YFP 192: Findings from the 2021 Pharmacist Salary Guide


Findings from the 2021 Pharmacist Salary Guide

On this episode, sponsored by Insuring Income, Alex Barker, founder of The Happy PharmD, joins Tim Ulbrich to discuss takeaways from the 2021 Pharmacist Salary Guide, including the current state of the job market, trends in salary and compensation, and contributors to job stress and dissatisfaction.

About Today’s Guest

Alex Barker is a pharmacist, entrepreneur, author, and creator of The Happy PharmD and the Happy PharmD Summit.

Summary

Alex Barker, founder of The Happy PharmD, breaks down the 2021 Pharmacist Salary Guide, a helpful resource for pharmacists to understand trends in salary, the job market, and job satisfaction and stress. Alex and his team gathered data from multiple sources and reports to help share trends about the pharmacy job market. Alex shares that pharmacists are still well paid, earn a salary in the six-figure range, and are seeing a small increase in pay, however there are trends that pharmacists should be aware of when it comes to salary changes.

Alex first digs into the low ceiling pharmacists have on their salary. While pharmacists are very well paid when just getting out of college, especially when compared to other similar professions, after 20 years they may only see an additional $12,000 added on to their salary even if their job performance exceeds expectations. Some salary starting numbers may be even lower and it is difficult to work your way up to a top tier salary. He discusses that pay is based on what type of pharmacist position you hold. The highest paid positions are in management, pharma, and nuclear pharmacy, however a small percentage of pharmacists hold those types of positions.

He explains that the reason for such a small increase in pay is due to a ‘perfect storm’ he’s seeing in the pharmacy job market. Alex describes that due to the supply and demand of pharmacists, this perfect storm has been created: 13,000-14,000 pharmacists graduate each year, ⅓ of current pharmacists (~100,000) are looking for a new job, and a negative job growth is predicted due to the oversupply of pharmacists (321,000 jobs decrease to 311,200). Because of this, it’s important to consider your career trajectory. Alex also talks about satisfaction and job stress and Job Rx, a new job board that pulls open pharmacy positions from employment sites.

Click here to download a free copy of the 2021 Pharmacist Salary Guide.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Alex, welcome to the show.

Alex Barker: Thanks for having me, Tim. I enjoy hanging out with you.

Tim Ulbrich: It’s been awhile, specifically Episode 092 when we talked about creating an indispensable pharmacy career all the way back in March of 2019. But for those in our audience that may not know you, I know many folks do know you and the work that you’re doing with the Happy PharmD. But tell us a little bit about your pharmacy career and the work that you are currently doing with the Happy PharmD.

Alex Barker: Happy to, but first I want to acknowledge — was it Episode 092?

Tim Ulbrich: 092.

Alex Barker: So you had me on 100 episodes later.

Tim Ulbrich: Nailed it.

Alex Barker: Wow, good job.

Tim Ulbrich: That was planned. No, I’m just kidding. It wasn’t.

Alex Barker: Yeah, so I’m Alex Barker. I’m a pharmacist. I graduated in 2012, did a residency, went into clinical practice, did not enjoy myself and struggled to find my way with my career. That led me to business, led me to coaching people, led me to creating a few other media companies and other crazy, random ideas. And then I saw, unfortunately, the need of our profession. A lot of people are burned out, a lot of people are unhappy, unfulfilled in their positions. So I took coaching along with our profession and kind of married it into this Happy PharmD where we help pharmacists and coach them into better careers and jobs, doing that since 2017 now.

Tim Ulbrich: Wow.

Alex Barker: We’ve got — yeah, it’s crazy.

Tim Ulbrich: It is.

Alex Barker: If it was back in 2019 that I was last here, I think we only had maybe four coaches including myself. We now have 11. And we have an awesome team, support team, we’re doing research. Lots of crazy stuff. And a good colleague of yours now is our lead coach, Jackie Boyle.

Tim Ulbrich: Yes.

Alex Barker: Who is at NEOMed in Ohio. So yeah. That’s what we do here at the Happy PharmD. And I know why you brought me on was to go over trends and what’s going on in the job market and specifically in pharmacists’ salaries. So, happy to be here.

Tim Ulbrich: Awesome. And for those that are not familiar, make sure you check it out, TheHappyPharmD.com. We’ll link to it in the show notes. And Alex, as you mentioned, today is a topic that I know is of interest to our community, one that I enjoy talking about on the show as well as our folks are certainly interested. What’s happening in the job market? What’s happening with the current state of jobs? And you have an incredible annual salary guide of which we will link to in the show notes and I mentioned in the introduction that distills data about pharmacist salaries, salary changes, job stress, job satisfaction, and overall the pharmacy job market. And one of the things you talk about in there, which we’ll get to towards the end of the show is the perfect storm and what that means as it relates to where we are as a profession. So you’ve been doing this now for several years, is that right, Alex? The salary guide?

Alex Barker: Since 2015, which meant we were looking at 2014 data. So yes, we’ve been doing this many, many years. We have a lot of data, and it’s — frankly, it’s all over the place. It’s a little frustrating. But we’ve got a good — you’ll be able to see in charts and graphs, you’ll be able to compare yourself to others. I’d recommend you look at yourself where you’re at rather than the trends as a whole, but we can dive into those here. Where would you like to hit first?

Tim Ulbrich: Yeah, so my first question, Alex, is there’s other resources out there, you know, a couple that come to mind, several state associations do this, I know we do here in Ohio, there’s the Pharmacy Workforce Survey, which I believe happens every five years, one published last year. So what’s the need for this? Tell me more about why you felt like there was a gap and an opportunity to fill that gap with this resource.

Alex Barker: So one of the things that I like to do whenever I’m looking at a complex problem is multiple resources. You know what, that’s not really unique. I think every pharmacist does that, especially when we’re researching a disease state or a new drug. We’ve got to have the whole picture, right? And one of the things that frustrated me about the multiple reports were the indiscrepancies and the different numbers. So I didn’t really see anyone else putting all of this information together in one place. So that’s why I started way back in 2015 working on this report. I think I published it originally on Pharmacy Times. And we had since now put it on our website because obviously we weren’t around in 2015. I like looking at seeing multiple sources of data, multiple reports, to see and to look for those trends. Right? Because I think we all have hearsay and, you know, secondhand stories of —

Tim Ulbrich: Absolutely.

Alex Barker — what’s happening in the job market. And there is some truth to that. And then we actually have some solid data for some of those hearsay stories. But overall, we can say that pharmacists are still well paid. We’re still in the six-figure range. We are continuing to see a very small overall increase in our pay, albeit that it is very slow and it is slower in comparison to the majority of other health professions. But we are seeing some trends that we should all be aware of when it comes to salary changes.

Tim Ulbrich: And Alex, one of those that you talk about in the guide that I know is something that is of interest to me and the financial plan because these topics are very connected I think for obvious reasons is that when it comes to pharmacist’s salary, of course we’d expect to see some difference based on experience, depending on areas of practice of which we can dig into further. But one of the things you mentioned is that there’s an extremely low ceiling for pharmacists. And this is one of those things — speaking of hearsay — that I have always thought is of course varies based on positions and we know that some areas, there’s more long-term upside and maybe some longer term growth opportunities, but for many pharmacists, outside of cost of living adjustments, if that sometimes, that there’s a relatively low ceiling of where you start, which is a great blessing, may not be too far off from where you end. And you know, that matters for a whole lot of reasons when we talk about the financial plan. So give me your read on that. You know, tell us more about what you’ve found and why is that so significant?

Alex Barker: We should be well aware as pharmacists, we are very well paid for just getting out of college. If you compare our education, the length of it as well as the job market and compare it to other similar professions, we are more likely to be paid higher. So according to a report by Pay Scale, which was the only one, unfortunately, that looked at years of experience with an annual average wage, you’re looking at about $113,000 is the average starting salary for less than years experience, which is, I mean, insane. If you told that to a high schooler, you’d get their ears to perk up.

Tim Ulbrich: That’s right.

Alex Barker: However, if you add on years of experience, so if you work in the profession 20+ years, according to this report, you’re only adding about $12,000 more per year to your salary, which I never realized that when I went through education. I never had my eyes open to that problem, but like that should be a sinking feeling that it doesn’t really matter how much harder you work, it doesn’t matter how long you work with a company, chances are your salary will not increase. In fact, for an institution I worked for, it was very clear that after a certain amount of time, years of experience, that my salary would increase incrementally up to a point. And then at that point, I was locked at the rate at which, you know, the cost of living increases, which in my area, is very low. So —

Tim Ulbrich: Regardless of performance, regardless of performance, right?

Alex Barker: Right. Right. And I would not say that I was an above-average pharmacist. I would say that I was just kind of in the middle. And it didn’t matter. And what made me the most frustrated was that finding out the amount of money that people got for doing insanely well. We had a few amazing pharmacists on our team. They worked really, really hard. And I found out that their — when they exceeded expectations was the measure that they had to get in their annual review, that when they got that, it equated to about $1,500. $1,500. And if you take that, you divide it by the hours that you work, I mean, it isn’t worth it. It isn’t worth it at all to even try harder. And so what we’ve kind of created, unfortunately, in this perfect storm, one factor of it is we have a profession where we are not rewarded for effort. And that’s disconcerting. It creates complacency, I would say for sure. I mean, it did within me when I was a clinician.

Tim Ulbrich: Yeah, and I think especially at a time where you and I both know, we need some innovation, we need some risk-taking, we need some great ideas coming forward. And you know, compensation of course isn’t the only way that’s going to drive that. But certainly, you know, a low ceiling, as you mentioned in the report, may subtly not encourage high performance. And I think that’s a noteworthy thing. And of course, it goes without saying, we’re generalizing here. As you look at this data across the profession, there are certainly areas of the profession where there’s more upward mobility, I would use management/admin type of positions on the health systems side as one example. But there are certainly others. And of course when it comes to the financial plan, what screams to me here, Alex, is that you have to if this is going to be true for your career and the trajectory, you have to be that much more diligent about the financial plan from Day 1. Right? Because naturally what happens is expenses are going to go up if we let them. And so over time, if expenses go up proportionally but salaries do not, we’ve got a problem in terms of being able to achieve all the financial goals that we do. Another way of looking at this if we want to be a little bit more half-glass full is that you do have a great salary at a very young age coming out of school. And if you’re able to keep those expenses down, you’ve got a long trajectory where that money can be saved, you can have compound growth and other things where other professions, while there might be more upwards trajectory, it might take them longer to get to a point of savings. But of course, we haven’t talked about the $175k of debt that our graduates are taking on. Separate story for another day. So when we look at the pharmacist’s salary based on job sector, we know that there are a lot of avenues pharmacists can take in their pharmacy profession throughout their career. So tell us a little bit more about the variation you see in terms of jobs that have higher salary ranges, jobs that have lower salary ranges.

Alex Barker: I don’t think people will be too surprised, but perhaps maybe by the amount. So based on where people are working and the kind of job that they’re working, which by the way — don’t try to do this yourself, OK? Don’t go to look at all these reports because they call pharmacists by different names. I mean, the Bureau of Labor Statistics, which is a U.S. government organization, defines one of our professions as working at food and beverage stores. Tim, I’ll be honest, I don’t know what a food and beverage store is. It’s not a gas station. And they already have general merchandise stores and pharmacies and drug stores. So maybe I’m missing — I live in Michigan, so I haven’t been all over the world. I don’t know what this is. So where are the great paying jobs? Like you said, it comes down to management jobs, they are clearly paid more. We’re looking at ranges anywhere from $15,000 to even $25,000 more. We know that pharma jobs, particularly higher management jobs, pay extremely well. Nuclear pharmacist is one of the top-paying patient care jobs. JobRx reported that their average was at $157,000, which is very, very high. And again, we’re also seeing similar trends that where there is more responsibility, so more prescribing ability, we see pharmacists being paid higher, so clinical pharmacist roles, whereas where we’ve seen the lowest paid pharmacists, we’re seeing those typically in mail-order and PBMs. We’re seeing it in medical marijuana places, mail pharmacies. And as everyone would expect, we are seeing lower salaries, trending downward, in chains and of course independents, long-term care. Now, to clarify, everyone’s got opinions on these things. ‘Oh, well, I know of this person who got this. And I’m paid this.’ It’s trends. We have to keep all of this with a grain of salt because the reporting from each of these sources varies greatly. So I’m herding cats here, and I’m just telling you about my experience with it, OK? It’s challenging.

Tim Ulbrich: Sure. And it’s a good point, I mean, I hope our listeners will take it with a grain of salt. But it’s a great opportunity to see what’s out there. And what’s of concern to me, Alex, is I’m thinking of the distribution of pharmacists by practice, and that first group that you mentioned, management/admin positions, industry and nuclear pharmacy I think were the three you mentioned, that is a small sliver of the pie. Right? The bigger chunk of the pie is the community positions, is the managed care positions. And so I think it is something that we have to consider and we have to take seriously in terms of the significance. Now, hearsay — speaking of hearsay — one thing I have heard that I think is easy for us to hear and say, “Oh my gosh, the salaries of pharmacists, it’s falling apart,” and that is the instances of somebody starting at $35 an hour, $40 an hour, you know, and is it because of a saturated market? Is it because of this or that? Are they perhaps part-time? You know, 32 is kind of the new normal, what we’ve seen here in Ohio. Tell us more, give us the data. What are you actually seeing when it comes to these numbers of, “Hey, I’m starting at $35 or $40.” Is this isolated? Is it more widespread?

Alex Barker: Hearing you say that makes me feel like maybe I’m the one that needs to collect those reports and that data because no one is. You’re right, it’s all anecdotal. I’ve seen it in your Facebook group, I’ve seen people report some of the offers that they’re getting. It’s abysmal. The worst I have heard is $28 an hour. That’s a floating position. I think it was in Austin, Texas or one of the major cities in Texas. And we know that these typically are retail chain positions that are offering these insanely low salaries. We also do have reports of it happening as well in hospital positions. And we also know that there are a few remote clinical positions that are very low as well. And so we’re talking like MTM jobs where you’ve got a lot of flexibility. You work when you want to. But you’re looking at an annual salary of maybe $70,000-80,000. That’s not true across the board, but that’s what we are receiving reports from from the people that get jobs because occasionally, we do salary negotiations for people as well. But the only evidence we have as far as an actual report that’s been shown that I enjoyed seeing this year was drug topics. So if you look at their 2020 base salary, you see this very concerning skew of data — and I’ll send you a picture of this as well so you can put it in the podcast notes if you can do that, I don’t know — but you’ll see that 13%, which is a huge number of people, at the end of their report were receiving less than $70,000 a year or less. And unfortunately, what they didn’t report in this data is the number of people in that bracket who were full-time or part-time. But we do know that the total amount of people was only 13% as well that worked part-time. So I’d have to venture a guess that that 13% that worked part-time, you know, potentially were majorly in that bracket of 13% reporting that, I don’t know. But unfortunately, what we are seeing is because of the glut, because of how easy it is to hire a pharmacist, particularly in a very generic role, we are seeing a lower salary being offered to those pharmacists. And we — based on what we just talked about, that low ceiling, you should assume that you will not — you’re not going to work your way to the top tier salary, $120,000-140,000 if you’re being started at $70,000 annual.

Tim Ulbrich: And where you start matters for obvious reasons. It matters when you’ve got $175,000 of student loan debt, it matters when hopefully if you have something like an employer retirement match, you know, 4% of $70,000 versus 4% of $120,000, that matters over time and compound interest and growth. So question for you here — and I know this is more complicated than we have time to unravel, but what’s the reason? You know, is it simply that we’ve got supply and demand, we’ve got 13,000+ grads coming out per year, pharmacists aren’t retiring at the rate that we thought they may. Is it more about the evolution of the pharmacist’s role and we’re seeing faulty business models and not only those that are being strained financially from existing models but new, innovative ones not popping up that can just find new positions? Like what do you see as the main culprit here?

Alex Barker: Supply and demand. I am not a labor or economics expert.

Tim Ulbrich: Come on, Alex! No, I’m just kidding.

Alex Barker: I did consider getting a PhD once, but no. Not my thing.

Tim Ulbrich: And then you saw the light.

Alex Barker: I did. But now what we have is this perfect storm, as I alluded to in further of our salary guide. The perfect storm is approximately 13,000-14,000 pharmacy students graduating every year entering into the job market, approximately one-third of the current job market — so about 100,000 pharmacists — is looking for a new job — and that’s based off of the AACP national workforce study — and then we also have the U.S. Bureau of Labor Statistics predicting a negative job growth from 321,000 to I think it’s like 311,000.

Tim Ulbrich: Correct.

Alex Barker: So by the way, if numbers confuse you, if I’m saying a lot of numbers, check out the report. It’s all there. Because if I was listening to this, I’d be like, what did he just say? But you’ve got this gestalt of a problem where each factor is creating a much more complex issue. But ultimately, what we have is the main positions that pharmacists take, i.e. hospitals and community pharmacy, and we’re a dime a dozen. I asked on LinkedIn managers, approximately how many applications do you get per job? And it was anywhere from 60 on the low end to I think the highest was over 210. And so if you are a smart manager, you are going to think what is my biggest cost? Employees. So if I have that many people, am I going to give them a compelling offer when if I don’t get my top pick, I probably will get my second, third, fourth, fifth —

Tim Ulbrich: Who are all pretty darn good.

Alex Barker: Maybe even my 15th pick.

Tim Ulbrich: Yeah.

Alex Barker: Because someone’s going to take this offer. Right? We’re pharmacists, we have a PharmD, we’re doctorates, we’re insanely capable people. So you know, getting your 15th pick isn’t the worst thing in the world for them. For our profession, however, what suffers ultimately is our salary, our buying power. We no longer have that. And back in the 2000s, we had that inflated need, right? We needed pharmacists. You got signing bonuses, you got cars when you got offered a job. I don’t know if students are told that anymore, but that’s the way it was. And now, everything’s flipped on its head. We’re in the exact opposite situation, albeit that there is a huge hiring phase happening right now simply because of the COVID jobs.

Tim Ulbrich: Yep.

Alex Barker: We’re seeing a ton of people readily take those. But these pharmacists are just probably going to be in the same situation once this vaccination rush passes through. It isn’t like we’re going to need all those pharmacists again to vaccinate every single year. They’re going to figure out cheaper ways. And everyone knows you can pay a nurse a lot less to vaccinate people. So this temporary demand is not going to last.

Tim Ulbrich: Now, I am — and I’m be remiss if I didn’t say, Alex, my audience knows this — I am a half-glass full type of person. And I will say the one thing — and it does not mitigate the concerns here — but the one thing that stands out to me here is, as I alluded to early today, I do think we desperately need some innovation, thinking a little bit differently, people taking calculated risk. And when you’ve got $175,000 of student loan debt and you have $120,000 contract that’s there to sign, it’s very hard to make an otherwise decision, right? I mean, it’s classic golden handcuffs situation. And I do think there’s a lot of pharmacists out there that have great ideas. And one of the reasons we’re so passionate about the financial plan side of it is that we know the financial pressures are very much connected to the career opportunities, the willingness to do either, whether it’s starting something or even just enjoying the work that you do and having some choice. So I am hopeful. I am also concerned that lower salary and a debt load that continues to climb is a compound problem. But there is also perhaps an opportunity out there where folks may now say, “OK, I can make $70,000, or I might go do this.” And that, “I might go do this,” might be something that’s of perhaps more interest or even an opportunity to pursue.

Alex Barker: You bring up a really good point that I didn’t consider in writing this guide is particularly for new grads, considering your career trajectory is insanely important for determining your financial plan because if you think right now that now’s a good time to be a clinician, trends are showing that clinicians, people who are able to prescribe or have some sort of agreement with a doctor, those jobs, we’re not seeing a major increase in those salaries. In fact, we’re seeing students — or I should say residents being offered less and less money. So you know, if you think you’re wanting to make a lot of money later in your career and you’re willing to work up to that, there are plenty of opportunities out there. We didn’t even go over the fact that as a pharmacist, you’re more than qualified to be a pharmaceutical sales rep. And that has an amazingly high ceiling. You could be paid insanely well. It is not a pharmacist job. It’s not a typical one. But you are overqualified to do it, and if you have the ability, if you have those natural gifts to sell, the ceiling’s really high. And so I think — you know, this is something I didn’t consider, so I’m glad you brought it up, Tim — that when considering your financial future, there is a space for you to take a job that pays you less if the trajectory, if the potential plan of that path could pay you a whole lot more because the reality is that as a clinician, your salary is not going to dramatically increase. One minor report that I didn’t touch on in my report is that Drug Topics said 41%, but in their report reported additional income in 2020, anywhere from the majority of them making around $1,000-5,000 in extra income. Now, they didn’t say how they made that money, but the case is that people, they want to make more. They’ve got things to do with that money.

Tim Ulbrich: Yeah.

Alex Barker: So consider your career trajectory wisely. If you’re looking at the $175,000 and thinking, I need to pay this all down, you know, don’t make the mistake of rushing into a job that just pays well but is a dead end.

Tim Ulbrich: That’s right. Yep.

Alex Barker: That’s just a risk to take.

Tim Ulbrich: Got to think about the 30- to 40-year timeline. And here, we’re talking salary, which is one component but certainly not the only, right? We could have a pharmacist who’s got multiple job offers, is making great money, but they may not like the work that they’re doing or it may be stressful. So talk to us about satisfaction, job stress. Obviously we know job stress correlates to the rate of dissatisfaction that pharmacists are feeling in their work. What did you find here in the reports as far as the number of pharmacists, percentage of pharmacists generally speaking that are either satisfied/dissatisfied in their work and tell us more about those findings.

Alex Barker: Your term earlier, golden handcuffs, I think captures the feeling that most have. According to Drug Topics, they reported 44% are unhappy with their jobs. But a third of the entire group that they surveyed was looking for another job because of their unhappiness with their current one. I think they asked some wrong questions in their survey, but in my interpretation, we’re looking at 7 out of 10 pharmacists were not satisfied with their jobs. And we all practically I think know the reasons why pharmacists are unhappy across the board. But there are some other reports that show that we actually have a higher satisfaction score than that. Pay Scale said that we’re about 74% satisfied, which was higher than what I thought. AACP said 58%. But the pharmacists that were the most happy were those that were in independent community pharmacies, ambulatory care, or non-patient care, which kind of goes back to our problem — you and I have talked about this numerous times. We as pharmacists, we’ve got an identity crisis. If we’re supposed to be patient care-oriented, then why are people who are not in patient care more happy than those that are in patient care. Another survey question in that AACP report was that only 27% of people said — agreed to the statement, “I feel happy at work.” Grinds my gears. I’m supposed to be the Happy Pharmacist, but I’m not happy about that.

Tim Ulbrich: I mean, it’s heavy. And you know, again, this goes back to your comment — I hope the new practitioners and even the students listening are really thinking about the long horizon and trajectory. And this again goes back to me — for me, obviously, the financial plan and cost of living. If you rise your cost of living and everything that comes with it right out of the gates because you’re now going from -30 and debt every year to make $110,000 or $120,000, it is very hard to walk that back. Very hard to walk that back. And if you can hold the line — and I understand certainly this is easier for me to say in Ohio or you to say up in Michigan that may not be as easy for folks that are in higher cost of living areas. But if you can hold that line, especially as you’re going through this transitionary period where you’ve got multiple competing financial priorities, you’ve got typically big student debt loads, you’re trying to really understand what you do or do not like in the work that you’re doing, give yourself options. You know, we talk about all the time, put yourself in the driver seat rather than that being dictated for you. And I think, of course, this discussion certainly emphasizes that as well. Alex, I want to wrap up, you mentioned earlier in the episode talking about the Job Rx. Tell us more about Job Rx. You talk about that in the guide as well. What is Job Rx? And what can folks expect to get from that resource?

Alex Barker: Yeah, Job Rx is a website from a friend of mine, mutual friend of yours, Kevin Miro (?). And I included in this report simply because of some of this newer data that he’s been finding in his job board. If you look at the powers that be, there is a pharmacy demand report, which stated in the 4th quarter of 2020, only 12,000 new pharmacist jobs were created, which is not great but not awful either, which you know, kind of just makes me think like OK, doing the numbers in my head, it makes sense why we’re getting 100 applications per job. But Job Rx is — essentially, it’s a job board where it pulls in all these jobs from employers’ websites into one place so you can apply and get notified when the newest jobs are created. He reported to me that in December of 2020, they added 12,800 pharmacist jobs in one month versus this other demand report that said that that’s how many jobs were created over the entire quarter. This gave me a lot more hope than I’ve ever had before because I’ve never been able to have access to that kind of information or technology that says OK, what exactly is the job reports and how are you getting that data? He also — and I share this in the report as well — that 16,000 pharmacist jobs were added in January of 2021. So when I hear these numbers, I am a lot more hopeful. I do think that they are slightly probably more than what we would expect simply because of the COVID hire push that is going on. But ultimately, this is potentially an amazing resource for pharmacists to finally find the jobs that are out there. And I’ll make one final note that from what I could tell, the vast majority of these jobs, though, were community and health systems-related, long-term care, hospitals, things like that. So right now, I still know that the majority of the buzz, what everyone is selling as the promised land, is the nontraditional roles, right, the pharma, the work-from-home, the remote. And those are still out there, they are possible. But they are certainly not as available as hospital and community jobs.

