YFP 208: Why Minimizing Fees On Your Investments Is So Important


Why Minimizing Fees On Your Investments Is So Important

Tim Baker digs into the f-word we want to minimize when it comes to our investments…FEES! When you do the hard work to save money, you should be interested in keeping as much of that investment intact by minimizing the fees that can take away from your long-term gains. Tim discusses various fees, the impact these fees can have on achieving your long-term savings goals, and strategies you can take to evaluate the fees related to your own investment plan.

Summary

Tim Baker discusses the many types of fees associated with your investments and their impact on your financial plan, including expense ratios, platform fees, trading fees, and advisor fees. He also breaks down the ABCs of mutual funds: A shares, B shares, and C shares and the types of fees each of these investments may include. Tim further details how these fees can impact your investments over time, affect growth, and impact your financial plan overall.

Tim discusses his experiences with clients, sharing that many do not know they are being charged various fees or do not understand the full impact the cost can be in the long term. While many fees may be challenging to uncover, Tim shares the importance of asking questions about fees, whether you are just getting started or are farther into your investment history. Investors should be asking what their fees are, why they are paying them, and the benefit – if any – they have on the investments.

Tim mentions that it’s okay to pay a fee for professional help but be wary when advisors are charging commission because there may be a conflict of interest. Tim also suggests you ask what you are getting for your fees across the board, with professional services as well as the investments themselves. Typically, the expense that you pay does not equate to increased benefits for the investor, so trimming those fees whenever and wherever possible may benefit the investor over time.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Tim, back-to-back episodes. Good to have you on again.

Tim Baker: Yeah, good to be back. I’m excited for this episode. I think it’s going to be hopefully valuable for those that are listening.

Tim Ulbrich: Yeah, I think so. And we talked last week about common financial errors or mistakes, some that we’ve made, some we’ve seen other pharmacist clients, colleagues, make. And today, we’re talking about one that was not on that list of common mistakes we discussed last episode but certainly can have a major impact on how much wealth you’re able to build. And we’re going to talk really big numbers at the impact that fees can have, fees on the investments is going to be the focus of today’s discussion and hopefully shedding some light on a topic that maybe folks have heard about but haven’t really thought about and evaluated for their own investing plan. So Tim, one of the things I share when I talk on the topic of investing is that if you’re going to do all of the hard work to save money each and every month, take advantage of compound interest and the time value of money, then we want to do everything we can to maintain as much of the pie as possible. And I often think that there’s really three big things that can eat at our investment pie: that’s taxes — and we’ve talked about that on several episodes on the show of things that we can do from the tax-advantaged investing standpoint — inflation — obviously can be out of control to some degree — and then the third is the one we’re going to be talking about today, which is fees. And something I’ve heard you say before is that you need to follow the “Three F Rule” of 401k management. And that’s Figure out the Fees First. So that’s what we’re going to be digging into today, and that’s even beyond just the 401k when we talk about fees. So Tim, before we get too far into the weeds about this discussion of fees, let’s back up a bit as some may be thinking, fees on my investments? What fees on my investments? So talk to us a little bit about the common fees that are out there when it comes to one’s individual investment portfolio.

Tim Baker: Yeah, if I could even back up further, Tim, I would even say like the importance of this — like it shouldn’t be understated. And I think that, you know, when we — kind of like when I talk about baby stepping the financial plan, we look at things like what does the emergency fund look like, what does the consumer debt look like.

Tim Ulbrich: Yeah.

Tim Baker: When we dive in particular into the investment part of the financial plan, one of the first things I look at is fees. And you know, outside of the asset allocation, which the asset allocation being like how do I divvy up in a broad sense between like stocks versus bonds and you can actually get more granular than that, outside of the asset allocations, the fees probably play one of the biggest roles in your ability to kind of build wealth over time and really the fees, just like you mentioned along with tax and inflation, is it can really be in a factor that erodes that ability to build wealth. So it’s super important. And you know, when I look at the fees, one of the problems in the industry is that the industry is not super transparent with regard to what the investor pays. A lot of these can be wrapped up in products that are sold to investors or not necessarily appropriately disclosed on a statement. So you’re really up against it when you’re trying to figure out, OK, what exactly am I paying? And the fact that it can be a little bit opaque in that regard is frustrating. I think that’s one of the things that we work with our clients is to show them, ‘Hey, did you know that you’re paying this in your 401k?’ And most people are like, ‘I had no idea.’ Then the question is, ‘Is that good or bad?’ And I’m like, ‘Well, it’s typically higher than what we see,’ or something along those lines. So to me, the name in the game is really trying to understand — to answer the question, what are the things that you could be charged? And then like what is that exactly for your particular case? So if we look at the things that we typically see, if we look at the 401k first, you know, the things that are typically in the 401k are things like platform fees. So this might be where Fidelity or Schwab or someone might charge you a fee just to really have an account with them. And that’s less common in a 401k. You typically see them more in brokerage accounts, more in IRAs. When I was in the broker dealer world, we would charge — the custodian would charge clients just to have an account open. And a lot of this is in also response to like lower entrance environments. You know, they’re trying to make money where they can. And sometimes these additional line item fees are created. Things like trading fees and transaction fees. So this is like anytime that you buy and sell, again, typically you don’t see these inside of a 401k, but you do see these outside, like a brokerage account, an IRA, you know, if you buy stock ABC, sometimes you’ll be charged anywhere from $7 to $50 a trade. Now, these have kind of become less and less common as a lot of the custodians want to be competitive and they’ll waive fees and things like that.

Tim Ulbrich: Race to 0 here, right?

Tim Baker: Exactly.

Tim Ulbrich: Yeah.

Tim Baker: Yep. The other thing that you would see are things like advisor fees. So these can be both within inside and outside of a 401k. So these are things like, ‘Hey, I work with an advisor, and they charge me a flat 1% on the investments that they’re managing.’ It could also come in the form of commissions, and that’s a whole other ball of wax in terms of how an A share, a B share, a C share mutual fund, you typically don’t see commissions inside of a 401k, but you do see — sometimes you see C share, which are commissions, inside of a 401k. But you typically see those more in brokerage accounts, IRAs, and such that. And then probably the last one that basically permeates just about every investment is expense ratio. So the expense ratio is the money that the fund takes to kind of run the fund. So if I’m a mutual fund manager, Tim, and I’m in charge of a large cap mutual fund, you know, I’m managing billions of dollars, so I’m pulling a bunch of investors’ money together to buy large cap stocks and the like. Then I need to pay myself, I need to pay for the fancy office on Wall Street, I need to be able to pay for information. I might even need to pay sales people to go out and market my fund. So those all are basically captured in an expense ratio. So the expense ratio basically, you know, takes money out of that fund and it’s shared, that expense is shared, with the rest of the investors that are invested in it. So those are typically the broad strokes. You also see other ones I would say outside — and these kind of can get wrapped up into platform fees — but you’ll see like administrative or like bookkeeping fees in a 401k. And this could be like record keeping and all of the laws that are surrounding 401k plans and 403b’s. These can be pretty prohibitive. Sometimes they’re a flat fee, sometimes they’re a percentage. But these are kind of just administrative fees that, again, that are not listed on a — they’re not listed on a statement anywhere. It’s just part of the plan and what the plan takes to make sure it runs within the laws of the United States.

Tim Ulbrich: Tim, when I hear you say, you know — and obviously it depends on the account, you mentioned some of these may be more applicable to like an IRA, brokerage, others across the board, but several different types of fees you mentioned, right? Platform fees, advisor fees, trading fees, sometimes commission fees, expense ratios perhaps is the one that folks may be most aware of. My follow-up question is transparency and understanding of these fees. So those are two very different things to me. You know? Even if something is transparent, how it’s disclosed or how somebody may be informed of it or how easy it is to find that information obviously can lead to whether or not they may have an understanding of it. So in your experience working with clients and really more specifically our clients at YFP Planning, is this something that you find folks are surprised by? And how transparent and accessible is this information to either the individual or you as the advisor trying to work with them?

Tim Baker: Yeah, Tim, so I think it is a surprise. And what I typically try to do to kind of make it a little bit more real is put it in real dollar sense. So you know, one of the things that when we talk to pharmacy schools and we’re trying to like drive home the point that this isn’t Monopoly money, that when you graduate, you’re like at with the average student loan debt that graduates are coming out with, it’s a $2,000 payment for 10 years. And when most people think about it in that terms, you’re like, ‘Oh, OK, that becomes more real.’ So I try to do the same thing with the fees. So yeah, like when we go over this, I think at first, it’s like, ‘Oh, OK, well that doesn’t sound that bad.’ You know, so like I’m looking at this independent pharmacist, their 401k, and typically the smaller the employer, the worse the 401k is or the most more expensive it is per each participant. So like this particular pharmacist, their all-in when they look at the administrative fees and the average investment fees, it’s about 1.27%. So you’re like, ‘Wow, that doesn’t sound too bad, 1.27%.’ But if you have $100,000 in that 401k, that’s $1,270 per year that the 401k and the funds inside of the 401k basically absorbs. So with this particular client, they have $250,000 in that, so that’s a lot more. It’s a lot more money. It’s more than double that every year. And again, it’s not like it’s a line item on the statement anywhere. It’s what the 401k takes to run and the investments take to basically run the funds that they’re in. So what we really try to do is, again, look at it — and we have tools that can assess that information. But even to do it yourself — and I’ve tried to do this even outside of the tools that we use — it’s hard to find. You have to find basically the plan. Every year, they have to file what’s called a Form 5500 with the IRS that basically outlines how much money is in the fund and what are the assets, what are the liabilities, if there’s any loans, what are the admin expenses. And a lot of those are just a dollar amount that’s populated in there. So like sometimes you might see like, ‘Oh, my administrative fee is 1.2%.’ And then the next time we log into our tool, it’s 1.4% just because there’s new data that’s been filed with the IRS. So it’s a little bit of a moving target as well. And I think the — you know, I think I read a stat somewhere that the average 401k all-in expense is about like 1.68%.

Tim Ulbrich: That’s wild.

Tim Baker: So — yeah. And again, when I look at our 401k that we’ve set up at YFP, I think it’s less than .2%. I think the fees have changed a little bit for ours, but I think when you look at the expense ratio and everything, it’s less than .2%. So it’s a factor of 8. So if I’m paying $1,000 — and again, that’s a pretty large 401k with that, then I don’t want to pay $8,000 a year. So those are some of the things that most people when they say, ‘Oh, like 1.2% is not bad,’ but then when we actually put in dollars — and then if we compound that year over year, it really adds up. So to me, the fees are so important. And I think another discussion to have is like OK, but like are the fees worth it?

Tim Ulbrich: That’s right. Yep.

Tim Baker: And I would say in a lot of the cases, no. I mean, with some of these fees, you have to pay the fees to be able to like have the fund run and things like that. But in a lot of cases, if you’re paying 10x the amount in terms of an expense ratio, you’re not getting 10x the performance or it’s not 10x safer for the same amount of performance. So every type of fee is going to be different in why you would pay this versus that, but in most cases, the name of the game is to kind of shave that down as much as you can to really the investments unadulterated so it can grow and really allow you to build wealth over 10, 20, 30 years, whatever the time horizon is.

Tim Ulbrich: Yeah, and I think one of the things, Tim, I’ve heard you say often is that our job, your job, and the planning team’s job, one of the roles is to really try to keep as much of that contribution intact as possible and allow the compound growth to do its thing, right? So really minimize the fees that are coming out of that. And I think that’s so important. You know, again, back to my earlier comment, if you’re already doing the hard work, right, to put away whatever percentage of your income each and every month towards long-term savings, then why do we want to give up anything in terms of the fees? And that example you gave is really powerful, that independent pharmacist who’s got $250,000 in that account with a 1.27%, which is, as you mentioned, is lower than the average 401k. You know, that’s a little over $3,000 this year. But as that account continues to grow and compound, that $250,000 is eventually going to turn into likely $300,000 and $400,000 and $500,000 and so on. And that fee obviously will continue to go up over time. So let me ask the big and nebulous question. Like yeah, maybe a 10x fee isn’t worth or justified that you’re going to have that value, but is there a place where the fees are justified? You know, such that whatever would be the net return inclusive of fees makes the fees worth it? And how do you evaluate that decision?

Tim Baker: Yeah, I mean, I think with — so it’s going to sound a little self-serving, but I think if you’re paying an advisor, a fiduciary, a fee-only advisor, and you’re paying them say whatever percentage out of your investments to be able to do financial planning or investment management or what we do, which is very comprehensive with the tax work and really a lot of different components there, I think that the return that you get far exceeds what you pay. The idea is that our focus is on more of wealth building, not necessarily just the investments and everything else but it kind of is beyond that. When I think of the — if you take things like expense ratio as an example, I’m looking at a client who — you know, and that same client that was at 1.27%, I think when we first started working with them, it was close to 2% because there are things that you can control and there are things that you can’t control with regard to the 401k. So things that you can’t really control are things like administrative, record keeping fees. Like that’s just — you know, I always talk about with the investments in a 401k, that’s the sandbox. Like those are the toys that you can play with. There’s only 10, 20 mutual funds in there. And it’s the same thing, like with some of the fees, you can’t really effect change unless you’re small enough that you can, you work for an independent pharmacy, you can say, “Hey, boss, this 401k is pretty terrible. Can we replace it?” For bigger organizations, that’s a harder thing to go about. So you’re kind of stuck with those fees. But things that you can control somewhat are things like the expense ratio. So this particular client’s, her average investment fees are .06%. So that’s her expense ratio. But when we started, it was closer to .8%. So again, a $100,000 portfolio, just for this part of the portfolio, she’s paying $60 per year whereas before she’s paying over $800. So the reason that we did that — or how we got there is that the funds that she was in, she was selecting a lot of the funds that she heard of like American funds or I think there was like a Morgan Stanley here and JP Morgan. And these funds are more expensive as in comparison. So I’m in this particular portfolio, and I’m looking at the mid-cap fund that she was in, it’s called a Touchstone mid cap, and the ticker is TMPIX. That costs .9%. So if I had $100,000 just in this, I would be paying $900 per year. What we replaced that with was an iShares fund that basically is .05%. So .9% versus .05%. So $50 on $100,000 or $900. So like those are things that you can control. And for the most part, there’s going to be differences, especially as you get to mid and small and international funds. Like there will be some differences in performance and some differences here and there, but for the most part, you know, like if I look at those same funds and I have the data that says over the course of a year, the mid cap iShares that we put her in is up 56%. The one that was more expensive is up 33%. You know, five years, it’s pretty close, 17% with the one that we put her in, 16%. So the performance, these are things you have to look at: since inception, 10% versus 9% for that. So like there are things that you have to look at, but typically the expense that you pay is not worth it. And for things like large cap, when you click into those and you say, ‘OK, what am I actually invested in?’ So like what are the underlying funds, it’s the same stuff, Tim. It’s things like that we know about. It’s Apple, it’s Microsoft, it’s Amazon, Facebook. It’s just that if you wrap it in a more expensive wrapper, you charge 5, 6, 10x just because it’s a known entity, even though Vanguard and iShares are pretty known, there is — like from a large cap fund, it should be very cheap because everyone is invested in the same stuff. So I don’t like paying high administrative fees. I don’t mind paying like a flat dollar amount, so like there’s sometimes you see like, oh, it’s $80. OK. That’s better than .8%. Expense ratio, I don’t like paying a high expense ratio. I don’t like when advisors charge commission. I just think that there’s a conflict of interest there. So these are typically outside of the 401k. So I think it’s OK to pay a fee for professional help, but it just depends on like what do you get for that? And you know, and all of the associated fees that come with that, what do you get for that? So if there are 401k’s that charge you .2% or less and then there’s some that charge you close to 2%, that’s a big range over the course of — and are you getting 12x more value there? And I typically say the answer is no.

Tim Ulbrich: Yeah, I think it’s just a really good reminder, you know, Tim, that No. 1, not all fees are created equal. Right? So really asking yourself, what may or may not be justified with this fee? And then you know, I think really evaluating and understanding what your current fee situation is and recognizing that some of that may not be in your control, to your point, that especially for those that work for a larger organization, unless you’ve got the ear of HR and can influence those decisions, that 401k plan is probably what it is in terms of some of those fees. But within the fee options, might you have some control when it comes to expense ratio and then obviously in other accounts, IRA and so forth, then you can leverage other options to reduce those fees. Tim, I suspect that many of our listeners, especially those that are listening today that have been saving for some time, might be investing in mutual funds through various institutions to be unnamed and are paying substantial fees and, as we’ve discussed, aren’t even aware of it. So I want to take a few minutes to just break down the A, B, Cs of mutual funds. And that’s A shares, B shares, and C shares. So can you quickly define the difference between A shares, B shares, and C shares and then talk to us a little bit about what is the fees or could be the fees associated with those types of shares?

Tim Baker: Yeah, so whenever you see A shares, B shares, C shares, what you typically — think commission. So that’s — it’s a sales commission for that intermediary, the intermediary being the financial advisor, that is selling you a product, i.e. a mutual fund, in exchange for a commission. And I’ve sold these in the past, so like I’m a big proponent of fee-only. I haven’t always been a fee-only advisor. I started in the industry in fee-based, which is often confused for fee-only. A lot of the fee-only people want advisors that are fee-based to identify as fee and commission. So when I was in this model, I thought, again, I thought we were great because we didn’t have to sell a proprietary product that was with one of the big financial institutions. We could basically sell whatever we wanted. But the reality is that you want to really work with someone that is not selling on commission, in my opinion, because I think there’s a conflict of interest there. So anytime that you have the sale of a product with advice, there’s a conflict. So when you hear or see A, B, C shares — and you can typically see this, you can see this on the statement, but it’s not necessarily as intuitive as you would want it. So like I’m looking at a statement from a very big institution that I know goes and markets to pharmacists, talks to pharmacy schools, but on the statement, I see the mutual funds that this particular pharmacist was in was a Washington Mutual Investors Fund, CL A. So CL A. So that’s Class A, which that’s an A share mutual fund. So what that means is that for an A share mutual fund, these are up front basically fees or commissions with lower expense ratios. So these are typically better for long-term investors. I would say they’re not necessarily good for anybody. But the idea, Tim, is that if this particular — say you opened up an IRA with me and I basically charged you an A share commission, this particular fund I think basically charges 5.75%. So $5,000 times 5.75%, that’s a $287 commission that goes straight to me. So basically, when I look at my statement the next time, my statement is going to be like $4,700. It’s going to be $300 short. A lot of advisors don’t necessarily like to sell those because it can be very, you know, abrupt for clients. The other way to basically sell these — and I’ve never sold a B share, and I’m not sure how prevalent they are, but a B share, it’s basically, it has high exit fees for when you sell and higher expense ratios. But they convert over to A shares over basically the course of many years. So the idea is that you don’t get that kind of abrupt fee, but if you hold the investment long enough, it basically converts into an A share. And I don’t have as much experience with these and I haven’t seen these much, even on statements. But the one that I do see fairly often is called a C share. So these have higher expense ratios than A shares and a small exit fee that’s typically waived after one year. So the idea is that in that same example, if you were to basically buy, put $5,000 into a C share mutual fund, you wouldn’t necessarily get hit with a big commission up front, but what’s basically on there is — and it’s kind of built into the total expense ratio — is 12b1 fees. So this is like a marketing fee. So as the advisor, I would be making say like 1% as long as you held that investment. So it’s more of a trailing commission that you pay versus an up front commission. And these could be very prohibitive to an investor. Lots of fees that you really don’t understand how you’re paying. And the advisor is basically getting paid that marketing or that service fee over the course of however long you’ve held that investment.

Tim Ulbrich: So Tim, let me ask the question that I suspect many of our listeners are thinking, that I’m thinking individually as you describe A shares, B shares, C shares on the heels of our discussion of today’s day and age where we can obviously have an option to reduce some of those fees, whether that be up front trading fees or even ongoing expense ratios. There’s other options that are out there. What is the role, if any, for these A shares, B shares, and C shares? Like are these ever in the best interest of a client? And I say that dramatically knowing it’s not a black-and-white answer, but why would I invest in an A share, B share, or C share?

Tim Baker: So in my experience in this world, you would charge a client — and this is going to be very true for many kind of new practitioners and pharmacists that are out there that are maybe seeking help and a lot of people that are listening to this. So the industry and really why I’m here sitting in this seat and why, Tim, we’re partners, it kind of is derived from the story or the way that the industry basically operates. So when I was in the fee and commission, the fee-based world, it was — and I started working with a lot of pharmacists — the going advice was — you know, and I remember, I actually remember, I have this pivotal memory where I was talking to my mentor and I think the pharmacist couple that I was working with, they had something like $300,000 in student loans. And I was like, ‘Hey, mentor, like what do you think that we should do with this client’s?’ And basically, the advice was, to me, to how to advise the client was to say, “Hey, just tell them the loans will figure themselves out. Either a snowball or something like that, focus on the highest interest first,” which is terrible advice, Tim, as we all know, that the student loans are going to be more nuanced. And then you know, because this client maybe had like $20,000 to invest, that’s not a lot of money. So like it was sell them insurance that they didn’t need, so whether that was life or disability insurance, and then invest their IRA or something like that and then just touch base with them every couple years until they have $50,000, $100,000, $250,000, and then you can actually ‘help’ them. The problem with this model, Tim, is that it’s not a planning issue. Like we work with clients that are in their 30s that there is a lot of need there to get their investments, their debt, their cash flowing budgeting, their insurance, their credit, their taxes, all humming and working in a unified fashion that we’re really trying to take the resources that the client has and apply them in a way that is a wealthy life to them. It’s not a planning issue. It’s a pricing issue. And unfortunately, the way that the industry is set up is that, hey, unless you have investments, I can’t really do anything for you. And it’s because somebody with $20,000, that’s $200 a year on a 1% AUM versus if someone had $200,000, 1%, that’s $2,000. So money talks, right? So that’s where A share and C share and those types of commissions come into play is like typically if it was less than $50,000 or typically less than $100,000, you would charge these commissions, especially the A share, because it was a higher upfront or a C share because it was more — I want to say it was more undetected, under the radar. And then you would couple that with a crappy insurance product or disability that they might not need. Or maybe they do need, but you’re still making commission on that. And that was a way for you to help the client and make a little bit of money, feed yourself at the same time. And I don’t want to — so I also don’t want to paint a picture, sometimes especially in the fee-only community, there is this picture that’s painted that like people that charge commissions are evil. They’re not. They’re not. It’s just the difference in model. And you know, I was early enough in my career that I recognized — in financial services — that I recognized that there was a better way, and that’s being fee-only and that’s not charging these commissions. So I was able to pivot away from that. It’s not that they’re evil, it’s just that I think the model or the system that they’re in doesn’t necessarily suit itself for a lot of clients. You know, typically — we talk about this with insurance — typically the better the insurance product is for the person that’s selling it, the worse it is for the person that’s basically buying it. So there is this kind of 0-sum, so to speak. So if you’re out there and you’re like, ‘Hmm, I’m listening to Tim and I’m going to look at my statement and see,’ if you see like A’s and C’s next to your mutual fund that says Class A or just I’m looking at one that says Investo Equity and Income Funds C, I know that that particular — at that particular time, he’s being charged kind of an ongoing trail that’s eating away. And again, if he’s being serviced for that, maybe that’s worth it. But in most cases, it’s not. I wouldn’t say that there’s ever — there’s never a time — but I would say, you know, again, there are advisors out there that will work with you in a fiduciary capacity and that should be divorced from the commissions that you would make from selling a product. So one of the things that, you know, kind of longer story longer, Tim, one of the things that I talk about, when I was in the broker-dealer world, the fee-based, fee and commission world, this is the story that I tell prospects and clients is you know, I would show up to the office and I would see on my counter, I’m like, ‘Oh, this mutual fund wholesaler is going to come a-knocking.’ And that wholesaler would show up to our office in a fancy suit, he would take basically the advisors in our office, which was me and my mentor, he would take us out to a fancy dinner or a fancy lunch, I should say, he would show us fancy glossies about why his funds were so — or her funds were so great. And then he would basically say, “Hey, when your client Tim Ulbrich, when he leaves his job or if he has money on the side and he wants to roll over that Fidelity 401k, like use our funds.” And —

Tim Ulbrich: Sounds like another industry I know, Tim.

Tim Baker: Yeah, it sounds like drug rep, right? And when I say that, most people are like, ‘Oh yeah.’ But here’s the difference, Tim. Like in the medical world, my understanding is that it’s illegal for physicians to get kickbacks from pharmaceutical companies because it taints their ability to prescribe medication without the strings attached, right?

Tim Ulbrich: Absolutely. Yep.

Tim Baker: But if we compare that to my industry, the financial services, not only is it legal, it’s prevalent. So like 95% of advisors out there operate in this manner. So like now, like no one takes me out to lunch, Tim. No one takes me out to lunch because I’m not incentivized to put someone in these mutual funds because I don’t make a commission from that. So what I’m incentivized to do is to put the client in the best situation across the board, but particularly for the investments we’re talking about where they’re paying the least amount for the most gain. So like, I would get through those lunches — again, they’re not all bad. You would learn something. But you kind of felt like you needed to take a shower because you kind of — you know, they gave you something. They gave you a nice lunch, so you’re kind of like, alright, well, if this client rolls it over, you kind of feel beholden to them. And I just hated that feeling. And by the way, if you’re putting those sales rep out in the field, that costs money.

Tim Ulbrich: That’s right.

Tim Baker: Who pays for that? The investor does. And that typically means that fund that you’re investing in is going to be more expensive. So I remember having this conversation, you know, and I was talking to this old wholesaler, this experienced, I should say, wholesaler, and I’m like — and I found the kind of story to really dig deeper, and I’m like, “So how can you guys justify charging 1.5% on your large cap when I could put the client in a Vanguard fund that’s .05%?” And he started talking about like, you know — and again, there was nothing about that when I was buying because it’s literally 10x more — like it’s so much more, and I just don’t think that you get that return. So I know a little bit — kind of on a tangent there — but to me, it’s one of these things that I think as a pharmacist, these are things that you probably aren’t looking at that over the course of years really have a compounding factor, either from a negative perspective or if you can remove those, it can be very positive. So it’s important to maybe dust off your statement and look at it and really understand what you’re paying.

Tim Ulbrich: Yeah, and as we zoom out for a moment, Tim, to that point coming full circle here, don’t underestimate the long-term impact of these fees. You know, any one year, especially for those that are maybe getting started with investing and haven’t built up that large portfolio, you might look at 1%, 1.2%, 1.5% and say, ‘Eh, what’s the big deal?’ But if you look at 1.5%, as an example, versus .2% as another example and perhaps even an opportunity to get lower than that, over the long range of 30 or 35 years, that’s a big frickin’ deal.

Tim Baker: Yeah.

Tim Ulbrich: Big deal. And I wrote a blog post a couple years back that we’ll link to in the show notes really showing two side-by-side examples of somebody who’s investing over 35 years, another person same timeline, 1.5% average annual fee versus .2%, and it ends up being the difference of $1 million. And the title of that article is “Are You Making this $1 Million Mistake?” And you know, for some, maybe it’s larger. For others, maybe it’s a little bit smaller. But I think it’s so important that we uncover, understand, and begin to put a plan in place that can minimize these fees if possible wherever you have control of doing that. Tim, two perspectives I want to talk about as we wrap up this really important: And that’s first, from the perspective of, ‘Hey, I’m listening and I’m at the beginning of my investing journey. What can I do?’ And then somebody who’s listening that says, ‘You know what, I’m more in the wealth-building phase. I’ve been investing, maybe I’ve got a loose understanding of some of these fees but I’m not exactly sure. And what can I do and pivot now? And is it perhaps too late or not?’ So what would you say to those two individuals, one who’s just getting started, what tangible steps that I can take, and somebody who’s maybe a little bit later on in their journey and wondering is it too late and are there steps that I can take to help reconcile some of this issue around fees?

Tim Baker: Yeah, so I think for both of those buckets of people, I think it really goes back to what are your goals, right? So I think some people, they work with an advisor because they think that’s the right thing to do. And the advisor, you know, unfortunately sometimes it’s like every solution is the same. So everyone needs insurance and I need to make that commission. And that’s not true. I think it’s really understanding what your goals are, and that’s the first and foremost thing. And I think from there, if you’re at the beginning of the journey, I think it’s ask questions. You know, if I’m looking at my 401k statement, I want to understand why am I paying these fees? A lot of 401k’s, they have these managed solutions, and I’m like, well what do you get for that? And most of the time, it’s not a whole lot. Same thing like if you’re at the beginning and you maybe, you were contacted by an advisor in pharmacy school, chances are if you started working with them, a lot of those in mutual funds and IRAs and even — we just signed on a client that was sold this recently, and we’re like, it’s kind of a process of unwinding them. It’s really being cognizant of this and don’t sweep this under the rug. So like it’s definitely something that can compound over many, many years. So you want to get it right out of the gate. And it isn’t ever too late. So for the second, for the wealth-building phase, people that maybe have been working with an advisor for a long time or maybe their advisor is someone that’s been in the family, things have changed. So like even 10 years ago, what was offered in terms of high expenses and commissions and things like that, that day is thankfully dying with the advent of Vanguard and really trying to drive fees down and things like that. But I look at some of these well-known institutions that a lot of pharmacists work with, there’s just a better route. So like, you know, I’m looking at this particular statement, and the all-in for what this particular client was paying on commissions and everything like that was something like 1.75%.

Tim Ulbrich: Sheesh.

Tim Baker: You know? And if I compare that to like what we do, like if we were to move that into an IRA, it’s like .05%. And it almost sounds like fake. It sounds like it’s not real. But the reality is it’s like if you can get your money in a position where it’s unadulterated by those kind of hidden — and I could say they are kind of hidden because if you look at the statement and I search like “commission” or “fee,” it’s nonexistent. There might be like a fee disclaimer in the small print, but again, it’s not a line item that’s very obvious to the investor. So I would just say, like I would question, again, if you’re in a wealth-building stage, I would question what you’re currently in and if there’s a better way, just like we do with car insurance and things like that. There are opportunities out there to potentially be in a better position to again, really allow you to build money and grow wealth over time.

Tim Ulbrich: Yeah, and Tim, I would wrap up here by telling our listeners and community, whether you’re at the beginning of this journey, whether you’re in that wealth-building phase, whether you’re somewhere in between, I think this obviously is such an important topic. And we would love to have the opportunity to talk with you to see if what we offer at YFP Planning is a good fit for you and your individual plan and situation. And folks can find more by going to YFPPlanning.com, they can schedule a free discovery call. And I’m going to toot our own horn for a minute, but I’m so proud of what we have built — Tim, really what you have built starting back in the days of Script Financial, which is a fee-only comprehensive financial planning model. And one of the things I so appreciate about that model is it’s fully transparent, the fees are the fees in terms of what we charge for our services, and the client is paying our financial planning team for the advice that they’re giving related to their financial plan as a whole. So you know, whether that means we’ve got to spend a boatload of time on the investments and the retirement side of the plan, whether that’s we need to spend some time on the tax side or the insurance side or the student loan side or the home buying side, whatever would be the aspect of the financial plan, by nature, because of how that client is transparently paying for the advice and the transparency of those fees, we can spend the time where we feel like it’s most needed for the client and their financial plan and ultimately is in their best interest. And so that’s a model that I’m really proud of that we offer to the YFP community and for folks that are looking for a financial planner or perhaps re-evaluating the relationship they have currently, head on over to YFPPlanning.com and you can schedule a free discovery call. Tim Baker, great stuff, as always. And appreciate your time and expertise here as it relates to the discussion of fees and looking forward to upcoming content we have for the second half of 2021.

Tim Baker: Yeah, thanks, Tim.

Tim Ulbrich: As always, a thank you to the listeners for joining us on this week’s episode. And as we wrap up this first half of 2021, we appreciate you listening but also would appreciate if you could leave us a rating and review on Apple podcasts, which ultimately helps other people find this show. Our mission is to help as many pharmacy professionals as we can on their path towards achieving financial freedom, and one way we can do that is by reaching more people with this show. So if you haven’t already done so, please do us that favor, leave us a rating and review and ultimately that will help others find the show in the future. Thanks for joining us and have a great rest of your week.

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YFP 207: How to Avoid These 6 Common Financial Mistakes


How to Avoid These 6 Common Financial Mistakes

On this episode, sponsored by Insuring Income, YFP Co-founder and Director of Financial Planning, Tim Baker, discusses common financial errors ranging from those made with investing, insurance, credit, and more. Whether you are just getting started with your financial plan or looking for a tune-up, this episode will help you avoid the most common financial blunders so you can maximize your financial plan and achieve your financial goals.

Summary

Tim Baker and Tim Ulbrich discuss six common financial mistakes and how to avoid them. While financial mistakes may seem inevitable, Tim and Tim speak from their own experiences with financial errors and share ways to prevent these mistakes from impacting your financial plan and financial goals.

Common financial errors discussed in this episode include:

1. Not taking advantage of employer match

When you don’t take advantage of your employer’s match, you essentially turn down free money. Many people don’t take full advantage of employer matches because they are not auto-enrolled to do so. Getting the maximum amount out of your employer match increases your compound interest over time.

2. No budget or no financial plan

Without a budget or financial plan, it is increasingly difficult to reach your financial goals. The budget is not a one-size-fits-all and should custom fit your personal experience and what works for you.

3. No insurance or inadequate insurance

As a pharmacist with a spouse, house, and mouths to feed, you should be aware of your insurance needs and insured for an event that will require insurance ranging from life, disability, or professional liability insurance.

4. Failure to monitor your credit reports

Tim Baker recommends checking your credit reports twice a year – he pulls his reports with the changing of the clocks for daylight savings. With the increase in the digital nature of personal information, it is critical to monitor your credit for errors and identity theft.

5. Not investing or not having the right attitude when it comes to investing

Being risk-averse may impact your long-term financial plan. Building and maintaining an appropriate asset allocation that matches your goals, risk tolerance, and time horizon while avoiding impulse purchases or hunches is a more intelligent way to positive investment returns.

6. Not utilizing professional advice

Financial professionals know what they are doing, and hiring someone allows you to have more free time to do the things you want to do.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Tim, welcome back to the show.

Tim Baker: Hey, Tim, thanks. Thanks for having me back. It’s been awhile.

Tim Ulbrich: What’s new and exciting from YFP Planning’s perspective?

Tim Baker: It feels like a lot, Tim. I feel like this year is full of change and we’re excited. A lot of things going on in the background. We’ve had our lead planners out in Columbus to do some planning. It was good to kind of meet up and now that people are getting vaccinated, to be able to meet up and do some planning and talk about our goals. And that was exciting to kind of show the new office, which people may or may not know that YFP has bought headquarters in Columbus. And we’re in the process of kind of renovating a little bit and getting that ready for us to move here in — move in here shortly. And that’s been exciting and having to deal with contractors, maybe not as exciting. I think the team has continued to expand. We finish up tax season here, which is always hair on fire, and we had a lot of good help to go through that. But we actually welcomed back a former team member, now current member again, Christina Slavonik, who worked with me a year or so ago and decided to kind of come back into the fold. And we’re super excited to have her as part of the team. And yeah, so lots of changes, but all good things I think.

Tim Ulbrich: Yeah, certainly excited to have Christina back, what that means for our team. Pumped up about the new office and it’s an open invitation to any of the community that’s in Columbus or finds their way traveling through Columbus, we’d love to host you and have a chance to meet up with you. Please reach out to us. And a shoutout, as you mentioned, Tim, to our tax team. I mean, over 250 returns that we filed this year, lots of wrenches that were thrown their way with extensions and delays in state extensions and legislative pieces that were being passed in the middle of tax season. And I thought they handled it well, and we’re ultimately able to serve the community, and we very much believe tax is an important part of the financial plan. So excited to see that continuing to grow. So today, we’re talking all about common financial errors. And you and I know that financial errors seem inevitable. We’re all human; we all make mistakes. And one of our goals with YFP is to help you, the YFP community, and certainly our clients as well, to avoid as many financial mistakes as possible. And certainly we have lots of resources that are here to help in this, whether it be this podcast, blog posts, checklists, calculators, and certainly our one-on-one comprehensive financial planning services as well. And just to be clear, this is not about shaming by any means. This is about learning and hopefully avoiding a repeat of making the same mistakes. So if you’ve already made some of these mistakes, certainly Tim and I have. We often talk about these between the two of us. We’ll that here again today. So if you’ve made some of these mistakes, certainly this is not about beating yourself up. Take what you’ve learned and certainly apply that information, and hopefully that can help with avoiding future mishaps or help you to spread the word and encourage and teach others along the way as well. So Tim, let’s get to it. We’re going to warm up with what many consider low-hanging fruit. No. 1 financial error/mistake I’m going to list here is not taking advantage of the employer match. So talk to us about the employer match and why not taking advantage of it is a significant financial error.

