YFP 110: How One Couple Overcame Hardship to Pay Off $150,000


Debt Free: How One Couple Overcame Hardship to Pay Off $150,000

Betsy and Casey Hoida join Tim Ulbrich to talk about their debt free journey paying off $150,000 of student loan debt, why and how Betsy left her secure pharmacy job after completing residency and getting board certification and how they managed to work together to get on the same page financially despite some highs and lows along the way.

About Today’s Guests

Betsy and Casey Hoida reside in Green Bay, WI with their two daughters, Mollie and Claire. The couple both obtained their PharmD from Ferris State University in 2006.

Casey is a home infusion and hospice/palliative care pharmacist. He has been working in the field of home infusion for 10 years. Casey specializes in infusions involving antibiotics, anti-fungals, TPN, chemotherapy, PCA, inotropic, immunoglobulin and other biologic drugs. His future plans involve continuing to expand biological services with in the pharmacy as well as introducing MTM services to his patients. Outside of work Casey’s interest in personal finance continues to grow and he plans on pursuing opportunities in fee for service based financial planning.

Betsy has a diverse clinical pharmacy background with experience in a multitude of practice settings. In December of 2017, she left her traditional hospital clinical pharmacist role to take on the position of CEO of the Hoida Household. Currently, she staffs part time in a compounding pharmacy and is obtaining a certification as a Hormone Replacement Therapy (HRT) Specialist with the hopes of using her entrepreneurial spirit to start a consulting business this fall.

Together they paid off $150,000 of debt in 6 years.

Summary

Betsy and Casey Hoida share their journey of paying off $150,000 of student loan debt. They both received their PharmD from Ferris State University in 2006 and have since had diverse careers. After graduating, Betsy worked for a year and then completed residency. In 2017, Betsy realized she was burned out and needed to step away from a traditional pharmacy career. Currently, she staffs part time in a compounding pharmacy and is obtaining a certification as a Hormone Replacement Therapy (HRT) Specialist with the hopes of using her entrepreneurial spirit to start a consulting business this fall. Casey had a retail pharmacist internship and worked for a retail company for a year after graduating. He took Betsy’s long-term care position and fell in love with the infusion portion of pharmacy. He currently works as a home infusion and hospice/palliative care pharmacist and has been working in the field of home infusion for 10 years.

Casey explains that when they graduated, the market for pharmacists was hot. He knew that they carried student loan debt, the majority being his, but he wasn’t worried about finding a job and having a good salary to begin paying it off. Casey took the lead on managing their finances and the couple began moving on paying off their debt. They did two things from the beginning to help them learn how to live off of less; automatically maxing out their 401(k) so they didn’t see the amount on their check and making the shift to living off of one salary.

Betsy explains that the driving force on their mission of becoming debt free stems from not wanting to feel trapped. Casey shares that he was raised to avoid debt, to pay it back quickly if you’re in it and to save. While in the process of paying debt off, he got to the point where he didn’t want to be owned by someone else for the debts he had.

Casey explains that in order to pay off the $150,000 of debt in 6 years, they had to become really intentional with their money and, most importantly, get on the same page. The first year that they were paying it off, they didn’t have a mortgage and used the extra money to chip away at it faster. They continued to remain mindful of their budget and made short term goals (six months or a year). They used overtime earnings and any extra income to go to paying off their student loans. Now that their student loans are paid off, they are so much more relaxed.

Betsy and Casey also discuss why and how Betsy left her secure pharmacy job after completing residency and getting board certification and how they managed to work together to get on the same page financially despite some highs and lows along the way.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to this week’s episode of the Your Financial Pharmacist podcast. I know I say this often, but I mean it sincerely each and every time, and this week is no exception. We have a great episode for you where I’m going to talk with Betsy and Casey Hoida. We’re going to talk about their financial journey. Yes, we’re going to talk about the student loan debt that they paid off. But more than that, we’re going to talk about life, how did they manage this topic together, what does this mean for their future, and we’re going to talk about the impact and how they translate their finances and connecting that with their career. So Betsy and Casey, thank you for your time and welcome to the Your Financial Pharmacist podcast.

Casey Hoida: Thank you. Thank you for having us.

Betsy Hoida: Yeah, we’re super excited. Big fan.

Tim Ulbrich: I am excited. Thank you. We’ve been meaning to record this for some time, and here we are. And before we jump into the interview, I want to read briefly, Betsy, you had sent me an email about a month or so ago, and I think it’s going to help frame our conversation as it gives a little bit of background in your story and then certainly I’m going to ask you to build off of that. So you said, “Hi there. My husband and I love the show. I actually became addicted, and he listens from time to time as well. We’re both pharmacists, but I recently left the profession in search of something else. Not sure what. We’ve had a long but inspirational journey, currently debt-free, minus our mortgage.” So I want to talk about that journey, and before doing so, congratulations on being debt-free except your mortgage. That certainly is no small feat, and I want to talk a little bit about how you did that. So Betsy, let’s start with you. Take us back to your story, your financial journey. You graduate from pharmacy school at Ferris State, and tell us a little bit about your career path, what you did after graduation, and tell us a little bit about your student debt situation and how you viewed this topic of money.

Betsy Hoida: Sure. So I graduated in 2006, and I decided to work initially community pharmacy and then changed my mind last-minute because I had heard about a job in long-term care. So I took that position. I worked for a year, and then I decided to go back and do a residency. At that point, Casey had kind of taken over our debt together. So I really, I didn’t even know what my student loans were, to be honest with you. So I did a residency in our first year of marriage, which was interesting.

Tim Ulbrich: I did that as well. It’s challenging, right?

Betsy Hoida: Yes, it was very challenging. But we weren’t even to the real challenges in life yet like kids and so on. But anyways, to get back to my background, then I decided that we were ready to have kids. I guess we decided, not I decided.

Casey Hoida: It takes two people.

Betsy Hoida: Right. To move back home, which was the UP, but we didn’t want to move back home, so we chose Green Bay, Wisconsin. And I got us both jobs up here. I’m a networker, so at a residency conference, I kind of found about Aurora and got us both jobs up here. And my journey since then has kind of been finding out really what I wanted in the profession and also balancing being a mom, which was really hard for me married to a pharmacist as well.

Tim Ulbrich: And we’re going to come back to that because what really stood out to me when you and I had talked prior to the interview, Betsy, is that as I look at your career path, you know, PGY1 residency, board certification, you were involved in lots of different clinical services, you served as the residency program director, I mean that often for many is really viewed as kind of the premier career path into clinical pharmacy residency training, board certified and so forth. But you ultimately made a decision to pick up and walk away from that, and it’s a little bit of a teaser for our listeners, but we’re going to come back and talk about why. And we’ll talk about the impact of that obviously financially as well. So Casey, before we go into more of that, tell us a little bit about your background after graduating from Ferris State and some of the work that you’re doing now and how you got into that career path.

Casey Hoida: Sure, yeah. I graduated in 2006 also and at that time, we were one of the — not newest classes of PharmDs, but it was fairly new. So we had all this clinical knowledge and were ready to use it. And in pharmacy school, in doing my internship, I was in retail. And so I guess it just kind of made sense that I continued on there once I graduated. So I worked for a company for about a year, and then our career paths, Betsy and I, kind of intertwined here. When she left the long-term care facility to pursue a residency, I actually took her position, and that’s how I got into long-term care. To tell you how I got to where I am now, in long-term care, there was a small IV pharmacy department, and the pharmacist, who was a little bit older than me who was kind of running it didn’t really enjoy, didn’t care much for it. I said, “Oh, wow, this looks interesting.” Potential for me to use more of my clinical knowledge, and so I jumped in and just really kind of fell in love with the infusion portion of pharmacy. And so when we decided to make the move to Wisconsin, as Betsy stated, she was kind enough to find me a position. I didn’t even have to look. And it was for a home infusion position. And I had very limited experience, I interviewed for it, was asked a lot of clinical questions by my director, and he knew that I didn’t have a lot of experience but liked me and thought that I was going to be a good fit and gave me that opportunity to get into a portion of pharmacy that not a lot of people know about, a practice setting that’s not very familiar to many people. And I’ve been there for 10 years now, and I really, really enjoy it.

Tim Ulbrich: So to our listeners, if anybody needs a job or is currently looking for a job, we’ve learned that Betsy is the networker.

Betsy Hoida: You got it!

Tim Ulbrich: So she can help open up those doors. And I love that career path story, though. You know, in terms of the two of you working together. But Casey also kind of finding yourself in somewhat of a “nontraditional” career path, despite not doing residency and other things. But I think that speaks to the value and the power of networking and connections and certainly leaning on your wife where appropriate. So that’s exciting. So I want to hear about the two of you, you graduated from pharmacy school, you’ve got student loan debt, we still are in the time period where the job market’s pretty good, 2006-2007. Obviously, you’re facing somewhat of a significant indebtedness load. And one of the common things that I see among pharmacists, myself included, is there’s this tendency of, hey, I’m going to make great money or I do make great money, I’m not really worried about it. So let’s focus on buying a home and doing these other things. And then all of a sudden, you end up in a position where you feel like, wow, this is a little bit more stressful and we feel more pinched than we thought we would. So did you both have the stress as it related to student loans? Were you worried about it? Were you not worried about it? What was your perspective coming out financially. And let’s start, Betsy, if you want to talk about that.

Betsy Hoida: No. I did not. Because like I said, Casey naturally is great at finances. And I just let him have control over it. I didn’t even pay attention. That sounds horrible. It really does. But you know, that was his gift. And we bought our first house, we didn’t know what we were doing, and yeah. Do you have anything to add to that?

Casey Hoida: Yeah, you know, the first thing that I want to point out just kind of for the listeners is we were really in a different position back then when we graduated in 2006, like you said. It was — the pharmacy market was hot, there was money flowing everywhere, sign-on bonuses and stuff. And so yes, we had this student loan debt, but I wasn’t worried about finding a job and getting a top-end salary. So today, from what I know, that’s a lot different. Kids that are coming out —

Betsy Hoida: Kids.

Casey Hoida: Yeah, I say kids.

Tim Ulbrich: Those kids.

Casey Hoida: Yeah, professionals are coming out from pharmacy school, and the job market is a lot different. And salaries potentially are a lot different than what they used to be. So with that being said, yeah, I was concerned about our debt. I knew that a majority of it was mine, so there was a personal aspect of it that I brought a majority of the debt to our marriage. And I felt more responsible for it, and so it was a worry and it was something that I wanted to address right away. I didn’t want to, you know, utilize it for tax purposes for 20 or 30 years like some people think. So I was definitely on it from the beginning.

Betsy Hoida: We talked about that for awhile. But I wanted to go back, Casey, you talked about us always living on one income.

Tim Ulbrich: Yeah, go ahead. I’d love to hear about that because I think that’s something we’re seeing with graduates today where, you know, expenses go up to the income right away. Or you have two pharmacists or not even two pharmacists, but people that are able to live off of less than they make, whether that’s one income or just a lesser percentage, obviously put themselves in a position to be able to achieve all their goals that they want to achieve but also that you never know what life’s going to throw at you for a variety of reasons. So it gives you margin and flexibility. So I’d love to hear how you made that decision and why you made that decision because that’s a very intentional choice.

Casey Hoida: Yeah. I think there were two things that we did, and I had thought about this in the past and I couldn’t come up with anyone who might have mentioned this to us, so I’m going to take credit for it or Betsy and I can both take credit for it.

Betsy Hoida: No, totally you.

Casey Hoida: The first thing that we decided to do when we graduated and took our first job is we were going to — and we did — automatically max out of 401k’s. And the reason behind that is we wanted to start saving for retirement right away. And we didn’t want to know what our paycheck looked like when we weren’t contributing to retirement. And so you know, there’s pros and cons to that, but that was one thing that we did. And then the other thing that we did and being mindful about it is we knew that at some point in time, we were going to have kids and who knows what the future holds besides kids? And we wanted to be able to live off of just one salary. So when we were looking at purchasing vehicles and buying a home and a majority of our financial decisions were based on can we do this on one salary? And that’s something we’ve lived by since the beginning.

Tim Ulbrich: Such wisdom there. I hope our listeners caught on and especially the students and those transitioning post-graduation, I mean, the two themes that I really heard there were obviously living off of less than you make, which just has so many benefits in so many different areas — and we’re going to come back and talk to those, about those, here in a little bit as we talk about Betsy’s career transition — but also automation. Automation, automation, automation. And you talked about it in the context of retirement. We’ve talked about it before, Episode 057, we talked about automating your financial plan. But if you can put those automation principles in place as early as possible, you’re less likely to feel like you’re missing it. And obviously, that has a significant compound effect over time in whatever goal that you’re trying to achieve. So what I want to talk about here for a minute, before we talk about the specifics of how you paid off the debt — because I think that’s important. We often focus stories on this podcast where we talk about big numbers and short periods of time. But often, we may not necessarily talk about how you exactly did it, and that’s certainly the piece that listeners want to know. But first, I want to talk about this topic even matters to the two of you. So here, we’re getting into the concept of identifying and finding your financial why. What’s the purpose? What’s the vision? What’s the direction when it comes to the finances? Why do you want to become debt-free? Why do you want to save for the future? Why do you want to do all of the things that we talk about on this show? And that could be different for every person. But having that financial why is incredibly important to being able to have that motivation to achieve your financial goals. So I know this is a big, loaded question, but Betsy, when I say that concept of kind of finding your financial why and why does this topic of money even matter, what comes to mind for you first?

Betsy Hoida: Freedom. Just finding out I was not happy where I was. And you know, that could be a number of things. We have children. I was trying to do everything, but I think the biggest thing is I was not using my gifts to — I’m going to give a shoutout to Alex Barker with his book “Indispensable.” I’ve been following him, and my career path or personality is very similar to him, and I think I felt trapped. I know that there’s something for me, and I really want that freedom to be able to explore that. So that’s my why.

Tim Ulbrich: Love that. Freedom and trapped are two words that really start out to me there. Casey, how about you?

Casey Hoida: Well, for me, it goes back to kind of how I was raised. I was raised that you try to avoid or you don’t owe people money. And if you do, you pay them back. And you save. And that was initially my motivation is that’s how I was raised, and that’s how I viewed money. But as I got older and as I gained more experience, I’d have to kind of reiterate what Betsy has already said is that you get to a point in your life where you just don’t want to be owned by anyone. And carrying debt and having all of these payments to make keeps one working and indebted to the system. And we just got tired of doing that. And so we want to have a future that allows us to follow our passions and to just kind of go where we feel like we’re being led.

Tim Ulbrich: That’s awesome, and that obviously directly plays into why you decided to get the student loan debt off your back. So Casey, talk to me for a little bit about, you know, $150,000 roughly of student loan debt, we’re talking about approximately six years, give or take a little bit of time, that certainly is not a plan where you’re just wandering in 10, 15, 20 years. There’s some intentionality in getting those paid off in a relatively short period of time. So how did you guys practically do it? Month-to-month, year-to-year, how were you able to pay off that amount of debt in a relatively short period of time?

Casey Hoida: Well, we first of all just sat down at one point in time — although we weren’t as serious as we are now — but we sat down, we got the number, we looked at it, we were both on the same page that we didn’t like it and we didn’t want it. And so obviously then the next step is how to go about it. And you know, the first couple years in our marriage, we didn’t have kids. So, and I think —

Betsy Hoida: Yeah, we did.

Casey Hoida: I think the first year — well, not right away, did we? Anyways, the first year, we didn’t have a home and so we had some extra income because we were living off of one to really start pounding away at that debt. And so initially, it kind of went fast. Like we were seeing gains month-to-month, year-to-year. And we’re like, oh wow, this is great. And then you add on a true mortgage, not a rental, and you add on some kids and expenses, vehicles and different things, and it starts to slow down. And so I guess what we really did is we just, we remained mindful that it was there, and we made short-term goals, whether that was six months or a year. And we said, OK, well, here’s the number where it’s at right now, and here’s where we want to be in six months or in a year. And so any overtime that was worked or any extra money that we would get from tax returns or anything like that, it all went to the mortgage — or excuse me, to the student loans — which isn’t fun, but it does decrease that number a lot quicker than just making the minimal payment.

Betsy Hoida: I’d like to jump in here, Tim, and say those were Casey’s thoughts. Honestly, honestly, I mean, I think I talked to you about where we hit a fall.

Tim Ulbrich: Yeah.

Betsy Hoida: I was — again, I told you, I wasn’t happy. I couldn’t pinpoint why. So I thought you know what, let’s move into a much bigger house. And let’s just live the ways of the world, this is going to make me happy. Which I was wrong. Spoiler alert. And what had ended up happening was I had after surgery, lost my job. And that was my wakeup call. And at this point — I’m just going to be open and honest here —

Tim Ulbrich: Appreciate it.

Betsy Hoida: That our marriage had hit a low point. And we’d signed up at church for this thing called Marriage Bootcamp. Little did we know that it was actually Financial Peace University. So I put it aside, we’re not doing this, until that low point. And I pulled it out, and I was like, wow, we need to start paying attention to this. Duh. I mean, Casey already was. But I really like how as a team, he is definitely the nerd, and I’m the free spirit. And I’m the one who was finally like, you know what? We have x amount of dollars to pay on this student loan. I know you love the security, but let’s just write the check. Let’s do it. And because I think we had identified that security is so important for both of us, so we did. And on top of that, we really hit the budget in that I wanted to see the numbers. That’s where I started listening to you, I started listening to Dave Ramsey, I just — I didn’t become obsessed, but kind of. I had to because I didn’t know anything about it. And our spending was very intentional.

Tim Ulbrich: So you were a free spirit with a little bit of a conversion to a nerd, you know, right? Along the way. So yeah, and I want to talk about that because I appreciate you sharing honestly some of the back story. And for those listeners that haven’t heard of the nerd-free spirit, that comes from Dave Ramsey’s Financial Peace University. It talks about money personalities, and we tend to fall at different degrees in one of those two buckets, so a nerd or a free spirit. The terms are pretty self-explanatory when it comes to how we manage our finances. But to me, what I love about in hearing your journey is that neither one of those for anybody is right or wrong. It’s a matter of identifying which of those do you tend more towards and how can you effectively work together, especially if you tend not to approach it in the same way. I would even argue for Jess and I, it’s a blessing that we don’t approach this topic in the same way.

Betsy Hoida: Amen.

Tim Ulbrich: Because I think if we were both nerds or we were both free spirits, we may be down a very different path. And I am very appreciative of what she brings to the financial table for us and really helps me look at it in a much different and healthier way, then collectively, we’re able to help each other. So to that point, though, I think often with the nerd-free spirit mindset, there can be tension in that. And so talk to me a little bit more, Casey, about how you were able to navigate that. You know, it sounds like certainly there was some pain there, which necessitated the two of you getting on the same page. But often, I hear from people that say, ‘Hey, I’d really love to dig into this topic, but I feel like I may not be able to get my spouse or my significant other on board. So what worked and didn’t work for you in terms of the two of you getting on the same page financially? Casey, let’s start.

Casey Hoida: Well, I can tell you what didn’t work. And it was trying to impose my financial will on my wife, to simply say, “This is what we’re doing. And this is how we’re going to do it.”

Betsy Hoida: That’s never worked.

Casey Hoida: No.

Betsy Hoida: On anything.

Casey Hoida: And it hasn’t really worked for much of anything, correct.

Tim Ulbrich: She’s a true free spirit, yes.

Casey Hoida: Yes, yes. I mean, you know, I won’t speak for Betsy on this, but one, for her, it helped when she truly became interested in our finances and took ownership on her end. And that’s what I’ll say about that, but then that allowed us to really sit down and one, just have a conversation, what is important to us financially? And what I mean by that is savings, retirement, college funds.

Betsy Hoida: Giving.
Casey Hoida: Giving, yeah, yes, definitely. Giving and mortgage and everything else. And so first, we had to identify what was important to each of us because that, I feel, is important knowledge to have before you can actually put together a —

Betsy Hoida: Cohesive plan.

Casey Hoida: Cohesive plan. And see how wonderful she is at finishing my sentences? Awesome. And so that’s basically it. First, it’s just communication with each other. And then it honestly just started to fall into place. I mean, we would have monthly financial meetings, budget meetings.

Betsy Hoida: They could be heated.
Casey Hoida: They were heated at first, and then they — as we continued on in them because you need to gain experience, they were less heated and they were more productive, and we really started to gain traction at that point in time.

Tim Ulbrich: So Betsy, let me ask — to follow-up on that — ask it this way. I often will talk with people and they may say, ‘Hey, I’m really having a hard time getting my spouse or significant other on board,’ as I mentioned. So from your perspective where maybe Casey was all ready to go and obviously, again, there was pain there that helped to necessitate this, but what advice would you give to those nerds out there of how to effectively engage a significant other that may be more of the free spirit mindset? What works? And what doesn’t work?

Betsy Hoida: So I would approach it as just as, you know, marriage. You keep your side of the street clean, and you know, money is attached to emotion. So really hearing what the other person has to say. And that means sitting down, not duking it out, but you know what I mean. Like we’re going to sit here, and we’re going to get this figured out. And a lot of times, it’s shutting my mouth and listening.

Tim Ulbrich: And building off of that too, going back to what I heard you guys saying your why is that I often will encourage couples — and I’m speaking here out of things I wish I would have done differently and what it took for Jess and I to get on the same page, but if you can start with the why and start with the dream and start with the goals, these month-by-month conversations — I’ll never say easy — but become a little bit easier because you agree on the vision and where you’re going. But if it’s not a shared vision, then I think that month-to-month can be somewhat combative, people shut down, and then you’re certainly resetting the clock. So again, keeping that why and keeping that vision in mind. So the reason I wanted to talk first about the paying off of the student loans and how you guys worked together is because I think that directly relates to, Betsy, to the decision you made that you were kind of unhappy with work, family priorities, prioritizing your marriage, and making the decision to walk away from that and being in the position to do so is really what I want to talk about here. So talk us through for a minute, you know, where were you in terms of just work, you know, externally, people may look at that and say, ‘Hey, you’ve got residency training. You’re board certified. You’ve got a ‘good job.’’ So what was not going well? What wasn’t working? And what was going on that led to you to the decision to say, ‘You know what, I need to walk away and take a break from this.’

Betsy Hoida: First, people thought I was crazy, like you said. But it turned into my health was not — it was slowly going down the drain, I was not taking care of myself, we have a child with special needs, I couldn’t sleep at night, my hair was falling out, I had lost a significant amount of weight. It got to the point of I can’t do this anymore. I can’t do this anymore. I need a break. And that was really hard. And it’s still really hard, I’m not going to lie, being at home and finding out my why. But you know, I’m still working on the board certification stuff. But it’s slowly coming together, and I have a belief that if I keep this path, it’s going to lead me to something. I know it is. I listen to your show, and I’m so inspired. Listening to other pharmapreneurs talking about their journeys is so powerful. And that just kind of keeps me motivated.

Tim Ulbrich: When we had talked a couple weeks ago, Betsy, I took some notes. And you had mentioned that you felt like you were in a crazy cycle. You felt like you had “lost me.” And you felt like you were burned out. And you know, there certainly were physical things that you mentioned there, but I think that many people listening may feel some of that, and they start to see the impact of relationship with family or kids, and what I want to highlight here is the importance of the financial piece to allow yourself to make an alternative decision if you find yourself in that place. And that’s why I love the work that Alex Barker’s doing, his book “Indispensable,” and to me, there’s so much synergy here between finding a fulfilling career and making sure you have yourself in a financial position that allows you to make some of those bold decisions. And sometimes, that is a different full-time job, sometimes that’s working part-time to be with family, sometimes that’s pursuing an entrepreneurial dream. Sometimes, that’s traveling the world for a year and taking the year off like Nick Ornella did that we featured on the podcast.

Betsy Hoida: Yeah.

Tim Ulbrich: I mean, it can look many different ways depending on your why, but the point is you put yourself in a position to do that. And so talk me through, I would assume there was a significant amount of fear there when you made that decision. I’d love to hear from both of you here. But did you put some markers in place to say, hey, before we do this, we want to be out of debt, we want to have a fully funded emergency fund, we want to be here, here, and here? Or were things just at such a point that you said, you know, overall, we’re OK and we’re just going to move on and we’re going to figure it out. So talk me through how you figured out where that place was financially where you could make that jump.

Casey Hoida: Sure. The funny thing is that we were at a financial point where we could do it immediately. We had our emergency fund, the student loans were paid off at that time, we had moved on to paying off our mortgage and were making good strides there. We had no other debt, and yet it terrified — I’ll speak for me, I won’t say us. Betsy will probably agree, but it terrified me for her to stop working.

Betsy Hoida: Oh my gosh, yes.

Casey Hoida: Because we — it was multiple things. One, it was oh, we’re going to lose all of this income and we’re making such great strides on the mortgage and we’re putting additional away in savings, and I don’t want to lose that. But after stepping back and looking back at what our life had become, just a rat race of who’s going to pick up the kids this time, who’s going to — I have to be here to exchange them or I’m going to go to this meeting or whatever the case is. It’s just we were trading off our kids and our lives so each of us could work full-time. And it just got to the point, like Betsy said, where her health was being affected. Mentally, I was exhausted. And I guess —

Betsy Hoida: Or our children. What are we showing our children? You know?

Casey Hoida: Yeah. It just got to the point that we couldn’t take it anymore. And I wish there was something more magical than that. It just got to the point where it had to break. And so we had to say, OK, Betsy — it was best for Betsy to stop working as I carried the insurance and some other things. And so it was best for Betsy to say, I need to step away and take care of myself and take care of my family. And so that’s what we decided to do.

Betsy Hoida: Yeah, best decision. It was terrifying. We had summer coming up. And it’s quality of life as well, you know? Life is short.

Tim Ulbrich: So Betsy, how would you describe, you know, if we used words before like “crazy,” “psycho,” “lost yourself,” and you were burned out, physically, emotionally, etc., like how would you describe it now? I mean, give me some of the words that you would use after you made that decision, what that’s meant for you as a parent, you as a wife, and your family and what would you use to describe that?

Betsy Hoida: I would say I am so much more relaxed. I really, I am. And realize you just day-by-day, day-by-day. I don’t know the future. And we recently had a flood. That would have sent us both into a tailspin, and I’m not going to lie, it was not the greatest waking up in the morning and being ankle deep in water. But we’re able to handle that. And I think, you know, just being I’m at home during the day, so I can handle that kind of stuff and just the nitty gritty details of recovering from the flood.

Tim Ulbrich: And let’s not forget to add that Casey had flood insurance policies in place lined up.

Betsy Hoida: Oh, yeah. So smart. People in this area were shocked because we got hit really hard.

Tim Ulbrich: That’s awesome, and I asked you too because I think I said, “Hey, are you guys in a flood zone?” And you had said no but had that policy in place. So great work, Casey. We talk about building a financial foundation and having a plan to protect your income in emergencies and all those things, and certainly just as important as debt repayment and investing and some of the other things that we talk about on the show. So Betsy, the last question I want to ask you about in terms of this transition away from work is talk to me about the fear of missing out, the FOMO, because I feel like that’s real in pharmacy. It’s real in any profession, but I think for whatever reason, moreso in pharmacy. So again, here you are, board-certified, you’re still working on those very tedious, long board certification exams, right? Residency trained, you’ve had a great career as running out since 2006, but you know, I’m sure you’re having these questions of what does this mean long-term? Am I going to re-enter? Am I going to forget things? Am I going to stay relevant? Am I going to be employable if I want to go back? So is that something you’re still struggling with, the fear of missing out? Or is that something that you’re able to get over quickly as you realize the benefits of the decision that you made?

Betsy Hoida: Honestly, it terrified me until recently where I realized that I’m not going to go back. I really, really believe that there’s something else — I am currently working three hours at a compounding pharmacy, and I’m really interested in bioidentical hormone replacement therapy and care of women around mid-life in that area and also just integrative health, that there’s other areas than just the current board-certification, the stuff I’m learning there, that there’s just more out there. There’s way more out there, that’s what I’m so excited about. And I don’t have to. And I don’t have to know today.

Tim Ulbrich: Yeah, and again, just a shoutout to Alex Barker, the Happy PharmD. For those of you that are looking for something else, he’s doing great work over there, and I think he’s really helping people that are working through situations like what you have talked about. So I want to talk about kids for a minute because, you know, as I hear your story and obviously as a father of three young kids, soon to be four, one of the things that gets me so fired up about this topic is that you guys have put yourself in an awesome position in terms of what you’re teaching your kids, what you’re role modeling, but also what the legacy will be of your family going forward. You’ve become debt-free, you’re working hard to teach them financial principles, you’ve prioritized the time with the family. So the question I have here, which is sort of a loaded question, is you know, knowing you have 6 and 9, is that correct, how old your children are?

Betsy Hoida: Yep.

Tim Ulbrich: OK. Knowing you have kids that are 6 and 9, you know, when they’re grown adults, you know, how do you want them to talk about you guys? What is the legacy that you want to leave in terms of financially and how you’re raising your family and how you’re maybe changing that generation for them going forward?

Casey Hoida: I always thought initially what I wanted for my kids from a financial standpoint is just to have a big pile of money for them when they get older so life won’t be so hard for them. And that was years ago, even semi-recently, that was my thought. And then I started just doing some more searching and thinking. And you know, that’s not the answer. That is not the answer at all is just having money sitting somewhere. That doesn’t teach anyone anything. And so I guess what I’m looking at now is to teach my kids the danger of money and what the love of it can do to you, to your life, to your relationships, and how to hopefully avoid that in their lifetime. That’s the biggest thing, really, is I want them to not be ruled by money because it can put you into a life that is not at all what is going to make you happy.

Tim Ulbrich: Absolutely. And Betsy, talk me through a little bit about what you guys are doing to role model this. I know you’re beginning to do some more of this, but in terms of teaching your kids about money. I know that’s something that my wife and I talk a lot about, we struggle with at times, you know, how can we teach them about this topic that is so big and so important but also make it relevant at where, the ages of where our kids are? So how are you guys approaching the concept of money and teaching that to your children?

