Speaker 1: Welcome to the BiggerPockets Money podcast where we interview Barbara Sloan and talk about service industry professionals and how financial independence is possible on a lower income.
Guest: Work on your mindset. Mindset, I love to start with because it’s free. So start to build your abundance mindset. Once you’re able to take actual financial steps, for many people, it takes time to build up the buffers. I would focus on two things, increasing your income. I have a whole chapter in the book on how people in the service industry can increase their income. And two, take start taking a look at your spending, right? We everyone in the personal finance space is covering the same seven pillars, which largely boils down to, earn more, spend less, invest the difference.
Mindy: Hello, hello, hello. My name is Mindy Jensen and with me as always is my voice of reason co-host, Scott Trench.
Scott: Well, thank you very much Mindy for that very gratuitous introduction.
Mindy: Oh, that was better. That was so much better than mine. That’s why you’re the boss. 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 that financial freedom is attainable for everyone, no matter when or where you are starting.
Scott: That’s right. Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate, start your own business, or achieve financial independence as a service industry professional, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams.
Mindy: Scott, I’m so excited to talk to Barbara today. She is the author of a new book called Tipped where she gives financial advice to people in the service industry professionals, specifically people who are making their living off of tips. They don’t make an hourly wage or they do, but they make the subminimum wage of $2 an hour, 215, 255, whatever it is. It’s peanuts, it’s not even worth counting. They live off of their tips and she has fabulous advice for people who work in the service industry. If you are a service industry professional, if you know a service industry professional, this episode is absolutely something that you should listen to.
Scott: Yeah, I mean, this is a sector of the economy. I think it shows 5 and a half million people who work in the services uh industry that we’ve largely totally ignored up to this point on BiggerPockets money. So I’m glad we’re able to give some attention to it. Um even if you’re not in the service uh industry, there were some really interesting thoughts about how, hey, this could be a great thing to do after fi to some degree, right? It’s wonderful in small doses. Um is as what was a take one of the takeaways I had from this. And so, always good to learn about and a lot of great tips from Barbara who’s clearly an expert and really knows this industry really well.
Mindy: Was that pun intended, Scott?
Scott: What what was the pun? I missed.
Mindy: You said a lot of great tips from Barbara.
Scott: Oh, yeah. No, I didn’t now. Yes.
Mindy: Okay, before we bring in Barbara, we have a money moment. This is our new segment of the show where we share a money hack tip or trick. Ooh, tip or trick to help you on your financial journey. Today’s money moment is here is a mental shift to help you save more money. Think of savings like paying a bill. Automate it. Automate an amount monthly to your savings. It doesn’t matter how much or how little, it’s all about starting. So, go into your bank and automate an amount to go into your savings account. Do you have a money moment to share with us? Email moneymoment@biggerpockets.com.
Scott: All right, before we bring in Barbara, let’s also mention that we are always looking for more folks to come on BiggerPockets money as either a guest to share your money story or for Finance Friday. Uh you can go to biggerpockets.com/guest to apply for uh to be a guest on the show. or you can go to biggerpockets.com/financereview. Uh and that’s great. We’ve got a lot of emails recently from some folks asking um to review their financial uh situations. The best place to do that is on uh the finance Friday. And yes, you can remain anonymous if you’d like to while we do that. So please do apply and we’d love to have you on the show.
Mindy: All right, before we bring in Barbara, let’s take a quick break. And we’re back. Today we’re talking with Barbara Sloan from the website Tipped Finance and the author of Tipped. She’s a personal finance expert who helps tipped workers achieve financial freedom. As you heard me say just a moment ago, we believe financial freedom is attainable for everyone, no matter when or where you are starting. However, it can seem a little daunting when you are starting from a position of low uh hourly wages and when your income is incredibly variable based on the whims of other people. So, Barbara Sloan, welcome to the BiggerPockets Money podcast. I’m so excited to talk to you today. I devoured your book. I absolutely love it, and I want you to tell people that they can achieve financial freedom even though they are tipped employees without all the other things that uh W2 employees normally get. So welcome to the BiggerPockets Money podcast. I can’t wait to jump into this today.
Guest: Mindy Scott, I’m so pumped to be here. I I it is my mission as well. I believe financial freedom is achievable for anybody including service industry professionals. So, I’m so excited to dive in with you guys.
Mindy: I actually think there’s a lot of uh legs up that service industry professionals have even over W2 employees. um that maybe they’re not really taking advantage of, which you dive into in this book. But before we jump into there, let’s talk about you. Where did your journey with money begin?
Guest: Yeah. Uh maybe I’ll start by telling you what I do now and we’ll work a little bit backwards. Most people who meet me today know me as a general contractor. I own a women-owned and operated um high-end renovation company here in Manhattan. What they don’t know is that I spent 20 years working two careers in tandem. And that was construction in the day and service industry at night, or dirt in the day and dirty in the evening as I like to say. Um and so my service industry work, sometimes because I was moving around the country a lot, took pretty much the main stage a lot of times while I was still in between construction jobs. And so, my service work started, I had a paper route when I was 10. I worked some some tipping jobs when I was in high school, but when I was 20 years old, I moved out to California and got a got a job answering pretty much any Craigslist ad that was for cash. And this was back in Craigslist’s days when you probably work murdered for working off of gigs on Craigslist. Um but so, that was kind of how my tipping journey started and I fell in love with it. You know, my upbringing was a little bit tough and I just loved that in service work, you were able to have quick access to cash. You had the camaraderie of your workers. It’s one of the only industries where you’re really celebrated to be yourself, to be a little bit extra, to really use all the all the facets of your personality. Um I always like to say that everything I needed to know to run a multimillion dollar business, I learned in the service industry.
