March 2021 – Your Financial Pharmacist

How Much You Need to Hang Up Your Coat: All About the Four Percent Rule

Posted on March 28, 2021May 16, 2023 by yfpadmin

How Much You Need to Hang Up Your Coat: All About the Four Percent Rule

The following is a guest post from Dr. Jeffrey Keimer. Dr. Keimer is a 2011 graduate of Albany College of Pharmacy and Health Sciences and pharmacy manager for a regional drugstore chain in Vermont. He and his wife Alex have been pursuing financial independence since 2016. Check out Jeff’s book, FIRE Rx: The Pharmacist’s Guide to Financial Independence to learn how to create an actionable plan so you can retire early as a pharmacist.

By now, you’ve probably heard that it’s possible to retire not just early, but incredibly early; like in your 30s or 40s instead of in your 60s or 70s. As evidenced by the financial independence, retire early (FIRE) movement, many people are doing just that. Now while that sounds awesome, the big question (as with most things) is always “how do you do it?”

In an earlier post, “The FIRE Prescription: How to Retire Early as a Pharmacist,” I gave a really broad overview of some of the basic tenets of the FIRE movement: the four percent rule, reducing expenses, investing, and drawdown of those investments. Having a good understanding of those concepts is crucial if you ever want to reach financial independence, but I didn’t go into much detail on any one of them in particular. Time to remedy that. So for this post, I wanted to take a deeper dive into that first concept: the four percent rule.

Why that one? Because it was the first one I listed. Duh.

On a more serious note though, the four percent rule (and by extension the concept of a safe withdrawal rate) should be the first thing to understand when drawing up a game plan for FIRE as a pharmacist. This is because it can help define the ever-elusive concept of “enough.” After all, what kind of journey do you set out on without a destination?

What is the Four Percent Rule?

When people in the FIRE community talk about the “four percent rule” what they’re referring to is a concept known as a safe withdrawal rate for early retirement. A safe withdrawal rate (SWR) can be defined as the annual amount (as a percentage) you can expect to withdraw from an investment portfolio without having to worry about the portfolio running out of money in the future; even as you adjust the initial amount for inflation year over year. Basically, you can look at your portfolio balance and figure out how much yearly income you can draw from it without worrying about the portfolio going to zero by assuming a safe withdrawal rate.

The “four percent” part comes in when we’re making assumptions about what kind of safe withdrawal rate our portfolio might support and it comes from a very important study published by financial planner, William Bengen, back in the early 1990s. In a nutshell, Bengen found that a diversified portfolio of US stocks and bonds could support at least a 4% safe withdrawal rate for retirees looking to tap their investments for retirement income over 30 years (more on that a little later).

Why it Matters

For those looking to join the FIRE movement, the four percent rule is probably the first major concept you get exposed to. Why? Because the whole idea of early retirement and the four percent rule do something incredibly important: it tells you where the endzone is. If you know how much you spend per year, you can use the four percent rule to define how much you need to save so that you can cover those expenses. Once you reach that number, sometimes called your FI number, you can probably declare yourself financially independent and consider early retirement.

So how do you calculate a FI number? Well, to borrow a phrase, it’s shockingly simple. Just take the inverse of 4% which is 25 and multiply your annual expenses by it.

For example, say your annual expenses (taxes included!) are $80,000. What’s your FI number?

$80,000 x 25 = $2,000,000

By using the four percent rule to help determine the amount you need to reach FI, not only do you set yourself apart from most Americans who frankly have no clue how much they need to retire, you give yourself a real number to work toward. With that in hand, you can measure your progress toward what many consider to be the ultimate goal in personal finance.

Given that, it’s no wonder that the four percent rule has become a chief cornerstone of the FIRE movement. What’s more, not only does it give you a concrete goal to work towards, it also puts that goal more firmly under your control.

Think about this for a second.

Many of us have been exposed to the advice that you need to save some multiple of your income by retirement to retire comfortably. But how much control do you really have over your income? As pharmacists, the answer to that question has to be “less than we’d like.” Many of us are all too aware of how much the market forces of supply and demand affect what we can expect in compensation.

That said, the four percent rule does something pretty spectacular. Instead of basing your retirement number on your income, it bases it off your expenses; something much, much more under your control. Cut out $500 a month from your budget? That translates to $150,000 less you’ll need to retire. The math is simple but incredibly powerful. What the four percent rule does, and I really can’t emphasize this enough, is that it gives you the knowledge to take control of your financial destiny!

Where Did it Come From?

Here’s where we’re going to get a little more technical and go over some of the research the four percent rule was born from, so buckle up. The four percent rule, as it’s come to be known, originally came out of the study “Determining Withdrawal Rates Using Historical Data” published in the Journal of Financial Planning by William Bengen in 1994. Bengen’s goal with the study was to shed some light on what kind of income a retiree could safely live on given a standard portfolio of stocks and bonds where the income produced came from the portfolio’s total return. And what did he find? By using historical return data on US stocks and US treasury notes, Bengen was able to conclude that the worst possible scenario for a retiree using a 50/50 stock and bond portfolio was that their money ran out after 33 years following a consistent 4% initial withdrawal strategy, indexing the withdrawal each year to inflation; a level Bengen referred to as SAFEMAX, and the rest of the world came to know as the four percent rule.

So how did that withdrawal strategy work? Like this. Say you have a $1,000,000 portfolio at the start of retirement. The first year, you’d draw $40,000 from it (4% of the initial balance). Next year, assuming a 3% rate of inflation, you’d increase the previous amount by 3% ($40,000 x 1.03 = $41,200) and that would be the amount withdrawn. In the years that come, just rinse and repeat. Slightly more complicated math than the FI number math, but still not too bad.

Bengen’s study was a watershed moment in the financial planning world. Before his study on withdrawal rates, retirement income planning either followed something akin to a reverse mortgage on the portfolio, reliance on pension income, or the old-school rentier model of only factoring in the income generated by the portfolio (i.e. not touching the principal). With Bengen, now the concept of a safe withdrawal rate could be incorporated into a retiree’s financial plan. His was just the first of many on the subject though.

Another piece of research that gets a lot of traction in the FIRE movement is one conducted by three finance professors from Trinity University dubbed, creatively, “The Trinity Study.” The Trinity Study more or less supported Bengen’s initial findings in that a 4% withdrawal rate tended to coincide with minimal risk of portfolio failure (i.e. going to zero) over a 30 year withdrawal period. The only real difference with the Trinity Study vs. Bengen’s was that the Trinity researchers presented their findings primarily in terms of probability of failure rather than just focusing on the lower bound results as Bengen did.

This was important to the whole safe withdrawal rate discussion because when making forecasts (as you do in the planning process) viewing things through the lens of probability is essential. In this case, the authors of the Trinity study placed the odds of success with a 4% withdrawal rate after 30 years at 95% using a 50/50 mix of stocks and bonds; a conclusion very much in line with Bengen’s and the notion of a 4% safe withdrawal rate.

So What’s the Catch?

So…despite the presence of studies and journals, finance isn’t what you’d call a hard science. Many would dispute the idea that it’s even a science at all. So here’s the tl;dr on how we should view the four percent rule: like the pirate’s code, it’s more of a guideline, not a rule.

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Why is that?

First, let’s talk a bit about the works that gave us the four percent rule. Just like any of the drug studies you get to look at in your professional life, there are limitations; the most obvious of which is the sample size. For the vast majority of studies that look at historical withdrawal rates, sample sizes are quite small. Take, for instance, Bengen’s study where he looked at the experience of retirees from 1926-1976. Now that sounds like a big time period, but it’s really not. Each year studied assumed a January 1st retirement, so that gives us only 50 data sets. Try bringing a blood pressure med to market with a 50 subject phase III trial. Not gonna happen. To add insult to injury, many of the data sets he used included extrapolated (i.e. made up) data to get to their 50-year endpoints.

Now while the Trinity Study suffered from the same problem as well, some subsequent research has tried to increase the sample size to what you’d expect from a large-scale drug trial. For instance, in a 2017 paper titled “Safe Withdrawal Rates: A Guide for Early Retirees” published for the Social Science Research Network, Dr. Karsten Jeske (who runs the incredible blog Early Retirement Now) was able to expand the data set to 6.5 million retiree scenarios going back to 1871 and retirement periods of up to 60 years! To date, I’m pretty sure that his study is the most comprehensive and one that specifically targets a safe withdrawal rate for early retirement. Surely with that in hand, we can settle on some withdrawal rate as law right?

Nope!

Even such an incredible sample size is still too small. This is because Karsten’s study, like much of the popular research surrounding the four percent rule, is somewhat myopic in scope regarding asset allocation. Very few studies look at the impact of including international stocks (a very common diversification recommendation) in the portfolio, let alone alternatives such as real estate or precious metals.

Secondly, the studies in question didn’t consider investment fees and expenses (like taxes) whatsoever when drawing their conclusions. Kind of like the scenarios you find on a Physics 101 exam where you get to ignore friction, the scenarios described by the aforementioned studies may lack real-world applicability.

The third problem, and in my opinion the biggest one, is that, unlike a drug where we can reliably predict an average response given enough past data, markets don’t work that way. The only thing predictable about markets is that they’re unpredictable. The next 140 years may look like the last 140 years, or completely different. Who knows? Past data can certainly give you an idea of how they may behave, but they tell you nothing about how they will behave.

Perhaps a better approach here as suggested by Dr. Wade Pfau, a professor at the American College of Financial Services, would be to take the past data and use Monte Carlo simulations (remember those from stats?) to present the idea of an SWR in a more probabilistic fashion. I find this approach to be more useful as it can help you picture the relative odds of success based on how a portfolio tends to behave.

Should We Still Use the Four Percent Rule?

Absolutely, but not in the absolute sense. As I said earlier, it needs to be viewed more as a guideline instead of a rule. What I like about it in this way is that you don’t need to be precise with your math. If you can ballpark your yearly expenses using the four percent rule you can: set a savings goal for yourself, track your progress as you go, and, if you reach it, you can probably declare yourself financially independent.

Once there, should you quit your job, lock yourself into an automated withdrawal scheme, and move to the beach?

I wouldn’t.

Can you take some serious liberties with your career at that point?

Oh yes!

Despite its shortcomings, the four percent rule is all about giving you that goalpost where you can take those liberties. And the best part is that you don’t even need to get to that magical number to enjoy the perks! Just knowing where you are on the path can be incredibly powerful and open the door to new options in life.

For instance, when our son was born and my wife Alex wanted to stay home to raise him, we knew that we could do that from an income standpoint. But what about our goal of FI, how would the decision affect that? Thanks to the four percent rule, we could safely say that it wouldn’t matter that much. We knew where we were relative to our goal and we could go down to one income without really setting us back.

Or you could use it the way Cory and Cassie Jenks from Episode 134 of the YFP podcast are, in the pursuit of Coast FI. The four percent rule tells them how much they eventually need to be financially independent, but they’re not in a hurry to get there. Instead, they can take a look at their current savings and, using an assumed rate of return, determine the point at which they no longer need to contribute to their retirement savings. Once there, the money that would’ve gone to savings can go elsewhere…or not be needed at all! They can scale back work and not worry about sinking their eventual retirement.

But what if early retirement or stepping back from work isn’t your thing? No worries, the four percent rule has something for you too. Knowledge is power, and that power can present itself in many ways. One of which is knowing whether you’re in a position of financial strength or not when considering a job change, entrepreneurship, or some other calculated risk with your career. If you’ve done the math and you’re nowhere near FI, you may want to take a more defensive posture. But if you’re well on your way to FI or close to it, that calculus can change dramatically. It may even give you the license to pursue work that can better advance the profession even if it doesn’t pay much (yet!).

Conclusion

The four percent rule, despite its flaws, is a tremendously important tool in the FI toolbox. It allows you to create a concrete financial goal to strive for and one that you can track your progress towards. Once you have that, you can start down the path to FI.

On the path to FI, the four percent rule is just one of many concepts that you’ll want to learn to be successful. The four percent rule just tells you the destination, not how to actually get there; or perhaps equally important, what to do when you arrive. If you’d like to learn more about those things, I invite you to check out my new book FIRE Rx: The Pharmacist’s Guide to Financial Independence.

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YFP 196: How Cory Uses Improv to Create a Better Healthcare Experience

Posted on March 25, 2021November 2, 2022 by yfpadmin

How Cory Uses Improv to Create a Better Healthcare Experience

On this episode sponsored by Insuring Income, pharmacist, improv comedian, and motivational speaker, Cory Jenks, joins Tim Ulbrich to talk about how and why he got started with this side hustle, how it has improved his ability to connect with his patients, and how you, as a pharmacist, can apply the valuable skills of improv comedy to create a more adaptable, empathetic, and humanizing healthcare experience.

About Today’s Guest

Dr. Cory Jenks earned his PharmD from the University of South Carolina in 2011 and completed a PGY1 residency at the Southern Arizona VA Healthcare System in 2012. His past pharmacy experience has included time as a retail pharmacist, outpatient clinical pharmacist, and inpatient clinical pharmacist. Currently, he practices as an Ambulatory Care Clinical Pharmacy Specialist where he applies his passion for lifestyle interventions in the management of chronic disease. Cory is also an accomplished improv comedian, having started on his comedy journey in 2013. Since then, Cory has coached, taught, and performed improv for thousands of people. Today, Cory travels the country (or at least Zooms around) teaching other healthcare professionals how to apply the valuable skills of improv comedy to create a more adaptable, empathetic, and humanizing healthcare experience. When not working or performing improv, Cory enjoys playing racquetball, basketball, and golf, exploring the science of disease management through lifestyle, and is currently earning his Master’s Degree in “Dad Jokes” with the help of his two sons Jacob and Henry.

Summary

On this episode, pharmacist, improv comedian, and motivational speaker, Cory Jenks, joins Tim Ulbrich to talk about his side hustle in improv comedy. Cory details his journey in improv as a curious student, his experience as an improv coach, instructor, and performer, and how improv comedy aligns with his profession as a pharmacist. Through his various stages of development as an improv comedian, Cory noticed his ability to more easily connect with his patients, and his professional satisfaction as a pharmacist grew.

Cory walks through the mental shift to positive from negative, outlining the importance of applying the improv 101 phrase, ‘yes, and…’ in his life as a pharmacist. Because of the skills learned through improv, Cory tells us that instead of dreading difficult cases or patients, he began to see each experience like a puzzle to solve.

Cory further explains how, not only his own experiences with improv but also the experiences of those around him and those who he has taught, have inspired and motivated him to share exactly how improv comedy can be applied in the healthcare professions. Through nationwide workshop facilitation and public speaking events, Cory is able to reach healthcare professionals with his message – to create a more adaptable, empathetic, and humanizing healthcare experience. He notes that balance, an open line of communication with his wife, and the ability to dedicate time to his passion projects have contributed to his success.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Cory, welcome back to the show.

Cory Jenks: Hey, thanks for having me. It’s a thrill, it’s an honor, it’s a privilege, and I’m excited to be back.

Tim Ulbrich: Glad to have you back. And last time we had on the show was Episode 134, which aired in January 2020. Hard to believe more than a year ago, and a lot has happened since January 2020. Who would have known at that point we had a global pandemic in front of us? And in that episode, we talked about the journey that you and Cassie were taking towards Coast FI and some of the steps that you had taken or been putting in place towards financial independence. So how are you guys doing? What’s new? Give us the update.

Cory Jenks: Well, everything went according to plan, right?

Tim Ulbrich: Right.

Cory Jenks: It’s like, we’ve got this podcast recorded, we’re going to have a great 2020. It’s our year. And then COVID hit. But I think all things considered, we really have counted our blessings. I think being in a strong place financially set us up to weather that storm as well as we could, had hoped for. We had our second kid in June.

Tim Ulbrich: Congratulations.

Cory Jenks: Good time to have a kid, right in the middle of a pandemic, right? We’re home anyway, so we have to hang out with them. And I had a chance to continue to work and grow on my little business, which I think we’re going to talk about today. And Cassie’s had the opportunity to drop back further into a part-time role. So that was what that Coast FI journey allowed us to do was to reduce some of that income from her to spend more time with the kids. And she actually got an opportunity to work a little extra on a different, more passion project working on lifestyle for disease management and diabetes reversal. So that’s something that she’s been starting in the last few months that being able to go to part-time has afforded her the opportunity to pursue that passion. So guiltily good. We’re guiltily good in this 2021 now.

Tim Ulbrich: Well, we will link back to Episode 134 in the show notes. And I hope our listeners will take a listen back to your journey, really an inspiring one. And when we talk about financial independence or even FIRE at large, standing for Financial Independence Retire Early, I think sometimes we think about it as a finish line. And really, it’s more about the journey. It’s a trajectory. And I think about your story as an example of that trajectory, of that evolution. And so we’re going to talk to you about what that has allowed you guys to do as a family. Obviously a lot has changed, the addition to your family obviously with Cassie’s role changing, the work that you’re doing with ImprovRx, and all of that is in part possible because of the steps that you have taken related to the financial plan. So excited to talk about your side hustle, ImprovRx, and the work that you’re doing to help other healthcare professionals create a more adaptable, empathetic and humanizing healthcare experience. So before we dive into the nitty gritty of ImprovRx, remind us about your pharmacy journey, where you went to school, the work that you’re currently doing now, and even the other work that you have done as a pharmacist prior to your current role.

Cory Jenks: Sure, yeah. So I am coming up on my 1-year anniversary of graduating from the University of South Carolina, so go Gamecocks.

Tim Ulbrich: Go Gamecocks.

Cory Jenks: I’m wearing my Gamecock Pharmacy sweatshirt for all the — this is an audio podcast, so perfect segue there.

Tim Ulbrich: Yes, I can see it here.

