2021 – Page 6 – Your Financial Pharmacist

YFP 189: Options for Investing When You’re Maxing Out Your Retirement Accounts

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

Options for Investing When You’re Maxing Out Your Retirement Accounts

On this episode sponsored by LendKey, Tim Baker, Co-Founder and Director of Financial Planning at Your Financial Pharmacist, joins Tim Ulbrich to talk about strategies for investing when you have maxed out your traditional retirement accounts.

Summary

Tim Baker and Tim Ulbrich dive into what traditional retirement accounts are, how contributions have or have not changed, the priority of investing, and strategies for investing when you’ve maxed out your traditional retirement accounts.

Tim Baker explains that traditional retirement accounts are generally any employer sponsored accounts, like 401(k), 403(b), 401(a), or TSP accounts. Traditional IRA, Roth IRA, SEP Ira, and Simple IRA accounts are also considered traditional retirement accounts. Many of these accounts have stayed stagnant in regards to contribution limits from 2020 to 2021, like 401(k) and 403(b) accounts which remain at $19,500. However, IRA accounts have increased to $6,000 (aggregate total for traditional and Roth accounts) and HSA contributions have increased to $3,600 (single) and $7,200 (family) with a catch up of $1,000 for those over 55.

Tim suggests a few areas of investing to consider after maxing out traditional retirement accounts. Real estate investing is a viable way to build wealth as it often provides flexibility and cash flow, can generate both short and long term gains, and comes with a lot of tax benefits. Of course there are risks involved with real estate investing and it isn’t as passive as a traditional retirement account, but can be a way to help grow your income and net worth. Starting or investing in a business is another avenue to take after maxing out your retirement accounts. This could be in the form of starting a side hustle or business, inheriting or becoming part of a family business, or investing in a partnership. Lastly, taxable brokerage accounts like Robinhood or Acorns are a good stepping stone to get into a different type of investing, however Tim suggests being intentional with what your setting brokerage accounts up for. He also shares that the more boring you can be with investments, like investing in the S&P 500 or total market index funds, the better it is.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Tim Baker, good to have you back on the mic. What’s new?

Tim Baker: Not much. Just settling into our new office, YFP headquarters in downtown Columbus. So that’s coming together slowly with just furniture and everything else. But yeah, just getting comfortable. How about you?

Tim Ulbrich: Yeah, exciting times, I think, for YFP. Excited about having you in Columbus. And we’ve got some exciting things planned for the year, and so here today we’re talking about all options for investing after you’ve maxed out traditional retirement accounts. So first of all, if you are somebody listening that hasn’t maxed out your traditional retirement accounts, kudos to you. That’s not an easy thing to do by any means. And remember, as we say many times on the show, investing is only one part of the financial plan. It can’t be looked at in a silo. And for those that are listening that are at the beginning of the investing journey or looking for a refresher, make sure to check out episodes 072-076, our Investing 101 series, as well as Episode 163, Investing Beyond the 401k, 403b, where we discussed IRAs and HSAs in details. And so we’re going to build upon that information here today. So Tim Baker, let’s back up a bit. What are we talking about when we say traditional retirement accounts?

Tim Baker: I guess the thing that pops into my head first and foremost are going to be what’s provided through the employer. That’s typically things like the 401k, the 403b. A lot of us have supplemental retirement plans, things like the 457, some people have 4018s, which are kind of like 401k’s. And then those that we kind of manage ourselves or through the help of a financial planner, so these are things like traditional IRAs, Roth IRAs. Sometimes we’ll see SEP IRAs for those that are self-employed or work for a small business. And simple IRAs also fall under that. So traditionally, those are the ones that we lean on first when we’re kind of looking at ways to defer income for the purposes of saving for retirement.

Tim Ulbrich: So talking about 2021 numbers here, have contribution limits changed from 2020 as folks are considering, alright, new year, what could I be doing to take advantage of these accounts?

Tim Baker: Some of them have changed, but a lot of them actually stayed stagnant. So the most common, the 401k/403b, is the same. So in 2020, you could put $19,500 per year. And that’s of your own money, so doesn’t matter what the match is that your employer gives you. That’s of your own money. And that’s the same for 2021. So you know, if you take your income, you take $19,500 and divide it by your income, that’s the max percentage that you could put in throughout the course of that year. So what I always say to clients that — particularly those that are starting out and maybe they have a little 401k inertia, which is hey, I put 3% and my employer matched 3%, and then they get stuck there. Years later, they’re 5-10 years into their career and they’re still there, that’s typically not going to be enough. So I kind of like the idea of planting the seed of a race to 10% or a race to double digits. And again, that’s kind of just a rule of thumb. Now, in the IRA world, the contribution limits are also the same. So you can put up to $6,000 per year, if you’re thinking about this monthly, $500 a month, into a traditional and/or Roth IRA. So that’s an aggregate number. So if I put $1,000 into my traditional, I can put $5,000 into my Roth IRA. And then probably the other one that I would call out that actually did creep up a bit is the HSA, the Health Savings Account, which is the one that we always talk about that has the triple tax benefit. So if you’re in a high deductible health plan, you basically qualify for that. If you’re an individual, you can put up to $3,600 per year. If you’re a family, $7,200. And then if you’re over 55, there’s a catchup of $1,000 per year as well. So those would probably be the ones that I would call out. So again, if you are in that population of people — which I wouldn’t say it’s always a lot of the clients that we’re working with — but if you are in that population of people that are maxing out the 401k, the IRA, the HSA, then this episode, you know, might be for you where you’re like, OK, well where do I go next?

Tim Ulbrich: And as a reminder, we have a new quick reference guide too. You can quickly take a look at 2021 key retirement numbers, including 401k, 403b, traditional IRA, Roth contribution limits, HSA, education tax credit incentives, required minimum distribution, tax rates. So for those number nerds out there, this is for you. YourFinancialPharmacist.com/2021, you can download that sheet. So Tim, that was one of my questions. I talked with a prospective client this morning who was really in this camp of, you know what, I need to full throttle my investing plan. So I’m at a point of or near at a point of maxing out my 401k, yes, I see another $6,000 I can put in an IRA, doesn’t necessarily have access to an HSA, so is at this point of alright, I’m ready to go with the next steps. So how often do you see this among pharmacists and clients of ours? How hard is it for pharmacists to max them out? And for those that aren’t maxing them out, what’s typically holding them back?

Tim Baker: It’s hard. I think, again, it depends on where you are in kind of your career and where you’re at. If you are a more of a new practitioner and you’re saddled with six figures of debt, to put money into a 401k can be a little bit of a tough go, especially if you’re looking at a $2,000 monthly loan payment. Sometimes, that is very much baked into the strategy that we are employing that the money that goes into these pre-tax accounts lowers AGI and potentially maximizes a forgiveness play, or if you’re looking at a I’ve refinanced, I’m trying to get through them quickly, I am paying $2,000, $3,000, $4,000, sometimes just not a lot of money left over to go into these retirement accounts. Now, there are 10% of pharmacists out there — those are the numbers — that don’t have loans, that kind of the world is their oyster. But that doesn’t always necessarily mean that their money is going into retirement accounts. A lot of pharmacists after going through years and years of training, it’s kind of like, alright, I need to treat myself a little bit. And then that can sometimes be hard to get out of as well. So I think the flip side of that is if you are further along in your career — so the answer, you know, one of the questions is like, is it a big deal that I’m not maxing these out? And I’m like, it depends. If you’re 35 and you’re trying to retire by 50, maybe it is a big deal. If you’re 45 or 50 and you’re trying to retire by 60, maybe it is a big deal. So I think it’s a little bit of, again, looking at the math and how you feel about what your retirement prospects look like and then marrying those two up. But I think if you are in early in your career and you’re maxing these out, it’s just such an easier lift because in the investments, it’s not about timing the market, it’s about time in the market. And if you can get your money working and have that work for 3-4 decades, that money, you know, is just going to go that much further rather if you wait a decade or two out before retirement. So typically, the earlier that you do it, just the easier that number is that you need to be setting aside per month versus waiting. And that’s really what we’re talking about here.

Tim Ulbrich: And I’m going to give a disclaimer here, Tim, before I ask my next question that none of what we’re talking about here is obviously individual investment advice. And for the reason you just mentioned there, it does very much depend on one’s personal situation. And it’s becoming the running joke of, “it depends,” on this podcast. But it’s so true and speaks to the value of one-on-one, customized planning. So my question is, you know, let’s say someone is investing in their 401k/403b or employer-sponsored plan, should they focus on maxing that out first? And really, what I’m getting here is what’s the order of priority when it comes to investing and how do we think through determining this order?

Tim Baker: Yeah, so if we kind of can figure out like how to navigate the multiple competing priorities — and obviously, we talked about like student debt, you know, we didn’t really focus on consumer debt, which we have a lot of pharmacists that come to us that are — we recently started working with a pharmacist, and their biggest pain point was about $50,000 in consumer and personal debt. So — and rightfully so. That’s the one that’s probably the most debilitating. If we can work through the other competing priorities like other pieces of debt and the life events that are — whether it’s marriage, buying a house, having kids, going on vacation, caring for elder parents, you know, saving for kids’ educations, and all that stuff, then really, the baseline I think priority that we typically look at — and I would probably say for Step 1, everything else aside, unless you have really terrible credit card debt, at a minimum I think everyone that has a match available to them from their employer, they should capitalize on that. So you know, the old adage is like, take advantage of the free money. So one of the things I’ll humble brag is like YFP, we have a Safe Harbor 401k that if our employees put in 5%, we match 4%. And I want to make sure that everyone’s taking advantage of that because it is free money. So to me, for the most part, everyone should do that. From there, you know, if there is an HSA on the table due to a high-deductible plan, I’d probably say that would probably be the second bucket to look at because it has a lot of versatility in terms of what you can use it for. You can use it for today’s health expenses, tomorrow’s health expenses, and then tomorrow’s like retirement. And with the triple tax benefit, if you can shelter $3,600-$7,200 per year for the next x amount of years, that’s a great benefit. And then from there, what we typically say is look outside of the 401k and look at things like IRAs, whether that’s a Roth IRA or a traditional IRA. The reason for that is typically, a lot of 401k’s are strapped with administrative fees and/or there’s not a lot of investment options. But it’s more tied to the fees. So if you can establish an IRA and keep costs low, I think that’s a big win. We believe that the expense related to investments is going to be one of the bigger drivers in making sure that you have an efficient portfolio. So if we can do that in an IRA — and to go back to that, a lot of 401k’s are not created equal. So you have some great 401k’s and 403b’s that are absolutely efficient and fantastic, and then you have those that are not. And it can be a very, very wide range. We’re talking about, you know, very wide differences between great and not-so-great. Typically, though, once you max out the IRA, what you want to do is go back to the 401k and max that out. So that’s that $19,500. So again, you calculate that by $19,500 divided by your — or your income divided by the $19,500 — and that’s the percentage that you use. And then finally — and this can probably work concurrently in some ways — you know, if you do have access to other retirement plans or SEP IRAs if you have a side business or things like that, that might be another good way to go. And then from there, from a traditional sense, you know, a lot of financial planners will just point you to a brokerage account. So those individuals that have like a Robinhood account or an Acorns account, where they typically do that Step 1 or Step 2, you know, in most instances, it’s better to kind of make sure that you’re doing all these other things first. But it could be a brokerage account, it could be where you get into real estate investing. It could be where you are buying into a business or starting a business, things like that. But that’s kind of a general rule of thumb for most investors on how to tackle the priority.

Tim Ulbrich: Great stuff, Tim. And we will link in the show notes, we have an investing priority document. We’ve talked about it previously on the podcast as well. I can’t help but mention, you brought Robinhood’s name up before — what a week for Robinhood with the whole Gamestop thing going on this week.

Tim Baker: Yeah, I know, right?

Tim Ulbrich: Pretty crazy times. But I think brokerage accounts are getting a lot of attention this week. So we’ve established some of these more traditional accounts, 401k’s or 403b’s, or for those that are working in the federal government, of course the TSP, you mentioned the HSA, the IRAs, going back to the 401k or 403b or equivalent, perhaps a SEP IRA. And then we got to this, you know, what’s next, right? And so of course, often the advice is a brokerage account. But you mentioned several other things that might be in the mix, so perhaps real estate investing, of course, the brokerage account, investing in a business — I know I often hear something like insurance type of investments may come up. So let’s break these down a little bit further. First off, real estate investing. This is something we talked about a lot in 2020 and are excited to dig into this topic even more in 2021 as we’ve heard from many of you that are interested in learning more about real estate investing, whether that’s hearing some of this for the first time, whether that’s investing in building the portfolio that you already have, or perhaps for some of you, hearing and saying, you know what, it’s not a good fit for me. And obviously, we try to bring both sides of this, of sharing stories of folks that have been successful but also appropriately bringing in the risks that can come here as well. So Tim Baker, from your perspective, I know you personally have an investment property, I know this is something that has come up with clients, something we’re talking more and more about with clients, tell us at a high level why real estate investing, from your perspective, can be something at least worth evaluating for folks out that are maxing out these accounts?

Tim Baker: Yeah, so I think, you know, if we step back and we kind of think about like traditional financial planners, I think, you know, what I typically hear is from a financial planner, like ah, like do you really want to do that? Because do you want to unclog toilets at 2 in the morning? And the answer is no, nobody wants to do that. But I think the sentiment is really rooted in how the advisor gets paid in a lot of ways. So traditional financial planners are really going to get compensated by you, the client, having as much money in your traditional investments, whether that’s an IRA or a brokerage account or a 401k for you to eventually roll over to them for them to manage. I guess the way that we view this is we view real estate as a viable way to build wealth outside of traditional investments that have both kind of near-term benefits of flexibility and cash flow, you know — for example, when you put your money into a 401k, like wave goodbye to that until you’re at least 59.5, for the most part. So you never really can get access to that where if I buy a property, like I could start cash flowing that and make $100, $200, $300 off of that property the next month. There’s that near term, but then you’re also building, and the asset is appreciating as the note that you’re paying down is depreciated. And then there’s a lot of tax benefits from that in terms of being able to make income but then offset that by the deductions. And there’s a lot of things that’s built into the IRS tax code that reward real estate investors. And I think the other thing that’s flexible is that you could keep that, you know, if you talk about a buy-and-hold strategy, you could keep that for the next 30 years just like you keep a 401k. Or you could say 10 years into it, I want to liquidate this and do something else and basically cash out the equity that you have in the property and go do something completely else, which means you could retire on that. So that is maybe another viable strategy. So because of the flexibility, I think because of the tax benefits that you receive, I think it’s a viable way to build wealth. Now, is it as passive as traditional investment? No. And the more passive it is, the less benefit and flexibility that you’ll get. The more actively managed it is, typically the more flexibility and benefit that you get. But then the tradeoff is that you’re actively managing and it takes time and there’s risk. Well, there’s risk in anything. But I think, Tim, really for those reasons, that’s why we like it. And we think it’s a vi — again, a viable way to build wealth. And at the end of the day, the way that we work with clients is what we’re trying to do is help grow and protect income so you could make an argument that we’re growing income in a real estate portfolio by, you know, we’re cash flowing and we’re protecting it because maybe we’re diversifying that away from a typical pharmacist’s salary. We’re growing and protecting the net worth, which means what we have a collateralized asset with a note that’s appreciating over time, while keeping your goals in mind. So again, if that means early retirement, if that means more of a nontraditional path in terms of the career, I think the real estate aspect creates a lot of opportunity to really fulfill financial independence in the eyes of the pharmacist.

Tim Ulbrich: And I’m so glad, Tim, you mentioned the story and example that’s often used as the objection early on of like, who wants to be a plumber in the middle of the night? And I remember — for those that have read “Rich Dad Poor Dad,” they will be able to resonate with this — but I remember reading that book for the first time, and it was like unlocking like a piece of information that I hadn’t really been exposed to or learned before. And that obviously is a little bit more philosophical in nature, and then you start talking to people who are doing it and learning more about it, and that’s one of the great things about where we are in 2021, I mean, the resources available out there to learn more and to connect with others that are doing it is really, really incredible. But I think being open to learning, you know, perhaps being willing to see what might be the answer to some of those objections is really important. And we’re excited to bring more pharmacist’s stories to this community in 2021 on real estate investing and also connect other pharmacist investors with one another. And I would point folks back to Episode 167, we brought on David Bright to talk about must-know real estate terminology. I think that’s a great place to start. You mentioned, Tim, many of the upsides and benefits, perhaps appreciation, cash flow, tenants paying down a loan, some tax benefits, obviously we’re just scratching the surface here. And obviously, you also presented some of the challenge. You know, it may not necessarily be passive, the quality of tenants may or may not be what you have in mind. I think too there’s a little bit of, you know, I call it HGTV syndrome, Tim, in terms of like, you know, you watch the flipping show and you’re like, yeah, I got it, right? And so I think we’ve all got to take a step back and really make sure we’re not overconfident. But I think for pharmacists, I’m not sure overconfidence is often the risk here. I think it’s probably being too passive and feeling like it’s out-of-reach and not necessarily being willing to take what they may feel is a very significant risk to get started. So we’ve talked about several of these strategies on the episode thus far, you know, obviously there’s the buy-and-hold strategy. In Episode 129, we brought on Aaron Howell, and he discussed how he built a 29-unit portfolio. We brought Ryan Chaw on Episode 140 about how he built his portfolio of college town investing. Episode 173, we brought him back on to talk about his systems, which was a really neat episode to hear how he actually operationalizes this. Obviously that’s one strategy, buy and hold. We’ve talked about flips before, Nate Hedrick, 178, five lessons learned from his flip. And we’re going to continue the conversation. There’s other areas, of course, in wholesaling and forming partnerships, and we’re excited about what’s ahead here. So real estate investing, Tim, is one aspect. Another that pops to mind that is near and dear to our hearts, obviously, with what we’ve been building at YFP is building a business, investing in a business, and this, of course, is a big topic. But at a high level, you know, what types of things do you see from our clients in terms of whether it’s side hustles that they’re starting, businesses that they’re starting or even perhaps looking at investing in other businesses and how they begin to evaluate whether that’s a path forward for them?