Tim Baker: Yeah, so I think this is where often we say, it’s free money. So not often do you ever come across a situation where there’s money to be had, you know, without anything in return. So I think in a lot of cases — and I know there’s some gurus out there that say like if you’re in debt, you shouldn’t even do this, and I would probably disagree with that. I think there are some exceptions if you have lots of high interest like credit card debt, consumer debt, then this might be a situation where you don’t want to get the match. But I would say for the most part, if your employer has a 401k or a 403b match or whatever that is, you want to make sure that you are taking full advantage of that. Most employers are going to have matches that are going to incentivize you to put anywhere between 2-6% to get the full match. There are some that are designed to push you a little bit further. But for the most part, if you’re in that sweet spot of putting in 2-6% of your income into a 401k to get a full match, I would say to do that. The reason that you want to do this is because if you can get that dollar, those dollars deferred and into that retirement account, this all goes back to the concept of time in the market versus time in the market. And really taking advantage of more compounding periods to take advantage of the compound interest. So if you’re out there and you have — you’re looking at your student debt or if you have sizable consumer debt and you’re like, man, I just feel like I put money in and it stays the same, that’s compounding interest kind of taking advantage of you. And what we want to do is flip the script a bit and get that to where your money is making money. So Albert Einstein has said, “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” So the idea here is that you can get your money to work in the investment world and keep it working and allow those dollars to make baby dollars and they make baby dollars. That’s the idea here. So it’s really about time in the market. We see this as less and less of an issue now that I think it was the Obama administration, you know, has really pushed 401k plans to have an auto-enroll feature. So based on studies on this, if we are the variable that gets in the way, meaning people, that we typically are going to go with whatever is the default. So if the default is not to enroll and you have to actually take steps to do that yourself, we’re not going to do that. If the default is that we’re already auto-enrolled, then that’s what we’re going to do. So a lot of these plans — and Tim, our plan has this — is that after a certain period of time, we auto-enroll participants and we say, “OK, we’re going to auto-enroll them at x%.” For ours right now and for — speaking of the YFP 401k — we auto-enroll at 3%. The maximum match is if they put 4% in. So they would just have to go in and make that determination that they would like to do that. So auto-enroll features on 401k’s have made this a little bit less of a common mistake, but they’re still there, nonetheless, and we still come across more than you would think of those that are not putting in at least to get to the company match. And just to kind of put a bow on this, think of this in this light: You know, if you’re a pharmacist and we use round numbers here — if you’re a pharmacist and you’re making $100,000 and your company offers you a 3% match, think of that — and you’re not taking advantage of that right now, think of this as like a 3% raise where you are making $103,000 because $3,000 of that is going into your company 401k. And it’s surprising, you know, I think if you — dependent on the 401k — and I know we’re going to talk about the fees in an upcoming episode — but dependent on the 401k, it’s surprising how quickly those types of accounts can grow if you are deferring dollars out of your paycheck so you’re hopefully not missing it too much, it invested in the right way, and it’s not being eaten away by fees. It’s surprising how quickly those accounts can grow. This is a big, big miss if you’re not necessarily taking advantage of a match.

Tim Ulbrich: Great stuff, Tim. And I think just to further highlight time value of money, and I think for those that are listening that are especially getting started on the employer contribution side and perhaps aren’t leaning into that match yet, there is some trust in the momentum in compound interest, right? You can run the calculations, see the numbers, but it does feel like early on that you’re putting money in and you’re not seeing that growth until obviously those funds get to a certain balance and then you start to see the momentum of the growth on the growth. But to take your example, Tim, of somebody making $100,000, 3% employer match, $3,000, I would encourage folks to also think about it’s not just that $3,000. It’s what would that $3,000 be worth in 25 or 30 years? Right? So you know, that $3,000, if that were to grow at let’s say 7% average annual rate of return over 25 years, that $3,000 in 25 years is worth more than $16,000. So time value of money is not just what does it mean in today’s dollars, but what would it also mean in the opportunity cost of not investing those dollars? So that’s No. 1, not taking advantage of the employer match. No. 2 is no budget, no financial plan. Harsh words, Tim Baker. What do you mean by that? And you know, budgeting, spending plan, whatever we want to call it, why is it so critical to the financial plan?

Tim Baker: And some people would disagree with this. But I guess some people, especially if they might lend credence to like, you know, if you’re starting out, if you’re a new practitioner, definitely budget. If you get to a certain inflection point, you don’t need to budget. I would disagree in a sense. If you think about this in terms of like if you think about your household and the salaries you make as like revenue, if you’re a household and you’re making $200,000-250,000 as a household and you equate that to like a business and a business making that revenue, businesses are going to have budgets, they’re going to have projections, they’re going to bucket money for certain — just like we do, Tim, at YFP. You know, we have ‘this is the amount of money we want to spend on marketing, and this is the amount of money that we want to spend here and there.’ Like that’s a budget. And I would say that if you treat your household as a company, like you’re going to earmark those for different purposes. So I think this is a way of how you go about and do that. So I think where budgeting kind of gets a bad rep is the $0-based budget where every dollar has a job and you basically assign a purpose for every dollar that kind of flows through the household. And for some people, that can be super arduous, that can be super over-the-top. But I don’t necessarily think it’s an exercise that doesn’t have merit or value. But I think typically as you go, you find the flavor of ice cream that works for you. So there’s lots of different types of budgets out there. You know, you have the $0-based. I’ve seen a line item budget, I’ve seen a pay yourself first budget. There’s a lot of different ways to go about it. I think at the end of the day, a budget goes back to what is the intention of the resources that you have.

Tim Ulbrich: Absolutely.

Tim Baker: And applying that to — and by intention, we typically mean like goals. So what are the goals that you have? What are you intentionally trying to achieve with the six figures of income that you’re earning? And how do we go about that? So the budget is typically the structure or the steps to go from ‘Hey, I want to travel,’ or ‘I want to be able to give back,’ or ‘I want to be able to take care of an aging parent.’ The budget is typically the mechanism that allows that to kind of come to be. So I would say that this is typically lockstep with the savings plan. Most financial planners, in my opinion, they’ll say, “OK, your savings plan is your emergency fund, and that’s it. So you need to have $20,000 in your emergency fund as an example or $30,000 in an emergency fund,” and then it stops there. I think it needs to go further. So I think your budget and how you’re spending needs to kind of be in sync with how you’re deliberately saving for different things that are basically on the docket for goals. So — and I wouldn’t even call this a step, Tim. It’s a process. I’m a big Sixers fan, trust the process. Hopefully JoJo is going to come back —

Tim Ulbrich: I was going to say…

Tim Baker: No, but it’s a process. And I think what people do and where they get hung up on budgeting is that it’s more about striving for improvement and not perfection.

Tim Ulbrich: Yeah, that’s right.

Tim Baker: We want everything to be balanced, we want everything to kind of line up. And in most cases, that’s not going to happen. So depending on the budget and what flavor that suits you best is going to really allow you to kind of figure out how it works. So to me, this is really about being more intentional with spending, being more intentional with kind of top-line revenue. So this is not just an effort in kind of an exercise in scarcity of like, hey, this is what the pie is. I want to challenge you to grow the pie. So to me, it’s looking at both sides of that equation and really striving for improvement of what you’re trying to accomplish and not perfection. So I think that if you can kind of wrap your arms around that and not be wed to one way of doing things, then I think you’re going to see improvement. So and there’s lots of different tools out there, technologies, Mint, YNAB, some people use good old-fashioned spreadsheets, some people use envelopes, like physical envelopes to do this. At the end of the day, you know, I think the question you should be asking is, am I intentional with how I’m spending? Am I intentional with how I’m bringing money into the household? And does this align with the goals that I have set out for myself. And if it doesn’t, then I think that’s where you kind of need a little bit of a gut check to make sure that you’re on track.

Tim Ulbrich: Yeah, intentionality really stands out there to me, Tim, whether someone’s listening and they’ve got a net worth of -$400,000 or a net worth of $4 million. The process may look different, the intensity of the month-to-month might look very different, but at the end of the day, like budgeting, whatever you want to call it, to your point about looking at it from the point of a business, it’s about what are the goals, what are we trying to achieve, and then what’s the plan to make sure that that’s a reality. And the buckets might look bigger or smaller, the process might look more or less intense. But it’s about being intentional with the goals and the plan. For those that are looking for a starting point, a template, a process, you can go to YourFinancialPharmacist.com/budget. We do have a spreadsheet that you can get started with, certainly not necessarily the ending point. You can implement technology tools and evolve it from there, but that can be a good starting point. So that’s No. 2, no budget, no financial plan. No. 3 is no or inadequate insurance. I’ve mentioned before, Tim, on this podcast that insurance I think is an often overlooked part of the financial plan for obvious reasons. Thinking about something like a death or a disability or a professional liability claim isn’t necessarily the most exciting thing to think about when it comes to financial planning, especially when we can think about things like investing or saving for the future or getting rid of that student loan debt. So tell us here about what you see as some of the common pitfalls around inadequate insurance coverage.

Tim Baker: I think what a lot of people default to, a lot of pharmacists default to, is that what their employer provides as part of their compensation package is the plan for their insurance. And it’s not. It’s typically — we view it as a benefit that should be taken into consideration as we’re building out an insurance plan for your financial plan. And we’re really talking about the protection here, so like what we talk about with our YFP planning clients is how are we helping them growing and protecting — so protecting being the operative word in this step — their income and growing and protecting their net worth while keeping their goals in mind? So protection here is what we’re talking about. And typically, you know, what we focus on is things like life, disability, and professional liability. So your employer might provide you different coverages based on the employer. And that’s going to mean different things to different people, depending on their life situation. But oftentimes with pharmacists, you need to take more action in this or you run the risk of exposing yourself to a loss that could potentially be catastrophic. So you know, health insurance — so I would say that the one thing that is a plan and not necessarily a perk is health insurance. So health insurance, you’re typically best to go with the group policy, although that could change in the future. That could change where the way that employer compensation packages are designed in our country is that if the government isn’t providing that, it’s health insurance the employer does. That could change in the future, and we’ve seen that with things like pensions and 401k’s where pensions have gone away and they’ve been more robust, and a lot of it put the onus back on the employee for saving for retirement. So that could change in the future. But if we break down the insurance piece, a big miss is if we say not having adequate insurance is knowing what to have, knowing what you think that you need from particularly a life and disability insurance policy. You know, I typically say with regard to life insurance — and another piece of the protection of the financial plan is estate insurance — is that typically when you have a spouse, a house, and mouths to feed, those are typically going to be the opportunities to make sure that you are protected from a life insurance perspective and from an estate planning perspective. So more often than not, pharmacists are going to need a lot more of a benefit than what their employer can provide. So that’s typically where you want to go out into the individual policy world and make sure that you are fully protected. That’s one of the problems in the financial services industry too is like we come across a lot of pharmacists, Tim, that they might be 27 or 28 and they’ve been sold a crappy insurance policy, life insurance policy, that they don’t need, right? Because they don’t have a mortgage, they don’t have other dependents relying on them, their loans are going to be forgiven upon death or disability, so it’s just a policy that they probably don’t need right now. So it’s kind of like you have a hammer and you see a nail and it was a good cookie-cutter solution for everyone. One of the mistakes here is not understanding the need. So like we’ll have clients that will come in that will have young kids and things like insurance are not even brought up. And I look at that and I’m like, that’s a big risk. Like the student loans are important, and you’re talking about real estate investing and some other things, but like we probably need to address this first. So — and it’s typical, right? We don’t want to — we typically think that it’s not going to happen to us, a premature death or disability. So it’s very natural. So that’s part of the planner’s job is to kind of bring that to the forefront and make the proper recommendations. The other thing we’ve been talking about is disability insurance. So these are typically more likely to happen and typically more expensive because you typically have medical bills that are going to pile up as a result of a disability. So having the proper insurance there, whether that is through your employer or your own policy or buying a supplemental policy to kind of make you not whole but make you to — indemnify you to a certain threshold that you feel like you can continue the household, that’s a big thing. And a lot of these policies, the way that they’re written don’t provide a lot of protection. So it’s really looking at does it make sense to add a policy for yourself? So the idea here is that the sooner, the better. Whether it’s life, disability, the younger that you can get these policies in place, typically the better from a cost perspective. A lot of the policies that you have through your employer, the group policies, they’re not portable. Or if they are, they’re not great compared to the individual policies. So I think if you can have these separate from the employer, it makes a lot of sense with regard to protecting your financial plan.

Tim Ulbrich: Yeah, and I think you’ve covered a lot here, and there’s just a lot to think through. And we’ve only talked through very briefly three different areas. You mentioned professional liability, life, disability. But questions of like, what do you need? What do you not need? Based on what you do need, how do you shop for those, looking for policies that — and getting advice that really has your best interests in mind to make sure you’re not underinsured or overinsured? What does your employer offer? What do they not offer? What’s the gap? What are the tax implications? So important part of the plan. I think our planning team does an awesome job of weaving this in and for folks to consider, are they underinsured? Do they have adequate insurance or not? And how does that fit in with the rest of their financial goals and plans? So that’s No. 3, no or inadequate insurance. No. 4, Tim, failure to monitor credit reports. Wow. When I think of checking a credit report, I think of boring, No. 1. No. 2 is necessary, right? So you know, why is this such an important step? How often should one be doing it? And why do they need to monitor credit reports over time?

Tim Baker: Yeah, and I would definitely chalk this up to like to stage of life. So you know, if you’re more Gen X or Baby Boomer, this might not be as important because you might not be making the big decisions, although you could be sending kids to college, there might be some loans that you’re taking out. But I would say that if you’re — a lot of the clients that we work with, you know, especially as they’re starting their careers, there’s a lot of decisions that are being made that credit granting is on the table. So that’s like home purchase, car purchase, things like that. Naturally, because of age of credit, your credit is going to become stronger and stronger as you go because that’s the way that the factors that kind of go into your credit score, age of credit is a big one. But I think the big thing that is kind of universal here that is becoming more and more of a thing is just the identity theft stuff. So as our lives become more and more digital and there’s more exposure to theft, it’s kind of this cat-and-mouse game. It’s not really a question of if, it’s really when. Having kind of eyes on this is really important. So I like to typically recommend that we check credit at least twice per year. So I kind of do it when the clocks change, so when we spring forward and fall back. I myself have gone through this exercise. I’ve found large enough mistakes on my credit report that drastically changed my credit score. And this is even — like when I first started advising clients on credit, this was before the days of like banks learning kind of suspicious behavior. A lot of these banks, a lot of these institutions, they’ve come a long way to alert you and kind of give you some structural things to look at, you know, if you have expenses that are out-of-state or whatever. Even in that environment, there were some things that were from my credit report that should not have been there, that drastically changed my score. So typically, you see differences in scores because you have different formulas that every Equifax, Experian, Transunion are using to calculate your score. Different creditors are going to report differently. So if you buy a Toyota, they might be really good about reporting to Equifax but not Transunion for some reason. Or Mastercard is really good, but this other company isn’t. So you’re going to have different inputs. And really, that’s going to be the big factor that will see why your scores are different. But I think the big thing for all those that are out there listening to this is going to just be from an identity theft. And I’ve looked at client credit reports, and I’ve made comments about hey, these are things that we can do to improve this or these are different factors to consider, but I can’t look at a credit report and know that hey, this doesn’t belong there. So it’s really kind of home cooking that is really important here. So the Fact Act that was enacted I think in 2003 allows you to access your credit report for free one time per year from each of the three reporting agencies for free. So you go to annualcreditreport.com. It sounds fake, it sounds kind of hokey, but that’s the way to — the site that you want to go to is annualcreditreport.com, and pull your credit score from each of the reporting agencies. I would just kind of rotate them through and take a glance at it, see if there’s anything fishy or — and then you can always dispute things that are inaccurate, and it’s pretty easy to do that on the website there. So that would be a big thing that I would make sure that you want to build into your practice.

Tim Ulbrich: Yeah, I think to your point, this is a good maintenance part of the financial plan, right? It’s like periodic oil changes, like we’ve got to be doing this. I like your rhythm of when the clocks change, twice per year, again, annualcreditreport.com. We talk about tax being a thread of the financial plan, credit is a financial — is a thread of the financial plan, impacts so many different areas, whether that would be home buying, real estate investing, business purchases, you mentioned identity theft, so something we’ve got to stay on top of. We did an episode, Episode 162, where we talked all about credit, importance of credit, improving your credit, understanding your credit score, credit security practices, so I’d encourage you to check that out. Again, Episode 162. Tim, No. 5 here on our list of common financial errors is not investing or improper attitude towards investing. Now, I think we’ve talked a little bit about not investing when we talked about not taking advantage of the employer match. So obviously time value of money, compound interest, we’ve got to be in the market. Talk to us more about the improper attitude towards investing. What do you mean there?

Tim Baker: Yeah, so I think there’s like two extremes here when I would say that typically doesn’t necessarily align, which I think with what I think is a healthy investment portfolio. So one is not wanting to dip your toes into the market. So I kind of hear like, ‘Oh, I don’t want to take risks. I don’t want to lose any money.’ And I think for us to kind of stay in front of things like the inflation monster, like taxes, you can’t just stuff your mattress full of dollars and hope to one day be able to retire comfortably. You know, so it’s kind of like if you want to make an omelet, you’ve got to crack some eggs. So the idea here is that we need to build out a portfolio that takes risk intelligently but that is over the course of your career in line with what you’re trying to achieve. And most people, you know, if you’re in your 20s, 30s, 40s, and maybe even 50s, they typically are more heavily weighted in bonds than they need to be, in my opinion. So you know, a lot of people when the market crashed at the beginning of the pandemic, they’re like, oh my goodness, Tim, like I want to take my investment ball and go home, meaning like I want to get out of this investment. And the idea is no, like let’s keep going. Either let’s put more money in or let’s hold the course. So you want to do exactly what the opposite of how you feel. So you know, the big drivers in your ability to build wealth over time from an investment perspective is that you have the appropriate asset allocation, so the mix between stocks and bonds, and really driving your fees as low as possible with regard to the investments. In a lot of cases, when we look at our clients, there’s a lot of opportunity for improvement there. And one of the things we talk about in webinars and even in our presentation with clients is that you look at all the variables in investing, and we have conservative — we talk about Conservative Jane. So Conservative Jane makes $120,000, she gets 3% cost of living raises, she works for 30 years, but she doesn’t invest the dollars. She basically keeps them in cash or like a Money Market. At the end of that time period, she has $600,000. But then we look at Aggressive Jane, who does the exact same thing except the only thing that she changes — and I think the big thing is she puts 10% into her 401k — the only thing that Aggressive Jane does differently than Conservative Jane is that she trusts the market in the long run. So the market returns about 10% year over year, and we adjust it down for inflation to about 6.87%. And Aggressive Jane is not saving harder, she’s not working longer, she’s not making more money, she’s just trusting in the market over that amount of time, and the swing is about — I think it’s $1.2 million. So Aggressive Jane at the end of those 30 years will have $1.8 million. So that’s very impactful if you can internalize that and bake that into your investment strategy is really trust the market. Over long periods of time, it’s very predictable. The only other thing I think I’ll say about this is the other side of that is that people have maybe unrealistic expectations of their investments. So they think that if they invest a certain way for four or five years that they’re going to have this portfolio that it can live off the interest. That’s not the case, you know. And I think that there is a lot of speculation and things like that where you’re heavily invested maybe in crypto or these certain stock that can get you into trouble. And I typically say that it’s not that there’s no room for that, it’s that the overwhelming majority of your investments should be super boring and bland and not exciting at all. And typically the more exciting that the investments are, the worse it is for you, the investor. Keep that in mind as well.

Tim Ulbrich: Tim, I would argue — and you probably see this with clients and our planning team does as well — I’m not sure there’s a harder time than right now to trust the market over a long period of time and stay the course. You know, you mentioned that a good long-term investing plan — I’ve heard you say before — should be as boring as watching paint dry, right?

Tim Baker: Mhmm.

Tim Ulbrich: And I have that head knowledge, like I agree with that and I suspect many of our listeners do as well, but pick up any news cycle for 24 hours, right? I mean, whether it’s — and I’m not saying any one of these alone, to your point, is necessarily a bad thing or that folks shouldn’t be doing them — but whether it’s news around crypto or NFTs or ESGs or think of what happened with GameStop and Robinhood and others, like and I think it really challenges like the philosophy and you really have to be disciplined in like tuning out the noise for long-term investing strategies. Now again, I want to highlight, I’m not saying any of those things doesn’t necessarily have value or doesn’t have a place in one’s plan, but if the vast majority of an investing plan should be boring and should be over a long period of time, we’re trusting the market, it’s hard right now. I mean, it’s hard. Are you feeling that pressure not only individually but I sense from clients you’re probably seeing some of that as well.

Tim Baker: I kind of don’t listen to it. I don’t really read much — I mean, I try to read into it just to have an understanding of what’s going on, but I guess for me, I don’t feel the pull like I used to back in the day. One, because it’s a very humbling experience, and sometimes my clients haven’t been humbled. But like I kind of equate this, Tim, to kind of go a little bit off topic here, it’s like have you ever been around someone that’s like, man, the world is going to heck, this generation, whatever. And I think back on like well, what did they say about like the hippie, like free love? I feel like it’s always — like they probably were saying that about the dot-coms when before that, so there’s probably always been things like that that have tempted people to kind of go awry. And maybe cryptocurrency is a thing that does ultimately shatter our traditional way of looking at money and investments and things like that. I don’t know. I mean, I think that it’s really too soon to tell on that. But yeah, I mean, I think so. I mean, I think it is tough. I think if you’ve been humbled enough, it can be a little bit easier to drown it out. But to me, I think of this as like singles and doubles, singles and doubles, to use the baseball analogy is that if you’re going up at every at-bat and you’re trying to hit the cover off the ball, you’re going to strike out a lot. And you might hit a few home runs, but we’re really looking at consistency. And if I know that there is this — the S&P 500 returns this, and it’s never been, we’ve never had a rolling 20-year period that’s been negative, even through the Great Depression, I’m going to bank on that unless told otherwise. So like, that can be hard for people to hear because they think of investments and they think sexy and exciting and things like that, but that’s not what I think a healthy investment plan makes. I think you want to keep the speculation low. And I’m not saying that that’s not — I still from time to time will go to a casino and play Blackjack or play poker. I still gamble just because I don’t do it as much as I did when I was younger, but just because I’m out and I’m with friends or I’m doing whatever. But if that’s the bulk of what your plan is to get to financial freedom, so to speak, I would caution you.

Tim Ulbrich: Yeah.

Tim Baker: And it could work. I mean, it could work. You could put all your proverbial eggs in the Amazon bucket and be completely OK, but you know, the way that people view Amazon — maybe not now but you know, 5-10 years ago, was very similar to how they viewed Sears back in the ‘70s, ‘80s, and ‘90s.

Tim Ulbrich: That’s right.

Tim Baker: And that company was this behemoth and they sold everything and would never go away. And then all of a sudden, it’s not a viable company anymore. So — and I can say this, I used to work for Sears back in the day, so I can say that not everything lasts. But I think that the U.S. stock market has been very predictable over the long run.

Tim Ulbrich: That’s a great example, Tim. We might be dating ourselves a little bit, but you think of — I can remember when it was the lesser known at the time Walmart and Amazon entering into the KMart and Sears world. It’s hard to even think of that in today’s day and age. I think your point about being humbled is a really interesting one. You know, we’re talking about common financial errors. So I’ll throw one out here. 2008, I was humbled by thinking I could pick individual stocks. Thankfully, I didn’t invest a whole lot of money. Circuit City, how did that work out? Right? So you know, I think your point about being humbled and again, there may be a portion of the portfolio where this makes sense for many folks, especially if they want to scratch that itch. The other thing you mentioned here, which I want to highlight we’re going to come back to next week is you mentioned fees. And we’re going to talk next week about how important it is to really understand the fees of your investment portfolio and really understand the impact that those fees can be having on your long-term returns and the importance of holding on to as much of your investment pie as possible. So stay tuned with us next week as we talk about fees. Tim, I want to transition into our sixth and final error, which is not using professional advice, not having a coach in your corner when it comes to the financial plan. And I think this is a good segue to what I just mentioned of this day and age, there’s a lot of noise. And so having somebody who’s keeping you accountable, who’s really reflecting back to you what you said were important and the goals, helping you look across the financial plan and really helping to direct you towards those end goals that you had articulated and to keep you on the path when human behavior may suggest that we want to go off the path from time to time. So obviously we’re biased, full disclaimer, we wholeheartedly believe in the value of a financial planner, otherwise we wouldn’t be doing it. So Tim, tell us why you think this is such an important part of the plan and why it’s perhaps a mistake if folks leave out a coach from their plan.

Tim Baker: Yeah, so I think if we look at it like our mission of empowering pharmacists to achieve financial freedom, I think we both agree that in a one-on-one engagement with a fiduciary, a fee-only planner, is the shortcut to that. And I think we’ve seen that a lot with our clients where we see kind of the before picture and the after picture, and those are typically because of I think that relationship that a planner has with a client and the way that is forcing them to think differently, right? So like I often joke that I’m a financial planner, but I need a financial planner because I need someone to — a third party to objectively look at our financial plan and say like, am I insane? Or are we nuts? Or are we on track? Right? So I like I know the technical piece of it, like I know what it is to be a CFP and what — just like you’re a pharmacist and you need to know the technical piece of it or a doctor, they’re still going to go to like other health providers to kind of provide that insight and those opinions. But so I think the third party is a big thing. I think the other thing that we don’t necessarily trade on that much is, you know, like for a lot of people, when’s the last time you actually sat down and talked about goals with yourself or like with a partner? So like, you know, I kind of equate this to like I’ve been in periods of my life, Tim, where you are so — I don’t want to say like zoned out but like you ever get into your car and you’re going to work, and it’s 6 o’clock in the morning or whenever you go into your work, and you drive that 30-minute commute, and then you get to work and you don’t even remember any of that drive. It’s just —

Tim Ulbrich: That’s right. Yep.

Tim Baker: You’re on like autopilot. I think that the danger of not utilizing a professional in some regard is that you get into that where you like wake up 10 years from now or 20 years from now and you’re like, what the heck did I actually do? Or like is this a wealthy life for me? And you’re not having those critical conversations with yourself or out loud, which I think can be so powerful. So where are we going? Are we sure that’s where we want to go? Is this insane? And having that kind of, again, objective third party to make sure that we’re outlining goals and we’re being held accountable to that. And then I think the other thing that like is really important is that guidance, is that knowledge, is that technical expertise with best interests in mind. So to me, like if you’re talking to a financial planner, the two things that I think need to be there and if they’re not I’m going the other way is are you a CFP? So unlike a PharmD or JD or MD, like this is a designation that there’s an ethics requirement, there’s an experience requirement, there’s an education requirement that most financial advisors don’t need to kind of do what they’re doing. So like the barrier to entry to become a financial planner is very low. So you want to make sure that the CFP designation is there. And I think the other thing is are you a fiduciary? Are you going to act in my best interests? Or can you put your interests, meaning the planner’s interests, ahead of mine? And what most people don’t know is that 95% of advisors out there are not fiduciaries. And typically if you know the names of those types of firms, they’re not fiduciaries, meaning that they can put their own client — put their own interests ahead of their client’s. So you know, I think that the technical expertise and that is, those are just table stakes. Like I think that that’s going to come with the territory. It’s really I think overlying the human element and to me, I think what we try to do from a planning perspective is make sure that we’re taking care of clients today, say in 2021, but we’re also taking care of clients in 10, 20, 30 years from now and their future self and really threading the needle between taking care of what’s going on today and then that future version of yourself. And I feel like if you don’t feel like that push and pull, if you’re always saving or if you’re always spending, that can lead to some problems. And I think that having that objective third party to kind of guide and hold you accountable, give you some tough love, give you some encouragement, give you some idea of where you’re at compared to peers, for example, I think that’s vitally important.

Tim Ulbrich: Yeah, and Tim, what you said about the human element just really resonates with me and I think will with our community as well. I mean, I think we often may have a perception of financial planners or advisors, whether that’s from movies or books we’ve read or parents that have worked with an advisor, whatever it be, but we tend to think I think of more of that tactical type of moves that folks are making, right, whether that’s certain investing decisions and insurance decisions, maybe it’s Roth conversions, things like that, tax decisions, etc. All of those are important and to your point, that’s table stakes in terms of an expertise that they’re going to provide. You want that knowledge, experience, and expertise. But it’s the human element. I think so much of the value you’ve provided to Jess and I has been in the conversations that have been initiated and the constant revisiting of what are our goals? What did we say was important, and are we actually living the wealthy life that we said we wanted to live? And the answer to that is not always yes, but we need that compass that we’re moving towards and we need that reminder, we need some accountability, we need a coach to make sure as life is racing by that we’re ultimately stopping, pausing, and getting back on the direction that we said was so important. So for those that are listening to this, if that is resonating with you, we’d love to have an opportunity to talk with you to see if what we offer from a financial planning standpoint is a good fit for you. You can go to YFPPlanning.com, you can schedule a free discovery call. Again, YFPPlanning.com. Tim or I would love to have a chance to talk with you further. Tim, great stuff. We’ve covered six common financial errors, and as always, we appreciate the community listening in to this podcast. If you liked what you heard on this week’s episode of the podcast, please do us a favor and leave us a rating and review on Apple podcasts or wherever you listen to the show. That will help other pharmacists be able to find this show as well. Thank you so much for joining, and we look forward to this episode next week. Have a great rest of your day.

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YFP 206: Three Strategies for Buying a House with Student Loans


Three Strategies for Buying a House with Student Loans

Nate Hedrick discusses strategies for buying a home with student loans. He talks about the decision to rent vs. buy, how to determine when you’re ready to buy, and three strategies to consider when deciding to buy a home with student loans.

About Today’s Guest

Nate Hedrick is a full-time pharmacist by day, husband and father by evening and weekend, and real estate agent, investor, and blogger by late night and early morning. He has a passion for staying uncomfortable and is always on the lookout for a new challenge or a project. He found real estate investing in 2016 after his $300,000+ student loan debt led him to read Rich Dad Poor Dad. This book opened his mind to the possibilities of financial freedom and he has been obsessed ever since. After earning his real estate license in 2017, Nate founded Real Estate RPH as a source for real estate education designed with pharmacists in mind. Since then, he has helped dozens of pharmacists around the country realize their dream of owning a home or starting their investing journey. Nate resides in Cleveland, Ohio with his wife, Kristen, his two daughters Molly and Lucy, and his rescue dog Lexi.

Summary

Nate Hedrick returns to the show to discuss knowing when you are ready to buy a home, questions to ask yourself to gauge your readiness, and three strategies for buying when you have student loans.

The first strategy for buying a home when you have student loans is to buy a home as soon as possible. The advantages of this strategy include immediate emotional satisfaction, being your landlord, building equity in your home, and tax advantages for homeownership realized. The disadvantages include high upfront costs, increased likelihood of paying PMI, the effect the purchase may have on your budget, and the decrease in flexibility to move at will.

The second strategy is to pay off your student loans first, then buy a home. The advantages to this strategy are emotional relief from debts being gone, increased flexibility in the budget, and potentially increased emergency funds should problems arise. Disadvantages to this strategy include a period of renting and not building equity, potential loss of market appreciation, potentially missing out on historically low-interest rates, and delayed access to tax benefits.

The third strategy is more of a hybrid model. In this strategy, the homebuyer pays down the student loans and then buys a home. With this third strategy, there may be a feeling of relief and confidence, less overall debt, and a lower risk of defaulting on payments. Disadvantages are the same as the second strategy, though generally for a shorter time.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Nate, welcome back to the show.

Nate Hedrick: Hey, Tim, great to be here.

Tim Ulbrich: It’s been so fun to hear you and David on the Real Estate Investing podcast as hosts. I shared with you before we hit record, I’ve enjoyed being a fan of the show, love hearing other pharmacists’ stories about their real estate investing journey. So kudos to you and David on the work that you’ve been doing. That’s not what we’re going to talk about here today, though. I want to bring you on as a guest in your role as The Real Estate RPh, someone who has expertise on the home buying side, also being a real estate agent, so we can dig into the topic that I think is front-of-mind for so many pharmacists out there, especially in this real estate market, and that is buying a home while still dealing with student loan debt. So Nate, before we jump in, I think folks if they’ve listened to any of the news lately, they know the chaos that is the real estate market right now. But just give us a quick pulse from what you’re seeing in your market in Cleveland and obviously as an agent in helping other pharmacists.

Nate Hedrick: Yeah, absolutely. And thanks, it’s been really fun getting started with the podcast. And David and I are having a blast meeting all these great pharmacists doing real estate investing. And it’s been a really fun time. So but yeah, the market right now is obviously a big seller’s market. There is very low inventory. The interest rates are low, so it’s driving up people that want to buy because money is cheap. And so we’re seeing a lot of bidding wars. Houses come on the market and there’s 10 or 11 offers by Saturday afternoon and people are looking for highest and best by Sunday evening. And so it’s just — it’s a bit crazy. It’s nice for a market with my sellers. I had a listing that was on the market I think — I don’t know — two or three days that we got a full-price ask. So it’s really nice to have listings, but my buyers, it’s a lot of work. We’re doing a lot of offers that include escalation clauses, which bump up the price, and appraisal gap coverage and all kinds of crazy stuff.

Tim Ulbrich: I was thinking about you last week, you know, for agents that are obviously working with the buying and the selling side, like what a difference of just — I mean, effort of course and work but also I mean, you know, on one end you might be working with somebody who’s putting in one offer that is one of 10, 15, 20 offers. On the other end, it’s like, keep them coming. Keep the offers coming and we’re going to react to the best one.

Nate Hedrick: Yeah, I had a physician client, two young physicians, new residency here in Cleveland, they’re moving from D.C. back to Cleveland. And I think we ended up looking at — it had to be 60 houses. It was the most I’ve ever seen with one client. And there’s other real estate agents that are listening that are probably like, that’s not a lot. But for me, that was a ton, a ton of houses. We did one offer every week and one offer every weekend, so two a week at least. It took us 10 or 11 houses, or 10 or 11 offers to get something accepted for them. But they’ve got a great house. It just took a ton, a ton of effort to get them there.

Tim Ulbrich: Yeah. Persistence for sure. So let’s talk about home buying and student loans. You know, our audience knows well that pharmacists today are facing big mountains of student loan, $175,000 is the median indebtedness for a pharmacy graduate in 2020. Hopefully we’ll be getting the 2021 data here soon. But I think we know where that number is going to be going. And we often hear from folks in the YFP community as well as prospective financial planning clients of ours at Your Financial Pharmacist Planning that pharmacists are often trying to juggle several competing financial priorities, which really of course depends on the person, right? It could be buying a home, paying down debt, investing, saving for retirement, the list goes on and on. And what we often do when it comes to comprehensive financial planning is we’re working with clients to help them determine their financial and their life goals and to ultimately develop and establish a plan to help those individuals reach those goals. So when we talk here about student loan debt, obviously one big goal that we hear from many folks in the community, a big barrier is I want to get a home, but I’ve got all this student loan debt. And when is the right time? And so I think there’s this question of, is there a best time? You know, what are the different options that are out there? So Nate, high level, what do you think of as kind of the buckets or strategies that folks may be thinking about when it comes to buying a home while also focusing on student loan repayment?

Nate Hedrick: Yeah, and I think this is, you know, regardless of the market, there are three main options for what this looks like. And you do this in a buyer’s market or a seller’s market. But you know, Option 1 is kind of the “I want everything now,” right? Buy a home ASAP. Go ahead and just do it. Option 2 would then be the opposite of that where you’re paying down all your debt first and then you buy a house, and that’s like the very Dave Ramsey approach. And then there’s Option 3, which we’ll talk a lot about I think as we go through this. But that’s kind of what I call the hybrid approach, where you’re looking at getting rid of the bad debt first and then going ahead and purchase that home, even though you’ve got some of those student loans in place. And we’ll talk through those details.

Tim Ulbrich: So we’ll dig into each of those strategies. First things first, you have to decide if it’s renting, is it buying, what’s the best move for you going forward? And really, if you do choose to buy a home, knowing whether or not you’re ready and being prepared to do so. So Nate, just some initial thoughts on how can someone determine if they are ready to buy a home.

Nate Hedrick: Yeah, absolutely. I think there are a lot of things you can do in advance to make sure that you are prepared for that process and some questions you can kind of evaluate to determine is it right for me to rent? Is it a good time for me to jump in and start buying? And again, how do my other finances fit in with that? So you know, for example, are your student loans at a point where they are causing you significant stress? That’s just one easy-to-answer question, right? Are these driving me crazy? Are they the thing that I can’t stop thinking about? Or is it that I need to go buy a house first? And if your answer to that question becomes, absolutely, I’ve got to get rid of these student loans, it’s the thing that’s killing me, maybe you need to wait on that house purchase. And so questions like that can help you start to figure out where are your priorities, and then you can start looking at the actual financial pieces. You know, for example, do I have an emergency fund? Am I contributing to my retirement fund on a regular basis? Right? I would typically advise somebody to have those things in place first before going out and purchasing a home. You know, there are advantages to buying that house but not in replacing your emergency fund or taking away from your retirement just so you can go do it. So those early financial questions I think are a really good place to start so that you know your priorities before deciding what strategy is right for you.