Cory Jenks: Yeah, thank you. Yeah, it’s a beautiful garment color. So graduated 2011, and I grew up in Tucson, so I went out to South Carolina for pharmacy school because I just loved student loans and out-of-state tuition. And I ended up coming back to Tucson to do a residency here at the VA in Tucson, where I have been ever since. I’ve worked anywhere from in ambulatory care, inpatient pharmacy, I’m back in ambulatory care now as a clinical pharmacy specialist doing chronic disease management. So really cool job, getting to help manage patients’ health. And I have a real passion for helping sort of reverse the chronic disease, not just manage them but do my best to get patients off their meds and living a healthy life. And in between, I’ve worked a little bit of retail, I’ve worked in a community health center. And so I’ve kind of — it’s like the Johnny Cash song, I’ve been everywhere in pharmacy. So yeah, that’s where I find myself today in my day job.

Tim Ulbrich: And we’re going to make that connection here in a little bit for folks that are wondering, we’re going to provide that bridge between improv comedy and the healthcare practitioner and how that relates to the experience for the patient. Now, I know some funny pharmacists, Cory, but I don’t think about pharmacists and comedy that often and the two of those coming together. So give us the back story. Why improv comedy? Why did you start it? What drew you to that area? And tell us a little bit about the work that you’re doing.

Cory Jenks: Sure. So growing up, I loved Simpsons, I loved Saturday Night Live, I loved watching comedy. And so this was back before you could DVR stuff. You young punks in pharmacy school with your on-demand and your DVRs, so you had to watch the show on Saturday or Sunday night, and you’d talk about it with your friends the next day.

Tim Ulbrich: That is right.

Cory Jenks: And I loved it. And I mean, I enjoyed school, good at science, pretty bad at sports, that’s why I pursued pharmacy and not trying to play baseball. But always had this love of comedy. It’s always been a part of my life that I think as a pharmacist, a good laugh really is good medicine and something I enjoyed. And in undergrad and pharmacy school, there was an improv group at the University of South Carolina that I went and saw once, was like, ‘Oh my gosh, that’s amazing.’ And I didn’t do it because I was very committed to my academics. So I kind of put that dream and enjoyment on hold but always kept that sort of fire for comedy. And then when I finished my residency in 2012, Cassie was like, ‘Hey, you’re just kind of hanging around. You have this time on your hands. What do you want to do with it?’ And so I had a birthday coming up, and so I said, ‘Well, I’ve always been interested in trying to play the guitar or do improv comedy.’ So give me one of those two lessons or classes for my birthday. And so if you heard me play guitar, you would probably assume I did the improv. And that is correct. So it was 2013, I took my first improv class. And it was a local theater here where I live in Tucson. So just starting up, so the guy who’s now one of my best friends was — took a class, took another, and it was a matter of, ‘Hey, you have a pulse and you’ve taken these classes. We need people to perform. I’m trying to grow this theater. Do you want to do it?’ Yes. Love it. Let’s do it. Perform, get on stage, and it’s really a thrill. I had a ton of fun performing it. And then eventually, ‘Hey, Cory, you’ve been doing this a couple years. Can you help me teach my classes?’ Because he was scaling his business. So sure, I love teaching this. And so I got a chance to learn the intricacies of teaching it. And eventually, it was, ‘Cory, I need someone to run my comedy school. You’re a very organized pharmacist. Use those skills to organize my curriculum.’ Sure, let’s do it, would love to do that. And then while I was doing this and sort of bringing my wife back into it, she’s the real superhero of the whole story. She was in nurse practitioner school. She was busy every night, so I got my improv Master’s degree during her Master’s degree of her getting her nurse practitioner degree. So I was down at the theater 4, 5, 6 nights a week coaching, teaching, performing. And it’s a blast. It was fun. And along the way, I realized that these skills that I learned as an improv comedian, listening, communication, teamwork, empathy, all of these soft skills that we sort of talk about but don’t really find a way to teach or measure became better. I was connecting with patients, I was adapting, I was feeling like I was a better listener. And so as we had our first kid in 2018, as much as I enjoyed being down at the theater performing for 5-10 people in a very small crowd sometimes, the heat of the Tucson summer, I would get paid to teach classes but not quite the rate as a pharmacist, if that makes — if I’m making sense there. So and when you’re away from your kid and your family, you want to make sure you’re really getting a lot out of it. Not that I didn’t get a ton out of it, but I was kind of thinking like, what’s my next step with improv? How can I push this to another level? And auditioning for Saturday Night Live is just on the cards because I’m not moving to LA or New York or Chicago, abandoning the family to pursue this dream, which I don’t — it would be cool if I somehow SNL. I think I’d have to be some sort of unlikely national hero of something to be famous enough to do it, but then I realized, oh, I’m a pharmacist. It’s helped me as a pharmacist be better. What if I push it in this direction of applying it to healthcare? And so that’s where I found myself a couple years ago as I started the business of speaking and doing workshops.

Tim Ulbrich: I love the creativity in finding something that you were passionate about and connecting it to your skill set and experience and what you are trained to be doing as a pharmacist. I think sometimes we talk about side hustles or businesses, sometimes they’re connected, sometimes they’re not. And I think probably many folks like myself when I first heard about you and the work that you’re doing with ImprovRx, I was trying to find the connection, trying to see where that connection may be. And like yes, we can always use an extra lap, but when we talk about enriching our experience and interactions with patients and enriching the healthcare system at large, we all know there’s a lot of room for improvement. We’ve all been through it as a patient, perhaps some at the different levels than others. So I really start to see the connection of how pharmacists can benefit from some of the skills and training that we’ll get to hear about in a little bit. So dig a little bit deeper for a second on the connection between improv comedy and the ability to connect with patients as well as just your professional satisfaction as a provider. You mentioned some of the softer skills, but take me in the room. You know, Cory, I’m working in ambulatory care, I’m seeing patients, how do you begin to apply this personally in your patient care encounters?

Cory Jenks: Yes, so improv is actually — I would consider it very similar to a healthcare encounter.

Tim Ulbrich: Absolutely.

Cory Jenks: And here’s why. So taking it a step back, when I go and practice improv when we’re not in a pandemic and can gather, I tell my parents, ‘Hey, I’m going to rehearse improv.’ And they’d say, ‘Cory, it’s all made up. What are you rehearsing?’ And I’d say, ‘Fair point. But improv, like a sport, you have specific skills.’ Like basketball, you ought to practice dribbling. You ought to practice defense. You’ve got to practice your — if you’re me, you’re practicing your slam dunks all day long. You’re just flying above the rim, right?

Tim Ulbrich: Absolutely.

Cory Jenks: Well, with improv, we’re practicing characters, voices, playing on teams’ different format of improvisation. Like I perform on an improv hip hop team. I rap. I do improvised rapping. Much like an improv scene, we do have certain rules within improv. And I don’t need to get into the weeds of that, but there are rules within improv that help guide us in these scenes. Well, sports you have specific rules and then in healthcare, obviously we have this specific set of rules. But with improv scene, every basketball game, every interaction with a patient, anything can happen within that timeframe. No two basketball games are the same. No two improv scenes are the same. And certainly no two patient encounters are ever the same. So you’re able to take those skills of listening, being 100% in the moment, and adapting to what that patient is telling you and continue to provide them the best outcome. One of my best examples of this was one of my patients I was managing for diabetes. And he came to the room, was just demanding a prostate exam so he could get Viagra. Like this was just his connection. He was told he needed to get that checked out to get his Viagra. And I — how do I navigate — like I never had that question on a test in pharmacy school. No one gave me the “patient demanding prostate exam, what do you do?” but also continue to do the job that you’re assigned to do, which is manage their blood sugars but also make sure that he’ll trust you in the future to take care of what you need to do. And so pardon the graphic example of the patient, but the way I was able to navigate it, I was — the two words of improv are ‘yes, and.’ Those are the basic words. If you ever want a free lesson, ‘yes, and’ are the two words. We agree and build together. So how can I say yes to this patient who’s wanting a prostate exam from me, a pharmacist, who decidedly went into pharmacy so I did not have to do exams like that? And so I said, “Yes, I could give you a prostate exam. And you wouldn’t like it, and I wouldn’t like it. And you wouldn’t get the meds you want.’ So let’s focus on your blood sugar, and you talk to your doctor about that prostate exam. He said, “That’s great idea. Let’s do it.” So it was a way to connect with him without fighting him, right? I think a lot of times consumers, we as consumers will fight with the healthcare system. We agree, we get on the same page, and we work together as a team with your patient rather than seeing it as an adversarial issue when they bring something off the wall to your office.

Tim Ulbrich: Yes, and I love that. What a tangible takeaway for folks that are interacting with patients. So is ‘yes, and,’ is that like a staple of improv comedy, improv training? Like when you’re teaching that and you saw that connection with the healthcare, is that something that’s commonplace?

Cory Jenks: Literally like Day 1 of Improv 101, you learn this idea of ‘yes, and.’

Tim Ulbrich: Really?

Cory Jenks: So if you’re doing an improv scene and then you say to me, “Hey, we’re on the moon and it’s so beautiful.” And I say, “No, we’re not. We’re in a bounce house,” well, I’ve completely negated your reality. We have to rebuild everything. And so that scene grinds to a halt, the energy stops. And I have to explain why I thought we maybe we’re on the moon. But if I say, “Yes, and it’s so beautiful up here,” or, “Yes, and we only have 30 seconds of oxygen left,” we’ve now agreed to our reality, built on a detail or a consequence and have gone down this journey together rather than trying to fight and have this adversarial reaction. And in healthcare, that’s what we’re doing. We want to build together in the moment. That’s all we’re doing with our patient. So to get the outcome, improv is to get a laugh, with our patients it’s to optimize their health. And I also am a big proponent of the experience because we don’t get to control their health all the time. Sometimes the diagnosis is beyond our control. So we can at least agree to their reality and build together.

Tim Ulbrich: I love that. And one of the questions I like to ask folks — and especially, Cory, of the journey like you’ve had is when you have such a clearly defined vision of where you are going and you have obviously thought a lot about how this interest in improv comedy can connect to patients and create a better healthcare experience, that doesn’t just happen without a specific passion, without a motivation or without a why, whatever you want to call it. Was there an “Aha!” moment when you realized that you could help other healthcare professionals have a similar experience, develop their skills to better their connection with patients and ultimately better the healthcare system? We know there can be improvement there as well as improving their own satisfaction as a healthcare provider. One of the things we hear, of course, from healthcare providers, you know, I’ve lived it, you’ve lived it more than I have, I talk with many pharmacists, physicians, veterinarians, etc., I hear, “You know what, I’m burned out.” And so there is also this piece of provider satisfaction in addition to the patient experience. So what was that “Aha!” moment for you where you saw this connection?

Cory Jenks: I’ve just done all of this talk of ‘yes, and’ and how I would agree with you. And I have to say, it wasn’t so much an “Aha!” moment as a slow boil or a slow burn. In my own professional life, I started to realize like I didn’t come home as cranky. I enjoyed the — like when someone would give you, ‘This patient is difficult,’ I stopped saying, “Oh no,” and started saying, “Cool. What are we going to do here?” Right? It’s that mindset shift that it comes — it’s solving a fun puzzle versus dreading not having the answer. So I think that was part of the puzzle. My wife Cassie went through improv training and she was like, “Oh, wow, this is really useful as in my career as a nurse practitioner. I enjoy this.” And then I’ve had — we’ve had nurses and I have a physician who’s now a friend here in Tucson that went through the training. And his like, he was like pure “Aha!” Like every class was like, “Oh my gosh, I could use this with my patients. Oh my gosh, I’m too left-brained. Oh my gosh, I need to say yes more.” And so I think seeing the light bulbs go off in those that I have taught through our classes in Tucson, I mean, you get all walks of life. You get — in our theater, we joke we have a rocket scientist. He’s an engineer. We have nurses, lawyers. But then we have the typical theater artistic folks who live with that right brain a bit more. But it’s just that consistent reaction from people who buy into the ‘yes, and’ philosophy. So I really see it as more of a philosophy than just a rule of improv. I try to live that ‘yes, and’ life as much as I can. But seeing those light bulbs and “Aha!” moments is just energizing back to me. And I realized, oh, this is an opportunity to take what I do 40 hours a week and what I do on the weekends and improve that 40-hour life, not just for myself but I think we could do something for the other people that, as you say, we struggle. Healthcare is hard. Like, to everyone listening, kudos to you. We have hard jobs. It’s OK. Admit it. So how can we make those jobs a little less hard and a little more rewarding? And I think this is one of those avenues to find that satisfaction.

Tim Ulbrich: So I have to ask as a father myself, you know, I suspect dad jokes are a regular. Is that fair? I mean, are the dad jokes getting better? Are they getting worse? Where do the dad jokes come in?

Cory Jenks: I give myself like a 6.5 out of 10. So like the littlest one just turned 9 months old, so he just sort of like, I smile at him and he laughs. So the bar is low for him. And my 3-year-old is just getting a little sense of humor and a little playfulness. But I can make Cassie’s eyes roll pretty good with a lot of my dad joke humor. And just kind of circling back to what you said, you say you don’t know many funny pharmacists. The interesting thing about improv is that you don’t have to be funny to be good at it. I think improv is perfectly suited for pharmacists because it requires you to listen, be in the moment. And if you are smart, which pharmacists objectively are very smart, you can be really good at improv because you learn the patterns, you learn the rules. And as kind of left-brainy pharmacist as that sounds, once you learn that, you can play up and find the funny. You can develop that sense of humor. And so if you’re listening to this at home saying, ‘Well, I’m not funny,’ first off ‘yes, and,’ yes, you can be funny. You can do this. And so that’s my bit of pushback. I think that the smartest people make some of the best improvisers. So just brushing my shoulder off here.

Tim Ulbrich: So this connection of obviously bringing your interest in improv comedy or experience as a healthcare practitioner, your opportunity is, I suspect, as a patient, perhaps a caregiver, other experiences, recognizing that this could be done better. Insert ImprovRx, so an opportunity to train other healthcare professionals. So let’s talk about more of what you’re doing with ImprovRx. What do you offer? You mentioned to me before we hit record that you’re going to be doing an upcoming session for a Rho Chi induction. So give me some examples of things like that. What would it look like to the person in the room when you’re doing a workshop? What does this experience look like for pharmacy students?

Cory Jenks: Yeah.

Tim Ulbrich: Give us some more of the nitty gritty of what these types of sessions would include.

Cory Jenks: Definitely. So I offer basically — I’m an improviser, so I can adapt to whatever session or issue or event you’d like. But I can do a good old fashioned speech or a talk on it where I’m talking to your crowd, revving you up, inspiring you, pretty much what I’m doing with the audience today, just giving you just a bunch of motivation and excitement about what improv can —

Tim Ulbrich: I’m ready to go.

Cory Jenks: Yeah, like I’m glad there’s no brick walls in front of you because you might run through it.

Tim Ulbrich: That is great.

Cory Jenks: But I think my bread and butter really are the workshops. So what I do with those is I provide, depending on the workshop — and I have a menu of those depending on what the event calls for, what the particular organization wants. So I could either get right into some basic rules and we just get in and play. And what we do is we have the participants doing improv within 10 minutes. You’re doing scenes, you’re building things together. And then what we do, regardless of those different workshops, is we break down what happened in those scenes. What happened with those skills? What made them work well? What didn’t work well? And then how do we turn this into making ourselves better healthcare professionals. So how are you going to take what you did during this particular game and utilize it to be more in the moment with your patients? And so whether it’s something where we jump right into the improv or whether we do a little bit of background, a little presentation on some of the literature that supports — because ImprovRx is evidence-based comedy. There is literature supporting the use of role play and improv in education and pharmacy and medicine. So we’re pharmacists. We like to have that data to show that what we’re doing is worthwhile. And so there is — so I can dig into the data, give you the good background, and then we jump into the fun. And what I think the most important thing that comes from this is that people are going and taking risks, they’re trying new things, and there’s no consequences. Like in pharmacy school, for example, you can take a test and if you fail the test, you fail the test, right? In improv, if you do a scene that’s not funny, the scene is over, we move on, it’s disposable comedy. It’s beautiful. And you can learn that lesson in the moment. And I think that’s something that students — it’s really resonated with students because they are under pressure 24/7, get the grades, go to residency, get your job, get your student loans paid to tie it back here to YFP. So for an hour, we’re going to try something. It could be difficult. We’re going to be growing some skills. But the thing that I love — and I’ve been doing all these virtually right now because of COVID — is I’m looking at my screen and I see smiles on faces of students trying new things that are hard. And when do we have those moments in life where we get to try something and have fun doing it? And I think that’s the — like at worst, we come out of this having fun. And at best, you have fun, you challenge yourself, and you realize that those limiting beliefs that I’m not funny, that I can’t listen, that I can’t create, are not true because there’s so much more lurking — in a good way — inside of all of us as healthcare professionals that are waiting to be there to help our patients.

Tim Ulbrich: You know, I’m connecting back to my experiences in academia and even as a student where while we have come a long way in providing I would say more digestible learning experiences for students in terms of not as high risk of assessments, making things more spread out, smaller, lower risk and so forth to help foster the learning experience and take some of the anxiety out of it and an effort to try to help students manage stress and other things that they have going on, I suspect for pharmacy students listening, they would still say it’s a very pressure-inducing environment. And you can see it among students currently. They feel the stakes are high. And they certainly can be in a session like this and see value from this. And I can see it happening in a classroom, in a student organization event, as a part of another event on campus, whatever that would look like, where there’s just an opportunity to grow, to have professional development, but to have fun and to do it in a safe place. I mean, what an incredible experience. So if I’m tracking with you correctly, Cory, these hands-on workshops that you described as kind of your bread-and-butter type of offering would be provided to a college of pharmacy or offered at a national organization or a state organization or an organization like Rho Chi. Is that correct?

