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Category: Budgeting / Saving Podcast

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

Posted on by yfpadmin


Playing with FIRE: An Interview with Scott Rieckens

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

About Today’s Guest

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

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

Summary

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

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

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

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Scott, welcome to the show!

Scott Rieckens: Thanks for having me.

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

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

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

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

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

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

Tim Ulbrich: Sure.

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

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

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

Tim Ulbrich: Yes.

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

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

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

Tim Ulbrich: Amen.

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

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

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

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

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

Tim Ulbrich: Absolutely.

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

Tim Ulbrich: Sure.

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

Tim Ulbrich: Yeah.

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

Tim Ulbrich: Yes.

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

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

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

Tim Ulbrich: Fact.

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

Tim Ulbrich: Sure. Yes, absolutely.

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

Tim Ulbrich: Sure.

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

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

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

Tim Ulbrich: Pharmacist.

Scott Rieckens: Yeah.

Tim Ulbrich: Yeah.

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

Tim Ulbrich: Absolutely.

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

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

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

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

Scott Rieckens: Thanks, Tim.

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YFP 185: 10 Financial Moves to Make in 2021

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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

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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

Posted on by yfpadmin


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

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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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How Stephanie Got $72,000 Forgiven Through TEPSLF

Stephanie Hale shares her journey applying for and receiving Public Service Loan Forgiveness (PSLF).

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

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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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YFP 171: How Austin Successfully Made the Financial Transition to New Practitioner Life

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How Austin Successfully Made the Financial Transition to New Practitioner Life

Austin Ulrich joins Tim Ulbrich to talk about how he and his family successfully navigated the financial transition from student pharmacist to resident to new practitioner. He discusses how they were able to become debt free while completing residency training, why and how he started a medical writing business, what it was like to finish residency and find a new job in the midst of a global pandemic and what they learned from their first home buying experience.

Summary

Austin Ulrich, a new practitioner, joins Tim Ulbrich on this week’s podcast episode to discuss four major areas of his life: paying off his student loans, building a side hustle and how he was able to make money medical writing, buying a home on the other side of the country and signing onto his current position.

Austin explains that he’s always been “allergic to debt” and obtained scholarships to pay for his undergraduate education. He did have to borrow money for pharmacy school loans but by making wise financial decisions, he and his wife were able to pay off $80,000 in loans during his residency training. Austin explains that there were some key decisions that helped them optimize the loan payoff. They purchased a home that allowed them to have a much lower mortgage payment versus what their rent cost would have been. When they sold the home they ended up making a good profit off of it and paid over $40,000 toward their student loans. He also explains that him and his wife were on the same page with finances and kept expenses down where they could.

Austin digs into his side hustle business, Ulrich Medical Writing, which helped him to pay off of his loans. Without this additional income, he would not have been able to pay off his loans as quickly. Austin also discusses how he and his wife purchased a home on the other side of the country during a global pandemic and how his relationship building and networking afforded him the opportunity for a career in a tough market.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Austin, glad to have you on the show. Thanks for taking time.

Austin Ulrich: Yeah, thanks, Tim. It’s great to be here.

Tim Ulbrich: So we’ll dabble more into this as we get into the interview, but you just finished up residency, moved from Oregon to North Carolina in the midst of the global pandemic. So what have been your first perceptions as you move across the country and got your first taste of the Carolinas?

Austin Ulrich: Yeah, I mean, it’s definitely been a big change for us moving across country with three kids. There were a lot of logistics involved in that. But there are a lot of bugs in the South that we’ve kind of discovered compared to Oregon. But you know, it’s really green here, and we like that. And really nice people and good southern food. So there’s a lot that we like about being here.

Tim Ulbrich: And kudos to you and your wife for moving the three kiddos across country. My wife and I — or at least I — have always joked that we made that move with three before we had our fourth from just Cleveland to Columbus, Ohio, only two hours. And I said, “I’m never doing that again.” So kudos to you guys for making that transition. We’ll talk about your career story, what you’re doing, what really necessitated that move and we’ll weave that into your financial story as well. So we have lots of different parts of your story that I’m excited for our listeners to hear. And you and I first connected on LinkedIn back in May of 2019. You sent me a message sharing your story regarding your financial journey, which by the way, I love getting messages like these and hearing from pharmacists across the country. And as we went back and forth a little bit, you know, as I heard about your transition from student pharmacist to resident to new practitioner, I really said, you know, you’ve got so much going on that we have talked about extensively on the show but such a great example I think of how with intentionality, you can make this transition — I will not always say with ease — but how you can successfully make this transition and really be able to have it be done in a way that will set you up for long-term success with the financial plan. So we’re going to talk about four areas of your financial plan: No. 1, paying off all your student loans; No. 2, building your medical writing side hustle business; No. 3, buying a home and what that was like; and No. 4, signing onto your current position during the COVID-19 pandemic. So let’s start with tell us a little bit about your journey into pharmacy, where you went to school, when you graduated, and ultimately, how you chose the residency path that you did.

Austin Ulrich: Yeah, so I’m originally from Ogden, Utah. And that’s a small town that’s north of Salt Lake. But I did undergraduate at Weaver State University there in Ogden and did pharmacy school at University of Utah. And so I graduated there in May of 2018 and then after that is when we moved out to Oregon, where I did a PGY1 residency at Providence Health and Services and then finished my PGY2 residency in ambulatory care and academia at Pacific University and Virginia Garcia Memorial Health Center.

Tim Ulbrich: So where did your interest in ambulatory care come from?

Austin Ulrich: You know, I’ve really always been interested in ambulatory care since starting pharmacy school. One of the first pharmacists I shadowed was an ambulatory care pharmacist. And at the time, I didn’t know that that was really a career option being fairly new to pharmacy. But I was really impressed how he was able to interact with physicians and with patients and have a lot of influence in how the patients were treated. And so throughout pharmacy school, that was one of my areas of focus and specifically during those years of 2014-2018 while I was in pharmacy school, I saw a lot happening where there seemed to be a shifting focus even more so toward ambulatory care within the pharmacy sector. So you know, it just felt right as far as economic opportunities in the future as well as I love talking to patients and getting that face-to-face interaction. And then the hours really fit well with the family lifestyle. So all those things are some of the things that I love about ambulatory care.

Tim Ulbrich: And in order to get there, like many pharmacy students and residents, you had to take on some debt to do that. So I want to talk about your student loans. I mentioned in the introduction part of the journey is paying off all of these loans. And we’ll talk about how you did that, but first, I’m sure as many of our listeners are wondering, what was the amount? What were you dealing with? What were you working with? Were you able to keep that low because of scholarships or other opportunities? You mentioned the in-state tuition piece. So tell us about your student loan debt, specifically as you went through pharmacy school.

Austin Ulrich: Yeah, so I’d like to preface this by saying I feel like I’m fairly allergic to debt and student loans. I have really bad reactions to it. So in my undergrad, I was pretty diligent about getting a scholarship to cover all that. But with graduate school and pharmacy school, that’s not really possible unless you have some sort of large sum of money fall into your lap. But so over the course of four years of pharmacy school with in-state tuition, I acquired — I guess I should say — $80,000 in student loans. And that’s with interest. That’s the full amount that would have been paid off.

Tim Ulbrich: OK.

Austin Ulrich: So that was the amount of student loans that I had coming out of pharmacy school. And you know, I would say that my wife and I really worked hard on making wise financial decisions, even though — I mean, we both knew that we didn’t want a lot of student loans. And so she worked as a nurse during pharmacy school and put a lot of hours into that. That was definitely something that was really helpful. And I worked as well as a pharmacy intern. So kind of our two part-time incomes put together helped keep that burden down as well as I was fortunate to receive a few scholarships that helped keep the loans down. But one of our philosophies was that we wanted to borrow as little as possible while still being able to maintain, you know, a decent amount of savings and a good quality of life. And we had purchased a home right when I started pharmacy school. It actually ended up being a really great investment. But that’s kind of the how things went with the student loans.

Tim Ulbrich: And so as you know, as our listeners know, $80,000, while it’s still a lot of money, it’s about a half — a little less actually, than half of what we’re seeing graduates in 2020 come out with on average. And so you mentioned a little bit about some scholarships, but I also heard a lot of intentionality around trying to minimize what you’re able to borrow through work and getting that bill down. But I also heard something that I want to dig in a little bit deeper when you said you’re allergic to debt. And I think that really gets to maybe some of the mindset, which drove the actions to keep that amount as low as you could. So tell me more. Tell our listeners more about what you mean by being allergic to debt and where that comes from.

Austin Ulrich: Yeah. So I think it was kind of engrained in me from childhood because my dad’s a financial advisor. And so he would always teach us these principles about, you know, keeping — staying out of debt and only buying what you can afford. And I guess I never really verbalized that into a financial why until really I started listening to the YFP podcast. But when I verbalized it, you know, I had student loans at the time. So I just, reading the statement here, I have an unquenchable desire to become and live debt-free. And so you know, just I guess as part of my financial why, the reason that I’m allergic to debt and I really want to stay away from it is I feel that being a slave to money is not a good way to live. I want to be in control of my money rather than let my money control me. I think that comes from a Dave Ramsey book somewhere.

Tim Ulbrich: It does. I think he says that often. And I want to prod a little bit more there. When you read your why statement — I’m hearing it for the first time, so I’m guessing our listeners may wonder as well, like when you say a desire to be debt-free or not to be a slave to debt, take us one step further. What does that mean for you specifically in terms of freedom? Is it that those payments that would normally be going to debt could go otherwise? Is it being able to free up money for other types of goals or lifestyle? What does that mean practically? If you don’t have debt, you can do what?

Austin Ulrich: Yeah, so I mean, I have a couple other lines here in my financial why that I had drafted that I think would answer some of those, really providing the basic level. It’s providing a sustainable living for my family where money is not a worry. You know? So I think that’s kind of our basic goal of we’re not drowned in debt, we’re able to do things as a family. We’re able to really provide — I can provide for our basic needs. Some of the other things that come from not having debt and building wealth over time would be I want to take my family on vacations around the world. We love vacationing, and we love trips. And they’re not free usually.

