April 2024 – Your Financial Pharmacist

YFP 356: Love and Money: How to Successfully Navigate your Finances with a Partner

Posted on by YFP Media

Tim Ulbrich, PharmD (YFP Co-Founder & CEO) digs into how to successfully navigate finances with your partner and shares 25 questions you can use to frame conversations around money.

This episode is brought to you by First Horizon.

Episode Summary

On this episode, we’re talking about love and money! Discussing finances with your spouse, partner or significant other can be tricky sometimes. Tim Ulbrich shares 25 financial discussion questions to help you navigate these important conversations along with a free resource you can download to help get you started. From reflecting on your “money classroom” and the way you were raised to understand money to how you feel about debt, savings, and other important goals, Tim guides you through these important conversations. There is no one-size-fits all to managing finances in a relationship – but sharing the same vision and goals with your partner can set you up for success. This episode is brought to you by First Horizon.

About Today’s Guest

Tim Ulbrich is the Co-Founder and CEO of Your Financial Pharmacist. Founded in 2015, YFP is a fee-only financial planning firm and connects with the YFP community of 15,000+ pharmacy professionals via the Your Financial Pharmacist Podcast podcast, blog, website resources and speaking engagements. To date, YFP has partnered with 75+ organizations to provide personal finance education.

Tim received his Doctor of Pharmacy degree from Ohio Northern University and completed postgraduate residency training at The Ohio State University. He spent 9 years on faculty at Northeast Ohio Medical University prior to joining Ohio State University College of Pharmacy in 2019 as Clinical Professor and Director of the Master’s in Health-System Pharmacy Administration Program.

Tim is the host of the Your Financial Pharmacist Podcast which has more than 1 million downloads. Tim is also the co-author of Seven Figure Pharmacist: How to Maximize Your Income, Eliminate Debt and Create Wealth. Tim has presented to over 200 pharmacy associations, colleges, and groups on various personal finance topics including debt management, investing, retirement planning, and financial well-being.

Key Points from the Episode

Navigating finances with a partner, identifying money personalities, and setting goals. [0:00]
Financial planning for pharmacists, merging money personalities in relationships. [1:49]
Money personalities and setting financial goals. [5:50]
Financial goals, budgeting, and spending plan for couples. [10:39]
Financial goals, debt management, housing, transportation, and children’s education. [14:57]
Financial planning with a partner, including goals, investing, and retirement planning. [20:04]
Financial planning and management strategies for couples. [24:32]

Episode Highlights

“I think it’s really important that we spend time to reflect on and identify our money personality and how this does or does not match with our partner. For some of you that have been at this topic for a while, you know how emotional and how behavioral this whole topic of managing money can be. And so it’s important we spend time to reflect on and to get curious about what our money approach is.” – Tim Ulbrich [4:13]

“It’s really helpful that we reflect upon what is the approach that we have surrounding money? How might that have been influenced by the money classroom that we grew up in? The more we can understand that about ourselves, as well as our partner, and how we bring those characteristics into the relationship can be really helpful as we set a plan going forward.” – Tim Ulbrich [8:03]

“Is everything merged when it comes to the finances? Might we have some things separate? Some things merged? Of course, that’s an individual decision for everyone. But ultimately, on some level, we want to have a shared vision, even if some of those items might be separate.” – Tim Ulbrich [8:38]

Links Mentioned in Today’s Episode

Episode Transcript

Tim Ulbrich 00:00

Hey everybody Tim Ulbrich 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 we’re talking love and money how to successfully navigate your finances with a significant other spouse or partner. Easier said than done right? During the show, I discuss how to identify with your money personality and how this does or does not match with your partner strategies for setting and achieving goals together 25 financial questions and discussions that every couple should have? Hang with me. I’ll give you a resource and a link to download those questions and advice from the YFP community on what has and has not worked for them in their own journey, navigating this important topic with their partner.

Tim Ulbrich 00:45

Now before we jump into this week’s episode, I have a hard truth for you to hear. Making a six figure income is not a financial plan. Yes, you’ve worked hard to get where you are today. Yes, you’re earning a good income. But have you ever wondered, Am I on track to retire? How do I prioritize and fund all these competing financial goals that I have? How do I plan financially for big upcoming life events and changes such as moving, having a baby, changing jobs, getting married or retiring? And perhaps why am I not as far along financially at this point in my career as I thought I would be? Well, maybe the answer is that your six figure income is not a financial plan. As a pharmacist, you have an incredible tool in your toolbox: that’s your salary. But without a vision and a plan that it good income will only go so far. That’s why we started Your Financial Pharmacist where YFP we support pharmacists at every stage of their careers to take control their finances, reach their financial goals, and build wealth through comprehensive fee only financial planning and tax planning. Our team of certified financial planners works with pharmacists all across the United States and helps our clients set their future selves up for success while living a rich life today. If you’re ready to see how YFP can support you on your financial journey, you can learn more by visiting your financial pharmacist.com/learn again, that’s your financial pharmacist.com/learn. Alright, let’s hear from today’s sponsor First Horizon and then we’ll jump into the show.

Tim Ulbrich 02:16

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Tim Ulbrich 03:20

Hi there, Tim Ulbrich here flying solo this week as we talk about love and money: how to successfully navigate your finances with a partner. Now first things first, this is a heavy topic right? And I do not have all the answers. When it comes to our financial plan for Jess and I we have found the system- keyword system -that works best for us. But we are far from perfect. We’ve made our fair share of mistakes. We haven’t always been on the same page. And it certainly has required compromise and grace on both sides. So this is not a preach and teach episode. That would be very helpful. Rather, the intent is to give you some things to think about and conversation starters, to find the system that works best for you. Because at the end of the day, that’s going to be what matters most.

Now, before we jump into some of the tactical strategies, and some of the questions and conversation starters, I think it’s really important that we spend time to reflect on and identify our money personality and how this does or perhaps does not match with our partner. Right for some of you that have been at this topic for a while, you know how emotional and how behavioral this whole topic of managing money can be. And so it’s important we spend time to reflect on and to get curious about what is our money approach? What is our money, personality? What is our money classroom that we grew up in the household that we grow up in financially? And how does that perhaps shape how we manage our money today and ultimately how we merge two of those money personalities together as we try to work and get on the same page. So some questions to think about here as it relates to the money personality. Do you approach money in the same manner that you were raised? Have you reflected upon the money classroom that you grew up in? And maybe what worked and didn’t work? Was money in your household an open conversation? Was it a closed conversation? Was it stressful? Was it calm? What was the emotional tone surrounding money? Was there transparency around money? Or was it a taboo topic? What were the spending habits, what was said? And what were some of the unsaid lessons that you learned along the way? And how did all of this potentially contribute to the money personality and the habits that you employ today that you ultimately bring into your relationship? Right, good and bad. Probably true for all of us.

If you want some guidance on this, there’s a great resource, we’ll link to it in the show notes. The Money Couple has five different money personalities, they have a book and an assessment if you want to really dig in and go further on this topic. And they in that resource they referenced five money personalities, those five personalities are number one, the Security Seeker. Number two, is the Saver; number three is the Spender; number four is the Risk Taker; and number five is the Flyer. Now, anytime we do these assessments, right, we’re running a risk a little bit in terms of bucketing ourselves into one of these approaches, when often we may have a little bit of more than one of these. And that’s one of the things I like about this tool is they combine two of these, what they call a primary and a secondary to come up with your money profile. So for example, let’s say that you identify as a saver/security seeker. Okay, so just some quick definitions here a saver, pretty much their outlook is that as they share in their own resources, A penny saved is a penny earned. You make things happen by getting the best deal, right, you can often be someone that’s very thrifty. Characteristics of a saver would be someone who’s trustworthy organized with money, they also would have some real challenges potentially, including maybe obsessing over money, having a hard time letting go. And they would rarely spend compulsively, they really liked the plan. And they really liked that good deal. Now a Security Seeker, which here was the secondary personality, they have an outlook that better safe than sorry, right protection and security is the definition here. So these individuals make things happen by planning for the future. And they’re often very well prepared. So some defining characteristics here would be they can investigate things thoroughly do a lot of research challenges, of course, could be, you know, some of the potential and again, letting, letting go. And maybe finding that balance that we often talk about in the show of living the rich life along the way. Certainly also trustworthy with their finances, they want to make decisions by confirming that there’s a plan, right? So they’re not, they’re not gonna be very spontaneous, and they’re spending money like to have multiple options. This is just one example, one assessment. But it’s really helpful, again, that we get curious that we reflect upon what is the approach that we have surrounding money, how might that have been influenced by the money classroom that we grew up in, and the more we can understand that about ourselves, as well as our partner, and how we bring those characteristics into the relationship can be really helpful, as we then set a plan going forward.

Tim Ulbrich 08:27

So once we really think about some of those money, personalities, you know, I think it’s then that we want to really figure out how can we set and achieve goals together? Now we’re gonna get into a little bit about, you know, perhaps is it everything is merged when it comes to the finances? Might we have something separate? Some things merged, completely separate. Of course, that’s an individual decision for everyone. But ultimately, on some level, we want to have a shared vision, even if some of those items might be separate. And I think it’s so important, I’ve talked about this on the show before, that we start with the vision, and not necessarily start with the budget or the spending plan, right? Not start in the weeds, but really start on what is the dream that we have financially? What does success look like for us collectively as a unit? And can we agree upon that vision, that direction, that dream that we have for us financially, right? That’s a much, I say, easy but easier conversation than getting into the individual decisions. This is also the place where we really want to get all of those goals, all of those ideas out of our heads onto paper, we want to see what overlaps what doesn’t overlap. Obviously, there’s gonna be some compromise here along the way, but once we get them to be shifting from unsaid to said, right, so Jess can share her goals, I can share my goals, we can see what what is similar, what’s different, and then we can begin to start to compromise and prioritize those. That’s really where we can start to then begin to implement and execute on that vision. So for us, I’ve shared this before on the show, typically what we do is want once a year we’re looking at, hey, what does success look like for us over the next 12 months? Right? Keeping the bigger vision in mind? What does success look like for the next 12 months? And what are those things that we want to focus on spending? You know, so we’re looking at, hey, are we on track with savings goals for the future? And retirement planning? If not, what are some things that we want to surplus in the following year? What do some of the experiences look like for us in terms of vacations, home projects, things like that? What are the giving goals for the year right? These are the things that we need to begin to, again, get out of our heads onto paper so we can start to set a plan. Now, I think it’s really helpful here, especially if you have two individuals that are on completely different pages that this is really really where a third party can be very helpful. I know for Jess and I, our financial planner at YFP has been really helpful in getting us to have conversations not only together when we’re in the room with a financial planner, but also in between those meetings to make sure that this is an open conversation as we can possibly have. Now, I have some questions here that I think are good conversation starters. Right? I started the episode by saying this is not about telling you what you should do. This is really about helping to start conversations, stimulate some discussion so that you can figure out what the system is that works best for you. So I’ve organized these questions into different areas. And I have 25 of them, I’m just going to mention them briefly. And we have a one page resource that you can download for free that will have a list of these questions. You can go to yourfinancialpharmacist.com/25 – two five again, yourfinancialpharmacist.com/25.

Tim Ulbrich 11:43

Okay, so in the spirit of starting conversations, here are 25 financial discussions that I think are worth having. And let’s start with the first bucket, which is setting goals, budgeting and just the overall approach to managing the finances. So the first question is, have we discussed and agreed upon our short term, midterm and long term financial goals? Now you can define these differently, I think of short term goals is within the next 12 months, next year, mid-term, one to three years in long-term greater than three years. Obviously, you can determine the timeline that makes the most sense of you. And then furthermore, how can we best set, review and update these on a regular basis? So there’s that initial exercise, and then how often are we going to be reviewing these so that we can make sure we are able to implement those in the plan? Sounds simple, right. But everything starts with the vision and getting to some level of an agreement on the shared goals.

Second question here is have we developed and agreed upon monthly spending plan, budget, whatever you want to call it, that accounts for all of the income and all the expenses? And does this spending plan, budget, again, whatever you want to call it, does it represent and include the goals that we just worked through in the first question? Now, again, for some individuals, and I’ll share some data here in a little bit from our community, for some individuals, everything is merged. Some they have some separate, some is completely separate. So obviously, you have to work through this as it relates to how you treat the merging or lack thereof of the accounts. But do we have representation within our spending plan, approach, whatever that looks like lots of different ways to do that. So that the goals, there’s an actual plan to implement and achieve those goals.

Question number three, does one of us take more of the lead than the other when it comes to managing the finances? And if so, are both of us aware of our overall situation? How do we ultimately make sure that both parties are aware of the progress if one person is taking the lead. I have seen that that often, not always, often is the case where one person may take the lead. So if that’s the case, what’s the plan? What’s the strategy? What’s the structure so that both parties are aware of what’s going on? And the overall progress? Right, the overall situation?

Number four, I’ve alluded to this a couple times is the desire to merge all of our finances; to keep some separate, some merged; or to have everything completely separate. Now for Jess and I, we’ve made the decision that everything’s merged, I’m not here to tell you that you should do that, or that’s the only way. But really having that conversation of what’s best for us, is it all merge is a little bit of both, or is it everything that would be completely separate. Number five, do we need to check with one another before spending any money? If so, is it a certain amount? What’s the criteria for this? How do we determine this. Some, you know, couples might have a large purchase or something that would trigger hey, we need to have a discussion about this. So what are those criteria, if any exist when it comes to making some of those bigger purchases? So that’s the first group of questions around setting goals. budgeting and your overall approach.

Tim Ulbrich 15:01

The second group of questions is around debt management. Debt Management. So question number six here on our list of 25. is how much debt have we acquired thus far? Right? Do we know? Do we know the numbers? Is everyone aware of the debt that’s that’s accrued? And what will be our plan to pay off the debt? Do we both understand each other’s debt position and the feelings perhaps just as important, the feelings towards the debt? Right, for some people, I’ve talked about this on the show before for some people, there can be a significant aversion to debt? Others maybe that’s not the case. So if you have two individuals where you have opposite feelings on debt, that’s an important conversation to have. Are we treating this as our debt? Or is this separate debt? Right? When you think about things like credit card debt, student loans, car payments, or other things that especially may have been existing coming into the relationship. Number seven, again, on debt management, how comfortable are we with having debt? And I would encourage you to break this down further to different types of debt, right, including student loans, credit card, mortgages, car loans, etc. So not just a blanket debt good or bad, but how do we feel about different types of debt? And then final question on debt? Number eight on our list is do we view each other’s debt as our debt? Or is this your debt? Right? And how does that potentially approach how we pay that off? All right, third group of questions is around housing and transportation. So question nine on our list is how do we feel about renting property versus owning a home hot topic right now, given where the housing market is at, given where home prices are and where interest rates are at? And if we already own a home, are we okay with the current situation? Or is there potentially a desire to move? Right? Again, we want to get a lot of these questions and maybe things that we’re thinking about making sure we have an opportunity to discuss with one another. So if we don’t own a home already, how do we feel about renting versus owning a home? What’s that timeline? Like if we already own a home? Are we thinking we’re set? Or is there a potential or desire to move? Next question around housing transportation, number 10 on our list, if currently renting, and there’s a goal to own a home, do we agree on the location, on the purchase price, and the amount of downpayment that would be needed, right? That’s gonna have a big impact on the budget. And again, if things are separate, and not merge, how are we both contributing to that downpayment? And getting ready for that purchase? Number 11, as relates to transportation? Do we view our cars as a necessity? Is it a luxury where we lease? Are we gonna buy our cars? If we buy our cars? Are we paying them outright? Are we going to finance part of it? How do we view the transportation part of the plan? And again, let me pause here and reinforce what I was saying towards the beginning. I don’t really think there’s a right or wrong answer here. The goal is to really get you thinking about, hey, how do we feel individually? How do we feel collectively as a unit? You know, as I think about this question here on transportation, it reminds me of Ramit Sethi’s book, I Will Teach You To Be Rich. I’ve referenced that many times on the show before and one of the things he talks about he starts the book is this concept called Money Dials. And what he’s referring to there is identifying those things that derive the most significance and meaning for you as a part of the financial plan and have a plan to spend money, what he’s referring to is the dial, dial that up. And alternately for the things that you maybe don’t care as much about financially, dial that down, right. For some people, you know, transportation cars may be something that’s has significant value, and for other people, not so much.

