Financial Mistakes / Podcast

YFP 170: The Ins and Outs of Auto Insurance

Posted on September 17, 2020November 2, 2022 by yfpadmin

The Ins and Outs of Auto Insurance

Robert Lopez, YFP’s Lead Financial Planner, joins Tim Ulbrich to talk about the ins and outs of car insurance. Robert digs into why it’s an important part of the financial plan, key terminology, how rates are calculated, the make-up of an auto insurance policy and common mistakes to avoid when purchasing car insurance.

Summary

Robert Lopez, Lead Financial Planner at YFP, shares that car insurance is an important part of someone’s financial plan for two reasons: it has to be paid monthly, semi-annually or annually and if you do get into an accident, it can be a large expense that affects the rest of your plan especially if you aren’t prepared for it.

Robert talks through the main pieces of a car insurance policy like bodily injury liability, property injury liability, medical payments or personal injury protection, collision, comprehensive, uninsured/underinsured motorist coverage and extras like roadside assistance and rental car reimbursement. He also explains that car insurance rates are determined depending on the address/city the insurer lives in as well as their driving record, credit, past claims, vehicle, daily commute or annual mileage and age.

It can be difficult to determine what you need or what coverage you should leave out when choosing a plan. Robert says that it really depends on your specific situation, what state you live in and if you have a new car. Personally, Robert likes having roadside assistance, rental reimbursement and windshield replacement coverage, but those extras may not be necessary for someone else. He also says that it depends on your financial situation and what you can pay now as well as what you can pay if or when an accident occurs.

Tim and Robert also discuss how to choose an insurance company and common mistakes that he sees others make.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Robert, excited to have you back on the show. How are things going out in Phoenix?

Robert Lopez: You know, it’s hot. So there’s always that to worry about. I think it’s going to be cool today. It should only be 102, so we’re doing better.

Tim Ulbrich: Gees. We’re starting here in Ohio, we’re getting the beginnings of fall weather, doesn’t feel like a normal fall, though. We don’t have of course normal football season here in the Buckeye State, but nonetheless, we’re starting to transition to some of the most beautiful weather here. So 102, that’s pretty intense. But today we’re talking about something that I think is an often overlooked part of the financial plan, and we’re going to get your perspective as it relates to working with clients and looking at this piece of the puzzle. And as we talk about all the time, the financial plan is a giant puzzle. This is one piece, albeit an important piece of the puzzle. And I know that car insurance premiums, you know, they’re not the most expensive bill necessarily, but we’re going to talk about the importance of having the right insurance protection in place as it does with other insurance policies can affect the rest of your financial plan in big ways. So Robert, let’s start with what impact does car insurance have on the financial plan? And why is it important for people to really understand their auto insurance coverage?

Robert Lopez: Yeah, so auto insurance is really important to the financial plan for two reasons. One, you have your monthly or your semiannually premiums you’re going to be paying. And then if you are in an accident or an incident, those are large expenses that we may or may not be prepared for. I myself just had my car totaled a few weeks ago, and that was a rather large bill that I would not prefer to pay on my own. So insurance is there to protect you from some of those unforeseen expenses.

Tim Ulbrich: Yeah, and whether that be an emergency fund or if somebody doesn’t have an emergency fund, having to go into debt to cover those, obviously as we talk about with life or disability, there’s the protection part of the financial plan or most recently we talked about professional liability on the show. The other area I think about here, Robert, I’d like your input and perhaps something you see often with clients, whether it’s auto insurance, home insurance, disability or life, is that some people may be underinsured, which of course is what you just referenced, or perhaps overinsured, right, which could affect not only what’s coming out of pocket but perhaps also the opportunity cost of where that money could be used elsewhere in the financial plan.

Robert Lopez: It’s a problem both ways, but overinsured is definitely a thing. A lot of times we’ll hear clients say they just want to make sure, they want to be positive that they have enough coverage, but they’re really doing a disservice to themselves by being overinsured because as you mentioned, that opportunity cost. Those funds could go to another place, right? Maybe we want to expand our emergency fund and those extra premiums could be going towards that. Maybe we’d rather be paying down debt with that extra money. So rather than protecting ourselves from an unknown future, we could actually be paying something down today. We try to find that balance between having enough coverage and having too much coverage.

Tim Ulbrich: So let’s jump into some basic terminology before we talk about how rates are calculated, before we talk about what makes up a policy and some common mistakes that we see when folks are purchasing it. So basic definitions: premium, deductible, what’s the difference between the two as it relates to car insurance?

Robert Lopez: So your premium is that expense that you get every set time period. So it’s a monthly payment, it can be semiannual, it may be annual. But it’s the expense you pay just to maintain your coverage. The deductible is the amount that you’re required to pay after an incident or accident prior to the insurance kicking in. So think of that as your skin in the game. So they want to make sure that you’re covering part of an incident so you’re not overcharging them for the policy.

Tim Ulbrich: And as many of our listeners know, of course being in the healthcare field, this terminology they’re familiar with and not only for their own personal plans but obviously in working with their patients. But we’ll talk about that in more detail in terms of obviously how a high or a low deductible plan may impact your premiums. And as you’re shopping around, making sure you’re really trying to do as much as possible of an apples-to-apples comparison. So Robert, talk to us about how car insurance rates are calculated and what’s really taken into account in consideration when calculating those rates.

Robert Lopez: So insurance companies are really good at math. And they can find out exactly what proportion of the population is going to need to have benefits paid out. So they try to take everything into consideration they can, right? So this is going to come down to your address, meaning what area of the country you’re in and what area of a city you may be in. They’re going to look at your specific driving record, have you had incidents in the past. They may look at your credit, except where state laws maybe ban that, but viewing your credit would also kind of show a dependability. They’re going to look at past claims, like are you the squeaky wheel that keeps making claims? They’re going to look at your vehicle, and the vehicle maybe if it’s an expensive vehicle where maintenance would be higher or a faulty vehicle that may have more issues. They’re going to look at your daily commute or your annual mileage that you have, so how much are you driving to and from work because that’s the time period where you’re most likely to get into an incident or an accident. And then what’s your age? Some auto insurance agencies have a set age where they say you’re now an adult. And it may not be 18. You may hear numbers like 25, you may hear numbers like 26. But they’re going to say younger people are mathematically more likely to have accidents and claims.

Tim Ulbrich: And let’s jump into the components, the parts, of a car insurance policy as I think this is going to help our listeners not only evaluate their own policies but as they’re perhaps comparing different quotes or looking at maybe changing insurance policies, really understanding what is or is not required — and we’ll talk about obviously state laws that are impacting that — but also as you’re comparing one policy to another, understanding what is or is not included within those policies. So Robert, give us the key components of a car insurance policy and just fire them off. And then we’ll spend some time talking through those in more detail.

Robert Lopez: Yeah, so the main types of coverages you’re going to see are bodily injury liability; property damage liability; medical payments or medpay, also known as personal injury protection; collision; comprehensive; uninsured or underinsured motorist coverage; and then there’s a bunch of extras out there like roadside assistance, gap insurance, rental reimbursement, really anything that your heart desires.

Tim Ulbrich: Let’s go through those in more detail. Bodily injury liability, talk to us about that one.

Robert Lopez: So bodily injury liability is designed to pay for the medical bills and lost wages when an accident is your fault. So when you cause an accident, you run the stop sign, you run the red light, you hit the other car, this pays for their medical bills and any lost wages.

Tim Ulbrich: And one of the things — I’m deviating here a little bit, Robert — but just thinking about from planning standpoint, if I’m somebody who caused the accident, it was deemed to be my fault, what I’m thinking about is the spectrum of healthcare costs that could be incurred, right? It could be as small as an urgent care visit or a brief hospital stay or as significant as somebody who needs to be life flighted for a more serious injury. So in your experience and what you have viewed in these policies, how do you begin to evaluate obviously the range of how catastrophic it could be but also then what those policies may or may not cover and then what additional coverage you may need to be able to protect other parts of your financial plan. I’m thinking in the event of something like a lawsuit.

Robert Lopez: Yeah, that’s actually a really good question. So when you work with an insurance agent, they should be able to help you figure out some of those limits. They could be as low as what we call 25-50. Meaning it could pay up to $25,000 per person involved in an incident and $50,000 overall. Generally, we’ll recommend 100-300, meaning $100,000 per person, $300,000 per incident. It can go all the way up to 300-300 or 350-500. And that’s going to be really dependent on your area, the kind of people that you’re going to be surrounding yourselves with, and your own net worth. And that’s kind of what we’re protecting there, right? So if you find yourself driving around near a bunch of surgeons in a very high income area, then maybe your liability protection should be higher. Obviously if a surgeon has to take off a year to recover from injury, those lost wages are going to be a little above those limits. And this may be the place where a umbrella could come into effect above and beyond this liability coverage to protect from those larger lawsuits.

Tim Ulbrich: For those that aren’t as familiar with the concept of an umbrella policy, briefly define that for us.

Robert Lopez: Yeah. So an umbrella policy is just a pure liability policy, protection that goes above — like an umbrella — above any of your other liability suits. So let’s say you have an accident or an incident where someone is suing you for $500,000 of liability, your car insurance would go up to its maximum, so if it’s 100-300, it would cover that $100,000 per person. And then the umbrella policy would cover you above and beyond that. Those are generally sold in $1 million increments. They’re generally pretty fairly priced, similar to HPSOs, professional liability policies, so it should cost about $100-120 a year.

Tim Ulbrich: Awesome. OK. So bodily injury liability is the first main type of coverage. What about property damage liability?

Robert Lopez: Property damage liability pays to repair or replace property that you destroy with your car. So let’s say you get into an accident, and you hit other cars or a fence, you slide into a gate and it has to be replaced, that would cover that. So that normally is going to look like $50,000 is the kind of going rate that you’ll see for that.

Tim Ulbrich: OK, and the third one you mentioned was medical payments, referred to or abbreviated as med pay or personal injury protection.

Robert Lopez: Yeah. So personal injury protection pays for the medical expenses suffered by you and any passengers within your vehicle. So this doesn’t matter who’s at fault for the incident; your coverage will protect you and yours. If the incident is proven to be the other driver’s fault, you could go for them to seek damages, but this protection is specifically designed to protect you and yours.

Tim Ulbrich: OK. And what about collision?

Robert Lopez: Collision coverage pays to repair your own vehicle in the event of an accident. The collision claim check is generally going to be reduced by your collision deductible. So that’ll be specific to your policy. But this is just to repair your car in the event of an accident.

Tim Ulbrich: And comprehensive?

Robert Lopez: Comprehensive goes beyond accidents, right? So if your car is damaged in an accident, it’s collision coverage. If it’s damaged outside of an accident, so think if there’s a theft, fire, vandalism, storm damage, hail damage, collision with an animal, hitting a deer on the side of the road kind of thing, all that would be considered comprehensive coverage. So that would pay if your car needs repairs in that instance.

Tim Ulbrich: And uninsured or underinsured motorist coverage?

Robert Lopez: If you hit another driver or another driver hits you and they don’t have the proper insurance in place, this would protect you from that. So normally, the other insured individual would pay for the damages if the incident is their fault. If they are uninsured or underinsured, this covers you. So this is not required in most states, but it’s highly recommended since the insurance rate in America is not at the 100% that we’d like to see.

Tim Ulbrich: And my favorite category, the last one here, the catchall of extras like roadside assistance.

Robert Lopez: Yeah. So in extras, you’ll see a lot of different things. So roadside assistance is one of them. So that pays for fees due to a vehicle breakdown. So let’s say you run out of gas on the side of the road or you need a tow truck to come pick you up, this would be included in your insurance, so you would not have to pay those fees. Other options are rental reimbursement, so I mentioned my car was totaled recently. My rental reimbursement paid me to have a rental car while my car was being inspected and see if they were going to replace it or repair it. So it’s generally just up to whatever level you decide. So if you have economy, then it will pay for an economy car. If you have a specialty convertible, then it’ll pay for that. And then gap insurance is one I want to definitely make sure we touch on.

Tim Ulbrich: Yeah.

Robert Lopez: Gap insurance pays for the gap between what you owe on your car and what a car is worth. So let’s say I have a brand new car, it cost $25,000. I have a loan for $20,000 still. I get into an accident, my car is totaled. But the value of that car is only $14,000 just because of the depreciation as soon as you drive off the lot. So gap insurance would cover that difference. It was a $20,000 loan, $14,000 car, it covers the $6,000 difference there so I’m not in the hole for a car that is no longer able to be driven.

Tim Ulbrich: Yeah, really important, especially as we’ve talked about before on the show, thinking about how cars depreciate in value. Many people are likely in a scenario where they may owe more on the vehicle than the car is worth. So Robert, as I hear these things, bodily injury liability, property damage, medical payments, collision, comprehensive, uninsured or underinsured, extras, gap coverage, I understand. You did a great job of explaining them. My thought is what do I need? And what do I not need? And how do you know what coverage you need to have? Does it depend on the state? What is you’re leasing or buying? What if it’s a new car versus a beater you’re driving around? How do you think about this and advise clients as it relates to their own insurance policies?

Robert Lopez: Yeah, I’ll go back to Tim Baker’s favorite response: It depends. So it really comes down to what your specific situation says. So some states only require you to carry liability coverage, meaning you wouldn’t require any kind of collision, comprehensive, or any kind of things like that. You would only need coverage for if you were at fault. That’s not recommended for most newer cars because you’re going to want to get your car replaced and repaired. So if you have a new car with a loan, the loan company or the bank will generally require you to have full, comprehensive coverage, meaning they want to make sure the car will be replaced because they’re using that car as collateral against the loan. So they want to make sure that it maintains its value. So it’s really going to come down to your personal preference. I like having rental reimbursement and roadside assistance on my car. They’re not necessary. I like adding windshield replacement because in Arizona, we just catch rocks for fun with our windshields, so I like to have that policy built in there. Beyond that, it’s really going to come into your personal financial situation and what you can afford to pay now and what you could possibly afford in the event of an incident or accident.

Tim Ulbrich: Yeah, great point. And I think for those listening, my encouragement would be as you understand the individual components of the policy and then evaluate your own plan, your own vehicle situation. So as you mentioned, somebody’s driving around in a new car, somebody’s driving around a vehicle with 150,000 miles on it that’s worth $4,000 or $5,000, they may approach this very differently in terms of what they’re looking for things to get replaced or covered in the event of an accident and how their personal financial situation may be able to cover some of those costs that come or perhaps it may not. And they may need that coverage, but really understanding the individual components, understanding your situation, and then as you begin to shop around, once you determine the need, really being able to look at Policy A versus Policy B versus Policy C based on those individual coverage maximum limits and what you need or don’t need for your own situation. Now that we know what makes up a car insurance policy and the basics of what that policy covers, let’s talk a little bit about car insurance companies, really between brick-and-mortar and online companies, I guess not much brick-and-mortar these days. You know, people walking into talk with an agent. We’ve got big insurers, we’ve got small insurers. I feel like there’s so many options, and I’m even thinking about watching an NBA game recently where I felt like every third or fourth commercial was a company who’s shopping around. There’s lots of them out there, and I think it can be confusing about where do I go? What should I be looking for? How should I be evaluating it? So how do you begin to decide which car insurance company is going to suit your needs best? And what are the main things that our listeners should be thinking through when choosing a car insurance company?

Robert Lopez: Yeah, I think a lot of it’s going to come down to kind of four main areas. First of all, location. Not all of these companies are going to be operating in every area. There are other things to worry about, there are price. Right? So price is going to be huge because there’s going to be drastic differences in cost. So we want to make sure that we compare and shop around on prices to all of the agencies. Another one would be trust or reliability. There’s online organizations, Bank Rate does it, there’s a ton of organizations that will rank insurance companies based on financial strength, basically their stability, and then by claim satisfaction score. You can look online and say, hey, this company is extremely financially stable, it’s not going to disappear overnight like one of these odd commercials that we see on TV, and I know that their claim satisfaction score is high. So people who are actually filing claims are happy with the service they receive. And then the last thing is going to be comfort level. Are you already familiar with a company and do you like them? Are you already familiar with the bank that provides that service as well? Is there already policies that you’ve had in the past you’ve had success with their claims departments? Sometimes it’s worth a little extra to work with somebody that you’re comfortable with, whether it’s the bank or the agent themself.

Tim Ulbrich: So Robert, to that point, and one of the things I often struggle with is — I’m even thinking about right now my own auto and home policies and recently shopped those around to get new updated rates and bundled options and all that good stuff. You can shop around ‘til you’re blue in the face and find a better price, and you mentioned some things that are really important to consider, not just price alone. But the one that stands out to me is that customer service, comfortability with the individual carrier as well as perhaps an individual relationship or contact you have. So I know for my personal auto insurance, I have somebody that for 5+ years now, quick email, quick response, I have that personal connection, and that is worth something as I look at sure, I could get a cheaper option, but how much cheaper does that need to be to be able to outweigh that? So how do you evaluate this personally, whether it be on the auto side or another type of insurance, really the importance of that relationship, the importance of the customer service relative to the price of the policy?

Robert Lopez: Personally, I like simplicity. I like to get all my policies in one place if possible so I just have one contact. And I like to deal with one organization. I’m lucky enough to be a prior military member, so I can use USAA as my bank, I can use my USAA as my insurance policy company, I can USAA as a lot of things. So that’s what I personally like. I know that I’m probably paying a premium, and I do check that every year, meaning I know the comparison rates of what I would be paying elsewhere so if at one point, it turns out to not be the right mathematical choice anymore, I can make that switch. But I know that I’m paying extra just to keep that simplicity, the consistency.

Tim Ulbrich: Yeah, and this would be something that I would recommend folks, you know, put this probably among some other things that once a year is on the calendar just to look at again. We all know how fast a year can go, you’ve got competing responsibilities and priorities, and I have found even with my own carrier, asking the question sometimes, ‘Oh, I’m glad you asked, we’ve got these different options.’ Or, ‘Hey, I’m looking at these other options,’ and all of a sudden there’s new quotes that are presented. So I think once a year is good due diligence probably among other areas of the plan as you’re looking at credit reports or other things as well to make sure you’re taking care of those maintenance items as it relates to the financial plan. Like any aspect of the financial plan, Robert, it’s easy to make mistakes along the way. What are some of the common mistakes that you see people making when it comes to car insurance? And I’ll probably add on a couple that I’ve made myself as well.

Robert Lopez: Yeah, you’ll definitely hear me repeating myself from some of the stuff I already said. But some of the big ones, again, not shopping around. Just sticking with that one organization is not enough. And when we do shop around, we want to make sure we get that full picture of the marketplace. There’s a bunch of insurance companies, they change their names from time to time, but they’re still there. So you want to definitely check annually and make sure we’re comparing apples to apples. You can actually give your policy information to another agent and let them compare it and say, “I want this exact same policy from your company. What would it cost?” And they should be able to do that pretty easily. The next one is carrying too much or too little insurance. Carrying too much coverage, as we talked about earlier, being overinsured, it’s just going to increase your premiums and cost you more long term. And then not having enough coverage will lead to those larger expenses in the event of an incident. So we want to try to find that right balance between how much premium we want to pay, how much deductible we want to pay, and how much actual coverage we want to have. Some other ones, kind of buying roadside service can sometimes be a mistake. So I mentioned that I like to have that on my policy, but that’s because I don’t receive that service from any other organizations. Sometimes you can get it through a credit card company, if you have anything like AAA or if you have a vehicle warranty, a lot of times those are built in. So we want to just confirm one way or the other if we already have this service or not and then if we want to include it in our insurance policy or not. The next common mistake I see is people not updating their service, their policies, so carrying collision coverage on an older car is not necessarily the right thing. So remember, collision coverage protects your car in the case of an incident. If you have an older car that’s not very valuable, then that coverage is not going to pay out as much as it used to. So you’re likely overpaying for that part of the policy. In that same breath, just generally not updating your policy to reflect your life changes is a big one. So keeping insurance up-to-date on your situation is really going to ensure that you’re receiving the correct rates. We have a lot of people who are working from home right now, so they’re driving less. So their policy should be lower cost to reflect that because they’re less likely to get into an incident if they’re not driving to work every day. Not getting that premium versus deductible balance right, so increasing your deductible is a great way to lower your premiums, but you need to make sure that you’re able to actually afford that deductible when the time comes. Just trying to get your premium as low as possible and having a $4,000 or $5,000 deductible in the future sounds great until the future gets here, and now you’re going into credit card debt to pay that deductible. And then the last one that I see is kind of getting those gimmicks in car plans. So insurance companies are all over the place, and they’re all trying to stand out. So they’ll offer different incentives or options, think accident forgiveness, and really what this does is it sounds great until you review the numbers. So we just want to make sure that we understand exactly how these programs work and we’re happy with whatever added expense they bring to us for the benefit that they state.

