Mindy Jensen: What if you’re 50 and broke? Is it still possible to build real wealth and become a millionaire by age 65? Today, we are breaking down exactly what it takes to actually build $1 million in 15 years, from how much you need to save and invest to the biggest decisions that can accelerate your progress. Hello, hello, hello, and welcome to the BiggerPockets Money Podcast. My name is Mindy Jensen, and with me as always is my loves-a-good-sample-financial-plan co-host, Scott Trench.
Scott Trench: Mindy, that was a model intro. Today we’re doing our annual update to the Broke at 50, Retired or Millionaire by 65 sample financial plan. And this is a little bit outside of our normal wheelhouse. We are mostly a financial independence podcast, but that goal of trying to build $1 million, $1.5 million, $2.5 million in net worth in a 15-year period, from my early 20s to my 30s or 40s, translates really well, I think, to catching up to financial independence for folks who are starting later in life, with some real caveats and differences. So that’s what we’re trying to do today: provide a realistic, aggressive action plan to get as close as possible to a big number by the time we hit traditional retirement for a late starter. And as part of that, the plan is not going to have any secrets. It’s not going to surprise you. It’s going to be: we’re going to live like somebody earning a bottom-quintile income in our area. We’re going to really cut back our spending. We’re going to get a job, we’re going to get a side hustle, we’re going to invest according to a tax-advantaged order of operations, and we’re going to consider layering in a few side bets in those future years. And our favorite side bets are going to be the live-in flip, where I buy a house, fix it up, and sell it. There’s a lot of tax advantages to that, and that can be layered on top of working a job. Or the house hack, where I buy a house and rent out extra rooms, or maybe a small multifamily property. Those can be massive accelerants along the journey to financial independence. They’re optional builds, but we’re going to piece all this together and see just how close we can get to $1 million, maybe $1.5 million, $2 million over that 10 to 15 year period from age 50 to 65. Sound good, Mindy?
Mindy Jensen: That sounds great, Scott. Let’s jump into it.
Scott Trench: What we’ve chosen to do here on the show is to create a fictional persona, Barb, who is a divorced former stay-at-home mom starting out, and she’s scared. She’s scared because she doesn’t have any assets. She hasn’t been in the workforce for a long time. She’s starting over with zero at age 50, and it’s really a challenging and hard situation. And it is hard. We’ve modeled this out. I went to great lengths to try to put together a realistic model about what can we earn, how much can we save after taxes, how will those investments grow, and what else needs to happen beyond that in order to give us a realistic shot at a million bucks. And it’s hard. It’s going to involve a lot of sacrifices. It’s going to involve some real planning and hard work at the career, because we need to get a couple of raises over the next 10 to 15 years for this to work. And we need a little bit of cooperation from the market. And we maybe even need a side hustle or some side bets. Actually, we do need some side hustles and some side bets. We can get there. There does need to be some cooperation from the market, but we don’t need extraordinary events to happen. We just need hard work and sacrifice sustained over a decade, and in 15 years, it’s going to suck to some degree, but we can get there. And that’s the idea of the show, to provide that plan and let you decide where it applies, where you need to deviate, and how you’re going to build your personal journey towards this goal. So with that, Mindy, do you want to introduce Barb for us?
Mindy Jensen: So this is Barb. She is 50 and broke, like you said. She has no assets, except I’m going to say she does have one asset. She has no debt. So she is starting off at a net worth of $0, which is a better position than a negative net worth. She is significantly behind the curve because she’s been a stay-at-home mom for 25 years. She doesn’t have any resume with any sort of jobs on it. She has just been a stay-at-home mom. And I say “just” — I was a stay-at-home mom too. Please don’t send me notes saying it’s a really hard job. It is a really hard job. And that’s actually going to help her when she goes to apply for her first job. She’s going to get an entry-level job. I want her to work in an office. I can see some sort of receptionist or administrative assistant position that will coincide really nicely with years of managing the household, which is what she was doing as a stay-at-home mom. But she is going to need to add another asset to her pile, and that’s a mindset shift. She needs to understand that the next few years are going to be a lot of hard work, but if she puts the work in now, I fully believe that she’ll be able to retire at normal retirement age.