Tim Ulbrich: Right.

Austin Ulrich: So money that’s not going toward debt and paying interest or paying someone else you can use to accomplish your own goals and your own dreams. Some of the other things is owning an investment property or vacation home, you know, giving is a big part of my financial why. And that’s actually been really a core principle from the beginning for us, ever since we started making any sort of money, including throughout pharmacy school, paying off student loans, we always have been giving money. So we give tithing to our church, and that’s been something that’s very important to us, and we feel that we receive blessings from that. So those are just some of my kind of the building blocks of my financial why and really what being debt-free I feel like can allow me to achieve.

Tim Ulbrich: That’s awesome, Austin. I appreciate your willingness to share, and I promise to our listeners, we didn’t have that in the script. I didn’t have that in the notes, but when you had said you had something written down, it was great to be able to prod further and even hear more of what’s behind that. A few things I heard from there as you were talking, you know, beyond the concept of being able to be financially free from a paycheck, giving, diversifying your income through real estate, investing, life experiences with family, being able to care for, provide and support for your family, and so I think all of those are great. And for our listeners, maybe some of those resonate with you, maybe it’s other things. But I think ultimately, taking time to set your vision, set your why for your own personal financial plan can really help month-to-month when it comes to executing certain decisions related to the plan. So Austin, as I understand it, you will have paid off or did pay off $80,000 of student loans over two years of residency. And we before we just talk for a moment about how significant that is considering what we all know is a limited income in residency, I want to go back to one thing you had mentioned is that you were able to be successful in terms of limiting your student loan debt that was accrued, but I assume also in paying that down through making wise decisions. Tell us more about what was the Ulrich playbook when it come to — when it came to minimizing debt and ultimately paying down that debt. What were those things in terms of making wise decisions?

Austin Ulrich: Yeah, so I mean, I would say the linchpin or the key factor in that was really our house purchase. So like I mentioned, in 2014, we decided to buy a house because we knew I’d be in pharmacy school for four years, so we figured that we didn’t want to throw money away to rent for that long and maybe build up some equity. And it actually created a bit of a commute for me — or maybe more than a bit. But I had to drive an hour each way to school for four years.

Tim Ulbrich: So it was pre-Zoom pharmacy school, right, with COVID?

Austin Ulrich: Right. Yeah. So we did have to sacrifice a little bit, you know, as far as commute time. But it was in a place — it was actually in Ogden that we owned a home. It was more affordable, and we had a pretty low house payment. We were able to put some money down on it. And so when it was — when I finished pharmacy school and it was time to move for residency, we actually debated keeping it as a rental property. But when we had looked and, you know, really, we were thinking then, it’s getting close to time for a recession because they seem to be cyclical, but of course, it didn’t happen quite at that point. But in any case, we figured the value had increased so significantly that it would actually b ea good time to just sell the home, so we did make a very decent profit on the sale of the house, probably more so than any other investment we would make in the future. But I guess who knows? But that allowed us to pay off over half of the student loans. So that was definitely a big — the biggest driving factor as far as volume goes to get the cash to pay off the student loans.

Tim Ulbrich: So building up that home equity in that property, being able to sell that, throwing it at the student loans, obviously a big dent. And for our listeners that are hearing that and they’re like, ah, dang it, I don’t have a home with a lot of equity that I can sell and pay off my student loans, so what else was the key to success for you guys in terms of budgeting, working together, keeping expenses down — we’ll talk in a moment about being able to increase some income through a side hustle — what else was sort of the recipe for success as it related to your debt-free journey?

Austin Ulrich: Yeah, so you know, of course my wife and I, we definitely had to be on the same page as far as making these financial decisions. And everything that we’ve done, we’ve done together. And so it’s been a lot of kind of late night discussions and talking through things. And it’s not always easy, but I think that as we work through things, we end up on the same page and we figure it out. So some of the things that we did to keep expenses down during pharmacy school, I think the house purchase was a big one because we actually paid less on our house payment than we did in rent. So you know, there’s some money there. We also — and I know this is not something that’s available to everyone — but we had family nearby as far as childcare. So we had our first child was born the summer before pharmacy school, so we had kids all through pharmacy school. But we had family nearby that we were able to swap babysitting days with and so we actually did not pay $1 in childcare as far as working or school goes to get through pharmacy school. So you know, things like that were pretty significant I think in contributing to helping us keep expenses down.

Tim Ulbrich: What a blessing that is, and I appreciate your comment about you and your wife having to be on the same page. And I know how difficult that can be. I mean, you guys have three young kiddos at home, you’re transitioning from pharmacy school to residency to now obviously even a new opportunity, new location. And it’s hard with three young kids to have any length of conversation, right, without being interrupted. And so sometimes, you’ve got to work hard to piece it together and you’ve got to be persistent, and sometimes it means some late-night conversations, so love to hear that intentionality. I want to talk about your side hustle for a little bit. One, because you know, the YFP community knows, we love a good side hustle for many reasons. I think it helps accelerate the financial goals and the plan, I think it can often help provide a creative outlet and release for something that one is passionate about. And so I think you have a great example with what you have built with your medical writing business, Ulrich Medical Writing LLC. So tell us a little bit about how this came to be, why it came to be, and what the work is that you’re doing right now.

Austin Ulrich: Yeah, this I think is one of the most interesting things I would say I’ve done, really didn’t have a clear path or clear plan. But I would say it really wasn’t about — until about halfway through my PGY1 residency year I was thinking, you know, I know that theoretically at that point, I should be making decent money as a pharmacist, but you know, why not do something to increase my income now? Not that I wasn’t busy enough. But just kind of thinking outside the box. So I mean, I tried a number of things as far as kind of getting a side hustle to generate income. So I’ve tried lots of different things: taking email surveys, transcribing recordings, which I actually didn’t do because my transcribing wasn’t good enough. They paid like $5 an hour, but I couldn’t quite get hired on there. Probably a good thing.

Tim Ulbrich: Oh, wow.

Austin Ulrich: But I did some tutoring on Chegg, some online tutoring, I taught piano lessons. And then I did a bunch of reading about online business.

Tim Ulbrich: OK.

Austin Ulrich: But really, when I happened upon medical writing, I had no idea that it has existed before, and it just felt right with my pharmacy experience. And medical, I guess for those who may not be as familiar, it’s really just writing about any sort of medical topic, and it can any sort of format. These could be blog posts, they could be continuing education modules, slide decks, regulatory documents for pharmaceutical companies, all of that falls under the umbrella of regulatory writing. So really, what I found is that I just needed a little bit of training and a little bit of education to kind of steer my skills in the right direction to be able to provide value in this setting and be able to do some freelance and contracting work in that area.

Tim Ulbrich: And how do you as a new medical writing business, obviously you have the PharmD, you have the clinical training, so that helps in terms of credentials and expertise, but you know, there’s other people in this space. How do you build credibility, how do you build relationships, how do you find clients? What were some of those initial steps that you take and even some of the struggles that you had along the way?

Austin Ulrich: Yeah, so I would say it did take me a long time to get started. So I actually did research for about four months — I guess long time relatively — but I did research and I was building a website in the background, which is nothing fancy, but it kind of does the job. It’s more of a portfolio. But what I would recommend and what worked for me is digging around on AMWA.org, so that’s the American Medical Writers Association. And you basically have any resources that you need about medical writing, they have education there, it’s been a really great community be a part of as I’ve been growing my business. I went to one of their annual meetings last year, and so really doing some networking with people that were also members of AMWA, I read a couple books on medical writing to really just kind of get me started. And then as far as finding clients, there’s the cold email strategy. Sort of like cold calling, but you send them an email and basically when people hear that you’re a pharmacist in the medical writing space, there is a certain understanding that they have that you know about medications and if you’re a writer, you must be able to write about them is the hope. And that reminds me, I did read some books about writing as well too because you do need to know how to write and enjoy it to some extent to be able to do medical writing.

Tim Ulbrich: Sure.

Austin Ulrich: Sometimes you have to grind away, but all of those were pieces that went into building that business to the point where I launched the business and I had a grand total of 0 clients. So then I started my finding process.

Tim Ulbrich: Yeah.

Austin Ulrich: But AMWA, the American Medical Writers Association, actually has a great place to post freelance opportunities, job opportunities. So a number of companies and agencies will post there periodically. So I’ve gotten a few clients that way, I’ve gotten a few clients through just direct emailing. And so just kind of a combination of different approaches has been how I built that up.

Tim Ulbrich: What has the side hustle, what has the medical writing business meant to your financial plan? So how has it either accelerated your goals or perhaps even opened up some new opportunities?

Austin Ulrich: So paying off my student loans within two years of residency would not have been possible without the side hustle. You know, that’s very clear to my wife and I that that was such a big player in that. You know, and though it did mean some early mornings and late nights for me and weekends, it’s not just something you get all of this money for doing nothing. You have to put in the work. So it’s still a trading your time for money type thing. But you know, it’s been really one of the things that I would say I’m the most proud of that I’ve been able to get that moving and actually see some success. You know, the first project that I landed I was almost in disbelief because it’s like, I’ve never done something like this before.

Tim Ulbrich: Yeah.

Austin Ulrich: And you just kind of go with it, and you do your best and make it happen. So that’s what entrepreneurs do.

Tim Ulbrich: Absolutely. And that’s awesome. And kudos to you for taking some risk getting it started. I’ve shared on this podcast before, one of the books that was so instrumental to me in getting started with YFP was “Start” by John Acuff. And I think it’s just such a good resource on the mindset of when somebody has a new idea — and it could be a new business, it could be a new service at your place of work, it could be anything that you’re looking to begin or start, that there can be so many different steps that need to be done and it can be overwhelming, there’s so much to learn. And often you can get lost in that maze of what do I do next? Where do I go? And often, there’s obviously paralysis that prevents that next step. And I think what I took away from that book was you’ve just got to start, right? You’ve got to start. You take a step forward. You do your research, but you move forward. And you may look back in two years and say, “What was I doing with that website or that first step?” But that’s not the point. You know, you’re really getting toward that larger vision and being able to move something forward. So before we transition to talking about your most recent home purchase, Austin, where can folks go to learn more about what you’re doing with your medical writing business?

