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Month: January 2025

YFP Real Estate Investing 132: Rent vs Buy: Does Buy Still Make Sense?

Posted on by YFP Media

Tim Ulbrich, YFP CEO talks with Nate Hedrick, PharmD and David Bright, PharmD as they break down the rent vs. buy dilemma in today’s market, tackling equity, flexibility, financial strategy, and key market insights.

Episode Summary

Tim Ulbrich talks with real estate investors Nate Hedrick, PharmD and David Bright, PharmD as they dive into the rent vs. buy decision in today’s housing market, offering practical insights and real-life experiences. They explore the financial benefits of both options, the role of equity, and the flexibility renting provides. Their discussion highlights the importance of understanding local market dynamics, strategic use of home equity, and aligning decisions with personal and financial goals

Key Points from the Episode

  • [00:00] Introduction to Rent vs. Buy Discussion
  • [05:00] Market Perspectives: Optimism vs. Pessimism
  • [09:58] Analyzing the Rent vs. Buy Decision
  • [14:48] Benefits of Renting: Flexibility and Cost
  • [20:09] Understanding Equity in Homeownership
  • [25:02] Leveraging Equity: HELOC and Financial Strategies
  • [24:30] The Stability of Homeownership
  • [27:16] Navigating the First-Time Homebuyer Dilemma
  • [30:19] Starter Homes vs. Forever Homes
  • [32:13] Understanding Micro Market Dynamics
  • [34:44] Defining Your Vision for Homeownership

Episode Highlights

“ If you were buying in 2020, 2021, you looked like a genius if you sold the house a year later because the property values were just skyrocketing so quickly. That is not going to be the case anymore.” -Nate Hedrick [8:50]

“ We have to remember that not any decision should be one that we look at in a silo. So we can run the numbers on a rent versus buy and maybe we have a clear answer. But then when we zoom out, things might change.” -Tim Ulbrich [11:34] 

“ There’s a big chunk of cash right there that we’re then locking up right into that home. And that could be very valuable, but also there’s an opportunity cost that we have to consider where those dollars could be used elsewhere in the plan.” -Tim Ulbrich [18:03]

“ You can’t paint an index fund to make it worth more, but you could paint your house to make it worth more, right?” -David Bright [26:06]

“ Renting is not always bad. And if we’ve been told that story, like. I think we need to unwind that a bit.” -Tim Ulbrich [35:34]

“ Take your time to assess what you want and then assess it for yourself. Like, don’t listen to what your best friend is saying, or the guy at work who is frustrated with his rental properties. Figure out what you want to do. Figure out what works for your local market, investor or buyer and then make a decision based on that information.” -Nate Hedrick [37:43]

Links Mentioned in Today’s Episode

Episode Transcript

Tim Ulbrich: David and Nate, welcome to the show. Hey, always good to be here. Thank you. I should have said welcome to your show, uh, as, as I’m having a chance to, uh, take the mic and, and pick your guys brain on an important topic, rent versus buy. And really excited to talk about this since it’s a topic we’ve talked about at length before in various shows, but today’s market adds a, as a whole new wrinkle to how we think about the rent versus buy decision.

Your last episode, 131, we’ll link to that in the show notes, revisiting your 2024 projections, looking ahead to 2025. Now that we’re two weeks into the new year, anything you guys feel the need to correct on your projections, or you still feel good on what you’re thinking for 2025? 

David Bright: I guess I’ll throw out there, I’m, [00:01:00] I’m cautiously optimistic, uh, and I would say, I, I can’t be a pharmacist to not be cautious, right?

So that’s just how we roll. So I’m cautiously optimistic that there’s opportunity out there. But I think one of the things we, we talked about in the last podcast is just really knowing your numbers, really being intentional, just double checking your math. And that’s something that pharmacists are good at.

So if you can be disciplined in doing that work, I think there’s still good opportunity here in 2025. 

Nate Hedrick: Well, I’ll take the flip side. I’m cautiously pessimistic at the moment. I just ran numbers on like 20 deals just this past week and none of them worked. And I just, I’m in a funk right now. So I’m going to, I’m going to play the bad guy card.

I I’m sure it’ll, it’ll figure itself out. But I was like, I was bummed last week. I was looking at just dough van. It was like, I got to find something here and nothing worked. But that’s, that’s just how it goes sometimes. 

Tim Ulbrich: We caught Nate on the back end of running some numbers that didn’t work out. Didn’t work out, 

Nate Hedrick: but that’s all right.

You got to run like a hundred deals before you have like two or three you can offer on it. Just how it goes. So I had [00:02:00] a bad week. That’s okay. 

Tim Ulbrich: If we get more specific, I’m curious to hear from both of you guys as investors that have experience in several different types of real estate, buy and hold, fix and flip, syndications.

You know, how are you looking ahead to 2025? I know, David, you said cautiously optimistic, Nate, cautiously pessimistic, but is there, is there pockets or things that you’re excited about or things that you’re like, I’m kind of staying away from, from this in 25, David, let’s start, start with you. 

David Bright: Yeah. I, I think that just from, from talking previously on the show, I, I really enjoy the fix and flip and the single family rental.

Like I feel. Most experienced and most comfortable in those two spaces. And so I think that the single family rental still has opportunity. I think there’s some real difficulty with that traditional 1 percent rule where. You, uh, you can generally think of a house as a viable rental if you can make 1 percent of the purchase price of that house as a, as a monthly rent [00:03:00] figure.

And you know, people have debated the 1 percent rule for forever, and some say it should be higher or lower than that. But at least that, that gets you in the ballpark of if it’s time to do. What Nate did in doing the more complex analysis from there to see if it really, really works, but that kind of just quick litmus test might, might be helpful.

And so I was really excited that we found one this morning and then I got beat on the offer. So we, uh, we didn’t get it, but, um, yeah, I think, I think that those opportunities are going to be out there. I think that they’re just, they’re going to be more difficult to find, but I still think that there’s a need, particularly in an overarching housing shortage.

For good, respectable, safe, single family rentals. 

Nate Hedrick: I think you’re right, David. I think the trick is going to be finding those like diamonds in the rough. You kind of have to find something that needs some work. Um, like I said, I was just running numbers and everything that was like even vaguely move in ready, just like the prices were just through the roof and with interest rates where they are.

Uh, we just had a tax increase here in Cuyahoga County. [00:04:00] So they did the, um, every six year, like reassessment. So like property taxes are up for market value. And so I think all those things are kind of running into each other at the same time, and it’s just making the numbers really tight. And so you have to have something where you’re going to be able to put dollars into it, inject value, and then you can get it out on the back end.

Tim Ulbrich: Funny, you mentioned property taxes, Nate here, fresh on my desk. I got our, uh, notice, uh, yesterday and I was reflecting on the increase. And related to our discussion today, right, you know, the, the fixed 30 year mortgage at 3%. Great. I’ll take that all day. Uh, the escalation in property taxes that we’re seeing here, both with our primary home and our commercial property up in New Albany is, is wild.

Um, and you know, I, I think it’s just one of those factors that we think about when we discuss, you know, should I buy or should I rent is. You know, do, do we have some of that margin, right? That we’re going to have these increases in utilities, in property taxes, in upkeep and [00:05:00] maintenance and so forth. And, and I bring that up as a challenge to our community, where I think for many pharmacists, they might, you know, see somewhat of a flattening of that income and those expenses can be felt more over time.

And so we need to constantly be asking ourselves is, Hey, is our income keeping pace with these are hopefully beating, but at least keeping pace with some of these expenses that are going up. Over time. So let’s transition into our discussion for today. Buy versus rent. Again, an age old question with a new wrinkle and that new wrinkle being today’s housing market, the economic environment that we’re in, you know, I often hear David and Nate from pharmacists, especially if I speak to a group of pharmacists that are maybe just coming out of school, you know, where there’s that blanket advice from mom and dad, right?

Which is like always buy rent, destroying money down the drain. You got to build equity. And David, you sent over an article from the New York Post that we’ll link to in the show notes that I think it’s just challenging this question again in today’s environment and in today’s uh, interest rate environment and the housing shortage that we have.

And so before we get [00:06:00] into specifics on the value of buying versus the value of renting, I want to get both of your perspectives. Nate is a realtor, also is an investor, and David is a buy and hold investor. On what you’re seeing out there in the market related to this buy versus hold in today’s And today’s climate, Nate, let’s start with you.

Nate Hedrick: Yeah, so I, again, like you mentioned, I, as a realtor, I’m going to be a little biased on this. Um, but I have some numbers behind my bias, so maybe that’ll back it up. But, but generally speaking, uh, if you’re going to be in a place for, uh, a longer period of time, and I would define that as, as a couple of years or more.

Generally speaking, it’s going to be better to, to buy, right? You’re going to be able to mitigate some of those costs. Um, and of actual purchase price, right? Like the, the loan closing costs and the taxes and things like that. Um, with the appreciation that houses is likely going to see over time. Um, shorter than that, I still think it’s, it’s viable to rent.

I will say like typically if you’re going to be there for a shorter period of time, the renting can be [00:07:00] better because the price can be lower. But what I’m seeing now is that rent prices have gone up so much that even that is starting to fall away. And where you could have a situation where it actually might be better to buy even if you’re only going to be there a year because you can hold on to it, rent it out when you’re done or sell the property later when you’re done and it actually might be a wash at that point.

So that, that timeline for me in, in, in our target market here in, in, you know, Northeast Ohio, um, has really kind of shifted down. I know that’s not the case in higher cost living areas, but rent has just gone up so much that it’s making it, it’s making it harder. 

Tim Ulbrich: Nate, as we see appreciation starting to come back closer to historic norms, right, we had a, uh, massive appreciation, you know, I think about post pandemic and, you know, that changes the decision of, of maybe how long you have to be in a home before you can break even when you think about closing costs, fees, taxes, et cetera, as we see that appreciation level returning more to quote normal, Yeah.

Yeah. Yeah. Does that impact how you think about the timeline at all in terms of being at home to [00:08:00] break even? Yeah. 

Nate Hedrick: I mean, absolutely. Right. You have to kind of factor that in. But, uh, I think that, so it’s funny, you mentioned the getting your property tax bill. So like I said, here in Cuyahoga County, we do it every six years where they’ll reassess your home when it, when it transfers.

And then if you’re sitting in that house, they’ll reassess all the houses every six years that have just been kind of sitting there, not selling. And in our market, the lowest. City like municipality increase was 22 percent the highest markets were closer to 70 percent increase in market value 70 percent all coming at once right every six years, right?

So they’re just hitting everybody at one go. And it’s just, I mean, it’s a huge, huge increase that’s taken place. So I think, like you said, that has shifted down, right? We’re not nearly that crazy. I don’t think we’re going to see that level of crazy over the next couple of years. So it does impact that, right?

You can’t just, uh, David and I have talked about this on the podcast in the past, that if you were buying in 2020, 2021, you looked like a genius if you sold the house a year later because the property values were just skyrocketing so quickly. That is not going to be the [00:09:00] case anymore. But even despite that, you’ve got to weigh that with how rent prices have increased because that’s the, that’s the flip side of that, that decision.

And we’ll come back 

Tim Ulbrich: to this in a little bit, but I think it’s important because when we hear things like, Hey, buy a house because you’re going to build equity, certainly when we zoom out over a long period of time, history would tell us that that’s true. And in fact, many people, uh, the data suggests that they’re building their wealth and part of the retirement plan through their home value going up over time.

Now, I don’t think that’s necessarily the case for many of our listeners that are probably saving substantial amounts outside of that. But what we have to remember is there’s a difference between equity and cashflow today. Right. So, you know, I, I’ve seen, uh, we moved into our house in 2018. We bought it for three 45, five, it’s funny how you never forget the numbers, right?

Certain numbers, uh, three, three 45, five. And I think last I checked, you know, Redfin or whoever says, Hey, it should be worth, you know, five, 10 or whatever, whatever the number is. That’s great. But guess what? My property taxes are coming up today. That impacts the budget today. [00:10:00] The equity, unless I’m borrowing against that equity to leverage and use it elsewhere in the financial plan.

I don’t feel that equity. You know, right now, so we have to also consider that in the decision, David, from a buy and hold investor perspective. How are you viewing the rent versus buy debate in today’s market? 

David Bright: Yeah, I think it’s going to be very, very market specific is Nate. You gave some great examples of Cleveland area and what it’s looking like there.

Um, I was talking with someone else in a different market and they were saying that to buy their house would be about 3, 000 a month and to rent their house would be about 2, 000 a month. And that’s just the house payment. So not, not counting the furnace that’s going to go out, the roof that’s going to need replaced the, even if you just want to do paint and flooring, like just paint and flooring can be really expensive in a house too.

So with those kinds of considerations there, when they were describing that they probably only want to be in that house a couple of years while they get to know the area better and find their more forever [00:11:00] home, it started to make a lot of sense to. to rent instead of buy in that, in that market because of that spread on the monthly cost.

And Tim, to your point about the monthly budget, allowing you to save up for that down payment for that eventual, uh, forever home. So I think that it, I think that the market specifics are really going to play into this decision for different people based on what the rent looks like in the area versus what a monthly mortgage payment would look like.

Tim Ulbrich: Yeah. The other thing I would add to this discussion is I think about the work that we do at YFP and looking holistically at the financial plan. We have to remember that not any decision should be one that we look at in a silo. So we can run the numbers on a rent versus buy and maybe we have a clear answer.

But then when we zoom out, things might change. What else do we have going on, right? Are we, you know, looking at student loans and for someone who’s pursuing a loan forgiveness pathway versus an aggressive repayment, two very different strategies and impacts on On a monthly [00:12:00] cashflow. So as we look at the rest of the plan, you know, what else do we need to be saving?

Are we on track for investing in retirement planning and all the other goals that we talk about, how does this home piece and within that, the decision to rent versus buy fit within the broader context of the financial plan. And that’s so important because when we feel this pressure, you know, to buy, and if someone’s telling us, buy, buy, buy, maybe that’s the right move.

Maybe it’s not. Um, but. Are we looking at it in the context of, of everything else that’s going on as well. Let’s talk more about the potential benefits of renting. Nate, we’ve been alluding to the importance of flexibility, um, as we’re having this discussion, especially in today’s market where moving can mean significant transition expenses.

When we talk about the cost of transition, the cost of moving and why that timeline piece is so important. What are we actually referring to here in terms of these costs? 

Nate Hedrick: Yeah, I think, I think you said it perfectly, like flexibility is, is [00:13:00] that, is that piece, right? Because if you buy And you are locking yourself into that home, right?

Like we said, if you want to get value on it, if you want to make a financial decision, you have to be able to, uh, uh, sell it at a certain period, or you have to be able to rent it out and make it viable, or else it’s going to be this, this handcuff that you’re kind of stuck to if you, if you end up having to move.

If you go the rent route, you build in that flexibility. You let yourself be able to make a change much more rapidly. I’ll give you a perfect example from my own real life. My brother lives out in California and bought a house a couple of years ago. Loves it. Great house. Fantastic. Um, but decided this summer like, Hey, I want to take some time.

I can work from anywhere. I work for a tech company. I want to like travel to Europe for a couple of months. And I want to live in Japan for a while. Well, there’s a whole house that he has to like figure out what to do with, right? He has to rent that out, get someone to take care of it, make sure the lawn is cut, make sure that, you know, if there’s a storm, the solar panels haven’t flipped off the house or there’s a lot that goes into that, that just really brings down your flexibility.

So I [00:14:00] think in today’s day and age where people are, are looking for that, where their jobs are more flexible, they’re, they’re changing jobs more frequently. They. Are doing things like a sabbatical, I think buying a house actually locks you into something that makes it just a little trickier to do that.

And so when you’re talking about like, Hey, I might rent just because financially I’m going to lose a couple hundred bucks a year or whatever, but the flexibility is worth my, my peace of mind, like that’s a completely viable option. Yeah, 

Tim Ulbrich: I’m especially thinking about the people that might be in a known state of transition, right?

You know, I’m coming out of a residency or coming out of the fellowship. You know, sometimes we have this idea and, and there’s no judgment here. I remember having these feelings as well, where it’s like, Hey, we’re in an area and we’re going to be here forever. Well, like that changes, right? We thought we’d be in Northeast Ohio, uh, forever.

And then I realized I can’t listen to Brown sports radio anymore. It’s atrocious how depressing it is. So like, we got to move, we got to move to Columbus, right? Um, but that was a move I would, we would have never anticipated. [00:15:00] Now, thankfully we’re in that home long enough that, you know, we mitigated the costs of that transition, but.

Sometimes what we think is known may become unknown, and you know, that flexibility piece is a really important one that we have to consider into the equation. Now, on the flip side of that, we’ll talk about how one of the big values, I think, of having a home is just that sense of stability and community and being in a place that we often can’t put a number to.

Um, and so that, that flip side has to also be considered. David, beyond flexibility, what else comes to mind when you think about the potential benefits of renting? 

David Bright: Yeah, I think the the dollars and cents really ring true like if I put on a fix and flip hat I tend to budget Whatever the sale price is, I’ll walk away with 91 percent of that, that I, I tend to figure 9 percent of the final sale price will go to, uh, realtor fees and transfer tax, closing costs, and some of those things, and that percentage is going to be different at different price points and different [00:16:00] markets, uh, but, but that can give you a ballpark figure to think about, and in addition, when it’s your own house that you’re living in, if you’re going to hire movers, if you’re going to Buy different furniture in a different house.