Mindy: Would you consider yourself financially independent now?
Guest: Yeah. I would consider myself financially independent. I got there on the heels of a service industry profession. I live in Manhattan, so you know, I wouldn’t say I’m fat FI or any any of the bigger FIs. I like to say I can do what I want, but maybe not where I want.
Scott: So what is your what what can you give us a since we’re starting from the with the end in mind here with your portfolio, can you tell us about your portfolio and what that looks like that that enables financial freedom right now?
Guest: Yeah, I really like the three-legged stool approach. and so I have like 30% of my assets are in real estate, 30% is my portfolio and 30% is in my business. And that that’s sort of been my approach for financial independence.
Scott: Awesome. And so how did this journey begin and and how did you progress towards this this outcome over the last 20 years?
Guest: It started as a hot mess. I grew up in Detroit and um at the age of 19, my dad had passed away. and I ended up buying the house that I grew up in 100% financed and then proceeded to take out 10 credit cards and max them out to fund the renovation. And so this was sort of how I entered the construction industry was, you know, doing a lot of this stuff by hand. I fell in love with it. I fell in love with the process. I fell in love with the fact that I was constantly learning something. Um but I put myself in a really terrible financial position and from there, I, as I mentioned, I left Michigan as I was dodging creditors. I had a little over $170,000 in debt on a $20,000 income and was just really angry at the world and angry at a system that let me get so in debt at such a young age. And like I said, I needed something easy and I needed something that allowed me to kind of survive. And so that’s when I turned to service work and it took a long time for me to dig myself out of those financial mistakes. I was in a debt cycle multiple times. I relied on those terrifying payday loans. I relied on rent a center for furniture. I I I always like to say that I feel like I tested the limits of the credit system. I didn’t know that the library could hit your credit report. They can. PS, I didn’t know that medical debt from other countries could hit your credit report. It can. And so I I put myself in a really terrible position and it it took me a long time to get out of that. I moved to New York City in 2013 with like $700 in my pocket, um my wife and I and I got two jobs. The first job was working at Coyote Ugly, which I don’t know if people know that, but it’s a bar where you sing and dance on the bar. You hit your patrons. you get girls to take their bras off. It’s a good time. Um and then the second job I got was working on Wall Street in an unregulated market. So it was part trading floor, part independent sales organization and they were selling us long products, like loan sharking. And this was a huge education for me on the markets, on predatory lending, on financial services. And that that was sort of like the beginning of some aha moments for me. And after our third trader got shipped off to rehab, I was like, this is the most toxic place I’ve ever worked and I’ve worked in strip clubs. So I’m leaving financial the financial industry and I’m going back to bars and construction. And so I got a job at the construction company that I now own. I was employee number four and I was put in charge with setting up the benefit package. I had no idea what any of these benefits were. I didn’t know what a 401k was. I had health insurance maybe once. I didn’t know what PT, what a PTO policy was, how it was enforced. And so seeing all of these systems, I was like, oh, these are the safety nets that majority of Americans have in place. They don’t get pushed back behind the starting line each time they need to take a day off. And then on the other side, we were working for these really high net worth clients, building multi- multi-million dollar uh apartments here in New York City. And so I was getting to have conversations on a daily basis with these people about their budgets, about their money, about how they viewed their finances. and getting to see that mindset and those systems, I was like, oh, this is why me and my peers had not been able to build wealth. And so that was sort of the the the the seeds for all of this for myself personally. So I spent the next three years setting up my own systems, building building wealth for myself, putting putting putting all the buckets, putting all the things in the right places. Um and then in 2016, as we all know, political world was a little bit of a a mess and I just kind of couldn’t stomach the news cycle or anything else. So I just I did a media blackout and I decided to listen to the sweet soothing sounds of personal finance and financial media. and I was like, I this will this will help me learn the difference between a stock and a bond more. I can make better you know, decisions in my life. I can maybe donate more to the causes that I care about. And it was in listening to all of this personal finance content that I just kept hearing the same advice, which was, you know, negotiate your raise, negotiate your salary, get the 401k match, budget based off your income. All of these things that I was like this is not applicable to me or to the 5.5 million people who work in the service industry. Like where are the people that are talking to me? Where are the people who are talking to people like me who built my career on the heels of the service industry. And so that was sort of when the idea for the book came about.
Scott: Awesome. So so in in this period between 2013 and 2016, you have this aha transformation. What’s happening to your personal finances during that period? Are you starting to pay off some of those debts? Were they wiped after a number of years? Uh how did you how did you kind of dig out of that and begin amassing a portfolio?
Guest: Yeah. All the old debt had kind of cleared away based on how long the time span had been, but I had gotten myself into some other some other nonsense. And so I began paying some of that off. I got a secured credit card. I started to build my credit up. Um I started to, I I I remember my wife was working for an insurance company and one of the perks was that we got a financial advisor. and I remember sitting down with this financial advisor and he was explaining to me what an emergency fund was. And I was like, I’m sorry Jeff, you want me to put how much money into a bank account to just sit there, not for a house, not for a vacation, just to sit there as an emergency fund? And when I got off that call, I researched every single thing he told me for weeks and it turned out the emergency fund was the only thing he was right about. But so I I spent 18 months building my emergency fund. I, you know, we started heavily investing. My wife, which, you know, I find this a lot when I talk to people who are in corporate finance that it doesn’t really translate to personal finance. My wife is in corporate finance. She also came out of school before 2008, so she joined the defense contractor and when 2008 happened, I remember her telling me that she watched 50-year old, 60-year old grown men who would had like 10 careers break down into tears because they realized that they couldn’t retire. And so her response to that was, I want no part of this stock market nonsense. Like I just want to go and do my job and and do financial planning for businesses and that’s not for me. I’m going to live for the day. And so it was it was really funny that like when I got really into personal finance that I’m teaching my wife, this this esteemed corporate finance executive, all of the things that we’re going to do to change our lives and turn it around. And so that that was a little bit of our story. We spent three years doing that. really, you know, cutting out lots of lots of travel, lots of going out to eat, lots of purchases and really just reshaping our entire financial lives.