Cory Jenks: Perfect. Yeah, exactly. Those are all places that I’ve done this. I’ve done it at a state association, I’ve done it at a national meeting for a — I’ll be doing one at a national meeting for a pharmacy organization here in a few weeks. And I’ve done them in a small group with Rho Chi. And one thing that I actually did too was a pharmacy residency. So something — you think of pharmacy residents that the high stakes, the pressure —

Tim Ulbrich: Absolutely.

Cory Jenks: So teaching them adaptability, some resilience, and having fun while doing it. So I had a lot of fun doing this with some pharmacy residents as well, doing it virtually, playing together and learning these skills in like a very — I hate to say zero gravity environment because it kind of — I don’t want to cheapen what I’m doing, but it’s just from a world where if you’re a pharmacy resident and you’re in training and you’re taking care of patients, like the stakes are incredibly high. It’s life and death, real life and death. So here’s a way to get a step away from the life and death but be more effective when those stakes are high and you need to communicate with that doctor in a life-or-death situation or that patient in a life-or-death situation.

Tim Ulbrich: Well, what is the reaction? You know, I’m thinking of my experiences with pharmacy students or other pharmacists and depending on where they are at, I can see that some might really get into this type of experience, others maybe kind of skeptical, maybe others warming up to it over time. What kind of reaction do you get from the audience during these sessions?

Cory Jenks: The beautiful thing is that it’s different with every session. So I’ve worked with student groups that they’re a little more tentative, they’re a little more self-conscious, and so it takes a little bit of we’ll say prompting from the organizer or the school to send me a private message on Zoom and say, “Hey, call on Davey or Suzy,” or whatever. And then they’re like, “Oh no!” And then there are some where it’s like they can’t get enough. Like, ‘We only have an hour? I want to go and I want to go again, I want to go again.’ And then there are the ones that they’re like, they’re really uncertain, but they do it. And then they realize, oh my goodness, that was fun. I did a great job. I had that in me. And so it’s like I said, everyone is going to be different. And that’s what makes it fun for me is that every group presents its own challenges. Some of them it’s like, we’ve got to slow this energy down, we’ve got to give someone else a chance. And some it’s like, OK, it will be more work to get you to come out of that shell. That is OK. That is my job. Let’s do it. Challenge accepted.

Tim Ulbrich: Which I think is a whole separate skill set, one I’m guessing you are continuing to hone and develop upon. I mean, there’s an art to it I think, interacting with folks, drawing things out of them, creating the experience and the environment that gives the best shot of participants engaging in the material. But it just depends sometimes on the group, on the culture, what is going to have those types of interactions, what’s going to lead to those types of interactions. And I can’t just roll by the fact that, Cory, we’re in the midst of a global pandemic where you are really just warming up to the work that you’re doing and things like traveling and being able to engage with other organizations and along the way comes a global pandemic, which I would suspect brings things like travel to a grinding halt. So for me to jump on to Zoom and to do a talk about personal finance, yeah, I would love to be there in person, but we can make it work at the end of the day. The information is the information. And I’ll try to do my best to inspire folks in that environment. Now, this, the work that you’re doing, feels like the experience that you would have with the learners in the room is so important to the outcome of the event. So talk to me about how you have been able to pivot with Zoom, with obviously what’s going on with the pandemic, and how you’ve been able to be flexible and the mindset that has allowed you to continue to press on despite the limitations that have been brought on by the pandemic.

Cory Jenks: So yeah, it’s a great, great point. I picked a wonderful year to decide to be a speaker, right? But don’t worry, what I speak on is drawn entirely out of what the energy in the room is. So no, I think that’s — you mentioned like the mindset. So one of the things we talk about in improv is that there are no mistakes, only gifts. So you don’t go to an improv show, watch it and say, “Well, they messed that line up there.” It’s not like a play where you’re expecting. You don’t know it’s going to happen. And so a good improviser will take whatever happens, whether it’s the tech person talking over your scene on a microphone, which has happened to me before, and turning it into some sort of narration of their life, we turn it into a gift. And so this past year of having to do everything remote, well, I’m an improviser. I teach adaptability. If I couldn’t adapt, you shouldn’t be dealing with me. And so I’ve been able to adapt the exercises to the Zoom or the virtual platform. It’s more of a challenge — like it is more of a challenge to get people engaged and involved, especially it’s very easy to have people just like, I want to turn my camera off and hang out on Zoom. So you have to work harder. Like in a way, it is harder to do to be able to do this virtually. But I have adapted the message, I have adapted the games, I’ve adapted the activities to make it much more interactive for those participants, even though we’re virtual. And in the world of seeing things as gifts rather than mistakes or problems, I will not anger your entire audience and say, “COVID’s been a great gift,” right? It’s been terrible for many people, myself included. Everyone has been affected by this. However, the gift of doing things virtually has allowed me to maybe reach some groups that I would not have been able to reach before. Doing Zoom sessions across the country from here in Tucson when the travel costs might have been prohibitive for a small organization. Well, you don’t have that barrier now. So I get to interact with your students, I get to share this message. And so the ability to adapt is baked into what I do. And so it’s been fun having that chance to adapt to see how these different things work and to get to talk to and interact with a bunch of folks that I might not have had the chance to otherwise.

Tim Ulbrich: Absolutely. And I think what you said is just so on point. I mean, the mindset being so important, the adaptability piece being so important, but also the opportunity to reach organizations and groups that otherwise might not have been open to a Zoom session and because of, whether we like it or not here, we are. And we are all comfortable with it now. And so you’re giving things like this a try and obviously continuing to have the impact that you want to have by reaching more folks through the technology and what you’re able to do. And you mentioned the evidence. You know, my academic perspective is thinking, when it comes to the evidence, Cory, that you reference, I know that there’s likely something there. And you specifically mention some of the pharmacy and medical literature that’s out there. Tell us more about the evidence behind some of the work that you’re doing.

Cory Jenks: Yeah, so I’ve got to give props to the University of Arizona here in Tucson. This precedes me, but there’s an article from I think the late 2000s, the late ots, I guess we call them, where they incorporated — they actually have incorporated improv into their pharmacy school curriculum. So it’s a lot of fun. I’ve been able to help out with those sessions once the world found out that, ‘Oh, you’re a pharmacist that does improv. Well, we do this improv thing for pharmacy students.’ Wow! I have a clinical specialty! Here it is, it’s improv. So I get to go participate in that. But they’ve written up the improvement in patient communication with the pre- before and after doing their improv sessions. So it’s improved subjective communication. In medical school curriculum, it again showed that it improved communication. They felt like there was a quote where I don’t feel like I have to do things off of a checklist, I could just listen to it back in the moment. And most of the medical school students, I think they got 10 hours of improv instruction in the article that I researched and read, is they felt it was worth repeating. And now, put your hand up out there if there’s any classes in pharmacy school or medical school that you wanted to repeat. It was like, I’m done with this one, moving on to the next one. So to me, that — it’s not like where we can objectively measure like, ‘You were a 7 on communication and now you’re a 9 on communication.’ But getting at that human side of healthcare, like if students are saying they’d repeat this, I think they find it valuable. And so trying to promote that evidence more so would be something that I would love to be able to continue to pursue and really with what I’m doing, trying to make that more of a reality in more places for more students to get that training and of course graduates as well.

Tim Ulbrich: And I’m going to for a moment, Cory, connect the work that you are doing here in the improv comedy, the impact that you’re obviously having, you know, one of the things that really strikes me is the compound impact this can have. So if you’re training, let’s just say a session where you’re doing a workshop with 75 pharmacy students. Let’s be glass half full and say 40 of them are all engaged and they’re going to take away some things that they can then apply with the patients who they probably also will share with others and their classmates and have an impact on other folks, could be families and friends, and hopefully have an impact on the practice sites and the patients that they serve and the culture within that organization and within those experiences. So the compound effect of the work that you’re doing to me is really interesting. And the influence that you can have on really transforming the healthcare experience through the pharmacists that you’re able to have an impact through obviously your training, your understanding of what pharmacists are doing each and every day. So I want to bring together that work. I know from our personal conversations that your family is incredibly important to you, a big motivation of why for everything that you’re doing, and I also know that your financial journey, as we talked about on Episode 134, is important.

Cory Jenks: Yeah.

Tim Ulbrich: So fast forward to us five years. What does success look like for you in terms of the work that you’re doing here as it relates to ImprovRx?

Cory Jenks: I think success to me would be that I am at least — I’ve at least gone down to part-time as a practicing pharmacist because I am doing too much speaking and training with improv.

Tim Ulbrich: Absolutely.

Cory Jenks: I think perfect world in five years, it’s really hard. I’m going to be vulnerable here in front of everybody. Like giving up this identity as a pharmacist would be really hard in this moment to think about not being. However, the energizing thought of being a full-time speaker and trainer, implementing this improv training, whether it be in healthcare associations, other hospital systems, in curriculum, at university level, that’s what I would love to be. Having that compound impact, as you said, is it’s one thing for me to go and teach this to a group of 70 people. But if I can go implement it into multiple curriculums in different healthcare settings, dental schools, pharmacy schools, nursing schools, that compound effect is exponentially more. And it’s just going back to this idea of something that you would not consider traditionally related to healthcare, improv. Like I would love to be known as, “Hey, it’s Cory. He’s the healthcare improv guy. Like he knows how to make that experience great by implementing these really fun, simple rules of improvisation.” And in five years, I would love to see cultures change. Like I talked about this ‘yes, and’ mindset. I think in healthcare, we often are stuck in a world of ‘no.’ Like the paradigm is ‘no.’ So like can I get more time with my patients? No. Is this drug covered by insurance? No. I had this new idea for this new service as a pharmacist. No, we don’t have the time or the budget for that.

Tim Ulbrich: Or did I bill for it?

Cory Jenks: No. There you go, right? See, you said you’re not funny. You just like followed the pattern right there.

Tim Ulbrich: Yeah.

Cory Jenks: That is textbook comedy. Beautifully done. But I would love to build a culture where of course we can’t literally say yes to every request. Like we can’t say, “I want 1,000 Percocet.” Boom, done. Right? That would be irresponsible. But when we say yes to the idea of some — so here’s this idea for a new billable service, or when a patient’s asking for an obscene amount of controlled substances, we say yes to what they’re telling us. That is they have something deeply going on that we need to investigate and help. So it’s not — ‘yes, and,’ does not literally mean yes all the time, although I have had a improv student come back married after their first week of improv class. It was like, “You said, ‘yes, and,’ and someone asked me to marry him, so I said yes!” I was like, that is ultimate commitment. Beautifully done. But it means at least saying yes and listening. I think that’s a big thing that Cassie hears from her patients, I hear from my patients is they’ll say, “You’re the first person that’s just listened to me.” It doesn’t mean that we fix their problem all the time. It doesn’t mean that we give them exactly what they want. But that ability to listen and empathize with that patient is to learn, why are they saying this? Why are they frustrated with their system? Why are they feeling like they haven’t been heard? And so in five years, if I’m helping create a culture of that for patients and as you said, for providers who are burnt out, I’ll have considered it a wild success.

Tim Ulbrich: One of the things, Cory, that I want to ask you because I think I see folks struggling with this when they’re starting a side hustle or business, whatever you want to call it, is that they’re just crazy passionate about what they are starting. And they see some initial success, and that’s starting to build momentum, hopefully over time, and they’re having an impact. You know, it can be incredibly fulfilling work. So I know, again, as I mentioned, your family is incredibly important to you, the time that you have with your family is important to you. So how do you balance and reconcile the work that you’re doing with ImprovRx, the time that you’re spending preparing for presentations, obviously pre-pandemic traveling? You know, you and I both know that you can sign up for an hour presentation, but it’s much more than that when you think about the before work, the after work, the time that you’re spending thinking about that. So tell me how you handle and reconcile that in terms of scheduling where you’re spending your time and ultimately your decision algorithm for what you decide to say yes to and what you decide to say no to.

Cory Jenks: I think the first step in this is marrying up. So my wife is — my wife Cassie is incredible. We have frequent conversations about what we want our life to look like, what our visions are, what our dreams are, and I know it sounds hokey, but it’s just — the line of communication is open so well. So when it comes to the decision algorithm, a lot of it runs through her because we are on a team together. And every time I’m doing something, she is taking the burden on it. Like right now, she is keeping our kids quiet so we can have this conversation. Mostly quiet, I think. So I think that’s part of it. But I also — we have blocked off time for ourselves. Like these hours during the week in the evening, Cassie is doing her extra little passion project. These hours, Cory’s doing his thing. Oh, Cory wants to do this thing in three months. I check with her, and we look at our schedule, we make sure that there is no other family things, and she’s like, “Go for it.” Like she’s all in too. Like she is in this for making these dreams happen. And I think that relating it back to our episode, being in that Coast FI world of really, I’ve been out of pharmacy school a decade, so a decade of hard work setting ourselves up to take some of these risks to pursue the dream, right, is what has set us up. So the algorithm for what I say yes to at this point in my business is very much saying yes to as much as I can to get that experience, to get those reps, to get that network built. And then the goal is, like my goal that I write down every day, is to have to turn things down at some point.

Tim Ulbrich: That is right.

Cory Jenks: To get to that place where you’re in such demand that I can’t do everything. And so that’s how I see it. But really, it comes down to we have our protected family time, we have our day job time, and then these other hours are for us to work on these things or if I wanted to sit and numb myself with Netflix, which is OK sometimes, you can. But don’t ask me what WandaVision is. Like I have no idea, like no concept of these shows because at night, from once the kids are down, it’s laptop open and if all I have is an hour of energy, I give it an hour, and then it’s get that rest and bedtime. So that’s how I try to balance it. A lot of it is just cutting out the nonsense and unnecessary things that in 10 years, will I be happier that I watched the Cubs spring training games? No, it’s fake baseball for a baseball team. Like, no, I will not. But will I regret not having given this thing that seems to be resonating with the people I work with, if I don’t give it my all, that’s going to be the regret. That’s the broad strokes, I guess.

Tim Ulbrich: Yeah, and I think some of the best businesses, you know, from a fulfillment/impact standpoint, are those that you can turn into a business, side hustle, again, whatever you want to call it, but that you do have an impact on others and that you feel a sense of contribution towards the work that you’re doing. And if you can build something that is also sustaining but is having an impact, obviously that’s a sweet spot that I think we often strive for when we’re working on things like that. Not just speaking, you also have a blog in the mix, you’ve got a book that you’re working on, so tell us more about those opportunities, in addition to the speaking, the things that you’re working on with the blog and the book, and what you’re hoping to accomplish with those projects.

Cory Jenks: Yeah, so as a fairly new side hustler, I think the struggle is I have this idea, how do I get people to know about it? And so is it a podcast? Is it social media posts? Is it this or that? And so for me, the blog is — I’ve always enjoyed writing. In undergrad, I actually wrote a blog for the University of South Carolina’s Admissions Department describing my day-to-day activities as a pull to get people to come to our college. So I’ve had that practice of writing, so it’s in a world, as you say, we have limited time, how do we say yes to what’s important? Well, writing is a low barrier to entry for me to get these ideas out that I have a chance to go deeper on, to take these seemingly unrelated concepts and put them together into something that’s really usable. So I’ve enjoyed getting the chance to write about that. Part of the gift of COVID — the “gift,” I’ll use my quotation marks here — is that I didn’t have the spring of — March of 2020, like everything shut down. What are we going to do? No one knows what’s going on. So I’ve had all of these ideas formed in my head, so I put them down in a manuscript for a rough draft for a book. So I’m hoping to publish that later this year, to provide that value that I can provide on a face-to-face basis but provide sort of the manual and the stories and the background as to why this is useful, to provide that support and that evidence and try to establish myself more so as an expert in this field. I think writing a book, as you have done, you’re the expert in this. So to the other improv pharmacists out there, let’s collaborate if there are others. This isn’t a — I don’t have to be the expert. Certainly not. Improv is a team sport. But yeah, I’m trying to reach folks with that message of application, really.

Tim Ulbrich: They are going to be coming out of the woodwork, Cory.

Cory Jenks: I know. We have a certain type that’s drawn to pharmacy. I know of all the pharmacist comedians, improvisers, you’ve got me on here. So I appreciate it.

Tim Ulbrich: What is the best way for folks to connect with you? You know, I’m suspecting that some of our listeners might be with academic institutions or state or national organizations, would like to have you do a speaking engagement or a workshop or just in general learn more about the work that you’re doing. How can folks connect with you?

Cory Jenks: Yeah, so I think my website, CoryJenks.com, that’s Cory Jenks — my parents were cheap and did not buy the vowel, no ‘e’ in Corey, so little dad Wheel of Fortune joke there. And if they want to find me on LinkedIn, that’s another great place to connect to. I am on Twitter, Facebook and Instagram, but I don’t post much. My whole goal with improv is to have people being in the moment, listening, going deeper with their patients. I’m not going to say social media is not useful. It certainly is very useful. I think the value that I’ll give to people is going to be from my blog, my book and my face-to-face interactions. So you’re welcome to follow me on Instagram. If you like periodic posts of — I don’t even know what I posted last — so you can do that or on Twitter too. Twitter is kind of a — can be hit or miss as far as fun or terrible. But or you can email me, [email protected] email. So the beauty of 2021, there’s a million ways to find me. And I love to talk about this. And I really want to express my gratitude. This is an honor to be a two-timer here on the YFP. I know that you have all helped Cassie and me on our journey so much. And my hope is that I will resonate with somebody and I will help them on their healthcare journey and help them with their patients. So much gratitude to you and the team for having me on.