Tim Ulbrich: Absolutely. And our community can check that out, JobRx.com. We’ll link to it in the show notes. I think certainly a resource that’s going to afford us an opportunity to have some more real-time data, some more up-to-date information that I know will be helpful to not only pharmacists looking for positions to perhaps — I often found myself in a faculty administrative role trying to advise and help students looking for jobs. I see some value there as well. So JobRx.com, again, we’ll link to in the show notes. Alex, where is the best place that our community can go to connect with you, to follow the work that you’re doing and to stay up-to-date on information that we’re talking about here today?

Alex Barker: I’d love it if you connect with me on LinkedIn, that’s where I hang out, it’s where I spend the most amount of my time. We do have Instagram and Facebook, but after watching The Social Dilemma, I don’t know. I’m just trying to stay on one and not try to give away too much information about my life. But yeah, connect with me on LinkedIn. I’d love to have a conversation with you and I try to have one with every single person that connects with me. So that would be a great place to check it out. Otherwise, you can go to TheHappyPharmD.com where we’ve got a lot of resources, blogs about career paths and of course this salary guide.

Tim Ulbrich: Great stuff, Alex. We’ll link to Alex’s LinkedIn profile in the show notes as well as of course TheHappyPharmD.com and the salary guide. Alex, thank you again for joining us and sharing your insights and expertise on this important topic as we talk about the state of the job market and our profession. Appreciate it.

Alex Barker: Thanks, Tim, for having me.

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On this episode sponsored by LendKey, Tony Umholtz, a Mortgage Manager for IBERIABANK/First Horizon joins Tim Ulbrich to discuss 10 common mortgage mistakes homebuyers make and steps you can take to avoid them.

About Today’s Guest

Tony graduated Cum Laude from the University of South Florida with a B.S. in Finance from the Muma College of Business. He then went on to complete his MBA. While at USF, Tony was part of the inaugural football team in 1997. He earned both Academic and AP All-American Honors during his collegiate career. After college, Tony had the opportunity to sign contracts with several NFL teams including the Tennessee Titans, New York Giants and the New England Patriots. Being active in the community is also important to Tony. He has served or serves as a board member for several charitable and non-profit organizations including board member for the Salvation Army, FCA Tampa Bay and the USF National Alumni Association. Having orchestrated over $1.1 billion in lending volume during his career, Tony has consistently been ranked as one of the top mortgage loan officers in the industry by the Scotsman’s Guide, Mortgage Executive magazine and Mortgage Originator magazine.

Summary

Tony Umholtz, a mortgage manager for IBERIABANK/First Horizon, digs into 10 common mortgage mistakes to avoid what he sees people make in the home buying process. The first is not fully understanding in advance the common loan types and considerations or differences of each. Tony breaks down what conventional, FHA, VA, and other unique products, like the pharmacist home loan, are and what borrowers need to be aware of. The second falls into the category of credit blunders, like overestimating your credit score, relying on third-party services (which often provide inaccurate credit scores), utilizing no interest credit cards which could negatively impact your credit, and waiting too long to resolve issues you have with it. The third common mistake is not shopping around for a mortgage lender. Tony expresses that it’s important to find the right product and that some internet-based companies may be great for a mortgage refinance but are hard to work with for a home purchase. The fourth mistake is searching for a house before you get pre-approved. Tony shares that a pre-approval letter shows sellers that you’re serious and can also make you aware of any red flags you may have on your credit report. The fifth is underestimating how much cash you need to close. Tony explains that not only do you need money for a downpayment, but you always need to have money saved for an insurance premium (as well as possible flood insurance coverage), taxes, and closing costs.

The sixth is delayed communications with the lender, title agency, and real estate agents which can make or break a transaction. The seventh is making a home buying decision before you’re ready. Tim shares that you can’t make a decision about any part of your financial plan in a silo and have to consider how each will affect another. Number eight is not thoroughly evaluating how home buying fits in with other financial goals you may have and number nine is not thinking about the money you’ll need after you close for items such as furniture, lawn equipment, etc. The last common mortgage mistake to avoid is misunderstanding or misevaluating mortgage discount points. Tony explains that you should always ask for a no-point quote initially. He shares that points are essentially prepaid interest and that by purchasing a point you’re buying down the interest rate. However, he says that you really have to evaluate this decision and that it’s not always the best move to make.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Tony, welcome back on the show.

Tony Umholtz: Tim, thanks for having me.

Tim Ulbrich: Excited for this discussion here in 2021 as we have you back, talking about 10 common mortgage mistakes homebuyers make and steps that folks can take to avoid these mistakes. And many of these come from either personal experience or ones that we know are often being made, so we’re going to go through these one-by-one and certainly lean into your expertise to hopefully give folks a guide of what are some things that they can be aware of going into the lending process, whether that’s a first-time home buy, second time, third time, or refinance and then hopefully put in some steps to prevent those from happening in the future. So Tony, the first one I have here that I know often comes up is that folks may not fully understand in advance the common loan types and the considerations and differences for each. And so before we talk about the pharmacist home loan through IBERIABANK/First Horizon aka “the doctor loan,” give us an overview at a high level of conventional, FHA and VA loans as I suspect those are the main ones our community will already have some familiarity with and perhaps some experience with. You know, generally speaking, how do these work? What’s the difference between them? And what are some important considerations for lendees when pursuing these types of loans?

Tony Umholtz: Yeah, sure. Great question. And that’s definitely the most common types of loans that are out there and that you’ll hear about. Fannie Mae and Freddie Mac, we call them the GSEs, which is Government-Sponsored Entity, they provide conventional financing. And thank God we have them, right? I mean, they really keep our housing market alive. And then we have of course FHA and VA loans, which are backed by — we call it Ginnie Mae, which is HUD, which is also a government program. And those are the main key loans that are out there. There’s also portfolio products, unique, nichey products such as the pharmacist product that we’ve discussed that banks, individual banks, can hold on their balance sheet as well, which don’t have a traditional investor, government-backed sponsors. But not to get too into the weeds here with that, but high level, I would say is conventional products, the main differentiation on that is they will allow a loan amount up to $548,250 in most markets. There is some markets around the country where that’s a higher number. So it’s just around San Francisco, Los Angeles, there’s going to be higher loan limits in certain counties in higher priced areas. But that’s one of the main pieces with them. And a conventional loan above 80% loan-to-value, PMI is required. And that mortgage insurance is required to deliver the loan to Fannie and Freddie. So that’s why it’s so important that you have this mortgage insurance, lenders require it, and that can be costly, right? That can be very costly. FHA and VA — let’s just kind of pull the two apart here — FHA, the Federal Housing Administration loan, is designed for a little bit more flexible credit. Although conventional loans can get pretty low on credit score too, FHA tends to be better if you have lower credit scores because it will allow lower interest rates, for the most part. FHA loans, though, typically don’t have a loan amount max as high as conventional. So for example, if a market’s $548,250 for conventional, it might only be like $325,000 for FHA. So I usually utilize FHA as a last resort, only when it’s the best loan for the client. And then VA of course is for veterans. And the VA loans are great. They allow 100% financing with no PMI. The only downside with VA is there’s a funding fee that’s rather expensive. So I’ve actually had a few veteran clients that we’ve actually gone conventional because it’s cheaper overall. But I could talk a long time on this subject. But hopefully that clarifies the main points.

Tim Ulbrich: Great overview. And to our listeners that want to learn more on each of those, you can check out Episode 169, Tony and I talked through helpful tips for getting a mortgage, going through different loan products, talked about the pharmacist home loan. And tony, we’re going to segue here and talk about that for a moment as I think your discussion on PMI is a good lead-in. And so as we think about the pharmacist home loan, you know, Tony, common barriers to pharmacists being able to purchase a home that I’ve seen is student loan debt, which of course can impact debt-to-income ratio, as well as their ability to save for a down payment. You know, they’re coming out of school, looking to buy a home, six figures or more of debt, and I think that’s where the pharmacist home loan can have its values. Tell us more about the pharmacist home loan option that IBERIABANK/First Horizon has, including minimum down payment, terms, requirements to qualify, PMI considerations and so on.

Tony Umholtz: Sure. The product we offer to pharmacists, it allows very little down payment and there’s no PMI. So it’s probably the key point to it. If you’re a first-time home buyer, you can actually put 3% down and have no mortgage insurance. And if you’ve owned before, it’s 5% down again, with no mortgage insurance. The minimum credit score is 700. And the one piece to this — and again, I don’t — I always try to avoid interest rates because they’re volatile and the market can move, bond market can move, but I have found over the last 18 months that I can offer better rates on this product than if I had a non-pharmacist customer come and put 20% down. I mean, it’s very strong interest rates. So it’s kind of — that’s been the few lead pieces that I’ve noticed. It’s just very strong 30-year fixed loan rates. And that no PMI is just huge. I mean, in some cases if you’re buying a $500,000 home and you’re putting 3% down, you’re talking about a $400 a month savings just for the PMI. So it’s a pretty substantial number. In regards to student loans, it has a — it doesn’t completely waive them. And I find most of my clients that I work with are under an income-based repayment plan anyway. And that’s what we’ll use in calculating a debt-to-income ratio. But in the case where there isn’t a payment, it uses a factor that’s lower than a traditional conventional loan or an FHA loan. So it enables more buying power.

Tim Ulbrich: Very good. And we covered the pharmacist home loan in a fair amount of detail, Episode 139, Ins and Outs of the Pharmacist Home Loan. Also, if you go to YourFinancialPharmacist.com, click at the top “Buy or Refi a Home,” you’ll see more information there to the IBERIABANK/First Horizon product as well as to the real estate concierge, Nate Hedrick, for those that are looking for an agent as well. And we’re excited about the partnership that we have with IBERIABANK/First Horizon because it’s nationwide. And we’ve got a nationwide community here in the YFP community. I have had the chance to work with Tony now for the better part of a year, love what he’s doing, his passion to educate and help folks on this decision and understand how it fits in with the rest of the financial plan. So that’s No. 1, not fully understanding in advance the common loan types and considerations and differences for each. No. 2 here, Tony, is credit blunders. And I’m thinking of those that perhaps may overestimate their credit score or perhaps not have a good understanding of how credit scores impact rates, maybe waiting too long to resolve credit issues and so on. What are some of the common mistakes and blunders that you see related to credit?

Tony Umholtz: The credit and the overestimate — you mentioned overestimating credit. I see that a lot. And you know, I think a couple things I’ll just touch on here with credit. One of the things as a lender, I try not to run credit unless we absolutely have to, right? There’s a lot of clients that’ll call and just want some high level information, but credit is so important because it’s such a critical part of the product. If you have a minimum credit score of 700 and you’re under that, it’s good to know why. And some lenders can — and we offer this service as well — we can give you ideas on how to improve it. We actually have score models that tell us what your score could go to by doing certain activities. But anyway, one of the big blunders I see is just totally following like a third-party monitoring service. And I don’t want to name too many names because there’s a lot of them out there, but traditionally, these third party services are going to overinflate your credit score more than what we would see. You know, like us as a — so for example, a creditor can see a score that is maybe 30 points on average lower than what you might see on one of these services. And I’m even — I subscribe to a service. I will say I do. But it gives me good trends as to what I’m doing, but it’s not what a creditor would see. So in my lifetime of lending, the highest credit score I’ve ever seen was 820, and it was an 80-year-old gentleman who had perfect credit his whole life. So it’s one of those things where, you know, a customer will say, “Hey, my score is 850!” Well, that’s what the monitoring service says, but it’s really not going to be that way when we see it. So that’s one thing, a blunder that I see. The other is a misconception on an inquiry as well. A lot of inquiries is not good. But a couple inquiries at one time for a loan is not going to have an effect on you. There’s a window of time where you can do this. That’s another piece. And then the other really important one — and I can’t stress this one enough — is the no interest for a year type cards and promotions that are out there. And it’s very tempting to go to Best Buy and they’ll offer a $5,000 credit limit for $5,000 worth of stereo equipment and maybe a CD or whatever it might be. And you don’t have to pay interest for two years, which is great, right? It sounds great. But what they do, they report that to the credit bureaus, to Experian, Equifax, and Transunion, as a 100% maxed out credit card. And I’ll confess as a young man, I was in my early 20s, I bought furniture for one of — my first house with a store called Rooms To Go, and I did this. And that’s how I learned. And of course, I’ve seen many clients do this since that time. But it actually happened to me personally. I said, “Wait a minute, why did my credit score go from 750 to 660?” And that was one of the things that happened. I did this credit, you know, it was a maxed-out credit card. That’s how it’s reported to the bureaus. So that’s another big blunder, Tim, that I’ve seen.

Tim Ulbrich: Yeah, and credit — great summary, Tony, great insights there as well. Credit, credit optimization, credit security, such an important part of the financial plan. Obviously we’re talking about here related to securing a mortgage, but generally just an important piece to consider. Tim Baker and I talked about this on Episode 162, Credit 101, talking about what is a credit score, breaking that down, six factors that can impact scores. So if you want more information and better understanding your credit, we’ll link to that episode in the show notes. So that’s No. 2 here, credit blunders. No. 3 is not shopping around. And I know, Tony, that rates, especially in a market where I feel access to information has become easier to find, if you will, that rates may be not necessarily what I’m referring to as much here, although that of course is a consideration. And I think in some cases, if you’ve got good communication with a lender and rates are changing that they’ll be in communication with you. So I think that relationship certainly is important. But obviously we know not all offerings are created equal. So here, we’re talking about the pharmacist home loan. Folks may or may not be aware of that. And so looking at a few different institutions, understanding the products that are out there, but what else, Tony? What are some things that folks may notice beyond the offering and perhaps beyond the rate that would be different from one bank from another? I’m thinking about things like application fees, document fees, other things like that that folks should be thinking about as they shop around.

Tony Umholtz: I really think the — and it can be very challenging sometimes with the shopping around because there’s different levels of knowledge out there. And some of the companies are just set up as call centers as they funnel internet leads in. You know, so there’s different knowledge bases that you’re going to speak to sometimes. So I find that that sometimes adds some confusion. But I think it is very important to find the right product. I think that is very much a critical element, so finding the lender that has the right product for you is important. And I never want to — I’m very sensitive to relationships. So I have people call me and say, “Hey, I have used this lender for 10 years and they’ve always been good to me,” and we’re a competitive industry but sometimes if I think something’s better, I’m very quick to tell that person, “This other lender has a better product.” So I think — and I actually have a lot of lenders that love to send me clients that they know we’re better fitted for. The fee part is important because there’s only really one set of fees the lender controls, and that is there’s a lender portion of fees. The rest are third party. So they’re going to be through third parties. It’s going to be the same, really no matter who they use. So that’s one thing I find that confuses a lot of people is consumers will lump in the prepaid expenses, taxes, insurance, title insurance as well, and doc stamps for the state we’re in or the county recording fees. But those are going to be the same costs no matter what. There’s really only one line item of lender fees that are going to be different, that could vary. So that’s one way to look at the lender is just lender fees and interest rate. Really, it’s as simple as that. But the big things I find when you’re looking, when you’re out there — and again, I’m not going to name names of companies — but when you’re looking to buy a home and you have a — there’s a lot of companies that have popped up, especially internet-based companies that are really just feeding off the refinance market. It’s hard to be equipped for purchases because when you go under contract for a purchase, you have a commitment letter date, right? There’s a commitment financing contingency, there’s appraisal contingency, there’s all these contingencies in a contract, and you want to make sure the lender is watching this and can meet these milestones. A lot of lenders that are set up for refinances just aren’t set up for purchases. It’s OK to use one of these lenders if you can wait 90 or 120 days to close your loan for a refinance, but on a purchase, you can’t do that. So service is very important when you’re buying a home. It still can be with refinancing, but you can always just wait longer, you know? It’s one of those things. But I would just say, you really have to be careful with the service aspect when you’re buying because it’s a very competitive housing market right now, and a lot of these sellers have backup offers. I get calls a lot too because people are under contract and something went wrong with their lender, and I have to jump in sometimes. So I see it even as a secondary lender when things go wrong with the original lender. So I would just say the big thing is a comfort level with that person and that organization. The best rate and product is important too but also making sure that you’re in the best fit for you because one other thing I will say is, you know, if you can get a better rate putting 30% down than you could putting 5% but that’s going to use up all of your liquidity and maybe impact other financial planning aspects of your life, well, the 5% is much better, even if the rate’s a little higher. So I think it’s very important to plan, look at your overall plan. That’s why the folks at YFP are so great to work with because they can look at everything and say, “Hey, this is better for you in the long run because of this.” So I hope that’s helpful. I mean, there’s a lot of components to it. There is a lot of things to think about, but I think it’s really finding a comfort level with the group that you want to work with and especially if you’re buying a home.

Tim Ulbrich: Absolutely. So point No. 3 there, not shopping around, I can speak from personal experience working with more of a big box company, obviously having the opportunity to work with you guys, open communication lines, feeling comfortable with the process, getting questions answered, all of that really matters. No. 4 here is looking mistakes — again, we’re talking about here looking beyond the simple Zillow or Redfin search before you get preapproved and know what you can borrow, which is not necessarily, of course, the same thing as what you can afford, right? We talked about this with Nate Hedrick on the podcast a lot, the Real Estate RPh, what you can borrow, what you get approved from the bank, is not necessarily what you can afford. And that connects, Tony, to what you just said about connecting this home buying decision with the rest of the financial plan. So talk to us here briefly about the importance of the preapproval process.

Tony Umholtz: The preapproval process is critical just to know what you can afford both ways, right? To see if that Redfin search popped up a house that you can’t buy. I’ve also seen it the other way around where, you know, with the rates being so low, clients have said, “Hey, I’m paying $2,900 a month for rent and I can buy more house than I thought I could.” So it’s really just critical in the education process. You know, knowledge is so important. And just knowing what you can and can’t do is important. And the preapproval process will allow us to see if there’s any red flags as well. We’ve had lots of clients that we’ve been able to help get their credit scores up a little bit higher, we’ve had lots of clients that both ways have said, “Hey, I don’t want to buy a home this large because I didn’t realize that this is the cost and the taxes are this.” On the other side, I’ve seen it the other way too, like I mentioned. It’s very important to get pre-approved before you start walking into houses. And I will say that the realtors are very proactive right now because of the tight inventory. We get a lot of phone calls from the listing agents, even. And of course, we can’t give much information away, but they’re calling us, “Hey, are these clients approved?” I mean, it’s a different market in a lot of parts of the country right now.

Tim Ulbrich: That makes sense given where we’re at and the climate of the market. So No. 5 is underestimating the cash to close. So what I’m referring to here, Tony, speaking from personal experience in our first home purchase a little over a decade ago is I think many folks when they’re looking, you know, look at the sale price of the home, they might say, “OK, I’m going to be able to negotiate this or this,” which might be overconfidence, especially depending on what’s happening in the market. And they’re probably thinking about the down payment, whatever that would be, 5%, 10%, 15%, 20% down. But they might not be thinking about other costs that they’re going to need to consider having cash to come to the close. So tell us about not numbers, per se, but what are some of those other things that folks need to be thinking about when it comes to cash to close beyond just the down payment?

Tony Umholtz: One of the big pieces too outside of the down payment is your insurance premium. And insurance is due upfront, full year premium upfront, even if you paid cash, you have to pay for your insurance premium upfront if you want your home insured. And I find that — and this is flood insurance as well if you’re in a flood zone, that’s due as well — but the insurance component is something you have to take into consideration. The other piece outside the down payment is your tax allocation. So normally, lenders will take anywhere from 3-4 months of your property taxes for the escrow account. And for example, the reason for 3-4 months is there’s always a two-month cushion that’s collected. But there’s also, you know, let’s say we were to close today, right, on a house, Feb. 5, your payment is not going to be due — your first payment’s not due until April 1. So we have to collect February and March to be on pace to pay it for you, so we’re going to collect four months of taxes at closing to kind of cushion things. And then of course you have closing costs as well. So there’s a prepaid element and then we have the closing costs. So in addition to the down payment, you have those elements as well. The other thing to keep in mind too that is some confusion that I see a lot with first-time home buyers especially is when you give a deposit on the home, so let’s say when you give your realtor, your realtor goes to help you with the contract, you have to put $5,000 in escrow or deposit — terminology is about the same but different parts of the country call it something differently. That $5,000 gets credited back to you at closing. OK? So it’s a contribution to the overall transaction. It’s not something that you lose or gets lost in any way. It comes back to you. So if your cash to close let’s just say was $10,000, and you’ve already given $5,000, well, you only are going to bring $5,000 to the closing. So that’s another piece just to — questions that come up.

Tim Ulbrich: Very good. And I think the point here I want to make, especially for folks that are on the home buying process for the first time is making sure you’re appropriately considering what might be the cash needed, down payment, closing costs, you mentioned the insurance, the taxes, and some other things as well. So making sure to plan for that in advance and of course thinking about how that impacts other parts of the financial plan. So we’re halfway through our list of 10 common mortgage mistakes to avoid. We’re going to rapid fire these last five. No. 6 here is delayed communications with the lender, title company and agents. Lots of folks involved, Tony, in this process, lots of moving pieces and parts, and I suspect this is the time to overcommunicate and set communication expectations with the team in advance. So talk to us about from your perspective, you know, what you’re expecting of your — obviously your team but also in terms of folks that are working with your team when it comes to communication.

Tony Umholtz: I mean, communication is critical. And that’s what makes the transactions — makes or breaks them in a lot of ways, the communication. So we really try to communicate — overcommunicate with the client. The title companies can be tricky because some of them are, you know, larger, big box, and they’ll just send blanket emails out and it’s hard to get in touch with someone individually. But I think it’s — you know, one of the things that I think is critical is that we know who the realtor is, and we know who the title company is. And then we know the individual in contact. And it usually goes very smoothly if that’s the case. So just having everyone on board. Normally the realtors are very important for us to know because we have to coordinate, we have to give the appraiser their information typically, just to show the house. But yeah, the title company portion is very important, especially as we get closer to closing because the bank or lender’s closing department is going to communicate with them and balance the figures for closing.

Tim Ulbrich: Very good. Yeah. I think with lots of parties involved, communication — always two-way, but making sure that you’re being proactive in that and of course if there’s questions that are outstanding, making sure you’re reaching out and vice versa to stay on time and on track with closing. I’m going to take No. 7, 8 and 9 because they hit home for me personally. And then we’re going to bring back Tony here to talk about No. 10 related to mortgage discount points. No. 7 is making a home buying decision before you are ready just because “rates are good” or because I’m renting and “throwing money down the drain.” Now we’ve talked about this extensively on Episode 113, Is Your Home an Asset or a Liability? We’ve talked about not only the pressures to buy a home but also the costs of home ownership and comparing renting versus buying. And so I would encourage folks, as we say on the show over and over and over again, to avoid the trap of making any financial decision in a silo. So here, if you’re talking with somebody and rates are good or you see commercials about rates or that’s the center of the conversation or somebody says, “Hey, why are you renting? You’re just throwing money down the drain,” now, you may conclude that it is the right time to buy. But the point I’m making here is to take a step back, what else do we have going on in the financial plan, working with hopefully a financial planner to help you evaluate that decision, look at all pieces of the puzzle, and then proceed with the home buying decision and the budget to buy a home if it makes sense in the context of your plan.

And that really is No. 8 in terms of these mistakes is not thoroughly evaluating how home buying fits in with other financial goals. And so I think as we talk about extensively, you know, if you’re looking at six figures of student loan debt, you’re looking at investing goals, you’ve obviously got other competing priorities for your finances, home buying just being one of those, how does it fit in? And of course, YFP Planning, our fee-only comprehensive financial planning team can help that. You can schedule a free discovery call, learn more, at YFPPlanning.com.

No. 9 mistake here is not thinking about available cash post-close. So we talked about how much money you’re going to need to be able to come to closing. But what about things like a rainy day fund to make sure that if something goes wrong in the home? What about things like furnishing the home? What about things like yard equipment? And so thinking about not only the cash that you’re going to need to bring to closing but also do you have some reserves? Do you have some cushion? What will that look like month-to-month as well as some funds that you have in reserves to be able to handle some of those expenses that will inevitably come after you move in?

And Tony here, No. 10 in our list of 10 common mortgage mistakes I think is misunderstanding or evaluating mortgage discount points, especially as folks are comparing rates among institutions or even within a lender. So talk to us exactly about what are discount points? And ultimately, how folks and tips for folks as they’re evaluating discount points as an option.

