Podcast

YFP 239: Two Financial I’s You May be Overlooking

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Two Financial I’s You May be Overlooking

Tim Baker talks through two I’s that you might be overlooking as it relates to your financial plan: inflation and I-Bonds.

Episode Summary

Today, Tim Ulbrich and Tim Baker sit down to talk about the two ‘i’s that you may be overlooking in your financial planning – inflation and I-Bonds, more formally known as series I savings bonds. While these words may not scream excitement, understanding these two aspects can be valuable in helping you to get the most purchasing power out of your money in the future. During the interview, Tim and Tim discuss why inflation can sneak up on you and why it is an important yet often underestimated consideration for the financial plan. Tim Baker discusses the basics of inflation and some potential ways to combat its impact on your financial plan. Tim Baker also shares basic information on I bonds and who they might be a good fit for, considering the personal financial plan and situation. Listeners will hear about how to acquire I-Bonds, some interesting and quirky rules to take into account regarding this type of investment, and a detailed explanation of why these bonds (not to be confused with E-Bonds) can be used as one strategy to hedge against inflation. This episode has all the percentages that you’re looking for to figure out if I-Bonds are the right vehicle for you.

Key Points From This Episode

Kicking off with inflation; what the term actually means and why it’s the current hot topic.
Breaking down the inflation statistics and how it’s affecting your buying power over time.
Encouraging the listener to start by listening to Ask a YFP CFP® episode 93
Introducing I-Bonds, not to be confused with E-Bonds.
Who the I-Bond is suitable for, and the big potential drawback: the holding period.
Some of the interesting and quirky rules of I-Bonds.
Why methods to protect you against inflation are important.
How folks often underestimate their nest egg needs because of not considering inflation.
Talking about inflation in the context of an emergency fund.
Tim offers some different ways you can slice the apple, depending on the scenario.

Highlights

“Inflation is a thing that it’s kind of like death and taxes, right? Typically, it follows economic progress.” — Tim Baker, CFP® [0:05:44]

“The average value of houses has risen by 58% just over – Since 2011, in the last 10 years. The Dow Jones has been up 147%, Nacre Farmland up 37%. But I think it doesn’t really hit us in the face until we’re at the grocery store.” — Tim Baker, CFP® [0:09:16]

“For people who are on fixed incomes, retirees, or are looking for something safe, [I bonds] are definitely something that you can look at.” — Tim Baker, CFP® [0:11:47]

“Methods to protect you against inflation are really important because you really want to protect your purchasing power on your dollars, which means not standing on the sidelines. It means invest it. It means thinking of things like I bonds .” — Tim Baker, CFP® [0:17:53]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

[00:00:00] TU: Hey, everybody. Tim Ulbrich here and thank you for listening to the YFP podcast, where each week we strive to inspire and encourage you on your path towards achieving financial freedom. This week, I had a chance to sit down with YFP Co-founder, Co-owner, and Director of Financial Planning, Tim Baker, to talk through two ‘i’s that you might be overlooking as it relates to your financial plan, that being inflation and I bonds, more formally known as series I savings bonds. During the interview, Tim and I discuss why inflation can sneak up on you and is an important yet often underestimated consideration for the financial plan, some strategies to combat inflation, and what I bonds are and how they are one tool to consider hedging against inflation.

Now, before we jump into today’s episode, now that we have put the calendar on 2022, it’s time to think about tax season. I’m excited to share that YFP Tax can file taxes for an additional 125 pharmacist households this year. The team at YFP Tax isn’t focused on just completing your tax return. Instead, they provide value, care, and attention to you and your taxes. Because YFP Tax worked specifically with pharmacists, they’re familiar with aspects of your financial plan that have an impact on your taxes. The YFP Tax finally waitlist is now opened. If you’re interested in working with a team of highly trained tax professionals, I invite you to add your name to the waitlist by visiting yourfinancialpharmacist.com/tax. Again, that’s yourfinancialpharmacist.com/tax.

[EPISODE]

[00:01:31] TU: Tim Baker, Happy New Year.

[00:01:33] TB: Yeah. Happy New Year, Tim. Hopefully, you had some good time off with the fam over the holiday.

[00:01:37] TU: We did and really excited for 2022. We’ve got a lot of exciting content plan for the YFP community. Today, we’re going to be talking about inflation and I bonds. I know that the words inflation and bonds don’t really scream exciting topics, but we’re going to have some fun with this episode, and I’m confident our listeners are going to take away something valuable that hopefully they can apply to their financial plan. Our approach for today’s show is we’re going to talk about inflation first, and then I bonds as one strategy to hedge against inflation.

Now, inflation, Tim Baker, something we haven’t really talked about in detail on the show, which I think is fitting because we’re a few hundred episodes in. If we think about inflation warnings, I think about is that we often hear that term. We think about it. We know it’s somewhere in the background. But it might not be front and center or something that’s top of mind as it relates to our financial plan. So we know it’s real, but it can be hard to put our finger on it, exactly what is inflation, what is the impact that it might be having to my financial plan. That’s something that I think hopefully folks will be thinking about, especially over the long run when we think about the impact that inflation can have.

So, Tim, kick us off. What is it, inflation, and why is that term getting so much attention right now?

[00:02:49] TB: Yeah. I’m going to steal Investopedia’s definition, and they define it as the inflation as the decline of purchasing power of a given currency over time. I think like for a lot of people, myself included, before kind of getting into financial services, I’m like, “What? What is this?” I kind of knew very high level what it means but I didn’t really connect the dots. I just thought, “Okay, like prices go up.” To date myself, I think when I started driving, gas was at like under a dollar, whenever that was, so 89 cents. I think that’s when my brother started driving, my older brother.

[00:03:22] TU: That’s when we were in high school, Tim.

[00:03:24] TB: Yeah. Then you think about where it’s at now. I think gas is very tightly controlled in a lot of ways because of one of those numbers that kind of hits us in the face every day when we’re going to work. So it really is reflected in the increase of the average price level of a basket of selected goods and services in the economy over like a period of time. We typically represent inflation as a percentage. So like when we do planning, we look at historical rates year over year, and most planners I think use a 3% inflation mark. Or right now, where inflation is, which is it’s been reported 6.8% there towards the end of the year, that’s not necessarily good enough.

But over time, typically 3% is what we use as planners. What it means is that our currency, the dollar, effectively buys less than it did in prior periods. I’ll talk about inflation when we typically talk about investments because I’ll say for a lot of people that are more conservative in nature or just don’t really understand investments, they’ll say like, “Tim, do I have to? Do I have to invest? I don’t like the swings in the market and like the news and all that kind of stuff. So I’d rather just not if I could.” Again, this is the extreme example, and I’m like, “Yeah, you kind of have to.” Because if you’ve heard one of my webinars, I’ll invoke my dad who’s in his 70s, and we talk about back in his day, a nickel would buy the whole candy store. Now, it doesn’t buy anything.

We also kind of illustrate the point of that, that Starbucks coffee that costs $4.20. In 30 years, using historical rates of inflation of 3%, that same Starbucks latte is going to cost you 10 bucks in 30 years. So what we can’t do is stuff our mattress full of dollars and hope that we’re going to have enough at the end of the rainbow there. We’re not, and it’s because of those little inflation termites are going to eat away at the purchasing power of your money. So that’s really what’s at stake here. Typically, the financial services world will say, “Invest, invest.” That’s typically what we want to do to kind of keep in front of inflation.

But here, what we’re going to talk about is more about what these I bonds are, and kind of follow that inflation and I bonds discussion. The idea here is that inflation is a thing that it’s kind of like death and taxes, right? Typically, it follows economic progress. Sometimes, it comes when there’s too much money in the system, which we’ve seen over the last couple of years of what the government is doing. So this can lead to an escalation of prices. This is – It’s important to understand, at least at a high level, and then that’s one of the reasons why we wanted to bring this up today.

[00:06:08] TU: Yeah, and I think it’s something – The time is right, Tim, right? I’ve mentioned on the show before, I’m still that old guy that gets the Wall Street Journal in my house every day. Every day, it’s either front page –

[00:06:18] TB: Like the paper version?

[00:06:19] TU: The paper version. I like –

[00:06:20] TB: Wow, that is old school. Do you like shake your cane at the kids that run through your yard? I love it.

[00:06:27] TU: I don’t know. There’s like – it might be from playing paperboy. Did you play that game growing up, Paperboy?

[00:06:31] TB: I did, yeah. That was cool.

[00:06:32] TU: There’s like some feel good. It’s like when I hear the car go by in the morning, I hear the paper hit the driveway, so yeah. But inflation is front page, and it has been for several months now. I think we’re getting practical here, which is what we need to because I think inflation, and you mentioned kind of a concept of termites, is a really good example because you might go to the grocery store. Even in this time of period where we’re seeing six plus percent for those of us that aren’t that old yet, this is pretty big for us historically, right? We’ve heard our parents talk about double-digit inflation and so forth. But for us, this is significant and perhaps something new that we’re dealing with.

But even on a $100, $200 purchase at the grocery store, you might not be like, “Oh, wow, that’s having a big impact.” But if we take a step back and extrapolate that across all of your expenses, it could be groceries, it could be households, it could be goods, it could be utilities, it can be cars that are being purchased, the list goes on and on, like and you’re spending X thousands of dollars per year, obviously that has a big impact that we need to be thinking about. If that continues to go on, we’ve got to have some strategies that can mitigate that over time.

I think it’s really important as we think about some strategies. We’re going to talk about one of those today, which is the I bonds, more formally known as the series I savings bonds. Just a reminder, before we dig into this discussion, certainly this is not intended to be investment advice, right? We’re going to be talking about one vehicle. I think the strategy of inflation and mitigating inflation across the financial plan over several decades, of course, goes well beyond just considering series I savings bonds. So, again, not investment advice but I think one unique opportunity and tool.

A shout out, this question actually came originally from an individual that attended a YFP investing webinar in 2021. We then addressed it briefly on Ask a YFP CFP, which we publish weekly, episode 93. The question at the time related to, “Is it okay to have a portion of my emergency fund in an electronic US Treasury savings bond, specifically in reference to the I bond?” What was interesting was at the time that question came in, the I bond combined rate, which we’ll talk about what that means, was 3.5%. Now, because of inflation and the discussion we just had, we’re seeing that rate now north of 7%. So, again, one vehicle, but something I think that’s worth considering might be something of interest to many that are listening. So, Tim, give us an overview of what I bonds are. Then we’ll talk about some of the pros, cons, and potential role that this may play in the financial plan.

[00:09:01] TB: Yeah, and just to address the point to piggyback on. Before I talk about the I bonds, there’s a piggyback on the idea of like why is inflation, outside of it going up a lot – I think that what’s happened over the decade is that – I think people have seen this, but then now we’re seeing it more tied to consumer goods. The average value of houses has risen by 58% just over – Since 2011, in the last 10 years. The Dow Jones has been up 147%, Nacre Farmland up 37%. But I think it doesn’t really hit us in the face until it’s like we’re at the grocery store or that type of thing.

I think that’s why outside of the huge increase, and I think it’s leading to discussions about double-digit inflation and kind of returning. I looked up some numbers back in the early ‘80s, again to kind of when I was born. The interest or the inflation percentage was like 13.5%, and that was leading mortgages to go up as high as 17%. I think even higher than that. So think about that. Like I was kind of complaining when I bought my house in Baltimore. That was like 4.5%. I’m like, “Oh, man. This is so high.” Especially now it’s like 3%. So a lot of this is relative, and we’ve seen this has been cyclical. It was really high in the ‘70s and ‘80s. It was high, I think, in the ‘40s at one point. It was high like right before the Great Depression. That was kind of one of the causes there, so yeah.

I think to talk about like how to mitigate this, which is, we talked about the I bonds, the tried and true is always talking about equities, stocks, like investment in stocks. Investment in real estate’s another thing. So to kind of preface that, and I would encourage everyone to kind of listen to the Ask a YFP episode because we kind of talked about even just setting it up and how that experience was, it’s really about going to the treasurydirect.gov, and you can buy them directly from the government that way. What we’re talking about here, the series I bond, not to be confused with the double E bonds. It’s really, again, I think what I said in the episode is kind of eye-popping where those were when I bought mine, which I think was like 3.5%. Now, the inflation component is like 7.12%.

The way it works is you buy the I bond. I think it’s every six months, the Treasury looks at the inflation rates, and they basically adjust that inflation component. So when you buy an I bond, there’s really two components. There’s the fixed component, which is at 0% and then the inflation component, which is at 7.12%, which I think holds until April of this year. Then those two things combined are your composite rate, and that’s basically compounded semi-annually. Right now, for these first six months, it’s going to be locked in at that 7.12%, and they’ll reassess, and it could go up, go down. It sounds like it could go up based on the news and things like that. It’s really a – in the episode, I kind of talk about tips, like where it basically follows inflation. It’s kind of the same thing.

For people who are on fixed incomes, retirees, or are looking for something safe, these are definitely something that you can look at. We talked about it in the context of emergency fund. There’s tax advantages here. The big drawback to the I bond is the holding period. So basically, the reason that we were kind of not an advocate for using it for an emergency fund, especially as you’re building it, is that you cannot touch the dollars that you put in there for a year. So obviously, that’s not ideal for an emergency fund. But once you get beyond the year, you can touch it, but you’re penalized. So I think there’s like a three-month penalty of the interest that’s been accrued, and then you can get to it. Then after five years, you can essentially do what you want with it. But the rates are interesting because it’s really been the highest that they’ve been since I think May of 2000.

Again, if you’re thinking like, “Man, I’m looking at my high-yield savings account, which is paying half a percent,” or a five-year CD is paying less than 1% or 1%, whatever they’re at today, this is an interesting way. I talked about it again, so I’m going to keep it simple like investments, high-yield savings account, not a lot of variation from that. But I think where everything is in terms of the state of rates and things like that, I think it’s a viable way or viable way to go.

Some of the things that are interesting about I bonds, there’s just kind of some quirky rules. So like as an example, if Shane and I want to buy these bonds, we’re really limited to $10,000 each per year. Then you might say like, “Well, that’s quite a bit of money,” and I would agree. But if you’re looking at this as a major component of, say, your retirement portfolio, retirement paycheck, that might not necessarily be enough.

But if you have children, you can also buy I bonds at the same rate per year for the kids that you have. Then the other thing that you can do, and, Tim, this might be something that we just often talk about, is you can buy them for entities. So we might be able to buy them for, say, the business entity, even though that we own the business entity and we have our own portfolio. That’s something that I think allows you to be a little bit flexible. Then the other thing is that the levels of which you can buy are basically set but outside of like if you were to use like a tax refund. So right now, we’re hitting tax season. If you’re thinking, “This sounds really interesting. Maybe I want to do this to kind of eke out a little bit more yield from what I’m doing and kind of my cash components of my wealth building,” you can actually use the refunds that you get from the IRS to purchase additional amounts of I bond.

It’s something that, again, it’s tied to the consumer price index, which is very much related to inflation, that the US Treasury Department basically reviews and then adjusts the inflation component of the rate accordingly. So if you’re out there and you’re like, “Man, I do not like the rates that I’m currently getting in kind of my cash and cash-like investments,” this is definitely something to potentially look at, given what you’re looking at it for, your financial situation. Again, I wouldn’t necessarily do this if you have no cash component, but I look at it as a very viable way to kind of hedge against the inflation. Because just to talk in broader concepts, Tim, if you have a savings vehicle and you’re earning 1% on that savings vehicle, which is very generous right now, and inflation grows by 7%, which is kind of what it’s been trending to last couple months, you’re essentially 6% poorer.

You might feel richer because you’re putting those dollars aside. That’s why a lot of people call inflation the worst tax because it kind of goes back to that idea of like it’s the termites that eat away your purchasing power. It’s that hidden ninja, that hidden assassin, that’s just really beating you down in the background. So these are things that, especially because of where it’s trending, just to be cognizant of. So you kind of talked about how powerful this can be. One of the things we do with clients, Tim, is go through the nest egg calculation of like, “Hey, you need $4 million to retire,” and that’s where a lot of people look at us, like we have 4 million heads, right? Because it’s a number that’s in the future that’s very large that tangibly I can’t really wrap my head around.

What we say is, and I’m going off just an example here, if you make $125,000 as a pharmacist and say you’re 35 years old and you want to retire at age 65, that gives you 30 years left to work for the man, right? So you have 30 years of earning potential and you’re going to retire at 65. We’re going to assume that your wage is going to increase over time as well. We’ll say that for the purposes of this, we kind of do a wage replacement ratio of what you need to live off from 65 until basically the end of life. That allows us to get to that number of three, four million in that range. But that wage replacement ratio of, say, $125,000, if we discount that sum, we’d usually discount it by about 30%, and we’re planning for that 70% is what we need to live in retirement. That’s 80 cents. So 70% of $125,000 is $87,500.

But in 30 years, when you are 65, no longer 35, use in historical rates of inflation 3%, that paycheck is not at $87,500. It’s grown because of inflation. So now it’s $212,000. So think about that. Right now, I’m saying if I were to retire right now at 35, I would need $87,000, and I’m making $125,000. I would need – If we discounted a little bit because typically we don’t plan for like saving for retirement while we’re in retirement, right now I would need $87,500. So that’s where I kind of talked through, Tim, you would come to me and you would say, “Tim, I need $87,500 for 2022 and then basically the next year, $87,500 for 2023, given some inflation.” But if we don’t retire and we wait until we’re 65, that $87,500, you’re going to basically hand out and say, “Where’s my retirement paycheck for $212,400, essentially?”

If you think about it in those terms, you’re like, “Holy geez. $87,000 in 30 years is going to be $212,000.” That is why methods to protect you against inflation are really important because you really want to protect your purchasing power on your dollars, which means not standing on the sidelines. It means invest it. It means thinking of things like I bonds, etc. So I know very much tangential here, Tim, in terms of stream of thought in terms of this. But that’s what we’re essentially talking about when we talk about inflation and then kind of how I bonds can keep pace with that.

[00:18:19] TU: Yeah. I’m glad you went there, Tim, because I think this is something I’m sure you and the planning team see with clients. I’ve seen it over and over again when we do sessions with pharmacists on investing, right? We have them dust off that nest egg calculator. We punch in the numbers. They spit out a number, and like you can see that overwhelm look.

[00:18:37] TB: Or crickets like, “What does that mean?”

[00:18:39] TU: Yeah. I think one of the things that the planning team does an awesome job of is when you’re thinking 30 to 40 years out, like it can feel like fake fuzzy math. I think it really has to be discounted back to what does this mean today. What does this mean today in terms of, here we’re talking about commodity inflation? But also, what does this mean today in terms of my savings plan, and really trusting the math, and trusting the process in terms of where we’re trying to go for long term? But that’s why when I say, “Hey, audience. How much do you think you’re going to need to have to save for retirement,” inevitably folks are underestimating what is the true need, right? Because they’re not thinking about it in terms of inflation and the impact of what future dollars are going to be needed. They’re thinking about it of, “Okay, I make $100,000 today. I’m going to retire in 30 years.” They’re not thinking about what might be the impact of what they’re going to need, if that income continues to rise. Obviously, the expenses rise with it accordingly.

A separate conversation for a separate day, but I think one of the concerns that we need to be thinking about talking about pharmacy is, when I then go down that path in a presentation and have that discussion, people are like, “Man, is a pharmacist really going to be making $200,000 in 30 years,” whatever that would be. Obviously, that gets to supply and demand and rules and all those types of things. But certainly, we need to be thinking about what is the impact of this over many, many, many years over time.

Tim, talk me off the ledge. Okay, so I’m looking at my Ally account. A couple years ago, we would have been better off storing some cash in a high-yield savings account when they were – Remind me. I think we were almost at 2% a couple years ago, weren’t we?

[00:20:14] TB: I remember Ally. I think it was like 2.35%.

[00:20:18] TU: Yeah. So I’m looking at .5.

[00:20:19] TB: I would twist my mustache every time, Tim. I would get the email saying, “Hey, your Ally interest rate has gone up.” Then when we just get those emails,” that like, “Your rate’s going down because rates have gone down.” But they’re kind of back on the rise, yeah.

[00:20:31] TU: So I’m looking at 0.5%. At the time, obviously, we’re looking at the composite rate reminder. I bonds includes both a fixed component currently 0% and inflation component currently 7.12%. So that combined rate of 7.12% clearly beats 0.5%. But that was a very different scenario a couple years ago. If you look at what those rates were then, you would have been mathematically better off stashing your money in an Ally account.

In this period of time where folks might be feeling that pressure of inflation, I want to talk about this in the context of an emergency fund specifically. So let’s say that, Tim, you personally, so this is not advice for anyone else. You personally, maybe you have a need of, I don’t know, $40,000 in emergency fund, %30,000, whatever the number is. As you’re kind of evaluating that, especially where you’re seeing this discrepancy of 6.5% or so, like how are you thinking through or questions you’re asking yourself about, “Hey, what might I keep right here? It’s liquid. It’s accessible. I can easily get to it when I need it.” Versus something I might put in an I bond, try to beat some of this inflation or keep pace of what is going, knowing that there’s these limitations? You talked about them in terms of within a year, no bueno. Within five years, we got to pay a few months penalty on the interest. So obviously, we lose some liquidity and accessibility. Tell me more about how you’d be thinking through that.

[00:21:49] TB: I value simplicity a lot. I think, for me, the numbers would have to really be I think telling for me to like kind of change up my, I guess, pattern of how I do things. So if you take an example, say we shave off $10,000 of that $30,000 or $40,000 dollar emergency fund, or say you have something that’s going to come up because the hard part about – investing long term I think is fairly easy. It’s when you start investing in the medium term or even the short term where it kind of gets funky because, again, the market. If you look at the S&P 500, I think like the worst year-over-year return in the market, it’s like down 37%. But then it’s been up 40% year over year.

So when people say like, “Tim, what should I do with this money,” I’m like, “Just put it in a high yield. Don’t even mess with it.” If it’s like three or four years, that’s when you’re like, “Okay, is there a portfolio you can build out where you’re going to take some risk?” That’s a stock and bond portfolio that you’re taking some risk, but you’re kind of hedging in some bonds that can eke out more return than like what a high-yield or a CD can do. So if we take this example and we say, “Okay, there’s $10,000 there, whether it’s for an emergency fund or something that’s in the future,” if it’s a half of a percent that you’re getting from a high-yield, at the end of that year, you’re going to have not $10,000. You’re going to have $10,050. $51. Because of some of the compounding period, $52.

But if you were to do the same thing right now with the I bond, the I bond would be worth $10,360 bucks. Now, I’m thinking. I’m like, “All right, do I want to do it for an extra $300?” For me, I don’t know. The answer might not be great enough. Maybe if it’s $100,000, which, again, I’m not putting $100,000 myself into an I bond, maybe that’s a different. So the thing is like, okay, so then if you say a year out, I need this money, but then you take the haircut on the interest penalty, it’s probably not worth it, right? But the further you go out, and that’s the case with any investment is typically the longer that you own it, the better it is.

So I’m going to go back to my age-old saying, which it just depends. Again, if your emergency fund is not built, then I would say probably not. Get that level of cash, and then you can start looking at a deeper reserve or for something like if you know that you have something out, that’s two years out that you’re like, “Hey, we’re going to save for an investment property or for a wedding or something like that,” then this might be a good way to go. Because if you invest it, there’s a chance that you could have a negative return, which that is not here. This is backed by the full faith and credibility of the – even if we go into a deflationary period, where interest rates are negative, which that’s not the case, it’s still buoyed by the composite and even like past earnings that you’ve had at that 7.12%.

It really depends, Tim. I think you have to figure out like the penalties, how long you’re going to hold it. For retirees, this might be a good component of even like a bond ladder or things like that. So people that know, “Hey, I’m 60 years old and I want to retire at 65,” this might be a component where you are building out the first couple years of your retirement paycheck that it makes sense. So there’s just a lot of different ways to kind of slice the apple here, and I think it just depends on your situation. But I think if you’re out there and you’re like, “I’d rather do this with my emergency fund than I’m building right now,” I would say pump your brakes because, again, I don’t want you to have to reach for the credit card, if something comes up, to kind of cover that emergency.

Again, if we’re kind of trying to keep pace with inflation, this is something that kind of automatically does it for you that the Treasury sets. But it’s not going to get you – so the caveat to all these conversations, Tim, is that if you need three or four million when you retire, investing in I bonds is not going to do it, right? You have to have a stock portfolio that will get you there. Now, if you’re approaching retirement, a bond portfolio and a bond ladder or some type of SPIA or something like that that will kind of get you to where you have basic needs and can kind of also [inaudible 00:25:55] market and get some return is going to be important as well. So it just really depends on where you’re at, what you want to use it for, as is the case with everything. But if it’s something more near term or if you want to kind of – because I would even argue that a bond portfolio compared to an I bond, you’re probably going to be better in a bond portfolio even right now. So things ebb and flow as well. It just really depends on the situation, but there’s a lot of factors to consider.

[00:26:21] TU: I think there’s a lot of good stuff in there, Tim, though, and that was partly why I asked the question because I think sometimes I’m speaking here to my fellow hyper-analytical pharmacy nerds that are looking at the percentages. But it’s a good reminder. I think sometimes we see a savings account. We’re like, “Oh, .7 versus .2.” But do the math, right? I mean, if you’re looking at 10,000, I mean, even if inflation keeps at this rate, and we see the composite rate for two or three years, even if you max that out, like what is the true net difference, right? I’m not mitigating what a few hundred dollars 100 can mean. It’s important, but let’s not lose the big picture of what we’re trying to go or let’s also make sure we’re factoring in some of the downsides, considering the liquidity, the time periods, and things like that.

Hopefully hitting home that there’s some value, there’s a role. But I think a tendency, when folks hear about something like this, myself included, is like, “I’m logging on to US TreasuryDirect. I’m buying right now,” right? Take a step back, pump the brakes, look at the math, look at the bigger picture, and I think that’s something obviously the planning team in the process can really help with as well.

[00:27:24] TB: Yeah. I think it’s probably a good place for me to acknowledge because sometimes I beat up on people that will do things out of order a little bit where I’m like, “Well, we have a bunch of credit card debt but we have like $5,000 in like Robin Hood, kind of out of order.” I think sometimes that happens because of just curiosity, and this is kind of like what we did. We’re like, “Oh.” I’ve always kind of said, “Hey, keep it simple, high-yield, maybe CDs, that type of thing.” When this was brought forward, I obviously knew what I bonds were, but I was not necessarily paying attention to the rates because they’re typically very, very minimal because of where inflation has been. But we kind of went through that and experimented a little bit and like as we see kind of with people that do Robin Hood and don’t necessarily have the foundation set.

I don’t think that’s a bad thing. Again, I don’t necessarily have my I bonds on my balance sheet right now because it’s just kind of something that is in the background. But I do think it is, I think, a viable vehicle to consider, kind of depending on where you’re at. Again, at the end of the day, I’m always going to go back and say work with your advisor and see if this is something that fits with you or your spouse and kind of get a sense of what that particular vehicle has a place in your wealth building in your portfolio.

[00:28:32] TU: Yeah. I think is we say often, Tim and I know we talk about student loans. We often say, “Hey, payment plan decision, it’s the math plus, right? It’s the math, plus all these other factors.” I think it’s a good example of that here as well. I’m thinking about folks that might be hearing about this thing, about their emergency fund, looking at inflation and like, “Yeah, I’d love to do that.” But does something like having your money liquid and accessible to you, does that provide some peace of mind? Like don’t undervalue that, if that’s important to you and that idea that something might be tied up for a period of time. Is that worth it? Maybe yes, maybe no. I think that’s, again, a reminder of take a step back and look at how this can be considered as a part of the broader financial plan.

[00:29:11] TB: Yeah. I think to that end, Tim, like when I logged into my account again today, there’s no like get-my-money-out button because I’m still under the one year. Again, like if that – thankfully, I have a pretty robust cash reserve, emergency fund, that if something does hit the fan, I can always tap into that. But if that’s not the case, I’m like – that’s just a number on the screen right now. I’m assuming after a year that kind of unlocks, and then kind of probably we’ll talk about penalties and things like that, interest penalties. But there is something very satisfying about, okay, like if there is.

Again, like I’ll harken back to the beginning of the pandemic when it was a very nice reminder, if I can say this without sounding like a jerk. The pandemic was a reminder that when the markets and – it seemed like everything was falling. It’s why we have the emergency fund, right? Because the emergency fund is never – it’s just not fun to – for me, it’s fun to like, when we dip into it, to like replenish it. I’m kind of a nerd there. So like if it’s below the level, I’m like, “All right, I want to make sure that we pay attention to this, so it’s back to its regular level.” But when you’re building it, especially from scratch, it kind of just stinks. Like it’s good to make progress. But you kind of want to get to steps five and six and seven. But it’s kind of following that, “Let’s do one, two, and three first.”

So this is where I think you can get in trouble because you don’t keep it simple, you do a little bit too much than what you need to do, and you can be burned by it. But I think sometimes we need those reminders to say like, “Okay, the emergency fund at the end of the day is not really to make you money. It’s to be there in case something happens.” But we try to put it in places that we can maximize the value because, again, that $20,000, $30,000, $40,000, whatever it is, that money that’s sitting there is going to buy you less in the future. So that’s another thing to consider as you’re looking at your cash level.

[00:31:01] TU: Great stuff, Tim. I’m going to make sure in the show notes we link to a few things. One, the Ask a YFP CFP episode where we talked about this as well. That was episode 93 of Ask a YFP CFP. We’ll link to the treasurydirect.gov website. Folks, lots of great information on there about the series I savings bonds, rates, terms, tax considerations, and so forth.

Then another thing I’m going to link to is, Michael Kitces has a blog called Nerd’s Eye View, and he had a blog out in December 8, 2021, series I savings bonds, some of the end of year consideration strategies. I thought there’s a lot of good information in there as well. We’ll link to that in the show notes.

For folks that are hearing this and wondering, “Hey, how might this fit into the financial plan?” As well as other things that you’re working through, whether that be debt management, whether that be saving and investing for the future, insurance considerations, estate planning tax, and so forth, the team at YFP planning would love to have an opportunity to talk with you further to determine if our services are a good fit for your financial planning needs. You can learn more at yfpplanning.com.

Thanks again for joining. Have a great rest your day.

[END OF EPISODE]

[00:32:02] TU: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and is not intended to provide and should not be relied on for investment or any other advice. Information in the podcast and corresponding material should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

Furthermore, the information contained in our archived newsletters, blog posts, and podcasts is not updated and may not be accurate at the time you listen to it on the podcast. Opinions and analyses expressed herein are solely those of your financial pharmacists, unless otherwise noted, and constitute judgments as of the dates published. Such information may contain forward-looking statements that are not intended to be guarantees of future events. Actual results could differ materially from those anticipated in the forward-looking statements. For more information, please visit yourfinancialpharmacist.com/disclaimer. Thank you again for your support of the Your Financial Pharmacist podcast. Have a great rest of your week.

[END]

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YFP 238: The Mindset, Habits, and Behaviors of Pharmacy Influencers and Entrepreneurs

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The Mindset, Habits, and Behaviors of Pharmacy Influencers and Entrepreneurs

CEO of Kay Pharmacy and host of The Business Pharmacy Podcast, Mike Koelzer, joins Tim Ulbrich to discuss the mindset, habits, and behaviors of successful pharmacy influencers and entrepreneurs.

About Today’s Guest

Mike Koelzer is the host of “The Business of Pharmacy” podcast. In addition to hosting the podcast, Mike owns an independent pharmacy in Grand Rapids, Michigan. When not working, Mike enjoys spending time with his wife and 10 children, following the news, and improving his sight-reading at the piano.

Episode Summary

Today, Tim Ulbrich welcomes Mike Koelzer, CEO of Kay Pharmacy and host of The Business of Pharmacy Podcast, to the YFP Podcast to discuss lessons learned from his experiences interviewing pharmacy leaders. Mike has interviewed over 100 well-respected pharmacy influencers and entrepreneurs on his show. Today, he shares his takeaways on the mindset, habits, and behaviors of these individuals as they strive to be the best versions of themselves and create positive change in the profession of pharmacy! Mike shares some common threads his guests have in how they overcome fear and take calculated risks. You’ll get a peek into the daily habits of successful pharmacy influencers and entrepreneurs that lead to a mindset of success and whether those individuals believe that their success is attributed to luck or hard work. Hear him recount his professional pharmacy journey of more than 30 years in a family business and how he manages to balance his time while running a business, hosting a podcast, being a husband, and father to 10 children. This motivational episode is for anyone unsettled with the status quo and itching to take it to the next level personally and professionally.

Key Points From This Episode

How the family business started.
Hear about the creation of The Business of Pharmacy podcast.
Mike’s approach to maximizing his time each day, and how to use lists more efficiently.
What common threads Mike’s guests have, striving to achieve something great.
How focus and goal-setting are like sailing.
The amazing ways we are now able to receive feedback faster and pivot quicker.
Mike shares some actionable advice about how to get started with any new idea.
The general outlook most guests have on the pharmacy profession.
Talking about luck versus hard work.
A common thing that takes people out of just being satisfied with the status quo.
Mike’s strong advice for those who have dreams but are struggling financially.

Highlights

“Start focusing on something. And whether it’s a day later or a week later or a month later, you see that goal changing, [and] change it.” — Mike Koelzer, PharmD [0:13:32]

“You don’t have to monetize something right away for it to be valuable for your career. Sometimes it’s just getting off of TikTok and getting off the couch and putting out valuable content instead of just reading the content.” — Mike Koelzer, PharmD [0:36:19]

“If you’re married, make that relationship the most important thing in the world to you.” — Mike, Koelzer, PharmD [0:40:50]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

This week, I had a chance to sit down with Mike Koelzer, CEO of Kay Pharmacy and host of The Business of Pharmacy Podcast, as Mike has interviewed over 100 well respected Pharmacy Influencers and Entrepreneurs on his show. Today, I asked Mike about the takeaways he has had, from hearing about the mindset habits and behaviors of these individuals as they strive to be the best versions of themselves and leave a positive dent in the profession of pharmacy.

This episode is for anyone, students, residents, seasoned practitioners that are unsettled with the status quo and itching to take it to the next level personally and professionally. A few of my favorite moments from the episode are hearing Mike recount his own professional journey of 30 plus years in a family business, how he manages to balance his time running a business, hosting a podcast and being a husband and father to 10 children and his takeaways from interviewing influential leaders within our profession, on how they overcome fear and take calculated risks. Their daily habits that lead to a mindset of success and how they view how much of their success has been luck versus hard work.

I recognize that many listeners may not be aware of what the team at YFP Planning does in working one-on-one with more than 240 households in 40 plus states. YFP Planning offers, fee-only high touch financial planning that is customized to the pharmacy professional. If you’re interested in learning more about how working one-on-one with a certified financial planner, may help you achieve your financial goals, you can book a free discovery call at yfpplanning.com. Whether or not YFP Planning financial planning services are a good fit for you, we know that we appreciate your support of this podcast and our mission to help pharmacists achieve financial freedom.

[INTERVIEW]

[00:01:57] TU: Mike, welcome to the show.

[00:01:59] MK: Thank you, Tim.

[00:02:00] TU: Really excited to have the opportunity to share your story with the YFP Community, as we continue on this journey of trying to feature more and more pharmacy entrepreneurs on the podcast, to highlight some of the ways that a PharmD can be used. I like to say the PharmD is the starting point. It’s not the finish line and our interview today talking about your career journey and that of other pharmacists that you have interviewed is really a great, great example of that. So Mike, before we get into some of the lessons that you’ve learned from various influencers and entrepreneurs that you’ve interviewed on The Business of Pharmacy Podcast, tell us about your career journey as a pharmacist, including the role that you have currently as CEO of Kay Pharmacy.

[00:02:42] MK: Well, as my dad would say, our business is a family business, but it runs best on having one benevolent dictator. So it’s questionable if I’m that person, but my grandpa started and my dad was there until he passed on there. I’m the only family person to speak of. I have some children that work there, but I was never a fan of going into this with my siblings. That’s part of the reason maybe why I chose pharmacists, because I came from a family of 12 children and I was down at the bottom of the children as far as age goes.

So I maybe subconsciously – once I realized that none of my siblings were going into it, and also that my dad would then be at the age where he would not be around for a long time, because it’s okay to have a partner, but if I don’t need it. And I thought that maybe five or 10 years would be enough and not a 30 year period with him. I went into pharmacy, took a while. Tim, you and I talked on my podcast about bouncing around different things. I finally got my pharmacy degree, which is a five year degree back then, in seven years, I guess. I had done a few different things in there.

So basically, I joined the family business and worked with my dad for a while till he passed away. So I’ve been running the show for the last 20 some years, where I typical corner pharmacy. I suppose that’s what pulled me out of that. Doing some of this stuff, taking advantage of social and podcasts and things to maybe break out more into the world, because I knew that my area of influence, I suppose, was fairly small in my city. I think that’s what broke me out into the internet more with the podcast.

[00:04:29] TU: My time is something I often think about as a father of four. I can’t stack up as your father-of-10. I’ve come to really appreciate with a young family that that time is finite. We all have the same amount of time available each day. I think when you stop and think about that, that we all have the same amount of time available each day. It really at least for me has changed my mindset around, how am I making the most of this day. I think for many, especially me, pharmacists that are more task-oriented, that have developed ways to become more efficient with their time so that they can complete more tasks. But I have found that that often ends up in a spiral of just more and more tasks to complete.

However, I think if there’s finding ways that we can create more time, as Rory Vaden says, and one of my favorite books Procrastinate on Purpose, doing things today that save time tomorrow, and therefore increases our time available. As someone who owns their own business, as someone who’s a father of 10 kids, hostess of a successful podcast, what has been your approach for making the most of each day and ultimately, the limited amount of time that you have?

