August 2022 – Your Financial Pharmacist

YFP 270: YFP Planning Case Study #3: Financial and Life Considerations As Retirement Nears

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YFP Planning Case Study #3: Financial and Life Considerations As Retirement Nears

On this episode, sponsored by Insuring Income, YFP Co-Founder & Director of Financial Planning, Tim Baker, CFP®, RLP® is joined by YFP Planning Lead Planners, Kelly Reddy-Heffner, CFP®, CSLP®, CDFA®, and Robert Lopez, CFP® to discuss a financial planning case study on financial and life considerations as retirement nears.

About Today’s Guests

Kelly Reddy-Heffner, CFP®, CSLP®, CDFA®

Kelly Reddy-Heffner, CFP®, CSLP®, CDFA® is a Lead Planner at YFP Planning. She enjoys time with her husband and two sons, riding her bike, running, and keeping after her pup ‘Fred Rogers.’ Kelly loves to cheer on her favorite team, plan travel, and ironically 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, and 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.

Robert Lopez, CFP®

Robert Lopez, CFP®, is a Lead Planner at YFP Planning. Along with his team members, Kimberly Bolton, CFP®, and Savannah Nichols, he helps YFP Planning clients on their financial journey to live their best lives. To go along with his CFP® designation, Robert has a B.S. in Finance and an M.S. in Family Financial Planning. Prior to his career in financial planning, Robert worked as an Explosive Ordnance Disposal Technician in the United States Air Force. Although no longer on active duty, he still participates as a member of the Air Force Reserves. When not working, Robert enjoys being outdoors, playing co-ed volleyball and kickball, catching a game of ultimate frisbee, or hiking with his wife Shirley, young son Spencer, and their dogs, Meeko and Willow.

Episode Summary

In this week’s episode, YFP Co-Founder & Director of Financial Planning, Tim Baker, CFP®, RLP® is joined by YFP Planning Lead Planners, Kelly Reddy-Heffner, CFP®, CSLP®, CDFA® and Robert Lopez, CFP® to walk through this financial planning case study featuring fictitious clients, The Kims, and their financial and life considerations as retirement nears. In this case study, Tim, Kelly, and Robert discuss Andrew and Courtney Kim and their current financial situation as they prepare for retirement in the next three to five years. As members of the “sandwich generation,” the Kims, in their early 60s, have concerns about caring for Andrew’s elderly mother and their adult son, in addition to a long list of financial goals, including saving for their grandchildren’s education. The team discusses how to best approach retirement by evaluating their investments, social security claiming strategies, and the budget to build their retirement paycheck. Robert shares insight on having open discussions with key players when planning for retirement and how Andrew’s mother and their adult son can factor into the timing and budget associated with their retirement. Kelly tackles some challenging questions surrounding long-term care insurance and whether or not having a policy will be a solid financial decision.

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

[00:00:00] TB: You’re listening to the Your Financial Pharmacist Podcast, a show all about inspiring you, the pharmacy professional on your path towards achieving financial freedom. Hi, I’m Tim Baker and today, I chat with YFP Planning Lead Planners, Kelly Reddy-Heffner and Robert Lopez, to walk through our third case study of a fictitious family, the Kims. The Kims are in their early 60s and are very interested in how to best approach retirement in the next three to five years.

We break down how to best approach retirement question by evaluating their investments, discussing social security’s claiming strategies and looking at their budget in order to approach building their retirement paycheck. We also discuss other issues such as caring for an adult child and an aging parent, and some questions around long-term care insurance. I hope you enjoy this episode. First, let’s hear from our sponsor, and then we’ll jump into the show.

[SPONSOR MESSAGE]

[00:00:50] ANNOUNCER: This week’s podcast episode is brought to you by Insuring Income. Insuring Income is your source for all things term, life insurance and own occupation disability insurance. Insuring Income has a relationship with America’s top-rated term life insurance and disability insurance companies, so pharmacists like you can easily find the best solutions for your personal situation.

To better serve you, Insuring Income reviews all applicable carriers in the marketplace for your desired coverage; supports clients in all 50 states and makes sure all of your questions get answered. To get quotes and apply for term life, or disability insurance, see sample contract from disability carriers, or learn more about these topics, visit insuringincome.com/yourfinancialpharmacist. Again, that’s insuringincome.com/yourfinancialpharmacist.

[EPISODE]

[00:01:41] TB: What’s up, everybody? Welcome back to our case study series. I’m here with Robert Lopez and Kelly Reddy-Heffner. We’re going to be talking about the Kims today. Now in the previous two case studies that we’ve had, we’ve talked about different stages of life, whether it’s a newer pharmacist, a pharmacist that has a younger family that’s trying to work through different issues with college funding.

Today, the Kims, they’re going to be more closer to those years of approaching retirement and really asking those questions about hey, do we have enough? Can we start winding our careers down and look at retirement and more seriously? Robert, Kelly, welcome back to this third installment of the case studies. How’s everything going?

[00:02:25] KRH: Going pretty well. How are you doing, Tim? Welcome back from your –

[00:02:27] TB: Awesome.

[00:02:28] KRH: – sabbatical.

[00:02:29] TB: Yeah, appreciate it. I’m back, energized. I enjoyed the time off. I’m happy to be back. Shaved my head, so I’m in this weird period of, should I shave it again, or not? Yeah, doing fun. How about Robert? How’s everything going with you?

[00:02:42] RL: It’s going pretty good over here. Football season is upon us, so it’s the good time of year.

[00:02:46] TB: Yeah, go Birds. Excited for that. I told my wife, Shay, that we’re back to that time, where Saturdays and Sundays are going to be a little rough in terms of getting anything done. Yeah, I’m excited for football season. It’s actually starting to cool down over the weekend here. We’re in these knees, highs of 70s. Yeah, fall is coming.

Yeah. So let’s jump into it guys. As you guys can see, if you’re watching on YouTube, we share the case study, the fact pattern. Robert is going to kick us off and go through who we’re talking about today. Kelly’s going to go through the goals and some of the debt and I’ll set up the rest of it. We’ll put in protection, some of the tech stuff and some of the facts of the case. Go ahead, Robert. Kick us off here.

[00:03:30] RL: Yeah. Today, we’re going to go over Andrew and Courtney Kim, who are 62 and 60, respectively. Andrew is an operations manager for a defense contractor. He makes $205,000 per year. Courtney is infectious disease pharmacist working for the VA. She makes a $150,000 a year. They file their taxes, married filing jointly. They have two sons, Peter and Logan. Peter is a software engineer, 32, married, two kids, living in San Francisco. Logan actually is living back at the house. He’s 30-years-old, but he recently lost his job and is staying with parents for now. They live in Portland, Oregon. They have a combined gross income of $355,000, which breaks down monthly to $29,583. Their net, which is after taxes and contributions to retirement plans and insurance is $11,795.

They have expenses that break down as $3,500 for fixed expenses, $2,600 for variable expenses, and about $5,600 going to savings, which is better than the 50-30-20 that we aim for, and it’s closer to a 30-22-47. They live in a four-bedroom single-family house they purchased back in ’86 for a $105,000, which is where it’s worth well more now. Is completely paid off. Andrew’s mother who’s 82 lives about an hour away, but that may be changing in the near future based on her health concerns.

[00:04:50] KRH: Of course, as they approach this next transition phase, thinking through some of their goals, so they both are interested in retiring in the next three to five years. Hey want to make sure that they have enough and also, see what their Social Security benefit will be as part of that retirement nest egg and what they have available. Thinking about downsizing. That’s a common conversation. Also, with Logan back in the house and not sure about where mom may need to be residing and what assistance she will need, that’s a consideration. They also have another son and grandchildren in California. Want to make sure insurance is squared away. There may be a time with a gap in health insurance. Understanding what that means before they can be on Medicare.

They want to focus on some more leisure and do the traveling, see the people, do the national parks. Then, they also want to make sure that they can take care of mom and that their children are in okay shape as well, and maybe save some money for the grandchildren’s education in the future. As we start looking at strategy, they also have some debt. They do not have mortgage debt, so that has been paid off in the last year as Robert mentioned. They do have a car note, the very fun Tesla, which has balance.

[00:06:15] RL: You know a little bit about that. Yeah.

[00:06:17] KRH: I do know a little bit about that. Yeah. That apparently, pre-retirement, you need to get the fun car and then have to take care of it. 35,000 left on that car note at 4.5% interest. Then, they took out some private loans for Logan’s education, currently at a 6.75% interest rate with four years left, and that balance is about $24,000.

[00:06:42] RL: Yeah. As we look at the wealth building stuff and be jumping back and forth between this and the net worth statement. Their cash in checking and savings is right about a $100,000, which is they’re probably a little bit over funded there, given the expenses that Robert laid that in 401k that he has with his defense contractor job, he’s putting in 13.2%, which is about $27,000, which is what he can put in $20,500. Then after age 50, you can put the extra 65 in it, $6,500 there. $27,000 is what he’s putting in, plus a 6% match that he gets from his employer. It’s right now invested in target date funds for 2035.

Courtney has a TSP from the VA. She’s has in the middle of the VA long, where we received in the last couple of years. Her pension stuff can probably be similar to what we see with a lot of our clients with regard to that. She’s putting in 18%, which is $27,000. Plus, she gets a 5% match. She’s in basically, 50% CE fund, and 50% iFund, so all equity. Common stock and international companies. She has an old 401k that she hasn’t looked at for a while that has about $165,000 that we have to figure out what to do with that.

Taxable account, joint taxable account has about a $135,000 that they’re putting in $500 a month. It’s currently with an advisor that they speak with infrequently. Mostly C-class mutual funds in an 80$-20% mix. Probably some expense there that we’re not seeing that might be eroding some of the gains. A joint savings account, like I said, that they’re putting $600. This was the $600 a month. This was the mortgage payment, minus some property taxes. IRA is hanging out there, Roth IRAs, 35,000 for Courtney, 85,000 for Andrew that’s managed by that advisor, all equity institutional funds. Probably being charge a fee on that.

All in all, between cash and the investments, and then the value of the house, about 2 million dollars in assets. 2.1 million dollars in assets, so it gives them a total – if you subtract about the $60,000 in liabilities, about 2.036 in net worth million. 2.03 6 million in net worth. In terms of the wealth protection, they both have a term policy use, $500,000, some group life insurance from their employers, both set to expire. They’re their own policies in three years, so at 65 for Andrew and 63 for Courtney. They have some short-term and long-term disability, own occupation through their employers.

Courtney carries a professional liability coverage. Then from the state perspective, they have a will, but it hasn’t been updated in a long time, 20 years. Living well and power of attorneys also need to be updated. There’s some concern about Andrew, mom, if she has the right documents and how that’s going to affect their financial plan. Taxes, they’re doing it themselves right now through TurboTax, concerned about gains on the house if it’s sold. They would like to pay a lot less property tax in the future, which is also one of the reasons that they’re looking to downsize. Concerned about taxes when they take money out of their traditional investment accounts. Just how to best spend down those accounts without being killed in taxes.

Some miscellaneous stuff. They’re both in good health. Andrew thinks that they should take security ASAP, because he doesn’t want to lose out. There’s this idea that I want to get everything, every nickel that I put back in, so it’s definitely a point of conversation that we need to have. Not sure if they should move out of the state, or to a retirement community. Obviously, with the concerns with Andrew’s mother close by, and then should they go to a different state with family in California? Should they phase into retirement? Tougher with the VA, but Andrew could consult, be a contractor with his employer. Then Courtney is very worried about running out of money. “We’d rather be safe than sorry. I would rather work two more years if needed to retire to make sure that the money doesn’t run out.”

That is the facts of the case here, guys. I guess, if we look at goal number one, they want to retire in the next three to five years. If the Kims were our clients, what is the best way? Kelly, I’ll start with you. What is the best way to start breaking down that question of, hey, are we on track to be able to retire comfortably and have the money last in the next three to five years?

[00:10:52] KRH: Usually, what we would do is start with a nest egg, just taking a quick look at what assets they have available, time interval for when they want to retire. You can get a Social Security statement from the Social Security website. It would be good for them to download that data, so that we can see what their monthly and annual amounts will be. There are differences in that amount, based on the timeframe when they take the Social Security. There’s a difference between taking it early, taking it out for retirement age.

I’m guessing with their age range, it’s 67 and some change would be for retirement age. There’s also estimates at age 70. Sometimes age 70 can be a lot more advantageous than even full retirement age. It’s good to run the numbers and take a look. The nest egg gives a good high-level, like, how do things look in terms of being prepared for retirement? Then we also use software with e-money to take a look at a little bit more granular detail spending data. That was one of the things that we had talked about previously in preparing for this is, if they spend a little bit less in retirement, make some changes, it really will have a big impact on overall what they can do. E-money allows us to model different spending scenarios and take a look at what the cashflow is.

[00:12:23] TB: Yeah. I think, the big thing is it’s obviously looking at what they have, their investments, but then also, what is the potential drawdown rate, or withdrawal rate? A lot of people are familiar with the 4% rule, which is a general rule of thumb that if you have a million-dollar portfolio, and you basically take 4% out every year, $40,000, a lot of the math says that that can support 30 years of living off of that. There’s a lot of different ways to do it.

I think, let’s talk a little bit more about the Social Security statement. You mentioned that and I think that’s one of the things that we see that can often be influenced by what you read in the news, what your maybe colleagues have done. Like, they go to retire. Robert, how do you approach the conversation of when, because a lot of the times, a client already has their mind made up about Social Security.

