Today’s Finance Friday guests have three rentals and are looking to retire in 12 years. But, they’re caught in that famous middle-class trap. So, Scott and I are going to see what’s possible with their situation.
Mindy: Hello, hello, hello and welcome to the BiggerPockets Money Podcast. My name is Mindy Jensen and with me, as always, is my strawberry loving co-host, Scott Trench.
Scott: That was a very good intro, Mindy. Thank you very much. We’ve got the goal here at BiggerPockets of creating 1 million millionaires. You are in the right place if you want to get your financial house in order because we truly believe that financial freedom is attainable for everyone, no matter when or where you’re starting, or whether you are caught in this so-called middle-class trap.
Scott: Today we’re going to talk to Emily and Justin. Emily and Justin live in Colorado and they both earn around $85,000 a year each, bringing into a combined household income of just close to $200,000 when factoring in side hustles on top of that. And they’ve got a net worth of about $1.5 million, but they feel like they can’t access it to actually live the life of their dreams. And unlike many, they have a very crystal clear and awesome perspective, potential life of their dreams. So Mindy, I’m super excited to get into it and talk about the ways to unlock all of the incredible value that they’ve created to help them get to their goals.
Mindy: Yes, if you are listening and you are on your way to financial independence, I am almost going to guarantee that you will identify with at least one of the issues that our guests are having today.
Scott: All right, before we get into today’s Finance Friday review, a special thanks to today’s show sponsor, BAM Capital, your path to generational wealth with premier real estate opportunities. See why over a thousand investors have invested with BAM Capital at biggerpockets.com/bam. That’s biggerpockets.com/BAM.
Scott: If you enjoy today’s Finance Friday, um, and have some questions you maybe listened to the DIY Finance Friday, but you want Mindy and I to disagree with one another, um, and have some on-on camera fights, please feel free to apply at biggerpockets.com/financereview. Uh, some of our best Finance Fridays come from long-term listeners who are struggling with problems just like Emily and Justin’s, and we would love to dissect that, debate it, and maybe give you some ideas that hopefully help you. So again, that’s biggerpockets.com/financereview if you’re interested in being on a Finance Friday.
Mindy: Without further ado, let’s bring in Emily and Justin. Emily and Justin, welcome to the BiggerPockets Money Podcast. I am so excited to jump into your numbers today.
Guest: Well, thank you for having us. We’re excited to be here.
Guest: Yeah, thank you, Mindy and Scott.
Mindy: So, before we jump into those numbers, Emily, can you share a little bit about your journey with money?
Guest: Yeah, sure. Um, well, I grew up actually in the small town that I live in now. Um, my dad was a pastor, my mom didn’t work most of my childhood. So we probably were lower, um, mid to lower income. And I just had a really wonderful childhood. I never felt lacking. Um, we did a lot of fun things. I got to play sports and do piano lessons.
Guest: One thing that I think helped with that, that’s really different now where we live now has a ton of wealth. Um, but in the nineties, nobody here had money. So it was really normal just to camp for vacation or, you know, go school clothes shopping once a year. So there was never any feeling of like we didn’t have enough. Um, I think my parents really taught me to live within my means. You know, I don’t know if they made the smartest money decisions, but I don’t think they ever made bad money decisions. And that’s something I really value right now is to live within the money that you make.
Guest: Um, and I’d say the other thing that they did really well, or at least is important to me is to taught me to value experiences. I remember we used to say, well, you’re either a car person, a vacation person, or a house person. And we always drove old cars and our house was pretty modest, but we really, really loved spending time together, going out in nature. And that is like at my heart, what matters to me is to spend money on experiences. Um, on the flip side, you know, they didn’t teach me any, anything advanced, you know, I didn’t learn about the stock market and compounding interest and those are things I’ve had to learn from Justin and just on my own journey. Um, but overall, I think, I think they did a really good job. I’m happy with how I was raised in that way.
Mindy: For them to teach you to live within your means is the best gift possible, because there are so many people who grew up and they’re like, oh, we don’t know how we’re going to pay for it. We’ll figure it out later, or we’ll just put it on the credit card, continue making the minimum payments. So that is a really, really great gift that they gave to you. Uh, shout out to Emily’s mom and dad. Now, Justin, let’s look at your experiences with money.
Guest: So, funny, um, I am also a preacher kid, which is wild that the two of us found each other. And on a side note, we found each other at jury duty of all places. Um, so yeah, that’s, that’s wild. That’s another story for another time. Um, but, uh, yeah, similar. I grew up in Colorado, uh, not in the mountain town, but along the front range. And, um, my dad worked as a preacher. My mother worked as a mother, raising, uh, four of us kids. Um, money was tight. Um, there was not an abundance. Uh, we were the type of family that clipped coupons and, um, did not eat anything fancy. Um, I don’t remember going out to eat as a child.
Guest: So, when we, I realized really quick as a, as a small person that, um, if I wanted something, I had to go find the means of getting it. So, I had a paper route starting at the, in second grade all the way till I was 16 and able to, uh, get a, I guess, real job. Um, so my parents did try to instill some financial stuff in me. Saving was always a big topic, so much so that, um, sometimes it drives me crazy and can be a bit of a trigger when Emily and I get a little too in depth with finance conversations. I think we’re really wise with our money and sometimes I think we forget to have fun with it. The the truth is revealed.
Guest: Um, but let’s see, I remember my dad encouraging me and influencing me to start a, um, a retirement fund when I was 18 and under the, uh, premonition that if I put a thousand dollars in there a year for the next 10 years, that by the time I retired, I would be a millionaire. And I’m not quite sure that’s really the case. Uh, he had some impressive spreadsheets at the time that was that tried to convince me otherwise, but I have not seen that 10 grand get to that point yet. Um, but needless to say, it it was a good positive start. On top of that, uh, with the limited funds we had, my parents were able to put enough money away for me that, um, when it came to college, they kind of laid it out and said, hey, here here’s a path or a route that you can take. And that is to live at home during college and go to your first two years at a community college and your second two years at, um, at CSU, and we think you can walk away from this without owing any money. And sure enough, I did, which I think is quite an accomplishment these days.
Mindy: Well, that is a gift that your parents gave to you. So let’s shout out your parents too. Um, do you know what your retirement goal is? Numbers and timeline and how did you come up with this goal?
Guest: Oh, do we ever. Well, honestly, starting by listening to your podcast was a really big part of this journey I’ve been on. Um, so thank you, Scott and Mindy. Yeah, and then I also have, I really, really liked listening to when Ramit came on your podcast and I, I asked Justin the question, what is your rich life? And we’d never honestly asked each other that question before. You know, we have three kids, life is just like wildly busy. Um, but as we’re in our forties, I’m almost 40, he’s 46. I think we just realized that that time is sooner than it’s not. Um, so I, I mean, this is one of the main reasons we’re here. Justin can retire from his, um, government job in about 12 years. Maybe sooner, maybe later, but 12 years is what we have in our head. Um, I’m seven years younger and and I just like so, so deeply want to be able to do that with him.