Tony Umholtz: I would recommend that you always ask for a no-point quote initially because, you know, some lenders will put that into their pricing. It’s funny, even the Freddie Mac that are posted in the Wall Street Journal, they typically have .6% points in the quote. So you know, I always say that if I put that in there, the rate would be even lower. But that’s really the important element is discount points — let me explain what those are. They are actually — it’s defined as prepaid interest. So you’re basically buying down the interest rate and for a finance person, it’s like you’re buying down the bond rate over time by paying the points at a premium. It sometimes can be a good investment. But most of the time, I don’t recommend it. And the way that you can tell if it’s a good investment is traditionally, on a 30-year fixed, 1 point will typically buy down a .25% in rate, typically. Sometimes ⅜ of a point. Well, over — let’s say it’s .25%. Over four years, you basically pay off the point you paid and then you’re kind of in the money, so as long as you own the home more than four years, you’re in the money. And then a lot of times, depending on your tax bracket and everything, you can write off that point in the year that you pay it. So if it was 2021 and you paid 1% on a $300,000 home let’s say, that would be $3,000. But you know, the spread in rate is important in determining if paying points makes sense. But I find that it typically is not the best way to go unless there’s a big spread. Like I had a — there was a time earlier in the year, especially on jumbo mortgages, larger loans that are above the conventional limit, where we were getting a half point for 1% fee. Well, that made sense all day because you had a two-year payback period on a 30-year fixed. Then you were in the money for a remaining 28 years if you stayed there. So for long-term people who are going to be in the home or own the home long-term, it can make sense sometimes. But to compare lenders, you really just want to ask, like if one lender offers you 2 — this is just throwing out numbers — 2.75% with 1 point and the other one offers you 3% with no points, you can ask the 3%, “Hey, if I was charged 1 point, what could I get? What could my rate be?” And if they came back and said, “It’s 2.625%,” well the offer from the higher rate person is actually better. So that would be one way to compare. But that’s a quick summary of points.

Tim Ulbrich: Yeah, great discussion there of points. I know that comes up a lot, and I think what we’re trying to get to, Tony, is an apples-to-apples comparison the best that we can to evaluate it. And I think you bring up another good point in that discussion, which is the longevity that you may be in the home. And I know that’s an important consideration, one that folks may not be able to predict in advance but to try to objectively evaluate that the best you can because that’s going to impact when you think about rates of the loan, you think about things like points, when you think about down payments and other issues and having to be able to expense a move in the future and closing costs and selling the home, you know, if that runway’s going to be long versus that’s going to be potentially short, that could have a significant impact on many parts of the home buying process. So there you have it, 10 common mortgage mistakes home buyers make and steps that you can take to avoid these mistakes. And to learn more about considerations when getting a home loan and to get more information about the pharmacist home loan offered by Tony and his team at IBERIABANK/First Horizon make sure to check out the post on the YFP site titled, “Five Steps to Getting a Home Loan.” And you can get there by visiting YourFinancialPharmacist.com/home-loan or if you just go to the main page, YourFinancialPharmacist.com, top you’ll see “Buy or Refi a Home,” and that will get you there as well. So Tony, appreciate your expertise as always and appreciate you taking time to come on the show today to talk about this important topic.

Tony Umholtz: Tim, thanks for having me. Really enjoyed it. I always do, and you know, appreciate being a partner with you.

Tim Ulbrich: Thank you very much. And as always, if you liked what you heard on 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 will help other pharmacy professionals find this show. Appreciate you taking the time to join us. Have a great rest of your week.

 

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YFP 190: 7 Ways to Reduce Your Monthly Housing Costs


7 Ways to Reduce Your Monthly Housing Costs

On this episode, sponsored by Insuring Income, Nate Hedrick, the Real Estate RPh, joins Tim Ulbrich to discuss 7 ways to reduce your monthly housing costs.

About Today’s Guest

Nate Hedrick is a 2013 graduate of Ohio Northern University. By day, he is a clinical pharmacist and program advisor for Medical Mutual. By night and weekend, he works with pharmacists to buy, sell, flip, or rent homes as a licensed real estate agent with Berkshire Hathaway in Cleveland, Ohio. He has helped dozens of pharmacists achieve their goal of owning a house and is the founder of www.RealEstateRPH.com, a real estate blog that covers everything from first-time home buying to real estate investing.

Summary

It’s no secret that housing costs, whether that be your mortgage or rent payment, make up a large chunk of many people’s budgets. For some people, housing can be 30% or more of their income. Nate Hedrick, The Real Estate RPh joins Tim Ulbrich on this episode to share 7 ways to reduce your housing costs. Reducing your housing costs allows you to have more disposable income to fund your other financial goals. It’s a win-win, right?

The first is downsizing your home. Many people think downsizing means moving into a tiny home or to an apartment that’s drastically smaller than where they currently live. If that’s what you want to do, that’s great, however downsizing can simply mean moving into a house that’s a bit smaller to help reduce the costs of taxes, insurance, utilities, and maintenance. The second way to reduce your monthly housing costs is to house hack. While house hacking may not be for everyone, this is a great stepping stone into real estate investing and can allow you to, hopefully, live for free. The third strategy is to get a roommate. Like househacking, this may not be an option for everyone, but having a sibling, friend, or even stranger live with you can allow you to significantly reduce your housing costs.

The fourth is geo-arbitrage, a concept that’s been picking up some steam over the years especially among those in the FIRE community. Essentially, in order to save money on housing costs, healthcare, or the general cost of living (think gas, food, taxes, transportation, etc) and get more for your dollar, you pick up and relocate to a new place. We know that the cost of living can vary greatly between cities but that your income may not increase or decrease accordingly, so this can be a powerful way to save money if it’s an option for you. The fifth strategy is to use Airbnb to increase your income. Although COVID-19 may make it difficult to put this in action at the moment, this is one to definitely consider when state’s start to re-open more in the future. Renting out your home, in-law suite, or room in your home can bring in extra cash and help you pay down your mortgage. The sixth way to reduce housing costs is to re-evaluate your homeowner’s insurance policy. Just like you’d shop around for car or disability insurance, you can do the same with homeowner’s insurance. You can also check in with your current company to see if there are any discounts available for installing certain security measures or for paying yearly vs monthly. The last strategy is to refinance your mortgage. With historically low interest rates, you may be able to significantly reduce your monthly mortgage payment. However, it’s important to keep in mind the total cost of the loan and any additional fees and costs you may incur when refinancing.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Nate, excited to have you back on the mic. How you been?

Nate Hedrick: Good, Tim. Thanks for having me.

Tim Ulbrich: It’s been I think a hot second since you were last on the show, Episode 178, where we talked about 5 lessons learned during your most recent investment property purchase. But I don’t want to assume that everyone listening knows who you are and what the Real Estate RPh is all about. So give us a brief background of you, your role in pharmacy, and how and why you started the Real Estate RPh.

Nate Hedrick: Absolutely. So I am a full-time pharmacist. I work with an insurance company here in Cleveland, Ohio. But I also moonlight or side hustle as a real estate agent. So I have my real estate license, have had that for four years now. And I work with local pharmacists and other health care professionals to help them buy and sell property here in Cleveland. And then that expanded a couple years ago into Real Estate RPh, which is a website that I run to educate pharmacists about the real estate process, help them find agents all over the country through our concierge service that we’ve partnered up with YFP for. So we do a lot of interesting stuff. And that’s really what my focus is on this year is really growing that network and being able to help more pharmacists around the country.

Tim Ulbrich: Yeah, it’s been fun to see that grow and more and more that are reaching out to you that are in that home buying process. So we will link in the show notes, obviously, to your site. We’ll also have some more information about the real estate concierge service for folks that want to learn more. We’ll come back to that throughout the episode. So today we’re talking all about ways — specifically, 7 ways — to reduce monthly housing costs. And I don’t think it’s any secret, I know from personal experience, that housing costs, whether that’s your mortgage or rent payment, make up a large chunk of many people’s budget. Now, check this out. According to the U.S. Bureau of Labor Statistics, people that fall into the top income quintiles, many pharmacists of course would be included in this, spend around 30-32% of their pre-tax income on housing. 30-32%. That’s a big chunk of your earnings that immediately are being spent on housing each and every month. And when you think about other competing financial priorities, the ones we talk about all the time on the show: student loans, child care, food costs and so — it may feel like there isn’t much money left to put towards other goals. So of course, thinking about strategies for reducing monthly costs I suspect is relevant for many. So Nate, when working with clients looking to buy a home, do you ever give them any insight on how much of their income they should aim to allocate toward those housing costs? And how do you determine that?

Nate Hedrick: Yeah, so you have to be a little bit careful as an agent, right? We are not financial advisors. You know, I don’t want to step outside my shoes a bit. But we always — whenever I’m meeting with a new client, I do make sure we talk early on about the importance of budgeting and making sure that they’re the ones setting the budget. I’ve had numerous clients come to me and said, “Hey, Nate, I got pre-approved for $600,000. What do you think about that?” And I said, “That’s great. What is your budget, though?” It’s a totally different question. So I always make sure that I bring that up, make sure that they understand that they need to set their own budget and then it’s my job to help keep them on budget. So if they come to me and say, “My budget is $300,000. I don’t want to spend a penny over that,” it is very easy for them to fall in love with a house that is $350,000. And it’s my job to make sure that they don’t go that direction, right? Especially if they’ve told me upfront, “This is our number. We want to stick to it.” I’ve seen it time and time again where if you start looking outside of your price range, all of a sudden, your price range goes up. So what I take my own role as is, “Look, I’m not going to tell you how to spend your money, but I’m going to help you stay on goal if that’s what you want me to do.”

Tim Ulbrich: Absolutely. And I can’t overemphasize enough, you know, what you’re pre-approved for and what the budget is likely are two different things. And so really taking some time up front, you know, what are you looking for? How does that fit in with the rest of your financial goals? Obviously biased on our end — working with a financial planner to help do that. And then you go through the home buying process and make sure that that home buying purchase fits in with everything else that you want to do. Nate, when you heard that BLS statistic, you know, 30-32%, of course we recognize we’ve got listeners all over the country. Cost of living here in the great state of Ohio is very different than cost of living up in the Northeast or out West. So we recognize that. But generally speaking, is that statistic, 30-32% of pre-tax income on housing, is that pretty common what you see among pharmacist clients?

Nate Hedrick: Yeah, if not a bit higher, right? I think that’s probably about right, but it tends to be that or more, I would say.

Tim Ulbrich: OK, makes sense. And of course, we have friends, family that are spending much more than 30% of their income on housing, maybe even spending 50% or more. And again, sometimes that’s subject to cost of living in certain parts of the country. So Nate, why is spending this much money on housing something that folks should — you know, I don’t know if avoid is necessarily the right word. Obviously for everyone it’s a personal decision. But that they should at least be aware of the impact that this might have on other parts of their financial plan.

Nate Hedrick: Yeah, absolutely. I think sometimes it’s easy to look at it and say, “Well, I can handle that payment today. It won’t be a problem. But what does that look like in five years? In 10 years? You know, are you going to be working as much? Are both of you going to be working if you have a spouse? There are a lot of things that you want to plan for the future, and getting yourself into the highest possible payment right up front kind of cripples some of the opportunities you have later. So you could easily become house poor, you could — honestly, I’ve seen pharmacists, I’ve talked to pharmacists, who feel like they’re living paycheck to paycheck because that housing cost is so darn much that they have to commit such a large portion of their income to basically staying on track. Up front, if you can make that decision to pare that back a bit, it makes your options that much better down the road.

Tim Ulbrich: Yeah, makes sense. And I think we have a bias and a tendency — I know I do — to tend to look at our future state through the lens of today, right? It’s just natural. So of course things could change, you know, incomes could go up, but also incomes could go down. So do you have margin? You know, what about financial emergencies and being ready for those things, things that we may not be able to anticipate happening at this point in time? So it’s obvious that reducing monthly housing costs, if we’re talking about 30% or more of pre-tax income, can have a huge benefit on your financial plan. We know that when it comes to the financial plan, obviously income and disposable income is what we need to be able to allocate towards our goals. So whether that’s short- or long-term goals. So let’s dig into seven ways that people can reduce their housing costs. No. 1, Nate, we’re going to talk about is downsizing. And I think when people hear that word, they immediately think of living in a tiny home, moving to an apartment that’s drastically smaller than where they currently live. And if that’s what people want to do, great. You know, we’ve talked with several pharmacists that have had very creative housing situations. I think of Rena Crawford that we had on this show talking about her housing situation out in San Diego and her creativity with renovating a van while she was completing residency. And certainly those are exceptions probably to the norm. But what do we mean here when we talk about downsizing? And why can this be such an impactful way to reduce housing costs?

Nate Hedrick: Yeah, I mean, anytime you’re talking about a larger home, more expensive home, it’s not just the house itself, right? You’re talking about more utilities. If you have more square footage, you’ve got more to heat, more electricity, all those different things go into it, more maintenance costs. If you’ve got a larger footprint of house, there’s more stuff that can break. So all of those things start to stack up. It’s not just a bigger house is it. So that’s kind of important. And what I find is that it’s not always about necessarily downsizing but making sure that when you start, you’re not upsizing, right? So downsizing can be a good move if you’re already in a house where you’re like man, this is really crippling our budget. We need to make a decision. But what I see most often is that people who take this ahead of time, before they ever buy their first house and think about OK, I don’t want to have to downsize later, what can I start with now and then work my way up down the future?

Tim Ulbrich: Yeah, that makes sense. And I think your point is a good one, being proactive — and not even just focusing on necessarily things like the square foot and the mortgage, of course, and those things but other things. You know, you mentioned taxes, you mentioned maintenance, you mentioned utilities. What about the lawn care? And really considering everything that’s involved — could be association fees and other things. How do clients that you work with — you know, I know one of the things folks may not necessarily be as obvious is OK, what is it going to cost me all-in per month? You know, of course you’ve got the mortgage and insurance and they’re thinking about those things. But they may not necessarily be thinking as much about utilities and other things. Of course, taxes are readily available information. I mean, is this information that’s typically forthcoming from the seller? Do people have to prod to try to get some utility payments and things like that to be able to best estimate what this is going to be for their budget?

Nate Hedrick: Yeah, I usually recommend to my clients to ask. I’ve seen some sellers — and I’ve done this once — where we actually posted, not our bills exactly, but I had the seller pull their previous utility bills and say, “Look, let’s just put this number out there. That way a potential home buyer can feel good about it, that it’s going to be $300 a month for all this,” or what have you. That’s definitely something that we’re seeing people ask for, and it’s a great way to get a true estimate of what that particular property might be costing someone.

Tim Ulbrich: Awesome. And I think it’s worth mentioning here, of course when we talk about real estate transactions, you know, there’s costs that are involved. So making sure you’re factoring that in. If you’re going to pick up and move, how great — this is a conversation my wife and I have all this — you know, what’s the true net difference, right? So you might look at, hey, we’re going to sell for $350,000 and we’re going to buy for $250,000. But when you really consider the transaction costs, obviously the fees involved, the moving expenses, really trying to evaluate this and understand what the net difference is. So that’s No. 1, looking at downsizing. No. 2 is house hacking, I think a topic that you and I love, love talking about, one that we have both said on this show several times, “Man, if I could do it all over again, I would have house hacked.” So something we talked about Episode 130, I had Craig Curelop on from Bigger Pockets, episode talking about house hacking your way to financial freedom. And that episode I thought was a great overview in his book of the house hacking process. And it’s a real estate investing strategy that we love but also can serve your primary home needs. So Nate, break it down for us. For those that aren’t aware or perhaps a refresher, what exactly is house hacking? And how can it be a powerful way to reduce housing costs?

Nate Hedrick: So house hacking at its core is the idea that you are buying a property in some way, shape, or form that you are going to live in part of it and you are going to have a renter live in another part. And so traditionally with a house hack, you’re looking at like a duplex, a triplex, or a quad, which you can buy as a — the bank looks at it like a single family home. But you can live in one unit and then you can rent out the others. And ideally, with a proper house hack, you’re having that renter basically pay for your mortgage or pay for your mortgage and your taxes in an ideal world. But the idea is that if you can live in part of the house, rent out the other part, you’re going to have far less housing expenses because you’ve got someone else paying for it for you.

Tim Ulbrich: Absolutely. And I think it’s certainly can look very different for the reasons you mentioned. And one of the things I like about Craig’s book on house hacking, he gives a lot of different examples from his personal situation, others that did it, that I think will give folks a variety of ideas about what house hacking may look like for them and how it may or may not fit into their home buying goals. So Nate, have you worked with clients that have done a house hack? And if so, what was their motivation?

Nate Hedrick: Yeah, actually, I’ve got one right now that I’m working with locally here in Cleveland that’s looking to house hack, which is fun. We’ve been doing — running numbers on houses recently and looking for opportunities. And right now, this pharmacist is actually living in a house with a couple of roommates, wants to buy his own place but doesn’t want the housing prices or the housing expenses to jump dramatically, right? If you go from living in a $400 a month room or whatever the cost is there to this big housing payment, it might be a shock to your budget. But if he can transition to only a couple hundred dollars because the house hack is paying for some of that cost, you can get your own place, start building equity, all the advantages of owning a home without this huge uptick in expenses. So I’ve been working with him to try to find that opportunity. And then we’ve got a ton of concierge clients throughout the country that have done this. I think we’ve talked with a couple here and mentioned a couple in the past that have primarily been searching for a house hack when they’re looking for their first house.

Tim Ulbrich: Love it. And speaking of roommates, let’s talk about roommates. No. 3 here on our list of seven ways to reduce your housing costs, No. 3 is get a roommate. Nate, I thought this wasn’t college anymore. So similar to house hacking, getting a roommate obviously could be a way to reduce housing costs. Talk to us about the role that this can play.

Nate Hedrick: Yeah, especially again, I think people overlook this because like you said, once you buy a house, like I can’t — I can’t go backward, I can’t have a roommate now. But it’s a great way — if you’re in a personal situation where it makes sense, it’s a great way to reduce your expenses for both people. And you can take this as simply as, you know, I’m going to have my brother move back and he’s going to pay me a little bit of rent, or is as severe as putting an ad on Craigslist and having a stranger come live with you. You know, we’ve actually gotten a chance to talk to a couple of individuals here that are experts in this, I would argue. Ryan Shaw on Episode 173 knows all about how to deal with roommates and keeping them sane. And then Bryce Platt, one of our concierge clients that actually went out and bought — Episode 160 for those that are looking for it. He actually went out and bought a condo basically that had — was set up to have three other roommates with him. And so that’s part of that process. So it’s not uncommon anymore, and it’s a great way to reduce your overall expenses.

Tim Ulbrich: Yeah, and I think it’s worth, you know, the reminder or maybe the obvious statement of your first housing situation will likely not be your forever situation, right? So whether it’s a roommate directly living with you or in a situation like Bryce, that may work for awhile and then you decide you may move on. But now you’ve got an investment property that perhaps you can hold onto as well. So that’s No. 3, get a roommate. No. 4, perhaps the most interesting, my favorite on the list, but also likely very unpopular to some folks that love where they live. This is geoarbitrage. And Scott Rieckens, author of “Playing with FIRE,” mentioned this on the podcast last week, Episode 188. And I think it’s such an interesting way to reduce your housing costs. And I think this actually stems back to some of Tim Ferriss’ work talking about geoarbitrage. So Nate, what is geoarbitrage? And how can it help someone’s budget?

Nate Hedrick: So it’s a concept that basically you are — and we’re seeing a lot of this grow in the FIRE community, like you mentioned Scott but many others in the FIRE community are embracing this idea that in order to save money on housing costs or the cost of living based on a certain area, you basically you pick up and move to a new place. And we’re seeing this really taking off, especially with the changes in how people are working during the pandemic and hopefully after the pandemic is over. Work from home is just totally different than it’s ever been before. And you can basically do your job from anywhere now. If Option 1 is to live in downtown New York in a tiny apartment for a huge, huge cost, but Option 2 is to do that exact same job in Cleveland, Ohio, here, your costs go down dramatically. And so a lot of people are looking at this like, are there other areas that I can live in that I can either find a better job or keep my same job and work remotely that are going to improve my overall housing costs without dramatically impacting my life?

Tim Ulbrich: Yeah and again, I think this is not a forever situation, right? I know I’ve brought this up to various groups when I’ve been speaking before. You know, often you get that look of like, Tim, are you really suggesting that I pick up and move? You know? And it’s not necessarily for everyone, right? Sometimes there’s family situations, other things, where this is not even a possibility for a variety of reasons. But I think sometimes, this is a way to think a little bit more creatively, especially for those that might be in an area where jobs are also saturated. You know, if you could get to a lower cost of living area and perhaps open up some additional job opportunities, this might be something to consider while also accelerating your financial goals. And I think, again, it really depends on one’s personal situation. But I think what makes this so attractive for pharmacists, Nate, you know this, I know this, our community knows this, we do see incomes change slightly in higher cost of living areas but nowhere near what they should proportionally to the expense of those areas, right?

Nate Hedrick: Right. Absolutely.

Tim Ulbrich: So an ambulatory care pharmacist in Cleveland, Ohio, and an ambulatory care pharmacist in San Diego, that salary difference — while there likely is one from my experience in talking with folks — it does not represent the cost of living differences between those two areas.

Nate Hedrick: Definitely.

Tim Ulbrich: And so you know, I think that because of the nature of how that is treated with pharmacy jobs, this concept might also be attractive. And check this out for a minute, Nate. We pulled some data from RentCafe. The average rent for a 700 square foot –703 square feet, to be exact — in Manhattan is around $3,800. But the average rent for a slightly larger place, 883 square feet, in Little Rock, Arkansas — shoutout to our community in Arkansas — is $830.

Nate Hedrick: There you go.

Tim Ulbrich: Of course, Manhattan and Little Rock are not the same thing. Very different cities, right, in terms of what people are looking for and so on. But it just highlights, you know, what does that mean for monthly cash flow, what are your options. And you know, when I see $3,800 a month for 700 square feet, you and I both know what $3,800 a month can buy in Ohio, right?

Nate Hedrick: Seriously. Yeah, it’s crazy.

Tim Ulbrich: It could go a long way. So again, you know, obviously leaving family, friends, your job can be tough. Certainly not for everyone, but I think it’s one thing to consider and for — you mentioned the reasons of mobility now with some jobs having some more remote capabilities. So that’s No. 4, geoarbitrage. No. 5 is Airbnb. Nate, this is one that I think really pushes people to be creative in how they are cutting expenses or bringing in additional income. And we had Hillary Blackburn on Episode 121, where she talked about creating another stream of income as an Airbnb host and specifically talked about how her and her husband rent out their Nashville home for about $600 a night. So talk to us about how folks can use Airbnb or a similar model, of course, we’re just mentioning Airbnb, and use their home to bring in some additional money.

Nate Hedrick: Yeah, I think it’s gotten a little trickier during COVID having somebody in your house or what have you. But still, the idea there is really solid. If you can use the space that you already have — and maybe this is an extra bedroom or maybe it’s a whole extra in-law suite or a pool house or you name it, right — if you’ve got a way to rent out some of that portion of that property that you already have, and it’s a desirable area especially, you can pull in a lot of extra income to offset some of those housing costs. And again, like you talked about Nashville being $600 a night, if you’re in an area that people want to travel to, especially as things start to open back up, I really think that there’s opportunity there for you to get some serious income for that place.

Tim Ulbrich: Yeah, and again, this is one that may make sense for some, not for others. We’ve got an Airbnb calculator on the site. You can see, you know, roughly what you may be earning as an Airbnb host. That’s YourFinancialPharmacist.com/airbnbcalculator. We’ll link to that in the show notes. So that’s No. 5 on our list of seven ways to reduce housing costs. No. 6, Nate, re-evaluate your homeowners insurance policy. I just did this, so this one is top of mind for me. But I think this is something, you know, we haven’t talked a whole lot about on the show but certainly could be a way that folks may be able to shave off money off of their monthly budget, especially if their policies may have creeped over time. And because of escrow and other factors, they may not be aware or as closely aware as they could be of that. So talk to us about re-evaluating your homeowners insurance policy.

Nate Hedrick: Home insurance policy, if you have a mortgage, right, it’s really one of the only things that you can change. Your taxes are consistent, right? The county’s going to set those. The mortgage and the lender payment is set by the lender. HOA fees, that’s all fixed costs. But the home insurance policy, kind of the other piece that usually gets wrapped into that, is somewhat flexible. And it’s not — it’s not as common to mess with the home insurance policy as someone might shop around for like car insurance or disability insurance or life insurance.

Tim Ulbrich: Right.

Nate Hedrick: But realize that you can actually make quite a bit of difference with your home insurance policy. And it can change dramatically based on a number of factors. So if you change your deductible, for example. If you go from a $500 deductible on a home insurance claim to $1,000, you might save 25% on your home insurance policy in some cases. The other thing I’ll see a lot with home insurance is that if you are what’s called escrowing your home insurance or your housing insurance, a lot of times that bank will say, OK, well, we’re going to pay — and escrowing, just briefly, is that you actually pay the bank, you pay the mortgage lender to handle paying your insurance company for you. So usually you’re giving them money every single month as part of your normal housing payment. They’re taking a portion of that, setting it aside in an untouchable account called an escrow account, and then from that account, they basically pay your insurance company. But what I’ve found is that if you have that money in escrow, you don’t get a lot of flexibility with how that payment works. And if you can pull that out — and some lenders will allow you to do this free, some may charge you a small amount — but if you can pull that out, you can get even more creative with how you pay it. I’ve noticed that if you pay your home insurance premium monthly versus yearly, you can get a huge discount by paying it all up front. And so if you know you’re going to be there and you have the funds to do so, you can actually pay it Day 1 of the year and get a whole year’s worth of that payment taken care of at a much lower rate. So there are more flexibility here than I think people really realize, but a lot of it comes down to what are you allowed to do with your lender? And what are you willing to do in terms of that negotiation process?