Scott Trench: We picked this person — we made them very specific so we could model it. So one of the challenges we get with this financial plan template, this Broke at 50, Retired at 65, every year — and last year, I think, 500,000 people watched this on YouTube, and we got some really good feedback. “Hey, that’s not realistic. Your numbers are incorrect.” Well, we’ve created a very specific person here because I wanted to defend the numbers. I’m going to defend every single number in this with the source data for where we got it. And you can challenge me on those things, but they’re going to be backed by real data. They were last time, but we’ve gone to an even greater level here and built some tools to help you validate them in your situation. What’s the core essence of what we’re going to do for Barb here? Well, first, Barb, we’re going to live on the bottom quintile in your area. So in Denver, Colorado, a 1-person household, the bottom 20%, live on $2,943 a month. How do I know that? Well, I went to great trouble to build a dataset here, which you can check out for yourself at biggerpocketsmoney.com/budget. And what I’ve done here at biggerpocketsmoney.com/budget is I have merged several datasets. I’ve merged the Bureau of Labor Statistics data. I’ve merged HUD data for housing. I’ve merged a dataset from the Women’s Bureau, the National Database of Childcare Prices, and I’ve merged regional price parities, because food costs are different in various areas. Most of the discrepancy between areas is going to be housing, childcare, and healthcare — those are going to be the three big ones. But you do get small differences in food costs and those other things. So in Denver, a couple with kids like my family is going to spend about $8,743 a month. But a single household, age 55 to 64 or 45 to 54, is going to spend at the bottom quintile $3,089, or in the 55 to 64, $2,913. Right. So that’s the spending target here. And you’re going to look at these numbers with horror, depending on if you’ve come from like the middle quintile. You’re going to say, “$988 for housing? No way. $366 for transportation? No way. $400 for food? No way.” But that is literally what 20% of people in the Denver metro area live on as single households. It’s a real sacrifice. It is not as fun as living at the median, but I can prove with data that 20% of people in your area are doing this. So don’t tell me it’s unrealistic or can’t be done, because it’s being done in your area right now by other people. And that is what it’s going to take, I believe, to get a head start in this journey. You don’t have to do all of this, but if you’re not going to do this, you’re going to have to make more on the income front to offset it. That’s the data. Go to biggerpocketsmoney.com/budget and correct for the bottom 20th percentile in your area, and you’ll know what a realistic but hard floor of spending looks like. And you’re going to know that because that’s what people are actually doing in your area right now.
Mindy Jensen: And she’s not living in a mansion in Cherry Creek in Denver. She is living in an apartment, probably a 2-bedroom apartment that she’s sharing with someone, or maybe even a 3-bedroom apartment that she’s sharing with 2 someones. She’s doing whatever it takes to still be able to retire at traditional retirement age.
Scott Trench: So the first thing is we’re going to live on the bottom quintile in our area for our household type. That’s as far as the reasonable assumption can go, right? We can’t live way below the bottom quintile in our area. Now we’re talking about things that are totally unreasonable in terms of spending, but that, I think, is a defensible floor for an assumption set for somebody who truly wants to resolve the core pit-of-fear problem in their stomach — you know, hit retirement age and be left destitute. If you want to resolve that problem, I believe you should start your analysis at the bottom quintile in your area for spend. Now, the second thing we’re going to do is we’re going to get a job, and we’re actually going to do two things as part of that. One, we’re going to get an entry-level job. We’re going to assume that Barb is going to get paid entry-level salary, which in the Denver area — there are jobs today available at around $45,000 per year with benefits for someone like Barb. That entry-level W-2 needs to grow in 15 years. We need to work hard and attempt to get at least 1, 2, 3 promotions over that period. And the second thing we’re going to have to do is we’re going to have to get a side hustle, and that’s where we’re going to have to get creative. But I think Barb has some skill sets that are conducive to getting a side hustle. Mindy, what do you think some of those are? You know how the change in seasons hits and suddenly you just want to declutter the garage, clean out the closets, and get everything all organized? That same feeling hits me with my finances every spring. I used to have accounts scattered everywhere, making it hard to stay on track with my money goals. Let Monarch do your financial spring cleaning for you. One dashboard that gets your entire financial life organized. No more clutter, no more mess, no more scattered logins — just accounts, investments, property, and more, all in one place. One thing that really surprised me was pulling up the cash flow view and seeing what percentage of my income was quietly going to lifestyle creep, dining out, and subscriptions I barely notice. It motivated me to make some quick adjustments. Get your first year of Monarch for half off, just $50, with the promo code POCKETS. Use the code POCKETS at monarch.com to get your first year half off at just $50. That’s 50% off your first year at monarch.com with the code P-O-C-K-E-T-S.
