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YFP 189: Options for Investing When You’re Maxing Out Your Retirement Accounts

Posted on by yfpadmin


Options for Investing When You’re Maxing Out Your Retirement Accounts

On this episode sponsored by LendKey, Tim Baker, Co-Founder and Director of Financial Planning at Your Financial Pharmacist, joins Tim Ulbrich to talk about strategies for investing when you have maxed out your traditional retirement accounts.

Summary

Tim Baker and Tim Ulbrich dive into what traditional retirement accounts are, how contributions have or have not changed, the priority of investing, and strategies for investing when you’ve maxed out your traditional retirement accounts.

Tim Baker explains that traditional retirement accounts are generally any employer sponsored accounts, like 401(k), 403(b), 401(a), or TSP accounts. Traditional IRA, Roth IRA, SEP Ira, and Simple IRA accounts are also considered traditional retirement accounts. Many of these accounts have stayed stagnant in regards to contribution limits from 2020 to 2021, like 401(k) and 403(b) accounts which remain at $19,500. However, IRA accounts have increased to $6,000 (aggregate total for traditional and Roth accounts) and HSA contributions have increased to $3,600 (single) and $7,200 (family) with a catch up of $1,000 for those over 55.

Tim suggests a few areas of investing to consider after maxing out traditional retirement accounts. Real estate investing is a viable way to build wealth as it often provides flexibility and cash flow, can generate both short and long term gains, and comes with a lot of tax benefits. Of course there are risks involved with real estate investing and it isn’t as passive as a traditional retirement account, but can be a way to help grow your income and net worth. Starting or investing in a business is another avenue to take after maxing out your retirement accounts. This could be in the form of starting a side hustle or business, inheriting or becoming part of a family business, or investing in a partnership. Lastly, taxable brokerage accounts like Robinhood or Acorns are a good stepping stone to get into a different type of investing, however Tim suggests being intentional with what your setting brokerage accounts up for. He also shares that the more boring you can be with investments, like investing in the S&P 500 or total market index funds, the better it is.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Tim Baker, good to have you back on the mic. What’s new?

Tim Baker: Not much. Just settling into our new office, YFP headquarters in downtown Columbus. So that’s coming together slowly with just furniture and everything else. But yeah, just getting comfortable. How about you?

Tim Ulbrich: Yeah, exciting times, I think, for YFP. Excited about having you in Columbus. And we’ve got some exciting things planned for the year, and so here today we’re talking about all options for investing after you’ve maxed out traditional retirement accounts. So first of all, if you are somebody listening that hasn’t maxed out your traditional retirement accounts, kudos to you. That’s not an easy thing to do by any means. And remember, as we say many times on the show, investing is only one part of the financial plan. It can’t be looked at in a silo. And for those that are listening that are at the beginning of the investing journey or looking for a refresher, make sure to check out episodes 072-076, our Investing 101 series, as well as Episode 163, Investing Beyond the 401k, 403b, where we discussed IRAs and HSAs in details. And so we’re going to build upon that information here today. So Tim Baker, let’s back up a bit. What are we talking about when we say traditional retirement accounts?

Tim Baker: I guess the thing that pops into my head first and foremost are going to be what’s provided through the employer. That’s typically things like the 401k, the 403b. A lot of us have supplemental retirement plans, things like the 457, some people have 4018s, which are kind of like 401k’s. And then those that we kind of manage ourselves or through the help of a financial planner, so these are things like traditional IRAs, Roth IRAs. Sometimes we’ll see SEP IRAs for those that are self-employed or work for a small business. And simple IRAs also fall under that. So traditionally, those are the ones that we lean on first when we’re kind of looking at ways to defer income for the purposes of saving for retirement.

Tim Ulbrich: So talking about 2021 numbers here, have contribution limits changed from 2020 as folks are considering, alright, new year, what could I be doing to take advantage of these accounts?

Tim Baker: Some of them have changed, but a lot of them actually stayed stagnant. So the most common, the 401k/403b, is the same. So in 2020, you could put $19,500 per year. And that’s of your own money, so doesn’t matter what the match is that your employer gives you. That’s of your own money. And that’s the same for 2021. So you know, if you take your income, you take $19,500 and divide it by your income, that’s the max percentage that you could put in throughout the course of that year. So what I always say to clients that — particularly those that are starting out and maybe they have a little 401k inertia, which is hey, I put 3% and my employer matched 3%, and then they get stuck there. Years later, they’re 5-10 years into their career and they’re still there, that’s typically not going to be enough. So I kind of like the idea of planting the seed of a race to 10% or a race to double digits. And again, that’s kind of just a rule of thumb. Now, in the IRA world, the contribution limits are also the same. So you can put up to $6,000 per year, if you’re thinking about this monthly, $500 a month, into a traditional and/or Roth IRA. So that’s an aggregate number. So if I put $1,000 into my traditional, I can put $5,000 into my Roth IRA. And then probably the other one that I would call out that actually did creep up a bit is the HSA, the Health Savings Account, which is the one that we always talk about that has the triple tax benefit. So if you’re in a high deductible health plan, you basically qualify for that. If you’re an individual, you can put up to $3,600 per year. If you’re a family, $7,200. And then if you’re over 55, there’s a catchup of $1,000 per year as well. So those would probably be the ones that I would call out. So again, if you are in that population of people — which I wouldn’t say it’s always a lot of the clients that we’re working with — but if you are in that population of people that are maxing out the 401k, the IRA, the HSA, then this episode, you know, might be for you where you’re like, OK, well where do I go next?

Tim Ulbrich: And as a reminder, we have a new quick reference guide too. You can quickly take a look at 2021 key retirement numbers, including 401k, 403b, traditional IRA, Roth contribution limits, HSA, education tax credit incentives, required minimum distribution, tax rates. So for those number nerds out there, this is for you. YourFinancialPharmacist.com/2021, you can download that sheet. So Tim, that was one of my questions. I talked with a prospective client this morning who was really in this camp of, you know what, I need to full throttle my investing plan. So I’m at a point of or near at a point of maxing out my 401k, yes, I see another $6,000 I can put in an IRA, doesn’t necessarily have access to an HSA, so is at this point of alright, I’m ready to go with the next steps. So how often do you see this among pharmacists and clients of ours? How hard is it for pharmacists to max them out? And for those that aren’t maxing them out, what’s typically holding them back?

Tim Baker: It’s hard. I think, again, it depends on where you are in kind of your career and where you’re at. If you are a more of a new practitioner and you’re saddled with six figures of debt, to put money into a 401k can be a little bit of a tough go, especially if you’re looking at a $2,000 monthly loan payment. Sometimes, that is very much baked into the strategy that we are employing that the money that goes into these pre-tax accounts lowers AGI and potentially maximizes a forgiveness play, or if you’re looking at a I’ve refinanced, I’m trying to get through them quickly, I am paying $2,000, $3,000, $4,000, sometimes just not a lot of money left over to go into these retirement accounts. Now, there are 10% of pharmacists out there — those are the numbers — that don’t have loans, that kind of the world is their oyster. But that doesn’t always necessarily mean that their money is going into retirement accounts. A lot of pharmacists after going through years and years of training, it’s kind of like, alright, I need to treat myself a little bit. And then that can sometimes be hard to get out of as well. So I think the flip side of that is if you are further along in your career — so the answer, you know, one of the questions is like, is it a big deal that I’m not maxing these out? And I’m like, it depends. If you’re 35 and you’re trying to retire by 50, maybe it is a big deal. If you’re 45 or 50 and you’re trying to retire by 60, maybe it is a big deal. So I think it’s a little bit of, again, looking at the math and how you feel about what your retirement prospects look like and then marrying those two up. But I think if you are in early in your career and you’re maxing these out, it’s just such an easier lift because in the investments, it’s not about timing the market, it’s about time in the market. And if you can get your money working and have that work for 3-4 decades, that money, you know, is just going to go that much further rather if you wait a decade or two out before retirement. So typically, the earlier that you do it, just the easier that number is that you need to be setting aside per month versus waiting. And that’s really what we’re talking about here.

Tim Ulbrich: And I’m going to give a disclaimer here, Tim, before I ask my next question that none of what we’re talking about here is obviously individual investment advice. And for the reason you just mentioned there, it does very much depend on one’s personal situation. And it’s becoming the running joke of, “it depends,” on this podcast. But it’s so true and speaks to the value of one-on-one, customized planning. So my question is, you know, let’s say someone is investing in their 401k/403b or employer-sponsored plan, should they focus on maxing that out first? And really, what I’m getting here is what’s the order of priority when it comes to investing and how do we think through determining this order?

Tim Baker: Yeah, so if we kind of can figure out like how to navigate the multiple competing priorities — and obviously, we talked about like student debt, you know, we didn’t really focus on consumer debt, which we have a lot of pharmacists that come to us that are — we recently started working with a pharmacist, and their biggest pain point was about $50,000 in consumer and personal debt. So — and rightfully so. That’s the one that’s probably the most debilitating. If we can work through the other competing priorities like other pieces of debt and the life events that are — whether it’s marriage, buying a house, having kids, going on vacation, caring for elder parents, you know, saving for kids’ educations, and all that stuff, then really, the baseline I think priority that we typically look at — and I would probably say for Step 1, everything else aside, unless you have really terrible credit card debt, at a minimum I think everyone that has a match available to them from their employer, they should capitalize on that. So you know, the old adage is like, take advantage of the free money. So one of the things I’ll humble brag is like YFP, we have a Safe Harbor 401k that if our employees put in 5%, we match 4%. And I want to make sure that everyone’s taking advantage of that because it is free money. So to me, for the most part, everyone should do that. From there, you know, if there is an HSA on the table due to a high-deductible plan, I’d probably say that would probably be the second bucket to look at because it has a lot of versatility in terms of what you can use it for. You can use it for today’s health expenses, tomorrow’s health expenses, and then tomorrow’s like retirement. And with the triple tax benefit, if you can shelter $3,600-$7,200 per year for the next x amount of years, that’s a great benefit. And then from there, what we typically say is look outside of the 401k and look at things like IRAs, whether that’s a Roth IRA or a traditional IRA. The reason for that is typically, a lot of 401k’s are strapped with administrative fees and/or there’s not a lot of investment options. But it’s more tied to the fees. So if you can establish an IRA and keep costs low, I think that’s a big win. We believe that the expense related to investments is going to be one of the bigger drivers in making sure that you have an efficient portfolio. So if we can do that in an IRA — and to go back to that, a lot of 401k’s are not created equal. So you have some great 401k’s and 403b’s that are absolutely efficient and fantastic, and then you have those that are not. And it can be a very, very wide range. We’re talking about, you know, very wide differences between great and not-so-great. Typically, though, once you max out the IRA, what you want to do is go back to the 401k and max that out. So that’s that $19,500. So again, you calculate that by $19,500 divided by your — or your income divided by the $19,500 — and that’s the percentage that you use. And then finally — and this can probably work concurrently in some ways — you know, if you do have access to other retirement plans or SEP IRAs if you have a side business or things like that, that might be another good way to go. And then from there, from a traditional sense, you know, a lot of financial planners will just point you to a brokerage account. So those individuals that have like a Robinhood account or an Acorns account, where they typically do that Step 1 or Step 2, you know, in most instances, it’s better to kind of make sure that you’re doing all these other things first. But it could be a brokerage account, it could be where you get into real estate investing. It could be where you are buying into a business or starting a business, things like that. But that’s kind of a general rule of thumb for most investors on how to tackle the priority.

Tim Ulbrich: Great stuff, Tim. And we will link in the show notes, we have an investing priority document. We’ve talked about it previously on the podcast as well. I can’t help but mention, you brought Robinhood’s name up before — what a week for Robinhood with the whole Gamestop thing going on this week.

Tim Baker: Yeah, I know, right?

Tim Ulbrich: Pretty crazy times. But I think brokerage accounts are getting a lot of attention this week. So we’ve established some of these more traditional accounts, 401k’s or 403b’s, or for those that are working in the federal government, of course the TSP, you mentioned the HSA, the IRAs, going back to the 401k or 403b or equivalent, perhaps a SEP IRA. And then we got to this, you know, what’s next, right? And so of course, often the advice is a brokerage account. But you mentioned several other things that might be in the mix, so perhaps real estate investing, of course, the brokerage account, investing in a business — I know I often hear something like insurance type of investments may come up. So let’s break these down a little bit further. First off, real estate investing. This is something we talked about a lot in 2020 and are excited to dig into this topic even more in 2021 as we’ve heard from many of you that are interested in learning more about real estate investing, whether that’s hearing some of this for the first time, whether that’s investing in building the portfolio that you already have, or perhaps for some of you, hearing and saying, you know what, it’s not a good fit for me. And obviously, we try to bring both sides of this, of sharing stories of folks that have been successful but also appropriately bringing in the risks that can come here as well. So Tim Baker, from your perspective, I know you personally have an investment property, I know this is something that has come up with clients, something we’re talking more and more about with clients, tell us at a high level why real estate investing, from your perspective, can be something at least worth evaluating for folks out that are maxing out these accounts?

Tim Baker: Yeah, so I think, you know, if we step back and we kind of think about like traditional financial planners, I think, you know, what I typically hear is from a financial planner, like ah, like do you really want to do that? Because do you want to unclog toilets at 2 in the morning? And the answer is no, nobody wants to do that. But I think the sentiment is really rooted in how the advisor gets paid in a lot of ways. So traditional financial planners are really going to get compensated by you, the client, having as much money in your traditional investments, whether that’s an IRA or a brokerage account or a 401k for you to eventually roll over to them for them to manage. I guess the way that we view this is we view real estate as a viable way to build wealth outside of traditional investments that have both kind of near-term benefits of flexibility and cash flow, you know — for example, when you put your money into a 401k, like wave goodbye to that until you’re at least 59.5, for the most part. So you never really can get access to that where if I buy a property, like I could start cash flowing that and make $100, $200, $300 off of that property the next month. There’s that near term, but then you’re also building, and the asset is appreciating as the note that you’re paying down is depreciated. And then there’s a lot of tax benefits from that in terms of being able to make income but then offset that by the deductions. And there’s a lot of things that’s built into the IRS tax code that reward real estate investors. And I think the other thing that’s flexible is that you could keep that, you know, if you talk about a buy-and-hold strategy, you could keep that for the next 30 years just like you keep a 401k. Or you could say 10 years into it, I want to liquidate this and do something else and basically cash out the equity that you have in the property and go do something completely else, which means you could retire on that. So that is maybe another viable strategy. So because of the flexibility, I think because of the tax benefits that you receive, I think it’s a viable way to build wealth. Now, is it as passive as traditional investment? No. And the more passive it is, the less benefit and flexibility that you’ll get. The more actively managed it is, typically the more flexibility and benefit that you get. But then the tradeoff is that you’re actively managing and it takes time and there’s risk. Well, there’s risk in anything. But I think, Tim, really for those reasons, that’s why we like it. And we think it’s a vi — again, a viable way to build wealth. And at the end of the day, the way that we work with clients is what we’re trying to do is help grow and protect income so you could make an argument that we’re growing income in a real estate portfolio by, you know, we’re cash flowing and we’re protecting it because maybe we’re diversifying that away from a typical pharmacist’s salary. We’re growing and protecting the net worth, which means what we have a collateralized asset with a note that’s appreciating over time, while keeping your goals in mind. So again, if that means early retirement, if that means more of a nontraditional path in terms of the career, I think the real estate aspect creates a lot of opportunity to really fulfill financial independence in the eyes of the pharmacist.

Tim Ulbrich: And I’m so glad, Tim, you mentioned the story and example that’s often used as the objection early on of like, who wants to be a plumber in the middle of the night? And I remember — for those that have read “Rich Dad Poor Dad,” they will be able to resonate with this — but I remember reading that book for the first time, and it was like unlocking like a piece of information that I hadn’t really been exposed to or learned before. And that obviously is a little bit more philosophical in nature, and then you start talking to people who are doing it and learning more about it, and that’s one of the great things about where we are in 2021, I mean, the resources available out there to learn more and to connect with others that are doing it is really, really incredible. But I think being open to learning, you know, perhaps being willing to see what might be the answer to some of those objections is really important. And we’re excited to bring more pharmacist’s stories to this community in 2021 on real estate investing and also connect other pharmacist investors with one another. And I would point folks back to Episode 167, we brought on David Bright to talk about must-know real estate terminology. I think that’s a great place to start. You mentioned, Tim, many of the upsides and benefits, perhaps appreciation, cash flow, tenants paying down a loan, some tax benefits, obviously we’re just scratching the surface here. And obviously, you also presented some of the challenge. You know, it may not necessarily be passive, the quality of tenants may or may not be what you have in mind. I think too there’s a little bit of, you know, I call it HGTV syndrome, Tim, in terms of like, you know, you watch the flipping show and you’re like, yeah, I got it, right? And so I think we’ve all got to take a step back and really make sure we’re not overconfident. But I think for pharmacists, I’m not sure overconfidence is often the risk here. I think it’s probably being too passive and feeling like it’s out-of-reach and not necessarily being willing to take what they may feel is a very significant risk to get started. So we’ve talked about several of these strategies on the episode thus far, you know, obviously there’s the buy-and-hold strategy. In Episode 129, we brought on Aaron Howell, and he discussed how he built a 29-unit portfolio. We brought Ryan Chaw on Episode 140 about how he built his portfolio of college town investing. Episode 173, we brought him back on to talk about his systems, which was a really neat episode to hear how he actually operationalizes this. Obviously that’s one strategy, buy and hold. We’ve talked about flips before, Nate Hedrick, 178, five lessons learned from his flip. And we’re going to continue the conversation. There’s other areas, of course, in wholesaling and forming partnerships, and we’re excited about what’s ahead here. So real estate investing, Tim, is one aspect. Another that pops to mind that is near and dear to our hearts, obviously, with what we’ve been building at YFP is building a business, investing in a business, and this, of course, is a big topic. But at a high level, you know, what types of things do you see from our clients in terms of whether it’s side hustles that they’re starting, businesses that they’re starting or even perhaps looking at investing in other businesses and how they begin to evaluate whether that’s a path forward for them?