Austin Ulrich: Yeah, so I think the best place to connect with me would be on LinkedIn. So just Austin Ulrich on LinkedIn. I’ve got my profile set up as a clinical pharmacist and also a freelance medical writer. And then you’ve got my website, and anyone’s welcome to take a look at that. So it’s UlrichMedicalWriting.com.

Tim Ulbrich: Awesome. And we’ll link to both your LinkedIn profile as well as the website in the show notes for those that want to go back. And again, you can go to YourFinancialPharmacist.com/podcast, find this episode, and you’ll see those show notes listed. So you finish up two years of residency in Oregon and you move in across country for a new ambulatory care position. So tell us about this new job, what you’re doing, what you’re working on, and how ultimately you came to find it and how difficult or maybe not it was in terms of navigating that home buying and job position finding during a global pandemic.

Austin Ulrich: Yeah, so I think starting out with the job, you know, of course during the latter half of my PGY2 residency year, I think as all PGY2s are, you’re looking for a full-time position. So I’d been looking and had a number of opportunities and positions available I was applying for. And about that time, COVID hit, you know, early March. So I started to see positions disappearing, you know, I had a few phone interviews. And things just weren’t really moving forward with what I was looking for for positions. But so I guess one thing I would say about this is other than possibly being the worst time in history of the U.S. to get a job, unemployment rates really sky-high, but you know, it impressed to me the importance of going to conferences and networking in person because a lot of the people that I interviewed with, it was all remote, and it was all phone. Maybe I just interview poorly that way, who knows? But the company that I work for is called Upstream. And I had actually met them at ASHP Midyear in December.

Tim Ulbrich: Oh, cool.

Austin Ulrich: So I had met them in person, and it just so happened that I saw a posting that they had a position open. And that was — I think that was in May, early May that they had posted that. So I reached out to the people that I had met and we set up an interview and got a job offer not too long after.

Tim Ulbrich: That’s awesome.

Austin Ulrich: So you know, it’s really interesting how things materialize that way and are just — meeting people in person I think is not to be underestimated.

Tim Ulbrich: Yeah, and I’m so glad you brought forward that networking/professional organization piece. I think from my experience, the benefits of a network and I think really building genuine relationships, I think sometimes networking can imply sort of this cold relationship where you’re using people for connections and other things. And I think so much of networking is genuine relationship-building and doing that continually, making that a part of what you do every day because you genuinely care about people and genuinely care about collaborating and sharing with others. And the fruit of that will come to be and most often will come to be in a time where you may not even expect it. And I think here is a great example. But waiting until that time of need to try to build that network I think is where folks can get in trouble. So not only were you searching for a job in the midst of a global pandemic — and I saw the same thing here with many of the residents that I work with in the Columbus area where job positions were falling off, people were pulling back, trying to conserve resources during this unknown time period. But you also were trying to purchase a home during a global pandemic, which doing that alone from West Coast to East Coast would be difficult enough, let alone trying to do that in the midst of obviously the challenges that were brought forth by COVID-19. So tell us about that experience — and I think the piece, Austin, I’m curious to hear from you knowing this isn’t your first time going through the home buying experience, was there anything that you learned from that first time that you applied and did differently when you bought this home here in 2020?

Austin Ulrich: Yeah, so I think the thing that was most important for us is we wanted to actually see the property before buying. It was really important for us to get into the right area or a good area for our family. But on the other hand, how do you know what is the right area when you’ve never been somewhere? We hadn’t even been to North Carolina before. And I guess to contrast that with our home buying experience in Utah, we knew the area very well that we wanted to live, and we actually ended up finding our house on it may have been Zillow or some sort of real estate network. But we basically found our house and called whatever realtor was listed on there. It was probably an easy job for them, but you know — so that was definitely differences. We didn’t really know where we wanted to be, and we’d had some not-so-good experiences with that realtor and also our realtor selling the house. So one of the important things for us was to get a realtor that would actually do a good job for us because we knew that they’d need to be — we were going to take a trip out and we had three days to find a house and make an offer. And so that realtor needed to be available and needed to do a good job, so you know, we asked for recommendations and one of the people I work with had mentioned someone that they used that was an awesome realtor. And so we went with her, and she put in a lot of hours those three days when we were out there, and we did too. But having a good realtor was really important to us, and of course having all the financing lined up is an important piece of that as well so that you’re ready to act because what we found is there were actually three or four houses we were considering offering on, and they were gone.

Tim Ulbrich: Yes.

Austin Ulrich: About the time — I mean, within one day. We looked at it in the morning and by the evening, it was gone. So part of that was getting our offer in fast enough before the house we’re in was gone. I would say those are some of the things that we kind of carried over from our previous experience but really different experience for us because we just didn’t know anything about the area. But I think by the end, we had a pretty strong feeling of where we needed to be.

Tim Ulbrich: And I’m glad you mentioned those two things, Austin, as I think of Jess and I and our transition buying a home for the second time here in Columbus, those two things really stand out to me as well. Having your financing in order and having a good realtor on your team and how important they are. And I think they can certainly make all the different, especially when you’re dealing with a situation such as what you guys are doing, moving across country but also in a market where things are moving quickly and properties are coming off the market quickly and needing to be ready to act. So you’re in North Carolina, you’ve gone through a lot of transition in the last four or five years, obviously you’ve made incredible progress, you’ve got a young family, lots of competing priorities for your finances, so how are you feeling in this moment about your overall financial health? And talk to us a little bit about some of your financial goals going forward.

Austin Ulrich: Yeah, so I think about my goals fairly often now, I think since crafting my why, which has been really helpful of having things that I’m looking to achieve. But of course our big goal is to buy a house, that was something that’s important for our family. And I know that may not be part of everyone’s financial plan, but that was something that was important to us is to build the equity and maybe it was due to our really good experience with our first house, but I think in general, we don’t like the idea of throwing money down the drain to interest. But you know, in any case, our next steps for financial goals really are to make sure our savings is solidified. We were able to get some what we feel like is pretty favorable financing where we didn’t have to completely destroy our savings and emergency fund to purchase the home. And so just building that back up is going to be the first step and then looking to kind of flex up our investments and then eventually down the road, I think we want to get into real estate investing. But I think we’ve got kind of more to learn and more capital to acquire probably before stepping into that of what we’re thinking that we want to do there.

Tim Ulbrich: Yeah, and you’ve put yourself in a great position to have that as an option going forward. And so I’m excited to see what the future looks like for you and your wife. And as I listen to your financial journey, I know — it sounds like it, certainly — that your intentionality with your finances during school and residency has really set you up for a lot of success in the future. And I think really sharing your story, I’m hopeful students listening are inspired by this, those that are in the midst of residency and feeling how daunting that can feel in terms of both the intensity on your time as well as the strain on your resources as well as those that are making the transition and looking to build that solid foundation, I think there’s a lot of wisdom that you shared throughout this episode, so Austin, my question for you here is what advice would you have for, you know, students that are listening to this episode saying, ‘I’m going to put myself on the path that Austin has taken where a couple years out, I can be on solid financial footing and really be looking toward the future to optimize the plan.’ What would you have for students and some actions that they can take in the moment?

Austin Ulrich: Yeah, so I think honestly, one of the biggest things I would recommend is remember to enjoy the journey because it can be easy to think, oh, after I graduate, after my student loans are paid off, after this, after this, once I have enough money, then I’ll be happy, then I’ll enjoy life. And I think that’s a little bit of a trap that people can get into because in some of the way, it’s really about the journey, those nights being up with the kids three or four times and getting up at 5 a.m. to go to school, those are times to look back on and now those are great times and we’ve got a lot of great times ahead of us. So I think that’s probably my No. 1 piece of advice that I would give as far as an overall standpoint is keep that in mind as you’re looking to accomplish your own goals and meet your own financial why. But I think one of the most important things for me was for sure working during pharmacy school. I was a pharmacy student, I personally recommend that to everyone. Just the opportunity to implement the knowledge you’re getting in pharmacy school, it makes you a better student and you get paid for it, so it puts you in a better financial position. So I mean, I don’t think that anyone should overstress themself by getting a job, but it’s certainly something I recommend. That would be one of my biggest other pieces of advice as far as the finances go.

Tim Ulbrich: Great stuff. And we know the YFP community is hungry to learn more in addition to what they’re hearing on the podcast, so do you have a favorite book, podcast or other resource that you have found to be instrumental in your own life as it relates to your finances?

Austin Ulrich: Yeah, so I was thinking about this and, you know, I think a lot of the books that you mention here on the podcast are ones that I’ve read, a lot of them actually at recommendations I’ve heard on YFP. But as far as podcasts go, I think some of the things that I learned as far as my side hustle, which was a very important piece of the financial plan and still is, there are a couple of business podcasts or entrepreneurship podcasts that kind of, they get you motivated really well. And I haven’t listened to those in awhile, but Entrepreneurs on Fire by John Lee Dumas and then School of Greatness as well, Louis Howe is that one. So those are some great kind of — they have some key episodes that are good kind of pop-up entrepreneurship and get you in the mindset to go and take some action, like you said, and just do something to start moving forward and then let that momentum build.

Tim Ulbrich: Great recommendations, Austin. And I appreciate you taking time out of your busy schedule with all that you have been going on with the move and the new job to share your financial journey. It’s been an inspiration to me. I’m confident it will be the same to our community and certainly appreciate your contribution to the show. And to the YFP community, if you liked what you heard on this week’s episode, 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. And if you haven’t yet done so, I hope you’ll join us in the Your Financial Pharmacist Facebook group, over 6,000 pharmacy professionals all across the country committed to helping one another on their individual path towards achieving financial freedom. Have a great rest of your week.

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YFP 165: The Power of a Health Savings Account

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The Power of a Health Savings Account

On this week’s podcast episode sponsored by HPSO, Tim Church joins Tim Ulbrich to talk about the ins and outs of a Health Savings Account, how an HSA fits into a financial plan and why he is choosing not to use his HSA to pay for medical expenses.