Tim Ulbrich: Great stuff, Robert. And I’m going to just emphasize or re-emphasize a few of those that I’ve lived firsthand. So you mentioned the buying roadside coverage, and I know again, something you mentioned you like, and I think your follow-up there was spot-on, really making sure you’re not paying for it anywhere else. So probably the most common thing that I see and I experienced myself was people not realizing that they already have AAA or another policy coverage in place and then they’re also paying for it on the auto insurance, so making sure you’re not double paying. You know, the apples to apples is so important. And I love your recommendation of actually sending your policy, sending what you are currently have in terms of coverage and limits and then asking to get a quote that will match that or if you’re looking for more or less in a certain area so you can really compare one to another in terms of an apples to apples. And then I think overpaying, you know, is something that I fall victim to myself. You know, I’ve talked about on the show before, most recently when Tim Church and I talked about the pros and cons of paying cash for a car, but we don’t drive the nicest cars in the Ulbrich household, let’s just leave it at that. There’s certain coverages that we don’t need, and if there’s an emergency fund and other areas that can cover it, then we’re trying to find that balance that you reference in terms of the premium versus the deductible. So Robert, appreciate your time coming on, and as I started the show, I’ll end the show by saying our goal as we continue to talk about different parts the financial plan is to re-emphasize that the financial plan is complicated. There’s many pieces, there’s many parts, and here we’re talking about just a sliver but an important part. And if you don’t have the right coverage, you’re exposing the rest of your financial plan. If you’ve got too much coverage, perhaps there’s an opportunity cost where you could be better allocating those monies to a different part of the financial plan. So we do comprehensive financial planning at Your Financial Pharmacist, specifically customized for pharmacy professionals. And we define comprehensive financial planning as anything that has a dollar sign on it, we want to be involved in that part of the financial plan. So that ranges from debt management, that includes investing and retirement, that includes insurance here, just one part of insurance we’re talking about today, credit, credit management, home buying, the list goes on and on as we know that all parts of the financial plan impact one another. And so if you’re interested in learning more about our comprehensive, fee-only financial planning services, head on over to YFPPlanning.com, where you can schedule a free discovery call to see if that service is a good fit for you. 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 the show each and every week. And I hope you’ll join us in the Your Financial Pharmacist Facebook group, where we now have more than 6,000 pharmacy professionals active and committed to helping one another on their path towards achieving financial freedom. Have a great rest of your week.

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YFP 108: How to Effectively Talk with Mom & Dad About Their Finances

Posted on July 11, 2019November 2, 2022 by yfpadmin

How to Talk to Your Aging Parent About Finances

Cameron Huddleston, an award winning journalist with more than 15 years experience writing about personal finance, joins Tim Ulbrich on this week’s show. Cameron and Tim talk about her recently released book Mom and Dad, We Need to Talk: How to Have Essential Conversations with Your Parents About Their Finances. Cameron discusses why it is important to have these conversations with your parents, how to start the conversation and what to do if your parents are reluctant to talk.

About Today’s Guest

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

Summary

Cameron Huddleston joins Tim Ulbrich to talk about her newly released book Mom and Dad, We Need to Talk: How to Have Essential Conversations with Your Parents About Their Finances. Her inspiration for the book came from the stories of her parents. Her father died at the age of 61. He was in his second marriage and didn’t have a will. At 65, Cameron’s mother was diagnosed with Alzheimers and her biggest regret is not talking to her about her finances, the type of care she wanted and how to pay for it before her memory started to get bad. Cameron didn’t want others to go through the same mistakes and suffer their consequences as she did.

Cameron shares why these conversations regarding finances and end of life care aren’t talked about, the biggest being that for older generations it’s taboo to speak about money and that it can make people uncomfortable as some people haven’t managed their money well and don’t want to divulge that information with their family. Unfortunately, consequences like lengthy and expensive court battles to prove that parents are no longer competent to handle their money or make decisions can come out of not speaking about these sometimes difficult topics.

Cameron shares that one of the biggest mistakes you can make is assuming that the conversation can wait. If your parents are healthy it’s the perfect time to have the conversation. She suggests focusing on speaking about the basics first, such as a will or living trust, power of attorney and advanced healthcare directive. From there, you can get deeper into how to pay bills and manage bank accounts. Cameron also talks about where to begin in having this conversation, what to do if your siblings aren’t on the same page as you, and when and how to have this conversation with your parents.

Mentioned on the Show

Policy Genius
Mom and Dad, We Need to Talk: How to Have Essential Conversations with Your Parents About Their Finances by Cameron Huddleston (Amazon)
Cameron Huddleston
Mom and Dad, We Need to Talk: How to Have Essential Conversations with Your Parents About Their Finances by Cameron Huddleston (Barnes and Noble)
Cameron Huddleston on Facebook
Cameron Huddleston on Twitter

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to this week’s episode of the Your Financial Pharmacist podcast. I have a special guest on the show this week, Cameron Huddleston, author of “Mom and Dad, We Need to Talk: How to have essential conversations with your parents about finances.” Some brief background on Cameron, she’s a contributing editor for Kiplinger.com and wrote the popular “Kip Tips” columns, which was syndicated in the Tribune newspapers nationwide. Her work has appeared in Business Insider, Chicago Tribune, Fortune, Huffington Post, Money, MSN, and USA Today. She has appeared on Fox & Friends, MSNBC and CNN and has been a guest on ABC News Radio, Wall Street Journal Radio, NPR, WTOP in Washington, D.C., and KGO in San Francisco. She currently is the Life and Money columnist for GoBankingRates.com. Cameron, welcome to the show.

Cameron Huddleston: Hi, thank you so much for having me.

Tim Ulbrich: So first of all, congratulations on the recent release of your book. What an amazing accomplishment in putting together a book that is going to have I believe such a positive impact on so many families, and obviously, more specifically, we’re going to talk about here in the pharmacy community. But writing a book is no small feat, so congratulations on getting this book out there.

Cameron Huddleston: Thank you. You’re right, it is not an easy task. It’s probably one of the hardest things I’ve ever done, I feel like.

Tim Ulbrich: So rewarding and difficult. I really, truly believe, as I just finished up the book here in the past week, I know it’s going to have an impact on me personally. I’m excited to share with our community some of the tips and strategies and wisdom that you share for how to have what I think is such a difficult conversation with family and especially parents around finances. So as I had a chance to read through your book prior to the interview, I was really, really impressed — and I shared with you before we recorded here today — about how comprehensive it is, how many stories you use, and I think how those stories reinforce the concepts throughout the book, how you’re able to break down what can be a very overwhelming and scary topic to one that I believe you present in a way that is easy to understand and that results in action. And I found myself taking notes, saying, “Hey, my brother and I really need to get together and make sure we have some of these conversations with our parents, even though we have had many of them already.” So let’s start with why write this book. So talk us through some of your personal story and the inspiration behind getting this book out there into the hands of others.

Cameron Huddleston: So I feel like I’m the poster child for why these conversations need to happen, sooner rather than later, because both of my parents, their stories caused me to write this book. My father died when he was 61. He was in his second marriage, and he died without a will. And he should have known better because he was an attorney. And of course, when you die without a will, the state decides who gets what. So your wishes are not expressed. And you don’t even have to be a wealthy person to need a will. And I make this point very clear in the book. At least, I try to. You know, wills aren’t just for the rich and famous. They are for anyone who has anything that they are going to be leaving behind, and they want to have a say in who gets what. So my dad did not leave a will telling us who gets what. And like I said, he was in a second marriage, and it just, it didn’t turn out as bad as it could have turned out, but it was certainly awkward. And then a few years later, when my mother was 65, she was diagnosed with Alzheimer’s. I was 35 at the time, I still had young children. And suddenly, I was thrust into the role of caregiver for my mother. And my biggest regret is not talking to her about her finances before she started having memory issues. I had had a conversation with her when I had moved from Washington, D.C., where I was working for Kiplingers, back to my home state of Kentucky. And I told her when I moved back home, I said, “Mom, you need to look into getting long-term care insurance,” because knowing that she was alone and that if she ever needed care, a long-term care insurance policy would help pay for that care. And by care, I mean care in an assisted living facility or nursing home. It even pays for care in your own home. She took my advice, looked into it, but could not get coverage because of another pre-existing condition she had. Then after that conversation I had had with my mother — and that was when she was in her early 60s — she ended up developing dementia. And I look back at it now, and I realize that after she discovered that she couldn’t get coverage, I should have said to her, “OK, Mom, you cannot get long-term care coverage. Let’s figure out how you would pay for it if you ever need this sort of care. And let’s talk about what sort of care you would want.” But I didn’t do it. And I was a financial journalist. I still am. But I didn’t realize that I needed to have this conversation. And so I wrote this book because I don’t want people to make the same mistake I made. And I don’t want people to have to figure out things on their own like I did because it’s not easy. It really is not easy. So I’m sharing my experiences in this book. I’m sharing the experiences of other people who’ve had these conversations. I’m sharing the advice of experts, financial planners, financial psychologists, elder care experts, estate planning attorneys, trying to cover as many bases as I possibly can in this book.

Tim Ulbrich: Yeah, and I think your story with your mom and with your dad really, to me, laid the foundation of the importance of this topic. And you have many more stories that you use throughout the book that I think do that as well. But you know, when you talk about the situation with your mom and dementia and you as a financial expert and writer not having or pressing on some of those conversations, you know, I often feel that way often with my family as well. Or you mentioned your dad being an attorney who had experience writing wills but didn’t necessarily have a will himself. I think that speaks to how difficult these conversations can be and how necessary they are and often how emotional things can get. They can prevent some of these from happening. So one of the things you start with in the very beginning of the book, you outline — to the point we were just talking about — so well the fears that can present themselves when we consider talking about money with our parents. So much so that you reference a — I think it was a 2016 Care.com survey that found more than half of parents would rather have the sex talk with their kids than talk to their parents about money and aging issues. And the result being, as you also mentioned in the book, about three-quarters, 73% of adults, not having detailed conversations with their parents about their finances. So what are some of these fears that are holding people back from having these critical conversations? Because after all, we know that they are essential ones to have.

Cameron Huddleston: You know, I want to touch on this first because you said we know that these are essential conversations. A lot of people actually don’t even realize that they need to be having these conversations. That same survey that you mentioned, that I mentioned in my book, about 73% of adults not having had this conversation with their parents, a very significant percentage of the people who were surveyed said they haven’t had the conversation because they didn’t realize that it was important. They didn’t realize it was an important topic to discuss. And we can talk a little bit later about why it is so important, but the fears, that’s a big one. So that same survey found that people have a variety of fears about having this conversation. A big one is that people are afraid their parents will think they’re being nosy. And I’ve heard this from people, I’ve talked to, I’ve interviewed for this story, for my book and just in general, friends I’ve talked to, and people say, “Oh yeah, my parents tell me that their money is none of my business.” And the point I make in the book is you might be afraid that your parents are going to think you’re being nosy, but the reality is that if you let them know that you want to have this conversation because you’re looking out for their best interests because you might have to care for them someday, you might have to help them out, that you’re not being nosy. You’re just simply trying to gather information that will make it possible for you to help them if they ever do need that help. You know, and so the thing is you don’t want to come at them and say, “Mom and Dad, let’s talk about the details of your finances.”

Tim Ulbrich: Right. Right.

Cameron Huddleston: Because it is — because money is a taboo topic. If you approach it by saying, “Mom and Dad, you took great care of me. I want to return that favor as you get older if you ever need help from me. And we need to discuss some things.”

Tim Ulbrich: And I think that’s what I love in this chapter but also throughout the book. In this chapter, specifically, you present some of those fears and then the realities. And you have some ideas throughout the book about specific language, conversation starters, things people can do to initiate these conversations. And in situations where they find themselves up against a reluctant parent, what are some strategies of how they do that. So I hope our listeners will take the time to get the book and read the book and really hopefully apply it with their own money — or their family situations as well. I want to ask you, since you mentioned this concept of money being a taboo topic. You know, when we’re out talking with other pharmacists and I mention this concept of money being a taboo topic, I see everybody’s heads nod in the audience. And I’m just curious, from your experience, from your expertise, for somebody who’s written on this for so long, is that just overall? Is that a generational thing? And then we know, as I think about myself with four young children, how can we reverse that trend? And what are some of the things that we can be doing to not make it a taboo topic so we’re not in the same cycle again with our children, you know, as they go through their life?

Cameron Huddleston: It certainly is generational. I think that younger generations are a little more open to talking about money, still not as open as we should be, but I’m a Gen X’er. My parents’ generation, they were actually, they fell into the silent generation. Money is certainly a taboo topic for them. And their parents told them — I remember growing up, my father would say, “You don’t talk about money. It’s impolite.” And he was always very reluctant to talk about money. And I feel like if I had tried to have a conversation with him when he was still living, he would have balked. My mother did not treat money as a taboo topic. We didn’t talk about it a lot, but I did not feel uncomfortable discussing it with her. I do feel like, though, the millennials are more open to discussing money freely. It’s not such a taboo topic among them. I think too that my generation, Gen X, is starting to open up a little bit more because we are already running into those struggles of talking with our parents and realizing that we need to be having these conversations with our kids. I have been having these conversations with my kids since they were young enough to talk. You know, of course when your mom is a financial journalist, and your dad is an economist — my husband teaches economics — you get it thrown at you all the time. And I remember my middle daughter coming up to me a couple years ago one day, just out of the blue, saying, “Mom, why are people so afraid to talk about money?” And I thought it was so interesting that she asked me that, and I tried to explain to her in the best way that I could — I think she was about 10 at the time — that people are uncomfortable talking about money because you either are afraid that you have less money than the person you’re discussing it with, or you have more. And in either situation, it can be uncomfortable. I think parents are particularly uncomfortable talking to their kids about money for a variety of reasons. Either they were taught you don’t talk about money, maybe they haven’t managed their finances well and they’re embarrassed, which anyone’s going to be embarrassed if you made mistakes, and you don’t want to admit to your kids. Or sometimes, it’s not so much the money issue that they’re afraid to address, but if you’re talking about things like wills and estate planning or long-term care, you’re talking about aging and death. And when you realize that you’re already in the midst of getting older and death is no longer such a in-the-future thing, but it could happen at any time, when you are older, it’s a scary thing to discuss for a lot of people. And when you talk about planning for long-term care, planning for end-of-life, a lot of parents don’t want to have those conversations. Because it’s scary for them.

Tim Ulbrich: Yeah, and I like how you highlighted in the book that even though both parties may come at it where it’s a difficult conversation, it’s uncomfortable, it’s that unknown territory, often, you may leave it with this feeling of, I’m really glad we had this conversation. And so I think that’s the outcome we’re hoping for is obviously some clarity around the plan. And I think the strategies you present in a great way in the book about how to do it effectively so it’s not necessarily focused on you as the individual and what you’re getting but really trying to look after your family and their wishes and all the complexities and things that are involved. One of the things that I really enjoyed in the book — I think it was Chapter 2, it was titled “Don’t Wait,” you mentioned that one of the biggest mistakes you can make when it comes to talking to your parents about finances is assuming that the conversation can wait. So what are some of the potential consequences of waiting to have these conversations until a point when maybe it’s too late? What are some of the things that could go wrong?

Cameron Huddleston: I hear from people all the time in just day-to-day conversations with friends when this topic comes up — because my friends know that I have been dealing with my mother and her Alzheimer’s for a decade now. And what I often hear from them is, ‘Well, we’re not at that point yet. I don’t need to be talking to my parents about this because they’re still healthy.’ But that is the perfect time to have the conversation. If you wait until there is a health crisis or when your parents are having memory issues, at that point, it can be too late. For starters, if there is a crisis, emotions are running high, you don’t think rationally when you are in the middle of a crisis. And the last thing your parents are going to want to do is discuss their finances with you. You know, you might need to be stepping in and helping them make sure the bills get paid, but they don’t want to talk about that because they’re in the hospital recovering from a stroke, a heart attack, something horrible that has happened to them. So waiting until that emergency happens is a terrible time to have the conversation because of the emotional issues that are going on. But the even bigger issue is that things may not be in place to actually allow you to step in and start helping them. The biggest of these is power of attorney and healthcare power of attorney. Both of these are legal documents, and you have to be mentally competent to sign them. So if you wait until you are in the later stages of dementia, it is too late. No attorney is going to let you sign a power of attorney or an advanced healthcare directive naming a healthcare power of attorney because they’re going to assume that maybe you had been pressured into signing these documents. You are no longer mentally capable to make sound decisions, and so I don’t think a lot of people realize this. They think, well, you know, if Mom and Dad need help, I can just step in and start helping them. I can write checks for them and make sure the bills get paid. I can talk to their doctor for them. I can talk to their financial institutions for them. No, you cannot. Not unless they have named you power of attorney, healthcare power of attorney. No financial institution is going to talk to. Most doctors will not talk to you. You know, pharmacists should know this. Some, you can’t hand out a prescription just because they say, ‘Hey, I need to get this prescription for my mom because she’s in pain.’ I mean, there’s no way that’s going to happen. And so if you have not sat down with your parents to find out whether they have a power of attorney, an advanced healthcare directive that names someone to make healthcare decisions for them, and that spells out what their end-of-life care that they want is, if you wait until something has happened, it can be too late. And the consequences of that are a very lengthy and expensive court battle, basically. You’re going to go to court to try to prove that your parents are no longer competent so you can become their conservator. You’re putting your parents on trial, which is a horrible thing.

Tim Ulbrich: And you did a really excellent job in the book of outlining exactly what that could look like, the cost of it, the time of it. Because I think you’re right, I think there’s the assumption that, hey, you know, maybe I’m an only child or my sibling and I get along, and yes, we don’t have power of attorney or we don’t have healthcare directives, but we’re all kind of on the same page. But if those documents aren’t signed, and you don’t have the copy of them that can be ultimately put in place, like it doesn’t mean you might not eventually get to where you had hoped to get, but it’s going to cost a whole lot of money, a whole lot of time, and a whole lot of heartache to get there that is really unnecessary, right? And I think you outlined that well in the book that my wife and I just updated this for our own family and our process, especially now that we just added a fourth child to our family. And for how easy it is — even though it seems overwhelming — for how easy it is to ultimately execute these papers when you consider that against what it would take if those were not executed, it’s really a no-brainer. I mean, you have to take action on these things. And we’ll come back here in a little bit and talk more about those documents specifically. So what I want to transition to here are some of the common reasons that you outlined in the book that parents may be reluctant to have these conversations. Because I think that if our listeners know what these are, then it can really help them frame what might ultimately be the right strategy. So what are some of the common reasons that parents may be reluctant to have these conversations with their children?