Tim Baker: Yeah, so I think what I see most frequently is an interest in a closely-held family business, so like a private company that was inherited from maybe a grandfather or things like that and, you know, the question is like, should I keep this? Like what’s the benefit? And you know, they’re getting K1 every year with maybe a little bit of income that they have to basically declare for the IRS. So it could be like more like that. But then I think that there’s also — I mean, we’ve had clients that have taken their side business, their side hustle, and made it a fully fledged, like a regular business. So it could be just plowing money back into the business itself rather than going into the traditional, but I also have had clients interested in investing in like a partnership, whether it’s like a gym or things like that that, you know, that’s a little bit more of a — there’s a lot of risk there. There’s a lot of, again, what’s your role? What do you bring to the business? Is it money? Is it expertise? Is it planning? Is it clients? And kind of really understanding that. Sometimes, it’s just money. So it’s like, hey, I’m going put money in and let you do your thing, and you’re kind of more of a silent investor. So this can come — just like real estate, this can come in a lot of different flavors. So can investing in a business. Again, one of my favorite shows on TV is “Shark Tank.” So I love watching that and how investors speak with business owners and I’m always interested in business just because I just like to talk small business, in particular, and what makes it work and not work. I think we have a lot of clients that are there. I would say for the most part, the predominant thing that I see is a share of an inherited family business or really, taking this hobby or this side hustle and really forming a fully fledged business and how to really handle that. And a lot of the conversation is, you know, do I take money out of the business? Or do I basically reinvest into the business so I make sure it survives and grows?

Tim Ulbrich: Yeah, and we will continue — one of the areas that I’m very passionate about in the profession of pharmacy is I feel like we are missing some creativity around helping students as well as helping pharmacists just imagine what could be different possibilities or ideas. And I think we do that by sharing stories. Not that they necessarily hear a story of a business or side hustle and say, “I’m going to do exactly that,” but to help them think about another area as an example of something that they’re passionate about in terms of solving a problem, creating a solution to that problem. And so we’ll be bringing more in that area. And you know, I agree. We have to know — you know, everyone knows the stats that most small businesses don’t work. Debbie Downer reality. But I think for those that really do their due diligence, understand what their business is all about, is there a market for it, you know, there certainly is some upsides financially in terms of tax, building equity. One of the things that gets me so excited about business is that there may not be a ceiling. Obviously there can also be a floor.

Tim Baker: Right.

Tim Ulbrich: Or falling through a floor that you have to be aware of and also access to some of the retirement options that we’ve already talked about. So we mentioned, again, in the context of investing beyond maxing out traditional accounts, we’ve talked about real estate, we’ve talked about investing in business. What about probably the most common area here, which is taxable and brokerage accounts? What are some things as you’re working with clients that you’re advising them, getting them to think about, whether it’s choosing where they’re going to be investing that money, how they might keep fees low, how they determine where those investments go? Talk to us about the approach in putting money into a taxable or brokerage account.

Tim Baker: The most common that you see are kind of like the Robinhood, Acorns just because they’re UI and they’re use is so clean and easy. And I think for a lot of people that are curious about investing, it’s a first way — you know, kind of the first way to kind of wade in and see, OK, I want to buy this stock, etc. Typically, we talk about the priority of investing, you know, we just started working with a client that had, again, $20,000 in credit card debt but then they have a $10,000 like Robinhood account. And I’m like, those probably don’t make sense. So I think like with brokerage accounts, what I am a big fan of seeing with savings is like what is this account actually for? So a lot of the uses that we see for brokerage accounts are a tax bomb. So those that are taking non-PSLF forgiveness, you know, they need to cover that tax bill. So they’re putting money into a brokerage account because they’re going to need to access it before 59.5 years old, so they can’t put it into their retirement account, and they need to be able to pay off that tax bill when the loan is forgiven. The other one is, again, when we max everything out, that’s a good use for it. So what I typically urge clients to do, though — and it really directs how we’re going to allocate that particular account — is what is it for? So if you’re trying to retire at 50, all of these traditional accounts that we’ve talked about, for the most part — and there’s some exceptions of what you can do, but you can’t really access them without a penalty until you’re 59.5 years old. So that means you have 10 years, 9.5 years where you have to figure something out. And usually, that figure something out is having a robust brokerage account or maybe liquidating part of a real estate portfolio to be able to cover those first 10 years of retirement. I think the big thing here is if you have an IRA, I probably would just have your brokerage account there. And I’m not down on any of these other apps or things like that, but I think for ease of use — and again, not every custodian is equal; there’s going to be different fees and things like that. So you want to be mindful of that. But I know the sexy and the exciting thing to do is to pick individual stocks, whether it’s Tesla or Gamestop or Ford or whatever it is. But I think, you know — and again, not investment advice — but I think the more boring that you are with your investments, typically the better it is because the sexier and the, you know, the investment strategy is, typically the more speculative and the more expensive it is to the investor. So it could be as easy as putting it into an S&P 500 index or a total market index or things like that and call it a day. So there are some advisors that are colleagues of mine, they hear me talk about real estate investing and all of these other things, and I’ll say like, “Hey, this is the reason I believe that a lot of traditional advisors don’t say it is because it’s a function of income.” And sometimes, it’s — and I get a little pushback on that because I’m kind of criticizing my brethren, but it also could just be it’s a ‘Keep It Simple, Stupid’ approach, which I think for finances, it can go a long way. So you know, there is absolutely nothing wrong — I know we’re talking about small businesses and real estate — there is absolutely nothing wrong with having a 401k, an IRA, and a brokerage account and doing a damn good job of building wealth and living an intentional, wealthy life with those tools.

Tim Ulbrich: Yeah, and I think to that point, Tim, like I would encourage our community, like lean into what you’re comfortable on. You know, I think sometimes there’s some FOMO of like, you know, oh, so-and-so is doing real estate investing or so-and-so owns their own business, and it’s cool and flashy, which you usually don’t see the other side of it all the time. But maybe that is a fit, maybe it’s not. But you know, learn about them, understand them, understand your risk tolerance — and maybe for many folks, it’s really leaning into maxing out traditional accounts, maybe opening some brokerage accounts. But perhaps those other things aren’t a good fit. And I agree with you, I’m seeing more and more pharmacists that seem to be interested in financial independence, early retirement, some combination of those, whether they love their job or maybe not. And I think this is where these tools, the brokerage account specifically, come into play. And last week, we interviewed Scott Rieckens, author of “Playing with FIRE,” Episode 188 for those that are interested in learning more about Financial Independence Retire Early. Tim Baker, great stuff. I think this really highlights for me, again, we’re only talking about here investing, one part of the financial plan. But within the investing bucket, we’ve talked about several different things that of course are traditional accounts and all of the nuances there and then beyond that, lots of decisions to be made, priorities to be balanced, and evaluations to be done. And I think this is a great opportunity to promote and shoutout our financial planning team and our lead planners that work directly with clients one-on-one to have these types of conversations, to look at what are the opportunities, what’s the goal, what’s the purpose, what’s the priority, and then ultimately, how do we put a plan in place to make sure that we achieve it over time? So for those that are interested in learning more about the comprehensive financial planning services we offer at YFP Planning, head on over to YFPPlanning.com. You can schedule a free discovery call, and we’d love to talk with you to see if our services are a good fit for what you’re looking for. And as always, if you liked what you heard on this week’s episode of the Your Financial Pharmacist podcast, please leave us a rating and review on Apple podcasts or wherever you listen to the show each and every week. That’s going to help others find what we’re doing here over at YFP. Have a great rest of your week.

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

Posted on by yfpadmin


Playing with FIRE: An Interview with Scott Rieckens

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

About Today’s Guest

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

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

Summary

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

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

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

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Scott, welcome to the show!

Scott Rieckens: Thanks for having me.

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

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

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

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

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

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

Tim Ulbrich: Sure.

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

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

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

Tim Ulbrich: Yes.

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

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

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

Tim Ulbrich: Amen.

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

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

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

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

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

Tim Ulbrich: Absolutely.

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

Tim Ulbrich: Sure.

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

Tim Ulbrich: Yeah.

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

Tim Ulbrich: Yes.

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

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

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

Tim Ulbrich: Fact.

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

Tim Ulbrich: Sure. Yes, absolutely.

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

Tim Ulbrich: Sure.

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

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

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

Tim Ulbrich: Pharmacist.

Scott Rieckens: Yeah.

Tim Ulbrich: Yeah.

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

Tim Ulbrich: Absolutely.

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

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

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

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

Scott Rieckens: Thanks, Tim.

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YFP 187: How to Maximize Your Student Loan Strategy While Federal Student Loan Payments are Paused

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How to Maximize Your Student Loan Strategy While Federal Student Loan Payments are Paused

On this episode sponsored by LendKey, Kelly Reddy-Heffner, YFP Lead Financial Planner, joins Tim Ulbrich to talk through how those with federal student loans should be maximizing their student loan repayment strategy during another extension of administrative student loan forbearance.

About Today’s Guest

Kelly is a Lead Planner at YFP. She enjoys time with her husband and two sons, riding her bike, running, keeping after her pup ‘Fred Rogers’. Kelly loves to cheer on her favorite team, plan travel and ironically she really loves great food but does not enjoy cooking at all. She volunteers in her community as part of the Chambersburg Rotary. Kelly believes that there are no quick fixes to financial confidence, no guarantees on investment returns, but there is value in seeking trusted advice to get where you want to go. Kelly’s mission is to help clients go confidently toward their happy place.

Summary

Kelly Reddy-Heffner, YFP’s newest Lead Financial Planner, breaks down what we know and don’t know about student loans right now, her process for helping financial planning clients navigate their student loans, how to choose a repayment plan, and whether borrowers should refinance their student loans when payments resume.

Kelly explains that things are changing rapidly when it comes to student loan payments resuming. While there is a lot that we don’t know about student loans right now, we do know that the most recent stimulus package didn’t include an expansion to the administrative forbearance, interest rates are still low but are starting to slightly increase, and that President Biden’s transition team announced that they would extend the student loan payment and interest freeze when he takes office, although we don’t know when that will be.

While there are many unknowns for the future of student loans, Kelly urges borrowers to get a clear picture of their debt, look at potential opportunities for forgiveness, and think about their capacity for repayment and the opportunity cost of other financial goals. Kelly explains that there are a lot of factors that go into deciding which student loan repayment strategy is best, like the borrower’s budget, behavior, and mindset and that while student loans are an important piece of the financial plan, they can’t be looked at in a silo.

To help pharmacists determine how to best tackle their student loans, YFP offers a one-on-one student loan analysis. In the student loan analysis, one of our certified financial planners works with you to evaluate which repayment option and strategy is best for your situation. They’ll help you inventory your loans, analyze the debt, give recommendations, calculate repayment amounts with different options, provide insight on whether consolidating or refinancing is necessary, and offer next steps to you.

Visit www.yourfinancialpharmacist.com/studentloananalysis to learn more about this service.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, everyone. Tim Ulbrich here. And before we jump into today’s show with YFP lead planner Kelly Reddy-Heffner to discuss considerations while federal student loan payments are still paused, we want to make sure you have the most up-to-date information. We recorded this episode last week, but today, Jan. 20, 2021, there was an executive order signed by President Biden on his first day in office related to student loans. President Biden has directed the Department of Education to extend the administrative forbearance on qualifying federal loans through Sept. 30, 2021. Prior to today’s news, the freeze on payments and interest accruing was set to expire at the end of this month. So stay tuned to this show and updates in the YFP Facebook group for continuing discussion on the implications of this news to those that have federal loans and were waiting to hear whether or not payments would restart in February. As we talk about on the show today, now is the time, while this administrative forbearance period continues, to weigh all of the repayment options and strategies and determine the one that is best for your personal situation so that you can hit the ground running with a solid plan come October 2021. And of course, for those with private loans and non-qualifying federal loans, there is no reason to wait on making that decision. Alright, let’s jump into today’s show. Kelly, welcome to the show.

Kelly Reddy-Heffner: Thanks, Tim. Thanks for having me.

Tim Ulbrich: Well, I’m excited for this episode. And I sense our listeners are eager as well, considering the topic as well as the times. And before we jump into talking about student loans and important considerations for borrowers given the current situation, let’s do a proper introduction of you to the YFP community. We’re ecstatic to have you as a part of the YFP team as our newest lead planner. And I know our clients and community will benefit greatly from your insights and from your expertise. So tell us a little bit about yourself, your career path into financial planning and ultimately becoming a Certified Financial Planner.

Kelly Reddy-Heffner: Thank you. Yeah. So I’m really happy to be a part of the YFP team and of course to be on the podcast today. So I actually started out after getting my MBA working in continuing education for pharmacists. So I did that for a number of years. I loved it. But my husband, who is also a healthcare professional, we always seemed to have a ton of questions about our money and how to manage our finances. So we had pursued getting some expert assistance. But I’ll be honest, we were not considered great clients. You know, we had student loan debt, we were just starting retirement accounts. So to answer all of our endless burning questions, I went back to school, got my CFP, started a business. I wanted to really help other people like myself understand their big money decisions. So I knew of Tim Baker through our planning network for financial planners. I saw a job post, piqued my interest even though I wasn’t looking for a job, and the rest is history. YFP is the perfect mix of my interests. So I’m really happy to be a part of the team.

Tim Ulbrich: Well, we’re excited to have you. And I never want to take for granted someone’s willingness to come on and do a podcast. So I appreciate you being both interested and willing to do this. And knowing you’ve been working with many of our clients already, even since you joined us, on student loans and given the news that seems to be changing daily at the moment around this, we wanted to dig back in on this topic, knowing we’ve got some new information that is obviously timely that we want to make sure our community and of course our clients are aware of as well. So we, of course, have talked about student loans on the podcast a lot. And for those that have been listening for some time, you know that. But as I have alluded to, we’re in a unique situation, and the time that warrants us to revisit this topic here in January 202. And as we’ll talk about, depending on what the Biden administration does or perhaps doesn’t do regarding student loans, there’s a lot that we don’t know right now about the future of student loan payments, about interest rates, about possible loan cancellation or not, possible expansion of Public Service Loan Forgiveness, but we want to make sure that no matter what the next steps are with federal student loan repayments, that you are prepared, that you’re confident in understanding and evaluating those options, and you’re ready to tackle them with an intentional plan. I keep telling folks, this is the perfect time, while we’re in this time period of the administrative forbearance, now is the time to tidy up your student loan repayment plan to make sure that you’re ready to hit the ground running when that administrative forbearance ends, whenever that would be, so you feel confident in walking into the next steps as it relates to your student loans. So Kelly, at the time that we’re recording this, mid-January 2021, what do we know and what do we not know about federal student loan payments and interest rates?

Kelly Reddy-Heffner: Yeah, absolutely. And I agree with you, Tim, like this is a perfect time to really think about these issues. So what we do know is over the past 10 months, we’ve had a federal student loan forbearance where folks have had $0 payments, 0% interest accumulated. We know that the stimulus package that was recently passed did not include a provision to expand student loan relief. We know just from our client base and again, from my own personal experience, we know student loan debt is a huge issue, especially for healthcare professionals. So we know that interest rates have been incredibly low over the past several months, but we know that they’re starting to creep up a bit as well. We know that Biden’s transition team has announced that they’ll extend the payment and interest freeze, which was set to expire on Jan. 31. So those are the things that we know. But then there’s a lot that we don’t know as well. So we don’t know exactly what that expansion means. We don’t know, you know, for how long. We don’t know if there’s also going to be a $10,000 forgiveness, that has been discussed. I would anticipate an expansion, an extension of that $0 payment, 0% interest, to probably be for about six months. I’m not taking any bets or wagers, and I know the timing’s going to be pretty amazing for whether I’m right or wrong, we’ll know pretty quickly. I don’t think the $10,000 is quite as likely, but that has been discussed. So we don’t know how much interest rates will increase or change in 2021 either. It’s harder — that is harder to predict, I think. I think rates will rise but slowly. So I was looking at some data from Credible, and I could see the average variable rates for, using an example of like refinancing for student loan debt, five-year term, borrowers with good credit, like 720 or higher, so it was a record low of 2.75% in June. And then we’re seeing like 3.26% in December. So we know the rates have come up some. I think that it’s really important to also say we don’t know the continued impact of the pandemic on jobs, payroll, and income security either. So we know some things, but there’s a lot more that we don’t know.

