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


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


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


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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YFP 159: 5 Lessons Learned During a Home Refinance


5 Lessons Learned During a Home Refinance

Tim Ulbrich shares his recent experience refinancing his primary residence. He talks through the numbers, how they determined the breakeven point, the rationale for refinancing and 5 lessons learned along the way.

Summary

On this episode Tim dives into his experience and the numbers associated with refinancing his primary home with IBERIABANK/First Horizon. The big question Tim asks is, should you refinance your mortgage? To know if refinancing will make sense for your personal situation, Tim mentions that you have to take many factors into consideration including the current interest rate, monthly payment, PMI, the total amount paid over the life of the loan and how long you will live in that residence. On top of those considerations, you also have to assess all aspects of your financial plan to make sure this is the best move for you.

Tim and his wife Jess purchased their home in Columbus, Ohio in 2018 for $345,500 and put 20% down which left them with a loan amount of $276,400. They had a 30-year conventional fixed mortgage with an interest rate at 4.625%. Without taxes and insurance included, their principal and interest payment on their mortgage was $1,421.08. Jess and Tim began shopping around to refinance in early Spring of 2020 and chose to refinance with IBERIABANK/First Horizon. Their new mortgage is a 30-year fixed loan at 3% interest (difference of 1.625%) leaving them with a monthly payment of $1,136.22 (difference of $284.86).

Tim mentions that while they were happy about seeing the initial lower monthly payment and large reduction in interest, the math cannot stop there and that you have to dig into other considerations to decide if refinancing is right for you. In their discussion, Tim and Jess talked about restarting the clock on a new 30-year mortgage, the costs associated with the new loan and when their break even point would be. They also talked about how they could strategically use the monthly savings they would have. After crunching these other numbers they decided that it was a no brainer for them to refinance.

Tim also discusses 5 lessons he learned along the way while refinancing his home which include:

  • taking the time to weigh the pros and cons of refinancing to different mortgage terms
  • avoiding looking at refinancing your home in a silo without considering the rest of your financial plan
  • differences in the appraisal process
  • how much closing costs will be
  • always read documents closely and ask lots of questions

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to this week’s episode of the Your Financial Pharmacist podcast. On this week’s show, I’m going to be flying solo to give you an inside look into the refinance that my wife recently did on our primary residence. Now, on Episode 139, Nate Hedrick, The Real Estate RPH, and I talked through should you refinance your mortgage? And I’m not going to rehash that episode in its entirety. I want to hit a few highlights that will help frame our conversation today. So let’s start with what is mortgage refinancing?

So really when you think about a mortgage as a bank or lender giving you money to pay for a home, and you, the borrower, have a certain amount of time, essentially the term, to pay that money back. And mortgage refinancing, a lender or bank gives the leftover amount to pay the existing mortgage, and you get a brand new one, which essentially resets your loan. Now, it’s possible to refinance your mortgage with the same lender. And people choose to refinance their mortgage typically either to reduce their monthly payment, reduce their overall interest, to get better equity in their home if the house went up in value, perhaps eliminate PMI, Private Mortgage Insurance, or to reduce the term of the loan, for example from a 30-year to a 20-year or a 15-year. Now, you likely qualify for a mortgage refinance if you already have a mortgage. And to get a good refinance offer, three main categories will be looked at: the equity that you have in your home, so the difference between what your home is worth and what you currently owe in terms of the mortgage; second is your credit score; and third would be other debt that you have incurred, whether that be student loan debt or credit card debt, for example. Now, since this is a new mortgage when you refinance, you’ll incur the same costs as you did when you purchased your home. Now they may look different if you’re using different companies, but you’ll still have closing costs, title fees, and so on. And that’s an important consideration as you’ll see here in a few moments with our example.

And to figure out if mortgage refinancing makes sense for your situation, you really have to know your current interest rate and your monthly payment, principle and interest — we’ll talk about that and an example here in a few moments — what that rate and payment will change to when you refinance, what your overall payment will end up being, and how long you plan to live in that home because as we talk about calculating a break-even point, essentially how much are you going to save per month relative to the costs incurred to refinance, obviously you want to be in the home longer than whatever that time period is. So the length that you’ll be in your house or that you project to be in your house — of course anything can change — is really important to consider when looking at refinancing, depending on the amount of closing costs you’ll have to pay with that new mortgage.

So that’s exactly what we are going to do today. I’m going to jump into the numbers, talk through the situation my wife Jess and I went through recently as we refinanced our home. We’ll dig into the weeds a little bit with the numbers, and then we’ll take a step back and look at some of the lessons that were learned throughout that refinancing process.

So let’s dig into the numbers. Now, we purchased our current home in Columbus, Ohio — Go Bucks! — back in October 2018 for $345,500. So that was the purchase price of the home back in October 2018. We put 20% down when we made that purchase, so our loan amount was $267,400. So again, purchase price, $345,500, because of 20% down payment, our loan amount was $267,400. Now, for financing, when we purchased this home back in October 2018, we had a 30-year conventional fixed loan at 4.625%. Now for those of you that know the current market of interest rates, that number should raise some eyebrows. Pretty much this was the peak of the market in terms of interest rates when had purchased back in October 2018. So bummer but it was what it was when we moved to Columbus at the time. Now, to distill all of this down to a monthly payment that is due on our existing mortgage, again, 30-year fixed, this was $1,421.08. And this is principle and interest only. So for those of you that currently own a home, you know that when you’re making your monthly payment to whoever your lender is, typically you’re paying principle, interest, as well as taxes and insurance. And then if you have a homeowners’ association fees or other things that are in there as well. So again, this $1,421.08, to be specific, this does not include property taxes and insurance. And for those that are curious, those additional monies for property taxes and insurance that were going to escrow for us totaled about $689 per month, which brought our total monthly payment due to just over $2,100 per month. So for this example of running the number to compare the existing mortgage with the new mortgage via the refinance, I will only use principle and interest — again, $1,421 per month — to be consistent, knowing that that is the fixed amount for the life of the loan with the 30-year fixed loan that is the product that I’m referring to. And that insurance and taxes can and will change over time. So even in the two years that we’ve lived here in Columbus, our property taxes have gone up, and usually that’s the trajectory. But when it comes to insurance, it may be that your insurance goes up or perhaps you requote that over time and you’re able to keep that cost down or even see that decrease over time.

So that was our existing situation. We were about almost this coming fall, we’d be two years into the home, monthly payment of $1,421 of principle and interest. So starting in early spring 2020 when interest rates were falling, we started shopping around to refinance. And at that time, our remaining balance due on the mortgage was $269,500. So $269,500. So again, our original loan amount back in October 2018 was $276,400. Through payments down on principle, when we looked at refinancing, our remaining balance due is $269,500. And after shopping around at a local credit union that I had worked with previously and getting several quotes online through various lenders, we ended up working with IBERIABANK/First Horizon. And a shoutout to Tony Umholtz and his team at IBERIABANK/First Horizon, including Cindy and Karen. Tony was on Episodes 136 and 154 of the Your Financial Pharmacist podcast where we talked about the pharmacist home loan product and considerations for home buying during a pandemic. So if you want to learn more about those topics, learn more about Tony, learn more about IBERIABANK/First Horizon, I would encourage you to check out Episodes 136 and 154.

So we moved forward with our application to refinance with IBERIABANK/First Horizon for the remaining loan balance due, again $269,500, for a 30-year fixed term at 3% interest. So if you remember, I said 4.625% was our original interest rate. And here, we were looking to refinance to 30-year fixed term at 3% interest. So our new monthly payment would be $1,136.22, to be specific, which is $284.86 less per month than the previous payment that was due. So our previous payment, again, $1,421. Our new payment would be $1,136. So about $285 less per month with the refinance. Now, that really shows the power of interest. And here again, we’re looking at an interest rate reduction of 1.625%, which is why that number per month in terms of savings is so significant. So again, 4.625% down to a refinance at 3%. Now, I’m not guaranteeing talking about rates, obviously that depends on current markets, individual factors related to the lendee, so I’m just highlighting here what was our case and our example.

Now, when comparing this from a mathematical standpoint, we can’t just stop there. So we look at that number, we’re like, great. $285 less per month. Who wouldn’t want to have $285 per month back in our pocket? But we need to consider that we were restarting the clock on a new 30-year mortgage, again, the definition of refinance, and I was incurring costs associated with the new loan. Right? Closing costs, including lender costs, title fees and insurance, and so on. And again, I’m not going to be representing or including property taxes or insurance, even if those are costs incurred at closing. And that really depends on the timing of payments that you’re making for escrow and whether or not you are even in escrow as those will even themselves out over time. And I’ll give some more information on that in a moment. So if we factor in No. 1, the costs associated with extending the loan back out to 30 years by looking at the total amount that would be paid over the life of the loan and we factor in the closing costs, we can then determine a break-even point for the refinance. Again, what’s it going to cost to do this? And how much are we going to save per month? And how long will it take to recoup those savings?

So let’s look first at the cost associated with extending my loan back out to 30 years by comparing the total amount that would be paid over the life of the loan if we stayed as is with our existing mortgage or if we were to refinance the loan. So for our existing mortgage, again, we would have paid it off, assuming no extra payments that would be made to reduce principle, we would have paid it off on October 1, 2048. It’s just even crazy to say that out loud. This means that we had 339 repayment — remaining payments, which would have resulted in about $482,000 that would have been paid out of pocket over the life of the loan with our existing mortgage. And the way I calculated that was taking the remaining payments due, 339, and multiplying it by our monthly payment of approximately $1,421. Now, with the new mortgage via the refinance, we would have a monthly payment of $1,136 and some change. But instead of 339 remaining payments, we would have 360 payments because again, we’re restarting this 30-year clock. So in this example, if we take $1,136, we multiply it by 360 months, we see that over the life of the loan, we’d pay $409,000 and some change. So this is where the math gets really interesting. And for those that like to geek out on this stuff, it gets exciting. Not only with the refinance are we saving $285 per month approximately, but we’re going to be saving about $73,000 in monies that are paid out even though the refinance would put us back on a 30-year clock. So by looking at the total cost over the life of the loan, we saw that was going to be the difference between $482,000 of the existing mortgage or about $409,000 if we refinance. So again, not only the reduced monthly payment but also over the life of the loan, we’re going to be saving a significant amount in terms of those monies that are paid over the life of the loan. Again, this really highlights the power of interest is real. But as I alluded to earlier, we can’t stop there as we have to think about and consider the closing costs.

So our closing costs, which as I look at our example included lender fees, the appraisal, title costs and the recording fees, were in total $3,204.75. And I would really encourage you as you look at the mounds of paperwork that are associated with a home purchase or a refinance to really look closely, especially at your closing disclosure document. This is where you’re really going to be able to see all of these fees itemized and if you begin to compare one lender to another or negotiate some of these fees, this is the document that’s really going to help you understand what these fees are. So again, for us, our closing costs included lender fees, appraisal, title costs, and a recording fee that in total came to $3,204.75. So again, even though there often is cash due at closing unless you roll it into the loan, which I would caution you to really evaluate — and I’ll talk about that in a moment — so even though there is often cash due at closing for property taxes and insurance, depending on the timing of when those payments are due and how escrow is handled, I’m excluding those here as those will essentially true up over time. And what I mean by that is that if you have money sitting in escrow today, accruing for your next property tax bill, for example, you will also be putting money into escrow at closing, again depending on the timing of the year and what’s required by your local area. So you will eventually receive those monies back if there’s a discrepancy in terms of the timing of when payments are made, which typically there is. So these will essentially balance out or true up over time, even if you’re fronting some more cash in the moment at closing. So yes, you have to bring money typically at closing to pay for those dollars going into escrow as they are collecting those monies in advance for future payments that are due, again, assuming you are using escrow. About 20% of people don’t. But again, these will even out over time. So we’re only looking at the other closing costs that are included in this example. OK, enough about escrow. Escrow is annoying, one of the reasons that we really want to get out of escrow when we refinanced.

So we are now at a point where we can determine break-even. So we know that closing costs were $3,204.75 and monthly savings due to the reduced principle and interest is about $285 per month, so essentially the question here is how many months of saving $285 would it take to recoup the investment we’re making of closing costs that were going to be incurred of about $3,205. So if we take closing cost number, $3,205 divided by $285, that shows us that it will take 11 months for us to break even. Now, this one’s a no-brainer because of the significant rate reduction and perhaps that is the case for many of you as well. But as you will see, when you have less difference in the rate, let’s say it’s closer to 1%. You’re going from a 4.2% to 3.2%, the time to break even extends as that rate difference collapses. And you must consider, as I mentioned before, a very important variable, which is how long do you anticipate being in the home? Because how long you anticipate being in the home is ultimately going to impact whether or not you see yourself in the home for that time period that it will take to be able to recoup those costs for closing.

Now, as I look at this math, one of the things this does not include that I think is worth considering is what do you decide to do with that $285 per month saved? So in this example, if I were to save $285 per month, that’s great. But what if I were to take that money and then have that money working for us, whether that be investing that money in a 401k or Roth IRA, some type of brokerage account, depending on what goals and what you’re trying to, or what if you were to take those monies and invest it in real estate or other business activities and that money may be able to grow for you? So just as one example, if you were to take that $285, invest that in an index fund over 30 years that was earning on average 7% growth, you’re looking at another roughly $330,000 of savings that would accrue over this 30-year period. So it’s important to ask yourself, as we’ll talk about here in a moment, what’s the goal with these savings if you’re going to incur savings? And are you strategically using those savings and earmarking those savings for another part of your financial plan and other goals that you have?

Now, here’s the good news. All of those calculations that I just did and walked through one-by-one to show you how we got to that decision point, we have a calculator available on the website, shoutout to Tim Church that helped us put this together. If you go to YourFinancialPharmacist.com/mortgage-refinance, you can put in the numbers. What do you currently owe? What’s your interest rate? What would be your new loan amount? What would be your new interest rate? What’s the term? And it will spit out essentially that break-even time period for you. But again, I can’t overemphasize that it’s not just the numbers. You must consider the rest of your financial plan, other goals you have, what the primary purpose is for the refinance, and even other factors, which takes us to the second part of today’s episode where I’ll briefly talk through some lessons learned throughout the refinance process.

So let’s talk through five lessons that were learned or reinforced throughout this process. No. 1, taking time to weigh the pros and cons of refinancing at a 15-year or a 30-year fixed mortgage. And while there are certainly other options, whether it be a 20-year fixed term, a 10-year fixed term, an adjustable rate mortgage, these two options, a 15-year fixed and the 30-year fixed, are the most popular products and for the majority listening will be the path forward. So I would encourage you, when you’re looking at a 15-year versus the 30-year — and this was a great exercise for my wife and I to walk through — is to do the math, but don’t stop at the math. Do the math plus, you know, think of variables such as visualizing yourself 15 or 30 years from now. How do you feel about having a mortgage payment? There’s no right answer to this. How do you feel about having a mortgage payment? And what else might be going on in your life that would help answer that question for you? So you know, for some people that I talk to, it might be that they’ll have kids that will be going onto college or some other variable that they may feel one way or another about having a mortgage payment for that period of time. But don’t underestimate that factor in visualizing yourself in that future state. Another factor to think about: How long do you plan on staying in the home? We’ve talked about this already, and you can’t always predict this but going to be a very important variable to understand. Obviously the longer than you’re in your home, depending on the rate differences that you’re seeing throughout the refinance, the more likely you are to be able to reap those benefits.

Other questions you want to be thinking about here in addition to the numbers: What are the savings over the life of the loan between the two options? And does that, how does that weigh against the increased monthly payment? So you know, what I mean by that is if somebody’s looking to go from a 30-year to a 20-year or a 15-year because they want to more aggressively pay off their home, they’re going to see as they run the math significant savings, likely over the life of the loan. Right? Because of the reduced monies that are being put toward interest. But typically if you’re going from a 30 to a 20 or a 15 and you’re staying in your current home, that’s going to mean a bigger monthly payment. So how do those savings over the life of the loan weigh against that increased monthly payment? And how much room can your budget handle in terms of a larger payment if you’re reducing the term of your loan? And what could change that you may or may not foresee? For example, do you have buffers in place that if for whatever reason that larger monthly payment were to become a concern? So do you have more than one income in the household. Do you have diversification of income? Do you have a good emergency fund? And what other goals are on your plate, whether that be student loan repayment, on track with investing, kids’ college savings, other goals that you’re trying to achieve. And do you need that extra margin or not? Perhaps can you focus at a greater extent on your mortgage repayment? The other thing, as I’ve alluded to once already, is what is the opportunity cost of having your money tied up in low interest debt? And again, there is no one right answer to this, as there typically is not when it comes to the various parts of your financial plan. So as Jess and I really weighed this, as we were looking at 30-year at a 3% versus a 15-year at 2.75%, if we looked at the savings over the life of the loan, and let’s just say for simplicity that is, I don’t know, $40,000 or $50,000 difference, how do we evaluate that against the opportunity cost of that additional $285 per month or whatever it would be as you do these calculations being tied up in an extra additional higher monthly payment that perhaps could be used elsewhere, if that’s a goal you have for investing in real estate or other things that you’re trying to do. And I think it’s important to talk through the pros and cons of that opportunity cost.

OK, so that’s No. 1, taking the time to weigh the pros and cons of refinance at a 15-year, 30-year or some other term. No. 2 is avoiding the silo effect. Now, what I mean by the silo effect is that looking at only one part of your financial plan at a time while you’re not considering the impact it will have on the other parts of your financial plan. This is really easy, whether it’s student loans, investing, or here we’re talking about refinancing, for example, you might see an advertisement or read a story about how interest rates have dropped and it’s a great time to refinance. You might even run the rates to see what it would mean for your monthly payment. But you’re only focused on that one part of your financial plan. So take a step back, look at the rest of the picture, look at all of your goals, look at what this means from a monthly cash flow standpoint, and then make that decision in the context of the rest of your financial plan. And that is really the value, one of the main values, in my opinion, of comprehensive financial planning and having a coach that can help you work through that process. And so shoutout to our YFP Planning team, our comprehensive certified financial planners, which for those that are interested can learn more at YFPPlanning.com. I would also encourage you as we’re talking here about avoiding to silo effect to really ask yourself what is the motivation to refinance? Is it to free up extra cash per month? So again, the example as we look at our example, stay at the current term but reduce your monthly payment. If so, do you have a plan again for how those monies saved will be allocated towards another goal and that will help prevent any lifestyle creep that may happen from those savings? Or is your goal to pay down the home faster and save some interest that would be paid out over the life of the loan?

No. 3 is, you know, one of the things that I saw that I heard often is the differences you can see in the appraisal process. And this was really, you know, eye-opening for me. And I think this is important. And why an appraisal matters is when you go to sell your home, obviously appraisals have an impact on the lending side. If you are trying to determine how much equity you have in your home for things like PMI and other aspects, understanding the value of your home relative to what you earn is very important. Or for those that may eventually pursue something like a HELOC to be able to have a HELOC for a variety of different reasons, whether that be real estate investing, whether that be having a backup emergency fund, your appraisal is really going to matter. And what we saw in the variance of an appraisal, what our home was worth based on comps, was when we had within the same year a HELOC appraisal done, that came in at our home at about $338,000. And again, we purchased at $345,500. And then when we went through the refinance, that came in around $371,000. So a really significant over $30,000 difference. And again, I think that shows you some of the subjectivity and variables that can go into a difference of appraisal. So I say that just to be ready for, you know, I think it’s easy to look at RedFin or look at Realtor.com or Zillow or some tool or have an idea of what you think it should be worth. But at the end of the day, the bank’s going to be using that appraisal number, that’s going to have a big impact on when it comes to either purchasing or refinancing a home or perhaps even taking out a line of credit.

No. 4 is when it relates to the cash that you need at closing, do not forget about property taxes and escrow. Now, I told you that I excluded those from the example. But I want you to be aware that often, you’re going to have to either front those costs at closing, again, depending on the timing of when all those are due, depending on if escrow is or is not involved, but that you may have a reimbursement, a payment that comes back if you have existing monies that are leftover in escrow from before the refinancing. So you want to consider your closing costs here. We talked about those, the lender fees, the title costs, if you end up buying any point, which essentially is a process where you can pay to reduce the interest rate. All of that is going to result in what you would owe in terms of costs that you’re going to have to bring in terms of cash at the table or that that can get rolled into the loan. But again, think about that in terms of the impact of what that means for interest that you’ll pay on that as you go to pay that money back. So I think this is a good reminder as you look at your closing costs that much of this can be negotiable, whether it’s lender fees, whether it is title expenses. We’ve talked about this on previous episodes of the podcast where we’ve talked about home buying. But really looking at closely understanding these fees and the disclosure documents are really important and making sure as an educated consumer, you have your best interests in mind.

And Lesson No. 5, which goes without saying but has always, always been a good reminder of how important this is, is read your documents closely and ask lots of questions. Read your payoff statements, read all about understanding your closing costs, understand your options with escrow, read all of it. It’s boring, it’s going to put you to sleep, but it’s incredibly important. The more you read, the more informed you will be, the more questions you’ll ask, and perhaps errors that you’ll catch along the way. And if nothing else, just have a good, better understanding of the process. And really be careful about teaser rates that are introductory types of rates or closing costs that get rolled into your loan because often, you may see advertisements for no closing costs, but at the end of the day, that may not be completely true as those costs might be rolled into the loan, which you’ll end up paying plus interest over the life of the loan. And here I would also encourage in this fifth lesson learned is to not undervalue the human element. So similar to car insurance, you know, it’s been my experience that yes, rates and fees matter. But so does being able to quickly communicate with an individual and to work with folks that can quickly get your question and can ultimately be there in your corner to make sure that you feel comfortable with the process. And I think the other valuable piece of working with an individual is that I saw rates vary by the day, even within the day. And having a good relationship with a lender is that somebody that can be there, ready to act for you and tell you when that best time to act may be based on what they’re seeing with rates.

So in the show notes, which again are available at YourFinancialPharmacist.com/podcast, find Episode 159, you can find the show notes, including the resources that I mentioned, previous episodes, and calculators that we have available on the website. And don’t forget to join our Facebook group, over 6,000 members strong, pharmacy professionals all across the country committed to helping one another on their path towards financial freedom. And last but not least, if you liked what you heard on this week’s episode of the podcast, please leave us a rating and review in Apple podcasts or wherever you listen to your podcasts each and every week. Thank you for joining us and have a great rest of your day.

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YFP 157: Budgeting Through a Pandemic


Budgeting Through a Pandemic

Tom Arasz, a YFP team member that leads the Script Your Budget service for YFP financial planning clients, joins Tim Ulbrich on this week’s episode. Tom talks about why the budget is so important, tips and tricks for effectively budgeting through a pandemic and the spending and saving trends he has observed during the past few months with the COVID-19 pandemic.

About Today’s Guest

Tom has been an Assistant Advisor for YFP for two years. He created and runs the Script Your Budget program for YFP clients. He lives in Baltimore, Maryland with his wife, Melissa, and their dog Archie. In his spare time he enjoys mountain biking, trying new bourbons, and thinking up corny dad jokes.

Summary

Tom Arasz talks all about budgeting during the COVID-19 pandemic on this week’s podcast episode. Tom runs the Script Your Budget (SYB) program for YFP financial planning clients. SYB is a 6-8 month program that’s focused on teaching and working with professionals not just about how to create a budget, but how to plan for the future by understanding your own tendencies and purchasing behaviors. Tom meets with clients almost every month to talk about their budget and future goals.

Tom explains that budgeting is more than just not spending money; instead, it’s about being intentional with your spending. He says that in order to learn where your money is going, you have to track your expenses, analyze them and then change your behavior.

Tom recently shared with Tim, Tim and Tim the trends he’s seen in his clients’ spending during the COVID-19 pandemic. Over the last couple of months, some clients cut their expenses by 20% or more. Tom explains that there are five categories that are big movers in having such a seismic impact on spending: forbearance of federal loans, reduction of daycare cost due to closures, no new travel being booked, reduction or elimination of self-care spending like haircuts and massages, and day-to-day changes such as gas, tolls, gym memberships or coffee purchases. The reduction in spending of these five categories in April carried into the month of May where clients saw similar spending trends. However, online shopping and home purchases have seen an uptick. Tom says that people are either putting the extra savings toward their credit card debt if they have it and, if not, are dumping it in their emergency fund.

Tom’s main takeaways from analyzing clients’ budgets over the last couple of months is that an emergency fund is important, dual income (if you have a spouse or partner) and/or diversity of your income can be helpful and that laying out an emergency plan to make sure you and your partner are on the same page regarding what to do if you are facing financial hardship can help prepare you for the times we have recently experienced.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Tom, thank you for taking time to come on the show.