Tim Ulbrich 18:35

Alright, next group of questions relates to kids, children. So number 12 on our list is how do we feel about one of the biggest expenses we often see in the financial plan – daycare? What’s our budget for this? And how does it fit in with other financial goals? Number 13, how do we feel about public versus private K through 12? education? You know, again, this might certainly link back to the home purchase and the location and and where you’re looking for home based on schools. And if it is private education is the goal, how will we plan for this and prioritize it with other financial goals? Number 14, again, in this area of children, how do we feel about paying for our kids college? This is a hot topic, right? You often see maybe people that are split on this. And how do we plan for this? Are we hoping to pay for it in its entirety? A partial amount? Are we banking on you know, scholarships or other funding other family to help taking on debt? What’s the plan for that? And then last question, as it relates to children, what ideas and strategies do we want to employ to teach our kids about managing money? Right? We started this episode talking about the money classroom we grew up in. And for those that have children in the home that you’re raising now, they’re obviously growing up in their own money classroom in your house. And so what strategies are we employing and how are we approaching teaching kids about money? What’s our philosophy about behind that, right. So this this gets to things like, you know, our philosophy around alarm allowances, and giving, and how we’re going to teach some of those lessons to our kids. And at what ages are they ready for those lessons?

All right, next group relates to saving, investing, and retirement planning. So question number 16, when it comes to the emergency fund, are we comfortable with three months? Right, your general rule of thumb recommendation three to six months of essential expenses? Are we comfortable with that? Three months, six months, something in between, something different? Have we discussed that? Again, are we on the same page with that?

Number 17, what financial goals are we trying to achieve by saving or investing? What does success look like, right? So we often talk about the importance of saving and investing for the future. But for what? What are we trying to achieve? And what does success look like? Number 18? What does retirement look like for both of us? Are there similarities? Are there differences? What’s the desired age? Right? What are the activities? What what are we working on? Which is the next question: what activities are we engaged in during retirement? What are we doing together? What are we doing separately? Right, beginning to envision so that we’re approaching that retirement phase with intentionality.

Next question, how much should we be saving and investing for retirement each month? And how do we balance and prioritizes with other goals? And then final question here on saving investing in retirement planning? What is our risk tolerance for investing? And again, if we have two different risk profiles? How are we approaching that as we’re saving, investing and planning for the future?

Final set of questions as a group, I’m just calling miscellaneous questions. Got four left on the list here. Number 22. How does each of us feel about giving? How much? How often?Where? How will we plan for this? And what priority? Are there certain things that we have to have achieved before we do this or not? Number 23: Do we plan to do the financial plan ourselves? Or are we looking to hire a professional to assist? Are we on the same page about this? If the goal is to hire someone, what are the criteria we’re going to use that will help us find the right fit? Who’s taking the lead in this conversation? What does that look like for us as a unit? When it comes to assisting family financially, whether that be caring for elderly parents, maybe that’s supporting a family member need or some other situation, how do we feel about this? Right? How do we feel about this financially, and the impact that it can have in other parts of our financial plan? And then finally, question number 25? How will we strike that balance between saving for the future and living a rich life today? What does it mean to us to be living that rich life today? And how are we prioritizing that in the financial plan?

So again, that’s 25 conversation starters, there’s a lot there, right, the different categories we talked about, you can download that list again, yourfinancialpharmacist.com/25. I hope you’ll reference that maybe print it off, and have some of those discussions with your partner. Next, I want to give some input not just from me, but from the YFP community on what has and has not worked for them in their own journey of navigate navigating this topic with their partner.

So I recently posted a poll on LinkedIn asking the following question, that for those that are working with a significant other spouse or partner on their finances, which of the following best describes your situation: is everything merged or all the finances merged? Are some things merged something separate? Or is nothing merged? In essence, everything is separate. And what we saw from that data was just shy of 50%- 49% responded that all of the finances were merged. 42% responded that some were merged and some are separate. And 10% responded that nothing was merged, and that everything was separate in their accounts. Now, some of the comments and advice that I thought were helpful to pass on and again, some some different perspectives here. Kelly had this to say lots of systems can work. But it all starts with transparency. It’s not uncommon for one person in the household to do the bill pay, and thus see more of the transactions. Periodic money dates can help facilitate conversation. A favorite topic in our house is identifying mutual goals and where we want to prioritize funding for the year, sometimes their goals are not aligned. And that is important conversation, as well. So Kelly, comes transparency. Having that open conversation having those periodic money does it dates and sometimes those goals aren’t aligned, and important conversation to get on the same page. Tracy said that we have a joint household account, where we contribute an equal amount each month to cover our household expenses, and some minor rainy day savings. We tossed around percentage based on income but landed on equal flat dollar amount. We also have separate personal spending accounts for ourselves, so we don’t feel like we have to justify personal spending to one another. We’ve divvied up who contributes and covers what to each savings bucket and who does the insurance via their paycheck all this to say after typing this that our marriage is basically a business. I thought that was some humor to add in there as well. Cassidy said my husband, I follow the 50-30-20 budgeting process right now. We have a joint account where 50% of our income goes towards household expenses and joint purchases, a joint high yield savings where we both contribute 20% of our paycheck for larger goals. And then 30% goes in our fun money personal checking accounts. So far it’s working great ensures that we’re both contributing an equitable portion of our income.

Final one that came in is someone shared just got married in summer of 2023. My husband wanted to keep our finances separate, except for one joint checking to pay utilities out of. This came from seeing his parents get divorced about six years ago and had always fought about money. He did not want that to be us. So going into the marriage, we plan to keep our own savings. I that’s a great example before I go further with this one of how that upbringing, right, how that money classroom can impact how we approach our money today. She goes on to say that we’re now nine months married, and we’re getting ready to buy a house with the need to pay the mortgage, we’re rethinking finances and will likely be combining more of our money. He prefers a separate checking account for each item, such as utilities and mortgage, we still plan to keep the money we had pre-marriage as our own stock savings, mutual funds, etc. We have a joint credit card for joint expenses and groceries that’s worked well. We still have separate credit cards. Being upfront about money has been so important to us. We’ve had several long conversations about money, pre-marriage, and within the last few months to get us set up for success. So it sounds like here, there’s even some transition, as they’re getting ready to purchase a home. They’ve been married now just shy of a year, maybe perhaps more that’s moving into the joint accounts, but a system that they’re still working through.

So I appreciate all of those that contributed providing different ideas. So again, the spirit of this right is to identify that system that works best for you. Right works best for you and your partner, really accounting where we started with reflecting on and getting curious about what is the money mindset? What’s the money personality approach that I have? And do I have a good understanding of that for me, as well as my partner? Really coming up then with those shared goals? That vision we talked about? What does success look like in the short, mid and long term, and then beginning to work through those individual areas of the financial plan.

Tim Ulbrich 27:19

Well, certainly last but not least, as many of you know, we have a team of Certified Financial Planners at Your Financial Pharmacist that we offer fee-only financial planning and tax planning, we work with pharmacists all across the country. And certainly we’d love to have the opportunity to work with you. And we’d love to have an opportunity to talk more to see whether or not the services are a good fit. You can learn more about our fee-only financial planning services again at yourfinancialpharmacist.com/learn. Again, that’s your financial pharmacist.com/learn. I think, as I mentioned a couple times that third party, right, that third party can be so helpful to facilitate some of these conversations and to begin to execute on the different aspects of the financial plan. Well, thanks so much for listening, and have a great rest of your week.

Tim Ulbrich 28:05

Before we wrap up today’s show, I want to again, thank this week’s sponsor of the Your Financial Pharmacist Podcast, First Horizon. We’re glad to have found a solution for pharmacists that are unable to save 20% for a down payment on a home. A lot of pharmacists and the YFP community have taken advantage of First Horizon’s pharmacist home loan, which requires a 3% downpayment for a single family home or townhome for first time homebuyers and has no PMI on a 30 year fixed rate mortgage. To learn more about the requirements for First Horizon’s pharmacist home loan, and to get started with the pre approval process, you can visit yourfinancialpharmacist.com/home-loan. Again, that’s yourfinancialpharmacist.com/home-loan.

Tim Ulbrich 28:51

As we conclude this week’s podcast and important reminder that the content on this show is provided you for informational purposes only and is not intended to provide and should not be relied on for investment or any other advice. Information to 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 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 355: 5 Financial Moves to Make After Graduation

Posted on by YFP Media

Sponsored by YFP+, YFP Co-Founder Tim Ulbrich shares five key elements for building a strong financial foundation after graduation.

Episode Summary

On this episode sponsored by YFP+, host Tim Ulbrich outlines five key elements for building a strong financial foundation. Whether you are a pharmacy student looking ahead, a soon to be 2024 graduate, or a resident, fellow, or new practitioner trying to find solid financial footing, Tim shares what it means to build a strong financial foundation, no matter where you are in your career.

With the average pharmacist facing staggering student loan debt and often lacking financial knowledge, Tim shares practical strategies to help pharmacists to begin to navigate debt management, investing, insurance coverage and retirement planning.

About Today’s Guest

Key Points from the Episode

Financial moves after graduation, including debt management and investing. [0:00]
Financial planning for pharmacists, including student loan debt and income management. [3:52]
Financial planning for pharmacists, including assessing current financial state and setting long-term goals. [8:28]
Proactive budgeting to prioritize financial goals. [13:50]
Investing early and often for financial success. [18:24]
Investing for pharmacists, including retirement accounts and tax-advantaged savings. [23:39]

Episode Highlights

“Without a plan, pharmacists certainly may be income rich, but net-worth poor.” – Tim Ulbrich [6:48]

“I saw firsthand how good decisions early in the career could certainly accelerate the financial plan, as I now look back nearly 18 years as well as how some of those bad decisions had a lingering effect in our financial plan. That’s part of the reason why I’m so passionate about teaching this topic to pharmacists at all stages of their career.” – Tim Ulbrich [8:08]

“At the end of the day, money is a tool. And we’ve really got to strike this balance between making sure that we’re taking care of our future selves, making sure that we’re putting this foundation in place today, and also living a rich life along the way.” – Tim Ulbrich [12:21]

Links Mentioned in Today’s Episode

Episode Transcript

Tim Ulbrich 00:00

Hey everybody, Tim Ulbrich here and thank you for listening to the YFP Podcast for each week we strive to inspire and encourage you on your path towards achieving financial freedom. On today’s episode, I’ll be covering five financial moves to make after graduation. Whether you’re a student looking ahead, a soon to be 2024, grad, or resident fellow or new practitioner trying to find solid financial footing, this episode is for you. We’ll be talking all about what it means to build a strong financial foundation, including practical strategies that you can implement in your own plan.

Before we jump into today’s show, I have two exciting announcements. First up, make sure to sign up for our next YFP webinar on Thursday, April 25 at 8:30pm Eastern, where pharmacist and real estate agent, Nate Hedrick, The Real Estate RPh, co-host of the YFP Real Estate Investing Podcast, will be presenting on your checklist for buying a home in 2024. During this free webinar, Nate will walk you through how to know if you’re ready to buy a home. We’ll discuss the current state of the housing market and give valuable insights into the home buying process. You learn more and register at yourfinancialpharmacist.com/webinar again, yourfinancialpharmacist.com/webinar.

Second announcement last year we launched a nonprofit YFP Gives that aims to empower a community pharmacist to give to alleviate the indebtedness of the PharmD students and graduates, to help enhance the financial literacy within our profession, and to support other pharmacist-led philanthropic organizations and efforts. We’re thrilled to announce that our first round of the YFP Gives scholarships is now live! We’ll be giving out three $1,000 scholarships and applications are due on April, 30 2024. For those eligible for the scholarship include PharmD students and new practitioners within five years of graduation. You can learn more and apply at yfpgives.org/cholarship. Again, yfpgives.org/scholarship.

Alright, let’s hear more about our new online community YFP Plus, and then we’ll jump into today’s episode.

Do you ever feel like you’re trying to figure out this money stuff all on your own and aren’t sure where to turn? Maybe you’re overwhelmed with determining how to tackle your student loan repayment. Or perhaps you’re living paycheck to paycheck despite making a six figure income. Maybe you have a negative net worth and aren’t sure how to climb out of debt or make progress on your financial goals. Trust me, I’ve been there. When I finished my residency, I was starting at $200,000 of student loan debt and confused about how to best navigate the transition to new practitioner. I had a great income, but was living paycheck to paycheck and felt trapped. The good news is that you don’t have to continue feeling that way. At Your Financial Pharmacist, we want pharmacists to have the education, resources, and support they need to get a plan in place so they can stop feeling overwhelmed and they can use their six-figure income in the best way possible. That’s why we created YFP Plus an online membership community that empowers pharmacists to gain the knowledge and skills necessary to take control of their financial well being. Inside YFP Plus you have access to exclusive on demand courses. Like the prescription for student loan success, you have access to the right capital financial planning tool so you can track your debt assets and net worth to view your financial progress. You’ll have access to exclusive live events, monthly themes and challenges, a space to ask questions to YFP financial planning and tax professionals, and a community of like minded pharmacists on a similar financial journey as you. If you’re ready to get started inside YFP Plus to take control of your finances, visit yourfinancialpharmacists.com/membership. And if you sign up today, you’ll get a 30 day free trial. Again, that’s yourfinancialpharmacist.com/membership.

Hi there, Tim Ulbrich here welcome to this week’s episode of the YFP podcast. Excited to be talking about this very important financial transition, whether it’s going from student to new practitioner or resident or fellow to new practitioner, critical five year window, where we need to really be thinking about how we can best optimize the financial plan and get on some solid financial footing. So in the next several weeks, we’re about 12,000 pharmacy students that are going to be awarded the doctor of pharmacy degree joining them of course in the workforce will be those completing postgraduate training, whether that be residents, fellows, graduate students, and these graduates on average are gonna make about $120-$130,000 a year of course, depending on where they live in the area of employment they choose. And if we assume that they work a 40-year period with an average raise cost of living about one to 3% they’re going to earn approximately six to $9 million throughout their careers. Let me say that again: about six to $9 million of gross income throughout their careers.