Tim Ulbrich: Yeah, great synopsis, Kelly. And I agree with your I guess projections, we could call them. And I want to be clear to the listeners, as you have, some of what we’re talking about, it’s changing so quickly. And as you mentioned, there’s a lot of things we don’t know. You know, we’re expecting to see that extension happen, how long, nobody knows the answer to that. Hopefully we will know very soon. As you mentioned, there’s been discussion around some debt cancellation. I agree with you, probably unlikely for a variety of reasons. But again, time will tell. But we do know that we’ve seen an increase in rates that’s happening, which presents an interesting question on where refinance does or doesn’t fit. We’ll come back to that here in a moment. So you know, my question, Kelly, as I hear you talking about that, putting myself in the shoes of a listener who’s perhaps facing $150,000-200,000 of debt, they’ve enjoyed this time period of administrative forbearance, perhaps able to put that money towards other goals such as paying down credit card debt or beefing up their emergency fund, or some other things. And now the question is, you know, what do I do going forward? And so as you’re working with clients that are coming on board as client of YFP Planning and they’re in this situation today, how do you approach coming up with a game plan to tackle the debt, especially given the current situation and the unknown future? What does this process look like?

Kelly Reddy-Heffner: Sure. I mean, we start out with just a basic, you know, objective of figuring out where are we at with this? So we want to have a clear picture of the debt. Is it federal, private? What is their employment type? Are they working for a for-profit organization? A non for-profit? Is there an opportunity for forgiveness? And then we’re looking at importantly, their capacity for repayment and what are the opportunity costs of repayment versus just like you referenced, some of those other goals: paying down credit card debt, some other important financial issues. So we really do need to look at a client’s unique circumstance and their perspective on repayment. There are a lot of factors to consider.

Tim Ulbrich: And when we’re thinking about paying back loans, especially after the administrative forbearance, obviously it’s a good idea to check in, take stock of the loans that one has, understanding their interest rates, understanding the loan servicer that they’ll be working with to repay those loans. So talk us through more of the process of how you help folks get a snapshot of what their current situation is.

Kelly Reddy-Heffner: Yeah, absolutely. So it is always a good idea to be taking a look at where your student loan debt is, even if you had a plan in place or you’re just starting out. The management of our financial resources, they change with different things that happen. You know, the stimulus certainly changed how you might have been planning to repay the debt. So we start with some basics, you know, studentaid.gov is a good resource, a borrower’s credit report, and then we can see what debt is outstanding. You know, it’s challenging at the moment. Studentaid.gov is defaulting to $0 payment, 0% interest. So sometimes, we need to dig a little deeper and see some of those earlier loan documents. But before the CARES Act, you know, hopefully folks have some information on file to help us with that. But the recognition of the debt is a key step in taking control of the situation. Debt can be very overwhelming, so we have to recognize it for what it is and then get to work. So again, borrowers often have a good idea that hey, we have a significant student loan debt issue, but they’re not quite sure of the details. Borrowers have increased their knowledge thanks in part to podcasts like ours, and we have some other great resources available as well. We have some books and additional materials. But a good strategy is the baseline knowledge. But a great strategy is in the details of the payment type, the interest rate, decisions to consolidate or refinance, and that’s where a borrower may be challenged to differentiate between the details. A full inventory definitely is the first step. And although it’s a bit cumbersome, it’s critical to understanding what your best options are.

Tim Ulbrich: And I love what you said there, Kelly, you know, debt can feel overwhelming. We have to recognize it for what it is and then get to work on a plan. You know, thinking back to my own personal journey, it’s almost like you’ve got to open up the closet and see the scary monster before you’re ready to address, you know, the situation. Like and I think it’s easy sometimes to say, let’s sweep it under the rug. I’d rather not just think about this. Often when I work with student pharmacists on this and we do a session where we have them inventory their loans or other things, there’s that moment of like, do I really want to know? Do I really want to know what I’m dealing with? But you’ve got to be able to uncover that and obviously as you referenced, the inventory is so important to then be able to determine what might be the best student loan repayment plan and path heading forward. So once folks have that inventory, once they know what they’re working with, once they have that snapshot, the question then is where do you start? So what are the main payoff strategies, Kelly, that folks have to think about when paying off their student loans, at least in terms of staying in the federal system?

Kelly Reddy-Heffner: Absolutely. So you’re right, I mean, once you’ve pulled the Band-Aid off, which is both a, you know, hopefully a bit of a cathartic episode, you know, here we go. We know what we have to work with. Then it, you know, we’re looking at a couple different things. We start out by figuring out does the person, the borrower, qualify for PSLF or non-PSLF forgiveness? Is that an option? I also think it’s really important to understand does the borrower have the financial capacity to repay the loans at the current rate? Or are they already struggling with the repayment with other things that are going on? We definitely have to take note of that. Then we’re looking, you know, are they in the right repayment plan to accomplish income-driven repayment and/or forgiveness. If the payments are affordable and folks are really comfortable with the payment amount, then we start looking, well hey, can we create a strategy where maybe you can accelerate the repayment? Maybe you do need to think about a refinance. So yeah, we’re right off the bat just looking at those high-level things to get started.

Tim Ulbrich: And so just as you mentioned there, you know, a few different options: PSLF, non-PSLF forgiveness, we’ve talked about these on the show before. You know, thankfully I think because many of our listeners have been following for awhile, we can throw around terms like IDR and income-driven repayment, people know what we’re talking about. But even beginning to think of those, there’s so many options, right, that people have to consider. We haven’t even yet talked about the refinance on the private side. So the million-dollar question is, how do you when working with an individual, how do you help them determine which strategy is going to be the best one for their personal situation?

Kelly Reddy-Heffner: I am going to get a little bit of heck for saying, it depends. So that’s our famous standard statement in the financial planning industry. But it really does. I mean, we can’t undervalue the role of a budget and the mindset of our borrower in determining the strategy. But we also are looking at opportunity cost as well. So in a prior podcast, Tim Church had alluded to that. He was saying he and his wife were thrilled to pay off the debt, but then he had some thoughts like, what if? and wasn’t sure he had taken the best path to being debt-free. So being debt-free in general is a great outcome. But then we start asking the questions, what if a borrower with $120,000 salary and $200,000 in federal debt, what if they could make payments in income-driven repayment, qualify for a non-PSLF forgiveness, save for the tax bill at the end — which by the way, has also been discussed as something that maybe this administration will do away with.

Tim Ulbrich: Correct.

Kelly Reddy-Heffner: Yeah, what if they could increase their savings and pay off credit card debt and have a pretty decent nest egg in 20 years? So then we start thinking like, well, what really is the best strategy for clients? And again, it is very individual. With private loans, the decision points are just so much more, you know, easily digestible: lower interest rate, highest affordable payment, get it done. With the federal loans, we see a lot more nuances and they become more difficult to sort through. When you’re on track for forgiveness, there’s no benefit to making extra payments, it’s hard to see the balance remain the same or even increase. It goes against the pull we feel to get rid of the debt as quickly as possible. But we really do need to look at what is the best overall picture for a client to have both now and down the road as they make these decisions.

Tim Ulbrich: And I think that’s a good segue, you know, Kelly, when you mentioned in the private system, the decision points are much easier. You’re evaluating interest rates, trying to get the lowest interest rates, highest affordable payment, and you get done. And so I think that really warrants the discussion of am I pursuing forgiveness or not? Because if you think about this as a decision tree, if I make that decision that PSLF or non-PSLF forgiveness is in play, then obviously you’re staying in the federal system. If not, well, now we’re going to begin to evaluate private options in terms of refinance. Let’s talk about forgiveness, specifically PSLF for a moment. What makes this strategy appealing? And we’ve talked about it before of course before on the show of some of the logistics and some of the potential concerns, so what makes it appealing? And should pharmacists take advantage of it? Or is there a time when someone should steer clear of it?

Kelly Reddy-Heffner: Absolutely. Great question. I mean, PSLF is a good option for borrowers who are working in nonprofit sector with Adjusted Gross Income and payment protections where it looks like there will be an amount to be forgiven at the end. So they’re working towards those 120 payments, but it is a process. You know, we talk about that in our student loan analysis, just the paperwork, and it is a very specific process. Borrowers who have an Adjusted Gross Income that will significantly increase over time or an overall amount of debt where very little will be forgiven, it may not be ideal. So of course, we say for those who are looking for the program or thinking about being in that program, if you are thinking about going into for-profit at some point, you should proceed with caution. Again, the balance of the loan will likely not decrease in PSLF, so after five years of nonprofit work, if you decide to switch to for-profit, you’re potentially looking at a similar student loan debt liability even though five years have passed. Unfortunately, there’s no half credit, you know, for half the payments. So you know, if you’re thinking about that, it may not be the ideal route to go.

Tim Ulbrich: Great point. Worth reiterating. There is no half credit for half the payments. So important as people think about choosing that option. So Kelly, then what about non-forgiveness options, a.k.a paying it back. What are the options that are here?

Kelly Reddy-Heffner: Absolutely, going old school. Yes. What if we just paid them back? So for borrowers with federal loans, you know, they’re really weighing that lowest interest rate versus the federal loan protections. So this year — often in the past, when we talked about the federal loan protections, it was this idea just kind of floating out there. But this year, we see exactly what that means to have some of those protections. So we’ve seen a couple different things going on, but if borrowers were financially able to still make payments or increase payments this past year, they maybe should consider refinance in the future. So the current 0% rate is literally impossible to beat at the moment, right? So but I do feel like there’s a little bit of a growing thought of like FOMO, the Fear of Missing Out. Like I’ve got 0% now with federal, but I know private lenders, you know, are maybe in the 2-3% range. I don’t want to miss that refinance rate when the 0% is done. But again, a lot of planning is finding that unique balance between what we know, what we anticipate in the future, and then what we’re willing to do to accomplish our goals. So everything is a tradeoff for sure.

Tim Ulbrich: Yeah, and as you mentioned early on, we’re coming up at the time we release this episode, we might even have more information at that time, but obviously we expect some announcement that would come out that would give us an indication on if that’s going to be extended in terms of the 0% rate and if so, for how long. And that will give us an important piece of information in the planning process. And to that point, you know, since the CARES Act was established and the administrative forbearance was extended twice, I think many pharmacists — as you’ve alluded to here briefly — have been wondering if they should or shouldn’t refinance their loans. And I think this warrants some brief discussion on refinancing, again, as we use this time period to really take a close look at our repayment options and plan. So just remind our community, what is refinancing? And what ultimately is the goal when somebody refinances loans?

Kelly Reddy-Heffner: So yeah, refinancing is a very — what I like to say a private loan term because we’re talking about moving from a federal loan to a private loan. And it is a one-way transaction. So once you’ve made the decision to go from federal to private, that’s it. You can’t move back to the federal loan. It’s also a reference point for moving from one private loan to another. So if you have a private loan and you want to refinance, you’re moving into another private loan, the purpose in my opinion is always related to improving your interest rate or the term of the loan. Maybe it’s to remove a cosigner. But the purpose of that refinance is nearly always a better interest rate and maybe you’re decreasing the amount of time that you’re paying the loan.

Tim Ulbrich: And so overall, just given the time that we’re in, what’s your take on refinancing? Is it something that should or shouldn’t be done? When is it OK to start refinance again? And of course, I need to say — although it should be assumed — that of course this is an individual both consideration and determination. But generally, how are you considering refinancing in the moment?

Kelly Reddy-Heffner: Sure. I mean, as you said, it is a very individual, unique decision to be made. And I use the example, if a borrower has a $120,000 salary and $150,000 in federal loans, they’re likely not on a trajectory to have any debt forgiven. So then it makes sense to consider a refinance. But as you mentioned earlier in the intro, we really are in a unique environment at present. So if, you know, if by the end of January, I learn that I have 0% interest extended for six more months and that $10,000 forgiveness amount is still floating out there, I think I need to continue in the federal program and I watch the interest rates in the private sector. Ideally, our borrowers are making payments to lower the principle balance to take full advantage of that 0%. So again, if you’re in PSLF or non-PSLF forgiveness, making those payments is not really a great strategy. But if you are just paying down the debt, you know, I’d love to see our borrowers be in a position to take advantage of that 0% and like I said, keeping an eye on those interest rates in the private sector.

Tim Ulbrich: Yeah, and one of the things, Kelly, that I have an eye out for is I think given the circumstances that those who had already refinanced before the CARES Act, as they all know too well and we know were left out of the administrative forbearance because there wasn’t any protections or benefits that those were in the private system, I wonder if that’s going to have people second-guessing refinancing as a move going forward, even if through the analysis and mathematically it’s the better move to make. And so that takes me to the question of what considerations should people be thinking about before refinancing their loans and what differences there are between the federal and the private system and what they may or may not be giving up.

Kelly Reddy-Heffner: So right, outside of those working towards any forgiveness, I think the biggest consideration is that federal protection, which we’ve seen highlighted this year and what that impact could be. You know, there is a lack of flexibility with borrowers in the private sector where they don’t have the same income-driven repayment options. So if you have a job loss, you know, it can be a little bit different of a process to navigate that. Some of the private sector companies have gotten better with that. Really, if you’re looking at interest rates too, which is a big consideration, you know, if I can reduce my interest rate from like 4.8% to 2.8% on a $200,000 loan debt, you can save some money for sure. So I use the example, in five years, you could save $10,000 in interest. Over 20 years, it’s $30,000. So interest is a major consideration. But again, we’re always looking to see what really is the best strategy. I like the 0%. I like making a dent in my principle and any accrued interest if I’m not working for forgiveness. And then I’m still, like I said before, keeping an eye on those private interest rates to see how their movement is going. And of course, we’re going to keep updating folks on this topic because we know it’s super important.

Tim Ulbrich: Great insights, Kelly. And I think as we have spent the better part of 20 minutes or more really zooming in on student loans, I feel the need to zoom out. One of the things that I say often on this show and to our prospective clients and to people in the community is you can’t just look at one part of your financial plan in a silo. And this includes analyzing your student loans and determining a plan to pay them off. So what else do folks need to consider? What else do they need to weigh and keep in mind when deciding what their game plan is going to be?

Kelly Reddy-Heffner: Yeah, Tim, you are absolutely right. I mean, the past several months have been a really unique opportunity to have a bird’s eye view of an individual student loan debt burden, not counting those working towards forgiveness and what they were able to accomplish in the past several months. So we have seen the following or some combination of the following: We have borrowers who are in a financial place to take full advantage of that 0% and they continued to make payments, resulting in a bigger impact on principle. But we’ve also seen folks who have used this time to make payments on things that were still accruing interest, which is great too. So they have paid down other debts. But then we also have situations where borrowers who have had employment challenges, are struggling financially, and they could not do either. So this helps give us a really clear idea of what a borrower might be able to accomplish in 2021 and if a refinance is viable. So we’re still looking at employment status and security. You know, we still have folks who have changes in their job and income and need to navigate through that. What other debt do they have? What is cash flow looking like? And then what are other financial priorities? I can’t say enough too, like borrower behavior and perspective on the loans is a major — a major component. You know, if someone’s really motivated, then we’re having those conversations to really look at things and say, what can we accomplish? But again, these are all pieces. We can’t look at one piece of the financial plan without looking at others.

Tim Ulbrich: I’m so glad, Kelly, you mentioned borrower behavior and perspective. We often say it’s the math plus how you feel about the debt, right? You’ve got to consider the numbers and look at the options and make sure you understand what would be coming out of pocket, what you’d be paying each month, how much interest you’d be paying, what would be forgiven. But you have to also layer on top of that, you know, how do you feel about the debt? How does your significant other or spouse feel about the debt? And how might that or might it not impact the direction that you take with your repayment plan? And so as we wrap up here, and you’ve provided incredible insights and obviously are well versed in this topic, it dawns on me that there are just as we said at the beginning, so many individual considerations, so many nuances to student loans, unfortunately a system probably more complicated than it needs to be. But when we’re dealing with six figures of student loan debt or more, many of our clients are north of $150,000-200,000, we know that the median indebtedness for today’s graduate is now north of $170,000, and so the decision between Path A, B, C and keep going on can be the difference easily of tens of thousands of dollars. And so we need to invest the time to understand these options, we need to invest the time to evaluate what those options are and to feel good about choosing the best path forward that is that for one situation, which takes me to our student loan analysis, which is a service I mentioned at the front end of this episode of something that we offer at YFP. It’s a one-on-one service intended to help folks really understand, evaluate, determine their best repayment option going forward. But what we haven’t talked about before on the show, Kelly, is what folks can expect through that service if they were to sign up. So talk to us about what you do as you work with a client through a student loan analysis and ultimately what the deliverable of that is.

Kelly Reddy-Heffner: Yeah, absolutely. And I view this as a next step from all the knowledge that we’re acquiring in podcasts and reading our book and becoming more knowledgeable and of course, you know, recognizing that this is a significant issue. Then we’re looking at a very personalized, like you said, one-on-one. We’re doing the inventory of the loans, we’re going to provide an analysis with recommendations for next steps. Part of that process looks at payment amounts and projections, whether a consolidation or refinance makes sense. We ask clients to provide a budget amount so that they can give some input into how much they can afford to put towards this effort. I think one of the best things about this is it really gives clients a clear estimate of what to expect. But in an awesome way, it gives people a lot of confidence. Like having a plan where they can put it into action, you know, put these pieces of the puzzle in place, and then start focusing on some other aspects of their financial goals, I hear a lot of reaction like, reduces stress, increases confidence, just feeling good that there’s a plan. And you know, maybe down the road, you need to revisit the plan. But there’s something in place to get you started.

