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YFP 253: YFP Planning Case Study #1: Growing a Family, Paying Off Student Loans, and Buying a House

Posted on April 28, 2022November 2, 2022 by yfpadmin

YFP Planning Case Study #1: Growing a Family, Paying Off Student Loans, and Buying a House

On this episode, sponsored by Insuring Income, YFP Co-Founder & Director of Financial Planning, Tim Baker, CFP®, RLP® is joined by YFP Planning Lead Planners, Kelly Reddy-Heffner, CFP®, CSLP®, CDFA® and Robert Lopez, CFP® to walk you through a financial planning case study on growing a family, paying off student loans, and buying a house.

About Today’s Guests

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

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

Robert Lopez, CFP®

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

Episode Summary

Welcome to our very first YFP Planning case study. In this episode, YFP Co-Founder & Director of Financial Planning, Tim Baker, CFP®, RLP® is joined by YFP Planning Lead Planners, YFP Planning Lead Financial Planner, Kelly Reddy-Heffner, CFP®, CSLP®, CDFA® and Robert Lopez, CFP® to walk through a case study featuring fictitious clients facing real-life scenarios like growing their family, paying off student loans, and buying a home. While the Jones family may be made-up clients, their financial scenarios, facts, and goals resemble common areas of focus and concern for many long-term YFP Planning clients. Kelly and Robert detail the various options and information pertaining to the financial plan of our fictitious clients, the Jones family, laying out all of the case study client earnings, expenses, debt, and goals. The team discusses potential client considerations for the financial plan regarding student loan repayment and their growing family. Kelly and Robert touch on everything from PSLF to wealth protection, speculating the necessity of a whole life policy, and the advantages of a joint credit card. This behind-the-scenes look at YFP Planning will provide insight and understanding of what goes on at YFP Planning, plus a comprehensive analysis and education on the financial picture for the Jones family.

Key Points From This Episode

Introducing YFP Lead Planners, Kelly Reddy-Heffner and Robert Lopez.
Describing the fictitious family of today’s case study: Jason and Lauren Jones.
The Joneses’ earnings, expenses, and debt.
Their goals and concerns.
How their cash position fits in the context of their goals and debt.
The question of whether or not to go the PSLF route.
The tendency to get caught up emotionally without considering the mathematics.
How the Joneses should tackle the wealth-protection aspect of their financial planning.
Speculation of whether a whole life policy is necessary.
The benefits of having one joint credit card per family.
What the Joneses should consider with regards to the mortgage conversation.
The power of financial planning.
The wealth-building opportunities for the Joneses’ emergency fund.
The ideal amount to put aside as an emergency fund.
Investment options and recommendations.
How to approach college education funds.
The future prospects of a supplemental income for the Joneses.

Highlights

“[PSLF] is a huge conversation both emotionally and mathematically to work through.” — Robert Lopez, CFP® [0:13:39]

“There are very rare circumstances where a whole life policy is cost-effective and really necessary in the planning process.” — Kelly Reddy-Heffner, CFP®, CSLP®, CDFA® [0:19:32]

“The power of financial planning is that process of planning.” — Robert Lopez, CFP® [0:23:44]

“Tying in a specific amount to a specific goal is very important.” — Kelly Reddy-Heffner, CFP®, CSLP®, CDFA® [0:26:47]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

[00:00:00] TB: You’re listening to your Financial Pharmacist podcast, a show all about inspiring you, the pharmacy professional, on your path towards achieving financial freedom. Hi, I’m Tim Baker. Today we’re changing things up with a new type of episode. I sit down with YFP Lead Planners, Kelly Reddy-Heffner and Robert Lopez, to walk through a case study of a fictitious family, the Joneses.

Although the Joneses are not an actual couple we work with, they’re really a composite of clients we do work within reality. The first part of the discussion we lay the groundwork of the Jones’ jobs, salary situation, and where they live. We walk through their net worth and point out important elements of their financial situation. We also talk about their goals and what they’re trying to achieve.

We then talk through, how we would approach the Jones’ financial plan as if they were real clients. This is a bit of a behind-the-scenes look at what goes on at YFP planning. I hope you enjoy this episode, but first, let’s hear from our sponsor, and then we’ll jump in at the show.

[00:00:57] ANNOUNCER: This week’s podcast episode is brought to you by Insuring Income. Insuring Income is your source for all things term life insurance and own occupation-disability insurance. Insuring Income has a relationship with America’s top-rated term life insurance and disability insurance companies so that pharmacists like you can easily find the best solutions for your personal situation. To better serve you, Insuring Income reviews all applicable carriers in the marketplace for your desired coverage, supports clients in all 50 states, and makes sure all of your questions get answered. To get quotes and apply for term life or disability insurance, see sample contracts from disability carriers or learn more about these topics, visit insuringincome.com/yourfinancialpharmacist. Again, that’s insuringincome.com/yourfinancialpharmacist.

[INTERVIEW]

[00:01:48] TB: What’s up, everybody? Welcome to our first YFP planning case study. This is a new concept that the team at YFP planning is going to test out. We want to launch these, I think at least once per quarter and the idea behind this concept for both the podcast and video that will be shown on YouTube is to give you a look behind the scenes of a fictitious client that we are going to work through and look at, various information regarding to their financial plan, their goals.

The idea is to give you a behind the scenes of how we would handle these fictitious clients in terms of giving them some thoughts and ideas behind their financial plan. Today I am joined by our two lead planners, Kelly Reddy-Heffner and Robert Lopez and in a second here, we’re going to go through the fact pattern on our first case, the Joneses. It’ll take us a little bit of time to go through all the different facts of the case and then we’re basically going to have an open table discussion of how we would approach this particular client. We’ll do — this client is fictitious, but it’s based on a group of clients that we worked with over the years in terms of some of the planning challenges that they face. We’re going to have a variety of type of clients that we’ll talk with as we roll out this series. Hey, guys, welcome to our first case study. How is things going in your neck of the woods, Kelly?

[00:03:12] KRH: It’s going well. It’s good to be back to doing some planning after the tax season. So happy to be talking about a case study.

[00:03:20] TB: Yes. Yes. Tax season is behind us. I guess we can say that at least the deadline is. It was an eventful tax season, no doubt. How about you, Robert? How have things going on, your end of things?

[00:03:31] RL: Well, we’re already in the nineties out here in Arizona, so we’re doing our best to make sure the AC doesn’t die on us.

[00:03:37] TB: Yeah, please. Especially with Spencer, make sure he’s nice and cool. It’s funny, we were just talking about this yesterday, 45 degrees in Columbus, Ohio, yesterday. I think this weekend is going to be 85, so that is the weather of the season. All right, so I’m going to share my screen here and for those of you on the podcast, you won’t be able to actually see us. We’re going to talk through this. If you’re watching the video, obviously, you’ll be able to follow along. Robert is going to kick us off on the high-level facts. Then I will get into the network statement and then Kelly is going to finish us off and talk about goals and some of the other miscellaneous. Robert, the screen is shared, why don’t you kick us off here?

[00:04:15] RL: Yeah. Just waiting for that screen to load up on my page. Today we’re going to be talking about the Joneses, and so to try to keep up here is Lauren and Jason Jones. They’re both 33 years old. Lauren is a clinical pharmacist working at a public hospital. Jason is an Electrical Engineer. Then six months ago, they welcomed their daughter Lucy into the world.

Lauren earns $118,000 at her main job and then has a side hustle with supplements where she does $10,000 regularly. Jason is getting 112,000 from the Electrical Engineering Firm. He filed the taxes, married filing jointly. They are living in wonderful Dallas, Texas. Their gross income combined is $240,000. That breaks down to about $20,000 a month. Then after their taxes and contributions to the cafeteria plan or retirement savings and insurance, now they bring home about $14,200 a month and then they get chopped up in their expenses.

They have fixed expenses of roughly $7500, variable expenses that can change from month to month or above $3600. Then their savings target right now is about $2700 a month. They’re living in a three-bedroom single-family house that they bought a few years ago in 2018. They used an FHA loan to put 3.5% down on $295,000 home. They have a 4.25% interest rate.

[00:05:36] TB: Awesome. If you look at their net worth statement, we’re going to start on the asset side. Between checking and savings, they have about 35,000 in a joint account, 85,000 in a savings account. Then Lauren also has a CD of $10,000 that will mature in a year. When we take a look at their investments in their Roth IRA, both Lauren and Jason have Roth IRAs. She has 25,000, Jason has 15. They’re not currently contributing to this. This is an IRA, a Roth IRA that was set up with a financial advisor when Lauren was in Pharmacy School, definitely hanging out there.

403(b) Lauren has one 85,000 that she’s contributing 5% with a 3% employer match. She thinks it’s primarily in target-date funds that has about 85,000. Jason has a 401K with 55. He’s contributing 7% with a 3% match. He also has a Roth 401K or basically, he contributes into the Roth side of things and he’s in an A 20 allocation. Then he also has an old 401K from a previous employer with about 15,000. He doesn’t really know what to do with. Then Lauren has $5,000 in an HSA that she’s contributing 36.50 which is the max for a single person for the year and just sitting in cash, right now. They have the primary home that Robert talked about and they think it’s worth about 355,000 now that they own jointly.

Then if you look at the liability side of things, they do have a credit card balance of 2000 that they pay off every month. They basically use it for points for travel. They have a personal loan of 6000. It’s Lauren’s debt that’s to the bank of mom and dad, that they basically pay 0% interest and I think they put about $1,000 towards that, if I have the note right. Then in terms of long-term debt, they both have car note. Lauren has a car that has a 15,000 balance dated as 23,000. The total payment per month between the two of them was about 825. Jason’s interest rate is five and a quarter, Lauren’s is 4%. The mortgage was 272,000 left on that.

Then Lauren, like a lot of pharmacies out there, has a good amount of student loans. She has a total 170, 145 of that is in the public program and then about 25,000 in private student loans with an interest rate of 7%. You put the total assets of 695 minus their total liabilities of 480,000. That equals their net worth, which is 207,000. Positive net worth, not too shabby, net 33. Some other things that they talked about is they’re filing jointly like Robert said, but they’re doing it themselves but feel like their situation is becoming more complex, potentially converting their house to a rental. Kelly will talk about that here in a second terms of goals.

The baby, Lucy being born six months ago and then potentially looking at PSLF, they think they’re missing out on some deductions and they typically owe money, two or $3,000 each year that they don’t necessarily have a plan to save for. Kelly, walk us through the Joneses, their goals, and any other miscellaneous things that they have going on.

[00:08:40] KRH: Yeah. After we get a good idea of net worth, which, Tim, you shared with us and some of those retirement contributions and other things that they’re doing. It’s really important to understand the goals, because that frames, what we’re doing the planning for. In this case, Lauren wants to aggressively pay off the student loans but has some concerns about PSLF. Jason is in disagreement. It’s something that’s on the list to talk about. They are thinking through adding an addition to their family over the next two years. They’d like to start saving for their daughter, Lucy’s college education, but unsure where to start. Thinking through housing and if they’re going to grow their family. What does that next house look like?

They’ve added an opportunity to maybe turn their current home into a rental property and yield some recurring revenue from that. Then Jason is thinking about some career exploration, not uncommon. Of course, we’ve seen a lot of that over the past year with job changes, transitions. So thinking that through and seeing what that will do to salary. Some of the other things to think about, which also contribute to the conversation and the one that we’ll have here today is Lauren believes that she could increase her supplemental income. She’s bringing in that 10,000 now, but believes she can grow that in the future.

Lauren is also thinking through the care of her mom with the children. Sometimes we’re also worrying about her parents. So she has that on her list to consider in the planning as well. They both like to travel, so having a budget for that is important. Although not a top priority, retirement age of 65 is on the list, as a consideration as well.

[00:10:29] TB: Awesome stuff, guys. Appreciate us setting that up. I guess what would be from a job when you guys look at this fact pattern, with this particular client, the Joneses. What are some things that jump out to you that you would want to focus on and dig in and see what we could do in terms of some help with their financial situation?

[00:10:47] RL: Kelly, why would you go first?

[00:10:48] KRH: Well, I certainly would think through the cash position and how that fits in the context of the goals and some of the debt that they currently have as well. That’s a common question is, we’ve accumulated quite a bit of cash, what do we do with it? I would say that would probably be a good starting point is where does it fit with their goals versus other things that they need to accomplish on this list here.

[00:11:18] TB: Yeah. I think for me, one of the areas and this is often true with a lot of our clients, especially in around this age is, what the heck are we doing with the student loans? Right? I think as the financial planning goes, as the student loan plan goes to the rest of the financial plan. So to me, I think having that discussion with Lauren and Jason about, to PSLF or not to PSLF, right? We recently, Robert, I listened to your episode here recently about PSLF and updates, and some of the success stories around PSLF. But I think probably having a conversation about this and then supporting in this with the math to determine, does it make sense to go this route or not. What’s your thought on that, Robert, as you would walk them through this particular part of their plan?

[00:12:09] RL: Yeah. I think, it will be really important to figure out what Lauren and Jason are disagreeing about when it comes to PSLF, though she not believe that the program is going to be valid or does she not believe that her ability to earn this, basically, is she going to work in the public sector for the remainder of those ten years.

[00:12:23] TB: Yeah.

[00:12:24] RL: She’s already got 30 payments as a part of that 20. If we’re saying that this is happening currently, all 30 of those payments are happening under no dollar payments and no interest, thanks to the COVID changes. We’re already a quarter of the way there. That gives us 75% more the way I think it’s going to be too hard to pass up on the value of that. So really just reiterating that this plan works, hey, I can point to specific YFP clients. I can point to specific numbers on how many people have earned this forgiveness. I can show how you are or are not on track for your own personal forgiveness to make sure that this is a valuable thing.

That really ties into a lot of the other goals here, right. As we decide to grow the family that can decrease our payments, as we decide to maybe take a step back from a career that Jason’s getting some burnout from, that can free up some cash flow for us to live month to month. I have to worry about making really aggressive student loan payments. That does allow us to be more aggressive towards the private side. If she wants to be aggressive towards new loans, let’s pay off that 7% aggressively as opposed to something that’s at 0% right now, and could be at 0% for still a little while.

Then show what the value of that forgiveness could look like, when we’re talking [inaudible 00:13:32] the way there, $80,000 of forgiveness easily depending on what their income is going to look like going forward. I think that’s a huge conversation both emotionally and mathematically to work through.

[00:13:43] TB: Yeah. I think sometimes, we get caught up in the emotion without actually taking a look at the math. I don’t think it’s out of the realm of possibility, especially in this day and age with the pandemic and some of the forbearance and the relief there that if you have three years, four years, five years of $0 payments, and then if you also have one or two years that is being calculated on a residency salary that you could pay, I don’t have the numbers in front me as supportive, but you could pay $60,000 in total and that could be on 170,000, 250,000, $300,000 of debt.

When you look at that total amount of forgiveness, the amount of being forgiven is not necessarily as important in PSLF, it’s more of the amount that you paid, but if you can then minimize that by looking at more of the pretax accounts, like the 403(b) the 401K. In this case with Jason, if we’re going that route, maybe, maybe he doesn’t do the Roth, but if they file separately, which they’re not doing right now, it doesn’t necessarily really matter. But then –

[00:14:49] RL: It would, it’s a community property state for Texas –

[00:14:51] TB: Oh, Texas, yeah. You’re right, could call out. So those are the things that as when I say as the student loan goes, the rest of the plan goes, because you would argue that, you would be able to save more for the long term, but then maybe even more for the short term, whether that’s a job transitions fund, a vacation fine or something like that, because right now, she’s paying, they’re paying $2100 in student loan payments which is probably on the high side, again, probably some meat on the bone with regard to how much they’re paying in interest.

Maybe the compromise is that they just pay off the private loans more aggressively or with the cash that they have on hand, maybe they just write a check, and the private loans are gone and then they pay the minimum on the public loans. I think to me one of the things that jumps out when the fact pattern is that the two of them disagree on that, I think is probably having them both come to the table and talk through some of the maybe the angst around that. To your point, Robert, it could be I don’t think I’m going to stay at this job very long and I want to move to the private sector. That’s a completely different conversation.

I think having more of those clarifying questions to determine, hey, is this a good mathematically it absolutely makes sense in most cases, but from a career perspective, from an emotional perspective, maybe not. One of the things that we didn’t, actually we skipped over when we were talking about, that I’ll go through quickly here, when we talk about the wealth protection, we typically talk about things like insurance estate planning. One of the things to mention is that they probably were okay insurance-wise before their daughter came. I typically say, especially with life insurance, that the two thing, or two of the things that you look at is, if you have a spouse, so check in this case, if you have a house, check. Then you have mouths to feed, typically want to make sure that you have enough insurance.

Right now, Lauren has $500,000 a term policy, a 30-year term policy that she bought through the financial advisor when she was in pharmacy school, along with one times group benefit that’s 118,000, so 600 plus thousand dollars in life insurance. Jason that’s 500,000 that he also bought and then a 50,000 flat amount through his employer. They also have a small life policy that is worth the death benefit, it’s 50,000 with a negligible cash value that paying about 70 bucks a month. Then from a short-term and long-term disability, pretty common. Lauren has a 60% benefit for short-term and long-term disability it isn’t an occupation. Jason does not have any short-term disability, but he does have a long-term disability that’s an occupation for two years and then switches to any occ, until Medicare age.

We’ve talked about this on the podcast in terms of how that works and maybe something to talk about a little bit more today. Lauren doesn’t have any professional liability outside of what her employer offers. Then from a wealth protection perspective, we typically look at the estate plan and right now they don’t have any documents in place, but they’re looking at Lauren’s employer. They have a legal benefit that they would work through. If I’m asking the question of what jumps out, this is probably one of the — outside of the student loan. This would probably be the one of the next things that I would look at in terms of the wealth protection, particularly with Lucy being born six months ago.

Kelly, what’s your thoughts as you look at more of the protection stuff, which is often not necessarily at the top of everyone’s mind, especially as they’re going through a lot of these life changes. Kelly, what’s your take in terms of how they should attack this part of their financial planning?

[00:18:28] KRH: Yeah. I would agree that this is often an area that is neglected. Even at annual reviews, we sometimes see estate planning documents still on the list. I think with Lucy for sure, getting a will in place, guardianship, very important, and having that taken care of would give them a lot of peace of mind, as well. As far as insurance coverage too, once you’re a parent, it would be highly unusual to probably be under $1,000,000. If you look at the goals that you have and some of the high-level calculations like, ten times income that would certainly put both of them well over $1,000,000 in terms of need.

I do like that it is purchased outside of their workplace that it is their own policy, but I guess it would be good to take a look at the details of the policies as well. As far as whole life, we have this conversation all the time. There is very rare circumstances where a whole life policy is cost-effective and really necessary in the planning process, so that would be one of the top priorities to look at that to see about surrender charges and use that money towards something better in the plan, perhaps the difference in increasing that term policy up to the amount that would be more adequate and of course, the disability as well.

Speaking of purchasing from outside, we recommend is the gold standard having your own disability policies, the 60% is reasonable, but Jason doesn’t have that short-term disability policy at all, so then you are looking at the emergency fund. Does that cover that or does he need his own policy as well? Just really looking at the fine print in the details and seeing, should they purchase that on their own as well.

[00:20:33] TB: Yeah. You can go out and purchase a short-term disability plan, but it probably it’s typically cost-prohibitive. I would probably just had the emergency fund. He’s covered from a long term disability, but he does have that wonky definition of two years on occupation and then any occ, after that, which is a little bit [inaudible 00:20:53] you should do there if you should go out and price a different policy and carry your own or just use what the employer has.

When you look at the debt, the outside of the of the student loans Robert, what are you seeing in terms of the personal loan, the credit card, the car note, the mortgage in general? Obviously, the conversation has changed a little bit in the last couple weeks and months with interest rates and where they’re going, but if you even assessment of where they’re [inaudible 00:21:19] debt perspective, what’s that look like to you?

[00:21:23] RL: Yeah. One credit card for a family these days is a little odd. I think it’s really awesome. We did just have a client come on board that they do just have the one joint card, using that for their monthly expenses to gain those points for travel. I love it. Having those points set aside for future travel points is really going to help them. The car notes 5.25% and 4% on those loans. Those would seem a little bit high in previous years, but it’s not too far out of bounds, right now. So I’m not sure they could refinance too much out of that.

Obviously, paying those off with the delta between what they’re getting on their savings accounts is a different conversation on, and it doesn’t make sense to carry those loans, yay or nay, but those are understandable loan amounts. Student loans at 7% interest, I think we can still maybe refinance those private loans down and probably get a better rate. There’s a bunch of tools that you can use online to find better rates between all the servicers and then the mortgage at 4.25%, yeah, for having this conversation six months ago we’re like let’s refinance, let’s get out of the FHA and do a conventional. We have at least 26% or 28% of equity in the home, so that wouldn’t have PMI on another loan. With the FHA, that PMI stays on for the life of the loan and if we were to refinance right now we’d end up with a worse rate.

The conversation with the mortgage would be how serious are we about getting another house? Are we going to be able to keep it as a rental? I think, the math doesn’t really work out too well for that, because there’s only about $200 of gap between what they’re paying on their mortgage right now. If we were to refinance that gap would even shrink. But how much is it going to cost to refinance from a funding fee or any points we have to pay? How much are we going to save on a monthly rate? Are we going to reset our amortization? We are going to start back at 30 or are we going to stay basically the 26 or 25 years that we have remaining on our loan since about 2018?

We can run those numbers and say, “If we keep this house for another five years, then it doesn’t make sense. Let’s just keep our 4.5 to 5%.” But if we know we’re going to leave within the next three years, because we’re going to grow our family farther and maybe we want to get into a better school district before we start getting Lucy towards that school age, which is a really common conversation, then maybe the math does start to work out well. We could still refi now get away from that PMI and then the math is going to flush out better. That’s really just a conversation that involves a bunch of steps of what are we really think we want to do with our life, what do we really think the math says, and what decisions does that lead us to. That’s really the power of financial planning is that process of planning.

[00:23:47] TB: Yeah, yeah. So much it’s not say about the plan, it’s about the act of planning. I think, it’s an interesting conversation to have, because in this particular case they think they can get $2800 a month as a rental, right now their mortgage is 2600, they’re paying that on a 30-year, four and a quarter. Probably when we wrote this out, four and a quarter was actually a higher rate, but if you can get that down and get rid of the PMI maybe you’re delta between what you can rent and what your mortgage would be, there’s a lot more. The other argument is because inventories are so low in a lot of different parts of the country, probably Dallas included, maybe the rent you can get is not 2800, maybe it’s 3032, I don’t know, but those would be some of the things that I want to dive a little bit deeper.

For some people, too, it’s like, “What’s the catalyst behind renting it out?” If it is from a wealth building perspective, maybe your point the math says, maybe sell it and roll it into your new home and minimize expenses on that. Maybe with Jason, maybe part of his idea in terms of shifting careers is more along the lines of supplement in his new career with real estate or something like that, and maybe an effort to diversify income. But to your point, I think it’s just like the PSLF discussion. I think it’s having a conversation that is supported with the emotional, but also the math in terms of what it looks like, and because things change, it seems like all the time with markets and interest rates and home values and rental, all that stuff, it constantly changes. I think having a little bit more of a clarifying discussion.

Kelly, if we assume that we’re going to go down the PSLF route and we’re really trying to make sure that the investments are buttoned up and really the cash is deployed in the most optimized sense, we’re looking at with this particular client would we say about $130,000 in cash between check in savings and the CD they have. So if we look at – we think would be in an emergency fund and how we would set up their investments. What are some opportunities for this excess of cash and what they can potentially do with that? What’s your take on that, if they’re asking, hey, because one of the things that we’re hearing from real clients is like, “Hey, with the forbearance we haven’t been paying towards our loans and we know that that’s good, but it’s also a bad thing because that cash is just sitting there not really doing anything.” If you’re looking at things travel or transition, or a mom fund, how would you approach the client in terms of trying to deconstruct what to do with this cash?

[00:26:23] KRH: I do think and I’m not sure if I’ll answer the question specifically, but I think it is indirectly related. It does really help to earmark those large portions of cash. So what is the emergency fund like we say six months, those necessary expenses, mortgage, student loan payment, car payments, from there, the travel budget really tying in a specific amount to a specific goal is very important. Then once you see what that looks like that is a much better view of what’s left. I guess in terms of debt, I would take a look at, is it paying off the private loan? We get asked that a lot. Invest versus private loan, I would see about a refi rate versus just paying it off directly.

In terms of the wealth-building, there are certainly a lot of opportunities if you’re pursuing a PSLF option to really look at how much is being contributed into the 403 B, it’s well under the limit of 20,500 for 2022. Jason’s going into the Roth side, he’s not at the maximum either, so looking at that contribution rate. Now with Lucy, I guess asking the question, is Lucy on Lauren’s health insurance or Jason’s? If she can be on Lauren’s, that HSA amount increases substantially as well to over $7,000.

Those would be the places where that’s always a great conversation with PSLF is, what else can you be doing? So not only are you not paying the student loan, you’re not having to put that money towards a payment amount, but then you’re also building wealth on the back end towards your savings capacity.

[00:28:14] TB: What do you guys typically see or what do you typically recommend in for an average client like this in terms of our emergency fund, are we saying emergency fund is 80,000 10,000? If you had to do a roundabout guess in terms of what you’re seeing in terms of an average emergency fund, what would you say you’re seeing?

[00:28:32] RL: Yeah. I like to break cash down to pure ratios. My checking accounts, I like to have a floor. Everybody resets their zero when they’re making it in life, right? When you’re in high school and college, maybe it’s zero, dollars is to zero. When you make a little bit of money, it’s a thousand bucks and it’s 10,000 bucks you want to have that feels like your real “Oh, no” moment. There we go. So I like to see 1.5 X, so one and a half times your monthly expenses in your checking account, that’s just to make sure you never overdraft, you never do anything crazy, from a savings account perspective, we always hear that 36 months for two people, if they’re both in very secure jobs, I think three months is going to be good enough. That’s generally going to be long enough for long-term disability to kick in depending on the plan, if it’s got a 90-day or 180-day exclusion period.

If we’re thinking that maybe there’s going to be some career change opportunity happening, then I’d like to be closer to six months of net expenses, I definitely want to be closer to that and you can decide if that’s just fixed expenses or if it’s all expenses. People are generally really bad at judging out what their expenses are for monthly basis, so I just take all expenses and make that our emergency savings. So for a client this, I think that we’re just going to need to have 60 grand kinda set aside. They’re spending about 10K a month between fixed and variable expenses. If we want six months, so that’s in 60K in an emergency savings wouldn’t be about right for them.

[00:29:50] TB: Yeah. That’s about half of what the cash that they have on hand, thereabouts. I think typically and it would probably be in a traditional case if Lauren and Jason were saying like, “Hey, we’re good with these jobs, more than likely they’re probably pretty secure. It might be half of that, but I think to account for some of the transition and give them some runway, if he does take a step back in salary, it makes a lot of sense.

I’m with you, Kelly. I personally like the idea of setting up a high-yield savings account that is called an emergency fund. Set in a high yield savings account or sub-accounts, that’s called travel. Our travel fund at Ally has sub-accounts that is like RV camping trips, Paris, which we just got back from our big trip this year, is Disney World, right? The idea is that we have goals for each of them, we turn that off and then we go on to the next thing. So we nerd out a little bit and get very granular with that and I think it does help, because it pushes the goals. Sometimes I think, if you have a big pot of money, you’re doing some of the earmarking already, but it’s a little bit more nebulous. Where it’s like, “Oh, okay. I think some of this is for X, some of this is for Y.

If you’re going to do that anyway, just actually do the accounting. That’s not everyone’s cup of tea, I get it. Sometimes it’s more percentages or things like that, but I think sometimes that’s one of the beauty of like a 401K or an IRA is that when you save money, do your 401K and all make that comes out of your paycheck, but for you to reach into that cookie jar and get that money out, there’s a lot of penalties, 10%, you pay taxes and things like that. At least from a savings perspective, we’re labeling it, and we have a goal set up that if I rob the Disney World account to go buy a Tesla, I’m going through that, at least mental barrier to do that.

I’m a proponent of building a savings plan and drawing those lines. Let’s talk about one thing that we haven’t talked about too much in depth is just the investments. When you look at are they saving enough right now, 5%, 7% for Lauren, and Jason respectively, they do get a match, target date funds 80-20 allocation for Lauren and Jason respectively. They have a taxable account, it’s a Robinhood account that he’s doing, individual stocks, ETFs. What’s your overall impression, Kelly, of the investment account? Then let’s talk about the retirement stuff and then we’ll pivot and we’ll talk about the education stuff. Kelly, what’s your take when you look at their investments?

[00:32:14] KRH: Right, I mean, sometimes target date funds are the best option in an employer-sponsored plan, but that would be the first place I would look to see what are the fees for the target date funds? Does it match Lauren’s risk tolerance and appropriate asset allocation and see if there’s a portfolio that can be developed that would be better? Again, sometimes that’s not the case.

As far as Jason, I guess I would be wondering if the 80-20 asset allocation was appropriate for his age and if maybe he should be taking on a little bit more risk now, of course, we’d be looking at his score and having that conversation from the risk tolerance as far as just in general with the taxable accounts too. I think one of the lessons from the tax season is just that these do have an impact on our tax liability, which can sometimes be a surprise at the end of the year. I think it’s always good to check in on just having that conversation, how does this fit with overall goals and what you want to accomplish and making sure just some high level facts.

The IRS is now having the conversation about cryptocurrencies, like, know what to expect, wash sales. All those pieces that individual investors really do need to take into account as they’re thinking through how they manage those. Would it be better somewhere else too.

[00:33:48] TB: Yeah. I mean, one of the things that I would call out here is in the fact, pattern. Jason’s doing $200 into his Robinhood account, so $2400. I would just ask a question like what’s it for? Sometimes the answer is like, “I don’t know, just to mess around.” Which is fine, but is that worth maybe deferring, should we earmark this for the transaction fund or for X, Y, or Z? The other thing that they’re probably doing that they don’t necessarily need to do, because they have the cash is they’re putting $500 into a joint account. They’re probably set there. Maybe we redeploy that into a travel fund or a mom fund or something like that, but I would agree with you, target date funds might be okay, might not be the most cost effective or align best with the risk tolerance.

You could argue with Jason being 33 in 80-20 allocation, 20% in bonds, might not be the best. Is there an opportunity to invest the HSA, right now it’s sitting on cash. She has 5,000, she’s contributing another 3,650, might be up to be to get that rolling and then maybe cash flow some health expenses. With a baby coming up maybe they don’t stay in a high-deductible health plan and maybe they switch over for that year, which turns off the HSA. All of these things I think are on the table. Robert, as you look at the education, so we see this a lot. Lauren and Jason are basically saying like, “We want to save for Lucy’s education, she’s six months old.” Sometimes people go behind even at six months old, but don’t know where to start. They’re in Dallas Texas. How would you start that conversation of how to approach the college savings conversation?

[00:35:23] RL: Yeah. Anybody who’s got student loans, wants to make sure that their children don’t have the same problems and issues that they have. So it’s a really common thing of, “What can we be doing and when should we be doing it.” With 529’s college savings accounts, those are probably going to be your best bet in most places, unless they’re both alumni of a particular school and that school has some prepaid credit options where you can actually pay for college credits now and they’ll be matched whatever they are in the future. That would be an option. But for the most part, 529 savings plans is where is at.

Now in other states you get a discount on your state taxes for that. Texas does not have any state taxes or income, so they can choose any 529. There’s some great ones out there. Some of my favorite ones actually have a feature that allows you to send a link to family, so then family can send money to the 529 as well. So that’s a great way to go about as well. Even if you just set that account up. I guarantee, I have a nine month old here in the house and they have way too many toys and people are going to start sending them more toys for the next six months, so instead of just sending out a 529 plan link to somebody that they can give $50 to the education savings account instead, which is better than having a little plastic drum in behind you in a video, so you can make noises or memes. That’s a great way to go about it, but really anything they do now is going to be beneficial.

We’re never sure what the college landscape’s going to look like in the future. Highly unlikely that it’s going to stay on the same trajectory that it’s at now, that would be completely untenable. But just getting something going and then allowing other family members to contribute so then, they can also feel like they’re involved in Lucy’s life. This maybe the first grandchild, this could be the first nephew, the first cousins to be the first of many or the first of only. We really want to make sure that everyone can be included.

[00:37:01] TB: Yeah, it’s so true. It’s like the war on plastic. I feel like Liam had so many cars and things like that. He doesn’t need any more of that stuff, so here’s a link and contribute to a gift that way. I think one of the places I would start even before get into that vehicle and to your point with them being in Texas where there is no state income tax, and you can do this in any state, but a lot of the time, if you’re a resident of Ohio, you’re going to contribute to Ohio’s. If you’re resident of Maryland, you’re going to contribute to Maryland’s, because they give tax benefit for that, but not all 529s are created equal. So you have different expenses and things like that. So you definitely want to make sure that you’re finding a plan that all things being equal has good investments, low cost, that type of thing.

I think probably one of the things that I would least start the conversation and sometimes it’s like, I don’t know, it’s like, what’s the goal? I’ve seen the spectrum, Robert, where it’s like, well, I’ve had to deal with my student loan, so my kid has to figure that out as well to like, what you said is I never want my kid to have to go through this. To me, it’s deconstructing, what is the goal? Most of the time when I feel when I ask that question of, what’s the goal with the planning for your kid’s education, it’s a shrug emoji, not really sure. But then sometimes we paint a little a picture of, so we talked about the one third rule in prior podcasts.

One third could be, you say even something like a 529, one third of tuition of this could be from when Lucy is 18 and you’re basically paying tuition out of your present paycheck. Then one third could be from things like grants, scholarships. Then last but not least, student loans. So you attack it that way. So if you’re trying to achieve a funding goal, 33% in your 529, you can work with an advisor and try to figure out what that is. But I think it’s having that conversation and get, I know some clients are like, I want to put my kid through four years of college, master’s, doctorate. Then that’s obviously a much bigger monthly amount that they have to save for, but. the earlier you do, the better because if not, if you’re still trying to achieve that, you’re paying that much, much more in future dollars without the benefit of it being able to invest in compound. I think it’s a worthy conversation is build out that part of the plan.

Any other call outs that you would say as you’re looking at this particular couple, the Joneses, is that either from a tax perspective, a cash, a debt, a wealth protection with insurance that you would say, “Hey, this is probably something that we really need to talk about.” I mean, I think probably the one that we didn’t dive too deep in is, what is the future prospects of a supplemental income?

She makes it seem here that she can increase it fairly substantially, but then also probably the other thing that I would want to talk more about is just what’s the situation with mom? What’s that timeline? What’s that look like? How are we going to prepare for that? Is that something that we’re looking at in terms of the next home purchase, which again is probably another point of conversation is, what’s the timeline for that? What’s your guys take on that?

[00:40:08] KRH: I mean, I think right, the housing we just had a recent conversation with a client about their next house. They were thinking through about having room for a parent or both sets of parents. I think when we do the estate planning conversation, it is always interesting how a lot of times it does come up about parents and their needs too, so making sure they have documents in place that are here and that you have a good understanding of expectations is really important, because it is a lot of work to take care of a child and a parent at the same time. The more clarity you can have, the better for sure. I would say that’s pretty important. Do they need long-term care insurance? Do they have it? What resources do they have available to help you help them in the process?

[00:41:01] TB: Yeah, absolutely. How about you, Robert, any other closing thoughts?

[00:41:04] RL: Yeah. I don’t know if we touched on the professional liability. I think that’s a big one. We’re getting that policy in place, the hospitals protecting her when she’s at work, but definitely not when she’s doing her supplemental income job. Even if the hospitals protecting her, they’re really protecting themselves, so it’s really important to have a policy of your own. These policies are very inexpensive relative to some other stuff for paying, so I think that that going out and getting professional liability policy would be easy and quick and a good solution.

[00:41:31] TB: Yeah. I mean, I think there’s some more to be done on the wealth protection stuff with the estate documents, probably be looking at some of the life insurance, maybe disability. Yeah, professional liability, low hanging fruit. I definitely probably in down the road if they are looking at a rental property and probably and one of the things that we haven’t called out here that we typically see with a lot of our clients, they have kids, they don’t take advantage of all the things available to them at IE like FSA for dependent care. If that’s something that we’re spending money on with Lucy, so probably some help with taxes in the future, perhaps, especially if they’re looking at a PSLF now you could argue with Texas, there’s no state income tax you really just need help with the federal.

As you’re looking at maybe a rental property and another baby PSLF and you feel you’re missing out on deductions and you’re owing that money, maybe some proactive planning around that as the financial situation becomes more complex is something that you might want to get a helping hand with. But yeah, good stuff, guys. We’ll leave it there. We really appreciate the conversation, looking forward to doing many more of these in the future. Yeah, thanks for doing this today.

[00:42:37] RL: Yeah, enjoy it Tim.

[00:42:38] KRH: All right, thanks, Tim.

[END OF EPISODE]

[00:42:41] ANNOUNCER: Before we wrap up today’s show, let’s hear an important message from our sponsor Insuring Income. If you are in the market to add own occupation disability insurance, term life insurance or both, Insuring Income would love to be your resource. Insuring Income has relationships with all of the high-quality disability insurance and life insurance carriers you should be considering and can help you design coverage to best protect you and your family. Head on over to insuranceincome.com/yourfinancialpharmacist or click on their link in the show notes to request quotes, ask a question, or start down your own path of learning more about this necessary protection.

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YFP 252: One Pharmacist’s Journey in Entrepreneurship and Independent Pharmacy

Posted on April 21, 2022November 2, 2022 by yfpadmin

One Pharmacist’s Journey in Entrepreneurship and Independent Pharmacy

On this episode, sponsored by Splash Financial, Emlah Tubuo, the owner and pharmacist in charge at Powell Pharmacy & founder of Emlah Naturals, a pharmaceutical-grade supplement line, shares why she decided to start her own business, the challenges she has had to overcome in starting and running a business, and how she defines personal and professional success.

About Today’s Guest

Emlah Tubuo, the owner and pharmacist in charge at Powell Pharmacy, arrived in the United States in August 2003 with $300.00 to her name. Prior to earning her PharmD in 2010 from The Ohio State University College of Pharmacy, Emlah Tubuo earned a BS in Microbiology from the University of Buea Cameroon, and an MS in Molecular Biology from Chicago State University. She has lived and studied in both a developed country and the developing African third world country of Cameroon. Her difficult early life experiences had an immense impact on her life perspective.

Emlah served as an Ambulatory Care Pharmacist for Nationwide Children’s Hospital, and previously, worked as a pharmacist with the Kroger Chain for 8 years. Her quest for work-life balance and her strong desire to be an emotionally available parent to her three children and wife to her husband drive her passion for opening Powell Pharmacy and founding Emlah Naturals. While living and working in her birth country of Cameroon, Emlah suffered from numerous preventable diseases such as Malaria, Typhoid Fever and Dysentery, which kept her out of school several times. This gives her intense respect for disease prevention through immunizations. She led her pharmacy team to immunize hundreds of patients in 2016 and earned national recognition from The Kroger Co. by ranking among the top 1 percent of immunization community pharmacies out of over 2,100 sites. Additionally, Emlah developed her pharmacy team to provide Medication Therapy Management (MTM) and led her pharmacy to rank in the top five pharmacies in Columbus Ohio for MTM claims billed for four consecutive years.

Emlah was featured in the October 2017 edition of the National Chain Drug Review in the “Excellence in Rx” feature. She has earned multiple awards for her efforts as a Kroger pharmacist including Leader in Patient Care in 2016 and Outstanding Mentor in 2017 from the Kroger Columbus Division. She is an active member of the Ohio Pharmacists Association and serves on the Practice Advancement and Innovation committee. In 2016 she received the Preceptor of the Year Award from the OSU College of Pharmacy. Emlah Tubuo is the recipient of the 2018 Ohio Pharmacist Association Distinguished Young Pharmacist Award and the Ohio State University Josephine Sitterle Failer Alumni Award which recognizes an alumnus who has made outstanding contributions to the community or professional service. She serves on the Alumni Board of Governors of the OSU College of Pharmacy.

Her respect for diverse viewpoints, integrity hard work, and resilience make her the passionate pharmacist-owner at Powell Pharmacy and the founder of Emlah Naturals, a pharmaceutical-grade supplement line. The concept of Emlah Naturals® was born out of a desire to not only provide superior quality supplements but more importantly to provide valuable information regarding the intelligent, individualized selection of these supplements. Supplement selection is based on individual needs, careful consideration of the mechanism of action, handling by the body, and any possible drug interactions, and education on drug-induced nutrient depletions.

Episode Summary

Pharmacists are experts in human health, medication, and dispensing medication their patients need. However, sometimes prescriptions merely treat the symptom of an underlying health issue and not the source of the health problem. Pharmacists have a unique skill set and opportunity to educate patients on lifestyle changes they can make in addition to medication to become healthier. Education and health optimizations are the drive and passion of pharmacist and business owner, Emlah Tubuo, who aims to educate the public on the benefits of using natural supplements and lifestyle changes in combination with medication to remedy underlying health issues. Her passion centers around people and providing personalized care and advice to suit their needs. Emlah is the owner and pharmacist in charge at Powell Pharmacy, founder of Emlah Naturals, and is an accomplished and respected pharmacist. Her personal and professional journeys will inspire and motivate the listener. In today’s episode, you will hear why Emlah decided to start her own business, Emlah Naturals. Emlah shares her inspiring path to become a pharmacist, the many challenges she has experienced as a business owner, what she has learned during the pandemic, how she has become an authority in her field and community, and her definition of personal and professional success.

Key Points From This Episode

Emlah’s professional background and training.
How Emlah was able to study abroad to further her career.
The first job Emlah had after graduating and what her role was.
Highlights of Emlah’s approach to pharmacy and health care.
What motivated Emlah to start her own business.
The first steps Emlah took when starting her business.
Tim and Emlah discuss when the best time is to start a business.
The impact of the COVID-19 pandemic on the business and lessons learned.
How Emlah keeps motivated to do her best every day.
We find out more about Emlah’s new business, Emlah Naturals.
Why people should implement lifestyle changes along with taking medication.
What Emlah’s definition of success is, both personally and professionally.