There’s a, there’s a lot of costs there. So I think that plays into the flexibility piece of if this is a temporary house, then that starts to make me nervous from what those costs are going to be. I think another factor might also be the timing of all that. So if you buy a house and you’re thinking of like Tim, your equity example is fantastic.

Like how much equity has gone up. And then I think a lot of us tend to think, well, that creates great equity as the down payment for the next house. The issue being then you have to sell the first house to unlock that equity. It’s, it’s trapped in that house until it sells. So it creates this timing issue of you sell to access those funds to put down in the next property, or you need to be saving for that as well.

So I think the dollars [00:17:00] and cents bring some, some complexity to that. Yeah. 

Tim Ulbrich: And, and I harped on this a little bit, but I’m going to go back to it because I know so many of our listeners can resonate with this. And it’s something that Jess and I felt in our own journey that they might see their net worth trajectory going in a very positive direction, but they don’t feel that they don’t feel that right.

Because often it’s, it’s, it’s net worth that might be locked up in equity in a home or it’s net worth that’s locked up in a 401k or an IRA. So part of the financial planning process is when we’re making some of these decisions There’s an important liquidity piece as well that if we want to find this balance between growing and building our net worth for the future, yes, it’s important, but living a rich life today also important part of living that rich life today is having some liquidity and flexibility to do things, the things that we want to do, um, and sometimes not always market specific.

Sometimes renting might give us more of that flexibility, um, and allow us, especially when we think about if we use a traditional 20 percent [00:18:00] down on a home. Now, I know a lot of pharmacists may not necessarily do that. There’s a big chunk of cash right there that we’re then locking up right into that home.

And that could be very valuable, but also there’s an opportunity cost that we have to consider of where those dollars could be used elsewhere in the plan, whether it be other goals or experiences or other things that we haven’t touched on. I also think about from, from our experience, we rented a condo.

Uh, I know Nate, you’ll know where this is. Monroe Falls, uh, was our first rental. Um, and there was significant savings on time and money on upkeep and maintenance. Um, you know, someone took care of the property. I think about the amount of time in our current home, whether it’s hiring contractors or dealing with downed trees or, you know, taking care of the lawn and, you know, we can’t grow grass because the kids are playing and whatever it is, like there’s a lot of things that we have to factor and consider that’s both time, mental energy and financial related.

And so that could be one of the other, uh, benefits potentially of, of, of renting that we need to be [00:19:00] thinking about. Let’s turn the page and look further at the benefits of buying. So Nate, the one that typically gets the most attention, we’ve, we’ve mentioned a few times now is building equity, building equity, building equity.

We throw that term around a lot. What, what does that even mean? And does it really matter as much as we think it does, especially as we’ve been talking about this question of liquidity? 

Nate Hedrick: Yeah, it’s, it’s actually a good thing to like take a step back on. Right? So, so equity by definition is just the, the, the intrinsic value that’s sort of like left in the house.

Right? So if I buy a hundred thousand dollar house. With 20 percent down, right? I’m putting 20, 000 into it. Uh, and, and 80, 000 loan. Well, over time, I’m paying down that loan, right? I’m paying down the balance and hopefully the property is also going up in value. So, let’s say we’re five years down the road and it’s worth 150, 000 and my loan balance is down to 75, 000.

Well, now I’ve got 75, 000 in equity, meaning if I were to sell the house today, That’s the difference in value that I’ve sort of created for myself. [00:20:00] Uh, some of that is, is the original down payment that you put in. Some of it is appreciation. Some of it’s loan payoff. But all those things are basically increasing the buffer between what you owe and what something might be worth.

Now tapping it is, is there’s lots of ways to do that, right? We could sell the house to get that money back out, to get the equity back out. Like David said, we’re going to lose some of that to fees and things like that. You could also refinance, uh, but you can’t usually tap all of that equity. Just like when you put down 20 percent to purchase a home, when you refinance to get either a HELOC or do like a cash out refinance or something like that, you have to leave some of that equity in the property as collateral for the bank.

So they might do Uh, 90 percent loan to value, meaning that they’ll give you 90 percent of that 150, 000, but you got to leave that other 10 percent locked into the property. So we can tap that equity in multiple ways, or like you said earlier, Tim, if you just kind of sit back, right, and do nothing, uh, that equity is sort of stuck in there, right?

You might see [00:21:00] that on your net worth balance sheet, but you’re not putting it into your pocket if you’re just kind of sitting back. So. So equity is this thing, this kind of elusive thing that you really only see when you go after 

Tim Ulbrich: it. Let’s talk about the leverage of the equity a little bit more, uh, when we think about something like a HELOC.

So what Jess and I have done Pretty conservative, probably overly conservative is we’ve taken out a HELOC and, uh, probably time to increase the HELOC just with what’s happened with appreciation. Um, but we’ve never drawn on it. So I kind of view it as a, as a backup to a backup of an emergency fund, or if, if the right opportunity comes up, whether that be real estate or business or something, uh, where the calculated risk makes sense.

Obviously that calculation has changed just given the interest rates on the HELOC. Then it’s there, right? And we have access to it, uh, when, when we need it, I think both of you, correct me if I’m wrong, have used a HELOC before it actually leveraged that in terms of real estate transactions and kind of getting some of that off the ground.

Can you speak to that a little bit [00:22:00] further? And that may or may not be right for other people, but it’s, it’s something to consider of, Hey, we’ve got this equity building and maybe want to be more conservative. That’s just a tomorrow thing. It’s part of the retirement plan, or maybe there is an opportunity to leverage it today.

Nate Hedrick: Yeah, I’ve done it myself and I’ve had investor clients do it as well where they’re using that HELOC for either, uh, purchasing the, the property itself or doing the rehab. Um, we use ours most recently on a rehab where we actually tapped the HELOC to help fix up a house. Um, and then once we refinanced, they immediately paid that off, right?

The, the advantage years ago was then you HELOC at three and a half percent. It was like free money essentially, right? Now ours is closer to prime. Um, I think ours is most recently a credit score got us down to like prime minus, which is really cool. Um, but it’s still like 7 percent on the HELOC. So, uh, you can tap that money and use it for whatever you want.

It’s, it’s, it’s free cash, but you’re paying 7 percent of that every single year. And so you have to, you have to keep that in mind. So, um, yeah, it’s a completely viable option. But [00:23:00] the, David will tell you this every single day. You have to have a plan for that because if it just sits there. Now, all of a sudden you’re losing money by, by tapping that because you got to make sure you’re, you’re making up the difference in the, in the value that you’re, you’re adding with the money that you’ve taken out.

Tim Ulbrich: It reminds me of one time my dad shared with me, uh, you know, when it comes to a business, line of credit’s a really good thing if you have a plan. Line of credit without a plan, not a good thing. Yeah. Right. I think a VLOC with a plan, because what I hear you saying in that example is, Hey, even if it’s seven, seven and a half percent, whatever it is now.

If you’ve run your numbers, you’re, you’re just factoring that into the equation. And by the way, if something changes, a delay or whatever, you’ve got a backup plan and, and, you know, are able to work through that. So David, what about, what about for you? 

David Bright: Yeah, I, I love the emergency fund philosophy for it also, because I think particularly as you get into real estate investing, emergencies can get bigger.

If something goes wrong. And I think as you are buying a house and making some of these bigger life decisions, emergencies get bigger than what [00:24:00] they may have been prior to that level of complexity in your world. So when you have, uh, kids growing older and multiple cars and, and all kinds of things like that, I think it, it.

Can help me sleep at night as the conservative pharmacist, just knowing that there’s access to that kind of money and that kind of liquidity when necessary. 

Tim Ulbrich: Yeah. And I think in theory, everyone’s risk tolerance was different, but it does open up the door, you know, to take some more calculated risk in other areas.

When you know, you’ve got that as, as a backstop as well, David, in addition to building equity and, and potentially leveraging that equity, what, what other benefits of buying come to mind for you? 

David Bright: I think one huge thing that’s, that’s hard to put down in dollars and cents is just the stability of that house.

And so if you’re looking for something in a specific school district, in a specific area, part of town, something like that, if you’re renting, depending on the, the laws in that state, once that lease is up, you may need to move [00:25:00] whether you’re ready to or interested in moving or not. So. Uh, that’s, that’s a potential complexity.

So the stability because you own it and you can stay there as long as you reasonably want to is, is something. There’s some predictability in that as well with the, with the payments. I think what we’ve talked about already with property taxes is a really good asterisk on that equation. I think another one that I think is gonna, I think we’re already seeing headlines and I think we’re only going to see more headlines on it is.

Property insurance as well has gone up quite a bit. And as we see things like, uh, like the fires in Los Angeles and things like that, there’s some really significant expenses coming up. And if that continues to drive, uh, property insurance up, then. You know, we need to budget for those kind of increased costs.

So, but at least some predictability on the principal and interest payment on that loan. Um, plus I think that one of the things we’ve, we’ve talked about too, is when your different [00:26:00] investments allow you different opportunities to, to push those yourself and, you know, Maybe what we’ve talked about before is you can’t paint an index fund to make it worth more, but you could paint your house to make it worth more, right?

So there’s some opportunities, whether it’s hiring a painter, whether it’s doing the sweat equity yourself of getting in there and taking a property that’s not all that pretty, but by making it pretty and nice, you can, you can increase the value to even if you’re not, uh, the handiest person on earth.

Tim Ulbrich: Yeah, I love what you said about the predictability, at least on the principal and interest side, assuming it’s a fixed rate mortgage, um, you know, while also recognizing we talked about property taxes. You gave another good example, homeowner insurance. That was one of those bills I got in December. We pay it once a year where I was like, what percent increase, what are we talking about?

Yeah. Right. And we need to remember the way insurance works, right? Natural disasters in Florida or natural disasters in California. Have a far reaching impact from an insurance standpoint beyond just those areas, you know, and I think we’re seeing that happen [00:27:00] in terms of, of premium increases. I want to talk to our first time homebuyers, Nate, and let’s start with you, you know, this is a question I get a lot, which is, hey, we’re looking at buying a home, maybe we’ve been sitting on the sidelines.

We’re wondering, right, do I keep sitting on the sidelines? I was hoping rates would drop in, in 24. Maybe we saw that a little bit. Rates trending back up ish. I think we’re hovering back around 7%. Do I wait? Do I make a move? We’re talking about long term appreciation, you know, obviously there’s a, there’s a shortage of housing.

We’ve got lots of buyers in the market that pent up demand is only going to potentially get worse. What, what, what, what words would you have to share to those first time home buyers? 

Nate Hedrick: Yeah, I get this question all the time. In fact, I just had a brand new pharmacist client that, uh, is going to start looking here in Cleveland.

And the last question she asked me as we were kind of going through like our buyers presentation was, uh, is it, is it actually a good time to buy? Like, should I be doing this right now? Right. And that question comes up all the time. And I think it’s a really hard thing to answer because Baker says it great [00:28:00] on the podcast all the time, right?

Like trying to time the market is really difficult. Time in the market is better than timing the market, right? And so it’s the same with housing. It’s a very difficult thing to say, well, this is the perfect time because prices are blah, blah, blah. And interest rates or whatever. It’s a very difficult thing to get, to get right.

Um, so what I would say is if you are in a market where things continue to appreciate. Right? And most markets are that way right now. Uh, Every month you wait, is more down payment you’re going to have to find, is more house payment you’re going to have to make down the road, right? If things continue to go up.

Now, if things pull back and things, things decrease, like that’s a different story. But what we’re seeing is that as these appreciations continue to go up, people are like, well, I’ll wait because then my payment will be lower when the interest rates are lower. The payment is actually going up because the houses have gone up and the price they have to spend has gone up.

They could always refinance down the road if interest rates come down, uh, but you can’t change the housing costs if, if [00:29:00] appreciation continues. So I would love to say, just sit on the sidelines until all the housing prices come down. Um, but what I’m seeing is that there aren’t a lot of market factors.

There’s a housing shortage right now, right? And so there aren’t a lot of market factors that seem to indicate housing prices are going to come down dramatically. And so waiting doesn’t really seem to be a benefit at this stage. I just, I just, I don’t see the point in that quite honestly. 

Tim Ulbrich: And the number of buyers sitting on the sidelines is compounding now, right?

So, you know, I think we’re, we’re obviously dealing with a competition piece that’s there as well. And, and Nate, I’ll put a plug here because the timing’s good in terms of what you’re doing with the real estate RPH and the home buying concierge service. So if we have folks that are listening and saying, Hey, I’m wondering.

Uh, about, you know, the home buying decision, whether you’re in the mix right now or thinking about on the horizon. Uh, we’ll link to, uh, Nate’s website, real estate RPH on the show notes, but, uh, be a great chance to get connected with Nate and have that conversation and, uh, find an agent that would be a good fit for you.

David, what are your thoughts from, from the, uh, investor perspective? 

David Bright: Yeah, I think [00:30:00] that a lot of this discussion depends on what you’re buying. So I know it’s really tempting the brand new grad getting out of school first job with a real paycheck where you can buy like brand name mac and cheese instead of generic mac and cheese.

Let’s go. All those like big life changes. I feel like that’s the point at which a lot of pharmacists want to find their forever house right away. Um, and I think we’ve talked about some of those risks of job changes and life changes and things like that, where that forever house that you think you want it at, you know, 25 may not really be that forever house.

So I think that there’s something in there about, uh, if, if you’re, if you’re looking for more of that starter home, that creates so many more options because it’s probably at a lower price point. It’s probably going to then have a lower down payment, lower monthly payment consideration. And one thing that we’ve.

We’ve kind of hinted at, but we haven’t really said out loud yet, is the opportunity to, to buy that house with the intention of it being a rental and you’re really just thinking of it [00:31:00] as renting from yourself, retaining it as a rental down the line. You may find the best of both worlds though, where you’re thinking of it as, as a rental.

This doesn’t need to be my forever home. This doesn’t need to be the home that I’m truly in love with. But this is as good, if not better than somebody else’s rental. Instead, I can be the landlord and I can have that stability. And then when I’m done with it, it can be a great investment when I go buy my forever home.

So I think depending on what you’re looking at, it could be a, a really good time to jump in. That’s 

Tim Ulbrich: a really interesting perspective, David. And I think just some of the pre planning that would have to be done to go in with that mindset. And then also thinking about certain associations, rental restrictions, other things, making sure you’re buying with that in mind, if that’s the goal and looking accordingly.

One other area we have to talk about is the micro market considerations. We’re talking global trends here. Um, I always think about Ramit Sethi on his podcast. He lives in New York city and he’s like the rent, rent, rent guy, right? [00:32:00] Like. You know, don’t feel the pressure to buy. And he’s obviously come in his perspective of like buying a home in New York city, doesn’t make any sense.

We’re coming from the perspective of the Midwest, the micro market considerations have to be considered because then we start to really look at the numbers and not just talking these generalizations of a buy versus red. Nate, what are your thoughts on, on the micro market? 

Nate Hedrick: I mean, the classic line is that real estate is local.

I mean, you have to know your own market to be able to make that decision. I mean, like you said, everything we’ve been talking about, we’re, you know, we try to keep a global perspective on it, but we are so biased toward the Midwest. I think when you look at a 200, 000 starter home being four bedroom, two bath, like you don’t get that.

Anywhere on the east or west coast, like it’s just not a thing. Um, and we’re used to that as like, it’s a normal, like, Oh yeah, I can get those in this market and that neighborhood and that school district. And like, it’s just very different. And so I think you have to know your local market. Um, and if you don’t know your local market, get somebody on your team that does.

Get a really good local real estate agent to [00:33:00] actually explain this stuff, because you, you have to know it. It makes the decision. It totally changes how you can make that decision. 

Tim Ulbrich: Yeah. And David, we’re not just talking city, right? You know, I think about Columbus. Like Great example, we live south of Grove City here in Orient, probably no one’s heard of Orient, smaller rural town, you know, vastly different in terms of when I think about property taxes, school district quality, other factors versus 15 20 minutes away in Upper Arlington, New Albany, Westerville, etc.

So, David, it’s not just the city, but it’s, it’s the, it’s the micro micro, right, that we need to get, even within neighborhoods, to be frank. 

David Bright: Absolutely. I think, yeah, you, you look at those cities within a city, you look at the school district, you look at the, even down to the area within that. Is that kind of a path of progress?

Is there something going in across the street that’s going to change that neighborhood? Is there a A new development happening, uh, one block 

Tim Ulbrich: to 

David Bright: a next. And, and even, uh, I think the example that a [00:34:00] lot of people overlook when they’re shopping online and looking at beautiful listing photos is. What are the, you know, the neighbor’s houses?

It could be a gorgeous house next to two completely run down, boarded up properties, or it could be a gorgeous house next to more gorgeous houses. And the, those factors on that block could even make up a significant impact into desirability and price points and those kinds of things. 

Tim Ulbrich: I want to wrap up by.

Just giving some global perspective from each one of us on, on really answering the, so what question? What, what do I do with this information to really inform my own decision making whether I’m a first time home buyer, or maybe I’m looking at potentially making a move, or I’m thinking about investing in a property and I’ll kick us off for, for me, it’s really going back to what is the vision?

What is the why? So what, what are we trying to accomplish? And David, I think your example is a really good one. Like if I’m looking at purchasing a property that. Maybe I can start to build as an investment property and, and really be the, the renter and eventually, you know, have [00:35:00] my first investment property.