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Mindy Jensen: Barb has spent the last 25 years as a stay-at-home mom managing the household. She might be really, really well organized. She could start a small business as an organizer, a professional organizer, where you go into someone’s home and you help them organize their stuff because they’re unable to do this. When I hired a professional organizer, it was $95 an hour, and she came in for a few hours. She showed me what I need to do. We went through a couple of rooms, and it was really a great experience. And I’ve been able to take that and apply it myself. So I’m not paying somebody $95 an hour over and over again, but that’s a great side hustle. And the way that you start out is just start networking. Let everybody know: “I’m super organized and I can do this for you.” She can also do the smaller-dollar side hustles, just to get in the mindset of doing a side hustle, like Uber Eats or DoorDash, or, you know, some sort of driving for Uber if she’s got a newer car. She has a lot of skills. And one of the things, if you are in this situation, that you need to do is sit down and take an assessment of all of the skills that you have.
Scott Trench: Yeah, absolutely. And, you know, when we’ve talked about this in the past, there’s driving for Uber, there’s pet sitting, there’s nannying, right? That could also be a full-time gig that pays perhaps as much or more than the numbers we just listed for a very entry-level job. Full-time childcare services — another one, depending on how far we want to take this — is night nannying. That’s a very lucrative one, where the hourly rate can bump past $30, $45, even $60 an hour in areas like Denver, for example. And that’s going to change there. So Barb has a choice about how much she wants to work and how hard she wants that work to be. But there are opportunities to drive that side hustle income way up with her skill set specifically in this particular situation. We’re going to take these two things, a $45,000-a-year base job, and we’re going to assume that Barb is going to do the work necessary to make an additional $1,000 a month from side hustles, whether that’s $15 an hour driving for Uber or delivery, or after-hours babysitting or nannying, or whether that’s night nannying for, you know, 3 or 4 or 5 nights a month to easily rack up several thousand. She’s going to find some combination of those two, and that $45,000 base salary plus $12,000 in side hustle income is going to get us $57,000 in income in year one.
Mindy Jensen: You can go to sidehustlenation.com/bpmoney. Our friend Nick Loper over at Side Hustle Nation has an AI-assisted side hustle brainstorming worksheet, free for you. You just go to that website, sidehustlenation.com/bpmoney, and download his free worksheet. He gives you kind of a step-by-step on what you need to do to throw this prompt into your favorite AI to give you a list of different side hustles that you can start thinking about.
Scott Trench: So next up, we’ve got this income, we’ve got our spending cuts that we’re making to live at the bottom quintile in our area. And now, what are we going to do with the surplus that we’re beginning to generate here? Well, first, we’re going to build a $1,000 starter buffer, right? This is Dave Ramsey’s first baby step, and he’s completely right. That’s exactly what you should do in this situation. You got to build some small buffer between yourself and the world and the everyday expenses, so a flat tire doesn’t kill you. Then we’re going to attack bad debt. We’ve assumed Barb doesn’t have any debt, but we know many people who are listening will have bad debt. We’re going to kill bad debt, and bad debt in our definition is going to be anything over 7% interest. We might as well knock that out before we begin investing, because there’s too much risk associated with having high-interest-rate debt. If Barb has a match from her employer for her 401(k) plan, we’re going to take that match, right? That’s going to allow us to defer some income, which is going to reduce our tax bill, and it’s going to be a free match, to some degree, that’s going to be very, very valuable for her on this journey. From there, we’ve got a decision to make. If Barb wants to go and crush it on the income front, at her career, and just work her job and side hustle, then we’re going to continue to max out the tax-deferred accounts in this situation, and we’re going to continue to build wealth in the HSA, then maxing out the 401(k). If we get in future years to a point where we have money left over, we’re going to go with the Roth IRA. And why are we doing that? Why are we maxing the deferred instead of the Roth? People are always confused about this. Should I max a 401(k) traditionally and pay taxes later, or should I pay them today? Well, Barb is catching up to retirement. We are very worried about not having enough in the first place. And in that situation, if we’re going to be going through the tax-advantaged stack, we’re going to defer everything we can, so we can be sure that we’re going to have enough. And we’re going to pay taxes at the back end. If Barb was 23 and trying to reach financial independence early in life, and hopefully making hundreds of thousands of dollars in her 30s, 40s, and 50s a year, now all of a sudden the Roth becomes very attractive, because we want to reduce lifetime tax burden. In this situation, we want to be sure we have enough. Defer, defer, defer is the bias, in my view.
