Behavioral Finance / Podcast

YFP 210: Why Net Worth Matters

Posted on by yfpadmin

Why Net Worth Matters

On this episode, sponsored by APhA, Tim Baker discusses why net worth matters, how to calculate your net worth, and why net worth, not income, is the true indicator of your financial health.

Summary

Net worth can be the most critical data point for determining your financial health. Tim Baker explains how to calculate your net worth, detailing that it can be as simple as the value of your assets minus your liabilities. Tim shares that many people do not know their net worth because few tools available to the general public can quickly aggregate that information. Years ago, you would take out a pen and paper and compare assets to liabilities. Now, you might do that same work in a spreadsheet, but the document wouldn’t be a living document like your net worth truly is. Tim also details which items to include in asset and liability columns and why certain accounts or property might remain off the balance sheet.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Tim Baker, good to have you back on the show.

Tim Baker: Hey, Tim. Good to be back. Glad to chat with you for a full episode here. Excited to dive into today’s topic.

Tim Ulbrich: Yeah, really excited to talk about net worth in detail, a concept, a term we’ve mentioned many times but I don’t think we have thoroughly explained, really dug into how is net worth calculated? Why is it so important to the financial plan? And why do we choose to use net worth as one factor in terms of how we price our financial planning services? And so we’re going to talk about all of that and much more on today’s episode. I want to start briefly and mention to our listeners that net worth for me individually is something that is really important when I think back to my own personal journey and financial plan. So 2012 — short story here — 2012, four years after I graduated with my PharmD, my wife Jess making a good, decent, six-figure pharmacist income, and realized at the moment after hearing about this term of net worth, realized that I had a net worth that was -$225,000. And we’re going to talk in a little bit about how to calculate that. But that was a very pivotal moment for Jess and I and our financial plan to say, wait a minute. Income looks good, we don’t feel like things are necessarily off the rails in any way, but mathematically, the net worth is not necessarily showing that we’re in good financial health and good financial position. And so that was a key moment for us to really turn the ship in terms of our financial plan and ultimately led us to paying off the rest of our balance of a pretty big amount of student loan debt and then obviously able to move on to other financial goals from there. So Tim, for you, when did you realize that net worth was not only important to you individually but also really such a primary factor that you built it into the financial planning model that in terms of how we charge clients, that one factor of that is net worth.

Tim Baker: Yeah, it’s a great question, Tim. And I think like you talk about your personal story, like same. Like I’ve gone through phases of my life, I look back even growing up and when I was in high school I was really a good saver. You know, we were kind of told that we had to pay for college and if we wanted to drive and all that kind of stuff that we were kind of on our own. So I kind of went through this period of being like a really good saver. And then when I was at West Point, my first year at the academy, you know, 9/11 happened and our view of the world drastically changed. And I think my spending kind of changed with it. I was kind of more of like a YOLO, not necessarily worried about tomorrow but really focused on today. And from a spending perspective, that didn’t really help me, my balance sheet. So I’ve definitely gone through times in my life where my net worth was not growing. And I don’t know that for a fact, but I just know that some of the debt that I was taking on and that my savings was not growing, that was the case. And I think part of the problem or part of the reason that a lot of people when they hear “net worth,” they’re like, “I don’t even know what mine is,” because there’s not really an app for that, so to speak, where it ties everything together. So we know that hey, we can kind of see what our credit card bills are, and we can kind of see what’s in our checking account and we might look at our 401k from time to time and our home value and what’s left on the mortgage, but really to tie that together, it takes a bit of work to do that. But then I kind of evolved and got into financial planning and really my mindset around money has really changed and really even has changed even more so so I’m less — you know, I kind of went from YOLO to being a financial planner and kind of believing a lot of the things that a lot of the gurus in save, save, save. But I think I’ve also softened on that a little bit in terms of like having a strong financial plan is important and making sure that the numbers are moving in the right direction, the 1s and 0s with regard to your net worth. But that ain’t the end-all, be-all, Tim. And I know we talk about this obviously a lot. It really is an exercise in trying to thread the needle between again, taking care of yourself today, so YOLO, but also making sure that we can retire comfortably and we want to plan for tomorrow. So in terms of planning, you know, when I started Script Financial way back in the day before YFP Planning and our work together, you know, I was looking at what a lot of financial planners were doing, and I came across this income and net worth model. And the more I thought about it, I’m like — and this is as I was trying to, even before I launched my firm that was really dedicated to helping pharmacists with their financial plan — I was like, I really like that because it’s kind of — it captures everything. Like everything financially typically touches the balance sheet, right? So you know, so if you’re thinking of like, what is net worth? Net worth is really, it equals your assets, the things that you own, so think checking, savings, investment accounts, the value of your home, minus your liabilities, which are the things that you owe, so student loan debt, credit cards, the mortgage left on your house, the loan to your crazy uncle Steve for whatever, like those are the things that are the subtractors. And that’s your net worth. And for a lot of pharmacists, especially starting out, that can be super negative. So we’ve had clients that have come on that their net worth is almost -$1 million, but then we also work with clients that are multimillionaires. So to me, it made sense to really focus on the net worth because we can’t control everything about the financial plan, but there are a lot of things that we can control, and I think the net worth kind of encapsulates a lot. And I think it’s the biggest, it’s the best number to focus on as you’re trying to view progress and improvement with regard to the financial plan over time.

Tim Ulbrich: So Tim, as you mentioned, simple calculation, right? Net worth is assets, what you own, minus liabilities, what you owe. Some common questions I think that I know I’ve gotten and I’ve thought myself when people actually start to put pen to paper here are, you know, what assets might I include or not include? I know there’s some thought about like depreciating assets such as a car. Is that something I should include as an asset or not? And then on the liabilities side, things like revolving credit card debt or obviously that could be ongoing with interest accruing but things that pay off each month or those types of things. So when you’re actually getting in the weeds on assets minus liabilities, is this worth really starting to get into ah, is this truly an asset or is this not an asset? This has this tax and so forth. How do you think about what actually falls into these or does not fall into these buckets?

Tim Baker: Yeah, I mean, it goes back to that whole idea of like garbage-in, garbage-out, right, Tim? So the better the data is, the more accurate and the more empowered you can potentially be to make good decisions. Something like a 401k and the value of your home, that’s a no-brainer because for most people, that’s typically the largest assets that is on the balance sheet.

Tim Ulbrich: That’s right.

Tim Baker: The home is going to be a little bit of a moving target because, you know, you look at the Zestimate, you might say, “No way that I can get that for my house,” although, right now everything is en fuego. A home — and yeah, something like that, what people will pay for is, that’s the value. So that can be a little bit of a moving target, but I think it’s worth tracking over time. The question about a car, you know, like when we talk about that, we typically don’t include that because in most cases, the value of the car depreciates as the note does in a lot of ways. Now if you buy a car cash, then maybe that’s a different story. But things like a credit card, yeah, I mean, if you have a balance that you’re carrying, I would definitely include that. If you don’t, maybe not, if that’s your behavior. But I think like — so back in the olden days, Tim, this would be like a pen and a notepad, right? So you would put all of your liabilities on the left side, big line down the center, put all your assets, add those up, and then basically what’s the difference, and that’s your net worth. Now, you know, either with Excel or something like that, you can do it a little bit — that’s still manual because you still have to look at these balances. But there are lots of tools out there that you can actually aggregate all of the different financial institutions that you’re using. So for our tool, basically when a client comes on board, once they become a client, the first thing that they do is we send them a welcome email and they get links to their client portal, and they link their checking, their savings, their credit cards, their student loans, their mortgage, basically all of their financial accounts. And for a lot of people, Tim, if you think about it, it’s the first time they’ve seen all of their stuff in one spot. So like how can we plan for things if we don’t really know what we have or we know kind of in the abstract of what we have. But then especially for couples, right?

Tim Ulbrich: That’s right.

Tim Baker: It’s the first time that they see all of their stuff in one spot. So you know, and that’s because we bank over here, we invest over here, our student loans are over here, so to have that on one platform, that is so powerful just to see like where the heck are you? Where are we at? Which is a big component of — it’s half of the equation of when I say, “It depends,” that’s one of the big components is like, where are we at, so that we can advise you on where we want to go. I think the net worth, again, and what you include in that, by and large, you want checking and savings, your cash accounts, investments, the value of your house, student loans, credit cards that you’re carrying, personal debt, mortgage, etc. Some of the other stuff might be if you have like fine art or things like that, you can include that all in there. But you know, depending on how big that is in your portfolio, I know there’s some people that their business is one of their biggest assets that they would account for on their net worth or maybe a cash value life insurance. So it’s going to depend, but I would say don’t get lost in that minutia. I think the act of just going through it and doing it and just seeing — it’s just like budgeting, right? — just seeing what works, what doesn’t work. If you don’t think that tracking x number is important, then don’t do it. So that’s my thought.

Tim Ulbrich: Yeah, no fine art in this house, Tim, with four boys. So that would get trashed for sure.

Tim Baker: Yeah.

Tim Ulbrich: You know, I was just logging on, we use, as you alluded to, we use a tool for our planning clients called eMoney. And one of the things I love about that is, you know, I just logged onto my account, front and center is net worth. Right?

Tim Baker: Yeah.

Tim Ulbrich: And you know, we talk about in the book “Seven Figure Pharmacist” that net worth is really your financial vitals check. It’s a great indicator of your financial health. And I find this helpful because there’s times — and it can be days, sometimes it’s within a month — where you’re like, man, things are going really well or the opposite, I feel like things are falling off the rails financially, right? And then you log on and this allows you to take a step back and say OK, what is the direction that things are going? And what’s happening in the asset column, what’s happening in the liability column? And I think having this front and center and tracking the progress over time and obviously through growing assets and paying down the liabilities, we want to see this number tick up over time. And of course, that’s going to be a big part of what we’re trying to do with the financial planning process. Tim, talk to us for a moment, you know, Sarah Stanley-Fallaw, who we had on, author of “The Next Millionaire Next Door” on Episode 200, in that book and I also remember discussion of this in “Rich Dad Poor Dad,” this idea of income-affluent versus balance sheet-affluent. Talk to us just a little bit at a high level, you know, what those two things are referring to and why this mindset is so important.

Tim Baker: Yeah, so I think so many — and we talk, we actually talked about this or around this, Tim, in terms of like YFP and the growth of the business where like we have these revenue goals and things like that and we really want to grow YFP and really touch as many pharmacists as we can. But that’s an ego metric, right? You know, to say, hey, we grew this many in terms of in revenue. It’s the same with income. What really matters from a business perspective is profitability. And it’s kind of the same on the individual side is — and we’ve talked about it, although we kind of do talk out of both sides of our mouth. So like one of the things that we’ve said, especially with pharmacists that are coming out that may have bought into the mantra of like, hey, don’t worry about your student loans, don’t worry about your finances, once you get that six-figure income, everything works itself out. And we know that that is not necessarily true. But the flip side of that, Tim, is one of the most valuable things that a pharmacist has with regard to their finances is their income, right? So without income, nothing moves. I think when we look at income affluence versus like balance sheet affluence is that we also know that there’s a lot of people and listeners out there, you can be one of them, I used to be one of these people, you could have friends and family that are like that, is that if you earn $100,000 and that’s the money that comes in the door, $100,000 goes out or $120,000 goes out because it’s kind of an exercise in keeping up with the Joneses. And the whole idea behind “The Next Millionaire Next Door,” which was following up on “The Millionaire Next Door,” is the whole idea is that most millionaires that you come across are not flashing it around. Right? So they’re not driving the $80,000 sports car, they’re not living in certain neighborhoods. So the idea is that this is more about what you keep, right? So to grow wealth over time is to kind of steer clear of some of those more ego things and really direct resources to what matters most. So like I don’t have a problem with a client spending money on a luxury sports car if that lines up with their goals and what their view of a wealthy life is. But we also know that money is a finite thing, so we can’t necessarily have our cake and eat it too in every part of our financial plan. So there is give-and-take. So what we try to do is really shift the idea behind, hey, this is the amount of money that we make to really focus on the net worth and show how that really drives progress and drives the conversation of what is a wealthy life. Because there’s a lot of people that make seven figures worth of income and have nothing to show for it. They’re not necessarily achieving their goals of travel and being able to take care of loved ones and giving and being able to be on track at a certain retirement age. So that is really what financial planning is designed to do is to align this great resource that pharmacists have and direct that towards the goals that they have to make sure that we’re maximizing or optimizing what a wealthy life is for that particular individual.

Tim Ulbrich: Yeah. And Tim, I want to talk about that further because I think that concept of living a wealthy life, you know, I suspect many pharmacists like myself might be of the mindset of, hey, I can squirrel money away and I can save it for the future, but I think there’s balance when it comes to the financial plan. And I think this is one area, to your credit of the model that we’ve built at YFP, that our planning team does an awesome job, and that’s ensuring that one’s financial plan is considering both the now and the future. As you say, it can’t just be about the 1s and the 0s in your bank account. So we’ve got to find this balance between taking care of your future self but also living a rich life today. And that really comes down to quantitative and qualitative factors of the financial plan. And I think financial planners are known for focusing on the numbers, right? And we’ve really built a process I think that is so important that we’re also covering some of the things that aren’t numbers-based. And certainly they could be number-based if we’re going to determine how we’re going to spend and allocate money, but in terms of goals and things we want to achieve, it’s not about, again, the 1s and 0s in the bank account. So tell us from the planning perspective, what does this actually look like? You know, I’m a new client, I’m meeting with you, like how do I actually begin to tell that story and what are you doing to extract this information so that we can then weave that into the numeric part of the financial plan?

Tim Baker: If we start with the balance sheet, Tim, right, so the net worth, we’ve got to know where we’re at, right? That’s the vital check that we’re really looking for. So that’s really our first data point. The second part of that is now that we know where we’re at, where the heck are we going? So that is where we actually slow down and ask clients some introspective questions about like what is, what do you want out of this life? What is a wealthy life for you? Like if today was your last day, what would be things that you haven’t yet done that you want to do? Or if you had 5-10 years left or if money were no object, what would be the thing that — how would you build your day-to-day schedule? So like really kind of going through a series of questions and extracting information so it really paints a picture of now that we know where we’re at, at least financially, where do we want to go? And those two things, Tim, is what changes the whole answer of like, ‘Hey, well, should I do this or that?’ Before I know those things, it’s like, ‘Well, it depends.’ Now that we know these things, where are we at and where are we wanting to go, we can actually advise clients on their financial plan. So how we do that really is to look at all the different pieces. So like once we figure out that picture, our job, which ultimately, our job as a planning team, which ultimately supports our mission at YFP which is to empower a community of pharmacists to achieve financial freedom, our mission in the planning team is a little bit different. It’s a little bit more granular. Our job with clients is to help clients grow and protect income, which is the lifeblood of the financial plan — without that, nothing moves — grow and protect your net worth, which is essentially what sticks, while keeping your goals in mind. That’s our jam, right? So that’s how we feel that we can best help pharmacists achieve financial freedom. So we do that through all the different pieces of the financial plan, which is fundamentals, which might include savings plan and debt management, cash flow and budgeting, insurance, investment, the tax piece, the estate plan, and then all of these other supplemental pieces like credit, salary negotiation, the home purchase and real estate investing, education planning. It might be ‘I’m an entrepreneur, I want to start a business.’ All of that stuff basically are the — those are the processes that get us to really refining out the financial plan and then the quantitative, and then we kind of observe the quantitative and qualitative results and then adjust from there. So the quantitative results, the one that we focus on most, is the net worth. So the idea is that when you become a client, we’re going to say, “Hey, your net worth, you’re starting at -$50,000. And our hope is in a short amount of time, we go from the negative to the little bit less negative to the positive to that multi, that seven-figure pharmacist status.” Or if you’re already positive, it’s to kind of keep that rolling and make sure that we are efficiently growing the net worth. I think the other thing, which I think often gets lost with other financial planners, is the qualitative. It is really that, the things that are outside of the 1s and 0s, which for pharmacists, sometimes that could be tough, Tim, because you guys are scientists, you want to say, “OK, what’s — if I pay this amount in fees, this is what I want to get back.” I completely get it. But to me, it’s the qualitative stuff that really is typically the things that when I get off of a call or I’m here and Robert and Kelly talk about their interactions with clients, that I want to run through a wall because I’m just so jacked up about like what we’re doing and how we’re transforming clients. Like that’s the special stuff. And I really, what I really like to say is that we want to build out a life plan that is supported by the financial plan, not the other way around. Right?

Tim Ulbrich: Yes.

Tim Baker: That’s our jam.

Tim Ulbrich: So important, the life plan that is supported by the financial plan. I just think that’s a completely different way of thinking. You know, I’m going to overgeneralize the industry for a moment, but I think that, again, it’s easy to focus on the numbers, and we’ve talked extensively on the show about why often that may be the case, you know, all the incentives in terms of why the dollars. So if you’re sitting down with a client, you know, and this is one of I think the beauties of a fee-only model where you’ve got their best interests in mind, if something is more experience-based, Tim, sometimes that might be let’s spend some money to make this happen because we said it’s important, and we’ve accounted for it in the rest of the goals and what we’re trying to do. Now, again, it’s a balance. We need to take care of our future self while taking care of ourself today and living a rich life. But you know, that traditional model would be take that money and stuff it into an IRA because that might be a greater percentage of fees — you know, we talked about fees recently on the show. So I think that is so important when folks are looking for financial planning, whether that’s with us or somewhere else, is is that life plan being connected and have a strong connection thread with the financial plan? And I’ll say from personal experience, Tim, for Jess and I working with you, like it just feels like life goes by at lightning speed. And part of that may be phase of life, you know, young family, whatever. But just to slow down and not only think about these goals but then to have somebody actually put these back up in front of you every so often and say, “Hey, Tim and Jess, you guys said this was important. Like what are we doing about it?”

Tim Baker: Yeah.

Tim Ulbrich: You know, “What are we doing about it?” And I need that because I am the person that I’ll try to squirrel away $4 instead of $3 million. And I know, like I know in my head, that when it’s all said and done, I’m not going to care if that was $2.5 or $3 or $3.5 and $4. Like there’s a point where enough is enough, but it’s the experiences and the other things that I think are really going to matter.

Tim Baker: Yeah. You are going to look back and be like, ‘Ah, I wish I would have done this with Sam and Everett and Levi. Like I wouldn’t — and Ben and done all these things.’ And we’ve talked about this, and I’ll cite a personal story. You know, my wife and I, we’ve been saving money really to kind of look at the next level from a real estate perspective, and we kind of just took a pause and we had this extensive conversation of like, do we really want to do this? You know, Olivia is our 6-year-old, we have Liam who’s turning 2. And we really have a window of time, right? We have a window of time where we have them as a captive audience, right? Maybe 10 years before Olivia is like, ‘Dad, get out of my face.’

Tim Ulbrich: Yeah, you’re going to be still cool for awhile. Yeah.

Tim Baker: Yeah, like so I look at that like my dad — actually, my dad jokes do not land with her. She’s like, ‘Daddy.’ So I’m already losing that a little bit. But in terms of being able to spend time and have those experiences, that’s a small window. It is a very small window. And the discussion is really around should we put this into an investment, which from a number perspective is going to be probably the best thing that we can do, right? There’s no guarantees, right, with real estate or any investment. But to put this chunk of money there or do we do what my vision was in my life plan — so I’ve recently completed the Registered Life Planning designation, and when I was life planning, I still remember it like it was yesterday. You create this vision, and you create this energy behind this vision sometime in the near future. And for me, it was buying an RV and having the freedom in the summers and on the weekends or long weekends and maybe weeks at a time to go and travel and adventure and see national parks and things like that. But part of me, Tim, is like — the financial planner in me is man, if we purchase an RV, that’s a use asset that’s depreciating over time, I can’t rent that — I guess I can kind of rent it out. And it’s kind of nonsense, right? It’s kind of like a no-brainer. And it’s a struggle, right, even for me where I’m pushing, we’re pushing clients to really achieve that wealthy life. This is the thing when I talk about it, I get excited and passionate about. And for some people, it’s starting a family, for some people, it’s playing in a band. For some people, it’s horseback riding. These are examples that we’ve had with clients that, you know, they were like, when they talk about it, they just light up. And I’m like, this has to be in your financial plan. Like when you talk about becoming a mom or you talk about before you were in pharmacy school, these were the things that you were passionate about. I know we have, and I know we have some credit card debt, and I know we want to get the investment game rolling, but we’ve got to stop and smell the roses along the way and make sure that we’re taking care of ourselves today. So it’s just a passion of mine, and these are the things, like when you kind of look at a situation that clients think — and we know this with millennials in particular but we’re seeing it with like sandwich generation and Gen X and even Baby Boomers in terms of how they can retire, with millennials, it’s everything is going to the right. Like marriage, home purchase, kids, and I want to challenge that. I want to — if you work with a professional, I want to challenge that. And I think if we’re doing things — and sometimes, we as a team, we don’t necessarily think about all the things that we do technically, the things that most people expect about an efficient debt payoff process, an efficient investment process, efficient tax plan, like we don’t really think about those as much as we should, and we should pat ourselves on the back in terms of what we do with clients. But that to me is like table stakes. It’s the next level of things to then challenge the client of like, ‘Well, maybe that timeline of 5 years is not accurate. Maybe we can do a little bit more.’ And I think if you then couple that with an efficient budget and spending plan, I mean, really the sky’s the limit. And that’s what I really get jacked up about. You know, I get jacked up about the pharmacist that says, “Hey, here’s my 4-month-year-old, this is your fault, Tim,” in more of a conversation like, we thought that we would have to wait so much longer, not because we paid off our loans or we did this or that, it’s because we have confidence in our plan. And that to me is what continues to drive me and jack me up and really push forward, and that’s why we get up in the morning to really push forward that mission, again, to empower pharmacists to achieve financial freedom. It’s a great job, it’s a great position to be in to be able to influence that in such a way.

Tim Ulbrich: Tim Baker, great stuff today. Loved the discussion on the importance of net worth and setting both quantitative and qualitative financial goals. And throughout the episode, several times we mentioned and referred to specific parts of our planning process at YFP Planning. So for folks that are listening to today’s episode and are interested in learning more about our one-on-one comprehensive financial planning services, you can head on over to YFPPlanning.com, you can schedule and book a free discovery call and determine whether or not our services may be a good fit for you. As always, we appreciate you joining us for this week’s episode of the Your Financial Pharmacist podcast. Please do us a favor and leave us a rating and review on Apple podcasts or wherever you listen to the show each and every week. That helps other pharmacy professionals find out and learn about this show. Thanks again for listening, and have a great rest of your week.

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YFP 206: Three Strategies for Buying a House with Student Loans

Posted on by yfpadmin

Three Strategies for Buying a House with Student Loans

Nate Hedrick discusses strategies for buying a home with student loans. He talks about the decision to rent vs. buy, how to determine when you’re ready to buy, and three strategies to consider when deciding to buy a home with student loans.

About Today’s Guest

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

Summary

Nate Hedrick returns to the show to discuss knowing when you are ready to buy a home, questions to ask yourself to gauge your readiness, and three strategies for buying when you have student loans.

The first strategy for buying a home when you have student loans is to buy a home as soon as possible. The advantages of this strategy include immediate emotional satisfaction, being your landlord, building equity in your home, and tax advantages for homeownership realized. The disadvantages include high upfront costs, increased likelihood of paying PMI, the effect the purchase may have on your budget, and the decrease in flexibility to move at will.

The second strategy is to pay off your student loans first, then buy a home. The advantages to this strategy are emotional relief from debts being gone, increased flexibility in the budget, and potentially increased emergency funds should problems arise. Disadvantages to this strategy include a period of renting and not building equity, potential loss of market appreciation, potentially missing out on historically low-interest rates, and delayed access to tax benefits.

The third strategy is more of a hybrid model. In this strategy, the homebuyer pays down the student loans and then buys a home. With this third strategy, there may be a feeling of relief and confidence, less overall debt, and a lower risk of defaulting on payments. Disadvantages are the same as the second strategy, though generally for a shorter time.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Nate, welcome back to the show.

Nate Hedrick: Hey, Tim, great to be here.

Tim Ulbrich: It’s been so fun to hear you and David on the Real Estate Investing podcast as hosts. I shared with you before we hit record, I’ve enjoyed being a fan of the show, love hearing other pharmacists’ stories about their real estate investing journey. So kudos to you and David on the work that you’ve been doing. That’s not what we’re going to talk about here today, though. I want to bring you on as a guest in your role as The Real Estate RPh, someone who has expertise on the home buying side, also being a real estate agent, so we can dig into the topic that I think is front-of-mind for so many pharmacists out there, especially in this real estate market, and that is buying a home while still dealing with student loan debt. So Nate, before we jump in, I think folks if they’ve listened to any of the news lately, they know the chaos that is the real estate market right now. But just give us a quick pulse from what you’re seeing in your market in Cleveland and obviously as an agent in helping other pharmacists.

Nate Hedrick: Yeah, absolutely. And thanks, it’s been really fun getting started with the podcast. And David and I are having a blast meeting all these great pharmacists doing real estate investing. And it’s been a really fun time. So but yeah, the market right now is obviously a big seller’s market. There is very low inventory. The interest rates are low, so it’s driving up people that want to buy because money is cheap. And so we’re seeing a lot of bidding wars. Houses come on the market and there’s 10 or 11 offers by Saturday afternoon and people are looking for highest and best by Sunday evening. And so it’s just — it’s a bit crazy. It’s nice for a market with my sellers. I had a listing that was on the market I think — I don’t know — two or three days that we got a full-price ask. So it’s really nice to have listings, but my buyers, it’s a lot of work. We’re doing a lot of offers that include escalation clauses, which bump up the price, and appraisal gap coverage and all kinds of crazy stuff.

Tim Ulbrich: I was thinking about you last week, you know, for agents that are obviously working with the buying and the selling side, like what a difference of just — I mean, effort of course and work but also I mean, you know, on one end you might be working with somebody who’s putting in one offer that is one of 10, 15, 20 offers. On the other end, it’s like, keep them coming. Keep the offers coming and we’re going to react to the best one.

Nate Hedrick: Yeah, I had a physician client, two young physicians, new residency here in Cleveland, they’re moving from D.C. back to Cleveland. And I think we ended up looking at — it had to be 60 houses. It was the most I’ve ever seen with one client. And there’s other real estate agents that are listening that are probably like, that’s not a lot. But for me, that was a ton, a ton of houses. We did one offer every week and one offer every weekend, so two a week at least. It took us 10 or 11 houses, or 10 or 11 offers to get something accepted for them. But they’ve got a great house. It just took a ton, a ton of effort to get them there.

Tim Ulbrich: Yeah. Persistence for sure. So let’s talk about home buying and student loans. You know, our audience knows well that pharmacists today are facing big mountains of student loan, $175,000 is the median indebtedness for a pharmacy graduate in 2020. Hopefully we’ll be getting the 2021 data here soon. But I think we know where that number is going to be going. And we often hear from folks in the YFP community as well as prospective financial planning clients of ours at Your Financial Pharmacist Planning that pharmacists are often trying to juggle several competing financial priorities, which really of course depends on the person, right? It could be buying a home, paying down debt, investing, saving for retirement, the list goes on and on. And what we often do when it comes to comprehensive financial planning is we’re working with clients to help them determine their financial and their life goals and to ultimately develop and establish a plan to help those individuals reach those goals. So when we talk here about student loan debt, obviously one big goal that we hear from many folks in the community, a big barrier is I want to get a home, but I’ve got all this student loan debt. And when is the right time? And so I think there’s this question of, is there a best time? You know, what are the different options that are out there? So Nate, high level, what do you think of as kind of the buckets or strategies that folks may be thinking about when it comes to buying a home while also focusing on student loan repayment?

Nate Hedrick: Yeah, and I think this is, you know, regardless of the market, there are three main options for what this looks like. And you do this in a buyer’s market or a seller’s market. But you know, Option 1 is kind of the “I want everything now,” right? Buy a home ASAP. Go ahead and just do it. Option 2 would then be the opposite of that where you’re paying down all your debt first and then you buy a house, and that’s like the very Dave Ramsey approach. And then there’s Option 3, which we’ll talk a lot about I think as we go through this. But that’s kind of what I call the hybrid approach, where you’re looking at getting rid of the bad debt first and then going ahead and purchase that home, even though you’ve got some of those student loans in place. And we’ll talk through those details.

Tim Ulbrich: So we’ll dig into each of those strategies. First things first, you have to decide if it’s renting, is it buying, what’s the best move for you going forward? And really, if you do choose to buy a home, knowing whether or not you’re ready and being prepared to do so. So Nate, just some initial thoughts on how can someone determine if they are ready to buy a home.

Nate Hedrick: Yeah, absolutely. I think there are a lot of things you can do in advance to make sure that you are prepared for that process and some questions you can kind of evaluate to determine is it right for me to rent? Is it a good time for me to jump in and start buying? And again, how do my other finances fit in with that? So you know, for example, are your student loans at a point where they are causing you significant stress? That’s just one easy-to-answer question, right? Are these driving me crazy? Are they the thing that I can’t stop thinking about? Or is it that I need to go buy a house first? And if your answer to that question becomes, absolutely, I’ve got to get rid of these student loans, it’s the thing that’s killing me, maybe you need to wait on that house purchase. And so questions like that can help you start to figure out where are your priorities, and then you can start looking at the actual financial pieces. You know, for example, do I have an emergency fund? Am I contributing to my retirement fund on a regular basis? Right? I would typically advise somebody to have those things in place first before going out and purchasing a home. You know, there are advantages to buying that house but not in replacing your emergency fund or taking away from your retirement just so you can go do it. So those early financial questions I think are a really good place to start so that you know your priorities before deciding what strategy is right for you.

Tim Ulbrich: Yeah, Nate, what I like about those questions, one thing I talk often about on the show — our audience has heard me on repeat say this — is really trying to avoid making any financial decision in a silo. Right? Taking a step back and saying, what else is going on with the financial plan? And I think in this scenario, right, we’re talking about home buying, we’re in the spring of 2021, the market is en fuego, like you’re talking to peers and friends and colleagues and others that are buying homes, it’s all over the news, interest rates are low, like that puts the pressure — perhaps — on like OK, got to buy, got to buy, got to buy, especially if folks are having that as an interest. And these questions, you know, are my student loans and other debt causing significant stress? What about my emergency fund? Where am I at with my retirement funds? Where are the contributions? How might this position to buy v. continue to rent ultimately direct that? So really taking that step back and asking those questions and also being fair that rent prices right now are also en fuego. So like this may not be necessarily just a home prices are escalating, therefore it’s best to stay put. But I think asking these questions to really try to evaluate it, you know, as objectively as you can with the rest of your financial plan in consideration. So let’s dig into those three strategies that you mentioned, Nate. And we’re talking here again about paying off student loans while also looking at purchasing a home. You mentioned No. 1 is “I want it now,” right? So ultimately, you know, getting the home as soon as possible and really focusing on that. The second approach you mentioned is really more of that Dave Ramsey type of approach of OK, let’s pay down all of the debt and then we’ll even think about a home after that. And then the third you mentioned is more of a hybrid approach. So let’s start with No. 1, the “I want it now,” buy a home as soon as possible. So who is this strategy for? Talk to us more about some considerations around this strategy.

Nate Hedrick: Yeah. And so full disclosure, this was me about seven years ago, right? We had come out of pharmacy school and residency and decided we wanted a house. We wanted space to call our own, we wanted space for our dog, we wanted — like, you name it, there were 10 reasons why emotionally we were ready to have a house. And so for us, it became alright, that’s going to be the driving decision, we’ll figure out the costs later. I don’t care, we’re going to buy a house. And so this strategy is really for those people that say, “Look, I am ready to jump in. I am comfortable with where my student loans are at, or comfortable enough that I can take this financial responsibility, and it’s time for us to dive in and take a look at purchasing that actual house.”

Tim Ulbrich: Yeah, the other group I think about here too, Nate, you know, without getting into the weeds of student loans, would be for those that are pursuing a forgiveness option, right? So whether it’s PSLF, Public Service Loan Forgiveness, non-Public Service Loan Forgiveness — if you’re hearing those terms for the first time or want any more information, check out any previous YFP episode. I think we’ve talked about them. But you know, when I think about the strategy around forgiveness, now, granted if that is the right move, which is a further conversation back to my point about not looking at things in a silo — if Public Service Loan Forgiveness of non-Public Service Loan Forgiveness is the path forward, typically the strategy is then, OK, what can we do to minimize payment, maximize forgiveness. Well in that case, there might be additional cash flow, right, that’s there on a month-by-month basis that may not be the case if somebody’s let’s say in an aggressive repayment, either in the federal program or in the refinance. So great example where student loan strategy can really intersect here with the home buying discussion and decision as well. So advantages and risks. So as we talk about this strategy, Nate, buy a home as soon as possible, “I want it now,” what are some advantages? What are some potential disadvantages or risks?

Nate Hedrick: Yeah. I think most of the advantages here are emotional, right? I think they’re kind of obvious from that standpoint. You get the house, you get to become a landlord right away. But there are a couple of financial advantages as well. One is that you build that equity and that credit right away. I mean, if you had been in my shoes seven years ago and now where the housing market is today, right, our house has gone up tremendously in value just sitting here and enjoying it. So there is some advantage to that. You’ve got tax advantages as well. You know, you get to pay down or at least deduct in some capacity your mortgage interest and some of your property taxes in some cases. So there are definite financial advantages, but I think in this strategy, most of the advantage side is leaning toward the emotional aspects. And then on the risks or the disadvantages I guess, you know, obviously there’s less flexibility built in. You know, renting is great because you have that flexibility if your job changes or if you want to go to a different location. There’s higher upfront costs from doing it this way. Obviously you’ve got a lot more debt load, a lot more debt-to-income ratio is being increased by doing this. So you know, from a financial aspect, it’s a bit more tricky for sure.

Tim Ulbrich: Yeah, and I think I’ve talked about this on the show before when we had a discussion on renting versus buying — we’ll link to that previous episode in the show notes — but you know, don’t forget about all the other costs. Right? We’ve talked about this on other episodes before, all of the other costs that come along with the home purchase, not necessarily just doing a rent payment comparison against what would it be with mortgage .Obviously you’ve got taxes, you’ve got insurance, you’ve got things that you need to furnish the home, take care of the house, etc., other costs that can be a significant factor. So strategy No. 2, get rid of all of the debt, then buy a home. Now I know folks are going to hear this, Nate, because I was in bucket No. 1, right, so I’m with you there. You know, folks that are looking at $175,000-250,000 of debt, like seriously? Like wait until I have all of that paid off? I mean, you know, some may — as we’ve had featured on the show before — some might be able to knock that out in 2, 3, 4 years very aggressively. But many folks are looking at 10, 15, 20-year repayment. So where does this strategy fall? What might this be an opportunity for some folks to consider when we talk about getting rid of all of your loans and then buying a home?

Nate Hedrick: Yeah. I definitely think this plays into someone who might have a smaller debt load than the average pharmacist. And by smaller, you could still be talking about $60,000, $70,000, $80,000 but something that you can tackle in 1 or 2 years if you really were aggressive with it. I think you’re right, the typical pharmacist or even the typical pharmacist couple in some cases where you’re coming out with $300,000 together in debt, like it’s just — it may not be possible to choose this strategy and still make financial sense. But there are plenty that do it. I mean, take a look at Tim Church’s story, right? He went out and him and his wife really focused every dollar on getting rid of that debt first and again, because it was a major pain point for them. They said, “I hate this debt. And the idea of taking on more makes me sick to my stomach. I can’t do it.” So if you’re one of those people, this might be the right call for you.