Tim Baker: Yeah, so I think what I see most frequently is an interest in a closely-held family business, so like a private company that was inherited from maybe a grandfather or things like that and, you know, the question is like, should I keep this? Like what’s the benefit? And you know, they’re getting K1 every year with maybe a little bit of income that they have to basically declare for the IRS. So it could be like more like that. But then I think that there’s also — I mean, we’ve had clients that have taken their side business, their side hustle, and made it a fully fledged, like a regular business. So it could be just plowing money back into the business itself rather than going into the traditional, but I also have had clients interested in investing in like a partnership, whether it’s like a gym or things like that that, you know, that’s a little bit more of a — there’s a lot of risk there. There’s a lot of, again, what’s your role? What do you bring to the business? Is it money? Is it expertise? Is it planning? Is it clients? And kind of really understanding that. Sometimes, it’s just money. So it’s like, hey, I’m going put money in and let you do your thing, and you’re kind of more of a silent investor. So this can come — just like real estate, this can come in a lot of different flavors. So can investing in a business. Again, one of my favorite shows on TV is “Shark Tank.” So I love watching that and how investors speak with business owners and I’m always interested in business just because I just like to talk small business, in particular, and what makes it work and not work. I think we have a lot of clients that are there. I would say for the most part, the predominant thing that I see is a share of an inherited family business or really, taking this hobby or this side hustle and really forming a fully fledged business and how to really handle that. And a lot of the conversation is, you know, do I take money out of the business? Or do I basically reinvest into the business so I make sure it survives and grows?

Tim Ulbrich: Yeah, and we will continue — one of the areas that I’m very passionate about in the profession of pharmacy is I feel like we are missing some creativity around helping students as well as helping pharmacists just imagine what could be different possibilities or ideas. And I think we do that by sharing stories. Not that they necessarily hear a story of a business or side hustle and say, “I’m going to do exactly that,” but to help them think about another area as an example of something that they’re passionate about in terms of solving a problem, creating a solution to that problem. And so we’ll be bringing more in that area. And you know, I agree. We have to know — you know, everyone knows the stats that most small businesses don’t work. Debbie Downer reality. But I think for those that really do their due diligence, understand what their business is all about, is there a market for it, you know, there certainly is some upsides financially in terms of tax, building equity. One of the things that gets me so excited about business is that there may not be a ceiling. Obviously there can also be a floor.

Tim Baker: Right.

Tim Ulbrich: Or falling through a floor that you have to be aware of and also access to some of the retirement options that we’ve already talked about. So we mentioned, again, in the context of investing beyond maxing out traditional accounts, we’ve talked about real estate, we’ve talked about investing in business. What about probably the most common area here, which is taxable and brokerage accounts? What are some things as you’re working with clients that you’re advising them, getting them to think about, whether it’s choosing where they’re going to be investing that money, how they might keep fees low, how they determine where those investments go? Talk to us about the approach in putting money into a taxable or brokerage account.

Tim Baker: The most common that you see are kind of like the Robinhood, Acorns just because they’re UI and they’re use is so clean and easy. And I think for a lot of people that are curious about investing, it’s a first way — you know, kind of the first way to kind of wade in and see, OK, I want to buy this stock, etc. Typically, we talk about the priority of investing, you know, we just started working with a client that had, again, $20,000 in credit card debt but then they have a $10,000 like Robinhood account. And I’m like, those probably don’t make sense. So I think like with brokerage accounts, what I am a big fan of seeing with savings is like what is this account actually for? So a lot of the uses that we see for brokerage accounts are a tax bomb. So those that are taking non-PSLF forgiveness, you know, they need to cover that tax bill. So they’re putting money into a brokerage account because they’re going to need to access it before 59.5 years old, so they can’t put it into their retirement account, and they need to be able to pay off that tax bill when the loan is forgiven. The other one is, again, when we max everything out, that’s a good use for it. So what I typically urge clients to do, though — and it really directs how we’re going to allocate that particular account — is what is it for? So if you’re trying to retire at 50, all of these traditional accounts that we’ve talked about, for the most part — and there’s some exceptions of what you can do, but you can’t really access them without a penalty until you’re 59.5 years old. So that means you have 10 years, 9.5 years where you have to figure something out. And usually, that figure something out is having a robust brokerage account or maybe liquidating part of a real estate portfolio to be able to cover those first 10 years of retirement. I think the big thing here is if you have an IRA, I probably would just have your brokerage account there. And I’m not down on any of these other apps or things like that, but I think for ease of use — and again, not every custodian is equal; there’s going to be different fees and things like that. So you want to be mindful of that. But I know the sexy and the exciting thing to do is to pick individual stocks, whether it’s Tesla or Gamestop or Ford or whatever it is. But I think, you know — and again, not investment advice — but I think the more boring that you are with your investments, typically the better it is because the sexier and the, you know, the investment strategy is, typically the more speculative and the more expensive it is to the investor. So it could be as easy as putting it into an S&P 500 index or a total market index or things like that and call it a day. So there are some advisors that are colleagues of mine, they hear me talk about real estate investing and all of these other things, and I’ll say like, “Hey, this is the reason I believe that a lot of traditional advisors don’t say it is because it’s a function of income.” And sometimes, it’s — and I get a little pushback on that because I’m kind of criticizing my brethren, but it also could just be it’s a ‘Keep It Simple, Stupid’ approach, which I think for finances, it can go a long way. So you know, there is absolutely nothing wrong — I know we’re talking about small businesses and real estate — there is absolutely nothing wrong with having a 401k, an IRA, and a brokerage account and doing a damn good job of building wealth and living an intentional, wealthy life with those tools.

Tim Ulbrich: Yeah, and I think to that point, Tim, like I would encourage our community, like lean into what you’re comfortable on. You know, I think sometimes there’s some FOMO of like, you know, oh, so-and-so is doing real estate investing or so-and-so owns their own business, and it’s cool and flashy, which you usually don’t see the other side of it all the time. But maybe that is a fit, maybe it’s not. But you know, learn about them, understand them, understand your risk tolerance — and maybe for many folks, it’s really leaning into maxing out traditional accounts, maybe opening some brokerage accounts. But perhaps those other things aren’t a good fit. And I agree with you, I’m seeing more and more pharmacists that seem to be interested in financial independence, early retirement, some combination of those, whether they love their job or maybe not. And I think this is where these tools, the brokerage account specifically, come into play. And last week, we interviewed Scott Rieckens, author of “Playing with FIRE,” Episode 188 for those that are interested in learning more about Financial Independence Retire Early. Tim Baker, great stuff. I think this really highlights for me, again, we’re only talking about here investing, one part of the financial plan. But within the investing bucket, we’ve talked about several different things that of course are traditional accounts and all of the nuances there and then beyond that, lots of decisions to be made, priorities to be balanced, and evaluations to be done. And I think this is a great opportunity to promote and shoutout our financial planning team and our lead planners that work directly with clients one-on-one to have these types of conversations, to look at what are the opportunities, what’s the goal, what’s the purpose, what’s the priority, and then ultimately, how do we put a plan in place to make sure that we achieve it over time? So for those that are interested in learning more about the comprehensive financial planning services we offer at YFP Planning, head on over to YFPPlanning.com. You can schedule a free discovery call, and we’d love to talk with you to see if our services are a good fit for what you’re looking for. And as always, if you liked what you heard on this week’s episode of the Your Financial Pharmacist podcast, please leave us a rating and review on Apple podcasts or wherever you listen to the show each and every week. That’s going to help others find what we’re doing here over at YFP. Have a great rest of your week.

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YFP 188: Playing with FIRE: An Interview with Scott Rieckens

Posted on January 28, 2021November 2, 2022 by yfpadmin

Playing with FIRE: An Interview with Scott Rieckens

On this episode, sponsored by Insuring Income, Scott Rieckens, author of Playing with FIRE, joins Tim Ulbrich to talk about his journey towards achieving FIRE. Scott digs into the ins and outs of the FIRE movement, why he and his wife decided to leave their friends and family in San Diego, how to calculate your early retirement number, and strategies for implementing your own FIRE plan.

About Today’s Guest

Scott Rieckens is an Emmy-nominated film/video producer, serial entrepreneur, and author. Scott has spent his career as a storyteller connecting people with ideas. Along the way, Scott’s work has generated millions of views through a feature-length documentary, multiple televisions series, short films, and a diverse range of commercial projects for Microsoft, NBC, Facebook, FOX, Taylor Guitars, BMW, WIRED and others.

Now, Scott has created Playing with FIRE, which explores the growing community of frugal-minded folks choosing a path to financial independence and early retirement. He and his family reside in Bend, OR.

Summary

When Scott Rieckens, author of Playing with FIRE and creator of the documentary Playing with FIRE, discovered FIRE (financial independence, retire early) a few years ago, it was life changing for him and his family. Achieving FIRE allows people to potentially retire decades earlier than they normally would, a dream that many think could never become a reality. There are some guidelines that allow people to reach this dream, like the 4% rule and 25x rule, however, Scott mentions that FIRE helps you learn habits that push you to save a lot more than you ever thought possible and gets you to start spending your money on things that align with your values. He says that if you start saving more than your spending, you can invest your money in index funds, max out tax advantaged accounts, and let compound interest take over.

Scott became interested in starting a journey towards FIRE after realizing that he wasn’t in control of his time and was spending more time working than he was with his family. With some calculations, Scott determined that if he saved 16% of his income he would retire in 33.4 years but if he saved 58% of his income he could retire in 11 years. He realized that his family was spending money frivolously and went on a quest to align their spending with their values to help reduce their expenses. To figure out his family’s core values, Scott and his wife, Taylor, independently wrote 10 things that provide happiness to them. They continued this exercise weekly and used it as a tool to reduce spending money on things that weren’t aligned with their values and created a budget around what makes them happy.

Scott also talks through how mental shifts can help you cut expenses, how to push yourself to save more money, how to calculate your early retirement number, and strategies for implementing your own FIRE plan.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Scott, welcome to the show!

Scott Rieckens: Thanks for having me.

Tim Ulbrich: Really excited about this interview. As I mentioned before we hit record, I loved the book “Playing with FIRE,” couldn’t put it down, read it in about 24 hours. Loved the documentary. And I’m excited to get you in front of our community as I know this topic is something that is of interest, and I think your story as well as the broader conversation around FIRE is going to provide a lot of value. So thank you again for taking the time.

Scott Rieckens: Yeah, it’s my absolute pleasure. Thanks for having me on.

Tim Ulbrich: So for those in our community that are hearing about FIRE for maybe the first or even second time, give us a high level overview. What exactly is the FIRE movement all about?

Scott Rieckens: So the FIRE movement, it’s — FIRE is an acronym that stands for Financial Independence, Retire Early. And I think it’s a community of people who are practicing sort of a preconceived set of principles so that they can put themselves in a position of financial independence, potentially retiring decades earlier than they would have expected with sort of the way we saw ourselves growing up. So you know, it’s sort of nebulous because there are certain rules that — well, there’s things like the 4% Rule that’s called a rule, but it’s really more of a guideline. And I kind of see many of the principles of FIRE being more of a guideline than a rule. So there’s no hard and fast rules in the FIRE movement. There’s probably not even a real movement yet. But I do think that we’re starting to see seeds of social change. And once, you know, once this can really hit mainstream to the point where we’re seeing social change predicated off of or because of the FIRE movement, then I think we can call it a movement. But for now, it’s fun to call it the movement because it helps those of us who are trying to make it a movement move along. But ultimately the idea is that you learn habits that help you save a lot more than you thought was possible or just really start spending according to your values and really taking a hard look at what those values are as it relates to your spending. And if you can start saving more than you’re making, well, we have a pretty tried-and-true investment strategy. You know, and again, it varies and they’re more guidelines. But in general, people like to invest the surplus in index funds and max out your tax advantaged accounts as much as possible. And then the beauty of compound interest takes over, and the next thing you know, you’re looking at a growing net worth, a growing portfolio, and before you know it, you might have enough to live off of for the rest of your life. So these were all foreign concepts to me three years ago. And then I heard a podcast with Mr. Money Mustache, who is one of the — maybe one of the modern founders of the FIRE movement — and he was discussing these things, and I had never heard of them. I always looked at investing as sort of this nebulous thing that I wasn’t too aware of and I would need a Master’s degree to even participate in. So I kind of brushed it under the rug. And then I heard about all these things, and it all sounded pretty easy to understand and pretty accessible, and it all made sense. And so that’s kind of how I got on the path to our FIRE journey.

Tim Ulbrich: That’s great. And I love that you mentioned, Scott, guidelines because I think that it can feel perhaps if people are learning for the first time that it’s an exact science or somewhat legalistic in some regards. But as we talk about many parts of the financial plan, it comes down to customizing it to your personal situation, and everyone’s situation is different. So I think the guidelines, the principles, are really important. And one of those being — you mentioned the 4% Rule. Talk to us about what is the 4% Rule, and how does that impact one determines what their “FIRE number” is?

Scott Rieckens: Yeah, so the 4% Rule, like I said, more of a 4% Guideline, is a pretty incredible little assumption. And it’s that if you withdraw 4% off of your portfolio annually that — I think it’s something like you have a 96% chance of not running out of your principal investment portfolio over 30 years. And it’s based off of this thing called the Trinity Study. So another way to look at it is — the way I like to look at it is the 25x Rule. And so basically, you take your annual spending. Let’s say it’s $40,000 a year. And you multiply that by 25. And that is $1 million. And so basically, it gives you a way to figure out how much do I need to retire? So if your annual spending is x, you multiply x by 25, and that’s how much you need to retire because you’ll have a 96% chance of never running out of the principal investment portfolio that you have. So it’s a pretty darn safe assumption and guideline. Now, there are some people in the movement that are maybe talking about 3.75% or 3.5% is even safer, and that’s — you know, that all has to do with so many different parameters: your risk tolerance, if you plan to have sort of a side hustle or any kind of passive income or non-passive income into your “retirement years.” And those things can affect, you know, when you decide or what your percentage or when you decide to pull the trigger on your path to financial independence. But in general, I mean, I was starting from scratch. So I couldn’t have even told you how to understand what I need to retire or what that would even look like. And so to just call it the 4% Rule or the 25x and the way I just described it to you, like that’s pretty simple. It made sense to me. And it’s backed by some pretty credible studies. And like I said, there’s people in the movement who are far superior to me in intelligence who pick this stuff apart annually. And so this isn’t something that’s like oh yeah, a study way back in the day said this thing, so we’re all good. This is something that people are constantly scrutinizing. And it turns out what it’s all predicated on is the stock market over time just continues to grow. And so if you’re putting your investments into the stock market — and one of the safest bets you can make is investing in index funds because especially really solid index funds like let’s say Vanguard’s VTSAX, there are a whole team of people who are ensuring that the index of stocks are the highest performing stocks they can possibly have in that index, and it basically represents the growing stock market. So what’s nice about that is you can take a pretty reasonable growth average, and then you can start building models for what your future might look like. And like we have a retirement calculator on our website that, you know, basically bakes in all these principles into one little calculator, and you just plug in your own personal numbers and you can kind of see, oh, alright, you’re on the path, and this is how long it’s going to take you to reach financial independence. Taylor and I did this early, early on in our journey, and for Taylor, it was a huge eye-opener. It was for me as well, but I had gone through a lot of this stuff because I didn’t bring it all to her right away because it was a lot to bring because we were making a lot of interesting money decisions at that time, and there was a lot to unpack there to keep our relationship together while trying to also convince her to maybe join me on this crazy quest to pursue FIRE. But ultimately, you know, when we did the retirement calculator, at our current spending at that time, we were looking at — I think it was something like 40 years of additional work. And at that point, we were so burnt out by work, 40 years sounded like a life sentence. And it was something like we’d be working into our mid- to late 70s I want to say. And then I did some rearranging and said, OK, well if we cut our rent by this and we get rid of our two leased cars and we buy a used car for $8,000 or whatever it was, and we cut our food spending — we needed to cut that quite a bit, it was more than half, let’s say that — and then all these other extraneous things we’re doing, I mean, entertainment. The amount of money we were spending on entertainment was insane, especially where we lived where there was so much free entertainment all around us. And I started doing those numbers and kind of just built a pretty reasonable budget, and I re-entered that information into the retirement calculator to see that we were I think at that time, it was something like 10 years or something away from financial independence. I mean, to shave three decades off of your working career by just making smart money decisions, to me, that was a no-brainer. And it was a huge eye-opener because it wasn’t as if we were spending because we couldn’t help it. It wasn’t because — we weren’t spending because we have an insatiable consumeristic bent, you know?

Tim Ulbrich: Sure.

Scott Rieckens: We didn’t see ourselves that way at all. We kind of were that way, but we didn’t see ourselves that way. And so to just have that eye-opening realization and to get that in order and to do so with the guidance of a pretty strong community online where I could go for answers at any time and have some pretty compelling arguments on why I would want to do these things, it was a pretty quick and swift decision I think in the Rieckens household. And then we got busy sharing that story with the world because I’m a content creator by trade, and this story just seemed too important not to share.