That’s a very different philosophy than potentially, you know, I’m, I’m in a state of transition or I want to experience different parts of the country, or we’ve got a young family and we’re looking for stability. We’re starting in kindergarten, whatever would be the case, what’s the vision and, and really trying to move away from the generalizations of, Hey.

You know, buying is good. Equity is good. Renting is bad and really layering on what are your goals and desires. And then overlapping that, of course, with what’s happening in the markets in which you’re looking at. And I think just reminding ourselves that every market is different. Renting is not always bad.

And if we’ve been told that story, like. I think we need to unwind that a little bit. It can depend on the market, um, in terms of what’s happening that year, in terms of the local geography of that market as well. And one more time, making sure we’re zooming out. So, you know, what else is going on in the financial plan?

And when we think about the vision and the why of buying or renting and what that means to us, and [00:36:00] we overlap that with other goals, whether that be paying down student loan debt or other debt, saving and investing, traveling, experiences. What actually moves the needle for you? And where does this home buying decision, where does it rank among these other things?

I think sometimes we can feel these pressures to like buy something. And then I sit down with someone and really what matters most to them maybe is travel or experiences or giving or other things. And as Ramit Sethi, I think often says so well, like let’s spend money on the things we care about and not spend as much money on the things that we don’t care about.

And so. I often use cars as an example, but for people that might be housing, where some people, that sense of community and having your own place. Being able to make it your own, being able to work on projects around the house, that derives significant value and for other people, not as much. And I think just having that honest conversation with ourselves is, is so important to inform this decision.

Nate Hedrick: Nate, 

Tim Ulbrich: what about for 

Nate Hedrick: you? I think your last point was actually just really worth reiterating about like, do what is valuable to you. [00:37:00] Um, I talk to so many people, both investors and buyers, that just like buy a thing. And then six months later, like, why did we buy this house? Like we didn’t actually want this.

We didn’t actually need that. We didn’t realize we couldn’t sell it. We have to hold it. Like, there’s all these things that like, it’s easy to get wrapped up in the, well, this is what I’m supposed to do next thing. And not actually taking a step back of like, what do I actually want to achieve, right? Maybe it’s, I want to take a year to assess if Columbus or Cleveland or Miami is the place I want to live.

And it’s a great idea to rent there for a year while you figure that out, right? Uh, and then decide, okay, well, now that we’ve lived here, we realize we do need an outdoor space, or we absolutely need a basement, or, you know, whatever those things are. Like, take your time to assess what you want and then assess it for yourself.

Like, don’t listen to what your best friend is saying, or the guy at work who is You know, frustrated with his rental properties, like figure out what you want to do. Figure out what works for your local market, investor or [00:38:00] buyer, uh, and then make a decision based on that information. 

Tim Ulbrich: And sometimes to your point Nate, you’re surprised by when you get into the area or get into the home.

Oh, I never really thought about the value of this feature of the home or this aspect of the community. I’ll give a small, maybe what feels like a silly example. But when we moved in our home, currently it had a wood burning fireplace. And I’m like, Oh, that’s cool. Like That’s a deal breaker now if we ever move like I love the wood and like the memories that have come from like for us It’s Sunday night football and we’re throwing you know, wooden the fire and we’re hanging out like That’s the rich life, you know, for us.

And, and I couldn’t have anticipated that. That seems small, but it’s a big 

Nate Hedrick: deal. Super funny that you say that Tim, because that was actually on our must have lists and our realtor at the time, this is again, like 11 years ago now, thought we were bonkers for being like wood burning fireplace is a must have.

He’s like, don’t you mean like 2, 400 square foot and above? And I’m like, no, I mean, wood burning fireplace. So I totally get it. And for other 

Tim Ulbrich: people, they’re like, I don’t want to deal with the hassle of that. [00:39:00] That’s fine. They’re like, can I convert this to gas? And I’m like, stop, 

Nate Hedrick: you can’t. 

David Bright: David, what about for you?

Yeah, I think it’s, it’s a season of really cautious, really honest math and making sure, you know, we, we’ve talked about all the surprises that can come out there, whether it’s property taxes or homeowner’s insurance or moving costs or. Uh, the cost of furnishing and fixing up a house every time you move.

I think just being really honest with that math is, is helpful. Whether that’s, whether you’re thinking as an investor and needing to also think through additional costs like property management and major repairs coming, or whether you’re thinking through as a, as a short term or long term homeowner in that space with what repairs are coming up soon.

And because I think as we do that math, you can, you can start to more objectively identify, well, if the, if the price point. Is really high, but the rent would be much lower. Maybe it does make sense to rent or if, uh, if they’re [00:40:00] really close, maybe we think about one versus the other. I think the math can really help as long as you’re really comprehensive and what that math means.

Tim Ulbrich: Yeah. And speaking of intentional, comprehensive, cautious math, there’s a great rent versus buy calculator tool out there that I often like to reference. I’ll link to that in the show notes. It was published by the New York times. I think it really helps to. Just put numbers and try to make it as apples to apples as we possibly can, right?

We all know the emotional feeling when you’re looking at homes. Nate, you and I have often joked about this on the show before where someone’s, you know, I’m thinking about buying in one or two years and then they start searching and like, we’re buying tomorrow, right? It can happen and, and I think really looking at the numbers and trying for this to be an apples to apples comparison or at least as close to possible and then layering on top of the calculations can be some more of the, the emotional factors that we’ve been talking about throughout the show.

Great stuff guys. Uh, as always, Nate, David, appreciate your expertise. Appreciate your perspective. Thank you for letting me hijack your show, uh, as the [00:41:00] host, uh, for, for this episode and, uh, looking forward to your, your content throughout the year. So thanks so much guys. Appreciate it. Thank you.

[END]

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YFP 393: Ask YFP: Growing Your Income & Saving for Kids College Savings

Posted on by YFP Media

YFP Co-Founders, Tim Ulbrich and Tim Baker answer two listener submitted questions about growing income and saving for your child’s college education.

Episode Summary

In this episode, Tim Ulbrich, PharmD and Tim Baker, CFP tackle two listener submitted questions. Cory from Arizona seeks advice on how pharmacists, in addition to cutting expenses, can increase their income to achieve their financial goals. Amanda from Minnesota, inquires about 529 college savings plans and balancing it with other financial priorities.

Key Points from the Episode

  • [00:00] Introduction and First Question
  • [00:40] Strategies for Pharmacists to Increase Income
  • [04:40] Diversifying Income Streams
  • [06:03] Entrepreneurial Ventures and Non-Traditional Income
  • [07:31] Importance of Salary Negotiation
  • [11:51] Investing for Passive Income
  • [13:48] Next Question: Saving for Child’s Education
  • [14:47] Understanding 529 College Savings Plans
  • [19:56] Balancing Education Savings with Other Financial Goals
  • [26:30] Conclusion and Resources

Episode Highlights

“ The more specialized or niche that you are, the more attractive or the more you can, you know, kind of demand, from, like, a salary perspective.” – Tim Baker [1:19]

“I love the idea of, like, growing top line income. Right? That excites me because. If you can figure a model out you could potentially uncap your income. That’s exciting.” – Tim Baker [10:43]

“ If we can have a North star of what’s the desired output, we can then backtrack into  what do we need to be saving today based on a set of assumptions. ” – Tim Ulbrich [19:39]

Links Mentioned in Today’s Episode

Episode Transcript

Tim Ulbrich: Let’s jump into our first question, which comes from Cory in Tucson, Arizona.

Hey YFP crew, how can a pharmacist grow their income? With a high floor, low ceiling profession like ours, finding ways to increase money coming in may be of interest given there is only so much frugaling you can do. And if I frugal anymore, my wife and kids just might revolt. Thanks, and no pressure, you just might save this household.

Tim Ulbrich: Corey, thanks so much for taking time to submit your question. Tim Baker, what are your thoughts?

Tim Baker: Yeah, so I was thinking about this from the pharmacist angle. Versus like, how can I make additional money where you could sell things, recycle, donate plasma? Anybody can do that. But I’m really thinking about this from the pharmacist angle.

I kind of think about it. in really two parts, the first part being where my feet [00:01:00] are and what I’m currently doing. And then what is outside of what I’m currently doing? You know, if we talk about diversifying your income streams or exploring entrepreneurial ventures. So I think the first part is, if you’re a pharmacist and XYZ organization, you know, and again, this is going to be dependent.

And I realized that. The more specialized or niche that you are, the more attractive or the more you can, you know, kind of demand, from, like, a salary perspective, we know this through, like, board certification and things like that, Tim. So it could be that right.

And, you know, our niche is working with pharmacists on their financial plan. If I go back in time and, you know, I commented on your posts on LinkedIn about you, shifting away from academia to go to YFP. And I was thinking about my own journey. And like, when I was launching script financial, which is now YFP, you know, I could have said, Hey, it’s Baker financial advisors, but I don’t think that would really speak to anybody except for myself.

I think being niched, in [00:02:00] any type of profession can be really helpful, for your career. And I think about this, and we’ll talk about a little bit in the 2nd part of this question of, building, a brand when I think of, oncology and pharmacist, I think of, a particular person.

Kelly Carlstrom, if I think of, geriatrics, I think of a particular person functional medicine. I think of a particular person. If you can distinguish yourself, as the, thought leader in that particular niche. That can lead to other, opportunities to make income.

So it could be specialization. It could be pursuing leadership positions or additional opportunities within your organization, to make additional income. And I think the other probably more obvious thing, Tim, that a lot of pharmacists, maybe aren’t great at is just negotiation.

Right? So If you kind of look at a traditional financial plan, it’s kind of where you’re at. What’s the balance sheet? Where are we going goal set in it’s fundamentals like a savings plan, cashflow and budget and [00:03:00] debt. It’s investment retirement, looking for more of the longterm stuff.

It’s wealth protection, insurance planning, and a state planning. That’s essentially a financial plan. But one of the things early on, in my career at script and then YFP was. Really talking about sour negotiation. And I think what I was seeing that there was a lot of meat left on the bone with regard to this transaction, so to speak.

So, you know, I would talk to a pharmacist and then say, Hey, good news, Tim. I just got a new job or. Whatever it is, and I would say, great, like, what did you counter and it would be like crickets, right? And I think the response that I would typically get is like, I didn’t, I didn’t count.

I was just happy to have a job. And I’m like, I totally get that. I totally get that, but I think having some tools to be able to advocate for yourself in those moments. And it’s not just when you change jobs, I would argue that you should have those conversations.

Really, at a minimum, [00:04:00] anytime that you’re talking about your review, if you get reviewed, twice a year, once a year, that type of thing. I think if you can develop some of those tools to advocate for yourself, you put yourself. In a better situation to grow your income as per the question, and it’s often a missed opportunity where it’s kind of uncomfortable.

Maybe it’s a little yuck that we feel greedy that we don’t necessarily. Put ourselves in a position to make the most that we can. So from the, where are we at perspective, you know, pursuing leadership positions, potentially specialize in, and negotiating your salary. Those are 3 things that if I’m a pharmacist, I’m saying, hey, those things I should do.

 I think the other. Two things, diversifying income stream, entrepreneurial stuff there. I kind of lump those together. So it could be, you know, part time or per diem work. I know I talked to some pharmacists. They’re like, I want to earn income. But then when I’m like, well, why don’t you pick up an extra shift?

They’re like, they want to strangle me. And I understand that. But I also would say here, Tim, I [00:05:00] think some of the trap that pharmacists fall into is. Any additional income has to be on par with what I make as a pharmacist, and I would push back on that. So as an example, if you make 70 an hour as a pharmacist, like any additional money that you make has to kind of be, on par with that.

And I think that doesn’t necessarily play right. So I would put that as and again, it’s a trade off, right? 

So I think you got to have to figure that out and what’s a good number there. So it could be part time or per diem work. It could be consultant. It could be MTM. It could be, you know, just working with long term care facilities or clinics, medical writing.

We’ve had clients that have been really successful at that could be teaching or precept in freelance work that kind of falls into the medical writing or drug information resources, that type of thing. So I do think that there’s lots of opportunities out there. It’s just matter of, like, [00:06:00] finding them and kind of getting into a rhythm of, okay, this is worth my time or it’s not, 

other things that could be something like, hey, you take a bold move and you open your own pharmacy. I think there’s a lot of innovation to be had there. I know there’s a lot of pharmacies that are open and they’re kind of operating outside of insurance. It could be to start a consultant business.

It could be to develop a product or service. I know we’ve talked to some of these fellowship programs across the country, and we’ve seen pharmacists that in fellowship, are developing a product, that is really exciting. And it could be, something that’s more non traditional whether it’s building a personal brand, content creation, trying to, start a blog, monetize it, a YouTube channel.

Public speaking, which I know can be somewhat tough. Sometimes, we give that away for free. And that’s, the system in which we’re in, or writing a book. Obviously, you have some experience with that creating courses. I think there’s a lot of things out there. To potentially do, and try and I think the goal here is to figure out what is the goal for this additional income is to pay down a debt. Is [00:07:00] it to retire early?

Is it fire? Those types of things. And if you can kind of align again the things that you’re passionate about, and monetize it, that’s great. But that doesn’t always like work out, right? We know that sometimes we just got to pay the bills and that’s the focus. So, again, thinking about this from a pharmacy perspective, that’s kind of where I took it.

But there’s a million other ways. I think you know that you could potentially earn additional income. That’s kind of more or less non pharmacy related.

Tim Ulbrich: And I’m glad you took that approach to him, right? Because, you know, if we open up the doors beyond pharmacy, of course, we get into things like real estate, right. And other types of opportunities, which are certainly possibilities, but I also love that you asked a really important question at the end of your answer there, which is like, what are we trying to achieve?

What are we trying to accomplish? Because I think as Corey alluded to in his question, there can be a frugality fatigue that can happen. You know, over time, we often talk about cutting expenses, cutting expenses, cutting expenses, and certainly that can help us as we’re trying to achieve any goal, whether that [00:08:00] be putting extra towards savings, whether that be paying down debt.

But there’s also the income side of the equation, which is what we’re talking about here. And of course you put both those together and really good things, you know, start to happen, but what is the goal? What are we trying to accomplish? And I think in this discussion. Because you bring up a really interesting point that, you know, when you talk to pharmacists that are looking for extra income, it’s like, Hey, how many professions are there where you’re making 70 bucks an hour, you can just go pick up extra shifts and they’re like, Tim, I don’t want to go pick up extra shifts.

And it’s interesting because then it’s like, all right, tell me more. And they’re spending 

hours upon hours upon hours and not earning nearly what they could in picking up extra shifts. And, and I say that not out of judgment out of that, but out of, you know, What that tells me is, well, maybe there’s something here just beyond the dollars and cents, like, is there an interest or a passion, or, you know, I really just want to kind of tap into a different creative side of this work that maybe I’m not getting or feeling in my everyday work.

And, and all of [00:09:00] a sudden the conversation changes a little bit of like, sure, there’s a financial aspect, but maybe there’s also some type of, you know, purpose or creativity outlet or something of what are we trying to accomplish? What are we trying to do? Through earning additional income and diversifying these streams.

Tim Baker: Yeah. I, I, I think, uh, another, you know, point to that. Cause if people talk about, oh, you can get paid to do your passion. That’s a great thing. One of my first entrepreneurial endeavors was like, I was second grade and I got really big into like drawing different Garfield and things like that.

And I started a shop and I had all these orders. And then I got behind track, you know, I was charging like a quarter for every drawing. And then it became like a job. I’m under this deadline to get these drawings out. And I’m like, man, I hate Garfield. I don’t like Bart Simpson anymore.

I kind of became like a passion of mine kind of became a job. And that was like, you know, a kind of a core memory of mine of like, man, I don’t want to do something like that again. So that it can have negative consequences, but [00:10:00] yeah, I mean, like. I think a lot of people are like, yeah, but what about, you know, what about my student loans?

You know, I have to make additional money to get through that. But I’m like, well, maybe there’s a different path, you know, maybe, looking at, you know, where you work and you can do something similar from a for profit to a nonprofit that kind of allows you to work smarter, not harder. 

That plays. So, you know, there’s probably a question. We probably need to go a question or 2 or 3 deeper on Corey’s question again. If we were in kind of a client planner type of environment to kind of get to the core of that, but as an entrepreneur, I love the idea. You know, everyone talks about, oh, we have to cut expenses.

I love the idea of, like, growing top line income. Right? That excites me because. If you can figure a model out you could potentially uncap your income. That’s exciting. But often takes a lot of work in iteration to figure out what that is. If we’re talking about it from a business perspective.

Tim Ulbrich: a few resources to that we have in this area that we’ll link to in the show notes. I want to [00:11:00] make sure folks are aware and they can dig deeper. We’ve got a blog post that goes back a while now. 19 ways that pharmacists can make some extra money just to get the ideas going. On episode three 88 recently, I interviewed four pharmacist entrepreneurs.

That are doing very different things and a couple of them, still working, full time in their pharmacy jobs while they pursue their businesses, wide array of different types of experiences and how they have monetized their clinical expertise. So check out that interview. I think it can stimulate some ideas.

And then finally, we’ve talked about salary negotiation before on this show. We’ll link to that. I think that’s an incredible resource and you articulated well. It’s a skill that often we don’t have, maybe aren’t comfortable with, but that might move the needle more than anything we’re talking about here.

