Mindy Jensen: Welcome to the BiggerPockets Money Podcast, show number 304, Finance Friday edition, where we interview Colton and talk about making a prioritized set of investment and debt paydown decisions.
Scott Trench: Here’s a problem I’m noticing overall about your situation. I got student loans here, some that I might pay off, some that might be forgiven. I’ve got this cash position. I’ve got a little bit in 401(k)s. I’ve got this live-and-flip project I’m doing. I’m spending my free time flipping furniture that I’m driving around picking up and sending around, right? I think what I would advise is you make a prioritized list of these opportunities and then go more all in on your top one or two of them.
Mindy Jensen: Hello, hello, hello. My name is Mindy Jensen and joining me today is my co-host, Scott, not just another pretty face, Trench.
Scott Trench: Thank you as always for the great-looking introduction, Mindy.
Mindy Jensen: 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’re starting.
Colton: That’s right.
Scott Trench: Whether you want to retire early and travel the world, go on to make big-time investments in assets like real estate, or start your own business, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams.
Mindy Jensen: Scott, I am excited to talk to Colton today. He has a great set of circumstances with a little bit of a monkey wrench. He makes a great income, but he’s got some student loan debt to tackle.
Scott Trench: Colton has tremendous positive cash flow, but he’s got huge amounts of student loan debt. He’s got a live-and-flip going on. He’s got a side hustle. His wife’s a veterinarian. They’re about to have a baby. There’s all these different convoluted things, and they’re tugging at different financial strategies. Today, we have to unpack that convoluted situation between life, debt, investment options, house hack, live-and-flip, and two different careers, and come up with a prioritized set of initiatives and design a financial plan around that.
Mindy Jensen: Yep. I think he’s got a lot of great opportunities. We just have to focus on which one is the best for him given his different set of circumstances. Colton, I am required to tell you that the contents of this podcast are informational in nature and are not legal or tax advice, and neither Scott nor I nor BiggerPockets 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. Okay, Colton. Colton and his new wife have a great income, but they took out some hefty student loans to help finance their college degrees. Those loans are now in forbearance, and they’re looking for tips for what to do with the extra cash that they have on hand. I said extra cash in air quotes because, as we all know, there is no such thing as extra cash. If you have extra cash, go ahead and send it to me. Colton, welcome to the BiggerPockets Money Podcast.
Colton: Thank you so much. Great to be here, Scott and Mindy.
Mindy Jensen: So we’re going to jump right into it because we have lots of things to talk about. Colton, what is your income and where does it go?
Colton: Yeah, absolutely. So roughly we bring in around $11,000 to $11,500 depending on the month. That’s a combination of W-2 income, and then I do kind of a little side hustle on the side doing some flipping of furniture and things like that on Facebook Marketplace. That’s very minor in the scheme of things, but it does pay for some bills here and there, pays for car payment. That’s kind of the main reason I do it, is to pay for the truck, justify that truck payment a little bit. So that’s the income side of things. You want me to go into liabilities or expenses?
Scott Trench: Is that pre-tax or post-tax?
Colton: That’s net.
Scott Trench: So that’s net. Okay. So that’s cash coming into your bank accounts?
Colton: Exactly.
Scott Trench: Yeah. $11,600?
Colton: Yeah, approximately.
Scott Trench: $11,600. Okay, great.
Mindy Jensen: Yeah.
Scott Trench: Where’s that going? What are your expenses like?
Colton: Yeah. So we just bought a house in January. The mortgage on that is $2,500. Our utilities, a little south of $200, so we’re at $190. Cell phone, $98. Internet’s $45.
Scott Trench: And where are you living?
Colton: Reno, Nevada.
Scott Trench: Reno, Nevada. Okay.
Colton: Yeah. So internet’s $45. Car insurance combined is $190. Food varies by the month, but we kind of average about $800. And I know there’s room for improvement there, but we buy organic and we eat pretty healthy. And not to mention, my wife’s pregnant, so that kind of throws a wrench into things.
Scott Trench: Awesome!
Colton: There is no choosing as to what we eat. The baby chooses at this point, at least for the most part. So gas for the vehicles, we average about $180. We both work remotely, so that’s why that number seems pretty low. We kind of force ourselves to get out of the house sometimes to actually use that gas budget. We have a dog. Between his pet food and pet insurance, it’s about $175. That seems also kind of high, but my wife has a veterinarian background, so that food is very expensive. And pet insurance, most people don’t have, but it is an expense that we justify. A miscellaneous category is kind of random things such as gym, gifts for friends and family, and some household expenses. I put that at about $400 per month. And that varies. It really depends when you need to buy toothpaste or toilet paper, things like that. Entertainment category also varies. It’s about $125 per month, plus or minus, depending on the month. We have two cars, as I mentioned. We have a truck and an SUV. The combined car payment on that is $624, with a little bit skewed towards the truck because it’s a little nicer, a little newer. So that breaks down to $322 and $302 on the SUV. We have an orthodontic payment that we have at 0% interest that we’re debating killing with some FSA money. But right now it’s $246 a month. I think the term on that is— I think there’s about nine months left on it. So we’re debating if we just keep it at 0%, keep paying it, or just knock it out with some FSA funds that need to be used regardless by the end of the year. And then lastly, we have subscriptions, Spotify. I think Amazon is amortized over 12 months on that as well at $30. So not terrible on the subscription side of things. So if my math is right, or if Excel is right, that’s about $5,603. And then in August is when student loans may or may not kick back in, and that will be an expense of $1,000.
Mindy Jensen: Okay.
Colton: $2,240 would be our minimum payments if it kicks back in in August. So that will be added to our total expenses if that forbearance does not get extended.
Scott Trench: Great. What are your assets and liabilities? We got a lot of tactical items there to go into, so that’ll be fun. We’ll come back to that.
Colton: Yeah. So the assets, our cash position, we try to keep it about one and a half to two months right now just because we have some things we’re trying to pay down, such as the cars. There is a balance transfer card, which I’ll mention, on liabilities, that we’re going to strategically pay down here over the next six or nine months. So cash position really depends. We just bought the house too, so it depends on home improvement matters as well. We just had a fun irrigation project, so that’s a little dampener on the cash position. Equity in the house is approximately $100,000. I mean, that’s really just based on the Mint number that I’m looking at. That’s just an estimate. We could probably list the house for a little more than that right now, but obviously we’re not looking to go anywhere. I just threw that in there. The truck technically has equity in it. Vehicles obviously are not assets, but I mean, they’re still, if we needed to, if we could sell the vehicles, downgrade and get something cheaper. So there’s approximately $14,000 value in the truck. I’d put approximately $8,000 to $10,000 value in the SUV. There’s only about $4,700 left on that loan. I have a 401(k). It’s sitting at about $6,000 with my current employer. I have a rollover IRA, so it’s just a traditional sitting at $25,000. A Roth IRA sitting at $5,500. And then my wife has a 401(k) at approximately $10,000, plus or minus. I didn’t check that 100%. And then she has a Roth IRA as well, sitting at about $6,000.