Highlights

“If there’s anything we can do which is beyond prescriptions to take care of them, that’s really my focus and that’s what I encourage my team to do.” — Emlah Tubuo [0:07:39]

“If my worst-case scenario is going back to work at the previous job that I had, that’s fine. Have I impacted people along the way? That is my definition of success. That’s my definition of my life as a pharmacist.” — Emlah Tubuo [0:11:53]

“In this past three years, I have learned more than the past 30 years of my life put together because every day is a different challenge.” — Emlah Tubuo [0:14:22]

“I am always a student, I am always learning and that is what all of us should do. If you are not learning, if you’re not growing, you’re dying.” — Emlah Tubuo [0:17:13]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

[0:00:00.4] TU: Hey everybody, Tim Ulbrich here and thank you for listening to The YFP Podcast, where each week, we strive to inspire and encourage you on your path towards achieving financial freedom.

This week, I had a chance to sit down with Emlah Tubuo, the owner and pharmacist in charge at Powell Pharmacy and founder of Emlah Naturals, a pharmaceutical grade supplement mind. A few of my favorite moments from the show include, hearing from Emlah of why she decided to make the leap to start her own business after practicing as a community and ambulatory care pharmacist for nearly a decade, the challenges and “failures” she has had to overcome in starting and running a business, the “why” behind her business ventures and how she, despite numerous accolades and recognitions, defines personal and professional success.

If you’re interested in learning more about working one-on-one with a certified financial planner may help you achieve your financial goals, you can book a free discovery call at yfpplanning.com. Whether or not YFP Planning’s financial planning services are a good fit for you, know that we appreciate your support of this podcast and our mission to help pharmacists achieve financial freedom.

Okay, let’s hear from today’s sponsor and then we’ll jump into my interview with Emlah.

[SPONSOR MESSAGE]

This episode of the Your Financial Pharmacist Podcast is sponsored by Splash Financial. With interest rates on the rise, it’s a good time to evaluate the refinancing of your student loans, if you’ve ever considered refinancing your loans, check your rate now through Splash Financial. If you qualify, refinancing could help you get a lower monthly payment on your student loans or get a lower interest rate.

Splash helps you shop and compare loan refinancing offers across lenders nationwide. Browsing rates through Splash Financial is fast, free and won’t impact your credit until you complete a full application. Now, when you successfully refinance $50,000 or more, Splash Financial will give you an extra $500 in cash bonus, using our link, splashfinancial.com/yfp. So check your rate today and see what you might be able to save at splashfinancial.com/yfp.

[INTERVIEW]

[0:02:17.3] TU: Emlah, welcome to the show.

[0:02:18.7] ET: Thank you Tim, thanks for having me. I am excited to be here.

[0:02:23.3] TU: Well, I am too. I’m excited to dig into your pharmacy career as well as your entrepreneurial journey in the inner section of those two things. We had a chance to connect briefly this past weekend at the OPA, Ohio Pharmacist Association annual meeting, that was such a treat and I’m really excited to introduce you further to the YFP community. Before we jump in to the entrepreneurial journey where I want to spend most of our time, tell us more about what drew you into the profession of pharmacy and where you did your pharmacy training.

[0:02:51.4] ET: You know, I originally hail from Cameron, West Africa and what happened is, I would be, I would volunteer at these WHO clinics and these clinics run by the Baptist Health Center that I live near and we had missionaries come in. We had some ladies who were pharmacists come form North America and I just adored them.

When the physicians or the nurses that work with them at this clinics, when they ask them any question about a medication, they spit the answer right out. And I thought to myself, “How do these ladies know about all those medications?” and this I speak of is like a charitable pharmacy where all the medications are donated with different names from different countries.

These ladies could tell you, “If we don’t have this medication in stock, let’s use this other one” or “This patient, they need this one” and they just amaze me and I started talking with them about how to become a pharmacist and there is no pharmacy school in Cameron. This was when I was in high school going to undergrad and I started researching and thinking of how I could be able to leave Cameron and go study pharmacy in their country.

That’s really what turned it around for me, those missionaries who were pharmacist and just working with their hearts, not just practicing pharmacy but influencing people around them.

[0:04:08.3] TU: That experience through the WHO and those folks that were there, helping to serve, tell us about the connection and we cross paths at the Ohio State University College of Pharmacy where we both have connections, you from your pharmacy training, me from my residency training. You’ve obviously precepted in and stay connected with OSU throughout your degree thus far as well but tell us more than about that connection of, “Okay, I see the role that a pharmacist can play” and then, what work you did ultimately start your undergraduate work and then go onto pharmacy school?

[0:04:38.4] ET: Yeah, it is all about consistency. That’s one word that has carried me on and it’s something that I share with everybody that’s around me. I started applying out, there is no space to take the B-cut in Cameron. So, the only way to come out of Cameron was to apply for a masters program in molecular genetics and that’s how I went to Chicago, did my masters there and during my master’s program, I started applying to colleges or pharmacies around the country. So that’s how I got to Ohio State with basically almost no money to make it out here, drove from Chicago, came to Columbus for the interview, I fell in love with Ohio State.

As soon as I was accepted, this became home for me. Ohio State is my base and I just got the mentors, people embraced me. Being in a foreign place with nobody, no family around, you know nobody. You walk in and the professors, Dr. Hill, Dr. Bracket, Dr. Rodis, they just loved me and took me like their own. This is really what they said, “You know what Emlah? You are in the right space. This is not only about pharmacy, this is about life.”

[0:05:47.5] TU: I love that Emlah and those names resonate with me, Dr. Kent Hill, Dr. Carrie Bracket, Dr. Jen Rodis, folks that have had such a positive impact on my life, I would suspect, if we have any Buckeyes that are listening, those names would resonate as well.

You graduate from OSU, you got some great mentors that are supporting you in this journey. Tell us more about the first job that you had after graduating and the work that you did in that job?

[0:06:11.8] ET: During my time at OSU, I had an absolute, wonderful help from people around to connect with. I worked at Kroger as an intern and so, with Kroger Health, I worked at almost ever Kroger store that existed at Central Columbus, so I turned out to make all those connections partially because I needed money from the overtime and because I was trying to broaden my base. Every time I work with the pharmacist, I work with you and I will make sure that I get your style of working, how you interact with patients.

My time at Kroger was wonderful, it was foundational because I did so much more than dispensing at Kroger, that I found my calling. I said, “You know what? There is a lot more to health than prescriptions” and Kroger was leading the way in immunizations, medication therapy management.

I jumped onto that and I looked at every patient coming to me and I said, “This patient is not just coming to pickup a medication, they need something more” and I worked with my team to become the top immunizing pharmacy in the Kroger Columbus division and that was a beautiful journey. It just brought the team together, changed the culture of the team when there’s so much burnout and stress in the pharmacy world around now.

That’s how my passion grew and connected with other people who are focusing on a lot more than dispensing because I believe dispensing brings people to the pharmacy. Patients come to pick up medications but nobody wakes up and goes, “I love Metformin, I want to go pickup Metformin because I want to take Metformin” They’re coming for health. If there’s anything we can do which is beyond prescriptions to take care of them, that’s really my focus and that’s what I encourage my team to do.

[0:07:46.7] TU: So, you spend about a decade in community pharmacy, some time in the inventory care practice as well and then you make the decision to open up Powell Pharmacy in the Columbus Ohio area. Tell us more about, you know, we talk about that with business owners and I think sometimes it’s hard to remember that big moment, that decision, that leap of faith and so, take us back to that point in time of what led to, “Hey, I want to do my own thing” and then ultimately, what took you across that line to actually get started?

[0:08:15.4] ET: You know, it’s hard to find that one moment that made that decision. Coming from Cameron like I said earlier where there are no chain pharmacies, so my background is, a pharmacist works in a hospital or a pharmacist owns an independent pharmacy. That’s what I knew growing up as a child and all through going through pharmacy school at the Ohio State University, I’m thinking, “You know, it’s kind of different.” When I walk into a chain pharmacy, I go today and they don’t recognize me, I got to next day later on.

Nothing against chain pharmacies because that was me for 10 years and that is – the most wonderful people you will find behind the counter taking care of our health but I just wanted to practice pharmacy a little different. I just wanted to do something beyond dispensing. To be able to take it one step further and I kept – you know, the fear of making a big decision and I started, I said, “You know what Emlah? Maybe I need an MBA to be able to open my own pharmacy.”

I started reading into that. I started looking at about a ton of books, I bought about 30 books and started reading. I started reading and I said, “You know what? With all these student loans, I don’t know, should I add and MBA and get more student loan onto this?” and that fear going back and forth and then, when I transitioned from Kroger and went to Nationwide Children’s Hospital and practicing in the Ambulatory Care space there. A lot of things, including having my own children, I do have three children.

Balancing pharmacy, mom and I said, “I can continue to postpone this and postpone it and there will never be that right moment” but at the back, I just felt that talk to keep going, “You know what? I really want to practice pharmacy the way I saw it growing up” to bring back the old style where I could relate with a patient and have a little bit more time to address all the needs and I said, when I’m most at children’s pharmacy and I say, “This might be the time.” I was working the night shift there and it kind of played with my balance as a mom.

I said, “Maybe this is the time to make that shift” and fear, going back and forth with that decision and I said, “You know what? If I’m going to fail, let me fail fast. Let me just go in and get it done and we will see how it works. If it doesn’t work, I’m going to come back to Kroger or I’m going to come back to Nationwide Children’s Hospital but guess what’s going to happen? I’m going to put in every single effort that I have in this body and it’s going to work” and so, the leap of faith.

[0:10:41.3] TU: I love that, I think a couple of things I heard there, “If I’m going to fail, I’m going to fail fast” right? I’m going to fail forward and really evaluating what is the worst-case scenario and I think for many pharmacists you know, we think about worse case scenario in a way that is unrealistic. There’s not many professionals that you can say, “Hey, my worst case scenario is I go back to a job that pays a six figure salary” that’s a really good worst case scenario, right?

[0:11:05.6] ET: That is. Tim, like you mentioned, a good worst case scenario with the connections because, one of the books I was telling you all these books that I was reading, one of the books that I read that made an impact was the E Myth Revisited by Michael Gerber. He said, you know, nobody is interested in a commodity.

People buy failings. People buy relationships, people buy connections and that is in every space, especially in the pharmacy space and I always link it. Nobody wakes up and goes, “I would like to go and buy a medication.” People buy health, people want to feel better, people come to you and I as pharmacists in this space to feel better about themselves to live better.

What can we do as pharmacists to connect that? If my worst case scenario is going back to work at the previous job that I had, that’s fine. Have I impacted people along the way? That is my definition of success.

[0:12:05.3] TU: I love that.

[0:12:05.5] ET: That’s my definition of my life as a pharmacist.

[0:12:09.5] TU: Yes. And the other thing you said that it really resonate with me there is, there may never be “the right moment” right? I think of – you know, it could be student loans, it could be a young family, it could be other prioritizing other financial goal. There’s so many things that can get in the way and kind of reminds me of, I’ve got four boys, you mentioned three children. There’s never a right time to have a baby or to have a child and –

[0:12:33.5] ET: Absolutely Tim, yes.

[0:12:35.1] TU: I think it can be similar with business that if we wait for all the stars to align, we might be looking back at a point in time and wondering, “What if? What if, what would have been?”

[0:12:41.9] ET: Absolutely, should I have done it? Should I have done it at that time or maybe this was the right time to do it or when? You name all those factors, it’s a compounding effect.

[0:12:51.8] TU: Yes.

[0:12:52.3] ET: You put it and then when the baby is here, guess what? We’re going to have to take care of this baby, Tim. We’re going to figure out how to, we have never learned how to change a diaper before, we’re going to change it. This is how I practice pharmacy, I relate it to being a mother and I tell my patients, “I am a great pharmacist because I’m a great mother and I’m a great mother because I’m a great pharmacist” and I’m not saying great because I know how to do the parenting thing right but this is because every day, I put in my 100%. Some days I feel like that 100% is equal to 0% but I put it in regardless.

[0:13:24.8] TU: Yeah, I love it and figure it out mentality and the factor. So April 2019, you opened a business and not even a year later, we’ve got the pandemic that obviously, hits us close. It has had such an impact on small businesses, certainly new businesses, arguably to a greater degree.

Tell us about what impact the pandemic had on the business, on you as a business owner and then, what were some things that you were able to learn through perhaps a difficult time that have allowed you to grow as an individual and a business owner.

[0:13:57.7] ET: Talk about timing, Tim. Talk about timing and I kept reminding myself, I said, “Emlah, it is about the impact that you are going to have for the people around you.” It is about the impact. Once the pandemic hit, I said, “Oh my goodness, I have not figured out what I’m doing” Every day, I learn more, opening the pharmacy. I tell people, the pharmacy has been open for two and a half years now, almost three here and I said, “In this past three years, I have learned more than the past 30 years of my life put together because every day is a different challenge.”

I could either put my head on the pillow and cry or I could face it and I say, you know, the fastest way through a storm is going right through it every single time and this pandemic was a hit in the face. I said, “Oh my goodness, what did I just do?” and such is life, Tim, such is life. To me, as an entrepreneur, as a business owner, as a mother, I’m going through opening a business in the pandemic and navigating how to continue to stay present in the community and I said, refer back to what started, what made you Tim to open Your Financial Pharmacist?

YFP is here and it has impacted so many people. Myself included, I look up to you. The inspiration, are you doing what you set out to do? Are you inspiring the people around you? I keep asking myself that question, every single day, “Emlah, are you making the impact with everybody that you cross paths with? Are their lives better because they crossed paths with you, are their lives better because they came in to Powell Pharmacy? Are their lives better because they came into contact with me or with my business?” That is really the drive. My why, why, why did I start this?

[0:15:35.8] TU: Yeah, and I think as I’ve observed Emlah, you know, the work that you’ve done from a far and being in Central Ohio and hearing through many shared connections that the great work that you’re doing. One of the things I observed is you know, I’m looking at in preparation of this interview, an article that you have in the Columbus Dispatch where you reference, you’ve been in various videos and interviews and media outlets in Columbus throughout the pandemic about vaccine services and other thing you’ve been working on. I feel like it’s a great example of turning some of the challenges into opportunity.

You’ve really positioned yourself as a voice of authority on community pharmacists and the importance of pharmacy in a community here in Central Ohio and so, what a great, great thing as we think about the challenges of small business in the pandemic and obviously, the impact we know pharmacists have had and the positive impact they’ve had throughout the pandemic but to really position yourself as that voice of authority I think was really, a cool thing to watch. Congratulations, I think to you and obviously the team that’s been involved in moving that forward.

[0:16:31.8] ET: Thank you Tim. You say that and you mentioned being that voice but during this space and during this time, those doubts, that difficulty and my message to the YFP community is that when I mentioned earlier that I left Cameron and I came here, my breach to the PharmD program was to do a masters in molecular genetics and all that while I kept telling myself, “Oh my goodness” You know that little voice inside, “Oh, what a waste of your two years, what a waste of your two years”, you know?

My message is, everybody, and I tell this to my children, they’re still little but no time is spent as a waste if I spend this minute with you. I am always a student, I am always learning and that is what all of us should do. If you are not learning, if you’re not growing, you’re dying. That’s what we need to continue to do and I learned so much during this pandemic. I used the time and my knowledge of molecular genetics, who knew that that will come in handy? In fact as to be able to make a video and talk about MRI vaccinations and how because there was so much doubt when the vaccines came out.

I did a video that would inspire people and people would really understand how they work and this new type of vaccines as, “Is it really new, you know? Is it going to hurt, me, is it going to help me?” You see how pharmacy and what I have done during this days, I tell you Tim, if you look at the people that I surround myself with, I surround myself with great pharmacists. I surround myself with like minded pharmacists, I surround myself with people like you.

People who will inspire me to do more and then people said, “Well, Emlah, you’re a wonderful pharmacist, you should see my friends, you should see my team” That’s – I’m just a reflection of them and that’s the beautiful thing about life.

[0:18:13.0] TU: So powerful, I felt that this weekend, you know, at OPA, being around you, being around Adam Martin, Being around folks like Jen Rodis and other people.

[0:18:20.2] ET: Oh my goodness, the energy.

[0:18:22.1] TU: Such a great point. Yeah, the energy, the enthusiasm, the accountability, the challenging, so powerful. Emlah, you talk about some of these doubts, some of these voices and I want to spend a moment here because as a small business owner myself, those are certainly things that I have experienced and have had to work through and have other challenge me and keep me accountable.

I know many other pharmacists business owners are not. They have struggled with similar things as well. So my question here is what do you do practically to kind of get yourself in the right mindset, despite these challenges, despite some of these doubts or voices. You mentioned, you know, surrounding yourself with folks that really challenge you and keep you accountable and help move you forward.

What are some other things that you do practically as a business owner, as a mom, to really bring your best self forward each and every day?

[0:19:08.2] ET: I continue, Tim, every single day to remind myself where I started from and learning how to practically – I love the fact that you used the word practical there because we read all of these things in books each week, there’s a book already written about it. It is in the textbook, we learn about it, burnout, stress, you know making decisions but we are so hard on ourselves and we forget that just the little things will encourage us and encourage the people around us.

What I do is I am truly present every time. Say for example, I have somebody in front of me at the pharmacy. I, in this line of people, I focus on that person. I give my 100% to that person and I just ignore the line behind them because when it is your turn, I am going to be with them and I learned how to forgive myself for the past mistakes. I practice self-acceptance. It was really hard to do at first but I with three children, having to wake up in the morning, get them all ready.

Even when I worked at Kroger, I worked at Children’s, I would have to wake up in the morning like everybody else does, get myself ready, get the kids ready, drive, drop them off and then get to work. To be able to have a great morning routine, which will put me in that mind space and that mindset that will lead me to success throughout the day, it’s a challenge but I make sure that before the kids wake up, I have to have 10 minutes to myself where I refocus my energy.

I refocus my energy into myself and harness what’s inside because there is something inside each and every one of us. You know, to be there for yourself before you’re there for other people because I cannot come to you, everything, the beautiful, it’s amazing, everything is coming from inside of us, you know? You have to be kind to yourself and that’s why my mantra is we all struggle. Choose kindness, always.

You have to be kind to yourself and once you have filled yourself with that inner peace and kindness, it has no choice but to overflow into the spaces around you. Wellness and kindness are multidimensional Tim but this thought inside you, so I am grounded in the morning. I do my meditation and as much as I am distracted by the number of things on my to-do list for the day, I have a time where I say, “You know what bad energy? Get going, get the kids ready and revisit that happy moment.”

I have it with the kids, a happy moment like I was sharing with you during your talk. By the way Tim, what an amazing talk. That was amazing.

[0:21:35.7] TU: Thank you.

[0:21:36.6] ET: It spoke straight to me and just touching those practical things, I said to myself, I need to encourage myself to calm that fear because it will come. Fear will come every day, to calm me every day and to calm before my children and to calm before my team and all my colleagues because my goal is to inspire people to enjoy life. We have invested so much already into this.

Tell me your happy thought for the day, tell me your gratitude thought for the day and let’s keep it moving.

[0:22:00.8] TU: Yeah, it is starting with the state of mind. You know, we talked a little bit about that in the session but when I hear you talk about the morning mindset and the importance of self-care and filling your buckets, you can serve others. You know, whether that be your family, your patients and you have a gift. You talk about the person at your pharmacy regardless of what else is going on, focusing a 100% on them and you have a gift in doing that.

When someone talks with you one-on-one, you are fully invested in them and that is a rare trait and a gift and I can see why that has had such a positive impact on so many, whether that’s patients, whether that’s students that you are reaccepting and teaching, whether that’s folks that you are connecting within in the business community or family, what a gift to be able to share with others.

[0:22:42.8] ET: I am honored Tim. I am honored, thank you.

[0:22:45.0] TU: Yeah, so not only the pharmacy, which we could talk at length about the work that you are doing there, which is really incredible but you’ve also opened a second business, which is Emlah Naturals. So tell us a little bit more about the idea and vision behind that and what you’ve learned thus far through that experience or we’ll link to both Powell Pharmacy and Emlah Naturals in the show notes so folks can learn more.

[0:23:06.2] ET: Yes, so Tim, practicing as a pharmacist I see there is some spaces that we learn some of these things in school but to be able to take it and translate it too again, the what practical comes in. What practical changes, what things can I make? Because when we council patients, somebody comes and picks up their Metformin today, I give them the counseling points that I learned from school and everything.

Prior to saying that at school, we always learned through pharmacy school lifestyle changes, non-pharmacologic options. We mention that at the beginning of every counseling in addition to lifestyle changes, the Metformin is going to reduce your blood sugar and that’s as far as we go. We don’t focus on those lifestyle changes and that is key. That is the long term goal because there is a study that I always tell my students about, a navigator story.

Where they took like two drugs and they measured how much they will reduce people’s blood sugar and then reducing the effects or the long term effects of diabetes and lifestyle changes. Number one, every single time reduce the complications of diabetes more than the medication every time to combine those medications because people want to – nobody wakes up in the morning Tim and goes, “I am going to jeopardize my health today.”

“I am going to wake up and not eat better. I am just going to be mean to my health today” nobody wakes up and makes that decision consciously. We all want to do better. It is all coming from a great space. We all want to do better for our body, so when we come to the pharmacy and we are picking up medications, I have noticed that because my background having lived and studied in a third-world developing country and a developed country here, I bring a unique perspective on life and medicine and wellness to the table.

You know, from the economic challenges that I grew up with, my mom had a garden behind the house and we eat turmeric every day, it’s ginger every day, it’s mint, you know, it’s aloe every day for all the medications and even when I had malaria. I had malaria maybe 30 or 40 or 30 times, it’s you know, stayed out of school several times because of malaria, she would treat malaria. Sometimes we had Chloroquine but now we are doing that with Chloroquine is all the resistance but she would do everything lifestyle changes.

Just hydration, you know, all the herbs that she would do. I have that knowledge in me and then combine it with the clinical knowledge that I learned during my doctoral pharmacy studies at Ohio State. I said, “You know what? I think this is a space I want to encourage people to focus on that lifestyle medication, to eat healthier, feel better, manage stress, exercise more, love more, give more so they can be kind to their body” but we are missing that space.

About 70% of the US people are taking natural supplements already. They are taking supplements and vitamins but we’re buying it from Amazon, from the store. We just go in there and buy it but these medications are interacting with all the medications that we’re taking all these vitamins. People come in and go, “Oh, my girlfriend is taking echinacea and it is really helping her. It is boosting her immune system. She has not had a cold.”

“You know what? I am taking wolf berry right now.” I’m like, “Oh, I’m going to take that echinacea too” but that is a space where the pharmacist is supposed to be forefront and be, “You know what? We run drug interactions” and I say, “I’ve been thinking about this but this is the need that I need to solve with Emlah Naturals.” You know, create a supplement line where education is key and that’s what sets Emlah Naturals apart.

Empowering the pharmacist to be able to recommend these supplements with confidence, run those strong interaction reports and make sure that the supplement that’s good for you, it is not the one that is good for me and then to solve from too. A lot of times you have people going in there, you see the doctor said, “Oh, they run the lab test and they’re anemic. I have to go pick up some iron.” They go to the pharmacy and they pick up this ferrous sulfate, ferrous gluconate.

They came in different forms and they’re like, “Which one should I get? This one is on sale, maybe I should get it” or “This one is the most expensive, it is probably going to work better” yeah, that was me. The point that turned it around for me, I said, I was diagnosed as – my vitamin D was very low when I was pregnant with my first son and I went back straight to work. I worked at Kroger at the time and I looked at the shelf, there were like 20 vitamin Ds.

I said to myself, “Which one am I going to take?” I am a pharmacy student and I don’t even know which one to take, then when I think about my mom, I think about other people who have no knowledge of pharmacy, so that’s really what sparked my interest in opening Emlah Naturals and it has been tremendous, satisfying and, fulfilling. To help encourage people, to educate people, to be able to make this supplement recommendations, and supplement selection with personality in mind.

[0:27:27.7] TU: Again, we’ll link to both of those in the show notes, so emlahnaturals.com and then powellpharmacy.com and of course, if folks find their way in central Ohio, I highly encourage you to stop by Powell Pharmacy. Emlah, as I think as folks hear your story, by any objective measure they would say, “Wow, Emlah has been very successful” and lots of examples of recognition.

A couple you mentioned in terms of what you achieved in your time at Kroger and your store is in the top one percent of the immunization statistics. You are also featured in National Chain Drug Review, many Kroger recognition including leader and patient care outstanding mentor, you have been preceptor of the year at Ohio State, you’ve won the OPA, Ohio Pharmacist Association distinguished young pharmacy award.

So based on those external measures, those objective measures, “Wow, she’s really successful, those awards, she owns two businesses” but your definition of success is what I believe matters, your measuring bar and so my question here is, how would you measure success as you think about what that means for you both personally as well as professionally?

[0:28:37.5] ET: Well Tim, that is a great question. I have always asked myself that question and I make sure to write and answer. I have not always formed it the way you formulate it but I always tell myself, “Emlah, if I cross paths with somebody, if I meet you today Tim, does your life get better because I am in it? Do my children’s life get better because I am in it? Do my girlfriends, my friends, my neighbors, my family, my church, my community, the pharmacists that work with me, the pharmacists that I meet at OP, do their lives get better?”

Everyone who I am honored to cross paths with, does their life better because I am in it. How can I give emotionally, financially, physically just to be there? Have I been able to make their lives better? That to me is the true definition of success in my mind and that’s what keeps me going. If I can make my son happy, if I can make my team member happy, if I can improve their lives, help them in any way possible because health is different for everybody.

That to me is the true definition, you can give me all those awards you mentioned, I mean, they are great to have. They boost my confidence, they help me do more in different ways but I am inspired by people who have gone ahead of me and I reach out to help other people but to be truly successful and to have my head on the pillow at night and feel good about my day and feel good about the day tomorrow and get me to be in a better mindset to perform tomorrow better than I did today. Have I help the people around me to eat healthier, feel better?

You know, manage stress, love more, give more, be kind to my body so that my children can see me being kind to my body and they can emulate, they can be kind to their body. You know, that gets more blood going to the brain, that gets more oxygen going to the brain, that helps me think clearly, that helps me give me more energy so that I can radiate to the people around me. That truly to me is success.

[0:30:38.7] TU: That is beautiful Emlah and I would argue that those awards are simply an external affirmation of all of those things that you just mentioned, right? Your ability to focus on others and look at how can I help you be a better individual to motivate, to inspire, to share your gifts with others, to love more, to empower them and one of the things I’ve heard is you’re talking there is just an incredible gift of presence that you’re giving other people and in those lives throughout the day.

Again, whether that is personal or professional, that is really hard you know from personal experience to say, “I am going to be present in this moment as a business owner, as a boss, as a spouse, as a father or a mother.” To be present in that moment especially you got a couple of businesses, things are busy, there is a lot of I think individual work that has to be done to be able to develop that state of mind and presence, so what a beautiful thing to share with others. Thank you so much.

[0:31:35.3] ET: Thank you. I appreciate you Tim. I share those, it is hard to keep in touch with your money to get embraced that change and challenges that are along their journey because not every day is a 100% day. Some days my self-worth is down, some days it’s up there but my dispensing, I frame it. I tell my team, I say, “We are dispensing wellness. We are dispensing care and kindness, you know it’s beyond the prescription and daily life”, you know? Coming with the goal is to dispense care every single time, to ourselves as well.

[0:32:08.4] TU: Absolutely. I love that. Well, this has been a real treat. Thank you so much for coming on the show, for sharing your story. Let’s do it again. Where can people find more about you? I have mentioned the two websites thus far but if people want to connect with you further and follow your journey.

[0:32:22.1] ET: Well, we are present on Facebook. We are at emlahnaturals.com and we are also on Instagram. Also just Emlah Naturals on Instagram. The goal is to inspire people, just help people remember that there is a lot more to health and prescriptions. So we’re sharing about the information so you’re not just going out to buy a supplement. We just share information about supplements and my long-term goal, God willing, and giving me the energy that I would get from my friends and my mentors is to be able to help people.

Remember just basic things, we’re working on some things here in the future to encourage hydration, which is – yeah, so that is something probably honored to get on the show again and share with the YFP community because yes, so it’s those things that will help us get better. Instagram and Facebook, we’ll share our upcoming events on there and going to be present in the community.

Hydration and helping people to motivate as pharmacists and the work that you are doing is tremendous, it’s tremendous Tim. That financial peace of mind and getting your newsletters. I tell you, I read every single one of your newsletters every single day when it comes in. They are short, they are bite size information and that’s something that I learned from you. Again, being a student of life, when I started my newsletters were long.

I go back and I’m like, “Oh my gosh, what was I thinking?” and I said, “You know what? Your newsletters are the perfect length.” I read them and guess what? Emlah Naturals newsletters are just like that on emlahnaturals.com, you can subscribe at the bottom and you will get bite size information about supplements and about general things, anything that will help contribute to your health, which is not exactly related to prescriptions.

Yes, so that’s what and we will be looking for more to come and hoping that I will be any station I am honored to be on will be helping to motivate people, pharmacists, especially to invest. We’ve invested a lot into this, we need to be happy while doing it and to feel fulfilled.

[0:34:23.5] TU: Absolutely and I am confident whether folks are in a patient care role, in the community inventory care hospital setting, whether they are running a business, whether they’re working to be the best version of themselves as a parent or as a spouse or significant other, I am confident they are going to get a lot out of this episode. So Emlah, again, thank you so much for taking the time. I really appreciate it.

[0:34:43.3] ET: I am honored Tim, thank you very much and thank you for everything that you do too to those in the YFP Community. I love it, this is a fantastic place to be. Thank you Tim. Thanks for having me.

[END OF INTERVIEW]

[0:34:53.0] TU: Before we wrap up today’s episode of Your Financial Pharmacist Podcast, I want to again thank our sponsor, Splash Financial. If you’ve ever considered refinancing your loans, check your rate now through Splash Financial. If you qualify, refinancing could help you get a lower monthly payment on your student loans or get a lower interest rate.

Splash helps you shop and compare loan refinancing offers across lenders nationwide. Browsing rates through Splash Financial is fast, free and won’t impact your credit until you complete a full application and now, when you successfully refinance $50,000 or more, Splash Financial will give you an extra $500 in cash bonus, using our link at splashfinancial.com/yfp. So, check your rate today and see what you might be able to save at splashfinancial.com/yfp.

[DISCLAIMER]

[0:35:38.6] TU: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and it is not intended to provide and should not be relied on for investment or any other advice. Information of the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

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

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

[END]

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YFP 251: Zero to One: How to Get Started in Real Estate Investing

Posted on April 14, 2022November 2, 2022 by yfpadmin

Zero to One: How to Get Started in Real Estate Investing

On this episode, sponsored by Insuring Income, Nate Hedrick and David Bright, co-hosts of the YFP Real Estate Investing Podcast, share their top tips and strategies for getting started in real estate investing.

Episode Summary

The concept of real estate investment can be so broad, with many different avenues you can choose to take, that getting started can feel like a daunting task. One key concept to ensure that you can weather the storms that may come when investing in real estate is to, first and foremost, get your own financial house in order. By building a firm financial foundation, risk-averse pharmacist real estate investors can be more confident with the ups and downs in this ever-changing market. This week, YFP Co-Founder & CEO, Tim Ulbrich, PharmD, welcomes David Bright and Nate Hedrick, co-hosts of the YFP Real Estate Investing Podcast, back to the show. Top moments from the episode include David discussing the main categories of real estate investing and why he and Nate have favored buy and hold investment strategies. You will also hear a frank discussion on the individuals you should consider surrounding yourself with as a part of your real estate investing team, plus a few strategies for finding and evaluating an investment property. Nate and David also take a few moments to answer some frequently asked questions about real estate investing for those getting started in their real estate investing journey.

Key Points From This Episode

An update from David and Nate regarding their coaching program.
The importance of having a strong personal financial foundation.
How to break down real estate investing.
Categories best suited for first-time investors.
Nate shares the team aspect of real estate investing to bring down the stress and reduce the barriers to entry.
Where to find a good investment property: off-market.
The importance of being able to define and state your criteria to a real estate agent.
Using math to evaluate an investment and what that looks like; setting up categories.
FAQs you’ll hear when starting in real estate investing.

Highlights

“Getting your [own] financial house in order, [is] such a critical first step before you go on that journey to invest in real estate.” — Tim Ulbrich, PharmD [0:05:34]

“Having a firm financial foundation beneath you means that you can weather some of those storms and deal with some of those ups and downs of real estate.” — David Bright, PharmD, MBA, BCACP, FAPhA, FCCP [0:07:13]

“We’re investing in houses that are far enough away that we’re not going there and we’re not in that day to day aspect of the investing, which is really helpful when you work a full-time pharmacist job and you don’t want to be distracted by your real estate investing.” — David Bright, PharmD, MBA, BCACP, FAPhA, FCCP [0:22:02]

“To be considered a good investment property, it needs to pay for itself every single year, year in and year out, and put money back in your pocket. Running [those] numbers is important and not just looking at the simple things but truly diving into the details.” — Nate Hedrick, PharmD [0:24:30]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

This week, I had a chance to welcome back onto the show, David Bright and Nate Hedrick, co-hosts of the YFP Real Estate Investing Podcast. During the interview, David, Nate, and I talk through zero to one, how to get started in real estate investing and make the hardest move, which is that first move.

Some of my favorite moments from the show include David talking to the main categories of real estate investing and why he and Nate have favored buy and hold investment strategies, a discussion on individuals you may consider surrounding yourself as a part of your team as you begin your real estate investing journey and strategies for finding and evaluating an investment property.

Make sure to hang with us to the end of the show when I ask David and Nate frequently asked questions for those getting started in their real estate investing journey. Now, one of the things that we talk about on today’s episode is why getting the financial house in order is such an important and crucial first step before diving into real estate investing.

That is a great opportunity to highlight what I think many folks may not be aware of, which is the incredible work that the team at YFP planning does and working one-on-one with more than 240 household in 40 plus states.

YFP planning offers fee-only, high touch financial planning that is customized to the pharmacy professional. If you’re interested in learning more about working one-on-one with a certified financial planner may help you achieve your financial goals, you can book a free discovery call at yfpplanning.com.

Whether or not YFP Planning’s financial planning services are a good fit for you, know that we appreciate your support of this podcast and our mission to help pharmacists achieve financial freedom.

Okay, let’s hear from today’s sponsor, and then we’ll jump into my interview with David and Nate.

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

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

[INTERVIEW]

[0:02:40.9] TU: David and Nate, welcome back to the show.

[0:02:43.8] DB: Hey Tim, always great to be here.

[0:02:45.7] NH: Yeah, thanks so much.

[0:02:46.8] TU: First of all guys, congratulations on the work that you’ve been doing with the YFP Real Estate Investing Podcast. You’ve crossed the 50 episode threshold, which is really an incredible accomplishment and I think it just speaks volume to the commitment of time and energy and effort that you guys have put in so thank you so much for that and it’s been fun to see the reception among the pharmacist community in terms of the focus here on real estate investing and the community of pharmacist and I think that’s a good segue.

I’d love to hear from you guys, just for a moment, an update on what you’ve been up to. When we talked last at the turn of the year, you guys were just getting started with the none to one group coaching program to help folks begin their journey in real estate investing. So, David, Nate, we’d love to hear the update of how that course has gone and what you’ve been seeing.

[0:03:34.7] NH: Yeah, we had a ton of success with that. It’s been really fun to bring together this group of pharmacist that are really eager to buy their first investment property. We actually ended up taking on 10 pharmacist and we are meeting every Sunday for the past two months now, David, and it’s been going really well. It’s a really cool class of individuals, it’s been a great time to talk to everybody and learn along with them, right?

We’re there to teach and kind of coach but at the same time, there’s always more that we can learn and so it’s been really interesting to have problems brought to us and we’re dealing with people all over the country, so it makes David and I expand our horizons a bit. It’s been really enjoyable.

[0:04:08.0] DB: Yeah, it’s also been a lot of fun to see the victories come out too, right? The problems are one thing and the problem solving is like inherent to pharmacist so we enjoy that, right? The victories are also a lot of fun seeing folks who get offers accepted and move through inspections and conquering that investing world has just been really inspiring to see other pharmacist jump into that and do that.

[0:04:27.0] TU: We’re excited to hopefully share more of those stories into the future and be able to offer that out to other pharmacists as well so we really appreciate you guys and the commitment you’re putting enough time, we’re recording here on a Monday, early morning, you guys are up last night with that group. I know it’s got energy and enthusiasm that you’re putting into it as well but it is an investment of time, so thank you guys so much for that work.

This is a follow-up to episode 241. We talked before and we’ll link to that in the show notes about some common objections and barriers to getting started in real estate investing and the idea with this episode is that for those that have worked through or are working through some of those objections and are ready to make the move, what should they be thinking about in terms of going from none to one, right? That hardest move that we often hear folks talk about in the real estate investing journey.

Let’s get started, I want to jump in and talk about the importance of having a strong personal financial foundation, it wouldn’t be a YFP podcast if we didn’t talk about that. Getting your financial house in order, such a critical first step before you go on that journey to invest in real estate. Let’s start there, Nate. Tell us more about why you and David emphasize this concept so often on the YFP Real Estate Investing Podcast as well as for your own personal journey why this has been so important.

[0:05:49.4] NH: Yeah, it’s something we reinforce all the time, right? Even the very speaking in the none to one, the very first half of the first class was all about, like, “Okay, you need to establish your own financial house and if you don’t then we need to take a pause and reset,” because without that, right? Nothing else can really track from there, right? We need to make sure that our own financial house is in a state where we can feel comfortable investing and that that investment decision is not going to be make or break, right?

We are very risk-averse, safety-oriented pharmacists as David and I like to say and with that, comes the concept that you need to be in a position where if things don’t work out perfectly, you’re going to be just fine financially. These are decisions we’re making not in a do or die situation, right? We’re trying to buy these properties or invest in a way that it supplements our financial plan, rather than, is the make or break piece of it.

[0:06:39.3] DB: Yeah, and there’s a lot of just potential instability or seeming instability in terms of real estate investing versus a lot of other types of investing. Kind of like in your personal budget, if you’re saving up for a car, you might be putting away money every month and eventually that car happens. There’s same kind of thing with the real estate investment if you may need to save monthly for a roof replacement or save monthly for furnace placement that’s coming at some point though those kind of things maybe a little harder to plan for.

So those evictions, late rent, there’s just a lot more instability and so having a firm financial foundation beneath you, means that you can weather some of those storms and deal with some of those ups and downs of real estate, knowing that in no month is it ever coming out perfect, that all of the bills just perfectly line up but over time, hopefully, the average is added to something and ends up being a good investment.

[0:07:29.4] TU: There’s lots to dig into of course in that topic, in that umbrella, building a strong financial foundation, we’re not going to do that here today because that’s what we do every week on the show but I would point folks to episode 212 where I talk through some of the components of building a strong financial foundation, what does that exactly mean and why is that so important as you begin your real estate investing journey.

We know that real estate investing is such a broad umbrella and I think that’s one of the things that you guys have done such a nice job on the YFP Real Estate Investing Podcast is really introducing folks to the variety of different ways that they could invest in real estate but I think that because it’s so wide and because there’s so many options, that can be intimidating for a new investor. So David, tell the us more about how you and Nate break down real estate investing and what categories might be easier for first time investors as they get started?

[0:08:21.3] DB: Yeah, there are plenty of different avenues for real estate investing, kind of like the professional pharmacy, many different ways that you could practice pharmacy. As far as real estate investing goes, Nate and I like to break this down into buy and hold real estate investing where you just buy something, you rent it out long term, or flipping real estate where you buy it, you may fix it up and you may quickly then sell it.

You could apply those terms to single-family houses or multi-family apartment buildings or storage units or vacation properties or so many different categories. Just to make things pretty simple and to stay with areas of investing where people have some general familiarity often times just from buying their own primary residence, we talk a lot about the single-family, buy and hold, long-term rental where you’re simply buying a house, presumably a lot like what you live in and renting that out to someone else so that that simplicity and the clarity of buying a single-family house seems to be one way that people can make an easier jump into real estate investing.

It seems just a lot less intimidating to go buy a single-family, three bed, one and a half bath house than it is to buy an apartment building or buy a strip mall or buy a storage unit complex or something like that, there’s ways to dial back the intimidation factor that way.

[0:09:40.8] NH: Yeah, at the same time, we got a lot of people that come to us and say, “You know, Nate, I want to buy a vacation rental anyway, tell me about the short-term rental thing, you know? Can we do that?” And so there are other ways to get more adventurous with it if that’s what you want to go, where you can buy a property that you can use on the weekends here and there for the rest of vacation property and then rent it out the rest of the year.

We also see people and we’ve talked to individuals that are house flippers or even wholesalers where you’re taking basically, a great deal putting some capital into it or maybe very little capital into it and then flipping it to someone else. There are lots of options out there and just like David said, it’s just as diverse as pharmacy, you can – the term real estate investing is so broad, there’s so many different avenues you can walk down.

[0:10:18.0] TU: Yeah, for folks who haven’t yet listened to the many great stories on the real estate investing podcast, this is one of the areas that I love that you guys have done. I think really focused intently on the buy and hold strategy, David, for the reasons that you’d mentioned but you’ve also featured and then sprinkled some other areas to show the diversity that can be there, you know?

I’m thinking about the recent episode 46 where you had on Stuart and Elizabeth talking about motel hacking. I know you’ve had a couple of folks talking about short-term rentals so certainly, a lot of buy and hold, more of that traditional investing stories but other avenues that folks maybe thinking about as well. Now, I’ve heard you both talk a lot about the team aspect of real estate investing as a way to bring down the stress, reduce the barriers to entry.

Nate, do you mean investing in partnerships when you talk about the team, finding a mentor or something else altogether?