Betsy Hoida: Absolutely. I just was emotional for a second about that when he was talking about for me, when you’re giving up — you know, there’s quality time. The time that I’ve been able to spend with them is irreplaceable. And being around for them, they love it. I mean, you know, I’m able to pick them up from school and just invest more in them. But to get back to your question, we are just at that point where we’re starting to teach them. And our oldest is really grasping the fact that — well, she wants all the things. But no, Molly, we’re going to teach you about having a savings account, a spending account, and a giving account. And same with Claire. And I think Dave Ramsey has a program that we can look at, but I kind of, I stole my neighbor’s plan. She does a great job. She is an accountant.

Casey Hoida: I just want to add, I mean, some of the practical things that we’re doing is the girls see us having our financial meeting each month. And they know that it’s occurring, so they’re seeing that. Betsy and I are very mindful when we’re at the store with them that we don’t make just knee-jerk purchases or anything like that. If it’s something that is above a certain dollar amount, I don’t know, I’ll just say $100 — not that that’s our number — but that we have a discussion about it and we’re like, no, we need to save for this and put money away until we have it. We don’t just grab a credit card and buy it that day. Instant gratification, we talk a lot about that in regards to finances. And so along with —

Betsy Hoida: The cars we drive.

Casey Hoida: Yeah, just showing them. We don’t go out to eat all the time, and when we do, we build it up as something special and a treat and not just something you do all the time. Our vehicles are quite old and, you know, just things like that. We’re just very, very mindful about how we talk about money in front of the girls and then what we do with our money in front of them.

Tim Ulbrich: And every single one of those things matters and it has cumulative, compound effects over time. And you know, I can’t remember if I’ve shared this story on the podcast or not, but I can vividly remember — and a shoutout to my parents for this — vividly remember sitting at my kitchen table, probably as early as 7 or 8 years old and getting a weekly allowance and having some of it allocated to savings, some of it allocated to spending, some of that allocated to giving. It might have been dividing up $2 or $3, but it doesn’t matter. You know, eventually that’s going to be $5,000 or $10,000. And those principles get ingrained over time. So whatever you define as those priorities for those of you that currently have kids or will have kids, in addition to not only teaching them those concepts of saving, spending, giving, but also just talking about this. So them seeing that you’re having these meetings, them seeing that you’re working through these issues month-by-month, hearing the discussion, and figuring out that, OK, there’s a process of saving up for something before you spend it and talk it through and not necessarily swipe it on the card, and you know, not have a discussion. So kudos to you guys, I think that’s awesome. And they are, I’m sure, absorbing way more than maybe even you necessarily intend to teach them in the moment. The last piece I want to end up on here is giving. And I know when you and I had talked prior to this recording, you know, as we were talking about kind of a financial why and why does this matter, I had sensed some more philanthropic giving aspirations. And I think you all are in a great position to make this a priority of your financial plan going forward, and it is a hope I have for the YFP community that once you have your own financial foundation and personal finances in place, you’re in a great position to help in many capacities, whether that be with church, local communities, family, anybody that may be in need. And so talk to me about giving for you guys, philosophically how you feel about it and where it fits into your financial plan. So Casey, you want to start?

Casey Hoida: Yeah. Yeah. So just a quick little backstory, so about two years ago as Betsy had indicated, when we were really struggling, we kind of renewed our faith life and became true followers of Christ. And that was a stepping stone for us in regards to giving that — how important I guess it is in one’s life to give back. We’ve received so much and have so many blessings that it’s only right, then obviously, to give a portion of that back. At first, I’ll be honest, when we would go to church, we would give a certain amount because that’s what you’re supposed to do. You’re supposed to just give some money to the church. And when I thought about it more and I thought about where that money was going and who it was helping, it changed for me. And I became more of a cheerful giver, if you will, than just checking a box like, yep, I gave some money to the church. And so I just, I don’t know, I feel that as we continue to grow in our faith life, we realized how important giving is. And I know when you and I talked a few weeks ago, something that you had mentioned and I’ve heard before about having your monthly amount that you give but then having kind of a discretionary amount set to the side for anything that is just put on your heart and you’re like, wow, now I have this money to help this individual or to help this cause or whatever. And that’s something that I had heard before. But when you had mentioned it, it kind of brought it back to the forefront for me. And I think that’s something that Betsy and I want to be more intentional about is having that discretionary money set aside for just anything that would come up. And then we’re really able to give and to help, and I think that’s important.
Betsy Hoida: Show the girls, show the girls. We had a Christmas party this year. You know, Christmas was a big point where it was a really good teaching opportunity in that they got to see we picked some families to sponsor, and they got to see the families themselves receive the presents. And we got to put together boxes to send overseas, and we got to pick out toys for children. And it was awesome. It was really great. I thought it was going to be a difficult time in Target, but they had so much fun. They really did. And —

Casey Hoida: I think they really understood what we were doing and why they were doing it, especially at what Betsy was saying, the Christmas party, where the children receiving the gifts didn’t know they were from us. It was set up a little bit differently. But the girls, our girls, were able to see those kids receive those gifts and the looks on their faces and just experience the joy of sharing, of giving, I think was prominent and right out in the forefront. And that’s what we were so happy that they were able to experience and see.

Tim Ulbrich: Yeah, and there is — as you both know, I’m sure many of our community feel the same way — I mean, there is true power in giving, obviously not only for those that are receiving but also for the giver. I think it really just shifts your mindset and how you look at the rest of the financial plan, how you spend your money, prioritization of things. And so we actually talked about that in Episode 022 of the podcast, the Power of Giving, for those that want to talk a little bit more about that and again, hopefully that’s a vision that we can continue to inspire among this community. So Betsy and Casey, you have truly inspired me. I’ve enjoyed our time together here, also in our pre-recording. When we had talked prior to the recording, I ran home and shared some of your story with my wife. I was fired up about doing this. And I am 100% confident you’re going to inspire our listeners as well. So thank you so much for coming on the show, thank you for taking the time, and thank you for your willingness to share your story. I really appreciate it.

Betsy Hoida: It was wonderful. It’s our pleasure. It was great.

Casey Hoida: Yeah, we really enjoy just sharing our story. And thank you so much for having us on. I really appreciate it.

Tim Ulbrich: Thank you both. And to the YFP community, again, we appreciate you joining us for this week’s episode of the Your Financial Pharmacist podcast. If you have not done so and you’ve liked what you heard on this show or on any other show that we record each and every week, please head on over to iTunes or whatever podcast player you get your information from each and every week. We’d love to hear your feedback. And if you could leave a review in that podcast player, that would help others recognize the show as well. Until next week, thank you again for joining. And have a great rest of your day.

 

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Career Break for Pharmacists: A Practical Guide on Taking a Mini Retirement

Career Break for Pharmacists: A Practical Guide on How to Take a Mini Retirement

The following is a guest post from Nick Ornella, a full-time pharmacy manager at a large retail pharmacy chain. Nick graduated from Ohio Northern University in 2009 and took a career break in 2016 to travel the world for a year. He currently lives in Cincinnati, Ohio with his wife, Alanna. In 2019, Nick created The Young Professionals Guide to A Year Off, a blog to help others plan a year of traveling. You can contact Nick anytime at [email protected].

Have you ever considered taking a year off from your job? Radical I know. But imagine you could spend the next 365 days however you wanted.

I know what you’re probably thinking. “How could I possibly make that happen with six figures of student loan debt, other bills, and financial priorities?”

Despite how unlikely this may sound, I want you to know it’s possible.

I know it’s possible because I’ve done it.

I took a career break from my job as a retail pharmacist at the age of 31 to travel the world for a year, and it was one of the best decisions of my life. I was satisfied with my pharmacy career at the time, but I wanted more out of life. I wanted my own unique story to tell, and I simply wanted the free time while still young and healthy to do more of what I absolutely love doing, traveling and exploring.

After paying off all my debts, saving a big chunk of money, and getting a leave of absence approved, I traveled through 15 states in America, 15 countries in Europe, and 3 countries in Africa. It was an unforgettable year. I returned to my pharmacist job immediately after, completely refreshed and eager for new challenges.

Taking a career break is a decision that I believe many pharmacists can make and would benefit greatly from.

In this post, I discuss why I think pharmacists should take career breaks and provide a step-by-step practical guide for making it a reality. I also talk about some of the things I have learned from my own journey.

Why take a career break as a pharmacist?

To pursue happiness, the ultimate currency

In his book Happier: Learn the Secrets to Daily Joy and Lasting Fulfillment, Harvard psychology professor Tal Ben-Shahar describes happiness as the “ultimate currency” and states that “Happiness is the highest on the hierarchy of goals, the end towards which all other ends lead.” I believe that the best way to increase happiness is by increasing the proportion of time that you spend doing the activities that mean the most to you, not by pursuing more material wealth and possessions. A career break is how you achieve that time.

To pursue passions outside of a pharmacy career

Unfortunately, many of our own personal goals that would bring us the most happiness are non-money making pursuits and are outside of our pharmacy careers. We cannot earn a living doing them, so we need to create the time for these activities and greater life goals. This is accomplished through a career break. Spending more time with family, doing volunteer work, and traveling are just a few examples of what those greater passions might be.

A career break is also a perfect opportunity to invest a substantial amount of time in a side hustle or other business idea. These pursuits are often very difficult to get off the ground while working full-time, so a career break creates that required time. Who knows? These side hustles could end up being your path to a more fulfilling full-time career.

Studies show that the presence of meaningful relationships is a great indicator of overall happiness. As a pharmacist, it’s sometimes difficult to develop and maintain those meaningful relationships because of unusual pharmacy hours and because pharmacists are often too tired after work to engage with friends and family. A career break creates all that extra time and energy to improve relationships and build new ones.

To help prevent job burnout

With high daily demands and increasing competition among big pharmacies, burnout as a pharmacist is a very real possibility. In a 2014 National Pharmacist Workforce Study, 45% of pharmacists interviewed reported that their job had negatively impacted their mental and emotional health. That’s a lot of unhappy pharmacists.

A 2010 study published in The Journal of Applied Psychology found that overall well-being of college professors rose during and after a sabbatical. I believe that pharmacists would experience similar benefits, live happier lives, and avoid job burnout with a career break.

To help with the saturated pharmacist job market

According to Alex Barker of The Happy PharmD, the supply of pharmacists in the job market is outpacing the demand. And if you’re a retail pharmacist, it’s likely you or a colleague has been affected by recent cuts in hours. This means there are many pharmacists out there looking for jobs and more hours. Pharmacists taking career breaks will help alleviate this over-supply and create job opportunities for other pharmacists.

To infuse the profession with more creativity

The pharmacy world needs more creative thinkers. Many problems within the healthcare industry, like compliance, health literacy, and high costs of medications, require creative solutions. Career breaks will help give pharmacists the free time away from the stresses of work to think deeply about the problems affecting the healthcare industry and come up with those creative solutions.

From an employer’s perspective, to improve company loyalty

Want to improve company loyalty and retain the best pharmacist talent? Offer your pharmacists the opportunity to take a year-long career break. Guarantee them a job with the same number of hours worked per week upon their return. Make them sign a contract saying they will work for you for a certain number of years before or after the break. Maybe even partially subsidize their health insurance for the year. This will help keep your best pharmacists from leaving the company due to burnout and help avoid the high costs of finding a permanent replacement for them.

How to take a career break as a pharmacist

Now that I’ve hopefully convinced you that a career break for a pharmacist is a really good thing, let’s look at the step-by-step process for making it a reality.

Step #1: Get out of debt and stay out of debt

The most important step towards a pharmacist career break is getting out of debt. That means you should pay off all student loan debt, car loans, and credit card debt before leaving your job. That way you’re more financially secure.

Step #2: Save money

There are several big chunks of money you need to save before a career break. Let’s take a close look at each.

Emergency Fund – $15,000

The rules that apply to emergency funds while you are working can be carried over to building an emergency fund for a career break. You need approximately 6 months worth of living expenses set aside to cover any emergencies while gone and for when you return to work. This money will cover any unexpected costs like sickness or car trouble.

Retirement Savings – A Good Start

I think it’s important to get a good start on your retirement savings before taking a career break to help ensure you reach all your future financial goals. But what’s the definition of a “good start”? Some experts suggest having a percentage of your annual salary saved by each age milestone. For example, by the age of 30, you should have 50% of your annual salary saved in retirement funds. But I don’t think that’s realistic for someone wanting to take a career break.

Here’s how I would suggest getting a good start on retirement savings:

1. Figure out how much you’ll want to have saved when you retire.

2. Use YFP’s savings calculator to figure out how much you need to save per month to reach this goal.

3. Set this money aside in your retirement accounts each month while paying off debt and saving for your career break. Make sure to at least get your company’s 401(k) match.

4. By the time you have enough money saved for your career break, you will have a good start on your retirement savings.

5. Plan on working an extra year or two at the back end of your career to make up for the money you don’t save for retirement during your career break.

Career Break Fund – $40,000 for a year long career break

The amount of money you can spend on a career break can vary wildly as it It depends on where you want to live and what you want to do. I think $40,000 is an excellent amount of money to save. This will give you enough money to cover your living expenses with plenty left over for the pursuit of your dreams.

Keep in mind, it’s possible to cut your living expenses way down and make only $20,000 last a whole year. Or you can plan a 6 month career break and spend $20,000. The longer the break, the better, so shoot for one year. And the more money you have saved, the less you have to worry about.

Here’s a quick breakdown of a $40,000 career break budget:

1. $12,000 for housing

2. $5,000 for food

3. $6,000 for health insurance (or only $1,200 for travel insurance)

4. $1,000 for cell phone service

5. $1,500 for car insurance

That makes a grand total of $25,500 for all of these essentials and leaves $14,500 to spend as you please and to pursue your greater life goals.

If you are concerned about missing out on investing for a whole year you could also budget in an additional amount to take advantage of dollar cost averaging but you would have to contribute toward non-retirement accounts.

Step #3: Create the time away from work

There are two ways to create the time away from work: quit your job or get a leave of absence approved. I believe it’s far better to get a leave of absence approved over quitting. That way you have some sort of a guarantee of work to return to at the end of your break.

To get a leave of absence approved, you need to do some research. Check your company’s HR website for the appropriate forms and policies regarding leaves, then get the required signatures. I was a staff pharmacist when I took my leave, and I needed approval from my pharmacy manager, my district supervisor, and someone in the leaves department. Start this process at least 3 months in advance to give your employer plenty of time to find your replacement.

Some quick tips for getting your leave of absence approved:

1. Be the best employee your company has: become a pharmacy manager, work at the store no one else wants to work at, reach all your metric goals. The more valuable you are to them, the more likely they are to approve your leave.

2. Work for a large retail pharmacy chain. They are more likely to have the pharmacists available to cover you while gone and a formal leave of absence policy.

3. Make your leave a win-win situation for both you and your employer: get licensed in a nearby state, get MTM certified, volunteer at a health clinic in Africa, do anything that will make you more valuable to your company.

4. Read this article for a more in-depth look at a leave of absence.

Step #4: Eliminate monthly expenses

Once you are debt free and have all the money saved, it’s time to start eliminating any monthly expenses, like Netflix and gym memberships. By the first day of your career break, the only bills you should have are a cell phone bill, car insurance bill, health insurance or travel insurance bill, and your pharmacist license dues.

If you own a home and plan on traveling, you should strongly consider selling it before your leave. It’s possible to rent it out while you are gone, but I believe there are too many headaches that could arise. If you want to keep your home, you’ll need to factor in the additional costs of your mortgage and all bills related to your home and save that amount of money beforehand.

Step #5: Final preparations

If you plan on traveling for your career break, you need to do the following:

1. Move out of your apartment and store your belongings at a friend or family member’s house.

2. Get required travel vaccines.

3. Purchase travel insurance.

4. Plan out your general travel itinerary and book flights.

If you plan on staying home during your career break, you need to do the following:

1. Make sure you have the money saved to cover your mortgage or rent and utility bills.

2. Purchase health insurance.

3. Plan out how you want to spend your time.

What to do during your career break

Having personal dreams and goals is extremely important for a successful career break. Here are a few tips for figuring out what to do and how to make it successful:

1. Think back to when you were a kid or still in high school or college. What interests did you have then that you would like to pick up again?

2. What areas of your life do you want to improve?

3. Spending more time with friends and family will greatly improve your relationships with them, so how can you spend more time with them?

4. What are your favorite activities outside your pharmacy career? How can you become better at them?

5. Come up with specific goals related to each activity.

Re-entering the pharmacy workforce after a career break

When I got my leave approved, my superiors said they could not guarantee a certain number of hours upon my return and it would all depend on the company needs at the time. If you are one of your company’s best employees, I think it’s possible for you to come right back to full-time work. But be prepared to only work part-time. You will likely have to work your way back up to a staff pharmacist or pharmacy manager position. The most important thing is creating the opportunity to get back to full-time work, and that’s best accomplished through a leave of absence.

I think it’s important to make yourself more valuable and improve your resume while taking a career break. This will increase your job prospects upon your return to work. Improve your pharmacy skills in some way, get additional certifications, and get licensed in another state. If worse comes to worse, you can get a new job or you can move to a different market with better job prospects.

Don’t worry about forgetting how to do your job after a year of being away. It’s like riding a bike and will come back to you naturally after only a day or two. I do suggest doing a couple CE’s on recent drug updates before returning so you’re not behind on clinical information.

Conclusion

I think a career break is quite possible for pharmacists and would greatly improve the happiness levels within the profession.

It’s not an easy thing to pull off, and it’s quite scary at first, but once you jump into it, you’ll realize how amazing it is to have the free time out of the rat race to pursue your greater life goals. The feelings of complete freedom are amazing. I will leave you with a quote that really inspired me to take a career break and make that leap of faith to a happier, more fulfilled life as a pharmacist.

“Twenty years from now you will be more disappointed by the things you didn’t do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover.”

– Mark Twain

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YFP 109: An Interview with Suze Orman


An Interview with Suze Orman

Suze Orman, a #1 New York Times bestselling author on personal finance with over 25 million books in circulation, joins Tim Ulbrich on today’s episode. They talk about her most recent book Women & Money: Be Strong, Be Smart, Be Secure and the advice Suze has for pharmacy professionals feeling overwhelmed with their student loan debt and managing their financial plan.

About Today’s Guest

Suze has been called “a force in the world of personal finance” and a “one-woman financial advice power house” by USA today. A #1 New York Times bestselling author, magazine and online columnist, writer/producer, and one of the top motivational speakers in the world today, Orman is undeniably America’s most recognized expert on personal finance.

Orman was the contributing editor to “O” The Oprah Magazine for 16 years, the Costco Connection Magazine for over 18 years, and hosted the award winning Suze Orman Show, which aired every Saturday night on CNBC for 13 years. Over her television career Suze has accomplished that which no other television personality ever has before. Not only is she the single most successful fundraiser in the history of Public Television, but she has also garnered an unprecedented eight Gracie awards, more than anyone in the entire history of this prestigious award. The Gracies recognize the nation’s best radio, television, and cable programming for, by, and about women.

In March 2013, Forbes magazine awarded Suze a spot in the top 10 on a list of the most influential celebrities of 2013. In January 2013, The Television Academy Foundation’s Archive of American Television has honored Suze’s broadcast career accomplishments with her recent inclusion in its historic Emmy TV Legends interview collection.

In 2010, Orman was also honored with the Touchstone Award from Women in Cable Telecommunications, was named one of “The World’s 100 Most Powerful Women” by Forbes and was presented with an Honorary Doctor of Commercial Science degree from Bentley University. In that same month, Orman received the Gracie Allen Tribute Award from the American Women in Radio and Television (AWRT); the Gracie Allen Tribute Award is bestowed upon an individual who truly plays a key role in laying the foundation for future generations of women in the media.

In October 2009, Orman was the recipient of a Visionary Award from the Council for Economic Education for being a champion on economic empowerment. In July 2009, Forbes named Orman 18th on their list of The Most Influential Women In Media. In May 2009, Orman was presented with an honorary degree Doctor of Humane Letters from the University of Illinois. In May 2009 and May 2008, Time Magazine named Orman as one of the TIME 100, The World’s Most Influential People. In October 2008, Orman was the recipient of the National Equality Award from the Human Rights Campaign.

In April 2008, Orman was presented with the Amelia Earhart Award for her message of financial empowerment for women. Saturday Night Live has spoofed Suze six times during 2008-2011. In 2007, Business Week named Orman one of the top ten motivational speakers in the world-she was the ONLY woman on that list, thereby making her 2007’s top female motivational speaker in the world.

Orman who grew up on the South Side of Chicago earned a bachelor’s degree in social work at the University of Illinois and at the age of 30 was still a waitress making $400 a month.

Summary

The one and only Suze Orman joins Tim Ulbrich on this week’s podcast episode. Suze, #1 New York Times bestselling author on personal finance with over 25 million books in circulation, talks about her most recent book Women & Money: Be Strong, Be Smart, Be Secure and the advice Suze has for pharmacy professionals feeling overwhelmed with their student loan debt and managing their financial plan.

Suze shares her journey of being a waitress until she was 30 years old and going through a giant loss of $50,000 from an investment through Merryl Lynch in a 3 month time period. This is where her passion for personal finance began. Suze landed a job at Merryl Lynch, quickly began rising in rankings and eventually started her own firm. Suze became an advocate to make sure other people’s investments make more money than she’s earning.

Suze says that it’s important to have a healthy relationship with money and that there is no shame big enough to keep you from who you are meant to be. She shares that fear, shame and anger are the three internal obstacles to wealth.

In regards to student loans, particularly for those with the biggest debt loads, Suze says that first and foremost you have to understand the ramifications that unpaid student loan debt will have on your life. She suggests following the standard repayment plan to minimize the additional interest and amount added on the end of loan (if following an income driven plan), as well as the taxes that will have to be paid if the loan is forgiven. After paying off your student loan debt, Suze says that you can start dreaming. If an employer offers a 401(k) or 403(b) with an employer match, Suze suggests to contribute to the retirement account only up until the amount of the match.

Suze has created a protection portfolio with the four must have estate planning documents: will, living revocable trust, advanced directive and durable power of attorney. Setting these forms up with a lawyer can cost upwards of $2,500 with additional fees each time they need to be amended. With Suze’s must have documents, you can update as often as you’d like with no additional charge. At the release of this podcast, the offer for these must have documents is available here.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to this week’s episode of the Your Financial Pharmacist podcast. And joining me this week is a special guest, Suze Orman, who is an extraordinary individual, has transformed the financial lives of millions of people across the world through her passion for teaching personal finance and empowering others. While many of you I’m sure are very familiar with Suze’s work and have been impacted positively by her teachings, let me provide a brief background on Suze. She has been called “a force in the world of personal finance” and “a one-woman financial advice powerhouse” by USA Today. She is a No. 1 New York Times bestselling author, magazine and online columnist, writer, producer, and one of the top motivational speakers in the world today. Orman was the contributing editor to “O,” the Oprah magazine for 16 years, the “Costco Connection” magazine for over 18 years, and hosted the award-winning “Suze Orman Show,” which aired every Saturday night on CNBC for 13 years. To mention a few of her many accolades, she is the single most successful fundraiser in the history of public television. In 2007, “Business Week” named Orman one of the top 10 motivational speakers in the world. In 2008, Orman was presented with the Amelia Earheart Award for her message of financial empowerment for women. In 2009, “Forbes” named Orman 18th on their list of most influential women in media. And in May 2009 and May 2008, “Time” magazine named Orman as one of the Time 100: The World’s Most Influential People. It is without question an honor to welcome Suze Orman to the Your Financial Pharmacist podcast. Suze, before we jump in to discuss how pharmacists can be more intentional with their financial plan, I want to give a shoutout to one of our avid listeners, Amanda Copolinski (?), who is a superfan of yours that said, “Tim, you need to interview Suze on the podcast. Her message will resonate so well with your listeners in the financial issues that pharmacists are facing.” So while you have impacted millions of people, Amanda is one of those. And because of your work, your message will now impact thousands more in our community. So thank you so much for coming on the show.

Suze Orman: You’re welcome. But Tim, I just have to say one thing about Amanda. Seriously. Amanda asked, and because she had a voice — because it is so important particularly that women have a voice and they ask for what they want — and because she asked for what she wanted, even though it was for the good of all, it obviously was also good for Amanda, she got what she wanted. So if we can just learn to ask for what we want, I mean, what’s the worst thing that could happen? I say no. So then it wouldn’t have mattered — you see what I mean? So Amanda, you go girl, you go girl, you go girl. Alright, we can go now.

Tim Ulbrich: So before we jump in and talk more about your book, “Women and Money: Be Strong, Be Smart, Be Secure,” I’m curious and want our listeners to know as well a little bit more about your background into this world of personal finance that has led you to transform millions of people on their own financial journey. Were there a series of events or an Aha! moment for you that set you on this path, on this journey to teach and empower others about personal finance?

Suze Orman: Yeah, it was a very simple story, actually, where I was a waitress until I was 30 years of age in Berkeley, California. Having been a waitress for seven years making $400 a month, to make a very long story short, I had this idea that I could open up my own restaurant because I made these people a fortune with all my ideas. My parents had absolutely no money. My mother was a secretary, my father was sick most of his life, blah, blah, blah, blah. And the customers I had been waiting on lent me $50,000 to open up my own restaurant. So I’m again making a long story short. They had me put that money in Merrill Lynch, which was a brokerage firm. I had a crooked broker, and within three months, all $50,000 was lost. And now, I didn’t know what to do. And I thought, I know I can be a broker. They just make you broker. Because during those three months, I really loved starting to learn about a world that was so foreign to me. I didn’t even know what a money market was or Merrill Lynch was. Anyway, I went and applied for a job at Merrill Lynch because I knew I wanted to pay these people back that lent me $50,000, and I wasn’t going to do that at $400 a month, which was my salary as a waitress. They hired me to fill their women’s quota. And while I was working for them, I realized what my broker did was illegal. And I also had been told that women belonged barefoot and pregnant. They had to hire me, but they would fire me in six months. And so while I was working for them, I sued them with the help of somebody who worked for Merrill Lynch who told me what had happened to me was illegal. And because I sued them, they couldn’t fire me. And during the two years until it came to court — and they then settled outside of court because I was their No. 6 producing broker at the time — but what happened was during that time, those two years, I realized, oh my God, how many people out there don’t have the money to lose?

Tim Ulbrich: Right.

Suze Orman: Like alright, I was young, I could have somehow come back. But what if it were my parents? What if it were your parents? What if it was somebody who that was every penny they had to their name? And so that’s when I became — even though I was a financial advisor in terms of serving people at that time, I became an advocate to make sure that every single person that invested money, that their money meant more than the money I was going to earn off of them. I put them before me. People first, then money, then things. It was those people that mattered because I was one of those people. And before you knew it, I just rose and rose in the ranks, started my own firm, and here we are today.

Tim Ulbrich: Indeed. And I think that’s a good segway into talking about your 1 million-copy, No. 1 New York Times bestselling book, “Women and Money: Be Strong, Be Smart, Be Secure.” And as you may or may not already know, the profession of pharmacy is made up of a majority of women, approximately 60-40 split, two-thirds one-third of graduates today, roughly speaking, and so I think this message and your book is certainly going to resonate with our audience. And you start the book with a chapter titled, “Imagine What’s Possible,” and there’s a passage in there that I want to briefly read that really stood out to me. You said, “Women can invest, save and handle debt just as well and skillfully as any man. I still believe that. Why would anyone think differently? So imagine my surprise when I learned that some of the people closest to me in my life were in the dark about their own finances. Clueless, or in some cases, willfully resisting doing what they knew needed to be done. I’m talking about smart, competent, accomplished women who present a face to the world that is pure confidence and capability.” So why, Suze, is this topic of personal finance, even for well, smart, accomplished women, such as the pharmacists listening, and heck, regardless of gender, I would say this is true. Really smart people that often can’t effectively manage their money. What are the root causes for them?

Suze Orman: Yeah. You just used the word can’t. Oh, they can. Women have more talent in their little fingers — I’m so sorry to say — more capability than most men have in both hands, really. And I don’t say that as a put-down to men. It’s just that women, women hold up the entire sky here in the United States. They take care of their parents, their children, their spouse, their brothers, their sisters, their employees, their clients, their patients — everybody — their pets, their plants. And when it’s all said and done, when they’re 50 or 60 years of age, that’s when for the very first time, they start to think about themselves. You have got to remember that women have the ability to give birth, in most cases. They have the ability to feed that which they have given birth to, in most cases. So a woman’s nature is to nurture, is to take care of everybody else before she takes care of herself. So it’s not that she can’t. It’s she doesn’t want to. She doesn’t want to. She wants to make sure that her kids, in particular — a woman will do anything to make sure that her children are fine. That is not true with men. That is not true with men. I would think, I used to think that it was until 2008 came along. And when people were laid off of their jobs, they lost their home, they lost their retirement, they lost everything, women would go back to work, working three or four jobs, a waitress, a cocktail waitress, anything, just to put food on the table. A man, if they had a $200,000 job would not go back to work if all they were offered was $60,000. They weren’t going to do it. Again, it’s not putting men down. Please, men, don’t think that because I don’t put you down. It’s the socialization effect of the difference between a man and a woman. So a woman just will do it all, but she won’t take care of herself. She chooses not to. In any aspect, she’ll only take care of her household expenses. You know why? Because her house holds everybody that she loves. That’s the only difference. That’s the only difference, boyfriend. That’s the only difference.

Tim Ulbrich: Which is a good segway to talk about healthy relationships with money because in the book, you mention that in order to build a healthy relationship with money, there are attitudes that women need to get rid of, with the first of these being these weights or burdens that you referenced that are commonly carried around, one being the burden of shame and the second being the tendency of blame. Can you tell us more about this concept of blame?