Mindy Jensen: Yes. Well, she’s 50 right now. She’s going to be building this wealth over the course of 15 years. She’s most likely not going to be able to access this money before 59 and a half anyway. So deferring the taxes now, to allow her to save more now, is the better choice. Like you said, if she was younger, we would have a different course of action.
Scott Trench: The limits on these are very high, and they’re much higher than the starting income that we’re assuming for Barb in this situation. But if Barb was, for example, able to make $150,000 to $200,000 a year, then all of a sudden she should be starting to inform herself, self-education on the catch-up contribution limits in many of these accounts, right? The limits on a 401(k) are $24,500 here in 2026 for the employee contribution or for your direct contribution, plus an $8,000 catch-up. And that bumps up again, I think, to $11,250 additional between ages 60 and 63. So those numbers become very important if Barb is very successful in generating significant income on top of that salary or sees significant career progression. Those rules are there for a reason, for this reason. Now, the other fork here that we can choose through is, and we’re going to talk about the benefits of this, but it may be that Barb decides, you know what, my income and my spending situation are not going to create a large enough buffer for me to be able to catch up to traditional retirement in a timely fashion just with my job and savings rate. I need to layer in some extra bets. My favorite bet, and I think Mindy, your favorite bet on that, is to turn your housing into an asset. So this is where we talk about the live-in flip or the house hack. One of the cheat codes, I think, to building wealth is to buy a small multifamily property like a duplex, triplex, or quadplex, put 5% down as an owner-occupant, move in, fix it up, rent it out, and allow the tenants in that building or roommates, if we’re buying a single-family house, to pay a substantial portion of or all of the home mortgage. That can be an incredible way to build wealth because we’re benefiting from appreciation. We’re getting rent from roommates or tenants to help offset the mortgage payment or completely cover our housing costs, significantly reducing cash outlay. Imagine that Barb is spending $988 a month as a bottom quintile spender in the Denver area. If that goes to zero, I mean, that’s an amazing boost to her savings rate. $1,000 a month times 12 months times 10 years. Huge, huge progress against her financial goals. The other opportunity here is she could do that several times. She could maybe buy three or four such properties over the 5- to 7-year period if she can assemble the down payment and qualify based on her income for these properties. That’s a big if, but if she believes she can do that, then I believe that there’s a case to be made for foregoing the 401(k) catch-up for the first year or three, or a several-year period in this journey, so that she has cash for those down payments on this property, right? It could be that if Barb has a house already, even with a small amount of equity, that she could sell that house and reposition it into some kind of house hack. Or Mindy, you want to tell us about the live-in flip that you’ve done to build your wealth?
Mindy Jensen: Yeah, so the live-in flip is when you buy an unattractive house. I buy unattractive but solid houses. I don’t worry about things with foundation issues or things like mold. I want a house that I can move into the day I close. It’s just ugly. And then I start to make it look nice. I redo the kitchen, I redo the bathrooms, I probably redo the flooring, I definitely paint everything. And at the end of 2 years, I can sell it and pocket all the capital gains into my pocket, pay no taxes on those, up to $250,000 per person on title. Since Barb is single, she’s probably looking at $250,000 as her cap. However, first of all, go ahead and pay taxes if you can make that much. Pay the taxes, that’ll be awesome. I have never paid taxes on a flip. I’ve never made enough to pay taxes on a flip, and I don’t think that it would be in her best interest to buy a house that has that much upside. But if she could do that and sell it for a $50,000 gain or a $75,000 gain, that’s huge in 2 years. That’s a lot of money.
Scott Trench: I built a model to kind of walk through this. It got pretty complicated because I got carried, you know, way overboard with some of this stuff.
Mindy Jensen: I actually really like this model, Scott, because it shows the exact numbers.
Scott Trench: I put together a projection model, and I kind of said, like, what’s realistic here for Barb under these assumptions, right? And so if we take the assumptions that Barb is going to make $45,000 a year as a starting base salary, and that she’s going to experience moderate wage growth across her journey with a couple of promotions, and that she’s going to start a side hustle earning $12,000 a year and continue to grow that over the course of the next 10 years, then if she saves according to a tax-advantaged order of operations, we can get her to about $331,000 by age 60 in net worth. And because of the law of compounding, we can get her to about $629,000 in net worth at age 65. So that’s about 60% of the way there, just from saving and investing on a pretty normal, I think, career trajectory for someone in Barb’s situation here. That’s not the million dollars that we promised at the beginning of this. And that’s the point, is this doesn’t work unless we also bring in additional bets or extend our timeline to some degree. And I think that’s where we think that real estate, a live-in flip in particular, or a set of house hacks, can make a big difference. Let’s talk about an example of what that live-in flip looks like for you, Mindy. Can you tell us about the numbers from one of your live-in flips?