[0:11:06.8] NH: Yeah, it’s kind of a little bit of everything right? There’s nothing wrong with a partnership or a mentor but a lot of times, we focus on just building this team around yourself that can help and it can be something as simple as the YFP community, right? As part of your team, you’ve got people that are helping you out, supporting you in those decisions, helping make things just a little bit less stressful but really, truly, that team that surrounds you, starts with a good real estate agent.

Someone that has your fiduciary interest and making sure that you’re going to be successful and really, as that starts to expand, then your team can expand as well. You know, when we talk about building a team, it sounds really intimidating and so we really try to focus more on starting with really good core individuals around you and then expanding from there and then as you build your confidence and as you start to expand what your kind of projects you’re able to take on.

[0:11:50.3] DB: Yeah, that’s absolutely how we guys started to, we started with the realtor from our own investing and that realtor helped us, the first property that we bought, we needed someone that new plumbing because there’s a plumbing issue so I asked the realtor for a contact for a plumber, the realtor offered us a few different contacts, we were able to find a plumber. From there, we needed someone that could do dry wall, we reached out to the realtor.

And so, our team grew very organically just in terms of reaching out to that realtor, even when it came to an insurance agent or a property manager, those connections all happened just from that initial networking through that initial realtor and then contacts from contacts and going from there.

Even like Nate mentioned on the Facebook group, online connections, online networking, other local real estate meetups, we were able to over time add a book keeper and a tax accountant an attorney and lenders and other folks from there so you know, absolutely, that can sound intimidating on the front end of this enormous team that feels like is necessary when you listen to podcast and read books but for us, it just started out with a realtor and one foot in front of the other. Finding one contractor at a time as we needed people on our team growing that organically.

[0:13:01.6] TU: Love the simplicity of that, David. I’ve heard you and Nate mentioned that before as I think folks often hear stories of investors that have been at this for several years and they’ve got that team, right? They’ve got contractors, they’ve got insurance agents, they’ve got property managers, they’ve got, on the financial side where there’s bookkeeping, individual financial planning, tax side, they got attorneys, they’ve got a team that has really been built over time but they didn’t start there and so I think that step of my team and having that team in place can often paralyze folks if that’s something that they don’g think — maybe I can start with one individual, what if I start with a really good realtor that can help me take that step forward, that’s feasible, that’s manageable and then I can build my team out over time.

If I’m listening and I’ve narrowed down the type of real estate investing, let’s say I’ve determined what type is a good fit for me at least to get started, I thought a little bit about the team or finding that agent who is going to help me overtime, build out that team. The next question I think that comes to mind, especially in the current market is, where does one find a good investment property? Am I leaning on my team here, am I doing my own search on Zillow? Nate, what are your thoughts here?

[0:14:11.2] NH: Yeah, I think it’s a common question we get and I think the misconception that comes to us often is, the only way to find a good investment property deal is off-market because especially if you listen to some of the bigger players, people that are doing this for a long time, they find some of their best deals off-market but that’s not the only place to find them and so I think, again, that’s another intimidation factor that David and I really focused on dispelling is that there are absolutely deals that you can find on Zillow on the MLS or your real estate agent, you can go off-market and there’s advantages and disadvantages to doing that but you don’t have to.

Even something as simple as connecting with a good agent, getting an MLS, auto email setup and what I mean by that is, you put your criteria and your budget into the system and every morning, you’re going to get an email that says, “Here are the houses that meet your criteria,” and starting to understand your market, you’d be surprised at how quickly you’ll start to find a deal because now, you know everything in that market and so when a property pops up, now all of a sudden, you know, “Yeah, that one’s worth looking at” or “No, we can skip it, that’s not worth our time.” It just makes that deal-finding so much easier.

We were actually just talking about this last night on the none to one course about an individual that’s like, “I know there’s exactly 10 duplexes available in this particular area when the 11th one pops up, I know what to do in terms of whether or not it’s worth offering on” and that is how you really understand the market and when a good investment property comes along, you can really take action on it.

[0:15:29.4] DB: Yeah, I think that’s really important. One of the things that Nate, that you said there was the word criteria. I think that that makes it so helpful for a real estate agent that you’re working with when you define, we need to say, I’m looking for a great investment property, the realtor in the other side there is like, “What precisely do you mean? What am I looking out for you?”

That can be really puzzling but if you’re saying that, “I’m looking for a duplex between this street and this street, around this school” when you can be that clear. “At this price point, I want one half to be vacant, one half to be tenanted because I want to move in and house hack.”

Whatever those criteria are, the more precise and specific that you can get for that real estate agent, the easier it will be to find a search, even if there are only 10 on the market right now in that example, it’s so much easier to identify that when it pops up and to jump quickly, which is a big thing in this market is not falling into analysis paralysis once you see that opportunity but being ready to jump on that when it shows it face.

[0:16:29.3] TU: Yeah, speaking of analysis paralysis, you know, I think that pharmacists, it’s safe to say are very numbers-oriented and so when I hear you guys talk about like criteria and is it worth it, I am sure that many would be relieved if there is a sure-fire way to run numbers, identify if an investment is a good one or not and so you guys just released episode 50 where you talked about a spreadsheet analysis.

That brings comfort to me as a pharmacist, right? I can put numbers into the spreadsheet and that can at least help guide me. Tell me a little bit about how someone can use math to evaluate an investment and what that looks like?

[0:17:02.7] DB: Yeah, the math I think sounds intimidating right? When we talk about math pharmacist think like amino glycosides and it gets really complex in a hurry but when we talk about math in the real estate standpoint, it is relatively simple compared to what we do in the pharmacy world.

There is a common misconception that as long as the rent is higher than the mortgage payment, I will be making money and I feel like that is one of the key drivers behind the episode that we had to walk through the numbers and what are the other expenses that you may not be anticipating but they factor in.

So things like paying a property manager, if you choose to not self-manage the property or paying for those repairs and those larger expenses like we mentioned the roof and the furnace and things like that that if you own the property long enough, you will have to replace those things and setting aside money for that.

There are a lot of other smaller expenses that are easier to overlook and so again, that’s kind of the driver of setting up that spreadsheet and not just setting that up to make sure that those categories are captured but also setting that up with some notes in there to make sure that the information going in is good.

If you have your estimates wrong on each of those categories, it’s going to be a garbage in garbage out kind of analysis and it will be hard to trust those numbers, so we try to spend some time in that episode to talk through what are those categories, how might you estimate those, how would you get a little more precise in that math so that you have a better idea of how you might expect that property to perform from an investing standpoint.

[0:18:33.2] NH: Yeah, really good point David about the numbers and not getting too lost in the spreadsheet. It is important to use and it’s a great way to start using math to evaluate a property but you’d be surprised the amount of things that you can catch that don’t have to do with math, right? Maybe the property you’re looking at is on the same street as another one that you like or another one you are comparing it to but it just so happens to be right across the school district line.

So now, it’s not the same school district, which means it affects the property value or it affects the rent rate and so there is all these little nuances that can go along with it, and again, that’s where your team can kind of come in and help you out. Again, relying on that real estate agent, relying on maybe a property manager to help with rent rates and just taking a double look at things, once you’ve done the analysis to make sure that it actually marches out in real life.

If you are interested too, I don’t think we’ve dropped this here but I would mention in episode 50, we actually put together that spreadsheet that you can download yourself. If you head over to yourfinancialpharmacist.com/analysis, you can download that spreadsheet for free. A great way to again, run the numbers the same way that David and I do.

[0:19:25.8] TU: Awesome, thank you guys so much for putting that together. Again, yourfinancialpharmacist.com/analysis, we’ll link to that in the show notes. All right, so we’ve talked about several things so far. We have talked about the importance of having a strong personal financial foundation before we jump into real estate investment. We’ve talked about the different categories, the aspect of forming the team, and how you potentially find and evaluate an investment property.

Let’s transition to some common FAQs that you all hear from folks that are getting started in real estate investing. David, the first one here is, “Can I only invest close to where I live? Don’t I need to see the house before I buy and drive by the house regularly?” this concept of investing in my backyard or perhaps, is there an opportunity to invest at a distance?

[0:20:11.5] DB: Yeah, it’s a great question, one that we hear often and it has come up quite a few times in the none to one course particularly when we are talking with pharmacists that live in really pricey markets where it just feels intimidating to try to buy in that area compared to for instance the Midwest where Nate and I live and where properties are much more affordable than something on one of the coast.

I think the short answer is you don’t have to invest where you live. It may be less intimidating to invest or to go through your first investment process close to you and that is something that I did personally. We bought a house that was very close that I drove past on my way to work and so it was just very simple to keep an eye on that and to feel that kind of sense of security until I started doing that and realized like really not bringing a lot of value to this.

When I walk a property compared to when a contractor or realtor walks a property, they see a lot more than I see. When I drive by that house, I’m like, “Well, it is still there, it hasn’t burned down” I mean, there’s not really a lot of value that I brought to that so we started overtime in an area about a 45-minute drive from where I live, which I know to a lot of people that’s a daily commute, right?

That is not super far but it’s the point where we’ll buy a house, there have been houses that I have not been inside or driven by because we just value that team so much and the team perspective that if the contractor has walked it, if the realtors walked it, if the property manager is on board, there’s again, just not a lot of value that I bring to that equation. Again, even though it is not far away, we’re investing in houses that are far enough away that we’re not going there and we’re not in that day to day aspect of the investing, which is really helpful when you work a full-time pharmacist job and you don’t want to be distracted by your real estate investing.

[0:22:04.2] NH: As someone that does both in state and out of state myself, I totally attest to that like the ones that are out of state are so nice because I don’t have to worry about them, and then the ones that are in-state, you end up doing what I did, which is spend pretty much my entire Saturday painting and demoing a basement this weekend, so you can fall into that trap pretty easily.

[0:22:21.4] TU: You beat me to it Nate, before we hit record you are talking about your time spent this weekend and I was just thinking about that in terms of being in your backyard. David, one of the stories that I remember you telling early, I can’t remember if it was snow removal or mowing the lawn but you had mentioned that itch. That hey, I drive by this property, I see it all the time and I maybe have a tendency to think like, “Ah maybe I don’t have to depend on the team. I could save a little bit of money if I just shoveled the snow myself” right?

Obviously as you build out a portfolio, as you have, and of course you’ve built out a team that has helped you but that risk, I guess if you call it that can be real when you see the property so often.

[0:22:56.2] DB: Oh absolutely, yeah. I have vivid terrible memories of like six in the morning standing there with a snow shovel because the house was halfway between where I live and where I work and I am like, “Oh, I could just do this real fast” and then my feet are soaking wet and freezing and all that kind of stuff, it’s like why did I just pay someone the five or ten dollars or whatever it would be to shovel this?

Why did I feel like that was a good use of my time at six in the morning? So yeah, with some of this stuff there is some healthy separation when you’re investing just far enough out that you aren’t tempted to go run and do these things yourself.

[0:23:30.3] TU: Nate, the second question here and David hit on this briefly but I want to come back to it is this idea of is it a good investment if the rent is more than the mortgage and what’s the potential trap in that and what are some things that folks could be looking for to help avoid that?

[0:23:44.9] NH: Yeah, I think this actually goes back to that spreadsheet we talked about was it is not just simple numbers of, “Okay, the rent is 1,500 and the mortgage is 1,200 so cool, I am cash flowing 300 bucks a month” like that is not actually how the math works, right? We need to figure out a lot of the other factors that go into it because this is again, it is truly a business. It is an investment and so it has to run itself and by that, I mean that the repairs take care of themselves.

In terms of cost, the capital expenditures, big things like a roof or a furnace that breaks, again, the investment should be paying for all of those, so when we run the math on what a good investment property is, it needs to pay for itself every single year, year in and year out and put money back in your pocket to be considered again, “a good investment property.” I think running those numbers is really important and not just looking at the simple things but truly diving into the details and even though it sounds complicated, you can do this in three minutes, right?

Running the back of the napkin math and then getting into the nitty-gritty details if everything checks out.

[0:24:40.1] DB: Yeah and we try to sneak into that spreadsheet a couple of things too like other rules of thumb that you can look at. For instance, you may expect that the overall rent about half of that rent may go to general expenses like your taxes, your insurance, your repairs, property management, some of those things and so again, if that rent starts looking pretty suspiciously close to the mortgage payment, I get nervous that that property is not going to create positive cash flow every month.

[0:25:09.1] TU: Next question David is, do I have to do major renovations to a property? I think that is one of the fears I know I had, I suspect many have is how handy do I have to be and obviously some of the financial things that can come to this as well. So talk to us through this question.

[0:25:24.9] DB: Yeah, it’s a great question because people that watch HGTV think that yeah, all of these investors that jump in and buy these houses, they spend hundreds of thousands of dollars on these extensive rehabs that take months and multiple crews and it just feels super intimidating. We bought a house late last year that already had a tenant in it. It had just been fixed up, it was a great house and we liked it for the simplicity of not having to do any kind of renovations to that property, so that’s definitely an option.

We’ve also bought houses where all we had to do was go in and do paint and flooring and for a few thousand dollars it was done. So you can do no renovations, you can do minimal renovations or if you want to, if you want to do a pretty extensive rehab, there is potentially more money to be made and you could argue it is a potentially better investment but it may take more time. If time is scarce in your pharmacy world, don’t feel like you have to do major renovations to a property to have a solid real estate investment.

[0:26:27.6] TU: Speaking of time Nate, you know I think one of the common questions that comes up is, do I have to work with a property manager? Could I save a little bit of money here and do this myself? Although recognizing that some time might be involved and invested here. Talk to us about that question of, do I have to work with a property manager?

[0:26:43.8] NH: Yeah and again, I’ll bring in my own experience to kind of speak to this. I manage our local properties myself and then the out of state ones, I absolutely push off to a property manager. I have a foot in both worlds and there are advantages and disadvantages to both. I like doing some of the property management here locally one, because of the cost savings but two, it helps me be a better manager of my property manager.

I know how I want things to operate. I am a very detail-oriented nerdy pharmacist, right? I know how I want it to run. I know what my expectations are and so I can put the same expectations on the property manager that I am hiring so it helps to do both but it is not for everybody. I think David and I talk to people all the time about individuals who quickly identify, “This is not for me” or “I always want to be have a hand in this, I want to be involved. I like talking to my tenants.”

It is across the spectrum, there is no wrong answer to this. I think a lot of it pans down to what do you want to do and how do you want to operate.

[0:27:35.0] DB: Yeah, even when it comes to the property manager I think one thing to consider is, what is your pharmacy job like? There are certain pharmacy jobs where you can be interrupted and take phone calls and manage things two minutes here, three minutes there and there is others where you just absolutely can’t and so for me, I didn’t want to be in a position where I had to take phone calls during the day, I wanted a property manager to create that separation but again, that’s not for everybody.

If you do want to be a little more hands-on, you want to see those things, you want to be able to manage a little more closely, that is not necessarily something that you need to do and you could potentially save money if you are willing to take on those property management tasks yourself.

[0:28:09.7] TU: David, last question I have here relates to financing. Nate and I recently did a home buying webinar. We also did a LinkedIn live session and it seems like one of the topics that has a lot of interest that relates to the pharmacist’s home loan products where there is either a low down payment or in some of the physician loan products are out there, a zero down payment.

So often, I think folks might be wondering as we translate that from primary residence to real estate investment properties, are there zero down or close to zero down payment options for investment properties or what does that look like?

[0:28:41.9] DB: The short answer is not really but kind of. So when it comes to real estate investing, if you are just going to go out and like I mentioned before, finding a property that already has a tenant in it that’s already fixed up, the lending options are mostly putting a pretty decent down payment, 20, 25% something like that down on a property like that. That is the most common type.

If you are trying to get into real estate investing with less money down, there are options that just take a little bit more creativity or finding a loan product that aren’t quite as common. What we did in our first rental is we bought a property that we thought would be a good rental someday and we moved into it and we lived there for a period and then when we were done with that property and we were ready to move on to another personal residence, we kept that original property.

So that is where if you’re buying a property to live in with a zero down payment or very low down payment mortgage, you can often times keep those properties as rentals when you move somewhere else. If you do zero down to move into it personally, two, three years later, you do zero down and move into something else and you retain that property, that can particular in the price of your market save you from that 20, 25% down payment that can feel kind of overwhelming to save up for, for a real estate investment standpoint.

[0:29:59.2] TU: Great stuff guys. We’ve covered a lot of ground in a short period of time and I would highly encourage folks if they aren’t yet tuning in to the YFP Real Estate Investing Podcast, each and every Saturday morning a new episode goes live, please make sure to do so. We’ll link to that in the shownotes, you can find it on Apple podcast or wherever you listen to your podcast.

Also, if you are not yet a part of the YFP Real Estate Investing Facebook group, we’ll link to that in the shownotes as well. A great opportunity to come together with a community of other pharmacists that are everywhere in the real estate investing journey from, “Hey, I wanting to learn more, I am thinking about it” to “I am actually pulling the trigger on the first property” to “I am beginning to build my real estate portfolio.”

David and Nate, thank you so much for taking time to come on the show, I really appreciate it.

[0:30:37.0] NH: Yeah, happy to be here.

[0:30:38.6] DB: Thanks so much.

[END OF INTERVIEW]

[0:30:40.0] TU: Before we wrap up today’s show, let’s hear an important message from our sponsor, Insuring Income. If you are in the market to add own occupation disability insurance, term life insurance or both, Insuring Income would love to be your resource. Insuring Income has relationships with all of the high quality disability insurance and life insurance carrier you should be considering and can help you design coverage to best protect you and your family.

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

[DISCLAIMER]

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

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

[END]

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YFP 250: 10 Takeaways from 50 Financial Conversations with Pharmacists

Posted on April 7, 2022November 2, 2022 by yfpadmin

10 Takeaways from 50 Financial Conversations with Pharmacists

On today’s episode, sponsored by Splash Financial, YFP Director of Business Development, Justin Woods, PharmD talks about 10 takeaways from more than 50 discovery calls he’s conducted, where he has had a close look at the financial goals and concerns of pharmacists across the country.

About Today’s Guest

Justin Woods, PharmD received his Doctor of Pharmacy degree from Albany College of Pharmacy and Health Sciences, completed two years of postgraduate residency training at The Ohio State University College of Pharmacy, and is currently in his final semester at the University of Nebraska at Omaha pursuing a Masters in Business Administration degree.

Justin has spent nearly 10 years as a practicing pharmacist in community and specialty pharmacy settings. Originally from Upstate New York, Justin met his wife, Sara, also a pharmacist, during residency in Columbus, OH. They lived in Omaha, NE for four years and currently reside in Richmond, VA.

Justin is looking forward to connecting with our community and communicating the value of YFP to help pharmacists on a similar path as himself toward achieving financial freedom.

Episode Summary

Knowing the steps to reach your financial goals can be overwhelming and confusing, particularly at the start. YFP Co-Founder & CEO, Tim Ulbrich, PharmD, sits down with Justin Woods, PharmD, a fellow pharmacist and YFP Director of Business Development. Currently, Justin leads the discovery call process designed to help individuals determine whether or not the comprehensive financial planning services at YFP Planning comprehensive are a good fit for them. Since joining the YFP team in November 2021, Justin has conducted more than 50 of these discovery calls. Justin talks about ten takeaways he has had from these conversations. Justin shares his unique experience working at YFP and how he has gone from a fan of the podcast to the Director of Business Development. Justin explains how his prior experience as a YFP Planning client helps him conduct discovery calls, the benefits of discovery calls, what makes the YFP approach to financial planning different, and the best time to start your financial planning journey. Finally, Justin details why financial planning requires a substantial investment of time and money, why the transparency of the fees involved is so important, and addresses the most common question he hears, “What’s the return on investment?”

Key Points From This Episode

What YFP Planning has to offer clients and what discovery calls are.
Why people feel guilty about their financial situation when seeking advice.
The concerns clients have regarding saving up for retirement.
The prevalence of questions and interest that Justin experiences regarding real estate.
A brief outline of the concerns around repayment of student debt and the PSLF program.
Why YFP Planning services are suited for non-pharmacists as well.
The importance of involving both partners in the planning process.
When is the best time to begin the financial planning process.
Justin outlines some of the fees associated with the planning process.
An explanation of the “fee-only” model that YFP Planning uses.
Challenges around estimating the return on investment for clients.
The benefits of coupling your financial plan with a tax plan.

Highlights

“Generally speaking, if you have the motivation to book a discovery call, to find time in your busy schedule to prioritize your financial wellness, you’re making a big step and that should be acknowledged.” — Justin Woods, PharmD [0:11:24]

“In most models of financial planning, the more that you put money into an IRA, brokerage accounts, the more the advisor gets paid.” — Justin Woods, PharmD [0:16:34]

“We’re called Your Financial Pharmacist, but our planning services are technically for people of all income levels, all career backgrounds.” — Justin Woods, PharmD [0:21:47]

“Over time, investments are a tool to actually combat inflation and, with proper allocation, keeping expenses in your investment accounts low, your investments will grow with the market.” — Justin Woods, PharmD [0:30:13]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

[0:00:00.4] TU: Hey, everybody. Tim Ulbrich here, and thank you for listening to The YFP Podcast where, each week, we strive to inspire and encourage you on your path towards achieving financial freedom.

This week, I had a chance to welcome fellow pharmacist and YFP director of business development, Justin Woods on to the show. Justin leads our discovery call process designed to help individuals determine whether or not YFP Planning and its comprehensive financial planning services are a good fit for them. Since joining the YFP team in November 2021, Justin has conducted more than 50 of this discovery calls.

And on today’s show, we talk about 10 takeaways he has had from these conversations where he’s had a close look at the financial goals and concerns of pharmacists across the country. Some of my favorite moments from the show include hearing Justin talk about the various guilt individuals have when reaching out to a financial planner, whether that be about a previous mistake, join the club, feeling like they could be doing more or even as you’ll hear Justin say, having too much cash on hand.

Also, hearing Justin talk about determining when the timing is right to work with a planner and why there is a cost to not starting with the financial planner. Why planning requires a substantial investment of time and money and why the transparency of the fees involved is so important and how he answers the most common questions he gets, which is, “What’s the return on investment of the planning services?” Okay, let’s hear from today’s sponsor and then jump into my interview with Justin.

This episode of Your Financial Pharmacist Podcast is sponsored by Splash Financial. With interest rates on the rise, it’s a good time to evaluate the refinancing of your student loans. If you’ve ever considered refinancing your loans, check your rate now through Splash Financial.

Refinancing could help you get a lower monthly payment on your student loans or get a lower interest rate. Splash helps you shop and compare loan refinancing offers across lenders nationwide. Browsing rates through Splash Financial is fast, free and won’t impact your credit and now, when you successfully refinanced $50,000 or more, Splash Financial will give you an extra $500 in cash bonus, using our link at splashfinancial.com/yfp. Check your rate today and see what you might be able to save at splashfinancial.com/yfp.

[INTERVIEW]

[0:02:16.8] TU: Justin, welcome to the show.

[0:02:18.4] JW: Hey, Tim. Pleasure to join you. A bit surreal, actually, since I’ve been a long-time listener of the podcast since 2017 now, and now feature as a guest in addition to being part of the YFP team.

[0:02:29.0] TU: We are so glad, Justin, to have you as a part of the team. You and I have known each other for sometime on the pharmacy world, we completed residencies a few years apart of your house at University College of Pharmacy, had some great shared mentors there and are really excited to have you as a part of the YFP team.

[0:02:45.2] JW: Definitely. One quick point before we get started, I don’t want our listeners to think this podcast is having an issue buffering when I’m speaking. I do have a stutter or as I like to say, I speak with a remix. That is my one disclaimer for folks who might not know me since I’m human and you may hear a stutter periodically throughout this episode.

[0:03:06.1] TU: Appreciate that, Justin. So, here we are, episode 250, we just crossed a million downloads. Thank you so much to the YFP community, the support that you’ve provided us since launching the podcast in July of 2017. Really, a surreal moment for us and for folks that had been listening for a while, if you haven’t yet done so, if you could please do us a favor and leave us a rating and review on Apple Podcast, wherever you’re listening to the show, we’d really appreciate that and be a great way to help others find the show as well. Thank you so much for the ongoing support that everyone has provided.

Today, we’re going to be talking, Justin and I, about 10 takeaways that he has had in 50 plus conversations with pharmacist about t heir financial goals, about their financial plan, since he joined the YFP team in mid-November of 2021. These conversations come through the discovery call that we offer folks and Justin leads these efforts, these discovery calls are an opportunity to learn more about YFP Planning and comprehensive planning services and folks can learn more at yfpplanning.com.

Justin, before we jump into your story, before we talk more about the takeaways that you have had through these 50 plus conversations, give our listeners who may not be familiar with the planning services offered by YFP Planning, more insights into what the discovery call is, why it’s important and what they could expect?

[0:04:31.5] JW: To be honest, hiring a financial planner, it’s a big investment in time and dollars. With that said, our model is worth it for the right people and it’s wrong for some and that’s certainly okay. And through a discovery call, I seek to understand your specific financial needs and concerns. I meet with people who vary, in terms of their season of life.

Some folks are new practitioners building their careers while simultaneously tackling student loan debt, learning how to be efficient with their income, others are growing personally by starting a family or purchasing a home, some are mid-career, seeking to optimize their income, given more cashflow through being debt free here just no longer paying for daycare.

Then we have pharmacists who are near retirement and want to protect the assets that they worked so hard for. Typically, people share, they feel overwhelmed or concerned about their debt. Maybe even frustrated that they’re making a good income but are not progressing financially. I also hear some folks are unsure if they’re optimizing the income they’re making or even afraid that they won’t be financially secure in retirement.

And it is only through a discovery call process that we can uncover your financial why and understand if YFP has solutions that fit your needs. In terms of what to expect when you take that initial step to book a discovery call, you first book the call through our scheduling application that shows you my availability to help find the best time that works with your schedule, we conduct these calls via zoom conference and in fact, when you become a YFP Planning client, you work in a virtual space with your lead planner as well.

The meeting will last 30 to 60 minutes, depending on where their conversation goes. I do take notes throughout the process to capture information in the moment and also because, if you take the next step to become a client of YFP Planning, anything we discuss goes directly to your lead planner to review before your first meeting with them.

[0:06:48.9] TU: Great stuff, Justin, and for folks that are listening, maybe had been following the community for some time and they’re ready to take that step, they can do so. By going to yfpplanning.com, they’ll see that option to schedule a discovery call, they’ll see your face and they can pick a date and time that works for your calendar and works for their schedule as well.

Let’s jump into 10 takeaways that you’ve had. Now that we framed what the discovery call is, we’re going to talk about 10 takeaways you’ve had through over 50 of these discovery call, financial conversations with pharmacists over the last few months.

I think the first one is a good segue from what you just shared that this is really about discovering more about an individual’s financial plan and their goals, it’s hence called the discovery call and number one, I think the thing that we first see is that individuals might be seeking financial advice in these calls and my question is, what’s the problem here, isn’t that the team at YFP Planning has expertise in? Tell us more about this one.

[0:07:44.7] JW: Yes, right, exactly. Trust me, I’m not an expert in personal finance. You can certainly ask my own YFP financial planner, Kelly Reddy-Heffner. In fact, I’ve made many mistakes that you, Tim, outlined in episode 247 of 10 common financial mistakes pharmacists make.

Realistically, five months ago, I was a practicing pharmacist. I’ve spent 10 years in community and especially pharmacy settings including two years of residency at Ohio State, go Buckeyes. If you’re listening right now and afraid I’m going to test your financial literacy on a discovery call, I promise, you have nothing to worry about when I’m on that other side of the screen but even though, I’m not a financial planner, I do understand our comprehensive financial planning service better than most folks since I see it from the inside as part of the YFP team.

But my wife, Sara, also a pharmacist and I are YFP Planning clients as well. For a bit of background about the industry, a survey of financial advisors show that advisors spend 15 to 20% of their time on business development activities as in meeting with perspective clients and in our model, our financial planners focus solely on financial planning and I lead those discovery calls.

[0:09:10.1] TU: That’s a great call, Justin. I don’t think that’s something we’ve talked about before on the show that the model we’ve chosen is to really let the planners be really good lead planners so they can focus on the needs and the issues that the client is bringing forth and then obviously, your role, and Tim and I have shared some of this as well, to really focus on some more of those business development activities and I would even further contend, Justin, that I often said this.

Hey, I’m not a financial planner as well, I love the topic, I love to learn but I think there’s often value and not getting in the tactical weeds, right? In that first call, when you’re really just trying to understand, what are the goals, what are the hopes, what are the dreams, what are the pain points, what are the problems so that we don’t get sucked into very detailed student loan repayment or investing strategy but rather, we can just really learn about what is of greatest need and significance to the client. It’s so important early on in that relationship.

Number two, Justin, I often felt like you know, I still joke with folks as that I feel like sometimes when I do a talk or people come and talk to me, it’s almost like financial confession, you know, sometimes. Number two is I think that folks may feel like, “Hey, I’m coming with some guilt about the financial situation.” This one resonates with me, I felt a lot of financial guilt and pressure early on in my journey. Tell us more about what you’re seeing here?

[0:10:25.2] JW: Yeah, this was an element I honestly did not anticipate early on when I started taking discovery calls, particularly knowing my own financial mistakes. It has been fairly common for people to acknowledge they feel guilty or feel ashamed of how sharing or admitting a piece of their financial lifestyle that they’re not proud of, it could be related to a number of things, like their lack of a budget or consistently sticking to a budget, maybe the amount of student loan debt they have, not being able to clearly define their financial goals and more recently, many people have shared, they feel guilty about having a large amount of money sitting in their checking or savings account since their expenses were minimized during the pandemic and they just don’t know what the best strategy is but also know, it’s losing value sitting in a checking or savings account.

Generally speaking, if you have the motivation to book a discovery call to find time in your busy schedule to prioritize your financial wellness, you’re making a big step and that should be acknowledged. That should be celebrated. It’s okay to be human, you’re obviously aware that a change needs to happen on your financial path and whether financial planning can achieve what you need, it’s something we’ll talk thorough together. It’s similar to working with patients, right? When you have an engaged patient, ready to make a change, there are certainly a greater likelihood for success.

[0:12:00.8] TU: Absolutely, and then, number three on our list here of common things you’re hearing through these 50 plus conversations is, you know, folks coming in with questions, perhaps some concern about saving for retirement, why is this such a common concern?

[0:12:16.0] JW: Yeah, this is the second biggest concern from potential clients is saving for retirement. They share that they feel behind for retirement but they’re not sure why they feel that way. They say, “I just know I don’t want to work forever” or “I’m not confident, I’m on the right track for retirement because I don’t know what the finish line is or how to track my progress.”

The typical question is, “Is retirement and age, is retirement a dollar amount?” People often admit that because it is a goal that’s decades away, it’s hard to relate to and objectify. Honestly, that’s just human psychology. The further away something is, the harder it is to relate to. Typically, when people bring up retirement, I ask them, “You know, of the steps you’ve taken so far, do you think you’re on the right track?” and inevitably, the answer is a clear “No” or they refer to the chart on the dashboard of your 401(k) account, right?

Through the planning process, our planners help clients conduct what’s called a “nest egg calculation” or the amount of money that you would need to retire comfortably. The last time I did this calculation for my wife and I, it was about 3.3 million dollars and this is generally where people, look at me, I haver three million heads, right? Since it’s a big number, way in the future.

Whether retirement’s 20 years away, 10 years away, 40 years away, the big question is, what does that actually mean in today’s dollars and what do I do with that number? I think a good financial plan will really take that information, distill it down to, “Okay, let’s discount that information back to today’s numbers, what does that mean for how much we need to be saving each and every month?” and then, let’s begin to put a plan in place based on the tools we have.

Like a 401(k), a 403(b), and IRA. Automate that plan so we’re contributing in a tax efficient manner or keeping the fees low and we’re allowing compound interest to do its magic and time, value, money to kind of take its course.

[0:14:34.8] TU: Great stuff, Justin. I think we often think about retirement as a hope, a wish, a dream or a big scary data off in the future or we do get a little bit more granular, maybe punch some numbers in a calculator and then the number that’s spit out were like, that feels impossible, right?

[0:14:49.5] JW: Right.

[0:14:50.5] TU: I feel behind or I’m worried about that becoming a reality and I think, what I really hear there is that value in coaching of bringing that to life and then, let’s make sure we put that into numbers that mean something today and let’s also make sure we’re prioritizing that along with other goals that we’re working on with the financial planning, that’s great stuff.

Number four, the prevalence of questions and interest that you’re seeing in real estate. Both purchase of a primary home as well as in investment properties. I think this – I will say, this doesn’t surprise me, right? We’ve seen a lot of growing interest in real estate investing.

Part of the reason we launched the Real Estate Investing Podcast, we certainly have felt the interesting home buying, could be a first home, second home, obviously we know that that market is pretty wild right now. Tell us more about what you’re seeing here?

[0:15:35.2] JW: Yeah, I mentioned a bit ago that retirement was the second top concern of people I meet with, another top five concern is home purchase. What I found is that this is not limited to people who are buying their first home. I also hear this concern from people who have outgrown their current home or maybe looking for a second home, a vacation home.

Followed closely behind that topic of home purchase is interest in real estate investing. The prevalence of this topic as you said could be due to the nature of our podcast content, particular when they and David on the Real Estate Investing Podcast.

But for most people, it seems like real estate is an outlet for their entrepreneurial spirit and helps also create passive income but I also think it’s due to the nature of our fee only financial planning model. As Tim Baker shared in episode one of the Real Estate Investing Podcast, in most models of financial planning, the more that you put money into an IRA, brokerage accounts, the more the advisor gets paid.

They’re not incentivized to say, “Hey, maybe you should dump $50,000 into this property?” Because again, it takes away from that traditional investment vehicle. But our team does view real estate investing as a method to build wealth and we have the resources to help people through that process if that is the path you want to take.

[0:17:10.4] TU: Great stuff, this is another example, just like we often talked about with, “Hey, when you work with a planner, if you’ve got student loans and they don’t understand student loans, that’s a problem” right? If you’re working with a planner that maybe doesn’t prioritize or value real estate investing as an option, right?

We’re not saying this for everyone but it’s an option to consider, has experienced either themselves or advising other folks. Such an important distinction in that relationship. Number five, to no surprise, we’ve just talked about this in episode 248 of the podcast as I mentioned is, folks coming with questions, confusion, angst, excitement, any other emotion I think, surrounding PSLF. Tell us more ab out what you’re seeing here?

[0:17:49.6] JW: Yeah, as you said, if you’re listening and new to the term PSLF, definitely queue up episode 248 to learn more about the program and hear some of the pharmacist success stories there.

Since I did not practice as a pharmacist for a nonprofit or a 503(c) organization, I wasn’t eligible for PSLF but through my role here at YFP, I quickly learned how overwhelming and confusing the process can be for some people and personally, I would want an expert to help me through that process, to help me get thousands of dollars wiped away after a hundred twenty payments. That is what I hear on discovery calls as well.

People are confused about the nuances of the program, confused about how to optimize the repayment strategy in a tax efficient way and need a partner to help get them across the finish line. Obviously, I have a biased opinion but I’ve heard the success stories and I see the joy our team shares on Slack when they help a particular planning client get those loans forgiven. If you’re a pharmacist listening and need the support of a team to give you that peace of mind that we can get you to the finish line, YFP Planning is your best option.

[0:19:13.7] TU: Awesome stuff. Number six, Justin, is spouses or significant others where maybe one is a pharmacist and one is not and you know, maybe wondering, “Is YFP Planning even for us? Do we both have to be pharmacists or do you guys work with non-pharmacist?” Tell us more about what you’re seeing here.

[0:19:29.7] JW: Yeah, I wanted to include this observation since it was brought up during one discovery meeting and generally, if one person has a question many other folks do too. In this example, we were nearing the end of this particular discovery call and the pharmacist shared, “Even though I’m a pharmacist, my husband is not and I want to make sure that he’s represented throughout the planning process” and I could have not been more thrilled that she brought that up.

Because one, it taught me that I need to acknowledge upfront at our planning process is not just suited for pharmacists. Obviously, we’re called Your Financial Pharmacist but technically only 80 to 85% of our clients are pharmacists and the majority of those households we work with, only one person is a pharmacist. The active involvement of both partners regardless of their background we feel is critical to the planning process.

In fact, when you book a discovery call, we ask you to find a time that both you and your partner are available. If you’re married, engaged, maybe not married but living with your partner for many years, you generally have shared assets, maybe not combined finances, which is a step we walk clients through during the planning process if that makes sense but you generally own things together like a home.

In these cases, it is impossible to optimize the financial planning process if we don’t have all the decision makers at the table and I’ve learned this the hard way that generally speaking, if we conduct a discovery call with only one partner, we get to the end and they say, “Oh this sounds great but let me check with my spouse” and then what we end up doing is going through the discovery call process all over again because that partner may have a different perception of money, its impact and also their own financial goals.

It is critically important that both partners are involved in the discovery call and in that initial planning phase should you become a client of YFP Planning. So long story longer, yes, we’re called Your Financial Pharmacist but our planning services are technically for people of all income levels, all career backgrounds. It just has to fit what you’re looking for.

[0:21:57.2] TU: Yeah, so important, Justin. I’m a firm believer – I wrote an article way back when about 10 financial discussion every couple should have whether they decide to merge accounts or not and how assets are joined or not, whether they’re married or they’re not married, just healthy discussion for folks to have about getting on the same page financially even having an understanding where they agree to disagree in certain areas just to have those conversations.

We believe as you mentioned that outcome of the planning process is so much stronger, so much richer when both folks have a voice because what we often see and I’ve experienced this first hand with my wife, Jess, and I and Tim Baker, being our planner, is that you have that hour with Tim is great but the two hours afterwards and the conversation later that night and that weekend throughout that week where we are then discussing among ourselves, it’s so helpful to have that third party and to make sure both folks are present, to start that all the way at the beginning as they are evaluation that service to begin with.

Number seven, Justin, you shared with me kind of this chicken and the egg of timing of when to work with a planner, meaning that, “Hey, Justin, I’ve got a lot going on and the need is there for help but also just wondering of like maybe I should just wait to a certain point” right? Maybe I am in a busy phase of life and I should just wait until we get through things in the next six or 12 years but the other side of that coin is, right now I am looking ahead. I am in the middle of a lot of things where I could use the value, the help and a planner. So, talk to us through this one.

[0:23:18.0] JW: Yeah, so I heard Tim Baker share a phrase during a discovery call when I first started and it’s that, “Transition points bring lots of financial decisions.” The emphasis is that there is a cost to not starting with a financial planner. If you see the value that it can bring to you or your family, it will continue to cost you to not get started. It could be a tangible thing like paying more in interest on student loans, right?

Or money sitting in your savings account that’s being eroded by inflation or possibly more time lost toward your short-term goals like a home, vacation, car purchase, starting a family or even just stress around balancing multiple priorities. I hear people say, “Let me get rid of credit card debt and let me streamline my budget before I hire a financial planner” and I try to challenge those people that, “Isn’t that the reason you book this call because you need help with some of these aspects of your financial life?”

I also hear other people say, “Let’s wait until student loan repayments start” or “Maybe after our wedding” or “After I started my new job” and I totally understand that these transition points are stressful and that it’s difficult to think about adding one more task to your plate but that’s the beauty of financial planning. It is more about the process than the plan itself and through that process, these points of transition become easier to manage personally and maybe even enjoyable with less financial stress.

[0:25:00.4] TU: Great stuff. Number eight has to do with the fees and I think the unawareness of the fees and this is really insightful for you to come into the YFP Planning our fee-only, our pricing model, which I think is a little bit non-traditional to the industry and to get some experience but generally here, what you are seeing is an unawareness of the fees associated with the planning. Folks realizing maybe there is a lot of variation in the industry but not knowing really what to expect here in terms of that investment of money. Tell us more.

[0:25:27.7] JW: Yeah, as I mentioned before, hiring a financial planner is an investment of both time and dollars so we obviously talk about pricing during the discovery call but what I’ve noticed is that generally people have no idea how much a financial planner costs or even how a financial planner gets paid. Tim Baker tells the story of when he decided to become a financial planner.

He went to his mother and said, “I am changing career paths to become a financial planner” and his mother told him it was the stupidest idea he’s ever had since she doesn’t pay her financial planner anything and that lack of awareness around fees is not unique in the financial service industry. I actually started working with an advisor back in 2014 with another company and when I went through the discovery call process myself out of curiosity if YFP Planning was a good fit for me and my family, Tim Baker really educated me on all the hidden fees.

Since that point, I’ve learned that payment models for financial planning come in more varieties than Skittles and Jolly Ranchers combined. The most common fee though is called “assets under management” where your planner will charge you a percentage of the money you invest with them. This percentage can range based on the services they provide but it is generally at least one percent.

What I didn’t know is that there are also expense ratios assigned to those investments or funds based on where they are invested and since you need to pay a small fee for the company of the fund to handle those day-to-day operations but if you are not careful, those expense ratios can really impact the overall performance of your portfolio in the long run and that is where our model is different, right?

We’re fee only, we’re fully transparent about the fees that we charge. We believe that fee only is the best way to operate as a financial planner because it reduces conflict of interest. Similar to the real estate example that I just shared, in reality most folks don’t wake up one day and decide to hire a financial planner. You typically hire a financial planner to solve a problem and generally it’s not a math problem.

It’s because you want to live a richer life than you currently have and achieve your version of financial freedom and we believe a fee only model is the best way to keep your financial goals a top priority.

[0:28:12.8] TU: Justin, you’ve mentioned now twice that it’s a significant investment of time and money and you and I are both analytical pharmacists and I suspect you talk with many folks that are like, “Okay, it’s an investment of money, I get that” maybe they have even talked with someone before where it’s quote “free financial planning” and then they realize otherwise that there is either hidden fees or perhaps sale of products in their best interest.

That is really where the revenue might be coming from and truly not providing confidence of planning, so I value the transparency. I understand there is a fee involved with that but naturally the next question here is, what’s the ROI, right? What is the ROI? Tell me more about what you’re hearing from folks as they’re trying to make this decision of, “This is an investment of time and money, then what’s the potential return?”