Guest: Whether that’s a full retirement or we’re just, you know, working at the library once a week, I don’t know, but the thought of, you know, me punching in the clock for another seven years, I just can’t do that. So I think that’s, and I think we’re both more or less on that same page. Like, what can we do to, in 12 years be as financially independent as possible that gives us just a lot of freedom, um, outside of these traditional office jobs that we’re actually really happy with for the moment.
Scott: Well, I just wanted to, because you guys put in, you know, I think some of the best and clearest answers I’ve seen in terms of what you want. Like you’re so clear from what I can tell in what you want, right? And and, and this concept of love of the outdoors and time in nature, um, I’m picking up time with your, your children in nature, um, as well, as part of that. I’m picking up themes around seasonality as it relates to what you want to enjoy there in there. And again, these are questions you provided in advance, but could you talk through some of those specific, like your vision is so clear, could you crystallize a little bit more because I think that will play into, I predict it will play into the way we talk about the strategy going forward on how to realize that.
Guest: Well, I have a spreadsheet, um, not shocking. Well, we only have kids in the house for 10 more years and that again, it’s like really hit us. Um, that seemed like such a far off thing and now now it’s here. Um, so we have listed, um, our goals are health and wellness, to spend time in nature, um, to prioritize experiences that build community. We have a really fun town with a lot of great friends and doing things with that group of people means a lot to us. Um, we’d like to be able for our kids to continue to take part in activities like soccer or music lessons, nothing extreme, but we don’t want to have to say, you know, you can’t do that. Um, I personally want to, um, internationally travel every single year and Justin loves the river and would love to go see more rivers. So that’s, it’s very specific.
Scott: Well, these are awesome. One of the things I want to call out specifically is you asked a question in the prep work here that says, can we be snowbirds? We’d like to live in Central America from February through April every year and work on our Spanish. We also want a sprinter van for domestic travel and adventure. And I wanted to ask a specific question now. Again, I may be completely wrong as may not come up at all, but February through April in Colorado is a really interesting seasonal opportunity and time to get out of Colorado. So walk me through what the thought is on that particular bullet point. I just want to see if that, I don’t know if that plays into something in the future. I just have a hunch at night.
Guest: Well, I mean, our hope is that we could find a means to do like a house trade with someone for that length of time. That we could find someone that was inspired or wanted to be, um, in the snow next to a ski resort and maybe had a place somewhere else and we could swap places for that point in time. And, um, that would work out advantageous to us. Uh, I don’t, I don’t really think we’re interested in like owning a separate place in another country. That sounds a little stressful for me. Um, but that’s where my head is.
Guest: Well, I just hate Colorado in the spring. I just like the wind, I just can’t take it. The thought of when we in 10 to 12 years when our kids are out of school, if we could just leave, oh, I would love it. And I really want to learn Spanish. I’m on Duolingo day 500. Yeah. So I just like that, that’s maybe a little more my dream, but our tolerance for the spring weather is getting less.
Scott: Well, we need to get into your numbers. I’m sorry to take us down a rabbit hole. I just wanted to ask that because most people visit Colorado in February, March, and early April. And so I see a huge opportunity there, um, depending on, on, on proximity to mountains and those types of things. Um, but that’s all.
Mindy: All right. Uh, well, let’s run through your numbers really, really quickly. We have an income of $16,800 a month, expenses of $7,700 with a difference of $9,000. So you’re clearly not having an issue on the income or the expenses side. Yay for you. You’re doing great. Debts, now hold on, this is going to sound scary, but it’s not. Debts are $707,000, but that’s all mortgages. That’s not credit cards and student loans and all of the things that sometimes come into play here. That’s mortgages. And frankly, I don’t think mortgages count as debt, uh, but that’s just me personally. And that’s three mortgage properties. Uh, assets total $1.5 million. So I think you’re on a really, really good track. I have a ton of thoughts based on what you just said, and I can’t get into them right now because we need to take a quick little break to pay our own bills, but when we are back, Scott and I will discuss how you are going to meet your goals of retiring in 12 years. So, stay tuned.
Scott: All right, and we’re back. Um, just a reminder, we have, we have a net worth of just shy of 1.5 million and a spread between income and expenses of about 7500, $8,000 a month. So that’s about $85 to $100,000 a year in after tax accumulation. So if I just take your goal and let’s, let’s use 10 years instead of 12 because I don’t want to do the mental math. We’ve an $800,000 in cash coming into your lives in the next 10 years, if we stay the course, which puts your net worth at 2.3 million assuming no investment returns. Once we layer in investment returns, we could probably double that number or come close to it, um, at the highest level. Does that sound, have you guys thought about it at that highest level prior to this call at all? And how does, how does that, have you modeled it out in any type of projection model here?
Guest: I mean, that just feels like not how our life feels. Our it feels like our expenses every month feels stressful. Like I hear what you’re saying because you know, I, I like, I just feel like we should only live off of the income from our W-2 jobs. So adding in this income from rentals or the side gig income that Justin has, that it just doesn’t feel like it counts to me and I know it’s supposed to. So those numbers don’t resonate to me because all I think about is like, how, should I buy strawberries this week? You know, that, that’s like how my brain works every single second of the day. I don’t know, do you feel the same?
Guest: Yeah, I have not looked at the upper end of it. Um, my my brain goes to once we retire, what could we have on a monthly basis and will that meet our means? Um, and I feel pretty comfortable with where we are right now, but I’ve never like ventured in my head above that number.
Mindy: Well, that’s where Scott and I come in. Although I feel like I’m in your marriage too, because I am the exact same way. Um, I also don’t really, I’ve been struggling with, oh, can I buy strawberries this month, even though yes, I could buy strawberries. I could buy strawberries every single day. It’s, it’s tough to go from the saving mindset to the spending mindset. And in your application to be on the show, you had a question about your budget. You said, our monthly budget is tight and we could easily spend an extra $500 a month and feel less stressed. So my question to you is, what is preventing you from spending that extra $500 a month? Because that’s only $6,000 a year and when you’re saving $73, $75, $80,000 a year, of course, $6,000 is nothing to sneeze at, but if it’s going to make your life so much less stressed, what prevents you from spending that?
Scott: And I have I have a parallel question to that, which is, is that actually happening? Is $7,000 going into savings and investments in a literal sense? Like is that, has that actually averaged out to 40 grand in the last six months, for example, or is that not happening? Is there an incongruity between what the numbers in your spreadsheet are telling you and what’s happening in your bank account?