Scott: Awesome. and so what what was through the investment approach here? You’re buying real estate and stocks?
Guest: Yeah, real estate. So we bought a property in Boston. So we have one luxury um rental, long-term rental in Boston. And then we have a primary residence here in Manhattan.
Scott: And then the rest and then you also invest in stocks. You have any philosophy there?
Guest: Oh, low cost index funds all the way. I am, you know, I I went to an alternative high school. I didn’t go to college, but what 20 years in the service industry will teach you is that you can see bullshit coming. I don’t know if I’m allowed to say that on the show. But you can see it coming. You can tell when people are being honest with you and listening to thousands and thousands of hours of personal finance content, you can tell who has an agenda and who doesn’t have an agenda. And when you’re doing that, you can kind of see like, okay, low cost index funds, these are the people who don’t have an agenda. These are the people who are nerding out on this stuff, who are digging deep and doing research and so yeah, I’m teen, I’m obviously I can’t get financial advice, but low cost index funds, long-term buy and hold strategy all the way.
Mindy: Well, great. I mean this this all, that’s a fantastic story here. Could you tell us about what you do for a living now and what, you know, introduce us to the concept of how we can help folks who earn wages primarily through tips, service professionals, um build wealth?
Guest: Yeah, so the book came out um in September of 2022 and this is the first place I tell people to go um is the book’s available on Amazon. I also do one-on-one coaching. I’ll do a money talk for service industry establishments. If you own a restaurant, if you own a a bar, if you own Uber. Um so, I I usually like to start by breaking down what service work is, what the service industry is for people who who may not understand it. Um and this I like to do with personal finance people because they the the analogy I like to give is it’s very similar to a brokerage account, right? Every account that’s available at a brokerage is a brokerage account. but when we are talking about a brokerage account, we are all talking about that after tax account, right? The service industry is the same way. Every job has an element of service to it. But when we are talking about the service industry, we are talking about those people who live on that $2.13 cent sub minimum wage. We are talking about people who work in hospitality, who are working in beauty and body services, who are working in bars, clubs, and restaurants, who are working in transportation, um your movers, your taxi drivers, your your massage therapists, your strippers, your bartenders, your waitresses. Those are the people we’re talking about when we talk about the service industry. And the reason that they have such a hard time building wealth is because they don’t have access to those employer benefits like we were talking about. They don’t have access to a 401k. they don’t have access to paid time off, they don’t have access to health insurance, They don’t have access to pre tax benefits. They don’t have access to automation through direct deposit. They don’t have access to one of my favorite resources, which is human resources. Human resources is the one person that tells you to check this box on a piece of paper and that’s how you build wealth through automation and Sharon for HR, right? Most of Americans build wealth through two ways. One is through their 401k, and the second is through the their primary residence. And both of those things are very hard for people in the service industry. One because they don’t have HR Sharon telling them what to do. And then the second side of that is this is an industry that doesn’t lend itself to claiming their income. Now, I like to talk about this in a way that doesn’t shame people who work in the service industry. If you think about everyone else who works a nine to five job, majority of those people are not tracking their expenses. right? They’re not tracking every single expense. and for people who aren’t required to track every single separate dollar that they receive, you’re not going to track your income either. And so this is an industry where that’s not a requirement and so it is not commonly practiced. They’ll show up at H&R block or Turbo tax and, how much do you think I made? I don’t know, you know? And so when you aren’t claiming your income, this does a couple of things. One, you don’t realize the power and how much you’re actually making in this industry. And when you don’t know how much you’re making, you don’t realize how much potential you have. The second side of that is when you aren’t claiming your income in full, you’re not on the receiving end of benefits that are based on your income, such as social security, unemployment. If you’re somebody who wants a mortgage, you might want non-predatory rates and that requires you to claim a large portion of your income so that you can get financing for a mortgage, so that you can build wealth through real estate. And so people who are in the service industry have to be much more educated consumers. They have to be much more educated at how to build a budget on a fluctuating income that’s based off of expenses, not based off of their income. They have to be much more educated in researching how they can get health insurance. They have to be much more educated by setting up their retirement accounts. Mindy, you made such a great point at the beginning of this episode talking about how service industry workers sometimes don’t realize all of the benefits that they have access to. I see a lot of people in this industry whose employers will often maybe not put them on the books and they’ll complain about that. And I’m like, no, let your employer screw you the whole way over because this is really to your benefit. If you don’t, if you’re off the books, you are an employer for yourself. You can set up a SE IRA for yourself. You can deduct business expenses such as your health insurance, your phone bill, you can deduct a ton of things and so, you know, I think for those people who are kept off the books or 1099 or consultants, you can really use this industry to your advantage to build wealth. I like to say that I think um I belong to a couple of fire groups and we talk about sequence of return risks a lot. And when we’re talking about those first five years after you pulled RE plug, um and people are like, oh, what would you do in a down market? And I hear a lot of people say, oh, I would go, I would go get a job. And I would say, well, what would you do? And they’d be like, oh, I would go bartend or go work at a coffee shop. And I’ll say, why? And they’ll say, that was my favorite job ever. And I’m like, exactly. FI people, this is an industry where you can back into your numbers where you can get, you know, cash where you can keep socializing after you lose that socialization of work. Like I think it’s the perfect fi industry.
Scott: I never considered that. I think that’s an awesome point.