[00:05:41] MK: Dropping a book in here early, David Allen, Getting Things Done. That was a huge book for me. What I loved about what he teaches is that, the real reason for lists, which are a very important part of my day, a very active do-list. The main reason for that is not to get things done. It’s to know what you’re not getting done exactly when you’re taking that free time to create, and whether that’s creating a podcast or exercising or practicing piano or just screwing off, but you know exactly what you’re not doing. Then when it’s time to come back and get to work, you’re ready to roll.

The do-list for me has never been so much a list of difficult things to get done or monotonous things to get done, but it’s allowed me to have that free time and those goals that I have, go right onto that list. So I have a goal every day, it says practice the piano and do this and do that. Even the fun, relaxing goals are tasks out. Again, the whole thing is not to necessarily get things done. It’s to allow that free space in your head, that creative space to do things, knowing that your important tasks will be waiting for you when you get back.

[00:07:08] TU: Absolutely right. I think there’s freedom in being able to see those things on paper, sometimes giving yourself permission to not do things, but also to make sure you’ve got the right things prioritize as well. I know for me, and it sounds largely for you as well, like getting that out of our head onto paper, so we can start to see it and prioritize it as well.

Mike, as you mentioned, I recently came on your show Business Pharmacy Podcast, we’ll link to that in the show notes, to talk about the ROI of the PharmD. Great discussion. After doing that recording, I was reflecting on all of the movers, shakers and entrepreneurs in pharmacy that you have interviewed and the insights that you must have to share from those conversations, being an aggregator of some great minds. 135 episodes at the time of this recording that you’ve done. So first of all, congratulations, you know that’s no small feat. That’s really awesome. So I’m going to use this episode to pick your brain about the lessons learned from being in the interviewer seat talking with some of the great minds in our profession.

So for those that are familiar with the How I Built This podcast and book by Guy Raz from NPR. I view Mike as the Guy Raz in pharmacy, who has had not only his own experiences to draw from, but a lot of insights that he’s gained from picking the minds of lots of folks that we can certainly all learn from. Some of the individuals you’ve interviewed, Mike, are folks that own their own business. Others don’t, but the thread that I see is folks that are on a mission to achieve something great, that likely aligns with a strong vision that they have and a personal why and motivation for the work that they’re doing.

So one of my passions, is trying to understand what makes folks tick. And today, we’re going to get your viewpoint on that with some of the folks that you have interviewed. So first question out of the gate, since we talked about education on your podcast, in the ROI of the Pharmacy Degree, what threads if any, do you see in the folks that you’ve interviewed? Some of these that we would consider to be movers and shakers, pushing the envelope and the professional pharmacy, threads that you see and their view on education, either the background of getting education formal or even on their philosophy of continuous learning and professional development?

[00:09:20] MK: I guess, I’ve never seen a real strong emphasis on a certain degree or getting a certain amount of education or getting a certain degree. I think the value that I’ve seen from my guests, and a lot of them are PhDs and PharmDs of course and across the board, attorneys and so on. I think, the value I’ve seen in them has been that they are goal-oriented people and that’s what college has done for them. And advanced degrees, that they’re goal-oriented. That shows I think, that’s the, whether it’s the chicken or the egg, but I think when you see that degree, you’ve seen a purposeful goal that they’ve done.

I think the other thing it shows is, besides just a goal, I think it shows that they’re able to niche down to the market and they’re able to focus. I think that’s been very important too and in fact, when I look for guests, so out of the hundred and some guests, my listeners don’t want to hear just about a good pharmacist, even though a good pharmacist is of course, very important. I know the most interesting guest and I know the listeners, and I always think about what am I going to title this show. I can’t just title a show A Good Pharmacist, I have to for the purpose of the show notes or not the show notes, but the title, I have to say, this is what we’re talking about. This is the niche. This is the goal of the show.

I think that all of my guests, and I think the one the guests that I’ve been attracted to, to get on the show have always been in their schooling, in their job, even coming on the show. There’s always been that focus to that niche and to that point and to that goal, and I think that’s probably the overall personality I’ve seen of everybody in the show has been niching down, going for a goal, moving forward, pointing towards a target that target might switch, but it’s pointing towards a target.

[00:11:45] TU: You mentioned focus, Mike which I recently read something from Tim Ferriss, he’s got a great, short PDF document, we’ll link to in the show notes called 17 Questions That Changed My Life or questions that he asked himself at various pivot points in his life. One of those which I like to think about, and I’m going to ask you about, what you maybe have heard from other folks in terms of focus. One of those questions is, if I could only work two hours per week on my business or in some cases within my organization, what would I be doing with that two hours? Now, of course, it’s intentionally dramatic, right? To get us thinking about the most prioritized, focus, valuable use of our time that has a greatest return on investment.

As you mentioned, some of these folks that have a strong ability to focus, what do you think these folks would decide in terms of distilling down the time available and prioritizing the tasks that are most important to them and the work that they’re doing?

[00:12:42] MK: Here’s the problem with focus, Tim, is that when we focus, it’s like it’d be easy for the naysayer to say, “Yeah, but what if you’re making the wrong focus? What if you’re going down the wrong path?” I don’t see it that way. I see that – it may be cliched, but I see it as getting onto a boat, you can sit there on shore forever and say “What if I’m steering in the wrong direction?” It’s like, “Yeah, fair enough.” You might go in the wrong direction if you get on the boat and start steering, but if you don’t, you’re just going to be sitting on the shore forever.

I’m always thinking, get on the boat, push off, show yourself that you know how to sail, show yourself that you’re able to leave the confidence of the shore and start going somewhere. Start focusing on something, and whether it’s a day later or a week later or a month later, you see that goal changing, change it. I’m a big fan of Jordan Peterson, a psychologist online and his rule of thumb is, make a goal and if you find out that you want to switch to that goal, ask yourself this one question, “Am I switching to something easier or maybe to something even more focused and more challenging?”

If it’s something easier, well maybe you just have to rethink the purpose of goal setting and go back and reevaluate why you’re maybe not able to set a goal. But if it’s something more focused and more difficult, that’s probably a good sign. I think the main thing I’ve seen from a lot of my guests is, I think it’d be hard for me to maybe say what do they do for two hours of day that’s very valuable for them. I think more generally, I can say they all seem not only goal focus, but they’re moving and they’re willing to pivot not to something easier but to something harder.

[00:14:37] TU: You’re willing to take action, willing to step into it, right? Willing to have to pivot. I think all of those are great things and when you mentioned get in the boat, right? Get in the boat start sailing. I think that’s just great, great wisdom. I read several years ago at the very beginning of my journey, starting YFP, Start by Jon Acuff and that was the book that really just sent me over the edge of like. I was very much and always been an idea person, but quickly the objections might come in the fears, the risks, what’s this going to look in five years? What about this? It was like, enough. Just get started.

That’s the advice I give to folks often to have an idea, business within the organization side hustle, whatever. What is really the true risk? Let’s evaluate that, let’s put it on the table, let’s call it what it is, typically is not as big as we may build it up to be in our mind. Then let’s take a step forward without getting paralyzed in what this may or may not look like 12 months from now, because you and I both know that I could do my best to predict what YFP is going to look in 12 months in terms of both the challenges and successes. Some of it I have right and a bunch of things I could never predict.

[00:15:42] MK: It’s amazing, Tim. I tell my kids this all the time. It’s amazing the world we’re in right now, because even 20 years ago, if you had a business idea, especially if it was like a retail business idea. I mean, you’ve got maybe a business plan in your head, maybe a dream, but then you have to go rent the brick-and-mortar and buy the cash register and buy the sign and do all this stuff. Then harkening back to Tim Ferriss, in his Four Hour Workweek book, he talks about the beauty of like A/B Testing on Google, for example. You can even do it more easily now on social by just putting out a post, just writing a little article on LinkedIn, and maybe putting two of them out there a week apart in whichever one gets more thumbs up or more comments.

It’s like, “Oh, maybe the world needs more of this.” You focus and things like that and Boy, and as far as the actual technical part of it, you can buy 10 different URLs for a total of $20 for the first year trial or something that, and see which one gain some attraction, just an amazing time. As far as switching goals and pivoting and so on, we’ve never had a time like this in history where you could have those dreams and goals get feedback so easily, and then change direction. I’m not saying you should do it this fast, but you could change direction within 24 hours.

[00:17:14] TU: You’re spot on, Mike. I think the asterisk there is that, we can either look at that half-full, as we live in a time with no greater opportunity to do many of the things that you just mentioned to learn, anything that we want, right? Which wasn’t afforded at the same level and degree generations before us, but also there’s an infinite amount of material of things that we can digest. And to your common a focus that can be overwhelming and paralyzing, if we can’t distill it down and figure out what we’re going to be doing.

So that paralysis by analysis definitely can happen. Social media could be a good example. Mike you mentioned, some of these folks having an ability of what I heard, set goals, certainly an ability to get started on their journey, even if the end is not fully scripted or they’re not aware. You mentioned focus, are there other habits, disciplines that you have noticed in these folks that those listening could draw from of, these are some of the rhythms, these are some of the trends, these are some of the behaviors of these folks that might put them in the right mindset, to then be able to do some of those things of setting big goals and focusing and moving towards your vision?

[00:18:26] MK: I guess, one of the things that I see, and sometimes this can be taken to an extreme of faking it till you make it, but one of the things on the goal setting and what I’ve seen a lot of the guests do, it seems to me is it’s easy now, because we’re all with the internet and with social media. We’re all our own media company right now. So a lot of the people that have the goals, and I say this to my own team at the pharmacy, it’s like we’ve got the idea for this and on a small scale, I’m like, “All right, write up the procedure of what that would look like in real life, if we went down this road?” And quite often looking at it negatively, quite often they might say, “Yeah, we started writing this, we realize how in the hell would we – how can we check this for quality control or how could this happen?” It’s like, “Yeah. Well, I figured that, but I wanted you to see it on your own.”

On the positive note, how easy is it to go in and have this idea for something, whether it’s a business or whether it’s a personal goal of whatever, learning how to play tennis or something like that. But how easy is it to say, “Well, let’s picture this down the road and for the business part, maybe we make a website.” It’s not going to be published, just make it, just see if that works and make a sign up form online, just start picturing what this looks like, what this success would look like. Even before you have to take it to the market and get A/B testing across a real world, just in your own head.

I think the point on that is, it’s okay to have a goal, it’s okay to have thoughts, but move forward even if you’re not moving forward into the world at least move forward on your own damn computer by making a fake web page and making a fake whatever. I think that’s important. Along that same vein would be start writing. Start writing a book, start writing an article, go on LinkedIn, write an article. Anytime you’re doing that and you’re able to take those words out of your head and put them into paper, that’s a great thing.

It’s not great only for the world potentially and rarely it is, because how many of us are going to be, well besides yourself Tim, how many of us are going to be famous, well paid authors. That’s not the point. The point is can you get it onto paper and sometimes that is indicative of whether it’s just a dream up there or it’s something that could actually happen someday.

[00:21:09] TU: Mike, I think that’s really great advice and something that I’ve fallen into, but haven’t thought about as intentionally as you just described there. But whether it’s drafting a webpage, right, beating up a procedure and writing it out, getting some writing on paper, even if you don’t share that. I mean, I would encourage folks to share it, I think it would stimulate good conversation, but as you were talking it made me think of the importance that does in a few areas. One, it helps you to begin to validate the idea, right? Whether you get feedback on that or not but just because you’re going to start to develop it a little bit further.

The other thing is, it’s going to really help you start to beat up the idea that I have found when I do activities like that. I start to continue to think about it all throughout the day, right? To your comment earlier about goal setting, getting things down on paper, we get that out of our head, and we can start to see it for what it is and really take it to the next level to try to figure out, is there something here is there not. And I have found that when I start to do that, one of two things usually happens, either I can’t let the idea go for days, weeks, months, that’s a good sign, right? In terms of some of the energy passion or I put it down and I’m like, “Oh, my gosh. What was I thinking right?” As you start to flesh that out further and giving yourself some space to do that and start to see it, to play out. Love that, great stuff.

[00:22:31] MK: That’s quite often why I’ve heard it said that, as humans, if we were in solitary confinement or not able to see other humans, sometimes it would make you go crazy, literally crazy, because other humans are the way that, when you say something – if I say something crazy and I see someone’s face go into shock, it’s like, “Oh, I went too far in the human race” or “I guess I’m not stepping outside of what it means to be a decent person” and so on. I think that writing can do that too, because maybe you don’t have someone across from you listening to your three hour thesis on your new business, but just getting it down on paper, it forces yourself to get this fake, like another person even though it’s just the paper against yourself, but it forces you to say, I can’t even write anything on this. This must not make sense.

[00:23:24] TU: Then to distill it down, right? I think at least from my experiences, I tend to be very long-winded whether I communicate that externally, only to myself when I put something on paper, and then you start to say, “Okay, what’s the two or three –” taking a play from Steve Jobs, “What are the three things that folks need to take away from this? Have I clearly and succinctly and effectively communicated that?”

[00:23:46] MK: For sure.

[00:23:47] TU: Often I find that I don’t, right? That’s part of that process of doing that.

[00:23:51] MK: Yeah. If you can’t do that in yourself, how is the world going to listen to you through a real quick – social media scroll or a short blip online or something like that.

[00:24:02] TU: Mike, outlook of the profession, I think we’re at a time period – I have only been in the profession, started school in 2002, graduate in 2008. I certainly have seen in my short career, I would say some of the shift in the optimism of the future, the profession and what folks are looking at in terms of 10, 15, 20 years from now, some of the threats, some of the challenges around debt loads and salaries.

So I think we’re at this place where, when I talk with pharmacists, there tends to be a half glass, full half glass, empty feeling. Either that gloom and doom of, it’s inevitable things we talked about in your show Automation Technology, other providers coming into the space, writing’s on the wall, the challenges that we have, especially if we look at certain segments of the profession. Then I’ve been a part of many groups, organizations, associations and conversations with thought leaders that it’s very much they look at this as, “Yeah, those are real challenges, but that means it’s ripe for opportunity, disruption and innovation.” I’m curious from your viewpoint of interviewing some of these folks on your show, what is generally the outlook that they have on the profession of pharmacy?

[00:25:14] MK: Well, of course, Tim. I’m inviting people on that have typically their own goal or individual forward thinking goal inside of the profession. I’m the person that gets to sit on there and gripe about stuff. I don’t want to just have someone on there that just a general griper. As you and I talked a bit on our episode on, when we talked on my podcast, I think that anybody, going into any profession, whether it’s an architect or an attorney or whatever it is, I think anybody should go in saying, “I’ve got this idea that I want to get my degree and then do this novel thing or I want to invent this or I want to conquer the world with this goal.”

Now, is that going to happen? It doesn’t matter, in my mind, it doesn’t matter if that individual goal, but I think it shows somebody coming into a profession especially one that’s a lot of the money in there is paid by a third party where you’ve got someone else like pushing you down with their thumb, but when you go into a profession, when you’re an 18, or 20 year old, you want to go in with the idea that you want to change the world with something that 95% of that profession are not doing. I think what that does is, if that never happens, but at least it shows that you’re going in, that knowing that you’re not just going to be the status quo of the rest of the profession. Also, you do have a dream and if maybe that goal doesn’t work out with that degree, it shows the person you are that you are able to set goals and pivot and things like that.

The actual profession of pharmacy, it’s like, I’m an old guy that seen a lot of negative stuff in the profession, but the people that I’ve talked to, are the ones that are moving forward and doing things with a lot of success. But you’ve got to have that mindset. It’s not just going to come at you. You’ve got to be the person that we talked about from the beginning of this show, with these goals and ideas and fortitude and all that kind of stuff.

[00:27:33] TU: Yeah. I love what you shared there. We talked a little bit on your show as well. That idea of are you entering the profession with the expectation that you’re going to perhaps change, evolve, add something new, different and not entering into the status quo. That is a totally different mindset. Granted, I’ll give myself a little bit of grace, I went into the profession at 18, but as I think about how fast things are changing in our society, but in the profession of pharmacy as well, if you go in, it’s just such great advice, because if you go in with the mindset of entering into something status quo, and you’ve got 60 years to get to that finish line, maybe two more years if there’s additional training, like wow, that’s going to change, right? Even in that short period of time.

[00:28:19] MK: Right.

[00:28:20] TU: Mike, one of Guy Raz’s questions that he asks of every entrepreneur on How I Built This, and I just love hearing the variety of answers and how folks look at this, is how much of your success would you tribute to luck versus hard work? Luck versus hard work? So when you’ve interviewed these folks and I’m not asking if you’ve asked this question specifically, but just your perception of these individuals, the positions that they’ve been in, the success that they’ve had, the momentum, the mindset. How do you think they would respond to that question of how much of their success is luck versus hard work?

[00:28:57] MK: That’s a difficult question, because I think there’s always a sense of false humility in people. I think the natural first answer would be say, “Oh, it’s a lot of luck.” I think that people would say that to look good to cover the bases, then I think they would say, “Have been a hell of a lot of work into this.” Look around, no one else is doing it, I suppose. I look at myself, I think of, I wouldn’t be where I was without my grandpa and dad being in the business. That was luck of the draw. Then I guess what I would say for myself is that’s where the podcast has been a lot of fun for me, because that’s still luck in itself of having social media not having the middleman pushing you down, like the old TV networks, always had that middle person in that.

I guess, I would look around what I’ve done and say, “Oh, yeah. The podcast, maybe after 40 years in the industry.” Oh, yeah. The last year, that’s been hard work that got me above because I look at all my comrades. I said, “No one else did this.” It’s like, “Ah, okay. I’ll take a little bit of that.” I think most of the people that I would interview, I would think that a lot of luck, a lot of family status, how they were born, all those thing probably goes into saying, “Yeah, that helped me get my education and this and that.” I think most of them would probably say, “Yeah, but I did something pretty cool to get this going.” Whether it was, whatever the reason, I think at that point, they would say, that’s maybe where the hard work was, and maybe getting to the status quo was a lot of hard work, but also a lot of luck getting there.

[00:30:45] TU: Yeah. That’s right. Building on the status quo concept, I’m curious of your thoughts, individually in your own career or what you’ve heard from other folks. What takes someone over the edge of just being satisfied with the status quo and playing it safe? I’m thinking about how have these individuals or yourself address their own fears about failure, about not being significant enough, about not being able to achieve a goal and then had made a decision to take some calculated risk that moves beyond the position of status quo? What are your thoughts there?

[00:31:21] MK: I would probably say that almost everybody I have interviewed has built what they have from an area of pain, whether they think it’s their own failed goals in their day to day business or whether they think someone screwed them over. I think that pain has pushed all of these people to where they are. I think there’s a lot of beauty that comes from that pain, because without that pain, you would have probably been at status quo, which might have been okay, but maybe not see the joy in some of these people’s eyes.

I know, for me, if it wasn’t the PBMs and all the problems with stuff and all this, I wouldn’t have done my podcast, let’s say that was a mini goal of mine. I wouldn’t have done that, because I would have been so busy, I would have been content, I would have been all that. I think probably if you look back across history, to all the explorers and everybody who’s either found a country or found a business, it probably started with some pain.

[00:32:19] TU: Mike, speaking of pain. Financial pain is top of mind for me, not only my own journey, but what I see in our community of some of the stress that that can cause and one’s ability to be able to achieve their full potential and the goals that they have. So I think lots listening might get enthused by this conversation, but fairly quickly start to think of the objections to why they, themselves can’t take some calculated risks.

Of course, the one again, I’m interested in here is the financial aspect, but could be met many other objections as well. As I mentioned, on your show a lot of good ideas and dreams die with financial stress. I believe that wholeheartedly. So what would you say to the folks listening that are like, “Mike, I’ve got an idea. I’m excited about something not exactly sure where it’s going to go.” If you’re really passionate about doing X, Y, or Z, “But Mike, I’m behind retirement savings. Mike, I’ve got $200,000 of student loan debt. Mike, I’ve got a young family and all the expenses that come with that. Mike, I’m taking care of my elderly parents while also trying to take care of my children.” How do you reconcile that?

[00:33:27] MK: I would say you’ve got to play both sides of that. You’ve got to go to work from nine to five, come home, have dinner with the family, read to your kids, give him a bath, put him to bed. Then you’ve got from 10 PM until 1 AM, to make that work, as we talked earlier, what a great time. I mean, you can, you’ve got your own production studio at your home and no complaints, because the dog sleeping and the kids are in bed and all that stuff and the wife’s watching Hallmark movies on TV. I mean, that’s your time.

So there’s no better time. I don’t think there’s any excuse to not do that. The better part of it is, we just talked about that. It’s like you don’t want to do what they did in the past of selling everything, so you could buy a brick-and-mortar and open up a shop and buy a sign and all the stuff that goes along with that. You don’t want that, because then you can’t pivot. There’s never been a better time for people to put in their two or three hours, hopefully, it’s something that they would enjoy too, but that can all be done and I think there’s never a better time for that, to try these things out.

[00:34:43] TU: Yeah. Mike, I found personally, when I feel stuck, when I start giving myself excuses as to why I can’t do something when I come up with a list of objections. I usually go back to that means, my ‘why’ envision is not strong enough. It’s not compelling enough or it is but I need to remind myself have that. Maybe that resonates with folks, maybe it doesn’t, but I would encourage folks, if you feel stuck and again I’m not suggesting that everyone should go out and start their own business.

I think, there’s many opportunities to obviously be the best that you can within your position to create to innovate, to move things forward, rather than just showing up and going through the motions. But if you feel stuck, if you feel there’s objections that are coming to the mind, if there’s excuses that are there, is your vision, is your why strong enough? I just think that’s something I try to reflect on often.

[00:35:33] MK: Yeah. I think, there’s a lot of things you can do that you don’t necessarily monetize that can very much help that end goal of your finances down the road. I mean, for example, I haven’t monetized my podcast at this point yet, but that doesn’t mean it doesn’t have a financial value. Because let’s say, God forbid that I lose the store tomorrow or something happens or I choose to go to the store tomorrow.

Now, I’ve talked to 135 people and one of them being you, Tim. Not only have I talked to them, they’ve spent a couple hours with me. I’ve sent emails back and forth and this and that, the same with whether it’s writing an article or doing whatever online. You don’t have to monetize something right away for it to be valuable for your career. Sometimes it’s just getting off of TikTok and getting off the couch and putting out valuable content instead of just reading the content.

[00:36:34] TU: Yeah. Back to your comment earlier, even if it means just opening up a Google doc on your screen and not hitting publish yet. Don’t underestimate the energy that comes from sitting down, getting your thoughts on paper, beating him up and the momentum and compound effect that, that can have over time. Mike, I’m going to put you on the hot seat with some of my favorite questions and rapid fire style from Tim Ferriss book, Tribe of Mentors. You ready for this?

[00:37:00] MK: All set.

[00:37:01] TU: All right.

[00:37:02] MK: Born ready.

[00:37:04] TU: What is the book that you’ve recommended most are given as a gift and why is that the case?

[00:37:11] MK: I already talked about it, Getting Things Done by David Allen. It lets you create the free space in your head. You can be creative and get out of the mundane tasks that would typically overwhelm somebody.

[00:37:25] TU: I want to come back to you, you mentioned Jordan Peterson, is there something specific you like of his work or follow?

[00:37:31] MK: Jordan Peterson, there’s two books I would recommend. One is his, 12 Rules for Life. Then his second book is basically another 12 rules. Jordan spends a lot of time talking about something. He’s a psychologist, psychiatrist. One of the things I love most about Jordan Peterson, he spends a lot of time talking about the division or that step between chaos and order. There’s a beautiful line between chaos and order where I love to live.

You know what it is, it’s either, you’re either bored at work, some people are bored at work or there’s too much to do at work, but there’s this really sweet line in the middle, whether it’s work or hobby or something like that, where you get lost in time a little bit. That’s where it’s just a sweet spot and that’s where we want to live. That’s what I love so much about him, is just that line between order and chaos and sweet line that really makes life interesting. He’s a huge influence of mine or a huge influence to me, I should say.

[00:38:38] TU: Yeah. No, that’s good. Failure is, there’s a specific favorite failure of yours?

[00:38:45] MK: My biggest failure, if I could look back, was saying that I spent too much time worrying, too much anxious time. That doesn’t necessarily go away just by effort. It goes away, maybe by professional help and maybe goes away with medication and it goes away with a lot of reading and things that. So I don’t know if I’d call it a failure, but I’d call it my biggest cross. I think that, I’m turning it into some beautiful things and I still hope to, but I’ve spent too much time in my head and not always enough time present.

[00:39:36] TU: Mike, that’s really reassuring. As a young father, that’s something I’ve identified early in my career is the difficulty I have with presence. I’ve just realized our last five years through talking more of this out loud, reading coaches and others, one being aware of it and then two taking baby steps to move things in a different direction, but really uncovering that and making it a priority. Really appreciate you mentioned in the beauty that you’re turning that into.

[00:40:05] MK: Yeah. That’s not all. I mean, it’s not your fault. I mean, when you’re with your family but away from them mentally, you’ve got a lot of stress on you and you’re basically trading that current time for the future. You’re thinking about how are you going to whatever, feed your family or at least deal with a situation that ultimately is maybe you don’t dealing with someone ultimately, it’s because there may be in the way of taking care of your family and things. It’s not something that you have to beat yourself up over, but it is something that’s been my biggest cross.

[00:40:37] TU: Mike, if you get a gigantic billboard, anywhere, with anything on it, metaphorically speaking, getting a message out to millions or billions of people, what would it say and why?

[00:40:48] MK: I probably say, it would say, if you’re married, make that relationship the most important thing in the world to you. I’ll start there, because a lot of people – if you’re not married, stealing from Jordan Peterson, I would say clean your room. Get your room cleaned up. If you are married, I would say make that relationship the primary thought on your mind at all times, because it’s easy to save the world as you’re stepping over a bunch of crap around your bedroom. You can’t even get that cleaned up. It’s easy to save the world when your wife and or your husband and you are – when that relationship doesn’t mean much to you. I would say, I would say a billboard would say “Work on your marriage.”

[00:41:34] TU: Clean up your room. I love that too. That’s a great plot to be thinking about. Last one here, Mike. When you feel overwhelmed, unfocused, again, you’ve got a lot of different things going on or even have lost your focus temporarily. What are some things that you do to get back on track?

[00:41:48] MK: Probably the biggest thing is always getting everything on my one do-list, computerized do-list. So it doesn’t happen too often, but when things are really flustered, the first thing I do is collect all my thoughts, all my papers, all my whatever, it all goes on the list. Until it’s on the list, then you can start to prioritize, you see what’s important, doesn’t keep going through your head. It’s all in that list and then you can say, all right, my world is right there. Let’s take a look at it. That can happen through, you can have a crazy hour at work, you got to get back to your list. A crazy week got to get back to your list, hopefully not a crazy year, but if you do, you get back to your list. At least look in one spot for everything and then you can go from there.

[00:42:35] TU: We’re going to link, you’ve mentioned it a few times now, Getting Things Done. We’ll link to that book in the show note, as clearly that work by David Allen has had a really important impact on you. Mike, this has been great, really appreciate the conversation, the work that you’re doing at The Business of Pharmacy Podcast, the work that you’re doing for our profession, and really being a microphone to bringing the voice of many different leaders and influencers and making that available to other folks. So number one, thank you. Number two, where is the best place that our listeners can go to learn more about you and the work that you’re doing?

[00:43:06] MK: I would just say on LinkedIn. Just my name on LinkedIn, that’ll take you to my thing. I’ve got stuff on there. I guess the official probably going to my podcast. I have a URL, but basically look up, The Business of Pharmacy Podcast, and I’d be fun to have people join in there too.

[00:43:24] TU: Awesome. We’ll link to your LinkedIn as well as The Business of Pharmacy Podcast in the show notes. Thanks so much again, Mike.

[00:43:30] MK: My pleasure, Tim. Thanks for all you’re doing.

[OUTRO]

[00:43:31] TU: As we conclude this week’s podcast and important reminder that the content on this show is provided to you for informational purposes only and is not intended provide and should not be relied on for investment or any other advice. Information in the podcast and corresponding material should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

Furthermore, the information contained in our archived newsletters, blog posts and podcasts is not updated and may not be accurate at the time you listen to it on the podcast. Opinions and analyses expressed herein are solely those of your financial pharmacists unless otherwise noted, and constitute judgments as of the date publish. Such information may contain forward-looking statements that are not intended to be guarantees of future events. Actual results could differ materially from those anticipated in the forward-looking statements.

For more information, please visit yourfinancialpharmacist.com/disclaimer. Thank you again for your support of the Your Financial Pharmacists Podcast. Have a great rest of your week.

[END]

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YFP 237: 5 Financial Moves to Make to Crush Your 2022 Goals

Posted on by yfpadmin

5 Financial Moves to Make to Crush Your 2022 Goals

Tim Ulbrich talks through 5 financial moves you should consider making in 2022 to accelerate your financial plan.

Episode Summary

Every New Year is a chance to turn the page and reset. That means this new year is the perfect opportunity to refocus those financial goals and clarify your plan and vision moving forward! This week, host Tim Ulbrich is flying solo to talk through five financial moves you should be making in 2022 to accelerate your financial plan or re-energize and remind yourself of the plan and goals you’ve set up. Hear about the importance of setting quantitative and qualitative financial goals and how to strike a balance between both. Discover some ideas for how you can button up your financial record-keeping systems and use the turn of the New Year as a chance to revisit and update those important financial documents. Learn about the importance of a legacy folder, what it is, and why it’s important to revisit each year. Tim also talks through some considerations on optimizing your tax strategy in 2022. He also takes a quick moment to touch on the end of the administrative forbearance, which is right around the corner, and what it could mean for your student loans.

Key Points From This Episode

How to take advantage of this time to reset, refocus, or create your financial plan.
Finding the balance between your qualitative and quantitative goals.
Tim offers to be your accountability partner.
How to take your tax strategy to the next level.
Updating your important financial documents: what is a legacy folder and why you should get one.
Revisiting your student loan game, plus some great resources to help.
Set your personal learning plan with our top book and podcast recommendations.
A reminder of the YFP services and community available to support your financial journey

Highlights

“Quantitative goals are really important: we need to be thinking about those and planning for those. But let’s not lose sight of those qualitative goals that help keep us focused on living that rich life today while also planning for the future.” — Tim Ulbrich, PharmD [0:04:14]

“Tax, in my opinion, is one of the most underappreciated and overlooked parts of the financial plan. Think of tax as a thread that runs across your financial plan that must be proactively considered and evaluated when making financial moves.” — Tim Ulbrich, PharmD [0:06:00]

“At YFP one of our core values is optimize you. We believe that when we live as the best version of ourselves, we’re more likely to achieve our goals.” — Tim Ulbrich, PharmD [0:13:38]

“Learning is one thing, but learning plus action plus accountability is where things really start to happen.” — Tim Ulbrich, PharmD [0:14:47]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

[00:00:00] TU: Hey everybody. Tim Ulbrich here. Happy New Year. Thank you for listening to the YFP Podcast, where each week, we strive to inspire and encourage you on your path towards achieving financial freedom. Hope everyone is enjoying the holiday season, has had a chance to reflect on 2021 and is ready to chart a path forward for 2022. This week, I’m flying solo to talk through five financial moves that you should consider making in 2022 to accelerate your financial plan.

Specifically, I talk through the importance of setting both quantitative and qualitative financial goals, some ideas for how you can button up your financial record keeping systems, and use the turn of the New Year as a chance to revisit and update those important financial documents, considerations for how to optimize your tax situation in 2022. And, briefly, I talk through some of the considerations around student loans considering the end of the administrative forbearance that is right around the corner.

Before we hear from today’s sponsor, and then jump into the show, I recognize that many listeners may not be aware of what the team at YFP Planning does, in working one-on-one with more than 240 households in 40 plus states. YFP Planning offers fee-only high touch financial planning that is customized for the pharmacy professional. If you’re interested in learning more about how working one-on-one with a certified financial planner, may help you achieve your financial goals. You can book a free discovery call at yfpplanning.com. Whether or not YFP planning, these financial planning services are a good fit for you, we know that we appreciate your support of this podcast and our mission to help pharmacists achieve financial freedom.

[EPISODE]

[00:01:40] TU: Happy New Year to the YFP Community. Let’s jump right in with five financial moves that you may consider in 2022. Now we know that every New Year is a chance to turn the page, to reset. Yes, it’s just an artificial point in time and day that really is no different than any other day except for some tax reasons and for those of you that might have some benefits that are changing compensation and so forth with the New Year. But really it’s any other day of the year, right? However, it’s an opportunity for us that we can take advantage to reset our financial plan, to refocus where we’re trying to go in both defining and achieving our financial goals.

Perhaps for some of you, you’re listening and saying, “No, I feel pretty good. I feel like I’m on track.” This might be an opportunity to remind yourself of the plan that you’ve set, and celebrating some of the success and wins that you’ve had along the way. For others, maybe you’re listening to this, saying, “You know what, at one point, I had a good plan, but I feel like I’m off track for whatever reason.” This is an opportunity, of course, to reset that course and make sure we’ve got that vision clear heading into the year.

Finally, for those that are saying, “What plan?” Rightfully so, for many that – multiple competing financial priorities, perhaps feeling overwhelmed with how to best tackle those individual priorities and to put them all together in one plan moving in the same direction. Today is an opportunity to begin to set that path, to put those ideas, those priorities on paper and begin to have that plan for how we’re going to execute those into the future. Let’s walk through five financial moves that you may consider either making or perhaps for those of you that already doing some of these things to refresh or improve in these areas.

Number one, is setting both quantitative and qualitative financial goals. Shout out here to the planning team at YFP Planning that does an awesome job of finding the balance between living a rich life today and caring for our future self. As Tim Baker says, “It can’t just be about the ones and zeros in the bank account.” As you say, your financial goals for 2020. Yes, let’s focus on those important quantitative things. The things that we talk about often on this show, could be how much you want to move the needle on the net worth or your assets minus liabilities. What we talked about in the book, Seven Figure Pharmacists, is your financial vitals check, or perhaps you’re thinking about how much progress you’re going to make on any outstanding debt, or how much you plan to save and various investment accounts.

Or for those of you that have been thinking about real estate investing for some time, after listening to David and Nate, on the YFP Real Estate Investing Podcast, maybe you’ve been thinking about how much you need to save to pull the trigger on that first property. Those quantitative goals are really important. We need to be thinking about those and planning for those. But let’s not lose sight of those qualitative goals that help keep us focused on living that rich life today while also planning for the future.

Perhaps, we have some newlyweds that are listening, that have a long lost honeymoon to take that the pandemic disrupted? What’s the plan to make that a reality and who is keeping you accountable? Or for some, maybe you’ve been considering making a move to part time or reducing hours for whatever reason. Again, what’s the opportunity here? Have we evaluated that? What’s the plan to begin to see that through? Or how about those interests and hobbies that we used to long for, resuspend time on and prioritized that have gotten lost in the busyness of life and work? How is that going to be a priority and a focus? Perhaps that side hustle business, project that you’ve been dragging your feet on to take the first step on.

Let’s make this year, 2022, the year that we move the needle on both our quantitative and qualitative goals. While goals are good accountability is where it’s at. I’ve seen the power of accountability in my own life, and I want to see you achieve your 2020 financial goals. Here’s my offer. If you email me with one to two of your top goals, perhaps one qualitative and one quantitative, along with your why and motivation for achieving that goal. I’ll reach out a couple times this year to check in, see how you’re doing and perhaps provide some motivation along the way. You can send me an email [email protected], put Episode 237 with your first name in the subject line, so I don’t miss it. I look forward to hearing from several of you.

All right, so that’s number one, setting both are quantitative and qualitative goals. Number two is we have to take our tax strategy to the next level. Tax, in my opinion, is one of the most underappreciated and overlooked parts of the financial plan. Think of tax as a thread that runs across your financial plan that must be proactively considered and evaluated when making financial moves. Now, it sounds so obvious, but I used to view tax very much in the rear-view mirror. Filing each year by April 15, to meet the IRS requirements, and to account for what happened the previous year, and ultimately hold my breath and I would either get a refund aka paid too much throughout the year, let someone else hold on my money for a while, or I’d have a payment due. Less than ideal for obvious reasons, and indicative that I could have done more proactive planning.

So we need to shift our attention from tax preparation to tax planning. A very important distinction, that YFP Director of Tax and IRS Enrolled Agent Paul Eikenberg talked about on episode 233 of the podcast, along with other strategies for how to optimize your tax situation. If you don’t already know your key numbers, things like your marginal tax rate, your effective tax rate, your adjusted gross income. It’s time to nerd out a little bit. Let’s make a commitment this year to start there. These numbers help give us insights in the why tax planning and being proactive is so important. AGI one example, Adjusted Gross Income has important implications on student loan payments, especially for those that are pursuing public service loan forgiveness through an income driven repayment plan and of course, certain phase outs on child childcare credits, IRA contribution, student loan interest deduction, and more.

Some of the common mistakes that we run into, some that I’ve made myself is, number one, having an unexpected balance due on April 15. Less than ideal. This could be due to under withholding throughout the year, perhaps on accounting for self-employment earnings and tax and unique this year would be for those that have been taking advance child credits and making sure that we’re accounting for that, and expecting that, when we go to file in early this spring.

Another common mistake that we see, number two is having non-qualified IRA or 401K, 403B contributions from over contributing. This obviously creates a lot of headaches for both the prepare, as well as for the individual to correct and misunderstanding of the rules around Roth and traditional phaseouts, is often what is causing this problem. Number three in terms of common mistakes, would be missing deductions and credits that are applicable. So of course, beyond these mistakes, there’s opportunities to optimize our situation. HSAs, Health Savings Accounts, we talked about this on Episode 165, in terms of the power of an HSA and why from a tax standpoint, this is one of those optimization strategies.