Especially when we think about the compound effect of that.

Tim Baker: yeah, and probably something to also interject him, you know, obviously, I’m a financial planner. So maybe someone’s like sitting here listening and thinking, like, why isn’t him talking about like, invest in for like passive [00:12:00] income? 

But sometimes I talk to prospective clients that are like, hey, I want to invest for passive income. And I need it like next year and what I would say is, is that typically when you’re investing for income, you’re typically doing that over a lifetime of investing where you’re, you know, we will take the 4 percent role.

Right? If you manage to accumulate a million dollars in an investment account from a retirement planning perspective, the rule of thumb is, if you take 4 percent of that or 40, 000, that, portfolio can. Last for 20, 30 years or longer. In that case, it’s less about appreciation of stock mutual fund ETF prices and more about safety in principle. So you’re not taking as much risk. The income, the dividends, the interest payments are creating that 4 percent of that 40, 000 for you to live off of.

So obviously it takes time to do that. Now there are certain [00:13:00] examples. Where it doesn’t take that long, you know, it could be closely held stock or something like that. And those are, certain situations where people have access to buying into a privately held company or a small company, things like that.

But typically, you know, a, hey, I want to invest for passive income is a long term play. It’s, you know, I’m trying to grow these dollars as much as possible to then eventually turn that faucet on and live off of that. And I’m not saying people can’t do that in a shorter time frame, but typically, you’re doing this in conjunction with putting money into your 401k, your IRAs, other things, and then also, looking at a passive play.

That’s typically, decades , in the making 

Tim Ulbrich: Good stuff. Alright, let’s move on to our next question, which comes from Amanda from Brainerd, 

Minnesota. 

Amanda: Hi, YFP. My name is Amanda and I’m from Brainerd, Minnesota. My husband and I welcomed our first child this year, and we are wondering what we need to know about 529 [00:14:00] college savings plans, and if there are good strategies for saving for our child’s education while still meeting our other financial goals, like saving for retirement and paying off our mortgage.

Tim Baker: I kind of would start with the question is like, what’s the goal? Right? So, you know, oftentimes when I ask this question, it’s like, I don’t really know, or we don’t really have a goal. So, is it hey, I want to get my kid through 2 years of school, 4 years of school, you know, is it masters doctorate is a public private in state out of state.

I think probably kicking the tires on, what that looks like is important. And, I think there are a lot of people that are apprehensive of 529 plan. So, just to kind of define what a 529 plan, it’s a tax advantage savings plan design to encourage savings for education costs.

There’s typically 2 types. You have a college savings plan, which is an investment account that grows tax deferred with withdrawals that are tax [00:15:00] free for qualified expenses. And there’s a slew of qualified expenses that were more narrow when they first came out that are become more broad, as years go on.

And I think it’s going to continue to do that. You also have, a prepaid tuition plan, which is typically a lot less popular, but this allows you to prepay tuition at today’s rates for, participating schools for the future. And, you know, there’s pros and cons, of each, but I think typically people go into, the college savings and they’re more familiar and comfortable with, okay, I’m saving for education, 

retirement in my 401k. So the big draw here is the tax advantages. So at the federal level, earnings grow tax deferred and withdrawals are tax free for qualified education expenses at the state level. Many states offered tax deductions or credits for contributions if you use your state’s plans.

And there is a slew of, you know, states that offer tax benefits for, you know, using their own plans, their states [00:16:00] that doesn’t matter. You can use any plan and then there’s states that don’t have income tax. So you don’t really get a benefit. And then there’s states that are kind of more, um, we don’t care if you.

Put money in a 529, you don’t get any benefit looking at you, California, Delaware, Hawaii, Kentucky, North Carolina. So the thing about this is like, you get the benefit at the state level, kind of on the front end and then on the back end, you typically get the benefit at the state and the federal level.

I think what often happens is that people let the tax advantages kind of drive their contribution amounts. And it’s not necessarily a terrible thing, but it can be, especially like, if you’re over saving, or potentially under saving. So I think, again, looking at. What is the goal? We’ve talked about previously, Tim, the one third role and that’s kind of what my family does.

What Shane I do for our 3 kids. I think that’s important to know. We talked, qualified education expenses, tuition fees, room, board, books, supplies, equipment, you can use it for student loan repayments, apprenticeship costs. I think the other thing that I would say is not all 529s are [00:17:00] created equal.

Thank you. So research and plans, we did this with Ohio one where we’re like, Hey, it’s, rated at one of the better plans in the country. But if I compare that to like, are like how we manage money at YFP, it’s more expensive, right? Um, so you want to compare plans from different States, depending on where you’re resident, what plan to use.

You want to look for plans that have low administrative and investment fees. Um, you know, that have a kind of a diverse investment, options, understand what the contribution limits and when you get the benefit, you know, being able to understand who owns the account. So like I have three accounts for my three kids.

I am the account owner and they, the three of them are beneficiaries. You can change beneficiaries. So if Olivia decides not to go to college, I can use that money for Liam. or Zoe. In the future, you know, I don’t, I think sometimes people get worried that like, if there isn’t an out, what do I use that for?

So like, I don’t have a problem with, you know, given that to a relative, a grandkid, that type of thing. So, but at the minute, at the end of the day, like if you decide to get the money out, it’s a penalty and you pay tax, right. So it’s not the end of the world, I think for the most part, if you think your child is going to go through [00:18:00] some type of training post high school, it’s a good vehicle to use.

Um, You know, obviously there’s risks, you know, when, when, anytime you invest any money, you know, there’s no guarantee that you’re going to get a return, understanding, when you get penalized for pulling out, early and what that looks like. So those would be the highlights Tim, in terms of a 529, maybe a coin flip is maybe a little too much, but it’s typically 50 50 where people are like, yeah, I’m all in on a 529 and there’s probably another 50 percent that are apprehensive. So again, I think asking those questions of, like, what’s the goal? You know, like, what do how do you view this money?

And going from there is really important, but there’s a lot going on here, right? In terms of, the type of plan, how you invest it. How does that what’s the glide path of those investments over time? What are the fees? Multiple kids, you know, there’s a lot of new rules with, you being able to transfer it over to a Roth in the future and all those things.

So there’s quite a bit at play here with regard to this decision, but I think it is a valuable bucket to use. If you [00:19:00] have, a solid belief that your child is going to do some type of, training or education post high school.

Tim Ulbrich: Yeah, let me throw out a couple of resources, Tim, for those listening that want to dig deeper. And then I’ve got a couple other thoughts I want to get your input on. So we have a blog post, seven things to consider before starting a five to nine plan, that goes in a little bit more depth along what Tim was saying, and then not too long ago, we did an episode three 68, how much is enough when it comes to kids college.

Right. So we think about that question often in terms of retirement. I don’t know if we think about that same question when we think about kids college and to your point about what’s the goal? You know, you mentioned the third, a third, a third rule. We talk about that in that episode, but if we can have a North star of what’s the desired output, we can then backtrack into what do we need to be saving today based on a set of assumptions.

And that’s helpful if we back up though, just a minute, you know, to my experience and there’s no judgment, out there because I felt this myself is. When people go through their own journey of incurring a lot of student loan debt and the pain that can come with that, I think that leads [00:20:00] to a tendency to want to maybe either over save or not prioritize these in the way that maybe objectively you would, right?

And so I think intent is good, but, you know, if I went through my own journeys, I did a paying off a couple hundred thousand dollars of debt, naturally, I’m like, I don’t want my kids to ever have to go through that good intent.

Tim Baker: The other way, too, where it’s like, hey, I

Tim Ulbrich: No, you’re going to go,

Tim Baker: Yeah, I’ve seen that. And that might be a

Tim Ulbrich: that’s a

Tim Baker: pretty even split as well. You know, it’s like, hey, it’s just it’s kind of the rite of passage. But yeah, I’ve seen it both ways where it’s like, hey, I don’t want my child ever have to experience that.

But then also, like, I had to so. 

Tim Ulbrich: Yeah. And I think where this can come into context with planning is we can try to more objectively look at this. So for example, if someone’s listening and then they fall onto the side of, Hey, I went through this. I don’t want my kid to go through this. You know, we might then have a tendency to put some of these steps out of order.

We think about some of the baby steps of the financial plan, getting the emergency fund set up, making sure we eliminate any high interest rate, credit card debt. Making sure we’ve got the base of [00:21:00] our own debt repayment plan. Not to say we have to be debt free, but at least have the plan of where we’re going, making sure we’ve got a base of our own investing strategy and thinking about the future.

And so does the 529, if it fits in, depending on your goals and vision for your own kids, then the question is where, right? Where does it fit in with other things? 

Tim Baker: Yeah, and I think what you’re alluded to is this need for some people, you know, I’ve gone through that debt journey to overcorrect, in the face of their own plan. Right? And, you know, what a financial planner will say, eloquently will be like, hey, Tim, you can take a student loan or your child can take a student loan.

You can’t take a retirement loan. So there could be a world where you. Forego your own retirement and you’re really working on the 5 29 and then when they go to college or you’re using that and kind of the income that you’re earning at that time and then you’re impoverished in retirement and your kids have to take care of you on [00:22:00] the back end instead.

So again, that’s kind of an extreme example, but yeah, I think again, we always talk about intention here, right? And I think sometimes, you know, we talk about this with invest, invest in, sometimes emotions can really, wreak habit in a well laid plan. And, you know, I think emotions are important. 

You know, hey, I would sleep a lot better at night if our emergency fund was X instead of Y do it. Right? I think though that, education is 1 of those gray areas where it’s like, I know I should be doing something here, but I don’t really know what it is and dependent on my own experience, I’m going to overcorrect or not address it at all.

And you have the opportunity to do so and do it in a meaningful way. Again, I think it’s one of those parts of your financial plan that is important. And maybe, you know, it goes along the, hey, put your mask on first before you put on your child’s mask, the airplane example. But it’s [00:23:00] worthy of examination.

Tim Ulbrich: Yeah. In my experience, Tim tells me that the emotions in the math, which I firmly agree are both important. They’re not independent variables, right? So, you know, when, when you took, me through the kids college savings calculator, answering the question, how much is enough when you can get to the granularity, sure.

It’s based on a set of assumptions and those assumptions can change, will change potentially, just like we talked about with retirement, but when I can look at it and say, okay, I’ve got a five year old, A nine year old, a 12 year old, a 13 year old. Here’s what we have for each of them saved today based on let’s assume, you know, four year in state public tuition.

We’ve got a great university in our backyard here. Go Buckeyes. Um, so we’ll, we’ll use that for assumptions and, and we’ll look at certain, savings rate of returns and other things like, and we’d start to distill it down to, okay, we want to pay a third. Are we ahead? Are we behind? Are we on track?

And then what would it mean monthly? To get on track with where we want to be like that type of analysis [00:24:00] can inform the emotions. Meaning that, you know, I can be looking at this thinking kids college. I don’t know. We’re just kind of throwing money at it. I know we need to be saving.

Are we there? Are we not there? Like that’s unsettling. And I think the math can help inform that

Tim Baker: yeah, it’s the same kind of analysis that we go through with, you know, um, retirement, you know, this is a little bit more of a tighter schedule because you’re typically looking at 18 ish years versus like a 30 year career. But yeah, it’s the same thing. And what I always kind of. You know, I, I, I go back to my first job and, you know, in financial planning, you know, we would say, Hey, client, Hey, Tim, you need 2.

65 million for retirement. And then we kind of go on to the next thing and you could literally see, their eyes gloss over because if you’re 10 plus years from retirement. It doesn’t connect, so going through that analysis, whether it’s retirement or education planning, it could be incremental things like, Hey, save 75 more for this kid and you should be fine.

Put this lump sum that you have. And then [00:25:00] save 50 more and you’d be okay. Right. Or, let’s tweak some things here. You’re really conservatively, invested right now and you still have. 12 years until they go to like, let’s modify that. So it’s taken those, and this is just financial planning and, it’s taken those large problems and then basically, breaking it down to what can I be doing today, this month to affect change.

And again, like, it’s not always going to be perfect, but I think with education planning in particular, like. If I, you know, if I can get to, like, if my full, solution is to pay a third to do the 33 percent role and I’m at, you know, 29%, maybe I have to reach into my pocket a little bit more in, like, when, when my kid goes to college, or they have to take a little bit of a more of a student loan.

But like, it’s, it’s we’re right there. Right? And I think a lot of people, they throw up their hands are like, ah, this is too big of a problem. And they just. Yeah. Keep on keeping on and they don’t really, again, they don’t analyze where they’re at and, you know, where they need to go.

Tim Ulbrich: Yeah, I think as we talk about all the time, it’s taking these unanswered questions that are constantly swirling in our mind, right? These unclosed loops [00:26:00] that are causing some of the stress anxiety, getting them written down on paper and then developing a plan. And sometimes that plan means to what you said earlier, we only have so much money in a given month, right?

So it might be that, Hey, we wish we could do more than we can do in the moment. But that clarity can come from. All right. We’ve thought about these things. We’ve written them down. We prioritize them. And now we’re beginning to work towards them. A lot of momentum can really come from that. 

Tim Baker: Right. 

Tim Ulbrich: Great stuff. Again, thank you to Corey and Amanda for taking time to submit your questions. And if you have a question, we’d love to hear from you. We can address it on an upcoming show. You can send us an email info at yourfinancialpharmacist. com. You can also. Submit and record your question by going to yourfinancialpharmacist.

com forward slash ask YFP. And if you’re thinking about strategies, whether it’s to grow your income or save for kids colleges, we talked about on this episode, perhaps you’re thinking about, are you on track for retirement, maybe getting your estate planning documents buttoned up as I just heard from someone this week, or building a more tax efficient financial plan at YFP, we have a team of the only certified financial planners that work with pharmacist households all across the country.

We would love to have a conversation. With you where you can learn more about our services. We can learn more about your situation and determine if there’s a good fit to do that. You can book [00:27:00] a discovery call by going to yourfinancialpharmacist. com. And you’ll see on our homepage and option to schedule that call.

An important reminder that this podcast is provided 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 materials should not be construed as a solicitation or offer to buy or sell any investment or related financial product.

For more information on this, you can visit yourfinancialpharmacist.com/disclaimer. Thanks so much for listening. Have a great rest of your week.

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YFP 392: Keeping Your Investment Portfolio FIT

Posted on by YFP Media

Tim Baker, CFP®, and Tim Ulbrich, PharmD, share strategies to address fees, inflation, and taxes, helping you keep your investment portfolio fit and achieve your financial goals.

Episode Summary

In this episode, Tim Baker, CFP® and Tim Ulbrich, PharmD discuss a crucial topic related to personal finance: keeping your investment portfolio fit. 

Tim and Tim explore three silent threats to your investments—fees, inflation, and taxes. Learn practical strategies to manage fund fees, mitigate inflation’s impact, and use tax-efficient approaches to safeguard your portfolio. Whether you’re starting to save or nearing retirement, this episode delivers valuable tips to protect and grow your wealth.

Key Points from the Episode

  • [00:00] Introduction and New Year Greetings
  • [00:12] The Importance of Keeping Your Investment Portfolio Fit
  • [01:32] Understanding Investment Fees
  • [02:08] Expense Ratios Explained
  • [09:12] Other Types of Investment Fees
  • [12:35] Advisor Fees and Their Impact
  • [20:36] Inflation and Its Effects on Investments
  • [26:19] Strategies for Pre-Retirees and Retirees
  • [31:06] Taxes and Investment Income
  • [36:37] Building a Retirement Paycheck
  • [39:39] Conclusion and Final Thoughts

Episode Highlights

“ Step one is we got to save money. That  that’s hard enough. But when we do that important step, we want to make sure that we can hold onto as much of the pie as we possibly can.” – Tim Baker [9:01]

“ And not all financial planning services are created equal. And so it’s not just a black and white discussion of what are the advisor fees, but  what’s the construct and the makeup of the advising. And then  those fees can look very different and whether they’re transparent and whether or not it has a return on investment with it.” – Tim Ulbrich [13:00]

 “ I always tell the story of when I got into the industry and my parents were working with an advisor and  I asked the question, “ Hey, what are you paying for that? The answer I got was like, oh, it’s free kind of through your dad’s work.  And I’m like, uh, you know, there’s no free lunch.” -Tim Baker [13:55]

“ If you’re in a relationship and you’re not sure how the advisor is making their fee. That’s a big red flag.” -Tim Ulbrich [17:39]

“ The best number in terms of progress with the financial plan is your net worth, right? The assets, the things that  you own minus the liabilities, things that you owe.” -Tim Baker [18:33]

“ The timing of when you retire is going to be one of the most important things. It’s related to your success in terms of having your assets not run out on you.”-Tim Baker [29:02]

Links Mentioned in Today’s Episode

Episode Transcript

Tim Ulbrich: Tim Baker, happy new year. Welcome back to the show.

Tim Baker: Yeah. Happy new year. Uh, can’t believe, uh, we’re on the other side of the new, uh, the new year already. The holidays, it’s, it’s pretty crazy.

Tim Ulbrich: We are, and we’ve got a topic that is connected to the theme of new year, but of course we’re going to bring it into first personal finance and that’s keeping your investment portfolio fit, fit, standing for fees, inflation, and taxes, really three things that are silent forces that can be working behind the scenes.

On the investment portfolio. You might not always see them directly, but their impact can really be big, especially over time. And Tim, that’s where you come in. That’s where our team of the only certified financial planners come in that have worked with pharmacists, clients all across the country to navigate this topic.