Tim Ulbrich: And it was a great story to share. And for those that want to check out the retirement calculator as well as the other resources and learn more about the book, the documentary, PlayingwithFIRE.co, again, PlayingwithFIRE.co. And Scott, the math is really incredible. I pulled a note from the book. You had mentioned that when you first crunched the numbers using that retirement calculator, you determined you could retire in 34.3 years with a savings rate of 16%, which is a pretty good savings rate. And that was using $120,000 annual expenses, $22,000 in savings. And then the next calculation showed a drop from 34.3 years to 11 years if you could cut expenses in half and get to a savings rate of 58%. So I think that’s what I love about the way you teach this material, the way others teach this in the community, the 25x Rule or maybe it’s the 27x Rule, whatever that number is is that it helps shine a light on retirement numbers. It’s math, right? It’s a set of assumptions, and then you can look at things and determine, OK, what can I change? What might I not be able to change? What levers can I pull? What will have more impact? And then you’re off and running if that’s a goal that you want to pursue. And so I want to talk more about your story. And I want to read for a moment a segment from the book, Chapter 1 is Work, Eat, Sleep and Repeat. And you say this at the beginning of the chapter. You say, “If you’d driven by me on the freeway in San Diego on this particular Monday morning in Feb. 2017, you probably wouldn’t have looked twice. A guy in his mid-30s, sitting in traffic in a relatively new but unremarkable car, drinking a cold brew from Starbucks, just another American heading to work. In fact, there was nothing particularly special about that Monday morning, and I would have lumped it in with 100 other ordinary Monday mornings that I had spent navigating traffic on my way to work, except that on this particular morning, I heard an idea that would change the course of my entire life, an idea that would cause me to quit my job, leave California and spend a year traveling with my family, to question everything I thought I knew about success, money and freedom, to find the secret to the American Dream, the thing that most people crave but few achieve, the ability to do absolutely anything I wanted.” My question here is what caused this desire and feeling? And when did this begin?

Scott Rieckens: Man. I haven’t heard that back in awhile. That was fun. I think we all have an inherent desire for a certain sense of freedom and independence. And you know, I think — I can’t speak for everyone, but when I was in school, when I was in high school and then getting into college, I look back with sort of I think I had sort of a relentless optimism that work would be interesting and what I would do would be great and the things that would follow that, family and friends and all the things, you know, that they would carry me along the way. And I think as you start to get in — well, in my case, got into my mid-30s, I’d been working for a decade, some of those things came true. I got to achieve some goals I had set for myself. I had done some things I was proud of, had just started a family, which I was also immensely proud of. And all those things are fantastic, but they weren’t the entire picture of fulfillment for me because what was weighing me down was I wasn’t in control of my time. Next thing you know, I’ve built this family, I’ve got this job, but there’s no balance here. I have to be at my job more that I want to be and see my family less than I want to see them. I think that’s what it really boiled down to was just why don’t I have that control? And when it hit me, what really hit me was it was my own decisions, it was my own choices, our family’s own choices that were hindering us from having that control and having that freedom. And that’s something that had not connected for me. And you know, at the end of the day, for better or for worse, money is how the world operates. You know, this is how our social construct has been constructed. So what it really boils down to is can you earn money? And if so, how are you using it? And I just had not spent the time to consider those things. One of the taglines of this whole project is what if a happier life were a few simple choices away? And I think that’s ultimately — like that encapsulates what I had found, which was that there is a happier life a few simple choices away. That’s incredible. And then the next question that we kind of posed to ourselves was like, how far would you go for financial freedom?

Tim Ulbrich: Yes.

Scott Rieckens: You know? And that’s ultimately up to you. So that’s why I always say like, the FIRE movement is a set of guidelines, not rules. And the FIRE movement may or may not a movement, but there’s certainly a community of people who really appreciate the idea of spending less on extraneous things that don’t really bring you value and really being smart with your choices. And when you have a group of people that see it that way, it makes it a lot easier to do because I also remember having to unpack our life a bit. You know, there were a lot of — whether it was true or not, whether it was sort of a figment of our imagination or a reality, it felt daunting to suddenly take on a new identity, right? Because you have all of your friends and all of your family that see you one way and have gotten accustomed and used to the way you are. And to have to just kind of throw all that out and start fresh can be really daunting. And so it’s really helpful — you know, like never before were we able to just connect with people that see it this way that might have more information than you do and would happily share it for free instantly. That’s never really happened before, and I think that, like many things that the internet’s provided, it’s created a place where like-minded people can come together and learn from each other and grow something really quickly, grow a social movement very quickly. And right now, you know, Phase 1 of the FIRE whatever it is, to me is getting the word out. It’s improving financial literacy and realigning our world’s connection with what’s most important. You know, that’s a big, daunting task. It’s going to take a lot of time. But the best case scenario would be that Phase 2 is liberating a bunch of really smart, ambitious people from jobs that they may be apathetic at best about and liberate them to go pursue their favorite future. And what could that look like? And how could that change the world?

Tim Ulbrich: I love the way you’re thinking about that because I share that with you, Scott. What would that look like for our communities? What would that look like in terms of people maximizing their talent and their passions? And you know, we’re so passionate at YFP about if we can help put together a financial plan that allows people to pursue some of those goals, wow. I mean, game on in terms of what we could see in people getting the most of the talents that they’ve been getting. One of the things in the book that really resonated with me, as well as the documentary, which showcases the process that you and your wife Taylor worked through to get on a shared goal and path to pursue FIRE. And you mention this wasn’t easy. You know, you were obviously on board, ready to go, had been learning a lot of information and trying to get on the same page. But what I loved was in the book, in Chapter 3, you talk about an exercise where you and Taylor independently wrote down 10 things that provided happiness. And then you came together to share those lists. Why did you do that activity? And what did you glean from doing that?

Scott Rieckens: Yeah, I think, you know, looking back, it was a lot smarter decision that I think I knew it was at the time. But ultimately, you know, if we needed to align our values with our spending, it’s like, well, what are our values? And I think an easy way to decide is just think about what makes you happy. And you know, we did a happiness list predicated on a weekly basis. And it felt like the right time frame. Like if you do like on a daily basis, you’re going to get in the minutia of life and you might get too specific about the things that bring you happiness. And if you go too far out, you might get a little grand. It might be international travel or BMWs or whatever Taylor might have put on the list at that time. But a weekly basis, it’s like, what are you up to this week? And it’s like, well, I’ve got work, I’ve got this, I’ve got that. And what am I going to do to kind of inject some happiness along the way? Well, I’m going to go for a walk. I’m going to go for a bike ride. I’m going to maybe make a nice dinner this week or whatever it is. So it becomes that sort of like centered, realistic happiness list. So I really like the weekly timeframe. But yeah, we sat down and did that, and there’s a couple elements to it. One is I can’t decide for Taylor what makes her happy. And at that time, we were living in this beach community and were spending a ton of money to do so. And if the beach was on her list, and the lifestyle that that particular area provided was just swarming her list, then I had my work cut out for me. We would have to figure out a way to make that work because, you know, the idea of pursuing FIRE was not to go create a whole bunch of disruptive, diminished returns. Like I wanted to make sure that this was going to improve our lives. And so I needed to hear that from her. And she needed to consider it too because you can easily be reactionary when you think something’s about to be taken away from you. You can easily be reactionary when you’re being propositioned with something as drastic as maybe FIRE could be, and it was for us, of like having to — not having to, but maybe making the choice to move. That’s a big choice. Leave your friends behind, leave your jobs behind, like whatever you end up doing. And so yeah, I think you need to start with ultimately like, what are your values? And I think that was a way to do it. So that was critical. And it actually helped so tremendously because we didn’t even talk about money first. We talked about happiness. And I can’t recommend that enough. You talk about what matters to you the most. Then go work on a budget. Don’t work on a budget and never talk about happiness.

Tim Ulbrich: Amen.

Scott Rieckens: Or go the other way, you know, talk about your budget and then talk about happiness. Like how are you going to budget for things if you don’t know what you care about? You know, it was such a small but critical piece to our journey. And yeah, I can’t recommend it enough. Whether you decide to pursue FIRE or not, going through your Top 10 list of what makes you happy on a weekly basis quite often, maybe quarterly or biannually, is a damn good idea because it changes too. You know? We’re evolving beings, and we care more about things sometimes and care less about things other times. And those things should be reflected in your spending habits. So yeah, that was critical. And I got lucky in that scenario because she did not talk about her expensive car and she did not talk about the beach. And so that really was an opening to mutually discuss the potential for leaving. And that was ultimately I think what I would credit with why that was so successful.

Tim Ulbrich: And that was the sense I got when I read it, and it’s quoted here, you talk it all out. I hope our listeners take you up on that challenge to do it. I couldn’t agree more. And just as I reread some of these, it puts things into perspective really quick, right? I mean, I see things on here like, “Hearing my baby laugh,” you know, “Spending time having coffee with my husband,” “going for a walk,” “going for a bike ride.” And I think starting with those types of conversations around happiness and then getting into the budget and the plan and how we’re going to get there is so important. We taught this often with the financial plan of think about the goals, script your plan, and then we’ll get into the x’s and o’s because the x’s and o’s should be within the framework of the vision that we have, and that vision should ultimately derive back to how is money a tool related to deriving happiness? And by the way, Taylor nailed this when she had on here, “Wine, chocolate, and coffee.” Three of my favorite things. So she crushed that list.

Scott Rieckens: Yeah. Yeah. And I told her, look, we can buy all the wine, chocolate, and coffee you want if we take these steps on all the rest of it. And it’s worked.

Tim Ulbrich: So you mentioned the BMW, and I know that comes up throughout the book, but in all seriousness, when our listeners hear the timeframe I mentioned earlier, going from a projected retirement in 34 years down to 11 and how do you get there, you cut expenses and you increase savings. And obviously the next question is, well, how do you make dramatic cuts to expenses so you can increase your savings? So you mentioned food being one of them. You’ve alluded to the BMW. Were there other big-ticket items that were instrumental to you guys knocking down a big expense so you could get the momentum you needed?

Scott Rieckens: You know, specifically, housing, cars and food are typically the top three items that cost the most for an average family. So housing, cars and food are the No. 1 three things that I would recommend taking a hard look at, how you can get creative. Outside of those specific things, I think the thing that was the most important was the mentality, the mental shift and being on the same page because — and I can tell you this from three years of experience now. We’re not always rocking the FIRE train. You know, it’s not consistent. Like it can be consistent. We can go months, even years, where we’re on track. And then like COVID hit. And boy, one excuse after another just start popping in. Like oh, hell no. I’m doing this, I’m doing that. I’m buying this, I’m buying that. I don’t care. And I don’t regret it. We looked back at the New Year, during the New Year here, we looked back at 2020 and we said, “You know what? I think it’s better if we just don’t look at it. Let’s forgive ourselves for the decisions we made and let’s look forward because the good news is we already kind of built up the muscle, you know? We already worked out, we already know how to do this. And so let’s just keep — let’s just do it again.” And it’s amazing because it was literally a mental shift. We sat down to kind of plan out our 2021, a little vision board kind of afternoon. And it really came down to like, we wrote down the things that we wanted to shift from 2020 to 2021. And it was like, anytime we make a purchase, we talk to each other about it first, no matter how trivial because that will make us question our own decision on whether or not we need that thing and will be less about what I have to say to her and it’s more about what she has to say to herself. And it kind of prevents this reflexive, oh, it’s on Amazon, let’s grab it real quick, it’ll be here in two days, easy day, done. And that can get out of hand so quick, and so it was — and we’ve done things like that in the past, like put something in the Amazon cart and you have to keep it there for three days. If you come back in three days and you still want it, you can get it. We needed to go a little harder this time into this new year because 2020 was a dumpster fire. But again, it’s just like the best you can do is flex that mentality because we immediately got on the same page. We didn’t have to have the difficult discussion again. And I think we had the financial maturity finally to look at 2020 and say, there was a reason for those decisions. And we don’t need to sit here and relive them, we don’t need to make ourselves feel bad about them. And it did set us back a little bit on our FIRE journey. But we’re in good shape, and thank goodness because with the destruction of this year, I mean, how grateful and lucky are we that we found this when we did?

Tim Ulbrich: Absolutely.

Scott Rieckens: Imagine where we would be if we hadn’t. And imagine all the folks who are suffering through these difficult times, you know? And so we were able to look at that and go, OK, we’re super lucky. Let’s get back on track because it would be a real damn shame not to, considering everything we have, you know? It’s like, we can’t afford not to do the right thing here. So I hope that answers your question. I don’t like getting into the specific, specific things of how to cut budgets because it’s really personal. You know? You may live in a low cost of living area already with a budget that’s kind of maxing out. And you don’t know what to do, and that could be a matter of having to find ways to increase your income, negotiate a bigger salary, move to a better place — or not a better place but a place with better prospects for higher salaries in your job and then being more deliberate about what your costs are in that higher cost of living area so that you can reap the benefits of the higher pay but not have to also succumb to the higher living costs. You know, there are ways to do those things, the geoarbitrage stuff. But to me, that’s all the fun fine dining in the FIRE community. That’s all the stuff you can learn in the blogs and the podcasts and whatnot is all those very specific detailed minutia of how to really formulate your budget if you want to go hard. But to get started, I think the bigger challenge and the bigger quest is for people to align their values with their spending and start pushing themselves, you know? Taylor and I, we did something that I would recommend, actually. It was extreme in some cases, and I use that word kind of flippantly. I don’t know if it’s extreme, per se, but we — I mean, we did a lot of things very quickly. Within months, we literally packed up and moved our stuff to try to find a place that was cheaper to live, leaving behind a job. I quit my job to do this. And we left behind a whole set of friends and a whole culture that we had built for ourselves, you know? And we slashed all of our spending so hard that we ended up at our peak, we were at like a 76% or 78% savings rate, something in that range. It was extreme. We didn’t buy anything unless it was absolutely critical. And we started to get a little miserable, to be honest. Like it wasn’t fun, you know? And part of that was good, though, because we were ripping off the Band-Aid and showing ourselves how much retail therapy we were really doing. And it ended up being — that’s like such an old adage, but it’s like, you know, the best things in life are free and all that stuff. It’s like, yeah, and not only that but we were going to sushi dinners, let’s say, or just nice, fine dining dinners so often that I remember — I remember one time sitting down to a beautiful, amazing sushi dinner. And we were walking home from it, and I think our discussion was something along the lines of like, “Yeah, it was good, but I feel like last week’s was better.” And it was like, that’s horrible. That’s a horrible waste of money because if I’m comparing this amazing, decadent, unbelievable dinner that took — if you think about what it took to get that fish on that plate, it’s incredible.

Tim Ulbrich: Sure.

Scott Rieckens: And I’m sitting here comparing it to last week’s. And it’s like, oh my gosh. And so to go through and really rip that Band-Aid off and go through the sort of “hardships,” you know, and then all of a sudden we haven’t eaten out in two or three months and then you go to a medium fancy restaurant, and it’s like heaven.

Tim Ulbrich: Yeah.

Scott Rieckens: It’s so amazing. And so it’s almost like it’s a weird hack where all of a sudden, you’re like, wait, I like this more now.

Tim Ulbrich: Yes.

Scott Rieckens: Because I’m doing it less. And that’s when you can get into stoicism and all these various philosophies. And I don’t know, it’s just like our life started improving, even when it was more difficult. And that was an interesting paradox that ultimately, to bring this all back, is the reason why I suggest if people are interested in this and you decide to do it, to go hard at first because, you know, push yourself as hard as you can to see what your real — not your breaking point, but like, you know, your proverbial budget breaking point, see what that is and then work backwards from that. Don’t start where you are and incrementally try to improve because I just don’t think that’s going to be as effective, and you probably won’t stick with it, you know? But for us, to like go to 76-78% savings rates and be miserable and start going, OK, what are the things that we should add back in? And that was a deliberate decision. Next thing you know, we’re hitting like a 50% savings rate, which is incredible. And it feels easy. It feels luxurious. And it’s like, oh, this is it. This is awesome. How lucky are we. But we could have been doing the whole time if we had just made better decisions. And so yeah, I hope that helps.

Tim Ulbrich: It does. And the book and the documentary really takes the reader or viewer through your individual stories. And I also like in the book, you bring in other examples as I think that, again, back to the comment about customizing the scene, the different variations, helps give people ideas about how this might apply to their own individual situation. And one of the questions I have for you, Scott, is when I read the book, I really connected with you as a father of four young children. You discuss in the book the birth of your daughter in 2015 and how ultimately, you’d be pursuing this journey together as a young family. And I suspect many of our listeners are wondering, man, is this really possible? Is this lifestyle and this goal realistic with children? You picked up, you moved, you made some drastic cuts along the way. What advice or what thoughts would you give people surrounding pursuing FIRE while they have a young family?

Scott Rieckens: I don’t know that the children thing — the children thing’s tough because they are expensive little buggers, you know? They are. They’re going to “set you back” from your financial independence date.

Tim Ulbrich: Fact.

Scott Rieckens: But that’s ultimately a tradeoff — I’m sure you would agree with me — is well worth it.

Tim Ulbrich: Sure. Yes, absolutely.

Scott Rieckens: Nothing’s more important. I think for me, I look at it a little differently. It’s not, “Hey, guys, you’ve got some kids? Here’s a couple of trick to make it totally possible to do FIRE.” If you use kids as your excuse not to pursue FIRE, you’re not going to pursue FIRE, but it won’t be because of your kids. It’s because you have decided that that’s what you’ve — that’s what you’ve decided. You know? Don’t use the excuse of your kids. I’m here to tell you, I mean, I only have one, so I don’t have four. But — sorry about that. Gees. Good for you. Wow. Fighting the good fight. But you know, ultimately, we’ve got such a better plan for our financial future and her financial future because we’ve decided to make these choices. And I recognize that not everyone could tomorrow pick up and make the choice. But I assume, you know, your audience is probably in the camp that could make these choices. They just seem daunting. And that’s a great place to be. And so yeah, I wouldn’t use kids as an excuse. There are ways to — obviously there are hacks in everything we do when we spend money. And there are things that you think you need to spend money on that you don’t, you know? You can — just to be clear, I mean, you can buy the brand new Italian-made stroller. Or you can look on Facebook Marketplace or Craigslist and find a used one. It’s all the obvious tips and tricks. But what’s more impactful, in my opinion, is you look at that and you go, yeah, but for my baby, I want the best or for my baby, it needs to be this or that. And those are the types of things where if you’re really aligning your values with your spending, you may look at it a little bit differently after you really do some reading up on the FIRE movement and you understand why you’re spending and the decisions that you’re making. And the next thing you know, you go from only the best for my baby to only the best for my baby and what that entails is not a brand new, Italian-made stroller. It is buying the budget stroller because the amount of money that we can save by doing that will ultimately lead to that child’s college fund or our ability to spend more time with that kid, which will then allow that child to grow better, have a better relationship with their family, with their parents, get more attention and so on and so forth. I mean, these shifts are exponential. The compound interest does not just take over on the money. Yeah, that’s how I would look at it. It’s not a matter of you’ve got kids, here’s five budget tips to help with FIRE when you have kids.