Now if we assumed that about 30% of that income would be eaten up by federal income tax, FICA tax, which is Medicare and Social Security, state income tax, health insurance premiums, and a small contribution to an employer sponsored retirement plan, that leaves about four to $6 million of take home pay. So again, we start with about six to $9 million of gross income, we’re left with about four to $6 million of take home pay. Now I know that’s imperfect math, right? There’s a lot of assumptions that are in there, but just Just stay with me for a moment. We can debate how far a six figure income does or doesn’t go. But let’s agree that a pharmacist income on average, is about $50,000 above the average household income in the United States.

So if we look at the average household income in the United States, it’s about $75,000 per year, it was the average pharmacist’s income according to the Bureau of Labor Statistics, that’s about $130,000 per year, right. So by all intensive purposes, pharmacists make a good income. And if it’s managed wisely, it should be more than enough. So what’s the problem? Well, I’ve talked with hundreds of pharmacists who make a great income but feel like they aren’t progressing financially. They feel stuck. And yes, student loan debt is a big contributor, but it’s certainly not the sole culprit. And I know that because we recently had three-plus years worth of a pause on federal loan payments starting back at the beginning of the pandemic, and those feelings of making a high income, but not progressing financially didn’t go away during that time period. The main reason I see pharmacists experiencing financial stress is the omission of having an intentional plan in place that includes clear goals, and a system that prioritize and funds those goals on a monthly basis. It’s proactive, intentional planning. Without a plan, pharmacists certainly may be income rich, but net-worth poor.

That’s really what today’s episode is all about. It’s about having an intentional plan, and building a strong financial foundation early in one’s career. Now, I know the importance of this because I lived it.

So as many of you know, I graduated from pharmacy school in 2008. I did a year residency, in 2009. Came out of residency entered an academic position. And I remember vividly having that feeling of, wait a minute, I make a good income, but I don’t feel like I’m progressing financially. And the main reason for my journey for our journey as a family is that early on, we were navigating through a sizable amount of student loan debt, a little over $200,000 of student loan debt. And we would eventually get that paid off in the fall of 2015. That was a big milestone for our journey, certainly one that I’m excited about and excited and teaching others about as well.

However, we made that journey more difficult than it needed to be. I didn’t understand terms like Public Service Loan Forgiveness, there wasn’t great information out there. We paid more interest than we had to in the journey. We perhaps, weren’t looking at how other parts of the financial plan fit together while we are also pursuing that debt repayment. And because of that, I saw firsthand how good decisions early in the career could certainly accelerate the financial plan, as I now look back nearly 18 years as well as how some of those bad decisions had a lingering effect in our financial plan. That’s part of the reason why I’m so passionate about teaching this topic to pharmacists at all stages of their career. Here, we’re of course talking about those that are making that transition. Now let’s talk about what I mean by having a strong financial foundation.

So through my own experience, and in teaching 1000s of other pharmacists on this topic, I’ve come to appreciate really five key elements that are critical to building a strong financial foundation. Now let’s be clear, this is not five things that once we check the list, this is the finish line, right? Think of this as literally the first couple blocks that we’re putting in place on the foundation of our financial plan so that we can grow and thrive in the long term and do so with confidence. So let’s talk through what these five areas are.

Number one is completing a financial vitals check. So I believe the starting point is to complete an honest self assessment of where you are today with your personal finances as a pharmacist, right. no need for judgment, no need for shame. Where are we today? Because before we can implement a plan, right, we have to have a good idea of our progress made thus far and what are some of those opportunities that we could potentially improve upon.

So here are just a handful of questions to really help you consider areas of the financial plan that might require your attention. Number one, do I have an emergency fund in place, approximately three to six months worth of essential expenses? Number two, do I have any revolving high interest rate credit card debt, right? I’m not talking about the credit card charges that you pay off each month but that revolving debt that’s accruing. Perhaps 20-25% interest. Number three, do I have an optimize student loan repayment strategy? Critical as we look at many new practitioners and the average debt load that folks are carrying, this is often a key piece of the financial puzzle that we have to put in place, and then build around it. Do I have sufficient own occupation, long-term disability insurance that covers about 60% of my income in the event that I’m unable to work as a pharmacist? A few more questions. Do I have sufficient term life insurance to care for loved ones who depend on my income? If that’s applicable. Do I have adequate professional liability insurance? And do I know my retirement number? Have I thought about, certainly far away, but what is that number that we’re shooting for in the future? Am I on track? If not, how much should I be saving each month to ultimately achieve that goal? We have a lot of information, and resources in each one of these areas available at yourfinancialpharmacist.com.

We certainly have talked through many of these topics at length on the podcasts and the blog, so make sure to check out those resources. Furthermore, if you if you want to go through some of this in more detail yourself, we have a really neat tool available called the YFP Financial Fitness Test. We’ll link to that in the show notes. It’s a really fun interactive quiz that will take you through essentially conducting a vital check in and help identify some areas that you perhaps can improve upon, and that you might want to implement as you look at setting goals for the future. So that’s step number one, completing a vitals check

Number two. Step number two is setting the vision setting the vision. So after we reflect on the current state, right, the current situation, the Financial Vitals Check. It’s time to really establish a vision for the future. Now, this is the area where I think it’s really helpful that we let ourselves dream a little bit right, we just perhaps bogged ourselves down and kind of looking at the current state and the reality, maybe that didn’t bring the greatest feelings of joy. And so this is our opportunity to really let ourselves dream a little bit. Spending time reflecting on questions like what does it mean to be living your rich life? What brings you the most joy? As it relates to the financial plan? Are there experiences such as traveling, giving spending time with family and friends or something else? Right, at the end of the day, money is a tool. And we’ve really got to strike this balance between making sure that we’re taking care of our future selves, making sure that we’re putting this foundation in place today, and also living a rich life along the way.

One more final question to reflect upon, if you were to find yourself in a position where you were financially independent, the find that you are no longer required to work. How would you be spending your time perhaps for some of you? The answer is, hey, exactly like I am is great. Right? This is meant to help us identify what are those things that derive and give us the greatest significance, and meaning in our lives. And for every person, this certainly can look different. So that’s number two. Step number two, letting ourselves dream setting the vision, before we start to chart the path forward. Alright, step number three, is to develop the spending plan to develop the budget to develop the system that’s going to help us bring this vision to reality. Right. So in step number one, we identified what are some of the opportunities, what are some of areas that we might want to focus on. Step number two is really about the vision of where we want to go.

Step number three, is now about making that come to life. Now, while one spending plan method, budgeting method, whatever you want to call, it will never be right for everyone, I really believe that the zero-based budget is a great place to start, especially for those early in their career, those that are looking to get back on track. Reason being is that with a zero-based budget, you give every dollar you earn a job before the month begins. This is a proactive planning process. Now, I’m not suggesting this as a method that you stay with forever. This certainly can feel onerous at times. But as we’re looking at defining how we’re spending our income, making sure that we’re allocating income towards our goals, and that we have a good track on what that income is and how it’s being spent. This system is really going to help us shine a light on that. So the goal is again, we’re doing this proactively is to spend your paycheck essentially down on paper to zero, and to ensure that your financial goals can be funded rather than hoping you have money leftover at the end of the month.

Okay, so for example, let’s say that after step one, which again, step number one was completing the vitals check, and step number two is really setting that vision. Let’s say you identify three goals that you want to focus on over the next year, just as one example. Let’s say goal number one is to save $500 per month for an emergency fund, and up until it’s fully funded at $25,000. Let’s say that you want to save $300 per month in a Roth IRA to supplement your retirement savings. And finally, is the third goal. Let’s say that you want to save $300 a month and a travel account to fund one trip per year. Okay, so in that vision setting, you determine that travel was a was an item that was really important. So in this case, with these three goals, right, we have some money set aside in earmark for the emergency fund some for retirement savings in a Roth IRA, some in a travel account, when you go to work the budget through the budgeting process, you want to have those three areas represented just like any other expense, so that you prioritize these before the month begins.

Again, we’re working proactively really important, rather than hoping we’ve got something leftover at the end of the month. So just like we account for a mortgage, or rent payment, or utility payment, or a car payment, right, we want to think about our goals in the same sense, and making sure that we’re building our plan accordingly to prioritize and fund those goals. In my experience, and in talking with others, so much of the stress, so much of the feelings of overwhelmed and confused around the financial plan comes from having all of these competing priorities swirling in our minds, without necessarily a plan for how we’re actually going to achieve them. Right. And so what we need to do, and what we’re trying to do here in step number three is get those ideas out of our head onto paper. So we can list them down, we can prioritize them, and we can start to put a plan in place to actually achieve those goals and to see the progress.

Now, sometimes we realize that, hey, in this season, or in this moment, we’re not necessarily going to get to all of those goals. That’s certainly normal. But at least we have an expectation of what’s happening. And we’ve been intentional with proactively planning how we’re going to work through those different goals. Now, if you’re ready to try this out yourself, we’ve got a free budgeting template you can download, we’ll take you through this process that I’m referring to here. You can download that at yourfinancialpharmacist.com/budget, we’ll link to that in the show notes as well. Again, your financialpharmacist.com/budget. Alright, that’s step number three, developing the spending plan.

Step number four, is automating your plan. Now I’ve talked about this several times on the podcast, and I’ve referenced that this has really been one of the most transformational things that Jess and I, over the last 15-16 years since I graduated, have really evolved into that has had a significant impact on our own plan. So once we do the work in steps one through three, right. Once we’re able to complete that vitals check to identify what are some of those gaps, what their progress once we’re able to set the vision once we implement the spending plan. Now it’s time that we make sure we execute, right we actually achieve these goals. And that’s really what automation is all about. I

n his book I Will Teach You To Be Rich , Ramit Sethi says that automating your money will be the single most profitable system that you ever built. And I agree automation is so apparent, so effective, so easy to implement, yet vastly under utilized. It involves essentially scheduling the transfer of funds to the predefined goals, right? We just talked about that in the previous steps and doing so confidently knowing that we’ve already accounted for these in the budget, right, because we were proactively planning during that process. Sure, it takes a bit of time to set up. But once it’s set up, it provides a long term return on your time benefit. And perhaps equally, if not more important peace of mind knowing that you’ve thought about prioritize and have a plan working for you to fund your goals. Right. I just mentioned a couple moments ago that so much of the feelings of stress and confusion, overwhelmed come from that uncertainty come from the unknown. So this step is all about bringing it into the known and executing on the plan that we set.

Tim Ulbrich 18:54

So in terms of operationalizing this, one example certainly not the only way, my wife Jess and I, we have a high yield savings account. We use Ally Online Bank for all of our accounts. And inside of that high yield savings account, we essentially have several different buckets. And those buckets are named according to the goals that we’re working on. Right. So one bucket, for example, is an emergency fund. Another bucket might be for a vacation that we have earmarked, you know this summer or next year, one bucket is for the next car purchase one bucket might be for something related to the boys’ education or to the activities that they’re involved in. So all of that rolls up into one high yield savings account. So it’s liquid, it’s accessible, we can get it we can move it to our checking account if we need it. However, the key there is it’s earmarked and defined for the goals that we’re trying to achieve. Now. Just like I said, a little bit of a go, you know, this may not be a forever system that you have to develop. We have found it to be something that’s beneficial ongoing because it’s a visual reminder. It’s the visual aspect of hey, we set those goals, here are the actual buckets, right named for the goal that we worked on. And it allows Jess and I, I’d have some really good conversations. And of course, transparency into the system that we’re working on. This system it took us about 15 minutes to get set up. And again, you could just as easily achieve it through perhaps your own bank that you already have, or through tracking these in a simple spreadsheet. So, as I mentioned, the buckets are simply a visual representation, it really is just sitting in one high yield savings accounts. And it’s then earmarked to these different buckets. So that’s step number four is automating the plan.

Step number five, again, as we’re on this journey, towards building a strong financial foundation, is investing early and often. Investing early and often. Now, Albert Einstein is credited with saying whether he said it or not, compound interest is the eighth wonder of the world. He who understands it earns it, he who doesn’t, pays it. Right, regardless of whether he actually said it’s really good advice, the time value of money is real. And the earlier you save, the less aggressive you’re going to have to be. Now easier said than done, right? Considering many competing priorities that new practitioners are facing. And I remember well, in my journey after graduating 2008, not only was it the student loans that were staring us in the face, right, it was a potential home purchase, it was the emergency fund, it was building up some additional reserves, and of course wanting to enjoy some things as well during that transition. So there’s a lot of things that are coming at you in this season of life. And shortly thereafter, we would start our family and certainly new expenses that would be there as well.

Now let’s take a look at an example of how powerful early investing can be. Okay, early investing. So if we assume and you can run your own numbers using a number of calculators, we have several on the YFP site as well. But if we assume a pharmacist is making, let’s say, $126,000 per year, if we assume that their incomes gonna go up on average, about 2% per year could be a cost of living adjustment could be a performance adjustment, a combination of both, we’re gonna assume that they’re going to put away 15% of their income. And we’ll assume that there’s an average annual rate of return on that investment of 6%. Now, we know the markets don’t work like that in terms of a clean 6% every year. But for the sake of the calculation, we’ll go with that we’ll assume no match from the employer, and that they have a planned retirement age of 60. Okay, so pretty normal situation. So I’m gonna make an average pharmacists salary that’s putting away about 15% of the year and they want to retire at the age of 60. Now, what we see is that if they start at the age of 25, saving 15% of their income with these assumptions, when they get to the age of 60, the math tells us they’re gonna have about $2.6 million. Now, is that enough is a whole another question, right, we’ve talked about that. On the show before we’ve done an episode on how much is enough, we’ll link to that in the show notes as well. So 25, if they start, we’ve got $2.6 million at the age of 60, a coordinator these assumptions now if we wait to the age of 30, right, because of student loans, because life’s expensive, there’s a lot of things going on that 2.6 turns in $1.8 million. An $800,000 difference already. If we wait to 35, we’re down to $1.2 million. If we wait to 40, we’re down to $800,000. Right. So that’s the power of time value of money. That’s what Albert Einstein was talking about with compound interest in really the value of investing as early as we can, knowing that the earlier we invest, perhaps the less aggressive we’ll have to be the later we invest, the more that we’re going to have to do to catch up.