Tom Arasz: Thanks for having me, Tim.

Tim Ulbrich: So you recently shared with Tim, Tim, and I that budget trends that you’ve noticed while working with clients during COVID-19 and your predictions for the future. And I really thought that this information and your perspective was so important to share with the rest of the YFP community as everyone has experienced some type of budget shift in the last couple of months. But before we jump into that and discuss that further, talk to us a little bit more about the work that you do with YFP as it relates to the Script Your Budget program.

Tom Arasz: Sure. So the Script Your Budget program is a 6- to 8-month long engagement that I run with our YFP clients. It was initially created completely from scratch about two years ago by myself and Tim Baker. Since then, it has evolved and improved. But at its core, it remains — it’s maintained its focus to teach working professionals how to not just create a budget but how to effectively plan for their futures by understanding their tendencies and purchasing behaviors.

Tim Ulbrich: I love it. Intentional budgeting, coaching, accountability. We’ll talk more about the specifics of what you do in that service. And as a reminder to the community, if you are looking for a comprehensive financial planning services, which here of course includes our Script Your Budget program that we’re going to talk about, you can visit YFPPlanning.com. So Tom, tell me more. I mean, seriously, doesn’t budgeting just mean don’t spend the money, maybe set a goal or something. What’s the big deal?

Tom Arasz: Yeah, so budgeting is definitely more than just not spending money. It’s about being intentional with our spending by identifying what’s more important to you and then focusing on those areas. So a budget is a plan — and really, anyone can set up a budget. But it takes more than that. You need to track your expenses so you can learn where your money has been going. And then from there, you need to analyze how you wish to change your behavior. Finally, you need to set some goals to accomplish. And I do that with our clients by meeting with them every 5-6 weeks or so to go over those expenses and see how they’re doing to change any unwanted behaviors.

Tim Ulbrich: Yeah, I love that. I mean, as you mentioned, you’ve got to track your expenses. You have to know what it has been before you talk about where things can go in the future. And I know in my own personal experience or situation, which I’m guessing is true for many, we tend to underestimate our true spending in any given category. And a look back at expenses can really help expose that and even if you’re going to reduce some of those numbers, you at least have a good baseline understanding of where they’ve been. Now Tom, you know that at YFP, we talk so much on the show as well as with our clients about the importance of finding your financial why, really understanding why do we care about this topic of money to begin with and ultimately, what is the vision and purpose that we have when it comes to managing our money and the tool that we will be able to use to accomplish the other goals and dreams that we have. So here we’re talking very granular, the budget. Why is the budget so critical to helping one be able to achieve that personal vision, that why that they have for their own financial plan?

Tom Arasz: Yeah, so I think what makes budgeting a little challenging is that each person is budgeting differently and they’re budgeting for different reasons. So each one of our clients is their own individual, they could be single, they could be married, they could have kids, they could not have kids. So ultimately, it’s my job to help them understand why they’re budgeting and how budgeting can help them with those goals.

Tim Ulbrich: Yeah, it’s a road map, right? I mean, it’s the execution plan. You’ve got the vision and you set the vision, and the budget is really the month-by-month execution of that plan so you can achieve those goals. So I know this about you, that you refer to yourself as a personal trainer but for people’s finances. Is that an accurate description?

Tom Arasz: Yeah, exactly. So personal trainer for your finances. I also like to think of myself as an accountability buddy. So I hold people’s feet to the flames. I meet with them monthly to “force” you to keep track of your expenses and then ultimately, I help you the client out by adding insight where it’s needed, praising the hard work and progress that these people make. And last but definitely not least, I like to think that I bring a ton of experience to budgeting. So I’ve seen 50-100 different budgets from the 27-year-old recently graduated or resident to the married couple with 2.5 kids focusing on trying to purchase a minivan and then ultimately retire.

Tim Ulbrich: So besides working with 50-100 different budgets, which is, as you mentioned, brings that experience, what is it about your personal situation and story that gets you so excited and passionate about budgeting and helping others in this area?

Tom Arasz: Yeah, so I acknowledge that I get really jacked up about budgeting, and that’s not necessarily for most people. But I grew up in a really stereotypical suburban family: two loving parents, two older sisters, a dog, a backyard, a fence. My dad was a banker for 35 years and instilled in us to be very fiscally responsible. My mom took turns, she worked a number of different jobs while also raising the three kids, babysitting half the kids on the block kind of a thing. So we — my parents drove very modest cars. My sisters and I wore lots of hand-me-down clothing. And my mom cooked us meals five or six nights a week. I like to joke that a fancy dinner for us was that we would go to Chili’s like once a month because they had a kids’ menu, which back then not every place had kids’ menus.

Tim Ulbrich: Yep.

Tom Arasz: And they offered free refills on soda, and my sisters and I would guzzle soda down. So my entire childhood, I thought I was kind of poor. And today, you know, as a 30-some-year-old, I realize that I was blessed with that experience. I’ve never charged a purchase that I couldn’t have outright paid for. My dream working with these clients and in this budget setting is to get everyone out of credit card debt and to live a little bit more modest. One of my favorite moments so far in the program was more than a year ago, I saw that one of our clients was paying over $400 a month for DirectTV. Yeah, which is insane. So I helped her to negotiate down. And she now pays a much more reasonable amount. And that basically saved $300+ a month, which I like to tell all my clients, when you take it from a monthly amount to a yearly amount, that’s $4,000 a year. And that’s after tax money, so really, that’s like having a $5,000 or $6,000 raise.

Tim Ulbrich: Yeah, and you can extrapolate that out further. What if you were to invest that money and do other things? And I love that example too because you and I both know when it comes to those wins, it’s not just that win, which is a win in and of itself. But it’s about the longer term win of feeling empower and hopefully getting momentum towards other goals. So I heard you right that with the Script Your Budget program, you’re meeting with clients on a monthly basis, give or take. Is that correct?
Tom Arasz: Yeah. So my focus for each client is to get them, whether it’s a person or a couple, to treat their finances as if they’re their own company like Under Armour or Google. We look at your expenses in “monthly financials.” And we discuss what areas have increased or decreased. And we talk, more importantly, why they increased or decreased. And ultimately, what do they want to do in the following months to change or to improve?

Tim Ulbrich: Love the value and power of accountability in doing that. So let’s shift gears and talk through what you saw over the last couple months during the pandemic. And you know, everyone of course is familiar with the time sequence. But we’ll go back. Mid-March is when COVID-19 really started impacting daily life in most parts of the U.S. as many states went into lockdown, people started working from home if they were able to do so, businesses and restaurants began temporarily closing their doors. So mid-March, what impact did you think this was going to have on your clients’ budget and expenses? And ultimately, did that happen? What did you end up seeing in terms of spending in the month of March and why was that the case?

Tom Arasz: So I’m in Maryland, and again, mid-March everybody was sent to work from home if you could do that. I had been working from home for about two weeks by the end of March, and at that point, I really started to think that there would be a major shift in our clients’ budgets. Obviously, the country is now in this state of pandemic. But at that time, I got 40 different budgeters on my mind, 40 different households in different cities, states, incomes and ultimately, 40 different spending habits.

Tim Ulbrich: Kind of like you have 40 different kids, huh?

Tom Arasz: I’d say 40 different close friends and 40 different friends that I care about. So by the end of March, I’m going stir-crazy. My wife and I haven’t gone anywhere for the last two or three weeks, and I’m thinking, you know, my budgeters’ financials are going to be looking great. And in reality, that just didn’t happen in March. Businesses slowed down, people started working from home, but people immediately, just like me, rushed out to the grocery stores, bought up as much frozen pizza, milk, eggs, cheese, flour, sugar, toilet paper, and even wine. And really, the month of March ended with very little impact to the savings.

Tim Ulbrich: I think that’s a great observation. I mean, that reminds me as I’m reflecting back to our household in March, yeah, I wasn’t driving to work every day and minimized some expense there but our grocery bill went up, other things went up as we were trying to make sure we had the right supplies or even if we weren’t trying to necessarily overstock in anythings, some things were just going up in price. And obviously that budget line was going up. So you mentioned to me that there were a number of changes to budgets in April that had a “seismic” impact on spending and that some clients’ expenses went down by 20% or more. What were those changes?

Tom Arasz: Yeah. So there were five big categories or big movers in the budgets that I saw. Now, obviously I’m going to go through these five. Not all of them affected each and every one of us because everyone’s different. But No. 1, we had forbearance on public loans for the next few months. And No. 2 would be daycares in certain states were closed. So obviously those first two ones don’t apply to everyone.

Tim Ulbrich: Yep.

Tom Arasz: But if they do apply to you, they could be really big. The third area would be that zero new vacation or travel was really booked by my clients. And that includes in-person entertainment as well, so that would be sporting events, baseball games, concerts, things like that. The fourth area would be self-care as well as what I like to call image shopping. Those two were practically $0 as well. So self-care would be haircuts, nails, makeup, massages. Image shopping, that to me is like higher end things like clothing, purses, shoes, things that we want to be seen in. I even include cars in this category. But these are wants not needs. And then finally, the fifth one would be our day-to-day changes. So this probably affected everyone out there. This would be transportation, so gas, tolls, Uber, car insurance. This would be also be gym memberships as most states closed gyms. This would also be our day-to-day coffee stops. Many people on their way to work or at lunchtime, they go with their coworkers, they pick up a shake or coffee or tea. This would also impact bar and restaurants. And I know that after a week or two of shutdowns, we started getting inundated with those go order takeout from your local places, keep them in business, help out servers, help out bartenders. And my wife and I definitely partake in that, but those purchases in general, especially bar tabs, went to zero. So the overall impact of these five categories, I really do like to use the word seismic because it was massive. My average client’s expenses went down by 20% but in some cases a lot more. Really, the only thing that didn’t go down or that disappointed me a little bit was people who had booked flights in prior months. You know, if you bought a flight in February or early March, you did not, for the most part, get that money back. You instead got airline credits or points, unfortunately.

Tim Ulbrich: So there’s the month of April, you start to see this “seismic shift,” so talk to us about what you begin to see in May then. Were those trends similar to what you saw happen in April?

Tom Arasz: Yeah. So May, the vast majority of my clients had very similar expenses to what they had already done in April. And the clients that I met with at the end of April, I basically told them whatever you spend in April, you’re probably going to end up doing the exact same thing in May because we unfortunately lived almost the exact same life that we had from April to May. Now this is a case-by-case basis, depending on where people live. So my New York City or my California residents’ situations are much different than say someone living in rural Arkansas. I did see a small uptick in online purchases for clothing and Amazon and stuff in May. But it’s worth mentioning really one of the few categories that I saw go up both months would be home purchases and home improvement projects.

Tim Ulbrich: OK, so that’s not just us. You know, Jess and I have talked about that. We’ve done some of that, which has been nice to catch up. But is that a trend you’re seeing as well, everyone working on their houses?

Tom Arasz: I mean, almost everyone. You know, the lawns in my neighborhood have never looked better.

Tim Ulbrich: Yeah.

Tom Arasz: And I wish, you know, we track expenses in this program. I wish we tracked numbers of rooms painted since March because that’s definitely been a popular trend. But yeah, again, a little bit different if you’re living in an apartment that you rent versus living out in the countryside in an owned house with a backyard. Some people just have more ability to do more projects than others.

Tim Ulbrich: Yeah, and I can see that going either way. Obviously if there’s a financial hardship or a time period such as the pandemic, you want to be cautious. But also, I think people had time to catch up and do things or multiple Amazon packages that are showing, right, per week or per day. Or trying to do things at home that you might otherwise go out and do, you know, whether that’s cutting hair, nails, etc. and so forth. So you know, I’m going to put you maybe in an uncomfortable position, but I like to think that through your assistance, navigating a difficult period such as this, that our clients working with you on Script Your Budget perform better than say, you know, those that aren’t doing that. Can you speak to any anecdotal evidence or successes that you’ve had along the way?

Tom Arasz: Well, I mean, yes. I don’t obviously track the expenses of people who don’t work with me. But I would like to think that I’ve helped our clients save money. And especially in this pandemic, I’d like to think that I’m helping people navigate holding onto their savings more so than without us. So I’ve been spending countless hours reading articles and blog posts about COVID-19. Not so much about like, you know, number of hospitalizations and cases, but how does this affect the day-to-day things? I realized that people were buying more toys for their kids and activities for their kids because you can’t take your kid to daycare. All of a sudden, you’re also the daycare. So we definitely saw prices go up there. We also saw price go up — you said it earlier — but with food. So even if you were buying the same amount of food as you were before COVID hit, prices in the grocery store have gone up.

Tim Ulbrich: So Tom, here we are now, most state lockdowns are starting to dissipate and businesses, restaurants, bars — of course depending on the state — are opening back up with some restrictions. So with that in mind, what do you expect to see happen to people’s budgets in the months to come?

Tom Arasz: Yeah, so we’re — first off, we’re entering summer months. And in the last two years that I’ve ran the Script Your Budget program, one of our most significant trends has been that expenses go up in late spring/early summer. You know, the weather’s nice, the days are longer, people want to be outside. Plus, people go on vacations. So I would expect my clients’ numbers to go up in the coming months no matter what. The only months where expenses are higher than in the summer in the past two years has been November and December.

Tim Ulbrich: Ah, holidays, right?

Tom Arasz: Yeah. So holidays, gift-giving, going to see family and friends, attending parties and of course, for people who don’t live at home, traveling to and from.

Tim Ulbrich: Got it. Got it. So states open back up, what happens? I mean, I assume every person will of course react differently. But generally speaking, what do you think will happen?

Tom Arasz: Yeah, so I suspect people will generally seek outdoor and less crowded areas. And I know that’s like a big “Duh, no kidding, Tom,” but you know, hiking, biking, being outside boating, fishing, those will continue to see popularity. Cookouts in backyards with friends versus going to a dining area or restaurant that’s crowded. Sporting events, when they do open back up, if they even allow people, they’ll be less crowded than if COVID hadn’t ever happened. People will even rethink going to big events such as graduations, weddings, to a certain degree. Outdoor dining in general will change. So crowded bars and restaurants will recover a bit slower. Places with outdoor seating will do a little bit better. I’m risk-averse, so I think people like me will start going to dinner on like weekdays instead of weekends. I don’t live downtown anymore, I have a backyard and a grill. But I’d rather go out on a Wednesday night with less people around and then make a fancy grilled dinner at home on the weekends. I’d rather take my wife out midday on Saturday for a drink to a cool new place when it’s less crowded than on a Saturday night. You know, so literally when places and times become crowded or popular, that’s what I’m going to avoid. And I think people will still go out, it will just be more intentional.

Tim Ulbrich: What about other areas of a person’s budget?

Tom Arasz: So I cut my hair last month, and that’s the first time I’ve cut my hair in a couple years, since meeting my wife.

Tim Ulbrich: How’d it turn out? How’d it go?

Tom Arasz: Better than you would expect. But I used to cut my hair back in the day, which if Tim Baker’s listening, he’ll start laughing.

Tim Ulbrich: Experience, yes.

Tom Arasz: Yeah, because I used to do that. So I’m a little bit different than, say, my wife, who’s like counting down the seconds to getting her hair done for the first time in awhile. So everyone’s different. For vacations, personally, I’ve been saying this for months that I’m not ready to go on airplanes or in crowded airports and that I — when this first hit, I thought to myself, everyone’s going to vacation through car. So you know, pack the family up and drive somewhere versus if you have like a 4-year-old and a 6-year-old and they put their hands on everything in an airport, you know, put them in your car instead. And then where you’re going. So going to more remote places. So backpacking, camping, things like that. Going to a more secluded beach versus going to a boardwalk or a big park.

Tim Ulbrich: That makes a lot of sense. And you know, I’m reflecting on your haircutting comment. And I decided to invest with four boys — now, one is just a year old so my wife won’t let me cut his hair yet, it’s still the baby hair — but my three others, I normally take them to a barber, it’s fairly expensive. And I was like, this is a great opportunity to invest in some equipment, watch some YouTube videos. And the lesson I learned — even though it’s gone fairly well and each cut gets better — I learned that watching somebody on YouTube can quickly instill overconfidence in the process. So you’ve got to practice. You’ve just got to get in there and do it. And it’s been a fun family experience. So are there budget categories, any other categories that you think will remain the same as they were in the middle of the COVID-19?

Tom Arasz: Probably not. You know, I think this is kind of like a hopefully a once-in-a-lifetime experience. You know, loan forbearance for those people will stick around for a few more months to September, which is nice. But daycares will open back up, self-care will open back up. I know my wife has a hair appointment coming up in a few weeks. And travel will tick back up no matter what. I do expect home expenses to go back down because we just did a whole bunch of projects. And hopefully there’s nothing else to do in the foreseeable future. But ultimately, even if numbers don’t stay the same, I really do hope that people have taken some positives away from obviously, you know, not to say the COVID-19 was positive — it was a negative thing. But some people can take some positives away from this. It’s really shown how much material possessions add up in your budget. You can save significant money by changing just some of your behaviors. And another lesson is that cooking food and eating in is way less expensive than dining out. I think a number of my clients have learned that the past few months. Even when you’re going out, you’re buying the alcoholic drinks or if you’re getting delivery, you’re tipping the drivers whereas it’s much more economical to just pick the food up yourself.

Tim Ulbrich: So I’m curious, as we talk about savings and as you call them, seismic, significant savings, where did people put the savings that they have had with such a significant drop to expenses due to student loan forbearance, you mentioned reduction of travel, perhaps dining out less, daycare? Have you heard of — I’m sure — clients accelerating other areas of their financial plan over the last couple months because of these savings?

Tom Arasz: Yeah. So I definitely can group these people, our clients, into two categories: people who are in credit card debt and people who are not in credit card debt. Anyone that has any sort of credit card debt has just been aggressively paying it off.

Tim Ulbrich: Love it.

Tom Arasz: Yeah, which is great. It really makes me happy to see. The other group, people who might not have credit card debt, the biggest thing I’ve seen is emergency fund, socking money away, keeping cash at hand. If they don’t have an emergency — if they don’t have enough of an emergency fund, they’re adding to it. And even the people who have an adequate emergency fund have been adding even more on top of it.

Tim Ulbrich: Got it.

Tom Arasz: The last couple months have been kind of stressful, to say the least. The last thing you want to worry about is money.

Tim Ulbrich: So main takeaways, Tom, that you’ve had while working with clients during this time. How adaptable were people to changes in income that they may have experienced? And ultimately, you know, what have been those big takeaways as you’ve worked with clients?

Tom Arasz: Yeah. So I mean, first off, I think that our clients have handled this tremendously. It’s not easy to deal with something you’ve never dealt with in your life before. And so even just on our monthly calls with people, they’re just happy to talk to somebody new, to have some assurance that what they’re doing is correct and is working for them. And so the main takeaways for those people, No. 1, the importance of the emergency fund. I can’t state it enough. I probably sound like a broken record to my clients. But it’s just — it’s so important. So No. 2 would be the importance of either dual incomes for couples or diversity of incomes for individual. So not putting all your eggs in one bucket. You could even think about some of my clients who own investment properties, people who have invested in dividends, stocks, things like that. The ability to crosstrain yourself or your spouse in your career, whether picking up a certification, really just making yourself more attractive to more companies and more industries. My wife and I have been very fortunate that we’re in opposite industries. So two complete industries, she’s in healthcare, I’m in business. We work for two different companies. If my company or her company were to be hit the hardest by the pandemic, we have the other one to fall back on. Now, that would put us still in a tough spot like anyone, but that’s where my third takeaway comes into play and that would be having an emergency plan. Different than an emergency fund. This is where, especially for couples, having both partners on the same page, having a shared vision, a shared understanding that if something out of our control happens, what do we do? What do we prioritize? And ultimately, how long can we weather a storm?

Tim Ulbrich: I love that concept of an emergency plan and the difference from an emergency fund. Great thing for our listeners to be thinking through as they reflect on everything that we’ve just gone through. So Tom, looking even further into the future, do you think that clients or people in general will be able to remember how to trim their budget and live off of less if they are really needing to? Or do you think that people will go back to their old ways of living and spending and not really remember what it was like to have a 10-30% reduction in their expenses?

Tom Arasz: So I don’t think that our numbers will stay the same. I think it’s pretty — it would be an impossible task to ask people to duplicate April and May’s numbers. But that’s just human nature. I mean, we’re going to go back out. We’re going to go do things. But I do truly think that people will take away some valuable lessons here. You know, is that $100 massage or that $100 bar tab with your buddies, is that really what means the most to you? Or would you rather invite some friends over in the backyard for a cookout or do something different with that money? Ultimately, I think for me, you know, what I want out of the next few months is I want to be able to see my family, and I want to be able to see my friends. And it doesn’t really cost a whole lot of money to do those things. And that’s what I’ve taken out of it. And you know, I think in the last two months, especially some of my spender clients, I think that they’ve really seen what the best month possible could be. And I think that excites a lot of people. I think that kind of instills some pride that — and some confidence in like hey, this is what we really could do.

Tim Ulbrich: Absolutely.

Tom Arasz: You know, if we locked it down.

Tim Ulbrich: I appreciate you, Tom, not only the work that you’ve done with so many of our clients and the Script Your Budget program, which I truly believe is transformative. We always talk about when it comes to achieving your long-term financial goals and ultimately achieving that why, you know, your budget is really the plan that’s going to help you get there and so the work that you’re doing I truly believe is having a significant impact on many, many lives and families. So thank you for that work, but also thank you for taking the time to join me on the show this week.

Tom Arasz: Thank you, Tim. Thanks for having me. And a quick shoutout, thanks to my parents for really instilling all of this in me. And I think we can laugh about this — thanks to my wife Melissa. She really puts up with me putting in the countless hours in the evenings to hang out with strangers on the internet.

Tim Ulbrich: That’s awesome. And I’m sure we’ll have many listening that are folks from the community that have worked with you one-on-one and so I’m sure they’ll enjoy hearing from you as well. So for those that are listening that want to learn more about our comprehensive financial planning services, which includes our Script Your Budget program led by Tom, head on over to YFPPlanning.com where you can book a free discovery call today to learn more. 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 or review in Apple podcasts or wherever you listen to the show each and every week. Have a great rest of your week.

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YFP 152: Living the Van Life During Residency


Living the Van Life During Residency

Rena Crawford, a PGY2 resident living in San Diego, California, joins Tim Ulbrich on the show. Rena took matters into her own hands after realizing how high the cost of living is in San Diego, especially on a resident’s salary, and came up with a creative solution: to buy and renovate an old van for $7,000 and live in it. Rena dives into the details of living in a van, her dreams of attaining financial freedom, and the lessons she’s learned along the way.

About Today’s Guest

Dr. Rena Crawford was born and raised in North Carolina where she received her undergraduate degree in Clinical Research from UNC Wilmington. She then moved to Charleston where she earned her PharmD from South Carolina College of Pharmacy at the Medical University of South Carolina campus in 2018. Her student work experience includes interning at Ralph H Johnson VA Medical Center and volunteering at Joint Base Charleston pharmacy. Her fourth year student rotations were completed in Jacksonville, Florida. After graduating from pharmacy school, she traveled the country for several weeks in her converted van before moving to Tucson for her first year of pharmacy residency at Southern Arizona VA Healthcare System. She now resides in San Diego, California where she lives comfortably in her van and enjoys traveling, visiting national parks, and spending time on the water. She is currently finishing her second year of pharmacy residency, specializing in ambulatory care.

Summary

Rena Crawford, a pharmacy graduate from UNC Wilmington and now PGY2 resident living in San Diego, California, has chosen a different approach to saving money on her expenses than most. When Rena realized that rent prices in San Diego are often over $2,000 a month per person, she knew that she was going to have to find a creative solution to her living situation so that she could make some progress on her six figures of student loan debt.

Inspired by her brother traveling the country in a van, Rena decided to purchase a 1994 Dodge Ram van and renovate it so that she could live in it during residency. Her dad helped with the renovation and built custom fit furniture for her new 60 square foot home. The van also boasts nice flooring, 200 watt solar panels, a full size dresser that doubles as a cooktop, a mini fridge, and a full size bed.

On this podcast episode, Rena dives into all the details about living in the van, her financial goals, how van life is helping get a head start on them even while making a resident’s salary and the lessons she’s learned this last year.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to this week’s episode of the Your Financial Pharmacist podcast. I’m excited to have joining me Rena Crawford, a PGY2 resident living in San Diego who has developed a creative solution to the problem that many new grads entering residency are facing: high debt loads, a reduced income, and another year or two that goes by without making progress on their financial plan. Rena, welcome to the Your Financial Pharmacist podcast.

