a really great way to save additional money tax-free that grows tax-free. And then I think at like, I want to say 65, 75, 80 whatever, you can start pulling it out just for random expenses.
Scott: Yeah, I think the HSA is a powerful tax deferred wealth building vehicle that can be you you you you can put the money in tax deferred, you can withdraw any contributions and gains tax-free for qualified health expenses and you can treat it like a traditional 401K after a certain age limit is reached. So it’s a really powerful both building tool if you have good investment options available inside of your plan um in particular. So, I think those would all be things to research. Your challenge will be, okay, the HSA maximum contribution is $3650 per year. So that’s a lot for you. That’s that’s gonna be two and a half months of of your savings are gonna go just to filling out your HSA. Then you if you want to do your Roth, that’s another, what’s $6,600? what’s the limit this year, Mindy?
Mindy: Oh, Roth,
Scott: The limits this year are $6,000, sorry. Um, so now, now you’re at 9,650. That is more, that is that is half, more than half of your annual savings that leaves you with 9,000 left to either put into these retirement, these tax deferred retirement accounts or um begin putting into after tax things. So there’s a trade off that you’ll have to get clear on and say, what is that ideal portfolio look like in 10 years when I want that optionality um in my in my life? And what are the trade offs I’m going to make? Am I going to max out the HSA, the Roth, um, and an ideal world, we can do all of the above and still have lots of liquidity. But um we’re going to have to make trade offs in your situation.
Guest: Right. So that’s I I guess that’s kind of what I’m wondering is it worth doing it all? Or should I just believe it as an FSA for now and keep investing as I am because it’s not something I can change until January, but I don’t know if it makes any, if it makes that much difference. Or if that’s something to save for when I have a higher income?
Scott: Yeah, I I guess from from my standpoint, personally, how I’d approach it, would I I’d be like, okay, um I’m not, I I need to crush this bachelor’s degree and get um and get this raise. I need to do it as soon as possible. That’s the biggest lever of my my financial position right now. If I can speed that up to two classes a month or one class every three weeks, um I’m going to, I’m gonna figure out how to do that and and advance that graduation date because that’s the biggest lever in my my financial position. After I get that, I’m gonna get the get the wage increase um and leverage that to either be able to find a house hack in the local market or get a new job in a different market where that where that is conducive and begin adding real estate or at least offsetting my housing expense to some degree with that. And then I’m going to look up in 2024 and be like, okay, I don’t have that $1,400 a month in rent, and I don’t have the $200 in gas every month. I’ve brought those down. And now my net is just $200 to live. So, I’m now saving another $1,500, $1400, $1500 per month on top of my. Now my savings rate is $3,000 a month. Plus I have a raise um from from from my job, which is another two, one th $1000, $2,000 a month. Okay, now I’m saving $4,000 a month. That’s $50 grand a year. Now over the next eight years, I’m going to generate $400,000 in investible liquidity, and I’m going to place that into stocks and or real estate investments either by continuing to buy living flips or house hacks or by just buying rental properties in some in some location in addition to my investing in index funds, which may go on, and after-tax brokerage accounts or these retirement accounts. So, that’s kind of how I would be trying to think about the situation is how do I leap forward to those inflection points where I actually have some of these options? If you’re going to go down that route, if you like what I just said, then the after-tax liquidity is going to be relatively important because in the next year, you right now you have $23,000 in cash. In the next year, you could save up another 20. That gives you $40,000. That’s a reasonable position to buy, I think a a a a property with. So that would be a powerful, like that would be one way to think about is I’m I’m going to forego the HSA contribution and being really heavy in the Roth or my my taxferred plans, and I’m going to instead focus on after-tax liquidity to pursue that plan. But if I’m thinking, I’m just going to be at the school district for the next 10 years, kind of doing what I’m doing, maybe working some side jobs. Okay. And and and I just really don’t think that the house hack or live and flip options are realistic for me, then I think you leave your cash position the way it is and start going down this ladder from an HSA Roth IRA and tax-ferred account investing perspective.
Guest: Okay, that makes sense. That I was definitely looking for some direction there cuz I just I had no idea. You know, like I said, I just I never thought I would be in this spot that I could have these conversations. I just thought I’d work forever. So this is, it’s fun to talk about for sure.
Scott: You’ve got the savings because you’re in such clear command of where your money is going. So you’ve got, you’ve got the the defense down so in in such a strong way right now. And that’s going to give you the option to build lots of wealth here. So it’s a matter of where you build it and and how you how you want to do it. And in in case one, I’d go all out on trying to build a an accessible, controllable after tax position, and that’s if I’m going to use real estate and other and side businesses or whatever to aggressively build wealth on the side. And if I’m not going to do that, then I’d go down the more traditional path of thinking about maximizing retirement accounts and um it’s and and investing and building that pension benefit.
Guest: Okay, yeah that makes a lot of sense.
Scott: Awesome. Mindy, you have anything to add?
Mindy: I don’t. I think we’ve covered it. I think we’ve got some things to work on and some research opportunities. And, you know, I think we’re in kind of a a waiting game right now with the the college degree and the, you know, helping the the son with his rent, and, you know, those are going to free up, free up time, space in your budget and increase income down the road. So I think 2022 and 2023 are just keep on the same track and, you know, think about where you want your, your funds to go and, you know, research some of these things, the the uh target date funds, the specific index funds that you want to be involved in. Um, I would also say read the book A Simple Path to Wealth by J. L. Collins. Um, that’s a great easy to understand, he doesn’t get really deep in techno, like technical mumbo jumbo, it’s really easy to understand a path to index fund investing and, you know, the the why behind it.
Guest: Okay. I will do that.
Mindy: Okay, great. Well, Amanda, thank you so much for your time today. This was a lot of fun, and we’ll talk to you soon.
Scott: Yeah, thank you so much.
Guest: All right, thank you.
Mindy: Okay, Scott, that was Amanda with an interesting and unique story that we haven’t heard before on this show where she’s got about 10 years on her financial independence journey.
Scott: Yeah, I think, I think it just depends on what action she’s willing to take, right? You have to there’s four levers, as I stated earlier in the show, you can spend less, you can earn more, you can invest and you can create. and right now, Amanda does not have a large amount of assets with which to invest. starting a business or creating seems a little bit out of reach while she’s working a full-time job and pursuing her bachelor’s degree. And so it’s really about focusing what she can control and working step by step to finish this bachelor’s degree, open up options and then decide, does she want to be aggressive and creative as an investor uh and go the more risky or and potentially more scalable route of real estate investing or side businesses or those types of things or does she want to go all in on the career with the school district? And that will that will provide stability, um the ability to build wealth, a pension that will grow over time and can be a really good option um for her over the next couple of years. So I’ll be interested to see kind of how that unfolds for her over the next couple of years and which path she goes down.
Mindy: Yeah, that’ll be very interesting. Should we get out of here, Scott?
Scott: Let’s do it.
Mindy: From episode 318 of the Bigger Pockets Money podcast. He is Scott Trench and I am Mindy Jensen saying in the immortal words of Darth Vader, live long and prosper.
Scott: What? I no. That was Spock.
Mindy: I know.
Scott: Okay.”
: Okay.