Cameron Huddleston: We hit on a big one already. The biggest is that they think money is a taboo topic. And they don’t want to discuss it, with you, with anyone, so you realize that. And you’re going to know this. I mean, you are going to know if money is a taboo topic with your parents because any money issue that might have come up in your family, if they dodged that topic, you know that they’re going to be reluctant to discuss their finances with you. And if that is the case, if you realize that is the case, then you don’t want to make the conversation about money, which sounds kind of silly being I’ve written a book about how to talk to your parents about their finances. But you don’t want to make the conversation about money. You want to talk about bigger picture issues. You know? Like, “Mom and Dad, what do you see retirement looking like for you?” And their answers might give you clues. They might be like — or, “How is retirement going for you?” “Oh, well, you know, it’s kind of boring, actually. We’re just kind of sitting around home.” “Oh really, I thought you wanted to travel.” And they might say, “Well, turns out traveling is expensive.” And that’s going to give you a clue that maybe they don’t have enough in savings for their retirement that they wanted, which can also give you a clue that if they don’t have enough in savings for the retirement they wanted, they probably don’t have enough in savings to cover any long-term care they might need. So find another way, find kind of a big-picture issue that you can discuss that they might be more comfortable talking about than actually details about their finances. But like I said, the answers that they give you, the responses, are going to start cluing you in. And then when you hear that response, don’t just let it go. Ask more questions.

Tim Ulbrich: And I think one of them that stood out to me was, you know, you had mentioned that they may be embarrassed about their finances. And if you look at the data that’s out there, in terms of the number of people who have the right documents in place and how much money people have saved for retirement and who actually has long-term care insurance relative to those who need it, more likely than not, for many of our listeners, that may actually be the case that maybe they’re embarrassed about their finances. And so you as the child and your point of reference of why you think this is important for them to have in place, well, for them, the struggle is that they’re really embarrassed about uncovering about what maybe they’re not comfortable you seeing. Obviously, there’s two different angles and viewpoints there. So I think really trying to understand why the reluctancy may be there would really help frame the strategy in which you approach it. And I think you did a really nice job of outlining those. So as I was reading the first few chapters, it was almost as if you were predicting my thoughts as I was going through the book because I read through the first few chapters, and I’m like, gosh, where do you start? You know, where do you start with this process? I understand the problem, I understand the need, I understand there may be reluctancy, but where do you start when it comes to having these difficult conversations, especially considering how complex of a topic that this can be. And your suggestion is to start by talking to a sibling. So tell us more about why you think this is a good place to start and some of the strategies to do that.

Cameron Huddleston: If you have siblings, you need to be sitting down with them before you even go to mom and dad. And there are several reasons why you should do this. For starters, you want to get on the same page with your siblings. You don’t want to go to mom and dad and have this conversation, and then your brother and sister find out, and then they’re angry. Wait, why did you do this without me? What, are you trying to get in good with mom and dad so that you get everything when they die? You don’t want to create any resentment. And you don’t want them to try to second-guess what you’re doing. So you want to let them know, ‘Hey, I think we need to talk to Mom and Dad about their finances.’

Tim Ulbrich: I really like that.

Cameron Huddleston: And so they might say, ‘Well, why? They seem to be doing fine. They’re not having health issues.’ ‘I know. And that’s why we need to do it now, before any issues arrive, so that we can make a plan together.’ And when you talk to your siblings, you want to agree on the roles you’re willing to play. You want to decide, who’s going to initiate the conversation? Maybe it’s one of you, maybe it’s all of you. Then you have to decide, OK, when are we going to do this? How are we going to approach this conversation? You also want to decide what roles you’re willing to play going forward. Maybe you live closest to mom and dad, so you’re willing to be the one who’s going to step in and provide any care that they need, take them to doctor’s appointments, you know, if you have to, let them move in with you or you would move in with them depending on your situation. Maybe your younger sister is better at money, and so she might be willing to step up and say, ‘Hey, Mom and Dad, I’m willing to be your power of attorney. I’m willing to help you out with any financial issues that you face going forward. I can be the one who will make those decisions for you if you no longer can.’ Hear out what roles you’re going to play so that when you go to your parents and have these conversations, when they see that you’ve talked and you are on the same page, that is going to lift a little bit of the burden off them. Because parents oftentimes are afraid to have these conversations because they’re afraid that perhaps it will create fighting among their children, especially when it comes to issues of wills and who’s going to get what. Because parents don’t always divide things up equally. And they don’t even want to discuss their will because they don’t want their kids to know who’s getting what because they don’t want their kids to fight. And so when you go to them and say, ‘You know, Mom and Dad, sister Susan and I have been talking, and we want to talk to you because we want to make sure that as you get older, we can help you out if you ever need it. And Susan’s willing to do this, and I’m willing to do that. But to do this, we need to get some information from you. We need to find out what sort of legal planning you’ve done. We need to know — you know, we don’t need to know details, we don’t need to know how much is in your bank account, but we do need to know where you bank.’ Coming to them as this united force is going to help, as long as it doesn’t look like you’re ganging up on them.

Tim Ulbrich: Sure.

Cameron Huddleston: The last thing you want to do is be like, ‘OK, Mom and Dad, my brothers and sisters and I, we need to sit down and talk with you right now, and you’re going to tell us everything we want to know.’ That’s the last thing you want to do. You don’t want to issue any sort of ultimatum, but if you can show them that you are on the same page, it can make it easier to have these conversations because they know that all of you are involved, that you’re looking out for their best interests and no, we don’t care what we’re getting. We just want to know whether you’ve put your wishes in writing.

Tim Ulbrich: And I love, I love that angle of laying that out there, of not only having a unified voice among your siblings but also coming at it from a, hey, this is not about what we’re getting us. This is about making sure that we have an understanding of exactly what you want and that we’re able to execute and minimize a lot of the difficulties and things that we already talked about. So what if we have somebody listening that says, ‘Hey, you know what? Me and my sibling aren’t on the same page. We disagree,’ or I could see a situation where maybe there’s multiple children, four or five, six kids, and just naturally, there’s going to be difference of opinion, even if they largely get along otherwise. What strategies or what advice would you have in those situations where there’s disagreement among siblings?

Cameron Huddleston: Actually, that can be very common. And what you want to do when you ask your siblings to have this conversation, beforehand, what would probably be a good idea is to actually make your own list of things you want to discuss so that you can kind of sort it out in your head. You know, you’re not flying by the seat of your pants when you have this conversation. And by putting it in writing beforehand, it’s going to help at least you stay calm when you have the conversation because you know the issues you want to address and you can anticipate, if you write this down beforehand, some of the responses you might get from your siblings. But when you sit down and have this conversation or if you’re going to do it on the phone or do it by Skype, you want to make it clear, we are having this conversation because our primary interest here is Mom and Dad. We want to look out for their best interests. And I think we can all agree on that. We want to do what’s best for Mom and Dad. Now, we might not agree on how to go about that, and that’s OK. And so basically, you want to do — I kind of walk you through this process that you can use that was suggested by a financial psychologist. You let everyone say, get a turn in saying what they want to discuss, how they want to go about talking to your parents, what they think is important. And you, as the person who calls the meeting, you go last.

Tim Ulbrich: Oh, I love that.

Cameron Huddleston: Everyone gets to say something. No one can interrupt. You go last. And then, this is what’s important to me, this is what I think we should discuss, and I hear what you’re saying. Let’s figure out a way that we can all come to an agreement. You want this, I want that, and you want this. Let’s find some common ground here. And always bring it back to Mom and Dad because in all honesty, they are your common ground. And so you’re looking out for them. And hey, maybe you want to do this, but maybe our brother perhaps has a good idea about how to approach it from this other way. Give everyone a chance to speak. You go last, and then find your common ground.

Tim Ulbrich: So once the siblings hopefully are on the same page, there then comes this conversation, the conversation with the parents. So what is the best time, what recommendations do you have in terms of when to have or not have this conversation? So for those listeners that are out there saying, ‘Alright, I’m ready. Me and my siblings are on the same page. We haven’t had it, but we know we need to do it.’ What advice would you have on when to have it? Or maybe when not to have this conversation?

Cameron Huddleston: Don’t do it in the middle of a family holiday gathering. All of you — a lot of people think that’s a great time to have the conversation because everyone is there together.

Tim Ulbrich: Everyone’s together, right.

Cameron Huddleston: Everyone is there together. But you don’t want to ruin a good family meal by bringing up the topic of your parents’ finances or end-of-life planning or long-term care. Don’t ruin a good family gathering by bringing this up. And there might be people there who don’t need to be part of the conversation: cousins, aunts, uncles, your children. They don’t need to be part of the conversation, and sometimes, family gatherings aren’t happy events. There are tensions there already, and so you don’t want to add to that tension by bringing up a difficult topic. If you and your parents and your siblings are only together, though, during these holiday times, at least wait until the next day. And you don’t necessarily have to have the full conversation then. You just simply let your parents know, ‘You know, Mom and Dad, my sisters and brothers and I have been wanting to talk to you about something. We don’t have to talk about it now, it’s the holidays, this is a happy time. We should be celebrating. But we want you to know that we want to have this conversation. So let’s figure out a good time when we can have the conversation.’ Let your parents have a say in this so that they feel like they have some control over the situation. If they’re having to give up some information that they might be uncomfortable sharing, let them have some control by setting up a time when they can talk, when it’s best for them.

Tim Ulbrich: And I think this is an example in the book where you get very practical — and I hope our listeners will pick up a copy and read this — Chapter 7, you have 10 tried and tested conversation starters. And I know, again, to my comment earlier, I felt like you were unfolding the text as I was wondering what could come next. And here, as I began to think about, OK, I’m ready, I’m comfortable, my sibling and I are on the same page, how do I actually execute the conversation? And I think your 10 strategies is really helpful in doing that. One of the things I want to talk through briefly — I know we could have a whole separate episode, and we probably will at a different point — talk about in more details the estate planning process and documents. But I think you do a nice job in explaining these concepts in a very easy-to-understand way. And you mentioned in the book that when talking with reluctant parents, one should start with the basics, essentially, the must-haves, and then work from there. And so I want to talk about these basics for a moment. Here, you have four things that you mentioned: will or living trust, power of attorney, advanced healthcare directive, and then the fourth being how do you pay for your bills. So let’s just walk through those briefly. Will or living trust, tell us exactly what is that document and why is it important?

Cameron Huddleston: A will spells out who gets what when you die. It’s a legal document, and if you don’t have one, your state has laws that determine who gets what. And so when you discuss this with your parents, your parents might say, ‘Well, I don’t need a will. You guys get along. Or your mother’s going to get everything.’ That’s not always the case. It’s not guaranteed that your spouse is going to get everything because in some states, the laws will divide everything up evenly among the closest family members who are still alive. So it might your spouse and your kids. And maybe you don’t want your kids to get that, you want everything to go to your spouse. But I don’t think people realize this because we’re not all attorneys. And unless you point these things out to your parents, they might have no idea why a will is important. A living trust is similar to a will, but what it does — again, it lets you say who gets what. But having a living trust helps you avoid what is called probate process.

Tim Ulbrich: Right.

Cameron Huddleston: Even if you have a will, you still have to go through court proceedings where everything is kind of sorted out. And if your parents have any debts, you know, they’re going to look at the assets that are left in the estate and with certain, they will use those assets to help pay off the debts. You will not have to pay them off as long as your name isn’t on those debts. And I know people worry about that, oh my gosh, I’m not going to inherit anything from my parents except their debt. No. You will probably not inherit their debt. Anything that they have left will help pay off those debts and so you go through this probate process. With a trust, it avoids the probate process. But a trust can be more expensive to set up, and you have to name a trustee. And if you, for example, have a home, and you don’t want to have to go through the probate process, you have to basically deed, put the title, in the name of the trust. It can be a little more complicated. It’s more expensive. And so a trust is not the right thing for everyone, but it is certainly an option that your parents might be interested in, that you might be interested in. But in general, the will and the living trust, they let you spell out who gets what when you die. And you don’t have to be someone rich and famous to have a will and trust. Everyone needs to have one.

Tim Ulbrich: Amen. And a special urgent call to action for those that have children and have wishes for where their dependents would go and what would happen with that situation, I mean, this is a must-have for everyone, but the sooner the better. And I can assure you as going through this process recently with an estate planning attorney, it is not as complicated as it may seem from the outside looking in. And I think, again, to our listeners, you did a really nice job succinctly in this chapter outlining these different areas, these documents, what they are, that I think would be a great read before working with an estate planning attorney to understand exactly what would be out there.

Cameron Huddleston: Right. And people should also know because your parents might push back and say, ‘Well, I’m going to have to pay money for this, right? I’m going to have to pay an attorney to get a will or a living trust or to get a power of attorney,’ which is a legal document that lets you name someone to make financial decisions for you if you no longer can, an advanced healthcare directive lets — it spells out the end-of-life care you want, whether you want to be on life support, it lets you name someone to make healthcare decisions for you. Without this, your family has to make that decision. Do we keep mom and dad on life support? Do we continue spending thousands of dollars? And that’s a terrible decision for you as a child to have to make. And so you want to let your parents know, I want you to make this decision. I want you to decide. I don’t want to have to make this decision for you. And your parents might say, ‘Well, this is going to cost me money. What’s it going to cost me to meet with an attorney?’ It will cost you money. It can cost several hundred dollars, more than a thousand, depending on how complex your situation is, to have all three of these documents drawn up. But that upfront cost is so much less than what your loved ones are going to have to pay if they end up in court, fighting over who gets what because you didn’t have a will, going to court to get conservatorship because you never named a power of attorney, going to court because one child thinks mom needs to stay on life support and the other one does not. Those can cost tens of thousands of dollars, those court proceedings. And so it does save your loved ones money down the road, but you don’t necessarily have to go to an attorney. There are fill-in-the-blank type documents that you can find online. I’ll list some resources. Sometimes, your state bar association will have free wills available. Now, these do-it-yourself options are certainly better than nothing. But they are not ideal because they’re not tailored to your own situation. So if you can afford to meet with an attorney, if your parents can afford to meet with one, I would encourage them to do that. And you might even offer it as a gift to your parents.

Tim Ulbrich: Yes.

Cameron Huddleston: ‘Mom and Dad, I recently met with an estate planning attorney. I didn’t even realize how important these documents were. I think that if you haven’t done it already that you should. And I’d be more than willing to pay for them for you. Think of it as a gift from me. Happy Father’s Day. Happy Mother’s Day. Merry Christmas. Happy Hanukkah. This is my gift to you.’

Tim Ulbrich: I agree in your assessment of if I had to rank order, then, because I’ve been in all three situations. I’ve been with I have nothing, I have a DIY, and I have documents drafted by an estate planning attorney. I put those in that order from worst to best. And even if I could speak to for a moment, the DIY versus the estate planning attorney, not just the peace of mind of having the documents in place for your family but also what you learn through the conversations and the back-and-forth to the attorney. So we did — my wife and I did an hour video call with the estate planning attorney, then they drafted up the documents, and then we had a follow-up call as well. And there was just a lot that you can talk through, you can process, they’re asking good questions, they’re beginning to understand your personal situation, what’s unique and what you need to consider in helping you make those decisions but also then being there to answer questions. You know, I’ve learned a lot of things about making sure obviously life insurance policies and other types of things and what would fall in the trust, what would not. So there’s a lot of things I think you learn through that process of working with an attorney that I didn’t necessarily learn when I went through the DIY approach. And so for our listeners, if you want, just a point of reference — knowing this is different, obviously, by state, by attorney — it cost my wife and I about $1,000 to have a will, a living trust, a power of attorney, and an advanced healthcare directive drafted for both of us. So you know, certainly it was a cost. But I think you also have to factor in peace of mind into the process as well. One of the things, Cameron, I think you — at least for me — was a “holy cow, Aha!” moment was that I often think, as I think many others may think, is that once you have the will or living trust, the power of attorney and the advanced healthcare directive, it’s sort of a moment of like, look at me, I’m doing a good job, all is settled. And then I saw your list of, you know, how do you pay for your bills? And what are the sources of income, bank account access, household debt, monthly bills, insurance policies, investment accounts, real estate, final wishes, social security, Medicare account logins, like oh my goodness. Like if something were to happen to my parents tomorrow, my brother and I are in a very good position with the estate planning documents, but I don’t think we are with the others. And so I really liked that section on, hey, start with these as the basics, but the more advanced, when they’re ready to share, don’t forget about these aspects as well.

Cameron Huddleston: Yes, so if you — this is so important, especially if you are your parents’ power of attorney or you are the executor of their will, you need some details about their finances so that if something does happen to them, and especially if you’re executor, I mean, everyone dies. And so when they do die, you need to know what they have. You need to have their financial inventory because if you don’t, things get lost. Like I’ve heard people say, estate planning attorneys saying that there were people who found boxes under their parents’ bed with old stock certificates. I mean, they could have tossed that stuff out. That’s just throwing away money. And this happened with me and my mother. And I would just go back —

Tim Ulbrich: Oh, the $50,000, right?

Cameron Huddleston: Yes.

Tim Ulbrich: I remember, yes.

Cameron Huddleston: Yes. And so I did get my mother in to meet with an attorney before her memory issues got to be too bad. She was still competent enough to sign the documents, and that meeting with the attorney, like you said, was so good because we learned about other things we needed to be doing, like how I should go to the bank with her and get on her account as a representative payee, how we discussed Medicaid planning, which I kind of touch in the book, which is something you do need the help with an attorney. Medicaid is the only federal government program that will pay for long-term care. Medicare does not. But I think as most of your listeners probably know, you have to be very low-income to qualify for Medicaid. You have to have very few assets, typically $2,000 or less. And you can basically go through the process of transferring your assets so that you can qualify for Medicaid, but this is something you need the help of an attorney with. This is something that my mother and I discussed with an attorney when we there. So meeting with the attorney opened our eyes to a lot of options that were available to us. But even though we got those documents in place, I had not gotten details about my mother’s finances. And because she was starting to have memory issues, and as her memory got worse, and I was trying to figure out what accounts she had, there was one that slipped under my radar. And I didn’t discover it until we had moved, and the people who bought our house, they were getting mail from some investment company saying that there was an account my mother had they were about to turn over as an unclaimed asset to the state. I had no idea it even existed. It was $50,000 worth of investments.

Tim Ulbrich: Wow. Makes you wonder how often that happens. Yeah. Wow.

Cameron Huddleston: And so because I was her power of attorney, I was able to get access to it. I just went ahead and cashed it out and used it to pay for about a year’s worth of care. But I almost lost that money because I didn’t even know it existed. And so start by finding out whether they have the legal documents, find out whether they pay their bills automatically or by check. Because if they’re paying them by check, then that power of attorney is especially important because you cannot write checks from their account unless you’ve been named their power of attorney. And then once they give you that sort of information, press a little bit more. Like you had mentioned, I tell people to find out what their sources of income are, what sort of investments they have, what sort of retirement accounts they have, do they have real estate property, what sort of insurance policies do they have, and you don’t have to get them to tell you this face-to-face. You could say, ‘Mom and Dad, there’s some information I would like to know. You can write it down for me.’

Tim Ulbrich: Absolutely.

Cameron Huddleston: Which makes it so much easier. Write it down, put it someplace safe, and tell me how to access it.