Mindy: I think you’re absolutely right. First of all, I think everybody should work in the service industry because then you truly get an appreciation for the people who are working there, so you’ll treat them better when you’re a customer. But also, so you can see the absolute power that you have there. You made a comment. You said that uh the the minimum wage, the subminimum wage is 213. and I’m not here to pick nits. I can’t remember what it is, but I looked up the federal minimum wage, it’s $7.25 an hour, which is I think a lot of people who have never worked in the service industry do not realize waitresses, bartenders, uh anybody in the service industry is not making 725 plus tips. They are making this sub minimum wage, $2 and 13 cents or I thought it was 255, whatever, it’s not a lot. That that’s what they’re making and then get tips. So at the end of a night, you have $250 in tips, $500 in tips, whatever, when I was waiting tables a thousand years ago, I was required to claim at least 8% of my total sales as tips received. And they do this because they recognize that not everybody is going to tip, but you are supposed to claim the entire amount. Now, does everybody claim the entire amount? Of course, I always did. I never not claim every single dollar that I ever uh received as a tip because of course, I follow the laws every single time. Um and but you know, you’re your boss will not tell you you should claim these tips in full because then you can qualify for a house. Your boss is going to tell you, yeah, you got to do 8%, so do 8%. It’s up to you to educate yourself. It’s up to you to, I mean, it’s up to everybody to educate themselves. That’s what I love about this book. You’re not shaming people for not claiming the tips. I don’t want to pay any more taxes than I have to. So it makes sense to me when I’m not thinking through all of the consequences that I will claim 8% because that’s the minimum that I have to claim. But when I do go to apply for a home loan and I’ve been making uh $13 a night for the last 72 years, I’m not going to get qualified for anything because I have no income. Um I really like the way that you frame that. I love the way that you frame a lot of things in this book and what I like best about this book is that you speak in service industry professional terms. I know that you spent time in the service industry as I’m reading this book. I don’t feel talked down to when I’m reading this book. I don’t feel lectured. I feel like you are truly educating me on how a service industry professional can elevate their financial situation. Plan their finances, save for the future and do all of these things even though they don’t have access to the PTO and the 401k and the health insurance and the HR that the W2 people have. but they do have access to a lot of really I don’t want to say great benefits because it’s not benefits, a lot of different things. Like when I was a waitress, if I needed more money, I could pick up another shift. If I am a salaried employee and I need more money, I can work more, but guess what? I get paid the same because that’s how salary works. And if I want to make more money, I have to go out and get a whole other job. So, it’s very easy. Like were you ever a bartender you were like, hey, I need another shift. How many people are like, please take mine. Or you get there and you’re like, I would like to stay later and the person who was scheduled to close is like, would you please close for me? I don’t want to be here anymore. We did an episode with David Green on, it was number 12 of our BiggerPockets Money podcast where he talked about how he would he’d be scheduled at five, but he’d come in at four because his whole day is already like shot isn’t the right word. But he’s not going to go out and party at like 3 o’clock and then he’s got to work at five. So he’d come in early and pick up a couple of tables for the girl that was leaving from the the day shift. And then he’d offer to to close at night because he’s already there and he’d get a few more tables. So you’re just extending the amount of money that you’re making while you’re already going to be there anyway. Um there’s just so many ways to make easy money as a tipped employee.
Scott: So Barbara, um in addition to the tax-free income that you get as a service professional, professional.
Mindy: No, it’s not tax free.
Scott: We we’ve talked about all these advantages that folks have in this industry. Surely there are some advantages that come with it though that you’ve kind of already alluded to. Could you walk us through those and and some of the ways that these folks can build wealth?
Guest: Yeah. We’ll just we’ll just tie up the tax portion in a nice neat little bow by saying that I think you can avoid it being a felony by claiming 75% of your income, you know? And then you know, if you were to consider that other 25% a pre tax benefit, I certainly wouldn’t blame you for it, you know? I think health insurance when you get health insurance is a pre tax benefit, the average savings is over 15%. So if you are, you know, wanting to save on 25% of your taxes, again, you’re not going to get charge with the felony. Great tip. Great tip. Thank you. The numbers for this industry are abysmal. Um service workers age into the most economically disadvantaged population in our country, then more so than veterans. Majority of retired service industry professionals rely solely on social security. And when you know that the average social security check in 2020 was $20,000 and then you realize that this industry is not claiming their income and that they won’t be on the receiving end of the majority of that benefit. That is a terrifying number. So, it’s really important for service industry professionals to be on the receiving end of this financial advice. But like you both pointed out, there’s a ton of opportunity in this industry. You have the ability to make more when you work more. There are not a lot of industries that allow you to do that. There aren’t a lot of industries where you have quick access to cash. There’s not a lot of industry where you can get multiple jobs. I remember when I worked in clubs, clubs are slow in the summer. Clubs are slow during sporting events. If you pair your club work with maybe a sports bar, you’re making great money because on the sports nights, your club doesn’t need more people. so you can go to your sports bar job and you’re making crazy good night on a game night. If you are somebody who again, if you’re working in a club and it’s slow in the summer, you get a restaurant job that has a patio where you’re making crazy good numbers, right? We’re about to enter a recession, that industry is pretty by and large recession proof. When you have access to a full bar with a full liquor license, places with bars tend to do really well during recessions. So there’s a lot of upside to this industry. It’s location independent. I remember having um a college professor who told me that the happiest people in the world were hair stylists. And I asked him why, and he said, well, they get to see the beginning and end of a creative process every single day. They get socialization and that they get to meet new people. They still get to build on existing relationships with their coworkers. They are location independent, they have autonomy, they have mastery. It’s a cheat code for life. And in the same way, majority of the positions within the service industry have all the same attributes.