Rena Crawford: Hi, Tim, thank you so much for having me.

Tim Ulbrich: Such an awesome, unique story. I appreciate you reaching out. Excited to have you on the show to tell our listeners more about your journey as you’ve gone through residency, have a unique living situation, and I think more than anything, just really having an intentional mindset towards your financial plan, which I love and we’re going to dig into that a little bit deeper. So before we jump into your current living situation and your lifestyle, let’s back up. Tell us a little bit more about where you went to school, where you grew up, and then ultimately why you decided to make the move out to San Diego.

Rena Crawford: Right. So am I on the southwest coast now, but I actually grew up in North Carolina, on the East Coast. I went to pharmacy school at the Medical University of South Carolina in Charleston. And I moved out west for the first time prior to my first year of pharmacy residency. And I’ve actually only been in San Diego since I matched for PGY2 and started in July.

Tim Ulbrich: Awesome. And tell us about your student loan debt position at graduation. How much did you have? And how did you feel about that debt when you graduated?

Rena Crawford: Right. So when I graduated, I was at $160,000. As a student, I don’t think that really set in, what that really meant, until I got to residency and first started making a salary or any kind of paycheck at all. That was really the first time it hit me what that meant.

Tim Ulbrich: Yeah, a resident salary will do that to you, right? You see that big student loan debt number, obviously you’re excited about residency training, and all of a sudden you go into active repayment and you’re like wait a minute, how much do I have to pay on a resident’s salary? Is this realistic? And to that point, you had shared with me that for your situation, it was going to take about a $600 payment, which would be about 20% of a resident’s take-home pay, just to pay the interest alone. So I’m guessing that was a surprise. Is that fair to say? That it would take that much payment just to cover the interest?

Rena Crawford: Right, exactly. So I knew I wasn’t going to go further into debt for residency, and to pay off just the interest means making zero progress. And so by the time residency came, I’d had four years of student debt accruing, I had a low salary, and just to keep everything in check was going to take a large percentage of my take-home pay.

Tim Ulbrich: I appreciate that mentality. I always say stop the bleeding, stop the bleeding. And you did more than that. You made progress, and we’ll talk about that. But I think residency can be a time period where you’ve gone through all the hard work, you get your PharmD, obviously get to that point, you’re excited, next phase is coming, big student loan debt position often that grads are faced with. And if you go into residency, low income position for a year or two, obviously it’s easy I think to throw up your hands and say, “You know what? I’ll worry about it after the fact.” And you certainly did not do that, and we’ll talk more about that. So we have heard stories of pharmacists on this show, we’ve featured some on the blog, who have really reduced their spending in really extreme ways, whether that be eating out and really inexpensive foods for a long period of time, eating bulk foods all the time, reducing your utility payment by not using air conditioning. We’ve talked about house hacking and other creative strategies. But I’ve never heard — I’m guessing our listeners have never heard — of anyone doing what you’re doing to reduce their expenses so that they can tackle their debt. And that is, of course, living in a van for a year. And we’re going to talk about exactly what that looks like to be able to do that. So talk to us about the rent situation in San Diego, in southern California. What does that look like? And how did that help drive your decision to go a different route and ultimately live in a van for a year?

Rena Crawford: Yeah, San Diego rent prices are known for being especially high. I have friends both inside pharmacy residency as well as outside of the pharmacy world completely that are paying $2,000 and more a month in rent. That could just be their share. They may have to have one or two roommates that pay just as much.

Tim Ulbrich: Wow.

Rena Crawford: Of course that can range a little bit. I know people who are paying a little bit less than that. But compared to what I’d seen growing up on the East Coast, it was the most expensive I’d ever seen. And it seemed hard to picture being able to pay down loans in any meaningful way and have a normal life if rent was going to cost two-thirds or so of my monthly paycheck. So knowing that I found a lot of satisfaction out of minimalism and having that freedom to spend money on other kinds of things like being healthy, having a good diet, I knew that the rent was something I would be willing to sacrifice and I could be pleased living in a van.

Tim Ulbrich: Yeah, and I think one of the things we’ve talked about on the show before is we know pharmacist’s income don’t increase proportionally with cost of living, and I would say that is certainly true for residents as well. You know, there’s a range for a resident’s salary, you may see that fluctuate, but some, and it may be a little bit higher on the West Coast than it is here say in the Midwest, but typically it doesn’t go up proportionately with what we see in cost of living. So as you mentioned, that would have been a huge portion of your take-home pay when you look at rent figures that are that high. One of the things you said, Rena, which I thought was interesting — I want to dig a little bit deeper — is that you said knowing that you get satisfaction from minimalism. Tell me more about what you mean by that and how you identify that.

Rena Crawford: Yeah, so before I started living in the van, the only person I’d ever known to do anything like that was actually my younger brother. When he graduated college, he bought a cheap Chevy van and left and traveled the country for a few months. After that, that piqued my interest. I became more interested in that kind of idea. So I myself after pharmacy school graduation before PGY1 year started, I took the van and traveled. I hadn’t ever left the East Coast at that point. So I went across into the southwest, up the coast of California. So when I matched there for PGY2 residency, I’d already been there in the van. I could picture the beautiful weather, the pretty beaches and how easy it would be to pull off living in the van again. And traveling in it, I’d realized that it was something I genuinely enjoyed and got a lot of satisfaction out of.

Tim Ulbrich: Awesome. Awesome. So being able to have some of that previous experience and knowing that it could be a possibility obviously was valuable in being able to do that for a whole year. So let’s talk about the van. Tell us a little bit about how much you bought the van for and, you know, what did it look like when you got it and how much did you have to do in terms of renovation to make it livable for a year?

Rena Crawford: So I have a 1994 Dodge Ram van. The van itself was about $4,000, and it cost a few hundred extra for registration, maintenance up front and everything. I’d say to get the van into my possession was probably about $5,000.

Tim Ulbrich: OK.

Rena Crawford: When I first bought it, it looked like it was frozen in time back from 1994. Velvet lining, it was bucket seats in the back with the old stuff in the center and the bench that went down into a bed. So I had to start from scratch in terms of renovating. My dad helped a lot. He’d built a lot of the furniture custom-fit for my van. And then I had a friend out here locally in San Diego who did some electrical work, put in nice flooring. So it’s actually, it’s pretty nice inside. I have a couple 200-watt solar panels that keep a couple deep-cycle batteries charged to hook my laptop and phone into. So all said and done, the renovation was probably another $1,500.

Tim Ulbrich: OK. So roughly $7,000 all in, you mentioned the purchase, obviously the taxes, all those other fees that come with buying a car, and then some of the renovation inside. Which if we go back to your rent numbers that you shared and if we use $2,000 as a number, we’re looking at a little over three months before you would break even and obviously you then have something that you can leave with or even if it was a lesser rent value, certainly within a time period of one year, you would have broken even. So cool to think about the numbers. And for those that are saying, “I’d love to see the van. What does it look like? How did this work? And I want to see what it looks like on the inside,” we’re going to share some pictures on the show notes. So make sure you head on over to the website, YourFinancialPharmacist.com, pull up this episode, and you’ll be able to see some more of that as well. So walk us through the van, Rena. If I were to enter into your van, give us the visual of what would I expect as I walked into the van.

Rena Crawford: Yeah, so I generally walk in from the backside door. When you first open the door, you realize it’s actually pretty spacious. I have a full-sized dresser that doubles as a cooktop immediately straight across when you walk in. Then I have a mini refrigerator sitting on a bench seat that opens up into storage. I have a full-sized bed in the very back. It’s shorter than a full-sized bed, it’s actually as wide as a full-sized bed. It has extra storage under the bed as well as along the top near the ceiling. And like I said, it’s surprisingly spacious. The van itself is considered to be an extra-long version. So it’s a little longer than a typical van. But it’s tall enough for me to stand in. I have room to move around easily, getting dressed, making dinner. And even if I wanted to have a couple friends over to sit on the floor and hang out, that’s something I’ve done before.

Tim Ulbrich: That’s cool. So in terms of size, if I remember right, less than 100 square feet, right?

Rena Crawford: Oh yeah. It’s like 60-something square feet.

Tim Ulbrich: Yeah. OK. It’s just amazing, you know. I think about my own home and other homes that I’ve lived in and certainly family and how easy it is when you think of 2,000 or 3,000 square feet, it’s like oh my gosh, I need four bedrooms, 3,000 square feet. But I think all of that you put into perspective when you have an experience like this. And it really helps you determine, you know, what are the things that really matter most? And perhaps it’s not the space that really impacts those things. And we’ll talk a little bit about that at the end of the episode. So some common questions that I’m thinking of that I’m guessing our listeners may be thinking about as well is where do you park the van? And how do you shower? Where do you able to work out and enjoy some of those amenities? And what about cooking versus eating out meals? Talk us through some of those logistics that you might think about that you have to think about differently versus if you have a home or you have an apartment.

Rena Crawford: Right. So I would say parking was the biggest learning curve. You kind of over time develop an eye for places that you know you could park overnight and not draw attention to yourself but also seem relatively safe. And I say relatively because one thing about San Diego is there actually is a community of people who live in vans. And more often than not it’s actually because they have a very dire financial situation and have no other choice. So parking spots are — some of them are in high competition, especially ones that have WiFi. Those are more limited. But like I said, over time, you kind of get an eye for it. I generally look for places that are kind of off a main drag but are next to a neighborhood. And those tend to work out the best. There’s places along the beach, and there’s places near the hospital. So actually, once you get into a groove, it hasn’t really been an issue. In terms of showering, I definitely rely on fitness centers, I use the locker room at the hospital. Finding those places was a bit of a transition, having to locate which showers had good water pressure, which ones I could count on having hot water, things you wouldn’t necessarily think about. And then in terms of food, I can cook in the van. I have a stovetop and I can boil water and I have the ability to saute and cook in a pan. But my refrigerator is pretty small. Any meals that require a lot of ingredients or leftovers, those things are inconvenient. So I end up picking things up a lot such as the hot bar at Whole Foods or takeout food, something healthier like poke or something like that. And I’m comfortable doing that because one, I’d have to eat anyway. And two, I can’t sustain a resident’s lifestyle on ramen noodles.

Tim Ulbrich: Right, right. Well, and we’re not talking about — I think it’s a good point. We’re not talking about crappy fast food all the time. I mean, obviously you’re talking about healthy options that you can find at Whole Foods and others. And I would also add, you know, that it sounds like because you’re able to keep your cost of living down that that frees up some income to be able to eat out or even as we’ll talk about here in a moment, be able to pay off some more of your student loans. So do you feel like you have some of the margin and the permission to be able to do that and have that convenience of not having to cook in the van where you don’t have a lot of space and room for refrigerating leftovers because you’ve been able to decrease the rent position?

Rena Crawford: Exactly. I feel like that’s one way that the van life has really paid off is being able to be selective about what I eat and being able to comfortably afford things that I believe are healthy.

Tim Ulbrich: So one of the things, Rena, I was thinking about this from the lens of a parent perspective, you know, if this were my child, I’d be like, ‘Oh, I love the passion for staying committed to achieving your financial goals and not spending money where you don’t necessarily have to,’ but I’m worried about some of the things we’ve talked about: your safety and your wellbeing and all those things. So is there a community of people that are kind of looking out for one another? You mentioned that those that are often living in a van situation might be in a dire situation to do so. But are there others that — I’m thinking of like the FIRE movement folks or others that are in a similar situation to you that are often trying to help each other out, pointing people in the right direction about this parking spot or this food option or this WiFi? Or do you feel like you’re kind of going at this alone?

Rena Crawford: When I first got here actually, there were some people who walked up to me and started conversation. I woke up in the morning once with a note written and put under my windshield wiper just saying, “Hey, I don’t think you’ll be able to park here for very long. We get cleared out from time to time.” So at the beginning, I did feel kind of that sense of comradery, but now as I’ve identified my own locations to sleep and kind of my own groove, I feel like I kind of run into them less. But yeah, there is a community, and they definitely do look out for each other. It’s actually one of the nice sides about it.

Tim Ulbrich: That’s cool. And tell us about, you know, the progress you’ve been able to make on your student loan debt because you’ve been able to free up some of your income that would otherwise be going towards rent.
Rena Crawford: Well, I try to shoot for about a $1,600 a month payment each month. That can vary a little bit depending on if something comes up in terms of needing van maintenance done. But as a whole, you know, in the last two years making resident’s salary, I’ve still been able to take my principal from $160,000 down to $130,000.

Tim Ulbrich: Wow. That’s awesome. So again, as we talked about earlier, often residents, I feel like the goal can be status quo. But here we’re talking about making progress. And it looks like you’ve done that in a significant way. So you mentioned earlier that you’re from the East Coast. So right now you’re on the West Coast for residency. So million-dollar question, depending on where you end up for a job and where you go next, what do you plan on doing with the van?

Rena Crawford: I think by the time the year is over, I’ll probably be ready to move out of the van. I mean, I’ve been really content living in it and it’s been very satisfying because it’s accomplished what I wanted it to accomplish, which is help me pay down my student loans. But by the time this year is over, I think I’ll be ready to get out of the van or at least not have it as my home base. I want to keep the van forever and use it for weekend travels. It does feel like an asset, and it has a lot of good memories with it. But yeah, I don’t think I’ll continue to live in it after this year.

Tim Ulbrich: Is there one or two things that you miss most about more of a “traditional” living situation like a rent or a home?

Rena Crawford: Yeah. I mean, I miss the convenience of showering. And the way it is now, it requires several extra steps. And then just being able to cook. You don’t realize until you can’t cook anymore how pleasurable it actually is to make your own meal from scratch. I miss doing that.

Tim Ulbrich: Well, I can envision as you take this next step following your residency where you end up in let’s say a 1,000-square foot apartment and you’re like, what do I with this? I have more than 10 times the space I had for the last year. But obviously I think that’s a good challenge to be thinking through. So talk to us a little bit about support of family and friends. You know, I could see this going one of two ways. And I know your brother went a path of traveling in a van, so maybe this is a little bit different with the family, but I could see family and friends being like, ‘Wow, I just admire the passion,’ and perhaps it even motivates and inspires them in their own journey and their own financial plan or their own quest of finding what they actually need in terms of minimalism. Or I could see people being like, ‘What in the world are you doing?’ Like what has that been like in terms of support from family, friends and even colleagues?

Rena Crawford: Yeah. Yeah, when I started residency, I didn’t want to publicize it. But I knew it would be discovered. It’s hard for it to never come up in conversation at all. And I was worried at first, you know, that it would look unprofessional or that it would reflect poorly on me in a job setting. But actually, you know, once word got out there, it spread pretty quickly, and everyone only had positive things to say. You know, I actually have gotten that before, like, ‘Oh, that was a good idea. I wish I would have thought of it. Maybe I would have done it too.’ So far, nobody actually has moved into a van after talking to me, but maybe it’ll happen sometime because people have genuinely positive reactions and seem to really understand the idea behind it.

Tim Ulbrich: Absolutely. And I sense people listening to this, it may be that they move into a van, but more likely, it’s probably the principles that they take and apply to their own situation in terms of trying to really evaluate what they do or do not need and what other goals could they accomplish if they’re able to free up some of the expenses that come with what is usually the largest expense in someone’s budget, their living situation. So I want to read a passage, Rena, from the article that you had sent over to me and then talk a little bit about this concept of happiness related to money. So you said, “Forgoing a real home in favor of living in a van may sound extreme. But there’s something wonderful about knowing that almost all of my needs can fit into 70 square feet. Living in a van has done more for me than just save me money and allow me to pay down my debt. It allows some freedom for cheap weekend traveling and I can live in any part of the city I want, depending on my mood that day. Plus, I’ve learned just how little I need to be happy.” So talk to us about that concept of happiness and how this experience, as you reflect back on this experience, what it’s made you realize in terms of what it does or does not take to be happy.

Rena Crawford: I think a lot of my happiness right now comes from accomplishing my goal of getting further towards freedom. And you know, if that’s your priority, putting the money there first and then living on what’s leftover, that forces you to re-evaluate what really makes you happy. And I mean, I still have my laptop, I still can watch Netflix before I go to bed or a nice movie or something if I want to, I can pick up meals when I feel like I need to. But I don’t need a bunch of things. And I feel like as people, you know, make more money, the things kind of start to fill up the empty space because you have that discretionary money, you’re more likely to purchase things you don’t need. And living in a van that doesn’t allow that, you know, I don’t have a place to put anything, so I don’t buy any extra stuff. And I haven’t suffered for that at all. In fact, I feel pretty free. And a lot of my money goes into experiences like spending money on gas to spend a weekend at Yosemite or something. I feel more pleasure from that than I do just having belongings.

Tim Ulbrich: Which are the memories you’ll remember. I mean, I think the experience in and of itself is one that you’ll remember. But being able to fund those experiences I think is so cool. And I’m a huge believer that short-term experiences — when it comes to your financial plan, short-term experiences, even if they’re short-lived, have positive long-term benefits. So here I see a situation where yes, of course you’re not going to live in a van forever. But through this experience and through what you’ve learned about what makes you happy and where you can derive that value you do or do not need, even though your expenses will naturally go up, your income is going to go up, I think it really will have a long, long-term impact on how you spend your money. And I think that’s one of the coolest things about an experience like this. So Rena, if we fast forward five years from now, so what would that be? 2025. May 2025, I sense you’re someone who’s got big goals, dreams and aspirations. You know, you’ve obviously been able to tie into this concept of minimalism, you’ve had some real intentional efforts during your residency to be able to pay down your debt. So when we look at your financial plan in five years, five years from today, what would you say success looks like?

Rena Crawford: So in five years, I definitely want to be debt-free as well as have a solid nest egg of savings to maybe put a down payment on a house, maybe put a down payment on a sailboat and travel the country or travel the world. I haven’t figured that out yet. But I know for sure I will be out of debt and have some nest egg to figure out what that next step looks like for me. Some kind of investment or new alternate way of living.

Tim Ulbrich: Yeah, and I can tell for your situation, obviously having no debt and taking away that $1,600 a month payment or perhaps more as you go into the future to get that paid down plus having minimal expenses overall, even if that goes up, is going to give you lots of options to do the things that matter most to you. So Rena, thank you so much for sharing your story, for reaching out, for taking the time to come onto the podcast. And I’m confident your story is going to help inspire others to think about their own financial situation. So thank you so much.

Rena Crawford: Thank you. Thanks for having me.

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


How Personal Finance Perceptions Affect Student Pharmacists’ Career Choices

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

About Today’s Guests

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

Summary

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

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

You can read the full study here.

Mentioned on the Show

Episode Transcript

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

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

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

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

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

Tim Ulbrich: OK.

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

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

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

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

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

Tim Ulbrich: Oh, wow.

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

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

Nick Hagemeier: That is for sure.

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

Nick Hagemeier: Yep.

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

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

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

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

Tim Ulbrich: OK.

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

Tim Ulbrich: OK.

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

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

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

Tim Ulbrich: I did not know that, no.

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

Tim Ulbrich: OK.

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

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

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

Tim Ulbrich: Yep.

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

Tim Ulbrich: Right.

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

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

Nick Hagemeier: Yeah.

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

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

Tim Ulbrich: Sure. Yep.

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

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

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

Tim Ulbrich: Yeah.

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

Tim Ulbrich: Absolutely.

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

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

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

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

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

Tim Ulbrich: Yeah.

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

Tim Ulbrich: Yeah.

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

Tim Ulbrich: Amen.

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

Tim Ulbrich: Right.

Nick Hagemeier: Like wow.

Tim Ulbrich: Yep.

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

Tim Ulbrich: Absolutely.

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

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

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

Tim Ulbrich: Yeah.

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

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

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

Tim Ulbrich: Yeah.

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

Tim Ulbrich: Yep.

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

Tim Ulbrich: Yeah.

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

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

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

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

Nick Hagemeier: Right.

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

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

Tim Ulbrich: Yeah.

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

Tim Ulbrich: Yes.

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

Tim Ulbrich: No.

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

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

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

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

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YFP 146: COVID-19: Financial Considerations


COVID-19: Financial Considerations

Things are changing on a daily basis secondary to COVID-19. In these unprecedented times, there are a lot of financial concerns people are likely having. On this episode sponsored by APhA, Tim Baker, CFP® answers questions about investing, the uncertainty of work and student loans.

Summary

This podcast is from the APhA and YFP webinar recorded on March 31, 2020. In the past couple of weeks, so much has changed as a result of COVID-19. Between the stock market being down, unemployment rising, the CARES Act and rapid changes with federal student loans, it’s likely that you have a lot of questions regarding your finances.

During this discussion, Tim Baker, CFP® answers the questions everyone has at the top of their mind and focuses on the topics of investments, uncertainty of work and student loans. He also dives into the CARES Act and the levers you can pull if you’re facing financial hardship due to unemployment or a reduction in hours.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Well, good evening and welcome to this webinar. My name is Tim Ulbrich from the team over at Your Financial Pharmacist, and I’m excited to also have joining me my partner in crime and Certified Financial Planner Tim Baker as we’re going to talk about a big-time topic right now, which is financial considerations and COVID-19. So thank you so much for taking time out of your schedule to be here tonight. Thank you for those that during the registration process, you submitted questions and concerns that you have. That really helped us shape how we’ll spend our time this evening. And we’re also going to have time to take your questions throughout the evening as well. So thank you again. And first and foremost, before we jump in to individual topics, I know many listening or perhaps those that couldn’t be here tonight that will watch the replay are on the frontlines of this, putting themselves at risk and obviously stress that comes along with that and carrying that risk back home. So thank you so much for the work that you’re doing for the patients that you’re serving. And we certainly appreciate that effort.

So so many financial issues that are swirling around a time like this. And we’re going to try to hit some of the major ones, certainly not all of them knowing there’s so much changing so quickly, literally some days it seems like by the hour. At least by the day, we have some piece of news that’s coming out as it relates to COVID-19 and something related to the financial plan. If we look at just the past couple weeks as an example, we’ve seen the markets really take a significant hit. As of this morning, the Dow Jones was down roughly 25% from its February peak. And we actually saw that was inching closer to 40% last week before we saw an increase at the end of last week. Unemployment rate predictions are upwards of 30%. We certainly hope that many pharmacists aren’t going to be in that figure, but we’ve already seen a significant rise in unemployment claims in this area. We saw news of the fed cutting interest rates. And in one week, we had three pieces of big news related to student loans. First, the announcement from the Trump administration that we would be freezing interest rates on student loans for 60 days. Then, the announcement that there would be a pause of payments due for a 60-day period. And then of course, with the stimulus package that was passed last Friday, ultimately as we’ll talk about in more detail tonight, six-month window on most federal loans in terms of pausing the payments as well as interest accrual during that time. So certainly big news here in the last couple weeks as it relates to student loans.

So lots of things to talk about, and a brief introduction to the format. Then we’ll jump right in, and I’m going to put Tim Baker on the hot seat and start firing away your questions as we talk about really three big buckets of topics that we saw come through as themes when you all registered for this webinar this evening. One was around investments, you know, what do I do in terms of my investments during an uncertain time period such as this? How does my investing strategy change? So we’ll talk about that in detail. The second around the uncertainty of work and what this time period means in terms of employment and changes and we know some of you may be dealing with this more for others. And how does that impact the financial plan? And what could you be doing during this time of uncertainty? And then last of course would be student loans. And as I mentioned earlier, there’s a lot, a lot to talk about here. So in terms of the format, what we’re going to do is I have gathered some questions in advance, and I’m going to fire away at Tim Baker in each one of these three areas: investments, work uncertainty, and student loans. And then we’ll pause at the end of each of those sections to answer some of your questions. We may not get to all of them, but we’ll try to get to as many as we possibly can this evening. So if you have a question as you’re hearing some of the discussion this evening, please go ahead and submit that in the chat, and then I’m going to ask Drew from APhA, who’s on the call this evening, to help us field those questions and we’ll take a couple breaks throughout.

I do want to thank before we get started as well the American Pharmacists Association for the continued partnership that we have with Your Financial Pharmacist to provide financial education resources that are exclusive to APhA members. So this is one example, but we’ve been doing webinars often and live events. We have discounts on our products and services, including comprehensive financial planning, which you can learn more about at YFPPlanning.com. So to check out a lot of the resources that we’ve done with APhA, you can go to pharmacists.com/YFP and get more information about that partnership and even go back and watch some of the webinars that we’ve done over the past couple years.

Alright, Tim Baker, officially welcome. That was a long introduction, but welcome.

Tim Baker: Yeah.