Scott Trench: Awesome. So what do we peg your net worth at here?
Colton: Not including student loans or including student loans? Mint technically says net worth is around $100,000, I think. But I don’t put my student loans on Mint because I don’t like to see that number pop up. So that was assets. I mean, if you’re including the student loans, we’re technically negative, in the negative, approximately mid-$200s. I actually haven’t done that calculation exactly, just because forbearance has been in place for so long that— not that we forgot about our student loans, it’s that the payments haven’t been required for this whole time.
Scott Trench: Got it. Okay. And what are your goals? How can we help you here?
Colton: I had mentioned to Mindy that I’m looking for some live-and-flip tips, because we just bought a nicer house that was mid-renovation when we purchased it. Kind of curious, you know, because Mindy has some experience obviously with live-and-flips, and that’s her arena. That’s one topic I’m curious about—some home improvement, how to help on the cost side of things when you’re doing that live-and-flip. How do you stay sane with your spouse, those types of things? And then, when we just purchased in January, we put down 10%. So we have PMI. I’m curious about strategies you might think about, when we should think about doing an appraisal, because the market conditions—I think we’re pretty close to that 20% mark, which is kind of crazy. It’s only been about four months since purchasing. I think we’ve got to hit maybe $5K more to be at that position where the PMI might be shut off. It’s a traditional loan, so it’s not FHA, so we’re not stuck with it for the course of the loan. But we’re kind of curious when we might start thinking about that, because we don’t want to pay for an appraisal just for fun. And then, a secondary point, is thinking about a potential HELOC once there’s some equity in the property, to do some of these renovations. Nothing is in dire need, but the kitchen’s a little— it’s as old as the house. It’s, I mean, 20, 21 years going on now. So there are some upgrades that could be done there. So kind of twofold on that: when might we start thinking about getting rid of that PMI? And kind of a naive question is, I assume that we’re paying for that appraisal. I don’t know the process behind that. I’m not sure if either of you have experience shedding PMI. I know the FI community hates PMI and they’re allergic to PMI, but in our situation, we were comfortable taking on the PMI. Our lender was phenomenal. We got a really good rate at the end of 2021, closed early 2022, and then obviously the rates have gone up since. So we’re sitting at a very good interest rate on that mortgage, at 2.99%. PMI is only about $100 a month, so it can improve our cash flow a little bit, getting rid of that $100 off of our mortgage. But yeah, I’m just kind of curious about strategies on that point. And then, if we have time, I’m curious if you think that downgrading the truck might be a good idea to get rid of that truck payment. I think my wife’s pretty set on keeping her vehicle, so that’s not on the table at all.
Scott Trench: How about longer-term goals? Is there anything like, where do you want to be a couple of years from now from a financial standpoint?
Colton: Yeah, a couple of years from now, my wife and I foresee paying down loans, targeting mine first, because there are some strategies where she could pursue the forgiveness side of things. She’s on that pathway right now. We’re not 100% sure if we’re going to stay on that path, because it’s 20 years for forgiveness on her pathway, which she’s part of the way through already. So basically, you pay the minimums on that income-based program, and then you are forgiven after the set timeframe. So mine, I’m just paying traditional. So the goal would be to tackle those student loans on my side and then potentially tackle hers and maybe pay them down faster, just avoid the income-based program payments and get it paid off sooner. The way we’re thinking of doing that is through real estate. We just bought this house and it’s— I call it a live-and-flip. It’s a nicer live-and-flip. It wasn’t that dilapidated when we moved in. I foresee either renting out this property and moving to another house, and either doing another live-and-flip or house hacking to some extent if we can get a duplex or triplex or quadplex. But as I mentioned earlier, our family situation has recently changed. So we’re due in August. We’ll see if the baby dictates no house hacking or no duplex. Duplex would be fine, but house hacking, sharing bedrooms, is probably not in the picture. So we’re in a different stage in our life. I think five to ten years ago, I probably could have house hacked a lot more. I could have done what— was it Craig Curelop? He lived in his living room and rented out every single square foot of his house that was possible. We’re a little beyond that phase, I think, just because of family planning and just where we’re at in our careers, those types of things. So eventually, I think ramping up the real estate side of things, and probably with property management, would be my thought. I don’t know if I really want to be on the ground doing all that irrigation and toilets and all those types of things, but we’ll see. We’ll see where things go.
Scott Trench: Great. Well, that’s super helpful. Thank you for sharing all that. Let me just make a couple of high-level observations about your position here. We know you’ve got the $300,000+ in student loan debt. Is that right?
Colton: Yep.
Scott Trench: You’re accumulating cash at a great clip. You’re accumulating $5,000, $5,500 per month after tax. That’s hitting your bank account right now, on average.
Mindy Jensen: Yeah.
Scott Trench: Okay. So that’s $60,000 per year. Was that $60,000? $65,000 per year. So you’ve got five years, if you want to pay off your student loan debt. You could just do that for five years and it’s paid off, plus whatever the live-and-flip equity comes in, if you’re able to generate equity on that.
Colton: That’s with the caveat that that’s without student loans. So we’ll see what happens with student loans. So I don’t know if it won’t be a five-year timeline necessarily, because with student loans, that takes our cash position down $2,240 each month.
Scott Trench: Well, that’s perfect. So we need to face this problem head-on, right? The bogey in your financial position is the student loans. And you don’t include it in your Mint because you probably don’t like looking at it too much. And there’s the forbearance and all that. But let’s approach it head-on. That’s coming back in August. Maybe it’ll get postponed again. But that’s the elephant in the room for your financial position. I’ll tell you that it’s a lot, but what you just told me from a savings rate perspective, it’s not that much. You’re saying, hey, I’ll have the baby in August. There will be additional expenses that come with that. You’ll have to pay interest on the student loan debts whenever they come out of forbearance, but you’ll also get a raise at some point in the next couple of years. Your wife will make more income at some point in the next couple of years if she chooses to continue to pursue that, or depending on the student loan forgiveness programs—sometimes they don’t have quite as much income generation potential on those. But you’ll have plenty of options to generate more income in addition to some additional expenses. So, puts and takes on that, I’d still give you five years, maybe less if you get lucky with a couple of things with the live-and-flip. So that’s— is that a grind?
Mindy Jensen: Yes.
Scott Trench: But is it insurmountable? No. The other option you have there to eliminate these student loan debts is to invest instead of paying them down. If that’s the case, then you said you’re going to pay $2,250 per month on those student loan debts as required payments, essentially, when they resume in August. Is that right?
Colton: Yes.
Scott Trench: At that point, you’re going to generate $35,000 per year after-tax in cash. Let’s call it $36,000, $37,000 per year in after-tax cash, again, with the opportunity to potentially expand that to some degree, and again, with the opportunity to have live-and-flip income. There’s another case there where you invest that and then pay off the student loans in lumps over the next 3 to 5 to 7 years, or 10 years, depending on how you want to manage it.