It’s interesting, Morningstar did a study. They said that and a good advisor can basically add something like 30% more to your income in retirement. 9% of that, the biggest chunk of that is proper social security claiming strategies. How would you broach that subject with a client, particularly if they have their mind made up, in this case, Andrew, is saying, “Hey, we need to claim as soon as possible.” Walk me through your approach with that.

[00:13:46] RL: I think, one of the biggest things that you can do for a client is really just showing them all the data. That Social Security statement that you can pull from ssa.gov that Kelly mentioned, really has all that laid out. Now, when we look at Andrew and Courtney here, they look like they’ve probably been maxing out Social Security. Meaning, they’re putting in the most amount that they can per year. In 2022, if he draws now, if you were to retire today and draw, maximum withdrawal at 62 is $2,364 a month. If you were to wait until age 70, that draw would increase to $4,194 a month.

Really showing that differentiator there of this is 1,800 additional dollars per month that you would get by waiting. Then, if he just waits until full retirement, age to 67, then that is $3,345. Nice, in the middle of difference. Really showing them how that would work. Now, for their case, specifically, if they already have their minds made up and say, “Hey, I want to do this.” He says, “Hey, I want to retire in three to five years. I want to draw as early as I can.” Well, just as early as I can mean he wants to draw today and continue working? Because then, we can show the tax consequences of those dollars. How much tax are we going to be paying on the Social Security dollars if he’s continuing to work?

If he’s not going to continue to work and we’re going to wait, say three years and draw at 65, which is still before his defined for retirement age, then we’re not going to be taxed on the majority that that amount as long as she’s not working either. We can show, does this math work, right? Their expenses are not as high as they may believe that they are, because they’re saving a lot of money. If we double up both their Social Security at age 65, maybe she worked for two years longer than he does, so they’re both retire at 65. That solves both of them.

He wants to draw as soon as possible. She wants to maybe work a few extra years to make sure that they get the value, then their social security draw would be the same, but you would need to understand that if something were to happen, they lose one of those securities, right? It’s not that you would get the other person’s. If we were to wait, and we can show this benefit of it for Andrew, we say, wait until age 70 and we’re getting that $4,194, if he were to pass away, then Courtney would take over his larger payment.

[00:15:47] TB: Correct. Yup.

[00:15:48] RL: That’s generally an argument that we can make is whoever was the highest earner, we want to wait the longest amount of time, so that we can get the benefit of those multipliers on the years after full retirement age. The highest amount would be age 70 at this point in time.

[00:16:01] TB: One of the biggest things that we’re trying to solve in retirement is making sure that the money doesn’t run out for the amount of years that we’re going to be alive, which we just don’t know what that is. It’s an educated guess. I think, one of the things that a lot of people and Andrew is showing this like, the sooner the better, because that’s when I get the paycheck. For someone like him who’s the higher earner in the fact pattern, he’s right now making $205,000, Courtney’s making a $150,000 as the infectious disease pharmacist, his Social Security is probably going to be higher at a baseline. It might make sense, although he might be the first to pass away.

I think, probably some questions about Andrew’s mother is alive. She’s 82. Some history of the family, when did Andrew’s father passed away might play a part in this. To your point, when one of the spouses pass away, you basically have the choice. You can either take Andrew, which is probably going to be higher. Or if it does, in fact, be the case that Courtney should just keep hers. At the same breath, you’re still losing the stream of income that you didn’t have. Most of the time, a lot of the time, your expenses don’t basically get chopped in half when the other person’s no longer living. You still have all those fixed expenses, maybe food and things go down like that.

To really combat against this mortality risk of okay, how do we prevent money from not basically being completely spent down, Social Security is going to be one of the biggest attributes for that. With this particular type of client, it’s going to be a smaller percentage of the income, just because they make more money, and Social Security’s going to be capped at a certain amount of income. It’s really important to make a smart claim and decision with regard to the Social Security.

To your point, pulling the Social Security statement, I think, probably I would make sure that they both go through and look at their work years, and the earnings tax for Social Security, to make sure that that is accurate. Sometimes that can be inaccurate. Just seeing what their current benefit is at, it basically outlines from 62 to full retirement age, because they’re both born after 1960. It’s going to be, basically, 67 is full retirement age. Then how does that change by percentage if we can lock in income if we wait to age 70? Then, it shows that in the benefit calculator estimate.

Social Security website is actually pretty good, and be able to basically pull down those statements in real-time, I think is going to be solid. The way that social security is calculated is it takes your 35 most-highest paid years to make that calculation, which is another reason why potentially phasing into retirement, or delaying retirement is going to be a big tool to make sure that, because we might log another year where they’re earning six figures, which maybe they didn’t do that early in the career.

We look at the nest egg. We might look at some of the spending. Kelly, how do you approach looking at this? Because unfortunately, it comes back to the B word, which is budget. How do you actually walk clients through that and try to project what they actually will need from their retirement accounts? What does that look like in practice?

[00:19:18] KRH: I mean, that’s a great question. The nest egg does an estimator. Do 70, 80, 90, 100. In this case, seeing that their expenses were lower, the nest egg worked estimating lower expenses. I guess, from there, the question would be, if you estimated 50% of expenses for each side, I lean towards having the numbers in place, so that people can see, this is actually what this looks like. We do have a spending budget template and then we also can do things again in e-money, where there is an expense section where you can add in different anticipated expenses.

We see some go away. They’re not going to be making retirement contributions, if they’re fully retired. In this case study, it will be interesting and would be a conversation with the client. Although, I suspect that they would ask it back to us, to answer with Logan and mom, what can they afford to do? It is an interesting time period and not all that uncommon for kids to be in an age where they still need a little bit of assistance in trying to define what that is and what you can afford to do for them and with them. The circumstances, unfortunate with Logan, but I think it is worth having the conversation about. It is still a private student loan on the balance sheet. It is him in their household, what is he contributing? How long? Have they set some parameters for what they’re willing to do, and then us helping them figure out what they can possibly afford to do, if they are interested in downsizing, which is on that goal list.

Mom is a whole another host of questions. Understanding what resources she has available. Then trying to figure out what really they could afford to help her to do. I mean, I think the actual numbers are pretty helpful to see, especially when you do have other family members involved and really be as detailed as you can about what the budget might look like.

[00:21:35] TB: Yeah. I think, it’s one thing to fill out a spreadsheet, it’s like, okay, I think this is what we pay for food, or this is what we pay for utilities, or travel. Then, I think if you actually link it to credit cards and debit cards and savings accounts, checking accounts, typically, there’s a lot more there that we don’t necessarily account for. I think, probably it’s a good exercise to do both, and then compare. I think, there’s some planners out there that they’ll look at, hey, how much money came in for year 2021. They basically say, “This is what I need to plan.”

I almost build a paycheck with just the same thing in mind, even going into retirement. A lot of what we typically do with the nest egg, is we discount it by a certain amount, because we’re not going to be saving, in this case, 13% for Andrew for his 401k, and 18% for Courtney’s TSP. There’s a discount just in that alone. It comes back to that. It’s like, it’s the building block of how we need to be able to disperse. Once we made that decision with Social Security, what’s the gap?

Obviously, it’s going to be in phases. If they do retire at 65, maybe we draw down the investment portfolio a lot more aggressively, until we get to a delayed Social Security at 68, 69, even 70. Then that picks up and we let the investments take a little bit of a breather for that. In terms of this idea of sandwich, the sandwich generation. That’s where there’s a household that’s basically, they’re taking care of themselves, or trying to, but then they’re also taking care of a parent, and then an adult child. Tough conversations, guys. Robert how do you begin to have that in terms of like, “Hey, we need to take care of number one, which is you, versus, hey, I know, this is really important to you.” Because the other thing is they’re also talking about education for their grandkids. How do we begin to dissect that part of their financial plan?

[00:23:32] RL: I want to start off by saying, I’ve never heard the term ‘sandwich generation’. Since Kelly’s a member of that generation, I think it’s very interesting.

[00:23:40] KRH: I’m not 60 yet.

[00:23:44] RL: Generational. Generational. No, I think having that conversation with Logan is the most important part, right? We don’t know what he’s professionalized in this scenario. He says, he lost his job recently and had to move back in with mom and dad. Is he an engineer like his brother? Is he a developer? Is he a starving artist? What’s going on here? How does that really work out? Laying it out.

We can’t be the centers of the universe forever. They’re parents, so they want to take care of their kids. They want to help the generation after them, but they can’t take care of everybody all at once. Really coming to terms with that. Letting the kids know. Logan might be very open to understanding of, “Hey, mom and dad want to retire in the next year or two. We really need you to be on your own. Hey, grandma is not doing so well. She’s going to need your room, bud. You’re 30-years-old. It’s time for you to figure it out.” Really laying it out, I think would do well.

Then having that conversation with Peter as well. Peter may already have retirement – I’m sorry. Education savings for his kids set up. Those kids may have another set of grandparents that are also trying to set up accounts and everything. Again, they don’t have to be the center of the universe. They need to be center of their own world and make sure that they’re taking care of themselves, numero uno.

[00:24:53] TB: Yeah, they might be like, again, we’re not trying to solve everything right away. If this listed as the number five, the last goal, it might be that, let’s get the – let’s figure out the debt, which the debt isn’t bad. I think, there’s a question of, do we just take some of the cash that we have, the $100,000 between checking and savings and apply that to the $59,000 that we have between the Tesla and the private loans, and private loans between the six and three quarters, the Tesla being 4.50%. Clear the board there.

Then we start looking at as we get the expense information in a little bit better, if 65 is the goal, which is what I would be pushing for, because that’s when Medicare starts. There’s not necessarily a gap in that regard from a healthcare perspective. Maybe it’s like, your, your will is actually set to bequeath some of that money to grandkids. Obviously, there’s in Oregon, you can get some tax advantages if you’re putting money into a 529 today. It’s minimal. I think those things are possible, but I think we take it in bite sizes.

I agree with you. I think it’s like, had that discussion with Logan, have that discussion with mom and see where she’s at in terms of – because that’s, a lot of moms do not want to move back in. That can be a struggle, just to make sure that they’re getting care, but there can be that loss of independence if they’re now living with you, or if they have to go live in assisted living, or things like that.

I think, it’s level setting those expectations. Like what we always say, even with the education piece, you can’t take retirement loans. You can take student loans and other things, but eventually, someone like Logan has to figure it out and do their thing. That can be a very strong pull on the financials.

In terms of this idea of long-term care insurance. I guess, what’s your guys take on that, as they’re right in that age, where the challenge here is time in, if and when to actually purchase these policies. The sweet spot is usually 60 to 65. Some people say 50. The problem is, if you purchase that 50, you could be paying these premiums that go up regularly for 30, 40 years, before you even have the – you make a claim. I guess, what’s your guys’s takes on the long-term care insurance question that they have in terms of looking at policies and purchasing them for in the event that they need some assistance in that regard? Kelly, what do you think?

[00:27:24] KRH: This is a hard question, I think with the long-term care insurance, I’m going to be honest.

[00:27:28] TB: I agree.

[00:27:30] KRH: On the one hand, right, if you’re going to pay premiums for a long time, it may add up that you have paid more in premiums than what you’re going to get out of it. Care is expensive. It does involve a little bit of personality and understanding what people’s expectations are, too.

If you have someone who is like, “I am never leaving my house. I don’t want people in my house helping me.” I mean that personality would be hard to justify a long-term care policy, because they are going to be very resistant to using what you would get from it. But the care costs are expensive. At some point, that certainly should be a conversation piece, like how much could be anticipated in that cost, with all insurance products. It’s a tradeoff between paying a premium to have somebody else cover an amount that you cannot pay for out of pocket for a recovery that you would like to have in the event that something happens. Or you’re paying out of pocket. Like, you have enough resources to take care of the care that you have in your mind, that you want to have happen.

In the e-money data, we do usually build in two years at the end of assuming some type of substantial care is needed in those last two years. That data can help answer this question to see like, what would that cost be? It’ll project it out in future dollars and give a very realistic, like this could be what you would have to face. I mean, certainly things happen where care is needed ahead of those last two years. It can be a combination. Certainly, the quality of the long-term care product would be a big piece. Can you get in-home care as part of it, if that is what is desirable? There’s a lot of nuances.

The person that helps give some quotes for some of the life and disability. They do some of the long-term care insurance as well, so we sometimes will talk to them about some of these questions and see scenarios where it makes sense. Again, personality, cost, what’s the alternative if you don’t have it? Sometimes it’s a completely opposite, which is spending down and trying to figure out a strategy to not have so many sources.

[00:30:02] TB: Medicaid, right? Yeah.

[00:30:03] KRH: Right. Then are you okay with what that care looks like in your area where you might be receiving care? Those are all very difficult questions to answer. If the cash flow is good, and it makes sense to do it, and it’s affordable and you’re in that sweet spot. If you’re on the conservative side, you might lean towards doing it. If you like more risk, or more adverse to accepting care, it might not be as big of a priority.

[00:30:37] TB: When we talk about long-term care, that’s really – it’s insurance that provides assistance, usually through assisted living, a nursing home care, home health care. Sometimes personal, or adult day care for individuals, 65 or older that have a chronic or disabling. This is typically people that are having trouble using the bathroom, dressing themselves, feeding themselves, that type of thing. They did a study in 2020 that the average cost, the current medium annual costs for assisted living is $51,600. For an in-home health aide is 50, almost $55,000. For a private room in a nursing home, it’s a $106,000, which obviously, can be a pretty big chunk of that investment portfolio.

However, about 80% of long-term care is provided at home by unpaid family members. That’s where you might say, “Hey, Peter. What’s the plan for this?” I know conversations with my parents, they don’t want us to have to really have to deal with that. They rather have some care by something that they’re paying for. I think, it’s just family-to-family. A lot of a lot of families, you’re it, and that might be the case with Andrew and his mom is that it’s more of a self-insured type of thing.