Guest: Well, okay, so that we invest through like the traditional Roth 401ks. Um, so we do that maybe probably at a higher rate than average. Then we have Justin has kind of some side hustle money that we’ve only had for like two and a half years, so it doesn’t feel like we can count on it necessarily. Um, that currently has just gone, we really need a bit of a house remodel. Our house is very old. We bought it 16 years ago on like a newlywed Home Depot budget remodel. And like it’s just really time. So we we have taken all his side hustle money and not spent a penny with the intention of doing some bigger projects this fall. And then that rental income. So what we did for two years after we, um, bought our two rental, well, we have three rental incomes. One of them in our backyard is an ADU and two single family homes on the Western Slope. So at first, we we cash flow about $1500. So for about two years, we just were like, we’re snowballing the debt, we started putting it into the mortgage, and then we kind of read, well, that’s not always a good idea. And we have really low interest rates. So then we stopped doing that and then we just saved it in a high yield saving. So we’ve been doing that for, I don’t know, a year, cuz, and I’m really glad we did cuz I think what we needed was like an emergency fund for the rentals and now we’re back to like, what do we do with that rental cash flow? Do we go back to snowballing the debt and then what do we do with Justin’s, um, side gig money now that we are done saving for this house remodel?
Guest: And, and I just want to add, so the other thing in there Scott is the buckets. Um, my wife loves to make buckets and so it’s not like all in one savings bucket. Like there is savings for a new car. There is savings for the next vacation. There is savings for the vacation after that. There savings for gear. There’s probably 30 buckets. So it gets spread out little bits at a time into each one of these things so that when the right time comes, it’s there and it’s not going on a credit card. And we feel like we’ve earned it and we deserve it at that point.
Mindy: Okay. So, I want to go back to my question. What is preventing you from spending that extra $500 a month?
Guest: Cuz there’s always one more bucket.
Guest: Yes. I mean, it’s a real like, I don’t want to say it’s a problem. I have some probably weird money psychology and it feels almost like a moral failing to to go from like we were saving this to now we’re spending it. So I just I own that. Um, I, I do think, honestly, this is what my one of my main goals talking to you. If I can feel, if we can feel like, all right, we are on track to do what we want to do in that 12 year time frame, then I do think I can be more comfortable saying, let’s just take that extra $500 and stop stressing about the acks that I need to buy or the strawberries. Um, I think I can do that, but I I that 12 year goal feels so important to me that I’d almost rather like I’m, I I realize I’m sacrificing or stressing maybe unnecessarily to get to that goal. And I should probably work on that.
Mindy: Okay. So here is my thought. We are on, what, episode 543 is this episode. I’ve been talking to people about money for a long time and we have had numerous people tell us their journey with money started from zero dollar net worth or even negative. And in 10 years, they got to their retirement number. Their retirement number might not be the same as yours, but you’re not starting at zero. You’re starting at 1.5 and you’re you’re giving yourself 12 years. So I’m gonna go out on a limb here and say you’re on track to hit that in 12 years. However, it’s super easy for me to sit here and look at your numbers and say that. I want you to do an experiment. And maybe it’s not 500 right off the bat. Maybe it’s only $250. But take that $250 out of your $9,000 a month that you’re saving and throw that into your miscellaneous socks, strawberries, whatever I want to buy, here is $250 or start off with $50 or $100 or whatever. And you can spend that freely and see how you feel after a month or two. If a month or two makes you so anxious about this extra money that isn’t going into your investments, then pull it back. But what I have learned is that $250 over the course of $1.5 million net worth isn’t gonna make a big dent. And sometimes reframing the way you look at it can be very helpful. Again, I’m struggling with the same problems, so it’s not like I’m perfect at this, but those are some of the things that I have been able to get over my small dollar spending hump by just saying, well, in the course of my whole net worth, does this matter? And $250 doesn’t matter against a hundred or $1.5 million in my opinion. Does that make sense? It totally makes sense.
Guest: In fact, I mean, Emily has been trying to do that a little bit here and there by just throwing a fun money pot for both of us. Emily gets $500 for fun money, no strings attached, go buy those things that keep popping up on the computer and sucking you into advertisement-wise. And the same goes for me. And it and it feels good. It does feel good.
Guest: But I still just don’t understand how we retire in 12 years. I’ll only be 52. So Justin has a pension coming, but it’s it’s not even close to enough to live on. And so I think that’s where I’m just so curious, and especially because you all are real estate people. If you don’t have your real estate paid off, how is it really that helpful for financial independence?
Scott: You got it, right? So here’s the issue with your, your situation is you have a 1.5 million, you’re coast FI, right? That’s the word, that’s the phrase that I think you need to internalize here is like today, you’re coast FI. You don’t have to accumulate any more wealth to be worth two point, two million, easily adjusted for inflation. If your assets don’t accrue anything past, if all you do is pay off those rental properties and your mortgage, you got a net worth of 2.2 million, adjusted for inflation easily with the real estate and then probably plus some with the stock market. But what your situation here is if I break it down, you got $591,000, 600,000 if we round rounding to the nearest, you know, tens there, round number, in your retirement accounts, which you’re in practice, not going to access. 50,000 of that is actually in your 529, so I wouldn’t count that. And then you’ve got 500 K, 400k in your primary residence, which is also, um, you know, um, not helping you actually spend your cash flow here. And then the remaining balance is in your rental properties, right? Which I think, based on what I’m hearing you say, maybe are starting to produce reliable cash flow, but you haven’t quite adjusted to that reality if that is reasonably fresh. How close am I in diagnosing the problem here?
Guest: Yeah, I mean, they they reliably cash flow $1500. Okay. That, that feels really good to not access. You know, they cash flow more than that, but then we have to buy a new something or do this or do that. So like, we truly, I believe this going forward unless something catastrophic happens happens, the cash flow 1500 that we can do something with. What that is, I don’t know.
Scott: Awesome. So, so, but, but am I, am I reasonably expressing the high level problem that you’re, you just, you just voiced? Is that, is that the way, is that the way to throw that back to you?
Guest: Yeah, yes, like most of our network doesn’t feel accessible whatsoever. It still feels like we get a paycheck, we get two paychecks, we spend all of it, we get another two paychecks and we spend all of it. So like I, I see the idea of the net worth, but in reality, it still is like the strawberry problem.
Guest: Yeah. It’s not a number in the bank.
Scott: I completely agree and I think that that’s the, that that’s the, that’s the trick here is what are we going to do about it going forward? And the way I see the situation here is you’ve got 16,000 a month coming in, 8,000 spread between income and expenses. Where you choose to put that $800,000 times 10 years is going to make all the difference into how you feel about that situation at your retirement level. So if all of that goes into your 401k, for example, or more leveraged real estate, you’re going to have a much bigger number, but the same general problem. I had somebody reach out to me a few months ago who was worth $3.5 million asking me, how can I generate $60,000 in passive cash flow? Right? With a very, the similar level. So that’s I think the, the thing there is you are on track with your current approach to make, to continue crushing the net worth goal. This thing, this portfolio should roughly double every seven years. Seven, rule of 72, um, give or take how market conditions go. And you can then multiply it to a big number, but I think that that’s the question is you’re not gonna feel good about withdrawing that portfolio in 10 years, unless there’s a different asset allocation decision to be made. And that involves hard choices. So some options that are relatively unpleasant here and hopefully we can find better ones, um would be pay off the mortgage.