Mindy Jensen: My very first live-in flip was in 1996, and I bought a condo for $49,000. It was kind of ugly. I painted it, I tiled the kitchen floor, I got new appliances, new light fixtures, and I lived there for 4 years. And then I got married to a man who owned a house. And I decided I didn’t want to live in a condo anymore, so I put it on the market. I sold it for $75,000, so I made $25,000 when I sold this house. I had a very low real estate agent fee, and this was all money that I put into my pocket. This is my very first. My last live-in flip that I sold, we bought it for $140,000. We put about $100,000 into it, and we sold it for $598,000. We popped the top. So we took it from a 2-bedroom, 1-bath house to a 4-bedroom, 3-bath house. We made a living room, we made a primary bedroom bathroom suite that we didn’t have before. We redid the entire house. The $100,000 comes from — a lot of it was us doing the work. So I think after all fees and everything, we made like $275,000 that I put in my pocket. I didn’t pay any taxes on that. And that is more than my salary.
Scott Trench: Absolutely. And so you can see there’s a spectrum here, right? Maybe it’s not realistic for Barb to buy a house and flip it in today’s market in Denver for several years. Some things have to go right on the income front. She has to be able to qualify. I think she can qualify up to like 49% debt-to-income in some situations, although that’s really stretching it in many cases. But maybe there’s a condo that can be done there, right? Maybe there’s a 2- or 3-bedroom condo or apartment or a house that needs a lot of work that she can qualify for in year 3, 4, 5, 6, or 7. If she doesn’t believe that she can do that, then she’s going to have to earn more income. She’s going to have to find some way to drive a side hustle or a business outcome forward, or we’re going to have to get lucky with the market to get past that million-dollar mark. But this, I think, is one of the more realistic possibilities for many people in this situation, is to house hack or live-in flip. And you can combine the two.
Mindy Jensen: Right?
Scott Trench: If you get that live-in flip opportunity and it has extra bedrooms, you can finish those up and rent them out to somebody, to boarders in that situation. If you can get a multifamily property, you can get true tenants. And now, all of a sudden, the income from those tenants in that duplex qualifies as rental income, and that will dramatically ease your ability to get future financing on future rentals. So that’s one of our favorite opportunities there. If you layer in a handful of live-in flips, even modest successes, and/or a handful of house hacks where we’re moving into the property, fixing up, and then keeping it as a rental, we can easily clear the $1 million net worth mark at age 65 and even have a chance to get there by age 60 on the same set of salary and side hustle assumptions.
Mindy Jensen: And you can combine those 2. Scott, I have access to the MLS because I’m a real estate agent. I went in and searched on Aurora and Thornton up to $450,000. I wanted to cap it so that she can afford this. I didn’t think that there were going to be any properties available. There’s 144 properties, minimum 3 bedrooms, 2 bathrooms, in Aurora and Thornton, all the way up to $450,000. The lowest priced one is $324,000. There are multiple houses for her to choose from, and once she rehabs this house and it’s nice on the inside, she can have tenants come in and live with her and help her with that mortgage. And that will help propel her towards the next property that she can purchase, because now she’s paying less for her mortgage. Her tenants are on leases, so that money will help qualify her for the next mortgage as additional income.
Scott Trench: That’s the bones of the plan. Let’s go into some more practical steps that Barb can take right now to begin moving towards this. So first, I think that Barb can create a personal financial statement. And our favorite tool for doing this is Monarch. Monarch Money is a paid subscription. It’s $99 a year, or you can get half off on your first year with the discount code POCKETS, P-O-C-K-E-T-S. And what this app does is it connects all of the investment accounts, all your bank accounts, all your credit cards, and it tracks and monitors your spending, your net worth. It’s like your financial command center. I use this personally, and I review it every week with my wife as part of our financial meeting. And we set budgets in this, and we largely stick to them and see our net worth grow by looking at the number every single week, every single month, in Monarch as a tool. If you prefer a spreadsheet, we’ve got a free personal financial statement spreadsheet available at biggerpocketsmoney.com/resources. It’s the most popular downloaded artifact on our site. It’s built for a more complicated position, someone who might have real estate or private equity interests or those types of things. So that’s available there. Or you can get a piece of paper and a pencil or look for another tool that’s out there, right? There’s only trade-offs with these. Some of them are easier and automated, and some of the free tools out there will sell your data or serve you ads. That’s why we like Monarch. We think a small subscription fee is well worth it in this particular case. But there’s only trade-offs in this space, and there’s lots of good tools. But create a personal financial statement in some form and start tracking your numbers. That is the most important first step, I think, that Barb can do beyond making the basic plan and getting a job.