As we know with most things, the price of this type of care is going up and as are the premiums for these type of policies. That’s the challenge. I know, some of the people that we wrote policies at my last firm is that they would buy these policies, and then a couple years later, the premiums would go up 10%, 20%, and they would let them last. I’m just going to go at it on my own. It’s really a personal decision in terms of what your strategy is, and how you want to attack it, but it’s definitely something that I think we as fiduciaries need to see what comes back from the client in terms of their approach. It’s a tough one. I’m with you. How about Robert, do you have anything to add to that?

[00:32:39] RL: No. I think you guys did a really good job on that one.

[00:32:42] TB: We talked about the insurance. Any other gaps and the protection? Obviously, I think one of the things, Robert, that we should be looking at is just the estate stuff, and making sure that that is all updated and good to go. Probably start to look at the mom stuff, too, right?

[00:32:57] RL: Definitely. Obviously, if you have an estate plan that was drawn up 20 years ago, there’s going to be some things that have shifted, or changed. In that meantime, your boys were 10 and 12. Best at that point, maybe you want one of them to be your power of attorney, or your health care proxy. Maybe you want a different family member to be that executor. Maybe you want to pass things along differently now that you have grandkids that you definitely didn’t even imagine at that point in time when your kids were in middle school.

Then definitely, mom, we really want to understand what mom has going on. Is she independently wealthy, and she’s never going to live with us by choice? Does she have a bunch of heirlooms that she wants to pass along? Does she have her wishes laid out in order? Or do you know them? Because Andrew is going to be in charge of those decision-making questions. When the doctors ask, what does she want in this situation? You’re going to have to know the answer or you’re going to have to have that document to provide.

Really having those conversations, or those legal discussions would be really valuable ahead of time. Most people, when we think about estate planning, it’s because we don’t want to become a burden to our family. We don’t want to be troublesome in that situation. We want to lay out as much as we can, beforehand. She may have all that flushed out in a folder ready to go. She may have none of those documents, hopes and dreams that she’s going to live to 200. It’s really important to understand where everyone lies on that and have really honest and open conversations.

[00:34:14] TB: Yeah, I agree. I think that’s probably a big risk that can be easily mitigated by just now with an attorney and writing those things out and just keeping it fresh in that regard. Probably, the only other thing that I would address, I think, there was concern about gains on the house that they sell that. I know a lot of that gain is going to be excluded, probably half a million, if they’re filing their taxes together. There might be some gain that they will have to realize and plan for. If they basically downsize to a property, they might be able to exclude some of that as well. I think, probably working with a tax person as they’re approaching retirement would be good.

I think, the only other big concern here guys that I have, would be just looking at the overall investment allocation. We’re saying that a lot of it’s an equity. There’s probably not a lot in bonds, 80-20 in the taxable account. They’re approaching the eye of the storm with regard to the – if they’re looking to retire in three to five years, really, that’s probably the one time in their entire investment lies, where they probably need to be as conservative as they will ever be. What we’re really trying to mitigate here is sequence of return risk. This is basically where the market corrects, or we’re in a recession, it goes down 20%, or 30%, and then your withdrawal and $40,000 out of that. That typically leads to unsustainable and rates of failure with regard to pulling money from the portfolio.

As you’re approaching that eye of the storm, so to speak, instead of having an 80-20 or 100-0, we really need to be closer to maybe a 60-40, 50-50 to make sure that we’re protecting the things that we’ve grew over the course of their career. Then as we come out of the eyes of the storm when they’re in their 70s, and so on, maybe we get a little bit more aggressive, because we have it figured out and we’re looking more towards making sure it’s long-term. There’s lots of different ways to look at that, whether it’s a systemic withdrawal, a function approach, or something similar to that.

That probably would be to look at the investments in totality and making sure that for these last couple years, we’re looking more from a safety perspective, versus let’s try to get the portfolio as big as we can.

Guys, I think that’s probably a pretty good place to start. I think, for this one, more questions than answers. I think that’s a good thing. I appreciate the look at this case study with the Kims and looking forward to next time.

[00:36:45] RL: Sounds good. Looking forward to it.

[END OF EPISODE]

[00:36:47] ANNOUNCER: Before we wrap up today’s show, let’s hear an important message from our sponsor, Insuring Income.

If you are in the market to add own occupation, disability insurance, term life insurance, or both, Insuring Income would love to be a resource. Insuring Income has relationships with all of the high-quality disability insurance and life insurance carriers you should be considering and can help you design coverage to best protect you and your family.

Head over to insuringincome.com/yourfinancialpharmacist, or click on the link in the show notes to request quotes, ask a question, or start down your own path of learning more about this necessary protection.

[DISCLAIMER]

[00:37:23] ANNOUNCER: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and is not intended to provide and should not be relied on for investment or any other advice. Information in the podcast and corresponding material should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

Furthermore, the information contained in our archived newsletters, blog posts and podcasts is not updated and may not be accurate at the time you listen to it on the podcast. Opinions and analyses expressed herein are solely those of Your Financial Pharmacists, unless otherwise noted, and constitute judgments as of the dates published. Such information may contain forward-looking statements, which are not intended to be guarantees of future events. Actual results could differ materially from those anticipated in the forward-looking statements.

For more information, please visit yourfinancialpharmacist.com/disclaimer. Thank you again for your support of the Your Financial Pharmacist Podcast. Have a great rest of your week.

[END]

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YFP 269: How to be Frugal During Inflation

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How to be Frugal During Inflation

On this episode, sponsored by Insuring Income, Jen Smith, a personal finance expert and co-host of the Frugal Friends Podcast, discusses strategies to practice frugality in a high inflationary period, how she was able to pay off $78k in debt while battling unemployment, and strategies for listeners to explore whether you are looking to get organized, make additional income, or grow in your investing journey.

About Today’s Guest

Jen Smith is a personal finance expert and co-host of the top-rated Frugal Friends Podcast. Since paying off $78K of debt in two years Jen has been on a mission to help people spend in alignment with their values and live for today while saving for tomorrow. She’s the author of two best-selling books on controlling your spending and paying off debt, The No-Spend Challenge Guide & Pay Off Your Debt For Good.

Episode Summary

This week, Your Financial Pharmacist Co-Founder & CEO, Tim Ulbrich, PharmD, sits down with Jen Smith, a personal finance expert and co-host of the top-rated Frugal Friends Podcast. After paying off $78K of debt in two years, Jen has been on a mission to help people spend in alignment with their values while saving for tomorrow. She is the author of two best-selling books on controlling spending and paying off debt, The No-Spend Challenge Guide & Pay Off Your Debt For Good.

Tim and Jen discuss strategies to practice frugality in a high inflationary period and how to spot and cut out unintentional spending. Jen shares her journey to paying off $78K in debt while battling unemployment and how getting on the same page with her partner, addressing her apprehension on debt repayment, and making intentional choices in her spending changed her mindset about money. Fighting lifestyle inflation with a “radical middle approach” worked for Jen, but she recommends each person find the debt repayment strategy that works for them. Jen closes with some frugality strategies for listeners to explore, including having exploratory conversations with your partner about financial goals, taking inventory of all of your accounts, planning out financial goals annually, and automating your money where possible to prevent unnecessary spending.

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

[00:00:01] TU: Hey everybody, Tim Ulbrich here. And thank you for listening to the YFP Podcast, where each week we strive to inspire and encourage you on your path towards achieving financial freedom.

This week, I had the pleasure of sitting down with Jen Smith, a personal finance expert and cohost of the top-rated Frugal Friends podcast. Since paying off $78,000 of debt in two years, Jen has been on a mission to help people spend in alignment with their values and live for today while saving for tomorrow.

She’s the author of two bestselling books on controlling your spending and paying off debt. The No Spend Challenge Guide, and Pay Off Your Debt for Good. During the show, we discuss strategies to practice frugality in a high inflationary period, how she was able to pay off $78,000 in debt while battling unemployment, and strategies for listeners to explore, whether you’re looking to get organized, make additional income, or grow in your investing journey.

Before we jump into the episode, I’m excited to share that we’re doing our first ever virtual summit, The Employee to Entrepreneur: Building Blocks for Growing Your Business. The Employee to Entrepreneur Summit is designed for pharmacists who are planning or actively working on a side hustle or business idea.

This summit is going to be live via Zoom evenings of Tuesday, August 30th; and Wednesday, August 31st. Topics and activities include honing your mindset and uncapping your potential. How to grow a business from a position of financial strength? Retirement savings and tax optimization strategies as a small business owner, how to develop a system for achieving business financial goals, examples of pharmacists that are monetizing their clinical expertise, and much more.

And for those that register by August 23rd, we have three exciting bonuses. Those include a one-on-one implementation meeting with myself, or certified financial planner, Tim Baker. Access to a live goal-setting workshop that I’ll be hosting after the summit. And on-demand access to several bonus interviews, including evaluating health care, insurance options, marketing strategies, how to sell with confidence and more. Lots of information that we’re going to be sharing. You can learn more and register yourfinancialpharmacist.com/businesssummit. Again, yourfinancialpharmacist.com/businessssummit.

Okay, let’s hear from today’s sponsor, Insuring Income. And then we’ll jump into my interview with author, blogger, and podcaster, Jen Smith.

[00:02:19] TU: This week’s podcast episode is brought to you by Insuring Income. Insuring Income is your source for all things term life insurance and own-occupation disability insurance. Insuring Income has a relationship with America’s top-rated term life insurance and disability insurance companies so pharmacists like you can easily find the best solutions for your personal situation.

To better serve you, Insuring Income reviews all applicable carriers in the marketplace for your desired coverage, supports clients in all 50 states, and makes sure all of your questions get answered. To get quotes and apply for term life or disability insurance, see sample contracts from disability carriers, or learn more about these topics, visit insuringincome.com/yourfinancialpharmacist. Again, that’s ensuringincome.com/yourfinancialpharmacist.

[INTERVIEW]

[00:03:10] TU: Jen, welcome to the show.

[00:03:12] JS: Hey, thanks for having me.

[00:03:13] TU: I’m really excited to have you here and to hear more about your debt payoff journey. And we’ll talk about that. But first, I’d love to learn more about your career background and the work that you’ve been doing with Frugal Friends and Modern Frugality.

[00:03:27] JS: Yeah. My frugality journey started back in 2015. I was about three years out of my master’s program. My degree is in acupuncture and oriental medicine. But it was a much more expensive degree than the income provided. So, I was very much ignoring my student debt. And I thought I was frugal, or I thought I was responsible because I would buy the generic products at the grocery store. But I would also turn around and like get Chipotle on the way home from the grocery store and go out and get Starbucks without thinking about it. There was definitely a disconnect between what I thought like financially responsible was and what it really is.

So, in 2015, I got married and my husband said that he wanted to pay off his student loans, and I wasn’t as motivated, but I felt guilty because my student loans were double what he had. When we got married, we started on this journey to pay off $78,000 of debt. And I realized pretty quickly that I couldn’t side hustle my way out of it. That’s really what I tried to do at first. And I got shingles two months into trying to side hustle my way. Yeah, from all this stress, and at the ripe age of 26.

That’s when I realized I needed to be more were intentional about my spending. Not just paying attention to like what’s generic or maybe what’s like $1 cheaper than something else. Very intentional about my overall spending. And it very much freed up so much of my life. I thought it was going to be full of deprivation. I was an adult. I didn’t want anybody to tell me what I could and couldn’t do, much less me telling me what I couldn’t do.

But I found that being intentional and spending on the things that I value versus things that I didn’t think about gave the sense of freedom. And it’s really what allowed us to pay off $78,000 in two years on really average. Because we never made more than $88,000 a year combined. And so, after that, a few years later, I met my cohost, Jill, for the Frugal Friends podcast. And she and her husband were thinking about starting a podcast. And her husband wanted to produce and edit it. And I was like, “I’ll never start a podcast, because I’m a writer.” I had my Modern Frugality blog. But if I did, it’d be called Frugal Friends, because I love alliteration. And they took that as a sign to just start producing it. And four and a half years later, 227 episodes in, we have never missed a week of recording. And it’s been like one of the greatest joys of my life.

[00:06:30] TU: I love that. And we’ll link in the show notes of the Frugal Friends podcast, as well as your blog, Modern Frugality.

My question, Jen, around frugality. When I talk with those that are within the first, let’s just say, 10, 15 years of their career, I feel like the words budget and frugality feel like no-no words. Just things that we don’t love to hear. You mentioned kind of that restrictive. It can have that restrictive feeling. And so, my question is how are you making frugality exciting? Obviously, you’ve built a community, you’ve built a brand around it. Of course, that is resonating on some level with folks. Why do you think there’s a movement around this concept of frugality?

[00:07:11] JS: Yeah, because until you know what’s enough for you, nothing will ever be enough. And so, you’ll keep on this rat race, on this treadmill, looking for what is going to fulfill you. And you’ll keep buying more and looking to make more. And more time with family. More of this. More of that. And like, unless you realize what you truly value, what’s enough in these other places so you can have more in places you care more about, nothing will ever be enough. And it will be this continual unfulfilling race, which is exhausting, which is why so many of us are exhausted, like, 10, 15 years out of college. Because we thought we’d have it more figured out. But it’s so rare to do the work upfront of figuring out like, “Who am I? What do I want? What do I want that’s maybe unconventional? And how do I create boundaries to pursue that more easily?” And then just to do the hard work of retraining your brain to pursue those things, versus immediate gratification.