Guest: Well, why is that unpleasant? I’m so curious. They’re really low.
Scott: It’s not unpleasant. It’s just, it’s just bad math. Like, I’m, I’m a spreadsheet guy. So I don’t like paying off three and a half percent interest rate debt. And I’m sure you guys don’t like that either. The our primary’s at three and our rentals are at three point nine. I like, I hear that, it’s not good math, but if they’re paid off in 12 years, that’s like money to pay for our life.
Scott: Well, it does two things for you, right? One is your mortgage payment is what? What’s your P and I? For our primary? Yeah. It’s giant. It’s like 2600. Okay, so 2600 * 12 is 31, 200 per year. And then if we do the 4% rule and you multiply that by 25, you need an asset base of 780 grand in order to retire early and feel comfortable withdrawing the 4% that would pay off your mortgage. So that I think is that, that’s what you’re, I, I think that’s a way of articulating, you’re able to follow that? I I explained it kind of weirdly here. If we didn’t have our house paid off, we would need $780,000 withdrawing at 4% to cover our mortgage, right? Just your P & I if it’s 2600. Yeah. So if you pay that off, you can reduce your your early retirement number by that amount. Now, it doesn’t work like that because it’s not a permanent thing and there’s all these reasons why that doesn’t work. But in terms of how you’re going to feel about it, I think that’s what like that’s one, that’s a really compelling reason to pay off the mortgage. And why I’m like if you’re buying a house new right now, and you’re trying to retire early, and at 8%, I think it’s a no brainer in many cases, you know, for all but the people who are actually going to be working on their business or in a business that can drive exceptional returns, pay off the mortgage on that. Mindy’s about to disagree with me. Go ahead, Mindy.
Mindy: Yes. So at 8%, I totally agree with you. At 3%, I don’t agree with paying off the mortgage because I can put that extra money that I’m not putting towards my mortgage into the stock market and generate more returns, a higher return than my 3% mortgage costs me. So that’s what I do. I had, I actually had a paid off house. We had to pay for it in cash because the sellers needed a quick sale. It was one of the reasons why we were able to negotiate such a low rate. So once we were here for a while, we cash out refinanced, and I pulled every dime I could out of this property because interest rates were so low, and I know I can do more. I think we got like $350,000 out of it. I could do more with that money in the stock market. And in fact, at one point, Carl was tracking this. I don’t know if he still is. We were up, I think in six months or eight months, we were up $100,000. This was in 2020 when the market was like going on a tear, but you can make more money in the stock market instead of just putting, like when you pay off your 3% mortgage, you’re getting a 3% return. However, I am comfortable with mortgage debt, and I have a hybrid solution. If you don’t want to continue to have your mortgage, make your minimum mortgage payment, and then any excess that you were going to put towards your mortgage, put it in a high yield savings account. It’s liquid, it’s accessible anytime you need it. Once you have a balance in the high yield savings account that matches the balance on your mortgage, you have a choice. You can pay off your mortgage and be debt free, or you can see it still growing in the high yield savings account and say, I’m going to keep it in there. I’m comfortable with this mortgage for a little bit longer. But then when you need the money, you, if you need that money, you don’t have to go get a a helock where, which is like 9% right now.
Scott: I’m going to disagree with Mindy here, right? So this is a good, good debate here. Here’s the thing, you put 347 in an interest in an interest bearing savings account, you’re going to generate four to five and a quarter interest, depending on how good you are at constantly maintaining the interest and that, that’s just for now, right? That could go up or down depending on how things go. And then you’re going to, and then you’re going to pay income tax on that simple interest. So your yield after the fact is going to be like 3.2%. So you’re actually going to get a negative spread because you’re probably already claiming the standard deduction and you’re not claiming your home mortgage interest against your tax bill. So that’s why I’m like, again, and and I come back to the higher level point here, of course there’s an opportunity cost. If you pay off that mortgage instead of investing today in the stock market, you’re going to have an opportunity cost of the spread between let’s call it a 10% yield and a 3.9% of your, on your mortgage balance. Like that’s why I struggle to do it, right? Like on a rental property or whatever, right? It’s, it’s because of that concept. But again, like if we go back to your net worth challenge, I just did, I said, let’s take your $1.5 million net worth and let’s multiply it by a 7% annualized return, which you should get with your leverage right now on your portfolio, on your rental property portfolio and your stock market investments, right? And you multiply that by 10 years, your net worth at the end of this period is 2.95 million, and that’s before you add any of the savings you’re going to put in and your pension, which we still have to talk about here. So that’s your net worth in 10 years if historical trends, now that we could go nowhere in 10 years, it could go down, right? There could be all these different scenarios, but that is the historical average applied to your situation. So I don’t think you have a net worth problem. I think you have a a way you feel about your net worth and want to access it problem. Um, here and that’s where I think like that’s where I’m on the side of like, I’m not saying you should pay down your mortgage. I’m saying that is a viable option in your scenario that would be congruent with your goals. We still have more to explore here, but I don’t want to roll it out on that. So that’s my, that’s my debate with Mindy, uh, on this particular point.
Guest: So I just want to add, Mindy, um, the hybrid, uh, option that you presented, that’s kind of where our head is currently. Rather than trying to snowball our mortgages with the extra money is to set it aside, put it in a high yield, and 5, 10 years when that money you could either transition it over and pay off a mortgage or you could do something else with it, we have that opportunity, we have that open door.
Guest: But to Scott’s point, we’ve ran, we’ve ran so many calculations and if Dave Ramsey’s mortgage payoff calculator is correct, I think it was kind of neutral. Like I, I think once we paid income tax on the whatever we gained in a high yield savings and then just, you know, paying off the debt, it felt, it ended up being the same.
Guest: Right. And so then Scott brings up good points that, hey, you aren’t really winning here in the end. Take a chance.
Scott: I think you either got to invest for growth or pay it off. I don’t, I, for, for me, like I, I, I am not on team hybrid approach, which I love. I love that the different opinions here. That’s, that’s a respectful disagreement, not, not, you know, on that, but that’s why I’m, I think it’s either go after bigger returns or the paid off home is so huge from a like a how you feel about things perspective. Um, it reduces like that, again, it just reduces that drawdown. You have to generate $2600 a month less in income if you were to do fi at that point, just makes everything so so much easier and there’s huge advantages to it. Um, again, and and this is a problem that millions of, tens of millions of people are facing right now, right is they’re stuck. You can’t, what are you going to do? Sell the rental property with a 3.4% mortgage and then go put it in stock market? You’re going put it another rental property and take on a 7% new mortgage. Like this is just how like I talked to a lot of people they’re all stuck in this kind of situation. That’s how I feel about some of my rentals, right?