This is an area, right? That doesn’t really get [00:01:00] enough attention since I think it’s hard enough to focus on prioritizing saving. Let alone worrying about maintaining the integrity of those savings. Right.

Tim Baker: Yeah. And, and this, and this, if, if not paid attention to can be the, the drag right on your portfolio and your ability to build wealth over time. And, um, it’s important to, you know, especially, you know, when you’re evaluating your, your finances, which, you know, maybe a lot of us are doing at the start of the new year, um, to, to take a look at it and see, you know, Where we’re at with things.

So, um, yeah, it can be kind of one of those things that are behind the scenes, especially if you’re, if you’re struggling just to kind of get the portfolio and kind of the wealth building aspect of your, of your finances off the ground.

Tim Ulbrich: So Tim, let’s start with fees. We’ve all heard the saying, you get what you pay for, but sometimes in investing it might be the opposite, especially regarding fund fees. The may more you pay in fees, the less you actually keep in returns, potentially. We’ll, we’ll talk about that in more detail. And whether it’s from fund management fees to trading [00:02:00] commissions, there really can be many hidden costs that can add up, especially in the long term.

And it’s important that we understand what these fees are and whether or not they’re, they’re transparent, or we’re even aware of what they are. So walk us through the different types of fees that investors might encounter on their portfolios.

Tim Baker: Yeah, probably, probably the one of the most important ones, um, that, that we talk about is the expense ratio. So the expense ratio is essentially what a fund takes. Um, to manage said fund, right? So the way I explain this, Tim is, you know, let’s say I’m a, a fund manager and I’m managing billions of dollars of a large cap fund, right?

So my job is to, you know, gather information and, and really buy and sell stocks, large cap stocks inside of my funds that my investor has shares in. So for me to do that, I need. You know, a place of business. I need an [00:03:00] office space, which might be on, on wall street or thereabouts. I need analysts. I need to pay for information.

I need to, um, pay myself, pay salaries. So all of that work that’s done, you know, needs, you know, you know, revenue would essentially support that. So what the expense ratio is, is a percentage of the, the money that, that the fund manager is managing that they take out. Um, to basically pay themselves and all those things that I mentioned.

So the, the big, the hard part about this is that it’s not necessarily a line item on your, on your like, account statement. So, if you look at sometimes they’re listening to the account statement as, hey, you’re paying, you know, a half a percent, 0. 5 percent or 1 percent or, or, um, You know, 5 basis points, which is 0.

05%. So it might be listed as this is what the expense ratio is, but you can’t really draw a line from that [00:04:00] to, like, what’s actually being taken out of your account, which, which is hard. Right? So, and what we often see is that. You know, there’s a lot of people that just don’t pay attention to this at all.

Um, and if we take the example of a large cap, you know, one of the, one of the big things, which like a, which with a large cap is that, you know, you can buy a large cap where you’re paying. 0. 03, three basis points, or you’re paying way north of that 1%. And really the only thing that’s different is the fee itself.

When you actually like, you know, unwrap that fund and you look at the individual stocks that they’re in, it’s all the ones that we know, Microsoft and Amazon and things like that. So you’re kind of paying a premium for. I don’t know what a name potentially. So it’s really important when you’re looking at, when you’re selecting your investments, or if you’re working with an advisor and they’re helping you select investments that, you know, you are getting.

Bang for your buck. Right. So it, my, my thing is like, if I’m going to pay, you know, a hundred [00:05:00] basis points, you know, 1 percent versus five basis points. So that’s a 20 X difference in fee. For me, the way that I look at that, this is like, I should be getting 20 times more performance or 20 times safer. For the same amount of performance, but it’s typically not the case, right?

It’s typically not that. So, you know, I can say that, you know, where we, what we typically like to do is drive those fees, that expense ratio down as, as much as possible. And some of the other fees that we’ll talk about, um, and really let the portfolio do what, what it, what it does, what the market do, what it does.

So the expense ratio is a, is a huge, huge part of that.

Tim Ulbrich: Tim, when, when we hear, you know, five basis points or 0. 05 or three basis points, 0. 03 versus something like 1%, You know, I think we look at that with a little bit of shock and awe, but, you know, the average investor, if you’re not thinking about this, looking at these, if you don’t feel them right in your portfolio, necessarily, you know, it’s not impacting monthly cashflow per se.

You might look at those and say, [00:06:00] how, how much does that really matter? Right. So why, why does a type of difference when you look at something like five basis points or 0. 05 versus 1%, you know, over a long period of time, the question really is impact. What, what is the potential of that impact?

Tim Baker: Yeah. So, I mean, if you, if you take a, you know, for just simple math, if you take a, , 100, 000 portfolio, and you’re in a fund that is charging you 5 basis points,. That’s 50 per year for that. Um, if we stack that up, so let’s say I’m invested in the same type of large cap fund, but it’s charging me 1%.

That’s 1, 000. Per year. So like, you know, if we add zeros to this, we can kind of see where this is going. Right? So, so to me again, like, I don’t, you know, one of the, one of the positions that we, that we pay a little bit more and they’re newer, um, and more specialized is, is like the spot Bitcoin ETFs. Like, I think the, the fund that we’re in, it’s, it’s 20 basis point, but typically our, our portfolios are four or five basis points, [00:07:00] 0.

04, 0. 05. So what I tell the client, as I tell myself is like, if I’m paying more and I’m not getting that return, or it’s not safer.

It doesn’t make sense. So to me, it’s driving those down, you know, um, as much as possible. And you can see the numbers like, again, like if I look at 1%, I’m like, oh, it’s not really that much. But over time and over many years, it’s just, those are the, those are the things that erode, erode your gain and they don’t really need to be.

So, um, you know, and to back up, like if you buy an all stock portfolio, like you don’t buy a fund, you don’t have Expense ratio, because they’re not inside of a fund. You’re buying the individual stocks. The danger there is you’re potentially, you know, um, paying commission. So anytime you buy and sell you can, you, you are charged a fee and then just the, the risk that you take, you know, in terms of like, are you broadly diversified?

Are you putting too many eggs in, in one basket? So, you know, what, what I view as, you know, good investment practice is I can, I can build a well diversified Portfolio, um, for minimal cost and again, I would put minimal cost of anything less than, you know, in the 20 to, you know, 10 basis points, like, in that range, um, and feel good about, you know, the, the construction of the portfolio and the risk that I’m taking.

Um, so I, I do think that I, I’m willing to pay the toll, the expense ratio for that and not necessarily buy individual stocks and bonds and things like that.

Tim Ulbrich: So Tim, you mentioned expense ratios. Um, obviously that, that kind of becomes the top one that we think about, especially if they’re inside of a fund, you mentioned commissions, what, what other types of fees are out there that, that folks might, may not be as aware about?

Tim Baker: Yeah. So if you’re thinking about trading and transaction fees, um, you know, there, there are brokerage commission. So these are fees charged by a broker for executing trades on your behalf. So it could be something like a, a stock trade commission. Um, these are typically flat fee, so it could be anywhere from 5 to 10.

Um, a lot of these have kind of gone, there’s a lot of commission free brokers, um, that have kind of, you know, um, squashed a lot of these, but they’re still there. If you’re, if you’re option trade in, there’s option trade, uh, commission fees, there’s mutual fund, uh, transaction fees. So these can range anywhere.

You know, when I was in the broker deal world, I think it was almost like 30 per trade, right? Typically the range is, you know, 10 to 15. You know, 50 per trade. So, um, they’ll, they’ll, uh, they’ll, you know, brokerage will charge us, you know, to buy and sell, you know, mutual funds. There could be like spread costs.

So the difference, this is the difference between like the bid and the ask price of a particular trade. So they might, um, have a little bit of a spread. So they’re, so, so the, you know, the brokerage is making money. Um, one of the big things that I remember, especially being in the broker dealer world is account maintenance fees.

So these are, these are fees charged, uh, for maintaining an account. Um, such as an IRA. Um, and these, you see these more [00:10:00] Tim in like low interest rate environments. So they’re not making a whole lot of money on the float of the money that, you know, cash that they’re sitting on. So they try to find ways to make money.

Um, and these, these could be. I think when I saw them, it was like 50 an account. I see them anywhere from like 25 to a hundred dollars annually. Um, sometimes there’s foreign transaction fees. So these are applied to trades on international exchanges. There could be redemption fees. So these are fees for selling certain types of mutual funds or ETF within a specified, like holding period.

Um, so as an example, like if you, if you look at your account statement and you see, Like, uh, a mutual fund that you had that has an a, like next to it, that’s an a share mutual fund that you were probably, uh, sold that had like an upfront commission. Right. And, um, a lot of people don’t know that up going in, um, and they pay that and they’re like, what, what the heck happened?

There’s also C shares. [00:11:00] That you pay a little bit on the front end and then you pay an ongoing fee, um, which is not great. Those are typically the worst ones. And then you have a B1, which is kind of an in between that. There’s like a holding period that you can sometimes get redemption. So being, um, where we, we don’t, you know, we don’t operate in them, but I do come across a lot of clients that are like, oh, I’m not paying commissions.

And I look at their statement and there’s A’s and C’s. That’s what you typically see, excuse me, all over the place and they just don’t realize it. So. And probably the last one that I hear is kind of like robo advisor fees, right? I’m in a particular program and I’m paying, you know, a certain, certain amount.

So those are the ones that, you know, um, expense ratio, expense ratio, and then trading, trading fees, transaction fees, and kind of a slew of those that you’ll, you’ll often see.

Tim Ulbrich: Is that, is that it, that’s all you got on the list of, uh, potential fees that

Tim Baker: Yeah. And then we haven’t even gotten into the advisor fees, which we can talk about, but yeah. Yep.

Tim Ulbrich: let’s talk about that. Right. Because obviously, you know, that’s the work that we do and it [00:12:00] has to be factored in and, and full disclaimer, we’re, we’re biased in the value of the work that we bring clients. And we, we believe when you talk about advisor fees, Tim, when it’s done well, which is why we believe in the fee only model.

That’s why we have the model that we do that. Yeah, it’s a fee. Yeah. And it’s a fee that we have to factor in, but there’s a return on investment of that fee that we also have to account for. And not all financial planning services are created equal. And so it’s not just a black and white discussion of what are the advisor fees, but what’s the construct and the makeup of the advising.

And then those fees can look very different and whether they’re transparent  so how do you think about the advisor fee piece?

Tim Baker: Yeah. And I, and I think, I think a big part of this is just like transparency, right? Like oftentimes, you know, when I would, I’d ask people that I’ve worked with an advisor, like, what are you paying them? They’re like, uh, I don’t know. Like, and I always tell the story, you know, of, you know, when, when, when I got into the industry and my parents were working with an advisor, you know, I asked the question, I’m like, Hey, what are you, what are you paying for that?

And it’s, you know,  the answer I got was like, oh, it’s, it’s, it’s free kind of through your dad’s work. And I’m, I’m, And I’m like, uh, you know, there’s no free lunch. Right. So, and then years later, when I actually looked at it, you know, the fees were significant, like North of eight grand a year, right. Um, in the product.

So, you know, in the, in the broker dealer world, again, no shade to that, you know, where it’s more like fee based, so you can charge commissions, you can charge flat fee percentages. I think the problem is, is like. You know, what the advisor is trying to do is one help the client, but also make a living. So, so they’re, they’ll say, Hey, I can, I can get you in this investment and then I earn a commission.

Um, or I get you in this investment. I earn kind of an ongoing fee. And then maybe I sell you, you know, a life insurance product that I earn a commission or an annuity in our commission, or I charge you hourly. So it’s really just confusing. Right. So I think like. Transparency of fee and like, what you’re paying is really important.

And I think marrying that up to like the value that you’re receiving, right? So there’s some people that they view comprehensive financial planning as. Selling you an insurance product and managing your money. And that’s it. And then maybe talking to you once every couple of years, we don’t view that as comprehensive financial planning.

Like we, we view that as very light financial planning, if, if financial planning at all, maybe some investment management. So when you look at the different ways that advisors can charge, you know, fees, it could be a flat fee. It could be an AUM assets under management, which is a percentage of what they’re managing.

And it can be an. Assets under advisement, so it’s, you know, the feet, the investments that they’re managing directly at their own custodian, but also managing indirectly, say, at like, a 4 or 1 K or a 529. it could be commissions that we talked about, which could be commissions on insurance. It could be commissions on investment, which is kind of what we’re talking about here.

An hourly fee or kind of a combination of all these things. So, you know, I think I think the, the, the, the hard part for the consumer for the client is to determine a, like, what the heck are they paying? And are they getting value for that? Um, and if they’re not, then obviously, you know, reassessing it. So, you know, and there’s.

There’s pros and cons for all of these, right? Um, and there’s, there is no such thing as, um, you know, sometimes advisors, especially in the feeling where we’ll say, you know, we have, you know, we give conflict free advice that does not exist. It doesn’t in any model, there’s always a conflict of interest. And I think, you know, the advisors that that is willing to say, like, Hey, we think this is in your best interest.

However, cards on the table, it’s also going to change our fee, increase our fee. Um, and that can go the other way too. It’s also going to decrease our fee. Um, you know, I think those are the type of advisors that are my people, you know, we want what’s best for the, for the, for the client, but understanding, you know, what model you’re in and then like what you’re actually paying is going to be half the battle.

And, and, and more often than not, when I talk to prospective clients and I ask them, Hey, what are they, what are they, what are you paying? They’re like, I literally have no idea. And I think that’s problematic.

Tim Ulbrich: Yeah. And that’s what my experience tells me, Tim, is that, you know, especially the pharmacist households that we’ve worked with, even those that decided, Hey, we’re not, we’re not a good fit. Um, and that’s okay as well is transparency is what matters, right? They want to know what’s involved.

Everyone has a different definition of what, what is return on investment. What’s value that can change in different seasons of life. So, um, I think the transparency pieces is so critical. And if you’re in a relationship and you’re not sure how the advisor is making their fee. That’s a big red flag. Right.

And I think something worth exploring further.

Tim Baker: Yeah, and I think, you know, um, you know, when we talk about fees, like, you know, you’re no model is going to fit everybody. Right? So I think like, it’s just again, being comfortable understanding what you’re paying. Um, and, and, and what I was going to say was, you know, oftentimes, especially with pharmacists, type a scientific minds, they’re like, okay, if I’m going to give you, you know, X amount of dollars in fees.

What is the ROI? And I’m like, well, define ROI because the way that we look at this, the way that we look at ROI is that you, there is a quantifiable that you can count ROI, but I don’t even think it has anything to do with investment returns. I really think the best number in terms of progress with the financial plan is your net worth, right?

The assets, the things that you own minus the liabilities, things that you owe.  But I think the other unspoken thing here is the, not the quantifiable things, but the qualifying things of, of what, what have we done with your plan with, with your life plan supported by the financial plan?

That’s hard to count. Whether it’s that, that family, that. Finally, you could buy the house when they didn’t think they could or had the baby or retired early or pivoted careers or got back into a passion that they had put on the sideline for a long time because of whatever reasons. Those are the things that get me fired up.

They have nothing to do with. Ones and zeros in the bank account or net worth or things like that. And I think if you’re in that type of relationship and you have that type of trust and rapport, that’s worth a lot. Um, so that’s my soapbox, Tim.

Tim Ulbrich: I agree. And, and I, you know, would be remiss if I didn’t put a plug in here for what we do and, and for those folks listening that would like to learn more about our fee only financial planning services, what our team of certified financial planners can offer, um, you Working with households all across the country, uh, virtually, you can learn more, your financial pharmacist.com. You’ll see an option at the top, right? You book a free discovery call to learn about those services. Tim, let’s shift to inflation. Um, so in addition to fees, we have to pay attention to inflation and this one feels a little bit sneaky, right? I mean, you’re making money, but inflation is quietly chipping away at your purchasing power.

Yes. Today. At the grocery store, I think we’ve all felt that recently and and perhaps five six years ago It was hey inflation what but we all have felt that more recently But not only in our expenses today might we feel that but also in the future When we think about how far our savings will go so explain to us how inflation erodes the purchasing power Of an investor’s returns over time

Tim Baker: Yeah. So when I talk about like, cause there’s a lot of people out there. That are super risk adverse. Right. So they’re like, Tim, do I really have to invest? Can I just like stuff my mattress or put money in my bank account, my high yields. And I call it a day. And the answer is like, especially if we’re aspiring to be a seven figure pharmacist, plug the book, um, answers.

No, you can’t. And the, when I talk about this, you know, um, with, with, in, in, in, in different talks, like when I look at inflation, if we take, If we take a latte that you buy at Starbucks in 2025, and let’s say it costs 4 dollars. Um, and maybe that’s just a plain coffee these days. But if you, if you, if you get that, that coffee at 4 dollars, if we use historical rates of inflation, and most advisors will use about 3%.

Now, you know, we’ve had years and spikes that, you know, some people are like, well, let’s use 3 and a half or 4%. But if we use 3 percent and we fast forward 30 years, from 2025 to 2055. That same latte that would cost 4. 00. Costs 10 30 years from now. So what that means is that your dollar just goes less far.

And this is why my dad’s in the 70s. You’d always talk about, you know, his grandparents would give him a nickel and you go to the candy store and buy half the store. It seemed right. You can’t buy anything for a nickel today, right? So the, the idea of investing and having a solid investment plan is to keep pace with the inflation monster, but then also get ahead of the tax man, which is what we’re going to talk about next.