Tim Ulbrich: Yeah, Nate, what I like about those questions, one thing I talk often about on the show — our audience has heard me on repeat say this — is really trying to avoid making any financial decision in a silo. Right? Taking a step back and saying, what else is going on with the financial plan? And I think in this scenario, right, we’re talking about home buying, we’re in the spring of 2021, the market is en fuego, like you’re talking to peers and friends and colleagues and others that are buying homes, it’s all over the news, interest rates are low, like that puts the pressure — perhaps — on like OK, got to buy, got to buy, got to buy, especially if folks are having that as an interest. And these questions, you know, are my student loans and other debt causing significant stress? What about my emergency fund? Where am I at with my retirement funds? Where are the contributions? How might this position to buy v. continue to rent ultimately direct that? So really taking that step back and asking those questions and also being fair that rent prices right now are also en fuego. So like this may not be necessarily just a home prices are escalating, therefore it’s best to stay put. But I think asking these questions to really try to evaluate it, you know, as objectively as you can with the rest of your financial plan in consideration. So let’s dig into those three strategies that you mentioned, Nate. And we’re talking here again about paying off student loans while also looking at purchasing a home. You mentioned No. 1 is “I want it now,” right? So ultimately, you know, getting the home as soon as possible and really focusing on that. The second approach you mentioned is really more of that Dave Ramsey type of approach of OK, let’s pay down all of the debt and then we’ll even think about a home after that. And then the third you mentioned is more of a hybrid approach. So let’s start with No. 1, the “I want it now,” buy a home as soon as possible. So who is this strategy for? Talk to us more about some considerations around this strategy.

Nate Hedrick: Yeah. And so full disclosure, this was me about seven years ago, right? We had come out of pharmacy school and residency and decided we wanted a house. We wanted space to call our own, we wanted space for our dog, we wanted — like, you name it, there were 10 reasons why emotionally we were ready to have a house. And so for us, it became alright, that’s going to be the driving decision, we’ll figure out the costs later. I don’t care, we’re going to buy a house. And so this strategy is really for those people that say, “Look, I am ready to jump in. I am comfortable with where my student loans are at, or comfortable enough that I can take this financial responsibility, and it’s time for us to dive in and take a look at purchasing that actual house.”

Tim Ulbrich: Yeah, the other group I think about here too, Nate, you know, without getting into the weeds of student loans, would be for those that are pursuing a forgiveness option, right? So whether it’s PSLF, Public Service Loan Forgiveness, non-Public Service Loan Forgiveness — if you’re hearing those terms for the first time or want any more information, check out any previous YFP episode. I think we’ve talked about them. But you know, when I think about the strategy around forgiveness, now, granted if that is the right move, which is a further conversation back to my point about not looking at things in a silo — if Public Service Loan Forgiveness of non-Public Service Loan Forgiveness is the path forward, typically the strategy is then, OK, what can we do to minimize payment, maximize forgiveness. Well in that case, there might be additional cash flow, right, that’s there on a month-by-month basis that may not be the case if somebody’s let’s say in an aggressive repayment, either in the federal program or in the refinance. So great example where student loan strategy can really intersect here with the home buying discussion and decision as well. So advantages and risks. So as we talk about this strategy, Nate, buy a home as soon as possible, “I want it now,” what are some advantages? What are some potential disadvantages or risks?

Nate Hedrick: Yeah. I think most of the advantages here are emotional, right? I think they’re kind of obvious from that standpoint. You get the house, you get to become a landlord right away. But there are a couple of financial advantages as well. One is that you build that equity and that credit right away. I mean, if you had been in my shoes seven years ago and now where the housing market is today, right, our house has gone up tremendously in value just sitting here and enjoying it. So there is some advantage to that. You’ve got tax advantages as well. You know, you get to pay down or at least deduct in some capacity your mortgage interest and some of your property taxes in some cases. So there are definite financial advantages, but I think in this strategy, most of the advantage side is leaning toward the emotional aspects. And then on the risks or the disadvantages I guess, you know, obviously there’s less flexibility built in. You know, renting is great because you have that flexibility if your job changes or if you want to go to a different location. There’s higher upfront costs from doing it this way. Obviously you’ve got a lot more debt load, a lot more debt-to-income ratio is being increased by doing this. So you know, from a financial aspect, it’s a bit more tricky for sure.

Tim Ulbrich: Yeah, and I think I’ve talked about this on the show before when we had a discussion on renting versus buying — we’ll link to that previous episode in the show notes — but you know, don’t forget about all the other costs. Right? We’ve talked about this on other episodes before, all of the other costs that come along with the home purchase, not necessarily just doing a rent payment comparison against what would it be with mortgage .Obviously you’ve got taxes, you’ve got insurance, you’ve got things that you need to furnish the home, take care of the house, etc., other costs that can be a significant factor. So strategy No. 2, get rid of all of the debt, then buy a home. Now I know folks are going to hear this, Nate, because I was in bucket No. 1, right, so I’m with you there. You know, folks that are looking at $175,000-250,000 of debt, like seriously? Like wait until I have all of that paid off? I mean, you know, some may — as we’ve had featured on the show before — some might be able to knock that out in 2, 3, 4 years very aggressively. But many folks are looking at 10, 15, 20-year repayment. So where does this strategy fall? What might this be an opportunity for some folks to consider when we talk about getting rid of all of your loans and then buying a home?

Nate Hedrick: Yeah. I definitely think this plays into someone who might have a smaller debt load than the average pharmacist. And by smaller, you could still be talking about $60,000, $70,000, $80,000 but something that you can tackle in 1 or 2 years if you really were aggressive with it. I think you’re right, the typical pharmacist or even the typical pharmacist couple in some cases where you’re coming out with $300,000 together in debt, like it’s just — it may not be possible to choose this strategy and still make financial sense. But there are plenty that do it. I mean, take a look at Tim Church’s story, right? He went out and him and his wife really focused every dollar on getting rid of that debt first and again, because it was a major pain point for them. They said, “I hate this debt. And the idea of taking on more makes me sick to my stomach. I can’t do it.” So if you’re one of those people, this might be the right call for you.

Tim Ulbrich: Yeah, and I think that’s a good reminder, you know, Nate, of like really being true to how you emotionally feel. Here, we’re talking about how you emotionally feel about debt but also it will be about how you emotionally feel about other parts of the financial plan and not necessarily just what someone else is doing or what else you have read but really being true to how do you feel about that. And then this case, an obvious advantage would be if you just hate the idea of that student loan debt and you can really aggressively pay that off, then obviously the advantage being you’re going to have a lot of relief from having no other debt and be able to move into that home in a very confident financial position. So that of course is one advantage. What are some other advantages that you think about with this strategy as well as some disadvantages or risks?

Nate Hedrick: Yeah. From the advantage side, I definitely think that you have more flexibility once you get there. Right? All of the advantages are kind of once you get there. But you have that more flexibility in your budget when you’re ready to buy a home, you’ve got greater cushion, you can make bigger mortgage payments, especially if something unexpected comes up. So I know a couple of physician and pharmacist friends who are looking at methods like this where they want to get rid of their debt first so that one of them can cut back on their hours and they can still afford that home that they want to purchase. So there are definitely — it provides more flexibility, but again, a lot of those advantages don’t kick in until you paid off that debt. So you’re kind of sitting on the disadvantages until that point. And so again, obviously the risks there are it could take you several years to get there and you’re not building any equity in that time. And so you could miss out on significant market appreciation. You also could miss out on locking in these great interest rates that we’re having right now. I mean, we are talking about truly, truly historic lows. They’ve come up a little bit in the last couple of months as buying interest has increased, but I mean, truthfully, you cannot get interest rates much lower than they are right now. And so you might miss out on that if it takes you 2 or 3 more years to get access. And then of course, you know, there are very few advantages for income earners like ourselves in terms of tax implications. But getting a mortgage is one, and so you miss out on that small advantage as well.

Tim Ulbrich: I think interest rates is an interesting conversation, especially for those that are new graduates that are looking for a home or recent graduates. You know, Nate, it feels like — you know I graduated 2008, you were a few years after that — like we’ve been in a historically low interest rate period. Right? So I don’t feel like I have an appreciation — like when we say historically low rates, it’s like, yeah, they are relative to where they’ve been, but they were still really good just a couple years ago. And before that, we were talking about historically low rates that were there as well.

Nate Hedrick: Right.

Tim Ulbrich: So we don’t have the perspective. Like go talk to my parents or talk to my grandparents, and you hear stories of double-digit interest rates and other things. So definitely an important consideration, but I think it has become somewhat of a norm that we’ve been used to here more recently. But who knows where that will go here in the next year or so?

Nate Hedrick: Definitely.

Tim Ulbrich: Third strategy you mentioned, Nate, is a little bit more of a hybrid approach. So what do you exactly mean by that?

Nate Hedrick: Yeah, and so this is one that I really advocate for, which is really getting your financial house in some sort of order and then going off and purchasing that home. So it’s not paying down everything, but it’s also not just jumping in head first. What this looks like is getting those student loans either refinanced or into a student loan forgiveness program or under some sort of control, getting rid of the other bad debt that you might have, credit card debt, for example, getting rid of that stuff first, the things that are really going to outpace any of the advantages you get with purchasing a home. And once you’ve got that in line, you’ve saved up a sizable down payment so that you’re avoiding things like PMI or any sort of getting rid of your emergency fund, then you go forward and purchase that home. So it’s really about maximizing the benefits, minimizing the risks and trying to balance that out.

Tim Ulbrich: Yeah, this really intrigues me, Nate, and I wish I would have had you in my ear back in 2009 because I think what resonates with me with this strategy is, you know, I went into the buy a home ASAP. And I think with just a little bit more time, if I would have been able to really better understand like what are all of my student loan repayment options and what is the best fit for Jess and I in this repayment journey — and when I think about this, I think about locking in your strategy. Right? So it doesn’t mean — here, as you’ve articulated, it doesn’t mean you’re debt-free before you’re purchasing a home. That was No. 2. But we’ve got a game plan, and we know exactly what that game plan is, we’ve considered other parts of the financial plan. So whether that’s refinancing, whether that’s loan forgiveness, whether that’s some other plan, we know what that’s going to look like month-to-month, we know what the total amount is going to be paid or total amount that also may be forgiven in a forgiveness plan. And so now, we can put in that one puzzle piece of the plan of the student loans so we can then start to move these other puzzle pieces like the home in around it. Right? But we’re not moving into the home purchase decision still wondering like, what is the student loan plan? You know? What might this look like? We talk often on this topic, webinars and speaking events and other things, and I often will show a slide and a chart that shows for a pharmacist coming out with $150,000 or $200,000 of debt, if they choose Option A, B, C, D, or E when it comes to student loan repayment, whether that’s forgiveness or non-forgiveness, federal or private, there’s a difference, big difference that can happen on a monthly payment basis as well as what’s paid out over the life of the loan. So if that’s a question mark, you know, and you haven’t evaluated those options, I think it’s really difficult to know where does that home piece fit in around that, if the payment is going to look like on a month-to-month basis is still unknown. So talk to us then, Nate, about the advantages and disadvantages of this strategy when it comes to this hybrid approach of paying down the student loans and having a strategy while also moving forward with home buying.

Nate Hedrick: Yeah, I think this really tries to play into the advantage — it really ups the advantages where it can and then it kind of disengages those risks wherever it’s possible. So for example, you’ve got that feeling of relief because you’re going to have the student loans under some sort of control, right? They’re not going to be gone.

Tim Ulbrich: Yeah.

Nate Hedrick: But maybe you’ve refinanced them down to 3% now and now you know, OK, this is basically like inflation money. I have my payment, I’ve got that figured out every month, and I can stack things on top of that. It also helps because hopefully you’re going to be taking on less overall debt, especially if you’re taking the time to build up that down payment, that emergency fund, you know, and maybe you’re paying off things like — or you’re getting enough down payment that you’re going to avoid PMI or using a pharmacist home loan product to avoid PMI. All of those things are going to help you in taking on less overall bad debt. So those big advantages, and then again, kind of the ultimate is that if something does happen, right, if you lose a job, if you miss out on work for a period of time, or someone needs to cut back on hours, you have a lower risk of defaulting on those payments because you’ve set yourself up for success from the beginning. It’s not perfect, you’ve not paid down all that debt going into it. But you’re getting that home a little bit sooner, and you’ve got this cushion built in that may help you out. The disadvantages is obviously this still could take time, right? You could still take 2 years to approach this hybrid model where it makes sense. I like to think that you can pull this off in probably a year, a year and a half, because really, truly getting that down payment saved up in that time should be doable, especially using like a pharmacist home loan product. But you are waiting. It’s not getting the house tomorrow. It’s giving it a little bit of time still.

Tim Ulbrich: Great stuff. And for those that heard the three strategies and the discussion we’ve had here today and want a refresher without going back and hitting replay on this episode, Nate has put this into a blog post, “Three Strategies for Buying a House with Student Loans.” That’s available at YourFinancialPharmacist.com, on the YFP blog, and we’ll link to that in the show notes. Nate, I want to spend a few minutes and talk about the Real Estate RPh concierge service that we offer to the YFP community because I think that many folks that are listening to this are probably somewhere in the stages of home buying, whether that’s a hey, I’m out there looking right now, or I’m going to get started. Maybe it’s three months out, six months out, whatever be the case. But we know how important it is to have an agent that understands your situation and really ultimately has your best interests in mind. And we’ve got the advantage of having you, Nate, as someone who both understands the pharmacist, is a real estate agent, has gone through this process of student loan repayment and making a decision to buy a home, and I think that perspective can be incredibly valuable to other pharmacists that are in the home buying decision-making process. So Nate, tell us about exactly what is the real estate concierge service and what folks can expect as they go throughout that.

Nate Hedrick: Yeah, so this goes back to when I bought my first house. And it came time to get myself an agent, right, I knew I was a buyer, I knew that getting an agent was basically free. But that’s about all I knew, right? I knew that I needed to go find one. And so I started asking my friends. And someone said, “Oh yeah, here, use this person.” And they were fine. They did their job OK. But as I learned more about real estate, becoming an agent, working with clients, I realized there was a lot of things that they could have done differently and that I wish I would have known as a buyer from the beginning. And so I said, “We can improve that for other people. Let’s go out and do that.” And so what I do is I actually connect with potential buyers, with pharmacists like yourselves or with anybody that’s looking to purchase a home anywhere in the country. We do a 30-minute planning call. It usually doesn’t take that long, but I at least set aside that 30 minutes to answer questions, go through the home buying process with you so that you can fully understand it, ask any questions that you have about it, and then once we have that conversation, I go out and I find you a great real estate agent. And sometimes it’s somebody we’ve already worked with, we’ve helped over 30 pharmacists close on houses at this point, which is pretty fun. And — so it might be somebody we’ve already worked with in the past, or it might be somebody that we simply know from interviewing them. And so I’ll go out and I’ll interview agents, try to match up someone who I think is going to be a really good fit for you. And then we get you connected, and you get off to the races with this great, personally-vetted agent. The other cool thing is that I don’t leave once that connection takes place. I get to be still a part of your team. And so if you need a second opinion, if you just want to bounce ideas off of me, somebody that isn’t your agent but is an agent, you can come right back to me, sign up for another call, send me some emails. You know, it just gives you that person in your back pocket that knows and understands this process to really help you out. And so it’s been a great tool for our pharmacists to tap into and our community to tap into. We’ve had a lot of success over the last year or so.

Tim Ulbrich: Yeah, that’s great, Nate. And for our community, this really initiated I think in part because of really the value that I see Nate brings to the community, his expertise in this area. We’ve known each I think for the better part of a decade now.

Nate Hedrick: Yep.

Tim Ulbrich: I realized that this topic of home buying is something that close behind student loans and some others is really top-of-mind for our community and going through this process firsthand a couple times, know how important it is to have a good agent that is in your corner. So —

Nate Hedrick: Especially in this market.

Tim Ulbrich: Yes. Big yes.

Nate Hedrick: I mean, having somebody that’s going to be able to fight for you and understand what kind of things are going to get the deals done — if you’re a buyer, I mean, that is so, so essential right now. I’ve seen tons of people that just get frustrated because the agent they’re working with isn’t helping them along or not explaining it to them well enough, and then they just say, “You know what, forget it. I’m just going to rent for another year. I’ll figure it out later.” But a lot of the agents that we work with, like they understand this market, they work in it every single day. And they’re able to navigate it for you and help you actually achieve that home buying process.

Tim Ulbrich: Yeah, and full disclosure, as Nate mentioned, the service is completely free to use for the buyer. If you work with an agent within the network that is referred and end up closing on a property, then that agent pays a small commission back to Nate. So that’s full transparency of how the process works. Obviously having Nate in your corner can be a valuable resource. We know that home buying, it’s an exciting experience, it can also be overwhelming at times. You’ve got finding an agent, financing, searching for the place, this market, as you mentioned, Nate, so that’s really the value I think that can be brought through the concierge service and working with Nate. So for those that are interested, YourFinancialPharmacist.com, top of the page, you’ll see Buy or Refi a Home. Then you can click on Find an Agent. That’ll get you connected to getting some time on Nate’s calendar. And we’ll also link to that directly in the show notes. Nate, as always, appreciate you taking the time, appreciate your expertise, and looking forward to having you back on the show in the future.

Nate Hedrick: Yeah, thanks for having me. And we’ll talk again soon I’m sure.

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YFP 205: Current State of the Pharmacy Job Market


Current State of the Pharmacy Job Market

On this episode, sponsored by Insuring Income, Tim Ulbrich welcomes back to the show, Alex Barker, the founder of The Happy PharmD. They talk about the current state of the pharmacy job market, considerations for those looking for their first position or switching jobs, and the intersection between your career and your financial plan.

About Today’s Guest

Alex Barker is a pharmacist, entrepreneur, author, and creator of The Happy PharmD and the Happy PharmD Summit.

Summary

Alex Barker, pharmacist and founder of The Happy PharmD, joins Tim Ulbrich to discuss the current state of the pharmacy job market. With many new pharmacists graduating around this time, looking for new positions, and still others looking to change positions, it is a perfect time to touch on the pharmacy job market, its current state, how that differs from previous years, and what the future looks like for recent graduates.

Alex shares some interesting data on the state of the pharmacy industry that includes the number of open positions currently, the percentage of full and part-time jobs, and the percentage and number of positions available in the undefined category. Without information as to whether undefined jobs are full or part-time, applicants should consider reaching out to the hiring department for more information, creating a new connection at the same time.

Alex explains that much like tackling financial goals, career goals should be approached with the end in mind. Without much change to a pharmacist’s salary throughout their career, a side hustle can provide opportunity in the form of personal satisfaction as it relates to the pharmacy career as well as a pathway to financial goals, ultimately leading to financial freedom.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Alex, happy to have you back on the show.

Alex Barker: Thanks for having me back. I think it’s a good sign that I’m back, right?

Tim Ulbrich: It is. You are a frequent guest and certainly a friend of YFP, and appreciate the contributions that you make on the show. We had you on last on Episode 192, so this was way back when, February, where we talked about the findings from the 2021 Pharmacist Salary Guide. And today, I’m excited. We’re going to have you on to dig into the current state of the pharmacist job market, including financial considerations for those that are starting their first position and those that are looking to make a move to another position. So before we jump in, Alex, I don’t want to assume that all of our listeners know who you are. But give us a quick intro to Alex Barker and The Happy PharmD.

Alex Barker: Oh, I’m just some goofy pharmacist —

Tim Ulbrich: True, true.

Alex Barker: — that figured out entrepreneurship. I’m Alex Barker. I founded The Happy PharmD in 2017 I think. And since then, we’ve helped about 700 pharmacists transition into new and better jobs. We do career and business coaching. And we focus a lot on helping people find that spark again with their career, help them create an indispensable career rather than feeling like eh, dreading what I do or I feel like my company’s going to get rid of me. So that’s my main focus. I do a lot of other fun stuff like hanging out with Tim Ulbrich in a podcast. I love Thai food and anime. And that’s — oh, and Dungeons and Dragons. That’s me in a nutshell.

Tim Ulbrich: Of course Dungeons and Dragons. Yes. You know, Alex, I’ve never asked you this question, but I’m going to put you on the spot here for a moment. When you talk about 700+ jobs or pharmacists that you have impacted to help them find a better job, more fulfilling career, however we want to word it, have you stopped and reflected on that? Like the significance of that. I know you run at a pace that is fast — we’ll call it that. But I mean, have you paused — I’m fascinated by the topic of legacy. And I think you’re just getting warmed up. But you know, what makes people tick, why do they do what they do, and when I think about the work that you do and obviously the team at The Happy PharmD are doing and the impact that has on those individuals, the profession at large, but then I even think about pharmacists being in a more fulfilling job, you know, as I think about myself being a parent of four boys and obviously my relationship with my wife Jess, like we know that home and work are so interconnected and the joys and challenges of work, we often bring home or vice versa. And so even folks that are in a more fulfilling position, the positive impact that has on their families, their households, like have you reflected on that?

Alex Barker: No. I have to admit, I don’t know how to even think about it.

Tim Ulbrich: Yeah.

Alex Barker: It’s a lot of people. And on top of that, it’s their spouses, their partners, and then it’s their kids, their community. It’s a big ripple effect. And I don’t know how to take that in. On top of it, I think you and I share this that we’re pretty driven people, and so as soon as we accomplish something, we’ve forgotten it and then we question our value like the next day. Like oh, what am I doing? Am I really achieving everything I want in life? Because I have this new goal now, and it’s not accomplished yet. But truthfully, no. And I –admittedly, I actually have a coach now, and this is one of my areas of improvement is reflecting on the things that I have accomplished because I think it’s very easy to get addicted to success. And I am working on it. So that’s my answer is no, and I’m trying.

Tim Ulbrich: Well, and it wasn’t in my notes for the episode, but when you led with that intro — and the reason I asked you it, besides just to make you a little bit uncomfortable because that’s kind of fun every once in awhile — is the reason I asked you that is I, too, am being challenged by a coach of stop, enjoy the moment, like reflect on what’s happened before you’re off and running into the next thing. And so I think that’s a valuable thing for us to talk about. But perhaps for even folks that are listening, I think many pharmacists are achievers by nature, and I think it can be easy to get caught into the strive, strive, strive without stopping along the way to enjoy it. So onward we go. This episode, you know, as I mentioned, really talking about what I see as the intersection between one’s career plan and their financial plan. And really good timing for this episode, many pharmacists graduating right now, others I suspect that are looking to make a job change. And with that, comes navigating a lot of new things, you know, whether it’s finding that position, perhaps some that are choosing or changing their career path, how does this look for me for the next 5, 10, 15 years? What about managing your finances during this transition? What about those student loans, budgeting, other financial goals? And really figuring out how to set themselves up for long-term success both professionally and financially. And we’re going to touch on several of those things throughout the episode. So Alex, let’s talk about something that every graduate is faced with right out of the gate: finding a job, choosing a career path, as much as some may enjoy being a student, at some point, we’ve got to make that decision. So you recently held the webinar about the Q1 review of the pharmacy job market where you dug into the supply and demand of pharmacy jobs. And I’m going to go there for a few minutes. And one of the questions I have to hear to start us out with is, what did we take away from Q1 in terms of the number of jobs that are out there, what types of positions are out there, and really the current state of the pharmacy job market?

Alex Barker: Yeah. So let’s just do high overview. And I know I’m going to be saying a lot of numbers. And if you’re like me, it’s hard to comprehend numbers when you’re listening to something. So some of these numbers are on our website, you can always check them out later if you want, or we have a presentation where we go over them. And I want to just take a moment to pause and ask, Tim, I know you already know the answer, but if you had to guess how many jobs were created in Quarter 1 of 2021, pharmacist jobs, how many would you think?

My answer was I thought maybe 15,000-20,000, somewhere in that range. Did you have an idea?

Tim Ulbrich: Yeah, no, my question here was are these — are you talking about open positions or like newly created positions?

Alex Barker: Open, newly created positions.

Tim Ulbrich: OK. Yeah, I would have — I don’t even know if I would have said that high, although when I think about kind of the nationwide reach and some of the roles that are expanding, some of the states that are doing some creative things, yeah, that sounds about right.

Alex Barker: So that’s what our past kind of has indicated. There is a report out there. I believe it’s called the Pharmacy Demand Index or Pharmacy Job Index. It changes names, I feel like, every other year.

Tim Ulbrich: It used to be the PDI. I don’t know if it still is.

Alex Barker: Yes.

Tim Ulbrich: Yep.

Alex Barker: Yes, I don’t think it is that name any longer. But they predicted — or they reported I think in Quarter 4 of last year that there was like somewhere between 5,000-10,000 jobs created. Well, at The Happy PharmD, we’ve recently strategically partnered with JobRx, which is a job board. And they collected all of this data, and this is data from company websites where a company posts a job, and they take that information and document it. And in Quarter 1, they reported 50,000 jobs were created, just over 50,000 jobs.

Tim Ulbrich: Wow.

Alex Barker: When I heard that, I thought that was insane. At first, I thought, that’s COVID. But then I thought, no, most of these companies did the majority of their hiring in 2020. So that — it blew me away. I just couldn’t believe it.

Tim Ulbrich: That was my thought too, Alex. When you said that number, I started to think about, you know, I remember seeing some of those offers for part-time vaccine help that some of the chains and others were doing. So I think here, the interesting question is like, peel back the onion a little bit, right. Of those 50,000, because I think many of our listeners, we’ve kind of fallen into this script of like, the job market is what it is in pharmacy right now. But that number might be shocking, so give us the details behind that. What’s going on?

Alex Barker: I think we have to because I think this is totally different than what is suspected or talked about online. The vast majority of these jobs are community jobs, about 73%. And then another 25% were health systems, which includes long-term care and home infusion. So probably no surprise there. I know that there’s a big push in careers to do nontraditional things. But vast majority of open and available jobs are community and health system. The majority of those jobs were just straight pharmacist jobs because when an employer posts a job online, you know, a lot of people want to use the word “clinical pharmacist,” but the word “clinical pharmacist” only was about 6%, a little over 6%, of the jobs that were available.

Tim Ulbrich: That makes sense.

Alex Barker: And then another 12% were management jobs. However — and you actually kind of alluded to this earlier — the majority of these jobs were part-time, part-time jobs. So let me — I’ll break this down in a minute, but 40%, so you think, that’s not the majority, well, 40% were part-time, 28% were full-time jobs. Not even a third of the jobs. But 28% of these jobs were not defined, meaning that when a company posts a job online, they put it on their website, they don’t say whether it is full-time or part-time. And I think practically every jobseeker has seen that happen where you look at a job and you’re like, is this 20 hours a week? Is this full-time? You’re not quite sure. Well, unfortunately, it’s common practice for that to be happening. So 28%, another almost third of the jobs, didn’t say whether they were part-time or full-time.

Tim Ulbrich: One of the things, Alex, when I hear this — and just to recap those numbers for those that are listening and may not be audio learners — is, so about 28% full-time, about 40% part-time, and about 28% that were undefined. So that 40% that’s part-time, you know, when I think about the financial implications, great to hear about the number of jobs that are created. And then I dampen that question a little bit, right, when I start to see the part-time. And let’s call it out right up front is that there are many folks that may opt in and want a part-time position for very good reasons. And that’s not what I’m referring to here. I’m referring to folks that may want full-time work and aren’t able to find it, which obviously has significant financial implications. What are we defining as part-time? Can we pin that down? I know one of the trends I’ve seen is 30 or 32 has become the new 40, right? So what used to be let’s just say for example base salary of, I don’t know, $110,000 in Columbus, Ohio, for a pharmacist working on average 40 hours per week in community pharmacy, you know, now, they might be guaranteed 30-32 hours, sometimes a little bit less, sometimes a little bit more, and maybe that $110,000 now looks like $85,000 or $90,000. And certainly in some of those cases, opportunities to get additional hours but they’re “guaranteeing” some base that’s a little bit lower than 40. So are we talking 15 hours? 20-25? Like what is the threshold here? Or is it a ‘it depends’?

Alex Barker: It’s of course ‘it depends.’ It’s always up to the company what they define, right, on that limit. And I’m no law expert because every state is different in how they define a little bit on this. I think with a decent rule of thumb, you can say it is less than 32, 30 hours a week. But to your point, I think there’s even more danger here because everyone’s probably heard a horror story or two that you get hired on part-time, you were told we’ll guarantee this amount, and it turns out they only need you once every other week. There’s a huge financial consideration for anyone going for a part-time position. And career-wise, there are benefits and pros and cons for doing something like that because on the one hand, it’s nice to get a part-time job. It could give you some flexibility, and it could help pay your way while looking for your next job. But on the other hand, if you just want a job to do the job and make some extra money, pay some bills, and you’re expecting 30 hours, I would encourage you, do not think that that is a guarantee, no matter what management said because we have heard this in community, in hospital, in nontraditional jobs as well. So I think the days are leaving us behind where we trust a company in telling us how much are we working and how much are we getting in return.

Tim Ulbrich: Yeah, and I think it’s just a good reminder — and I’m not saying this to be negative to companies as a business owner myself, I’m just saying it as reality of like, nothing is guaranteed, right? I mean, outside of some folks that are listening that have contracts, that have some guarantees that are associated, those are probably few are far between. But when we’re thinking about our financial plan and depending on our income, hopefully we’re not thinking about our future income as if it’s guaranteed and going to be able to fund things that we’re spending money on now. So you know, obviously, some of that can be fluid. Hopefully it’s not, but it can be. Alex, the other thing I think about here is as our listeners know very well, for many folks, their healthcare benefits, their retirement opportunities, a lot of that is tied to their employment, right? So when I — and often tied to full-time employment. So my mind is going down the path of, 401k benefits, 403b benefits, access to HSAs, healthcare benefits, dental, vision, other benefits that come from your employer. And not any one of those may seem very significant or potentially catastrophic in the moment — maybe outside of healthcare — but you know, something like a 401k, let’s just use that as an example. If you’re making $100,000 a year, and your employer is offering you a 3% match dollar-for-dollar and now you’re working part-time where not only is the salary and the hours reduced, but you’re not getting that, in that example, $3,000 per year. In that year, that may not seem catastrophic, but $3,000 a year compounded over time, especially for pharmacists that are just getting started, is very significant. So I would encourage folks to be thinking about — as we’ve talked about the intersection between the career and the financial plan — not just the salary, the sticker price, but also what other benefits may be afforded. And even for those that are working full-time and looking at other positions, that’s where you often will start to see some of the differences and nuances between one position and another and some of the benefits that can come. Alex, competition. You know, the other thing I’m thinking about here is it’s great we see 50,000 jobs, as you mentioned, not so great that many of these may be part-time. But we also have the reality of, you know, new graduates that are coming out into the market. We obviously have many that are listening to this episode. What is that looking like in terms of expected number of new graduates that are coming out into the market? And how is that impacting the competition for these positions?

Alex Barker: It’s fierce. It’s fierce. This year, in 2021, we’re graduating just over 15,000 students. And based on last year’s NAPLEX, we should probably expect at least another 14,000 and a few hundred who pass the NAPLEX because as we all know, the NAPLEX passing rates for most colleges of pharmacy has gone down significantly. And that number, the number of grads, the number of new grads every year from what we can tell, as far as I know, AACP hasn’t published information since 2019. I could be wrong about that when this goes live, but that’s the latest data that we have. The number of grads is going down steadily. By 2023, we’re looking at just under 13,000 entering the market. So we’ve got a significant group of students, probably about a third of those are going straight into residencies. And then we’ve got another two-thirds that are going into the job market. But we also have some very interesting information from AACP, they do a workforce survey every five years. And they change a little bit of the topics, but they always do ask things about your jobs. And in this group, those that were likely or very likely to be looking for a job was — it was around 34%. So again, a third.

Tim Ulbrich: Wow.

Alex Barker: And there was over 5,000 people who did this survey. And something I’ve learned in survey design is that when you get a population that big, you can start extrapolating out quite well to a larger population of similar demographics. And in our case, if we were to extrapolate that to the 300,000+ pharmacists in the United States that have an active license, we’re talking about over 100,000 pharmacists at any given time likely or very likely to be looking for their next job. So right now, in this very moment, we’ve got 100,000 people looking and now we’re adding another potentially 10,000 — I mean, many of these students probably have jobs lined up or have interviews lined up and they’re going to be hired very soon. From what we can tell, it does seem like the vast — at least the majority of students by this time have something lined up. But they’re coming into an overcrowded market. And so it isn’t looking very positive. There are some interesting things, though, happening in pharmacy that I think could be drawing attention, but that’s not obviously what we’re focusing on for this. These are just the straight facts.

Tim Ulbrich: And Alex, did I hear you correctly — and I’m guessing you’re pulling this data from the enrollment data that’s published by AACP. And we’ll link to some of this in the show notes, including the AACP workforce survey that you mentioned every five years and also some of the enrollment data — but did I hear you correctly that the projected number of graduates is going down? And I’m assuming you’re pulling that from like the current number of P1s, 2s, and 3s and then projecting that out to see what the number of graduates would be?

Alex Barker: Yes.

Tim Ulbrich: OK.

Alex Barker: Yep. So we look at numbers from NABP, AACP, ASHP, APhA, and they help kind of provide a holistic picture of what’s happening. The most data we have on this stuff is obviously students.

Tim Ulbrich: Yeah.

Alex Barker: Once we enter the workforce, the numbers are a lot more variable. We rely on the Bureau of Labor Statistics, which is always changing. Some people may know this, that they are predicting negative job growth right now for pharmacy. And so it is a tight, very tight market and likely we’ll be seeing oversupply for quite some time. But I’m positive. I think I’m more positive about the future of pharmacy. I do think opportunities are opening up, and I think that eventually, things will correct themselves because we’re already seeing a huge disinterest in the general public in pharmacy as a career option. And that’s evident by the number of applications that colleges are getting. And so at some point in the near future, we will see an evening out. As any good capitalist would believe in, the market fixes itself at some point.

Tim Ulbrich: I think the other thing that I’m thinking about, Alex, and I don’t think we have a data point to draw any conclusions, but if you think about 15,000 new graduates coming into the market in 2021, and you mentioned over 330,000 licenses in the United States active, so that’s about 4-5% of new positions coming in relative to the whole workforce. So the question is, short of new job creation, which we just talked about a little bit — and there will be some of that — short of new job creation, like are pharmacists leaving the profession? And the other thing I’m thinking about is in the midst of coming out of the pandemic and the uncertainty, what impact did this last year and a half have on folks that were near retirement and might that be delaying, might it be expediting, you know, folks are I’m ready to be done? So that’s a big factor, right, the number of positions that come open, assuming, assuming that those positions remain and then get filled. You know, but that’s a data point that I don’t often see and probably is hard to capture. But obviously we know the front end, but it’s a little bit harder to assess what’s happening on the back end.

Alex Barker: Yeah, and I don’t know how — I was just trying to think — how would you capture that? It would probably have something to do with an active license, right? But that could mean that they’re retiring. I’d imagine state boards perhaps are capturing this. So I think you’re kind of spurring on a new research project for me to pursue.

Tim Ulbrich: Well, you can hold the license but be retired.

Alex Barker: True. Right, you can.

Tim Ulbrich: Yeah.

Alex Barker: Absolutely. And in fact, one study we looked at about retirement, it was like I think 40% of people still practiced on the side after age 65. So even if you do retire, you’re still taking up jobs, you’re still practicing and I guess potentially taking that opportunity from someone else. But it’s only part-time, typically. I don’t think there is a data point to suggest it, but I think it would be interesting to track it. We have anecdotally helped people transition into different things outside of pharmacy. But the majority of people we work with stay within pharmacy, 95-97%. And I’m not sure how to get into it, but I think you’ve found a new niche.

Tim Ulbrich: Next project. Yeah.

Alex Barker: Yeah.

Tim Ulbrich: We can talk about the data all day, and it’s important to get the context. The question is, what can I actually do about this data? So you know, you mentioned roughly a third of folks, according to that workforce survey, that might be out there in the market looking. We’ve got new grads that are coming into the market, some of them that have — many of them have already secured a position, but those that are going on to residency, they’re going to be in the job search either a year or two years from now if they’re doing a PGY1 or PGY2 or for those with fellowships, same type of thing. So the question is, you know, what do you do? The reality is you need a job. Income, as we say at YFP, is the lifeblood of a financial plan, right? You need it to pay down debt, and you need it to grow your assets and ultimately achieve your financial goals. So in the webinar, Alex, you mentioned that you have to have a good strategy when it comes to targeting your career path. What do you mean by that? And bigger question than we have time to likely go into in a whole lot of detail, but you know, some tangible, practical things that folks listening can take away when it comes to designing what you call a good career strategy.

Alex Barker: Well, it starts with kind of the same steps that you guys take with when you help someone create that financial plan. It’s knowing where you want to go. It’s having an idea of where you want to end up. Everyone probably has this understanding or belief that they want to retire someday. And they very likely want to retire from a job that treated them well, that created a great work environment, that will be maybe a bittersweet finish. We know some of the feelings and the things that we want, but how do we build that? We start by the end in mind. And so typically when we work with people, we like to think big picture, where do you want to be, even just five or three years? Because thinking about your career 30 years from now is practically impossible. I mean, think about even your career, Tim. You know, I would classify you as someone who’s indispensable. You probably wouldn’t have —

Tim Ulbrich: Appreciate that.

Alex Barker: Yeah, think about your career. You have built something that has led you to building a business now. And it’s something that you absolutely love. You probably never thought about that when you graduated pharmacy school.