Suze Orman: Yep. You know, in the book, I talk about truthfully that there is no blame big enough or shame big enough you who you are meant from being. There just isn’t. And it’s sometimes, we’re ashamed that we don’t know about money. Sometimes, we’re ashamed that we don’t have the money that we need to be able to give our children what they want. Now, what I just said was very heavy, believe it or not, because it’s really difficult — I mean, I just experienced it. I had my niece here. In fact, I had all my nieces here, but one in particular that has a 5-year-old child who loves Pluto more than life itself. He literally thinks Pluto is alive. He said to me, “Aunt Suze, how do I get a real Pluto?” And I mean, “You mean a dog?” And he said, “No, really. I want this Pluto to be alive.” And you could just see, you want to give this kid anything this kid wants because he’s so fabulous. Not that — all your kids are fabulous, to you, anyway. And so a mother feels — especially if she’s a single mother — that she has to make up for the loss of a father figure or another mother figure or parent figure. And she does it usually by purchasing things for her kids because when they go to school, oh, but this kid has this cute backpack and this kid has this, and look at these watches, and look at this iPhone. And so it becomes very interesting that a lot of times, you’re ashamed of what you yourself don’t have. You’re not proud that you have anything. You’re ashamed of what you don’t have. And you blame it usually on somebody else. Or you blame it on yourself. You know, it’s — and fear, shame and anger are the three internal obstacles to wealth. They just are. You know, I have people — I know you’re talking about the book right now, but my true love at this moment in time is the Women and Money podcast because it’s on the Women and Money podcast that you can hear, you can hear via the emails that are sent in, the shame and the blame that women feel, the anger that they have at themselves for staying in a relationship that they don’t want to be in but they don’t have the money to leave, the confusion that’s out there. And a lot of these women are so powerless because they’re not powerful over their own money.

Tim Ulbrich: In the book, you go through a detailed financial empowerment plan, which I think is incredibly helpful for our listeners to hear more about since we know many pharmacists are struggling with spinning their wheels financially, graduating now with more than six figures of student loan debt — the average about $166,000 — having many competing financial priorities with home buying, starting up a family, building up reserves, saving up for retirement, the list goes on and on. So the question is, where does one start when they are looking at so many competing financial priorities, and it can feel so overwhelming?

refinance student loans

Suze Orman: You start by No. 1, really understanding the ramifications that student loan debt that goes unpaid will have on your life forever. So you’re No. 1 priority, bar none, is your student loan debt. And you have got to understand the difference between paying back student loan debt on the standard repayment method and the income-based repayment methods. And you have to understand that in your head, if you think, oh, I have all this debt. I’m just going to pay back a little bit because I don’t have that much of an income, and they’re going to forgive it in 20 or 25 years, I’ll be OK. No, you won’t. You won’t because if under the standard repayment method, your monthly payment should be $1,500 a month and under income-based repayment, you’re only $750 a month, that $750 difference gets added onto the back end of your loan plus interest. And when they forgive it, when a debt is forgiven, you need to pay taxes on that as if it were ordinary income. And it is possible that if you do that over 20 years, you’re going to end up owing more than you even started with that they’re going to forgive.

Tim Ulbrich: Right.

Suze Orman: So you have to be realistic here. If you’re going to go in this industry, you’re going to become a vet, if you’re going to become anything with massive student loan debt, then you have to put your priorities in place. And your first priority is your student loan. After your student loan, hopefully on the standard repayment method, is paid off, then start dreaming. Ten years isn’t that big of a deal. It will come and it will go. But don’t try to do it all at once.

Tim Ulbrich: Yeah, and that’s really timely for many pharmacists that are listening to this, they’re looking at, as I mentioned, six figures of student loan debt, $160,000, $170,000, $200,000 of loan, unsubsidized many of those, interest rates that are 6-8%. And so obviously those interest rates and the growing interest and the baby interest can have an incredible negative impact on their financial plan. So that being a good segway I think into the conversation about loan forgiveness, which has gotten a lot of attention with the upcoming presidential elections, and we’ve had some discussion with Bernie Sanders, Elizabeth Warren, have forgiveness plans that are out there. And not even getting into specific candidates or politics or the individual policies, I think it brings up an interesting discussion around loan forgiveness and the positives and benefits of that relative to what people learn through the process of paying off student loans. And I know for me, individually, going through the process of paying off more than $200,000 of student loan debt, there was a lot I learned and that my wife and I learned through that lesson in terms of budgeting, working together, setting goals. But I also understand that for many — and certainly would have been the case for us as well — not having that debt would have been fantastic. So how do we reconcile forgiveness relative to being able to learn through that process?

Suze Orman: First of all, let’s talk about student loan debt to begin with and the viability of it. Is everybody crazy that we should have to pay, our children should have to pay $200,000 for a college education?

Tim Ulbrich: Amen.

Suze Orman: Like is that just to begin with the sickest thing you have ever heard in your life? So while everybody’s dealing with the debt that we have, what we also should be dealing with is why are we paying that kind of money? Listen, if that’s what these financial institutions need to keep the buildings and the teachers and everything going, maybe we need to go to online universities that are fully credited that everything is done online because the burden that these kids are leaving school with is so heavy. It is the No. 1 question that I am asked. And it is so sad it is the No. 1 question that I do not really have an answer for because they will not let you discharge it in bankruptcy. I mean, it is crazy that you pay the same amount of money to get a Master’s in social work as you do an MBA. Really? So tuitions, No. 1, should be based on the area that you are specializing in. Hey, if you’re going to graduate and you’re going to make $200,000, $400,000, $500,000 a year, fine. Then you start spending money that then subsidizes those that are going to make $30,000 a year because they want to be a teacher. Or whatever it may be. But I do think what’s going to start to happen is that people are going to have to start going to community colleges for the first two years or so.

Tim Ulbrich: Right.

Suze Orman: And then probably switch over. But then you have to be crazy if you go to a school that’s $50,000 a year. Now, with that said, I get when you want to be a vet, when you want to be a pharmacist, when you want to be a doctor, that’s what they charge. So if you know, if you know beforehand that that’s what it’s going to cost you and you have an unsubsidized loan, which means that it is growing while you are in school, can you at least pay the interest on that loan while you’re in school? And I know everybody’s going to say, ‘But Suze, I’m working full-time at school, I can’t,’ oh yes, you can. I had to put myself through school, I worked until 2 a.m. every morning. I started at 7, I worked seven days a week for four years straight. Don’t you dare tell Suze Orman you can’t do it. You most certainly can. You just don’t want to. And when you have debt that you can’t pay back, this is not a choice if you can or you can’t, if you want to or you don’t want to. You have to, and it’s — I don’t mean to sound harsh to you. But you’ll thank me years from now that at least you haven’t accumulated an interest rate on top of everything else.

Tim Ulbrich: Suze, one of the most common questions that I get — and I’m sure you get all the time as well — is how do I balance paying off my student loan debt relative to investing and saving for the future? And as we think about pharmacy professionals specifically, many of them have gone through lots of education to get where they are, they may have four years of undergrad, they have four years likely, some people more in terms of getting their doctorate degree, they may go on and do residency training, and so here they are and they look at the clock and say, ‘Yes, I’m young, but I also know I need to aggressively save, and I keep hearing the message of I need to be putting away money for the future. But I’ve got $160,000, $180,000, $200,000 of student loan debt, unsubsidized loans, 6-8%. So how do I balance the two of these?’ What advice do you give people to help think through that?

Suze Orman: I would not not pay a student loan under the standard repayment method in order to then save in a retirement account. Obviously, if you work for a corporation that gives you a 401k or a 403b or whatever it may be and it matches your contribution, then you have absolutely no choice whatsoever but to absolutely at least invest up to the point of the match. After that, your very first bill that has to be paid before you can decide anything is your student loan repayment. After you know what it’s going to cost you to pay on your student loan, then you have to make a decision. ‘Oh, do I have to move in with six or seven kids and all live together in order just to do whatever? What do I have to do after that payment? Is there any money left over? And if there is, what will it allow me to do?’ It may only allow you — I know you’re going to really think I’ve lost it — to move back in with your parents for a number of years.

Tim Ulbrich: You’ve got to do what you’ve got to do.

Suze Orman: You’ve got to do what you’ve got to do. And for all of us to make it in today’s society, we have to either really enhance the nuclear unit and nuclear family and really help each other, or if we can’t do what we’re born into, then create our own nuclear family where it is five or six of you get together and you go, OK, we have this problem. And it’s not like communal living, but it’s how do we solve this problem? So rather than you each have your own individual apartment, you each have your own car, you each have all of this stuff, what can you do as a group of people? You know, Uber and Lyft and Zipcars, all of that came about — you know, especially Zipcars — about people who couldn’t afford to have their own car. So again, I don’t mean to be Suze Smackdown here. But I do want you just to be realistic about your life and the independence dream: living on your own, having all of these things. Nothing will give you more pleasure than having money versus things.

Tim Ulbrich: Yeah, and my wife and I talk often, as we think about our own financial situation, that we felt some of that pressure in our mid-20s of wanting to live up to the lifestyle that our parents have gotten to after 30 or 40 years. So I think really reshifting expectations and thinking about specifically today’s pharmacy graduates, it really has to be intentional with their financial plan and change some of those expectations to set them up to be successful in the long run. Shifting gears a little bit, I want to talk about planning for the future. And we recently had on the show Cameron Huddleston, author of the book, “Mom and Dad: How to have essential conversations with your parents about their finances,” an excellent book that has me thinking more and more about the significance and importance of healthy and open financial conversations with family about money and ensuring that the estate planning process is well thought out and is in place. And I noticed that you offer a protection portfolio that is meant to help people take the worry out of protecting themselves, their assets, and their family. So tell us a little bit more about why this process of having a protection portfolio in place is so important and what information is compiled in a portfolio like this.

Suze Orman: What’s really important is for everybody to understand that we have no control over the things that happen to us. Are we going to be in an accident? I mean, really, just the other day, Tim, you know I live on a private island. And I’m driving down this road, there are no cars on this private island. There are only golf carts. There were only like — there’s 80 homes. There’s nobody here most of the time. And I’m driving, you know, back to my house. And I come up on a golf cart that overturned on these four 20-year-olds. And they were seriously hurt. Alright? And I mean, five minutes before then, they were on this private island having a fabulous time, and now I’m like, oh my God. So anything can happen at any time. And every one of you needs to be protected against the what ifs of life. May you always hope for the best, but may you plan for the worst, whether it’s an accident, an illness, an early death, whatever it may be. The number of emails I get from 40-year-old women, 50-year-old women, 30-year-old women, saying, “Suze, my spouse died. I have three kids. I never expected to be in this situation.” And they go on and on and on about it. And this is also — what I’m about to tell you — very important if you have parents. Because if you have parents, the question becomes like, my mom lived ‘til she was 97. If something happens to your parents, they lose their mind, so to speak, they have dementia, they have Alzheimer’s, and they can’t write their checks anymore or pay their bills, who’s going to take care of them? You can’t do anything for them unless you have what I call the must-have documents. Not only a will, a living revocable trust, an advanced directive, and a durable power of attorney for healthcare. You must have those. But most of the time, lawyers tell you, “All you need is a will.” Oh, give me a break. The less money you have, the more you need a living revocable trust because wills make it so that in most cases, if you own a piece of real estate or whatever it may be, your estate has to go through probate. And guess who gets the probate fees? The lawyer that told you all you need is a will. So a living revocable trust not only passes your assets from one person to another within a two-week period of time, no fees, nothing. But in case of an incapacity, it will say, you can sign for so-and-so, so-and-so can sign for you. It sets up your estate every way you want it. And it also helps you because minors cannot inherit money. So if you have young children, and both you and your spouse are killed in a car crash, something happens, the money can’t go to your minors. If you left your money to them via your will, good luck. It’s going to end up in a blocked account until they’re 18. So with that said, most trusts, if you go to see a trust lawyer — first of all, you have to know there are good trust lawyers, most of them are not — are at least $2,500. And every time you make a change, $500, $1,000. You’re just sitting here talking to me about you don’t have even have enough money to pay your student loan debt. Where are you going to get $2,500 to do a will, a trust, an advanced directive, and durable power of attorney for healthcare? And every time you need to make a change, where are you going to get the money to do that? And so years ago, with my own trust lawyer, I created what’s called the must-have documents. These documents are my documents. If you were to look at my trust, my will, everything, you would see these. But I wanted to do it at a price that every single person could afford. So we created over $2,500 worth of state-of-the-art documents for approximately $69.

Tim Ulbrich: Wow.

Suze Orman: And what’s great about these documents, not only are they fabulous, every time the law changes, they automatically get updated, but you can change it as many times as you want. So if you go from one kid to two kids, you go back to your computer, you change them. So you never have to pay for it again. And if you’re interested, really, in that offer, you can just go to SuzeOrman.com/offer, and through there, it’s $69. Otherwise, you’ll see it sold for $100, $90. They’re sold for all over the place. But these documents have changed the lives of millions and millions and millions of people over the years.

Tim Ulbrich: Yeah, and I think it’s also important for our listeners just to consider the peace of mind of having all this together. When you think about all of the things that are found in estate planning documents and my wife and I went through this process, we’ve talked about on the podcast before, where you put together insurance policy information and where your accounts are at and birth certificates and all of the papers that would need to be readily accessible in addition to all of your estate planning documents. To get there and the conversations you have and the peace of mind it provides is incredible. So again, SuzeOrman.com/offer will get you there. Suze, I want to wrap up our time together by talking about legacy. And I’m fascinated with learning more about what drives very successful, highly influential individuals such as yourself to take on the life’s mission and work that they do. And so for you, as you look back on a career that is undeniably wildly successful and that has positively transformed the lives of millions of people, what is the legacy that you’re leaving?

Suze Orman: You know, I hope the legacy that I leave is that women in particular — but men as well — but women in particular really know that they are more capable than they have any idea; that they will never be powerful in life until they’re powerful over their own money, how they think about it, how they feel about it, and how they invest it; and that every one of them, one of them, has what it takes to be more and to have more. We just have to want to. So I don’t really know, I don’t know how to answer that because I never think about what I’m going to leave. I only really think about what I’m doing. And I can tell you right now, like one of my friends said to me, “You just can’t help yourself, can you, Suze Orman?” So you know, with the Women and Money podcast, people write in their emails. And I keep saying, “I’m not going to answer them. I can’t answer all these emails.” And now, I’ve answered almost every one except four. You know, I’ve got four left. And then they’ll mount up again and blah, blah, blah, blah. But I have such a desire for every single woman — and the men smart enough to listen — but really, for every single woman to get the right advice, the best advice, to start to educate them so that they become smart enough, strong enough, secure enough, so they can start educating their daughters and their sisters and their aunts and their moms and their grandmas and everybody so that we start really teaching one another because I’m just so afraid of where this world — truthfully, the hatred in this world that we are experiencing right now — I am very afraid of where it’s going to take us next year. And so, you know, I just, I hope I leave a legacy of love and power. That’s what I really hope I leave.

Tim Ulbrich: Yeah, and what really stands out to me, Suze, is the work that you’re doing — and you alluded to this — is the generational impact that it’s having. And that will forever go on. I mean, that’s an amazing thing when you think about transforming somebody’s personal financial life. And let’s say they’re a mother, and they pass that on to their kids and their friends and their cousins and their network, and that’s passed on to another generation. That is incredible, transformational work that will forever have impact. And so I thank you for that work, and I know it’s had an impact here on me in even having the opportunity to talk with you today. So to our listeners, as Suze mentioned, she responds to her requests as it relates to the podcast she has each and every week, the Suze Orman’s Women and Money podcast. So if you have a question for Suze that we did not touch on during today’s show, make sure to reach out at [email protected]. And again, as a reminder, make sure to head on over to SuzeOrman.com, where you can learn more about Suze, including her blog, the podcast, comprehensive resources, live events that she hosts, and books and products that are designed to help empower you in your own financial plan. So Suze, again, thank you so much for coming on the show. And I’m grateful for what you were able to share and the impact that it will have on our community. Thank you very much.

Suze Orman: Anytime, boyfriend. Anytime.

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YFP 108: How to Effectively Talk with Mom & Dad About Their Finances


How to Talk to Your Aging Parent About Finances

Cameron Huddleston, an award winning journalist with more than 15 years experience writing about personal finance, joins Tim Ulbrich on this week’s show. Cameron and Tim talk about her recently released book Mom and Dad, We Need to Talk: How to Have Essential Conversations with Your Parents About Their Finances. Cameron discusses why it is important to have these conversations with your parents, how to start the conversation and what to do if your parents are reluctant to talk.

About Today’s Guest

Cameron Huddleston is the author of Mom and Dad, We Need to Talk: How to Have Essential Conversations With Your Parents About Their Finances. She also is an award-winning journalist who has written about personal finance for more than 17 years. Her work has appeared in Kiplinger’s Personal Finance magazine, MSN, Yahoo, USA Today, Chicago Tribune and many more print and online publications.

Summary

Cameron Huddleston joins Tim Ulbrich to talk about her newly released book Mom and Dad, We Need to Talk: How to Have Essential Conversations with Your Parents About Their Finances. Her inspiration for the book came from the stories of her parents. Her father died at the age of 61. He was in his second marriage and didn’t have a will. At 65, Cameron’s mother was diagnosed with Alzheimers and her biggest regret is not talking to her about her finances, the type of care she wanted and how to pay for it before her memory started to get bad. Cameron didn’t want others to go through the same mistakes and suffer their consequences as she did.

Cameron shares why these conversations regarding finances and end of life care aren’t talked about, the biggest being that for older generations it’s taboo to speak about money and that it can make people uncomfortable as some people haven’t managed their money well and don’t want to divulge that information with their family. Unfortunately, consequences like lengthy and expensive court battles to prove that parents are no longer competent to handle their money or make decisions can come out of not speaking about these sometimes difficult topics.

Cameron shares that one of the biggest mistakes you can make is assuming that the conversation can wait. If your parents are healthy it’s the perfect time to have the conversation. She suggests focusing on speaking about the basics first, such as a will or living trust, power of attorney and advanced healthcare directive. From there, you can get deeper into how to pay bills and manage bank accounts. Cameron also talks about where to begin in having this conversation, what to do if your siblings aren’t on the same page as you, and when and how to have this conversation with your parents.

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Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to this week’s episode of the Your Financial Pharmacist podcast. I have a special guest on the show this week, Cameron Huddleston, author of “Mom and Dad, We Need to Talk: How to have essential conversations with your parents about finances.” Some brief background on Cameron, she’s a contributing editor for Kiplinger.com and wrote the popular “Kip Tips” columns, which was syndicated in the Tribune newspapers nationwide. Her work has appeared in Business Insider, Chicago Tribune, Fortune, Huffington Post, Money, MSN, and USA Today. She has appeared on Fox & Friends, MSNBC and CNN and has been a guest on ABC News Radio, Wall Street Journal Radio, NPR, WTOP in Washington, D.C., and KGO in San Francisco. She currently is the Life and Money columnist for GoBankingRates.com. Cameron, welcome to the show.

Cameron Huddleston: Hi, thank you so much for having me.

Tim Ulbrich: So first of all, congratulations on the recent release of your book. What an amazing accomplishment in putting together a book that is going to have I believe such a positive impact on so many families, and obviously, more specifically, we’re going to talk about here in the pharmacy community. But writing a book is no small feat, so congratulations on getting this book out there.

Cameron Huddleston: Thank you. You’re right, it is not an easy task. It’s probably one of the hardest things I’ve ever done, I feel like.

Tim Ulbrich: So rewarding and difficult. I really, truly believe, as I just finished up the book here in the past week, I know it’s going to have an impact on me personally. I’m excited to share with our community some of the tips and strategies and wisdom that you share for how to have what I think is such a difficult conversation with family and especially parents around finances. So as I had a chance to read through your book prior to the interview, I was really, really impressed — and I shared with you before we recorded here today — about how comprehensive it is, how many stories you use, and I think how those stories reinforce the concepts throughout the book, how you’re able to break down what can be a very overwhelming and scary topic to one that I believe you present in a way that is easy to understand and that results in action. And I found myself taking notes, saying, “Hey, my brother and I really need to get together and make sure we have some of these conversations with our parents, even though we have had many of them already.” So let’s start with why write this book. So talk us through some of your personal story and the inspiration behind getting this book out there into the hands of others.

Cameron Huddleston: So I feel like I’m the poster child for why these conversations need to happen, sooner rather than later, because both of my parents, their stories caused me to write this book. My father died when he was 61. He was in his second marriage, and he died without a will. And he should have known better because he was an attorney. And of course, when you die without a will, the state decides who gets what. So your wishes are not expressed. And you don’t even have to be a wealthy person to need a will. And I make this point very clear in the book. At least, I try to. You know, wills aren’t just for the rich and famous. They are for anyone who has anything that they are going to be leaving behind, and they want to have a say in who gets what. So my dad did not leave a will telling us who gets what. And like I said, he was in a second marriage, and it just, it didn’t turn out as bad as it could have turned out, but it was certainly awkward. And then a few years later, when my mother was 65, she was diagnosed with Alzheimer’s. I was 35 at the time, I still had young children. And suddenly, I was thrust into the role of caregiver for my mother. And my biggest regret is not talking to her about her finances before she started having memory issues. I had had a conversation with her when I had moved from Washington, D.C., where I was working for Kiplingers, back to my home state of Kentucky. And I told her when I moved back home, I said, “Mom, you need to look into getting long-term care insurance,” because knowing that she was alone and that if she ever needed care, a long-term care insurance policy would help pay for that care. And by care, I mean care in an assisted living facility or nursing home. It even pays for care in your own home. She took my advice, looked into it, but could not get coverage because of another pre-existing condition she had. Then after that conversation I had had with my mother — and that was when she was in her early 60s — she ended up developing dementia. And I look back at it now, and I realize that after she discovered that she couldn’t get coverage, I should have said to her, “OK, Mom, you cannot get long-term care coverage. Let’s figure out how you would pay for it if you ever need this sort of care. And let’s talk about what sort of care you would want.” But I didn’t do it. And I was a financial journalist. I still am. But I didn’t realize that I needed to have this conversation. And so I wrote this book because I don’t want people to make the same mistake I made. And I don’t want people to have to figure out things on their own like I did because it’s not easy. It really is not easy. So I’m sharing my experiences in this book. I’m sharing the experiences of other people who’ve had these conversations. I’m sharing the advice of experts, financial planners, financial psychologists, elder care experts, estate planning attorneys, trying to cover as many bases as I possibly can in this book.

Tim Ulbrich: Yeah, and I think your story with your mom and with your dad really, to me, laid the foundation of the importance of this topic. And you have many more stories that you use throughout the book that I think do that as well. But you know, when you talk about the situation with your mom and dementia and you as a financial expert and writer not having or pressing on some of those conversations, you know, I often feel that way often with my family as well. Or you mentioned your dad being an attorney who had experience writing wills but didn’t necessarily have a will himself. I think that speaks to how difficult these conversations can be and how necessary they are and often how emotional things can get. They can prevent some of these from happening. So one of the things you start with in the very beginning of the book, you outline — to the point we were just talking about — so well the fears that can present themselves when we consider talking about money with our parents. So much so that you reference a — I think it was a 2016 Care.com survey that found more than half of parents would rather have the sex talk with their kids than talk to their parents about money and aging issues. And the result being, as you also mentioned in the book, about three-quarters, 73% of adults, not having detailed conversations with their parents about their finances. So what are some of these fears that are holding people back from having these critical conversations? Because after all, we know that they are essential ones to have.

Cameron Huddleston: You know, I want to touch on this first because you said we know that these are essential conversations. A lot of people actually don’t even realize that they need to be having these conversations. That same survey that you mentioned, that I mentioned in my book, about 73% of adults not having had this conversation with their parents, a very significant percentage of the people who were surveyed said they haven’t had the conversation because they didn’t realize that it was important. They didn’t realize it was an important topic to discuss. And we can talk a little bit later about why it is so important, but the fears, that’s a big one. So that same survey found that people have a variety of fears about having this conversation. A big one is that people are afraid their parents will think they’re being nosy. And I’ve heard this from people, I’ve talked to, I’ve interviewed for this story, for my book and just in general, friends I’ve talked to, and people say, “Oh yeah, my parents tell me that their money is none of my business.” And the point I make in the book is you might be afraid that your parents are going to think you’re being nosy, but the reality is that if you let them know that you want to have this conversation because you’re looking out for their best interests because you might have to care for them someday, you might have to help them out, that you’re not being nosy. You’re just simply trying to gather information that will make it possible for you to help them if they ever do need that help. You know, and so the thing is you don’t want to come at them and say, “Mom and Dad, let’s talk about the details of your finances.”

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Tim Ulbrich: Right. Right.

Cameron Huddleston: Because it is — because money is a taboo topic. If you approach it by saying, “Mom and Dad, you took great care of me. I want to return that favor as you get older if you ever need help from me. And we need to discuss some things.”

Tim Ulbrich: And I think that’s what I love in this chapter but also throughout the book. In this chapter, specifically, you present some of those fears and then the realities. And you have some ideas throughout the book about specific language, conversation starters, things people can do to initiate these conversations. And in situations where they find themselves up against a reluctant parent, what are some strategies of how they do that. So I hope our listeners will take the time to get the book and read the book and really hopefully apply it with their own money — or their family situations as well. I want to ask you, since you mentioned this concept of money being a taboo topic. You know, when we’re out talking with other pharmacists and I mention this concept of money being a taboo topic, I see everybody’s heads nod in the audience. And I’m just curious, from your experience, from your expertise, for somebody who’s written on this for so long, is that just overall? Is that a generational thing? And then we know, as I think about myself with four young children, how can we reverse that trend? And what are some of the things that we can be doing to not make it a taboo topic so we’re not in the same cycle again with our children, you know, as they go through their life?

Cameron Huddleston: It certainly is generational. I think that younger generations are a little more open to talking about money, still not as open as we should be, but I’m a Gen X’er. My parents’ generation, they were actually, they fell into the silent generation. Money is certainly a taboo topic for them. And their parents told them — I remember growing up, my father would say, “You don’t talk about money. It’s impolite.” And he was always very reluctant to talk about money. And I feel like if I had tried to have a conversation with him when he was still living, he would have balked. My mother did not treat money as a taboo topic. We didn’t talk about it a lot, but I did not feel uncomfortable discussing it with her. I do feel like, though, the millennials are more open to discussing money freely. It’s not such a taboo topic among them. I think too that my generation, Gen X, is starting to open up a little bit more because we are already running into those struggles of talking with our parents and realizing that we need to be having these conversations with our kids. I have been having these conversations with my kids since they were young enough to talk. You know, of course when your mom is a financial journalist, and your dad is an economist — my husband teaches economics — you get it thrown at you all the time. And I remember my middle daughter coming up to me a couple years ago one day, just out of the blue, saying, “Mom, why are people so afraid to talk about money?” And I thought it was so interesting that she asked me that, and I tried to explain to her in the best way that I could — I think she was about 10 at the time — that people are uncomfortable talking about money because you either are afraid that you have less money than the person you’re discussing it with, or you have more. And in either situation, it can be uncomfortable. I think parents are particularly uncomfortable talking to their kids about money for a variety of reasons. Either they were taught you don’t talk about money, maybe they haven’t managed their finances well and they’re embarrassed, which anyone’s going to be embarrassed if you made mistakes, and you don’t want to admit to your kids. Or sometimes, it’s not so much the money issue that they’re afraid to address, but if you’re talking about things like wills and estate planning or long-term care, you’re talking about aging and death. And when you realize that you’re already in the midst of getting older and death is no longer such a in-the-future thing, but it could happen at any time, when you are older, it’s a scary thing to discuss for a lot of people. And when you talk about planning for long-term care, planning for end-of-life, a lot of parents don’t want to have those conversations. Because it’s scary for them.

Tim Ulbrich: Yeah, and I like how you highlighted in the book that even though both parties may come at it where it’s a difficult conversation, it’s uncomfortable, it’s that unknown territory, often, you may leave it with this feeling of, I’m really glad we had this conversation. And so I think that’s the outcome we’re hoping for is obviously some clarity around the plan. And I think the strategies you present in a great way in the book about how to do it effectively so it’s not necessarily focused on you as the individual and what you’re getting but really trying to look after your family and their wishes and all the complexities and things that are involved. One of the things that I really enjoyed in the book — I think it was Chapter 2, it was titled “Don’t Wait,” you mentioned that one of the biggest mistakes you can make when it comes to talking to your parents about finances is assuming that the conversation can wait. So what are some of the potential consequences of waiting to have these conversations until a point when maybe it’s too late? What are some of the things that could go wrong?

Cameron Huddleston: I hear from people all the time in just day-to-day conversations with friends when this topic comes up — because my friends know that I have been dealing with my mother and her Alzheimer’s for a decade now. And what I often hear from them is, ‘Well, we’re not at that point yet. I don’t need to be talking to my parents about this because they’re still healthy.’ But that is the perfect time to have the conversation. If you wait until there is a health crisis or when your parents are having memory issues, at that point, it can be too late. For starters, if there is a crisis, emotions are running high, you don’t think rationally when you are in the middle of a crisis. And the last thing your parents are going to want to do is discuss their finances with you. You know, you might need to be stepping in and helping them make sure the bills get paid, but they don’t want to talk about that because they’re in the hospital recovering from a stroke, a heart attack, something horrible that has happened to them. So waiting until that emergency happens is a terrible time to have the conversation because of the emotional issues that are going on. But the even bigger issue is that things may not be in place to actually allow you to step in and start helping them. The biggest of these is power of attorney and healthcare power of attorney. Both of these are legal documents, and you have to be mentally competent to sign them. So if you wait until you are in the later stages of dementia, it is too late. No attorney is going to let you sign a power of attorney or an advanced healthcare directive naming a healthcare power of attorney because they’re going to assume that maybe you had been pressured into signing these documents. You are no longer mentally capable to make sound decisions, and so I don’t think a lot of people realize this. They think, well, you know, if Mom and Dad need help, I can just step in and start helping them. I can write checks for them and make sure the bills get paid. I can talk to their doctor for them. I can talk to their financial institutions for them. No, you cannot. Not unless they have named you power of attorney, healthcare power of attorney. No financial institution is going to talk to. Most doctors will not talk to you. You know, pharmacists should know this. Some, you can’t hand out a prescription just because they say, ‘Hey, I need to get this prescription for my mom because she’s in pain.’ I mean, there’s no way that’s going to happen. And so if you have not sat down with your parents to find out whether they have a power of attorney, an advanced healthcare directive that names someone to make healthcare decisions for them, and that spells out what their end-of-life care that they want is, if you wait until something has happened, it can be too late. And the consequences of that are a very lengthy and expensive court battle, basically. You’re going to go to court to try to prove that your parents are no longer competent so you can become their conservator. You’re putting your parents on trial, which is a horrible thing.