Tim Ulbrich: Yeah, and I think too — great stuff there, Nate — I think it’s important to note, as you mentioned, these policies vary, you know, in terms of what they coverage, what the coverage includes, obviously personal belongings, other features of policies, and one thing I notice in this process, which certainly makes sense for those that have gone through this one or more times before, is that it’s easy to get focused on price shopping and not necessarily do an apples-to-apples comparison on coverage. So you know, some of these policies may present themselves as oh, well, you know, we could save you $300 a year or whatever. But when you look at the close details of the policy, you might be changing some of your coverage components. So I found it helpful, if you want to keep coverage the same, essentially as you’re going out and getting quotes, say, “This is my coverage. These are the eight things that are included. Here’s my deductible, here’s what’s covered in the policy. And basically give me a quote for this coverage.” You know? So you can do an apples-to-apples type of comparison.

Nate Hedrick: And watch because some will call things something different, right? They’ll have this special feature with Company A versus Company B and it’s literally just the same thing but with a different name. So watch out for that. The other thing I wanted to mention too is that some of them will offer discounts based on certain parameters of your home. So if you live in a disaster-prone area, ask them about what you can do to your homeowners insurance policy by doing some disaster-proofing. Maybe it’s adding storm shutters or maybe it’s actually a security discount. I’ve seen where if you put in electronic locks or deadbolts, just simple deadbolts versus a regular door lock, they will give you a discount on your overall insurance policy. So there are a number of things you should ask about too, like is there any way for me to get a discount on this? What can I do to improve this?

Tim Ulbrich: Yes. Always ask for a discount, right? Yeah, and as some of you are looking to shop around, you know, certainly many ways that you can go about this. Policy Genius is somebody we’ve talked about before, allowing you to compare life and disability insurance quotes, now also has a platform to compare homeowners insurance quotes. Also, renters insurance as well. If you go to PolicyGenius.com/YourFinancialPharmacist, you can learn more. So that’s No. 6 on our list of seven ways to reduce your monthly housing costs. No. 7 is refinance your mortgage. Again, something that’s near and dear to me. We went through this process last summer. We’ve talked about how low rates have been recently for purchasing a home, for refinancing your mortgage over the last year. Nate, talk to us about what mortgage refinancing is and how this can ultimately lower monthly housing costs.

Nate Hedrick: Yeah, so think about refinancing as basically resetting or getting a new loan. Effectively, what you are doing is you are clearing out your old loan, someone is paying that old loan off, and you’re establishing a brand new loan. So it’s similar to — we’ve talked about student loan refinancing. It’s the same idea, right? We’re paying off what you currently have with Lender A, and we’re moving that to Lender B at a new rate or at a lower monthly payment. And so the goal here would be obviously to lower the interest rate and then hopefully as a result, your overall payments are going to go down. So you’re going to eliminate your — hopefully maybe eliminate PMI if you have that in place today. You can, again, drop your interest rate from maybe a variable to a fixed rate that is much lower. You could lower the term over which you’re paying that loan. So you could go from a 20-year rate to a 15 or a 30-year to a 15. And now your overall expenses for the longevity of that house are going to go down. So there are a number of ways that you can use refinancing to cut your costs. But if you’re looking to lower your monthly housing payment, a lot of times it comes down to finding an interest rate that is lower than what you have today and finding a term that makes sense for your financial plan and is less than what you’re paying already.

Tim Ulbrich: Yeah, and I think it’s, although obvious, worth reiterating one of the traps that I see folks often falling into is yes, you know, you can lower the monthly payment, but if you’re extending out the term, keep in mind the total cost of the loan, right?

Nate Hedrick: Yep.

Tim Ulbrich: So trying to make this as apples-to-apples as you can. If you’re already five years into a 30-year term, and you refinance out to a 30-year, obviously you’re tacking on five more years. So yeah, monthly payment might go down, likely will if interest rates are lower, but what does that mean in terms of the total amount paid over the life of the loan? And keeping that in mind as you’re evaluating various options.

Nate Hedrick: And don’t forget, you’ve got closing costs as well in there, right? So you’ve got to make sure that the actual process of buying that loan, you’re getting a new loan but there’s going to be closing costs associated with that to factor in as well.

Tim Ulbrich: Absolutely. Great stuff, Nate. Seven ways to reduce your housing costs, certainly a topic for the reasons we mentioned at the beginning I think folks are interested in. This won’t be the last time that we hear from you and so if you’re listening and you’re looking to buy your first home or you’re looking to move and you want to work with an agent, you don’t currently have one, as Nate alluded to, we’ve got the concierge service working with Nate. It’s free to our community to work with Nate, who will help get you connected with a realtor in your area. And you can go to YourFinancialPharmacist.com, click on “Buy or Refi a Home” at the top, and once you do that, you’ll see an option to find an agent and that will get you connected up with Nate. Also, if you’re looking for a loan, looking to refi your mortgage, want some additional information, again, YourFinancialPharmacist.com, and then you can click on “Buy or Refi a Home” and get some additional information. So Nate, as always, appreciate your time and expertise and thanks for your contribution on the show.

Nate Hedrick: Thanks for having me.

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


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 185: 10 Financial Moves to Make in 2021


10 Financial Moves to Make in 2021

Tim Ulbrich talks through 10 financial moves to make in 2021. It’s time to turn the page on 2020 and start 2021 off the right way and that’s with an intentional plan.

Summary

The start of a new year brings an opportunity to reflect, reset, and start fresh. It’s also an incredible time to dig into your finances and become really intentional with your 2021 financial plan. Tim Ulbrich talks through 10 financial moves you should consider in 2021 and how to make them happen.

Here are the 10 financial moves you should consider for 2021:

  1. Simplify and clarify your goals for the year
  2. Revisit the big questions and discussions with your spouse
  3. Take advantage of any low hanging fruit to get a win or two and gain some momentum
  4. Put your goals on automatic…and get out of the way!
  5. Revisit your student loan game plan
  6. Take your tax strategy to the next level
  7. Button up the insurance part of your financial plan
  8. Evaluate where real estate may or may not fit into your financial plan and goals
  9. Update your legacy folder
  10. Set your learning plan
  11. BONUS: Find a community and get a coach for accountability and guidance

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Tim Ulbrich here, and excited to turn the page on the New Year. Here we are, 2021, hard to believe we’re at the start of the new year. And we know that 2020 was a hard year for many, and I’m hopeful that 2021 brings a better year for everyone.

OK, let’s do this. 10 financial moves to consider for 2021. And spoiler alert: I’ve actually got 11, so we’ll have a bonus one at the end. Now, we know every new year, it’s a chance to turn the page, a chance to reset, and yes, it’s just an artificial point in time, a day that is really no different than any other day except obviously for tax reasons and of course, if something is changing at the 1st of the year, whether that be compensation or benefits. But regardless, those aside, it’s an opportunity to turn the page and let’s take advantage of the opportunity to reset. Now, perhaps resetting means that you’re someone who’s on track and it’s just reminding yourself of the plan that you have in place and celebrating the success and the wins that you’ve had thus far and wanting to keep that momentum going forward. Or perhaps the new year means that you feel like you’re not on track. Maybe you’ve got a plan or a plan that you need to dust off, and it’s a chance or an opportunity to reset course and to recorrect for the new year. Or perhaps you don’t have a plan, and it’s time to get one in place and it’s a time to evaluate what are the different parts of the financial plan and considering all of the things that are out there, what are the low-hanging fruit and what are the areas that you can begin to get some momentum on to be able to have longer term success as it relates to your finances?

So No. 1 — as we go to this list towards 10 financial moves to consider for 2021 — No. 1: Simplify and Clarify Your Goals for the New Year. Now, notice I didn’t say set your goals as I suspect that many of you are already doing that. We talk about that on the show all the time, the importance of having an intentional plan heading into the new year or just in general, an intentional plan as it relates to finances to know your compass and know where you are going. So rather, what I’m referring to here is bringing them into focus and getting specific with those goals to make sure that you’re laser-focused on how you’re going to achieve those. So we know, I know, you know, that there are lots of competing financial priorities, regardless of the stage that you are at within your financial plan. So perhaps you’re somebody who’s listening that has been out of school for a decade or more and you’ve worked through maybe the student loan debt that you’ve had, you’ve paid that off and you’re kind of on a next evolution or phase of your financial plan. There’s lots of competing priorities, even after getting rid of those pesky student loans. Or perhaps you’re someone who is a recent graduate or a student that’s listening and you’re trying to figure out, OK, I’ve got this behemoth of my student loans, and how do I begin to think about other things as I also face what is, of course, this big priority that’s right in front of me? Or perhaps you’re someone who’s nearing the retirement age or you’re in the latter part of your career and you’re trying to identify, OK, I’ve done all of this work, I’ve put these things into place and I want to make sure I go into this next phase of my career, next phase of my financial plan, and I do that in a way that is intentional and I do that in a way that is efficient to make sure I achieve the goals that I want to achieve and of course, lots of tax and other considerations that are there as well. So regardless of the stage that you’re in, whether it’s mid-career, end of career, new career, there are lots of competing priorities. And I’m convinced that the priorities, you know, don’t go away. But it’s a matter of how you can identify those and prioritize those to make sure you’re intentional with what you’re trying to achieve in any given period of time. And here, of course, we’re talking about heading into the new year. So if you haven’t already done so, put them down on paper. And my encouragement for you is to leave this to just a few financial goals that you want to make sure that you prioritize and achieve for the year. So I’m going to encourage three goals and that you write them in a way that provides you with the best opportunity to achieve that goal. So making sure you’re specific about the what of the goal, the when you want to achieve that goal by, and the why — what’s the purpose, why does that matter in terms of the rest of your financial plan and why is this specific goal important?

So let me give you an example here. If I were to say, you know, “Beginning Feb. 1, I’m going to allocate an additional $200 per month towards a Roth IRA so that I can grow my long-term savings in a way that aligns with my retirement goals or plan.” So when I get that specific with a what, with a when and a why — so here, we’re talking about what are we doing: an additional $200 per month towards a Roth IRA. When: by Feb. 1. Alright, how does that look in the budget? Now I’ve got an idea of when and how much. Why? So that I can make sure I’m achieving my long-term savings goals. That is a goal that we’re likely or increased likelihood of achieving because we’re getting specific and we can look at the rest of our financial plan to determine whether or not that is feasible and whether or not that is realistic.

Now, before you set your goals, you’ve heard us say this on the show before, you have to be clear on the why, the so what, the purpose. And we’ve talked about why finding your financial why is so important. And you know, really, what we’re trying to answer here is the question of why does this topic of money even matter to you? Or why does this specific goal and achieving this specific goal even matter? Why is this important? Why is this relevant? And that sounds like a relatively simple question, but if you have thought about this in depth before, you know that it is not. This is the “So what?” question. So before you get too deep into the x’s and o’s of any one part of the financial plan, whether that’s debt repayment, whether that’s investing or savings or insurance, whatever that would be, we have to first understand what we’re trying to achieve. And we talk a lot about our vision at YFP of helping pharmacists on their path towards achieving financial freedom. And my challenge to you is what does that concept, what does that term of financial freedom mean for you? There’s no one right answer. And that can certainly — will be certainly different for many folks that are listening to this episode.

So what’s the goal? So a few ideas to get things stirred up, hopefully to get you thinking about this topic a little bit more. I’ve talked with many pharmacists that say, “You know, when I hear financial freedom, I think about flexibility. I think about options of working or perhaps having the choice to work or how much I work or when I work. Even if I really enjoy the work I do.” Or perhaps it’s to be in a position of control with how you’re spending your time or your money. Perhaps it’s to be able to give, to be philanthropic. Perhaps it’s to leave a legacy or to travel without worry or stress or regret. Perhaps it’s to help family members or friends that are in need or be in a position to do that or to start a business or a movement or a foundation or a charity. You get the point. It’s the financial why, it’s the purpose, and that’s really going to help drive the rest of our financial plan. So that’s No. 1, Simplify and Clarify Your Goals. Set three financial goals for the new year. And then the background of those goals should be the purpose, the vision, the why of your financial plan such that if you achieve those goals, you’re one step closer to achieving your financial why.

No. 2, Revisit the Big Questions or Discussions with Your Spouse if this, of course, applicable to you and your personal situation. Could be a significant other as well. Now, I wrote a blog post way back when several years ago titled, “10 Financial Discussions that I Believe Every Couple Should Have.” And we’ll link to that blog post in the show notes. And you know, these are questions such as when you’re balancing financial priorities or making decisions, of all of the financial priorities you have to consider, whether that’s giving, saving for retirement, housing, transportation, paying off debt, and so on, do you and your spouse or significant other agree upon a plan for how you will balance these? How will you prioritize them? How will you fund those goals, in what order and when? Will you be focusing on several at once or just one at a time before moving on to another one? That’s an example of a big question or discussion to have. Another one, for example, might be around giving. How does each individual feel about giving? How much and where? How will this be budgeted for? Another one might be around the level of engagement. Is one individual taking the lead more than the other when it comes to managing the finances? If so, are both individuals aware of the overall financial situation? How do you talk about this topic? How do you communicate this topic? Are there shared accounts, individual accounts? So I’m just scratching the surface here, and I’ll reference you to that post. But my encouragement would be to look at these and maybe several of these you have had, maybe some you need to revisit, some you haven’t had. But the challenge here in No. 2 is to go back and revisit, discuss, rediscuss these questions with your significant other or your spouse with the understanding that the answers to these are of course going to be significant and inform the direction that you take with many parts of the financial plan.

No. 3, Take Advantage of Any Low-Hanging Fruit so that you can get a win or two and get some momentum early on in the year. Now, again, regardless of where you are at in the stage of your career or your financial plan, I think this is a very important concept for us all to consider. Is there any low-hanging fruit that we can get a quick win or two, get some momentum, so that we’re encouraged and motivated and want to be going on with achieving the other perhaps more audacious or bigger goals that we have set out for the year. So things that come to mind here, things that I evaluated myself in 2020, these could be shopping around auto or home insurance or have you looked at this in a while? If not, good chance to understand your coverage, shop these around, see if there’s any you can save without giving up on the quality of those coverages and policies. Perhaps you’re someone who has wanted to get a term life insurance policy in place or that is a need and it fits with your plan but for whatever reason, you haven’t done that. Relatively inexpensive, we’ll talk about insurance here a little bit in a few moments. Maybe it’s refinancing a mortgage. You know, I’m sure you all heard and read about where rates have gone in 2020, certainly probably into 2021, through the pandemic. And perhaps for whatever reason, you haven’t evaluated that. Is that something to consider? Are there any recurring bills that perhaps you’re not aware of or maybe have lost track of or bills that have gone up over time that you might be able to take a fresh look at and negotiate, things like cable and other services. Are you eligible for HSA savings? And we talked about this in episode 165, The Power of a Health Savings Account. But this is an example of a tax-advantaged account where there’s great benefits, the dollars aren’t enormous, but again, perhaps this small victory, this quick win, this low-hanging fruit that can help accelerate the rest of your financial plan. So do any of these resonate? Or are there any others that you would identify of things that you’ve been meaning to do that you know what needs to be done and you want to just take that next step and knock it out and to continue the momentum with other goals in 2021.

No. 4, Put Your Goals on Automatic and Get Yourself Out of the Way. Now, one of my favorite books, I’ve talked about it on the show many times, “I Will Teach You to Be Rich” by Ramit Sethi, he talks about this concept of automation, automation, automation. He goes through great examples of how to do it. We’ve also talked about it on this show, Episode 057, The Power of Automating Your Financial Plan. But the concept is simple: Once you set your financial goals, when your paycheck comes in, you have a system in place so that your goals are being funded right away and that you have a budget behind that to know that you’re not going to be putting yourself in a position where you’re overspending your income each and every month. Now, for those of you that have been doing this for some time, I think this concept of automation is also very important. It’s this concept of prioritizing your goals, paying yourself first rather than hoping you have money left over. And so perhaps it’s revisiting those goals, revisiting the amounts, the timeline, when do you want to achieve those, and building the systems — again, Ramit talks about that in “I Will Teach You to Be Rich,” we talked about it on Episode 057, how to build the systems so that once you get paid, once you have the goals, you’re automatically funding those accounts such that you are essentially assuring — hopefully — that you’re going to achieve those and behaviorally getting yourself out of the way, which often we individually are the biggest barrier to achieving our financial plan. So that’s No. 4, Put Your Goals on Automatic and Get Yourself Out of the Way.

No. 5, Revisit Your Student Loan Game Plan. Now, here we are at the beginning of 2021, ready to turn the page on a new administration in terms of the President and the President’s team, which may or may not bring additional changes around student loans. We don’t know that yet. But what we know of the first of the year, is that we know that the most recent stimulus package that was passed at the end of 2020 did not extend the administrative forbearance on qualifying federal loans that has frozen for the last nine months or so the interest that was due and any payments that were required on those loans. So it’s really been an incredible time period for those that have qualifying federal loans. For good reasons, payments were not due and interest was not accruing on those qualifying federal loans. So what’s going to come next? We don’t know. There’s been lots of hypotheses that have been thrown out there. There’s been several proposals that have been mentioned throughout the presidential debates and leading up to the election. But we don’t know. As of early January 2021, we don’t know what’s going to happen. Now, we do know that if nothing else happens at this point in time, this administrative forbearance is going to expire. But perhaps this could be continued through an executive order, perhaps there’s additional policies and legislation coming into the future. But we don’t know. So my point here is this is the time period, throughout the month of January, to take advantage of this administrative forbearance as long as it lasts — and if it goes on longer, great. If it doesn’t, you’re ready to go. Take advantage of this time period to come up with your student loan repayment plan or to evaluate or re-evaluate your options to make sure that you’ve got the plan in place that’s going to be the best fit for your personal situation. And we talked about this at length on several other episodes, we’ve got lots of resources on the blog, we’ve got, of course, one of our latest books, “The Pharmacist’s Guide to Conquering Student Loans,” which talks about A-Z student loan repayment for pharmacists. And you can get a copy of that book at PharmDloans.com, and if you use the coupon code “YFP,” that will get you 15% off. So this is the time period to take advantage of this administrative forbearance, as long as it lasts, understand and evaluate all your options, and be ready to go such that when this time period is done, you’re ready to hit the ground running with an intentional student loan repayment plan. Now, for those that don’t have student loans or paid them off, happy dance, right? We’re excited that we’re at this point in time, but perhaps this is also an opportunity to pay it forward and help those that are in this situation — it can be very overwhelming — through providing your input, your experience, maybe getting them a copy of a book like the “Pharmacist’s Guide to Conquering Student Loans,” or pointing them in the direction of some resources that could be helpful to them, things that you’ve learned through your journey, mentoring other folks, but an opportunity to pay it forward to those that are dealing with student loans and typically six figures or more of student loans front and center as they’re trying to attack this and come up with a plan in 2021. So that’s No. 5, Revisit Your Student Loan Game Plan.

No. 6 is Take Your Tax Strategy to the Next Level. Now, Episode 184, just last week, we talked about how to optimize your tax strategy. I brought on YFP Director of Tax and our CFO Paul Eikenberg, who’s our tax professional at YFP. And we talked about the difference between tax planning and preparation, a very important difference. We talked about tax planning mistakes that he sees, we talked about strategies that pharmacists should consider employing to optimize their tax situation. We talked about strategies around legal tax avoidance, tax deferment, and then opportunities to take advantage of those accounts and strategies where you can have tax-free gains. And we broke down each one of these strategies and ones to consider, and so go back and listen to Episode 184 if you didn’t catch that over the holidays. And this is the chance — if you have been someone that has perhaps had your tax filing on automatic and haven’t really thought about understanding all of the different options being a little bit more strategic with OK, now that we’ve completed the filing, what should we be thinking about for the next year in terms of more of a strategic tax plan? Perhaps this is the year where you look at bringing somebody into your financial plan that can really help you be more intentional with your tax strategy. So Paul, as I mentioned, leads our tax planning and preparation services for clients of YFP Planning. And this year, we’re excited to make that service available to 50 more households. And so you can learn more about the tax planning and preparation services that we’re offering and secure your spot by visiting YourFinancialPharmacist.com/filemytaxes. Again, don’t wait. We’re capping this opportunity at 50 pharmacist households. So first come, first served. Again, that’s YourFinancialPharmacist.com/filemytaxes.

No. 7, Button Up the Insurance Part of Your Financial Plan. This is the defensive part of the financial plan. Now, there’s lots of insurance to think about, right? Health, auto, home, renters — but here, I’m really specifically talking about life, disability and professional liability. And this is a part of the plan that I think often gets overlooked because it can be overwhelming to understand what one does or does not need. It can be perhaps not necessarily very exciting, right, to spend money on things that may or may not happen when you look at other priorities such as paying off student loans or investing or saving for the future. So my encouragement is learn first, shop second, and buy last. So first, determine what you do need, what you don’t need. So what does your employer offer? What do they not offer? Where are there gaps? What types of coverage do you need based on your personal situation. We talk about this at length on Episode 044. We talked about how to determine life insurance needs, Episode 045. How to determine disability insurance needs in Episode 155, why you need liability insurance and there of course, talking about professional liability. So learn first, spend time, dig in, understand life, disability, professional liability, understand the nuances of those policies. Shop second. Find an independent broker, and we’ve got some resources on the YFP site that can help you shop the market of what you do and do not need after you evaluate what you do or do not have from your employer, what other coverage do you need, what gaps exist? And then finally, buy last once you’re confident in what you need and the options that are out there.

No. 8, Evaluate Where Real Estate May or May Not Fit into Your Financial Plan and fit into your long-term financial goals. Now, I’ve said this before that as we focused on more real estate on this show in 2020, we’ll be doing much of that in 2021 as well, I’m not suggesting that real estate is for everyone. But I do have a sense that for many pharmacists, evaluating real estate investing — and there’s a lot of different ways to get there — is something that folks are interested in, encouraged in for a variety of reasons, and maybe have been on the fence about should I look at doing real estate investing? Is this a part of the financial plan that makes sense based on a lot of different factors? So looking at the risks, the rewards, what’s the goal? What’s the point? Why do I want to invest in real estate? What’s the point of perhaps generating additional cash flow each month? How might you get involved? Or how involved do you want to be or not involved? Do you want this to be more passive? Do you want it to be more active? Do you have opportunities in your area? Would it be outside of your area? Are there mentors or resources in your community that can help you? And so we have — as I mentioned — featured several stories in 2020, a few that come to mind, Episode 173, Ryan Shaw, all these pharmacists, Ryan Shaw talked about the systems that he has in place for the investing that he does. Episode 178, Nate Hedrick, our real estate expert, talked about his experience flipping a home up in Michigan. Episode 182, Young Park talked about his experience with long-distance real estate investing, lives in Hawaii, invests primarily in Kansas City, and how he has developed systems and how he has built the beginnings of his real estate portfolio. So I recommend you check out those episodes and really determining what your plan is in 2021 if you feel like real estate investing is a good fit. What’s the plan for 2021? Is it learning more? Is it making a move on a property? Is it finding a mentor? Is it more than one of those? So make sure to tune in here, more to come in 2021. We’re going to have more episodes, more content focused on real estate investing. We’re going to be launching a real estate regular show, regular podcast on this YFP podcast. We’ll have more information coming about that throughout the month of January and February. And we’re going to continue to build out more resources for those that are looking to learn more as well as engage and connect with other pharmacist real estate investors. Now, of course another great place to learn — as I’m sure many of you have already heard of when it comes to real estate — Bigger Pockets has great content, great resources, they’ve got forums, the podcast, the blog. And one of my favorite books for those looking to get started, “The ABCs of Real Estate Investing” they published as a book. So lots of places to go here. No. 8, Evaluate Where Real Estate May or May Not Fit into Your Financial Plan and Goals and determine where you’re going to take action as it relates to this goal.

No. 9 is Update Your Legacy Folder. Now, we talked about this. It’s been awhile, but way back when, early on in the show, we talked about this concept of a legacy folder. And I think as we turn the page on 2020, heading into 2021, this is a good time to make sure that you’re updating your systems and your files and you’re making sure that what you have in place is most up-to-date and relevant information. So I first heard of the idea of a legacy folder when taking Dave Ramsey’s Financial Peace University through a local church several years ago. And I remember walking away thinking, wow, so obvious yet so important and at the time was something that I hadn’t yet implemented for our own family and our own financial plan. And essentially, the idea of a legacy folder, whether it’s physical, electronic, or both, is a place where you have all of your financial-related documents so in the event of an emergency, others would be able to quickly assess your financial situation and get access to all of the documents and accounts that pertain to your finances. So examples of items here could include things like insurance policies, wills and power of attorney, account information for savings or debt or could be mortgages, could be credit cards, could be student loans, various savings accounts you have, whether that’s brokerage accounts, retirement accounts and so on. Essentially, a one-stop shop for all of your financial documents and making sure those that should have access or could have access or would need to have access know where that information is and how they can get ahold of it in the event of an emergency happening. Of course, you’ve got to think about security and how you secure that information, whether that’s physical, electronic, or both. So that’s No. 9, Updating Your Legacy Folder.