Colton: Right.
Scott Trench: That will come with perhaps less linear gratification of paying off one loan, then the next, and the next, and the next, but maybe more wealth at the end of that 7- to 10-year time period. Have you thought about it with that lens before?
Colton: Yeah. We even have friends who— being in the veterinary industry, she’s in one of the industries where you take on a lot larger loans than the income potentially justifies. I mean, there’s a debate on that. It’s a passion industry, so a lot of people do it for the passion, not for the money. The loans, I mean, it’s crazy that they’re similar to being a doctor in human medicine. So we’ve talked to people who have kind of done that grind, especially during COVID, where they were looking at it at 0% interest and were paying it down that whole time. Retrospectively, do we wish we would have done that? Probably. Were we in a position to do that? Probably not. We kind of checked all the boxes at once. We got married, we bought a house, and now we’re having a kid. So we were kind of progressing through our relationship, family planning, all of that. I think looking forward, we have thought about—we need to, like you said, kind of do that grind. And potentially look at some of the buckets that we have and see if we can pull back on some of them, or see if we can increase our cash flow to some extent too, because then that would accelerate that process even more. But even at our current position, I agree, we can just grind it and get it done, probably five, six-year mark, maybe faster if our careers accelerate faster than we anticipated.
Scott Trench: Remember, all these different things will happen over that same time period. You have two cars, both of which are financed. How long is the loan term on those cars? When do you pay off the first one or the second one?
Colton: The SUV is a shorter term. It’s only got $4,700 left on it. I think that would be paid off if we just kept paying by middle of next year, I think, is approximately where it would be at. The truck was a 60-month, and I just took it out last February. So we’re still looking at 4 years and change on that. That’s another potential strategy, is kill those car payments. So either paying them down or selling and downgrading to something a little— get a beater truck or get a beater. Ironically, I owned a Corolla that was paid off before I bought this truck. So I put that in my notes to Mindy. I was the FI-friendly Corolla paid off, and then I decided I wanted to buy a truck because we camp and we hike and we kayak and, you know, we cycle and all those types of things. So the recreational piece, living in Northern Nevada, we wanted a vehicle that was easy to do all of those things. But ironically, in 2021, we didn’t get to do a lot of that because of the crazy fires from California, Oregon—everybody was on fire—and our air quality was probably— I think it was the worst in the world at the time. There was a lot of news articles about—
Scott Trench: We had a similar thing here. It probably wasn’t quite as bad, but yeah, we went on a trip to Fort Collins around that time, and it was raining ash from the sky from one of those fires.
Mindy Jensen: I live by Fort Collins, and it was raining ash in my pool. Yeah, so, okay, I’ve got a couple of things. First of all, let’s go back to the student loan thing, because you had mentioned a forgiveness plan that is 20 years long. And how— are you any sort of like timeline into this, or have you not yet started the 20-year forgiveness plan yet?
Colton: Yeah, so it would apply to her loans only. All of her payments would qualify, and also the forbearance months also supposedly qualify. There’s been some news articles about some servicers not properly applying them and things like that. I think that’s probably been straightened out recently. But yeah, every payment she’s made since getting out of school has been towards that. So I think she’s in like the 4 or 5-year mark on that.
Mindy Jensen: Okay.
Colton: But really the calculation is, can we pay it down faster than waiting that additional 15, 16 years? Yeah, absolutely.
Mindy Jensen: Yes, you can.
Colton: Yeah.
Scott Trench: How much of the loans are hers?
Colton: Approximately 2/3.
Scott Trench: 2/3. Okay. So like $100K, $115K?
Colton: 2/3 of $300K? No, she’s in the $200K range.
Mindy Jensen: $200K.
Scott Trench: Yeah.
Colton: So I’m like, yeah, that math doesn’t—
Scott Trench: Wow. Whoopsies. I’m not supposed to be doing this. Yeah.
Colton: No. Yeah. So she’s in the $200K range. I’m just north of $100K.
Mindy Jensen: Okay. So I don’t think what is really promoted in this forgiveness plan is that you will owe taxes on the amount forgiven. And $200,000, taxes on that is going to be a fair penny. That’s not over the course of 20 years. That’s all in one year. So I am with Scott, since you are 5 years into it. If you were 19 years into it, I would have way different advice, but you’re 5 years into it and you would have already been paying those loans anyway. I would go with Scott’s advice to try and tackle— I mean, first tackle your loans and see where you are. Continue to pay on hers when the forbearance is over, start back up with the payments, but tackle yours first, because you don’t have any benefits to keeping yours for a super long time. So pay all of yours off and then look at your financial position. Okay, now we’re, you know, 7 years into her loans, and it looks like we could just knock them out in a couple of years. Do that, because 20 years—that’s you having to work for 20 years and pay for 20 years—whereas you could be done with it and on your way to financial independence.
Scott Trench: I would say I’m not necessarily in camp grind-and-pay-them-off. I’m definitely in camp grind, but it’s camp grind-and-then-pay-it-off, or grind-and-invest-in-alternative-assets-and-ignore-the-student-loans-or-make-the-minimums-on-them. Those are the two options that I see here. It’s a huge bet, one direction or the other, about what’s going to happen over the next 5, 10, 15 years from an economic, personal standpoint, to make that decision. There’s no right answer there. I think that’s something we can discuss at this point. I do think that it would be wise, if the interest rates are close, to pay off your student loan debts first, if you’re going to pay off the debt, and then attack hers. But if you find, hey, it took us a year and a half to pay off my student loans of $100,000, and now, a year and a half later, I got this promotion at work, my income’s at this level, inflation has been really nice— inflation’s your friend in this particular scenario because higher inflation means that the debt value is lower in a few years in real terms than it is today, and you’ll hopefully be earning more with that. Those would all be positions to think through in terms of paying it off. But I don’t see any reason why you guys would have to, in this situation, wait 20 years to get forgiveness on this. In 20 years, you can build a position that’s worth millions of dollars, literally with compounding and investing. So why would you sacrifice that or box yourself into a corner for $200,000, 1/10 of the amount that I think you could reasonably accumulate with your income over a 20-year period?
Colton: Absolutely, I agree on that. It’s just kind of an interesting calculation, because if she were to go on a standard plan, that minimum would jump up surprisingly. So it’s kind of a weird strategy to stay on the income-based until mine is paid off. I think that’s what we’ve determined is the best way to do this. And from a tax standpoint, it also throws a wrinkle into it, because I don’t think she would qualify on the income-based if we were married filing jointly. So this year was our first test on that—we had to file married filing separately in order for her to keep that income-based plan, which kind of threw a wrench in it. We’ll see what 2022’s taxes look like.
Scott Trench: That’s gonna— you should think through that once you have your regular strategy, because those loans are still accruing interest, right? The pile is getting bigger and bigger. If you do decide to pay it off, that might be biting you because you’re paying more in joint taxes together. And if you do decide to pay it off, you’re just going to be piling interest onto the pile that you’re going to pay off in the next couple of years anyways.