So unfortunately we can’t bury our hands, head in the sand or, you know, and I, and I say that, Facetiously and just put money into a check into our savings account and call it a day because over time that, you know, 400, 000, you know, if we, if we look at it from an investment is going to be equivalent to 1, 000, 000 or the purchasing power of 1, 000, 000 in the future.

So. That’s why we need to invest and take appropriate risk and equities and bonds. And I would argue equities, you know, mostly through, you know, the working years of most people, or especially early on. And then as we get closer, you know, start to to add more bonds and fixed income. But that’s really what it is because, you know, every year, you know, the price of goods and services.

Goes up. Um, and it’s a systemic thing that we can’t escape. Um, you know, that we really have to adapt our financial plans to.

Tim Ulbrich: Yeah. And I think Tim, it can be easy to lose sight of historical trends when we’re in

Tim Baker: Yeah, for sure.

Tim Ulbrich: time periods. Right. So, you know, I’m thinking of this moment while we’re recording, although rates have come down, high yield savings accounts are. 4 percent ish, right. Give or take, um, we’ve had historically high inflation, you know, the last couple, a couple of years for obvious reasons we’ve talked about on the show.

And so I think sometimes people look at that and they say, oh, well, you know, 4%, that’s really good historical rate of inflation, but we can’t confuse those. Right. Because just a few years ago, what was our high yield savings account earning less than 2%? Well, I mean, for a while right down there, I mean, even lower than that.

So when we zoom out. Yeah, we get, get those emails, right? Your, your savings account has gone down, but you know, if we zoom out, we look at the historical rate of inflation. If we’re not investing and it taking some level of calculated risk and what that risk tolerance and capacity is, is different for, for everyone.

And that has to be customized, but if we’re not doing that, right. Our, our long term investments really come to be at risk and in terms of us achieving our long term goals.

Tim Baker: Yeah. And I’ll give you an example. So if we talk about the long term effects of inflation, so, um, over time, inflation compounds, meaning it’s cumulative effect on person power grows significantly. So, like, if we take 100, 000 portfolio and we invested at, um, we get a 6 percent annual return over 20 years.

Without inflation, that portfolio grows to from 100, 000 we’ll call it if we, if we then interject reality, which is about a 3 percent inflation, the real value of that investment, if we adjust for inflation would be 180, 000. So that’s, that’s the, that’s the rub here. And again, that’s, that’s why, you know, when people are like, Oh, I’m like really conservative.

I don’t want to take risk. I’m like, you kind of have to get in front of this, you know, especially in, you know, younger in your younger years, um, you know, to get in front of again, inflation and then, and then the tax man.

Tim Ulbrich: Yeah. And this is also why, when we’re doing things like retirement projections, nest egg calculations, especially for people that are maybe in that, you know, front half of their career, let’s say they look at these numbers and they’re like, is this wonky math, right? These seem like they’re huge. They’re out of reach.

Well, we’re, we’re thinking about it in today’s dollars. And obviously we have to be thinking about it. In the future as well, Tim, you alluded to retirement age a little bit. When you’re talking about asset allocation, let’s just touch on that a little bit more. So for maybe some of the pre retirees listening or people that are in the second half of their career that are thinking about retirement, it’s on, on the horizon and are concerned about the long term effects of inflation on their portfolios, ability to generate income and to sustain itself.

What are some general strategies that we’re, we’re thinking about employing? I know you’ve talked before on the show about, Hey, social security, right? It’s, it’s one of those rare vehicles that we have some inflation protection. What, what, what [00:25:00] other thoughts here?

Tim Baker: Yeah. I think as you look at your, your investment strategy, like there are things that, yeah, you mentioned. So that’s why we’re a big, you know, a big believer and really having a very purpose based strategy when it comes to a, uh, social security claim. And because once you made that decision, it’s kind of forever.

And that can really affect the amount of. Inflation protected income that you have coming in the door. Um, so the other things you can think about is there are inflate, there are inflation protected security. So there’s tips treasury inflation, protective securities that are linked, um, to they’re kind of marked to inflation.

So as you know, as, um, Inflation goes up. So does the interest payments for which you, you know, which you receive, um, they don’t necessarily, they’re not necessarily, you know, growth oriented, but it helps you kind of, you know, at least keep pace with that. What we’ve been talking about, you know, at length here is, is really having a portfolio that’s invested in growth oriented assets.

So stocks. Real estate could be commodity commodities that outpace inflation over time that kind of provides a hedge against inflation reinvest in your return. So compound and helps offset offset the negative effects of inflation over time. Another thing that, again, we believe in, um, that not everyone does, but even diversify internationally.

So invested in global markets may reduce inflation. Um, Risk retired, you know, tied to kind of the U. S. Dollar or the economy. And then probably the big thing I hear, or I see, and I actually just had a conversation with perspective client, you know, they were sitting on over 200, 000 of cash and I’m like, why?

And part of its monitor cash holdings. So cash lose unless it’s in a high yield. It’s kind of getting close to that. You know, and today 4 percent cash loses purchase and power quickly in inflationary environments. So you want to really limit the cash that you have idle. So we kind of talk about, you know, you want your emergency fund and any short and medium term goals that you need cash for.

So that might be a trip might be a project on your house, et cetera, et cetera. And that foundation is set to then get money into the market for more, you know, longer, longer term type plan. And so those would be things, you know, like, like I mentioned, you know, it could be, you know, what you invest in, whether it’s tips, you know, growth, equity type of, of stocks could be commodities, but then also some of the things that you’re doing, you know, with cash and, and how you reinvest returns and things like that can help Kind of tackle, tackle the, the, the problem, you know, the, that won’t ever go away, which is the inflation, um, associated with your, with your assets.

Tim Ulbrich: Yeah. One last thing I would add in here, Tim, and this is where I think the flexibility piece is so important. And we’ve, we’ve talked at length on previous shows about this, but if someone has some flexibility. With their retirement situation, whether that be part time work, whether that be the [00:28:00] timeline of when they retire, and we’re in a high inflationary period or a downturn in the market, right?

Things that we may not anticipate happening. Those types of levers that we can pull go a long way in terms of how we maintain the integrity of our, our investment pie as we go throughout retirement, so it’s not a set it and forget it so important when we think, you know, I think back to my early years of saving.

You know, coming out of pharmacy school and it’s like, all right, we’re going to pay it away, whatever, 20, 25 percent of our income. And we’ll kind of think about this tomorrow and that that’s good early on. But then you get to this point in time where we start to ask this question. I’ll be like, Hey, are we on track?

And you know, what is the horizon timeline? And then more nuanced questions, like some of the tax strategies, when we think about withdrawals or, Hey. You know, the markets had an unexpected downturn or we’re, we’re in a down market for a longer period of time. And maybe it’s not the best time to retire, or maybe I could retire early.

Right. There’s all these wrinkles that we have to consider as we get closer to that timeline.

Tim Baker: [00:29:00] yeah. And, and, you know, probably the timing of when you retire is going to be one of the most important things that, you know, um, You know, it’s related to your success in terms of having your assets not run out on you.

Tim Ulbrich: All right. The last piece of our, uh, keeping your investment portfolio fit fees, inflation, taxes, taxes is number three, certainly last, but not least. This is a big one, right? They could take a huge chunk out of your investment Income, particularly if you’re not strategic about it. We’ve harped on that on the show many times before about being proactive with your tax planning and how important that is to the financial plan and whether it’s not maximizing tax advantage accounts, whether it’s realizing, you know, capital gains, taxes, when you’re selling investments or taxes on interest income, if you’re not paying attention to taxes, Tim, it can really hurt your returns.

And, and I think tax is just one of those dry topics that, Hey, we’d rather not really think about.

Tim Baker: Yeah. And it’s, it’s another one, it’s another one that has major [00:30:00] implications on, you know, again, your, your ability to, um, grow your wealth and, and, and keep pace with, with lifestyle, especially in retirement and, and, and really throughout your, your, your whole life. So, you know, I, I think, I think one of the big things that I think about, so when I, when I talk about taxes and investment, I kind of lead with a little bit of a depressing, like example.

So like, if we look at a million dollars and a traditional 401k, a million dollars in a Roth IRA, a million dollars in an HSA, et cetera, then one of the questions I always ask is like, how much money do we actually have? And. Unfortunately, we don’t have 3 million or 4 million dollars, how many bucks it is because anything that is gone into a pre tax bucket, like a traditional IRA, a rollover IRA, a traditional 401k uncle Sam has yet to take his bite of the apple.

Right? [00:31:00] So the mechanics of this is like, if I put money into my 401k, let’s say I put 20 grand in, um, I make 100, 000 a year. The IRS looks at me is if I made 80, 000. So I get a deduction for that. So that 20, 000 goes into my, my 401k. It grows tax free, which is great, which means I’m escaping capital gains. I don’t have to pay capital gains.

And then when I pour that money out in retirement, that’s when it gets taxed. Right. So if I have, you know, over time, I have a million dollars there and I’m in a 25 percent tax bracket, actually 750, 000 of that is mine. And 250, 000 of that is the government. So I think what’s really important about taxes and investment is actually something called, um, asset location.

So these are different types of investment accounts that have different, uh, tax treatments. And the, and the three main buckets here, Tim, are the. Uh, The tax deferred accounts, which I just talked about. So this is kind of a traditional 401k traditional IRA. [00:32:00] So these contributions are pre tax and the investment gross tax referred and then the withdrawals are typically taxed at ordinary income levels.

We have the tax free accounts, which is a little bit misleading because you actually pay the taxes, you know, as it goes in. Um, so these are things like Roth IRA, um, Roth 401k. So the contributions are after tax. So I’ve got my paycheck. I’ve already been taxed and I put those money into a Roth. That investment grows tax free and the withdrawals are then tax free.

So when I pour out that money, so if I have a million dollars in a Roth IRA, I pour out all million dollars of that. I actually get all million, all 1 million of that. And then the last one is the. Taxable accounts. These are the brokerage accounts. So these are taxes, taxes are paid annually on interest, dividends, capital gains, typically the contributions are with after tax dollars.

So I was, I was taxed on it, um, through my paycheck. I contribute that to a taxable account. It grows, but then any capital gains, um, interest dividends, [00:33:00] I’m, I’m taxed again. Um, and that’s where we get into things like tax loss harvest. So, you know, depending on where you’re at. geographically where you’re at in life, you want to have a little bit in column a, a little bit in column B, a little bit in column C, right?

So it’s really important to be able to when we’re building, if we fast forward to retirement and we’re building a paycheck, if I’m the maestro and I’m building a retirement paycheck, I know that Maybe we’re getting in some in from consulting part time work team. Maybe we’re getting some in from, um, social security, which is also taxed, but then the gap that I’m trying to make up between those things and what we need to, you know, live in and thrive.

I’m pulling from these 3 buckets and, you know, if I have a balance of those 3 buckets, it benefits me because what I’m trying to do as a planner is fill up your tax bracket in the most efficient way [00:34:00] possible. So I might take some from the pre tax bucket to get you to, you know, to max out that 12% Um, tax bracket.

And then maybe I go to the, um, the, the Roth to then, you know, get the rest. Maybe we’re, we’re retiring at 58. So then I’m, I’m using primarily, um, a brokerage account because anything between before 59 and a half, you know, I get a penalty and pay taxes. So, excuse me, that’s the, the asset location is really important to determine how we then pull it in retirement and what makes the most Efficiency wise, um, from a tax perspective.

Tim Ulbrich: Yeah. And what you’re talking about, Tim is building a retirement paycheck, right? We talked about this on episode 275. We’ll, we’ll link to that in the show notes, but I love that visual. Cause we all, we all can relate to that, right? Throughout our career, whether we work for someone else, we’re self employed, you know, we have some semblance of a, of a paycheck, maybe it’s fixed, maybe it’s variable, you know, for time, but eventually we’re going to get to [00:35:00] this future state where maybe we’re working part time or eventually we’re not working at all, Or we have to produce our own paycheck.

And there’s going to be multiple sources that are feeding into that. You mentioned it could be social security. It could be, uh, an annuity. It could be, uh, coming from an IRA. It could be coming from real estate. It could be coming from a 401k, right? All these different pathways. And it highlights so well, the point that not all buckets and dollars are created equal as you articulated.

So, well, you could have two people that both have 4 million. And where that 4 million is going to go and how it’s going to be deployed could be very different depending on what buckets from a tax standpoint. And it’s important on the front end. So we’re talking withdrawal side with the building and the retirement paycheck, but it’s also important on the front end is we’re saving, not that we can predict everything that will happen in the future.

But if someone says, Hey, Tim, I want to retire early. And they’re serious about that. Well, we got to think about where those buckets of dollars are going to be and how do we build a plan and a way to support that? So, you know, this is where [00:36:00] online nested calculators fall short, right? Just, just punching in numbers and saying, Hey, Tim, you need 3.

4 million saved, like where, how, what’s that going to look like? What are the tax treatments? All those questions have to be answered.

Tim Baker: Yeah. And it’s, it’s so nuanced, right? Even like, we talk about our own situations. Like, we’re two Tim’s in Ohio. Our financial situation is similar, but different. But even, even with slight variation, we just, there’s, there’s certain things that we, that, that I’m doing in my plan that you’re not doing and vice versa.

Right? Like, one of the, one of the cool things about being self employed in Ohio is, you know, your first 250, 000 per year, there is no state income tax. Um, So, you know, when I moved from Maryland, I’m like, Oh, like I need to really take advantage of that. And hit my Roth harder than what I was, because I’d rather pay the tax.

Now, I just pay federal, um, and, you know, use another example. Like, if I decide [00:37:00] to retire in Florida, you know, maybe I don’t I don’t need to do that, you know, but I’m not retired. I’m not planning on doing that. But, you know, if you’re, if you’re working in a state with income tax and retirement with a state that doesn’t, again, there’s legislative risk there because, you know, things could change, but all of those things kind of play a part in this.

Journey, which is what it is. Um, and it, it’s hard to get that from a calculator and, you know, it is nuanced. And I think, um, you know, provide, you know, it requires a level of care and attention, um, especially when we’re talking about the, the nest eggs and, and the assets that were, you know, that we’re working with over time that, you know, just requires some level of love and attention, really.

Tim Ulbrich: Tim, great stuff. We covered a lot in a short period of time, fees, inflation, taxes, three really important parts as we think about our investment portfolio. And we really are just scratching the surface on all of those areas. We’ll link to some of the episodes. We’ve got more information in the show notes.

Thank you so much everyone for listening to this episode of the podcast. If you’d like [00:38:00] what you heard, do us a favor, leave us a rating and review on Apple podcasts. Or if you’re watching on YouTube, would you help other pharmacists find our show as well? And finally, an important reminder that the content in the show is provided for informational purposes only is not intended to provide and should not be relied on for investment or any other advice, information on the podcast and corresponding materials should not be construed as a solicitation or offered by ourselves, any investment or related financial products for more information on this, you can visit yourfinancialpharmacist.com forward slash disclaimer. Thanks so much for listening. Have a great rest of your week.

[END]

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YFP 391: 7 Books That Shaped My Money Mindset

Posted on by YFP Media

Tim Ulbrich shares insights from seven financial books that shaped his journey, offering key lessons on saving, spending, mindset, and building wealth.

Episode Summary

In this episode, Tim Ulbrich highlights seven impactful financial books that shaped his journey, including I Will Teach You to Be Rich by Ramit Sethi, Die with Zero by Bill Perkins, and Rich Dad, Poor Dad by Robert Kiyosaki. He shares key takeaways on topics like balancing saving and spending, adopting a wealth-building mindset, and spending for happiness.

Key Points from the Episode

  • [00:00] Introduction and Financial Moves Recap
  • [00:41] Book 1: I Will Teach You to Be Rich by Ramit Sethi
  • [03:25] Book 2: Die With Zero by Bill Perkins
  • [06:14] Book 3: Rich Dad Poor Dad by Robert Kiyosaki
  • [08:12] Book 4: The Millionaire Next Door by Dr. Tom Stanley
  • [10:12] Book 5: The Compound Effect by Darren Hardy
  • [14:09] Book 6: Total Money Makeover by Dave Ramsey
  • [15:33] Book 7: Happy Money by Elizabeth Dunn and Michael Norton
  • [17:47] Conclusion and Call to Action

Episode Highlights

“ It’s about intentional allocation of the dollars that we have and spending them in areas that we drive the most significance.” -Tim Ulbrich [1:35]

“The plan that got them there to work hard and to save, save, save…that mindset was going to require a shift in order to live a rich life. New behaviors need to be learned. And ideally we can build these spending muscles throughout our careers and not just wait until some day off in the future.” – Tim Ulbrich [5:54]

“I can’t think of anyone. I know. Who got rich off of buying whole life insurance policies, buying random alt coins or buying NFTs.”- Tim Ulbrich [10:59]

“Learning is one thing, but learning and taking action with accountability is really where we start to see things happen.” -Tim Ulbrich [18:21]

Links Mentioned in Today’s Episode

Episode Transcript

Tim Ulbrich: Welcome to this week’s episode, Tim Ulbrich here we kicked off the new year where I covered five financial moves to make, and we’ll link to that episode in the show notes.