[00:08:26] TU: As you think about the time period that we’re in, my family is feeling this firsthand. I mentioned to you before we hit record, I’ve got four young boys that are literally eating me out of the house right now. And we’re in this time period of not only high inflation, groceries are wild as well. And I’m sure this topic of, how can I practice frugality in a day when inflation is through the roof? Things are so expensive. What advice would you have for folks that are feeling the pinch month-to-month given the price of goods, of gasoline, of food, and everything that’s going on, but want to be intentional? That concept of frugality. Of being conscious with how we spend. Of making sure we’re living that rich life today while we’re taking care of our future self. That resonates, but there’s the reality of the here and now.

[00:09:09] JS: Yeah. Well, we all want to be more responsible with our money. We want to all have more money left at the end of the month saved. And I think when we start thinking about budgets, and saving, and cutting expenses, we always jump to the things that we love most. Like, when I first started paying off debt, I was thinking, “I don’t want to get on a budget. I don’t want to do this.” Because I don’t want to cut out having dinner with friends. Like, community is one of my core values. And so, that was the first thing I jumped to.

Usually, it’s the first thing you think of is the last thing that you should cut out. When you are pursuing frugality and intentional spending, you want to look through all of your transactions in your bank account, and find the things you’re spending money on that you don’t even realize you’re spending money on. So, maybe a subscription that raised in price, or a subscription you’re not using it all, or these trips to the gas station where you’re going inside and you get a candy bar or a soda with your gas purchase. It’s stuff like that you are doing mindlessly that you don’t really care about, but you kind of probably don’t even realize you’re doing it. It’s those things that we cut out first. And it’s easier to retrain your brain to cut those things out than it is the things you care most about.

[00:10:35] TU: Yeah. I think, too, what I found in my own journey, Jen, that resonates with what you’re talking about around conscious spending. And you gave that Chipotle example earlier, right? Which I think was a really good one coming back from the grocery store. Like, guilty as charged.

And I think that, to me, it’s about the dollars, yes, because maybe we can allocate those towards another part of the plan and be more intentional with them, especially if it’s unconscious spending. But it’s also about that feeling of like, “I’m in control. Like, I’m mindfully spending my money,” right? And I connect this to a lot of eating patterns and behaviors as well. But if we’re going to make a splurge financially, let’s do it consciously, right? Let’s make sure we’ve thought about it. We’ve prioritized it. We’ve considered it among the rest of our financial goals in our plan. And then we’re not unconsciously making those decisions.

And I think what resonates with me of what you’ve shared in some of your blogging materials is that the financial plan, as we think about as a continuum over our lives, is really this balance of living for today while saving for tomorrow. Right? We talked about inside YFP, is we need to be saving and taking care of our future selves. But we also need to live a rich life today. And so, there’s nothing wrong with us spending money. But we want to do it consciously. We want to do it intentionally. And I love what you’re sharing as it relates to that and make sure we’re being intentional in how we’re spending our money.

[00:11:53] JS: Yeah, absolutely. That’s the only way to keep it sustainable, because you are – You’re not promised tomorrow. But also, you’re not promised that you’re going to die when you’re 70. You have to plan past that. But you also want to make the most of your todays. And that’s why I think it’s so important that you sit down and figure out, like, “What do I value most? What are the things that I love the most I want to pursue? And what am I going to say no to so that I can pursue the things I love more?”

[00:12:28] TU: When we think about lifestyle inflation, I think this is something that is so common in society at large, but especially as I think about our profession of pharmacy. Often, folks will spend six to eight plus years in school to get their doctor pharmacy degree. They’ll walk out with 170,000 something dollars a debt. They might go directly into a good six figure income or perhaps have a stepping stone with a residency. And I think that jump in salary can really lead to significant lifestyle inflation. And obviously, we have high costs of just what is reality today with homes and everything else.

Are there one or two things that you typically see, and whether it’s your own journey or your community that, is often contributing towards that lifestyle inflation that folks should be on the lookout for?

[00:13:14] JS: I think it’s the feeling of I’ve accomplished so much. I’ve graduated with this degree. I’ve gotten this job. I have done the hard work. And now it’s time to reap the benefits. And that’s the mindset. I had the same mindset when I graduated. And I think there’s nothing wrong with saying like, “Yes, you deserve a higher quality of living than when you were like eating ramen or whatever in college.” Yes, absolutely. But it can be really beneficial to commit to at least two years after college to say, “Hey, I’m not going to live like I lived in college. But I’m not going to live in the full potential.” Because the earlier you start paying off your debt and investing, you essentially are saving money on buying your freedom. The earlier you start, the more time you have to compound your savings in your retirement accounts. And the less money you’re going to pay in interest on your debt.

The earlier you start that, you will purchase your freedom for a lot less money than if you “enjoy your accomplishments early”. And then 5,10 years down the road, you’re like, “Oh, crap. What have I done? What have I spent all this money on?” And even if you are 5, 10 years down the road, committing for two years, give or take, whatever your situation is, to really focus on getting money into your retirement accounts, getting at least higher interest debt paid off, is really going to benefit you in the long run.

[00:15:02] TU: And so, as relates to this mindset change, you mentioned in your journey that was something that you encountered as well. As you ultimately paid off $78,000 of debt in two years, what was the turning point for you? When did you start thinking, “Okay, Jen, we really need to make a plan to tackle this?” What changed?

[00:15:21] JS: It was my fiancé at the time, now husband, saying, “I don’t care what you’re going to do. I’m going to pay off my student loan.” He wasn’t going to force me. And so, I always say, if you have a spouse that’s not onboard, you cannot force them onboard. But he was going to take it upon himself to do his thing. And then he also encouraged me to think about, what are the things you want to do long term? And how much easier could they be? How much sooner can you accomplish them if we just spent a few years upfront getting rid of this debt?

He really challenged me to think about that, because there were dreams and goals that I had. And I was like, “Yeah, it would be a lot easier if I had the option of working. If I didn’t feel forced to have a nine to five job, but I could have flexibility in that, these things would be a lot easier.” And so, that inspired me, and convicted me, and challenged me to convert.

[00:16:26] TU: I love that. Because it’s the vision, right? Start with the vision and the dream. And then you back into the details and you get excited. But, folks, if you jump in your studentaid.gov profile and you start inventorying your loans, and you look at your private and your fed, like, it’s overwhelming, right? It’s very overwhelming, especially if folks have a couple $100,000 in debt. But if you can begin with, “Okay, deep breath. I’ve got this mound of student loan debt.” The past is what it is at this point. Let’s focus on what we can control going forward. And how can we begin to think about the vision for what we want for our lives, for our financial plan that ultimately will support the debt repayment strategy?

And so, for you and, at the time, your fiancé, now husband, what was the strategy? How did you do it? There’s the snowball approach that folks talked about. There’s the avalanche method. You mentioned a side hustle. Like, what was the actual strategy for how you’re able to pay off that debt?

[00:17:19] JS: Yeah. We took a little bit of everything. And that’s why, on our show, we’re big proponents of being in the radical middle. Everybody wants to take an extreme to where, being in the middle and choosing your own path is very radical. That’s really what we support. And so, we did a little bit of – We started with the debt avalanche. And then in my student loans, there were a lot of different – They were all the same interest rate. But there were a lot of different sizes. I don’t know. Some semesters, I was poor, I guess. And so, we would do the snowball within that. All of Travis’s interest rates were different. So, then we did the avalanche there.

And so, we kind of just did what worked for us. And we just took it month by month. And we thought it was going to take us five years to pay off our student loans. Because Travis was unemployed when we started. We were not at a great financial place when we started. I got 25 hours a week at work, max. I had to find like a side job and side hustles. Travis started with side hustles while he was looking for a full-time job. We were definitely not in a place where anyone would have recommended us start paying off our debt. But we did it anyway. And we just took it month by month. And every month, built on itself. We got a little bit more every month being put towards debt, until Travis got employed. And we were putting just my entire paycheck towards debt every month and just living on his.

And so, that was kind of the strategy. We just went little by little until we were putting one whole income to debt and living off the other. I mean, even if you’re in a single-income household, I mean, we were making $88,000 max. That was like 44 plus thousand per year. And we were living – It was a lot lower cost of living at that time. Gosh! It’s crazy to think about just seven years ago. But we were able to put a significant portion down on our debt because we chose maybe not the most ideal living situation. And we’re just really intentional about every penny we spent.

And we are not as intentional as we were. We’re not as intentional now as we were then, because we really had a goal that we were focusing on. And like I said, focus on one year, two years to see how much you can get out of the way. Don’t look at all six figures of your debt and say, “I can’t do this.” Because that’s what I did at first. I looked at my debt and I was like, “This is almost double what I make in a year. There’s no way. I’m just going to ignore it.”

But if I had taken just a year, a month by month or a year by year approach, I probably would have started sooner and just said, like”, “Okay, how much can I get this year?” And just made it my goal to like go hard. And then the next year, maybe, “Okay, how much can I get here in this year? But maybe I’m going to also focus on my IRA or my 401k and see how much I can get and add in here.” And if you do that, you focus on the month to month, quarter to quarter, year to year, you’ll make a bigger snowball effect than if you’re looking at it as a whole.

[00:20:44] TU: I really liked the concept of the radical middle. I like that a lot. Because I think that we see that and conversations I have with folks who have strong opinions on debt repayment, right? Versus investing or saving for the future. There’re strong opinions on how much should I put down on a home? And you kind of put people in opposite corners.

I think, for everyone, what we realized when you get to individual conversation, like, as my partner, Tim Baker often says in the podcast, like, it depends. It depends on what your financial situation is. How do you emotionally feel? Whether it’s about debt, or saving, investing for the future. What else is going on in relation to the financial plan? And then from there, we can craft a plan that we feel comfortable with. So, I think that’s a really, really good approach.

For folks that are listening, I’m thinking of spouses, significant others, partners that maybe aren’t on the same page with a given topic. You mentioned your journey and your fiancé, now husband, at the time was like, “Hey, I’m moving forward on this, whether you are or not.” And obviously, that left you is kind of making some decisions. And ultimately, you guys getting on the same page. But I think it’s not uncommon that you may have someone that’s on fire about a financial goal, or a budget, or debt repayment, or saving for the future. And someone else may or may not be in that same boat that that other person is. From your experience in your community, what advice would you have for folks that are really trying to, “Let’s get on the same page and make sure that we share in the vision going forward?”

[00:22:13] JS: Yeah. There’s a number of reasons why a partner might not want to get on board. I think the first thing to do is instead of trying to convince them in the way you were convinced, figure out why they’re apprehensive. Some people, it’s like, they don’t like being told what to do. Some people love spending money in the here and now. Tomorrow’s not promised. They want to spend it now. Some people just get anxiety about money. They don’t want to think about it at all. There are so many reasons. And I think your partner may not even know what the reason is.

And so, just sitting down and figuring out like what are our collective goals individually and together? What do you want? And how can we get there. And I think as you start to have more of these explorative conversations, the reasons for the disconnect will start to come up. Whether you’re talking about like their childhood, or they didn’t have a lot growing up, and they want to enjoy what they have now, because they worked really hard for it. All this stuff like that. It starts with exploratory conversations about the future. Trying to figure out what from their past is making them apprehensive to adopt frugality. Because nobody wants to feel deprived. Everybody wants to feel good and confident about the way they manage money even your partner who may not be on board with paying off debt. There’s just some kind of disconnect, where maybe what you’re saying or what you’re thinking is different from the reality that you want to put forward. But you can’t force them in typically with numbers, or force like a lot of the force thing that sometimes I hear about. It is really more of like a pull and a push.

[00:24:06] TU: Yeah, I think that’s great advice. And especially for folks that might be listening to the podcasts or more of that financial nerd camp, like, if you got energized by the calculator, like that doesn’t necessarily mean that your significant other is, right?

[00:24:22] JS: Yeah. They probably are not.

[00:24:23] TU: Probably are not. Yes, exactly. On the blog, Modern Frugality, I think you do a really nice job of identifying folks that may be in a few different areas based on their goals. So, folks that are feeling like, “Hey, I need to get organized.” Folks that are wanting to make some extra money, could be side hustles, businesses. And then folks that are wanting to get started with investing. And so, I want to focus on two of those here for a few moments.

And that first one of I need to get organized, is there a tip or two that you could share for individuals that are just feeling overwhelmed, and maybe that organization step would be really helpful for them to be able to clear some of the fog to then move forward with their financial goals? Where do you start with organization?

[00:25:05] JS: Yeah. The first step is to figure out all of your accounts, your debts, everything. And you can do that by getting your free credit report either at freecreditreport.com or something like Credit Karma. And this is the report. Not the score. We’re not as concerned with the score right now. But your credit report will have a list of all of your debts, all the accounts you have open, and the amounts, like balances for each. If you look at that, and it’s not there, then it’s not there. It’s not associated with your social security number.

And so, when you look at that, it really gives you a whole picture of, “Okay, I am this much in debt. I have this much in my savings. This is where I’m at.” And so, it’s nine times out of 10 not as scary as you think. And some people just don’t want to gather everything because they don’t know where to find it. It’s like, “Where can I find everything?” It’s in your credit report.

And then next is just to look at your transactions. So then go to those checking and savings accounts and look at your transactions from probably the last three months. Which ones did you love and you feel good about? Which ones do you not remember making? The ones that you did not remember making or did not feel good about, those are the ones we cut out first. And you write down on a piece of paper, “I will no longer spend money here or on this for this reason.” And then we don’t spend money on those things anymore. And the things that aren’t on that list, you can spend money on without guilt.

And then as you go and you start to think, “Okay, well, this wasn’t on the list before. But I think I might be able to add it. Or maybe this was on the list.” And actually, do enjoy this for reasons I wasn’t thinking about earlier, we take it off the list.