Tim Ulbrich: Yeah, and I think that’s a good reminder, you know, Nate, of like really being true to how you emotionally feel. Here, we’re talking about how you emotionally feel about debt but also it will be about how you emotionally feel about other parts of the financial plan and not necessarily just what someone else is doing or what else you have read but really being true to how do you feel about that. And then this case, an obvious advantage would be if you just hate the idea of that student loan debt and you can really aggressively pay that off, then obviously the advantage being you’re going to have a lot of relief from having no other debt and be able to move into that home in a very confident financial position. So that of course is one advantage. What are some other advantages that you think about with this strategy as well as some disadvantages or risks?

Nate Hedrick: Yeah. From the advantage side, I definitely think that you have more flexibility once you get there. Right? All of the advantages are kind of once you get there. But you have that more flexibility in your budget when you’re ready to buy a home, you’ve got greater cushion, you can make bigger mortgage payments, especially if something unexpected comes up. So I know a couple of physician and pharmacist friends who are looking at methods like this where they want to get rid of their debt first so that one of them can cut back on their hours and they can still afford that home that they want to purchase. So there are definitely — it provides more flexibility, but again, a lot of those advantages don’t kick in until you paid off that debt. So you’re kind of sitting on the disadvantages until that point. And so again, obviously the risks there are it could take you several years to get there and you’re not building any equity in that time. And so you could miss out on significant market appreciation. You also could miss out on locking in these great interest rates that we’re having right now. I mean, we are talking about truly, truly historic lows. They’ve come up a little bit in the last couple of months as buying interest has increased, but I mean, truthfully, you cannot get interest rates much lower than they are right now. And so you might miss out on that if it takes you 2 or 3 more years to get access. And then of course, you know, there are very few advantages for income earners like ourselves in terms of tax implications. But getting a mortgage is one, and so you miss out on that small advantage as well.

Tim Ulbrich: I think interest rates is an interesting conversation, especially for those that are new graduates that are looking for a home or recent graduates. You know, Nate, it feels like — you know I graduated 2008, you were a few years after that — like we’ve been in a historically low interest rate period. Right? So I don’t feel like I have an appreciation — like when we say historically low rates, it’s like, yeah, they are relative to where they’ve been, but they were still really good just a couple years ago. And before that, we were talking about historically low rates that were there as well.

Nate Hedrick: Right.

Tim Ulbrich: So we don’t have the perspective. Like go talk to my parents or talk to my grandparents, and you hear stories of double-digit interest rates and other things. So definitely an important consideration, but I think it has become somewhat of a norm that we’ve been used to here more recently. But who knows where that will go here in the next year or so?

Nate Hedrick: Definitely.

Tim Ulbrich: Third strategy you mentioned, Nate, is a little bit more of a hybrid approach. So what do you exactly mean by that?

Nate Hedrick: Yeah, and so this is one that I really advocate for, which is really getting your financial house in some sort of order and then going off and purchasing that home. So it’s not paying down everything, but it’s also not just jumping in head first. What this looks like is getting those student loans either refinanced or into a student loan forgiveness program or under some sort of control, getting rid of the other bad debt that you might have, credit card debt, for example, getting rid of that stuff first, the things that are really going to outpace any of the advantages you get with purchasing a home. And once you’ve got that in line, you’ve saved up a sizable down payment so that you’re avoiding things like PMI or any sort of getting rid of your emergency fund, then you go forward and purchase that home. So it’s really about maximizing the benefits, minimizing the risks and trying to balance that out.

Tim Ulbrich: Yeah, this really intrigues me, Nate, and I wish I would have had you in my ear back in 2009 because I think what resonates with me with this strategy is, you know, I went into the buy a home ASAP. And I think with just a little bit more time, if I would have been able to really better understand like what are all of my student loan repayment options and what is the best fit for Jess and I in this repayment journey — and when I think about this, I think about locking in your strategy. Right? So it doesn’t mean — here, as you’ve articulated, it doesn’t mean you’re debt-free before you’re purchasing a home. That was No. 2. But we’ve got a game plan, and we know exactly what that game plan is, we’ve considered other parts of the financial plan. So whether that’s refinancing, whether that’s loan forgiveness, whether that’s some other plan, we know what that’s going to look like month-to-month, we know what the total amount is going to be paid or total amount that also may be forgiven in a forgiveness plan. And so now, we can put in that one puzzle piece of the plan of the student loans so we can then start to move these other puzzle pieces like the home in around it. Right? But we’re not moving into the home purchase decision still wondering like, what is the student loan plan? You know? What might this look like? We talk often on this topic, webinars and speaking events and other things, and I often will show a slide and a chart that shows for a pharmacist coming out with $150,000 or $200,000 of debt, if they choose Option A, B, C, D, or E when it comes to student loan repayment, whether that’s forgiveness or non-forgiveness, federal or private, there’s a difference, big difference that can happen on a monthly payment basis as well as what’s paid out over the life of the loan. So if that’s a question mark, you know, and you haven’t evaluated those options, I think it’s really difficult to know where does that home piece fit in around that, if the payment is going to look like on a month-to-month basis is still unknown. So talk to us then, Nate, about the advantages and disadvantages of this strategy when it comes to this hybrid approach of paying down the student loans and having a strategy while also moving forward with home buying.

Nate Hedrick: Yeah, I think this really tries to play into the advantage — it really ups the advantages where it can and then it kind of disengages those risks wherever it’s possible. So for example, you’ve got that feeling of relief because you’re going to have the student loans under some sort of control, right? They’re not going to be gone.

Tim Ulbrich: Yeah.

Nate Hedrick: But maybe you’ve refinanced them down to 3% now and now you know, OK, this is basically like inflation money. I have my payment, I’ve got that figured out every month, and I can stack things on top of that. It also helps because hopefully you’re going to be taking on less overall debt, especially if you’re taking the time to build up that down payment, that emergency fund, you know, and maybe you’re paying off things like — or you’re getting enough down payment that you’re going to avoid PMI or using a pharmacist home loan product to avoid PMI. All of those things are going to help you in taking on less overall bad debt. So those big advantages, and then again, kind of the ultimate is that if something does happen, right, if you lose a job, if you miss out on work for a period of time, or someone needs to cut back on hours, you have a lower risk of defaulting on those payments because you’ve set yourself up for success from the beginning. It’s not perfect, you’ve not paid down all that debt going into it. But you’re getting that home a little bit sooner, and you’ve got this cushion built in that may help you out. The disadvantages is obviously this still could take time, right? You could still take 2 years to approach this hybrid model where it makes sense. I like to think that you can pull this off in probably a year, a year and a half, because really, truly getting that down payment saved up in that time should be doable, especially using like a pharmacist home loan product. But you are waiting. It’s not getting the house tomorrow. It’s giving it a little bit of time still.

Tim Ulbrich: Great stuff. And for those that heard the three strategies and the discussion we’ve had here today and want a refresher without going back and hitting replay on this episode, Nate has put this into a blog post, “Three Strategies for Buying a House with Student Loans.” That’s available at YourFinancialPharmacist.com, on the YFP blog, and we’ll link to that in the show notes. Nate, I want to spend a few minutes and talk about the Real Estate RPh concierge service that we offer to the YFP community because I think that many folks that are listening to this are probably somewhere in the stages of home buying, whether that’s a hey, I’m out there looking right now, or I’m going to get started. Maybe it’s three months out, six months out, whatever be the case. But we know how important it is to have an agent that understands your situation and really ultimately has your best interests in mind. And we’ve got the advantage of having you, Nate, as someone who both understands the pharmacist, is a real estate agent, has gone through this process of student loan repayment and making a decision to buy a home, and I think that perspective can be incredibly valuable to other pharmacists that are in the home buying decision-making process. So Nate, tell us about exactly what is the real estate concierge service and what folks can expect as they go throughout that.

Nate Hedrick: Yeah, so this goes back to when I bought my first house. And it came time to get myself an agent, right, I knew I was a buyer, I knew that getting an agent was basically free. But that’s about all I knew, right? I knew that I needed to go find one. And so I started asking my friends. And someone said, “Oh yeah, here, use this person.” And they were fine. They did their job OK. But as I learned more about real estate, becoming an agent, working with clients, I realized there was a lot of things that they could have done differently and that I wish I would have known as a buyer from the beginning. And so I said, “We can improve that for other people. Let’s go out and do that.” And so what I do is I actually connect with potential buyers, with pharmacists like yourselves or with anybody that’s looking to purchase a home anywhere in the country. We do a 30-minute planning call. It usually doesn’t take that long, but I at least set aside that 30 minutes to answer questions, go through the home buying process with you so that you can fully understand it, ask any questions that you have about it, and then once we have that conversation, I go out and I find you a great real estate agent. And sometimes it’s somebody we’ve already worked with, we’ve helped over 30 pharmacists close on houses at this point, which is pretty fun. And — so it might be somebody we’ve already worked with in the past, or it might be somebody that we simply know from interviewing them. And so I’ll go out and I’ll interview agents, try to match up someone who I think is going to be a really good fit for you. And then we get you connected, and you get off to the races with this great, personally-vetted agent. The other cool thing is that I don’t leave once that connection takes place. I get to be still a part of your team. And so if you need a second opinion, if you just want to bounce ideas off of me, somebody that isn’t your agent but is an agent, you can come right back to me, sign up for another call, send me some emails. You know, it just gives you that person in your back pocket that knows and understands this process to really help you out. And so it’s been a great tool for our pharmacists to tap into and our community to tap into. We’ve had a lot of success over the last year or so.

Tim Ulbrich: Yeah, that’s great, Nate. And for our community, this really initiated I think in part because of really the value that I see Nate brings to the community, his expertise in this area. We’ve known each I think for the better part of a decade now.

Nate Hedrick: Yep.

Tim Ulbrich: I realized that this topic of home buying is something that close behind student loans and some others is really top-of-mind for our community and going through this process firsthand a couple times, know how important it is to have a good agent that is in your corner. So —

Nate Hedrick: Especially in this market.

Tim Ulbrich: Yes. Big yes.

Nate Hedrick: I mean, having somebody that’s going to be able to fight for you and understand what kind of things are going to get the deals done — if you’re a buyer, I mean, that is so, so essential right now. I’ve seen tons of people that just get frustrated because the agent they’re working with isn’t helping them along or not explaining it to them well enough, and then they just say, “You know what, forget it. I’m just going to rent for another year. I’ll figure it out later.” But a lot of the agents that we work with, like they understand this market, they work in it every single day. And they’re able to navigate it for you and help you actually achieve that home buying process.

Tim Ulbrich: Yeah, and full disclosure, as Nate mentioned, the service is completely free to use for the buyer. If you work with an agent within the network that is referred and end up closing on a property, then that agent pays a small commission back to Nate. So that’s full transparency of how the process works. Obviously having Nate in your corner can be a valuable resource. We know that home buying, it’s an exciting experience, it can also be overwhelming at times. You’ve got finding an agent, financing, searching for the place, this market, as you mentioned, Nate, so that’s really the value I think that can be brought through the concierge service and working with Nate. So for those that are interested, YourFinancialPharmacist.com, top of the page, you’ll see Buy or Refi a Home. Then you can click on Find an Agent. That’ll get you connected to getting some time on Nate’s calendar. And we’ll also link to that directly in the show notes. Nate, as always, appreciate you taking the time, appreciate your expertise, and looking forward to having you back on the show in the future.

Nate Hedrick: Yeah, thanks for having me. And we’ll talk again soon I’m sure.

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YFP 202: How to Teach Your Kids About Money and Investing

Posted on by yfpadmin

How to Teach Your Kids About Money and Investing

On this episode, sponsored by Insuring Income, Tim Ulbrich welcomes Dylin Redling and Allison Tom, creators of Retireby45.com and authors of two books, Start Your F.I.R.E. (Financial Independence Retire Early): A Modern Guide to Early Retirement and Investing for Kids: How to Save, Invest and Grow Money to the show. Dylin and Allison talk about their FIRE journey and share practical advice and meaningful activities to teach kids about money and investing.

About Today’s Guests

Dylin Redling and Allison Tom are a married couple living in Oakland, California. After working for 17 years in the tech industry in San Francisco, they left the workforce in January 2015 and never went back.

They own and operate the website RetireBy45.com, which provides inspiration, tips, and resources for achieving FIRE (Financial Independence/Retiring Early) and making the most of the FIRE lifestyle. In 2020, they wrote and published two books: “Start Your FIRE: A Modern Guide to Early Retirement” and the best-selling “Investing for Kids.”

They love food, fitness, and travel. Their goal of “60 by 60” is to visit 60 countries by the age of 60. They are halfway to their goal with another 10 years to go!

Summary

Dylin Redling and Allison Tom, creators of Retireby45.com and authors of Start Your F.I.R.E. (Financial Independence Retire Early): A Modern Guide to Early Retirement and Investing for Kids: How to Save, Invest and Grow Money, join Tim Ulbrich on this week’s podcast episode. In this interview, focused on their book, Investing for Kids, Dylin and Allison share their creative process and some of the practical and meaningful activities that can be found in the book.

Allison digs into some of the motivations behind Investing for Kids and talks about why they choose to have superhero protagonists. She explains that she and Dylin not only wanted to make the book educational for kids, walking them through basic concepts of personal finance, but also wanted the activities in the book to be fun and exciting for kids to participate in rather than having those activities feel like more homework.

Dylin and Allison also share their own experiences, growing up with different financial knowledge and money lessons, and how those experiences plus a series of calculated financial decisions brought them to be able to retire in their early 40s. Dylin and Allison remark on their time as retirees and the freedom that they have been afforded because of it. Their goal of “60 by 60” is to visit 60 countries by the age of 60. They are already halfway to their goal!

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Dylin and Allison, welcome to the show.

Allison Tom: Thanks for having us.

Dylin Redling: Thank you very much. Great to be here.

Tim Ulbrich: I’ve very much been looking forward to this interview to talk more about your story achieving financial independence and early retirement and more specifically, the work that the two of you did in writing “Investing for Kids: How to Save, Invest, and Grow Money.” And Dylin, let’s start with you only because we share an Ohio State connection since you’re an alum so go Bucks. Why write a book specifically designed for kids about investing? What was the motivation behind your work?

Dylin Redling: Yeah, well, first of all, go Buckeyes. Yes, a great connection there. It’s interesting because I’ll start off with the interesting fact that Allison and I actually don’t have kids. And so you would think that the impetus would have been we had our own kids and we taught them financial literacy and it inspired us to teach more kids. But in fact, we sort of stumbled into this book. This is our second book. Our first book is called, “Start Your FIRE: A Modern Guide to Early Retirement.” And it’s all about early retirement and financial independence, which that book just poured right out of us because it’s something that we live and we know very well. And what happened was the publisher who we worked with on that book came back to us a couple months after that book was published and said, “Hey, we have an idea for this other book. And it’s investing for kids ages 8-12. And what do you guys think because you know about investing and financial concepts, and we think you guys might be able to pull this off.” And we thought, wow, we don’t have kids, we’re not teachers, we don’t hang out with kids. We have a few friends with kids, but we don’t spend a lot of time with them. And so we thought, man, this sounds really challenging and daunting. But it was during the 2020 year of COVID, so we had a lot of time on our hands. So we thought, let’s just go for it. And we dove into it, and it was very challenging because we wanted it to be interesting for kids and informative and fun but somehow, we put our heads together and we had a really good editing team that helped us with some of the concepts to relate to kids. And that’s — and we just dove into it and we just made it happen.

Tim Ulbrich: And I think you guys did an awesome job. You know, one of the things that stood out to me as my wife and I were looking through this book as parents of four young kids trying to teach this topic of money is that’s it’s very hands-on, it’s relatable, it’s digestible, lots of activities, really cool ideas. You know, I often find myself, especially writing, talking about this topic regularly, presenting on this topic, you take for granted how you learned some of this information along the way. You know, I often think, OK, take a concept like compound interest or, you know, mutual funds or index funds or ultimately trying to determine what your retirement savings goals, any of those concepts, and it’s very easy to get lost in the weeds. And I think it’s often hard to figure out, how am I going to break this down and teach this with my children and really work through this? And so I found myself looking through this, not only learning myself of oh, that’s a really neat way to teach a different concept or a very visual way or a nice activity to apply that information. So I think as I looked through this, whether someone is more advanced in their own knowledge and understanding of personal finance or whether they feel like they could also learn from these concepts, either one I think this book could be a really good guide for them alongside of working with their child. So great work in the work that you put together with the book. And Allison, knowing your background is a technical project manager, I’m curious, I mean, how and why did you catch FIRE — pun intended here — with this topic, not only as an individual pursuit for financial independence but also in wanting to help guide others to the work that you’re doing with RetireBy45.com and with the book “Investing for Kids.” Where does the interest come from?

Allison Tom: Part of it is that my college degree is actually psychology and education. So I had all these grand ideas of becoming a teacher, an elementary school teacher, after I graduated from college. But you know, after a couple of years, it dawned on me that frankly, our teachers are woefully underpaid. And there was pretty much there was no clear financial path for me to continue being a teacher making the salary I was making, so I was living in Boston at the time and I moved back to New York where we eventually met waiting tables, of all things. And we came out to San Francisco on a whim, we were on vacation, we were in our mid-20s, we thought, alright, let’s check out San Francisco. And so I bounced around from career to career and ended up on a consulting company that eventually brought me into the technical world of the Bay Area. But you know, so being a project manager is basically being a glorified teacher. So it’s dropping people, wrangling people to do things that you want them to do but do it in a way that makes them want to be — work as a team and learn from each other. So in a way, it was being a project manager was — it had very similar tendencies as it was being a teacher. And so we had always thought, oh, it would be great to retire early, but we didn’t really know what retiring early meant. We thought, oh, 55, that seems like a really good age to retire. It’s earlier than 65, but it seems so far in the future. And living in the Bay Area, our expenses were so high that we were like, there’s no way, even if we’re making decent salaries between the two of us that we’re ever going to retire. But about 11 years or so ago, Dylin came down with double pneumonia and was in the ICU for about 10 days and in the hospital altogether for almost two weeks. And that for us was a light bulb moment because he was within a 50/50 chance that he would make it. And so you know, after that, we kind of thought, OK, do we really want to keep working for the next 25 years or so? And so we kind of like made it our goal to get out of the rat race as soon as we could. And so we kind of fell into by accident. We can talk about that later, but it just — it kind of was a natural progression from all of the things that we’ve been doing over time.

Tim Ulbrich: Yeah, that makes sense. And I appreciate you sharing some of the background and story. We’ll come back to how you got to that point of early retirement, obviously as I mentioned in the introduction, early 40s to be able to accomplish that goal, and we’ll talk a little bit about how you got to that path, why that was possible as well. And so let’s first dig into some of the book of “Investing for Kids.” Let’s start with the main characters of the book, the Dollar Duo: Mr. Finance and Investing Woman. Allison, tell us more about these two characters, how you came up with the idea, why it was important to the overall text, and how those characters can really help the learner, again, 8- to 12-year-old is the target group here, engage with the material throughout the book.

Allison Tom: Well, first of all, it was kind of funny, today is actually Superheroes Day, so —

Tim Ulbrich: There we go.

Allison Tom: It’s a perfect segue into the topic. We were actually taking a walk one day as we were writing the book, and we were talking about politics, of all things. And we were trying to figure out in the administration, whichever administration, whoever won the presidency, what each president could do to make their administration better. And so we kind of were talking and talking about of all things, the Justice League of America and who we would think would be a good fit for making this country a better country. And so the whole idea of the Justice League, kind of thought, we thought, oh, superheroes. Kids love superheroes. Let’s talk to our publisher about bringing in some superheroes. And we were like, well, I don’t know if they’ll go for that, there’s some extra graphics involved and it could be expensive, but we felt that it would really be a good way for kids to relate to finances. And so we kind of pushed hard for this idea of having superheroes teach kids finance.

Tim Ulbrich: Yeah, and that stood out to me in addition to how visual it is. This does not — especially for a topic like investing, right, can be weighty at times, it can be overwhelming, I often find myself when I’m giving a talk on this topic, starts with excitement often when we think about what the — and then you get into the weeds and you see the eyes gloss over, right, and other things. And this does not read like a textbook in any way, shape, or form. And I’m grateful for that. So thank you for the illustrations, the activities, the superheroes, but I think it very much reads like an interactive, applicable, nuts-and-bolts, important information, but how do I actually apply it and hopefully get excited about this information. Again, we’re thinking about an 8- to 12-year-old of wanting to really hopefully empower them to be excited with this for the rest of their own financial journey. And I very much read this book, as I mentioned, being a father of four boys who also lives and breathes personal finance, I really do often find myself in conversation with my boys about money. And honestly, I struggle at times with making the topic of money tangible and meaningful. And it can feel abstract, especially when I find myself trying to say and teach a principle that I very much understand but it feels more abstract as I talk it out loud and especially when you start to view it through the lens of a child. And so I like how you start the book with Chapter 1 on Money 101. You cover important topics like money doesn’t grow on trees, ways to earn money, a little bit of entrepreneurship in there, which is really cool, the history of money, where to keep money. And so Dylin, here’s the challenge that I’m seeing with my boys. In the age of credit cards, debit cards, direct deposit, online banking, digital currency, electronic payment methods, it can feel difficult to teach a child about money when you don’t see it. Right? There’s very little actual, physical cash and therefore, it can be hard to connect work and I think the opportunities from work with earning money and therefore, the opportunity to then save and see it grow. So what are some tips and strategies as you put this book together as well as the other teaching you’ve done on this topic about how can we teach kids about money in a way that it can be relatable, it can be tangible, and then hopefully it becomes memorable for them.

Dylin Redling: Yeah, you know, that’s a really good point about money being very digital in this day and age. I remember when I was a kid, one of the coolest things was my grandmother would give me and my cousins 50 single dollars for Christmas and for our birthdays. They would come in a little box just big enough to hold those 50 $1 bills.

Tim Ulbrich: I love that.

Dylin Redling: And — yeah, it was really cool. And you know, $50 back then for a kid was a lot of money. And those 50 $1 bills would last a really long time. I would take them into the arcade, into the pizza parlor, whatever. And so maybe one way to do it is to actually bring back physical money. And I don’t think the amount really matters that much. But like you said, I mean, being able to tangibly feel it, see it, and understand it, it helps a lot more if you’re using physical money. And I’ll actually give an example of that we used on our blog and in actually “Start Your FIRE” book. I don’t think we mentioned it in “Investing for Kids,” but it’s a little story I like to tell about a money lesson that I actually learned from Allison when we were waiting tables in New York. So we met in a big restaurant in Times Square, and Allison grew up with a little bit of a better financial education in her household than I did. My single mother was wonderful, but it was all paycheck-to-paycheck, there wasn’t a lot of saving or investing. So I came into our initial relationship not very good at dealing with money. So anyway, we were waiting tables. So all of our money pretty much was in tips. So we would have tons of cash. And I remember just putting the money — I would wad it up into balls, I would stuff it into all four of my pockets because I was busy. And then we would go out afterwards and Allison saw how I was treating my money, and she was like, “What are you doing? How do you even keep track of that? That’s awful.” And so she taught me this little lesson. And she doesn’t even remember this because this was 25 years ago, but it stuck out in my head. And basically, I call it the Wallet Lesson. When you take all of your bills and you put them nicely, neatly in order from small to big or big to small, whatever works, fold it neatly into your wallet. And it’s really simple, but the reason it was impactful for me is because it just got me to think about how to respect and treat money. You know, you work really hard for money —

Tim Ulbrich: That’s right.

Dylin Redling: And if you don’t treat it well, you don’t respect it, you know, that $50 might not seem like a big deal. But when it gets to $100,000 or $500,000 and you don’t have that same respect and feel for what that money represents and how hard it was to earn it, you’re not going to put it and treat it and save it and protect it as well as you could.

Tim Ulbrich: Such a good example of a behavioral move, right? The number of dollars didn’t change, but how you treated them, how you respected them, how you viewed them, and I think many of our listeners, we talk on this show often that I believe personal finance, it’s about the math and it’s about the behavior, and both of those are very important and some of those types of moves or here, teaching kids in that way, I think can be very powerful as well. Allison, Chapter 2, save your money, you have an activity titled “Be an Interest Rate Detective.” I love this. I thought this was a really cool interactive activity where you challenge the reader to work with an adult to research interest rates for a local bank savings account, a CD, so a Certificate of Deposit, and an online savings account. So again, this was just one of many example activities you have throughout the book, but why is an activity like this so important in terms of someone being an interest rate detective to experience and go through as they begin their journey of understanding some of the basics of investing?

Allison Tom: So part of it is we wanted all the activities to be something that kids could do with the adult in their life. And we didn’t assume that every child has a parent because we know in this modern day and age that families are different nowadays, and you might have two moms or two dads or a grandmother or grandfather or a guardian of some sort. So we wanted something that people could do together with — kids could do together with someone else. And we thought, oh, it’s going to be interesting because banks are closed during COVID. When we were writing the book, it was right in the heart of shelter in place. But we thought, well, you know, kids have access to — most kids have access to a computer, they can at least walk around to a local bank and banks always have their advertisements on their windows with their interest rates. But we thought it would be an interesting way for kids to see what is in their environment and practice some good behaviors like oh, what does interest rate mean? What is APR? Those are, they’re jumbled letters and so you actually learn what the acronym stands for. And so we want to make sure that kids could kind of connect their physical world to their these abstract ideas about money. So all these activities are kind of a way to get kids to start thinking about it, and we were like, oh, kids aren’t really going to want to do activities, it’s extra homework. So we tried to make them fun and things that they could actually do and feel like they were learning something.

Tim Ulbrich: And I think this was a good example where the activity really, to me, is a rabbit hole of other learning, right? So if you go to the bank and do this activity, just like you suggested, Allison, it leads to other conversations and questions like, what is the federal reserve? And what is an insured account? What does that mean? You talk about that in the book, you know, how do you explain the federal reserve? What is compound interest? Why is that so important? What is principle? What’s interest? What do terms mean? And I think it, again, leads to further conversations, which obviously hopefully spark some motivation and curiosity to learn more on this topic. Dylin, in Chapter 3, Introduction to Investing, you cover very important topics, you know, why to invest, risk v. reward — and I love the Risk-o-meter throughout the book, that was really neat — liquidity, the importance of conducting research, and connecting back to my previous comment about the difficulties teaching a child about money when it may not be tangible, you can’t see it, can’t feel it type of a mindset, I think this is another area where parents may feel challenged to teach a child the importance of investing when again, it might feel somewhat abstract and here, we’re talking about delayed gratification, right? So not spending money on something today that has an instant reward. I think back to my childhood, it was driving to the corner store, buying baseball cards, buying candy, you earn the money, you spent the money, you saw the reward instantly. So here, the activity on investing, which I thought helped to really drive this concept further, you talk about an activity of picking a stock and really going through that process of understanding what’s involved there. So talk us through that type of an activity, what’s involved in that, and why that’s important to help a child relate to the concepts of investing.

Dylin Redling: Yeah, sure. It’s interesting because I can also relate it to how Allison and I do our own investing. And most of what we do, to be honest, are buying mutual funds and index funds. We don’t do a lot of single stock buying. However, there are some advantages to just helping a child or anybody, really, think about, well, if you were to buy a single stock, what would the thought process be when you do that? We actually just wrote an interesting post on our blog just about a week ago where we had $10,000 that we wanted to experiment with. And what we did is we selected five different stocks to invest that $10,000. So $2,000 per stock. And I went through the process in that blog post of why we would do this. And it wasn’t to get rich quick or to see what would happen in a week or a month. This particular blog post talked about a one-year time frame. And it’s the same with the activity for the child. I think we used a shorter — a relatively short time frame so they could at least measure their success. At the end of the day, investing, as you know, as your listeners know, it’s very much a long-term process where you’re investing over years and decades. But again, to get the child to think about some of the things that you might want to think about with whether you’re investing in stocks or any sort of investment, what are the things that go into that thought process? And so getting back to that blog post I wrote, some of the stocks that I suggested that we test out, one was a blockchain ETF. So now that bitcoin and other coin-based just went public, those are things that we wouldn’t necessarily invest in directly. But a blockchain ETF is an example of a way you could dip your toe into that technology. So that was the thought process there. Another example was a cruise company, NCL, Norwegian Cruise Line. Now that COVID is starting to disappear and everyone’s getting vaccinated, people, there’s this pent-up demand to start traveling again. So we thought, hey, in the next year, NCL may actually start to do really good. And they even have a program where if you have 100 shares, you get extra bonus points. And so the idea is to think about all the different aspects to that investment, like how does it relate to what’s going on in the world right now? And what other pros and cons are there to that investment?

Tim Ulbrich: Yeah, and I think we share your philosophy. What I heard there is our planning team often says a good investing plan should probably be as about boring as watching paint dry.

Dylin Redling: Right.

Tim Ulbrich: At the end of the day, it’s about a long-term play. But I like this activity as a concept. You know, I remember I had a great Econ101 teacher that had us do a similar activity. And it’s very memorable because it also leads to many other conversations like well, what type of influence does my marketing have? Or I thought this was going to go this way, and it didn’t go this way. Maybe I had some overconfidence in my selection of things. So why is diversification important? So I think, again, reading it and doing it, two very, very different things. And I think people experiencing this firsthand, especially you think of an 8- to 12-year-old, a very kinesthetic learner, right, hands-on experience that moment, be able to learn through that experience. Allison, as I went through the book, many times I thought to myself, man, what if I would have had some of this information earlier? What if I would have had this in middle school or high school or perhaps even earlier? And shoutout to my parents, who did an awesome job of the foundations, grew up in a small business, felt like I had a little bit of a head start. But outside of some K-12 programs and in higher education, I would say it’s largely absent, maybe some elective courses or some opportunities. And so I can’t help but think like, why aren’t we doing more of this? Why aren’t we covering more of this in a K-12 education? I mean, this type of book, this type of experience, these types of activities would be a home run in teaching kids about money. Here, we’re taking 8-12 investing, but obviously we all know it’s broader than that as well. So question here, I’m not asking you to solve the personal finance educational system woes, but why do you think this is not more foundational to our educational system in terms of personal finance education?

Allison Tom: Right. So I think part of it is that our generation didn’t really learn this either. And so as the educators come up with their curriculum, I think honestly, a lot of adults are really intimidated by personal finance. And so it’s something that seems easy enough for them to cut out of the education system as an elective because well, if they don’t understand it, then kids aren’t going to understand it. And if they’re intimidated by it, then kids are definitely going to not understand it and be intimidated by it, so let’s not even talk about it, which actually is one of the reasons why we thought it was important to write the book. We didn’t get this education when we were growing up. I know my parents are second-generation immigrants. And so the money lessons that they learned were from their parents, who grew up during the Great Depression. And as immigrants coming over to this country, they just pooled their money and they saved and they saved and they worked 20 hours a day to make money and then they would maybe invest it in the bank, although plenty of my relatives didn’t even bother with that. So my lessons growing up were save and save and save and save. I had a little piggy bank, and I would put all my coins in from the piggy bank, but that was the only thing that I learned. And so it wasn’t until I got to college, and then I had my first credit card that I just — oof. It was bad. I did not understand the concept of paying credit cards and interest rates and late fees and minimum payments. And so, you know, I got in trouble with credit cards after I graduated. And it wasn’t until after that that I thought, oh, I really need to learn more about what’s going on here. And so I started watching some shows on PBS, but by then, you know, I’m in my early 20s at that point. My learning took a lot longer for the habits to become engrained in me. So you know, I really do think that if kids could see this stuff earlier, it would be so much more impactful. You know, I’ve talked to a girlfriend of mine, her daughter is 17 and she read the book and she was like, “Yeah, you know, I’m going to start doing the savings plan when I get a job.” My friend was laughing because she’s like, my daughter doesn’t have a job. But she was just like, she got inspired by it, and I thought, oh, if we could just get kids to learn this stuff sooner —

Tim Ulbrich: Yeah.

Allison Tom: All the great things we could do with them. So hopefully. Hopefully.

Tim Ulbrich: Yeah, and I love that, to that point, Allison. I think it was early in the book, you have the reader go through an activity where they identify problems, things that could be improved upon, right? And one of the things I often say is that any business is a solution to a problem, and that solution is one that people care about and are willing to pay for. And you know, I love that because I think for a child, like if they can think about, what are some things that could be done better? You know, one of them you proposed in the book, which was really cool because we recently just bought this — or actually we got it as a gift for our kids from our family — is you mention like chess. Really hard game for kids to play, kids to learn. Why isn’t there a solution out there that can make chess easier to play? Sure enough, there is. There’s a card game where you draw cards, you learn the basic moves of chess. So things like that, I think you’re inspiring some of the creative thinking, the problem solving, and laying some of the seeds of entrepreneurship or even for those that don’t own their own company, which would be the vast majority of folks, intrepreneurship, how can you be a problem solver within your organization? And how can you create solutions that make you a valuable asset within that organization? I want to shift gears a bit to connect some of the work that you have in “Investing for Kids” with what you cover in your site, Retireby45.com. You mentioned your other FIRE book as well. And I got the impression that you both, you believe that everyone could put together — especially an 8- to 12-year-old reading the “Investing for Kids” book — put together a plan for FIRE, again Financial Independence Retire Early — by the age of 45. So Dylin, our listeners know firsthand that time in the market equals success, and that compound interest, as you mentioned in the book, is the eighth wonder of the world. So we know the math is possible if someone starts at an early age. But why do you think it’s important that someone plans for FIRE by the age of 45?

Dylin Redling: Whether you’re able to retire in your 40s or your 50s or you do a traditional retirement in your 60s or even beyond, Allison’s dad, for example, is 70 now — or slightly older — and has no intentions of stopping working even though Allison suggests that he stop and enjoy life. But he’s got a job that he really loves. And so there’s a lot of people out there that are like that. So we love our FIRE lifestyle and the fact that we left our W2 jobs in our 40s, but we know it’s not for everybody. But what we do also know is that the concepts of Financial Independence are good for anybody, no matter when you might want to retire. And those concepts are really about doing the right thing with your money. So it starts with saving, it starts with being somewhat frugal — and when we say frugal, we don’t mean living a spartan lifestyle. We just mean not going crazy with money with spending on things that you don’t want or that you don’t need or you feel like you have to keep up with the Joneses and get a brand new SUV every two years. So there’s that, and of course investing wisely. And you know, we have another story that we write out on our blog, which kind of I think can be somewhat inspiring to people who are in their 20s and maybe haven’t really done anything with their finances yet. We, as Allison alluded to earlier, kind of our story is we met in New York and then we moved to San Francisco. And we were in our mid-20s at the time. And we still hadn’t invested a dollar yet. And it wasn’t until our late 20s that we got “real jobs” with a 401k plan and that sort of thing. And so it wasn’t until our late 20s that we really started investing. And our entire investment life cycle, if you will, was about 17 years from our late 20s to our early 40s. And in that time, we just were so diligent about dollar cost averaging, we did — we invested into both our 401k, our IRA, and a taxable account once we got some extra income literally on a weekly basis for years and years and years, no matter what the market was doing. Through the 2001 .com crash because we’re both working in that industry and of course through the ‘08-’09 recession. Never stopped. And so those kind of habits, again, are good for anybody no matter what your retirement goals are, just really those financial habits are going to put you in a great position.

Tim Ulbrich: Yeah, and I’m glad you shared that, Dylin. One of the questions I had for you was I read your story of not really late 20s, early 30s getting serious about investing, but retired or achieving FIRE by 43, 44, so short window of time, right? We tend to think of a very long trajectory of savings. You mentioned 17 years. So my question was what was the secret sauce? And if I heard you correctly, it was tax-advantaged accounts, 401k’s, IRAs, some taxable accounts and dollar cost averaging and being consistent. Is that fair?