Tim Ulbrich: Correct. Yep.

Alex Barker: Same here. In fact, I was turned off to business when I graduated. I thought no way. There’s no way I want to do something like that. And so we tend to think smaller picture versus something like a financial plan because what we find over and over again is that as indispensable people come into their own into their careers, they typically have opportunities being presented to them frequently, often. And it can lead them in very different trajectories. You and I talked a little bit before this, when we hit the record button, about trajectories. Pharmacy, in general, not leadership, excluding leadership positions, is a very low financial career trajectory. The difference between someone who just starts a pharmacy career and someone who has like 20+ years is about $12,000 a year. And that’s unheard of in most professions.

Tim Ulbrich: And give us the details on that. So as we talk about obviously the dollars here and you know, again, income is the lifeblood of the financial plan, right, income is a tool. We’ve got to have it to be able to move forward with the goals we want to achieve. So what did you find — and we touch on some of this when we talked previously about the 2021 Pharmacist Salary Guide, and folks can download that, again, at TheHappyPharmD.com/YFP. But tell us exactly, you mentioned trajectory, not so much generally speaking, outside of admin/management positions. Give us the numbers. What are we seeing in terms of data around salary? And then how that does or does not change significantly with experience?

Alex Barker: So there was only one resource in our salary guide that looks at years of experience. And that was payscale.com. Not a lot of data points, but what they did find is that less than a year, your annual average wage was about $113,000. And if you had over 20+ years experience, it’s $125,000. That’s where that $12,000 difference came from. And what we’ve found when working with pharmacists, when building that strategy, we typically do include money because money is a major reason why we do the work we do. But what we found is that with financial trajectory, getting into something you actually enjoy doing usually presents new and exciting opportunities where you can get paid more, where there are promotions, where there are bonuses again, where there are financial incentives for performing well because if there’s one thing that pharmacy is plagued by it’s that we’re not paid for performance. I wasn’t paid any better than the person who was the best on our team and the worst on our team. I was paid because that was my pay grade. And that creates kind of I would say stagnation in our profession. So by understanding someone’s financial future, what they want to be making, it can actually help us narrow down a few things. It also helps kind of motivate typically younger people to create a business because what I’ve found, including myself, is people want lifestyle freedom over even making more money sometimes or just the ability to travel the world and live off of — I mean, heck, some people, no one I think we’ve worked with, but I know people in this industry who live off of $40,000 a year and they are some of the happiest people I know in the world. But there’s simply too much opportunity out there to make even more money than that, but it’s all about really what you want from your work, your career, and your life.

Tim Ulbrich: And I love that while we’re talking here about salary, that connects full circle to me about what you said just a few minutes ago is starting with the vision, right? Maybe it’s not 30 years out for the reasons you mentioned. Maybe it’s 5, 6, 7, what do you want? And getting clear on that. And I would argue — you probably do this in coaching all the time and do it well, like put aside the objections for a moment, right? Put aside the fears or am I qualified or am I capable? But what am I really passionate about? Or what are the moments that are happening where I feel energized, right? I always tell folks, I can think back to moments at work where I could have spent one hour on something, but if it wasn’t something that I enjoyed nor necessarily an area of strength, like I felt emotionally exhausted. And it could have been a one-hour workday, right? And there are other days — you know this from your business — you could spend working on a project for 10 or 12 hours and you get lost in it, and you feel like you could come home and do some more work because you’re just energized by what you’re doing. So I think the vision and the plan, you know, is so important. And we see the similarities here to the financial plan as somebody is thinking about, what does that next step look like? Whether it’s a first step for a graduate — and I would encourage those new graduates listening like not to fall into the trap that your first step is the only step, right? To the comment you made, Alex, it feels like that, though. You remember that feeling. I remember looking at residencies, looking at jobs, and you think, OK, this is the path, as if there’s a singular path. Like what is that all about? I mean, there is so many different paths and on the path, there’s different stops and different routes and things to get there. So excited about what you all are doing to help pharmacists and coach them in this area. Trajectory of pay. You know, this, to me, from a financial planning perspective, this to me is a big concern. Now, I will say, a pharmacist’s income, while we’re seeing the changes we’re seeing, is still a good income. And you know, it still provides us a great tool. The risk I see, Alex — and I want to flip the script here and have you play financial coach for moment — the risk I see here is if I’m somebody who’s graduating, let’s say I’m in my late 20s, early 30s, I’ve got a doctorate degree, I’m making a great income, and that’s not going to go up significantly, just by fact of inflation, just by reality of life tends to get more expensive usually as things goes on, with exceptions, of course. But whether that be because of family or other expenses or the desires and needs that we have, wants that drive up those expenses, so if income is not going to bump up like we might see in other careers or fields, like there’s somewhat of this potential like a negative effect on the financial plan, right? And so what can a new graduate, what should a new graduate be thinking about? Or even those that are looking at a job switch or position change to put themselves in a position where the stress of the salary and the finances isn’t going to be crippling to them as they think about what this means from a career perspective?

Alex Barker: I think traditional wisdom says it’s give and take. You can either get paid really, really well and you know what jobs typically pay really well, and you can suffer for a few years and potentially not really enjoy it. We all know what those jobs are. And in exchange for that misery, you give away a few years of your life, you make a decent salary, you can pay off your debts faster if that’s one of your goals, you can save up for a down payment on a really nice house. You know, you can do what you want with that. I think of — I can’t think of his name, but the pharmacist who got very famous for retiring early, saving up his millions.

Tim Ulbrich: Jason Long?

Alex Barker: Yeah. Yeah, and he retired early. And that’s great. That’s fantastic. And I think that plan or that traditional wisdom is based on financial success, wanting to achieve your financial goals over a career goal. And there’s nothing wrong with that. Absolutely nothing wrong. I would not personally pursue that path because I would encourage people to pursue the things that expand or create abundance versus thinking that this is a scarcity thing. I just talked with a student yesterday who took a job at a major retailer because he was afraid of his loans, he wanted to pay those off, and he missed out on an opportunity because you know, it didn’t pay as well. And when I say didn’t pay as well, we’re talking not a lot of money. We’re talking like $15,000 a year, which yeah, it may sound like a lot —

Tim Ulbrich: That’s significant.

Alex Barker: Yeah, for sure. It’s definitely $1,000 a month — less than that after taxes.

Tim Ulbrich: Yep.

Alex Barker: But it isn’t a huge change. The thing that I would encourage everyone to consider is choosing abundance over scarcity because this world has so many opportunities. And you as a pharmacist have an expert knowledge that is valuable in the right marketplace. And so if you feel like your job isn’t paying you enough or that you’d want to get a job that pays more, or you want to create financial freedom for yourself, then why not do something on the side? I know that that comes with some baggage that people may not be wanting to do if you’re a parent, I don’t want to give up 10 hours a week, 15 hours a week or whatever it takes.

Tim Ulbrich: Sure.
Alex Barker: But I am someone who believed in that dream, that is my personal philosophy, paid off my house 27 years early because of hustling on the side. Like if I can do it, I know you can do it because we’re all pharmacists. I’m pretty sure you only have pharmacists listening to this podcast. So if you’re listening —

Tim Ulbrich: I think so, yeah. Maybe my mom or dad occasionally?

Alex Barker: Oh, nice. Hey, Mom or Dad. Nice to see you. If you’re a pharmacist, you’re insanely capable, insanely intelligent. And you can create something that makes $1,000 extra a month. And you can hire a team to help you to fulfill on whatever those things are. And that can create your financial freedom for the future. It’s what I’ve done, it’s what I’ve helped other people do, it’s what people are doing now. And I think personally, I have my own theories about Gen Z. I really think that this next generation doesn’t care two flips about making six figures in order to — and to give up 6+ years of my life to get this job. That’s not at all what they care about.

Tim Ulbrich: That’s right.

Alex Barker: And I think that’s what the application trend shows as well. So I think it’s all about pursuing an abundant freedom through business, personally. That’s what I would find.

Tim Ulbrich: And I want to add, Alex, one of the things I think we don’t talk enough about — you know, side hustles are widely discussed — is it’s not just about the money, right? I mean, the money is a factor, of course it is as we talk about the financial plan. But one of the greatest joys I still have to do this day and had when I was at the very beginning of the journey of YFP was the creative outlet and that feeling of you’re creating something, you’re providing value, right, you’re leaning into a strength. Like it’s energizing. And I would have and did it for nothing, right? I mean, when you’re kind of getting everything going. So what value does that provide in terms of if you’re in a position where it may not be as fulfilling as you would hope, like that may be an outlet for you to think about. And we have tried on this show — and we’re going to do more of this — of featuring pharmacists that are doing different things in this area, not so that somebody can hear any one of those and say, “Oh, I’m going to do that,” maybe that’s the case, but more so of hey, that’s a cool idea and I hadn’t thought about it and hopefully beginning to let the creative juices flow in different areas. So we’ve had several folks on talking about different areas. I can think of Brittany Hoffman-Eubanks, Episode 126, we talked about her income from medical writing, Blair Thielemeier, of course, the Pharmapreneur Academy, had her on recently, 197, Brent Rollins we had back on 112 talking about expert witness and several others. So I think this is an area for many folks to consider for a variety of reasons, and Alex, you did a good job of articulating those. As always, love having you on the show. We’re going to be doing it again as I bring you back to give us an update on what’s going on in the job market and what our community needs to be up-to-speed with. Where’s the best place for our listeners to go, Alex, to stay connected with you and to stay connected with the work that you’re doing at The Happy PharmD?

Alex Barker: Oh, we’ve got a website. It’s super slick looking. You can check it out if you want.

Tim Ulbrich: It is nice.

Alex Barker: TheHappyPharmD.com. But I am the most active on LinkedIn. You can check me out there, Alex Barker. And happy to connect with you there and have a conversation with you. I try to talk to everyone that connects with me. If I miss you, I’m sorry. But feel free to send me a message, happy to connect on there.

Tim Ulbrich: Alex, appreciate having you on the show. And to our listeners, thank you for joining us for this week’s episode. If you liked what you heard, please do us a favor, leave us a rating and review on Apple podcasts or wherever you listen to your podcasts each and every week. We appreciate your feedback, love to hear your ideas on the show. And as always, we thank you for listening to this week’s episode of the Your Financial Pharmacist podcast. Have a great rest of your week.

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YFP 204: The Current State of Buying, Selling, and Refinancing a Home


The Current State of Buying, Selling, and Refinancing a Home

On this episode, sponsored by IBERIABANK/First Horizon, Tony Umholtz, a mortgage manager for IBERIABANK/First Horizon, discusses trends in the housing market coming out of the COVID-19 pandemic and the current landscape for those purchasing, refinancing, or selling a home.

About Today’s Guest

Tony graduated Cum Laude from the University of South Florida with a B.S. in Finance from the Muma College of Business. He then went on to complete his MBA. While at USF, Tony was part of the inaugural football team in 1997. He earned both Academic and AP All-American Honors during his collegiate career. After college, Tony had the opportunity to sign contracts with several NFL teams including the Tennessee Titans, New York Giants and the New England Patriots. Being active in the community is also important to Tony. He has served or serves as a board member for several charitable and non-profit organizations including board member for the Salvation Army, FCA Tampa Bay and the USF National Alumni Association. Having orchestrated over $1.1 billion in lending volume during his career, Tony has consistently been ranked as one of the top mortgage loan officers in the industry by the Scotsman’s Guide, Mortgage Executive magazine and Mortgage Originator magazine.

Summary

On this episode, Tim Ulbrich welcomes Tony Umholtz back to the show to discuss housing conditions in a post-pandemic world. While there may have been significant economic turmoil related to the COVID-19 pandemic, real estate continues to boom. Tony explains some possible motivations for such an active market include work and school being remote in many cases, those in apartments feeling cramped and seeking more space, and others still who have sought to purchase second homes in less populated areas.

Tony addresses some fears about a potential future housing bubble, explains some differences between buyers in the previous housing booms with current buyers, and differentiates the present home buying process, from the practices of the housing boom and conditions that led, in part, to the Great Recession of 2008.

With post-pandemic life offering more flexibility than ever before, Tony explains how that mobility is reflected in the housing market. He makes some predictions about the future of the real estate market and interest rates, shares insight regarding new generations aging up and into the housing market, and provides considerations for those who may be first-time homebuyers, contemplating making a home purchase in the present market.

Lastly, Tony explains the details of the Pharmacist Home Loan offered through IBERIABANK/First Horizon.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Tony, welcome back to the show.

Tony Umholtz: Tim, thanks for having me. Good to be back.

Tim Ulbrich: Excited to have you back on the show. You’re a frequent guest I think at this point, and we’re going to link in our show notes to previous episodes in which you’ve been on talking about buying homes, selling homes, what this means from a lending standpoint, options, what’s the professional home loan, and we’ll dig into some of that here today as well. But for those that maybe didn’t catch you on a previous episode, give us some quick background and your current role with IBERIABANK/First Horizon.

Tony Umholtz: Sure, sure. Well, I’ve been in the business a long time now. I hate to say this, but it’s been almost 20 years in the mortgage banking business. And I have been just focused on residential lending has been my focus and have been with IBERIABANK for about 3.5 years. We recently did a merger with First Horizon, so hence the slash. But it will be a full combination by the fall. But it’s been a great company and we’ve been very excited.

Tim Ulbrich: Yeah, and excited for the collaboration here. And we’re going to talk as we get towards the end of the episode about the pharmacist home loan product as I suspect many of our listeners if they’re not already aware, that may be something that’s a good fit for them. But we’re going to spend most of our time today talking about really an interesting topic, and that is housing considerations in a post-pandemic world. I mean, it’s really been a strange year. And although there has been some significant economic turmoil related to the COVID-19 pandemic, certainly what that has meant for jobs that have been lost, the real estate market is continuing to boom. I think we’ve all probably heard stories, maybe some are dealing with it firsthand — I’ve talked with a colleague, a friend, a family member — it’s a wild market out there, Tony. So despite the challenges we’ve had economically related to COVID-19, what’s happening as we’re seeing this, really this significant real estate boom that’s going on across the country?

Tony Umholtz: Well, it’s a very interesting dynamic. And COVID-19 changed everything. But the real estate market has been a big winner. And the interesting part of all this is it’s — there’s been some long-term changes in demographics and even just housing in general, housing construction that just came to a point last year. And one of those things that we’re seeing here, Tim, is we were behind — our decade of new constructed homes, the past decade was the lowest it’s been since the ‘60s. Right? So the inventory created was nowhere near to meet the demand. And that’s one of the reasons we are where we are right now. And of course with COVID last year and so many supply chains being affected, employment being affected, you know, the raw materials, lumber, other materials needed to build homes, there’s less supply. So that’s just caused this challenge here, but it’s a good time — not every housing market is perfect, but the majority of housing markets in our country are thriving right now.

Tim Ulbrich: So Tony, you mentioned one thing in terms of the new home construction, some of the raw materials with lumber contributing to some of the issues we see, really simple supply and demand that I think is leading to a lot of the stories I know I’ve heard of bidding wars and offers that are well above asking and appraisal waivers and other things we’ll get to here in a moment. But what else? You know, I think of — is there some pent-up demand here of we had a housing market that last year if we think about the timing of COVID, you know, March of 2020, that really typically is kind of the beginning of the boom of the home buying season, obviously the pandemic might have tampered with some of that or perhaps people not picking up and moving that might have been going to other jobs or more people working from home and they want more space and so they’re looking to maybe get out of the city or move into the suburbs. What are some of these other factors beyond the construction, beyond the raw materials, that really has got us into this supply-and-demand position that we’re in right now?

Tony Umholtz: Well Tim, you mentioned a few things. And one of those is people moving to the suburbs. We’ve seen a big exodus from some of the big cities. I think one of the housing markets I could say that’s underpriced probably right now is New York City, right? There’s been a lot of — comparatively, there’s been a lot of exodus out of New York City, San Francisco and New York City, some of the bigger cities because people can work from home. A lot of people can. Not everyone can, but a lot of people can, and I think that’s changed a lot of things for a lot of people. The other thing too that I’ve seen is just when I mentioned demographics, the shifts, just the millennials, right? And even Generation Y, they’re starting to get into the housing market more and more, and they’re looking and saying, “Hey, I’m paying $2,000 in rent. I could own a house for this.” I think it’s starting a realization that you can own a home and have your own home. I’ve just seen a huge increase in first-time home buyers as well. I think that’s another big shift with this large group of our population moving up and aging. And then just low interest rates, right? I mean, you have the Fed being very supportive — our Federal Reserve is being very supportive and accommodative to help the economy get through this very, very difficult time. And the housing market’s been a winner. And anytime you have low barring costs, usually it leads to expansion in the real estate market. So that’s the multiple reasons why. And then you put on top of that a limited supply of homes, and that’s why we are where we are in many markets.

Tim Ulbrich: Yeah, and I’d like for a moment — you mentioned one factor, Tony, obviously interest rates, I’ve seen some numbers out there before that on average, you know, if you see a certain drop in basis points or certain percentage reduction in rates, that has obviously an impact on the demand, among other factors, of course. Rates aren’t the only thing. But tell us more about what we’ve been seeing really over the past year. I remember you and I talked about this back in March of 2020, here we are in April of 2021, you know, what have we seen in terms of rates, whether it’s first-time home buyers, those that are refinancing? And then not expecting you to be able to crystal ball this, but where might we see some of the trend of this going forward as I think it might have an impact for folks that are thinking about something like a refinance, you know? Does it make sense now? Or does it make sense that I kind of sit and hold and wait for the future?

Tony Umholtz: That’s a great question, Tim. It’s hard for me to pinpoint exactly. I can tell you trends that I’m seeing right now. You know, clearly we had unprecedented stimulus last year to help rates go to those levels. The Fed is still accommodative. And rates are still very, very good. Purchase money, meaning loans for purchasing a home, are going to be lower than refinancing. There is typically an adjustment — and it’s really a trickle-down effect from Fannie Mae and Freddie Mac on refinances. So there’s a slightly higher rate for refinancing versus a purchase money loan. But it still makes sense. We’re still writing a lot of refinances. And one area that I’m seeing opportunity, even though we’re off the lows — the lows were saw last fall, but we are off them now. But there’s still a lot of people with rates that are over 100 basis points, which is 1%, are over 1% savings level. And then the other thing that I see too is debt consolidation, people that own a home already and they have a lot of equity built up, but they have other loans that they’re paying higher interest rates, we’ve been able to really help some folks get their budget in line, really get themselves on a clean slate and really get a good savings plan. So I think refinancing can make sense no matter what the rates are. Everyone’s situation is different. And the trend for rates, I think what we’re going to see — and this is just, again, a disclaimer that I’m not an economist, but I do — I’m a bit of a nerd, I will admit, and I read a lot of this stuff and I have all kinds of subscriptions that I follow. But the trend is going to be some inflation this year. But the Fed is accommodative. So I think rates will be a little higher as the year goes on, but you have a lot of things that are going to help rates stay at a certain level. But I do think rates will trend a bit higher this year. On the other hand, looking out into the future, large government deficits and debt like we’re posing, I think we’ll hear even more of that here this week coming out, I mean, that’s all deflationary typically. So what that means is it puts pressure on rates to go down, right? So it’s just an interesting time. It’s hard to really be a crystal ball seeing the future, but this year, I think the trend is going to be slightly higher rates.

Tim Ulbrich: Yeah, and as you mentioned, Tony, we saw rates really at a significant low back in the fall, but I do think — and you probably see this more than I do every day — I’ve talked with a handful of individuals in the last several weeks that still may have purchased back in, you know, I remember fall of 2018, rates on a 30-year fixed mortgage were north of 4.25-4.5% for many folks. So I think there still is opportunity out there. And for folks that maybe haven’t gone through that evaluation to see do the numbers make sense? Of course there’s other factors beyond that, not to exclude refinance as an opportunity, even as we may see rates tick up here in a little bit. Tony, one of the things I wanted to get your feel on, you’re in this every day, obviously, in your market down in Florida but also have a good pulse on what’s going on nationally. Here in Columbus, I mean, the folks that I have talked to, it seems like above asking is the norm and in some cases, significantly above asking, bidding wars that are ongoing, sometimes appraisal waivers that are happening, and I think it just raises some attention and warrants some conversation about like, what are the implications of those types of things? You know, I think for folks that are out there shopping now or soon to be out there shopping throughout the spring and the summer, before you find yourself looking and then within 24 hours, you’re in a bidding war, like what are some things, you know — No. 1, are you seeing those and are hearing about that across different markets? And then for the buyer, what are some things that they should just be thinking about of the implications of those types of scenarios?

Tony Umholtz: That’s a great question. And absolutely we’re seeing that in a lot of markets. We lend across the country, so we’re seeing it in multiple, multiple markets. It is — and some are worse than others. But they’re all pretty heated in a lot of ways. One thing I’ll mention just on the waivers of contingencies, I think you’ve got to be very careful with that. I think you need to be very aware of what you’re getting into because when you say I’m just waiving the appraisal contingency, well, if you were to pay $300,000 for a house and it comes in at $280,000, well, the bank is going to use $280,000, the lender is going to use $280,000 as the price point, right? So in that case, you’re coming to the table with $20,000 more in equity. So there is some risk here involved when you waive these contingencies. So I think, you know, I know it’s hard. And I get calls all the time from listing agents on pre-approval letters I’ve sent on behalf of our customers, and they want — they ask me all these questions, and obviously I can’t answer anything personal. But they tell me, “Your input was important because we’ve got 12 offers.” You know? “And I’m taking them all to my seller tonight, and we’re going to meet and go through each one.” Some of the things I’ve learned — one thing I’ve learned from a couple very veteran real estate agents, this might help the audience here, is a lot of my clients will say, “You know, just put the minimum amount of my offer on your pre-approval letter.” So if I’m offering $300,000, just put $300,000 on that letter. So we’ll do that a lot thinking it’s a negotiating tact. But what a lot of these agents have told me, they say, “We actually like the ones that say $500,000 on it.” And the reason why is they know the client’s very qualified.

Tim Ulbrich: They know it, yep.

Tony Umholtz: So they look at it differently than I think a lot of people do because a negotiating is a negotiating. They’re trying to find the strongest candidate that’s going to close. And it’s not just about the price, even. It’s also — price is important, but I think it’s the ease of closing and a lot of times, you’re competing against cash offers too. So you have — and they might be a little lower, so you have to overcome and say, “Hey, mine has financing, but I’ve got to put my best foot forward.” But I’d be very — again, very cautious about waiving these contingencies. I think you have to have some sort of out. If you’re working with a realtor, you have to see if you can negotiate that in. If the appraisal comes in low, it’s going to cause big problems for a lot of people.

Tim Ulbrich: Yeah, and I’m glad you said that, Tony. I think this is a good reminder, you know, something I’ve shared many times on the show before, but especially in the market that we’re in where negotiation is not in your favor as the buyer, right? It’s very much a seller’s market. You’ve got to really take a step back and hopefully objectively evaluate before you’re out there even shopping, what does this mean in the context of the rest of the financial plan, right? And so you know, having a pulse of the market of if you’re looking at homes that are $300,000-400,000, what might that actually end up being in the market? Is it more like $320,000? $330,000? $420,000? $430,000? Depending on offers and so forth. And how does that work out for the rest of your plan? Run out those numbers. Work with your planner, work with your coach to really evaluate that because I think that obviously home buying can be a very exciting, emotional thing. It’s a very important step for many people in their financial plan, but we’ve got to make sure we’re doing it in the right context of everything else that we’re trying to achieve. Tony, the other question I have for you — it made me think about this when you said cash offers, more of them being out there, and I’ve heard the same thing, is how does this then work out for folks that are trying to sell a current home to buy? So I’m thinking of a contingency upon the current sale of a home to buy. You know, is this market even less favorable to them? Or are there strategies that they can employ for those that are in that position where they aren’t able to buy until they also have the sale of their home that they can be competitive against other buyers that are in the market?

Tony Umholtz: We’ve seen a lot of these lately with the contingencies. We’ve had a couple approvals that we’ve done where we’ve had to — the client clearly had to sell their house before they could afford a new one. But once they listed the house, they sold it so quickly that it really was a fast process.

Tim Ulbrich: OK.

Tony Umholtz: So I think the challenge is you don’t want to have that — it’s going to be hard to win over 12 — or say there’s 10 other people bidding on the house at the same time, it’s going to clearly be challenging to win if you have a contingency. But there are some situations where you’ll be surprised that that house sells pretty fast. That’s the other piece is if you want to sell your home, you kind of have to be on your toes and find something pretty quickly.

Tim Ulbrich: Absolutely.

Tony Umholtz: Or negotiate some lease back with the buyer of your home.

Tim Ulbrich: Tony, one of the things I’ve been thinking about lately is considering how hot the market is, considering just the unique factors we have of kind of what’s going on with interest rates and potential inflation and supply and demand and new construction being down, all these variable, like living through 2008, I can’t help but think back to man, are there lessons that we learned there that we should also be thinking about now as we’re really continuing to see this market as hot as it is? You know, essentially is there reason for concern? And I saw a statistic leading up to this episode that says — this was reported from Google — that the search for the phrase “When is the housing market going to crash?” was up 2,450% over the last month, so obviously others are thinking about this. Some research from JP Morgan, quoting that “after robust gains over the past five years, the nationwide nominal house price index is now 40% above its 2012 low point and 4% above the peak that was reached in 2006.” And they go on to say, “If 2006 was a historic bubble, then current price levels should be looked at more closely.” You know, you think about obviously the value of homes going up much faster than we’re seeing in terms of individual’s income, we’re still coming out of some unemployment, you know, related to the pandemic, people getting positions back, so my question here is like, are homes overvalued? You know, what’s the concern of this? And like what is different here from what we experienced in part related to the Great Recession of 2008?

Tony Umholtz: Great questions. I mean, you know, lots of things that you mentioned there. And I’ll give you some feedback from my experience in the business before that time. So I started in the mortgage business almost 20 years ago now. And I lived through that. I was actually — my third year, I think I was in my fourth year in the business was 2005. And I was still pretty young at the time, but I was one of the top loan originators in my company nationally at the time. I wrote 400 loans that year. And I look back at that year, and I was always a very fairly risk-averse person. So you know, I wasn’t one of those lenders doing crazy loans. But back then, Fannie Mae even took loans with no income documentation. I remember running them through Fannie Mae’s system, and they just needed a pay stub and that’s it. So I’ll give you the differences that I’m seeing, and I’ll just equip everyone with the most knowledge they can have here. So back in that timeframe, half of the business I wrote was people who were speculators. They literally were going to buy the homes to either rent them or flip them. That’s what it was. You know, everyone was caught in this train, I’m waiting in line to buy a home to flip it, to rent it. It was that kind of thing. And the other half was owner-occupied clients. So that was the mix of my volume back then. Nowadays, I’d say 95% of the loans that we write are owner-occupied homes. And some of them are like true second homes where people are literally going to be moving to Florida or to another area as soon as they retire. It’s I want to lock in my property now because we’re retiring in a few years. It’s that kind of thing. So the amount of speculation that I’m seeing on an individual buyer basis is much different. Now there’s a lot more institutional landlords out there, hedge fund-types that own rental property, but it’s not to the degree that — I remember back in ‘05, it was just so many people, the greed level, lending standards were much different. We could — like I mentioned, we could do loans with very little documentation. Lots of lenders did — and I’ll share this with the audience if anyone’s ever seen the Big Short movie, I was on the phone, probably 28 years old at the time, with Bear Stearns. I was one of the bigger producers. I remember Bear Stearns mentioning to us that they would buy 100% no documentation loans from us.

Tim Ulbrich: Sheesh.

Tony Umholtz: And I just remember thinking to myself, that’s — and I hadn’t been in the business that long, maybe four years or so — and I remember thinking, that doesn’t seem right. And then of course, couple years later, you know, I had the foresight.

Tim Ulbrich: Come to find out…

Tony Umholtz: But come to find out everything had happened. But the amount of greed that was in the marketplace was a little bit, it was a different environment than it is today. And not to say that things — but the amount of leverage that was in the environment, like anyone could get a loan. It was — people were just buying loans in speculation. Now it seems more fundamental. But you know, the one thing I will add in is interest rates, what does that do? Because if you see interest rates double from here, that’s going to affect affordability. And then from my vantage point, I think with rates being low, prices have risen. But one thing that you should look into is the historical real estate values. And even though we had that peak in ‘06, you’ll notice that we dropped off a lot, and then it typically hovers around that 3-4% long-term appreciation. I think we might be a little over that right now, but I wouldn’t be surprised if we kind of just huddle along that line. Again, never say never, but it’s one of those things where it’s hard to — I don’t see the leverage, the difficulty in getting a mortgage today is much different than it was 14, 15, 16 years ago. It’s not — if anyone’s gone through the process, we really do due diligence, right? We see your income, your assets, we see your credit, we verify everything.

Tim Ulbrich: Yeah, and I was just going to share the same thing, Tony. If anybody has gone through this within the last couple years or even since 2008, you know the difference in terms of paperwork, I saw the difference in terms of transparency of information, easier to understand documentation from a lendee perspective if you’re willing to read through all of that paperwork. So I’m glad you shared that. I think the circumstances are different, and I think it’s important for folks to understand this is not a 2008 type of scenario or 2006 type of scenario in terms of documentation required, in terms of the types of mortgages that are out there, the lending practices, in terms of how conservative I would argue they are today compared to where they were back then. Tony, you said affordability, and that’s something that’s also top of mind for me is you know, I think of pharmacists — obviously, because that’s our community here — where incomes are relatively flat for many pharmacists right now. In some cases, we’re actually seeing incomes go down just because of hours of work that are available and for a variety of industry pressures that we have on those positions — and I’m generalizing here. Of course that’s not true for all positions. But it makes me think, then, about that case where for pharmacists, specifically we may see wages that are flat, obviously housing costs here going up significantly, we’re not even talking about perhaps general inflation in other areas that may be coming into the future. But even beyond pharmacists, like I think this question of affordability is a really interesting one. And you mentioned interest and demand among millennials. I guess the other side of that coin I would ask is like is this market making housing unaffordable for perhaps a generation in some regards? That this is going to impact many people getting into a home and the economic benefits that can come from that.

Tony Umholtz: I think it clearly can influence a lot of people. I mean, you think about in certain markets and just how much prices have gone up, I mean, again, borrowing costs have kept things pretty darn low. That’s helped. But one thing about borrowing costs versus income — and flat income is not, obviously you’re not seeing that gain every year.

Tim Ulbrich: Right.

Tony Umholtz: But normally, the income increases and the increase in prices, it’s not — the increases in prices is outstripped because of that borrowing cost. But you’re clearly right. The one thing that I will throw in, the other thing that’s to me is a little more frightening is rent prices.

Tim Ulbrich: Yeah, that’s right.

Tony Umholtz: They came down right when COVID hit because of the shock to the market, but they’re really surging in most markets. So when I have clients that we do our preapprovals, we see what they’re paying in rent, and it’s eye-opening. So I think that that’s the other side of this is if rents are where they’re at and you look at that affordability, you know, that’s going to be a challenge. And this is one thing we just have to keep an eye on. The markets are — they’ll correct themselves eventually. But the Fed may have to keep rates low longer.

Tim Ulbrich: Yeah. Is that — on the rent side, Tony, I’m sure it’s more complicated than I’m suggesting, but is that a trickle down effect of supply and demand on the buying side? That you know, if there’s not as many homes to go around for people that are interested in buying, you then increase the demand on the rent side, which further drives up rent price?

Tony Umholtz: It’s twofold. So I mean, part of it is supply and demand with rentals too. You know, if you have very little vacancy in your apartment building, you can command higher rents. The other thing you’ve got to watch is as there’s more and more multifamily, which is an apartment complexes or rentals being built, that’ll also put some pressure on rents as well and I think over time will catch up, builders will catch up. It might take a couple of years, but I think there will be an equilibrium, it always does shift. And the other thing I’ll just mention too with COVID is none of us saw COVID coming, right, until it hit. And with the Great Recession of ‘08, we saw some warning signs. You can never predict what it’s going to be. Right? We don’t know this for sure. And you know, we’ve put a lot of safeguards in to prevent some of the things that happened in ‘08. But it could be something different, right? And we don’t know what that will be to impact, but at the end of the day, you need a place to sell. And it was funny, I was on the phone call with a past client this morning. And he had bought his home in 2007, probably the absolute worst time to buy it, and he said, “You know, I just kept it rented.” I think the value got — down here in Florida, there’s parts of this area that got cut in half. I mean, we were hit probably as hard as anywhere in the country. And it came all the way back and is well above what he paid for it now. But that’s one of the things about housing is even investors, if you rent the property, you get a return not just from appreciation. That’s how — this isn’t a talk about investments, but that’s why it’s always important to have that if you own an investment property, that it cash flows, right? So that’s what you’re looking for.

Tim Ulbrich: Tony, one of the other questions that comes to mind here is if I’m someone listening who maybe I’m interested in buying a home, but it’s not a burning need in the moment. I could wait. Is there any merit into hey, let’s let things cool off a little bit, let’s let supply normalize and ride this out for a little bit? Or do you think because of how significant the supply and demand issue is now, that we might be in this type of a market for awhile?

Tony Umholtz: I think it’s going to be awhile before we see things really calm down. I mean, it’s — everyone’s market is different too. I think we have to be clear on that. Most of the country is experiencing a very robust housing market, but every place is different and every pocket of the city can be different. So I think it’s your individual area, but I think overall, in general terms, it’s just going to be up to the person. I don’t think — you know, I’ll just go back and I’ll talk about last year, and I’ll go back to 2017-18. I had conversations with clients of mine, and a lot of these were people that I had done business with for years, so as some of them took a pause, I had a couple of them sold their homes in ‘16 and ‘17 because the market had gone up nicely, said, “I’m going to rent for awhile, then I’m going to buy back in.” Well, that didn’t work so well. So even my own feelings, I remember a couple years ago thinking, things are pretty hot right now, it’s 2019. So it’s hard to predict, and I think you’ve got to look at your family situation. This is a lifestyle decision. It’s not like buying a stock in Apple or Amazon, right? It’s a — you live there. So while it’s an important, big investment, over time, it’s going to be OK. And I think the amount of money you’re going to have to pay in rent will be something you have to keep in mind when you’re paying that rent versus owning a home that you’re building equity in just by making the payments. So if you absolutely don’t have to buy, yeah, you could wait it out, see what happens. But I don’t know how much better it’s going to be. Then the other side of it what are interest rates doing?

Tim Ulbrich: That’s right.

Tony Umholtz: So if we see interest rates moves a half-point higher, then even if prices stay the same and they flatline, you’re going to be paying more per month. So there’s a lot of factors to go into it.

Tim Ulbrich: I’m glad you mentioned the rates again too, Tony, because I think that we often throw around terms like a half-point, quarter-point, that obviously if folks haven’t run numbers before, I’d encourage you to do so. I mean, a half a point, three-quarters of a point, of course as that increases on a $300,000, $400,000, $500,000 loan over 30 years, we’re talking about tens of thousands of dollars of difference, if not more than that. And so this comes back to the conversation about not only where are rates from a time perspective but things like credit and optimizing your credit and understanding your credit score and how to improve your credit, things that we’ve talked about on the show before but obviously why credit such an important part of the financial plan, as we talk here related to home buying and interest rates. Tony, the other trend I want to get your perspective on, you and I have talked about this briefly offline, you know, we’ve mentioned a little bit about the work-from-home movement and perhaps because of this, folks moving more out to the suburbs. I’m also thinking about just beyond their current area, the flexibility that they may now have, not within their area but to move to a warmer climate or to move to a beach town or something that wasn’t on the table before but now because there’s perhaps more flexibility in their work environment that they’re able to do that. So are you seeing those trends, especially knowing where you’re at down in Florida where you’re seeing more folks that are looking for a second home or picking up and moving because they have more flexibility with their work?

Tony Umholtz: The transition has been amazing. I’ve — a couple of stories this week that we have. We have a couple of closings for clients here in Tampa that are from New York City. They can live anywhere. And I’ve been getting a lot of referrals from Miami as well that a lot of folks moving down from New York. And some of them have lived in the city their whole life and just are ready for a change. And they can remotely, and it’s freed them up. I think you’ll see Miami become a major financial district in our country now. I mean, you’re seeing a big exodus of kind of the Wall Street financial firms moving down, relocating their businesses down there. And we’re seeing a lot of it here in Tampa, a lot of second home purchases too for those that can afford them because they can use them and take their kids that might be homeschooled right now or doing online learning. I’ve done a lot of lending on Amory Island, which is down here about an hour and a half south of Tampa. And it’s a really neat spot, but it’s just — the amount of demand because people can do that. They can live there, they can live there part of the time and work there and enjoy the beach. But in other places too, I’ve seen other second home markets around the country where people are taking advantage of this ability to work remotely. And I think the technology has been — this is something that’s always been there. 2020 was a catalyst, right, for all this to happen. And I think you’re just going to continue to see that trend, although there is some of that movement back for some people to get back into the office, especially as the vaccinations have really grown across the country. But I still think you’re going to see this ability to work remotely. Even with me, I’m in the office a couple days a week, and then I work from my home office as well. So we can work effectively both places.