Tim Ulbrich: Sure.

Scott Rieckens: It’s, you have kids? Don’t use them as an excuse to pursue financial independence, which will ultimately benefit everyone in your family.

Tim Ulbrich: And speaking of daunting, many of our listeners, Scott, unfortunately are facing big-time student loan debt. For those that came out of pharmacy school in 2020, about $175,000 is the average, $175,000. So maybe this goes in the excuse bucket, maybe not, but obviously big student loan debt, granted they have a decent income to work with. But what are the thoughts for folks that have big mountains of student loan debt? Obviously that’s a barrier, but is something that others are facing. What have you heard from your experience? And what advice or thoughts do you give folks that are looking at student loan debt but want to pursue a path towards financial independence?

Scott Rieckens: First of all, I have the utmost empathy for people that have that kind of a mountain of debt. And you know, the hope is that that debt was an investment in an education that’s going to give you the ability to pay off that debt and ultimately be even better off for it in the long run. And so with that in mind, nothing changes about my advice or the way I see it because if you have debt, as insurmountable as it may feel, that is ultimately just one barrier in the way of financial independence. And so I guess instead of starting from $0 and then starting to build your net worth, you’re starting from negative and starting to build your net worth. Either way, I would say if you have that amount of debt, you should consider it and treat it as an emergency and a crisis. And people with that situation should absolutely pursue FIRE, at the very least to get themselves out of that debt and starting at $0, you know? And what you do see oftentimes is people that I’ve seen, I’ve seen it, I’ve seen it with my own eyes, I’ve talked to people that did these things and then pulled themselves up by their bootstraps, got the FIRE thing going, and pulled themselves out of this situation. You still have all of these choices. And a lot of times, you’ll see you’ve got this mounting pile of debt, but you have a nice income, and the debt only costs x amount a month, so I’m going to lease this new vehicle, I’m going to get this nice house because I worked so hard to become this profession and now that money’s coming in, so this is what we’re going to do. And all of this boils down to still is choices. It’s those choices. Hey, I’m going to buy a used vehicle with cash that I saved up, and I’m going to eliminate these monthly payments. And those monthly payments are going to go to fund our 401k’s and our Roths. Or if you have a mountain of debt, we are going to pay off that debt as voraciously as we possibly can to get ourselves in a better position, you know? I don’t know, the advice doesn’t change. If anything, it becomes louder if you have a mountain of debt. And that’s a non-empathetic but realistic way to look at it. And another thing I should say is one of the prominent people in the FIRE movement, his name’s Johnathan Mendanza, he’s a cohost of Choose FI, he was a pharmacist.

Tim Ulbrich: Pharmacist.

Scott Rieckens: Yeah.

Tim Ulbrich: Yeah.

Scott Rieckens: And he walked away from a job about a year after finding FIRE because he realigned his spending with his values, he got right, he got on a good track, and then he built what was originally a fun side hustle into something that could sustain him. And he chose a different path than pharmacy. And I’m not suggesting people need to do that. Some people may love their jobs. And by the way, the whole retire early thing? Let’s not get caught up on it. It happens all the time. You may like your job. Great. This is still for you because if you enjoy your job but you have the freedom and flexibility if conditions change, that’s still a win-win. You know?

Tim Ulbrich: Absolutely.

Scott Rieckens: Ultimately, it’s about gaining back your freedom of choice.

Tim Ulbrich: Couldn’t agree more. I think financial independence is a goal we all should strive for. And I think that should resonate with folks, whether they love what they do every day, they don’t, or somewhere in between. And I want to again point our community to both the documentary, “Playing with FIRE,” as well as your book, “Playing with FIRE.” I can’t say enough about both of those, what they’ve meant to me, the impression they’ve left on me and my wife, Jess. “Playing with FIRE,” the documentary will be available on Amazon, iTunes, Google Play, Vimeo or folks can pick up the DVD at PlayingwithFIRE.co. Storytelling is outstanding, it was named a Top 10 Best Finance Movies of the Decade by U.S. News. It includes a cast of personal finance and FIRE all stars, including Mr. Money Mustache, Vicki Robbins, who’s the author of “Your Money, Your Life,” The Minimalists, the Mad Scientist, Jonathan Brad from Choose FI and more. And then the book, you know, we’ve just scratched the surface here and there’s much more to learn in the book, including the seven steps to achieving FIRE, where to learn more about FIRE and the FIRE community, how to crunch your own FIRE numbers, many FIRE stories, and much more. And that is readily available wherever you normally purchase your books. So Scott, thank you so much again for taking time to come on the show. What is the best place for our listeners to go to learn more about you and the work that you’re doing?

Scott Rieckens: Thanks, Tim. Yeah, PlayingwithFIRE.co, it’s got it all. I’m a big fan of Twitter, so we’re on Twitter @playingwithfireco, and we’re on Instagram as well. So yeah, those are the places you can find us. And hope to see you there.

Tim Ulbrich: Great stuff again, Scott. And on behalf of the YFP community and our team, thank you so much for taking the time.

Scott Rieckens: Thanks, Tim.

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YFP 187: How to Maximize Your Student Loan Strategy While Federal Student Loan Payments are Paused

Posted on January 21, 2021November 2, 2022 by yfpadmin

How to Maximize Your Student Loan Strategy While Federal Student Loan Payments are Paused

On this episode sponsored by LendKey, Kelly Reddy-Heffner, YFP Lead Financial Planner, joins Tim Ulbrich to talk through how those with federal student loans should be maximizing their student loan repayment strategy during another extension of administrative student loan forbearance.

About Today’s Guest

Kelly is a Lead Planner at YFP. She enjoys time with her husband and two sons, riding her bike, running, keeping after her pup ‘Fred Rogers’. Kelly loves to cheer on her favorite team, plan travel and ironically she really loves great food but does not enjoy cooking at all. She volunteers in her community as part of the Chambersburg Rotary. Kelly believes that there are no quick fixes to financial confidence, no guarantees on investment returns, but there is value in seeking trusted advice to get where you want to go. Kelly’s mission is to help clients go confidently toward their happy place.

Summary

Kelly Reddy-Heffner, YFP’s newest Lead Financial Planner, breaks down what we know and don’t know about student loans right now, her process for helping financial planning clients navigate their student loans, how to choose a repayment plan, and whether borrowers should refinance their student loans when payments resume.

Kelly explains that things are changing rapidly when it comes to student loan payments resuming. While there is a lot that we don’t know about student loans right now, we do know that the most recent stimulus package didn’t include an expansion to the administrative forbearance, interest rates are still low but are starting to slightly increase, and that President Biden’s transition team announced that they would extend the student loan payment and interest freeze when he takes office, although we don’t know when that will be.

While there are many unknowns for the future of student loans, Kelly urges borrowers to get a clear picture of their debt, look at potential opportunities for forgiveness, and think about their capacity for repayment and the opportunity cost of other financial goals. Kelly explains that there are a lot of factors that go into deciding which student loan repayment strategy is best, like the borrower’s budget, behavior, and mindset and that while student loans are an important piece of the financial plan, they can’t be looked at in a silo.

To help pharmacists determine how to best tackle their student loans, YFP offers a one-on-one student loan analysis. In the student loan analysis, one of our certified financial planners works with you to evaluate which repayment option and strategy is best for your situation. They’ll help you inventory your loans, analyze the debt, give recommendations, calculate repayment amounts with different options, provide insight on whether consolidating or refinancing is necessary, and offer next steps to you.

Visit www.yourfinancialpharmacist.com/studentloananalysis to learn more about this service.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, everyone. Tim Ulbrich here. And before we jump into today’s show with YFP lead planner Kelly Reddy-Heffner to discuss considerations while federal student loan payments are still paused, we want to make sure you have the most up-to-date information. We recorded this episode last week, but today, Jan. 20, 2021, there was an executive order signed by President Biden on his first day in office related to student loans. President Biden has directed the Department of Education to extend the administrative forbearance on qualifying federal loans through Sept. 30, 2021. Prior to today’s news, the freeze on payments and interest accruing was set to expire at the end of this month. So stay tuned to this show and updates in the YFP Facebook group for continuing discussion on the implications of this news to those that have federal loans and were waiting to hear whether or not payments would restart in February. As we talk about on the show today, now is the time, while this administrative forbearance period continues, to weigh all of the repayment options and strategies and determine the one that is best for your personal situation so that you can hit the ground running with a solid plan come October 2021. And of course, for those with private loans and non-qualifying federal loans, there is no reason to wait on making that decision. Alright, let’s jump into today’s show. Kelly, welcome to the show.

Kelly Reddy-Heffner: Thanks, Tim. Thanks for having me.

Tim Ulbrich: Well, I’m excited for this episode. And I sense our listeners are eager as well, considering the topic as well as the times. And before we jump into talking about student loans and important considerations for borrowers given the current situation, let’s do a proper introduction of you to the YFP community. We’re ecstatic to have you as a part of the YFP team as our newest lead planner. And I know our clients and community will benefit greatly from your insights and from your expertise. So tell us a little bit about yourself, your career path into financial planning and ultimately becoming a Certified Financial Planner.

Kelly Reddy-Heffner: Thank you. Yeah. So I’m really happy to be a part of the YFP team and of course to be on the podcast today. So I actually started out after getting my MBA working in continuing education for pharmacists. So I did that for a number of years. I loved it. But my husband, who is also a healthcare professional, we always seemed to have a ton of questions about our money and how to manage our finances. So we had pursued getting some expert assistance. But I’ll be honest, we were not considered great clients. You know, we had student loan debt, we were just starting retirement accounts. So to answer all of our endless burning questions, I went back to school, got my CFP, started a business. I wanted to really help other people like myself understand their big money decisions. So I knew of Tim Baker through our planning network for financial planners. I saw a job post, piqued my interest even though I wasn’t looking for a job, and the rest is history. YFP is the perfect mix of my interests. So I’m really happy to be a part of the team.

Tim Ulbrich: Well, we’re excited to have you. And I never want to take for granted someone’s willingness to come on and do a podcast. So I appreciate you being both interested and willing to do this. And knowing you’ve been working with many of our clients already, even since you joined us, on student loans and given the news that seems to be changing daily at the moment around this, we wanted to dig back in on this topic, knowing we’ve got some new information that is obviously timely that we want to make sure our community and of course our clients are aware of as well. So we, of course, have talked about student loans on the podcast a lot. And for those that have been listening for some time, you know that. But as I have alluded to, we’re in a unique situation, and the time that warrants us to revisit this topic here in January 202. And as we’ll talk about, depending on what the Biden administration does or perhaps doesn’t do regarding student loans, there’s a lot that we don’t know right now about the future of student loan payments, about interest rates, about possible loan cancellation or not, possible expansion of Public Service Loan Forgiveness, but we want to make sure that no matter what the next steps are with federal student loan repayments, that you are prepared, that you’re confident in understanding and evaluating those options, and you’re ready to tackle them with an intentional plan. I keep telling folks, this is the perfect time, while we’re in this time period of the administrative forbearance, now is the time to tidy up your student loan repayment plan to make sure that you’re ready to hit the ground running when that administrative forbearance ends, whenever that would be, so you feel confident in walking into the next steps as it relates to your student loans. So Kelly, at the time that we’re recording this, mid-January 2021, what do we know and what do we not know about federal student loan payments and interest rates?

Kelly Reddy-Heffner: Yeah, absolutely. And I agree with you, Tim, like this is a perfect time to really think about these issues. So what we do know is over the past 10 months, we’ve had a federal student loan forbearance where folks have had $0 payments, 0% interest accumulated. We know that the stimulus package that was recently passed did not include a provision to expand student loan relief. We know just from our client base and again, from my own personal experience, we know student loan debt is a huge issue, especially for healthcare professionals. So we know that interest rates have been incredibly low over the past several months, but we know that they’re starting to creep up a bit as well. We know that Biden’s transition team has announced that they’ll extend the payment and interest freeze, which was set to expire on Jan. 31. So those are the things that we know. But then there’s a lot that we don’t know as well. So we don’t know exactly what that expansion means. We don’t know, you know, for how long. We don’t know if there’s also going to be a $10,000 forgiveness, that has been discussed. I would anticipate an expansion, an extension of that $0 payment, 0% interest, to probably be for about six months. I’m not taking any bets or wagers, and I know the timing’s going to be pretty amazing for whether I’m right or wrong, we’ll know pretty quickly. I don’t think the $10,000 is quite as likely, but that has been discussed. So we don’t know how much interest rates will increase or change in 2021 either. It’s harder — that is harder to predict, I think. I think rates will rise but slowly. So I was looking at some data from Credible, and I could see the average variable rates for, using an example of like refinancing for student loan debt, five-year term, borrowers with good credit, like 720 or higher, so it was a record low of 2.75% in June. And then we’re seeing like 3.26% in December. So we know the rates have come up some. I think that it’s really important to also say we don’t know the continued impact of the pandemic on jobs, payroll, and income security either. So we know some things, but there’s a lot more that we don’t know.

Tim Ulbrich: Yeah, great synopsis, Kelly. And I agree with your I guess projections, we could call them. And I want to be clear to the listeners, as you have, some of what we’re talking about, it’s changing so quickly. And as you mentioned, there’s a lot of things we don’t know. You know, we’re expecting to see that extension happen, how long, nobody knows the answer to that. Hopefully we will know very soon. As you mentioned, there’s been discussion around some debt cancellation. I agree with you, probably unlikely for a variety of reasons. But again, time will tell. But we do know that we’ve seen an increase in rates that’s happening, which presents an interesting question on where refinance does or doesn’t fit. We’ll come back to that here in a moment. So you know, my question, Kelly, as I hear you talking about that, putting myself in the shoes of a listener who’s perhaps facing $150,000-200,000 of debt, they’ve enjoyed this time period of administrative forbearance, perhaps able to put that money towards other goals such as paying down credit card debt or beefing up their emergency fund, or some other things. And now the question is, you know, what do I do going forward? And so as you’re working with clients that are coming on board as client of YFP Planning and they’re in this situation today, how do you approach coming up with a game plan to tackle the debt, especially given the current situation and the unknown future? What does this process look like?

Kelly Reddy-Heffner: Sure. I mean, we start out with just a basic, you know, objective of figuring out where are we at with this? So we want to have a clear picture of the debt. Is it federal, private? What is their employment type? Are they working for a for-profit organization? A non for-profit? Is there an opportunity for forgiveness? And then we’re looking at importantly, their capacity for repayment and what are the opportunity costs of repayment versus just like you referenced, some of those other goals: paying down credit card debt, some other important financial issues. So we really do need to look at a client’s unique circumstance and their perspective on repayment. There are a lot of factors to consider.

Tim Ulbrich: And when we’re thinking about paying back loans, especially after the administrative forbearance, obviously it’s a good idea to check in, take stock of the loans that one has, understanding their interest rates, understanding the loan servicer that they’ll be working with to repay those loans. So talk us through more of the process of how you help folks get a snapshot of what their current situation is.

Kelly Reddy-Heffner: Yeah, absolutely. So it is always a good idea to be taking a look at where your student loan debt is, even if you had a plan in place or you’re just starting out. The management of our financial resources, they change with different things that happen. You know, the stimulus certainly changed how you might have been planning to repay the debt. So we start with some basics, you know, studentaid.gov is a good resource, a borrower’s credit report, and then we can see what debt is outstanding. You know, it’s challenging at the moment. Studentaid.gov is defaulting to $0 payment, 0% interest. So sometimes, we need to dig a little deeper and see some of those earlier loan documents. But before the CARES Act, you know, hopefully folks have some information on file to help us with that. But the recognition of the debt is a key step in taking control of the situation. Debt can be very overwhelming, so we have to recognize it for what it is and then get to work. So again, borrowers often have a good idea that hey, we have a significant student loan debt issue, but they’re not quite sure of the details. Borrowers have increased their knowledge thanks in part to podcasts like ours, and we have some other great resources available as well. We have some books and additional materials. But a good strategy is the baseline knowledge. But a great strategy is in the details of the payment type, the interest rate, decisions to consolidate or refinance, and that’s where a borrower may be challenged to differentiate between the details. A full inventory definitely is the first step. And although it’s a bit cumbersome, it’s critical to understanding what your best options are.

Tim Ulbrich: And I love what you said there, Kelly, you know, debt can feel overwhelming. We have to recognize it for what it is and then get to work on a plan. You know, thinking back to my own personal journey, it’s almost like you’ve got to open up the closet and see the scary monster before you’re ready to address, you know, the situation. Like and I think it’s easy sometimes to say, let’s sweep it under the rug. I’d rather not just think about this. Often when I work with student pharmacists on this and we do a session where we have them inventory their loans or other things, there’s that moment of like, do I really want to know? Do I really want to know what I’m dealing with? But you’ve got to be able to uncover that and obviously as you referenced, the inventory is so important to then be able to determine what might be the best student loan repayment plan and path heading forward. So once folks have that inventory, once they know what they’re working with, once they have that snapshot, the question then is where do you start? So what are the main payoff strategies, Kelly, that folks have to think about when paying off their student loans, at least in terms of staying in the federal system?