Guest: I mean the number, the numbers make sense. Like if we could put it in the stock market $1500 a month at 7%, I mean, that obviously makes a ton of sense. Uh, it’s scary. Our life feels just really complex. Um, yeah, it’s just kind of scary.
Scott: I think that there’s another major piece to the puzzle, maybe a few pieces to the puzzle. One of them being this pension that may create a lot of optionality. Let’s talk about those right after the break.
Mindy: Welcome back. We are here with Emily and Justin. Let’s discuss this pension.
Scott: Let’s let’s come back to this in a second because I think there are more pieces to your puzzle that will inform this. And one of the big ones I want to talk about is the pension because this is an like your net worth is 1.5 million, but it’s more than that because if you were to retire and I would love, I would love to understand the ins and outs of this, um, a little bit better, but I think if you were to retire today, you’d actually have more than what we have listed on your balance sheet, perhaps considerably more.
Guest: So you want Justin to describe how the pension works?
Scott: Yeah, either one of you guys, yeah.
Guest: So, I have a pension through the government. It’s called the Thrift Savings Plan or the TSP. Uh, most federal and government, uh, employees have this option. As it stands right now, I put away 15% of my income, and then the government matches another 5%. And that, so in essence, 20% a month. So that’s the thrift savings plan, and that is the government’s version of a 401K. In addition to that, I have a pension that I will get as well. So the pension is math wise, my number of years with the government times 1% um, over a year. Times your highest three year salary averaged.
Guest: Right. So if it was an average of $100,000 for the highest three years, it’s 100,000 * 30 years * 1%.
Guest: So, and that’s from retirement through death.
Scott: And that would be 30,000, and is that inflation adjusted or is that a fixed number?
Guest: Uh, that is inflation adjusted.
Scott: So if we got to a $100,000 a year base times 30 * 0.1%, that would be a $30,000 a year inflation adjusted benefit. And if we multiply that by 25 or 4% rule, that’s another $750,000 we could add to your net worth at that time. What would it be today? How would I compute it today?
Guest: So, my years in service right now are 20, so you would do the same math and essentially I would be getting around 20,000. So then what’s the, why, why is there like that 30 year number if you could do it at any point?
Guest: So, this is where I need to do more homework on my end. Um, I I I I need to relook at how our retirement works towards the end there. But I do believe there’s a cap as far as how many years you have to be in and what age you still have to retire at to have that accessible.
Mindy: Okay, then I am going to give you a homework assignment of looking into how your pension works and how you can use it to your like highest and best. Of course, if you stay there forever, then you get, you know, you stay there for 40 years, you get way more and if you stay for 20, you get way less. So where’s the happy medium there, um, with regards to how much longer you want to work, how much you enjoy your job and all the things that you want to do. Uh, I think that’s a, a great big research project.
Guest: Yes. And I I think if my memory serving me correctly, that’s where the 58 comes in, and I think you have to be 58 to trigger that as far as it being available.
Scott: I think that there’s going to be a number of nuances that are critical to your plan here because I think they’re going to be things like health care that come into play at and there’s going to be a cliff of when that is accessible or not. I think that there’s going to be a multipliers may kick in and or it may be you’re building this asset, but you can’t actually begin taking distributions from it until 50. There could be all these different things and that will, I think be a very meaningful component in your plan here. 20 years into an asset like this is no joke. If you’re two years in, I wouldn’t factor it at all into the decision making, but at this point you have to, I think in a big way. And I think that based on what you just told me this asset is probably worth close to $400,000 at least right now that is not on your balance sheet, which is also a nice way to think about it is you’re really worth closer to $2 million today, I think than 1.5 based on this. So that’s pretty fun, right? There you go on that.
Guest: Scott, you’re making us feel a lot better about our situation.
Guest: Emily, buy those strawberries. Oh gosh, I know. I get on my little app and man, I analyze those numbers like you wouldn’t believe it’s so silly.
Scott: That’s why I come back to like this whole thing of like, I, I don’t think you have a math problem here for 10 years. I think that whatever this cliff is, um for the retirement age, like you’re, you’re way better than the majority of Americans right now, the vast majority of Americans right now. And probably could retire on it by, by just staying where you’re at and then realizing that pension, um, whenever it, whenever you’re, you’re able to based on your homework assignment here. Like I think, I think you’re done in a lot of ways. Now, I don’t know if that’s, I think there’s other things you’ll probably want when you sit down here, like I don’t know about college, you know, you probably want to bump those the savings plan for your kids in those types of things or how, how you want to think about that. But I think you’re coast fi right now and all you need to do is cover your expenses. And that level, and if you agree with that, that level of thinking might, might make your goal of like, oh in 12 years I want to be traveling to central, well, why can’t you do that now? If your job allows it, you could easily do that for a few months now while your kids are still in the house, um, on the on this front and even if that came at the expense of a few months of income, um, or trade-offs there. Now, again, you can’t, the big issue here is if you jeopardize this pension in some way, that will I would be begin to feeling really uncomfortable here because you’re you could do it.
Guest: Yeah, no, we it’s the golden handcuffs and we’re honestly both like pretty, our jobs are great. They give us a lot of work life balance. We get to really be there for our kids. Like I don’t think we need to not be working our jobs while our kids are still in school. I mean, I don’t know, that would be a wild thought experiment, but we’re both we’re really happy with what we’re doing right now because it’s just like a good, we have a lot of flexibility and freedom.
Scott: I’m just curious about this month or two in Central America. Like could that happen right now?
Guest: I don’t know.
Scott: That’s more where I’m jumping is like, hmm, that sounds pretty cool. It sounds so cool.
Guest: I don’t know if I have that flexibility at work yet. Maybe two weeks.
Mindy: Well, two weeks is still a really fun time. So, while we’re talking about homework assignments, Emily, you mentioned the R word, everybody’s favorite Ramit. I am going to send you to the bookstore to buy the I Will Teach You To Be Rich journal. No complicated math, no more procrastinating, design your rich life today, and sit down with Justin and start filling it out. Use two different colored pens so you know that everything you write is in red, everything he writes is in blue, and just fill it out as, you know, over the course of time. It’s not that big of a book, but it is asking you questions every single page. So look through it, read through it, read his book, listen to his show and go through this journal and start designing your rich life and then look into what it costs, look into ways to mitigate those costs. We’ve got, um, credit card hacking is an excellent way to get travel for free or almost free. So you were talking about how you’re not swiping things on a credit card. Swipe things on a credit card and then take the cash and pay off the card so that you’re earning the points now so that you can travel later for free. There’s, I’m going to send you to go with less. It’s a Facebook group. It’s run by Amy and Tim Rutherford, friends of ours, and they talk about travel all over the place. There’s tons of tips for lower expense travel, um, house swapping. Amy and Tim travel around the world, watching people’s houses, watching people’s pets while they are also traveling around the world. And they get a place to stay for free because they have to feed the cat every morning. Like it can be a really, really awesome way.