Tim Ulbrich: Yeah, I think every time you and I have connected, Tony, over the last year we’re probably both at home. Sometimes the kids are in the background. It’s just part of the new norm, you know? I think that, to your point, like we saw this coming. I mean, the desire for a more flexible, remote work environment and then obviously the pandemic in 2020 was the catalyst. And it’s going to be interesting to see what goes back, you know, to normal and what stays. You also have the advantage down there of no state income tax in Florida, right? So that’s a bonus for people that are looking there.

Tony Umholtz: We do.

Tim Ulbrich: Let’s transition, Tony. I want to talk a little bit about the pharmacist home loan that you all offer through IBERIABANK and First Horizon. I suspect many of our listeners are already aware of this product from previous podcasts that we’ve had. We’ve got information also on the website, YourFinancialPharmacist.com/home-loan. But I think for many of our listeners, when it comes to home buying, I think of, OK, what are the most common barriers? Well, student loan debt typically rises to the top. And then the other thing I think about is usually the cash available as a new practitioner or a pharmacist who’s getting started to be able to put a down payment on a home. And I think the pharmacist home loan offered through IBERIABANK/First Horizon really allows folks an opportunity that they may have thought otherwise was impossible or weren’t aware of the option that was out there. So tell us a little bit about this mortgage loan option that you all offer. What’s the product about? Minimum down payment, maximum loan amount? And then some of the requirements for one to qualify.

Tony Umholtz: Sure. Well, the product’s been just a great help for so many people. And I think the big advantage of this program is you can do as little as 3-5% down with no PMI. So if you’re a first-time home buyer, you could do 3% down with no mortgage insurance. If you’ve owned before, it’s 5% down, again, no mortgage insurance. And the interest rates are very, very strong. In most cases, they’re better than a client putting 20% down, which is an advantage. And as far as the maximum loan amounts go, we currently are capped at $548,250 as a maximum loan amount for the product. And there’s a minimum credit score of 700. So you have to have at least a 700 credit score to qualify. But other than that, it’s really — that’s the qualifier. So there’s nothing else really you have to be concerned about. There’s not a clear reserve requirement or anything to that degree. And there’s no prepayment penalty on the mortgage either. So you can pay the loan off early if you choose to. Just is a great way to get into the housing market. And PMI is — you look at a $400,000 or $500,000 home, and you’re paying hundreds of dollars a month at that point.

Tim Ulbrich: That’s right. Yeah, great stuff. And we’ll link, again, in the show notes, YourFinancialPharmacist.com/home-loan. We’ve got lots of great information on the site about the product, about home buying considerations, some great educational content there as well. So I hope our listeners will check out that post, “Five Steps to Getting a Home Loan,” again, YourFinancialPharmacist.com/home-loan. Tony, you know, two of the collaborations that we have among others as well that really have been I think a big plus for us at YFP and our community, obviously the work that we’ve been doing with you, tapping into your expertise on the podcast here for pharmacists that are looking for financing options on a home loan purchase. So if you’re in the market for buying a home, I would encourage you to reach out to Tony at IBERIABANK/First Horizon. And for those that are buying and also looking for an agent, a shoutout here to Nate Hedrick, the Real Estate RPh, who is there to help you find an agent in your area that would be a good fit for you. And Nate’s there to walk alongside you in that journey. You can find more information about that at YourFinancialPharmacist.com, click on “Buy or Refi a Home” at the top of the page, and you’ll see more information about the professional home loan with IBERIA/First Horizon as well as an option to find an agent. So Tony, thank you so much for taking the time to join again. What’s the best way that our listeners can reach out to you if they have questions or want to get in touch to learn more about the product?

Tony Umholtz: Definitely by email. My email address: [email protected]. And also our office number, (813) 603-4255. I know it’s all listed on the website, but those are the best ways. We have a great team, and glad to help. Everyone’s situation is different, so we love to help. That’s what we do.

Tim Ulbrich: Tony, great stuff again. Thanks so much for taking time to come on the show.

Tony Umholtz: Thanks, Tim. Good to be here.

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YFP 203: New Book: FIRE Rx: The Pharmacist’s Guide to Financial Independence


New Book: FIRE Rx: The Pharmacist’s Guide to Financial Independence

Dr. Jeff Keimer, author of the brand new book FIRE Rx: The Pharmacist’s Guide to Financial Independence, joins Tim Ulbrich on this week’s episode. If you’ve heard about the FIRE (Financial Independence, Retire Early) movement before, you know that this is a powerful strategy to build wealth and to put yourself in control of your financial future. Regardless of whether or not you have early retirement goals, achieving financial independence gives you options when it comes to how you spend your time and money. On this episode, Jeff talks about why he wrote FIRE Rx, his FIRE journey, how to calculate how much you need to retire, three reasons pharmacists should consider pursuing FIRE, and how FIRE can change your relationship with money.

About Today’s Guest

Jeff Keimer is a retail pharmacist practicing in Vermont. He began his career in pharmacy while still in high school back in 2005, and he graduated from Albany College of Pharmacy and Health Sciences with his PharmD in 2011. Jeff is a frequent contributor to the Your Financial Pharmacist blog.

After jumping headfirst into the FIRE movement back in 2016, he and his wife were able to conquer their student loans, paying off over $105,000 in nineteen months. Since then, they have been able to set themselves on a course to be financially independent well before most people would even consider it a possibility.

Along the way, Jeff engrossed himself in all things personal finance and found that he has not only a passion for finance, but also of writing; and through that writing, it’s his sincere hope that he can serve his profession by helping enrich the financial lives of its members.

In addition to this book, you can find more of Jeff’s content on the Your Financial Pharmacist blog. You can connect with him on Facebook via the Your Financial Pharmacist Facebook group.

Summary

This week, Tim Ulbrich welcomes Jeff Keimer, PharmD to the show to discuss his new book, FIRE Rx: The Pharmacist’s Guide to Financial Independence. Jeff shares why he wrote the book, his FIRE journey, how to calculate how much you need to retire, three reasons pharmacists should consider pursuing FIRE, and how FIRE can change your relationship with money.

FIRE Rx: The Pharmacist’s Guide to Financial Independence is broken down into three parts: the why of FI and how it applies to pharmacists, how to achieve FIRE, and uncertainties surrounding FIRE. Tim and Jeff walk through each of these areas in their discussion. Jeff shares a number of reasons why pharmacists should consider pursuing FIRE, whether or not they intend to actually retire early, and explains how your relationship with money can be positively affected when seeking FIRE.

Jeff explains a practical method to creating a goal post for retirement, elaborating on the 4% rule and how to calculate how much you need to retire. Jeff and Tim close by tackling some of the greatest concerns when retiring early including health insurance and outliving your nest egg.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Jeff, welcome to the show.

Jeff Keimer: Great to be on. Thanks for having me.

Tim Ulbrich: Hard to believe this is your first time on the podcast. You’ve written a number of great blog posts about FIRE, investing, one about your debt-free journey that we have featured on the YFP website, and we’ll certainly link to that in the show notes. But today, we’re going to be digging into your new book that is available to order called “FIRE Rx: The Pharmacist’s Guide to Financial Independence.” And I’ve been really excited about getting this book out. It’s been a process, it’s been a couple years in the making, and excited to get this into the hands of many pharmacists that I think will find great value from your writing. So before we get into the book, give us a little bit of background on your pharmacy career and what you’ve been doing as a pharmacist.

Jeff Keimer: So I started in pharmacy actually quite awhile ago. I was still in high school back in 2005 when I started working for if you remember Eckerd Drug before they got bought out by Rite Aid. I worked for Rite Aid all throughout college and then took a position with a company called Kinney Drugs up here in Vermont. It’s just a regional drug chain. And yeah, been working as a community pharmacist ever since.

Tim Ulbrich: Small world, Jeff. I interned for Eckerd Drug when I was a pharmacy studen. At the time coming back home in the summers in Buffalo, New York, we had Eckerd Drug and I worked with them before that buyout happened with Rite Aid. So good memory. I think we’re dating ourself a little bit, by the way, when we talk about Eckerd Drug and some students and others are listening like, what are you talking about? You know, for those that are listening and if you’ve been a part of the YFP Facebook group, you likely have seen Jeff’s name pop up who has been really active in that group in commenting, providing some great input and advice. And I think, Jeff, folks may be wondering, especially those that have interacted with you in that group and obviously see that you’re knowledgeable not only on this topic but other areas of personal finance, you know, how did you get interested in personal finance? Was this a topic that always was one that was of interest? Or did something happen out of necessity that brought you into this world and I guess rabbit hole when it comes to personal finance?

Jeff Keimer: So I think I’ve always had kind of an interest in finance in general, maybe not in the application of it if you run my Q&A and how I was in my early years as a pharmacist, I definitely did not act like I was really interested in personal finance or whatnot. But I’ve always taken an interest in finance in general, especially investing. Then once Alex, my wife and I, we started getting down this FIRE rabbit hole, I really got into a lot more, really got to understand a lot more of the concepts. It really played to a wealth of my interests, especially as you get later on down the ways and you’re figuring out different ways to be able to solve your financial issues or invest better, sometimes it can be kind of a game, which really appeals to me.

Tim Ulbrich: So was it you driving this forward? Was it Alex driving this forward? Was it both of you — pun intended — really that caught on fire with the FIRE concept? Tell me more about for the two of you in your personal journey how you guys really made this commitment towards financial independence and why that was a priority for you and your family.

Jeff Keimer: So I think starting off, like I mentioned before, I got out as a new practitioner, really was not good with money, kind of spent every dime in sight just on ridiculous things. I think I spent $5,000 in a year on craft beer or something. But she was really — she gave me the push because she came from a much different mindset than I did when it came to money and particularly saving and really kind of establishing that financial position of strength. You know, as time went on with our relationship, I had a really pretty bad balance sheet. And she did not. I kind of got the hint that I needed to really kind of move myself in that direction, kind of get my house in order and up to her standards first. That’s really where we started. The whole foray into FIRE came later, after we got married. That became kind of a journey I took the lead on, but she was supportive at first and then really kind of came on board and got really excited about it as time went on and we made progress towards it.

Tim Ulbrich: We’ve had a few pharmacists as guests on the podcast like Jason Long on Episode 104, Jared Wonders on Episode 111, who have shared their own FIRE journey. We also had Scott Rickens, author of “Playing with FIRE” on Episode 188. But with that being said, I don’t want to assume that all of our listeners are familiar with FIRE. I shared with you before we hit record, you know, often when I’m speaking with a group of pharmacists and I introduce the concept of FIRE, many folks I find have not necessarily heard of that term before but once I have a chance to explain a little bit more about what is financial independence all about, what is the FIRE movement or community all about, I can see there is certainly an interest that is piqued and folks that are interested in, hey, I want to learn more and see whether or not this is a path for my own personal financial journey. So before we dig more into the weeds on FIRE and the strategies you talk about in the book, give us the high-level definition or overview of what exactly is FIRE.

Jeff Keimer: Basically, FIRE is an acronym. It stands for Financial Independence Retire Early. And I think that the acronym really kind of is in some ways self-explanatory. But what it actually is in practice is that you reach a stage in your personal finance journey where you reach financial independence, meaning the money that’s — your money is basically generating for you, not the money that you’re having to work for. But the money that’s being given to you in the form of dividends, capital gains, things from investments or income from rental properties or a business that you own that you’re no longer having to really work the day-to-day, from basically that is covering all of your living expenses that you have in a year. So you basically, you don’t have to work for money anymore, which then leads people into the retire early concept, in which case they may decide to totally stop working for money. Then that can be far ahead of what people normally consider to be retirement at say 65. You have some people in the space inspires really kind of a large community now that’s really cropped up over the years. You have some of the more famous names in the space. First one I was introduced to was a guy named Pete Adeney, who goes from — he goes by the name Mr. Money Mustache on his blog. And he retired in his 30s. So you know, when most people kind of hear that for the first time — and I know when I heard that for the first time, that’s when I got hooked because I was like, who is this guy? Like how do you do this? This sounds really ridiculous.

Tim Ulbrich: Tell me more.

Jeff Keimer: Tell me more about how you get to a point where you can call it quits in 10 years. But you know, the interesting thing about FIRE is like you can do whatever you want. It’s really retire early is an option. Financial independence is really what I think most of the movement has kind of squared itself around because then you have the option to do the retire early if you want or you can do something else.

Tim Ulbrich: And I think that right there, right, the option to stop trading time for money — and I’m with you, Jeff. As I heard about the movement, learned a little bit more, certainly don’t claim to be an expert myself , and like we’ll talk about here shortly, there’s a variety of options and paths that one can take, certainly not a only-one-route to do FIRE. But FI resonates with me as a goal that all of us should be considering, you know, and what that means for us. It may be something different depending on our personal situation, our income, our expenses, where we live, all of those things. RE maybe, maybe not. You know, I think there’s a lot of things that would go in that direction that would help someone make that decision. But many pharmacists invested a lot of time and money to get their degree, many pharmacists love the work that they’re doing, and so they may not have that goal of RE. Or perhaps it might not be that they have a goal of retiring early but something life throws at them requires them to pivot away from their work income, and they’ve put themselves in a position towards FI to be able to make that adjustment. So we’re going to dig into even more of that, but I want to make sure our listeners, you know, as we have this conversation, don’t necessarily hear us talking about FIRE and are making an automatic assumption that every pharmacist needs to aspire to retire in their early or mid-30s but rather we’ll talk about some of the tenets and principles of FI and of course that RE is something that some may choose and many others perhaps not. So being passionate about FIRE and financial independence for your own personal journey is one thing. Deciding to invest the time to write a book is another thing. And you know and I know that there’s a significant amount of time and effort that can go into this. So why, Jeff, did you feel the need, besides me hounding you a little bit of hey, I think this would be a great topic for pharmacists and would love to see us have more information in this area, why did you feel like it was necessary to invest the time to write a book that would help pharmacists better understand this path towards FIRE?

Jeff Keimer: Yeah, I never thought about writing the book until you asked me. You said, “Hey, would you like to” — I think we were originally starting and thinking about maybe a short audiobook or something like that. Then it morphed into more of a full form book. And initially, I’ve got to be honest, you know, you said, “Would you like to write a book?” I thought, I think that’s kind of a cool thing to do. I’d like to — maybe that would be a fun little thing to be able to say, “Oh yeah, I wrote a book.” But you know, as time goes on, that can kind of get you in the door doing something, but you have to kind of have a reason for why you actually want to beat something, and especially with writing a book, I mean, that’s the longest thing I’ve ever written. You’ve got to have something in the background. And I was thinking to myself, really I mean, as I was writing the book and kind of thinking about in all the writings that I’d done for the site as well, why I do this. And I think that what it boils down to is different people have different ways that they want to serve their profession in general. And I looked at this as like, people try to play more to their interests in how they want to do that, if they want to do that at all. And to be honest, on the clinical side of things, wasn’t — never really been a huge interest of mine. I really enjoy the role that I play in the profession as community pharmacist, being able to talk with people, help them through their problems and get better outcomes that way. But you know, some of the more clinical-minded or even legislative-minded things that you get into, haven’t really sparked too much of an interest in mine. But finance does. And I think that finance really is a — it represents an interesting problem that needs to be solved for our profession, particularly as I see it kind of going forward because as a profession, I mean, we do need a lot. We need to do a lot, you know, for our profession moving forward to be able to direct it in the ways that I think most pharmacists would like to see it. But financial burdens placed particularly on new graduates who, in my mind, are in a really good spot to be able to try and affect change in our profession, really can be a major hindrance to things actually moving forward. What I see with — through my writing is you know what, if I can help any of these people get to a point where finance is really not such a burden on their shoulders, they might be able to actually get out from the behind the bench and do things that might be more beneficial to our profession on the legislative end, clinical ends, or even on an entrepreneurial end because we really do need — in our profession, we do need to explore different avenues for our services as pharmacists to really evolve our profession as time goes on. And unfortunately, a lot of times when — I’m sure you’re an entrepreneur yourself — the beginning stages of a lot of ventures, you don’t make a lot. It can be very difficult financially. And it’s one thing to kind of come at that sort of a thing coming out of high school or coming out of college with minimal debt, it’s a whole different thing coming out of college —

Tim Ulbrich: That’s right.

Jeff Keimer: And you have $100,000 maybe plus of student loans. And your minimum payment is similar to a mortgage without actually having a house. That, to me, like if you can really kind of help fix that part of the problem, I think that there’s a better chance — not a guarantee, but a better chance that our profession will be able to do the things that it needs to do without as much of the weight of the financial burdens that we have already.

Tim Ulbrich: Yeah, and Jeff, I shared this with you when I read the first draft. What would that have been? Back in probably late fall of 2019. I think you’ve really done an incredible job of taking a topic that can feel overwhelming, especially when you get into some of the weeds on investing options, considerations, you know, and so forth and really did a nice job of breaking that down in a way that was easy to understand, it’s very conversational — for those that like reading blog posts and other things, I think you wrote it an a way that is not intimidating. It’s easy to follow. And it gives people the space to explore this topic and apply it to their own personal situation. And that is something I love because we know that when it comes to putting a financial plan together, whether you’re working with a financial planner or you’re doing it yourself, everyone’s plan is inherently unique to your own personal situation, to your own goals, to your family situation, to where you live, to all of these other factors, whether you have debt and how much, and things you’re trying to aspire to do. And I feel like you really gave the space for folks to be able to make some decisions and really just understand the options, the pathways, spark some interest in what this is all about, and then hopefully, they can take that information and begin to apply it to their personal situation where it makes sense. So as far as I know, this is the first FIRE book specifically as it relates to pharmacy professionals — if someone else wrote one that we don’t know about, they can tell me that I’m wrong on that — and I really believe the book is full of valuable information that lays really a strong foundation for pharmacists that are interested in learning about FIRE and how they can set out on the path to achieve it. In the book, you go into detail about paths to FIRE, withdrawal rates, savings rates, budgeting, debt repayment, investing, portfolio considerations, and the list goes on and we’ll talk about some of those in more detail. And one of the highlights for me is we sent this book out to some pharmacists in the YFP community before it was available to order, and the feedback we received was really amazing. Cory Jenks, who we had on in Episode 196 said, “This book takes the hours and hours of reading and self-education and condenses it to a simple, easy-to-read book that has something for anyone along the journey to FI.” And I would certainly agree with what Cory said there. So let’s dig into the book a little bit further. You wrote the book “FIRE Rx: The Pharmacist’s Guide to Financial Independence,” and you broke it up into three parts: Part 1: The Why of FI and How it Applies to Pharmacists, Part 2: How to Achieve FIRE, and Part 3: Uncertainties Surrounding FIRE. So in Part 1, the Why of FI and How it Applies to Pharmacists, talk us through the three reasons that you think pharmacists should at least consider pursuing financial independence.

Jeff Keimer: The three reasons I really tried to lay out there is first and foremost, it’s defensive. Second, it’s doable. And then third, as I kind of got into on my little soapbox over there, it’s good for the profession I think. So going to that first point, defense, where I don’t think that there’s really a whole lot of pharmacists out there in the profession that look at the state of things right now and think, oh, the gravy train is going to keep going and whatnot. You know, you hear stories every day about — you see a lot of them on the Facebook group too, posting about how tough the job market is, people are going in and getting the offers that they’re finding are really — they’re scary. I mean, they’re like a fraction of what I started at 10 years ago. There’s a lot of pressure in the marketplace right now in terms of pharmacists’ salaries and then also again, on the student debt side, that side keeps going up. Defensively, pursuing financial independence in particular at a really just basic level, I mean, you don’t even need to achieve financial independence to be able to get benefits from the techniques and the things that you do in the pursuit of it anyway.

Tim Ulbrich: That’s right.

Jeff Keimer: Because what it basically boils down to is just — I mean, it’s just good financial hygiene. So you’re getting rid of debt, you’re de-risking your whole financial situation, and really kind of building yourself up into a position of strength where you can really kind of take whatever life throws at you. Now, that could just be what a lot of us — most people kind of experience, you could just have things come up in your personal life, say the kid needs to go into the hospital or you need to go in the hospital, some kind of financial hardship there that you could absorb. Or it could be something more in the lines of the profession. So I remember last year, remember reading one day, one of the major big box stores laid off about 1,000 pharmacists or something like that. That’s a major thing that goes on. And it’s a possibility. And I think for many, many years, our profession really didn’t — we didn’t really have to think about that. I know when I first went into pharmacy school, something like that really was not on the radar or really in anybody’s mind, especially when — we called them fifth years because I went through a six-year program, but you know, the P3 students, second semester, you saw a lot of new cars in the parking lot because people were getting five-figure sign-on bonuses.

Tim Ulbrich: Yep. I remember that.

Jeff Keimer: But I mean, yeah, it basically — it boils down to for defense, it’s a good idea to really even just kind of get into this anyway because as a profession, I think every single pharmacist really needs to be thinking or have in the back of my mind, hey, it might be a possibility that I’m not going to be making more in the future, which is kind of a weird concept if you want to stay in the profession. And I would imagine most pharmacists do want to stay in the profession because we went to school for a reason, and we wanted to be pharmacists for a reason. The second thing after going that doom-and-gloom section, that it’s doable. I think currently, a lot of pharmacists, the doom-and-gloom scenario, while it’s certainly difficult in a lot of markets, that’s not the same — or not saying that every market is this kind of situation where it’s really difficult. So for a lot of pharmacists, particularly ones that are practicing now, and especially if you’re still making that good paycheck, I think financial independence is perfectly doable. You have a strong income to be able to drive it towards financial goals. It does take a lot of discipline, takes some knowledge, but you can do it relatively easily compared to a lot of your peers that might have graduated, people like let’s say you went to high school with. They might have graduated in a different field. So I think that it’s, as a pharmacist, you know, even though we kind of get down on it, most of us still do make very good money compared to what a lot of people, especially straight out of college, would be making. And then the last bit, again, I think it’s good for the profession. You know, if you go down this path and even if you get close to financial independence, you don’t even need to get to full financial independence, but even getting there close, we can remove some of the risk to your career if you need to do something to be that, you really want to get out of a situation that you’re in, maybe you did start working retail after college but you really didn’t want to do that from the beginning, which it’s very much like a thing where if you’re in a position that you don’t necessarily — if you didn’t want to be there in the first place, it could be a bad fit and could be difficult for you for a long term. So if you wanted to contemplate a switch, sometimes having that — being in a position of financial strength can be very beneficial to you and really kind of remove a lot of the risks surrounding moves there. Also, I mean, if you wanted to pursue entrepreneurial work, let’s say start a consulting business or something like that where it’s not clear that you’re going to be making the kind of salary that you were making as a dispensing pharmacist from Day 1, and you probably won’t. But if you’re in a position of financial strength, you can tackle that challenge far easier and far more responsibly I would say than someone who doesn’t have that position of financial strength.

Tim Ulbrich: Yeah, I agree with all of those, Jeff. And the one that resonates with me — and I mentioned this to you as you were writing is that last one. I really — I’m bullish on the opportunities we have. I’m an optimist by nature, but in terms of where we can go as a profession, but I also recognize that $175,000 of debt and dependence on a six-figure income with that type of debt is really golden handcuffs to folks taking risks. And I think that is risk both internally, you know, I think folks, if you’re really saddled with debt or don’t necessarily have a good financial foundation or position, you’re probably not likely within your job to propose new ideas or strategies or take some risks or push back where needed, let alone look for other opportunities that may be out there that are a better fit for you or that also could help us advance as a profession. So I believe firmly a big part of why we do what we do at YFP is if we can help offload some of the financial burden of one’s individual situation, you know, what does that mean for their career as a pharmacist? Or what does that mean for other things that they may want to pursue and may want to do? The other thing, Jeff, I like in Part 1 that you talk about is an FI mindset. And you know, my question here is what part does mindset play in pursuing FIRE? And what are your core ideas on how one can establish an FI mindset or perhaps recalibrate the current mindset that they have if it’s not in line with that?

Jeff Keimer: The concept I like to get through on the FI mindset part is really, when you decide to go for financial independence, you really have to fundamentally change your relationship with money. And what I mean by that is that instead of viewing the money that you bring in simply as the stuff that you’d pay for goods and services with, you really need to think of money in terms of time. There’s a great book, it was written many years ago by a lady, Vicki Robin and her husband, they equated money to a concept they called life energy. And basically, it was when you’re spending money on things, let’s say you’re buying a pair of jeans or you’re buying the latte or whatever, you’re giving money for those things. But in reality, if you’re having to work for that money, what it is is that you’re exchanging the time value of your work, your life energy, for whatever that thing is. Now, most of the time, like the small purchases here and there, that’s really — they can add up, but it can be immaterial in the long run. But for some of the big things like let’s say you want to buy that brand new $50,000 car, you take out a car loan, you do that stuff, what you’re doing is you are committing a lot of your life energy to buying that car. Like it’s not a just oh, I can get this. It’s like no, no, no. You are committing your life to servicing this debt for whatever that you’re spending the money on. Now, the change that gets made is when you have a look at how money, particularly when you start investing it, can beget more money. Then it’s like, alright, so I’m going to have this money and then I can save that money and then it can then buy me time. It can buy my life energy back, which I think is — that’s really the cornerstone of the FI mindset that you need to have is that you’re essentially, instead of expending your life energy, your time, for things and stuff, you’re really just kind of buying back into yourself and making your — getting yourself time back that you wouldn’t otherwise have. Once you really kind of understand that, really kind of engrain that — I mean, I’ll tell you, it is kind of an addictive concept because you end up finding yourself saving money and looking for ways to save money and do things that you ordinarily wouldn’t do because you kind of feel like, I’m doing this, this is, you think of it as miniscule, it’s like, oh, that thing’s going to get me 15 more minutes back of my time or something like that. You know, that’s kind of silly. But it kind of explains the point a little bit.

Tim Ulbrich: I think too, Jeff, you know, sometimes when folks hear that, they may think, oh my goodness, like the frugality of that and I’m scraping for pennies, but I think what happens, at least what happens for me when you talk about that concept of the connection between time and money is that you start to change how you value certain things. So again, I’m speaking for myself, but I think this may be true with others as well. If you’re going to make an investment in an experience, you’re going to make an investment in something else versus an investment in something that maybe doesn’t mean as much to you — and Ramit Sethi talks about this idea in the book “I Will Teach You to Be Rich” of like find the things that like have meaning and value to you, and figure out how you’re going to invest and prioritize in those and find the things that you don’t care about and stop spending money on them. And you know, I think that that has been really an important thing when I think about mindset — and here, we’re talking about mindset around FI — is like it really helps begin you to shape and be more I think self-aware of when you’re spending money, you’re not just making that transaction but you’re starting to think a little bit about like what value do I get or do I not get from this transaction? And is it worth it or not based on the time? And sometimes the answer is yes, and sometimes the answer is no. And I think it just helps grow that awareness and it allows us to pause, stop, think about things and really evaluate it in a little bit more detail. Now, Part 2 of the book is really the meat and potatoes. And you did an awesome job in this section, How to Achieve FIRE, and we’re just going to scratch the surface here with a couple things. But one of the things you talk about in Part 2 is you dive into safe withdrawal and the 4% Rule, which you also talked about on the recent blog post on the YFP website titled “How Much You Need to Hang Up Your Coat,” all about the 4% Rule, and we’ll link to that in the show notes. So just give us a high-level overview of what the 4% Rule is and why that is significant as folks may be getting to think about this question of how much I need.

Jeff Keimer: So in a nutshell, the 4% Rule refers to a tool in financial planning to be able to judge when a traditional let’s say traditional portfolio of stocks and bonds can really fund your expenses in perpetuity. So where it comes from, it comes from a study done by the financial planner William Bengen back in the ‘90s. And what he found was that in looking at retirement cohorts from many, many years in the past, he found that the absolute lowest that a retiree could safely withdraw from their portfolio and not run out of money — and his study was over the course of 30-50 years, depending on which study you want to look at. But in a nutshell, basically it’s he said 4% was the lowest, the worst case scenario that if you retired and then you took out 4% of your portfolio Year 1, and then Year 2 added the inflation according to Consumer Price Index to that initial 4%, so on, so on as the years go on, you keep up with inflation, you wouldn’t run out of money. And 4% was that worst-case scenario. Now, it sounds like a little wonky, but what ends up happening is you can take that 4% figure and take the inverse of it, which is 25.

Tim Ulbrich: Right.

Jeff Keimer: And then once your investment portfolio reaches 25 times your annual expenses, you can — in theory, I would say — declare yourself to be financially independent because there’s a strong probability that in the future, you are not going to run out of money should you just decide to draw down on your portfolio like this. The really powerful thing about the 4% Rule and the whole concept of a safe withdrawal rate is not really in the technical details behind it but it’s giving you a goalpost that you can work towards.

Tim Ulbrich: That’s right.

Jeff Keimer: I remember it was kind of a seminal moment like in my FI journey that when I read Mr. Money Mustache’s post, it was like “Shockingly Simple Math to Early Retirement,” something like that. But it laid that out, and I said to myself, oh, OK, so my retirement number, how much I need is not just this totally nebulous concept where somebody’s like, ‘Well you might need like $5-10 million. We don’t really know. You just need a boatload of money.’

Tim Ulbrich: Plus or minus $3 million.

Jeff Keimer: Yeah, just keep saving and once you get to 65, we’ll figure it out from there.

Tim Ulbrich: Yep.

Jeff Keimer: But this actually gave me something more concrete to work with and say, ‘OK, alright, that’s a goal. And I can achieve that.’ But the other interesting thing too compared to a lot of the traditional financial planning advice is that you tend to see in some of the guidelines out there for how much you need to retire, as it’s a multiple of your income, which many people would argue with me about this, but your income is I think less in your control than you really think it is. There are a lot of forces way outside your control that affect this thing, be it market forces, so pharmacists are seeing that firsthand with supply and demand of licensed professionals. But it could just be some exogenous event in the market that, you know what, you lose your job. Sorry. Or you had a good idea, but now there aren’t too many customers for your idea anymore. A lot of things can happen with your income that are outside of your control. However, with the 4% Rule, it frames the question of how much you need to retire and how much you need for financial independence in terms of your expenses. Now, some of these may be a little bit outside your control, but you have way more control, at least in my view, of how much you spend versus how much you bring in. So I think it’s much more powerful — it’s extremely powerful in the regard that it really takes the whole notion of your financial destiny, your financial independence, out of the hands of whatever’s going on externally in the market and putting it much more in your hands, giving you much more influence over that equation.

Tim Ulbrich: That’s great stuff, Jeff. And I like how you described that calculation towards the FI number as a goalpost, right? It’s a starting point and I think so often, we talk about retirement as I hope I can retire. I wish I can retire. Maybe I can retire at this age. And I think really starting to dig into some of the numbers and taking more control and ownership of what that might look like of your financial plan, rather than being reactive. And as I mentioned in Part 2, this is just one of the many concepts you talk about. You also talk about in Chapter 5, your savings rate, in Chapter 6, you go into a FIRE approach to debt, in Chapter 7, you talk in much more detail about FIRE investing, in 8, investing efficiently and then and finally in 9, which is a question folks probably have often is it’s great if I save it and now I need to pull it out, so how do I, as you say in Chapter 9 titled “Jail Break Your Stash,” so what’s the strategy of actually withdrawing those funds when you need it, which I think is a question for many pharmacists if they’re familiar with more traditional tax-advantaged retirement accounts and they think of things like age 59.5 or greater, well what’s the strategy if there’s early retirement? So certainly covered in much more detail in the book. Jeff, I want to wrap up here with a question about what you address in Part 3 of the book, which is some of the uncertainties surrounding FIRE. And I think is one that folks hearing this for the first time might begin to think of all the objections to why early retirement may not be a good idea. And this might be, well what about health insurance? What about other things where I’m dependent upon my income to be able to have some of those types of things? So there are considerations, potential drawbacks. What are some of the big uncertainties that you see related to FIRE that folks should be aware of?

Jeff Keimer: So I think the big one that a lot of people think of right off the bat has to do with health insurance, which to be honest, I don’t think it’s as big of an issue or will be as big of an issue as people think because I mean, health insurance is something that you can — it’s going to cost more in most regards. Now, there are some tricks that you can get around it. You can take a look into other forms of health coverage like Health Ministries or some people decide to work part-time for a company that offers health insurance benefits in retirement. Or they just, they don’t stop working, they just kind of work for the health insurance benefit. But I think, I mean, that boils down to you’re probably going to have to pay for it. That I think is the thing that comes top-of-mind for a lot of people, especially when you say, ‘Hey, you’re going to retire at 40 years old,’ and most people, like a major consideration is like, ‘Well, I’m not retiring until I get Medicare.’ It can be less of a burden than people think, but I mean, it’s still definitely out there. The other thing too that’s kind of an uncertainty is outliving your assets too, which kind of goes back a little bit to that 4% Rule, and that’s why when we were talking earlier about it, you said it’s a goalpost. But it’s also just kind of a guideline. Like it’s also not set in stone that it’s going to happen. I mean, it’s still very much a concern that you are going to outlive your money. And there are certainly things that you could do to address that, which we talk about in the book, not the least of which, I mean, surprise, kind of along the same lines as health insurance, is just save a little bit more and give yourself a buffer. The other thing — and I think that the really, probably one of the most important in terms of uncertainties to FIRE is let’s say you do want to consider retiring early. What do you do from there? That’s the major question that, you know, if you’re going to be looking at this thing, it’s the thing that you should be thinking about throughout the whole journey.

Tim Ulbrich: Absolutely.

Jeff Keimer: And you know what? I mean, the good news is you don’t need to figure it out before you start. And honestly, I think it’s a stupid exercise to even try to do something like that because this is not going to be — pursuing financial independence or the early retirement, it’s not something that you’re going to be able to say, ‘Alright, I’m going to start doing this and then two years from now, we’re going to be there. And my life two years from now is probably going to look very similar to the way it does now.’ I would say when people go after this thing aggressively, 10-15 years might be more realistic for that. When we started ours, that’s kind of the timeframe we were looking at for it. But even at those kind of time frames, I mean, you don’t know what your life is going to look like 10-15 years from now. You really don’t. My son was born six months ago. And being a new parent, I don’t — I didn’t know ahead of time really what that’s going to look like. I had maybe some idea of what that looks like, but I didn’t understand what it was going to look like. So I think that as you’re making these plans for the future, I mean, it’s something to think about. Like what do you want your life to look like after FI? How or is pharmacy going to fit into that life after FI? For some people — you know, I know for Jason Long when you had him on, it really didn’t. But I think for a lot of other people that are in the profession, it will in some shape or fashion, whether that’s even something as simple as you know what, I want to work per diem for the pharmacy or the hospital or something like that. Or it could be you know what, I have reached financial independence and one of my goals for this was to do more outreach work for the profession, and I’m going to do that. These are the things to think about during the journey because, I mean, I definitely think it’s worth it to consider. And that I would say, most of the other problems that people kind of throw around — I like this term, it gets thrown around actually in the cryptocurrency communities a lot, it’s called FUD. It’s an acronym. It stands for Fear, Uncertainty, and Doubt. And a lot of the FUD surrounding FIRE really, I mean, it’s all math. Health insurance, saving for college in the future, even like long-term care, all of these are math problems that you can solve.

Tim Ulbrich: That’s right.

Jeff Keimer: But the big uncertainty, but it’s kind of a good uncertainty is like, well, now that you have all this time, what do you want to do with it? And how do you want to construct your life after this? That’s really the big thing I think a lot of people need to think about too as they’re going on with the journey in terms of any kind of uncertainty surrounding the FIRE movement.

Tim Ulbrich: That’s great stuff, Jeff. And I love how you wrap up the book when you say, “When I think about the whole concept of FIRE, I don’t really see it as a mad race to the end of work to live a life of leisure. I see it as being a tool that can help people live their best lives. Nothing more, nothing less. And what you’ll get out of it is up to you.” So Jeff, great work. We really have just scratched the surface on the book “FIRE Rx: The Pharmacist’s Guide to Financial Independence.” Congratulations on your efforts. I think it’s going to have a significant impact on many pharmacists out there. Appreciate you taking the time and the effort to put the book together and looking forward to getting it into others’ hands. So Jeff, again, thanks for the time coming on today and your efforts in putting together the book.

Jeff Keimer: Thanks for having me on.

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YFP 202: How to Teach Your Kids About Money and Investing


How to Teach Your Kids About Money and Investing

On this episode, sponsored by Insuring Income, Tim Ulbrich welcomes Dylin Redling and Allison Tom, creators of Retireby45.com and authors of two books, Start Your F.I.R.E. (Financial Independence Retire Early): A Modern Guide to Early Retirement and Investing for Kids: How to Save, Invest and Grow Money to the show. Dylin and Allison talk about their FIRE journey and share practical advice and meaningful activities to teach kids about money and investing.

About Today’s Guests

Dylin Redling and Allison Tom are a married couple living in Oakland, California. After working for 17 years in the tech industry in San Francisco, they left the workforce in January 2015 and never went back.

They own and operate the website RetireBy45.com, which provides inspiration, tips, and resources for achieving FIRE (Financial Independence/Retiring Early) and making the most of the FIRE lifestyle. In 2020, they wrote and published two books: “Start Your FIRE: A Modern Guide to Early Retirement” and the best-selling “Investing for Kids.”