Tim Ulbrich: Yeah, and I like that. Ryan Inman, another financial planner with Physician Wealth Services, mentioned in the book with his family setting up a DropBox account and sharing files that way. I thought those strategies of some of the electronic communication and sharing might even be easier if there’s not as much comfort with some of the face-to-face conversations. So before we wrap up — because we really are just scratching the surface of I think the value and how rich this book and resource is. I hope our listeners will pick up a copy of the book, again, “Mom and Dad, We Need to Talk: How to have essential conversations with your parents about their finances.” You can get it on Amazon, on Barnes & Noble, and also make sure to check out Cameron’s easy-to-understand financial advice on CameronHuddleston.com or by following her on Facebook @CameronHuddlestonMoneyExpert. But I want to close by acknowledging something that you wrote in your final note at the very end of the book that has nothing to do with personal finance but really stood out to me, and I think it will with our listeners as well. And that’s this concept of listening and writing down stories from your parents. Tell us more about that.

Cameron Huddleston: You know, as I was finishing up the book, I thought, one of my biggest regrets, as I mentioned already, is not talking to my mom about her finances. But an even bigger regret that I have is not ever sitting down my parents and recording the stories that they would share with me when I was younger. My dad would tell me these wonderful stories when I was little at night, when I was going to bed, about his childhood. And my mother had some great stories too. But I didn’t even think to do this until it was too late. You know, my father had passed away when I was 28 and he was 61. My mother, you know, she was 65 and having memory issues, and my kids were little. I was too busy thinking about raising my kids and trying to take care of her to ask her to share her stories with me. And I regret that so much. And you can even use that as an opportunity to have these conversations with your parents about their finances. You know, ‘Mom and Dad, you always tell me these great stories when I was a kid about your childhood. Would you mind if sometime, we sit down together and you let me record you?’ And then from those stories, you can take that experience and say, ‘Thank you so much for sharing this with me. This is going to help me pass along your legacy to my children. But I also want to make sure that I really, that I can really make sure that we uphold your legacy. And to do that, I need to know what your wishes are. Do you have a will? Can we talk about what sort of care you want? Because this is important to me.’ And so that can be a very easy way to actually get them to start talking about their finances by getting them to share their stories first, letting them know your stories, your history, these are important to pass along. But there are other things I’m sure you want to pass along too. Let’s make sure we have things in place so that can happen.

Tim Ulbrich: That is great. I really like that. I’m so glad you shared that at the end. I know it was something that will stick with me for a long time. One of the things I talk about on the show a lot, and I interview other entrepreneurs about is the concept of legacy and what they’re leaving behind in the work that they’re doing. And as I read through your book — and I’m not yet as familiar with the other work that you are doing, although I’ll be following that from here on out — I really am confident, and I genuinely mean this, that I think this book in terms of legacy of the work that you’re doing is going to be transformational, not only for our audience but obviously for many others that read it and are listening, that these are such important conversations that I think are going to provide peace to families, provide clarity, and really help people with practical strategies to have some of these difficult conversations. So Cameron, thank you for putting together this excellent resource. Again, the title of the book, “Mom and Dad, We Need to Talk: How to have essential conversations with your parents about their finances.” You can get it on Amazon, Barnes & Noble. And again, thank you for taking time to come on today’s show. I appreciate it.

Cameron Huddleston: Thank you.

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YFP 066: 10 Home Buying Lessons Learned

Posted on September 20, 2018November 2, 2022 by yfpadmin

10 Home Buying Lessons Learned

On Episode 066 of the Your Financial Pharmacist Podcast, Tim Ulbrich, Founder of Your Financial Pharmacist, talks through 10 home buying lessons that he learned over the past few months as his family makes the move from Northeast Ohio to Columbus. He shares the good, the bad, and the ugly and hopes these lessons learned will help you in your home buying journey.

Summary of Episode

Tim Ulbrich shares the top ten home buying lessons he’s learned.

DIY route
Read, re-read and understand the fine print
Set your own budget
Ask lots of questions
Put 20% down
Shop around
Consider the total cost of buying a home by including all of the fees
Long-term hidden costs can make a difference
Value of an emergency fund
Have a great team around you

Mentioned on the Show

CommonBond
YFP Episode 064: 6 Steps to Homebuying (Part 1)
YFP Episode 065: 6 Steps to Homebuying (Part 2)
Real Estate RPh
YFP Concierge Service w/ Nate Hedrick
YFP Facebook Group
Send in Questions for Real Estate Rapid Fire Q&A
Homebuying Quick Start Guide
Script Financial
Wyndam Capital Mortgage
Dave Ramsey
The Millionaire Next Door: The Surprising Secrets of America’s Wealthy by Tom Stanley
New York Times Rent or Buy Calculator

Episode Transcript

Tim Ulbrich: Welcome to Episode 066 of the Your Financial Pharmacist podcast. I’m excited to be here, and this week I’m flying solo, following up on the two-part episodes that we did in episodes 064 and 065 with Nate Hedrick, the Real Estate RPH. And he’s going to be coming back on next week in Episode 067. We’re going to be doing a rapid-fire Q&A all about home buying. So if you have questions related to home buying, make sure you get those questions answered and ask them. You can head on over to the Your Financial Pharmacist Facebook group or shoot us an email at [email protected], and we’d love to feature your question on the podcast next week in Episode 067.

So this week is all about lessons that my wife, Jess, and I have learned and in some cases, to be frank, mistakes that we’ve made during the home buying process. So we are in the thick of it right now, actually getting ready to move next weekend from northeast Ohio to Columbus, Ohio, so I’m in transition from my job at Northeast Ohio Medical University to Ohio State University. Go Buckeyes! Excited about the opportunities ahead and with this transition, of course, comes selling and buying a home. And so just a few weeks ago, when we were planning this episode, believe it or not, it started as five lessons learned. And it quickly grew to 10. And to be honest, it probably could be many more than that. But that’s just sometimes how it goes. And so this episode is about being transparent, it’s about being honest — I’m not going to hide anything from our listeners — and the reality is, even here, a topic that I feel like I know fairly well, I think this just shows that anything related to personal finance, we’re prone to making mistakes. There’s something to be learned in everything that we do. And obviously, I’m hopeful that these lessons can be passed on to you all in the community and can even help Jess and I as we go through this process again in the future.

So to be honest to the listeners, this process of home buying — and for those of you that have gone through it recently, you know that it can be exciting, it can be emotional, it can be stressful — all of which have a tendency to throw us off of our financial game. And I think when we’re talking about such a large purchase and a home buy, and obviously, the selling aspect of it as well, there’s lots of emotions that can be flying around, lots of excitement, lots of highs, lots of lows. And all of those I think are the more reason that we have to have our financial guard up when it comes to home buying and making sure we’re educated and ready to make the best decisions in this area.

And so a couple reminders that I have before we jump into some background about the move that Jess and I are going through and then I’ll jump into the 10 lessons learned. And if you listened to Episode 064 and 065, we reference that all of the month of September is about home buying. And so along with this month, we’ve developed a YFP first-time home buying quick start guide that you can download for free at YourFinancialPharmacist.com/homeguide. Again, that’s YourFinancialPharmacist.com/homeguide.

OK, so here’s the background. Jess and I have been living in northeast Ohio since 2009, actually neither of us are from this area. I grew up in Buffalo, New York — go Bills — and Jess grew up in the Toledo-Bowling Green area in Perrysburg she spent most of her life, and we’ve been in our current home in Rootstown, Ohio, for eight years. And we actually rented for one year prior to that, so we made the move directly after my year of residency. We came up to northeast Ohio, we’ve been here for nine years. Eight years, we’ve lived in our current home, and we had one year that we rented prior to doing that. Now, when we bought in 2010, we bought with an FHA loan — and you’ve heard us talk about that in episodes 064 and 065. And the main reason we did that is because we didn’t have 20% down for the home. And I’m going to talk about that as we do go through these 10 lessons that are learned. So we only put 3.5% down, which is standard with an FHA loan. At the time, we had lots of student loan debt, as you’ve heard me chronicle my journey before, had no significant emergency fund and had no clue, no idea of the process that’s involved. And ironically, as I look back on that, there was very little stress that was involved with that purchase when in fact, there probably should have been a lot of stress. Very little down, lots of student loan debt, no significant emergency fund, and having really no clue of what was going on and the papers that I was signing. Now, here we are in 2018, we’re moving to Columbus, exciting new job, going to be starting at Ohio State. I have no student loan debt, we’re able to put 20% down, we have a fully funded emergency fund, we’ve got a great retirement account and to start on that retirement. And I think we have a decent, solid understanding of the process. But to be honest, I’m finding it incredibly stressful. And I don’t know if that’s because I’m more aware of what’s going on, I’m more concerned about the places where things can go wrong, maybe I have a little bit of post-traumatic from 2010 and thinking of the things that I could have done better. Whatever the reality is, what I’m fearing right now in the moment as we’re about to close in the next week is I’m feeling a little bit stressed, a little bit anxious and obviously, there’s so many moving parts that go along with this process. And hopefully, we’re going to cover many of these in these lessons learned.

Now, the big difference here in 2018 is that we are both buying and selling. And obviously, all that comes with that and the timing of that can be incredibly stressful. So here’s the deal. At the end of the day, home buying, like any other part of your financial plan, it’s all about being intentional. Being prepared, putting it in the context of the rest of your financial plan, and giving yourself from grace when you make a mistake here or there, and learning from those mistakes and being willing to share those mistakes with others. The only difference here is this is arguably the largest purchase that you’re ever going to make.

And so here we go, 10 lessons that I’ve learned or maybe a better word here would be mistakes or maybe even things that have been reinforced for me as we went through the process back in 2010 and I’m reliving here in 2018.

No. 1, the DIY route, the Do It Yourself route, has saved us a lot of money. BUT, capital B-U-T, is that wow, it has been a lot of work and to be frank with you, I’m not sure if I would do it again. Now, what am I talking about, the DIY route? So No. 1 here, the DIY route has saved us a lot of money, but it’s been a lot of work, and I think it’s added a lot of stress along the way. So what I’m referring to is in terms of the DIY of the sale of our home. Now, the only reason we are doing a for-sale-by-owner is because we literally have somebody in our neighborhood that was interested in buying the home. And so long story short, a few months ago when we were just getting ready to think about putting our home up for sale, we have a Facebook community group that has a, somebody sent out a message and said, ‘Hey, we’ve got somebody in the neighborhood that’s been renting. They’re looking at buying. Is anybody looking at selling their home in the next year?’ Saw the message and said, ‘Well, in fact, we are.’ And so I reached out to them and said, ‘Hey, we’re looking at selling. If you’d love to see the home, we’d love to have you come over and check it out.’ They came over two days later, came back and saw the home another week later, and they said, ‘Hey, we want to buy the home.’ And so obviously at that point, I didn’t feel like we needed to have a realtor in the process to be giving up 6-7% of commissions on the home. And so ultimately, by not having a realtor in the process, that saved approximately $12,000-15,000 if we were to assume a 6-7% realtor fee on the sale price of the home, which is pretty standard. Now, that sounds great, $12,000-15,000, but as I’ve alluded to in the intro to this No. 1 DIY route saved us money, but is it’s been a lot of work, a lot of stress and a lot of ups and downs all the way. And so because we had a neighbor that was looking to buy it, it made sense, we didn’t have to go through the process. We have three young children, so going through that process of listing the home, showing the home, we’ve been through that before and we know how much work that could be. However, as I look back and as we work through the process of making sure the language in the purchase agreement or the contract was in line, looking and finding a title company that we felt comfortable with, being in constant communication between the parties, the different lending agencies, the title company, the sellers — or excuse me, the buyers that are looking at the home, you are that central glue to the process. And really, the thing that I think has got me the most is the uncertainty that can come with this process. And things have literally been in flux from the second we started working with these buyers. And nothing that necessarily is on their back, but they ended up switching lenders because they were having difficulties with one lender, which re-started the entire process, which meant that there was paperwork that had to get re-filed, and ultimately, we are now running up against potentially not having our closing dates align — fingers crossed we’ll hopefully figure that out tomorrow if that’s going to happen. And ultimately, we are so far along the process with them and we have been along the way, and it’s a great opportunity to have them involved so early, but where ultimately it’s at some regards at the whim of what’s going on in their situation, and so that can make things quite different. And now I will say if I did not feel comfortable with working a title company that we had a good connection with, being able to reach out to the Real Estate RPH, Nate Hedrick, with a question here or there, working with my financial planner and YFP team member Tim Baker, obviously all those really help support me along the way. But I think that as I look back on this journey, I’m not sure that I would do it again, although ultimately, it did save us money in the process, so what’s the lesson learned to be here? If you are somebody that is selling your home and you’re looking at the DIY route, make sure that you feel comfortable and understand all the pieces and parts of the process and not just look at what am I going to save by not having a realtor fee, but do you feel comfortable with everything that’s behind you and how might that also impact you on the buying side of things? So that’s lesson learned No. 1.

Lesson learned No. 2 is the importance of reading, re-reading and understanding the fine print. Now, this sounds like common sense, and you’re probably thinking, Tim, come on. You do this all the time, how do you not read the fine print? Now, it’s not that I didn’t read the fine print, I’m actually quite obsessive about reading the fine print. But it’s making sure that you don’t assume things along the way in the fine print and you re-read the fine print. And obviously when you’re going through this process, you’re excited about buying a home, you’re excited about selling a home, you want things to naturally work out, so you have an optimistic lens in which you’re reading things. And so I think that tendency there, at least it was for me, is to not really read to the detail and understand to the detail that you’re asking the tough, probing questions and you’re not making assumptions that somebody else is taking care of it. And so there’s lot of fine print to read. You have the purchase agreement documents, you have a loan estimate documents that will show you as you get closer to close what are all the different fees involved and what you need to bring to the table as you are selling your home, and as you’re buying your home, what you need to bring to the table at the point of close and what are all those fees that are involved and do you understand exactly what that 85-page document says. And if not, are you willing to ask the questions along the way? You know, what a couple examples that I’ve run through along the way here is actually in a home that we were looking at purchasing in Columbus, that ended up falling apart is that there was something in the contract, which come to find out is actually pretty standard in Columbus contracts, that essentially gives the sellers a three-day, 72-hour clause, almost like a seller’s remorse clause. So if for whatever reason within 72 hours the seller decides, you know what, I really don’t want to sell my home because of reason A, B or C, they can pursue that if they issue an attorney letter explaining exactly why they do not want to pursue that, and that ultimately gives them a right out of that contract or at least to have to offer a counter to that, but of course, they could offer something that is egregious and ultimately, you’re not going to be interested in anyway.

So I’m going to give you an example of this is that we were looking at a home in Columbus. And I never knew that a washer and dryer were something that would be such a big deal to a seller. So long story short, in Ohio, it’s pretty standard that your appliances are going to stay with the home, the washer, dryer, that was going to stay, that was in the contract. We were on vacation, we get a call from our real estate agent, who says, ‘Hey, you know what, the buyer — excuse me, the seller really didn’t want to give up their washer and dryer, they didn’t mean to do that. Can they pull it out of the contract?’ And without even thinking much about it, not really objectively thinking, you know what, now we’re going to have to spend money to buy a washer and dryer, wasn’t trying to be a jerk but said no problem, they can keep the washer and dryer. Just add $1,000 toward close and we’ll go out and buy a washer and dryer. Well, that apparently sent the seller off the deep end, and I guess if you love your washer and dryer, you love your washer and dryer, that’s how it is. And they decided to pursue that clause, issue an attorney letter, spent $300-something dollars to do that, and came back with a counter offer that was $20,000 above what we had originally agreed on, which obviously, we were not interested in at that point. And so the lesson there was I read the purchase agreement. I read every detail of it more than once. But I never caught that section and the detail that obviously until it plays out, I thought maybe you can’t even necessarily do that. And so making sure you’re asking questions where you’re confused, you have people around you that can help and support you, and I think what I’ve learned is that by reading the fine print and showing a commitment to your real estate agent if you’re working with one, to the title company, to the lender, the more you are reading, you’re learning, you’re asking questions, I think the more informed buyer that you are, and it keeps all parties accountable and they’re ready to answer your questions because they know they’re probably coming. So No. 2 is the importance of reading the fine print.

No. 3 is a key one. And Nate and I talked a little bit about this in episodes 064 and 065, but I want to reemphasize it here is that you as the buyer set your own budget. Do not let the bank or the lender set your own budget. And I can speak here from firsthand, going through this right now, is that it’s easy to look at a certain range and then you start looking and you think, that would really be nice or this area would be really nice, and all of a sudden, you’re creeping up. And if the lender is setting the budget for you, you’re not going to necessarily really evaluate does the purchase of this home fit within the context and the other financial priorities that I have? It’s a great example that’s right now is that when Jess and I started working with our lender, Wyndham Capital, who has been outstanding, they’ve done a great job, is that they essentially — and this is in part because I think the lending is fairly loose right now because of how good the market is versus where it was, say, 10 years ago after the crash — they pretty much said, I hear what you’re saying, I know what you want, but you can have double that. Or are you sure that you need to or want to sell your current home? Because you know what, you don’t necessarily have to from our end. And so remember, and Nate talked about something called the 28-36 rule that will be used by the lender in determining what they will allow you as a maximum, what they will allow you as a maximum, to take out or to loan. And the 28-36 rule basically says that a household should spend a maximum of 28% of its gross monthly income on total housing expenses, total housing expenses, and no more than 36% on total debt, including housing and other debt such as car loans and other debt that you have as well. So the 28-36 rule, which may be used by a bank to determine what they will allow you or what they will give you in a pre-approval, $400,000, $500,000, $300,000, isn’t necessarily what you should be purchasing in the context of your other financial goals. And this is where it’s really critical to take a step back and say, what other financial priority goals am I trying to achieve? Maybe it’s paying back student loans, maybe it’s paying off credit card debt, saving for retirement, kids’ college, whatever the other things that you’re working towards, and how can I purchase a home in a way that allows me to achieve these other goals? And what is the maximum I am willing to do in terms of that purchase, not what the bank is willing to give to me.

So just quickly, a couple rules of thumb that I really like that you may have heard of before. If you’ve listened to or read any of Dave Ramsey’s stuff, he refers to a mortgage payment — and there’s different variations I’ve heard of this — a mortgage payment — it could be the mortgage alone or it could be the mortgage and insurance, it could be the mortgage, insurance, taxes and interest, so you’ll hear different versions of this — that is no more than 25%, no more than 25%, of your take-home pay. So if your monthly take-home pay is $8,000, this rule of thumb would say that your mortgage payment, and if you want to be conservative, with taxes, with insurance, with interest, your total monthly payment would be no more than $2,000 if you had an $8,000 take-home pay. Now, what that’s trying to do is prevent you from becoming or feeling like you’re house-poor. So if you have other goals that you’re trying to work on and achieve, you know then that no more than 25% of your take-home pay is going toward your home. Therefore, you’ll be able to achieve your other goals. Now, that’s a great general rule of thumb, but some of you maybe listening have no student loan debt, others of you may have $200,000 of student loan debt plus credit card debt plus very little progress on retirement, and obviously, those two situations would be very different. And so you need to evaluate this on a case-by-case basis.

Another rule of thumb is from the book, “The Millionaire Next Door,” by Tom Stanley says that no more than 2x your household income on the purchase price of a home. So if you have a household income of say $150,000, no more than $300,000 on the purchase of your home. Again, that’s trying to get to this idea of preventing you from becoming house-poor. And I cannot emphasize right now for those of you that are looking at buying in this moment, the lending right now — and I’ve experienced this firsthand — is pretty loose, meaning that you as a pharmacist with a good income, a good, stable earning potential, I think you’re going to find that the bank is willing to give you much more home than you probably need to have and that you probably want in terms of the other goals that you’re trying to achieve. And so what I really encourage you to do is zoom out of the lens of just the monthly payment and look at the total payout of what this home is going to cost you. So as one example, if you were to have a purchase price of a home around a $350,000 with mortgage, taxes, insurance, assuming a 30-year home with about a 4.5% interest rate, it’d be about a monthly payment of $1,900 a month for 30 years. If you do the math, that $350,000 home over the course of 30 years, you’re going to pay out about $684,000. Now, it doesn’t mean it’s a bad decision. It may be a great decision, depending on the other financial goals and what you’re trying to achieve, but looking beyond just the monthly payment also helps you look at this in a different way and evaluate how does this fit in with the other goals that you’re trying to achieve.