Tim Ulbrich: I appreciate that, Cory. And we will link to the blog, we’ll link to some of the social profiles, specifically LinkedIn, your email address, in the show notes so folks can find that information. Go to YourFinancialPharmacist.com/podcast, you can find this episode and the corresponding notes. You know, you are contagious. I mean, the whole heart of —

Cory Jenks: I don’t know, you might choose your words better in a pandemic, here.

Tim Ulbrich: Yeah, that is true. Not a good choice of words necessarily. But you know, the energy that you have, the interactions you have with folks that you remember is something that I often think about. And I always describe these as bucket-filling interactions. So you know, sometimes we have interactions with other folks that can feel exhausting or feel draining. And then we have those interactions with folks that they really exude energy and they’re contagious to be around, and it obviously hopefully makes those folks better in the individual work that they’re doing and the desired outcome that they have through that work. And I can honestly say, Cory, my conversations with you, you are really that individual that is bucket-filling. I love the passion for what you’re doing. I love the purpose and the intent behind what you’re doing. And I think there are really exciting times ahead for you professionally and for you personally and the folks that you’re going to impact through your work. So congratulations on the success that you’ve had thus far. I look forward to following your journey. And please also send Cassie my regards.

Cory Jenks: Will do. Thank you so much.

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YFP 195: How to Save for Your Child’s Education

Posted on March 18, 2021November 2, 2022 by yfpadmin

How to Save for Your Child’s Education

On this episode sponsored by IBERIABANK/First Horizon, Tim Baker and Tim Ulbrich talk through strategies for saving money for your children’s college education. They discuss phases of planning for educational expenses, how to project how much to save, and various options for saving for kids’ college including 529s, Coverdell Education Savings Accounts, UGMA and UTMA Accounts, and Roth IRAs.

Summary

On this episode, Tim Baker and Tim Ulbrich talk through strategies for saving money for your children’s college education.

They discuss phases of planning for educational expenses including how to project how much to save. The two main phases of planning for educational expenses, the accumulation phase and the decumulation phase, are explained. In the accumulation phase, even before your children are born but before they begin attending college, parents will need to first assess their overall financial picture and situation, select the savings vehicle that fits the needs of the financial plan, actually fund the account, and check in regularly to make sure that the plan is on track to meet the educational financial goals. In the decumulation phase, parents are actively making financial decisions that directly impact the cost of the child’s education. The decumulation phase also includes actually paying for college. In both phases there are numerous ways to plan and save, each of which should take into consideration the retirement of the parent as well as their wishes for funding for the child(ren)’s education.

Tim and Tim also break down various options for saving for kids’ college including 529s, Coverdell Education Savings Accounts, UGMA and UTMA Accounts, and Roth IRAs, how they work, as well as the pros and cons for each when predicting the future expenses for your child’s education.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Tim Baker, glad to have you back on the show.

Tim Baker: Good to be back. How’s it going, Tim?

Tim Ulbrich: Good. I’m excited about this episode, one that we I know get lots of questions about from the community, from clients. I think it’s an anticipated episode. As I mentioned, a topic around college savings for kids that I believe is top-of-mind for many folks, of those that either have children or those that are thinking about having children down the road and the question is how do you best save for your child’s education? And as pharmacists, we’re all aware — acutely aware — how expensive school can be. 2020 graduate, $175,000 is the median debt load. We all know what that means in terms of our own education and therefore I think it’s probably front of mind as we think about our children’s education as well. Tim Baker, I suspect this is a topic our planning team gets lots of questions about from our clients. Is that accurate?

Tim Baker: Yeah. And it really comes from a place of like, I don’t really know how to approach this. So it’s more of a — I think more so than other things, it’s more of a blank canvas. Some people we kind of direct them if like, hey, if you don’t have a strategy here, we can talk through it. Some people are like, I don’t want my kid to go through what I experienced. I’m going to do whatever I can. And there’s every shade of gray here. So it is definitely something that we talk through with clients who are kind of in the phase of life where they’re just having kids all the way up into where they’re starting to go to college and trying to crack that nut. So it’s definitely something that is top-of-mind for a lot of the families that we work with.

Tim Ulbrich: Yeah, and I think it’s important before we get into account options and strategies — and we’re going to talk about 529s, probably the most well known option in the group, we’ll talk about coverdell account. We’ll talk about some taxable options, Roth IRAs and so forth. But i think before we get there, it’s important we zoom out for a moment, talk about really two phases of planning for educational expenses, the accumulation and decumulation phase. So Tim, talk us through these two phases, what they are, and thoughts that folks may have as they’re planning for kids’ college in these two phases.

Tim Baker: Yeah, so planning for education is very similar to planning for retirement. You know, we as employees will have a 30-, 40-, 50-year career, whatever that might look like. And typically, the overwhelming majority of that is in the accumulation phase where you are gathering assets and then you go through a decumulation or a withdrawal phase as you go into retirement. The same is true, to a lesser degree in terms of timeline, from an education perspective. So you have an accumulation phase, which is — could be before your kiddo is born all the way up until they’re 18 where they go to college and then you transition to a decumulation phase or a withdrawal phase where you’re actually paying for college. So a lot of families, especially with multiple kids, Tim, you’ll experience this with your boys potentially where you have four different one of these kind of rolling at the same time. So the accumulation phase is when you’re kind of just trying to assess what are your goals with respect to the education planning. So for a lot of people, it’s like, I don’t want my child to experience what I’m experiencing right now. For some people, it’s like, I think they need to have a little bit of it but to a lesser extent. And for some people, it’s like, that’s not part of my AO at all, like I’m not necessarily concerned about that. It’s kind of going through the process of organizing and selecting the appropriate investment vehicles to basically meet the goals that are in front of us, how do we want to fund it, so what is — how are we going to basically put dollars in those appropriate funds? And then just kind of those check in regularly along with the rest of the financial plan to see if we’re on track or off track, just like we would do for retirement and the like. And then really transition to the decumulation phase where it’s more about — and I kind of think about this in terms of the financial plan where you’re not a reactive spectator as I was when I was kind of going through this. I was kind of just I’m going to try to get into the best school that I can and I’ll figure out the price tag and everything later on but more of you’re making empowered, informed decisions about college. I think that’s needed, especially because of where the price of school has gone. So just being more in the driver seat and really work on saving on the cost for college, not just for the cost of college. So one of the big things that we’ll talk a bit about is just college is so ambiguous in terms of what it costs. There’s no price tag for everyone. And potentially help be that objective third party that’s removing the emotion and making an irrational home buying decision and do all this while you are taking care of No. 1, i.e. you and your retirement. It kind of goes back to that idea of put your mask on first before you can put your child’s mask on. The same thing is for education planning. So we don’t want to rob your own financial plan for your child’s college tuition. So those are really kind of the two broad phases that have different nuances as we’re going through them.

Tim Ulbrich: And one of the things you mentioned, Tim, in the accumulation phase is assessing the goal, starting to identify what the need is. And as a parent of a young child myself, multiple children, I struggle with the concept of projecting into the future to estimate educational expenses 5, 10, 15+ years into the future, although I know it’s important to begin to think about that and put some numbers around that as well. So how do you walk through this with clients when it comes to projecting the need?

Tim Baker: Yeah, it’s similar to like retirement. You know? Like we don’t really know what the cost of A, B, or C will be. We know that there’s going to be a factor that’s going to be inflation. We know that over the course of the last few decades that the cost of college education has increased threefold over a 17-year period meaning when your child is born, if it costs $40,000 to go to college today, by the time they’re ready to go, multiply that by 3 and that’s basically what a four-year education will cost. So you know, again, this goes back to the whole idea of like investing and time in the market versus time in the market and the time value of money. And for a lot of us, it’s just — it doesn’t necessarily need to be a completely balanced equation. It’s more about am I on track? And am I funding the education funds that are kind of in line with what my goal is? So there are some individuals — and I’ve actually had conversations with individuals where they’re like, we would love to have more kids, but we’re going to stick with the two that we have because if we add another one, we’re not going to be able to have that 100% solution for education. And those are conversations that I want to really dive into a bit more and really see if there is a potential way around it. So you know, just like retirement, we’re going to be tracking if we’re on track or off track. We do the same with education. The problem is that the cost, again, is ambiguous. There’s lots of components to the cost. There’s not like an itemized list that parents can go and say, “OK, this is exactly what it’s going to be. I’m going to know what that’s going to be in 17 years.” We’re just basically using all the tools, the data, we are making this almost just like we would in retirement. And we’re building the plan around that.

Tim Ulbrich: And I think that’s an interesting point, Tim, the ambiguous costs that are involved. There’s the sticker price of an institution, which from my alma mater, they’ve evolved that approach from big sticker price, discounting it with lots of scholarships, so the true cost is not anywhere near the sticker price to others where the sticker price, you’re in in-state tuition without scholarships and other things might exactly be that amount. And you’re looking at that times three or four or however long it takes. So talk to us about types of costs, types of expenses. What are things that folks need to be thinking about here in terms of the factors that would inform what that overall need may be? Or at least to project that need.

Tim Baker: Yeah, so you know, I think the way that a lot of the tools are built, the financial planning tools that this is kind of what we walk through clients on, you know, you have these different sectors of school. So you have maybe like a private nonprofit four-year on campus experience, which may be the most expensive. So like today’s dollars, it’s like $49,000 is the grand. And then we break those up into the different components: tuition and fees, room and board, books and supplies, transportation expenses, and other. So we have that but then we have all the way down to the public two-year kind of in-state commuter student that it’s a fraction of that, $17,000 all in. So we have the ability to, using the data that we have with some type of inflation number, to say OK, if you want your student to go to Ohio State and you’re in-state, it’s going to cost this much. And then we can build a plan around that. If you want your child to go to just the average four-year out-of-state or in-state, it’s going to cost this much. So you can be very, very granular on this. But really, the things to look at is tuition. So they say a rule of thumb is out-of-state tuition is roughly two times more expensive than in-state. Sometimes it’s a credit per hour, sometimes it’s a flat rate. Room and board, I’m going to do the don’t cut across my lawn, shake my cane at you — but like I remember looking at schools in the early 2000s when I was graduating high school and it being very much a bunk bed cinder block, not necessarily a great cafeteria expenses. And then listening to some of my younger cousins and saying like, “They do what?” And it’s kind of like an arms race, so to speak. And I think that’s one of the reasons that — you’re competing for students — but that’s one of the reasons why some of these have gone up. So room and board, does the school require on-campus housing for freshmen, even sophomores? That’s becoming more and more of a thing. A lot of schools have talked about freezing tuition, but room charges kind of remain unchecked. And a lot of these amenities kind of inflate the cost. It could be food where there’s meal plans. Typical meal plans could be $1,000-2,000 per semester. It could also be things like different fees that are for courses or parking or student ID and orientation, library, legal services, student government. It goes on and on. And these are things that can kind of just start really increasing — it could be textbooks. I know there’s a lot of things that are trying to disrupt that in terms of rentals and things like that. And then just transportation or personal expenses. I know you’ve seen back in the day like oh, like do you use student loans to go and travel and do that? And a lot of people are like, you know, let me live. A lot of people are like, I don’t want to do that because I don’t want to have that inflated student loan number at the end. So it’s very much a layered process in terms of what you’re paying. I think to be able to have some guidance and some counsel on this — and there are financial planning practices that specialize in this alone, especially for a lot of people that are working with Gen X individuals. So I think to have a person to help coach you and your teenager, which can be a little bit different. I know if I transport myself back to that, I’m like, I’m doing what I want.

Tim Ulbrich: That’s right.

Tim Baker: But I think if we reframe some of the conversations — and we see it when we talk to schools of pharmacy. If we’ll say, “Hey, the average debt load is $175,000,” that’s like funny money, right? But then if you actually equate it to like what does that cost per month in student loans and then you maybe multiply that by 12, which is close to $2,000, a year $24,000 if we go to the standard plan, that’s where you’re like OK, like maybe we need to have a more rational, less emotion, and make sure that, again, if you’re in pharmacy, all of that education equates to a higher income. But that’s not the case for everybody. If you go study something different that you’re not necessarily aligning what you’re paying in tuition with the expected salary.

Tim Ulbrich: Tim, one of the things you said, which is something that I’m struggling to think through — Jess and I — with our boys is I’ve heard you talk about taking current costs and projecting out for some factor of growth that we may expect and certainly we’ve all seen the numbers of tuition and fees, important point you made up — fees that are going up that far surpass inflation and historically have gone up at really incredible rates. But it’s important to note there is somewhat of a national conversation going on about the need for more affordable higher education or even perhaps in some cases free education. So this is something that I feel like I’m struggling reconciling is might I be overprojecting the need? And what’s the opportunity cost of that in terms of where else that money could be used and if it’s tied up in this account or that account? We’ll get into that a little bit with individual accounts, but what are your thoughts on that? Not asking you to crystal ball higher education over the next 20 years, but in projecting the need based on going forward and what we’ve seen historically with growth but also some discussions around perhaps this might be more affordable or in some cases free.

Tim Baker: Yeah, it’s a great question. And you see a lot of the political discourse around this in terms of like a more progressive political movement to forgive student debt and then offer free options. I’m going to talk out of both sides of my mouth in some degree. So like I think from a planning perspective, it’s tough to — you know, I kind of always default to the status quo. So just assume things are not going to change. But then when I talk about the 529, I’m kind of talking out of the other side of my mouth in that I think that over the last couple years and I think projecting the future, the dollars in those accounts are going to be able to be used for more liberal purposes even than what they’re used for today. So the free college discussion, I do think that there is a very real possibility that by the time, Tim, our kids go to school, that’s going to be an option on the table, an option that I think that a lot of people should seriously consider. I’m kind of putting myself back in that, like would I want to do that myself? And the answer is probably no, I wouldn’t have. But it might make more rational sense to do that, especially if you don’t know what you want to do, which again, most 17- or 18-year-olds don’t really know that. I think that’s going to be the real — the first big domino to fall is going to be kind of that free two-year community college. And I don’t know what stipulations are going to be on that, but I typically from a planning perspective, I plan as if it’s the status quo and hope that potentially there is an improved reality. So like one of the things they just announced with the latest bailout package was that they’re changing some of the rules to the income-driven plans that if you get forgiveness for a non-PSLF strategy between now and 2026, that that’s tax-free. Like you don’t have to pay the tax bomb.

Tim Ulbrich: No tax bomb, yeah.

Tim Baker: But the caveat to that — there’s not very many people because those are 20- to 25-year plans. There’s not many people that are in that boat. So it’s nice, but is that something that they’re going to extend permanently?

Tim Ulbrich: Right.

Tim Baker: Maybe, but do you say — you look at that, and you’re like, do you stop saving for the tax bomb? I don’t know if I would feel comfortable telling the client to do that. Now, the nice thing about the tax bomb was typically in a taxable account that you can use that and say OK, no more tax bomb, let me go buy a vacation home. That’s great. If it’s in a 529 account, maybe not so much. So yeah, I think it’s a great question. I think one of the things that a lot of people — and I had these conversations with prospective clients that were like, ‘Yeah, I’m kind of just waiting for this election to see if Biden gets elected what he’s going to do on the student loans to kind of push forward on my strategy.’ And I’m like, in my inside voice I’m thinking like, I wouldn’t hold your breath. And again, like could he forgive student loans? Maybe. But it doesn’t sound like he has an appetite to do it from an executive action. And if it’s — it’s going to be I think for most pharmacists very inconsequential. And again, I don’t know if I would hold up my life, my strategy, to wait for the politicians to come in and save it. So you know, whether that’s $10,000 or $30,000, it’s tough. So I think the big thing to kind of follow, which I think will be — is like that two-year. But then what are the stipulations for that? And then does your student, does your kiddo fit into that? I don’t know if that’s a — if it really, really affects my plan from an education standpoint. So that’s kind of what my take is on that.

Tim Ulbrich: Great discussion. And I think it’s important for folks to consider that on their own as well. And let’s shift now into talking about some of the accounts that are available for kids’ college. We’ll spend a decent amount of time on the 529. We’ll also talk about the Coverdell accounts, the UTMA accounts, taxable accounts, Roth IRAs, so different options here that we might consider. Tim, let’s start with the 529s. Obviously they come up in conversation probably the most often from my experience. What is a 529? What type of contribution limits are out there? How can it be used? And talk to us about these accounts at a high level.