Scott: Awesome. So, I mean, it’s what you’re saying it makes a lot of sense if you’re creative, if you make it the the if you make conscious choices and if you’re smart and apply a little strategy here, you can make great money and across multiple different of these, these type different types of jobs with that. What are some approaches? Let’s say I’m I’m a I’m hustling, I’m I I’ve gotten that. I’ve already figured that out. What should I be doing? What are some systems I can set up as a service industry professional to build wealth, um systems that can help me get on the same track as the middle class who are paying down a mortgage potentially or investing in a 401k or those other types of benefits.
Guest: Yeah. The first things I like to talk about are kind of intangible and that’s boundaries. Boundaries are a necessity if you are going to make a career within the service industry. You’re dealing with the general public. The general public is, as we know, awful. And they can put a lot of roadblocks in the way along your path. They chip at your confidence. They you know, they’ll ask questions like, what’s your real job? And you know, what else are you going to do? And um so the first thing I like to say is develop a standard of boundaries at your place of employment. Look for hazards within your own establishment, within your own environment. Work on your mindset. Mindset, I love to start with because it’s free. So start to build your abundance mindset. Once you’re able to take actual financial steps, for many people, it takes time to build up the buffers. I would focus on two things. increasing your income. I have a whole chapter on how people in the service industry can increase their income and two, take a start taking a look at your spending. Right? with everyone in the personal finance space is covering the same seven pillars, which largely boils down to earn more, spend less, invest the difference. And my book is no different in that we will cover those same seven pillars, but I’m just shifting it in a way that works for people who have all these different opportunities, different hazards and and you know, just unique little aspects to it. So, the first thing that I tell people outside of those things is their emergency fund. The emergency fund is the most important thing for people in the service industry. When you are serving someone, there’s a power imbalance, right? and if you don’t have resources, then you might not be able to say no to unsafe situations to requests that may feel not okay. Let’s say you have some jerk of a customer who’s asking for something that’s really unreasonable or making you not feel okay. If you don’t have resources, you’re probably going to try to accommodate that request because you need the money, whereas if you have that emergency fund, you can say, you know what? No, I don’t want this person in my establishment. that’s not representative of the culture of where I work or of me or what my boss even wants. And so you can say no to money that you may otherwise need if you don’t. So an emergency fund is really, really, really important for people in the service industry. Does it need to be the six to nine months that, you know, most people in the personal finance space recommend? In this environment, I like the city yes. Um but by and large, people in the service industry have an easier time getting work more quickly and so may not have, but then the pandemic kind of turned that up on its head, you know? And so, you know, not that you should make all of your financial planning decisions based on a global pandemic, but you know, that instance for a lot of people likely was not enough. So emergency fund is the first place to start, budgets are the first place to start. And then for people who are on the W2 side of the service industry where they’re getting that $2 and 13 cents federal sub minimum wage and you receive a W2, you are going to start by investing into an IRA and once you fill that up, you’re going to invest into a brokerage account. But the most important thing to tell people is that you have to claim income. You have to have earned income in order to invest into an IRA. So if for instance, you are going to invest $6,000 into a Roth IRA, you need to make sure that you have claimed $6,000 in earned income in order to do so. That’s very important for this industry to understand. If you are somebody who’s lucky to have that 1099 or that gig type of work within the service industry, then you can set up a SEP IRA, a solo 401k, you can the you can set up any other employer style retirement account. and then you can also have access to a brokerage account. I think for our industry, it’s really important to point out that you don’t have to have an employer provided retirement account in order to set yourself up for retirement accounts. And the only reason that these accounts are called retirement accounts is just because they’re tax advantage. But even if you don’t have access to a tax advantage account, you can still set yourself up for retirement. You can still give yourself a golden retirement because you are on your feet and you deserve your golden years.
Scott: I’m going to probably expose my ignorance um and and background here a little bit, but do you think that a lot of service professionals do not claim even $6,000 on their tax returns in a given year? Is that a common issue?
Guest: I it runs the gamut. I mean, I think there’s a lot of people doing a lot of different things. I just you know, I know from conversations with peers that this is an industry that underreports.
Scott: Okay. Under reports, but we’re we’re probably going to get the 6,000 an either way. Okay.
Mindy: I do want to point out that that $2.13 that you’re rolling in the dough is paying taxes are taken out of that. So frequently, you go in for your paycheck and you’re like, wow, $1.37. Where am I going to spend all of this? Or sometimes, it’s just zeros all across the board. You’re like, well, thanks. So glad I drove all the way in here for this.
Guest: That’s such an important point because people who are like, oh well, my state gives everybody a minimum of five days paid time off, that is not a reality for service industry professionals regardless of if your employer or your state requires it because of that example, right? Like if even if you’re paid for a day off, your taxes have eaten that money because your your federal income level, your federal wage is so low taxes have eaten your paid time off and you won’t see a paid time off. In addition to the fact that you’re paid time off is based on that $2.13 cents, not on your tips. So, paid time off is not a reality for service industry workers no matter what.
Mindy: Well, and eight hours at $2.13 is $17.4 before taxes. So that zero check that I’m saying, that’s only because they can’t like make you pay them more. So you are going, maybe it’s $0 and you get that paid time off. So they take that $17 and now they pay taxes out of that too. So it really is I mean, nobody that I waited tables with ever counted on the actual paycheck. They were always surprised whenever it was more than a penny. So it was always about the tips, it was never about the paycheck. Uh so let’s talk about that though. You mentioned my favorite B word, budget. How do you budget when you have no idea how much money you’re going to make. You can’t count on your paycheck. so you go in on Friday and Saturday nights at the bar are fantastic. Monday night during football season is fantastic. when there’s a game, I worked at a sports bar. So when there was a game, it was great. But sometimes I would be scheduled for Tuesday and there was no game. So we were watching like the cheerleading try outs from three years ago cuz every TV had to have sports on. So you knew that there was not going to be a super awesome day that day, but you have to work Tuesdays because somebody does. So you could get Friday and Saturdays. Sometimes you walk out of there and you only have $75 in your pocket. And then other days you walk out of there, you’ve got, you know, $250 or $300 in your pocket. It’s hard to budget when you have no idea how much you’re going to make.