They love food, fitness, and travel. Their goal of “60 by 60” is to visit 60 countries by the age of 60. They are halfway to their goal with another 10 years to go!

Summary

Dylin Redling and Allison Tom, creators of Retireby45.com and authors of Start Your F.I.R.E. (Financial Independence Retire Early): A Modern Guide to Early Retirement and Investing for Kids: How to Save, Invest and Grow Money, join Tim Ulbrich on this week’s podcast episode. In this interview, focused on their book, Investing for Kids, Dylin and Allison share their creative process and some of the practical and meaningful activities that can be found in the book.

Allison digs into some of the motivations behind Investing for Kids and talks about why they choose to have superhero protagonists. She explains that she and Dylin not only wanted to make the book educational for kids, walking them through basic concepts of personal finance, but also wanted the activities in the book to be fun and exciting for kids to participate in rather than having those activities feel like more homework.

Dylin and Allison also share their own experiences, growing up with different financial knowledge and money lessons, and how those experiences plus a series of calculated financial decisions brought them to be able to retire in their early 40s. Dylin and Allison remark on their time as retirees and the freedom that they have been afforded because of it. Their goal of “60 by 60” is to visit 60 countries by the age of 60. They are already halfway to their goal!

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Dylin and Allison, welcome to the show.

Allison Tom: Thanks for having us.

Dylin Redling: Thank you very much. Great to be here.

Tim Ulbrich: I’ve very much been looking forward to this interview to talk more about your story achieving financial independence and early retirement and more specifically, the work that the two of you did in writing “Investing for Kids: How to Save, Invest, and Grow Money.” And Dylin, let’s start with you only because we share an Ohio State connection since you’re an alum so go Bucks. Why write a book specifically designed for kids about investing? What was the motivation behind your work?

Dylin Redling: Yeah, well, first of all, go Buckeyes. Yes, a great connection there. It’s interesting because I’ll start off with the interesting fact that Allison and I actually don’t have kids. And so you would think that the impetus would have been we had our own kids and we taught them financial literacy and it inspired us to teach more kids. But in fact, we sort of stumbled into this book. This is our second book. Our first book is called, “Start Your FIRE: A Modern Guide to Early Retirement.” And it’s all about early retirement and financial independence, which that book just poured right out of us because it’s something that we live and we know very well. And what happened was the publisher who we worked with on that book came back to us a couple months after that book was published and said, “Hey, we have an idea for this other book. And it’s investing for kids ages 8-12. And what do you guys think because you know about investing and financial concepts, and we think you guys might be able to pull this off.” And we thought, wow, we don’t have kids, we’re not teachers, we don’t hang out with kids. We have a few friends with kids, but we don’t spend a lot of time with them. And so we thought, man, this sounds really challenging and daunting. But it was during the 2020 year of COVID, so we had a lot of time on our hands. So we thought, let’s just go for it. And we dove into it, and it was very challenging because we wanted it to be interesting for kids and informative and fun but somehow, we put our heads together and we had a really good editing team that helped us with some of the concepts to relate to kids. And that’s — and we just dove into it and we just made it happen.

Tim Ulbrich: And I think you guys did an awesome job. You know, one of the things that stood out to me as my wife and I were looking through this book as parents of four young kids trying to teach this topic of money is that’s it’s very hands-on, it’s relatable, it’s digestible, lots of activities, really cool ideas. You know, I often find myself, especially writing, talking about this topic regularly, presenting on this topic, you take for granted how you learned some of this information along the way. You know, I often think, OK, take a concept like compound interest or, you know, mutual funds or index funds or ultimately trying to determine what your retirement savings goals, any of those concepts, and it’s very easy to get lost in the weeds. And I think it’s often hard to figure out, how am I going to break this down and teach this with my children and really work through this? And so I found myself looking through this, not only learning myself of oh, that’s a really neat way to teach a different concept or a very visual way or a nice activity to apply that information. So I think as I looked through this, whether someone is more advanced in their own knowledge and understanding of personal finance or whether they feel like they could also learn from these concepts, either one I think this book could be a really good guide for them alongside of working with their child. So great work in the work that you put together with the book. And Allison, knowing your background is a technical project manager, I’m curious, I mean, how and why did you catch FIRE — pun intended here — with this topic, not only as an individual pursuit for financial independence but also in wanting to help guide others to the work that you’re doing with RetireBy45.com and with the book “Investing for Kids.” Where does the interest come from?

Allison Tom: Part of it is that my college degree is actually psychology and education. So I had all these grand ideas of becoming a teacher, an elementary school teacher, after I graduated from college. But you know, after a couple of years, it dawned on me that frankly, our teachers are woefully underpaid. And there was pretty much there was no clear financial path for me to continue being a teacher making the salary I was making, so I was living in Boston at the time and I moved back to New York where we eventually met waiting tables, of all things. And we came out to San Francisco on a whim, we were on vacation, we were in our mid-20s, we thought, alright, let’s check out San Francisco. And so I bounced around from career to career and ended up on a consulting company that eventually brought me into the technical world of the Bay Area. But you know, so being a project manager is basically being a glorified teacher. So it’s dropping people, wrangling people to do things that you want them to do but do it in a way that makes them want to be — work as a team and learn from each other. So in a way, it was being a project manager was — it had very similar tendencies as it was being a teacher. And so we had always thought, oh, it would be great to retire early, but we didn’t really know what retiring early meant. We thought, oh, 55, that seems like a really good age to retire. It’s earlier than 65, but it seems so far in the future. And living in the Bay Area, our expenses were so high that we were like, there’s no way, even if we’re making decent salaries between the two of us that we’re ever going to retire. But about 11 years or so ago, Dylin came down with double pneumonia and was in the ICU for about 10 days and in the hospital altogether for almost two weeks. And that for us was a light bulb moment because he was within a 50/50 chance that he would make it. And so you know, after that, we kind of thought, OK, do we really want to keep working for the next 25 years or so? And so we kind of like made it our goal to get out of the rat race as soon as we could. And so we kind of fell into by accident. We can talk about that later, but it just — it kind of was a natural progression from all of the things that we’ve been doing over time.

Tim Ulbrich: Yeah, that makes sense. And I appreciate you sharing some of the background and story. We’ll come back to how you got to that point of early retirement, obviously as I mentioned in the introduction, early 40s to be able to accomplish that goal, and we’ll talk a little bit about how you got to that path, why that was possible as well. And so let’s first dig into some of the book of “Investing for Kids.” Let’s start with the main characters of the book, the Dollar Duo: Mr. Finance and Investing Woman. Allison, tell us more about these two characters, how you came up with the idea, why it was important to the overall text, and how those characters can really help the learner, again, 8- to 12-year-old is the target group here, engage with the material throughout the book.

Allison Tom: Well, first of all, it was kind of funny, today is actually Superheroes Day, so —

Tim Ulbrich: There we go.

Allison Tom: It’s a perfect segue into the topic. We were actually taking a walk one day as we were writing the book, and we were talking about politics, of all things. And we were trying to figure out in the administration, whichever administration, whoever won the presidency, what each president could do to make their administration better. And so we kind of were talking and talking about of all things, the Justice League of America and who we would think would be a good fit for making this country a better country. And so the whole idea of the Justice League, kind of thought, we thought, oh, superheroes. Kids love superheroes. Let’s talk to our publisher about bringing in some superheroes. And we were like, well, I don’t know if they’ll go for that, there’s some extra graphics involved and it could be expensive, but we felt that it would really be a good way for kids to relate to finances. And so we kind of pushed hard for this idea of having superheroes teach kids finance.

Tim Ulbrich: Yeah, and that stood out to me in addition to how visual it is. This does not — especially for a topic like investing, right, can be weighty at times, it can be overwhelming, I often find myself when I’m giving a talk on this topic, starts with excitement often when we think about what the — and then you get into the weeds and you see the eyes gloss over, right, and other things. And this does not read like a textbook in any way, shape, or form. And I’m grateful for that. So thank you for the illustrations, the activities, the superheroes, but I think it very much reads like an interactive, applicable, nuts-and-bolts, important information, but how do I actually apply it and hopefully get excited about this information. Again, we’re thinking about an 8- to 12-year-old of wanting to really hopefully empower them to be excited with this for the rest of their own financial journey. And I very much read this book, as I mentioned, being a father of four boys who also lives and breathes personal finance, I really do often find myself in conversation with my boys about money. And honestly, I struggle at times with making the topic of money tangible and meaningful. And it can feel abstract, especially when I find myself trying to say and teach a principle that I very much understand but it feels more abstract as I talk it out loud and especially when you start to view it through the lens of a child. And so I like how you start the book with Chapter 1 on Money 101. You cover important topics like money doesn’t grow on trees, ways to earn money, a little bit of entrepreneurship in there, which is really cool, the history of money, where to keep money. And so Dylin, here’s the challenge that I’m seeing with my boys. In the age of credit cards, debit cards, direct deposit, online banking, digital currency, electronic payment methods, it can feel difficult to teach a child about money when you don’t see it. Right? There’s very little actual, physical cash and therefore, it can be hard to connect work and I think the opportunities from work with earning money and therefore, the opportunity to then save and see it grow. So what are some tips and strategies as you put this book together as well as the other teaching you’ve done on this topic about how can we teach kids about money in a way that it can be relatable, it can be tangible, and then hopefully it becomes memorable for them.

Dylin Redling: Yeah, you know, that’s a really good point about money being very digital in this day and age. I remember when I was a kid, one of the coolest things was my grandmother would give me and my cousins 50 single dollars for Christmas and for our birthdays. They would come in a little box just big enough to hold those 50 $1 bills.

Tim Ulbrich: I love that.

Dylin Redling: And — yeah, it was really cool. And you know, $50 back then for a kid was a lot of money. And those 50 $1 bills would last a really long time. I would take them into the arcade, into the pizza parlor, whatever. And so maybe one way to do it is to actually bring back physical money. And I don’t think the amount really matters that much. But like you said, I mean, being able to tangibly feel it, see it, and understand it, it helps a lot more if you’re using physical money. And I’ll actually give an example of that we used on our blog and in actually “Start Your FIRE” book. I don’t think we mentioned it in “Investing for Kids,” but it’s a little story I like to tell about a money lesson that I actually learned from Allison when we were waiting tables in New York. So we met in a big restaurant in Times Square, and Allison grew up with a little bit of a better financial education in her household than I did. My single mother was wonderful, but it was all paycheck-to-paycheck, there wasn’t a lot of saving or investing. So I came into our initial relationship not very good at dealing with money. So anyway, we were waiting tables. So all of our money pretty much was in tips. So we would have tons of cash. And I remember just putting the money — I would wad it up into balls, I would stuff it into all four of my pockets because I was busy. And then we would go out afterwards and Allison saw how I was treating my money, and she was like, “What are you doing? How do you even keep track of that? That’s awful.” And so she taught me this little lesson. And she doesn’t even remember this because this was 25 years ago, but it stuck out in my head. And basically, I call it the Wallet Lesson. When you take all of your bills and you put them nicely, neatly in order from small to big or big to small, whatever works, fold it neatly into your wallet. And it’s really simple, but the reason it was impactful for me is because it just got me to think about how to respect and treat money. You know, you work really hard for money —

Tim Ulbrich: That’s right.

Dylin Redling: And if you don’t treat it well, you don’t respect it, you know, that $50 might not seem like a big deal. But when it gets to $100,000 or $500,000 and you don’t have that same respect and feel for what that money represents and how hard it was to earn it, you’re not going to put it and treat it and save it and protect it as well as you could.

Tim Ulbrich: Such a good example of a behavioral move, right? The number of dollars didn’t change, but how you treated them, how you respected them, how you viewed them, and I think many of our listeners, we talk on this show often that I believe personal finance, it’s about the math and it’s about the behavior, and both of those are very important and some of those types of moves or here, teaching kids in that way, I think can be very powerful as well. Allison, Chapter 2, save your money, you have an activity titled “Be an Interest Rate Detective.” I love this. I thought this was a really cool interactive activity where you challenge the reader to work with an adult to research interest rates for a local bank savings account, a CD, so a Certificate of Deposit, and an online savings account. So again, this was just one of many example activities you have throughout the book, but why is an activity like this so important in terms of someone being an interest rate detective to experience and go through as they begin their journey of understanding some of the basics of investing?

Allison Tom: So part of it is we wanted all the activities to be something that kids could do with the adult in their life. And we didn’t assume that every child has a parent because we know in this modern day and age that families are different nowadays, and you might have two moms or two dads or a grandmother or grandfather or a guardian of some sort. So we wanted something that people could do together with — kids could do together with someone else. And we thought, oh, it’s going to be interesting because banks are closed during COVID. When we were writing the book, it was right in the heart of shelter in place. But we thought, well, you know, kids have access to — most kids have access to a computer, they can at least walk around to a local bank and banks always have their advertisements on their windows with their interest rates. But we thought it would be an interesting way for kids to see what is in their environment and practice some good behaviors like oh, what does interest rate mean? What is APR? Those are, they’re jumbled letters and so you actually learn what the acronym stands for. And so we want to make sure that kids could kind of connect their physical world to their these abstract ideas about money. So all these activities are kind of a way to get kids to start thinking about it, and we were like, oh, kids aren’t really going to want to do activities, it’s extra homework. So we tried to make them fun and things that they could actually do and feel like they were learning something.

Tim Ulbrich: And I think this was a good example where the activity really, to me, is a rabbit hole of other learning, right? So if you go to the bank and do this activity, just like you suggested, Allison, it leads to other conversations and questions like, what is the federal reserve? And what is an insured account? What does that mean? You talk about that in the book, you know, how do you explain the federal reserve? What is compound interest? Why is that so important? What is principle? What’s interest? What do terms mean? And I think it, again, leads to further conversations, which obviously hopefully spark some motivation and curiosity to learn more on this topic. Dylin, in Chapter 3, Introduction to Investing, you cover very important topics, you know, why to invest, risk v. reward — and I love the Risk-o-meter throughout the book, that was really neat — liquidity, the importance of conducting research, and connecting back to my previous comment about the difficulties teaching a child about money when it may not be tangible, you can’t see it, can’t feel it type of a mindset, I think this is another area where parents may feel challenged to teach a child the importance of investing when again, it might feel somewhat abstract and here, we’re talking about delayed gratification, right? So not spending money on something today that has an instant reward. I think back to my childhood, it was driving to the corner store, buying baseball cards, buying candy, you earn the money, you spent the money, you saw the reward instantly. So here, the activity on investing, which I thought helped to really drive this concept further, you talk about an activity of picking a stock and really going through that process of understanding what’s involved there. So talk us through that type of an activity, what’s involved in that, and why that’s important to help a child relate to the concepts of investing.

Dylin Redling: Yeah, sure. It’s interesting because I can also relate it to how Allison and I do our own investing. And most of what we do, to be honest, are buying mutual funds and index funds. We don’t do a lot of single stock buying. However, there are some advantages to just helping a child or anybody, really, think about, well, if you were to buy a single stock, what would the thought process be when you do that? We actually just wrote an interesting post on our blog just about a week ago where we had $10,000 that we wanted to experiment with. And what we did is we selected five different stocks to invest that $10,000. So $2,000 per stock. And I went through the process in that blog post of why we would do this. And it wasn’t to get rich quick or to see what would happen in a week or a month. This particular blog post talked about a one-year time frame. And it’s the same with the activity for the child. I think we used a shorter — a relatively short time frame so they could at least measure their success. At the end of the day, investing, as you know, as your listeners know, it’s very much a long-term process where you’re investing over years and decades. But again, to get the child to think about some of the things that you might want to think about with whether you’re investing in stocks or any sort of investment, what are the things that go into that thought process? And so getting back to that blog post I wrote, some of the stocks that I suggested that we test out, one was a blockchain ETF. So now that bitcoin and other coin-based just went public, those are things that we wouldn’t necessarily invest in directly. But a blockchain ETF is an example of a way you could dip your toe into that technology. So that was the thought process there. Another example was a cruise company, NCL, Norwegian Cruise Line. Now that COVID is starting to disappear and everyone’s getting vaccinated, people, there’s this pent-up demand to start traveling again. So we thought, hey, in the next year, NCL may actually start to do really good. And they even have a program where if you have 100 shares, you get extra bonus points. And so the idea is to think about all the different aspects to that investment, like how does it relate to what’s going on in the world right now? And what other pros and cons are there to that investment?

Tim Ulbrich: Yeah, and I think we share your philosophy. What I heard there is our planning team often says a good investing plan should probably be as about boring as watching paint dry.

Dylin Redling: Right.

Tim Ulbrich: At the end of the day, it’s about a long-term play. But I like this activity as a concept. You know, I remember I had a great Econ101 teacher that had us do a similar activity. And it’s very memorable because it also leads to many other conversations like well, what type of influence does my marketing have? Or I thought this was going to go this way, and it didn’t go this way. Maybe I had some overconfidence in my selection of things. So why is diversification important? So I think, again, reading it and doing it, two very, very different things. And I think people experiencing this firsthand, especially you think of an 8- to 12-year-old, a very kinesthetic learner, right, hands-on experience that moment, be able to learn through that experience. Allison, as I went through the book, many times I thought to myself, man, what if I would have had some of this information earlier? What if I would have had this in middle school or high school or perhaps even earlier? And shoutout to my parents, who did an awesome job of the foundations, grew up in a small business, felt like I had a little bit of a head start. But outside of some K-12 programs and in higher education, I would say it’s largely absent, maybe some elective courses or some opportunities. And so I can’t help but think like, why aren’t we doing more of this? Why aren’t we covering more of this in a K-12 education? I mean, this type of book, this type of experience, these types of activities would be a home run in teaching kids about money. Here, we’re taking 8-12 investing, but obviously we all know it’s broader than that as well. So question here, I’m not asking you to solve the personal finance educational system woes, but why do you think this is not more foundational to our educational system in terms of personal finance education?

Allison Tom: Right. So I think part of it is that our generation didn’t really learn this either. And so as the educators come up with their curriculum, I think honestly, a lot of adults are really intimidated by personal finance. And so it’s something that seems easy enough for them to cut out of the education system as an elective because well, if they don’t understand it, then kids aren’t going to understand it. And if they’re intimidated by it, then kids are definitely going to not understand it and be intimidated by it, so let’s not even talk about it, which actually is one of the reasons why we thought it was important to write the book. We didn’t get this education when we were growing up. I know my parents are second-generation immigrants. And so the money lessons that they learned were from their parents, who grew up during the Great Depression. And as immigrants coming over to this country, they just pooled their money and they saved and they saved and they worked 20 hours a day to make money and then they would maybe invest it in the bank, although plenty of my relatives didn’t even bother with that. So my lessons growing up were save and save and save and save. I had a little piggy bank, and I would put all my coins in from the piggy bank, but that was the only thing that I learned. And so it wasn’t until I got to college, and then I had my first credit card that I just — oof. It was bad. I did not understand the concept of paying credit cards and interest rates and late fees and minimum payments. And so, you know, I got in trouble with credit cards after I graduated. And it wasn’t until after that that I thought, oh, I really need to learn more about what’s going on here. And so I started watching some shows on PBS, but by then, you know, I’m in my early 20s at that point. My learning took a lot longer for the habits to become engrained in me. So you know, I really do think that if kids could see this stuff earlier, it would be so much more impactful. You know, I’ve talked to a girlfriend of mine, her daughter is 17 and she read the book and she was like, “Yeah, you know, I’m going to start doing the savings plan when I get a job.” My friend was laughing because she’s like, my daughter doesn’t have a job. But she was just like, she got inspired by it, and I thought, oh, if we could just get kids to learn this stuff sooner —

Tim Ulbrich: Yeah.

Allison Tom: All the great things we could do with them. So hopefully. Hopefully.

Tim Ulbrich: Yeah, and I love that, to that point, Allison. I think it was early in the book, you have the reader go through an activity where they identify problems, things that could be improved upon, right? And one of the things I often say is that any business is a solution to a problem, and that solution is one that people care about and are willing to pay for. And you know, I love that because I think for a child, like if they can think about, what are some things that could be done better? You know, one of them you proposed in the book, which was really cool because we recently just bought this — or actually we got it as a gift for our kids from our family — is you mention like chess. Really hard game for kids to play, kids to learn. Why isn’t there a solution out there that can make chess easier to play? Sure enough, there is. There’s a card game where you draw cards, you learn the basic moves of chess. So things like that, I think you’re inspiring some of the creative thinking, the problem solving, and laying some of the seeds of entrepreneurship or even for those that don’t own their own company, which would be the vast majority of folks, intrepreneurship, how can you be a problem solver within your organization? And how can you create solutions that make you a valuable asset within that organization? I want to shift gears a bit to connect some of the work that you have in “Investing for Kids” with what you cover in your site, Retireby45.com. You mentioned your other FIRE book as well. And I got the impression that you both, you believe that everyone could put together — especially an 8- to 12-year-old reading the “Investing for Kids” book — put together a plan for FIRE, again Financial Independence Retire Early — by the age of 45. So Dylin, our listeners know firsthand that time in the market equals success, and that compound interest, as you mentioned in the book, is the eighth wonder of the world. So we know the math is possible if someone starts at an early age. But why do you think it’s important that someone plans for FIRE by the age of 45?

Dylin Redling: Whether you’re able to retire in your 40s or your 50s or you do a traditional retirement in your 60s or even beyond, Allison’s dad, for example, is 70 now — or slightly older — and has no intentions of stopping working even though Allison suggests that he stop and enjoy life. But he’s got a job that he really loves. And so there’s a lot of people out there that are like that. So we love our FIRE lifestyle and the fact that we left our W2 jobs in our 40s, but we know it’s not for everybody. But what we do also know is that the concepts of Financial Independence are good for anybody, no matter when you might want to retire. And those concepts are really about doing the right thing with your money. So it starts with saving, it starts with being somewhat frugal — and when we say frugal, we don’t mean living a spartan lifestyle. We just mean not going crazy with money with spending on things that you don’t want or that you don’t need or you feel like you have to keep up with the Joneses and get a brand new SUV every two years. So there’s that, and of course investing wisely. And you know, we have another story that we write out on our blog, which kind of I think can be somewhat inspiring to people who are in their 20s and maybe haven’t really done anything with their finances yet. We, as Allison alluded to earlier, kind of our story is we met in New York and then we moved to San Francisco. And we were in our mid-20s at the time. And we still hadn’t invested a dollar yet. And it wasn’t until our late 20s that we got “real jobs” with a 401k plan and that sort of thing. And so it wasn’t until our late 20s that we really started investing. And our entire investment life cycle, if you will, was about 17 years from our late 20s to our early 40s. And in that time, we just were so diligent about dollar cost averaging, we did — we invested into both our 401k, our IRA, and a taxable account once we got some extra income literally on a weekly basis for years and years and years, no matter what the market was doing. Through the 2001 .com crash because we’re both working in that industry and of course through the ‘08-’09 recession. Never stopped. And so those kind of habits, again, are good for anybody no matter what your retirement goals are, just really those financial habits are going to put you in a great position.

Tim Ulbrich: Yeah, and I’m glad you shared that, Dylin. One of the questions I had for you was I read your story of not really late 20s, early 30s getting serious about investing, but retired or achieving FIRE by 43, 44, so short window of time, right? We tend to think of a very long trajectory of savings. You mentioned 17 years. So my question was what was the secret sauce? And if I heard you correctly, it was tax-advantaged accounts, 401k’s, IRAs, some taxable accounts and dollar cost averaging and being consistent. Is that fair?

Dylin Redling: Yeah. You know, a couple other things we did — we did the phrase “side hustle” is really popular now. But when we did it, we just called it a side business. This was in the mid-2000s. I came up with an affiliate marketing business that I ran on the weekends. And it ended up being a third income for us. So there’s things like maximizing your income. And then another concept — I’ll shoot it over to Allison to talk about — is geographic arbitrage. And that helped us kind of move about nine years ahead of schedule. Do you want to talk about how we did that?

Allison Tom: Sure. So geographic arbitrage has a lot of different meanings in the — for people. And the gist of it is that you leverage your current salary and move to a lower cost location. And so most people think that is oh, I’m going to make my United States salary and move to Thailand or Costa Rica, where the cost of living is exceedingly low. We did it by moving from San Francisco to Oakland, California, which geographically is a 10-mile difference but at the time, we were able to save about 50% on our housing costs.

Tim Ulbrich: Wow.

Allison Tom: So yeah, it was pretty insane. For being 10 miles away, two or three train stops away on our BART system, we were able to pay off our condo in Oakland in cash by selling our place in San Francisco, which alleviated all the mortgage payments, the increase in property payments and our insurance went down as well. So that, Dylin calculated later, saved us probably about nine years of working because our mortgage in San Francisco was so astronomical that just cutting 50% off just pushed us into the financial independence sphere that much sooner. So it’s things like that. Obviously not everybody is going to be able to save 50% of their housing by moving 10 miles away, but there are other ways to do it. You can do things like house hacking where if you have space on your property, you could build an extra unit and rent it out or if you have an extra bedroom, you could rent it out and have a roommate or Airbnb it. So there are ways tod do it without going through the extreme example that we had. So there are plenty of ways to cut costs in your life that are relatively painless, that we’ve talked about all the time, so there are just different ways to do it to achieve FIRE. And some people don’t even choose to do the early retiring like my father is the example. So retirement is really more of the optional part. We’re not saying you have to retire, you have to leave your job and just sit around drinking mojitos all day long, although it’s certainly not a bad lifestyle. But you know, the retiring part is up to the individual.

Tim Ulbrich: Yeah, I’m glad you said that, Allison, because I know many of our listeners love what they’re doing as pharmacists and they worked hard, and they got a doctorate degree and they have student loan debt and they invested in that education. And so my read is that many pharmacists are captivated by the idea and the power of financial independence. And you know, I believe that’s a goal we all should strive for for a variety of reasons with RE, Retire Early, being one of those perhaps reasons, but other things as well in terms of why that financial independence may be important. So nine years, nine years was estimated from that one decision, which I’m coming full-circle, Allison, about what you shared at the beginning of Dylin being in the hospital with double pneumonia. And when you start to think about the value of time, I mean, nine years and doing some of those calculations and what does that mean for one’s personal situation, I think that’s a really powerful example of taking something that can be mathematical or objective and looking at it in a different mindset. If we were to make this move or this move, what does that mean for us in terms of timeline to retirement, working part-time, pursuing another opportunity, what does that mean for one’s goals towards financial independence? I’m glad you discussed geographic arbitrage because one of the things we see in our profession in pharmacy is that unfortunately, a pharmacist’s income usually does not translate with cost of living. So here I am in the Midwest and that income for a pharmacist in the Bay Area might be a little bit more for a similar role but nowhere near the cost of living difference between Columbus, Ohio and San Francisco, California. So I think this is a move, especially for many of our listeners that might be saying, you know, ‘I’m making a decent income, but I’ve got a lot of work to do on student loans, I want to invest, I want to buy a home, I want to do this or that. And at the end of the day, there’s only so much income.’ So is a move, whether it’s near, within 10 miles, or something a little bit more significant, is that an option that somebody may be able to pursue? Allison, what have you guys been doing since achieving FIRE? You know, what’s been the goals, what’s been the priority, how have you been spending time? I think that’s one of the other common objections that comes up is like, if I retire at 45, like I don’t even know what I would do with my time. Tell us a little bit about that journey since you guys have achieve FIRE.

Allison Tom: So it’s funny, we — so we FIREd quite by accident. We were both working in tech startups, and Dylin got laid off and then I got laid off about five weeks afterwards. And so we kind of took the time after we were both laid off to travel a little bit. That was one of the things that two people who are working can’t always schedule, coordinate their schedules, to take some time off. And so we thought, alright, this is the perfect time. We went to Europe for two weeks and did a cruise around the Mediterranean and had a blast and then came back and thought, alright, we’ve got to get back to work. So we went about — we went on interviews and we just saw just how miserable people were at their jobs. Just so stressed out, and I interviewed with this one guy who was like, “You need to tell me who said this about us so I can go talk to them.” I’m like, I don’t want to work for you. You’re scary. And so you know, the three months turned into six months and then nine months and then Dylin figured out kind of like back of the envelope math, figured out that we could actually retire without having to go back to work anymore. He stumbled into the 4% Rule, which we still hadn’t at that point heard the term FIRE before. You know, the first few years we did a fair amount of traveling domestically. Like we would go back to visit his mother and my father, who both live on the East Coast, which is one of the things you just don’t get time to do when you’re working is spending time with family. And so you know, if we would go back East, we would maybe spend two days with each parent because they don’t live that close to each other. And now, we can actually go and spend a week with each parental unit. And that makes a big difference because, you know, they’re getting older and living across the country, it’s harder to connect with them. So we do a lot more slow travel where we don’t have to feel rushed between people. And then it’s funny because we — our retirement has changed as time goes by. So for people who are concerned that oh, what am I going to do with my time? Your time is yours. You can now make your own schedule. And that, to me, is the beauty of not just financial independence, it’s financial freedom because you can choose what you want to do. And so you know, the first two years were traveling domestically, the second two years were more about traveling internationally. And we had two cats that passed away at 19. So for us, they were like our kids. And so we did not do a lot of traveling away from them until they passed on. And so once they did, we’re like, alright, we’re going to go crazy and go travel around the globe. And so the last — and then the last two years have been focused on writing books and going to financial conferences and kind of learning from others and then applying that and communicating out to audiences like yours. That’s the beauty of the time being yours is you can make it whatever you want to do. We also do a lot more work with our community that we never had time to do when we were working. So we’re a lot more invested in our neighborhood, and we spend more time working with businesses in our neighborhood to bring in more business. So having that luxury of time means you can go explore whatever interests pop up. So you know, did we ever think that we would be working with small businesses two years ago? Probably not. But now we are, and we’re advocates for small businesses in our neighborhood, and that’s something we would never have thought we would have done when we first retired.

Tim Ulbrich: That’s very cool. And I read as well your goal of 60 by 60. Sixty countries to visit by the age of 60. If I understand it, you’re about halfway through. Looking forward to following your journey. I’m hopeful you’ll be blogging about it along the way as well. Dylin, I’m going to throw the last question I have over for you. And one of the things I think about when it comes to early retirement and achieving financial independence or the FIRE movement is that it really does require delayed gratification and at times, you mentioned the word frugality earlier. And that frugality can be at various levels. As you mentioned, we’re not necessarily talking spartan type of frugality. My question here though is how do we strike the balance? You know, whether it’s for ourselves or teaching our kids about saving and investing to take care of our future selves but also valuing and making sure we understand that it’s important that we enjoy some of the money along the way as well. I find myself often struggling with this individually of, OK, I know I need to take care of my future self and probably sometimes I do that at the expense of the experiences and the enjoyment today. And I think striking this balance is really important. What are your thoughts on that?

Dylin Redling: You know, I’ll actually plug a couple of other books besides ours that I really like. One is “A Simple Path to Wealth” by Janelle Collins, which I highly recommend. And another one is actually one of Allison’s favorites. It has a funny title, it’s “I Will Teach You to Be Rich” by —

Allison Tom: Ramit Sethi.

Dylin Redling: Ramit Sethi. And we saw him speak. He was a keynote speaker at FinCon a couple years ago. And one of the things that he said, which really resonated with me and it goes to your question, is spend liberally on things that you enjoy. But hold back aggressively on things that are not important to you. And it’s a very simple concept. But again, it goes directly to your question, and it’s really — maybe you or your kids or whoever’s thinking about this makes a list. Here are the things I’m passionate about. Here are the things that I really enjoy. I love travel, I like eating out at restaurants, I like entertainment, sports, whatever it is. And I’m going to set my budget to focus on those things. I’m going to be OK — maybe I’ll go to a World Series game because I’m a huge baseball fan. Or I’m going to set a goal to go to every baseball park in America. You know, whatever that goal might be. Conversely, think about the things that aren’t that important to you like maybe a brand new car is not important to you, so you drive your car for 10-20 years and you really just never focus on spending a lot of money on that. And so those are the concepts that I think are something to really think about. And for us, that’s what we’ve always done. When people look at our lifestyle from the outside or even some of our friends, you know, they may think, wow, we’ve always lived in pretty expensive apartments — or condos or houses, so they might think, wow, they spend a lot of money. But if you look a little deeper, like we had a car for almost 20 years. We had a Volkswagen Jetta. We just recently got a new-to-us couple years old Toyota Corolla. So there’s an example where we just — you know, having a brand new car wasn’t that important to us. But again, we have the 60 by 60 goal. So travel is really important to us. And we have no problem spending that extra money to go travel for a few months and really try to see the world because that’s something that we’re passionate about. That being said, when we do travel, we try to — we don’t stay at four-star hotels because part of our kind of nature is to also find some deals here and there and to just spend consciously, to just spend our money kind of wisely.

Allison Tom: We prefer to spend money on the experiences rather than the hotel room that we’re putting our suitcase in.

Tim Ulbrich: Yeah. And I was at that keynote that you were at, and with Ramit, and I’ll never forget it. I mean, the concept that he talks about in “I Will Teach You to Be Rich,” money dials, right, is find the things that are of value to you and dial it up. And find the things that are not and dial them down. And you know, I remember hearing that, and I was like, heck yeah. It just makes so much sense. And you know, to the comment of experiences and even the literature really showing happiness related to money, it’s experience and giving typically are the areas where we see that biggest connection. So Allison and Dylin, I really appreciate you guys taking time to come on the show. Kudos on the work here with “Investing for Kids,” I really enjoyed it, as well as the work that you’re doing at Retireby45.com and your other book, “Start Your FIRE: A Modern Guide to Early Retirement.” As it relates to the book “Investing for Kids,” I hope our audience will pick up a copy of this, available at Amazon, Barnes & Noble, many other online vendors as well. I really did find it engaging, it was rich with relevant information, practical exercises to apply the information, as I mentioned, certainly does not look, feel, or read like a textbook. And so I think many in our community are going to find it helpful. What’s the best place for our audience to go to follow the work that the two of you are doing?

Dylin Redling: Well, our — I’ll plug our website, and I’ll have Allison plug our Instagram account. Retireby45.com is our website, and we blog there on a once or twice a month with a fresh new blog post, and we have a bunch of stuff on there, courses and other things. And then Allison’s been working on really putting together a pretty cool Instagram account.

Allison Tom: So we have Instagram and Twitter both @retire_by_45. Yeah, it’s been an interesting challenge trying to get into the social media, the social media space.

Tim Ulbrich: Very good. We will link to both of those in the show notes as well as the Retireby45.com as well as the books that we’ve mentioned, not only your books but the others that you referenced as well. So the two of you, thank you again very much for your time. I really appreciate it.

Allison Tom: Thanks, Tim. It’s great.

Dylin Redling: Thanks.

Allison Tom: O-H

Dylin Redling: I-O

Tim Ulbrich: I-O!

Dylin Redling: Thanks, Tim. Great talking to you.

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YFP 201: How and Why Trey Made the Transition from a Six-Figure to Resident Salary


How and Why Trey Made the Transition from a Six-Figure to Resident Salary

On this episode, Tim Ulbrich talks with Trey Lowery about his experiences taking a non-traditional path towards residency training. They discuss why Trey decided to go back to complete residency training, how he and his wife were able to make the transition from a six-figure to a resident salary, and financial tips for those going back to do residency or making a job transition.

About Today’s Guest

Trey Lowery is a clinical outpatient pharmacist at the Iowa City VA Health Care System. He attended pharmacy school at Mercer University College of Pharmacy in Atlanta, Georgia and moved to Iowa City, Iowa with his wife, who attends graduate school at the University of Iowa. He began his pharmacy career as a staff pharmacist for Hy-Vee Pharmacy following graduation in 2018. He then matched to the Iowa City VA’s PGY1 pharmacy residency program in 2019 and continued there in his current position upon completion. In the few years following pharmacy school graduation, Trey experienced the transition from student to the seemingly never-ending job search, to full-time salaried pharmacist, to resident, and back to pharmacist salary again. He is excited to share his experiences with other pharmacists in hopes it will encourage them to not allow potential decreases in pay to prevent them from pursuing their dream job as a pharmacist.

how to Summary

On this episode, Tim Ulbrich welcomes Trey Lowery to the show to discuss his experiences with his non-traditional plan towards residency and the many adjustments that came along with it. Trey shares some of the challenges he and his wife worked through along his journey to residency and how both compromise and financial savvy helped them through the transition.

Some of the best tips and advice that Trey shares in this episode include making sure that you have a solid budget and financial plan ahead of time. Trey shares his long history with budgeting and how he views it as a tool for success rather than something limiting. Tim and Trey go over Trey’s very practical advice on budgeting during residency, including a formula for building your residency budget even when you are not sure of your salary and specifics.

Additional advice includes building your emergency fund up to be able to fund at least 3-6 months of expenses. The reasoning for this is simple, with a 6-figure salary, unexpected expenses and events are much easier to manage, but with a resident salary, those same unexpected expenses and events can be a bigger problem.

Trey closes with a little motivational push and encourages anyone who is looking to take a non-traditional path to residency to do so.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Trey, welcome to the show.

Trey Lowery: Thanks, Tim. Appreciate you having me.