So No. 3 here is set your own budget, it’s a great reminder. Jess and I had this reminder this year, especially as the lending is loose. Don’t let the bank set the budget for you.

No. 4 is ask lots and lots and lots of questions. And I alluded to this a little bit in No. 2, but Jess and I have experienced this firsthand is that you want to be respectfully annoying. Be respectfully annoying because I think asking questions and showing a desire to learn, as I mentioned before, keeps all parties — the title agency, the loan officers, the lenders, everyone that you’re working with — let’s them know that you have a desire to learn, let’s them know that you’re ready, you’re invested, and I think it keeps people more accountable along the way. And I’ve had several individuals in this process, everyone from the loan officer to the title agency say, ‘You know what, I can tell that you’re really interested in this, and I usually don’t get these types of questions.’ And I think ultimately, I want them to know that I’m probably going to be asking questions. I think that helps them give me a more detailed and thorough response, also helps keep them accountable to make sure that they are giving the attention due to the process that is going along the way.

And I think this is really true of anything, whether it’s a home, a car, any major purchase that you’re making, an educated buyer, I truly believe, is going to get the best value along the way. And so just a few examples that we have in the lesson learned of the value of asking lots of questions is by asking lots of questions along the way, this has allowed us to negotiate and reduce title fees that actually identified an error in a property tax calculation that got corrected — and maybe that would have probably been identified anyways, but that question really helped identify that, and obviously that led to a reduction in what will be our future monthly payment. And for us, most importantly, as those two examples I just gave you are short-term savings, is that it helped us ensure we understood the process and we know exactly what we’re paying for. So whether it’s cost at closing or whether it’s when we send in that monthly payment each and every month, I know exactly where that money is going each and every month. And I think obviously that is powerful in and of itself, but I think it’s valuable just to know going into the future when we do this again or as we’re helping guide others in the process as well, knowing where that money is going, I think obviously is going to help motivate us to eventually get this paid off and turn this liability into an asset.

OK, so No. 4 is asking lots of questions.

No. 5, I’ve hit on this many times on the podcast and in blog posts, is the importance of 20% down. Now, no judgment here. I’m speaking from making this mistake back in 2010, I alluded to that at the beginning of the episode. Jess and I put 3.5% down through an FHA loan, and to be frank with you, we were paying for that for many years — really up until probably the last year because the reality is the way the mortgage is constructed with interest, it takes so long to build up equity in a home. And so to me, there’s lots of reasons to have 20% down on a home. Instantly, you have equity in the home. So if something like 2008 were to happen and the housing market would flip, you’re not likely to be underwater on your mortgage. Or what if you go to sell unexpectedly in two years because of a job change? And maybe you thought you’d be there 10, 15 or 20, you could build up equity, but you’re not for whatever reason or something unexpected happens. Now, you may not have enough equity in the home to cover all the costs associated with selling that home. And obviously then, you’re going to need additional funds to bring to the table to cover those costs.

Other advantages of 20% down — obviously, no Private Mortgage Insurance, we’ve talked about that, PMI, which is foreclosure insurance. You don’t have restrictions that are associated with loans like an FHA loan, which is in terms of how that PMI is structured and how you’re going to pay it, more stringent inspections and appraisal processes. And I think obviously, 20% down just keeps it simple. No PMI, no restrictions on how that loan is being structured, a cleaner inspection, appraisal process, you’re not trying to buy points in the process and trying to eventually get your PMI reduced. It makes a conventional loan purchase process incredibly simple, and I think it makes you an attractive customer to the lender. That’s something I heard over and over again from the lender that we’re working with, Wyndham Capital said, ‘You know what, you’re a great buyer. And we’re glad to be working with you,’ and I think it’s because of that 20% down, they obviously feel very comfortable with that conventional loan.

Now, the other thing I think 20% down really does — and again, I’m speaking here out of a personal mistake — is that it forces you down in the expectation of the home that you’re buying. It forces you down in the expectation of the home that you’re buying. Now what do I mean by that? If Jess and I right now were to say, ‘You know, we really want to buy a $500,000 home,’ if we stayed committed to 20% down, that would mean we have to come up with $100,000 in cash to be able to go to closing at that home plus the closing costs on top of that. Now, if we don’t have $100,000 equity in our current home or we’re buying for the first time, that obviously is going to take a lot of time to build up $100,000 of cash to be able to close on that home. So I think what that does if you stay committed to 20% down, you say, you know what, maybe that’s a $250,000 home. Maybe that’s a $300,000 home. Maybe less than that or maybe slightly more than that, depending on the market that you’re living in, will allow you to potentially buy down on the home, whereas if you go into a 0% down loan or a 3.5% down loan where you have to bring very little, if any, cash to the table, obviously I think it’s much easier to buy up on home and find yourself in the situation where you feel house-poor.

So 20% was the lesson learned No. 5, and I think here, this is an important point where you really have to evaluate, am I rushing to buy a home? Should I stay in a rent situation for longer? Should I buy? We have talked about this at great length, and what I would reference you to and will link to in the show notes is the New York Times has a great rent v. buy calculator that really helps you look at this in an apples-to-apples way in the best that you can to make the comparison. Because I know the trap that I fell into was well, I’m paying $1,100 a month for rent, my mortgage with taxes and with insurance is going be $1,100 a month. Why wouldn’t I buy a home and build up some equity? And the reality I learned, which is an obvious one now looking back is that I was really building very little, if any, equity because of how the loan was structured and because I had almost nothing down and I forgot to include all those other fees on top of that in terms of the maintenance and everything that comes with the home that easily is upwards of 30-50% of the mortgage payment by itself.

So before we jump into points 6-10, I want to take a quick break and just re-emphasize something we talked about in episodes 064 and 065 is that if you are looking to buy or sell a home, get started in real estate investing or have a question that you want to have answered by a licensed real estate agent that is also a pharmacist, make sure to head on over to YourFinancialPharmaicst.com/realestateRPH to get in touch with Nate Hedrick, the Real Estate RPH. Again, that’s YourFinancialPharmaicst.com/realestateRPH. And you can submit your question. We have a few details and information to fill out, and he will respond to you as soon as possible. Again, we’ll have him back on in Episode 067 for the rapid-fire Q&A on home buying.

OK, so points 1-5, we covered lessons learned. No. 6 is shop around. Shop around for title companies that you’re working with if your contract allows that, shop around for the lender that you’re going to work with, but be careful how you do it. So lesson learned No. 6, shop around, but be careful how you do it. Now, why am I saying be careful how you do it? So I made a mistake — and I alluded to this on Episode 065 — I made the mistake of saying, I’d really like to see this tool that’s out there now advertised called Lending Tree becuase if it’s a good tool to compare for lenders, rather than just depending on the local bank or a lender that I’ve worked with previously, I’d love to be able to share that with the YFP community. Now, I’m glad I tested that first because honestly, I would not recommend that you use a tool like Lending Tree because I submitted my information, and literally for about a month-long period of time, I was getting phone calls and voice messages all day long of lenders trying to get ahold of me, even long after I selected a lender. And so I think that the point here is a good one is shopping around and not just depending on one lending quote or one title company, whatever you’re working with, one real estate agent, is really shopping around will allow you to look at multiple options just like you would with any other major purchase. However, do not just focus on the price when it comes to a title company or an insurance quote that you’re getting or a commission that you’re going to pay a real estate agent or a rate that you’re going to pay a lending company on your loan. That certainly is a critically important factor, but you need to make sure you’re looking at the other components like are they easy to work with? Are they communicative? Are they responsive? Do they have a good reputation? Because I can tell you from this process over the last month, all of these individuals I’ve been in touch with, on some weeks on a daily basis. And so working with one lending agency that’s going to give you a 4.55% rate versus another that’s going to give you a 4.6% rate, but one’s not going to respond to you as much or not going to close on time, they’re going to cause you a lot of headaches, you have to really evaluate is it worth it? And obviously, if you can get the best of both worlds, that’s the place to go. And so making sure you’re shopping around for all these different areas, making sure you know what is and is not neogtiable, I think is a great lesson to be learned, certainly one that I’ve learned. But be careful how you do it in terms of getting multiple quotes.

Lesson No. 7 is make sure to consider all of the total costs and fees that are associated with buying a home — and if you’re selling a home, obviously that’s associated with the selling as well. And to be fair and to be honest, don’t be surprised by a few more that come along the way. And there was sometimes I would look at documents, and just this past week, I was looking at our loan estimate closing documents, and all this laundry list of title fees and no explanation of what they are. And they ended up being legitimate fees, but again, back to being an educated buyer, making sure you’re asking questions, making sure you’re trying to compare one of these to another if you’re looking at shopping around with two different companies, but I think what tends to happen when you’re buying a home is you hone in on the sale price of the home alone. So ooh, that home’s at $350,000, it’s within our budget. Great, that is certainly an important factor, but what about all of the other fees that are involved.

Now, if you’re just buying a home, as Nate mentioned on the previous episodes, there’s really no realtor fees that are involved because of how they’re absorbed by the seller, so that’s simplified somewhat. However, when you’re on the selling end, you obviously have the realtor fees, which can be 5-7%, roughly, of the sale of the home. And depending on the purchase agreement, you may be responsible for some of those at the buyer’s expense. And obviously, that can vary from state to state, region to region, purchase ot purchase. You’ve got the down payment on the home, you’ve got the appraisal cost, you’ve got inspection, you’ve got title fees, you’ve got prepaids at close in terms of homeowners insurance and mortgage insurance if you don’t have 20% down, and property taxes and HOA fees. You’ve got moving fees, right? So if you have to pick up and move across the state or across the country, are you going to hire a mover? Are you going to do it yourself? Are you going to have them pack? Are you not going to have them pack? And of course, you have the transitionary fees. So as you’re in the pack-up phase, you’re probably eating out more, you’re taking trips to Lowe’s to fix things on your current home before you sell if that’s the case or when you’re buying a home, when you get there to do some quick home improvements. So really set out and not just look at the purchase price and say, ‘OK, we got to 20% down or whatever our goal is.’ But look at all of the costs that are involved with the purchase along the way.

And prior to this episode, I sent a note out to our Facebook group to say, hey, what are some of the lessons that you’ve learned along the way when it comes to home buying. And I like what Wes said in terms of ‘be wary of what’s called a special assessment fee in a new neighborhood. Typically, it’s a fee being applied to each homeowner for the cost of development of the new neighborhood. Think bonds taken out by the municipality that include interest that then are being applied equally to each new homeowner for a period of time, say it’s 10 years.’ So Wes, thank you for contributing. For those of you that are not yet a part of the YFP Facebook group, we’d love to have you join. And I think that’s just an example of this laundry list of fees and miscellaneous fees and more fees that can come along the way. And I think the lesson that Jess and I learned is we are so focused on the sale price and so focused at getting that 20% down, thankfully, we had some buffer beyond our six-month emergency fund, our 3-6 months emergency fund to cover some of these other costs. But making sure you’re really looking at the entire picture of all fees that are involved. So that’s No. 7 is consider all the costs.

No. 8, the lesson learned here is the long-term “hidden costs” when buying a home that can make a difference. Now, I’m not talking about the transactional cost, I’m talking about the long-term hidden costs beyond what I just covered in lesson No. 7. So here, we’re talking beyond the sale price, beyond the transaction costs. So what I’m referring to here are things like property taxes, homeowner’s insurance, HOA fees, local income tax if that is applicable or not. And so I think here that again, another area you tend to focus, I know we tend to focus, on the sale price of a home. But in reality, from one neighborhood to another in the same city, your property taxes could be different by $2,000-3,000 a year. Well, that has a huge impact on your monthly payment. Or homeowner’s insurance that you’re going to be paying each and every month, each and every year. Or does the development have HOA fees or not? Does the city have a 1-2% local income tax or not that you’re going to be paying each and every year? These are the long-term, what I call hidden costs that — not saying you necessarily wnat to avoid these because there could be great reasons for being in an area that has these: great schools, great community, great neighborhoods, etc. — but making sure you’re aware of these and how they’re going to contribute to your monthly payment and making sure you’ll be able to stay within budget and to achieve your other financial goals.

And Brittany from the Facebook group here says that, ‘Upkeep costs of one home versus another for sure. So we have two acres and a pool. Upkeep is quite pricy.’ And I think that’s great is if you’re looking at two very different styles of home that’s on land, a home that’s not on land, a home that has a pool, a home that does not have a pool, or any other factor like that, what is going to be the upkeep differences and making sure you’re acounting for those and how that may fit into your monthly budget, obviously those factors being beyond your monthly payment.

No. 9, Jess and I have learned this firsthand, we are feeling it right now, is the value of having a solid emergency fund in place when you’re making these big purchases. So we’ve talked many times before on this podcast and the blog, 3-6 months of expenses in a long-term savings account set aside to cover a job loss or some other emergency fund, and I think it goes without saying that here, when you’re making a massive purchase, you’re in a transitionary period of time, a solid emergency fund in place gives you peace of mind that if something goes wrong on either end, if you’re buying or selling, or you have some backup there during a transition, if you have a gap of employment, as I mentioned, something goes wrong, the peace of mind here can not be traded in terms of what a solid emergency fund will bring. And so I’m a big advocate of, again, 20% down, a solid emergecny fund, neither of which Jess and I did on our first purchase, both of which we’re doing now, brings an incredible amount of peace and I think reduces anxiety during that transitionary period.

And finally, lesson learned No. 10 is the importance of having a good team around you. Now, I mentioned at the very beginning, lesson No. 1, that we’ve taken the DIY for-sale-by-owner approach because we had essentially a buyer approach us in our neighborhood. And so we don’t have the real estate agent involved in the process. However, as I alluded to, if I had to do it all over again, even with a known buyer, I would question that decision, although it’s had great value. And so here, a great team around you, I’m referring to a real estate agent that is transparent, that is acting in your best interests, that you know and that you trust; a good financial planner that knows your situation and that can keep you accountable in this process. So for Jess and I, Tim Baker is a phone call away, and I called him just a couple weeks ago because we were having some potential issues and still are potentially with closing dates to say, hey, what are the options? Help talk me through this. What am I not thinking about? What are my blind spots? And I think for such an emotional, big decision, having a financial planner on your team that can say, hey, does this fit in the context of all these other things that we talked about? Or what if we waited three more months? Or maybe it’s the right time, but what about this or that? Somebody to keep you and/or a spouse accountable through this process is incredibly important. Obviously, you have the lender, the title company, this team is one that you’re going to be communicating with regularly. And Nate alluded to this on previous episodes, making sure you have this team ready to go and knows exactly what your priorities are before you get started in the process.

So there you have it, 10 lessons learned that are reinforced or in some cases, mistakes that we’ve made through this process. And we’re not fully through it yet. So we’ve got a couple weeks. Hopefully at the end of this month, we’re going to be moving into the home in Columbus. We’re in the final processes of getting paperwork signed, closing date’s hopefully this Friday, early next week. And so stay tuned; I may have more stories to share — successes, mistakes along the way. Again, that’s what this is all about, hopefully helping you learn through the process as well and I’m hoping through these lessons, you can save yourself some headaches and do this in a better way or potentially even share some of your own stories with others as well.

So as a reminder as we wrap up here, again, along with this month-long series, we have a YFP first-time home buying quick start guide that you can download at YourFinancialPharmacist.com/homeguide. Again, that’s YourFinancialPharmacist.com/homeguide. And as we wrap up this episode of the podcast, I want to take a moment to again thank our sponsor of today’s show, Common Bond.

Sponsor: Common Bond is on a mission to provide a more transparent, simple, and affordable way to manage higher education expenses. Their approach is no big secret. Lower rates, simpler options, and a world-class experience, all built to support you throughout your student loan journey. Since its founding, Common Bond has funded over $2 billion in student loans. This is the only student loan company to offer a true one-for-one social promise. What that means is that for every loan Common Bond funds, they also fund the education of a child in the developing world through its partnership with Pencils of Promise. So right now, as a member of the YFP community, you can get a $500 cash bonus when you refinance through the link YourFinancialPharmacist.com/commonbond. Again, that’s YourFinancialPharmacist.com/commonbond.

Tim Ulbrich: Thank you so much for joining me today. I look forward to next week’s episode where we’ll bring Nate, the Real Estate RPH, back on to do a rapid-fire Q&A on home buying. Have a great rest of your week.

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YFP 053: One Pharmacist’s Journey from Financial Ignorance to Financial Independence

Posted on June 21, 2018November 2, 2022 by yfpadmin

On Episode 053 of the Your Financial Pharmacist Podcast, YFP team member Tim Ulbrich interviews Dr. Tony Guerra, an author, podcaster, entrepreneur, real-estate investor, educator and father to triplet girls that has an incredible story to share going from financial ignorance to financial independence. Tony talks about his financial journey, his various business ventures, and how and when his mindset shifted that allowed him to be on the path to financial independence.

About Our Guest

Tony Guerra graduated with a Doctorate of Pharmacy from the University of Maryland in 1997 and has followed a non-traditional career path to best suit his needs and interests. Tony has taken on the roles of pharmacist, homeowner, professor, real estate agent, author, mentor, podcast host, husband, and father of triplet girls while continually striving for financial independence. Through motivation and creative entrepreneurial thinking, Tony has created a lifestyle that allows him to focus on his family and his passions.

You can learn more about Tony and his work at http://MemorizingPharmacology.com

Mentioned on the Show

Memorizing Pharmacology: A Relaxed Approach by Tony Guerra
How to Pronounce Drug Names: A Visual Approach to Preventing Medication Errors by Tony Guerra
Memorizing Pharmacology Mnemonics: Pharmacology Flashcards and Fill-Ins for the Future Nurse, Doctor, Physician Assistant, and Pharmacist by Tony Guerra
Seven Figure Pharmacist by Tim Church and Tim Ulbrich
First Time Pharmacist: Everything you didn’t learn in class or on-the-job training by Richard Waithe
YFP Student Loan Course for Pharmacists
Script Financial
Brian Buffini
Blair Thielemeir
The New York Times Rent to Buy Calculator
YFP Episode 040: 10 Things Every Pharmacist Should Know About Home Buying Part 1
YFP Episode 041: 10 Things Every Pharmacist Should Know About Home Buying Part 2
Pharmacy Leader’s Podcast
Your Pursuit of Purpose Podcast
The Five Love Languages: The Secret to Love that Lasts by Gary Chapman
The Millionaire Next Door: The Surprising Secrets of America’s Wealthy by Thomas J. Stanley and William D. Danko

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to Episode 053 of the Your Financial Pharmacist podcast. We have an awesome episode in store for you today with a special guest, Dr. Tony Guerra that has taken a nontraditional path with his pharmacy career, which has allowed him to be on the path to financial independence. And I’m excited to have him on the show to share that story and journey today. And ever since I heard about Tony’s work more than a year ago and having the chance to learn about his background, I’ve been excited to get him on this show and to share his story with you, the YFP community. So Tony, thank you so much for taking the time to come on the YFP podcast.
Tony Guerra: Hey Tim, thanks for having me on.