Tim Baker: Yeah, so the way that I think about these are these are essentially like retirement accounts for education. But it’s really going to be dependent in terms of — so why do I say retirement accounts? Because most retirement accounts have tax-preferred status. Like if you put dollars in here, you can save taxes. But every state’s going to be different, right? So one of the big things that makes this attractive for a lot of parents is that the parent essentially owns the account. So a lot of these other ones that you mentioned, it’s like, these are Coverdells, UTMAs, UGMAs, these are custodial accounts that really belong to the student. So these are like retirement accounts, but for education that the parent owns. And one of the big things that I think is exciting that really happened over the Trump administration is that they’ve loosened up what these 529s could be used for. So back in the day, you would use these for a long accumulation period. So you would say, “Hey, little Johnny was born in 2000. He’s going to go to school in 2018.” And for those 18 years, you would basically put money in there and then whatever is left over, that’s what he would use for qualified education expenses. Now with some of the changes to the Tax Cut and Jobs Act under the Trump administration, you can now use it both as an accumulation account, so in future like when Johnny goes off to college, but then also today when Johnny starts kindergarten and he’s going to a private school or all the way up through 12th grade. So under the federal law, savers can now throw up to $10,000 to pay for students K-12 tuition. Now every state is going to be different in terms of what they allow. So that’s important to know what your state does allow. The other big thing that the 529 account — so this was under the SECURE Act, basically that it now allows, which is crazy that this is even a thing, but it now allows qualified student loan repayments up to $10,000 per beneficiary from the 529. So before this, if you had $10,000 in a 529 and you had $10,000 in loans, you couldn’t use that money without a penalty, without a 10% penalty to pay that off, which is crazy talk. Like there shouldn’t even be a $10,000 contingent on that. It should be if you have money in there and you have loans, you should be able to pay it off. And then the last thing that the SECURE Act does is it allows you to use the money for like apprenticeship programs. So like we talk about education — I know Tim and I, we talk about this kind of behind closed doors about like what does higher education look like in the future, what’s this going to look like for us versus our kids, and is there going to be a swing back to more of the apprenticeship type programs and that type of thing. And the 529 is opening up that. And you might be surprised by this, but even — like even when I started learning about the 529s, they didn’t allow you to use it for like a laptop or things like software, so it’s been a gradual thing. So I think that the restrictions are going to continue to kind of be loosened up, just because of the need to kind of solve this problem. So the 529, think of it as a retirement-like account that you can put in money and get a deduction on the state level, depending on the state, and basically grow that money tax-free. So if I put in $10,000 over five years and it grows to $20,000, I don’t pay capital gains tax on that as long as it’s used for qualifying education expenses. And I don’t pay any tax on the back end. I do pay a penalty if I use it to buy a car for my kid or something like that. The other big things in terms of flexibility is that let’s say Johnny doesn’t want to go to college. Let’s say he wants to start his own business, which I might be a big proponent of, maybe buy a franchise and learn that. So he can’t use the 529 for that. But maybe Jane, our second child, can. So you can basically use those — and let’s pretend Jane doesn’t want to go. Then maybe their grandkids do. You use it for that. So the money can sit there and grow. A lot of people think like, oh, I’ll never be able to use it. Like you can just keep changing beneficiaries, essentially, and use it for the children or the grandchildren that do need it. So I am a big proponent of it. I know some people, they kind of feel bound by some of the rules because it’s like, what if you don’t use them for qualified education expenses? But I think it’s a viable way to not only get a state tax deduction based on the state that you live in but also to allow those moneys to grow tax-free without paying capital gains that you would see on like a brokerage account or something like that.

Tim Ulbrich: Yeah, and the way I think about these, Tim, just to draw another example to how you explained the tax considerations, I think about these as like a Roth IRA for educational savings. So money going in has already been taxed dollars, it’s going to grow tax-free, you can pull it out tax-free for qualified expenses, which you outlined. I do want to just mention because I think it’s worth further explanation, you gave the example that these can now be used for not just higher education but let’s say I have a child who’s in a private education K-12. And some folks might be hearing that saying, “Well, what’s the purpose if I don’t have the long-term investment or gains?” If I have a 5-year-old or a 6-year-old, 7-year-old, they’re in private school and I put money in and then I turn around and take that money and spend it for that education, what’s the point without the gains? And really, the value, Tim — correct me if I’m wrong — would be on the state income tax deduction, right? You’re essentially passing it through, taking advantage of that state income tax deduction. And then of course if there is any time period of growth, you’re going to get some of that growth as well. But is that the main benefit of that type of approach?

Tim Baker: So if you live in the state of Ohio and you know that you’re going to have $10,000 in private school costs, you could put that money in, that $10,000 in, and then at least in the state of Ohio, I think it’s — what is it? $4,200 per kid. So you could at least take that off. So if you make $100,000 that Ohio recognizes income and you basically use it as a pass-through, so it goes right into that account and then you take it out and now the state of Ohio sees that you made $97,400 if I did my math right. Yeah. So $95,400. So the idea is that you use that as a gateway to lower your state income tax. So you’re not really getting any growth at all. It’s just a way to basically contribute, get the deduction, and then use those in more of the near term. It’s the same thing like you could argue with an HSA.

Tim Ulbrich: Yep.

Tim Baker: So the beauty of the HSA is that you can put those dollars in there. So if you put $2,000 into an HSA and then you use it right away, you’re not really getting any growth or tax-free growth on the accumulation of the asset, but you are getting the reduction on your federal and state income in that regard, which can be very beneficial. So and that’s the dynamic that has changed recently under the Trump administration where it wasn’t there before. It’s a great benefit, especially for those individuals that are sending their kids to private school K-12.

Tim Ulbrich: I’m still waiting for them to add the homeschool provisions, by the way.

Tim Baker: Yeah, that keeps getting cut out. And typically at the last minute too.

Tim Ulbrich: Yeah, I’ve got to dust off my lobbying skills. So get down at the statehouse. So some of the disadvantages I think about, you mentioned one of these with the 529. If it’s not used for educational expenses, which it has been broadened out as you alluded to, 10% penalty and tax on the earnings portion of that investment. Other things that come to mind here, Tim, would be as you’ve alluded to, not all 529s are created equal. So they’re based in different states. And this is where you hear folks say, x state’s 529 is the best one. So is it fees? Is it investment choices? Is it flexibility? Like what are the differences that we see in terms of state 529 offerings?

Tim Baker: Yeah, so like unlike some of these other accounts like the Coverdell and the UGMA/UTMA, the 529s are typically administered by the state. So the 529 will say, “Hey, Fidelity or Vanguard or American Funds, we’re hiring you to take care of our state’s 529.” So just like different custodians and institutions, they’re going to charge different fees and have different investments, the same kind of flows through to the 529. And it’s the same with the 401k and the 403b. So some companies will hire companies that are really efficient. So they’ll have good investment selection and cheaper fees. And some where that is not the case at all. Now, sometimes it’s inconsequential because even if the 529 is not great, the state tax deduction is such that it does make sense to pay the lesser fees to get the tax break. But that’s not always the case. And then there’s some states like North Carolina, they don’t care. Like they don’t have any benefit at all. What you essentially want to do is go out and find the state with the best 529 plan, which is often like Nevada’s typically at the top of the list of — the Nevada 529 because theirs is run by Vanguard. It’s typically lower fees and things like that. So a lot of it goes to fees, a lot of it goes to kind of investment selection that is really the driver of like, what constitutes a good 529 plan and what constitutes a not-so-good 529?

Tim Ulbrich: So I don’t want to spend as much time here, but just high level overview of the Coverdell education saving account, the UGMA, UTMA accounts, what are the main differences of those accounts from the 529s?
Tim Baker: Yeah, and to be honest, Tim, like I’ve seen this with clients. I can probably count on my hands how many times I’ve seen these accounts. So these are both custodial accounts, basically like self-directed. So where I was describing with the 529s are kind of administered by the states, you would just go to a financial advisor or even yourself, work with a banker or custodian, and you would say, “Hey, I want to open these up for the benefit of my kiddo.” So if we start with the UGMA/UTMA, these are just really trust accounts that you invest — basically you help invest a child’s money until they can take over it. So it’s owned by the child, but they don’t necessarily have control of it until they’ve reached the age of majority, which for every state it’s going to be different. So that can range anywhere from 18 years old to 25, depending on the state. So these accounts, what you contribute as the parent or the grandparent or whatever, it’s an irrevocable gift that basically means you can’t — there’s no takebacksies. So you give it and then you have no more control of that asset. So in a lot of ways, you’re kind of bound by the gift taxing limits. So these, you typically see these with very wealthy people that are trying to like spend down their estate so they’re not hit with a crazy estate tax. There’s not a whole lot of like tax benefit. So like if you put $10,000 and it grows to $20,000 for that child, they’re paying $10,000 in capital gains. And this could negatively affect the financial aid of the child because the asset is owned by the child. So I don’t really see these much because of the advent of like things like the 529. The other big thing is that I don’t think — then you can use it anything. So if Johnny reaches 18 and he’s like, I don’t want to go off to college and that’s what this money’s for, but I think he can spend it on whatever he wants. So he’s not bound by the education. The Coverdell, these used to be called Education IRAs. The name was changed. These contributions are not tax-deductible, but it does grow tax-free. So they’re very much like Roth IRAs in that the gains are tax-free and they’re self-directed versus state-directed. So you know, they’re — and the withdrawals are tax-free if used for those qualified education expenses, which are also K-12. So this was even before the 529, that was a thing, the Coverdell did have that. But the big downsides for these is that you can really only put $2,000 a year per student. So it’s very low contribution limits. And then you typically phase out like once you reach $220,000 as a married filing jointly or $110,000 as a single taxpayer, you can’t contribute to the Coverdell at all. So for many pharmacists, you know, you’re very quickly kind of out of that, especially if you have dual income. So I don’t really see these anywhere. I mean, I think primarily I see people save for their kids’ education either in a 529, a Roth IRA, a brokerage account, or I’ve even seen some people do it with real estate, which is an interesting concept as well.

Tim Ulbrich: What would be the advantage of a brokerage account? I want to get to the Roth here in a moment, but these ones, we’re obviously talking about some tax advantages that can be associated with them. So what would be the thinking of a brokerage account as a primary vehicle?

Tim Baker: I think for a lot of people, it’s just — it’s that perceived flexibility, which is there. But I think from a Roth, like you can take whatever you contribute to a Roth out any time penalty-free. Tax- and penalty-free. So that’s one thing that a lot of people don’t understand is that if you contribute, you can take that basis out of the Roth IRA. It’s when you start getting into the earnings, that’s when you get into the penalties. So I think for a lot of people, it’s kind of that idea of just flexibility. The problem is that once you start adding up — like if you’re saving for Jane and Johnny’s college over the course of 20 years or so, you could see real capital gains tax there.

Tim Ulbrich: Yep.

Tim Baker: Hopefully they’re long term capital gains so they’re taxed at a preferred maybe 15% versus a 22%, 25%, 30%. But that’s still money that you have to account for when you’re going to use that for education. So again, I like the 529. It’s not investment advice. I think for a lot of people it makes sense because of the flexibility that you can — you know, if one kid doesn’t use it, you can give it to the next one. It’s just my kind of go-to.

Tim Ulbrich: Speaking of flexibility, one of the things that I’ve thought of that I want to get your input on — I suspect our listeners may have as well — is the Roth IRA as an option for thinking of saving for educational expenses with the understanding that qualified educational expenses are an exception to the early withdrawal penalty and as you mentioned, the basis or the amount that you put in a Roth can be pulled tax-free without penalty at any point. So talk us through that strategy. I think of something like a Roth versus a 529, perhaps more investment options, perhaps an option to keep fees down depending on what you have in the 529, the idea that if Johnny and Suzy decide not to go to college and I don’t have anyone else to transfer it, I can continue those savings on for retirement. Downsides of course would be of maybe we’re not using that as the primary or one of the primary vehicles for retirement and savings. So where does that fit in in terms of strategy of folks when you’re thinking about where a Roth may or may not fit relative to the 529 specifically?

Tim Baker: Yeah, I mean, I’d probably default more so to the 529 first, at least get the state tax deduction. But there’s some people that are just like, I want to really use — because that is one of the exceptions in the IRAs that you can for higher education expenses and I think it’s cap, I don’t know if it’s the same for first-time home buyers, if it’s $10,000. I’d have to look that up. But I think it is. I don’t know, I think we talk about accounts like the HSA that has this dual purpose. But sometimes when you have a dual purpose, you have no purpose. It’s almost like when you have two quarterbacks, right? So for like the Roth IRA, like I look at that as a retirement account, not an education account. But it could very much be used as such. I think that yeah, to your point, is there more flexibility in an IRA versus like a 529? Absolutely. Is it even cheaper? Yeah, potentially. But I think that where the 529 is going — and I think you can have both, really. Some people will never reach their state’s benefit in terms of what the state tax deduction would be. But yeah, I think this is more of a conversation for clients that don’t have that benefit, like I said, North Carolina where the Roth is — or even the brokerage account, but I would probably say the Roth first would be the first avenue. So you know, I kind of, again, default rightly or wrongly to the 529. But I think the Roth can be a viable way to at least put some dollars aside for that purpose.

Tim Ulbrich: Yeah, and I like the thought on the 529 for the state income tax deduction. Maybe you build it from there, maybe you look at a Roth. The other thing, which I think goes without saying, is that if there is a way to earmark your Roth specifically for long-term retirement savings and still contribute to a 529, we can let that money continue to grow as you say on repeat on this show, it’s time in the market that matters, right? So if we can not have to pull that out for college expenses and let it continue to grow, obviously we’re going to reap the benefits of that compound interest. Last question I have for you, Tim, as we wrap up this discussion on kids’ college and savings: One of the thoughts that I have is coming out, I’ve talked about my story and journey on this show many times before, but I suspect for many other pharmacists that have six figures or more of debt, is there a tendency for folks to overcompensate for kids’ college savings at the expense of other areas of their financial plan, specifically for those that have come out with very high debt loads and because of that experience, might lean in that direction of hey, I don’t want my child to have to go through it, at the expense of their own retirement, at the expense of other financial goals that we might traditionally think come before kids’ college? Is that something you see among clients?

Tim Baker: I think that yes, I do. But I also see like a bit of every kind of approach on the spectrum where it’s like, I don’t ever want my child to ever have to go through this again or go through what I went through. But there’s also like some of it like I went through it, so they have to go through it. And then there’s some reservation of like, just because my loans are so bad, I don’t think I’m going to be in a position to help them.

Tim Ulbrich: Yes.

Tim Baker: Sometimes there is kind of the reaction, you know, equal and opposite reaction type of approach. But it’s all over the place. And I think for the most part, the default has often been I want to help my kids as much as I can, but I also need to make sure that I’m taking care of myself. And I wouldn’t say it’s uncommon, but you know, there have been not as many conversations as you would think where I’m saying like, we have to pull that back. So you know, one of the things that we do as part of the goal setting here is how do we want to go about funding this? And there’s a lot of different approaches where you can plan for 100% or you can plan for something that’s a lot less than that and feel good about that as part of your financial plan. So yeah, it is all over the board. But I think there are sometimes is a push to kind of overcompensate for that or some just like, hey, I had to deal with having to find my way.

Tim Ulbrich: Good luck.

Tim Baker: They do too. Yep. Yep.

Tim Ulbrich: Great stuff, as always, Tim. And to those listening and college savings may be on your mind of one of many financial goals that you’re trying to work through, we’d love to have a conversation with you about the comprehensive planning services that we offer at YFP Planning. Now serving more than 200 households across 40+ states of the country. Our team is well versed in this topic among other parts of the financial plan. And you can go to YFPPlanning.com, book a free discovery call to see if our services are a good fit for you. And as always, if you liked what you heard on this week’s episode of the Your Financial Pharmacist podcast, please do us a favor and leave us a rating and review on Apple podcasts or wherever you listen to the show, which helps other folks find out about the Your Financial Pharmacist podcast.

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YFP 194: How Karine Used Her Pharmacy Skills to Create a Successful Healthy Dessert Business

Posted on March 11, 2021November 2, 2022 by yfpadmin

How Karine Used Her Pharmacy Skills to Create a Successful Healthy Dessert Business

On this episode, sponsored by Insuring Income, Karine Wong, pharmacist, educator, and entrepreneur, joins Tim Ulbrich to talk about her journey starting My Guiltless Treats. Karine discusses how she uses her pharmacy skills in her entrepreneurial journey, how to determine whether or not a business idea is worth pursuing, why it is so important to have a clear purpose and vision, and why saying ‘yes’ is so crucial when starting and running your own business.

About Today’s Guest

Dr. Karine Wong spent her entire pharmacy career in the hospital pharmacy. She worked as a staff pharmacist, director, and clinical coordinator. Over time, she became frustrated about the lack of compliance with her diabetic patients. After countless hours of counseling at the bedside, the patients would return in a few short months with the same problem; uncontrolled diabetes. In 2013, Karine and a colleague had an idea to make protein candies. The idea seemed intriguing; simple and yet revolutionary. The company could provide a viable, sustainable solution to the non-compliant diabetic patient. By 2018, Karine has led My Guiltless Treats on a successful journey to popularity, sustainability, and profitability. To date, My Guiltless Treats is the only company that specializes in healthy desserts.

Summary

Karine Wong, pharmacist, educator, and pharmacy entrepreneur, joins Tim Ulbrich to discuss her pharmacy career, how she’s used her pharmacy skills on her entrepreneurial journey, and how she’s built a successful business, My Guiltless Treats, by going above and beyond the usual standards.

Karine has also learned how to determine if a business idea is worth pursuing and outlines practical benchmarks to evaluate when starting a new venture. She explains that great ideas can turn into great businesses if they can solve a problem that you care about and are passionate about, solve a pain point, have a market (with or without competition), and help people on a large scale.

Additionally, Karine shares her personal experience with the power of being positive, how the act of saying ‘yes’ can have a huge impact on your business, and practical ways to say ‘yes’ in your own business practices. Business owners, aside from providing free product (if the business can afford it), can also provide knowledge and time in various forms to their customers, building relationships that may potentially turn into lifelong sales.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Karine, thank you so much for taking time to be on the show.

Karine Wong: Hi, Tim. How are you?

Tim Ulbrich: I am doing well, excited to have you on. We had a chance to meet virtually a few weeks ago and had an opportunity to learn a little bit about your pharmacy career as well as the work that you’re doing with My Guiltless Treats and said, “Hey, we need to get this in front of the YFP community,” as I know many folks may have an idea that they’re wondering about, whether it’s a business idea, a side hustle idea, and I think featuring other pharmacy entrepreneurs is really an opportunity for them to see examples of what others are doing out there. So let’s first start with your pharmacy education and career. Why did you go into pharmacy? Where did you go to pharmacy school? And what type of work have you done in pharmacy throughout your career?