Tim Ulbrich: Appreciate you taking time to come onto the podcast and really share your story and pearls of wisdom for transitioning from a student pharmacist to a pharmacist with a six-figure income to a resident salary and what that meant for you, for your personal situation, and how you were able to financially plan for that transition. And so let’s start with your pharmacy background and give our listeners a little bit more of a picture of where you went to pharmacy school, when did you graduate, and then the route that you took through residency to your current role.

Trey Lowery: Sure thing. So I grew up in the state of Georgia and then went to pharmacy school at Mercer University College of Pharmacy, which is in Atlanta. I then got married after school and my wife decided she wanted to pursue a PhD program. And she chose to do so at the University of Iowa, so then we made the transition and moved from Georgia halfway across the country to the great state of Iowa. And when I got here, I didn’t really have many connections, I wasn’t licensed yet, so I had to figure out how to transition into passing all the different licensing exams and attempting to find a job without a license and without any knowledge of anyone in the area. So thankfully, I was able to do so after a couple of months. And I ended up working at Hyvee pharmacy. It was about an hour away from where I lived, so the job search was certainly expanded. And then after about 9-10 months of working at Hyvee, I applied to the several different residency programs and ended up matching at the Iowa City VA, where I completed my PGY1 and then after finishing it, I was happy to continue on in my current position as a clinical outpatient pharmacist there at the Iowa City VA as well.

Tim Ulbrich: And I’m excited to share your story with others as I suspect there may be many pharmacists out there listening that for whatever reason, you know, didn’t complete residency training right out of school, which may have been Plan A for them in their mind or perhaps they discovered later on that they wanted to do residency training. And that could either be a financial decision, that could be a family situation, a move that’s going on, it could be a match situation, lots of reasons why folks may not necessarily complete residency right out of school. But there may be an interest to go back and complete a later program at a later time. And I think one of the common barriers is wow, this is a big financial change to be considering, right? Going from student income to finally you’ve got that pharmacist six-figure income and then taking a step back at least financially in terms of that resident income. And so we’re going to dig into that in more detail here in a little bit, but I want to give our listeners more perspective on your Plan A and then obviously your work that you ended up doing at Hyvee. But my understanding is your goal was if possible to do residency right after your P4 year and because of the timing, because of the move, you weren’t able to enter Phase 1 of the match, didn’t yet know where you were going to be because of location with your wife’s PhD programs and the options and then at that point were able to move into Phase 2 — for all that have been through this process know how difficult Phase 2 of the match can be in terms of the number of applicants that are out there relative to the position. So talk to us through about that experience. How challenging was that in terms of that being up in the air, unknown, as well as having to make that decision that this is Plan A but I’m going to put that on the back burner because of this move. And if it works out in Phase 2, great. If not, then you’ll pursue something else.

Trey Lowery: Sure, I think that’s one of the interesting parts of my story is that I went into pharmacy school thinking I didn’t want to do a residency because I had worked originally as an intern and as a technician for a company called Kroger, which is very similar to Hyvee, back in Georgia. And I thought that that was the path I wanted to do. I was thinking retail pharmacy, maybe some type of independent or ownership later on. But it wasn’t really until my fourth year rotations when I actually got experience in the clinical and hospital side of pharmacy that I really decided, you know what? I actually really like the idea of the work that I’m doing here, so much so that it was basically around September when I decided OK, I definitely want to pursue a residency. But then the applications were due in December. So that was also part of the speeding up process that I had at the time. So I did what I could in those couple of months, tried to get some research experience, doing some more experience in the clinical areas and bolster my CV as much as I could. But yeah, the unknown of having to wait for Phase 2 was certainly challenging I suppose would be the word. I mean, we didn’t know where we were going to move, we didn’t know how we were going to financially survive after the move because if I didn’t match, then I wouldn’t have a job already lined up in the area. So it was certainly a challenging time. And it was one of those things to where we basically had to decide which of our careers would help the other one, sort of. So my wife was willing to take a year off if that meant that I could pursue a PGY1 anywhere in the country. But ultimately, we decided to go with — stick with the plan of her going ahead and going into school because it was going to take significantly longer and then my ability as a pharmacist to find a job would likely be a little bit easier than hers just coming out of undergrad.

Tim Ulbrich: Yeah, and I’m glad, Trey, that you guys were able to work through that and come to that decision as a family because obviously now you guys are in a great position at the Iowa City VA, your wife’s continuing on in her PhD degree, so it all worked out, but I’m sure that was incredibly stressful in the moment as you guys were evaluating the options that were in front of you. And so you make this move, you obviously get into Phase 2, limited options, lots of applicants, and ultimately weren’t able to land a position in Phase 2. So now you’re at the point of getting a job, right? So you land a position with Hyvee pharmacy, and my question here is once you were in that role, obviously I’m sure in the back of your mind you’re still thinking about residency as a path that you may be interested in, some of your career goals that you identified here in the fourth year that were of interest to you, but you’re making a good income. And I think this can be a hard thing to really objectively say, “I want to go back and pursue this training pathway,” knowing that it’s going to reduce my income by a half, certainly probably even more than that for some positions. And so talk to us about that decision-making process, you know, how you were able to really objectively evaluate, you know what, this path of residency is best for me, even if it means taking a pay cut to go back and do that.

Trey Lowery: Well, for me, Tim, it really stemmed from thinking about what my long-term career goals were as well as my wife’s — you know, obviously that was certainly a sacrifice for both of us in doing that. So when I got to thinking about what I wanted to do over the course of my career for the next 40+ years, I really just didn’t think that my current position was something that I was comfortable with thinking about in the long term. I really thought that I wanted to get more involved in the actual act of patient care, being able to handle some of the decisions instead of being more reactive by when they just come to the pharmacy and drop off prescriptions, it’s hard to really make a lot of interventions in that setting. And depending on when my wife finishes her PhD, we don’t exactly know what’s going to happen there. So it may involve another move, it probably — it will likely involve another job search. And I figured that if I could do anything to bolster my ability to be more marketable in that area by having residency training, then I’d also improve my chances of finding a job in the future and then hopefully being able to land something that I really enjoy like I have right now.

Tim Ulbrich: Well, and good call on the VA. You know, obviously we have many, many VA pharmacists that listen to this show that we work with as clients. And we know how much they enjoy the VA from a scope of practice, from obviously the quality of employment, the benefits, but also from the ability to transition. You know, one of the benefits of the VAs, if you guys have to pick up and move across the country, if you’re able to locate with another VA, you know, that minimizes a lot of the licensure concerns and other things of transferring your practice. So what a great opportunity that you have there. What about the experiences at Hyvee? You know, one of the things I’ve noticed as a residency program director and previous experiences is I have found that those that have some work experience, so graduate from pharmacy school, go out and work for a year or two years, however long that be, and then come back and do residency, seem to be a little bit better prepared to take on the demands, the challenges, the rigor of residency. Are there specific experiences that you had at Hyvee or skills that you obtained through that year that you felt like really benefited you during the residency year?

Trey Lowery: Yeah, and I think that’s an important point for those seeking to go back to do residency is using that to your advantage rather than saying, you know, I’m actually multiple years out of school, I’m well into one specific area, how can I go into a residency program that’s going to require well-rounded, maybe things that I haven’t done before? But I think like you mentioned that that is actually something to use to your advantage because one thing you’ll have over the other candidates that are applying that are still in school is that you’ve actually made that transition into I am an independent practitioner, I have ownership over my practice, when I scan the barcode to verify my prescription, that’s the last check. It’s completely up to my abilities as to whether or not the patient is getting the right thing, and I’m now the one responsible. So I think between that, you also gain some supervisory experience because you’ll actually have technicians that it will be just you in the pharmacy, you have to do a little bit of kind of management of time and management of people in that area. And then for me, it was just kind of the relationships that I really was able to develop with my patients. You know, actually seeing that your work is having an impact on them really makes you want to take more ownership of that. And so then going back into residency, I’d already seen the effects that I could have as a pharmacist on my patients. And so I think that made me care about it a little bit more knowing the sacrifices that I was making to be there.

Tim Ulbrich: Trey, one of the things I think about besides the financial transition, which we’ll get to in more detail here in a few moments, you know, just having a year I guess off — not necessarily off, you obviously were practicing, using skills, but you know, it’s a different pace from happy clinical rotations where you’re being evaluated and you’re expected to do so many interventions and have a certain autonomy of practice. So being, having that transitionary year and even just schedule differences, you know, I think about the pace typically of a residency probably were in more of a normal, not going to say not stressful, but normal schedule, so you finally graduate from school, you get to somewhat of a normal scheduled routine, and then you say, “You know what, I’m going to raise my hand to make a lot less money, to work a lot more, to be able to develop these skills further.” So money aside, just talk to us about the transition of a year off, not using some of those skills perhaps that you obtained in your final year of school or throughout your PharmD as well as just the schedule differences and how you were able to get back into the flow and the rhythm when you started residency.

Trey Lowery: It was definitely a transition, to say the least. For the first couple of months when you’re getting licensed and studying for your board exams, it still feels a little bit like school because I was taking most days of the week to study for that and for job searching purposes and that kind of thing. So for the first couple of months, I didn’t feel like I could just completely relax and not have to worry about the scheduling part. But you’re right, once I got into the position I was in, it was very much I go to work and then I come home and then I don’t necessarily have a bunch of projects or schoolwork or studying to do. And it is definitely easy to get caught up in that position. So when making the transition back, I’ll be completely honest, it was difficult the first couple months. I really felt like I had to do some extra reviewing so that I knew the topics I really hadn’t used in a year or plus, since my rotations when I’m actually going through my rotations in residency. And the scheduling, it was very much a team aspect in our household. My wife definitely helped so much with figuring out ways that we could be able to make sure that we spent time together, that we were — that I had time to focus on my residency projects and had ample time to be at work when I needed to. And it was certainly not easy. But after the first couple of months of residency, I suppose you kind of get used to it. You know what you have to do at that point, but yeah. Certainly a big difference from how it was before then.

Tim Ulbrich: Yeah. So let’s transition to talk about some of the financial tips that you shared with us prior to the interview that I think would be really helpful for folks that are considering a similar pathway, you know, student, practicing pharmacist going back to residency or folks that may be transitioning jobs or careers. I can think of situations where someone’s salary might be reduced or they’re looking to go part-time or they’re making a transition to another position that doesn’t have the same salary and just general financial principles that I think are helpful for individuals that find themselves in a similar situation. And the first one that you mentioned, Trey, is to make sure you have a solid budget and solid habits around budgeting before you get started. So tell me about budgeting, how you and your wife created good budgeting habits and effectively budgeted prior to making this transition back into the residency position. What did this look like?

Trey Lowery: So I am thankful that both of my parents are very financially savvy and both of my wife’s parents are the same. So I actually started my first budget when I got my first job at age 16 because for me, I looked at budgeting not as something that was limiting what I got to spend and where I got to spend the money that I was earning, but I felt very relieved in that I could actually allocate where certain parts of my income was going and then it was OK for it to go to those areas. So when I — when we got married, that was very important to me. I had listened to plenty of examples from different financial advisors throughout the country and from YFP as well to where I knew that money can certainly become an issue in marriage. And so we really wanted to focus on that at the beginning to make sure we were on the same page and go ahead and knock that out. So I use primarily Mint.com and then a couple of other different spreadsheets to track the budgets that we make. And it certainly took a couple of months for that to really become an effective tool. It took some balancing in certain areas and making sure that we were on the same page of all the different categories and that kind of thing. But the reason I say that that’s such an important aspect is because if you don’t have that going into residency, you’re not going to be able to create it while you’re there. You’re not going to have enough time, probably not enough energy, and then if you do have a family, it’s going to be very difficult to get everyone on the same page in the chaos that is residency. So that’s why I recommend if you can, go ahead and — I mean, useful budgeting, good budgeting habits are beneficial for anyone at any time I believe. But if you can make sure that you have those working effectively beforehand, it will only benefit you once you actually enter the reduced salary stage.

Tim Ulbrich: That’s great advice, Trey. And I think sometimes it’s easy, you know, P4s that are listening that are going to be starting a residency, starting a job, folks that are in a position such as yours that might be making a transition where there’s a salary change, sometimes it’s easy to say, “I’m just going to wait until I see what that actual pay stub and take-home pay is,” but I think you can get close enough, right? You can estimate close enough, work through the budget. It won’t be perfect, but the point is you’re being intentional, you’re being prepared with the transition, and then you can fine tune and refine it once you actually get that first pay stub and begin to move forward there knowing that you’ve been intentional and been prepared. Yeah, we have a budget template for folks that are looking to get started with a budget. If you go to YourFinancialPharmacist.com/budget, we have an Excel template that you can download, work through that. We use a zero-based budgeting method and system, and then you can take that information and plug it into a tool like Mint.com, like YNAB, or any other budgeting tool or software or good ol’ pen and paper or Excel if that works best for you as well. So that’s No. 1 around budgeting. No. 2 here is increase your emergency fund if you don’t already have 3-6 months of expenses saved. So why, Trey, did you decide to focus on building emergency fund prior to residency? How did you guys practically do this? And did you end up having to use that fund at all during residency?

Trey Lowery: So this is something that we did initially upon finishing school. That was kind of our first major goal. And it was fun because it gave us something to work towards together that wasn’t high-risk, high-reward, that kind of thing. It was something that we knew that once we got there that would just be a nice cushion for us to have going forward. So the reason that I would recommend increasing your emergency fund or at least having the usual is kind of 3-6 months’ expenses is the recommended is because obviously if you’re decreasing your salary that much, a $1,000 home repair or a car expense or some kind of unexpected family emergency happens, when you’re on a six-figure salary, that isn’t that big of a deal. You just say, “OK, I’ll just move around this part of the budget, and we’ll cover it.” But when you’re in a residency salary, you know, let’s say you bought a house, you have a family, it’s going to be very difficult to make that unexpected expense be able to be covered. And then that could lead to things like putting it on a credit card and then that will only amplify and amplify as things continue to happen. So when you’re in residency, the last thing you want to be concerned I think is some kind of unexpected financial emergency. You’ve got plenty enough on your mind already. So if you can already have a good-sized emergency fund going into it, I think that will just help everything going forward.

Tim Ulbrich: That’s great stuff. And this third one, you know, really caught me off guard the first time I read it. I had to reread it, and then I got to what you were saying exactly. And it’s really a great, great piece of advice. And that is look for salaries at prospective residency options, pick the lowest salary option — say what? — pick the lowest salary option, create a new budget using that salary. Depending on the results of your new budget, you may need to make adjustments. I think this tip is bold. Trey, tell us about what you mean by this, why you took this approach, and why this can be so valuable.

Trey Lowery: Like you mentioned, you may not exactly know the dollar amount that you’re going to have in your paycheck in order to create a full budget around. So for us, because we knew we were going to be located in the Iowa City area, I knew I was going to be applying for residencies within, you know, a 30-minute, hour range and not too much further. So I went on the forecast website and they have actually all the information regarding the salaries and some of the benefits of each of the programs that you’re applying for. And so when you match, you’re very much committed to that program that you match with. So if you have a bunch of different salary options, if you’re looking all over the U.S., it certainly I’m sure varies. If you can create your budget around the lowest one such that if you happen to match to the lowest salary option, which I actually did, so it ended up working out well. I didn’t have to change any of my budgeting once I actually started residency from that perspective. But if you can pick the lowest one, that will be your most strict option for your budget. And if you end up matching with a program that’s anything above that, then at that point, you’ll have extra to put towards other goals or other discretionary expenses, that kind of thing when you’re going into residency. But for me, it was just a way of not getting caught off guard when you had such a massive decrease in income all at once.

Tim Ulbrich: That’s great advice, especially considering the separation you can see of resident salaries, depending on where they’re located, types of roles and things like that. So that can be a big difference if you’re looking at, I don’t know, $48,000 versus $40,000 for example. That can be a significant impact on that year and during that year as well. No. 4 is have a plan for your student loans during residency. What would it be in terms of a YFP podcast if we didn’t mention or talk about student loans? So let’s go there for a minute. How did you decide to handle your student loans during your first year working and then also in residency? Talk to us about the plan, the approach, the strategy you’ve taken, and how you ultimately have gotten to that decision that that is the best repayment plan and option for you.

Trey Lowery: So when I first figured out that I was going to be using student loans to get through graduate school, I had to figure out basically what was going to be my approach to either whether I’m going to pay them off or attempt to go for forgiveness, that kind of thing. When I first started pharmacy school, I really didn’t know that there was such a thing as forgiveness. And my dad always told me, “You know what, you’ll make enough, you’ll be able to pay it off. It’ll be good in the long run. Just go ahead and take them out. You’re going to need to because we couldn’t afford to send you all the way through graduate school.” So I went through pretty much all the way through school thinking that that was going to be my plan, that I was going to pay them off. And then in my fourth year of school, I actually went to a financial advisory meeting led by one Tim Ulbrich from Your Financial Pharmacist. And that is where I discovered that there actually were forgiveness options available, which I had not realized at the time. I feel like I might have already been somewhat committed because the financial gurus that I followed were like Dave Ramsey and some others, which are very much you took out the debt, you need to attack the debt and tackle it in order to make your own financial goals become a thing. But like I said, I hadn’t considered that there were actually other options. So ultimately after looking at the numbers and weighing how we felt about our debt, I did decide to go for the pay-it-off method, which I’m currently doing now, although granted the 0% interest and no payments are certainly a benefit in that.

Tim Ulbrich: Right.

Trey Lowery: With them being federal. But that was what we ultimately decided, and additionally, because I was at first at Hyvee and I wasn’t at one of the accredited organizations that would qualify for PSLF, I really didn’t know if I was ever even going to be in a position to do that.

Tim Ulbrich: Right.

Trey Lowery: So I did use my first year to do some paying off of the debt then as well.

Tim Ulbrich: Yeah, I think that’s great, Trey. And you know, as I shared with you before we hit record, as I’ve said many times on this podcast before, this really is an individual situation. And you know, I think at the end of the day, it’s about having a plan, that you understand the options that are out there, and you feel confident in evaluating those options and knowing that when you apply those options on top of your personal situation that you’ve gotten down the path of the best repayment option or strategy for you personally as an individual. And I think for folks that are listening, you know, this can be a topic that obviously can be overwhelming, there’s lots of options, there’s forgiveness, there’s nonforgiveness, there’s federal, there’s private, the list goes on and on, and it can feel overwhelming. It can become paralyzing. And I think really digging in to understand the options is important and a great piece of advice here for those that are — really for anyone with student loans, but especially for those that are going back into a residency position or going through residency training to make sure that you’re using this time to evaluate those options. So I would recommend to our listeners, Tim Church wrote an awesome book on student loans for us, “The Pharmacist’s Guide to Conquering Student Loans,” really an A-Z guide of all things student loans, customized to the pharmacy professional, really meant to go through all of those options and help you apply that to your personal situation. You can learn more about that at PharmDLoans.com. Trey, this has been outstanding. I think for those that are currently in training, going to pursue training, whether it’s right from pharmacy school, going back, I think they’re going to find a lot of value in your advice and there’s a lot of wisdom here. Any other advice that you have, financial tips, wisdom to share with those that are listening that are going back into a residency position or going right into a residency position, making this transition? Any tips or advice that you would have for them as they go through that transition?

Trey Lowery: Well just like with finances, I think this is really a personal decision, and it depends on what your career goals are. Personally, I feel that if you are someone that is committed to pursuing your residency and you know that that’s the path that you want to take, you’re going to be able to figure out the finance part and make it work if you’re committed enough to following that path. So I think just taking some time to figure out what your career goals are and what steps you’re going to need to take to get there are probably the most important. And when I look back on my time during residency, obviously I’m not 40 years down the road at the moment, but I can say even nine months out that I really, really absolutely feel that it was worth it. And I think that in the long term, having a position that I really enjoy, that I feel like I gain a lot out of and I’m really able to make an impact on my patients’ lives the way that I think I would like to, no matter what, that’s going to be worth the $60,000, $80,000, however much you’re giving up for just one year. And if you were to develop good budgeting habits before that time ever comes, then that actually may end up benefiting you financially even more in the long run than not doing a residency in the first place. So I think there may be multiple benefits to pursuing that. But like I said, for me it’s really just depending on the individual.

Tim Ulbrich: You beat me to it, Trey. One of the things I believe — I have no evidence to support this, you know — but one of the things I believe is that a benefit of that year, if you take full advantage, or two years perhaps, is that it really does force you on some level to build some of the behaviors that can have a very long-term benefit throughout your career. So I think one way of looking it at is ‘Oh man, I’m not going to make much money at all.’ Another way of looking at it is, ‘Hey, maybe there’s an opportunity to learn some things throughout this year, whether it’s goal-setting, budgeting, being intentional in other parts of the financial plan, that can have a benefit well beyond those training years.’ So Trey, again, thank you for your time. And appreciate you and your willingness to come on the show to share your story.

Trey Lowery: Thank you so much, Tim. I’d like to say if anybody is in the YFP community on Facebook, feel free to reach out. I’d be happy to continue to share any other points that I might have. If this is something that you’re pursuing, definitely consider it because you definitely can do it. Thank you, Tim.

Tim Ulbrich: Thank you, Trey.

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YFP 200: An Interview with Sarah Fallaw of The Next Millionaire Next Door


An Interview with Sarah Fallaw of The Next Millionaire Next Door

On this episode, sponsored by Insuring Income, Dr. Sarah Stanley Fallaw, co-author of The Next Millionaire Next Door and founder of DataPoints LLC, a behavioral assessment advisor fintech company, joins Tim Ulbrich to talk about the surprising secrets of those who achieve millionaire status, how psychology and personal finance intersect, and why it is so important to understand your financial behaviors and tendencies.

About Today’s Guest

Sarah Stanley Fallaw, Ph.D. is the co-author of The Next Millionaire Next Door and the founder of DataPoints LLC, a behavioral assessment advisor fintech company. DataPoints created the industry’s first assessment of wealth potential based on The Millionaire Next Door. Her research on psychometrics and financial psychology has been featured in conferences and publications including Financial Planning Review, Industrial and Organizational Psychology, and the Journal of Financial Services Professionals. Sarah received her Ph.D. in Applied Psychology from the University of Georgia in 2003. Learn more about her work and research at www.datapoints.com.

Summary

On this episode, Tim Ulbrich welcomes Dr. Sarah Stanley Fallaw, co-author of The Next Millionaire Next Door and founder of DataPoints LLC to the show to discuss the secrets and behaviors of millionaires in the United States. Dr. Fallaw shares her experience of co-authoring The Next Millionaire Next Door with her father and outlines some of the behavioral research that went into writing it.

Tim and Sarah mention the money personality assessment tool offered by DataPoints that both pharmacists and those in the field of financial advising can use to better understand personal factors that influence spending, saving, and wealth. Tim mentions how when taking this assessment, he was surprised by some of the questions and ultimately how certain personal characteristics can influence financial decisions.

The key points and concepts from The Next Millionaire Next Door are also discussed and related back to the career and financial situation of today’s pharmacists. Concepts included in the discussion include myths about wealth and income, perceptions about wealth and how wealth is built in America, external influences and factors that can ultimately affect our wealth, the typical lifestyle that most millionaires in our country live, treating personal finance like a business, and the investing patterns of millionaires.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Dr. Fallaw, thank you so much for joining us today.

Sarah Fallaw: Thank you for having me.

Tim Ulbrich: Well, I’ve been looking forward to having you on the show and really excited to have you on as a special guest. This is our 200th podcast, so a big moment for us in the YFP community. And you joined us way back on Episode 035, the Science of Behavioral Finance, that went live back in February 2018. So we’re three years ago where you and Tim Baker, our Director of Financial Planning, talked about how your company DataPoints applies lessons from the book “The Millionaire Next Door,” written by your father, Thomas Stanley. And you two, Tim and you also dug into different factors that measure the propensity to build wealth. So today, we’re going to dig a little bit further into that conversation, talk about behavioral finance, the applications to one’s financial plan. But let’s start if you could share a little bit more about your background, your training, your career, and the work that you’re doing with DataPoints.

Sarah Fallaw: Yeah, absolutely. Thanks for having me on this milestone episode. That’s exciting for you guys. You know, as you mentioned, obviously connected through my father to “The Millionaire Next Door” and research on wealth. But my background is in industrial psychology. So I’m a psychometrician, if you will, by training. And really, the focus that I’ve had throughout my career is trying to understand characteristics and competencies of individuals. And then of course, in the later part of my career, taking that research that went into “The Millionaire Next Door,” and saying, well, how can I help people understand themselves, particularly clients? How can I help the advisor understand how a client might behave or make decisions about finances related to their personality and things like that. And so that’s my background and how I got into this area.

Tim Ulbrich: So how does one — I have to know — how does one get interested in industrial psychology and become a psychometrician? How does that happen?

Sarah Fallaw: Yes, yeah, how does that happen? Well, you start off in clinical psychology, thinking that you want to help everyone. And then you realize or recognize that you might be better suited for the statistical side of psychology, and so that’s how you end up in industrial psychology. No, really, I felt a calling to be in the business side and certainly industrial psychologists are the ones that are applying psychological principles to the workplace, how do you hire people, how do you develop them, how do you have a great organizational culture? All those things. And so that was really what I was attracted to in the field of psychology and then psychometrics kind of came alongside that really using survey research, test development, all those kinds of things to understand individuals. So that’s how you fall into that. You just kind of start on one path, and you end up on another.

Tim Ulbrich: Well, I really appreciate that. You know, we say often on this show and I know from personal experience, so much of personal finance is behavioral. And we’re going to dig into that a little bit further. And I love the mission that you have and the work that you’re doing at DataPoints, helping advisors understand the client money mindset and how that obviously then connects to the financial plan. And you’ve got a really interesting quiz tool that really helps folks understand their money personality. We’ll link to that in the show notes. Folks can find that at DataPoints.com/personality. So tell us a little bit about this personality test, this money personality assessment and really how it can help someone learn about their financial behaviors or perhaps help the advisor who is working with that client to understand how those behaviors connect with the financial plan.

Sarah Fallaw: Yeah, absolutely. So what we know from research, not only obviously that my father conducted but lots of academic research in the fields of financial planning as well as psychology, that certain characteristics about ourselves lead to great money behaviors or maybe not so great choices. So the test that you mentioned is one that measures five factors of personality, which is a really well-researched model, so you know, how are we all different in terms of our attitudes, values, experiences, that kind of thing. And they break down into those five areas that you’ll see things like conscientiousness, so obviously as pharmacists, conscientiousness is of utmost importance. But it’s also an important characteristic when we’re talking about saving and spending and making good financial decisions. So it’s actually predictive of someone’s net worth, it’s predictive of financial success. Some of the other characteristics, things like agreeableness. So how do we get along with other people? Are we there caring for others or are we sort of out for ourselves? What we find, unfortunately, is that those that tend to be a little more agreeable are also those that maybe spend a little bit more than they should. And that makes sense, right? Like we want to pick up the check. We want to take care of this, that kind of thing. So understanding some of those — those are just two of the five — but understanding those characteristics can help you understand what you might do in certain situations and then maybe how to avoid those situations or how to prepare for that situation the next time. So those are some of the things that you can learn about yourself and certainly then, again, if you’re a financial advisor, you can use that information to help your clients as well.

Tim Ulbrich: I really enjoyed this, taking it myself and reading the report and findings. It took me about, I don’t know, 7 or 8 minutes to get through it. And it was different than what I was expecting. You know, I’ve taken lots of money self-assessment tools that are out there, and I think often they’re focused on like your risk tolerance and how conservative or how aggressive. And this really threw me for a loop. I mean, questions like, “I enjoy reflecting on challenges, problems, or large issues,” or “I tend to understand others’ feelings and thoughts. And at first as I was taking it, I was like, how is this going to connect to the financial plan? And then when it got to those five personality buckets that you mentioned, the extraversion, the conscientiousness, the openness, the agreeableness, and the neuroticism, I was like, OK, I’m starting to see the connection and obviously the report and the guide talks about that further. But I can certainly see how one’s awareness of these as well as their coach’s awareness of these could be really helpful as it comes to developing their plan. And I was feeling good, Sarah, about myself when I saw the high conscientiousness, as I suspect many pharmacists would.

Sarah Fallaw: Yes.

Tim Ulbrich: And not so good then when I saw oh man, agreeableness, not so high, and neuroticism, a little bit higher. But you’ve got to dig deeper, right, than just the terms that are there.

Sarah Fallaw: Exactly. Yeah. And there’s always a good — a positive and a negative about any score that you have. So obviously taking that openness to experience one as an example, if you are high on it, it means you’re creative, you like new and different experiences. If you’re low on it, you like things to be the same. And so you know, those can be good or bad depending on the situation that you’re in. Certainly for accumulating wealth, it tends to be better if you’re more of a traditional, I like things the way they are. But again, it can be a good thing for your mental health to be trying new things and experiencing new foods and all kinds of things like that.

Tim Ulbrich: Very good. And let’s shift gears to talk about the work of “The Millionaire Next Door” and the follow-up, “The Next Millionaire Next Door,” which was, as I mentioned to you before we hit record, really both of those books have been transformational for me in my own personal journey. And a lot of what we do and the philosophy of what we do at YFP and how we approach our education and what we believe in I think aligns very well with those two resources and the research that you’ve found and obviously a strong connection there to behavioral finance and the work that you’re doing at DataPoints. So let’s start, I suspect many of our listeners have heard of “The Millionaire Next Door,” arguably one of the best personal finance books and resources of all time, and give us a 10,000-foot overview of that book. What was your father’s aim for the book? And ultimately, high level, what were the findings?

Sarah Fallaw: Yeah, so it was written — I’ll start with that sort of aim question portion of it. You know, he had spent his lifetime studying how individuals build and sustain wealth. So he studied affluent populations in the United States. He was a marketing researcher. And so his goal with “The Millionaire Next Door” was to help individuals understand that there was this kind of component of affluent America, which was made up of people that did this on their own. It wasn’t just the case that they had rich uncles and aunts and that they were born into a certain kind of family. There still to this day was a large component of millionaires who were self-made. And he felt like there were so many unusual aspects of this group that he wanted to share it with individuals. Early in his career, he was teaching, he was consulting, he was working really, really hard and saw several of his peers do that too. He felt like if he could give people this information that maybe that could save them from some of this constant income earning-spending, income earning-spending cycle that they were in. And so that was really the aim. But again, the 10,000-foot view of the book is really that there are certain characteristics that allow individuals to build wealth over time. And again, a lot of times it has to do with the career you choose, with the spouse you choose, with the place you start living when you first buy a home and things like that. And there are, again, these certain characteristics that millionaires exhibit that allow them to build and sustain wealth over time.

Tim Ulbrich: Yeah, and I remember one of the — I can remember one of the tables reading that book, but there’s the big-ticket items like your career, obviously the spouse, the home that you live in, the neighbors and the community that you’re in, all those things that influence your spending patterns and behaviors. And then there’s some other things that may not seem as large on the surface, the jeans you buy, you know, the cars that you drive, things like that that can have a very profound impact and perhaps a window into other spending patterns and behaviors. I personally find, Sarah, that the research that affirms the opportunity for folks to really create their own opportunities and to become self-made, I find that very refreshing and I suspect many of our listeners will who are facing sometimes $150,000-200,000 of student loan debt upon graduation. They’ve got a great income to work with, but they can often feel like they’re starting at point like, oh man, forget about it. Like is there even an opportunity going forward? And I think the compound effect of being intentional with those micro decisions along the way is going to be really important. So why the need for a second edition? Tell us about “The Next Millionaire Next Door” and ultimately how you decided that this resource was necessary as a follow-up.

Sarah Fallaw: You know, that kind of came out of a couple of different things. You know, No. 1, it had been nearly 20 years I think at the time when my father started talking about that, sort of a new book. And it was time to look at some new data, to look at some new aspects of spending, you know, social media was not a thing, right, back in 1996. That was — no one knew that we would have Facebook back then. And so there were a lot of different aspects that he wanted to consider and I was serving in the role of the statistician, I was going to do the survey data collection and the analysis and those kinds of things. And it really wasn’t designed necessarily to be a second edition. You know, he’d had that question asked of him many times by publishers and things like that. But instead, he wanted to really take a fresh look at things. And so yeah, you know, it started off as something that we were collaborating on. And then as you know, he passed away in 2015, was killed by a drunk driver. So I had the privilege of finishing the book without him but certainly the beginning of it and the ideas for it came from him. So yeah, that’s kind of where it came from.

Tim Ulbrich: And there really are so many “Aha!” moments throughout the book. I found myself in both “The Millionaire Next Door” and “The Next Millionaire Next Door,” really shaking my head in agreement with the writing, the research findings, and I think analytical pharmacists and scientists will appreciate the research and the power that’s behind it because often, you know, personal finance education and advice can feel squishy at times. And to really have some research supporting these findings that we can then try to align our behaviors with to give ourself a chance of success I think is very refreshing. So I want to dig into some of the key findings in the book, and I’m going to hit a couple highlights in different chapters of the book hopefully to give our audience really just a sampling of the outstanding content that is throughout and then of course would encourage folks to pick up their own copy of “The Next Millionaire Next Door.” So in Chapter 1, titled “The Millionaire Next Door is Alive and Well,” you share a truth that is so important and I think can often be looked over or easily confused. And that is that wealth is not income. And income is not wealth. So tell us about what this means, what the differences are between income and wealth.

Sarah Fallaw: Yep, absolutely. So I think — and again, you would think after 20 years, 25+ years now, people would see the difference. But it’s hard for even me and certainly my teenagers to even see that. But the truth is how much we make has very little to do with how much we keep. And that’s the idea. You know, we have this confusion in our brain, we see individuals with nice cars or in the best houses or whatever it might be, and we equate spending to having money in the bank. And unfortunately, they’re not. And I think a lot of us, particularly when we come out of grad school, when I came out of grad school, and we have a great big salary and we’re excited about that, you know, again, particularly for pharmacists, it’s just not the same. So we confuse that level of income that we’re receiving with being wealthy, which leads to us spending above our means in terms of our wealth and can lead to a whole host of things. So I think that that’s a mindset that, gosh, if we could teach our kids that, if we could learn that early on in college or grad school, before we have that income that comes in, we would be better off for a whole host of reasons. But yes, that continues to be a struggle. When we work with advisors, that’s one of their struggles, particularly with working with younger clients that are just newly out of school and things like that too.

Tim Ulbrich: Yeah, and if you can crack that nut on teaching your teenagers, let me know so I can teach my boys as well.

Sarah Fallaw: Yeah. Me too.

Tim Ulbrich: Such an important thing of the mindset and a whole separate conversation about what may work, what may not work, and doing that. So you know, I think of pharmacists here, Sarah, and one of the things that pharmacists are blessed with is a great income, often at a very young age, you know, of course I’m overgeneralizing for a moment, but typically pharmacists will come out of school if they go through four years of undergrad, four years of their doctorate training, perhaps some residency after that, you know, still late 20s or maybe early 30s, making a good six-figure income. But one of the challenges is that many pharmacists’ income may remain relatively flat through their career. And so I think this point is all the more important that, you know, I know from personal experience, many of our listeners know that as time goes on, things become more expensive. You know, just generally speaking, right? Our goals, our aspirations, perhaps children, families that are growing, other things that we want to do. And so if our income is not going to see an exponential growth, then we’ve got to really try to be diligent right out of the gates to make sure we establish those behaviors that are going to allow us to create margin. And I know for my wife Jess and I, one of the “Aha!” moments we had early on in our career is OK, good income, but if income comes in and income goes out and it’s not sticking, which I think is really what net worth is a good indicator of what’s sticking, then we’re going to be in trouble ultimately with being able to achieve our long-term financial goals. So net worth, a really good indicator I think of one’s overall financial health. And I think this mindset that you talk about in Chapter 1 is so important. Now, in Chapter 2, “Ignoring the Myths,” you say that in order to build wealth, we have to discontinue or ignore the myths of how wealth is built in America. What do you mean here? And how can we take our financial future into our own hands?

Sarah Fallaw: Yeah, you know, there are a couple of things that go along with this, certainly one of them being that, again, wealth isn’t the same as income and things like that. But you know, there are a lot of kind of, again, mindsets from whether we adopted those as children or adolescents, from the life experiences we’ve had, or that’s what we see in the media, that can keep us from kind of owning the building of wealth, right? So how, for example, if I take myself and say, well, I’m a woman, how can I run a fintech company? Well all of a sudden, I’ve created this sort of artificial, if you will, hurdle for me to get past in order to make the right decisions and to continue on. And it’s the same with building wealth. So if we kind of adopt the mentality that ‘Well, I have all this debt, there’s no way I can get out of it,’ or again, for example, ‘I’m a woman,’ ‘I’m a minority,’ or something like that or ‘I’m in this particular group, I won’t be able to get past that,’ that’s one of the things I think that differentiates those that tend to be financially successful is they see past that no matter what group they belong to or kind of what background they’ve experienced in the past, they’re able to move past that. And so there are a lot of those myths, and they have to do more with like financial attitudes, and that can prevent individuals from actually working to achieve goals because they view wealth as something that can’t achieve.