Summary

A health savings account (HSA) is an account that allows someone to contribute to it on a pre-tax basis to pay for qualified medical expenses. Unlike a FSA, any amount you contribute to it is yours and you aren’t forced to spend it within a year. If you have a high deductible health plan (HDHP) that has a deductible of $1,400 for an individual and $2,800 for a family, you can qualify for an HSA.

Tim Church explains that an HSA is not a health plan per se, but instead is a benefit that unlocks if you have the option to have a high deductible health plan. For 2020, HSA contribution limits are $3,550 for an individual and $7,100 for a family. A catch-up contribution of $1,000 is available for those that are over age 55.

Tim shares that HSAs have triple tax benefits: your contributions will lower your AGI, any contributions grow tax free, and distributions are tax free. The caveat with the last benefit is that if you’re under 65, these distributions must be used for qualified medical expenses. Otherise, you’ll pay a 20% penalty and will be taxed according to the marginal rate. After age 65, any distributions don’t have to be for qualified medical expenses, however you’ll have to pay income tax if they aren’t.

Tim explains that the most power in an HSA comes from this loophole: you don’t have to reimburse yourself in the same year you incur medical costs. This means that you’re able to allow your money to grow in the HSA and reimburse yourself for the medical expenses later on in life as long as you have the receipts and are keeping good records. Tim is essentially using his HSA like a 401(k) or TSP account, meaning he’s aggressively investing it in stock index funds and is using it like a retirement account instead of a savings account for medical expenses.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Tim Church, two weeks in a row. Welcome back to the show.

Tim Church: Always good to be on. And you could also call this episode, “One of Tim Church’s Biggest Financial Mistakes Ever.”

Tim Ulbrich: I mean, how many episodes have we discussed the context of the topic as it relates to our mistakes? So here’s another one, which we will jump into in more detail. So today, we’re talking all about using an HSA as a savings vehicle. Now we talked a bit about HSAs on the podcast in the past, specifically Episode 019, How Does an HSA Fit Into a Financial Plan?, Episode 073, How to Determine the Priority of Investing, and most recently, on Episode 163, we briefly HSAs as it relates to Investing Beyond the 401k and 403b. But when I saw you wrote a blog post for the YFP blog on HSAs, I was reminded how powerful these accounts can be if you have access to them and knew we had to dig in more and dig in further on this topic. Now, for some of you listening, you may already saving in an HSA, some of you may have no idea what we’re talking about or this is the first time you’re hearing of it. And some of you may not have access to an HSA currently. And that’s OK as you may have this option available to you in the future. So Tim Church, let’s start with the basics: What the heck is an HSA?

Tim Church: So HSA stands for Health Savings Account. But the name itself is a little bit of a misnomer, as we’ll unpack, because you really can use it as more of an investing vehicle than necessarily just a simple savings account. But essentially, it allows you to contribute money on a pre-tax basis to pay for qualified medical expenses. These include costs for deductibles, copayments, coinsurance, and other expenses, generally not premiums, but a lot of different things that would fall under that as a qualified medical expense. And one of the biggest things — and I see this confusion come up a lot — is unlike an FSA or a Flexible Savings Account, any amount that you contribute into this is yours and you’re not forced to spend it every year. So it’s not a use-it-or-lose-it situation. Basically, those funds are there until you use them, even if you change jobs. It doesn’t matter. It’s going to follow with you, so it’s portable. So even if that’s the situation, it’s something that you’re going to continue to be able to utilize.

Tim Ulbrich: So key difference there, Tim: FSA/HSA. FSA you lose it if you don’t use, so you get some of the tax benefits, of course, that are associated with an FSA, but you’re always kind of worried about, OK, how much do I need? Am I going to need it? What if I don’t need it? HSA, totally different, right, in terms of if you decide to contribute or even max this out, you’re going to be able to continue to let those funds roll over, and we’ll talk about the growth opportunities that can come from those long term. So what is an HSA exactly? I mean, beyond what you just mentioned there, in terms of the setup of the accounts and how these worked and who ultimately has access to them.

Tim Church: So a Health Savings Account is not a health plan per se but rather a benefit that you unlock if you opt into a specific kind of health insurance plan called a high deductible health plan, or an HDHP. And these plans, as defined by the IRS, are those with deductibles of at least $1,400 for an individual and $2,800 for a family. Now that’s as per 2020. And these change over the years.

Tim Ulbrich: So we’ll link in the show notes to the IRS numbers if folks want to take a look at that further. But just to reiterate what you had said there, you essentially have to be enrolled in a high deductible health plan, so folks need to be thinking about not only can they contribute to the HSA if they’re eligible but also what’s their plan to be able to fund and bank the deductible monies in the event that they would need to use them throughout the year. So obviously coming into play here would be the emergency fund. So Tim, what from your experience — before we talk about contribution limits — from your experience, how widely available, in talking with many pharmacists, how widely available are these? And is this something that you’re seeing grow each and every year?

Tim Church: I think a lot of people have access to some form of a high deductible health plan. Not all of them are always that great. But I think that they are becoming more available. For me, I had this available for several years, even when I first started working, but just really didn’t understand what it was and how it worked and really was persuaded into a traditional PPO plan where everything was basically covered. If I had to go in for an appointment, covered medications, but the reality and the biggest thing that I didn’t understand is that with those traditional health plans, the premiums were much higher. And for somebody like myself who’s been fairly healthy, even though I’m not paying for things as they come up, they’re coming out of my paycheck, so I’m paying more for health-related expenses that I may not actually incur and didn’t incur for the first couple years when I was working. So that’s one of the biggest distinctions is that a high deductible plan is that you’re going to have to pay out of pocket for things that come up until you hit your deductible. But in general, your premiums are going to be lower.

Tim Ulbrich: Yeah, and I think that’s the mistake you had referenced earlier, which I think thankfully is not a catastrophic one, right? But is worth noting for folks that may be in a similar position. If you’re healthy and otherwise don’t have a lot of healthcare expenses, obviously you never know what the future is going to hold, but if you’ve got a good emergency fund and there’s a stark difference between the premiums in more of a traditional plan versus a high deductible health plan, you could fund the deductible if something were to happen, well then obviously being able to go into the high deductible health plan not only unlocks perhaps the HSA but also is going to free up monies each and every month that you could allocate towards another part of your financial plan. So Tim, as we talk about HSAs here, what are we referring to as contribution limits? Because I think this is important as folks are considering OK, I know how much I can put in a 401k or 403b, we’ve talked about that many times on the show. I know what I can do in a Roth IRA or a traditional IRA. And here, if we’re going to begin to think about an HSA perhaps not only for health care expenses but as a long term savings account, it’s important we have an understanding of how much we can allocate towards that. So what’s the dollar amounts we’re looking at in 2020 for contributions?

Tim Church: So similar to an IRA or a 401k, these contribution limits change every couple years. For 2020, for a self high deductible health plan, you can contribute up to $3,550. And for a self plus one or family, that number is $7,100. And then there’s also a catch-up contribution of an additional $1,000 for those who are 55 and older.

Tim Ulbrich: And Tim, I want to go back. One thing you had mentioned when I asked you how widely available these are, you said I think lots of people may have access to them or certainly they’re growing in the number that are available. But you had mentioned not all of them may be good. And what were you referring to there? Is it in terms of the construct, design of the plan? The investment options that are available? What are you referring to there when you talked about the quality of the plan?

Tim Church: So Tim, I think there’s a couple things to consider when you’re looking at those plans. And one is what the deductible is set at because if it’s something that’s very, very high, that means you’re going to be paying a lot of money out of pocket until you reach that level. I’ll give you an example for my high deductible health plan. For my wife and myself, our deductible is set at $3,000, meaning that health expense that comes up, we have to essentially pay for it out of pocket until we reach that $3,000 mark. And then from that point until about $6,800, that’s when our insurance would kick in and we would have a copayment. But the one thing that we like about our plan is that you’re out-of-pocket expenses cannot exceed a certain level. And so the IRS sets that. For individuals, that’s $6,900 and $13,800 for in-network services. And that’s something to take into consideration as well because that may also be a benefit if you look at you’re never going to pay in a given year over a certain amount, that can be very helpful and beneficial. But if the deductible is set very, very high, that means anything that comes up, you’re on the hook for paying those. I think the other thing to look at is what are your typical needs that you’re going to have in a year for whatever medical conditions you have for medications? So you always have to look at what those additional coverage options are going to be versus what you would get in a traditional plan. And then I think the other thing to consider is when you are going to go with one of these high deductible health plans is picking a trustee or somebody who’s going to administer the HSA that is going to offer good investment options if that’s the route that you’re going to go. And when I say good investment options, meaning you have a diverse number of options available but then also ones that have low fees associated with those funds.

Tim Ulbrich: Love it. Great summary. And I think that aligns so well with what we talk about in terms of investing philosophy with our comprehensive financial planning services. You want to have options, right, where you can have choice but also be able to keep those fees low because as we’ve talked about on the show, we know how those fees can eat into your long term savings. So if you’re putting the money in, we want to do everything we can to minimize what’s ultimately eating away at those funds. So let’s dig into the HSA more. And to be honest, this is where not only does it get good, but this is also where I start getting a little bit of FOMO because I don’t have access to an HSA so every time we’ve talked about it, I mentioned previous episodes, I’m always like, man, I wish I could do this as it relates to my financial plan. And our listeners have likely heard us talk or perhaps somebody else talk before about how an HSA has what’s referred to as the triple tax benefit. So Tim, break that down for us. What is the triple tax benefit? And spend a little bit of time on each one of those areas.