No. 10 is Setting Your Learning Plan when it comes to personal finance for 2021. Now, at YFP, one of our core values for our team is encourage growth and development. And we believe that for ourselves, for our team, and for you, the YFP community, this concept of constantly growing, learning and developing needs to be at the front and center of one’s financial plan, regardless of where you are at on this journey. Right? There’s always something to learn on this topic. So podcasts, lots that are out there, of course, this one. We hope you’ll tune in. I mentioned the Bigger Pockets podcast, there’s other personal finance podcasts and some resources. When it comes to books, of course there’s the classics: “Rich Dad Poor Dad,” “Millionaire Next Door,” other books that come to mind as some of my favorite personal finance books: “The Automatic Millionaire” by David Bach, “Tax-Free Wealth” by Tom Wheelwright, “The Truth About Money” by Ric Edelman, “The Compound Effect” by Darren Hardy, “The Behavioral Investor” by Daniel Crosby, and one that I recently read that’s not as well known, “Happy Money: The science of happier spending,” written by Elizabeth Dunn and Michael Norton is a great resource, not on the x’s and o’s of the financial plan but more on when it comes to how we use our money, what are some of the things where when we think about our why and our purpose and driving value and happiness, how can money be used as a tool? And what does the science really have to say in that area? So set your plan, look at the options. There’s many out there. I’m sure the YFP Facebook group would have other suggestions as well. And set your learning plan for the year and be intentional about making that a priority in 2021.

No. 11, as I mentioned, I had a bonus here. No. 11 is Find a Community and Get a Coach for both accountability and guidance. Now, when it comes to the community aspect, I hope if you’re not already, you’ll be a part of the YFP Facebook group. I think this is a great community that is really encouraging in some regard, mentoring, helping one another on their path towards achieving financial freedom. I think we’re now a community of about 8,000 strong pharmacy professionals all across the country, so hope you’ll join us. And in terms of getting a coach, we really believe one-on-one comprehensive financial planning is what leads to the greatest accountability and the customization of all of these topics that we’re talking about to one’s individual situations. And so I think this derives the greatest results for the obvious reasons of it’s one-on-one, it’s intentional, it’s consistent, it has accountability, it’s specific to your goals and your plan. But we recognize that it may not be for everyone for a variety of reasons. But if you’re not yet already aware or participating in our comprehensive financial planning one-on-one services, you can schedule a discovery call today, no obligations, see if it’s a good fit for you, a good fit for us. And you can do that by going to YFPPlanning.com, click on “Schedule a Discovery Call,” and we’ll get you on the calendar here in the next month. We also talked about in Episode 181, for those of you that are thinking about is a financial planner a good fit, we talked about many of the topics of financial planning of what we do at YFP but also what are important to look at in general? Fee-only, fiduciary, comprehensive, making sure you’re finding the good fit of financial planning services that are specific to your individual needs. And that was Episode 181.

So there you have it, 10 financial moves to make for 2021 or to consider, plus one in terms of the bonus of finding a community and a coach for accountability and guidance. And speaking of that community, as I mentioned in the introduction, we’ve got an awesome giveaway to go along with this episode to kick off the new year. I mentioned how important it was for my own financial plan and journey to find good resources. And we’re excited to be sharing those with the YFP community. And so we’re going to be doing that through a giveaway in this early part of January where we’re giving two winners in the YFP Facebook group a one-year YNAB subscription, a pair of Apple Airpods, and a copy of “Your Best Year Ever” by Michael Hyatt. So two individuals will win each of those three things. And to enter, you have to be a part of the YFP Facebook group and then comment with your 2021 financial goal on the giveaway post at the top of the group.

So let’s have a great 2021. Let’s approach this year with intention, with purpose. I hope you’ll share your goals, your success, your wins, your questions, with the community in the YFP Facebook group. And as always, if you liked what you heard on this week’s episode of the Your Financial Pharmacist podcast, please do us a favor and leave a rating and review on Apple podcasts or wherever you listen to the show each and every week. Have a great rest of your day, and here’s to an awesome 2021.

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


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 178: 5 Lessons Learned from Nate’s First House Flip


5 Lessons Learned from Nate’s First House Flip

Nate Hedrick, the Real Estate RPH, joins Tim Ulbrich to recap the 5 lessons he learned from his first real estate investment flip. Nate digs into how he found the deal, how he ran the numbers, what went well and what didn’t and how he sees real estate investing fitting into his financial plan.

About Today’s Guest

Nate Hedrick is a 2013 graduate of Ohio Northern University. By day, he is a clinical pharmacist and program advisor for Medical Mutual. By night and weekend, he works with pharmacists to buy, sell, flip, or rent homes as a licensed real estate agent with Berkshire Hathaway in Cleveland, Ohio. He has helped dozens of pharmacists achieve their goal of owning a house and is the founder of www.RealEstateRPH.com, a real estate blog that covers everything from first-time home buying to real estate investing.

Summary

Nate Hedrick, the Real Estate RPh, got into real estate investing in 2016 after reading Rich Dad, Poor Dad by Robert Kiyosaki. This book inspired him to diversify his assets, so Nate pursued real estate investing as a way to do just that. He obtained his real estate license shortly after and started to work with and learn from real estate investors.

Nate has grown to love the BRRR method (buy, rehab, rent, refinance) which allows him and his wife, Kristin, to preserve their capital while continuing to grow their portfolio. Although Nate lives in Cleveland, Ohio, it’s difficult to find a BRRR property there. He connected with a partner in Michigan and was able to find a great deal. He purchased a 3 bedroom, 1 bathroom, 1,400 square foot single family home from a wholesaler for $8,000 that needed a lot of work done to it. Nate digs into the 5 key lessons he learned from flipping property:

  1. Run your numbers, carefully.
  2. Plan for something to go wrong.
  3. It’s not like HGTV.
  4. Prepare multiple exit strategies.
  5. Trust your team.

Nate digs into each lesson learned and explains why they are so important to remember if you are on your own real estate investment journey.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Nate, welcome back to the show.

Nate Hedrick: Thanks. Always great to be here.

Tim Ulbrich: So we had you on not too long ago, Episode 160 where you actually took over the mic, interviewed Shelby and Bryce about their home buying experiences and working with you through the Real Estate Concierge service. So time for me to take the mic back as we go into this next episode. But how have things been going for you?

Nate Hedrick: They’ve been great. It’s been great. You know, COVID’s made everything a little trickier on both the pharmacy and the real estate side, but it’s still been doing really well. And actually, Kristen and I are enjoying the extra time we’re getting with the girls here at home. So it’s been really great.

Tim Ulbrich: Absolutely. Definitely a silver lining I guess if there is one in the pandemic. You know, I’m guessing our listeners might be wondering how you as a opportunistic real estate investor are looking at real estate, the market, in terms of both what you’re seeing as an agent but also as an investor in the midst of the pandemic. So give us some insights from your viewpoint as both an agent and helping people get placed into homes as well as an investor. How is the pandemic impacting things on both sides?

Nate Hedrick: Yeah, it’s really interesting. There’s so many different aspects we could talk about. It could be its own show, quite honestly. But the highlights are that right as the pandemic hit, there was kind of a big lull. And then as we started to open things back up and the lockdowns started to end, we saw just a huge, huge seller’s market. Everybody wanted to buy, get into a home, and nobody was selling. And we’re still kind of fighting that, actually. The clients that I’m working with right now, I’ve got four houses under contract. And all of those were snap decisions. And it had to be very, very quick. So it’s still pretty much a seller’s market. I’m starting to see some slowdowns in some areas of the country. I was actually talking with a partner this week about some of the things that they’re seeing where a house that used to be sold within 24 hours is now sitting there for two weeks, which is — again, if you look back over the years, that’s nothing. But for what we’ve been experiencing, that’s kind of crazy. But I think the biggest thing to kind of watch for and where I’m taking a bit of a pause here for a little bit is just obviously the election results that are pending as we’re talking today and then where COVID’s going to progress over the course of winter. I think that will affect things in terms of renters being able to either buy or not or things like that. So there’s a number of factors that I think will be interesting to watch as we head into 2021.

Tim Ulbrich: Absolutely. And as our community already is — knows you and the work that you’ve been doing, and we’re going to continue that throughout the year into the new year, obviously going more into the spring and home buying season in 2021. So stay with us because there is a lot changing. You mentioned obviously the election. As we record right now two days post-election, results still not decided as we hit record. And then of course we’ve got the pandemic and everything else that may come at us that we don’t know at this point in time. So we’ll keep you updated. Hang with us whether somebody is looking to buy for the first time, whether they’re moving, whether they’re looking to jump into a real estate investing property or expand upon the portfolio that they have, we would love to be alongside of you in that journey. So Nate, I wanted to bring you on to today’s show because of a recent article you posted on your Real Estate RPH, and we’ll link to that in the show notes, called “5 Lessons Learned Flipping my First House.” And before we jump into those lessons, I’d love for you to first talk about how and why you got into real estate investing. So here, we’re talking about your first flip. But it’s not your first investment property. So why you got into real estate investing and ultimately, you know, why you decided to go this route in terms of flipping this home.

Nate Hedrick: Yeah, so that’s great. My whole real estate journey really started with the idea of wanting to be a real estate investor. If you go back, way back to 2016 when I first read “Rich Dad Poor Dad” and started getting into real estate investing books, I just — I caught the bug and was like, I’ve got to do this. And that led me to getting my real estate license for a number of various reasons. And I started working with investors to really start to learn the process and figure it out. But I’ve always wanted to do it. I think I look at it as a really great way to diversify our assets and to create passive income. And I think, again, when you change your mindset a bit from I want to work for 50 years and hopefully my retirement’s enough at the end to I want to work now to figure out how to make sure it’s enough at the end, it makes it very, very clear that real estate investing is almost necessary, in my opinion. So it really, it was kind of an inevitability. And then how I was going to do it really changed the more Kristen and I talked about our plan together and what opportunities were available to us. And so for us, one of the things that we read about early on and really liked was the idea of what’s called a BRRRR. And we’ve talked about this on the podcast before, but the idea is that you buy a place, you fix it up, you rent it out, and then it’s worth more, so you refinance it, do a cash-out refinance at the bank. And then you pull that cash out of the deal, and you can repeat the process. And the advantage of that method is that you preserve your capital. So if I saved up $50,000, let’s just say, and went and dropped that as a 25% down payment on an investment property, that’s great. And I’ve got a property in hand. But now I have no money to do the next deal. And I have to go start saving that all up again. And that’s actually what we did for our very first deal was we went out and we bought a basically a turnkey property for our very first investment property. And that was great except that, again, there was nowhere to go from there. We had $0 in the bank for the next one. And so it became a process of looking for a way to do the BRRRR method. And that way we could start preserving that capital. And so that was where this flip idea came from. And really, we’ve been following that process ever since.

Tim Ulbrich: That’s great. And I know one of the conversations you and I have had on more than one occasion is the balance between paying off student loans and investing. And as I’ve shared on the show before, this is probably the most common question I get if we’re doing a session where we’re speaking on various topics: “Hey, should I be paying off my student loans or should I be investing?” And here, we’re obviously talking about real estate investing, which is just one pathway, one route of investing. But I sense that many other listeners are weighing this same decision, whether it’s real estate investing or more traditional investing, you know, how do I find this balance between paying off my student loans and ultimately beginning to save and invest for the future in whatever way that looks like. So how did you and Kristen reconcile and decide to move forward with your real estate investing plans while still working through your student loan debt?

Nate Hedrick: Yeah. And like you said, I think you said it perfectly. It’s a balance. It’s all about finding that balance and finding the risk tolerance and the comfortability that works for you. I think it’s very easy to sit back and look at the $100,000-200,000 in debt that most of our pharmacy friends here have and say, ‘I can’t possibly think about anything else right now. I’ve got to tackle that.’ But what we basically have done is we’ve really worked on getting those loans refinanced down to a very, very low level. I think my loans today sit at just under 3% —

Tim Ulbrich: Wow.

Nate Hedrick: — which if you look at — yeah, it’s fantastic. And I’ve refinanced them I think five times through — actually, most of those times through YFP. So thank you for all of the bonuses.

Tim Ulbrich: You might beat Tim Church soon, yeah, on the refinance record.

Nate Hedrick: I’m close. I’m close. And the idea being that if you can get that interest rate, at least in my opinion, if you can get that interest rate down low enough, you’re basically matching inflation at some point. And so it’s not free money, but it’s about as close as you can get. And so what we feel comfortable doing was get those loans to a manageable amount, get them to a payoff monthly that we could really feel comfortable handling, and then once that interest rate was low enough, now you start to look at, OK, well if I put $1,000 onto that loan or I put $1,000 into an investment, whether that be an investment property, a stock, whatever, which of those two strategies builds your net worth faster and makes you feel better at the end of the day? Because a lot of it comes down to can you sleep at night if you have these outstanding loans? And so while we’re very aggressively working on paying down those loans, we just have different buckets of money that we’re allocating our extra resources to. And a lot of those happen to be on the investment property side.

Tim Ulbrich: That’s great. And I think we should, you know, put out there that when we talk about finding this right balance, you know, from my perspective, we’re doing it under the assumption that one is doing their homework, understanding the risk, understanding the upside. We’re obviously going to talk about an opportunity here that you’ve invested in and others that we have featured on the show that have had good outcomes. But that certainly can be good, cannot be good, depending on a lot of different factors. And so finding that balance, finding what you’re comfortable with, making sure you’re feeling confident in what you’ve learned in that process, finding good mentors, all things that we’ve talked about before on the show, are really important as you’re dabbling really in any part of your financial plan but here, as we talk about investing in real estate. So let’s dig into the flipping experience in more detail. So tell us about this particular opportunity. Where was the property? How much was the purchase price? Tell us about kind of the square footage, the bedrooms, and what you’re working with as you got that property under your name.

Nate Hedrick: Yeah, great. So we actually — so as many of our listeners know, I live in Cleveland, Ohio. And so we had previously been looking to purchase our investment properties here. Well, the market’s actually really good in Cleveland for investors. And so it’s actually been ticking up year over year. And so it’s becoming more difficult to find a good BRRRR property here. And again, that our goal, right? We could go out and buy a property with a big down payment and 25% down and so on, but we wanted to BRRRR a property. And so I started reaching out to some pharmacists around the country that I know were in the investing space, had a couple different conversations with a couple different partners — and actually, Tim, you and I were involved in some of those discussions, which was great.

Tim Ulbrich: Yep.

Nate Hedrick: And connected with a partner up in Michigan. And we were able to talk to them about, you know, the properties that are going on in Michigan and what they were doing from an investing perspective, and basically when I looked at it, it felt very much like Cleveland, but everything was half price. And this particular area was set up where it was still kind of hitting that resurgence, it’s still a bit early I think to call this area kind of up-and-coming. It’s on its way. But that actually made it a good target for us because we could get in on a much lower price point, we could fix the property up for a lot less and still accomplish that goal of achieving a BRRRR without needing to have $100,000 in the bank.

Tim Ulbrich: Right.

Nate Hedrick: So when we looked at that, we said, this kind of fits all of our criteria, we think that the upside is there from an appreciation standpoint, properties can cash flow, we looked at all the different parameters that I think are important in assessing a location for investment properties. And then we just happened to get kind of lucky on finding a good deal. We got this deal through a wholesaler. The — I don’t mind sharing we bought the house for $8,000.

Tim Ulbrich: Say what?

Nate Hedrick: If you had asked me before I started as a real estate investor if you could buy a house for that cheap, I would have said, “No, that’s like a car. You’re talking about a car.” But no, we bought this house for $8,000. And it’s a 3-bedroom, 1-bath. It’s about 1,400 square feet. Little single family with two bedrooms upstairs, one bedroom downstairs. And it was an absolute disaster, as you can probably imagine. And we can get into the details, but yeah. It was worth $8,000 when we bought it. It was pretty bad.

Tim Ulbrich: And Nate, you know, someone who is listening — and I know early on and I certainly still consider myself very much a newbie in this space. And I look at a property like that — and we’ll talk more about the numbers about what it’s currently valued at for rent and all those types of things. And our listeners will hear a huge margin between $8,000 and where it’s currently valued. And I think people might look at that number and be like, why would somebody even sell that if they saw the opportunity themselves? Why wouldn’t they do the rehab? Why wouldn’t they flip it or hold onto it and rent it? So tell us a little bit more about that wholesaling relationship and ultimately why a wholesaler would want to pass this on if you look at this as a good investment opportunity. Why wouldn’t they just keep it themselves?

Nate Hedrick: Yeah, yeah. Great question. I think it varies a lot depending on the individual. In some cases, you’ve got someone that either has paid — they can’t afford their mortgage any longer, they can’t afford their taxes anymore, they’re simply looking to offload that property so they can get their finances back under control. Or you’ve got someone that either a family member passes away and now you’ve got a different family member trying to take care of a property, and they’re just trying to settle the estate, they’re not interested in becoming a real estate investor, they just want to get rid of this property. This particular property had — the person had actually moved down with family down south and basically abandoned it. They had zero interest in taking care of it any longer. And I really don’t think they had the ability to do much with it, quite honestly. So it sat there for a long time. As we’ll talk about, it had some interesting problems inside. But it sat there for awhile. And basically, they just said, “I want to get rid of this. Here’s what I need to pay off my mortgage, and here’s where I’m at.” And that was it.

Tim Ulbrich: And I don’t want to miss too — and I know you can speak to the value of the relationships, of the networking, of the partnerships, but as you told the story — and I’m sure many people outside of Ohio would look at maybe even a Cleveland market and be like, please, can I get a deal at those prices. And obviously you’re looking at numbers a little bit differently and saying, OK, Cleveland is going up — and of course we’re talking about relative to other markets — Cleveland is going up, and here’s another opportunity out of area, out of state, which to some listening may feel very uncomfortable if they haven’t had experience with doing out-of-area, out-of-state investing. And one of the things that really jumps out to me with this example is the value of having good partnerships, having a good network of folks that can help not only identify some of these opportunities but also that may be an expert in that local area or market and can give you some assurance on other experience that they’ve had as it is perhaps an uncomfortable territory. So tell us about that part of the journey. Was that an uncomfortable pathway for you and Kristen in terms of out-of-area investing? And how did you ultimately say, hey, it’s worth it even if we can’t see it or put our finger on it. For me, I was surprised at how easy it was to invest out of state. I think one of the things that helped was that we had previously purchased an investment property. So I walked through it, understood what that looked like. It’s a very non-emotional decision. And so it’s much, much easier to look at the numbers, look at the math, talk to the contractors and kind of make a decision based on that. You don’t have to walk in it because you’re never going to be living there. And so that made it a bit easier. Again, it also really helped that we had awesome partners and boots on the ground that could really help with that. I think no matter where you’re investing, whether it’s two streets away from you or two states away from you, you need to have that awesome partnership and have those people that can actually give you the real information that you need unless you yourself are that expert. So again, if I’m buying a house here in Cleveland, I don’t even use a real estate agent. I represent myself because I can be that expert in this area. But if I was buying anywhere else, I’d have to have all those experts anyway. And so this wasn’t that different just having those people in place.

Tim Ulbrich: Yeah, and I would recommend too — we’ll link to it in the show notes — but Bigger Pockets, among the many resources they have, they have a book on out-of-area investing that I found very helpful and insightful just getting you to think about it but also the importance of some of the systems and the processes and how to ultimately be able to manage and invest in opportunities that may not necessarily be in your backyard. So let’s dig into the five key lessons that you learned along the way. And again, so we’ll link to this in the show notes your article that you published on this at Real Estate RPH so folks can read more and check out the other content that you also have out there, which is fantastic. So five key lessons that you learned along the way through this flipping experience: No. 1, run your numbers carefully. So tell us more about this and really why it’s so important and ultimately the strategies you used here for your first flip.

Nate Hedrick: Yeah. So just like we talked about, it’s a business decision when you’re buying investment property. This is not an emotional, ‘Oh, I don’t know if I like that kitchen,’ like, whatever. It doesn’t matter. You need to run your numbers and focus on those, which some people might really like because if you’re a data person, if you’re an analytical person, this actually makes it really easy. So like I mentioned, we were trying to use the BRRRR method to flip this property and then rent it out. And one of the things that the BRRRR method really focuses on is when you do that cash out refinance, the goal is to pull all of your investing money back out, right? You want to be able to recycle that capital. And so what most lenders will do is they’ll give you a loan at 75% loan-to-value or LTV. And that 75% loan is based on the after-repair value, or the ARV. Sorry, we’re throwing all these acronyms at you. But the idea is that you want to buy a property, fix it up, rent it out, and then it needs to be worth a certain amount of money so that 75% of that amount is more than or equal to the amount of money that you invested.

Tim Ulbrich: Right.

Nate Hedrick: So if you’re buying a property and let’s say it’s $100,000 when it’s all said and done, and you’re going to refinance that $100,000, getting $75,000 from the bank. You can’t spend more than $75,000 to buy that property, fix it all up, pass all your permitting, all that stuff needs to be done for under $75,000. So the numbers are actually fairly easy. We actually went out and had an appraiser come out to the house — actually before we bought it. And we said, “Look, if we did all of this work,” and we laid out really detailed notes about here are the things that we’re going to do in the kitchen, here’s how the bathroom’s going to look, here’s how the flooring. We actually provided pictures from other flips that my partner had done. And we said, “Look, if we do all of this work, what do you think it will be worth based on the market conditions, based on the property size and all that?” And once we had that number, we were able to start working backwards and say, “OK, 75% of that number is this. That’s how much we can spend. Let’s see if this deal makes sense.”

Tim Ulbrich: That’s great. So you mentioned, let’s get more specific about this deal. And obviously we’ll use round numbers, not a perfect calculation. But you mentioned buying it from the wholesaler for $8,000, you mentioned getting that up front estimated after-repair value, that appraisal, and then obviously you had the investment to actually do the work. And then of course there’s a reality of what that appraisal may come in and ultimately when you do that cash out refinance, which you’re not yet there, right? That six-month window, you’re still waiting on that?

Nate Hedrick: Yep, we’re getting close. So basically the end of December is when we’ll be eligible, so we’ll probably refinance around then or beginning of January.

Tim Ulbrich: Wow, that went quick.

Nate Hedrick: I know. I was thinking the same thing the other day. I’m almost behind at this point because I haven’t started the process yet. I’ve talked to some lenders, but it’s not there yet.

Tim Ulbrich: Yeah. So if you bought it for $8,000, talk us through then if your goal as the investor is to try to get as much or perhaps all of that cash back out so as you mentioned at the beginning of the show, you can go ahead and do this again — and we should clarify here, you mentioned the 75% loan-to-value. If you accomplish that and you get all of your cash back, you still essentially — obviously you have a mortgage on that property, but you have essentially 25% equity in that deal. So you know, we’re not talking about leveraging full tilt here. You still would have some margin if the market were to flip or go down. So you have a little bit of wiggle room. So talk us through the numbers here and whether or not you’re able to accomplish that or come close.

Nate Hedrick: Yeah, and I really like — that’s a good point because I think a lot of people look at this, and they go, oh, you’re overleveraging like crazy. But you’re right. We still have 25% equity in that house once that refinance is done. And so I feel really confident that that’s a comfortable place to be. That’s like buying a house with 25% down payment, which is more than most people do. So yeah. We’re going to feel good about that. So the house itself was $8,000. Then there was a wholesaler fee, a sizeable wholesaler fee. We’ll call that several thousand dollars. And so that’s basically a finder’s fee for the wholesaler. And these can vary anywhere from — I’ve seen them as low as $1,000. And I’ve seen them as high as $25,000 on some deals. Where basically that wholesaler is saying, “I found this deal for $8,000. And I’ll let you buy it for $8,000, but you’re going to pay me some amount to basically give you that great deal.” So we had to pay the wholesaler’s fee on top of that. And then once we got the appraisal done, they were looking at this, and they said, “We think that based on the level of rehab that you’re going to do and the properties in the area and so on, we think that the house will be worth around $75,000 when all was said and done.”

Tim Ulbrich: Wow. OK.

Nate Hedrick: Yeah, which is great. Now, again, this place was utter trash when we purchased it. So there’s a lot of work to be done, but what we looked at that and said, “OK. Well if we’ve got $75,000 of potential property value, 75% of that is about $56,000.”

Tim Ulbrich: Yep.

Nate Hedrick: So there’s a lot of room in there for us to start making some rehab decisions and finding a way to make ends meet.

Tim Ulbrich: So on this deal — and again, I’m oversimplifying a little bit here, Nate, but to follow the numbers — you buy is for $8,000, you have a wholesaler’s fee, a finder’s fee, and then you’re looking at that $8,000 plus the wholesaler’s fee and then any margin or really room up until that 75% number, $56,000, as your number of when you look at estimating rehab costs and other things, and obviously things could go better than you expect, things could go worse, you’re trying to anticipate where that may or may not go, making sure you have margin. But as long as you stay under that $56,000 number, if that appraisal holds around $75,000, and you do a cash-out refinance at 75% loan-to-value, you essentially that whole $56,000 back out of the deal and get all of the money back. Is that simple math? Am I following correctly?

Nate Hedrick: Yep. You’re spot on. That’s exactly the goal, and that’s how we went into it.

Tim Ulbrich: OK. So you know, one of the other things that I know I think about as I hear you talk about this, I’m sure our listeners are, is hey, Nate, I’m a pharmacist. Like I have no idea how to estimate rehab costs. So this is great as you’re talking, OK, I get the property for $8,000, I pay a wholesaler fee, I get all that. But I can look at a property, I can say, eh, good, not so good, maybe really bad, not as bad, really good, not so good, but that’s the — my Lichert scale ends there, right? I don’t have much differentiation of what I can define in terms of how much is needed or certainly things that may be seen versus unseen. So how do you as an investor either estimate those costs or make sure you’re working with the right people that can help you get a good estimate on what those costs will be?