Tim Ulbrich: And I know this is a chaotic time, so thank you for taking time out of your schedule to do this.

Tim Baker: Yeah, of course. Happy to be here.

Tim Ulbrich: So we know that many of your clients at Your Financial Pharmacist certainly are having a lot of questions. So many of these you probably already have gotten, but we’re going to go through, as I mentioned, each of these in more detail in three different buckets. So let’s start with investments. And I think probably the most common question that we’re seeing in a time period such as this, which is really similar — while the situation is different — similar market drops to what we saw in 2008 is what should I be doing as I think about my account being down? So the question here is my accounts are down 25% — so assuming your retirement accounts — from mid-February. How should my investing strategy change during this uncertain time where it appears there’s no end in sight to this pandemic and the havoc that it’s wreaking? So talk to us about investment strategy broadly during a time period like this.

Tim Baker: Yeah, so — again, if people have heard me answer these questions, I’m going to start off with the worst answer ever. It’s going to depend. So a lot of our listeners are 20-something, 30-something, 40-something year-olds. And if your portfolio goes down now and you’re planning to retire when you’re 50, 60, 70, it doesn’t matter that much. Now, I don’t want to be facetious in saying that because it’s still painful when you look at hey, I had $200,000 in my portfolio and now I have $160,000 or something to that effect. That’s never fun, and we as human, those losses that we feel, the loss aversion really takes hold of us and it’s not fun. But the fact of the matter is that in most cases, these types of corrections, which last time was a subprime mortgage crisis that was created by kind of poor lending practices, this is a pandemic. I thought we were going to have kind of a downturn in the market due to an election. But this is kind of something that’s come out of nowhere, in essence, that’s really affected the market. And typically, these types of things, they last in the long run three years, three and a half years. So again, if you’re — I’m 37. I’ll use my example. If I’m going to work until I’m 67, that’s 30 years. I’m probably not going to even remember this unless I think about all of the Netflix I watched or the Zoom conferences that I had with my family, the games that we played. So now, the equation is a little bit different if you are kind of further along and closer to retirement. So probably some of the worst years to take a recession or to take a hit in your portfolio is right as you’re about to retire. So you know, 2, 3, 4, 5 years out. And the reason for that is when you start withdrawing on your portfolio in retirement, now you’re taking principal out, and you have to make up those gains that much more. So going through the eye of the storm in retirement is kind of like the couple years out to a couple years into retirement, which is when you probably want to be the most conservative. So depending on what side of the coin you’re on, that’s going to be a big part of it. Now, I was talking with a counterpart that said, hey, a bunch of his clients are reaching out and they’re like, how am I doing? And most of his clients are OK because he’s built out basically a bond ladder to get them through recession-like downturns in the market. So they’re basically priming that and maybe a little bit too much for this particular talk, but it really depends on where you’re at. So I would say as a general principle, a general rule of thumb with investments, you typically want to do the opposite of how you feel. So you know, when the subprime mortgage crisis was going on or right before the subprime mortgage crisis, people were taking out money from everywhere to buy real estate. When the dot-com crisis happened, right at the peak of that, people were taking out second mortgages on their house to buy cats.com. So in that case, we know that the markets probably inflated, and we want to be a little bit more conservative. I’m not saying do anything vastly different, but in the downturn, you know, when we see that slight, that drawdown, we typically want to take our investment ball and go home. So that’s what I tell my clients is that you don’t want to take your investment ball and go home. You actually want to do the opposite. You want to keep playing. If you can, you want to play some more, which means that if you are in a good cash position, get money to the market. Now, I often — and I said this last time we talked about this — sometimes I think financial advisors or we as humans, we rationalize away the loss and we’ll say, oh, it’s a great time to buy. It is kind of because when Trump was elected last time, I’m like, oh, the market, it’s overpriced, we’re going to see a correction, not a great time to buy. And that’s kind of the levels we’re at now. So it’s relative, right? But to me, the rule of thumb here is typically the more that you do, the worse. The more tinkering, the more you try to like outfool, outplay the market, it’s not going to work. You know, best rule of thumb is if you’re kind of in this situation where you’re in this accumulation phase, if you can invest more, invest more. If you can be a little bit more aggressive, be a little bit more aggressive. I often say that if you’re kind of in your 20s, 30s and 40s, you probably shouldn’t have any bonds in your portfolio at all. That’s my belief just because basically they’re a drag on your investments. When you get closer to retirement and there’s more safety in principal, then you want to put bonds in there and start really building out kind of that retirement paycheck, that bond ladder. So lots of words, lot of different ways to look at that. At the end of the day, this too shall pass. Markets will go up, it’s part of the general cycle of things. We’re basically being forced into this one a little bit more because of the pandemic, but we were also on an 11-year bull market, a positive market, really since the last downturn. So yeah.

Tim Ulbrich: Yeah, great stuff. And Tim, this really has been a reminder for me in a couple areas. It’s something we preach and teach, but when it hits you directly, it’s a gut check to say, do I really believe in what I preach and teach? And you know, we talk about volatility and the irrationality of the markets and who can predict it, what a great example this has been. I mean, nobody can say they — now, some people might say I saw a bubble and it was eventually going to pop, yadda yadda yadda ya, but nobody predicted COVID-19 specifically. Maybe Bill Gates. But nobody predicted the impact that that would have at this time period and obviously the unemployment, all the impacts we’ve had. But also I think it’s just been a good reminder of some of the investing principles and strategies that I know I’m highly leveraged in stocks, you see a significant drop, I log into my accounts, I want to take action. I know I shouldn’t take action, so for me, this has also been a really good reminder of the value of having a coach in your corner, on your team, in a time period like this to really help you take a step back and look at the whole plan and to really go back and think, what’s the goal? What are we trying to do? What’s the timeline? And a period like this quickly becomes very emotional, not objective, and I think having somebody else that can really help you navigate a difficult time like this is a great reminder.

Tim Baker: Yeah, and my overall belief — I have a few of them — but my overall belief for investments is that investments should be as boring and budgeting. It should be as boring as paying off the debt. It should not be sexy, it shouldn’t be exciting. I think oftentimes when we make it that, that’s where we get into trouble because we’re typically going into investments that maybe cost too much. So when you think about like, oh, this is a smart beta fund, it’s going to cost the investor a lot of money. You know, even I am like, oh man, maybe I should buy this stock because it’s trading really low. And the example I gave the last time we talked about this is you know, when we had corrections in the ‘80s and ‘90s, my first employer out of the Army was Sears. Sears was this giant company that was never going to go away, it was retail supreme, kind of like the Amazon of today. It’s trading at like $.31 a share right now because they just were — so everyone thinks well maybe Amazon — I don’t think Amazon shares are down — but maybe that other, that Walmart or that other stock. So you start twisting your mustache to say hey, maybe I can outsmart the market, maybe this is a great time to buy. And my belief — and again, I do this for a living — is I just become overwhelmingly humbled again and again by that. So you can — I think it’s OK, my personal opinion, to take a small percent, 5-10%, and speculate on stocks. I don’t personally do it anymore because I, again, I’m tired of being humbled by the market. I like to buy the market. It treats you right over the long term and just rebalance it over time. So one of the things that I think you can do if you’re up for it is that if you’re not in something like a target date fund, you know, when I’m reviewing — I reviewed a client’s patient, actually one of the clients are about to be forgiven for PSLF. They’re two months away. Yeah, one of the things that we looked at their TSP and the spouse’s 401k, very out of balance in terms of like their equity to fixed income ratio. So one of the things we were going to go do — and we can do this for them with some of the tools that we have — is we basically rebalance that back because right now their portfolio is more conservative than what they signed up because equities are depressed and as a result, the fixed income makes up a bigger percentage. So we’re basically going to rebalance those out. Now, my counsel to them is get rid of the bonds in general. They’re about my age, a little bit older. But they’re kind of in a 90-10 stocks to bonds split. So that’s maybe one thing that you can do to tinker or change. And in reality, you should do that once or twice per year. And I think that’s good.

Tim Ulbrich: Yeah, and I think that’s a good reminder. I haven’t seen a lot of discussion on in this area of investing is making sure you’re looking at your distributions and rebalancing appropriately as a time period like this can certainly throw things off. So to your comment, you alluded to this, and I’d like to talk more about this. Question here is for several people that are listening that may be in a position to invest, you know, they might look at a time like this and say, “OK, is this a time I should be doubling down? Should I do it? Should I wait? Should I hold that money for other uses, depending on a certain time? Where do I begin to think about how to invest that money?” So talk us through more of the opportunistic side of if I have money to invest, is this a period where I want to make that move?

Tim Baker: Yeah. And again, it depends, Tim, again. I’ll say that again and again. You know, if we look at your balance sheet and you have that emergency fund that’s fully plussed up, your consumer debt is in line so you’re not really — you don’t have any credit card debt or you’re not paying that couch off that you bought a year ago when you moved into your house, you know, and you feel pretty secure, as secure as you can be, now might be a good opportunity to start increasing that 401k contribution, that 403b contribution. If you haven’t dabbled in IRAs, you can open up IRAs to basically supplement that. But you know, right now, I think because of what we’re seeing, my inclination for — in a lot of ways is to kind of sit on the cash and put it in a high-yield account, get your 1.5% interest rate now and call it a day. But you know, me personally, I have shoveled some money into the IRAs as I can, just to get that money into the market and working. But I also feel fairly confident in kind of cash position and where we’re at. So yeah, I think it depends on a lot of factors like if you’re a one-income, two-income household and just some of those other things. Now, we’ll talk about this in a second, but one of the big things is that between now — really, March 13 to end of September, for federal loans, $0 payments, 0% interest, so one of the big things — and we talk about this on the podcast all the time, if you guys are not familiar with YFP podcast, check us out. But one of the things we talk about is really acting and planning with intent. So one of the things I’m talking about with clients is hey, you have this $800 per month federal loan payment for your Pay As You Earn. Now that’s going away, and if you’re going for a forgiveness play, you know, PSLF, that still counts. The $0 payment still counts for September, all the way up until September. So what can we do with that $800? And it might be to get the emergency fund further plussed up. It could be to pay off a car, credit card debt. It could be to invest. And I think all of those things are on the table. But I think ultimately, what we don’t want to do is just say,”Oh, sweet, there’s an extra $800 into the pot.” We as humans, we see a copious resource and consume it, whether it’s time or money. So really be intentional and call out, OK, this $800 is going to go right into my Ally emergency fund — I like Ally — or some other emergency fund that you have. Or it’s going to go, I’m going to schedule that payment to go right into my IRA I can contribute for 2019 all the way up until July of this year. So lots of different kind of ways to look at it.

Tim Ulbrich: So for those that are looking to invest and have extra money that they want to then utilize this time period to implement that strategy, I would reference you back, all the way back, to November 2018, which seems forever ago, on the podcast. Episodes 072, 073, 074, 075 and 076, we did a month-long series all about investing, including the priority of investing and commonly asked questions around investing. And I think that material would be helpful to make sure you’re strategically making those decisions as you invest those funds. Tim, other question here — we’ll round out this section on investing as we transition to some of the uncertainty around work, and I’d remind people if they have questions about investing, please submit them now — is the time of rainy day fund emergency savings. You know, we normally preach and teach 3-6 months, depends on individual factors, if you have one income, two incomes, how comfortable, are you not with the amount of funds that are available, what are the priorities you’re trying to achieve? So my question here, is this a time period you look at — and you might have alluded to this a little bit already — where you say, “Maybe there is a time period where somebody who normally would be 3, maybe it should look more like 6?” Or somebody who’s normally at 6 months, this should be larger than 6 months. How do you typically advise clients on the rainy day fund during a time period like this?

Tim Baker: Yeah, I mean, a lot of those I think have been set by like the Certified Planning Board and they’ve gone through multiple iterations of downturns in the market and things like that. You know, the danger of having more than 6 months in cash is that your cash position is too much and that you should really have some of that money into the market. Now again, that gets put to the test when you’re out of work and you can’t find employment or that type of thing. So I don’t think systemically, anything really changes. But you know, I look at my own — one of the things that I, we get stuck on sometimes is, you know, I meet with a client and I say, “Hey, your emergency fund needs to be $20,000.” And then you know, they maybe move and buy a new house, maybe they have a kid and like we don’t go back and kind of refresh that.

Tim Ulbrich: Right.

Tim Baker: And that needs to be refreshed. So you know, basically what I do from the outset is I say, “Hey, this is what a good emergency fund is. This is where I would put it.” And then we build the savings around that. So I’m a big proponent of having like savings built out for things that are kind of more in line with your goals. So the emergency fund anchors that and then we have kind of secondary and tertiary savings goals. So I don’t think it really changes anything systemically, but I also like one of my bias is that for me, like if I was out of a job like this, like I would figure it out. And I don’t care what I have to do, like I would hustle. And part of that’s kind of just the entrepreneur coming out in me. Not everyone has that, you know? So if you’re more conservative with kind of going out and trying to find income streams, which sometimes pharmacists are, then maybe you do for this period of time try to shuttle away more and then when basically things come to more normalcy, then you kind of get back to that 3-6 months. So I think if you have the cash and you can plus up your account a little bit more, that makes sense. But I think as we go, a lot of the questions people are asking is like, how is this going to change society? How is this going to change how we interact with people and our spending habits and things like that? I don’t know if it really will. Maybe it does. I kind of look back at like 9/11, and you know, now we are however many years later, and it’s like ugh, I have to take my shoes off when I fly in an airplane.

Tim Ulbrich: Right.

Tim Baker: And you know, I was my freshman year at West Point when that happened. And obviously that was a big, big thing in my life just like it was in everyone’s life. But I think that over time, things erode, we forget, and I think there will be a time when we can go to the movies and not feel scared about getting sick or whatever that is. And I think the same is true with our spending, how we save, and all that kind of stuff.

Tim Ulbrich: Yeah, and I think this is a good time as we’re wrapping up this section talking about rainy day funds, you know, one of the things that I always mention, especially when you have two people that are working through a financial plan together, is I don’t think this is the place to push somebody else.

Tim Baker: No, yeah.

Tim Ulbrich: So really making sure you are having an honest conversation about during uncertainty like this, sometimes it’s not rational, what makes you comfortable? And obviously there has to be a reasonable balance of that as you’re trying to achieve other goals and do other things. You know, as you mentioned, you don’t want to have too much in the cash position. But if you’re splitting hairs between 4 and 5 months and somebody is more comfortable with 5 months or 6 months, like this is the place to defer, you know, as you look at making sure that both spouses, both individuals that are working on this together are comfortable with that. So Drew, at this point, as we wrap up this investing section and talk about COVID-19 and the financial implications as it relates to investing, I want to pause here and address any questions that have come in specific to investing as we move on to the next topic about work uncertainty.

Drew: Sure, thanks, Tim. So we’ll start with the first question here. For those at home who are kind of relying on financial planners to really manage their investments and maybe they’re looking to gain more knowledge and education around this topic, where might you guys recommend that they start to get that education and really start to learn about investing on their own?

Tim Ulbrich: Great question. Tim Baker, do you want to start and then I’ll chime in?

Tim Baker: I mean, I’m biased. I think right here, right? Like this is a good spot. What I tell clients when we go through any part of the financial plan, whether it’s the fundamentals: insurance and benefits, retirement investment, estate, tax credits, negotiation, whatever that is, just to kind of name a few parts of the plans that we cover, I want to educate clients in a way that it’s enough to make you dangerous but not enough to bore you to death. So we probably could release — I mean, you know, what Tim and Tim wrote, “Seven Figure Pharmacist,” is another great tool, resource, to — if you’re a reader, you know, I can probably name off a bunch on my kind of read list that would go onto the Mount Rushmore of investment books to read: “Index Revolution” is one. I don’t know, Tim, what am I missing here?

Tim Ulbrich: Yeah, great recommendations on books. “MONEY Master the Game” is something that I typically recommend as a book.

Tim Baker: Yeah.

Tim Ulbrich: They do a nice job some of the complexities of investing in a very easy to understand way. Obviously, I put a plug in for our comprehensive financial planning services that Your Financial Pharmacist specifically designed for pharmacy professionals. And you can learn more about that at YFPPlanning.com. And we have some exclusive benefits to APhA members. Two other things that jump out to me: One, I mentioned the investing series we did on the podcast back in November 2018. Again, Episodes 072-076. So you can download that on Apple podcasts, Spotify, or wherever you get your podcasts each and every week — sounds like a commercial. And then the last thing for APhA members, since we’re here obviously in that, is that we’ve done — you’ve done — previous webinars I believe Investing 101, Investing 102, that are available recorded. And again, you can access those at pharmacists.com/YFP. So I think a whole lot of resources, probably strategically identifying one or two to get started and not getting overwhelmed. But I think even for those that have a financial planner, you know, whether it’s us or somebody else, I think making sure — this is true of any part of the financial plan — making sure you’re educated and up-to-speed yourself I think just leads to a richer conversation and a greater understanding and you’re asking more questions, typically, when you are more knowledgeable about a topic. So you know, I think sometimes there’s a tendency to say, “Oh, I’ve got my investment guy, right? I’ve got somebody that’s doing this for me.” And I think it’s always helpful to have some of the base knowledge yourself as well. Awesome. Drew, what else?

Drew: Awesome. Thanks, Tim. Next question. Is it risky to put money into a savings account where you don’t have close access to the bank? Also, should you have some money not in the bank in case the market crashes?

Tim Ulbrich: Yeah, that’s a good question. So the first question I’m guessing they’re referring to like an online bank perhaps is the way I interpret that versus like a local branch that you can walk through the doors. I mean, I don’t know, Tim Baker, how you feel. I don’t necessarily view online banks such as Ally, CIT Bank, others that are out there that have online savings accounts, to me, I don’t like at that any different than me walking through the doors of a Huntington branch here in Columbus. You know, as long as they’re FDI-insured, obviously you’re looking for competitive product and offering. I feel like from a security standpoint and an offering standpoint, I very much view a physical location similar to an online bank. And obviously you and I have both used Ally extensively and are comfortable with that. What are your thoughts on the cash part of it? This has come up before, I think in our webinar last week about is this a time period where you actually want to have physical cash in hand. What are your thoughts on that?

Tim Baker: Yeah, so I had a client ask me this, and I’ve been asked this a couple times since this has all been going on. And I can’t see — I have like a strong — you know, I actually had a client talk about it today. You know, it’s like, we’re not Doomsdayers, but should we keep some cash in the house? And I’m like, I don’t know. I feel like the banks, one of the lessons learned from the last crisis, the banks are more robust and stronger than they’ve probably ever been. And at the end of the day, like what the government is trying to do is figure out ways to get money into the hands of the people and really businesses. So I don’t have this overwhelming personal need to have stacks of cash in a safe in my house in Baltimore, Maryland. So you know, and I remember the first time I talked about this with a client, I said, “You know, if there is a run on like ATMs, maybe that could be a thing. But then you could always go to the grocery store and like take out cash when you did.” But the second I said that the last two times, I’ve been to the grocery store. They basically turned that off.

Tim Ulbrich: Turned it off, yep.

Tim Baker: And my thought was like, OK, grocery stores are flush because everyone’s buying toilet paper and everything else. But yeah, so maybe. I think though, it’s like you can do everything electronic these days anyway. So people are like, what if you need cash? I’m like, Venmo or PayPal? They’re like, well my parents are old, they’re older and they haven’t used all that stuff. I don’t know. I just don’t — I personally don’t see it. But again, a lot of this goes back to how you feel. So if it makes you feel better to have $1,000 in the house, then do it. I don’t think there’s anything terribly wrong with it. I feel like growing up, my mom would hide money around the house. I don’t know why, it was just one of her things, you know, just like little nest eggs. So I don’t know.

Tim Ulbrich: I agree with you. And I think unfortunately, right now since we’re all pretty much quarantined for the most part is if I had $1,000 in cash, I ain’t really going anywhere where I can spend that cash right now. You know, most of it at least what we’re doing from grocery and other standpoint, you know, we’re pre-ordering and picking it up and that kind of thing. So good question, thought, but I echo your comments and feelings. I think you’ve also got to ask yourself, how does this make you feel? And how does that sway your decisions?

Tim Baker: Yeah, and another thing I talk to clients about is like, I’ll say something to the effect of like outside the Zombie Apocalypse, the market’s going to go up. And if we have the Zombie Apocalypse, we have such bigger problems than our investment portfolio. And I think the same is true, it’s like if all of a sudden the banks collapse and we can’t get cash, like the cash might be worthless, you know? So there might be more systemic things to worry about. So probably not the right kind of tone of the conversation, but I just, yeah, I think you’re OK with trusting the banks.

Tim Ulbrich: Yeah, and if that happens, you’re not making student loan payments.

Tim Baker: Right.

Tim Ulbrich: A lot of things aren’t getting paid.

Tim Baker: Right, I agree.

Tim Ulbrich: That’s a depressing thought. So Drew, how about one more before we keep the ball rolling and move onto the next section? And then we can also hold some time at the end.

Drew: Sure. Absolutely. And I just wanted to mention, guys, I know we have a lot of questions coming in, a lot of questions around student loan repayment, and so we do have a couple more topics, one of those being student loan repayment. So we will do our best to get to those questions. So I think we’ll just finish up with a comment. We had a comment from someone come in, they said they’re a member of the Pharmacist Stock Club. It’s a great local opportunity for meeting, learning, and idea sharing. So if you’re interested, try to find and join a local club. So I just wanted to follow up to the question we had earlier about kind of getting started in investing and learning about those options. So I thought that was a good comment to add.

Tim Baker: Yep.

Tim Ulbrich: Yeah.

Tim Baker: For sure.

Tim Ulbrich: Very cool. I love the passion for learning. And whoever submitted that comment, I’d love to hear more from you about what that looks like and how you do it and perhaps we can share with others that may be looking to start something in their own community or even in these times, start something virtually. So let’s transition to the next area, which I would say led the way in those that registered. When we asked the question, you know, what are you most concerned with your financial plan as it relates to COVID-19, there was this bucket around uncertainty of work. And we know certain situations — I would say they’re not very frequent right now from what we can gather — but we know there’s certain situations where folks have reduced hours because of lower senses at the hospital as they’re waiting for the surges to happen into the future. You know, we do know that many might be impacted by whether it’s not necessarily their own cut hours, it could be a spouse, a family member that is being impacted, or somebody that has a business or a side hustle, I think about things like Airbnb income, or it could be somebody that even gets sick with COVID and is unable to work for a period of time. So you know, I think this is an important topic that we spend a little bit of time in. And I want to kick off the discussion here, Tim Baker, for those that are listening and are concerned about either current situations of reduced hours or that that may come in the future or their job is impacted in one way or another, what are some things that they can be thinking about with their financial plan to prepare for that situation? Big question, I know.
Tim Baker: Yeah, so there’s so many different facets to this point. So like, you know, one of the things and really the ink is still drying, so maybe I’ll talk more about the CARES Act that President Trump signed into law last Friday. So real quick, the CARES Act stands for the Coronavirus Aid Relief and Economic Securities Act that was passed by the Senate, then the House, then signed into law by Trump last Friday. We’re still basically reading and deciphering like what is actually included in here and how it’s all going to work. But really, it’s a $2 trillion emergency fiscal stimulus package, which is aimed to ease the effects of kind of the economic damage that that this is really causing. This is the largest economic stimulus package in U.S. history, actually it’s more like $6 trillion when you factor in like loan provisions and guarantees that the U.S. government is making. A good part of this, about half a trillion, $500 billion, is for stimulus checks, could be more for — $500 billion for severely damaged industries, $400 for wages and payroll tax relief and on and on. So I think the biggest thing that I would probably do if I was concerned or if I was furloughed or something like that is actually file for unemployment. So we did see a big spike, probably the largest spike I think ever, 3.3 million people filed for unemployment between March 15 and March 21. That was the biggest I think spike in history. But a lot of people, they’re like, ah, there’s maybe a stigma side. It doesn’t matter. At the end of the day, we’ve got to pay the bills. You pay into it as a taxpayer, so this is a benefit for the purposes of that is to actually file for unemployment. And what the CARES Act does is actually has expanded that in terms of what you potentially get from an unemployment perspective. Another thing to do is actually take stock, look at your balance sheet. So obviously we’ve been talking about the power of the emergency fund and being able to look at OK, what is your burn rate? How many months can you basically get by without any income? And then if we supplement this with some of the other incomes out there, how do we do this? But one of the big things that you now have access to that you didn’t have access to before were things like your retirement plans, IRAs, 401k’s, 403b’s. You can actually take distributions up to $100,000 in 2020. You have to take the distribution in 2020 from these IRAs and employer-sponsored plans, without penalty. So as long as you’ve been affected by the coronavirus — and this is a very broad interpretation — you either have to be diagnosed, have a spouse or dependent diagnosed, you’ve experienced adverse financial consequences as a result, you’re unable to work because you can’t get daycare, you own your own business and it had to close, very, very broad. You basically are exempt from the 10% penalty. So most people know that once you put money into an IRA, a 401k, once it hits that bucket, for you to get it out, it’s a 10% penalty to get those moneys out. That goes away. A lot of times, you had to withhold if you were taking money out of or rolling over a 401k, you had to withhold 20%. And the reason that they do this is people take that money out, and it’s recognized as income. And then when the tax bill comes due, they’re like, oh, I forgot that I have a $50,000 tax bill or a $20,000 tax bill. The withholding goes away. And you can actually — you can repay this back. So you could say, “Hey, I need this $100,000 today for 2020,” and then over the next three years, you can pay it back or not without penalty. So that’s another thing that you can do. The other thing that they also did is they enhanced 401k. So most 401k’s, 403b’s, have provisions for you to take money and basically for hardships. So they’ve kind of done some broad strokes here. So typically, the maximum that you can take from a 401k was $50,000. Now they doubled that to $100,000.