Tim Church: Sure. So the first one is that contributions that you make towards a Health Savings Account will lower your Adjusted Gross Income. So I think as pharmacists, one of the things that’s sort of annoying is that there’s a number of deductions that are available, but I often find myself, well, you make too much money to qualify for that. You can’t deduct student loan interest because you make too much. You can’t deduct traditional IRA contributions. Well, that’s one of the biggest benefits of an HSA is that it doesn’t matter how much money you make, that anything you contribute will lower your Adjusted Gross Income, which I think is huge. So that’s one of the things that I would often tell my colleagues is that look beyond the difference in cost in what you’re going to pay with your health insurance is that you have to look for other ways to lower your tax liability. And even though this may not be huge, depending on if you’re an individual versus a family, it still can be a pretty significant amount. So that’s No. 1. No. 2 is that any contributions you make to the HSA, whether they’re in investment accounts or some bond account or a high yield savings account within that is that those contributions are growing tax-free, which is also a really big deal.

Tim Ulbrich: Absolutely.

Tim Church: So like I said, whether you invest or you simply save them, they’re going to — if there’s growth on any of those accounts, you’re not on the hook for paying any taxes on those gains. And again, this is where it really comes down to how you want your HSA to function. So there’s a lot of people who are going to have medical expenses that they’re going to incur throughout the year, and they may want to use their HSA to pay for those expenses on a pre-tax basis, which is fine. I mean, there’s nothing wrong with that. You’re still getting the savings by paying for those expenses in that way or reimbursing yourself. But the power of the HSA is really where you can essentially pay out of pocket for health expenses that you may incur through the year and any of those contributions you make to an HSA, you can really look at it as almost an IRA. I know Dr. James Dowley at the White Coat Investor, he calls the HSA a “Stealth IRA” or an “IRA in disguise,” which really, that’s how it can function if that’s the way you want it to be. So that’s really powerful when you look at the ability to get growth and those investments in the HSA to grow over time and not have to worry about paying taxes on those gains.

Tim Ulbrich: And Tim, just real quick there, you’re essentially then looking at this, potentially, if you don’t have to use it for health care expenses, you’re looking at this as another long-term savings, another retirement account, correct?

Tim Church: Exactly. I mean, that’s exactly how ours is functioning right now. So I’ve had it set up now for three years since we changed our health insurance plan to a high deductible plan, and essentially everything we’ve been contributing in there I’ve just basically focused on that it’s an investment, it’s for retirement, and I’m not using any of the money in there.

Tim Ulbrich: Awesome. Awesome. So No. 1 was contributions lower your Adjusted Gross Income, your AGI. No. 2 was your contributions can grow tax-free. So these two both sound awesome. So give us the third, the good news to wrap it up.

Tim Church: So the icing — yeah, the icing on the cake is that the distributions are tax-free. And I’ll put a little asterisk there.

Tim Ulbrich: Ding ding!

Tim Church: Because there’s a couple things with that. But in general, there is a way you can take money out and not have to pay any taxes on it. So first off, if you’re under 65, the distributions you make have to be for a qualified medical expense. Otherwise you have to pay a 20% penalty, and you get taxed according to your marginal rate. So definitely not something that you want to do. But after age 65, any distributions, they don’t have to be for a qualified medical expense, but you have to pay income taxes if they’re not. So the question then becomes, OK, well, what if I wait until I’m at the age but I still don’t want to pay taxes. Is there a way to get around this? And that’s really one of the loopholes, and this is completely legal and something to really consider, but when you’re taking distributions out of your HSA, let’s say this is 20 years down the road, 30 years down the road, you don’t have to reimburse yourself for medical expenses in the same year that you incurred them. Meaning let’s say today in 2020, I paid for medical expenses out of pocket. Well, 20-30 years from now, I can essentially say that I’m reimbursing myself for those expenses that were made several years before as long as you can prove that those are expenses that you paid for at some point in time, even if you get audited from the IRS, you’re still legally reimbursing yourself for those medical expenses. You’re just not doing it at the same time or same year that they were incurred.

Tim Ulbrich: Yeah, that’s awesome. And that detail I think is really important, one that’s not talked enough about. And just to summarize, Tim, you did a great job succinctly, but the triple tax benefit, you know, folks think of — like we’ve talked before on the show — of the benefits of say like a traditional 401k or a 403b where you’re lowering Adjusted Gross Income today but ultimately you’re going to pay taxes in the future when you pull those monies out whereas the Roth IRA, what you’re putting in today you have already been taxed on and it’s growing tax-free, and then you pull it out tax-free. This really takes the best of both of those worlds. As you mentioned, ultimately what you are putting into your contributions lower your AGI, then your contributions grow tax-free, and then distributions are tax-free with the important stipulations that you mentioned. So talk to us about how you approach this, Tim, with your HSA. And again, this isn’t investment advice, of course. You know, we know every personal situation is different. But I think it would be helpful for our listeners to hear how do you approach your HSA in terms of aggressive, conservative, is this the place you’re really leaning in? Or are you looking at other places to do that and you’re a little bit more conservative here? How do you look at the investment strategy when it comes to your HSA?

Tim Church: Yeah, I mean, really it’s just similar to my 401k, which is through the government, it’s a TSP or a Thrift Savings Plan. That basically is very aggressive. So I don’t plan on using —

Tim Ulbrich: Full throttle, Tim Church-style, full throttle.

Tim Church: Take it to the limit. So it’s super aggressive into stock index funds because I’m not planning on using any of the money for several years down the road. And so it really is — the way I’m viewing this is I’m not touching it, I’m not going to use it for medical expenses today. Even if later down the road — you know, some people have said, let’s say you get to age 65 but you have so much money in your HSA that you haven’t even incurred that amount in medical expenses. Well, No. 1, that’s pretty awesome because that means I’ve been pretty healthy, my family’s been healthy during those years. But No. 2, the worst case scenario is you don’t pay a penalty but you pay income taxes on that. So it’s still a good option, even if that were the case. But yeah, it’s very aggressive. I’m viewing it as a retirement account, I’m not thinking about using it today or even in the next year. So it’s a very aggressive strategy. And like I said, that’s where it’s kind of a misnomer when you heard the word Health Savings Account because within my particular plan, there are several aggressive investments where you can put the majority of your money, all of your money if you want to, in a very aggressive portfolio in order to achieve greater gains several years down the road. And so for us, that’s the way we’re looking at that. And that’s why we’ve made that a huge priority after getting our matches at our work that that’s basically step No. 2 because of all of those tax benefits, this is very high in our priority with looking at those accounts.

Tim Ulbrich: Yeah, and again, just to reinforce a point you made earlier to our listeners that just like we say, not every 401k or 403b is created equal in terms of your investment choices and fees, the same thing is true with HSAs. So you know, we’re obviously talking about this at a high level and globally talking about the tax benefits, but ultimately the construct of the high deductible health plan and where that deductible is set as well as your savings options within the HSA and the fees associated with those is going to make this — I would say on the spectrum of attractive because I think regardless, it’s still attractive, but more or less on that higher end of attractive. So Tim, you just alluded to this, but I don’t want to have anybody overlook it. You mentioned where this fits in priority-wise, but I want to dig into that a little bit further because I think we spend so much time talking about some of the, you know, more popular I guess you would say, 401k, 403b’s, Roth IRAs, brokerage accounts, etc. And HSAs sometimes gets lost in the mix of looking at this as an investing vehicle because of its name, Health Savings, as well as how it’s often used. But to reiterate what you just said there, we’ve talked about this before when we talked about priority of investing on Episode 073, where do you see this fitting in to one’s investing plan? Again, generally speaking.
Tim Church: Yeah, so this is really Step 2 for us after the match through our employer. Through my wife’s, she has a 401k match and I do as well. And really, after that, the HSA was Step No. 2. Just because of all those benefits that we outlined. And you know, for us, even when we were paying off student loans, we were getting our matches at work and we were going all-in on the HSA. And for us, we just didn’t want to miss out on those benefits of the years being able to contribute to that. So that’s something that we did, even in tandem while paying off student loans. Now I’ll say one thing that’s really cool is that if you are a person doing PSLF, so the Public Service Loan Forgiveness program or even a forgiveness after 20-25 years, that’s something that’s really cool beyond putting money in a traditional 401k, as we talked about, your contributions to an HSA are lowering your AGI, which are ultimately going to lower your student loan payments that you have to make. So again, you’re growing investments while you’re lowering your student loan payment. So it’s a really cool benefit for those who are pursuing forgiveness.

Tim Ulbrich: Love it. And Tim, one of the questions I saw come up recently in the YFP Facebook group, you know, I think somebody was asking essentially, hey, I would love to be able to take advantage of my employer’s HSA. I’m not currently in a high deductible health plan, but I’d like to make that switch so I can unlock that option. What are you seeing out there — and I know this could differ from one employer to the next for folks that might be listening here in August, it’s not open enrollment yet, do they have to wait if this option is available? Are there triggering events that may open up that door for somebody? What advice would you have for folks that are hearing this and saying, “I want to jump on this.”

Tim Church: Yeah, usually you can’t until it’s open enrollment unless there’s a qualified life event. Usually that’s birth of a child, marriage, what are some of the others? What are some of the other ones I’m missing, Tim?

Tim Ulbrich: We actually just — you mentioned marriage, birth of a child are the big that I can think off the top of my head. Somebody in the group actually mentioned there after consulting with their HR, their employer had considered COVID-19 as an event that allowed them to make changes. So that may be some unique circumstance like that. But the two that you mentioned are the two biggest ones.

Tim Church: And the other thing I think that’s important to look at is a lot of people are very nervous about switching to a high deductible plan knowing that they’re going to have to shell out quite a bit of money in the event that they have medical expenses come up. So you briefly mentioned it, having that emergency fund is really important if you’re going to make that switch because you have to be ready to put out quite a bit of money until you reach that deductible. So I think that was really key. The other thing, what is a cool benefit is that a lot of health insurance plans is that when you enroll in a high deductible plan, they actually give you money every year that directly goes toward your contribution limit for your HSA. So for example, the plan that we have through the federal government, they actually give us $1,500 every year just for being in the plan towards the HSA, which is a huge benefit. So when you add that up to the savings in the premiums, as long as I’m fairly healthy, it tends to be a much better situation in terms of costs. Obviously the difference is going to vary between a traditional plan, depending on how much you utilize medical services in a given year. But again, the only way to even unlock the HSA is to be in a high deductible plan anyway.