Tim Ulbrich: So to be honest, Tony, there’s lots to talk about today. The more I dug into your background and story, the more I thought, where do we even start with this? We’ve got your fascinating pharmacy career, the real estate that you’ve been involved with, successful business ventures, and so I think maybe the best place to start is let’s go all the way back to when you graduated from the University of Maryland in 1997 with your pharmacy degree. So tell us a little bit about your first job out of school and what was your financial situation right away after you graduated?
Tony Guerra: Well, first, thanks for having me on the show. I actually listen to every single one of your podcast episodes, so I’m honored to be No. 53.

Tim Ulbrich: Thank you.

Tony Guerra: And my journey was a little bit different in that, you know, so many students right now are graduating, want to do residency, do 40-60 hours a week. When I sat down for the interview to work for Walgreen’s when I graduated to go to the Phoenix area, I actually asked to work only 24 hours a week or three days a week. And he talked me into four days a week, or 32 hours a week. So I had no interest in maxing out the number of hours I had, and my situation’s a little bit different because they had doubled our tuition from BS to PharmD, but my tuition was $4,000 a year.

Tim Ulbrich: Wow.

Tony Guerra: So I had $16,000 total in tuition. So my situation there is a little bit different, and before people hang up like, this guy doesn’t have any problems, let me talk about the mistakes that I made. So the issue with Maryland is that New Jersey and Atlantic City is not that far of a drive away. So a lot of times my buddies and I would go up to Atlantic City, and the most important thing that we had to do was because in New Jersey you can’t pump your own gas, we just had to have enough money left over to have a tank of gas or at least half a tank of gas to get us back to Maryland. So when I talk about finances, it was truly monopoly money that I was playing with back then. I had $20,000 in credit card debt, I had the student loans, and then I bought a $20,000 car, brand-new car, just out of college. So I had absolutely no concept of what it meant to owe money at the end. So in terms of graduating, the only budget I did was to make sure that I could work 24 hours or 32 hours, so I worked four days a week. And I didn’t want the pharmacy life to take over my life. So I was going to the Phoenix area. I wanted to go to a destination area. After seven years of college, I didn’t want to work 40 hours a week. I only worked 32. But I’d made some mistakes with finances, and eventually, it did catch up with me.

Tim Ulbrich: Couple things there that really stick out to me is, you know, even the student loan numbers, which obviously are very small relative to our indebtedness we’re dealing with today, right? $160,000, $200,000, depending on public-private, whatnot. But also, you’ve got to remember context of, you know, 20 years ago. But that I think does highlight how much that has increased in that period of time, which is obviously shows you —

Tony Guerra: 1,000%, right?

Tim Ulbrich: Yeah, and I think to your point about Monopoly money, I know we just talked about this on your show as well is that we’ve got to change that conversation that it’s got to hit us, have a little bit more of an emotional reaction to that debt. And when we see a number like $160,000, we should be like, ‘Holy cow! What is that?’ One of the things I wanted to ask you, though, which is intriguing to me is your intentional choice to not work full-time. And the reason I want to ask this question is that as you know, right now, there’s a trend going on nationally where some pharmacists are getting cut back to 32 hours, and they’re not getting full-time work because of various reasons, saturations of markets and whatnot. And here you are, and I think a lot of people out there are obviously unhappy with that. They maybe financially feel pressed that they need their full salary, but here you are intentionally not choosing to go full-time. And I heard in your conversation, I heard a little bit of a strategic decision that you didn’t really want maybe to get burned out, you wanted to give yourself other options. Talk more about why you made that choice to not go full-time right away.

Tony Guerra: Well, I can connect the dots looking backwards. I think Steve Jobs said in that famous graduation speech at Stanford, but I call the other eight hours, the Entrepreneurial Eight. And so what I wanted to leave was that other day just for kind of entrepreneurial ventures, and I was taking classes in journalism and writing. I never had a plan to become a journalist, but I knew I wanted something besides pharmacy. I didn’t like my job after about three months, and I kind of knew that that was coming. I’d been in retail for 3-4 years, so it wasn’t a surprise that I’m like, ‘Gosh, this kind of got repetitive.’ And I did try to make changes. I would change my days, I would go to overnights, I worked as a pharmacy manager in a grocery store, I worked in mail order. But it just — I just wanted to minimize that. What I found was that it was OK — I enjoyed the people I was with, and so I focused a lot more on the people I was with and the people I was serving. But if I had that one day a week that was completely dedicated to creative work and making money a different way — and now we call them side hustles — I just wanted a creative outlet. So I think making room for that intentionally before you graduate was something that I really wanted. The residency burnout is much lower in pharmacy than it is in medicine, but to have to dedicate 50, 60 hours at that salary — and it works out to I think maybe $16 an hour as a resident if you work 60 hours a week, that’s deflating. And I didn’t want that to happen. So if I’m going to go to a destination, I wanted to have time to enjoy it. So I knew early that I wanted to be a writer, but that success didn’t come until much later. But the entrepreneurial space — I always made room for entrepreneurial space.

Tim Ulbrich: Yeah, I remember, Tony, my whopping $31,000 salary during 2009.

Tony Guerra: Ouch.

Tim Ulbrich: And I think it’s an interesting point you bring up there, and I’m so glad — and I hope our listeners can stop and listen and absorb the wisdom that you just shared. The Entrepreneurial Eight, I love that term because I wouldn’t say I have many regrets. But if I look back and now with a family of three young boys, every year that goes on since graduation, my tolerance for risk is looking more — looks different with each passing year, right? Because you have more things that you’re accountable for, you have more things that you’re responsible for, and I think as I envision where the profession of pharmacy is going, and as I think about some of the new grads being frustrated with either the options that are available to them or maybe the work environment that they’re in, I love that concept of why not carve eight hours a week? Why not work part-time? Why not put yourself in a financial position that you can do that? Because I think while it not only positions you for potentially long-term other options, business ventures, things where you can control your own destiny, that one day of creative outlet I’m guessing made some of the other time more palatable, whatever you want to call it, that you knew you had that day of the week that you could ultimately turn to that creative outlet. So I hope the new graduates, some of those in their mid-20s where maybe they don’t have a lot of things that are going to hold them back risk-wise, obviously besides student loan debt — is this the time potentially to think about some of those entrepreneurial risks that somebody could take? So what — as you look back and kind of think about the graduates, I know you take a lot of APPE students on rotations, what advice do you have for them? Maybe mistakes that you’ve made? Things you wish you would have done differently? Obviously, you mentioned credit card debt, new cars, and I’m guessing there’s just a certain set of advice or points that you give to your APPE students to say, hey, if I were in your shoes right now, these are the things I wish I would have done differently. What are those things?

Tony Guerra: I find that money and budgeting is kind of deflating. And so what motivates me is doubling my money. So I find places where I can double it. And I want to be very careful not to say, I can double a pharmacist’s salary. I don’t know how to do that. But I can certainly double $400, $5,000, even $40,000. And maybe I can go through some of those stories where I’ve done it or where I understand where I’ve doubled my money. But I find that what you have to do first is what you’ve taught — I think when you’ve talked about your student loan course — is you have to have everything in place before you start playing with this double-your-money game.

Tim Ulbrich: Yes.

Tony Guerra: To put the money somewhere because you can get it, you can always lifestyle creep up to whatever you spend. But I’m actually taking on debt right now so I have a place to put the money so that’s something you also talked about in a recent episode is that people that are high earners that have no debt really struggle to know where to put their money.

Tim Ulbrich: Yeah.

Tony Guerra: So I’m taking on debt in the form of a third home, I just bought it yesterday. And that’s where it is. But maybe we can talk a little bit about some ways to kind of double your money. And we’re not giving investing advice. And I’m going to take this on instead of you guys taking it on because you guys have a very good, methodical way. But maybe we can just talk about how to double $500 to start with.

Tim Ulbrich: Yeah, let’s do it. And I know you’ve been involved in different things. As I mentioned in the intro, you’re an author, so you’ve written a couple different books, and we’ll link to them in the show notes, so “Memorizing Pharmacology,” “How to Pronounce Drug Names,” what am I missing, Tony? What else have you done on the book front?

Tony Guerra: The new one’s “Memorizing Pharmacology Mnemonics.” It’s meant for APPE students. And it should be free on Audible if they’ve never had an audiobook before, but something they can listen to back and forth on their way. You know, I think that really, as you get into the APPEs and you get into the internal medicine one and then the grueling critical care ones, you’ve got to have the basics down. And by having the basics down, I wrote that book and made it into an audiobook with another pharmacist out in New York, so “Memorizing Pharmacology Mnemonics” is where I would start if I was an APPE student.

Tim Ulbrich: So we’ll link to those in the show notes, and I’m guessing — and we’ll talk real estate here in a little bit — but I’m guessing your authorship, and I know you’ve put these online, so you’ve done audiobooks, which if I’m right, one of these has landed its way onto the Audible.com best seller list. And so you’ve obviously had success here. So talk to us about even just that journey of, wow, I want to write a book and how I did that, what impact that’s had for you financially but also maybe just the scratch that entrepreneurial itch that you’ve had all the way back to graduation.

Tony Guerra: I found that I couldn’t write a book until I got mad. So I had to do something to get mad about the book, and so what I did was I was taking classes up at Iowa State, and I went into a class that I knew I was going to get kicked out of. And so there’s an MFA program, a Master of Fine Arts program there, and there was a class on nonfiction creative writing, and this is a class I wanted to take. And I knew I was going to get kicked out. I knew the teacher, and I knew the people there. I said, ‘Hey, you know, I signed up for your class.’ And she said, ‘No, no. You’re not in the MFA program.’ ‘Yeah, but I’m allowed in. I’m in an English program, and part of the department.’ ‘Yeah, we’re just going to stick with what we have here.’ And I knew that would — I didn’t know for sure she’d kick me out — but she did kick me out, wouldn’t let me in the class, so I was excluded. And the one thing that makes me mad is being excluded, and I knew that would happen. So it made me mad enough to write the book, and now the book actually makes double the salary of the professor herself, so I won’t name the person, but it just makes me mad. So I think 98% of people, they say, want to write a book but only 1% do. So some kind of emotional reaction — and I think in your writing your book, “The Seven Figure Pharmacist” with Tim Church, I think that it was an emotional response to what had happened with your stories as well. So to write a book or to get there, you really have to. And what I think I’ll point to is actually another author, Dr. Richard Waithe, who was the host of Rx Radio podcast, I think he probably put about $500 into his book, and I can’t remember the name, but it’s like “The New Pharmacist” or “First Time Pharmacist,” that’s what it’s called. Yeah, “First Time Pharmacist.” And I just by seeing his numbers and knowing how much he makes from each book, he’ll probably double his money I would say in four or five months. But the way that I would — and I don’t mean to be self-serving to your course — but the easiest way to get make $400 on $400 is to invest in your course because the return could be close to $100,000. And that’s one of those returns that’s so big that you don’t even do the math on it. You’re just like, I put $400 into the course, and I saved $100,000. Or in your case, if you had had — if we could go back in time and you wrote the course for yourself, you would have saved $300,000.

Tim Ulbrich: Oh my gosh. I try not to think about it.

Tony Guerra: And I would have saved tons of money. So that’s an easy way to double $400 or $500 — either write a book that you’re passionate about, put maybe $400 or $500 into it or take the student loan course. That’s where I would start with $500. And then maybe we can talk about $5,000 is the next way. But I would recommend being a little slower with this one. But I can tell you how I doubled $5,000 as well.

Tim Ulbrich: Yeah, so before we go there, just talk me through — obviously, you got mad, which I think obviously there’s an emotion there which inspires action. I’m with you, I need something to fire me up, especially if you’re going to sit down and start writing and typing. I remember lots of early mornings, lots of late nights, and it’s a grind, right? As you’re kind of working through the process. So you’re mad, but you obviously were very strategic about, you know, I’m not going to write this just to write this, I want to write something that’s going to provide value and is needed in the market and is something that I have expertise in. And so I think a lot of listeners might be hearing that, hey, I do this every day, and there seems to be a need for something, whether it’s a book, a course, a Webinar, whatever. Talk to us, though, about how you put those pieces together that it’s not just writing a book to write a book, it’s that you want to put something that had value, that was needed and lined up with your expertise. And does that connect with your day job and what you do as a professor right at Des Moines Area Community College? Were you able to sync those experiences up to maximize your time?

Tony Guerra: I actually think you have to sync it. So my recommendation to anyone who’s always wanted to write a book is instead of worrying about writing a book, just write the curriculum for the course that you’re going to teach or that you would want to teach and just put it in book form. And then when it comes to audiobook, it took — when I first talked to my narrator, I never had hired a narrator. He was $400 per finished hours, so that means for a 7-hour book, it’s $2,800, a ton of money on something I had no experience with. And he said, boy — because it was a two-month lag between when I could have him do it — he’s like, ‘Boy, you’re going to really have a heck of a time making this for the ear.’ And what he was saying is is that if you can make nonfiction into something that is listenable, people will buy it. And so that’s really where it came from is the two steps are 1, what course would you teach if you could? And then write the course for something that you actually are maybe doing. It’s a lot easier for professors and things like that that have it. But if you’ve got technicians or you’ve got other people that work for you, what would be the course that you would write for them? Or if you, you know, with you guys and teaching about money, how would you write that course? And the second part is is make it for the ear. So you take that course, and then you just read it. And then you just continue to revise it but make it as if you are talking to someone. So those two components, writing for a need — and the pharmacology books, the need was that many nursing students have to take pharmacology but don’t get chemistry before it. So imagine hearing beta lactam or N-acetyl para enol phenol and all of these things, and you’ve never had chemistry. So that was kind of the need that I filled. But the way to get a book done — align it with what you do anyway, and then No. 2, then read it and re-write it as if you’re reading it to someone rather than ‘Here, I’ve wrote this book.’ And if you read Dr. Richard Waithe’s book, it’s really conversational.
Tim Ulbrich: Yeah, I love that. And I think for those that are listening that maybe are not fully satisfied with your job, and you’re looking for a creative outlet, you’re looking to create something, obviously the money that we’re talking about here and how you can generate revenue to help accelerate your financial plan is an important piece, but you can’t underestimate the positive energy and the feeling and momentum that you get from being in the creative process. And so you know, I would ask, outside of your time, of course, what is there to lose to potentially consider a path like this, thinking of the work that you already do? I want to take a brief moment before we jump into the second part of the show to highlight today’s sponsor of the Your Financial Pharmacist podcast, which is Script Financial.

Sponsor: Now, you’ve heard us talk about Script Financial before on the show. YFP team member Tim Baker, who’s also a fee-only certified financial planner, is owner of Script Financial. Now, Script Financial comes with my highest recommendation. Jess and I use Tim Baker and his services through Script Financial, and I can advocate for the planning services that he provides and the value of fee-only financial planning advice, meaning that when I’m paying Tim for his services, I am paying him directly for his advice and to help Jess and I with our financial plan. I am not paying him for commissions, I am not paying him for products or services that may ultimately cloud or bias the advice that he’s giving me. So Script Financial specifically works with pharmacy client’s. So if you’re somebody who’s overwhelmed with students loans or maybe you’re confused about how to invest and adequately save for retirement, or maybe you’re frustrated with just the overall progress of your financial plan, I would highly recommend Tim Baker and the services that he’s offering over at Script Financial. You can learn more today by going over to scriptfinancial.com. Again, that’s scriptfinancial.com.

Tim Ulbrich: Alright, so we’re back with today’s show. We’re walking through with Tony Guerra to hear about all of his work. We’re talking about some of the books that he’s written, and he’s shared with us kind of that first step he took to earn income. And now we want to talk, Tony, about the next step that you took. So we talked about getting to that $500 point, and now we’re talking about that next level of $5,000. So talk us through for you kind of that next level of the business venture.

Tony Guerra: So the mantra is invest in yourself. And right now, you guys have an only $400 course, but I expect that if you guys continue on your path, there’s going to be a $5,000 course that you guys are going to have in your future where maybe we go to a destination, we get everything done with the finances and things like that, but then we start talking about investing, then we kind of create our own group. So somebody that has done that in the real estate space is Brian Buffini. He came here from Ireland and was one of the best realtors in the country but then created a coaching company. And the $5,000 I spent — I remember these exact words to my coach, and we’re very similar in that we want return on investment mathematically, where my wife is completely different. She would want certain feelings that come out of it. But when I talked to my coach, I said, she said, ‘What do you want to get out of this?’ I said, ‘$10,000. I want my $5,000 back, and I want $5,000 more.’ And that was it. And I ended up making $22,000 as a real estate agent. But what I invested in was $400 a month to get one-on-one coaching, 30 minutes, every two weeks, and what I was basically doing was following the path of somebody that had done these steps and was able to articulate how to do it. And then years later, I want to say five or six years later, just before the crash, my income — and I didn’t take all of this home, I had a little bit of group of people, of real estate agents, but my income — I had to leave pharmacy because it had just gotten away, and it didn’t make enough money. But I made $253,000 in that coaching program.

Tim Ulbrich: Wow.

Tony Guerra: So that $5,000 at first got me to $22,000 in the first year but then I was making $253,000 that last year. And I would have stayed with real estate even with the crash because that’s when people really needed me, but my wife made it clear that we’re moving to Iowa. And so I moved to Iowa, and I completely gave up the real estate business. But to spend $5,000 and make $5,000, I would invest in yourself in some kind of program. I think Blair Theilemier has something that’s a couple thousand dollars or something like that. But those kinds of things, that’s where I would put up to $5,000 in terms of investing in myself. And where I wouldn’t go is into some kind of postgraduate Master’s degree or something like that because you have to wait until you graduate to maybe get a return on that. I’m talking about things that you can — like a real estate license, it’s like $500 — that you can get returns immediately, that you can start making your money right away. But that’s how I’d put $5,000 in and get $5,000 back.

Tim Ulbrich: Yeah, and we think about — we’re always harping on our students, professional development, professional development, professional development. It’s the same thing when it comes to your finances, real estate, a business coach, whatever, you have to look at those opportunities and say — and I’ve done the same thing with business coaching, I’ve done the same thing with hiring Tim Baker to help me with my finances — and I’ve realized all of those and said, ‘That’s an investment. I’ve got to write a check.’ But I realize the return on it is going to be much greater than what I’m investing. And I think that’s true for so many different areas of your life is you have to look at those things and say, OK. I’m going to try to go at this all myself or what are the opportunities I can really hire somebody who’s taken this path that can really keep me accountable and has the expertise to get me to the goal that I want to achieve. So let’s segway, then, into the real estate investing. So you alluded to the fact of being a real estate agent, you got your license, you’re selling real estate. But you’re also now getting into real estate investing. So as I know, you now have three properties, is that correct?

Tony Guerra: Yeah, we’ll close on the other one the first week of July. But I’ll have three again. And we kind of talked through the very first things that I did and then — so I have a 20-state, 20-year real estate career. And this will be my 10th property that I’ve moved in some way or another.

Tim Ulbrich: OK.

Tony Guerra: But I only own three. I only own three right now.

Tim Ulbrich: So why don’t we — obviously, you have the primary residence, and we’ll come back and talk about that because I think there’s some due diligence that people need to do in buying their primary home. But specifically from the real estate investing side, why did you look at this area and say, ‘As a pharmacist, this is something that I want to get into in the long run?’ You mentioned currently owning three. You’ve been involved in 10 properties. So talk to us a little bit about your mindset around real estate investing as a category or as an area. And maybe for you, where did that fit in while you’re also looking at more traditional streams such as a 401k, 403b, and the timing of those.

Tony Guerra: OK. So let’s kind of go all the way back to graduation and you know, should I rent? Or should I buy a home? And the first thing that I did, and when I did look at my student loans, I heard, I was like, why is this not tax-deductible? And your student loan interest is not tax-deductible, but it is deductible on a home loan. So my parents owned a vacation home, and the first home I bought was for $1. I bought it from them for $1; they were able to transfer it to me.