Karine Wong: I went to pharmacy school right out of high school, straight into University of the Pacific in southern California and endured a 5-year program, the accelerated program to be a PharmD at the end of 5 years. By the end of the 5 years, I really loved the clinical field. I actually wanted to be a doctor at that point, but at that point my parents decided not to support me anymore. So I was stuck being a PharmD. That’s OK. At the time, pharmacy was — it’s a world that can be anything you want it to be. You can be a CVS pharmacist, a Kaiser, nuc pharmacy, ambulatory care. It was — the world’s your oyster. I chose to stay in the hospital field. I felt that was the best place for me to be surrounded by the greatest minds of Edison. And so I stayed in hospital pharmacy when I graduated in 1999. And I have worked up the totem pole. So I was a (inaudible) pharmacist, worked up to outpatient pharmacist, did some floating here and there, became a director of pharmacy at one point but stayed put as a coordinator, which is a fancy word for clinical manager. So I was in charge of all the PMT minutes, agenda items, formulary additions, deletions, and in these settings. I also got the precep student from West University for 8 years and I’ve also participated in rounds with the teaching staff of the hospital. So I’ve always been in academic settings in terms of the hospitals. I was always teaching nurses or students, interns or residents and pharmacy students. So that’s pretty much my journey. Always learning.

Tim Ulbrich: Always learning, which is a good connection to business. And we’re going to talk a little bit about how your pharmacy career has played a role in the work that you’re doing in running your own business. So My Guiltless Treats — and we’ll link to that in the show notes for folks so they can learn more, check out the website, learn about the products that you offer — give us the 20,000-foot view. What is My Guiltless Treats all about?

Karine Wong: My Guiltless Treats is not something I intended to start at all. If you had told me 20 years ago I would start a business, I’d laugh in your face. I’d be like, no, no, no, I’m going to live and die in my pharmacy office. That’s what I thought I would do. Kind of changed now, I think I got burn out in pharmacy. I was really good at what I was doing, and I was writing codes, I was helping the pharmacy staff with all the difficult cases we had at our hospital. When 2008 rolled around, I took some time off to give birth to my child and I came across this fitness director who wanted to increase my protein intake. But it did not taste good. And she complained about why does it taste awful? Now, as a pharmacist, I thought, that’s kind of funny. I don’t take protein myself, but don’t you think it’s odd that we can make steroid solution taste really great but we can’t make something as simple as protein taste better?

Tim Ulbrich: Right? Yeah.

Karine Wong: So I told her, I can make it for you. I’ll make you a protein candy. And that’s how My Guiltless Treats came to fruition. I did create a product that was a delicious treat. At the end of the 5 years of working with her with RMD and sales, we decided to split up. She went to pursue a different career path, but I stayed on board. The original treat that we had, they’re actually protein gummies, was not scalable. It wasn’t something that people wanted to buy. We had no sales to warrant the continuation. We had people who loved it, but it wasn’t like a lot to justify a $50,000 investment into buying a million gummies, OK? That’s a lot of gummies to sell. It’s almost like two pallets. And it wasn’t scalable, it wasn’t something that we could sell. So she took off, which is fine, but I stayed on with the company because I still believed it had so much potential for it. So I looked at Guiltless Treats as a vehicle to deliver treats or desserts to diabetics, to those who really need it. And this Aha! Moment came back to me when I was working at the hospital. I remember counseling at the bedside and doing diabetic teaching to our patients diagnosed with diabetes, and I would teach them how to use insulin and the syringes. One gentleman stuck in my mind because he was very noncompliant, his A1C was double digits. I had to tell him, “OK, senor, no more bread, no more rice,” and he said, “OK, I would love to do it. But senorita, I want my bread. I want my (inaudible) bread. I want that.” And I looked at him and go, “OK, I guess I’ll see you in 3-6 months,” you know? Right? What can I do? He told me he’s noncompliant. He’s not going to change. He gave me a dare. He said, “Unless you can tell me something that is good for me and delicious, I’ll eat that.” And I had no answer for him. That was the Aha! moment. That was the moment I realized, oh my gosh, he’s right. So I go downstairs, and I ask my dietician friends, my physician friends, “What do you tell patients what can they eat that’s good?” And you know what they all told me while they’re eating their Twinkies and their Ho-Hos, “You tell them to eat their kale.”

Tim Ulbrich: Oh gees.

Karine Wong: Quinoa’s good, brown rice is supposed to better. This is what they’re telling me. But they weren’t eating it. And I’m thinking to myself, OK, that’s — I can’t use that, OK? Because they don’t know how to make kale salad or quinoa rice. They don’t know how to do that. It’s not part of their culture. So I was up against the wall. So when my fitness instructor friend mentioned the protein gummies, I thought, that actually sounds interesting because I can take out the sugar and replace it with another macronutrient like protein. So even though the gummies didn’t come to fruition, there was a point to make the treats. There was a reason for it. I needed to make something for that gentleman. I needed to make a dessert, something that he can have that doesn’t taste medicinal, that doesn’t use artificial flavors or sweeteners, something that he can grab at the store, not have to make it, not have to thaw it or bake it but can eat it right out like a protein cup. So aha! Six months later, after intense RMD, I created or actually made a version of my own kind of pork bun, (inaudible) a type of dessert similar to flan or custard. It’s very soft in texture. I don’t use (inaudible) cream or eggs or gluten or milk. I just use coconut cream, which is better for you, doesn’t cause the same problems as animal fat. And I layer over real mango, pineapple, or guava. So it’s a tropical dessert. And then I fortify the dessert with protein from the protein. But it’s also filtrated, so there’s no lactose, there’s nothing that will make you bloated. I deliberately made my products allergen-free. I took the top seven allergens that we see in the States and took them away, so nuts, there’s no seafood, there’s no tree nuts, stuff like that. I avoid that. Coconut is not considered a same nut as a tree nut, so it’s OK to use that. And yeah. I’ve been successful with the panna cotta desserts, people love it, it’s a thing now. People know me as the kind of the panna cotta lady. I’m the only one that makes it. And I make it healthy. So it’s the only dessert that you can find that’s actually good for you. So you can eat it instead of your ice cream at nighttime, you can eat it instead of yogurt at breakfast or like my friends at the hospital, they eat it during their shift. So when they have a long shift, the protein sustains them for the entire 10-hour shift that they have. So it’s a great option for everybody. You don’t have to be diabetic or pre-diabetic to enjoy it. You could be anyone. It’s just a dessert that’s healthier. Other manufacturers can’t do that because they put lots of sugars in their products. They don’t really know what we know as pharmacists. And that’s why being a pharmacist really helps your product if you’re going for the food industry. Because you know so much.

Tim Ulbrich: Yes. Yes. Absolutely. That makes sense. And one of my favorite stories, Karine, from our conversation several weeks ago was, you know — and get the story right if I have it wrong, but you had mentioned at the gift shop of the hospital, you know, this being distributed and sold and how quickly it would come and go and that you knew you were onto something in terms of folks that obviously appreciated the product, the quality of it, and certainly those that could benefit from it from a health perspective as well. And it has me thinking, you know, we’ll take a little bit of an aside here, but many folks may be listening that have an idea, right? And so you had an idea of something that could be done better. You mentioned the protein gummies, which ultimately didn’t come to its full fruition. So what ultimately does make a good idea? As you’re thinking of this not only with your own business here and other experiences you’ve had but also potentially advising and giving input to other folks that have business ideas, what makes a good idea? What’s the framework in which you think of what is this idea and does it actually have viability going forward?

Karine Wong: That’s a great question. And I’m going to say lots of time and energy because I could break it down for you in this way. I actually have a lot of students or mentees that I work with who have ideas, and ideas come in and out of your mind all day long. Doesn’t mean you act on every single idea. So what makes a good idea, an idea that you probably want to sit on. First, the idea that you have, whether it’s a service or a product, should be there to solve a problem. And the problem could just be just to you, but if you find that this problem bugs you — let’s suppose that it bugs you that every year, your smoke alarm will run out of batteries and always at 2 o’clock in the morning, right? Every night.

Tim Ulbrich: Amen.

Karine Wong: I don’t know how they do it. And that’s the night that you can’t sleep, that’s when you jolt out of bed with almost an MI because it’s like, beep, beep, and it won’t stop, especially if you have like 5 in your house and you don’t know which one it is, right? What if that’s a problem for you? If it’s a problem for you, it’s a problem for someone else and probably many others that have smoke alarms. No. 2, if you could develop a product like a battery or a monitoring system that tells you when your battery is low, like if you can find a way to make an app that bluetooths the battery life to your smoke alarm, that would be superb. And you don’t have to physically make the app, you just have to hire someone that can code it for you. You tell them what you want, and they make it for you. It’s pretty simple. But you have to have the idea, you have to do the research and find out is there a market for it. So if I know every house in the United States has to have smoke alarms, right? That’s a law.

Tim Ulbrich: Yep.

Karine Wong: No. 2, so the market’s very big. No. 3, does anyone make that besides you? Like is there an option out there? Now if there is, it doesn’t mean don’t do it. Just know that if there’s no competition, you have a more difficult road because you have to pave the road for yourself. You have to do all your market research and find out how to get the pricing down, find the right coder, for example, and get the best pricing for that. But if you have competition, follow them and see how are they doing it? OK? I’ll give you an example. Protein gummies was my first skew. We had three competitors. That was back in 2010. Today, they’re all defunct. Why? Because no one wanted protein gummies. Interesting. They all went bankrupt. We didn’t go bankrupt, we just changed our name. Going into No. 3, you have to find out if there’s competition or not. OK? No. 4, if it’s a good idea, it’s an idea that will come back to you the next day.

Tim Ulbrich: Yes.

Karine Wong: So an idea that’s OK goes away the next day. You don’t remember. You just like, eh, whatever. I don’t remember the idea. It just came and go. It didn’t stick around. But if the idea is awesome and you find there’s potential in it because of what you know, whether it’s a pharmacist or a handyman or living your house and hearing that every year, the smoke alarm chirping, then that idea will come back to you. And you’re like, you know what? I won’t let it go. I can’t let it go. Because it’s a really good idea. And that’s how you know. So those are four benchmarks. And just like when you sig a patient, check them off, right? Do you have a problem that you’re solving? Check. Can you make a service or a product that will solve it? Check. Competition, is there any? Check, yes there is. That’s fine. OK? That doesn’t stop you.

Tim Ulbrich: Yes.

Karine Wong: It just means that, hey, there’s a market for it because so many people have tapped into it. Now if there’s too many competitors, you might want to like not do it because it’s too hard. Like I would never go into the beverage market now because it’s so supersaturated. I would not go into the frozen industry because you know the frozen aisle is very coveted shelf space because it’s frozen. So I can’t get in there if I had the best tasting item ever. I could not break into that. And No. 4, like I said, if the idea comes back to you and you won’t let it go, then you have a really good idea.

Tim Ulbrich: I love that, Karine. Very tangible advice. Checklists, we like checklists. We like thinking about things in sequential order. And I think your comment that resonates — several things in there — but you know, multiple ideas that may come to focus doesn’t mean we need to act on every one. What I actually do at home, my wife and I like to brainstorm various business ideas. And we write them down on a legal sheet, you know, 8.5×11 yellow piece of paper. It’s in my office. And then what I find is some of those we keep talking about, right? We come back two days later, four days later, six days later, eight days later, even some of those we may determine for other reasons in your four steps aren’t viable. But those that we find we can’t let them go, like that means you’re at least at the beginnings of something that obviously is important to you. The other thing I think about here, Karine — I’d love your input — is I think folks often struggle with is this an idea that I really care about solving this problem and I have a solution that I’m going to be really passionate about? And is it financially viable? Am I after the money? Am I after the purpose and solving this problem? Or both? And what advice would you have with folks, you know — here as I hear your story, obviously at the end of the day, you’ve got to run a business but also something that you saw could have a tremendous impact on patients. It was a problem that needed to be solved. And so the concern that folks might be chasing becoming rich or having a home run of a product and how important it is to be passionate about the problem that you’re trying to solve.

Karine Wong: The way I look at it is your company is a baby. If you’ve lost interest in your baby, the company, literally dies. So imagine yourself, like you’re in charge and you decide, you know what, I’m going to take a break and do something else. Guess what? The company that you built falls apart. It may take awhile, but it will fall apart because you are the glue that holds it together. So you’re the why. Why are you doing this has to be something that you will use every morning you wake up, every morning you clock in, you turn on your recording or you reach out to people for your interviews, that is your why, why are you doing it. And if you say, “money because I want to be a millionaire,” or “be featured on Ellen, the show,” you’re going to have issues, OK? Because the likelihood of that is almost as high as winning the lottery. It’s very rare. Just like people who want to be on TikTok and they want to make it big. That’s pretty rare. What’s your why? It should be because you’re solving a problem that is important to you, that bugs you. And you want to solve it. We as pharmacists I consider are problem solvers. Right? We fix people’s ailments with drugs and we tailor their regimens. And so the same thing happens with products or services. If I could fix your life to be better, even by a little bit, hey, that’s so neat. That is your why. I love that I know that my products help those that are enduring chemotherapy or those with the canker sores from the chemotherapy or has protein loss because of dialysis or they just can’t eat because they’re kekectic, be able to thrive. Hey, my stuff is better than Ensure+. My stuff is better than most medicinal foods. So that’s my joy. That’s my why. And if I stop my company, those customers are affected. And that’s why I don’t stop. And there’s more than one person. There’s a lot. In fact, in about a month, I’ll be celebrating my milestone — I had to tell you this, Tim — but I’ll officially have sold 25,000 units.

Tim Ulbrich: Hey, congratulations.

Karine Wong: That is not an easy feat. And I did it in about 18 months, so that’s a lot of panna cottas.

Tim Ulbrich: That is awesome.

Karine Wong: Yeah, I mean, I’m sure if I was a big company that packs and manufactures it, I’m sure it makes a lot. But a single person by myself using pharmacist-grade benchmarks, yeah, it’s not easy. It takes awhile to do because I’m very picky. When I make products, I go beyond, beyond the food safety measures. OK? Food safety measures are pretty low, OK? It’s like, don’t put stuff in there like debris. Yeah, I get that. But I don’t put piologens in there. I don’t put bacteria in there. My stuff is vacuum-sealed, sterile, no piologens. It lasts for six weeks without any bacteria count of significance. And I do this with technicians in laboratories, so it’s all certified. OK? So I go beyond the scope of a food manager because I’m a pharmacist. I don’t want to give people stuff that — it’s not a liability, it’s more like what makes you feel good? I don’t want my patients — or not my patients, consumers, to eat something healthy and that’s not dirty or have full of debris or particulates. That’s our nature as pharmacists, right? So going back to your question about your why, yes, your why, my why is because I want to help people be on the medicine. I want to help people at the marketplace, give them teaching, counseling. I do more patient counseling now that’s more viable, that’s more significant to them, than I would have at CVS. Because CVS is very fast-paced and you only have so much time. But at the marketplace, I’ve got time and they’re much more open to me. So when I give them advice or valuable tips, they love it. And they get to go home with that, and that’s going to help them from this point on. So I give them a lot of hope and insight into their management of their disease state, whether it’s diabetes or eczema or Crohn’s Disease. I’ve heard it all, so I am able to talk on that not as their doctor but as a pharmacist. And they trust me in that. And so it’s not about sales, but they end up buying it because they like who I am and what I represent. So the why for everybody should be that you want to help people or you want to solve a problem. Those are the best whys you can have in your life. But if you’re going to say money or stardom or fame, you can still do it. I won’t stop you. But your journey every morning will be so much harder because it’s tough. And so if you’re hoping to be on Ellen’s show and every morning you wake up and you make 1,000 panna cottas, you might go, God, is it really worth it? You’re going to be tired. You’re going to be kind of burnt out real fast. And that’s why those are really not good reasons to start a business. I’ll give you an example, Tim. I actually had an investor that offered me lots of money to make CBD gummies. This is right when the legislature passed the state law that legalizes like CBD and marijuana for recreational use. And he asked me to make it. He said, “You’ll make millions of dollars.” And I believed him. I would make a million dollars. And I said no, not because I couldn’t do it, not because I didn’t want the money, because it’s not my jam. It’s not my why. I could not make CBD gummies because it’s not like I don’t think it works. I think it works great, I don’t think it matters how much money you throw at me, I wouldn’t do it. It just doesn’t make me happy. It doesn’t solve anyone’s problem — at least, it does solve a problem, but it’s not a problem that I want to solve. Does that make sense to you? It is a problem. But it’s not my jam, it’s not my passion to solve that problem or to help those patients. It could be yours, maybe someone else’s, so that’s what I did. I deferred.

Tim Ulbrich: So important. And I can’t echo enough of what you just said there. Even thinking of what we’ve been working on at YFP, hearing your story here, hearing other stories of pharmacist entrepreneurs that I’ve talked with, you know, having that motivation and a why of something that you care about, a problem that you care about, that you want to solve is so critically important to invest in the time and energy that’s going to have an impact. Karine, I want to talk for a moment about the gap between having an idea and from there, getting to a minimum viable product and perhaps from there, being able to actually grow and scale something. Big separation, big gap between having an idea and actually being able to grow that idea perhaps into its full potential. And I think pharmacists may hear your story or hear other entrepreneurial stories and hear from folks that have been successful, however you may define success. And for you, selling 25,000 units in 18 months, that’s overwhelming. You know what, I have this idea and I hear Karine talking about RND, about growing, scaling, manufacturing, hiring a team, wow. Maybe I should just stop pursuing my idea right now because that feels overwhelming. What advice would you have for folks that are listening that say, “You know what, I have this idea, and I just don’t know where to go from here.”