Tim Ulbrich: Yeah, absolutely. And what I sense and hear from folks often, Kelly — and I’m sure you do even more than I — is that just having — even if the debt number isn’t going to move, right, at least for the short term, you know, $200,000 of debt is $200,000 of debt. But it’s a different feeling when you have momentum and peace of mind knowing that you’ve evaluated the options, you’ve applied them to your personal situation, and you feel confidently in the plan, in the plan that you’re pursuing going forward and so that you can begin to focus on other financial goals. So I think it’s an important point to mention not to underestimate the peace of mind that can come with this as well. So for those that are interested, you can schedule your student loan analysis by visiting YourFinancialPharmacist.com/studentloananalysis, all one word. Don’t wait as I think now, as we’ve been talking through the show, is the perfect time to get your loan repayment plan in place or to get a second opinion on a strategy that you’re currently utilizing. And for a limited time, we’re going to be sending a copy of our three YFP-published books. That would be “Seven Figure Pharmacist,” “A Pharmacist’s Guide to Conquering Student Loans,” and “Baker’s Dirty Dozen: Principles for financial independence” to anyone that signs up and purchases a student loan analysis by the end of January. So we want to get the tools and resources in your hands, not only to attack student loans but also to continue to progress with your financial plan in 2021. So again, YourFinancialPharmacist/studentloananalysis. You can purchase the analysis there, sign up for a time right away with Kelly to get that going. And as always, if you liked what you heard on this week’s episode of the Your Financial Pharmacist podcast, please leave us a rating and review on Apple podcasts or wherever you listen to the show each and every week. We appreciate you joining us, and we hope you have a great rest of your week.

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YFP 186: The Picture Perfect Side Hustle

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The Picture Perfect Side Hustle

On this episode sponsored by Live Oak Bank, pharmacist and photographer Landen Conner shares how he turned his side hustle into his main gig, why and how he started his photography business, how he found his niche, and the mechanics of his business.

About Today’s Guest

The career of pharmacy accelerated Landen’s path to becoming a photographer, but where he met his passion was at the intersection of pharmacy and photography, which was “people.” Seeing people heal in an instant on camera was magical. Then hearing the unexpected wins after, such as landing a job, gaining more clients, even dates was the icing on the cake for him!

Summary

Landen Conner became interested in photography after one of his friends shared with him that he was able to create a successful business as a wedding photographer. Although Landen was a full-time pharmacist at the time, he was experiencing major burnout from his job and needed to step away from pharmacy. Landen soon realized that being a photographer was more than just picking up a camera and taking pictures. He found his niche in headshot photography and helps clients heal by taking their picture and sharing the stories of his clients.

Landen was debt free aside from his mortgage loan and knew he didn’t want to start his business without taking on any debt. He used cash to fund his start up and leaned on his pharmacy day job as a way to invest in his business. Knowing that he was paying cash for the majority of his equipment allowed him to be more present with potential clients. He estimates that he spent around $10,000 to $15,000 starting his photography business.

Landen now focuses on headshots, family shoots, commercial photography, and marketing and branding. During the COVID-19 pandemic, Landen started working a couple times a week as a per diem pharmacist to help bring in a steady stream of income. Landen also discusses how he automates functions of his business, his advice to other pharmacists looking to start a side hustle, and how he’s taking his business to the next level.

Mentioned on the Show

Episode Transcript

Tim Church: Landen, thanks for stopping by and for being part of this side hustle edition.

Landen Conner: Thanks a lot, Tim. I appreciate you for having me.

Tim Church: I recently learned about your story as I was perusing Google News alerts and an interesting article came up from the Orlando Business Journal titled, “Side Hustle to Main Gig,” and one of the biggest reasons I was excited to have you share your story on the podcast is basically, you have the reverse side hustle where pharmacy is not your main gig. But before we dive in, I do have an icebreaker for you.

Landen Conner: Yes.

Tim Church: Alright, you ready for this?

Landen Conner: I hope so. Let’s roll with it.

Tim Church: Alright, the pandemic is over and you’re out at a bar or restaurant and your name comes up to sing karaoke. What song are you singing?

Landen Conner: Oh, wow. Talk about a curveball. This may be funny. How about the Lion King Can’t Wait to be King?

Tim Church: Oh my gosh. I love that Disney movie.

Landen Conner: It’s like 1A in my book.

Tim Church: That’s awesome. I was not — let me just say, I was not expecting that. That’s a good jam. Do you like blast that in the car?

Landen Conner: The only reason why I’m hooked on it as like my second favorite Disney movie of all time, probably right there with Aladdin. But my wife just designed this whole room for a newborn with Lion King. And I’m hooked back onto Lion King now.

Tim Church: OK, that’s awesome, man. I love it. Well, Landen, before we kind of jump into your main gig now, really, talk a little bit about your career path as a pharmacist.

Landen Conner: Started out at 18 with a tech — as a tech/student. And wanted to see if I wanted to be a pharmacist. I got a job at Walgreens pharmacy, loved it, started school at Xavier University. The first day, I got scared and flipped my major from computer engineering to pharmacy because I got scared — I heard about 50,000 people were going to be laid off. So I was like, I’m just going to go to my second strongest thing, which was science. And that’s where my career began as a pharmacist.

Tim Church: OK. And talk a little bit about what are some of the positions that you’ve had when you were working full-time.

Landen Conner: I’ve been pretty much the full gamut. Went from retail pharmacy as everyone does pretty much to long-term care — loved that one — specialty pharmacy — loved that one as well — to MTM pharmacist and now to basically a per diem pharmacist filling in on call positions.

Tim Church: Now, obviously to where you got to that point, going from full-time to per diem, you talked a little bit about something in the article because at some point in your pharmacist career, that initial vision you had when you were training, you were starting out as a pharmacist, that changed. And in the article, you mention that you had been diagnosed with extreme stress related to your job and were quoted as saying, “As a result of this, my vision became blurred, memory loss occurred, as well as pains all over the body. The diagnosis made me sit back and think seriously, was it or anything worth the cost of my health? The simple answer was no.”

Landen Conner: Yeah.

Tim Church: Now, when I read that, I was really taken back because we’re not just talking about oh, I’m stressed at my job. We’re talking that it got to the point where it was physically affecting you. So obviously, that had to be pretty severe in the position that you had at that time to get to that point. So talk about those feelings that you expressed and how did it get to that point?

Landen Conner: The feeling that I expressed, I was actually helped along. I won’t mention her name because of the company she works with, but I was sitting next to this lady, we were really good coworkers and friends. She had mentioned her story to me years earlier when she was progressing in this company, going up the management chain. It got to a point she was taking on so much, she got sick. And she had to make a choice whether to keep working or keep progressing. And I asked her about that story and what would she recommend? And she said, “Landen, if I could do it again, I would choose to take a break and stay away for my health purposes.” So hearing that, I took that as a sign from God to say, you know what, choose your life. Because you can always find a way to make money with an entrepreneurial mindset versus how we’re taught in pretty much — you’re a pharmacist too, Tim — we go to school, we’re in school all day. And when you come out, you still practice those similar principles, but after awhile, you experience burnout. And that’s where it was with me. It was just burnout.

Tim Church: And can you elaborate a little bit more? Like what specifically were some of the things that were contributing to that? And how long did that take to develop?

Landen Conner: I think it developed slowly, honestly, going through recently a new marriage, working all the varying types of shifts, 5 a.m. shift, 10 p.m. shifts, then going from working early in the morning maybe to a photo shoot that evening and then just constantly repeating those cycles, finally caught up to me. Not being able to take vacations when you wanted or when you needed, rather, not just wanted per se, when you needed it. And just going through that, it was accumulation. Then you just start feeling the headaches, you start seeing the double vision, sometimes memory loss where you don’t really remember verifying certain things because you’re under that amount of stress, you think you’re keyed in, but you’re not.

Tim Church: How did you get to the point where you said, you know what, I’ve got to transition. I have to do something to get out of this situation?

Landen Conner: Sitting back, taking a look and starting to organize your life. I’d be lying to you if I said being debt-free except for the house didn’t matter because then I could start to organize, hey, it takes this amount per year to live. And then you break it down into monthly cycles, you know living in Florida, your bills may be a little bit higher due to the summer weather, then in the winter, you can dial it back. So you kind of average, put everything in perspective. And you don’t have your credit cards that you have to pay, the bills you have to pay. And that helped.

Tim Church: So obviously, that setting yourself up in a good financial position allowed you to make that transition, it sounds like. But one of the things that I wanted to ask you is while you were working full-time as a pharmacist, your side gig at that time was photography. And so before that became your main gig, how did you become interested in photography? I think that’s interesting because the last time I checked, you know, that was not an elective in my PharmD. I don’t know if it was — what was it, Xavier that you went?

Landen Conner: Yes, that was definitely not an elective. I tell you, I was sitting in a desk working specialty pharmacy, and I was — I kept saying the same thing over and over again. I was like, man, I’m basically saying, “You want fries with that?” And I’m like, God, you’ve got to have better for me than this. And then one of my best friends back home in New Orleans, Calvin Gaveon, called me. He told me how much he was making doing wedding photography. And I said, “No way, dude.” He’s like, “I promise you, man.” And I’m like, “Cool, I’ll pick a camera and do the same thing.” But it was so much more than just picking up a camera and shooting a wedding. I found my personal niche in headshot photography. And that grew into branding and marketing a person because the joy that I experience meeting that person one-on-one and attacking those internal securities — insecurities — watching them heal in front of the camera was just golden, knowing that you could do that in the power of a millisecond with a click, this person’s whole life can change.

Tim Church: So Landen, your friend Calvin reaches out and says, “Hey, you should try this out because I’m making great money, and it’s an opportunity for you to do something on the side,” not knowing it would eventually become your main gig. But you talked about something there that I think is really important and really stuck with me is that you said you had the opportunity to learn other people’s stories and to help them get to a point where they weren’t so insecure about getting even just a simple headshot. Talk about that.

Landen Conner: I’ll take you — I’ll make it relational. Like whoever may be listening to this, you go back to the age, I mean, to your kindergarten age. And you get your mom and your dad, and you think they’re doing the greatest thing in the world by having to take kindergarten photos. Most kids don’t want to take them. Or you’re being bullied in school or someone, that one person in life tells you you’re not beautiful and you’re not worth it. You carry those insecurities with you throughout the rest of your teen years, your adult childhood years. So once someone’s steps in front of a camera, they’re carrying it, like I’m not photogenic. I’m uncomfortable in front of cameras. I’d say that’s 99% of people I shoot, they tell me that they don’t think they take great photos. And they don’t value themselves. And once I meet them at the corner of that insecurity and just give them small coaching tips and walk with them through, it’s like, “Hey, you’re beautiful,” or, “You’re debonair.” Who told you that lie? And they pour out their heart to me. I can give you a story, a couple stories if you want.

Tim Church: Yeah, let’s hear it.

Landen Conner: The first time where photography became so much more than just a photo, I walked in shooting this behind-the-scenes interview that a guy from my church asked me to do. And I said, “Sure, I’ll do it. I just need to get some headshots to build my portfolio.” And the main interviewee said, “I hate my photo being taken. I really don’t want to do this.” So I asked her, I said, “Can you give me five minutes? If you don’t like it, delete it. It’ll never see the light of day.” And she allowed me to do the photo. I edited it, sent it to her probably within 48 hours. Then she called me back about a week later, kept me on the phone for maybe an hour, and said, “Landen, I put this on Facebook, and I got over — at that time, I think 75-100 likes.” And she was almost in tears because she said, “I am beat up verbally so bad in a marriage, abused in a marriage, abused in her childhood, I thought I was the ugly duckling in the family.” And from that moment on, it completely changed every time I stepped behind camera and had someone in front of my camera. The second one that made a massive difference was probably about a month or two ago, I photographed this young lady that was a resume writer. She came in, she got her head — she was ready to do her headshot. First five minutes, we shot, made sure my lighting was good and everything. And then I was just talking to her, getting to know her, and then in five minutes, we got a photo that she loved. And walking back to the bathroom to change, she stopped midstream and said, “I can’t believe you made me look this beautiful.” And I said, “Why? You’re beautiful.” She’s like, “I just had a kid two weeks ago, my body is out of shape from the weight gain from the pregnancy, and I didn’t feel like I was myself.” And I was like, “Hold on, you’ve got to stop because you’re about to make me cry.” And she just kept going on, and the session was just magical.

Tim Church: So did you ever think that when you were getting into the photography business that you were going to hear these stories from people or that you were going to have the opportunity to walk with them in what was a very difficult thing to do, which may not be for other people, but for a lot of people, it is?

Landen Conner: Absolutely, 1,000% no. I had no clue this would happen. I had no idea. I’d be lying to you if I said I did.

Tim Church: And so how has that really changed your perspective? And was that part of how you flipped that switch to basically say, I’m going all in?

Landen Conner: Yes, absolutely. Recently I joined a Christian Chamber about three months ago, and the leader of the Christian Chamber was Crystal Pocker. And she helped me to marry the two fields because I thought pharmacy had nothing to do with photography. And she said, “Landen, the common thing you have, you did one P with Pharmacy and now you’re doing another P with Photography, but in the middle, that P was People, that you care for people and want to see them win in life and not just meet the status quo because everybody is unique.” I’m different from you, Tim, you’re different from me. We may have some commonalities, but you have your own personal traits.

Tim Church: I think it’s just amazing, the work that you’re doing because it goes beyond just putting images on a website, on social media account. It’s driving a lot of impact and helping people get to a place where they’re comfortable with themselves. And I mean, I think that’s huge. It has to really give you that warm and fuzzy feeling inside.

Landen Conner: It does, but you want to know something, Tim? I was scared as I don’t know what to share people’s stories initially. I really battled with that because let’s just say if I took a — because if I took a photo of you and you shared something personally with me, I would — I would say about a year and a half ago, I would just put, “Had a great time working with Tim. And he was excellent to photograph.” That tells the viewers nothing. But sharing those stories, it makes it so relational, just like I shared with the lady that was mentally, physically abused in her previous relationship or with the guy who was molested at a young age, those type of things. I don’t have to put the molestation, but it’s a sense of rejection from another person’s perspective. You need to make it totally relational. I just posted something a couple of days ago. I said, the title of it was, “Don’t be Stiff.” As soon as I put that up, I said, man, this is so relational. Because I get in front of a camera and freeze up every time.

Tim Church: How have these stories that you’ve collected from the clients during the photo shoots, how has that helped with the marketing of your business?
Landen Conner: It’s humanized it because when you see those headshots, you see a healed person. You don’t see the person that looks like everybody else. You see that actual person. If I photograph Tim, I’m not shooting just with Tim. I’m shooting for Tim’s audience. I’m shooting so they can meet who Tim is, not just the, “Smile, Tim!” That’s not it.

Tim Church: Well, Landen, I want to switch a little bit and kind of dive into the mechanics of the business. The article mentioned that you used cash to fund the initial startups and you said this was something really important to you. So talk a little bit about that.

Landen Conner: I was at a photography conference, and this one photographer told me, he said, “Don’t look at your business” — I mean, “Don’t look at your day job as just a day job. Look at it as an investment into your business.” And since I already had a limited school loans, I didn’t believe in debt for the business because it did one big thing. I bought one lens on credit, and it would make me talk to people — I would allow myself to talk to people differently, thinking I had to book this client to justify putting this lens on debt. But when I paid cash for everything, I didn’t have that type of burden in my life. So it allowed me to actually sit and talk with clients freely and to serve their best needs.

Tim Church: And what were some of the other startup costs that you had besides the lens and some of the basic equipment? Anything else you needed to kind of get up and running?

Landen Conner: I would say the biggest thing — of course, cameras, different cameras, more up-to-date cameras, lenses. But getting to be able to afford automation because I photograph different people on different days, and that’s a lot of storage to kind of keep inside. So I don’t want to just share everything all at once because you get tired of seeing it after awhile if I overload you with too many stories. So I just needed to hit with that one person that one day or two people so they can know that they’re not alone. So the automation was the biggest thing.

Tim Church: Do you mind sharing approximately, what was the cost that you needed to kind of at least get started? What are we talking?

Landen Conner: I would say anywhere from $10,000-15,000 maybe. If it was now, I think you could do it — actually, I know you can — as much as half that amount.

Tim Church: That’s not a little amount to kind of get started. I mean, was that sort of intimidating looking at those costs? Or was it much more palatable considering you started it while you were still working full-time as a pharmacist?

Landen Conner: It was easier because at a pharmacist’s salary, did I know it at the time? No, not until I did my taxes at the end of the year, and I’m like, “I spent what on what?” But I’ll tell you this, for any aspiring people, do your research first. Even though I didn’t research, there were some of the marketing tricks that I fell for, which I allowed myself to waste money in certain areas. And that would have cut my costs in half, by at least 25%.

Tim Church: So do your homework. Know what the bare minimum you need to get started. But it may not be as expensive as you think is what it sounds like.

Landen Conner: No, it’s definitely not as expensive as what you would think. Right now, they’ve came out with better products at a much more affordable cost. So that’s going to knock your costs from where I started for probably down by more than half.

Tim Church: Wow. That’s a big deal. So you said a little bit earlier that headshots are basically your jam, that’s the space that you excel at and how you’re helping people. Are there any other services that you provide or that you do?

Landen Conner: I still do family shoots when my clients ask for them. Weddings, I’ve kind of stepped away from. I’m doing my last wedding this Sunday. My bread and butter now is marketing and branding, commercial photography. And we just start with the headshot and build all the way down. Why? Because everything starts with you. As a small business owner, I want to know who you are. We don’t have the luxury to hide behind a brand name such as a Nike or Apple.

Tim Church: So talk a little bit more about that, that beyond just individuals marketing themselves, you’re talking about other businesses and helping them with their marketing materials, specifically with photos but even other things as well. Talk a little bit more about that.

Landen Conner: Sure. With the marketing and branding is — you know how we, like when we start a business, we always go to those free stock image websites?

Tim Church: Yeah, of course. I’ve used those multiple times.