Guest: Yeah, we love that, we love that idea. That sounds.
Mindy: Yeah. So there’s more homework assignments for you, the pension, the journal, look into credit card, like there’s all sorts of credit card guys out there. Scott and I don’t specialize in that, but uh, Travel Miles 101, um, I just type in credit card hacking and a bunch of people will pop up. Um, and it it’s too much for me to take to handle all at once. So I just go there, I’m like, hey, I need some more airline points. They’re like, this is the best card for that. I need some more hotel points. This one’s the best card for that. So then I open it and there you go.
Scott: And I I want to go back to something here. You said, what one of the things that I and my brain works this way, so I apologize in advance. I can’t help it, right? You said 12 years, and I basically am like, okay, how do we make that faster? You know, here. And and you said something really important on that, which was, oh, I’m really super happy with our jobs. We don’t want to make changes before that. And part of my my questioning, should you pay off the mortgage is related to that item. Like I think that if you paid off that mortgage in two, three years, four years, however long it took, you know, with with the um with your accumulation here, that all of a sudden a lot of those options you were considering for 12 years from now would be going to look a lot better in three or four years. And so that’s my bias there, but if you’re certain you you are going to be, you want to back into that 12 year timeline, then that would change my bias for the mortgage and I’d invest somewhere else instead most likely. I wouldn’t put it in the savings account, but you if you don’t need, if you’re really set on that time horizon, then you can optimize for that long-term net worth number a little bit more, put in the, you know, stocks or real estate, be a little bit more aggressive than paying down the mortgage. So just know that that’s where that’s where my mindset’s coming when I’m approaching that consider paying off the mortgage question.
Guest: Yeah, I think we just really have to nail down, yeah, that long-term picture and then free up some of this money we’ve been saying to saving to just make things a little bit easier for us. I mean, kids who are adolescents are like wildly expensive. Um, it’s pretty shocking. I can’t believe it every single week. Um, and I I know, I know I need to kind of let go of a few of these things I’ve been holding on to just for our own sanity.
Scott: I also because of something you said earlier, you talked about the buckets that you have and there’s maybe dozens of buckets. There’re so so many. Yeah, perhaps you might consider saying, okay, what is a reasonable cutoff? And I don’t know what that is, but what is a cutoff that you’re comfortable with? Is it five buckets that are the most important ones or 10 or it could be 15, whatever, pick a number. And then say, okay, after that, we’re going to have a nice pile of savings and that can encompass all the other buckets. Those are all my buckets grouped together. That might free up your thinking a little bit more so that there’s one chunk of money that you can then deploy all of the excess cash flow to the most important investment priority for a given time as you’re kind of backing into that long-term goal. That that might just be a help a forcing function to say, what are the, what are the priorities here and are we chunking the money to the priority? And then we have plenty left over for all the other things that are also important, but I don’t know, just something for your consideration might help you with your maybe help you direct your cash flow to the most important use going forward.
Guest: I like the way you, um, articulated that, Scott. That’s, that’s how my brain works. I, I like to bring it down to those necessary buckets and still just have like that free savings that maybe doesn’t have as many strings attached. You’re still wise about how you spend it, but it doesn’t feel like you’re robbing from this one to buy strawberries.
Guest: Yeah, I mean, I I hear that because it does feel like a moral failing of mine if I have to take from a bucket for something it wasn’t intended for and that I know that that’s not a great way to go about things. And I have this weird like slippery slope argument in my head like if we start doing this then oh my god, we’re going to spend $500,000 a year and Justin tries to tell me all the time like we would never do that. Like there’s nothing in us that would make that happen but it’s still hard.
Mindy: Well, here’s how I have been handling that. I was very tight with my money and we didn’t spend on, you know, frivolous things and we didn’t waste our money and we had, I don’t know if you listened to that episode that Carl and I did with Ramit. Um, after that we were like, okay, we’re going to reframe our thinking and we let loose and we didn’t really let loose. I mean, I think Ramit would be like, oh my god, you didn’t learn anything from me. But we did, we learned a lot Ramit, I promise. But it like our letting loose was like an extra $10,000 a year, maybe 20,000 when we, you know, we just got back from that cruise that we were talking about. We had a great time and that was like $20,000. So, but in the course of our net worth, it’s not that much. And we discovered that today it’s really not a lot of extras, but I’m stressing less about buying strawberries. I still stress a little bit, like you walk in and you’re like, $10, cause it’s the middle of winter and you’re like, heck no, we’re not having strawberries this week. Frozen. Yeah, they’re frozen this week. But, you know, when you do let loose because you have been a saver for so long, it’s not going to be the crazy letting loose that you think it is. It’s not going to just jump from like, you know, $75,000 this year to $500,000 next year. And what you could do to kind of combat that is check in more frequently. Have a money date that you are scheduling every two weeks and we’re going to look at our spending.
Scott: Once a month. Once a month.
Mindy: So once a month with a lot of restrictions and all these buckets. So consolidate some buckets, loosen up the restrictions, and then check in every two weeks. Hey, I felt better about my spending and look, I spent an extra $150. Well, that’s no big deal. Or, hey, I really loosened up the spending and wow, I spent $10,000 last week. Maybe I need to revisit a few more buckets, but it’s, you know, testing back and forth while continuing to check in because you’re both on the same path. You just have different routes to get there. So, you know, a little bit less Emily, more Justin, and then you discover that it’s actually good to be more Emily than Justin, or you discover that it’s totally fine and you can loosen up a little bit. But, you know, test what is it, AB testing, Scott that we do here at BiggerPockets. AB test your finances.
Scott: I love the idea of these tests. And then again, but it all comes back to, are we optimizing for this end state goal? And the problem you came today with is the same problem I talked to maybe 10 other people with in the last month and a half, which is, I have this huge net worth, why is it like not giving me any freedom or optionality in a way that I, I can feel about it. That problem has to be solved and your solutions there are make it so large that it’s irrelevant, right? You withdraw 1% of $10 million, that’s 100 grand a year, right? That’s one solution. That’s what a lot of people I think sadly end up doing, um, and it just comes at like a, a delay of not realizing this vision that is so crystal clear that you guys have earlier than you could. Other options right now include harder choices. How am I going, am I going to get, you know, do I put it in a savings account and generate simple interest? Do I pay down my mortgage which allows me to reduce the asset base, those types of things. Like that exercise that Mindy just had a really good point on is in coordination with that goal. And that might be as simple as this journal, um, that Mindy referenced from her meet, and also as simple as, okay, what’s going to happen? Like, let’s project this out 10 years and before I project it out in a financial model, let’s draw on a piece of paper. What do we want that portfolio to look like? How are we going to feel about that portfolio? And you go through 10 sheets of printer paper until you feel good about that, that, what that pie chart looks like including your pension and then you can begin back. Like that’s all the financial plan is.