Guest: It’s really difficult especially if you’re close to the poverty line, which you know, some people in this industry are. Most of the people I know, you know, made low middle income but definitely had some, you know, disposable income. So most of the people I know in the industry didn’t have an income problem, but budgeting is a really important part of understanding your numbers and being able to find that gap so that you can build wealth. When people say, yeah, but my income is so fluctuating. I never know how much I’m going to make. I always say neither does any business in the U.S.. No business is able to predict how much income they are getting. And so this is going back to the point of you have to be a more educated person in managing your money and more involved in building your wealth. I talk to my my wife who is a corporate finance exact and what does she do? She analyzes trends. Once she analyzes trends, she sets targets. and then what does she do? She looks back to see if her guesses were correct. That is what people who live on a fluctuating income have to do. They have to find trends. You track your income, you track your expenses, you don’t need to change anything. Just track what you’re doing for a a couple months. you will see trends. It’s not as though the the difference or the spread between your income is $7 and $7 million. We’re talking about a closer range and when you start to see those trends, then you can make assumptions based on those trends. You can hit targets based on and and you know, for most people who budget off their income, you can remember that you don’t have to budget off your income. You can budget off your expenses. So if you set your expenses low, then you can budget based off of that number. A lot of people, a lot of companies, they’ll they’ll set targets for their sales where they’ll work really hard the first half of the month and then maybe once they hit what they need to make, they can scale back for the rest of the month on their shifts or like you were talking about you can pick up my Friday, have my Saturday shift or you know, you’ll say, you’ll hit different targets where you’re like, all right, I have five shifts this week. All I need to do is hit $100 a shift and then I’m good to go on my on my on my on my spend. And you know, so there’s a lot of different strategies that you can do, but you do have to look for those trends, you do have to set targets, and you do have to pay attention a lot more.
Scott: Yeah. I I love it. We start almost every fundamentals of finance with track your spending. And the big difference here is really that in the service profession, you need to track your income as well. And that’s just not something that I have to think about, right? Um I get a paycheck, it comes in, I’m not going to track it. Um you know, what is there to track? It’s the same thing every single time twice a month or every two weeks, depending on or once a month for that. But in this case, it’s just an extra step. Then we have to create a budget, which go, you know, or at least kind of have be mindful of how much we’re spending so that more comes in then goes out. Let me ask you this. If I’m not used to doing this and I’m making projecting 80 to $100,000 in income this year in the service profession. How much should I be budgeting for taxes if I’m one of those folks who did not file for taxes uh appropriately last year.
Guest: I like I always like to say set aside that 20, 25% to into a bucket for taxes and if that’s extra, throw that into your paid time off bucket which we can talk about or to your investment account if there’s money left over. In this industry, it’s a lot of building buffers. In the same way that when you’re in a business, you have to start by building buffers. One of my biggest tips for people who work in the service industry usually have a really strong year end because of the holidays. The holidays are a great time to put aside that extra income to either build your paid time off for the next year or build your buffers. Let’s say that you have fluctuating electric bills, for instance, where your electric bill is higher in the summer than it is in the winter, right? You can build up your buffer for your summer electrical budget in that in that holiday season when you’re earning extra tips. I like to kind of make everything a little bit of a game. When I was saving for my emergency fund, I saved based on sections or bar stools and I thought that was a really fun way to do it where like if you’re a server, you can say this table right here, this is going to be my savings section. Those people, they’re going to pay me for the rest of my life, right? Or you you’ll have a bar seat where you’re like these three bar seats, whatever I make in tips off these three bar seats, that’s going to go towards my retirement account. So you can gameify it a little bit to to help you along with those goals.
Mindy: I think even more importantly for tipped employees than traditional W2 employees is knowing how much you’re spending because there are wax and wane times and there’s even in the sports world, there is a downtime where nobody’s playing any games at all. Even baseball is gone and hockey where the season lasts, you know, 364 days. There’s always a time when there’s nobody there and you know, you don’t really want to work, that’s a great time to take vacation, but you also need to, you’re going to be scheduled. So when you’re having these feast and famine times, when it’s feast time, you need to start putting that away. And I worked, I am very guilty of this, uh but I would also work with other people who were like, I made so much money. Let’s go to the boat, the gambling boat. I went there one time and I was like, I just worked all night long. And we went to the gambling boat and everything’s gone in an hour because I have no idea what I’m doing and that was like best money I ever spent because I never gambled again because I know I don’t like it. I I worked too hard for that money and I was so heartbroken that it was all gone in an hour after spending like nine hours on my feet to to earn it. But you know, when when you have so much money, you’re like, oh, and I have a shift tomorrow, so it doesn’t matter. It’s cash. I could just spend it. And that’s when it’s so important to put it away because I know next week I’m working on Tuesday and Thursday and those aren’t great days.