Tim Ulbrich: And I think what you’re sharing here reminds me of so often we, like many other I’m sure financial planners, get questions like, “Hey, what should I do with my student loans? What should I do about this investment? What should I do about that?” And I think what this is highlighting is often we have to really unwind and understand, you know, what are the money scripts that we’ve been told over time? I’ve heard somebody reference it like, you know, whether it’s family interactions, whether it’s societal types of stories that we’ve been told or believed, we all have some script, we have some baggage with us about how we view and interpret money. And that of course has a fundamental influence on how we spend, on how we save, on how we approach this with a significant other. And we’ve got to be able to understand some of that I think and be able to really set goals and understand some of these behavioral pieces before we start to attack the x’s and o’s of the financial plan. And so I hope folks will hear some of this and take a step back and say OK, what are some of my own behaviors that I need to better understand that if I take the time to do so will have a real big influence on how I approach my financial plan. Chapter 3, you talk about the influences on wealth. And you know, one of the questions I think of here is what outside influences may impact one’s ability to build wealth? So how does our upbringing, how do our friends, how does our spouse really play a role in this? And what does the research say?

Sarah Fallaw: Yeah, so again, one of the key kind of indicators or predictors of financial success is being able to ignore or to not be influenced. But you know, again, there are a lot of different ways that others can make us feel as if we are making certain decisions. So you know, certainly we can talk about upbringing, we see that if your mom or your father but mostly your mother has the most strongest influence, if they tended to be frugal growing up, you will be frugal in later in life, that kind of thing. But we also see, again, social influence. We see that particularly related to social media but also kind of where you plant yourself in terms of your neighborhood, right? So that can have an undue effect on things like car purchases and things like that. And then again, your spouse, we know that millionaires tend to have spouses that are frugal. So even if they’re out maybe running a business or they’re the primary breadwinner, their spouse tends to be frugal. And we know that that can influence financial decisions in the future as well. So certainly influence can be a good thing, but it can also lead to some pretty poor spending decisions as well. And that’s really where we see the influence. We also see it in investing. So if you think about Gamestop and you see like how everyone kind of behaves when things get really exciting, we can be influenced into some of that. And we’ve seen that that can be a good thing, but it certainly can be a negative as well.

Tim Ulbrich: Yeah, we’ve all been told of the circle of influence, right, and those five or six or whatever the number is people that are around us and the impact that they can have. I think it’s no different here when it comes to money. Sarah, I’m curious, I have to know, when you mentioned the research with mom, you know, I’m thinking of my wife Jess really taking a huge role in raising our four boys, like why is that? You know, what is the connection there with the research of the mother and the spending habits that are passed on?

Sarah Fallaw: Yeah, you know, it’s not only the spending habits but career influence as well. But I think it’s primarily because of the time spent. So the research that we’ve done primarily with those that are in like their 30s, 40s, you know, you think about that in terms of well, when were they children or adolescents? Well, it still was the case in most cases their mothers were the ones that were home. So I think that that’s why we see that influence more so than the father. But again, we know that if a mother was frugal, if she was showing good financial behaviors growing up and then I mentioned the career piece as well, it’s also the case that if you had — as a mom or as a parent, if you are helping your child understand their career options and what they might do in the future, that can also be a predictor of income and net worth in the future as well.

Tim Ulbrich: Sarah, one of the personal struggles that I have is around the concept of frugality. And you know, I think that there’s certainly a benefit in frugality of being able to make sure being intentional, we can allocate money towards our goals, we can assure we’re taking care of our future selves, but you know, one of the things I hear our planning team say often, which I really admire, is that it can’t just be about the 1s and 0s in the bank account. So if we do a great job of squirreling away $3 or $4 or $5 million but we’re miserable for 30 or 40 years, like so what? What’s the purpose of that? And so there’s this reconciliation of, you know, we’ve got to be frugal to take care of our future self, but I think we’ve also got to make sure we’re prioritizing and enjoying things along the way that drive us to some of the greatest happiness and value. And so I would just love to hear your personal thoughts as I know a lot of it points to the concept of frugality, like what are your thoughts on that reconciliation between taking care of your future self but also making sure we enjoy it along the way?

Sarah Fallaw: You know, I would say a couple things about that. First and foremost, I think you’re right that many of us aren’t really super excited about being in a spartan lifestyle for their entire life and then having all this money left over when they’re 80. That doesn’t sound great. I think that one of the things I’ve learned personally but then also learned through the research and the work that we do is that there are certain individuals, certain clients, certain people, that love being frugal, that sort of get a thrill out of kind of living that way. And then there are others of us that say, “Well, how long will I have to do this?” or “How can I make this as easy as possible?” So I’ll say a couple of things about that. No. 1, I think that as spouses, you have to make sure you’re on the same page, recognize and respect each other’s viewpoint on those things, make sure that there’s room for if the spouse isn’t really excited about being frugal all the time, make sure that there’s room throughout your relationship and throughout your lifetime to enjoy some of the fruits of your labor but then also have respect for the spouse that really does want to make sure that they have everything ready in the future and is OK camping out outside for their spring break and things like that. So that’s what we’ve sort of learned personally but then also, again, through the experiences of our advisors is to understand that about yourself early on, to communicate that, and then again to make sure that the plan that you put in place acknowledges both members of the household.

Tim Ulbrich: Yeah, and I think this connects so well back to the money mindset concept and the money personality test and really understanding this individually as well as the planner working with the client and the importance of that. In Chapter 4, “Freedom to Consume,” you know, one of the things you talk about there, which I think is a timely topic right now given what the real estate market looks like, which is en fuego —

Sarah Fallaw: Crazy.

Tim Ulbrich: — is home buying. And you know, I think this is a time where I know I’ve talked with many pharmacists over the last six months that are like, ‘I’m looking to buy a home, but I’ve talked with one out in Washington recently, I’m expecting to put $100,000 over asking,’ just kind of is what it is in the market. So this feels like something in the time that might kind of get away from us in terms of where it fits in with the rest of our goals. So talk to us about the research and what you found in terms of the cost of homes that millionaires are living in.

Sarah Fallaw: Typically what we see is that millionaires are — they’re not living in $1 million homes typically. So the majority of them or many of them are living in homes that are less in terms of the value. So we found — I think it was that the current home value for most millionaires — again, this data was taken from 2016 — that it was $850,000, which was significantly higher than in 1996 when I think it was somewhere around $300,000. But you know, inflation, things like that. So I think that that’s one of the important factors. I think also, just from — and again, I’ll use the conscientiousness, you could say frugality, it’s a lot of different things, but I think that millionaires and those that are really savvy about money recognize the costs in moving, the costs in making those large-scale financial decisions. So you know, we have friends and family here in Atlanta, the market is the same as well, you know, where people are — the asking price is just the start. And what we’re seeing is that there’s sort of this excitement about change, excitement about potentially trying to time the market. And I think that millionaires tend to be a little more conservative, maybe like I said, conscientious, they understand the ramifications of making changes like that, and they aren’t necessarily looking for sort of the next big thing. But again, in general, millionaires are not necessarily living in $1 million houses. It’s not always the case.

Tim Ulbrich: Yeah, really interesting research in that chapter, not only on home buying, which I know is a topic of significance to our audience, but also on things like how are millionaires spending money on cars and clothing? And in terms of cars, what types of vehicles are they driving? New v. used? Luxury? Models, makes, and everything in between. So Chapter 5, you talk about strengths for building wealth. And one of the things that really stood out to me here is this concept of running your home like a business. So what do you mean here? And how can someone that’s listening start applying these principles?

Sarah Fallaw: So connecting back to my industrial psychology days here, I really viewed building wealth as a job, looked at sort of what it took, the complexities of it, everything from kind of dealing with the mundane tasks — or again, some folks might think these are fun — but mundane tasks of paying bills and maybe helping to do your income tax, depending on if you do it or if someone else does it, you still have to get everything together for it, those kinds of tasks as well as communicating with your spouse and communicating with the rest fo the family when it comes time to budgeting and spending and things like that. There are a whole host of things that make someone really great at the job, and then there are of course other things that can keep people from doing that job well. So in terms of strengths for building wealth and kind of thinking about personal finance as a job, it makes you kind of think about it differently in terms of OK, you know, this doesn’t seem so complex. I can think about the individual tasks I have to do and consider can I do this task well? Maybe my spouse can do this tax better than I can. We have that often happen with the advisors we work with who are using assessments to say OK, hey, you know what? You might be better at this than I am. And that would make more sense for you to take this part of it. So if you can look at the job of building wealth or of managing your personal finances well and look at it as a job, you can think about what it takes to do that job well. So that’s kind of how we certainly view it at DataPoints, that was sort of, again, in the last several months of my father’s life, kind of how we started talking about how I explained what we were doing at DataPoints, had to kind of walk him through all of that. But that’s certainly the way that we think it’s easiest, especially for those of us that don’t have a financial background to understand what it takes to actually build wealth.

Tim Ulbrich: Yeah, and that really resonates with me because I think that as many of our listeners know from personal experience, this topic can be very emotional at times. And at times, we all can make irrational decisions that often we look back and say, what in the world were we doing with that? And that’s just part of the learning part of the growth? But I think approaching it like a business, you know, helps make this as objective as possible but also helps with thinking about like systems and processes and automation and how do we make sure we can understand where our biases may be, where our shortcomings may be, and how can we build a plan and a system and have a coach and really surround ourselves to give ourself the best opportunity to succeed as possible. In Chapter 7, “Investing Resources,” a whole lot of things we could talk about here that could be a separate podcast in and of itself, but you know, generally speaking, what do you find from the research in terms of what makes someone a successful investor? What are the characteristics and behaviors that somebody will hold in terms of becoming a successful investor?

Sarah Fallaw: Yeah, so that goes back to the personality conversation we were having earlier. There are a couple of different key things that we’ve found, one of them being that emotional side of investing, just like you said, the emotions related to money. What we found is that those that really tend to experience negative emotions more than others, so anxiety or fear, we call that volatility composure. That would be a lower score on that component. Those folks tend to have a harder time, especially when things are chaotic. So — and I’ll put myself in that camp a little bit. So we gravitate towards the news, we want to see what’s happening in the markets, we’re constantly looking at our investments. That kind of personality characteristic can lead us to making maybe not-so-great choices related to our investments, particularly, again, when markets are chaotic. Some of the other components include having a longer term perspective on investing. So for those of us who really view investing as a long-term play, it’s helping us build for the future, those investors tend to have more success than those that look at investing as something that needs to be managed on a daily or a minute-to-minute basis and view it more as maybe fun or entertainment versus something that’s a component of their long-term financial success. So those are a couple of the things. You know, confidence is also something important, particularly in terms of making decisions that align with a long-term strategy. So we don’t want to be overconfident. Those of us that tend to be overconfident are often the ones that are timing the market or trying to, at least, but instead having some level of confidence in our financial choices or investing choices can lead to investing success as well.

Tim Ulbrich: Yeah, and these really resonate to me, Sarah, as a place where a coach can be incredibly helpful in the process because if you can be self-aware of these things and that individual is also aware of these, they can help challenge you appropriately, they can help you stay the course when you have tribulations in the market, which inevitably are going to happen, and I think certainly can be a valuable resource beyond investing but specifically here as we talk about investing. So we have just literally scratched the surface on so much of the rich content that is in “The Next Millionaire Next Door,” so I would highly encourage our listeners to pick up a copy of that book, which you can do pretty much anywhere that you can find a book, whether that’s online, Amazon, Barnes & Noble, so forth. And Sarah, we’re going to link, as I mentioned earlier, in the show notes to the personality assessment available at DataPoints.com/personality. Folks can take that assessment, download that report, work with their planner, provide that information as well. Beyond that, what is the best place that our listeners can go if they want to learn more about your work or if they want to connect with you?

Sarah Fallaw: Yeah, so definitely on LinkedIn, Sarah Fallaw. I’m on Twitter @sarahfallaw, so all one word. They can also go to our website, just DataPoints.com. We have a blog. We write — generally our audience is financial professionals, but we also write at TheMillionaireNextDoor.com as well.

Tim Ulbrich: Awesome. Well, we will link to all of those in the show notes in terms of the social media and the websites as well as the personality data assessment. Sarah, again, thank you so much for your time. This is a special episode for us in Episode 200. And really excited for the opportunity to be able to interview you as a part of the celebration. So thank you very much.

Sarah Fallaw: Thanks for having me.

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YFP 199: Introducing the YFP Real Estate Investing Podcast


Introducing the YFP Real Estate Investing Podcast

On this episode, Tim Ulbrich welcomes Nate Hedrick and David Bright, co-hosts of the brand new YFP Real Estate Investing Podcast that is launching on Saturday, April 17, 2021. Tim, Nate, and David talk about the mission and why for the show, who the podcast is for, the content that will be covered, and the guests that will be featured on the show. They also discuss the newest guide developed by Nate and David, The Pharmacist’s Guide to Real Estate Investing, which details a step-by-step plan on how to get started in real estate investing.

About Today’s Guests

David Bright, PharmD

David Bright is a pharmacist with a heart for teaching. He’s been a full-time professor since 2009 with a passion for implementing and improving pharmacy services. Themes of “implementing and improving” in the pharmacy space are quite similar to themes of “building and fixing” in real estate, which has been a growing hobby for David and his wife, Heather, who bought their first house more than ten years ago. That fixer-upper house became a live-in house flip, which they sold a few years later, only to repeat the process with their next house. When David and Heather got sick of perpetually living in a construction zone, they pivoted to fixing up rental properties in West Michigan, where they now live.

David invests in real estate as a way to bring greater diversity to financial planning and to fund memorable life experiences with family and friends.

Nate Hedrick, PharmD

Nate Hedrick is a full-time pharmacist by day, husband and father by evening and weekend, and real estate agent, investor, and blogger by late night and early morning. He has a passion for staying uncomfortable and is always on the lookout for a new challenge or a project. He found real estate investing in 2016 after his $300,000+ student loan debt led him to read Rich Dad Poor Dad. This book opened his mind to the possibilities of financial freedom and he has been obsessed ever since. After earning his real estate license in 2017, Nate founded Real Estate RPH as a source for real estate education designed with pharmacists in mind. Since then, he has helped dozens of pharmacists around the country realize their dream of owning a home or starting their investing journey. Nate resides in Cleveland, Ohio with his wife, Kristen, his two daughters Molly and Lucy, and his rescue dog Lexi.

Summary

On this episode, Nate Hedrick and David Bright, cohosts of the brand new YFP Real Estate Investing Podcast join Tim Ulbrich to discuss the podcast launch, the why and mission for the show, the target audience for the show as well as the guests and content.

Nate and David also share some of the steps from their guide, The Pharmacist’s Guide to Real Estate Investing. Here are some of the highlights:

  1. Get your financial plan together: Taking stock of your own finances and financial picture will help you to better understand which investment and financing strategies may work best for you.
  2. Time to study up: Learn about and do your research on which real estate opportunities will best match your personal skill set.
  3. Location is everything: Choose where you are going to invest, taking into consideration factors that will impact your investment such as rent to income ratios, population growth, and more.
  4. Choose a strategy: Choose which strategy of investment you plan to implement of the many options, including house hacking, flipping, long-term or short-term rentals, or BRRR.
  5. Build your team: Build your team of professionals around you, specific to your investing needs. This likely will include a realtor who is familiar with real estate investing, a lawyer, an accountant, contractors, and property managers among others.
  6. Double check the math: If you do the math wrong with real estate, it can be a bad experience. If you do your math correctly, with the use of some tools and resources, you can get familiar with the numbers and more easily find a deal where you are comfortable in making a decision.
  7. Make an offer: Keep emotion out of the decision and realize that not every property is going to work out. Stick to the plan and research you’ve conducted in steps 1 through 6 and make your offer.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to this week’s episode of the Your Financial Pharmacist podcast. And today’s show is a special one, not just because it’s Episode 199 — hard to believe that we’re almost to Episode 200 — but special because we have something exciting to announce that we’ve mentioned on the podcast and in the YFP Facebook group over the last couple weeks and something that really has been in the works for much longer than that. On Saturday, this Saturday, April 17, we’re launching a brand new podcast through the Your Financial Pharmacist podcast channel called the YFP Real Estate Investing Podcast. Now, as much as I love the new podcast and the focus on real estate investing, I’m excited that the hosts of the YFP Real Estate Investing Podcast are two pharmacists, real estate investors, and friends that I have known for awhile, two guys that I have a great amount of respect for in the work that they do as pharmacists and the integrity in which they approach their business and their investing and the heart that they have for educating others and who have both been on the show before. And that is Nate Hedrick, the Real Estate RPh, and David Bright. Nate and David, welcome back to the show.

Nate Hedrick: Thanks so much for having us.

David Bright: Thank you.

Tim Ulbrich: So I know you both have been on the show before. Nate, you’ve joined us many times on the YFP podcast. And David, we had you on not too long ago, Episode 167 where we talked about must-know real estate terminology. But I don’t want to assume that our audience knows your background and really important information that they get to know you as we get ready to launch the Real Estate Investing podcast of which you two will be serving as the co-hosts. So David, let’s start with you. Tell us a little bit about your career, how you got started in real estate investing, and your why behind pursuing real estate investing while keeping your pharmacy career.

David Bright: Absolutely. Yeah, I started in pharmacy at 16 working in the drug store and went from there where pharmacy school, community pharmacy residency, and really just loved that outpatient community pharmacy drug store opportunity that was there. A lot of the implementing and improving of non-dispensing clinical services really got me excited about that outpatient space. And then later as well with academia, that implementing and improving also mirrors hobby of real estate, the building and fixing of real estate. And so that was something that my wife and I had enjoyed too. We bought our first house as a short sale. It need a lot of work, so that kind of live-in flip was a way that we could diversify our financial plan, also just create some extra money for those memory-making experiences with the family. And so we’ve just enjoyed kind of doing that over time. At some point, we decided we didn’t enjoy living in a construction zone anymore, so we started enjoying doing that in other properties. But that’s just been a fun hobby along the way and part of our why behind real estate.

Tim Ulbrich: Great stuff, David. And I know you and I have had this conversation before, but we’ve known each other dating back to community pharmacy residency all the way back in 2008-2009. And I like the connection you’ve made before about really some of the challenges around developing, implementing, evaluating patient care services in the community pharmacy setting and really the connection between some of the interests and passions that you have in real estate as well. So excited to have you experience, your perspective, on the show, really to be sharing that information with the community but also what I have always taken away is really your passion to help other pharmacists and really lead with education, really teach some of these principles, and help folks understand how they might be able to apply that to their own personal situation. So Nate, as I alluded to, we’ve had you on the show many times. I think now officially the most frequent guest on the YFP podcast. So starting way back on Episode 040 and 041 where we had a two-part series talking about 10 things every pharmacist should know about home buying and then most recently on Episode 193, building v. buying a home, what to consider. And that was in early March of 2021, and I think many of our listeners know you as the Real Estate RPh. So for those that haven’t caught one of your several — I think at least five or six at this point — episodes on the YFP podcast, Nate, tell us about your background, pharmacy career, and how you ultimately ended up as a realtor and real estate investor.

Nate Hedrick: Yeah, and I expect the trophy for most frequent guest to be arriving.

Tim Ulbrich: It’s on the way. It’s on the way.

Nate Hedrick: Alright, good. Yeah, no. So I started off full clinical track. I did a residency right after graduating from Ohio Northern back in 2013 and really fell in love with the pain and palliative care space. And was a hospice consultant for a long time and really just, I loved that role. And then as time went on, I kind of moved into more of a sales-y type track where I was working with outside clients and really kind of touting what the other pharmacists were doing rather than doing that work myself. And as all that was happening, I was getting this interest in real estate and real estate investing. I think the story I tell all the time was I read “Rich Dad Poor Dad,” and my mindset just completely shifted. So when I should have been going out and getting my BCPS or some sort of additional certification in pharmacy, I told my wife I was going to get my real estate license. And she looked at me like I was crazy at first, but we’ve really fell in love with where that stake in our career and the opportunities that I have. And so back in 2017, I took that same idea and launched Real Estate RPh, a website all about educating pharmacists about home buying and home selling and real estate investing. And really just have been growing that ever since. And so really excited that we are able to launch this podcast today. I feel like it’s the culmination of a lot of that stuff coming together, that idea of education and connection really in the purest form. So I’m really excited about this.

Tim Ulbrich: Yeah, and this really has been in the works for I would say a couple years. I mean, it started with the idea of hey, we were seeing a growing interest of real estate investing, wanting to learn more among the community, how can we help provide some education, some awareness, how can we connect pharmacists with other pharmacists, and all of that really led to hey, let’s start with a podcast, let’s start with the education, I think something we’re all passionate about. And then let’s see where it goes from there into the future. So let’s dig into the new podcast launching this Saturday, April 17, on the YFP podcast channel. Nate, what’s the mission and the why of the show?

Nate Hedrick: Yeah, the mission is actually pretty simple. It’s to empower pharmacists to leverage real estate as part of their financial plan. We realized that not everyone’s listening to this podcast trying to take over a real estate empire, right? And really, when David and I sat down and started thinking about what kind of philosophy are we going to have behind the show and what kind of guests are we going to have on the show and all that, we really sat back and said, we don’t need to replicate what’s already out there. There are some fantastic resources in the real estate space, Bigger Pockets being kind of the most obvious one with excellent podcasts and books and all these things that I think really promote the idea of real estate investing. But what we felt like was missing was this idea of how do you couple a really fulfilling career, i.e. pharmacy, and real estate investing? How do you do both? And so our whole idea with this show is that we’re going to show you how to not just leave pharmacy but stay in pharmacy while also investing in real estate. And so that’s really the overarching philosophy behind this program and this show.

Tim Ulbrich: Great stuff. And I think to reiterate that, that really is going to be the focus of the content and the audience that we want to reach. So you know, not to say some folks may get started and eventually build that empire, Nate, that you talked about, but knowing the vast, vast majority of pharmacists that are listening have either not gotten started yet but have the interest piqued, wanting to learn more, or maybe have taken a step or two, might be saving for that first property, might have bought a property or two, but really looking to take it further from there. And that’s going to be the focus of this show. So David, with that in mind, you know, what can our listeners expect? The kind of guests, the topics that we’re going to be covering as they listen to this podcast that we’ll be launching each and every Saturday?

David Bright: Yeah, I think the obvious one is we don’t really intend on focusing on pharmacists that have left their career of pharmacy. That’s not really our focus. Again, we’re focused on pharmacists that want to have real estate as a part of their financial plan. So there’s a lot of other, better resources out there for those kind of things. But for those that are looking for tangible and practical tips on getting started, on growing, on getting better at what you’re doing, that’s where we’re focused. We’ve got guests that are on talking about short- and long-term rentals, talking about house flipping, talking about rehabbing, property management, taxes, lending, all those different things go into buying your first or your second or your fifth property. And so focusing, again, on ways that you can jump into that and make that even better.

Tim Ulbrich: Yeah, and our goal is, David, you know, I think one of the things we’ve discussed thus far is that real estate investing can look like a lot of different things. And we’re going to obviously highlight a lot of different stories that will emphasize that. And it’s probably going to take a lot of guests and a lot of episodes to even fully uncover the variety of options that are out there. And so we’re not suggesting that there is a one right path to real estate investing. What we want to do is explore many different areas, feature many different stories, the good, the bad, the ugly, make sure we’re representing all sides of that and then really give folks an opportunity to go learn more and say, ‘Oh, that’s interesting, I think that might fit or might not fit for my personal situation,’ as they evaluate where real estate investing does or does not fit in the context of their financial plan. So Nate, if someone has a question about real estate investing that they would like to be answered or perhaps they have a story that they want to have featured on the show, where can they go?

Nate Hedrick: Yeah, and so as this podcast drops, we’re going to also be launching a new website just to help out with that. And so YFPRealEstate.com will be your go-to source for getting in touch with us, asking questions, you can apply to be a guest on the show, all sorts of stuff. So as this podcast launches and you guys start listening here, you can head over to YFPRealEstate.com. And then we will also have — we’ve already launched, and it’s been running for about a week now, and that’s a Your Financial Pharmacist Real Estate Investing Facebook group. So if you’re looking for community, looking for a place to connect with others, we’ve already seen some great photos posted and people talking about their investments already on there. So definitely check that out.

Tim Ulbrich: Yeah, I’m glad you mentioned the Facebook group, Nate. One of the goals we had with that group and with this effort overall is to connect other pharmacist investors with one another. And we had a question last week in the group that was in essence like, “Hey, where are you from? Welcome to the group. Where are you from? Tell us a little bit about what you’re hoping to get out of this group. Tell us a little bit about your investing, what you’ve been working on.” And to see pharmacists, “Hey, I’m from Buffalo, New York,” “I’m from Columbus,” “I’m from this part of the country,” I think we’re going to see a lot of that connection start to happen organically. So I hope folks listening will join us in that Facebook group as well, which we’ll link to in the show notes. David, I want to come back to the concept that we don’t feel like real estate investing is something that folks have to choose it’s either that or it’s my pharmacy career. We really feel like folks can be successful in their pharmacy career, still be passionate about what they’re doing and what they’ve spent a lot of time and money to train to do and still pursue and potentially reap some of the benefits that come from real estate investing. So David, tell us, how can one enjoy their profession while also investing in real estate?

David Bright: Yeah, I think it’s the same kind of answer that you think about when it’s how do you get 700 prescriptions and 50 flu shots done in a Monday in a drugstore. It’s you have a team around you that helps you, right? Like this isn’t an individual sport with real estate. Like I know that I am not a realtor, I am not a contractor, I am not a property manager. I’m not a lot of those things. But I can find people who are really good at each of those areas. And so by bringing that team together and by having some direction and leading that team, I can really step back from the day-to-day side of it and let other people that are really good at what they do do what they are good at. And to me, I think that’s how a lot of pharmacists can find real estate investing as a part of their financial plan without it taking over or taking too much time.

Tim Ulbrich: And one of the things that I know I’ve heard both of you talk about and seen you role model as well is that the value that a team can bring to the process and really thinking about how to begin to build your real estate portfolio with both the team and the system in mind. And I think that’s really critical. I suspect many folks listening are not only busy in their full-time career as a pharmacist but they perhaps have family, other commitments, other priorities, other things that they need to be doing, want to be working on, things that they enjoy. And so we need to be able to do this, if we’re going to do it, in a way that is realistic with those other responsibilities and those other roles that one has. So Nate and David, you created a really valuable guide, the Pharmacist’s Guide to Real Estate Investing, that details essentially a step-by-step plan on just that: how to get started in real estate investing. And we’re going to link to this in the show notes, and I’d like to walk through this for a few moments to give our listeners a taste of I think some of the information and the content that they’re going to get on the show. But that guide, the Pharmacist’s Guide to Real Estate Investing, you can download that guide for free by visiting YFPRealEstate.com or you can text REIguide, all one word, again, REIguide, to 44222. And you can download a copy of the guide that way as well. So Step No. 1 of this guide is get your financial plan together. So a topic obviously near and dear to my heart. And Nate, tell us about why this step, getting your financial plan together, is really such an important first step.

Nate Hedrick: Yeah, I think a lot of this comes back to the original mission of Your Financial Pharmacist as a whole. I think back to, Tim, when we had our very first meetings years and years ago, and I said, you know, I want to be the real estate side of what you’re trying to create here. And again, it all stemmed from that idea of you’ve got to have a good financial house first before you can move on and do anything else.

Tim Ulbrich: Yeah.

Nate Hedrick: Again, as I approached my own real estate investing, we really stepped back and did a lot more time with the education side and the reading side because if you don’t have that financial base, that strong financial base, it becomes very, very difficult to escalate or to be successful in the real estate investing side. So we put that first because, again, it’s really the core philosophy of YFP, but it’s also just absolutely essential if you want to be truly successful I think in the real estate investing side.

Tim Ulbrich: Yeah, and one of the things, Nate, I think you mention this in the guide that I like is if you think about real estate investing being similar to pharmacy school, personal finance is like your pre-reqs, right? Your basic science courses. So before we build upon that, before we get into our therapeutic courses, other more advanced content, we better be sure we’ve got a really good foundation or we’re going to end up in trouble when we get on rotations and we have the preceptor that exposes the lack of that information. So that’s Step No. 1, get your financial plan together. Step No. 2 is time to study up. So I love that you guys write that first, you need to learn the basics and then can decide what real estate investing niche fits your skill set. So David, talk to us about how to approach learning about real estate investing and what resources you have leaned on as you got started in your own journey.

David Bright: Yeah, I think just like you wouldn’t recommend a drug therapy without having any therapeutics courses, you need to have that time to study up. And with setting aside that time is probably the most important thing for the life of a busy pharmacist. And so for me, I found that during my daily commute, it was really easy to plug in podcasts and audiobooks. And so we will — as a part of the show, we have some outro questions where each guest recommends some resources. And so I would encourage you to take notes as we get through there. And we always put those things in the show notes as well. If you’re looking for good books and resources that got each guest started, we’ll have those going as well. So we’ll have several recommendations coming over the next few weeks. ANother thing I think are groups, whether that’s in-person meetups — at some point we can hopefully be doing that again — and then also just gathering with other friends and people that can bring accountability and education and you can share in that with. So carving out that time I think is really important, but I also think that there’s some even a life of a busy pharmacist, you can find 15 minutes here and there to get through an audiobook or podcast slowly.

Tim Ulbrich: Yeah, and David, I’m envisioning a future state, post-COVID perhaps, where we have a real estate meetup of pharmacists at a state or national meeting or other venues, which is really exciting to think about. What is your over-under, David, on the number of times we’re going to hear guests recommend “Rich Dad Poor Dad” in the first 50 episodes?

David Bright: Oh, 48 out of 50 I think is what I’m thinking.

Tim Ulbrich: Yes.

Nate Hedrick: We’re going to have to strike that from the options. You can’t pick that as your favorite. I’m sorry.

Tim Ulbrich: So Step No. 3, location is everything. Nate, you know this, obviously as an agent. So choosing where you’re going to invest in real estate is such an important step. Nate, give us a broad overview of some factors to consider, whether somebody is choosing the location for their first or perhaps their fifth real estate property.

Nate Hedrick: Yeah, absolutely. So really it comes down to assessing those locations. I think as we look at investors when they are either starting out or they’re looking at a new market, figuring out where to invest is one of those big steps in terms of OK, well, is it going to be something that I need to have close by? Do I have someone there that’s a part of my team that I can tap into? Do I know anyone there already? And then it gets into the actual macroeconomic factors of that location. So is the city seeing population growth? Job market — is that diversified? What’s the rent-to-income ratio look like? All those things get factored into it. And so there are — you can be successful anywhere at any time. Anybody that tells you, oh, you can’t invest there. The market doesn’t work. It works for something. But what you have to find is a way to pair that location with your strategy and your goals. And so I think figuring that out together can be difficult. So we really try to address that in the guide about here are some factors to consider before you start moving forward.

Tim Ulbrich: And Step No. 4 then is choosing a strategy. So we’ve got our financial house in order, we’ve soaked up lots of real estate investing knowledge, we’ve decided on a location, and David, what comes next when one evaluates the strategies available?

David Bright: I think that as you’re figuring out that strategy, that’s just really important because you think through each potential real estate acquisition through the lens of that strategy in order to make sure that it’s effective. Like you may find this beautiful lakefront property, and if you run the numbers as a long-term buy-and-hold where someone moves in there and lives there for years, it may not work nearly as well as if it was an Airbnb or VRBO kind of vacation rental. The numbers may work much better that way. So figuring out your strategy and the way that you want to invest in real estate can really help you figure out which property is the right acquisition for that plan.

Tim Ulbrich: Yeah, and we’ve talked about a few. I know you mentioned a couple earlier in the show, but we’ve had on guests talking about house hacking, we’ve had Nate on to talk about flipping, we’ve talked about long distance real estate investing, we’ve talked about using the BRRRR strategy. So we’re going to dig into these and others as pharmacists, again, evaluate, OK, what’s out there? And then as I learn more, which of those may fit into my financial plan. So Step No. 5, build your team. Nate, we talked about this briefly already but team, team, team, is so important when we think about real estate investing not only in the long-term success but also being able to make the most of our time and the limited time that we have. So talk to us about this concept of building a team and who we should be thinking about being included on this team.

Nate Hedrick: Yeah. And this applies whether you’re investing locally down the street or whether you’re investing across the country. There are just certain members that you’re going to need to build into that. And we try to one, demystify that process but also make it feel easy. I know every time I heard, “You have to build a team to be successful in real estate,” it just sounded kind of overwhelming. Like I don’t know how to build a team. I don’t know how to do any of that. So we’re trying to break that down and make it a little bit easier. But the idea is that you need to have that real estate agent, you need to have potentially a lawyer or an accountant, a financial planner. You know, there are all these different members that can help you out. And so how do you tap into the good ones? And how do you get to that team more quickly? So the guide helps with that a little bit. And then it also leads to our expansion of the real estate concierge service, which we’ve been doing on the home buying side for years but really this new model is looking at how do we connect you guys with investor-friendly agents? So again, head on over to YFPRealEstate.com. We have access to our real estate concierge service. We can get you connected to a local investor-friendly real estate agent, somebody that can actually help elevate that business wherever you’re trying to invest.

Tim Ulbrich: Very important distinction between agents that, you know, specialize on the primary residence home buying side and those that are familiar with the investing side and ideally maybe even have some experience themselves or have worked with many clients that have gone through that path and know what they may be looking at to be able to advise them. Step No. 6, David, the math. So we’ve got to actually figure out is this a good deal or not? And so Step No. 6 is double or triple check the math. So talk to us about the importance of running the numbers and obviously something we’ll dig into in much more detail as we go throughout the show on individual cases and scenarios. But you know, how is the math run? Why is it so important? Talk to us about this step.

David Bright: Yeah, I think we’re all familiar in the pharmacy space that if you do the math wrong, that can be life-and-death for a patient. And I think the parallel with real estate is if you do the math wrong with real estate, it’s life-or-death of that deal. Right? It can be a really, really bad experience if you do the math wrong. If you do the math right, you check it well, and that ends up being a great investment for you, then that’s also a huge win. So there’s some strategy in doing those numbers correctly. There’s some online calculators and YFP has one, I’m sure we’ll put the link in the show notes today. But those online calculators are just like in the profession of pharmacy where there’s different online calculators for things that we need as well. So just getting familiar with those numbers to the point where it becomes really understandable and simple of how to evaluate those deals makes it just that much easier to find something that you’re comfortable with to break through that analysis paralysis and to jump in.

Tim Ulbrich: And we will link to the YFP rental property calculator that David was alluding to, we’ll link to that in the show notes. And finally, Nate, Step No. 7 is we’re ready to make an offer. So talk to us about really two key points to keep in mind as folks are getting ready to make an offer.

Nate Hedrick: Yeah, I think when you get to this point where you’ve done all this background work and you’ve gotten to this point where OK, I think this is a deal that we’re going to go put this offer in, there’s two really important things to keep in mind. And that is that you need to keep emotion out of it. This is an investment. This is not your forever home. And so once you’ve done all that math like David said, don’t ruin it by ignoring the math and making a bad decision. So keep the emotion out of it, walk into that deal with ‘here’s where we’re going to go’ from a numbers standpoint, and we’re not going to vary from that. And then realize that not every good house is going to work out. Even if everything looks great, if you can’t get to that right negotiating spot, it’s worth it to walk away. So I think, again, Step 7 really should be do what you did in steps 1-6 and make sure you stick to it because that’s really what the offer is all about is that you’ve done all this background work to stay in line with what you’ve decided ahead of time.

Tim Ulbrich: Great stuff. So we just scratched the surface on these seven steps that are part of the Pharmacist’s Guide to Real Estate Investing, which you can download at YFPRealEstate.com or you also can text REIguide, again, all one word, REIguide to 44222 to get a copy. So I hope that you will join us for Episode 01 of the YFP Real Estate Investing podcast. It’s going to launch this Saturday, April 17, where Nate and David talk with Tim Baker and I about how real estate investing may fit into a pharmacist’s financial plan. We also talk about considerations for how long someone should be in their personal finance journey, where you should be perhaps with debt repayment, where you should be perhaps with your investing plan before jumping into real estate investing, and then we also talk about how one may balance real estate investing with a busy pharmacy career. So you can listen, again, to the YFP Real Estate Investing podcast right here on the YFP podcast channel. It’s going to launch each and every Saturday. What better way to start the weekend than learning about real estate investing, hearing from other pharmacists that are along this journey as well? So David and Nate, thank you both not only for your time on this episode but I know firsthand the time and effort that goes into putting a podcast together. It’s both exciting and exhausting at times. There’s moments of re-records, there’s moments of that was an episode that went great, but really an awesome opportunity as well to meet other pharmacists and connect with folks all across the country. So I appreciate your passion for this topic, your willingness to teach others, and the time commitment that you’ve made in being able to put this podcast together.

Nate Hedrick: Yeah, we appreciate you letting us do it. This has, you know, really been, like you said, months and months in the making. And it’s really fun to get to this point, and David and I have been having a really good time interviewing the initial guests we’ve been working with, and I can’t wait to see where we go from here.

David Bright: Yeah, we’ve got some really inspiring people coming on in the first few shows and so I’m really excited about it and looking forward to it kicking off officially on Saturday.

Tim Ulbrich: Great stuff. So again, this Saturday, April 17, I hope you’ll join us for Episode 01. And as always, we appreciate you joining us on this week’s episode of the Your Financial Pharmacist podcast. Have a great rest of your week.

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