[0:28:58.4] JW: Yeah, this has to be the number one question and I’m mastering a discovery call and it is very difficult to answer since as a comprehensive financial planning firm, we prioritize your complete financial life. When some people think of a pharmacist, they think of counting pills and I say some people because I like to think and believe that that narrative is changing.

The point I’m trying to make is that when most people think of financial advisers, they think of investments and in our model, investments is only a small piece of the financial plan. A few people have recently asked me, “What is your investment philosophy for combating inflation?” and one, I’m not a financial planner so I probably don’t have the best technical answer and two, if that’s your primary concern that’s fine but we’re probably not your people and that’s okay because in general, the market is efficient, right?

93% of active management advisors, so those who attempt to beat the market, 93% of them fail, right? There are pockets of inefficiencies like we’ve noticed recently but overtime, investments are a tool to actually combat inflation and with proper allocation, keeping expenses in your investment accounts low, your investments will grow with the market.

[0:30:24.9] TU: Yeah, great stuff. Definitely as Tim always say, which I wholeheartedly agree with his investments as you mentioned it is one part of the plan among many others, an important part but it is one part of the plan and in traditional planning and part because of how the industry was born and how fees are assessed, often you know that maybe with some insurance might be the bulk of the plan and there might be things like, “Hey, those student loans will just take care of themselves” or “That home buying like nah, not so much us” or “Investing in real estate, not so much.”

I think when you look at really good comprehensive planning, which I am bias of the work that Robert and Kelly’s team does and under Tim’s leadership with YFP Planning, a really good comprehensive planning will again, get us out of the silo and be really looking at how do we make sure we’re taking care of our future self. We need to be thinking about that – how do we also make sure we’re living a rich life along the way, right?

Yeah, we need to be saving and investing and in doing so efficiently and saving on fees and taking advantage of the tax benefits but we also need to be thinking about many, many other parts of the financial plan including the protection parts as we think about things on the insurance side, on the estate planning side, obviously the debt management piece and then all the other things that come throughout life and throughout the financial plan.

That takes time, an investment of time, an investment of money and obviously there’s benefit in that being transparent as you mentioned. Number ten is what you’ve I think seen often, which I will hear often as well is, “You do taxes?” and I think a lot of individuals may not be thinking about the synergies between the tax and the financial plan or the power of the synergies between the tax and the financial plan.

What are you hearing here and what perceived value are you getting that folks see of, “Okay, well, what could be possible if we really have the tax plan rowing in the same direction as the financial plan?”

[0:32:10.9] JW: Yeah, as you said, the synergies between taxes and the financial plan, that’s something that I’m still personally learning about since I too did not understand that for a long time how interconnected they are and in this time of year, a lot of people share with me how their tax returns went. I hear from people who own quite a bit of money and then excitement from other people expecting a big refund.

Previous Justin would have also been excited about a big refund but my perception is changing through my own comprehensive financial planning process. If you’re listening right now and are expecting a big refund, let me ask you how would you have spent those dollars better throughout the year? Could you have put up a bigger down payment on your home? Could you have added more to your 401(k) or investment contributions?

Could you finally leave your state and go on vacation, right? When you get a tax refund, you’ve basically given the government money interest free and through our planning process in quarter one, we file your taxes for you but the real magic happens during the year through our tax planning service where we ask you for a couple of documents and by understanding your situation, we can estimate either how much money you will owe or how much money you will get back and neither of those are great options.

We want to get as close to zero as possible, so we outline strategies that we can proactively put in place during the remainder of that year to again, get that number as close to zero as possible because that shows us that we’re being as efficient with our income as we possibly can.

[0:34:05.7] TU: Well, there you have it, 10 takeaways from 50 plus financial conversations that Justin Woods has had with pharmacists over the last few months and Justin, I can tell you firsthand when you came up with this list of ten, I’ve done a handful of discovery calls prior to your arrival. Tim Baker has done ten times as much as I have but these are themes that we’ve seen for years.

I think some of the takeaways that you brought here I suspect will resonate with many folks that are listening to this episode. As I listen or hear to this, I’m a pharmacist thinking, “Hey, maybe I am interested in taking this next step to get on a discovery call with Justin and learn more about the planning services” you know, see whether or not it’s a good fit, tell us more about what next step they can take and where can they go to schedule that.

[0:34:46.8] JW: Yeah, thanks for having me, Tim, and I hope that by sharing these observations of mine, it will encourage or maybe even motivate more people listening to consider a discovery call and we can work together to really understand if it’s a good fit for you specifically.

[0:35:03.9] TU: Great stuff and, again, folks can go to yfpplanning.com. You can see an option there to schedule a call and that will allow you to get some time on Justin’s calendar. Justin, thank you so much. I really appreciate it.

[0:35:13.8] JW: Thanks, Tim.

[END OF INTERVIEW]

[0:35:14.9] TU: Before we wrap up today’s episode of Your Financial Pharmacist Podcast, I want to again thank our sponsor, Splash Financial. If you’ve ever considered refinancing your loans, check your rate now through Splash Financial. Refinancing could help you get a lower monthly payment on your student loans or get a lower interest rate.

Splash helps you shop and compare loan refinancing offers across lenders nationwide. Browsing rates through Splash Financial is fast, free and won’t impact your credit and now, when you successfully refinanced $50,000 or more, Splash Financial will give you an extra $500 in cash bonus, using our link at splashfinancial.com/yfp. So, check your rate today and see what you might be able to save at splashfinancial.com/yfp.

[DISCLAIMER]

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

[END]

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YFP 249: 3 Silent Killers to Your Investments

Posted on March 31, 2022November 2, 2022 by yfpadmin

3 Silent Killers to Your Investments

On this episode, sponsored by Insuring Income, YFP Co-Founder and Director of Financial Planning, Tim Baker CFP®, RLP®, talks about the three silent killers of your investment pie and how to keep your investment portfolio fit.

Episode Summary

In this episode, YFP Co-Founder & CEO, Tim Ulbrich, PharmD, sits down with YFP Co-Founder & Director of Financial Planning, Tim Baker, CFP®, RLP®, to discuss the three silent killers of your investment pie: taxes, inflation, and fees. After a brief discussion about the most recent success of YFP Speaking Engagements, Tim Baker gets into the weeds on strategies to ensure financial security and freedom by protecting your investments. Tim and Tim discuss, in detail, how to keep your financial portfolio fit through evaluating your fees, investment choices, and the utilization of tax planning. Tim Baker explains some of the most common fees associated with investment plans and that often, investors do not know what exactly they are paying in fees. He shares the impacts of inflation on your portfolio over time and how to ensure financial security after retirement. You will also hear Tim Baker speak on his personal experiences as a CFP® and how tax planning permeates all parts of the financial plan, despite many planning firms not offering tax planning as a service. Tim Baker shares his answers to frequently asked questions like: why is inflation overlooked concerning the financial plan? What is the solution to inflation? How can market stability and fees negatively impact your retirement investments?

Key Points From This Episode

An introduction to today’s topic.
The importance of including tax in your financial plan.
How tax permeates all parts of your financial plan.
Tim Baker shares some of his experiences regarding tax, working as a financial planner.
Some examples of simple tax reduction strategies.
How to ensure the withdrawal of investments after retirement in terms of tax.
A discussion on inflation trends.
Why it is important to consider inflation in your financial plan and investments.
We learn how investments can help you get ahead of inflation.
A detailed discussion on the issues and impact of fees on your investment.

Highlights

“I think what you can’t do is just not participate. I don’t think you can stuff your mattress and hope one day you wake up, and you’re going to have enough to retire.” — Tim Baker, CFP®, RLP® [0:21:32]

“I think it’s really important that we understand those dynamics and know that we’re not always going to be in a low inflation environment.” — Tim Baker, CFP®, RLP® [0:24:30]

“It’s really important to understand how inflation can play a role in your ability to sustain yourself in the future.” — Tim Baker, CFP®, RLP® [0:24:34]

“I think a lot of people are unaware of what they’re actually paying, and the transparency is a real thing that needs to be overcome.” — Tim Baker, CFP®, RLP® [0:24:09]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

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

This week, I had a chance to sit down with YFP Co-Founder and Director of Financial Planning Tim Baker, to talk about the three silent killers of your investment by taxes, inflation and fees or easier way to remember as Tim, mentioned on the show, is how to keep your investment portfolio fit by evaluating your fees, investments and tax planning. A few of my favorite moments from the show include hearing Tim, talk about common tax mistakes he sees pharmacists making, and why he decided early on to bring a tax practice in house with the financial planning services. Why inflation is often overlooked? But an important part of the financial planning consider. What the antidote to inflation is? Why those nearing retirement should be looking closely at inflation and the volatility of the market? Finally, the common types of fees associated with the financial plan. Why these fees can have such a large impact on your investment portfolio?

Now before we hear from today’s sponsor, and then jump into the show. I recognize that many listeners may not be aware of what the team at YFP Planning does in working one-on-one with more than 240 households in 40 plus states. YFP Planning offers, fee-only high touch financial planning that is customized for the pharmacy professional. If you’re interested in learning more about how working one-on-one with a certified financial planner, may help you achieve your financial goals, you can book a free discovery call at yfpplanning.com. Whether or not YFP Planning financial planning services are a good fit for you, we know that we appreciate your support of this podcast and our mission to help pharmacists achieve financial freedom.

Okay, let’s hear from today’s sponsor Insuring Income and then we’ll jump into my interview with Tim.

This week’s podcast episode is brought to you by Insuring Income. Insuring Income is your source for all things term life insurance and own occupation-disability insurance. Insuring Income has a relationship with America’s top-rated term life insurance and disability insurance companies so that pharmacists like you can easily find the best solutions for your personal situation. To better serve you, Insuring Income reviews all applicable carriers in the marketplace for your desired coverage, supports clients in all 50 states, and make sure all of your questions get answered along the way. To get quotes and apply for term life or disability insurance, see sample contracts from disability carriers or learn more about these topics, visit insuringincome.com/yourfinancialpharmacist. Again, that’s insuringincome.com/yourfinancialpharmacist.

[INTERVIEW]

[00:02:41] TU: Tim, excited to have you back on the show.

[00:02:43] TB: Yeah, Tim. Glad to be back. What’s going on?

[00:02:45] TU: It’s been an exciting start to the year.

[00:02:47] TB: Yes.

[00:02:47] TU: Lots of exciting things going on at YFP. We’re heating up the season of some of the speaking engagements that we’re doing for the year. Grateful for those opportunities, I think the team is humming and moving forward. It’s been a good, good first quarter of the year. You’ve got an exciting trip coming up tomorrow. I think you’re leaving, right, International.

[00:03:05] TB: Yeah, going international. My wife Shay, shout out to her. If she listens to the show, sometimes, sometimes not is running the Paris marathon. A couple of weeks ago she actually had fractured her foot in a misstep. She’s been doing a lot of cycling and pool work and things like that. She got the news a couple of weeks ago that she could run again. So she’s, yeah, she’s raring to go, heading out and excited to visit Paris again. It’ll be her first time and yeah, just enjoy some one-on-one time without the kids. It’ll be nice. I’m excited. I feel we’ve been so cooped up, because of the pandemic, haven’t really been traveling as much. Yeah, I’m pumped up.

To go back to that thing Tim, I was shocked. I think when we actually sat down, and you tallied up the reach that YFP has had or the last couple years with, I think it was 72 different schools and associations that we’ve been speaking with and doing presentations and things like that. I think that was a little bit shocking to me but awesome to see that number and see it continue to grow.

[00:04:12] TU: Yeah. We’re so grateful for that opportunity. We’ve partnered with just over 70 different organizations. It’s been Colleges of Pharmacy, State Associations, National Associations, Fellowship Programs, Residency Programs, some of the businesses that are out there and entrepreneurs, so super grateful for that opportunity. I think the reach to that has allowed us to have as we as we look to help more and more pharmacists on their mission towards achieving financial freedom. We’re looking to grow in that list here. If anyone is listening that, is looking to have a session on personal finance, financial education, we’d love to engage the YFP team, the YFP Planning team, so you can reach out to us at info at yourfinancialpharmacist.com.

Tim. Today we’re talking about silent killers to your investment pie. We’re talking about things like tax inflation fees. We’ve talked about these separately on the show, but I want to keep coming back to these, we’re going to bring these together. We talked so often about the hard work of building your investment pie, right? Ultimately, we’re going to be paying ourselves out of retirement paycheck, we’ve got to do the hard work to save early, save often, take advantage of that time value of money. We might be underestimating the impact the silent killers like tax, inflation, fees that may not be as obvious or as front and center, but certainly can have an impact on our financial plan.

We’re going to go through these one-by-one in three parts. We’ll start with the taxes, we’ll then talk about inflation, we’ll talk about fees, we’ll reference previous episodes, we talked about these for folks that want to dig deeper in any one of these topics. Again if you’re going to do the hard work, and you’re going to build that investment pie, we want to do as much as we can to maintain the integrity. Tim, let’s start with tax season. Could it be better timing, were about half a month now, away from the IRS tax deadline, the YFP tax team is knee-deep and making sure we get the tax filing and returns, and a shout out to that team if they’re listening to this episode. Here we are, it’s front and center for lots of folks, maybe they’re looking at the returns that they filed, and maybe they got it spot on, maybe they saw opportunities to improve, maybe they got a big refund, or were surprised by a bill that was due. So just talk to us about why this topic of tax is so important.

[00:06:25] TB: Yeah. I’m actually looking at the title of this, I see, Tax Inflation and Fees. I think if we were to go in reverse order FIT, this is I think, really about keeping your investment portfolio fit. We’ll go tax inflation fees as we talk here, but I think the reason we kick off with taxes because it just permeates everything, Tim. Every conversation that we have related to the financial plan, there’s a tax conversation close by, unfortunately. One of the numbers that always sticks with me is that we mentioned speaking over the course of a pharmacist career they’re going to make about $9 million. The actual dollars that flow into the bank account is closer to six. That’s alarming, because you’re like, all right, where’s 30 – where’s a good chunk of that go?

That 3 million, that delta, a lot of that is being soaked up by Uncle Sam, the taxman. What we see related to tax is that there’s typically a lot of dollars left on the table in terms of what you can do to mitigate the amount that the government is taken from you. Again, I think everyone wants to pay their fair share, but no one wants to overpay if they don’t need to. Yeah, and I think for us, as a group I harken back to the day when we were starting, I have launched Script Financial now, YFP Planning, and even before that in my first job and financial planning, financial services. A lot of traditional financial planning firms do not do taxes. I found that to be very problematic, Tim, because, again, I think they’re just so closely aligned with what you’re doing on the planning side, that there needs to be some coordination on the tax side.

Shortly after I launched Script Financial, we started to do taxes for our clients. It’s not a fun thing to do, the tax work, Tim, as we know, right now, it’s it can be hectic, you’re trying to cram so much work in a small window of time. It’s like trying to manage a lot of projects on a tight deadline that you have inputs and outputs from a variety of people. However, the reason that we do it is, because I think the value that it brings to the overall plan. I’ll give you some examples. When I would do planning for pharmacists, one of the biggest thing a lot of the pharmacists that we are working, with the tail that wag s the dog are the student loans, right?

The student loans one of the major strategies there is the forgiveness strategy, particularly PSLF, or even non-PSLF, because in that strategy, one of the main techniques you could do if you’re married is to file separately to disallow the income of the spouse that doesn’t have loans and really just work off of the AGI and the student loan payment is off of one the spouse versus two. The problem is this, Tim. I say this like I would build out these dope, that’s the official term, dope, financial planning strategy related to the student loans. Then the client would say, “Hey, Tim, do you guys do taxes?” We’re like, “Nah, we don’t, but go work with his accountant across the street. They’ll hook you up.” We like what they do. But the problem is that, because most financial planners don’t understand student loans, so I think the stat out there that I saw is that 33% of financial planners will work with clients on their student loans.

That doesn’t mean they necessarily understand them, but they’ll at least address them. That means the overwhelming majority don’t even really look at it. The problem is that because advisors don’t understand student loans, typically the accountant that they work with don’t understand it, and in 99 out of 100 times, for most people file in anything, but filing jointly for a married couple is wrong, but we just happen to work with a lot of pharmacists that it does make sense because of the huge benefit you get from maximize the forgiveness. I just got fatigued by building out this great debt plan, and then it being messed up by the lack of technical expertise on the tax side of things to see that through.

Then I think the other piece of this is we’re planners, right? I want a plan. I remember, again, back in the early days, I would hire a tax person to do my own personal taxes, and I’m a business owner. So when I got a good referral from someone, I met with them, they’re like, “Oh, yeah, we’ll be able help diagnose some things with your business and all this.” I’m like, “Great, that sounds awesome.” Then a couple months rolls around, I’m like man, it’s April 14th, where are my taxes? I sent out an email, and I get an email back, and it’s a PDF of the tax return some DocuSigns to sign, and then an invoice. I equate, it seems like a paper route, right? It’s like, here you go. Chuck the paper out the window, you figure it out. I just didn’t like that, because again, I was looking for things that and I’m a nerd like that.

Again, as a business owner, I want to make sure like, am I doing everything to mitigate my tax exposure. I just got zero guidance, zero planning based on – planning advice based on last year’s activities. I really wanted that. To me, I think there’s a lot of people that want that and are trying to figure out ways to get in front of the taxman. Then finally, I think just the reason that we did it is like I said before, is I think it’s just the coordination of your financial plan. It’s not just the debt piece. We would work with clients in my last firm where there probably needs to be a healthy conversation regarding the investment portfolio, just that this wasn’t had. I understand. I get it, during tax season it’s really hectic.

You’re just trying to move the return through, but at the end of the day, the reason that we make sure that everything goes through the lead plan of the CFP, it’s a check to say, “Okay, does this jive with everything else that we’re trying to do.” Not this debt, but the investments and whatever else is on the client’s plate just to make sure that there is a clear intention of, hey this reporting period and Q1 all the way up to April 15. This is really a reaction to what happened last year. But then what are the things that we can do or what are the things that we learned from this year that we can apply to the present year in this case, 2022?

I think if you stack just the financial plan, I think if you stack years of doing that, you really shrink that delta, that 9 million to six. I think you really start to shrink that in terms of what you’re keeping in your pocket. I think for most people out there that’s worth the conversation and with the planning.

[00:13:11] TU: Yeah. Tim, just to that point that the delta significant and of itself 9 million to 6 million, and you and I both agree, like taxes have value, right? They provide services we all appreciate. We want to pay our fair share. It’s not just the delta, but also how can that delta be put to use, and what is the effect to that?

[00:13:26] TB: Yeah, exactly. I think that there’s just a lot of – from things that we see with clients, there’s just a lot of meat on the bone. There’s a lot of opportunity to, hey, have you thought about this? Or as an example, HSAs those are our every week, we talk about them a lot, but a lot of people don’t necessarily fund them. Even things related to children FSAs, particularly for dependent care, making sure money goes through their, education planning. Sometimes there’s this singular focus on things like Roth IRA and conversions, and backdoor and all that kind of stuff. It’s like, we shouldn’t even be having this conversation yet. I think some of it is overconfidence for the taxpayer of what’s important and what’s not.

We see a lot of things with taxable accounts, Robin Hood, things like that, where there are, there’s a focus there that really shouldn’t be or disallow losses due to wash sale rolls or things like that. We’ve seen lack of record-keeping for side hustles as we’re talking about Schedule C, income expenses, lack of coordination for charitable giving with a larger deduction these days. There’s a bunch strategy where you should be bunching your charitable giving versus doing a consistent year over year. Cryptocurrency, we could have a whole thing on that, Tim. Cryptocurrency and then just the overlay of, hey, there’s a huge refund or a huge tax bill, that I think sometimes it’s due to either a lack of planning or a lack of follow-through on the planning or just an understanding of how withholding or the W4 works.

This is a sample of things of what we see and I think again if you can start to work through some those issues, Tim. I think you start to see. Again, it’s hard to quantify year over year, but these are just little tweaks here that I think we talked about the investment portfolio being a rocket ship, sometimes like fees and things like that is drag on that. I think the same thing could be the case with taxes and your net worth, your financial plan.

[00:15:20] TU: Yeah. It’s great stuff. The compound effect of those changes I think about someone who unlocks things like the HSA or is able to really look at some of the bunching strategies or other things that you mentioned dependent care FSA, etc. or priority of investment and making sure you got that, right. It’s not only getting that advice, recommendation strategy put in place today, but what does that mean going forward in the compound effect of that. We talked about lots of that. We had our director of tax, Paul Eikenberg, on Episode 233, we’ll link to that in the show notes. We talked about some of the common tax strategies, tax mistakes that pharmacists should be thinking about.

I’m glad you brought up the student loans to kick off that conversation. Just last week, we had three PSLF success stories, and through those stories, we heard about some of the optimization strategies and of course, one of that would be the filing status, which folks may mess up if they’re not getting good advice there. Tim, one of the things I’m really excited about and shout out again, to the tax team that’s been hustling this season, is you and I think are really behind this vision and approach of, yeah, “We got to file the IRS as we have to do it, or else they’re going to come knocking on our door, that’s great, we’re going to keep doing that, but we’re going to do that, really, if it’s a part of the planning and the strategy.”

So you gave that story of April 14th, here’s the DocuSign, sign it, here’s your bill, that’s great. I mean, that’s stuff that’s been done, it’s in our rearview mirror. Let’s talk about what we can do going forward to really optimize the plan and perhaps avoid some of the mistakes that were made throughout the year. So we’re excited about really shifting away from just that filing to more that year-round planning, that strategy, that mid-year projection, that pivot, how do we really optimize this with the financial plan? Well, this tax season, we’ve closed the doors in terms of new folks that we’re going to be doing tax returns. Again, we’ve only got about 15 days, couple of weeks left in the season. We are going to start to build out a list of folks that are interested in more that year-round planning optimization and you can go to yourfinancialpharmacist.com/tax and get more information there.

[00:17:19] TB: Yeah. I think the other thing that can take into consideration here is right now, we talk a lot about the accumulation of the portfolio and how tax is related to that. I think the other thing is really looking at the withdrawal. When you’re a pre-retiree, and again, simple if you have a million dollars in your traditional 401K, a million dollars, saying a Roth IRA, and a million dollars in a taxable account. Unfortunately, all of those dollars are not yours, particularly the traditional Uncle Sam so has to take the bite of the apple. But one of the main things that we look at when we’re trying to structure a paycheck that is going to be able to sustain that retiree for the course of their lives is the tax and minimizing the tax burden and how we draw on each type of account and the best strategy for it. A lot of that is a tax conversation.

To me, it’s something that, it’s again, permeates every part of the financial plan, but it’s also every stage of life. There’s even conversations of okay, how do we structure, how much in this bucket or this bucket, as we are accumulating to get in front of that when we are starting to say, “Okay, I’m 65, I’m retired. We’re going to use 30 years as I’m going to live to 95, just to model this out. How do I draw from each bucket? Overlay things like social security and everything else, to make sure that I – the biggest I think stressor for a retiree is, “Am I going to have enough money? Is the money going to run out? I don’t want to be destitute or have to rely on family.” It’s really trying to, and again, if we can hold on to more of those dollars, that still have to be tax or take those moneys when you’re in a lower tax bracket, or whatever that is. It’s really important to have that coordination. It’s a frequent conversation. It’s not just, hey April 15th, come and gone, and it’s something that we continually look at and make sure we’re on top of.

[00:19:15] TU: Well, thanks for being a wet blanket, Tim. If I’ve saved a million dollars, I might actually not have a million dollars.

[00:19:20] TB: Yeah, yeah. Sorry about that.

[00:19:20] TU: Good plan. That’s a good summary of taxes. We’re going to keep coming back to this topic. So important for all the reasons we mentioned. Moving on to the second one is you mentioned in this concept of making sure and investment portfolios fit. The IB inflation. I think, normally we talk about inflation, and it’s like, nah, yeah, whatever. Especially for folks that are in the first half of their career, we have not seen inflation at the rate that we are seeing it right now.

[00:19:46] TB: Yeah.

[00:19:46] TU: Certainly it has been higher than that historically, but it’s well above what we had expected be on an annual rate. So we’ve got as of January if you look at the yearly rate we’re hovering around 7%. We talked about this in episode 239: Two Financial I’s You Might be Overlooking: Inflation, I-Bounds, will link to that in the show notes. Since that episode, I would say this has been exacerbated by the unfortunate situation in Ukraine. We see oil prices going up. We see the market volatility that’s happening. Tim, we know inflation is real, we’re feeling it in the moment. Jess and I were just talking about this and in terms of month to month with this is playing out to be in terms of expenses, but still, hard, I think sometimes put our finger on it, and the impact it can have on the plan. Why is that? Why is it so important as we think about the integrity of our investment pie?

[00:20:34] TB: Yeah. I think inflation is really one of the main reasons why we need to invest. I say that if you’re looking at the markets, and right now, the markets are very volatile, up and down, negative in some cases. What you feel is that you want to take your investment ball and go home and be like, “I just can’t take the swings, Tim.” –

[00:20:54] TU: I’m feeling right now. I’m not going to lie, Tim.

[00:20:55] TB: Yeah. I don’t looking at my accounts and seeing X and then the next day and seeing X minus 10%, 20%, 30% if we have a major correction. I get it. I think, if you’re 20, 30 years from your retirement date, and that’s the purpose of your portfolio. I think you really have to train your heart and your mind to be like, “Okay, it’s going to come back. Let’s not worry about it now.” I mean, if you’re in retirement now, and you’re relying on that, and we don’t have a good bucketing strategy, or what have you to sustain those losses, then I think it’s more problematic. But yeah, you can’t – I think what you can’t do is, is just not participate. I don’t think you can stuff your mattress and hope one day you wake up, and you’re going to have enough to retire.

I think the inflation piece is one of the main reasons why we need to invest. One of the examples I gave is that $4 latte that you buy at your local coffee shop in 2020. If you use historical rates of inflation over the next 30 years 2050, that same latte will cost $10. But I don’t know, that’s a great, good enough example, Tim. Let’s put it another way. If you make $120,000 as a pharmacist today, and we fast forward 30 years and we’re using historical rates on inflation, which is typically most planners are using about 3%, which we know this year is high. It’s low because we’re seeing seven-plus.

$120,000 today as a pharmacist in 30 years, that would be equivalent to $291,000. Think about that, $120,000 today would be equivalent to $291,000 in 30 years. From a planning perspective, if we’re trying to build out a portfolio that can generate a paycheck that is some discount at that 291 because we know that social security is going to be there. It’s going to be limited than what it is today, so we can take a little bit off for that. Then you’re probably not saving some of that 291 would go to retirement savings, but if you’re going into retirement, you’re not going to be saving for retirement.

There’s some discount to that, but the idea is that, let’s say it’s $200,000, or let’s say it’s $180,000, whatever the case is. We have to be able to build a sustainable portfolio so then, Tim, if you’re my client at 65, 30 years from now, or whatever the number is. You’re going to say, “Hey, where’s my $200,000? At 66. “Hey, where’s my $200,000.” All the way up until 95 or whatever we’re planning as nobody knows when they’re going to pass away.

That is really important, because the investments particularly an equity portfolio, in your accumulation phase is going to be really important for you to stay in front of inflation, and the taxman, quite frankly. So yeah, and just a backup, we talked about this in the “Two I’s”, when we talk inflation, it’s really, inflation is the decline of purchasing power of a given currency over time. What it basically means is that a basket of selected goods and services in the economy will increase over a period of time. Sometimes that is due because the government is printing money, which is certainly true. In our case, we talked about quantitative easing and things that. It could also be supply and demand. So one of the things that you didn’t mention outside of the Ukraine crisis is all of the boats that are at the Port of LA or that are still need to be unloaded because of pandemic or whatever, that’s causing a lack of the supply demands, making prices go up.

I think it’s really important that we understand those dynamics and know that we’re not always going to be in a low inflation environment. It can’t go up it has this year because of X, Y, or Z. Even back, if you look back in the 80s, in the early 80s, inflation was 13 and a half percent, and mortgage rates, as a result, were close to 17%. If you think about we know rates are going up now, there’s been a steep decline, and I think the government is trying to do what they can, but the fact is, we have printed a lot of money in the past that could rear its ugly head. I think the way that we can mitigate the impact of inflation is really to invest in equity stocks, and hold it over a long period of time, Tim.

We know that we’re talking about 20 plus years, we know that the stock market is fairly predictable. Typically, over a 20 year period, the stock market will return about 10% on average, and if we have just that down for inflation that’s seven. So this year, that might not do a whole lot for you, because that’s the rate of inflation, so you’re breaking even at that point, but to me, it’s really important to understand that how inflation can play a role in your ability to sustain yourself in the future. Again, we’re feeling the pinch now, because inflation has gone up so high, and so much in a shorter period of time, where we’re starting to really notice.

Tim, I’m sure with four boys, you’re noticing it with your food bill, or even we’re seeing in at the pump. Those are things that you were seeing it with housing prices, right? Those are things that get our attention, but we’re probably not thinking about how this affects us in 10 years, 20 years, 30 years, depending on your timeline for retirement.

[00:26:15] TU: Yeah. As a shout-out to your 76 years, you got to trust the process.

[00:26:18] TB: Trust the process. Yeah.

[00:26:19] TU: When you say investing is the antidote to inflation, a lot of people hear that in the moment and they see the volatility, and they’re like, “Ah, it’s the opposite of what I’m thinking.”

[00:26:30] TB: Right.

[00:26:30] TU: We’ve got to zoom out. I think this is where the power of accountability and a coach and having that long view is so valuable. Tim, I’m also thinking about the folks that are listening that are, “Hey, I’m nearing retirement.” Or I thought I was going to make that decision here and the next year or so and here we are when I’m going to be going into retirement in a high inflation period. I’m going into retirement, while there’s also a lot of volatility in the market. Just talk to us for a moment and another episode for another day about the timing of that decision of retirement when we start to draw from our portfolios, and how in high inflation period, and a high volatility period could have an impact on that.

[00:27:07] TB: Yeah. It’s probably – so what we’re talking about here is sequence risk. Sequence risk is essentially where what you’ve accumulated over the course of your career takes a hit. We’re talking 20, 30% which could be very well beyond the horizon for us in terms of a correction of the market. So now you’re will use a million dollars, let’s say your portfolio was a million, and then it bottoms out to $700,000, but then you’re also taken $80,000 a year, or whatever the number is.

So in two years, and three years, you could see where your portfolio is almost half of what it was when you actually went to retire. You’re like, “Well, I had a million and now I have $560,000.” Or whatever the number is, that’s where you really see a higher rate of failure to the portfolio failure meaning that the money runs out, that balance goes to zero before you reach your end of plan year, which a lot of people use 30 years, so if you retire at 65, 95. It’s the combination of the portfolio being down, and then drawing down the portfolio at the same time, you almost can’t make it up.

I have a little bit experience, it’s just a proxy. I remember, my first job out of the military was with Sears Kmart. It actually took over – I was a trainee for my first year. Then I took over for a lady that retired. This was right around ‘08, ‘09, and that’s when the market just completely got, the market was completely down, because of that subprime mortgage crisis. I think she actually had to go back to work because her portfolio took a beating and then she was actually drawing on it. She quickly realized that she needed to not draw on that portfolio. So really, in these periods of time right leading up, you could probably say about five to 10 years before retirement, maybe in five to 10 years after retirement, that’s where you need to be the most conservative. It’s the eye of the storm.

In for some people, it makes a heck of a lot of sense not to retire than – and try to push it off, sometimes it’s unavoidable. Sometimes 40% of people retire sooner than they think either because of illness for themselves or for a family member or, or it could even be being pushed out of the workforce. Sometimes it’s out of your control, but when you overlay these decisions with things security, when to claim that and all that, it’s super important. You could do everything correct for 30 years leading up to retirement and then that those first couple of years in retirement be blow up your playing completely. That sequence for us at its finest.

[00:29:59] TU: We’re going to come back to some more episodes, we have planned out on building that retirement paycheck in consideration as you’re making that transition from all the hard work you’ve done, and now making sure we’re able to sustain that. We’ve talked about taxes, we’ve talked about inflation, certainly not least, but last on our list is fees. We know that fees can have a major impact on how much wealth one is able to build and something that many folks may not realize of how big that implication can be. We went into detail about fees on Episode 208, Why Minimizing Fees On Your Investments is so Important, we’ll link to that in the show notes.

Tim, summary here of fee something that we harp on over and over again, that folks may not be aware of those fees often are not as transparent as perhaps we’d like them to be. So as we continue this theme of some of the silent killers of the investment pie. Talk to us about fees.

[00:30:52] TB: Yeah. There’s no such thing as a free lunch, right, Tim? When you’re investing or if you’re working with an advisor, there’s typically a costs associated with that. I think the thing that I think bothers me as an advisor, but then also as a consumer is the lack of transparency, right? We know even in healthcare, there’s people get upset about what is the actual price or even we talk about PBMs, and things like that. I think a lot of it comes down to transparency, and what’s going on behind closed doors. To me, and we see this a lot and actually, we recently, we have clients that are prospective clients booked time with us to see if they would be a good fit.

We’ve added a button that they can upload a statement so we can talk at a high level, if they’re working with advisor what they’re actually paying, because most people either have the notion of, I’m not paying anything, which that’s actually a common belief or they know that they’re paying something, they just have no idea and often is the case that they’re paying a lot more than what they think. I always go back to this story. I remember, so my first job out of the military with Sears then I had another job with a construction company. I was like, “You know what, I want to do something completely different, go into a new industry.” I was like, “Hey, Mom, I think I’m going to become a financial planner.” I think verbatim, she said to me, “That’s the dumbest idea I’ve ever heard.” I’m like, “Why?” She’s like, “Well, we work with this as advisor and we don’t pay them anything.” I’m like, “That can’t actually be true.” Years later, when I understood the landscape a little bit, actually peeled back the onion, and they were paying over $8,000 in fees, unbeknownst to them so.

To me, I think, it’s fees are aren’t necessarily a bad thing. I think it’s the transparency around that I think needs a lot of work. Really, the fees that we’re talking about here, Tim, that are most common are things advisor compensation. These are things that you would, these are fees that you would pay or commissions that you would pay to an advisor to either provide financial planning or investment advice to you. One of the more common things that we see is an assets under management fee. This is like, “Hey, Tim you have $500,000, and I’ll manage for you, I’ll charge you 1% in the fees. 5000 I’ll bill that right out of your investment accounts.” That’s very common.

To be honest, that’s one of the reasons that pricing structure is one of the reasons why when we do find younger pharmacists that are working with advisors, so they’ll either be shut out, meaning the advisory would say, “Hey, young pharmacists, I’d love to be able to help you, but I can’t.” It’s not really because they can’t, because they don’t have those assets for you to manage that – in term of that that 1%. They’re either shut out of the market, or they’re sold, I would say less than suitable products, so they can make a commission and do some work with them. They kind of wait for the assets to build over time.

This is where, if you’re out there, and you’re in pharmacy school, or shortly thereafter, someone tried to sell you a life insurance policy, a disability policy, those are the next best thing for a lot of advisors that can earn a commission, “help the client” and then stay in touch with them until they have some assets for them to manage. It can be the same things like, “Oh, well invest your Roth IRA, and we’ll sell you in A-share mutual.” I was looking at a statement where there’s both an AUM fee but then A-share. Any share mutual fund is a front loaded commission. You pay five and a quarter percent on that and the advisor gets the commission and goes from there.

There’s lots of other fees there, Tim, related to advisors, hourly flat fee, there’s could be a hybrid unrelated to the investment portfolio, but still in mix, there are things like Life Insurance Commissions, Disability, Annuities, we recently saw a non-traded REIT, which is really sweet for the advisor, because that’s sometimes 6, 7, 8% terms of commission. So that’s a big piece. I think a lot of people are unaware of what they’re actually paying and the transparency is a real thing that needs to be overcome.

[00:35:08] TU: Great summary. We’ll get rolling back to Episode 208. Why Minimizing Fees in your Investments is so important. I think the transparency is one piece, Tim as you mentioned also just the tendency, we have to underestimate the impact of something like 0.1, 0.2, 0.3 right? As we look into individual investments.

[00:35:24]TB: Yeah, absolutely. I think if you’re not working with an advisor, there are other things that are present probably the biggest one is expense ratio, Tim. Justin probably – Justin was our director of business development, working with another advisor for years, before he came on to YFP. His portfolio, his all in expense ratio was about – it was almost 1%. 0.91 to be exact. What the expense ratio, it’s what the fund takes. If you have ABC mutual fund that’s managing billions of dollars, they might take 0.91% to pay for the mutual fund manager, the analyst, the fancy office on Wall Street, pay for information. They do that to keep the lights on. You basically buy that to get exposure to lots of different stocks and bonds, because that’s what a mutual fund is, or an ETF.

0.91% on a $100,000 portfolio is $910 per year, whereas if you do something YFP portfolios, .05, so why would I pay 1000 bucks if that guy pay 50 bucks and have similar results and things like that, but so that the expense ratio is a huge one. Platform fee, some, when I was in the broker deal where we would charge $50 or whatever, just to have an IRA open. There’s things like annual account fees, closing account fees, retirement, especially in a low interest rate environment like you’re just trying to eke out fees, because you can’t make money on the float, but things trading costs, all of these things add up.

Again, this can just be drag on a portfolio. Those are the four big ones I would say is advisor, compensation, trading costs, platform fees, and then internal to the funds that you’re in expense ratio. What we try to say to clients is like we try to minimize those as best we can, because at the end of the day, we want that portfolio to grow uninhibited as best we can. So there’s no such thing as a free lunch.

[00:37:25] TU: Yeah. That folks are going to pay for advising fee, and we’re not shy about the fees that we charge and the value they bring. The point being is you want the value to bring, right? So as you look at the coaching, the accountability, the holistic nature of comprehensive financial planning. There’s a fee there, and it’s transparent, you want to understand it, you want to feel good, that’s the return on the investment. We’re talking I think about in terms of minimizing other fees or fees that maybe don’t add value, or that are not transparent, so really evaluating closely the impact that those can have on your overall investment pie.

I’m going to link to a blog post from way back when, that I wrote, we looked at two different individuals that were saving about $1,000 per month between the ages of 30 and 65, because of some of the difference in fees and things expense ratios, or other hidden fees, they ended up with a nest egg that was about a million dollars difference. Again, the impact that we can see over the long run and what those fees can have.

For folks that want to learn more about the financial planning services that are offered by the team at YFP Planning, perhaps you’re working with a planner and interested in a second opinion. Want to have an analysis of that statement just to get some different thoughts as well or if you haven’t worked with the planner, we’d love to have a conversation as well. Folks can book a discovery call to learn and see if that’s a good fit with our Director of Business Development Justin Woods, also pharmacist and you can do that by visiting yfpplanning.com. Tim Baker as always great stuff and wishing you and Shay the best as you get ready for your trip to Paris.

[00:38:54] TB: Yeah. Thank you my friend. Good to be on the episode here. I think some good stuff to be – to chat about and probably even expand on in future episodes. So yeah, I appreciate you having me back on.

[OUTRO]

[00:39:05] TU: Before we wrap up today’s episode of the Your Financial Pharmacists Podcast, I would like to again thank this week’s sponsor, Insuring Income. If you are in the market to add own occupation, disability insurance, term life insurance or both, Insuring Income would love to be your resource. Insuring Income has relationships with all of the high-quality disability insurance and life insurance carriers that you should be considering and can help you design coverage to best protect you and your family. So head on over to insuranceincome.com/yourfinancialpharmacist or click on their logo or link in the show notes to request quotes, ask a question or start down your own path of learning more about this necessary protection.

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

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

[END]

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YFP 248: How 3 Pharmacists Had $700,000 of Student Loans Forgiven

Posted on March 24, 2022November 2, 2022 by yfpadmin

How 3 Pharmacists Had $700,000 of Student Loans Forgiven

Robert Lopez, CFP® and YFP Planning Lead Planner, discusses the current state of the PSLF program, plus three pharmacists share their PSLF success stories.

About Today’s Guest

Today’s episode also features PSLF stories from three pharmacists, Kimberly Gale, Ashley Hicks, and Kyle Sobecki.

Episode Summary

YFP Co-Founder & CEO, Tim Ulbrich, PharmD, talks with Robert Lopez, CFP® and YFP Planning Lead Planner about the current state of the PSLF program and why the Biden Administration’s PSLF waiver is resulting in a lot of forgiveness earlier than expected. Robert kicks off the conversation with some advice relating to PSLF, who qualifies, what changes have occurred recently, and what it means for you. With over $700,000 forgiven tax-free combined, Kimberly Gale, Ashley Hicks, and Kyle Sobecki share their PSLF journeys and ultimately how they attained PSLF. Each pharmacist shares how they came to decide on PSLF, what challenges they faced along the way, and how pursuing PSLF helped accelerate the process of pursuing other goals. Kimberly Gale shares the story of how she first became aware that PSLF was an option, communication challenges she faced early on, and how forgiveness has enabled her to attain the lifestyle she wanted for her family. Ashley Hicks tells us about roughly $200,000 in forgiveness and the challenges that uncertainty and anxiety posed for her in the process, plus her optimization strategy surrounding the PSLF process. Lastly, Kyle Sobecki shares the details of how PSLF pertains to pharmacists in the non-profit space and tells his story of having over $189,000 in student loans forgiven.

Key Points From This Episode

Introducing today’s topic: the PSLF success stories of three pharmacists.
A reminder of who Robert Lopez is and his role at Your Financial Pharmacist.
An overview of the first and second half of the show and what we will cover.
The basics of PSLF, Public Service Loan Forgiveness, and who qualifies.
Which changes were made to the rules of PSLF.
What the big news comes down to: you don’t have to rule out forgiveness.
What the limited waiver meant for those in the military.
Optimization strategy with PSLF and how Robert recommends you reallocate your finances.
The benefit of switching to a lower payment plan while achieving a long-term forgiveness plan.
An introduction to Kimberly Gale’s journey into the world of pharmacy.
The amount of debt she graduated with and how much was ultimately forgiven.
How she discovered PSLF through a friend’s recommendation.
Challenges she faced along the way, including communication at the beginning.
How PSLF helped her to afford the lifestyle she wanted for her family.
Ashley Hicks’ story of gravitating towards pharmacy because of her love for people.
How much Ashley ultimately had forgiven through PSLF.
The challenge that uncertainty and anxiety posed within her PSLF process.
How optimization and strategy can help navigate late discovery loans.
The opportunities that PSLF opened up for her and her husband to focus on other goals.
Meet Kyle Sobecki and learn about his work as a pharmacist in a nonprofit hospital.
Kyle’s story of having had exactly $189,038.72 forgiven.
Homework he has done along the way leading up to choosing PSLF.
How PSLF works when you work for a non-profit.
Uncertainties and challenges he had along the way.
His advice with regards to filing your paperwork on time each year.
Goals the PSLF plan freed Kyle up to pursue including paying off personal debt.