Tim Ulbrich: Great stuff, Tim. And a really succinct but good overall summary of not only what is the HSA but how you have viewed it in your personal financial plan. And I would remind our listeners, as always, if you want to look at the show notes for this episode, you can go to YourFinancialPharmacist.com/podcast, pull up the episode, and you can get a link to not only a transcription of this episode but also other resources that we mentioned during this episode.

 

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YFP 164: The Pros and Cons of Paying Cash for a Car

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The Pros and Cons of Paying Cash for a Car

Tim Ulbrich and Tim Church debate the pros and cons of paying cash versus financing a car purchase.

Summary

Tim Ulbrich and Tim Church talk through several pros and cons of paying cash for a car on this week’s podcast episode. Tim Church recently purchased a used Honda CRV with cash and Tim Ulbrich has purchased several cars this way, including his current Honda Odyssey.

The pros they talk through of purchasing a car with cash include: buying a car within your means; saving a lump sum of money forces you to slow down as a buyer; never have to worry about paying interest; don’t have to worry about negative equity on your car; no monthly car payments which will open up your cash flow; get through the buying process quicker and with less paperwork; could have cheaper car insurance; and a sense of accomplishment.

The cons discussed are the opportunity cost of putting all of that cash elsewhere with a potentially better return; you might pay more when buying a car with cash depending on the person you are buying it from; may take a long time to save money; may dip into your emergency fund which is generally not a good idea; and a missed opportunity to help your credit score by making on-time payments.

Tim and Tim then discuss which move they think is best and the value of having a coach in your corner to help you navigate financial decisions like this such as one of YFP’s CERTIFIED FINANCIAL PLANNERS™.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Tim Church, thank you for joining us. We’re going to talk all about car buying, pros and cons of paying cash for a vehicle versus finance a vehicle. And I thought it would be fun if we start by talking about the history of our vehicles, not only what are we currently driving, but have we been driving up to date as I know I’ve got some beaters in my history, and I’m guessing you’ve got some good stories as well. So Tim Church, give us some background. What’s been the vehicle story for Tim Church up until now?

Tim Church: You mean before the Lambo?

Tim Ulbrich: Yes, yes.

Tim Church: So I started out with a — what is it? — a 2001 Oldsmobile Alero. So this is a silver —

Tim Ulbrich: Hey, I had one of those!

Tim Church: You had one too?

Tim Ulbrich: Yeah. Yeah, I did.

Tim Church: Oh, nice. Obviously that Oldsmobile is no longer in business, is no longer there. But it was a pretty good car for the first couple years and then a lot of stuff just started to break down and there was some issues with it. But it was still, it was a good first car. And then really, I went on, personally went on to a Honda Accord, which I still have. Still have that, so when did we get that? 2011. So that’s, we’re going on almost 10 years with that car, but it’s been great. It’s been very reliable. And then I married into a 2009 Volkswagen Rabbit, which finally we got rid of.

Tim Ulbrich: Which is well documented in “Seven Figure,” right? We talked about that.

Tim Church: Right. We talked about how much cash we had to shell out to fix everything on it because it was so expensive. So that was one that I had married into, but finally — as I know we’ll jump into — it is no longer. It’s gone because we were able to upgrade.

Tim Ulbrich: And we’re going to come back to that upgrade and the decision that you made, why you made it, which will lead nicely into our discussion about pros and cons of buying cash, using cash to purchase a car versus financing a vehicle. So my history on vehicles starts in — passed down, actually, from my brother to me junior year of high school a Toyota Tercel. Do you remember the Toyota Tercels?

Tim Church: Yeah, isn’t there — there’s a song, there’s like a hip hop that well documents Tercels I think.

Tim Ulbrich: I got to look. So our vehicle, we named it, of course, because it had so many issues. Its name was Tercy the Tercel. And it did its job and then my upgrade was actually to an Oldsmobile Alero as I was in pharmacy school. And I am now a proud owner, of course, of the Swagger Wagon, a minivan, No. 2 minivan. You know, obviously we’ve got so many kids now we really don’t have many options but to have the minivan, about to need that rooftop carrier here pretty soon. And in between that, I’ll talk about the Lincoln MKX and Nissan Sentra, a couple other cars along the way and certainly some good stories that will come with those as well. Now, some of you may be thinking, wait a minute, paying cash for a car, why on earth would I ever do that instead of just getting a loan? And I know this may sound like a far-fetched idea, but hang with us for a minute and on the YFP blog, titled “My Top Ten Financial Mistakes,” really I should have called that “Things I’m Really Embarrassed About,” here’s the reality of all the decisions that we’ve made. And we’ll link to that in the show notes. I talked about how I bought a car I had no business buying back in 2014. And really, here’s the quick gist of it. Jess and I were nearing the end of paying off her student loans, almost at the finish line, I bought a used Lincoln MKX. And it was nice. It was really nice. Leather heated seats, moonroof, awesome sound system. I think it had one of those Bose systems. But the reality was I didn’t need the car. And I’m even getting a warm, fuzzy feeling just thinking back to riding in that car, to be honest. It was awesome. But I had a fully functioning, paid off!, paid off, Nissan Sentra with less than 50,000 miles on it. And so we ended up paying $12,000 for the Lincoln MKX and that was after turning in our Nissan Sentra, mind you. And while $12,000 may not seem like a lot of money, imagine what we could have used that money for: getting out of debt quicker — again, almost at the finish line — building up our emergency fund, saving for retirement, saving for real estate investment property, insert any other financial opportunity that outweighs the benefits of the car. But you get the point. So we ended up selling the Lincoln MKX six months after, talk about serious buyer’s remorse and purchased a Nissan Altima with 87,000 miles on it from my mother- and father-in-law. And the difference, which was significant, in that process, in that transaction, became our last student loan payment of the more than $200,000 in student loan debt that we paid off. So certainly good news, the outcome was good. But we paid for it, albeit not in a catastrophic way. We paid for it in the way of sales tax, delaying our debt payoff timeline, but the lesson learned was certainly priceless and one that hangs with me today. And I still have that Altima. It’s got a couple of quirks, I’m embarrassed to admit on the show, if anybody wants to know, shoot me now. But at 140,000 and no major issues, it No. 1 gets me from Point A to Point B and No. 2, it’s safe. And I think that second point is really important that we preface our conversation and before we get too far in this debate. Because I’m all about safety, and I’m not suggesting as we talk about what type of cars might provide the sweet spot in terms of the value and keeping that expense low, I’m not suggesting that you drive an unsafe vehicle to save money. And I really think that it’s fair to assume with few exceptions that here in 2020 whether we own a 2020 car or a 2008 car, we’re all driving what would be deemed safe vehicles. I think we’re often splitting hairs perhaps between the new safety features in 2020 and those of 2012. And that can be easy to convince ourselves is a part of justifying a purchase and we need a new vehicle. But not necessarily does, you know, an older vehicle necessarily mean it’s not safe. So the truth is most of us need a car for some reason or another, and maybe that’s not the case, maybe some people have been able to cut back their car situation. And while this isn’t an episode on best practices to buy a car, reference Episode 047 if you want to hear more about that, thinking through your strategy for purchasing a car is important to do. And buying a car, as with anything else that carries a dollar sign, is an important part of your financial plan. Edmond says that the average car payment for a new vehicle reached an all-time high in March 2020 of $569 per month. $569 per month. So doing a bit of research, thinking of some options outside of regular financing, is always a good idea. And I think this debate is really healthy. So Tim, talk to us about before we get into the weeds on the pros and cons — and we’ll go through each in detail — talk to us about what you and Andria just purchased and ultimately why you guys made that decision.

Tim Church: Yeah, I think before I jump right into that, I think you made such a great point is when you go through this whole process, I think you have to look at the perspective that you have. I think a lot of people, they think a car is a great asset potentially, but it doesn’t necessarily generate revenue unless it’s some collectable or something like that. So and our mentality is really something that’s safe, something that gets us from Point A to Point B. So I think you made a really good point there. And when you look at it, the opportunity to do so many other things, that has to be key in that type of decision. But I can understand, there’s a lot of people that are car enthusiasts, so they really enjoy that aspect of trying to get something that either looks good, that’s fast or has other intrinsic value. But for us in general, when we were looking, it was like OK, it’s a Point A to Point B. But one of the things that we really did is just figure out what were we going to actually buy and why? And for us, it was really just a midsize SUV. Talked to other friends and family who have vehicles kind of in that line. And we weren’t looking for anything luxury, just kind of middle-of-the-road, something that was safe, something that’s reliable. And so we essentially kind of landed on we wanted to go with a Honda CRV. So once we kind of made that decision, OK, what type of vehicle we wanted, then it was looking at the different models within that particular vehicle. So there’s actually, I think there’s like four different tiers of that, which is crazy. And what’s interesting is at one level, there’s actually the safety features that are present that aren’t on the lowest model. So that was really one of the key points that we looked for when we wanted to purchase and also from what I’ve heard, I didn’t know specifically, but it actually gets you a little bit cheaper insurance because of the safety features, so that was kind of one of the things. But I mean, what we did was once we kind of settled on what that model, what that vehicle was that we were going for, then we kind of looked at the Kelly Blue Books, the Truecar, the Edmonds, and just tried to get an idea of based upon that model — and what we were looking for was a certified pre-owned, so we wanted to get a little bit of a deal on that but still would be fairly new. So we got an idea of like what other people were paying for, what was a reasonable deal. So we kind of had a ballpark range. And then what we did was really look at the Honda certified pre-owned site and then from there, it kind of gives you all of the dealers that are in your particular area that have that make and model of the vehicle along with the features and the mileage on that. So that was kind of an easy way versus having to go on every single dealer website and trying to figure out who has what. So I think that kind of actually saved us quite a bit of time doing that. So from that point, once we had the vehicle inventory from the Honda site, then we were able to go to the individual dealers and not actually physically but I mean, call them, email them, and get an idea of what their quotes would be and in this particular case, we were trading in the Volkswagen Rabbit, which I was not anticipating we were going to get much for that thing. But eventually, we ended up getting $2,000 as a trade-in, which is really I thought quite generous to say. But one of the things is that the dealers obviously have a lot of — their main tactic is to get you on property, on site, get the emotions flying around, so that you’re not leaving without something. And what I did, what we did, was really try to get as close to an estimate on the quotes, really just via email. I tried not to even talk to anybody, didn’t want to give them my phone number, just because I didn’t want to get harassed. And I would say that if you have to give out a phone number, give out a Google Voice number, not your actual phone number, so that at least you can kind of screen those calls. But actually, I was pretty successful with getting quotes via email just saying with our trade-in and what we were looking for. And then once I got a couple of those estimates, then I was basically playing against each dealer and trying to figure out before I even stepped on the property, what was going to be the best option in terms of the deal so that when I even got there, at least I had some documentation, I knew an estimate of what we would pay. Obviously it would depend on the exact amount for the trade-in, but that was kind of our approach. And I think it actually worked out really well and because of the COVID situation, I think they were more willing to negotiate even via email before even going in there. And that really saved I think a lot of time and effort going that route.