Tim Ulbrich: And you did a really excellent job in the book of outlining exactly what that could look like, the cost of it, the time of it. Because I think you’re right, I think there’s the assumption that, hey, you know, maybe I’m an only child or my sibling and I get along, and yes, we don’t have power of attorney or we don’t have healthcare directives, but we’re all kind of on the same page. But if those documents aren’t signed, and you don’t have the copy of them that can be ultimately put in place, like it doesn’t mean you might not eventually get to where you had hoped to get, but it’s going to cost a whole lot of money, a whole lot of time, and a whole lot of heartache to get there that is really unnecessary, right? And I think you outlined that well in the book that my wife and I just updated this for our own family and our process, especially now that we just added a fourth child to our family. And for how easy it is — even though it seems overwhelming — for how easy it is to ultimately execute these papers when you consider that against what it would take if those were not executed, it’s really a no-brainer. I mean, you have to take action on these things. And we’ll come back here in a little bit and talk more about those documents specifically. So what I want to transition to here are some of the common reasons that you outlined in the book that parents may be reluctant to have these conversations. Because I think that if our listeners know what these are, then it can really help them frame what might ultimately be the right strategy. So what are some of the common reasons that parents may be reluctant to have these conversations with their children?

Cameron Huddleston: We hit on a big one already. The biggest is that they think money is a taboo topic. And they don’t want to discuss it, with you, with anyone, so you realize that. And you’re going to know this. I mean, you are going to know if money is a taboo topic with your parents because any money issue that might have come up in your family, if they dodged that topic, you know that they’re going to be reluctant to discuss their finances with you. And if that is the case, if you realize that is the case, then you don’t want to make the conversation about money, which sounds kind of silly being I’ve written a book about how to talk to your parents about their finances. But you don’t want to make the conversation about money. You want to talk about bigger picture issues. You know? Like, “Mom and Dad, what do you see retirement looking like for you?” And their answers might give you clues. They might be like — or, “How is retirement going for you?” “Oh, well, you know, it’s kind of boring, actually. We’re just kind of sitting around home.” “Oh really, I thought you wanted to travel.” And they might say, “Well, turns out traveling is expensive.” And that’s going to give you a clue that maybe they don’t have enough in savings for their retirement that they wanted, which can also give you a clue that if they don’t have enough in savings for the retirement they wanted, they probably don’t have enough in savings to cover any long-term care they might need. So find another way, find kind of a big-picture issue that you can discuss that they might be more comfortable talking about than actually details about their finances. But like I said, the answers that they give you, the responses, are going to start cluing you in. And then when you hear that response, don’t just let it go. Ask more questions.

Tim Ulbrich: And I think one of them that stood out to me was, you know, you had mentioned that they may be embarrassed about their finances. And if you look at the data that’s out there, in terms of the number of people who have the right documents in place and how much money people have saved for retirement and who actually has long-term care insurance relative to those who need it, more likely than not, for many of our listeners, that may actually be the case that maybe they’re embarrassed about their finances. And so you as the child and your point of reference of why you think this is important for them to have in place, well, for them, the struggle is that they’re really embarrassed about uncovering about what maybe they’re not comfortable you seeing. Obviously, there’s two different angles and viewpoints there. So I think really trying to understand why the reluctancy may be there would really help frame the strategy in which you approach it. And I think you did a really nice job of outlining those. So as I was reading the first few chapters, it was almost as if you were predicting my thoughts as I was going through the book because I read through the first few chapters, and I’m like, gosh, where do you start? You know, where do you start with this process? I understand the problem, I understand the need, I understand there may be reluctancy, but where do you start when it comes to having these difficult conversations, especially considering how complex of a topic that this can be. And your suggestion is to start by talking to a sibling. So tell us more about why you think this is a good place to start and some of the strategies to do that.

Cameron Huddleston: If you have siblings, you need to be sitting down with them before you even go to mom and dad. And there are several reasons why you should do this. For starters, you want to get on the same page with your siblings. You don’t want to go to mom and dad and have this conversation, and then your brother and sister find out, and then they’re angry. Wait, why did you do this without me? What, are you trying to get in good with mom and dad so that you get everything when they die? You don’t want to create any resentment. And you don’t want them to try to second-guess what you’re doing. So you want to let them know, ‘Hey, I think we need to talk to Mom and Dad about their finances.’

Tim Ulbrich: I really like that.

Cameron Huddleston: And so they might say, ‘Well, why? They seem to be doing fine. They’re not having health issues.’ ‘I know. And that’s why we need to do it now, before any issues arrive, so that we can make a plan together.’ And when you talk to your siblings, you want to agree on the roles you’re willing to play. You want to decide, who’s going to initiate the conversation? Maybe it’s one of you, maybe it’s all of you. Then you have to decide, OK, when are we going to do this? How are we going to approach this conversation? You also want to decide what roles you’re willing to play going forward. Maybe you live closest to mom and dad, so you’re willing to be the one who’s going to step in and provide any care that they need, take them to doctor’s appointments, you know, if you have to, let them move in with you or you would move in with them depending on your situation. Maybe your younger sister is better at money, and so she might be willing to step up and say, ‘Hey, Mom and Dad, I’m willing to be your power of attorney. I’m willing to help you out with any financial issues that you face going forward. I can be the one who will make those decisions for you if you no longer can.’ Hear out what roles you’re going to play so that when you go to your parents and have these conversations, when they see that you’ve talked and you are on the same page, that is going to lift a little bit of the burden off them. Because parents oftentimes are afraid to have these conversations because they’re afraid that perhaps it will create fighting among their children, especially when it comes to issues of wills and who’s going to get what. Because parents don’t always divide things up equally. And they don’t even want to discuss their will because they don’t want their kids to know who’s getting what because they don’t want their kids to fight. And so when you go to them and say, ‘You know, Mom and Dad, sister Susan and I have been talking, and we want to talk to you because we want to make sure that as you get older, we can help you out if you ever need it. And Susan’s willing to do this, and I’m willing to do that. But to do this, we need to get some information from you. We need to find out what sort of legal planning you’ve done. We need to know — you know, we don’t need to know details, we don’t need to know how much is in your bank account, but we do need to know where you bank.’ Coming to them as this united force is going to help, as long as it doesn’t look like you’re ganging up on them.

Tim Ulbrich: Sure.

Cameron Huddleston: The last thing you want to do is be like, ‘OK, Mom and Dad, my brothers and sisters and I, we need to sit down and talk with you right now, and you’re going to tell us everything we want to know.’ That’s the last thing you want to do. You don’t want to issue any sort of ultimatum, but if you can show them that you are on the same page, it can make it easier to have these conversations because they know that all of you are involved, that you’re looking out for their best interests and no, we don’t care what we’re getting. We just want to know whether you’ve put your wishes in writing.

Tim Ulbrich: And I love, I love that angle of laying that out there, of not only having a unified voice among your siblings but also coming at it from a, hey, this is not about what we’re getting us. This is about making sure that we have an understanding of exactly what you want and that we’re able to execute and minimize a lot of the difficulties and things that we already talked about. So what if we have somebody listening that says, ‘Hey, you know what? Me and my sibling aren’t on the same page. We disagree,’ or I could see a situation where maybe there’s multiple children, four or five, six kids, and just naturally, there’s going to be difference of opinion, even if they largely get along otherwise. What strategies or what advice would you have in those situations where there’s disagreement among siblings?

Cameron Huddleston: Actually, that can be very common. And what you want to do when you ask your siblings to have this conversation, beforehand, what would probably be a good idea is to actually make your own list of things you want to discuss so that you can kind of sort it out in your head. You know, you’re not flying by the seat of your pants when you have this conversation. And by putting it in writing beforehand, it’s going to help at least you stay calm when you have the conversation because you know the issues you want to address and you can anticipate, if you write this down beforehand, some of the responses you might get from your siblings. But when you sit down and have this conversation or if you’re going to do it on the phone or do it by Skype, you want to make it clear, we are having this conversation because our primary interest here is Mom and Dad. We want to look out for their best interests. And I think we can all agree on that. We want to do what’s best for Mom and Dad. Now, we might not agree on how to go about that, and that’s OK. And so basically, you want to do — I kind of walk you through this process that you can use that was suggested by a financial psychologist. You let everyone say, get a turn in saying what they want to discuss, how they want to go about talking to your parents, what they think is important. And you, as the person who calls the meeting, you go last.

Tim Ulbrich: Oh, I love that.

Cameron Huddleston: Everyone gets to say something. No one can interrupt. You go last. And then, this is what’s important to me, this is what I think we should discuss, and I hear what you’re saying. Let’s figure out a way that we can all come to an agreement. You want this, I want that, and you want this. Let’s find some common ground here. And always bring it back to Mom and Dad because in all honesty, they are your common ground. And so you’re looking out for them. And hey, maybe you want to do this, but maybe our brother perhaps has a good idea about how to approach it from this other way. Give everyone a chance to speak. You go last, and then find your common ground.

Tim Ulbrich: So once the siblings hopefully are on the same page, there then comes this conversation, the conversation with the parents. So what is the best time, what recommendations do you have in terms of when to have or not have this conversation? So for those listeners that are out there saying, ‘Alright, I’m ready. Me and my siblings are on the same page. We haven’t had it, but we know we need to do it.’ What advice would you have on when to have it? Or maybe when not to have this conversation?

Cameron Huddleston: Don’t do it in the middle of a family holiday gathering. All of you — a lot of people think that’s a great time to have the conversation because everyone is there together.

Tim Ulbrich: Everyone’s together, right.

Cameron Huddleston: Everyone is there together. But you don’t want to ruin a good family meal by bringing up the topic of your parents’ finances or end-of-life planning or long-term care. Don’t ruin a good family gathering by bringing this up. And there might be people there who don’t need to be part of the conversation: cousins, aunts, uncles, your children. They don’t need to be part of the conversation, and sometimes, family gatherings aren’t happy events. There are tensions there already, and so you don’t want to add to that tension by bringing up a difficult topic. If you and your parents and your siblings are only together, though, during these holiday times, at least wait until the next day. And you don’t necessarily have to have the full conversation then. You just simply let your parents know, ‘You know, Mom and Dad, my sisters and brothers and I have been wanting to talk to you about something. We don’t have to talk about it now, it’s the holidays, this is a happy time. We should be celebrating. But we want you to know that we want to have this conversation. So let’s figure out a good time when we can have the conversation.’ Let your parents have a say in this so that they feel like they have some control over the situation. If they’re having to give up some information that they might be uncomfortable sharing, let them have some control by setting up a time when they can talk, when it’s best for them.

Tim Ulbrich: And I think this is an example in the book where you get very practical — and I hope our listeners will pick up a copy and read this — Chapter 7, you have 10 tried and tested conversation starters. And I know, again, to my comment earlier, I felt like you were unfolding the text as I was wondering what could come next. And here, as I began to think about, OK, I’m ready, I’m comfortable, my sibling and I are on the same page, how do I actually execute the conversation? And I think your 10 strategies is really helpful in doing that. One of the things I want to talk through briefly — I know we could have a whole separate episode, and we probably will at a different point — talk about in more details the estate planning process and documents. But I think you do a nice job in explaining these concepts in a very easy-to-understand way. And you mentioned in the book that when talking with reluctant parents, one should start with the basics, essentially, the must-haves, and then work from there. And so I want to talk about these basics for a moment. Here, you have four things that you mentioned: will or living trust, power of attorney, advanced healthcare directive, and then the fourth being how do you pay for your bills. So let’s just walk through those briefly. Will or living trust, tell us exactly what is that document and why is it important?

Cameron Huddleston: A will spells out who gets what when you die. It’s a legal document, and if you don’t have one, your state has laws that determine who gets what. And so when you discuss this with your parents, your parents might say, ‘Well, I don’t need a will. You guys get along. Or your mother’s going to get everything.’ That’s not always the case. It’s not guaranteed that your spouse is going to get everything because in some states, the laws will divide everything up evenly among the closest family members who are still alive. So it might your spouse and your kids. And maybe you don’t want your kids to get that, you want everything to go to your spouse. But I don’t think people realize this because we’re not all attorneys. And unless you point these things out to your parents, they might have no idea why a will is important. A living trust is similar to a will, but what it does — again, it lets you say who gets what. But having a living trust helps you avoid what is called probate process.

Tim Ulbrich: Right.

Cameron Huddleston: Even if you have a will, you still have to go through court proceedings where everything is kind of sorted out. And if your parents have any debts, you know, they’re going to look at the assets that are left in the estate and with certain, they will use those assets to help pay off the debts. You will not have to pay them off as long as your name isn’t on those debts. And I know people worry about that, oh my gosh, I’m not going to inherit anything from my parents except their debt. No. You will probably not inherit their debt. Anything that they have left will help pay off those debts and so you go through this probate process. With a trust, it avoids the probate process. But a trust can be more expensive to set up, and you have to name a trustee. And if you, for example, have a home, and you don’t want to have to go through the probate process, you have to basically deed, put the title, in the name of the trust. It can be a little more complicated. It’s more expensive. And so a trust is not the right thing for everyone, but it is certainly an option that your parents might be interested in, that you might be interested in. But in general, the will and the living trust, they let you spell out who gets what when you die. And you don’t have to be someone rich and famous to have a will and trust. Everyone needs to have one.

Tim Ulbrich: Amen. And a special urgent call to action for those that have children and have wishes for where their dependents would go and what would happen with that situation, I mean, this is a must-have for everyone, but the sooner the better. And I can assure you as going through this process recently with an estate planning attorney, it is not as complicated as it may seem from the outside looking in. And I think, again, to our listeners, you did a really nice job succinctly in this chapter outlining these different areas, these documents, what they are, that I think would be a great read before working with an estate planning attorney to understand exactly what would be out there.

Cameron Huddleston: Right. And people should also know because your parents might push back and say, ‘Well, I’m going to have to pay money for this, right? I’m going to have to pay an attorney to get a will or a living trust or to get a power of attorney,’ which is a legal document that lets you name someone to make financial decisions for you if you no longer can, an advanced healthcare directive lets — it spells out the end-of-life care you want, whether you want to be on life support, it lets you name someone to make healthcare decisions for you. Without this, your family has to make that decision. Do we keep mom and dad on life support? Do we continue spending thousands of dollars? And that’s a terrible decision for you as a child to have to make. And so you want to let your parents know, I want you to make this decision. I want you to decide. I don’t want to have to make this decision for you. And your parents might say, ‘Well, this is going to cost me money. What’s it going to cost me to meet with an attorney?’ It will cost you money. It can cost several hundred dollars, more than a thousand, depending on how complex your situation is, to have all three of these documents drawn up. But that upfront cost is so much less than what your loved ones are going to have to pay if they end up in court, fighting over who gets what because you didn’t have a will, going to court to get conservatorship because you never named a power of attorney, going to court because one child thinks mom needs to stay on life support and the other one does not. Those can cost tens of thousands of dollars, those court proceedings. And so it does save your loved ones money down the road, but you don’t necessarily have to go to an attorney. There are fill-in-the-blank type documents that you can find online. I’ll list some resources. Sometimes, your state bar association will have free wills available. Now, these do-it-yourself options are certainly better than nothing. But they are not ideal because they’re not tailored to your own situation. So if you can afford to meet with an attorney, if your parents can afford to meet with one, I would encourage them to do that. And you might even offer it as a gift to your parents.

Tim Ulbrich: Yes.

Cameron Huddleston: ‘Mom and Dad, I recently met with an estate planning attorney. I didn’t even realize how important these documents were. I think that if you haven’t done it already that you should. And I’d be more than willing to pay for them for you. Think of it as a gift from me. Happy Father’s Day. Happy Mother’s Day. Merry Christmas. Happy Hanukkah. This is my gift to you.’

Tim Ulbrich: I agree in your assessment of if I had to rank order, then, because I’ve been in all three situations. I’ve been with I have nothing, I have a DIY, and I have documents drafted by an estate planning attorney. I put those in that order from worst to best. And even if I could speak to for a moment, the DIY versus the estate planning attorney, not just the peace of mind of having the documents in place for your family but also what you learn through the conversations and the back-and-forth to the attorney. So we did — my wife and I did an hour video call with the estate planning attorney, then they drafted up the documents, and then we had a follow-up call as well. And there was just a lot that you can talk through, you can process, they’re asking good questions, they’re beginning to understand your personal situation, what’s unique and what you need to consider in helping you make those decisions but also then being there to answer questions. You know, I’ve learned a lot of things about making sure obviously life insurance policies and other types of things and what would fall in the trust, what would not. So there’s a lot of things I think you learn through that process of working with an attorney that I didn’t necessarily learn when I went through the DIY approach. And so for our listeners, if you want, just a point of reference — knowing this is different, obviously, by state, by attorney — it cost my wife and I about $1,000 to have a will, a living trust, a power of attorney, and an advanced healthcare directive drafted for both of us. So you know, certainly it was a cost. But I think you also have to factor in peace of mind into the process as well. One of the things, Cameron, I think you — at least for me — was a “holy cow, Aha!” moment was that I often think, as I think many others may think, is that once you have the will or living trust, the power of attorney and the advanced healthcare directive, it’s sort of a moment of like, look at me, I’m doing a good job, all is settled. And then I saw your list of, you know, how do you pay for your bills? And what are the sources of income, bank account access, household debt, monthly bills, insurance policies, investment accounts, real estate, final wishes, social security, Medicare account logins, like oh my goodness. Like if something were to happen to my parents tomorrow, my brother and I are in a very good position with the estate planning documents, but I don’t think we are with the others. And so I really liked that section on, hey, start with these as the basics, but the more advanced, when they’re ready to share, don’t forget about these aspects as well.

Cameron Huddleston: Yes, so if you — this is so important, especially if you are your parents’ power of attorney or you are the executor of their will, you need some details about their finances so that if something does happen to them, and especially if you’re executor, I mean, everyone dies. And so when they do die, you need to know what they have. You need to have their financial inventory because if you don’t, things get lost. Like I’ve heard people say, estate planning attorneys saying that there were people who found boxes under their parents’ bed with old stock certificates. I mean, they could have tossed that stuff out. That’s just throwing away money. And this happened with me and my mother. And I would just go back —

Tim Ulbrich: Oh, the $50,000, right?

Cameron Huddleston: Yes.

Tim Ulbrich: I remember, yes.

Cameron Huddleston: Yes. And so I did get my mother in to meet with an attorney before her memory issues got to be too bad. She was still competent enough to sign the documents, and that meeting with the attorney, like you said, was so good because we learned about other things we needed to be doing, like how I should go to the bank with her and get on her account as a representative payee, how we discussed Medicaid planning, which I kind of touch in the book, which is something you do need the help with an attorney. Medicaid is the only federal government program that will pay for long-term care. Medicare does not. But I think as most of your listeners probably know, you have to be very low-income to qualify for Medicaid. You have to have very few assets, typically $2,000 or less. And you can basically go through the process of transferring your assets so that you can qualify for Medicaid, but this is something you need the help of an attorney with. This is something that my mother and I discussed with an attorney when we there. So meeting with the attorney opened our eyes to a lot of options that were available to us. But even though we got those documents in place, I had not gotten details about my mother’s finances. And because she was starting to have memory issues, and as her memory got worse, and I was trying to figure out what accounts she had, there was one that slipped under my radar. And I didn’t discover it until we had moved, and the people who bought our house, they were getting mail from some investment company saying that there was an account my mother had they were about to turn over as an unclaimed asset to the state. I had no idea it even existed. It was $50,000 worth of investments.

Tim Ulbrich: Wow. Makes you wonder how often that happens. Yeah. Wow.

Cameron Huddleston: And so because I was her power of attorney, I was able to get access to it. I just went ahead and cashed it out and used it to pay for about a year’s worth of care. But I almost lost that money because I didn’t even know it existed. And so start by finding out whether they have the legal documents, find out whether they pay their bills automatically or by check. Because if they’re paying them by check, then that power of attorney is especially important because you cannot write checks from their account unless you’ve been named their power of attorney. And then once they give you that sort of information, press a little bit more. Like you had mentioned, I tell people to find out what their sources of income are, what sort of investments they have, what sort of retirement accounts they have, do they have real estate property, what sort of insurance policies do they have, and you don’t have to get them to tell you this face-to-face. You could say, ‘Mom and Dad, there’s some information I would like to know. You can write it down for me.’

Tim Ulbrich: Absolutely.

Cameron Huddleston: Which makes it so much easier. Write it down, put it someplace safe, and tell me how to access it.

Tim Ulbrich: Yeah, and I like that. Ryan Inman, another financial planner with Physician Wealth Services, mentioned in the book with his family setting up a DropBox account and sharing files that way. I thought those strategies of some of the electronic communication and sharing might even be easier if there’s not as much comfort with some of the face-to-face conversations. So before we wrap up — because we really are just scratching the surface of I think the value and how rich this book and resource is. I hope our listeners will pick up a copy of the book, again, “Mom and Dad, We Need to Talk: How to have essential conversations with your parents about their finances.” You can get it on Amazon, on Barnes & Noble, and also make sure to check out Cameron’s easy-to-understand financial advice on CameronHuddleston.com or by following her on Facebook @CameronHuddlestonMoneyExpert. But I want to close by acknowledging something that you wrote in your final note at the very end of the book that has nothing to do with personal finance but really stood out to me, and I think it will with our listeners as well. And that’s this concept of listening and writing down stories from your parents. Tell us more about that.

Cameron Huddleston: You know, as I was finishing up the book, I thought, one of my biggest regrets, as I mentioned already, is not talking to my mom about her finances. But an even bigger regret that I have is not ever sitting down my parents and recording the stories that they would share with me when I was younger. My dad would tell me these wonderful stories when I was little at night, when I was going to bed, about his childhood. And my mother had some great stories too. But I didn’t even think to do this until it was too late. You know, my father had passed away when I was 28 and he was 61. My mother, you know, she was 65 and having memory issues, and my kids were little. I was too busy thinking about raising my kids and trying to take care of her to ask her to share her stories with me. And I regret that so much. And you can even use that as an opportunity to have these conversations with your parents about their finances. You know, ‘Mom and Dad, you always tell me these great stories when I was a kid about your childhood. Would you mind if sometime, we sit down together and you let me record you?’ And then from those stories, you can take that experience and say, ‘Thank you so much for sharing this with me. This is going to help me pass along your legacy to my children. But I also want to make sure that I really, that I can really make sure that we uphold your legacy. And to do that, I need to know what your wishes are. Do you have a will? Can we talk about what sort of care you want? Because this is important to me.’ And so that can be a very easy way to actually get them to start talking about their finances by getting them to share their stories first, letting them know your stories, your history, these are important to pass along. But there are other things I’m sure you want to pass along too. Let’s make sure we have things in place so that can happen.

Tim Ulbrich: That is great. I really like that. I’m so glad you shared that at the end. I know it was something that will stick with me for a long time. One of the things I talk about on the show a lot, and I interview other entrepreneurs about is the concept of legacy and what they’re leaving behind in the work that they’re doing. And as I read through your book — and I’m not yet as familiar with the other work that you are doing, although I’ll be following that from here on out — I really am confident, and I genuinely mean this, that I think this book in terms of legacy of the work that you’re doing is going to be transformational, not only for our audience but obviously for many others that read it and are listening, that these are such important conversations that I think are going to provide peace to families, provide clarity, and really help people with practical strategies to have some of these difficult conversations. So Cameron, thank you for putting together this excellent resource. Again, the title of the book, “Mom and Dad, We Need to Talk: How to have essential conversations with your parents about their finances.” You can get it on Amazon, Barnes & Noble. And again, thank you for taking time to come on today’s show. I appreciate it.

Cameron Huddleston: Thank you.

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A Crash Course in 401k Planning (Part 2): An Intro to Stocks, Bonds, and Funds

A Crash Course in 401(k) Planning (Part 2): An Intro to Stocks, Bonds, and Funds

The following is a guest post from Dr. Jeffrey Keimer. Dr. Keimer is a 2011 graduate of Albany College of Pharmacy and Health Sciences and pharmacy manager for a regional drugstore chain in Vermont. He and his wife Alex have been pursuing financial independence since 2016.

You got your diploma, passed your boards, and landed that job. You’ve gotten your first big paycheck. Maybe you bought something ridiculous with it. All in all though, you feel like you’re adulting pretty well at this point. So, one morning you decide to make a cup of coffee and do something truly adult: log in to your retirement plan for the first time.

At first, things go pretty well. You make a username. You make a password that makes you laugh a bit. Once you’re in, a dashboard says you have a little over a grand invested! Sweet! But you’re just a bit curious, what is it invested in? You scroll over to the link titled “Investment Options” and click it. The page loads.

confused britney spears GIF

Expense Ratios!? Large Cap!? Prospectus!? These aren’t real words!

But they are.

Even though being responsible for your own retirement seems like a daunting task (it is), understanding what you are investing your money in doesn’t have to be. In this post, part 2 of our series on 401k planning, we’re going to talk about the investment products you’re most likely to find in your retirement plan: mutual funds, index funds, target date funds and exchange traded funds. But before we can get into that, we need to talk about the types of financial assets (securities) they’re made of: stocks and bonds.

Stocks

Stocks (aka equities) are your opportunity to become a part owner of a business. By purchasing a portion of a business, known as a share, you have equity in that business, which entitles you to some of that business’s profits. Those profits come to you through an increase in the value of the share you purchased, known as capital gains, or through a direct distribution known as a dividend. Taken together, capital gains and dividends give you, the investor, a return on the money you invested in shares of the company.

For the most part, owning stocks is the main way most people grow wealth through investing in financial assets. Over long periods of time, the potential to grow your wealth by investing in the stock market far exceeds your potential to grow it in something like a bank savings account.

However, there is a trade off.

Unlike a savings account, where the balance will never go down, the value of your investment in a stock (your principal) can go down. Sometimes with a drastic decrease and for no good reason! Don’t believe me? Let’s talk about Snapchat.

From Bloomberg, 2/22/2018:

In One Tweet, Kylie Jenner Wiped Out $1.3 Billion of SNAP’s Market Value

That day, if you held shares of Snapchat (ticker symbol SNAP), they would’ve lost 6% of their value in a day from something as small as a tweet from a member of the Kardashian clan. That wasn’t even the worst single day drop for a stock that year! Facebook took the crown for 2018 (and history) with a 12% loss in a day which eroded almost $120 BILLION from their market value. For perspective, that’s almost the entire GDP of Ukraine lost in one day.

But what does all that mean? I thought stocks were supposed to be awesome. Well, over the long term, they can be. But over the short term, they carry substantial risk in the form of ups and downs to share price known as volatility. And, in the case of individual stocks, share prices can actually go to zero if the company goes out of business (cue Enron).

Bonds

Bonds belong to a group of assets known as fixed income. When you buy a bond, you’re not buying ownership but are instead buying debt. Bonds offer you the opportunity to collect interest from someone else, just like Navient gets from you.

In the world of bonds, money is made primarily from the interest you collect, known as yield. For a typical bond investor, this yield is meant to provide a steady source of income and predictable return on investment.

But again, there’s a trade off.

In general, when you take less risk by investing in bonds, there’s generally less opportunity for growth. Over long periods of time, the difference in growth can be monumental.

Bond investing does have its own risks, though, as they also experience volatility.

When interest rates change, bond prices change. This is because when you buy a bond at one interest rate and the interest rate changes the next day, you need to reprice your bond accordingly to make it marketable for sale to other investors. In short, when interest rates rise bond prices go down. And, when rates drop, bond prices go up.

Your bond can also lose value if the people you’re lending money to fail to pay up (they default) or there’s a perceived risk of them doing so. This will drive up the interest rate on the bond and lower the value of the bond you hold. With the exception of US Treasury bonds, this type of risk (credit risk), is said to apply to all bond investments.

Mutual Funds

So with all the risks associated with stocks and bonds, how do you stand a fair shot at making money over the long term? You work in a pharmacy, not a hedge fund. Thankfully, the financial services industry came up with a solution for the layperson a long time ago: the mutual fund.

With a mutual fund, you outsource the job of picking stocks and bonds to people that know what they are doing (or at least, say they know what they’re doing). These funds collect investor money and invest it according to a strategy that they lay out in a statement called a prospectus.

Aside from reducing risk by investing in multiple stocks or bonds (diversification), mutual funds can also make it much easier for you to choose what you want to invest in. Just like how learning drug classes instead of individual drugs made pharmacy school a lot easier, mutual funds make investing easier by breaking the wide world of stocks and bonds into categories called asset classes. For stocks, funds will typically focus on company size (market cap) and investment style (growth vs. value). And, for bonds, credit worthiness and term (length of bond repayment) are the main factors.

So by now we’ve established that mutual funds make investing easier by helping you with diversification and grouping securities into asset classes. So what’s the catch?

Well, there’s a big one: fees.

Since you’re outsourcing the legwork of investing to someone else, they need to get paid right?

But what’s a fair price?

Should you pay them upfront?

Over time?

What about when you cash out?