Other optimization strategies we see that is frequent among clients, would be deducting qualified business related expenses for those that are side hustling or for those that own a business. And of course, the many benefits that are available for those that have children or childcare expenses, including the childcare credit dependent care FSAs, child tax credits in 529. As Paul helped me understand some of the strategies for bunching itemized deductions for further tax efficiency. It’s easy to see the value of a good proactive tax plan and why it’s worth its weight in gold. So for those that have not yet checked out Episode 233, Hot Optimizer Tax Strategy, I hope you’ll do that.

Also, we understand at YFP that filing your taxes and figuring out how to optimize your strategy can be stressful. That’s why YFP tax this year is opening up its tax filing services to 125 additional pharmacist households. So you can visit yourfinancialpharmacist.com/tax to learn more, put your name on the waitlist and we’ll be in touch from there. Again, that’s yourfinancialpharmacist.com/tax.

Number three is, button up your financial documents. Not necessarily the most exciting part of financial plan but the New Year is a great time that we revisit things\ like our insurance policies, our savings accounts, retirement accounts, looking at beneficiaries. Is that information correct or do we need to update anything?

I also think here about the concept of a legacy folder. I first heard of the idea of legacy folder when taking Dave Ramsey’s FPU, Financial Peace University class. I remember thinking, “Wow, it’s so obvious, yet so important.” And something that my wife, Jess, and I had not done yet at the time. Essentially, the idea of a legacy folder, whether it’s physical electronic or both, is a place where you have all of your financial related documents, so that in the event of emergency, others would be able to quickly assess your financial situation, get access to those documents and accounts that pertain to your finances. This type of folder could include things like birth certificates, social security cards, marriage certificates, passports, insurance policies, wills and powers of attorney, login information for accounts and so on.

I think one of the benefits of putting this document together is, it also tends to spur good conversation that might allow you to also look at other parts of the plan that have been either ignored or just perhaps need to be updated. Speaking of some of the wills and powers of attorneys, we think about the estate planning side of the financial plan. That’s another part I think, about hearing “Buttoning up your financial documents.” If you haven’t yet, listened to Episode 222, Why Estate Planning is Such an Important Part of Financial Plan. We had Nathan and Notesong from Thoughtful Wills, to talk about the different parts of the estate plan, why that’s so important, who should be considering the estate planning process and how that fits in to the rest of your financial plan. Again, not the most exciting part of the plan to think about, but really important, and using the New Year is an opportunity to refresh or to set that information for the first time.

Number four is, revisit your student loan game plan. Now, what we know as of the first of the year, is that the extension of the administrative forbearance is expiring January 31st, 2022. Now is the time. We’ve got to have a plan in place. We had several extensions of that forbearance dating back to the beginning of the pandemic in March 2020 and all signals are pointing to that, this is the end. Last week Episode 236, certified Financial Planner, Lead Planner at YFP Planning, Kelly Reddy-Heffner joined me to talk about some common questions around Student Loan Refinancing, including who should and should not refinance, how you evaluate multiple offers, some of the considerations for refinance as one of many different repayment options that are out there. And some of the timing questions of when potentially to refinance, as we look at the end of that administrative forbearance period.

This is a great time. I’ve talked many times on this show, as we reiterated last week, that the decisions around student loan repayment – we think about the average debt of a pharmacy graduate today as around $170,000. We think about not only the amount of that debt, but the various options that are available both federal private forgiveness, non-forgiveness, taking the time to understand the nuances of student loan repayment and to ultimately find and adopt the strategy that is best for your personal situation is time well spent.

If you’re looking for more information about which student loan repayment option is best for your personal situation, looking for one-on-one help to make that decision, we have a student loan analysis service that we offer. You can learn more at yourfinancialpharmacist.com/sla. This is a one-on-one service that we have with one of our certified financial planners at YFP planning that will help you inventory your loans, federal and private, evaluate eligible repayment options including loan forgiveness, income driven repayment, private refinancing. And ultimately help you determine the best repayment strategy for your personal situation. Again, yourfinancialpharmacist.com/sla and you can use the coupon code why YFP for 10% off.

Number five is, set your learning plan. At YFP one of our core values is optimize you. We believe that when we live as the best version of ourselves, we’re more likely to achieve our goals, and we believe that for ourselves for our team and for you, the YFP Community. So what are some opportunities to learn? Of course, podcasts, you’re listening to this one. For those that are interested in in real estate investing, I hope you have checked out the YFP Real Estate Investing Podcast that David Bright and Nate Hedrick are doing a great job releasing episodes each Saturday. Bigger Pockets, another great resource if you’re looking at information resources on real estate.

Some of the books that might make it to your reading list in 2022. Some of the classics my favorites, Rich Dad Poor Dad, The Millionaire Next Door. A couple other books that have been favorites of mine over the past couple years, The Compound Effect by Darren Hardy, The Truth About Money by Ric Edelman. Tax Free Wealth by Tom Wheelwright, for those that are looking to date a little bit more into the tax strategy and part of the plan. The Automatic Millionaire by David Bach, The Behavioral Investor, by Daniel Crosby. Happy Money, this one by Elizabeth Dunn and Michael Norton, Looking at the Science of Happier Spending. So just a few ideas of ways that you can learn, in terms of personal finance books.

Certainly learning is one thing, but learning plus action plus accountability is where things really start to happen. My hope is you’ll find a community and you’ll find a coach for accountability and guidance, if you’re not yet a part of the YFP Facebook Group, I hope you’ll join more than 7000 pharmacy professionals across the country that are really committed to helping empower and encourage one another in the financial plan. You can join that group if you’re not already part of it.

For those that are looking at one-on-one planning, YFP planning offers accountability and customization of the financial plan specific to pharmacy professionals, and you can learn more at yfpplanning.com, you can schedule a discovery call today to see whether or not those planning services are a good fit for you. Thank you so much for joining me. Again, Happy New Year to the YFP Community, looking to a great year that’s ahead. My hope is you will take these five financial moves for 2022 and begin to apply them in your own plan.

[OUTRO]

[00:15:41] TU: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and is not intended to provide and should not be relied on for investment, or any other advice. Information to the podcast and corresponding material should not be construed as a solicitation, or offer to buy or sell any investment, or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

Furthermore, the information contained in our archive, newsletters, blog posts and podcasts is not updated and may not be accurate at the time you listen to it on the podcast. Opinions and analyses expressed herein are solely those of your financial pharmacists, unless otherwise noted, and constitute judgments as of the date published. Such information may contain forward-looking statements that are not intended to be guarantees of future events. Actual results could differ materially from those anticipated in the forward-looking statements.

For more information, please visit yourfinancialpharmacist.com/disclaimer. Thank you again for your support of the Your Financial Pharmacist Podcast. Have a great rest of your week.

[END]

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YFP 236: Gen X Pharmacists: Financial Challenges and Money Strategies

Posted on by yfpadmin

Gen X Pharmacists: Financial Challenges and Money Strategies

On today’s episode, sponsored by Thoughtful Wills, Tim Baker talks through the unique financial needs and considerations of Generation X.

Episode Summary

Often referred to as the sandwich generation, Gen X is a big group of people that’s often set on the sidelines when compared to Gen Y, the millennial generation, and baby boomers. Financial planning can be hard enough by itself, but supporting your young (or not-so-young) children often at the same time as aging parents, all while trying to save for retirement, creates a unique strain on finances that requires some specific financial planning! Today on the YFP Podcast, Tim Ulbrich is here with YFP co-founder, co-owner, and director of financial planning, Tim Baker, to talk through the financial needs and considerations of our Generation X pharmacy colleagues who are well beyond the new practitioner phase, but perhaps not yet at that traditional retirement age. We talk through why this generation has some unique financial challenges and touch on how to tackle the pessimism and inertia that often comes with changing or leaving your financial planning too late. We discuss the challenges this generation face, how their debt position and accrued retirement savings compare to other generations, and some strategies to chart a successful path to independence and stability, despite the tough economic hand dealt in their lifetimes. This episode may focus on a specific age group, but all listeners will hear valuable advice and insights that would benefit anyone!

Key Points From This Episode

An introduction to today’s topic of Gen X; the sandwich generation.
How Gen Xers are often providing for their parents, plus a young child or a child over 18.
How these financial expectations are often overlooked or pushed to the side.
We talk about average incomes, the rising cost of education, and what their debt load is.
The impact of the ups and downs in the last few years on their financial mindsets.
How Gen X wants stability but might not have the financial plan or means to get it.
You can take out education loans for your kids, you can’t get retirement loans.
Hear how Tim Baker follows the one-third plan and a reminder of what that is.
Relying on the act of planning, versus having a plan.
Some important questions Gen Xers can ask themselves to get financially stable.
Making sure you’re not on autopilot, particularly in your peak earning years.
Tackling the fear and inertia of having left it so late in life to start saving and planning.
Having empathy for Gen X needing different priorities from the previous generation.
That Gen X really wasn’t dealt a great hand economically, but the problems are fixable.
Reigniting the vision and finding the motivation to do things differently.
Speaking about the lack of confidence in social security for future retirement.
Tim shares a great exercise you can do to check your retirement age and benefits!
We discuss the shifting dynamics of generations and the transfer of wealth.
Some parting words of encouragement from us here at the YFP team!

Highlights

“[Gen X] is a generation that probably has some of the most important, or probably the most urgent needs in terms of their finances and financial planning.” — Tim Baker, CFP [0:04:34]

“39% feel of Gen Xers feel that they’ll never have as secure a financial life as their parents’ generation. As parents, you always want your kids to have a better upbringing.” — Tim Baker, CFP [0:09:26]

“What can you do for your kids? What do you want to do for your kids in terms of an education plan? At the end of the day, your retirement should take precedence, because you can’t take retirement loans. You can take education loans.” — Tim Baker, CFP [0:15:17]

“If I’m a Gen Xer and I’m 50, and I know that I have a decade left if I want to retire by 60, you can do a lot in 10 years. You can.” — Tim Baker, CFP [0:25:29]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

[00:00:00] TU: Hey, everybody. Tim Ulbrich here. Thank you for listening to the YFP Podcast, where each week we strive to inspire and encourage you on your path towards achieving financial freedom. This week, I had a chance to sit down with YFP co-founder, co-owner and director of financial planning, Tim Baker, to talk through the financial needs and considerations of Generation X; those born between the mid-60s and early 80s, falling between the baby boomers and the millennials. That would be our pharmacy colleagues well beyond the new practitioner phase, but perhaps not yet at that traditional retirement age.

Whether you are a student pharmacist, or a new practitioner anticipating some of the financial opportunities and challenges that may face you in the future, or you’re a Gen X pharmacist listening, my hope is that you’ll have something to take away and apply to your own personal situation.

On the show, Tim Baker and I talked through why this generation has some unique financial challenges, and is often referred to as the sandwich generation. We discuss the challenge this generation faces and the balance taking care of themselves, their children, perhaps, as well as their parents, how their debt position and accrued retirement savings compares to other generations, as well as some strategies for a Gen X pharmacist to chart a successful path boards, despite some of those challenges that they may be facing.

As we wrap up another year of the show and are knee-deep into the planning for 2022, I want to say thank you to the YFP community for entrusting us with your time, by listening to the show. We don’t take for granted your support and encouragement of the work that we’re doing at YFP, to help pharmacists on their path towards achieving financial freedom.

Also, a big shout out to YFP members Caitlin Boyle and Rose Mercado for the engine behind making them YFP podcasts a reality each week. Caitlin and Rose, your contributions to the team and the YFP community are truly appreciated. Okay, let’s hear it from today’s sponsor, and then we’ll jump into my conversation with Tim Baker.

[SPONSOR MESSAGE]

[00:02:00] TU: This week’s episode of Your Financial Pharmacist Podcast is sponsored by Thoughtful Wills. Let’s take a minute to hear from Co-Founder, Nathan.

[00:02:08] NK: My name is Nathan Kavlee, and I’m one of the founders of Thoughtful Wills. Our law firm spends a lot of time thinking about the process of estate planning. There’s no way we can get around the yuck of death. Instead, we focus on being lawyers that you’ll actually enjoy working with. We pride ourselves on being approachable. Then, we take the extra time to draft documents that are actually understandable. Then we pair that with technology to make the process cheaper and more convenient. Please visit our website thoughtfulwills.com/yfp and poke around. Then book a meeting with us, please. We are genuinely excited to chat with you.

[INTERVIEW]

[00:02:46] TU: Tim, excited to have you back in the mic.

[00:02:48] TB: Yeah. Good to be back for a full episode, Tim. How’s it going?

[00:02:52] TU: It is going. We are just a couple days away from the New Year, and hard to believe that we’ve had another year of the podcast, another year of the growth of the YFP community, growth of the team at YFP, and so much to be grateful for as we roll the calendar into 2022, and excited for what lies ahead as well.

[00:03:13] TB: Yeah. It’s been a year of change, I think, with everything that’s going on. I think, all for the good. I’m excited for what 2022 brings in. Hopefully, we can continue to crawl out of this pandemic, and we don’t have too many more of the variants that are shutting things down. I’m excited for what’s ahead, though.

[00:03:33] TU: We’re going to start to dig into this topic, one that we haven’t covered in great detail before. Today, we’re talking about the financial needs and considerations of Gen X pharmacists. I think, it’s worth noting that we’re talking about generations, we’re obviously talking in general generality and general form. Certainly, unique situations are going to apply here. Tell us a little bit more about why we want to delve more into this this topic on the podcast as we look at financial needs and considerations of Gen X?

[00:04:02] TB: Yeah. I think, just like the generation, it’s kind of like the forgotten middle child. When we’re talking about Gen X, we’re talking about a group of about 65 million people that are born between 1965 and 1980. The youngest is in their early 40s, turned 41 this year, and then the oldest being in their mid-50s, turning 56 this year. It’s a big group of people that it’s often set on the sidelines when compared to Gen Y and the millennial generation, or baby boomers.

I think, it’s a generation that probably has some of the most important, or somewhat, probably the most urgent need in terms of their finances and financial planning. This generation, it’s called the latchkey generation. A lot of kids after school would go to this latchkey programs. I’ve also heard him them called, Oregon Trail generation, the Trapper Keeper generation. I have a personal affinity.

[00:04:59] TU: Oregon Trail. It’s good.

[00:05:00] TB: Yeah. I’m technically part of the Gen Y. I’m an I’m an older Gen Y-millennial, born in ’82. Well, my brother was born 80, so he’s a young Gen Xer at the end of ’80. I see both, I feel I fit in between both generations, and I see both sides of it. It’s also often called the sandwich generation, which really entails a Gen Xer taking care of not only themselves, but their kids that are coming of age, but also aging parents. 47% [inaudible 00:05:33], 47% of adults in their 40s and 50s have a parent over age 65, and are either raising a young child, or providing financial support to a young child over 18.

You can imagine, Tim. Before I had kids, I’m like, “Man, I can barely take care of myself. How can I take care of another human being?” That’s what’s going on here as their adult, and as they got to take care of themselves, and then they have to basically take care of parents, and then their kids that are coming of age. It’s a daunting task. Unfortunately, there’s a lot of – I feel like, there’s a lot of negativity and cynicism, not just even around the coverage of Gen X, but even inside of Gen X, as you see some of the things that they experience over time. It’s something that I think needs to be talked about more, because I feel all of the press, all of the language is either for baby boomers, or this Gen Y generation, baby boomers – Gen X are just left on the side.

[00:06:36] TU: It’s really true. It’s something that I’ve observed, since we’re prepping for this episode, is when you hear generational news that’s out there, the millennials get a lot of love. Gen Z gets a lot of attention, baby boomers. This concept of a sandwich generation, a generation that’s often overlooked but has some significant things that they’re facing financially. Hopefully, some things that we can turn into opportunities may get overlooked in terms of the stress and the burden that that group is carrying.

You’ve laid the foundation, Tim, in terms of Gen X. So, people born approximately 1965 to 1980. We’re looking at early 40s to mid-50s, known as the sandwich generation, and between millennials and baby boomers. That concept of being caught between taking care of their children, as well as aging parents.

I just talked with a prospective client earlier this week, young family, two kids under the age of four, going through their own student loan, debt repayment scenario, trying to get investing off the ground, and get some early momentum there. Then also, the prospect of potentially having to take care of their elderly parents in the near future. That’s weighty, right? I think, you and I would both argue from individual experiences, as well as the pharmacists that we talk with all across the country, that financial planning can be hard enough in and of itself, without having to think about an additional burden that might be placed upon something like, having to take care for elderly parents.

[00:07:58] TB: Yeah. I think, this is the start of many sandwich generations, unfortunately. Maybe not unfortunately, but I know, a lot of our Gen Y clients are, they have a bucket of money that’s just like, “Hey, my parents either got me here because they immigrated here.” Or, that’s what our culture says, “My job is to is to make money and take care. I am my parents’ retirement plan.” That’s not just related to Gen X, I think, that’s going to be a common theme in Gen Y and Gen Z.

I think, the difference is that the year – it’s upon us already for Gen X. They’re already doing it. Probably, haven’t really planned for it. The good part about Gen X is that they’re approaching their peak earning years. On average, they make more money. I think, I think the average household income was something like, in the $130,000s or something like that. On average, they make a lot more than baby boomers who are winding down, or they’re already retired. Then Gen Ys are still – and we know in pharmacy, it’s a little bit different.

Average net worth for – if you’re if you’re clocking this average net worth, I think I saw a number out there, it was about a $168,000. That’s not a lot, especially if you’re thinking you only have 10, or 20 years left to work, if you’re going to retire in your 60s, that type of thing. I think, the one thing that came out to me when I was looking at this was, 39% feel of Gen Xers feel that they’ll never have a secure as a financial life as their parents’ generation. Which, and that’s one thing is like, as parents, you always want your kids to have a better upbringing.

I think, the other thing that is interesting about Gen X, as you’re looking at the data, and just some of the editorial comments, they are sandwich in terms of – they have a lot of the consumerism that baby boomers had. It was like, Gen X spends more than any other generation in terms of consumer goods, but they also got hit with the rising cost of education. Now not to the degree where pharmacists are coming out today. We have charts where the income was pretty close to what the debt levels are for a PharmD, and then the PharmD debt just raced by the income.

I think, to a lesser degree that the debt, and obviously, they’ve had years, a decade, or more of paying, 15 years of paying off student loans. I think, the biggest portion of what they’re seeing in terms of debt loads are coming in the form of mortgages, credit cards, auto loans. But also, still having those student loans.

Unfortunately, Tim, we see a lot of pharmacists that are in this generation that haven’t put that big of a dent into their student loans at all, because of I think, the construct of “Hey, you just pay the least amount and you drag it on forever.” Unfortunately, you’re left with a large sum, even 10, 15 years into your career, 20 years of your career, unfortunately.

[00:11:07] TU: Tim, one of the things I was thinking about recently, I graduated in 08, was that – 13 years ago or so, that was shortly after the requirement to the PharmD. This group, most of them, unless they went back and got – PharmD would have been in the BS period, before the PharmD was required. One of the things I’ve been reflecting upon is that I graduated in 08, obviously, the recession of 08 was what it was. I was in residency making $31,000 and didn’t have a whole lot of focus, or attention on savings. I didn’t really feel that very much, even though I observed it and lived in it.

All I know, is what has been a pretty wild market ever since then, that’s only been on the up and up overall, obviously, outside of some dips and so forth in between. I often think like, “Man, what kind of overconfidence has that led?” Potentially, not only my situation, but others that are in that window that have graduated in the last 13 years and have not experienced a significant downturn and has had that real impact, where you’ve accumulated savings, and you’re like, “Oh, my gosh. This is real.” I see the dip.

We look at this generation, they’ve been through the dot-com bubble. They’ve been through the 08 financial crisis, and they’ve been through what has been the wild, last couple years on the market, since the beginning of the pandemic, in terms of the ups and downs, and even within a given week, ups and downs. What impact do you suspect that has had in terms of their approach to savings and investments?

[00:12:35] TB: Yeah. I think, it’s had a great impact. I think, it was often documented that a lot of Gen Xers were very, very much educated, but underemployed, especially dot-com. Talk about swings of wealth in markets in dotcom. Then, the subprime mortgage crisis. I think, it’s led to a lot of asceticism, and a lot of the – some of the rhetoric that you see.

I guess, to bring my point full circle, what I was trying to compare to go back to that real quick. Baby boomers, no student loan issues there, but spent and had mortgages and things, car loans and things like that, credit card debt. I think, notoriously not having been great about saving for retirement, and I think, so security’s going to definitely help them. I think, Gen Y have been more adverse to home buying and taking on a big mortgage, and less consumer debt.

Whereas that, with Gen X, you’re seeing the ugly on both sides. You’re seeing the student loans, but you’re also seeing some of the other – that other debt it’s piled on. I think, with regard to investments, I think, that I saw a stat that Gen Xers, they’re thinking, “Yeah, we probably should be –” I think, the number was like, “We’ve probably should be saving 11%.” It’s probably closer to 20%, where they’re at in their career, if you count all of the things that you should be putting in to retirement. I think on average, they’re saving about 9%.

I think, some of the things that you’re seeing that baby boomers are working more into retirement and they don’t have confidence in their money lasting, I think, you’re going to see that compound with Gen X, unfortunately. I think, one of the things that often will buoy the Gen Xers is, as that wealth generation or wealth transfer happens, so baby boomers dying off, you’re going to start to see windfalls that are going to fix some of the ills, unfortunately, that happen.

It’s having a plan for that, and having a plan for that windfall. Gen X wants stability, but they’re not necessarily doing a lot to help their financial future. I think, what they’re just trying to do is get through the day in terms of like, “Hey, I have to take care of myself, my parents.” Then, I’m also looking at, and the whole – we can have a whole other discussion just about education and sending your kids to college, and not experience – Sometimes that, your own experience can color that for your kid. You have some people that are like, “I never want my kids to have an ounce of student loans.”

Or some people would say like, “Hey, I had to deal with it. They have to, too.” There’s no right or wrong answer, but it’s really cutting through that and understanding, what can you do for your kids? What do you want to do for your kids in terms of education plan? At the end of the day, your retirement should take precedence, because you can’t take retirement loans. You can take education loans, and hopefully, they start to figure out how to make this a little bit better, which again, that doesn’t necessarily help. It might help our kids, Tim, in the future, but it’s not going to help Gen Xers whose kids are in college, or approaching that age right now.

[00:15:43] TU: Yeah. Jess and I were just talking about that the other night, of really fighting against some of that gut and emotional reaction of wanting to over – potentially, over-contribute on the college side at the expense of other things, because of the pain we felt in our own journey, and how front and center that is.

[00:15:58] TB: Well, and I just got an email from Ohio529. They’re like, “Hey, if you put this much in, you can max out your $4,000.” Yeah. I’m like, “All right, well, we have this plan” but I’m torn to say like, “Okay. How can I get that just for the tax benefit?” Again, I think, people sometimes do things for the good of the taxes, or at the detriment of their financial plan. I mean, it’s never a bad thing to, I think, save for the future expense that hopefully will be there in the form of college.

At the same time, I had to take a step back and say, well, this is not really what Shane and I talked about in terms of our – what we want to do. And we follow that that one-third plan, which I think we’ve outlined in previous episodes of, one-third is going to come from our – the 529s that we’re saving. One-third is going to come from hopefully, that’s something I can cashflow, as our kids are in college. That present income in the future, if that makes sense. Then one-third from hopefully, scholarships, grants, and then last but not least, loan.

That’s ours. Again, at the end of the day, we’re making sure that we’re trying to fill that retirement bucket, because we want options. We went options as we approach retirement to say, “Okay, we want to work until this, or not have to work, or whatever.” To me, that’s something that the Gen X generation is also dealing with. I think to, again, it’s more into a heightened degree. One, because I think resources are scarce. You’re just dividing up between many more people, because typically, bigger households, and then we talked about again, taking care of parents and things like that. Yeah, I mean, it goes back to relying on the act of planning, versus having a plan. I think, that’s definitely something that Gen Xers should look to do if they’re grappling with all these different issues.

[00:17:53] TU: Yeah. I think, as we’ve talked about many times on the show, and something I know, we both worked through personally, and I sent it in the individuals that we talked to that are considering coming onboard as clients of YFP Planning. Sometimes there’s just so much emotional stress that we carry around related to financial planning, because of all of these things that are swirling in our mind.

We’ve talked about, many of them here is really, to Gen X in terms of debt that might be hanging around, thinking about the college for kids, or grandkids, caring for elderly parents might behind on retirement. Should I be thinking about diversifying other revenue streams? The list goes on and on. So much value from my perspective of the planning process, and what you’ve done, even with Jess and I is, “Let’s get all of these out of our head, onto paper. Let’s talk through them, let’s prioritize them, let’s beat them up. Think about how they fit in with the bigger vision of the plan and where we’re trying to go, what we’re going to try to do. Even if those numbers don’t change drastically tomorrow, we’ll get there over time.” Having that plan just provides an incredible amount, I think, of confidence, and hopefully, at some level, some peace as well.

[00:18:59] TB: Yeah. The plan touches so many things. We touched briefly on the investment retirement stuff. You could talk about just that whole thing for Gen Xers. It’s like, okay, what does retirement look like? Is it early? Do we have dollars that we can access, if it is early retirement? If it’s not, what’s the plan for that? Is the asset allocation correct? Are you working with an advisor and paying too much in fees? What are they actually doing for you? We’ve got a lot of clients where it’s like, when the comparison of what we do at YFP, which versus what an advisor somewhere else would do. It’s a different offering.

Again, I think, that the nice thing about Gen X is that they’re not shut out of the game of financial services, like Gen Y. Because Gen X, at least has investable assets that can be managed, and that’s typically what advisors look for. If you have negative wealth and no money to invest, most advisors will say, “I can’t help you.” Gen X doesn’t have that, and so you have that problem, because if they’ve changed careers that they’ve accumulated money in their IRAs over time, they do get attention. Is it the right attention, is what I would I would argue?

The other thing that we haven’t talked about, that’s about this is, is the protection stuff or the financial plan. Over time, things change. Are your life and disability safe? What are the deductibles? Do you need umbrella policy? We could probably go back to the episode that we have Cameron Huddleston on, which is, Mom and Dad, We Need to Talk.” Not just having a state document for you and a state plan for you, but your parents.

It was also, it could be where you are to a point, as a Gen Xer, where there is more that you can potentially give and maybe, there’s charitable intentions and could be a lot of – sometimes we see Gen Xers that have worked some of these things, it’s that big-pot-of-money syndrome. It’s like, “I have $80,000. I have money in my investments. I have $80,000 in savings account.” Okay, what’s this money for? What are we earmarking it for?

Then, if we’re expecting inheritance, what’s that going to be used for? Have we reviewed our emergency fund lately? There’s so many things here that, I think, Gen X, especially as they proceed through and they’re approaching their peak years of earnings, just need to make sure that they’re not on – I hear autopilot all the time when it comes to a financial plan. There’s typically, tons of things to look at, and do and plan for, and assess. As you’re taking care of parents and sending kids to college, and the one thing we haven’t talked about is taxes, and what that looks like, there’s just a lot – there’s just a lot on the plate.

To me, it just goes back to the idea of sitting down, and building out a plan, but then engaging in the act of planning. As the years go on, and you’re in this last decade, or two of earning, so you can set yourself up for the best retirement that you can.

[00:22:02] TU: Two resources, Tim, I want to point folks to that build on some of what we’ve been talking about here. You mentioned that interview with Cameron Huddleston, who wrote Mom and Dad, We Need to Talk. Great conversation I had with her about how to effectively talk with your parents about their finances. So many good takeaways that I’ve been able to apply in my situation. That was episode 108. We’ll link to that in the show notes.

Then the second thing, we’ve been talking a little bit about kids’ college education, and that was episode 195, where we talked about how to save for your child’s education. That highlights some of what you were sharing in the “thirds” approach. Tim, one of the things I want to ask you about is, I suspect many in Gen X, you’ve given some data here about folks that may not be on track “statistically” or what they think they should be in terms of retirement savings. There’s probably that lingering feeling of like, I’m behind. I’m also maybe trying to pay off some student loan debt, but I’ve got all these other competing expenses that are taking on some of the priority as well.

The question here relates to how to get past that inertia of feeling behind. The best time to invest would have been 20 years ago. The next best time is right now. How do you begin to coach folks through not having that mindset, or approach of like, “Well, at this point I haven’t done it. Therefore, I’m not going to be able to get to that goal anyways.”

[00:23:20] TB: Yeah. I think, I equate it to for some people, it’s like going to the doctor. You don’t want to go to the doctor and talking about, like if you smoke, or if you’re overweight, or things like that. You have this block that, that you know that the answer is bad. There’s this feeling of being judged. I think, from the professional standpoint, we’ve seen it. We’ve seen a lot of things. Just like, doctors have seen it all. It’s not about that. It’s just about changing course, and saying, “Okay, this is what happened, or this is what’s happening. How can we make this better? How can we proceed?”

The thing that, and I hear this all the time, even from clients that we have that are younger, that are in their 20s. I hear throughout all the generations. Really, it’s like, I’m never going to be able to retire. I’m always going to be working. I think for Gen X in particular, because of some of the downfalls in the market, and the investment in education, being under employed, at least from the beginning, that is that pessimism. There was a study by, I think, it was T. Rowe Price that said, 12% of Gen Xers say that they will retire before age 60. Compared to 26% of millennials.

Millennials are more optimistic about that. I guess, to bring it back in terms of where to start, my belief in financial planning is very – it’s very absolute. Meaning, I think, if you engage with a professional, an objective third-party that has your best interests in mind and is really rooting for you to achieve the goals that you want, I think if you do that for years, we have people that really do well with their financial planning in a span of a year, or two, or even three. If you can imagine stacking a deck – If I’m a Gen Xer and I’m 50, and I know that I have a decade left if I want to retire by 60, you can do a lot in 10 years. You can.

If you’re a younger Gen Xer, if you’re 41, if you’re my brother’s age, 1980, and you have say, 20 years, or even 25 years, there’s just so much that you can do in 20 years. If you’re stacking intentional years of working on your financial plan, and thinking about it and revising your goals, and making adjustments and protecting yourself and having those conversations of like, “Hey, is this what I really want? Am I on track?”

There’s this feeling. I think, sometimes it happens with our clients, even just through the first meeting, where they just look at and they can see their balance sheet and all of their things. Then even more so, the second meeting, we’re actually talking about what are their goals, what is a wealthy life for you? Just to have that exercise, to go through that exercise, I think, is empowering. Then it’s like, “All right, let’s get to work and actually get into the financial plan.”

I look at as a very much a glass half full. Whereas, I think, a lot of people, it’s a glass half empty. We know that inertia is a thing. You’re more likely to do what you’re doing currently, than to take the leap to do something different. I think, to answer your question that you originally answered, I think it’s – You have to get over that, because at the end of the day, you’re going to have to get over it, eventually. Whether it’s in your 40s, or if you’re in your 60s, where you have to actually plan to say, “Okay, can I shut this income stream off, that is my livelihood?”

Because eventually, you can’t do the work as a pharmacist in your – It’s really hard to do. It’s a demanding profession. To me, it has to come sooner, or later. Then as a planner, I would advocate sooner. I would just think of it from a – I’m just thinking of it from a patient’s perspective. I’m sure, lots of pharmacists work with patients, which have those anxieties. If you approach it as well, they’ve probably seen it all, which we have, then just have solace in that that you’re not going to be judged, or it’s more about moving forward from here than anything. That’s the best I can – advice I can give.

I know, I get it. I understand. No one wants to be judged, or a lot – sometimes we double down, because pharmacists are your doctors, you’re educated. That doesn’t necessarily mean that you’re a doctor of money, right? We put that on ourselves, or PharmD’s put that on themselves that they should know better, or things like that. I think, that’s crap, to be honest. I think, Gen X, again, you were dealt a not-great hand, because you’re in that sandwich, where baby boomers, my parents are baby boomers, they’re like, “Buy a house. Don’t have credit card debt.”

I didn’t necessarily want to buy a house right away. That was what you did. You got the best education. You would pay whatever you could to get the best job. You buy a house and you have kids, and that’s it. That wasn’t for me. I feel like, Gen Xers were still put in that. They had that appetite for the non-student loan debt, but then, they also had the student loan debt that baby boomers didn’t experience.

That’s the thing that I have to – I would say, it’s cool. That’s where you’re at in terms of the run of things. I think, millennials learn from baby boomers and Gen X, and more like, “I don’t want to rush into marriage, or a house, or things like that. I want to figure this out first.” You had a little bit more, I think, leeway even than Gen Xers did, because Gen Xers, again, because of all the different recessions and things like that.

I think, that’s where, and even things like forgiveness. Gen Xers are probably looking at forgiveness and they’re seeing all these things come off the board here, all these loans. PSLF and things like that.

[00:29:46] TU: I wish. I wish.

[00:29:49] TB: That would have been nice. Because back in my day, shake their cane. Back in my day, this is how – I had to walk uphill to school and the stone -those are some of the things that you weren’t afforded those, because I think, it was President George W. Bush that put that into effect back in the early 2000s. That’s the thing, Tim, is it’s not a great hand. I think, at the end of the day, it’s what you make of it going forward. Again, the nice thing about Gen X is that a lot of these problems, I think, are fixable, because there’s still time. There’s still time. They’re approaching, peeking earning years, like I said. Again, it’s more of the process of planning and making sure that what they’re doing is what they want to do.

[00:30:32] TU: Yeah, the thought that comes, too, Tim, is it’s a great opportunity to re-ignite the vision. I think that, I’m thinking about all the issues we’re talking about that are getting thrown at Gen X. It’s fair that you might feel beaten down and you feel like, “Man, I’m behind, or I wish I’ve done this, or I wish I’d done that.” To reignite the vision a little bit of, okay, where are we trying to go? What are we trying to achieve? Hopefully, that provides some motivation to get over some of the humps to be able to accelerate the plan into the future.

One other thing I want to ask you about, Tim, we’re going to come back and talk about a lot of these in more detail into the future. This episode is really meant to lay the foundation of some of the financial issues that Gen X is facing. We’re going to come back and talk about social security in great detail in the future, which I think is relevant for folks that are in benefit, for folks that are getting ready for benefit decisions, and for even younger practitioners that are maybe asking some questions around, well, how do I factor this in? What might this mean in terms of my long-term planning savings?

I think, there’s a little bit for everyone to learn as it relates to social security. Tim, from Gen X’s perspective, talk to us about confidence in social security, or lack thereof, and how this may factor into some of what they’re working and facing through?

[00:31:48] TB: Yeah. I think, there’s a T. Rowe Price article that basically, said that there’s very little confidence in social security. I think, it’s something 56% of Gen X expects that social security will be bankrupt by the time they retire. A full 73% agree with the statement that I’m expecting some security benefits when I retire, but nothing as generous as what today’s retirees get. I think, there’s two different things at play. One is, will social security not be there at all when I retire in 10, or 20 years as a Gen Xer? Versus, will it be there, but at a diminished amount?

I’m in the camp that I think, social security will always be there in some form or fashion. I do think that it’ll be either funded with a tax increase, or like a payroll increase, or something like that. Or it will be a diminished benefit, either pushing out for retirement age, or just a lower amount.

I think, an exercise, a good exercise for a Gen Xer, and I just did this recently just to check is to go on this socialsecurity.gov website. You can sign in and actually, see what your full retirement age is, if you retire at this age versus this age, what your benefit would actually be. If you have all the quarters that you need to do to qualify for social security. I think, this warrants probably a full episode, but the confidence is not there.

I hear it. Baby boomers, they feel pretty good about it, because a lot of them are approaching – already drawing on it. Gen Xers, very cynical about it. I think, Gen Y is like, “Yeah, I’m not counting on it.” At the end of the day, and we plan as if it’s not going to be there. At the same time, I think, it will be and I think it’ll be a much lower percentage of your retirement paycheck than the average American. It’s going to be there nonetheless. It’s just a matter of what would that be? At the end of the day, I think, it’s always smart to plan for retirement as if it’s going to be you all the way.

I don’t see it going bankrupt. I think, there’s a lot of people that I respect and following the industry that says, “It’ll be there. It might be a diminished benefit.” At the end of the day, it will be a part of your retirement paycheck, Gen X and even Gen Y as we proceed here.

[00:34:09] TU: Tim, this reminds me a little bit of some of the discussion around loan forgiveness. Not to say there won’t be changes or challenges to social security. I think, this has been well-documented, but some of the fear and angst around public service loan forgiveness. We have to think about, to, what would be the fallout if the plug got pulled, right?

I mean, there’s a lot of people, especially with social security, more so than loan forgiveness that, I mean, that would – especially if you’re 10 years away or less to retirement. That’s a big deal. Might there be transitionary phase, or smaller changes made along the way, same thing with loan forgiveness. We talked about making sure objectively evaluating some of those risks, considering them, but also, looking at some of the upside of the plan.

I like your suggestion and solution of, “Hey, let’s plan as if it may not be there and perhaps, even running some best case, worst case, middle of the road type of scenarios, and seeing how that fits out in terms of other savings that we have, and how social security would be complemented by that.”

[00:35:04] TB: Yeah, funding aside, it makes sense. I wouldn’t be surprised, because we live longer. I think, we’re just living longer. It makes sense for us to work longer than previous generations, because people just live in longer. I think, the fallout of – what we said about the loan forgiveness is that people are on track to count on this program. For the government to say, “Hey, psych, just kidding.” At a minimum, I think it would be grandfathered in. I think, if social security would ever go away, which I don’t think you would ever would, but I think it would at least be grandfathered in, in terms of a new account on this. Anybody born after year 2100 or something like that, then maybe that’s not.

I think, a lot of people, because we are really poor at saving for our future, it’s a necessity that I think, needs to happen. It’s a forced way for us to save for retirement. We pay for it out of our paycheck, so we have to save for retirement. One of the things that was a big headline, as baby boomers were going to retire, is they were going to bankrupt the system, right? I read, I think, somewhere that Gen Xers will outnumber baby boomers, by I think, year 2028. That’s not too far away.