Dylin Redling: Yeah. You know, a couple other things we did — we did the phrase “side hustle” is really popular now. But when we did it, we just called it a side business. This was in the mid-2000s. I came up with an affiliate marketing business that I ran on the weekends. And it ended up being a third income for us. So there’s things like maximizing your income. And then another concept — I’ll shoot it over to Allison to talk about — is geographic arbitrage. And that helped us kind of move about nine years ahead of schedule. Do you want to talk about how we did that?

Allison Tom: Sure. So geographic arbitrage has a lot of different meanings in the — for people. And the gist of it is that you leverage your current salary and move to a lower cost location. And so most people think that is oh, I’m going to make my United States salary and move to Thailand or Costa Rica, where the cost of living is exceedingly low. We did it by moving from San Francisco to Oakland, California, which geographically is a 10-mile difference but at the time, we were able to save about 50% on our housing costs.

Tim Ulbrich: Wow.

Allison Tom: So yeah, it was pretty insane. For being 10 miles away, two or three train stops away on our BART system, we were able to pay off our condo in Oakland in cash by selling our place in San Francisco, which alleviated all the mortgage payments, the increase in property payments and our insurance went down as well. So that, Dylin calculated later, saved us probably about nine years of working because our mortgage in San Francisco was so astronomical that just cutting 50% off just pushed us into the financial independence sphere that much sooner. So it’s things like that. Obviously not everybody is going to be able to save 50% of their housing by moving 10 miles away, but there are other ways to do it. You can do things like house hacking where if you have space on your property, you could build an extra unit and rent it out or if you have an extra bedroom, you could rent it out and have a roommate or Airbnb it. So there are ways tod do it without going through the extreme example that we had. So there are plenty of ways to cut costs in your life that are relatively painless, that we’ve talked about all the time, so there are just different ways to do it to achieve FIRE. And some people don’t even choose to do the early retiring like my father is the example. So retirement is really more of the optional part. We’re not saying you have to retire, you have to leave your job and just sit around drinking mojitos all day long, although it’s certainly not a bad lifestyle. But you know, the retiring part is up to the individual.

Tim Ulbrich: Yeah, I’m glad you said that, Allison, because I know many of our listeners love what they’re doing as pharmacists and they worked hard, and they got a doctorate degree and they have student loan debt and they invested in that education. And so my read is that many pharmacists are captivated by the idea and the power of financial independence. And you know, I believe that’s a goal we all should strive for for a variety of reasons with RE, Retire Early, being one of those perhaps reasons, but other things as well in terms of why that financial independence may be important. So nine years, nine years was estimated from that one decision, which I’m coming full-circle, Allison, about what you shared at the beginning of Dylin being in the hospital with double pneumonia. And when you start to think about the value of time, I mean, nine years and doing some of those calculations and what does that mean for one’s personal situation, I think that’s a really powerful example of taking something that can be mathematical or objective and looking at it in a different mindset. If we were to make this move or this move, what does that mean for us in terms of timeline to retirement, working part-time, pursuing another opportunity, what does that mean for one’s goals towards financial independence? I’m glad you discussed geographic arbitrage because one of the things we see in our profession in pharmacy is that unfortunately, a pharmacist’s income usually does not translate with cost of living. So here I am in the Midwest and that income for a pharmacist in the Bay Area might be a little bit more for a similar role but nowhere near the cost of living difference between Columbus, Ohio and San Francisco, California. So I think this is a move, especially for many of our listeners that might be saying, you know, ‘I’m making a decent income, but I’ve got a lot of work to do on student loans, I want to invest, I want to buy a home, I want to do this or that. And at the end of the day, there’s only so much income.’ So is a move, whether it’s near, within 10 miles, or something a little bit more significant, is that an option that somebody may be able to pursue? Allison, what have you guys been doing since achieving FIRE? You know, what’s been the goals, what’s been the priority, how have you been spending time? I think that’s one of the other common objections that comes up is like, if I retire at 45, like I don’t even know what I would do with my time. Tell us a little bit about that journey since you guys have achieve FIRE.

Allison Tom: So it’s funny, we — so we FIREd quite by accident. We were both working in tech startups, and Dylin got laid off and then I got laid off about five weeks afterwards. And so we kind of took the time after we were both laid off to travel a little bit. That was one of the things that two people who are working can’t always schedule, coordinate their schedules, to take some time off. And so we thought, alright, this is the perfect time. We went to Europe for two weeks and did a cruise around the Mediterranean and had a blast and then came back and thought, alright, we’ve got to get back to work. So we went about — we went on interviews and we just saw just how miserable people were at their jobs. Just so stressed out, and I interviewed with this one guy who was like, “You need to tell me who said this about us so I can go talk to them.” I’m like, I don’t want to work for you. You’re scary. And so you know, the three months turned into six months and then nine months and then Dylin figured out kind of like back of the envelope math, figured out that we could actually retire without having to go back to work anymore. He stumbled into the 4% Rule, which we still hadn’t at that point heard the term FIRE before. You know, the first few years we did a fair amount of traveling domestically. Like we would go back to visit his mother and my father, who both live on the East Coast, which is one of the things you just don’t get time to do when you’re working is spending time with family. And so you know, if we would go back East, we would maybe spend two days with each parent because they don’t live that close to each other. And now, we can actually go and spend a week with each parental unit. And that makes a big difference because, you know, they’re getting older and living across the country, it’s harder to connect with them. So we do a lot more slow travel where we don’t have to feel rushed between people. And then it’s funny because we — our retirement has changed as time goes by. So for people who are concerned that oh, what am I going to do with my time? Your time is yours. You can now make your own schedule. And that, to me, is the beauty of not just financial independence, it’s financial freedom because you can choose what you want to do. And so you know, the first two years were traveling domestically, the second two years were more about traveling internationally. And we had two cats that passed away at 19. So for us, they were like our kids. And so we did not do a lot of traveling away from them until they passed on. And so once they did, we’re like, alright, we’re going to go crazy and go travel around the globe. And so the last — and then the last two years have been focused on writing books and going to financial conferences and kind of learning from others and then applying that and communicating out to audiences like yours. That’s the beauty of the time being yours is you can make it whatever you want to do. We also do a lot more work with our community that we never had time to do when we were working. So we’re a lot more invested in our neighborhood, and we spend more time working with businesses in our neighborhood to bring in more business. So having that luxury of time means you can go explore whatever interests pop up. So you know, did we ever think that we would be working with small businesses two years ago? Probably not. But now we are, and we’re advocates for small businesses in our neighborhood, and that’s something we would never have thought we would have done when we first retired.

Tim Ulbrich: That’s very cool. And I read as well your goal of 60 by 60. Sixty countries to visit by the age of 60. If I understand it, you’re about halfway through. Looking forward to following your journey. I’m hopeful you’ll be blogging about it along the way as well. Dylin, I’m going to throw the last question I have over for you. And one of the things I think about when it comes to early retirement and achieving financial independence or the FIRE movement is that it really does require delayed gratification and at times, you mentioned the word frugality earlier. And that frugality can be at various levels. As you mentioned, we’re not necessarily talking spartan type of frugality. My question here though is how do we strike the balance? You know, whether it’s for ourselves or teaching our kids about saving and investing to take care of our future selves but also valuing and making sure we understand that it’s important that we enjoy some of the money along the way as well. I find myself often struggling with this individually of, OK, I know I need to take care of my future self and probably sometimes I do that at the expense of the experiences and the enjoyment today. And I think striking this balance is really important. What are your thoughts on that?

Dylin Redling: You know, I’ll actually plug a couple of other books besides ours that I really like. One is “A Simple Path to Wealth” by Janelle Collins, which I highly recommend. And another one is actually one of Allison’s favorites. It has a funny title, it’s “I Will Teach You to Be Rich” by —

Allison Tom: Ramit Sethi.

Dylin Redling: Ramit Sethi. And we saw him speak. He was a keynote speaker at FinCon a couple years ago. And one of the things that he said, which really resonated with me and it goes to your question, is spend liberally on things that you enjoy. But hold back aggressively on things that are not important to you. And it’s a very simple concept. But again, it goes directly to your question, and it’s really — maybe you or your kids or whoever’s thinking about this makes a list. Here are the things I’m passionate about. Here are the things that I really enjoy. I love travel, I like eating out at restaurants, I like entertainment, sports, whatever it is. And I’m going to set my budget to focus on those things. I’m going to be OK — maybe I’ll go to a World Series game because I’m a huge baseball fan. Or I’m going to set a goal to go to every baseball park in America. You know, whatever that goal might be. Conversely, think about the things that aren’t that important to you like maybe a brand new car is not important to you, so you drive your car for 10-20 years and you really just never focus on spending a lot of money on that. And so those are the concepts that I think are something to really think about. And for us, that’s what we’ve always done. When people look at our lifestyle from the outside or even some of our friends, you know, they may think, wow, we’ve always lived in pretty expensive apartments — or condos or houses, so they might think, wow, they spend a lot of money. But if you look a little deeper, like we had a car for almost 20 years. We had a Volkswagen Jetta. We just recently got a new-to-us couple years old Toyota Corolla. So there’s an example where we just — you know, having a brand new car wasn’t that important to us. But again, we have the 60 by 60 goal. So travel is really important to us. And we have no problem spending that extra money to go travel for a few months and really try to see the world because that’s something that we’re passionate about. That being said, when we do travel, we try to — we don’t stay at four-star hotels because part of our kind of nature is to also find some deals here and there and to just spend consciously, to just spend our money kind of wisely.

Allison Tom: We prefer to spend money on the experiences rather than the hotel room that we’re putting our suitcase in.

Tim Ulbrich: Yeah. And I was at that keynote that you were at, and with Ramit, and I’ll never forget it. I mean, the concept that he talks about in “I Will Teach You to Be Rich,” money dials, right, is find the things that are of value to you and dial it up. And find the things that are not and dial them down. And you know, I remember hearing that, and I was like, heck yeah. It just makes so much sense. And you know, to the comment of experiences and even the literature really showing happiness related to money, it’s experience and giving typically are the areas where we see that biggest connection. So Allison and Dylin, I really appreciate you guys taking time to come on the show. Kudos on the work here with “Investing for Kids,” I really enjoyed it, as well as the work that you’re doing at Retireby45.com and your other book, “Start Your FIRE: A Modern Guide to Early Retirement.” As it relates to the book “Investing for Kids,” I hope our audience will pick up a copy of this, available at Amazon, Barnes & Noble, many other online vendors as well. I really did find it engaging, it was rich with relevant information, practical exercises to apply the information, as I mentioned, certainly does not look, feel, or read like a textbook. And so I think many in our community are going to find it helpful. What’s the best place for our audience to go to follow the work that the two of you are doing?

Dylin Redling: Well, our — I’ll plug our website, and I’ll have Allison plug our Instagram account. Retireby45.com is our website, and we blog there on a once or twice a month with a fresh new blog post, and we have a bunch of stuff on there, courses and other things. And then Allison’s been working on really putting together a pretty cool Instagram account.

Allison Tom: So we have Instagram and Twitter both @retire_by_45. Yeah, it’s been an interesting challenge trying to get into the social media, the social media space.

Tim Ulbrich: Very good. We will link to both of those in the show notes as well as the Retireby45.com as well as the books that we’ve mentioned, not only your books but the others that you referenced as well. So the two of you, thank you again very much for your time. I really appreciate it.

Allison Tom: Thanks, Tim. It’s great.

Dylin Redling: Thanks.

Allison Tom: O-H

Dylin Redling: I-O

Tim Ulbrich: I-O!

Dylin Redling: Thanks, Tim. Great talking to you.

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YFP 201: How and Why Trey Made the Transition from a Six-Figure to Resident Salary

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How and Why Trey Made the Transition from a Six-Figure to Resident Salary

On this episode, Tim Ulbrich talks with Trey Lowery about his experiences taking a non-traditional path towards residency training. They discuss why Trey decided to go back to complete residency training, how he and his wife were able to make the transition from a six-figure to a resident salary, and financial tips for those going back to do residency or making a job transition.

About Today’s Guest

Trey Lowery is a clinical outpatient pharmacist at the Iowa City VA Health Care System. He attended pharmacy school at Mercer University College of Pharmacy in Atlanta, Georgia and moved to Iowa City, Iowa with his wife, who attends graduate school at the University of Iowa. He began his pharmacy career as a staff pharmacist for Hy-Vee Pharmacy following graduation in 2018. He then matched to the Iowa City VA’s PGY1 pharmacy residency program in 2019 and continued there in his current position upon completion. In the few years following pharmacy school graduation, Trey experienced the transition from student to the seemingly never-ending job search, to full-time salaried pharmacist, to resident, and back to pharmacist salary again. He is excited to share his experiences with other pharmacists in hopes it will encourage them to not allow potential decreases in pay to prevent them from pursuing their dream job as a pharmacist.

how to Summary

On this episode, Tim Ulbrich welcomes Trey Lowery to the show to discuss his experiences with his non-traditional plan towards residency and the many adjustments that came along with it. Trey shares some of the challenges he and his wife worked through along his journey to residency and how both compromise and financial savvy helped them through the transition.

Some of the best tips and advice that Trey shares in this episode include making sure that you have a solid budget and financial plan ahead of time. Trey shares his long history with budgeting and how he views it as a tool for success rather than something limiting. Tim and Trey go over Trey’s very practical advice on budgeting during residency, including a formula for building your residency budget even when you are not sure of your salary and specifics.

Additional advice includes building your emergency fund up to be able to fund at least 3-6 months of expenses. The reasoning for this is simple, with a 6-figure salary, unexpected expenses and events are much easier to manage, but with a resident salary, those same unexpected expenses and events can be a bigger problem.

Trey closes with a little motivational push and encourages anyone who is looking to take a non-traditional path to residency to do so.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Trey, welcome to the show.

Trey Lowery: Thanks, Tim. Appreciate you having me.

Tim Ulbrich: Appreciate you taking time to come onto the podcast and really share your story and pearls of wisdom for transitioning from a student pharmacist to a pharmacist with a six-figure income to a resident salary and what that meant for you, for your personal situation, and how you were able to financially plan for that transition. And so let’s start with your pharmacy background and give our listeners a little bit more of a picture of where you went to pharmacy school, when did you graduate, and then the route that you took through residency to your current role.

Trey Lowery: Sure thing. So I grew up in the state of Georgia and then went to pharmacy school at Mercer University College of Pharmacy, which is in Atlanta. I then got married after school and my wife decided she wanted to pursue a PhD program. And she chose to do so at the University of Iowa, so then we made the transition and moved from Georgia halfway across the country to the great state of Iowa. And when I got here, I didn’t really have many connections, I wasn’t licensed yet, so I had to figure out how to transition into passing all the different licensing exams and attempting to find a job without a license and without any knowledge of anyone in the area. So thankfully, I was able to do so after a couple of months. And I ended up working at Hyvee pharmacy. It was about an hour away from where I lived, so the job search was certainly expanded. And then after about 9-10 months of working at Hyvee, I applied to the several different residency programs and ended up matching at the Iowa City VA, where I completed my PGY1 and then after finishing it, I was happy to continue on in my current position as a clinical outpatient pharmacist there at the Iowa City VA as well.

Tim Ulbrich: And I’m excited to share your story with others as I suspect there may be many pharmacists out there listening that for whatever reason, you know, didn’t complete residency training right out of school, which may have been Plan A for them in their mind or perhaps they discovered later on that they wanted to do residency training. And that could either be a financial decision, that could be a family situation, a move that’s going on, it could be a match situation, lots of reasons why folks may not necessarily complete residency right out of school. But there may be an interest to go back and complete a later program at a later time. And I think one of the common barriers is wow, this is a big financial change to be considering, right? Going from student income to finally you’ve got that pharmacist six-figure income and then taking a step back at least financially in terms of that resident income. And so we’re going to dig into that in more detail here in a little bit, but I want to give our listeners more perspective on your Plan A and then obviously your work that you ended up doing at Hyvee. But my understanding is your goal was if possible to do residency right after your P4 year and because of the timing, because of the move, you weren’t able to enter Phase 1 of the match, didn’t yet know where you were going to be because of location with your wife’s PhD programs and the options and then at that point were able to move into Phase 2 — for all that have been through this process know how difficult Phase 2 of the match can be in terms of the number of applicants that are out there relative to the position. So talk to us through about that experience. How challenging was that in terms of that being up in the air, unknown, as well as having to make that decision that this is Plan A but I’m going to put that on the back burner because of this move. And if it works out in Phase 2, great. If not, then you’ll pursue something else.

Trey Lowery: Sure, I think that’s one of the interesting parts of my story is that I went into pharmacy school thinking I didn’t want to do a residency because I had worked originally as an intern and as a technician for a company called Kroger, which is very similar to Hyvee, back in Georgia. And I thought that that was the path I wanted to do. I was thinking retail pharmacy, maybe some type of independent or ownership later on. But it wasn’t really until my fourth year rotations when I actually got experience in the clinical and hospital side of pharmacy that I really decided, you know what? I actually really like the idea of the work that I’m doing here, so much so that it was basically around September when I decided OK, I definitely want to pursue a residency. But then the applications were due in December. So that was also part of the speeding up process that I had at the time. So I did what I could in those couple of months, tried to get some research experience, doing some more experience in the clinical areas and bolster my CV as much as I could. But yeah, the unknown of having to wait for Phase 2 was certainly challenging I suppose would be the word. I mean, we didn’t know where we were going to move, we didn’t know how we were going to financially survive after the move because if I didn’t match, then I wouldn’t have a job already lined up in the area. So it was certainly a challenging time. And it was one of those things to where we basically had to decide which of our careers would help the other one, sort of. So my wife was willing to take a year off if that meant that I could pursue a PGY1 anywhere in the country. But ultimately, we decided to go with — stick with the plan of her going ahead and going into school because it was going to take significantly longer and then my ability as a pharmacist to find a job would likely be a little bit easier than hers just coming out of undergrad.

Tim Ulbrich: Yeah, and I’m glad, Trey, that you guys were able to work through that and come to that decision as a family because obviously now you guys are in a great position at the Iowa City VA, your wife’s continuing on in her PhD degree, so it all worked out, but I’m sure that was incredibly stressful in the moment as you guys were evaluating the options that were in front of you. And so you make this move, you obviously get into Phase 2, limited options, lots of applicants, and ultimately weren’t able to land a position in Phase 2. So now you’re at the point of getting a job, right? So you land a position with Hyvee pharmacy, and my question here is once you were in that role, obviously I’m sure in the back of your mind you’re still thinking about residency as a path that you may be interested in, some of your career goals that you identified here in the fourth year that were of interest to you, but you’re making a good income. And I think this can be a hard thing to really objectively say, “I want to go back and pursue this training pathway,” knowing that it’s going to reduce my income by a half, certainly probably even more than that for some positions. And so talk to us about that decision-making process, you know, how you were able to really objectively evaluate, you know what, this path of residency is best for me, even if it means taking a pay cut to go back and do that.

Trey Lowery: Well, for me, Tim, it really stemmed from thinking about what my long-term career goals were as well as my wife’s — you know, obviously that was certainly a sacrifice for both of us in doing that. So when I got to thinking about what I wanted to do over the course of my career for the next 40+ years, I really just didn’t think that my current position was something that I was comfortable with thinking about in the long term. I really thought that I wanted to get more involved in the actual act of patient care, being able to handle some of the decisions instead of being more reactive by when they just come to the pharmacy and drop off prescriptions, it’s hard to really make a lot of interventions in that setting. And depending on when my wife finishes her PhD, we don’t exactly know what’s going to happen there. So it may involve another move, it probably — it will likely involve another job search. And I figured that if I could do anything to bolster my ability to be more marketable in that area by having residency training, then I’d also improve my chances of finding a job in the future and then hopefully being able to land something that I really enjoy like I have right now.

Tim Ulbrich: Well, and good call on the VA. You know, obviously we have many, many VA pharmacists that listen to this show that we work with as clients. And we know how much they enjoy the VA from a scope of practice, from obviously the quality of employment, the benefits, but also from the ability to transition. You know, one of the benefits of the VAs, if you guys have to pick up and move across the country, if you’re able to locate with another VA, you know, that minimizes a lot of the licensure concerns and other things of transferring your practice. So what a great opportunity that you have there. What about the experiences at Hyvee? You know, one of the things I’ve noticed as a residency program director and previous experiences is I have found that those that have some work experience, so graduate from pharmacy school, go out and work for a year or two years, however long that be, and then come back and do residency, seem to be a little bit better prepared to take on the demands, the challenges, the rigor of residency. Are there specific experiences that you had at Hyvee or skills that you obtained through that year that you felt like really benefited you during the residency year?

Trey Lowery: Yeah, and I think that’s an important point for those seeking to go back to do residency is using that to your advantage rather than saying, you know, I’m actually multiple years out of school, I’m well into one specific area, how can I go into a residency program that’s going to require well-rounded, maybe things that I haven’t done before? But I think like you mentioned that that is actually something to use to your advantage because one thing you’ll have over the other candidates that are applying that are still in school is that you’ve actually made that transition into I am an independent practitioner, I have ownership over my practice, when I scan the barcode to verify my prescription, that’s the last check. It’s completely up to my abilities as to whether or not the patient is getting the right thing, and I’m now the one responsible. So I think between that, you also gain some supervisory experience because you’ll actually have technicians that it will be just you in the pharmacy, you have to do a little bit of kind of management of time and management of people in that area. And then for me, it was just kind of the relationships that I really was able to develop with my patients. You know, actually seeing that your work is having an impact on them really makes you want to take more ownership of that. And so then going back into residency, I’d already seen the effects that I could have as a pharmacist on my patients. And so I think that made me care about it a little bit more knowing the sacrifices that I was making to be there.

Tim Ulbrich: Trey, one of the things I think about besides the financial transition, which we’ll get to in more detail here in a few moments, you know, just having a year I guess off — not necessarily off, you obviously were practicing, using skills, but you know, it’s a different pace from happy clinical rotations where you’re being evaluated and you’re expected to do so many interventions and have a certain autonomy of practice. So being, having that transitionary year and even just schedule differences, you know, I think about the pace typically of a residency probably were in more of a normal, not going to say not stressful, but normal schedule, so you finally graduate from school, you get to somewhat of a normal scheduled routine, and then you say, “You know what, I’m going to raise my hand to make a lot less money, to work a lot more, to be able to develop these skills further.” So money aside, just talk to us about the transition of a year off, not using some of those skills perhaps that you obtained in your final year of school or throughout your PharmD as well as just the schedule differences and how you were able to get back into the flow and the rhythm when you started residency.

Trey Lowery: It was definitely a transition, to say the least. For the first couple of months when you’re getting licensed and studying for your board exams, it still feels a little bit like school because I was taking most days of the week to study for that and for job searching purposes and that kind of thing. So for the first couple of months, I didn’t feel like I could just completely relax and not have to worry about the scheduling part. But you’re right, once I got into the position I was in, it was very much I go to work and then I come home and then I don’t necessarily have a bunch of projects or schoolwork or studying to do. And it is definitely easy to get caught up in that position. So when making the transition back, I’ll be completely honest, it was difficult the first couple months. I really felt like I had to do some extra reviewing so that I knew the topics I really hadn’t used in a year or plus, since my rotations when I’m actually going through my rotations in residency. And the scheduling, it was very much a team aspect in our household. My wife definitely helped so much with figuring out ways that we could be able to make sure that we spent time together, that we were — that I had time to focus on my residency projects and had ample time to be at work when I needed to. And it was certainly not easy. But after the first couple of months of residency, I suppose you kind of get used to it. You know what you have to do at that point, but yeah. Certainly a big difference from how it was before then.

Tim Ulbrich: Yeah. So let’s transition to talk about some of the financial tips that you shared with us prior to the interview that I think would be really helpful for folks that are considering a similar pathway, you know, student, practicing pharmacist going back to residency or folks that may be transitioning jobs or careers. I can think of situations where someone’s salary might be reduced or they’re looking to go part-time or they’re making a transition to another position that doesn’t have the same salary and just general financial principles that I think are helpful for individuals that find themselves in a similar situation. And the first one that you mentioned, Trey, is to make sure you have a solid budget and solid habits around budgeting before you get started. So tell me about budgeting, how you and your wife created good budgeting habits and effectively budgeted prior to making this transition back into the residency position. What did this look like?

Trey Lowery: So I am thankful that both of my parents are very financially savvy and both of my wife’s parents are the same. So I actually started my first budget when I got my first job at age 16 because for me, I looked at budgeting not as something that was limiting what I got to spend and where I got to spend the money that I was earning, but I felt very relieved in that I could actually allocate where certain parts of my income was going and then it was OK for it to go to those areas. So when I — when we got married, that was very important to me. I had listened to plenty of examples from different financial advisors throughout the country and from YFP as well to where I knew that money can certainly become an issue in marriage. And so we really wanted to focus on that at the beginning to make sure we were on the same page and go ahead and knock that out. So I use primarily Mint.com and then a couple of other different spreadsheets to track the budgets that we make. And it certainly took a couple of months for that to really become an effective tool. It took some balancing in certain areas and making sure that we were on the same page of all the different categories and that kind of thing. But the reason I say that that’s such an important aspect is because if you don’t have that going into residency, you’re not going to be able to create it while you’re there. You’re not going to have enough time, probably not enough energy, and then if you do have a family, it’s going to be very difficult to get everyone on the same page in the chaos that is residency. So that’s why I recommend if you can, go ahead and — I mean, useful budgeting, good budgeting habits are beneficial for anyone at any time I believe. But if you can make sure that you have those working effectively beforehand, it will only benefit you once you actually enter the reduced salary stage.

Tim Ulbrich: That’s great advice, Trey. And I think sometimes it’s easy, you know, P4s that are listening that are going to be starting a residency, starting a job, folks that are in a position such as yours that might be making a transition where there’s a salary change, sometimes it’s easy to say, “I’m just going to wait until I see what that actual pay stub and take-home pay is,” but I think you can get close enough, right? You can estimate close enough, work through the budget. It won’t be perfect, but the point is you’re being intentional, you’re being prepared with the transition, and then you can fine tune and refine it once you actually get that first pay stub and begin to move forward there knowing that you’ve been intentional and been prepared. Yeah, we have a budget template for folks that are looking to get started with a budget. If you go to YourFinancialPharmacist.com/budget, we have an Excel template that you can download, work through that. We use a zero-based budgeting method and system, and then you can take that information and plug it into a tool like Mint.com, like YNAB, or any other budgeting tool or software or good ol’ pen and paper or Excel if that works best for you as well. So that’s No. 1 around budgeting. No. 2 here is increase your emergency fund if you don’t already have 3-6 months of expenses saved. So why, Trey, did you decide to focus on building emergency fund prior to residency? How did you guys practically do this? And did you end up having to use that fund at all during residency?

Trey Lowery: So this is something that we did initially upon finishing school. That was kind of our first major goal. And it was fun because it gave us something to work towards together that wasn’t high-risk, high-reward, that kind of thing. It was something that we knew that once we got there that would just be a nice cushion for us to have going forward. So the reason that I would recommend increasing your emergency fund or at least having the usual is kind of 3-6 months’ expenses is the recommended is because obviously if you’re decreasing your salary that much, a $1,000 home repair or a car expense or some kind of unexpected family emergency happens, when you’re on a six-figure salary, that isn’t that big of a deal. You just say, “OK, I’ll just move around this part of the budget, and we’ll cover it.” But when you’re in a residency salary, you know, let’s say you bought a house, you have a family, it’s going to be very difficult to make that unexpected expense be able to be covered. And then that could lead to things like putting it on a credit card and then that will only amplify and amplify as things continue to happen. So when you’re in residency, the last thing you want to be concerned I think is some kind of unexpected financial emergency. You’ve got plenty enough on your mind already. So if you can already have a good-sized emergency fund going into it, I think that will just help everything going forward.

Tim Ulbrich: That’s great stuff. And this third one, you know, really caught me off guard the first time I read it. I had to reread it, and then I got to what you were saying exactly. And it’s really a great, great piece of advice. And that is look for salaries at prospective residency options, pick the lowest salary option — say what? — pick the lowest salary option, create a new budget using that salary. Depending on the results of your new budget, you may need to make adjustments. I think this tip is bold. Trey, tell us about what you mean by this, why you took this approach, and why this can be so valuable.

Trey Lowery: Like you mentioned, you may not exactly know the dollar amount that you’re going to have in your paycheck in order to create a full budget around. So for us, because we knew we were going to be located in the Iowa City area, I knew I was going to be applying for residencies within, you know, a 30-minute, hour range and not too much further. So I went on the forecast website and they have actually all the information regarding the salaries and some of the benefits of each of the programs that you’re applying for. And so when you match, you’re very much committed to that program that you match with. So if you have a bunch of different salary options, if you’re looking all over the U.S., it certainly I’m sure varies. If you can create your budget around the lowest one such that if you happen to match to the lowest salary option, which I actually did, so it ended up working out well. I didn’t have to change any of my budgeting once I actually started residency from that perspective. But if you can pick the lowest one, that will be your most strict option for your budget. And if you end up matching with a program that’s anything above that, then at that point, you’ll have extra to put towards other goals or other discretionary expenses, that kind of thing when you’re going into residency. But for me, it was just a way of not getting caught off guard when you had such a massive decrease in income all at once.

Tim Ulbrich: That’s great advice, especially considering the separation you can see of resident salaries, depending on where they’re located, types of roles and things like that. So that can be a big difference if you’re looking at, I don’t know, $48,000 versus $40,000 for example. That can be a significant impact on that year and during that year as well. No. 4 is have a plan for your student loans during residency. What would it be in terms of a YFP podcast if we didn’t mention or talk about student loans? So let’s go there for a minute. How did you decide to handle your student loans during your first year working and then also in residency? Talk to us about the plan, the approach, the strategy you’ve taken, and how you ultimately have gotten to that decision that that is the best repayment plan and option for you.

Trey Lowery: So when I first figured out that I was going to be using student loans to get through graduate school, I had to figure out basically what was going to be my approach to either whether I’m going to pay them off or attempt to go for forgiveness, that kind of thing. When I first started pharmacy school, I really didn’t know that there was such a thing as forgiveness. And my dad always told me, “You know what, you’ll make enough, you’ll be able to pay it off. It’ll be good in the long run. Just go ahead and take them out. You’re going to need to because we couldn’t afford to send you all the way through graduate school.” So I went through pretty much all the way through school thinking that that was going to be my plan, that I was going to pay them off. And then in my fourth year of school, I actually went to a financial advisory meeting led by one Tim Ulbrich from Your Financial Pharmacist. And that is where I discovered that there actually were forgiveness options available, which I had not realized at the time. I feel like I might have already been somewhat committed because the financial gurus that I followed were like Dave Ramsey and some others, which are very much you took out the debt, you need to attack the debt and tackle it in order to make your own financial goals become a thing. But like I said, I hadn’t considered that there were actually other options. So ultimately after looking at the numbers and weighing how we felt about our debt, I did decide to go for the pay-it-off method, which I’m currently doing now, although granted the 0% interest and no payments are certainly a benefit in that.

Tim Ulbrich: Right.

Trey Lowery: With them being federal. But that was what we ultimately decided, and additionally, because I was at first at Hyvee and I wasn’t at one of the accredited organizations that would qualify for PSLF, I really didn’t know if I was ever even going to be in a position to do that.

Tim Ulbrich: Right.

Trey Lowery: So I did use my first year to do some paying off of the debt then as well.

Tim Ulbrich: Yeah, I think that’s great, Trey. And you know, as I shared with you before we hit record, as I’ve said many times on this podcast before, this really is an individual situation. And you know, I think at the end of the day, it’s about having a plan, that you understand the options that are out there, and you feel confident in evaluating those options and knowing that when you apply those options on top of your personal situation that you’ve gotten down the path of the best repayment option or strategy for you personally as an individual. And I think for folks that are listening, you know, this can be a topic that obviously can be overwhelming, there’s lots of options, there’s forgiveness, there’s nonforgiveness, there’s federal, there’s private, the list goes on and on, and it can feel overwhelming. It can become paralyzing. And I think really digging in to understand the options is important and a great piece of advice here for those that are — really for anyone with student loans, but especially for those that are going back into a residency position or going through residency training to make sure that you’re using this time to evaluate those options. So I would recommend to our listeners, Tim Church wrote an awesome book on student loans for us, “The Pharmacist’s Guide to Conquering Student Loans,” really an A-Z guide of all things student loans, customized to the pharmacy professional, really meant to go through all of those options and help you apply that to your personal situation. You can learn more about that at PharmDLoans.com. Trey, this has been outstanding. I think for those that are currently in training, going to pursue training, whether it’s right from pharmacy school, going back, I think they’re going to find a lot of value in your advice and there’s a lot of wisdom here. Any other advice that you have, financial tips, wisdom to share with those that are listening that are going back into a residency position or going right into a residency position, making this transition? Any tips or advice that you would have for them as they go through that transition?

Trey Lowery: Well just like with finances, I think this is really a personal decision, and it depends on what your career goals are. Personally, I feel that if you are someone that is committed to pursuing your residency and you know that that’s the path that you want to take, you’re going to be able to figure out the finance part and make it work if you’re committed enough to following that path. So I think just taking some time to figure out what your career goals are and what steps you’re going to need to take to get there are probably the most important. And when I look back on my time during residency, obviously I’m not 40 years down the road at the moment, but I can say even nine months out that I really, really absolutely feel that it was worth it. And I think that in the long term, having a position that I really enjoy, that I feel like I gain a lot out of and I’m really able to make an impact on my patients’ lives the way that I think I would like to, no matter what, that’s going to be worth the $60,000, $80,000, however much you’re giving up for just one year. And if you were to develop good budgeting habits before that time ever comes, then that actually may end up benefiting you financially even more in the long run than not doing a residency in the first place. So I think there may be multiple benefits to pursuing that. But like I said, for me it’s really just depending on the individual.

Tim Ulbrich: You beat me to it, Trey. One of the things I believe — I have no evidence to support this, you know — but one of the things I believe is that a benefit of that year, if you take full advantage, or two years perhaps, is that it really does force you on some level to build some of the behaviors that can have a very long-term benefit throughout your career. So I think one way of looking it at is ‘Oh man, I’m not going to make much money at all.’ Another way of looking at it is, ‘Hey, maybe there’s an opportunity to learn some things throughout this year, whether it’s goal-setting, budgeting, being intentional in other parts of the financial plan, that can have a benefit well beyond those training years.’ So Trey, again, thank you for your time. And appreciate you and your willingness to come on the show to share your story.

Trey Lowery: Thank you so much, Tim. I’d like to say if anybody is in the YFP community on Facebook, feel free to reach out. I’d be happy to continue to share any other points that I might have. If this is something that you’re pursuing, definitely consider it because you definitely can do it. Thank you, Tim.

Tim Ulbrich: Thank you, Trey.

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YFP 200: An Interview with Sarah Fallaw of The Next Millionaire Next Door

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An Interview with Sarah Fallaw of The Next Millionaire Next Door

On this episode, sponsored by Insuring Income, Dr. Sarah Stanley Fallaw, co-author of The Next Millionaire Next Door and founder of DataPoints LLC, a behavioral assessment advisor fintech company, joins Tim Ulbrich to talk about the surprising secrets of those who achieve millionaire status, how psychology and personal finance intersect, and why it is so important to understand your financial behaviors and tendencies.

About Today’s Guest

Sarah Stanley Fallaw, Ph.D. is the co-author of The Next Millionaire Next Door and the founder of DataPoints LLC, a behavioral assessment advisor fintech company. DataPoints created the industry’s first assessment of wealth potential based on The Millionaire Next Door. Her research on psychometrics and financial psychology has been featured in conferences and publications including Financial Planning Review, Industrial and Organizational Psychology, and the Journal of Financial Services Professionals. Sarah received her Ph.D. in Applied Psychology from the University of Georgia in 2003. Learn more about her work and research at www.datapoints.com.