Well, depending on the fund, you might get hit all 3 ways. And, if you’re not careful, these fees can make a massive difference in your success as an investor. So what do they look like? For that, let’s look at a really bad fund which shall not be named (fake ticker symbol: FTNBN) and it’s snapshot from the site Morningstar.

Compared to most mutual funds out there, the fees on this fund are really high but, for the sake of argument, let’s say you want to invest $10k in this fund. If you were to give these people your money, you’d find yourself $575 poorer in an instant from their sales load. OK…but they are going to make me money in the long run and “beat the market”, right? Wrong!

If you put your money in this fund 20 years ago, not only did its managers fail to beat the market (measured by the S&P 500 index), but you actually lost money over this time period. How? Poor management probably played a role, but you can be sure the ongoing fees they were charging were the main culprit.

You see, that number called the expense ratio is the amount they take out of your investment every year for the privilege of having your money in the fund. If you were in this fund, you were paying a whopping $551/yr for every $10k you had invested with them. The fund managers don’t just get this money when the fund does well; they get it regardless.

You, the investor, just get bigger losses and smaller gains.

Imagine if this fund charged the 3rd type of fee, the redemption fee, where they actually charge you another percentage of whatever you take out. Ridiculous!

To be fair, this fund was one of the most egregious I could find. Many funds today do not charge sales loads or carry heavy expense ratios. But, chances are, they would if it weren’t for a man named Jack Bogle and a crazy idea he had back in the ‘70s.

Index Funds

Remember how I mentioned that fund above failed to beat the S&P 500 index? They’re not alone. It turns out the majority of funds that rely on professionals actively picking stocks don’t beat their benchmark indexes. This is as true today as it was back in the 1970s when Jack Bogle, the founder of Vanguard, decided to open the world’s first S&P 500 index fund.

The premise was simple. If you can’t beat ’em, join ’em.

Instead of relying on “active” stock picking, his fund would simply track the S&P by investing in every company within the index proportional to their size, a process called “passive management.” This did two things:

1. Gave investors a diverse basket of US stocks

2. Cut down on costs since he didn’t have to hire stock pickers

That last one was a game changer. The success of Bogle’s index fund set off an arms race in the fund industry to lower investor costs. So much so that today you can even invest in some of these funds for free. No load, no expense ratio, nothing. Free. Heck yes!

And it’s likely you have some of these funds in your retirement plan!

But wait, there’s more! Not only are they cheap, they make picking investments easier. When investing in index funds, or indexing as it’s called, all you are looking for is an index to track and a cheap fund to do it. Want to own every publicly traded company on the planet? There’s a fund for that. What if you want to target only real estate investment trusts (REITs)? Yeah, you can do that, too! What about bonds? Yes, there are indexes out there with funds you can buy, too. With index funds, it’s easy to make a portfolio that invests in the mix you want.

But, believe it or not, things can get even simpler.

Target Date Funds

Also known as lifecycle funds, target date funds are a lazy investor’s dream. Chances are, you might be invested in one of these already and not even know it. Many retirement plans have an auto enrollment that puts a percentage of your income into a target date fund as the default investment strategy.

Traditionally, as you get closer to retirement you want to shift your portfolio from more risky assets such as stocks into safer assets such as bonds. While this is a pretty straightforward process, many people are uncomfortable with making changes to their nest eggs themselves. So uncomfortable, in fact, that many people hire someone else to do this for them and pay them an ongoing fee. The mutual fund industry took note, and because they also liked money, worked on a solution they could keep in house.

Their bright idea? The target date fund (TDF).

Basically, a mutual fund company markets a number of funds with names looking like this:

As you can see, there’s a date in the name. All you have to do is pick a fund with a date that best matches when you plan to retire, give that fund money, and…go do something else. Maybe brew some beer. You’re done playing money manager.

How?

A TDF is designed to be an all-in-one, set it and forget it, type of product. Over time, the makeup of the fund (its asset allocation) will shift automatically into a mix that’s more appropriate for your expected retirement date using a formula called a “glide path.” To do this, a TDF is typically comprised of other mutual funds and the TDF’s glide path dictates the mix of those funds within the TDF.

But remember, the fund industry likes money. Since TDFs serve as a convenient wrapper for the mix of funds they contain, you may pay a premium for that convenience. So if you’re someone who hates the idea of having to change or rebalance your portfolio, or spending time on it in general and you just want to keep contributing, these can be a great option.

Exchange Traded Funds

Lastly, you may encounter the newest type of fund in your retirement plan, the exchange traded fund (ETF). An ETF is not all that different than a mutual fund. You get a diverse basket of stocks, you can track an index, and you get charged an expense ratio. But, they are very different in how they’re traded. With a mutual fund, if you want to buy or sell shares you put in an order and that order gets completed by the next day. With an ETF, you can buy or sell your shares instantly just like a stock.

Also, with most mutual funds you need to make an initial investment of a couple thousand dollars. With an ETF, you can invest for whatever the price of a single share costs. This can allow a beginning investor to make a portfolio of many funds without needing a lot of money.

There is one extra “fee” to be aware of though. When you trade a security, be it a stock, bond, or ETF, there’s a cost to facilitate that trade known as the bid-ask spread. In essence, there’s a higher price you can buy a security for and lower price you can sell it for. The difference between those two values, the spread, is the cost paid to the exchange that facilitates the trade. The more something is traded, the more liquid it is said to be, and the lower the spread will be. While not especially important for something you intend to hold long term, it adds a cost to buying and selling that you should keep in mind.

What’s Right for Me?

Now that you have a better understanding of what types of investments are lurking in your retirement plan, the question now is “which one(s) to choose?” Well, just like the decisions surrounding your contributions were very personal, these will also be.

And, there’s no one size fits all approach.

When building your portfolio, there are many factors to consider. Some of the main ones:

  • Retirement Plan
    • Do you plan to retire early or at a traditional age?
    • How much do you need to fund your retirement?
  • Risk Tolerance
    • How much risk you’re able to take
    • Usually related to your age and expected time to retirement
  • Risk Capacity
    • How much risk you need to take
    • Related to your current wealth, savings rate, retirement time frame, etc.
  • Investment Strategy
  • Who’s Managing It?

That last point is extremely important because statistically speaking, Americans are horrible at investing on their own.

Why?

Because much of your success as an investor is going to be driven by how you behave in different conditions. If you’ve ever heard the old adage “buy low and sell high” you may be surprised by how many people do the exact opposite. While there are many benefits to the DIY approach in managing your investments, it can sometimes help to have a professional help manage you. Aside from having the knowledge to build a portfolio that meets your needs, a financial planner can help you navigate the ups and downs of your investing career in a way that keeps you on track. If you feel like having that guidance, support and expert knowledge in helping you navigate your investments and portfolio, schedule a free discovery call with YFP Director of Business Development, Justin Woods, PharmD to see if YFP Planning is a good fit for you.

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YFP 107: What You Should Be Doing During the Grace Period


What You Should Be Doing During the Grace Period

Christina Slavonik, CFP® and YFP Team Member, joins Tim Baker to discuss the student loan grace period, why it’s not that gracious and what you should be doing during the grace period. They break down the differences between the grace period, forbearance and deferment and talk through scenarios you can consider when determining your student loan payoff strategy.

Summary

Christina Slavonik, CFP®, is back on the show to talk about how the grace period sometimes isn’t that gracious. The grace period on your federal student loans usually lasts 6 to 9 months and is the time between graduating from college and when you start making payments on your loans. This can be really helpful while you are looking for a job, but it should be looked at with caution. The problem is that interest accrued during this period is then transferred over to your principal balance, causing your balance to obviously increase as well as the interest on the loans. Behaviorally, a lot of people have a hard time avoiding lifestyle creep as they don’t have to make any student loan payments and then are hit with a surprise a few months later.

When the grace period is over, you automatically will be defaulted into a standard repayment plan. If your student loan debt is $160,000, a standard repayment plan will have you pay about $1,800 monthly. So what should you do during the grace period if you don’t want to fall into a standard repayment plan?

Christina suggests that establishing ground rules and assessing your job, situation and cash flow are the first steps. Then, you can formulate a repayment strategy. Tim and Christina talk through scenarios of a pharmacist seeking PSLF, non-PSLF forgiveness and an aggressive option. Christina reminds listeners to stick to a strategy once you understand them and pick one and to not get too comfortable during the grace period. Overall, Tim and Christina both iterate the importance of intentionality when determining a loan payoff strategy. They also discuss refinancing and consolidating your federal loans and the strategies and reasons for doing so.

Mentioned on the Show

Episode Transcript

Tim Baker: Hey, what’s up, everybody? Welcome to Episode 107 of the Your Financial Pharmacist podcast. Christina, welcome back to the podcast. It’s been awhile since you’ve been on. How have you been?

Christina Slavonik: Doing great, yeah. Thanks so much.

Tim Baker: So a little update for the listeners out there, Christina, who I think came onto the team in March, she was actually out in Baltimore in YFP Planning headquarters, and we spent a week last week kind of just doing some training and just working together, side-by-side, which I think was fantastic. I feel like anytime we can get in person, not just on the YFP Planning side but just with the Tims and everything, it’s always a good, productive use of time. So yeah, how was your visit to Baltimore?

Christina Slavonik: It was wonderful. Yeah. Baltimore, I just love the history, of course. And you and Shea were very hospitable. And got to have some crabs, I’ve never had to open crabs before, so thank you to Paul Eichenberg and his wife Anne for being so patient. I think I was a fast learner, but yeah, it always helps to have a good tutor to help you with that.

Tim Baker: Yeah, so we pick crabs with Paul on one of the evenings Christina was here. And it was out on the water, it was beautiful, so yeah, big props to Paul and his wife Anne for hosting. That was fantastic. So Christina, we’re going to talk about the grace period. And for a lot of those out there, we talk about the grace period as something that maybe isn’t as gracious as one would think. And really, what we’re talking about is really that waiting period between graduation and when you actually start your loan payment. So for a lot of people, this is going to be, for their federal loans, it’s going to be six months. If you have Perkins loans out there, it could be up to nine months where you’re actually not on the hook for any of the payments that are out there. There are some exceptions out there that if you are in the military or something of that sort, you know, you can actually get a longer grace period. The problem is during this period of time, the interest that is basically building month after month, year over year, really, if you go out that far, is unforgiving. And it’s not so gracious. So I think for us today, what we want to talk about is, you know, along with some of the nuances of what grace is and kind of what are the differences between grace, deferment, and forbearance, is actually what you can do to mitigate some of that during that six-, nine-month time. So Christina, for you, when you think about grace versus deferment versus forbearance, can you tell the audience, basically break it down like what the difference is between those things? And how we should kind of go about the grace period?

Christina Slavonik: Sure. So yeah, just reiterating what you had just said, the grace period is the waiting period between your graduation and the actual start of loan repayment. So there’s also some other caveats. So if you’re going from full-time schooling to part-time schooling. And then if you withdraw from school, your grace period may also end. But the whole point of the grace period is just to give you some time to hopefully find that job and so that you have an income within that 6-9 months to start repaying back those loans. So yeah, looking at the difference, deferment allows you to completely stop making payments. So if you decide to return back to school, you can take advantage of that whereas forbearance, you stop the payment requirement altogether due to financial hardship. And there are different definitions of that and how that works.

Tim Baker: Yeah, and sometimes, if you’re going into a residency program, you can actually qualify for a deferment. And sometimes they categorize that as more schooling or forbearance because maybe the residency doesn’t pay you kind of anywhere close to what you would actually be able to pay off your loans with. So you know, it is important to understand the difference. But by and large, what we often say is that the grace period should be looked at with absolute caution. I feel like when we first started talking on this subject, Christina, and we would go and we would talk to residents or people that had just done residency or a fellowship or just even current residents and we would say, “Hey, how many of you deferred or put your, you know, loans into forbearance after the grace period?” And a lot of them opted into that just because just making ends meet with that residency salary was tough. The problem is — and we’ll talk about this a little bit more — is the fact of the matter is that you have this period of time to account for the period of time where life is adjusting. What we often see is that the lifestyle creep can kick in, we sometimes see that it’s just one of those things that are in the back of our mind that we know that this maybe six-figure monster is looming overhead, but we just don’t want to confront that quite yet. And typically, the longer that we kick the can down the road, the more painful it’s going to be. And it’s typically when we go from the grace period into repayment. So if you don’t do anything, that standard repayment plan is going to be your default plan. So again, the numbers per the averages is that if you have an average pharmacy loan debt of $160,000, the standard plan, which is over 10 years, it’s about an $1,800 per month payment. So if you don’t do anything, once you go from that grace period into the payment, whether it’s standard or one of the income-driven, all of the dollars that are in the interest column — you know, so you have your principal and your interest. And your interest has just been accumulating throughout school for those unsubsidized. And for the subsidized loans, they’re not. But once you basically have the act of going into repayment, all of those interest dollars migrate over to principal. So basically, it clears the ledger of interest, but then those dollars are now making interest and interest on top of interest, and that’s where it can get very predatory. So you know, one of the things that we’ll kind of talk about is what to do during the grace period and how to tackle that. But it’s super — you know, we talk about this time and time again, and you know, it’s kind of — we beat the drum on this is it’s all about intentionality. For some people, as they’re looking — and Christina, you and I can attest to this since working with so many residents —

Christina Slavonik: Definitely.

Tim Baker: And new grads, it’s like the job market is real. And sometimes, it doesn’t line up as quickly as you would want. So that’s where the grace period really can come into play. However, I think there are some ways that we can get into repayment easier and at a more preferential monthly payment that is actually doable, even on a resident’s salary. So in terms of some loopholes that we can talk about with regard to the grace period, what have you seen as kind of maybe the big loophole to kind of shift the default in terms of that six-month or that nine-month waiting period to get into repayment?

Christina Slavonik: The shift to think about — some people, the moment they get out, they’re like, oh, I want to pay down this debt, they want to consolidate. But just be careful to make sure you’re weighing all your options because even though you’re in grace period, once you do decide to consolidate or even refinance, that grace period will actually, you’ll lose it. So yeah, students who consolidate during the grace period will lose the remainder of that grace period. So that’s why, you know, we recommend that — say for instance, you’re about to enter repayment within 60 days or so. If you do decide to consolidate, just wait if you can to the end of that grace period so you’re kind of backing it up to that point so you don’t have to immediately be out of grace period and start having to pay it back that urgently.

Tim Baker: Yeah, so for some people, depending on what the strategy is — and we’ll kind of talk through some examples here — but for some people that they don’t want to lose the grace period because the income isn’t there to support that payment, something like a consolidation is ill advisable because you typically will lose that grace period. However, if you’re a pharmacist that you want to get into repayment as quickly as possible because you want to start the clock maybe on PSLF or you just want to get in the process of paying those loans down, consolidation is a great way to kind of cut through the grace period because for some people, they don’t need it. They have a job before they even graduate, and they basically can start the repayment process. So it just depends on where that’s at. Now, again, from a refinance perspective, anytime — so to just kind of recap of where we’re at with refinance, so consolidation is basically where we take one or more of our federal loans and we basically consolidate them down into one to two consolidation loans. And typically, the way this works is when you graduate, oftentimes, we’ll see pharmacists that have FELL loans, which are kind of like the old federal loans, they’ll have Stafford subsidized, Stafford unsubsidized, they might have a Perkins loan, they might have a private loan. So all the loans except for the private loan are eligible for the federal loan repayment, so that’s going to be your standard default and then one of the four income-driven ones, which is going to be IBR, ICR, revised Pay As You Earn and Pay As You Earn. However, especially for like the Perkins and the FELL loans, we often have to basically solve the square peg, round hole. So the FELL and the Perkins loans don’t fit into the income-driven ones. We basically have to consolidate those down to typically a consolidation subsidized and a consolidation unsubsidized to get into those income-driven plans. And what a lot of people do is they fail to do that. So in certain situations, we’ll have clients that are halfway through PSLF, it’ll be five years in, but they might have $30,000-40,000 of FELL loans that don’t qualify for forgiveness because they never consolidated those down. So my thought is you want to do this on the — basically from Jump Street. So if you just graduated and you’re unsure, timing your consolidation is important because if you do it like right now and you don’t have a job lined up, in 60 days, the payments are going to start, which might not necessarily be a bad thing. Or you wait until the end of the consolidation period. One thing to really focus on, Christina, is once you consolidate, any payments that you might have previously made — so that’s the example, the five-year, making payments for five years — that clock starts over. So that’s really important to really understand. So that’s a big roadblock is if you ask yourself, how many years have I been paying towards a forgiveness strategy before you consolidate? Because if you consolidate, then the time in that situation goes from five years to zero years, and that’s no bueno. So refinance, on the other example, is when you say, “Hey, thanks, federal system, it’s been great. But I’m going to take my income and my payment history and my credit, and I’m going to go out to say one of the YFP partners at Common Bond or SoFi or LendKey or Earnest and try to get a better rate since this is where I’m paying 6.5% with the federal government. I’m going to try to refi down and get a 5.5% rate at a term that fits me and my budget.” The big reminder there is once you go from private to federal, once we go from private to federal, we can’t go back. So that’s really important to remember as well. So that’s kind of a brief overview. So again, when we talk about the grace period loophole, what we’re really talking about is consolidation. And if we consolidate, then if you don’t want that six-month period, we can actually cut that by a third and get you into repayment basically in two months. So that’s kind of what we’re looking at. So Christina, when we talk about the grace period, what are the things that we do with clients, you know, maybe from a basic level when we talk about goals or budget — how would you start the conversation with regard to what do we do? What do we do during the grace period and really beyond that?

Christina Slavonik: Yeah, so basically, Tim, you just want to establish some ground rules. Obviously, what their job situation looks like and if they’re ready to just start looking at this. Because if they don’t do anything, at least they’ll have the standard plan that they’ll just default into. So we do get quite a few people that they’re finishing residency and about to start their job, and then they start kind of panicking. They’re like, well, what do we do with our student loans during this time? So I just try and reassure them, first and foremost, that hey, you don’t have to make a decision ASAP. But we have to get that conversation going. So firstly, you know, looking at their budget, seeing exactly where they’re at with their cash flow is the No. 1 thing and then formalizing a repayment plan from there. So you had already mentioned the RePAYE and the PAYE as well as the other IBR plans. Those are the typical ones that we see people falling into. And then if you can do it with PSLF, what that looks like. And then if you can’t qualify for PSLF or the Public Student Loan Forgiveness, what that also looks like. So of course, PSLF, you will pay the least amount as humanly possible, especially important to at least begin thinking about that from your P4 year to PGY1. And if you know you are going to be pursuing PSLF or have a job lined up with a nonprofit, consolidating to get into that repayment is so important because you want that clock to start ticking the moment you are starting to repay those loans.

Tim Baker: Yeah, so if we break that down. And we can kind of use a real-world example here. We had a client that actually is going from their PGY2 year into a nonprofit hospital position. So she was weighing a few different options, and she was looking at an option that paid her I think about $98,000 for the nonprofit hospital. And she had about $270,000 in debt, so to speak. And then she was also weighing a for-profit offer, which was about $125,000 in that area. And she actually decided to go with the nonprofit that paid her substantially less because as you said, you’re going to pay the least amount as humanly possible over the course of those 10 years. It’s not even a comparison. So for her, it’s really getting into the repayment as quickly as possible. Now, again, if you’re looking at like you mentioned, a P4 year going into a PGY1 or something like that, you want to start the clock on PSLF as soon as possible. So that’s typically where you want to get through the grace period, maybe you consolidate, start the payments in 60 days, and then really start the clock on that 120 payments hopefully over those 10 years. So those are all great points. So what if PSLF is not on the table? What if you say, “Hey, Tim, that’s great. I’m going to go work for a for-profit hospital or I’m going to go work in industry or something like that.” What’s a strategy that we would look at? And how would the grace period affect us in that mode in your estimation?

Christina Slavonik: There’s just really what you’re comfortable with. Non-PSLF, obviously, you can’t have RePAYE, but the thing is if there is any forgiveness, it’s going to non-PSLF forgiveness. So at the end of your payments, you will have to pay taxes back on whatever is forgiven. So knowing that in advance and being able to stock some extra money away at the end of that term is important because you don’t want to have a huge what we call a tax bomb on your tax return that final year when you do get everything paid off.

Tim Baker: Yeah, so if you’re transitioning from like a P4, like you said, Christina, into something that’s for-profit, typically something outside of PSLF forgiveness makes sense if you have a debt-to-income ratio higher than 2:1. So this is an example of, “Hey, Tim, I have $300,000 in debt. I’m offered $100,000 at my for-profit job. What do I do?” And this is typically where we would want to get you into one of the income-driven plans and get that started as quickly as possible. So again, in the grace period, it probably makes sense for you to do that. And then the idea is to one, lower your AGI just like you would in PSLF, get those payments down as low as possible. But in the non-PSLF strategy, what you really want to do is save for that tax bomb, as you mentioned, and make sure that there are dollars set aside for that so you’re not surprised by that.

Christina Slavonik: Yeah.

Tim Baker: And really, both of those cases, in the PSLF and the non-PSLF, if you can — again, given the budget and things that you mentioned, maybe having a little bit of cushion with the emergency fund — it’s really imperative in my estimation is to get into repayment as quickly so you can start the clock for forgiveness. The last one we should probably talk about is an aggressive option. So if you are of the mind of say like our Tim Church where he is in repayment, very aggressively — you know, in this scenario, the grace period might not even matter. Now, it could for some because if you’re a recent graduate and you’re waiting to get into repayment, sometimes when you refi, the refi companies want to see, they want to see proof of income, they want to see proof of payment, that you actually have a track record of doing so. So sometimes, doing nothing and just going through the grace period or at least consolidate them and maybe get into repayment more quickly might make sense. But from there, you know, you probably want to shop refi when you feel eligible, when you feel like you have a long enough track record and get that process going. You could also do nothing and stay in the standard plan after the grace period and just know that that interest will capitalize from the interest column into the principal column, which is not necessarily a fun thing. Any thoughts on that, Christina? In terms of what you see.

Christina Slavonik: Well, just be black or white. Don’t be anywhere in the middle.

Tim Baker: Yeah, exactly.

Christina Slavonik: You want to make a decision to do aggressive, do aggressive the whole way, just like Tim Church is a very good example, as well as many other clients and people we’ve had on the podcast. And those that listen on a regular basis have heard their stories. But yeah, just put all you have into it and head to the ground and get it done.

Tim Baker: But it’s one of those things, though, you know, it’s kind of our human nature where if I’m putting the least amount towards my loans, sometimes I may feel guilty, so maybe I get a tax refund or maybe I get a graduation gift, and I want to like put that towards my loans and get the process started. But if you’re seeking a forgiveness play, it’s like, uh uh. You want to fly that flag until you are forgiven. But human nature, we kind of revert to the mean. So that’s not necessarily the right thing to do. So important to, again, understand your strategy and stick to the strategy.

Christina Slavonik: Exactly.

Tim Baker: Yeah, at the end of the day, what we often like to say, this is more about intentionality. And I think what sometimes happens with the grace period is that we lose some of the intentionality because we get comfortable in kind of that transitionary space or we just kind of forget — we have clients that will say, “Oh yeah, the loans. Like now I have a bill for $1,800. What do I do?” We’re seeing more and more people become proactive and I think intentional, which I think it’s a great sign that maybe we’re moving the needle a bit. And people can speak through the different strategies and that type of thing. But the grace period I think, like you said, it’s not necessarily gracious from a math perspective but then also from a behavioral perspective just because of that half a year, so to speak, where you get comfortable without having to really worry about the loans. Me, that can be almost as problematic as the math. So I think to kind of reiterate, the grace period, it’s not necessarily gracious. It’s going to be different than the forbearance and the deferment options that are going to be out there for many, especially if you’re having problems finding a job in those maybe pharmacy-saturated markets or if you’re going into residency, you can easily opt into those types of things. But what our suggestion over this grace period is one, does it make sense to cut through that? And if it doesn’t, I think just having a plan going forward with the loans because it’s not hyperbole to say that the decision of what you do with the loans, especially out of the gate, can be hundreds of thousands of dollars one way or the other, especially with the average loan forgiveness programs we’re seeing.

Christina Slavonik: Yeah. Like a huge difference.

Tim Baker: Yeah. You know, and you’ve seen it, Christina, when we’re working with clients, it’s like when we put that on the decision table, for a lot of people, it’s really the first time that they’ve actually looked at the numbers and actually seen like, OK, if I go down this path, this is what I’m going to pay in total and this is kind of my monthly payment that I can expect. And that can be shocking for a lot of people, especially if they’ve been in this mindset going through pharmacy school of just kind of sticking your head down and worrying about getting through pharmacy school because that’s really hard in and of itself.The financial side has kind of been buried. And it’s funny, when we go to the APhA conference and I talk to students there, and I say, “Hey, what are you — what’s your thoughts about your student loans?” It’s like, “I don’t even think about my student loans.” It’s almost like they stick their head in the sand, and they don’t worry about them, which I think can be problematic in and of itself. But the grace period can be almost an extension of that because we’re kicking the can another half year down the road for us to actually come to grips with what we actually have to pay back and how do we use the tools out there?

Christina Slavonik: Exactly.

Tim Baker: So once again, Christina, thank you for coming on the YFP podcast to lend your voice to this discussion about the grace period and student loans, always great to have you represented here. And I think we covered a lot of ground. You know, I think we talked about the difference between the grace period, forbearance, and deferment. We talked about different strategies and the grace period loophole with regard to consolidation. And what we really want as a community is for you, the recent pharmacy graduate, to really be intentional with your student loans. Now, if you’re looking for additional resources, additional podcasts to listen to with regard to the student loans and as you’re transitioning, I want to point you to three different episodes: Episode 051, which is 8 Things to Do or Avoid to Evade Financial Purgatory After Graduation, and then 052, the one following it, is 5 Steps to Crush Your Student Loans. Great resources. And then finally, Episode 099 is Key Financial Moves for Pharmacy Graduates. I think this podcast, along with those other three, will really equip you on your journey to pay back your student debt. So thank you for listening to this week’s episode of the Your Financial Pharmacist podcast. And looking forward to next time.

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YFP 106: How This Pharmacist Got His Financial House in Order


How To Get Your Finances in Order as a Pharmacist

John Kohli, PharmD, joins Tim Ulbrich to talk about his career journey, how he managed to rack up approximately $260,000 of debt despite graduating from pharmacy school with minimal student loan debt, what motivated him to get his financial house in order, and how he hustled to pay off most of this debt within a 2 year period.

About Today’s Guest

Originally from northeast Ohio, John Kohli currently lives in Phoenix, Arizona and works as a pharmacist in acute care and behavioral health. John graduated with a Doctor of Pharmacy degree in 2006 from Ohio Northern University. He moved to Arizona where he completed a pharmacy practice residency with emphasis in community pharmacy with Midwestern University College of Pharmacy Glendale. He has worked for independent pharmacies, larger retail pharmacies, and hospitals. His interests include bicycling, speaking German, and volunteering.

Summary

John Kohli has an incredible story to share that includes ups and downs financially and personally and a journey of discovering his true identity and how that impacted his finances. In this podcast, John speaks about how to get your finances in order as a pharmacist.

John, a 2006 graduate of Ohio Northern University, currently works as a PRN pharmacist at a psychiatric hospital. His pharmacist journey started his senior year of high school. He worked at a small independent pharmacy and the pharmacist there encouraged him to apply to Ohio Northern. John was able to graduate with only $60,000 to $70,000 of student loan debt. He received scholarships, worked during the summer full-time and also worked 10 to 20 hours a week during school to help reduce the amount of money he had to borrow. After graduation, he wanted to move to a place with warmer weather and landed a residency in Phoenix. He still lives in Phoenix today.

Although he graduated with minimal debt compared to other pharmacists, John began racking up a lot of debt quickly. After residency, he began earning his first pharmacist salary, thought money wouldn’t be an issue and bought a house in the summer of 2006. By the fall of 2007, the stock market crashed and the housing market in Phoenix was hit hard. He purchased his house for $233,000 with an interest only loan and adjustable rate mortgage. At this time, John was working part-time due to reducing his hours to handle the addiction he was struggling with. He realized he needed to get out of that mortgage and had to short sell his house for $72,000, which affected his credit. He accumulated credit card debt during this time, as well.

John refers to a period of his life as a spiritual financial breakdown. He liked his pharmacy career, but realized he put too much emphasis on his identify as a pharmacist. In recognizing his addiction, he had to acknowledge that there was something missing and that working as a pharmacist could allow him to have a life and find out what was missing, while not focusing on his work as the only goal.

After this process of discovery and reflection, John got serious about paying off the $260,000 of debt that he had accumulated post-graduation which included a second house mortgage, credit card debt, and student loan debt. He had been gradually paying on this debt, but got serious about paying it off between January 2017 to January 2019. To do this, he worked on budgeting to take control of his expenses and started saving 70-90% of his income. John built an emergency fund ($10,000 that grew to $50,000), contributed to retirement (not in a 401k, but in a Roth and stocks but then contributed to a 401k once he got a full-time job again), and rented and had a roommate. He purchased his second home once he was able to save 20% for it. When he got serious about paying off his debt, he got rid of his credit card and paid it off, paid off his student loans and then paid off his second mortgage. He picked up another job and worked a lot and also slashed his budget in some obscure ways, like not using air conditioning even in the hot Phoenix summer.

Now that John’s debt is paid off, he feels like he has options, feels serene, and can handle what comes at him spiritually, mentally and financially. Even though it was really hard and he doubted that he’d be able to pay everything off when he was in the trenches of it, he now sees how it was worth it. Although John isn’t planning on being as dramatic as he was when he was paying off his debt, he still saves 70% to 90% of his income and lives frugally. In the future, he wants to buy some sort of asset like real estate or a business.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to this week’s episode of the Your Financial Pharmacist podcast. I’m excited to welcome John Kohli onto the show, a 2006 graduate of Ohio Northern University who has an incredible journey to share with our listeners that includes ups and downs financially and personally and a journey of discovering his true identity and how that has impacted his finances. John, welcome to the show!