One of those moves was to set your learning plan. So here are seven financial books that have had a profound impact on my journey, such that I often recommend these books to others, gift them, and I’ve implemented at least one, often more than one of the teachings in my own financial plan. All right. In no particular order, let’s jump in with book number one.

[00:02:00] Which is, I will teach you to be rich by Ramit Sethi.

Now I had the chance to hear Ramit speak in 2019 at the FinCon event, the FinCon conference in Washington, DC, and it was fire. He’s a fantastic speaker, a fantastic teacher. And at the time, the theme of his talk, which he talks about in the book, I will teach you to be rich is money dials, money dials, a key concept in that book.

And. Really, the concept of money dials is identifying what areas of spending have the most significance, meaning or impact for you and dialing those up and on the flip side, finding those areas of spending that perhaps are somewhat automatic and we may not even be thinking a whole lot about it. And they have the least significance or meaning or impact and dialing those down, right?

It’s about intentional allocation of the dollars that we have and spending them in areas that we drive the most significance. Now it sounds obvious, but it’s easy to fall into the [00:03:00] trap of spending money on things that you don’t really care that much about at the expense of not having money. To spend on things that mean the most to you.

And I love that he starts off the book with this, right? Because before we implement the X’s and O’s of the financial plan, as you’ve heard me say on this podcast, many times, we have to be clear on what does it mean to live a rich life? Now he’s, he uses the terminology money dials. We talk about living a rich life.

We’re talking about the same. thing, right? Now, this is not about me saying what should or shouldn’t be meaningful, right?

Everyone has different significance and meaning. It’s about getting clear. What are those things that you derive the greatest significance and meaning from? And is your financial plan, is your spending in alignment with those areas? Now, in addition to the concept of money, Dows in this book, his teachings on automation have stayed with me and are ones I’ve applied to my own plan and teach often to other pharmacists.

Now, he says in the book that automating your money will be the single most profitable system that [00:04:00] you’ll ever build. And I would whole heartedly agree with that. It takes time, a little bit of time to set up, maybe perhaps not as much as you think, but once you have a system in place where you’ve thought about and identified your goals.

We’ve accounted for them inside of the monthly spending plan. And then we are automatically funding those goals. And we see that process happening. Boom, right? That’s when we’re really humming with the financial plan in general. This book is a great personal finance one on one read. It’s an easy read.

Again, he’s a fantastic teacher. And I love the principles in this book and our principles that I often apply in my own financial plan. The second book on my list is die with zero by Bill Perkins, die with zero.

By bill Perkins. This book is going to challenge you to think differently about the value of spending and finding that balance with saving or, as we say at Y. F. P. Finding the balance between living a rich life [00:05:00] today and planning and taking care of our future selves.

Now, if you’re an aggressive saver, Guilty as charged. And you find yourself challenged to enjoy spending money today, right? To let go of the reins a little bit. This is a must read for you. Bill Perkins in the book challenges traditionally held beliefs about retirement planning and passing down generational wealth.

One of my favorite quotes from the book is when he says, quote, people who save tend to save too much for too late in their lives. They’re depriving themselves now, just to care for a much, much older future self, a future self that may never live long enough to enjoy the money. 

I’ve come to appreciate and still need a lot of help guidance and reminders from my financial planner, from Jess and our own plan that spending just like saving. Is a learned habit. I was recently reminded of this after listening to an interview on Ramit Sethi’s podcast, where he was talking with a couple [00:06:00] nearing retirement age that had over 6 million in net worth.

It was quite sad to hear the husband rationalized with Ramit for almost two hours, all the reasons why he couldn’t spend and enjoy because he had to quote first, save it up. Or quote work harder to make up for what he was going to spend again, net worth of 6 million. So for all intents and purposes, they achieved their savings goals.

Plus some, right? The plan had worked. They had gotten to that point that they were planning for all along, but despite what the numbers showed, he couldn’t shift his mindset. He was stuck in the grind and the hustle of working and saving. Working and saving. And this is something we don’t talk about often enough with the financial plan that when we work hard for 30 or 40 years to save, that is a big transition.

When we get to the withdrawal phase, right? We need to be planning for that. We need to be preparing for that. And we need training wheels along the way to help us with this learned behavior of spending. And the point that was remit was trying to make and trying to get this husband to see is that in order to live a rich life, the plan that got them there can’t be the same.

As the plan going forward. The plan that got them there to work hard to save, save, save, work hard, save, save, save. That mindset was going to require a shift in order to live a rich life. New behaviors need to be learned. And ideally we can build these spending muscles throughout our careers and not just wait until some day off in the future.

That may or may not come and may or may not be what we have in mind. 

Number three on the book is rich dad, poor dad by Robert Kiyosaki, rich dad, poor dad by Robert Kiyosaki. Now, Robert Kiyosaki has recently come into the spotlight and many different controversial ways. So personality aside, his teachings in this book, in my opinion, remain a classic. This book is all about mindset, not X’s and O’s like some of the other books that are on the list today.

And if you think of the financial plan as a series of decisions that need to be made, I think of this book as being [00:08:00] a philosophy that guides those decisions. It’s the thread behind the decisions that we make. And a few of the things that have stayed with me is that, you know, what we might think is an asset versus a liability. I think he challenges that mindset. Why leverage is an important tool to build wealth.

And of course there’s risk with leverage and we have to balance that. Also, what has stayed with me is why traditional W 2 income limits wealth building. And finally, why business ownership and real estate investing are key legs. Of the wealth building school.

Now this book in particular, along with tax free wealth by Tom Wheelwright, and we’ll link to all of these books in the show notes, tax free wealth by Tom Wheelwright really opened my eyes to the importance of tax as a part of the financial plan. One that is kind of always behind the scenes that probably many of us are not thinking about, and more specifically the strategies.

That can be employed to optimize our tax situation, right? We want to pay our [00:09:00] fair share, but we want to pay no more. And I think through these teachings and really digging into the form 10 40 and understanding how the different components of that form work and what are the levers that we can pull to make our, uh, tax rate as efficient as possible.

These two resources, rich dad, poor dad, and tax free wealth have really been instrumental in opening my eyes to the significance and importance of tax as a part of the financial plan. All right. Number four on my list is the millionaire next door. By Dr. Tom Stanley, the millionaire next door by Dr. Tom Stanley and the updated version, the next millionaire next door featuring Tom’s daughter, Dr.

Sarah Stanley flaw, which we had the pleasure of having on the podcast on episode number 200. This book examines the key behavioral traits. Of millionaires. One of my favorite quotes from the book is when he says, quote, one of the reasons that millionaires are economically successful is that they think differently.

They think differently. What he’s talking about is one of [00:10:00] my key takeaways from that book is that net worth, not income net worth, which is your assets, what you own minus your liabilities, that really. Is a true indicator of your overall financial health, right? Net worth, not income as the financial vitals check is really going to help us as we think about this mindset of, is our income being translated into building our assets and paying down our debt, some of my other key takeaways from this book is that, you know, we often wouldn’t know who the people are that are millionaires or multimillionaires.

When you look at the research that’s presented in the millionaire next door, as well as the updated version and the next millionaire next door, the spending behaviors and patterns would say that they probably aren’t the people that we think are millionaires that more or portray. To be millionaires, they often have a frugal mindset.

Doesn’t mean that they’re cheap. Doesn’t mean that they don’t like investing in good experiences. Doesn’t mean that they’re not a philanthropic or givers, but they often have a frugal [00:11:00] mindset. They’re they’re typically not trapped. Millionaires are not trapped by what I think of as the big rocks, right?

They’re not house poor. They’re not car poor. They do take calculated risk often in business or real estate. And most millionaires, as the research suggests in that book are self made. It’s not typically inherited money, fascinating research and concepts. I would highly recommend that the millionaire next door, the updated version.

If you haven’t already read it. Alright, number five on my list is The Compound Effect by Darren Hardy it was one of those books I, I, I remember exactly where I was when I read it, uh, at our old house up in northeast Ohio during the summer.

I read it outside and, and a couple hours I couldn’t put it down. And one of those books, you’re just constantly highlighting, taking notes. You’re like, yes, yes, yes. And this is not exclusively a personal finance book, but I love the applications here. And I was recently reflecting on those in my life that have been financially successful, because I think it’s helpful to learn and grow [00:12:00] from those who have actually done it right.

And as people came to mind that I thought of, okay, who has been a long term financially successful in building wealth, not short term success, long term financially successful. And as I thought more about that, I was like, I can’t think of anyone. I know. Who got rich off of buying whole life insurance policies, buying random alt coins or buying NFTs.

And I’m not saying that people don’t exist that have built wealth in those ways. Rather, what I’m saying is that I don’t know anyone that took this path, and I feel confident in saying the perception is much greater than the reality when it comes to these types of vehicles being a viable path to building wealth, right?

Often these are short term solutions that are band aids when we really need to look at long term consistent behaviors. Rather, when I think of those people that have built long term wealth, it was a long methodical, patient journey. One intentional step after another [00:13:00] where those decisions and good decisions, not to say there weren’t mistakes along the way, but those good decisions compounded over a long period of time.

And I think, unfortunately, we’re hearing less of these journeys, right? Because these aren’t great clickbait. These aren’t great. In terms of social media algorithms are often boring stories in the, in the literature really supports that. And the book, the millionaire next door, which I just mentioned previously, Yeah.

And several, when I thought more about who are these people, several, not all have multiple pathways of building wealth. Typically it’s traditional investments. It might be equity in a business. It might be real estate, and those aren’t always in balance, but I’ve noticed that as a theme and those that have been really long term, uh, Successful in building wealth and often being philanthropic is a part of that wealth building.

These individuals that come to mind are taking calculated risks on opportunities where they see that the upside dramatically outweighs the downside, and they have a strong financial [00:14:00] foundation in place such that if that calculated risk doesn’t work, They’re not going to be impacted in a significant or catastrophic way, right?

They’re able to take that calculated risk because they have that strong base and foundation in place. As I think of these people that come to mind, I would describe them as overall fairly conservative yet willing again, to take some level of risk if an opportunity presents itself. So they’re not risk averse, but they’re also not flashing.

In fact, they’re quite humble and they’re often very philanthropic. And they really do embody some of the teachings that have stayed with me from this book, the compound effect by Darren Hardy. He has a formula in this book that I often reference back to. And that formula is small, smart choices. Plus consistency, plus time equals radical difference, small, smart choices, plus consistency, plus time equals radical difference, right?

That is the definition of compound interest when we think about saving over a long period of time. So this is the [00:15:00] path I will follow. This is the one that I have seen work a path defined by working hard, taking calculated risk. Investing in tax efficient, appreciating assets, building equity that can be converted to other assets.

Developing a habit and priority for giving and doing this over and over over a long period of time to allow those results to compound. All right. Number six on my list is total money makeover by Dave Ramsey, the total money makeover by Dave Ramsey. Now I’m not an avid follower of Dave Ramsey and his principles and the baby steps, but I have to give credit Where credit is due, reading the total money makeover, going through financial peace university, listening to Dave Ramsey’s podcast was really like a wake up call over a decade ago that inspired the journey that Jess and I took to ultimately pay off our 200, 000 of student loan debt and really led to is the really beginning steps of the place that we are today.

And the journey that we would take to get there, that [00:16:00] book. The total money makeover, listening to the podcast really lit a fire under me to want to learn more, right? As I mentioned, it was kind of a wake up call to create our own path, our own plan. Even if we didn’t follow the path in plan that he prescribes to so many through the baby step formula.

The baby steps I will admit early in our journey, it was a grounding framework, a grounding framework for us that we needed at the time. As we were trying to balance many things, we weren’t doing any of them particularly well, and we didn’t have an intentional plan in place. And that really was the footing that we needed to get started.

That would ultimately allow us to build momentum, to build our emergency savings, to get out of debt, and then to have a prioritized approach. To achieving our goals. So that’s number six, a total money makeover by Dave Ramsey. Number seven last on my list is happy money. The science of happier spending by Elizabeth Dunn and Michael Norton.

Now I would assume many of you have heard of. All [00:17:00] perhaps the first six books that I mentioned, but maybe not the case with this one. I ran across this, uh, several years ago and I intentionally book ended my list of seven here with this one per particular, because I think that it’s an important reminder that money is a tool, right?

I mentioned that when I talked about die was zero by bill Perkins. Money is something that affords us the opportunity to pay for our basic needs. And if we’re able to live our rich life and to give to others. And next time you hold a bill of any value in your hand, remind yourself that it’s a piece of paper.

In fact, it’s a piece of paper that I recently learned is 25 percent Linden, 75 percent cotton, but this is a piece of paper that has value because number one, we all agree that it has value. Number two, it’s backed by the faith and credit. Of the U. S. Government. So what’s my point? My point is that it’s finite, right?

And if we’re not careful, we can miss the boat on a crewing while losing sight of the so what? [00:18:00] And that reminder comes, I think, strongly in the book. Happy money. The science of happier spending. By Elizabeth Dunn and Michael Norton. This book provides what the research has to say on the science of spending and the connection between money and happiness.

Now, happiness, how you define that, right? That’s an important component to consider. But my takeaways from this book were that the literature supports to no surprise, but an important reminder, the link between happiness and Monday. Typically lies in two main areas. Number one, spending money on experiences and memories that will come for those.

And number two on giving, when you look at the connection between happy and moneyness, it strongly points to giving and experiences as an important part of the financial plan. And I think if you talk to anyone who’s been at this for a while, You start to see this come out again, especially as they short up some of the basis of their financial plan.

These are the areas that you typically see people light up when they talk [00:19:00] about their financial plan. All right. So there you have it. Short and sweet. Seven personal finance books. That have had a profound impact on my journey and our books that I would recommend you read or reread . We’ll link to all of these books in the show note.

And if you have a book that you often recommend or that has had a profound impact on your journey, I want to hear about it. Shoot me an email at info at your financial pharmacist. com. Let me know what I left off the list. I’d love to read it and perhaps share it with our community. In the future. Again, you can reach us at info at your financial pharmacist.

com. Now we all know that learning, right? Reading books, listening to podcasts, learning is one thing, but learning and taking action with accountability is really where we start to see things happen. And that’s why we’re so excited about the work that our team at YFP planning is doing through our fee only certified.

Financial planning service. If you want to learn more about what it looks like to work one on one with a fee only certified financial planner from your financial pharmacist, yes, to learn and grow in your financial IQ [00:20:00] and knowledge, but also to take steps and implement those in your financial plan and be held accountable to achieve those results, you can book a free discovery call at YFP planning.com again. That’s YFP planning. com. Thanks so much for joining me on this week’s episode, and we’ll be back next week. Have a great rest of your day.

[END]

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YFP 390: YFP 390: Financial Resolutions: Top 5 Moves for Pharmacists in 2025

Posted on by YFP Media

Tim Ulbrich, YFP Co-Founder, shares 5 key financial moves to align your goals, enjoy life now, and build a secure future.

Episode Summary

In the first episode of the year, Tim Ulbrich, YFP Co-Founder, dives into strategies for aligning your personal and professional goals to make 2025 your best year yet. He shares five essential financial moves to help you strike the perfect balance between enjoying life today and building a secure future.

Learn actionable tips for setting meaningful financial goals, optimizing your tax planning, organizing your financial documents, automating your savings, and crafting a plan for continuous learning.

Key Points from the Episode

  • [00:00] Welcome to the YFP Podcast
  • [00:50] Balancing Financial Goals for Today and Tomorrow
  • [03:11] Elevate Your Tax Strategy
  • [08:29] Organize Your Financial Documents
  • [12:40] Automate Your Financial Plan
  • [21:42] Commit to Continuous Financial Learning

Episode Highlights

“ So no matter where your experience or goals live, there is no right or wrong. Each of us is on our own journey.” – Tim Ulbrich [2:09]

“Let’s make this year the year that we move the needle on both: those long term savings and investment goals saving for our future selves, while also prioritizing living a rich life today.” – Tim Ulbrich [2:56]

“ Think of automation as the mechanism by which your income is working for you, and it’s automatically funding the priorities that you’ve already set.” – Tim Ulbrich [12:57]

“ We know that we have a system and a list that is prioritized, that if that income comes in, we know exactly what to do. Where we’re going to allocate that, and that is the power of automation.” – Tim Ulbrich [19:06]

“ One of the greatest advantages of that we have of living in the 21st century is that we have access to learning just about anything that we want. And often we can do it at a low or no cost, right? Thank you very much to our local public library.” – Tim Ulbrich [22:06]

Links Mentioned in Today’s Episode

Episode Transcript

Tim Ulbrich: [00:00:00] Hi there. Tim Ulbrich here and happy new year. I’m so excited to be kicking off 2025 with you here on the YFP podcast. Thank you so much for listening and for joining the show. 

I get excited With the turning of the page into the new year, not as a complete reset, but as an opportunity to really look more closely at the priorities that I’ve determined to be most important to me personally and professionally, and to make sure that the schedule and activities align accordingly.

And I hope the same is true for you. And as we talk about. That turned into the new year as it relates to the financial plan. I’m going to cover five financial moves that I think you should consider implementing as well as why I think about each of these five areas.

So let’s kick things off with number one, which is making sure that our financial goals strike the balance between living a rich life today, as well as. Planning and saving for the future, right? We need to be thinking about tomorrow. We have to be planning and saving for retirement, making sure that we’re focused on moving our net worth in a positive direction, net [00:01:00] worth being our assets minus our liabilities, making sure that we’re taking care of our future selves, saving for retirement, filling those investment buckets.