Summary

On this episode, Tim Ulbrich welcomes Dr. Sarah Stanley Fallaw, co-author of The Next Millionaire Next Door and founder of DataPoints LLC to the show to discuss the secrets and behaviors of millionaires in the United States. Dr. Fallaw shares her experience of co-authoring The Next Millionaire Next Door with her father and outlines some of the behavioral research that went into writing it.

Tim and Sarah mention the money personality assessment tool offered by DataPoints that both pharmacists and those in the field of financial advising can use to better understand personal factors that influence spending, saving, and wealth. Tim mentions how when taking this assessment, he was surprised by some of the questions and ultimately how certain personal characteristics can influence financial decisions.

The key points and concepts from The Next Millionaire Next Door are also discussed and related back to the career and financial situation of today’s pharmacists. Concepts included in the discussion include myths about wealth and income, perceptions about wealth and how wealth is built in America, external influences and factors that can ultimately affect our wealth, the typical lifestyle that most millionaires in our country live, treating personal finance like a business, and the investing patterns of millionaires.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Dr. Fallaw, thank you so much for joining us today.

Sarah Fallaw: Thank you for having me.

Tim Ulbrich: Well, I’ve been looking forward to having you on the show and really excited to have you on as a special guest. This is our 200th podcast, so a big moment for us in the YFP community. And you joined us way back on Episode 035, the Science of Behavioral Finance, that went live back in February 2018. So we’re three years ago where you and Tim Baker, our Director of Financial Planning, talked about how your company DataPoints applies lessons from the book “The Millionaire Next Door,” written by your father, Thomas Stanley. And you two, Tim and you also dug into different factors that measure the propensity to build wealth. So today, we’re going to dig a little bit further into that conversation, talk about behavioral finance, the applications to one’s financial plan. But let’s start if you could share a little bit more about your background, your training, your career, and the work that you’re doing with DataPoints.

Sarah Fallaw: Yeah, absolutely. Thanks for having me on this milestone episode. That’s exciting for you guys. You know, as you mentioned, obviously connected through my father to “The Millionaire Next Door” and research on wealth. But my background is in industrial psychology. So I’m a psychometrician, if you will, by training. And really, the focus that I’ve had throughout my career is trying to understand characteristics and competencies of individuals. And then of course, in the later part of my career, taking that research that went into “The Millionaire Next Door,” and saying, well, how can I help people understand themselves, particularly clients? How can I help the advisor understand how a client might behave or make decisions about finances related to their personality and things like that. And so that’s my background and how I got into this area.

Tim Ulbrich: So how does one — I have to know — how does one get interested in industrial psychology and become a psychometrician? How does that happen?

Sarah Fallaw: Yes, yeah, how does that happen? Well, you start off in clinical psychology, thinking that you want to help everyone. And then you realize or recognize that you might be better suited for the statistical side of psychology, and so that’s how you end up in industrial psychology. No, really, I felt a calling to be in the business side and certainly industrial psychologists are the ones that are applying psychological principles to the workplace, how do you hire people, how do you develop them, how do you have a great organizational culture? All those things. And so that was really what I was attracted to in the field of psychology and then psychometrics kind of came alongside that really using survey research, test development, all those kinds of things to understand individuals. So that’s how you fall into that. You just kind of start on one path, and you end up on another.

Tim Ulbrich: Well, I really appreciate that. You know, we say often on this show and I know from personal experience, so much of personal finance is behavioral. And we’re going to dig into that a little bit further. And I love the mission that you have and the work that you’re doing at DataPoints, helping advisors understand the client money mindset and how that obviously then connects to the financial plan. And you’ve got a really interesting quiz tool that really helps folks understand their money personality. We’ll link to that in the show notes. Folks can find that at DataPoints.com/personality. So tell us a little bit about this personality test, this money personality assessment and really how it can help someone learn about their financial behaviors or perhaps help the advisor who is working with that client to understand how those behaviors connect with the financial plan.

Sarah Fallaw: Yeah, absolutely. So what we know from research, not only obviously that my father conducted but lots of academic research in the fields of financial planning as well as psychology, that certain characteristics about ourselves lead to great money behaviors or maybe not so great choices. So the test that you mentioned is one that measures five factors of personality, which is a really well-researched model, so you know, how are we all different in terms of our attitudes, values, experiences, that kind of thing. And they break down into those five areas that you’ll see things like conscientiousness, so obviously as pharmacists, conscientiousness is of utmost importance. But it’s also an important characteristic when we’re talking about saving and spending and making good financial decisions. So it’s actually predictive of someone’s net worth, it’s predictive of financial success. Some of the other characteristics, things like agreeableness. So how do we get along with other people? Are we there caring for others or are we sort of out for ourselves? What we find, unfortunately, is that those that tend to be a little more agreeable are also those that maybe spend a little bit more than they should. And that makes sense, right? Like we want to pick up the check. We want to take care of this, that kind of thing. So understanding some of those — those are just two of the five — but understanding those characteristics can help you understand what you might do in certain situations and then maybe how to avoid those situations or how to prepare for that situation the next time. So those are some of the things that you can learn about yourself and certainly then, again, if you’re a financial advisor, you can use that information to help your clients as well.

Tim Ulbrich: I really enjoyed this, taking it myself and reading the report and findings. It took me about, I don’t know, 7 or 8 minutes to get through it. And it was different than what I was expecting. You know, I’ve taken lots of money self-assessment tools that are out there, and I think often they’re focused on like your risk tolerance and how conservative or how aggressive. And this really threw me for a loop. I mean, questions like, “I enjoy reflecting on challenges, problems, or large issues,” or “I tend to understand others’ feelings and thoughts. And at first as I was taking it, I was like, how is this going to connect to the financial plan? And then when it got to those five personality buckets that you mentioned, the extraversion, the conscientiousness, the openness, the agreeableness, and the neuroticism, I was like, OK, I’m starting to see the connection and obviously the report and the guide talks about that further. But I can certainly see how one’s awareness of these as well as their coach’s awareness of these could be really helpful as it comes to developing their plan. And I was feeling good, Sarah, about myself when I saw the high conscientiousness, as I suspect many pharmacists would.

Sarah Fallaw: Yes.

Tim Ulbrich: And not so good then when I saw oh man, agreeableness, not so high, and neuroticism, a little bit higher. But you’ve got to dig deeper, right, than just the terms that are there.

Sarah Fallaw: Exactly. Yeah. And there’s always a good — a positive and a negative about any score that you have. So obviously taking that openness to experience one as an example, if you are high on it, it means you’re creative, you like new and different experiences. If you’re low on it, you like things to be the same. And so you know, those can be good or bad depending on the situation that you’re in. Certainly for accumulating wealth, it tends to be better if you’re more of a traditional, I like things the way they are. But again, it can be a good thing for your mental health to be trying new things and experiencing new foods and all kinds of things like that.

Tim Ulbrich: Very good. And let’s shift gears to talk about the work of “The Millionaire Next Door” and the follow-up, “The Next Millionaire Next Door,” which was, as I mentioned to you before we hit record, really both of those books have been transformational for me in my own personal journey. And a lot of what we do and the philosophy of what we do at YFP and how we approach our education and what we believe in I think aligns very well with those two resources and the research that you’ve found and obviously a strong connection there to behavioral finance and the work that you’re doing at DataPoints. So let’s start, I suspect many of our listeners have heard of “The Millionaire Next Door,” arguably one of the best personal finance books and resources of all time, and give us a 10,000-foot overview of that book. What was your father’s aim for the book? And ultimately, high level, what were the findings?

Sarah Fallaw: Yeah, so it was written — I’ll start with that sort of aim question portion of it. You know, he had spent his lifetime studying how individuals build and sustain wealth. So he studied affluent populations in the United States. He was a marketing researcher. And so his goal with “The Millionaire Next Door” was to help individuals understand that there was this kind of component of affluent America, which was made up of people that did this on their own. It wasn’t just the case that they had rich uncles and aunts and that they were born into a certain kind of family. There still to this day was a large component of millionaires who were self-made. And he felt like there were so many unusual aspects of this group that he wanted to share it with individuals. Early in his career, he was teaching, he was consulting, he was working really, really hard and saw several of his peers do that too. He felt like if he could give people this information that maybe that could save them from some of this constant income earning-spending, income earning-spending cycle that they were in. And so that was really the aim. But again, the 10,000-foot view of the book is really that there are certain characteristics that allow individuals to build wealth over time. And again, a lot of times it has to do with the career you choose, with the spouse you choose, with the place you start living when you first buy a home and things like that. And there are, again, these certain characteristics that millionaires exhibit that allow them to build and sustain wealth over time.

Tim Ulbrich: Yeah, and I remember one of the — I can remember one of the tables reading that book, but there’s the big-ticket items like your career, obviously the spouse, the home that you live in, the neighbors and the community that you’re in, all those things that influence your spending patterns and behaviors. And then there’s some other things that may not seem as large on the surface, the jeans you buy, you know, the cars that you drive, things like that that can have a very profound impact and perhaps a window into other spending patterns and behaviors. I personally find, Sarah, that the research that affirms the opportunity for folks to really create their own opportunities and to become self-made, I find that very refreshing and I suspect many of our listeners will who are facing sometimes $150,000-200,000 of student loan debt upon graduation. They’ve got a great income to work with, but they can often feel like they’re starting at point like, oh man, forget about it. Like is there even an opportunity going forward? And I think the compound effect of being intentional with those micro decisions along the way is going to be really important. So why the need for a second edition? Tell us about “The Next Millionaire Next Door” and ultimately how you decided that this resource was necessary as a follow-up.

Sarah Fallaw: You know, that kind of came out of a couple of different things. You know, No. 1, it had been nearly 20 years I think at the time when my father started talking about that, sort of a new book. And it was time to look at some new data, to look at some new aspects of spending, you know, social media was not a thing, right, back in 1996. That was — no one knew that we would have Facebook back then. And so there were a lot of different aspects that he wanted to consider and I was serving in the role of the statistician, I was going to do the survey data collection and the analysis and those kinds of things. And it really wasn’t designed necessarily to be a second edition. You know, he’d had that question asked of him many times by publishers and things like that. But instead, he wanted to really take a fresh look at things. And so yeah, you know, it started off as something that we were collaborating on. And then as you know, he passed away in 2015, was killed by a drunk driver. So I had the privilege of finishing the book without him but certainly the beginning of it and the ideas for it came from him. So yeah, that’s kind of where it came from.

Tim Ulbrich: And there really are so many “Aha!” moments throughout the book. I found myself in both “The Millionaire Next Door” and “The Next Millionaire Next Door,” really shaking my head in agreement with the writing, the research findings, and I think analytical pharmacists and scientists will appreciate the research and the power that’s behind it because often, you know, personal finance education and advice can feel squishy at times. And to really have some research supporting these findings that we can then try to align our behaviors with to give ourself a chance of success I think is very refreshing. So I want to dig into some of the key findings in the book, and I’m going to hit a couple highlights in different chapters of the book hopefully to give our audience really just a sampling of the outstanding content that is throughout and then of course would encourage folks to pick up their own copy of “The Next Millionaire Next Door.” So in Chapter 1, titled “The Millionaire Next Door is Alive and Well,” you share a truth that is so important and I think can often be looked over or easily confused. And that is that wealth is not income. And income is not wealth. So tell us about what this means, what the differences are between income and wealth.

Sarah Fallaw: Yep, absolutely. So I think — and again, you would think after 20 years, 25+ years now, people would see the difference. But it’s hard for even me and certainly my teenagers to even see that. But the truth is how much we make has very little to do with how much we keep. And that’s the idea. You know, we have this confusion in our brain, we see individuals with nice cars or in the best houses or whatever it might be, and we equate spending to having money in the bank. And unfortunately, they’re not. And I think a lot of us, particularly when we come out of grad school, when I came out of grad school, and we have a great big salary and we’re excited about that, you know, again, particularly for pharmacists, it’s just not the same. So we confuse that level of income that we’re receiving with being wealthy, which leads to us spending above our means in terms of our wealth and can lead to a whole host of things. So I think that that’s a mindset that, gosh, if we could teach our kids that, if we could learn that early on in college or grad school, before we have that income that comes in, we would be better off for a whole host of reasons. But yes, that continues to be a struggle. When we work with advisors, that’s one of their struggles, particularly with working with younger clients that are just newly out of school and things like that too.

Tim Ulbrich: Yeah, and if you can crack that nut on teaching your teenagers, let me know so I can teach my boys as well.

Sarah Fallaw: Yeah. Me too.

Tim Ulbrich: Such an important thing of the mindset and a whole separate conversation about what may work, what may not work, and doing that. So you know, I think of pharmacists here, Sarah, and one of the things that pharmacists are blessed with is a great income, often at a very young age, you know, of course I’m overgeneralizing for a moment, but typically pharmacists will come out of school if they go through four years of undergrad, four years of their doctorate training, perhaps some residency after that, you know, still late 20s or maybe early 30s, making a good six-figure income. But one of the challenges is that many pharmacists’ income may remain relatively flat through their career. And so I think this point is all the more important that, you know, I know from personal experience, many of our listeners know that as time goes on, things become more expensive. You know, just generally speaking, right? Our goals, our aspirations, perhaps children, families that are growing, other things that we want to do. And so if our income is not going to see an exponential growth, then we’ve got to really try to be diligent right out of the gates to make sure we establish those behaviors that are going to allow us to create margin. And I know for my wife Jess and I, one of the “Aha!” moments we had early on in our career is OK, good income, but if income comes in and income goes out and it’s not sticking, which I think is really what net worth is a good indicator of what’s sticking, then we’re going to be in trouble ultimately with being able to achieve our long-term financial goals. So net worth, a really good indicator I think of one’s overall financial health. And I think this mindset that you talk about in Chapter 1 is so important. Now, in Chapter 2, “Ignoring the Myths,” you say that in order to build wealth, we have to discontinue or ignore the myths of how wealth is built in America. What do you mean here? And how can we take our financial future into our own hands?

Sarah Fallaw: Yeah, you know, there are a couple of things that go along with this, certainly one of them being that, again, wealth isn’t the same as income and things like that. But you know, there are a lot of kind of, again, mindsets from whether we adopted those as children or adolescents, from the life experiences we’ve had, or that’s what we see in the media, that can keep us from kind of owning the building of wealth, right? So how, for example, if I take myself and say, well, I’m a woman, how can I run a fintech company? Well all of a sudden, I’ve created this sort of artificial, if you will, hurdle for me to get past in order to make the right decisions and to continue on. And it’s the same with building wealth. So if we kind of adopt the mentality that ‘Well, I have all this debt, there’s no way I can get out of it,’ or again, for example, ‘I’m a woman,’ ‘I’m a minority,’ or something like that or ‘I’m in this particular group, I won’t be able to get past that,’ that’s one of the things I think that differentiates those that tend to be financially successful is they see past that no matter what group they belong to or kind of what background they’ve experienced in the past, they’re able to move past that. And so there are a lot of those myths, and they have to do more with like financial attitudes, and that can prevent individuals from actually working to achieve goals because they view wealth as something that can’t achieve.

Tim Ulbrich: And I think what you’re sharing here reminds me of so often we, like many other I’m sure financial planners, get questions like, “Hey, what should I do with my student loans? What should I do about this investment? What should I do about that?” And I think what this is highlighting is often we have to really unwind and understand, you know, what are the money scripts that we’ve been told over time? I’ve heard somebody reference it like, you know, whether it’s family interactions, whether it’s societal types of stories that we’ve been told or believed, we all have some script, we have some baggage with us about how we view and interpret money. And that of course has a fundamental influence on how we spend, on how we save, on how we approach this with a significant other. And we’ve got to be able to understand some of that I think and be able to really set goals and understand some of these behavioral pieces before we start to attack the x’s and o’s of the financial plan. And so I hope folks will hear some of this and take a step back and say OK, what are some of my own behaviors that I need to better understand that if I take the time to do so will have a real big influence on how I approach my financial plan. Chapter 3, you talk about the influences on wealth. And you know, one of the questions I think of here is what outside influences may impact one’s ability to build wealth? So how does our upbringing, how do our friends, how does our spouse really play a role in this? And what does the research say?

Sarah Fallaw: Yeah, so again, one of the key kind of indicators or predictors of financial success is being able to ignore or to not be influenced. But you know, again, there are a lot of different ways that others can make us feel as if we are making certain decisions. So you know, certainly we can talk about upbringing, we see that if your mom or your father but mostly your mother has the most strongest influence, if they tended to be frugal growing up, you will be frugal in later in life, that kind of thing. But we also see, again, social influence. We see that particularly related to social media but also kind of where you plant yourself in terms of your neighborhood, right? So that can have an undue effect on things like car purchases and things like that. And then again, your spouse, we know that millionaires tend to have spouses that are frugal. So even if they’re out maybe running a business or they’re the primary breadwinner, their spouse tends to be frugal. And we know that that can influence financial decisions in the future as well. So certainly influence can be a good thing, but it can also lead to some pretty poor spending decisions as well. And that’s really where we see the influence. We also see it in investing. So if you think about Gamestop and you see like how everyone kind of behaves when things get really exciting, we can be influenced into some of that. And we’ve seen that that can be a good thing, but it certainly can be a negative as well.

Tim Ulbrich: Yeah, we’ve all been told of the circle of influence, right, and those five or six or whatever the number is people that are around us and the impact that they can have. I think it’s no different here when it comes to money. Sarah, I’m curious, I have to know, when you mentioned the research with mom, you know, I’m thinking of my wife Jess really taking a huge role in raising our four boys, like why is that? You know, what is the connection there with the research of the mother and the spending habits that are passed on?

Sarah Fallaw: Yeah, you know, it’s not only the spending habits but career influence as well. But I think it’s primarily because of the time spent. So the research that we’ve done primarily with those that are in like their 30s, 40s, you know, you think about that in terms of well, when were they children or adolescents? Well, it still was the case in most cases their mothers were the ones that were home. So I think that that’s why we see that influence more so than the father. But again, we know that if a mother was frugal, if she was showing good financial behaviors growing up and then I mentioned the career piece as well, it’s also the case that if you had — as a mom or as a parent, if you are helping your child understand their career options and what they might do in the future, that can also be a predictor of income and net worth in the future as well.

Tim Ulbrich: Sarah, one of the personal struggles that I have is around the concept of frugality. And you know, I think that there’s certainly a benefit in frugality of being able to make sure being intentional, we can allocate money towards our goals, we can assure we’re taking care of our future selves, but you know, one of the things I hear our planning team say often, which I really admire, is that it can’t just be about the 1s and 0s in the bank account. So if we do a great job of squirreling away $3 or $4 or $5 million but we’re miserable for 30 or 40 years, like so what? What’s the purpose of that? And so there’s this reconciliation of, you know, we’ve got to be frugal to take care of our future self, but I think we’ve also got to make sure we’re prioritizing and enjoying things along the way that drive us to some of the greatest happiness and value. And so I would just love to hear your personal thoughts as I know a lot of it points to the concept of frugality, like what are your thoughts on that reconciliation between taking care of your future self but also making sure we enjoy it along the way?

Sarah Fallaw: You know, I would say a couple things about that. First and foremost, I think you’re right that many of us aren’t really super excited about being in a spartan lifestyle for their entire life and then having all this money left over when they’re 80. That doesn’t sound great. I think that one of the things I’ve learned personally but then also learned through the research and the work that we do is that there are certain individuals, certain clients, certain people, that love being frugal, that sort of get a thrill out of kind of living that way. And then there are others of us that say, “Well, how long will I have to do this?” or “How can I make this as easy as possible?” So I’ll say a couple of things about that. No. 1, I think that as spouses, you have to make sure you’re on the same page, recognize and respect each other’s viewpoint on those things, make sure that there’s room for if the spouse isn’t really excited about being frugal all the time, make sure that there’s room throughout your relationship and throughout your lifetime to enjoy some of the fruits of your labor but then also have respect for the spouse that really does want to make sure that they have everything ready in the future and is OK camping out outside for their spring break and things like that. So that’s what we’ve sort of learned personally but then also, again, through the experiences of our advisors is to understand that about yourself early on, to communicate that, and then again to make sure that the plan that you put in place acknowledges both members of the household.

Tim Ulbrich: Yeah, and I think this connects so well back to the money mindset concept and the money personality test and really understanding this individually as well as the planner working with the client and the importance of that. In Chapter 4, “Freedom to Consume,” you know, one of the things you talk about there, which I think is a timely topic right now given what the real estate market looks like, which is en fuego —

Sarah Fallaw: Crazy.

Tim Ulbrich: — is home buying. And you know, I think this is a time where I know I’ve talked with many pharmacists over the last six months that are like, ‘I’m looking to buy a home, but I’ve talked with one out in Washington recently, I’m expecting to put $100,000 over asking,’ just kind of is what it is in the market. So this feels like something in the time that might kind of get away from us in terms of where it fits in with the rest of our goals. So talk to us about the research and what you found in terms of the cost of homes that millionaires are living in.

Sarah Fallaw: Typically what we see is that millionaires are — they’re not living in $1 million homes typically. So the majority of them or many of them are living in homes that are less in terms of the value. So we found — I think it was that the current home value for most millionaires — again, this data was taken from 2016 — that it was $850,000, which was significantly higher than in 1996 when I think it was somewhere around $300,000. But you know, inflation, things like that. So I think that that’s one of the important factors. I think also, just from — and again, I’ll use the conscientiousness, you could say frugality, it’s a lot of different things, but I think that millionaires and those that are really savvy about money recognize the costs in moving, the costs in making those large-scale financial decisions. So you know, we have friends and family here in Atlanta, the market is the same as well, you know, where people are — the asking price is just the start. And what we’re seeing is that there’s sort of this excitement about change, excitement about potentially trying to time the market. And I think that millionaires tend to be a little more conservative, maybe like I said, conscientious, they understand the ramifications of making changes like that, and they aren’t necessarily looking for sort of the next big thing. But again, in general, millionaires are not necessarily living in $1 million houses. It’s not always the case.

Tim Ulbrich: Yeah, really interesting research in that chapter, not only on home buying, which I know is a topic of significance to our audience, but also on things like how are millionaires spending money on cars and clothing? And in terms of cars, what types of vehicles are they driving? New v. used? Luxury? Models, makes, and everything in between. So Chapter 5, you talk about strengths for building wealth. And one of the things that really stood out to me here is this concept of running your home like a business. So what do you mean here? And how can someone that’s listening start applying these principles?

Sarah Fallaw: So connecting back to my industrial psychology days here, I really viewed building wealth as a job, looked at sort of what it took, the complexities of it, everything from kind of dealing with the mundane tasks — or again, some folks might think these are fun — but mundane tasks of paying bills and maybe helping to do your income tax, depending on if you do it or if someone else does it, you still have to get everything together for it, those kinds of tasks as well as communicating with your spouse and communicating with the rest fo the family when it comes time to budgeting and spending and things like that. There are a whole host of things that make someone really great at the job, and then there are of course other things that can keep people from doing that job well. So in terms of strengths for building wealth and kind of thinking about personal finance as a job, it makes you kind of think about it differently in terms of OK, you know, this doesn’t seem so complex. I can think about the individual tasks I have to do and consider can I do this task well? Maybe my spouse can do this tax better than I can. We have that often happen with the advisors we work with who are using assessments to say OK, hey, you know what? You might be better at this than I am. And that would make more sense for you to take this part of it. So if you can look at the job of building wealth or of managing your personal finances well and look at it as a job, you can think about what it takes to do that job well. So that’s kind of how we certainly view it at DataPoints, that was sort of, again, in the last several months of my father’s life, kind of how we started talking about how I explained what we were doing at DataPoints, had to kind of walk him through all of that. But that’s certainly the way that we think it’s easiest, especially for those of us that don’t have a financial background to understand what it takes to actually build wealth.

Tim Ulbrich: Yeah, and that really resonates with me because I think that as many of our listeners know from personal experience, this topic can be very emotional at times. And at times, we all can make irrational decisions that often we look back and say, what in the world were we doing with that? And that’s just part of the learning part of the growth? But I think approaching it like a business, you know, helps make this as objective as possible but also helps with thinking about like systems and processes and automation and how do we make sure we can understand where our biases may be, where our shortcomings may be, and how can we build a plan and a system and have a coach and really surround ourselves to give ourself the best opportunity to succeed as possible. In Chapter 7, “Investing Resources,” a whole lot of things we could talk about here that could be a separate podcast in and of itself, but you know, generally speaking, what do you find from the research in terms of what makes someone a successful investor? What are the characteristics and behaviors that somebody will hold in terms of becoming a successful investor?

Sarah Fallaw: Yeah, so that goes back to the personality conversation we were having earlier. There are a couple of different key things that we’ve found, one of them being that emotional side of investing, just like you said, the emotions related to money. What we found is that those that really tend to experience negative emotions more than others, so anxiety or fear, we call that volatility composure. That would be a lower score on that component. Those folks tend to have a harder time, especially when things are chaotic. So — and I’ll put myself in that camp a little bit. So we gravitate towards the news, we want to see what’s happening in the markets, we’re constantly looking at our investments. That kind of personality characteristic can lead us to making maybe not-so-great choices related to our investments, particularly, again, when markets are chaotic. Some of the other components include having a longer term perspective on investing. So for those of us who really view investing as a long-term play, it’s helping us build for the future, those investors tend to have more success than those that look at investing as something that needs to be managed on a daily or a minute-to-minute basis and view it more as maybe fun or entertainment versus something that’s a component of their long-term financial success. So those are a couple of the things. You know, confidence is also something important, particularly in terms of making decisions that align with a long-term strategy. So we don’t want to be overconfident. Those of us that tend to be overconfident are often the ones that are timing the market or trying to, at least, but instead having some level of confidence in our financial choices or investing choices can lead to investing success as well.

Tim Ulbrich: Yeah, and these really resonate to me, Sarah, as a place where a coach can be incredibly helpful in the process because if you can be self-aware of these things and that individual is also aware of these, they can help challenge you appropriately, they can help you stay the course when you have tribulations in the market, which inevitably are going to happen, and I think certainly can be a valuable resource beyond investing but specifically here as we talk about investing. So we have just literally scratched the surface on so much of the rich content that is in “The Next Millionaire Next Door,” so I would highly encourage our listeners to pick up a copy of that book, which you can do pretty much anywhere that you can find a book, whether that’s online, Amazon, Barnes & Noble, so forth. And Sarah, we’re going to link, as I mentioned earlier, in the show notes to the personality assessment available at DataPoints.com/personality. Folks can take that assessment, download that report, work with their planner, provide that information as well. Beyond that, what is the best place that our listeners can go if they want to learn more about your work or if they want to connect with you?

Sarah Fallaw: Yeah, so definitely on LinkedIn, Sarah Fallaw. I’m on Twitter @sarahfallaw, so all one word. They can also go to our website, just DataPoints.com. We have a blog. We write — generally our audience is financial professionals, but we also write at TheMillionaireNextDoor.com as well.

Tim Ulbrich: Awesome. Well, we will link to all of those in the show notes in terms of the social media and the websites as well as the personality data assessment. Sarah, again, thank you so much for your time. This is a special episode for us in Episode 200. And really excited for the opportunity to be able to interview you as a part of the celebration. So thank you very much.

Sarah Fallaw: Thanks for having me.

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YFP 188: Playing with FIRE: An Interview with Scott Rieckens

Posted on by yfpadmin

Playing with FIRE: An Interview with Scott Rieckens

On this episode, sponsored by Insuring Income, Scott Rieckens, author of Playing with FIRE, joins Tim Ulbrich to talk about his journey towards achieving FIRE. Scott digs into the ins and outs of the FIRE movement, why he and his wife decided to leave their friends and family in San Diego, how to calculate your early retirement number, and strategies for implementing your own FIRE plan.

About Today’s Guest

Scott Rieckens is an Emmy-nominated film/video producer, serial entrepreneur, and author. Scott has spent his career as a storyteller connecting people with ideas. Along the way, Scott’s work has generated millions of views through a feature-length documentary, multiple televisions series, short films, and a diverse range of commercial projects for Microsoft, NBC, Facebook, FOX, Taylor Guitars, BMW, WIRED and others.

Now, Scott has created Playing with FIRE, which explores the growing community of frugal-minded folks choosing a path to financial independence and early retirement. He and his family reside in Bend, OR.

Summary

When Scott Rieckens, author of Playing with FIRE and creator of the documentary Playing with FIRE, discovered FIRE (financial independence, retire early) a few years ago, it was life changing for him and his family. Achieving FIRE allows people to potentially retire decades earlier than they normally would, a dream that many think could never become a reality. There are some guidelines that allow people to reach this dream, like the 4% rule and 25x rule, however, Scott mentions that FIRE helps you learn habits that push you to save a lot more than you ever thought possible and gets you to start spending your money on things that align with your values. He says that if you start saving more than your spending, you can invest your money in index funds, max out tax advantaged accounts, and let compound interest take over.

Scott became interested in starting a journey towards FIRE after realizing that he wasn’t in control of his time and was spending more time working than he was with his family. With some calculations, Scott determined that if he saved 16% of his income he would retire in 33.4 years but if he saved 58% of his income he could retire in 11 years. He realized that his family was spending money frivolously and went on a quest to align their spending with their values to help reduce their expenses. To figure out his family’s core values, Scott and his wife, Taylor, independently wrote 10 things that provide happiness to them. They continued this exercise weekly and used it as a tool to reduce spending money on things that weren’t aligned with their values and created a budget around what makes them happy.

Scott also talks through how mental shifts can help you cut expenses, how to push yourself to save more money, how to calculate your early retirement number, and strategies for implementing your own FIRE plan.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Scott, welcome to the show!

Scott Rieckens: Thanks for having me.

Tim Ulbrich: Really excited about this interview. As I mentioned before we hit record, I loved the book “Playing with FIRE,” couldn’t put it down, read it in about 24 hours. Loved the documentary. And I’m excited to get you in front of our community as I know this topic is something that is of interest, and I think your story as well as the broader conversation around FIRE is going to provide a lot of value. So thank you again for taking the time.

Scott Rieckens: Yeah, it’s my absolute pleasure. Thanks for having me on.

Tim Ulbrich: So for those in our community that are hearing about FIRE for maybe the first or even second time, give us a high level overview. What exactly is the FIRE movement all about?

Scott Rieckens: So the FIRE movement, it’s — FIRE is an acronym that stands for Financial Independence, Retire Early. And I think it’s a community of people who are practicing sort of a preconceived set of principles so that they can put themselves in a position of financial independence, potentially retiring decades earlier than they would have expected with sort of the way we saw ourselves growing up. So you know, it’s sort of nebulous because there are certain rules that — well, there’s things like the 4% Rule that’s called a rule, but it’s really more of a guideline. And I kind of see many of the principles of FIRE being more of a guideline than a rule. So there’s no hard and fast rules in the FIRE movement. There’s probably not even a real movement yet. But I do think that we’re starting to see seeds of social change. And once, you know, once this can really hit mainstream to the point where we’re seeing social change predicated off of or because of the FIRE movement, then I think we can call it a movement. But for now, it’s fun to call it the movement because it helps those of us who are trying to make it a movement move along. But ultimately the idea is that you learn habits that help you save a lot more than you thought was possible or just really start spending according to your values and really taking a hard look at what those values are as it relates to your spending. And if you can start saving more than you’re making, well, we have a pretty tried-and-true investment strategy. You know, and again, it varies and they’re more guidelines. But in general, people like to invest the surplus in index funds and max out your tax advantaged accounts as much as possible. And then the beauty of compound interest takes over, and the next thing you know, you’re looking at a growing net worth, a growing portfolio, and before you know it, you might have enough to live off of for the rest of your life. So these were all foreign concepts to me three years ago. And then I heard a podcast with Mr. Money Mustache, who is one of the — maybe one of the modern founders of the FIRE movement — and he was discussing these things, and I had never heard of them. I always looked at investing as sort of this nebulous thing that I wasn’t too aware of and I would need a Master’s degree to even participate in. So I kind of brushed it under the rug. And then I heard about all these things, and it all sounded pretty easy to understand and pretty accessible, and it all made sense. And so that’s kind of how I got on the path to our FIRE journey.

Tim Ulbrich: That’s great. And I love that you mentioned, Scott, guidelines because I think that it can feel perhaps if people are learning for the first time that it’s an exact science or somewhat legalistic in some regards. But as we talk about many parts of the financial plan, it comes down to customizing it to your personal situation, and everyone’s situation is different. So I think the guidelines, the principles, are really important. And one of those being — you mentioned the 4% Rule. Talk to us about what is the 4% Rule, and how does that impact one determines what their “FIRE number” is?

Scott Rieckens: Yeah, so the 4% Rule, like I said, more of a 4% Guideline, is a pretty incredible little assumption. And it’s that if you withdraw 4% off of your portfolio annually that — I think it’s something like you have a 96% chance of not running out of your principal investment portfolio over 30 years. And it’s based off of this thing called the Trinity Study. So another way to look at it is — the way I like to look at it is the 25x Rule. And so basically, you take your annual spending. Let’s say it’s $40,000 a year. And you multiply that by 25. And that is $1 million. And so basically, it gives you a way to figure out how much do I need to retire? So if your annual spending is x, you multiply x by 25, and that’s how much you need to retire because you’ll have a 96% chance of never running out of the principal investment portfolio that you have. So it’s a pretty darn safe assumption and guideline. Now, there are some people in the movement that are maybe talking about 3.75% or 3.5% is even safer, and that’s — you know, that all has to do with so many different parameters: your risk tolerance, if you plan to have sort of a side hustle or any kind of passive income or non-passive income into your “retirement years.” And those things can affect, you know, when you decide or what your percentage or when you decide to pull the trigger on your path to financial independence. But in general, I mean, I was starting from scratch. So I couldn’t have even told you how to understand what I need to retire or what that would even look like. And so to just call it the 4% Rule or the 25x and the way I just described it to you, like that’s pretty simple. It made sense to me. And it’s backed by some pretty credible studies. And like I said, there’s people in the movement who are far superior to me in intelligence who pick this stuff apart annually. And so this isn’t something that’s like oh yeah, a study way back in the day said this thing, so we’re all good. This is something that people are constantly scrutinizing. And it turns out what it’s all predicated on is the stock market over time just continues to grow. And so if you’re putting your investments into the stock market — and one of the safest bets you can make is investing in index funds because especially really solid index funds like let’s say Vanguard’s VTSAX, there are a whole team of people who are ensuring that the index of stocks are the highest performing stocks they can possibly have in that index, and it basically represents the growing stock market. So what’s nice about that is you can take a pretty reasonable growth average, and then you can start building models for what your future might look like. And like we have a retirement calculator on our website that, you know, basically bakes in all these principles into one little calculator, and you just plug in your own personal numbers and you can kind of see, oh, alright, you’re on the path, and this is how long it’s going to take you to reach financial independence. Taylor and I did this early, early on in our journey, and for Taylor, it was a huge eye-opener. It was for me as well, but I had gone through a lot of this stuff because I didn’t bring it all to her right away because it was a lot to bring because we were making a lot of interesting money decisions at that time, and there was a lot to unpack there to keep our relationship together while trying to also convince her to maybe join me on this crazy quest to pursue FIRE. But ultimately, you know, when we did the retirement calculator, at our current spending at that time, we were looking at — I think it was something like 40 years of additional work. And at that point, we were so burnt out by work, 40 years sounded like a life sentence. And it was something like we’d be working into our mid- to late 70s I want to say. And then I did some rearranging and said, OK, well if we cut our rent by this and we get rid of our two leased cars and we buy a used car for $8,000 or whatever it was, and we cut our food spending — we needed to cut that quite a bit, it was more than half, let’s say that — and then all these other extraneous things we’re doing, I mean, entertainment. The amount of money we were spending on entertainment was insane, especially where we lived where there was so much free entertainment all around us. And I started doing those numbers and kind of just built a pretty reasonable budget, and I re-entered that information into the retirement calculator to see that we were I think at that time, it was something like 10 years or something away from financial independence. I mean, to shave three decades off of your working career by just making smart money decisions, to me, that was a no-brainer. And it was a huge eye-opener because it wasn’t as if we were spending because we couldn’t help it. It wasn’t because — we weren’t spending because we have an insatiable consumeristic bent, you know?