John Kohli: Thanks, Tim. Glad to be here.

Tim Ulbrich: I appreciate your time. You know, here we are, Memorial Day weekend, 8 a.m. Eastern, 6 a.m. out in Arizona, so — actually 5 a.m., right? Out in Arizona?

John Kohli: Yeah, that’s correct. Yes. Bright and early.

Tim Ulbrich: Early morning, and I appreciate you taking the time to talk with me and share your story with our listeners. I think, as I mentioned, incredible journey that I know has been inspirational to me and I’m sure will be the same for our listeners. So let’s start with your education and training. Tell me a little bit about how you got into pharmacy and then your career path since graduating from Ohio Northern in 2006.

John Kohli: Well, absolutely. I was working in a pharmacy as a senior in high school, actually. A small, independently owned pharmacy in the small town where I grew up, and the pharmacist encouraged me to apply to her alma mater, which was and is Ohio Northern. And I decided this would be a great career choice. I packed my bags, moved to Ada, and spent the six years there. And after that was looking at maybe I should move to a warmer place in winter. And I really liked the Southwest, so I found a residency out in Phoenix and decided to pack up my Honda Accord and drive on over to Phoenix, do a residency, and plans were to stay for a little bit and see how things went. And here I am, almost — what? — now 13 years later.

Tim Ulbrich: Yeah.

John Kohli: Still here.

Tim Ulbrich: So growing up in northeast Ohio, as I recall, correct?

John Kohli: That’s correct.

Tim Ulbrich: So no wonder. I grew up in Buffalo. So no wonder you wanted to move out to Arizona. I mean, you spent time in northeast Ohio, you spent time in Ada, Ohio, where the winds and the polar vortexes are readily there. So going out to the warmer weather certainly makes sense. So talk us through, you got to Arizona, you do residency with a compounding pharmacy at Midwestern University. Tell us then about the career path that leads up to your current role at the psychiatric hospital.

John Kohli: It’s interesting. I’m glad that I did the residency out here in Arizona because I didn’t know anybody but a friend of a friend from Ohio Northern, who was also a student at Midwestern. So I came out here blind in terms of any friends or connections other than my job and that one loose connection. And I ended up starting to be an assistant professor at Midwestern and also working still at that compounding pharmacy. And that is where my journey continued. And I met a lot of people through the state association, through residency. We had some residents groups. And then I ended up leaving the college and just working full-time at the compounding pharmacy, although this specific one was more in terms of HIV specializing. So we helped patients there at that clinic. So it was about at that time that I really had what I call my spiritual and financial breakdown. And my problems with addiction really came into play. And I had to take about a year to sort of take some time off from pharmacy and just work part-time. I worked in a grocery store setting in another small, compounding pharmacy for a year or two, then bounced into a clinical pharmacy position with the prisons for a very brief moment and then back into the grocery store. So at that time, it was figuring out, is this the right career for me? What do I want to do with my life? A lot of the financial realities were starting to hit there. So there was a lot of questions about what am I doing? And it was during that time that I landed the director position at a psych hospital. And from there, spent about 3-4 years in that position. Also got into a PRN position at an acute care-trauma hospital and really built those connections in that aspect of pharmacy. And that’s where I am today now.

refinance student loans

Tim Ulbrich: And so before we get into, you know, what you referenced as your spiritual/financial breakdown, knowing that’s such a big part of your story, I want to talk about your strategy and debt position coming out of pharmacy school because you really had a lower amount of student loan debt, significantly lower, than is the average. So I’ve talked before with our listeners, also went to Ohio Northern University, because of my lack of education and awareness and different factors, I came out with a little more than $200,000 of debt during my repayment journey. But you had a much lower amount, $60,000-70,000, which is about $100,000 less than the national average right now. So how were you able to graduate with the lower amount of debt than is the norm, especially coming out of a private institution?

John Kohli: You know, Ohio Northern blessed me with some scholarship. So I already came in with some academic scholarship and also, through — there was an organization in the nearby small town, and they also helped with a portion of my student loan, or student tuition, excuse me.

Tim Ulbrich: Sure.

John Kohli: And then I basically worked throughout my years at Ohio Northern. I worked during the summer full-time and worked during the school year 10-20 hours a week from really freshman year until I graduated. So — and I paid some of that tuition and tried to minimize the amount of loan debt I had to incur.

Tim Ulbrich: So minimizing the amount that you needed to borrow for cost of living and other things, scholarships, it sounds like from that, as well as the work experience. I’m just curious, Ada, as everybody knows — for those that don’t know, it’s literally in the middle of nowhere — so I get the summer work, you know, you probably went home to northeast Ohio. Where were you working like throughout the year? Like there’s one pharmacy I think within 10 miles.

John Kohli: Yes. Well, I had to drive the 10 or so miles to Lima, Ohio.

Tim Ulbrich: OK.

John Kohli: And luckily, I met an alumnus in the Rite Aid corporation, and from — I’d done some college work as a senior in high school, and I was able to get my intern license the winter of my sophomore year.

Tim Ulbrich: OK.

John Kohli: So actually in December of that year, I started interning at Rite Aid in Lima, Ohio, and would drive there on the weekends, sometimes during the week, but almost every weekend. Sometimes I wished that I could be hanging out and enjoying the weekends off, but there was a lot of times I had to go into work.

Tim Ulbrich: A lot of hustle. And we’re going to come back to that because that’s very much your journey of paying off debt was a lot of hard work and hustle. You’re giving me flashbacks, John. I remember sitting in the chapel at Ohio Northern in our Profession of Pharmacy POP course winter semester of the P2 year, applying for intern licenses. So I was back on campus recently talking with our students, and I was like, you know, we had POP, Profession of Pharmacy in the chapel. And they looked at me like I was crazy because now they have like these nice facilities and buildings and all that. So good times and memories. So you know, let’s talk about what happened. I mean, we’re going to talk in a minute about paying off $260,000 of debt, which was a variety of things, student loans, a mortgage, some credit card debt. But what happened from graduating in such a good financial position to really, in some sense, the wheels falling off and racking up a significant amount of debt after graduation? Where did that debt come from? And why was that the case?

John Kohli: Well, the biggest thing that happened was after I finished my residency and got that first real pharmacist salary, and I felt like I was rolling in dough. I mean, this is what I wanted — this is why I went to school for six years and an extra year. And I bought a house here in Phoenix in the summer of 2006. And if anybody can remember, yes, yes. You know exactly where I’m going with this.

Tim Ulbrich: Yeah.

John Kohli: Is by 2007, the fall of 2007, the stock market crashed, and the housing market just tanked here in Phoenix. So I bought with an interest-only loan. I didn’t put any money down, and I bought at the top, tip-top of the market. And that was a significant — that was over $200,000 of debt right there in that property. And this was at the time when I had to start working part-time and wasn’t full-time employed. So it was OK when times were good. I could pay that mortgage. But as soon as something unexpected happened and I didn’t have that income and the market wasn’t great, I was in a bind. And that’s where I also racked up credit card debt and was just not able, you know, would have been able to pay the mortgage but also, it was a burden.

Tim Ulbrich: So it sounds like several factors came together that, you know, the part-time work since you’re not working full-time, you mentioned interest-only loan, no money down, and all of a sudden, the market takes a significant hit. And so you don’t have that full-time income. Obviously, you have some student loan debt. But that leads then, I’m assuming, to some credit card debt because of a lesser salary and the mortgage challenges that are going on. So give me the details on the home. I mean, obviously what I know of Arizona and the financial crisis with the mortgage bubble being popped is they were hit probably harder than anybody else. I mean, maybe a couple other markets, but what did that actually look like number-wise for you? And how did that impact the rest of your plan?

John Kohli: Oh yes. So I bought in 2006, $233,000 as an interest-only, adjustable rate mortgage after a 10-year arm I think is what it was. And ended up short selling that house in 2012 for about $72,000.

Tim Ulbrich: Wow.

John Kohli: So that is how bad it was here.

Tim Ulbrich: Wow.

John Kohli: And even after I sold, that definitely affected my credit and ability to purchase something else. So I was looking at trying to find something for cash, and you could find, in those 2012-2013, you could find condos here in Phoenix, you know, nice 2-bedroom, 2-bath condos for under $50,000. So I was looking to pay cash for something. But I kept getting under contract and losing it or there was bidding wars. And then the market just was out of my reach in terms of paying cash after that. And it was, you know — now, we’re back up to where we were prior to the crash or the recession or even higher than where we were.

Tim Ulbrich: You know, it’s really interesting just to hear you say, John, in such a short period of time, you went from graduation, feeling like you’re rolling in the door, six-figure income to all of a sudden, what was I would argue a very good position, only $60,000-70,000 of student loan debt quickly turns into a lot of debt because of the mortgage position, credit card debt, you mentioned the car loan, of course the student loan debt didn’t go away. I think there’s something to be learned for all of us there in terms especially when you’re looking at those big purchases like a home, here we are again, right, 2019, super hot market here in Columbus. I think it’s the No. 1 market in the country right now. And I think it’s easy to buy these homes, the doctor loans are readily available, nothing down, arms, all those types of things, interest-only options, and for some people, they may be able to get away with that. Maybe the market doesn’t crash next year, maybe it does, but really looking holistically at the rest of your financial plan to say, hey, if the market goes down 20% next year or 30% or 40%, what’s my game plan, right? As I look at the rest of the plan, and I think that gets into a bias where we tend to look at things through the lens of today.

John Kohli: Yes.

Tim Ulbrich: Assuming they’re always going to stay the way that they are today.

John Kohli: Yeah, everything looks great.

Tim Ulbrich: Everything looks great.

John Kohli: Like you said, what happens if the market crashes? Or what happens if I lose my job? Or some other unexpected thing happens? What do we do?

Tim Ulbrich: Yeah, you never know. That’s exactly right. You never know what that may be. So I’m assuming — I want to come back to you mentioned previously having a spiritual/financial breakdown. And I have to assume all of this was going on at the same time when I just see the transition from where things started to where things ended up and then obviously, we’ll talk about the recovery of that on the back end. So tell me more about this spiritual/financial breakdown, as much as you’re willing to share about where that came from and then how that played a part in eventually you turning this ship around.

John Kohli: Yeah. You know, I just realized that I had really liked my career and I liked pharmacy, but I think I was just putting too much emphasis on the career, you know, the career being my identity. Like it wasn’t just I’m John, who is a pharmacist. It was, I’m John the pharmacist. And everything I did was based on this job and also in the fact that I also wanted to make money. And that was the end of the goal. That was really it was just in, you know, pursuing this goal of getting that degree or getting that salary. And once it happened, there really wasn’t anything — it wasn’t that fulfilling. It was, OK, now I’m done with it. And what do I do now? And I think that in really recognizing my addiction, I had to say, there’s something missing here. And I need to find out what that is. And I think, you know, pharmacy could allow me to have a life to find out what that is but not be the end and only goal.

Tim Ulbrich: So much wisdom there. And I hope our listeners hear that because I think that’s true for many pharmacists, addiction aside, is the identity that can come from career. Something I struggle with on a regular basis, and I think it’s something that just constantly I’m hoping to challenge others to say, hey, at the end of all this, what’s the point? Why does this matter? As you look back in 30 or 40 years, like, what is this really about? And I like what you said about career is certainly a big part of the overall picture, but I think if that becomes the sole identity, there’s going to be a lot of disappointment for lots of different reasons. So where did that discovery process for you come from? Was that a part of you working through the addiction? You mentioned a spiritual component there. Where did you really pivot and say, OK, if it’s not this is my true identity, this is what is my true identity. Where did you get the freedom to discover that?

John Kohli: It’s been from just spiritual work. You know, in looking at the things in my life that I’ve done, you know, my character assets, my character liabilities, basically forgiving myself for the mistakes I’ve made and then also recognizing that I can have choices, and I can choose what I want to do and my actions have consequences, either positive or negative. So it really got — basically, seeing everything crash down around me and recognizing that I’m still here, I’m OK, and I’ve got a responsibility to take care of these things, but now I can deliberately make choices to basically put myself into a better option in the future. And that that is my responsibility, and I can use that through my relationship with God, through other ways — not just through my job but through other things, you know, through my church, through community organizations and my hobbies and interests, that it needs to all come together.

Tim Ulbrich: So let me build on that. And one of the things I often think about — probably too much, to be honest with you — is that I often think and try to picture a scenario where I’m 75-80 years old if I’m lucky enough to have the opportunity to live that long, my kids are grown and they’re off, and my wife and I are reflecting back on life, and I try to think from those moments, from that moment, like as you look back, I try to think about what are the things that would need to happen that I would say, “Life well lived,” and I would have peace with that. And I often worry and am somewhat anxious that I’m going to look back at that and say, “Wow, I spent a whole lot of time doing a whole lot of things that didn’t really matter a whole lot in the scheme of this bigger picture.” So for you, John, as you think about that scenario, what are the things that you want to look back on when you’re 75-80 years old and say, “I’m so glad I did this or I spent my time doing this.” What are those things that are most important?

John Kohli: I think for me, it’s helping my family, you know, my parents. I want to make sure that they’re retirement and the rest of their life is taken care of. I want to help my brother and sister. And then I want to help friends and other people that are in addiction. I want to be able to show them that there’s a way out. And I think that, you know, as much as money is great and having great experiences, traveling and accomplishment, those are all great things, but I really think it’s that relationships with the people that you love and other just people in general are going to be the most important things that I look back on.

Tim Ulbrich: You know, one of the other things I just thought of, John, is that the data would show that there’s several people that are going to be listening to this podcast that may be struggling with some type of an addiction. Obviously, that can be in a variety of different things. And while there’s not necessarily data to show this, I would argue there’s many that are listening that are struggling with identity solely being tied up in career. If somebody is listening today and one of those two things resonates, what words of wisdom would you have for them?

John Kohli: Well, if it’s addiction, there’s many organizations to help with that. And you know, I would encourage looking into those types of areas. And if it’s identity, you’re really reflecting. And if you can take some time off, maybe, you know even if it’s a couple days, if you are blessed with being able to take a couple weeks, to just look at what do you want? And find out what do you want? I’ve always had a bucket list of things that I wanted to do, from — basically from college. It was 100 things. List 100 things that you want to accomplish before you die because you’ve got to start doing it now. And you know, maybe that’s one way to start, to say what are some important things that you want to get done? And writing them down, and then taking a couple to start. And see what you need to do to do those things because that’s what I’m realizing is that life is short. I am in my late 30s, but I feel that — I still have a lot of time, but it’s not an endless amount of time.

Tim Ulbrich: Yeah, and I love your suggestion there of just taking time to stop and reflect, right? It’s just so easy when life gets so busy to run week to week, month to month, year to year. And as I’m sure you do, we’re still relatively, I guess, new graduates. I graduated in 2008. So 11 years ago, but I look back at that 11 years and I’m like, what the heck happened? Like that went extremely quick. And if you’re not intentional about it, it can fly by. And I think often, that can turn into a career without intention. So let’s talk about the practicalities of how you did it, how you paid off $260,000 of debt, which was a combination of student loans, a second house mortgage after the first experience you had, some credit card debt. And while this was of course over a period of time, I know that you did most of this between January 2017 and January 2019. So that’s a lot of money in a very short period of time. So talk us through how you did it, how you wrapped your arms around this incredible amount of debt, and what did this look like month by month for you to begin to knock this down and ultimately get it paid off?

John Kohli: Absolutely. It’s hard to think — when you say that number, I’m like, wow, was it really that much? But I guess it was. And really, it definitely felt when I was hustling the hardest, you know, I kept praying, I was like, “God, if this is the right thing for me to be doing,” — because I was spending so many hours at work that I was like, “If this isn’t, please stop it.” I was willing to do what it took and to be very intense in getting there. But at the same time, I kept asking and pausing to say, “If this isn’t right, show me the way to do it.” But I guess it must have been right because here I am. And so I short-sold that house. And I was working and saving money. I started budgeting after that short sale, and I started actually looking at my finances. I think that was the first and foremost thing was actually knowing where my money was going and being deliberate about it, writing it out. And that allowed me to save some money. I started with an emergency fund. I don’t remember exactly how much it was, but maybe $10,000? And then it basically grew up to about $50,000. And I was looking for a place to buy with that. But it never worked out, so I just kind of kept saving it, started saving for retirement in my own — I wasn’t in a 401k thing, so I just put some stuff in a Roth IRA and bought some stocks in a mutual fund. And then I did get the full-time job, so I did start contributing to a 401k. And then I just really kept up with budgeting, kept up with saving as much as I could, and I was saving a pretty significant percentage. I was renting, I had a roommate at certain times, so my expenses weren’t that high. But then I finally did decide to buy another property. And I put down 20%. But then I had this mortgage over my head. And that was — it stressed me out again because I felt, you know, maybe there was a little bit of PTSD from my previous experience that oh my gosh, what happens if something terrible happens? So I had that mortgage, I still had a little bit of student loan. But in 2017, January, I decided, you know what? I’m going to get intense, and I’m going to basically get rid of my credit cards — I had finally paid those off — get rid of the other student loan because I had the cash to pay for it, so I got rid of that student loan even though it was such a low interest, I’m thinking, man, I could make so much more money in the stock market, but you know what, I’m going to get rid of this debt. And then it was, I’m going to get rid of this mortgage because I don’t want to have any debt anymore. And there we go. So that’s where I picked up another job and basically just worked my tail off.

Tim Ulbrich: So no credit card debt, no student loan debt, no mortgage, no car payments. Put that into words for me. What does that feel like? I mean, what is that sense of relief and freedom that you get being in the position you’re in right now?

John Kohli: It just feels like I have options. You know, it’s the openness. I feel like — well one, I’m serene because I really do feel like I can handle whatever is thrown at me. Really, financially, I can handle whatever is thrown at me. I do feel even spiritually, I could handle whatever’s thrown at me. But here I am in this just — I feel very secure financially. And then from my kind of just a I guess mentally, I feel like I have so many options. So that is just for me, it just really does feel like freedom. It’s freedom to choose, freedom to take advantage of whatever opportunity comes up, and it just, it feels like it was worth it, even though at certain points of time during that process, I was doubting it or was unsure. But it definitely feels like it’s worth it now.

Tim Ulbrich: Yeah, and I think freedom is the exact word that I think about when I hear your journey. I mean, whether it’s freedom to take a year off to pursue something that you want, whether it’s freedom to give in a radical way for something that you’re passionate about. Options, options, options, right? And that’s really where you are right now. And I think certainly, it’s an incredible journey to hear where you started, where you went, and now where you’ve taken that into the future. So now that your debt is paid off, what is the plan? What are you doing with all of this extra money each and every month? Have you slowed down the hustle and the grind and the cutting of expenses? Or have you kept that and are you reallocating that money in other directions?

John Kohli: OK, so I definitely got pretty dramatic in my cutting of expenses during that time. I spent last summer with no air conditioning in Arizona through the summer.

Tim Ulbrich: Wow.

John Kohli: It wasn’t that much, but you know, in terms of money saved, that was the commitment level that I was willing to do. I don’t know if I’m ready to do that this year. I think I could probably spend a couple hundred dollars on the electric bill this summer just to avoid that.

Tim Ulbrich: I think you could, yeah.

John Kohli: Yeah, just to avoid the extreme nature of that. But I still do save like 70%, sometimes up to like 90%, of my income now.

Tim Ulbrich: Wow.

John Kohli: And right now, I’m putting some away in like a retirement account, but most of it is going into just my savings because I — eventually, I want to — maybe it’s a business, maybe it’s a rental property, but some other income. I want to buy some sort of asset to, you know, in the future. I don’t know exactly what that is, but I know for me, it’s having the cash readily available when that option comes up is — to me, that’s important. And still saving for retirement and having investments in index funds, you know, that is still a priority, an area that I’m focusing on. But I still am definitely extreme in my frugality. I still bike to work. I rarely go out to eat because I like cooking, and I like making things for myself. But I think this year, I’m going to probably get air conditioning.

Tim Ulbrich: So you know, it’s interesting. As I hear you talk about the journey paying off the debt but as well as right now where you’re 70%, 80%, 90% of your income, obviously that tells me you have some system in place where you’re tracking and accounting for expenses. So I’m assuming some type of a monthly budget. Can you talk us through what that looks like for you and how you manage that? If you use any tools? I think that’s a practical way that we might have somebody listening who’s going to say, “I’ve got $200,000 in debt, and I just don’t know where to start. I don’t know what to do here.” So what does that look like for you on a month-to-month basis?

John Kohli: You know, I have a — in my Notes on my phone, I have a discretionary budget, just in my Notes. And I set aside a certain amount of money, and then whenever I spend it, I document it in my Notes section. And then at the end of the month, I tally all of that up and make sure that it works — what that dollar figure is works with what has been coming in in terms of my income. And because I work sporadically, you know, some paychecks are much higher than other paychecks. But I have an idea of what the income that’s coming in is going to be. So as long as I’m keeping an eye on whatever’s coming in and what’s going out, you know, at the end of the month, they reconcile. And I reconcile it. And I just always use cash if I can. I take a certain amount out of the bank, and that’s what I use to buy things at the grocery store or whatever else I spend. I don’t have credit cards, so if my bank account doesn’t have the money in it, it’s not going to get — I can’t buy it, essentially.

Tim Ulbrich: So that’s a great example, you know, there’s a lot of varieties of budgets. We talk about a zero-based budget a lot on this podcast and on the blog and on the website. But what I’m hearing you say here is you essentially allocate x dollars per month for the discretionary, nice to have, expenses, and you make sure you don’t overspend that, but everything else, you’re allocating towards savings goals or maybe it’s giving or other types of goals. But you’re trying to identify a certain percentage that you’re just not going to overspend and then knowing that —

John Kohli: Exactly.

Tim Ulbrich: OK, very cool. Yeah, I think that’s a good way of doing it. And I think the message there hopefully for our listeners is, you know, there’s not only one way to do budgeting. And I think finding a system and a process that works well for you to allow you to be on the path toward achieving your goals is really what is important. So John, I want to again thank you for coming on the show, for your willingness to share your story. I look forward to following your journey in terms of what you’re going to do going forward, the impact you’re going to have on the pharmacy community, the impact that you’re going to have on those that struggle with addiction or career identity, whether you’re going to eventually invest in a business or real estate, other things. I think the future is really, really bright. And I look forward to following that journey and hopefully collaborating with you on some level going forward. And I thank you again for your time in coming onto the Your Financial Pharmacist podcast.
John Kohli: You’re welcome, Tim. It’s been a pleasure, and I thoroughly enjoyed it.

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A Crash Course in 401k Planning (Part 1)

A Crash Course in 401k Planning (Part 1)

The following is a guest post from Dr. Jeffrey Keimer. Dr. Keimer is a 2011 graduate of Albany College of Pharmacy and Health Sciences and pharmacy manager for a regional drugstore chain in Vermont. He and his wife Alex have been pursuing financial independence since 2016.

If you’ve been following Your Financial Pharmacist for a while now, chances are you’ve been coming up with a game plan to deal with your debts and form a solid financial foundation. Is investing part of that financial foundation or plan?

Yes?

No?

Maybe?

While cleaning up your balance sheet or having some cash tucked away for a rainy day is great, that alone isn’t going to get you to financial freedom or prepare you for retirement. For that, your money needs to go out and hustle for you, meaning you need to invest it.

But how do you get started?

To help answer that question, we are going to give you a bit of an investing and 401k planning crash course with a focus on workplace retirement plans. Over the next few posts, it’s our hope that you learn a bit more about what they are, how they work, and how to manage them. With pensions becoming an endangered species (unless you’re a government employee), you can bet that you alone are responsible for your own retirement planning. The more informed you are, the better.

Alphabet Soup: The 401(k), 403(b), and TSP

So if you don’t get a pension, what DO you get as a retirement benefit from work? Well, depending on who you work for, you’ll likely have access to one of 3 different investment accounts that can help you save for retirement. Here’s who will have access to each:

While there are some key differences between the three in terms of legal structure and requirements, there isn’t much of a practical difference for most savers. The main draw with these plans is the special tax treatment you get to enjoy which is the same across the board.

You can contribute to these plans in one of two ways:

  • Traditional or Pre-tax Contributions

Money going in is tax deductible for the year you contribute, gets to grow tax free within the account, and withdrawals get taxed as income during retirement.

  • Roth or After-tax Contributions

Money going in gets taxed with the rest of your income that year, gets to grow tax free within the account, and is tax free when withdrawn in retirement.

This tax treatment presents two opportunities for savers:

  • The potential to profit off of the difference in your tax rate now vs. in retirement.

For example, if you plan on having a higher income in retirement than you have now, Roth contributions can make sense; and if the opposite is true, then Traditional contributions can make sense. In real life, this gets a little more complicated. Fortunately, there are some sophisticated calculators out there that can help guide your decision. Another strategy to consider is to simply split contributions between both as you don’t have to go all in on either.

  • Freedom from taxes on income and capital gains generated within the account.

That second point is probably going to be the most important for savers. If you were to invest money side by side in a brokerage (taxable) account and Roth 401(k) in identical investments, after a year you’d always have more in the Roth 401(k).

This is because when you sell an investment that has appreciated in value or that investment pays you income, you have to pay taxes on that profit unless it’s in a tax advantaged account such as a 401(k). Over time, the amount of money saved by not having to pay these taxes can be incredible!

One key consideration when choosing between Traditional and Roth 401(k) is your student loan strategy. If you are pursuing the Public Service Loan Forgiveness program or even Non-PSLF forgiveness, it usually makes more sense to make all of your contributions Traditional.

The reason is that those contributions will directly lower your Adjusted Gross Income which will subsequently decrease your student loan payments. This allows you to build wealth while simultaneously decreasing your payments. Pretty awesome, right?

For PSLF remember any balance remaining after 120 payments is forgiven tax-free! Therefore, to optimize your strategy you would want to pay the least amount of money over that time.

How to Participate

First of all, in order to take advantage of these wonderful investment vehicles, your employer needs to offer one. Most larger employers will, though some require that you work for a set amount of time before you can start investing.

Once you’re eligible, your employer may automatically enroll you in the plan and start taking payroll deductions from your paycheck to fund the account. I bolded the word “may” for a reason. Some people don’t look at their pay stubs and go years without knowing that they weren’t saving for retirement. It’s important to read up on how your employer handles this benefit and make sure you participate when you can.

If your plan does automatically enroll you, chances are it’ll start taking out a small percentage of your pay for retirement savings, such as 3%. What you need to decide at this point are two things:

1. Is the amount being taken out high or low enough for your current financial situation?

2. Should your contributions be Traditional (pre-tax), Roth (after-tax), or a mix?

Only you are going to be able to answer those questions. Know that with these types of plans, you can always make changes.

How Much Should I Contribute?

This is going to be a very personal decision and there are a number of factors in play. For example, how many working years do you have left? Are you struggling to just pay bills right now and make ends meet? What is your student loan strategy?

Investing is great, but a good case can be made to put it on pause if you’re drowning in credit card or other high interest debt. Oftentimes, it’s best to clean that mess up before putting money into your retirement plan. Plus, determining the amount you’ll contribute will depend on your financial goals and how fast you want to achieve them.

Employer Match

One of the ways employers attract employees and encourage retirement plan participation is by offering to make contributions into the account as part of the overall compensation package. For some workers, they are lucky enough to work for an employer that will simply do this regardless of participation. But for most people, these contributions will be a match to your own contributions. So what does that mean?

Let’s say you work for Company X and they offer the following retirement benefit:

Up to a 100% match on the first 5% of compensation

In this scenario, Company X would match dollar for dollar your contributions into the retirement plan up to 5% of your total salary. In a given year, if you made $100,000 and contributed 5% or $5,000 into the plan, Company X would also put in $5,000. Put in 4%, and they will put in 4%. Now, if you put in 6% or more of your pay, Company X would stop at the 5% mark since the benefit is only up to 5% of compensation.

This type of benefit presents a challenge to the conventional notion of paying off all debt first and then investing. With a match, you are able to realize a 100% gain risk free within the account as long as you contribute.

Because of this, it may be more profitable to contribute to a retirement account before paying off debt, including high interest debt. In general, unless you are struggling and can’t pay your bills, you should always contribute to a retirement account enough to get an employer match.

Now, if it makes sense, you can contribute above and beyond the employer match. Given all of the tax benefits these types of accounts have, you should strongly consider contributing above the match. However, there is a cap on how much you can contribute. As of 2020, the cap is $19,500 per year ($26,000 if you’re age 50+) for 401(k)s, 403(b)s, and TSPs.

One thing to keep in mind is that if you miss contributing to the match or making any contributions in general, you cannot go back in a subsequent year to “make up” for it. Only when you reach age 50 can you contribute beyond the maximum contributions.

Vesting

In order to keep employees, many companies employ a vesting schedule in which you get to take ownership of match contributions over time. If you leave a company before you’re said to be vested in employer contributions, you don’t get to take those contributions with you. To illustrate this, let’s look at the following vesting schedule for Company X:

30% after the 1st year of service

60% after 3rd year of service

100% after 5th year of service

With this type of schedule, you start getting partial ownership of employer contributions after you’ve been with the company for a year, but don’t get full ownership of those contributions until you’ve worked for them for 5 years. So in this case, if you left Company X after 4 years and the balance in your retirement account derived from employer contributions was $10,000, you’d only get to take $6,000 of that with you.

It’s important to note here that when an employer contributes to your account, those contributions go into a separate bucket from your own contributions. The percentage that you “vest” in only applies to the bucket containing the employer contributions. Your own contributions are always owned by you.

Also, some organizations have what’s known as a cliff vesting schedule. Rather than being partially vested after X years of service, this schedule will make you 100% vested after the required years of service have been met. Therefore, this is really an all or none situation. And because every employer is different, it’s extremely important for you to understand what type of schedule is used by yours.

The Downside to Retirement Plans

For all the good things these plans do to help you save for retirement, they come with strings attached. While not an exhaustive list, the big ones for you to be aware of are: plan fees, investment restrictions, early withdrawal penalties, and required minimum distributions.