But as you go, and you make baby steps towards intentional spending, we don’t start with those things that we love the most. We start with the things we don’t care about. And that’s how we make these steps towards financial freedom and intentionality.

[00:27:13] TU: As I’m going through this exercise, if I identify there’s maybe more unconscious spending that I would like there to be, what are some strategies that might help me bring some more awareness and consciousness to that spend? You’ve identified one. I think, if I’m hearing correctly, I’m writing these down, journaling them. Other people talk about using cash for a small period of time, which is not super convenient in 2022. Are there other strategies that you have found personally or you see in your community that helps increase the awareness and the conscious level to spending?

[00:27:47] JS: Yeah. I talked about baby steps. But actually, my favorite way to like shortcut this is to do a no spend challenge, which is the opposite of baby step. But it’s like short term. I would take a month. And challenge yourself to not spend any money on discretionary purchases. We’re still paying bills. We’re still paying mortgage. We’re still putting gas in the car to get to work. But it’s the discretionary things. It’s everything else.

In the grocery store, if it’s not in the list, we don’t buy it. It’s meal planning for everything. And you can even schedule like one or two meals out during the month. But if they’re not scheduled, they don’t happen. It’s saying no to – For like an actual no spend challenge, I would say no. When I was doing them, like no eating out, no coffee. Just anything discretionary. Because it helps when you are at the end of the day, and you’ve made good decisions all day. And you get to five o’clock and your brain is tired. It is done making good decisions. It’s done making the right decision. And that’s when you start you get decision fatigue, and you start to make the wrong decision when you have the option. When you’re on a no spend challenge the answer is always no. And so, that’s one – It’s decisions you don’t have to make, because you’re challenging yourself to say no to everything.

And I know some people will try and do pantry challenges while they’re on a no spend challenge. Only eating from their pantry and fridge and freezer during that month.

[00:29:20] TU: Ah! Get creative. Yeah. Yeah.

[00:29:22] JS: Right? I never carried enough in my fridge and freezer, nor have I ever had a full pantry to do that. But if you feel like you’re a little overstocked in your kitchen, another great way to not spend money. But once you do this for a month, you will get a really eye-opening view of what you care most about. What things you don’t even realize that you are giving up? Things you didn’t care about.

And so, you can go forward after the challenge to say, “Okay, these are the things I’m going to spend on without guilt. These are the things I’m giving up. Saying no to.” And it really just fast track that process.

[00:30:02] TU: One of the things that you’ve written about that we talk a lot about on our show is the concept of automation. And I’ll link in the show notes. We talked about this on episode 57, way back when, in the power of automating your financial plan. And you had a blog post that we’ll link to as well in the show notes on automate your money. Can you tell us about, from your perspective, what does automation mean when it comes to the financial plan? And why is it so valuable to help someone in achieving their financial goals?

[00:30:29] JS: Yeah. Well, it kind of comes back to the decision fatigue. Again, when you have to make the decision to pay a bill, you may forget, because you may have made too many decisions, and it just slipped your mind. Or the decision to put money into your 401 (k) or IRA, you may not put as much in when you’re in the moment when something just put you over budget or you had like a surprise expense from your kid, then you tend to invest less or put less towards debt.

We want to take that decision off the table. Make your spending plan for the year. Figure out how much you can feasibly afford to invest or pay off debt every month, and just automate it. It’s one less thing that you have to worry about. You can automate it for soon after you get paid. It’s very easy if it’s like first 15th on Fridays. I mean, you can sometimes change when your bills are paid so they line up better with your payday. But sometimes it’s just easier to get that money out of sight out of mind. For someone like me, I used to spend every penny that was in my account if I saw it. Now, everything leaves the account and goes to savings, investing or mortgage before I have the opportunity to spend it. So, then I look at my account and I’m like, “Oh, cool. I can spend all this money if I want. Or I don’t have to. Whatever.” But yeah, automating just takes that decision off the table. And it just – I mean, aside from allowing us to be lazy, who doesn’t want to be lazy when it comes to money? It’s so much easier to not have to think about it. But even when it comes down to the decisions of how much we put towards debt and how much we invest, much easier to make a neutral decision via a plan than an emotional decision in the moment.

[00:32:26] TU: Absolutely. One of things I love about automation is it forces you to be intentional, right? We talked about that earlier. But if you’re going to be proactively planning and setting up some of these systems around automation, we’ve got to define the goals. We’re already looking at the budget and expenses. We’re those funds towards different buckets and the goals that we’ve identified. It really forces our hand to make sure that we’re being intentional, and obviously increasing the amount of conscious spending that we’re doing.

Jen, this has been great. I really appreciate you taking the time to come on the show. Where is the best place that our listeners can go to find you and to connect with you further?

[00:33:00] JS: Well, wherever you’re listening to this podcast, you can find Frugal Friends podcast. We release a new episode every Tuesday and Friday. And we also have an ebook with over 200 ways to save money. And that’s at frugalfriendspodcast.com/ebook. Yeah. And then we talk more about intentional spending on the show. So, it’s a full circle.

[00:33:22] TU: Thank you so much, and I appreciate it.

[00:33:24] JS: Yeah, thanks for having me.

[00:33:26] TU: Before we wrap up today’s show, let’s hear an important message from our sponsor, Insuring Income. If you are in the market to add own-occupation disability insurance, term life insurance, or both, Insuring Income would love to be a resource. Insuring Income has relationships with all of the high-quality disability insurance and life insurance carriers you should be considering and can help you design coverage to best protect you and your family.

Head over to insuringincome.com/yourfinancialpharmacist. Or click on the link in the show notes to request quotes, ask a question, or start down your own path of learning more about this necessary protection.

[OUTRO]

[00:34:02] TU: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and is not intended to provide and should not be relied on for investment or any other advice. Information in the podcast and corresponding material should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

Furthermore, the information contained in our archive newsletters, blog posts and podcasts is not updated and may not be accurate at the time you listen to it on the podcast. Opinions and analyses expressed herein are solely those of Your Financial Pharmacists, unless otherwise noted, and constitute judgments as of the dates publish. Such information may contain forward-looking statements, which are not intended to be guarantees of future events. Actual results could differ materially from those anticipated in the forward-looking statements. For more info information, please visit yourfinancialpharmacists.com/disclaimer.

Thank you again for your support of the Your Financial Pharmacists podcast. Have a great rest of your week.

[END]

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YFP 268: Buying a Home with Spiking Interest Rates, Inflation, and Market Insanity

Posted on by yfpadmin

Buying a Home with Spiking Interest Rates, Inflation, and Market Insanity

Nate Hedrick, The Real Estate RPh and co-host of the YFP Real Estate Investing Podcast, discusses how interest rates, inflation, and market insanity are impacting home buyers.

Episode Summary

On this episode of the Your Financial Pharmacist podcast, YFP Co-Founder & CEO, Tim Ulbrich, PharmD, welcomes Nate Hedrick, PharmD, back to the show to discuss inflation, interest rates, and the market insanity impacting home buyers in today’s market. Nate explains how the current interest rates may determine the affordability of homes for many buyers and how the change in interest rates can even price some buyers out of markets based on the monthly payment buyers face when purchasing a home. He shares that with interest rates rising, people may pay a similar monthly payment for a home of equal or lesser size if they consider moving right now, leaving many folks “locked in.” Nate shares insight into how inflation affects home buying behaviors concerning supply and demand. He sees two patterns playing out in the market. Buyers are getting into the market as quickly as possible to try to beat future inflation, as well as potential buyers opting out of buying homes at this time due to the increased cost of living and fears of continued increases impacting their budgets. Tim and Nate close out with questions from the YFP Facebook Group about investing strategy, finding “white coat” loans, and best practices for working with a realtor when relocating out of state.

Links Mentioned in Today’s Episode

Episode Transcript

[00:00:00] TU: Hey everybody, Tim Ulbrich here and thank you for listening to The YFP Podcast, where each week, we strive to inspire and encourage you on your path towards achieving financial freedom.

This we got a chance to welcome a friend of the show Nate Hedrick, the real estate RPh and cohost of the YFP Real Estate Investing Podcast. On today’s episode, Nate and I discuss how interest rates, inflation, and market insanity are impacting homebuyers. Have a monthly payment at today’s interest rates is the same for $375,000 home, as it was about six months ago for a $500,000 home at lower rates. And how to find out more information on pharmacist’s home Loans, aka professional home loans, or doctor loans.

Now, buying a home or investment property is certainly an exciting experience but can feel overwhelming at times. Between finding an agent, securing your financing, and actually searching for a property. It’s hard to know where to start. And that’s why we’ve teamed up with my guests today, Nate Hedrick the real estate RPh, to provide a simple solution to jumpstart your home buying process. Through this concierge service, Nate will help you craft a plan, connect with a local agent that you trust, and stay by your side throughout the process to lend an ear for helping hand.

You can learn more about the free concierge service with Nate, and book a call by visiting yourfinancialpharmacist.com. Click on Home Buying at the top of the page, and then find an agent. Again, yourfinancialpharmacist.com, Home Buying at the top of the page, and then find an agent. All right, let’s jump into my interview with Nate Hedrick, your real estate RPh.

[INTRODUCTION]

[00:01:32] TU: Nate, welcome back to the show.

[00:01:34] NH: Hey, Tim. Always great to be here.

[00:01:35] TU: Really excited to have a conversation with you, as always, to tap in your expertise on what’s going on in the market more timely than ever right now. So, we’re going to talk about some of the market insanity, interest rates, inflation, the impact that that’s having for those that are looking at purchasing a home. But before we get to that, I’m dying to know, you made the transition since we last talked, a half time, in May. So, tell us more about that transition. Why you made that transition? Cutting back on some of your pharmacy work and what that has meant for you and your family?

[00:02:09] NH: Yeah, I had this moment I think I shared the last time we spoke. But I had this moment earlier last year where I realized that Lucy might, my eldest was going to be going to kindergarten in the fall, and just had this panic moment of like, “I’m missing everything. They’re growing up too fast.” So, my wife and I sat down and Kris and I really talked to a bunch about it and said, “Can we make this work? Can we cut back just to spend more time with them?” So, that’s exactly what we did. So, I cut back to half time, 20 hours a week, and it’s been a really awesome fit. We’ve been having a ton of time with the kids, taking them on vacations, doing fun, dad adventure, summer stuff. But I also feel like I’m still involved at work in a meaningful way, which is honestly the perfect balance for me right now. I’ve been loving this. It’s been great.

[00:02:50] TU: That’s awesome. Summer of being a dad, right?

[00:02:53] NH: Exactly. It’s been really cool. After we record this podcast, I think we’re going over to Memphis Kiddie Park. So, anybody from the Cleveland area that knows that, big shout outs. That’s where we’ll be after this, if you want to find me.

[00:03:03] TU: I love that. We have fond memories of that when we were up in the Cleveland area for about 10 years. So, that’s a great, great place for the kids. I’m going to link Nate in the show notes, we last talked on episode 254. We talked about home buying, search, what to do and what to avoid, including evaluating listings, why open houses exists, how to navigate that, how agents get paid, that’d be a great resource, especially for first time homebuyers. We’ve got a lot more content on the site, podcast, blog that Nate has contributed, related to home buying. So, make sure to check some of that out.

But today, as I mentioned, we’re going to be discussing buying a home in the midst of spiking interest rates, inflation, holy cow inflation, and market insanity. Shout out to David Bright, your cohost of the YFP Real Estate Investing Podcast for giving us the alliteration of the three I’s, interest rates, inflation and market insanity. That was his idea. So, I can’t take credit for that.

So, Nate, let’s start with interest rates. Where are we at, at the time of this recording, and end of July? We just had the Fed announced a hike of three quarters of a point. So, give us an update of where we’re at in terms of interest rates and where we might expect for some of this to be going.

[00:04:12] NH: Yeah, so if you’ve been living under a financial rock, you may have missed it. But for everybody else, obviously the interest rates have been going up. The Fed is raising those interest rates in an effort to fight our second I, inflation. As a result, we’re just seeing everything is costing a bit more in terms of lending. So right now, today, I look back, just in prep for this recording, and on 7/14, the 30-year fixed rate was running around 5.67% as a national average. If you look back even a year, it was under 4%, if not under 3%, in some extreme cases. So, we’re really starting to shoot up in terms of interest rate and it can really affect a number of things. It can affect affordability, and for a lot of people that means their monthly payment on a property or on a mortgage.

But it can also affect just lending in general, right? You might be pricing yourself out of a particular market. Because now, with the interest rates going up, you have a larger payment, which means you can’t afford the same size home, which means you might not be able to buy in the neighborhood you want to. So, there’s a number of things that are occurring as a result of that interest rate hike.

[00:05:16] TU: Yes, crazy, Nate. I think we’ve been spoiled. I graduated in ‘08, you graduated not too long after me. But we have been used to this ultra-low interest rate environment. So, I think some of this is just shocking to us. We talked to our parents and grandparents and they’re like, “5% 6%.” I remember numbers in the high teens, right? But we haven’t experienced that. And so, I think, this period of high inflation, we’re looking at 8%, 9% over the last year. What we’re seeing in interest rates, is really having a shock, and I think for many of us that look at things like monthly payment and budgets, especially for pharmacists that haven’t seen their pay necessarily expand proportionately, these things matter. They matter big time.

Let me give one example, Nate, and I’d love to hear your thoughts on how folks are thinking about this that are in the buying process. But if someone is looking at a $400,000 home, and let’s assume a 30-year fixed rate loan, just a couple years ago, 3% was not too far out of the equation in terms of a 30-year fixed rate loan. That’d be a monthly payment of just shy of $1,700 a month, or about $600,000, that they would pay for that $400,000 home over the life of the loan.