Tim Ulbrich: Yeah, and I love what you said there, Tim, in terms of the emotion. Every sale is made from an emotional point of view or anything we buy, we buy from an emotional state of being. So I think, you know, what you just outlined there is that you really took advantage of doing a lot of your homework in advance and really trying to make it objective and analytical, you bought yourself a little bit of time, you don’t have that pressure in the moment, and all of those pieces add up to being your advantage as the buyer. So you know, if you’re going in uneducated, you’re going in — you know, it’s kind of like when you go to the bank and you just start a conversation about buying a home. Like, oh, let’s just talk about it, right? All of a sudden you’ve got like a preapproval letter for like, you guys can get a home for $700,000. You’re like, whoa, wait a minute, we just wanted to see what was going on. So you know, I think here, this is a good reminder too of the value of as a buyer, trying to put those advantages in your cord to give you the best shot. So let’s dig into some of the pros and cons of purchasing a car with cash. We’re going to go back and forth between you and I on these. We’ll talk pros, and then we’ll talk about cons. And I’ll kick us off from my experience. You know, I think perhaps the most overlooked, yet most important pro, in my opinion, is that paying cash gives you a better chance of buying within your means and stops you from putting your car buying priorities out of order with other priorities that you’re trying to work on. And I think it’s important we preface part of this conversation that we’re doing so under the assumption that other people listening to this are in a position like you and I, Tim, that they are also trying to balance other competing priorities and goals, whether that be paying down debt or buying a home, paying down a mortgage, saving for kids’ college, investing more for the future, whatever other goal, any money that’s put toward a car you could argue that yeah, there’s somewhere else I could potentially use that money. But if there’s folks listening that maybe don’t have other competing financial priorities and cars are their thing, are their jam, you know, Ramit Sethi from “I Will Teach You to Be Rich” would say, “Dial it up. Dial it up.” If that’s your thing and you certainly can control other parts if you don’t have those competing pressures. So buying within your means, what I mean by this is if Jess and I say, you know what, our next car we’re going to buy and we’re going to buy cash, and we determine, OK, we’re going to get another minivan and we’re going to look for — we’ve had good luck with Honda Odysseys and we want to look for one that has about 70,000-75,000 miles, we know that they hold their value, so anything we can do to find one at a lower price point but that will also live hopefully beyond 150,000-175,000 miles, let’s say we’re going to save up $13,000 cash to make that purchase. You know, taking the time to do that not only slows you down as a buyer and really makes you critically think about OK, where does this fit in with the rest of our plan? And that delayed timeline I think really helps you look at that purchase in an objective manner but just takes discipline, you know, to do that. So I think naturally, the conversation Jess and I will have is, alright, is there something else we can do? Can we downgrade to a different model? Can we look at a car that has a little bit more miles? We don’t want to wait that long to save up all that money. So I think it drives down the purchase price. Obviously you would compare that again, you walk into the dealership, you finance something new, you’re only worried about that next payment and even that next payment may not be due for three or six months if they give you some runway. Maybe you’ve got some money down, maybe you don’t. Obviously you don’t have to think about that lump sum purchase. So I think it really helps you or gives you the best chance of buying within your means and putting your car buying priorities in the right order as you look at the rest of your financial plan. So Tim, what are your thoughts on other pros?
Tim Church: Yeah, well I think too, like thinking about that, so many times people are buying things where they say, “I can afford that monthly payment. I can make that payment.” So I know Dave Ramsey talks about this a lot. He says, are you saying you can — if you’re saying you can make the payment, can you actually afford it? Meaning can you pay for it? And so I think that mentality is really important here when you think about that because as you mentioned, yeah, maybe you can afford a $500-600 payment for a car that’s $30,000+. But how long if you actually had to pay for it cash, how long would it take you to buy that? And I guess if the answer is it takes you years to save up enough to pay for it, then maybe you’re buying a little bit out of your budget range for where you want to be. But I think obviously the other big pro is that you never have to worry about paying interest.

Tim Ulbrich: Yeah. Yeah.

Tim Church: So even though a lot of times people will argue that car payments or car financing is pretty cheap and sometimes you can get close to 0%, maybe 1-2% interest rate on a car — and over the long term, even if it’s a standard term of five years or so, the interest may not be astronomical compared to what we would see with student loans or a mortgage or something like that. But obviously, that’s still money that you don’t have to pay for when you come to the table with cash.

Tim Ulbrich: Absolutely. And I think it reminds me of, similar to what we talk about on the mortgage of a 30 versus a 20 versus a 15, no mortgage, you’re obviously going to minimize the amount of interest that’s paid over the life of the loan, which can have an opportunity cost. And we’ll talk about that here in a little bit with the cons as I think that is worth considering. Tim, along that line, you know, obviously we know about financing, one of the things I also think about is you don’t have to worry about the negative equity position. And what I mean by negative equity is that you owe more on your car loan than the vehicle is worth. And this is also known as being upside down on your car loan, which is so common with new cars, right? Because especially if you fully finance it or have little down on that purchase, we all know that the second you drive a car off the lot, the value of that car goes down significantly in that moment but also quickly in those first few years. So many people, myself in previous vehicles, you’ll find yourself in a position where you likely owe more on the vehicle to pay it off than it is actually worth in terms of a market resale value from Kelly Blue Book or another source like that. So you know, I don’t really ever think of a car as an asset, although a paid off car is technically an asset. I think Robert Kiyosaki would fall over if he heard us talk about a car being an asset. But you know, I guess if we had to say it’s nice in the sense that even if my car is only worth $5,000 or $6,000 or $7,000, I’m not in a negative equity position. And if need be for whatever reason, perhaps I could sell that and free up some cash. So I think that’s certainly a pro as well.

Tim Church: Yeah, and I think obviously the next pro, so No. 4, means you don’t have any payments. So when you come and pay it off, you don’t have that monthly payment. So you’re really opening up your cash flow from that point forward. And I think for us, that was such a powerful thing to look at. So it ended up not taking us too many months to save up and pay cash because as we talked about not that long ago, we knocked out the student loans. So it was much easier and faster to kind of save up for it. But moving forward, really, when you think about those loan payments, you’re talking about $500+, like I don’t want that coming out of my budget. Like I’m trying to free up as much cash as possible moving forward to put towards things that are assets, so retirement accounts, other opportunities that may come about. So to me, that was like probably the No. 1 reason for wanting to pay cash for the car.

Tim Ulbrich: That’s good. And another pro, Tim, that I think of from previous experiences — the memory is coming alive as I’m even thinking about it — if anybody has financed a car before, you know what that feeling is like at the dealership. You know, you go to the back room, right? All the papers come out and you sit down with the finance guy and you’re signing a bunch of papers and the upsells start happening, one after one after one in terms of other things that might be tacked onto that. And so you know, obviously the pro here is that you can get through the overall buying process quicker with less paperwork if you’re paying cash. You write the check or if Joe Baker is listening, perhaps he’s showing up with the cash in envelope, and you move on and certainly you don’t have to deal with all that financing. And we’ll talk about some cons that could come from that as well. But certainly from a process standpoint, quicker and easier.

Tim Church: So the other potential pro — and I’ll say potential, I’ll preface it that — is you could have cheaper car insurance. Now if you look at just kind of on a one-to-one basis looking at what it costs to insure a car that has a loan on it versus not, usually that aspect alone is not going to make it cheaper. But when you have a lender and you have a loan on the vehicle, they may require certain coverage options that you may not necessarily want or need. So one of the things that a lender may require you to have is gap coverage, so that essentially covers the gap between the cost of a replacement for a new vehicle and the current value of the vehicle. So that’s something that you may not have to have on your policy along with maybe some other options that a lender is requiring you to have. So I would say that’s a potential.

Tim Ulbrich: And I want to wrap up the pros, Tim, by mentioning that you cannot overlook the sense of accomplishment and just the feeling and the behavioral aspect of this. And it’s hard to put a monetary value to that. We talk about that all the time on the show when we talk about the behavioral part of the financial plan. But feeling that sense of winning and not having a payment, whether it’s student loans, whether it’s a mortgage, whether here it’s a car, can be incredibly motivating towards achieving other goals. And so I think often, you’ll see folks that it’s not just the lack of payment but all of a sudden they have then been motivated to take those monies and put them to use for them in terms of investing, whether that be in the market or real estate or whatever it be to help get that growth side of it as well. So I think that sense of accomplishment is really important. Alright, let’s talk about the cons. What are your thoughts here in terms of the potential cons of paying cash for a car?

Tim Church: Yeah, so I think one of the biggest arguments is that there’s an opportunity cost versus throwing all that cash that you have at a car, especially if you can get a low interest rate. So one of the arguments could be let’s say you’re going to get a low interest rate, like 1-3% or something like that. Instead of putting that huge lump sum of money, could you get a better return in the stock market? Could you get a better return on putting a down payment for an investment property or some other investment where you may get a better return? So I think that’s usually one of the biggest arguments against paying cash for a car, especially in that situation.