All of those things are a priority. But let’s not lose sight of those goals that. Help keep us focused on living a rich life today while we’re planning and saving for the future while we’re planning for tomorrow. So perhaps for some of you listening, you’ve long dreamed about a certain experience that has taken a backseat to the busyness of life.

Maybe that’s a small as a weekend getaway for those that have young kids. I know how difficult that can be, or perhaps for some of you, this is a big stretch goal, maybe something as big as a year off traveling the world, having those Lifetime types of experiences, those bucket list type of experiences that are most important to you.

You know, I think back to Matt and Nikki Javid that we featured on the podcast that traveled the world. Nick Ornella that took a year off from his job as a community pharmacist to travel the world. We’ll share both of those episodes in the show notes. So no matter where your experience or goals live, [00:02:00] there is no right or wrong.

Each of us are on our own journey. Perhaps it’s something that’s experienced focus that hasn’t been a priority that you’d like to make a priority those interests or hobbies that we used to long for and prioritize that have gotten lost again in that busyness of life and work.

 One of the activities I wanted to pursue was getting back into playing volleyball, something I had done competitively throughout high school, something that the busyness of life. Other priorities and work just fell by the wayside.

And I did that through a local rec league and that brought incredible joy to me throughout the winter. Or what about that side hustle business or project that you’ve been dragging your feet to take the first step on, or perhaps volunteering or giving opportunities that have gotten lost. And the shuffle, the other priorities of the financial plan.

So let’s make this year, the year that we move the needle on both. Yes, those long term savings and investment goals saving for our future selves, while also prioritizing living a rich life today. 

 So that’s number one on our list of five financial moves that you can make in the new year, all right. [00:03:00] Number two is taking your tax strategy to the next level, taking your tax strategy to the next level.

Now, tax, in my opinion, is one of the most underappreciated and overlooked parts of the financial plan. And I want you to think about tax as a thread. That runs across your financial plan, perhaps one that maybe you’re not thinking enough about that. Ideally we are proactively considering and evaluating when we are making our financial moves.

Now, this sounds so obvious, but I previously have viewed tax very much in the rear view mirror, right? We have to file by April 15th or thereabouts each year to meet the IRS requirements. We don’t want the IRS coming knocking at our doors. And when we do that, we are accounting for. What happened in the previous year now, thankfully, because of our attention and focus on this topic, I’ve become much more proactive in my tax planning as a part of the financial plan, but in years gone by, we would file our taxes and then we’d hold [00:04:00] our breath, right?

Are we going to get a refund? Are we going to have taxes that are due? Did we, withholdings correctly based on differences in charitable giving from one year to the next, right? All of these factors, I didn’t have a great. Picture on come that time of tax filing, what was going to happen, right? And that is less than ideal when it comes to optimizing this part of the financial plan.

And so again, we need to shift our attention from tax preparation to tax planning. One is proactive. One is reactive, right? Again, when we go to file and we complete that paperwork, whether you do that yourself, whether you hire a professional, that is looking backwards. If we start to think more proactive, hopefully at the point of filing, yes, we’re going to do that work.

We have to do that, but we’re then looking ahead to say, Hey, based on that information, based on the rest of our financial plan, based on our personal situation, based on changes that we know are coming or goals that we have. Okay. Bye. What can we be doing strategically in advance throughout the rest of the year to make sure that we’re paying [00:05:00] our fair share of taxes, but no more.

So if you don’t already know your key tax numbers, I’m referring to things like marginal tax rate, effective tax rate, adjusted gross income. Let’s make a commitment this year. We’re going to do it. To get started and to learn more. Now I would love if you would get out the IRS form 10 40, we’ll link to it in the show notes and just spend 10 to 15 minutes to make sure that you understand the terminology and the flow of dollars.

I get it. It’s nerdy, right? And whether you like this subject or you don’t, you do it yourself, you hire someone else, understanding these numbers and understanding the flow of dollars and what those terms mean and how it, ultimately affects your marginal and your effective tax rate is going to be really important as you think about the strategies and you’ll be able to directly see how certain strategies you can implement in the financial plan are going to have an impact on the overall taxes that you pay.

So as one example, AGI adjusted gross income [00:06:00] has huge implications for those that are going through student loan repayment, right? Income driven repayment calculations, especially for those that are pursuing a public service loan forgiveness strategy. Your adjusted gross income is directly tied to the monthly payment that you’re going to make on your student loan.

So if we understand that, we can then start to think about how Well, Hey, are there strategies I can use that can perhaps reduce or lower my AGI adjusted gross income? Not by making less, we don’t want to do that, but by making contributions to things like traditional 401k or traditional 403b accounts, or how about health savings accounts?

Right. These are types of things that can reduce our taxable income, therefore reduce our monthly student loan payment, which is a great thing, especially for those that are pursuing tax free loan forgiveness all the while we’re accruing tax deferred savings into the future, just one example of how.

Important. The proactive planning can be now on episode 309 of the podcast. We’ll link to that in the show notes, CPA Sean [00:07:00] Richards covered the top 10 tax blunders that pharmacists make. 

Some of those things, including having a surprise bill.

Or refund due at filing, probably the most common thing that we see and so what we want to be doing ideally is we’re shooting for zero. We don’t want to have an interest free loan that we have out to the government. And we also don’t want to have a surprise bill that’s due that we’re not ready for.

 Another common mistake he discussed was pharmacists not employing a bunching strategy for charitable giving. So for those that are giving, especially giving at a significant level, uh, and aren’t following the standardized deduction, is there perhaps some strategy in the, in the bunching of charitable contributions that can reduce.

Once tax rate, he also talked about a common mistake. You saw a new side hustlers and business owners not planning for taxes. So earning income and being surprised, uh, by not paying estimated taxes along the way, we talked about underestimating the power of the HSA, the health savings account, and an oldie, but a goodie not factoring in public service loan forgiveness when choosing tax [00:08:00] filing status as married.

filing separately or married filing jointly. So make sure to check out that episode, episode 309 and easy to see as you hear some of those common examples, why having a proactive tax plan is worth its weight in gold. 

 So that’s number two on our list of five financial moves to make in the new year. Number three is button up your financial documents, button up your financial documents.

Now getting organized with your financial records. I believe plays a significant role, not necessarily in terms of moving the needle on your net worth, but in making sure that you and others have access to all of the information that you need to make informed decisions with the financial plan. So think for a minute about all the financial accounts that you have out there, all the different documents.

Insurance policies that touch a certain part of your financial plan. The list quickly grows to one that is overwhelming and the more you operate in your own system, the longer time goes by where you’re operating in [00:09:00] your own system, the easier it is for you to navigate, but perhaps harder for others to navigate and unravel should they need to do so in the future.

And that’s where this concept of buttoning up your financial documents comes in. That’s where this concept of a legacy folder comes in. I first heard of that idea of a legacy folder when I took Dave Ramsey’s financial peace university, probably 10, 12 years ago at this point at our local church. And I remember walking away thinking, wow, that is so simple, so obvious.

Why haven’t I done that yet? Why haven’t Jess and I done that yet as a part of our own plan? So essentially the idea of a legacy folder, if that’s a new concept to you, whether it’s a physical folder, an electronic folder, or a combination of both, it’s a place where you have all of your financial related documents.

So in the event of an emergency, others would be able to quickly access your financial situation. And they’re not just access, but be able to pick up and understand what’s going on and to be able to make key decisions. In your absence. 

[00:10:00] So here’s how we have organized it. Certainly not the only way to do it, but here’s how we have organized it in a combination of Google drive. And a safe at home that has a passwords, all of our passwords stored in a one password account. So we have nine different sections. I’ll describe them briefly.

This sounds overwhelming. It did take a commitment of time to get started. It takes a commitment of time to update, but I will say there’s an incredible feeling of peace. Momentum that comes from having this done. So section one for us is what we refer to as important documents Okay, birth certificates for us for our kids social security cards marriage certificates passports all of these We have in a fireproof safe at home and we have them just referenced Uh, as being there in the electronic version that we share with the financial planning team, as well as share with those that would take care of the boys in the event of our absence.

So that’s section one important document. Section two is all of our insurance policies and information, auto insurance, homeowner’s insurance, umbrella insurance. Health [00:11:00] insurance, long term disability, term life and term life insurance policies for myself, for Jess, for the business, et cetera. Section three is a state planning documents.

So we have a hard copy of these in the safe that have been notarized and electronic version that’s uploaded in the Google drive. So these are things like the revocable trust agreements, healthcare, power of attorney, living will last will. And testament section four is the car titles. Section five is our home ownership documents. So this is the deed to the home, our home equity line of credit, our HELOC information. We have another copy of homeowners insurance policy here, just so it’s all contained in one section. Section six is a summary of our financial accounts, our net worth tracking sheet.

As well as our social security statements. Section seven is our tax returns for personal and business tax returns. Section eight is all of the records related to the business. So a summary of the different entities, legal documents, operating agreements, buy, sell agreements, et cetera. And then section nine is just a miscellaneous.

So [00:12:00] information about utilities and other accounts that don’t fit. In the previous sections again, it takes time to get that started, but it’s something that you can act upon pretty quickly in the new year. And I encourage you to set a, an annual recurring reminder, whether that’s the turn of the new year, perhaps it’s daylight savings time or something else that you just remember to update those documents as needed.

Periodically. All right. So that’s number three in our five financial moves to make in 2024 button up your financial documents. Number four is my favorite. This is the area that I think has moved the needle the most for Jess and I in our financial plan over the last decade or so. And that is automation, making sure that you have a system and ideally a system that is working.

So think of automation as the mechanism by which your income is working for you, and it’s automatically funding the priorities that you’ve already set.

And determined to be most important in advance. Now, I know I’m not alone when [00:13:00] I say that I was feeling for some time that there are multiple financial priorities that are occurring at once that are swirling around in my head. And it can be overwhelming to think about what are those priorities in what order.

And how do we allocate the limited resource of limited income that we have to those? Should we focus on one? Should we focus on two? Should we focus on three? And so much of the stress around the financial plan, I believe is from all of that unknown and anxiety swirling in our heads, right? If we can get that down onto paper.

And if we can start to put some numbers and a plan to it and prioritize it, we may not always like the outcome of how fast we may or may not be able to achieve those goals. But once we have a plan, once we articulate it, once we know we thought about it, we prioritize it. I think there’s a lot of clarity and momentum that can come from that.

So automation helps put those goals into action. It takes the stress out of wondering whether or not they’re going to happen. So whether it’s saving for an emergency fund, whether it’s saving for a vacation, paying down [00:14:00] debt. Whether it’s student loan debt, consumer debt, auto loan debt, mortgage debt, whatever type of debt, whether it’s saving for retirement, saving for a home, saving for investment property, automation helps identify and prioritize these goals and assign your income accordingly.

Yes, it takes a bit of time to set up, perhaps not as much as you may think as you hear about it, but once it’s set up, it provides a long term Return on time benefit, but also better yet, as I mentioned, peace of mind and feeling of momentum, knowing that you’ve thought about prioritize and have a plan in place, working itself to fund your goals.

Now, Ramit said, he talks about this in his book. I will teach you to be rich. He does an incredible job of teaching automation credit to him. And he says that automating your financial plan will be the single most profitable system that you’ll ever build. And I remember hearing that and thinking, man, that’s a big, big promise, right?

But it is a hundred percent true. [00:15:00] Automating your financial plan will be the single most profitable system that you’ll ever build. So if you’re not already doing this, I want you to imagine a future state. Imagine a future state where your financial goals and priorities are clearly defined. You’ve determined how much of your monthly budget is available for these goals, and you have a system in place to automatically fund these goals every month.

So you get paid and your money is being distributed automatically. Paycheck comes in, dollars are being funded to the goals that you’ve already determined and prioritized to be most important. Okay. So what does this look like? Here’s how Jess and I. Are currently implementing this now, previously we adhered to a zero based budget, which I think really did help us.

Laser in and focus on our expenses and account for every single dollar that we earn. That’s the premise of a zero based budget. I think that method works out really well, especially when you’re getting started or feel like you need to get back on track. But over time, we’ve loosened [00:16:00] this up knowing that once we account for all of our monthly commitments, right?

Our monthly commitments being mortgage insurance, property taxes, giving grocery subscriptions, utilities, et cetera. Once we account for those, and those are largely fixed. outside of some variation in utility payments. We have a certain amount of funds after we account for those things that we know can be allocated in two general buckets.

With several options within those two general buckets. So what are those two general buckets? General bucket number one is what we call everything else. So this includes things like gas, miscellaneous trips to the store, family experiences, family entertainment, eating out, et cetera. And we track this, Jess and I track this in a shared Google sheet.

 That just helps us make sure we don’t overspend this category. The second general bucket is what we think of as our sinking funds. It’s the second bucket of funds that we want to predefine, prioritize, set allocation amounts, and then set up auto [00:17:00] contribution of funds.

 The areas that we’re focused on our funding and HSA saving for a summer vacation, our Roth IRAs funding, the next, the next car purchase, and then thinking more about the boys five to nine funds for college savings.

So as we sat down and thought about. What is the greatest priority? Those are the things that rose to the top that we wanted to fund with these bucket two funds that I’m referring to, right? These sinking funds. So in this scenario, and within our discussion of automation, we would look to estimate the available pool of funds per month or per year divided by 12.

We would then prioritize the list. Determine the allocation order in the amounts. And then, as I mentioned, we would automatically fund those and set up an, a recurring contribution. 

Now you can see the system and process that we worked through, right? We identified the total estimated annual amount. You can do the same thing to buy that by 12 for monthly.

We listed out the goals and we matched those up [00:18:00] to prioritize accordingly. Now here’s the disappointing part, or perhaps. Depending on you look at it, maybe exciting as I do in this example, we have fully funded several goals, right? , but we had several things that I mentioned that were left unfunded. Okay. The kids five to nine accounts as well as the next car fund. So we have a couple options here. We can go back to the drawing board and redistribute, right?

Lower some of the other ones and partially fund some, and then have others that we are able to partially fund, or we can stay as is knowing that if additional funds become available, right? Whether that’s in the form of for us, additional income, it could be tax refunds, although hopefully we’re doing a good job planning and that’s not the it could be sizable income for some of you.

It could be picking up extra hours. It could be gifts that you receive, whatever might be the additional income. We know that we have a system and a list that is prioritized, that if that income comes in, we [00:19:00] know exactly Where we’re going to allocate that, and that is the power of automation.

That is the power of having a system. So one step further, what does this practically look like for us in terms of implementation, so we use ally for all of our online banking. Now, this is not a commercial for ally.

Uh, we really like them. We’ve used them for several years. I like the capability they have with saving buckets and other features, but you can build a system like this and many different types of savings accounts. So for us, direct deposit from work income goes into ally, goes into a checking account. And since we know the amount required per month to allocate to the goals we decided upon, there is then a bucket.

Labeled for each of these goals inside of ally. So the transfer of funds goes from checking account where the direct deposit comes in to savings account. And then within the savings account, we have a predefined bucket. So essentially what this looks like is you’ve got a certain amount of dollars, let’s say [00:20:00] 30 or 40 in a savings account.

But once you click into that, you see all of these different sub buckets for things like vacation and again, you can do a multitude of things. Of different buckets. I think you can do up to 30 or so inside of ally. And in the case of for us, the IRA, HSA savings, you know, we could put those in the bucket as well inside the savings account, but we’re going to set those up to be an auto contribution directly into the investment account, right?

We want those dollars working for us as quickly as possible. So again, imagine that flow, you get paid. Right. We’ve identified the buckets. They auto contribute into the buckets because we know we’ve already accounted for inside the budget, and then that’s working for us once we have the system set up now, depending on when you get paid for us, it’s the first of the month, but for you, it might be two times a month.

But regardless, once you know when you get paid and once that consistent, we know that any time after the first, so we get paid around the first of the month as well as the 15th, but we use the first is our metric for when we’re going to auto fund these goals. So anytime [00:21:00] after the first, it could be the third, it could be the fourth.

I think I have most of them set up on the fourth. We can have that auto transfer established to go from checking to savings to the bucket, leaving. Only in checking what is left to pay off the credit card each month. And so that all other dollars, they have a purpose, right? They’re being defined and allocated towards a goal.

That is the system of automation. I think the one probably that can move the needle, the most automate your financial plan, have a system in place.

And finally, number five is set your learning plan. Now, when it comes to personal finance, I believe strongly that there is no arrived with the financial plan. Right? This is constantly evolving. It’s constantly changing and a commitment to ongoing learning and having the humility to understand that there’s much to learn and that mistakes are inevitable is really key to long term success.

One of the greatest advantages of that we have of living in the 21st century is that we have access to learning just about [00:22:00] anything that we want. And often we can do it at a low or no cost, right? Thank you very much to our local public library. So whether it’s reading books, great. Have at it. If it’s podcasts, blogs, videos, there’s many options out there.

Find the learning path that means the most to you and has the significance. And really engages you in the learning process. And I’m going to encourage you. Learn learning is one thing, right? But learning plus action plus accountability is really where things start to happen. So that’s number five of our five financial moves to make set an intentional plan around what you want to learn in this new year.

And then determine what are those resources? What are the blogs? What are the books? What are the podcasts that are going to help you get there? And I hope YFP will be an important part of that journey. Cheers to a great new year. Have a great rest of your day.

[END]

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