So naturally, then the question is, well, where do I save? Right? And that depends, of course, there’s lots of different options. Everyone’s investing journey is going to look a little bit different. We have to really assess what’s the risk tolerance, what’s the risk capacity, what are the goals, but many pharmacists are going to be focused early on, especially in their career on tax advantage, retirement accounts, tax advantaged savings accounts. So these would be employer sponsored accounts like a 401k or a 403B offered through your employer. Of course, as the name suggests, there’s both Roth and traditional versions of those anytime you hear traditional thing pre tax, anytime you hear Roth and post taxt. There would also be opportunities to save and something like an IRA stands for individual. So these are not through your employer. Again, there’s a Traditional and Roth version of those. Lower contribution limit in 2024 $7,000 versus in the employer sponsored accounts $23,000. And then the other one I typically think of in this bucket would be an HSA or health savings accounts, which again, we’ve talked about on the show at length before we’ll link to those episodes in the show notes as well. So those are the five foundation and steps and I would encourage you with each one of those to learn a little bit more. Right and as I think about and zoom out here for a moment we think about being on this financial journey throughout your career. Right. So important. Remember, here we’re talking about laying the early bricks of the foundation. Again, this is not the finish line where we start to check these boxes off, but rather, it’s that strong foundation upon which we can then build and hopefully build wealth throughout our career and live confidently knowing that we’ve done some of the hard work early on. So just a quick recap, step number one, we talked about completing that vitals, check the self assessment. Step number two, we talked about setting that vision step number three, developing the spending plan. Step number four, automating that plan, right, that was all about the execution. And then step number five is investing early and often.

So let me wrap up by sharing some advice that I got from the YFP community. I recently reached out to the YFP community to say hey, what are some of the things what are some of the things that you think would be helpful as you reflect back on your journey, going from student to new practitioner student to resident to fellow to a new practitioner that you wish you would have either learned or you wish you would have followed that advice and let me just share you a handful of those response.

One person in the life he can be said it’s worth it to learn how to budget early even on a resident salary you can save.

Another person said there’s one financial hack I wish someone had whispered in my ear my own graduation, house hacking with a high value short term, or midterm rental model. We’ve talked about house hacking on the show before referring there to essentially living in a unit can be a single unit duplex, triplex quad and then renting out a portion of a single family house or if you have multiple units renting out other units.

Another person in the YFP community said I wish I would have learned about the different student loan payment options and how to lower my taxes as a W2 employee.

Another person share this advice don’t put off paying your loans if you’re not going down to forgiveness pathway, tackle them head on, and get them done with. Financial life only gets crazier down the road with the addition of a spouse and kids. Looking back, I wish I would have lived as a student resident lifestyle for two years or more and paid extra to knock out those loans early. And then finally, someone else said if you do income based repayment for your student loans, don’t do forbearance during residency, your payments will be low, and you’ll be finished a year earlier.

So just a few pieces of advice from those in the YFP community that I’ve made that transition. I hope you enjoyed this episode. Thank you so much for listening on a regular basis. Again, we have several of these topics we talked about before we’ll link those into the show notes. And I hope you have a great rest of your week. Take care.

[DISCLAIMER]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 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 guaranteed 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 orphanage pharmacists podcast. Have a great rest of your week.

[END]

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YFP 354: From PharmD to Debt Free to FIRE with Derek Schwartz, PharmD

Posted on by YFP Media

Derek Schwartz, PharmD, returns to talk about his debt free journey and his path toward FIRE: Financial Independence, Retire Early.

Episode Summary

On this episode, we check back in with Derek Schwartz, PharmD, on his debt free to FIRE journey. Derek was an early guest on the podcast back in 2017 when he was working toward becoming debt free by ambitiously paying off $180,000 in student loan debt.

Today, Derek returns to share a life update after successfully eliminating his student loan debt – from getting married to owning a home to becoming a father of two – Derek explains how he continues to save and view spending and how his journey toward an early retirement evolves as he pursues FIRE. Derek shares encouraging advice for new grads and anyone looking to pay down debt and what it can mean when you are truly financially free.

About Today’s Guest

Derek Schwartz, PharmD, RPh is a 2014 graduate of Ohio Northern University Raabe College of Pharmacy who currently works with the Kroger Company in the Cincinnati, OH area. After graduating in 2014 with over $180,000 in debt, he paid it off in March 2018. Derek and his wife, Jessica, married in October 2020, and have two children: Julia, age 2, and Calvin, 8 months old. The family of four have a happy and busy life in Cincinnati, Ohio.

Key Points from the Episode

Financial independence and retiring early with a guest from 2017. [0:00]
Debt repayment and financial independence with a young family. [2:04]
Budgeting and financial goals with a focus on breathing room and flexibility. [8:46]
Financial Independence and Retire Early (FIRE) journey with Derek Schwartz. [13:13]
Financial independence, debt management, and retirement planning. [17:20]
Retirement planning and debt management. [20:49]
FIRE (Financial Independence Retire Early) journey and determining the FI number. [27:44]
Paying off student loans and saving for the future. [31:49]
Investment advice and updates from a guest. [37:49]

Episode Highlights

“So my debt repayment that it finished was March 30 of 2018. So just in a couple of days, it’s been six years, which is just crazy. Because it’s been so long, it was such a big part of my life. And it’s so far in the distant past, I hardly think about it anymore. And that was always the goal for paying off that debt because it sets up everything else so nicely.” -Derek Schwartz [3:07]

“When you have that much debt, it stops you from saving, it stops you from investing, it stops you from using your income to benefit future savings, having fun, just doing anything.” -Derek Schwartz [5:40]

“Having that much debt and trying to do other things, is like trying to run a marathon without stretching. You’re not gonna get far, you’re not going, you’re gonna get hurt, you’re gonna have to restart, and then you get to go back to square one.” – Derek Schwartz [5:58]

“And once you are completely out of debt, it’s like shutting a book and just tossing out the window. It’s done. You don’t have to go back.” -Derek Schwartz [6:20]

“And that was the motivation for such a rigid budget is I knew exactly when those loans would be paid off. And now it’s completely changed. Because when you’re talking about no debt, what are you saving for? What’s your goal? You can be so much more flexible, when there’s not some restraint of I’m budgeting to get over this, instead of I’m budgeting to get to this.” Derek Schwartz [11:06]

“But it’s just always been a passion for both of us because we have so many more interests that aren’t tied to our jobs. We both love our jobs, we love our work. But, we love other things, too.” -Derek Schwartz [18:28]

“So we’re planning for those to just not be there. And so that’s kind of a, a different way to look at it. Because most people will assume that Social Security will be there, they’ll have some some kind of health insurance. We’re looking at it as, hey, if we retire at 50, on our own, can we do it?” -Derek Schwartz [22:50]

“And that’s, that’s such the nice thing about being in the FIRE mindset of, first of all, being in the FIRE mindset, you’re out of debt. And then secondly, how can we use factors around us to benefit us. And that’s something you can’t do when you have when you have a lot of debt, and you don’t have the the FIRE mindset if you’ve already been saving.” -Derek Schwartz [26:45]

“So, and we couldn’t do that without being out of debt. I keep going back to getting out of debt. But that’s just so important because it just allows you to be on that platform to just do so many different things with what you want to do with your money.” – Derek Schwartz [34:22]

“Paying off debt is not fun. It is not glamorous, it is not full of constant rewards. You’re not doing a lot of things; you’re just watching a number go down. And that’s all it’s doing. But once you get out and pass through that, your options just expand so much.” – Derek Schwartz [36:18]

Links Mentioned in Today’s Episode

Episode Transcript

Tim Ulbrich 00:00

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 welcome back Derek Schwartz, a guest from episode 14 way back in 2017 to share his journey from PharmD to debt free to pursuing financial independence/retire early. We discuss why he and his family are on the fire path, how his financial decisions, post-graduation helped put them on a path towards building wealth, the biggest challenges that they’re facing in pursuit of fire, and how he striking the balance between living a rich life today and saving for the future.

Now, before we jump into the show, I have a question for you. Have you ever wondered how to evaluate the benefits package and offer you receive once you’ve landed the job? If so, our upcoming webinar supported by APHA is for you. On Wednesday, April 17, at 8:30pm. Eastern my partner in crime YFP, Co-Founder and Director of Financial Planning, Tim Baker is hosting a free webinar titled: Money Moves: How to Evaluate Benefits Packages and Job Offers. During this webinar, Tim will dig into the valuable connection between career and finance and the ins and outs of benefit packages and offers. He’ll teach you how to navigate components of employer benefits, including insurance, FSA, HSAs, employer sponsored retirement accounts, as well as help you understand components of a job offer and how to evaluate one. Plus, Tim is going to do a live walkthrough and evaluation of real pharmacist job offers from you, the YFP community. So send us your pharmacist job offer current or past to [email protected] with the subject line: job offer. Don’t worry, we’ll keep these anonymous. And if you attend live, you’ll have the chance to win a $50 Amazon gift card or YFP bundle which includes a YFP t-shirt and our four books published at YFP. To save your seat and to register visit yourfinancialpharmacist.com/offer. Again, that’s yourfinancialpharmacist.com/offer.

Alright, let’s jump in my interview with Derek Schwartz.

Tim Ulbrich 02:02

Derek, welcome back to the show.

Derek Schwartz 02:04

Great to see you again.

Tim Ulbrich 02:06

So excited to have you back. This has been a while in the making. For our community to know we had Derek on way back when, nearly seven years ago at this point, Episode 14, September 2017. We talked about your journey – graduated from Ohio Northern University in 2014. Go Polar Bears!

Tim Ulbrich 02:23

You were paying off $180,000 of debt in just about four years. That was 2018 when you guys finished that debt repayment journey. We’ll link to that episode in the show notes so folks can go back. And we’re going to talk a little bit more about that. But really focus on your journey now and where you’re at present day and how you and your family are on this path towards financial independence. So Derek, since it’s been such a while, 2017 what what’s changed since since we last spoke?

Derek Schwartz 02:23

Go Polar Bears!

Derek Schwartz 02:51

Man, what hasn’t changed? So when we recorded the podcast, and I begrudgingly listened to it. So I think I join everyone that they don’t like to hear themselves talk. So I, I struggled through that I had not paid off my debt when I recorded that. So my debt repayment that it finished was March 30 of 2018. So just in a couple of days, it’s been six years, which is just crazy. Because it’s it’s been so long, it was such a big part of my life. And it’s so far in the distant past, I hardly think about it anymore. And that was always the goal for paying off that debt because it sets up everything else so nicely. So you know, it’s a typical story, you know, you, you meet someone, you get engaged, and my wife and I got engaged in January of 2020. And I was like, you know, this is gonna be a great year. Nothing bad’s gonna happen in 2020. It’s gonna be smooth sailing from here, as everyone knows, wasn’t the case. But it was an opportunity for us to buy our future home, we moved into a good part of town where we wanted to raise kids, and then we started the family. So we have two kids. I have a two year old daughter and an almost an eight month old son. So things have been great so far.

Tim Ulbrich 04:13

That’s a lot in a short period of time, as we often see, with new practitioners coming out, you know, you’ve been out now a decade coming up here, right this spring, but you know, you graduate, start your first job, get married, you’ve got a couple of kids, pay off your loans. I mean, just a lot that happens and one of the things I was sharing with you before we hit record, which I think is a great example here, Derek and the work that you and your family have done is you know the decisions we make in that first five to seven years is the window I often talk about this transition right from student to new practitioner, really is so critical to setting the foundation upon which we can build and we’re going to talk about how now you guys are on this path towards financial independence, which I presume is probably not possible or possible to the degree that it is. If you didn’t work hard to put some of those rocks in place some of the foundational pieces in place early on in your journey. And so, you know, again, we’ll link back to that episode so people can hear the details of that debt free journey, but just remind us of the motivation, the why behind a pretty aggressive debt repayment $180,000, about four years. Everyone’s on their own journey, everyone feels different about their debt. But for you guys, obviously, it was in a decision to be intentional about paying it off in a short period of time, which again, has led to the place that you’re in today, why why was that such an important piece of the plan for you guys to get out of that debt as quickly as possible?

Derek Schwartz 05:40

I think it was, because there was no other option. When you have that much debt, it stops you from saving, it stops you from investing, it stops you from using your income to benefit future savings, having fun, just doing anything. Having that much debt and trying to do other things, is like trying to run a marathon without stretching. You’re not gonna get far, you’re not going, you’re gonna get hurt, you’re gonna have to restart, and then you get to go back to square one. So the goal of getting out of debt was just to get past that. So that options, were actually on the table that were available. And once you are completely out of debt, it’s like shutting a book and just tossing out the window. It’s done. You don’t have to go back.

Tim Ulbrich 06:27

Yeah, and I think, you know, I often shared Derek that when I think back to my journey, Jess, and I have paid off a couple $100,000 of debt and making every mistake you can make along the way. You know, it was really when our kid most of that journey was before we had kids and the end of that journey. Our kids were very young. But I now think about that monthly payment, right that we were making, which was pretty aggressive at the time. And basically, as I now see the expenses with kids rising, right, which is natural, you know, I’ve got some older, older boys that are starting to eat us out of the house. But you know, for other people, it’s daycare, right? It’s other costs, it’s saving for kids college. But the point being that, you know, that payment that I think of that we’re making towards their student loans, you can pretty much just put that money over to expenses, right, that are associated now with having young children that weren’t there before. And for us, I know, personally, it would be a burden currently if we were still trying to work through those payments, while other expenses were rising. Does that resonate as you guys are, you know, obviously, growing a young family, you know, having that margin through having that debt paid off has allowed you to really have have some more flexibility as naturally expenses will rise as you have young children.

Derek Schwartz 07:37

Yeah, for sure. And we we started with our daughter in daycare. And we quickly learned that wasn’t for us. We were getting a lot of sick calls, we had to go in, bring her home, my wife and I both worked full time. And we were seemed to be a some of us, one of us is going to have to work part time to have to get around daycare. So we’ve hired a nanny, which was the best decision that we made. And, you know, we couldn’t afford that with student loan payments, we couldn’t afford that with a credit card payment or a car loan, or anything that, you know, requires a monthly payment like that. So it’s the setup to getting flexible with the budget has to start with being in a position where you can be flexible. And without any, like debt that’s just holding you down. That flexibility is just gone. So it limits your options. And we don’t want to have to, you know, talk about every single transaction that we do, where we buy something. Like hey, can we afford to have a date night? We don’t have to have that discussion because we don’t have, you know, all these loans and like this massive budget that we have to worry about. We still budget, but that’s in the budget, so you don’t have to think about it.

Tim Ulbrich 08:52

Yeah, yeah, what I hear there, Derek, is breathing room, right? You’ve used the word options, flexibility a couple of times already. But when you have breathing room, we underestimate the mental space and clarity that can come from that. And, you know, I think you can probably appreciate this working on this topic together with your spouse, like a lack of breathing room, a lack of margin is a recipe for stress and arguments. And you know, not not being on the same page financially. Right. So creating that breathing room, which we know is easier said than done. We look at today’s graduates are coming out with $150- $200,000 of debt. You know, you and I were fortunate to not necessarily be buying a home where home prices are in 2024 and interest rates. There are headwinds, right that today’s graduates are facing that are real. And unfortunately, those eat into that breathing room, they eat into that margin, but we know when we can create that breathing room and space. We have options. We have flexibility, you know, we’re able to really progress and move forward with the financial plan and play offense instead of constantly being on our heels playing defense. I do want to poke for a moment on the budget because I think that’s something that, you know, when I talk about budgeting, you know, to a group of pharmacists, you know everyone again is on their own journey, but I often see the look of like, like, do I have to right? Do I have to track? Do I have to do these things? And I tried to reframe the budget as being the really the mechanism by which we’re achieving our financial goals. Now, how detailed do you want to get is up to you. Whatever works for you, and everyone, again, is going to be different. But if we reframe it, that the budget, the spending plan, the system, whatever you want to call it, is simply the execution plan for achieving our goals, I think we can get behind that a little bit more. And you made a comment that, hey, we’re, we’re budgeting, but we’re maybe not tracking things at the granular level of hey, can we go on a date night tonight or not? And is the budget $20 or $30, or whatever that number is. So tell us about what your budgeting system looks like right now. And maybe how that’s evolved over time.