Tim Ulbrich: Yes.

Tim Baker: Basically, it used to be that you could only take 50% of the vested balance. So if I had a $40,000 401k, I could only take $20,000 of that. Now it’s basically you can take 100% of what’s vested. So if I have $40,000, I could take all $40,000 up to a maximum of $100,000. And then the big thing here is when you take money from the 401k, you typically pay that back as part of your paycheck with an interest payment. All of this, all of those payments will be delayed for at least up to a year. So those assets on your balance sheet, when you’re looking at OK, how do I get through this? You do have some levers to pull. And obviously some of the things that we always talk about is the emergency fund, you could always basically put in your — or take out what you put into a Roth, that comes out without penalty. You know, I think the big thing that I always talk about is diversifying your income streams.

Tim Ulbrich: Yeah.

Tim Baker: So you know, I think we as Americans, just people, we say, “OK, this is our paycheck,” and we self-cap our income. But especially now, and I often wonder like to me, the things I’m really interested coming out of the coronavirus is what are all the things that we see as problems or we’re just sitting around and like here’s a solution.

Tim Ulbrich: Yes.

Tim Baker: So it could be where a business idea is born out — typically, that takes a lot of ramp-up, so maybe it’s not now. But you know, big things like could you deliver for Amazon? I would do it in a second. I love to drive around, listen to stuff, that would be fine by me. Some people are like nope, don’t want to do that, I want to stay quarantined. But thinking of ways to diversify income is big. And then probably just do a bottom-up approach to your budget. Really look at that. You know, obviously, growing top-line income I think can have far ramifications. But looking at your budget and say, “OK, do I really need” — like my wife and I, we do cleaners once a month. They’re not coming to our house because they don’t want to get infected. So that’s out of the budget. But things like that that you can basically say, OK, is this something that I absolutely need to have? You can wipe out your student loan payment. A lot of banks are forgoing mortgages, so you can contact your bank and say, “Hey, coronavirus, no loan payment for the foreseeable future.” So there’s lots of different things like that that I think are big to kind of get us through this tough period. Tim, did I leave anything else out?

Tim Ulbrich: No, that’s really comprehensive. And I’m glad you talked about all the different levers you can pull. And I’m glad you started with unemployment claims because I think there is a stigma. I know it’s something I would struggle with. But I think we have to remember that this was passed for this specific reason. So if we have somebody on the call tonight who is having a financial hardship, has reduced hours, has lost their job, has been furloughed, whatever be the case, I think starting there — because the way I think about this is of all the things you talked about, in what order am I going to pull the levers, right? So the way I think I would think about this is if I can file for unemployment and because of the CARES Act, we see that there’s some extra provisions there with additional benefits from the state and it’s a longer time period, things like that, but if I can then know what I’m looking at in terms of unemployment and then rework my budget, then I kind of know what else do I need to do. Do I need to pull from the emergency fund? Do I need to put the mortgage payment on pause? I don’t have to worry about the student loan payment. Do I need to pull money from a 401k or a 403b or an IRA? But I think objectively, starting with what can you get in terms of replacing income? And then working backwards and identifying what other moves you can make to help in that. So Tim, talk us through — and you might have mentioned this. I just want to make sure that those are on — those that are on are tracking with me as well. If I were to pull or need to pull let’s say $40,000 from my 401k or 403b, you mentioned that that has to be in this year, 2020. Obviously, those are pre-tax contributions. So is that then I would assume just treated as taxable income this year? Can I spread it out? And how should I also be thinking about the tax implications of that?

Tim Baker: Yeah, so one of the kind weird things or odd things about this but actually interesting is that you know, let’s take it the round number of $90,000 as an example. So if you can — say you take $90,000 out of your 401k. Now, you don’t get the 10% penalty, which is awesome. You get that cash immediately. So you don’t have to withhold anything. And then you have the eligibility repaid over three years if you want or not. But basically, you can recognize that income either all the $90,000 that you take out in 2020. So let’s pretend that I’m a service worker, and I make $30,000 this year. And I take $90,000 out. Now, I can basically recognize — so I basically am taxed on the $120,000 for 2020. Or I can basically spread out that adjustment between — or that distribution — across three years. So I could take $30,000 in 2020, $30,000 in 2021 and $30,000 in 2022. Now, this is where working with a savvy tax professional like our Paul Eichenberg might help this. But it’s either one or the other. So you can’t like — it’s either like spread it out evenly for three years, which probably more often than not, that makes the most sense if you can defer it out. Or if it’s a really bad year and you want to basically hey, maybe it’s $40,000 that you need, it makes sense to take it all in 2020 because you know, basically you’re shut down, you’re not making any income. Maybe it makes sense to do that. So it just depends on how you elected to do that. Another point about the unemployment that I will say is, you know, again, I kind of think about it kind of like social security. Like you pay into that over the course of your life. Same thing with unemployment. You pay into that. Some of the things that they did with the CARES Act is that the waiting period goes away. So before, you had to typically wait.

Tim Ulbrich: Right.

Tim Baker: Basically the federal government will cover the first week of unemployment. There’s a fund called the Pandemic Unemployment Insurance, which is typically if you don’t qualify for anything else, it’s typically for self-employed individuals or contractors. That’s available for you. They’ve actually plussed up — so like the regular state unemployment benefit is increased by $600 per week. Just to give you some context, the average, the typical unemployment check, is $385 per week.

Tim Ulbrich: Yeah, it was big news.

Tim Baker: Yeah. So it’s now like more than double the bonus on top of that. And you get this — and this was probably one of the big things that tied it up in the Congress.

Tim Ulbrich: Senate.

Tim Baker: The Senate, was because they thought that the benefit was too generous where it would disincentivize people from basically going out and looking for work. But they capped it at basically four months. But the extension of the overall benefits go 13 extra weeks. So again, you know, this is — right now, we’re in a time where like we’re cooped up, you know, maybe we’re feeling a little blue, maybe this half of unemployment, this shouldn’t — this doesn’t define you. This is not part of who you are.

Tim Ulbrich: Absolutely.

Tim Baker: And even like businesses, we’re going to see businesses that are not going to be able to survive this. And it’s a shame because it’s not something that they necessarily did wrong. It’s just a systemic thing that came along, and I think the government is trying to do whatever they can to basically keep businesses afloat and keep people on payrolls and things like that. But this is not a poor reflection of you and what you’re doing. So I just want to make that point because that’s a real thing for sure.

Tim Ulbrich: Great reminder. And I think this is also a good time to remind you, we talk about things like the CARES Act, and we’ll talk about the student loans here in a moment. Here you’re talking about unemployment and the additional $600 a week benefit and the timeline of that being up to four months. I think this is a good time to remind that you know, some of this may be extended. Time will tell. We don’t know. So what we know right now is what’s been passed. But I think we will continue to keep an eye out for discussions. There’s already discussions of a fourth stimulus type of package that is in the works that I was reading about this morning. So I think stay tuned. And if you’re not already part of the Your Financial Pharmacist Facebook group, I hope you’ll join us as we’re trying to stay as up-to-date as we can on all of this information. So before we jump into student loans, Tim, I thought it would helpful since we talked about unemployment and the CARES Act extensively, let’s talk for a moment about the stimulus checks. Who’s getting them? Who’s not? Timeline? And what can people expect here? Because I think we’re going to have some people listening, many people perhaps, that won’t get these or will get a reduced amount. So I don’t want to spend a ton of time here, and this has probably gotten the most wide press compared to some of the other items. But let’s talk for a moment here before we take some questions and then transition into student loans.

Tim Baker: Yeah, so this is Section 2201, the recovery rebates to individuals. Now, the stats out there is that 90% of taxpayers should receive something. I’m not sure what percent or pharmacists will receive this, but essentially this is a credit against 2020 income taxes. So everyone basically has a starting amount and then it gets reduced based on your AGI, you Adjusted Gross Income. So what we use — so as broad strokes, basically it’s $1,200 for each individual or $2,400 for married couples and then $500 per child essentially under 17. So if they’re 17, they don’t get it. Basically, under 17. The phase-outs for this are basically if you’re married filing jointly, it’s $150,000. And then head of household is $112,500 AGI. And then all other filers is $75,000. So basically, the way that you calculate this is if you’re a single taxpayer and you have one kid, that’s $1,200 plus $500 for the child. So that’s a $1,700 refundable credit. If you’re a married couple with one child, you basically have $2,400 plus $500 is the $2,900. Now, you take that as the starting point and then you look at your AGI. So in that first example, if you made $65,000 as a single individual, then you would get 100% of that $1,700.

Tim Ulbrich: Right.

Tim Baker: If you made $76,000, which is $1,000 above the threshold, then your benefit would be reduced by I think it’s $50 for every $1,000. So in that case, it would be not $1,700. It would be $1,650.

Tim Ulbrich: Yep.

Tim Baker: So the same thing with the married filing jointly, one kid, $2,400 for the couple, $500 for the child, that’s $2,900. If they made basically $151,000, it would basically be reduced by $50. So $2,850 instead of the $2,900. So you start with basically the family situation, then you apply the income, and then you reduce it as such. So for a lot of pharmacists, you know — and again, so the other caveat to this is they’re going to look at the last tax return on file. So if you are not a procrastinator or you filed your taxes early, good for you. They’re going to look at your 2019 return. If you haven’t filed your taxes or you’re like, hey, extension, more time to use, then they’re going to look at 2018. Now, at the end of the day, it will be basically be chewed up on the 2020 tax return. So they’re not going to claw anything back. So let’s pretend that your 2018-2019 income is lower than what it is today, you still get that rebate and they’re not going to claw that back. But let’s pretend that your 2018-2019 income is higher and you get furloughed, you might not get it today. And I would estimate checks will start coming — checks are deposited and will start coming in May. You might get it today, but you could get it when you file your 2020 taxes. Now, does that help you? No. It doesn’t necessarily help you today. But the idea is that in future tax returns, you’ll be indemnified essentially to that, to what you’re — so here’s an example. I’m not going to file my 2019 taxes anytime soon because of a lot of the changes that I had in my household, the business, that type of thing. So our son Liam was born last year. So he’s — to the IRS, he doesn’t really exist right now. So when we go to file for 2020, I expect a $500 credit for him.

Tim Ulbrich: Yes.

Tim Baker: So that’s an example. Now, there are some maybe thoughts about the ethics of this in terms of like, hey, should I file my 2019 because it will give me a better credit? The answer is yes. You should. Or should I wait to file? The answer is yes. That’s just good financial planning, it’s good sense. At the end of the day, this is tax money that they’re basically returning to you. So to me, you know, regardless of where you’re at, whether you are in a position where income is fine and stable, we don’t know that in the future. So to me is this is the system that’s there. It’s just like with taxes, what we say is we want to pay the least amount of taxes humanly possible. That’s legally. That’s legally possible. So we’re not going to pay more than that. So the same thing is that if you can get a better benefit, then you should go for that for sure.

Tim Ulbrich: Yeah, and we’re talking about legal tax strategies. So let’s be very clear on that.

Tim Baker: Exactly.

Tim Ulbrich: And I think that’s an important point. So Tim Baker, when you’re throwing around terms like clawback, you’re not using pharmacy lingo like PBM clawbacks and other things.

Tim Baker: Yeah, sorry.

Tim Ulbrich: There will be no clawbacks here though, just to be clear.

Tim Baker: No clawbacks.

Tim Ulbrich: For those who are used to clawbacks. So Drew, let’s stop here and take a couple questions related to work uncertainty before we move onto student loans.

Drew: Sure, Tim. First question, will this Act allow for small business owners to file for unemployment when they typically would not qualify?

Tim Baker: Yeah, so that — exactly right. So typically as a small business owner, you don’t get into that party. But the Pandemic fund that I mentioned is typically going to be for those small business owners, those contractors, that wouldn’t otherwise qualify. So that’s the fund that they’re probably going to basically dip into. It’s called the Pandemic Unemployment Insurance program. It’s a federal program. And that’s, to me, that’s where I would definitely go.

Tim Ulbrich: Yeah, I was thinking today, Tim Baker, about all of the people that — we talk about on the podcast all the time about side hustling, you know, whether it’s Airbnb, Rover, the list goes on and on. And how many of those are being impacted in a time like this? So it’s certainly something to consider. What else, Drew?

Drew: Thanks, guys. Another interesting question from an independent pharmacy owner. Do you guys have more insight into any assistance that may come in the future? For example, if their business is doing well right now, they’re showing an increase in revenue over the last few weeks. However, they could foresee a slump in the coming months, for example, if they’ve had patients who filled refills early or for 90 days. So therefore, they may need assistance in the future. What do you guys think about that?

Tim Baker: Yeah, so actually, one of the changes in the bill — so there are some healthcare-related rules, and I’ll run through those really quickly. So there’s definition of medical expenses is expanded, specifically for HSAs and FSAs. So a lot of eligible medical expenses will now include over-the-counter meds. So that’s a big one. But one of the things that they talked about too is Part D recipients can request up to a 90-day supply. And it’s just a matter of kind of limiting seniors from basically having to go out and those type of things. Telehealth is another big thing that’s been temporary covered by HSA-eligible high-deductible plans. So as part of that, though, to go back to the kind of independent side, one of the major parts of this legislation, the CARES Act is the Paycheck Protection Program, which is essentially — it looks like free money in a lot of ways. So if you are a pharmacy owner out there and you’re like, hey, things are OK now but we could be affected — and actually, Tim, I don’t know if you saw this email. But you know, our bank, our business bank, actually sent us kind of an email about this that said, “Hey, you may be eligible. Check this out.”

Tim Ulbrich: Yes.

Tim Baker: And it basically outlined a lot of the big — so it’s basically, it’s guaranteed by the Small Business Administration and issued by SBA-approved lenders. You’ve got to apply for this type of loan by June 3. And the maximum duration of the loan is 10 years. So this is typically for a business that has less than 500 employees. You do have to basically in good faith certify that the loan is necessary due to uncertainty of current economic conditions caused by the coronavirus. Now that’s again a broad definition there. And I would say like if you are in the toilet paper or the hand sanitizer business, you should not be applying for this because that would be fraud. But the interesting part of this is that the max loan is the lesser of $10 million, or 2.5 times the average monthly payroll costs of the previous year. And the proceeds can be used for payroll, group health insurance premiums, salaries, rent, utilities. And 100% of that could be forgiven if it’s used during the first 8 weeks that you get the loan.

Tim Ulbrich: Which is crazy.

Tim Baker: And you don’t lay off employees. So you have to basically kind of have the same employees, you have to pay them more or less the same amount, but it’s pretty generous. And the rates for small business rates are typically higher. The rates, the maximum that you can be charged is 4%. The discharge debt is nontaxable. And those initial payments are going to be deferred for at least 6 if not 12 months. So I have an independent pharmacy owner that I was talking to earlier this week and he’s like, “Is this for life?” And I’m like, “I think so. But let me read up more about it.” Because potentially, again, it’s one of those things that’s uncertainty about this. And there’s a lot of businesses that you could probably chalk that up to now go apply for these loans, I think it’s a pain in the neck. So it’s something to consider though.

Tim Ulbrich: Yeah, and get your pen ready I think to do the paperwork. But speaking of toilet paper companies, Tim Baker, I saw a toilet paper startup company I was reading about this morning that I thought was interesting. But I think on a serious note — and we actually were having this conversation before we jumped on this evening — I would encourage whoever asked that question or others that might be this would be impacting is to try to really, really intentionally self-assess, even if you’re not, again, at a good faith statement, even if you’re not impacted today, you know, as you look out in the future and trends and how that business will change, could you be heading in that direction where challenges may present themselves, payroll might be an issue. Or if you’re thinking ahead to the business, you know, that changes hiring or how you’re leveraging resources, I think really taking a step back to say, of course you want to be in good faith, but if there’s not impacts that are happening today that are significant, is that something that could be coming in the future if this continues? So Drew, how about one more and then we’ll transition to student loans.

Drew: Sure, guys. So if someone was unemployed before the CARES Act was passed, could they still have the increase to $600 a week?

Tim Ulbrich: I don’t know that question. My gut would assume yes, they would, but I don’t know the answer to that. Do you, Tim?

Tim Baker: Yeah, I think yes. And again, part of this is just if you think about the administration of this to say like, you know, when — I’m pretty sure that — well, maybe it depends. I’m not going to say yes or no to that. That might be something we have to look at. So if you were unemployed before this was signed into law, how does that affect your unemployment? Let me try to find some answers to that. If that person could email us at [email protected], I’ll research and get back to you. That’s a good question.

Tim Ulbrich: Yeah, I would like to think — maybe it’s half glass full — I’d like to think that they wouldn’t penalize somebody because of the timing of that.

Tim Baker: But I do know they were making a big deal about the actual date in which he signs. So it could basically be dated. That’s kind of the line, the demarkation.

Tim Ulbrich: That makes sense.

Tim Baker: Yeah.

Tim Ulbrich: OK. Alright, let’s move to student loans, probably a lot to discuss here and it sounds like from Drew’s comment earlier, we have a lot of questions. So we talked a little bit about the CARES Act and student loans, but let’s dig in in more detail, Tim. You know, as I mentioned in the introduction, we had a lot of news around student loans, starting with the 60-day interest freeze to the 60-day no payment with the interest freeze and then obviously the big news that came as part of the CARES Act of no payments for six months with no interest that will accrue during that time. And that was really I think the big news on student loans. So talk to us a little bit about that news as well as what that means for people that are pursuing loan forgiveness and then which federal loans are included and what’s not included.

Tim Baker: Yeah, so you know, the big news obviously, like you said, is that for federal student loan payments — so we’re not talking about your private refi’s. And this is really direct loans, so we’re not even really talking about FFEL loans or even Perkins loans or things like that.

Tim Ulbrich: That’s right.

Tim Baker: We’re really talking about the direct loans that are out there. Automatically, you’re going to basically pay 0% interest effective March 13 to September 20 of this year. And then also, payments will be suspended automatically over the course of the time. Now, we’re still talking to clients and people that are saying like, hey, they’re not suspended. Student loan servicers, one, I think part of the — I’ll give them a little bit of grace because I think they’re understaffed right now because of everything that’s going on but also they’re just — they are notoriously poor at answering questions, responding to borrowers and that type of thing. So it could take a little bit of time for them to kind of get everything on board. But I looked at the FedLoan page as one of the big federal loan servicers, and they said if there is any delay, everything will be retroactively counted and things like that. So you know, typically the big ones are FedLoan, Navient, NelNet, Great Lakes, those are all federal loan providers. So required payments are suspended. And you don’t really have to do anything. And probably it’s better if you don’t do anything because I guarantee you if one person calls and they get one direction and then the next, you could call five minutes later and get a completely separate, different direction. So the big takeaway here is that, you know, from a federal student loan perspective, no interest, no payments until basically September 30. So I think the big thing is depending on where you’re at is to kind of look at, OK, as an example, I have an $800 payment. In most cases, you should not be paying that. We should be directing that elsewhere, which could be looking at plussing up the emergency fund a little bit more, paying down consumer debt or other high-interest debt, it could be invested. So be very, very intentional about how you want to direct that payment. Again, typically if we’re not, we see lifestyle creep and things like that. That $800 gets lost in the fold. So we want to make sure that we’re really intentional with that. Another big thing is that involuntarily debt collections will be basically put on hold and suspended. So if we have anybody out there that’s kind of in those dire straits, you’d have a little bit of reprieve there. If you’re in school, if we have students on here, I think the big thing that’s going to be different is basically you’re going to take all of your unsubsidized loans and they’re going to subsidized. So essentially for those months, you’ll basically not accrue any interest, which is a big deal because that bill is basically tacked on daily. I’m trying to think — now for, I mentioned for federal loans or for private loans and FFEL loans, you kind of got cut out of this deal. So this is one of the things that’s very unfortunate because typically the people that are trying to refinance are really trying to take a proactive approach to paying off their loans. So in the decision tree, it’s typically hey, is forgiveness on the table, whether it’s PSLF or non-PSLF. If it’s not, you’re like, “Hey, Tim, not cool. Don’t trust the federal or the forgiveness program,” which I think is a viable program, you then go to comparing your standard payment to a refi. And typically, refi rates have been so much better than what you get coming out of school, so it makes sense to basically shift over from the federal government to the private. Now you’re basically being penalized for taking a more proactive approach to paying off your loans whereas a forgiveness option or forgiveness play is more of a reactive approach, unfortunately. So you can consolidate loans. I think that if you consolidate them down, a FFEL loan, so this is federal loans that aren’t part of this, you can consolidate a FFEL or even a Perkins loan down and potentially get some type of reprieve on that. Typically when you do that, if you are looking at a forgiveness option — actually, you probably want to not look at that unless you can pick out those loans specifically. That can be a big problem. I think those are the main talking points.

Tim Ulbrich: Yeah, just to reiterate some of the things you mentioned. I think this is huge news, especially for those that may be hearing this for the first, second or even third time I mean, for that matter. No payments on qualifying federal loans until September 30. Again, who knows? This may or may not be extended. Time will tell. No interest that accrues during the interim. And this will count towards loan forgiveness. So for the client you mentioned earlier that has two months left of PSLF, they’re getting a free ride on the last two payments, huh?

Tim Baker: Well, I told her, I was like, I think that you paid your last student loan payment. And she had the biggest smile ever.

Tim Ulbrich: That’s awesome. That’s really cool.

Tim Baker: Yeah.

Tim Ulbrich: So if somebody does make a payment — and I’m grateful for what you said about really taking a step back and being strategic — obviously would then just go toward directly to the principal, right?

Tim Baker: Yes, correct. Now, according to like FedLoan, they would basically figure out a way to like make you hold so you get that full benefit. I have no idea, and I have very little confidence that will actually happen, so I think one of the questions is, how do I know that if my payments count toward PSLF, I would be tracking them because one of the — although I’ve said it time and time again, I think PSLF is a very viable strategy and I think it does have legs despite the kind of national news about it, you can’t argue with the math. But the administration of this is awful, in my opinion. The Department of Education is supposed to be basically providing oversight for FedLoan, and you know, by and large, they bumbled that program. So there’s lots of handholding, there’s lots of uncertainty around it, but at the end of the day, you have to basically cross your t’s and dot your i’s, just make sure that you’re babysitting them, so to speak. So you know, I think running — one of the things you could potentially do is run an NSLDS report, which is just basically the text document that basically shows the birth to the death of the loan. So basically a month-by-month description. So run that kind of now and then run it afterwards and kind of just see where you’re at in terms of your overall PSLF count. I think that’s what I would do.

Tim Ulbrich: Yeah, this will as we get through this storm and we talk about PSLF in the future, I think this will be another example point just like last year when they added some funding to the program to help make up for some borrowers that ran into issues, especially those first couple years of applying for forgiveness. I think this will be another tick in the column of you know, it looks pretty good for the longevity of PSLF or the grandfathering of borrowers that are currently there. So does this — Tim, my question is, you know, for those that are or were thinking about refinance, does this effectively make refinance a moot point for this six-month period?

Tim Baker: Yeah, I mean, I guess there could be certain like instances where you can — because I think one of the things that I am kind of concerned about is some of these companies that are offering refi can’t stay solvent because eventually, effectively, you wiped away a lot of their market because of the 0%. So there’s going to be a lot less people jumping from the federal to the private. Now, I guess you could have some people that go from a private to a private refi.

Tim Ulbrich: Right.