I think, the dynamics in the numbers are changing. There’s going to be, again, a big transfer of wealth from generation to generation, which again, could buoy some of these years. I’m not necessarily doing a great job of saving for the future. Again, that would be where I would have a plan for that. I remember, my parents received a small inheritance, and I think, they redid their kitchen. If that’s a goal, then that’s great. I would also want to make sure that everything is on the up and up in terms of retirement. That’s going to be more so the case for Gen X pharmacists, where they have to go further to save for their own retirement, because the social security benefit, it’ll be there, but a much smaller percentage of that paycheck that you’re going to build in retirement. I think, you’re going to want to have the 401k and the IRAs, and some of these other accounts there to build that out.

Yeah. I think, Tim, it’s probably one of the things that we should probably dedicate a few episodes on is, just that whole picture of what that looks like in terms of security and some of those other things that are going on as you’re approaching retirement age.

[00:37:26] TU: Great stuff. Tim, again, intention here was to do somewhat of a high-level overview of some of the financial issues and challenges facing Gen X pharmacists that are in the YFP community. We’re going to dig into some more of these topics in the future. For those that are listening to this episode, and you find yourself thinking about many of these different priorities financially, whether you’re currently working with a planner, looking for a second opinion, not working with a planner, we’d love to have the opportunity to talk with you to see if the services at YFP Planning are a good fit for you. You can schedule a free discovery call at yfpplanning.com.

Again, as we get ready to turn the calendar into 2022, just another thank you to those that take time out of their schedule each week to listen to the podcast. We don’t take that for granted. We appreciate the feedback, and the encouragement that we get. If you have ideas for future episodes, we’d love to hear from you. Wishing everyone a happy and healthy New Year and looking forward to seeing everyone in 2022.

[SPONSOR MESSAGE]

[00:38:23] TU: Today’s episode of Your Financial Pharmacist Podcast was sponsored by our friends at Thoughtful Wills. If you haven’t created your estate plan yet, we urge you to reach out to Notesong and Nathan. They draft custom estate planning documents, like wills, trusts, healthcare directives and durable powers of attorney that fit your situation and reflect your wishes. This is key. These are custom legal documents created and reviewed by actual attorneys.

Thoughtful Wills created to cut to the chase packages, designed for pharmacists who are ready to get their estate planning in order. You’ll really appreciate their dedication to approachable lawyering, and they charge about half of what most law firms charge for the same documents.

These documents are such a gift to your loved ones. If you haven’t created them yet, please just get it done. Reach out to Notesong and Nathan by going to thoughtfulwills.com/yfp. Go ahead and book a meeting with them. They’ll take such good care of you.

[END OF EPISODE]

[00:39:20] TU: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and is not intended to provide and should not be relied on for investment, or any other advice. Information to the podcast and corresponding material should not be construed as a solicitation, or offer to buy or sell any investment, or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

For more information, please visit yourfinancialpharmacist.com/disclaimer. Thank you again for your support of the Your Financial Pharmacist Podcast. Have a great rest of your week.

[END]

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YFP 235: One Pharmacist Couple’s Journey to Financial Independence

Posted on by yfpadmin

One Pharmacist Couple’s Journey to Financial Independence

Josh and Shannon Pukl discuss their journey towards achieving financial independence and the strategies they have employed along the way.

About Today’s Guests

Josh and Shannon Pukl began their pharmacist career paths after graduating from Duquesne University in 2012 and ’13 respectively, but their financial journey didn’t evolve until 2015 after Shannon was diagnosed with breast cancer. Suddenly, life “guarantees” seemingly evaporated into questions, confusion, and unplanned expenses. Working through recovery, relocation and job changes a shift in focus began to sharpen their life ambitions – to be financially independent.

From sifting through several blogs and forum threads, listening to countless podcasts, and devouring financial books Josh and Shannon moved towards making money work for them. After creating an intense budget, dollar-cost averaging into index funds, and putting windfalls to work in the market this disciplined and blessed approach loosened the financial restraints allowing Shannon to be the first to set off on her encore career in entrepreneurship.

As a result, the Pukl’s intend to continue their path to 100%, true financial freedom for both husband and wife to pursue their truest callings and be the best stewards of what they’ve been gifted whether monetarily or otherwise.

Episode Summary

This week, your host Tim Ulbrich had the opportunity to sit down with pharmacists and leadership coaches, Shannon and Josh Pukl, to discuss their journey towards achieving financial independence. This episode is jam-packed with valuable insights, not only relating to mindset and vision casting, but also regarding actionable processes and steps you can take to ensure your financial independence and early retirement! Hear from Shannon about how her 2015 diagnosis with breast cancer changed her outlook on life’s guarantees and how she turned this very difficult situation into a source of motivation to become financially independent. We also discuss some of the strategies that Josh and Shannon have employed and found success in on their journey to becoming debt-free and, finally, what Shannon is doing in her encore career since retiring early from pharmacy. The discussion touches on setting up those passive income streams that will make all the difference, how budget and lifestyle changes allow you to enjoy the things that matter, and even how to prepare for the moment the upswings we’ve been enjoying in the current bull market drop. This is one conversation you don’t want to miss, so tune in now to hear it all today!

Key Points From This Episode

Shannon and Josh start us off by sharing why each of them got into pharmacy.
Shannon runs us through her post-school debt and shares gratitude that it wasn’t higher.
Josh expresses relief for the financial support provided by his parent’s foresight.
Where they worked after graduation; and a smart move that worked out well!
How Josh found out about financial freedom by accident and how he got to his ‘why’.
Shannon shares her history with cancer and the hugely expensive treatment costs.
How the financial strain created a motivation towards achieving financial independence.
Josh explains how his faith played a big part in keeping a positive mindset.
Learning the valuable lesson that money isn’t the most important thing; time and joy are.
Paying off her student loans as quickly as possible from the moment they came due.
Top tips and lifestyle changes that the Pukl’s advise for financial independence!
Setting up their passive income and the importance of having different income streams.
Shannon talks us through their work with universities around healthcare leadership.
Your Breast Life; Shannon’s blog to help and support women going through a similar journey.
Getting her real estate license and considering potential investment opportunities.
Hear about the ways that Shannon and Josh balance each other out in everyday life.
Living in a bull market and evaluating where you want to be when the downturn hits.
Josh casts a vision for their future in growing leadership in pharmacy.
The Pukl’s each share some parting advice you definitely want to hear!

Highlights

“Something I would encourage all pharmacists to consider is long-term disability insurance.” — Shannon Pukl [0:08:10]

“How do we live a life that we truly enjoy, day in and day out, and that we’re giving back every talent and every gift and every ability that we can to further whatever passion that we may have?” — Josh Pukl [0:12:04]

“We had to switch our mindset away from a scarcity mindset to a mindset of plenty.” — Josh Pukl [0:13:44]

“There is more to life than just your diagnosis. Diagnosis doesn’t define [you].” — Shannon Pukl [0:18:27]

“I think it’s really important to use whatever vehicles are available to you. One of my favorite quotes is kind of simple and it’s kind of silly. It is: ‘When is the best time to plant a tree? It was 20 years ago, but the second best time is today.’” — Josh Pukl [0:26:43]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

[0:00:00.4] TU: Hey, everybody. Tim Ulbrich here, and thank you for listening to the YFP podcast where, each week, we strive to inspire and encourage you on your path towards achieving financial freedom.

This week, I had the opportunity to sit down with pharmacists, Shannon and Josh, to discuss their journey towards achieving financial independence. A few of my favorite moments from this episode are hearing from Shannon about how her 2015 diagnosis with breast cancer changed her outlook on life’s guarantees and how she turned this very difficult situation into a source of motivation to become financially independent.

We also discuss some of the strategies that Josh and Shannon have employed and found success on their journey to becoming debt-free and finally, what Shannon is doing in her encore career since retiring early from pharmacy.

Before we jump into the show, I recognize that many listeners may not be aware of what the team at YFP Planning does in working one-on-one with more than 240 households in 40 plus states. YFP Planning offers fee-only high-touch financial planning that is customized for the pharmacy professional.

If you’re interested in learning more about working one-on-one with a certified financial planner may help you achieve your financial goals, you can book a free discovery call at yfpplanning.com. Okay, let’s jump into my interview with Shannon and Josh.

[INTERVIEW]

[0:01:22.6] TU: Shannon and Josh, thank you so much for coming on the podcast.

[0:01:24.9] JP: Awesome, thanks so much for having us, Tim.

[0:01:26.9] SP: Excited to be here.

[0:01:28.3] TU: Shannon, you emailed us back at the end of October about finding YFP in your journey to financial freedom and early retirement, which allowed you to move into an encore career and give in to exactly what you’re doing there.

We knew we had to bring you on to the show and I’m excited to have the opportunity to share your journey with the YFP community. Before we dig in to the financial journey, let’s back up to what drew you both to pharmacy school, where you went to school, and when you graduated? Shannon, why don’t you just start us off?

[0:01:57.3] SP: Yeah, absolutely. For me, pharmacy school was really about helping people up until I was a senior in high school. I wanted to be a teacher, I had a great family friend talk me out of that. I stumbled upon pharmacy school with my family, kind of history of cancer. It just really pulled at my heartstrings and so I ended up going to Duquesne University in Pittsburgh.

[0:02:16.6] TU: Awesome, Josh, how about you?

[0:02:19.0] JP: My story is a little bit different. I guess I was kind of late to the game, I was a senior in high school, not quite sure what I wanted to do. I was a late admittance to Duquesne University. My parents actually brought it to my attention that pharmacy school seemed like a pretty good career, they have this good finances to it as well, sign-on bonuses at that time, and that was in 2006, whenever I was graduating from high school.

That’s kind of my story with it. It was more somewhat of an interest in that science type of field but then it also had a pretty good return on investment.

[0:02:48.7] TU: I share that with you, Josh, I went to a 06 direct entry program in Ohio Northern University. Actually, I was down between Ohio Northern and Duquesne. Great school, Duquesne. Came down to really just scholarships to be frank. And similar path, I was like, “Hey, this sounds interesting.” I was 18 years old, six years to be a doctor, good return on investment. Certainly glad it worked out but big decision to make at a young age for sure.

[0:03:09.5] JP: 100 percent. Now I’m with you exactly the same way. I was like, “Six years, six figures and a doctor, I’ll do it.”

[0:03:15.5] TU: Shannon, tell us more about your financial position after graduation in terms of student loan debt that had been accrued and how you felt about the debt at the time.

[0:03:25.1] SP: Yeah, I was blessed in that my parents had helped me some. They had saved for my college. When I came out of school, I had about $50,000 in debt, which compared to others, that’s not a substantial amount in that regard. But still, it’s quite a bit when you’re getting out and starting to make those payments.

[0:03:42.5] TU: Yeah, I think and Shannon, we’ve become somewhat numbed to these numbers, right? Because I think anyone if you look at the national average of indebtedness of a college student, I think it’s in the high 30s but in pharmacy where we’re used to $150,000 or $200,000. When we hear numbers below a hundred, I think our reactions sometimes is like, it’s not very big but it’s still a big number that we have to work with. Definitely noteworthy.

Josh, what about on your end, with any debt?

[0:04:04.5] JP: Actually not. I’m very blessed in the sense that my parents had funded a 429 all through my childhood, all the way up until graduation, and then my sister actually didn’t partake in that. I had pretty much a 429 fund that was set for two different individuals but my sister actually didn’t use it. That kind of rolled into my college education. Very blessed there.

[0:04:29.1] TU: It’s funny you say that, Josh. My wife and I have talked about, with our four boys as we’re saving for their college. What if one of them decides not to go to college or two of them and the other uses more. Is that something they’re going to say, “Hey, what about my money, right? Where is that going?”

[0:04:41.2] JP: Yeah, it’s definitely something that you have to think of as well, right? It reminds me of a biblical passage too as well, where one son goes and kind of does whatever they want with their wealth and the other one says at home, right? It’s the prodigal son type of story.

[0:04:54.6] TU: Absolutely. Tell us more about the career journey post-graduation. Shannon, what happened next after graduation, where did you work and what did that look like?

[0:05:03.0] SP: Yeah, Josh and I both went to school in Pittsburgh, there’s a few pharmacy schools there so not as many opportunities so we were open to relocating for our positions initially. We moved to Buckhannon West Virginia. I started first at CVS as a staff pharmacist and then about eight months in, I became a pharmacy manager at Walmart when really kind of launch my career from there.

[0:05:25.7] TU: CVS as a staff pharmacist, Walmart pharmacy manager, pretty early in your career, and Josh, what about you?

[0:05:30.8] JP: I actually had my whole pharmacy career with Walmart and that’s where I am currently. And I find it to be a really awesome firm and place to work. I love the environment and then the opportunities that they provide me as well. I started as an intern, then grad intern, staff pharmacist as a part-time hourly floater. Then again, when we graduated in 2012, people were still recovering from the recession, and so that’s where we decide to get licensed in West Virginia.

Kind of goes at some of those places that, people really didn’t want to be and lean into those opportunities and then that’s when we moved to Buckhannon, and then our careers really started to flourish at that point.

[0:06:04.8] TU: Both pharmacy managers early in your career and Josh, you shared with us before hitting record that you found out about financial freedom on accident. Talk to us about how that happened and what life events solidified your why behind wanting to work towards achieving financial freedom?

[0:06:21.4] JP: Tim, I’m so happy that you asked this question to be honest. Because, I don’t think I give enough credit to Mr. Money Mustache and Pete in his site that he created, it has all this great information about the shockingly simple math to financial freedom.

That’s kind of where I started with it. Realistically, it was in one of our moves that, we were going to relocate for work and I was trying to figure out how much of an expense should a mortgage payment be on your net or your gross income in your family?

I couldn’t quite figure out or find out how much is the right amount to spend, it was one Google search led to another until I found this guy’s site. Started reading through it and then I was like, this all makes really good sense, this math is pretty simple. My goodness, as a pharmacist and she’s a pharmacist too, as well, we really have a blessed opportunity here to potentially retire early.

[0:07:12.8] TU: Absolutely. We’re going to link to that article and Mr. Money Mustache in the show notes. Great stuff, great content that he has and obviously, it sounds like that might have inspired your initial learning and journey in the financial independence, retire early, the fire movement. And so great resources to share.

Shannon, tell us about, in your story you mentioned before, a family history of cancer. Tell us more about your experience, obviously a very difficult situation in terms of being diagnosed with cancer, and how you were able to process that and ultimately turn that into a motivation towards achieving financial independence.

[0:07:48.8] SP: Yeah, I was a year out from pharmacy school and I had just started at my new employer. This was about six months into that role when I was diagnosed with breast cancer. It was just before my 25th birthday. Certainly unexpected news and that really kind of put our financial position in perspective for Josh and I, because your income’s not guaranteed, right?

With that too, something I would encourage all pharmacists to consider is long-term disability insurance, so that wasn’t something that we did and thankfully I didn’t need to use it. But there’s often a waiting period and so it’s pretty inexpensive, it can be a huge benefit because a lot of times, we don’t think the worst is going to happen to us, right?

That’s where there’s the security blanket. With my cancer diagnosis, I had a lot of additional expenses that ended up coming into play, so we had a high deductible insurance plan. So you’re going to hit that deductible every year.

That’s pretty much guaranteed as you’re getting some of those expensive treatments. Then we had to consider fertility preservation, we hadn’t had kids and weren’t sure if we wanted to have kids but to even have that opportunity, we needed to look at that and that’s not something that’s covered by insurances.

Thankfully, we’re blessed and got some support from the Live Strong Fertility Foundation but there were other expenses that we still had to pay as part of that. I had a great oncologist and she’s really passionate about giving me my best chance of disease-free survival being so young at diagnosis. She wanted me to take PERJETA but I didn’t fit the indications a hundred percent at that time and so we really weren’t sure if that was going to be covered and so that would have been $36,000 for those six treatments.

Just a lot of additional expenses that started to come into play, and so that’s where we kind of took a step back and really reassessed where we were financially, and how we could work towards that financial independence.

[0:09:34.7] TU: Shannon, as you’re talking, I would say, based on many people we’ve interviewed on this show, that the financial situation for any pharmacist can be stressful as a new practitioner. We look at the debt loads, competing expenses. They are out there, the pressures to save for retirement. Perhaps young family expenses, lots of other things as well.

Even with a good six-figure income, I feel like there can be a lot of financial stressors there in a normal day, in a normal week, normal month, normal year. As you’re talking about some of these things with high deductible health plans, obviously the cancer diagnosis needs to have money saved for hospital bills, the instability, and questions around the income.

I hear through that, a very powerful mindset that says “Hey, we’re going to choose to look at this as an opportunity to really be in the driver’s seat, in terms of taking this difficult situation and ultimately making the most that we can out of it.” But I think it also would have been certainly – not necessarily accepted but it would have been okay, and folks would have maybe looked at it and said “Yeah, that’s a really difficult situation, we understand that you’re kind of frustrated through that and may not be able to achieve these goals and do those things.”

I’m curious to hear from you and Josh, what led to that mindset to say, “Hey, we have got this difficult situation in front of us but we’re going to do everything that we can to make the most of it.”

[0:10:52.1] SP: I think a big thing for me, once you get out of school and you’re a pharmacist, you’re making a pretty significant income for the first time after you’ve just been accruing debt, right? It’s easy to kind of have that lifestyle creep. Thankfully, early on, we had that realization that money and things aren’t necessarily what makes us happy, right? Still living at a comfortable level but not necessarily just seeking to spend all of our money.

[0:11:17.6] TU: Josh, anything else to add there in terms of just the mindset and the approach that you guys took through that difficult situation?

[0:11:23.7] JP: I think that’s a hundred percent accurate. I also think too, just being a Christian too as well and having a different frame of mind and understanding that a lot of this is temporal and then you can choose to be bitter or better out of a situation too as well. I think a lot of times, we look at money as being the answer to everything, even security. But you don’t have the security sometimes that you think from finding it, and things like that.

It really helped to put us back into perspective and understand what is most important. And a lot of times, that can be time, right? We’re all given 24 hours within a day and so how can we set ourselves up to a point that we can be where we only want to be at those times.

That’s the kind of the financial freedom journey too, as well as how do we live a life that we truly enjoy day in and day out, and that we’re giving back every talent and every gift and every ability that we can to further whatever it is and whatever passion that we may have.

[0:12:17.0] TU: Tell me more, Shannon, in terms of the student loans that we discussed earlier, tell us more about that journey of getting them paid off and when ultimately those came to an end?

[0:12:24.6] SP: Yeah. Thankfully, for whatever reason, I don’t really know where this came from but it was just very minded to start paying those debts down originally, as soon as they started coming due. Before we really got a new car, do it anything else, we just focused on the debt and it took us about a year or so to completely pay those off.

[0:12:43.5] TU: Okay, 2014, we’re debt-free from the student loans, 2015, we obviously have the difficult situation, the diagnosis with cancer. Josh, tell us more about the financial freedom journey since 2015. Have you guys achieved FI status, financial independence, are you still on the journey there? What changes have you guys made to your lifestyle on this journey and any tips that you would share with other pharmacists looking to embark on this journey?

[0:13:07.4] JP: Awesome. One tip is obviously using resources, especially like-minded people, like the YFP Podcast. I think that that’s a wonderful place for people to start and get that content too as well. Then, just finding it, that someone that resonates with you and their journey and just kind of devouring as much so you can. Our journey has changed a little bit based off of what it had been years previously.

Years previously, we had a very tight budget, expenses were very limited, very much like Mr. Money Mustache and some of those, different characters that are out there. And then we realized, “Well, we still want to live life, we still want to enjoy life, we still want to give too as well and do a lot of these things.” And so we had to switch our mindset away from a scarcity mindset to a mindset of plenty and plentiful and of bounty.

How do we build ourselves a way that we can get more passive income and not just save and then live off of savings, or live off of the returns from our savings, but start to build passive income so that that can be our way to have financial freedom?

[0:14:07.7] TU: Tell us more there Josh, passive income, it’s something I hear often from folks of “Hey, I want my money working for me.” I’d love to have some passive income, what does that look like for you guys specifically?

[0:14:16.5] JP: Yeah, I think that’s a great callout. One of the ways that we’re set up right now – I have to joke about it. I feel like I’m asset-rich and cash flow poor. What I mean by that is, I’ve used a lot of those index fund vehicles that are available, to be able to build up equity and then be able to live off of just dividend investments or off of its return, something like that. Very, very much like the financial independent retire-early community.

You’ll find that information ubiquitously. That’s nothing that’s really new. The problem then becomes is, of course, you have downturns in the market, you have long bull markets that we’re in and we’re blessed to have right now, but there is not a lot of consistency out of that, right? I wanted to be outside of a place where my money and my income is going to be based off of what can I withdraw out of the account, regardless of what the market is doing, without having that psychological feeling of, “Is this a good time to pull money or should I allow those dividends to reinvest?”

Passive income has switched away from allowing that to come from equity and index fund returns and start to look at building businesses and building side hustles, I guess is more appropriate for what our terminology is today. And building those types of different income streams and not just focusing on one income stream.

[0:15:31.3] TU: Yeah, I think that’s really interesting, you mentioned it, Josh – it’s something my wife and I have felt. I suspect many pharmacists especially that have been saving consistently for a period of time, eventually, that money is going to compound. It is going to grow, compound interest will do its thing but folks may find themselves in a situation where they’re working towards or are asset rich but they may feel like they are cash-flow challenged.

What are some alternative ways to diversify the income streams perhaps in addition to outside of traditional retirement accounts, which of course becomes very important for folks that might be pursuing early retirement? Shannon, I want to shift gears for a moment and talk about your encore career and I love this phrase that you started at the age of 32 from your early retirement from pharmacy and when we talk before, you mentioned that choice was a big ‘why’ behind pursuing financial freedom for you.

Talk to us about what you mean by choice, and then walk us through your journey to early retirement and what you’ve been working on in your encore career?

[0:16:25.9] SP: Yeah, absolutely and so one big thing with work is that we wanted it more to be a nice-to-do rather than a need-to-do, right? It’s not necessarily just to be financial independent and say, “Hey, that’s it” but we still wanted to bring value. And so, once we hit that goal number that we had in mind earlier this year, it gave me the opportunity to step back and work on some things that I’m still super passionate about.

Just like the YFP community and we have that realization that pharmacists aren’t taught finance or some basic accounting skills in pharmacy school curriculums, there is a huge gap there for them. It’s very similar with leadership, right? Josh and I, after we were pharmacy managers, we had the opportunity to be promoted to district managers and so between the two of us, we’ve had over 80 different facilities.

We’ve noticed that there is a gap, and, in some instances, the curriculum gets glossed over from people management and leadership skills. And so, we really want to take what we’ve learned and help pharmacists apply that in their practices to make their days better.

[0:17:24.3] TU: That is some of the work if I am following correctly, that you’re doing with universities around healthcare leadership. Is that correct?

[0:17:30.0] SP: Yes. So we actually developed a continuing education program with our alma mater, Duquesne University, so it’s the Healthcare Leadership Course. It’s 17 hours of continuing education and it’s really taking some of those experiences that we’ve had in our working environments, and then also taking some of the theories behind why motivation works and helping pharmacists apply it directly to pharmacy.

[0:17:52.0] TU: Very cool. So I know that since retiring from pharmacy, I guess retirement – you’re doing lots of work so “retirement” – in August 2021, one of the pieces you’re doing is that continuing education around health care leadership. What are some of the other things that you guys are working on?

[0:18:05.3] SP: Yeah, another big one is Your Breast Life. It’s a blog all around my cancer journey. And going through that at a young age, I didn’t necessarily have hope beyond what was right in front of me, and so I had to make some really tough choices. And some of them were more radical, as I wanted to just have my best opportunity to continue on. So helping women understand that there is more to life than just your diagnosis. Diagnosis doesn’t define.

[0:18:32.1] TU: Okay, so we’re going to link to that in the show notes as well, so folks can check out that blog and I think there’s another piece here around real estate, is that correct?

[0:18:39.3] SP: I got my real estate license as well, yeah. That was a fairly recent – once I stepped out of my corporate role, I ended up getting my real estate license and so that’s something that Josh and I have been talking about doing, is potential investment opportunities as he mentioned with the passive income. Looking at some syndications and various things.

[0:18:56.5] TU: It sounds like you went from a busy career to maybe a busier retirement, right? You’re doing a lot, so that’s exciting.

[0:19:02.7] SP: Yeah, so I mean the transition – I wasn’t expecting to have less time. But it’s all been things that I want to do and that’s something that’s just so enjoyable, to have those opportunities.

[0:19:12.3] TU: Shannon, was there an “aha moment” when you knew that you were at a position that you could leave your traditional job?

[0:19:18.0] SP: Josh and I definitely balance each other in this. I do a lot of the day-to-day budgeting and accounting in that and then Josh does a lot of the future planning and long-term investments.

[0:19:28.3] JP: I guess I was more of the one that said, “Okay, now we’re okay that we can do this” right? Shannon is very good as far as the accounting side of it and I handle I guess more of the finance and the planning portion of it. But again, we’ve had such a long bull pull in market and been super fortunate and blessed with our income and just the ways that we’ve been able to use that income, and then put it back into the market and see those returns.

Then understanding too that, “Hey, I still like what I’m doing.” I’m still enjoying leading people at different levels and different degrees. I’m going to keep doing this but yet, let’s also build a future too for ourselves and something that’s going to add value at a greater level than where we’re at now.

[0:20:05.5] TU: Yeah and I think Josh as you’re talking, I graduated in 2008 and so, outside of the dip of course, that significant dip that happened in the recession in 2008, I’ve only lived through a bull market, right? Here we are on kind of that 13 year-ish run and so I suspect many folks might be hearing this thinking, how are you looking at that in terms of the investments that you’ve built and perhaps some volatility that may or may not be ahead.

Obviously, we’ve been on kind of this upswing period that inevitably, we might have that downturn at some point. How are you looking at that?

[0:20:38.5] JP: Yeah, 100 percent. I’m glad you actually asked the question because it comes back to looking at different income streams and different ways that you can actually isolate yourself away from those market downturns. I don’t want to necessarily be built upon a pedestal that’s only on one foundation, right? I want to look at different ways that I can have income coming from different directions so that I could be safe and secure.

It is basically planning out different contingency plans to ensure that no matter what cycle and no matter what market, no matter what is going on within the world that there is still going to be some type of revenue. And it is kind of interesting too because we even think back to real estate and how stable it is a lot of times for income, right? “People always need a place to live” we always hear but then when we had the eviction moratorium that came up and that extended for a very long time, we had small-time landlords that were not getting any income.

But yet, they were still on the hook for the mortgages too as well. So you have to really diversify your mindset and then understand, “Well, where else can I be able to generate enough revenue to be able to be safe in any circumstance in any situation?” That’s probably been another major mindset for us too as well is that you’re probably not as much as I want to stay as efficient as possible, you are probably not going to get your entire passive income from one revenue stream. It is just not as likely and not as common as what you think.

[0:21:57.5] TU: Yeah and I think the FIRE community does a great job of talking about that examples that are out there. We’ve had a couple podcast episodes we’ve talked about on financial independence, retire early. FIRE for folks that are hearing that. For the first time, we’ve got a couple of blogs on that topic as well, we’ll link to in the show notes. And then the most recent book that we published by Jeff Climber is focused on Fire RX and that pathway towards achieving financial independence as a pharmacist.

Josh, cast a vision for us for Josh and Shannon over the next 10, 15, 20 years. What’s really ahead for you guys in terms of big ideas? Obviously, you’re still very, very early age-wise in terms of career and opportunities that are ahead, so what are some of the plans that you guys are looking forward to?

[0:22:38.2] JP: Awesome. I think for myself, I still enjoy the corporate life and I still enjoy the W2 position, so I want to continue to grow. I think that I can still lead at different various levels too as well, so I want to keep propelling along that path, learning, and growing, and then being able to motivate, inspire and lead at higher levels throughout organizations in my career.

I think about Shannon and myself together – I’d like to see the healthcare leadership certificate begin to impact a lot more pharmacists and also across different medical disciplines too as well, get that in front of people so that they can have better days because we know that a lot of times, people leave managers and bosses. They don’t leave jobs, right? How do we get that into the hands of pharmacists that are brilliant people that just need a little bit more guidance in helping them?

Then I think about YBL, that Your Breast Life and just expanding that out to have a broader sense of community across young cancer survivors in that breast cancer community. So I want to get to a point soon that where all of these different projects are completely just extra, right? That passive income that’s coming into us and then be able to give a lot more generously, I feel like the Lord has blessed us immensely with a lot of gifted abilities.

Just like in the Biblical sense that they were given ten talents, they went and made more, I would really be able to go and just give more, so that’s our big vision is, how can we continue to draw in to be able to make a bigger impact to others that we encounter and add value back to others.

[0:24:06.2] TU: Josh, as you’re talking what really resonates with me for you and Shannon, is one of the things I say is when people feel like they might be stuck, right? That could be financially, that could be in their career, I know for me individually when I get to that point where I feel like I’m stuck, I often have to go back and say, “Is the vision, is the Why clear enough? Is it strong enough?”

I think what you just shared there really highlights to me that the motivation, the why, the vision, the plan that you guys have, you spent time thinking, dreaming about that vision, and obviously that has a significant impact I suspect in terms of what you guys are doing to execute each day, each week, each month. Great stuff on the vision casting, something that we believe firmly in here at YFP of spending time to really articulate the vision and begin to believe in that vision for what can be possible going forward.

I am curious to hear from you guys and Shannon, I want to start with you and then Josh, I’ll ask you the same question. You know, we’ve got many people I suspect that are listening at different points in their career, perhaps some students or residents that are at the very beginning of their journey, maybe folks that are out seven or 10 years who are kind of coming at the end of that new practitioner phase and then more seasoned pharmacists that have been at it for 15, 20, 25 or more years.

I think this concept of financial independence regardless of stage of career is going to get a lot of people excited and thinking and perhaps that they have some goals around achieving financial independence and perhaps give or take, the retirement early piece. What advice would you have for those listening that are thinking that they would like to strive towards achieving financial independence? What would be a piece of advice that you would share with them, Shannon?

[0:25:39.0] SP: For me, I think the biggest thing would be a budget. If you are not already doing a budget, I 100 percent recommend you doing it. That was something that Josh and I did very early on in this kind of progression for us, and as he mentioned earlier, initially it was very kind of strapped and it almost became a game for us. When we both got promoted to district managers, we were making the most that we ever had, but it was how little can we live on, right?

It was kind of fun in that sense. Then like he mentioned, as we got further along, we really wanted to be more sustainable so that we could do additional things that we enjoyed. I like traveling, he likes cars, giving is important to us. So we wanted to make sure we were incorporating that into the budget. Kind of like the Tim Baker episode that you guys did with the RV and the depreciating asset, we love that, right?

You’ve still got to have some fun in there and so that was huge but just having a budget and being able to see where every dollar goes is so valuable, you know? I was overspending quite a bit on groceries because we could make the argument you need to eat, right? But had a lot of waste there and so it just gives you visibility into how you’re spending your money, which is so important.

[0:26:41.8] TU: Great stuff. Josh, how about for you?

[0:26:43.4] JP: I think it’s really important to just use whatever vehicles are available to you. One of my favorite quotes is kind of simple and it’s kind of silly, it’s “When is the best time to plant a tree?” And it was 20 years ago but the second-best time is today, right? If you’re listening to this at any stage of your career and you’re not contributing to a 401(k) company match plan, you need to do it. It’s tax-deferred and so you’re not going to pay taxes on it.

It is going to be your full income of gross coming into it and then your company is going to give you some income as well with it. Using company matches that you have too, whether it’s for stock and equity options that they have. If you have children, using 429 plans. There’s tons of different options and things out there that I really want to encourage people to just read, and just to do a moniker of research on their own to be able to find that there are different vehicles out there.

People are scared of the market. “I don’t know what to invest, stocks go up and down.” Buy the whole market. Buy VTSAX, Fidelity has a zero expense ratio plan that’s out there now, index fund that is available for people that would just be coming into it now. Look at those different things so invest as much as you can, live on as little as you can, and be as grateful and gracious as you can.

[0:27:52.7] TU: Great stuff Josh and I really appreciate you taking the time to come on the show, to share your story, to be an inspiration to those that are listening. Really excited to see where your journey goes ahead. As I mention, you’re just on the starting point of, I think, a really exciting time in many, many years ahead, so looking forward to following your journey as well as the work that you’re doing with the various side hustles, business and some of the real estate endeavors as well.

Congratulations on the success you guys have, looking forward to following you in the future, and thanks again for coming on the show.

[0:28:20.9] SP: Thank you so much for having us.

[0:28:22.2] TU: Thank you, too.

[0:28:22.9] SP: We love the YFP community, so thank you.

[0:28:24.8] JP: Thank you.

[END OF INTERVIEW]

[0:28:25.8] TU: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and it is not intended to provide and should not be relied on for investment or any other advice. Information of the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

Furthermore, the information contained in our archived newsletters, blog posts, and podcasts is not updated and may not be accurate at the time you listen to it on the podcast. Opinions and analysis expressed herein are solely those of your financial pharmacist unless otherwise noted and constitute judgments as of the dates published. Such information may contain forward-looking statements, which are not intended to be guarantees of future events. Actual results could differ materially from those anticipated in the forward-looking statements. For more information, please visit yourfinancialpharmacist.com/disclaimer.

Thank you again for your support of the Your Financial Pharmacist Podcast. Have a great rest of your week.

[END]

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YFP 234: Your Student Loan Refinancing Questions Answered

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Your Student Loan Refinancing Questions Answered

YFP Planning Lead Planner, Kelly Reddy-Heffner, discusses commonly asked questions regarding refinancing student loans.

Episode Summary

We last had our guest on the show almost two years ago to dig into the most recent administrative forbearance extension for those with student loans, where we helped you calculate your next moves before the end of that extension in January 2022. With that date right around the corner, it’s time to remove the snooze button and get prepared for those student loan repayments to start up again! Refinancing is one of many options available, and with that in mind, we sit down with our very own Kelly Reddy-Heffner, to cover commonly asked questions about refinancing student loans. Hear how the end of the administrative forbearance period impacts one’s decision to refinance, what to look for when considering various refinancing options, and some hugely important points on consolidation. We also dive into what you may be giving up and gaining when moving your loans from the federal to the private systems through a refinance and who should and should not consider refinancing their loans. Kelly also shares some valuable insight on rates in the current climate, partial refi’s, income-based repayment options, and some crucial questions to ask your servicer. This episode has all the answers you need; tune in now to get empowered on your refinancing journey!

Key Points From This Episode

An introduction to Kelly Reddy-Heffner, and recapping her previous YFP episode.
How it’s a complicated decision to choose the right repayment plan for you.
The two distinct categories of who refinancing is not a good fit for.
A reminder that refinancing is a one-way street from federal to private.
Do checking rates impact my credit score? Be aware of the language used!
Unpacking the option of refinancing more than once.
Reading the fine print on what happens to the loan in the event of death or disability.
Picking a time horizon and monthly payment amount that’s doable.
Fixed-rate or variable? Kelly recommends what to do in the current climate.
We break down the difference between consolidation and refinancing.
Pursuing income-based repayment options, and some challenges with private loans.
Hear about a partial refi of a federal loan.
We reflect on some of the past rates etched in Tim’s mind from his repayment journey.
Thoughts on the upcoming end of administrative forbearance and unlikely extensions.
Kelly shares some parting advice for December that we all need to hear!

Highlights

“It is time to really be prepared and to expect those loan payments to start up again.” — Kelly Reddy-Heffner [0:03:14]

“That interest rate that you’re offered is based on your creditworthiness. Unlike in the federal system where it’s a set rate for the year and it’s predetermined in the private market, it is based on your overall capacity to take on that debt and to pay it off successfully.” — Kelly Reddy-Heffner [0:08:19]

“We recommend picking a time horizon and a monthly payment amount that is doable. We love to see people push a little bit to be able to accelerate that repayment and get it done as quickly as possible, but it doesn’t make a ton of sense to walk into a loan that just isn’t doable.” — Kelly Reddy-Heffner [0:11:35]

“Be knowledgeable. It is time to look at everything with a clear open mind and use the information that we have available at present to make a good decision about if this is a good move for you and the student loans.” — Kelly Reddy-Heffner [0:24:09]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

[0:00:00.4] TU: Hey everybody, Tim Ulbrich here and thank you for listening to the YFP Podcast, where each week, we strive to inspire and encourage you on your path towards achieving financial freedom.

This week, we got a chance to sit down with YFP Planning lead planner, Kelly Reddy-Heffner to talk about commonly asked questions with refinancing student loans. During the show, Kelly and I talked about how the end of administrative forbearance period impacts one’s decision to refinance, what to look for when considering various refinancing options, what you may be giving up and gaining when moving your loans from the federal to the private systems through a refinance, and who should and should not consider refinancing their loans.

Those that are itching to learn more about refinancing student loans, you can head on over to yourfinancialpharmacist.com/refinance, where you can look at current offers, calculate projected savings and download a copy of our free refinancing worksheet to compare multiple offers.

As we wrap up another year of this show and are knee deep into the planning for 2022, I want to say thank you to the YFP community for entrusting us with your time by listening to this podcast. We don’t take for granted your support and encouragement of the work that we are doing at YFP to help pharmacist on their path towards achieving financial freedom.

Also, a big shout out to the YFP team members, Katelyn Boyle and Rose Mercado who are the engine behind making the YFP Podcast a reality each week. Katelyn and Rose, your contributions to the team and the YFP community are truly appreciated.

[INTERVIEW]

[0:01:35.1] TU: Kelly, welcome back to the show.

[0:01:36.5] KRH: Thank you for having me Tim.

[0:01:38.3] TU: Before I put you on the hot seat and rapid fire some common refinance questions for you to answer, give us a brief introduction of yourself and your role at YFP Planning, for those that may not have heard you on a previous episode of the podcast.