Landen Conner: Oh boy. Should we change the question? So as a photographer, there’s nothing wrong with those starting out. But you should try to get away from those type of websites within your first 6-12 months, especially if you’re getting big. Because if you look at it, those are models and those are ideal situations. I’ve seen a lot of times where people use those stock imagery images, and I can go to another website and see the same stock images. So it causes a disconnect in the viewer’s mind. Or let’s just say that small business owner to mid-size business owner invites me to their office, I go to their website, it doesn’t look anything like this. So now I have my defenses up because I think you’re lying to me. They’re never going to tell you this, but it’s the same scenario. When you’re doing your marketing and branding, you can’t market and brand on things such as Facebook, Instagram, using non-organic photography.

Tim Church: And so what it sounds like is you’re basically helping to foster that image of that company, of maybe that individual as well, and making that more of an authentic feel versus something that is not actually representing who you are and what you’re doing.

Landen Conner: Correct. Absolutely, 100% correct.

Tim Church: So one of the other things I wanted to ask you — what about matching pajama holiday photo shoots? Do you do those too?

Landen Conner: Yes. I’ve done that, two years ago, actually. Two years ago.

Tim Church: I mean, I could see there could be a lot of high demand for that one.

Landen Conner: It’s funny you should mentioned that because you just brought to mind this family that I photographed like two years ago. And the story behind that one was they wanted holiday photos within their home. It meant something to me when they called me because a kid was born so prematurely and was fighting for his life. And now, I believe he’s running, walking and just going all over the place being a kid. But knowing the story, the backstory behind how this kid fought for his life to live and then was able to do the whole photo session and now he’s — you wouldn’t even know he was a preemie.

Tim Church: Wow.

Landen Conner: Those types of sessions are magical.

Tim Church: That’s cool. How specifically are you marketing your business?

Landen Conner: Definitely LinkedIn. Trying to get better at Facebook. Christian Chamber has definitely been a blessing in my life.

Tim Church: Hopefully the YFP podcast as well.

Landen Conner: There’s a new one, another blessing, the YFP podcast. And just word of mouth has been my mainstays right now.

Tim Church: Does anyone help you with the business? Anyone with assistants or doing some of the behind-the-scenes things to get you up and running to kind of do the sales or is this all Landen?

Landen Conner: This has been all Landen — and I use the word ‘has’ because until recently, I realized that with people in my life, I can start to delegate and hire out to do different things. So now we’re moving into video and we’re able to move into doing a full scale brand and market build. So if you need copywriters, if you need graphic design artists, then we’re working purely organic — with organic material for the particular individual or business.

Tim Church: So sounds like things are happening and you’re growing, which is awesome because it means that a lot of people are valuing the services that you’re providing, which I think are huge. Landen, talk about how did you get back into pharmacy? You said you were doing that full-time, you switched to photography, and now it’s kind of coming back to some extent. Talk about that.

Landen Conner: I got back into it because COVID did put a kind of damper on the business for awhile. That and the house note was the only debt that I had that was left to pay off. And then with my wife’s health, with her being diagnosed with MS, I had to provide even when you don’t have a constant income coming in as a entrepreneur. So doing those on-call maybe 1-2 times a week, it does keep a constant flow when I don’t have clients that are coming through.

Tim Church: One of the things that often comes up is how do you even consider a side hustle with a full-time job? People talk about in the YFP Facebook group, they’ll message me on LinkedIn, they’ll say, “How do you do it? How do you work full-time, have a side job, and also maintain your family, your relationships, and do it all?” So how do you do it?

Landen Conner: I would say automation really helps. The other thing is I started to sit back and remember why did I get into this in the first place? Meaning pharmacy. And then the second thing — I mean third thing was do you want to make a difference in just your life and build something only for you? Or do you want to make an impact in others’ lives and change one life at a time and challenge yourself a day at a time? Can you make someone else’s life better? You make time for what you desire to have fulfilled in your life.

Tim Church: I love that. That really pumps me up. But I totally agree with you that if you’re buying into that mission and the results of what that work is going to accomplish, that that can be a huge driving factor for being able to make it work. Totally agree with you on that one. You mentioned automation, so talk about that a little bit. I think that’s an interesting way that you’re making it happen. So talk about that.

Landen Conner: You mentioned that a lot of people ask how do you do it? Let’s just say if you want to do email blasts, ConvertKit is an excellent source. If you want to do Facebook posts, you can schedule out your Facebook posts, your Instagram posts, your LinkedIn, all of those things have built-in automation. And the other thing I would explain to people who are interested in a side hustle and they’re doing those email campaigns, they’re doing those social media campaigns, there’s seven days in a week. One day, you’re going to have a groove. And let’s just say that groove is an hour to two hours. You get in that one or two hours, and you just write or bang out a bunch of posts of things that you want to go on, schedule them out. They don’t have to be every day. They could be weekly. And then as you gain more experience, as you gain more clients, then you add to it. So you’re building slowly. And it adds up over time.

Tim Church: I think that’s big. I think you’re right. You have to harness technology. We all have the same amount of time. We have 168 hours every week. And after sleeping and working your full-time job, I mean, you’re limited. That gets substantially cut. So I think that really is a huge one because you have to think about OK, realistically, how are you going to make it work? And how are you going to do the things that you want? I think that’s big. I mean, I think that’s great advice. So speaking of advice and recommendations, what advice would you give to other pharmacists out there who they have other interests, passions beyond pharmacy that have the potential to be turned into a business or they have an entrepreneurial mindset?

Landen Conner: Go slow. That was one of the biggest things that I say now I understand because if you think of the story of the tortoise and the hare, the tortoise always wins. Get out of debt. Organize it from biggest to smallest. If you watch Dave Ramsey, you understand that. And give yourself small wins. Look at the pharmacist’s salary allocated in percentages. If you want to take 10% out of your salary and invest into your business to get those automation programs, they’re going to pay off huge in the end.

Tim Church: That’s so good. I want to bring another one up that you mentioned in the article, which was find the right group of like-minded people who won’t just tell you what you want to hear but what you need to hear. How has that helped you?

Landen Conner: Immensely. A lot of times, it’s hard to hear what you need to hear from people. I haven’t had that issue because I have friends that they’re going to tell me whatever it is that they feel like they have to tell me. I know it’s out of love. So it’s getting to a place that I know that they love me and tell me up front versus hiding the truth and hurting me or damaging me long-term. My grandfather, before he passed when I think I was like 8 or 10 told me something I never forgot. He said that there are only going to be three people that make it off your block. And lo and behold, there was only three people that made it off my block that was successful. And he said, “Watch the company you keep because whatever company you hang around is what you will become.” Is that always the truth? No, but a good majority of the time, I’ve seen it come to fruition.

Tim Church: I definitely agree. And sometimes, we need that criticism, that feedback, if we want to make it to the next level.

Landen Conner: True.

Tim Church: I totally agree with you on that. Well Landen, thank you for coming on the show, for sharing your story. Thanks for being open about the burnout that you experienced as a pharmacist. I know you’re not the only one out there who has gone through that or is going through that. A lot of pharmacists are dealing with that, so thank you for being open about that. And you know, I really look forward to hearing about your progress as your business continues to grow and you continue to create memories but also share people’s stories with the work that you’re doing. And I think it’s just amazing, that work that you’re doing right now. So if somebody wants to reach out to you for a holiday photo shoot, wants their headshot for LinkedIn or they just want to learn more about who you are and what you do, what would you recommend?

Landen Conner: Of course reach out to me on LinkedIn at Landen Conner or my website, www.landenconnerphoto.com, and it’s with e’s. And of course the last one, which hardly anybody takes advantage of — give me a call. (514) 905-2249.

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YFP 185: 10 Financial Moves to Make in 2021

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10 Financial Moves to Make in 2021

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

Summary

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

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

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

Mentioned on the Show

Episode Transcript

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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YFP 184: How to Optimize Your 2021 Tax Strategy

Posted on by yfpadmin


How to Optimize Your 2021 Tax Strategy

Paul Eikenberg, YFP Director of Tax and CFO, joins Tim Ulbrich to talk about how to optimize your tax situation in 2021. Paul discusses the difference between tax planning and preparation, common tax planning mistakes he sees pharmacists making, and strategies pharmacists should consider employing to optimize their tax situation.

About Today’s Guest

Paul has supported hundreds of pharmacists in both tax filing and tax planning to maximize their deductions and avoid overpaying. In addition to being an Enrolled Agent (EA) and YFP’s Director of Tax Services, Paul Eikenberg brings skills from his extensive business experience to YFP. Paul has owned franchises, been a VP of Franchise Operations, and a Credit Union Board Chair.

Summary

On this week’s episode, Paul Eikenberg, YFP Director of Tax and CFO, breaks down how to optimize your tax situation in 2021. Although we’re only ending 2020, planning for your future tax situation is a large part of your financial plan as it can have major financial implications down the road.

Paul explains that tax preparation is merely a historical look at what happened last year. On the other hand, tax planning is oriented in the future. The aim with tax planning is to match your tax plan to your goals and financial plan. This can help you make investment and other financial decisions while optimizing your earnings.

Paul shares three tax strategies that you can use to optimize your tax situation in 2021: legal tax avoidance, deferment, and pay now with tax free gains. He breaks down how each of the strategies work and what type of financial moves fall into these approaches.

YFP Planning comprehensive financial planning clients have tax preparation and tax planning as part of our services. This year YFP is expanding our tax services to 50 additional pharmacist households. Learn more about these services and how you can file your taxes with YFP here.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Paul, it’s great to have you on the show. It’s been a long time, way back on Episode 070, and so for our listeners who aren’t familiar with who you are and the work that you have done and are doing with YFP, share a little bit about your background and tell us about that work that you are doing.

Paul Eikenberg: Well thanks for having me, Tim. And you know, it’s an exciting time at YFP. I joined three years ago. And I’m the oldest member of the YFP team, so my background’s a little more varied than everybody else. But I grew up in a small business, and I have started a rental car business as a franchisee, joined the franchise company and worked a few years as the Vice President of Franchise Operations there. So I was involved in a lot of startups with franchisees in one role or another. And career after that was as a franchisee in the computer, hardware and repair business. And did that for 15 years. After I sold that business, I worked as a Vice President of a management service company with a lot of responsibilities for budgeting for our largest clients and their IT planning and budgeting role. And in between all that, since I had a good accounting background, I did taxes frequently in between my different careers. I spent time working with Jackson Hewitt, H&R Block, and when my role a few years ago was downsized, I called my financial planner, Tim Baker, to talk about what should I do now?

Tim Ulbrich: Right.

Paul Eikenberg: And you know, when we talked about financial freedom, I had the financial freedom to kind of choose what I was going to do next. And then one conversation with Tim, I said, “I think I might just do taxes, work real hard part of the year, and not so hard the rest of the year.” And Tim said, “Funny you should say that. I really want to add tax services to my — you know, to the offering.”

Tim Ulbrich: Yeah.

Paul Eikenberg: “That I have as a financial planner.” And from there, I went and took the test for the EA, which is Enrolled Agent, and worked part-time with a CPA firm and part-time with Tim Baker up ‘til last year, when our client roll was large enough that I could just start working for YFP. And I’ve enjoyed it immensely.

Tim Ulbrich: And we are super grateful — I know I speak on behalf of the team — super grateful to have you, your expertise. You’ve provided valuable input to the business. I mean that sincerely. It’s been really a pleasure and a blessing to have you as a part of the team. And as you were retelling that story, Paul, which I’ve heard you say before, the part about working hard during the tax season and then not so much the rest of the year, I think we’ve busted that up a little bit as we needed to lean on you in so many areas for the business, and we’re appreciative of that. And I think some of our listeners may know that we do tax, as you mentioned, as a part of our financial planning for clients because we so firmly believe that we need to wed the financial plan with the tax plan for a variety of reasons, which we’ll talk about here today. But folks may not know that even for those that are not comprehensive planning clients that we do offer tax services. And so we’re excited to give the community a little bit of an inside look into why tax is such an important part of the financial plan, why it’s worth investing in, and how they might consider optimizing their 2021 strategy. And to that point, that’s what we’re talking about here today. We’re talking about considerations to optimize your 2021 tax situation. Now, I know the listeners are thinking, wait a minute, 2021? I haven’t even filed my 2020 taxes yet. And I get it, but we’re here to really tell you and reinforce that tax planning is a big part of your financial plan. And as with any aspect of the financial plan, you know us by now, we like to be intentional — as intentional as we possibly can with it. So that’s what we’re digging into this episode at the end of the year so that you can jump into 2021 with an understanding of options and strategies with confidence that can help you be more intentional with tax planning and hopefully allow you, legally, to bring home as much of your income as possible. And so Paul, kick us off by explaining the difference between tax preparation and tax planning and why both are so important.

Paul Eikenberg: Tax preparation is really the historical look at what happened last year. So it’s required, you have to do it. But it’s really somewhere between January and April, you collect all of the information on what happened last year and report it to the IRS. There’s a couple of adjustments you can make during that period of time, but pretty much it’s a look back at things that have been done and just reporting and paying your taxes. Where I get more excited and I think we’re doing some of the best work at YFP is in the planning portion of it. And that’s where you can have more impact on your financial plan and get into that financial freedom. It’s more future-oriented. And what I enjoy about the work we’re doing with the comprehensive clients is that we’re able to match their tax plan to their overall goals and make decisions based on where you are and where you’re going. So the more complicated the filings, you know, the more helpful it is. And the other thing that’s a huge impact is for people on the Public Service Loan Forgiveness program, how you do your taxes can make a big difference and have a long-term impact. And just that coordination between a financial plan and your tax strategy makes a big difference.

Tim Ulbrich: Absolutely. So the preparation, I think our listeners are very well familiar with that. They either do it every year, perhaps they do it themselves, maybe they do it with one of the Big Box entities that you mentioned at the beginning of the show, maybe they hire a CPA. So I think we understand, we get that. We’re looking backwards. But I think you articulated so well the planning, the proactive, the strategy, the making sure we’re being intentional, looking ahead is so important. And we’re going to give some good examples of that today throughout the show. Now, we could do a whole episode I’m sure, Paul, of mistakes that you commonly see people making regarding tax planning. But we’ve got other things we want to get to as well, so hit the high points for us. What are some of the most common mistakes that you see people making regarding tax planning that our listeners can be on the lookout for?

Paul Eikenberg: Not taking advantage of employer benefit programs. We’ll see people with dependent care benefits that are available to them and not taking advantage of them. Not coordinating between spouses. If you’re not maxing out your retirement programs, is there a greater benefit of contributions to one spouse or the other? Same with HSAs are one of the best tax tools out there. People not taking advantage of the HSAs. Missing a tax credit because they went over the phase out that if they planned a little different, they wouldn’t have gone over the phase out. And one of the common things we see is not so much changing the taxes but not having your W4s correct with the employer and having a surprise balance due in April when you file taxes. So those are a few of the things. And then you see some people making decisions that are based on tax ramifications rather than making financial decisions and understanding what the tax ramifications are. So you do see some errors there with people.

Tim Ulbrich: Great point. And we know there’s a lot at stake here. You know, one of the statistics I like to give pharmacists, especially young pharmacists, as they’re just making that transition into their career but is really good for all of us to think is there’s a lot at stake here. And the statistic I give is that pharmacists on average, using the Bureau of Labor statistics data on salary, using a normal trajectory of career in terms of a timeline of work, on average are going to make $9 million over their career. Obviously, we are assuming for income increases and things that are happening. And $6 million of that, roughly speaking, will actually flow through their bank account. And so the difference there, the delta of $3 million, is in part what we’re talking about here related to tax. And so there’s a lot at stake and a lot that we have to consider. And I would argue the earlier we get this right and the earlier that we invest in the right resources to make sure that we have it right, we’re making decisions appropriately, obviously we’re going to benefit from that throughout our career. So Paul, let’s break down for a moment a couple key terms that I sense will come up throughout our discussion today. And again, we’re not intending for this episode to be all comprehensive on tax, but a couple that I know will come up in the discussion are marginal tax rate and AGI, or Adjusted Gross Income. So define those terms for us.

Paul Eikenberg: Marginal tax rate is to me one of the key numbers people should understand. And your marginal tax rate is the tax you pay on the last hour you earned and your next hour. And there’s a lot of misconceptions that when you jump a tax rate that it goes back to the first hour. It’s a graduated tax system, so when you jump a tax rate, you’re only paying that tax on the dollars above that amount.

Tim Ulbrich: Right.

Paul Eikenberg: So marginal tax rate, federal rates, we’ll typically see pharmacists in the 24%, 22% and sometimes 32% tax rates. And that’s federal tax. And states can be from 0% to 12% in marginal tax rates. So you know, we will have pharmacists typically with that combined and if you take a local tax rate and add it in there if you’re in a city with a local tax, we’ll see typically marginal tax rates from 30-40%.

Tim Ulbrich: Ouch.

Paul Eikenberg: When you add them all together.

Tim Ulbrich: Yeah.

Paul Eikenberg: Yeah. Why that’s important to know is because when you start making decisions on a Roth versus a traditional retirement, max in your retirement versus putting the money somewhere else, making a charitable contribution, if you understand your marginal tax rate, you know the general tax ramifications of if I make $1,000 contribution this year, and I’m itemizing, and I’m in a 35% marginal rate, I’m going to save $350 in taxes. If I put $1,000 more in an HSA than I was planning, I’m going to save $350 —

Tim Ulbrich: Yep.