Tim Baker: So it’s like hey, I have this 5%, I can get a 3.25%. That’s a little bit better. But I think it’s like 90% — isn’t it like 90% of loans are federal loans or something else?

Tim Ulbrich: Yeah, and we’ve seen that tick up in rates.

Tim Baker: Yeah. Yeah, so the rates — that’s the other thing. Rates have gone up. So and they’ve been yo-yoing. I wouldn’t be surprised if they went back down.

Tim Ulbrich: Agreed.

Tim Baker: So you know, if I could get in, I would probably have to be somewhat through the benefit period. But if I’m 3-4 months in and I can get a rate that’s really, really aggressive, you know, maybe like 2%, I might consider that as an option just to kind of lock that in. But yeah, I mean, I think it really doesn’t make a whole lot of sense to leave that, to leave the federal system. And I think the other thing to kind of note is the federal loans, they are more generous when it comes to like hardships and things like that because they’re backed by the full faith and credit of the U.S. taxpayer where some of these other companies are not. They don’t have that bank account standing behind them. So they can’t be as generous with them. Now, a lot of them have matched a lot of the kind of the forgiveness upon death and disability and they will work with you on a hardship. And I would say if you do have private loans and you can’t make the payments, contact the Earnest, CommonBond, Credible, whoever it is, and say, “What can we do?” And a lot of times, they will work with you. But they’re also, they’re kind of in dire straits as well. So.

Tim Ulbrich: Yeah. And you know, we talk a lot about on the podcast and the blog on the pros and cons of refinance. So I’m going to have to update my slides in the future, you know, something we could have never predicted, but a COVID-19-like situation where you have something like six months of federal loan payments being paused and 0% interest. I could not have ever predicted this happening. So — and just to add on your comment, Tim, before we take questions, I think it’s a really important reminder that we certainly want to extend them some grace in this moment where they’re dealing with a lot as well, but the loan servicing companies — we even have an example today from one of our Certified Financial Planners, Robert Lopez, who was on the phone with them and I think in his words was really after being on hold, was less than helpful in their response. And I think that can happen in terms of incorrect information or they’re overwhelmed. And we’ve heard that before. This is not the first time. So making sure that what you hear is lining up with other things you’ve heard or if you think, you know, that doesn’t right, making sure you’re fact-checking that.

Tim Baker: Yeah, and the thing that he said to me when I talked to him about it was like, yeah, and she was just very, very confident in her answer but completely wrong, which is — that’s the problem because it’s not like the student loans are a black-and-white issue. There’s lots of nuance and intricacies and when you’re calling up someone on such a big thing, we’re talking potentially six figures of debt, you want to walk away like feeling confident that the advice or the counsel that that person on the other line gave you was sound. And more often than not, it’s just not. And it’s not necessarily the fault of the person, it’s just that they’re not trained very well. And that’s a shame because I think we’re seeing — you know, and that’s one of the bad publicity angles is like hey, I was told this and it was completely something different, you know?

Tim Ulbrich: Yeah.

Tim Baker: So that’s why I think sometimes working with someone to help cross t’s and dot i’s and get you to that finish line is really, really important because there’s just a lot of potential hoops to jump through. And it’s not just — you know, there’s so many different — even like the tax ramifications with student loans, that’s one of the reasons that we started doing taxes at YFP is like I was tired of basically referring people out to professionals that had no idea how to handle the taxes. So I’m like, we have to do it in-house. And that’s what we do.

Tim Ulbrich: Awesome. Great stuff, Tim Baker, as always. So Drew, you had mentioned earlier lots of questions around student loans, so let’s tackle a handful of those.

Drew: Alright. So the first question, would you consider reconsolidating federal loans for a low rate? Or wait until after September? What if this rate is only offered over the next month?

Tim Baker: So I think we’re kind of conflating two issues if I’m using that word correctly. So consolidation or reconsolidation and refinance are completely separate things. So when you consolidate, when you consolidate your loans, you’re basically taking two or more federal loans, so think Direct Plus, Direct Unsubsidized, Direct Stafford Subsidized, and you’re basically shrinking those down into really one or two loans, more than likely two. You have a Direct Consolidation Unsubsidized loan, and a Direct Consolidation Subsidized loan. The reason that you do consolidation is two reasons: One is for convenience. So you guys know as pharmacists, you have a crapton of loans that are pages long. If you look at your credit report, it’s a mess because every basically disbursement is a record in your credit report. So you do it kind of for ease of use, for convenience. The second reason that you do it is to kind of solve the square peg, round hole. So like we mentioned, some of those FFEL loans and some of those other loans that are out there that a little bit older, they don’t qualify for some of those income-driven plans that are out there that then allow you to be forgiven, to get into some of the forgiveness programs. So it’s basically consolidate those down and then get into those IBR, ICR, PAYE or in a Revised Pay As You Earn. Now, the key here is that you’re just taking a weighted balance in interest rate. So you’re not getting any better terms or deals or anything like that. So if you had, you know, 6% and 5% and 4%, they’d just weight those together and now your new rate is 5.4% as an example. So when you — so that’s consolidation. When you refinance, you’re basically saying, deuces, federal government. Thanks for lending me the money, but I’m going to take my income, my credit score, my payment history, and I’m going to go out to the Credibles of the world, some of these other companies, and I’m going to try to find a better deal, a better terms for myself. So you know, I use kind of 6% as the line of demarkation. So anything higher than 6% on your federal loans is typically high. Anything low is typically — lower than that is typically pretty good. But if you have an average weighted interest rate of 5.8%, at a 10-year, that’s your default, a 10-year standard repayment, you can even today with the rates that are out there, you can beat 5.8%, so that’s where you would do an apples-to-apples comparison to a 10-year with a Credible or a CommonBond or something like that. You might get 4.9%. I’m just making up rates right now. So you would say, OK, better terms, lower payment, that type of thing. So to answer your question, do I think — so those are really the big differences. Now, the big thing to remember is that once you go from the federal to the private, there’s no going back. So that’s why a lot — I was kind of bemoaning the fact that people that have made that decision to say, “Thanks, federal government, it’s been real. Thanks for loaning me the money, I’m going to take it from here and go to a private company,” they’re kind of left in the dark a little bit because there’s no relief for them. So and they can’t go back. So they can’t say, “Psych. Just kidding. Takebacksies, let me go back to the federal government and get my relief.” So with regard to the rates, you know, rates are a little bit higher than they were a couple weeks ago. I would imagine that they’re going to come down. I think they’re going to have to just to be somewhat competitive with the government. But what the loan companies now are struggling with is not the fact that the fed has lower rates. It’s more about if I, Tim Ulbrich, if I let you refinance and now you’re making payments to me, the Baker Private Refi company, can I trust that you’re actually going to be employed to pay this back? And by the way, like I don’t have a huge cash reserve like the federal government that I can just rely on. So that’s why there was such a big flood of refis and these companies were like, whoa, like this is a problem and rates started to creep back up. And I think they’ll have to go back down just to incentivize, especially towards the end of that period, that September grace period, relief period, but yeah. So those are big, big differences we’re talking about. And sometimes those are used interchangeably, and they shouldn’t be. But a very common issue.

Drew: Awesome, guys. Should the student loan payments continue and just go 100% toward principal on the student loans during this time? Are federal Grad PLUS loans included?

Tim Baker: So the answer to the second question is yes. Grad PLUS loans are included. The answer to the first question is, typically no. So most of the time, if you are basically going through this strategy — if you selected your strategy appropriately, we’ll say, if you are in the federal system today, it’s really — the main reason is because you’re trying to seek some type of forgiveness option. So in that case, in that case, you should not pay a dollar more than you need to. The flag that you need to fly is you want to pay the least amount as humanly to maximize your forgiveness. So you’re going to take full advantage of that payment that would otherwise go there and basically direct that elsewhere.

Tim Ulbrich: And you get your forgiveness credit.

Tim Baker: Correct. Yeah, and get that month counted. Anytime that you can have basically a $0 payment, like a $0 interest payment, the math says basically money is a finite resource, use that money elsewhere. Now, this is kind of an emotional thing. Now, so the reason that I say most people that are in a federal payment is typically because they’re seeking forgiveness. You could be looking at me and saying, “Well, I’m in the federal program and I’m not seeking forgiveness.” So the reason I say that is because it makes sense from a math perspective to go outside — because of where rates have been for the last however many years — it makes sense to go out to a private company and get a better rate. Now, 10 years ago, a lot of these companies — like the student loan refi game was newer and when I was taught about student loans, you would never leave the federal system because the federal system, there’s a lot of these protections, forgive upon death and disability. But because of students loans are a $1.5 trillion issue, a lot of these companies have kind of risen to the same benefits that the federal government has. So now they can incentivize you to say, “Come over here and pay us the interest over the federal government.” So the question is should I pay the money back? I would say no unless your goal is to basically pay them off as quickly as possible. And if that’s true, then you probably should have refinanced years ago anyway. If that’s still true and you’re still in the federal system, I would say, yeah, you can pay it off. I would probably still direct that money elsewhere and then probably refinance because more than often, more often than not, you can get a better rate. Now, there are sometimes I come across loans that are like 2% and 3%. You know, if you are one of those people, don’t listen to me because I think you’re in the right spot. So if you are in a 2% or 3%, oftentimes, again, you’re like, alright, well I’d rather pay off my car loan that’s 5% or that credit card that I have that’s whatever percent. So those are some of the things you just have to weigh.

Tim Ulbrich: And if I could add to that, Tim, I think the only exception I think of here is if somebody knows themselves well enough that that money is going to be diverted elsewhere through kind of the typical lifestyle creep thing. If you know yourself well enough and you have that self-awareness, I think that might be the exception where you say, I’m going to keep making payments because momentum is really important. But the way I think about this is let’s say I’m making $1,500 a month payment let’s say on the standard default federal system. I think about that. If I didn’t have to make that payment, how would I best leverage $1,500 a month across my financial plan? And this is where we go back and we talk about this all the time on the podcast. So not just looking at one segment of your financial plan. So what does your emergency fund look like? What does the consumer debt look like? What investment opportunities exist? Are you not taking advantage of employer match in retirement, that type of situation? So you know, if you look at all those, more often than not I think what you’re really referring to is more often than not, if not almost always, you’re probably going to find an opportunity where that money could be leveraged elsewhere, at least for the short term when you have this 0% interest for six months.

Tim Baker: Yeah, and I’ll give you an example. I was talking to a pharmacist in Washington. He’s married. He’s going for PSLF. I forget how much he’s paying per month. But he has a little ways to go with the emergency fund. He has a car — one of his car loans is 5-6%. So his question is, should I put money into the emergency fund? I’m like, yes, and probably focus on the car loan. And you know, if you think about it, these loan payments can be 8 — and especially if you’re married — it can be thousands and thousands of dollars. I mean, one, two, three months of that can go huge right into an emergency fund. Like I think about how much money my wife and I basically save into our Ally accounts for different purposes. You know, it’s about $1,500 a month after we’re putting money into 401ks and IRAs and things like that, 529 accounts for our kids. But you know, it’s going into our Mexico fund or it’s going into our home maintenance fund or whatever that looks like. But if I could basically double that for this amount of months, like that would be awesome. And then the other side of that is once you have your savings plan in place, that’s when you can really get dangerous with your investments. And sometimes we put the cart before the horse. So I work with a lot of pharmacists that are like credit card debt, student loan payments are kind of all over the place, and then they have like a Robinhood account. And I get — I know why we do that. It’s because we’re interested and we want to learn about investments, but those are — we’re three or four steps ahead where we probably shouldn’t be directing money into a taxable account. We should be focused on some of these steps 1-8 type of thing. So.

Tim Ulbrich: Awesome. So Drew, I think we have time for probably one more question before we wrap up for the evening.

Drew: Awesome. So guys, for future borrowers of federal loans, do you think the interest rate will be higher after COVID-19 to make up for money lost?

Tim Ulbrich: Ooh, that’s a good question. You know, how will this get paid back and what impact will that have on future interest rates on federal loans? What do you think, Tim?

Tim Baker: I don’t think so. You know, I think rates for student loans have been pretty high with regard to like the federal side of things. That’s not uncommon for me to see. I mean, back — you know, if I’m working with people in their 40s and 50s, sometimes they have loans that are like 2% and I’m like, this is awesome. Because most of the time, I see 20-somethings, 30-somethings, that could be north of 7% for federal loans. And for pharmacists, those Grad PLUS loans, those add up. So and I think there is a little bit of a cry of like the government profiting on the backs of students, that type of thing. It is an unsecured debt, but it doesn’t ever go away. So like you can’t discharge student debt in bankruptcy, so it’s pretty secure in terms of like if you have student loans and you’re collecting social security, they’ll garnish that stuff. So that’s one of the problems with student loans is you can’t get away from them. So I don’t know if we see a big spike in rates after the fact. I mean, I could see the opposite, that they keep them low. But you know, who knows? You know, who knows what’s going to happen? We could see kind of a action-reaction type of thing with regard to that.

Tim Ulbrich: Yeah, and I think it’s a really good question. You know, this reminds me to a talking point when we talk about PSLF. We need to remember that this is a — student loans are $1.5 trillion problem that are gaining a lot of momentum politically. And if you’ve watched any of the debates this season, this is an indicator as well as what we saw as the support in the CARES Act, I think we’re going to see more of that going through the election year. So you know, in theory, of course they could. But I don’t think it’s a very popular decision right now for a lot of the flack that they take in in terms of the rising student loan debt and the impact interest rates have had. So too soon to say, but I certainly don’t think it would be a popular decision.

Tim Baker: Yeah, but I mean, but to play devil’s advocate on the other side of the aisle is you know, with Trump, he’s basically proposing to get rid of it, which again, I saw some questions get in, come in like hey, is this really a viable thing? And I think the answer is still yes despite that.

Tim Ulbrich: Yeah.

Tim Baker: Because I still bet on the status quo versus a big change. And that’s either for like mass forgiveness or elimination. So it’s another issue where our country is very, very polarized over one issue. So but I think, again, to kind of reassure the PSLF-ers out there is that every — basically when this was enacted by President George W. Bush in 2007, every president and Congress since then has talked about getting rid of it or capping it. And it’s still here. And all of the documents and legislation, proposed legislation, to do this talks about future borrowers. So if you’re a student and you’re going to graduate in 2022, I don’t know. Maybe it will be there, maybe it won’t. But if you’re a year into PSLF and you’re in the program and you’re basically filled out the employment certification form, I think that you’re going to be fine. I would imagine if and when they ever do get rid of this, let’s pretend it’s January 1, 2025, then those people that are going to be into it — so if you’re in it December 31, 2024, your loans are going to be forgiven basically 10 years from then, essentially is what the thought is. So I think at least it’ll be grandfathered in. But the press on it is terrible. But I think it will get better.

Tim Ulbrich: Yeah, I agree. And for those that want to learn more about this topic, we’ve covered it on the podcast a few different times. Episode 018, we talked about the benefits of PSLF. 078, we talked about is it a waste? And that was when the news had come out about 99% of borrowers or applicants of PSLF being denied. And then 114, most recently, we talked about the presidential candidates at the time predominantly was Elizabeth Warren and Bernie Sanders’ take on debt cancellation and forgiveness. So for those that had a question this evening that we did not get to, couple options I would throw out to you. One, if you aren’t already with us in the Your Financial Pharmacist Facebook group, I hope you’ll join there. We’ve got a community that’s very active and responsive. You can throw your question out there. As well as we have a weekly segment we do on the Your Financial Pharmacist podcast called Ask a YFP CFP where we do just like we’re doing here, question from a member of our community teed up for Tim Baker, our financial planner, to answer that question. You can submit your question by going to YourFinancialPharmacist.com/askYFP. So thank you so much to everybody who attended. Really, really appreciate your engagement throughout the evening. I appreciate you all taking the time to come onto the webinar tonight. I want to thank Tim Baker again for his time as well, as well as APhA for making this session possible. Have a great rest of your evening.

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YFP 135: How Jessica Applied KonMari Principles to Jumpstart Her Financial Plan


How Jessica Applied KonMari Principles to Jumpstart Her Financial Plan

Dr. Jessica Louie joins Tim Ulbrich on this week’s episode. Dr. Louie is a Certified KonMari Consultant and Coach, creator of Clarify Simplify Align, host of The Burnout Doctor Podcast, Board-Certified Critical Care Pharmacist and Associate Professor of Pharmacy Practice at West Coast University College of Pharmacy. She shares about her journey being trained as a critical care pharmacist, how she quickly found herself burned out, how the KonMari method helped her and how she applied the KonMari method to her financial plan. These small intentional daily steps led to big changes in her financial plan including being completely debt free and having over 6 figures in savings.

About Today’s Guest

Hello there! I’m Dr. Jessica Louie, the founder of Clarify Simplify Align & The Burnout Doctor Podcast where I help BURNED out pharmacists get out of overwhelm and live with LESS clutter and MORE energy. As a former shopaholic, workaholic and pharmacist struggling with burnout, I know how it feels to live a life in overwhelm without clear goals or a clear purpose. Fortunately, I was saved by decluttering and simplifying my life and now my simple framework – Clarify. Simplify. Align Method – helps YOU go from cluttered & stressed to leading with confidence & curating a life YOU love! Are you ready to get started?

Summary

Dr. Jessica Louie shares how she became burned out as a pharmacy resident, how the KonMari method helped her recover from that burnout and how she applied the KonMari principles to her financial plan. Jessica realized that she was burned out in 2014. She thought that she was going to enjoy life after all of her pharmacy training but ended up not being fulfilled as she got closer to the finish line. She turned to shopping as a coping mechanism and wasn’t living intentionally. Her aunt suddenly died and she had a wake up call that life is short.

Jessica discovered the KonMari method which saved her from the burn out. She started looking at her life and seeing what things in her life that she spent her time and energy on sparked joy. Jessica shares that the KonMari method can be applied to not only your home but also your life.

Jessica went to a private school that cost $500,000. After grants, work study and an internship, she had to pay $300,000 out of pocket. When she finished her PGY2, she had $35,000-$40,000 in debt. Jessica was looking for another Japanese philosophy that she could use to take control of her finances and discovered the Kakeibo method which translates to “household ledger”. With this method, you track your spending with a pen and paper and break up your expenses into four categories: survival, optional, cultural and extra. Jessica reflects on her purchases each day to see where her money is going.

With this tracking system, Jessica was able to become very intentional with her spending, delay gratification by not purchasing items on a whim, and really put quality purchases and experiences in front of the quantity of them.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to this week’s episode of the Your Financial Pharmacist podcast. It’s a pleasure to welcome back onto the show Dr. Jessica Louie. Dr. Louie came on in Episode 086 to talk about how to spark joy as an entrepreneur. And on today’s show, we talk more about her applications of the KonMari method and principles on her financial plan and the transformation that that has had. Jessica, welcome back to the show.

Jessica Louie: Thank you, Tim, for having me on the podcast.

Tim Ulbrich: Very excited. It’s been fun to track so much of what you have been doing in your own journey since Episode 086, so I look forward to bringing our audience up to speed as well as talking about some of the wins that you’ve had and how you’ve been able to tackle your own financial plan. So while I know that some of our audience is already familiar with your background from listening to Episode 086 or potentially following your podcast and the work that you’ve been doing, I certainly don’t want to make that assumption for all, considering that your background is such an important part of this story that led to the transformation that we’ll talk about in detail today on the show. So you do hold, as I mentioned in the introduction, you hold several roles, both as an entrepreneur and as a healthcare professional in the academic setting as well. So let’s start in the pharmacy space. What’s your current position at the university? And can you share about how you got into that work?

Jessica Louie: Yes, of course. So I currently am an associate professor of pharmacy practice at West Coast University School of Pharmacy in Los Angeles. And I’m a 2013 graduate from University of Southern California. And I then went on to pursue a PGY1 in pharmacy practice and then a PGY2 in critical care at University of Utah. And after I finished my residencies, I joined as an assistant professor at West Coast in 2015.

Tim Ulbrich: Awesome. So you know, as I think about, Jessica — and I know you and I have talked about this before offline, obviously you went to pharmacy school, we all know the work that needs to be done before you even get to pharmacy school. You then go through extensive residency training. And as you’ve talked about before, it took you nine years to get through the training and become a board-certified critical care pharmacist, which our listeners know it takes a lot of time, a lot of effort. But I think many people think, wow, you’ve got everything that you needed and you’ve wanted. You’ve got obviously the PharmD, you’ve got residency training, you’ve become board-certified, you finally have made it to the finish line, it’s time to enjoy life. But that really wasn’t what happened when you got to that point. You found yourself burned out. So talk to us more about how you got to that realization of getting to that point of getting burned out.

Jessica Louie: Yes, that’s a great observation, Tim. I think that a lot of us feel that when we get to the end of our training and we get all the certifications, you know, life is going to be great. We’re going to be happy and fulfilled by it. And I definitely felt that that was the path I was on. I was going to enjoy my life. So back in 2014-2015 when I was finishing up everything, I realized that getting to the finish line was not fulfilling. I was so burned out from residency, my first year in academia, and to cope with all of that, I was turning to other things. And one of the things I was turning towards was shopping to try to fill these feelings of frustration and unfulfillment. So you know, I’ve talked a little bit about my journey before, but basically, I wasn’t living intentionally, I wasn’t bringing joy into my life. So when a life event happened, it really woke me up to show me how I was living and how life can be so short. So I invested a lot of time, a lot of money, into changing my situation. And you know, that’s how it’s led into my business. And I can go into a little bit more details if you’d like.

Tim Ulbrich: Yeah, and we will — just real quick, we will link in our show notes to The Burnout Doctor podcast. I know you’ve documented more of your journey there, and I think our listeners, many of whom may be struggling with similar challenges, would get lots of value from not only hearing more about your story but also the great content and work that you’ve done with that podcast. So you mentioned some of the behaviors, you know, you mentioned the shopping piece that was really kind of a coping mechanism and that. How did you self-realize that, you know, something’s got to change? And then ultimately, talk to us about the KonMari method, what that is for our listeners that may not know and how that played such a big role in helping you get out of that cycle.

Jessica Louie: Yes. So I think that what really woke me up was the combination of a few things: realizing that I was still keeping residency hours during my first career. And you know, 60-80 hours a week wasn’t necessarily sustainable in the long term. And you know, one of the things that played into that was my partner and boyfriend was also in residency in medicine, so he was keeping long hours. So I realized, you know, maybe this isn’t normal in a full-time job situation. And I was putting work first all the time and still was not enjoying friends and family. And then when my aunt passed away suddenly from a very aggressive cancer, that’s really what woke me up and realized that wow, I really hadn’t been traveling and spending a lot of time with family that I really wanted to. So the KonMari method is what I consider saving me from a lot of my burnout. You know, it is a decluttering and simplifying technique, popularized in Japan by Marie Kondo. So it really is about how you spark joy in life and what you focus your time and energy on so that it is about decluttering a physical space first because that’s what is closest to you, that’s what has the largest impact on most people and can create a lot of distraction and overwhelm in your life. So you apply it to your home first, and then you’re able to apply the same techniques to other areas of your life. But you know, what made it a little bit more popular I would say is the technique creates this life-changing transformation because people don’t rebound when they go through the technique from beginning to end. So you’re not consistently organizing or hiring professional organizers multiple times in your life. You’re doing it once, however long it takes, one month, six months, a year, and then it really changes your habits of how you view physical items and that leads into how you spend your money and things like that.

Tim Ulbrich: So before we get into the weeds about the application of those principles to the financial plan — because I think that’s a really neat connection that those that are even familiar with the KonMari method may not see that. I know many people are aware of this through the Netflix series and others that came out. And I think people think about it — many people I think think about it more as just an organization, simplifying of your stuff at home, which obviously has impacts on your finances. But I think we’re going to talk in more details about how that can result in tracking spending and reflecting on spending. But for those that may not be as familiar, I want them to be able to visualize this, even about the physical space, before we talk about the financial aspects of it and how you apply to that. So if you’re working with somebody, and you’re going into the home and the goal is to simplify, walk us through like what does that process look like? And what are the common things that you see that are barriers that people may not even see themselves, right?

Jessica Louie: That’s a great question, Tim. So when I’m working with clients in their homes, the first step that I think a lot of people miss in the KonMari method is we don’t just start pulling things out and decluttering right away. We really take this intentional moment and my clients usually work on this as a pre-work in our workbooks to really set up the ideal vision for your life. So that’s what I call the Clarify step in my method. And you’re clarifying your why, your purpose, your values and really visualizing how you want your space to feel when you’re standing in it. So it’s not only about what it visually looks like because, you know, honestly, I don’t live in a Pinterest-worthy home or anything. And most of us don’t. So it’s more about what it feels to you when you’re standing there. And many people want that feeling to be calm, peaceful type of sanctuary in their home settings. So we’re really diving deep into that and getting into why you really want to get this done. You know, if you get stuck during the process, what’s going to help propel you forward? So we get that very well written down and on paper so it’s a good goal and very clear. And I think that you and Tim Church have talked about this as well with how you clarify in the financial process. So it’s very similar.