[0:01:51.3] KRH: I am one of the lead planners here at YFP and have the privilege of working with clients to do comprehensive financial planning. I’ve been with the firm over a year now, I just celebrated my one-year anniversary, which was great. And I certainly am very passionate about these student loan topics today, talking about refinancing as a potential option fits right in with that conversation.

[0:02:19.9] TU: I suspect we have some team Kelly clients that might be listening saying, “Hey, that’s my planner” so shout out to team Kelly that’s listening. We’re certainly super grateful to have you as a part of the team. So we had you last on the show on episode 220 when we talked about the most recent administrative forbearance extension. And on that show, we talk through how those with student loans should be calculating their next moves prior to the end of that extension, which we now know is at the end of January 2022.

Here we are, about a month away and we’ve had the snooze button on student loan payments for almost two years. Kelly, is this really happening, are we going to be back in action here?

[0:03:01.7] KRH: I sadly think it is and isn’t it funny? I was thinking, when did we first start talking about this but right, it seemed like it was so far in the distance. But I do believe we are here. It is time to really be prepared and to expect those loan payments to start up again.

[0:03:22.4] TU: We have discussed many times, emphasis on many, student loan repayments on the show and we’ve talked about how it really is a complicated decision. There’s lots of options, right? We’ve got all the options in the federal system including the standard tenure repayment, extended fixed graduate host to the income driven repayment plans.

Furthermore, we have forgiveness options, both public service, non-public service loan forgiveness and as we’ll discuss today, the various options you have outside in the private sector through a refinance. All that to say, the decision can be complicated in terms of student loan repayment plan that’s best for your personal situation. I really do believe it’s worth the time and the effort to make sure that you’re evaluating all of your options.

With that in mind, remembering that refinancing is just one of the options, let’s dig into some common refinance questions. Kelly, are you ready?

[0:04:12.6] KRH: I am ready.

[0:04:13.1] TU: All right, here we go, number one, who should not refinance their student loans or who should consider at least that this may not be the best move for them?

[0:04:21.5] KRH: I would say, there are two distinct categories of who this is not a good fit for at present. Of course, if you’re working for a nonprofit or a qualifying employer to receive public student loan forgiveness, then this is not a good option. That usually is a competitive strategy when we match that up against all other options, so that at least needs to be strongly looked at as an option if you work for a qualifying employer. As a subset of that, I think if you run the numbers and non-PSLF forgiveness is compelling, then I think that that would be a reason not to refinance as well.

I will say, the other area which is kind of a little bit of an interesting nuance in our current workplace environment is, if you are thinking about leaving your job or changing your job to the point where you might have lower income or are unsure about the consistency of your income. Then I would not rush into a refinance either, and we’re seeing a little bit of transition happening right now I think.

[0:05:34.4] TU: Good points and I think all of that is a good reminder that refinancing is a one-way street from federal to private, right? We ain’t coming around the corner, back into the federal option ones, we go down that pathway, we’re there. Some of the doors that you were kind of alluding to that we might want to keep open for certain folks, we need to be evaluating that before we pull the trigger on refinancing.

Kelly, number two is, will checking rates impact my credit score? I get this question a lot because one exit we recommend for folks that have determined this is a potential path forward is to do the work to go out, shop around, compare rates. And I think that naturally raises the question as, what impact is that going to have on my credit score?

[0:06:11.5] KRH: Yeah, again, we want to make sure people’s credit scores are healthy because it impacts other things. Getting a requote in general should be a soft inquiry, so those soft inquiries aren’t specifically related to an application for credit, so those are recorded differently on your credit score. They’re noted but they should not have an impact on the overall number.

Now, actually, applying, getting approved – and sometimes the language is a little bit interesting. I looked up one of the loan servicers recently and it does give a disclaimer that by checking this box, you’re kind of giving the green light to have some type of credit checked.

I think when we see that type of language, you should assume that there could be a little bit of an impact, it should be minor, that hard inquiry for a period of time. But that’s why we say the kind of group, the shopping together too is supposed to work where if you do a number of inquiries and close proximity to each other that is going to count as one. Similar to shopping for a mortgage rate as well.

[0:07:21.3] TU: If folks go to our refinance page, yourfinancialpharmacist.com/refinance, we have a spreadsheet that you can download that will help you as you’re shopping and comparing some of those rates especially if you decide to bunch those together as Kelly just mentioned.

Kelly, another common question is, can I refinance more than once? What about the opportunity to re-refinance, perhaps because rates have changed or there might be some bonus offers out there or combination of things, what are the opportunities here to look at refinancing more than one time?

[0:07:49.8] KRH: Sure, yeah. It is an option to refinance more than once, like you are not locked into that rate for an indeterminate amount of time. You should be shopping around when you know that rates are lower, the refinance again is based on wanting to get a lower interest rate. If you’re still in the four and 5% range, current rates are lower than that.

Now, I will say, that interest rate that you’re offered is based on your credit worthiness. Unlike in the federal system where it’s a set rate for the year and it’s predetermined in the private market, it is based on your overall capacity to take on that debt and to pay it off successfully.

It is a little less work than a mortgage as well to refinance a mortgage. I do encourage people to look for those lower rates and to make a change. Even a couple of points can make a big difference in overall what you pay over time.

[0:08:56.4] TU: Yeah, we’ve got a calculator as well and this is you know, great place that folks are shopping around to think about too, “What’s the repayment timeline and the impact of the rate?” Shorter timeline to payoff, obviously, the difference of savings versus a longer time to payoff might be greater, depending on the rates. So, considering that as you’re shopping around rates.

Kelly, one of the common concerns I hear is, “Hey, when am I going to be giving up, when am I going to be losing by leaving the federal system, especially if this is a one way street?” And we often talk about that when it comes to the federal loans, if someone were to unexpectedly pass away or become permanently disabled, there’s some protections there, but what about in the private system? Will loans be discharged if one passes away or becomes disabled?

[0:09:39.9] KRH: I’m heading into typical financial planner territory and giving the Tim Baker answer of, it depends. I think this was a mail bag question about maternity benefits and cause payments a little while back. So similar to that answer, in case anyone recalls that, it really does depend on the loan servicer, but we are seeing a lot more private lenders give those provisions a discharge at death or disability.

So that is something that I would say is appropriate to be asking the lender and reading the fine print, and making sure that you do select a loan that not only is a competitive interest rate wise but also has some of those other features that help you feel more comfortable about making the change. And they do exist out there but not with every lender.

[0:10:35.0] TU: Absolutely and you’ll see that, we have some of that listed on the refinance page but to your point, it really does depend on the lender. And for folks that find themselves, maybe they refinanced, historically, they’re listening to this and are coming to realization, “Hey, I didn’t know that I’m currently working with a company where I don’t have those protections.” A great example of where student loans can intersect with other parts of the financial plan. So, thinking about life, disability insurance policies if that’s the case in your situation, “Can I pay extra towards my loan? If I want to be able to pay these off quicker, can I pay off more each month and is there going to be a penalty incurred if I do that?”

[0:11:10.4] KRH: Yeah, it’s very unlikely to see a loan in the current market space where there would be a penalty for prepayment or accelerated repayment. But again, all in the fine print, all in the details, perfect question to ask as you are considering a refinance. But in general, the answer is yes, you can pay extra. We do encourage when we’re talking to clients about refinancing, we recommend picking a time horizon and a monthly payment amount that is doable.

We love to see people push a little bit to be able to accelerate that repayment and get it done as quickly as possible, but it doesn’t make a ton of sense to walk into a loan that just isn’t doable. It’s really important to make sure that you pick a monthly payment, a term that makes sense and then right, if you have some extra that you can put towards that, yes, whether hopefully or a lump sum at the end of the year, anything will help reduce the overall amount of interest that you pay on the life of the loan.

[0:12:20.8] TU: You can always make extra payments, right? You can’t not make the minimum payment. So, good insights there, I think. Fixed or variable? This is an important question because of how these refinance options are presented, where folks might be looking at, “Is it fixed, is it variable, how do I make that decision?” And then even just thinking about the nature of the variable rate and some of the uncertainty that may come from there.

Knowing this is – and it depends, I’m certain, on one’s personal situation. What are some of the things that you’re thinking through, or asking some questions of a client that might be planning, when making this decision around fixed or variable?

[0:12:54.4] KRH: Well, in definitely, the current interest rates are a big component on decisions so we’re at h historically low rates right now. I would lean towards – and again, it does depend on the individual circumstances, but lean towards a fixed rate because the likelihood of a rate being lower in the future is probably not really likely in our current environment.

If you are going to consider a variable rate, again, the attention to detail is extremely important because you need to know the fine print. How frequently will the rate change or could change by how much, and is there a cap on how high the rate can go? So usually, variable rates are when rates are higher and we’re hopeful that they’ll go down in the future. So we kind of lock in something lower and keep looking for a lower rate. But right now, with fixed, they’re pretty low.

Depending on the circumstance, I would lead towards getting that lowest rate locked in for the duration of the loan.

[0:14:04.0] TU: Kelly, refinancing versus consolidation. I often will get questions from folks when we present on student loans and they may be using the terms consolidation but might mean refinancing. Just break this apart for a moment of what the difference is between refinancing and consolidation?

[0:14:20.8] KRH: Sure, so when you have federal loans, often we’re taking loans out, different semesters. When you graduate, you have potentially ten separate loans going on, maybe even more than that. Consolidation is, you’re taking those federal loans and you are consolidating them into one or two loans. Usually, it’s broken down into subsidized, unsubsidized, for convenience. It doesn’t impact the interest rate of anything. It’s kind of the average of the interest rates and it’s rounded up a little bit, so it’s not improving the interest rate on the consolidation side.

A refinance is you’re either taking those federal loans and you are refinancing them into the private market, so you are moving them from federal to private, or you have existing private loans and you’re refinancing them into other private loans.

Again, as you said already Tim, which cannot be emphasized enough, going from federal to private is a one way transaction. There is no turning back and again, consolidation is a little bit of a one way transaction as well. You can’t un-bundle the loans then. Consolidation can be helpful if you’re staying in the federal system to qualify for loan forgiveness programs or certain income driven repayment plans. We often consolidate to open up federal options. We often refinance to get better interest rate.

[0:15:53.8] TU: Just a really good reminder Kelly, I have talked to a few folks in the last few weeks that, where I could tell they were ready to pull the trigger on either a refinance or consolidation but they weren’t yet fully aware of the implications of what that decision was going to mean, and what that ultimately may lead to in terms of other repayment options and pathways not being open to them anymore.

Just a good opportunity to take a step back, make sure we’re looking at all the options around the table and then of course, refinancing and consolidation may or may not be a part of that path forward. Are income-based repayment options available? Obviously, we know that many pharmacists, especially those that are perhaps making that transition from student or resident to a new practitioner, income-based repayment options allowing for that payment as they ease into that bigger income and bigger payments. Are those something that they can pursue also on the private side?

[0:16:46.0] KRH: Unfortunate that is not a feature of private loans and that is why when I said the categories of people that should not jump into refinancing, this is exactly that reference. Just the option to have income-driven repayment gives that flexibility if there is a period of time where you’re not working or income has decreased. You can re-certify your income within those income-driven repayment plans using a statement, and have that payment re-evaluated and probably lowered based on that new income amount.

That’s the challenge with the refinance is, there could be some provisions for unemployment but there is not a system for, “I’m working less” or “I am working different hours.” And we’re seeing a lot of flexibility, we have – many of our pharmacist clients have seen an increase in those per diem hours, different overtime. You know, if that is fluctuating quite a bit and changing, make sure, if you’re going to refinance, you do pick that right term that fits what you know your income is going to be. Because those private plans don’t have that flexibility.

[0:18:04.7] TU: That’s a great point Kelly. I was talking to a pharmacist earlier this week that is working part-time with variable night shifts, day shifts and that’s income is fluctuating, so really important consideration. The other thing I think you might have been eluding to is, we’re seeing a lot of pharmacists that are out there picking up extra shifts with COVID vaccines and other things, so if that were to change and hours were to come back down, that could have some implications as well.

A good reminder of the value of those income-driven options inside of the federal system. What about a partial refi of a federal loan? Maybe not all of them for whatever reason but can I do a partial refinance of my federal loans?

[0:18:41.4] KRH: This probably would not have been a common question prior to the conversation starting about a potential loan forgiveness, like in bulk amount. Once that became a new story, I think there’s been a fair amount of conversation like “I want to leave a little bit on the federal system to just in case, you know, $10,000, $25,000.” We have not heard a lot more conversation about that towards the end of the year.

[0:19:14.6] TU: Yeah, it’s been quiet.

[0:19:15.9] KRH: Yeah, it has been very quiet so I don’t know if that would really happen. And there probably will be some criteria in place, potentially, for who would qualify for that. But, in general, if you’ve already consolidated your loans, then no. You’ve bundled them, you really can’t separate them out. If they are still individual, then you have the potential to explore if you want to maybe refinance the highest rate one, or a combination to see what really would work out the best.

We do see some of those loans, depending on the year they were taken out, on the federal side, could be in the 3%, 4% range. Again, if you’re shopping for a refinance rate and the rate is in the threes, you know then maybe you’re taking a 6.8% federal loan and into the private side, but if you have like a 3% or 3.5% loan on the federal side, then maybe you’re sticking on the federal side for some of those loans.

We don’t like to overcomplicate strategies, try to keep things simple, straightforward, so just keeping that in mind as a component though. You want to make sure everything is easy to make the payment on time, where does the payment need to go. But yes, we do get asked that. I do think it’s a question that has come up because of the current environment, with the possibility of that bulk forgiveness but I cannot say that that is going to happen at this point either.

[0:20:49.5] TU: Yeah, it has been quiet. And, interesting, Kelly when you said 6.8% as an example, it still makes me squirm in my seat. That was many of my federal loans in my debt repayment journey where it’s 6.8% so thank you for bringing up those negative memories. But good example of what that may be.

[0:21:05.5] KRH: Tim, I forgot. I know, well, I think it is – everyone’s like that 6.8%, it’s so high. It competes with a credit card rate. Yes, I apologize though. I don’t want to send you back to a dark space.

[0:21:21.3] TU: No, it’s just interesting, like I can see it on the screen, you know? It’s just amazing how those get etched in your memories. But the story at the end was good, so that’s all positive. The last question I have for you, perhaps the one that many folks are thinking, and knowing it certainly depends on one’s personal situation, but we’re coming up at the end of the administrative forbearance coming around the corner, and so this question of timing.

When should I consider refinancing with the upcoming end? I think there’s been some rumblings all along for good reasons about, will there be an extension coming? And that happened and then it happened again, and it looks like as you mentioned earlier, here we are at the end. So this timing of refinancing is, I suspect, one that we’re going to see a lot of folks asking here in the next month.

[0:22:03.8] KRH: Yeah, how amazing that when we started talking about it again, it seemed like so far in the distance. I don’t see any indications of payments not restarting. In fact, I would recommend that people follow up with their loan servicer and inquire, like we know the forbearance is ending in January. We’ve definitely seen people’s payments starting anywhere from February through July depending on how they had made their last couple of payments or if they made any payments during the COVID forbearance.

Check in with your loan servicer, reconfirm when that payment is going to start. I think it probably is time for the New Year to shop the rates. Right now, I kind of double check to see what they look like for maybe six months ago, and I’d say there’s still competitive and still similar. Those shorter term rates, like five and seven years, look like a little bit lower than even six months ago. But longer term like 10, 20 year looks slightly higher, but again, still well within the two and half to 3.4%.

Again, it does depend on your credit, what rate you get but I think it’s at least time to start asking the question and maybe work through the numbers. Evaluate how likely you are to qualify for a non-PSLF or PSLF forgiveness program. And it is always about that mindset too. I think we’ve spent a lot of – I hope we’ve spent a lot of the last, is it 18 months now? I feel like I’m still saying a year and a half but I think we’re creeping towards two years.

[0:23:48.3] TU: Almost two years, yeah.

[0:23:49.7] KRH: Somewhere in that timeframe, wherever you’re at emotionally with this, you know we’ve been in a little bit of a hiatus. Hopefully, people have been saving, paying down any other debt that they had or making great other choices along the way. Maybe they were able to do a home purchase, do some other things. So now, get the information. Be knowledgeable. It is time to look at everything with a clear open mind and use the information that we have available at present to make a good decision about if this is a good move for you and the student loans.

[0:24:25.9] TU: Great stuff Kelly. I really appreciate your insights here on this episode and previous episodes, and the work that you do with many of our clients at YFP Planning. Not just on student loans, but obviously this being one part of the financial planning, and an important for many folks and how it fits in with other pieces of the puzzle.

If folks are looking to take action on what they have heard today and specifically for those that are looking to make a move on refinancing or inquire more information, you can head on over to yourfinancialpharmacist.com/refinance. There you can look at current offers, start to get some quotes, run some calculations on potential savings, and as I mentioned previously, download the spreadsheet that we have that we can use to compare multiple offers.

For those, secondly, that are looking for more information about which option to pursue, again refinance being just one of the many options to pursue, we have a student loan analysis service that is intended to do exactly that and that more information is at yourfinancialpharmacist.com/sla. And really the purpose of this is that you would work one-on-one with one of our certified financial planners, so that you could look at all of your options and confidently choose a plan that will save you the most money and align with your financial goals.

Again, yourfinancialpharmacist.com/sla. You can learn more information there and if you use the coupon code “yfp” that is good for 10% off. Kelly, thank you so much. I really appreciate you coming on the show.

[0:25:45.1] KRH: Thank you Tim. And I know it is hard in December, but start putting the money aside if you haven’t started doing that. The runway is starting to close in, so go ahead. December is a nice extra little bit of a challenge to top that student loan payment aside into a savings account, but getting back into the habit is important so it’s definitely time to do that.

[0:26:12.2] TU: Absolutely. You say that so gently but it’s so important. Yes, we need to be getting back into the rhythm, the habits and get ready for what we’ve got. A little bit of time to get ready but it’s going to be here before we know it. So, Kelly, thanks again. And to the community, we really appreciate you joining and we hope you have a great rest of your day.

[0:26:25.7] KRH: Thanks Tim.

[END OF INTERVIEW]

[0:26:27.3] TU: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and it is not intended to provide and should not be relied on for investment or any other advice. Information of the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

Furthermore, the information contained in our archived newsletters, blog post and podcast is not updated and may not be accurate at the time you listen to it on the podcast. Opinions and analysis expressed herein are solely those of Your Financial Pharmacist unless otherwise noted and constitute judgments as of the dates published. Such information may contain forward-looking statements, which are not intended to be guarantees of future events. Actual results could differ materially from those anticipated in the forward-looking statements. For more information, please visit yourfinancialpharmacist.com/disclaimer.

Thank you again for your support of the Your Financial Pharmacist Podcast. Have a great rest of your week.

[END]

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YFP 233: Tax Moves to Consider Before 2022

Posted on by yfpadmin

Tax Moves to Consider Before 2022

On this episode, sponsored by APhA, Paul Eikenberg, YFP CFO and Director of YFP Tax, discusses how pharmacists can optimize their tax strategy.

Episode Summary

As we approach the end of the year and will soon enough find ourselves amid tax filing season, it’s a great time to revisit end-of-year tax strategies and considerations to optimize your tax situation. Today on the Your Financial Pharmacist Podcast, host Tim Ulbrich sits down with IRS enrolled agent and our own Director of YFP Tax, Paul Eikenberg, to discuss how pharmacists can optimize their tax strategy. Paul has supported hundreds of pharmacists in tax filing and tax planning to maximize their deductions and avoid overpaying. Today he kicks us off with the important distinction between tax planning and preparation, as well as why it’s worthwhile to understand key numbers such as marginal tax rates and AGI. You’ll hear him describe common tax blunders he sees pharmacists making and how to avoid them, including realizing an unexpected balance due on April 15. We cover some of the factors that contribute to that making non-qualified IRA or 401(k), 403(b) contributions and missing key deductions in credits, and the listener gets a look into the two exciting tax services we have on offer to help pharmacists looking for a tax preparation and/or tax strategy and planning solution. To top it off, we’ve even got a comprehensive tax checklist for you to get the absolute maximum out of your tax benefits. This is one conversation you don’t want to miss.

Key Points From This Episode

Paul and Tim catch us up with some exciting happenings in the YFP tax team.
Understanding the important difference between tax preparation and tax planning.
Differentiating your marginal tax rate and effective tax rate as a decision-making tool.
Paul explains the implications of AGI and how to arrive at that number.
Touching on the complicated system of student loans and pursuing loan forgiveness.
Some common tax blunders that you should look out for!
Key credits and deductions that you might not be taking advantage of.
What is going to be available moving forward with child-care and dependent care.
Explaining donor-advised funds and a potential strategy around bunching.
Two exciting tax services: reporting only and year-round planning and reporting

Highlights

“Make sure your tax exposure and your tax strategy line up with your financial goals. The biggest thing that tax planning really does is provide some peace of mind that you’re not making mistakes and that you’re making good decisions.” — Paul Eikenberg [0:08:05]

“Our best practices with YFP is to advise people to, instead of putting the money in the [retirement] funds during the course of the year, put it into an investment account.” — Paul Eikenberg [0:23:26]

“The rules on business expenses are, they have to be business-related, ordinary, necessary, and not extravagant. Ordinary is, if someone else is doing the same type of business, they’re going to have the same type of expenses necessary.” — Paul Eikenberg [0:25:09]

“The donor-advised fund makes it easy to [maximize tax benefits]. Then, you can spread that money out and make the donations from the fund you control. It’s like having your own foundation.” — Paul Eikenberg [0:34:36]

Links Mentioned in Today’s Episode

End of Year Tax Checklist

Project your income, taxes, and withholding
Maximize your HSA contribution
Know your FSA carryover limits and spend accordingly
Consider 529 account contributions
Document side business expenses – Mileage Logs**
Have and execute a charitable contribution strategy
Correct any over contributions to 401K/403B/IRAs
Manage your capital gains
Look for IRS Letter 6419 Advanced Child Credit & Notice 1444-C
Have a system for organizing your tax documents
Select & engage your tax preparation method

Episode Transcript

[INTRODUCTION]

[00:00:00] TU: Hey, everybody. Tim Ulbrich here, and thank you for listening to the YFP Podcast, where each week, we strive to inspire and encourage you on your path towards achieving financial freedom.

This week I had the chance to sit down with YFP Director of Tax and CFO, Paul Eikenberg to discuss how pharmacists can optimize their tax strategy. Paul’s an IRS enrolled agent and has supported hundreds of pharmacists in both tax filing and tax planning to maximize their deductions and avoid overpaying. As we approach the end of the year and will soon enough find ourselves in the midst of tax filing season, it’s a great time to revisit end-of-year strategies and considerations to optimize your tax situation.

Some of the highlights from my interview with Paul include him explaining the important distinction between tax planning and preparation, why it’s important to understand key numbers such as marginal tax rates and AGI. Hearing him describe common tax blunders he sees pharmacists making and how to avoid them. Some of these blunders include realizing an unexpected balance due on April 15, and some of the factors that contribute to that making non-qualified IRA or 401(k), 403(b) contributions, and missing key deductions in credits. Finally, hearing Paul’s end of the year to-do list, your notes already prepared and ready to go for you to take action.

Before we hear from today’s sponsor and then jump into the show, at YFP, we know that filing your taxes and figuring out how to optimize your tax strategy can be overwhelming and stressful. That’s why YFP Tax has opened up its tax filing services to 125 additional pharmacist households this year. Unlike other firms, YFP tax isn’t focused on just completing your tax return. Instead, they provide value care and attention to you and your taxes. Because they work specifically with pharmacists, they’re familiar with aspects of your financial plan to have an impact on your taxes like student loans, benefit packages, side hustles and more. You can visit yourfinancialpharmacist.com/tax to learn more and to put your name on the waitlist. Again, that’s yourfinancialpharmacist.com/tax.

Okay. Let’s hear from today’s sponsor and then we’ll jump into my interview with Paul Eikenberg.

Today’s episode of the Your Financial Pharmacist Podcast is brought to you by the American Pharmacists Association. APhA has partnered with Your Financial Pharmacist to deliver personalized financial education benefits for APhA members. Throughout the year, APhA will be hosting a number of exclusive webinars covering topics like student loan debt payoff strategies, home buying, investing, insurance needs and much more. Join APhA now to gain premier access to these educational resources and to receive discounts on YFP products and services. You can join APhA at a 25% discount by visiting pharmacist.com/join and using the coupon code, YFP. Again, that’s pharmacist.com/join using the coupon code, YFP.

[INTERVIEW]

[00:02:54] TU: Paul, glad to have you back on the show.

[00:02:57] PE: Hey, Tim. Good to be here.

[00:02:59] TU: Question, are you ready for another tax season? Feels like we – you, really, and the team just wrapped up things from last year. It’s been a busy year, right?

[00:03:07] PE: That’s how it feels too. We just finished October 15th, the last of our extensions and are trying to build the capacity this year to do all our internal returns and 125 more.

[00:03:22] TU: That’s exciting stuff. In addition to the work that you’re doing as the director of tax and leading that initiative at YFP, the team is also growing. We’ve got some folks that are coming on board. Tell us about those exciting developments.

[00:03:34] PE: Aurielle was coming on board full time this year. She worked with us last year as a contractor and I’ve worked with her in a previous business venture. Really excited to have her come on board, and help smooth out the processes and build capacity to do more returns. Then Ryan Griffin, who’s a pharmacist and loves to do taxes on the side is coming back this year and working with us again. We’ll be adding some – one or two other contractors that we’ve talked to this year are interested in joining our team. It should be a good group to increase the capacity and help us do a better job for more people.

[00:04:23] TU: I know. Tim and I are super grateful for your contributions to what has made the service that it is today for the other folks you mentioned, Arielle and Ryan. We really believe that tax for obvious reasons, we’re going to talk about much that on the show today is such an important thread of the financial plan. That tax planning and preparation is really best if we embed that into the financial plan and can consider that, both looking back in the filing as we’ll talk about, but also in more the planning, and look ahead and the strategy side of it.

That’s the theme for today’s show, how to optimize your tax situation. Great time, as I mentioned in the introduction, end of the calendar year. Some opportunities to wrap some things up, get some momentum in the new year. We’re going to talk through some of the differences of tax planning and prep, key numbers and terms to understand, some commonly made blunders. We’re certainly not going to address all of these. Some strategies and then a checklist of things to do before the end of the year.

Paul, kick us off. I think, really, with this first part which is the theme, as we think of the others, and this really highlights the intentionality of thinking about taxes. Not only looking backwards, and doing the filing, and the preparation, but also more of the proactive planning. Tell us about the difference between tax planning, tax preparation and why that difference is so important.

[00:05:44] PE: Tim, the way I like to look at it, tax preparation is just historically recording what happened last year. We as tax preparers take your information, prepare a return. There’s not much of an opportunity to have an impact on your tax liability. There may be a couple of things we can do when preparing your taxes that you can adjust before April 15th. But it’s really difficult to have much impact on the tax liability during that period of time. You have to understand that when you’re dealing with tax preparation, it’s really deadline driven. When we get into February, March, and April, we’re working every hour trying to complete returns, chase down information, review and file.

There’s not as much time to pay attention to what could have been done, look at future strategies and really think through how to improve the situation. One of the frustrating things on our end is, when you’re preparing a tax return, that’s the time a lot of problems pop up, and are discovered and it’s too late to fix a lot of times there.

You contrast that to thinking about tax planning’s forward focus. For our clients, we do a lot of tax projections in the middle of the year or towards the end of the year. That’s a great time to look for things that can have more impact on tax liability. It’s just like financial planning. If you’re making the right decisions, they compound over the course of years. Tax savings builds, it helps put more money in your investment and savings accounts. It can help you leverage the income you have if you’re making the right tax choices. The best time to do that is not during the tax filing season.

From planning, we help people avoid common mistakes. Make sure your tax exposure and your tax strategy lines up with your financial goals. The biggest thing that tax planning really does is provide some peace of mind that you’re not making mistakes and that you’re making good decisions about how you’re approaching all t he tools you have to mitigate your taxes.

[00:08:27] TU: Yeah. I think our community will appreciate working and living in the healthcare environment, where we see the importance and value of preventative health care versus that that’s more reactive. We think about tax preparation, got to do it, it’s required, right? Or else the IRS is going to come knocking on the door. The tax planning may not have that same priority in terms of that requirement, but so important in terms of that strategy and what that can mean to the rest of the financial plan. As well as Paul mentioned, the peace of mind.

Paul, as we think about key numbers that folks need to know, certainly there’s a lot that we could talk about here. But I think starting off with differentiating marginal tax rate and effective tax rate is really important because these are terms that we throw around. We’ll talk about AGI here in a moment, adjusted gross income. But I think when people are hearing about certain strategies and benefits, or maybe they’ve been told by a preparer before about what their tax rates are, may not have a full understanding of what that term means. And then what the implications are of how to use that or how helpful it is or is not as a decision-making tool. Define for us marginal tax rate versus effective tax rate, and specifically why that marginal rate is an important decision-making tool.

[00:09:40] PE: Well, let’s start with marginal rate. The marginal tax rate, think of it about as the percentage of tax you’re paying on the last dollar you earned and the next dollar you earned. There’s a lot of misconceptions on how the tax brackets work. Most pharmacists are in the 24% or 32% tax bracket. That doesn’t mean you pay 24% on all your income. You’re being taxed at 10% for some, 12% for the next layer, 22% for another layer and then you’re paying 24%. They average out to what’s commonly known as an effective tax rate. Think of effective as the average tax rate.

But the marginal rates, really the number when I talk to people, that’s the number I want them to remember. What is your marginal tax rate? Because that’s your decision-making number. If you want to make a charitable contribution, if you’re in a 24% federal tax bracket, $100, that’s deductible to a charity, you’re going to save $24 in tax. It helps make decisions on traditional versus Roth contributions. You’ll understand what the tax ramifications are.

Today, HSA contributions would save you in taxes. Just having that marginal tax rate, knowing what it is helps make a lot of decisions on earning more money, or how the deduction is going to affect you. When I talk to our clients, that’s one of the most important numbers I want them to remember is where they fall in that marginal tax rate.

[00:11:33] TU: In ballpark numbers, Paul, knowing that, of course, it’s dependent upon one situation, whether or not they live in a state where there is tax or is not. Ballpark numbers, what do you see in terms of many of the clients from a tax perspective of the marginal rate and the effective tax rate?

[00:11:52] PE: When we looked at federal alone, a high percentage of our clients are in the 24% marginal tax rate and see their effective rate in the 17%, 18% area. State taxes, you can live in Florida, Tennessee, Texas and you have zero income tax. California, you see people 9%, 10%. Maryland, when you add in the local tax, you’re up to eight. It’s everywhere between 0% and 10% for the states. You need to calculate that in with the federal for really what your marginal rates are going to be.

[00:12:40] TU: I think the other key number for folks to make sure we’re defining and thinking about the implications would be AGI. When I think of AGI, everyone has likely heard of whether it’s considerations around student loan payments, or phase-outs for certain credits or deductions. Often, those are referenced according to someone’s AGI and the phase-outs based on AGI or adjusted gross income. Paul, tell us what is the AGI. How does that connect to one’s income and what’s subtracted from the income to come up with the AGI and then some of the reasons why that AGI number is so important?

[00:13:18] PE: Let’s talk about what the income is. Gross income, you add all your wages, dividends, interest, if you have capital gains, side business income, any money you’re bringing in, typically gross income. They’re what’s known as above-the-line deductions. The most common things we see are HSA contributions, 401(k), 403(b) contributions. They reduce your AGI. Reduce that gross income, gives you the adjusted gross income. Teachers will see some educator expenses. Residents will see student loan interest that can come off of there. But those are commonly referred to as above-the-line reductions and affect the AGI. You take all that income, reduce them by the above-the-line deductions and you get your AGI.

Now, where we see that really come into effect are student loans, where payments are based on income and will also lower AGI, lowers your payments. Lower payments increase the value of the forgiveness program. They do have a big effect on a lot of pharmacists. It’s a number that we work with people to manage as best they can. Make sure they’re using all their tools to take advantage of those programs.

The other thing you’ll hear a lot are phase-outs. This year, the child credits get reduced when a married filing joint couple’s AGI is above $150,000. You start to phase out there. Child care credits, start phasing out or phasing down. They don’t phase out at $125,000 AGI.

There are a lot of things we see our clients are affected by AGI. There are cases where contributing a little bit more to an HSA or make more into a retirement program can not only affect that marginal rate you’re paying, but can substantially affect some of the credits that would be available to you. The other thing that AGI is a factor in, is your long-term capital gain rates. It’s an important number to manage and work into your tax strategy.

[00:16:03] TU: Yeah. Paul, a couple of things I want to highlight that you said that are really important. Your comment just a moment ago about depending on where you’re at with AGI and some of the phase-outs, it might be helpful to make an HSA contribution, 401(k), 403(b). Obviously, depends on someone’s personal situation. But that highlights what we just talked about a few moments ago of really the differentiation between the preparation and the planning.

If we’re simply going through that preparation and we realize what’s been – and perhaps it’s too late, maybe we make an adjustment for the future. But if we’re planning and proactively looking ahead, we have an opportunity to project where those rates are going to be. And then what are some of those levers that we could pull to really maximize that situation.

The other thing I want to mention to make sure we don’t gloss over, and I think we’ve done so much of this at clients at YFP Planning that perhaps we take it for granted, is that student loans for good reasons, they’re very complicated. Unfortunately, the system is probably more complicated than it needs to be. Tax preparers and accountants may not necessarily be really well versed in student loan repayment strategies, and the intersection of the student loan repayment strategy and tax planning and preparation. We’ve gotten that feedback so many times, of folks that may have talked with someone else and didn’t understand the student loans or got conflicting advice. I think, really making sure for folks specifically that are pursuing loan forgiveness, that you’re really considering how that tax strategy is interfacing with that student loan repayment. Because there are some situations that, filing separately versus filing jointly, that may not be intuitive from a traditional tax planning preparation standpoint, do make sense when it comes to loan forgiveness.

[00:17:41] PE: Yeah. It will almost always cost you more in taxes to file separate. But there are so many cases that we deal with the savings and the benefits on a student loan, just more than make up for it. Substantially more than make up for it in some cases.

[00:18:00] TU: Next thing. Paul. I want to pick your brain on was, some common tax blunders that you’ve seen and things that folks may be on the lookout for. We’re not going to go through an exhaustive list or we’d be here for a long time. But a few things I want to highlight, probably one of the more common things I think we see, and perhaps leads to some headaches for those that are going through the filing phase, is realizing that they were under withholding. Tell us about that, Paul, and why that may be and some of the things that folks can be thinking about to prevent that.

[00:18:33] PE: Yeah. It’s one of the more painful things for both the tax preparer, and the client is when you say, “I know you’ve got a $5,000 refund last year, but this year, you owe $5,000 in taxes.” We see big swings when maybe you got married this year, and your W-2 is now filled out, married, filing joint and it’s not filled out in a way that your employer takes into account your spouse’s income. If you switch jobs in the middle of the year, sometimes the W-4 just don’t match up and you’re under withheld. If you’re working side jobs, if you’re not completing that tax withholding form correctly, you’re employed, both your employers are not taking into account the wages you’re earning at that secondary job.

Multiple jobs, spouse’s earnings not being calculated in are common things. The other items that kind of cause and contribute to that is, maybe you have self-employment earnings and you’re not only got income tax on that, but you’ll have the self-employment tax. If you had capital gains or stock options, sometimes those are going to sneak up and cause a tax liability you weren’t thinking about. This year, you’ve really got to be prepared in thinking about, if you receive the advanced child credits since July, and your AGI is over that phase out, some of that money or all of that money is going to have to be repaid. There’s a chance you weren’t eligible for any of that. You really need to be prepared if you’re getting it and you know your income, your AGI is going to be over $150,000. You should be thinking through whether that might be causing you a problem.

[00:20:36] TU: We’re running out of time, Paul, for folks to opt-out of any of those payments, have they been receiving them.

[00:20:41] PE: December is the only one you can opt-out now, and I believe it’s November 29 that you have to do it by. Just be aware of that one hit. That could cause some unexpected problems.

[00:20:56] TU: Better to find out in November, December than March or April.

[00:20:59] PE: Yeah. That’s what we always say is, if we can identify the issue in October, November, we have six months to be ready for the tax bill. If you find out in March, we’ve got to be ready to pay it right then and there.

[00:21:16] TU: That being a common blunder, unexpected balance due on April 15 as you mentioned, less than ideal for both the preparer and the client. The other bucket here would be non-qualified IRA or 401(k), 403(b) contribution. So tell us more about how this happens and some of the headaches this can create.

[00:21:32] PE: Switching jobs or having multiple jobs is where we’ll see the 401(k), 403(b) contributions go over that 19-5 maximum. A lot of people just put the percentage in. If you work for the same employer all year, they usually stop at the maximum. But if you’ve got multiple employers, they are unaware of what amount the other one has put into it.

Usually, if you discover this before December 31, it’s not that difficult to have the funds given back. But W-2s can be adjusted properly and you avoid some of the more difficult and time-consuming ways to correct it, if you don’t discover it till the end of following season. Knowing that it’s a problem before the end of the year and getting it corrected can save penalties and save you from having to go through the amended returns.

With IRAs, with pharmacists, the phase-outs, it’s more than likely you’re phasing out on your ability to do traditional IRAs. There are limitations on SEP IRAs. There’s a misunderstanding of what the rules are on them. Especially the SEPs, you really don’t know until you do your tax return. How much you can contribute to a SEP is very common. We see people contribute to traditional IRAs. SEPs that are over what they can contribute. Roths as well, and there’s a lot of hoops to jump through to correct it after the fact, where it’s better – our best practices with YFP is to advise people to, instead of putting the money in the funds during the course of the year, put it into an investment account. When we get an exact number, which you qualify for, you’re able to put those in the IRAs up till April 15th and we can deal with actual numbers rather than guessing what you qualify for.