Highlights

“That really is the big news here. Many folks that may have ruled out forgiveness before or thought that forgiveness was still a few years in the future. We’re actually seeing some of those dates come to fruition.” — Tim Ulbrich, PharmD [0:07:00]

“There’s an old adage that says: money is power. I don’t believe that’s true. I think options are power and money gives you options.” — Robert Lopez, CFP® [0:13:33]

“The intent of the program was true. That’s really what they did, is make sure that, if you work for a non-profit for 10 years, you are eligible for forgiveness. They wipe away some of the intricacies that maybe held some people back in the past.” — Kyle Sobecki, PharmD [0:38:43]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

[0:00:00.4] TU: Hey everybody, Tim Ulbrich here, and thank you for listening to The YFP Podcast where, each week, we strive to inspire and encourage you on your path towards achieving financial freedom.

This week, we have a special episode for you, highlighted by three pharmacists sharing their PSLF success stories, in total, more than 700,000 forgiven tax-free. Some of the highlights from today’s show include talking with YFP planning, lead certified financial planner Robert Lopez, about the PSLF program and why the Biden administration’s PSLF waver is resulting in a lot of forgiveness earlier than expected.

We hear from those successful with PSLF about how they determined that PSLF was the best option for them, what bumps along the road they experienced, and how pursuing PSLF helped them accelerate achieving other financial goals.

Okay, let’s hear from YFP Planning lead certified financial planner, Robert Lopez followed by three pharmacist PSLF success stories.

[INTERVIEW]

[0:01:41.9] TU: Robert, glad to have you back on the podcast.

[0:01:43.7] RL: Happy to be here.

[0:01:45.8] TU: For those that haven’t heard you before on the show, I know it’s been a while, tell us a little bit about yourself and the role that you have with YFP Planning?

[0:01:52.2] RL: Yeah, Robert Lopez, certified financial planner, lead planner with Your Financial Pharmacist, been on the team for a little over two years now. I work with clients, mostly pharmacists, we help them figure out how to adult financially, how to pay back student loans, how to be most efficient use of their assets and their income to make sure that they’re living their best life.

[0:02:13.7] TU: I wanted to bring you back on as one of our student loan experts, obviously, you do much more than student loans but have worked with many clients through the public service loan forgiveness, we’ve seen some wins recently and the way we’re going to do this show is we’re going to breakdown some of the nuts and bones of PSLF briefly. We’ve covered that on the show many times before, we’ll talk about some of the updates with the PSLF waiver.

Some of what you’re seeing and working with clients at YFP planning and then the second half of the show, we’re going to feature some YFP PSLF success stories. Robert, before we get into the waiver and make making sure folks are aware of the opportunity out there as a result of that waiver, just quick high level, nuts and bolts of PSLF, who qualifies, who doesn’t, number of payments, how the taxes work.

I know we’ve covered this before, we’ll link in the show notes episode 214, we talked about this as well as episode 90 of ask a YFP CFP but just give us the basics of PSLF.

[0:03:09.0] RL: Yeah, PSLF, Public Service Loan Forgiveness, it’s a program created back in 2008 to offer loan forgiveness opportunities for people who are working in the public sector, right? If you work for a government organization, a not for profit, any organization listed as a 501(c)(3), that just means not for profit, it’s a way for them to get their loans completely forgiven, it’s tax-free forgiveness.

There are some qualifications, the original PSLF qualifications, which you had to have direct federal loans, which are a type of loans that were created 2010. Anybody who started school after that is probably what they have. It also works for direct consolidated loans, they had to be entered on to an income-driven repayment plan which would have been pay as you earn, which is payee, revised pay as you earn, which is rep payee or income-based repayment, which is IBR.

They had to make 120 on-time payments and that is cumulative, not consecutive, so roughly 10 years but if you took a break you continued counting right back where you left off and that forgiveness just gets wiped away like it was never there. One day it’s on your books and one day it’s not.

[0:04:16.1] TU: We’re going to hear some, I think we need to talk about this, Robert. Three, four years ago, especially when there’s a lot of negative press around PSLF, it was kind of that feeling of, “Is this for real?” We’ve got success stories to share and as you mentioned, especially with the tax-free forgiveness, one day it’s there and the next day it’s not.

You mentioned the original rules of PSLF and you just outlined those. Suggesting that things have changed. Give us a summary of the Department of Education PSLF waivers, some of the updates that came in fall of 2021 and why that’s such big news for folks out there that may qualify.

[0:04:50.2] RL: Yeah, big change came October 6th, that’s 2021, the Biden administration passed a limited waiver. Limited, meaning, you have one year, you have until October 31st of this year, 2022 to apply for this different waiver. The way it changes, is it changes the types of loans that can be forgiven, it changes the types of repayment plans that can be forgiven, then kind of just how those accounts work.

The new rules are any previous federal loans, that includes direct, that includes FFEL loans and that include Perkins loans, those are all eligible for forgiveness under PSLF now, assuming you go through the consolidation process. For some people out there who are aware of the consolidation process, it’s where just all your loans gets smashed together and you get a weighted average interest rates, it’s no change, it’s no benefit mathematically.

What it did do is it took loans that didn’t qualify and it made them qualify because it turned it into a direct loan, so you still have to do that but it used to restart your 120 clock when you did that because it’s a new loan and now it does not, so you actually get the oldest loan count on there. Anybody with old loans, it’s a great way to do about it.

They’ll go back in time and they’ll recalculate all those payments and if you made payments not on an income-driven plan, if you were on, say, the standard 10 year or the extended or the graduated payment plan, those previously did not count as 120 but now they do, those are the biggest change now. All that’s required is you work for a public organization, government or 501(c)(3) not for profit and you have 120 payments.

[0:06:20.0] TU: That was why Robert, as we talk about this and my goal and part of this episode is to continue to shout from the mountaintops so folks are aware and assuming that October 31, 2022 deadline stays for the temporary waiver, obviously, we’ll keep an eye on that but we don’t want folks to miss this window of time, right?

Because one of the things we’ve heard over and over again is, “Hey, I’m four, five, six years in the payments but didn’t consolidate” right? I had FFEL loans, Perkin loans or you know what? I was an extended graduated plan but I wasn’t in an income-driven repayment plan. As you mentioned, once that consolidation piece happens, still an important part of what needs to happen but those payments are then going to count.

That really is the big news here of many folks that may have ruled out forgiveness before or thought that forgiveness was still a few years in the future, we’re actually seeing some of those dates come to fruition. As we’re going to hear with a couple of stories here in a little bit, that’s something, Robert, I know you and the planning team have been seeing as folks that maybe thought forgiveness was still another two, three, four years away but they’re starting to see that happen now, right?

[0:07:22.3] RL: Yeah, the big thing that everyone needs to be aware of is if they’ve already consolidated their loans and they currently work for a not for profit or government organization, all they have to do is submit the employment certification form and they’ve actually simplified that process even farther. If you just Google PSLF help, it will take you to the government’s PSLF help tool at studentaid.gov.

You fill that out, it’ll create the document for you for you to give to your employer, once that form is submitted, they will automatically go back and recalculate all your payments. Automatically with the government could mean three or four months but it is a process that you no longer have to do anymore work.

If you’ve already submitted an employment certification form in the past, they’re already going to update you. Some of our clients have had those letters come out the mail that says, “Hey, congratulations, we recalculated 60 extra payments for you” and their numbers just jump from say, 65 to 125 and congratulations for this forgiveness but that’s all that’s really necessary.

Anybody that has those FFEL loans currently, you can go and get a consolidation as well again, studentaid.gov. Come to YFP, we’ll help you through the process as well.

[0:08:25.0] TU: One of the other benefits, Robert, I’ve heard from several folks is, because of the administrative forbearance, not only are some folks finding that this is happening sooner than they thought it would but also, they haven’t had to make payments for now, going on a couple of years and those have been counting as well, correct?

[0:08:40.6] RL: Yeah, ever since the administrative forbearance for COVID started in March of 2020, no one has been required to make payments and the interest rates have been set at zero. No one’s accruing interest in this time period as well. If you chose to make payments throughout the time, that’s great. You’re just paying off a crude interest, if you had any or paying down principle, you will continue to make payments.

If not, that’s going to continue until May 1st as of today. It’s always subject to change as we’ve seen with the government but as of right now, those loan payments will turn back on in May 1st and the interest rates will turn back on as well. Yeah, this has been – it’s going to be 27 free payments I believe and then all have counted towards PSLF as long as you qualify for PSLF.

[0:09:23.8] TU: One other thing briefly Robert, I want to touch on that you mentioned before the show that we have not talked about in much detail but for those in the YFP community listening that are in the military pharmacist position, there’s also an important part that they need to be considering here as well. Tell us more about that?

[0:09:37.6] RL: Yeah, as a part of the limited waiver that came out last October, they basically said, if you were in the military and you made payments, those all count on PSLF now as a part of that waiver. Any active-duty military members, any full-time military members, just complete that employment certification form, submit it to your superior officers and you’ll get all your payments to count.

We actually have a client that that’s going to happen for, they’ve been in the military 10 years, they have the wrong loan type, they’re on the wrong repayment plan, none of their stuff counted and now, all the payments are going to count and they’re going to get forgiveness this year.

[0:10:09.4] TU: Awesome example. One of the challenges you mentioned was you know, timeline when we think forgiveness and say, hey, one day you had your loans, the next, you didn’t, we might think of that as an overnight thing, that might be months, right? By the time papers get processed as we talking about PSLF, that could be a challenge or an uncertainty.

Anything else you’re seeing out there? I know there’s been a lot of concern with loan servicing companies that are going to be changing, there’s certainly a fair amount of horror stories with PSLF that are still out there from before the waiver. Other challenges that you’re experiencing, Robert, as you’re working with clients that are pursuing PSLF?

[0:10:43.7] RL: Yeah, the uncertainty is the big one, we know that some loan servicers have ended their contracts with the US government. FedLoans in particular is ending their contract and FedLoans is important because they actually manage all the people who are in the PSLF program.

FedLoans contract is going to expire at the end of this year, they got extended so then we have until the end of 2022 and that’s going to switch over to MOHELA. Anybody that is actually making that move and they apply for the employment certification form to get their loans counted, their loans are going to transfer to FedLoans and then transfer again later this year to MOHELA, it’s unfortunate but it’s just the way of the world at this point.

That’s kind of the biggest thing that we’re seeing is just, who do I make payments to, how does this work? If I make overpayments, will they get repaid to me? Which historically has been yes, but we haven’t seen since the admin forbearance if it’s going to be the same.

[0:11:32.8] TU: Last thing I want to pick your brain on is, I think we’ve done a decent job talking about the benefits of tax-free forgiveness, obviously less money that’s paid out of your pocket, somebody else playing the bill, that’s a good thing.

I don’t know if we’ve done as much on the optimization strategy and the optimization side of this as folks are considering this strategy among others. As we look at someone who maybe making that decision of PSLF yay or nay, I think there’s the tax-free forgiveness but there’s also the question of, what else could I be doing with dollars to move forward my financial plan if I’m not having to put as much towards those loans because they’re going to be forgiven?

I know this is an area that you and the planning team do a lot of work with our clients on. Talk to us more about the optimization strategy here with PSLF.

[0:12:19.6] RL: They, the opportunity cost is that big decision point thereof, “How can I better utilize these dollars?” Sometimes it’s easy to fall into the PSLF route, right? I had a PGY1, PGY2, I was making not a lot of money, I don’t want to make extra payments, I’m going to go income-driven in the meantime and then when I get out of my residency, I’ve got 24 months of payments but I only owe $100,000 in student loans.

I could probably pay this back if I’m going to keep working but if you don’t, we have clients paying $3,000 a month to be aggressive towards your student loans and if that’s your prerogative, awesome but if you were to switch to staying income-driven, maybe your payment drops to $500 a month and now you can better utilize that $2,500 difference there.

Maybe that’s paying down other debts. Some parent plus loans that your parents took out and helped you with to get through school, maybe it’s paying down some credit card debt that you used to travel for residencies, maybe it’s to pay down auto loans, maybe it’s to save for that home that you’ve been – that delayed gratification you’ve had for the last 10 years probably.

Maybe that’s something you want to go towards or maybe it’s starting a family. We see a lot of spouses that decide to go part-time because we have lower student loan payments. There’s a lot of flexibility that that money gives you. There’s an old adage that says, money is power, I don’t believe that’s true. I think options are power and money gives you options, right?

If you have the ability to switch to a lower monthly payment while still achieving this long-term forgiveness plan, it’s saving dollars in the long run but also giving you the option in a short-term to best utilize those dollars for your personal financial life, I think that that’s really powerful.

[0:13:54.5] TU: Great stuff, Robert. I really appreciate you sharing your expertise and experience you’ve had in working with clients at YFP Planning. Now, we’re going to transition here in PSLF success stories.

[INTERVIEW]

[0:14:05.7] TU: Kimberly, thanks for coming on the show.

[0:14:07.3] KG: Thanks for having me.

[0:14:08.8] TU: Before we talk through your PSLF journey, tell us a little bit about yourself including your journey into the profession of pharmacy, where you went to school and the work that you’re doing now?

[0:14:18.5] KG: Sure. I actually came to pharmacy a little bit later in life than most people. I went through my undergrad program like many, I think do, just kind of floundering around, trying to figure out what was a good fit, so undergrad took a little longer than usual. During one of those kind of times in my life where I just wasn’t sure of my direction, my mom suggested, “Hey, why don’t you maybe take a little time off school but maybe go work in a pharmacy?” we’re always interested in that aspect, she was a surgical nurse so I grew up around medicine.

I was like, “Okay, sure” so I went and applied as a clerk typist for a long-term care pharmacy in my town but ended up never taking the time off school, so I was doing full-time work and full-time school. I decided to get a business degree and just be done with it and then, I just never left the pharmacy, I worked as a clerk typist and then became med tech and I spent about eight years there and then I finally was like, “Well, I’m at the top of my game with what I can do here and I want more.”

So I decided to go to pharmacy school. I went, I started at Touro University of California in 2007 when I was 30 years old and graduated from there and am now after a stint in some in-patient pharmacy work, I am now anticoagulation pharmacist.

[0:15:44.5] TU: Very cool, thanks for sharing the journey. Tell us more about the amount of debt that you graduated with when you came out of Touro and how much was ultimately forgiven through PSLF?

[0:15:56.2] KG: I think, ballpark at graduation was right around, I don’t know, like 280, 290,000 when I entered repayment and then what ultimately was forgiven was about the $352,000.

[0:16:12.4] TU: Okay, obviously some interest that would have naturally accrued on that amount and then more was forgiven than the original balance and amount you had upon graduation.

[0:16:22.2] KG: Yes.

[0:16:22.8] TU: Okay, so our listeners know, we’ve talked a lot about PSLF in the show, they know that PSLF is one of many options when it comes to paying off student loans. My question here for you is, for folks that are – especially on that front end of making the decision about, is it PSLF, is it refinancing, is it something else.

That decision, although it’s very significant numerically can be paralyzing at times and so, tell us more about how you came to the decision to pursue PSLF, especially at a time, I would argue that there wasn’t as much information, tools and resources out there to support those that were on the PSLF journey?

[0:16:59.1] KG: Yeah, I was introduced to the PSLF program while I was still in school. There was an upper classman year ahead of me, had learned about it and was sharing the information about it and then I said, “That sounds like what I’m going to need to do” just because knowing how much I was going to graduate with what a standard repayment plan would look like. I didn’t know a whole lot about refinancing outside of the Department of Education kind of loan programs.

My loans had a variety of interest rates, anywhere from three to almost 8% just across the board and just looking at what extended repayment plan would be, was basically a mortgage payment in it of itself. I was like, “I’m not going to be able to do anything else with my life while I’m under this student loans” you know? The thought of, especially in the Bay Area of being able afford a house, have a child because childcare was going to be $1,500 a month. I was just like.

I’m already older than most of my classmates and this is just going to be part of my life but if there’s a chance that I can get it forgiven in 10 years and be done with it then that was what I was going to pursue, I really didn’t consider anything else.

[0:18:23.3] TU: That makes sense Kimberly, when I think of 280 to 290, especially at a higher cost of living area, out in California, other expenses, you mentioned childcare and so forth, you know 280 to 290, that’s a big monthly payment. You mentioned a mortgage payment that would be a really big mortgage here in Ohio but in California no.

[0:18:41.2] KG: Right, not so much.

[0:18:42.0] TU: Yeah, I certainly see why that directed you down the PSLF path. Fair or not, there still a lot of skepticism and uncertainty about PSLF and one thing I mentioned to you before we hit record is that, I think there’s some lingering’s of horror stories of early situations and missteps that folks took and that’s still having an impact on perspective PSLF individuals today that are considering that as an option.

My question here is, were there any uncertainties that you had, any challenges that you faced along the way? That is just a long process, it’s a lot of time and I think often, folks are like, “What if it doesn’t go right?” What if something happens along the away? You got to the finish line but any uncertainties or challenges along the way?

[0:19:26.6] KG: Oh yeah. There was a lot of just they were not really forthcoming early on. The servicer wasn’t ensuring that you were in the right type of loans, there’s yeah. I, for the first maybe year I was in, a couple of my loans weren’t in the appropriate format. I finally got the right information, consolidated all my loans but that restarted the 120-payment clock.

I was already a year later than into the program and so I was like, “Okay, well that’s fine, it’s just I’ll be maybe done in another year” but there was a lot of trepidation because nobody had reached that 10-year mark for a long time so we didn’t know how hard it was going to be, how many we’re going to be rejected. It was just blind faith, all we could do was make sure we were making payments on time in the right type of loan that we were certifying our employment.

I made sure that I was annually and any time I changed job, I changed job one time that I got my employment hours certified and submitted every year and made sure that everything was in line and cross my fingers. One thing that I didn’t realize, what was considered part-time, if one employer considers 32 hours a week full-time, that’s great but if your next employer doesn’t consider 32 hours full-time, then that doesn’t certify.

That is something you have to take into account when you’re thinking about changing jobs as well is that you know, does this job meet the requirement and/or is there going to be some payments that are going to be qualified, that just extends the timeframe.

There was a lot of learning on the go that had to happen and just kind of staying on top of everything and making sure that the documents are all in line was basically all I had to do and then once – 2017, I think was when the first people reached their 10 year mark and started doing their applications and oh my goodness, so many of them weren’t getting approved and for one reason or another, all the things that you started to hear and the reports and you guys were reporting on it, it was just like, “When my time comes up, what’s going to happen?”

Yeah and I think in the back of my mind, I was always a little worried about some administration’s going to come in and they’re just going to gut this thing and before I even get to that point, it’s not even going be in existence anymore. I had that anxiety as well.

[0:22:15.0] TU: Yeah, one of the things I shared with folks, Kimberly, when we were talking on this topic is that I think there’s been more angst previously about administrative changes that might come into program. I think that’s been eased more recently just because the tone has been a lot friendlier towards PSLF and backed up with some actions here in the last couple of years.

I’ve often said, I’m not sure that’s the biggest risk, I think the risk folks need to be thinking about is, what if for some reason I can’t find myself working for qualifying employer, you know? I think, what mobility or flexibility do I have if I need to pivot or move employers, I think that’s often something that folks need to be thinking about.

[0:22:53.9] KG: Right.

[0:22:55.2] TU: Kimberly, my last question for you is, one of the things I often encourage folks to be thinking about is, if you’re going to go into PSLF, go all in. The goal is to maximize forgiveness and minimize what comes out of your pocket. We certainly don’t want to be in the middle, right? Where we’re paying more than we have to and ultimately, those dollars could be forgiven and those dollars could be used elsewhere in the financial plan.

I think PSLF affords folks an opportunity if it’s a good fit for them to be able to pursue and prioritize other financial goals beyond student loan repayment. How did PSLF for you, help you be able to pursue other goals and was that a reality for your situation?

[0:23:33.3] KG: For sure. PSLF and being an income-based repayment, so a lower repayment than standard, did definitely free up some money just on the month-to-month basis and being able to have that meant that I could maybe move to a slightly lower cost of living area but still remain in California and purchase my first home with my husband and we had a child and we could afford to do all of that and then now without any, you know, having the forgiveness taken care of, now I can shore up the other parts of the financial picture.

You know, making sure that we’re set for retirement, making sure that the kids provided for, for his education and feel a lot more safe and financially sound, so it’s been a blessing.

[0:24:28.3] TU: That’s awesome. I was really excited when I heard the news of the $350,000 plus that was forgiven, so really excited for you for what lies ahead for the financial plan and thanks for taking time to come on the show and share your story. I really appreciate it.

[0:24:41.5] KG: Thanks for having me.

[INTERVIEW]

[0:24:45.0] TU: Ashley, thanks for coming on the show.

[0:24:46.3] AH: Thanks for having me.

[0:24:47.5] TU: Before we talk through your PSLF journey, tell us a little bit about yourself including your journey into pharmacy, where you went to school and the work that you are doing now?

[0:24:55.6] AH: Sure, so I came to pharmacy to pursue my love of working with people, my passion for healthcare, and really just my desire to give back and so that helper mentality really brought me to my career path of pharmacy and in terms of what that path looked like, I did all of my schooling at the University of Wisconsin Madison. I am a local, so that’s pertinent to know that I paid in-state tuition the entire time I was doing my seven total years of pharmacy course work there in Madison.

After graduation, I did do two years of residency in Minnesota to specialize in oncology pharmacy and so I graduated in 2011, so after my two years of residency, I took my first job in Chicago at Northwestern specializing in hematology, oncology as well as bone marrow transplant pharmacy and so I was an in-patient pharmacist there for about five or six years before I took another detour and discovered Informatics and so I am currently back in Wisconsin working for UW Heath and I am working in Informatics now, so it’s been a fun journey and I guess now I am somehow about 11 years out of pharmacy school.

[0:26:20.4] TU: I can relate to that as well. I mean, cool story of chemo training. Obviously you spent time specializing, transition to Informatics not one you commonly hear, so really cool, glad to hear you found that path that you enjoy. Tell us a little bit more about the amount of debt that you graduated with. You mentioned 2011, two years of residency. How much did you graduate and how much was ultimately forgiven through PSLF?

[0:26:41.4] AH: Sure, yes, so throughout – I mentioned I was in school for seven years in state but it was a pretty direct path and I worked my way through school as well and in spite of that, I had about $200,000 that I took out total in loans throughout that seven years, so that’s the grand total. Actually, I don’t even know if I looked at that number very closely until the last few years when things are really – when I was working with YFP and really starting to get serious about some things.

[0:27:15.1] TU: Our listeners know if they’ve been listening to the show for any time, we’ve talked a lot about student loans. I mean, they know that there is many options when it comes to paying them all. PSLF is certainly one of those options, so I am curious Ashley, how did you come to the decision to pursue PSLF especially I think at a point in time, 2011 when you graduated where the information tools, resources to support those that were on the PSLF journey just weren’t as good as there today, to be frank?

[0:27:40.4] AH: Yeah, I would completely agree with that. You know, I think that I sort of by luck even came across the fact that the program was available and new to me, so I truthfully don’t know that I knew a lot about my other options but I did know though was that as a part of PSLF that I had a chance of having my loans forgiven after 10 years and that my payments would remain income-based and so having done two years of residency, it made sense to me that those two years, when my payments were next to nothing would count towards those 10 years.

Then given the leg in recalculating payments, I kind of determined that almost half of my ten years, my payments would be extremely low and that actually ended up being true. I didn’t really hit what I would consider to be really high payments until the last three years of my PSLF, which luckily for me, two of those, almost two of those ended up being during the pandemic and so it was a lot of faith and believing that the program would work for me and knowing for me that I didn’t want to deviate from kind of the academic setting.

I think that was another consideration is I knew that I would be tied to a qualifying not for profit organization and for me that didn’t feel like a restriction based on what my projected career path looked like and so you know, given the amount of debt that I had, I kind of took a leap of faith and went for it. I will say I did encounter another professional who was able to tell me that I was doing all the right things to be in the PSLF program about four years in.

However, I did find that I had about $35,000 worth of loans four years in that weren’t in the program and so for me, that was a point where I was like, “Gosh, do I just pay it all off or do I continue in the program?” and what I ended up doing, my husband and I saved up $35,000 over the next couple of years and earmarked it for that portion of loan that wouldn’t be forgiven in my initial 10-year mark and so that was kind of my backup plan so that I could hopefully be done with all of my loans at 10 years regardless of what was all part of PSLF at that point.

[0:30:14.0] TU: That’s a common thing Ashley that we hear, where folks realize you know, several years in. I am hopeful as time goes on that that’s going to happen less and less. You know, I think that there’s more and more information out there but especially for folks that were early on in the PSLF, we have to remember 2008, you know, this was enacted legislatively 2007. 2008 was the first group that was really the beginning of the 10 years and so you weren’t too far off from the beginning of it.

So again, not as great of information that was available. Besides the 35,000 of loans that were not eligible and obviously was a wrinkle in the journey that you and your husband had to kind of work through, were there any other uncertainties or challenges that you faced along the way in the PSLF journey?

[0:30:54.0] AH: You know, I think that that was the main one. I was very – you know, I’m a pharmacist, we’re all type-A so I was very diligent about completing the paperwork. I was also very skeptical when the program did hit 10 years based on the very low number of people who are seeing forgiveness being successful but other than the late discovery of loans that weren’t consolidated, I think that that was the main hiccup.

You know, other than that, it’s just that anxiety and that uncertainty about not knowing if you are actually doing everything correctly and when you call the loan servicer, you get a different answer sometimes depending on who you talk to and that’s not a very good feeling and so that’s why I was very excited when I came across the YFP Podcast and I was able to start working with you.

I actually got a lot of reassurance that made me feel like I was doing all the right things, that I was doing everything in my power to ensure that I was keeping myself eligible and in a position to be forgiven when that day came around.

[0:32:01.3] TU: Yeah, maybe easy right now that we look back 10 years, you know? It may feel like, “Oh it wasn’t that bad but in the midst of it, you know, especially if there is five plus years ahead of some of that uncertainty, having that reassurance can be really valuable. Optimization of PSLF is something that we’re trying to talk more and more about. Yes, it is nice to have debt that can be forgiven and forgiven tax free, that’s great.

But there is also this whole other strategy of because you are not making as big of student loan payments, it allows other dollars to be put to work at other parts of the financial plan and you already mentioned earlier Ashley that because of two years of residency and because of the delayed timing of how that income-based repayment amount has increased. You made a comment about five years out of ten, we’re really at a pretty low loan payment amount, certainly much lower than what it would have been like the standard ten year.

[0:32:52.5] AH: Right.

[0:32:53.1] TU: Then you also had to adopt at that two years of pandemic and so you saw some great opportunity throughout that ten years because of the residency, because of the pandemic. My question here is, because you weren’t having to make massive student loan payments throughout that entire journey because ultimately it was going to be forgiven, did that allow you to optimize other parts of the financial plan that perhaps you might be playing catch up on now?

[0:33:14.9] AH: Yeah. I mean, I think it had a number of benefits allowing my husband, myself, and our family to do some things that we may not have otherwise been able to do and so in terms of just the payment strategy, I think it allowed my husband, for example, to work in a startup industry where maybe he wasn’t making his salary that he would have been if he had been working in a more corporate environment.

You know, I think the payment strategy allowed us to purchase our first condo in Chicago, which ended up being really great investment than when we sold it. It allowed us to purchase the home that we live in now and it also allowed us to kind of put ourselves in a financial position where my husband was able to purchase a gym that we now own and that he runs, I should say we own and that he runs.

I think the overall strategy has allowed us those opportunities really to kind of see some of our dreams come to fruition and now that we have this money that we’ve put aside in the event that the $35,000 worth of loans get forgiven, we have a big chunk that we can put to finish our basement, which is something that we didn’t really think was going to happen so soon and so yeah, I think overall the strategy and committing and staying in the program has had a number of benefits for our financial goals.

[0:34:40.2] TU: That’s excellent. I really appreciate you taking time to share your journey. Congratulations on getting to the finish line and wishing you and your family the best going forward, so thank you so much Ashley.

[0:34:50.0] AH: Thank you.

[INTERVIEW]

[0:34:52.8] TU: Kyle, before we talk through your PSLF journey, tell us a little bit about yourself including your journey into pharmacy, where you went to school and the work that you are doing now.

[0:35:00.8] KS: Sure, yeah. Thanks Tim, I am really happy to be on the show today and just give a little story about myself. So I am Kyle, I work in a hospital, a non-profit hospital system. I have been in that position for a little over 10 years. I graduated in 2011 from NEOMED and then I did my residency a year after that, so I’ve been kind of in the non-profit world for the last 10 plus years.

[0:35:22.7] TU: First graduating class of NEOMED, so exciting. That’s where our paths crossed back in the day when I started on faculty there. You guys had a great class and we had the opportunity to work together for a period of time there as well, so excited to get an update on what you’re doing as well as your success here with PSLF. Tell us more about the numbers, amount of debt that you graduated with Kyle and how much was ultimately forgiven through PSLF.

[0:35:44.1] KS: Sure. Yeah, I’ll kind of run through my numbers here. My total debt loan was $186,301.07. Just a little bit of breakdown on that, about 18,000 of that was from undergrad that I kind of rolled into the loan after I graduated. About a 168 or so, 160, 170 was from just pharmacy school going through that for four years because we were in a two plus four program and then after the $186,000 or so that was the principle, I also had accrued a little bit of interest. That number was $2,737 of interest, so if you look at the total, the principle plus interest that was recently forgiven was $189,038.72.

[0:36:28.4] TU: Awesome, love the specificity too, so tells a bit you are doing your homework along the way, which is obviously important when it comes to loans in general but specifically with public service loan forgiveness, making sure that we’re crossing T’s, dotting I’s. Now Kyle, our listeners know that there are many options when it comes to paying off student loans. I often tell folks when I am teaching this topic, you know, whether we like it or not, the system around student loans and the complexities, it is what it is.

It’s the hand that we’ve been dealt and so we’ve got to do our work to understand it and PSLF is just one of the many options that were out there. I am curious to know, how did you come to the decision to pursue PSLF where that was what you had thought was the best strategy for you individually especially at a point in time. You mentioned graduating in 2011 where the information tools and resources to support those on the PSLF journey just weren’t as readily available or good as they are right now.

[0:37:21.5] KS: Yeah, that is a great topic and one that almost every pharmacy student that’s graduating should have some serious discussions about is the repayment plan but for me, we started pharmacy school in the fall of 2007 and if you remember the program for PSLF was started in October 2007, so we were just hearing about this program and certainly nobody had been in the program 10 years to have anything forgiven, so we didn’t know much about it.

By the time I graduated in 2011, we were hearing more about the program and its availability and I always knew that I wanted to do residency, which in the hospital is most likely going to be a non-profit hospital depending on if you do one year or two year, you are probably going to have two years of non-profit work and I also knew I wanted to work in a hospital, so at the end when I graduated in residency and moved into a position, a clinical position and a shared position at NEOMED it was something that kind of fit the PSLF mold.

Where I would be working for a non-profit and as long as I work ten years and made my on time payments, everything should be forgiven. The option for me was I always kind of have it on the back burner that this might be a perfect repayment plan for me because I had already planned to go the non-profit route and work at a hospital and then it kind of just all fell into place with this and then certainly as everyone is aware, the Biden administrations, their work on expediting the PSLF program and making sure those –

You know, the intent of the program was true and I think that’s really what they did is make sure that if you work for a non-profit for 10 years that you are eligible for forgiveness, and they kind of wipe away some of the intricacies that maybe held some people back in the past.

[0:38:58.4] TU: That exactly is Kyle why we are seeing so many folks now come forward with, “Hey, we’ve been forgiven. We’ve been forgiven” it felt like it was at snail’s pace for so long and part of it has just been time. You mentioned the timeline of when this was an active legislatively, so we are seeing more pharmacist that are coming forward but also because of some of that work that the admiration has done to help expedite the process and remove some of the nuances that are there as well.

With that being said Kyle, there still is a lot of skepticism that I hear, a lot of uncertainty about PSLF and I think some of that comes from, you know, maybe some horror stories that have gotten over-glorified, some things that haven’t been updated in a period of time. Tell us about for you, any uncertainties you had along the way or challenges that you faced in the pursuit of PSLF?

[0:39:42.3] KS: Yeah, that is a big one for me, so my story, I mentioned kind of having a little bit of some undergrad debt when I started in residency, I made sure to file the paperwork right away and get into the program just in case the program was done away with that way. They usually grandfather people in that were in there but one thing that I didn’t realize is I had FFEL loans while I was in the program for about a year and then I had called them.

They basically said, “Well, you have to consolidate your loans into direct loans” and then at that point, it was probably 2012 when I did that and I consolidated them all together but in doing so, they also told me that’s going to push back my repayment date. Before the Biden administration updated their standards and how things will be forgiven, my repayment date or my payoff date was going to be May of 2023.

I still technically had 15 months from now to go but because they moved everything up and actually some of those payments the first year didn’t count then and they had to restart their clocks so to speak, so that’s one thing that I don’t think was the intent of the original program was to make it so difficult with the type of loan you had to be eligible for the program. I think that is one kudos to the Biden administration for trying to solidify that plan.

That hey, it really doesn’t matter what type of loan you have if you are working in non-profit for 10 years, you really should be a part of the program and I think they’ve done a really good job of that, so that was probably the biggest challenge, in the beginning, was that I lost some payment time. The other challenge I would say for anybody who is in the program is just make sure you’re – one thing I did was I filed my paperwork on the dot every year.

When I hit my anniversary at work, which for me was August 1st, every August 1st, I would file a new sheet with PSLF and send it to FedLoan to update my payment account and that way, any kind of mailings that they sent me, any kind of confirmations, I would have a file that I was tracking it along with them. I was religious to that, I did it every year to make sure how many payment accounts I had left and then I would know when my repayment date would be.

That was another challenge I think that as long as you’re on top of it, once a year is probably enough to do that but you don’t want to delay that because your payment accounts won’t be updated until you send in your sheet.

[0:41:55.8] TU: Great insights Kyle and one of the things that we like to talk about in the show is, when it comes to PSLF, often the strategy side of PSLF might get overlooked, and what I mean by that is that you know, typically the goal of PSLF is usually to maximize forgiveness and minimize what comes out of pocket and one of the advantages, therefore, can be allowing someone to pursue and prioritize other financial goals beyond student loan repayment if they have that mindset of what can I be doing to maximize forgiveness, minimize what is coming out of pocket.

For you Kyle, how did the PSLF strategy help you be able to pursue other financial goals for you and your family?

[0:42:32.7] KS: Yeah, another great thing that I think this program allows you to do to coincide with paying off the debt or being in the program is to prioritize other things that you want to do. In my case, just taking a step back for a minute is if you notice the numbers that I stated earlier, I didn’t pay a dime of principle through the entire ten years. My 186,000 and some change, that was the number that I graduated with and it didn’t come down one penny.

When you talk about maximizing public service loan forgiveness, you know, that’s ideally what you want to do. You want to have the most available to forgive at the end of the 10 years. One thing that my wife and I did is we ended up filing our taxes separately. We were in the old IBR plan, which I am not sure you’re allowed to get in anymore. I think they have updated and there is a new IBR plan.

That plan if you file separately, it will only look at my income as oppose to our total income, so we would file our taxes separately. Typically, that’s not advice that you would see for most tax professionals. For most people in the United States except in the scenario where you have student loans and you are in a program like PSLF and then you know, it is just allowed us to maximize some other things we did along the way knowing that hey, we’re making our payments, the payments count and now we can invest in other things like our IRAs.

My wife and I both have IRAs, we have 529 accounts for both of our kids that were started when they were born, and then we actually had somebody left over, so we started a taxable account so we kind of maximized retirement and then we were able to save for some other things, you know, just house renovations and things that probably wouldn’t be able to be done had we’ve been paying, understand the repayment plan, which would have ended up costing us about 800 or 900 dollars more per month.

[0:44:12.4] TU: 800 to 900 more per month, right? I think that’s where the numbers and the PSLF math can become so favorable. You highlighted so well Kyle, you know, how can you use that additional margin to expedite prioritize other goals, right? You talk about the tax strategy, super important, you know, college accounts, IRAs, 401(k)s, brokerage accounts and again, not to say having to wait until those student loans were gone to be able to pursue those goals, which we know is so important because of compound interest and time value of money.

Kyle, I really appreciate you taking time. Congratulations, excited for you and the family to get through this important milestone and really appreciate you taking time to come on the show.

[0:44:51.2] KS: I’m glad to come on and just wanted to at least give some evidence that the PSLF program can work for everybody and those are in it to stick with it and make sure you’re trying to maximize the amount forgiven at the end.

[0:45:03.2] TU: Thanks Kyle, I appreciate it.

[0:45:05.0] KS: Thank you.

[END OF INTERVIEW]

[0:45:05.6] TU: Well, as we wrap up today’s episode hearing about some PSLF updates with lead planner, Robert Lopez, from the YFP Planning team as well as three PSLF success stories, now is the perfect time as we await the end of the administrative forbearance to make sure that you’ve got your student loan repayment plan knocked down.

You’ve heard firsthand through these stories about why identifying the best repayment plan, whether it be PSLF, refinancing or another repayment option is so important to make sure that you’re optimizing your student loan situation and considering it as a bigger part of your financial plan.

That is why we’re excited to have a one-on-one student loan analysis service that is offered by the team at YFP Planning that is specifically focused on having you identify the best repayment plan for your personal situation.

For this service, you’ll work directly with one of YFP Planning certified financial planners to inventory your loans both federal and private, evaluate eligible repayment options including student loan forgiveness, income-driven repayment, private refinancing and ultimately determine that best repayment strategy for your personal situation.

You can get started by visiting yourfinancialpharmacist.com/sla. Again, that’s yourfinancialpharmacist.com/sla and you can use the coupon code, “YFP” for 10% off.

[DISCLAIMER]

[0:46:25.4] TU: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and it is not intended to provide and should not be relied on for investment or any other advice. Information of the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

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

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

[END]

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YFP 247: 10 Common Financial Mistakes Pharmacists Make

Posted on March 17, 2022November 2, 2022 by yfpadmin

10 Common Financial Mistakes Pharmacists Make

On this episode, sponsored by APhA, YFP Co-Founder & CEO, Tim Ulbrich, PharmD, talks about ten common financial mistakes pharmacists make.

Episode Summary

In this episode, Your Financial Pharmacist Co-Founder & CEO, Tim Ulbrich, PharmD, flies solo to dive into ten common financial mistakes that pharmacists make. Tim talks through the math behind the age-old retirement advice that we have all heard, “save early and save often.” He discusses some common mis-prioritization of investments that leave tax savings on the table, like prioritizing non-tax favored investment accounts. Tim further discusses two common student loan mistakes that can cost folks tens of thousands of dollars and in some cases, much more than that; paying too much interest and not maximizing PSLF. Tim shares about the importance of having an emergency fund, protecting your income, and saving for your kid’s college in the correct order. He details common financial missteps such as accepting that income is fixed (because it will change) and failing to or delaying retirement savings, plus some long-term impacts of each. Tim then wraps up with another look at tax planning and how proper tax planning each year (not just tax filing) can affect the financial plan. Lastly, Tim explains how having a financial planner that does not have your best interest in mind can be one of the biggest mistakes that you don’t have to make.

Key Points From This Episode

The number one mistake on our list: paying too much interest on your student loan debt.
Tim shares the way to shift your mindset away from the ‘monopoly money’ feeling.
Diving into student loan strategy and the different buckets to consider.
Talking about service loan forgiveness and PSLF strategy, and how to maximize these.
Why emergency funds take a back seat and how to avoid delaying getting one.
Some tips on starting your emergency fund.
Mistake number four: protecting your income.
Accepting your income is fixed, and factoring in inflation and debt loads.
Putting numbers to the retirement savings saying of ‘save early, save often.’
Investing in a way that maximizes your tax savings!
A reminder of why it’s crucial to create a tax strategy and do your tax planning.
Talking about saving out of order for kid’s college.
How to get a certified financial planner who has your best interests at heart.

Highlights

“We tend to underestimate how much interest we’re going to pay over the life of a loan and therefore, we tend to underestimate how much we’re going to actually pay out of pocket.” — Tim Ulbrich, PharmD [0:08:37]

“When it comes to insurance, the balance point here is we want to not be underinsured, we want to make sure we can protect the time but we also don’t want to be over-insured.” — Tim Ulbrich, PharmD [0:19:23]

“You can borrow for your kid’s college, but you can’t borrow for your retirement.” — Tim Ulbrich, PharmD [0:30:48]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

This week, I fly solo to talk about 10 common financial mistakes that pharmacists make, no judgment as I’ve made many of these mistakes myself. Some of the highlights from today’s show includes talking through two common student loan mistakes that can cost folks tens of thousands of dollars and in some cases, much more than that, the math behind the age-old advice that we’ve all heard, save early and save often, as well as talking through some common mis-prioritization of investment that leaves tax savings on the table

Now, before we hear from today’s sponsor and then jump into the show, I recognize that many listeners may not be aware of what the team at YFP planning does in working one-on-one with more than 240 households in 40 plus states. YFP planning offers free only, high-touch financial planning that is customized for the pharmacy professional. If you’re interested in learning more about working one-on-one with a certified financial planner may help you achieve your financial goals, you can book a free discovery call at yfpplanning.com.

Whether or not YFP Planning’s financial planning services are a good fit for you, know that we appreciate your support of this podcast and our mission to help pharmacists achieve financial freedom. Okay, let’s hear from today’s sponsor, and then we’ll jump into the show.