Karine Wong: The fear of pursuing an idea is very common. It’s not unusual to hear an idea or come up with one and go, you know what, it’s a good one, but nah. It’s not going to work. And to have self doubt because you’re afraid. And I think as pharmacists, we’re more risk-averse. So we don’t want to take chances on something that we don’t know much about. That’s understandable. There’s a few things that I do in my career and my company that help minimize that risk. First, when you hear an idea, obviously we don’t put every single penny we have towards every idea. But look at the idea that you’re thinking about. A good idea is the idea that will solve a problem that is going to affect many consumers, not just you, not just your family, but other pharmacists or other people in your industry or your role as a mother or father, some of the frustrations you see as maybe a student. And that is a problem that if you have had it, and other people have had it, then that’s a good market. That’s why. You check that box, that’s a pretty good market, a pretty good idea. Second, you have to create a solution. An idea basically tells you that we need something to help fix that problem. Your job is to find a solution, and whether it’s a product like my product, a dessert, a snack, a service, or even a device that you create, then that is what you need to come up with. And that’s probably what you’re talking about when it comes to the minimum viable product. It is a product or service that will bring in people to buy your product or service in exchange for money to solve that problem. And that is what investors look for is how good or awesome is your end EP. Many pharmacists always tell me, oh, I’m not creative or I don’t know how to make dessert or I’m not a baker, I’m not an engineer. Neither am I. But you are resourceful. You’re a pharmacist. So you can easily hire a coder to perhaps make a software app for an iPhone that would track down smoke alarms in your house and find out when that battery is going to run out. You can hire engineers to create a device for you. My whole point is that designing, creating a product doesn’t have to be a solo mission. In my case, it’s a solo mission because oh heck, we’re always into compounding in laboratories and we’re always making something. And I’m a mom, so I’m always baking new recipes. It’s a small experimentation. So you don’t have to be a chef or a professional engineer or a writer or anything like that to pursue a product or device or something that solves a problem. So that’s No. 2 is find a solution, create it. No. 3, now you’ve got to test it. You’ve got to find out if your market that you’ve identified, like the other moms in your area, the pharmacists in your industry, like what you’re selling. And I don’t mean people like your mom or your dad or your brother or sister or husband. They don’t really count. Not to say their opinions don’t matter, but they’re really nice and they love us. So they’ll say whatever makes us happy. You want to know if your friend of a friend of a friend is going to buy your product or MVP. So this is a person that doesn’t know you, has no connection with you, and is more likely to give you an honest opinion. If they’re willing to give you money in exchange for that service or product you’re providing for a problem that you both share, you have an awesome idea that is worth pursuing. With that being said, if you get like a thousand ideas in a given month, maybe one or two might be feasible or fit all of those check boxes. To me, the ones that really require more attention are the ones that stick around. I have a lot of ideas, and I don’t always move on every single idea. But if an idea comes back to me in two or three consecutive days or weeks, like I just can’t let it go, I dream about it, I obsess about it, I think about it when I’m running, now that’s an idea worth pursuing because your subconscious knows it’s a good idea, Karine, don’t let it go. It’s something worth pursuing. That’s why if you look at my bio, I do more than just My Guiltless Treats. I’ve actually written a book, I have created an app for pharmacy students to help prepare for the board exam and medical students to help with their SEP boards. So I’m not just limited to the role of pharmacy. I’m not limited to the food industry. If I feel there’s a problem, in which I did, I hire coders, I learn how to write, I hire editors, I had a publishing team that all helped me get to my purpose.

Tim Ulbrich: That’s great. And one of the questions, Karine, that I’m thinking of as you’re sharing your story is when I hear 25,000 units in 18 months, obviously you are solving a problem that people are interested in that are raising their hand to purchase, but you haven’t scaled nationally into large retailers, despite the opportunity being there to do so. And that has been an intentional move, as I understand it. So my question here is how and why did you arrive to the decision that you wanted to control your growth?

Karine Wong: There are two reasons why I chose to control my growth. In the food industry world, there’s a saying, you go hard in your backyard. That means that all your marketing, all your efforts to brand, to market, should be in your local region. It doesn’t make sense for me to let’s say get in Costco or Whole Foods nationally when I’m here in California. Nobody in Chicago or East Coast knows who Karine Wong or who the Guiltless Girl is or what panna cotta is that’s made of coconut cream. They don’t know. So it’s going to be a very hard sell. And now with COVID, it’s even harder because I can’t hire marketers to go out there to demonstrate the product. That’s the first reason is to always market your product in your area. If you’re able to do a service remotely, that’s a little different. But the point is that people are more likely to buy your product, buy my product when they know you, heard about you, seen the car, seen your Instagram posts and are more familiar. So in California, in Orange County, I am very popular as the Guiltless Girl. Selling product is very easy, I sell in a few stores, and they sell through it, which means that nothing is left over. They always run out. That’s a positive sign. I’d rather have those benchmarks than to be in let’s say 200 Whole Foods stores and sell 10% of what I stocked. There’s no glory in that. There’s no fame or money to be made when you’re only selling a little bit at those stores. And eventually, those stores will discontinue you because you could not show velocity in their stores. So that’s the first reason why you want to go hard in your backyard. And the second reason is that there has to be a balance. If all I did was My Guiltless Treats and nothing else, then yes, I would go national. I would go and find investors and get seed funding to go national. I would even go on Shark Tank because that’s all I got going on and my role is to go national. And I would actually hire a larger team and brokers to get those milestones. But I am not just the CEO of this company. I’m also a professor. I teach remotely for PharmD students for PGI West University and Yogi (?). So I’m busy with that, and I do love teaching pharmacy students. I’m also a pharmacist. I’m doing remote pharmacy from my home, and I’m a pharmacogenomics counselor. So there’s a lot going on my plate. So I’ve got to be home, and this is a good balance because I can spend maybe three days a week doing Guiltless work, including weekends, and the other days are spent doing teaching, being a parent, working out, kind of having time for myself. And the balance is fantastic because I’m very happy and I feel successful because I do make money. I have enough money to pay for my staff. I have enough money to hire people to design logos for me, I can basically sustain — the company is sustainable on its own. So that’s a sign of success. And I don’t need to make a million dollars from this. I just need to make it run on its own, which it is. And I need to have time for myself, my kids, my family, and teach. If I lost all that, there is no glory. There is no fame. So controlling growth is about finding a balance where you have time for yourself and your family and your other hustles and passions but also time for yourself and the company. It’s a balance, really. And you know, I’m OK making what I’m making right now. I am making profit. But yeah, I’m not a millionaire. And that’s OK. I’m very happy with what I’m doing. You’ve got to be OK with all those things. Other entrepreneurs, for them, it’s all about, I want to get in Costco, I want to get in Whole Foods, I want to be in all these Krogers and Vons. OK? That’s your jam. It’s not my jam. Just because they’re saying it and they want it and their business coach is saying it doesn’t mean it’s for you. So you have to look at yourself and your life and see is that for me?

Tim Ulbrich: That’s great wisdom, Karine. I would encourage folks, you know, to spend some time getting clear on your personal goals and why. In addition to what we’re talking about here today, which is the business goals and why, as Karine shared her personal goals, the balance obviously informed her business goals and the direction that she is taking with the business. And Karine, I’m glad to hear what you said about controlled growth. I think we have glorified the grind and hustle and working hard at all costs. Perhaps it’s the Shark Tank effect, you know, I’m not sure. But I think it’s a good reminder of us each individually thinking about what success may look like. So Karine, tell us about a lesson that you shared with me before we hit record, which was the power of saying yes. Tell us about for you and your journey, saying yes to folks, why this was so important, even recently, in terms of the value and the power of saying yes as a business owner.

Karine Wong: Being positive and affirmative is an attractant to other consumers. Consumers, when they buy a product or service, they’re not just buying a product or service, they’re buying from you. They’re buying you. They love you. They want to be in your life, they want to be engaged with you. If you’re negative or cheap or frugal or penny-pinching, they’re probably not going to come back to you. One of the things I adopt is generosity is key. If I can do it, I will, whether it’s emotional support, physical support, knowledge, expert advice, I’ll do it. I have no problem at all. I consider ourselves a drug expert. So if someone asks me a question randomly in the aisles of Target, I’ll be happy to help them. I have no qualms about holding back information because oh, I don’t work here or I’m on break or whatever. If you need help, let me help you. It’s better that I help you than for you to find the answer yourself on Wikipedia, which is not something I recommend. So when you say yes, the rule is this: Say yes to people if you can do it. For example, when you have a product or service and especially in the initial phases of the company, a lot of the times will be giving away product for free. And that may sound counterintuitive because you’re trying to make money. But the first couple years, you’re not going to make money. And your goal is to let people try your product, even if it means giving it away for free. Most people will not try a product and pay for it just to test the waters. It’s better for you to give it away for free, gift it, donate it, mark it as a tax writeoff on your income tax returns. And that allows people to try your product and go, you know what? She’s quite generous or he’s quite generous. They let me try it for free, there’s no contingency offers, there’s no like alternative motives. They’re going to feel warm and fuzzy with you. And they’re going to love the product because hey, you know, this is a good product. And I like it. And yeah, I would come back and ask for more and I would probably pay for it. So offering the first dose or first service or first product for free actually is a really awesome marketing idea if you could afford it. And usually, you can because you have the capital for that. If you can’t afford it, don’t do it. The other things you can offer for free would be your knowledge. If you know something, if you are very well read up on gluten diet, gluten-free foods or celiac disease or eczema and they’re going to shift to dairy, definitely talk about it. A lot of consumers will come up to me, once they discover who I am, they’ll open up their hearts and tell me their medical problems. So I know a lot about their eczema, rosacea, diabetes and other problems. And I’m happy to help them. And they feel pretty much open because I’m not timing them, I’m not charging them, I’m not going to ask for their medical insurance. And it’s a great exchange of information. So they value my input, and they usually walk away with a panna cotta, they usually walk away with something that I provide because they like who I am. So there’s the generosity of knowledge. The other thing you can offer is your time. You didn’t know this, but when the COVID hit, a lot of my colleagues were being fired for obvious reasons. So I offered free CV reviews because I have experience hiring pharmacists and technicians. I said, “Submit your resume to me and we’ll help brush it up.” And it was great because people were sending me — I actually opened up publicly to everyone in my community, my neighborhood, and all I could reach. And I got so much response, and people even said, “I liked it because I don’t know who you are, Karine, but I love it that you’re doing it,” so they were referring me, shared my post, and I didn’t charge them for it. I just wanted to look at their CVs, make recommendations, and I send it back to them. So I do it now for pharmacy students and those applying for residencies. Just my opinion, just make it nicer, cleaner. And usually I could find one or two errors, and they’re very appreciative. ‘Oh my gosh, I forgot to add this,’ or ‘Oh my gosh, I didn’t know I had to add a header or footer.’ Those are kind of core things you look at as a director because we get so many resumes for one position in a hospital pharmacy. So it helps to have page numbers and footnotes and lists of references instead of me asking for it. So those are little things that I want people to see what I see. That’s what I offer is my knowledge, time, free product if I can do it, free service. At the end of the day, it makes the consumer, the other person, just like you more, like your company more and guess what? All those people I helped the first few years of my career, of my business, have come back as repeat customers. So I didn’t charge them the first time, but guess what? They’re total lifetime revenue for one customer is well over $100. So is it worth it? Yes.

Tim Ulbrich: Great advice. And the resume service is a good example of serving others, whether it’s product, whether it’s time, you know, I think offering and bringing something valuable and serving others without necessarily a return in mind but just providing that value in the moment, we know reaps great benefits. So I think you articulated the value of saying yes well. I try to follow that advice from mentors I’ve received before. And it’s not about being reckless. I mean, as you mentioned, being the face of the brand, folks are looking for that energy, they’re looking for that enthusiasm, they’re looking for that we’ll figure it out type of mentality as you go along and build some of those relationships. Karine, I really appreciate the time that you’ve taken, the wisdom that you’ve shared. What is the best way for our audience to connect with you to learn more about your journey as well as to follow the work that you’re doing with My Guiltless Treats?

Karine Wong: Very simple, just go to MyGuiltlessTreats.com. On the very bottom of the home page is “Send a Message.” That goes straight to me. All of my emails and phone numbers and even an Instagram/Facebook, you can go onto My Guiltless Treats, it goes straight to me. I don’t believe in hiring a third party marketing agency for that because I want to engage my customers. So if you want to engage with me, just go straight on board to the website, email me, run by your ideas with me or any questions you have about possibly starting a company or a product, and we’ll talk about the feasibility of it. It’s better to rule it out or rule it in as early as possible before you need to put money towards the product or whatever.

Tim Ulbrich: Absolutely. We’ll link to the website in the show notes. We’ll link to some of the social media connection opportunities as well. And again, appreciate you taking the time, sharing your journey and your willingness to also support and encourage other pharmacy entrepreneurs that are out there. So Karine, thank you very much.

Karine Wong: You’re welcome. It was a pleasure, Tim. If you decide to come up with that smoke alarm app, you owe me 10% of the royalties.

Tim Ulbrich: You’ve got it. It’s a promise. Thank you.

Karine Wong: Thanks.

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YFP 193: Building vs Buying a Home: What to Consider

Posted on March 4, 2021November 2, 2022 by yfpadmin

Building vs Buying a Home: What to Consider

On this episode, sponsored by Live Oak Bank, Nate Hedrick, the Real Estate RPh, joins Tim Ulbrich to discuss considerations for building vs. buying a home, the pros and cons of building, lending considerations when building a home, and common pitfalls when choosing to build a home.

About Today’s Guest

Nate Hedrick is a 2013 graduate of Ohio Northern University. By day, he is a clinical pharmacist and program advisor for Medical Mutual. By night and weekend, he works with pharmacists to buy, sell, flip, or rent homes as a licensed real estate agent with Berkshire Hathaway in Cleveland, Ohio. He has helped dozens of pharmacists achieve their goal of owning a house and is the founder of www.RealEstateRPH.com, a real estate blog that covers everything from first-time home buying to real estate investing.

Summary

Nate Hedrick, the Real Estate RPh, digs into some important considerations to keep in mind when planning to build a home versus buying a home, how the process for building a home differs from purchasing a pre-existing home, the main approaches to building, and important questions to ask your builder or developer when building in a development or on raw land.

Nate shares his personal experience with his clients in the real estate market and the various motivations for building a home instead of buying. Those who choose to build a home over buying a pre-existing home may be motivated by both the nature of the current housing market and a desire for a variety of customizations to the home.

Nate outlines the many pros and cons when building a home. Benefits of building a home include the level of customization on design based on the builder, creating the home that you want but can’t find in the market, and that new home feeling. Cons when building include the time it takes to complete the home, usually around 9 months, as well as the financial process differing for building a home from the process for buying a pre-existing home.

The two main approaches to building a home are examined: working with a builder or developer to purchase and build on a lot or buying a plot of raw land. When working with a builder or a developer, clients can expect to have a concierge type experience, whereas buying raw land may require purchasers to perform more tests and do additional research to ensure that the land will be viable for the build. To avoid major issues, buyers should include their real estate agent and builder in the entire process of buying and building on raw land. Similarly, when working with a builder or developer, buyers should include their real estate agent in the process as your agent acts as an advocate throughout the buying and building process.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Nate, great to have you back on the show. How you been doing?

Nate Hedrick: Tim, great. Always good to be here.

Tim Ulbrich: Excited to have you back. We had you on Episode 197, Ways to Reduce Your Monthly Costs, and we have some exciting news coming up. Details will be forthcoming. But we’re going to be launching a YFP real estate podcast. Our goal is weekly content for real estate investors, either current investors, pharmacists that just want to learn more, that have been thinking about it but haven’t pulled the trigger. We have heard loud and clear from the YFP community that they want more information on real estate as an investing path. We’ve brought more content in 2021, at the end of 2020. We’ve got more coming ahead. And more information certainly will come. Nate Hedrick is going to play a big role in that effort. So Nate, exciting times ahead, right?

Nate Hedrick: Yeah. I’m really excited. It’s going to be a pretty cool podcast, and we’re bringing back another YFP past guest. We’ll keep it a surprise for now. So excited about all that.

Tim Ulbrich: I love it. And I think you and I, we’ve talked about this extensively, but we know that many pharmacists have inquired about real estate investing. And we have seen firsthand the value that can come from showing examples, stories, the good, the bad, the ugly. And for pharmacists that are thinking about this or even have begun this journey that can see other examples all across the country and of course connect with those folks. And so we’re excited to bring this community together of pharmacist real estate investors. Stay tuned. We won’t announce the exact date of launch or any of that at this point, but wanted to put that on folks’ radar that we’re going to have some more great content coming for you related to real estate investing. So Nate, we’ve been talking a lot about home buying on this show. But something we have not talked as much about is building a home. And I’m excited to dig into this topic and talk through some important considerations to keep in mind if you’re planning on going that route and how the process may differ from buying a home. And this information that we’re going to draw for this episode of which we will link to in the show notes comes from a post on your blog, The Real Estate RPh blog, and that post is 20 questions to ask if you’re building a home. So we will link to that. And this episode is really meant for folks that have been interested in this topic, are thinking about building a home, on the fence about building versus buying. And so we’re going to dig into topics surrounding that. So from what you have seen, Nate, with your clients and in the real estate market, you know, how prevalent is this? Are folks often thinking about building a home instead of buying a pre-existing home?

Nate Hedrick: Yeah. It really depends on the market, but I’m seeing more people going this direction simply because the inventory has been so low recently. With the way the market’s been — actually, I just heard about a client recently that looked for a house for about 2.5 months and there was just nothing. Anything that was coming along was going $20,000, $30,000, $40,000 over asking. And it just became untenable. So they said, ‘Look, we’re just going to sit back, we’re going to renew our lease for another year, we’re going to go ahead and build.’ So I think sometimes it’s something that’s being forced upon people, but other times, you just have someone that goes in and says, ‘Look, we know what we want in a house. We can’t find that in our market today. We’re going to go out and build it, right? We’re going to find the specific spot that we want it to be, and we’re going to get the exact house that we want. This is how we’re going to do it.’