Kelly Reddy-Heffner: Absolutely. So you’re right, I mean, once you’ve pulled the Band-Aid off, which is both a, you know, hopefully a bit of a cathartic episode, you know, here we go. We know what we have to work with. Then it, you know, we’re looking at a couple different things. We start out by figuring out does the person, the borrower, qualify for PSLF or non-PSLF forgiveness? Is that an option? I also think it’s really important to understand does the borrower have the financial capacity to repay the loans at the current rate? Or are they already struggling with the repayment with other things that are going on? We definitely have to take note of that. Then we’re looking, you know, are they in the right repayment plan to accomplish income-driven repayment and/or forgiveness. If the payments are affordable and folks are really comfortable with the payment amount, then we start looking, well hey, can we create a strategy where maybe you can accelerate the repayment? Maybe you do need to think about a refinance. So yeah, we’re right off the bat just looking at those high-level things to get started.

Tim Ulbrich: And so just as you mentioned there, you know, a few different options: PSLF, non-PSLF forgiveness, we’ve talked about these on the show before. You know, thankfully I think because many of our listeners have been following for awhile, we can throw around terms like IDR and income-driven repayment, people know what we’re talking about. But even beginning to think of those, there’s so many options, right, that people have to consider. We haven’t even yet talked about the refinance on the private side. So the million-dollar question is, how do you when working with an individual, how do you help them determine which strategy is going to be the best one for their personal situation?

Kelly Reddy-Heffner: I am going to get a little bit of heck for saying, it depends. So that’s our famous standard statement in the financial planning industry. But it really does. I mean, we can’t undervalue the role of a budget and the mindset of our borrower in determining the strategy. But we also are looking at opportunity cost as well. So in a prior podcast, Tim Church had alluded to that. He was saying he and his wife were thrilled to pay off the debt, but then he had some thoughts like, what if? and wasn’t sure he had taken the best path to being debt-free. So being debt-free in general is a great outcome. But then we start asking the questions, what if a borrower with $120,000 salary and $200,000 in federal debt, what if they could make payments in income-driven repayment, qualify for a non-PSLF forgiveness, save for the tax bill at the end — which by the way, has also been discussed as something that maybe this administration will do away with.

Tim Ulbrich: Correct.

Kelly Reddy-Heffner: Yeah, what if they could increase their savings and pay off credit card debt and have a pretty decent nest egg in 20 years? So then we start thinking like, well, what really is the best strategy for clients? And again, it is very individual. With private loans, the decision points are just so much more, you know, easily digestible: lower interest rate, highest affordable payment, get it done. With the federal loans, we see a lot more nuances and they become more difficult to sort through. When you’re on track for forgiveness, there’s no benefit to making extra payments, it’s hard to see the balance remain the same or even increase. It goes against the pull we feel to get rid of the debt as quickly as possible. But we really do need to look at what is the best overall picture for a client to have both now and down the road as they make these decisions.

Tim Ulbrich: And I think that’s a good segue, you know, Kelly, when you mentioned in the private system, the decision points are much easier. You’re evaluating interest rates, trying to get the lowest interest rates, highest affordable payment, and you get done. And so I think that really warrants the discussion of am I pursuing forgiveness or not? Because if you think about this as a decision tree, if I make that decision that PSLF or non-PSLF forgiveness is in play, then obviously you’re staying in the federal system. If not, well, now we’re going to begin to evaluate private options in terms of refinance. Let’s talk about forgiveness, specifically PSLF for a moment. What makes this strategy appealing? And we’ve talked about it before of course before on the show of some of the logistics and some of the potential concerns, so what makes it appealing? And should pharmacists take advantage of it? Or is there a time when someone should steer clear of it?

Kelly Reddy-Heffner: Absolutely. Great question. I mean, PSLF is a good option for borrowers who are working in nonprofit sector with Adjusted Gross Income and payment protections where it looks like there will be an amount to be forgiven at the end. So they’re working towards those 120 payments, but it is a process. You know, we talk about that in our student loan analysis, just the paperwork, and it is a very specific process. Borrowers who have an Adjusted Gross Income that will significantly increase over time or an overall amount of debt where very little will be forgiven, it may not be ideal. So of course, we say for those who are looking for the program or thinking about being in that program, if you are thinking about going into for-profit at some point, you should proceed with caution. Again, the balance of the loan will likely not decrease in PSLF, so after five years of nonprofit work, if you decide to switch to for-profit, you’re potentially looking at a similar student loan debt liability even though five years have passed. Unfortunately, there’s no half credit, you know, for half the payments. So you know, if you’re thinking about that, it may not be the ideal route to go.

Tim Ulbrich: Great point. Worth reiterating. There is no half credit for half the payments. So important as people think about choosing that option. So Kelly, then what about non-forgiveness options, a.k.a paying it back. What are the options that are here?

Kelly Reddy-Heffner: Absolutely, going old school. Yes. What if we just paid them back? So for borrowers with federal loans, you know, they’re really weighing that lowest interest rate versus the federal loan protections. So this year — often in the past, when we talked about the federal loan protections, it was this idea just kind of floating out there. But this year, we see exactly what that means to have some of those protections. So we’ve seen a couple different things going on, but if borrowers were financially able to still make payments or increase payments this past year, they maybe should consider refinance in the future. So the current 0% rate is literally impossible to beat at the moment, right? So but I do feel like there’s a little bit of a growing thought of like FOMO, the Fear of Missing Out. Like I’ve got 0% now with federal, but I know private lenders, you know, are maybe in the 2-3% range. I don’t want to miss that refinance rate when the 0% is done. But again, a lot of planning is finding that unique balance between what we know, what we anticipate in the future, and then what we’re willing to do to accomplish our goals. So everything is a tradeoff for sure.

Tim Ulbrich: Yeah, and as you mentioned early on, we’re coming up at the time we release this episode, we might even have more information at that time, but obviously we expect some announcement that would come out that would give us an indication on if that’s going to be extended in terms of the 0% rate and if so, for how long. And that will give us an important piece of information in the planning process. And to that point, you know, since the CARES Act was established and the administrative forbearance was extended twice, I think many pharmacists — as you’ve alluded to here briefly — have been wondering if they should or shouldn’t refinance their loans. And I think this warrants some brief discussion on refinancing, again, as we use this time period to really take a close look at our repayment options and plan. So just remind our community, what is refinancing? And what ultimately is the goal when somebody refinances loans?

Kelly Reddy-Heffner: So yeah, refinancing is a very — what I like to say a private loan term because we’re talking about moving from a federal loan to a private loan. And it is a one-way transaction. So once you’ve made the decision to go from federal to private, that’s it. You can’t move back to the federal loan. It’s also a reference point for moving from one private loan to another. So if you have a private loan and you want to refinance, you’re moving into another private loan, the purpose in my opinion is always related to improving your interest rate or the term of the loan. Maybe it’s to remove a cosigner. But the purpose of that refinance is nearly always a better interest rate and maybe you’re decreasing the amount of time that you’re paying the loan.

Tim Ulbrich: And so overall, just given the time that we’re in, what’s your take on refinancing? Is it something that should or shouldn’t be done? When is it OK to start refinance again? And of course, I need to say — although it should be assumed — that of course this is an individual both consideration and determination. But generally, how are you considering refinancing in the moment?

Kelly Reddy-Heffner: Sure. I mean, as you said, it is a very individual, unique decision to be made. And I use the example, if a borrower has a $120,000 salary and $150,000 in federal loans, they’re likely not on a trajectory to have any debt forgiven. So then it makes sense to consider a refinance. But as you mentioned earlier in the intro, we really are in a unique environment at present. So if, you know, if by the end of January, I learn that I have 0% interest extended for six more months and that $10,000 forgiveness amount is still floating out there, I think I need to continue in the federal program and I watch the interest rates in the private sector. Ideally, our borrowers are making payments to lower the principle balance to take full advantage of that 0%. So again, if you’re in PSLF or non-PSLF forgiveness, making those payments is not really a great strategy. But if you are just paying down the debt, you know, I’d love to see our borrowers be in a position to take advantage of that 0% and like I said, keeping an eye on those interest rates in the private sector.

Tim Ulbrich: Yeah, and one of the things, Kelly, that I have an eye out for is I think given the circumstances that those who had already refinanced before the CARES Act, as they all know too well and we know were left out of the administrative forbearance because there wasn’t any protections or benefits that those were in the private system, I wonder if that’s going to have people second-guessing refinancing as a move going forward, even if through the analysis and mathematically it’s the better move to make. And so that takes me to the question of what considerations should people be thinking about before refinancing their loans and what differences there are between the federal and the private system and what they may or may not be giving up.

Kelly Reddy-Heffner: So right, outside of those working towards any forgiveness, I think the biggest consideration is that federal protection, which we’ve seen highlighted this year and what that impact could be. You know, there is a lack of flexibility with borrowers in the private sector where they don’t have the same income-driven repayment options. So if you have a job loss, you know, it can be a little bit different of a process to navigate that. Some of the private sector companies have gotten better with that. Really, if you’re looking at interest rates too, which is a big consideration, you know, if I can reduce my interest rate from like 4.8% to 2.8% on a $200,000 loan debt, you can save some money for sure. So I use the example, in five years, you could save $10,000 in interest. Over 20 years, it’s $30,000. So interest is a major consideration. But again, we’re always looking to see what really is the best strategy. I like the 0%. I like making a dent in my principle and any accrued interest if I’m not working for forgiveness. And then I’m still, like I said before, keeping an eye on those private interest rates to see how their movement is going. And of course, we’re going to keep updating folks on this topic because we know it’s super important.

Tim Ulbrich: Great insights, Kelly. And I think as we have spent the better part of 20 minutes or more really zooming in on student loans, I feel the need to zoom out. One of the things that I say often on this show and to our prospective clients and to people in the community is you can’t just look at one part of your financial plan in a silo. And this includes analyzing your student loans and determining a plan to pay them off. So what else do folks need to consider? What else do they need to weigh and keep in mind when deciding what their game plan is going to be?

Kelly Reddy-Heffner: Yeah, Tim, you are absolutely right. I mean, the past several months have been a really unique opportunity to have a bird’s eye view of an individual student loan debt burden, not counting those working towards forgiveness and what they were able to accomplish in the past several months. So we have seen the following or some combination of the following: We have borrowers who are in a financial place to take full advantage of that 0% and they continued to make payments, resulting in a bigger impact on principle. But we’ve also seen folks who have used this time to make payments on things that were still accruing interest, which is great too. So they have paid down other debts. But then we also have situations where borrowers who have had employment challenges, are struggling financially, and they could not do either. So this helps give us a really clear idea of what a borrower might be able to accomplish in 2021 and if a refinance is viable. So we’re still looking at employment status and security. You know, we still have folks who have changes in their job and income and need to navigate through that. What other debt do they have? What is cash flow looking like? And then what are other financial priorities? I can’t say enough too, like borrower behavior and perspective on the loans is a major — a major component. You know, if someone’s really motivated, then we’re having those conversations to really look at things and say, what can we accomplish? But again, these are all pieces. We can’t look at one piece of the financial plan without looking at others.

Tim Ulbrich: I’m so glad, Kelly, you mentioned borrower behavior and perspective. We often say it’s the math plus how you feel about the debt, right? You’ve got to consider the numbers and look at the options and make sure you understand what would be coming out of pocket, what you’d be paying each month, how much interest you’d be paying, what would be forgiven. But you have to also layer on top of that, you know, how do you feel about the debt? How does your significant other or spouse feel about the debt? And how might that or might it not impact the direction that you take with your repayment plan? And so as we wrap up here, and you’ve provided incredible insights and obviously are well versed in this topic, it dawns on me that there are just as we said at the beginning, so many individual considerations, so many nuances to student loans, unfortunately a system probably more complicated than it needs to be. But when we’re dealing with six figures of student loan debt or more, many of our clients are north of $150,000-200,000, we know that the median indebtedness for today’s graduate is now north of $170,000, and so the decision between Path A, B, C and keep going on can be the difference easily of tens of thousands of dollars. And so we need to invest the time to understand these options, we need to invest the time to evaluate what those options are and to feel good about choosing the best path forward that is that for one situation, which takes me to our student loan analysis, which is a service I mentioned at the front end of this episode of something that we offer at YFP. It’s a one-on-one service intended to help folks really understand, evaluate, determine their best repayment option going forward. But what we haven’t talked about before on the show, Kelly, is what folks can expect through that service if they were to sign up. So talk to us about what you do as you work with a client through a student loan analysis and ultimately what the deliverable of that is.

Kelly Reddy-Heffner: Yeah, absolutely. And I view this as a next step from all the knowledge that we’re acquiring in podcasts and reading our book and becoming more knowledgeable and of course, you know, recognizing that this is a significant issue. Then we’re looking at a very personalized, like you said, one-on-one. We’re doing the inventory of the loans, we’re going to provide an analysis with recommendations for next steps. Part of that process looks at payment amounts and projections, whether a consolidation or refinance makes sense. We ask clients to provide a budget amount so that they can give some input into how much they can afford to put towards this effort. I think one of the best things about this is it really gives clients a clear estimate of what to expect. But in an awesome way, it gives people a lot of confidence. Like having a plan where they can put it into action, you know, put these pieces of the puzzle in place, and then start focusing on some other aspects of their financial goals, I hear a lot of reaction like, reduces stress, increases confidence, just feeling good that there’s a plan. And you know, maybe down the road, you need to revisit the plan. But there’s something in place to get you started.

Tim Ulbrich: Yeah, absolutely. And what I sense and hear from folks often, Kelly — and I’m sure you do even more than I — is that just having — even if the debt number isn’t going to move, right, at least for the short term, you know, $200,000 of debt is $200,000 of debt. But it’s a different feeling when you have momentum and peace of mind knowing that you’ve evaluated the options, you’ve applied them to your personal situation, and you feel confidently in the plan, in the plan that you’re pursuing going forward and so that you can begin to focus on other financial goals. So I think it’s an important point to mention not to underestimate the peace of mind that can come with this as well. So for those that are interested, you can schedule your student loan analysis by visiting YourFinancialPharmacist.com/studentloananalysis, all one word. Don’t wait as I think now, as we’ve been talking through the show, is the perfect time to get your loan repayment plan in place or to get a second opinion on a strategy that you’re currently utilizing. And for a limited time, we’re going to be sending a copy of our three YFP-published books. That would be “Seven Figure Pharmacist,” “A Pharmacist’s Guide to Conquering Student Loans,” and “Baker’s Dirty Dozen: Principles for financial independence” to anyone that signs up and purchases a student loan analysis by the end of January. So we want to get the tools and resources in your hands, not only to attack student loans but also to continue to progress with your financial plan in 2021. So again, YourFinancialPharmacist/studentloananalysis. You can purchase the analysis there, sign up for a time right away with Kelly to get that going. And as always, if you liked what you heard on this week’s episode of the Your Financial Pharmacist podcast, please leave us a rating and review on Apple podcasts or wherever you listen to the show each and every week. We appreciate you joining us, and we hope you have a great rest of your week.

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How To Build a 6 Figure Rental Portfolio in Less Than 3 Hours a Week

Posted on January 17, 2021 by yfpadmin

How to Build a 6 Figure Rental Portfolio in Less Than 3 Hours a Week

The following is a guest post from Dr. Ryan Chaw. Ryan is a full-time pharmacist who built a rental portfolio on the side, going from zero to $10,755 per month in just 4 years. He is the founder of Newbie Real Estate Investing where he teaches others his system: how to find a college town to invest near, analyzing a deal, generating tenant leads through strong marketing tactics, and how to self-manage college tenants so everything is hands off and automated.

For most new investors, real estate is like a dragon.

It’s big, scary, and you’re afraid of getting burned.

Even scarier is having a bunch of immature college students renting out your bedrooms. But that’s exactly what I specialize in.

“Aren’t you worried the students will trash your house?”

This is a question I get asked all the time whenever I tell somebody that I invest in the student housing market.

My answer is always the same…

“Absolutely not. No way. Nope.”

In fact, thinking that college students will trash your house is one of the biggest myths of college town real estate investing.

Unfortunately, this myth is what holds most real estate investors back from one of the most lucrative markets in all of real estate investing: renting out by the room to college students.

You’re probably wondering right now, “Huh? I don’t understand. How’s that a myth?”

I’ll cover that later in this article, but let’s first talk about why I chose student housing.

How to Start Investing in Real Estate in a College Town

Most real estate investors leave half of their cash on the table when they rent out their house only as a single unit rather than renting by the bedrooms.

For example, here’s what one of my houses would have made if I rented it out only as one unit:

Source: Rentometer.com

But by renting out each bedroom separately, here’s what it’s actually making:

I doubled my rental income by renting by the bedroom.

Because I own 4 of these houses, I’m now making $10,755 per month in rental income!

It wasn’t always like this though. I started out as a typical pharmacist. I graduated in 2015 with my Doctorate of Pharmacy and worked two jobs as a retail and hospital pharmacist. I quickly realized that I didn’t want to work as a pharmacist until I was 65 after talking to an older pharmacist colleague. He told me, “Honestly, I just come here for a paycheck now. I wish I could have retired a lot sooner.”

I realized that while pharmacists typically make over 6 figures, this alone isn’t enough to achieve financial independence.

My inspiration to get into real estate came from my grandpa who had purchased several rentals in the SF Bay Area back in the 50s before Silicon Valley existed. As we all know, Bay Area prices went up like crazy, so Grandpa Chaw was able to retire early and live mostly off the income from his rentals.

I knew I wanted to get into real estate as soon as possible because it’s truly a time game. You buy as soon as you can, then wait for it to grow over time (as your rent goes up, your property price goes up, and you write off tons of money in taxes). When I got my pharmacist license, I decided to work a lot of overtime to save up for my first downpayment, which I used to buy my first rental in 2016.

Unfortunately, I made a lot of mistakes on my first rental and lost over $30,000!

I got a call from one of my tenants one night who said, “You’ve got to fix this. Sewage is pouring out of the kitchen sink and it’s all over the floor now.” I hired a clean-up crew and a plumber to assess the situation. It turned out that I needed to replace the whole sewage line. This cost me $9,000! I had to pay for the repairs out of pocket since this happened only 2 months after I purchased the property and I didn’t have much rental income.