1. Plan Fees

With the exception of the TSP, where all expenses are presented in the individual fund expenses, each plan will have additional administrative fees that are layered onto the fees charged by the individual investments themselves.

While there’s not much you can do about these while working for a company, they can impact the decision to keep money in a previous employer’s plan or transfer it (rollover) to a new employer’s plan. Plans are required to disclose these fees but don’t make it easy to find that disclosure. If you’re curious about a plan’s administrative fees, search the plan documents for a 404(a)(5) disclosure document.

2. Investment Restrictions

In general, unlike a brokerage account or individual retirement account (IRA), the retirement plans we’ve been talking about don’t let you invest in whatever you want. You’ll typically be restricted to whatever investment options the plan chooses to provide. This usually won’t prevent you from building a decent portfolio within the account, but you might be forced to use investment options that charge exorbitant fees compared to those you’d find elsewhere.

3. Early Withdrawal Penalties

Since these plans are designed to fund retirement, the IRS will hit you with a penalty if you decide to take money out early. How early? The ripe old age of 59 ½ (as of 2020). If you take a distribution or cash out one of these plans, you’re going to get taxed like crazy for the year you do it.

If the money you take out came from traditional contributions, that amount will get added to your taxable income AND you get the privilege of paying an extra 10% of the amount as a penalty!

If the money came from Roth contributions, you don’t pay tax on the contributions BUT you do get that same treatment as traditional contributions for any gains you may have which will get intermingled with your withdrawal of contributions.

4. Required Minimum Distributions (RMDs)

The IRS also doesn’t want people hoarding money and not paying taxes on it indefinitely. At some point, they want to start milking your retirement account for tax dollars. To do this, they subject money derived from Traditional contributions to RMDs once you hit age 72 (as of 2020). Once you reach that age, you must withdraw an amount equal to your account balance as of December 31st the previous year by a number determined by the IRS.

The IRS calls this number a life expectancy factor. In retirement, these RMDs can significantly increase your tax bill and impact the long term viability of your retirement savings. This is one area where Roth IRA contributions can really shine since they’re not subject to RMDs. (Note that RMDs are still required in a Roth 401(k))

Hopefully, you now have a better understanding of how these types of plans work and how to take advantage of this important workplace benefit. While there’s much more to these things in terms of what you can do with them and how to optimize them, you should be able to start thinking about how they’ll fit into your overall plan.

In our next post, we’re going to dive into the basics of investing and the typical options within retirement accounts, so stick tight!

If you are looking for some extra help your 401k or retirement planning, you can book a free call with the YFP financial planning team.

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YFP 105: How Jamie Leigh Tipton Started a Compounding Pharmacy


Jamie Leigh Tipton on Starting a Compounding Pharmacy

Jamie Leigh Tipton, a new practitioner from North Carolina and owner of Tipton Compounding Pharmacy, shares her journey of starting her own business and the importance of building a strong financial foundation to be able to do so. Jamie Leigh’s mom, Janet, also joins the show to talk about her involvement in the family business, how she helped Jamie Leigh graduate debt free and why she has encouraged Jamie Leigh to start her own business.

About Today’s Guest

Dr. Jamie Leigh Tipton completed her Doctorate in Pharmacy from Creighton University School of Pharmacy in May 2017 after studying pre-pharmacy at Western Carolina University. She has always had a passion for compounding and dreamed of bringing this unique practice to her hometown of Franklin, NC.

During her time in pharmacy school, Jamie Leigh spent time working with Professional Compounding Centers of America (PCCA). This PCCA education included compounding boot camps, advanced compounding techniques, and drug information research on how compounded medications affect each individual patient. Her research was published in one of PCCA’s Apothagrams which is distributed to compounding pharmacists throughout the country.

Jamie Leigh participated in educational and training rotations at various locations such as retail pharmacies, compounding pharmacies, hospitals and a local veterinarian practice. She also took part in the National Community Pharmacists Association (NCPA) student ownership workshop and was accepted to attend Live Oak Bank Pharmacy Ownership Student Summer Program.

While a pharmacy student, she was a member of the Rho Chi Honor Society and received many awards including the 2017 Merck Award for academic excellence. As the owner of Tipton Compounding Pharmacy, located in the beautiful mountains of Franklin, NC, Dr. Tipton’s dream has now become a reality.

Summary

Jamie Leigh Tipton grew up in Franklin, North Carolina and knew that was where she wanted to continue her life. She was accepted to an online pharmacy program and knew early on that she wanted to open her own pharmacy. Being enrolled in an online program allowed her to continue to network and connect with her community.

Jamie Leigh graduated from pharmacy school in 2017 at the age of 23. She was single with no children and had built a strong financial foundation. She knew that if she entered into a comfortable six figure pharmacy job, she would have a hard time leaving to start her own business. With a lot of support from her family, Jamie Leigh was able to graduate from pharmacy school debt free and open up Tipton Compounding Pharmacy shortly after graduation in her hometown.

Her family is committed to supporting Jamie Leigh and the business. Her mother and aunt work in the pharmacy, truly making it a small family business. Janet, Jamie Leigh’s mom, encouraged her to follow her dream and to find happiness in what she was doing. Janet and her husband helped Jamie Leigh pay for college through her high-end real estate career and their 529 college savings plan. Scholarships helped to fund Jamie Leigh’s last couple of years of school.

Jamie Leigh explains that the family members working at the pharmacy aren’t taking a salary yet and are investing back into the company. This will set back her personal retirement age, however they knew that going into the business and have planned to fund retirement accounts. One of the biggest pressures Jamie Leigh feels is the financial sacrifices her family has made to make this dream a reality. Jamie Leigh knows how much they have invested both financially and with their time.

Jamie Leigh shares that she did a lot of online research in the beginning stages of starting the business. She says that you have to be 100% passionate about the business you’re wanting to begin. If you are, you’ll be dedicated in doing research and learning more which are the best steps you can take to start your own business.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to this week’s episode of the Your Financial Pharmacist podcast. I’m excited to welcome Jamie Leigh Tipton and her mom Janet to the show to talk about their journey opening up Tipton Compounding Pharmacy in Franklin, North Carolina. Before we jump into the interview, let me introduce Jamie Leigh. She completed her doctorate of pharmacy from Creighton University School of Pharmacy in May 2017 after studying pre-pharmacy at Western Carolina University. She’s always had a passion for compounding pharmacy and dreamed of bringing this unique practice to her hometown of Franklin, North Carolina. And she did just that, which we’ll talk about here during today’s show. During her time at pharmacy school, Jamie Leigh spent time working with Professional Compounding Centers of America, also known as PCCA. This education with PCCA included compounding boot camps, advanced compounding techniques, and drug information research on how compounding medications affect each individual patient. Her research was published in one PCCA’s apothagrams, which is distributed to compounding pharmacists throughout the country. Jamie Leigh participated in educational and training rotations at various locations, such as retail pharmacies, compounding pharmacies, hospitals, and a local vet practice. She also took part in the National Community Pharmacists Association Student Ownership Workshop and was accepted to attend Live Oak Bank Pharmacy Ownership Student Summer Program. While a pharmacy student, she was a member of the Ro Chi Honor Society and received many awards, including the 2017 Merc Award for Academic Excellence. As the owner of Tipton Compounding Pharmacy, located in the beautiful mountains of Franklin, North Carolina, Dr. Tipton’s dream has now become a reality. So Jamie Leigh and Janet, welcome to the Your Financial Pharmacist podcast.

Jamie Leigh Tipton: Thank you for having us.

Janet Tipton: Thank you.

Tim Ulbrich: Well, I am so excited to do this interview. And I want to give our listeners some quick backgound to how this episode came to be and why I am so energized and excited to finally be at the point of recording this. So several weeks ago, Jamie Leigh joined the Your Financial Pharmacist Facebook group, and in her responses to the questions we asked to join the group, she mentioned owning her own compounding-only pharmacy as a new graduate, so a graduate of 2017, as I mentioned in the bio. We have not yet featured an independent pharmacy owner on the podcast, and I thought it was unique that Jamie Leigh had taken the path that she did, owning her own pharmacy, right out of school. So I reached out to Jamie Leigh to schedule a time to talk via phone to learn more about her story, and when I called the pharmacy, Jamie Leigh’s mom, Janet, picked up the phone as Jamie Leigh was compounding a troche before the store opened. Janet and I had the opportunity to talk for a few minutes, and I quickly realized that this was a family business at its core, all hands on deck. I myself grew up in a small business family, and this got me excited, this got me fired up on so many levels, as I’m excited to be their story to the YFP community as I’m hopeful it will inspire some of you out there that have entrepreneurial dreams, that have the entrepreneurial itch, whether that be a side hustle or a full-time venture, to take one step to pursue that desire and passion. So Jamie Leigh, let’s start with your decision to pursue an online PharmD program at Creighton. So obviously, Franklin, North Carolina, is home, you pursued an online pharmacy degree program at Creighton, which I believe is one of the only if not the only one that’s out there in the country. So why did you make that decision to pursue your pharmacy degree online?

Jamie Leigh Tipton: I had done a lot of research with different pharmacy schools, and I knew that I always wanted to stay in Franklin. And I also knew that staying here would enable me to be able to network better. I always had dreams of owning my own pharmacy. At the time, I wasn’t sure what that would mean, at the time. But I always wanted that to be my end goal. And so when I was researching different ways to do cyber (?) pharmacy school, distance pharmacy school, whatever that meant, Creighton at the time was the only distance pharmacy school. And they were really good. I just kind of took a leap of faith there and applied and was able to interview and get in. And it is a great program. They’ve been doing it for over 20 years, so I felt comfortable that this wasn’t their first go-around with distance learning. And that really helped kind of set the path of being able to network here, setting up everything here to be able to not only do the pharmacy school but also do all the research I needed to hopefully set the path of opening my own eventually.

Tim Ulbrich: Yeah, I love how strategic you were with the decision. I mean, we know that small business, especially in small communities in town, it’s all about that networking, the community, and being a part of that community. And making that decision to stay involved in the community and build that network while pursuing your pharmacy program, as you mentioned, a quality program that had been doing it. And I think that that speaks to the vision that you had in terms of getting the company started. So in your bio, as I had read earlier, you mentioned an interest in compounding pharmacy that you had early on, which I think is somewhat unique not only in business aspirations but also knowing a very specific area of practice of pharmacy that you wanted to do. Where did that interest in compounding pharmacy come from?

Jamie Leigh Tipton: When I was in pharmacy school, when I first started, I really didn’t understanding completely what it was, especially since there was not one in Franklin. So it wasn’t like growing up in a big city where you have a lot of different compounding pharmacies and knew what it meant. So when I started in school and learned a little bit more about it, I thought it was so interesting because I actually had a friend that would not, could not swallow a pill. And I always wondered if she got sick in any way, what would she do? And learning that through pharmacy school made me very interested in it, knowing that the children, animals of the world that can’t just swallow a pill, as easy as it sounds, would need help along the way. And that’s kind of where my passion more started, just learning about in pharmacy school all the different things that you could do. And then they also offered an extra course that you could take through PCCA, and that’s where I was able to fly to Houston and see and be able to do in the lab a bunch of different compounds, depending on the unique need. And that’s all kind of in pharmacy school where it started.

Tim Ulbrich: So let’s fast forward a little bit to 2017. You graduate with your PharmD, and at this point, you decide as a new graduate that you’re going to take on opening your own pharmacy from the ground up, building and all. And we’ll talk about that in a little bit. Why did you want to take that path rather than working for somebody else, having a stable, six-figure income? And was there one or two deciding factors that really pushed you in this direction to open your own business?

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Jamie Leigh Tipton: I always knew that some form of ownership was what I wanted to do. It was interesting because I was born and raised in Franklin. And when people would see me, they always would say, “Oh, I can’t wait until you graduate so that you can open a pharmacy.” It’s almost like the whole community kind of knew the plan, even probably before I did. So just being able to go through the process — on the fourth year of rotations, it was probably the most evident that I wanted to do that. And so with the whole family, it was a lot of discussions throughout all of the fourth year, getting prepared, because as soon as I graduated, we already had a lot of the building blocks in place to be able to do this. And it is a risk. I was 23? When I graduated and single with no kids. So the risk for me was different than probably other people graduating at different times of their life. But it, to me, was a risk worth taking. I felt like I’m not one that likes change very much, so if I would have gone immediately into a six-figure position at a community pharmacy or a chain, that I would get so comfortable and used to what I was doing that it would be really hard to leave afterwards and go and do such a big risk later on in my life. So for me, it was just one of those things, you start at the very beginning while you’re going and just don’t stop until you can make the dream happen.

Tim Ulbrich: I really appreciate what you said there about the difficulty of it being if you’re comfortable in that position, if you’re comfortable with a six-figure income, especially if you’re living up to that income, maybe there’s a home that’s involved, there’s other expenses, you know, pursuing that dream, not impossible, becomes a little bit more difficult versus jumping right out of the gate and being able to establish expenses and other things off of a lower income and salary, especially as you want to invest that money back into the business. So I’m going to ask you one more question about risk before I put your mom, Janet, on the hot seat because I think that, you know, as I heard about your story to begin with, it wasn’t like you were buying into an existing store that had a proven business model but rather, you were starting this from the ground up. So obviously, that means you most likely did a needs assessment, you did a business plan, you really evaluated what was out there. Did you ever weigh at one point, should I buy into an existing business versus start something from the ground up? Or did you know and have clarity that you wanted to start your own thing from Day 1?

Jamie Leigh Tipton: I talked to a lot of different pharmacists along the way and kind of what we gathered from them was either open your own business from the ground up here in this area or move away and open one eventually after getting some experience. Some different pharmacists were saying the city may be the place to go. We’re about two hours away from both Atlanta and Asheville, North Carolina, so that was one thing they were saying is maybe it would be best to try the city or maybe it’s best to get compounding experience for a few years first before you open it. And for me, wanting to stay here in Franklin, the options were a lot more limited because for me, I didn’t want to go to Atlanta and open up my own because I know for me, it was a community aspect of wanting to stay where I’ve been all my life. So really, as far as working somewhere, buying an existing one in Franklin, that wasn’t an option for us just because there was no compounding pharmacies in Franklin at the time. So to buy an existing one would have meant to move away, which at the time, I didn’t want to do. I wanted to stay in my hometown and grow it from there.

Tim Ulbrich: Yeah, I think the reason — in part, one of the reasons I asked that question I think is I’ve talked with others that are thinking about opening up their own pharmacy. I think sometimes, there’s comfort in going into an established business model. But that often comes with a higher price tag or a lower equity position or other things as you’re establishing that business. So really identifying if there’s a market, where there’s a need and a gap in that care, and obviously, you’ve identified. But the compounding-only aspect of your business I think certainly, that’s an opportunity worth pursuing. So Janet, first of all, thank you for joining us as well. And you know, when I went home after Jamie Leigh, you and I talked a few weeks ago, I was so jacked up because as a father of three boys and soon to be a fourth boy, very, very passionate about teaching my kids about entrepreneurship and encouraging them in their dreams around business. I was really struck in a good way about how supportive and encouraging that you’ve been to Jamie Leigh to pursue this entrepreneurial dream that she has. And I feel like many parents — and it may be a generational thing, and this is certainly a very broad statement — but many parents I think would encourage their child to take the “safe” and comfortable option, which would be in pharmacy the contract that has a six-figure salary. So tell me a little bit more about where that encouragement comes from and why you have been so encouraging to Jamie Leigh in this journey.

Janet Tipton: Well, I’m not going to lie, it would have been really easy to encourage her to use her doctorate degree and get a job as a pharmacist somewhere else and not have the headaches that come with owning a business. But on the other hand, it was weighing the options of the rewards of owning your own business and the benefits that come with that. I had been raised in that spirit. My father owned his own business. My grandfather owned his own business. So it was something that was familiar to me and that I was raised in. So encouraging her to follow her dream and do what would make her happy was our No. 1 goal.

Tim Ulbrich: And so as I understand it, a big part of this — and I’m going to ask Jamie Leigh more about this a little bit later about the financial position that allowed her to take on this opportunity — but as I understand it, you were able to help Jamie Leigh with paying for college so that she wasn’t graduating saddled with student loan debt as many pharmacists are right now, with the average being about $160,000 when they come out of pharmacy school I think really handcuffs — to refer to the golden handcuffs — really handcuffs what you’re able to do in terms of if you have high student loan debt, that might put you in a position where you have to depend on a six-figure income or a corporate position. So how did you practically manage to do that, to save up, to help her pay for college? And what are some strategies that our listeners might employ that are thinking about trying to do something similar for their own kids when they send them off to college, whether that be in the short-term or the long-term?

Janet Tipton: My background is in education. I got my Master’s in education and taught for several years. But then things changed, and my path changed to real estate. And I became a broker in real estate and worked in the high-end golf and lake community locally. By doing that, by pursuing real estate, honestly, that gave us the vehicle of being able to save and invest for Jamie Leigh’s education. And I funded and invested in a 529 college plan. And there were a lot of questions at that time as to how much to invest because you don’t know at the time you’re starting to set up a 529 plan where they’re going to attend college, if it’s going to be a four-year college, if it’s going to be an eight-year college, if she’s going to get a degree, you know, just with her Master’s or with her doctorate. So it’s kind of a guessing game to decide how much to invest to begin with. But I’ll have to be honest that the 529 plan really helped us be able to fund her college. It did not all of it because I guess at the time, I really wasn’t anticipating the doctorate, but her having academic scholarships helped fund the last couple of years of her education. So it was very important to us, all the pharmacists that are out there, they know how much it takes to get their degree and how much they work toward it. So we, my husband and I, always wanted to try to help with education and get that funded. So thankfully, because of the 529 plan, we were able to do that.

Tim Ulbrich: That’s great. So it sounds like a combination of 529 played a big part in that, scholarships, a piece of that, real estate investing, you know, that certainly played a portion of that as well. And so Jamie Leigh, my follow-up to that is, you know, how important was having a solid financial foundation? Here, specifically, no student loan debt and being able to take on the risk of starting your own business.

Jamie Leigh Tipton: It was critical. I would not have taken this risk had I had student debt. It would have been too much to bear with all of the weight and the stress of opening and running a business along with the stress that would be added of paying off student loans. It would be too much to have both.

Tim Ulbrich: And so in addition to the student loan debt, were there other aspects or things that you would recommend to those that are looking to start their own business around emergency funds or other things in terms of building that solid foundation that you can approach your business with confidence and be able to take on some of that risk?

Jamie Leigh Tipton: We knew starting out that no one would be taking a salary family-wise just so that everything we make could go back into the business. So I’ve always been a saver. Any Christmases, birthdays, graduations, I’ve saved all the money and tried to invest a lot of it. Just like I said, the unkown of knowing what I would do eventually but something around ownership, so I’ve always tried to save everything I’ve got gift-wise in order to invest some of it to have a little bit of the wiggle room while we get up and running, knowing that there wouldn’t be a salary for awhile and going from there.

Tim Ulbrich: So let me ask you about that for a minute because I think often, we can get enamored and caught up in the things that come along with starting your own business and it’s exciting. But there’s also the reality of things that are challening, like deciding to invest in the business and not necessarily taking a salary for a period of time. And so I’m guessing some of our listeners are thinking, how are you personally reconciling, you know, eventually at what point might you take a salary? And does this mean delayed retirement savings? Or are you counting on sort of the equity in your business as being an asset that you’re building over time? So how are you reconciling that component of when to take a salary versus putting that back in the business and potentially delaying retirement savings because of that?

Jamie Leigh Tipton: (inaudible) an estimate of how long we’re not going to take a salary versus starting to take a salary, so we have that planned out as far as a timeline. And it does kind of set back the retirement as well. But we’ve kind of planned for that too that eventually, getting into a Roth IRA and different pieces of retirement. I know a lot of pharmacists sometimes hit the high end of the Roth IRA and can’t invest, but as we’re growing, I hope to be able to take some of what I make and put it to that and keep investing in mutual funds as we grow. But yeah, we’ve always had kind of a timeline of at this certain point, we’ve got to start taking a salary. But it’s just as we can and are able to, we are trying to always take everything and put it back into the business.

Tim Ulbrich: And I think too, it’s important for our listeners to understand, you know, the value of equity and ownership in a business certainly has a monetary value. And I think from many different perspectives, which we won’t necessarily get into detail here, but can play a very significant part from building long-term wealth, tax advantages, eventually at some point, maybe a sale of a business, but as you’re putting some of that sweat equity in, there’s obviously value that’s being built through that equity as well. So Janet, one of the questions I wanted to ask you is I know when we talked a few weeks ago, you had mentioned as you built this pharmacy from the ground up with Jamie Leigh, very much being a family type of endeavor, the building, as I understand it, has the pharmacy that is in one part of it, but the other part is open to eventually be rented out I’m guessing as commercial real estate. Talk us through how you made that decision collectively to take on potentially more loans to build a bigger building but also have the long-term vision that some of this could be used for real estate investing.

Janet Tipton: I think my background as a broker in real estate has helped in that because obviously, anybody that’s in real estate knows that it’s location, location, location. So when I was thinking and hearing from Jamie Leigh that that’s what she was kind of wanting to do, I started looking around in our town for some land and trying to find a location that I thought would be good. And we were able to find the land that our pharmacy has been built on, and it’s, in my opinion, a great location that’s right on our main street, it’s adjacent to our local hospital. And so we were able to obtain the lot and plan the building. And yes, we have Plan A, B, C, D, E, F, G, H and so forth. But one of the things that the way that the lot lays, we were able to build not only the pharmacy on the top level, but the way the land lays, we were able to also include a lower level to our building. And we are finishing that off and going to rent that. As a matter of fact, it’s going to be finished at the end of this month. And we have most all of it rented. And so that will also help us to be able to bear the financial burden that comes with building a building. And then hopefully, if hopefully this business will go well, but even if not, I think this will be a great real estate investment for Jamie Leigh down the road to have a building, to have a location, to have the land, and to have the rental income.

Tim Ulbrich: Well, I will say if our listeners need a visual, when you Google “Tipton Compounding Pharmacy,” a picture comes up of the building. And it is beautiful, so I love the design, I love the look and the feel of it. And I would also encourage our listeners to check out the website, which you also both have done a great job with, TiptonCompoundingPharmacy.com. I think the website looks great. It’s a great design and I think really nicely describes your services and the vision that you have for the company. So great work on that. Jamie Leigh, one of the things that stuck out with me when we talked a few weeks ago is that you said you would have been wondering, what if? your whole life if you didn’t pursue this dream. Tell me a little bit more about what you meant by that.

Jamie Leigh Tipton: The stress of owning a pharmacy is a certain beast. But going to bed every night with a really comfortable job but not necessarily a job that you have always dreamed of is even more of a mental taxation on you. I would have hated to wonder every day what if it would have worked? but be too afraid to try. One of my favorite shows is Shark Tank, and this week, Daymond John put on social media a quote that I thought was really relatable to this question. He said, “It’s scarier to watch your dreams slip from you than it is to know you tried to make them happen.” And he also said, “Who’s farther, the person that took a step forward and fell? Or the person that stood still and did nothing?” And I think both of those quotes were really good. He was responding to someone saying, “Should I open the dream business I’ve always wanted to do?” And I think that’s so true. I mean, there are good days, and there are bad days of owning your own. But if it’s truly what you’re passionate about and what you want to do, I think it’s worth it because the wondering every single day of what if? would just be such a heavy burden to have to bear.

Tim Ulbrich: Absolutely. And I think with small business or any business in general, I think sometimes we talk so much about the monetary piece. But I know, for me personally, while the business aspect is critical — if you’re not generating revenue and a profit, it’s ultimately not a business, so that has to be there. But at the end of the day, the feelings of creativity and autonomy and being able to create vision and execute vision, that, to me, is just so incredibly rewarding. And I think that it’s something that people should keep in mind if they want to pursue something of their own. So let’s talk a little bit about, you know, the other side of owning your own business. As I mentioned earlier, it’s not always peachy along the way. And there certainly are struggles. So question for both of you — and we’ll start with Janet — you know, what are some of the struggles, maybe some of the sacrifices that have come from having a family business and jumping into this venture of starting this compounding pharmacy?

Janet Tipton: Well, my husband and I, we kind of lived our lives in reverse. We did a lot of traveling and went to places we wanted to go when we were younger. Both of us were, at the time, in education, so we had summers off. And we traveled there. So now that I’m in the retirement age, I really had no desire to go anywhere else. Kind of been there, done that. So there’s no point of pleasure trips in our future. We have given that out. So yes, there’s financial sacrifices, and there are many sleepless nights, but Jamie Leigh is our only child, and as parents, we wanted to do whatever we could to help her get started in this business. And so that’s what we’ve done. And you mentioned about this thing of family business, and that’s true. I am pretty much in the retirement age, my sister, my only sister, is also at retired. And so both of us work here, trying to help Jamie Leigh. So it just is at the right time in her life and our lives to try to pursue this dream of hers. And like I said, hopefully this will work. And if it doesn’t, then at least it’s a good investment, and we’ll go to the next plans if we need to. But we’re going to do everything we can to try to make this venture of hers happen.

Tim Ulbrich: So Jamie Leigh, what about for you? And I would also follow that up with, you know, one of the things I think I would be thinking about owning my own business, especially if I had my family involved, might be some of that pressure of having the family involved and wanting to have it be successful, especially if there’s been an investment in that. So talk us through that aspect and then just also globally, what are some of the struggles and challenges that you have had in terms of owning your own business?

Jamie Leigh Tipton: I would say (inaudible) that the whole family basically sacrificing all their time in retirement time, it is one of the probably the biggest struggles I have, just because I know how much they’ve sacrificed financially in time to try to make this work with me. I know that they say they did a lot of their traveling before I was born, so I hear wonderful stories about it, but at the end of the day, retirement’s also a time to where you can just sit and do nothing if you want to. So I know what all of their sacrificing just to make my dream come true. So it is a lot of pressure. It’s a lot — like she said — a lot of sleepless nights worrying about different things, feeling sometimes like the weight of all of this on your shoulders. But then having their support means everything. But it is kind of a back-and-forth. You basically eat, sleep and breathe the pharmacy. On the weekends, we sit and talk about it. On the weekdays, we come and work. And then at nights, we talk about it some more. And there’s really no extra time, at least at this stage, to have a life and vacations, really, not much of anything except just doing everything we can to talk and plan to just make this work.

Tim Ulbrich: That’s great. Thank you both for sharing there. And Jamie Leigh, my last question for you, as I know we have many listeners that might have entrepreneurial dreams, whether that’s their own business, a side hustle, but I think often are struggling with where do I start? And where do I draw inspiration from? Besides Shark Tank, which I also love, is there a podcast, a book, a blog, a TV show, or something that you’d recommend to our community that they may be able to draw inspiration from?

Jamie Leigh Tipton: I really just did a lot of online research. I’ve read different financial books and Dave Ramsey books, the “Rich Dad, Poor Dad,” just different things, financial bonds. I think really, above everything, the one thing I would say if you want to open a business, you have to have passion for it. It’s not for the faint of heart, so if you don’t have passion for what you’re doing, it won’t work. It just takes too much time and effort to not be completely dedicated and happy with what you’re doing. I don’t know that there’s a TV show or a book that will do anything more than what just pure passion can do. I had found a quote earlier that I liked that success isn’t made in a microwave, it’s made in the crockpot, and that’s so true. It’s not an overnight success. I know some different books, some TV shows, you get the wonderful overnight successes, but it takes time to grow and build a business. And it takes a lot of planning, many months were spent just talking for hours about the big picture but also short-term goals that it takes to get there. When I first started pharmacy school, one of our head advisors said that pharmacy school was like eating an elephant. You have to do it one bite at a time. And I think it’s the same way in opening a business. So ultimately, I think the main thing you have to have is passion for it. And then if you have the passion, then you’ll be dedicated enough to research different areas and depending on if it’s a pharmacy or if it’s a totally different business, there will be different podcasts, different shows and books that will meet that need of learning more information. But overall, you have to be dedicated to want to pursue this way.

Tim Ulbrich: That is great, great wisdom. So thank you for sharing. And I would encourage our listeners to check out TiptonCompoundingPharmacy.com. I also know and have seen Tipton Compounding Pharmacy on Instagram and Facebook group. And if any of our listeners are in the North Carolina area, around Franklin, North Carolina, I’d encourage you to check out the store and have a chance to talk with Jamie Leigh and Janet as well. So thank you both for coming on the show, for your time, for your willingness to share your journey. I know it has inspired me in a significant way, and I’m confident it’s going to do the same to our listeners. So thank you both very much.

Jamie Leigh Tipton: Thank you.

Janet Tipton: Thank you.

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YFP 104: Jason Long’s FIRE Journey


Jason Long’s FIRE Journey

Jason Long joins Tim Ulbrich to share how he retired from his retail pharmacy job at the age of 38. Jason dives into what the FIRE methodology is and how he and his wife saved for retirement.

About Today’s Guest

Jason Long is a husband, former retail pharmacist, early retiree at age 38, self-made millionaire, distance runner, author of three books, and advocate of rational thought. He holds a Bachelor of Science cum laude in Chemistry from Middle Tennessee State University and a Doctorate in Pharmacy cum laude from Mercer University. Since retirement, he has volunteered as a tour guide at a natural history museum, a teacher for a non-profit ESL program, a marathon pacer at numerous charity events, and a voter registration assistant. He is the current state half-marathon champion and former state full-marathon champion. His interests include Japanese culture, classic cinema, classic music, astrophysics, running, cycling, swimming, traveling, reading, painting, and playing video games.

Summary

Jason Long retired from his retail pharmacy job at age 38. He was able to retire at such a young age by seeking out FIRE (financial independence, retire early). Jason shares that FIRE is a lifestyle choice that’s starting to spread to more people. This methodology is less interested in wealth accumulation and is more focused on leading a meaningful existence, in Jason’s opinion. Jason was able to save up enough money to where the revenue from his investments will provide enough income to live on, meaning he no longer has to work for money.