Mindy Jensen: Absolutely. If you don’t know where your money is going, and you don’t have a plan for where you want it to go, it can start leaking out of your pockets, and all of a sudden you have nothing left over to invest at the end of the month.
Scott Trench: Next thing I think we should do is actually sit down and define the goal, right? So we wanted to start and get right to the meat of what a plan to begin building wealth could look like for someone like Barb. But I think that Barb should target about $1 million in net worth by age 65 as a comfortable goal. And why that number? Well, because a $1 million portfolio, according to a very commonly cited rule of thumb, the 4% rule, should generate at least $40,000 per year in inflation-adjusted income for the duration of her retirement. So $1 million in today’s dollars at age 65 should provide for that. And Barb is not going to be left destitute on top of that. She’s also going to qualify for Social Security on the wages she’s earned across her career, and 50% of the benefit of her previous spouse as a divorcee, their full retirement age benefit for Social Security. We’ll also have Medicare. So these numbers will go further than we think. This will not be a lavish retirement, but it will not be a miserable or uncomfortable one either if we can get to $1 million as a net worth goal. Do you agree with that, Mindy?
Mindy Jensen: I do. And just because she has a retirement at age 65 doesn’t mean she can’t continue these side hustles that she’s been doing, or continue house hacking or live-in flipping or something to generate more income other than just the million dollars, which will generate about $40,000 a year.
Scott Trench: We’ll also go through, kind of very quickly, this concept of what is the rule of thumb for retirement, right? And it all boils down to your savings rate as a percentage of your take-home pay, right? So if you can save 50% of your income and you achieve 7% real returns in the market, you’ll be able to retire in 17 years. Now, the market’s got to cooperate, right? You can argue, hey, the market’s going to be overvalued, and it’s going to blow up the plan. Then you have to extend the timeline. But we’ve got to attempt to ground this in some set of assumptions, and historical averages seem like a reasonable way to do that in a projection model. But if you can save 50%, you can retire in 17 years. If you can save 65% of your pay, your take-home pay, you can retire in 10.5 years. And that’s because as you lower your spending relative to your income, you both increase the rate of accumulation, the amount of money you save each month, and you reduce the amount of income that your portfolio or passive income needs to support in retirement. And that’s a double whammy. That’s why the house hack is so powerful, because if you can house hack and get your housing paid for, you’re both increasing your savings, the amount you can invest every single month, and maybe that expense is covered for many years, and reducing the amount you need to draw on your portfolio. Okay, we talked about the plan: get a job. We talked about supplementing that with a side hustle. We talked about cutting back to spending like the bottom quintile earner in an area and what that’s going to look like. We talked about how the model will drive a pretty good outcome, a couple hundred thousand dollars net worth by age 60, and well past the halfway point to $1 million, 60-70% of the way there by age 65, if we invest in a tax-advantaged order of operations. We talked about layering in the house hack and/or live-in flip or some other variation of that to get to the end goal there. Let’s talk about investment strategy at a high level during the accumulation and decumulation phase here.
Mindy Jensen: During Barb’s accumulation phase, she is going to be 100% in equities. This is either individual stocks or, what we prefer, index funds. She’s going to have a cash savings amount that is going to start at $1,000 when she first starts working. She’s going to build that up. But then we want her to build this up to be a significant buffer so that she can take advantage of opportunities, so that she is not sidelined when something emergency happens, some big emergency, and she then has to put money on her credit card and go back into debt and feel a little defeated. We want her to do some form of real estate investing, either in a house hack or a live-in flip like we talked about. Phase 2 moves on to a much broader investment strategy. Scott, you want to take the phase 2?