Derek Schwartz 10:46

Yeah, the budget before when I had debt was so rigid, because I knew exactly how much I was making. I knew exactly how much was going to, at the time was living in an apartment. So rent utilities. And it was a very locked in number. And that’s what it was going to be every month. And that was the number that would, that would knock down that debt. And that was the motivation for such a rigid budget is I knew exactly when those loans would be paid off. And now it’s completely changed. Because when you’re talking about no debt, what are you saving for? What’s your goal? You can be so much more flexible, when there’s not some restraint of I’m budgeting to get over this, instead of I’m budgeting to get to this. And when you’re budgeting to just have that independence that you want in your life financially, you can be so flexible with it. And my wife and I, before we had kids, we were saving a ton of money, I want to say at least 40 to 50% of our income, we were saving that. Because we were in a position where we’re like, hey, we want to have kids. So we know the timeline that we want to be on, we wanted to have a couple of kids we wanted to family, we knew it was going to be in a couple years. So we’re like, you know what, let’s just save for the next couple years, and then put ourselves in a position. So we just saved super aggressively. And then when the kids came and expenses come up, and you you dial that budget back, it doesn’t hurt as much because you’re still saving. And when you’re so aggressive to start, it’s so much easier to for it to be malleable, just mold it what you needed to be. And then we then look forward to having goals of hey, we can we can get that back to where we want it once kids are in school. And once you have less expenses, because they’re both we had two under two for quite a long time and not only was financially stressful, just in general stressful. And it we we see where it can get back to and that’s the motivation now.

Tim Ulbrich 12:46

Yeah, and I think Derek, one things you share that resonates with me is because of your early aggressive savings, we’ll talk about more of that here in a little bit with your FIRE journey. You know, that gives you some permission to say, Hey, this is a season we’re in. This is a season of expenses, you know, may not be forever, it’s gonna look different in a few years. You mentioned that already. But let’s say the opposite was true. Let’s say you guys didn’t save it all in the first five, seven, now 10 years, a decade coming up on graduation. That’s another layer of stress, right? Because, hey, we’ve now got rising expenses. And we feel like we need to play catch up. And because you saved early in the journey, there probably isn’t that nagging feeling of hey, we’ve got to catch up. Right. So again, breathing room, and margin. So our theme for today is PharmD to Debt Free to FIRE. So again, graduated 2014 Debt free journey – paid off those student loans in 2018. Now you’re really on this path and evolution towards building wealth and towards financial independence. We’ve talked about FIRE on the podcast many times, we’ve got a lot of resources on their website, if that term is new to those listening: Financial Independence, Retire Early. So we’re going to spend a bulk of our interview talking through that with Derek what what does that mean to him? Where is he at? And the journey? Why are they on the fire journey? And what has that looked like practically for them and their family? So, Derek, let me start there. It seems that the the term FIRE while there’s formulas, calculations, all these things about how we can determine what our FI number is, I recognize that can mean something different to everyone. So what does FIRE mean to you and to your family?

Derek Schwartz 14:18

For us, it just means that we retire on our own terms. We both had the goal of retiring when we were 50. That’s the goal. And because I love my wife, I will not say how old she is on a podcast. I am 34. That means I want to retire in 16 years. By the time I’m 50, we are done working and we want to pursue other interests. The nice thing about being on this FIRE journey and being aggressive with saving when we did is with two kids, we looked at each other we’re like, hey, this might be 55 now. that’s still really early. Hey, we might push it back to like, you know, 57-58. Maybe 60, we work part time that’s still early. The the financial independence side of the FIRE to us just means, hey, we’re on our own terms. If we want to pursue other interests, we can do that if we want to, you know, scale back how much we’re working, we can do that. If we want to explore other interests that can make us money, we can do that and just leave our professions that we have behind. But once we get to that point, we’ll know that we’re covered financially. And then you know, the sky, the sky’s the limit from there where we can, you know, instead of diversifying your your money, where it’s going, diversify your interests and see what you know, what calls for you.

Tim Ulbrich 15:40

Yeah, what I really hear there, Derek is options and opportunities that you could pursue, and it might be one of many different pathways. Maybe you decide to work part time, maybe you don’t, maybe decide to travel a bunch, you know, maybe there’s grandkids at that point in the future, and you want to have the flexibility of time, like, you know, maybe it’s something that you’re not even thinking about at this point, whether it’s volunteering, and you know, there’s a ton of different things that could be, but having the option to, right, that that is what really resonates with me when people talk about financial independence, regardless of what the number is, or what the age is, is, you know, maybe it’s retire early, maybe it’s not. But there’s options to pursue A, B, C, D E. I talked with somebody recently on the FIRE journey, I guess, we’ve had on the podcast before Corey Jenks. And he gave an example of, you know, I think he referenced like walking into a sporting goods store or another type of business. And he was like, Oh, that’s interesting. Like, maybe someday I just would want to try to work at one of these and kind of see what it’s like. And when you’re on an FI pathway, like, those are the kinds of things that you can, quote, take a risk on or roll the dice and say, oh, this would be interesting to do for, you know, six or 12 months, whatever that might be. So I love what you’re sharing there. One of the barriers I often see, Derek is two individuals getting on the same page, not just in general with their finance. But here’s we’re talking about with FIRE. And you know, often you might have one person who’s gung ho, let’s go. And maybe they even started the FIRE journey before they met their significant other, spouse or partner. So my question for you is, have you guys always been on the same page? Has this been an evolution, it sounds like you’re very much in the shared vision of 50, or 55-57. Whatever that age is. Tell us more about how you’ve been able to work together and get on the same page.

Derek Schwartz 17:25

Yeah, I’m, I am so blessed to have my wife. Because on our first date, we talked about just being financially independent, that was just such a goal for both of us. Probably weirded out a lot of people were sitting by at the restaurant we were at. But that was just a goal for both of us. She was debt free when I met her, she owned her own home, she wanted to get into real estate, she was already on that path I had, you know, my path is so much different from hers, because I had all this debt I had to pay off that she still had some, but she had paid it off years before I met her. So we were on the same journey of getting to financial independence. But we started completely different areas, and we just happen to meet at the time where, you know, I was ready to start saving at the level that we wanted to. So at the time we met, I was talking about, you know, buying my first home, eventually, we as we dated, I kind of weaseled my way into her house, decided to just live there and pay her rent and then we got married from there. But it’s just always been a passion for both of us because we have so many more interests that aren’t tied to our jobs. We both love our jobs, we love our work. But, we love other things, too. And part of that is with our kids, we want them to be also financially independent. And that’s you can’t do you can’t preach that you’re not doing it. And that’s just that’s really that’s a hard place to be in of you know, teaching discipline with your kids and teaching, you know, financial independence and you know, being your own person and not you just you know, having so much debt that you can’t, you know, do the goals that you want to do.

Tim Ulbrich 19:10

Yeah, and I appreciate the perspective you have on that Derek and I know you’ve got young ones you mentioned the the ages a little while ago. One of the things I’m appreciate with my boys, my oldest now going to be 13 in the summer, as they are observing and picking up on things way younger, you know, then you would think. Sure, they might not be able to articulate it. But there is definitely a culture in the house around money. They become very aware of how individuals are talking about money. Is it you know, fearful? Is it stressful? Is it an open conversation? Is it a closed conversation? And we’re gonna be talking more about that on the podcast here in the future about kids and money. It’s a really, really important topic. But you know, I think just a note of encouragement to parents out there like hey, we’re not going to get it right all the time. I haven’t gotten it right. Jess and I haven’t gotten it right all the time. But, you know, really being cognizant and aware of the dialogue, the culture, the tenor, the tone of what’s happening financially in the household. I think it’s so important. Derek, you mentioned 50. And I heard that evolve 53, 55, 57. You know, when I hear that age, often an objection that will come up is, well, how are we actually going to be able to fund that, right? You know, we’re not yet at Social Security age, you know, maybe we’ve got dollars that are tied up predominantly in traditional retirement accounts, 401k, 403B’s, IRAs can’t access those to 59 and a half without penalty. You know, so then becomes this question of, well, how do we actually produce a paycheck when we’re at an early retirement age, and of course, all the fears that may come of hey, we’re gonna run out of money too early, and where we need health insurance benefits. Talk to us about how you guys are thinking about that, while still a ways away. I’m sure it’s something that’s been on your mind.

Derek Schwartz 20:49

Yeah, that’s, that’s something that we, that one of the first things we talked about as, hey, if we retire at 50, what do we do? So we have different accounts that, you know, you can’t touch certain retirement accounts until a certain age, we also have taxable accounts that we can dip into. We have money that’s set aside just in savings that we can get to at anytime. By that time, we we have a 15 year mortgage, so our house would be paid for. So it’s kind of just like leveling with what do we have to anticipate paying for? What to what accounts can we get into what can’t we get into? What does that mean for hey, if we retire at 50, are we actually retired? Can we do all the things we want? Or do we have to kind of like, play it slow a little bit until we can get into into some more taxable accounts that we’re holding on to? And, you know, it’s flexible. And we’d rather have that conversation to 50, than than 70, or 75. So it’s kind of a non answer, it’s almost a we’ll see when we get to it. And that’s why it’s so nice, just for it to be so flexible, because we don’t know, you know, what that looks like at 50. And then, you know, if, like, we have to say, hey, we’re gonna work till 55 now, that’s not a big deal. And that might not even be a full time at that point. That might just be like, you know, hey, we’re both working part time both our kids are, you know, 18, maybe out of the house and college, maybe they’re doing their own thing, you know, and we can downsize our house, there’s a lot of options that you can have. So, another thing that we look at is, instead of saying, hey, at 50, what do we do? We’d rather do that and say, hey, we’re, we got to 65, Social Security is not there. Hey, we’re not getting the health insurance we thought we’d get because you don’t know what things are going to be. And with all those variables that are so many are out of your control that you don’t know. So we’re planning for those to just not be there. And so that’s kind of a, a different way to look at it. Because most people will assume that Social Security will be there, they’ll have some some kind of health insurance. We’re looking at it as, hey, if we retire at 50, on our own, can we do it? And we think we’re on track to do that. But if we have to push it, we can push it.

Tim Ulbrich 23:12

Yeah. And what I hear there, Derek, is being comfortable with the uncomfortable and the unknowns, but not necessarily just kind of put your hands up and saying, hey, there’s not planning that can be done, right. You mentioned several variables, assumptions that any one of those can change, some of them will change, some of them may be better than you thought, worse than you thought. So there’s planning that needs to be done. And we so often talk about the accumulation phase. Right. But we don’t often talk about the de-cumulation phase. Whether that’s early retirement or not, you’re gonna have several of these buckets of assets, right? You mentioned brokerage accounts, you mentioned traditional accounts, you’ve obviously got your home, that will be an asset, perhaps there’s real estate now or in the future. I mean, you’re gonna have all these different buckets, maybe there’s social security involved. And it’s a matter and function of okay, well, for 55. Where are we drawing from those? And how do we do that in a tax efficient way? And how do we make sure that we’re optimizing which buckets we’re drawing from, and essentially, what we have to do is, you know, our working career, we work and we get a paycheck, right? Well, when we’re not working, or working part time, and we need to fill up the rest of that income bucket, we have to produce our own paycheck in retirement, whether that’s early or not. And I think there’s so many nuances and planning opportunities there that we just don’t talk enough about how do we actually produce that retirement paycheck? You mentioned 15 year mortgage. I want to talk about that for a moment. Because, you know, obviously, you’re, you’re a math guy, you’re on the FI journey. And, you know, there’s this debate that’s always ongoing of 15 versus 30. Year and what’s the opportunity cost and, you know, getting out of debt and versus carrying a low interest rate debt for a longer term. As you’re someone who’s looking at an aggressive savings rate, you know, an argument could be made potentially that hey, anything you’re paying on a 15 year that you could, you know, have paid on a 30 year or lesser amount than you could have invested the difference. You know, obviously there’s an opportunity there to way of paying down the debt versus investing for the for future, the most common question we get, hey, should I be paying down my debt? Should I be investing? How did you think through that process of, hey, let’s make a higher monthly mortgage payment. And therefore, you know that that is money that could have potentially been invested versus maybe you did decide to take out a 30 year, and it’s a lower amount, but you’re able to invest more talk us through that.

Derek Schwartz 25:20

Yeah, that’s an interesting story, because we bought her home in the summer of 2020. And taking, taking some time to look back on that time in the mortgage arena, we got a 3% fixed interest rate. You’re not getting that anytime soon, anywhere else. So we made the decision of hey, like, this is an interest rate that it’s basically non-existent. 3% it’s is absurd, and especially in today’s market. So a 15 year mortgage, that’s not really that much of a difference between a 30 year and then you also you still have something like wiggle room to, you know, take some money on the home, and do that sort of things. And it’s funny, what do we do that now, probably not. It would probably be a 30 year, if we were to move and buy a new home. It would probably be a 30 year mortgage. And it’s just interesting, because when you’re out of debt, you look at different ways to I don’t want to say manipulate what you’re doing with your money, but to just kind of be flexible with it, is that instead of saying, Hey, we have to, you know, think of a different way we’re paying on our home, we might have to think of a different differently. We think of it in a way of, you know, how can we take advantage of the situation that we put ourselves in, we were both out of debt, we bought our home? How can we make this situation benefit us? And that’s, that’s such the nice thing about being in the FIRE mindset of, first of all, being in the FIRE mindset, you’re out of debt. And then secondly, how can we use factors around us to benefit us. And that’s something you can’t do when you have when you have a lot of debt, and you don’t have the the FIRE mindset if you’ve already been saving. And that’s not a realistic expectation for people right now. But if you set yourself up to be in a position where you want to be FIRE, and you want to be really aggressive retiring, that is a situation that anyone can easily be in.

Tim Ulbrich 27:24

Yeah, I appreciate that. And I presented the question as a dichotomous variable of hey, you could have either taken out debt longer invest that, of course, it’s not that simple. And one of the variables that’s unique to you guys, is you did aggressively save early on. So there already was that that base of savings. You know, if someone isn’t in that position, and they’re weighing, you know, should I be taken out a longer term mortgage or shorter term? And where am I investing? The question they have to factor in, among many others is, am I on track? Am I ahead? Am I behind? And, you know, certainly that will, will change the equation, how we look at that, as well. When you guys came up with your FI number, I’m curious to hear more about how you determine what this is and how you evaluate this on an ongoing basis, you know, in the FI community, which you’re more plugged in than I am, but there’s everything from back of napkin, you know, rule 25: take your total annual expenses, including taxes multiplied by 25. That’s based on the 4% rule. We’ve talked about that on the show before. And then there’s, you know, much more nuanced calculators that are out there and available. So tell us more about how you guys have evaluated what your FI number is?