Tim Ulbrich: Ah, the ever-talked about why, right? We talk about that a lot on this show, as you mentioned, and I think it’s so important to the financial plan but also important here in what you’re talking about, certainly connections. And I know for you, speaking of the why, “Start With Why,” Simon Sinek’s book, which is such a great read, we’ll link to that in the show notes, was so critical for you in your own journey. So talk to us for a moment about that concept, the concept of start with why and why that’s so important as folks are thinking about this and how they may apply it to their own personal situation.
Jessica Louie: Yes. So Simon Sinek’s books are definitely transformative for me. It was actually my brother-in-law, who is a former pharmacist, who recommended them to me. It took about nine months for me to actually read them when he saw that I really needed that process. So Simon Sinek’s “Start with Why” process, he has three or four books now. And it’s really about we live life, and a lot of times, we live it on autopilot and we don’t realize a lot of things in our lives connect to one another and really sitting down and writing out how our life experiences have shaped us and getting clear on why we get up in the morning, that’s really what it comes down to. And we don’t get up in the morning for a tangible things like money and family members, we get up for a larger purpose that we won’t necessarily achieve in life but we have in the forefront of our mind when we’re making decisions. And that kind of plays into our value system and how we do things the way we do them. So I actually went and trained with Simon Sinek’s team in New York back a few years ago. So it was really helpful to get those down on paper so that what you do is not what you’re defined by. It’s why you do things and how you make decisions then. So I definitely recommend the process. It’s a great read. Also an audiobook as well. It’s really helped me in how I view life and then how I view leadership as well.

Tim Ulbrich: Absolutely. So good. And I know he’s got some really cool resources, obviously the book but also some workbooks and things that you can do that help you to articulate and go through the activities that will help you define your why. So important to everything we talk about on this show. So before we talk about the method and the steps of how you paid off your loans and have put yourself in the financial position that you’re in that I think our listeners will be able to apply as well to their own personal situation, let’s start with the position you were in. So talk to us about the debt that you accumulated through school and what was the amount that you were working with before we actually get into the how you paid that off.

Jessica Louie: Yes, definitely. So I will say that my dad was really influential in this. My dad is Chinese, and he actually kept all these Excel spreadsheets. So I actually have pretty exact numbers. So looking at it, so I went to a nonprofit private, so USC is private. And I was there for seven years for my bachelor’s degree and pharmacy school. So the school cost about $500,000. And I received $115,000 in school grants, so that’s money you don’t need to pay back. I took out $50,000 in student loans — so that was about $14,000 for undergrad. I spent three years getting my bachelor’s degree for that; I shortened it by a year intentionally — and $36,000 for pharmacy school. And then I rounded it off with about $40,000 in work-study and my intern pharmacist position at the hospital at USC. So out-of-pocket costs were just under $300,000 for my schooling.

Tim Ulbrich: Wow. Wow. So obviously big price sticker tag for what’s known as a great school, of course. And obviously, you mentioned having some grants, which is money you don’t have to pay back. You mentioned having some work-study components but still a huge out-of-pocket component. So when you found yourself — let’s fast forward and roughly, if you don’t have the exact numbers, but it sounds like maybe you do. You know, you’re at the point of graduation, you start one year of residency, two years of residency. Obviously, we’re talking big numbers, limited income during residency. So take us to the point where you finish your PGY2. Where were you at there at that point in terms of debt that you were working through and trying to pay off? And what was the mountain that you were after at that point?

Jessica Louie: So during residency, I was paying on my student loans. I wasn’t paying a large sum, I would say, but I still was paying probably about $300-500 a month, I would say.

Tim Ulbrich: OK.

Jessica Louie: And I came out, I want to say around $35,000-40,000 left. And after my PGY2 — so I started working in July of that year at the university. And it took me seven months to pay off the rest of the loan. So I want to say it was around $35,000 when I came out of residency.

Tim Ulbrich: OK. So even though — and I think it’s important for our listeners to hear that. You know, we obviously talk a lot about the national debt loads right now, Class of 2019, the average was about $172,000. So here we’re talking about a lower payoff amount but a very aggressive window in which you were able to do that. And obviously, we’ll talk about the method that you were able to do that. Short period of time, aggressive repayment, but there was also things that I don’t want our listeners to lose that you were able to do through working, through work-study, through pursuing grants that helped to minimize that while you were in school as well. So let’s talk about the method that you were able to use to help ultimately pay this off in an aggressive period of time based on the KonMari principles, the Kakebo method. Talk to us about what exactly is that? How is it used? And then we’ll dive in further of exactly how people may apply that month in and month out to their own plan.

Jessica Louie: Yes, of course. So you know the KonMari method is a Japanese philosophy, so I actually was also looking for all their philosophies, and I came across the Kakebo method. And you know, translated, it basically stands for “household ledger.” And it is a really simple philosophy and concept, in my opinion where you’re able to track your finances on this ledger. So you basically use pen and paper, going back old school, to track everything. And each month, you come up with a plan of what are your fixed expenses and you’re going to track everything that you spend money on. So I consider this a daily practice as part of my evening routines. And then you have a savings goal as well. And then at the end of the month, you look at how you did. And I also do a weekly practice to check in and then the end of month practice. So when you’re tracking, it’s not the typical tracking, I would say. It’s broken into four different pillars. So the pillars are Survival, Optional, Cultural, and Extra.

Tim Ulbrich: So you’re categorizing as you’re — let’s say you’re making charges on a credit card, those charges are coming in, you’re manually tracking those. And then you’re assigning those to one of the four categories. Is that accurate?

Jessica Louie: Yes.

Tim Ulbrich: OK. So break those down. Let’s go through those one-by-one. Survival, Optional, Cultural, Extra. So give me some examples — probably this one more self-explanatory than the others — but Survival items would include things like that?

Jessica Louie: So those would be things that you need to survive, so a lot of your fixed expenses, so your housing cost, if you have transportation costs, general food costs like groceries, and like health insurance, things like that. So things that are more difficult to change but things that are probably a large portion of your overall expenses.

Tim Ulbrich: So we often, as we’ve talked about budgeting before on the show, we would categorize these as necessary or essential expenses. So same idea. And I like to think, you know, making the connection here to something like an Emergency Fund, this is usually the number that I’m using when I think about 3-6 months of what I’m basing that off of. So that’s the survival category. What would you then put in the Optional category that I think we often refer to as the discretionary expense?

Jessica Louie: Yes, so these would be things that aren’t necessarily survival mode. So instead of groceries, this would be eating out, fast food, and those luxury type of expenses, so clothing that’s not necessary, skincare, nail salon, things like that.

Tim Ulbrich: OK. And what intrigued me is we — I see here that again, we have four buckets: Survival, Optional, Cultural, Extra. And when we tend to think of discretionary expenses, I see some crossover between the Optional and the Cultural bucket. So break down for us what would be some examples of things that would be in the cultural bucket. But why also is that important to separate that out from those things that are considered Optional?

Jessica Louie: Yes. So I think that the Cultural really plays into the Japanese philosophy of how we invest in ourselves, personal and professional development. So this is getting back into thinking about going to the theater and things like movies, music, that we consider more cultural nowadays. So it’s really about putting those experiences and memories into play. So the KonMari method really emphasizes creating memories and experiences in your life over investing in stuff. So this method also goes into that with how you view things that give back to your community or just have great memories that you don’t necessarily need to travel to.

Tim Ulbrich: I love that. I’ve never seen that separated out before, Jessica. But I love that because I think it does exactly what you just said is it forces you to be a little bit more intentional about prioritizing those things whereas I think especially if you’re in a mode of either trying to cut, cut, cut to pay off debt or you’re just a really aggressive saver and you have a hard time spending money on experiences and things like music and theater and books, things that would fall into that category, I like that there’s a manual process to keep yourself accountable to that and calling it out as a separate category. So that’s the cultural bucket. What would fall, then, into the Extra category?

Jessica Louie: So the Extra category would be kind of a sinking emergency fund. So these would be things that like unexpected car repairs, unexpected health things that come up that, you know — it can also be holiday gifts or gifts throughout the year that are just extra that aren’t always monthly expenses.

Tim Ulbrich: So car repairs, maintenance, gifts, holiday types of things. So are you saving for these in advance like in a sinking fund mode where you say, OK, I’m going to — I don’t know — put away $200 a month and then as these expenses come I already have the money saved? Or are you simply just tracking these expenses as the Extra category when they come to be?

Jessica Louie: So in the Kakebo, it’s really just about tracking. But you definitely can create those funds for you in different buckets.

Tim Ulbrich: OK. So each day, you’re tracking your spending, which I think what I love — and I hope our listeners are catching the intentionality here. When you’re doing this daily and you’re thinking about this daily, you’re manually tracking this daily, you’re doing it old school pen and paper, you know, I think there’s power — obviously there’s effort and work — but there’s power, as you and I talked about before we hit record today, in really making that emotional connection back to your financials. I think with the advancement obviously in credit cards and great apps and tools — and I’m not suggesting people shouldn’t use those if that works as a system, I know it does for my wife and I — but sometimes that manual process is really what allows you to take a step back and reflect on and have probably some of those Aha! moments of wow, I had no idea I was spending this much here or there. And I know my wife Jess and I often have conversations where it’s like, oh my gosh, we forgot we spent this charge four days ago and how quickly that can happen, and obviously the tracking helps bring that back into play, back into perspective. So each day, you’re tracking your spending, you’re categorizing them into these four different categories, Survival, Optional, Cultural, Extra. And then at the end of the day and the week, you’re reviewing them, end of the month, you’re asking questions such as how much do I have right now? How much am I spending? How much do I want to have? How can I change my habits? So give our listeners some reflection, some example. What are some of the things that you’ve identified or you and your boyfriend have identified as you’ve gone through this that might some of those Aha! moments that you wouldn’t have otherwise identified if you aren’t using a method like this.

Jessica Louie: So I think that just seeing it on paper can be really impactful because, you know, I do use credit cards and I rarely use cash. So it is being able to see that without just scrolling through an app on your phone or your desktop. So in terms of some Ahas!, I think that really seeing how much some of those luxury type of things cost, you know, I used to have my nails done at salons, I have since don’t do that almost at all and I learned how to do that at home if I really wanted to. And just seeing restaurants — so one of the things that we’ve talked about, my boyfriend and I, is when we go to restaurants, we love to have like a main meal together because we don’t cook very complex meals at home. We’re very simple at home, so we enjoy that at a restaurant, but we don’t indulge in extra things we can have at home. So beverages besides water, we don’t usually order. And we don’t usually order dessert or appetizers. So those are all things that we can just have at home if we really want to, make our own cocktails at home, have some desserts at home and not spend that extra money when we’re going out for an optional type of item.

Tim Ulbrich: OK. And I’m guessing there’s already tracking sheets and things that exist to help people do this. Or is that something that you developed to do this categorization?

Jessica Louie: Yes, so you can pull a journal out. I do have a template that walks you through this and reminds you. You can write down what you want in each of the four categories. So that’s all on my website, free to download in a short workbook. And it has the template in there.

Tim Ulbrich: Awesome. We’ll link to that in the show notes. And I’m curious to hear more, Jessica, from you on the reflection piece. I think we talk a lot about reflection, we know it’s important, you hear people say how valuable it is, but it’s often hard to put a finger on what does that look like? So talk to us, what does that look like for you? As you’re doing this reflection piece, like what are some of the things you’re reflecting upon? And how detailed is that method? Is there any guidance there? Or are you just looking and kind of making some observations and notes along the way?

Jessica Louie: So in terms of reflection, you know, it’s obviously adding up some of the categories and then putting numbers, real numbers down of what are you able to put into savings this month? What are you able to put towards your loans or other sinking funds that you have going? I also track other benefits like retirement benefits when I’m going through my monthly check-in process. But really for the reflection journaling process, I think that it’s important to think about the method really emphasizes being able to invest in quality items instead of the quantity of items. So it really helps you with that delayed gratification step of we’re saving towards something that is going to be a quality trip and experience for us or quality item that’s going to last years in our home or some other place in our lives. So you’re able to take a step back and say, “Oh, I really want that now. But we’re waiting and we’re going to have this anticipation up to getting that trip or thing in your life.”

Tim Ulbrich: Absolutely.

Jessica Louie: So one of the things that we’ve done is that relates to our cars. We’ve been able to — even though we would like to both have new cars, we’ve still delayed that gratification step because it’s still kind of an Optional category for us. It’s not a Survival category yet.

Tim Ulbrich: Yeah, I’m glad you brought that up. It’s such a richer experience when you save up for something, you think about it, you anticipate it, and then you enjoy it, knowing that you’ve had that much effort and intentionality along the way. I think that’s a great reminder for me and hopefully for our listeners as well. So a couple fun questions I have for you before we wrap up here. This has really been excellent. I know I’ve taken a lot away myself. You know, I have to ask you, as somebody who is running and created a podcast, The Burnout Doctor podcast, obviously we know that burnout and wellness is a big issue right now in our profession. Many are struggling. I can’t help but think here you are, working a busy, full-time academic job. And I know as myself as an academic, usually that’s not just a 40-hour a week job. You also have multiple businesses that you’re working on that I’m sure are taking up lots of time. You have these experiences that are important to you, obviously relationships that are important to you. So I’m assuming time is limited for you, and often you may find yourself in a position of being stressed and potentially burned out. So how do you functionally deal with that as somebody who teaches on this topic but obviously also needs to apply it in your own life?

Jessica Louie: That’s a great question, Tim. So I think you know, when you go through burnout, I don’t think that you ever solve it, you ever cure it. You really come up with strategies that are going to work in your life to really help you reset those feelings of burnout and make sure that it’s under control and you’re still thriving in life instead of just surviving. So what I teach my students as well and other pharmacists has been to come up with strategies where you are able to focus your energy levels because, you know, energy and time are some of our limited resources. So that’s really about — I focus really on the personal, what things you can control in your life versus outside things. A lot of people in the burnout world focus on organizations and leadership, but that’s really not my focus. So for me, it’s really focusing on how do I feel throughout the day? So that means that you’re time-blocking out your day and taking these intentional breaks every hour and getting up and moving. You’re really mastering transitions throughout the day to save up your energy levels. And when you’re not at work, you’re physically and mentally not cluttering your brain with thinking about work. So that means having healthy boundaries related to email and how you work and integrate your work into your life. And I think that’s been really helpful and that’s how you really align everything together in your life so you find harmony. So those are a couple things I do. I definitely go into individualized type of plans with my clients so that we can really figure out what’s going to work for them and really tackle the biggest struggle they’re having first before we tackle other items in their life.

Tim Ulbrich: That’s great stuff. And I hope, you know, for our listeners, one word of encouragement I would send out there, which I heard from what you just had mentioned, has been so important in my life is just starting with reflection. Like being aware and building some of that self-awareness of what are the moments where I’m carrying extra stress? Or what are the moments where I find myself, work is melding with home and cluttering my mind? And being able to feel those and identify those first obviously I think is such a critical step before you even put in solutions towards those. So I know you’re a big reader, and I know you draw from lots of different resources for inspiration. Is there a book or potentially two or something that you are currently reading, have read recently, that you’ve drawn inspiration from that you would recommend to our listeners?

Jessica Louie: So many great books, I would say. But I’m going to pull from not necessarily a business book. But I really have enjoyed Tonya Dalton’s “Joy of Missing Out” book. So if you’ve heard of the acronym JOMO versus FOMO, it’s really about how do you look at life and find joy in missing out on things and experiences that maybe you compare yourself to others. So I think it’s a great read. It has some very similar philosophies to the KonMari method and Simon Sinek and everything.

Tim Ulbrich: Awesome. I’m putting it on my GoodReads wishlist right now and on my Audible list as well. Thank you for that. So where can our listeners go to learn more about your work and connect with you?

Jessica Louie: So they can go to my website — it’s my name, Dr.JessicaLouie.com — and get free resources on The Burnout Doctor podcast. And I’ll be launching a free Master Class on five ways to cultivate joy at work this month as well. So you’ll be able to listen to that for free and see if one of the programs on burnout is something that you are interested in. My next 12-week program launches in March 2. So we’re taking applications now through March.

Tim Ulbrich: Great. So we will link your website in our show notes. And really appreciate 1, you coming on the show and taking time to share your journey but also, it’s been fun to watch from afar here in Ohio the great work that you’re doing in California, helping many, many pharmacists and professionals that are struggling with many of the things we talked about here on the show. And I continue to look forward to watching your success in the future. So thank you for taking time to come on the show. We really appreciate it. And to our listeners, as a reminder as always, if you like what you heard on this week’s episode of the podcast, we would really appreciate if you would take just a couple minutes to leave us a rating and review in iTunes, Apple podcasts, wherever you listen to your podcasts each and every week. As always, thank you for taking the time to join us on this week’s episode of the Your Financial Pharmacist podcast. And we look forward to having you back again next week. Have a great rest of your week.

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Cory & Cassie Jenks join Tim Ulbrich to share their specific path and plan towards achieving financial independence through a Coast FI approach. They talk about why and how they have aggressively saved for retirement early in their careers, how they have worked together to achieve their goals, and how Cory’s side hustle doing improv comedy has helped their financial plan all while filling a bucket of doing something he loves.

About Today’s Guests

Dr. Cory Jenks PharmD, BCPS, BCACP, earned his PharmD from the University of South Carolina in 2011 and completed a PGY1 residency at the Southern Arizona VA Healthcare System in 2012. His past pharmacy experience has included time as a retail pharmacist, outpatient clinical pharmacist, and inpatient clinical pharmacist. Currently, he practices as an Ambulatory Care Clinical Pharmacy Specialist where he applies his passion for lifestyle interventions in the management of chronic disease. Cory is also an accomplished improv comedian, having started on his comedy journey in 2013. Since then, Cory has coached, taught, and performed improv for thousands of people. His passion for improv comedy led him to start ImprovRx, where he provides seminars and workshops for businesses and healthcare organizations on applying the skills of improv comedy for their employees and leaders.

Dr. Cassie Jenks, DNP, earned her Bachelor’s Degree in Nursing from the University of Arizona in 2009, and her Master’s and Doctorate of Nursing Practice from the University of Arizona in 2015. She currently practices in the Outpatient Pulmonary Department at the Southern Arizona VA. Beyond her pulmonary practice, Cassie holds a Blue Belt in Brazilian Jiu Jitsu and loves pursing her passion for physical fitness and nutrition. She lives in Tucson with her (very handsome) husband and 20-month-old son.

Summary

Cory and Cassie Jenks share their unique journey to achieving financial independence through a modified Coast FI approach. Cory, a pharmacist at the VA, and Cassie, a Nurse Practitioner at the VA, were born in Tucson, Arizona and live there today. Cory became interested in personal finance when he came across the Mr. Money Moustache blog. He thought that they were doing a good job with their finances, but quickly realized there was a lot more they could be doing. Cory was empowered to dig into personal finance and saving for retirement and knew he was capable of learning it. This ultimately sparked his interest and really pushed him to focus on where their money was going.

Cory and Cassie are using a Coast FI approach to financial independence, which is a variation of FIRE (financial independence, retire early). A purist FIRE approach says that you should save enough for 25x your annual expenses which you can then withdraw indefinitely at a 4% rate. To get to that point, you have to work really hard for 10 to 20 years. Cory explains that FIRE is a very viable path and if they would have discovered it in their mid 20s before they had kids, they might have taken that approach.

After having a child, they realized that they wanted to spend as much time with him as possible. They worked with a financial planner previously who mentioned three different pathways to saving. One of those pathways sparked their interest and Cory later learned that they were using a Coast FI approach. Coast FI (financial independence) says that if you save enough at a high rate for a short period of time early on in your life and career, it’s going to have time to compound and grow to what it needs to be by the time you want to retire. This allows you to scale back your work, or stop entirely, and use your time in a different way. Cory and Cassie don’t want to hit a number and then completely stop working and contributing to retirement, however they do want to contribute less and work less while spending more time with family and doing things they really want to be doing. Cory and Cassie’s why behind pursuing this approach are that they want control and flexibility in their schedule and are ultimately seeking more time, not money.

To figure out your Coast FI number, look at your current spending and expenses to see what you need now vs what you may need in retirement. Currently, their savings plan will give them $80,000-$100,000 a year in income. They are saving for retirement by maxing out their thrift savings accounts, a backdoor Roth IRA account and they then put any excess into a tax brokerage account all while paying extra on their mortgage principal each month.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to this week’s episode of the Your Financial Pharmacist podcast. Joining me today is Cassie and Cory Jenks to talk about their journey towards financial independence. Now we’ve talked before on this show about the Financial Independence Retire Early movement, aka the FIRE movement. And we did that in episodes 104 and 111. And we’re going to talk today with Cassie and Cory about a modified approach to FIRE, the Coast FI journey. And I think this is really going to resonate with many of our listeners that don’t want to necessarily grind it out with super aggressive saving rates for a long period of time but really also don’t want to follow a traditional path to retirement, which is work for 40+ years, save up a bunch of money, and then sail off into the sunset and hope there’s enough time and health to enjoy all that life has to offer. So Cassie and Cory, welcome to the Your Financial Pharmacist podcast.

Cory Jenks: Thanks so much for having us on.

Cassie Jenks: Yeah, thank you. We’re excited to be here.

Tim Ulbrich: I am excited as well. And I’m typically a ladies-first kind of guy, but I’m going to break that pattern today and Cory, have you introduce yourself first as you are the pharmacy representative here in the relationship. So give us a quick background on your path into pharmacy, where you went to school, and the current work that you’re doing.

Cory Jenks: Sure, well, I grew up — we live here in Tucson, and I grew up here in Tucson. And so I made the obvious choice of going across the country to the University of South Carolina for undergrad and pharmacy school. And so when I was there, I had chosen pharmacy as a path in high school, and so I picked my college based on the availability of a college of pharmacy. And really enjoyed my time as a Gamecock, and when I was finished, I realized that all of my family was here back home in Tucson. And as much as I loved it out in the southeast, I wanted to come back home. And so I came back to Tucson and did a residency here at the VA in Tucson. And I’ve been there ever since I graduated in 2011.

Tim Ulbrich: Awesome. So you have one of the highly sought-after VA jobs that I feel like many pharmacists — Tim Church, our very own at YFP, works at the VA in West Palm Beach, Florida, and loves it for many reasons. And I think it’s just such a good example of the level of practice that we often think of as the ideal level of practice for what a pharmacist should be doing. So Cassie, with that background, tell us a little bit about the work that you’re doing, your background, and a little bit about where you went to school.

Cassie Jenks: Sure. I’m also in healthcare, so I stayed here in Tucson. I went to the University of Arizona for my undergrad. And then got my bachelor’s of nursing in 2009. And after doing that for a few years, got a little restless. I toyed with the idea of med school but decided I wanted to have a life.

Cory Jenks: She met a strapping young pharmacy resident in 2012 that sort of —

Cassie Jenks: Yeah, met Cory —

Tim Ulbrich: That’ll happen.

Cassie Jenks: The year we met, I ended up starting grad school that year and became a nurse practitioner. And I finished with that in 2015. So I’m at the VA also, and I’ve been there pretty much since before I was even a nurse. So I’ve kind of grown up at the VA throughout my healthcare career.

Tim Ulbrich: So do you guys get to commute together or are schedules different enough that you’re kind of off sync with one another?

Cory Jenks: We had a good run of commuting. And then we had our first kid, and so the coordination of day care dropoff and pickup has sort of put a damper on the carpooling. But we did for a long time. And despite what many couples might experience, we actually really enjoyed the extra time together in the car. It’s something I kind of miss.

Tim Ulbrich: Awesome. And I was curious, we’re going to talk in a little bit later about cutting expenses and just curious if that was one area you were able to become more efficient on in terms of obviously gas and car maintenance. So let’s talk — before we dig into the Coast Fi and your journey to financial independence and how that differs from both the traditional, purist FIRE model as well as a more traditional retirement approach, I would love for our listeners to know why did you even become interested in this topic of personal finance to begin with? I’m always fascinated about where does this spark of an interest in this topic of money come from? Because I think you really see when people catch fire with this, it really just takes off. And often, in a couple, it can be for different reasons and maybe even different motivation levels, which is OK. So Cassie, why don’t you start? Talk to us a little bit about why and how you became interested in the topic of personal finance.