Fast forward, if we use five and a half percent, which were actually a little bit higher than that right now. But if we use five and a half percent, instead of 3%, we look at a monthly payment of closer to 2,300 instead of 1,700. So, about a $600 difference. And instead of $600,000 paid out of pocket over the life of the loan, we’re looking at a little over $800,000 paid out of pocket over the life of the loan. I would suspect, Nate, that for many folks, while that $200,000 difference over 30 years is somewhat shocking, it’s probably that monthly amount that really folks are looking at most right now. Is that right?

[00:07:01] NH: I think so, too. I’ll put a kind of a similar example to you that I’ve been using recently. If you’ve got a monthly payment on a $500,000 loan today, at three and a half percent. So really, common. Lots of people out there have this. In fact, over 50% of mortgage owners or homeowners today have a mortgage interest rate less than 4%, that’s a national stat. If you’re at $500,000 loan at three and a half percent, your monthly payment is 20 to 45. That exact same payment is what you would get today on a $375,000 house at 6% interest.

So, we’ve got people out there who are maybe living in a $500,000 home or have a $500,000 loan, thinking about downsizing saying, “Oh, I sell this property off, I built up a lot of equity, we’re going to move to a smaller home, $375,000 house.” But you’re going to have the exact same payment in that new home. So, it’s really starting to affect the market. Because if I’m that person, and I’m thinking about selling, why would you sell? You’re just giving away your equity for free and it makes it really tough when you start to break down that monthly payment.

[00:08:07] TU: Yeah, that’s a really powerful example, because I think all of us can relate to scrolling through Redfin, and Zillow and realtor.com. Looking at homes at different values, but when you start to factor in the interest rates and pay a $500,000, home at what was three and a half percent, same as about a $375,000 home today, wow, like that really starts to put it in into perspective.

So, Nate, when I think about inflation, and think about interest rates, a lot of this, especially when we were talking about kind of the impact of the economy, a lot of this becomes a snowball type of effect, where when I hear that 50% of folks that have a mortgage are under 4%, and then conduct that with the calculation you just gave, that has to be furthering the supply and demand issue, right? Because if I’m in the home on that right now. My wife, Jessica, and I were locked in at 3%. Maybe we’re itching for something different, new home, new area, whatever, you quickly look at the math and the numbers. You’re like, “Wow, we’re going to give up a lot on home to be able to make that move. And is it really worth it financially, considering, maybe equity that we built up over time?”

So, I would imagine this is just furthering the previous issues we’ve talked about around supply and demand. Is that fair?

[00:09:18] NH: Yeah. I don’t know that I have empiric evidence of this. But I think when you run the numbers like that, and sit back and think about it, it makes a ton of sense. If I’m thinking about – even if I’m thinking about moving across town, because I want a different location of house or I want a slightly bigger house, when you run that math, it almost becomes, “Well, maybe we’ll make this work for a while longer”, because it seems terrible to move right now. I don’t want to do that. There are no houses available and I’m paying more every single month for either exactly what I have now or for a slightly bigger home. So, it feels like people are going to be – I’ve actually heard this term thrown around recently called, locked in, where like you said, I’m locked into an interest rate. Why would I bother moving when I’m sitting on this for 30 years at a lower rate?

[00:09:59] TU: Yeah. I think the question that everyone has is like, is this the new norm? Are we going to see returns to lower rates? Because I think often folks might look at that and say, “Well, maybe I do make that move for X, Y, or Z reasons, and I hope to refinance in the future.” But the question is, like, are rates going to go up? Are they going to go down? Again, in the future, no one knows. But certainly, as we think about this, from a financial planning perspective, when we zoom out for a moment, we certainly don’t want to be banking on rates going down and refinancing a later point. If that happens, great. We increase some of the cash flow, but we want to be making sure that this fits into the budget, as is, in case that does not happen into the future.

[00:10:38] NH: And you said something earlier too, that’s super important is that, this is – we’re spoiled, right? Every one of us that’s sitting in our current generation looking at interest rates, we’re spoiled with the low ones, right? We’re spoiled at 3%. So, five and a half, 6%, seems very high. But I think that will actually become pretty normal again. I think that over time, we’re going to realize that that is actually where we’re going to end up. Like you said, waiting for them to come back down to these pre-4% rates, don’t hold your breath, I guess is my point.

[00:11:09] TU: Speaking of being spoiled, Nate, inflation, our second I is a category we’ve been spoiled as well, again, thinking of my peers that graduated around the time we did, or perhaps even sooner than that. Other folks that have been in their career for longer have experienced higher inflation time periods. But we’re at a point in time where inflation is the highest it’s ever been, and I think we’re looking at a 40-year period. The Consumer Price Index, rose a little over 9%, from a year ago. Perhaps we’re at the peak, perhaps we’re not. But you’re probably feeling this firsthand. I know, our family is, with our four boys, food bills are insane. Obviously, we know a gas has been doing.

So, my question here is, how is this rising inflation on top of rising interest rates in a competitive market? How is this factoring into the equation?

[00:11:58] NH: Yeah, I think from a real estate perspective, it’s doing two things. One is you’ve got some people who have FOMO, right? They’re afraid of missing out, so they are trying to jump in quickly, which is keeping demand up. Where I’m looking at this and saying, inflation is only going to get worse, real estate is basically the inverse of inflation, right? It’s inverse or it’s protected against inflation in some capacity. So, I want to get into a house now, while interest rates are still reasonable. I think they’re going to rise and inflation is going up and up. So, again, I think that’s keeping demand quite high.

We’ve also got people who are looking at it and saying, “I was at the top of my budget before, now I’m spending all this extra money on gas and food and everything else, maybe I’m going to take a step back and see what happens in the next six months. Because this is getting out of hand and I don’t want to buy in right now, where it might get worse, and then I can’t even afford this property.” So, I think we’re seeing both halves of that – both sides of that coin, and it’s keeping demand up in certain areas. But also, having some buyers step back and others.

[00:13:00] TU: Are you seeing, Nate, in conversations you’re having with prospective buyers, are you seeing a significant shift in the wish list and the expectations for home? You and I have talked about this before, but I think of my parents’ generation, and that idea of very much a starter home and I grew up in a – it worked, it was great, but it was certainly much smaller than the home that Jess and our boys live in, in terms of number of bedrooms, and space and size and finished areas, and all those types of amenities. And it really wasn’t until I graduated high school and was in college that they really took that step to the home, I would say they would categorize as their forever home. But we definitely have seen a shift, where that idea of like that forever home is coming much earlier in one’s career.

So, is this causing for many folks like a shift in expectations of, “Hey, maybe that idea of let’s get into a home doesn’t have everything we have or want. We can grow into it and maybe we look at pivoting in 5 to 10 years.” Are you hearing more of that?

[00:14:00] NH: I don’t know. I’m only an n of one, right? So, it’s a hard perspective to give. For me, I’m not seeing it affecting first time homebuyers that much. I feel like most of those individuals are looking at it and saying, “I want to get into a house. Here’s what I can afford.” And then you just kind of look at the market and see okay, well what does a $300,000 house actually get me and how many things can I get on my wish list? Yeah, where I am seeing it start to impact my clients is on the investment side. That interest rate is really, and inflation in general because of price of materials, price of contractors, price of everything is going up. It’s really starting to affect that wish list, right? I don’t want to be doing as much rehab work. I don’t want to be doing as big of a project potentially.

So that, I’m seeing change in terms of wish list. But right now, anyway, I think as a first-time homebuyer, this stuff doesn’t come up as much. You just kind of look at your budget, you work out the numbers, and then you look for houses. I don’t know that people are that intentional as you and I would be looking at something like this.

[00:14:59] TU: Yeah, and that makes sense, because of exactly what you said. If I’m starting a home buying search, I’m looking at my budget, I’m looking at the numbers, and then I’m putting those filters into whatever tool I’m using, and you’re then evaluating from there, what’s the best fit for you and your family. So, maybe for some folks that have been searching for a couple years, they can really, really see like, “Oh, my gosh, $300,000, $400,000 does not go as far as it did.” Obviously, just –

[00:15:24] NH: Yeah. Anybody with a pulse on the market is definitely seeing that, for sure.

[00:15:27] TU: Yeah. So, our third our I, market insanity. So, if we put together interest rates, we put together inflation, what are we seeing? I mean, national headlines, it feels like we’re seeing kind of a cooling off in the market. Your boots on the ground. We’ve talked about some supply and demand types of impacts. What have we seen in terms of the impact of interest rates and inflation on what seems to have been a very hot and active market over the last couple years?

[00:15:52] NH: Yeah, I still think it’s a pretty hot market. It’s shifting in subtle ways, though. So, the two big things that I’m seeing is, again, you’re seeing national headlines about like price decreases in certain areas. I think with a lot of that price decrease is coming from, is places that were previously overpriced, or at the top end of a particular market threshold. So, if I’m looking at a neighborhood where all the houses are $250,000 or so, yeah, and somebody fixes up a place, lists it for 300 grand. Well, a year ago, that probably would have sold like that, and somebody would have paid over asking, over appraised value and not cared, right? Because that was just the market that we were in.

Today, those are not selling. People are not as able to overpay for a property as they were a year ago. So, I’m seeing those houses be the ones that get the price decreases, the people who are trying to be greedy for lack of a better word, and trying to tap into that crazy market, those are the ones that I’m seeing get danged.

The other area I’m seeing some shifting or some slowdown, is in the property that need a ton of work. So again, with the market we had 6, 12 months ago, even if your property was really in disrepair, you could usually get away with selling it pretty quickly. There were tons of investors out there, tons of capital, lending was super cheap, everybody wanted to buy something. So, you could get away with that, right? Someone would buy it, they would fix it up themselves and do something with it.

Well, now, with interest rates where they are, it’s harder to refinance out of that. You don’t know what the next six months is going to look like. So, I’m seeing investors who would have taken on $100,000 projects, $200,000 projects, are just stepping completely away from those. So, I’m seeing a lot of properties that are at that bottom end, that need a bunch of help. And they’re just sitting there and nothing’s being done to them.

[00:17:33] TU: That makes sense. That makes sense. I want to pivot here for a little bit, and a few years ago, you helped us put together a really awesome first-time home buying guide, we’ll link to that in the show notes. It’s yourfinancialpharmacist.com/homebuying, and you go through six steps for the first-time homebuyer. What I want to do is pick your brain a little bit of when you wrote that, the time period you were in, right now, are two very different time periods. I think as we look back on that now, different market in terms of buyer’s market, seller’s market, obviously, some of the factors that we’ve talked about here today and it’s just different.

So, as we look at some of these factors around being ready, and looking at what’s important, and negotiation, and inspections, and all those types of things, it’s a different landscape that we’re in today. So, I’m going to pick your brain here on a few moments of some of this. The first step, Nate, that you talked about in that guide, is make sure you’re ready. Know your budget, thinking about other debt, debt to income ratios. We’ve talked before in the show, but I want to highlight again, the 28/36 rule from a lending perspective. What is it, first of all, and what’s changed over the past couple of months, or even just the past year as it relates to lending? As folks are looking at, what they may or may not get approved for?

[00:18:48] NH: Yeah, great questions, Tim. So, the 28/36 rule, just to kind of highlight that for a second is the idea that lenders are going to look at your debt to income ratio, and give you an idea, a lending decision based on that number. So, what the 28/36 rule says is that you cannot spend more than 28% of your gross monthly income on housing expenses, and no more than 36% of your gross monthly income on all debt. What that can look like for, again, just to put a pharmacist’s example out there, is that if I’m adding up all my outstanding debts, meaning student loan, meaning the debt from my mortgage, anything that is a monthly payment, I had to pay credit card debt, you name it, it’s getting turned into that. And if that number exceeds 36% of my total gross income, they may deny you for that property.

So, those rules are still in place for a conventional loan established by – it’s backed up by Fannie Mae or Freddie Mac. But what we’re starting to see, the shift that I’ve been seeing, at least over the last –even going further back six, eight months ago, is letters that were kind of playing with that rule a little bit, using non-conventional products for certain individuals to try to get them into properties that they could afford, and really trying to push that limit. So, again, those rules are still in place. They absolutely need to be there for Fannie and Freddie Mac lending. But it is starting to shift a little bit in terms of the types of loans that lenders are offering up or that they are recommending to buyers, because there might be alternatives that can help them.

One of the things I’m seeing a ton of right now is lenders pushing arm products, adjustable rate mortgages, where that 28/36 rule might not apply, right? Where you’re going to have an adjustable rate after three years, or five years or seven. So, there’s changes in what’s going on in terms of the types of lending, but a lot of those rules are still in place.

[00:20:29] TU: Which is a really good place to remind folks that, as we’ve hit so many times on the show before, you really have to drive your budget and think about how this is fitting into the rest of your financial plan, especially, as prices are going up. If you are looking at a non-conventional product that increases that amount that you’re able to land, does it still fit within the context of your budget or not?

Nate, for those that are listening that have now had their student loans on pause for more than two years on the federal side, and we’re awaiting momentarily some updates on that, about the extension or not. Remind us of how those have been factored in? Or how lenders are looking at the loans where they have been making a payment.

[00:21:12] NH: Yeah, so it’s tricky, because the lenders can’t see that exactly right. So, they see that you’re paying zero, but that doesn’t tell them what they’re actually going to be paying. So, what I’ve seen from lenders, and again, not a lender, so don’t quote me on this exactly, but what I’m seeing from lenders right now is that they are trying to basically guess at what your payment is going to be. If you have past records you can provide them with and say, “Look, my normal payment is $1,400 a month, but now I’m paying zero.” They’re factoring that in. They know these are coming back at some point. If they’re wrong, if they don’t come back, for whatever reason, better to err on the side of caution.