Tim Ulbrich: Sure.

Scott Rieckens: We didn’t see ourselves that way at all. We kind of were that way, but we didn’t see ourselves that way. And so to just have that eye-opening realization and to get that in order and to do so with the guidance of a pretty strong community online where I could go for answers at any time and have some pretty compelling arguments on why I would want to do these things, it was a pretty quick and swift decision I think in the Rieckens household. And then we got busy sharing that story with the world because I’m a content creator by trade, and this story just seemed too important not to share.

Tim Ulbrich: And it was a great story to share. And for those that want to check out the retirement calculator as well as the other resources and learn more about the book, the documentary, PlayingwithFIRE.co, again, PlayingwithFIRE.co. And Scott, the math is really incredible. I pulled a note from the book. You had mentioned that when you first crunched the numbers using that retirement calculator, you determined you could retire in 34.3 years with a savings rate of 16%, which is a pretty good savings rate. And that was using $120,000 annual expenses, $22,000 in savings. And then the next calculation showed a drop from 34.3 years to 11 years if you could cut expenses in half and get to a savings rate of 58%. So I think that’s what I love about the way you teach this material, the way others teach this in the community, the 25x Rule or maybe it’s the 27x Rule, whatever that number is is that it helps shine a light on retirement numbers. It’s math, right? It’s a set of assumptions, and then you can look at things and determine, OK, what can I change? What might I not be able to change? What levers can I pull? What will have more impact? And then you’re off and running if that’s a goal that you want to pursue. And so I want to talk more about your story. And I want to read for a moment a segment from the book, Chapter 1 is Work, Eat, Sleep and Repeat. And you say this at the beginning of the chapter. You say, “If you’d driven by me on the freeway in San Diego on this particular Monday morning in Feb. 2017, you probably wouldn’t have looked twice. A guy in his mid-30s, sitting in traffic in a relatively new but unremarkable car, drinking a cold brew from Starbucks, just another American heading to work. In fact, there was nothing particularly special about that Monday morning, and I would have lumped it in with 100 other ordinary Monday mornings that I had spent navigating traffic on my way to work, except that on this particular morning, I heard an idea that would change the course of my entire life, an idea that would cause me to quit my job, leave California and spend a year traveling with my family, to question everything I thought I knew about success, money and freedom, to find the secret to the American Dream, the thing that most people crave but few achieve, the ability to do absolutely anything I wanted.” My question here is what caused this desire and feeling? And when did this begin?

Scott Rieckens: Man. I haven’t heard that back in awhile. That was fun. I think we all have an inherent desire for a certain sense of freedom and independence. And you know, I think — I can’t speak for everyone, but when I was in school, when I was in high school and then getting into college, I look back with sort of I think I had sort of a relentless optimism that work would be interesting and what I would do would be great and the things that would follow that, family and friends and all the things, you know, that they would carry me along the way. And I think as you start to get in — well, in my case, got into my mid-30s, I’d been working for a decade, some of those things came true. I got to achieve some goals I had set for myself. I had done some things I was proud of, had just started a family, which I was also immensely proud of. And all those things are fantastic, but they weren’t the entire picture of fulfillment for me because what was weighing me down was I wasn’t in control of my time. Next thing you know, I’ve built this family, I’ve got this job, but there’s no balance here. I have to be at my job more that I want to be and see my family less than I want to see them. I think that’s what it really boiled down to was just why don’t I have that control? And when it hit me, what really hit me was it was my own decisions, it was my own choices, our family’s own choices that were hindering us from having that control and having that freedom. And that’s something that had not connected for me. And you know, at the end of the day, for better or for worse, money is how the world operates. You know, this is how our social construct has been constructed. So what it really boils down to is can you earn money? And if so, how are you using it? And I just had not spent the time to consider those things. One of the taglines of this whole project is what if a happier life were a few simple choices away? And I think that’s ultimately — like that encapsulates what I had found, which was that there is a happier life a few simple choices away. That’s incredible. And then the next question that we kind of posed to ourselves was like, how far would you go for financial freedom?

Tim Ulbrich: Yes.

Scott Rieckens: You know? And that’s ultimately up to you. So that’s why I always say like, the FIRE movement is a set of guidelines, not rules. And the FIRE movement may or may not a movement, but there’s certainly a community of people who really appreciate the idea of spending less on extraneous things that don’t really bring you value and really being smart with your choices. And when you have a group of people that see it that way, it makes it a lot easier to do because I also remember having to unpack our life a bit. You know, there were a lot of — whether it was true or not, whether it was sort of a figment of our imagination or a reality, it felt daunting to suddenly take on a new identity, right? Because you have all of your friends and all of your family that see you one way and have gotten accustomed and used to the way you are. And to have to just kind of throw all that out and start fresh can be really daunting. And so it’s really helpful — you know, like never before were we able to just connect with people that see it this way that might have more information than you do and would happily share it for free instantly. That’s never really happened before, and I think that, like many things that the internet’s provided, it’s created a place where like-minded people can come together and learn from each other and grow something really quickly, grow a social movement very quickly. And right now, you know, Phase 1 of the FIRE whatever it is, to me is getting the word out. It’s improving financial literacy and realigning our world’s connection with what’s most important. You know, that’s a big, daunting task. It’s going to take a lot of time. But the best case scenario would be that Phase 2 is liberating a bunch of really smart, ambitious people from jobs that they may be apathetic at best about and liberate them to go pursue their favorite future. And what could that look like? And how could that change the world?

Tim Ulbrich: I love the way you’re thinking about that because I share that with you, Scott. What would that look like for our communities? What would that look like in terms of people maximizing their talent and their passions? And you know, we’re so passionate at YFP about if we can help put together a financial plan that allows people to pursue some of those goals, wow. I mean, game on in terms of what we could see in people getting the most of the talents that they’ve been getting. One of the things in the book that really resonated with me, as well as the documentary, which showcases the process that you and your wife Taylor worked through to get on a shared goal and path to pursue FIRE. And you mention this wasn’t easy. You know, you were obviously on board, ready to go, had been learning a lot of information and trying to get on the same page. But what I loved was in the book, in Chapter 3, you talk about an exercise where you and Taylor independently wrote down 10 things that provided happiness. And then you came together to share those lists. Why did you do that activity? And what did you glean from doing that?

Scott Rieckens: Yeah, I think, you know, looking back, it was a lot smarter decision that I think I knew it was at the time. But ultimately, you know, if we needed to align our values with our spending, it’s like, well, what are our values? And I think an easy way to decide is just think about what makes you happy. And you know, we did a happiness list predicated on a weekly basis. And it felt like the right time frame. Like if you do like on a daily basis, you’re going to get in the minutia of life and you might get too specific about the things that bring you happiness. And if you go too far out, you might get a little grand. It might be international travel or BMWs or whatever Taylor might have put on the list at that time. But a weekly basis, it’s like, what are you up to this week? And it’s like, well, I’ve got work, I’ve got this, I’ve got that. And what am I going to do to kind of inject some happiness along the way? Well, I’m going to go for a walk. I’m going to go for a bike ride. I’m going to maybe make a nice dinner this week or whatever it is. So it becomes that sort of like centered, realistic happiness list. So I really like the weekly timeframe. But yeah, we sat down and did that, and there’s a couple elements to it. One is I can’t decide for Taylor what makes her happy. And at that time, we were living in this beach community and were spending a ton of money to do so. And if the beach was on her list, and the lifestyle that that particular area provided was just swarming her list, then I had my work cut out for me. We would have to figure out a way to make that work because, you know, the idea of pursuing FIRE was not to go create a whole bunch of disruptive, diminished returns. Like I wanted to make sure that this was going to improve our lives. And so I needed to hear that from her. And she needed to consider it too because you can easily be reactionary when you think something’s about to be taken away from you. You can easily be reactionary when you’re being propositioned with something as drastic as maybe FIRE could be, and it was for us, of like having to — not having to, but maybe making the choice to move. That’s a big choice. Leave your friends behind, leave your jobs behind, like whatever you end up doing. And so yeah, I think you need to start with ultimately like, what are your values? And I think that was a way to do it. So that was critical. And it actually helped so tremendously because we didn’t even talk about money first. We talked about happiness. And I can’t recommend that enough. You talk about what matters to you the most. Then go work on a budget. Don’t work on a budget and never talk about happiness.

Tim Ulbrich: Amen.

Scott Rieckens: Or go the other way, you know, talk about your budget and then talk about happiness. Like how are you going to budget for things if you don’t know what you care about? You know, it was such a small but critical piece to our journey. And yeah, I can’t recommend it enough. Whether you decide to pursue FIRE or not, going through your Top 10 list of what makes you happy on a weekly basis quite often, maybe quarterly or biannually, is a damn good idea because it changes too. You know? We’re evolving beings, and we care more about things sometimes and care less about things other times. And those things should be reflected in your spending habits. So yeah, that was critical. And I got lucky in that scenario because she did not talk about her expensive car and she did not talk about the beach. And so that really was an opening to mutually discuss the potential for leaving. And that was ultimately I think what I would credit with why that was so successful.

Tim Ulbrich: And that was the sense I got when I read it, and it’s quoted here, you talk it all out. I hope our listeners take you up on that challenge to do it. I couldn’t agree more. And just as I reread some of these, it puts things into perspective really quick, right? I mean, I see things on here like, “Hearing my baby laugh,” you know, “Spending time having coffee with my husband,” “going for a walk,” “going for a bike ride.” And I think starting with those types of conversations around happiness and then getting into the budget and the plan and how we’re going to get there is so important. We taught this often with the financial plan of think about the goals, script your plan, and then we’ll get into the x’s and o’s because the x’s and o’s should be within the framework of the vision that we have, and that vision should ultimately derive back to how is money a tool related to deriving happiness? And by the way, Taylor nailed this when she had on here, “Wine, chocolate, and coffee.” Three of my favorite things. So she crushed that list.

Scott Rieckens: Yeah. Yeah. And I told her, look, we can buy all the wine, chocolate, and coffee you want if we take these steps on all the rest of it. And it’s worked.

Tim Ulbrich: So you mentioned the BMW, and I know that comes up throughout the book, but in all seriousness, when our listeners hear the timeframe I mentioned earlier, going from a projected retirement in 34 years down to 11 and how do you get there, you cut expenses and you increase savings. And obviously the next question is, well, how do you make dramatic cuts to expenses so you can increase your savings? So you mentioned food being one of them. You’ve alluded to the BMW. Were there other big-ticket items that were instrumental to you guys knocking down a big expense so you could get the momentum you needed?

Scott Rieckens: You know, specifically, housing, cars and food are typically the top three items that cost the most for an average family. So housing, cars and food are the No. 1 three things that I would recommend taking a hard look at, how you can get creative. Outside of those specific things, I think the thing that was the most important was the mentality, the mental shift and being on the same page because — and I can tell you this from three years of experience now. We’re not always rocking the FIRE train. You know, it’s not consistent. Like it can be consistent. We can go months, even years, where we’re on track. And then like COVID hit. And boy, one excuse after another just start popping in. Like oh, hell no. I’m doing this, I’m doing that. I’m buying this, I’m buying that. I don’t care. And I don’t regret it. We looked back at the New Year, during the New Year here, we looked back at 2020 and we said, “You know what? I think it’s better if we just don’t look at it. Let’s forgive ourselves for the decisions we made and let’s look forward because the good news is we already kind of built up the muscle, you know? We already worked out, we already know how to do this. And so let’s just keep — let’s just do it again.” And it’s amazing because it was literally a mental shift. We sat down to kind of plan out our 2021, a little vision board kind of afternoon. And it really came down to like, we wrote down the things that we wanted to shift from 2020 to 2021. And it was like, anytime we make a purchase, we talk to each other about it first, no matter how trivial because that will make us question our own decision on whether or not we need that thing and will be less about what I have to say to her and it’s more about what she has to say to herself. And it kind of prevents this reflexive, oh, it’s on Amazon, let’s grab it real quick, it’ll be here in two days, easy day, done. And that can get out of hand so quick, and so it was — and we’ve done things like that in the past, like put something in the Amazon cart and you have to keep it there for three days. If you come back in three days and you still want it, you can get it. We needed to go a little harder this time into this new year because 2020 was a dumpster fire. But again, it’s just like the best you can do is flex that mentality because we immediately got on the same page. We didn’t have to have the difficult discussion again. And I think we had the financial maturity finally to look at 2020 and say, there was a reason for those decisions. And we don’t need to sit here and relive them, we don’t need to make ourselves feel bad about them. And it did set us back a little bit on our FIRE journey. But we’re in good shape, and thank goodness because with the destruction of this year, I mean, how grateful and lucky are we that we found this when we did?

Tim Ulbrich: Absolutely.

Scott Rieckens: Imagine where we would be if we hadn’t. And imagine all the folks who are suffering through these difficult times, you know? And so we were able to look at that and go, OK, we’re super lucky. Let’s get back on track because it would be a real damn shame not to, considering everything we have, you know? It’s like, we can’t afford not to do the right thing here. So I hope that answers your question. I don’t like getting into the specific, specific things of how to cut budgets because it’s really personal. You know? You may live in a low cost of living area already with a budget that’s kind of maxing out. And you don’t know what to do, and that could be a matter of having to find ways to increase your income, negotiate a bigger salary, move to a better place — or not a better place but a place with better prospects for higher salaries in your job and then being more deliberate about what your costs are in that higher cost of living area so that you can reap the benefits of the higher pay but not have to also succumb to the higher living costs. You know, there are ways to do those things, the geoarbitrage stuff. But to me, that’s all the fun fine dining in the FIRE community. That’s all the stuff you can learn in the blogs and the podcasts and whatnot is all those very specific detailed minutia of how to really formulate your budget if you want to go hard. But to get started, I think the bigger challenge and the bigger quest is for people to align their values with their spending and start pushing themselves, you know? Taylor and I, we did something that I would recommend, actually. It was extreme in some cases, and I use that word kind of flippantly. I don’t know if it’s extreme, per se, but we — I mean, we did a lot of things very quickly. Within months, we literally packed up and moved our stuff to try to find a place that was cheaper to live, leaving behind a job. I quit my job to do this. And we left behind a whole set of friends and a whole culture that we had built for ourselves, you know? And we slashed all of our spending so hard that we ended up at our peak, we were at like a 76% or 78% savings rate, something in that range. It was extreme. We didn’t buy anything unless it was absolutely critical. And we started to get a little miserable, to be honest. Like it wasn’t fun, you know? And part of that was good, though, because we were ripping off the Band-Aid and showing ourselves how much retail therapy we were really doing. And it ended up being — that’s like such an old adage, but it’s like, you know, the best things in life are free and all that stuff. It’s like, yeah, and not only that but we were going to sushi dinners, let’s say, or just nice, fine dining dinners so often that I remember — I remember one time sitting down to a beautiful, amazing sushi dinner. And we were walking home from it, and I think our discussion was something along the lines of like, “Yeah, it was good, but I feel like last week’s was better.” And it was like, that’s horrible. That’s a horrible waste of money because if I’m comparing this amazing, decadent, unbelievable dinner that took — if you think about what it took to get that fish on that plate, it’s incredible.

Tim Ulbrich: Sure.

Scott Rieckens: And I’m sitting here comparing it to last week’s. And it’s like, oh my gosh. And so to go through and really rip that Band-Aid off and go through the sort of “hardships,” you know, and then all of a sudden we haven’t eaten out in two or three months and then you go to a medium fancy restaurant, and it’s like heaven.

Tim Ulbrich: Yeah.

Scott Rieckens: It’s so amazing. And so it’s almost like it’s a weird hack where all of a sudden, you’re like, wait, I like this more now.

Tim Ulbrich: Yes.

Scott Rieckens: Because I’m doing it less. And that’s when you can get into stoicism and all these various philosophies. And I don’t know, it’s just like our life started improving, even when it was more difficult. And that was an interesting paradox that ultimately, to bring this all back, is the reason why I suggest if people are interested in this and you decide to do it, to go hard at first because, you know, push yourself as hard as you can to see what your real — not your breaking point, but like, you know, your proverbial budget breaking point, see what that is and then work backwards from that. Don’t start where you are and incrementally try to improve because I just don’t think that’s going to be as effective, and you probably won’t stick with it, you know? But for us, to like go to 76-78% savings rates and be miserable and start going, OK, what are the things that we should add back in? And that was a deliberate decision. Next thing you know, we’re hitting like a 50% savings rate, which is incredible. And it feels easy. It feels luxurious. And it’s like, oh, this is it. This is awesome. How lucky are we. But we could have been doing the whole time if we had just made better decisions. And so yeah, I hope that helps.

Tim Ulbrich: It does. And the book and the documentary really takes the reader or viewer through your individual stories. And I also like in the book, you bring in other examples as I think that, again, back to the comment about customizing the scene, the different variations, helps give people ideas about how this might apply to their own individual situation. And one of the questions I have for you, Scott, is when I read the book, I really connected with you as a father of four young children. You discuss in the book the birth of your daughter in 2015 and how ultimately, you’d be pursuing this journey together as a young family. And I suspect many of our listeners are wondering, man, is this really possible? Is this lifestyle and this goal realistic with children? You picked up, you moved, you made some drastic cuts along the way. What advice or what thoughts would you give people surrounding pursuing FIRE while they have a young family?

Scott Rieckens: I don’t know that the children thing — the children thing’s tough because they are expensive little buggers, you know? They are. They’re going to “set you back” from your financial independence date.

Tim Ulbrich: Fact.

Scott Rieckens: But that’s ultimately a tradeoff — I’m sure you would agree with me — is well worth it.

Tim Ulbrich: Sure. Yes, absolutely.

Scott Rieckens: Nothing’s more important. I think for me, I look at it a little differently. It’s not, “Hey, guys, you’ve got some kids? Here’s a couple of trick to make it totally possible to do FIRE.” If you use kids as your excuse not to pursue FIRE, you’re not going to pursue FIRE, but it won’t be because of your kids. It’s because you have decided that that’s what you’ve — that’s what you’ve decided. You know? Don’t use the excuse of your kids. I’m here to tell you, I mean, I only have one, so I don’t have four. But — sorry about that. Gees. Good for you. Wow. Fighting the good fight. But you know, ultimately, we’ve got such a better plan for our financial future and her financial future because we’ve decided to make these choices. And I recognize that not everyone could tomorrow pick up and make the choice. But I assume, you know, your audience is probably in the camp that could make these choices. They just seem daunting. And that’s a great place to be. And so yeah, I wouldn’t use kids as an excuse. There are ways to — obviously there are hacks in everything we do when we spend money. And there are things that you think you need to spend money on that you don’t, you know? You can — just to be clear, I mean, you can buy the brand new Italian-made stroller. Or you can look on Facebook Marketplace or Craigslist and find a used one. It’s all the obvious tips and tricks. But what’s more impactful, in my opinion, is you look at that and you go, yeah, but for my baby, I want the best or for my baby, it needs to be this or that. And those are the types of things where if you’re really aligning your values with your spending, you may look at it a little bit differently after you really do some reading up on the FIRE movement and you understand why you’re spending and the decisions that you’re making. And the next thing you know, you go from only the best for my baby to only the best for my baby and what that entails is not a brand new, Italian-made stroller. It is buying the budget stroller because the amount of money that we can save by doing that will ultimately lead to that child’s college fund or our ability to spend more time with that kid, which will then allow that child to grow better, have a better relationship with their family, with their parents, get more attention and so on and so forth. I mean, these shifts are exponential. The compound interest does not just take over on the money. Yeah, that’s how I would look at it. It’s not a matter of you’ve got kids, here’s five budget tips to help with FIRE when you have kids.

Tim Ulbrich: Sure.

Scott Rieckens: It’s, you have kids? Don’t use them as an excuse to pursue financial independence, which will ultimately benefit everyone in your family.

Tim Ulbrich: And speaking of daunting, many of our listeners, Scott, unfortunately are facing big-time student loan debt. For those that came out of pharmacy school in 2020, about $175,000 is the average, $175,000. So maybe this goes in the excuse bucket, maybe not, but obviously big student loan debt, granted they have a decent income to work with. But what are the thoughts for folks that have big mountains of student loan debt? Obviously that’s a barrier, but is something that others are facing. What have you heard from your experience? And what advice or thoughts do you give folks that are looking at student loan debt but want to pursue a path towards financial independence?

Scott Rieckens: First of all, I have the utmost empathy for people that have that kind of a mountain of debt. And you know, the hope is that that debt was an investment in an education that’s going to give you the ability to pay off that debt and ultimately be even better off for it in the long run. And so with that in mind, nothing changes about my advice or the way I see it because if you have debt, as insurmountable as it may feel, that is ultimately just one barrier in the way of financial independence. And so I guess instead of starting from $0 and then starting to build your net worth, you’re starting from negative and starting to build your net worth. Either way, I would say if you have that amount of debt, you should consider it and treat it as an emergency and a crisis. And people with that situation should absolutely pursue FIRE, at the very least to get themselves out of that debt and starting at $0, you know? And what you do see oftentimes is people that I’ve seen, I’ve seen it, I’ve seen it with my own eyes, I’ve talked to people that did these things and then pulled themselves up by their bootstraps, got the FIRE thing going, and pulled themselves out of this situation. You still have all of these choices. And a lot of times, you’ll see you’ve got this mounting pile of debt, but you have a nice income, and the debt only costs x amount a month, so I’m going to lease this new vehicle, I’m going to get this nice house because I worked so hard to become this profession and now that money’s coming in, so this is what we’re going to do. And all of this boils down to still is choices. It’s those choices. Hey, I’m going to buy a used vehicle with cash that I saved up, and I’m going to eliminate these monthly payments. And those monthly payments are going to go to fund our 401k’s and our Roths. Or if you have a mountain of debt, we are going to pay off that debt as voraciously as we possibly can to get ourselves in a better position, you know? I don’t know, the advice doesn’t change. If anything, it becomes louder if you have a mountain of debt. And that’s a non-empathetic but realistic way to look at it. And another thing I should say is one of the prominent people in the FIRE movement, his name’s Johnathan Mendanza, he’s a cohost of Choose FI, he was a pharmacist.

Tim Ulbrich: Pharmacist.

Scott Rieckens: Yeah.

Tim Ulbrich: Yeah.

Scott Rieckens: And he walked away from a job about a year after finding FIRE because he realigned his spending with his values, he got right, he got on a good track, and then he built what was originally a fun side hustle into something that could sustain him. And he chose a different path than pharmacy. And I’m not suggesting people need to do that. Some people may love their jobs. And by the way, the whole retire early thing? Let’s not get caught up on it. It happens all the time. You may like your job. Great. This is still for you because if you enjoy your job but you have the freedom and flexibility if conditions change, that’s still a win-win. You know?

Tim Ulbrich: Absolutely.

Scott Rieckens: Ultimately, it’s about gaining back your freedom of choice.

Tim Ulbrich: Couldn’t agree more. I think financial independence is a goal we all should strive for. And I think that should resonate with folks, whether they love what they do every day, they don’t, or somewhere in between. And I want to again point our community to both the documentary, “Playing with FIRE,” as well as your book, “Playing with FIRE.” I can’t say enough about both of those, what they’ve meant to me, the impression they’ve left on me and my wife, Jess. “Playing with FIRE,” the documentary will be available on Amazon, iTunes, Google Play, Vimeo or folks can pick up the DVD at PlayingwithFIRE.co. Storytelling is outstanding, it was named a Top 10 Best Finance Movies of the Decade by U.S. News. It includes a cast of personal finance and FIRE all stars, including Mr. Money Mustache, Vicki Robbins, who’s the author of “Your Money, Your Life,” The Minimalists, the Mad Scientist, Jonathan Brad from Choose FI and more. And then the book, you know, we’ve just scratched the surface here and there’s much more to learn in the book, including the seven steps to achieving FIRE, where to learn more about FIRE and the FIRE community, how to crunch your own FIRE numbers, many FIRE stories, and much more. And that is readily available wherever you normally purchase your books. So Scott, thank you so much again for taking time to come on the show. What is the best place for our listeners to go to learn more about you and the work that you’re doing?

Scott Rieckens: Thanks, Tim. Yeah, PlayingwithFIRE.co, it’s got it all. I’m a big fan of Twitter, so we’re on Twitter @playingwithfireco, and we’re on Instagram as well. So yeah, those are the places you can find us. And hope to see you there.

Tim Ulbrich: Great stuff again, Scott. And on behalf of the YFP community and our team, thank you so much for taking the time.

Scott Rieckens: Thanks, Tim.

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YFP 183: How Amanda and Holden Created Freedom by Paying Off $100k of Debt

Posted on by yfpadmin

How Amanda and Holden Created Freedom by Paying Off $100k of Debt

Amanda and Holden Graves join Tim Ulbrich to talk about their journey paying off $100,000 of student loans and other debt in just a few years. They share their strategies for aggressively repaying their debt, how they were able to effectively work together as a couple, and what lies ahead for them and their financial plan now that they are officially debt free.

About Today’s Guests

Holden Graves is a pharmacist working for a behavioral health hospital in Texas. He enjoys utilizing data to help problem solve and fix workflow issues. His passion is for disrupting the current healthcare model and focusing on improving patient outcomes.

Amanda Graves is a food scientist who enjoys working in the kitchen. She has a passion for cooking and loves that she can combine science and cooking to create delicious products on an enormous scale.

Amanda and Holden are excited to share their story to help motivate and inspire other professionals on their debt payoff journey.

Summary

Holden and Amanda Graves share their story of accumulating, navigating, and ultimately paying off $100,000 of student loans and car debt in a few years. Holden, a pharmacist, and his wife Amanda, a food scientist, were able to get through their undergraduate programs without acquiring any debt by working, scholarships, in-state tuition, and money from his grandfather. They took steps to minimize their debt burden when Holden went to pharmacy school by attending an in-state school and working. Holden was able to graduate with $80,000 in loans and about $20,000 in a car loan.

Holden and Amanda prioritized discussions about money as a couple before they were married and feel that it built a great foundation in their marriage. They learned a lot about each other and discovered that they had slightly different outlooks on their feelings toward their debt. Amanda was more risk averse and wanted to pay off the debt as soon as possible. On the other hand, Holden was comfortable paying it off over 5 or 10 years while focusing on increasing their investing assets. They compromised and decided to still pay off the debt aggressively over a couple of years while also putting money toward an emergency fund, house down payment, and into their retirement accounts.

To pay off the debt, they relied on automating their finances and refinancing their student loans to get a lower rate. Now that they are debt free, they feel that they have freedom and options and are going to continue saving for retirement, funding smaller goals like vacations, and focusing on increasing their invested assets.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Amanda and Holden, welcome to the show.

Holden Graves: Thanks, Tim. Happy to be here.

Amanda Graves: Yeah, thanks for having us.

Tim Ulbrich: I recently ran across a blog post on the scope of practice titled “How One Pharmacist Paid Off $100,000 of Student Loans and Other Debt in Just a Few Years,” and after reading that article, I was inspired by your story and wanted to bring on not only Holden to share about his journey in pharmacy, school, pharmacy practice, debt accrual, which we’ll talk about here in a little bit, but also bring Amanda on the show as we know that this ultimately for the two of them was obviously a joint decision in how they were going to approach this debt and how they were going to approach the rest of the financial plan. So I really appreciate you guys coming on to share this story. Now before we jump into the specifics of your debt-free journey, how you did it, how much you had, what was the secret to success, what does this mean for you guys going forward, I’d like to start by hearing a little bit about your backgrounds and the work that you’re doing today. So Holden, let’s start with you. Tell us a little bit about your pharmacy career background, how you got into a pharmacy career, what was the interest, where you went to school and the work that you’re doing right now.

Holden Graves: Yeah, that sounds perfect. Yeah, so originally I’m from northwest Arkansas, so near where the University of Arkansas is. So what really got me interested is I actually in high school, one of my favorite teachers actually read an article to us about pharmacists and kind of the need for pharmacists as the population continues to age. So that was kind of what sparked the interest in me, and I went and shadowed — my uncle actually owns his own pharmacy, so I went and shadowed with him and just loved the rapport that he had built with his patients. They all came to him and had questions for him and trusted him just as much as their physicians. And so I just loved that rapport that he built. So that’s what got me interested. I went to the University of Arkansas for my undergraduate, where I met my lovely wife. And then went to the University of Arkansas for Medical Sciences for pharmacy school. So I did my four years there and in the middle of pharmacy school, I got married to my wife. So that was just an amazing experience from that point of view. After school, I actually applied for residency, but I didn’t match with anywhere. So that was kind of interesting, kind of left me scrambling. Luckily, I was able to find a job at the Children’s Hospital in Dallas, where I started and worked there for three years and then now currently at a behavioral hospital, still in the Dallas area.

Tim Ulbrich: Very cool. And you know, I hope here, your story there, Holden, for our listeners and if we have students that are listening, especially those that are in their fourth professional year, getting ready, end of 2020, submitting applications, getting ready for residency interviews, thinking about the matches, it’s overwhelming, right? And I think that just hearing your story about yep, the match was not successful maybe by what you had determined success would look like in that time, but I’m guessing through persistence and other opportunities and doors that opened up, you found yourself in the niche working in behavioral health. Real quick on that, like from the experience of not doing residency, how were you able to find yourself in a position like this? And ultimately, what was successful for you to be able to land a position that others may hear and say, ‘That’s a job that typically does require residency.’?

Holden Graves: Yeah, absolutely. I mean, there’s no small amount of luck that happened. I got into the Children’s Hospital. It was kind of an entry-level pharmacist position, so I was mostly in the operations side. So that part, he basically was only looking for new grads, so that worked out that I was able to get in from that avenue. And after that, I just kind of worked my way into the good graces to where I became the pharmacist in charge of one of the smaller pediatric hospitals. And so that kind of positioned me well as just having that experience of going through and dealing with the nursing leadership and the physician leadership that then ultimately allowed me to transition into the behavioral health side as well, where I’m also serving as a pharmacist in charge. So.

Tim Ulbrich: That’s great. Congratulations. I think paving that pathway is something — we need to hear more of those stories because I think we sometimes fall into the trap that if I don’t do A or B or C, it doesn’t mean I’m going to have these other opportunities. And there’s certainly many other stories out there such as yours. So Amanda, tell us a little bit about yourself.

Amanda Graves: Most definitely. So my background is actually in food science, which is awesome. So I went to the University of Arkansas, where I met my husband. And so graduated from there, and I immediately got into the food industry. And so my background’s a little bit diverse between quality assurance but majority of my career has been in research and development. And then I also dabbled in sales in the food industry for awhile, kind of on a technical sales side. But currently, I work in the culinary department for a restaurant company. So I get to manage kind of the food and culinary side from a science perspective, which is really great for me to be able to combine — I love food, and I love to eat, so I get to combine the culinary arts with the food science side and just make things come to life on a mass scale.

Tim Ulbrich: What a unique career path. When I read some of your background of combining science and cooking, I was like, heck yeah! I mean, that’s awesome. I think one of the reasons I enjoy cooking so much is just, you know, that bringing in some of the science and understanding it. It reminds me of some of the pharmacy training. I think there is so much both art and science in cooking. So how did you find yourself in that career path and even having an interest in that area?

Amanda Graves: It really worked out well. So my high school had a culinary arts magnet program.

Tim Ulbrich: Cool.

Amanda Graves: So I did culinary training for the first three years of high school and then senior year, I was an intern in a hotel kitchen, which was an absolutely incredible experience. But with that, I also learned I didn’t want to be a chef. And just through seeing that, I was like, but I still love food and also in my high school, I was in the science magnet program, and I took chemistry for two years because I just love chemistry. And so just kind of thinking about how I can combine my love of science and food, I just kind of stumbled upon food science, and it really just is the perfect combination.

Tim Ulbrich: I love it. And before we go on to talk more about your financial journey and your story, which I’m confident is going to motivate, inspire other pharmacy professionals and others listening on their own journey and their own debt payoff, what they’re working through as well, I have to know. I don’t hear the thick Arkansas accent that I have heard from other guests on the show that have graduated from UAMS or Harding. What’s the deal? Are there like levels of Arkansas accent?

Holden Graves: Yeah, there’s — up in the northwest corner of the state where the University of Arkansas, we kind of more have the less southern and then as you get closer into Little Rock and the southern part of the state, it gets a lot thicker. Amanda’s also actually from Dallas too, so she doesn’t have that from Arkansas.

Tim Ulbrich: OK. That explains it.

Amanda Graves: So I definitely don’t have a southern accent. And on Holden, it only comes out on certain words occasionally but otherwise not too much.

Tim Ulbrich: Yeah, I’m thinking of other guests we’ve had on the show that are doing some awesome things, debt repayment, real estate investing, others in the Arkansas area, and it was definitely a thicker accent.

Holden Graves: Yeah, that’s more the southern part of the state.

Tim Ulbrich: Absolutely. Well, let’s jump in. Paying off $100,000, student loans and other debt in just a few years, and so we’re going to talk about how you did that, how you accrued it, how you paid it off, why you did it, what was the strategy. So Holden, kick us off here. Was this a majority or all of your student loan debt? Tell us about the amount and also the position and how you got into that.

Holden Graves: Yeah, absolutely. So I guess it depends on who you’re talking to on whose debt it is. So according to me, it’s all of my student loan debt. According to my lovely wife, it’s all of our student loan debt. So it was mainly my schooling that accounted for all of that. So as far as the actual student loan debt goes, we were about $80,000 in student loan debt. But in the middle of pharmacy school and then right after pharmacy school, we actually purchase two new cars. And so at the lowest point, we had about $100,000 in total debt.

Tim Ulbrich: OK. So about $80,000 in student loans, about $20,000 in two cars. That brings us together to that $100,000. Now, I’m sure many of our listeners hear $80,000 and say, “I wish I only had $80,000 in student loan debt,” which you know, it’s unfortunate that I even have to say that out loud, but that’s the reality, right? So we have Class of 2020, we now have the median student loan debt that is north of $175,000. I’ve often talked and worked with pharmacists that exceed that or perhaps even couples that have more on top of that, so $80,000 — I don’t want to mitigate what you guys have done. I mean, it’s incredible. But my question there is what was the strategy? How were you able to keep the debt load I guess “low” of $80,000 compared to what we see out there as the normal?

Holden Graves: Yeah, absolutely. Yeah, so we were very intentional — or I was very intentional early on whenever we were accumulating the debt. So luckily, we were both able to graduate undergrad with no debt, so it was just pharmacy school that I needed to finance my way through. But I just still wanted to take out the minimum that I possibly could. So I really only took out enough loans just to cover tuition. I never took out anything extra to cover expenses or rent or anything. I had a little bit saved up because I actually worked in a pharmacy in undergrad and saved up some money there. And then while I was in pharmacy school, I did still work as well. So I still was — that was basically able to cover my rent and food payments were basically coming from what I was able to work. So that’s kind of the way we did that. And then just going to our in-state school, University of Arkansas, is one of the lower cost programs, so just trying to stay as low cost as we possibly could with that was a big key.

Tim Ulbrich: Yeah, multi-prong approach, I think that’s a good strategy. A little bit of strategy in where you go to school, in-state tuition, as well as being able to work and some other things that can help reduce. And as our listeners know very well, whether they are in the debt accrual or debt paydown phase, anything you can do to reduce that indebtedness while you’re in school is going to pay dividends obviously from what you don’t have to pay back into the future. So in the article that you wrote and I referenced earlier in the show, you mention that while you were still in pharmacy school and before you were married, you had discussions about money, which I think and I’ve talked about on the show before is so important for every couple to be doing as early as you can, having some of these big discussions around money, here, we’re obviously talking about debt but of course it’s much bigger than that. So Amanda, tell our listeners about those conversations, you know, how they went, how you felt about the debt even though it wasn’t your own debt but was going to become your collective debt, how those conversations went, and what you ultimately discovered about each other through those conversations.