On top of that, I didn’t realize the house had virtually no AC system. I ended up having to install a mini-split HVAC system which cost me $15,000.

Lastly, I had a vacancy for 8 months because I had no idea how to advertise my bedrooms. This cost me $5,200 ($650 per month x 8 months).

At the end of it all, I was feeling very depressed and discouraged. I was tired of having to take calls during my lunch breaks and late nights on weekends. I thought I had made a huge mistake investing in real estate. But I kept at it because I knew if my grandpa could do it, I could do it too. Over the next 4 years and after much trial and error, I created a system for student housing that I now teach to others. The system allowed me to cut the amount of time spent on my rentals to less than an hour a week. I’ll summarize the steps below.

There are 7 steps to creating your own student housing model that will significantly reduce the amount of time you spend on your rental properties.

Step #1: Do your research ahead of time.

Check your local city laws first to make sure everything you’re thinking of doing is legal. Some cities may require you to get a business license to rent by the bedroom. During this COVID-19 pandemic also check the college website to confirm they are scheduling on-campus learning (most colleges have some on-campus activities, whether it be with labs or experiential programs). Luckily, most graduate school students still need access to on-campus buildings to do their research.

Step #2: Choose a college based on enrollment data, college ranking, and the programs that are offered there.

You need to make sure to choose a college with a good market size to rent your bedrooms out to. Consider targeting more Ivy League type colleges because most students that go to those types of colleges received straight A’s in high school and are therefore more serious about completing their studies. Ivy League type colleges also offer opportunities for higher degrees such as medical school, pharmacy school, and nursing school. These types of students likely don’t want to waste their time partying in college. Finally, because these colleges are so popular, most of the students will be from out of the city, state, or even country, so they are definitely searching for a place to stay close to the college.

Step #3 Make your place attractive to college students.

I try to find properties that are in close proximity to campus so that I can charge premium pricing. I also look for houses with plenty of parking. This allows the college students to bring a car so they can drive to their experiential functions such as health fairs for pharmacy, nursing, and medical students. Check out the neighborhood to make sure it’s a good area so the parents feel safe letting their children stay there.

Step #4: Calculate your rental amount and know how much to charge if you put two people in one bedroom (like a couple).

If you are cheaper than on-campus housing, then you automatically have market demand. Because you provide more room and more privacy than on-campus dormitories and charge cheaper rent, it makes sense for a lot of students to just stay in one of your bedrooms. Keep in mind that putting couples into a single bedroom will allow you to charge more for that bedroom.

Step #5: Know what to look for when deciding if you can add or convert a room to a bedroom.

Whenever you can create an extra bedroom, that’s another $500-$700 in additional rental income per month. This is huge! Even adding one extra bedroom will pay for the majority of repairs and expenses that come up on your house throughout the year. Doing this step also typically allows you to at least double the amount of rental income and cash flow you make on the property.

Step #6: Market your bedrooms well to create urgency and demand.

You need to know how to create demand and urgency by highlighting the benefits of staying in your bedrooms vs on-campus housing. And, you have to advertise in the areas where your target market (i.e. college students) hang out. If you have a lot of students interested in renting out a bedroom at your property, you’ve really got the upper hand. You can choose the best tenant out of a large pool of applications. Consequently, it’s really important to get your marketing right so that you can be picky in choosing a tenant.

Step #7: Create systems and teams to help you self-manage the properties to save yourself a lot of money.

Personally, I spend less than an hour a week managing my rentals because I have systems in place for it. I empower my tenants to take on certain responsibilities. Payments are made through a phone app called Zelle since students are tech savvy. I’m able to manage my rentals while working as a full-time pharmacist job because I have these systems in place. And the best part is that I don’t have to waste 8-12% of my revenue on hiring a property manager.

Now that we covered the 7 steps, let’s go through the most important part of this process: how I completely avoid problem tenants to reduce my work load even more.

Marketing

As mentioned earlier, I do targeted marketing toward the type of students I want to attract. I’m looking specifically for the types of tenants who are more concerned about passing their midterms and finals than throwing wild house parties.

Screening

I screen social media accounts. You don’t want people who smoke, drink a lot of alcohol, do drugs, or party nonstop. Any of these types are hard a “no” for me.

Be strategic in pairing up housemates

I strategically pair up college students. This creates a balance so that even if there are a couple of immature college students in a property, they’re kept in check by the more mature, professional college students. I then also have at least a few people at every house who take on responsibilities to maintain the house. Sometimes I’ll have a tenant who may be messier, but his/her mess gets cleaned up by their parents or the other tenants.

Set yourself up for success

I minimize common space and turn those spaces into additional bedrooms. Not only does this boost my profit, but there literally will be no space to throw a large party.

That’s how simple this can be!

I believe real estate investing should be fun, simple, and enjoyable rather than this big, intimidating beast you have to slay. It also allows you to give back and provide affordable housing. If you’re interested in learning more about how student rentals can shortcut your way to financial independence, I offer a free PDF guide on how to do this and in my emails I offer you quick practical tips on how to determine the best location to invest in, red flags to watch out for, and how to create automated systems that you can implement in your own real estate portfolio at www.newbierealestateinvesting.com.

Ready to take the next step in your real estate investing journey?

One of the most important aspects of real estate investing is building your team and that all starts with finding the right real estate agent.

But as a busy pharmacist, researching, vetting, and connecting with real estate agents can be tough.

That’s why we partnered with our good friend Nate Hedrick, The Real Estate RPh, to offer a free home buying concierge service. As a pharmacist and real estate agent himself, Nate’s got the insider’s view. He has a unique perspective on the home buying process and has used it to help many pharmacists achieve their real estate dreams.

With this service, Nate helps you craft a plan that works within your budget and financial goals, connects you with a pro that you can trust, and helps you stay the course.

Click here learn more about this free home buying concierge service and to book a free call with Nate.

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YFP 186: The Picture Perfect Side Hustle

Posted on January 14, 2021November 2, 2022 by yfpadmin

The Picture Perfect Side Hustle

On this episode sponsored by Live Oak Bank, pharmacist and photographer Landen Conner shares how he turned his side hustle into his main gig, why and how he started his photography business, how he found his niche, and the mechanics of his business.

About Today’s Guest

The career of pharmacy accelerated Landen’s path to becoming a photographer, but where he met his passion was at the intersection of pharmacy and photography, which was “people.” Seeing people heal in an instant on camera was magical. Then hearing the unexpected wins after, such as landing a job, gaining more clients, even dates was the icing on the cake for him!

Summary

Landen Conner became interested in photography after one of his friends shared with him that he was able to create a successful business as a wedding photographer. Although Landen was a full-time pharmacist at the time, he was experiencing major burnout from his job and needed to step away from pharmacy. Landen soon realized that being a photographer was more than just picking up a camera and taking pictures. He found his niche in headshot photography and helps clients heal by taking their picture and sharing the stories of his clients.

Landen was debt free aside from his mortgage loan and knew he didn’t want to start his business without taking on any debt. He used cash to fund his start up and leaned on his pharmacy day job as a way to invest in his business. Knowing that he was paying cash for the majority of his equipment allowed him to be more present with potential clients. He estimates that he spent around $10,000 to $15,000 starting his photography business.

Landen now focuses on headshots, family shoots, commercial photography, and marketing and branding. During the COVID-19 pandemic, Landen started working a couple times a week as a per diem pharmacist to help bring in a steady stream of income. Landen also discusses how he automates functions of his business, his advice to other pharmacists looking to start a side hustle, and how he’s taking his business to the next level.

Mentioned on the Show

Episode Transcript

Tim Church: Landen, thanks for stopping by and for being part of this side hustle edition.

Landen Conner: Thanks a lot, Tim. I appreciate you for having me.

Tim Church: I recently learned about your story as I was perusing Google News alerts and an interesting article came up from the Orlando Business Journal titled, “Side Hustle to Main Gig,” and one of the biggest reasons I was excited to have you share your story on the podcast is basically, you have the reverse side hustle where pharmacy is not your main gig. But before we dive in, I do have an icebreaker for you.

Landen Conner: Yes.

Tim Church: Alright, you ready for this?

Landen Conner: I hope so. Let’s roll with it.

Tim Church: Alright, the pandemic is over and you’re out at a bar or restaurant and your name comes up to sing karaoke. What song are you singing?

Landen Conner: Oh, wow. Talk about a curveball. This may be funny. How about the Lion King Can’t Wait to be King?

Tim Church: Oh my gosh. I love that Disney movie.

Landen Conner: It’s like 1A in my book.

Tim Church: That’s awesome. I was not — let me just say, I was not expecting that. That’s a good jam. Do you like blast that in the car?

Landen Conner: The only reason why I’m hooked on it as like my second favorite Disney movie of all time, probably right there with Aladdin. But my wife just designed this whole room for a newborn with Lion King. And I’m hooked back onto Lion King now.

Tim Church: OK, that’s awesome, man. I love it. Well, Landen, before we kind of jump into your main gig now, really, talk a little bit about your career path as a pharmacist.

Landen Conner: Started out at 18 with a tech — as a tech/student. And wanted to see if I wanted to be a pharmacist. I got a job at Walgreens pharmacy, loved it, started school at Xavier University. The first day, I got scared and flipped my major from computer engineering to pharmacy because I got scared — I heard about 50,000 people were going to be laid off. So I was like, I’m just going to go to my second strongest thing, which was science. And that’s where my career began as a pharmacist.

Tim Church: OK. And talk a little bit about what are some of the positions that you’ve had when you were working full-time.

Landen Conner: I’ve been pretty much the full gamut. Went from retail pharmacy as everyone does pretty much to long-term care — loved that one — specialty pharmacy — loved that one as well — to MTM pharmacist and now to basically a per diem pharmacist filling in on call positions.

Tim Church: Now, obviously to where you got to that point, going from full-time to per diem, you talked a little bit about something in the article because at some point in your pharmacist career, that initial vision you had when you were training, you were starting out as a pharmacist, that changed. And in the article, you mention that you had been diagnosed with extreme stress related to your job and were quoted as saying, “As a result of this, my vision became blurred, memory loss occurred, as well as pains all over the body. The diagnosis made me sit back and think seriously, was it or anything worth the cost of my health? The simple answer was no.”

Landen Conner: Yeah.

Tim Church: Now, when I read that, I was really taken back because we’re not just talking about oh, I’m stressed at my job. We’re talking that it got to the point where it was physically affecting you. So obviously, that had to be pretty severe in the position that you had at that time to get to that point. So talk about those feelings that you expressed and how did it get to that point?

Landen Conner: The feeling that I expressed, I was actually helped along. I won’t mention her name because of the company she works with, but I was sitting next to this lady, we were really good coworkers and friends. She had mentioned her story to me years earlier when she was progressing in this company, going up the management chain. It got to a point she was taking on so much, she got sick. And she had to make a choice whether to keep working or keep progressing. And I asked her about that story and what would she recommend? And she said, “Landen, if I could do it again, I would choose to take a break and stay away for my health purposes.” So hearing that, I took that as a sign from God to say, you know what, choose your life. Because you can always find a way to make money with an entrepreneurial mindset versus how we’re taught in pretty much — you’re a pharmacist too, Tim — we go to school, we’re in school all day. And when you come out, you still practice those similar principles, but after awhile, you experience burnout. And that’s where it was with me. It was just burnout.

Tim Church: And can you elaborate a little bit more? Like what specifically were some of the things that were contributing to that? And how long did that take to develop?

Landen Conner: I think it developed slowly, honestly, going through recently a new marriage, working all the varying types of shifts, 5 a.m. shift, 10 p.m. shifts, then going from working early in the morning maybe to a photo shoot that evening and then just constantly repeating those cycles, finally caught up to me. Not being able to take vacations when you wanted or when you needed, rather, not just wanted per se, when you needed it. And just going through that, it was accumulation. Then you just start feeling the headaches, you start seeing the double vision, sometimes memory loss where you don’t really remember verifying certain things because you’re under that amount of stress, you think you’re keyed in, but you’re not.

Tim Church: How did you get to the point where you said, you know what, I’ve got to transition. I have to do something to get out of this situation?

Landen Conner: Sitting back, taking a look and starting to organize your life. I’d be lying to you if I said being debt-free except for the house didn’t matter because then I could start to organize, hey, it takes this amount per year to live. And then you break it down into monthly cycles, you know living in Florida, your bills may be a little bit higher due to the summer weather, then in the winter, you can dial it back. So you kind of average, put everything in perspective. And you don’t have your credit cards that you have to pay, the bills you have to pay. And that helped.

Tim Church: So obviously, that setting yourself up in a good financial position allowed you to make that transition, it sounds like. But one of the things that I wanted to ask you is while you were working full-time as a pharmacist, your side gig at that time was photography. And so before that became your main gig, how did you become interested in photography? I think that’s interesting because the last time I checked, you know, that was not an elective in my PharmD. I don’t know if it was — what was it, Xavier that you went?

Landen Conner: Yes, that was definitely not an elective. I tell you, I was sitting in a desk working specialty pharmacy, and I was — I kept saying the same thing over and over again. I was like, man, I’m basically saying, “You want fries with that?” And I’m like, God, you’ve got to have better for me than this. And then one of my best friends back home in New Orleans, Calvin Gaveon, called me. He told me how much he was making doing wedding photography. And I said, “No way, dude.” He’s like, “I promise you, man.” And I’m like, “Cool, I’ll pick a camera and do the same thing.” But it was so much more than just picking up a camera and shooting a wedding. I found my personal niche in headshot photography. And that grew into branding and marketing a person because the joy that I experience meeting that person one-on-one and attacking those internal securities — insecurities — watching them heal in front of the camera was just golden, knowing that you could do that in the power of a millisecond with a click, this person’s whole life can change.

Tim Church: So Landen, your friend Calvin reaches out and says, “Hey, you should try this out because I’m making great money, and it’s an opportunity for you to do something on the side,” not knowing it would eventually become your main gig. But you talked about something there that I think is really important and really stuck with me is that you said you had the opportunity to learn other people’s stories and to help them get to a point where they weren’t so insecure about getting even just a simple headshot. Talk about that.

Landen Conner: I’ll take you — I’ll make it relational. Like whoever may be listening to this, you go back to the age, I mean, to your kindergarten age. And you get your mom and your dad, and you think they’re doing the greatest thing in the world by having to take kindergarten photos. Most kids don’t want to take them. Or you’re being bullied in school or someone, that one person in life tells you you’re not beautiful and you’re not worth it. You carry those insecurities with you throughout the rest of your teen years, your adult childhood years. So once someone’s steps in front of a camera, they’re carrying it, like I’m not photogenic. I’m uncomfortable in front of cameras. I’d say that’s 99% of people I shoot, they tell me that they don’t think they take great photos. And they don’t value themselves. And once I meet them at the corner of that insecurity and just give them small coaching tips and walk with them through, it’s like, “Hey, you’re beautiful,” or, “You’re debonair.” Who told you that lie? And they pour out their heart to me. I can give you a story, a couple stories if you want.

Tim Church: Yeah, let’s hear it.

Landen Conner: The first time where photography became so much more than just a photo, I walked in shooting this behind-the-scenes interview that a guy from my church asked me to do. And I said, “Sure, I’ll do it. I just need to get some headshots to build my portfolio.” And the main interviewee said, “I hate my photo being taken. I really don’t want to do this.” So I asked her, I said, “Can you give me five minutes? If you don’t like it, delete it. It’ll never see the light of day.” And she allowed me to do the photo. I edited it, sent it to her probably within 48 hours. Then she called me back about a week later, kept me on the phone for maybe an hour, and said, “Landen, I put this on Facebook, and I got over — at that time, I think 75-100 likes.” And she was almost in tears because she said, “I am beat up verbally so bad in a marriage, abused in a marriage, abused in her childhood, I thought I was the ugly duckling in the family.” And from that moment on, it completely changed every time I stepped behind camera and had someone in front of my camera. The second one that made a massive difference was probably about a month or two ago, I photographed this young lady that was a resume writer. She came in, she got her head — she was ready to do her headshot. First five minutes, we shot, made sure my lighting was good and everything. And then I was just talking to her, getting to know her, and then in five minutes, we got a photo that she loved. And walking back to the bathroom to change, she stopped midstream and said, “I can’t believe you made me look this beautiful.” And I said, “Why? You’re beautiful.” She’s like, “I just had a kid two weeks ago, my body is out of shape from the weight gain from the pregnancy, and I didn’t feel like I was myself.” And I was like, “Hold on, you’ve got to stop because you’re about to make me cry.” And she just kept going on, and the session was just magical.

Tim Church: So did you ever think that when you were getting into the photography business that you were going to hear these stories from people or that you were going to have the opportunity to walk with them in what was a very difficult thing to do, which may not be for other people, but for a lot of people, it is?

Landen Conner: Absolutely, 1,000% no. I had no clue this would happen. I had no idea. I’d be lying to you if I said I did.

Tim Church: And so how has that really changed your perspective? And was that part of how you flipped that switch to basically say, I’m going all in?

Landen Conner: Yes, absolutely. Recently I joined a Christian Chamber about three months ago, and the leader of the Christian Chamber was Crystal Pocker. And she helped me to marry the two fields because I thought pharmacy had nothing to do with photography. And she said, “Landen, the common thing you have, you did one P with Pharmacy and now you’re doing another P with Photography, but in the middle, that P was People, that you care for people and want to see them win in life and not just meet the status quo because everybody is unique.” I’m different from you, Tim, you’re different from me. We may have some commonalities, but you have your own personal traits.

Tim Church: I think it’s just amazing, the work that you’re doing because it goes beyond just putting images on a website, on social media account. It’s driving a lot of impact and helping people get to a place where they’re comfortable with themselves. And I mean, I think that’s huge. It has to really give you that warm and fuzzy feeling inside.