Colton: Yeah, good point. That’s an analysis that we have yet to do. But it’s a point that we were looking towards because of the tax deadline that just passed. So we did it married filing separately just for this year, just to kind of keep it a little less complicated. And I don’t think we’re going to change it in the short term. I think that loan minimum would bump up to— because mine is— my minimum is $1,590, which is almost a mortgage payment in itself. Obviously, our mortgage is more than that. But I just listened to one episode where the woman in Southern California had a $1,600 mortgage. And I’m just like, that’s my student loan payment. So I was over there cringing. I’m like, I wish I lived in— I think it was San Diego, or wherever she lived in Southern California. And she said she has a $1,600 mortgage payment. I’m like, yeah, I would take that. But yeah, I mean, I think the analysis there is it’s going to be restricting our cash flow significantly if we were both on standard payments. So, I mean, backing into that math, we probably still would have made like, probably $2,000 or $1,500 left over if we bump up those student loan payments to standard plan on both. But yeah, I mean, we’ll do that analysis. There’s definitely an analysis to be had there of—
Scott Trench: That’s going to be the right choice if you decide, I’m going to spend 5 years and pay these things down aggressively, then you combine the income, you get the tax advantages, and aggressively pay them down. If, for example, you go with the other avenue and say, I’m going to buy a bunch of real estate and stocks, or I’m going to invest and try to arbitrage the spread between my interest rate and what I can get from a return perspective, then what you’re doing may make sense, because you’ll preserve more cash flow to invest in those types of assets.
Colton: Yeah, that’s what gives me pause—the opportunity cost of where could that cash be deployed in investments. Could we generate significantly more money by doing investments rather than paying them down on those standard plans? So there’s definitely an analysis that needs to happen there.
Scott Trench: Which of you has more time to invest outside of your work activities?
Colton: We’re pretty even as far as spare time.
Scott Trench: Okay. And are you both kind of jointly interested in the real estate space?
Colton: I would say I’m more interested than her. I’m sitting here listening to BiggerPockets 2, 3 times a week, ChooseFI, all these types of FI podcasts, things like that. And I tell her about it and she kind of just, yeah, yeah, yeah, we’ll get there, we’ll get there. I’m definitely the one that’s the more frugal one, the one that’s saying, we should do this, we should have a game plan for this. So I think I would be the one sort of starting those conversations. But we do pretty well. I mean, we do our money dates about once a week, trying to stay on the same page. That’s something that I definitely picked up from you guys. That’s an awesome tip, staying on the relationship page as far as finances go. And these conversations have come up on student loans. Do we invest and just ignore them, so to speak, and keep these minimums? Or do we both go to standard plan? There’s definitely an analysis that needs to happen there, but I don’t know what the right answer is. You just kind of got to pick a path and go with it.
Scott Trench: Yeah, that’s going to be the big thing—you have to make a large decision with imperfect information. The sooner you make the decision, the better off you’re going to be either way. It’s like, I’m going to either pay down these things aggressively, or I’m going to invest and go all out in that. You’re going to generate $60,000 in cash this year. It’s a question of whether it goes to student loan payments or whether it goes to real estate. You’re going to generate at least $35,000–$40,000 in cash this next year. Where are you going to put it? The question is, if I’m going to sustain real estate as a 10-year plan for my wealth-building approach, then maybe that makes sense. If I feel like I’m going to be a very casual participant, in and out of that, while I’ve got all these other demands on my time, then maybe the student loan payments make a lot more sense. That’s super simple—you just pile the money into the student loans, and you passively invest in index funds once you get them paid off, and have a little party, and then go on. Either way, in 15 years, when your student loans would have been forgiven, you will have a much larger pile of money, in my opinion, doing it this way, and 10 years of your life with optionality—for your wife, at least—that you wouldn’t have had otherwise, or 15 years that you wouldn’t have had otherwise.
Colton: Yeah, it’s kind of funny. The conversation shifted on that forgiveness because it seemed like that was what she was gung-ho about. When I first met her, she met with a financial planner. She knew about the tax penalty, and so she was kind of setting some money aside, planning for that. And I kind of was scratching my head like, does that really make sense? Like, you could tackle that a lot faster than 20 years. Like, even if you had a 10-year timeline on it, you could pay it down faster. So yeah, I think the conversation shifted towards, yeah, we’re gonna kill both sides of the student loans, mine and hers. It’s just picking that strategy that we want to go with—there’s a little bit more analysis that we need to do there. And then we need to just pull the trigger and do it. Yep.
Mindy Jensen: So something that we haven’t talked about is the fact that there’s 7% interest and they’re federal student loans. And when we spoke with Robert Farrington from The College Investor, back on episode 267, he said for everybody who has already refinanced out of their federal student loans, the forbearance doesn’t apply. If you have not refinanced out, now’s not the time to refinance out, because you have a 0% interest rate and it’s in forbearance, so you don’t have to make any payments. Once it comes out of forbearance—and it is currently at the end of August, as we record this today on April 26th, but who knows, maybe like every time I record an episode about student loans, the next day the government’s like, hey, we’re going to extend it. So it’s probably going to be extended. There you go, Colton, that’s my gift to you—I’ve extended your student loans by talking about them. But, you know, once they come out of forbearance, 7% seems like a high interest rate. I would look at what you could refinance out. I think SoFi refinances student loans. I know SoFi does. I don’t know who else refinances student loans. This is one area of the world where Scott and I are actually rather uneducated, because we didn’t have student loans. But Robert Farrington from The College Investor and Travis Hornsby from Student Loan Planner both have a lot of information on their websites about student loans and where you can refinance, and repayments and things like that, the forgiveness plans, etc. They can help you make a more informed decision about your choices. But I think once you do come out of forbearance, look into refinancing. And interest rates are going up, so maybe that’s going to be a really great rate. It certainly has helped you over the last 2 years to have a 0% interest rate.
Scott Trench: Yeah, and I like the real estate and the house hacking for this as well, right? You put— you add value to your house via the live-and-flip in a really calculated way, and then you cash-out refinance, or you have the option to cash-out refinance if and when interest resumes, forbearance ends on these student loans. Now, you’re swapping that 7% rate for a 3.5% or 4%, or maybe 5%, depending on where rates go this year, in your home equity on a 30-year amortization period, which may be more advantageous than your payments for your— well, for owner-occupant, I can’t imagine the rates jumping past 6%, Mindy, on owner-occupant loans this year. Famous last words, but we’ll see.
Mindy Jensen: I don’t know that they’re not there now.
Scott Trench: For owner occupants?
Colton: Yeah, they’re close to 5.5% right now. So I wouldn’t be surprised if they’re at 6%.
Scott Trench: I’m going on an investment property at 5.8% right now. But I didn’t realize that was the case for owner occupants as well.
Mindy Jensen: When did you lock it in?