[SPONSOR MESSAGE]

Today’s episode of Your Financial Pharmacist Podcast is brought to you by the American Pharmacist Association. APhA is partnered with Your Financial Pharmacist to deliver personalized financial education benefits for APhA members. Throughout the year, APhA will be hosting a number of exclusive webinars covering topics like student loan debt payoff strategies, home buying, investing, insurance needs, and much more.

Join APhA now to gain premier access to these educational resources and to receive discounts on YFP products and services. You can join APhA at a 25% discount by visiting pharmacist.com/join and using the coupon code, YFP. Again, that’s pharmacist.com/join and using the coupon code YFP.

[INTERVIEW]

[0:02:08.5] TU: Hey everybody, Tim Ulbrich here, welcome to this week’s episode of the Your Financial Pharmacist Podcast. I’m flying solo this week and we’re going to talk through 10 common financial mistakes that I see pharmacists often making, that we see pharmacists in the YFP community often making. As I mentioned in the introduction, there is no judgment here in these mistakes.

I’ve made many of these mistakes myself. My hope with this episode, through sharing some of those experiences and other common mistakes that we see folks making, is to hopefully prevent those, right? For others that are perhaps on this journey towards achieving financial freedom.

Before we jump into the 10 common mistakes that we’re going to talk about in today’s episode, I am not going to be covering a few things that are worth noting because I’m going to assume that you’ve got these bases already covered, right? Those would be things like having a budget and being intentional with your spending, so important, right?

We’ve ultimately got a certain amount of income to work with each month, we’ve got a lot of things that are competing for our attention financially, various goals, various expenses and so that budget is going to allow us to be intentional with our spending. I’m going to assume that that is already in place.

I’m also going to assume that we’ve either eliminated any high-interest rate, credit card debt that is revolving each month in a current interest or we’re going to avoid that if we possibly can, right? Very important is, we look at how the impact of that interest can really hurt us as we look at trying to achieve other goals.

Finally, of course, we need to minimize our lifestyle creep, right? For many pharmacists, we know that we see, certainly, a great income overall but that income often can be relatively flat throughout one’s career. Expenses tend to creep up on us over time, perhaps families grow, home expenses, other types of things throughout one’s career and so, we got to do our best to keep those expenses at bay and so that we can focus those limited dollars that we have on other goals each and every month.

Again, things I’m not going to cover, having that budget, being intentional, spending, avoiding, eliminating credit card debt, minimizing lifestyle creep. Now, what we are going to talk about are some common student loan mistakes, we’re going to get really tactical with some numbers that highlight why these mistakes can really have a significant negative impact and really ultimately leave a lot on the table that could be put elsewhere in the plan.

We’ll talk a little bit of our emergency funds and protecting the income. We’ll talk about a couple of things in the long-term savings, retirement side, in terms of prioritization and delaying of savings. Then I’ll wrap up by talking about tax planning as well as looking for a planner that has your best interest in mind.

All right, I hope you’re ready, I’m going to go quick, we’re going to hit a lot of information and we’re going to reference several resources throughout the show and we’ll of course, link to those who you could deep it to those deeper after the recording.

[0:04:49.0] Number one mistake on our list is paying too much interest when it comes to paying off our student loans. Now, you’ve heard me say a hundred times on this show, that pharmacists are facing significant student loan debt. The cost of 2021 to be exact, median debt load, have $170,000 as reported by the American Association Colleges of Pharmacy Graduating Student Survey.

Now, the good news is for the first time in over a decade, we’ve seen that number come down was $175,000 for the class of 2020. Bad news is, that’s still $170,000 and when we look at how interest accrues on a $170,000, those start to be really big numbers. One of the things I often say is that for me in my journey of paying off debt, when I was in school and even early on in the repayment journey, to be frank, it felt a little bit like monopoly money, right?

Once we get into active repayment, once we see the impact of that interest accruing, it starts to become really real, really quick. One of the ways I like to shift that mindset away from that feeling of monopoly money is to calculate the daily interest that is accruing on our loans. The way you do that is take your loan balance that currently remains, you multiply it by your interest rate and you divide it by 365 days.

If you were to have $170,000, let’s just say the Median debt load, $170,000 if we multiply that by 6% and assume that’s an average interest rate across our federal loans, and we divide them by 365, we’re looking at about $28 per day of interest that is accruing. $28 per day. Now, of course, as that $170,000 gets paid down to 160, 150, 140, et cetera or, and/or, we’re able to reduce that interest rate either through our process of refinancing or perhaps some forgiveness opportunity.

Then of course we’re going to see that impact of interest go down but that really is the opportunity cost that we need to be thinking about. $28 per day, if we look at the median debt load of a pharmacy graduate that is going towards interest alone as they begin that repayment period.

[0:06:47.8] One of the feelings I had early on in my repayment journey is I felt like I was spinning my wheels in terms of making substantial monthly payments but not feeling like I was really making a whole lot of progress and momentum towards getting that debt load paid off.

The reason that was and the reason that is for many of you that might be listening to this show, is because the amount of that payment that goes toward interest, right? When we look at big debt loads like 170, 180, $200,000 or perhaps even more at interest rates, six, seven percent, maybe higher on some private loans, what we see is pretty big monthly payments but we also see a lot of that that is going directly towards the interest.

Let me give you an example. If somebody has $170,000, again, let’s just use a 6% average interest rate, if we assume they’re going to pay that off over a 10 year period, that would be the standard repayment option, 120 fixed monthly payments, what we see is a monthly payment of about $1,900 per month for 120 payments or 10 years. $1,900, fixed payment for 10 years.

Now, of that $1,900 that first payment, about $1,000, 45% or so is going to go towards principal and about $850 is going to go towards interest. Right out of the gates, we see that in a standard 10-year repayment about half is going to put a dent in the actual principle and about half is going to go towards interest. And of course, with each monthly payment that we make, we’re going to see a little bit more going toward principle and a little bit less going towards interest.

[0:08:19.2] This is why folks often feel like, “Hey Tim, I’m making big monthly payments but I don’t feel like I’m progressing as quickly as I would like to in terms of getting this paid off” and that’s because of the interest that is accruing on those payments.

One of the common mistakes here that we’re talking about in terms of paying too much interest is we tend to underestimate how much interest we’re going to pay over the life of a loan and therefore, we tend to underestimate how much we’re going to actually pay out of pocket.

I see this all the time and talk with the pharmacy students, they may say, “Hey, I’m borrowing $20,000 a semester” let’s say for tuition cost, the living expenses, they multiply it by eight semesters and they think, “Hey, that’s roughly my student loan debt number.”

Now, what they’re forgetting is of course the interest that’s accruing while they’re in school, outside of administrative forbearance period, such that we’re in right now, and they’re also not including the interest that’s going to accrue while they’re in active repayment, right?

If we’re looking at a 10 year, perhaps for some it’s even a little bit longer repayment journey, then we’re going to see a significant amount of interest that’s also accruing throughout the life of a loan.

That’s why often, folks look up and say, “Wow, that’s a lot more that’s getting paid back than I really had anticipated was going to initially be the case.” What we want to be thinking about here as we talk about this first common mistake, paying too much interest is, what can we be doing to minimize the interest that we’re paying?

[0:09:38.9] That’s where we really get into student loan repayment strategy, right? A topic we have covered, lots of different ways on this show and there’s several different buckets that we need to consider.

That could be tuition reimbursement programs, forgiveness programs, either public service or nonpublic service loan forgiveness programs or we’re going to pay them off but we have an option perhaps to move our loans into the private sector through a refinance that’s going to help us reduce that interest.

The first couple of areas that come to mind if I’m thinking about, “Hey, how can I avoid paying too much interest?” is number one, could I have somebody else pay the bill, right? That could either be through a tuition reimbursement program or through forgiveness, whether that’s PSLF offer or non-PSLF, if that’s not viable or of interest, then perhaps, might I be able to reduce my interest rate through a process of refinancing.

One of the things that we want to avoid is staying in a status quo position in terms of staying in the federal system, paying a high-interest rate, or paying a high private rate, if there’s a better option out there, whether that be forgiveness or whether that be considering a refinance.

A couple of things to think about as we talk about that first mistake of paying too much interest and I’m going to reference a resource here where you can dig more into student loan repayment strategies to evaluate that further.

[0:10:50.9] Number two mistake on our list of 10 is not maximizing public service loan forgiveness. Now, we have talked about this on the show extensively but I feel the need to continue to shout from the mountain top about this topic because there’s a lot of folks that maybe have the option or pursue public service loan forgiveness and for whatever reason aren’t making that choice or folks that are kind of half in and they’re half out, right?

We’re leaving something on the table. When it comes to public service loan forgiveness, assuming that’s the right play for you and your personal financial situation, if we go that pathway, the goal is optimize and maximize forgiveness and minimize what’s out of pocket, right?

When I say, the common mistake here is not maximizing PSLF, what I’m referring to is that we’re leaving something on the table, either we’re paying more interest that we could have forgiven, or/and potentially, we’re not optimizing certain situations that would allow us to be able to also save through our forgiveness period.

One of the things we need to do here is actually break down the numbers of what this means for your personal situation. Now, I’m not going to go through the rules of PSLF, again, we’ve talked about that extensively on the show before, highlights here, we have to work for the right type of employer so 501(c)(3), not for profit or federal government agency or organization.

You have to be in the right kind of loan, so a direct loan, we’ve had some provisions with the Biden administration that have allowed some forgiveness and latitude on that, we’re going to talk about that more in an upcoming show. You have to be in the right repayment plan, which is an income-driven repayment plan.

[0:12:22.8] You have to make 120 payments and be consecutive but 120 qualifying payments before you’re ultimately applying for and receive tax-free forgiveness. Now, one of the things folks often omit, when they’re thinking about optimizing PSLF is really trying to figure out what can I be doing to pay less towards my student loans so that more is forgiven and that really gets to how the monthly payment is calculated towards your student loans when you’re in PSLF through an income-driven repayment plan.

The formula that is used is they take an amount that’s called your discretionary income and that is included of your adjusted gross income, so your taxable income reported on your tax returns, so your AGI, minus 150% of the property level, that is your discretionary income and then that gets multiplied by a certain percentage.

Just by definition of that calculation, there’s some things that we can do if we look at that discretionary income. That AGI minus that 150% poverty level, hopefully, you’re asking yourself, “What could I be doing to lower my AGI?” right? We don’t want to make less money but, “What I could be doing in terms of optimizing strategies to lower my AGI so that I can pay less towards my student loans, increase the amount that’s forgiven, and perhaps also, move forward other financial goals at the same time?”

What we know, what you know from listening to the show is there are strategies that we could do to lower our AGI, right? We think about accounts like 401(k) contributions, 403(b) contributions, HSA contributions. This is where we get to the strategy and the numbers start to become pretty wild in terms of not only optimizing what is forgiven tax-free but also, what could we be putting towards investments that over this repayment period of 10 years with PSLF, we also take advantage of compound interest and compound growth over that period of time.

[0:14:16.0] You know, it doesn’t take a whole lot of whole numbers in terms of putting money away at three, five, seven percent of compounded growth each year. Again, it’s not just the tax-free forgiveness that of course is a huge benefit but also, what can we be doing to moving forward in accelerating our investment plan. That’s the second mistake, not optimizing our PSLF strategy.

Now, a couple of resources I want to point you to here. Student loan repayment, you’ve heard me say it many times, one of the most important decisions pharmacists are going to make early in their career, one that we don’t want to walk into blindly, one that we don’t want to replicate what somebody else is doing that may not be a good fit for our situation.

This decision can be the difference, easily of tens of thousands of dollars, if not more, based on the option you choose and so, I really want you to invest the time and the energy to understanding this loan repayment options, as nuanced as they are. We’ve got a great comprehensive resource, The Ultimate Guide to Pay Back Pharmacy School Loans. It’s a free blog, comprehensive, almost like an ebook, to be honest, you can download that, read that blog at yourfinancialpharmacist.com/ultimate and we’ll link to that in the show notes.

Now, for those of you that are saying, “Hey, the information is great but I want one-on-one help with an expert that knows this in and out.” We do have a one-on-one student loan analysis survey that pairs you up with a YFP Planning certified financial planner and the goal of that is to analyze all of your options and ultimately decide on the best repayment plan for your situation.

You can learn more about that service at yourfinancialpharmacist.com/sla. Again, yourfinancialpharmacist.com/sla. All right, that’s number two, not maximizing PSLF.

[0:15:57.3] Number three is delaying the emergency fund. Now, we just came off of talking about student loan repayment, right? That’s a gorilla that is often in the room. Many folks are also trying to think about saving and investing for the future, perhaps there’s a home purchase, kids that might be involved, kid’s college, the expenses, and the list of expenses goes on and on.

Sometimes, the emergency fund can take a back seat for a couple of reasons. Number one, it’s not very exciting, when you think about making progress on our debt, to become ultimately debt-free whether that’s by paying them off or forgiveness or saving for investing for the future.

Those are typically a little bit more exciting goals to be thinking about. Putting money away in a savings account that’s going to earn minimal but not too exciting amount of interest and it’s there if we need it but hopefully, you don’t, not super exciting, right?

This often may fall by the wayside but the purpose and the goal of that emergency fund is to protect the financial plan when, not if, but when an emergency happens, and work from a position of financial strength with the rest of the plan, right?

[0:16:57.2] This could be a short-term job loss, gap of employment, this could be a health emergency, an emergency with the home, the list of things that could be involved here obviously go on and speaking from personal situations, something will come up at some point, probably not too distant in the futures that is going to require you to tap into this emergency fund.

Generally speaking, our target here is three to six months’ worth of essential expenses. Not to say three to six months’ worth of income but three to six months’ worth of our essential expense because there can be a place where we have too much in this emergency fund. Obviously, we want to be comfortable with that amount but too much means opportunity cost of dollars that could be used elsewhere in the plan.

Now, in terms of where to put it, generally speaking, we’re going to be looking at a long-term savings account, a money market account, somewhere that we can get to the money, it’s a liquid, it’s accessible, it’s running a little bit of interest more than you’re going to see in a checking account, typically which is closer to zero.

Maybe you’re going to getting 0.4, 0.5, 0.6 right now, not too exciting, we’re getting a little bit of interest but it’s a liquid, it’s accessible, this is not the place we’re trying to take a risk with our financial plan, right? We’re going to do that in the savings and investing for the future.

[0:18:05.9] Now, one of the tips that I could share with folks is I think it’s incredibly helpful to get these dollars out of your checking account, right? This really gets to the intentionality of the financial planning.

If we have a bunch of money lumped into our checking account that is for our month-to-month expenses and then we say, “Yeah, I’ve got some of that, that’s earmarked also for an emergency fund,” get it out of the checking account, put it in a separate savings account. Number one, out of sight, out of mind.

Number two, we’re really going to call that account an emergency fund and that’s going to show us our intentionality towards building that and protecting it and getting that out of our month-to-month checking account where we’re either doing our expenses or that we have tied to a credit card where those expenses are charged, so that’s number three.

[0:18:44.0]: Number four is not protecting your income and this obviously gets to a whole laundry list of types of insurance we need to be thinking about including health, home, auto, renters, and so forth, professional liability.

The two that I just wanted to touch on briefly here are term life and long-term disability, and one of the things I often share with pharmacists is “Hey if you are going to do the hard work to really figure out how we’re going to manage just a $170,000 student loan debt if you are going to do the hard work to build a nest egg and a retirement portfolio, we’ve also got to invest some time to make sure we’re playing defense so we are preventing the catastrophic from disrupting that progress in our financial plan. “

When it comes to insurance, the balance point here is we want to not be underinsured, right? We want to make sure we can protect the time but we also don’t want to be over-insured, which is something we often see folks might be in a position of a policy that has been sold to them that is not necessarily coverage that they need or that is in their best interest.

When we are talking about term life insurance what we are talking about here is insurance that would be able to replace your income and what that income provides in the event that you were unexpectedly passed away, right? We’re big advocates of term life insurance. Other types of life insurance out there are whole life, permanent, value types of policies not to say that those don’t have a place anywhere but for the vast majority of folks that we talk with, a coverage with a term life insurance policy might be a 20 or 30-year term.

A million, two million dollars, it really depends on your personal situation but that is going to allow for an affordable monthly payment that is a fixed monthly payment that is going to then allow us to free up dollars to be able to put towards other parts of the financial plan.

[0:20:24.9] In terms of a term life insurance by definition, let’s say somebody buys a 30-year term policy for a million dollars and they’re 30 years old, they are going to pay a monthly or annual premium, depending on how the policy is set that is a fixed monthly payment over that policy length, so it will be a 30-year policy in this case. From 30 to 60 years old in that situation, they would pay a monthly or annual premium.

Now, if they were to die unexpectedly at some point, so let’s say at the age of 50 that person passes away, well at that point their beneficiary would receive the money that’s known as the death benefit and that would be a tax-free policy that would be paid out to the beneficiary. Now, if they don’t die in that 30 year period, which is a good thing that’s the goal, a term life insurance policy, you’re paying those premiums on but you are not going to get those dollars back, right?

If we get to 60, we’ve made it, we are still alive at that point, the policy ends and we are not going to recoup any of those dollars. We are really preventing things on the catastrophic side. We are not looking at this as an investment vehicle. Now, on the disability side, what we are talking about here is really trying to address a scenario where what if you are unable to work as a pharmacist because of a disability?

Car accident, chronic illness, whatever it may be, and obviously at that point, you are disabled and so you are unable to work, in that case, your expenses still live on but your income now here is in jeopardy. A long-term disability policy is the one that we’re often referring to here, again, monthly or annual premium, typically a percentage of your salary that you are going to purchase a policy for.

It could be a five-year, 10-year, 20-year policy up to the age of 65 so it depends on the type of policy, lots of nuances here to think about and then if you were to become disabled, there is going to be known what’s an elimination period, which is the time period between when the disability happens and when your policy kicks in and you have to self-fund that period. It might be 30 to 180 days depending on the policy and then after that point, your monthly policy kicks in to help replace your income.

[0:22:16.8] This is one of the areas we see pharmacists often overlooking and both with term and long-term disability, you may have some base coverage that is provided by your employer. It works a little bit different on the tax side of things of how that benefit is taxed or not taxed depending on where the policy lies and how the premiums are paid and really the question here is, what additional coverage might we need beyond what we have offered through our employer?

If you go to yourfinancialpharmacist.com/insurance, we’ve got two additional resources pages on term life and long-term disability where you can learn more about those and see where that fits in with your financial plan. So that is number four, not protecting your income.

[0:22:57.1] Number five is accepting that your income is fixed. Now, many pharmacists graduated in 2008. If you look at the average of pharmacists in 2008 versus what it is here in 2022, if you factor in inflation, not a whole lot has changed, right? Pharmacists tend to make a great income coming out of the gates but depending on the area of practice that they are in, that income may be relatively flat throughout their career.

All the while our expenses are going up and we also see debt loads continue to creep up through that time period. One of the things we want to be thinking about here is how can we potentially maximize our income, right? This would be a benefit to both diversify your income, so I talk with many pharmacists that might let’s say, full-time at a community pharmacy pick up some PRN hours at a hospital pharmacy so they have their foot in the door at a couple of locations.

Again, additional income but also to diversify, pharmacists that are working on side hustles and doing some medical writing or other businesses to generate additional revenue, also areas of interest. And so this could help us diversify but also can help us accelerate our financial goals, so lots to think about here and this really is very much an individualized decision and we’ve got a great resource available, 14 Extra Ways That Pharmacists Can Consider Making Additional Income. That is a blog that we have in the YFP blog, we’ll link to that in the show notes with this episode.

[0:24:19.5] Number six is delaying retirement savings. Now, many of us have been told by parents, grandparents, perhaps multiple people that you need to be saving as early and often as you can, right? Time value of money, compound interest, as Albert Einstein said, it is the eighth wonder of the world and so what we’ve been told, what we’ve been taught is the longer we delay our savings, the harder it is going to be to catch up.

I want to put some numbers to this because I think sometimes we hear that, were like, “Yeah, yeah, easier said than done. You don’t have $170,000 in student loan debt, you aren’t trying to purchase a home and doing all of these other financial goals at the same time” but the math here is really compelling.

If we look at a pharmacist who is making about the average salary of a pharmacist that’s out there if we assume they are putting away about 15% of their income and they are getting an average annual rate of return on their portfolio around 6%. So if you look at the historical rate of return of the stock market around 10% net of inflation closer to 7% and so if they are putting away 15% of their income and they have a desired retirement age of 60, what we see is by putting away about 15% of their income each and every year, if they start at the age of 25, when they get to the age of 60, they’re going to have about 2.6 million dollars saved.

Now, if they wait to the age of 30, that 2.6 turns into about 1.8. If they wait to the age of 35, that 2.6 that could have been if we started at 25 turns into 1.2 and if we wait to the age of 40, that 2.6 turns into $800,000. So that value, that advice is real, right? The earlier we invest and save, obviously we are going to have more time for that money to grow and to do its thing in terms of compound interest throughout many, many years.

Again, we’re just talking about one factor here in a vacuum as we talk about delaying retirement savings. We of course have to zoom out and consider this with other financial goals that we’re working on but ultimately, as we are able to do. We want to be focusing on starting as early as we possibly can.

[0:26:17.9] Number seven here is prioritizing non-tax favored investment accounts. Now, we talked in episodes 72 through 75, we did a series on kind of an investing 101 series meant to be a crash course for those that are wanting to learn more about investing in terminology, some of the biases associated with investing, some of the information on fees, types of accounts, 401(k)s, IRAs, et cetera and so that is a great primer if you want to go back and listen to episode 72 through 75.

What I am referring to here is investing potentially out of order. Now, this is certainly not investment advice, right? We don’t know anything about your personal situation but there is some low-hanging fruit from a tax advantage investing standpoint, right? When you think about 401(k), 403(b), employer-sponsored retirement accounts especially when we think about employer match, free money, right? We have all been told that before.

If we keep working down there, we think about things like health savings accounts, triple tax benefits. We have talked about that on the show before, Roth IRA accounts. Again, another account where we might be putting dollars in that have already been taxed but they’re going to grow tax-free, we pull them out without a future tax burden, so if we are contributing to let’s say a brokerage account, whether it is through a tool like Robin Hood or Acorns or Betterment or whatever be the app or tool. But we are not yet taking advantage of some of those other things, the question we want to ask ourselves is, are we investing in a way that’s going to allow us to maximize our tax savings, right?

Are we investing in appropriate priority? There certainly is I think a place and a role for a brokerage or taxable account but let’s be thinking about the order in which we are doing that relative to employer retirement accounts, IRAs, HSAs, and so forth.

[0:28:02.1] Number eight here is tax filing without tax planning and strategy. Now, we’ve been hitting on this in the show in the last three to six months, shout out to the team at YFP Taxes doing a great job servicing the clients of YFP planning as well as some new clients here in 2022 and what I am referring to here is someone who is doing tax preparation but is not thinking more strategically on the tax planning side.

So, if we look at a pharmacist on average, if they are making an average income working 40 years or so, and if we adjust up that salary for inflation of pharmacists throughout their career as going to earn about $9 million in their career. But only about six million of that depending on their tax situation is going to hit their bank account, so that delta of $3 million is what we want to be thinking about to pay our fair share, right? But we want to optimize how we can be able to use dollars elsewhere if we can allocate those towards a financial plan.

Tax preparation, that’s what we are all doing, we’re required to do it, right? If we don’t file our taxes by April 15, the IRS is going to be coming knocking on our door unless we file for an extension. Tax preparation is historical. It is looking backward, so it limits the impact that we can truly have on our tax liability because things have been done at that point in time, so it is mechanical, we have to file, it’s looking back.

Where tax planning is more of the forward-focus strategic part of integrating the tax plan with the financial plan. Here is where we can avoid common issues in advance, right? We can look at how we can adjust withholdings, do some projections, how can we optimize our savings accounts, how might we look at our savings and philanthropic contributions to be able to optimize those as well.

Lots of things to consider, there’s optimization strategies around long term savings accounts HSAs, 529s, we know there is tax saving strategies with PSLF, lots of child-related optimization strategies, child care credits, dependent care FSAs, maximizing charitable contributions, you know really the list goes on, right? If we are able to do more of that planning and strategy work and look ahead, then we’re obviously able to take advantage of those, so that when we do the filing, we know we have optimized the situation throughout the year.

I would reference folks to episode 233, where our director of tax, Paul Eikenberg and I talked about some tax moves to consider from an optimization standpoint and we’ll link to that in the show notes.

[0:30:27.2] Number nine here is saving for kids college out of order. Guilty as charged, right? I found myself in this trap and as I reflect on that, I think about, “Well, why was that the case?” right? I knew about tax advantage, retirement vehicles, I knew that I have been given the advice over and over again that you can borrow for college, you can borrow for your kid’s college, but you can’t borrow for your retirement, so why was I not focused on the correct order of that?

The more I thought about that, was that it was my reaction to my own journey of not wanting to see my kids incur a couple hundred thousand dollars of student loan debt, right? I think for many pharmacists, that may be the same thing where they are going through their own journey, they are living through that, obviously, the pain of it may be right in front of them right now. And therefore, they might be looking at saving in a 529 account with good intentions, but are we doing that in the right order, right?

This is a great example of where we don’t want to look at one part of the financial plan and the silo because if we just answer the question, saving for kid’s college in a 529, is that a good financial move? Sure, there is tax benefits in doing that especially if we look at the potential growth over 10, 15, or 20 years. If we zoom out and look at what else we’re doing to financial plan that may or may not be the move to make at that time.

We talked on episode 211, the ins and outs of the 529 college savings plans and we’ll link to that in the show notes for more information.

[0:31:51.5] Finally number 10, hiring a planner that does not have your best interest in mind. Now full disclaimer of the bias of the planning services that are offered by YFP Planning, we wholeheartedly believe in fee-only financial planning and we’ll talk about that here in the moment. Obviously, I have a bias towards the services that the team at YFP planning offers, so we need to keep that in mind as we talk about this tenth point.

Now, we talked on episodes 15, 16, and 17 way back when we did a three-part series on working with a planner, what to look for, questions to ask and we also talked about why fee-only financial planning matters. When you think about working with a financial planner here, is the term financial planner or adviser in it itself does not necessarily mean something that we can hang our hat on, right?

We, in the pharmacy world, we’re used to the PharmD board certifications and residencies. We know exactly what those credentials mean and there is a relative amount of consistency in those credentials, so that when someone says, “I completed a PGY-1 residency.” We know what that means.

When it comes to financial planning, financial advisors, wealth managers, wealth advisers, there are a wide variety in terms of education, training, and experience. And what those services look like that will inform and help inform whether or not those may be a good fit for you. So we need to be looking at, what is the educational background of these individuals, what is the credential, how are these individuals regulated?

We firmly believe in the certified financial planner credential, we’ve got five CFPs on the YFP planning team. The CFP is certainly not a credential that is required to do financial planning but very robust in terms of the requirements of the educational portion of the CFP or rigorous examination to pass as well as an experiential component that we would think of as like appys in terms of pharmacy education.

[0:33:42.7] Other things to consider here, I have mentioned the term fee-only, so fee-only by definition is that you are paying the planner and the planning team for the advice that they are giving, so they are not getting paid by recommending products such as insurance or investments where they’d be on a commission, and obviously a potential bias on that recommendation. And then we also really encourage folks to look at whether we are or are not the solution that is the best fit, someone who really offers comprehensive financial planning.

The reason that’s important is that historically, the industry has focused a lot on investments and insurance, you know, think of folks that might be a little bit further along in their career, they have a substantial amount of assets to manage. And so, often there may be a minimum of assets to work with a firm, but when it comes to other things that might be of significance like student loan debt, like some of the early insurance discussions.

Like, “Hey, I am thinking about starting a business or a side hustle” or “I’m looking at purchasing a home or investing in real estate” or “What about the estate plan?” or “What about the tax part of the financial plan?” Making sure the adviser regardless of the stage that you are in of your career, making sure the adviser and the advising team has the expertise and the experience to be able to serve you and the needs that you have for your financial plan.

When it comes to working with YFP Planning, we’re really proud of the work that the planning team does. I mentioned five CFPs, shoutout to our lead planners, Robert Lopez and Kelly Reddy-Heffner who lead those two teams, working with Robert is Kim CFP and Savannah, working with Kelly is Christina, CFP, and Sarah. And then we also have a tax team that supports the financial planning.

We are currently working with about 250 households and over 40 states all across the country, very robust in terms of the comprehensive nature of the plan. For folks that are interested in learning more about that service and what it would look like in terms of working one-on-one with a YFP certified financial planner, you can visit, yfpplanning.com, and you can book a free discovery call with Justin Woods, also a pharmacist who is our director of business development.

[0:35:40.8] Well, that’s 10 common financial mistakes that we see pharmacists making. I really appreciate you joining me on this week’s episode and we’ll see you here again next week.

[END OF DISCUSSION]

[0:35:48.4] TU: Before we wrap up today’s episode of Your Financial Pharmacist Podcast, I want to again thank our sponsor, The American Pharmacist Association. APHA is every pharmacist’s ally advocating on your behalf for better working conditions, fair PBM practices and more opportunities for pharmacists to provide care.

Make sure to join a bolder APHA to gain premier access to financial educational resources and to receive discounts on YFP products and services. You can join APHA at a 25% discount by visiting pharmacist.com/join and using the coupon code, “YFP”. Again, that’s pharmacist.com/join and using the coupon code “YFP”.

[DISCLAIMER]

[0:36:28.5] TU: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and it is not intended to provide and should not be relied on for investment or any other advice. Information of the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

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

[END]

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YFP 246: Why This Pharmacy Entrepreneur is on a Mission to Make Pharmacy Profitable Again

Posted on March 10, 2022November 2, 2022 by yfpadmin

Why This Pharmacy Entrepreneur is on a Mission to Make Pharmacy Profitable Again

Dr. Lisa Faast, Founder & CEO of DiversifyRx, discusses her mission to make pharmacy profitable again.

About Today’s Guest

Dr. Lisa Faast is an innovator, experienced business executive, and leader in the independent pharmacy industry. With over 20 years of experience as a pharmacy owner, consultant, compounder, and businesswoman, she is able to bring a unique perspective to the industry’s problems. Her passion is helping independent pharmacy owners thrive by focusing on diversifying and then growing revenue streams. She is currently CEO at DiversifyRx, a consulting and education company, in addition to being a wife and mom of 4.

Episode Summary

Every single independent pharmacy wants to thrive, but the leap from pharmacist to pharmacy owner is a big one for many reasons. Today, Your Financial Pharmacist Co-Founder & CEO, Tim Ulbrich, PharmD, sits down with Dr. Lisa Faast, founder and CEO of DiversifyRx, to talk about what she learned from this journey and how it became her mission to help make pharmacy profitable again. Dr. Faast begins by talking through her career arc, from her first job out of pharmacy school to opening and ultimately selling her first pharmacy. She shares about launching DiversifyRx, a business that aims to educate and support pharmacy owners through resources, membership, and a ton of free content. Dr. Faast dives into how she’s developed a “figure it out” mentality as an entrepreneur and how failure, or perceived failure, set her up for later success. The conversation also touches on that balancing act most pharmacists know all too well, juggling the financial demands of owning a business and raising a family, something that Lisa jumped into when she opened her first pharmacy while pregnant with her first child. Even if owning your pharmacy is not in the cards right now, this episode holds some fascinating insights into the industry.

Key Points From This Episode

Hear the story of Lisa’s grandmother and how she was drawn into this profession.
The roundabout path from her first job out of pharmacy school to pharmacy ownership.
What gave her the confidence to take a leap of faith and start Faast Pharmacy.
The biggest lessons she learned as an entrepreneur and business owner!
Juggling life as a first-time mom and first-time business owner.
About selling the business and making marketing her best friend.
How she started DiversifyRx and created a profitable buffet table for pharmacy owners.
How pharmacists often have different priorities to business people.
Scaling the business to reach more pharmacists at once.
Hear about Pharmacy Badass University.
About all the free content Lisa puts out and where you can find it.
How characteristics that help you in pharmacy school can hinder you in business.
Tackling ideas of what failure is and how perfectionism impacts business.

Highlights

“That was just one of our mantras: if we can do it, we do it. That’s just the way that we operate.” — Dr. Lisa Faast [0:11:59]

“When you own your pharmacy, marketing needs to be your best friend.” — Dr. Lisa Faast [0:14:23]

“These pharmacy owners can’t afford hundreds of dollars or thousands of dollars a month. It’s just so hard these days. Providing a solution that is affordable and cost-effective is really at the core of my offering.” — Dr. Lisa Faast [0:31:32]

“I put so much stuff out there for free because if I can help a pharmacy owner for free, I am A-okay with that and if you get all you need from that, perfect.” — Dr. Lisa Faast [0:36:24]

“You really have to reassess what failure is and what it is not when you are looking and making decisions as the business owner, as the owner of the pharmacy, rather than looking at it as a pharmacist.” — Dr. Lisa Faast [0:41:02]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

This week, I had a chance to sit down with Lisa Faast, founder and CEO of DiversifyRx. During the interview, Lisa and I talked through her career journey, up to launching DiversifyRx, the “Why” behind the business including her mission to make pharmacy profitable again. How she balances the financial demands of owning a business and raising a family, how she’s developed a “figure it out” mentality as an entrepreneur, and how failure or apparent failure set her up for later success.

Before we jump into the show, I recognize that many listeners may not be aware of what the team at YFP planning does in working one-on-one with more than 240 households in 40 plus states. YFP planning offers free only, high-touch financial planning that is customized for the pharmacy professional. If you’re interested in learning more about working one-on-one with a certified financial planner may help you achieve your financial goals, you can book a free discovery call at yfpplanning.com. Whether or not YFP Planning’s financial planning services are a good fit for you, know that we appreciate your support of this podcast and our mission to help pharmacists achieve financial freedom.

Okay, let’s jump into my interview with Lisa Faast, co-founder and CEO of DiversifyRx.

[INTERVIEW]

[0:01:24.8] TU: Lisa, welcome to the YFP Podcast.

[0:01:26.4] LF: Thank you so much for having me, this is an honor and I’m excited to chat with you.

[0:01:30.5] TU: So happy to connect with you here and to have you on the show. I’d like to start with before we get into your entrepreneurial journey, I’d like to start with some of your pharmacy background, where you went to school, when you graduated and what really drew you to the profession, to begin with?

[0:01:45.1] LF: Yeah, I graduated from UOP, the University of the Pacific over in Northern California, and what had kind of drew me, you’re in high school, you’re kind of trying to decide and I was looking at becoming a doctor. And I realized that 12 years of school didn’t sound really fun at all and I was hoping to take care of my grandma at the time, she was a diabetic and she had pretty much lost all her fine motor control skills and her eyesight was terrible. We were having to go over to her house twice a day to do her insulins and things like that.

That’s kind of what got me on the path to pharmacy and then what really solidified it is, one of those school projects that you’re – you know, handed out to go follow this profession, do a report kind of thing. Me and my best friend at the time, we were like, “I don’t know what we’re going to do.” He’s like “Hey, my mom is dating a pharmacist, let’s just go do that.” I was like, “Okay.” We went and followed his mom’s boyfriend at the time and did all that and I realized, “Hey, this pharmacy thing sounds really interesting.”

Looked into the school and looked into all the different things because chemical engineering was kind of like the other alternative as supposed to medical school and, bam, it just felt right. I applied to one pharmacy school at the very last minute right before the deadline and thank goodness that I got accepted. I guess you could say, the rest is history. I graduated from UOP back in 2001, so a little over 20 years ago now.

[0:03:07.2] TU: We’re going to talk, when I talk, when I think about chemical engineering and I think about pharmacy, it’s very linear, structured pathways typically, right? The degree as well as career. But you have taken, I think, a very unique and somewhat non-traditional pathway throughout your career. But also into the work that you’re doing now with DiversifyRx and leading that mission and company. And we’ll get to that here in a minute.

UOP 2001, you graduate, tell us about your first job out of pharmacy school and what that experience was like?

[0:03:35.8] LF: Yeah, all during pharmacy school, I wanted to be a nuclear pharmacist. I just thought that’s what I was going to go do and I even did one of my rotations in my third year, I did nuclear pharmacy at Syncore, which is kind of the gold standard. And so I graduated, they didn’t have any space in their class because you have to go and get certified and all those kinds of things, and I was kind of like, “Man, what am I going to do?”

I graduated at the time when there were still some pretty good signing bonuses and all of that kind of stuff going on. I had worked for Rite Aid at the time as an intern and I knew I didn’t like that. I didn’t want to go do that and so, I was lucky enough that actually, my mom had worked for Kmart for many years. That was her main job with us growing up and so, I looked into that. Kmart at the time was looking for a pharmacist and it ended up being the best job ever, not just because Kmart was a good corporation to work for.

Of course, now, I don’t even know if they’re still even in business anymore, but the way they treated pharmacy, because it wasn’t their main line of business, I pretty much got to run it like I wanted to. They were pretty hands-off, which actually was really great training for owning your own pharmacy and so, Rite Aid – interned as Rite Aid, went to Kmart, and then my friend, one of my friends came up and said, “Hey, I’m going to be selling my pharmacy, do you want to maybe buy it?” And I was like, “Okay.”

I did all this work and all these business plans, all the things that you can expect of going through the SPA process and it was taking forever. The SPA takes forever, FYI. Yeah, I finally got an approval and I called him and I was like, “I got the approval.” And he’s like, “I signed to sell to Rite Aid yesterday.” And so then, I was left with this big dream and nowhere to go. I just decided to go ahead and open my own and started that path. That’s what eventually became Faast Pharmacy, which was my first pharmacy and I started that from scratch.

Kind of a roundabout way of winding up into pharmacy ownership, never expected it when I was in pharmacy school, might have taken like their joint MBA course and things like that that they offer but that’s kind of how I ended up there.

[0:05:40.4] TU: 2001 you graduate, you take a position with Kmart, you mentioned the way Kmart had run their pharmacies, and I can remember that. Some of my classmates and colleagues worked for Kmart. Very different than a corporate pharmacy position today, probably an experience that you’re able to get that started to be the learning ground for you before ultimately moving to own your own pharmacy in 2006.

I don’t want to overlook that, that’s still a big decision and transition that a lot of folks might have an interest in but aren’t willing to really take that leap of faith and feel confident in themselves to move forward and that step of ownership. Just tell us about your mindset and that transition of what gave you the confidence, what gave you, ultimately, the path? Or that said, “I’m going to go from this stable position, this stable income to really taking that leap of faith and owning my own business.”

[0:06:32.2] LF: Yeah, it feels, looking back, because it’s my own life, it doesn’t feel like a huge leap of faith but even you describing it right now, it really was. It really was a leap of faith and I think there was a couple of things that gave me that confidence.

One, I knew I was a good pharmacist and I was also a nerd, I liked numbers. I understood financials, again, going back to Kmart, I got to see all their financials of the pharmacy. I knew what drugs cost, I know what they got reimbursed and I was able to kind of hone my skills that way. But the thing that I told myself is – and I was in my early 20s at this point, I think I was 25 or something like that. I said, “What’s the worst that can happen?”

I painted a worst-case scenario. Nobody comes to me, I make no money, I go out of business, I go bankrupt and I go back to my $150,000 a year because I was working tons of hours job from now. I guess that’s not such a bad case, worst-case scenario.

I kind of figured that I could live with the downside, and that’s something that I’ve learned, and just decision making as a mature – just kind of saying, “What’s the upside, what’s the downside, and can you live with the downside?” I didn’t really know I was kind of living by that mantra back then. Essentially, that’s what I told myself as like, what’s the worse that can happen, and can I live with that? Can we have a plan for that? We figured out that we did, that we could have a plan for that.

And I just – I really wanted to do pharmacy my way. Kmart gave me a lot of leeway but not total leeway, there was always more than I wanted to do for patients. And I was getting into functional medicine at the time and getting into all these other interests, and I just wanted to offer more. So really, that desire became an obsession to come up with bigger, better, and more awesome services to offer to the community. And it was really, probably that desire just outweighed the fear with owning your own business.

[0:08:18.3] TU: Yeah, that desire for autonomy, right? Being able to be kind of in control of that future, and even pursuit of some things that might not have been traditional or allowed or under your scope of responsibility in that role with Kmart. The ‘worst thing that can happen’ exercise, I hope folks will hear that and apply that. Tim Ferris talks about that in The Four-Hour Workweek, he gives several examples where when you’re facing a decision, you mention, Lisa, using that in the context of decision making. We often tend to over-emphasize in our minds what is truly the worst-case scenario, and I think many pharmacists, even with the challenges we’re seeing in the profession right now, being able to fall back on a six-figure position is a pretty worst-case scenario.

I think sometimes in your profession, perhaps because of the student loan debt which is near and dear to our heart and what we do here at YFP and helping pharmacists or perhaps pharmacists are graduating at a relatively young age and stepping into that great salary, there’s sometimes is that mentality of, the golden handcuffs and not willing to take those risk and sometimes perhaps allowing those fears to be greater than might even be the reality of that situation.

Owning your own pharmacy, tell us about that experience, so April 2006, your pharmacy is open. Tell us about the pharmacy, what your focus was, the skills that you learned throughout that 10 years as you owned that store, give us some more details there.

[0:09:37.7] LF: Yeah, I did just about everything right and everything wrong that I think you can do in a pharmacy and in a business. Because back then, in 2005 and 2006 when I was planning on opening this, Facebook groups weren’t a big thing and I didn’t know any pharmacy owners. I didn’t come from a long line of pharmacists or even pharmacy owners. I was really just figuring it out for myself and so certainly, a lot of things that I did wrong and a lot of things I did get right.

I think the biggest thing that really happened is I understood niching and I understood that I didn’t want to be competing for the same people that the other independents in my town were. The place that I picked was far away from lots of other independents but yet close to chains. I was actually sandwiched between CVS and Walgreens, which ended up being a perfect location.

I wasn’t near any other independent pharmacies, there was kind of a little independent pharmacy desert in my town. And so to me, that became really important, going above and beyond. I just served my patents as the best I could and if it was physically humanly possible, I did it.