Guest: I guess what one question I have, where we don’t, what we don’t have in our, um, in the market is a brokerage account. Like everything’s in retirement accounts and I’m hoping to do this at 52, so like I don’t have access to my retirement accounts. I mean, is a brokerage account where you would put that money that, I don’t understand that totally.
Scott: Let’s go through a couple options here, right? So one is if you’re set on this plan, 12 years from now, then you’re close enough to consider a Roth conversion ladder. So if you’re not familiar with that, you should read the Mad Fientist article on the Roth conversion and that might be an interesting opportunity. Okay, let’s go all in on this 401k and then let’s act, let’s do that with from backing into the way that we’re going to convert that into the Roth and then use it to fund early retirement because there’s a way to do that and you guys are actually really good candidates for that particular tactic if you’re committed to that 10, 12 year time horizon. If you want to get there sooner, then you need to begin, I in my opinion, thinking about how do I allocate more of these dollars coming in to after tax investments, which could be that after tax brokerage account or could be more real estate or could be debt for example, like if you got, you know, lending and tried to earn 8 to 10% interest. That’s not a good boost to your current situation because it’ll be highly taxed, but if you want to supplement your income in retirement, that becomes really, in early retirement, that becomes really attractive because it’ll be low tax, it’ll be in a lower tax bracket at that point in time. So now you’re playing games with the tax brackets, but that Roth conversion ladder is what jumps out to me in the context of your 10 to 12 year time horizon.
Guest: So basically, yeah, you put everything in a Roth 401, you put everything in there and then there’s a way to access it earlier.
Scott: Well you put everything into the 401k. Oh, okay. Because you’re an high, you’re earning relatively high income right now. And then when it’s time to retire early, you convert it into the Roth and because in the first few years of your retirement, you may defer your pension more homework here, um, or whatever, but you may be earning 30, 40, realizing 30, 40, $50,000 a year in AGI, you have a savings account to bridge that gap. And now you’re withdrawing, you’re, you’re converting the 401k, you’re moving it into a Roth. You pay taxes when you convert it into the Roth, but not a penalty. And so that’s there’s like, it’s it’s it’s a, it’s a funky process that might work well in your situation in the context of a 10 to 12 year plan. I don’t like it for a a lot of folks that are like, oh, that’s my my plan there, but in your situation, this might be a really actually a pretty powerful tool for you.
Guest: Interesting.
Guest: So, so to tag on to that, Scott, my 401k is a Roth to begin with. You didn’t say that. That’s awesome. I can put up to $22,000 in that Roth annually. So, if I’m understanding what you’re getting at, you’re saying tap that fully fund that $22,000 because with your, the way you’re looking at life, you’re looking at you want to access this money when you retire. And so it makes the most sense to put it there investment wise and then you’re walking away with a tax free when you hit retirement.
Scott: Almost, a couple couple of nuances here. One is I at BiggerPockets, we have a 401k and we have a Roth 401k. I contribute to my Roth 401k voluntarily. It’s rare that an employer will offer a Roth 401k without also offering the 401k.
Guest: Yes, that’s where the, so the 5% match goes into a 401k and then his 15% goes into the Roth 401k.
Guest: That’s correct.
Scott: And I bet you that that is a choice that you made at some point in the past and that you could change if you decided to and you could put that into a 401k. And if you’re saying, how do I maximize flexibility in the next three to five years? I wouldn’t do this. I would try to stockpile after tax investments and figure out how to use those to fuel this vision sooner. But if you’re like 12 years is my date and I’m going to back into that, then I would consider switching to the 401k instead of the Roth 401k because it will lower your present taxes and then in those early years of retirement, especially if you find that deferring your pension has benefits for that, then you can do the back, you can do the Roth conversion ladder and move those funds into your Roth and you’re in a low income early first few years of retirement. Does that make sense? So this is a more complicated strategy, but this would be one way to access those and because of your specific situation, it’s actually going to be potentially a very powerful tool. Again, I don’t like it in a lot of situations because it it’s a, it’s a law, it’s like a 10 to 12 year plan that you’re locking yourself into, but you guys seem relatively set on that and in that case then you might have massive tax advantages from an approach like this.
Guest: And with the opposite, if it’s like, okay, I mean, I’ve never thought anything could happen sooner than 10 to 12 years. So that’s interesting to think about. But if say we’re like, no, we want this to be in seven years, you’re saying brokerage accounts, like throw everything in for as much growth as possible.
Scott: Opposite. If you’re s-, if you want to back into your 10 to 12 year plan, throw it in for growth, maximize the number. If you want to say, hmm, let’s gamify this coming out of the show and say, this vision sounds pretty good and maybe we can actually do a few of those years with our kids still in high school and then the math isn’t really the problem, which I think is my bias coming in, right? Then I would change the approach entirely. I would say, okay, well let’s consider paying off the house because if the house is paid off, your net worth is now 1.8 million, right? If nothing changes, you know, with all that at that point in time, plus this pension that’s coming in, and you’re like, that is totally congruent with going to Central America, airbnbing a house with no mortgage or whatever for two months, going down to South or Central America, having a good old time while the tourists and yaahoos are out, uh, clogging up the river or whatever it is, um, that you don’t like at that point in time, right? You know, and and and now we have a lot of flexibility. It’s a lower net worth number. If you go with the Roth convert or the the the Roth conversion ladder I talked about, you will have a much bigger pile of money at the end and play a much better tax game if historical averages hold true than that approach, but you might realize your vision sooner and feel better about it if you pay off your mortgage and and go go and say I’m not going to play math games here, I’m just going to make my life super simple and easy on it. And those are, I think those that’s the big decision I think coming out of, that would be how I would be, what big decision I’d be grappling with in your shoes coming out of today’s call.
Guest: Awesome.
Guest: Cool. Yay. How exciting. Thank you for that, Scott. I I appreciate that.
Mindy: I have nothing to add. That was fantastic. I only want to add, uh, the Mad Fientist, uh, article is called how to access retirement funds early. If you Google that, he is the first thing that comes up and it is an excellent article. There are several options in there. There’s the, um, just paying the the penalty to access your retirement funds. I don’t love that option. There’s the 72T. We’re going to have a show on the 72T in coming up because that is an awesome option that you can, you’re taking your distributions early and it’s substantially equal periodic payments. Um, so we’re going to do an an episode on that as well, but that whole article is fantastic. Definitely give that a read. Um, I wanted to make sure that everybody listening knew about that episode or that article as well. Um, yeah, Scott, that that was excellent advice.
Scott: I think what I, what I’ll, I think I need to do is I need, like, I I struggled to make that simple as evident by the questions here. Anything else that we can help you guys with today, Emily and Justin?
Guest: I guess this is just a random question as real estate people. Do you have an opinion on how much emergency funds you need per rental unit?