Scott Trench: The theme here is we’re going to be aggressive and concentrated. in the accumulation phase. And this is a real divergence. This is like a real challenge for Barb that our 23-year-old does not have typically, because the 23-year-old has such a long timeline that investing aggressively is almost uncontested. Even if there is a market crash in year 7, they have plenty of time to recover from that. And the odds are overwhelmingly on their side over a very, very long time horizon. At this later stage, timing does begin to matter a lot more. And so a lot of rules of thumb say as you approach retirement age, shift to more conservative assets. And I’d love to do that here, but Barb has nothing to protect yet. We’re starting at zero. If Barb had $500,000 in wealth and we’re getting approaching the goal, we do need a more conservative allocation. But at the very beginning stages, we got to accumulate and we’ve got to go for something that can, that can grow and can win. And once we have something to protect, that’s when we need to begin diversifying and putting that together. That’s why the approach is basically build a small cash reserve and then invest it all in reasonably aggressive allocations here in the early years of the accumulation. And then as we approach our target, as we approach the million-dollar target here, you know, maybe, maybe 80% of the way there, a couple of years out, that’s when we’re going to begin shifting to a much more diversified and safe portfolio allocation that is suitable to retirement distributions. Right. So that might involve US and international stocks. It might involve factor tilts, it might involve bonds. It may involve rental properties or home equity. It may involve larger cash buffers. That’s where you’re going to build a diversified portfolio. And Barb should spend many of the next several years learning about that, listening to podcasts. That’s going to be a big theme that we’re going to talk about here as well as, is while Barb is working this job, while she’s doing the side hustles, while she’s fixing up her house hack, we want to have her have an earbud in and listen to personal finance podcasts. This one, the Catching Up to FI podcast is great. Our friends over at Money Guy are great. There’s great books out there like The Simple Path to Wealth by JL Collins, our friend. There’s the ChooseFI podcast. There’s a ton of great content out there. Go consume one, then another, then another. Spend hundreds or thousands of hours even learning about this stuff, and the models will click and ideas will form, and that will lead to jumps, I think, on the income front, and it will lead to ever-improving strategy in your personal financial plan. When spring hits, some people suddenly just want to declutter the garage, clean out the closets, and get everything all organized. Whether or not that hits you, Monarch will do your financial spring cleaning for you. One dashboard gets your entire financial life organized. No more clutter, no more mess, no more scattered logins. Just accounts, investments, property, and more all in one place. One of my favorite parts is the Sankey diagram. Every month I open it up and literally watch the flow of money. It shows exactly where every dollar is going from income to all of my spending categories. It makes it so much easier to spot what’s working and what needs tweaking. Get your first year of Monarch for half off, just $50 with the promo code POCKETS. Use the code POCKETS at monarch.com to get your first year half off at just $50. That’s 50% off your first year at monarch.com with the code P-O-C-K-E-T-S.
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Scott Trench: I think the answer is you can get pretty far on baseline assumptions here following a tax-advantaged order of operations with hard work and sacrifice. If you want to get past a million bucks in 10 years, something’s got to go right. And I would say that you don’t have to believe the house hack or the live and flip. Maybe that’s not appropriate if you’re in a very pricey California zip code. But if you’re in a pricey California zip code, the income opportunities are going to be much higher. Maybe you’re in an area where there are not really good jobs. And a lot of good income opportunities. Well, the housing should be cheaper in those areas. Use the advantages that are relevant to your position or move if you need to, to find an area that is more conducive to this. There are ways to win. I believe in you. I think you’re creative enough to do it. I can prove that in Denver, which is not a particularly great place to pursue this, that it is possible with hard work, sacrifice, and average market assumptions to get to this point. But it’s going to be hard. It’s going to, it’s going to suck at first and it’s a snowball. I firmly believe that the best thing that Barb can do is get started, cut those expenses to a very low point and start reading and consuming, change the day-to-day activity set to work, low spending, and consuming financial education content to turn her brain on to the many possibilities and ways to do this. And I think those connections will form, if not in the first year, by certainly by year 5. And there will be opportunities that present themselves to accelerate this past the point of the plan that we’ve presented here today.