Paul Eikenberg: In taxes. So it’s kind of a key number in decision-making and understanding what the general tax ramifications are for you. Other key number for a lot of our clients is Adjusted Gross Income. You know, we mentioned Public Service Loan Forgiveness program before. Your student loan payments are based on an Adjusted Gross Income. A lot of the phase-outs, do you qualify for a lifetime learning credit? Can you deduct student loan debt? That AGI is the number you use for the qualifier for a lot of different tax programs. And it’s Adjusted Gross Income. So when you calculate Adjusted Gross Income, it is your wages, net rental income, net business income, dividends, interest, all that kind of gross income goes in and then you’re able to reduce it by what we call “above-the-line deductions.” That’s going to be your HSA, your FSA, your dependent childcare, student loan deductions that are allowed. That reduces the kind of gross wage, gross income, to an Adjusted Gross Income. And that AGI is a key number.

Tim Ulbrich: And let’s hold that thought. We’re going to come back here in just a moment as we talk about tax strategies and even further connect what Paul just said there. So let’s dig into those tax strategies. And we’re going to look at a few different areas, tax avoidance, tax deferment, paying now, and a hybrid approach. And so let’s start with tax avoidance — and I hope it goes without saying that here, we’re talking about tax avoidance within a framework, of course, of following the law. So nothing we’re suggesting is avoiding something that we shouldn’t be avoiding. So Paul, when it comes to avoidance, what are we referring to here? And what is included? What types of financial moves would fall under this strategy? And I know you’ve alluded to a couple of them already with the HSA, FSA and some other things.

Paul Eikenberg: Let’s talk about the HSA a little bit more because that to me is the No. 1 tax tool. If you’re on a health insurance program that allows an HSA, it’s got the most tax benefits too. For a family this year, the limit is $7,100 that you can put into an HSA. That money, if you’re having it deducted from your paycheck, it goes in before not only income tax but before FICA tax. So it goes in pre-Medicare, pre-social security tax. It carries over from year-to-year so you can build the fund there, you can invest it, and that money will grow tax-free. And it is the only tool that goes in tax-free, grows tax-free, and when you spend it on medical expenses, it comes out, it’s never taxed. So it has multiple tax benefits and is really the best tool available to you to get the most out of your money.

Tim Ulbrich: And I would point, Paul, our listeners — before we go onto others in the avoidance category — we feel so strongly about the HSA, we’ve covered it a couple times. We’ve got a great post by Tim Church on the blog. Episode 165, we talked about the power of the Health Savings Account, broke down further what Paul is talking about and spent an entire episode on that. So if you’re wondering more about an HSA and have one, aren’t sure, want to evaluate where it may fit in your financial plan, I’d recommend our listeners check out those resources, which we’ll link into the show notes. So what else beyond the HSA would fall into this category of avoidance, or at least common ones?

Paul Eikenberg: One of the more frequent things you hear is treasury bonds. The interest on those grows tax-free. Municipal bonds, you know, there will be some tax advantages to those. So they’re one tool. Another tool that people sometimes miss is the difference in taxation on long-term capital gains, short-term capital gains. If you’re making money on stock investment, property investment, you’re taxed at a lower rate for a long-term gain — and the definition of long term is 1 year plus debt. You’ll see some people sell a stock, short-term gain, pay ordinary at your marginal tax rate whereas on a long-term gain, most people that we work with are in a 15% tax rate. So there can be a 17% in that by timing how long you keep it. Another area we see people not take advantage of is the dependent care — and again, that’s a deduction if it’s a payroll deduction that comes out pre-social security and pre-Medicare. Other item that we’re seeing some activity on is the home sale exclusion. And this is designed so that if you move into your home for more than two years, you make a gain on it, the gain on that sale is excluded up to $250,000 for a single person, $500,000 for a married couple. If you’re somebody that likes fixing up a home, there’s some great tax benefits that buying a fixer-upper, working on it, moving in it for two years, and then selling it and moving to the next one.

Tim Ulbrich: Especially if somebody’s in a market where, to your point, a fixer-upper may want to buy something knowing the appreciation will be good. It’s an interesting different take on kind of real estate investing than we may think of as buying other properties but rather with this home sale exclusion. And if I understand you correctly, if somebody were married and they bought a home for $400,000 between the two of them, each having $250,000, when they go to sell it, as long as it’s below $900,000 when they sell it, which would be an incredible gain in value and appreciation on that home, that that gain and that growth is tax-free.

Paul Eikenberg: Correct. And you know, while it sounds like in most areas of the country an incredible gain, San Francisco, Seattle, some of the northeast, it’s not as unusual as some of the other parts of the country.

Tim Ulbrich: That makes sense. And I think that one will be of great interest to our listeners. The other one, Paul, which you mentioned and I just wanted you to expand on a little bit more was the childcare bills from an FSA, the 129 Plan. Tell us a little bit more as I suspect that’s something that folks are already taking advantage of or could be taking advantage of going into the new year.

Paul Eikenberg: We see a lot of people not taking advantage of it. There are a lot of people that do, but you know, that dependent childcare employer plan typically lets you have $5,000 deducted from your paychecks and then you can get reimbursed for childcare expenses. And there is a credit available if you don’t take advantage of it. And for most people, it’s 20% of the childcare expenses, up to $3,000 for one child, up to $6,000 for more than one child.

Tim Ulbrich: OK.

Paul Eikenberg: But what the FSA does for you is first, it makes the deduction pre-social security, pre-Medicare. The other thing it does is if you have one child, it’s a $5,000, not a $3,000 plan.

Tim Ulbrich: Right.

Paul Eikenberg: If you’re in the 32% bracket, it’s a much better benefit than if you are taking a 20% bracket. So we talk avoidance, you know, it avoids taxes forever is what we’re kind of talking about avoidance here. I’ll come back to one of my favorite quotes from a tax court judge is that there are two systems of taxation in the United States. One for the informed and one for the uninformed, and both are in league.

Tim Ulbrich: And I’m glad you mentioned that. One of the books I’ve referenced on the podcast before, which I would reference again to our listeners — we’ll link in the show notes — is “Tax-Free Wealth” is one of those resources that really just opened up my eyes to exactly what you just said there and how important it is to be informed of the options. And we’re talking, again, in this first category of avoidance, we’ve already covered a lot. We’re just scratching the surface, but we’ve talked about an HSA, long-term capital gains, we talked about childcare bills and FSA, we talked about home sale exclusion. So again, I think just highlighting the importance of understanding all of the options that are available to you and then the power of working with somebody such as yourself to really customize this and apply it alongside of the financial plan, of course with our great team over at YFP Planning. So that’s No. 1, avoidance. No. 2, Paul, is this tax strategy of defer. So tell us what you mean by this and some common financial moves that fall under the defer category.

Paul Eikenberg: The most common thing when we talk about deferring is 401k’s, traditional IRAs, if you’ve got self employment income, but they’re more of the traditional retirement buckets where you’re putting money in in the current tax year, you’re deducting it from your income, and you’re deferring taxes on that money and the growth of that money, the investments with that money, until you retire and start taking on that. You know, it’s one retirement strategy. And where that makes a lot of sense is when — or has extra benefit to you — is when lowering your Adjusted Gross Income helps you overall in addition to that retirement. There are phase-outs that you can manage sometimes by using the traditional retirement programs. And one of the best examples is if we go to the student loans that are in the forgiveness programs. Lowering that AGI has a tax benefit, but it also is, you know, helping manage what your loan payments are going back and it helps maximize the value of that forgiveness program.

Tim Ulbrich: Yeah, and we spent — by we, I mean our planning team and working with you — spend a lot of time on this topic. And one of the things we are not shy about tooting our own horn on is that it’s not very common that financial planning teams and tax professionals will have a good understanding of student loans. And that’s our bread and butter.

Paul Eikenberg: One of the really interesting things there is from typical tax preparation and planning, you almost never want to file married filing separately. But in the situation of student loans, it’s not unusual where that’s what makes the most sense, even though it’s not a good decision strictly tax-wise, you know, when you do the comparison. It’s an obviously smart move overall financially.

Tim Ulbrich: And that’s a great example, Paul, of making sure you find somebody — especially for those that are facing significant student loan debt and/or strategies which have tax implications, like we’ve talked about here with forgiveness. But that’s not a common tax strategy. But when you layer on the implications with the student loans, you can see where someone may get in trouble if they’re working with somebody that may not be as familiar with student loans certainly. So while you’re talking here about traditional pre-tax buckets, 401k, 403b, traditional IRAs, since we’re heading to 2021, remind us of what to expect on the retirement contribution limits for these types of accounts.

Paul Eikenberg: Typically, 401k’s, 403b’s, right now, the limit is $19,500. If you’re over 50 years old, you have a catchup of $6,500. Those are where you max out on most of the employer programs. IRAs, $6,000, you know, most pharmacists are not going to qualify if they are under a retirement program. There are some strategies for doing back door IRAs and increasing the amounts you can contribute there.

Tim Ulbrich: And we’ll link in the show notes, we have two great resources on that. One of the most common questions we get is on the back door Roth IRAs for the exact reason that Paul mentioned. So we have a post, “Why Most Pharmacists Should Do a Back Door Roth IRA,” and then we also covered it on Episode 096 of the show, How to Do a Back Door Roth IRA. So we’d recommend looking at those resources and of course reaching out to our planning team for additional help. So we talked, Paul, about avoidance. The goal is legally not to pay taxes. We talked about HSA, finding ways to maximize in terms of the long-term capital gain rates and the savings that would come there, childcare bills in an FSA, home sale exclusions. Then we just talked about deferment with the most common being around lowering your Adjusted Gross Income from traditional pre-tax buckets. We talked about the implications there as it relates to student loans. Again, just scratching the surface. So the third area that I want to discuss for a few moments is that you pay them now, you pay the taxes now, but the gains are tax-free. So give us some common examples of things that folks want to be thinking about here.

Paul Eikenberg: Biggest thing is the Roth 401k, Roth IRAs. The strategy there is that you’re putting money in that you’re paying tax on this year but all of the growth of the investments on that are not taxed when you take it out in retirement.

Tim Ulbrich: Right.

Paul Eikenberg: It is your income. You’ve got that income, and if you’re not reporting, it’s not taxable in your retirement. And that helps you in some ways in retirement that’s not reflected in your AGI and not reflected in your taxable income. So there’s capital gains that that can affect in your retirement. There’s dividends that won’t be taxable to the same extent if a lot of your retirement income is not reflected in your AGI, your taxable income. The other advantage now is suppose you’re maxing out at $19,500 on your traditional retirement and you don’t have another tool to put more money in. $19,500 in a Roth IRA, the limit’s the same, but the value of it is significantly more in a Roth. So it really gives you an opportunity to increase — even though the limit is the same, you’re really putting more money in your retirement program in a Roth than a traditional IRA.

Tim Ulbrich: That makes sense. And one of the reasons — you know, we talked about the HSA already — one of the reasons we always say is the HSA, the Roth is kind of low-hanging fruit, and I think you summarized that well. The other thing that would fall in here, Paul, would also be a 529, right? I kind of think of a 529 almost like a Roth for college in that it’s going in with after-tax dollars, growing tax-free, and then you can withdraw it as long as it’s being used for the qualified educational expenses. So it has some more strings attached to it because of the nature of what it’s being used for, but would you put that here in this bucket as well?

Paul Eikenberg: Yes. And you know, 529s vary from state to state. In some states, the state that allows you to deduct it from your income for state tax purposes and has a higher limit, it’s more valuable than, say, if you live in Florida and there’s no state tax. So that one is definitely a good tool and belongs here, but it varies a little more state-to-state and individual situations.

Tim Ulbrich: Great point. And so we’ve talked about avoidance strategies, deferment strategies, we’ve talked about a third strategy, which is just pay tax now, gains are tax-free. And so Paul, I wanted to transition here for a moment. One of the things you talk about, which I love, is this concept of a tax toolbox and you know, really is inclusive of things that folks should be considering that are likely to be most relevant to their financial situation and to their financial plan as it relates to tax strategies and optimization. And we’ve covered a bunch of these already. HSAs, FSA health dependent care, we’ve talked about Roths, we’ve talked about IRAs extensively. What else would you say from your work with our clients at YFP Planning that you would see as major considerations in the tax toolbox?

Paul Eikenberg: One of the things that is looking like it’s going to be more common and really has only come into effect since the 2018 tax cuts and job act increased the standard deduction is bunching itemized expenses. A lot of people who used to itemize aren’t able to itemize anymore. The only deductions we see are charitable contributions, interest, and estate taxes. Estate taxes are now limited to $10,000 on a return. So we’re seeing people start bunching charitable contributions into one year and alternating standard deduction, itemized deduction, standard deduction, itemized deduction as they’re going on. And when you look at it, you know, over a two-year period, you’re able to get a greater tax benefit if you are putting all your charitable contributions in one of those two years.

Tim Ulbrich: OK.

Paul Eikenberg: You have some options with property tax, but really, it’s charitable contributions that make the most difference here. And there’s something called a donor-advised fund where you can make a contribution, put it in a fund that is invested and grows and it’s not taxed. The fund is actually the charity. But a donor-advised fund, you’re able to make recommendations on where that money goes, basically you’re controlling where the donations go. So on December 31, I can put money into that donor-advised fund, and it counts for that year along with any contributions I made. So it’s a great way of still making the donations but grouping them in one year.

Tim Ulbrich: Got it. OK. The other thing too that comes to mind, Paul, is we know many of our community is engaging with or thinking about a side hustle of some sorts that may evolve further even beyond that. We of course feature many side hustle stories on this show. I know many of our clients would fall into this category as well. Not intending this for them to be advice that they’re going to run with, but just general considerations for folks that find themselves in this category of side hustling.

Paul Eikenberg: Side hustles are a great way of generating extra money and getting some of the benefits from a tax side. So to be deductible, an expense for a side business needs to be considered ordinary, necessary and not extravagant. Ordinary means — for a tax definition that other people doing the same type of work are going to have similar expenses to this. Necessary has a fairly broad definition of does it help you generate more business, do that business better, or qualify you, you know, continuing education? Not many side businesses can be done without internet or cell phones today. Conference travel, things to generate new business. There are a lot of expenses there to acknowledge to get supplies, to — there’s times where meals to generate more business or to produce business make sense. So there are a lot of things that are deductible expenses from that side income that have a professional/personal benefit to the business owner. You know, I have a book of a couple hundred pages of ordinary business expenses.

Tim Ulbrich: And I firmly believe — I know I’ve heard Tim Baker say this a ton of times — that for those that are in a side hustle, have their own business, thinking about it, having your own personal financial plan and house in order is so incredibly beneficial to not only what the business will become but also to your sanity and to your peace of mind. And I can say that firmly from personal experience. And so I would encourage you, those that fall into that bucket, that’s an area we’re spending a lot of time with our clients right now. Head on over to YFPPlanning.com, you can schedule a discovery call, see if our services would be a fit for you. And I think making sure you’ve got a strong financial foundation in place is so important to the success of that side hustle or business. Paul, as we wrap up here, you know, I think we have briefly, succinctly, yet also covered a lot in terms of considerations. I know for many folks, it can feel overwhelming. I mentioned at the very beginning that we’re excited this year to be expanding our tax service and offering it — you’ve been leading — for our comprehensive financial planning clients that are a part of our comprehensive financial planning services to those that maybe want to engage with us on that part of their tax plan to see if it would be a good fit for them going forward. So briefly, what can our community members expect if they sign up for YFP to be working on their taxes for the year? What should they expect in working with you and your team?

Paul Eikenberg: We’re offering outside our comprehensive clients, the first step is preparing our 2020 return. We work remotely. We were built to be paperless. So it is a unique thing and business. We basically — the engagement, there’s an engagement letter that goes out, usually in January, to our clients. They sign the engagement letter and you get a secure link where you can upload your tax paperwork. We’ll take a look at your previous year return, and we take that work, go through it, look for any missing pieces of information. You’ll have a questionnaire to answer, all electronically. And we put together a return. If we need more information, we contact you to gather that. Once we have the return, we schedule a Zoom appointment and review the return, have it signed through DocuSign and file electronically. During that process, if there was anything that kind of obvious you were overlooking, should be thinking about, we’ll point it out there. And then with the clients we’ll be doing the returns for — you’ll have an option to engage for us a mid-year tax projection where we can take a look and see if you’re withholding’s on target and if there’s any tax tools you’re not taking advantage and talk about that with them.

Tim Ulbrich: As we wrap up this week’s episode of the Your Financial Pharmacist podcast, I’d like to remind you about our tax planning and preparation service that we’re going to be offering to 50 pharmacist households in 2021. You can learn more about that service, including what’s offered, what’s included, how much does that service cost, what you should expect by going to YourFinancialPharmacist.com/filemytaxes. This is the chance to apply much of what you heard throughout today’s episode and really be able to apply that personally to your individual situation. What a great way to get 2021 off to a great start. So again, that’s YourFinancialPharmacist.com/filemytaxes. You had a chance to hear from Paul on today’s episode, hopefully you got some insights into his expertise, what he’s able to provide, and certainly has adequate experience working with many clients over at YFP Planning. As always, if you liked what you heard on this week’s episode of the Your Financial Pharmacist podcast, please do us a favor and leave us a rating in Apple podcasts or wherever you listen to the show each and every week as that will help others find the Your Financial Pharmacist podcast and hopefully benefit from the education and the material that we do each and every week. And of course, I wish everyone a happy and healthy New Year. Looking forward to 2021, and I hope you all continue to join us on this journey as we all strive towards achieving financial freedom. Have a great rest of your day.