Nate Hedrick: Yeah, I’ll be honest with you, I’m also fairly terrible at estimating rehab costs. I walk around with my clients as a regular real estate agent, and they say, “Nate, this looks broken. Any way — like what would it take do this?” I have no idea, we should ask a contractor. And that’s what we really did with this property is I trusted my team more than anything.

Tim Ulbrich: Yeah.

Nate Hedrick: And we built that, again, based on a lot of relationships and based on past experience. I was able to talk with the individuals that I work with and seen that they had done this work before. And so when we actually let our contractor walk that place, they were able to say, “Look, I think based on everything you’ve got going for you and all these unknowns that we still have, let’s start working out budget details.” And we really took it line item-by-line item to really break down everything that was going to go into those costs that we could feel good about our offer and feel good about how much we were going to be potentially spending.

Tim Ulbrich: Awesome. OK. Great stuff. So that’s No. 1, run your numbers carefully. And I just want to echo here too, you know, one of the things I know that really resonated with me early on with the very limited experience I have is the importance of really trusting and running your numbers. And I think it’s easy to look at something like a property that is $8,000 and then you look at wholesale fee and you’re like, what the heck? The deal’s only $8,000, why is the wholesale fee, you know, whatever that amount is? As you mentioned, there could be a big range. But run the numbers. I mean, ultimately, you’ve got to figure out like is that justified or not? And you know, obviously that person needs to be paid for the work that they’ve done in finding that deal. But if the numbers make sense, they make sense. If they don’t make sense, then you move on, you know? And I think that’s really part of the value of having a system to be able to run your numbers.

Nate Hedrick: Yeah, don’t get hung up on how much they’re making on the deal.

Tim Ulbrich: Exactly.

Nate Hedrick: I have seen deals with other investors where the wholesale fee is more than the purchase price of the property. And that feels like what the heck, this doesn’t make any sense. Why are they making more money than I’m buying the house for? But again, without them, you don’t have a deal to work on. So it’s not something to get hung up on. You’ve got to focus on the final numbers.

Tim Ulbrich: Alright. No. 2 is plan for something to go wrong. And oh boy, do you have some examples here with this property. So you know, tell us about why this is important for plan for something to go wrong both financially as well as maybe just your sanity. And you know, what went wrong with this deal? And how did you plan for it?

Nate Hedrick: Yeah, so this is something that, again, I really underestimated in my head what this was going to look like. I think we’ve all watched flipping shows on TV, and all like — again, I’ve read all the books, I thought I knew everything. And so when we walked into this property, I was like, OK, we’ve got to estimate all these rehab costs, and then we’ll set aside $2,000 for that thing that goes wrong. And really, again, really leaned into my partner on this one. And he said, “Look, with all of the unknowns that we have, we need to set aside a considerable amount of change for a potential problem to come up.” And so just to start giving you some real numbers, we originally budgeted I think around $25,000-30,000 for the full rehab. And then on top of that, we added an $8,000 contingency plan, which is a huge chunk. I mean, that’s like a third basically of our budget almost as a what-could-go-wrong factor. And to me, that felt really large and I was like, man, we’re never going to need that $8,000. That’s even bonus money as far as I’m concerned. But again, my partner was like, “Look, set it aside, put it in the numbers. Trust me. If we need it, you’re going to be so happy you did that up front.” And again, I learned a lot from that because I wouldn’t have set aside $8,000. And I’ll tell you, by the end of the deal, we ended up using about $6,000 of that entire contingency budget. So it’s a really good thing I listened to him and set that extra money aside when running the numbers. So we had a couple things that — a couple different things to go wrong. And actually one that I didn’t even get to put in the article because it happened early last month, so about a month ago. So I’ll tell you about that in a minute. But there was a number of issues, and I put them all in my article, but one of the biggest ones that I think was really surprising to me was that there was trash all over this house. I mean, like hoarder level trash up the walls and everywhere. And so there was a lot of unknowns what was under that garbage. And as we moved all that junk out and had actually the cleaning crews come in and take care of everything, realized that the walls and the floors themselves had been rotting underneath that stuff. There were entire areas where you could see from one room to another through the wall that had basically fallen apart. And so we did not anticipate that level of damage down that far. And so almost all the walls had to be removed, replaced, patched. We spent over $4,000 more on our budget for walls than we were anticipating. And again, that’s just one of those things that you don’t know it until you get in there, really. And that became kind of a bigger problem than we anticipated.

Tim Ulbrich: And if I remember correctly, that was the major thing. But you had other things that maybe folks here would be like, it is major, but obviously in the perspective of what you just mentioned, relative to that. So you had quite the issues with fleas.

Nate Hedrick: Yes.

Tim Ulbrich: And even some more minor things that may not be expected, which is having crews available to paint and the heat of the summer, not being able to stay as long as you thought they would, and that delayed some of the timeline, which of course time is money when you’re talking about these types of opportunities. So collectively, as you went through that as a first-time, were you shocked? Surprised? Was it a, ‘it is what it is’? Or did having that partner involved also help reassure of hey, I’ve been through these before and it stinks, but it’s not the end of the world?

Nate Hedrick: Yeah, I think, again, that’s the whole point of this kind of point 2 here is plan for those things to go wrong. That way you’re not going to be surprised. I think every time I got a call from my partner and said, “Hey, here’s what’s going on on the property this week,” it wasn’t like, oh no, now the whole deal is ruined. We really felt like, well, that’s awful. But we’ve planned for it, let’s move forward and get it fixed. The biggest, like the nagging — you mentioned the fleas. That problem drove me absolutely bonkers. I was so upset with that. It was one of those things where, again, I planned for a problem. But I didn’t plan for it to be so hard to fix, right? LIke everything else I can throw a little bit of money at it and it goes away. This took two different exterminators, four separate treatments, two weeks of no job time. We actually had a fifth treatment after all that was said and done to make sure that when the new tenants moved in, they felt really comfortable with the whole place and it was absolutely bug-free. It was only I think — all said and done, I think it was like $600 for all of that, which is not that big in the grand scheme of things, but it was the biggest hassle to get that fixed.

Tim Ulbrich: Sure.

Nate Hedrick: And it just, it was the problem that would not go away.

Tim Ulbrich: Yeah, and I think if I remember, I had a similar issue with another property, and it was not as much on the cost side but just the coordination and then the time where if they’re coming in to spray and that you’re coordinating with other people working in the home, there has to be some space there as they’re doing their work. So more of a nuance, right, then anything. And of course you want the new people to feel comfortable as well.

Nate Hedrick: Yeah. That was big for us too, right? Like we wanted to provide really nice housing for somebody. And I don’t know about you, but I am not moving into a place that has fleas. And so we wanted to be 100% certain that we had completely taken care of the problem and that we had something in place that if anything did come back, we had a very fast action plan to basically mitigate that going forward. So we did a lot of work to make sure that was taken care of. And again, it was just a pain to get it all done.

Tim Ulbrich: Alright. No. 3, it’s not like HGTV. So talk to us about what you mean here.

Nate Hedrick: Yeah, so again, I think it’s really for us to watch all the flipping shows and get this idea of you buy a property, you put in the highest end everything, you make it camera-ready, and then you make money and it’s easy. And I think when Kristen and I went into this, we were very quick to look at the kitchen, look at the bathroom, and say, “Oh yeah, we’ve got to do a tile backsplash, we really want to upgrade this to elevate this rental to be like the best in this area.” And again, talking to our partner, talking to our contractor, we quickly realized that if you follow the HGTV plan, you’re probably going to blow your budget. There are absolutely areas where it makes sense to do that and put in everything as high end as possible, but you’ve got to look at your market. Again, we bought an $8,000 house. I can’t spend $8,000 on tile for the backsplash. That doesn’t make any sense. So we really had to kind of reign ourselves in — and I think I put in the article, the goal is to make it the nicest house on the block, not the nicest house in the city. So really trying to kind of take off the HGTV lens and move it onto OK, what makes sense for a rental? What’s going to get us the best return on investment? And what’s going to make this a really comfortable, safe place for that person to live? One of the examples of this that I think kind of exemplifies what we were looking to do, we actually had bought — we wanted all stainless steel appliances, right? Kitchens and bathrooms sell, so that made sense for us. We wanted all stainless steel appliances, upgraded kitchen. And we actually went out and bought some of these through the 4th of July sale at Home Depot at the time. So we said, “Great. We got this deal.” Well, COVID shut the world down, obviously, over the summer. And that delayed pretty much everything coming overseas, which most of these appliances were. And there was a huge backlog on appliances basically all summer long. And we got to the point where we were at the end of July, we were trying to get this place rent-ready. And the appliances kept getting pushed back. I would get a phone call every other week, and they would delay them by another week and another week and another week, and it was just, it was getting so frustrating. And so we said, “Look, these are going to be things that don’t allow us to rent the house. We’re not going to have a kitchen for anyone to go into.” So we actually had to pivot and start looking for some local deals on some appliances. And unfortunately, we weren’t able to find the stainless steel that we wanted. Now, we got really nice, high end appliances that were in great condition, but they’re not that, again, HGTV look that I think we were going for. And we had to get over that. We had to get past that and say, “Look, this is a really nice, functional kitchen. And it probably doesn’t truly hurt our rent value, quite honestly.” It might hurt our refinance a little bit because it’s not nearly as nice as the house that has the stainless steel, but it’s still going to accomplish our goals, and we’ve got to be OK with that. And it took some time to be able to pivot and make that mindset change.

Tim Ulbrich: Good stuff. And No. 4 here is preparing multiple exit strategies. And I really appreciated this being able to be a fly on the wall with you and your partner in this deal, to hear this conversation, to hear the two of you talk about the importance of exit strategies and having options and why that is so important. So tell us about how you viewed the exit strategies and also how you think about this more broadly as you’re investing in a property.

Nate Hedrick: Yeah, so one of the things that’s been drilled into my head listening to Bigger Pockets and reading about investing strategy and so on is that you always want to go into an investment with multiple exit strategies, whatever that looks like. If you’re buying a place to flip it, you should make sure the numbers also work as a rental. Conversely, if you’re buying a place as a buy-and-hold, you should make sure that it works as an Airbnb or something else, right? You want to make sure that it has a secondary plan in case what you were intending goes wrong. And so when we got into this house, we said, well, we actually need to have at least two exit strategies. And we actually developed three throughout the course of this plan. And so when we walked into it, we say, we can either buy it and hold this place, do the BRRRR method like we intended to, or the market is so hot right now, we should look at this as a potential flip opportunity as well. And so we really went into the deal with those two mindsets. Like this is either going to be a flip or it’s going to be a buy-and-hold BRRRR. And up until — we were probably halfway through the rehab and we still hadn’t really decided what made more sense. And at that point, we said, we’ve got to talk about this and figure out the plan. And we developed another plan. We said, well, we’re halfway through. We’ve gotten done with all of the big, scary stuff, right? Like the roof had been looked at, the furnace, all the big, scary stuff had been taken care of, all the trash had been moved out and so on. And we said, this place is pretty ready to go. It’s not fixed up by any stretch, but it’s ready to go. And so we looked at the idea of potentially selling it as what I call a prehab.

Tim Ulbrich: Yep.

Nate Hedrick: Which is where you’ve gone in, you’ve bought it for a certain price, you’ve fixed it up to a point where it’s very saleable to somebody who wants to come in and finish the work. And so we thought, you know, if we can find an investor that’s interested in buying this at this stage, we might still be able to turn a pretty nice profit and then not have to worry about the inspections and the permitting and all the stuff that comes at the end. So we even at one point had three exit strategies. Obviously we eventually decided to follow the BRRRR method, and we have a renter in there right now and all that. But throughout the course, we allowed ourselves to have other strategies and exit opportunities just in case they made sense at some point. It really made sure that we limited our risk and opened up our potential for opportunities.

Tim Ulbrich: And what are you looking for, Nate, for if you’re considering, hey, am I going to flip this or am I going to hold this and follow kind of the BRRRR method we’ve been talking about? What are some of the factors that are helping you make that decision?

Nate Hedrick: Yeah, gosh, that’s a — there’s a lot, right? So for us —

Tim Ulbrich: Another episode?

Nate Hedrick: Yeah, it’s another episode. No, it’s a great question, though. For us, it came down to look, if we’re going to spend all this time, effort, risk, money, we have to get a significant amount of return on it. And so if I’m putting in — again, I talked about almost $40,000 on a rehab, that’s a sizable risk. And we took a lot of risk to get there, right? We bought an $8,000 trash property. It better be something that we get something out of at the end. And so when we were assessing it, we said, look, if we can get to a flipping profit that is significant enough to justify that risk, then maybe it’s worthwhile. The other thing that I looked at is that, again, this market, I really want to be involved in this market. I want to hold property there. We’re already starting to talk about our next deal in the area. And so I was very set on trying to retain this property if that made sense in any stretch. And so again, the process was simply evaluate the potential for return and weight that against the risk that was put in and the amount of capital that was put in up front to get to that level of return. And again, it just became a business decision, which made more sense?

Tim Ulbrich: Good stuff. And No. 5 here is trust your team. And this is something we’ve talked about on previous episodes, building a team that you can trust and obviously that being an important part of this discussion as you’re building your real estate investment portfolio. So tell us about your team, what did it look like, how did you find those people, and what’s your advice for people that are looking to create their own team?

Nate Hedrick: Yeah, and I think we’ve talked about this a bit as we’ve gone through. It really started with that partner and making sure that I had somebody that was boots on the ground that could help us get coordination. Because from that partner came the contractors, that came the real estate agent, actually. We worked with that partner as well to find property managers that they recommended, and so I was able to interview property managers based on their recommendations. And then that property manager, again, kind of bringing in the real estate agent piece, they were able to recommend some people along the way for various things from title to making sure that the permitting was done correctly. And then of course, we had — on kind of my end — we had the insurance agent, I had to make sure that we got this all properly insured and under umbrella policies and all that other stuff. We had to bring in our financial planner and our accountant. Actually, I got to call up Tim Baker and Paul over at YFP and say, look, guys, here’s what we’re doing. And Paul had to get his extra notebooks out for me because I always bug him with weird questions. But we said, look, this is what we’re trying to do. Help us work through this, make sure it’s going to make sense for our financial plan personally. So all those different people are really essential and finding each one varies based on where you’re doing this, what you’re doing specifically, and what your needs are. But a lot of it starts with kind of that one person on the ground. And again, in our case, it was that partner. In most cases, it’s usually going to be your real estate agent or your property manager. And so if you are looking for a place either out of state or even locally, I really recommend starting with that solid real estate agent, that person that understands investment property because they’re going to be the one that’s going to connect you with all the people that you need. And that’s really, really essential.

Tim Ulbrich: Yes, so important for the reasons you mentioned, having a good team in place, have the right people in your corner. I was just talking with a pharmacist real estate investor in North Carolina this past week, and one of the things he shared was as they are still relatively early in their journey — I think they’ve got 3 or 4 deals now under their belt — what they’re finding is as they have continued on that journey, they’ve identified other folks, and as they’ve identified other folks, one of whom had become a partner, that that had then brought other opportunities that were now coming to them. And you hear this all the time on Bigger Pockets where people say, you know, once you get momentum and you show that you’re a good investor and you do things the right way, ultimately, these relationships will start to take off and you often find that deals start coming your way, which really puts you in a different position, obviously, to be able to grow and scale the work that you are doing. So there you have it, five key lessons that Nate learned along the way of this investment property. No. 1, run your numbers carefully. No. 2, plan for something to go wrong. No. 3, it’s not like HGTV. No. 4, prepare multiple exit strategies. And No. 5, trust your team. And again, we’ll link to that article that he posted on his blog over at Real Estate RPH so you can check out the show notes at YourFinancialPharmacist.com/podcast, find this week’s episode, and you’ll see that information there. Nate, one of the notes I made as you were talking was there had to be a lot of time invested here. So talk to us about you’ve got a young family, you’ve got a full-time job. Like you’ve got other things going on. So give us a sense of the time commitment and ultimately how you justify that time as you looked at this opportunity.

Nate Hedrick: Yeah, just like most of my side hustle life, it’s a lot of early mornings and late nights. So again, it was funny. I think every morning early, I got up and had emails going out for all of the real estate activity that I’ve got going on. But this was one of them. And then every night kind of the same thing. And again, by having the proper people in place, the partner, the contractors, you know, all the people that are actually doing all the work, I mean, I’ll be honest, I’ve never — I have yet to set foot in this property. And I don’t know that I ever will. There’s no need to because I’ve got people on the ground that can do that kind of work. And so the time invested for me is actually not that extensive. It’s really just decision-making time and then letting those decisions play out through the professionals that we’ve put in place. So you know, it was decisions with Kristen and discussion with Kristen at night, sending out an email, sending a follow-up email in the morning, usually. And then that was pretty much the whole day. The worst thing was if I had a phone call over lunch or something to talk through an issue with our contractor or whatever. But that’s about as much as was necessary. I think if you put the right systems in place, you’d be surprised how much little time is actually required to do all this work.

Tim Ulbrich: Well good stuff as always, Nate. And we appreciate you having you back on the show. And I’m sure it won’t be the last time. And appreciate you giving us kind of the inside look into your own person journey and your willingness to be transparent with that and certainly to share that information to be able to help others that are evaluating this as an opportunity in their own personal financial plan. So what’s the best way for our listeners to connect with you if they want more information about your journey or perhaps they’re also interested in the Real Estate RPH-YFP concierge service.

Nate Hedrick: Yeah, absolutely. Head on over to RealEstateRPH.com. You can actually find me, I’m all over your site too, Tim, on YFP. But Real Estate RPH, you can find us. Get connected with our concierge service. That’s actually the best way to get in touch. You can schedule a 30-minute phone call with me. We can talk about investing, we can get you hooked up with an agent, whatever you might need. That’s the best way to reach out to me. And then of course I’m on Facebook, Instagram, LinkedIn. Just find me there.

Tim Ulbrich: Great stuff. And for those that are looking to buy a home, if you go to YourFinancialPharmacist.com, you’ll see a section at the top called “Buy or Refi a Home.” From there, you’ll see an option to connect with an agent. That will take you to Nate and the concierge service. So the whole intent of that is to really be able to utilize Nate’s experiences as both a pharmacist as well as an agent as well as an investor here as we’re talking about, really to be someone that can help you along that process, that can pair you up with a trusted local agent in your market, and ultimately be there alongside of you throughout the journey. And so I think that is an important aspect and value of that service. And again, you can learn more at YourFinancialPharmacist.com, click “Buy or Refi a Home,” and then “Find an Agent,” and you’ll get to Nate’s information there. As always, to our YFP community, if you liked what you heard on this week’s episode, please leave us a rating and review on Apple podcasts or wherever you listen to the show each and every week. And I hope you’ll join us if you haven’t already in the Your Financial Pharmacist Facebook group. Over 7,000 pharmacy professionals committed to helping one another on their path towards achieving financial freedom. So thank you again all for joining, and have a great rest of your week.

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


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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About Today’s Guest

Stephanie Hale, Pharm.D., BCPS is a pharmacist for WellSpan Health System in south central Pennsylvania. She completed her pre-pharmacy studies at Rutgers University and the University of Maryland, Baltimore County. Stephanie then completed her Doctor of Pharmacy degree at the University of Maryland School of Pharmacy.

While enrolled at the University of Maryland School of Pharmacy, Stephanie worked as an intern for Wal-Mart Pharmacy. Upon graduation in 2008, Stephanie practiced retail pharmacy at Wal-Mart. In 2009, looking for a change, she accepted a staff pharmacist position at WellSpan Health and courageously transitioned from the comfort of retail pharmacy to the diverse world of hospital pharmacy in a Trauma Level 1 hospital. Within 2 years, Stephanie was promoted to a Clinical I Pharmacist position giving her the opportunity to participate in patient specific dosing regimens including pharmacokinetics, total parenteral nutrition, and anticoagulation. During her time at WellSpan York Hospital, Stephanie earned her BCPS certification and was a member of various committees, all while having and raising two wonderful children.

In 2019, Stephanie transferred to WellSpan Gettysburg Hospital. With her vast experience and knowledge, Stephanie immediately became an integral member of both their inpatient staff and the outpatient infusion team.

Earlier this year, Stephanie’s federal loans were discharged through the Public Service Loan Forgiveness program. Stephanie and her husband are looking to use the money that is no longer going toward those monthly payments to explore real estate investing.

Summary

When Stephanie Hale graduated pharmacy school in 2008 she had about $100,000 of federal student loans and $20,000 of private student loans. After the six month grace period, Stephanie was left feeling overwhelmed with what to do, so she consolidated the loans so she’d only have to make one payment a month.

In 2016, one of Stephanie’s colleagues that had recently graduated began talking about PSLF at work and how he was pursuing it. This caught Stephanie’s attention as she didn’t know what it was. After looking into PSLF, she realized that she worked for the right type of employer and was approaching her ten year anniversary at her hospital. She transferred her loans to Fed Loan Servicing in September 2016 and learned that the repayment plan she was in didn’t qualify for PSLF forgiveness. She needed to be in an income-driven repayment plan, however this would have increased her monthly payments significantly. She put PSLF on the back burner and circled back to it in 2018, this time discovering that TEPSLF (Temporary Expanded Public Service Loan Forgiveness) could be an option for her.

After researching TEPSLF’s requirements and with a lot of patience, perseverance, organization and diligence on her part, Stephanie was granted forgiveness for over $70,000 of federal student loans in May 2020.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Stephanie, thank you so much for taking time to come on the show.

Stephanie Hale: Hey, thank you for having me. Hopefully I’m able to help anyone who’s thinking about going through this journey.

Tim Ulbrich: Really appreciate your willingness to do that, and I think it certainly is going to be the case and excited for everyone to hear your story. And we are often asked if PSLF is a viable option and if pharmacists should even consider it given all of the news and attention that it has received. And so when I saw your comment on the YFP Facebook group about receiving forgiveness through the TEPSLF program, I knew we had to bring you on the show because I think it’s going to do exactly that — it’s going to give some more information and perhaps some will realize maybe they’re eligible for something they didn’t know they were eligible for, weren’t thinking they would meet that eligibility criteria, and it’s going to be an example for someone who has actually walked down this path and received that forgiveness. So before we dig into your PSLF journey — or I guess your TEPSLF journey, however we want to say it — I’d love to hear more about your background in pharmacy, where you went to school, and what your career story has been thus far.

Stephanie Hale: Yes, so I did my undergrad at Rutger’s University in New Jersey. I did a year there before deciding I was going to transfer to be closer to home. So I did another year of undergrad at the University of Maryland-Baltimore County. And then the following year, I started at the University of Maryland School of Pharmacy in Baltimore. So I graduated in 2008 from pharmacy school and throughout pharmacy school, I was an intern at Walmart and I figured that’s what I was going to be doing. I enjoyed it a lot. And then about a year out, I decided that I wanted to try something different. So I had called one of my location sites a local hospital, and luckily they were hiring. And so I started there September of 2009.

Tim Ulbrich: Awesome. Very good. Thank you for sharing that. And I think it’s a good segue into our discussion about the debt journey and ultimately, the forgiveness journey. So let’s talk a little bit more about student loans. You get to the point of graduating. So tell us a little bit about how much you had at that point, how you felt about the debt while you were in school, as well as while you were making that transition and that point in time what your plan and strategy looked like to ultimately pay back the student loans.

Stephanie Hale: Yeah, so while in school, I just figured hopefully I’ll graduate, I’ll have a great job that makes good money. So I will pay it back. So when I graduated, I had roughly about $100,000 in federal loans and about $20,000 in private loans. And after graduation, you know, you had about six months’ grace period. I got to looking into everything with all the paperwork they sent you. It was a little overwhelming. And so I decided at that point to consolidate my federal loans. I was like, I’m going to miss a payment if I don’t consolidate. I forget how many different lenders there were. So I did consolidate, which proved to be helpful later on.

Tim Ulbrich: Very good. And at that point, was PSLF even on your radar? And if not, when did that come into play?

Stephanie Hale: So I think PSLF was new in 2008, so it was not on my radar. So I had consolidated to a 30-year loan, decided I’m just going to pay for 30 years, and this is the way it’s going to be. At the time, I wasn’t married but I was engaged to my husband. And we were planning for a wedding, so I figured 30 years is what we could afford at the time, we were paying for an apartment at the time, so I had just had thought OK, well it’ll be 30 years, and we’ll see what happens.

Tim Ulbrich: Awesome. So looking at a long 30-year timeline at that point, obviously as you mentioned, PSLF was new, so enacted in 2007. So that was the first group, wasn’t even eligible for receiving that tax-free forgiveness until 2017. So one of the things that we have talked about on the show before is that I think for individuals such as yourself that graduated in that time period where shortly after PSLF was enacted, legislatively, you know, while that happened, there wasn’t a whole lot of good guidance around what folks should do. And I think like there was certainly much better advice that’s out there today. So many folks out there may be unaware of the options as well as whether or not they were PSLF-eligible. So when did PSLF then come on your radar?

Stephanie Hale: So I had been working at the hospital, and I think around 2016 or so, a colleague of mine was talking about it. He was newly graduated, he started working there, and he’s like, I’m going to be doing PSLF. What’s that? So I looked into it, and I was like, well, I guess it doesn’t hurt to try. So in doing that, you have to transfer your loans to FedLoan, so I did that. That was about September 2016. And I did get the denial saying my loans did not qualify. So at that point, I kind of just put it on the back burner and didn’t even think about it for awhile.