Scott Trench: Like 4 weeks ago.
Mindy Jensen: Yeah, there’s been a lot of change in the last 4 weeks. It’s unreal how fast rates have moved. But yeah, I mean, that’s— I think that’s a good point. Hey, if you’re looking at rates, get quotes early, get quotes often, because they’re changing rapidly. That 2.9% interest rate that you have on your house, I would not pay an extra dime towards that, because that is— I’m assuming that’s a fixed rate.
Colton: Yep.
Mindy Jensen: Yeah, don’t pay an extra dime on that. Your truck is at 1.9%. I wouldn’t pay extra on that. Your SUV is at 3.5%. In my opinion, with $4,700 left over and you generating $5,400 extra in cash, knock it out now, pay it off, and then take that payment and put it towards something else. I mean, it’s 6 of one, half a dozen of the other, but you don’t have to think about that anymore. You casually mentioned that maybe you could get rid of your truck. I don’t see your truck as being a huge burden to you financially.
Scott Trench: Yeah.
Mindy Jensen: However, if you want to free up $14,000 or $28,000, take that truck and sell it. Get a tow hitch on the back of the SUV and buy a trailer off of Craigslist. I just quickly looked in your area—there’s one for $1,500. So sell the truck, get whatever kind of car you want. You have a tow hitch on the SUV, now you can pull the trailer around and still pick up your Craigslist items, still take your kayaks. You’re not going kayaking anytime soon with a baby on the way, or biking. So maybe you don’t even need the trailer right away. You probably do, if you’re gonna do more of that Craigslist stuff. But I think that would be a personal decision. I don’t think that’s the difference between success and failure financially for you.
Scott Trench: I agree. You got a really strong income. You’re $11,000 after tax. That’s probably like $175,000 a year in combined income. Right, somewhere in that ballpark for pre-tax. Is that about right?
Colton: Yeah, it’s a little more than that, because we have health insurance, 401(k) backed out of that. Our employers don’t cover 100% of the health insurance, so it’s a little bit more than that. But yeah, it’s a strong position and I don’t see that as a breaking point. It’s just an easy target in my mind. That $14K equity in the truck could be applied towards other things, or even put it in a brokerage account and put it in VTSAX and let it ride, right? Like, you know, there are strategies there.
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Scott Trench: I think you’re in great shape from an overall strength of 10 years looking back. If you look back 10 years from now, you’re going to be able to accumulate a large amount of wealth if you stick with one of these variations of the plan and crush it, and continue to generate that cash flow and put it towards your financial future instead of buying things with that. But you can afford to have a few luxuries along that journey and still crush your financial goals, because of the income and expense gap you have. And this truck may be one of them that’s super reasonable in your position, if that’s something that you’re going to use and enjoy. If you’re not, then I think Mindy’s suggestion is great, and do something else. But you can definitely, both of you, have a $500-a-month expense guilt-free, I think, in this particular situation. That’ll delay you somewhat, but it won’t change the game for you in a huge way. You’ve got a huge surplus. You can take 10% of that surplus and enjoy life a little bit here.
Colton: Yeah, absolutely. We try not to live this super frugal life, but we try to be frugal where it makes sense. When I was looking at trucks, I went to Toyota and Chevy and test drove the brand-new shiny one for 40— $45,000, and I didn’t see a difference between that one and the used one that I bought on Facebook. The guy on Facebook was a firefighter. He had like 60,000 miles on the truck, and it was like a brand new truck to me, and I paid half the price for that truck. So that was kind of a frugal win in itself that I was like, oh cool, I found this truck that was 4 years— 4 years old, not a brand new off the lot, but brand new to me. So, yeah, it just kind of hurts on the car payment because I just haven’t had a car payment in so long. That, you know, going from that Corolla, which was very, very frugal, very gas-friendly, very— everything about it was cheap. The registration was cheap, the insurance was cheap. And then everything about the truck is polar opposite. It’s not a crazy gas guzzler, but it definitely is a luxury. So that’s just why it’s— low-hanging fruit is all.
Mindy Jensen: It is. And if it weighs heavily on your mind, then sell it. But I don’t see it as a big problem.
Scott Trench: I agree.
Mindy Jensen: A moment ago, Scott said that he is on Team Grind, and I am going on record as being opposed to Team Grind. And a lot of people know that my husband has a blog, and he wrote an article called My Death March to Financial Independence. He published it in 2017, and it was kind of a recap of all the things that we did. We didn’t enjoy ourselves. We pushed and pushed and pushed and pushed, and it was a big grind. And he was working full-time and flipping a house full-time, and I was momming full-time. And it was just this, like, we never took a break ever. And you have a similar income to what our income was when he was working. And it wasn’t any fun. And I want to send you that article. I’m going to link to it in the show notes because I think it’s really important to read and remind yourself that, you know, life is still meant to be enjoyed. And I’m saying this right here like I live it now. I’m still learning this lesson. But if I can take my years of knowledge and pass them on to you at your age to enjoy your life instead of just push, push, push, you know, if you get to financial independence, it’s 3 years later, but you enjoyed the whole journey. That’s better.
Colton: Yeah, I agree.
Scott Trench: Yeah, I would completely agree with that, with the caveat that you need to set up a lane that you’re comfortable swimming in for a number of years, right? Knowing that if you do what you’re currently doing right now, and the student loan debts, for example, remain, you know, with that, you’re going to generate $60,000 in cash per year, ideally a little bit more than that, with puts and takes over the next couple of years. Baby coming in, but also hopefully raises, promotions, income increases at work with that. And that’s the journey. So if you want to delay that to 6 years or 7 years to have more of the comforts during that journey, that would be totally fine. But set up the grind— we can use a different word if you want— the journey and the parameters, and you just need to cruise with that over a period of time, either investing or paying down the debt. And that’s the reality of your situation. It’s not a bad situation. You’re going to be able to accumulate a lot of wealth if you stick with that, but you can’t escape the fact that there’s going to be time that needs to pass while you generate this surplus and put it towards the debt and/or investments here.
Mindy Jensen: Yes, agreed.
Scott Trench: That’s what I call the grind. My grind was brutal, all out for 3, 4, 5 years to get to the end state. I think I enjoyed my life, but I definitely said no to lots of trips and other types of things with that. And for me, I didn’t mind that so much, but I definitely wouldn’t go to a place that makes you and your family miserable.
Mindy Jensen: I don’t think we knew that we were miserable in the moment, but reflecting back, we’re like, wow, that really kind of sucked. So yeah, just read the article and you’ll get a sense. I mean, I just reread it and it’s like, ooh, there’s a lot of despair in here. So you had asked about a reappraisal to get rid of PMI. I am going to send you to your lender or whoever is currently holding your mortgage. It would really, really stink to pay like $700 for an appraisal only to come back $5,000 short and you can’t get rid of the PMI.
Scott Trench: No, that would not be the end of the world because if you think you’re close, you can gamble and do that and then just pay $5,000 more towards your mortgage.