Amanda Graves: Yeah, most definitely. So we both knew that a great foundation in marriage is communication, and we also knew that financial stress can one of the major stressors in a marital relationship. So we wanted to start those conversations really early on, just to make sure we were on the same page and kind of had a strategy. And then for my personal perspective of coming in, you know, I was all-in, I was very supportive of Holden and going to pharmacy school and that included the student loan debt that came along with it. So I — as Holden mentioned earlier, I very much saw it as our debt, not just his debt. And so together, we needed to kind of make that plan to address it. But like you mentioned, a lot of those early conversations, we got to learn a lot about each other and just how we viewed money and kind of those different backgrounds that we had from a financial perspective and kind of blend those together to make a plan so we had that even before we were married, which helped just to kind of continue to address that as we were kind of going through the process.

Tim Ulbrich: That’s great. I think conversations are important, as awkward as they may be at first or however you break the ice, you know, I think the outcome is incredibly valuable, not only on the debt repayment part, but of course as you guys know, from living this, this is just one part of the financial plan, so having open communication here hopefully will translate to other areas as well. Holden, for our listeners that perhaps find themselves in a situation where they’re carrying a big debt load, maybe a serious relationship, haven’t yet had that conversation, maybe they’re feeling a little bit of guilt about hey, I’m bringing this debt into the relationship, I’m not sure how someone’s going to perceive this, any words of wisdom or advice that you would give them here in how you were able to approach this subject? Or was it just a natural conversation that really came to be between you and Amanda?

Holden Graves: I think the — just the foundation of our relationship and just the trust that we were able to give to each other that she was open to hearing exactly what it was. And the main thing is that I didn’t want this to be like me v. her or anything like that. Like I wanted us to come together to try and tackle the debt together and try and do everything. So I didn’t want to take her feelings out of the situation, and I wanted to take her advice as well because she’s much smarter than I am. So I definitely, I wanted to bring us both on the same page because it’s a lot easier if we’re both know what we’re heading towards as opposed to two people at odds with each other.

Tim Ulbrich: Absolutely. And that is a good segue into one of the questions I like to ask individuals such as for you guys as you’re going through this journey together and have chosen an aggressive debt payoff strategy is what’s the purpose? What’s the reason? What’s the why behind this aggressive debt repayment? And we’ll talk in a moment about exactly how you did it, but I think that question is one that I talk often on the show about it’s so important to answer that. And I don’t necessarily believe there’s one right answer, but we know there’s options, right? So you guys could have taken out this $80,000 in student loan debt, you could have taken out 20+ years or you could have aggressively paid it off like you did, whether that’s in the federal system or with a private lender. So tell our listeners — and Amanda, I want to start with you, and Holden, feel free to add on from there. Tell our listeners about what was the purpose. What was the why behind this aggressive debt repayment strategy?

Amanda Graves: So for me personally, which in my answer might vary a little from Holden’s, but for me, the why was just the stress of just having that debt kind of hanging over us, I am personally very risk-averse. And I just try and avoid anything that would either be risky or cause me more stress. Really, it was just the fear of it just kind of looming over everywhere. And I just wanted it to be gone. I just wanted it to be completely gone as fast as possible. And I was ready to do kind of whatever we needed to do to get there to kind of move on to what life would look like after the debt was paid off and just be able to have not that standing payment of the loan every month but being able to kind of free that up to have a little more flexibility in the future.

Tim Ulbrich: Holden, what about you?

Holden Graves: Yeah, mine was kind of along the same viewpoints of it’s just the stress of it hanging over you. Less so of the stress that it was hanging over me and more so of what it was hanging over Amanda. So I just could see the way that she just kind of just did not like the stress and I just knew that that’s just something we needed to get out of our lives as soon as possible. I was kind of more on the train of, you know, kind of doing the five- or 10-year repayment and just kind of letting it drag out and be invested. So kind of my viewpoint was let’s work on getting our invested assets up as high as we can as early as we can. So that’s kind of where the compromise came in. If it was up to Amanda, we probably would have had it paid off in that first year. So we kind of settled somewhere in between so that way we could make sure that we were maxing out some of our investment accounts, going about it that way as well.

Tim Ulbrich: Yeah, and I think compromise is such an important summary of what you just said. You know, I think some of our listeners may hear $80,000 and their natural tendency may be hey, I’m going to take that out, low interest rate, as much as I can take it out long. Again, there’s not a wrong answer, depending on somebody’s interests and how they feel about the debt. And I always say it’s the numbers plus the emotions. And both of those are really important, right? So I like what you said, Holden, you know, you may have leaned toward one strategy, but when it’s causing stress or anxiety, I think this is an area — and I say this with emergency fund as well — there’s places to defer, and there’s places where you maybe push someone to come more to the middle or maybe an area that they’re not as comfortable with. And I think this is one when you’re talking about the stress and when you’re talking about some of those other emotions that can come with this debt load, probably not the area to be pushing somebody, even if mathematically you could make an argument that hey, if I put more in investing, it may mean more in the end. So kudos to you guys for working through that.

Holden Graves: Yeah, and don’t think I didn’t also try that approach too. But it did not completely get rid of the stress from her point of view.

Tim Ulbrich: I can see the conversation of like, hey, here’s the compound interest calculator, and look at the numbers, and what if we did this? What if we did that?

Holden Graves: That’s exactly what I tried to do.

Amanda Graves: Yes, we did go over that.

Tim Ulbrich: So I want to build on something, Holden, that you said. You know, I heard you say investing was a priority. Many of our listeners are often trying to balance student loans, investing, emergency funds, paying off a car debt such as what you mentioned, saving for a home, starting a young family, making sure they have the right insurance policies in place, the list goes on and on. And I think that can be very overwhelming for folks. And there’s kind of different strategies of sometimes you balance a lot of these, sometimes you focus in on one, depending on the goal, depending on the timeline, again, depending on the math, how somebody feels. So talk us through your strategy in terms of how you approached the debt alongside of investing, alongside of emergency funds, and I know you guys currently have a home, so also being able to save up for the down payment on a home. How did you bring those issues to the table and then determine how you were going to allocate funds into what priority?

Holden Graves: Yeah, so basically we just kind of came and sat down to be able to discuss what our goals are. We actually do a monthly check-in, meeting, just a financial checkup every month so that way we can make sure we can see what we’re — we track all our spending, so we see what we spent on, how much we’ve got left over for the month and if there’s anything we need to adjust for the next month and the next year and then just also be able to talk about our goals and what goals we have. So it was kind of just that approach of just getting to the table and seeing everything. So of course mostly from Amanda’s side, it was we need to pay off the car loan, we need to pay off the student loans, and she was also a little bit like a down payment for a house because we also wanted to get into a house. And then big into the emergency fund as well, so that was kind of the other part. And so then of course I agreed with all of that. Also saving just as much as we could in our retirement accounts, so we started off just a little bit over the match and then just kind of slowly racked up over a year or two to be able to max out our 401k’s.

Tim Ulbrich: And I’m guessing our listeners may be thinking what I’m thinking, which is, you know, you’re making it sound very easy. But even when you look at that number, I mean, $80,000 or $100,000 and some over three years, people will do the math, $100,000, 36 months, those are big monthly payments. And so it wasn’t just the student loan debt or the car debt. It was also the down payment that you were saving for a home, it was also investing for retirement, all of those things need cash, right? And at some point, you’ve got to figure out how we can lives off of less than we make so we can free up cash to be able to achieve those goals. So tell us more, Amanda, like what was the strategy or what was the success, the secret sauce, whatever you want to call it, for you guys in terms of being able to keep expenses down so you could ultimately free up cash and put that cash towards the goals. What were some of the sacrifices or cuts that you guys had to make?

Amanda Graves: One thing I think that we learned — and I think Holden mentioned it earlier — that we got married in the middle of pharmacy school, so for those first two years of marriage, Holden was in school and I was working. So we kind of had figured out how to live off of one salary. And then even though we were super excited, you know, come graduation and Holden getting a job, we really tried to live within the same means that we had been for those previous two years and then just kind of bringing the new paycheck that we were getting to go towards all those different things of meeting our financial goals. So I think that was the big thing was still living off the same budget and then just freeing up the rest to our financial goals.

Tim Ulbrich: And how did automation, Holden, if at all, play a role here? You know, we talk a lot about on the show, once you’ve got a plan, really one of the best things we do is get out of our own way to make sure the plan actually happens. And automation is often the vehicle, the system, that will allow that to happen. Did you implement kind of automatic withdrawals towards these payments? Or how did you make sure your goals were being achieved while you had other competing priorities for your expenses?

Holden Graves: So of course, I went to the University of Arkansas, so Joe Baker is —

Tim Ulbrich: Yes.

Holden Graves: Was there, and he was —

Tim Ulbrich: Shoutout to Joe.

Holden Graves: He was my professor. Yeah. I know, I still need to get his book, so don’t tell him I haven’t gotten it yet. He really kind of set us up, so that was a really good foundation. And then at the time, he was recommending “Automatic Millionaire,” so it was before y’all had come out with your book. And so that was a big one that I just read that and just like loved this of these people that just kind of never really made that much, and they just saved automatically and paid off stuff and all of a sudden, they had three homes and like $1 million in the bank just because they were automating everything and not thinking about it. So that was a big thing for us. So everything we had was automated. We had our 401k’s automated, we had basically everything coming out of my paycheck, so my paycheck would get deposited every other Thursday. And Friday, we had all of the automatic drafts going towards our different savings accounts and also towards our loan accounts as well.

Tim Ulbrich: Awesome. And we’ll link in the show notes “The Automatic Millionaire” by David Bach. We’ve talked about that on the show before. Also to Joe Bake himself, “Baker’s Dirty Dozen: Principles for financial independence,” excited about that new resource coming out. And I also would add, to our listeners that want to learn more about this concept of automation, one of my favorite books — you’ve probably heard me talk about it before — “I Will Teach You to Be Rich” by Ramit Sethi. He does an awesome job of actually getting in the weeds on kind of what could this look like from a system standpoint and how can you implement it? And I think for many people, the idea of it seems more complicated than the actual implementation process. So I’d recommend those resources. Before I ask you guys about hey, what’s ahead now that we’ve got this debt paid off, we’re in the home, I wanted to, Holden, for a moment go back to the student loans. I didn’t ask you what the strategy was there. Was it staying in the federal system, pay them off? Was it refinance the loans? And any advice you would have for our listeners who are trying to make that distinction or that decision.

Holden Graves: Yeah, absolutely. So we went with the route of refinancing. So I never really thought about getting it to filing or attack this separately or going into the weeds on that. I just looked at what our tax return was and tried to plug that into the REPAYE and PAYE options and just realized that we’d actually be paying more towards the debt doing that than just the standard 10-year payments. So that was never really an option was doing that. And then I didn’t really want to be tied down with one particular company or one particular field, so I didn’t want to be in the Public Service field of five years in, I’ve realized, wow, I don’t really like this, I didn’t want to be stuck in that type of situation. So since we were going to be so aggressive with it, we decided to refinance and got a much lower rate on the refinance. So just kind of went at it that way and paid it off just as much as we could, as quickly as we could.

Tim Ulbrich: That makes sense. And so you know, as we now look at the future and what’s ahead, we’ve got an emergency fund in place, we’ve got student loans paid off, check, we’ve got the cars paid off, check. Obviously you’re in the home, so the down payment happened, check. And you were investing for retirement along the way. So I’d like to hear from both of you, both some of the numeric goals of what’s ahead, where do you guys want to focus on in terms of the x’s and o’s in your financial plan and then perhaps some more of the softer sides of the financial plan, you know, what are you hoping this means for your family going forward? So Amanda, you want to kick us off?

Amanda Graves: Yeah. So now that we’re kind of moving forward as we’ve checked all those boxes, I’ll let Holden speak to more of the financial strategy because he’s better with that. But —

Tim Ulbrich: He’s the nerd. He’s the nerd, right? Let’s be honest.

Holden Graves: That’s it.

Amanda Graves: Oh, he totally is. He totally geeks out on finances, which I love. And he does really great at kind of the future planning where I’m more of the close-in, monitoring the monthly budget. So I’m kind of the —

Tim Ulbrich: Sure.

Amanda Graves: The monthly person whereas he kind of does everything else. But it’s just been really great to kind of be a partner and seeing those different strategies kind of come to life. And what that means too is it kind of gives us the freedom to do what we want both now and in the future, you know, with saving for our retirement but also we have smaller goals too. We have automatic savings for vacations. So if we decide we want to take a family vacation, it won’t be a big financial stress because we created that savings just so that way, we can do little trips or activities and different things like that.

Tim Ulbrich: And Holden, give us the, you know, what’s the next 3-5 years look like? What’s success look like for you guys going forward now that you’re past this $100,000 of debt?

Holden Graves: Yeah, absolutely. Yeah, so we’re just kind of focused right now on just kind of accumulating as much as we can. It’s just kind of where like we don’t have specific 3-year to 5-year goals. We usually go one year at a time. But for the most part, it’s just 3-5 years, we’re still going to get 3-5 years of invested assets to be able to cover us for if anything were to happen or if anything — if one of us needed to take a break or walk away from a job that’s stressful. So that’s kind of the biggest things there. One thing Amanda didn’t mention, though, was actually when we paid off our student loans. We actually paid off our student loans in October of 2019. And our son was born at the end of November that year. So about a month difference, so it actually was — it worked out perfectly because it was just amazing because we really didn’t feel any richer after we paid off the loans because immediately Amanda went on maternity leave. But it really gave her the freedom to take the full 12 weeks off and make sure that she could go back.

Tim Ulbrich: Sure.

Holden Graves: Now especially, she could decide later on whether she wants to take a smaller role with what she’s doing or just step away altogether. It just kind of gives us the freedom to have those options. So we’re just trying to build up that so that it takes a little bit of the stress off Amanda too so she’s less worried about if she wants to step away or just slow down a little bit with work.

Tim Ulbrich: Freedom and options. Couldn’t have said it better. I think, you know, for you guys, this certainly is the case. You’re moving into what I would say is the offensive part of the financial plan and really being able to build some of the wealth into the future, obviously achieve other goals that you want to achieve and have the freedom and option if for whatever reason, you didn’t want to work or work part-time or to be able to replace some of what would come from a traditional W2 income. So congratulations on the progress of what you guys have made. I’m excited for what lies ahead for you guys as well. And I really appreciate you taking the time to come on the show to share your journey.

Holden Graves: Yeah, thanks for having us on, Tim. It was a pleasure.

Amanda Graves: Thank you so much.

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YFP 177: New Book: Baker’s Dirty Dozen: Principles for Financial Independence

Posted on by yfpadmin

New Book: Baker’s Dirty Dozen: Principles for Financial Independence

Joe Baker, author of the newly released book Baker’s Dirty Dozen: Principles for Financial Independence, joins Tim Ulbrich on the show. Joe talks about several of the principles outlined in the book, why he wrote the book and what he hopes the reader will glean from applying its principles.

About Today’s Guest

Joe Baker is an Adjunct Assistant Professor at the University of Arkansas for Medical Sciences College of Pharmacy where he has taught personal finance for over twenty years, as well as an adjunct instructor at Harding University College of Pharmacy. He holds a Bachelor of Business Administration from Southern Arkansas University and a Masters of Business Administration from the University of Central Arkansas. Joe retired early in 2019 from Pharmacists Mutual Company where he provided insurance and financial services to Arkansas pharmacists for twenty-eight years. Joe has spoken to both academic and corporate groups across the country promoting financial literacy.

In an effort to give back to his community, he has endowed a scholarship fund for students graduating from his hometown of Emerson, Arkansas.

Joe and his wife, Brenda, live in Little Rock, Arkansas.

Summary

Joe Baker has been teaching personal finance to pharmacists for over 20 years as an Adjunct Assistant Professor at the University of Arkansas for Medical Sciences College of Pharmacy as well as an adjunct instructor at Harding University College of Pharmacy. Tim Ulbrich approached Joe and asked if he’d be interested in writing a book and Joe realized there were a lot of lessons in personal finance he could share. With the help of his daughter Lindsey, Joe wrote over 250 pages of the key principles he teaches and has learned along his journey of personal finances. This book is composed of practical experience and contributions and stories from over 40 people.

In this episode, Joe walks through several of the principles he has written about like finding a path that will fulfill you, getting and staying out of debt, setting up a 401(k) and Roth IRA, finding the right house and picking the right mortgage, protecting your assets and making a difference in your community.

Through November 7th, you can use the coupon code BAKER at www.bakersdirtydozen.com for 15% off your order of the book.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Joe, welcome back to the show.

Joe Baker: Well, thank you, Tim, for the invite.

Tim Ulbrich: Excited to have you. Huge accomplishment as you release your new book, and we’re going to dig in and talk about several aspects of that book, really a comprehensive guide not only for pharmacy professionals but really just a guide overall about how to live a financially well life and how to do it with intention. And we had you on the show back on Episode 082 with Blake Johnson as he shared his debt-free journey. And during that show, Blake articulated how important your guidance was, your mentorship and your role as a teacher in terms of how important that was in the journey for he and his wife to becoming debt-free. And so now we get to talk about how you have compiled all of that wisdom that Blake and other students who have been blessed with your guidance and teachings often speak of as you release your new book, “Baker’s Dirty Dozen: Principles for Financial Independence.” So Joe, first of all, congratulations. I know a lot of sweat, a lot of time went into putting together this book. And here we are, finally getting ready to release it. So congrats.

Joe Baker: Yes, well thank you for talking me into it. I guess I say thank you.

Tim Ulbrich: So I have to ask, now that you’re on the back end of this and we finally get this into the hands of folks and many, many months of writing and editing went into this, and I told you very early on, I said, “Hey, Joe, at some point, this is going to become fun.” And you kept saying, “When is that? When is that?” So as you look now backwards, tell us about the process. What was it like? What type of time was involved? And would you do it again?

Joe Baker: Would I do it again? Yes, I would do it again. But I’d have open eyes this time. I had been thinking about writing a book for years. Former students and current students would say, “Why don’t you put this down on paper and let us have it in a book?” And I didn’t really think much about it until you mentioned — I think it was in May of last year, 2019 — you mentioned and said, “Hey, why don’t you write a book and we will help you promote it?” Then that got the bug started and I started thinking about it and said, you know, I think I can come up with some things. And on August the 15, I started the book. And coincidentally, I started writing the book for something to do in the hospital room. My wife was having some surgeries. And quite frankly, I wrote most of the book in the hospital room. Now, she’s fine today and everything went well. But you know, it was pretty tough having to write a book when someone’s over there moaning in pain. I’d have to call a nurse and say, “Hey, give us some pain pills in here. I’m trying to write my first book.” They weren’t too sympathetic, nor was my wife. But most of it was written, I mean, during the hospital stay. And what’s interesting — I tell people this story — is I thought I was pretty much finished at Christmas. And my daughter, who is just very astute on editing and all that sort of thing, she said, “Well, Dad, why don’t you let me read it and edit it?” I said, “OK. Go ahead.” Well, she started into editing the book, and lo and behold, she would say, “Dad, I don’t understand.” I said, “Lindsey, you’ve got to understand, I wrote this for millennials.” And she said, “Well, I don’t understand it.” So we went almost paragraph by paragraph throughout the book and rewrote it to where she could understand it as a liberal arts major and put in some stories. It was so much involved, involvement for her that I just felt obliged to name her a coauthor because she did, she made it sound so much better. I shouldn’t say this, but one day I was reading through it for the thousandth time, and I said, “You know, I know I’m getting old. But I don’t remember writing this part.” And she said, “Oh yeah, you did not. I put all that in.” I said, “OK.” There is a lot of her in this book, and I’m very proud of what she’s done.

Tim Ulbrich: And shoutout to Lindsey. I appreciated her input along the way. She did a fantastic job. I feel like it’s — as you know, Joe, as I know, especially as you’ve taught on this much longer than I have, it’s very different teaching on this and then putting that into writing in a way that is engaging, that is accessible, that is action-oriented. And I think it takes more effort, but one of the exciting things is this will live on, and it’s going to have an impact on many, many people. And just so folks understand the effort, when you talked about going paragraph by paragraph, we’re talking about paragraph by paragraph of over 250 pages that are in this book. And I think you did an awesome job. One of the first things I said to you after I read it was, “Wow, this is incredibly engaging because of the stories that you’ve included, because of the tone of writing, because of how action-oriented it is.” And you had over 40 people that helped contribute to the book. And I say that as we get ready to jump into talking about some of the key principles because I think this is a topic where multiple perspectives can be helpful to reinforce various points. And I love how you brought in those perspectives and obviously Lindsey put her own stamp on the book as well. So just overall, incredible job. And we’ve got — I think you have photo evidence of some of that hard work writing. I remember you sent me a text at one point with a photo when you were in the hospital writing. And so we’ve got photo evidence of that. So again, congratulations.

Joe Baker: Well thank you. Can I add another story to this? And it kind of goes to one of the reasons I was writing the book is we were playing cards this summer — and by the way, I had my other daughter, Brooke, and her husband, Gabe Crooks, to edit the book. And they did a good job. They weren’t as in depth as Lindsey, but they did do that. We were playing cards, and Gabe and my daughter happened to be there, and we had a big group there playing cards at the table, and one of the card members, one of our friends who is an attorney, says, “Well I couldn’t tell you the difference between an IRA and a Roth IRA.” And all of a sudden, to my right, Gabe, my son-in-law, another liberal arts major, he started explaining the difference, how it’s the taxation, you know, you tax up front and all of that, went into great detail. And I turned to him and I said, “How’d you know that?” He said, “By editing your book.”

Tim Ulbrich: There you go.

Joe Baker: And he’s even starting investing more and more from that. So it seems to have worked.

Tim Ulbrich: That’s great. And I think you know from teaching this for over 20 years as we’ve had several of your former students on this podcast, you know, some people will read this book and go line-by-line and take away multiple things that they’ll apply. Others may take one thing or they’ll jump in and out as their financial life and plan progresses. But I am confident, I know I took many things away, and I’m confident the readers will do the same. Joe, remind our listeners — maybe they didn’t hear you on Episode 082 way back when — a little bit of your career path and then also some of the work that you’ve done over the past 20 years in teaching personal finance. I think it’s a good segway into why you even wrote this book in the first place.

Joe Baker: Well, in my adult life, I’ve worked for 28 years with Pharmacists Mutual companies, so I’m very familiar with pharmacists and pharmacy students. And I spent a lot of time in the college of pharmacy. And in the late ‘90s, I was talking to the assistant dean and the dean about a personal finance course. And one thing led to another, and we started in the fall of ‘99 at the University of Arkansas College of Pharmacy, a two-hour elective for P3s. And I’m going to brag not because of me but because of the content, it is the most popular elective at the university. So it’s been going on for over 21 years. And it’s just — it’s been great. I look forward to it. Pharmacy students are like sponges, they just absorb it all. And we just — we have a good time. We tell a lot of stories. And I learn from them as well. So it’s a two-way street.

Tim Ulbrich: Absolutely. And I have been teaching a personal finance elective for I think 4 or 5 years, not 20+ years. But one of the things I often think of is, I wish I would have had this. And I know I hear that from others as well. So lucky to have the students that have been able to take your course, that they have access to that information. And Joe, I wanted to ask, you know, we throw around the term, “financial independence,” “financial freedom,” all the time. And since it’s in the subtitle of your book, “Principles for financial independence,” I want our listeners to hear from you, what does that term mean to you? And why is that concept of financial independence so important?

Joe Baker: Well financial independence to me means that if I want to pick up roots, move to another place, I can. I’m not obliged to stay at the same job that I’m in. It just frees you up to do so many things. And I know that money can’t buy happiness, but I have been without money, and that has made it very unhappy. It’s nice to know that if the refrigerator breaks down, the wash machine, or if you want to go on a trip, that you don’t really have to think that much about the monetary. I know I always try to get a good deal, but having the financial independence to do those things and to buy things that you need, it really makes a big difference. It takes the stress out of marriage and life.

Tim Ulbrich: One of the things too, Joe, that really resonates with me as I’ve gotten to know you over the past couple years and obviously got to be alongside of you in this journey, I often tell people as I’m describing this book, is it really is just spewing out with wisdom. And I mean that genuinely.

Joe Baker: Thank you.

Tim Ulbrich: Because I feel like your life experience really comes through in addition to what you have found as effective ways to teach these principles such that they’re easy to understand and they’re action-oriented. So you mention in the beginning of the book, you chronicle your timeline, 30 years old, you got married having nothing but some debt. I think that’s a story that I can resonate, our listeners can resonate. And then if we fast forward, 59 years old, your liquid net worth percentile increases from the top 8% to the top 4% in the U.S. And you mention it took 52 years to get to 8%, the top 8%, and only seven more years to get to the top 4%. And one of the things you mention there is that the significance here was the result of having no debt. So what else as you look back on this journey going from really a net worth of $0 or negative to obviously being in such a good financial position and being financially independent in addition to no debt and having that philosophy around debt. What else has been the secrets to your success?

Joe Baker: Well, I’ll go back even further. You know, it’s a really remarkable journey considering I grew up in a small rural area in south Arkansas near the Louisiana state line. We did not have an indoor toilet until I was 9 years old. And I always, when I’m mentoring students, I say, “Listen. If I can achieve what I have coming from not having an indoor toilet, you can achieve as well.” But fast forward to age 30, you’re right. I had debt. I did have a TV and a VCR and a bed without a headboard. So I did have some assets. But the fortunate turn in my life was I married a high school math teacher. And even though I had a business background, she came in and showed me time value of money and all of the other numbers. And I said, “Wow.” So she whipped me up in financial shape, and I knew she was the one when we were having a get-together at her condo. I think this was the second town we were together. And we had some people over, and someone picked up a paper towel roll, used the second to last paper towel and proceeded to throw it away. And from a distance, I saw my wife — or future wife — go over to the trash, pull that cylinder out and pull off that last piece that was glued to it. And I said, “Wow. I’m going to marry her,” because I knew that she was tight with money. And of course, she makes me frugal today — or excuse me, she makes me look like a spendthrift. But anyway, that helped transform me. And we instilled those — a lot of the money principles with our children. Those stories and more are in the book.

Tim Ulbrich: And a shoutout to Brenna Baker for allowing you to write this book but also for giving you the foundation, I feel like, for what allowed you to learn this topic and of course in turn, teach others. And I love that line that you say in the book, “My biggest financial accomplishment came from marrying a high school math teacher.” So one of the lessons, which I couldn’t agree more with, is making sure there’s alignment with your partner, your significant other, your spouse, when you’re talking about personal finance. And the earlier you can get to that alignment, the better. And you do a great job of discussing that in the book and how important it is. Let’s jump into different areas of the book. And we’re just going to scratch the surface on these. But principle No. 1, so Baker’s Dirty Dozen Principle No. 1, is find a path that will fulfill you. And I think many may pick up the book and not expect that it would start here. So tell us about why you started here and why this concept of finding a fulfilling path is so important and relevant to the financial plan.

Joe Baker: Well, the book did not start off this way. The book was evolved that I had in mind was don’t do this, don’t do that. And then we had a epiphany — excuse me, I’m under the weather today, so you’ll have to forgive me a little bit — when you and I went to Washington, D.C., last year, it was September of 2019, last year, and we both attended a conference with a speaker. And he changed my whole focus on the book. You know, by not telling people what they need to buy or whatever, so I said, “Everyone needs to find their own path, financially, career-wise,” but the purpose of my book is to show you the opportunity cost of every economic decision you make and let you make that decision. I can’t pick a path for you. This is the path that you have to come up, and with the help of the book, maybe we’ll find a way to finance that path. And you can tell a little bit about the speaker who that was. We’ll give him credit.

Tim Ulbrich: Yeah, so I remember that. FinCon 2019, we were in D.C. You actually, Joe, if you remember, we had I think lunch or dinner, and you handed me in a manila envelope the first copy of the book. And we could go back and pull that out, and to your point, there was not this part included. We sat through this keynote, which was delivered by Ramit Sethi, which should sound familiar to our listeners, author of “I Will Teach You to be Rich.” Fantastic book. And that keynote, Joe, I remember it was one of those moments for me as well that I talk about often when I am speaking on this topic. He was talking about the concept of money dials and really identifying the things that matter most to you and finding a way to prioritize and fund those in the financial plan. And he had a great example, he called on the audience to do a couple of these, and then finding the areas that don’t mean a whole lot to you and to stop spending money on those things. And he connected that to the concept that we talk a lot about on the show about finding your financial why, having a purpose, having a vision for your financial plan, and by the way, as you mentioned and alluded to in the book, this path can and will look different for probably everyone reading and many of our listeners as well. And so finding that path, articulating that path, defining that path is so important because the financial plan should be a mechanism to help achieve that and make it reality. And for some, that means a very ‘traditional’ path of I’m going to work full-time and I’m going to do that for 30-40 years and I’m going to make a good income. Others may say, you know what? It’s early retirement, it’s staying home with the kids, it’s doing this or that, it’s working part-time, it’s having options, it’s having flexibility. And I think we’re seeing this more than ever of the importance of this. And I know it’s something that I feel personally as well. So I think it’s a great concept and I think it’s a great way to start off the book before you then get into the x’s and o’s of the financial plan. I remember we looked at each other and we’re like, alright, this is something different.

Joe Baker: Yes. I turned to you if you remember, I said, “I’ve just changed the direction of my book.”

Tim Ulbrich: Chapter One, here we go.

Joe Baker: Right.

Tim Ulbrich: I think you do a nice job too in this first principle that I know will resonate with our listeners, many of which in the field of pharmacy while this book goes beyond just one for pharmacists that I know many are struggling with what do I do if I’m in a position where I’m thinking about a career change or I want to do something different or “more meaningful,” how do I consider that? How do I weigh that? And how does that, again, connect back with the financial plan? And you do a nice job of covering that in principle No. 1. Now, you also talk about in the book this concept of avoiding financial minefields. And I think this gets into a little bit of the defensive side of the financial plan. My question here for you is in your experience teaching on this topic and working with many students, what are some of the common financial minefields that you see people stepping into?

Joe Baker: The biggest one right now are weddings. Weddings, I think the national average cost is $33,000, excluding the honeymoon. And that is just a big, big financial minefield. Now, obviously if the person reading the book is not paying for the wedding, that’s a different story. But even for parents paying for the wedding or grandparents or whoever, that should be looked at in the light of opportunity cost. And that’s what I break down in the book, showing if you use less money for a wedding and quite frankly, the stress of a wedding, wow. My daughter, well, Lindsey, she’s one that really wrote a lot about financial minefields of weddings. And she was just in a wedding, and she was — it was very similar to the movie “Bridesmaids” where everything was costing so much, spending so much time. So people have to be aware of that. And that chapter also includes on making the decision on whether you do that or not and plus other decisions, and it’s very similar to another chapter I have, principle No. 4 about understanding the concept of opportunity cost. Every decision we make there’s an opportunity cost whether it’s economic or non-economic. And I try to focus mostly on the economic choices. So weddings, one of the biggest minefields in a list I think a couple more. And I think that’s the same area where I go into budgeting to find out where you’re spending all your money. And you might be surprised at all the smaller minefields.

Tim Ulbrich: Yeah, you do. You do a good job of that, a stepwise approach for budgeting and trying to identify where those minefields may be. And obviously, you build upon that by talking extensively about student loans, a topic that is near and dear to us. And you also do a nice job in another chapter building on this concept of what I view as some of the defensive parts of the financial plan of the importance of protecting your assets. So of course, details about emergency funds, life insurance, disability insurance, liability insurance, insurance insurance. The list goes on and on, right?

Joe Baker: Right.

Tim Ulbrich: We all know how important insurance is. And what you need, what you don’t need. And I think really being able to navigate that, understand it, and as you can tell already listening to this interview, this book covers a wide array of topics. Now, one of the areas you spent the most time in the book on — and I think you did a great job — is on the investing side, the long-term savings and really breaking this down, I would say this is probably the biggest section of the book and I’m guessing the area that you’ve had through experience, identified where there’s the most questions or confusion. And so my question to you as you talk about the principle around investing and establishing an investing plan, you know, we talk about these terms all the time: stocks, bonds, mutual funds, 401k’s, 403b, Roth versions of those, IRAs, traditional and the Roth, HSA, REITs, alternative investments, cryptocurrency — you know, the opportunities and the options go on and on. And I think this can be very, very overwhelming. I know it’s overwhelming from personal experience in talking with many of our listeners. So how do you walk the reader through understanding and applying this information on the very important topic of investing in long-term savings?

Joe Baker: Well, first of all, the way I wrote the book is the way I teach class. I make a promise to the students. At the beginning of each semester, I say, “My goal is for you to never say while you’re sitting in my class, you will never say, ‘When am I ever going to use this?’” To me, that’s very important because you and I, we’ve all been there where we’re sitting and say, ‘When will I ever use that?’ So I keep that in mind, and I try to keep it as simple and really what it boils down to — you know, the three-asset class is cash, bonds and stocks. And if you’re only relegated to participating in an employer-sponsored plan, you’ll have 25-35 funds to choose from. So it’s not like the thousands of decisions you’ll have to make. And I place a couple recommendations. I like stock index funds as well as Warren Buffet, as you know, Berkshire Hathaway, that’s one of his favorites. Target date funds are good too. And I try to make it as simple as possible. And I also include several stories in there from contributors and where they have messed up. And you know, I talk a lot about individual stocks. You know, people at parties, they’ll talk about buying an individual company stock. And it is a good conversational piece, but frankly, might as well just do that for fun because your investments and your retirement should come from your employer-sponsored plan. But I do have a section in the book about picking individual stocks and how to do that. So if you want to do it for fun, that’s fine. But the bottom line is I try to keep it as simple as possible. And I do cover all the areas, and hopefully the reader will have the same experience as the students in my class and say, ‘Oh, yeah, I’ll use this one day.’

Tim Ulbrich: And I think you did a nice job, in my opinion, of keeping it simple, what you need to know, what you don’t need to know. And then through the appendices, also providing additional information for those that want to dig a little bit deeper on some of the topics or where there’s a stepwise approach to things like understanding some of the retirement accounts or opening up an IRA but that there’s a core foundation that you provide. And I think it reads, in my opinion, such that you can go cover-to-cover but then it should stay nearby because you’re going to come back to many of these decisions or need a refresher.

Joe Baker: For example, when you leave an employer, which you will. On average, I forgot the millennials, I think they have 7-9 jobs by the time they’re out. So what do you do with your 401k or 403b? I point that. You have four options. And that is in the book. So there’s some things there that are practical that you can look at and a step-by-step process for that.

Tim Ulbrich: And again, we’re just scratching the surface on topics that are also included that we haven’t discussed yet: how to make sure you and your significant other are on the same page, where to look for things that can appreciate and avoid things that depreciate, how to get out of debt, best practices for home buying, for the financial plan. Now Joe, when we package the book and said, ‘OK, is it the book? Are we going to offer some other resources?’ We ultimately landed on that we thought there would be value in essentially an investing mini-course series, videos, 6-7 videos that would take people more in depth into investing. Tell us about what folks can expect to get out of those investing videos — I know you’ve invested a lot of time and effort into doing those — and why we felt like that was an important supplement to the book.