I remember very early, I was probably opened a month or two, there was a dermatologist across the street, it was a Saturday, she had a prescription for biaffine, a patient forgot to get it before the appointment kind of thing. And biaffine is like a chemotherapy but it’s also used after laser treatment in dermatology. It was a popular drug back then and I didn’t have it in stock, she hadn’t sent me any of the prescriptions for it, I was only just open but I knew another pharmacy that had it, it was actually my old employer, Kmart.

I knew we had it on our shelf because I had dispensed it at that store and I was able to arrange for the biaffine to get filled, I went and actually picked it up, delivered it to the patient, and all for basically free of charge because I wasn’t the one filling it and – but I went above and beyond and when I started to do that, people started to realize that I was in it for the long haul.

Business is all about relationships and you know, I may not be very good at social relationships but when it comes to business relationships, I know how to go above and beyond and always be the one that provides the extra value. That’s how I started to gain such a loyal following of prescribers and patients because they saw that in me, and then eventually, my staff, as I started to get staffed and started to grow, that was just one of our mantras.

If we can do it, we do it. That’s just the way that we operate and you know, we eventually grew to seven million annual revenues, had 35 employees, I had a really awesome thriving pharmacy and – but still, that was at our core, was just, whatever we could do to serve the patient is what we’re going to do and that paid us back in dividends year after year.

[0:12:23.5] TU: Between opening your own pharmacy in 2006 and we’re going to get here in a few moments about talking about your current efforts and work with DiversifyRx, I know you had several other roles in between there as well. Talk to us more about those positions and ultimately, the additional skills, those help you hone as both the pharmacist and eventually as a business owner.

[0:12:41.6] LF: Yeah, so when I opened the pharmacy, we were – one of the first positions that I added was mom, becoming a mom. I was actually pregnant with my first child when we opened our pharmacy and I bring that up because I think that’s actually a very good skill set. I had my children at my pharmacy for the first year of their lives but I had to learn how to juggle. I’m one of those people that, I don’t believe in such a thing as work-life balance, especially when you’re an entrepreneur and you own your own business.

There is no separation. Calling work-life balance makes it seem like there’s a separation and they’re at different ends of the spectrum. And that’s not the way that I live my life now and I learned not to live my life. When I’m with my kids and I’m present with them, I’m 100% focused on them but when I’m at work, I’m 100% focused at work. It’s a mixture and I learned very quickly that the whole work-life balance really doesn’t exist, that it’s all a mish-mash. And the better that I accepted that and went forward, actually, the more effective I was and the better I was at being both, at being a pharmacy owner and being a mom.

When I sold my pharmacy in 2012, I went to work for Pharmacy Development Services, PDS, which is fairly well-known in the industry, and there, I did just about every job that you can do. I think the only position I never held was like CEO. And you talk about skillsets, you know, having to do all the various coaching and the project planning and project management and new program implementation, and then I went into marketing. And I’ve done all the business development, all the marketing, all the sales, that kind of stuff. It really did give me a well-rounded education if you will on kind of C-suite activities.

It was a lot of the stuff that I did in my own pharmacy because I do believe that when you own your pharmacy, marketing needs to be your best friend. You’ve got to develop certain skillsets because you can’t go around paying for all of it, you know? Just like some things you’re going to have to do for yourself, definitely doing that and also, other entrepreneurs.

I never stopped being an entrepreneur, even if it wasn’t a pharmacy, my husband and I have always owned some other types of businesses. Before we had the pharmacy, we had a used car lot with my brother and then we had the pharmacy and then we opened franchises and then we opened up just other startup businesses. We always had that entrepreneurial thing going, “on the side” type of thing.

I was always constantly going back and forth with my skills and I think that really honed me to that I can accomplish a whole lot in a small amount of time because my desire to spend time and be present with my kids was really strong, and to spend time and do things like be able to take a vacation or to go to a conference or something like that. I had to get the work done.

When you give yourself a finite amount of time, you realize how to get really efficient and really good at things and so really, the experience that all of that gave me was working with a ton of pharmacy owners, I mean, probably thousands of pharmacy owners and I’ve spoken at all the major events, anything that you can think of, I’ve probably spoken at.

Also, being in other institutions or systems or franchises got me a lot of exposure to other ways of doing business as well. I try to bring some of those lessons into the pharmacy world because there isn’t a whole lot of pharmacy business education and training and so, I try to bring a lot of the other industries, the best of the best of what they have to offer and really bring that in and apply it to pharmacies.

[0:16:05.4] TU: As we make the transition here to talk about the work that you’re doing with DiversifyRx, I want to pause for a moment and just reflect on the point you are at now, has been 20 years in the making, right? I think sometimes, especially in a day and age where entrepreneurship is glamorized, right? I think, where we can hear stories and examples and founders and IPOs that are happening and we don’t often see a lot of the skill development, the sweat and the tears and the hard work that go behind it as those stories continue to come forward.

When you shared, not only the experience you had at Kmart, the experience you had in running your own business for six years and even getting into that, having some obstacles to overcome a business that you thought was going to be available for purchase that was not. All that’s involved in skill development of growing your own business. Other franchises you’ve been involved with, used car lots, rolls that you have, chief revenue officer, marketing skills that you gained. All of that that over two decades has allowed you to obviously continue to grow as an individual but also, grow as a business owner. I think that leads to the efforts that you’re doing right now. Tell us about DiversifyRx, what is it, how did it start and what problem are you trying to solve?

[0:17:21.1] LF: Yeah, wow, that’s a fun thing to talk about. DiversifyRx was really just started almost as therapy for myself. When I was deciding to leave PDS in the summer of 2020, I didn’t know what I wanted to do. I was kind of at that conundrum where I don’t know what I want to be when I grow up, you know?

I was looking at a ton of jobs, I had just moved to the Dallas metro area and the economy here is booming and there was all kinds of executive jobs and I was strongly considering leaving pharmacy and going and doing something else and so, the only anxiety that I had about that was I’m not going to be able to help pharmacy owners. I just kept filling this pool and that was the only thing that I was sad about.

I started DiversifyRx really as just a way to have a weekly email and a weekly blog and kind of stay connected to my brethren that I had been in the trenches with for the last 20 years and I was happy with that. That was great, that’s all it was and I took another job, chief revenue officer, within pharma industry and that was great, then I actually ended up getting fired from that job in February of 2021 and you might say, “Fired holy heck.” Yeah, it was the first time I ever got fired but it was a gentle loving firing, we just agreed that we just didn’t – we weren’t having the same vision for the company and so it was very amicable I guess as firings can go.

I was kind of left again with ‘what I want to be when I grow up.’ I was like, just had an “aha moment” with my husband where I turned to him and I said, “I know what I love doing. I am the happiest when I’m talking to pharmacy owners and I help them get “Aha, that’s my favorite”. It’s when I help them become aware of something or achieve a win, that’s when my face lights up and so I was like, “I think we just need to figure out how to do this full-time, I don’t know what it looks like.”

Again, kind of back to that leap of faith, I have no idea what it was going to look like, I had no idea what the plans were but I was like, this is where I’m happy and I need to be happy if I’m going to be a good wife, a good mom and a good person to everybody else in the planet.

Really, was in the beginning of 2021 where I said, all right, I’m going to do full-time diversify, let’s go figure that out and what that is. And really, the whole name comes from my fundamental belief that pharmacy owners need to diversify their revenue streams, you can no longer just be a passive pharmacy that just dispenses whatever prescriptions happen to walk in your door, you’re not going to make it that way. Being average and being normal is not going to keep you in business for long.

Profitable pharmacy strategies do not just fall from the sky. You have to go out there and look at them but gosh, there’s so many bad things out there, there’s so many great things out there. And pharmacy owners, when do you have time to vet, when do you have time to decide, when do you have time to go through all of that and so, essentially, I took all of my skills and all of my industry, contacts, and knowledge and things that I gathered that it’s like, I felt like it was kind of my job to create that pharmacy ownership profitable buffet table if you will.

Where it’s like, “Here is all the opportunities” because I firmly believe that there is more opportunity now to succeed as a pharmacy owner than there has ever been but it’s not in the typical way that it’s always been done in the past. I feel like my mission on earth here is to create that buffet, that smorgasbord of profitable opportunities because what fits for one pharmacy isn’t going to be a fit for another, it’s going to be the perfect fit for somebody else and so, if I can just come up with all of the opportunities and help pharmacy owners decide what’s going to work for them based on their demographics, their own passion, and their insight, then let’s go do that in your pharmacy so you can have a profitable thriving pharmacy.

Really, that’s what DiversifyRx is all about, is helping pharmacy owners diversify and optimize their revenue stream so that every single independent pharmacy that wants to stay open, that wants to thrive, that wants to be a generational business that they can hand down to their children and grandchildren, that they’re able to achieve that dream.

[0:21:20.5] TU: Lisa, I love the mission, I love the passion, love the why behind what you’re doing and I don’t want to lose as well that as folks go on your website, we’ll link it in the show notes and they see all that you’re doing now, it started with the idea and you mentioned a newsletter, right?

That important action step that I think, often folks will look at other pharmacy entrepreneurs, other businesses out there and get paralyzed by seeing the current state. It started in a very different state, right? It has grown over time and you know, I think taking that first step is such an important one and to some degree, put yourself out there in terms of, “Yeah, I have this vision, I have this belief, I see a need in the market and I’m going to be a voice in this space.” And allowing you to sit in that uncomfortable space of, “Is this going to resonate, is this not going to resonate, where is this going to go?” and I love that first step in action that you took.

I want to ask you that when you say there’s more opportunity than ever for independent pharmacies, from an outsider’s perspective, I can’t claim to live in the independent pharmacy space. I have been in the profession for 13 years, largely in the academic world prior to moving full-time with the work that we’re doing at YFP but when I look from the outside looking in and even as you say in your website, the onslaught of DIR fees, abusive PBM audits, low margins, poor cash flow, clawbacks have many owners on the verge of tapping out. I mean Lisa, from the outside looking in, why go into this business?

I mean, how can one even plan when you think about things like DIR fees, PBM audits, clawbacks like even trying to build out a proforma from that seems like a nightmare and it really feels like the deck is stacked not in the favor of the pharmacy or the pharmacist, so give us the compelling argument of, why is this a better opportunity than ever before?

[0:22:57.8] LF: I think the reason why it’s a better opportunity more because pharmacies and pharmacists are more than just dispensing destinations and that really comes from, we do so much more. Yes, our primary function is to dispense, we’re not getting rid of that but to me, where the opportunity comes from is consultation, functional medicine, cash-based services, supplements, compounding.

You know, all kinds of things that really are available and the broad – whether it’s under your “scope of practice” as a pharmacist or it’s completely outside of your scope in the sense that you don’t need to be a certain licensed person to recommend supplements or something, why would somebody go to a GNC and listen to a 19-year-old about supplements when they could come to your pharmacy and get somebody that is far more educated and probably get a higher quality product that’s very specific and tailored to their exact needs, you know?

These people out there are spending cash everywhere. You know, they are spending cash at GNC, they’re spending cash at the gym, they are spending cash at the spa, you know for all of these different kinds of services that really pharmacies should be in my opinion the place that the healthcare that healthcare destination, people kind of use that as kind of a catchy phrase nowadays but what does that really mean?

It’s really, pharmacists are positioned to really help patients to take care of their health in ways like never before. There is more testing available. You know, one of my favorite supplements has a neat little saliva test that you test the patient to even see if they need it, you know? It’s like then you can test them to see if it is working. There is just so many great things out there nowadays that pharmacies can be the conduit for if we’re willing to look up and outside of solely dispensing.

That’s really where that comes from because yes, if you’re just going to bank on patients coming to you and they’re just going to pay their copays and they are going to grab their bags and turn around and leave then yeah, it is going to be a very tough ride being a pharmacy owner.

[0:24:54.2] TU: Yeah and what I love about that vision Lisa and I think this is a healthy discussion for us as a profession, you know I have always felt that arguably, we’re just incredibly well-positioned across the country already having a physical footprint in many, many communities, right?

As we think about the dispensing of medications perhaps becoming a commodity to some degree and we look at the many threats that are there, if we can begin to diversify that and begin to really even look at, perhaps the dispensing of medications is kind of the entry point and at some level though lead generation to other opportunities where pharmacists is well-positioned, just a completely different way of thinking rather than that is the core business model, right?

[0:25:36.0] LF: Exactly, so pharmacy owners generally aren’t business people in the sense of what they’re really truly not thinking about their business from a marketing sales funnel conversion, all of those types of things that lots of other businesses do. I mean, there are so many businesses out there that would kill to have the traffic that independent pharmacy does.

They pay tens of thousands of dollars a month just to get people to come in and yet people are freely walking into pharmacies and it’s just pharmacy owners don’t have the skillset and the knowledge to know what to do with that traffic. And that’s where I feel like I come in like, “Man, that lowest hanging fruit is every single time you have a physical person walking into your pharmacy is an opportunity to sell them something else that they need.”

[0:26:19.5] TU: Talk about warm leads, my goodness.

[0:26:19.8] LF: They need something else, exactly. Yes, you have that traffic and that’s what most pharmacy owners, they don’t even understand the word traffic in the sense of how it applies to marketing. And so that’s where I really get my passion from is teaching them those fundamental business skills that are often taught for other solopreneurs and other types of verticals of businesses but really isn’t taught in pharmacy.

You know, really getting them to understand that that dispensing of a prescription is your front in offer. You know, that might be something that people know you for but where you make your money is on the back end offers and you know it started with drug-induced nutrient depletion. In my final year of pharmacy school when you have to do your big project, you know, I did mine on drug-induced nutrient depletion and that was back in 2001.

Nobody was talking about that then and so it’s like there’s always a way, I truly believe there is always a way for every pharmacy to thrive and survive, you know? We just have to figure out what that thing is and that’s to me the extremely fun part like I get just so much joy. It is like I am a little Sherlock Holmes and everybody’s little pharmacy figuring out what’s going to help work for them and because there is always something that’s going to work.

It doesn’t matter your demographics, it doesn’t matter the income level, there is always something that those patients are paying for, they are spending their hard earn money on and you just have to offer it to them.

[0:27:37.2] TU: Yeah and they are probably spending it elsewhere, right? To your comment about, yeah.

[0:27:40.4] LF: Absolutely, yep. They are spending it, they are spending it somewhere else and you just need to capture that.

[0:27:44.0] TU: Love it. So you are bringing this business mindset and perspective to independent pharmacy owners and you are trying to do it really on a level that I see as being scalable, so not necessary one-on-one. I am working with this pharmacy but really this membership type of model, which gets to the aspect of how you’re monetizing the business, so tell us more about the membership model and why you came up with that approach to be able to provide this solution to independent pharmacies.

[0:28:08.7] LF: Yes, so ultimately the mission that I am on is to save independent pharmacy and I am never going to accomplish that if I have to talk to every single pharmacy owner out there for an hour a month and help them that way and that one-on-one consulting. I have to figure out how do I scale it and to do many to one and frankly, I personally, my zone of genius kind of understanding when you’re a pharmacy owner, whether you’re a solopreneur or running your own PGX business or whatever, you need to understand what you excel in.

I learned early on that I do not actually excel in that one-to-one type of interaction. I excel in the many to one and frankly, it is the only way I am going to ever reach my mission, so I set out. I eventually figured it out, it took me a couple of months after going full-time into Diversify that I wanted to start a digital membership, which you see in lots of other verticals of companies out there but it just didn’t really exists in the way that I wanted to bring it to pharmacy and so, we named it Becoming a Pharmacy Badass, so Pharmacy Badass University.

My podcast and my YouTube channel is kind of like becoming a pharmacy badass and that’s a bold brand and you know there is some people that are like, “Oh my gosh, I can’t believe you said that” but to me, if you’re going to survive in this world because we do have so many things stacked against us, you can’t be average. You can’t even be good, you have to excel and you have to become something different.

Pharmacy Badass University is our digital membership and you get it all. It’s you log in, you get your membership and it’s like, “Well, what’s included?” it’s like you know, all of those online e-courses, we are constantly creating them. I am creating the initial ones because we’re just going to be launching but how do you manage your inventory, how do you do that? Well, I don’t know. Here, let’s go and let’s just watch this on-demand course that either you can give to your technician, you can give to your pharmacist or if you are a startup, you know maybe do it yourself.

How do you control your cost? Well here, here is how, the method I go through and how I can look at my PNL and how I control my cost and what those costs should be. And so it is going to be on-demand courses, a ton of done-for-you stuff because you know, as easy as Canva is or some other graphic designs, not many pharmacy owners are going to have the time to go do that, so it is like every month, we’re going to be creating those templates and those emails and those things for them.

We’re going to have those office hours because I get calls all the time from pharmacy owners and I’ll end up doing a podcast or something about it. I am sure you kind of get this too, it’s like, “Man, everybody could benefit from that question. That was such a great question and I had such a great discussion with you but I didn’t record it and I can’t share it” and so it’s like we’re going to have those open office hours where everybody gets in that kind of shared knowledge.

Those monthly mastermind calls where I bring in other experts, I bring in sometimes outside of the industry, sometimes within the industry and so it’s really going to be this super low-cost no complications at all, no contracts, no minimums. My golly, if you don’t want to be a member anymore, you know, cancel and we’ll make it happen because I only want to serve people that are truly getting value. I want to be the best value in pharmacy because I know, I am still a pharmacy owner myself now.

I sold my original pharmacy but I got back into pharmacy ownership. I actually have parts of three different pharmacies and I know how tight money and time is for pharmacies. Those are the two tightest things and so we want to help you save time and we want to help you use your money wisely. So we literally we’re trying to be stupid cheap as I say because it’s just you know, these pharmacy owners can’t afford hundreds of dollars or thousands of dollars a month. It’s just so hard these days and that’s part of that is providing a solution that is affordable and cost effective is really at the core of my offering.

[0:31:46.1] TU: Well, I love what you’re building Lisa. It reminds me of, for folks who have not read Tribes by Seth Godin, you know what you’re building as, yes, Lisa is the founder of the company. Lisa, you have the idea, you’re obviously growing it from the ground up but you are developing a community of folks that are coming together that are passionate about this topic of making independent pharmacy profitable again, right?

Bringing a business mindset to independent pharmacy and obviously you are building it in a way that you can then scale that going forward. And it’s not about Lisa, it is about Lisa being a facilitator of this community that’s coming together towards this common mission and I think that speaks volumes. I love that business model when you look at memberships, especially when memberships have a community component, where you as the owner, you then move into yes, I am providing some service but I am really a facilitator among this community.

I think that people really resonate with and stick with those groups long-term because they really feel like there’s value in being part of that community.

[0:32:45.3] LF: I could not have said that any better myself. You are absolutely right and that is exactly what I’m going for because I might know a lot about a lot of things but I don’t ever claim to be an expert on everything. There is always going to be somebody else out there that can share some of their wisdom and if we’re all committed to helping independent pharmacy owners thrive, then everybody wins when you share what works and sometimes, what doesn’t work.

Sometimes you learn more from what doesn’t work and so no, you’re absolutely right and along with the membership aspect, we are doing our own live events that are very focused around pharmacy profit, like, I am unabashed and unashamed. We help pharmacies increase their profits and that’s not a bad game.

[0:33:27.8] TU: As you should, it’s a business.

[0:33:28.9] LF: Yeah, it is a business you know? Pharmacy owners are the worst people, you know, the saying that I founded [Long Deer 0:33:34.5] ago, is profit is not a four-letter word. Now granted, can you make profit bad ways? Absolutely, everything comes with the good and the bad side but making a good profit in your pharmacy is not something you should be ashamed of. There is right ways to do it and there are plenty of them out there and it is not a four-letter word and something that should be avoided.

I am unashamed in helping pharmacies improve their profitability. So we have the Pharmacy Profit Summit, which is a two-day event and then we have the Pharmacy Badass University, which is centered around the six pillars of pharmacy profit, so we are unashamed in helping pharmacies improve their profits because that is the only way that they are going to stick around and be able to help and continue to serve their communities.

[0:34:17.0] TU: That’s right and we are going to link to the website and you can get more information by checking that out in the show notes but just to bring that full circle, right? If we’re not profitable as a business, you can’t continue to offer the service, which is providing value to the community, which is why you started doing that in the first place. Amen to what you just said there Lisa.

Let me ask you as a follow up then, you know, I often think about differential advantages for businesses and so when I think about independent owners and other things that are already out there for them, right? I am thinking about organizations like NCPA, I am thinking about state organizations and interest groups within state organizations. I am thinking about buying groups and what they often will offer independent pharmacy.

What is different about what you’re doing and how are you differentiating that from other services that are already out there to serve independent owners?

[0:35:01.2] LF: Yeah, so I look at NCPA and a lot of the state organizations as legislative efforts. I mean, I think that’s all their ultimate goal is to affect things either on state and national levels from a legal standpoint, which I certainly support and I am not doing. Diversify does not do that, not to say that I won’t write my own letters to my congressman or something like that but I am certainly not starting a legislative moment on anything.

I think that is one important distinction there but sometimes when you get into buying groups and things like that, you kind of start to wonder who they’re actually fighting for, who is ultimately the best interest of what they’re recommending because sometimes what they recommend does not make sense when you are looking at it from that financial standpoint. It’s like, “Hmm yeah, buying my products from you is actually costing me money, so how is this better?”

You know, you kind of just maybe start to wonder where their ultimate loyalties lie and so really, what I am doing is I am bringing together that 20 years’ experience, I pretty much know just about everybody in this industry. I know what the companies are doing, a lot of people reach out to me, even startup companies, I often hear about companies that are just getting started a year before they launch for the public and those kinds of things.

I really try to keep my pulse on this industry and a lot of what I do is free. I try to put out a ton of free content, you know just follow my social media, follow the podcast, follow the YouTube, any of those kinds of things. I put so much stuff out there for free because if I can help a pharmacy owner for free, I am A-okay with that and if you get all you need from that, perfect.

If you want to go up to the next level where you kind of want some done for you, you want to be able to ask some questions, you need that little bit more of handholding, that’s where Pharmacy Badass University comes in and we’re less than $200 a month. I mean, we’re talking I am trying to keep it as low as possibly low as it can be and so really, I think that’s how it difference is, is that I am truly here for the success of other pharmacy owners not just to charge them by the hour or something like that in terms of helping them.

Where there’s lots of consultants, some good, some not so good, it’s just a different model because they are doing that one-on-one, well, you can only have 10, 15 maybe pharmacies when you do that one-on-one so you have to charge higher prices and you have to do things because you still got to put food on the table.

We’re a business as well and so my approach of the many-to-one I think not only benefits the industry because I am able to help more pharmacies, but it also benefits the individual owner because the cost for them interacting with me is next to nothing, $200 a month. It’s like, it doesn’t get any cheaper than that.

[0:37:36.1] TU: You know, just another different advantage of outside looking in is you are an owner. You’ve lived it, right? You are in it and I think you can resonate as both the leader of this community as well as somebody who is in the community looking to learn from others. I want to come back just for a second here talking about providing value. For folks that have not listened to Pat Flynn has a site podcast, a resource called Smart Passive Income, we’ll link it in the show notes but was very influential to me early on in my journey of starting YFP.

He often talks about, if you lead with providing value to address a problem that people care about and you have a solution, which is one that they eventually be willing to pay for, lead with value and the business will come. And I think you are demonstrating that very well. You mentioned leading with a lot of free resources and then you’ve got kind of next level opportunities for those that are willing to make that further investment of both time and money.

Lisa, I want to come back, final question for you is this aspect of figuring it out. If I reflect on your past 20 years, I would argue that less than 5% of the work that you are doing today and the success that you’ve had from your career is from what you learned in your training to become a pharmacist.

And you know, I think as I think about folks that are going down the path like you have gone down, there is this hunger to learn and there’s this mentality through all these different roles that you’ve had both as an employee, as an owner of just figuring it out, right? Being willing to learn and to grow and to get better and perhaps making some mistakes along the way. Tell me about that mentality for you and where has that come from? Am I right in reading that as a part of your success?

[0:39:13.7] LF: No, I think you’re spot on. I have a very – you know, I’ve taken probably every personality and skill test out there and I do have a very high figured it out factor partly because that’s the fun part to me. I like problem solving. I always like math in school, I like coming up with the right answer, it gives me my little dopamine hits and so I really do like the figuring it out part but I think what comes in as you mentioned a big thing about fear and we kind of started off with that is the fear of failure.

Even pharmacy owners, you know, I will sometimes get on the phone call with a pharmacy owner and give them 10 different options of what they might want to focus on for the next year or something like that. It is really the only ones, the ones that fail or the ones that don’t succeed or don’t implement are the ones, that – we’re afraid of doing it wrong. And as pharmacists, I think that particularly hinders us because in pharmacy school and in your primary pharmacists job, you want to be perfect.

You strive for perfection, you never ever want to make a mistake on a prescription, which is a perfect mindset for a pharmacist working the bench. However, when you take your bench hat off and you put your pharmacy ownership hat on, you cannot bring that thought process into your pharmacy ownership decision making. It is okay to make mistakes in business. In fact, I’m a big fan of fail fast. If I am going to fail, I want to figure out what’s not going to work as soon as I can so I can move on to what is going to work.

I am very much a subscriber to that belief of failing fast. And you have to understand that business mistakes are not the same as dispensing or pharmacist mistakes. If you try a type of advertising on the radio and you spend $1,500 and it was a raging success, great and if it was a raging failure, well, you lost $1,500 but nobody died, nobody was hurt. You probably did some good, you probably got something out of it even if it wasn’t what you thought.

So you really have to reassess what failure is and what it is not when you are looking and making decisions as the business owner, as the owner of the pharmacy, rather than looking at it as a pharmacist. And I think that is the hardest part for pharmacy owners who also happen to be pharmacists. It is really hard for them to separate themselves and I do a lot of what I’ll call therapy sessions on that in trying to help them figure that out because as you said in the beginning, the first step is just taking that first step, just putting out a newsletter.

I look at my very first newsletter that I sent out and I cringe. I’m like, “How did anybody read that and enjoy it?” but you know what? I got a ton of complements on it, you know? But looking back it’s like, “Oh just remember you’re always your worst critic but you can never succeed if you never try.” And you know, failure in business is to be expected. You know, perfection is not the gold standard and so we just have to understand that that’s different from when we’re working the bench as opposed to working on our business, and I think that’s the biggest lesson that pharmacy owners can learn.

[0:42:04.9] TU: That’s so good really differentiate what failure is and what is not and the difference between that mindset as a business owner versus as a practicing pharmacist and to be fair, you know, if I think back to my PharmD training, Lisa, we’re taught rightfully so, you know, when we are thinking about our roles as a pharmacist and mitigating and preventing medication errors.

That mindset is drilled into us of, failure cannot happen from that standpoint. And that makes sense from the pharmacist-patient perspective but to your point, which is spot on, very different when we think about that as a business owner and how we can learn and grow through that failure. This has been awesome. I am energized from this interview and I think that’s going to go to our community as well and those that are listening, so thank you so much for your time.

Finally, where can our listeners go to learn more about the work that you’re doing at DiversifyRx and to connect with you further?

[0:42:49.7] LF: Yeah, so our website is diversifyrx.com, that’s probably the easiest way. You can send me an email at [email protected]. Feel free to find me on all of the social channels either by the business name, DiversifyRx or my personal, Lisa Faast and then we have a podcast, we have YouTube and you can find all of those resources plus tons of free downloadables all on our website.

We try to make it super easy to help people for free as a primary method, so head over to that website and that is where a great place to get started.

[0:43:22.3] TU: Awesome, thank you so much Lisa. We’ll link to those in the shownotes and I really appreciate your time coming on the show today.

[0:43:26.9] LF: Thank you so much for having me. I greatly appreciate your shows.

[END OF INTERVIEW]

[0:43:29.9] TU: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and it is not intended to provide and should not be relied on for investment or any other advice. Information of the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

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

[END]

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YFP 245: Getting Under Contract in a Competitive Home Buying Market

Posted on March 3, 2022November 2, 2022 by yfpadmin

Getting Under Contract in a Competitive Home Buying Market

On this episode, sponsored by First Horizon, mortgage manager, Tony Umholtz, discusses getting under contract in a competitive home buying market.

About Today’s Guest

Tony Umholtz graduated Cum Laude from the University of South Florida with a B.S. in Finance from the Muma College of Business. He then went on to complete his MBA. While at USF, Tony was part of the inaugural football team in 1997. He earned both Academic and AP All-American Honors during his collegiate career. After college, Tony had the opportunity to sign contracts with several NFL teams including the Tennessee Titans, New York Giants, and the New England Patriots. Being active in the community is also important to Tony. He has served or serves as a board member for several charitable and non-profit organizations including board member for the Salvation Army, FCA Tampa Bay, and the USF National Alumni Association. Having orchestrated over $1.1 billion in lending volume during his career, Tony has consistently been ranked as one of the top mortgage loan officers in the industry by the Scotsman’s Guide, Mortgage Executive magazine, and Mortgage Originator magazine.

Episode Summary

If you’re looking to buy a home shortly in an area with a competitive market, this episode is for you. Today we welcome Tony Umholtz back to the show, a mortgage manager for First Horizon, formerly IBERIABANK. In this episode, Your Financial Pharmacist Co-Founder & CEO, Tim Ulbrich, PharmD, sits down with Tony to talk through the tips for securing a home purchase contract in a competitive housing market, the current state of the housing market, the current housing shortage, and reasons behind that shortage. Tim and Tony discuss interest rates and trends Tony has seen through his experiences working with pharmacists across the country. Hear why the lender and agent you choose to purchase a home through matters, why the type of loan you choose to get matters, top advice for first-time homebuyers looking for a low down payment, and the pros and cons of various strategies to make an offer stand out. Tony also shares information on how to get out of your contract if necessary without losing your earnest money. From escalation clauses, and appraisal gap clauses, to waving inspection contingencies, this episode breaks down everything you need to know as a pharmacist trying to secure a home in the current real estate market.

Key Points From This Episode

Hear about Tony’s background and the work he’s doing right now with First Horizon.
How we’re still at historically low-interest rates, even with the recent rise we’re seeing.
Some context on the current market and why we currently have a housing shortage.
Tony shares why it matters what type of loan you get.
Important factors to consider when evaluating and considering the lender that you choose.
What an escalation clause is and some of the potential pros or cons to look out for.
Tony comments on the recent trend of waving inspection contingency.
Whether the earnest dollar amount is going up in this market and if offering more makes a difference.
The three pieces that will allow you to get out of the contract and not lose your earnest dollars.
Some advice on what to do if you’re looking for an option with a lower down-payment.
Why there are so many cash offers out there at the moment.
We talk about some great strategies to help out with the seller cost.

Highlights

“We’ve had the lowest interest rates we’ve ever seen as a country the last couple of years during the pandemic. Now they’re just slowly going back up again and we’re still at historic lows, even with the move higher that we’ve seen in the last six, seven months.” — Tony Umholtz [0:04:47]

“I think having a very good realtor who is trusted in the market and has a good reputation can really help you get a contract right now. That’s a big thing, a big deal.” — Tony Umholtz [0:15:00]

“We have the housing shortage and rents are escalating at a faster pace than appreciation on housing is, so that is why owning real estate is valuable right now.” — Tony Umholtz [0:26:26]

“Learning as much as you can about the seller and the situation can help you in getting that under contract.” — Tony Umholtz [0:29:15]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

[0:00:00.4] TU1: Hey everybody, Tim Ulbrich here and thank you for listening to The YFP Podcast, where each week, we strive to inspire and encourage you on your path towards achieving financial freedom.

This week, I had a chance to welcome back on to the show, Tony Umholtz, a mortgage manager for First Horizon, formerly IBERIABANK. During the interview, Tony and I talked about some tips for securing a home purchase contract in a competitive housing market. If you’re looking to buy a home in the near future and live in an area that has a competitive market, this episode is for you.

During the show, we talk about the current state of the housing market interest rates and trends Tony has seen through his experiences working with pharmacists across the country, why the lender and agent you choose to purchase a home matters, and the pros and cons of various strategies to make an offer stand out, including escalation clauses, appraisal gap clauses and waving inspection contingencies.

Before we hear from today’s sponsor and then jump into the show, I recognize that many listeners may not be aware of what the team at YFP planning does in working one-on-one with more than 240 households in 40 plus states. YFP planning offers free only, high-touch financial planning that is customized for the pharmacy professional. If you’re interested in learning more about working one-on-one with a certified financial planner may help you achieve your financial goals, you can book a free discovery call at yfpplanning.com.

Whether or not YFP Planning’s financial planning services are a good fit for you, know that we appreciate your support of this podcast and our mission to help pharmacists achieve financial freedom.

Okay, let’s hear from today’s sponsor, First Horizon, and then we’ll jump into my interview with Tony.

[SPONSOR MESSAGE]

[0:01:38.0] TU: Does saving for a down payment on a home feel like an uphill battle? It’s no secret that pharmacists have a lot of competing financial priorities including high student loan debt, meaning that saving 20% for a down payment may take years. We’ve been on the hunt for a solution for pharmacists that are ready to purchase a home with a lower down payment and are happy to have found that option with IBERIABANK/First Horizon. IBERIABANK/First Horizon offers a professional home loan option, AKA, a doctor or pharmacist home loan that requires a 3% down payment for a single-family or townhome, has no PMI, and offers a 30-year fixed-rate mortgage on home loans up to $548,250.

The Pharmacist home loan is available in all states except Alaska and Hawaii. To check out the requirements for IBERIABANK/First Horizon’s pharmacist home loan and to start the pre-approval process, visit yourfinancialpharmacist.com/homeloan.

[INTERVIEW]

[0:02:42.2] TU1: Tony, welcome back to the show.

[0:02:44.0] TU2: Tim, thanks for having me, always good to be here with you.

[0:02:46.4] TU1: Really looking forward to this, our first recording together in 2022. We’ve had you on the show many other times before, we’ll link to those in the show notes for folks that are looking for guidance in the midst of that home buying process. We’ve talked before about the professional home loan option, the pharmacist home loan and we’ll get to that at the end as well but if folks want other references and resources on that, we’ll certainly link to those previous conversations in the show notes.

Tony, I don’t want to assume that all of our audience knows who you are and so if you just take a moment to give us some background on yourself and the work that you’re doing with First Horizon.

[0:03:21.5] TU2: Sure, well, I’m a mortgage banker and I’ve been doing mortgage lending now for almost 20 years I’m afraid to say, it would be 20 years in October but we handle residential lending and I run a team here, we’re based in Florida but we lend all over the country, we are actually in 48 states. The lower 48 we’re licensed in and we handle the residential financing both purchase loans, purchase money, and refinancing but it’s been a lot of fun, I’ve had a lot of fun in my career. We’re in a very interesting time now, Tim.

[0:03:53.4] TU1: We are and I appreciate you as always, sharing your expertise, and today, we’re going to be talking about some tips and strategies for getting under contract in a competitive home buying market, I would say that’s a timely topic for sure. Tony, we’ve been talking over the last few years and it seems like each season we talk, it’s just a wild time to be buying a home, the home market as a whole.

Here we are in another time period, I think there’s some uncertainty, we see some changes that are happening to interest rates, for those especially, they are first time home buyers, I think it right to be a little bit anxious about the process and the competitive nature of what’s out there. From your viewpoint of working with pharmacists and others all across the country, just give us a quick summary of what you’re seeing as we really get into the beginning of spring of 2022.

[0:04:41.6] TU2: Sure, Tim, you’re exactly right, the market has been changing here this year. We had some of the lowest interest rates – the lowest interest rates we’ve ever seen as a country the last couple of years during the pandemic. Now, they are just slowly going back up again and we’re still at historic lows, even with the move higher that we’ve seen in the last six, seven months. We’re still near very historic lows.

Back when I started in the industry, 7% for 30-year fixed was actually not bad, it’s trended lower during that time frame but it’s – we’re in this time right now where we have a housing shortage throughout most of the country and a lot of that happened post the downturn of ‘08 and ‘09, we just didn’t build enough homes and apartments for the population growth. We saw people moving in together, builders couldn’t get financing for a number of years so we went through a decade of underbuilding and now, this is the consequence.

We don’t have enough housing inventory and housing stock and what’s caused the further delay is that builders can’t build as quickly as they like to because we have supply chain issues. Builders can’t – I work with builders as well and they’ll tell me, “You know, it’s taking me six months to get roof trusses” and different things, different components of the building process are constrained.

They can’t output the number of units for demand and I think that’s a good thing over time, I mean, they’re going to catch up eventually and it will normalize but we’re going to be in this type of market for the foreseeable future until they can catch up.

[0:06:19.1] TU1: Naturally, Tony, what we see then is, and of course, we’re generalizing across the country, certainly different in parts of the country, different markets but that means, home prices going up significantly, supply and demand, more people that are looking for homes. And we’re hearing from our community, as to be expected, whether it’s their first home, second home or third home, that they’ll be on the pinch, right?

For many pharmacists, we see salaries – great salaries coming out of school but are relatively flat over the course of one’s career. Obviously facing many folks is significant student loan debt that first decade or so of their career and now, we’ve got rising home prices that are layered on top of that and so, all the more reason that we’ve got to be thinking about the home buying decision and the context of the rest of the financial plan.

Before we go into individual tips or strategies for getting under contract in a competitive home buying market, I’d be remiss if I didn’t first say that we need to make sure that we’re not losing perspective on the budget for buying a home and how that fits into the rest of the financial plan, right? As we say many times in the show, we can’t look at any financial decision in a silo, and if the end goal is to get under contract but we do that in a way that significantly disrupts the rest of the financial plan, we’ve got to obviously put that in check.

Really taking a step back, what is your home buying budget, what is your personal situation as it relates to investing and saving for the future, other debts that you have incurred and are paying off, and how can we make sure we’re purchasing a home in a way that also allows us to thrive with the rest of the financial plan?

Tony, first question I have for you as it relates to getting under contract in a competitive market is, does it matter what type of loan someone may have? If I’m a seller and I’ve got 10 offers that are on the table and some folks are coming with maybe an FHA loan, a VA loan, a conventional loan, perhaps something like a doctor loan, a pharmacist home loan product, that does that really matter in terms of what type of loan someone is bringing to the table as they’re trying to bring that competitive offer forward?

[0:08:18.6] TU2: Well, it certainly does. I think it’s a really good question because when you get an FHA or a VA pre-approval letter, if you’re a seller and if you had experience with that, there’s typically a much stricter appraisal that’s done on your property versus maybe a conventional loan or like a special pharmacy or doctor product. It’s going to be a much more stringent appraisal and it’s just because those loans, FHA and VA loans are federally backed loans that are backed by what’s called Ginnie Mae, which – anyway, not to get into the complexities of the mortgage market and everything else, they’ve got sets of guidelines for these products.

Now, they’re good programs, they have opportunities for individuals to qualify for different things but as a seller, you’re going to probably, if all things being equal, right? If that price is the same, you’ll probably going to want to avoid those offers just because they do come with some extra sets of eyes. And the other thing too that both these types of loans, if you get the home appraised and that appraisal comes back lower or whatever it might be, that’s attached to the home for quite a while.

[0:09:31.1] TU1: Yup.

[0:09:31.3] TU2: That seller cannot – if another buyer comes in, they have to use the appraisal that was done on your unit. It’s – there is some overlays to those two products so that will probably put you in a more inferior position.

[0:09:44.6] TU1: One tangible story I have here, Tony, personal experience, we were selling, my wife Jess and I are selling our home up in Northeast Ohio before we moved to Colombus and the buyer had FHA loan and I remember during the inspection process, this was my delinquency as the homeowner, I think one of our boys had pulled the railing off the wall or just something normal that happens in our house with four boys.

I was in the process of kind of getting that back up of the rail going up to the stairs and at the time when they came out to the inspection and there wasn’t a whole lot of notice, they take a bunch of pictures and whatnot and they had requested that that be put back on and they had to come back out to see that it was put back on. This was in the pre-pandemic time period so maybe now they allow for photos or other things but that time gap could be significant, right?

If you’ve got multiple offers and things that are going on and if folks again are looking for ease of closing and they’ve got options of different buyers with loans that may not be astringent, it certainly could be something that can come into play.

[0:10:41.6] TU2: Absolutely, there’s no question, it happens all the time. When we do approvals for – we do FHA and VA loans too and when we have them, I have listing agents call me and tell me these things. This is just from experience and – but there’s no question that can put you at a disadvantage but again, those programs are there to serve a purpose. They’re not bad loan programs for different people, they have pros and cons.

I don’t want to downplay it but they certainly, if you are qualified with you, those products are going to put you in an inferior position going into getting the offer, for sure, and to getting it accepted, the contract accepted.

[0:11:15.6] TU1: Next thing Tony, I want to ask you about is the who on your team. Specifically, first, I want to talk about from a lending standpoint and then second, from the agent standpoint and really highlighting that not all options are created equally. And I think when it comes from a lending perspective, speaking from personal experience as a former first-time home buyer, I was very fixated on getting the best rate, right?

That was something that had been drilled into me that you’re looking at something over 30 years on a 300, 400, $500,000 purchase, 0.1% or whatever would be the difference, can be significant. But not stopping there, of course, a competitive rate really matters but other things, communication, timing to close, accessibility of that individual during the process, so important to bringing a competitive offer for it.

Tell us more about how we can really evaluate and consider the lender that we’re using.

[0:12:07.9] TU2: Yeah, another good point, Tim. I mean, during this time where everything’s so competitive, most markets around the country have less than two months of inventories, that’s very much a seller’s market and very competitive. We had a situation happen this weekend with my team and we had a borrower that said, “Hey, I’m going to go in at this set purchase price for a home.” And they actually had to pay quite a bit more and the seller was going to go with them but they didn’t have a letter stating that, and they were approved for that amount and even more than that. But they thought like a negotiating tactic would be, “Hey, let’s go in at this, what my offer price is going to be.” Which was under value.