Derek Schwartz 28:28

Yeah, we’re much less we’re not even that nuanced. We just, we pick a number, hey, 50, what do we need to do to get there? And that wasn’t a let’s calculate what we have what we’re saving it, plug it into something. And that’s what the number comes up. We started our FIRe journey being like, it’s going to be 50. What do we need to do to get there? And I think, looking at that way, it simplifies it a lot more, because you look at it from a perspective of, if that’s the goal, all right, um, when we started, that was a couple years ago, so it was like 18 years to 50. What are we doing in the next 18 years to get there? And at that point, we didn’t have kids, and then kids come, and we’re like, alright, 50 might not be possible. We went to push it, but 50 it still could be possible. What can we what can we cut back on a little bit to get there? So I think that’s such a nice thing about FIRE is that, you know, it, it’s so adaptable to what you want to do. You can it can be 55, it can be 60. It can just be an unknown age, where you just you have your, your budget, you look at it, you look at what you’re saving, and you’re like, yeah, we can just do it now. And then just start your, you know, FIRE journey from there. Yeah, an important thing and for those that are new on this FIRE journey, what you’ll quickly realize is you start to run numbers is your annual expenses is, is really the factor that’s going to drive this equation the most both in terms of what you need, right? Because your projected need is based off of what you’re going to have to potentially draw. So if you have two pharmacists, let’s say both making $125,000, one is able to live off of 50% of their income, one’s able to live off of 80% of their income, their FI numbers are going to be very, very different. And thus, their savings rates are going to be very different because of the percentage of their income, right, that’s available and able to say, so easier said than done. You know, we know that pharmacists cost of living, individual situations, but you see this on the regular where you know, someone who’s able to really drive down cost of living expenses. And there’s a balance here that we have to factor in, versus someone that is not able to for whatever reason, those numbers of what that FI number is going to be in the timeline to get there are going to be drastically different for sure. Derek, one of things we talk a lot about on this show is we firmly believe from personal experience and working with hundreds of pharmacists, one-on-one on this topic that a good financial plan, it’s a marathon, it’s not a sprint, we really have to be striking this balance between, yes, we have to be ready for the future. Yes, we have to take care of our future selves. But we also have to be making sure we’re prioritizing living a rich life today. And we tend to think about these on one end of the spectrum or the other. Right, there’s some that we see are very, very aggressive savers. But aren’t necessarily comfortable with spending in any capacity. And then there, of course, is the opposite end of the equation as well. How have you guys been able to, especially with a young family, strike this balance between, hey, we need to continue to push forward with getting our FI number. And whatever that age and goal is, but also like, hey, this is a season in a phase of life, that we also want to make sure that we’re living a rich life, we know that eventually this season will pass as well.

Derek Schwartz 31:49

Yeah, that’s, it’s always something when you have kids, everything changes. And you know, everyone’s gonna tell you that you don’t believe it until you’re in it. And that’s something that, you know, you want to enrich your kids lives with different experiences and do things. And, you know, we’ve talked about, hey, we could take them to Disney World, we can take them on a nice vacation, we could also go to a national park. There’s a different cost difference with those, especially if you can like drive to one. We live in Cincinnati so we’re close to Mammoth Cave systems, Red River Gorge in Kentucky, it’s a really nice places that you know, the kids will enjoy. And that’s a big cost savings as opposed to like a more expensive vacation like Disney. Nothing against Disney, my daughter loves frozen, she will eventually go. But that’s something that right now with, we have more expenses, because we have two very young kids, we have a nanny that we’re paying for. Once they’re older, and they’re in school, we don’t have the the nanny costs, some of that costs goes towards maybe a new car fund, maybe that goes to vacation funds. So we can do like a yearly vacation somewhere nice. That goes back into retirements, and it just kind of like just kind of morphs, it’s kind of like a primordial soup of just the funds are there. They’re being used for this, they’re being used for that. What can we do now to make sure that, hey, when the time is right, we can afford that vacation, we can afford to take them on, like really, you know, fun, like family trips to like Disney. And right now that looks like you know, more affordable options, we take them to the Cincinnati kids museum, which is a great place for kids, we take them the national parks. And those are so much more affordable and fit within our current FIRE budget without, you know, just sitting at home and not doing anything. So it’s, it’s in terms of what you do with family enrichment, it depends on what you want to do, how much you’re paying now for expenses that won’t be there. And for us, we have expenses of a nanny that won’t be there for too long. It’s going to be here for a couple of years. But then after that, it’s like okay, we’re gonna go back to saving more aggressively. How about we also save aggressively for a nice trip, How about we save aggressively for, you know, programs that we want our kids in? So, and we couldn’t do that without being out of debt. I keep going back to getting out of debt. But that’s just so important because it just allows you to be on that platform to just do so many different things with what you want to do with your money.

Tim Ulbrich 34:37

Great stuff. My last question for you, Derek, is you know, for the for the students or new grads that might be listening. They’re saying, Derek, this is great. But dot dot, dot, I’ve got $175,000 of debt. I’m trying to purchase a house in this housing environment where costs are crazy. Interest rates are crazy. And I feel like there’s not a whole lot of margin and sure, maybe I’d like to pursue a FIRE journey. But at a minimum, I’d like to just build a good foundation and make sure that I’ve got a solid plan. What advice would you have for new grads coming out today in 2024? As you look back now 10 years ago, just a different space that we’re in. What are your thoughts for those new grads coming out today?

Derek Schwartz 35:17

Yeah, it’s, you have to realize what goals you want to accomplish first. Some people want to own a home. I’m not going to tell people to not buy a house. Some people want to start a family and never going to tell people to not have a family. When you have a lot of debt, and unfortunately, with a lot of pharmacists, pharmacy students coming out, the grads and some people do residencies, where they’re not making their like full salary yet. It’s hard to say to someone, hey, you know, you got to really get on that debt and get that down. From what I saw, when I started my journey of paying off my debt, I was working with a lot of older pharmacists, that when I was in my like, early 20s, and a lot of them were like, hey, if I was, if I could go back 30 years be in your shoes, I would do exactly what you’re doing. And that’s the affirmation that I needed that I was on the right path, because it wasn’t fun. Paying off debt is not fun. It is it is not glamorous, it is not full of constant rewards, you’re not doing a lot of things, you’re just watching a number go down. And that’s all it’s doing. But once you get out and pass through that, your options just expanded so much. And there are some people that you know, graduate, they already have a family, they already have a house. That requires you know, a sit down with your spouse, your partner, and talking about a budget of hey, you know, how can we get this down? How can we get to where we need to go? Yeah, and the first step that I would encourage is to budget and figure out a number of like, when is the realistic goal we can pay it off? And I think figuring that number out, for some people might be longer than they thought it would. And that’s a really important step is to figure out, look at all of our expenses, maybe you have a mortgage, you have the expense of kids, you’re thinking, hey, you know, we can knock this student loan down in a couple of years. It’s actually like 10. Do you want to wait 10 years to pay that off? Or what can you do now to like, chip that number down to five? What can you do to chip it down to six? And then those you know, four or five years you save of not being you know, chained down with your student loans, it can be really reassuring, kind of a kick to get into gear, to get some stuff done.

Tim Ulbrich 37:49

Great stuff there. This has been a joy to reconnect and hear your story. Hear where you’re at seven years later. Hear how the foundation you built early. You’re seeing the fruit of that now and I think there’s only more fruit to come. So thank you so much for taking time to come on the show and to give us an update where you’re at.

Derek Schwartz 38:06

Great to be back.

Tim Ulbrich 38:07

[DISCLAIMER] As we conclude this week’s podcast and 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.

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YFP 353: Avoiding the Trap of House Poor: Evaluating Cost of Home Ownership

Posted on by YFP Media

Nate Hedrick, The Real Estate RPH, discusses how to avoid the trap of becoming house poor, the ever-lively debate of renting vs buying a home, the costs of buying a home, and how to determine how much house you can afford. This episode is sponsored by Real Estate RPH.

Episode Summary

In this episode sponsored by Real Estate RPh, host Tim Ulbrich chats with pharmacist and real-estate agent Nate Hedrick, CEO and founder of Real Estate RPh, all about the costs of home buying. Beyond the initial down payment and monthly mortgage payment, there are a lot of expenses with home ownership. Some expenses can be expected and planned for, others can catch you by surprise, as Nate and Tim have both learned.

Hear valuable insights and resources for pharmacists looking to purchase a home, covering topics such as down payment assistance options, planning for those unexpected expenses, and creative ways to help achieve the goal of home ownership.

About Today’s Guest

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

Key Points from the Episode

Home buying costs and webinar sign-up. [0:00]
Real estate market trends and industry news. [2:32]
Financial impacts of home ownership and student loan debt. [5:27]
Home affordability and financial planning. [11:07]
Budgeting and financial planning for homebuyers. [15:11]
Homeownership and financial planning creativity. [19:39]
Homeownership costs beyond mortgage payments. [23:25]
Homeownership costs and surprises. [27:00]
Home buying options and resources. [32:59]

Episode Highlights

“I live this every day, just as another pharmacist also owning a home, right? You have to kind of account for all those costs. And it can feel like you get to the end of the month, and every bucket has been taken up by something. And you’re like, okay, how many, you know, how many pennies do I have left to rub together?” – Nate Hedrick [11:08]

“So I like tools that have that much more broad look, rather than trying to silo things out and saying 10% should go towards your car and 20% toward your house, because I just don’t think they work for everybody.”- Nate Hedrick [16:00]

“Like that’s the biggest thing with homeownership is – it nothing is consistent, every month is going to be different no matter what you do. And building in some of that margin building in that that error is just a great way to de stress that whole process.” – Nate Hedrick [29:18]

“I think what we’re really trying to prevent is, you know, as we talk about the theme here of avoiding the trap of being house poor and really evaluating all these costs that we don’t achieve one goal at the expense of a bunch of others.” – Tim Ulbrich [29:31]

“I think most people assume or think that they’ve got to have 20% down to buy a home. The reality is, there’s a ton of different programs out there and you don’t need anywhere near 20% down.” – Nate Hedrick [33:50]

“But there are a number of awesome programs out there that can help with down payment assistance, that can lower the downpayment that’s required and still have a competitive interest rate”. – Nate Hedrick [34:14]

Links Mentioned in Today’s Episode

Episode Transcript

Tim Ulbrich 00:00

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 our resident homebuying expert Nate Hedrick joins the show to answer the question how much house can I afford? We discuss how to avoid the trap of becoming house poor, the ever lively debate of renting versus buying, and what costs to consider beyond the down payment and monthly payment, which includes principal interest, taxes and insurance. Whether you’re a first time homebuyer or already own your own home. Our hope is this episode will help you evaluate how home ownership fits as one puzzle piece in the rest of the financial plan. Speaking of homebuying, Nate will be joining us for a free webinar coming up on Thursday, April 25, at 8:30pm/Eastern titled, Your Checklist for Buying a Home in 2024. During this webinar, Nate will share what you need to know about purchasing a home in 2024. And we’ll walk you through important steps to take in your home buying journey to make the process easier to navigate and understand. You can sign up for this webinar by visiting yourfinancialpharmacist.com/homebuying2024. Again, that’s yourfinancialpharmacist.com/homebuying2024. All right, let’s hear from today’s sponsor the Real Estate RPh and then we’ll jump into the show.

Tim Ulbrich 01:20

Are you planning to buy a home in the next year or two? With the state of current home prices and mortgage rates the home buying process can feel overwhelming. But what if you can leverage the knowledge and ongoing support of someone who has worked with dozens of other pharmacists through their home buying journey all at no cost to you? I’m talking about Nate Hedrick at the Real Estate RPh. Nate is a pharmacist who has been a partner of YFP for many years now and offers a home buying concierge service that can help you find a high quality agent in your area and support you throughout the entire process. So head on over to RealEstateRPh.com or click on the link in the show notes to schedule your FREE 30 minute jumpstart planning session with Nate.

Tim Ulbrich 02:05

Nate, welcome back to the show.

Nate Hedrick 02:07

Hey, Tim, always good to be here.

Tim Ulbrich 02:08

Well, this is the time of year where things start to really heat up on the home buying the home selling side of things, although you know, we continue to be in this in this unique cycle that is a little bit of an out-of-whack of supply and demand. We’ve got obviously interest rates still where they’re at. So as you go into the spring season, what’s normal, what’s not normal for you this time of year?

Nate Hedrick 02:32

I guess the only normal thing is that it is it is getting busy. My schedule is quite busy right now in the spring with a lot of buyers, a lot of sellers, which is great. I mean, it’s it’s great for our business, but it’s still a bit of a weird time, right, we’ve got interest rates in kind of a weird spot, still have a lot of low inventory out there. So people that are trying to find the right home, it’s more difficult. And then we’ve got things going on with the industry in general that that are just making it a bit of a weird, weird market right now.

Tim Ulbrich 03:03

Absolutely. And before we get too deep into the topic, Nate for any of our listeners that are, you know, in the moment, looking to buy a home, looking to sell a home, wanting to make sure that they get out in front of this, or maybe even those for those that are listening to saying, Hey, this is a three month thing, a six month thing, we you and I both know how that goes. Things can move quickly. You know, we want to make sure they get connected to you and your services, what you offer through the Real Estate RPh concierge service, they can do that by going to yourfinancialpharmacists.com. We’ll talk more about this as we go throughout the episode at the end as well. Click on home buying and from there, you’ll see an option to find an agent get connected with eight and beyond your way for for this big decision. Certainly that that it is we want to make sure that they have the resources available to make a good decision.

Nate Hedrick 03:49

Yeah, it’s funny, we even I got an email just this morning from a client that they met with me in late January, we match them up with an agent within a couple of days. And within two weeks, they were under contract and they just closed. So like I mean, it was just, it’s lightning fast when you’re in that in that space. And even if you’re three months out, it all of a sudden those three months get eaten up. So better to schedule that early and get on the horn with us so we can get you in the right spot. So yeah, definitely check that out.

Tim Ulbrich 04:14

Nate, I’d be remiss if we didn’t ask you big news that came out this week settlement by the National Association of Realtors. Obviously, you as a real estate agent, if our listeners don’t already know that, potentially something that’s going to impact you impact the industry at large. There has been news flying around all about this headlines everywhere. And I think it’s one of those things. It’s hard to really assess like what actually is going on? What’s the impact right now? And what’s the potential future impact? And I know you and David just covered this on the Real Estate Investing Podcast, episode 118. We’ll link to that episode in the show notes so folks can dig deeper on this topic, but give it give us the Cliff Notes of what’s going on and where we’re at.