[00:23:53] TU: Then having to correct it later, potentially.

[00:23:55] PE: Yeah. We’ve had people that have had to file two, three years of abundant returns to correct over contributions to IRAs.

[00:24:06] TU: The third bucket of potential blunders would be missing deductions and credits, of course, that may be applicable to folks. There’s lots of deductions and credits to consider, whether that’s childcare credits, adoption credits, tuition deductions, property taxes, charitable contribution. We’re not going to go through all of those. But Paul, are there some of these that jump out of common ones that we see folks overlooking or not taking advantage of?

[00:24:31] PE: Yeah, refis in home purchases. A lot of times when you’re purchasing a home, you’re paying your property taxes in advance and that gets overlooked frequently. Are the property taxes paid at the time of settlement? If you did refi or have a home purchase, you want to have that settlement sheet available to go through and see if it helps with itemized deduction. Side business expenses, if you have a side hustle, document everything you think is a legitimate expense.

The rules on business expenses are, they have to be business-related, ordinary, necessary, and not extravagant. Ordinary is, if someone else is doing the same type of business, they’re going to have the same type of expenses necessary. If you think of it as anything you are spending to get customers or grow how much business they do with you, there’s the argument that that’s a legitimate business expense. Their cell phone, internet cost, some of your continuing education, are all things that can legitimately be switched to a schedule C business. Not all of it, but a percentage of it that you can make a case or business expenses.

Then, one of the things, if you’re not maxing out your HSA, you should be matching out your HSA. People leave dollars on the table with the HSA contributions.

[00:26:15] TU: I think it’s just a good reminder, Paul, as you mentioned, side hustle expenses and the guidelines in the IRS that they have to be business-related, ordinary, necessary, not extravagant. We’re seeing more and more clients at YFP Planning, more folks in the YFP community that are pursuing side hustles or generating additional income from the W-2 income. Certainly, something to be thinking about and planning for, again, hopefully proactively. Which is a good segue into talking about some strategies to optimize one’s tax situation. You’ve already mentioned a couple and we’ve talked about some of these at length on other episodes.

You mentioned HSAs as low-hanging fruit. We’ve talked before about HSAs in the podcast. We’ll link to that in the show notes. You mentioned the side hustle expenses, and we talked briefly about the child tax credit. A couple others that I would like to focus on, Paul, starting with the child care credit, since this was an increase that we saw in 2021 and may be applicable for many that are listening. Tell us about that child care credit and the changes that we’ve seen this year.

[00:27:15] PE: Yeah. This was part of the recovery program. Right now, it’s only been increased for 2021. But you know, we expect that the next legislation that comes through is going – this is going to be a prime factor in it. Child care costs in 2020, you were able to take a credit for up to $3,000 for one child, $6,000 for two or more children. Most pharmacists qualified for 20% credit on those. Two kids, you are qualified to get up to a $1,200 credit. 2021, the amount that the credit is based on it is now $8,000 for one child, or $16,000 for two or more. Maximum credit is $3,200 for most pharmacists this year. For the child care credit, in 2021, you’re going to be looking at probably a 20% credit on $16,000 of expenses, $3,200 hours. Most pharmacists with two children or more. That’s what’s going to be available.

It’s a substantial increase in the amount of credit that’s available and it reflects – it better reflects the actual cost of childcare that we see, then that $3,000 and $6,000 power plant. That’s going to be a good benefit to a lot of the clients we work with. The other thing to look at is the dependent care FSA. That’s a great benefit that we see available to pharmacists that a lot of them are taking advantage of. But you can shift. The limit was $5,000. It was increased to a maximum of $10,500 that can be taken out of your wages and reimburse you for the child care expenses. The advantage of doing it this way, over taking the credit is, if you’re in a higher marginal tax rate, then the 20%. It’s better to have it in the dependent care FSA.

The other big advantage there, two advantages is, it reduces your AGI. The money that is withheld from the W-2 is not subject to the FICA tax. You could save another 7.65% there. It’s a great program if your employer offers it. Not all employers have increased the limit to $10,500. You really need to check what’s available to you through your employer. But if you have it, and you’re paying child care expenses, take advantage of it.

[00:30:09] TU: I’ve heard you say before, Paul, this is one of the more underutilized benefits that we see. Obviously, for those listening that have children, between the childcare credit, the dependent care FSA changes and the child tax credit, lots to consider here. And making sure we’re taking advantage of some of those opportunities.

[00:30:24] PE: Definitely.

[00:30:25] TU: The other thing too, and we won’t go into detail on today’s show, because we’ve talked about it several different times in the podcast related to 529s. But again, on the theme here of children and the context of college savings, that’s another optimization strategy to consider. Obviously, taking advantage of some of the state tax considerations and benefits there. We’ll link to previous content and 529 in the show notes.

Paul, I do want to wrap up this section on benefits talking about a topic that we have not talked about in detail on this show. Tim Baker and I did a question on ask YFP CFP on donor-advised funds, but we didn’t get into the strategy of bunching and some of the nuances of the donor-advised fund. For those that are looking at charitable giving opportunities, tell us more about what is a donor-advised fund and what is the potential strategy around bunching versus not bunching.

[00:31:19] PE: Donor-advised fund is an account you can set up, [inaudible 0:31:26] have an account. There’s a lot of faith-based organizations that have donor-advised funds available. But basically, you make your charitable contribution to that fund. Then you’re the one that controls how it is distributed from there, and it can be distributed over a period of years. It’s tax-deductible in the year you put money in. But it’s an opportunity, it gives you some tax advantages and gives you an opportunity to be more strategic about how you give.

One of the things that it does is, it makes donating appreciated assets easy. I have a fun setup and I can donate stock that I’ve had a significant gain on. When I do that, I’m not paying capital gains tax on the stock I’m donating. Let’s say I paid $5,000 for a stock that’s now worth $10,000. I get a $10,000 charitable deduction when I switch that over. I don’t pay $5,000 capital gain tax. It is one of the best ways to maximize the power of your donations to do more with less.

Donor-advised funds makes that easy and all that money is deductible when it goes in there. Now, that becomes a big advantage when you start talking about a bunching strategy. A lot of people, when the 2018 tax change came in and the standard deduction was raised, are kind of on the edge of being able to itemize or not itemize. When we talk about a bunching strategy, it’s, let’s say bunching charitable contributions in odd years. Instead of making a $5,000 contribution in 2021 and 2022, I’ll make a $10,000 contribution to the donor-advised fund in 2021. I get all of that $10,000 deductible in that 2021 year. That may put me $5,000 over the itemized deduction limit. The next year I take a standard deduction.

It is possible, without changing the amount of money donated in those two years, that I get an additional $5,000 worth of the standard and itemized deduction added together for the two years. Could be as much as $5,000 more than if I donate the money $5,000 one year and $5,000 the next.

[00:34:28] TU: Just by grouping those together, the dollar amount didn’t change, but putting them together maximizes the tax benefits.

[00:34:35] PE: Yeah. The donor-advised fund makes it easy to do that. Then, you can spread that money out and make the donations from the fund you control. It’s like having your own foundation. There are a lot of different options out there. There’s different investment opportunities with the money in it. There can be minimums, some different costs. But you put money in there, the capital gains on money left in there grow without tax. We see people who have stock options that have gone through the roof, can really do an amount of good, and wind up 50 cents on a $1, sometimes, of being able to increase the value of their contributions by that much.

[00:35:29] TU: My hope, Paul as we’re hitting the surface on several different optimization strategies is that folks aren’t feeling overwhelmed, but hopefully an opportunity to say, “Wow! How can I better strategize my tax situation?” I think this again, comes full circle and highlights the benefit of really more of the strategy side of the tax binding in addition to making sure we get that preparation taken care of.

We’ve got a checklist of things that we think you should be thinking about before the end of the year. We’re going to link to these in the show notes. These include much of what we talked about on the show around HSAs, and thinking about FSA carryover limits, 529 contributions, side business expenses, capital gains, preparing for the tax preparation phase, organizing documents. We’re going to put that list in the show notes, which will hopefully help wrap up the year and head into the new year with some confidence. I think that’s a good segue, Paul into what we are offering at YFP tax as two different options to help pharmacists that are looking for a tax preparation, and/or tax strategy and planning solution.

Paul, tell us more about our two options, the reporting only, and the year-round planning and reporting, and what folks can expect from that service and where one or the other may be a good fit.

[00:36:47] PE: We kind of talked about in the beginning, the tax preparation reporting only is just doing your historical tax return and meeting with you and just talking about is there anything you can do that may change the tax situation for the year. The reporting only is good for, if all your income is coming from W-2, if you don’t have a business or planning on having one soon, don’t have real estate income or any substantial retirement or investment accounts, at this point, all your income comes from inside the country, that may be a good fit for you. You’re really not getting the expert advice, you’re getting preparation and kind of basic information on what happened last year and not so much of the future. That’s a fee. We’ll have a base fee, and if you require additional schedules, there may be additional cost if you move from one state to another, maybe some additional costs. It’s more flat lay transaction, we prepare your taxes.

What we’re introducing this year is a year-round planning, which, if you’re self-employed, if you’re thinking about starting a business, have that side business, if you get K-1s from partnerships or LLC, real estate holdings, if your investments have grown and your retirement accounts are nearing that $100,000 mark, maybe there’s things that you’ll have options that somebody else may not. Multiple streams of income, income from outside the US, these are all things that probably point you in the direction of needing a year-round planner.

The expert advice will have a bigger effect on your situation, and having a long-term partner to help you reach your goals. That’s kind of what we’re positioning to work with you on a continuous basis. When we do this, we’ll meet with you, do the taxes and the tax review. We’ll talk about the upcoming years as well as last year. We’ll meet with you during the course of the year to do a projection of where you are and talk about things that we can do in the third quarter, fourth quarter to prepare and make sure we’re ready for the following year. With that, we’ll have a team available when you have questions during the course of the year to answer those questions. That is where we’re geared to have the most impact for clients and pharmacists that want to work with us. I think that we’re well situated and prepared to be a long-term partner and that’s what we’re looking to do.

[00:39:54] TU: Again, two options we have, as Paul outlined, the reporting only and the year-round planning and reporting. More information about both, you can find at yourfinancilpharmacist.com/tax. We’re excited to be opening up the tax services to 125 pharmacist households. First come first serve. Many may already be aware that we do tax planning preparation for those that are clients of YFP planning. We’re going to be opening up these 125 spots to those that are not currently clients as we’ll be doing that work already for those that are clients. Process works and go to yourfinancialpharmacist.com/tax to learn more information. You can join the waitlist.

Early January, we’ll be sending out an engagement letter. You can then upload your documents, complete a questionnaire. We are a paperless tax processing and system. Then from there, there’ll be a completion of a preliminary return and then an opportunity to review that information, sign it and then e-file it.

More information in yourfinancialpharmacist.com/tax. Paul, grateful for your time, expertise contributions on the show and looking forward to the upcoming tax season.

[00:41:02] PE: Thanks, Tim.

[OUTRO]

[00:41:03] TU: Before we wrap up today’s episode of Your Financial Pharmacist Podcast, I want to again thank our sponsor, the American Pharmacists Association. APhA is every pharmacist ally advocating on your behalf to address the issues that are affecting you most, such as PBM, and payment reform, value over volume and provider status. Make sure to join a boulder APhA to gain premier access to financial educational resources and to receive discounts on YFP products and services. You can join APhA at a 25% discount by visiting pharmacist.com/join and using the coupon code, YFP. Again, that’s pharmacist.com/join, using the coupon code, YFP.

As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and is not intended to provide and should not be relied on for investment or any other advice. Information in the podcast and corresponding material should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

Furthermore, the information contained in our archive, newsletters, blog post and podcast is not updated and may not be accurate at the time you listen to it on the podcast. Opinions and analyses expressed herein are solely those of Your Financial Pharmacist, unless otherwise noted and constitute judgments as of the dates published. Such information may contain forward-looking statements, which are not intended to be guarantees of future events. Actual results could differ materially from those anticipated in the forward-looking statements.

For more information, please visit yourfinancialpharmacist.com/disclaimer. Thank you again for your support of the Your Financial Pharmacist podcast. Have a great rest of your week.

[END]

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YFP 232: How Mindfulness and Money Intersect with Cynthia Knapp Dlugosz

Posted on by yfpadmin

How Mindfulness and Money Intersect with Cynthia Knapp Dlugosz

On this episode, sponsored by Thoughtful Wills, Cynthia Knapp Dlugosz discusses the intersection between mindfulness and money.

About Today’s Guest

Cynthia Knapp Dlugosz is one of the first national board-certified health and wellness coaches in the United States. She received her coaching training through Duke (University) Integrative Medicine and served as an instructor in the advanced certification program. Cynthia offers training and coaching in mindfulness, health, and wellness on a private practice basis through Being in Balance Coaching.

Cynthia speaks frequently on topics related to mindfulness, resiliency and well-being, work/life integration, time management, and health behavior change. She also shares this information on her blog, Pharmacy Work/Life Matters (www.pharmacyworklifematters.com).

Cynthia has more than 20 years of experience in mindfulness-based practices. She has studied and attended trainings with a number of prominent teachers, including Jon Kabat-Zinn, Kristin Neff, Sharon Salzberg, Elisha Goldstein, Thich Nhat Hanh, and Pema Chödrön.

Cynthia received her pharmacy degree from the University of North Carolina at Chapel Hill and completed a residency in hospital pharmacy at Rhode Island Hospital in Providence, Rhode Island. Before moving to Ann Arbor, Cynthia held increasingly responsible positions at several national pharmacy associations, including the American Society of Health-System Pharmacists, National Association of Chain Drug Stores, American Society of Consultant Pharmacists, and American Pharmacists Association.

Episode Summary

In the last few years, a much-needed light has shone on the issues of resilience, burnout, and wellbeing in the pharmacy industry and we are finally seeing strategies of mindfulness and meditation entering mainstream conversations in an impactful way. But can these practices extend into the realm of financial wellbeing too? Today we are honored to sit down with the enigmatic Cynthia Knapp Dlugosz, pharmacist, coach, consultant, and mindfulness expert, to discuss the intersection between mindfulness and money. A solopreneur, Cynthia has always had a personal interest in stress management, time management, and continuing education. In this conversation, she shares how her 20 years of training in mindfulness and meditation apply to her monetary plan and behaviors. The listener hears how her financial struggles early in her career led her to implement changes and behaviors she still depends on today, as well as a simple outline of how to practice meditation to stay in the present moment. Plus, we’ll touch on evaluating the root cause of overspending and over saving and why having a healthy balance is important. This crucial episode explores the intersection of pharmacy, mindfulness, neuroscience, and balanced living – and how the financial piece fits into all of that. Tune in to begin your mindful money journey today!

Key Points From This Episode

Getting to know Cynthia, starting with the pivots and arc of her career.
Discussing how her 20 years of mindfulness training began intersecting with pharmacy.
How the topics of burnout, resilience, and wellness have only recently gained traction.
Cynthia shares her turning point from irresponsible money management to intentionality.
Using the analogy of the Weight Watchers approach to get real with your spending.
A step-by-step outline of how she first took control of her finances.
How our relationship with money has changed in the age of automation and plastic.
Defining mindfulness and how meditation trains us to live in the present moment.
The various purposes and ways meditation can be practiced.
Debunking a common misconception about meditating.
Exploring different ways to use breathing as an anchor for your attention.
How mindfulness meditation is like a bicep curl.
How being present and mindful is key to making the right decisions with your money.
Peeling back the onion of our emotional baggage and unconscious script around money.
The importance of acknowledging our underlying fears and getting curious about them.
Dealing with the changing goalposts on the question, “Do I have enough?”
The concept of hedonic adaptation; we get used to what we already have.
Setting yourself up with a solid foundation and then giving yourself permission to spend.
Cynthia shares some resources from her website, and some exciting future offerings!

Highlights

“Think about mindfulness as the ability to pay attention to what is happening in the present moment.” — Cynthia Knapp Dlugosz [0:25:12]

“About 50% of the time, we’re either thinking about things that have already happened, or we are planning or rehearsing for things that have yet to happen. Only about half of our time is focused on what’s actually happening right in front of us.” — Cynthia Knapp Dlugosz [0:25:40]

“Shift your thinking about meditation. Think that the objective is that your mind is going to wander and your goal now is to notice that it’s wandered and to bring it back.” — Cynthia Knapp Dlugosz [0:27:36]

“The idea is to train your attention. You sit in meditation, you focus on your breath, you realize that your thoughts have wandered away. That is your win. Your win is that you’ve noticed and then you return your attention, and then you wait, you notice again.” — Cynthia Knapp Dlugosz [0:28:47]

“So much of what we do with money is automatic, unconscious, or conditioned.” — Cynthia Knapp Dlugosz [0:30:44]

“You should have some amount of money that you feel comfortable setting aside, but that you are setting aside specifically for fun, for now, for doing things. Because you don’t want to get further along your life journey and regret not having done things.” — Cynthia Knapp Dlugosz [0:42:10]

“Set yourself up with a solid foundation. But once you’ve got that foundation, give yourself the permission to have some enjoyment. Otherwise, what is all this for?” — Cynthia Knapp Dlugosz [0:43:21]

Links Mentioned in Today’s Episode

Cynthia’s Recommended Books

Episode Transcript

[INTRODUCTION]

[00:00:00] TU: Hey, everybody. Tim Ulbrich here, and thank you for listening to the YFP podcast, where each week, we strive to inspire and encourage you on your path towards achieving financial freedom.

This week, I had a chance to sit down with pharmacist, coach, consultant and mindfulness expert, Cynthia Knapp Dlugosz to discuss the intersection between mindfulness and money. Some of my favorite moments and takeaways from this episode include Cynthia sharing how her training in mindfulness and meditation applies to her financial plan and behaviors. Hearing her share how her financial struggles early in her career led her to implementing some changes and behaviors that she still depends on today, and evaluating the root cause of overspending and over saving and why having a healthy balance is important.

Before we hear from today’s sponsor and then jump into the show, I recognize that many listeners may not be aware of what the team at YFP Planning does in working one on one with more than 240 households in 40 plus states. YFP Planning offers fee-only, high-touch financial planning that is customized for the pharmacy professional. If you’re interested in learning more about how working one on one with a certified financial planner may help you achieve your financial goals, you can book a free discovery call at yfpplanning.com. Whether or not YFP Planning’s financial planning services are a good fit for you, know that we appreciate your support of this podcast and our mission to help pharmacists achieve financial freedom.

Okay, let’s hear from today’s sponsor that helps make this show possible and then we’ll jump in my interview with Cynthia.

This week’s episode of your financial pharmacist podcast is sponsored by Thoughtful Wills. Let’s take a minute to hear from co-founder, Notesong.

[00:01:40] NT: Hi, there. I’m Notesong, one of the founders of Thoughtful Wills. Our law firm specializes in creating custom estate planning documents that are understandable. We’ve leveraged technology to offer a lower price point than most law firms. Honestly, it’s refreshingly affordable. As our client, you’re in the driver’s seat. We’re here if and when you have any questions or just want our input. Our explanatory worksheet and online interview gathers your answers whenever and wherever is most convenient for you.

As a busy mom of three sweet kids and two fluffy sheepdogs, I totally get it. Life is crazy busy. Who has the time? We designed our firm around that too and we poured our hearts into making our estate-planning process less of a hustle. I invite you to visit thoughtfullwills.com/yfp to learn more. Give us a jingle or drop us a note. We’d love to chat with you.

[INTERVIEW]

[00:02:39] TU: Cynthia, welcome to the show.

[00:02:40] CKD: I am so excited to be here with you today.

[00:02:44] TU: I am as well. Our paths have crossed several times over the last decade through various pharmacy circles. I’m grateful for the opportunity to talk with you about the work that you’re doing to explore the intersection of pharmacy, mindfulness, neuroscience, and balanced living and how the financial piece fits into all of that. Certainly, a very important topic. Before we jump into our discussion around mindfulness and money, tell us more about your career path in pharmacy, both the work you’ve done up until this point, and what you’re now doing with your blog, consulting, and mindfulness programs and coaching.

[00:03:18] CKD: Sure, thank you. Well, I got a pharmacy degree at the University of North Carolina and I came out of a bachelor’s degree program. Choices weren’t necessarily as clear cut back then. The residency programs were really just starting up and there was such a thing as a post-baccalaureate PharmD. A program that was an add-on after a bachelor’s in pharmacy. Not sure that I wanted to pursue the PharmD pathway at the time, I did a residency in what at the time was called Hospital Pharmacy. During the year of the residency, and then the few months that I worked as a staff pharmacist at the hospital, didn’t really think that was my calling.

Fortunately, though, while I was there, there was an ad in the newsletter for the American Society of Health System Pharmacists. They were looking for someone to join the editorial staff of AJHP. If there is one thing I am confident in, it is my editorial ability. I applied for that job, and was fortunate to get it and that moved me to the Washington DC area, to my initial job in a pharmacy, in one of the national pharmacy associations. And I spent then the next, oh gosh, 15 or so years working for various – probably closer to 20 years working for various national pharmacy associations. I worked first for AJHP, and then briefly with NACDS, and ASCP, the American Society of Consultant Pharmacist. Then finally with APHA.

It was while I was on staff with APHA that I met my husband on a parking lot shuttle bus at Dulles Airport. We got married, and he was at NIH wrapping up a fellowship and he took a position at the University of Michigan. That relocated me and him to Ann Arbor, Michigan, where I live now. At the time, this is the late ’90s, I was a telecommuter for a while to APHA. But I mentioned the year just because at that point, telecommuting wasn’t possible the way it is today. I did a lot of – it was like I had a remote office and I went to travel to headquarters maybe once every two months or so. But it was very challenging at the time being a member of a team but not being physically present with the team.

Then I took a brief detour with the University of Michigan College of Pharmacy as their director of experiential training, and decided that really wasn’t my calling. And ended up – this is, by the way, a very – I’m trying to make this as fast as possible, this summary. I ended up at that point making the decision to work on a freelance basis. At the time, I was able to work to do a lot of freelance work with APHA. When I had been a full-time staff person, I actually would manage some people who were working on a freelance basis. They would do a lot of the actual content development meant work on programs. I would manage that development. Now, I flipped to the other side. Now, I was the person developing much of the content and someone on staff was managing me.

Because of the contacts I had made along the way, and especially because I had a history, I neglected to mention that much of the work I did in various pharmacy associations was in the area of continuing education. Because of that background that I brought to freelancing, I was able to both work on, again, like this content development for programs, but also occasionally, associations would contract with me to manage some program of theirs. For example, right now, one of the things that I do is manage the student pharmacist P&T competition for the Academy of Managed Care Pharmacy.

I do a lot of different things. In my work, it’s just – I think the easiest way to describe it is that I have a freelance business, and I get contracted to do various kinds of projects, mostly in the area of continuing education. But as you see, that single sentence has a lot that goes into it. That is kind of where I am at now. I still do that kind of freelance work. Now, along the way, going back to the time that I still lived in Washington, DC, and before I started working on it as a solopreneur. I had always been very personally interested in stress management, and time management and in those areas. One of the things that I was introduced to, again, toward the late ’90s was this idea of mindfulness. At the time, kind of very closely connected with meditation. I was introduced to meditation and mindfulness. This is back at a time when many, many people, most people I encountered had no idea what I was talking about and meditation was something still a little bit off the beaten path.

[00:08:58] TU: There was no head headspace and tools, ain’t that right?

[00:09:01] CKD: There was no headspace. There’s none of that. As a matter of fact, most – when I wanted to learn more about this, when I wanted to get more training, to get more understanding, first of all, all of the training that I went through early on, really was rooted in the concepts of Buddhism. I differentiate it from not really what I think of as Buddhism as a religion, but Buddhism as a psychology. It was rooted in these Buddhist concepts, and I really had to go to retreat centers, and especially a place up in upstate New York called the Omega Institute, where I would go and study with teachers.

Over the years, I have studied with teachers like Jon Kabat-Zinn, who is very closely connected with mindfulness in our country, and who is the developer of Mindfulness-Based Stress Reduction program. I’ve done workshops with – I’m dropping these names for any of your listeners, any of the listeners who might recognize them. I’ve done workshops with Pema Chödrön and with Thich Nhat Han. I dropped those names in because, at that time, those were really kind of the leading teachers in mindfulness. I mean, they still are. Then some American-based teachers like Sharon Salzberg and Jack Kornfield, so those teachers.

It wasn’t nearly as easy, or as – I want to say plentiful, the instruction available. I started doing that and again, pursued it over all the years, really on my own. And I would tell some friends about it, and I would make some offers here and there to speak about it. Say, “Hey! I think this is really – I think pharmacists would get a lot out of the information that I’m learning here in this – as I called it my parallel life.” I would be met sometimes with a little bit of eye-rolling or a little bit of like, “Yeah, sure.” Really, not much would come of it. But then I feel like it was around 2018, 2019 and I feel like all of a sudden, in pharmacy, we exploded with the concept of burnout, and resilience, and wellbeing. Not that it wasn’t always there, not that we weren’t paying attention to it. But to me, all of a sudden, it burst forth as an issue that many, many people were engaged with and paying attention to. I remember, at the time, around one particular meeting, I think, saying to a friend who was involved with the meeting, “What do you guys think I’ve been doing for 20 years? Like all of these practices that are right, that are being discussed now and starting to be shared. This is what I’ve been training in for 20 years.”

I have this strong background in mindfulness-based practices and the psychological underpinnings that go with it. And I have increasingly been trying to bring those forth to pharmacy audiences. I do that in one way, in the blog I started, Pharmacy Work Life Matters. And because now I feel like there is some interest. I am also starting to develop some e-courses related to some of these topics, that I hope to launch early in 2022.

[00:12:45] TU: Cynthia, I think you’re spot on. My observation matches yours, that burnout, resilience, wellness have become topics that – they’ve been there in the profession, but there’s definitely been a light that has been shown on those topics, and that we’re having more discussions around. We’re obviously very much interested in the work that we’re doing at YFP, around the connection of the financial part of that. I think and believe from personal experience in talking with many, many pharmacists all across the country, that there is a financial thread that certainly transcends some of these issues of burnout, resilience.

Your career story is relevant, because you shared with me previously that you felt like early in your career, you didn’t necessarily have a good approach to your financial plan, you weren’t necessarily as intentional as you would have liked to be, or at least looking backward, have liked to be. After being in a rut for a while, with spending more than – you ultimately were hoping to achieve the other goals you had in mind, that you had to make some drastic changes for how you are going to manage your money. That you still use some of those techniques today. Tell us more about that journey for you individually and how you realized that you weren’t on the right path financially.

[00:14:02] CKD: Absolutely. Tim, you introduced that topic very kindly. I will be far more blunt in my retelling of it. I got out of pharmacy school, as I said pharmacy school, did the residency. During pharmacy school and I would even say during the residency, I feel like I was kind of on top of – essentially on top of my money stuff. With the residency, kind of getting like that, like half pay I think of it as. Our salary was about half what we’d be making if we had been on a staff pharmacist. It wasn’t like I had a lot of room for error there.

Then I took the position and move to Washington DC and I think a switch clicked in my head that “Hey! I’m earning money now. I’m going to be – it’s my time to be spending money, finally. Finally, I’m a free and easy high earning gal.” I really wasn’t internalizing the reality that how much I was making at the time, while it was a very respectable salary was not a salary that went really, really, really far in Washington DC, especially as a single person. As a single person, I mean, I was living alone. No one was sharing the cost of rent, or food, or any of the basics that we all have.

Bluntly, I overspent and I got myself into – not only do I overspend, but I also didn’t really have a good system set up for keeping track of bills and paying bills. Now, we are scrolling ourselves back to a time where this was all paper-based, right? This I think is before the internet. Bills would come in, I would sort of get busy doing fun things, I would forget about them and then, oops, my phone would get turned off. Or I would realize, “Oh! Oops! I didn’t really plan well, this month. Let’s delay writing the check for this payment for a little while.” I don’t remember what it was, what like my rock bottom was, that point I hit that just made me say, “Okay. Something’s got to change.” But it was like, really, like there was a time when I realized that my internal discomfort about how I was managing this finally got the better of me.

What I ended up doing was a technique that – I don’t think I got it from Weight Watchers, because I don’t know that I had ever been enrolled in Weight Watchers at that point. But it’s a technique that is often shared with people who are trying to get better acquainted with – get on top of a situation that they’re in. That technique being that you write everything down. Just the way in Weight Watchers for many years, I think still you are encouraged to record everything that you eat. I started recording every single thing I spent money on. It, of course, quickly became apparent that I was spending too much. This is back in the days when this was mostly cash. I shouldn’t say mostly cash, it’s probably a mixture of cash, credit card, and cheque. But it was not nearly as fast or easy to spend money as it is today.

I started writing down everything that I spent. Then as the next step, I created a budget for myself, which was just the kind of budget that is recommended to create. It was putting down all of my mandatory expenses, the fixed expenses, I suppose. How much was my rent? How much should I budget for food? How much was phone and electric, and all of those? Then, what did I have left at the end of the month? I made the decision at that point that whatever was left at the end of the month was what I had to spend. There was no more spending ahead on a credit card. I treated all of my money essentially as cash. Then, I would never carry a credit card balance again. Actually, to this day, I have never carried a credit card balance. Because a credit card balance, let’s face it, it’s a loan, you’re essentially borrowing money that you don’t have, to pay off at a future time.

I don’t mean to summarily dismiss the utility of credit cards or why you might want to carry a balance. But for my purposes, it was just irresponsible money management. It took – back when I had joined Weight Watchers at one time, this is back at the time when Weight Watchers was encouraging the – essentially what was at that time the American Diabetes Association exchange approach to meal planning, where you counted everything you ate as like a certain number of proteins, a certain number of – I think they call them starches, vegetables, fats, fruits and you had this allotment every day. What you did at the time with Weight Watchers was, this lunch was two proteins, three starches and you colored in your little blocks. At the point that you ran out of blocks, you were done for the day.

During my first few weeks at Weight Watchers, I realized that I had eaten, as I viewed it, all of the good stuff by lunchtime. And all I was left for dinner was vegetables, and it had to be steamed vegetables because I’d already eaten all of my fats. I couldn’t put butter on or anything. After a couple of weeks of this, again, you have a little meeting with yourself in the mirror and say, “Cynthia, if you’re ever going to have anything other than steamed vegetables again, for dinner, you have to figure out a way to do this differently. You have to figure out how to apportion this stuff during the day.” It was the same thing for me with money management.

I realized, “Okay. You are trying to spend far more than you actually have available as your disposable income, so you’ve got to put the brakes on this.” Also, something I would say very, very importantly, that I did at the time, and I go back and I thank my younger self constantly for making this decision. Which is when I was putting – when I was tightening up on my finances like this, when I was really ratcheting down and saying, “Here is really what I have left for my fun stuff at the end of the month.” I made the decision, in addition to retire to 401k deductions, I made the decision to start saving 10% of – I can’t remember at the time if I did it as 10% of what was essentially like my net salary but before bills, or if it was 10% of what was left. But I have a feeling it was the higher one. In effect, I decided to kind of decrease my salary, my take-home pay by 10%. I just squirreled that away, I had – I set up automatic deductions to mutual funds and just never saw that money.

You can imagine over the years, that compounded quite a bit and I’ve been able to do so many – that money made so many things possible for me, because it was money just sitting there that I treated as money I didn’t even really have to spend. I did that as well. After a couple of months of that, I figured out a way to regulate myself to understand like, really, this is what you’re dealing with every month. Let’s just say it was, you have $50 per week to spend, just free and clear on whatever your heart desires here. This is clothes, this is entertainment, this is whatever, whatever might – what I think of as the discretionary spending.

I just had to, I was going to say resign myself to that, but it’s more that I had to align myself to that. Then along the way, as I would get raises, my little pot of money would pop up as I would then run through that budget cycle again. Oh, yay! My fixed expenses haven’t gone up that much, so now I have more discretionary. At least once a year, I would revisit this budget, I would keep really careful records, or at least save the record so I now knew on an annual basis, this is how much I spent for say, the phone. Which these days, I feel like phone costs are more fixed than they were back then. Back then, my bill would vary from month to month, because long distance was unpredictable.

I would figure out how much I had spent over the year, I would divide that by 12 and that’s what I would budget for the following year, and then keep a very close track on that to see. But it was very much this paying attention. Paying attention and understanding exactly what it was that I was dealing with, rather than hoping, which is what I had been doing. Just hoping that what I had was covering what I was doing. And it wasn’t. I had misplaced hope.

[00:23:26] TU: And intentionality just screams through that story of tracking, and paying attention, and automating your long-term savings. As you alluded to, some of that is, I think, more challenging today. When I hear the concept of mindfulness and money, I really think about this idea of making intentional choices that are not just happening. Ones that we think about, we perhaps feel on some level, we can attach an emotion to it. Let’s be real, this is so hard today with everything, essentially being automated and on some level, being transactional. That automation does have value if we can take advantage of it. Some of the things that come to mind, Cynthia is, plastic instead of cash. We never see or feel our paycheck, direct deposit, that we can connect it to the work that we’re doing. We’re saving for the future without the physical act of passing over money and making that conscious decision to delay something now for longer term. Even debt repayment, it’s a number on a screen. You alluded to me before in a conversation that you have a strategy to learn to pause, and not just spend, or save or whatever we’re working on and to make financial decisions in a way that are intentional, that we’re thinking about it and we’re experiencing it.

Tell us more by what you mean by that and if there’s a strategy that you employ for how to actually do that in a day like we’re in today, where so much of this is happening automatically and so quickly.

[00:25:01] CKD: Absolutely. That is, in essence what mindfulness is. I’m not going to offer up any of the official definitions of mindfulness right now. I’d say, think about mindfulness as the ability to pay attention to what is happening in the present moment, maybe elaborating a little bit on this concept of present moment. Our minds naturally wander into the past or into the future. If you ever sit and think about or try to notice what’s happening in your head, there was one study that characterized it that probably about 50% of the time, we’re either thinking about things that have already happened, or we are planning or rehearsing for things that have yet to happen. Only about half of our time is focused on what’s actually happening right in front of us.

If you think about mindfulness then as the ability to be able to focus your attention on what is happening in the present moment, and to notice that your mind has wandered off somewhere else and to bring it back to this focus on the present moment. That is what, to me, that is what meditation trains. It’s not the only thing meditation does. Meditation can have a lot of different purposes and can be practiced in many, many different ways. I believe that for most people, especially most people who are starting out with meditation, unless they are specifically seeking, say spiritual enlightenment, or they are specifically practicing loving, kindness, meditation for various reasons – the most useful application of meditation is meditation that teaches us to notice when our thoughts have wandered, and to return our attention to a point of focus.

If there is one common misconception I encounter when I talk with people about meditation, it is the idea that the goal of meditation is to make your mind go blank or to try to keep any thoughts from coming into sit in this kind of blissful, no thoughts arriving state. And then people get very, very discouraged. They get discouraged when they realize that they’re sitting in meditation and their minds have wandered. They feel like a failure, “I can’t do this. I’m no good at this.” Well, so then what I would say to you, Tim, and what I would say to anyone listening is, shift your thinking about meditation. Think that the objective is that your mind is going to wander and your goal now is to notice that it’s wandered and to bring it back.

Typically, the traditional focus of attention is the breath. That is typically the focus of attention, because our breath is always with us. There are different places where you can experience breath. You might feel the sensation of breath entering your nose, or you might focus on the exhalation and the feel of breath, say like at the top of your lip, or you might focus on just your – as we say in yoga and in meditation, like the belly. Your belly rising and falling. You don’t just have to focus on one thing. You can even count your breaths. You can make it a more cognitive thing. If you’re having trouble with the sensations.

That’s why the breath is often offered up as the first point of focus. You focus attention on the breath and you can find these kinds of meditations in Headspace, in Calm, I’m sure, in any of the online apps. You can find, I mean, in any of the apps, you can also find them online, in many different places. The idea is to train your attention. You sit in meditation, you focus on your breath, you realize that your thoughts have wandered away. That is your win. Your win is that you’ve noticed and then you return your attention, and then you wait, you notice again. As meditation teacher Sharon Salzberg has said, “It doesn’t matter how many times your mind wanders, what matters is how many times you notice and bring it back.”

Then, what you’re doing in meditation – now meditation is more kin to a bicep curl, let’s say. You are training a particular thing. Like with a bicep curl, you’re making your bicep stronger. So that when you are not at the gym or holding a weight in your hand, you will be better equipped to lift something heavy or whatever else your bicep will do for you. The same thing now with meditation, by sitting in meditation, which can – there’s actually a study that just came out this week. Ten minutes a day is a fine amount of time for this kind of formal practice. You are now strengthening your ability during the day to realize that you’ve been carried off somewhere or to realize that your thoughts are not in the present moment.

One quote that I will share with you is from a psychologist named Miles Neil, who has said that “Mindfulness can help us naturally resist the pull of our automatic, unconscious, or conditioned patterns of thought, emotion, and action.” I’ll say that again really quickly, “Mindfulness can help us naturally resist the pull of our automatic, unconscious, or conditioned patterns of thought, emotion, and action.” That to me, is where now we have mindfulness intersecting with money management. Because so much of what we do with money is automatic, unconscious or conditioned. With automatic and unconscious, as you mentioned, there are things we do out of habit. There are things that happen that we’re not even paying attention to these days, especially as you so aptly noted.

We also bring forth with us from childhood really conditioned patterns around money. We all have grown up with money attitudes and those can’t help but affect the way we manage money as adults. Mindfulness can help us realize that we have either started to get – we have fallen into an automatic habit or that something’s happening that we’re not even paying attention to. For example, we are about to – we might notice we are about to hit, click yet again on amazon.com. Not like I’m speaking from experience here, or anything. We maybe will notice, though, that we are about to one click and we can insert a pause. We bring our attention back and we say, “Wait! Okay. Hold on. What’s about to happen? Is this really what I want to do?” If for no other reason than to potentially save yourself a trip out to Kohl’s or Whole Foods or wherever you need to dump off your return these days?