They almost didn’t get the contract. Fortunately, a member of my team was able to send them the updated pre-approval letter this weekend so they could get the house under contract. Communication is really important and especially during this time. And I will say also that the listing agents call us, and we don’t disclose anything personal and we don’t – we can’t do that but a lot of them will want to know, “Hey, can you close on time? Can you get this done, can you get an appraiser out there and have an appraisal done in a meaningful matter of time?”

And also, the commitment letter deadline, a lot of contracts call it commitment letter, which is basically a formal underwriting approval where you’ve been through underwriting formally, a lot of orders are done within a few days and other lenders, some other lenders may be like this too, but having it done quickly is so important. And being able to get underwritten quickly and having open communication is critical with the lender in this time because it’s – I always tell people, you can go with certain lenders if you’re just refinancing, if it takes 90 to 120 days, it’s okay, it might cause some stress a little bit for you but it’s just a refinance, right?

On a purchase, you have to hit these deadlines, you have to hit these timelines or you could be out of contract, and not only lose the contract but also lose your earnest money too. Yeah, it’s very important. And I would also say with the agents too, your real estate is very important that you have a good real estate agent that knows the market and I’ve seen just from my years of experience, I’ve gotten feedback where listing agents would call me and say, “Hey, this buyer’s represented by so and so,” we’ll call it Mr. Smith, “Everything he brings me has been over the years has been great.”

“He’s always transparent with me about his buyers, he keeps things together and I have these six offers but I think all things being equal, he’s always treated me right so I’m going to go with him.” I’ve heard that, just because they feel all things being equal, right? All these other buyers’ kind of equal pricing, whatever else, I know that he, what he’s telling me from experience is going to happen. I think having a very good realtor who is trusted in the market and has a good reputation can really help you get a contract right now. That’s a big thing, a big deal.

[0:15:12.3] TU1: Yeah, it’s the second or third time Tony, you’ve mentioned, with all things being equal, right? I think that’s worth highlighting, that you can have the best lender and the best agent but if you’re not bringing a competitive offer for it, brother, that’s not going to help you. But I would argue, a good lender that’s a partner and a good agent who really knows the market, assuming it’s within your budget and other goals and whatnot, they’re going to help you put forward a competitive offer, right?

Those things I think do go hand in hand. Shout out here to Nate Hedrick, a friend of YFP who does our home buying, concierge service who helps connect pharmacists with agents in their area, that are certainly going to be coming forward as someone who is reputable and able to take someone through that deal. We’ve got a home buying page where folks that are looking to get connected with an agent, looking to learn more about the First Horizon professional home loan option, if you go to yourfinancialpharmacist.com and then click on home buying, you’ll see all that information and can read through that further.

Tony, one of the things that I’m hearing a lot in this competitive market is escalation clauses and why it’s potentially valuable to have an escalation clause built into the contract? What is an escalation clause and what are some of the potential pros or cons that people need to be on the lookout for?

[0:16:26.0] TU2: Well, the escalation clause are essentially saying, we’re going to pay – we’re going to stay in this bidding war, right? We’re going to stay at this bidding war for this property and we’ll go up X amount. I have seen these happen where you’re putting in your offer and you’re willing to go X amount higher than just to keep up with the next guy, right? Whatever that number might be, $10,000, $5,000, 10% or 5% and you’re escalating above the sales price essentially and we’re seeing that happen, right?

There is a bidding, a bid up of housing. You know, the pros and cons, clearly the pros are you can stay in the transaction and maybe it will help you secure the home. The cons are you may be bidding at more than it’s worth and when we have that appraisal done, you are going to have an appraised value that might be at the original sales price where they started.

Now, you are paying, let’s say $10,000 more than where you started because you participated in the escalation clause and now when we get that appraisal, you’re $10,000 under the value. So lenders can only lend off the original appraised value and if you owe $10,000 more, because if you want the property that’s what you are going to have to do because there is other buyers that are willing to do it too, then you’re going to be bringing your down payment plus the $10,000.

That’s the risk, Tim, is that you’re getting in a situation where it may not appraise and you are having to bring more money to the table than you anticipated in the beginning.

[0:18:13.5] TU1: Yeah and I think this is a very natural feeling in the moment, right? Where people are living in areas where they are hearing of 30 showings in a weekend and 25 offers that are on the home. And so you come in maybe asking a little bit more and then you put these clauses that go up another 20 or $30,000, but then the risk, as you mentioned, which is part of just the reality of the market, but also one that somebody has to plan for is, what happens when you have to bring more cash to close?

Are you ready for that, right? What does that mean for the rest of the financial plan? Is that coming out of savings? Is that putting you behind on their goals or is that something you can cash flow without causing too much headache or concern? Tony, the other thing I am hearing a lot, of course again, as we are talking about just a competitive market, is waving an inspection contingency, and that one gives me a little bit of heartburn but I didn’t buy a home in the chaos that is today’s market. Has this become a norm, what is this all about?

[0:19:11.4] TU2: Well, I never recommend it so I come in the same boat as you. You know, I’ve had a few of my clients ask me this, and you just never know what you’re getting into and you want to know, “Is my roof going to last? Is there another major issue, a foundation problem or whatever it might be?” I always think you get an inspection and then you know what you are getting into, and so I am not a big believer in that. But I do know some clients have waved it especially if they are familiar with the property and if they have been looking at it for a number of years.

I had someone that had – it was a property they had been in before, someone that they knew they lived there and they wanted it and they knew it was good and sound. I think I would not be in a case where I would not wave it personally and I do not recommend it. But you know, that would be my opinion. But again, it happens and as lenders, we don’t look at the inspection. We look at our appraisal but we don’t look at the inspection, so we don’t need it.

We don’t require it, so anyway, that is just some feedback from us. And I would say that I am a big believer in getting an inspection though.

[0:20:19.4] TU1: Yeah, just to define this further for those that are first-time home buyers. Inspection contingency meaning that the offer would be contingent upon the completion of an inspection and that inspection often would allow folks for an out if something significant would come up. And so, by waving that, you are essentially waving the contingency of that result of an inspection.

[0:20:41.4] TU2: That’s right.

[0:20:42.1] TU1: You either have a really good understanding of the home or you are taking on that risk that there might be something there.

[0:20:48.2] TU2: Or what happens too, Tim, if they wave their inspection rights and they decide not to buy the home and they put $5,000 in earnest money to secure the contract, they walk away from the contract, they lose the $5,000.

[0:21:00.0] TU1: Yeah.

[0:21:00.6] TU2: That’s what’s happening and I’ve had people call the listing agent and say, “Hey look, we’ve got two offers but they’re waving their inspection contingency.” And you know in that case, what it is is, if they put their earnest money up, they’ll lose it. They can still get an inspection but if they walk away from the contract, they are going to lose their money.

[0:21:24.7] TU1: Got it, good clarification, thank you. Since you brought up earnest money Tony, let me ask about that. Maybe I am dating myself, the last time we bought a home 2018 would have been, I feel like the earnest money was more than the house in dollar range. You just mentioned five, is that something that we have seen go up in terms of earnest money that folks need to be planning for? Hopefully they would be able to re-coop those dollars but you give an example where that maybe wouldn’t happen.

Is that earnest dollar amount going up in this competitive market and does offering more earnest money make a difference?

[0:21:58.7] TU2: Well, I normally see a couple of things here. I think I normally see Tim, earnest money is more tied to the price of the home. If it is a larger contract, usually a bit more earnest money versus a smaller purchase price. I think on average that there’s earnest money – earnest money has gone up a bit but I haven’t – you know, I would say on average it has, but I definitely believe the more you put up, the stronger your offer is going to look.

If there, again, all things being equal, you have the same price and one person puts up a thousand dollars in earnest money and the other puts $5,000 and all things are equal, well, if I am the seller, I am taking the $5,000 because I have a little bit more if something goes wrong, right? In this transaction. I think a larger earnest money deposit definitely puts you in a better position.

Again, you want to have some – typically in the contract, there is going to be an inspection contingency and appraisal contingency and a financing contingency. Those are the three main pieces and if you have those in place in the contract and one of those things falls through, you have the ability to get out of the contract and not lose your earnest money, so that is what the importance of having those pieces in the contracts.

Again, all things being equal, I think the more you can put down, the stronger you’re going to represent yourself to the seller but then again, a lot of these programs we offer don’t require a lot of money down.

[0:23:26.7] TU1: That’s right, you can ask that, yeah, exactly.

[0:23:29.3] TU2: Yeah, so I will say this, there’s another program, I had a builder call me and said, “Hey, we require 10% to build the house for this client and I see that your approval letters is 95% financing, so are they basically going to get 5% back at closing?” And I said, “Yes because they advanced money to you to build the home, and then when we do the loan at the end, we are going to give 95% financing so 5% of their earnest money will come back.”

So different situations but clearly, everyone is different in how much they can put up and I think in speaking with their realtor so they can get a better idea what’s a good offer.

[0:24:10.8] TU1: Tony to that point, you know I would imagine if someone is selling a home and there is, I don’t know, 10, 12, 15 offers, I would expect we are seeing more cash offers that maybe are out there. If I am a first-time home buyer and I am looking at an option that has a lower down-payment, I am wondering, do I even have a shot in that market? In terms of competing with cash offers or even offers that have more earnest money down, what advice, what thought would you have there?

[0:24:37.9] TU2: In that case, I mean there are all sorts of sellers out there and you’re right Tim, a lot of cash offers. Typically cash offers are lower-ball offers, a little bit lower than the market, right? Most of them do that because “Hey, if I am paying cash I want a better value.” They are going to ask a seller to sell it for it less. A lot of times, people with financing will pay a little bit more and that’s how you are able to secure it above them, because you are paying a little bit more than the lower-ball cash offer.

Now the other thing with cash is, not all but a lot of them are investors, right? They are investors, it might not even be people. It might be corporations that are buying rental properties and some sellers, I mean not everyone but some sellers, if you have raised your family in a home or your kids have been in this house and your family has been in this house, you kind of like the idea of another family moving in, right? Or another owner occupant moving in.

Not necessarily a family but just someone that is going to live in my house and take care of it like we did, you know? That is the mentality that some sellers have versus some investor coming in, right? I think that that sometimes can connect with people too and you know, you might have to write a letter or say, “Hey, this is who we are.” And again, I am just giving an idea here but I think that can hold value.

All things being equal, if I have a pre-approved person, they are going to pay $5,000 more than the 10 cash offers are, “Hey, I am going to live in your house and this is where we are living and I own it.” Owner-occupied versus those 10 cash offers where 90% of them are investors, right? I think that is a good way to kind of position yourself differently. And I think we are talking about all of these things, guys, and it sounds scary and it does this like, “Why would you want to compete with and deal with this?”

Well, the reason there’s all these cash offers is, we have the housing shortage and rents are escalating at a faster pace than appreciation on housing is, so that is why owning real estate is valuable right now. Because rental, the rental market is going up faster than the percent appreciation. But I guess all things being said, any connection you can have with the seller can help you in this market and help you compete with cash but naturally, you are going to have to typically pay a little bit more than cash normally to get the home.

[0:26:59.1] TU1: Yeah, a good clarification that often cash offers might, generally speaking, might be a little bit lower and also might have a greater pool of folks that are looking at that as an investment property. Again, if somebody was selling this owner-occupied and they want to maintain that as an owner-occupied unit, that could be good, be able to communicate that to the seller.

[0:27:17.0] TU2: That’s right.

[0:27:17.9] TU1: Tony, other strategies out there. I know there is a myriad of things that I have heard different folk use in terms of helping out with seller cost. It could be moving expenses, it could be having some flexibility to seller align and to stay in the home longer. Other strategies that you are seeing or recommending that seemed to be working in terms of again, getting under contract in this competitive market?

[0:27:42.0] TU2: Well again, we mentioned the seller. I did see, I have another contract that came in where some folks connected with the seller and that seller stayed with them, even though they could have gone and got a higher price on the market if they listed it. So that connection with the seller anyway is important. Now, what they did do, I will say this, they are letting them stay in the house 60 days after close so they can move all their stuff out and take their time because their place won’t be ready until then.

Clearly, any sort of connection with the seller on some other variables is going to help you get the contract. And if you allow them to stay in the house, now you got to be careful with post-occupancy agreements because meaning that the seller is going to rent back from you or stay in the house a set amount of time after you purchase it, because most buyers that are listing are buying to owner-occupy the property.

If you are essentially buying it and letting them lease from you for a period greater than 60 days, it can be looked at as a problem with the lender. So you do have to keep that in mind when you are allowing someone to stay, but I think flexibility is really an important way to help you look stronger in the eyes of seller, just meeting them on other terms that aren’t just financial, you know, giving them that extra time.

Because a lot of sellers are maybe moving into a new condo or they’re downsizing into a new community where it’s being built. And then the builder is taking a little bit longer to build a property, so there is always these other variables. I think learning as much as you can about the seller and the situation can help you in getting that under contract.

[0:29:23.0] TU1: Great stuff Tony. As always, I appreciate your insights from your experiences each and every day talking with pharmacists and others across the country looking to purchase a home. I think this is a good segue and transition to talking more about the pharmacist home loan product that is offered by First Horizon formerly IBERIABANK. And we’ve got lots more information, educational information.

You can learn more about this product and other information related to purchasing a home, at yourfinancialpharmacist.com/home-loan. Tony, give us some of the highlights, some of the key facts as it relates to the First Horizon pharmacist home loan product, down payment, how that works with PMI, maximum loan amount and then we’ll reference folks to more information from there.

[0:30:06.0] TU2: Sure, so we will allow up to 97% financing if you are a first-time home buyer with 3% down and then if you have owned a home before, it is 95% financing, so 5% down. As Tim mentioned, there is no PMI insurance, which is the most compelling piece of this and we do have a minimum credit score of 700, a maximum loan amount currently of $647,200, which serves plenty of markets at that size.

Then we do offer a 30-year fixed mortgage and the rates tend to be every bit as good as if you put 20% down for a normal buyer so that’s what’s been compelling too as you are not getting penalized to put less money down. And there are no prepayment penalties, so it’s got a lot of flexibility for those that are in this occupation. And we can write it, as Tim mentioned, in 48 states. Alaska and Hawaii are the only two I can’t write it, so we haven’t gone that far yet.

[0:31:02.9] TU1: Yeah, that was really a big part of, when we formed the collaboration a few years back, was a national option for pharmacists that were looking to make that home purchase, right? You mentioned the lower 48, obviously, we’ve got a community of pharmacists all across the country, so really grateful for your insight and the contributions you made to the YFP community.

Again, if folks want to learn more about that product, you can go to yourfinancialpharmacist.com/home-loan. Tony, great stuff as always, and looking forward to continuing the conversation as we go throughout the rest of 2022.

[0:31:37.4] TU2: Thanks again Tim, I enjoyed being with you today.

[END OF INTERVIEW]

[0:31:39.8] TU: Before we wrap up the show, I want to again thank this week’s sponsor of Your Financial Pharmacist Podcast, IBERIABANK/First Horizon. We’re glad to have found a solution for pharmacists that are unable to save 20% for a down payment on a home. A lot of pharmacists in the YFP community have taken advantage of IBERIABANK/First Horizon’s pharmacist home loan, which requires a 3% down payment for a single family home or townhome and has no PMI on a 30-year fixed-rate mortgage.

To learn more about the requirements for IBERIABANK/First Horizon’s pharmacist home loan and to get started with the pre-approval process, visit yourfinancialpharmacist.com/homeloan. Again, that is yourfinancialpharmacist.com/homeloan.

[DISCLAIMER]

[0:32:21.8] TU: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and it is not intended to provide and should not be relied on for investment or any other advice. Information of the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

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

[END]

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YFP 244: 6 Common Home Buying Debates

Posted on February 24, 2022November 2, 2022 by yfpadmin

6 Common Home Buying Debates

Nate Hedrick, the Real Estate RPh, is back on the show discussing 6 common home buying debates.

Episode Summary

During today’s episode, Nate Hedrick, co-host of the YFP Real Estate Investing Podcast, joins Co-Founder & CEO, Tim Ulbrich, PharmD, allowing us to tap into his expertise as a real estate agent, helping plenty of pharmacists through the process of buying a home. We discuss six common home buying debates and talk through both sides. Sometimes we think of many aspects of the home buying process in black and white when there are many times when it depends. How you feel and choose to move forward with these decisions that ultimately impact your financial plan often depends on your financial situation, how you feel, other goals and priorities, and many other factors. We talk through the pros and cons of a 15-year mortgage versus a 30-year mortgage, debate why a 20% down payment on a home purchase sometimes makes the most sense and other times not, and consider how you can buy a home while paying off those pesky student loans. Listeners will be able to tap into the pros and cons of buying versus building a home and whether you should consider a starter home as your first home purchase or plan on saving for a forever home. You’ll also hear why renting is not a terrible decision, despite what we may hear about the need to build equity through buying a home.

Key Points From This Episode

An introduction to today’s guest, Nate Hedrick, co-host of the YFP Real Estate Investing Podcast.
Why home-buying decisions are not absolutes, but rather another aspect of the financial plan.
How there’s no wrong way to go about financial planning, it just matters what you care about.
Some of the pros and cons of 20% and why the most important question is what your capabilities are.
Nate’s thoughts on the opportunity cost of money that’s being tied up in low-interest rate debt.
Building versus buying and who each option is best suited to.
Buying property with and without student loans.
Weighing up buying a starter home versus buying a forever home.
Why the term ‘forever home’ is a bit of a misnomer.
The benefit of having multiple exit strategies.
Why renting is not necessarily a terrible financial choice.
The unforeseen costs of owning a home.

Highlights

“It feels to me like we sometimes treat home-buying decisions as absolutes, as black and white one solution for all. When in fact, it’s yet another area of the financial plan.” — Tim Ulbrich, PharmD [0:02:20]

“[For] the average American, something like 11.5 or 12 times is the number of times they move in their life. The concept of the forever home is actually a misnomer.” — Nate Hedrick, PharmD [0:18:50]

“It’s important to try to factor those pieces in when making that decision because it’s not as simple as comparing the mortgage to your monthly rent. There’s a lot more that goes into it.” — Nate Hedrick, PharmD [0:24:32]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

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

This week I had a chance to welcome back onto the show, Nate Hedrick, the Real Estate RPh. Now, many of you may know Nate as the co-host of the YFP Real Estate Investing Podcast. But today, we are talking home buying and tapping into his expertise as a real estate agent who has helped many pharmacists throughout the home buying process. On today’s episode, Nate and I talk through six common home buying debates, and have some fun playing both sides of these debates. Some of my favorite moments from the show include discussing the pros and cons of a 15-year versus 30-year mortgage, debating why 20% down sometimes does and does not make the most sense. How one can consider purchasing a home while paying down those pesky student loans, and why renting is not a terrible decision despite what we may hear about the need to build equity through buying a home.

Whether you are a first-time home buyer planning to move or looking for an investment property, get started today by scheduling a free call with Nate, by visiting yourfinancialpharmacist.com, and clicking on “Home Buying” at the top of the page and then selecting “Find an Agent.” From there, you can book a no obligation free call with Nate to see if his real estate concierge service is a good fit to help you walk through the process and to find an agent in your area that has your best interest in mind. Okay, let’s jump into my interview with Nate.

[INTERVIEW]

[00:01:26] TU: Nate, welcome back to the show.

[00:01:28] NH: Hey, Tim. Always great to be here.

[00:01:29] TU: How are things for you, for the family, for real estate? What’s new and exciting?

[00:01:33] NH: Everything’s good. We’re snowed in Cleveland, Ohio, but that’s nothing new. It will be like this until April, I’m sure. But yeah, we’re good. Real estate is cooking. We just finished up rehab on one project. Actually, it’s funny. On the day we refinance, the next day, we have closer back to the house for a new property that we’re purchasing. We’ve been busy. It’s been good.

[00:01:51] TU: Awesome. And it’s been a hot minute since we had you last on the podcast, episode 241, where I talked with you and David. You’re a co-host for the YFP Real Estate Investing Podcast. We talked about five common objections to getting started in real estate investing. But today, we aren’t talking real estate investing, but rather home buying and common home buying debates. As I mentioned to you Nate before we hit record, it feels to me like we sometimes treat home buying decisions as absolutes, as black and white one solution for all. When in fact, it’s a yet another area of the financial plan. Where if Tim Baker were here on the show today, he would say, “It depends. It depends on your financial situation. It depends on other goals and priorities. It depends on how you feel and many other factors as well.”

We’re going to have some fun today beating up common home buying debates, like 15 versus 30-year mortgage, whether or not somebody should put 20% down. Again, let’s keep in mind that there is no right answer, and certainly no one solution for all. All right Nate, you’re ready?

[00:02:51] NH: Yeah, let’s do it.

[00:02:51] TU: Number one on the list, and this I think hits home for you as you mentioned before we hit record. You’ve had experience in both sides of this debate. Number one, home buying debate is 15 versus a 30-year mortgage. Talk to us about your experience, and then some of the pros and cons of each approach.

[00:03:06] NH: Yeah, absolutely. As somebody who owns a home, I’ve actually gone through both types of mortgages and on this exact house. We bought it with a 30-year mortgage. Again, when we were purchasing our house, we’re scraping together whatever we could just to be able to afford it. So a lower payment and all the other things that go with that. A 30-year kind of made sense. As we got a little further down the road, a couple years into owning the house, we refinance. And at the time, there was a fantastic rate available for doing a 15-year. So we got – I think it was a full point more, or more actually as a reduction on our rate just by going down to a 15-year. We looked at our finances, said, “Yeah. We can actually afford the monthly costs on this, pay off the house faster.” We took it from wherever it was, like 26 years that we had left on the 30-year, refinance that down to 15.

Well then, more recently, we refinanced again, because the market has gone up, the value of the property has gone up and wanted to tap into HELOC. When we looked at rates, again, they were very much the same between 15 and 30-year rate at this point, so there wasn’t that advantage any longer. When I look at things like a home, where it’s very good debt, in my opinion, you’re looking at an interest rate that’s pretty comparable, why not spread that out over a longer period of time, knowing that I can always pay it faster if I want to, but I don’t have to, right. If one of us decides not to work for a while, we can take a step back and all of a sudden, I don’t have that larger payment looming. There’s advantages and disadvantages to both sides.

[00:04:31] TU: Yeah. I think for folks that haven’t really dug into actually looking at the amortization schedule, if they’re in this decision point, and as you mentioned, there’s some flexibility right as you looked at refinancing and other options going from the 30, to the 15, to the 30. I think that this is an area to me, Nate, where someone really has to take a step back and just like we talked about with student loans, it’s how do you feel plus the numbers, right? Here as well, I think for me emotionally, there’s one aspect, it’s like, “Man, I’d love to have a paid off home tomorrow if I could. It just would feel good. It’d be an asset that I could tap into potentially, in terms of equity and so forth.” But then there’s the more objective analytical side of me, that’s like, “Wait a minute! When you look at these rates, what else could I be doing with this cash flow, right, which gets to comfort level, other goals you’re trying to achieve?” I think your comment about the 30-year, you can pay it off faster, if need be, you’re going to have some flexibility to cash flow. But certainly, an individual decision that folks need to be thinking about.

[00:05:29] NH: Yeah, 100%. I think there’s no wrong way to go about it. It just matters about what you care about, right? That idea of a paid off house, while interesting to me, when I look at it as a broader piece of my financial picture. It doesn’t get me out of bed just to get that 3% rate washed away.

[00:05:44] TU: Yeah, and I think it’s worth, obviously, Nate, we’re talking about this in February 2022. Interest rates are historically low levels, right? That definitely matters. As we’re thinking about what else might I do with this money? Obviously, we’re doing that in the context of these rates being very, very low. If that were to change into the future, you know the discussion might be different.

[00:06:04] NH: 100%.

[00:06:05] TU: Okay. Number two home buying debate is 20% down versus something less than 20% down. Maybe that’s zero, we’ll talk about options there. Maybe it’s 5%,10% or 15%. But I think, 20% down for conventional loans is what folks may be used to hearing, that hey, you got to have 20% down to buy a home. But there are lots of options out there that don’t require 20% down. You look at VA loans, FHA loans, professional mortgage loan options. You talked to us about some of the pros and cons of 20% or something less than 20% down.

[00:06:37] NH: Yeah. There are a number of things that can factor into this. The biggest one to me though is, do you have the ability to save up for that amount, right? Twenty percent down in a market where the houses are $500,000 or more, that’s a totally different amount to save up versus a $200,000 starter home, for example. I think part of it is, what are your capabilities in terms of being able to save that money? And then once you start to look at that, trying to figure out how does this affect our budget, right? If we put 20% down versus 0% down, the payment we have every single month is going to be vastly different. Understanding how that affects your monthly budget can really be a big deal.

The other thing is that in a market like this, where housing prices are continuing to rise, and almost getting to the point where I think people are kind of getting nervous at how fast the prices have gone up. To me, it feels nice to have that 20% down that equity built in. Because if there’s a downturn, if things start to move in the wrong direction, I’ve built in some equity into that place. That if I do need to sell it for some reason, I’m not taking a bath going and selling that house for a loss. There’s advantages to that. The other thing, though, on the flip side is that I’ve seen people say, “Well, the market is crazy. I’m going to wait and build up my 20% down.” And in the meantime, the market has increased so much. The amount they’ve saved isn’t even enough to keep up with the appreciation of the market. They actually lost money by doing that, which is crazy to me. There’s again, both sides of the coin on this one.

[00:07:59] TU: Another example too of really taken a step back, Nate, what’s the opportunity cost of money that’s being tied up in low interest rate debt? How do you feel about the risks that are associated with having less equity versus having more equity in the home? I think that again, this gets back to, “Hey! What else is going on in the financial plan? Is there other high interest rate debt? Are we behind on investing or saving for the future? What is the importance of that cash flow? How do you feel about it? I think your comment about the instant equity in a market downturn is good, or the other thing I think about here, Nate is, if pharmacists maybe end up in a career transition that they didn’t anticipate, or perhaps worth thinking about, just the costs of being unable to sell that home, buy a new home, the transition, if there’s no equity in that home, then that’s going to be further expense into the future. Also thinking about what that equity might be used for into the future in the event of something like a home move that would happen.

[00:08:54] NH: One thing we didn’t mention too, with a 20% down, is that a lot of times, with those loans, you can’t avoid things like PMI, or even get a better interest rate. Factoring in all those costs of, if I do the 0% down, or if I do a low money down option, is there going to be built in PMI. Has the interest rate been impacted by that move? It’s not just that upfront financial decision, but it’s the long term as well.

[00:09:15] TU: I think one disclaimer, Nate we should make here. Is that, you have worked with pharmacists nationally helping them get placed with an agent that is a good fit for them and you’re very aware of what’s going on national trends. We got to Ohio guys here talking about real estate, and I recognize even, you’re in the Cleveland area, I’m in the Columbus area and we certainly seen significant appreciation. But this is not Washington DC, this is not New York City and this is not San Francisco, right? As we throw out numbers and we recognize that pharmacist’s salaries don’t necessarily correspond to home prices, right? Pharmacist in Columbus, pharmacist in San Fran, maybe there’s a little bit of income differences, but that housing difference is going to be massive and well surpass that income differences there.

Obviously, when we talk about down payments and things to your point about the feasibility of the down payment, someone’s looking at a $600, 000, $700,000 home because of the market. Do the math on that in terms of what it’s going to take $120,000, $140,000 to put 20% down. But one counter argument to that is, despite it taking so long to be able to build that up, is that, I do think a lesser down payment can sometimes open up the realm of what is possible in terms of home price that may or may not be within the realm of someone’s budget and long term financial goals. What I mean by that is, if you were to say, “Hey, Tim! You’ve got to put 20% down, whether I like it or not, that’s going to probably force me to really look at that overall purchase amount differently, because I’m going to part ways with a significant amount of cash upfront.” If I don’t put anything down, I’m not going to feel as much of that upfront. So just another reminder of like you as the individual, setting your budget, whether you put 20% down, 15%, 10%, whatever the number is and not letting the bank set that budget for you.

Number three home buying debate, buy versus build. We talked about this a little bit on episode 193, so we’ll link to that in the show notes. But Nate, I think this is a really timely question that I suspect folks might be thinking about, giving the market being what it is. It’s [inaudible 00:11:09] and that seems to not be stopping anytime soon. Folks might be looking at the bidding wars, the competition, all the thing that’s going on and be like, “Man, just forget about it, I’m just going to build a home. Talk to us about some of the considerations here. We’ll certainly point folks back to episode 193, as well, of what might be some of those nuances, and differences and things that people need to think about in the buy versus build debate.

[00:11:32] NH: Yeah. I’ve had multiple clients, have that exact same conversation with ourselves about, “Well, I can’t find a place that isn’t in a bidding war. Maybe I’ll just go build one, this will be a lot easier.”

[00:11:40] TU: I’m out. Yeah.

[00:11:42] NH: Yeah, I’m out. I’m going to do this in nine months, right? That really is an option for some folks, but it comes down to a couple of key things. The first is, the lending and financing on building versus buying, it’s very different, right? Especially if you’re talking about – and again, 193 goes into a lot more detail here. But especially, if we’re talking about purchasing raw land, and building on that specifically. A lot of times, even if you don’t purchase that way, where you’re buying a lot within the development, you still have to obtain a construction loan, which is very different than a typical end loan or a mortgage loan. There are a number of factors to consider in terms of the amount of down payment required, reserves that are required, and all the pieces that go with that. The second thing is timing.

Obviously, building a home takes time. In most cases, you’re looking at a 9 to 12-month window, but I have seen delays of over a year. In fact, I worked with a client that ran into a ton of delays and actually had to walk away from a deal a full – gosh, it was a full eight or nine months after it was supposed to be done and it wasn’t even halfway complete because of supply issues. The timing is definitely a factor. If you are on a strict timeline of any kind, I would recommend avoiding the build, right? You don’t want to be set to what has to be done by June because of X, Y and Z. That’s going to be a recipe for a mess.

Then the last thing is really the budget and the costs, right? Building a home is generally more expensive than buying an existing home. Of course, you can set your budget lower, and you can make that all work. But it’s very easy to sort of have these escalations take place where you walk into a place, and it’s $300,000 as the starting cost of the home. But once you start adding in all the things that you want, now you push it to 400 without even choosing your cabinet color. It can really get out of hand quickly. And if you’re not able to rein that in, you can easily overspend. I think going into it with that mindset of, “I know my budget. I’m going to stick to it and here are the sacrifices I’m willing to make on that budget.” That’s a healthy way to do it. But most people don’t, most people go in and get that eye candy of what can I grab? What can I add to this?

[00:13:38] TU: Great stuff, Nate. Number four on the homebuying debate is buying with or without student loans? What would a YFP episode be without talking something about student loans? This is a question I get all the time, which is, “Hey! I’m the average pharmacist that graduated within the last five or 10 years. I’ve got $150,000 to $200,000 in student loans. But I’m in the phase of life where I want to buy a home, and I recognize that I’ve got this gorilla of student loan debt and I’m potentially layering on another gorilla of debt in terms of the home. Largest purchase folks are typically going to make. What does that mean for my financial plan? Should I wait until I have my debt paid off? What are some considerations if I’m going to buy a home while I have student loans?”

You wrote a great blog post on this topic that we’ll link to in the show notes, Three Strategies for Buying a Home with Student Loans. Nate, what are some initial thoughts that folks need to be thinking about if they’re in the weeds of that situation, lots of student loan debt, actively looking for home or planning to look for a home in terms of how to balance that, as well as things like how is that debt is factored into the equation of the lending process?

[00:14:43] NH: Yeah. I think the very first thing you want to sit down and do is figure out what your debt payoff strategy is for your student loans, right? This is a totally different conversation if we’re talking about PSLF or some sort of forgiveness, versus actually attacking that debt yourself. For the sake of argument, I’ll assume we’re not going for PSLF on this one, and we’re just going to pay down the debt, right? We’ve got X hundred thousand dollars and we’re going to take care of it eventually. I can tell you that, looking at your budget, looking at what those monthly costs are, is a really great place to start. One of the reasons is, because you need to know how much you’ve got going out the door, one for yourself, to set your own budget. But two, how it’s going to factor into your debt-to-income ratio.

As we’ve talked about in the past, the bank is going to look at that loan as what the monthly payment is, and how that’s affecting your debt to income. We’ve seen pharmacists get priced out of their own market, because their student loan balance, the student loan monthly payment is actually pushing their DTI too high. Knowing those numbers, and really understanding what you’re getting yourself into in terms of those is a great place to start. From there, I think you really need to start asking yourself a few key questions. You can absolutely buy a home with student loan debt writing. I’ve done it. We invested in several other properties before we even paid off our student loan debt. It’s not undoable. But what you have to look at is, are those student loan debts causing me a lot of stress? Am I so hyper focused on that, that I can’t fathom the idea of creating extra debt until those are gone?

I think looking at something like that is a great place to start. And then also looking at some of the key pieces of your financial picture. Like, do I have an emergency fund? That absolutely essential before you get on any other road. And then, how will buying this home affect my other financial goals? Will it shoehorn me into 10 years of all I can do is pay back this debt and not quit my job? This is all I have. I think asking yourself those questions up front, before trying to figure out how can I do this. It’s, should I be doing this and how do I feel about it?

[00:16:35] TU: Yeah, Nate. As it relates to the question you brought forward, which is a really good one. Are my student loans and other debt causing significant stress? I have the opportunity to talk with lots and lots of pharmacists about this topic. Typically, we’ll ask them, “On the 1 to 10 student loan pain scale, which is ten is, these are keeping me up at night, causing me a lot anxiety. It’s the last thing I think of before I go to sleep. First thing I think in the morning.” Versus the one is like, “Nah! It is what it is. It will take care of itself. Where are you on that scale?” My follow up to them, which I think is significant here is how much of it is the dollar amount, and how much of is the lack of clarity on having a strategy and a plan. More often than not, when we can start to put together a plan, and that number isn’t going to change tomorrow, right? If you’ve got $200,000 of student loan debt, and today, we don’t have a plan. Tomorrow, we do have a plan. In fact, you might have more debt tomorrow, because of interest than you do today.

But the peace of mind that comes from hey, we’ve evaluated all these options. We’ve looked at forgiveness, we’ve looked at non-forgiveness, we’ve dissected the strategies, we understand what’s going to come out of pocket, we know how this is going to fit in with other parts of the plan. That is a game changer. I would say that here and encourage folks, if you’re in this position right now, really getting clarity as Nate mentioned, on the student loan repayment plan, because even though that number may not change, I think that certainly might change your mindset heading into the whole mind decision.

[00:18:01] NH: That’s a really good point. I mean, it’s something that again, we had Tim Baker sit down with Kristen and I to actually look at this stuff and feel like, once we got our head around the plan, the number itself didn’t matter as much. It was just about sticking to the plan and realizing how other things puzzle pieced into that. I agree that’s super important.

[00:18:19] TU: Number five in the home buying debate is buying a starter home versus a forever home, which obviously those terms are subjective in and of themselves. This is one, Nate that I recall my wife Jess and I talking about. Knowing that there are real costs in buying and selling of a home. And as we have seen with the market appreciation over the past few years, waiting might mean paying more. Why not just jump in your forever home right away, I think is the question that we often hear, and talk to us about some considerations here.

[00:18:47] NH: Yeah, it’s a great question and it’s a bit of a misnomer, the forever home. The average American, I think something like 11.5 or 12 times is the number of times they move in their life. The concept of the forever home is actually pretty misnomer. But anyway, if you’re looking at, what should I be doing first? Should I go for that big house right up front or should I start with something a little bit smaller that I can then progress from? It really comes down to what are your goals with that property? I think for me, looking back, when we bought our first house, we really looked at it like this is going to be a good “starter home”. Also, we can grow into it a little bit, right? It gives us flexibility. I really encourage that is you’re never going to know what your life’s going to look like in five years from now. Plan for the unexpected by giving yourself some of that grace and that flexibility. From there again, once you start to realize what you really like in the house or what your goals are with a property, that’s when you can start thinking that forever home type of deal.

Most people I would argue, for the starter home kind of being an upfront move, knowing that you’re getting yourself into the game, you’re starting to build equity. And then once you figure out what you like, once you figure out what your kind of stable life period looks like, then you can look at that more forever home. But again, there’s no wrong answer here. If you just want to jump right in, go right for the end line. I get that too.

[00:19:58] TU: Yeah. Comment about being a misnomer is a good point, right? I can speak to that firsthand. Jess, and I moved into our current home. Let’s see. That would have been October 2018 when we moved to Columbus. Our first home, which I think you’d consider kind of our starter home, in the booming metropolis of Rootstown, Ohio. We lived in for nine years, and just seeing kind of the jump in our expectations naturally. We didn’t have four boys, and now we do have four boys. So that’s real and that’s different. But even now, when we looked at this home in October 2018, we’re like, “Yeah. That’s our dream home.” It’s got everything and it’s been a fantastic home.

But human behavior, which is true for us, and is true for many others is, after a while, you’re like, “What about this? What about that?” What about this part of the home? Or could this be a little bit different?” I think really challenging on some level, that assumption of like, if you’re looking to make that move into the forever home, is that really the end point. And then again, thinking about that in the context of the rest of the financial goals that you’re trying to achieve.

[00:20:55] NH: And something else that I think is relevant here that David and I talk about on the YFPREI Podcast a lot is multiple exit strategies. Whenever we’re buying investment property, and I know, this is a little bit different. But when you’re buying an investment property, you want multiple exit plans, right? We can rent this out, we can sell it, we can flip it. But you kind of need the same thing with your own house, right? I think having multiple plans or multiple avenues to walk down, we could eventually rent this out or we could easily resell this because of X, Y and Z factors. Going in with that mindset, rather than just, I’m buying this asset, and hopefully it works out forever. Like that’s not the right plan. So go into those multiple exit strategy approach, and you’ll be set up for success.

[00:21:31] TU: Selling a child account is what an exit – no, I’m just kidding. I love you my four boys. Love you all. Number six, our final one here in the home buying debate is rent versus buy, perhaps saving the most contentious for last. When I suggest to folks Nate that renting isn’t all that bad, I get this look of like, “You said what?” I get it because it doesn’t support their narrative and desire that we often have to buy a home. I think that’s a big goal for many folks. That’s the dream that we have. How can one objectively evaluate this decision and not just blindly accept that all renting is bad and all homeownership is good?

[00:22:09] NH: Yeah. This is a question that comes up all the time. I know we’ve talked about it before in the past. I’ll give you a brief story that I think kind of shows some of the ways to think about this that’s maybe a little bit different. My brother actually lives out in San Francisco and has been looking at buying a house here for a little while. The houses out there, obviously, as everyone on this well knows are in the millions of dollars, at 1.1, 1.8. I’ve seen him looking at. It’s just absolutely outrageous. I can’t even fathom that amount. His argument for buying is that, well, I want to build equity, I want to not have my rent payment “thrown away” every single month. And arguably, he’s right. His rent payment is super high and I totally get it.

But if you took that same amount of money that would be required to buy that home in San Francisco, and you invested in several other properties that then paid you back, you could probably actually cover your own rent in whatever city you wanted to live in, while building equity with four other properties around the country. So this idea of, it’s always better to buy, it’s always better to build equity. It doesn’t always hold water. If you look at the areas you’re buying in, and you look at the factors that go into that right, how much am I putting down? What am I gaining by renting? For example, is there flexibility in that approach? Is there amenities that I wouldn’t be able to get if I were to buy a home like this, and all those factors have to come into play, and it’s not as easy as buying is always better, we should advocate for buying.

[00:23:27] TU: I think Nate, we talked about this a little bit on episode 113. We’ll link to that in the show notes, when we talked about exactly this topic, that American dream of owning a home. Is it for everyone that true costs, really evaluating the true costs of homeownership, when to consider the rent versus buy tips for knowing when the time might be right. But I would encourage folks, objectively evaluating the expenses. This is probably the most common thing I experienced myself back in 2008, 2009. My wife Jess and I were renting a condo. We’re paying by $1,100 a month. For folks that are living in higher cost living areas, I get it, the shock factor when you hear those numbers and we’re looking at a home that was principal and interest, about $1,100 a month. Naturally, I said, “Why are we renting? We should buy.” Then you start to really obviously dig into the other costs in terms of insurance, and property taxes and, “Oh, yeah. We’ve never lived in a home so we have all these things we need to buy to furnish the home, lawn mowers, equipments, other things, maintenance, upkeep, really objectively evaluating it from apples to apples or as close as you possibly can when one is making that decision.

[00:24:30] NH: Yeah. It’s tricky to do, obviously. You don’t know what you don’t know, but it’s important to try to factor those pieces in when making that decision because it’s not as simple as comparing the mortgage to your monthly rent. There’s a lot more that goes into it.

[00:24:42] TU: Great stuff as always, Nate. Love having you on the show and we know firsthand, you know firsthand, the community knows firsthand that buying or selling a home, it’s certainly an exciting journey but can quickly leave you feeling overwhelmed and confused throughout the process. And that’s why we have teamed up with Nate Hedrick featured here on this podcast. Nate, real estate RPH to provide a simple solution to jumpstart your home buying or selling process with a free concierge service that you can take the guesswork out one of the biggest purchases that you’re ever going to make.

As both a real estate agent and pharmacist, Nate has the insider’s view. He understands how busy your schedule can get and how difficult it is to interview and hire a real estate agent on your own. This free concierge service, Nate will take some time to learn about your budget, learn about your goals and connect you with a YFP real estate preferred local agent that he has vetted himself. They will then stick by your side even after closing in case you have questions or need an extra opinion along the way. If you’re ready to buy or sell a home, you can get started today by scheduling a free call with Nate by visiting yourfinancialpharmacist.com. You can click on home buying at the top of the page and then select find an agent. From there, you can book a no-obligation call with Nate to see if his real estate concierge service is a good fit to help walk through the process and to find an agent in your area that will have your best interest in mind.

Nate, continued to have appreciation for this collaboration. Love the perspective you bring on to the show. Appreciate the work that you’re doing on the real estate investing podcast. Thanks so much for joining today.

[00:26:10] NH: Yeah, happy to be here as always, Tim.

[OUTRO]

[00:26:12] TU: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and it’s not intended to provide and should not be relied on for investment or any other advice. Information in the podcast and corresponding material should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

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

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

[END]

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