Colton: Good point.
Scott Trench: And that will get you to your equity level with that.
Mindy Jensen: Okay, that’s a good point.
Scott Trench: That wouldn’t be efficient because you’re not really avoiding the interest payments, you’re just speeding them up by a handful of months or whatever. So it’s not a great investment, but if you think you’re close enough that you’re on the bubble and you want to take the gamble, that’s how you would get around that problem. Yeah.
Colton: And even that’s not a breaking point. Like, that $100 cash flow is not going to change our position very much. So maybe we just wait and when we know for certain that it’s crossed that benchmark, we just do it. So yeah, like unlocking that $100 cash flow, pretty minor point. But if we kill the ortho payment, we kill the car payments, we kill that, we take that down $100.
Scott Trench: Yeah.
Colton: Like, there’s some extra accumulation there that could be had.
Scott Trench: That’s what I’m talking about, where your grind— if we don’t like that term— accelerates, right? You just knock out $100 here, the car payment here, the orthodontist bill here, one of the student loan debts there, right? And then that all just continues to snowball your cash generation.
Mindy Jensen: I’m glad you brought up the ortho. With the FSA, that is a use-it-or-lose-it plan, and I believe— I don’t know if $250 or $500 rolls over to the next year, depending on your plan documents, and definitely read those ahead of time. But I would plan to use that in the last month of the year that you can, since it is a 0% interest loan, just in case something else that’s FSA eligible doesn’t come up.
Colton: Yeah, well, I don’t think we’re gonna have any issues spending that money, to be honest.
Mindy Jensen: Do you have an HSA plan or a regular plan? Okay, you can— but FSA is only for teeth and eyes. You can, but FSA is for teeth and eyes only if you have an HSA plan.
Colton: And yeah, it’s a different— it’s a different type of FSA.
Scott Trench: Yeah, yeah, I did not know that.
Colton: Yeah, and we actually have an HSA from a prior employer. I just don’t know what the balance is now that you say that. She has an HSA with, like, I don’t know, probably $2,000, $3,000 in it. So that’s why I forgot about it, because it was just sitting there. So I’m just gonna let that one ride though. That’s an investment account as far as I’m concerned. I’m not going to use it.
Mindy Jensen: I would definitely look into that as being an investment account. I’m not sure how that works with regards to current expenses. I thought you could only use the HSA account for expenses incurred when you had the high deductible plan.
Colton: Good point. That might be a research point to look into.
Mindy Jensen: Yeah, research opportunity. And we’re going to ask that in the Facebook group. HSA expenses question. I’ll just make a note so I put it up there. But yeah, definitely make plans to spend all of that on that, just because why pay for that with post-tax dollars if you don’t have to. But yeah, going into next year, the baby’s due in August, you’ll probably be able to spend all of that FSA money next year. You’ll have a lot of doctor’s visits just because babies go to the doctor all the time for well checkups and things like that. So look into your FSA for that as well. Now, do you both have separate insurance plans?
Colton: Yeah, and I might get on hers when it goes up for open enrollment because hers is way better than mine. Her plan says that to have a baby, it’s like $300, and that’s unheard of. It’s this crazy grandfathered-in plan that is awesome.
Mindy Jensen: That is fantastic.
Colton: So we’re separately paying through our employers right now, because we weren’t married until late last year. But yeah, there’ll be some changes in that arena moving forward, but nothing that’s gonna be too drastic.
Mindy Jensen: Okay, great. And then you wanted to talk about live-in flips. I’ve saved the best for last.
Colton: Yeah.
Mindy Jensen: So how do you save on costs? DIY. How do you have time for DIY with a baby? I can’t even remember those days anymore. I had no sleep, so I have no recollection of how we did this DIY. But we basically did everything DIY. We popped the top and we hired somebody to add on, and then we finished all the interior work. I don’t do roofs. I don’t do cement flatwork. I don’t do gutters. You can hire these out way cheaper than you can do it yourself. But Home Depot and Lowe’s teach classes on how to do things, and the University of YouTube is an excellent place to learn. And like you said, you have a basically cosmetic flip. And all of these jobs you’re going to do are going to be fairly easy to DIY. Definitely check with your city’s building code to make sure that you can do them yourself. Some cities require that you hire everything out or hire out things like electrical and plumbing. Some cities will allow you, the homeowner, to do the work yourself so long as you live there for X number of time afterwards. My city says I have to live here for a year after I do all the work myself. So we just DIY’d solar panels. I mean, you can DIY anything you want here in the lovely city of Longmont, Colorado. You just have to live there afterwards. So that’s the number one tip for saving on costs. And if you don’t have time or don’t have the knowledge to do it— I mean, learning how to do electric is going to be a tough job. And I should say that my father-in-law was an electrician for 40 years, so we had kind of an in. And we learned with real help. And electric and plumbing is kind of the same thing— and it’s not the same thing, but it’s like they’re easy to do if you know what you’re doing. And step number one is turn off the source. So turn off the electric, turn off the water, and then it’s not so hard. If you make a mistake, you know real quick that you made the mistake. But I can understand why people would be very leery to do these themselves. If you’re going to do a plumbing job, do all the plumbing all at once. Have the guy come in and the person— I’m sorry, the provider, I don’t want to be sexist— have the provider come in and do all the work at once. So have all the faucets you’re going to have changed out, all of the work that you need to be done all at once so they’re not coming out multiple times and you’re incurring multiple charges just to come visit the site. Think about what you really, really, really want to have done. You can paint yourself, you can install flooring yourself. I’m such a proponent of DIY because it’s so easy to do. And renting a tool versus buying a tool— I mean, I have every tool just because I’ve used it at least once, and it doesn’t all have to be done right now. I mean, you’ve got a baby coming, you’ve just moved in, you’ve got 2 years in order to hit the capital gains exclusion. So make a plan for how you want to tackle it and then just get to it when you get to it.
Scott Trench: I also think, in addition to all of Mindy’s great tips, here’s a problem I’m noticing overall about your situation. I’ve got student loans here, some that I might pay off, some that might be forgiven. I’ve got this cash position. I’ve got a little bit in 401(k)s. I’ve got this live-and-flip project I’m doing. I’m spending my free time flipping furniture that I’m driving around, picking up and sending around.
Mindy Jensen: Right.
Scott Trench: Like this— I think what I would advise is you make a prioritized list of these opportunities and then go more all in on your top 1 or 2. For example, here’s an incongruency in your situation. I’m trying to pay off my student loans, but I’m also trying to flip my house at the same time. One strategy is conducive to having a very small cash position, finding all of the dollars in your budget, knocking out expenses, and keeping that grind consistent and paying off all the surplus into your student loan debt. The other situation calls for a very large cash position. So you’re able to make these calls and say, I’m going to do this project myself and I’m going to buy all the materials and spend these couple of weekends doing it, and it’s going to cost me $3,000. This one I need to call the plumber and do all of the plumbing all at once, and it’s going to cost me $15,000. It’s going to be much cheaper to do it all at once with $15,000, right? And so that’s going to be your challenge here in the next couple of months: you need to pick a framework, prioritize these things, and stick with them. And there’s no wrong answer, and there’s no right answer to it, except to attempt to dabble in all of these different avenues a little bit. You’d be much better off, in my opinion, picking one and going with that. Mindy, I imagine— and now that I’ve said that, Mindy, did you have a large cash position or make that a component of your situation when you were doing some of these live-and-flips?