Guest: Yeah. So this is what I love about the mindset conversation for people in the service industry is because they have a combination of scarcity and abundance mindset. They have that abundance mindset where they’re like money comes easily and frequently. I have a ship tomorrow. There’s always going to be money coming in. And so I can spend freely. And I think another interesting part about the industry is just that there’s a cost to winding down. For most people who leave a service ship, you leave a ship more energized than when you started it. And so you have to burn some of that energy out. There’s no way to leave a ship and go home and go to bed. You’re not, you’re not, you’re not exhausted in the same way as a nine to fiver, who’s like, yeah, I got a bottle of two buck chuck at home, I’m just gonna go home and open that up. No. You spent your entire shift not getting a chance to talk to your coworkers because you had rushes and side work and all of this stuff going on and now you just want to go out and connect with them and talk about, you know, your great day or your terrible day or what ever’s happening. There’s a true cost of winding down for this industry and I think what’s important for people when they track their spending is that they’re just aware of what that cost is because you have to be intentional about it. You have to know that this is a percentage of what you’re making. Like do you really want to spend 50% of what you just made moments after it entered your your pocket or would you rather do something different? I think industry has a bad habit of making false comparisons where they’ll say do I want to go out or do I want to not go out? And when they give themselves that that you know, that question, of course, the answer is I want to go out. But if we rephrase it and we then say do you want to maybe only go out once a week and also max out your IRA and go to Mexico or would you rather go out three times a week? Like then we can start to have a conversation about building, you know, uh building lifestyle design and being able to maintain a real career in this industry.
Mindy: I think that’s one of the most important parts of the book is just helping service professionals reframe their relationship with money and considering different options because I’m a waitress, I don’t have access to a 401k, therefore I’m not going to think about retirement. No, no, you should think about retirement. Let’s look at it this way or because I’m a waitress and cash is so easy, I could just spend whatever because tomorrow I’m going to have more. No, you need to spend that intelligently because tomorrow isn’t always going to come. You’re going to be 65 and not able to you know, wait tables anymore or whatever and it’s going to be, you need something to take care of you or maybe you don’t want to wait tables until you’re 65. It’s a hard job.
Guest: It is a hard job or maybe you don’t want to do it at 40 to 60 hours a week anymore. Like I love the idea of doing it for 10 or 15 hours a week when especially if I’m 60, I think I get to talk someone’s ear off. I get to move my body in an appropriate amount of time. I get to get out of my house, I get to make some cash, I get a sense of purpose. I get to connect with community members. Like I love the idea of this industry in small doses. Um and so I think but you have to make it to that point. You can’t burn yourself out.
Scott: So look, what we’re we’re we host a podcast that is about fundamentally moving towards financial independence. Right? So if I’m a service industry professional and I’m, you know, let’s let’s create a persona here. young, young and able, willing to work 40, 60 hours a week. we’ve got tracker spending. We’ve got tracker income. We’ve got build an emergency fund and begin investing but realistically, what what could could how much can someone like in this in this situation maybe uh uh working uh at the club and then at a at a sports bar to use your example, bring home in a year and how how can they begin aggressively moving towards financial independence?
Guest: Right. So, you know, my experience in the industry went, I had such a salary range. Like there were years I made 20 grand, there were years I made six figures. You know, it really depends on where you are and what you’re doing. The great part about financial independence and financial freedom is that you need what you earn. So you’re not going to need a six figure retirement account if you’re not earning six figures. If you are making $40,000 a year, then you need a $40,000 a year retirement. The thing I love about financial freedom and financial independence is that it’s so possible at any, any level. Like we all love the example of the $40,000 a year janitor, right? He showed us he I think he kicked the bucket with like $8 million or something. Like it’s so so possible and what these people in this industry need to know is that if you set these systems in place, the math is the math no matter what you’re doing. The math is the math. And so if you’re able to save 10 or 20 or maybe 50% of your income, then the math is still the same for how many years it’s going to take you to get to financial independence. And these people just need to be reminded that their money is real, their careers are real and these milestones are just as achievable.
Mindy: Barbara, do you have any last tips besides those amazing tips for our listeners?
Guest: Track your income. So important. So, so, so, so important. Check out my book. find community. I always um so whenever I’m talking about budgeting, I always like to talk about my work in, I worked in the fetish and kink community for a while and I think the lessons that I learned working in the fetish community perfectly addressed budgeting. So the first lesson is only people who are into feet want to talk about feet. So find your people. No matter what you’re doing when you’re trying to achieve goals, you need to find like-minded people because it helps you stay on your path. It helps you connect, it helps you feel seen. The second thing is that the things that you want the most should be a part of your budget. I think when most people think about budgets, they think about the things that they should have, not the things that they want to have. You and your life and the things that you want are good enough to start budgeting right where you are. You want toys, you want substance. I like to say you can budget for anything except for a hitman. You could still hire a hitman, you just can’t keep records like that. Um and so the things that you want should be a part of your budget. Um number three, boundaries are super important. So it’s your job to communicate them. Yes is how other people get what they want, no is how you get what you want. And then the final lesson I learned in the fetish and kink community is that discretion is encouraged. You don’t need to share your budget or your numbers or anything else with anyone else, especially if you feel you’re going to be judged or shamed for those things. They are your numbers. You can keep them to yourself. you can make sure that the people who are in your circle aren’t going to try to sabotage you or spend your money or set your goals for you. So there’s no need to share them unless unless you want to.
Mindy: Oh, yes. As you’re saying this, I am shaking my arms the whole time. That is so great. I love that. Yes, we have a Facebook community for people who want to talk about money in general. Uh it’s at facebook.com/groups/ bpmoney. We will start a whole thread to talk about service industry professionals and tipped employees when this episode comes out. So come on in there and we will have uh questions, some people will have answers. Um Barbara will have you come in and uh I’ll tag you in there and you can share your information as well. Uh there’s a lot of really great information in this book. If you are a service industry professional, if you know a service industry professional, you need to get a copy of Tipped by Barbara Sloan trying to put it into my screen here. There you go. Barbara, this was so much fun. I’m so happy to have talked to you today. Thank you so much for your time.