Tim Ulbrich: Sounds pretty awesome.

Tony Guerra: Yeah. Well, they took back the loan. So then I had to pay them monthly payments, but then I immediately put a mortgage on the property and then paid off the student loans so that now, the interest that I would have had on the student loans was now tax-deductible.

Tim Ulbrich: Got it.

Tony Guerra: So that was kind of the first deal I made. This is a deal that’s very common now with the new graduates in all fields in that they’re deciding to rent where they’re going to live, but they’re getting in the real estate market in a different area. So for example, if somebody wants to move to San Francisco, it’s a lot easier to find a rental with maybe rent control or something that’s a little bit more manageable and then buy something maybe in Nevada that’s maybe a vacation home or something like that. So the first thing I did was recognize that a home is a commitment as much as it is a marriage. And you don’t go into a marriage just saying, ‘Oh, look, I qualify for this marriage. Time to get married.’ You know? And I think a lot of people do that. They’re like, ‘Well, I think I should buy a home because it’s supposed to be tax-deductible interest.’ And that may or may not be true with the new tax code. So the first thing I would say is, find a place you want to live and get to know it. And so I lived there a year before I ever bought a home in Tempe. So I didn’t — my first piece of advice is to not buy a home in an area that you haven’t known for at least a year.

Tim Ulbrich: Amen. Yes. Yeah, that’s a mistake actually my wife and I — we had been in the relative area for a year but didn’t know well enough. And we were kind of itching from a renting standpoint, and as I look back, a little bit more patience would have done us a lot of good in terms of the rest of our financial plan. We’ll link in the show notes, there’s actually a good calculator the New York Times has to do a rent-to-buy comparison because I think a lot of times I hear people say things like, ‘Well, my rent costs $1,000, and the mortgage costs $1,000.’ But as you know, that’s not an apples-to-apples comparison. So really trying to look at your financial situation and look at all the pieces to say, where does this fit in in terms of the buy of knowing the area? But also where does it fit in with rest of a financial plan? So where did you then see real estate investing beyond your primary home come into play? And how did you determine it was a right time to get involved in that? Was there a certain point where you said, I’ve got enough equity in my primary home, I’m on the path with my other retirement savings, so now’s the time? When did you make that jump into investing?

Tony Guerra: Well, I first thought I didn’t agree with you on this, but now I do agree with you on this — when I had 20 percent to put down.

Tim Ulbrich: OK.

Tony Guerra: And because I had bought this vacation home, which was in Ocean City, Maryland, so I actually never lived in it more than the 14 days you’re allowed by the tax code as a rental, that I decided to just buy something in Tempe. And the first thing I would say is don’t ever try to time it. The market is crazy. You know, right now, you would say, ‘OK, well now prices are going up. So now maybe I shouldn’t buy because they’re going up, and I shouldn’t do it.’ But then you’ve got this investing coming from China, and I just saw in the news that a house in San Francisco went $1.6 million over asking.

Tim Ulbrich: Gees.

Tony Guerra: So you know, you might say, ‘Oh, well you know, the student loan bubble’s coming and all these things so prices are going to drop, you know, in a couple years.’ And then you have this weird investing thing coming from another country. Timing it is not the way to go in terms of like trying to time when the best time to buy is. But what I liked was that once I had 20% to put down, I don’t want to say I was a bully, but I was kind of a bully. When you make an offer, and you’re putting 20% down, all of a sudden because of the savings rate in the U.S. and all of these things, you are in the pull position. All of a sudden, that seller is like, ‘Whoa. I don’t want to upset this person. I want to get them.’ So when I offered on my Tempe home, I offered under asking in what is a white hot market. The summer, right by Arizona State, to the east side of Arizona State University, is a white hot market. And I was able to offer a little under asking because I had 20% to put down. So when I talk about timing, don’t time the market. Time yourself. Time your own situation because if you have built up 20%, that 20% is actually — I don’t want to say a symptom — but that 20% represents that you have gotten your financial house in order and that you are ready to buy a home.

Tim Ulbrich: Yes.

Tony Guerra: That you are financially ready, and a lot of the things that you put in your course and things like that. So don’t look at 20% as I have to do this thing first, it’s 20% will come if you do all the steps right. And I did a lot of things right in that year, and I took a little money out of that deal I did with my parents, and I bought a house that was $90,000. So the 20% wasn’t a ton of money.

Tim Ulbrich: The other thing — and I would love your input on this — the other thing to me, and my wife and I are hopefully going to be dabbling in this a little bit more here in the near future, but one of the things that interests me about real estate investing is that it has an opportunity, if done well, it has an opportunity for a cash flow on a monthly basis that is not waiting until a traditional withdrawal age for a retirement account of 59 and a half like a 401k, 403b or a Roth IRA. And so I think as people are out there maybe thinking, Oooo, I like pharmacy, I don’t love pharmacy, maybe I want to do something different — at the right time, and if done well, I think real estate investing or business ventures like we’ve talked about the work you’ve already done are alternative revenue streams that aren’t having to wait to a certain age to be able to draw down money over time. And so when you looked at this most recent one you mentioned is out in Tempe, right?

Tony Guerra: Mmhmm. Yep.

Tim Ulbrich: Was that connection because you know the area from being out there previously? Or how do you, I guess how do you approach real estate investing outside of your backyard and feeling comfortable — I’m assuming are you working with a property manager? What does that look like kind of day-to-day on those rentals?

Tony Guerra: OK, well let me give you the big picture. And again, this is kind of advanced investing. Let me actually talk a little bit about just buying a home, and then I’ll talk about this more advanced investing. So if you are — let me talk first about a single person. If you’re a single person coming out of college, and you’re going to buy a home, buy a home as if it were a — my thought is to buy a home as if it were a rental, and make sure that you have at least two other rooms that you’re renting out to other people or at least one other room. Don’t buy a house with just one toilet. Make sure there are two toilets because if you have one toilet, it’s an emergency if it doesn’t work. And that’s my first thing is get cash flow from the place that you’re living in. If you are married, and you’re like, I am not living with anyone anymore, that time is done, we are grownups now, I’m not doing that — and that was — but my wife and I did have somebody always in the basement while we were in residency here. Then my thought with maybe what you and Jess are thinking about is to start thinking about using a team approach. So my wife is a great lurker. She loves to look at homes, so if I say, ‘Hey, can you look at houses here?’ and so forth, that would be something she would be all over it. And then I would be the one that’s crunching the numbers, like, ‘Oh, that’s not going to cash flow at all.’ ‘But it looks so good!’ ‘No, the cash flow is terrible.’ You know? So when I looked at this Tempe home, I almost pulled the trigger on a house — and this is how hot the market is. They asked me to waive the appraisal. So I would pay in if it didn’t appraise. And I was close to doing it. It was $185,000 for a two-bedroom, and I just couldn’t do it. You know, my sensor was going off, like don’t do it, don’t do it. But you want the house! Don’t do it, don’t do it. And then I talked to my wife, and she’s like, ‘No. That’s dumb. Don’t do that.’ So always bring your wife in. She’s turned down a number of the ones that I was like, ‘Oh, I love this one!’ She’s like, ‘No. Why? I just don’t feel good about it.’ And I’ve learned over my 10 years, now almost 11 years of marriage, ‘I don’t feel good about it’ — you want to listen to that sentence. Always, always. But when I went from the two-bedroom that I didn’t buy, I bought a place that’s now a three-bedroom, two-bath in the same place. It’s a mile from a Starbucks and a Target. That seems to be — follow people that are smarter. If you’re trying to go into an up-and-coming area, if you see a Target moving in and then a Starbucks, those are really smart people. Follow those guys. But if you’re going in, if you and Jess are looking for a place, I would start in terms of looking at one, but the other caveat is that I was looking in four different areas of the country so I could see what’s going on. So at Tempe, 85281, 85284; I was looking in Baltimore, 21230, 21224, where I think Tim Baker is, I was looking in Gainesville, Florida, I don’t remember the zip code, and then I was looking in Ocean City, Maryland. So four places I knew, but I was looking at four different markets. And Tempe, in many ways, I just wanted it. My parents are going to end up moving to Arizona, there are a lot of reasons I picked it, but I was looking at different areas, so I didn’t have this kind of myopic view. And I think, not to keep talking too long, but when you’re looking at pharmacy school admissions — I help a lot of pre-pharmacy people — if you’re trying to get the best deal from one school, you might not get the best deal because you’re not looking at all the schools. Just as you know, you’re looking at one repayment plan. You want to look at all the repayment plans. But that was my kind of thought. And in terms of who I had there, Lisa Schofield (?) is my contact there in Arizona, she’s been a realtor for 17 years, I’ve done other deals with her when I was there. Having somebody that’s knowledgeable with investing. You don’t want just a real estate agent, especially not someone that’s related to you. You want someone that specializes in working with investors.

Tim Ulbrich: Great stuff. And to wrap up this section on real estate, I would reference listeners back to episodes 040 and 041, we had Nate Hedrick, the Real Estate RPH on, we talk about 10 things every pharmacist should know about home buying. And I think, Tony, I really appreciate — we haven’t talked as much on this podcast about real estate investing, but I think right time, right place, for many pharmacists, it’s a great move to think about obviously building your own financial foundation and house in order first, but when the right time is there — and I think for many listeners, that may already be there — to be pursuing real estate investing as an alternative way to diversify their investments at large. So I have a couple kind of next-level questions that are not related to any specific topic here, but as I hear this conversation to you, what sticks out to me is that you’re incredibly motivated. You obviously have a significant drive. You have an entrepreneurial mindset. You’re creative in the way that you think; you see alternative revenue streams. You’re willing to look at things that are in an outside-of-the-box way. Where does that come from? Where do you attribute to having that skill set? Is that something you feel like was taught by your parents? Have there been mentor that influenced you? Where would you say that’s come from?

Tony Guerra: This might be disappointing, but its fear. Absolute terror. And it comes from when I started, and I came back to Maryland after four years of being in Arizona, I had something go on with my leg, and I thought it was some kind of rheumatoid arthritis or something like that. It ended up being that I was standing 12 hours a day, and my IT bands were pulling so hard on my knee that I was in knee pain, but I actually, you know, I had to get it so I had a stool that I could sit on, and then I really thought I was going to lose my career. So I thought I was going to go to — I didn’t know what I was going to go to. And so that fear and then also watching the collapse of the real estate market, I was a little better prepared there, but I went from a $253,000 income to doing residency with my wife. So I went from $253,000 to $40,000. So seeing those two drops, I wish I could say I’m motivated by some great, entrepreneurial spirit, all these things, but it’s just fear of not having money. And I think people that maybe have gone through the Great Depression had this kind of mindset, maybe people that were crushed by the drop in ‘08 had this mindset. But really, it’s just that I was really fearful. But the most important caveat in terms of entrepreneurship is to give, ask and receive. So I continue to give without hope of getting anything back, and things come back to you. But that’s kind of my mindset. I’m a little bit scared about money, and that’s why I have two years’ worth of income in my savings account. That’s pathologic to have that much there. But I’m just scared of going through that again, and I never want to have to take a job or a career that takes me away from my children, makes me into a person that comes home that is just so dissatisfied with my work that I’m taking it out on my family, and I feel like that maybe happens a lot. And I just didn’t want to go back there again, ever again.

Tim Ulbrich: So obviously, there’s the fear of money there, which obviously is real. But as I also look at the work you’re doing on the Pharmacy Leaders podcast, I can tell there’s a very intentional pathway of shaping future leaders of the profession that is beyond just wanting to create revenue streams. So as you think about the work that you’re doing there and even some of your other entrepreneurial work, what are you hoping down the road to look back and say, this is what I was trying to do, this is what I was accomplishing. It’s a thought that’s been hanging with me a lot over the last year of, when I’m 70-75, you’re in retirement, what am I going to look back and say, this is what I was trying to achieve, this was the goal that I was going after. So with your work around the pharmacy leaders podcast, developing future leaders, maybe even modeling kind of entrepreneurship, what is that goal for you? What is that pathway?

Tony Guerra: I see time differently. I can’t see really past dinner. I’m very short-term; my wife is very long-term. And usually, people come together that way. So something will really bother me that might be due three weeks from now but I feel like I have to get it done now. So I guess when I look at what’s going on with pharmacy, I see, I guess I’m really scared for them in many ways as a parent who looks at it, and I know that certain students are going to be absolutely fine. These are the kind of national candidates, I look at their resumes, their CVs, what they’ve done, and what they’ve done differently is they’ve invested in other people. And I guess I just fear for them, and that’s why I keep interviewing them and giving them a space to be interviewed so that they can share what they have with the other people that may be making some mistakes. And you can never change someone’s mind, but what you can do is put out the people that are doing it right and expose them to those people. Casey Rathburn, for example, from the University of Houston, comes up, Dallas Tolburg (?) from University of Maryland, (inaudible name) are names that come to mind. These are the people that have invested so much in their pharmacy education in helping other people while they were in pharmacy school that it all came back to them — in the residencies they wanted, the career and eventually the careers they want, so I’m just seeing that if you just try to get through pharmacy school and you’re not known for anything, as Blair Thielemier says, you’re going to be in trouble. But if you continue to invest in other people as Ahmad Ahmad (?) who just started the Your Power Pursuit of Purpose podcast, those are the kinds of people that are going to have no problem. So that’s what my drive comes from. It’s just like, look, I made a bunch of mistakes when I came out. I think I can help a lot of people if I can expose other people to these leaders that are moving and shaping their own lives and other people’s lives.

Tim Ulbrich: Great wisdom there. And if our listeners have not yet checked out the Pharmacy Leaders podcast, please do. You’ve done an awesome job with that podcast, super inspirational, I think motivational for students and really helping shape the future of these leaders. I think you’re, what? 129, 130 episodes in already? Something like that?

Tony Guerra: Yeah, like I said, that’s kind of pathologic too. I mean, I do 3-4 episodes a week. Casey Rathburn (?) said, ‘Hey, can I do some episodes?’ I was like, OK, and she gave me seven episodes in three days. So you know, I wanted to make a space, but again, it’s so in line with what I do. I’m just a people-y person, so I like to talk to people. So it’s not work. And you know, if you’re doing something that you love, you’ll never work a day in your life.

Tim Ulbrich: So we’ll link to that in the show notes. Again, that’s the Pharmacy Leaders podcast. Now, one final — it’s actually kind of a split question — but I want to end here because I would be remiss if we didn’t talk about family. I know it’s important to you, you’re a father of triplets. You’ve got all of these things going on, your day job and your real estate investing, your book, your podcast. So two questions I have here for you that I know will be inspirational for me and probably even help me as well in my own journey. How do you balance all of this with the kids and obviously a marriage? And then second to that, how has some of these ventures in your financial success allowed you and created the space to enjoy the time with family that I perceive to be so important for you?

Tony Guerra: OK. You know, marry the right person.

Tim Ulbrich: Yes, Amen.

Tony Guerra: I hate to say that, it’s kind of a cliche. But man, marry the right person. But the one thing that we did was we did the Five Love Languages book. And I’m physical, which means that it’s better for her to tap me on the shoulder than to say anything to me when she comes home. And hers is service. And I can’t believe I didn’t know this until about seven or eight years in our marriage, but that means that the things that I do, making sure the house is clean when she comes home, it’s the first thing she sees is clean house, not extra work to do after a long day at the VA. So that’s my first recommendation is figure out which love language you have and which love language your spouse has because then you can know what’s important to them. So that allows the marriage to work well. And you’ve talked about “The Millionaire Next Door,” and most millionaires are married with three kids, and that’s the first thing. That’s the strength. But the other thing was — I guess I took for granted, and I didn’t do the episode, I should have, but the Father’s Day episode — I took for granted that 100,000 pharmacists each Father’s Day are probably working, you know, men and women. And I took for granted that this Sunday, I could be with my kids, coach their soccer team, and I think that was the other part is that I work so much because I’m fighting for that time to not have to ever say, ‘Dad’s got to work.’ And my one daughter just absolutely threw a dagger at us one morning. She’s like, ‘Daddy, you always get to come to the parties on Friday. Why does Mommy never get to come?’ And I was just like, oh my gosh, how do I answer this? And so I made sure to — I was like, ‘Daddy just doesn’t make enough money yet. And when Daddy makes enough money, then there’s going to be no problem with Mom coming to everything.’ She’s like, ‘Well, Daddy, you just need to work another job.’ And so I think too many pharmacists accept that that’s just how it is, I work weekends, every other weekend. And I have to tell you, if you follow the steps that you have in your loan course, I can tell you that once they get out of that debt, they could do a 32-hour week or a 24-hour week, no problem. And then they would have, they could stop having those conversations with their children, and they could have really good conversations like, you know, wasn’t that a great game that we had on Sunday?

Tim Ulbrich: Tony, great stuff. And I know your work has been an inspiration to me. I appreciate you taking time to come on this podcast, I appreciate your support of the YFP podcast. And I’m sure we’ll be finding lots of opportunities to partner in the future. So thank you again for coming on today’s episode, I appreciate it.

Tony Guerra: Yeah, I appreciate it too. Thanks so much, Tim.

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YFP 046: The 5 Big Mistakes Pharmacists Make With Their Student Loans

Posted on April 30, 2018November 2, 2022 by yfpadmin

On Episode 46 of the Your Financial Pharmacist Podcast, YFP team members Tim Church, PharmD, BCACP, CDE and Tim Ulbrich, PharmD tackle the most common mistakes that pharmacists make with their student loans. Whether you are a student pharmacist or a practitioner in active repayment, this episode will help you avoid the common pitfalls surrounding student loan repayment.

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to Episode 046 of the Your Financial Pharmacist podcast. Excited to be here alongside Tim Church to talk about common mistakes that pharmacists make with their student loans. So Tim Church, not that we would have any experience when it comes to student loan mistakes, right?

Tim Church: Oh, not at all. I did everything, executed it perfectly and right on the right path. No, actually, it was funny when I was thinking about this episode. And we talk about common mistakes that pharmacists make. Really, it’s the five mistakes that Tim Church made. I mean, we could have made that the name of it.

Tim Ulbrich: Seriously, it brings me back to when you and I were writing the “Seven Figure Pharmacist,” and we wrote all that student loan content and much of the other content based on the mistakes that we made. But I had, actually, the pleasure this weekend to go to Mercer University in Atlanta, Georgia, and talk with a group of their graduating students about personal finance and transitioning to new practitioner life. And as I was going through the section on student loans and had a chance to share from the mistakes that I’ve made and all the wisdom that you’ve shared and the YFP community has shared, all I could think was, man, I wish I would have had this information, right? When we graduated. Wouldn’t that have been nice?
Tim Church: That would have been great. There’s so many things I wish I could go back and do because I would have saved a ton of money in interest and just the amount I’m going to pay over the life of my loans.

Tim Ulbrich: And stress, right?

Tim Church: Yeah, definitely.

Tim Ulbrich: So where are you — quickly — where are you at in the journey of the payoff? So the Church household, where are you guys at?

Tim Church: So me personally, I have about $8,000 left. My wife, she’s got substantially more. But we’re looking at probably within a year, year and a half, we’ll knock it out.

Tim Ulbrich: So $8,000 left of how much? How much have you paid off on yours?

Tim Church: I think with capitalized interest, when I started residency and after the grace period ended, I think it was about at $189,000.

Tim Ulbrich: Wow, that’s incredible. That’s awesome. Great work.

Tim Church: Yeah, it’s a good feeling to kind of be at this point. It’s taken a lot of sacrifice and hard work just to get there.