Nate Hedrick 04:55

Yeah, I think it’s definitely worthwhile to try to get away from the media noise for a second on this because what I’m seeing out there is all the headlines are speculating what this is going to do to the industry rather than what’s actually occurred. So the very brief version is that several months and even a couple of years ago, there was a lawsuit against the National Association of Realtors, by some parties that are part of a consumer advocacy group. And essentially, what they were alleging was that there was there’s some sort of price fixing going on that basically sellers were told, you had to offer a commission to buyer’s agents. And if you didn’t offer them 3%, or whatever, then like you couldn’t work together, right. And that’s, that’s not really true. And the NAR has basically said, like, we’re not admitting that we did that, because we haven’t been and they’re even in the settlement, they’ve admitted no wrongdoing at all. But essentially, that’s the allegation. And what is what they decided to do is, rather than continue to go through expensive litigation, the NAR has decided to settle and to make some changes, so they’re gonna pay out about $418 million dollars over the next four years to consumers. And then they’re gonna make some big changes in terms of how agents and the MLS can advertise and for, for commissions, so they are no longer able to advertise for buyer agent commissions, and buyers are going to have to work with and this is the big change for buyers out there, buyers are gonna have to work with an agent under a contract, you’re gonna have to have a contract in place with that agent. Gone will be the days of just showing up, writing an offer with whatever agent and then like figuring out the contract stuff later, like that is not going to work anymore. You’re going to have to be established with somebody, if you want to work with an agent, because the way we get paid is going to change basically. So it’s a lot of shake up. We don’t know exactly what’s going to happen yet. But some of those details are starting to come forward here and we’re at the end of March already. And it’s it’s, it’s heating up.

Tim Ulbrich 06:46

So for those that are listening, whether it’s you know, people that are looking right now or thinking about buying the spring or summer, you know, how much of that is going to impact them right now? Are we still in this wait, wait and see pattern of when some of the changes you’re talking about are going to take place?

Nate Hedrick 06:59

Yeah, so a lot of these changes will not go into effect until probably July and even beyond. That’s really the deadline they’ve established for this. I keep in mind again, as you and I sit here and record this, the court has not even accepted the settlement yet, right. The NAR has basically said this is what we’re interested in settling on, the court still has to accept that settlement. So a lot of this is to be determined anyway. But if it all shakes out the way that they’ve proposed, then July is when this will start to make a difference. And again, if it goes, if it goes the in a bad direction, I guess for buyers, I’ll put it that way. What will likely happen is that buyers are just going to have to be a little more savvy about about that early conversation with their agent. Who is paying, how am I paying? Am I paying? Is the seller paying? Like how are we negotiating that? And how does it affect my ability to put in offers because those are all things that are going to change in in some capacity here in the next couple of months.

Tim Ulbrich 07:52

So again, you and David covered this on episode 118 of the YFP Real Estate Investing Podcast, deeper dive, we’ll make sure to link that in the show notes. And of course, we’ll keep the community up to date, as we have more information that is rolling out. And you know, we get past some of the short term news and the headlines and actually start to see some of the implementation of some of these things. So today’s theme, Nate is: Avoiding the Trap of House Poor: Evaluating the True Costs of of Home Ownership. And, you know, as you and I were planning for this episode, we were talking about, hey, for those that are looking, this is a good opportunity to make sure that that homebuying, that big rock that is a part of the financial plan, is put in the right context, right, about their goals that we’re trying to achieve, so that we have the room to do those things. But also for those that own, already own. You know, I talked with pharmacists on the regular that, you know, maybe they’re three years in, five years in, 10 years in, whatever it may be, and just over time expenses have increased. Maybe they’re perhaps still paying on student loans or other things, trying to save and invest more for retirement and really feeling like in that home, they’re in the situation where hey, I don’t have a whole lot of margin, I’m feeling house poor because of that. So whether someone is a hey, I’m going to buy or they currently own I think they’re gonna find this episode helpful. Now, I want to get your take on five things that I see on the regular that are financially impacting, you know, especially new graduates, but I think it transcends even beyond that in a much greater way than when I graduated back in 2008, than when you graduated as well. You know, first student loan debt, we’ve talked about that at length on the show. When you look at what graduates are coming out with is in terms of an average and what that means for a monthly payment. You know, that can be standard 10 year repayment on an average debt load, we’re looking at $1800 to $2,000 per month.

Second, of course, housing costs we’re gonna dig deep into that on today’s episode, but, you know, we’ve seen the rise in interest rates and the rise in home prices. We see the impact of that on a monthly payment. You put those two together, right, that’s a big portion of one’s take home pay. You know, we also see the third thing I’m thinking about is just car loans and interest rates on the car loans. Of course inflation is the fourth thing, although we’re starting to see that, you know, tamper down a little bit, and then five, I think one that we don’t talk enough about is childcare costs. And, you know, you know that well, and just the costs that come from, you know, daycare and other costs associated with with children and growing family. And so, you know, at the end of the day, what I want to get your take on is do pharmacists make a good income? And the answer is yes, objectively they do. Right? If you look at the median household income in the US, pharmacists make on average $50,000 or more above that. So objectively speaking, yes. However, when you start to add these things up, right, when you start to look at student loans, and housing costs, and childcare costs, etc, that’s where we often run into the situation of, hey, I make a good income, but I don’t feel like I’m progressing. I don’t feel like I have a whole lot of breathing room, because of some of these big pieces of the puzzle that can have an impact on the financial plan. So thoughts from your seat individually living this, and then certainly working with many pharmacists that are in that position, looking to buy trying to figure out how the house budget fits into the rest of the plan?

Nate Hedrick 11:06

Yeah, I mean, you’re spot on, right? I live this every day, just as another pharmacist also owning a home, right? You have to kind of account for all those costs. And it can feel like you get to the end of the month, and every bucket has been taken up by something. And you’re like, okay, how many, you know, how many pennies do I have left to rub together? Right? It’s just, it can feel like that, right? Especially if you’ve not set yourself up for success. And so I definitely feel that on my own personal finances, but then I also see with clients to where they will I see this all the time where someone will look at a neighborhood or look at an area of the country. And they don’t even ask the question about budget, they just say we need three bedrooms. And where I’m looking at $800,000. And the question is not, can I afford an $800,000 house. It’s just, that’s what we need. And so that’s what we’re gonna buy. And I think that’s really easy to get into, right? Like we love where we live. And that’s not unreasonable. But rarely do we step back and evaluate? Okay, am I okay with paying more to live in this particular location? Or, you know, should I consider a relocation? Or should I consider sizing down and having the kids share a bedroom? Like, all those things are not questions that I often hear. It’s usually, how can I push this? How can I lower that down payment? How can I get away from this expenses now and push those push those things down the road? So I think we’re kind of geared toward that. And having these conversations like you and I are having is how you start to reset that that metric a little bit.

Tim Ulbrich 12:33

Yeah. And I think one thing that I hear there, Nate, which is hard to implement, is just some of the mindset around these decisions. No judgment here whatsoever. Remember, Jess and I talked at length about, you know, we had an expectation coming out that we’re going to buy our first home, at the level which my parents took 20, 25, 30 years to get to, like, you know, and that was where our mindset was, and we made several decisions and some mistakes along the way. And, you know, we probably purchased before we were ready, not sure we really had enough, you know, down in the home, we ended up paying PMI that I didn’t understand how that was structured in a loan. You know, if we had more time, I could give you the list. Right? But but the point being, is I think there is a mindset component here. And you know, sometimes we don’t necessarily like the outcome or the decision when we look at the numbers. But what we’re trying to do, as we talk about this, is really take a step back and say, hey, how does the home purchase fit as one piece of this bigger puzzle, and human behavior, myself included, I think you included as well, as we want to go into the silos and make financial decisions. And especially when talk about home purchase, it’s exciting. It’s emotional, right? There’s a lot of things that are involved. But when we’re talking about a rock that we’re going to put in place that might take 25, 30, 35, 40% of our take home pay, and we’re fixed in that for 30 years, okay, we’ve really got to do due diligence, so that we make sure when we look at other parts of the financial plan, right, saving, investing for the future, pursuing other financial goals, making sure we’ve got breathing room, making sure we have margin to experience and to give and to do other parts of the plan. And so naturally, Nate, the next question is, well, if we’re talking about trying to prevent this, what is that affordability calculation? Like as you think about it, in your own plan, or in working with, you know, other buyers as well? How do you think about what what is that number? You know, is it is it a percentage of take home pay, is it you know, obviously, the what the individual thinks it is versus what the bank thinks it is, can be two very different things. Talk us through that a little bit further.

Nate Hedrick 12:34

I think that you could Google, “how much house can I afford?” and get 72 different answers, right, with all these calculators and metrics and back of the napkin math ideas, and the answer is there is no answer. However, you hit the nail on the head a minute ago and said, avoiding thinking about this decision as a silo, right? I think it’s very easy for people to say, well, I read, you could get 25% of your money toward housing. So we’re just going to do that. And that’s our number. And that’s it. Right? Or 30%, or pick, pick your favorite number, right? Where I think that becomes a problem is that especially like ourselves, right? When I, when I came out of school, a ton of student loan debt, those numbers are not accurate for somebody with a ton of student loan debt, they’re not accurate for a ton of credit card debt, they’re not accurate. If you’ve got, you know, childcare expenses that are going to be cropping up down the road, like all those things can can drastically affect those numbers. And so what I like to do, or what I advise my clients do, is to do something like the 50-30-20, which I can cover in a second, but but something that it doesn’t matter which one it is, as long as you’re taking all of your expenses as a as a bigger piece, right? So what I like about the 50-30-20 rule is that 50% of your money goes toward needs; 30% toward wants and 20% toward net worth building. And what I like, especially about that, is that that big piece of the pie that 50% It’s all your needs, food, car, medical expenses, childcare expenses, like whatever those things are, if you have to have them, then you have to include it in a number. And if all those numbers are already big, like what if your need is student loan payment, right, I have to pay that every single month, I can just avoid that. So it gets factored into that. And it can adjust those housing numbers down rather than just picking a flat 25% or whatever. So I like tools that have that much more broad look, rather than trying to silo things out and saying 10% should go towards your car and 20% toward your house, because I just don’t think they work for everybody. And I think they’re too they’re too broad.

Tim Ulbrich 16:39

Yeah, and I think to your point there, Nate, you know, obviously, everyone’s situation is different. And even, you know, let’s take two, two student loan borrowers, right, both have $200,000 of debt, how they pursue their loan repayment strategy could drastically impact the cash flow they have, right? If one person says, hey, I want to aggressively pay these off in five, seven years, the other person is on a public service loan forgiveness strategy on an income driven repayment plan, where they’re trying to maximize tax free forgiveness- night and day of what are they actually putting out towards the student loans in terms of cash flow? And what what do they have available? You know, other things I think about in terms of where are they at in terms of savings and retirement plans and goals? You know, so is, is pharmacy a second career, and they’re trying to play a little bit of catch up on retirement? Are they thinking early retirement? And maybe you need to save a little bit more aggressive, right? So so many factors that go into this equation, but I think using something like you’re suggesting is a good place, because it helps us figure out, okay, how does this payment fit into that bucket into that 50%? And I’m guessing we often get that number, we’re like, hey, we don’t like it. We don’t like what, you know, the budget is going to support it. And I think that that’s really where the rubber meets the road. But what’s helpful about that is 99 out of 100 times when you’re running your own numbers and trying to figure out what is that housing cost within that 50%. Typically, the banks can approve you for much more than that. Right. And so they’re the the take home point being is that they’re not concerned about your 50-30-20 budget in the same way that the individual would be correct.

Nate Hedrick 18:13

Spot on. Right. I never forget the first time that Kristen and I got approved for a mortgage. And the bank was like, Well, how much house you want to buy? And we’re like, I don’t know, how much can like, what will you give us? And they just do this, this quick math. And it’s like, here you can afford $600,000. And I think our budget at the time was like $250. But like, they don’t care, right, they’re looking at the numbers very differently. They’re just looking at some of the debts that you have, they don’t care if you have $0 leftover at the end of the month, the goal is to make sure that you can make those payments and just make those payments. And so that’s how they’re going to set it. So you have to be your own advocate when it comes to setting that budget and not letting the bank do it for you.

Tim Ulbrich 18:51

Yeah, I always say Nathan, the bank is looking out for themselves have a foreclosure risk? They’re not looking out for are you on track to achieve all your other financial goals? And how does this purchase, that’s an ill intent, that’s just the way the way the system is set up, and then them mitigating the risks that they need to mitigate. So you know, I think the natural follow up then, Nate, and here we are, you know, we probably should have started here that, you know, we’re not having to buy a home in 2024 where homes are at the prices they are and interest rates are where they are so different time right then when we bought a home and it’s worth saying, but the natural counterpoint is, well, I don’t want to rent either, you know, rent has been going up we know the what the data has shown in terms of rent prices going up over time and you know, I feel like I’m I’m just throwing money down the drain. I’m not building equity, right. I’m not building equity if I don’t have a house. So what do you say to that person who really feels like yeah, I hear you. Like it’s too much in terms of the percentage of my take home pay are within that budgeting system you just described, but also feel like it’s not like wrench deep. Right. And I really feel like I’m not necessarily building any equity as we continue to rent.

Nate Hedrick 20:01

I think it’s tough because some of this, at some point comes down to more of an emotional decision, right? Like, it’s just I’m sick of renting. Even if financially like, you still need to stay in that boat for a little bit, while longer just if you do the math, it’s hard to make that decision, right? I mean, I absolutely get that and I was in the same boat that you were like, we probably bought sooner than we should have. We just wanted to buy, we kind of made it work, right. But at the same time, we kept our budget very reasonable, so that we could do that, right, there are ways to mitigate that risk. If that’s the choice you want to make, right? You, you can do it, if you aren’t pushing everything, right, you’ve got to take some compromises somewhere else. So if you’re looking at it, you’re saying, look, we have to be in a home, I don’t want to be renting anymore, well, then you gotta choose an area where the home prices are affordable. I mean, just that’s all there is to it. Right? If you are a new practitioner in downtown San Francisco, and the homes are $1.5 million and above, like, it’s just not as viable as Cleveland, Ohio, where I’m from right or something like that. So you have to be able to take some sort of compromise. If you sit there and say, look, the the overall goal is to be in a home that we own. And you have to find a way to do that. It’s not just in it has to be in this market and has to be six bedrooms, and it has to be 400,000 square feet and all this right, it just you have to be able to adapt, and then do the there are other ways to get creative, too, right? Think about house hacking, for example, buying a property that you can have somebody else renting out with you, then you can mitigate some of those costs. Or looking for down payment assistance programs that are out there, right? There are a ton of grant programs for new graduates that help with down payment assistance, like you can get creative. You just have to go out and do that. Right. I think the old Rich Dad Poor Dad adage, it’s not I can’t afford a house. It’s how can I afford a house? And sometimes you have to get creative how you do that.

Tim Ulbrich 21:50

I think that, you know, it’s the creativity is an important part of that. I think this comes back to mindset you know as well. I think there’s a script that many of us have been told, I know that I don’t remember my parents saying this, it was just something I always believe, which is rent is bad. Homeownership is good. And, you know, as with most things, right, there’s, there’s more than option A and B. And when we look at homeownership, depending on your situation, depending on the part of the country you’re living in, depending on cash you have available for down payment depending on rent rates, right, you know. Ramit Sethi talks a lot about this on his podcast living in I think he’s in New York City, where it’s like, doesn’t make sense, like, you know, continuing to rent in certain markets, like, yeah, it does make sense. And you’ve got to figure out to your point, other parts of the plan, we’re sure maybe he’s not building, you know, equity in the home, which for many people becomes one of the greatest assets they have as a part of their financial plan. But for him, and for others, in higher cost of living areas, you adjust and pivot, you know, and figure out what that looks like.