[00:32:15] TU: Yeah. I think so as you’re talking, I’m reflecting on how exhausting this internal dialogue can be. You mentioned minds naturally wandering, you mentioned a study that 50% of the time or so maybe we’re present. I was thinking about financially, that seems generous. I think that because of some of the emotional baggage, whether that’s from childhood, money scripts that we carry, whether it’s societal pressures around money. I think it’s even maybe that much more difficult. I was thinking about, what are some of the things in the last 24 hours that have been on my mind financially, and things that were coming to mind questions were – just being aware of them like, are we saving enough for retirement? Or, counterpoint, maybe are we saving too much at the expense of experiences and enjoying the present moment? Should we be paying off the mortgage fast? Are we investing in enough experiences for our family? Are we on track with our kid’s college expenses? What’s the game plan for the next car? Have we appropriately protected ourselves from an emergency?

What really is disturbing as I – even just more aware of that is like, we have a plan for all of those things. Like we’ve thought through them, we’ve planned for them. On one hand, I look at those questions and I’m like, “My gosh! That’s frustrating. I talk about this daily, like I feel like we’ve got a good plan.” But I think that acknowledgement is so important, like just being aware, aware of some of those things, and then start to peel back the onion of like, “Where does that come from? What is the root of some of those feelings and pressures?” I think for me, personally, as I start to get two or three layers deeper, I can then start to uncover where is the fear or anxiety coming from this. Often I’ve uncovered it’s not rational, and then I can see it for what it is, and really try to address it at that. But I really feel like that awareness is such an important first step.

[00:34:14] CKD: Well, Tim, you’ve just hit on a really important concept, which is that – I think you are spot on that when you start peeling back some of these things, almost always what we find at the bottom is fear, some kind of fear. The more we can be present to what is going on, we can notice what’s going on and then as you were describing, can start to investigate what’s going on. We probably will eventually get ourselves back to some kind of fear and then we can explore the fear. What is this fear? And as you said, is it irrational fear?

I still, with everything I know about both mindfulness and actually money because I’ve – after my initial, let’s call them the follies of my youth, I have done a lot of self-teaching about money management. I’ve learned a lot from financial advisors, various things over the years. I feel like I am pretty financially literate. But even now, I seem to harbor this deep-seated fear of ending up pushing a shopping cart around with my few remaining belongings, because I have no money. Now, where does this come from? It fascinates me. I didn’t grow up – I grew up in a pretty firmly middle-class family. We were not wealthy, but we never wanted for any – I don’t remember ever wanting for anything as a child. Why is this a fear? Unless this might just be like the fear of public speaking. It’s one of the fears that we’ll end up with no money, for no rational reason.

[00:35:55] TU: Yeah. That’s a really good point, Cynthia. I think something I often ask myself is, where does this come from? And again, getting more to that root cause. I think that in my experiences financially, and working with many pharmacists, and even my own journey, we often talk about overspending and we talked a little bit about some of the automation that can make that challenge. We’re not feeling those expenses, perhaps we can pause, that might help some of that. But I also see folks, myself included, that have challenges on the other side of the spectrum with which is giving themselves permission to spend. I think we’re getting some of that here, as we talk about some of the fear anxiety, is there ever enough? But here’s the thing, is there ever enough? I mean, that is a – we can crunch some numbers and do all of that. But that feeling, if you’re not really trying to uncover what is the source of that and determine, is that a rational thought or not? That can be crippling.

I think that’s another component that we need to be thinking about around this conversation of mindfulness is both, not only behaviors that allow us to become successfully long-term, making sure that we’re taking care of our future self. But as Tim Baker, our director of financial planning says so well, it can’t just be about taking care of our future selves. We also have to make sure that we’re living a rich life today. I think there’s a balance here, correct?

[00:37:14] CKD: Absolutely. The concept of whether it’s enough, “Do we have enough?” That is such a difficult, a such a difficult and fraught topic. Because first, I’m sure you’ve gathered during our conversation that I am further along in my life journey. I’m a little bit older. When I was first starting out, when I made – when I sort of got myself back on the right track, and especially was absolutely contributing to a 401k plan to the point where I would get the match. Like I maxing out what I needed to do. I think at the time, we were being advised like – let’s say it was 10%. If you’re saving 10% of your income. Then somewhere along the line, it seemed to ratchet up to 20%.

Then lately, I’ve been getting things from one of the mutual fund companies I invest with, where they have this thing like how many times your salary should have saved at various points in life. I remember looking at where I was and how much I was supposed to have saved. Let’s just say I was shocked, I won’t repeat the exact thing I said out loud. Let’s call it shock. I thought, I don’t have that. I can’t possibly have that. You can’t spring that on me now. Because I don’t – I don’t have any more time to do that. Then somebody else send out a different graph and I looked like I was fine. So then I calmed down a bit.

I share that little anecdote just as an illustration that one, it seems like the goalpost is constantly being moved on what constitutes – I’m making air quotes here – that you can’t see enough. Then another thing that we all have to contend with is this, I think it’s innate, the concept of hedonic adaptation. We get used to what we have and then it feels like it’s not enough. I grew up in a home that was not very large and now I live in a house that I think is about 3,000 square feet. When I moved into this house, I think I we’ve lived here for about 20 years now. This place seemed cavernous to me, and it’s just me and my husband. Now I walk around and think, “Oh my gosh! This place is so small. Really, I think we need like 4,500 square feet.” We don’t.

It’s like, because you get used to what you have, or you see what other people have, and you start to feel again, “enough”, that what you have is not enough. You start always looking for the next thing. It’s very, very challenging to settle yourself around this notion of enough. My feeling is, if you are, if you are following the advice of rational experts, if there is some fight – there tends to be standard financial advice out there, about things you should be doing. If you’re doing that, you are probably as well set as you can be, is my feeling.

Now, using one of my weight loss analogies, again. I had at one point enrolled in Jenny Craig, because I had gained a little weight, I wanted to lose some. And it occurred to me, you know, what, Jenny Craig just handed me the food, and all I have to do is eat it and it worked. One of the things, though, that I really appreciated about that plan was that every day, I had a treat, they just worked it in that every day you had something that was, as I see it, absolutely no nutritional value whatsoever. It was just fun. That’s something I carry forward in now my just, you know, eating regular food again. I carry that forward with me.

Every day, I allot about 10%, 15% maybe of calories to something that I just want, you know. Whether it’s my sugar cookie flavored popcorn, or a cookie, but I have to keep it in that calorie allotment. I can’t eat a pack of cookies. I can eat my 150 calories worth of cookies. What that does for me, and what I believe it does, in general, we will move this over to money in a moment. But it, first of all, means that you don’t build up this sense of deprivation. Like I can’t eat cookies, I’m not allowed to eat cookies. As a matter of fact, I eat cookies every day or whatever it is, and I give myself permission to do that and I enjoy it.

Knowing that you have that, it’s a bit of a treat, but it’s not an excessive amount. That, I believe that same concept can be carried over, should be carried over to money management. You should have some amount of money that you feel comfortable setting aside, but that you are setting aside specifically for fun, for now, for doing things. Because you don’t want to get further along your life journey and regret not having done things. I don’t mean that, again, it’s this balance between – I’m not saying overspend, because “Woohoo! We don’t know what’s going to happen tomorrow.” I mean, obviously, we don’t, but that doesn’t mean you every year go on around the world cruise, and sink yourself further and further into debt. It does mean that you have if you have allotted a pot of money to this, enjoying the present, then spend it. Because if you save it up, it’s just more money that you’re saving. Maybe you’ll spend it one day, but maybe you won’t.

As long as you’ve taken care of everything else, right? As long as, you know what I mean, Tim, as long as the things that you would be advising people to do, that I think you, and the podcast, and just everything you’re doing does so beautifully. Set yourself up with a solid foundation. But once you’ve got that foundation, give yourself the permission to have some enjoyment. Otherwise, what is all this for?

[00:43:31] TU: You said it just beautifully. I mean, that is something that our planning team, I think does such a tremendous job with the clients, which is – if we put the two spectrums, yolo on one end and squirreling money away, we’re miserable and we wake up 30 years from now, and you’ve got $4 or $5 million.

[00:43:48] CKD: It’s going to go to your children.

[00:43:50] TU: Yeah. We’ve got to find this balance between taking care of our future selves, making sure we’re living a rich life today. One step further on that, I would encourage folks, we do this a lot with the clients of YFP Planning is, actually setting up some of the buckets that name those funds accordingly, and allows for that visual permission to spend. One of the powerful things, if you’ve got all your money in one account, and we’re not separating – okay, this is earmarked for normal monthly bills. This is earmarked for emergency fund. But this small sliver, whatever that number is earmarked for those things that really derive some of the greatest joy or experiences, or give – whatever would be, those splurge type of items that folks like to do as well. Giving yourself the permission to spend is also incredibly, incredibly important.

Cynthia, this has been fantastic. It’s a conversation that I’ve been wanting to have for so long, because it’s something that I’ve been wrestling through as a topic individually for several years. I think, in this industry where we talked so much about X’s and O’s of the financial plan, I think this is such a refreshing aspect as we think about the intersection between mindfulness and money. Thank you so much for coming on the show. Where can folks go to further connect with you and learn more about the work that you’re doing?

[00:45:09] CKD: Absolutely. Sure. First, let me thank you. It has been such a pleasure to share this information. I look forward to sharing more of it. I mean, I am now getting to the point where I’m hoping to share more where people can actually access it outside of me, say speaking at a meeting. If you visit my main website, which is cynthiaknappdlugosz.com – are you going to have that written out somewhere?

[00:45:37] TU: We will. We’ll link it in the show notes.

[00:45:39] CKD: Excellent. That’s a lot of letters that I really hesitate to try to like spell out for people right now. If you visit cynthiaknappdlugosz.com, that will show you a couple of tiles that are the main things that I do. I mentioned earlier, I’m a solopreneur. I have the kind of a whole bunch of buckets really, as we were talking earlier. I have a bunch of different buckets that I do. On that page, you can click over to or you can visit directly my blog, pharmacyworklifematters.com. On there, you can sign up. I think I call it “Sign up for my newsletter” or “Sign up to be alerted to posts.”

I am working on converting that to an actual newsletter, where, originally I was just sort of letting people know, “Hey! I finally posted another blog post.” Now, I’m moving that to an actual newsletter, where I will start alerting folks to things that I am about to be doing or launching. One of the first things I am working to get up is what is going to be a free, I think I’m fashioning it as a four-week introduction to mindfulness and meditation, where I’ll try to set you up with a meditation practice. The kind specifically that I’ve been talking about that is focused on training attention. When I say four weeks, it’s just that every week, I’ll introduce something new and then you will be able to practice it during the week. Like I said, if you sign up for that newsletter, I will start announcing things through there and at least, that meditation program will be free. I look forward to seeing you.

[00:47:12] TU: Great stuff. We will link both of those in the show notes. I hope folks will check those out. I’m personally looking forward to the meditation mini-course, course, whatever you want to call it. Count me in as you launch that.

[00:47:23] CKD: Fantastic.

[00:47:23] TU: Again, appreciate your time and for sharing some of your insights and expertise on the YFP podcast. Thank you so much.

[00:47:29] CKD: Thank you. It’s been a pleasure.

[OUTRO]

[00:47:32] TU: Today’s episode of Your Financial Pharmacist podcast was sponsored by our friends at Thoughtful Wills. If you haven’t created your estate plan yet, we urge you to reach out to Notesong and Nathan. They draft custom estate planning documents like wills, trust, healthcare directives, and durable powers of attorney that fit your situation and reflect your wishes. This is key. These are custom legal documents created and reviewed by actual attorneys.

Thoughtful Wills created two cut-to-the-chase packages designed for pharmacists who are ready to get their estate planning in order. You’ll really appreciate their dedication to approachable lawyering and they charge about half of what most law firms charge for the same documents. These documents are such a gift to your loved ones. If you haven’t created them yet, please just get it done. Reach out to Notesong and Nathan by going to thoughtfulwills.com/yfp. Go ahead and book a meeting with them. They’ll take such good care of you.

As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and it’s not intended to provide and should not be relied on for investment or any other advice. Information in the podcast and corresponding material should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment. Furthermore, the information contained in our archive, newsletters, blog post, and podcast is not updated and may not be accurate at the time you listen to it on the podcast. Opinions and analyses expressed herein are solely those of Your Financial Pharmacist, unless otherwise noted, and constitute judgments as of the dates published. Such information may contain forward-looking statements, which are not intended to be guarantees of future events. Actual results could differ materially from those anticipated in the forward-looking statements.

For more information, please visit yourfinancialpharmacist.com/disclaimer. Thank you again for your support of the Your Financial Pharmacist podcast. Have a great rest of your week.

[END]

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YFP 231: From Pharmacist to Calligraphy Artist Working with A-List Celebrities

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From Pharmacist to Calligraphy Artist Working with A-List Celebrities

On this episode, sponsored by Thoughtful Wills, pharmacist and entrepreneur Rosie Chhun, talks about how her side hustle turned main hustle afforded her the ability to pay off $180k in student loans.

About Today’s Guest

Rosie Chhun is a pharmacist by day and calligrapher by night. She is the artist behind Wander Crafter, a calligraphy and engraving company that specializes in live events and brand activations. Her floral calligraphy engravings make her stand out amongst other artists, allowing her to work with A-list celebrities like Jay-Z, Chrissy Teagan, and Kris Jenner as well as brands such as Netflix, HBO, and Neiman Marcus!

After a major downfall of not passing the CPJE and losing her dream residency, she fell into a deep depression and used her art to create joy in her life and pay off her student loans. After 3 really long years of hustling at the pharmacy and the creative business, she paid off her $180,000 debt and is making big moves in her calligraphy career! She just launched a YouTube channel to teach engraving, a calligraphy business coaching program, and is continuing to work with luxury brands.

The secret to success is to get clear on your messaging and create what you genuinely love creating.

Episode Summary

Dealing with an overwhelming amount of student loan debt is a common story that most pharmacists can identify with, but today’s guest took control of her story by turning her creative hobby into a flourishing business that paid off her debt, all while teaching herself to be financially literate along the way! Today, we speak with the resilient and tenacious Rosie Chhun, a pharmacist, calligrapher, and business coach who grew her side hustle into a thriving one-woman business called Wander Crafter. What started as a crafty hobby to help with the slow repayment on her $180,000 student loan debt has transformed into a calligraphy and engraving business that has since caught the eye of clients such as Jay Z, Chrissy Teigan, Kris Jenner, Netflix, HBO, and numerous other luxury brands. In today’s episode, Rosie talks us through her process of experimentation and settling on her successful business model, how she cut her overhead costs to virtually nothing, and the two pillars on which her business was built. Listeners hear about her journey through pharmacy school and into the field, the burnout from the pandemic that pushed her into taking the entrepreneurial leap, and, finally, the deep sense of reward and achievement she gets from coaching and engraving at live events. If you ever wondered how to turn your passion into a reality, then tune in to get your weekly dose of inspiration today!

Key Points From This Episode

Hear about Rosie’s roots as a pharmacy technician and her journey in pharmacy school.
Having to re-evaluate how she was moving forward and paying off her $180,000 debt.
How paying the minimum hardly touched the interest accruing every month.
How Rosie’s love of calligraphy intersected with starting a business to pay off her debt.
What galvanized her to take action and become financially literate.
Reinvesting back into her business every time things were going well!
Arriving at her successful business model with virtually no overhead costs.
Just getting started, and continuing to learn and evolve as things go on.
The two different pillars that make up Rosie’s business: live events and coaching!
The gradual transition from an expensive hobby to a flourishing business.
How the stress and burnout of the pandemic was the final motivator to leave pharmacy and commit to full-time entrepreneurship.
Developing resiliency and not being afraid to take calculated risks.
Intentionally growing as the demand increases and getting a supportive team.

Highlights

“By paying the minimum [on my student debt], I was hardly even touching the interest that was accruing every month. That was really painful. I realized, even if I had refinanced and did all the things right, I would be in debt for a very, very long time.” — Rosie Chhun [0:08:35]

“Everything is online. I don’t do any additional excess costs if I don’t have to. Really, the only expense that I have right now is gas because I have to get to the location. It’s really nice.” — Rosie Chhun [0:17:36]

“If there’s anyone listening out there, I would say, don’t wait until you’re at an existential crisis to turn your hobby into a business.” — Rosie Chhun [0:25:06]

“There [are] a lot of things that I learned in pharmacy school that I would not have learned out in the real world if I had just entrepreneurship from the very beginning.” — Rosie Chhun [0:27:22]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

[00:00:00] TU: Hey, everybody. Tim Ulbrich here, and thank you for listening to the YFP Podcast where, each week, we strive to inspire and encourage you on your path towards achieving financial freedom.

This week, I had a chance to welcome Rosie Chhun onto the show, a pharmacist and entrepreneur who owns a successful calligraphy and engraving business called Wander Crafter. During the interview, Rosie and I discuss how her side hustle turned into the main hustle, afforded her the ability to pay off $180,000 in student loans. We also discussed how a couple of difficult scenarios right after the completion of her PharmD led her on the path to starting her own business. Finally, we discussed how her business went from idea to a hobby, to a successful venture that has allowed her to work with A-list celebrities like Jay Z, Chrissy Tegan, Kris Jenner, and brands such as Netflix, HBO, and Neiman Marcus.

Before we hear from today’s sponsor and then jump into the show, I recognize that many listeners may not be aware of what the team at YFP Planning does in working one on one with more than 240 households in 40 plus states. YFP Planning offers fee-only, high-touch financial planning that is customized for the pharmacy professional. If you’re interested in learning more about how working one on one with a certified financial planner may help you achieve your financial goals, you can book a free discovery call at yfpplanning.com. Whether or not YFP Pining’s financial planning services are a good fit for you, know that we appreciate your support of this podcast and our mission to help pharmacists achieve financial freedom.

Okay. Let’s hear from today’s sponsor, and then we’ll jump into my interview with Rosie. This week’s episode of your financial pharmacist podcast is sponsored by Thoughtful Wills. Let’s take a minute to hear from co-founder, Nathan.

[0:01:43] NK: My name is Nathan Kavlie and I’m one of the founders of Thoughtful Wills. Our law firm spends a lot of time thinking about the process of estate planning. There’s no way we can get around the yuck of death. So instead, we focus on being lawyers that you’ll actually enjoy working with. We pride ourselves on being approachable and then we take the extra time to draft documents that are actually understandable. We pair that with technology to make the process cheaper and more convenient. Please visit our website, thoughtfulwills.com/yfp and poke around, then book a meeting with us, please. We are genuinely excited to chat with you.

[INTERVIEW]

[00:02:21] TU: Rosie, thank you so much for joining the show.

[00:02:23] RC: Hi, Tim. I’m so excited to be here. Thanks for having me.

[00:02:26] TU: Well, I am really excited to have you on the show and to talk about your pharmacy and entrepreneurial journey. We recently connected via email where you reached out and shared your story of paying off $180,000 and becoming debt-free, while also building an incredible calligraphy business. I shared this story with the YFP team. They loved hearing about your story and couldn’t wait to bring you on the show to share that story with the community. For starters, congratulations on paying off your debt. We’re going to get more into that here in a little bit. But to get us started, back us up a little bit into pharmacy. Where did you go to school? When did you graduate? What drew you into the profession?

[00:03:04] RC: Yeah. I actually started off as a pharmacy technician back in 2009. I worked in a hospital for about four and a half years while during undergrad and just getting experience. I took a couple of years off and applied to pharmacy school and wound up going to University of Washington and Seattle in 2013. Graduated in 2017 and then started the business around 2018 when I realized I needed something else to really pay off the amount of loans that I had incurred, along with some hiccups along the way, which we can talk about in the future or in a couple of seconds, I guess.

[00:03:41] TU: Absolutely. I want to talk about the debt accrual phase for a moment while you’re in school. I’ve shared on this show before that, in my own journey, paid off a couple $100,000 of debt. The debt was racking up, but I really didn’t think that much about it. It felt a little bit like monopoly money, to be honest and it didn’t get real for me until that first payment came due after the grace period was up, six months after graduation. Talk to us about how you viewed your loans when you’re in school. Was it something that you thought, “You know what, I’m going to be able to pay that off later, not really worried about it”? Or was it in the back of your mind throughout school?

[00:04:16] RC: There was a lot of different phases, I feel like. When I was in school, I definitely had it in the back of my mind and that was one of the reasons why I decided to go out of state. I’m originally from California. I live in Long Beach. I did get into USC at the time, but decided to kind of spread my wings a little bit and try to save up some of that monopoly money, if you will. When I was there, the first year, we paid out-of-state tuition, which was around $55,000, I believe for the first year. UDUB had a program at the time if you wanted to claim in-state tuition, you would have had to work 30 hours per week during school. That’s what my roommate and I ended up doing just to prove that we weren’t there just for school. We ended up working and busting our butts for the whole first year, ended up getting in-state tuition for the last three years.

I think at the time of graduation, I had only incurred about 120k, which doesn’t even sound like that much, right? That’s kind of the average these days. Throughout the whole pharmacy school, I was kept thinking to myself, like, “Okay. I’m going to work in a hospital. I’m going to work for a nonprofit. I’m going to get loan forgiveness.” I put in all of the things in place for me to try to get that loan forgiveness over the 10 years of working at a nonprofit hospital. When I graduated, things didn’t work out. I ended up matching to a residency, which was the residency of my dreams. I was so hopeful for the future and ended up moving back to California for. Didn’t pass the licensing exam and so ended up getting kicked out of the program.

At that point, I was hit with a very harsh reality, because the six months are up. Didn’t have a pharmacy job, didn’t have a pharmacy license and I didn’t really know what I was doing at the time. I had no plan and it was a really harsh slap in the face by reality. I ended up getting a grad intern position at Walgreens, which is very fortunate because there’s not a lot of people who get hired into the company as an intern if you weren’t an intern during pharmacy school. I was very lucky there, the store manager who hired me was very generous, very gracious and I’m really thankful for the opportunity for him to give me the job. After I got hired on as a grad intern, I trained for about two or three weeks, ended up getting licensed very shortly after that, and then have been working as a pharmacist since then.

[00:06:55] TU: So you had the residency of your dreams lined up, which many of our listeners know just based on match, rates and how competitive it is, that is difficult in and of itself. So you’ve got that residency of your dreams lined up and things don’t go as planned. You graduate, don’t pass the licensure exam. Obviously, with that comes the inability to complete on with the residency position. You’re able to get on as a grad intern with Walgreens even though you didn’t work with them previously, which is great. Here you are in a very different position than you thought you would be. I think that’s a great intersection then into the business. You’re working with Walgreens as a pharmacist, you have got $180,000 of debt. And to your comment earlier, when it was at $120,000, you said only $120,000. I think that’s where we’re at as a profession. I mean, the median debt loads are now, for today’s graduate, about $170,000, so it’s become normalized, I think unfortunately.

[00:07:49] RC: That’s incredible.

[00:07:50] TU: Yeah. Where did you start to see the intersection between your debt and the opportunity you had with the business and some of the passion you had around the calligraphy work?

[00:08:01] RC: Yeah. When I started working as a pharmacist, finally started doing the 401k stuff, started to get financially literate. Then it was time to pay off some of that loan. I hadn’t consolidated any of my loans yet. I hadn’t refinanced or anything. At the time, my average interest rate for the $120,000 was between 5.6% and 6.5%. I was accruing a lot of interest every single month. By paying the minimum, I was hardly even touching the interest that was accruing every month. That was really painful. I realized, like even if I had – if I refinanced and did all the things right, I would be in debt for a very, very long time.

There was no way that I could pay off that debt without a supplemental income or a side hustle, so I started doing a lot of research. People started saying “You can make an income with this calligraphy stuff.” I started doing calligraphy while I was in pharmacy school in 2013. That was just as a hobby. I would be jotting little things in the corner of my notes during class, I would be like sketching something instead of studying, like I was in calligraphy all the time.

When I finally realized that I could turn that into a business, that was when I started to do more research about entrepreneurship, what kind of calligraphy field I could get into. I would say, probably around the same time that I started working as a pharmacist, I also started this side gig. I played on pretty much every single niche of calligraphy you could even imagine. I did the cards, I did cake toppers, I did banners, welcome signs, wedding signs. All things calligraphy, I have tried and touched on. It wasn’t until, I want to say January 2020, where I actually found my niche of hand engraving. I combined, basically, illustration skills with calligraphy skills and created these beautiful perfume bottles that create amazing keepsakes that people can take home and keep for generations.

[00:10:25] TU: We’re going to link to that in the show notes. Wander Crafter is the business. I hope folks will check it out. It really is, Rosie, beautiful work and it’s incredible.

[00:10:32] RC: Thank you.

[00:10:34] TU: How you’ve been able to apply that gift that you’ve been given. Now, I have to ask, as a father of four boys, and my wife who home-schools our boys is incredibly passionate that they need to learn how to write cursive. So, as someone who does calligraphy and I suspect loves the art of writing, and I suspect learning cursive is probably really fun for you. What do you make of nowadays when sometimes, we’re taking cursive out of curriculums, right? It’s not something that every kid is being taught nowadays.

[00:11:03] RC: I know, yeah. I like tricking my little five-year-old niece into learning cursive.

[00:11:10] TU: That’s great. That’s great. You refinance your loans, you’re pursuing this side hustle, which is allowing you to make some more aggressive payments. Ultimately, we’re going to get these loans paid off. You mentioned just a few moments ago that you weren’t at a point of being financially literate. It strikes me because as I hear you talk, you’re talking about things like loan forgiveness, and interest accrual, and refinancing. Clearly, you’ve invested a decent amount of time and understanding, more information that has helped you on that journey. Tell me more about what you meant by not getting to a point of financial literacy and ultimately, getting to that point. What was the spark for you that really pursued your own learning on that journey to be able to implement those things in your financial plan?

[00:11:53] RC: Yeah. In pharmacy school, they didn’t really talk about financial literacy. Maybe I chose not to pay attention, because in my mind, it was always, loan forgiveness was the solution. When I kept thinking to myself like, “Oh! There’s no way I’m going to be able to get into inpatient if I don’t have a residency.” I think having been in the hospital for nine years, four years of technician and four years of pharmacy school interning, and along with the six months of the residency, I think it kind of just left a bad taste in my mouth too. I just didn’t really want to strive for that anymore, and so I figured, retail is probably the easier way to go, so let’s just do that.

I never really tried super hard to understand, or even learn how to do investing or any 401k stuff, or real estate. Anything like that, I just kept thinking like, I’m not there in my life yet. Because as a student, there’s no way I can make any kind of investment. I just kept thinking like, “I’ll learn it later. I’ll learn it later.” It wasn’t until like, I started working as a pharmacist, got my first figural check, and then had to throw all of it to the loans that I had ignored for six to eight months. Then I saw the big number and was like, “Okay. If I can put $3,000 into this per month, how long is it going to take me to pay it off.” It wasn’t touching it. It wasn’t doing anything. I was like, “Okay. I got to do something about this.”

I started listening to you. I started listening to Dave Ramsey. I started reading a lot, and just having the conversations with friends, and family and asking other mentors and colleagues how they were doing it. That really helped me to kind of build that knowledge base so that I could drop it down faster.

[00:13:49] TU: Yeah, education plus action is power, right? As I hear, you really taking that priority to learn more and then to implement that. And obviously, that ultimately pays off as you’re able to knock out that $180,000 of debt when it’s all said and done because of interest and so forth that accrues when you’re talking about interest rates between 5.6% and 6.5%. Yeah, I mean, it’s crazy. I think that’s the piece. I was speaking with a group, actually, this weekend, and really just highlighting to them that it’s not just that debt that’s occurring from semester to semester, year to year, but you got to factor in also the interest that’s going to accrue over the life of the repayment.

Perhaps it gets decreased through something like a refinance, but it’s a great example where having a plan A, B and C is probably a good idea. Because if folks are thinking loan forgiveness or a certain path, and for whatever reason, that doesn’t work out. What’s the game plan, right? What’s the plan to be able to ultimately knock out that debt?

Tell us, I’m curious as a business owner, often when you’re trying to get a business off the ground, there’s this decision to be made of as you start to see some success. Do I take this money and continue to invest back in and grow the business or do I take this money out as an owner and perhaps apply it towards a goal, such as you are here paying off your debt? As you’re growing your business, as you’re making progress in your debt, tell me more about that decision where you said, “You know what, perhaps I could put this money back in the business and continue to grow. But I’ve really got to focus on the loans.”

[00:15:17] RC: Yeah. I started the business in 2018, tried and failed a bunch of things. We bought the Cricut, which is vinyl. Basically, it’s a little computer that can cut vinyl for you, or fun little paper shapes and stuff. That’s how we kind of started. Then we upped our game and bought a Glowforge, which is a laser cutter. That one’s really cool, because you can cut out shapes with wood or acrylic and little things like that. That was really fun, but that was also a really big investment, especially from – I definitely pulled from my pharmacist salary for that. And just continue to reinvest into the business until I started to really run the numbers and figured out what was truly profitable.

It wasn’t until January of 2020, where I took a hand engraving class from one of my calligraphy mentors and we just hit it off. I loved doing all the hand engraving stuff. Eventually, I figured out a business model where I don’t actually have to supply any of the overhead. With the Glowforge, you have to buy wood, acrylic, and you know all the different colors, and you have to do listings and shipping. It just ended up getting up into all of our profits, and we were making very little for a lot of work. Eventually, with the hand engraving stuff, I created a business model where my clients would actually buy this physical item and send it to me. I would engrave it so I would provide the service, and I would mail it back to them or meet up with them to do a local pickup.

I cut out all the overhead cost and I cut all the shipping. Well, most of it. I still ship every so often. But for the most part, my clients are local, and they can drop by my studio and pick up the engraved item. I ended up cutting out so much of my overhead costs. Now, all I have to do is, I have my supplies already all in one kit. I spend maybe like $10 on nib, like my kit. I’ve already invested maybe like $600 or $700 worth for the machine, and the lights and everything that I need to go on site and engrave for clients in person at events and stuff. Really, I just have a room in my apartment, which I call my studio now, and everything is online. I don’t do any additional excess costs if I don’t have to. Really, the only expense that I have right now is gas because I have to get to the location. It’s really nice.

[00:17:48] TU: That’s a great example, Rosie of often, when I talk with folks that have an idea, there can be some paralysis of trying to think about exactly what is the next step or what might this look like in three or five years. One of things I like that you shared is it took some time, right? You had several different products that you worked through, I suspect in three years, you’ll look back today and say, “Oh, I’ve learned this and this and this now that I’ve had a few more years of experience.”

You’re talking about things like some of the operations, and the equipment, and the overhead. Those things can be so overwhelming at the beginning of an entrepreneur’s journey. But what you did was you got started, right? You had an interest, you had a talent, you had a passion, you had a motivation, which obviously here was paying off that debt. You took that first, sometimes very overwhelming but very important first step, which is, get started and then continue to learn and evolve as things go on.

[00:18:39] RC: Right. Yeah, you just figure it out.

[00:18:41] TU: Figure it out. Right. Exactly. Tell us more about the products specifically or a couple of your main products that you offer at Wander Crafter, and who are the customers. You mentioned some local things and so forth. As you think about your business, the products that you have to offer, the folks that you’re focused on marketing those products towards. Tell us a little bit more about those two things in the business.

[00:19:04] RC: Sure. I have two different pillars that make up my business these days. The first one is live events and that includes luxury brands like Neiman Marcus or Netflix. I’ve also worked for HBO Max a couple of weeks ago for their succession launch. Those luxury companies end up bringing me into the store. Going on-site, and I bring my kit and get dressed up and I create a luxury service for these brands to create a better client experience, and that helps them to sell their products a little bit better, because everyone wants something personalized. There’s nothing more special than seeing your name on a perfume bottle.

Most of the things that I do these days are personalization on mostly perfumes. I’ve done it on like whiskey bottles, water bottles and a couple other stones and things like that. But it is mostly perfumes, just because I think that’s where they have the most profitability.

The other pillar of my business is coaching. After figuring it out for a couple of years on my own, I decided to create a coaching program for calligraphers who want to break into the luxury brand industry. I help them start a business, get over the money mindset. How do you charge for something like this, working on a website, or SEO, photography, videography, and leveraging your social media to create a business model that works for you and helps to bring in multiple clients. Not just luxury brands, but also your local clients as well.

Nowadays, I don’t really do the local clients as much. I tried to focus more my attention on the luxury brands just because that has a bigger return for the time that I put into it.

[00:20:58] TU: Very cool. I hope folks will check it out, wandercrafter.com. We’ll link to that in the show notes. You can see more of the work that Rosie’s done, the engraving, the calligraphy as well as the training program. She’s mentioned the Craft Academy and some items to shop there as well. It is really, really beautiful stuff.

One of the things, Rosie, I like to prod a little bit is, you mentioned before we had hit record that, your pharmacy job was funding a very expensive hobby or business. I think for many folks that are getting started with something, especially something they’re very passionate about, which I think links well to the work that you’re doing here, is that, there’s a mindset shift that happens from, “Okay. I’m going to do this thing that is interesting, it’s a hobby to actually running this like a business.”

What was the transition or the pivot point? Was it the specific markets when you mentioned kind of working with some of the higher end items or the training course? Was it figuring out the messaging or the SEO? What was it that really allowed you to make that transition from a hobby to actually running this as a business?

[00:21:59] RC: Oh my gosh! That’s a really good question. I think the transition, business-wise, I don’t know if there was like an actual, pivotal moment. It was more of a gradual, uphill climb. Until, I mean, to be honest, I think it was just a burnout. I don’t know if I ever mentioned this in any of the emails and stuff that we’ve had back and forth. But during the pandemic, I’m sure you’ve heard a jillion times, it was really hard. The initial panic was really difficult. Because we had to tell doctors like, “No, we can’t give you this Z pack” or tell this family, “I can’t give you 20 Z packs. One, I don’t have any, and two, that’s illegal.” It was a lot of moral decisions that I didn’t have to make before. And then, we kind of got used to that with the mail orders and things like that.

Then the vaccines launched to the public in March of 2021. Honestly, that to me, that was the turning point where pharmacy went from a passion to just painful really. At that point in the business, I was already making probably the same amount as my pharmacist salary. For whatever reason, whether it was feeling guilty for giving up on pharmacy or a duty to help the public or family expectations, I just didn’t have the bravery to really just trust myself with the calligraphy business.

It got to a point where we were doing 30 to 60 vaccines per day, and most of the time, we were by ourselves. It was just one pharmacist for the whole day. It just got to a point where I was completely burnt out. I hated my life. I hated work. The only thing that provided a little bit of light was my business. I just remember like one Friday, I was short on technician and we did 30 vaccines that day. Then Saturday, we did the same thing. At the end of Saturday night, I told my tech, “I can’t do this anymore. I don’t think you’re going to see me Monday.”

Monday came around, I woke up and there’s just this existential dread in my day and I just could not physically get out of bed or go to work. So I ended up calling my scheduler and was like, “Hey! I just don’t feel good today.” I called my doctor and I was like, “I think I need therapy.” Like I’m at a point where I could hurt myself. I could hurt my patients because of not being in it. I wasn’t passionate about it anymore. I went to therapy for a couple of weeks and ended up just double downing on my business, my coaching program, my calligraphy business. From there, it blossomed, it grew beyond what I could even imagine. I mean, if there’s anyone listening out there, I would say, don’t wait until you’re at an existential crisis to turn your hobby into a business.

[00:25:15] TU: Yeah. I hear a big mindset shift that happened. I certainly don’t want to say that there have been positive things related to the pandemic. It’s been a very difficult time for obvious reasons. But here, as you share that story again, for you in that journey and some of that pain that you experienced, personally led to further pursuit of the passion that you’ve had around this work. I hope folks would even go back and listen the last three minutes because, Rosie, like your tone in your voice and your enthusiasm around talking about the business relative to sharing, and I could tell, even self-reflecting on some of my own journey for you. Just a very different vibe, and your voice and your tone.

I think, for folks that are listening that have an idea, whether it’s within pharmacy or something else, whether it’s within the job they’re in or pursuing something as a side hustle, or another opportunity, taking some type of a risk or opportunity that they can pursue. Like having folks around you, whether that’s family, friends, accountability partners, you mentioned providers that were involved that hopefully can pick up on some of those passions, and some of the enthusiasm, some of the things that they’re observing and keep you accountable in that journey as well. Resilience, Rosie is something that really stands out to me as I think back to your sharing of some of the difficulties after graduating from pharmacy school and not passing the licensure exam right away, delay, unable to do that residency. How did that journey and developing resilience through that experience in pharmacy, how has that helped you in the business?

[00:26:44] RC: I think it’s just not being afraid to take risks, calculated risks. Being a pharmacist, I think you do have a little bit of type A, doesn’t matter what kind of personality, but there’s a little bit of OCD in there, and just doing whatever it takes to survive and succeed. I think just being able to – even in pharmacy school, I feel like I learned a lot of skills, whether it was learning how to study, and multitask and manage your time. I think there’s a lot of things that I learned in pharmacy school that I would not have learned out in the real world, if I had just entrepreneurship from the very beginning.

Then even working at a retail pharmacy, I think part of that even comes – that taught me a lot too. Working in retail is really hard. You have to be able to multitask, and manage people and teach people in a way that they will understand, whether it’s different teaching, or learning skills and stuff like that. There’s a lot of things that I still learned working out in the real world and going to pharmacy school that I do apply to the business itself as well.