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

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

Amanda and Holden Graves join Tim Ulbrich to talk about their journey paying off $100,000 of student loans and other debt in just a few years. They share their strategies for aggressively repaying their debt, how they were able to effectively work together as a couple, and what lies ahead for them and their financial plan now that they are officially debt free.

About Today’s Guests

Holden Graves is a pharmacist working for a behavioral health hospital in Texas. He enjoys utilizing data to help problem solve and fix workflow issues. His passion is for disrupting the current healthcare model and focusing on improving patient outcomes.

Amanda Graves is a food scientist who enjoys working in the kitchen. She has a passion for cooking and loves that she can combine science and cooking to create delicious products on an enormous scale.

Amanda and Holden are excited to share their story to help motivate and inspire other professionals on their debt payoff journey.

Summary

Holden and Amanda Graves share their story of accumulating, navigating, and ultimately paying off $100,000 of student loans and car debt in a few years. Holden, a pharmacist, and his wife Amanda, a food scientist, were able to get through their undergraduate programs without acquiring any debt by working, scholarships, in-state tuition, and money from his grandfather. They took steps to minimize their debt burden when Holden went to pharmacy school by attending an in-state school and working. Holden was able to graduate with $80,000 in loans and about $20,000 in a car loan.

Holden and Amanda prioritized discussions about money as a couple before they were married and feel that it built a great foundation in their marriage. They learned a lot about each other and discovered that they had slightly different outlooks on their feelings toward their debt. Amanda was more risk averse and wanted to pay off the debt as soon as possible. On the other hand, Holden was comfortable paying it off over 5 or 10 years while focusing on increasing their investing assets. They compromised and decided to still pay off the debt aggressively over a couple of years while also putting money toward an emergency fund, house down payment, and into their retirement accounts.

To pay off the debt, they relied on automating their finances and refinancing their student loans to get a lower rate. Now that they are debt free, they feel that they have freedom and options and are going to continue saving for retirement, funding smaller goals like vacations, and focusing on increasing their invested assets.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Amanda and Holden, welcome to the show.

Holden Graves: Thanks, Tim. Happy to be here.

Amanda Graves: Yeah, thanks for having us.

Tim Ulbrich: I recently ran across a blog post on the scope of practice titled “How One Pharmacist Paid Off $100,000 of Student Loans and Other Debt in Just a Few Years,” and after reading that article, I was inspired by your story and wanted to bring on not only Holden to share about his journey in pharmacy, school, pharmacy practice, debt accrual, which we’ll talk about here in a little bit, but also bring Amanda on the show as we know that this ultimately for the two of them was obviously a joint decision in how they were going to approach this debt and how they were going to approach the rest of the financial plan. So I really appreciate you guys coming on to share this story. Now before we jump into the specifics of your debt-free journey, how you did it, how much you had, what was the secret to success, what does this mean for you guys going forward, I’d like to start by hearing a little bit about your backgrounds and the work that you’re doing today. So Holden, let’s start with you. Tell us a little bit about your pharmacy career background, how you got into a pharmacy career, what was the interest, where you went to school and the work that you’re doing right now.

Holden Graves: Yeah, that sounds perfect. Yeah, so originally I’m from northwest Arkansas, so near where the University of Arkansas is. So what really got me interested is I actually in high school, one of my favorite teachers actually read an article to us about pharmacists and kind of the need for pharmacists as the population continues to age. So that was kind of what sparked the interest in me, and I went and shadowed — my uncle actually owns his own pharmacy, so I went and shadowed with him and just loved the rapport that he had built with his patients. They all came to him and had questions for him and trusted him just as much as their physicians. And so I just loved that rapport that he built. So that’s what got me interested. I went to the University of Arkansas for my undergraduate, where I met my lovely wife. And then went to the University of Arkansas for Medical Sciences for pharmacy school. So I did my four years there and in the middle of pharmacy school, I got married to my wife. So that was just an amazing experience from that point of view. After school, I actually applied for residency, but I didn’t match with anywhere. So that was kind of interesting, kind of left me scrambling. Luckily, I was able to find a job at the Children’s Hospital in Dallas, where I started and worked there for three years and then now currently at a behavioral hospital, still in the Dallas area.

Tim Ulbrich: Very cool. And you know, I hope here, your story there, Holden, for our listeners and if we have students that are listening, especially those that are in their fourth professional year, getting ready, end of 2020, submitting applications, getting ready for residency interviews, thinking about the matches, it’s overwhelming, right? And I think that just hearing your story about yep, the match was not successful maybe by what you had determined success would look like in that time, but I’m guessing through persistence and other opportunities and doors that opened up, you found yourself in the niche working in behavioral health. Real quick on that, like from the experience of not doing residency, how were you able to find yourself in a position like this? And ultimately, what was successful for you to be able to land a position that others may hear and say, ‘That’s a job that typically does require residency.’?

Holden Graves: Yeah, absolutely. I mean, there’s no small amount of luck that happened. I got into the Children’s Hospital. It was kind of an entry-level pharmacist position, so I was mostly in the operations side. So that part, he basically was only looking for new grads, so that worked out that I was able to get in from that avenue. And after that, I just kind of worked my way into the good graces to where I became the pharmacist in charge of one of the smaller pediatric hospitals. And so that kind of positioned me well as just having that experience of going through and dealing with the nursing leadership and the physician leadership that then ultimately allowed me to transition into the behavioral health side as well, where I’m also serving as a pharmacist in charge. So.

Tim Ulbrich: That’s great. Congratulations. I think paving that pathway is something — we need to hear more of those stories because I think we sometimes fall into the trap that if I don’t do A or B or C, it doesn’t mean I’m going to have these other opportunities. And there’s certainly many other stories out there such as yours. So Amanda, tell us a little bit about yourself.

Amanda Graves: Most definitely. So my background is actually in food science, which is awesome. So I went to the University of Arkansas, where I met my husband. And so graduated from there, and I immediately got into the food industry. And so my background’s a little bit diverse between quality assurance but majority of my career has been in research and development. And then I also dabbled in sales in the food industry for awhile, kind of on a technical sales side. But currently, I work in the culinary department for a restaurant company. So I get to manage kind of the food and culinary side from a science perspective, which is really great for me to be able to combine — I love food, and I love to eat, so I get to combine the culinary arts with the food science side and just make things come to life on a mass scale.

Tim Ulbrich: What a unique career path. When I read some of your background of combining science and cooking, I was like, heck yeah! I mean, that’s awesome. I think one of the reasons I enjoy cooking so much is just, you know, that bringing in some of the science and understanding it. It reminds me of some of the pharmacy training. I think there is so much both art and science in cooking. So how did you find yourself in that career path and even having an interest in that area?

Amanda Graves: It really worked out well. So my high school had a culinary arts magnet program.

Tim Ulbrich: Cool.

Amanda Graves: So I did culinary training for the first three years of high school and then senior year, I was an intern in a hotel kitchen, which was an absolutely incredible experience. But with that, I also learned I didn’t want to be a chef. And just through seeing that, I was like, but I still love food and also in my high school, I was in the science magnet program, and I took chemistry for two years because I just love chemistry. And so just kind of thinking about how I can combine my love of science and food, I just kind of stumbled upon food science, and it really just is the perfect combination.

Tim Ulbrich: I love it. And before we go on to talk more about your financial journey and your story, which I’m confident is going to motivate, inspire other pharmacy professionals and others listening on their own journey and their own debt payoff, what they’re working through as well, I have to know. I don’t hear the thick Arkansas accent that I have heard from other guests on the show that have graduated from UAMS or Harding. What’s the deal? Are there like levels of Arkansas accent?

Holden Graves: Yeah, there’s — up in the northwest corner of the state where the University of Arkansas, we kind of more have the less southern and then as you get closer into Little Rock and the southern part of the state, it gets a lot thicker. Amanda’s also actually from Dallas too, so she doesn’t have that from Arkansas.

Tim Ulbrich: OK. That explains it.

Amanda Graves: So I definitely don’t have a southern accent. And on Holden, it only comes out on certain words occasionally but otherwise not too much.

Tim Ulbrich: Yeah, I’m thinking of other guests we’ve had on the show that are doing some awesome things, debt repayment, real estate investing, others in the Arkansas area, and it was definitely a thicker accent.

Holden Graves: Yeah, that’s more the southern part of the state.

Tim Ulbrich: Absolutely. Well, let’s jump in. Paying off $100,000, student loans and other debt in just a few years, and so we’re going to talk about how you did that, how you accrued it, how you paid it off, why you did it, what was the strategy. So Holden, kick us off here. Was this a majority or all of your student loan debt? Tell us about the amount and also the position and how you got into that.

Holden Graves: Yeah, absolutely. So I guess it depends on who you’re talking to on whose debt it is. So according to me, it’s all of my student loan debt. According to my lovely wife, it’s all of our student loan debt. So it was mainly my schooling that accounted for all of that. So as far as the actual student loan debt goes, we were about $80,000 in student loan debt. But in the middle of pharmacy school and then right after pharmacy school, we actually purchase two new cars. And so at the lowest point, we had about $100,000 in total debt.

Tim Ulbrich: OK. So about $80,000 in student loans, about $20,000 in two cars. That brings us together to that $100,000. Now, I’m sure many of our listeners hear $80,000 and say, “I wish I only had $80,000 in student loan debt,” which you know, it’s unfortunate that I even have to say that out loud, but that’s the reality, right? So we have Class of 2020, we now have the median student loan debt that is north of $175,000. I’ve often talked and worked with pharmacists that exceed that or perhaps even couples that have more on top of that, so $80,000 — I don’t want to mitigate what you guys have done. I mean, it’s incredible. But my question there is what was the strategy? How were you able to keep the debt load I guess “low” of $80,000 compared to what we see out there as the normal?

Holden Graves: Yeah, absolutely. Yeah, so we were very intentional — or I was very intentional early on whenever we were accumulating the debt. So luckily, we were both able to graduate undergrad with no debt, so it was just pharmacy school that I needed to finance my way through. But I just still wanted to take out the minimum that I possibly could. So I really only took out enough loans just to cover tuition. I never took out anything extra to cover expenses or rent or anything. I had a little bit saved up because I actually worked in a pharmacy in undergrad and saved up some money there. And then while I was in pharmacy school, I did still work as well. So I still was — that was basically able to cover my rent and food payments were basically coming from what I was able to work. So that’s kind of the way we did that. And then just going to our in-state school, University of Arkansas, is one of the lower cost programs, so just trying to stay as low cost as we possibly could with that was a big key.

Tim Ulbrich: Yeah, multi-prong approach, I think that’s a good strategy. A little bit of strategy in where you go to school, in-state tuition, as well as being able to work and some other things that can help reduce. And as our listeners know very well, whether they are in the debt accrual or debt paydown phase, anything you can do to reduce that indebtedness while you’re in school is going to pay dividends obviously from what you don’t have to pay back into the future. So in the article that you wrote and I referenced earlier in the show, you mention that while you were still in pharmacy school and before you were married, you had discussions about money, which I think and I’ve talked about on the show before is so important for every couple to be doing as early as you can, having some of these big discussions around money, here, we’re obviously talking about debt but of course it’s much bigger than that. So Amanda, tell our listeners about those conversations, you know, how they went, how you felt about the debt even though it wasn’t your own debt but was going to become your collective debt, how those conversations went, and what you ultimately discovered about each other through those conversations.

Amanda Graves: Yeah, most definitely. So we both knew that a great foundation in marriage is communication, and we also knew that financial stress can one of the major stressors in a marital relationship. So we wanted to start those conversations really early on, just to make sure we were on the same page and kind of had a strategy. And then for my personal perspective of coming in, you know, I was all-in, I was very supportive of Holden and going to pharmacy school and that included the student loan debt that came along with it. So I — as Holden mentioned earlier, I very much saw it as our debt, not just his debt. And so together, we needed to kind of make that plan to address it. But like you mentioned, a lot of those early conversations, we got to learn a lot about each other and just how we viewed money and kind of those different backgrounds that we had from a financial perspective and kind of blend those together to make a plan so we had that even before we were married, which helped just to kind of continue to address that as we were kind of going through the process.

Tim Ulbrich: That’s great. I think conversations are important, as awkward as they may be at first or however you break the ice, you know, I think the outcome is incredibly valuable, not only on the debt repayment part, but of course as you guys know, from living this, this is just one part of the financial plan, so having open communication here hopefully will translate to other areas as well. Holden, for our listeners that perhaps find themselves in a situation where they’re carrying a big debt load, maybe a serious relationship, haven’t yet had that conversation, maybe they’re feeling a little bit of guilt about hey, I’m bringing this debt into the relationship, I’m not sure how someone’s going to perceive this, any words of wisdom or advice that you would give them here in how you were able to approach this subject? Or was it just a natural conversation that really came to be between you and Amanda?

Holden Graves: I think the — just the foundation of our relationship and just the trust that we were able to give to each other that she was open to hearing exactly what it was. And the main thing is that I didn’t want this to be like me v. her or anything like that. Like I wanted us to come together to try and tackle the debt together and try and do everything. So I didn’t want to take her feelings out of the situation, and I wanted to take her advice as well because she’s much smarter than I am. So I definitely, I wanted to bring us both on the same page because it’s a lot easier if we’re both know what we’re heading towards as opposed to two people at odds with each other.

Tim Ulbrich: Absolutely. And that is a good segue into one of the questions I like to ask individuals such as for you guys as you’re going through this journey together and have chosen an aggressive debt payoff strategy is what’s the purpose? What’s the reason? What’s the why behind this aggressive debt repayment? And we’ll talk in a moment about exactly how you did it, but I think that question is one that I talk often on the show about it’s so important to answer that. And I don’t necessarily believe there’s one right answer, but we know there’s options, right? So you guys could have taken out this $80,000 in student loan debt, you could have taken out 20+ years or you could have aggressively paid it off like you did, whether that’s in the federal system or with a private lender. So tell our listeners — and Amanda, I want to start with you, and Holden, feel free to add on from there. Tell our listeners about what was the purpose. What was the why behind this aggressive debt repayment strategy?

Amanda Graves: So for me personally, which in my answer might vary a little from Holden’s, but for me, the why was just the stress of just having that debt kind of hanging over us, I am personally very risk-averse. And I just try and avoid anything that would either be risky or cause me more stress. Really, it was just the fear of it just kind of looming over everywhere. And I just wanted it to be gone. I just wanted it to be completely gone as fast as possible. And I was ready to do kind of whatever we needed to do to get there to kind of move on to what life would look like after the debt was paid off and just be able to have not that standing payment of the loan every month but being able to kind of free that up to have a little more flexibility in the future.

Tim Ulbrich: Holden, what about you?

Holden Graves: Yeah, mine was kind of along the same viewpoints of it’s just the stress of it hanging over you. Less so of the stress that it was hanging over me and more so of what it was hanging over Amanda. So I just could see the way that she just kind of just did not like the stress and I just knew that that’s just something we needed to get out of our lives as soon as possible. I was kind of more on the train of, you know, kind of doing the five- or 10-year repayment and just kind of letting it drag out and be invested. So kind of my viewpoint was let’s work on getting our invested assets up as high as we can as early as we can. So that’s kind of where the compromise came in. If it was up to Amanda, we probably would have had it paid off in that first year. So we kind of settled somewhere in between so that way we could make sure that we were maxing out some of our investment accounts, going about it that way as well.

Tim Ulbrich: Yeah, and I think compromise is such an important summary of what you just said. You know, I think some of our listeners may hear $80,000 and their natural tendency may be hey, I’m going to take that out, low interest rate, as much as I can take it out long. Again, there’s not a wrong answer, depending on somebody’s interests and how they feel about the debt. And I always say it’s the numbers plus the emotions. And both of those are really important, right? So I like what you said, Holden, you know, you may have leaned toward one strategy, but when it’s causing stress or anxiety, I think this is an area — and I say this with emergency fund as well — there’s places to defer, and there’s places where you maybe push someone to come more to the middle or maybe an area that they’re not as comfortable with. And I think this is one when you’re talking about the stress and when you’re talking about some of those other emotions that can come with this debt load, probably not the area to be pushing somebody, even if mathematically you could make an argument that hey, if I put more in investing, it may mean more in the end. So kudos to you guys for working through that.

Holden Graves: Yeah, and don’t think I didn’t also try that approach too. But it did not completely get rid of the stress from her point of view.

Tim Ulbrich: I can see the conversation of like, hey, here’s the compound interest calculator, and look at the numbers, and what if we did this? What if we did that?

Holden Graves: That’s exactly what I tried to do.

Amanda Graves: Yes, we did go over that.

Tim Ulbrich: So I want to build on something, Holden, that you said. You know, I heard you say investing was a priority. Many of our listeners are often trying to balance student loans, investing, emergency funds, paying off a car debt such as what you mentioned, saving for a home, starting a young family, making sure they have the right insurance policies in place, the list goes on and on. And I think that can be very overwhelming for folks. And there’s kind of different strategies of sometimes you balance a lot of these, sometimes you focus in on one, depending on the goal, depending on the timeline, again, depending on the math, how somebody feels. So talk us through your strategy in terms of how you approached the debt alongside of investing, alongside of emergency funds, and I know you guys currently have a home, so also being able to save up for the down payment on a home. How did you bring those issues to the table and then determine how you were going to allocate funds into what priority?