Jason shares the FIRE is based on the Trinity study which focused on sustainable withdrawal rates for retirement spending. If you have a million dollars, you can withdraw 3-4% a year, giving you an income of $30,000 to $40,000 a year. Jason says that you have a 95% chance to still have money left if you’re withdrawing this amount for 30 years. He and his wife have closer to a 3% withdrawal rate and he’s not worried about them running out of money.

In June 2017, Jason retired at age 38 after saving just over $1 million. He says that it’s still surreal that he’s been retired for two years as it hasn’t fully sunk in yet. Jason decided to pursue the FIRE route in 2005. He was in his last year of pharmacy school and had come to the realization that pharmacy wasn’t what he wanted to do in life. He became curious to know where he’d be in the future if he lived at the same standard of living as his parents did but earned a pharmacist’s salary. He used a spreadsheet to start calculating scenarios and found that if he was earning $105,000 but only spent $35,000 a year, around the age 39 or 40 a return on investment from his portfolio would exceed the cost of living. He didn’t realize that this was a methodology that others were using. In 2015 he found others who were also following this FIRE path.

To reach $1 million, which was in savings only and doesn’t include social security or home equity), Jason and his wife really stuck to only spending $30,000-35,000 a year. His starting salary as a pharmacist was $110,000. The first step they took was to buy a house, but not a mansion. Then, all their money after maxing out 401ks and IRAs, went into Vanguard accounts. They steered clear of getting caught up in big buckets that drive up expenses, like expensive homes and cars. Jason reminds listeners that houses depreciate in value and land appreciates and feels like viewing home ownership as an investment is a myth.

Jason explains that you have to shift your focus and remember that earning $30,000 a year gives you a better standard of living than 99% of people who have ever lived on this planet and to not compare yourself to others. He also shares that it’s necessary to invest beyond a 401k or IRA if you’re wanting to retire before age 59 ½ as there are federal limits to those accounts. Lastly, he shares that happiness doesn’t come from having material things, instead it comes from being financially secure, from having your life in order and being content with what you have.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to this week of the Your Financial Pharmacist podcast. Excited for this episode. I’ve been wanting to talk about the FIRE movement for some time, FIRE standing for Financial Independence Retire Early, and I’m glad to have the opportunity today to do that alongside of Jason Long, a pharmacist that retired at the age of 38. So Jason, welcome to the podcast.

Jason Long: Ah, thank you for having me.

Tim Ulbrich: Excited to be here, and I have to start by telling our listeners, which I think is just an indicator of what FIRE is all about, when we were trying to schedule this interview, you know, I think I first started out by proposing several dates and times, and your response was something along the lines of, “Hey, I’m retired. I can do this whenever.” So here we are, and obviously, flexibility of time and freedom of time is one of the positive aspects of Financial Independence Retire Early, and we’ll talk about that. And when I heard about your story, it was published in the New York Times, and we will reference that and link to that in our show notes, and that story from the Times mentioning your retirement at the age of 38, leaving a job making roughly $150,000 a year, I thought, we have to have him on the show. And I think that there’s many pharmacists that will not only be interested in your story but may have similar aspirations and want to know why you did it and how you did it and certainly what could be the path for them to move into that in the future. So before we jump into the specifics of your story and how you achieved early retirement, let’s talk about what exactly is FIRE. I think many people may not be familiar with that concept. So Jason, give us a summary of what is Financial Independence Retire Early. What is this movement all about? And what defines someone achieving FIRE status?

Jason Long: Well, I don’t know it’s so much of a movement as it is just a lifestyle choice that’s starting to grow. I think people, my generation, younger, are becoming a little less interested in wealth accumulation and just living a meaningful existence. And the whole thing with being financially independent, retire early is that you have saved up enough money to where the revenue from your investments will provide enough income for you to live on. That can be a small amount or that can be a large amount. It’s just up to the individual. But yeah, it’s basically just not ever having to work for money. That doesn’t mean you can’t work or that you don’t have something going on on the side, but in my instance, I don’t really have anything going on. I’m just living off the income from the investments.

Tim Ulbrich: So we’ll come back later and talk about your withdrawal and how you’re functionally doing this, but just to build off of what you said, is there kind of a specific rule of thumb in terms of, you know, x amount is needed to be able to draw this much so that you can live off the savings? Knowing that that could be different from one person to another. But what typically is that definition in terms of what is needed to get to that point of achieving FIRE?

Jason Long: Sure. There’s some debate around that. But the generally agreed upon amount is based on something called the Trinity Study. It was done a few years ago to see what percentage you could withdraw on a year-to-year basis. And the way that works is — we’ll just use some round numbers for example. If you have $1 million, you can withdraw something like 3-4% per year, that would be $30,000-40,000. The Trinity Study said that if you withdrew 4% per year and adjusted upward for inflation, and you didn’t adjust that $40,000 amount based on market performance, that you would have a 95% chance over 30 years to still have money left. Turns out the original researchers have amended that to actually be 4.5% because expense ratios have dropped. The cost of managing your money has actually decreased over the years. A lot of people will do it themselves or they’ll use fiduciaries. But for a longer timespan, a lot of people are looking at 4%, maybe 3.5%. In our instance, we’re actually a little closer to 3%. So there’s no historical precedent for a 3% withdrawal rate.

Tim Ulbrich: So just again, for our listeners to get a step back, the idea being here that you’re building up some type of nest egg, for lack of a better word, you know, it could be $1 million, it could be $1.5, $2 million. And then some percentage, you know 3-4%, which obviously what we’re getting to is that what you’re going to be living on and what you need in that nest egg is largely driven off of your expenses and that percentage and of course trying to maintain that amount so you’re not having to dip into that over time. So let’s get into for you specifically, June 2017, the day you retired at the age of 38. You noted on your blog it was the day before you’re 20th anniversary from high school graduation. And at the time, you had savings of just over $1 million. So talk us through what you were feeling at this point in time. I mean, obviously you made the decision that you were going to retire. Were you anxious? Were you excited? All of the above? Talk us through that situation.

Jason Long: Well, honestly, it was a little anticlimactic. You reach a certain amount that you want to get to, and that’s a great day. But it’s not like you’ve reached the finish line, you know? There’s a few things you have to brush up on. And I don’t know, I guess it was kind of surreal to realize that, you know, I had just called and put in my work notice. And two weeks from then, I would work my final shift and then never have to go back to it. There was a sense of relief, I guess, that I’m not — you know, it’s been almost two years, and I don’t think it’s fully sunken in yet. But anxiety, no. Like I said, there’s no historical precedent for a 3% withdrawal rate to fail. Now, that doesn’t mean there’s not going to be unforeseen expenses or that there couldn’t be some future event that might bring catastrophe. I mean, there’s always a chance of an astroid strike or nuclear war or what have you. I mean, but all we have to go on is historical precedent. And we have even a slight buffer above that, I think maybe 3.2%. If you were to have retired in 1968, I think is the worst year you could have picked due to a flat market and large inflation. But you know, even now, we’ve moved up to $1.2, so it’s so far out of the realm of danger that I don’t ever give it any thought.

Tim Ulbrich: Right. Which I’m glad you brought that up, Jason, because I think often, people hear FIRE, and they think risk and without really digging into the math and what do the numbers say, and I appreciate your comments around kind of the historical perspective and 3%. And I would argue, as I think you would agree with me, I mean, people who are $200,000 in debt that have no savings, that are spending all of their income working for whomever, that that job could change tomorrow, go away, whatever. Obviously, there’s a risk position in that that has to be considered as well.
Jason Long: Another risk that a lot of people overlook is that you risk wasting your life working 30-40 years in a job that you really despise. I mean, so is the alternative of going broke early really that bad?

Tim Ulbrich: Well, and I’ll talk about this at the end, but I’m grateful to be in a position that I love what I do each and every day, and I know many pharmacists do. Some do not. And so I think if for somebody for whatever reason does not and there’s not another opportunity that’s available or for whatever reason the transition can’t happen or maybe somebody has found themselves in a career path that wasn’t necessarily a great fit, then I think the FIRE option and really digging into the math, as we’ll talk about here in a little bit, is certainly a viable option. But if nothing else, as I think about the Financial Independence, Retire Early, I’m passionate about independence period, whether or not there’s the retire early component of it. As I’ve talk about before on this show, having options and having flexibility is always a good thing. You never know what’s going to be thrown at you in terms of life events, and you never know what may change over the course of time, either related to your interests or the profession or other variables. And so when did you, Jason, when did you determine that you were going to pursue this route? And talk us through not only when that moment was or roughly that moment was — because obviously, there had to be a timeline of planning to go to a place to accomplish what you did — but also what motivated some of that decision to pursue early retirement.

Jason Long: I think it was 2005, I was in my last year of pharmacy school. And I had kind of come to the realization that it wasn’t exactly what I wanted to do in life. And you know, how I got to that point there is a different story altogether, but I was putting some spreadsheets around, and I was just kind of curious — I was like, if I lived at the same standard of living that my parents had, but I made the amount of money that a pharmacist does, where would I be at financially at age 40, 50, 60, 65? Just running the numbers just to see. And I think I had assumed — I don’t know what pharmacists were making. I think maybe $105,000-110,000 a year. And you know, we grew up working class. Just my dad worked, and my mom took care of the kids, but made about $35,000-40,000 a year. And then I assumed maybe like 3% interest, which was pretty safe at the time, just based on a CD or whatnot. And I plugged those numbers into the spreadsheet, and I noticed a strange thing kind of happened around age 40. I was 26, so somewhere around age 39-40, I noticed that the Return on Investment from the portfolio exceeded the actual cost of living at that point.

Tim Ulbrich: Yes.

Jason Long: So I was like, this is strange. You could foresee, you could feasibly have the amount of money to live off of by not working. And being naive like I was at the time, I just kind of thought, well, hey, I’ve discovered something here. And I went all the way to probably 2015 never having encountered another person who had discovered this. And then I kind of did a Google search one day. I was like, well, yeah, that was kind of stupid of me. There were plenty of people. And you described it as a FIRE movement. So yeah, that was the day back in ‘05, I said, you know, I don’t think I really want to be a pharmacist. I was like, but you know, I’m three-quarters of the way across the street. I’m going to go ahead and cross it and put in 12 years, 13 years, 14 years, and try to make the best of it that I can. And then when that day comes, I can kind of transition over to something else if I want to do something else or if I just want to sit around and play video games and watch movies, I can do that too.

Tim Ulbrich: So I’m going to read something from your blog before we jump in and talk about the saving strategy and how you actually did it and how much you were saving because I think it resonated to me a little bit about your journey and put some life to kind of your passion and motivation. From the blog is, “It’s been said that retirement is merely a decision to stop trading time for money. Since I no longer need more of the latter to sustain my standard of living and since I do not enjoy, never have enjoyed, the primary method at my disposal to acquire the latter, I have decided that the former is of more value to me going in life.” So you mentioned, Jason, kind of your last year of pharmacy school, 2005, and then obviously you had a 12-year time period roughly to that point where you actually retired. And so we look at that point of retirement at the age of 38, you’ve got a little over $1 million, so that’s a fairly short runway to get to a net worth of $1 million or more. And to clarify for our listeners, we’re only talking here in terms of savings. So we’re not talking about home or other assets, and we’ll come back to that in the future. So we’re purely talking about savings that had been accrued over time. So how did you practically do it? For those that are listening, thinking, hey, maybe this is a path that I’m interested in in some shape or form, you know, what percentage of your income were you saving? And where did you put it? And how did you get to that point?

Jason Long: Sure. Like I said, I think I started out at about $110,000 a year and was spending $30,000 a year, not including the house payment I believe. It may have been $25,000 plus the house payment.

Tim Ulbrich: OK.

Jason Long: But my first step was to, of course, buy a house. And I say house, I don’t say mansion or McMansion, or something on a cul-de-sac near a golf course, you know. If you want those things, that’s great. But you really have to step back and ask yourself, is it going to make you happier? Is it worth trading perhaps 10 years of your life to have a nicer place, maybe even just to impress people that you don’t like? But you know, our answer was a 1,600-square foot house in a neighborhood in Ohio. And I think that house was $120,000 or $125,000. We paid that off in about two years, maybe. And after that, all the money went into — well, of course, at the time, we were doing the 401k, IRA, contributions. I think after that, it pretty much transitioned — well, after a few years, we had moved back to Tennessee and had gotten more land and we built another house here. But after all the house and real estate was paid off, which was maybe around 2010, all the money went into a Vanguard account. And there are a different number of companies you can use. I like Vanguard because they’re nonprofit, and they have low expense ratios. But yeah, you just basically open up an account and decide what you want to invest in. There’s, again, a lot of healthy debate about your asset allocation. But the main things that I look for are index funds. And that is basically just a — you can think of a mutual fund as being a collection of stocks. But an index fund is a collection of basically all stocks on an index, like an S&P or the Dow or the Nasdaq or whatever. Vanguard offers one called the ETSAX, or basically all U.S. stocks. So instead of trying to pick and choose or knowing or pretending that you know things about a company that you don’t, you can invest in the market as a whole. And there’s very little management that goes into that. Therefore, there’s very little expense that Vanguard charges you to manage that fund. I think it’s at least maybe .04% per year. But you open that up, and anything in excess of what you can contribute to your 401k and your IRA, we would put into that.

Tim Ulbrich: I love the approach of low expense. And you mentioned the advantage of those coming down historically. I mean, I personally have funds, .03%, .04%, .05%, .06%. And so you, I think from the blog I saw, you rep basically three major funds, roughly 60% in U.S. stock index fund, 20% in an international index fund, and 20% in a municipal bond index fund. So keeping it simple, keeping the expenses down. So am I correct, then, as I look back and hear you say making over $100,000 a year, obviously started at $110,000, that went up, your expenses roughly $30,000 a year. So you were saving north of 70% of income? Or were there other expenses not accounted for?

Jason Long: No, it was about 70% per year. I think it’s probably important — some people are going to be listening to this and pulling their hair out over $30,000 a year. That’s not probably feasible out on the Coast. If you’re in New York, LA, Silicon Valley, whatever, you’re listening to, you’re paying $30,000 a year probably in just rent. But the cost of living out in rural Tennessee is a lot lower. So yeah, I think I ended up — we started out maybe about $30,000. It may have moved up to about $36,000.

Tim Ulbrich: OK.

Jason Long: One of the things you have to watch out for is something called lifestyle inflation. You know, that’s where you’re starting to make more money, and then you start to get more tempted about buying things that maybe you want and don’t really need. So you’ve just got to make your choices there.

Tim Ulbrich: Yeah, and I know you’re very well, obviously, versed in this. And our community is as well, but I talk a lot about cost of living, as you mentioned, West Coast, Northeast, other cities, other areas, obviously even within Ohio, cost of living varies significantly from one part to the next. But pharmacists’ salaries don’t adjust accordingly, in terms of at least accounting or offsetting that. I mean, maybe slightly. You know, for example, let’s say an average pharmacist’s salary in Ohio, let’s say is $110,000-115,000, maybe that’s $120,000 to $125,000 to $130,000 out in California, but that percentage bump is nowhere near obviously the cost of living difference from rural Ohio, rural Tennessee to the West Coast. And as we think about retirement and what you need and coming up with that calculation, determining that number, that expense number is really what’s driving that. So if you’re making $100,000 a year, and your expenses are $90,000 a year, that runway to retirement and what you need obviously is much, much longer. If you’re making $100,000 a year, and you determine that you can swing it either through strategically cutting expenses, cheaper on home, cheaper on car, strategically choosing where you live, obviously, there’s some sacrifice here in the equation, although we talked about what you’re weighing that against as a potential pro, but that is a much different nest egg that you need. And obviously, your situation of what you’re living off of I think highlights that perfectly. So I do want to highlight, Jason, to just build off of what you said, I mean, buying a relatively small home, affordable home, $120,000-125,000, paying that off quickly, you know, for me — and I’ve seen this in my own life but also in working with many other pharmacists — home and cars tend to be, you know, probably the two big buckets that can drive up expenses. Certainly many other things that go into lifestyle creep, but you know, if a home is 40-50% of your take-home pay, it’s going to be difficult to keep these expenses down. So for those listening that have not yet purchased a home, I think strategically looking at the home buying, especially if this concept is a priority, and keeping the cars down, really focusing on money going into assets and things that are growing and not depreciating value is really important.

Jason Long: Yeah. You know, a lot of people don’t realize, houses depreciate in value.

Tim Ulbrich: I agree.

Jason Long: There has been a lot of research on this. Land appreciates, houses depreciate. There’s been a myth that home owning is an investment. And it’s just not. At best, you can probably hope to break even.

Tim Ulbrich: Break even, yep.

Jason Long: And you know, that’s fine. You know, I’m not judging how other people live. But to get philosophical about it, people need to ask themselves, like I said, are they going to be happier having a large house? You know, George Carlin, comedian, once said — and I’ll clean this up a bit for the podcast.

Tim Ulbrich: Appreciate it. We don’t have the explicit rating, so I appreciate that.

Jason Long: He said, “People buy stuff they don’t need with money they don’t have to impress people they don’t like.” And when you realize that happiness doesn’t come from having things, happiness comes from outside. It’s from being financially secure, it’s from having your life in order, it’s from being content with what you have. When you realize that, and you realize that you’re probably not going to be that much happier in a $.5 million home versus a $100,000 home, you know, that opens up all sorts of possibilities for you. The house and the car, you know, if you’re the kind of person who wants people to look at you and think highly of you and envy you because you’re driving the $50,000 Lexus, that’s fine. I’m not going to judge how that person lives, but I guarantee that the person driving that car is not any happier for having that car than someone who’s driving a dependable $10,000 car.

Tim Ulbrich: Absolutely. Great stuff there. I think a lot for our listeners to take away and reflect on there as they think about their future plan and what matters most. And I would reference to our listeners, and we’ll link in the show notes, you know, Jason, I mentioned earlier, often — before we recorded — I mentioned often when I ask a group, “Hey, have you heard of FIRE?” typically, I don’t get a whole lot of hands raised. But when I say, “Hey, have you heard of Mr. Money Mustache?” people are like, “Yes, I have!” So I’m going to link to an article back from 2012, I know it’s a very popular article but really highlights the importance of looking at the math on this, and that article’s called the shockingly simple math behind early retirement. And you know, essentially what Jason’s highlighting with his own journey, what that article highlights is that saving a significant percentage of your income and keeping your expenses down really changes the projected timeline to retire. And so, for example, saving 50% of your income towards retirement can move that timeline of retirement from 50 years down to less than 20 years. So again, for you, when you talk about your journey and putting numbers into a spreadsheet, whether it’s looking at an article like this, I think it’s a matter of doing the math, looking at the expenses, and asking yourself some more of those philosophical questions that you had talked about.

Jason Long: Yeah, let me say one other thing. People who question whether or not they want to live on a $30,000, $40,000, $50,000 a year or whatever, it’s good to remember that $30,000 a year is higher, gives you a better standard of living than 99% of people who have ever lived on Earth. And if you find that I don’t think I could live that cheap, then that statistic should probably tell you, it might be a good idea to reevaluate your position in life.

Tim Ulbrich: Yeah, Jason, I’m so glad you said that. One of the point of comparisons I often use because I think it’s helpful for pharmacists to shift the point of reference away from peers because it’s not a helpful comparison.

Jason Long: Comparison is the thief of joy.

Tim Ulbrich: Yes, yes. And often, I’ll talk with resident that, you know, residents’ salaries have actually come up, some in the mid-$40,000’s, low $50,000’s. And I hear things like, I can’t save anything, I can’t make any headway in my student loans. And I get it, cost of living is different, no judgment in terms of that. But if you shift the point of comparison to what you just mentioned or the median household income for a family of four in this country is in the low- to mid-$50,000’s. I think shifting that point of comparison can help put some of that into perspective. So one of the things I want to talk about, Jason, and you mentioned in your story, I read in your blog, is that you’re purely looking at the numbers based off of the investments that you’ve grown north of $1 million. And you’re obviously trying to draw that down — or not draw that down, I’m sorry — live off a percentage of the growth so that you’re not drawing from and letting that fall below $1 million. But you are not including any of your assets in terms of house or land or other assets, or you’re not banking on social security or inheritances, equity in the home, other types of things, correct? You’re purely just looking at the savings component?

Jason Long: Yeah, I would say equity on the home would be an absolute last resort, you know, absolute worst-case scenario, not even historical precedent but an unprecedented territory would you have to rely on house equity or social security or inheritance or anything like that. I fully expect those things to be there, but I’m just not going to rely on them.

Tim Ulbrich: OK. So in terms of the withdrawal plan, currently, you mentioned the numbers you’re working off of. So what does that practically look like month-by-month if you look at the percentage that you’re drawing from, trying to keep the portfolio above $1 million?

Jason Long: Yeah, so basically, just assume $1 million and assume $30,000 a year of living expenses. Quick, back-of-the-envelope math, that’s 3% a year. A lot of people may say, “Well, hold on. The average return on investment in the market historically, adjusted for inflation, is 7%.” And some people may say 10%. Dave Ramsey’s one of them who greatly overestimates what the market returns. But the reason you can’t withdraw 7% a year is something called sequence risk. And that is when is the bad year going to come?

Tim Ulbrich: Right.

Jason Long: And these scenarios, these simulations, you can play out basically shows that if you get the bad years up front, it’s going to have a lot more impact than having the bad years toward the back.

Tim Ulbrich: Right.

Jason Long: So you have to put that extra buffer in. You can’t just assume that you’re going to get the steady 7% a year. You will run out of money if you do it that way. So yeah, we basically just withdraw out whatever we need to every month. In our case, we’re on about 3.5% withdrawal, minus whatever the side income might be coming in from a variety of different sources. But yeah, it’s just log on every month and see where you’re at and withdraw what you need to pay off the credit card and rebalance and go from there.

Tim Ulbrich: So Jason, I’m sure many pharmacists are thinking, hey, I’ve got an employer match in a 401k or should I be taking advantage of those types of retirement accounts that have tax advantages, 401k’s, 403b’s, Roth IRAs, and you mentioned earlier that you did a little bit of that. But obviously, you’re depending on assets that you can draw before the age of 59.5 without a penalty. So any words of wisdom or advice for people that are thinking about trying to achieve retirement status prior to the age of 59.5 where they would need funds? And how they might think about balancing where they’re putting their money?

Jason Long: Yeah, if you’re wanting to retire before traditional age, before 59.5, it’s going to be necessary to invest beyond 401k and IRA. There are federal limits to what you can contribute to those. So you’re going to have to invest in taxable accounts. And you put that into some investment firm like, like I mentioned, Vanguard. You put all your money into that after you’ve contributed to the 401k, IRA. And like you had said, you have to be mindful of the fact that it’s not easy to get your money before 59.5. There is a clause called 72T. Basically, if you convert your IRA over to an annuity and take a certain amount of withdrawals per year based on your expected living, you’re allowed to withdraw it without penalty. I don’t know exactly how it works. I don’t plan on having to dip into that. We have enough in our already taxed accounts to go until maybe 60, 61, 62. But yeah, you have to be mindful that there is a 10% withdrawal penalty on the 401k. And that’s on top of any taxes you’d have to pay because it does count as regular income. I’m probably not the best person to ask about all that. I’m, of course, not a financial advisor. You just have to be mindful that you’re going to have to pay penalties if you withdraw the wrong way. And that’s going to increase your cost of living.

refinance student loans

Tim Ulbrich: Yeah, and I think the takeaway there for our listeners is to be thinking about those logistics in advance and where you’re putting your money and some of the tax implications and things if this is a desire that they have to retire before traditional age. So Jason, one of the counterarguments to the FIRE movement is, you know, you’ve got 50+ years of living and satisfaction from work and social connections from work and fulfillment and won’t you get bored? You know, that type of a thing. Which I know is a very individualized situation and really depends on current fulfillment from work and hobbies and other types of things. So talk us through a little bit of that and what you’re currently doing with your time and hobbies and interests and things that you’re working on and exploring.

Jason Long: So basically, I guess it would be fair to say I do what I want. I have a ton of hobbies. I do volunteer work. I have picked up a lot more of the housework and errands and things like that since I’ve left. I’ve been able to spend more time with family. As far as like hobbies, you know, like anyone else, I read and watch movies, play video games. I build things. I exercise, I run, I cycle, swim, go to the gym, cook, kayak. I picked up some new things: golf, started collecting baseball cards again, which is something I haven’t done since I was a child. I volunteered. I’ve been a tour guide at Natural History Museum. I have taught English as a second language to adults here for a nonprofit. I volunteered in voter registration. I’ve done litter pickup. It’s just a lot of things to keep you busy. And if for some reason, you eventually run out of things, you can always go back to work, you know? There’s nothing saying you have to stay this way. But yeah, I’m pretty much on my own schedule. And I do what I want when I wake up.

Tim Ulbrich: So I think you probably answered this question for me in the list of things that you’ve been doing and even new things that you’ve picked up, but I have to ask the question, do you have any regrets looking back?

Jason Long: Zero.

Tim Ulbrich: OK. Awesome. So one of the questions I have is I’m guessing we have many of our listeners that are hearing your story and thinking maybe for the first time or second time, this might be a path they want to pursue or at least be on a path toward financial independence, whether or not they decide to retire early. However, many of our listeners, what we know is the average student loan debt, $160,000 a year, we have some salary compression that’s going on, 32 hours often is sort of the new 40. So for a graduate today coming out with $150,000-160,000 of debt, let’s say they’re making $100,000 a year, is FIRE an option for them? I mean, is that a path they can pursue? And if so, what advice would you have for somebody listening today that is looking at their debt load and looking at things and saying, I’m not even sure this is an option.

Jason Long: It’s always an option. It’s just depending on the circumstances, it may take you a little bit longer to get there than it did, say, 10-15 years ago. As far as the steps, you know, it’s going to vary on an individual basis. It’s going to be dependent upon what your student loan interest is. It’s going to depend on what your mortgage interest is. We — personally, I took the safe route, and I paid off the house first. The house mortgage was only 5% a year. Well, I could have put that money in the market instead and make, on average, 7% a year. So maybe that wasn’t the smartest choice, but it was probably the safest choice. If a person has student loans at, say, let’s say they have some at 7% and they have some at 4% and then they have a house at 6%, it makes sense to go ahead and pay off the 7% student loans first and then the 6% house and then the 4% student loans. Or you could maybe go the route of well, I’m just going to not worry about that. And I’m going to invest in the market first. And you know, maybe that works out for you. And maybe it doesn’t. The safest route is to just pay off your highest interest rate loans first. And work your way down from there.

Tim Ulbrich: Yeah, and if I could build on what you said there, you know, since your number is pretty much on target, many of the students coming out today with their pharmacy loans, unsubsidized, 6-7%, but there are options out there that I think somebody could look into as a strategy to allow them to invest aggressively. So we’ve talked before on the podcast about loan forgiveness, which certainly comes with risks that need to be evaluated, although appropriately evaluating the risk and the benefit, but obviously being a strategy that could allow for freeing up additional moneys to invest and invest more aggressively at a younger age, looking at competitive refinancing rates that can lower your interest rate and incentivize investing. So really looking at the options that are available out there if this is a path that somebody wants to pursue. So Jason, let me end here by asking for your recommendation for something that helped you on your journey, learning more about FIRE and kind of strategies around pursuing this, whether that be a book, a blog, a podcast. Is there a resource you would recommend that was helpful for you?

Jason Long: I have a pretty unconventional one. It’s “Walden” by Henry David Thoreau. I’m sure a lot of people have read it in high school or whatever. But it’s basically just the accounts of one man going to live off in nature for a couple years and realizing, hey, I don’t need money to do this. I’m happy. And then he would have visitors come over and be like, well, why are you eating this? Why don’t you eat nicer things? And he’s like, well, you’re only eating nicer things to compensate for the stress that you’re experiencing in your daily life. I kind of like to think of that as maybe the original Financial Independence book. It’s probably not, but it is pretty influential on my mind mindset as far as not wanting things I don’t need, just being content with what you have. Because like I said, I didn’t even realize this was a movement, a so-called movement or a thing until about 2015. There’s a lot of good stuff out there. There’s — some of the people that got me started — or not got me started but kind of helped me along the way there toward the end was on Reddit. There’s a sub-Reddit on there called “Financial Independence” that people can basically share their stories, share their goals, ask questions, and it’s a helpful community. You know, there are maybe a few naysayers on there. You have to be mindful of the fact not everyone is fortunate enough to have a six-figure job, you know. A lot of people say, well, it’s all hard work and this and that. You know, I couldn’t disagree more. No. You did nothing to be born in this country. You did nothing to be born in this era. You did nothing to be born intelligent. You did nothing to be born with good, helpful parents. You know, it takes a lot of different things to be in this situation. But when you find yourself in this situation, yes, it does require hard work and discipline to be able to do it. But always be mindful of the fact that if this is a thing that you can even think about doing, there are a lot of factors that went into that that’s beyond your control. You got lucky. The rest of it, the hard work, that’s up to you. So don’t go preaching to other people about how you can do it. If you go on these forums, be mindful that there are people on there who may not have had the same opportunities as you did. So be careful about what you say because there are real people online, and they can be hurt by, you know, what you say on there.

Tim Ulbrich: Yeah, and I think, Jason, it’s a great reminder that there is not one right financial path or plan. And I think what I really appreciate you helping me and our listeners think about is some more of those philosophical questions about why are we doing what we’re doing? And really evaluating, self-reflecting on that and then for some listening, this may be the path. For others, maybe a version of this, maybe something different. But you know, I think for each of us to focus on our own and certainly find resources and support. But in no way do we have to judge the path that others are taking. So Jason, I appreciate the time that you’ve given here. I appreciate you sharing your story with our listeners. And I wish you the best going forward.

Jason Long: I enjoyed it. Thank you.

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