Guest: Scott Mindy.
Scott: We really appreciate having you on. This was really informative and really fun. Thanks a lot and uh yeah, we’ll be sure to check check out Tipped finance.
Guest: Thanks Scott Mindy.
Scott: Thanks Barbara.
Mindy: All right, that was Barbara Sloan, author of the new book Tipped. She’s from tiptfinance.com and I love her. Can I say that? Scott? She was one of my favorite guests ever. I love her book. I I devoured this book. It was so easy to read. I really felt like I needed this book 30 years ago when I was waiting tables. She could have changed my entire financial life if she would have only learned all of this stuff 30 years ago and then written the book. So in that case, I’m a little annoyed that she didn’t, but I’m so excited for all the people now who can benefit from her information. It was just such a great read.
Scott: Yeah, I mean, it’s it’s such an underserved community in the world of personal finance. Um you know, there’s just not a lot not a lot of resources out there that I’ve come across or even really considered until Barbara who seems to be really an expert in this, really gets it. And I was grateful to learn from her today.
Mindy: You say underserved, like it’s served at all. Now we actually have an opportunity to, a a resource for people in the space and like I said at the beginning of the show, if you have somebody in your life that is a tipped professional, please share this episode with them because I think there’s a lot to learn from this show and how to change your mindset about your wages and your tip, aren’t tips wages about your tips. Change your mindset about your tips and how you’re earning income and set yourself up for financial independence. Set yourself up to be just as taken care of as those with W two jobs.
Scott: Mindy, before we go, I I just want to conjecture about how I might, based on what I heard today, aggressively pursue financial independence if I were in this cohort of a service industry professional, right? I would probably take her advice and try to find a match a a you know, after some trial and error, some sort of hybrid approach that allows me to get really all of the busy times that I can, right? that club and sports bar combination or whatever, right? And I would imagine that for a hustler who’s young, willing and able, there’s an opportunity to get into the well north of $50,000, maybe approaching $100,000 with some on and off years there in income. I would keep my expenses really, really low. I would declare my income tax. I would save up the cash, put it into the bank physically, um on a very regular basis and build up not just an emergency fund, but the ability to house hack, right? and and to get into real estate investing. This is a business that should be in many ways, I would imagine fairly conducive to getting into real estate investing as a side project after a few years, right? Because if I can build up that cash and I can get that first property, now I can maybe arrange some of those ships a little bit in order to be conducive to to helping me repair, work on work on that first, second, third, fourth property uh as things get going. I’d also set up a Roth IRA, make sure I’m contributing to that. Again, filing my taxes to make sure I can do that. And then putting a regular amount towards an after tax brokerage account. And I think that within a few years, this is a path to a few multiple hundreds of thousands of dollars in net worth, um if I’m being really smart about that and, and, and and busting it there. So what do you think? is that is that land or is that, is that something that that you see think it might be approachable for a lot of folks?
Mindy: I think that’s very approachable. Let’s look at the uh contribution limits for 2022, even though we’re in 2023 because the math is easier for me just on the fly. Uh but the contribution limits were $6,000. That’s uh $500 a month, that is $125 a week, that is $25 a day for five days. I mean, that’s very easily done as a tipped employee if you think about it. It’s very easily ignored because nobody is talking about this. I think it’s very easy to pick up an extra shift. It’s very easy to take advantage of these things that you have available to you that a traditional salaried employee does not. Yes, they have other advantages, combine them. If you are a salaried employee and you would like the opportunity to earn a little extra income. Have your W two job, your salaried employee job and then subsidize your income with tips while you are maxing out your 401k. get the best of both worlds, work the weekends and rake in the cash while you are maxing out and getting your employer sponsored benefits and I mean, there’s a lot of ways, especially if you’re what did you say Scott, young, willing and able, there’s a lot of ways to really boost your income and boost your uh your financial picture, your financial stability just by adding a few years of tipped employee jobs.
Scott: Yeah, and and no one’s saying it’s easy. We’re we’re like this is literally a suggestion to work tons of extra hours and scrimp and save and pile up a large cash position. But that’s what it’s all about, right? We’re we’re trying to achieve financial independence here and in order to do that, we have to get over the initial hump of amassing after tax spendable liquidity that can generate after tax passive cash flow. and to do that is hard and it takes a uh the accumulation of that surplus outside of your emergency fund or your 401k or your just your regular home equity in order to start generating that. But if you can get to the other side of that, it makes it easier on your financial position for the rest of your life. And I think that tipped employees are in a in a particularly strong position, service industry professionals are in a particularly strong position if they so choose and are and are willing to invest in the skills of of uh tracking income, expenses, and these others other um and and building the systems to mirror the advantages that maybe W two employees have. They actually have some advantages here that could enable them to power through that hump maybe maybe faster than some folks that are earning W two incomes and don’t have control over the amount that they’ve they can make in a year, the same way that a uh service industry professional can.
Mindy: Absolutely. We would love for you to join this conversation. Please join us in our Facebook group which is at facebook.com/groups/bpmoney. All right, Scott, should we get out of here?
Scott: Let’s do it.
Mindy: That wraps up this episode of the BiggerPockets Money podcast. He is Scott Trench and I am Mindy Jensen saying, see you soon, raccoon.
Speaker 1: If you enjoyed today’s episode, please give us a five star review on Spotify or Apple. And if you’re looking for even more money content, feel free to visit our YouTube channel at youtube.com/biggerpocketsmoney. BiggerPockets Money was created by Mindy Jensen and Scott Trench, produced by Kailyn Bennett, editing by Exodus Media, copywriting by Nate Weintraub. Lastly, a big thank you to the BiggerPockets team for making this show possible.