Tim Ulbrich: And when they sent you that rejection in 2016, and then you mentioned putting it on the back burner, what was the rationale for the rejection at that point in time?

Stephanie Hale: I would have had to change income-based payments, and the payments would have been a lot more than I could afford at the time. I believe it was going to be — my payments were roughly $600. And I think that they were going to go up to like $1,100 or $1,300. And we had already at that point bought a house, I had one kid, thinking about having another. So I was like, I don’t think we can do this. So at that point, I had been paying my loans for almost 8 years. And I was like, well, I’d have to start all over again and be another 10 years and by that point, I’ll have been paying 18 years. And I didn’t know if it financially made sense.

Tim Ulbrich: Sure, OK. So I want to make sure I’m summarizing correctly because I think this is such an important part of your story. At this point in time, 2016, you hear about PSLF, you obviously have been in the workforce, you’ve been working for an employer that would count as a qualifying employer, and obviously you’ve been making federal student loan payments all along the way. But you weren’t in a qualifying repayment plan. And so obviously the pieces here that we need to consider would be one, you’d have to get into a qualifying repayment plan — and we’ll talk about the logistics there with TEPSLF — but at that time, that would have meant a significant bump in payment per month, an extra $600 or $800 per month, which obviously is significant. It matters. But you did make the change in terms of FedLoan servicing as your servicing company, which would have been the loan servicing company for those that were pursuing PSLF. So that door was still open.

Stephanie Hale: Yes.

Tim Ulbrich: And then fast forward a couple years, and why did you end up coming back to this in 2018?

Stephanie Hale: So like I said, I was just going about my business and I don’t know — like I said, I saw it on Facebook or I saw it just scrolling through the news about TEPSLF. I’m like, oh, what’s this? So I started reading it, and I was like, I think I might qualify for this. And that was I want to say August of 2018. And at that point, I’d had a second kid, working full-time. So very busy. So I actually didn’t look more into it until I think it was closer to December when I actually sat down and I was like, I need to look into this and see how I can go about this. So I knew that I was coming up on 10 years with my employer and I had the correct type of loans, I knew I just didn’t have the right type of repayment plan.

Tim Ulbrich: Perfect. And insert there Temporary Expanded Public Service Loan Forgiveness. And so I want to take a few moments to do some education on the terminology for those that may be hearing some of this for the first time. So Stephanie, hang tight —

Stephanie Hale: OK.

Tim Ulbrich: — for a few moments, and we’re going to come back here to the story and learn more about the execution and ultimately what happened at the end for you. So TEPSLF is Temporary Expanded Public Service Loan Forgiveness and really is intended for exactly what we’re talking about here today. Folks that may be working for a qualifying employer, who have been making what would be qualifying payments in terms of federal student loan payments, but are often in the wrong repayment plan. And that can be for a variety of reasons. And to be fair, this isn’t extremely easy to navigate. And so I think sometimes there’s issues around consolidation or people are often in an extended or graduated repayment plan, thinking they’re making qualifying payments, but they are not. Or folks such as yourself, Stephanie, where you may be looking back and saying, oh my gosh, I am working for an employer that is really the intended audience for something like PSLF but just didn’t think of it that way from the get-go, and therefore are now trying to look retroactively to see if this is an option. And so if folks want to learn more — and we’ll talk about the details of TEPSLF here in a few moments — we also talked about it on one of the recent Ask a YFP CFP episode, Episode 036 where Karen from Coral Springs asked the question around this — really this — being under the wrong repayment plan and what that meant for the TEPSLF application. Now, one other thing I want to talk about for a moment is just a brief history and the mechanics of PSLF. Now, we’ve talked about this on the show before. Episode 018, we talked about maximizing the benefits of PSLF. Episode 078, we talked about is pursuing PSLF a waste? And that was when there was a lot of headline attention and news that came out about only 1% of folks that were successful in achieving that PSLF forgiveness. And we felt like it was an important episode to really break down the data further. And of course, we talked about PSLF in “The Pharmacists Guide to Conquering Student Loans,” which is available at PharmDLoans.com. And so I think as we look at the history of this, it’s really, really relevant here as we look at Stephanie’s timeline in terms of what played out and the information that was available to her and ultimately, having to look backwards to correct some of this. So as we talk about PSLF, this is typically loan forgiveness, the loan forgiveness strategy that gets all the press — usually, for all the wrong reasons. And I think it’s important that we look at some of the history of why that is the case. The Public Service Loan Forgiveness program, PSLF program, was created under the George W. Bush administration via the College Cost Reduction and Access Act of 2007. Now, since the program’s inception, it’s faced significant political opposition from both administrations since Bush, since President Bush. President Obama proposed a cap of $57,500 for all new borrowers in his 2015 budget proposal to Congress. And then in 2016, the PSLF program was threatened this time by the Republican party with the congressional budget resolution that saw PSLF on the chopping block for the first time for all new borrowers. And since then, PSLF has remained an endangered species as both President Trump’s budget and the Republican-backed PROSPER Act proposed the elimination of the program for borrowers after July 1, 2019. Now, the good news is that those have all been proposals and talk, and despite its rocky past and uncertain future, we believe that PSLF is one of the best payoff strategies for pharmacists paying off their student loans if they meet the qualifying criteria because of what it means in terms of tax-free forgiveness and what you are then able to do with that money that otherwise could be going towards student loans that of course you could allocate to other parts of your financial plan. Now, it certainly has considerations. It has logistics. It has details. And you have to be crossing your t’s and dotting your i’s like we’re talking about right now. But assuming that those things are happening, it can really be a great option for many pharmacists that are facing significant student loan debt and certainly can be a viable path forward. Now, quickly on the rules for PSLF: You have to work for the right type of employer. We’re talking about that here with Stephanie’s story on this episode. You have to be working for a not-for-profit employer or government agency. You have to have the right kind of loan, and that’s really where TEPSLF comes in — and we’ll talk about that as well as the connection to the repayment plan. So that loan has to be a direct consolidated loan, and if you haven’t done that and you think you’re making qualifying payments, again, TEPSLF is an option to consider. Now, you also have to be in the right repayment plan, typically an income-driven repayment plan. You have to make the right amount of payments, 120 payments. And ultimately, you have to prove it when it’s all said and done to both apply for and receive tax-free forgiveness. So Stephanie, thanks for bearing with me as we went through that. Let’s come back to your story here. You’ve identified that you’re working for a qualifying employer, obviously you haven’t been making all the full qualifying payments because you weren’t in the right repayment plan. So you start to pursue the TEPSLF option to be able to then retroactively get those payments counted. So what did you need to do at this point in time to get to today where we now are at that point of where the money has been forgiven? What did you have to do to actually take advantage of the TEPSLF program and its requirements so that you could ultimately receive that tax-free forgiveness?

Stephanie Hale: Sure. So one of the rules of TEPSLF — and I’m going to read from their website — “to be eligible for TEPSLF opportunity, the amount you paid 12 months prior to applying for TEPSLF and the last payment you made before applying for TEPSLF must have been at least as much as you would have paid under an income-driven plan.” So I kept reading that and I was like, well, I’m not making income-based payments. My payments weren’t as much as I would have been paying, so after talking to the people at FedLoan, I decided that the best thing to do was to change to an income-driven payment plan. So I went ahead and did that. I applied in December of 2018 and the payments went from $580 up to $814. And so what I decided to do — at this point, like I said, we had a house, two kids — I decided to decrease what I was putting into my Roth 403b. I figured, you know, a year wouldn’t hurt so bad, especially if I qualified for TEPSLF and got these loans forgiven. So that’s exactly what I did. And so I applied in December and my first income-driven payment in February of 2019. And at that point too, I had asked about what was my history that they had because when applying for PSLF prior, they just said that I didn’t have the correct number of payments. But they never really told me — they don’t count how many payments you actually have for TEPSLF. They just look at your income-driven payments. So mine were at 0. And so they told me that they had some missing information I think in 2013 and they said, oh, we have those in some files that need to be converted. Just give us a call back in a couple weeks. We’ll let you know. I call back in a couple weeks, and they still didn’t have that information. They said, who told you that? Well, it will take us probably six months. I put it in my planner. So this is something that I recommend is definitely document all your phone calls and everything. I put it in my planner, I called back in six months, they’re like, no, we don’t have this converted. It’s taking a lot longer, and I don’t know who told you six months. It will be about a year. Like OK. So I just kept calling back, just to make sure that they were on top of things and making sure that they knew that I was looking into it. So I went ahead and applied for PSLF in April 2019 because I was told I had to go ahead and apply because they would have needed to know that I would have made income-driven payments for a year, not that I actually had to make the income-driven payments, which at the time didn’t make sense. I’m getting information from — different information every time I call. So like what does it hurt to go ahead and apply for this PSLF? So yeah, so that is one of the things. You have to apply for PSLF and get denied before you can — they look into TEPSLF. So I got denied for the April PSLF application in June. And then at that point, I had also submitted — you have to submit an email saying that you want to be considered for TEPSLF. And I got that denial for TEPSLF in September, that September 21. So then I went ahead and applied for PSLF again September 25 because at that point, I already had 10 years with my employer. So I figured, OK, well I’ll try for the 10 years even though it hasn’t been a year of income-driven payments. But we’ll see what happens. And ultimately, I got denied for PSLF in the end of October. And then for TEPSLF, it was just a few days after that this time. And that was — the reason for that was because I needed the payments the 12 months prior to applying for TEPSLF and the last payment had to be the income-driven payment. Then I waited and applied after my 12th payment in January, and that was January 10. I got denied January 30 for PSLF. And then I got denied for TEPSLF February 27. And actually, I found out that I was denied for TEPSLF probably about a week before I actually got the letter in an email. I had been making phone calls, probably I was calling at least once a week, sometimes twice a week, just to follow up. But yeah, so the week before I actually got the official denial, they had told me you don’t qualify because you need 13 payments. So when you apply for PSLF, there’s a box that you can check stating that you don’t want forbearance while they’re going through the paperwork. So I always made sure to check that box to make sure that I was still making payments, just in case anything happened like this. And I figured I would get the money back in the end anyways if I made too many payments. So at that point, I reapplied again, this was February 29, for PSLF. And I got the denial in March 12 for PSLF. And then I got a letter stating that I was being considered for TEPSLF May 13. And ultimately, I was forgiven May 27.

Tim Ulbrich: Wow. OK. I mean, a couple of things: This is great. And I appreciate the detail because I think it’s so important here. And as you were talking, you know, things that stood out to me were No. 1, patience.

Stephanie Hale: Yes.

Tim Ulbrich: But persistence. I mean, you went through multiple denials, making multiple phone calls, and obviously you saw the value that was going to come from having it forgiven. And I think showing to them as well, like you’re not going away, right? And so you know you’re going to make sure you get this taken care of. And if you qualify, you qualify. And you need to have that recognized. So definitely patience as many, many months and some years went by but also persistence in making sure you’re calling back and you’re following up. You know, the other takeaway I had there, Stephanie, was documentation. I mean, just so you can chronicle this verbally tells me you had great documentation along the way, which of course is important. And we’ve heard that before. We’ve discussed that before on this show. And if you run into issues, the documentation is important as well as I just think for your own sanity but also being able to prove that information in previous conversations in case you run into issues. And then I think I also heard that you’re really well-versed or at least learning along the way about the requirements and making sure you had good information and you were spending time to understand the rules and trying to interpret them so that if you were calling and you think you’ve got some erroneous advice or perhaps you’re getting different answers along the way, that when you called in, you knew that information, you could follow up with the information you learned, and you could continue to be persistent, obviously because there may be interpretations along the way, depending on who you were talking to.

Stephanie Hale: Correct.

Tim Ulbrich: So great. Yeah. I’m guessing you did get that right. I heard that you got some different input along the way when you called in. Is that correct?

Stephanie Hale: Yes. So I had learned that just because someone says one thing doesn’t mean it’s actually true. So I would call, someone would tell me one thing, and then I’d call again, someone would tell me something different. So I always made those notes. And I was like, well — I wasn’t sure what to believe. But if somebody said one thing and I hadn’t done that yet, I would be like, maybe I’ll do this instead. That’s why I applied early for PSLF those couple times. Like it didn’t hurt. And actually, I do feel like applying early those couple times kind of helped because it probably helped to move them along with counting my payments because they had already done that those couple times before. I feel like my process from February to May when I got forgiven went fairly quick compared to some of the other people that I’ve heard trying to pursue this. But like I said, I think it’s because I had applied before, and they had already had that information, me being persistent and following up.

Tim Ulbrich: And how much when it was all done, so you get to May 27, if I heard you correctly, it’s forgiven and it’s forgiven tax-free. What was the actual dollar amount that was forgiven?

Stephanie Hale: So my account balance, which I think included interested, was $69,900. And then I ended up getting about $3,800 back of overpayments. But then when I’m looking at the email of the amount of loans forgiven, it’s roughly $72,000. So I don’t believe that includes any of the interest.

Tim Ulbrich: Got it. OK. So a little over $70,000. And right now, your account balance is — so $0s are showing. Is that right?

Stephanie Hale: Correct.

Tim Ulbrich: That’s awesome.

Stephanie Hale: So one of the fun things I had learned was — so there’s an app that you can have on your phone. And when you try to log into the app if you’re pursuing PSLF or TEPSLF, once your loans have been forgiven, you’ll get this big “Caution” sign saying that you can’t log into your app, it’s no longer working. So I got that that morning. I was like, oh, this is a good sign. So then I went onto the actual website on my computer and was able to see the balance was $0.

Tim Ulbrich: That is awesome.

Stephanie Hale: So I was able to find out before they actually sent me the official notice.

Tim Ulbrich: Yeah, when you no longer can get in and the “Caution” flag, it’s a good day, right?

Stephanie Hale: Yes, it was.

Tim Ulbrich: I mean, you reached the finish line. And obviously you put a lot of hard work into this. And I think that’s what’s so refreshing, Stephanie, you know, to me, as I mentioned a couple times already, it’s just your persistence in this in terms of not only the process but making sure you felt like you were really understood the things and were getting your questions answered. But also, you know, to that, I think many folks are going to hear this story and say, “I had no idea I could look backwards and consider PSLF through this TEPSLF option.” So I think we’re going to have many people that are going to listen and are now going to pursue this, and they are probably going to hit the barriers that you hit along the way. And you know, they’re going to have to knock them down and be persistent, just like you showed us here and you demonstrated in your own story. But I sense this will give many people hope in their own journey and ultimately as we talk about the bigger picture here with your financial plan, what it means when you don’t have to be putting money towards student loans because you can allocate that elsewhere into your financial plan. So I want to just quickly outline for those that are hearing this and thinking, OK, maybe I qualify for TEPSLF. There’s really four steps that you need to be thinking about. No. 1, you have to check your PSLF eligibility. And we talked about that already throughout Stephanie’s story. Are you working for the right type of employer? The right loan? And as we talked about, that’s really where this TEPSLF comes in and really where the issues are in terms of making sure you’re in the right repayment plan, right number of payments, ultimately 120. And then you’ve got to be able to prove it and apply for that tax-free forgiveness. Now No. 2, as Stephanie mentioned, you have to show that you’re ineligible for PSLF. So you have to submit your application, and you essentially have to get denied and be determined ineligible. And then you really have to be looking at meeting the TEPSLF requirements. And that’s No. 3. And Stephanie talked about this with the need to switch to income-driven repayments, the number of payments that had to be made, and the dollar amounts associated with that. And for you, as you mentioned, that meant a temporary increase in payments, a little over $200 a month, which meant knocking down some of your retirement payments temporarily because you saw the bigger picture and what could be forgiven. And then finally, No. 4 is you have to request the TEPSLF certification, and you can do that through email. There’s actually not a form. So to do that, it’s [email protected]. Again, [email protected]. And we’ll link to that in the show notes as well as some information on studentaid.gov that actually includes some draft language and examples that you can use when doing that communication via email. So Stephanie, my final question for you, now on the back end of this and you went through this long journey to get here, you know, what does this mean for you and your family and your financial plan both monetarily in terms of having more cash flow available because it’s not going toward your student loans as well as just non-monetary, what this means in terms of having this off your back?

Stephanie Hale: Well, definitely a weight off my shoulders. I’m the breadwinner, so that was just something that was taking a toll on me and just even though I’d already been paying for 12 years or so, it was just — it was so nice to not have to think about that anymore. And financially, we’ve been tossing around the idea of getting into some real estate investing. But if we don’t do that, I mean, we do have two kids, so we want to start putting away more for their college and just being able to save more and have a more comfortable retirement or even be able to retire a little bit earlier.

Tim Ulbrich: Awesome. Yeah, that’s great. I mean, I think the options that are available certainly go up, whatever that would be as a part of your financial plan, and goals when you don’t have to make those payments anymore. Any words of advice you would have for folks that maybe find themselves in a similar position as you did where you already had several years in of meeting that employment qualification or even perhaps folks that are even more in the front end of this and really looking at this to say, is this really worth it, considering all the logistics and everything that you’d have to do? What thoughts and advice do you have for them?

Stephanie Hale: Well, I definitely want to say there’s a really good Facebook group called Public Service Loan Forgiveness program support. I joined that, and they — you can ask any questions there, you can look up, you know, if you have a question, you can look up whatever you’re looking for. And somebody probably has asked that. But they were very supportive. And it definitely gave me hope because people would post whenever they got forgiven, and it actually — the funny thing is it comes in batches. It’s like they forgive a group of people at a time. So there will be no activity for awhile, and then all of a sudden within a week there’s probably, you know, I don’t know, 15-20 people posting that they were forgiven. But if you search #PSLFvictory or #TEPSLFvictory, you can see people’s stories of being forgiven. So it definitely gave me a lot of hope. And a lot of people there too talk about the Freedom of Information Act. You can request your paperwork for that. And a few have issues with any payments that were missing. Luckily, I did not have to do that. And other people also asked for the help of an ombudsman, which is somebody that’s assigned to you to help you through the process if you’re having issues. Again, I didn’t have to do that either. But those are different options that you can have, that you can use, if there’s issues with your payment history. And I was looking yesterday and it looks like there’s roughly about $600 million left with TEPSLF. They expect it to last another 2-3 years. So if it’s something that you’re considering if you’ve worked for your employer for close to the 10 years, made the 120 payments, definitely look into it now and try to get that straightened out before then because it will run out.

Tim Ulbrich: Great advice, Stephanie, encouragement. We’ll link to that Facebook group as well as other resources we’ve talked about on today’s show in our show notes that we publish. And you can find those show notes by going to YourFinancialPharmacist.com/podcast and finding this episode, Episode 176. And then we’ll have all of that information right there. Stephanie, I really appreciate you taking the time to come on the show to chronicle your TEPSLF journey. Excited to have you on officially as the first pharmacist that we have interviewed that has had their loans forgiven. We know there are others out there, and we hope and plan to feature more stories in the future. And as always, to our YFP community, if you liked what you heard on this week’s episode, please leave us a rating and review on Apple podcasts or wherever you listen to the show each and every week. And I hope you’ll join us if you haven’t already in the Your Financial Pharmacist Facebook group, over 7,000 pharmacy professionals committed to helping one another on their path towards achieving financial freedom. So thank you again all for joining, and have a great rest of your week.

 

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YFP 175: How to Reduce Costs During the Residency Application Process


How to Reduce Costs During the Residency Application Process

Sarah Cummins, a PGY2 Emergency Medicine Pharmacy Resident, joins Tim Ulbrich to talk about specific strategies to make the residency application process more affordable.

About Today’s Guest

Dr. Sarah Cummins is a PGY2 Emergency Medicine Pharmacy Resident at the University of California Davis Medical Center in Sacramento California. Prior to this position, she completed her PGY1 residency at Thomas Jefferson University Hospital in Philadelphia, PA and earned her Doctor of Pharmacy degree from Purdue University in West Lafayette, IN. Dr. Cummins’s clinical/research interests include trauma resuscitation, acute pain management, optimizing healthcare access to underserved populations, minimizing healthcare disparities in BIPOC, and emergency department transitions of care. When she isn’t working, Dr. Cummins enjoys hiking, caring for her blind dog named Muffin, reading novels, and any sort of activity that takes place on a patio.

Summary

Sarah Cummins, a PGY2 Emergency Medicine Pharmacy Resident at UC Davis, is passionate about helping other pharmacists reduce the cost of the pharmacy residency application process. Although Midyear and interviews may look a bit different during the COVID-19 pandemic, the tips Sarah shares are still powerful ways to save money.

Sarah breaks her tips into six categories: how to save money before interviews, Midyear, travel, eating, where you should spend your money and some general advice.

Prior to sending in applications or going to interviews, Sarah says that you first have to figure out your goals and create and execute a budget to help you reach them. For example, she suggests beginning to save during your P3 year and to ask for gift cards from family and friends in lieu of material items so that you can purchase professional clothes or other necessities.

Midyear is virtual and free this year due to COVID-19, however it’s normally $340 for a student member and $480 for a non-member. Sarah explains that Midyear is usually in an expensive city, meaning you should really do your best to save money on other expenses like food costs.

Sarah explains that there is the potential to save the most money with travel expenses if you’re willing to put the time and work into doing so. She shares that you have to put all methods of travel into a side-by-side comparison so you can see which method or hybrid of methods is going to be the cheapest. It’s easy to spend a lot of money on food and coffee while you’re traveling. Instead, Sarah suggests packing granola bars, packaged foods and drinking the in-room hotel coffee to save some money and time.

While there are many aspects of this process that you can save money on, Sarah explains that you should spend money on things like professional clothes you feel confident in and to make sure you’re staying at a comfortable and safe location.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Sarah, thank you so much for taking time to come on the show.

Sarah Cummins: Thank you so much for inviting me. I’m happy to be here.

Tim Ulbrich: So our conversation began over the summer on LinkedIn, and I knew what you shared would fit so well in the fall as P4s are gearing up for the residency application process and really also for preceptors that are listening, faculty members that are listening, that they can also share some of this information with the students that they may be mentoring, coaching, helping along the way. And before we dig into your tips and tricks for making the residency application process affordable, I’d love for you to share a little bit about yourself. So tell us about your pharmacy career, what led you ultimately into pharmacy and how you’re able to determine the path that you want to take in terms of residency training.

Sarah Cummins: Sure. So I started out at Purdue University in Indiana, which is where I’m from.

Tim Ulbrich: Go Boilermakers.

Sarah Cummins: Yes, yes. So I grew up in Indiana, went to school there, then I did my PGY1 residency in Philadelphia, Pennsylvania at Thomas Jefferson University Hospital. Then I drove 3,000 miles across the country to go the UC-Davis in Sacramento for my PGY2 in emergency medicine. I think I originally got into pharmacy because the same reason that many of us do — because we’re nerds and we like science and we like helping people. And I really liked the aspect of this career where I felt like I could make a difference in patients’ lives face-to-face, talking to them and helping them manage their diseases versus some of the other healthcare professionals where you don’t get as much face time as you do with pharmacy. And I really liked that.

Tim Ulbrich: And when did you know emergency medicine was the path that you wanted to take?

Sarah Cummins: That one was a little bit of a quick decision. So I had originally thought I was an infectious diseases person all the way. I love ID. I did my bachelors in microbiology and biochem. I had done ID research. I love bacteria. I think they’re so cool. But then I did an APE (?) in the emergency room, and I was a little shocked at how much I really enjoyed it. So then I started second-guessing myself, wondering if maybe I was an EM person instead of an ID person. I did an EM rotation during my PGY1, and that kind of sold it for me that I was actually an EM person instead of an ID person. I think I made the right decision. I feel very at home, I feel like this is my niche. And I’m really excited to go to work every day, and I think that that’s all we can really hope for with careers is just being really happy with what we do.

Tim Ulbrich: Absolutely. And the irony — you know, we’ll talk obviously about mindset around spending and frugality — and the irony that you ended up in California where cost of living is high, but thankfully you had some behaviors and strategies in place that could help you manage some of that. And really, what I want to spend our time on today is that you had tweeted an amazing list of topics about how to make the residency application more affordable, where folks should consider spending money, where it’s worth it, cutting where it’s not, and some general advice to those that are starting this process. And you know, I should mention, disclaimer here, we are obviously fall 2020, given the situation with COVID-19, you know, this residency recruitment-application-interview cycle, it’s going to look different than any other one that we’ve had before. And so some of that we don’t yet know at this point, some of it we do in terms of things like ASHP Midyear of course being virtual. Will all interview be remote? Will some be on site? I think it’s probably leaning towards remote but certainly that’s a ways off as we think about the February and March timeframe. So for those that are listening, you know, P4s applying this year during the spring 2021, going into the match that starts July 2021, obviously we’re a unique situation, but we expect others in the future, we might be back in more that traditional environment. So before we get into these strategies that you mentioned, one of the things I was asking you before we hit record — and really, one of the things that impressed me when I first ran across what you shared on this topic is I could tell you had really an intentional mindset around your finances, but specifically, you had a mindset around being frugal. And I think here, it’s important that we’re talking about places where it’s important that we think about cutting but also places where we think it might be important to spend some and that that’s OK where it’s worth it. So where — my question is where does that frugal mindset come for you? Where did that start?