So, those are still being factored in. You absolutely should factor that into your budget, because again, best case scenario, these go away somehow, or they get reduced or whatever. But you got to plan for that worst-case potential of these payments come back and they come back in full force.

[00:22:01] TU: That makes sense. Related to the making sure you’re ready in the budget, the other question I have for you is on the down payment. I would think in theory, that as home prices go up, as people are feeling stretched more month to month and budget, there might be more folks that are looking at some of those non-conventional options, where they’re not having to put 20% down on a conventional loan. Simple math, right? If you were a few years ago, looking at a $300,000 home, you’re looking at $60,000 down, 20%. $500,000 home, let’s say in today’s kind of market of what it is, obviously, that’s $100,000. So, that’s a significant difference in cash that you’re foregoing.

And so, folks are looking at, okay, not only is the potential for the down payment going to be higher, but also, we’re looking at a monthly cash flow difference because of interest rates. Are we seeing or do you anticipate seeing more folks are looking at some more of those non-conventional products where they’re having to put less down, and looking at different loan types that are out there?

[00:22:56] NH: Yeah, for sure. I think especially with the raising prices of homes in general, people who are sitting in the sidelines trying to save up enough money, they’re seeing their actual ratio of money saved versus down payment needed, decreasing as they fill up their account, right? And that’s just because the prices of homes are outpacing the ability they have to save. So absolutely, we’re seeing more people use those lower down payment options.

I was just talking to a lender yesterday or the day before, and he said he’s actually have a ton of pharmacists who are using FHA lending right now, not because they have bad credit or need FHA –pieces that come with FHA, but because they can do it at three and a half percent down. And so again, it’s interesting to see how things are shifting based on the rising interest rates and the increases in overall home values.

[00:23:42] TU: Nate, one of the other things we talked about in that guide, as well, as negotiating. Step five, you talked about find your home and negotiate. What leverage, if any, does exist in this current market of negotiation? Are we starting to see, in some cases, you mentioned just a few moments ago, that there may be scenarios where some homes that were just flying off the market are going for less than asking? Is there any place for negotiation in today’s market?

[00:24:08] NH: There is. It’s better than it was, certainly. I think, in those two areas that I mentioned before, the bottom of the market, and the very top, there’s a little more flexibility now. That middle zone, though, is still absolutely crazy. I’m seeing properties that when they come up, and they’re nice and priced appropriately, they’re still 10 offers and it’s inspections being waived, and all the other craziness that goes with it. So, it depends on where you’re buying. But absolutely. I’ve had a client recently that was able to get a pretty good deal on an investment property, just because they were buying a place that needed a lot more work and nobody else wanted to touch it. So, they were looking a pretty good deal on that.

[00:24:47] TU: You mentioned inspection waivers in those cases where there still are multiple offers, and that was my question for you as well is, have we seen any of that cooling off? Where there’s inspection waivers, we talked about appraisal gaps, people might need some cash, more cash at that table than they were anticipating. Is that cooling off at all? Or, again, just market specific type of property and the amount of demand that’s there?

[00:25:08] NH: Yeah, it’s pretty market specific. I was just speaking with a pharmacist last night, that is actually a pharmacist and her husband. And her husband is a structural engineer. He was looking at a property for a client, that the piers under the house, were leaning 20% or something crazy. Again, they probably waived inspections before they bought that property. And now, it’s a big problem. So, it’s still out there. It’s very market specific, but it’s still being done, and I still do not recommend it.

[00:25:37] TU: Again, if folks want to download that guide, yourfinancialpharmacist.com/homebuying. We’ll link to that in the show notes.

Nate, I want to pivot to a few questions that we got from the YFP community in our Facebook group, leading up to this episode, and if folks are not yet a part of that group, I would encourage you to join that awesome community more than 8,000 pharmacists across the country that are asking great questions engaging with one another, challenging one another, sharing wins, and so we’ll link to that in the show notes as well.

First question we have from the group for you is how are you changing your strategy for investment properties, given the current conditions that we’ve discussed on the show?

[00:26:12] NH: Yeah, so me personally, the biggest change that I’m seeing is just planning for interest rates to continue to increase. So again, if you talk to me a year ago, I was all in on BRRRR investing, right, the idea of buy, rehab, rent, refinance, repeat. I still love the idea of BRRRR investing, but it’s getting more difficult because you’re talking about buying a property today. If you’re doing it with cash, or you’re doing it with even a mortgage that you’re going to then change down the road, that mortgage down the road, you know it’s going to be a higher interest rate and it’s hard to predict how high it’s going to be. So, it makes it a little trickier to make sure that your numbers are getting right.

So, we actually had a property that we’re dealing with right now. I actually just posted about this in the YFP REI Facebook groups, take a look, that we were going back and forth about whether or not we’re going to sell it, or rent it. When we bought it, it was all in. Like we were going to rent it, we were going to BRRRR it, we were going to cash out, refi. Well, if we cash out and refi’d today, with the amount of work that we put in, we’d be doubling our loan amount and doubling our interest rate. And again, because we bought it with a mortgage upfront, and then we were going to cash out, refi to a second mortgage or different mortgage. That strategy, basically, it could work, but it would totally destroy our cash flow. So, we made a decision to just leave it alone. We’re going to let that money kind of sit in the property for a while, as holding equity, and figure it out later if there’s a better time to refinance. So, it’s changing my philosophy in that way a little bit, but I’m sure it’s impacting others similarly.

[00:27:37] TU: That question actually came from Jenny, who we’ll link in the show notes. But Jenny White, we featured on the YFP Podcast Episode 148, how her and Mike got started in real estate investing. And you and David have also talked with Jenny and her husband, Mike, on the YFP Real Estate Investing Podcast, episode five. So, we’ll make sure to link to both of those in the show notes.

Second question is how to find white coat home loans? This question comes from Cassie. So, referring you here to Dr. Loans, pharmacist home loans, there’s different terms that are thrown out there. But quickly, Nate, what are those loans? And then information on where folks can find that?

[00:28:12] NH: Yeah, absolutely. So, there are loans that again, would typically fall into the conventional realm. But there’s different parameters out there for certain types of buyers. The ones that Cassie is referring to here are again, called professional loans or physician’s loans or pharmacist loans. The idea is that because of your profession, because of your potential of earned income, banks look at you a little bit different. They’re giving you basically some credit for the potential of your earned income. So, they’ll maybe give you a break on interest rate, or oftentimes, what we see is that they have very low-down payment options is the most common type.

We at YFP, have worked with first horizons in the past. There are many other loan officers out there, loan lenders out there that will do this type of investing or this type of lending, excuse me. But the idea is the same, where I can get a pharmacist home loan at two and a half or three and a half or 5% down only, but it has more conventional terms where I’m not paying PMI, I’m not getting hit on my interest rate, again, because of that potential earned income down the road. So, definitely worth looking at. I know we’ve got some great resources on the YFP page for accessing first horizons. And again, there are other investor or pharmacist friendly lenders out there as well.

[00:29:25] TU: Yeah, if folks want to learn more about that, you can go to yourfinancialpharmacist.com/home-loan. We’ll link to that in the show notes. And typically, Nate, just to build on that a little bit is usually there’s minimum credit scores that are involved in their maximum loan amounts, so folks can look at that based on region they’re in, budget, what they’re looking at. So, another resource I’d point to is the white coat investor has a list of some of the doctor loans that are out there. Many don’t offer that to pharmacists, but some do. So, to Nate’s point, there are several options that are out there.

Our third question, Nate, comes from Ivana and she asks advice on how to interact with a realtor when relocating to a different state and seeing homes in a relatively short period of time. What are the right questions to ask during that home buying process? That’s a great question.

[00:30:09] NH: Yeah, it is. And it’s something that we actually deal with quite a bit, where you get a pharmacist that’s maybe finishing residency, for example, and then moving across country for a job, or vice versa. They’re moving from their home state, and they’re going out for residency, and hopefully a future job, and they’re looking at buying. So, it makes it really tough. I’ve done this before with other clients, and generally, the recommendation I gave is figure out first what your level of comfort is, right? So, do you need to see that property in person to feel comfortable with it? If the answer is yes, then you’re going to have to do a lot more coordination of okay, realtor, we’re going to be in town for Saturday and Sunday, I need you to set up for showings on Saturday, five on Sunday, and we’re going to just go whirlwind look at all these. Or are you going to be comfortable giving an idea to your agent of what you’re looking for, and then doing video walkthroughs or virtual walkthroughs.

So, I think stepping back and looking at your own perspective of what is my comfort level, and then finding an agent that’s going to be able to work with you at that comfort level. I think that’s super important. So, I’ve worked with clients that do both, that want to fly out, or drive out and see the properties themselves. I’ve worked with those that are like, “Hey, send me some videos, Nate, post them into a Google Doc, and I’ll look at him after I get off at work.” It’s your level of comfort. I think the questions to ask is around that level of comfort. So, if you decide one way or the other, how am I going to work with that agent within that realm that I’m looking to follow.

[00:31:29] TU: And that question is a great segue, Nate, into the YFP home buying concierge process that you lead, and we’ll link to that in the show notes, and we mentioned it in the introduction as well. Folks can go to our web page, yourfinancialpharmacist.com, click on Home Buying, find an agent, and they’ll see Nate’s face and more information about the work that he’s doing to connect individuals that are looking to purchase a home with an agent in their area that has been vetted, and that certainly aligns with what Nate talks about here on this show, and the educational strategy that he has. So, Nate, tell us about that service. I’m looking to buy a home, I’m looking for an agent, perhaps it’s a situation like Ivana, where it’s relocating to a different state, or perhaps it’s even in their area where they’re not already connected with an agent. What’s involved and how can they get connected with you?

[00:32:15] NH: Yeah, the whole goal of this service is really take the guesswork out of finding a really high quality agent. So, we’re going to go out and actually interview agents on your behalf, or we’ve worked with those agents before with other pharmacist clients. So, we can get you connected with that individual free of charge, so that you can get off and running on the right foot, and not have to worry about does this person have my best interests in mind? Are they just trying to get me to buy and move on? Right? We’re looking for people who are going to be interested in building relationships, who know how to communicate, know how to deal with the pharmacist busy schedule, and are going to listen to what your actual needs are. Not just how do I get this person to buy a house as fast as possible.

So again, the whole idea of that service is that you’re going to meet with me for 30-minute planning call, maybe even less, and we’re going to talk through things like budget. We’re going to talk through goals, must haves, answer any questions you have about the home buying process, and then we can use that information to get you connected with an agent who is going to be a really good fit for you.

The other cool thing about the services that we don’t go away, once you connect with that agent. We remain on your team. I remain on your team, so that if you’ve got questions or just want a second opinion from somebody, you know who to come back to, and you can get that from somebody who has that experience on both the pharmacist side and the real estate side. So, definitely recommend checking that out. It’s a great way. If you don’t know where to get started, it’s an awesome place to jump in.

[00:33:32] TU: And again, that’s yourfinancialpharmacist.com. Click on Home Buying, find an agent, you’ll see more information there. And Nate, I would point folks to Episode 160, where you interviewed Bryce Platt and Shelby Bennett talking about their experience going through the home buying process with the YFP concierge service that you lead. So, folks are looking at more information on what it is, as well as other pharmacists that have had that experience and talking through that experience. Make sure to check out Episode 160 on the YFP podcast.

Nate, as always, I love having your perspective on this very important topic for the YFP community. So, thank you so much for taking time.

[00:34:06] NH: Yeah, Tim. Thanks for having me here.

[OUTRO]

[00:34:08] TU: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and it is not intended to provide and should not be relied on for investment or any other advice. Information in the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

Furthermore, the information contained in our archived newsletters, blog post and podcast is not updated and may not be accurate at the time you listen to it on the podcast. Opinions and analysis expressed herein are solely those of your financial pharmacist unless otherwise noted and constitute judgments as of the dates published. Such information may contain forward looking statements, which are not intended to be guarantees of future events. Actual results could differ materially from those anticipated in the forward-looking statements. For more information, please visit yourfinancialpharmacist.com/disclaimer.

Thank you again for your support of the Your Financial Pharmacist Podcast. Have a great rest of your week.

[END]

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YFP 267: Second Half of 2022…Are You on Track?

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Second Half of 2022…Are You on Track?

Tim Ulbrich, PharmD, flies solo to talk through a five-step system you can implement to set and achieve your goals to finish 2022 strong.

Episode Summary

In this week’s episode of the Your Financial Pharmacist podcast, YFP Co-founder & CEO, Tim Ulbrich, PharmD, takes a moment to reflect on the first half of 2022, revisit goals from the start of the year, and prepare for the second half of 2022. He talks through a five-step system you can implement to set and achieve your goals and finish the year strong. As Tim works through this goal-setting exercise, listeners can follow along with a template provided in the show notes, completing it while listening to the episode. Tim reminds listeners to build S.M.A.R.T. goals during this exercise for health and physical fitness, social and community, spiritual and mental health, financial, intellectual, business or career, and relationships and family aspects of their lives.

Tim’s five-step system includes the following key components to successfully setting and reaching your goals for 2022 and years to come:

Step 1: The 10-Year Heck Yeah
Step 2: The ‘So What?!’ Check
Step 3: The 1- Year Mile Markers
Step 4: Accountability
Step 5: Implementation

Tim dives into each step, explaining the value each provides in meeting your goals and how to move through them with intention. In the implementation step, Tim shares a powerful visualization practice for motivation.