Tim Ulbrich: Yeah, and I just had a similar conversation a couple weeks ago with a pharmacist down in the Raleigh, North Carolina, area. Same thing, you know, very hot market let alone just what we’re seeing national trends in that area specifically and prices where homes were going relative to asking said, ‘You know what, we’re just going to build the thing,’ which I’m guessing is easier said than done as we’ll talk about but is certainly a consideration. What other motivations might folks have? I mean, is it typically just demand? Is it I can’t find anything, these custom aspects that I want? Like what are you seeing from folks in terms of motivation to build?

Nate Hedrick: Yeah, a lot of times, it just comes down to if you know what you want or if there are specific things that you want in a home and it’s difficult to find in that particular market, then you can go out and build it, right? So if you are — and actually, it’s funny. My wife and I were running into this recently. We’ve been kind of casually looking at other houses, just to see what else it out there, and keep coming back to the fact that like if we were to really move, I don’t know that I’d want to go get this big, gigantic house, right? I’m more interested in the land and putting our kind of style house on it. And there are other people that fall into that same category. So I think there are a lot of different motivations. But if you want that true customizability and that feeling of like the brand new car, right, that’s where that home building usually tends to come in.

Tim Ulbrich: Now Nate, you and I both know — especially you as an agent — that when you say we’re “casually” looking, that’s a done deal, right? I mean —

Nate Hedrick: No, I look at enough real estate to be able to look at it casually I think. Hopefully.

Tim Ulbrich: That’s true. So high level as we start this conversation, and we’ll dig in in more detail about what are some specific considerations when you’re considering building, whether it’s working with an agent or financing, common mistakes that folks make, but high level, pros and cons of building. You know, for folks that are thinking, yeah, maybe it’s us, maybe it’s not us, like what are some things that folks may want to think of when it comes to making this decision.

Nate Hedrick: Yeah, the biggest pro is the full customizability. And this can vary based on the actual builder, right? Some builders are going to give you absolute customization from floor plan to design to fixtures. And even if you don’t get that level, right, there are going to be 10 floor plans to choose from. And within that, you can pick your countertops and your cabinets. Again, it gives you that full range of customizations. If you know exactly what you want or are close, 80% of that you know and you can get the rest of the way, that building allows you to get that full customizability. The real con, though, right — or the couple of cons I guess would be timing. So obviously it takes time to build that house, especially if you’re customizing it from the ground up. You’re looking at the very minimum nine months from that date of contract, usually longer, to really get that home built. So waiting game is there. You’ve also got a different type of lending that goes on. And we can talk about this more. But construction loans are very different than your traditional conventional mortgage. And so there’s other stipulations that go with that, some other fees, and it can make it a little bit more tricky, basically.

Tim Ulbrich: And when you talked about customization, Nate, never have gone through this process. You know, I’m sure some folks look at that and they’re like, that’s incredible. I’ll get to choose every detail. I look at that and say, my gosh, I don’t even know what shirt I’m going to wear on any given day let alone what the knobs are going to look like. So is there a wide range of like if you want to keep it simple, builder may say, ‘Here’s Option A, Option B, Option C.’ And then the details are already contained within that? All the way to every little detail is negotiable along the way.

Nate Hedrick: Yeah, it depends on the builder. A lot of times what I’ll see — for the most part — is they’ll offer 3-5 options for a given set of whatever, right? So they’ll say, ‘Your countertops are coming from this supplier. And you’ve got from marble to granite, and these are the preferred options.’ And you’ve got an allowance for that is how they often do it. So they’ll say, ‘Cabinetry allowance is $14,000, and we’re getting it from x, y, and z cabinet maker.’ So then you can go to that particular site or they’ll a lot of times have handouts that you can look through, and it narrows down your options, right? That’s the most common setup. The other cool thing I’ll see a lot is where high end, especially high-end purchases and high end builders will offer a designer as part of that process where you can sit down with them for x number of hours as part of that fee or the cost of building that house, you get x number of billable hours with that designer to pick and choose all those things. And a lot times, those designers will bring with them ideas and collections where they’ll say, ‘Well, if you’re going to choose these cabinets, these are the drawer pulls I recommend.’ Again, you can totally get into the weeds, but that can make that analysis paralysis much, much easier to manage.

Tim Ulbrich: And it always stays on budget, right? I mean, it’s always on budget.

Nate Hedrick: You know, it’s funny, again, these allowances, they offer those but you can pretty quickly break them if you want to.

Tim Ulbrich: I’m sure. I’m sure. Well, it just reminds me like, no judgment here, it’s just human behavior. If I were looking at a home and there were some options involved, like you kind of make one decision that I would suspect has a domino effect on other things that you want to do. So since you talked about the lending piece being different, let’s start there. You mentioned construction loans, which are of course a different animal than conventional home financing, which even within that we’ve also got multiple options we’ve talked about on the show before. Most recently, we had Tony Umholtz from IberiaBank, Episode 191. We talked about 10 common mortgage mistakes but in there talked about some of the financing options. So Nate, talk to us here about lending considerations. You know, what exactly are we dealing with when it comes to construction loans? What’s different? How does this change or not change things like pre-approval and down payments and timing? Walk us through that.

Nate Hedrick: Yeah, it’s fairly complicated, actually. I’ve been meaning to like put together a post and digest this because there’s not a lot of great resources out there that actually walk through this. But the idea is that you’ve got two phases to think about when you’re thinking about a construction loan. And again, a lender is probably going to beat this up and say, ‘Well that’s not what you call it,’ but this is how I explain it, right? So you’ve got — we should have Tony back with me, right?

Tim Ulbrich: Yeah.

Nate Hedrick: But you’ve got this kind of pre-build phase where you’ve got to pay for either the land and the lot, right, the location, and then you’ve got to start paying that contractor, that builder, for some of the materials. So before there’s ever a house there, there’s still costs being incurred. So there’s this construction phase of that loan. And then after, when it’s done, you actually have a mortgage. You have a house that’s paying a 30-year fixed rate mortgage or whatever. And so there’s a number of ways that lenders will break that down. Sometimes they’ll do separate loans. You apply for one, you get the construction loan, you go through that, then you will create basically a mortgage that will pay off that construction loan and then go from there. Sometimes you can do a combined process where the loan will be all in one. They call it a single close often where you’ll close once on that construction loan and it will convert to a 30-year fixed mortgage at the end. It varies by lender, there’s advantages and disadvantages to both. It’s a whole separate podcast episode just to talk about that. But the idea is that you want to make sure you have a conversation. It’s not like going out and getting pre-approved for a $500,000 house. There are considerations in terms of well, is the lot or the land included? Right? Is that included in the finance or do I have to pay for that lot in cash? Again, a number of considerations that come up as you start down that road.

Tim Ulbrich: And so speaking of finding a lot to buy and where folks look and buying land, you know, that to me seems like something that could be both exciting and overwhelming. And I’m used to my typical searches for a home on Redfin and Zillow and things like that. Is it same type of process, you know, in terms of finding a lot to buy, where folks look, what makes a good lot, a bad lot? What are things that folks need to consider here?

Nate Hedrick: Yeah, so there’s two main approaches to this. So one is that you’re going to — that is kind of the more traditional option, which is that a builder or developer has purchased several acres and they develop that into a neighborhood, right?

Tim Ulbrich: OK.

Nate Hedrick: We see this all the time, right? Coming soon, houses starting in the $300,000s, join Orange Village or whatever it is.

Tim Ulbrich: Yes.

Nate Hedrick: You see these. And a lot of times what happens with that is you’re not going out and finding and hunting down a lot. It’s the full concierge package all put together. You go out to the builder, they say, ‘We have 40 lots that we’re preparing to be built upon. You can pick your spot on the street. Here’s our preferred builder or builders.’ A lot of times they’ll have anywhere from one to three builders that they work with on those development lots. And you basically find your lot that way. The other option is to go out and buy raw land. And you can find these on the MLS, you can find them on Craigslist, you can drive around and see some with a sign in the yard. And you can buy raw land and then go out and find your own builder who will come out and custom build on that particular lot. And so the two approaches are very different. One is a much more kind of put together process, going out and actually going to that developer on that particular build lot whereas the other can be much more flexible and a lot of times, you get your truly customizable builds when you’re talking about going out and buying a plot of land and then bringing in a builder to come do that plot.

Tim Ulbrich: And in the first example, Nate, you’ve given, which I drive by those all the time, right? So you see homes for sale. That seems obviously, you know, concierge is probably a good way to think about things kind of customized and put for you together, it’s packaged together, it’s .25 acres or whatever be the lot size. You know it’s ready for water, sewer, all that stuff taken care of. You have comps of that obviously based on the neighborhood. The other one to me is both intriguing/overwhelming. I was just driving by a property yesterday here in Columbus. It was 131 acres for sale. And I’m like, that’s interesting. I don’t know, it’s by the interstate. I was like, there could be something cool you could do with it. And then I stopped right there, right? Because you start to think about like, what is a comp for 131 acres of land like this? And what about being ready for sewage and water and things like that? So any thoughts for folks that are going more that route of I’m just looking for random land that’s out there and putting a home where it may not be as put together for them, if you will. What are those things? I’ve listed a couple, thinking of comps for land, water, sewer, things like that.

Nate HedricK: Yeah, absolutely. So you have a due diligence period on raw land like that where you can start to assess those things, everything from getting like a geotechnical survey, something as simple as a soils test to determine if the soil is appropriate for bearing the structure that you’re talking about. This is a particular problem in certain areas like I think about my in-laws that live in Pittsburgh. So there’s a lot of hills, there’s a lot of old mine shafts, quite honestly — that sounds ridiculous, but that’s a real problem that you contend with as a developer out in Pittsburgh. And so you have to do these site and soil samples to make sure that you’re going to have supportive structures to be able to handle the house that you want to build there. You mentioned hookups, that’s a huge one, right? So if you are out in the country, you might not have access to city water. You might have to put in a septic system and dig a well and again, that well might need to be 100 feet deep, 200 feet deep. Like who knows? Right? If it’s truly, truly raw land, these are all things that you would need to figure out. And so a lot of times what you’ll do is you’ll find a piece of land that you’re interested in and either the seller of that property has done all that work for you and they can say, ‘Here is the site and soils test. Or here’s the survey that we’ve done. There’s already a well. There’s — whatever, you name it.’ Right? They may have done that up front or you can order that yourself. And there are companies that specialize in this. And a lot of times, your agent will actually help you coordinate with those companies. You can often go to your builder because your builder will have the specs needed to make those decisions. And so I often recommend that if you’re going to be doing this, it’s not a buy land, find a builder later. It’s do it all at once because you want that person involved.

Tim Ulbrich: Yes.

Nate Hedrick: You want the architects involved, you want the surveyors involved, the builders involved, all at the same time to make sure you’re not going to run into a problem.

Tim Ulbrich: Now I suspect the question I’m going to ask here is, ‘it depends,’ but I’m going to ask it anyways. One of the other thoughts I have as I look at raw land periodically just out of interest that folks may be wondering if they’re doing the same build a home is resale value. So especially when you get into perhaps unique pieces of land, unique customized properties, I could see an argument on both sides of that, either hey, it’s a unique piece, it stands out, there’s not a lot of other things like it. Or maybe not as many people are in the market for something like that. So is it a ‘it depends’ situation, just every property, every area where when you get into a customized home, customized piece of land, in terms of resale?

Nate Hedrick: Yeah. I’m stealing from Tim Baker, right? It definitely depends. But there is some speculation to draw in too. There’s actually a number of investors out there that will buy raw land for the sheer purpose of saying, “OK, I know that this market is booming and it’s starting to expand. I think it’s coming this direction in the next 10 years, so I’ll go buy this property that I expect to be worth 10 times this, but I have to wait 8 years to get there.” So it can be very speculative in terms of that value. But the other thing that’s nice is that if you are in like a municipality or a city and there’s land there, you can often compare that land value on a cost per acre to other land in the area. So if you — especially like something where we live in Ohio, everything’s flat and easy to kind of figure out. If you’ve got a 1-acre parcel in x city, it’s potentially pretty similar to another 1-acre parcel in that same city. And here’s why. And so you can compare those somewhat easily in certain areas. But in others, it’s almost impossible.

Tim Ulbrich: That makes sense. And you know, you had talked about some key people of the team. And I think you do a great job when you’re talking about home buying or home building in this case and considerations, how important the team is. So we talked about the lending piece and we’ve mentioned the agent piece and the builder piece. But we haven’t talked about that in detail. So let’s start with the agent piece. How does a real estate agent support someone building a home? And how does this differ from those that might be looking to buy a pre-existing home in terms of who they might be looking for?

Nate Hedrick: This, again, kind of depends on if we’re talking about building in that development or building in the middle of nowhere or on raw land. But in both cases, you absolutely want to have an agent on your team. I think it’s obvious a lot of times if I’m going out and buying raw land and getting a builder that it might be helpful to have an agent in that case. But it doesn’t seem as obvious when you’re talking about, again, that concierge model we talked about where you’re going to a site plan, they’ve got a model home, their office is open, they’ve got all these friendly real estate agents there. It often feels like I shouldn’t even need anybody to help represent me. But the reality is you absolutely should. And it costs you almost nothing to do that. The agent being involved is your representative, right? The person that’s selling that property, they are trying to sell that property for as much as they possibly can. So even if you’re going to a development, 50 homes available, everything’s done for you, you absolutely want to have that agent as the core member of your team to help with things like negotiating the contract. I’ll give you a great example. I have a client that I’m working with right now. And our early conversations with the builder, they cited this great, gorgeous rooftop deck, OK? And they said, the rooftop deck, you can add it on for I think it was — I don’t know — maybe $15,000. Let’s just say it was that. And it was this awesome like you could see downtown and you can see the lake from downtown. This place is gorgeous. And they quoted it at $15,000 early on. Well that property started blowing up in popularity. And it got really hot really fast. And so we were in but kind of negotiating the contract still. And so we get to kind of the closing bit of figuring out this contract, and they said, “Oh yeah, and that rooftop deck. It will be $22,000.” We said, “Hold on.” And you know, at the time, the buyers were like, “Well, that’s just what we have to do.” I said, “No, I’ve got some notes here.” So I went back and we looked at it, and we had clear indications from the buyer — or from the builder that it was a $15,000 add-on.

Tim Ulbrich: Yeah.

Nate Hedrick: And so I was able to help negotiate that back down and save them that $7,000. So having an advocate on your team, somebody that knows this stuff inside and out is absolutely essential.

Tim Ulbrich: Yeah. And not only an advocate, but an advocate that takes good notes and is ready to act on your behalf as well.

Nate Hedrick: Helps to have a detail-oriented pharmacist as your agent I suppose. But really, again, that agent is going to also grow the rest of your team from there, right? So if you need inspectors, if you need a lender, if you need a title company, again, most of the time the seller’s going to have the preferred title company that they’re working with or the preferred lender that they’re working with. But you still want someone on your team that can grow that, the rest of that process if you need it.

Tim Ulbrich: And for those listening to this episode, if you’re looking to buy or build a home in 2021, as you likely have heard us talk about on this show before, we’re excited about our partnership with Nate, The Real Estate RPh, for the Real Estate Concierge service that he can help get you connected with an agent that is local to your area but also be alongside for the process, talk to you at the beginning, walk you through along the way, be a second set of eyes, help you think about the beginning to the end, and work with that agent locally as well. So you can learn more at YourFinancialPharmacist.com. You can click on “Buy or Refi a Home,” and then “Find an Agent,” and that will get you Nate. And you guys can schedule a quick discovery call to see if that’s a good fit for what you are looking for. So we talked about the agent, Nate. The builder is one that comes to mind as well. You know, we’ve all heard horror stories of I was working with this builder, they went bankrupt, something happened. I feel like any neighborhood I’ve been in, there’s always been a story of like, oh this stopped here in the neighborhood because this happened. So talk to us about — of course it depends on some level, but considerations when working with and finding a builder.

Nate Hedrick: Yeah, this is exactly why I put together that blog post that you mentioned about the 20 questions to ask if you’re building a home because there are a number of things that I see my clients not even realize they should be asking up front. It starts very, very simply, right? You want to kind of get an idea of how long they’ve been in business, look at the number of homes they’ve built, look at the number of homes they’ve built in your area as well. So you know, if they’re brand new to Cleveland, Ohio, they’ve never built here before and they’re used to working in a different state, they may not be ready for some of the things that come up with building in this particular location. So getting questions about have you built in this municipality before? Have you dealt with the city, the planning committee, the zoning committee, this architect, you name it? All that stuff, you want to make sure there’s some sort of background going into that. So a lot of the questions that I often mention to my clients revolve around proving that that person is experienced enough to handle what we’re dealing with and then also licensed and insured in all those things as well so that if something does go wrong, you’ve got kind of this backup to make sure that you’re not going to lose your money or anything like that. And from there, it really grows to questions about the specifics in terms of are you looking for more energy saving features? Are you looking for more customization? Right? Because certain builders are going to be more customizable than others. Or perhaps maybe they only do certain types of appliances, and you really want the top-of-the-line. So those are all questions that you want to ask as you get into the weeds. But always start with those broader questions about experience and making sure that they’re appropriate for the job.

Tim Ulbrich: Great stuff, Nate. And again, to the community, the conversation we’re having today comes from an article that Nate wrote on the Real Estate RPh blog, “20 Questions to Ask if You’re Building a Home.” We’ll link to that in the show notes. And again, if you’re in the market for buying or building a home in 2021, make sure to head on over to YourFinancialPharmacist.com, click on “Buy or Refi a Home,” and we’ve got additional resources available to you right on that site in addition to an option to find an agent, which Nate can help you throughout that process. So Nate, as always, appreciate your time and your willingness to share your expertise with the YFP community.

Nate Hedrick: Absolutely. Thanks for having me, Tim.

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