Mindy Jensen: We had a large cash position and the ability to find more cash if we needed it to. We also could have benefited from that advice. Scott, where were you 15 years ago? Because we don’t even do that now. We’re like, we’ll do it all. We can do everything and we’re going to prioritize. Everything’s number one. And then that’s how you get to the position where on your days off, you’re laying flooring in your daughter’s bedroom till 8 o’clock at night while she’s like, I’m tired, I want to go to bed. And you’re like, no, I just have 3 more pieces to put in. And it just kind of exacerbates itself over and over. So I like Scott’s advice even better than mine. Make a list of the things that you want to do. Make a list of the extracurriculars you want to do. Make a list of all the things you want to do on your house and prioritize 1 or 2 at a time. Because yeah, that baby’s going to come in. You made a comment: well, the baby might dictate. The baby will dictate. The baby will say, I demand all the things.
Colton: Yeah, Scott, you hit that point, hit that nail on the head. My wife’s gonna listen to this and be like, yeah, that’s exactly who you are. You know, ping-pong brain, back and forth. We’re gonna do this, we’re gonna do this, we’re gonna do this. I think the student loans we kind of ignore right now just because they’re in forbearance. So that’s not something we’re like super focused on. I think the house is really the focus right now. The flip activity really doesn’t take a lot of my time. It’s actually on an auction site, so I don’t run around town all day. I buy things on this auction site, put them in my garage, put them together, like maybe an hour or 2 a week, and then people come to your house for Facebook Marketplace. So it’s kind of an interesting— like last month I made like $600, almost $650, for like 2 hours of my time, which I thought was a decent ROI.
Scott Trench: That’s awesome. That’s your hobby, it sounds like.
Colton: Yeah, it’s kind of a hobby side hustle thing. It’s kind of funny. But yeah, definitely not a huge—
Scott Trench: If your house is the priority, which makes perfect sense, right? Say, what’s my after-repair value? What’s the project plan to get there? And that is the first priority. I’m going to talk about the money date each week or each month when I have that, right? And I’m going to go in and say, great— is the rest of my plan backing into that as the number one priority? First thing I would do if the house is your number one priority is bump up that cash position from 1.5 to 2 months to 6 months. And that’s your first financial priority because you’re going to need that cash in order to make judgment calls about that project, execute the project plan. And that’s totally fine. That makes perfect sense. Once you have the equity realized in the house, what am I going to do with it next? Am I going to cash-out refi? Am I going to pay off the HELOC? Am I going to sell the place and go on to the next one? That’s great, but I would have no problem, as an outsider looking in, saying that the house is a good first step there.
Colton: Would you do the 6-month emergency fund before paying off the balance transfer? In my mind, the balance transfer probably needs to be paid off. I mean, so technically, I think it’s August 2023, it’s sitting at a $6,600 balance. It’s not something we couldn’t tackle in the next 4 to 6 months.
Scott Trench: What’s the interest rate going to be on it right now or when it launches?
Colton: I mean, it’s 0% until August of next year, and then I think it bumps to like 19% or 20%. So definitely it’s not something we want to be sitting there paying very close.
Scott Trench: So build the 6-month cash position right now and sit on it and use that to fund your house. And then when that comes up, you can decide to pay it off just like you will with the student loans. You’ll have the cash and be able to allocate it and say— but there’s no interest accruing on it right now. And you have all that liquidity to build. So you could spend the next couple of months building the equity in the house and do that. You’re not going to run out of liquidity unless a catastrophe happens to your family right now.
Colton: No.
Scott Trench: You have to juggle some balls. You can’t have it all perfect all at once until you go through, let some time pass in your position. But I would build a liquidity position right now and begin using that to attack your number one priority, knowing that you’ll have to allocate $6,600 by the end of the year to this balance transfer in order to avoid accruing 20% interest. There’ll be no higher use of your dollars than avoiding 20%, but it’s not 20% right now. It’s zero.
Colton: Yep.
Scott Trench: And the return on cash is going to be huge if you’re using it to flip your house, or it’s a good bet.
Mindy Jensen: That’s only one month of spending. So if you have a 6-month emergency fund, you use the 6-month emergency fund to pay that off, and then you rebuild your emergency fund. I mean, that’s slightly more than 1 month of your extra.
Scott Trench: Yeah. Now, once your house is finished as a project, you’ll have another decision point. Am I going to do another live-in flip? In which case, keep the 6-month emergency reserve and maybe move it to 12 months, right? Because you need a lot of cash to continue doing these projects, especially if you take on a bigger one. Or am I going to chill in this house, refinance to something that gets rid of the PMI or get out of the PMI, and then I’m going to start grinding the student loan debt? OK, at that point, I’d go down to 1 to 2 months, what you currently have essentially. Keep a small thing and just drive all of the excess cash flow to the next highest debt payment. And so that’s where I think if you can come up with a prioritized set of investments in a plan for the next couple of years, you’ll be much better off. Because you’ll be able to prioritize where things go and build your whole position around those priorities.
Colton: Yeah, absolutely.
Mindy Jensen: Okay, the last thing I want to tell you before we let you go is you asked about staying sane with your spouse during a live-in flip. And we generally tend to jump in with both feet and rip out everything. And that is not the way to go. The way to go, the way to stay sane with your spouse is to have one room with a door that closes that is untouched. So usually your master bedroom, or a different bedroom if you’re working on the master bedroom, where you can retreat away from the dust. Because every once in a while you’ll have a day and she’ll have a day and the baby’s off schedule and you’re just like, I can’t handle this, I can’t concentrate on this at all. You go into your bedroom, you close the door, you watch a movie, you eat in bed, you just— don’t flip the house that day, and it recharges your batteries. But when you’re in the middle of dust and all the walls are ripped out and you can’t find any place to not be in the middle of your flip, it’s really weighing on your conscience. And I’ve only had a few days like that in every single house that I’ve lived in flipped. But it passes. You just need a space that you can retreat to that is— door closed, that is untouched on the inside. And that could be the first room that you do. You work on that room and then you move into it as a nice space. Right now we’re in our master bedroom and it’s still ugly. I have wallpaper from the 1970s, the foil kind. It’s really, really gross.
Colton: I think that is our master bedroom right now for us. It’s kind of like the safe space. The rest of the house, I think 80% of the house has no baseboards. So it just seems like the whole house is unfinished to us, because you see like the old paint where the baseboard used to be. And yeah, it’s just funny. But when we moved in, I came in and sprayed the whole house with fresh paint because the walls were like yellow from nicotine. Disgusting. That’s like—
Mindy Jensen: That’s my house too.