Links Mentioned in Today’s Episode

Episode Transcript

[INTRO]

[00:00:00] TU: Hey, everybody. Tim Ulbrich here, and thank you for listening to the YFP Podcast, where each week we strive to inspire and encourage you on your path towards achieving financial freedom.

On this week’s episode, I’m flying solo to talk through a system, five steps that you can implement to set and achieve your goals and finish 2022 strong. Before we jump into the show, I recognize that many listeners may not be aware of what the team at YFP Planning does in working one-on-one with more than 260 households in 40-plus states. YFP Planning offers fee-only high-touch financial planning that is customized for the pharmacy professional. If you’re interested in learning more about how working one-on-one with a certified financial planner may help you achieve your financial goals, you can book a free discovery call at yfpplanning.com. Whether or not YFP Planning’s financial planning services are a good fit for you, know that we appreciate your support of this podcast and our mission to help pharmacists achieve financial freedom. All right, let’s jump into this week’s show.

[EPISODE]

[00:01:04] TU: So we’re officially past the halfway point of the year. We’re in the month of August. We’ve got five months left in 2022. By now, any goals that we’ve set at the start of the year may be a distant memory. I suspect we can all relate to times when we fell victim to the cycle where we set big goals. It’s the New Year. We’re excited. We have that initial momentum. We then fall into old habits. And soon enough, we give up on those goals, and perhaps we picked that cycle up again the next year.

The mid-year point or just past that is a great opportunity to dust off the goals, to do some self-reflection and determine the path forward to finish 2022 strong. Well, it’s valuable to reflect and identify opportunities for improvement. It’s not valuable to dwell in shame and judgment of yourself. Rather, it’s a chance that we can pivot. We can take responsibility for the actions that we’re going to take going forward.

So if you’re looking for a jolt of motivation for the second half of 2022, let me encourage you to set aside a few hours to work through an activity that I’m going to talk through on this show. I promise, the return on investment of your time will be worth it. I’m going to walk through a five-step process to set and achieve your goals, and this is going to correspond with a template that you can use to follow along and to fill in for your own goals. You can download that template by going to yourfinancialpharmacist.com/goals. Again, yourfinancialpharmacist.com/goals.

We’re going to talk about several different areas of our personal and professional lives. Yes, this is a financial podcast. Of course, we’ll include financial goals in there. But we’re also going to talk about other domains that I suspect are very important to all of us, whether it be health and physical fitness, social and community, spiritual and mental health, intellectual, and so on. So let’s walk through these five steps. Again, you can download that template, yourfinancialpharmacist.com/goals, and you can follow along and fill in the information yourself.

All right, step number one is the 10-year heck yeah, the 10-year heck yeah. So we need to start with this 10-year vision, and we need to dream a bit because short term goals without an inspiring vision will quickly fall off as a casualty of the busyness of life and our tendency to be led by our motivations, right? I mentioned the cycle before, where we set big goals, we get some initial momentum, we fall into old habits, and then we give up on those goals. So we need a bold vision that’s going to transcend us to be able to continue on, even when our motivations may not be where you want them.

I love this passage written by James Allen from the book As a Man Thinketh when he says, “Dream lofty dreams. And as you dream, so shall you become. Your vision is the promise of what you shall one day be. Your ideal is the prophecy of what you shall at last unveil.” Now, I’ve done this activity enough times with former students, residents, and colleagues to know that some prompts here are helpful. I get it, right? 10 years down the road is hard to imagine when the here and now can be overwhelming enough.

So use the following statement to get you started with crafting this 10-year vision for each of the domains that you’re going to see listed in that table, right? So financial, social and community, health and physical fitness. We’re going to set a 10-year heck yeah for each one of those domains. So here is the prompt. If I fast forward to August 2032, 10 years from now, what things need to happen with my – Insert the domain, right? So it could be with my health and physical fitness, with my financial situation. What things need to happen that would leave me feeling heck yeah?

So if I fast forward 10 years to August 2032, what things need to happen that will leave me feeling heck yeah? We want to think about that in each of those domains; health and physical fitness, social and community, spiritual and mental health, financial, intellectual, business, career, and relationships and family. For example, when I think about 10 years from now in the health and physical fitness category, one that’s really important to me, I close my eyes, and I visualize myself being 10 years older. That puts me at 48. It sounds really old, saying that out loud, 10 years older.

At the age of 48, I’ve got my four boys who are now 21, 19, 17, and 14. Now, when I think about what would make up a 10-year heck yeah in this domain of health and physical fitness, I envision that I’m in better shape than I am now, and I’m competing in various events that validate I can get stronger and healthier as I get older. More specifically, I’m screaming heck yeah, if the following are true 10 years from today, August 2032. I’ve completed an Ironman triathlon. It’s one of my big goals. I’ve hired a personal trainer and nutrition coach, and I’ve created a schedule that allows me to spend a couple of hours most days of the week shopping for and cooking fresh meals, something I love to do and would like to do more often if time weren’t a thing.

Those three things, if I visualize 10 years from now, August 2032, I’ve completed an Ironman race. I’ve hired a personal trainer and nutrition coach. I’ve created a schedule that has a couple hours a week that allows me to be able to shop and cook for meals each day. If those things are happening, that’s a heck yeah. That gets me excited.

Okay, it’s your turn. So visualize 10 years from now in each of the domains that I mentioned. Again, you can download the worksheet to continue to follow along. As you begin to visualize, I want you to take a walk. Reflect on these. Dream a little bit. Don’t hold back and do not rush this step because this is going to serve as the motivation and energy that’s going to drive your one-year goals that we’ll talk about here in a moment, and it’s also going to drive the daily actions that we take. So that’s step number one, is we’re looking at the 10-year heck yeah. That’s our motivation. That’s our compass.

Step number two is the so what check, the so what check. Now that we’ve defined our 10-year heck yeah, it’s time to check to see if that 10-year vision is inspiring enough. So for each of the domains, I want you to fill in what is the next column of the worksheet, which is your so what. So this should answer the question why is achieving this 10-year vision so important. Why is achieving this 10-year vision so important, right? This is the so what.

Let your responses to this so what sink in for a while. Because if you revisit them, and they don’t make you feel like you could run through a brick wall, it’s time to challenge whether or not you’re thinking big enough for 10 years into the future. Now, if I go back to my previous example related to my health and physical fitness, when I say out loud and visualize that I’ve completed an Ironman, I have a personal trainer and a nutrition coach, and I have a schedule that allows me to spend time each week preparing meals, it brings a smile to my face.

When I think about my so what, my so what is that I’m able to keep up with my four boys. My so what is it I’m in better shape heading into my 50s than I was heading into my 30s. My so what is that I’m more productive than ever in my work, in the business with YFP, in expanding our mission to help pharmacists achieve financial freedom because I know how connected my physical health and fitness is to my ability and capacity to work and to work well.

Now, one last thing here is don’t hold the 10-year vision and the so what responses to yourself. Talking these out loud with a significant other, a friend, or colleague helps bring a different perspective. There’s something valuable that happens when we articulate our dreams. It either further confirms our energy and enthusiasm, or it exposes some BS or some clarification needed, such that we have to go back to the drawing board and refine them further. So that’s step number two, the so what check on our 10-year vision.

Step number three is the one-year mile markers, the one-year mile markers. So once we set that 10-year vision and confirm that we’re thinking big enough with the so what, it’s time to get some traction with specific mile markers that we can measure and that we’re confident, if achieved, will put us a step closer to achieving our 10-ear goal. Now, here we are, a little bit less than six months out from the start of 2023. So if you’d like to operate on a clean calendar year, think of these as the five-month mile markers or the half-year mile markers. You can then redo this activity heading into 2023.

Now, if you’re feeling overwhelmed at this point, keep it simple with one goal, one mile marker in each domain. But if you’re feeling inspired, consider adding a couple of extra but be careful. I would recommend no more than three in each area. Let’s not forget to write these goals in a smart format, right? This has been drilled into all of us at one or more times throughout our training in our career.

A quick refresher on smart goals, they should be specific, they should be measurable, they should be achievable, they should be relevant, and they should be time-bound. So let me give you a nerdy financial example of a smart goal because that’s what we do best at YFP. So instead of saying something like, “I want to have more saved for unexpected health care expenses,” I could instead reframe this as, “By December 31st, 2022, Jess and I will max out our HSA by contributing $7,300.”

Or better yet, we can add a why to this goal. So it may say, “By December 31st, 2022, Jess and I will max out our HSA by contributing $7,300 so that we can have peace of mind that unexpected health care expenses will not cause unnecessary stress and eat into our emergency fund or other savings.” Now, this goal was top of mind because of our four boys, their physical nature, energy and love for wrestling one another. That’s a recipe for visits to the ER. Thankfully, knock on wood, we haven’t had many yet. But we’re expecting those expenses will come at some point.

Now, going back to my previous example on health and physical fitness, the following are the one-year mile markers, the one-year targets that will put me on the path towards the 10-year vision. By July 31st, 2022, I’m going to complete an Olympic triathlon, which is about a quarter of an Ironman. By December 31st, I’m going to complete 260 cardio sessions that are divided between biking, swimming, and running. So it’s an average of five per week. And by December 31st, I’m going to evaluate three nutritionist options for consideration in 2023. This would include price offering, scope of work, and so on. That’s step number three. We have to be able to bring that 10-year vision and the so what into a one-year vision. So we need one-year mile markers, and that’s what we’re doing in step number three.

Step number four is accountability. So we’ve inspired a 10-year vision, we’ve challenged that vision with the so what in step number two, and we now have one-year mile markers to ensure that we stay on track. So let’s keep rolling. We all know from personal experience that goals plus accountability equals an increased likelihood of success. Goals plus accountability equals an increased likelihood of success. We see this every day at YFP, specifically with one-on-one planning that’s offered by the incredible team at YFP Planning. So folks come to us with big visions, big personal financial goals, and we’re able to provide some of the guidance, some of the expertise, and the accountability to help individuals achieve those goals through one-on-one comprehensive financial planning.

As we talk about accountability here in step number four, we need to ensure that we don’t internalize our goals, and that we have a system and a plan for accountability. Now, this is not simply a person or a group of people. It needs to be more intentional than that. For example, my wife, Jess, is a huge accountability partner for me. But if I simply list here in step number four that Jess is my accountability plan, that ain’t going to cut it, right? I need to get more specific.

For example, once a month, I’m going to review my goals and progress for Jess. This keeps me accountable, knowing that I’m going to update her each month. It also challenges her in her own journey and ensures we can get on the same page with knocking down any barriers to success, whether that be scheduling conflicts, watching the boys, and so on. Now, I would challenge you to find an accountability partner that is at least, if not more, on fire than you are about living an intentional life, someone that will challenge and push you along their own journey. So that’s step number four is accountability.

Then step number five, it’s time to implement. It’s time to make these one-year mile markers a reality. Remember, that’s our focus because we’ve written them in a way that if achieved will put us on the path towards our 10-year heck yeah. So after you populate that table, and again as a reminder, you can do that by going to yourfinancialpharmacist.com/goals to get a copy of that table. After you populate the table, print it off and put it somewhere visible. Build this into a daily or weekly rhythm that allows you to see these on a regular basis and be reminded of why you are trying to strive towards these goals. We need to ensure that the hard work that we just did doesn’t end up on a piece of paper that gets put away somewhere in a drawer.

If we can develop a system to remind ourselves regularly of our goals, they start to become ever present in our thoughts. When this happens, this is your signal that you’re on the right path. Because we want these to become so second nature that we begin to visualize and see them as a reality, not as a hope, a wish, or a dream. Now, there are many ways to remind yourself of these goals, but let me suggest one that I have found to be most impactful, and that is to incorporate the review of these goals into a morning routine in a way that they can be visualized.

Not too long ago, I established this a part of my morning routine where I record and listen to these words each morning, along with some other affirmations and truths that I have to be reminded of every day because there’s something powerful about hearing your own voice, encouraging yourself to strive towards the things that you’ve determined to be most important. It provides incredible energy and fuel to the day.

For example, back to the example around health and physical fitness, I would say something along the lines of, “Tim, visualize the following. At the end of July of 2020, you’re in the best shape of your life because you’ve just crossed the finish line of an Olympic triathlon, arms high in the air. The boys are beaming with joy seeing their dad complete this race and want to do one themselves.”

Now, just hearing those words make me smile, and I can’t wait to cross that finish line two weeks coming up this Sunday at the time of recording this, when I complete my first triathlon because it started as a dream in the fall 2022 and is nearing reality, all from setting a vision with a strong so what that led to the daily habits over the past six months that have prepared me for this race.

My challenge for you is it’s time to make the most of tomorrow. Start by designing what you want tomorrow to look like, rather than reacting to what the day brings. I hope you found this episode helpful. I’m looking forward to a great second half of 2022. Again, I would encourage you to download that template, yourfinancialpharmacist.com/goals. As always, thank you so much for listening and have a great rest of your week.

[OUTRO]

[00:18:01] TU: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and is not intended to provide and should not be relied on for investment or any other advice. Information in the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

Furthermore, the information contained in our archived newsletters, blog posts, and podcasts is not updated and may not be accurate at the time you listen to it on the podcast. Opinions and analyses expressed herein are solely those of Your Financial Pharmacist, unless otherwise noted, and constitute judgments as of the dates published. Such information may contain forward-looking statements that are not intended to be guarantees of future events. Actual results could differ materially from those anticipated in the forward-looking statements. For more information, please visit yourfinancialpharmacist.com/disclaimer.

Thank you, again, for your support of the Your Financial Pharmacist Podcast. Have a great rest of your week.

[END]

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