Mindy Jensen: All right. You don’t have to take our word for it. Well, you kind of do. We have, what, 10 episodes where we have talked to people who had a late start and reached financial independence within about 10 years. Episode 130 features Susan and Norm. They are a couple who started— I want to say they started when they were 50 and retired within 10 years. Kathy from Baby Boomer Super Saver on episode 152 also did it in 10 years. Deb Witten on episode 194. Courtney Robinson on episode 333. Monica Scudieri is actually really close to the Barb persona on episode 345. She started after divorce and still was able to reach financial independence. Episode 459, Tracy Conan is a forensic accountant who deals with finding money, typically in a divorce scenario. Episode 484, Becky Heptig and Bill Yount. Becky was the original co-host of the Catching Up to FI podcast with Bill, and they each tell their story of reaching financial independence within about 10 years on that episode. Episode 537, Jackie Cummings Koski and Bill Yount. They are the current co-hosts of the Catching Up to FI podcast. Jackie also started after divorce and grew her net worth to a point where she could also retire. And Catching Up to FI is a podcast devoted to people who are getting a later start. Their episode number 100 is The Late Starter’s Guide to the Galaxy. It’s also a great episode filled with a ton of tips to help you on your later start to FI.
Scott Trench: Awesome. So let’s recap what we’ve talked about today, right? First, we’ve acknowledged this is a really tough position. You know, if you’re trying to catch up to financial independence, if you’re broke at 50 and trying to work towards $1 million at 60, you have a big uphill battle. It’s going to be hard. There’s a lot of emotions attached to that. We get it. We understand that that’s, that’s really challenging. We’ve talked to many people in that situation, although Mindy and I have not gone through that personally. 2, we’ve said you got to start somewhere. And one of the best places to start, I think, is building a personal financial statement. And setting a goal of what enough looks like. We think $1 million is likely to be a great answer to the enough situation here. We talked about a financial plan that has 4 distinct components here. Step 1 being get a job, an entry-level job. Step 2 being get a side hustle, a second job. Get ready to work 50, 60+ hours per week across this journey. The other component is to lower expenses and lower them to spend, I think a good target for someone in this situation is to say, what do the bottom 20% of income earners in my local area spend? There should be a good reason why I’m not going to spend at that level. I’m going to spend something higher than that if I am serious about this financial goal. Staring those numbers down will ground the discussion and be very sobering. It’ll suck if you’re going from a much higher level of spending to that at first, but it’ll be also very empowering. You know it’s possible because literally 20% of people in your area of households like yours are spending at that level. And then third, you need to start thinking about the side bets, the things that can bump— you know that at that level of spending and a basic career progression and side hustle, you still can’t get to $1 million in most situations by age 60 or 65. Something’s got to work. You need to begin getting to work on that. What can accelerate this plan? Is my career just way better than the entry-level job that’s gotten Mindy used in this example, that’s a great answer to this. If it’s not, can my side hustle get there? Can some business opportunity— can I transition to a new career in year 3, 5, or 7 that has that income opportunity? Or can I use real estate or some other entrepreneurial venture to give me that boost that can get me past the last— the next several hundred thousand and get me well past the million mark by age 60 or 65? That’s going to be a pursuit. And if you’re not sure where to start, the best thing you can do is plug in an earbud, and listen to podcasts like this one or the other ones that we represented on the show here. ChooseFI and Catching Up to FI are 2 of our favorite shows in the space. And the last thing is community. There are plenty of places around the internet to go and hang out and talk to people like this. Our favorite community for someone in this situation is the Catching Up to FI Facebook group. You can just go to Facebook and type in Catching Up to FI. Our friends Jackie Cummings-Hoskey and Bill Yount are the hosts of that podcast and curators of that community. Go check it out. There’s plenty of other people who are going through some version of what you’re going through there that can beat up your plan.
Mindy Jensen: And I will also say a local in-person meetup can help you realize that you’re not alone on this journey. ChooseFI.com/local has a list of, I want to say, 486 different local groups that they have created on Facebook. Find the one that is closest to you and join and go to a meetup. Talking to people in real life, you get reassurance that this can be done because it can be done. And you get other people near you that you know, that you can see in person, that you can talk to when you’re having a bad day.
Scott Trench: Absolutely. Well, Mindy, should we get outta here?
Mindy Jensen: Scott, we should. But before we do, I wanna reiterate all of these resources that we discussed today can be found on our website, biggerpocketsmoney.com/resources. We have a ton of templates and calculators and All sorts of things to help you on your FI journey. And just for fun, they’re all for free. So biggerpocketsmoney.com/resources. Also join our newsletter at biggerpocketsmoney.com/newsletter. Every week I send you one email giving you a little bit more information about FI. All right, that wraps up this episode of the BiggerPockets Money Podcast. He is Scott Trench. I am Mindy Jensen saying, don’t be late, mate.
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