Sarah Cummins: That is such a great question, and I don’t actually have an answer for you. I don’t really know. There isn’t one pivotal moment in my life where I learned this. No one really taught it to me. I think it came from pressure of not having financial resources as a student and not having support with family, friends, and whatnot financially going through this process. I’ve always been the kind of person that I don’t do anything halfway. If I’m going to do it, I’m really going to do it. And I put a lot of work into figuring out exactly how I could afford this because my resources were very limited. I made a goal to go to Midyear, I made a goal to apply to the programs I wanted to all over the country, and I planned accordingly to make sure I could do that. And I think the skill that I learned from that that was very difficult for me to understand at first and I think very difficult for a lot of people who are financially limited is to plan ahead. So many times, you know, when we don’t have resources, we don’t have a lot of money, we just think about the here and now. How am I going to afford my bills this week, this month? Where can I cut costs on my groceries this week? But I’m not thinking about what I’m going to be paying for eight months in advance. And that’s something that’s kind of a difficult mindset for people to adopt when they’ve never really had to do it or where they’re always in this fight or flight mode on how they’re going to survive each week. So that was something I really had to push myself to do.

Tim Ulbrich: Yeah, and that’s great input. As we talk often on the show about the intentionality of the financial plan, thinking ahead, planning ahead, thinking long-term, which is hard, especially when you think about in the position of a student where you obviously have a limited income and certainly may be in a debt accrual with student loans. And so as you put together the time and the effort to share this list out, what were some of the motivations of doing that? Obviously it was near and dear to you and your own plan, but did you also see others that were struggling with it?

Sarah Cummins: Absolutely. So I saw a lot of students posting on Twitter, residents posting on Twitter, just kind of venting how frustrating it is that this process is so expensive, sharing how difficult it is to afford this, sharing their fears. And I really just wanted to provide a little bit of hope and a little bit of encouragement to those students who are in the same situation that I was in where you have to really work a real full-time — or I mean part-time job to fund your expenses. And I think that the post definitely achieved that. A lot of people messaged me, sharing their thanks for just reaching out and saying, “Hey, it’s possible. It’s hard, but it’s possible.”

Tim Ulbrich: And I’m so glad you did, Sarah, because as you know, as I know living through it, as our listeners know living through it, P4 year, that final year is often when things fall off the tracks financially, right? So you’ve got — you know, obviously you’re in a transitionary year, so depending on where you’re doing your rotations, you may be going out of the area, you have additional transportation expenses, additional housing expenses, you may need additional professional clothes, other things. Expenses add up. Obviously busy hours, you tend to maybe have to eat meals on the go, so you have lots of expenses that come with rotations. But then you also have many schools, the tuition and fees are higher in the fourth year when you’re doing experiential rotations and then on top of this, you have — whether it’s residency, a job, combination of both — you’ve got the additional expenses that are associated here. So I think sometimes I see — and I don’t know if you saw this with your classmates where — you know, I see this among students where they’re like, my gosh, I’m already $160,000 in debt, like what’s it matter at this point, right?

Sarah Cummins: Yeah, just add it to the tab.

Tim Ulbrich: Yeah, and I think again, what we’re talking about here is whether it’s $100, $1,000 or $10,000, the intentionality and the mindset and having really the processes, whether it’s a budget, this long-term thinking, to really be able to see the benefits of this and other parts of your financial plan in the future are really important. Do you — just as a general ballpark, what do you think on average students are spending when you think about the residency application process? I mean, you’ve got the applications, you’ve got Midyear, you’ve got travel, you’ve got professional clothes. Like what do you anticipate that number is?

Sarah Cummins: Thousands. I know it’s thousands. It’s definitely different for each person, so going to Midyear in and of itself is very expensive. So if for whatever reason you don’t go to Midyear, you can cut a large portion of that out. But even the application is expensive. So the NMS match fee is $160. The forecast fee is $110. That gets you four applications included. So if you want to apply to more than four programs, you’re going to be paying $43 apiece for every additional program. So just to submit your applications, if you want to apply to 10 programs, which is what I feel like a lot of students do on average is $528 just to try.

Tim Ulbrich: Yeah, and as we know, if that is borrowing money, it’s going to cost more at some point, right? It just accrues and things into the future. So we’re going to go through, as I mentioned, you put together this list and you broke up these tips into six main categories. No. 1, how to save money before interviews. No. 2, things to think about at Midyear. 3, on the traveling side. 4, eating while you’re traveling. 5, where you should spend your money, so essentially permission granted, where it’s worth it. And then 6, some general advice. So let’s start with this first category, prior to interviews. And you start off by sharing some advice for people before they even send applications in or have interviews lined up. So what’s some of your advice here? And why is this important?

Sarah Cummins: So I think that this is actually probably the most important part and where you could potentially have the most cost savings because I think the first thing you need to do is figure out what your goals are. You need to figure out if you are going to be applying to programs near home, if you’re going to be looking all over the country, and then you need to make a plan on how to budget for that, how much money you can expect to have to pay and then execute that plan. So I think for a student that is — I’m going to just pick the most expensive example. So let’s say you just, you really want to do it, you’re going to apply all over the country, you’re going to go to Midyear, you’re going to go all out. Start saving early, like P3 year early. One thing I did, if you have anybody in your life that likes to buy you birthday gifts or holiday gifts, ask for gift cards. So I asked for gift cards to Macy’s department store because I know that they have a pretty good selection of suits and business clothes. And they also have pretty good sales sometimes. So I asked for gift cards early on during P3 year so that way I could start to collect a wardrobe, some nice shoes and some other things to wear to Midyear because if you wait until the last minute to do that, that’s just going to be another expense added on top of it if you don’t plan on anything to wear to these interviews and PPSs. Another thing is just registering for Midyear is expensive. So as a student this year, it is actually free because of COVID, which is incredible. Snaps to ASHP for that. But last year and every other year, it’s not free. So the registration fee is different depending on whether you’re an ASHP member or not. If you’re a student member, it’s $340. But if you’re a non-member, it’s $480. And this is a really easy place to save money because if you just register for a membership, it’s $54. So you can save like almost $80 if you just do the membership and then apply as a student member instead of not being a member and applying as a non-member. So do your research on that, make sure that you aren’t paying more money for registration than you need to. The other thing with planning to go to Midyear is once you have everything that you need to wear and you have your plan, what kind of programs you want to start looking at and you are starting to think about flights and hotels and stuff, then that becomes a lot more work. And I think that is the most time-intensive part of this.

Tim Ulbrich: Great advice, Sarah. And one of the things I wanted to add here as you think about number of applications, in my experience working with students going through this process, you know, I’ve worked with some students that applied to one or two sites and to 22 sites and everything in between. You know, you mentioned 10 is a pretty good number that you see out there. I would agree with that. I mean, I think most students are probably applying to somewhere between 8-12 sites. But where I really am encouraging the listeners to think about is you have to do some really serious self-reflection to really identify what factors might determine how many sites you need to apply at. So you’re looking at obviously things like the reputation of those programs, how many applications might they be getting, how selective are they, geographic types of things, the cost that’s going to be associated with the travel, how strong of a candidate are you, how well-networked are you with that, have you worked there, have you had a rotation there? And all of those things should have a significant impact on how many sites you’re applying to. And I think there can be a challenge, especially for the all-stars out there that are listening, you know, those that have really strong connections, have done all of their things along the way well to make themselves a strong candidate, there can be a feeling in the moment of oh my gosh, match is so competitive, they look at the national match statistics, and then they apply to a bunch of places. For some, that’s necessary, and for others, it’s not. So I think really doing some reflection to determine what that right number is or working with some advisors at the college or others that can help you do that is really important.

Sarah Cummins: Definitely.

Tim Ulbrich: Let’s talk about Midyear for a moment. You mentioned the registration fee, which of course, obviously this year in 2020, we have, again, somewhat of a unique situation. But we know that’s just one piece of the puzzle when it comes to costs associated with Midyear. So talk to us about other strategies here that people can be thinking about for how to save money as it comes to Midyear. And here, obviously we’re talking about more in the traditional sense of in-person Midyear.

Sarah Cummins: Yes. So Midyear, historically, takes place in one of four cities: New Orleans, Orlando, Las Vegas, or Anaheim. So those are the only cities that have enough conference space to hold the vast amount of pharmacists and students that are drawn to these conventions. So this has been done before. People have gone to all of these cities before, found the cheapest place to live, there’s probably a lot of people who have advice out there. So any students that are wondering where the cheapest spots are, where you can get a good deal at, feel free to just tweet it out and ask, “Hey, who went to Midyear in Anaheim? Who went to Midyear in Orlando? What did you do?” And those people might have a little bit of advice to contribute. But something that all of these destinations have in common is they are expensive to go to. So one thing that’s really hard to budget for is all the food and unexpected costs that you’re going to accrue there. So you think about, OK, I’m going to pay for my hotel, I’m going to pay for my flight, I get there, then what? Sometimes that airport is a substantial distance away from where your hotel is. And those Ubers, Lyfts, can be $50-60 one-way, especially in some of the bigger cities. And this counts for interviews too. So one thing that I do is I do my research on the public transportation system. So a lot of — some of these cities don’t have a lot of great options for public transportation. But most of them have buses. And buses are cheap. They do take a long time, however, so if you can plan to have an earlier flight where you have a little bit more time to get to your hotel, look into getting a bus ticket for $2.50 compared to spending whatever the surprise cost of the Uber or Lyft is going to be because that is not a discreet cost. It’s going to be a random number, depending on how busy they are.

Tim Ulbrich: Yeah.

Sarah Cummins: Another thing that I spent more money on than I thought I was going to spend, even though I planned for it, was food.

Tim Ulbrich: Yes, yes.

Sarah Cummins: So you wake up in the morning and you’re in your hotel room, you’re starving, you just traveled all day, so what are you going to do? You’re going to go down to the Starbucks, get a coffee, maybe a granola bar or a muffin or something. And then it’s $12 because that’s what it is in Las Vegas. I paid for a banana that was $9.

Tim Ulbrich: And you have no choice.

Sarah Cummins: Yeah.

Tim Ulbrich: Yes.

Sarah Cummins: And that’s it because you’re starving, you’re exhausted, and that’s what you need. So something that you can do to mitigate these costs is to plan for being hungry. I called ahead to hotels to see if they offer in-room coffee because some of them have that cheap coffee that you can make just in your room.

Tim Ulbrich: That’s right.

Sarah Cummins: That’s great because it’s $0. It’s a little bit of an appetite-suppressant, so it can tide me over until I can eat breakfast somewhere. Also, if you’re going to be going to Midyear for a couple days, you’re probably going to check a bag, which costs about $30. But it’ll save you money in the long run versus just trying to shove everything on a carry-on bag because you can fill that bag with snacks and food. I put a couple boxes of granola bars, I had some Easy Mac cups because I called and asked if my hotel room had a microwave. And those — just having that little bit of food available was really a life saver because it saved me a lot of money, and it saved me a lot of time from having to go to a restaurant or wait in the ungodly lines at the cafes.

Tim Ulbrich: Yes.

Sarah Cummins: And you don’t think about that cost when you’re planning your trips. You just think about the major expenses. But that really adds up. I think I would say I probably saved maybe $200 just by planning for the coffee and the food alone.

Tim Ulbrich: As you’re talking, Sarah, I’m just — I’m smiling as you’re talking because I’m thinking of all of the Midyear meetings that I’ve been at as a student, as a new practitioner, on the other side interviewing, where some things — it’s like, it takes so long to learn some of those lessons. But where you’re standing in those long lines and you’re not only waiting but then you’re spending $20 for coffee and a muffin, you’re frustrated, and then you’re still hungry and you’re off sync with how you normally are and all of these things. So I think preparation here and planning is so important.

Sarah Cummins: Yeah. And the — I don’t know if I’m using this word right, the opportunity cost of when you’re very, very hungry is different when you’re not very hungry. So you’re more likely to spend more money on food if you’re starving versus if you’re not starving because you have more time to plan for it. Another tip that I have if you’re going to go to Midyear is this thing called the industry showcase. So at first glance, you might not think that that’s for you as a student because it’s basically a bunch of pharma companies and tech companies that set up booths to showcase their products. But this is an absolute gold mine for hungry students. Last year, I got free espressos, like individually wrapped sugar cookies, snacks, they gave out water bottles. So basically you just go up, you get snacks and food and stuff and just take a pamphlet, pretend to be interested, and then just go on your merry way. It’s incredible. So most students don’t venture in there because they don’t see a need to. They’re not a hospital looking for new technology. But are you thirsty? Do you want a free water bottle? Go for it, it’s great. You won’t regret it.

Tim Ulbrich: That’s great. I mean, the specific advice you have here is fantastic. You know, for the preceptors that are listening, they’re probably smiling as well. But I hope the students are taking notes. And these things add up. It’s a combination of planning ahead, it’s a combination of getting creative, cutting expenses while you’re there, and hopefully together, some of these will have a real impact. We’re really just getting warmed up, right?

Sarah Cummins: Yeah.

Tim Ulbrich: So we talked about the cost of applications, we talked about the cost of Midyear, which even in this year is of course going to be significantly different. But we haven’t yet talked about traveling. So when it comes to traveling for interviews, you know, I know for many folks this can look very different if they’re maybe just applying in one region where they live and their college is versus those that are looking across the country. So what pieces of advice here do you have in terms of traveling for interviews?

Sarah Cummins: I have a lot. And I think this is the piece of this whole thread and podcast that is potentially the most cost-saving. So it takes a lot of time to do this. But it’s really worth it in the end. You need to do your thorough research on the cheapest way to get to and from an interview or Midyear. So you need to look at prices of driving, flying and public transportation. So driving, estimate your gas costs. And don’t just like guess. You can go online and Google “gas price calculator” and figure out for the exact make and model of your car how much money you can expect to pay for what the current gas prices are because those fluctuate each year. Sometimes it’s very expensive, sometimes it’s not. Additionally, if you’re going to be traveling for several hours to wherever your interview site is, a lot of people use toll roads. They’re much faster, it saves time, but it costs money. There’s this website called TollSmart.com. And you can use it to calculate toll fees anywhere in the country. You just type in your start address and then your destination address, and it’ll show you the route that you would take using toll roads to see how much money that costs because who knows how much toll roads cost off the top of their head? I’ve never met anybody. I have no idea.

Tim Ulbrich: No.

Sarah Cummins: It’s just a guess, it’s a surprise. Sometimes you need cash, sometimes you can use card. No one ever knows. It’s just a big mystery.

Tim Ulbrich: That’s right.

Sarah Cummins: So if you plan ahead for that, for the gas, another thing you need to plan for if you’re going to drive is parking because a lot of times, hotel parking is not free. $40 a night, $60 a night, depending on where you go. In some of the bigger cities — and even in some of the smaller cities, you can use this app or website, it’s called Spot Hero. So you can just go to spothero.com, and basically what it does is it shows all the available parking spots in garages, in lots, and you can compare prices of how much money you’re going to pay to leave your car in that lot or that parking garage from the time that you arrive to the time that you leave.

Tim Ulbrich: That’s awesome.

Sarah Cummins: And it can be substantially cheaper than parking at your hotel. Another thing to do if you’re planning on driving is try to pick an interview day on a Monday or a Friday so that way Sunday you have plenty of time to drive and you’re not going to be rushed, especially if you’re going to be driving like 10-12 hours or something crazy like that. And then Fridays, you’ll have plenty of time to drive that evening or even the next day if you need to. So that’s always nice. For flying, the best case scenario is always to find a flight that arrives the day before the interview and then have a return flight right after the interview has finished, the next day in the evening. But that’s usually not the cheapest flight. So again, you’ve got to do your research. It might actually be cheaper to stay an extra day and pay another $80 for your hotel or Airbnb and then take the early morning flight the next day. I did this, and it saved me over $200 for one interview. And then the last mode of transportation is public transportation. Some places, they have trains that go in between big cities if you’re someone that’s coming from a big city. I was not. But Megabus is a life saver. Megabus, I love Megabus. Shoutout to Megabus, you’re awesome. You can buy a bus ticket on one of this double-decker bus, and they are cheap. They are — you can ride on a bus for nine hours for as low as $3.50 after taxes and fees. And I did this for one interview. I rode the bus for nine hours one day, and then went to my interview and then flew home the next day with a one-way ticket.

Tim Ulbrich: Oh, cool.

Sarah Cummins: And that saved me over $150 compared to doing a round-trip and flying on Sundays. Because flying on Sundays is so expensive.

Tim Ulbrich: Yes.

Sarah Cummins: There are also seats, there are eight seats on each of these buses that are — have a table in front of them. So you can have like a little cup holder and a table, you can get your laptop out and do some schoolwork or whatever you want to work on, prepare for the interview, while you’re actually on the bus, which is what I did. So it was a great, great use of my time. So then you can do a hybrid of these options. So you can look into the price of a one-way car rental to drive on Sunday, show up for your interview Monday, fly home with a one-way ticket. It’s a lot of work putting all these side by side for every single interview, but trust me, it’s so worth it.

Tim Ulbrich: And one of the things, Sarah, I remember you wrote about, which really resonated and I want to make sure the students hear is not being afraid to ask the site — whether that’s the RPD or somebody that they have delegated that responsibility of coordinating interviews, I think generally speaking, the sites want to be amenable and want to work with folks if it’s going to help save them money, time, coordination. So whether that’s stacking interviews if you’re going to be in a certain area so you don’t have to travel twice or I remember you had written about just a schedule and by asking a question, they were able to move something around by a half hour so you could take a flight out that day that was cheaper. So you know, I think being open — and obviously there’s a respectful, professional way to do that — but not necessarily feeling afraid to have some of those conversations that could have cost savings depending on the mode of travel and where that interview is taking place.

Sarah Cummins: Definitely. So I feel a lot of students don’t want to be the person that looks like they can’t figure it all out themselves and aren’t completely independent and savvy and they don’t need any help from the RPDs. But you know, they want you to be there. They want you to be able to be comfortable and to have plenty of time. I remember I emailed an RPD and I asked, “I know my interview ends at 4. There’s a 5 o’clock flight at the airport. Do you think I would have enough time to make it from the hospital to the airport and make that flight? Because it’s $200 cheaper than all the other flights. And I would like to save that money if possible.” Every person can understand this, so she was great and she said, “Traffic is minimal. Security is minimal. And I can bump your interview date up half an hour just to give you a little bit of extra time.” And it was awesome. So they’re experts. They live in that city. They know their way around. They know like don’t take this rail from the airport to the hospital because it’s generally not very safe, or don’t stay in this area or fly into this airport instead of the main airport because it’s a lot cheaper or faster. They have all these tips. They live there, they travel there. And I don’t know if I’ve met one RPD that would not gladly share that.

Tim Ulbrich: I agree. And as someone who has served on both sides of this in terms of the applicant as well as an RPD, I think often if schedules are sent, people are busy, they’re trying to coordinate a lot of things, and sometimes just somebody asking that, and they’re willing to work with it. So don’t be afraid to ask that question. Next category, we talked a little bit about this with Midyear and packing food, but eating while traveling. And I think this is obviously a piece that is often missed when thinking about saving money in the residency process. But just like if you were at home, eating out can be really expensive. So give us some general tips or thoughts that you have on how folks can save on eating and food expenses while they’re traveling.

Sarah Cummins: Definitely. So one thing I noticed that I didn’t really prepare for I guess when I was interviewing is that sometimes I would be interviewing on one side of the country one day and then a few days later, be on the other side of the country the next day. And those time changes are different. So I got hungry at very odd hours. Like I would wake up in California at 4 a.m. ready for breakfast and there’s no places that are breakfast because I’m used to that being 7 a.m. on the East Coast. So I always packed some granola bars, some packaged foods. I’m not going to recommend you check a bag for interviews just because that’s a wasted expense. So you can’t like make food like a sandwich or something and bring that on the plane. It has to be prepackaged. So I’m a big fan of those little packs of Goldfish crackers, again, mac and cheese noodle cups, those kind of things are always not a bad idea to have on board. But just making sure that you’re not in a situation where you’re unprepared and you’re going to be tempted to buy food in the airport or buy hotel food or have to run out before your interview because you’re hungry and you really wish you had coffee and you didn’t think about that. And then it’s stressful, it’s expensive, and then you get home and you’re like, wow, how did I spend so much money? I didn’t even notice that that happened. Just being prepared for that is I think the best way to prevent it.

Tim Ulbrich: I agree. And as someone who likes to eat every hour or so when I travel, I swear, airports and hotels are like the death of me when it comes to food, options, costs. I generally eat more at home and am somewhat of a picky eater. So it’s not only expensive but it’s like ah, you can’t even always get what you want.

Sarah Cummins: I know. And don’t even think about that minifridge either.

Tim Ulbrich: No, no, absolutely not. Don’t even open it. Yeah. So we talked about where we can cut back. And I want to end by talking about where you should spend money. So there’s obviously there’s going to be some costs that applicants have to incur and some areas where maybe they shouldn’t try to cut corners. So talk to us about those areas where you have felt like, you know what? This is an area where you don’t necessarily want to invest a bunch of time and resources to try to cut back but rather give permission to spend.

Sarah Cummins: Definitely. So I think the one area that I felt personally I was going to spend the money was on my interview suit. So I feel most confident when I’m wearing clothes that fit me very well, that I think look nice, and when I’m going to an interview, I don’t want to be uncomfortable, I don’t want to be worried that my outfit looks weird or just something doesn’t — just doesn’t look very put together. So I saved up and I got a very nice suit. So I guess my definition of very nice might be a little bit different than everybody else’s definition of very nice. But I got a matching suit and had it tailored to fit me. And what I did basically is just rewore that one suit instead of getting a bunch of less nice outfits, less expensive outfits. One thing that’s a life saver if you’re going to be rewearing suits, instead of getting it dry cleaned between each interview, that can be really expensive: hotel steamers. So if you call ahead to the hotel and ask them to put a steamer in your room, pretty much every hotel I’ve ever called have steamers available. You just have to ask for it.

Tim Ulbrich: Ah, I didn’t know that. OK.

Sarah Cummins: Yeah, yeah. So also starch spray is your friend. So if you just like want to iron it out and put a little starch spray on it, fold it very gentle inside your carryon and take it out first thing and then steam it, it’ll look brand new. And you won’t have to get it dry cleaned over and over again because it’s free to use a steamer versus getting it dry cleaned. So I think that spending money on my outfit helped me feel more confident and I think probably in the long run helped me be more relaxed during the interviews. Additionally, I think another place to feel OK to spend a little bit more money is if there aren’t many hotel options or perhaps the hospital that you’re interviewing at isn’t in the best part of town is to make sure that you feel comfortable and safe where you’re staying. One of my interviews, I remember specifically the hotels were like over $200 a night, some $300 a night really close to the hotel. And I opted to get a cheap Airbnb instead, and that was a huge mistake. It was not a safe part of town. I felt very uncomfortable. And the Airbnb did not have any of the amenities that I needed. I usually don’t pack hair dryers because most places have them. But I did not realize or did not look for the hair dryer until after I had showered in the morning before my interview. But there was a space heater, so I just was pressing my wet hair up against the space heater to try to dry it. Oh, it looked horrible. But spend the money on somewhere that you’re going to feel safe, somewhere that you’re going to feel comfortable because you don’t want to be stressing right before the interview. You don’t want to be worried about it or not get a good night’s sleep because that’s definitely going to show in your interview performance the next day.

Tim Ulbrich: And Sarah, these are fantastic tips. They’re specific, they’re actionable, they’re ones I’m thinking, man, I wish I would have known some of this. But I’m glad we can share this with students that are out there, again, preceptors that are helping coach or mentor students, hopefully they’ll be able to find this information valuable. And I want to close by coming full circle to where we started tonight. And I mentioned I think the mindset piece is something that I hear as you’re talking, I know I read it when I first came across your content. I know you said, yeah, I’m not really sure exactly where I can pinpoint that. But I can tell you through our conversation, it is clear to me that you have an intentionality around your spending, around your money. We talk all the time on the podcast about the importance of that intentionality, of finding your why, of really aligning your spending and spending money where it’s important and not spending money where it’s not important. And I can tell that you have that. And I am so excited to see where not only your professional journey goes but where your financial journey and the impact that you’re going to have on the trainees that will work with you, whether that’s students on experiential training, residents, peers, and the others that you will be able to influence. So I appreciate you taking the time to come on the show to share this information and the tips, the advice that we’ll be able to share with the group applying this year as well as in the future. And my last question for you is where can our listeners go to connect with you further and perhaps follow your journey along the way?

Sarah Cummins: Thank you for all of those kind words. I really, really appreciate it. As far as where students can contact me, I do have a Twitter that I’m fairly active on. I’ve had quite a few students DM me with question about Midyear or my experience or just how to afford this crazy process in general, and I’m more than happy to answer any questions from anybody. You can find my Twitter at @SC_PharmD. And that’s probably the easiest way to reach me.

Tim Ulbrich: Awesome. We will link to that in the show notes as well as some of the other sites that you mentioned throughout the episode. Again, appreciate your time coming on the show. I know this information is going to be valuable. And for our listeners, if you like what you heard on this week’s episode of the podcast, please leave us a rating and review on Apple podcasts or wherever you listen to this show each and every week. And if you haven’t yet done so, I hope you will join us in the Your Financial Pharmacist Facebook group, over 6,000 pharmacy professionals across the country committed to helping each other on their path towards achieving financial freedom. Have a great rest of your week.

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