Cassie Jenks: Well, I’m going to have to give Cory some credit here. I hate to admit this ever. And especially so publicly. But he really started this for us when he came across the Mr. Money Mustache blog. He can tell you a little bit more about how he found that, but he kind of dove into that rabbit hole. And we both were always reading books and trying to learn new things, so whenever one of us learned something, the other person usually is at least willing to entertain the idea. So I started diving in myself, and it was kind of like a red pill moment. Once we started looking, we couldn’t stop.

Tim Ulbrich: So Cory, let’s talk about the triple M, the Mr. Money Mustache. So what was it about Mr. Money Mustache or even maybe some of what else you were reading that really ignited this passion to really get your financial house in order and then ultimately be on this path toward financial independence?

Cory Jenks: I think it was the gut punch of thinking that we were doing really well and realizing that there was so much more that we could be doing. We had worked with a financial adviser, and he actually had laid out — as we’ll talk about later — the different paths of savings. And so we were saving what we thought was well, and we had a couple vehicles we were using that maybe we regret, whole-life, for example, or high fee investment, after-tax investments. But it finally empowered me to feel like I can learn this. And so it’s just you read one article and then another, and it links to another blog that talks about it. And so from there, that like sparked our interest of wow, we’re spending — we’re saving “well,” but we could be saving so much more. And where is all of this money going that we work so hard to earn?

Cassie Jenks: Yeah.

Cory Jenks: And it was like a couple — it was like two periods. It was like the initial, this was 2017 of this freakout of like, oh my gosh, what are we doing? And then the sort of second impetus was as we got pregnant for the first time, thinking about moving to a new house, raising a family at a different place, we wanted to save for a down payment on our next house, and we looked down, and we’re like, well, we’ve read through Mr. Money Mustache, we’ve cut a lot of expenses, but where else is this money going that we’re going to save for our next house? And so it was just coming across YFP and any number of other different podcasts and books. And because we had done Mr. Money Mustache, it was a lot of library time. But.

Tim Ulbrich: Yeah, and I think you hit the nail on the head, you know, the magic question of where is all this money going? That’s what we hear a lot from people in our community. I know Jess and I often talk about that. We’ve talked and thought that in our own journey. And one of the other, Cassie, you said, and Cory, you alluded to, which I’ll ask you a question at the end about what are some of the recommended resources or books, but I sense from both of you really a passion to learn, you know, a passion to read, to read blogs, to read books, to listen to podcasts, and I think that’s such an important takeaway for our community that man, once you catch that fire, it is a rabbit hole that you go down. And I think that’s true of so many things in life. But here, we’re talking about really catching that personal finance fire to say, OK, what would financial independence mean for us as the Jenks, as a family, what would this mean for us? And what are we willing to sacrifice to get there? And what would that sacrifice look like? And how do we get on the same page of doing that? So let’s dig into your approach to financial independence, which we’re going to refer to here as the Coast FI journey. And we’re going to link to an article in the show notes. And we know that you’re taking a little bit different path and modifying it, but really going to compare that to a traditional kind of purist FIRE approach, and as I alluded to in the into, a typical traditional retirement savings model, which is really work for 40 years, maybe save 5%, 10%, 15% of your income and then hope, as I mentioned, that you’re happy and healthy enough to enjoy everything that life has to offer. So Cory, walk us through briefly — even though we’ve talked about it in previous episodes of the podcast — walk us through the purist FIRE approach. What is FIRE? And then what really differentiates the Coast FI path from that purist FIRE approach?

Cory Jenks: Yeah. So you’ve had a couple great guests talk about their FIRE journey. But it’s essentially Financially Independent Retire Early. So you save enough and the number that is commonly used is you save enough until you have 25 times your annual expenses and then theoretically, you can withdraw that indefinitely at a 4% rate. And to get there, basically you’re going to have to really bust it for 10-20 years, depending on what your savings rate, depending on what your own spending rate is. And as Mr. Money Mustache and hundreds of other bloggers and people have shown, it’s a very viable path. And I think that if we had found that in our mid-20s before kids, like, OK, we could have sucked it up and both worked full-time hardcore to get there. But then we had a kid and realized we want to have time with them, as much as he can be a little pain. And so I came across this idea of Coast FI. And so the FI being Financially Independent. And this says that you, if you save enough at a high rate for a short period of time early on in your life and career, you’re going to have the time and compound interest to have it grow to what you need it to be by the time you retire so that if you hit this Coast FI number, you can scale back the work you’re doing, you can take a job that has a little bit more risk, knowing that you don’t need to continue to contribute to your retirement in order to hit that number. Now I love how you like to personalize this idea of personal finance because traditional FIRE people would get angry at you for not just going all the way through and maybe Coast FI people would get angry at us because our version of it is to try to get to a number but then still work some in order to save some. I don’t think we want to hit a number and then stop. So our version is like to get to the number we want and then have the freedom to contribute a little bit less as our lifestyle changes with our family.

Tim Ulbrich: And I love, love that, the personal approach. I think for many pharmacists and maybe some heard our previous episodes about FIRE and said, ‘Hey, that’s me. I really want to be there. I want to aggressively save for 10 years, I want to get to this 25x income or the amount that I would need and do the 4% withdrawal and stop working because I either don’t like my job or want to do something else,’ whatever. But I think many others, what you’re describing here is what really would resonate as well to say, ‘Hey, I want to put myself in a position of financial independence. Maybe I even love my job, but you don’t know what life will throw at you.’ It could be that you want to have more time with family, it could be that eventually hours get cut or positions get cut or one spouse in a relationship wants to have an option to work part-time or there’s a sick family member, whatever, but you put yourself in a position because you’ve gotten to some point of financial independence that as I like to say, the exponential curve of savings takes off. And I know our listeners who are in the weeds of saving right now, especially in that first five to seven to 10 years, you know what I’m talking about where you’re saving, saving, saving, grinding it out. It feels like it’s not taking off from a compound interest standpoint. And then boom! All of a sudden that really starts growing and you see that exponential growth. So Cassie, what resonated with you about this model? And really, how did you buy into this as a vision for your family?

Cassie Jenks: So the interesting thing is way back when we thought we were making smart choices and working with a financial advisor, he presented us with three different saving strategies. One was the kind of middle-of-the-road standard, save a little every year until you’re retired, one was you wait way too long and then you have to save a bunch at the end, and then he showed us one where you save aggressive up front and then it was 0s from there down and you were done saving. And we both saw that and not even knowing anything about FIRE or Coast FI, we thought, that looks smart because we don’t know what’s going to happen in the future. So that’s almost kind of always been our mindset to begin with was always do as much as you can up front. And then as I got into my working career, like you said, it’s not about not liking your job or not wanting to work. I realized I want control. I want flexibility, and I want to be able to make decisions that are the best for my family right now. And so that’s where bringing in the concepts of FIRE and Coast really made that initial idea really turn into what it is now.

Cory Jenks: Yeah, we were like accidentally Coast FI. Like we were doing this thing that we had not labeled on the Internet yet. And so I happened to come across this article about Coast FI, and I was like, “Honey, I think this is what we’re doing and now there’s a label for it.”

Tim Ulbrich: That’s awesome. You should have branded it back then.

Cassie Jenks: Totally.

Tim Ulbrich: So you know, Cassie, one of the things that you mentioned when you met with the advisor that presented three different options, you know, the one that really resonated with you guys was aggressive upfront savings and then you can obviously continue to save, but you really could take the heat off in terms of needing to continue to save at that rate. And I think while that may resonate with many because obviously our listeners are very well educated on compound interest and time-value of money and the earlier you save, the better, the two biggest barriers I typically see to being able to do that model as it’s presented to them are student loans and that they may be in a home position that is sucking up such a big percentage of their income. So talk to us about those two areas for you guys: student loans and then ultimately the home — and I’m guessing maybe there’s some lessons here learned as well along your journey. But how have you been able to do that, despite what many pharmacists are facing, typically in high student loan debt as well as usually home expenses that certainly eat into that available income?

Cassie Jenks: So for the home expenses, I believe it was 2017, Cory did an Excel spreadsheet. And we looked at where every single penny we spent went, kind of coming back to what we were talking about earlier, where does your money go? And that was when we really started dialing down our home expenses. And we looked at all the places where we were spending money that wasn’t adding value to our life. So we stopped buying books and started going to the library. We started getting less expensive haircuts.

Cory Jenks: Cassie doesn’t charge me anything for my haircuts now.

Cassie Jenks: Yeah, I cut Cory’s hair now.

Cory Jenks: Huge savings.

Cassie Jenks: You know, they sound like little things. But we cut our phone bill, and we got rid of cable. And when we started adding all this up, it really changed our monthly expenses dramatically.

Cory Jenks: Yeah, there were a couple missteps when it comes to our housing and our student loans. I guess chronologically, I, again, am a proud Gamecock for life. But my dad teaches at the University of Arizona, not in the College of Pharmacy, but I could have had significantly reduced tuition. But they wanted me to go out of state, and so I did. And those were back in the good old days when it was only $100,000 of student loan debt that I had coming out.

Tim Ulbrich: So Cory, I think as I understand, working with the VA really afforded you an opportunity to have some of your student loans, even though you went to an out-of-state institution, had a cheaper option available, really afforded you the opportunity to be able to take some of the weight off your shoulders so that you could free up income to do other things. So tell us a little bit about what the VA provided for you in terms of student loan forgiveness.

Cory Jenks: Yeah, I was very fortunate at the time that they were offering student loan reduction program. It’s EDRP, Education Debt Reduction Program, that basically you give them your student loan debt, and they give you an amount that if you work for five years, you get x amount per year that you work. It’s an incentive to keep you employed at that particular institution. So I was fortunate enough to get that, and that really helped to cut down on my student loan burden, obviously, and I’m very fortunate to have gotten it. And so I was able to pay my loans off by 2017 I think they were totally gone. And so when you take that amount out every month, it really frees up what you have to work towards a goal like this. And for Cassie, her nurse prac school, we almost cash flowed that. She came out with like $7,000 or $8,000 of student loan debt. So that was another fortunate thing where we found each other and were able to help each other out in our journey. Once she was out and making full-time prac salary, we didn’t have that burden of her loans.

Tim Ulbrich: I love the ‘nurse prac’ lingo. I’ve never heard that before, but I feel like I’m in the club now. So that’s good.

Cassie Jenks: Nurse practitioner is just such a mouthful.

Tim Ulbrich: Yes, right? So we’ve established with this model what worked for you guys is really saying, OK, we’re going to aggressively save up — not to the level of a traditional FIRE purist approach but more so than a we’re going to save a small percentage over 40 years, we’re going to save more up front, we’re going to let that really accrue in a short period of time, and then of course, we’re going to allow compound interest to continue to do its thing over your career so you can achieve your goals but also have options to reduce hours, change jobs, stay the course, whatever. But you’re in a position of decision-making. And we established that what, in part, allowed you to do that was putting yourself in a position obviously from student loans, we talked about some of the home buying, so I want to get in the weeds a little bit more, Cory. Can you talk to us about some more details of what is your savings goal? How did you determine that number for our listeners that are maybe trying to figure out OK, what does this look like? Where do I begin? And where are you saving that money? Because I know that’s obviously a point of interest and hey, I’ve got lots of different options and should I do this in traditional retirement accounts or brokerage accounts? So talk to us a little bit more about the specifics.

Cory Jenks: Yeah. I think what we did when we were trying to figure out our “Coast FI number” was to look at what our current spending rate is now and adjust around within our budget — we meet every month and have a little budget party — and so look at what our expenses we will have now, what our expenses we likely won’t have at our time of retirement, and just come up with a number. And then we padded some to that just assuming there could be other things that we want to do or will come up. So that’s where we came up with our number of somewhere between $80,000-100,000 a year of income in retirement, which is more than we spend now. But no one’s going to be upset having a little bit more than they need. And so that’s where we came up with that number. And of course, we haven’t heard the YFP Crystal Ball segment yet, so we don’t know what life is going to be like in 30 years. So this is our best guess, our best idea of what we’ll need.

Tim Ulbrich: Sure.

Cory Jenks: And so what we do to save, we maximize our Thrift Savings Plans, which is the government word for 401k. And we also utilize backdoor Roth IRAs and any excess that we have, we just put into an after-tax brokerage account at Vanguard in just the total stock market fund. And that way, for us, that’s our other — when there’s nowhere else to put it in a tax-advantaged place or retirement-advantaged place, we put it into Vanguard. And then something that isn’t necessarily “saving,” but we do pay down our mortgage principal extra every month as well.

Tim Ulbrich: Awesome. Yeah, I was just trying to kind of figure out — and I think this helps our listeners, you know, if you think about a traditional 401k or here a TSP, we’re looking at $19,000 a year. You think about a backdoor Roth IRA is $6,000 per year per individual. We’re going to see those go up obviously in 2020, but here we’re talking about 2019. So you start to put the numbers together, and you guys are making big savings progress, obviously those are big numbers, it’s a big chunk of your income, but it’s not the massive percentages that you see in a traditional FIRE type of model. So I think that really highlights the differences in what we’re talking about here. So I want to dig in, Cassie, to a little bit more of the why. And we’ve dodged around it a little bit, you’ve mentioned obviously for you guys a pivotal moment was the birth of your son. But talk to us a little bit more about your why, your motivation for achieving financial independence and really trying to get to this point of what’s behind the effort and at some level, the grind of both cutting expenses as well as aggressively savings, which means that you’re of course giving up some things in the short term. So talk to us a little bit about what really resonates for you, what’s most important, and then how did you and Cory have this conversation and ultimately get on the same page?

Cassie Jenks: Probably the word that would sum it up the best is control, getting to have control over how you spend your day, how you spend your time. I’ve always just not understood this idea that we’re all supposed to work 40 hours a week. It just didn’t ever make sense to me. And being able to pursue other passions, there’s things we both — we don’t dislike our jobs, but there’s things we really want to do that we can’t fit into the weekends and hobbies we want to pursue. Having time for family I think most people probably resonate with that.

Tim Ulbrich: Totally.

Cassie Jenks: Getting a balance of feeling like we are raising our child but also getting to be productive employees at the same time.

Tim Ulbrich: And Cory, what about for you?

Cory Jenks: Yeah, I think that the ultimate commodity we’re saving is not money. It’s time. And when you kind of lay out, we’re weirdos. We do a budget, but we also do a time budget every month, and so we sit down on our calendar and we have our friends that we want to see every month, we have family, we have — like Cassie said — our different hobbies and pursuits. There’s not a whole lot of other time left over after five days a week of work. And so to us, we use the term sacrificing. I think Cassie and I, we talk a lot about the gratitude is a word we throw around a lot, the idea of wanting to work less is not that we’re not grateful for all that we have, but we are very fortunate in the jobs that we pursued. My parents were both teachers, her father was in the military, so we grew up quite middle class. And so we’re very fortunate to what we have. So it’s to have that time, but it really doesn’t for us feel like it’s a sacrifice. I think we’re fortunate we found each other and that we have very similar values, dreams, ideas about money. And we frame it, we take care of veterans every day. They’ve had much rougher days at work than we’ve had. Our grandparents grew up in the depression, and they had to be frugal out of necessity, and we’re fortunate to be frugal out of kind of the privileged world that we live in now. And so when we frame it like that, it doesn’t feel like a sacrifice. And then the ultimate goal or endpoint of that is to have more time with the people we care about and to do the other pursuits aside from our 9-5 day jobs that we care about.

Tim Ulbrich: Yeah, I really admire, Cory and Cassie, just — I respect and understand that you guys are on the same page with this, which is awesome. When two people really come together and they have a vision and you start to execute it but also don’t want our listeners to take for granted that this is hard. Two people, even when you’re often on the same page, you know, we know the friction money can cause. And I sense very much for the two of you an openness of conversation, a willingness to work to get there. And I think it’s such a reminder for me and Jess and for our listeners that it’s so fruitful when you can have those really big conversations. And then the budget, the month-to-month, really becomes an execution of the vision. And I think that’s when things start to get I guess “fun.” I don’t know if we ever use fun and budget in the same sentence. But budgeting can be such a grind. But when we’re talking about things like gratitude and really being able to capture more time and really establishing more of that family atmosphere and thinking about the next generation, and that’s what gets me excited is your 18-month-old, the position that you’re going to put your family in going forward because of all the things that you’re setting up but also everything that he’s going to observe throughout this journey, said and unsaid, is really incredible and inspiring to hear. Now, I do have to ask, Cassie, I have heard Cory say “budget party,” and I’ve heard him talk about spreadsheets. So complete nerd, obviously, of course. You know, does that resonate with you? Or for maybe some of our listeners where maybe they’re married to a financial nerd, but that’s not them. What advice would you have in terms of how someone who maybe isn’t that budget part of your spreadsheet person can really come into the fold and make sure this is a priority to the couple?

Cassie Jenks: I think talking about the why is really what gets us on the same page. I have to admit, I do kind of love spreadsheets myself.

Tim Ulbrich: OK, OK.

Cassie Jenks: But —

Cory Jenks: She also loves dark chocolate, so I get a bar of that out and it’s not hard to get her in front of that computer.

Cassie Jenks: Make your budget party fun. Like we sit down on the couch together, we have a little treat. And like Cory said, it’s our financial budget, but it’s our time budget. So we get excited making up our plans. But for us, I think what works is just that openness that everybody has to navigate finances in the relationship in a way that works for you. I totally respect that. But what’s worked for us is we know every dollar each other spends. Every account is shared, there’s really nothing hidden between us. So we have a lot of accountability. There have definitely been times where I have — I’m a little bit more of a spender than Cory. I’m not a heavy spender, but there’s times when I have an impulse to buy something. And I think, he’s going to see that, can I really justify needing this purchase right now? And that’s worked for us because we’re comfortable with that accountability together.

Tim Ulbrich: And I think it’s important for our listeners to hear in your story that it’s not just all a grind, but I sense that the two of you are having fun along the way. And it’s not just all delayed gratification. I mean, that’s a big part of it, but it’s not no fun today and all fun later. So I think one great example of that is, you know, especially the year the two of you had in 2016, which was a 30-for-30 year. Can you talk to us a little bit about that? I think that’s such a great example of having fun along the way.

Cory Jenks: Yeah. So in 2016, if anyone wants to guess our age, we turned 30 in 2016. And we were kid-free, dual income, feeling pretty good. And we wanted to do something special for turning 30 to commemorate it. And my dad — I have to give him credit — came up with this idea probably after watching ESPN of like 30-for-30. Do 30 fun, interesting things over your 30th year. Now, for us, there was some really nice trips. There was also some trips to museums, some hikes around Tucson. But it really was a special year, and as a lifelong Cubs fan and somehow who she married into it, we ended up going to a World Series game because — and we didn’t go into debt for it. We were financially prepared for it. So it was a year that allowed us a lot of fun, but it wasn’t something we look back on with regret financially. We loved every minute of it.

Tim Ulbrich: And I think for — as I heard of that and I’m guessing our listeners think the same thing, you know, that concept can be done in a very inexpensive or a very, very, very expensive way, right? I think it’s to be just as much about the memories and the planning and the fun and could be day trips, it could be something more extravagant. But I love the creativity and really making that a priority for your family. And I’m guessing you guys have a vision to do something similar as your family continues to grow. Cory, I want to ask you about your side hustle because we talk about side hustles a lot on this show, and I think you have a really unique side hustle doing improv comedy. Talk to us a little bit about that, where the motivation, where the inspiration comes from, and where you’re currently doing this work?

Cory Jenks: Yeah, so I’ve always enjoyed comedy. I watched a lot of Saturday Night Live and Simpsons as a kid. And in pharmacy school, there was an improv group at the University of South Carolina, but I was just very focused on school at the time. And so once I finished my residency, was dating Cassie, she got me an improv class through a local theater here in Tucson back in 2013. And I just did it and loved it and kept doing it. And have taught, performed, coached it. But something that really sticks out for me is that the tools of improvisation: listening, communication, teamwork, are all things that as pharmacists, healthcare providers — Cassie’s done the classes too — they’re useful and really help you connect with your patients, help you get the most out of what can be really frustrating work environments. And so doing this now for seven years, I was like, pharmacists should do this. And I’m fortunate enough to help teach a section of it here at the University of Arizona. But my side hustle now, ImprovRx, is taking this to other healthcare organizations, other colleges, other businesses, trying to teach people these tools because love it or hate it — I think we have great intergenerational workforces, but I think millennials, which Cassie and I are a part of, the generation below us and every generation can use an improvement on these skills. And not to stereotype pharmacists or pharmacy students, but we’re generally kind of Type A people.

Tim Ulbrich: Just a little bit.

Cory Jenks: Just a little bit. We were talking about how much fun spreadsheets were just a couple of minutes ago. So I’m going and I’m doing this and I’m teaching this to other organizations and in students. And I’m getting a lot of really interesting and fun feedback from people who are like, oh my gosh, yeah, you could use this to be a better listener for a patient because, you know, when it comes down to it, we can’t control a lot of our work environments. But if you can be a better listener for a patient one day, if you could be a great team member on your healthcare team, be an ear, be a better empathizer, it’s a really great tool. So that’s kind of what I’m working on right now. And it’s really exciting to get to share that.

Tim Ulbrich: I love that. And I think that’s such a great example we talk about with side hustles — and shoutout to Tim Church, he does a great job with this on our side hustle series. But I think the best side hustles are those that certainly there’s a financial piece, it helps you accelerate your goals, but it’s those things that really hit into a spot that gives you that fulfillment and allows you to serve and meet others and really identify an area that you’re passionate about but also you can essentially generate some income and make a business opportunity out of that. So I think that’s just a great example of that. Great work on what you’ve done. And I’m guessing we may have some people listening, whether it’s from colleges of pharmacy, state organizations, companies, that say, “Hey, I want to work with Cory. I want to learn more about what he’s doing with ImprovRx,” or maybe just has a question about something we’ve talked about here tonight on the show with Coast FI or what does your budgeting process look like. So where can our listeners get in touch with you if they have additional questions?

Cory Jenks: Well, I am on LinkedIn, so my name will be spelled in the show notes there. I’m also on Twitter, @CoryJenksPharmD, and then my Instagram’s more of a fun place, so it’s @pharmacomedian.

Tim Ulbrich: Love that.

Cory Jenks: And then Cassie, you’re on Twitter as well.

Cassie Jenks: I’m on, yeah, Twitter and Facebook and Instagram as —

Cory Jenks: @NPCassieJenks.

Cassie Jenks: @NPCassieJenks, yeah.

Cory Jenks: But we love talking about this stuff, whether it’s improvisation, finance, working in healthcare, it’s a really cool world we live in where I can send YFP an email saying, “Here’s a cool article about what I think my wife and I are doing.”

Tim Ulbrich: I know, right?

Cory Jenks: And we get to share that. And I think that’s really special. We really appreciate this opportunity to share our little slice of financial life with folks.

Tim Ulbrich: And I appreciate that. I’m not going to let you off the hook, though. You’re both readers, and I’m a big reader, and I’m building my 2020 reading list. So I need a book recommendation from each of you. What have you read recently that, you know, you just said, “Hey, this is a home run,” or maybe something you’re currently reading that you’re drawing inspiration from?

Cory Jenks: Alright, well, one of the books that I read at the beginning of 2020 was called “Atomic Habits.” And it’s a great book about how to break down habits — it’s not even about setting goals, it’s just kind of tricking yourself into having a better process with going about achieving your different goals. From that, I’ve developed a system for like a To-Do list that he mentions. It’s called an Eisenhower Box. People can Google it on their own time. But it’s really helped me organize all the different facets of my life, and I kind of get hung up in all of the different minutiae that can slow you down and send you into wormholes.

Tim Ulbrich: Love it. Cassie, what about you?

Cassie Jenks: Well, I have to say that Cory gave me this suggestion, so I have to give him a little credit here. But “Your Money or Your Life,” fantastic book that really dives into how much time you have to spend to make all the purchases you make in your life and to really reframe how we think about money and thinking of it more as currency of time than anything else. And that probably really drove home for me our why and what we’re trying to do with our financial journey.

Tim Ulbrich: Awesome. Great recommendations. We’ll link to both of those in the show notes. Cory and Cassie, thank you so much for taking time to come on the show to share your journey, share your why for what you’re doing here with the Coast FI, and I think just a different perspective for our audience to consider. I know you have inspired me, and I’m confident you’re going to do the same for our community. So thank you so much for coming on the show.

Cory Jenks: Certainly.

Cassie Jenks: Yeah, thank you.

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