Landen Conner: It does, but you want to know something, Tim? I was scared as I don’t know what to share people’s stories initially. I really battled with that because let’s just say if I took a — because if I took a photo of you and you shared something personally with me, I would — I would say about a year and a half ago, I would just put, “Had a great time working with Tim. And he was excellent to photograph.” That tells the viewers nothing. But sharing those stories, it makes it so relational, just like I shared with the lady that was mentally, physically abused in her previous relationship or with the guy who was molested at a young age, those type of things. I don’t have to put the molestation, but it’s a sense of rejection from another person’s perspective. You need to make it totally relational. I just posted something a couple of days ago. I said, the title of it was, “Don’t be Stiff.” As soon as I put that up, I said, man, this is so relational. Because I get in front of a camera and freeze up every time.

Tim Church: How have these stories that you’ve collected from the clients during the photo shoots, how has that helped with the marketing of your business?
Landen Conner: It’s humanized it because when you see those headshots, you see a healed person. You don’t see the person that looks like everybody else. You see that actual person. If I photograph Tim, I’m not shooting just with Tim. I’m shooting for Tim’s audience. I’m shooting so they can meet who Tim is, not just the, “Smile, Tim!” That’s not it.

Tim Church: Well, Landen, I want to switch a little bit and kind of dive into the mechanics of the business. The article mentioned that you used cash to fund the initial startups and you said this was something really important to you. So talk a little bit about that.

Landen Conner: I was at a photography conference, and this one photographer told me, he said, “Don’t look at your business” — I mean, “Don’t look at your day job as just a day job. Look at it as an investment into your business.” And since I already had a limited school loans, I didn’t believe in debt for the business because it did one big thing. I bought one lens on credit, and it would make me talk to people — I would allow myself to talk to people differently, thinking I had to book this client to justify putting this lens on debt. But when I paid cash for everything, I didn’t have that type of burden in my life. So it allowed me to actually sit and talk with clients freely and to serve their best needs.

Tim Church: And what were some of the other startup costs that you had besides the lens and some of the basic equipment? Anything else you needed to kind of get up and running?

Landen Conner: I would say the biggest thing — of course, cameras, different cameras, more up-to-date cameras, lenses. But getting to be able to afford automation because I photograph different people on different days, and that’s a lot of storage to kind of keep inside. So I don’t want to just share everything all at once because you get tired of seeing it after awhile if I overload you with too many stories. So I just needed to hit with that one person that one day or two people so they can know that they’re not alone. So the automation was the biggest thing.

Tim Church: Do you mind sharing approximately, what was the cost that you needed to kind of at least get started? What are we talking?

Landen Conner: I would say anywhere from $10,000-15,000 maybe. If it was now, I think you could do it — actually, I know you can — as much as half that amount.

Tim Church: That’s not a little amount to kind of get started. I mean, was that sort of intimidating looking at those costs? Or was it much more palatable considering you started it while you were still working full-time as a pharmacist?

Landen Conner: It was easier because at a pharmacist’s salary, did I know it at the time? No, not until I did my taxes at the end of the year, and I’m like, “I spent what on what?” But I’ll tell you this, for any aspiring people, do your research first. Even though I didn’t research, there were some of the marketing tricks that I fell for, which I allowed myself to waste money in certain areas. And that would have cut my costs in half, by at least 25%.

Tim Church: So do your homework. Know what the bare minimum you need to get started. But it may not be as expensive as you think is what it sounds like.

Landen Conner: No, it’s definitely not as expensive as what you would think. Right now, they’ve came out with better products at a much more affordable cost. So that’s going to knock your costs from where I started for probably down by more than half.

Tim Church: Wow. That’s a big deal. So you said a little bit earlier that headshots are basically your jam, that’s the space that you excel at and how you’re helping people. Are there any other services that you provide or that you do?

Landen Conner: I still do family shoots when my clients ask for them. Weddings, I’ve kind of stepped away from. I’m doing my last wedding this Sunday. My bread and butter now is marketing and branding, commercial photography. And we just start with the headshot and build all the way down. Why? Because everything starts with you. As a small business owner, I want to know who you are. We don’t have the luxury to hide behind a brand name such as a Nike or Apple.

Tim Church: So talk a little bit more about that, that beyond just individuals marketing themselves, you’re talking about other businesses and helping them with their marketing materials, specifically with photos but even other things as well. Talk a little bit more about that.

Landen Conner: Sure. With the marketing and branding is — you know how we, like when we start a business, we always go to those free stock image websites?

Tim Church: Yeah, of course. I’ve used those multiple times.

Landen Conner: Oh boy. Should we change the question? So as a photographer, there’s nothing wrong with those starting out. But you should try to get away from those type of websites within your first 6-12 months, especially if you’re getting big. Because if you look at it, those are models and those are ideal situations. I’ve seen a lot of times where people use those stock imagery images, and I can go to another website and see the same stock images. So it causes a disconnect in the viewer’s mind. Or let’s just say that small business owner to mid-size business owner invites me to their office, I go to their website, it doesn’t look anything like this. So now I have my defenses up because I think you’re lying to me. They’re never going to tell you this, but it’s the same scenario. When you’re doing your marketing and branding, you can’t market and brand on things such as Facebook, Instagram, using non-organic photography.

Tim Church: And so what it sounds like is you’re basically helping to foster that image of that company, of maybe that individual as well, and making that more of an authentic feel versus something that is not actually representing who you are and what you’re doing.

Landen Conner: Correct. Absolutely, 100% correct.

Tim Church: So one of the other things I wanted to ask you — what about matching pajama holiday photo shoots? Do you do those too?

Landen Conner: Yes. I’ve done that, two years ago, actually. Two years ago.

Tim Church: I mean, I could see there could be a lot of high demand for that one.

Landen Conner: It’s funny you should mentioned that because you just brought to mind this family that I photographed like two years ago. And the story behind that one was they wanted holiday photos within their home. It meant something to me when they called me because a kid was born so prematurely and was fighting for his life. And now, I believe he’s running, walking and just going all over the place being a kid. But knowing the story, the backstory behind how this kid fought for his life to live and then was able to do the whole photo session and now he’s — you wouldn’t even know he was a preemie.

Tim Church: Wow.

Landen Conner: Those types of sessions are magical.

Tim Church: That’s cool. How specifically are you marketing your business?

Landen Conner: Definitely LinkedIn. Trying to get better at Facebook. Christian Chamber has definitely been a blessing in my life.

Tim Church: Hopefully the YFP podcast as well.

Landen Conner: There’s a new one, another blessing, the YFP podcast. And just word of mouth has been my mainstays right now.

Tim Church: Does anyone help you with the business? Anyone with assistants or doing some of the behind-the-scenes things to get you up and running to kind of do the sales or is this all Landen?

Landen Conner: This has been all Landen — and I use the word ‘has’ because until recently, I realized that with people in my life, I can start to delegate and hire out to do different things. So now we’re moving into video and we’re able to move into doing a full scale brand and market build. So if you need copywriters, if you need graphic design artists, then we’re working purely organic — with organic material for the particular individual or business.

Tim Church: So sounds like things are happening and you’re growing, which is awesome because it means that a lot of people are valuing the services that you’re providing, which I think are huge. Landen, talk about how did you get back into pharmacy? You said you were doing that full-time, you switched to photography, and now it’s kind of coming back to some extent. Talk about that.

Landen Conner: I got back into it because COVID did put a kind of damper on the business for awhile. That and the house note was the only debt that I had that was left to pay off. And then with my wife’s health, with her being diagnosed with MS, I had to provide even when you don’t have a constant income coming in as a entrepreneur. So doing those on-call maybe 1-2 times a week, it does keep a constant flow when I don’t have clients that are coming through.

Tim Church: One of the things that often comes up is how do you even consider a side hustle with a full-time job? People talk about in the YFP Facebook group, they’ll message me on LinkedIn, they’ll say, “How do you do it? How do you work full-time, have a side job, and also maintain your family, your relationships, and do it all?” So how do you do it?

Landen Conner: I would say automation really helps. The other thing is I started to sit back and remember why did I get into this in the first place? Meaning pharmacy. And then the second thing — I mean third thing was do you want to make a difference in just your life and build something only for you? Or do you want to make an impact in others’ lives and change one life at a time and challenge yourself a day at a time? Can you make someone else’s life better? You make time for what you desire to have fulfilled in your life.

Tim Church: I love that. That really pumps me up. But I totally agree with you that if you’re buying into that mission and the results of what that work is going to accomplish, that that can be a huge driving factor for being able to make it work. Totally agree with you on that one. You mentioned automation, so talk about that a little bit. I think that’s an interesting way that you’re making it happen. So talk about that.

Landen Conner: You mentioned that a lot of people ask how do you do it? Let’s just say if you want to do email blasts, ConvertKit is an excellent source. If you want to do Facebook posts, you can schedule out your Facebook posts, your Instagram posts, your LinkedIn, all of those things have built-in automation. And the other thing I would explain to people who are interested in a side hustle and they’re doing those email campaigns, they’re doing those social media campaigns, there’s seven days in a week. One day, you’re going to have a groove. And let’s just say that groove is an hour to two hours. You get in that one or two hours, and you just write or bang out a bunch of posts of things that you want to go on, schedule them out. They don’t have to be every day. They could be weekly. And then as you gain more experience, as you gain more clients, then you add to it. So you’re building slowly. And it adds up over time.

Tim Church: I think that’s big. I think you’re right. You have to harness technology. We all have the same amount of time. We have 168 hours every week. And after sleeping and working your full-time job, I mean, you’re limited. That gets substantially cut. So I think that really is a huge one because you have to think about OK, realistically, how are you going to make it work? And how are you going to do the things that you want? I think that’s big. I mean, I think that’s great advice. So speaking of advice and recommendations, what advice would you give to other pharmacists out there who they have other interests, passions beyond pharmacy that have the potential to be turned into a business or they have an entrepreneurial mindset?

Landen Conner: Go slow. That was one of the biggest things that I say now I understand because if you think of the story of the tortoise and the hare, the tortoise always wins. Get out of debt. Organize it from biggest to smallest. If you watch Dave Ramsey, you understand that. And give yourself small wins. Look at the pharmacist’s salary allocated in percentages. If you want to take 10% out of your salary and invest into your business to get those automation programs, they’re going to pay off huge in the end.

Tim Church: That’s so good. I want to bring another one up that you mentioned in the article, which was find the right group of like-minded people who won’t just tell you what you want to hear but what you need to hear. How has that helped you?

Landen Conner: Immensely. A lot of times, it’s hard to hear what you need to hear from people. I haven’t had that issue because I have friends that they’re going to tell me whatever it is that they feel like they have to tell me. I know it’s out of love. So it’s getting to a place that I know that they love me and tell me up front versus hiding the truth and hurting me or damaging me long-term. My grandfather, before he passed when I think I was like 8 or 10 told me something I never forgot. He said that there are only going to be three people that make it off your block. And lo and behold, there was only three people that made it off my block that was successful. And he said, “Watch the company you keep because whatever company you hang around is what you will become.” Is that always the truth? No, but a good majority of the time, I’ve seen it come to fruition.

Tim Church: I definitely agree. And sometimes, we need that criticism, that feedback, if we want to make it to the next level.

Landen Conner: True.

Tim Church: I totally agree with you on that. Well Landen, thank you for coming on the show, for sharing your story. Thanks for being open about the burnout that you experienced as a pharmacist. I know you’re not the only one out there who has gone through that or is going through that. A lot of pharmacists are dealing with that, so thank you for being open about that. And you know, I really look forward to hearing about your progress as your business continues to grow and you continue to create memories but also share people’s stories with the work that you’re doing. And I think it’s just amazing, that work that you’re doing right now. So if somebody wants to reach out to you for a holiday photo shoot, wants their headshot for LinkedIn or they just want to learn more about who you are and what you do, what would you recommend?

Landen Conner: Of course reach out to me on LinkedIn at Landen Conner or my website, www.landenconnerphoto.com, and it’s with e’s. And of course the last one, which hardly anybody takes advantage of — give me a call. (514) 905-2249.

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YFP 185: 10 Financial Moves to Make in 2021

Posted on January 7, 2021November 2, 2022 by yfpadmin

10 Financial Moves to Make in 2021

Tim Ulbrich talks through 10 financial moves to make in 2021. It’s time to turn the page on 2020 and start 2021 off the right way and that’s with an intentional plan.

Summary

The start of a new year brings an opportunity to reflect, reset, and start fresh. It’s also an incredible time to dig into your finances and become really intentional with your 2021 financial plan. Tim Ulbrich talks through 10 financial moves you should consider in 2021 and how to make them happen.

Here are the 10 financial moves you should consider for 2021:

Simplify and clarify your goals for the year
Revisit the big questions and discussions with your spouse
Take advantage of any low hanging fruit to get a win or two and gain some momentum
Put your goals on automatic…and get out of the way!
Revisit your student loan game plan
Take your tax strategy to the next level
Button up the insurance part of your financial plan
Evaluate where real estate may or may not fit into your financial plan and goals
Update your legacy folder
Set your learning plan
BONUS: Find a community and get a coach for accountability and guidance

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Tim Ulbrich here, and excited to turn the page on the New Year. Here we are, 2021, hard to believe we’re at the start of the new year. And we know that 2020 was a hard year for many, and I’m hopeful that 2021 brings a better year for everyone.

OK, let’s do this. 10 financial moves to consider for 2021. And spoiler alert: I’ve actually got 11, so we’ll have a bonus one at the end. Now, we know every new year, it’s a chance to turn the page, a chance to reset, and yes, it’s just an artificial point in time, a day that is really no different than any other day except obviously for tax reasons and of course, if something is changing at the 1st of the year, whether that be compensation or benefits. But regardless, those aside, it’s an opportunity to turn the page and let’s take advantage of the opportunity to reset. Now, perhaps resetting means that you’re someone who’s on track and it’s just reminding yourself of the plan that you have in place and celebrating the success and the wins that you’ve had thus far and wanting to keep that momentum going forward. Or perhaps the new year means that you feel like you’re not on track. Maybe you’ve got a plan or a plan that you need to dust off, and it’s a chance or an opportunity to reset course and to recorrect for the new year. Or perhaps you don’t have a plan, and it’s time to get one in place and it’s a time to evaluate what are the different parts of the financial plan and considering all of the things that are out there, what are the low-hanging fruit and what are the areas that you can begin to get some momentum on to be able to have longer term success as it relates to your finances?

So No. 1 — as we go to this list towards 10 financial moves to consider for 2021 — No. 1: Simplify and Clarify Your Goals for the New Year. Now, notice I didn’t say set your goals as I suspect that many of you are already doing that. We talk about that on the show all the time, the importance of having an intentional plan heading into the new year or just in general, an intentional plan as it relates to finances to know your compass and know where you are going. So rather, what I’m referring to here is bringing them into focus and getting specific with those goals to make sure that you’re laser-focused on how you’re going to achieve those. So we know, I know, you know, that there are lots of competing financial priorities, regardless of the stage that you are at within your financial plan. So perhaps you’re somebody who’s listening that has been out of school for a decade or more and you’ve worked through maybe the student loan debt that you’ve had, you’ve paid that off and you’re kind of on a next evolution or phase of your financial plan. There’s lots of competing priorities, even after getting rid of those pesky student loans. Or perhaps you’re someone who is a recent graduate or a student that’s listening and you’re trying to figure out, OK, I’ve got this behemoth of my student loans, and how do I begin to think about other things as I also face what is, of course, this big priority that’s right in front of me? Or perhaps you’re someone who’s nearing the retirement age or you’re in the latter part of your career and you’re trying to identify, OK, I’ve done all of this work, I’ve put these things into place and I want to make sure I go into this next phase of my career, next phase of my financial plan, and I do that in a way that is intentional and I do that in a way that is efficient to make sure I achieve the goals that I want to achieve and of course, lots of tax and other considerations that are there as well. So regardless of the stage that you’re in, whether it’s mid-career, end of career, new career, there are lots of competing priorities. And I’m convinced that the priorities, you know, don’t go away. But it’s a matter of how you can identify those and prioritize those to make sure you’re intentional with what you’re trying to achieve in any given period of time. And here, of course, we’re talking about heading into the new year. So if you haven’t already done so, put them down on paper. And my encouragement for you is to leave this to just a few financial goals that you want to make sure that you prioritize and achieve for the year. So I’m going to encourage three goals and that you write them in a way that provides you with the best opportunity to achieve that goal. So making sure you’re specific about the what of the goal, the when you want to achieve that goal by, and the why — what’s the purpose, why does that matter in terms of the rest of your financial plan and why is this specific goal important?

So let me give you an example here. If I were to say, you know, “Beginning Feb. 1, I’m going to allocate an additional $200 per month towards a Roth IRA so that I can grow my long-term savings in a way that aligns with my retirement goals or plan.” So when I get that specific with a what, with a when and a why — so here, we’re talking about what are we doing: an additional $200 per month towards a Roth IRA. When: by Feb. 1. Alright, how does that look in the budget? Now I’ve got an idea of when and how much. Why? So that I can make sure I’m achieving my long-term savings goals. That is a goal that we’re likely or increased likelihood of achieving because we’re getting specific and we can look at the rest of our financial plan to determine whether or not that is feasible and whether or not that is realistic.

Now, before you set your goals, you’ve heard us say this on the show before, you have to be clear on the why, the so what, the purpose. And we’ve talked about why finding your financial why is so important. And you know, really, what we’re trying to answer here is the question of why does this topic of money even matter to you? Or why does this specific goal and achieving this specific goal even matter? Why is this important? Why is this relevant? And that sounds like a relatively simple question, but if you have thought about this in depth before, you know that it is not. This is the “So what?” question. So before you get too deep into the x’s and o’s of any one part of the financial plan, whether that’s debt repayment, whether that’s investing or savings or insurance, whatever that would be, we have to first understand what we’re trying to achieve. And we talk a lot about our vision at YFP of helping pharmacists on their path towards achieving financial freedom. And my challenge to you is what does that concept, what does that term of financial freedom mean for you? There’s no one right answer. And that can certainly — will be certainly different for many folks that are listening to this episode.