Scott: Oh, this is a great question with no right answer at all. So my, my right answer to this question is $15,000 for the first house plus another 10 for every house going forward, and you can start to reduce it on a per house basis when you get past a number of units. That changes dramatically if you’re like, I know that I’m going to have to replace the roof on this one, or I know I’m going to have to replace this system. I’d add those funds in on top of that. Um, or begin gradually laying them in if you think you have a reasonable time estimate. Um, but that’s just a rule of thumb and there’s an endless debate on the forums that have, um, what everyone believes to be the, the better right answer.
Guest: Do some people think it should be more than that?
Scott: Sure.
Guest: Oh, okay. Gosh, cuz that’s, um, we don’t have, we don’t in in the bucket, um, that’s we don’t have quite that much, so that’s, I was going with like 10 grand a house and we’re not even…
Scott: That’s great too. I’m more conservative I would say than most, but not as conservative as some.
Guest: But we also have some furnace things coming up. So I don’t know, that’s that’s interesting information. Thank you.
Mindy: Yeah. So there’s an article on the BiggerPockets blog. It’s called estimating cap X real estate. I will send you a link to it. Um, it gives a great chart about, okay, if your roof costs $5,000, where are you getting a $5,000 roof? In Colorado, they’re like 15,000 to start. But anyway, if your roof costs $5,000 and you will replace it in 25 years, that’s $200 a year or $16 a month. If your roof needs to be replaced next year, then you have to save up $5,000 in one year. So you just divide it out like that. It gives you a lot of things to think about. I do think some of these costs are a little outdated, but also these costs are going to be, you know, specific to your location because maybe you can still get a $5,000 roof somewhere. I can’t, but, you know, I would love that. So it’s, it gives you some things to think about and also shows you how to, uh, how to think about it, like the the lifespan, I think is, you know, just going through quickly, I think the lifespan is pretty accurate here. So, um, it gives you a, a way to, to think about that. I will send you a link. We will include the link in the show notes on this show as well.
Scott: But Emily, I I also want to complain about the question real quick for you in the context of another question we had before we go. You have $100,000 in cash. That what, regardless of all of the buckets and where that’s actually allocated, that is more than enough cash in my opinion for you guys’ situation and you do not need to accumulate any more cash. So that’s, that’s I think like one of the, like I’m almost sensing the bucket question there in there of like that, you, if you have a roof problem and a medical problem and have to replace the car, you can still do that. And then you have to rebuild the cash position for the next, you know, a couple of months.
Guest: That is exactly what Justin said to me. I was like, but if we have this and this and this, we won’t have money. And he goes, well, isn’t it amazing that we have money if we had this, this and this? So, I mean, I just, I can be a bit of a, um, worst case scenario thinker.
Scott: Well, it’s good. So, I think, but I think it comes down to the buckets, what are the priorities and then surely there’s a number, maybe it’s 120, maybe it’s 200, but like surely there’s a number beyond which like you, you could say, okay, yeah, for me that makes sense. That’s so much cash that regardless of all of the bucketing work, we have enough cash. And I think that that, if you could do that exercise, that will I think free up the thinking here because then you can just, you can say, okay, something’s wrong with my buckets over here if I’m still worried about cash because all the remaining dollars over this number surely should go to the next best investment opportunity, um, or or financial priority. And I think that that would be bottoms up is great, which is what you’re doing. And I also think you need to just view it from top down and kind of say what’s, what’s a sensible limit there because yeah, you did not need to accumulate more cash for your rental portfolio if that just adds to your overall cash position in my view, on your uh net worth statement.
Guest: Right. That’s kind of counter to our other homework project, which is letting go of a little bit extra money every month.
Scott: Well, it’s a process.
Guest: It is a process. It’s a journey.
Guest: It’s a journey. I mean, really, like Mindy and Scott, I just am really thankful. Like your podcast has been really impactful and I thought I just had it all figured out and we were doing great, but I, there is so much value in doing these exercises. Um, so I’m just I’m really thankful for both of you.
Scott: You guys are doing so great. You’re crushing it here. You have so many good options and that’s hard too, right? You guys have been responsible for spurring a lot of the conversations that we’ve had in the last year or two.
Scott: Well, thank you so much for listening.
Guest: And they’re good conversations. I I feel like we’ve bonded better through them. So thank you. Well, take you on the river if you come visit us.
Mindy: I would love to come visit you.
Scott: A little different type of cruise than Mindy’s recent one. That would be great.
Guest: It it’ll cost you a little less too. Maybe a six pack of beer.
Mindy: Ooh, happy, done.
Scott: I always love a booze cruise.
Mindy: All right. Well, Emily and Justin, this was so much fun. I have not had this much fun on a Finance Friday and I can’t even remember how long. So thank you so much for trusting us with your numbers and for sharing your journey with us and our listeners. We really appreciate it.
Guest: Thank you for having us. We’re, we’re really thankful too.
Mindy: All right. and we will talk to you soon.
Guest: Bye.
Guest: Bye.
Mindy: All right. That was Emily and Justin and Scott, that was such a great Finance Friday. I really think that the issues that they’re facing are similar to what a lot of people are facing. I identified so much with them. I’m like, is this me and Carl that I’m talking to here? So it was really fun for me to be able to sit on the other side and give advice based on literally the same issues that I’m having.
Scott: Yeah, and I I love it. I mean, this is not like some super high income, you know, um, you know, earner that’s driving something unrelatable and unreasonable. This is, um, uh, folks who have been working for 20 years, 15, 20 years for the government, earning, you know, less than 100k each, working some side jobs here and have still accumulated a $1.5 million net worth through discipline, grind, sacrifice and smart planning and good financial decisions. And then again, we have the middle class trap coming up where most of that wealth is trapped in a home equity balance, 401k and then rental properties that are doing nicely, have created wealth, but are not generating a ton of usable cash flow at this point. So lots of, lots of really interesting unlocks here and it comes back to this theme that I continue to be, you know, more and more convinced about, which is if you want financial freedom, it sometimes or in many cases, perhaps most, will come at the cost of true optimization for long-term wealth. Feeling good about spending their life’s expenses on $1.5 million dollars comes with a different portfolio than what they’ve allocated, and feeling good about it in two and a half years or I’m sorry, 12 years is going to be uh, they’re going to have to make some changes to the way that they’re allocating dollars from what they have done. But that doesn’t discredit the wonderful progress they’ve made so far. These guys are wealthy, smart, and doing the right things.
Mindy: And they have 12 years to figure it out. So they have plenty of time to make a slight little adjustment and get to their retirement well funded. And I’m super excited for their journey.
Scott: Yeah. And I am, I am a little bullish, more bullish though. I think, I wonder if they’ll be in Central America in seven years, maybe three. We’ll see. Emily and Justin, let us know.
Mindy: I do think they could cut it down. 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. Of course he is the Scott Trench and I am Mindy Jensen saying farewell snowball.
Mindy: BiggerPockets Money was created by Mindy Jensen and Scott Trench. Produced by Hazar Az. Edited by Exodus Media. Copywriting by Nate Weintraub and lastly, a big thank you to the BiggerPockets team for making this show possible.