[00:28:01] TU: One of the things you mentioned, Rosie, before we hit record. We’re recording on the first of a month, and you mentioned you had a really big order come in over the weekend, which is leading to a busy Monday and start to the week for you, which is good problems. But problems nonetheless, when you’re growing, and running a business and you have growing demand and more people want your service. We’ve all heard many stories where sometimes businesses may not keep up with some of that growing demand. Talk to us about, as we look ahead at Wander Crafter, as your products, your services, your time is becoming of greater demand. How are you growing the business intentionally? What steps are you taking knowing that there’s going to be demand that continues to increase? At the end of the day, there’s only one Rosie.

[00:28:49] RC: Yeah, that’s a really good question. I was really literally just thinking about that this morning. How am I going to continue scaling this if I’m the only person who can do the engraving, and the writing, and all that good stuff. Right now, I’m just a one-woman business. I did have an assistant who ended up getting her dream job a couple of weeks ago, so I lost her and I’m really sad about it. I haven’t quite recovered from her leaving me just yet, so I am very hesitant to bring on anyone into the business, whether it’s for social media management or even just assistants, or photography, or anything like that. I am very scared to bring someone on in case someone leaves me again. Maybe you can give me some advice on how to grow your team.

[00:29:39] TU: It’s a work in progress. I feel like it’s one of those things that as you are so passionate about the vision, that you obviously are, and as people really treasure the products that you’re putting out, sometimes you as the business owner, me as the business owner can become the bottleneck of the growth. It’s a hard thing. It’s a hard thing to figure out of making sure that you’re comfortable in that next step, making sure that the quality of the product is to the standard that you want it to be.

But also recognizing that the addition of a team and folks that you trust can ultimately mean a bigger reach and the impact that your work can have. I look forward to watching some of the growth and what happens over the next year or two as you continue to grow in that area.

[00:30:23] RC: Yeah, I’m really excited for where Wander Crafter is going too, the coaching program is taking off, the calligraphy portion of it is taking off too. There’s definitely a high need to hire somebody to take some of that load off so that I can have some kind of a balance in life. But right now, I feel like it’s okay. I’m only working like maybe 20 up to 30 hours a week, which is still less than what I was doing with the pharmacy job, so it’s not too bad.

[00:30:54] TU: And pursuing something that you’re really passionate about, which is awesome. Where can folks go, Rosie to follow your work to learn more about what you’re working on?

[00:31:04] RC: Yeah. I am always on Instagram, so head on over to instagram.com/wandercrafter. I’m also getting really big on TikTok these days, so find me there as well. Also just go to my website, wandercrafter.com. You can find out about the Craft Academy, which is the calligraphy coaching business or program rather. And yeah, just hit me up on Instagram. I’d love to chat with you and maybe give you some inspiration for your own business as well.

[00:31:31] TU: Great stuff. We will link to those in the show notes, the Instagram, the TikTok, the website, the YouTube channel. Really appreciate, Rosie taking time to come on the show to share your journey, and hopefully it’s going to inspire many other pharmacists on their own journey. Thank you so much.

[00:31:43] RC: Of course, Tim. This is a dream. I’ve been listening to you for so long. This is really an honor to be on here.

[00:31:49] TU: So fun. Thank you so much.

[OUTRO]

[00:31:51] TU: Today’s episode of Your Financial Pharmacist podcast was sponsored by our friends at Thoughtful Wills. If you haven’t created your estate plan yet, we urge you to reach out to Notesong and Nathan. They draft custom estate-planning documents like wills, trust, healthcare directives, and durable powers of attorney that fit your situation and reflect your wishes. This is key. These are custom legal documents created and reviewed by actual attorneys.

Thoughtful Wills created two cut-to-the-case packages designed for pharmacists who are ready to get their estate planning in order. You’ll really appreciate their dedication to approachable lawyering and they charge about half of what most law firms charge for the same documents. These documents are such a gift to your loved ones. If you haven’t created them yet, please just get it done. Reach out to Notesong and Nathan by going to thoughtfulwills.com/yfp. Go ahead and book a meeting with them. They’ll take such good care of you.

Furthermore, the information contained in our archive, newsletters, blog post, and podcast is not updated and may not be accurate at the time you listen to it on the podcast. Opinions and analyses expressed herein are solely those of your financial pharmacist, unless otherwise noted and constitute judgments as of the dates publish. Such information may contain forward-looking statements which are not intended to be guarantees of future events. Actual results could differ materially from those anticipated in the forward-looking statements.

For more information, please visit yourfinancialpharmacist.com/disclamer. Thank you again for your support of the Your Financial Pharmacist podcast. Have a great rest of your week.

[END]

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YFP 230: 5 Steps to Get Ready for a Home Purchase

Posted on by yfpadmin

5 Steps to Get Ready for a Home Purchase

On this episode, sponsored by IBERIABANK/First Horizon, Tony Umholtz talks through five steps for getting ready for a home purchase.

About Today’s Guest

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

Episode Summary

If you are considering purchasing a home in the next six to twelve months, today’s episode with mortgage manager Tony Umholtz will equip you with the information you need to prepare for this exciting journey. Tony shares his knowledge about the importance of understanding interest rates, where to find the most up-to-date information on those rates, how to determine your home-buying budget without the lender setting it for you, and criteria used by the lender to calculate your maximum loan amount. Tony also shares the best time to get pre-approved and things to look for in a lender when going through the home-buying process. The discussion covers the five key steps to follow to ensure that you are ready to purchase a home including, understanding the landscape, knowing your budget, getting pre-approval, choosing a lender, and knowing which documents you need to provide once the property is under contract. If you have questions about interest rates, the difference between pre-approval and pre-qualification, the various types of lenders that you can work with, the pros and cons of putting a 20% down payment on a home, the 28/36 rule, or anything to do with credit scores, you’ve come to the right place!

Key Points From This Episode

Why now is a good time to buy a home.
Where you can find out the average interest rates in the home loan industry.
Tony explains what discount points are and why you need to understand them.
The importance of reading the fine print.
Know your budget!
How lenders determine how much they are going to lend.
What the 28/36 rule is.
Tony runs through the pros and cons of a 20% down payment.
How savvy investors look at returns.
Comparing pre-approval and pre-qualification.
The value of a credit report.
How lenders work out your credit score, and why this differs from what you will see if you use a monitoring service.
Examples of the different types of lenders that exist.
Information that you will need to provide to the lender you choose once you have a property under contract.

Highlights

“Lenders look at your gross income. We don’t factor in your after-tax income.” — Tony Umholtz [0:09:23]

“I’m a big believer in being diversified.” — Tony Umholtz [0:10:51]

“The higher your credit score, the better your rates tend to be.” — Tony Umholtz [0:23:12]

“There are advantages and disadvantages for every type of lender that’s out there. So, it’s good to know, get some recommendations, and also to compare the products and make sure it’s a fit for you and that you feel comfortable with the group that you’re working with.” — Tony Umholtz [0:27:20]

Links Mentioned in Today’s Episode

Episode Transcript

[00:00:00] TU: Hey everybody, Tim Ulbrick here and thank you for listening to The YFP Podcast where each week, we strive to inspire and encourage you on your path towards achieving financial freedom.

This week, I had a chance to welcome back onto the show Tony Umholtz, a mortgage manager for IBERIABANK/First Horizon. During the interview, Tony and I talked through five steps to getting ready for a home purchase. So, for those that are listening and thinking about a home purchase in the next 6 to 12 months, this episode is certainly for you.

On the show, we discuss the importance of understanding interest rates and how you can find the most up-to-date rate information. We also discuss how to determine your home-buying budget and the criteria used by the lender to determine your maximum loan amount. When is the best time to get pre-approved and what is the difference between pre-approval and pre-qualification? And finally, what to look for when shopping around lenders and going through the application process.

Now, before we hear from today’s sponsor, and then jump into the show, I recognize that many listeners may not be aware of what the team at YFP Planning does in working one on one with more than 240 households in 40 Plus states. YFP planning offers fee only, high touch financial planning that is customized for the pharmacy professional. If you’re interested in learning more about how working one on one with a certified financial planner may help you achieve your financial goals, you can book a free discovery call at yfpplanning.com.

Whether or not YFP Planning’s Financial Planning Services are a good fit for you, know that we appreciate your support of this podcast and our mission to help pharmacists achieve financial freedom.

Okay, let’s hear from today’s sponsor, IBERIABANK/First Horizon and then we’ll jump into my interview with Tony.

[SPONSOR MESSAGE]

[00:01:42] SPEAKER: Does saving 20 percent for a down payment on a home feels like an uphill battle? It’s no secret that pharmacists have a lot of competing financial priorities including high student loan debt, meaning that saving 20 percent for a down payment may take years. We’ve been on the hunt for a solution for pharmacists that are ready to purchase a home with a lower down payment and are happy to have found that option with IBERIABANK/First Horizon. IBERIABANK/First Horizon offers a professional home loan option AKA a doctor or pharmacist home loan that requires a 3 percent down payment for a single family or townhome has no PMI and offers a 30-year fixed rate mortgage on home loans up to $540,250. The pharmacist home loan is available in all states except Alaska and Hawaii. To check out the requirements for IBERIABANK/First Horizon’s pharmacist home loan, and to start the preapproval process, visit yourfinancialpharmacist.com/homeloan. Again, that’s yourfinancialpharmacist.com/homeloan.

[INTRODUCTION]

[00:02:46] TU: Tony, welcome back to the show.

[00:02:48] TU: Tim, thanks for having me. Always good to be here.

[00:02:51] TU: Excited to jump into this episode, you’ve been a frequent guest on the show. Last episode we had you on was episode 216, where we talked about common credit blunders to avoid when buying a home. We’re going to link to that in the show notes and dig in some more detail on that topic as well during this episode. So Tony, give us the update. What are you seeing out there in the housing market? It’s been a wild year, right?

[00:03:14] TU: It has been a crazy year. It really has been. A lot of the same things we’ve seen before in the past, the inventory levels are still fairly tight and rates are still low. The one thing I will mention is you know is more of a timing thing for the time of year in the season we’re in, is the autumn in the fall is typically – there’s a little bit less buyers out there. We have Thanksgiving and the holidays around Christmas. Typically, there are less buyers, a little bit less competition. So, it’s often a better time to buy because there are less buyers you’re competing with.

[00:03:51] TU: I think that may be true for many folks in our community that perhaps we’re shooting for a spring or summer home purchase. Maybe they got delayed because of the inventory issue that is well known that’s out there. So today, we’re going to be digging into five steps that folks can take to get ready for a home purchase. We’re going to be talking through evaluating loan options, finding a lender, saving for a down payment, and running the numbers for your budget. So, if you’re thinking about buying a home in the next 6 to 12 months, this episode is really designed for you. If you think combined is in your future, whether that’s now or down the road, my hope is you’ll be able to pull some tips and lessons away from this episode to help you prepare for that journey.

No need to take notes. You can head on over to yourfinancialpharmacist.com/home-loan. We’ve got an extensive resource at that site. You’ll be able to check out a lot of what we’ve referenced today. So Tony, five steps to get ready for home purchase. Number one, know the landscape. So, before you’ve been shopping around for lenders, it’s helpful to have a general idea of what’s going on in terms of mortgage, interest rates, what the market is. So, what do we generally seeing right now Tony, and knowing these, of course are subject to change, and where can someone go to research those rates?

[00:05:05] TU: Well, it’s a good question here, Tim. The first step, just to kind of get a very broad view of the landscape would be, you can actually go to Freddie Mac, freddiemac.com, and Fannie Mae, they actually post rates, but it’s an average rate. So, it’s an average industry rate. You can also find it like in The Wall Street Journal. Clearly online, you can find it but you would look for the weekly average rate, and by Fannie or Freddie Mac. Freddie Mac quotes typically have points in them. So, you do have to look at the fine print with that, that it’s an average rate, kind of a consensus of the industry to tell you where rates are, like a rough idea of where they are, but they’re often quoted with points. So, keep that in mind, because your lender may quote you something the same or a little higher, but it does not have points. That’s just kind of a good place to start, Tim.

[00:05:58] TU: Tony, I’m looking at those rates right now. So, at the freddiemac.com/pmms, we’ll link that in the show notes. So, showing 30-year 3.14 percent, 15-year 2.37 percent, a five-one-year arm, 2.56. And then what’s neat about this is you can look at the trends over the year, 3 years, 5 years, 10 years. And then also let you know what has changed within the last week or the last year. I didn’t know that about points in terms of how these are reported. Some folks may be looking at these and not thinking about the points or what that means in terms of expenses for them. So, just give us a quick definition of points and why it’s important that folks understand that as they’re trying to compare rates, and perhaps get to that apples to apples comparison.

[00:06:41] TU: Sure. Points are actually called discount points. They’re an upfront fee that the lender will charge and it is often a charge in the form of prepaid interest. And that helps you get a little bit better interest rate. But that is a percentage of the loan amount. So, it can be costly. Let’s say, it’s 0.3 percent of a loan amount, if you’re borrowing $400,000, well, that’s $1,200 in additional fees, you’re going to pay if you were to obtain that loan. So, you do have to be aware of points in fees as that is a big component. And then lenders all have different origination fees. That’s another segment of the costs and those are things that you want to look at too, because not all rates are equal, right? There are a lot of pieces of mail people will get. I’ll just leave it at that. There’s a lot of mailers you get with that will quote these really low rates, but then if you read in the fine print, you’ll see how much fees are charged. So, you really want to be aware of that because your payback period could be so long, and it makes no sense to pay points, and often it doesn’t.

[00:07:49] TU: So that’s number one, know the landscape. Number two, a topic we’ve talked about before when we’ve had you on the show, know your budget, and before thinking about pre-approval, it’s important to know your budget, as well as knowing how a lender is going to determine what they’re going to borrow to you in terms of that home-buying purchase. And those things can be an often perhaps should be different as you evaluate what fits in your budget and the lenders looking at what they’re comfortable in terms of you borrowing. So, down payment isn’t certainly is not the only cost. But Tony, talk to us about lenders, in terms of how they determine how much they can lend to individuals or to couples. And I think here, it’s worth talking about the 28:36 rule.

[00:08:37] TU: Sure. I mean, this step is is critical, right? You clearly want to review your own budget and know what you can and can’t afford, because even if a lender can qualify you for a certain payment, that may not be something you’re comfortable with, so it’s very important to evaluate your own budget. Lenders do look. There is, obviously, the 28:36 rule, and this ties back to what lenders can qualify you for, but often we can qualify people up to a back-end ratio, which is a total debt ratio of 45 percent, sometimes even 50 percent with enough down payment. So clearly, we can often maybe qualify you for more than you want to borrow.

The other component to this too, that’s very important to know is that lenders look at your gross income. We don’t factor in your after-tax income. So, that’s another method that we all look at in our industry. We use your your gross income that you report on your W-2, or the gross income before taxation. Same thing if you’re self-employed, we look at your gross income prior to to income tax. So, that helps people buy homes and afford homes, but it is a factor to consider when you’re running your budget. But historically, those numbers, we do go a little higher. Nowadays, instead of 36 which is – I think, let me just dive into what that means.

So, the 28 percent is called the housing ratio. That’s the total amount of your monthly income that is allocated to a home payment, like a mortgage payment on a home. And that mortgage payment includes your principal and interest, and your taxes and insurance, and any other HOA expenses you might have. So, when you buy a home, you had your principal and interest payment on the mortgage, you have property taxes, that you typically pay 1/12, so a monthly amount of the total amount of property taxes on a monthly basis, and then your insurance. So your homeowners insurance.

And then some communities have what are called homeowner’s association fees, that might be $100 a month or $100 a quarter, just depends on where you live. And those are all part of the housing expense. So, when Tim referenced the 28 percent, what that means is your total income, so let’s say you made it just for round numbers, let’s say you made 10,000 gross income as a household per month, we would use 2,800 as your housing expense. I’m not saying that that’s what you need to do. You can actually go a little higher, and of course, you can go lower. But that’s kind of the metric that historically lenders have looked at.

And then the back-end ratio means your total debt. So, that’s going to be the aggregate of all your other debts. So, your car payments, if you have auto payments, on auto loans, student loan payments, we take your student loan payment, any credit card payments you might have, and any other installment loans you may have. It does not include car insurance. Auto insurance, or cell phone bills, things like that, utilities, it does not include those at this juncture. So, we don’t look at those expenses. But that is going to be the aggregate of all of your debts and you cannot exceed that. We call it the debt to income ratio. So, that’s a very critical metric that lenders look at when they’re evaluating you for your pre-approval. That’s kind of a high level of what we would look at.

[00:12:10] TU: Tony relevant to our audience, if I zoom out for a moment, we’ve seen somewhat of a stagnation of pharmacist’s salaries, obviously, that’s very dependent upon the field and someone’s career trajectory. While we’ve seen a significant bump up in home prices, as well, as you know, I just read an article the other day in the journal about home insurance, homeowners insurance costs going up. So, if we think about what’s involved in that 28 to 36, rule 28 percent, again, being maximum monthly housing expenses, 36 percent would be maximum monthly gross income going to all debts, as you alluded to, and of course, student loan debt, has been going up, as our listeners know, too well.

So, these do have implications for our audience, in terms of understanding these rules, what’s involved and to your comment, just to reinforce it, the number that gets spit out by the lender, may or may not be in line with the budget and the rest of the goals. So, we’ve got to take a step back and determine what makes sense in the bigger picture.

Tony, one of the most common questions we get is 20 percent down, yay or nay? What are the pros and cons of putting 20 percent down? I think the reason it’s top of mind for many is just the amount of time and savings it can take to put 20 percent down. So, if I’m buying a $400,000 home, I stay true to that rule of thumb of 20 percent, looking at $80,000, I’ve got $200,000 of student loan debt, I’ve got other competing priorities. That takes time, to be able to do that. From your perspective, what are some of the things that you think about in terms of the pros and cons of that 20 percent down payment?

[00:13:46] TU: Well, you’re exactly right. It can take a long time to save 20 percent. This is a question that comes up a lot. Let’s start with the pro. Let’s look at the pros first. I mean, clearly, you’re going to owe less on your mortgage if you put 20 percent down. So, your payment would be slightly lower. But it’s not that much lower because interest rates are so low. So, that additional 20 percent is really not buying you much of a lower payment. It might be, maybe $100 a month, or something to that effect, maybe $200 depending on the price of the home, but it’s not going to be a substantial amount for the amount you’re putting down. So, that’s one pro clear, I’m going back to the pros, is you owe less.

The other thing is if you’re not a, for example, pharmacists, we have some programs that you can avoid PMI, which we can address later. But if you’re not, let’s say you’re in my role, you I don’t have a PMI option for my career path. So, 20 percent down would help a lot of people avoid PMI. So, clearly that’s a pro. And then, the other thing you owe less on your mortgage so you have a little bit more margin there. Those would be some of the pros. You can also maybe afford more home, because your payments lower, or you’re allowed a higher debt to income ratio, because I did reference earlier, we can often even get approvals up to 50 percent. Well, if you put 20 percent down, there’s going to be no constraints from the MI company or the lender’s underwriting, for example, they may allow you to go to a higher level, because 20 percent down frees you up. If you have great credit, and you’re putting a nice down payment, you can actually get a higher debt to income ratio, often, approved.

So, those would be some of the pros, Tim, of putting 20 percent down. Some of the cons, clearly, one is just how long it takes to save the funds, and that plays into a whole bunch of other things, too, that I see quite often. Number one, you could use that, those proceeds to pay off higher interest rate debt, because mortgage rates are low plus, the mortgage interest is often tax deductible as well. So, you’re really not even paying the actual note rate you’re paying in many cases, so you could use that extra money to pay off other higher interest rate debt, whether it’s auto loans, student loans or credit cards.

The other thing is home repairs, upgrades, if you’re looking to remodel, it’s very common right now. People will say, “Hey, I want to redo the flooring in the kitchen.” And that gives them greater margin to do that. They’ll have their own money, they can actually get into the home, acquire it with less money down. And then of course, they can do all those things they want to do the house which creates value. One thing just to address with like investment, a home is more of a lifestyle to place to live. It’s an alternative to renting, but if we do work with some savvy investors, too. I have referenced before on this climb. I’m doing this for 20 years. I’m getting kind of old. I have quite a few investor clients. And I’ve noticed over the years that some of the savvier investors look at their returns differently than a lot of us would, right?

For example, just think about this. I mean, the average appreciation, let’s take out the last few years it’s been way above this. But normally it’s like 3.5 percent to 5 percent a year, is kind of historical, average appreciation for homes over time. If you were to find a home, let’s say you bought a 400,000 home, and you put 5 percent down such that’s going to be a $20,000 down payment. Okay. Well, let’s say that house, the following year is worth 420. Well, you just made 100 percent return on your investment. You only put 20,000 down to secure the home. And now your home’s worth 420, you just made 100 percent return in one year. I mean, it’s an incredible return, right?

Where if you put 20 percent down, you would have made roughly a 25 percent return, right? So, it’s still a good return, but not the same return. That’s how a lot of the investors that are out there, look at their returns on real estate. So, institutional investors look at it that way. But even us we can look at that way, you know, because that’s what we invested truly, and we put down $20,000 to buy that 400,000 home. And now we’ve made 20,000 in equity. So, we’ve doubled our investment in that case. Versus if we put 80,000 down, which would be 20 percent down, and we made 20,000 and we got a 25 percent return.

So clearly, the con is you don’t get the same returns, right? Your return is not as high. I think I’ll add one more thing to that with returns is, you could also use it for other investments. For example, the team at YFP, IRAs, Roth IRAs, there’s a lot of other alternatives out there to diversify, instead of putting all your money into real estate. I’m a big believer in being diversified. So, I think, clearly a con, if that’s a lot of your net worth that 20 percent, you’re putting it all into one asset may not be the wisest thing. So, those are just some cons there, Tim, to consider. And I guess, as we compare those options.

[00:19:09] TU: Tony, you’re alluding to two really important concepts that tie into the financial plan, which is leverage and opportunity costs, right? Any purchase and financial decision we make, there’s an opportunity costs or an evaluation of an opportunity cost. Here we’re talking about putting more money into a home that might be used elsewhere. I think that for many of our folks, this is a time to do some self-reflection evaluation as you look at risk tolerance, as you look at other goals that you have, looking at student loan debt, looking at your long-term investment retirement picture. That’s one of the things I think the team at YFP Planning does so well with the financial planning clients is help them look at a decision like a home purchase decision, have these conversations about appropriate amounts of leverage and the other goals that they’re trying to achieve, and then help coach through that decision making while looking at home buying in the context of the rest of the financial plan.

I think this is a good place, Tony, that we just remind folks, that down payment, of course, is not the only expense we need to be thinking about, right? We’ve talked about this on the show before, you know, earnest money, closing costs. So, what you’re going to need in some to come at the table to close, but then also, beyond just the ongoing monthly payment, which you mentioned, the PITI concept. So, principal, interest, taxes and insurance, what about everything else associated with that home purchase? So, whether that’s maintenance, and upkeep, and things that you expect, remodeling, finishes, landscaping, equipment that you need for the home, now that you have that home purchase. Really taking a step back, especially for those that might be currently in a renting situation to say, “What’s the total cost? And are we ready financially to make this decision?”

So, that’s number two, is knowing the budget. Number three is getting prepared -approved. So, once you’ve done some research to understand rates, created a budget, safer down payment and some of the other costs I just mentioned, next up is getting pre-approved. Tony, why is the pre-approval process so important? What is it? And how is that different from pre-qualification?

[00:21:09] TU: Well, the pre-qualification is typically a very easy thing that can be done. But unfortunately, this doesn’t carry a lot of weight. So, the key differences are, an actual pre-approval is going to be when a lender looks at your credit report, and then also looks at your income. So, it’s not just looking at credit, it’s actually asking for a pay stub, for example, and we verified your pay stub. Where pre-qualification, you don’t even run credit, you just put in what your expenses are, and tell the lender what your income is, and say, “Okay, great, you’re pre-qualified”, that doesn’t carry a lot of weight in the real estate community.

We talked to a lot of realtors, they call us a lot of times on offers, the listing agents do when they receive an offer and the buyer will include our letter, our pre-approval letter and ask some – they want to know that the client is qualified because it’s a competitive marketplace, and they don’t want their properties being tied up. So, the key difference is the lender has run credit, has reviewed your income. Those are the key differences there between the two.

The other thing that the pre-approval, I mean, that really brings value that I’ve seen over the years is the credit report. I want to bring this up, because a lot of us follow our credit scores, whether it’s Credit Karma, or a lot of these other monitoring services that are out there. But they don’t truly give an accurate reading of what a creditor sees. They’ll give you a kind of a good idea of what your scores are doing, and like if they’re moving higher, then the trend is probably good for you. But they can often be 20 to 30 points, 40 points even lower than what a lender sees. Because we run all three bureaus, we don’t follow one.

So, the mortgage community runs a report that has all three bureaus, TransUnion, Equifax, and Experian and we use the median score. So, we use the median score of the three to determine your credit score. And the value that I think can come here is, clearly, you know your score, which can determine if you qualify, but also your interest rate, right? So, the higher your credit score, the better your rates tend to be. And some lenders, and not all lenders can do this, but some lenders have the ability to help you with rescoring.

Basically, they have a program where they can tell you what you can do to improve your score. And that’s been invaluable for many people that are home shopping right now that we’ve been able to get them either qualified or into a better program by telling them, “Hey, by the way, if you pay down this credit card, for example, your score will go up 20 points.” Or “If you consolidate this loan or whatever it might be, you can improve your credit by this much.” So, that’s been something that’s been helpful during the pre-approval process, Tim, that I’ve seen lately.

[00:23:56] TU: And that’s a good connection back to Episode 216, Tony, when you and I talked about common credit blunders to avoid when buying a home. Again, we’ll link to that in the show notes, but credit is such an important part of the home buying process for the reasons that you mentioned. So, really looking at any due to shore up credit and making sure that you’re understanding your credit scores and using the right tools, so that you’re not surprised when you get into that pre-approval process.

So, that’s number three, get pre-approved. Number four is comparing lenders. Tony, we know that not all lenders are created equal. Ultimately, we’ve got to make this decision of what lender am I going to work with? What type of loan am I going to pursue? I think sometimes these are recommendations that might come from an agent, might be recommendations that come from a family or a friend or coworker, might be a random internet search. So, I think it’s worth talking about what are some of the things that folks should look for in a lender?

Now, of course here, Tony, you’re representing IBERIABANK/First Horizon, and we’re talking about the pharmacist home loan products. So of course, there’s a vested interest in folks evaluating that option. But from your viewpoint, what are some of the things that folks should be looking for when choosing that lender?

[00:25:06] TU: Well, there’s quite a few different types of lenders out there, and all of them have varying pros and cons to working with. So, I could kind give you guys an idea of some of the lenders that are out there, you have what are called mortgage brokers who are true, almost like a middleman between lenders, and there’s pros and cons with working with those types of lenders, because they do have a lot of options where like a larger bank may not have as many options as a mortgage broker. But mortgage brokers tend to be more expensive. I find that they’re typically better when you have a really more tough case, whether it’s a credit score issue or some other issue, they can be more valuable than a bank in a lot of ways. Because they have some more greater flexibility.

Then you have the correspondent lenders, which are mortgage lenders that may have small branches in a city or a town. They’re not a bank, but they are able to lend directly to Fannie and Freddie. They use, not to get too complicated here, but they actually use bank warehouse lines to fund the loans, and then they’ll sell the loans, but they are true correspondent lender. And then of course, there’s banks. But there’s different types of banks, there’s large banks like the Citi groups and the Bank of America’s and Wells Fargo. And then there’s more of a medium sized bank, like the bank that I work for, and then there’s small community banks, too.

So, there’s lots of different sizes, and all have pros and cons. When you’re looking at mortgage lenders, programs are very important. The program that you can get is important. Rates are important as well. The other thing that’s very critical, is being able to fulfill the timelines, because there’s some challenges out there with certain types of lenders where they can’t meet the commitment letter deadline in the purchase contract, or they have a struggle with their appraisal process, or they have a struggle closing a loan in 30 days. Those are questions you need to ask the lender upfront, because different lenders had different operations. Some will actually use outsourced processing, which might be in another state, whether it’s not all under one roof, or the loan originator that you talk to may not have control over that process.

So, those are just some things to think through. But clearly, there are advantages and disadvantages for every type of lender that’s out there. So, it’s good to know, get some recommendations, and also to kind of compare the products and make sure it’s a fit for you and that you feel comfortable with the group that you’re working with. I think ultimately, that’s the most important thing, that you feel confident that they can help you and fulfill the closing date for you. That’s a key element.

[00:27:52] TU: Yeah, that’s a good reminder, Tony. Interest rates, of course, are very important for the reason we mentioned in terms of the length of the loan, and what that’s going to mean in terms of dollars out of pocket. But don’t overlook some of those things about abilities around appraisal and underwriting and closing on time and communication, and making sure that you feel comfortable. There’s, of course, going to be some open communication. There’s a lot of things that need to get done in a short amount of time.

So, I think it’s a good place to highlight the pharmacist home loan product that is offered, Tony, through your organization at IBERIABANK/First Horizon. We’re seeing a lot of interest in the pharmacist community about this product, which many listening might have heard of doctor type of loans and think, “Hey, I’m a pharmacist. I’m not eligible for that.” And here with IBERIABANK/First Horizon, we have an opportunity that is available to pharmacists. So, talk to us more about that program in terms of down payment, what’s involved or not with PMI, maximum loan amounts and where this option is available in terms of where folks may live?

[00:28:58] TU: Sure, sure. Well, this product is often a great solution, and it’s been really fun to be able to help so many people with this program. It is somewhat unique in that you can put very little down payment and not have PMI and still have very aggressive interest rates too. So, to kind of just highlight the program overall is, if you’re a first-time homebuyer, first time buying, you can put as little as 3 percent down. And of course, there’s no PMI. If you’ve owned a home before, it’s 5 percent down. You’d have to put a 5 percent down payment and the no mortgage insurance clearly is an advantage. But the other thing too is oftentimes the rates on this program, the 30-year rate that we offer on it is often better than my 20 percent down rate. So, you’re still getting a really competitive rate and priced very, very well. As far as the minimum credit score is 700. So, there is a minimum credit score you have to be above 700. There’s no like clear reserve requirement. What that means is having extra money reserves of payments in your bank account or investments, which is nice too, for a lot of first-time homebuyers and those that are buying their first home.

But the other piece about the loan limits that Tim referenced, currently, our loan limit on this product is 548,250. But that’s about to change. I think we’re probably looking at at least 625,000 starting January 1, 2022. So, we’re going to see a nice bump up. It may even be higher than that, and that’ll be across the country. So, this program is available in basically the 48 lower states. Alaska and Hawaii are the only two states that we’re not licensed in, but we can offer it in 48 states. So, it’s a nice footprint that we can help and we’ve helped individuals in pretty much every state, I think, that I referenced.

But the loan limit thing is exciting, because I think that’s going to enable a lot more people to buy in higher priced areas. And we may even see that go higher than that in certain areas that are even higher priced. And there are certain parts of the country that priced markets, housing prices are much higher, clearly in California, in and around DC, Northern Virginia. So, those are some places where this could be even higher than 625. So yeah, it’s exciting to see a little bit of a move higher there.

[00:31:19] TU: So sorry to our friends of YFP in Alaska or Hawaii, as Tony mentioned, this is available in the lower 48. We’ve got more information that goes into more detail on what Tony just shared there. You can find that at yourfinancialpharmacist.com/home-loan. And again, that’s a summary of much of what we’re talking about here on this episode as well.

So Tony, we’ve talked so far about knowing the landscape of interest rates. We referenced the Freddie Mac resource, folks can go to find that information, making sure that they’re considering that points may be including those rates, as they’re looking at various options. So that was, number one, know the landscape. Number two, we talked about knowing your budget, the importance of not only the down payment, but also other costs that are involved in the transaction, as well as ongoing costs with the home purchase. Number three, we talked about pre-approval, why that’s so important, how it’s different than pre-qualification, and how the credit score has implications there. Number four, we just talked about comparing some of the lenders and the options that are out there and we talked about the pharmacist home loan product.

So here we are, finally, we put in an offer on that home, we’ve got our lender obviously lined up, we’re working with that agent, hopefully that offer is accepted. And now we’ve got this process that happens from offer accepted to ultimately closing on the home where those keys are handed over. So, what should folks expect in this application underwriting process in terms of forms that they’re going to need to prepare, documents that they’re going to have to show, and any work that they might be able to do in advance to get some of that ready?

[00:32:55] TU: Yeah, so the exciting part happens, right? We’ve got the property under contract, but there is quite a bit of of items that lenders will need. Once you feel comfortable and you found the lender, that’s a good fit for you, lenders, we’re all really going to need the same things, and it’s going to be income information. So, if you’re self-employed, we’ll need typically two years of your tax returns, both your corporate returns and your personal returns. And then for income for those that are employed, it’s a little easier, just need two years of your W-2s, and your most recent pay stubs for the past 30 days. Those are what lenders will need to verify income.

Then we’re going to have to verify your down payment. And typically, that’s going to be bank statements and lenders have different types of ways to do this. We actually have a technology that we’ve – no, it’s not our proprietary technology, we have a FinTech company out of California, that has been doing very well in the mortgage space. They built a platform where when clients enter their information, we can actually do a read only format for your bank statements. So, you don’t even have to supply them. It’ll tell us what’s in the account, and the average two months and we verified it that way. So that’s been really helpful and a lot of clients have liked that.

But outside of that alternative, traditionally, it’s two months of statements. So, two months of your most recent bank account statements to verify the down payment. If they need additional reserves, if the lender needs additional reserves in, if you have an IRA or 401(k), or any investment account, brokerage account, those assets would be verified with a two months of statements or a quarterly statement as well. And then of course, we’ll need a copy of the purchase contract. So typically, once you have a purchase contract available, you’re able to lock a rate in and that’s important because rates can be volatile. They can move in, especially with economic reports, that can cause rates to move up and down and lenders typically cannot lock rates until they have a purchase contract so they know how long to lock it and they have an actual property address for the bond that they’re locking, basically. So, that’s another step that we’ll need.

The other items that you need to work on too, is homeowner’s insurance. I always encourage people that to get started with that as soon as possible, especially if you’re in the southern states, southeastern states during early July, through the end of October. We have some tropical storms down in this area and hurricanes, even if they’re not any threat to you, if they are in, what’s called the box, insurance companies have limits on when they can write insurance. So, we’re always very encouraging to get that process started soon. So, homeowners’ insurance is an important component. And typically, driver’s license, things like that.

The application will go through all the questions about your employment, where you’ve worked the last couple of years, a lot of your vitals, date of birth, social security number, those types of things, and you’re on your way. So, it’s an exciting – that’s when the process officially begins. Typically, the appraisals ordered shortly after that mortgage application is put in. So, we also need to know who your realtors are, if there are realtors involved, so they can open the home – they can be the point of contact for the appraiser. That’s another item that we need to know. We need to know the parties who are involved. And often we do, but I just included that because that’s something else the lender will need to know. You may need to supply that to your lender, make sure that you do. That information, the key contacts in the transaction. But from that point on, that the journey is on, and you’re moving through the loan process after you make that formal loan application.

[00:36:33] TU: Yeah, and I mentioned a few moments ago, Tony, the importance of open communication. This is an exciting time, this can feel overwhelming, there’s a lot of moving pieces and parts. I think much of what you just shared to me is a good reminder of folks of like this is the time to over communicate on both sides, for both the lender, as well as the home buyer, and making sure that you’re being responsive, things need to move quick, there’s a lot of ducks that need to get in a row. The other reason, I think, this section here on our final one on completing the application and bringing this whole process to ultimately a close is folks should be thinking about some of the information that’s been requested and what implications things like job transitions may have, big financial purchases people are making, right?

Ideally, we’re trying to have as little disruption as possible in this time period, because of the information that the bank is requesting from you and wanting to have the stability of both that funds to close as well as looking at your income. So, for folks that are in transition, for folks that have pending large purchases, I’m thinking of the residents or the fellows and those that are moving from a first to a second job. Just be thinking about some of the timeline and the implications that has on finishing up this process and ultimately the overall home buying process.

Tony, great stuff as always. It’s been a great year of having you on the show, and always appreciate your input and your expertise. And folks, again, more information, yourfinancialpharmacist.com/home-loan. You can learn more about all of what we talked about here on this episode, as well as the pharmacist home loan product and get in touch with Tony and the team at IBERIABANK/First Horizon from there. Tony, thanks so much.

[00:38:10] TU: Thanks for having me, Tim. Always good to be here. Thank you again.

[SPONSOR MESSAGE]

[00:38:13] TU: Before we wrap up the show, I want to again, thank this week’s sponsor of Your Financial Pharmacist podcast, IBERIABANK/First Horizon.

We’re glad to have found a solution for pharmacists that are unable to save 20 percent for a down payment on a home. A lot of pharmacists in the YFP community have taken advantage of IBERIABANK/First Horizon’s pharmacist home loan, which requires a 3 percent down payment for a single-family home or townhome, and has no PMI on a 30-year fixed rate mortgage. To learn more about the requirements for IBERIABANK/First Horizon’s pharmacist home loan and to get started with the preapproval process, visit yourfinancialpharmacist.com/home-loan.

[OUTRO]

[00:38:55] TU: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and it is not intended to provide and should not be relied on for investment or any other advice. Information of the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

Furthermore, the information contained in our archived newsletters, blog post and podcast is not updated and may not be accurate at the time you listen to it on the podcast. Opinions and analysis expressed herein are solely those of your financial pharmacist unless otherwise noted and constitute judgments as of the dates published. Such information may contain forward looking statements, which are not intended to be guarantees of future events. Actual results could differ materially from those anticipated in the forward-looking statements. For more information, please visit yourfinancialpharmacist.com/disclaimer.

Thank you again for your support of the Your Financial Pharmacist Podcast. Have a great rest of your week.

[END]

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