Joe Baker: Well, a shoutout to P3 pharmacy student Jason Lam, he’s helped me with the audio and video portions. And he has pushed me pretty hard. We have done several videos that we’re — I think we’re pretty proud of. The blooper reel should be very interesting, by the way. But I just filmed it, most of the videos are out back by the pool. I’ve got a big whiteboard. I’m old school, I like to show it on the board. And quite frankly, it’s kind of a mini version of what I taught to the students in class. We’ll see how it turns out. We’ve also filmed a little skit for Halloween day, so hopefully people will check that out.

Tim Ulbrich: I’m looking forward to seeing the bloopers. So yeah, I mean, that investing video series is meant to I think present the information in a different way. Obviously they’ll have the text to read but also more of a stepwise approach. And for those that want to dig deeper on the investing topic, I think you’re going to find that video series to be helpful. And that comes with either the premium or premium pro package of the book, which is again available at BakersDirtyDozen.com. Joe, I want to read a couple of the testimonials. We’ve got a lot of people that had great things to say about this book. You know, one here that I want to read comes from Nicki Hilliard, UAMS College of Pharmacy professor, past president of the American Pharmacists Association. And she says, “Joe Baker is a good-natured, all around nice guy that is passionate about helping others. He has graciously taught personal finance at the College of Pharmacy for many years, and it is always the most requested elective course, not just because of the good information but how these lessons are delivered with great stories and insight into the big picture of what is important in life. He has put to paper his life experiences, stories and wisdom to help others lead a happier, less stressful and more fulfilling life through financial management. I highly suggest you put Joe Baker’s Dirty Dozen lessons to work in your own life.” This is just one, and as I read through others in preparation for this episode, there was a theme that I kept seeing over and over again of the influence that your teachings have had on people and how they have been able to directly apply that information to their personal financial plan. You know, one that stuck out to me, Blair Thielemeier mentioned how important the financial principles that you taught were for her in her journey of being able to start her business and the work that she has done and being able to have her own personal financial plan in order, several students commented specifically on actions they took in terms of budgeting, opening up retirement accounts, other things that they did directly as an account of your teaching. So as you hear that out loud, and I know you’re a humble person by nature, but what does that mean to you in terms of the impact this work has had on people over the past 20 years? And what do you hope is the legacy of this book going forward?

Joe Baker: First of all, Nicki was very generous in her review. And I appreciate that. Well, it just gives validation, you know, when I hear students come back and they’ll repeat a story and say what they’re doing, if they paid off $200-something thousand dollars in student loan debt in four years, which one has, and when they tell me that those stories, that just validates why I did this. Financial illiteracy is — you know, you could be a pharmacist, doctor, lawyer, and still be financially illiterate. Just because you’re smart doesn’t mean — or high IQ — doesn’t mean that you know how to control your finances. So it makes me feel good, it’s the reason I do it. It’s a selfish reason because I know that I’m getting feedback and kind of confirmation of what I’m doing is the right path. So that’s what keeps me going at this. This was all — the first I think it was 10 years that I did this, I didn’t even get any pay, so it was — they came to me, the school came to me and says, ‘Hey, we want you to do this both semesters.’ I said, ‘Well, I was thinking I might not do it at all.’ They said, ‘Well, how about if we paid you?’ which wasn’t much. I said, ‘OK, I’ll do it both semesters.’ So anyway — and the way I look at it is it’s an unlimited attendance in my class. It’s tough, but if I can reach one or two people that would have not been in there if we had had a maximum size, then it’s worth it. So that’s almost like an evangelical feel to it, reaching more and more people.

Tim Ulbrich: Yeah, absolutely. And I know in talking with several of your pupils, you know, and speaking from personal experience, it’s not even just them. Obviously there’s the impact that you will have on them but also the folks that they interact with, that they rub shoulders with, the kids that they’re raising. I mean, this is one of the things we always talk about, hopefully a generational impact you can have in helping people shore up their financial plan to be able to do and achieve the things that they want to do. And ultimately, as you talk about in Baker’s Dirty Dozen Principle No. 13, to be able to have an impact on their communities, on their places of worship, on others, and to be philanthropic as they can do so once they have their own financial house in order. So I know your work has had a great influence on me. I mean that genuinely. I’m confident it’s going to do the same, it has done the same, will continue to do the same, with others. And I’m so glad that you ended up writing this because one of the beauties of a book is that this resource will live on. And it will have an impact, and people will be able to build upon this work, they’ll be able to give feedback on it, and ultimately hopefully be a conversation-starter for many in their own financial plan. So Joe, again, congratulations on the book.

Joe Baker: Thank you.

Tim Ulbrich: Excited to be a small part of this alongside of you in this journey. And again, to our listeners, head on over to BakersDirtyDozen.com. Through November 7, you can use the coupon code BAKER for 15% off. And as always, we appreciate you joining us on this week’s episode of the Your Financial Pharmacist podcast. Have a great rest of your day.

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YFP 161: 5 Key Financial Lessons to Teach Your Kids

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5 Key Financial Lessons to Teach Your Kids

Cameron Huddleston, award winning journalist and author of Mom and Dad, We Need to Talk: How to Have Essential Conversations with Your Parents About Their Finances joins Tim Ulbrich to talk about five key financial lessons to teach your kids.

About Today’s Guest

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

Summary

Cameron Huddleston, personal finance journalist and author of Mom and Dad, We Need to Talk: How to Have Essential Conversations with Your Parents About Their Finances joins Tim Ulbrich back on the podcast to dig into 5 key financial lessons to teach your kids. Cameron and her husband have tried to instill these lessons in their own children who range between the ages of 8 to 15. Cameron shares that she wasn’t given much financial education growing up which caused her to make some mistakes with money. She wants to openly communicate to her children about money so that they can form a healthy relationship with it. These lessons include: money is not a taboo topic, money must be earned, make saving a priority, it’s ok to spend but don’t waste your money on junk and be grateful for what you have.

During this episode, Cameron shares several tips that help to bring these lessons into your daily lives. For example, she suggests talking to children about money from a very young age so that they can form a healthy relationship with it and learn how to use it wisely. When they are younger, you can explain to them that money is used to buy things, like food or toys. As they get older, this can turn into talking about how to spend money and following a budget. Cameron also shares that her children have financial chores, in addition to chores that they don’t receive money for. She gives her older two daughters money monthly and her son, the youngest child, an allowance weekly. They are encouraged to put this money in three different jars to either save, spend or give. This helps them think about what they want to use their money for and shows them what happens when they use their money to purchase something.

Cameron discusses speaking to your children about money in the last chapter of her book Mom and Dad, We Need to Talk: How to Have Essential Conversations with Your Parents About Their Finances.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to this week’s episode of the Your Financial Pharmacist podcast. And I’m excited to welcome Cameron Huddleston back onto the show. Cameron is the author of “Mom and Dad, We Need to Talk: How to have essential conversations with your parents about their finances.” She’s also an award-winning journalist who has written about personal finance for more than 17 years. Her work has appeared in Kipplinger’s Personal Finance magazine, MSN, Yahoo, USA Today, Chicago Tribune and many more print and online publications. Cameron, thank you so much for your willingness to come back onto the show.

Cameron Huddleston: Thank you so much for having me.

Tim Ulbrich: So we had you on the podcast way back in Episode 108 to talk all about your book, “Mom and Dad, We Need to Talk,” and that was a great conversation and you provided many valuable tips and thoughts around having this sometimes difficult conversation or conversations with our parents. And while today we’re not going to talk about having these conversations with our parents, we’re going to flip the script and talk about having these conversations, these important money conversations, with our kids. And the final chapter of that book, Chapter 17 in “Mom and Dad, We Need to Talk,” was “Pay it Forward. Start Talking to Your Kids.” We’re going to use that chapter as well as an article that you recently wrote that’s on your website and we’ll link to in the show notes titled “What I Teach My Kids About Money” to use that article as a framework for our discussion today. So before we jump into the five key things about money that you’ve tried to share with your children, tell us a little bit more about your family as I think that context will be important to our discussion here today.

Cameron Huddleston: Sure. So I have three kids. They range in age from 8 to 15. Actually, my 15-year-old is turning 16 in August.

Tim Ulbrich: Oh gees.

Cameron Huddleston: I know. My 13-year-old turns 14 in July. And so two girls, one boy, all very different in the way they think about and handle money, which makes it interesting and a bit of a challenge when it comes to teaching them about money. And this should be my key warning to parents of children who are still young and just kind of starting to figure things out that no two kids are alike, which I’m sure every parent has figured out. But no two kids are alike when it comes to their approach to money. I mean, even if you’re in the same household and you’re talking about the same things, it just, it becomes very apparent from the time children are young how they view money differently.

Tim Ulbrich: Yeah, and I think that’s fascinating, Cameron. You know, something my wife and I talk about with our four boys — and I would say we’re, ours are a little bit younger, so 9 down to just over 1. So obviously we’re not talking with our 1-year-old yet about money. But what we’ve realized is, you know, with our three older ones just how different — I mean, to your point — just how different they can be in so many different areas but even when it comes to things like questions they’re asking about saving and spending and how we are spending our money. And I like to think that we’ve been relatively consistent in our household. But nonetheless, you know, you take their different personalities and I think that can lead you to a different outcome with money for each and every child but also how you approach this topic. And so we’re going to talk about five key things about money that you’ve tried to share with your own family. And we hope that that will provide a framework for those that are listening to be able to apply some of these principles in their own households. So before we jump in to these five things, I’m curious, you know, we talk a lot on the show about when it comes to two individuals, two spouses working together on a financial plan, how important that communication is and how important it is to be on the same page and to have good conversations about money. So were you and your husband both on board with these five points? Was it something that you were leading more? That he was leading more? Talk to us a little bit more about the dynamic and the vision for teaching your kids about money as it relates to you and your husband.

Cameron Huddleston: Sure. I don’t think we ever sat down and started making a list of things that we wanted to teach our kids. It just happened naturally. I do think that my husband and I are pretty much on the same page when it comes to money. I feel fortunate that we don’t fight about money, which is something that’s so many couples do. We’re similar in our spending patterns. We’re similar in our beliefs about money. We did come from very different money/financial backgrounds, but I don’t think that’s really created a lot of an issue for us. It’s just I think being on the same page has helped us convey a consistent message to our kids. There was one area where we had a bit of a disagreement, and we can kind of get into that because that’s one of the points I make — and I know you’re referring in particular to a post I had on my blog about what I teach my kids. And so — and that comes, that point where we have a little bit of a difference of opinion is when it comes to allowance, which is what we — and we can discuss that.

Tim Ulbrich: Sure.

Cameron Huddleston: But yeah, I feel like we do take a similar approach that’s made it easy when it comes to teaching our kids about money and instilling a set of values about money.

Tim Ulbrich: Yeah, and as you mentioned, the article in reference here is “What I Teach My Kids About Money.” We’ll link to it in the show notes and that will be the framework for our five points about money and teaching kids about money. So let’s jump in. No. 1, money is not a taboo topic. And you mention in your blog that your middle child asked you why people think it’s bad to talk about money. So tell us about that conversation, how you responded, and what your family dynamic is in terms of how you approach and how you speak about money as a family.
Cameron Huddleston: So a few years ago, my middle daughter, who might have been around 11 or so at the time, out of the blue, she comes up to me — and I remember I was sitting in my office — and she says, “Why do people think it’s bad to talk about money?” And I was a little bit taken aback by the question because I was wondering what prompted her to ask that.

Tim Ulbrich: Yeah.

Cameron Huddleston: And I know why she did because we talk about money all the time, so in her mind, there’s nothing wrong about talking about money. Someone must have said something at school or maybe she saw something on TV, I don’t know. But when she asked me that, I wanted to explain to her in an age-appropriate way why people think talking about money can be a bad thing. I actually used something I had heard from a financial psychologist I know. And what he had explained to me and what I told my daughter was that the reason people often are reluctant to talk about money or they think it’s a taboo topic is because there’s a lot of shame around money. And I explained to her that some people are embarrassed if they’re having a conversation with someone else about money that maybe they make more money than the other person or they’re embarrassed because they make less. And that’s what can create the awkwardness, having more or less than someone else and you don’t want to feel like you’re bragging about how much you have or you don’t want to feel like you’re not doing as well as another person. So that’s what I explained to her. And I guess she kind of processed it in her little head and went on about her way, but like I said, we talk about money all the time. We’ve been talking to our kids about money matters since the time they could talk. Of course, when they were 2 years old, we weren’t talking about mortgages and debt and interest rates and that sort of thing. You know, just explaining the basics: This is money, this is a coin. They would go with us as we run errands and using that as an opportunity to explain things cost money. We have to earn that money to pay for those things. We have to make choices about what we’re buying. These were not conversations I had in my family when I was growing up. We didn’t talk about money at all. My dad was one of those people who said, we don’t talk about money. It’s not polite. And so I wasn’t raised with a good personal finance education from my parents. I had to figure out a lot on my own. When I got out into the real world, I made a lot of mistakes. And thank goodness I became a personal finance journalist because it’s taught me everything I know and needed to know about money. And I don’t want my children to become adults without a strong financial foundation. That’s why my husband and I have been talking to them since the time they were little about money so they can learn to use it wisely and they can have a healthy relationship with it.

Tim Ulbrich: So a couple things I want to unpack there that you said. You know, the shame piece really stands out to me because it’s almost like the baseline that, you know, we often feel shame around money and talking about money, typically, as you mentioned, because either the feeling that we may have more or less than somebody else, so there’s this natural point of comparison. My question that I’m thinking through is like, where does that come from? Is that innate human behavior? Is that because of the society that we live in? Is that because of the money scripts and the conversations that we were a part of or not a part of as a child that we may or may not even remember those? Like what are your thoughts on why even young children may begin to pick up on some of that in terms of this concept of shame around money and conversations of money?

Cameron Huddleston: I think it’s more the latter two reasons that you mentioned: society and those money scripts. I think we tend to view our self-worth in terms of how much money we have or don’t have, unfortunately. And so we think people who are wealthy are somehow better and those who are poor aren’t as good. And I wouldn’t say this is universal, but I would say that this, this idea is engrained into a lot of our heads. And then like you mentioned, the money scripts. If you grew up in perhaps a lower income family where, you know, people were always talking about how they wanted more money but then perhaps disparaging people who were making a lot, referring to them as, oh, the rich or greedy, it does affect the way you think about money when you get older. Maybe you want to do well and improve your lot in life, but there’s that idea in your head that if you become rich, you’re greedy and you’re somehow bad. And those things we don’t often realize are there deep down and can help us or not. I shouldn’t say help us — can lead to bad relationships with money and these negative thoughts about money that lead to this idea that we shouldn’t be talking about it.

Tim Ulbrich: And I struggle as a parent, Cameron. I struggle in conversations with my boys trying to strike the balance — and I don’t know if I’m doing it well or not, but I feel like I tend to have a frugal mentality and mindset. And what I worry is if that’s what they hear me talking about all the time, I don’t want them to have that restrictive mindset around money. But I also want them to be conscientious in terms of how they spend and alternatively, if they hear about the wealth-building and the growth side of it, I don’t want them to lose sight of there’s hard work and effort that goes into earning money and to have that association between work and money. So I feel like probably, you know, myself and many others that are listening may not have some of these conversations either because they don’t know how to have them or out of fear of what they’re saying may be developing a mindset that they already have or they don’t want their children to have or baggage that’s being passed on from one generation to another. So when I hear you say that “we as a family” talk about money all the time, like give us some tips or strategies. Like how is that conversation just a regular conversation in the household? Is it specific moments? Is it around the dinner table? Is it when you’re out and about at the stores? Like what does this practically look like that we as parents can better engage our children in this conversation?

Cameron Huddleston: So obviously it’s going to depend on the age of the child. When your kids are young, the least you want to do is introduce them to the concept of money. This is a coin. And you want to wait until your kids are at least old enough not to stick those coins into their mouths and swallow them.

Tim Ulbrich: I did that as a child, so yes.

Cameron Huddleston: Right. All kids do it. They all do. They want to pick things up and stick it in their mouths. So you know, when they’re maybe 2 or I would say perhaps even 3, probably 3-4 years old, they’re less likely to stick those things in their mouths. This is a coin, this is money. We use it to buy things. This is paper money, a dollar bill. And here we are, we’re at the store, we’re at the grocery store, we’re buying things. And so often, we will use a debit card or a credit card. So explaining to your kids, you know, I just put this debit card in. I put this credit card in. But it’s still money. The money is coming out of my bank account. That’s something that would come up more when they’re 5 years old or so. 3-4, this is money, we have to earn the money, we use it to buy things. You know, and letting them see what it is. Let them touch it. Maybe even, you know, giving them your spare change and letting them start collecting that money in a coin jar or a piggy bank, something along those lines. You know, and then as they get older, the conversations can be more advanced, talking about spending decisions. You go to the grocery store, they’re begging for — or you go to Target. Let’s use Target as a good example because they sell everything.

Tim Ulbrich: Everything.

Cameron Huddleston: And so they want a toy — everything. We all know that we spend too much at Target. You go to Target, and the kids want a toy. And that’s an opportunity for a conversation, “while it’s great that you want a toy, but we are here to buy this. We don’t have money in our budget,” or, “This is not something that we need to be buying right now. You get gifts on your birthday, you get gifts on holidays.” Making those things clear. You know, I would tell my kids before we went to the store so there wouldn’t be a meltdown. “We’re going to the store to buy this. We are not going to buy you a toy.” Now that my kids earn their own money through allowance, I tell them, if this is something you want, you use your money to buy it. And it’s funny how quickly —

Tim Ulbrich: That changes.

Cameron Huddleston: They don’t want that thing so much anymore.

Tim Ulbrich: That’s right.

Cameron Huddleston: No, I want you to get it for me.

Tim Ulbrich: Yeah.

Cameron Huddleston: So it just — really, our conversations are part of our daily living and them — you know, they become, like I said, they do become more advanced as your kids get older and you have to talk about more serious things like buying a car and whether that’s something you expect them to pitch in and help you do. Do they have to pay for gas? Do they have to pay for insurance? Do they have to use their allowance to pay for things they want? Do they have to use it to pay for things they need? It just — you know, a friend of mine who is a financial coach said she had a client who told her that she didn’t talk about money at all with her kids because she didn’t want it to stress them out. She wanted them to be kids. And I thought, this is so unfortunate. You’re missing a really good opportunity to help your kids develop a healthy relationship with money. If you don’t talk about it at all, you create that idea that it’s taboo. And then as they get older and they haven’t had that experience with money, they struggle to make smart decisions.

Tim Ulbrich: Yeah, and I think going back to your Target example, I think it’s really important — in my opinion — to teach kids at a young age and all throughout the concept of opportunity cost. Obviously I’m not going to use the word “opportunity cost” with my 5-year-old, but getting them to understand like if we’re at Target, you know, I try not to use language like, “We can’t buy this,” or, “We can’t afford this,” but rather because, as you mentioned, because of the budget or “We’re here to do this,” or, “We’re choosing to do this and we’re not buying this because we want to be able to do this.” So really, I think that tradeoff concept is so important. And as you mentioned, I think when it’s our own money and our own allowance, that becomes a little bit more clear and obvious. But when it’s not their own money, that may not be as obvious. So No. 1, money is not a taboo topic. Really great introduction and conversation there. No. 2, money must be earned. So you alluded to this in terms of the discussions you and your husband have had, but talk to us about, you know, the options of either chores or allowance and how you made that decision and how that ultimately has played out in your own home to be able to connect this concept of money and work and earning that money.

Cameron Huddleston: So because I have been writing about personal finance so long, I have written about the topic of allowance on several occasions. I’ve interviewed a variety of experts. And there are a variety of approaches to allowance. One of them in particular is to give your kids financial chores. So you give them a certain amount, and then they are expected to use that money to pay for certain things. So the allowance is not tied to the chores you do, but you have to use it to pay for certain things. Initially, I really liked this idea and discussed it with my husband. And he felt very strongly that our children’s allowance should be tied to their chores because in the real world, you have to work to earn money. And he wanted them to learn that from a young age. Money is not just handed to you; you have to work. Now I know some people will say, “Well, if you tie the chores to money then you’re going to end up having more fights and the kids aren’t going to want to do the chores, they’ll just say, ‘Well, fine, I’m not going to do it. I don’t care if I don’t get any money.’” I do think it’s important that kids have to do some chores without getting paid for them, just because they’re part of the family.

Tim Ulbrich: Yeah.

Cameron Huddleston: And you have to pitch in when you’re part of the family. So there are some things my kids are expected to do, and they don’t get paid for it. But we have a spreadsheet that we have printed out, and it hangs up on the refrigerator, and it details what the kids are supposed to do and what — the way we do it is they get penalized if they don’t do those things. So they get a certain amount each month for my daughters, each week for my son because he’s younger. And if they don’t — so for example, if he doesn’t make up his bed every day — and he doesn’t have to do a great job, he just essentially kind of has to get the covers up and not leave it looking sloppy — he loses $.25.

Tim Ulbrich: OK.

Cameron Huddleston: And I will tell you, it has worked incredibly well. Once we instituted that system, things got done around the house. Shoes were not left out because with my son in particular, who was always leaving his shoes by the sofa, his room was always a mess, and when I would ask him on the weekend, it’s time to clean up, oh no, I can’t do it. You have to help me. Once he was in charge of doing all these things and he knew that he was going to lose money because he’s very motivated by money, he was on top of it. Just the other day, he said to me, “Oh, Mom, I forgot to make up my bed two days in a row. I’ve lost $.50.” And I was like, “Well, you need to make yourself a to-do list that says, Start the day by making up my bed, so that you know that you do it.” It has not, fortunately, caused fights in our household. The kids are willing to do their chores. They know if they don’t do them, they’re going to lose money. So my son, he gets his payment every week in cash. He has a choice of putting it into a Save, Spend, or Give jar. And I let him make the choice because when you’re older, you have to make those choices. Now I will tell you he has raided some of his Save and Give jars so that he could spend some money. And he looks back and he says, “Oh my gosh, I don’t have any money left.” And that’s a lesson that he has learned. My daughters, they get it monthly just because they’re getting a larger amount of money. But it works for us. That’s not to say it’s going to work for everyone. And I think it’s important to figure out a system that works for you. So if you feel strongly that money should be earned, then you can have an allowance that’s tied to chores. If you don’t like that idea, you can use, I don’t know, the financial chores system. The key is to give your kids their own money so that they have experience using it and making decisions with it.

Tim Ulbrich: And there’s something you said there that really stands out that I want to make sure we dig in for a moment here is that your son being younger, you had more frequent moneys that were given and it was given in cash, right? I think that’s really important at a younger age that there’s not a long time period, that they can see that immediate connection between the work that is or is not and the money that is or is not earned. But I also think it’s important as they get a little bit older that you give them a little bit more leeway and by increasing some of that flexibility, it also puts some of that responsibility on them to manage over a longer period of time. So for example, you get paid on the first of the month or however you do it and somebody wants to buy a really nice new pair of shoes. And now they’ve got 30 days left of the month where they have no money left. Like that’s something that we have to reconcile — we have to reconcile with every month, right, in terms of how we balance that per month and then obviously eventually even over longer periods of time. So I’m assuming, was that intentional, both the time period as well as the mode of like cash or non-cash? Talk to us a little bit more about that.

Cameron Huddleston: Yes. Yes. And so with — well, my oldest has a bank account. We set it up last year. She actually got paid for a job. She worked for a week at a local camp here helping out, and they gave her a check. And so we opened up a checking account for her so she could deposit that check and put money in there. My middle child, who was — let’s see, she was 12 at the time. My oldest was 14 when we opened up that checking account. And so I was still paying — well, still am paying my middle child — in cash. We wanted to switch her to a checking account, but with the pandemic, we haven’t been able to go to the bank and I couldn’t open an account for her online because of her age. She, at least with the bank we use, she needed to be 16.

Tim Ulbrich: Right.

Cameron Huddleston: And to be honest, I haven’t checked to see if the banks have actually opened their doors. But when I was checking before to see if I could set up an account for her, they were closed at the time. She very much wants to have a bank with her money being deposited directly into the checking account I think most likely because she wants to have that debit card so that she can do online shopping, which her sister has done some of. And what I will tell you too, this is really interesting and I had read about this and I’m sure you probably have too. You know, studies show that when you pay with plastic, you don’t feel the pain of parting with your money as much as you do when you hand over that cash. And I’ve watched it firsthand with my oldest daughter, who is a natural saver. She’s such a tightwad, which is probably a good thing. But sometimes, she’s so stingy to the extent that just it pains her to make decisions about spending her money when it was cash. Since she’s had this debit card, I have found that she’s a little bit more willing to spend. And she will admit that too. So my middle child, who is a bit more of a spender naturally, I know that when she does get that debit card, she’s going to want to use it to spend more and will not hang onto her money as well as she has been doing. So it’ll be interesting to see what happens once we finally get a bank account open what she does with that debit card.

Tim Ulbrich: I’m so glad you brought that up because I’ve experienced something similar with my oldest where when we opened up an account for him, it went from, you know, I got this $50 cash bill for my birthday to now you put it in this online virtual world that I — like he almost viewed it as he like lost it. Like it doesn’t exist anymore, it’s not physical anymore. And so there’s a great conversation to be had there. But I think this nuance between the emotional and the behavioral side of the cash in hand versus just the credit or the debit card and having those conversations — I’ll never forget one day, I was in the grocery store. And he was I think 5 or 6 and one time we were at the checkout line, I swiped my card and he made a comment, something along the lines of, ‘Oh, so if you need something, you just swipe your card and you get it.’ And I was like, oh wow, we’ve got some work to do, you know? But I think thinking of it through the view and the lens of a child and how they observe — and obviously I’m not suggesting that you have to go out and buy cash for everything, but using some of those moments as a conversation starter to teach some of those important differences and principles. So that was No. 2, money must be earned, different ways certainly to do that. No. 3, make saving a priority. So how do you explain the importance of saving money to children? You know, I think it’s such a difficult concept because there’s a natural tendency to, you know, yes, if I can connect that work to money, now I want to spend that money on something I want. So how do you explain the importance of saving money to children? And is there a certain age at which you think that conversation begins to be fruitful?

Cameron Huddleston: So if you’re paying your kids an allowance or they’re earning an allowance if you want to put it that way, I think it’s a good idea to start at that point of encouraging them to save by having those Spend jars, the Save jars, the Give jars if that’s something important in your family too so that they’re making those decisions from an early age. You know, how much of my money do I want to set aside for the future? How much do I want to give to help others? So as soon as you start that allowance system, saving should be a component. Now with small children, the idea of saving, say for a car when they’re 16 or saving for their college tuition, that’s too abstract for them. And it’s too far out in the future. I feel like with younger kids, one of the easiest ways to get them to understand the concept of delayed gratification is to — and this might sound contrary to what you’re trying to achieve — but to encourage them to if they want to buy something, to save up for it. So because that’s more tangible to them. And it’s something that’s a little bit more exciting than thinking about saving for a car when they’re 16 years old. So like I said, with my oldest, she’s a natural saver. And it’s just, it’s very easy for her to hang onto money. We would give her change, our spare change when she was little. She would get cash from her grandparents for birthdays, and she hung onto it and hung onto it. And when she was — oh gosh, she was in elementary school, early elementary school. She had enough saved to pay for about half of an iPad. And we pitched in the other half as a gift for her. My middle child, as soon as she got money, she wanted to spend it. And so we had to work really hard with her to tell her, “Look, what do you want more? Do you want these little trinkets? Or would you rather save your money to get something that you really want, this toy that you’ve had your eye on?” So we used that initially to motivate her. And so once she got in the habit of saving up to get something she really wanted, saving just became a more natural habit for her. She doesn’t want to spend her money all the time now as soon as she gets it. She has amassed a decent amount of savings that she’s kind of hanging onto. And once she sees that money accumulating, she doesn’t want to part with it as easily anymore. Because then that means she’s going to have less money. Both of my daughters, when I told them, “Look, you’ve got the money. You can pay for it.” They’re like, “But no, then I won’t have as much.” My son has been more of a challenge. He is 100% a spender. And he very much — and we can get into this because this is one of the things I mentioned too in that article — he very much wants what his friends have. And so when he gets money, he wants to spend it. And we’ve had to work harder, and fortunately I’ve had my two daughters who’ve been trying to pound this message into his head too — “Hey, why are you spending your money on these toys? They fall apart so quickly.”

Tim Ulbrich: Yeah.

Cameron Huddleston: And he’s had to learn that lesson a few times. He spends it on something, it falls apart, and then he’s upset, he regrets it. So we are making progress, slowly but surely.

Tim Ulbrich: Yeah, and just a great example there with the three children, back to our conversation at the very beginning of how different this one principle can be applied and should be applied and customized in three different ways. And I really like what you said, Cameron, about this concept of saving, having them save up to buy something that they want but in the shorter term and how different that is than having them save and put money in a long-term savings account or thinking about college or cars or things that are far off, abstract and may lose that motivation. So you want to have some of that yes, we’re teaching them to save but also want them to see the rewards that happen through that saving process as well. So you mentioned this a little bit, but No. 4, it’s OK to spend but don’t waste money on junk. So going back to the example you just gave with your son and your daughters, helping guide him a little bit, how do you as a parent, how do I as a parent, you know, strike this balance between you need to learn this lesson, it’s important to spend but just don’t waste money on junk and let them make some of those mistakes versus, you know, I’m going to give you a sandbox in which you can play because I know that these aren’t junk but I want you to have some choice in the process as well. Any advice you would have in this area?

Cameron Huddleston: Sure. So this is something that we’ve done with my son. So when he wants to get something, we have a discussion about it. And this happens all the time because in school, they have book fairs. And they always have, in addition to books, they have all sorts of trinkets they can buy. They have fundraisers, you know, where you can get contributions and if you do, you get toys. And he’s all about winning the prize. And so when he wants to use his money to buy something, I ask him, “Well, do you think this is the best way to spend your money? Is this something you really want?” And if he’s dead set on getting it, oh yeah, yeah, yeah, OK I have to have this. I have to have this. OK, well how about we do this? Let’s wait a week and see if this is something you still want. We did this, actually — I can think of a specific example. Last year, they had a fundraiser to school. And if he got a certain donation amount, then he would have won this prize. And I said, “Well let’s” — and he was ready to raid his piggy bank and use all of his money so that he could donate enough to win this prize, which is great that he wanted to make a donation, but it really wasn’t the best reasons. He just wanted to get this particular prize. I said, “Well let’s go online and see how much this toy actually costs.” So we found that he could get two of those things for $9. And so well, let’s wait until the end of the week, see if you still want it. And the next day he came back and he’s like, I still want it. I said, “OK, well it’s not the end of the week.” By the end of the week, he had forgotten about it. And so that cooling off period I have found helps. And of course, asking your kids to use their own money, you know, even reminding them of times when they’ve bought something and then they regretted it. Hey, remember when you bought that pen at the book fair and it broke the next day? “Oh yeah, yeah, yeah, that was a bad idea. I don’t want to do that again.” But it’s OK to let them make mistakes because if they don’t, they’re never going to learn. So — but just having those conversations and when they want to buy something, getting them to at least reflect for a few minutes on whether that’s the best way to use their money or if there’s something that would be a better use of their money I think is a good idea.

Tim Ulbrich: Yeah, and such great advice with the cooling off period and something that I think we need to ask ourselves. Are we role modeling that, you know, for our children? You know, I can think of several examples in the last couple months where probably conversations my wife and I have had about buying something and are we even articulating, you know, let’s wait a day or two and think about how this impacts other areas or do we really need this, do we really not need this? And are we role modeling this but also applying it in our own situation because I know I have found that to be true over and over again how something — how your feelings toward buying something can change significantly with just one night’s rest, let alone a whole week to be able to think about that. And one tangible example I can think of is in the last week, we’ve been waiting to watch Hamilton, you know, recently released on Disney+. And I thought, oh, it would be really nice if we like upgraded our TV game and our sound system game. This is a good reason to do it. And I’m glad we didn’t because it came, it went, we watched it, it was great. But it would have been as good, you know, nothing really changed. And so I think just taking the time to think about it, to cool off. Doesn’t mean you can’t spend money, you shouldn’t spend money, but just really evaluating how that impacts other parts and taking the time to think through that. So No. 5, which is something I have such a great desire for my kids to have and I struggle with how to instill this is to be grateful for what you have. So how do you instill in your children that, you know, they don’t have to have everything someone else has and that there are a lot of people that may have much less and to instill this mindset of gratitude and even taking a step further, a mindset of giving?

Cameron Huddleston: One of the conversations that we have with our kids about money is about how we choose to spend our money and what our values are. So we have let our kids know that one of the things that we really value are experiences: travel. We love to travel. We have a goal of getting our kids to all 50 states before they graduate from high school. This summer has put a damper on that. We had plans to knock out several states in the middle of the U.S., but that did not happen. But when the kids are asking for something, something perhaps that’s expensive, we tell them, “Well, you know, remember how we’ve talked about how we choose to spend our money on travel? We could afford to buy this, but if we did, we would have less money to travel. What do you enjoy more? What do you think you would like more? Do you like getting to go places and seeing new things? Or do you really want, I don’t know, a new iPhone?”

Tim Ulbrich: Yeah.

Cameron Huddleston: You know, so getting them to think about what they value, what we value, is important and pointing out when — and this is in particular with my son, who as I said, really wants what his friends have. I don’t have that issue so much with my daughters. But when he constantly says, “So-and-so has this. So-and-so has that,” I tell him, “Well, you have a lot. There will always be people who have more. There will always be people who have less.” We choose — and going back to this conversation about what we value — we choose to spend our money on these sort of things, on experiences, on travel. Yes, I know you want to have all of these toys and it seems really wonderful, but you have a lot of toys already. And if we bought you every toy that you wanted, then we wouldn’t have as much money to do some other really fun things. And you know, in the moment that conversation usually works. You know, it gets them to realize. The problem is getting that idea to stick in his head because as I said, he just, he wants to keep up with the Joneses. My daughters don’t ask for nearly as much. They don’t seem to be as concerned about what their friends have. And I feel so fortunate that they don’t. You know, even with him, I hear things like, “Oh, my friends’ homes are better than ours. They have a pool. We don’t have a pool. Why can’t we have a pool? Can’t we buy a pool?” And I tell him, “Well, we probably could a pool if we really wanted to. We could put a pool in if we really wanted to. But your dad and I have to save for things in the future too. We can’t spend all of our money on what we want now. We have to have money for when we’re older and we don’t want to work anymore, money for our retirement. We have to pay for things like if someone has to go to the hospital or if we have to get a new car. So if we spend all of our money right now, we won’t have enough money in the future when we need money too.” So I have a lot of conversations with him about it. I feel like maybe I’m making some progress slowly. You know, but I have to spend a lot of time pointing out to him, you have a lot. You’re not going to have everything. But you do have a lot already, and you need to be thankful for what you have. It is certainly a challenge. And as I said, you know, some of my kids are much more receptive and I believe much more grateful for what they have than the other — just singular other — with my son. But it is something I am trying to instill in them because I feel like if you are always longing for more, you’re never going to be satisfied with what you have.

Tim Ulbrich: Yeah, and as a father of four boys, I have a soft spot for your son. So I hope he doesn’t feel like we’re singling him out.

Cameron Huddleston: Sorry.

Tim Ulbrich: What you said about him reminds me, I feel like this topic, when you’re talking about values and vision for your financial plan — and I love that you’re doing that because we talk a lot about with our financial planning clients about having a vision and a purpose for your plan. And under that becomes the framework of why we’re paying off debt or why we’re saving or why we’re investing in life experiences and how we balance and prioritize all of those. And this is the beginnings of that conversation, right? What’s the values in which how we spend our money? What’s the vision for how we spend our money? And I think it’s a conversation that reminds me of the book, “Compound Effect” by Darren Hardy where it’s the every day, every week conversations. Any one of those may not seem significant or that it’s moving the needle, but over the course of time, you know, we hope that that will bear the fruit in which we desire that it will. Thank you, Cameron, for a great discussion and taking the time to come back on the Your Financial Pharmacist podcast. And we’re going to link to your book, “Mom and Dad, We Need to Talk: How to have essential conversations with your parents about their finances” in our show notes for this episode as well as your article from your website, “What I Teach My Kids About Money.” So we will link to both of those in our show notes so our listeners can go and learn more or pick up a copy of your book, available at Amazon, Barnes and Noble. But in addition to those two resources, where can our listeners go to connect with you and to follow your work?