Tim Ulbrich: I think, Tim, to that point, one of the common I guess debates is the right word that I have on this topic is that often, the point of comparison I hear is a new car that’s offering 0%, 0.9%, some low financing. But I don’t think that’s a comparison we’re talking about. I mean, I’m thinking of the mindset of a used car, 40,000, 50,000, 60,000, 70,000 miles on it, lot of the depreciation has already happened. So I think the financing on the new car, certainly. It’s great. The financing on a used car, not as competitive. Typically not anywhere near as competitive. So I think that point of comparison can even be off as folks are weighing those two options. Another con, Tim, that I think about and I’ve heard people talk about this is the thought that you can actually pay more when you’re paying cash for a car, especially if the sales associate gets commission on the financing. And I think that’s an important consideration. I mean, I think the traditional thought here is hey, if you’ve got a wad of cash and it’s the end of the month and they’re trying to meet quotas for the month, like you’re really in the best negotiation position. But that may not always be true. And I think this is certainly depends on the individual that you’re buying the car from. But I think it’s at least a consideration that paying cash may not necessarily mean a better deal and at some point may actually mean that you pay a little bit more.

Tim Church: Yeah, I think that one’s always interesting. I feel like I’ve always learned it as the opposite.

Tim Ulbrich: Correct.

Tim Church: That if you have cash, you have more negotiating power, but I feel like the more I’ve come across, especially depending on what kind of cut the sales associates are getting that it may be the opposite. The other thing I think as a con is that depending on what you’re looking at buying, I mean, it may take a long time to actually save up for that money. It really depends on obviously the type of car that you want but also your overall situation. So if you’re dead set on wanting to pay cash, whether that’s a new car or used car, it may take a lot of time. And maybe you’re not willing to wait that long, depending on the situation and how dire it is that you have to have a different vehicle, an upgraded vehicle. But that may be a big con if it’s going to take several months to maybe even a year or more.

Tim Ulbrich: Yeah, and I think building on that, Tim, I think saving up for a car, even if it’s used, I mean, I gave the example before of a used Honda Odyssey can easily $14,000, $15,000, $16,000, even with 70,000-80,000 miles on it. Saving that much, depending on your timeline, I’m trying to do that even within a year period, that’s going to be a big amount each and every month, and that could put other financial priorities on hold and that you might have to either pause other things or you are delaying other goals that you’re trying to achieve. So I think to this point, Tim, I’d love to hear from your perspective, you know, I know a little bit of the behind-the-curtain of the Churches, you know, in terms of other things that you guys are working on and other things, but regardless, any listener is usually working through multiple goals. So how did you guys reconcile this one in terms of paying cash despite having other goals that are on the horizon?

Tim Church: Yeah, that’s a great question. And I think for us, it was just being kind of crazy. It’s like we had the huge goal of knocking out the student loans. But then it was like, OK, these other life events and things just happened right after that. So the first thing was really bulking up and beefing up that emergency fund. So that was really the first thing that we did after paying off the student loans. So why I took a little bit longer than I anticipated to save up and pay cash is we wanted to beef that up first, really get that to a position — and then and only after that was done really kind of put most of our focus on saving for the car. And I mean, along the whole time, we were still putting money towards our HSA, maxing that out, getting our matches through our employer-sponsored plans. So we were doing multiple things but really just the main focus was beefing up that emergency fund and then really going right after saving up for the car.

Tim Ulbrich: And what I love, Tim, about what you guys did, which I think is easier said than done but I so value both for the listeners to hear, is if you have identified goals, not only just if you’re in the middle of student loans but if you know, OK, we want to plus up the emergency fund, we want to save this much for a down payment on a home, we want to do this much for retirement or whatever the goal would be, when you meet one of those goals, you instantly redirect those funds that were going towards whatever that goal was to the next goal that you’re working on or goals at the same time. Because with a pause or with time, that money can certainly evaporate quickly into different areas that are always surprising about where it goes. And being able to identify where you want that to go I think is so, so important and a cool part of the story in what you guys did. Tim, you mentioned emergency fund. What are your thoughts here in terms of a potential con that folks may end up dipping into an emergency fund? And is that a justifiable dip in that fund to be able to pay cash for a car?

Tim Church: Yeah, that’s a good one. I mean, I think it can be tempting when you — however you have your emergency fund set up, when you have a chunk of cash there, I think it can be so tempting to want to use that, break into it, to put towards a new or used vehicle but when you’re paying for cash. Even for us, just looking at it was tough because we knew the timeline was going to be stretched because of it. But I think some people may be tempted and may have even dipped into that emergency fund to want to pay cash. But you know, which may have worked out OK, but obviously the downside is that if something comes up in that interim period directly after the purchase or within that, you might be in a bad situation. And yeah, you may have a paid-for car, but you may not have enough savings and you may have to look at other means on how you’re going to get around that and make it work if you’re in a tough spot. So I think that is one thing that you really have to consider as you’re going through the process.

Tim Ulbrich: And the last con here — or at least the last one we’ll discuss, I think there’s probably more we’re not even touching on here — the last con in terms of paying cash for a car I think would be the missed opportunity to help the credit score in terms of making regular, on-time payments. Now, of course that assumes that somebody’s making on-time payments. So if you were to finance a car and you don’t or you’re overleveraging yourself, that can have the opposite impact. But for those that would be making on-time payments or perhaps even paying off some of that debt early, obviously paying cash for a car would remove that opportunity. But I think it’s safe to say most folks have multiple other areas in which they’re probably able to impact their credit score in a positive way that wouldn’t be dependent upon a car purchase. So there you have it, pros and cons of paying cash for a car versus financing a vehicle.

Tim Church: So Tim, what do you think the best thing to do is?

Tim Ulbrich: Gees, million dollar question, right? You know, obviously I’m biased. We’ve paid cash for most, not all, of our cars. And I honestly, I struggle with this one. I think that because we’re purchasing used vehicle and I’m not comparing new vehicles as even an option, if anybody’s looked at what a new Honda Odyssey costs, my gosh, crazy. So you know, we’re looking at used vehicles. For us, it’s kind of a get to Point A to Point B, doesn’t need to be fancy, needs to do the job, got to have the DVD for the kids so they keep quiet somewhat in the back of the car. So for us, I have that bias. But I think it really depends on the situation and other financial priorities. I do think there’s a real opportunity cost that people need to consider saving up a wad of cash. Now, if you can convince yourself that a $5,000 car is an option for you, which I would argue I think it is for many people that are listening, maybe not all, but for many people, then I think you’re obviously minimizing the negative impact of what that opportunity cost could be of the time that’s delayed and the monies that are needed to save for that. But I really believe, back to one of the pros we talked about, I really believe for most cases and most situation, never in all, most cases and most situation, saving up and paying cash for a used car, I think the benefit of forcing you to slow down, further evaluate the purchase, think about how it fits into the financial plan, and ultimately probably driving down the purchase price a little bit is really going to have a net positive effect on the rest of your financial plan. Certainly other benefits that are there as well. So I think if somebody is talking about buying a $30,000 car, could I justify saving cash and paying cash for it? Probably not. But I’m not looking at a $30,000 purchase. I think best case scenario in my mind is you think about other competing priorities and putting your money into assets that are going up, not going down, would be to try to minimize as much as you can the purchase price of a depreciable asset. And here we’re talking about one while we’re talking about cars. So Tim, other factors we need to keep in mind when talking about buying a used car. What have we not talked about that folks should consider?

Tim Church: I think we covered most of the common things to consider. I mean, I would just kind of reiterate the point, like I’m looking at our situation right now. You know, we have a paid-for Honda CRV, it’s not brand new, I think it’s almost about three years old now, which is much, much cheaper than a brand new one. And that feeling, No. 1, that it’s paid off, that there’s no payments, I mean, that feeling is just pretty awesome. And then moving forward from this point, there’s not going to be any car payments. And to me, I didn’t realize how powerful that was going to be because my first car was financed. And it was like a $400+ payment every month. And I mean, I remember the pain of that. And so I think that at this point, just moving forward and that feeling is more powerful than I anticipated. And for me, personally, I’m OK with that opportunity cost knowing that we had to save up and pay for it. I know a lot of other people, it really depends on what your risk tolerance situation is and how aggressive you want to be with investments. But I think for us, like I feel that it was a great decision.

Tim Ulbrich: That’s great stuff. And I think the question I would leave our listeners to reflect upon is, there’s not a right answer here. How important is a car to you? And how important is it relative to other parts of your financial plan? You know, I’ve determined, Jess and I have determined, that a car is pretty darn low on the totem pole as I’ve put it in the context of other areas that money could be going towards. But that does not mean that’s true for everyone. Nor does it mean there’s a right or a wrong here. So if a car means a lot to you, as I mentioned, awesome. Make sure you appropriately prioritize that and fund it accordingly. Ramit Sethi would say, “Figure that out.” Figure out how you can prioritize that and turn down, dial down anything else that doesn’t matter. But if not, my question is, why are you spending so much money on a car at the expense of other goals? And what adjustments might you be able to make to help get you towards those other goals if you determine that those matter a little bit more. I think that connects so well, Tim, to our financial planning services that we offer, comprehensive financial planning, over at Your Financial Pharmacist. You know, like anything else that carries a dollar sign in your life, we believe that here as we’re talking about car buying, this is one part of the financial plan. And I talk often about not looking at the financial plan — any part of the financial plan — in a silo. And I think here, it’s a great reminder. As you’re looking at your car, how does your car fit with your debt, with your savings goals, with every other part of your financial plan? And having a coach, having a planner, that can work with you to identify those goals, to prioritize those goals, to fund those goals, is critically important. And that really is what we believe is the value of comprehensive financial planning and what our planners do so well over at YFP Planning. So for those that are interested in working one-on-one with a financial planner, certified financial planner at YFP Planning, head on over to YFPPlanning.com, where you can book a free discovery call to learn more about our services. And as always, if you liked what you heard on this week’s episode of the Your Financial Pharmacist podcast, please leave us a rating and review on Apple podcasts or wherever you listen to your show each and every week. Have a great rest of your day.

 

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