Nate Hedrick 22:45

It’s funny, you mentioned that I was even just talking to a pharmacist two weeks or three weeks ago, and he rents right now, he wants to buy his first house, but he wants it to be an investment property. So he’s buying in a different location continuing to rent, so you can build equity in a home, just not the home that he’s living in. So he’s still getting into the real estate game, but not doing in a way where he’s making a bad decision just because of where he wants to live. Right. So there’s, there’s a lot of ways to get creative, I wish that we could just do it all up front, but you have to kind of pick and choose when it comes to your financial plan.

Tim Ulbrich 23:16

I like that, Nate. Creativity, I feel like it’s something we’re often lacking in, in the financial plan, right, because we see a path maybe that our parents had or others had, and it’s option A option B. But typically, there’s there’s more than than just those two. Let’s talk about some of the about surprise, but maybe costs it often gets overlooked or underestimated, especially for people that are going through this, you know, the first time you know. I remember vividly, I’ve shared on the show before Jess and I bought our first home and these numbers are laughable now saying them out loud in today’s market, but 2008/2009. So then post residency, we were paying rent $1,100 a month, I remember writing that check every single month for a townhome. We were looking to buy a home and you know, I went did the principal and interest calculations. I don’t think I factored in taxes, insurance. Maybe I did. And I remember seeing it was going to be somewhere right around there actually a little bit less. And like that was the end of my analytics. It was like buy, buy buy. And you know, I think that that’s very common, you know, that you look at, hey, what’s going to be my monthly payment, principal interest. Maybe people are thinking about property taxes and insurance. But that’s really the table stakes. Right? That’s the starting point. But talk to us about maybe those other things, either short term or long term that tend to catch people off guard, where sure, maybe that payment starts at 25% of take home pay but we quickly realize if it’s all in cost, it’s actually a lot lot more.

Nate Hedrick 24:43

I mean, I think you nailed it with the insurance and taxes. I did the exact same thing you did. I ignored them and pretended like they weren’t there and then also the bill showed up I’m like what was I thinking? But you’re right there are a number of other things. I’ll never forget we moved into our our very first his house. And one of the one of the reasons they moved again, this is why home buying is emotional. One of the reasons we moved is we wanted to space for our dog. We had a one year old dog wanted some space for her, wanted some space for ourselves. And so we’re like, oh, let’s get this big yard. Well, the very first thing we did when we moved in was like, shoot, we need a fence. And so we’re like, well, we got a fence in the whole thing. And we have, we’ve over like an acre, we have actually almost two acres. And so we wanted to fence in an acre and all of a sudden it was like a $10,000 fence. And it’s like man – nowhere like that would have covered rent for a whole year at the old place. But we didn’t even factor that in because you just it’s just the stuff that you don’t think about. So it’s everything like that. I mean, I think it’s this the surprises, the things you don’t anticipate. But it’s also the regular stuff, you know. Stuff breaks, water heater goes down, a washing machine, dishwasher, and all those things, you don’t have a maintenance department to call anymore. You have to you know the landlord to check in with right you have to fix it yourself and get it taken care of. So I think I think those are the some of the big things. The other thing that I think creeps up and it’s on top of mine right now for me because we do this thing here in Cuyahoga County in Cleveland, Ohio, where every three years, the county assessor will come out and they’ll reassess property values, and then they’ll adjust your taxes as a result. Super nice. Not not like that everywhere. Some places, they lock you into that lower rate, but we get reassessed every three years. And so every three years, my property taxes go up in some fashion. And sometimes it’s more, sometimes it’s less, but it’s always on the up. So even if we did that math nine, almost 10 years ago, right? It all worked out, then things have gotten more expensive, right. And so it’s, it’s all those little things that start to creep up over time that you don’t have the backup plan for. Now, I will say this, rent has also been increasing. So it’s not like everything’s immune to that, right. You might have started renting a place for $1,000 a month, or $1100 dollars a month. And now it’s 15. Right. And so that that’s, that’s still there as well and has to be factored in. But with a home, it just feels like all of it is on your shoulders. And it’s really just when it comes down, you have to be the one to take care of it.

Tim Ulbrich 27:00

And I had the same thought. We had a reassessment, actually, both on the commercial property, which was outrageous, but on the primary home, it was not as bad, but it got me thinking the same line of thinking you are, which is the tendency when we buy and even again, no judgment when we bought our second home here in Columbus, you know, I remember those conversations where Jess and I were kind of looking at, okay, where where do we want to be monthly payment wise, that we really feel like we’re comfortable within the budget, but you’re thinking about it in that moment in time. Right. And, you know, hopefully, incomes are going up to help offset this. But this is one of the challenges we’re seeing, I think in some sectors of our profession is that they’re not or if they are and you factor in inflation and other costs, maybe they’re not to the degree that we actually think they are even if that number is going up. And so you look at things like property taxes. Homeowners insurance is something that’s kicked up here in the last couple years more significantly, and I think we’re going to continue to see that. And then you highlighted well, you know, the fence example that’s given. We did the same thing. We didn’t have that big of a fence. But you know, I remember it was a fence, it was repairing the deck, it was the lawn maintenance, it was because we never owned a home before, you know, all of the lawn equipment, things that you had to get for the first time and, you know, obviously furniture, you look at the home and you’re like, Oh, it’s fine. We like it. And then you get in and it’s like, well, you know, what about this? And you know, what about that, and those things seems small. But you know, those add up quickly. And it goes back to the theme of where we’ve been going throughout the episode, which is, hey, will you go back to your 50-30-20 or whatever type of budgeting system you’re using, you know, margin breathing room, knowing that up is going to be the trend, whether it’s property taxes, homeowners insurance, upkeep, remodeling the home, a roof, hot water, tank, AC, whatever, it’s gonna go up, and we want to have margin to be able to plan and save for those expenses.

Nate Hedrick 27:01

If you want a way to ensure that you’re financially less stressed, build in that margin upfront. It just makes it so much easier when you have that surprise, like if you have $1,000 water heater that needs to be replaced, but you’ve built in $1000 extra dollars in your budget every month. It’s just a blip. Like you don’t have to have this emergency fund that you’re cracking open and like it just it feels so much easier to have those those bumps because it’s not consistent. Like that’s the biggest thing with homeownership is – it nothing is consistent, every month is going to be different no matter what you do. And building in some of that margin building in that that error is just a great way to de stress that whole process.

Tim Ulbrich 28:53

Yeah, I think what we’re really trying to prevent is we you know, talk about the theme here of avoiding the trap of being house poor and really evaluating all these costs that we don’t achieve one goal at the expense of a bunch of others. So you know homeownership has a ton of value. We’ve talked about it on the show before. We’re both big believers in homeownership and that it has tremendous value but also we don’t want to be in that home and then like hey, we were stressed about taking the trip or the vacation or stressed about you know not being able to stay on track with retirement or other goals along the way as well. Utilities, Nate, is another one I was just thinking about our utilities keep creeping up. And it feels like that’s another one that you look back two three years and you’re like, wait a minute, what’s, what’s the heating bill? Compared to what it was?

Nate Hedrick 30:14

I have a good story about that, too. I don’t know if I’ve told this on the podcast before but early on, when we lived in our house, the water company wanted to install this wireless water meter. And I got like one letter about it. And it was like, hey, call us schedule a time for us to come out install this wireless reader that way we can see remotely like what your water usage is, and like, we’ll come out and install it. It’s free, just let us know. And I ignored it because I was busy and everything else. And so we stopped getting water bills. And I didn’t notice. And then about a year and a half in of like that, that notice coming? I was like, Man, are we even going to water bill No, in a while. So I logged in. And I cannot believe to this day, I cannot believe that didn’t stop our water. We were over $1,200 behind. I think my agenda is we just I hadn’t been paying attention to it. And it wasn’t an auto bill. And so like one of those $1,000 bumps that just showed up. So I mean, again, I’m shocked they never turned off our water. But that was that was an example of that creep from the utility company for sure.

Tim Ulbrich 31:16

Surprised they weren’t knocking on your door.

Nate Hedrick 31:17

I know, right?

Tim Ulbrich 31:18

So speaking of…you made me think… hey, this is good story hour when Nate and Tim, but as we’re talking about cost of home ownership you don’t expect. I don’t know if I told you this one – a few years ago. So in our basement, we’ve never had a water softener system. So and, and full disclaimer, I am inept, completely inept when it comes to anything. So just keep that in mind for anyone who’s judging me as we’re talking about this. So never had a water softening system. The boys- we’ve got four boys are constantly down there throwing balls or whatever. Well, for those that have one, you know, there’s a backwash valve that will come on periodically to flush the system. Well, they had hit the backwash valve. And I don’t know you’re not down there enough? I’m not paying attention. I don’t even know what this thing is. Is it doing you know, whatever. So come to find out like it had turned on. It’s just been running. I don’t know for how long it’s been running. So I realized this, and then sure enough, like, I might have been a week, 10 days later, I get a bill for $4000. And I call it the and for those that have looked at your water sewer bill. Any water usage you’re using, you’re doubling up as sewers. So I call the Franklin County Department of sanitary engineering and I’m like, hey, listen, this is what happened. You’re not gonna believe it. I get it. I’m an idiot. And I was like, hey, I’ll I’ll write a check tomorrow, if you let me pay $2,000. And they were like, super gracious.

Nate Hedrick 31:21

Wow, cool.

Tim Ulbrich 31:27

Yeah. And so again, write things that come up that you’re just like, I never thought that this expense might actually exist. Jess and I have a running mental log of all of the damage slash expenses that have happened as a result of the boys.

Nate Hedrick 32:59

You can present that to my graduation, like oh great you owe me this now.

Tim Ulbrich 33:03

And here’s the opportunity cost. Another thing I want to acknowledge as we’re talking about affordability of home, we’re talking about some more of those ongoing costs. But also, not all downpayments, right, are created equal depending on the loan type. And not that we need to get into all the different types of loans. We’ve talked about it before in the show. But I just want to emphasize this, especially for the for the first time homebuyers, you know, there’s a range from 0% to something more conventional on 20%. But when you’re talking about a three, four or $500,000, home or more, there’s a big difference in terms of house affordability. So any thoughts or wisdom you’d have there to share based on your your conversation with clients and what they’re expecting maybe coming in of a down payment? And then as they learn to navigate this a little bit further?

Nate Hedrick 33:50

I think the most people that they’ve talked to especially like their parents, right, I think most people assume or think that they’ve got to have 20% down to buy a home. The reality is, there’s a ton of different programs out there and you don’t need anywhere near 20% down. And you can still do that lower down payment without too much of a penalty, right. There are certainly situations where you’re going to have to pay a little more in terms of either interest rate or private mortgage insurance, things like that. But there are a number of awesome programs out there that can help with down payment assistance, that can lower the downpayment that’s required and still have a competitive interest rate. The real trick I guess, at this point is to one talk to an agent that actually knows what they’re doing, working with these types of clients that can help with with finding a good lender. Or talk to a lender that knows these products inside and out. There’s a lender that I work with regularly that has like a lineup of programs that he can push people into of like, Hey, you’re a nurse, awesome. You get you qualify for the Ohio Heroes program. Let’s get you into that. Or you’re a firefighter you get you know, Ohio Heroes. You’re a recent graduate. Great here you qualify for this new grad program. It gives you $5,000, no questions asked. Like so there are programs out there there are things to help with that. And I think a lot of people just go in assuming, well, I gotta find 20% down, or I’m gonna pay a ton of money. And that’s my only choice. And there really are a lot more options out there.

Tim Ulbrich 35:09

I think to your point, you know, that relationship with an agent, that relationship with a lender, really important. Options is what I hear there too, right? I think it’s easy to get sucked into a option without kind of looking across the board and making sure you’re looking at everything. Down payment is a factor, obviously, competitive interest rates, there’s a lot going on with points and things right now making sure that you’re actually really looking at the full aspect of the product. And that is transparent, because sometimes it can be hard to compare apples to apples, you know, some offers, I’ve seen this a lot, where people in one case are looking at a rate and it has point reductions and other cases it doesn’t, and they’re not necessarily, you know, seeing the comparison and difference there. I sprinkle this into the beginning, I’m gonna come back to it again, for those that are, you know, looking to buy now or in the future. We’ve partnered with you and your real estate concierge service now for many years, and love what you’re doing to help out homebuyers. Tell us more about what is all involved in that and where folks can go to learn more?

Nate Hedrick 36:07

I mean, all of a sudden we’ve been talking about right? It’s it’s a lot to wrap your head around, and we’re only scraping the surface of all the stuff there is to know and things to navigate and everybody’s situation is unique. Right? You might be sitting there listening to this right now and thinking, well, we’ve got this and you don’t even talked about that, like what what do I do, right? And so having somebody on your team, I think is really important. And that’s that’s why we created the concierge service to begin with is to have that sort of team mentality around it, and give you somebody in your corner that that has experienced helping navigate whatever it is. So the way the program works is that you basically go to my website, we’ve mentioned that before. And you can sign up for a free call with me, do a 30 minute jumpstart planning call where we can ask and answer a lot of those questions that you have, get you connected with a fantastic agent, gets you connected with a great lender if you need it. Whatever we need to do to get you off and running in the right direction, right. And that might be that you’re ready to buy now. And you’re like, hey, we just have been popping on Zillow help us out. Or it might be that you’re nine months down the road, and you’re just starting to plan things out. Both of those are great times to connect with us. So it’s a completely free service. We don’t charge anything for that. We just again, try to offer a way to help people navigate this very complicated process with somebody that’s experienced it and lived and breathed it for several years now.

Tim Ulbrich 37:26

Great stuff, Nate. Two ways you can get there, you can go directly to realestaterph.com. We’ll link to that in the show notes. You can also go to yourfinancialpharmacist.com. You’ll see an option for home buying at the top, and then you click on “Find an agent” and we’ll get to that same exact place and then you can book a call with Nate to continue that discussion. Nate, great stuff as always. I look forward to having you back on the show throughout the year. I know we’re do some webinar stuff as well. So to our community, make sure you be on the lookout for information we’re gonna have forthcoming as it relates to some home buying materials, webinars and future episodes as well. Thanks, Nate.

Nate Hedrick 37:57

Thanks, Tim.

Tim Ulbrich 37:58

Nate and I have covered a ton of information in this podcast. So imagine working with Nate one on one through your home buying journey and having his support to give you much needed peace of mind. We know many pharmacists want to feel confident about big financial decisions, including a home purchase. So if you have fears of being house poor, concerns about the impact a home purchase might have on your other financial goals, Nate and his home buying concierge service can help all at no cost to you. You can visit realestaterph.com or click on the link in the show notes to schedule your FREE 30 minute jumpstart planning session with Nate.

Tim Ulbrich 38:36

DISCLAIMER: As we conclude this week’s podcast and important reminder that the content on this show is provided 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, 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.

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