Cameron Huddleston: You can learn more about me at CameronHuddleston.com. You can — there’s a link to email me if you want to get in touch with me. I have a newsletter, I have some free resources on the site. You can follow me on Instagram @cameronkhuddleston. And you can follow me on Twitter @CHLebedinsky. I know it’s a little confusing. I’ve got my maiden name that I use for my byline, and I’ve got my married name, which just happened to end up being my Twitter name. And so I know it’s a little confusing, but that’s where you can find me.

Tim Ulbrich: Awesome. And no worry, we’ll connect to all of those in our show notes. So go to YourFinancialPharmacist.com/podcast. You can find this episode and within there, you can find not only reference to the article and Cameron’s book but also the ways to connect with her. So Cameron, again, thank you for your time and for coming onto the Your Financial Pharmacist podcast.

Cameron Huddleston: Thank you so much for having me.

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YFP 151: How Personal Finance Perceptions Affect Student Pharmacists’ Career Choices

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How Personal Finance Perceptions Affect Student Pharmacists’ Career Choices

Dr. Nick Hagemeier joins Tim Ulbrich to talk about an article he and his colleagues published in the American Journal of Pharmaceutical Education titled Student Pharmacists’ Personal Finance Perceptions, Projected Indebtedness Upon Graduation, and Career Decision Making. They discuss the history of student loan debt in pharmacy education, Nick’s experience teaching personal finance to pharmacy students and why today’s graduates, more than ever, should be equipped with the knowledge and tools necessary to manage the pressures associated with large student loan debts.

About Today’s Guests

Nicholas “Nick” Hagemeier, PharmD, PhD, is Vice Chair and Associate Professor of Pharmacy Practice and Director of Student Professional Development at the East Tennessee State University Gatton College of Pharmacy. Dr. Hagemeier also serves as Director of ETSU’s Pharmacy Practice Research Fellowship. He earned his PharmD, MS, and PhD degrees from Purdue University. He was awarded NIH funding to conduct research on the role of pharmacists in preventing opioid-related morbidity and mortality and was appointed to the US Health and Human Services Pain Management Best Practices Interagency Task Force in 2018. He has published 44 peer-reviewed manuscripts and has presented his opioid and wellbeing research nationally. He is a graduate of the American Association of Colleges of Pharmacy Academic Leadership Fellows Program. He is currently serving as a Presidential Fellow at ETSU. Dr. Hagemeier has a passion for using communication to improve patient care, applying social/behavioral research in practice, and helping students thrive personally and professionally. In the College of Pharmacy, he champions wellbeing-promoting initiatives such as Phitness Phriday and the mentoring program. Dr. Hagemeier resides in Johnson City, Tennessee with his wife Molly and four children, Will (14), Clara, (12), Fritz (10), and Katie Ann (6). His hobbies include exercising with his F3 buddies, running, and playing the banjo.

Summary

Dr. Nick Hagemeier is an Associate Professor at the Gatton College of Pharmacy, East Tennessee State University. Nick shares that he made a lot of financial mistakes after graduation, but after taking a Dave Ramsey course at his church, his eyes opened and he paid off a lot of debt quickly, sold his new car and proceeded to go back to graduate school to get his PhD.

He and another colleague started a personal finance course in their college of pharmacy driven by a passion to equip pharmacy students with the knowledge they need to make smart decisions about their finances and student loans, even while still in school. Nick wanted to get data about if and how personal finance perceptions or the amount of student loans carried affected the careers or training that pharmacists took. Some colleagues at other colleges of pharmacy were also passionate about this topic and joined forces to conduct a study across three schools. They surveyed students at the beginning of their personal finance class and had 700 usable responses. Their hypothesis was that the amount of student loan indebtedness would impact postgraduate training. Through the survey they discovered that the actual student loan debt amount wasn’t predictive of pursuing postgraduate training, however the perception of debt pressure and stress associated with the debt was predictive. Nick was surprised by their findings and shares that this is modifiable and they are able to equip students with skills to manage their stress and debt.

You can read the full study here.

Mentioned on the Show

Refinance Your Mortgage with Credible
AJPE: Student Pharmacists’ Personal Finance Perceptions, Projected Indebtedness Upon Graduation, and Career Decision-making by Nicholas E. Hagemeier, PharmD, PhD, Chad K. Gentry, PharmD, Debbie C. Byrd, PharmD, MBA, L. Brian Cross, PharmD, Daniel Rose, PharmD, Nasar Ansari, PharmD, Pooja Subedi, MPH, and Tandy Branham, PharmD
YFP 082: Debt Free Theme Hour with the Teacher and Pupil w/ Joe Baker and Blake Johnson
Bureau of Labor Statistics Occupational Outlook on Pharmacists
YFP 124: The Behavioral Investor w/ Daniel Crosby

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to this week’s episode of the Your Financial Pharmacist podcast. I’m excited to welcome Dr. Nick Hagemeier, associate professor at the Gatton College of Pharmacy, East Tennessee State University, to talk about his findings from research he and colleagues published in the American Journal of Pharmaceutical Education assessing student pharmacists’ personal finance perceptions, projected indebtedness upon graduation, and career decision-making. Dr Hagemeier, welcome to the Your Financial Pharmacist podcast.

Nick Hagemeier: Hey, Tim, thanks for having me. It’s a pleasure to be here.

Tim Ulbrich: Appreciate you taking the time to do this. I know it’s crazy times with schedules and wrapping up the academic year and COVID-19 and all that that brings, so thank you so much for taking time.
Nick Hagemeier: Absolutely.

Tim Ulbrich: So Dr. Hagemeier, when I read your research article that you and your colleagues published in AJHP, which we’ll link to in the show notes and I would encourage our listeners to check out for themselves, I knew that our community, the YFP community, would really take interest in what you found through this study So before we jump into the study and your findings, tell us about your work that you’re doing at ETSU right now and your career path leading up to your current position.

Nick Hagemeier: Oh, wow. Well you know, the work we do is ETSU, we have a personal finance elective that we have probably around 20 students will take that every fall semester.

Tim Ulbrich: OK.

Nick Hagemeier: And that’s been, you know, it’s been a huge blessing to me and Brian Cross, we’ve co-coordinated that class I think since 2013 now. And it’s probably — you know, we’ll tell the students in that class it’s our most fun class to teach because we know the impact that the knowledge that we’re sharing with them had on our lives and we know that it can be a game-changer for them. And you know, we’ll have students that buy in and actually will change their lives. And that’s something that keeps you coming back for more.

Tim Ulbrich: You know, and it reminds me, Nick, I’m guessing you get several of these emails from graduates. Perhaps in the moment it sticks, maybe it doesn’t, it’s a later point in time. It reminds me of Joe Baker we’ve had on the show teaches personal finance at UAMS in Harding. He’ll regularly hear from students about wow, the impact that this had on me later on or when they get to a later decision point about student loan debt or home buying or life planning or whatever, you know, it’s often planting seeds. That’s what I find, and I don’t know if that’s the same for you, but it’s often planting seeds. And some of those come to be in the moment in terms of the fruit, and sometimes it’s a little bit later on.

Nick Hagemeier: I absolutely agree. Yeah. We tell our students in that class that you know, probably the best time to do the course evaluation is about five years from now. But you’re right though that some of that seed will be planted right then, and it will be a game-changer for them while they’re in pharmacy school. That’s obviously our preference. But getting those thank you emails or just learning about the impact that it had years down the road, that’s awesome.

Tim Ulbrich: So tell us a little bit more, Nick, about your career path into your current position: where you did your training and I know you have some advanced degrees and training as well.

Nick Hagemeier: Yeah, I did my pharmacy degree at Purdue University. And then started trying to figure out what I wanted to do next. And I really didn’t have a good feel for that until my P4 year, and a mentor suggested that rather than residency training, which is what I thought I was going to pursue that I might want to consider a PhD. So I didn’t really know a whole lot about it at the time, to be honest. But I trusted his judgment and when you know who that person is, it was Nick Popevich. And he’s well known, a dear man, and I really think he had my best interests in mind. And he was right. And so that’s what I did. And I worked in the community pharmacy setting part-time during my Master’s degree and then stopped after my Master’s degree and worked full-time in the independent community pharmacy setting. I worked at a couple different pharmacies because my primary one didn’t have enough hours to support me. So I worked 30 at one and 11 hours at another. And did that for a few years and then transitioned into chain. And that was really — I don’t even know how to put it into words, you know. It really brought back my career aspirations and made me reflect on what do I really want to do? And I felt like I was stuck. I didn’t know anything about money. I had been — the example I give my students that just shows you how dumb I was about money is I had a note on my wife’s engagement ring. We were engaged in — we got married in 2002, engaged in 2001 I believe, 2002. And I had not paid anything on this note until 2009.

Tim Ulbrich: Oh, wow.

Nick Hagemeier: I just kept paying the interest. I mean, how silly is that? So I got — the church we were attending offered the Dave Ramsey course, and I’m like, well, I don’t know anything now. This really can’t hurt. And we took that course, and it was absolutely eye-opening for me. It really did change my life. And that’s what we tell the students, and Brian Cross has the same story. And we’re very transparent with the students about our ignorance, things that we did wrong as we were going through pharmacy school and then early in life. Eventually, I figured out how to get out of debt. I paid off a ton of debt over a very quick period of time, sold a car I had just bought — my only new car I’d ever owned, I sold that and got out of a ton of debt and figured out a way to make it work to go back to school so that I could do what I love doing. And that’s what I did. I went back to Purdue, got a PhD in 2009, graduated in 2011. And here I am at ETSU.

Tim Ulbrich: And I love, Nick, that you took your personal experience and you know, I always joke with my students the school of hard knocks is the best way to teach this topic.

Nick Hagemeier: That is for sure.

Tim Ulbrich: And I think it makes you real. And I can tell the students appreciate that, I’m sure the same is for you and just that vulnerability and sharing that this is a topic, it’s so behavioral, and we are all constantly learning. We’re all constantly making mistakes, hopefully less over time. We hopefully do better over time. But it’s human behavior, you know, when it comes to personal finance and making mistakes. And I’m so glad to hear that you share those stories with your students. You know, I’ve tried to do the same, even though it’s hard to sometimes admit like oh my gosh, did I really do that? Did I really pay a note on an engagement ring for that period of time?

Nick Hagemeier: Yep.

Tim Ulbrich: Did I really make that mistake? But I think it makes it real for the students, and I think it also allows them to see that hey, mistakes are going to happen and you continually learn, you pick yourself up and you move forward. And I also love that you have really been able to not only teach and give back to the students but also transition to moving some of this into the research space and being able to ask some really important questions that are having an impact on our student pharmacists, on our graduates and our profession as a whole. So let’s talk about this study, again, published in AJPE, “Student Pharmacists’ Personal Finance Perceptions, Projected Indebtedness Upon Graduation and Career Decision-Making.” Tell us a little bit about the purpose of this study. What led you to wanting to conduct a study about student pharmacists and the link between their indebtedness and their career decision-making process?

Nick Hagemeier: Well, I was fortunate to have some colleagues at other institutions that at that time that were just as passionate about this as I was. And I’m a data guy. I love anecdotes, I love good stories, but at the end of the day, I want to know are there data that support my assumptions or assertions that we’re going to make? So I had a little bit of a captive audience, and I had students that were willing to participate in this research, so I just wanted to try to figure out, you know, OK, I know I think personal finance influences decision-making, career decision-making, whether people are going to grad school or fellowships or residencies, you name it. And I just wanted to have some data to do that. And Chad Gentry had been at ETSU and he had been at Lipscomb, and Debbie Byrd was then at the University of Tennessee and now serves as our dean. But they were both doing work like this, and I reached out to them to see if they would be willing to participate in — actually some of this happened at an AACP meeting, just we were talking about this. And they both expressed interest that hey, they’d like to survey their students too. So I developed a survey instrument and kind of put it through the ringer here at ETSU, tweaked it a little bit early on, and then invited Chad and Debbie to participate as well. And so it was really cool that we got data from three different institutions. I think that’s a strength of the study as opposed to just having students at ETSU.

Tim Ulbrich: I do as well, and we’ll talk more about the potential for extrapolating some of that data to other colleges and students across the country. So tell us a little bit — you started to talk about three institutions, but tell us a little bit more about how you conducted the student, who specifically was evaluated, how they were evaluated, and the types of questions that you asked in the survey.

Nick Hagemeier: Sure. So we — I think an important point is that we surveyed the students right out of the gate, so right when we had them in a personal finance class. And it differed across institutions as to whether that was required or not. We surveyed them before we gave them any knowledge.

Tim Ulbrich: OK.

Nick Hagemeier: So we were trying to look at baseline, like how are you feeling? Like what are your perceptions about this? What are your self-efficacy beliefs or your confidence in your skill set related to personal finance? Wanted to know about their perceptions of debt and the pressure that goes along with that or can go along with that. So we developed this paper-based or web-based survey, depending on the institution, and the students took this at the beginning of the class and then we got the data back and we analyzed it here at ETSU. So we had P2s and P3s.

Tim Ulbrich: OK.

Nick Hagemeier: That were participating in this research; that varied across the institutions as well.

Tim Ulbrich: And tell us a little bit more, you mentioned one of the strengths, which I agree with, would be across multiple institutions. So thinking about the generalized ability of this data, tell us a little bit more about those three institutions and why that is a strength as we consider how this might apply to other colleges and other students across the country.

Nick Hagemeier: Yeah, so we could really separate out the data, you know, but I think that there is strength in the end there that you get from three different institutions. But you’ve UT, which is a public university. You’ve got Lipscomb, which is a private university. Then you’ve got ETSU, which is kind of the mutt, right? We’re a private college within a public university, which I don’t know if most people are aware of that or not.

Tim Ulbrich: I did not know that, no.

Nick Hagemeier: Yeah, so there were no state dollars to support ETSU opening a College of Pharmacy.

Tim Ulbrich: OK.

Nick Hagemeier: Back in the day, and the only college of pharmacy was in Memphis at UT. But it was a private model within a public university, so it’s a completely tuition-driven college. So I mean, you’ve got three different types of colleges, all three of those exist around the U.S. And we looked at common themes across all three of those.

Tim Ulbrich: OK. And from what I can remember, over 700 usable responses, really strong response rate, around 90%. So talk us through with that data in mind of the main findings of the study. And then we’ll talk about what those perhaps could mean and the implications of those.

Nick Hagemeier: Sure. So one of the things, and one of our hypotheses was that the amount of indebtedness, so the actual dollar amount, would impact post-grad training, pursuance direct entry into practice versus pursuing another path. And so that was one thing we were going to look at. And then something else that was interesting were just perceptions, right? Because you can have this dollar amount, but if you don’t pay any attention to it, maybe it doesn’t matter.

Tim Ulbrich: Yep.

Nick Hagemeier: Maybe it doesn’t matter. And so we were interested in really both of those. And I was really interested in self-efficacy beliefs too because confidence, you know, confidence is really important. There’s all kinds of literature that shows that’s the case. Now, whether students are accurately reporting their confidence, if their confidence actually matches their ability, that’s another question. But those were some of the things that we were looking at. So I think the main finding here was that the actual student loan debt amount wasn’t predictive of pursuing post-grad training. But the perception of debt pressure and stress associated with that debt was predictive. So I think you know, that to me was — we didn’t anticipate finding that, but that was just a really interesting finding. And it’s really cool because that’s modifiable.

Tim Ulbrich: Right.

Nick Hagemeier: Right? We can equip students with some of the skills and knowledge that, just help them manage that stress, manage that debt, minimize that debt and therefore, position them to pursue the careers that they want to pursue.

Tim Ulbrich: Yeah, and I think that’s a really important point as we just summarized that as I understand it, Nick, to reiterate what you said, the actual indebtedness amount that they reported or projected indebtedness upon graduation didn’t have an impact on their career decision options they were considering for the future, but rather, the debt influence and pressure and their perception of that, which was a combination of how they responded to a series of questions around things like I’m concerned about my anticipated debt load, I feel pressure to get out of debt, my debt load factors in my career plans after I graduate, my debt load influences my decisions. So I think that perception, I’m so glad you assessed that because I think that’s been my experience in working with students as well as my personal experience, you know, sometimes the dollar amount, especially when we think about it from the student perspective, the actual dollar amount may not necessarily have hit them yet. But it may be weighing on their mind, and for students at different levels. You know, I’ll talk with some students sometimes that have $75,000-80,000 of projected debt and they’re very much thinking about the stress. And I’ll speak with others that maybe $250,000 or $300,000 of projected debt, and you know, it still feels like at that point Monopoly money and something that’s not top of mind.

Nick Hagemeier: Yeah.

Tim Ulbrich: One of the things I found really interesting — and I wanted to pick your brain on this — is when I was looking at the findings presented in the results section, Table 2, which was the pharmacy student personal finance constructs and perceptions, I was caught off guard — and these, as I understand it, were a series of questions they responded on a Likert Scale with a higher number essentially indicating a more favorable response and agreement. And as I looked at those, I was caught off guard by how high these responses were. So for example, questions like “I’m confident in my ability to manage my personal finances,” the mean was a 3.81. Again, 1-5 scale. “I’m confident in my ability to get out of debt,” 4.05. So to me, when I saw that, I feel like there’s perhaps some overconfidence here. I mean, can you speak to that and what you’ve seen either in other literature — I know from my experience looking at some of the vet med literature, which I know has published more in this area of personal finance, there’s a lot of data supporting the idea that perhaps overconfident in school and underestimating what impact that’s going to have in the future. So was there anything there that you took away to say maybe there is some overconfidence here in the response?

Nick Hagemeier: Well, I completely agree with you. You know, again, this is just anecdotal, but based on some of my experiences and conversations that I’ve had with students that I know responded a 4 or 5 on this, and you know, I’ll talk to them about, “OK, so you’re confident in your ability to develop a personal budget.” “Yes, I am.” “OK, what about like sticking to it?” “Oh, I don’t ever stick to it. But I can develop one.” So part of it’s in the items that I asked. But again, I think that this is something where a lot of students probably covered it in high school, they’re familiar with it. So there’s comfort in saying that I’m confident in things with which I’m familiar.

Tim Ulbrich: Sure. Yep.

Nick Hagemeier: But again, you mentioned in the beginning, it’s behavior-based. And man, some of these behaviors are so hard. And I do feel like this is a situation where they’re probably overconfident. I don’t think their behaviors, their knowledge or their skill set matches those high numbers that you see in the manuscript.

Tim Ulbrich: Yeah, and one of the things I noticed too as I was looking at the data, again anecdotally talking from my experience working with students, is the item they rated the lowest on relative to the others was the statement, “I’m confident in my ability to choose appropriate investment option.” And I will say consistently when I talk with students about what’s the topic you feel least confident about and you want more information? It often is investing. And similarly, you know, I feel like that sometimes they feel perhaps overinundated with like student loan debt information but when I sit down and talk about repayment options and really dig into the weeds, I sense that there’s a feeling that they may not need that information. But once you dig in, they really have some of those Aha! moments of like oh my gosh, I had no idea of the implications of if I choose this one repayment option versus this and why this decision is so important. So I say this because I think it’s important — and we’ll talk more about this as we talk about next steps in personal finance education — I think it’s important we look at the responses and how students feel but also take a step back and layer on top of that what do we think they really need? And does their reported confidence in perhaps being ready to address and tackle the student loan debt, is that reality? Or do we still need to spend more time? Because I think it’s a topic that at the surface may not seem so overwhelming but can certainly be complicated when we think about the nuances of repayment and the implications it has with the rest of their financial plan.

Nick Hagemeier: Yeah, I agree. And we try to link them together. We try to talk about with our students, this ability to develop a budget, it may not seem that related to your ability to choose appropriate investment options.

Tim Ulbrich: Yeah.

Nick Hagemeier: But wow, if you can figure out the budgeting part and maximize the amount that you can put towards your student loan debt and towards your investments and etc., etc., and then that really gets their attention. So it’s the linking them has been impactful.

Tim Ulbrich: Absolutely.

Nick Hagemeier: From a teaching perspective. But yeah, I completely agree with you. It is important to pay attention to those numbers. And you know, in our class, we lovingly call them out if we feel like you’re overconfident. Well, that’s awesome, but your behaviors aren’t matching what your confidence levels. Yeah. They’re not matching.

Tim Ulbrich: Sure. Talk to us a little bit more about what you found in terms of their — the connection between this debt influence and pressure perceptions and their actual areas of training after graduation, whether that be the decision to pursue post-graduate training or not or even going into, say, a hospital practice versus chain community or supermarket mass-merchandiser type of practice.

Nick Hagemeier: Yeah, so we did a couple different models here. And this Table 3 in the manuscript, you see the unadjusted odds ratio, so that’s just looking at each one of these variables independently. And debt pressure perceptions are mentioned in there was a significant predictor there. It’s the only one that is. And we dumped them all into this soup together and looked at an adjusted odds ratio. And it still held there that debt pressure perceptions were the only significant predictor. Again, student loan debt, anticipated student loan debt at graduation wasn’t. When we looked at it from a — I mean, there’s significant overlap here, I will tell you that because you know, when we’re looking at community chain versus independent versus supermarket mass-merchandiser versus hospital. So most of your people that are going to pursue residency are going to be in that hospital bucket, right? So there’s some overlap here. But the debt pressure perceptions, they significantly predicted going into chain community as compared to going into hospital. OK? Which is just another way to say what we saw with pursuing post-graduate training or directly entering practice. We thought there might be differences across some of the higher paying, historically higher paying jobs that they’re in practice as compared to some that may not be. And we saw a little bit of that, but I mean the biggest difference was by far the hospital versus community chain.

Tim Ulbrich: So I know we’re conjecturing here a little bit, but taking this data and then thinking about what’s been evolving or changing in the last few years, and this is I think difficult because we look at the Bureau of Labor Statistics data as one way to track some of the workforce trends and obviously the salary trends of a pharmacist. I think it often leaves us wondering, well, for new practitioners, I know here at least in the Columbus, Ohio, area, we’re definitely seeing a trend where what might have been when I graduated in 2008 the community position as being more of the lucrative financial move, that is changing because of several companies making decisions to go back down to 32 hours, some more recently even cutting pay and some as recent with the COVID-19 situation and then obviously also just thinking about the relative flat nature of those salaries over time. So do you see this changing, this perception of students and what they viewed as perhaps the debt influence and perception impacting a decision that if I’ve got more debt, I might be thinking about more of the community space because of the financial benefit to that position? Do you think that’s a ship we’ll see going forward?

Nick Hagemeier: Yeah, that’s a great question. And you know, succinctly, I don’t really know.

Tim Ulbrich: Yeah.

Nick Hagemeier: I think that there’s a lot more transparency and some of the other issues that have surfaced — and they were there when I was in chain as well — but some issues with patient safety and workload and things like that that I think are more in the media now, they’re more on the minds of our students. And I don’t think it’s as simple as dollars. I don’t have any data to support that, I just think that just based on some conversations with students, I think that this is really something that’s top of mind. And they’re realizing it’s a complex decision. And you’re right, Tim, all those things that you mentioned about salaries are flat at best and you know, there’s a lot of unknowns right now. So short answer is I don’t know.

Tim Ulbrich: Yeah.

Nick Hagemeier: But I think that still, it to me, it just takes me back to this is all the more reason to help students figure out how to manage money in pharmacy school.

Tim Ulbrich: Amen.

Nick Hagemeier: So that they have the skill set to make decisions that are in the best interest of themselves and their loved ones and the people that they’re caring for. And you know, that’s something I’m really passionate about, and I just, I think that this is just driving home the point that this is really important now. Not when you get out, this is really important now. And we have a ton of success stories, and we’ll tell — we share with our students the success stories of previous students about — we’ve had students that were spending $1,200 a month eating out.

Tim Ulbrich: Right.

Nick Hagemeier: Like wow.

Tim Ulbrich: Yep.

Nick Hagemeier: I’ve got a family of six, and our budget is $300. So you know, just kind of helping them see that and put some numbers with some of their behaviors. And then adjust it and then figure out hey, I’m not miserable. You know, I was actually able to save close to $10,000 over the course of an academic year. I mean, we’ve had just outrageously successful students that make game-changing decisions. And they don’t even recognize how big of changes those are yet. They won’t recognize that until they get out and can make those loan payments so much easier.

Tim Ulbrich: Absolutely.

Nick Hagemeier: And see some of the fruits of their labor.

Tim Ulbrich: I agree, and it reminds me as you were talking, Nick, of I had Dr. Daniel Crosby on the show talking about his book, “The Behavioral Investor.” And he studies behavioral economics. Essentially, that’s his job is to look at all that and look at the research. And he talks a lot about the correlations between happiness and money and talks about that threshold where somewhere around the $70,000 mark where you’ve got enough to cover your basic living expenses and have a little bit of margin and breathing room. But after that, you start to see an inverse relationship happen. And I think that’s been my personal experience as well as so many students I’ve worked with is when they start to identify that point of OK, living on a budget and being able to do so so that I can achieve my goals and have some healthy level of restriction, again, not in a negative sense but in more intentional allocation of funds, like I think there’s actually an ironic happiness that comes from that, especially as you then start to be able to free up funds and do things that the literature does support provides happiness like giving and experiences and other things like that as well. So I love the passion for I think igniting this desire in students to learn. And let’s talk about that more because in the article, you mention that this study could serve as an intervention point for colleges so they can support student pharmacists and the debt pressure they face. Talk to us a little bit more about what you think that looks like in an ideal state in terms of how we best support our students. Is it a personal finance elective that’s kind of a one-and-done? Is it something more longitudinal where we hit them at multiple points in time? Is it required? Is it optional? What are your thoughts around this?

Nick Hagemeier: Well, I think that it could be a mixed bag. I mean, one thing that I think for sure is this is not a one dose and done. I think that this warrants discussion throughout the curriculum. And you know, it could certainly be an elective, and we have the elective here. But I have framed it in terms of wellbeing. I really like how Gallup defines wellbeing across the five domains with career or purpose, community, social, financial, physical. And I’m really defining that financial wellbeing for students the way that Gallup defines it, not in terms of the amount of money you make, but it’s more about security and living within your means. And that gets their attention. And we assess wellbeing frequently. So this is top of mind, this is something that our mentors will discuss with the mentees. So this is something that I kind of get the pleasure of championing this wellbeing initiative at ETSU and the mentoring program. So I’ve kind of got a built-in mechanism to facilitate conversations with students and do so on a regular basis. Now, that doesn’t mean that necessarily all of our faculty are equipped to have those conversations. But again, they know they’ve got resources in the elective and in Brian Cross and myself to get them help if they need it. So I don’t know that there’s a necessarily like a magic way or a best way. I don’t think we have the evidence to support that. But I do think that, you know, I would prefer it be if possible to get it in front of all the students and for people that have access to students to think of creative ways to frame it. You know, wellbeing, I think students were less familiar with that than they are money. And so framing it in that way I think has worked to our benefit — and I don’t know if they know it or not yet, but theirs as well.

Tim Ulbrich: Yeah.

Nick Hagemeier: That’s been our approach, and I think that that’s worked pretty well.

Tim Ulbrich: I agree with you wholeheartedly. And I think we don’t yet have the evidence to say this is the best approach. I mean anecdotally and my gut says I feel like it’s something that’s more longitudinal in nature and that really meets the students where they are. So as I think about the financial needs of an incoming P1, you know, to me, really understanding like the anatomy of a student loan is really important because I think — again, I don’t have the literature to back this up — but I think if you really understand the anatomy of a loan and interest and the types of loans, that likely might help shift your behavior while you’re in school and obviously have long-term impacts afterwards. Whereas we think about like P4, OK, they’re getting ready to enter obviously into that new practitioner phase, get ready to go into active repayment, a lot of the decisions resulting in the debt load they have at the moment have been made. But they’re now entering a different phase of how do I actually manage this debt? And then obviously other decisions, investing and life planning and all those other things. So I think something more longitudinal in nature. The other thing we talk a lot about, Nick, at Ohio State is how do we customize this? You know, I think and I sense that this resonates with the learner, which I think is true in learning in general — but how do we customize this, especially when we’re talking about a topic that is so inherently personal, right? So if we know the literatures shows about 15% of students graduate without student loan debt, so if we do have education materials, well, for those students, you know, how do we engage them in other topics that are most meaningful? Or we know that students come in with a very different baseline understanding of this topic, perhaps that they had in their home life or previous coursework that they’ve taken, so how do we provide some base education for all students but then almost allow like a choose-your-own adventure based on the goals that they have as well as the existing knowledge and experiences they’ve had?

Nick Hagemeier: Yeah, that’s — I mean, those are great thoughts. And I think that you know, something that I’ve — again, I don’t necessarily know that I have the evidence. I think I do, but the knowledge versus skill. Completely knowledge-based experience or whatever that might be, I just don’t think it’s going to be that impactful.

Tim Ulbrich: Yeah.

Nick Hagemeier: You know, just like me sitting in a CE program that’s completely knowledge-based, to what extent am I actually going to take that and use it? It’s tough because it involves behavior change. So for the most — you know, our first stop is the budget and that basic behavior. And from there, because we’ve seen students that don’t have any student loan debt. But they don’t know how to do a budget.

Tim Ulbrich: Yep.

Nick Hagemeier: There’s just some very basic things. But if we can meet students where they are, that would be fantastic. That’s probably easier said than done.

Tim Ulbrich: Yeah.

Nick Hagemeier: But it’s worth trying to do.

Tim Ulbrich: And we’ve had a little bit of success, I think the online space has allowed us to do a little bit more of that, of the customization of learning that we may not be able to do as much in the classroom. But I think it’s just a good reminder for hopefully we have some colleges and faculty listening about collaborating and here, we’re sharing ideas but others doing the same. Nick, the last question I have for you is in the background of the article, you talk about how an educational investment is composed of both a monetary investment, so tuition, and an opportunity cost, time spent in school. So if we look at the sharp increase in student loan debt in pharmacy education, so 2010 the median indebtedness of a graduate for those that had debt was $100,000. 2019, that was $170,000. So just a nine-year period, $70,000 increase. What advice would you have for high school students, undergrad students that are evaluating this educational investment? They’ve determined that pharmacy is the career path for them, they want to be a pharmacist. But they also see what’s ahead of them in terms of this educational investment. What suggestions would you have for them?

Nick Hagemeier: Wow. That’s a really good question. Actually, I just before recording this, Tim, had a talk with some students from academic APPE. And one of the questions that they asked me was what advice would you give to high school students that are interested in pursuing pharmacy, given the current landscape? Which isn’t a whole lot different than the question you just asked. And my response was that they need to look at what it is about the profession that just really lights a fire in them. And then try to figure out — like do some research and try to figure out, you know, can I expect that that’s going to be present in this profession when I graduate? It’s changing so fast. And you know, I think that the more exposure that we can get students to different careers in pharmacy and informing them — you know, and AACP has done a good job of this here in recent years, of just trying to show what can a pharmacist actually do? Because there’s so many misperceptions there. But I think that thinking beyond what they see currently in the profession to what it could be. And then seeing if they’ve got the passion to drive it to what it could be, that’s hard work. That’s my — I think that’s my best way of answering that question. It’s so hard. There’s so many different biases that I have there and different life experiences that influence that. You know, would I do this again? Yup. But I would do it in a lot more informed manner. I kind of took the scenic route and made a lot of dumb decisions along the way. You know, looking back, I could have done this a lot better.

Tim Ulbrich: Yeah, I agree with you. And I think as you define that, you know, in the article in terms of the educational investment, I think that — I didn’t think about it that way. And I agree with you. I could have made the same decision, I think I would have just made a little bit more of a straight path, which is easy to say, right, in hindsight?

Nick Hagemeier: Right.

Tim Ulbrich: But I think when you think about your investment and I would say tuition as well as cost of living — because we see so much of the actual indebtedness is cost of living that’s taken out on unsubsidized loans that are accruing interest — and then the opportunity cost, I mean obviously that time spent, that variable you may or may not be able to impact in a significant way. But the cost of getting there and how you get there and how you minimize the indebtedness, which obviously impacts what it looks like on the back end, I think is certainly a variable that the student, prospective student, can change but also that we on the side of the education part can also help our students be able to navigate that in a little bit better way.

Nick Hagemeier: Yeah, I absolutely agree. And you know, just reflecting on my response to that question, if I would have taken the more direct route, I wouldn’t have struggled in all these areas of wellbeing, you know? And then I’m thinking, well, shoot, then maybe I wouldn’t even be able to have that much of an impact on students now and helping them succeed financially.

Tim Ulbrich: Yeah.

Nick Hagemeier: So then now I’m like, well, maybe I don’t regret what I did.

Tim Ulbrich: Yes.

Nick Hagemeier: You know, I made some dumb decisions so that you don’t have to and helping students appreciate that and helping them figure out as a high school student that your career starts — when you’re in college, consider that a career. And helping them think about money and you mentioned too that the opportunity cost, the amount of dollars that have to be borrowed or that can be borrowed aren’t necessarily the amount of dollars that you need to borrow and helping them understand that on the back side. I’ll tell you, one thing that we’ve done that’s been really impactful and it’s kind of funny, but I don’t know, Tim, do you all have Cookout up there?

Tim Ulbrich: No.

Nick Hagemeier: The restaurant? OK. It’s a little fast food restaurant that’s really close to the chain, and it’s really close to the college pharmacy. A lot of students go there. And so we’ve kind of — you mentioned like the anatomy of a student loan and the interest. We’ve taken that and applied it to eating at Cookout. So Cookout is known for their $4.99, you can get all you want for $4.99 there. And then trying to take that out over OK, so you’re using that $4.99, that’s borrowed money. Right? So if it’s not, let’s pretend that it is. And then I’m going to choose an interest rate that’s pertinent now for student loans and we’re going to look at that over a 10-year. How much is your Cookout actually costing you when you’re paying it back in 10 years? OK, what about if you do it on a 25-year loan? And holy smokes, they just like are like, “I don’t think I even want to go to Cookout anymore.”

Tim Ulbrich: Right? Right.
Nick Hagemeier: Just helping them realize some of those everyday decisions that they’re making and what that looks like in terms of loan anatomy and futuring. That can be really impactful and at least evokes an emotional response in them, which I think is something that’s necessary to really have impact here.

Tim Ulbrich: I agree, I love how you teach that because it makes it real, right? That’s something they deal with every day. Maybe not every day, but you know, every week or however often they go. And I think making this topic that can seem so big, so overwhelming, especially when you’re talking about big numbers of what you’re going to pay back over 10 or 25 years, but saying OK, the decisions you’re making today, what does that look like? What impact does that have? And really trying to make it as tangible as possible. And I love, Nick, what you said, you know, one of the things that people ask me all the time is, would you have done things differently? Absolutely, I would have done a lot of things differently. Do I regret the path that I’ve taken? And my answer is no, for the exact reason that you mentioned, that learning through those decisions and then being able to teach and influence others, like I think it’s worth it. Would I have done it differently? Yes. Do I regret it? No. So I appreciate so much, Nick, your passion for this topic. I appreciate you taking time to come on the show to discuss your journey and the article that you published in AJPE, “Student Pharmacists Personal Finance Perceptions, Projected Indebtedness upon Graduation, and Career Decision-Making.” So thank you so much, Nick.

Nick Hagemeier: Absolutely. Thanks, Tim. I really appreciate being here.

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