Scott Trench: Yeah, smells like money.
Mindy Jensen: It smelled like money. Sure did. Nobody else smelled that money. But yeah, now go in and get the baseboards. Make that your next priority, and it will feel more finished. Maybe she will be more excited about the house in general because it’s not unfinished. My daughter really hated the fact that we didn’t have any window trim up for a long time. She was embarrassed that we lived in such a disaster of a house. And I said to her, none of your friends care. They walk through the house to go to the pool. That’s part of the reason that we got such a great deal on the house is because they had this pool that’s in like terrible shape, but it holds water, so she can have a pool party. And none of the kids care that the house is a disaster because they don’t spend any time in it, but she’s so embarrassed by it. So once we got that finished, now she’ll invite friends over. So.
Scott Trench: Mm-hmm.
Mindy Jensen: Little things can make a really big difference. So that is my advice to you. Have a place that you can go to get away from it all and also put in baseboards.
Colton: I appreciate it. Thank you.
Mindy Jensen: Okay, Colton, is there anything else we can talk about today for you or answer any questions for you?
Colton: I don’t think so. I think we hit most of the high points there, and obviously it’s just picking a lane and going for it, like Scott said.
Mindy Jensen: Yep, I agree with Scott.
Scott Trench: Yeah, I don’t think you have any wrong or right choices here. It’s art. You have to make huge guesses about the economy, your personal situation, interest rates, all this other kind of stuff. So I think you pick one that you’re comfortable with, pick a prioritization, a list of priorities that you’re comfortable with, and design your whole situation around the top priorities, and you’ll be just fine. You’ll be cruising out of this over the next 5 to 7 years with a significant increase in wealth, and/or student loan debts paid down, depending on what you decide, as long as you kind of keep the income and expenses relatively consistent over that period.
Colton: Awesome.
Mindy Jensen: Okay. Well, Colton, thank you so much for your time today. This was a lot of fun. I think you’ve got a great position ahead of you and congratulations on your baby.
Colton: Yeah.
Scott Trench: Congrats.
Colton: Yeah. Thank you so much.
Mindy Jensen: Send me pictures when the baby’s born.
Colton: Absolutely.
Mindy Jensen: Okay. We’ll talk to you soon.
Colton: All right, thanks so much. Have a good rest of your day, guys.
Scott Trench: Bye.
Mindy Jensen: All right, that was Colton with his great set of circumstances, his not-so-great set of student loan debts, but a good opportunity to pay them back. And I think that there were some great ideas for him and some great research opportunities for him. Scott?
Scott Trench: Yeah, I think this theme probably applies to a lot of people who are in similar situations to Colton. I’ve got some debt, I’ve got some investment opportunities, I have a hankering for real estate, I want to become financially free, I want financial flexibility. How do I allocate my surplus dollars here once I get into a strong fundamental financial position? Which is what he is in. He and his wife have a strong positive net household cash flow and are likely to continue that for many years to come, barring a problem. When you have that situation, you can do anything. There’s a lot of good options out there, but you can’t do everything. You have to prioritize a set of initiatives one by one and build your strategy around that decision. We’ve harped on that multiple times throughout the show, so I don’t want to beat a dead horse, but you have to make that decision. You have to prioritize it. There’s no right or wrong answer. But once you do, you go from there. This problem is going to affect the $200,000-a-year household income family like Colton’s family, and it’s going to impact the $50,000 person who’s just getting started the same way. That’s where we have all these trade-offs around retirement account investing or building financial runway or your emergency reserve. You can’t do all of those things. You can’t take all the advice out there. You have to prioritize according to a plan, and then stick with it. The worst thing you can do is have a little bit in all these different areas and diversify away your chance at actually moving aggressively towards any of the financial goals, debt-free or long-term wealth or passive cash flow or whatever it is you want.
Colton: Yeah.
Mindy Jensen: Ultimately you can only take that dollar and deploy it in one place at a time. So now it’s just up to Colton to decide where is this dollar going to go. And, you know, sit down with his wife in his weekly money dates. I love that. And decide where are we going to deploy these dollars? Where are we going to deploy these dollars? What’s the best use of these dollars at this time? And then, you know, you can change your mind down the road, but right now they need to just formulate a plan. And I think they’re going to have a huge amount of success. I’m just super excited for all the opportunities that— absolutely.
Scott Trench: You can think about a couple of different situations though, where, hey, I’ve got— case A, I’ve paid off all my student loan debt, paid off my house completely, have relatively few investments and a 6-month emergency reserve in 5 years, or let’s call it 7 years. That’s a great position to be in, completely debt-free and have an emergency reserve and are now able to invest.
Colton: Right.
Scott Trench: Another great situation to be in is, I’ve got $800,000 in assets that I’ve invested across real estate and stocks and $250,000 down from $300,000 in total student loan debt and still have a mortgage on the house. That’s another position that could be very strong. But a position that would probably be very weak is, I don’t have much cash, I have a smattering of investments, mostly in retirement accounts, a little bit of home equity, and still have my student loan debt in 7 years. That’s the least flexible position with the least promising outcome. So you have to make one of those extreme choices in one of those two directions to get to that more positive situation. You can see that playing out with many of the folks that we’ve talked to on BiggerPockets Money, where you want an ideal— what is your ideal portfolio and how are you backing into it? A debt-free, modest portfolio that can sustain financial independence is a great outcome with that. An optimized, long-term value creation portfolio with a healthy amount of leverage is a great outcome. A mixed bag where I’ve got money in my 401(k), mostly in my home equity, a little bit of cash, and relatively few investments outside of that—that’s the middle-class trap that’s going to lead to the least amount of freedom, and you’re not going to be able to realize the benefits of that financial position until retirement age unless you make very drastic life and 401(k)-penalizing decisions, which is really hard. So I think that’s where we come back to: make a decision, go in a direction. There’s lots of good ways to go about it, but have a plan and go with it. And know you have to make trade-offs. You’re not going to be able to go down the whole stack, maxing out your 401(k), and having real estate and having a paid-off house and having no debt and having stocks and get to your end goal soon. There’s— you have to make a choice.
Mindy Jensen: Yes. Oh, that’s great. That’s a great wrap-up, Scott. Great recap.
Scott Trench: Mindy’s telling me my rant is going too long. We need to wrap up.
Mindy Jensen: No, I’m saying that’s a good— that’s a great way to phrase it. Okay, but you’re right, you are going on too long. We gotta go. Are you ready?
Scott Trench: Let’s do it.
Mindy Jensen: From episode 304 of the BiggerPockets Money Podcast, he is Scott Trench and I am Mindy Jensen saying get in the truck, Huck, and start using free resources to build something amazing. Get more with Northwest Registered Agent at northwestregisteredagent.com/moneyfree.