So what’s the goal? So a few ideas to get things stirred up, hopefully to get you thinking about this topic a little bit more. I’ve talked with many pharmacists that say, “You know, when I hear financial freedom, I think about flexibility. I think about options of working or perhaps having the choice to work or how much I work or when I work. Even if I really enjoy the work I do.” Or perhaps it’s to be in a position of control with how you’re spending your time or your money. Perhaps it’s to be able to give, to be philanthropic. Perhaps it’s to leave a legacy or to travel without worry or stress or regret. Perhaps it’s to help family members or friends that are in need or be in a position to do that or to start a business or a movement or a foundation or a charity. You get the point. It’s the financial why, it’s the purpose, and that’s really going to help drive the rest of our financial plan. So that’s No. 1, Simplify and Clarify Your Goals. Set three financial goals for the new year. And then the background of those goals should be the purpose, the vision, the why of your financial plan such that if you achieve those goals, you’re one step closer to achieving your financial why.

No. 2, Revisit the Big Questions or Discussions with Your Spouse if this, of course, applicable to you and your personal situation. Could be a significant other as well. Now, I wrote a blog post way back when several years ago titled, “10 Financial Discussions that I Believe Every Couple Should Have.” And we’ll link to that blog post in the show notes. And you know, these are questions such as when you’re balancing financial priorities or making decisions, of all of the financial priorities you have to consider, whether that’s giving, saving for retirement, housing, transportation, paying off debt, and so on, do you and your spouse or significant other agree upon a plan for how you will balance these? How will you prioritize them? How will you fund those goals, in what order and when? Will you be focusing on several at once or just one at a time before moving on to another one? That’s an example of a big question or discussion to have. Another one, for example, might be around giving. How does each individual feel about giving? How much and where? How will this be budgeted for? Another one might be around the level of engagement. Is one individual taking the lead more than the other when it comes to managing the finances? If so, are both individuals aware of the overall financial situation? How do you talk about this topic? How do you communicate this topic? Are there shared accounts, individual accounts? So I’m just scratching the surface here, and I’ll reference you to that post. But my encouragement would be to look at these and maybe several of these you have had, maybe some you need to revisit, some you haven’t had. But the challenge here in No. 2 is to go back and revisit, discuss, rediscuss these questions with your significant other or your spouse with the understanding that the answers to these are of course going to be significant and inform the direction that you take with many parts of the financial plan.

No. 3, Take Advantage of Any Low-Hanging Fruit so that you can get a win or two and get some momentum early on in the year. Now, again, regardless of where you are at in the stage of your career or your financial plan, I think this is a very important concept for us all to consider. Is there any low-hanging fruit that we can get a quick win or two, get some momentum, so that we’re encouraged and motivated and want to be going on with achieving the other perhaps more audacious or bigger goals that we have set out for the year. So things that come to mind here, things that I evaluated myself in 2020, these could be shopping around auto or home insurance or have you looked at this in a while? If not, good chance to understand your coverage, shop these around, see if there’s any you can save without giving up on the quality of those coverages and policies. Perhaps you’re someone who has wanted to get a term life insurance policy in place or that is a need and it fits with your plan but for whatever reason, you haven’t done that. Relatively inexpensive, we’ll talk about insurance here a little bit in a few moments. Maybe it’s refinancing a mortgage. You know, I’m sure you all heard and read about where rates have gone in 2020, certainly probably into 2021, through the pandemic. And perhaps for whatever reason, you haven’t evaluated that. Is that something to consider? Are there any recurring bills that perhaps you’re not aware of or maybe have lost track of or bills that have gone up over time that you might be able to take a fresh look at and negotiate, things like cable and other services. Are you eligible for HSA savings? And we talked about this in episode 165, The Power of a Health Savings Account. But this is an example of a tax-advantaged account where there’s great benefits, the dollars aren’t enormous, but again, perhaps this small victory, this quick win, this low-hanging fruit that can help accelerate the rest of your financial plan. So do any of these resonate? Or are there any others that you would identify of things that you’ve been meaning to do that you know what needs to be done and you want to just take that next step and knock it out and to continue the momentum with other goals in 2021.

No. 4, Put Your Goals on Automatic and Get Yourself Out of the Way. Now, one of my favorite books, I’ve talked about it on the show many times, “I Will Teach You to Be Rich” by Ramit Sethi, he talks about this concept of automation, automation, automation. He goes through great examples of how to do it. We’ve also talked about it on this show, Episode 057, The Power of Automating Your Financial Plan. But the concept is simple: Once you set your financial goals, when your paycheck comes in, you have a system in place so that your goals are being funded right away and that you have a budget behind that to know that you’re not going to be putting yourself in a position where you’re overspending your income each and every month. Now, for those of you that have been doing this for some time, I think this concept of automation is also very important. It’s this concept of prioritizing your goals, paying yourself first rather than hoping you have money left over. And so perhaps it’s revisiting those goals, revisiting the amounts, the timeline, when do you want to achieve those, and building the systems — again, Ramit talks about that in “I Will Teach You to Be Rich,” we talked about it on Episode 057, how to build the systems so that once you get paid, once you have the goals, you’re automatically funding those accounts such that you are essentially assuring — hopefully — that you’re going to achieve those and behaviorally getting yourself out of the way, which often we individually are the biggest barrier to achieving our financial plan. So that’s No. 4, Put Your Goals on Automatic and Get Yourself Out of the Way.

No. 5, Revisit Your Student Loan Game Plan. Now, here we are at the beginning of 2021, ready to turn the page on a new administration in terms of the President and the President’s team, which may or may not bring additional changes around student loans. We don’t know that yet. But what we know of the first of the year, is that we know that the most recent stimulus package that was passed at the end of 2020 did not extend the administrative forbearance on qualifying federal loans that has frozen for the last nine months or so the interest that was due and any payments that were required on those loans. So it’s really been an incredible time period for those that have qualifying federal loans. For good reasons, payments were not due and interest was not accruing on those qualifying federal loans. So what’s going to come next? We don’t know. There’s been lots of hypotheses that have been thrown out there. There’s been several proposals that have been mentioned throughout the presidential debates and leading up to the election. But we don’t know. As of early January 2021, we don’t know what’s going to happen. Now, we do know that if nothing else happens at this point in time, this administrative forbearance is going to expire. But perhaps this could be continued through an executive order, perhaps there’s additional policies and legislation coming into the future. But we don’t know. So my point here is this is the time period, throughout the month of January, to take advantage of this administrative forbearance as long as it lasts — and if it goes on longer, great. If it doesn’t, you’re ready to go. Take advantage of this time period to come up with your student loan repayment plan or to evaluate or re-evaluate your options to make sure that you’ve got the plan in place that’s going to be the best fit for your personal situation. And we talked about this at length on several other episodes, we’ve got lots of resources on the blog, we’ve got, of course, one of our latest books, “The Pharmacist’s Guide to Conquering Student Loans,” which talks about A-Z student loan repayment for pharmacists. And you can get a copy of that book at PharmDloans.com, and if you use the coupon code “YFP,” that will get you 15% off. So this is the time period to take advantage of this administrative forbearance, as long as it lasts, understand and evaluate all your options, and be ready to go such that when this time period is done, you’re ready to hit the ground running with an intentional student loan repayment plan. Now, for those that don’t have student loans or paid them off, happy dance, right? We’re excited that we’re at this point in time, but perhaps this is also an opportunity to pay it forward and help those that are in this situation — it can be very overwhelming — through providing your input, your experience, maybe getting them a copy of a book like the “Pharmacist’s Guide to Conquering Student Loans,” or pointing them in the direction of some resources that could be helpful to them, things that you’ve learned through your journey, mentoring other folks, but an opportunity to pay it forward to those that are dealing with student loans and typically six figures or more of student loans front and center as they’re trying to attack this and come up with a plan in 2021. So that’s No. 5, Revisit Your Student Loan Game Plan.

No. 6 is Take Your Tax Strategy to the Next Level. Now, Episode 184, just last week, we talked about how to optimize your tax strategy. I brought on YFP Director of Tax and our CFO Paul Eikenberg, who’s our tax professional at YFP. And we talked about the difference between tax planning and preparation, a very important difference. We talked about tax planning mistakes that he sees, we talked about strategies that pharmacists should consider employing to optimize their tax situation. We talked about strategies around legal tax avoidance, tax deferment, and then opportunities to take advantage of those accounts and strategies where you can have tax-free gains. And we broke down each one of these strategies and ones to consider, and so go back and listen to Episode 184 if you didn’t catch that over the holidays. And this is the chance — if you have been someone that has perhaps had your tax filing on automatic and haven’t really thought about understanding all of the different options being a little bit more strategic with OK, now that we’ve completed the filing, what should we be thinking about for the next year in terms of more of a strategic tax plan? Perhaps this is the year where you look at bringing somebody into your financial plan that can really help you be more intentional with your tax strategy. So Paul, as I mentioned, leads our tax planning and preparation services for clients of YFP Planning. And this year, we’re excited to make that service available to 50 more households. And so you can learn more about the tax planning and preparation services that we’re offering and secure your spot by visiting YourFinancialPharmacist.com/filemytaxes. Again, don’t wait. We’re capping this opportunity at 50 pharmacist households. So first come, first served. Again, that’s YourFinancialPharmacist.com/filemytaxes.

No. 7, Button Up the Insurance Part of Your Financial Plan. This is the defensive part of the financial plan. Now, there’s lots of insurance to think about, right? Health, auto, home, renters — but here, I’m really specifically talking about life, disability and professional liability. And this is a part of the plan that I think often gets overlooked because it can be overwhelming to understand what one does or does not need. It can be perhaps not necessarily very exciting, right, to spend money on things that may or may not happen when you look at other priorities such as paying off student loans or investing or saving for the future. So my encouragement is learn first, shop second, and buy last. So first, determine what you do need, what you don’t need. So what does your employer offer? What do they not offer? Where are there gaps? What types of coverage do you need based on your personal situation. We talk about this at length on Episode 044. We talked about how to determine life insurance needs, Episode 045. How to determine disability insurance needs in Episode 155, why you need liability insurance and there of course, talking about professional liability. So learn first, spend time, dig in, understand life, disability, professional liability, understand the nuances of those policies. Shop second. Find an independent broker, and we’ve got some resources on the YFP site that can help you shop the market of what you do and do not need after you evaluate what you do or do not have from your employer, what other coverage do you need, what gaps exist? And then finally, buy last once you’re confident in what you need and the options that are out there.

No. 8, Evaluate Where Real Estate May or May Not Fit into Your Financial Plan and fit into your long-term financial goals. Now, I’ve said this before that as we focused on more real estate on this show in 2020, we’ll be doing much of that in 2021 as well, I’m not suggesting that real estate is for everyone. But I do have a sense that for many pharmacists, evaluating real estate investing — and there’s a lot of different ways to get there — is something that folks are interested in, encouraged in for a variety of reasons, and maybe have been on the fence about should I look at doing real estate investing? Is this a part of the financial plan that makes sense based on a lot of different factors? So looking at the risks, the rewards, what’s the goal? What’s the point? Why do I want to invest in real estate? What’s the point of perhaps generating additional cash flow each month? How might you get involved? Or how involved do you want to be or not involved? Do you want this to be more passive? Do you want it to be more active? Do you have opportunities in your area? Would it be outside of your area? Are there mentors or resources in your community that can help you? And so we have — as I mentioned — featured several stories in 2020, a few that come to mind, Episode 173, Ryan Shaw, all these pharmacists, Ryan Shaw talked about the systems that he has in place for the investing that he does. Episode 178, Nate Hedrick, our real estate expert, talked about his experience flipping a home up in Michigan. Episode 182, Young Park talked about his experience with long-distance real estate investing, lives in Hawaii, invests primarily in Kansas City, and how he has developed systems and how he has built the beginnings of his real estate portfolio. So I recommend you check out those episodes and really determining what your plan is in 2021 if you feel like real estate investing is a good fit. What’s the plan for 2021? Is it learning more? Is it making a move on a property? Is it finding a mentor? Is it more than one of those? So make sure to tune in here, more to come in 2021. We’re going to have more episodes, more content focused on real estate investing. We’re going to be launching a real estate regular show, regular podcast on this YFP podcast. We’ll have more information coming about that throughout the month of January and February. And we’re going to continue to build out more resources for those that are looking to learn more as well as engage and connect with other pharmacist real estate investors. Now, of course another great place to learn — as I’m sure many of you have already heard of when it comes to real estate — Bigger Pockets has great content, great resources, they’ve got forums, the podcast, the blog. And one of my favorite books for those looking to get started, “The ABCs of Real Estate Investing” they published as a book. So lots of places to go here. No. 8, Evaluate Where Real Estate May or May Not Fit into Your Financial Plan and Goals and determine where you’re going to take action as it relates to this goal.

No. 9 is Update Your Legacy Folder. Now, we talked about this. It’s been awhile, but way back when, early on in the show, we talked about this concept of a legacy folder. And I think as we turn the page on 2020, heading into 2021, this is a good time to make sure that you’re updating your systems and your files and you’re making sure that what you have in place is most up-to-date and relevant information. So I first heard of the idea of a legacy folder when taking Dave Ramsey’s Financial Peace University through a local church several years ago. And I remember walking away thinking, wow, so obvious yet so important and at the time was something that I hadn’t yet implemented for our own family and our own financial plan. And essentially, the idea of a legacy folder, whether it’s physical, electronic, or both, is a place where you have all of your financial-related documents so in the event of an emergency, others would be able to quickly assess your financial situation and get access to all of the documents and accounts that pertain to your finances. So examples of items here could include things like insurance policies, wills and power of attorney, account information for savings or debt or could be mortgages, could be credit cards, could be student loans, various savings accounts you have, whether that’s brokerage accounts, retirement accounts and so on. Essentially, a one-stop shop for all of your financial documents and making sure those that should have access or could have access or would need to have access know where that information is and how they can get ahold of it in the event of an emergency happening. Of course, you’ve got to think about security and how you secure that information, whether that’s physical, electronic, or both. So that’s No. 9, Updating Your Legacy Folder.

No. 10 is Setting Your Learning Plan when it comes to personal finance for 2021. Now, at YFP, one of our core values for our team is encourage growth and development. And we believe that for ourselves, for our team, and for you, the YFP community, this concept of constantly growing, learning and developing needs to be at the front and center of one’s financial plan, regardless of where you are at on this journey. Right? There’s always something to learn on this topic. So podcasts, lots that are out there, of course, this one. We hope you’ll tune in. I mentioned the Bigger Pockets podcast, there’s other personal finance podcasts and some resources. When it comes to books, of course there’s the classics: “Rich Dad Poor Dad,” “Millionaire Next Door,” other books that come to mind as some of my favorite personal finance books: “The Automatic Millionaire” by David Bach, “Tax-Free Wealth” by Tom Wheelwright, “The Truth About Money” by Ric Edelman, “The Compound Effect” by Darren Hardy, “The Behavioral Investor” by Daniel Crosby, and one that I recently read that’s not as well known, “Happy Money: The science of happier spending,” written by Elizabeth Dunn and Michael Norton is a great resource, not on the x’s and o’s of the financial plan but more on when it comes to how we use our money, what are some of the things where when we think about our why and our purpose and driving value and happiness, how can money be used as a tool? And what does the science really have to say in that area? So set your plan, look at the options. There’s many out there. I’m sure the YFP Facebook group would have other suggestions as well. And set your learning plan for the year and be intentional about making that a priority in 2021.

No. 11, as I mentioned, I had a bonus here. No. 11 is Find a Community and Get a Coach for both accountability and guidance. Now, when it comes to the community aspect, I hope if you’re not already, you’ll be a part of the YFP Facebook group. I think this is a great community that is really encouraging in some regard, mentoring, helping one another on their path towards achieving financial freedom. I think we’re now a community of about 8,000 strong pharmacy professionals all across the country, so hope you’ll join us. And in terms of getting a coach, we really believe one-on-one comprehensive financial planning is what leads to the greatest accountability and the customization of all of these topics that we’re talking about to one’s individual situations. And so I think this derives the greatest results for the obvious reasons of it’s one-on-one, it’s intentional, it’s consistent, it has accountability, it’s specific to your goals and your plan. But we recognize that it may not be for everyone for a variety of reasons. But if you’re not yet already aware or participating in our comprehensive financial planning one-on-one services, you can schedule a discovery call today, no obligations, see if it’s a good fit for you, a good fit for us. And you can do that by going to YFPPlanning.com, click on “Schedule a Discovery Call,” and we’ll get you on the calendar here in the next month. We also talked about in Episode 181, for those of you that are thinking about is a financial planner a good fit, we talked about many of the topics of financial planning of what we do at YFP but also what are important to look at in general? Fee-only, fiduciary, comprehensive, making sure you’re finding the good fit of financial planning services that are specific to your individual needs. And that was Episode 181.

So there you have it, 10 financial moves to make for 2021 or to consider, plus one in terms of the bonus of finding a community and a coach for accountability and guidance. And speaking of that community, as I mentioned in the introduction, we’ve got an awesome giveaway to go along with this episode to kick off the new year. I mentioned how important it was for my own financial plan and journey to find good resources. And we’re excited to be sharing those with the YFP community. And so we’re going to be doing that through a giveaway in this early part of January where we’re giving two winners in the YFP Facebook group a one-year YNAB subscription, a pair of Apple Airpods, and a copy of “Your Best Year Ever” by Michael Hyatt. So two individuals will win each of those three things. And to enter, you have to be a part of the YFP Facebook group and then comment with your 2021 financial goal on the giveaway post at the top of the group.

So let’s have a great 2021. Let’s approach this year with intention, with purpose. I hope you’ll share your goals, your success, your wins, your questions, with the community in the YFP Facebook group. And as always, if you liked what you heard on this week’s episode of the Your Financial Pharmacist podcast, please do us a favor and leave a rating and review on Apple podcasts or wherever you listen to the show each and every week. Have a great rest of your day, and here’s to an awesome 2021.

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