Tim Ulbrich: So before we jump into common mistakes, and we’re going to walk through that Top 5 list, let’s just talk about current landscape. And we’re not going to go too far in detail here. I would reference listeners back to Episode 004 and 005. Episode 004, we talked about the landscape of student loans in pharmacy education. Episode 005, we had on Dr. Joey Mattingly to talk about the impact of rising student debt on a pharmacist’s income. But you know, we’re not trying to be gloom-and-doom here, we are optimists, both of us I think by nature, but the reality is new graduates are really facing an uphill battle, primarily due to rising debt levels. So Tim, kind of give us the really high level situation of what pharmacists are coming out with now and what they’re facing.

Tim Church: If we look at the most recent data from the AACP graduating survey, pharmacists are now coming out with an average $163,000. And actually, that number’s quite low. If you went to a private school, it’s actually much higher. If we go back a couple years to 2010, that figure was approximately $100,000. But one of the big problems is that if you look at pharmacists’ salary over those years, it’s not keeping pace with the average debt load that pharmacists are facing. And so this gap actually continues to widen. And so you and Joey Mattingly had talked about that before that you look at every new generation of pharmacists that’s coming out is they actually have less available income. So it’s really important, you have to a good strategy in place.

Tim Ulbrich: Yeah, I’m glad you mentioned the salary piece. Because I think obviously, the debt load gets a lot of attention — rightfully so — but one of the variables we’re always looking is, well, if salaries are keeping up with the debt load, not that that’s good that debts are still going up, but still, at least it’s accounting for that increase. But the reality that we see, as you mentioned, is salaries aren’t even keeping pace with inflation for the most part — oh, and by the way, you’ve got the interest rate component, with many students dealing with these unsubsidized loans with 6% interest rates, private loans that are even higher. So all of this to kind of give you the backdrop that we know it’s a problem, we know it’s increasing, and all the more reason that we have to be diligent in terms of those making that transition into new practitioner life to say, ‘What’s my game plan? What am I going to do to tackle these loans? And how can I avoid some of the common pitfalls and mistakes surrounding them?’ So Tim, let’s walk through five common mistakes that pharmacists make when it comes to student loans. No. 1 is not knowing all of the options that are out there. So just quickly, walk us through the options that are out there. And we’ve obviously talked about some of these on other episodes, but helping especially maybe those that are listening about to graduate or even those that have been out for a couple years and haven’t thought about this or even younger students who are trying to get ahead of this. What are the major options that are available to graduates when it comes to repayment of student loans?

Tim Church: Well, I think the first one and the most important one is you really want to look at are there any tuition reimbursement or repayment programs available where you’re currently working. There’s a lot of federal programs out there, such as the VA or the Indian Health Services and some of the military programs. And then a lot of states actually offer reimbursement programs. And those are essentially free money because you’re going to work for an employer for x amount of years. In exchange for that service, they’re going to help pay back some of your loans. So I think that’s really the first thing to look for. I know one of our friends, Alex Barker, he actually was able to get through the VA in his position something the Education Debt Reduction program. He was able to save a lot of money because the VA picked up a lot of the bill there. So I think those are the programs you want to look for first. And then if you’ve kind of exhausted that and say, ‘Hey, I’m not really eligible for that,’ it really comes down to two options. It’s forgiveness or non-forgiveness. And when we talk about forgiveness, really we’re talking about the Public Service Loan Forgiveness program in which you work for a government or a nonprofit 501c3 company, and essentially if you make qualifying payments over 10 years, you can have your loans forgiven tax-free. There’s also an option to get forgiveness through non-PSLF where you make income-driven payments for 20-25 years, and your loans are forgiven. Once you kind of go outside of that, it really comes down to do you keep your loans in the federal system and pay them off based on the term? Or on your term and pay them off at a pace that you want to accomplish that? Or do you refinance them out of the federal system and try to get a better interest rate?

Tim Ulbrich: Yeah, and I would reference your point about PSLF, I’d reference listeners back to Episode 018, where we talked about maximizing the benefits of the Public Service Loan Forgiveness, talked in a little bit more detail about what that program is. So just to recap what you had said there is first, you’re really looking for the tuition reimbursement repayment plans that are out there. So is there free money available? You gave the example of the Education Debt Reduction Plan. And then if not, you’re really looking at forgiveness or non-forgiveness. Within forgiveness, you’ve got the PSLF or non-PSLF forgiveness. And then with non-forgiveness, you’re either going to pay them off inside the federal system or you’re going to pursue a refinance. And we’re going to talk a little bit more about refinance as we go through these five options here. So Tim, as we were working on the course — and I think Tim Baker and I have talked about this to the listeners, but I don’t know if I’ve talked about it with you is that we’ve really laid you out there as the mastermind of this student loan course that we’re getting ready to launch. And we’ve certainly helped along the way, but you really have been the brains of getting this thing together. And No. 1 thing you were talking about not really knowing all the options. We spend a ton of time inside of the course walking through this. Would you say that’s fair?

Tim Church: Definitely. I mean, this is really the bulk of the material that we get into because it’s also going to determine how much you pay over the life of the loans.

Tim Ulbrich: Yeah, absolutely. And I think as I think about the big takeaways of that course, this is a big option is knowing, making sure you know all of the repayment options that are available to you and then making sure you can walk away with clarity to say, ‘This one repayment option is the best for my situation.’ And as we’ve been working through that course, what we have come up with, which I think is probably one of the biggest takeaways of the course, is what we’re referring to as the YFP Decision Table. Talk us through what that is and why that’s so powerful in terms of coming to the best decision for a payoff plan.

Tim Church: Well, I think one of the things that it does is first of all, it brings all of the options to the table. So it really lays out everything that you’re eligible for. And then once you’ve put those in place, actually do the math. So over the life of the loans, whether you’re refinancing through a specific term, whether you stay in the federal government, whether you’re going for forgiveness, is to really calculate over the life and figure out from a mathematical standpoint, what is going to be your best option? Now, as you and I talked about it, math is definitely important and a lot of times, the most important thing. But there’s a lot of other factors that go into that kind of decision. And I think that’s really a key component of what we break down in the course is how do you combine that math with all of the other factors that you’re facing?

Tim Ulbrich: Yeah, absolutely. And I hope if there’s students listening to this episode right now, even if you’re in your first or second or even third professional year, I hope you’re hearing that, hey, now is the time to really kind of learn what these options are, talk with your financial aid officer, begin to learn more about what is forgiveness? What is PSLF or non-PSLF? What are the income-driven plans? And for those already in active repayment, you know, it’s never too late to make sure you’re in the best repayment plan. And I think that’s really what we’re honing in on in a big way with the course. And I’m speaking here out of mistakes that I’ve made just wandering through the grace period without any intentionality, which really takes us to our second common mistake and the second thing we address is not being intentional. So the idea here that people kind of are passive and not having a plan. So talk to us, Tim, in terms of what you’re seeing with graduates and what you’re hearing with graduates about not being intentional. And what are some things that they could do to be intentional?

Tim Church: I think the thing to keep in mind is that if you have federal loans, you’re going to get dropped right into the standard repayment plan, which is a 10-year term. What’s interesting is that I think we pulled up that article from Credible, and they were estimating that pharmacists will take on average 14 years to pay off their loans. So keeping that in mind, it could be even extended further than the standard 10-year repayment plan. But what I tend to see is that whatever repayment plan kind of starts, whether that’s standard or maybe something less aggressive, either graduated or extended, is that people tend to stay in those repayment plans, and they’re just making the minimum payments over time. But the term itself is not, in my opinion, really a strategy. It’s just the default in terms of what you have to pay. But if you take that a step further and say, what is my game plan? Is it to pay the loans off faster than the term in order to save money in interest? Or do I have a low interest rate, and I’m trying to make sure that I’m putting enough in retirement, putting enough for a down payment on a house? There’s a lot of those variables that go into play. And so I think you have to really look beyond that term.

Tim Ulbrich: Yeah, and as you’re talking here, Tim, it reminds me of you know, when I graduated — and I’ll humbly admit to the audience, I couldn’t tell you a single thing, not really much at all about my loans. I didn’t know if they were unsubsidized, subsidized. I probably didn’t even know what those terms meant, didn’t know the interest rates, didn’t know repayment plans. So I wandered into the standard 10-year period. I wandered through the grace period without really understanding what that meant for interest accruing. And one of the things I look at in hindsight is that I could have either refinanced or I could have probably done PSLF. And looking at my situation and kind of beliefs and wanting to get those paid off, I probably would have went with an aggressive refinance. But because I wasn’t intentional, I basically sat there for 10 years with most of my loans at 6.8%. And that hurts when I know I could have refinanced probably below 5%, and I think that just speaks as one example about the power of doing your homework and trying to make sure you can put a plan in place and take advantage of at least trying to minimize the interest you’re paying or for those that choose forgiveness, making sure you’re intentional about going after forgiveness as well.

Tim Church: Yeah, I mean, I think about that for my personal situation. Here I am, I’ve worked for the VA now for about seven years. And had I known about — No. 1, had I known about PSLF, I would have made the right moves at that time to figure out what I had to do to accomplish this because really, I’d be looking at three more years, and I’d have all my loans forgiven.

Tim Ulbrich: Yeah, and remember when we were in Baltimore back in February, I think you and I after we both had the realization we could have done PSLF, we went back and did some of the calculations to say, hey, what if we would have actually lowered our AGI? What if we would have went all in on retirement savings? What would that have been? What did we come with? It was like a few hundred thousand dollars, right, was the swing?

Tim Church: Yeah, it wasn’t a small chunk of change.

Tim Ulbrich: Yeah, lesson learned, but that’s OK. That’s OK. Alright, so moving onto No. 3 here, we have choosing the wrong repayment plan. So I mean, we’ve kind of alluded to that a little bit already, but what — is there a wrong repayment plan here? Or what is the meaning behind this common mistake?

Tim Church: Well, I think definitely if you’re pursuing forgiveness, whether that’s through PSLF or non-PSLF that you have to be in the right repayment plan to make sure that you’re getting qualified payments, and you’re getting those to count. And a lot of people that haven’t been doing that, they’re actually a lot of the payments they’ve made over the years don’t actually count, and the clock has to start over. So I think that’s one area where it could be a mistake if you’re not in the right repayment plan. And then I think a big one is during residency. And again, this is another mistake I made. I actually put some of my loans in forbearance because I didn’t feel like I could make the payments, but in reality, if you use some of the income-driven repayment plans, even if you don’t make a payment, even if it’s $0 or a very small amount, there’s some really perks with using some of those plans to actually minimize the interest, depending on what your overall payoff strategy is.

Tim Ulbrich: Yeah, and I think this goes and feeds nicely into what we talked about there, point No. 2 about being intentional because if you’re doing the math and you’re doing your homework and you’re learning about these plans, you’re more likely going to be opting into the right strategy. So you gave that example of PSLF, you have to be in a qualifying plan to ultimately obviously eventually have that money forgiven. So if you’re intentional and you’re doing your homework, you’re going to pay sure that happens. OK, No. 4, which I know you and I both talk about a lot between each other and we’ve talked about it on the podcast. And I would reference our listeners back to Episodes 029 and 030, which was all about refinancing student loans. So No. 4 is not considering refinancing. Now, we specifically put here considering because for some people, they shouldn’t refinance. But for many others, they should at least evaluate it. So talk to us about just briefly refinancing and why this is a common mistake that you see.

Tim Church: Well, when you refinance your loans, your main goal is to really get a lower interest rate. You’re trying to pay less money in interest over the course of the loan. I think the big thing is is that if you’re going to plan on staying in the federal loan system and pay off your loans because either you’re not eligible for forgiveness or you don’t want to be in debt for 20-25 years using non-PSLF forgiveness, you have to take a strong look at refinancing. And I kind of go back to your situation, Tim, where most of your loans were sitting at I think over 6% you said, but you probably could have been getting anywhere from 3-4% during that time. And you would have paid substantially less in interest. But the faster you make that move, the less you’re going to pay over time, obviously. I think one of the big things is there’s a lot of myths out there about refinancing. This may have been true a number of years ago, but a lot of people, they feel that they’re losing all of the protections of the federal system when they refinance. And it’s true. There are some things that you’re probably not going to have if you make that move. One of those is access to income-driven plans. So if you have a situation where your income’s not steady or you plan on changing jobs and you have some uncertainty, then yeah, that’s something that you probably don’t want to give up. The other thing is death and disability. So this is interesting because some companies offer that same protection. So if you die, your loans are forgiven in that event or if you become permanently disabled, so that’s same with the federal government. Others are not. So that’s certainly one thing you have to keep in mind. Obviously, one of the biggest ones is that if you’re currently pursuing PSLF or you plan to pursue PSLF or forgiveness, for that matter, you definitely don’t want to refinance because you disqualified yourself. But again, if you’re not going for any forgiveness program, then it’s probably going to be a great option again, going back to the interest that you’re going to pay.

Tim Ulbrich: Yeah, and I would point listeners back to yourfinancialpharmacist.com/refinance. We’ve got a great page about refinance education, what to look for, what are must-haves before you sign up with a company, who should, who should not. And we’ve got a great calculator on that page. So if you’re thinking, how much would I actually save in a refinance after you get a couple quotes, we’ve got a tool on there that will help you figure that out, determine if it’s worth it, and so I would highly encourage you to check that out. And even thinking, Tim, back to the course that we’re building, I think that’s one of my favorite parts is we talked about the decision tables, it’s really helpful to see everything from PSLF all the way to a five-year refinance, which is very aggressive. And I think that’s what we’re trying to do is get people to see all of the options, weigh the pros and cons, look at the math, and then as you mentioned already, layer onto that math the emotional component and other factors that will ultimately determine the best payoff strategy. But refinance has to be at least considered in that mix, correct?

Tim Church: Definitely. I mean, I think it’s probably the single most powerful strategy for tackling your loans if you’re not going to pursue forgiveness because if you look at current interest rates in the federal loan system are 6% or higher, even now you can get interest rates, I’ve seen quotes in the 3’s to 4’s. Even that change by a couple percentages, depending on the balance of your loan, I mean, we’re talking $20,000 and up. I mean, it depends on your balance. I mean, the bigger your balance you have, the bigger the savings that you can get. And I know for me, I think I’ve calculated over time because I’ve actually refinanced my loans twice and was able to get a better interest rate each time, but I know my savings over that point of starting out with $180,000+, it’s probably been about $30,000-$40,000 in interest that I’ve saved.
Tim Ulbrich: Yeah, and I think you’ve done that calculation before. I’ve seen it either on the website or one of the resources that if you take the average indebtedness of a pharmacist and you assume, you know, various interest rates that are normal with what’s in the market right now, the average pharmacist could probably be saving somewhere around $30,000. Now, obviously that’s highly dependent upon personal situation, interest rates, debt-to-income ratios, what rate they get on a refinance and so forth, how fast they want to pay them off or not. But I think the point being here is that it is for some people, it is not for other people, but it at least has to be a consideration and a part in evaluating. So again, yourfinancialpharmacist.com/refinance. And we also have a lot in the course about refinancing and making sure you’re considering it amongst other options. OK, No. 5, hopefully Dave Ramsey is not listening to this podcast. I’m pretty sure he doesn’t listen to our podcast. But No. 5 we have here is not taking advantage of employer match while paying off loans. So obviously, I’m giving Dave Ramsey a hard time. I like a lot of his content. But this is one that he would disagree with us on. So why are we adamant of the employer match, even in the midst of that time period of paying off loans?

Tim Church: Well, I think you really want to take advantage of that free money. And if that’s a tool that’s available to you, you’re really missing out if you’re not getting that free money each and every year and taking advantage of compound interest. I think one of the things with Dave Ramsey is that a lot of the people, they don’t have the same debt load as the average pharmacist, and so we’re looking at — we talked about that Credible study that the average pharmacist, they were talking about 14 years in debt. And obviously, that depends, and there’s a lot of factors involved with that. If you do absolutely nothing for retirement for over a decade or several years, you’re going to be way behind where you need to be if you’re trying to plan on retiring before the age of 90.

Tim Ulbrich: Yeah, and I think I was having a discussion with a student at Mercer this weekend — and I know we talk a lot on this podcast about this balancing of debt versus investing. And I think it’s such a hard question for lots of reasons. And here, I think this is a no-brainer. You take the match is what we both I think philosophically believe in. But you know, then the question becomes, what beyond that? And to me, one of the variables is where are you in your trajectory of retirement savings? And how much you either have and what’s your timeline to retirement? So there’s a fair number of nontraditional pharmacy graduates that maybe it’s their second career, and their answer to that question looks very different than a 24-year-old graduate, right? So I think putting all those factors together and not just making this a black-and-white answer, but certainly I think the match is a no-brainer, although it seems like, Tim, would you agree — you know, I’m thinking of discussions in the Facebook group and others — it seems like most companies are still offering a match, but it seems there’s actually a decent amount of variety between companies, and it seems that that match component has actually gone down over the last few years.

Tim Church: Yeah, I don’t know. I think it varies so much because I feel like you guys in academia and hearing from my wife, you get these pretty awesome matches like 8-10% I’ve heard. So I think it just varies in terms of what company you work for. But I think you bring up a good point is that that number’s going to be variable, and then sort of beyond the match, that’s probably one of the most controversial topics in personal finance. And everyone has an opinion on that, and I think there can be a mathematical answer, but again, there’s so many different factors that play into that.

Tim Ulbrich: So is there any reason, Tim, you can think of why somebody wouldn’t take a match? So I’m thinking of situations like somebody who has lots of credit card debt or has no emergency fund. Like is there any situations where you could say, maybe it would be in their advantage to really focus on these other things? Or do you think pretty much across the board, it’s a good general rule of thumb?

Tim Church: I’d say probably for most people, it’s going to be a good idea. But like you said, if you have credit card debt at 14-15%, you’re probably better getting the return on knocking that out first before you start putting in towards the retirement. I think that for most people, it’s definitely a great idea. You want to take advantage of that free money. But if you’re swamped in credit card debt, and you’re having trouble even making your bills every month and putting food on the table, and you’re in some extreme situation, then yeah, maybe temporarily you don’t even put anything towards retirement until you can get to a point where you can actually breathe.

Tim Ulbrich: Yeah. And I would add to that too, you know, because I think somebody might hear that and say, ‘Well, even if it’s credit card debt at 15% or 18% or whatever, like I’m getting 100% free money.’ And maybe Dave Ramsey would like this part, but I would add to this discussion is don’t forget about the behavioral components of this, right? So if I’m contributing let’s say 3% towards retirement because my employer is matching 3, even if I’m doing that, that’s on autopilot and I’m not necessarily taking a very active role in that process. If I’m intentionally taking money and paying down a credit card bill, and I’m seeing that reduction happen, that is a piece that I’m taking a very active role in. And there’s power and value in that process. So again, all the more reason that these aren’t necessarily black and white answers, but what we’re saying here in point No. 5 is that for most people listening that the employer match, even in the event of student loan debt, is probably going to be a good play. Alright, so there we have it. Five common mistakes that we see pharmacists making, many of them we have made ourselves. So we hope this has been insightful, and I would just point you back to this is a very small sampling of what we are going to be talking about in a lot of detail in our student loan course that we’re getting ready to release very soon. And as I mentioned, we have 14 lessons across three modules. It’s packed with lots of content taught by Tim Church, Tim Baker, myself, we’ve got a Facebook group that’s going to be exclusive to the people that are in the course, so lots of great information, all really designed to give you confidence in having a repayment strategy that is going to be best for your personal situation and getting clarity on that strategy. So as a final reminder, if you head on over to courses.yourfinancialpharmacist.com, if you use the coupon code LOANRX, that will be good until Friday, May 4. We’ve got 19 seats left in our beta testing group until Friday, May 4. At the time of this recording, 19 seats left, and we’ll take the remainder of those at first come, first served. Have a great rest of your week, everyone.

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