Holden Graves: Yeah, so basically we just kind of came and sat down to be able to discuss what our goals are. We actually do a monthly check-in, meeting, just a financial checkup every month so that way we can make sure we can see what we’re — we track all our spending, so we see what we spent on, how much we’ve got left over for the month and if there’s anything we need to adjust for the next month and the next year and then just also be able to talk about our goals and what goals we have. So it was kind of just that approach of just getting to the table and seeing everything. So of course mostly from Amanda’s side, it was we need to pay off the car loan, we need to pay off the student loans, and she was also a little bit like a down payment for a house because we also wanted to get into a house. And then big into the emergency fund as well, so that was kind of the other part. And so then of course I agreed with all of that. Also saving just as much as we could in our retirement accounts, so we started off just a little bit over the match and then just kind of slowly racked up over a year or two to be able to max out our 401k’s.

Tim Ulbrich: And I’m guessing our listeners may be thinking what I’m thinking, which is, you know, you’re making it sound very easy. But even when you look at that number, I mean, $80,000 or $100,000 and some over three years, people will do the math, $100,000, 36 months, those are big monthly payments. And so it wasn’t just the student loan debt or the car debt. It was also the down payment that you were saving for a home, it was also investing for retirement, all of those things need cash, right? And at some point, you’ve got to figure out how we can lives off of less than we make so we can free up cash to be able to achieve those goals. So tell us more, Amanda, like what was the strategy or what was the success, the secret sauce, whatever you want to call it, for you guys in terms of being able to keep expenses down so you could ultimately free up cash and put that cash towards the goals. What were some of the sacrifices or cuts that you guys had to make?

Amanda Graves: One thing I think that we learned — and I think Holden mentioned it earlier — that we got married in the middle of pharmacy school, so for those first two years of marriage, Holden was in school and I was working. So we kind of had figured out how to live off of one salary. And then even though we were super excited, you know, come graduation and Holden getting a job, we really tried to live within the same means that we had been for those previous two years and then just kind of bringing the new paycheck that we were getting to go towards all those different things of meeting our financial goals. So I think that was the big thing was still living off the same budget and then just freeing up the rest to our financial goals.

Tim Ulbrich: And how did automation, Holden, if at all, play a role here? You know, we talk a lot about on the show, once you’ve got a plan, really one of the best things we do is get out of our own way to make sure the plan actually happens. And automation is often the vehicle, the system, that will allow that to happen. Did you implement kind of automatic withdrawals towards these payments? Or how did you make sure your goals were being achieved while you had other competing priorities for your expenses?

Holden Graves: So of course, I went to the University of Arkansas, so Joe Baker is —

Tim Ulbrich: Yes.

Holden Graves: Was there, and he was —

Tim Ulbrich: Shoutout to Joe.

Holden Graves: He was my professor. Yeah. I know, I still need to get his book, so don’t tell him I haven’t gotten it yet. He really kind of set us up, so that was a really good foundation. And then at the time, he was recommending “Automatic Millionaire,” so it was before y’all had come out with your book. And so that was a big one that I just read that and just like loved this of these people that just kind of never really made that much, and they just saved automatically and paid off stuff and all of a sudden, they had three homes and like $1 million in the bank just because they were automating everything and not thinking about it. So that was a big thing for us. So everything we had was automated. We had our 401k’s automated, we had basically everything coming out of my paycheck, so my paycheck would get deposited every other Thursday. And Friday, we had all of the automatic drafts going towards our different savings accounts and also towards our loan accounts as well.

Tim Ulbrich: Awesome. And we’ll link in the show notes “The Automatic Millionaire” by David Bach. We’ve talked about that on the show before. Also to Joe Bake himself, “Baker’s Dirty Dozen: Principles for financial independence,” excited about that new resource coming out. And I also would add, to our listeners that want to learn more about this concept of automation, one of my favorite books — you’ve probably heard me talk about it before — “I Will Teach You to Be Rich” by Ramit Sethi. He does an awesome job of actually getting in the weeds on kind of what could this look like from a system standpoint and how can you implement it? And I think for many people, the idea of it seems more complicated than the actual implementation process. So I’d recommend those resources. Before I ask you guys about hey, what’s ahead now that we’ve got this debt paid off, we’re in the home, I wanted to, Holden, for a moment go back to the student loans. I didn’t ask you what the strategy was there. Was it staying in the federal system, pay them off? Was it refinance the loans? And any advice you would have for our listeners who are trying to make that distinction or that decision.

Holden Graves: Yeah, absolutely. So we went with the route of refinancing. So I never really thought about getting it to filing or attack this separately or going into the weeds on that. I just looked at what our tax return was and tried to plug that into the REPAYE and PAYE options and just realized that we’d actually be paying more towards the debt doing that than just the standard 10-year payments. So that was never really an option was doing that. And then I didn’t really want to be tied down with one particular company or one particular field, so I didn’t want to be in the Public Service field of five years in, I’ve realized, wow, I don’t really like this, I didn’t want to be stuck in that type of situation. So since we were going to be so aggressive with it, we decided to refinance and got a much lower rate on the refinance. So just kind of went at it that way and paid it off just as much as we could, as quickly as we could.

Tim Ulbrich: That makes sense. And so you know, as we now look at the future and what’s ahead, we’ve got an emergency fund in place, we’ve got student loans paid off, check, we’ve got the cars paid off, check. Obviously you’re in the home, so the down payment happened, check. And you were investing for retirement along the way. So I’d like to hear from both of you, both some of the numeric goals of what’s ahead, where do you guys want to focus on in terms of the x’s and o’s in your financial plan and then perhaps some more of the softer sides of the financial plan, you know, what are you hoping this means for your family going forward? So Amanda, you want to kick us off?

Amanda Graves: Yeah. So now that we’re kind of moving forward as we’ve checked all those boxes, I’ll let Holden speak to more of the financial strategy because he’s better with that. But —

Tim Ulbrich: He’s the nerd. He’s the nerd, right? Let’s be honest.

Holden Graves: That’s it.

Amanda Graves: Oh, he totally is. He totally geeks out on finances, which I love. And he does really great at kind of the future planning where I’m more of the close-in, monitoring the monthly budget. So I’m kind of the —

Tim Ulbrich: Sure.

Amanda Graves: The monthly person whereas he kind of does everything else. But it’s just been really great to kind of be a partner and seeing those different strategies kind of come to life. And what that means too is it kind of gives us the freedom to do what we want both now and in the future, you know, with saving for our retirement but also we have smaller goals too. We have automatic savings for vacations. So if we decide we want to take a family vacation, it won’t be a big financial stress because we created that savings just so that way, we can do little trips or activities and different things like that.

Tim Ulbrich: And Holden, give us the, you know, what’s the next 3-5 years look like? What’s success look like for you guys going forward now that you’re past this $100,000 of debt?

Holden Graves: Yeah, absolutely. Yeah, so we’re just kind of focused right now on just kind of accumulating as much as we can. It’s just kind of where like we don’t have specific 3-year to 5-year goals. We usually go one year at a time. But for the most part, it’s just 3-5 years, we’re still going to get 3-5 years of invested assets to be able to cover us for if anything were to happen or if anything — if one of us needed to take a break or walk away from a job that’s stressful. So that’s kind of the biggest things there. One thing Amanda didn’t mention, though, was actually when we paid off our student loans. We actually paid off our student loans in October of 2019. And our son was born at the end of November that year. So about a month difference, so it actually was — it worked out perfectly because it was just amazing because we really didn’t feel any richer after we paid off the loans because immediately Amanda went on maternity leave. But it really gave her the freedom to take the full 12 weeks off and make sure that she could go back.

Tim Ulbrich: Sure.

Holden Graves: Now especially, she could decide later on whether she wants to take a smaller role with what she’s doing or just step away altogether. It just kind of gives us the freedom to have those options. So we’re just trying to build up that so that it takes a little bit of the stress off Amanda too so she’s less worried about if she wants to step away or just slow down a little bit with work.

Tim Ulbrich: Freedom and options. Couldn’t have said it better. I think, you know, for you guys, this certainly is the case. You’re moving into what I would say is the offensive part of the financial plan and really being able to build some of the wealth into the future, obviously achieve other goals that you want to achieve and have the freedom and option if for whatever reason, you didn’t want to work or work part-time or to be able to replace some of what would come from a traditional W2 income. So congratulations on the progress of what you guys have made. I’m excited for what lies ahead for you guys as well. And I really appreciate you taking the time to come on the show to share your journey.

Holden Graves: Yeah, thanks for having us on, Tim. It was a pleasure.

Amanda Graves: Thank you so much.

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YFP 182: How This New Practitioner is Leveraging a Team to Invest in Long-Distance Real Estate

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How This New Practitioner is Leveraging a Team to Invest in Long-Distance Real Estate

Young Park, new practitioner and real estate investor, joins Tim Ulbrich on this week’s podcast episode, sponsored by APhA, to talk about his portfolio, why he likes real estate investing, how he got started, what has worked, what hasn’t worked, and why and how he invests in Kansas City while living in Hawaii.

About Today’s Guest

Young Park currently serves as an Ambulatory Care Clinical Pharmacy Specialist at the VA Pacific Islands Health Care System in Hawaii. He moved to Hawaii for this specific position after completing a PGY1 residency at the VA Sierra Nevada Health Care System in Reno, NV. He completed his undergraduate study at the University of Georgia, then completed the Doctor of Pharmacy program at Philadelphia College of Osteopathic Medicine (PCOM) in Georgia.

Young started learning about financial independence and investing after making the far move to Hawaii. His big “why” is to help provide financially for his parents and to be able to spend more quality time with his family and loved ones. He’s working towards financial independence through investing in out-of-state cash-flowing rental properties using the BRRRR strategy.

When he’s not working, he serves at his church on the Sound Team, enjoys Hawaii’s beautiful beaches, and learns about personal growth and investing.

Summary

Young Park, a 2017 pharmacy school graduate, stumbled upon real estate investing on YouTube and quickly discovered how powerful of an investment vehicle it can be. Young was originally interested in investing with stocks but decided to move forward with real estate investing because he felt it has the best return on investment and because of the long-term benefits like appreciation, tax benefits, and mortgage pay down.

In less than 2 years, Young has acquired 3 rental properties in Kansas City, Missouri while living in Hawaii. He decided to invest in real estate thousands of miles away for a few reasons. To start, the cost of homes in Hawaii is extremely high and it’s difficult to find a good real estate investment deal. Additionally, he connected and began working with a mentor that invests in the Kansas City market and was able to lean on him for advice while also leveraging the team that was already in place until he could build his own.

Young also digs into how he’s using the BRRRR method on his investment properties, how he’s getting the capital to fund them, how he analyzes a potential deal, how he’s formed a team to support him, the challenges he’s faced along the way, and how real estate investing is supporting his financial why.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Young, welcome to the podcast.

Young Park: Hey, Tim, thanks for having me.

Tim Ulbrich: Super excited to have you on. When I learned about your story as a new practitioner, active in real estate investing, getting started, taking that first step, we’re going to talk about your journey, what’s worked, what hasn’t worked, why you’ve been doing what you’re doing, what your plans are going forward, and I think this episode is going to be incredibly valuable to our community that is interested in learning more about real estate investing or perhaps even for those that have started looking to build upon the portfolio and the work that they’ve done so far. So Young, before we jump into your real estate journey, tell us a little bit about your background into pharmacy, how you got into pharmacy, what interested you, where you went to school, and the work that you’ve been doing since graduating in 2017.

Young Park: Alright. Hey, first of all, thank you again for having me here on the show. I am so excited to share my story today. So man, about myself. I don’t know how far I need to go back. But yeah, as a child, I guess in high school, I actually wanted to go into music, like into music engineering and recording and playing in a band and stuff. However, my parents were definitely against it. We’re immigrants, so we moved from South Korea back in ‘98. And you know, my parents moved to the States so that we can have better opportunity for me and my sister and just kind of live that American dream that they were hoping for us. They just heard about pharmacy from their friend, how their sons and daughters went to pharmacy school and they graduated, got a awesome deal with a brand new car and a brand new BMW. So to them, this was the American Dream for us. Eventually, I kind of followed that step. I went to — I finished my undergraduate study at the University of Georgia, and then I went to the Philadelphia College of Osteopathic Medicine in Georgia campus for my pharmacy school. So I think one of my professors, Dr. Brett Rollins, was on the show before.

Tim Ulbrich: Yes, he was.

Young Park: Yeah. So yeah, I went to that school and then after that, I completed my PGY1 at VA Sierra Nevada Healthcare System in Reno, Nevada. And after that, I took this current position that I have with the VA Pacific Island Healthcare System in Hawaii as an ambulatory care pharmacist.

Tim Ulbrich: So Georgia, Nevada, and then Hawaii, right?

Young Park: Traveled quite a bit, yes.

Tim Ulbrich: That’s awesome. Well, cool. And so we’re going to talk in a little bit about how do you effectively invest as a real estate investor in Hawaii and why you’ve chosen to go out of area to do your investing in Kansas City, and we’ll talk about why that’s important as we may have many listeners that say, “Hey, I’d love to get started with real estate investing, but you know what, my market isn’t really conducive to that,” high cost of living area, whatever be the reason. Obviously you ran into that, and we’ll talk about how you selected the market that you did and what has been difficult and what has worked with doing some long distance investing. But before we get there, talk to us about for you, why you like real estate investing as an investing vehicle for you going forward and one that you want to build your plan around. Obviously our listeners know there’s lots of different ways to go about investing, traditional accounts, 401k’s, 403b’s, IRAs, obviously they could invest in brokerage accounts, they could start their own businesses, real estate and within real estate, many different ways that you can do this. Why, for you, is real estate an investment vehicle that peaked your interest?

Young Park: OK, so I started getting interested in investing initially into paper assets such as stock, like most people, because that’s the easy one to get into. And I was learning more about that while I was watching YouTube videos, honestly. And I accidentally stumbled upon YouTube videos on real estate investing like Bigger Pockets and some other YouTubers who invest in real estate. And it really got me interested in real estate investing because to me, that had one of the best return on investments, and it’s a hard asset where you can physically obtain the asset. You know, paper asset is great, but it’s almost like a made-up money in the computer space somewhere that determines like this is worth that much. So yeah, that’s why I really got into real estate investing.

Tim Ulbrich: And how do you as an investor — you know, one of the benefits people always talk about with real estate of course is long-term appreciation, tax advantages, you know, that you may not see in more traditional investing — how do those things factor into you wanting to prioritize real estate investing?

Young Park: Yeah, so to me, if I were to compare real estate investing to stock investing, it’s like getting a really high-yield monthly dividend while the tenants are paying down your mortgage. And like exactly what you said, you know, you’re getting the long-term appreciation of the property, you’re getting tax benefits through the appreciation, you’re getting the mortgage paid down, also you’re getting the cash flow — and your cash flow over the long term is going to increase year by year because your mortgage will stay the same and your rent will increase.

Tim Ulbrich: Yeah, and of course — and we’ll talk about your specific properties and how you crunch the numbers. Obviously, we’re talking here under the assumption of you do this in a way that works and is financially viable and of course being able to analyze properties, determine what is a good deal, what is not, is very important as we look at the benefits of real estate investing. Now, before we get into the x’s and o’s and specifics of the property, I like to ask folks such as yourself, what’s the motivation, what’s the purpose, what’s the why? Because we talk all the time on the show about our mission of wanting to help as many pharmacists as we possibly can achieve financial freedom, but I know that that word, “financial freedom,” can mean something different to everyone that’s listening here to this episode. So for you, Young, as you think of that concept of financial freedom and how real estate investing fits into that goal, tell us about what your purpose is, what your why is, what your vision is, and why real estate is really just a piece of being able to achieve that.

Young Park: Great question. So why is extremely important. For most people, they really break it down. The money is never the goal of achieving whatever you want to achieve. It’s actually the time and what you can do with the time that you’re able to obtain through building wealth. So for me, my biggest why is — I will say two things. First of all, I want to provide for my parents financially and also to achieve financial freedom for myself, the time freedom. So my parents moved our family of four to the States with the hopes and dreams of providing a better life and opportunity for me and my sister. Neither of them went to college, and they still don’t speak much English at all. And they did manual labor well into their 60s to provide for us so that we can complete our education. All they knew was to work really, really hard for paychecks and bring food to the table. And because of this, I’m extremely privileged. So because of what they’ve done for us, my main why on investing is for my parents, so that I can help them to retire and live comfortably. And my other why is to be financially independent for myself and for my soon-to-be wife Jamie and our family that we’re going to have so that we can live on our own terms and have options. You know, God forbid, but if something were to happen to my family, I want to be in a position where I can just drop everything and go and be with my family as long as I need to. And building that financial freedom and wealth allows you to have that option.

Tim Ulbrich: And Young, what I heard there, which I love — and I hope our listeners will take heart — is the conviction in which you share that to me tells you’ve No. 1, put thought behind that but No. 2, really likely then provides clarity when you’re making your financial decisions, you know within what context, what frame you’re making those decisions because you’ve thought about, reflected upon, that why. And what I heard from you there was wanting to be able to provide and care for your parents, wanting to get to a point of financial independence such that if you were to wake up tomorrow and for whatever reason, you weren’t able to earn the income that you currently earn, that you would be able to move on without stress and continuing to move on with the rest of your goals and the things that you like doing. And the third thing that I heard was time. And my follow-up question there — because I hear a lot of entrepreneurs talk about time, I hear a lot of real estate investors talk about time, but I very rarely hear people talk about why is that time important. What do they want to do with that time to have that option, to have that freedom, with their time or to gain back more of that time? So for you and your family, more time means what?

Young Park: So more time means spending time with your family and your loved ones. So you can do whatever you would like with whoever you want, you know, going wherever you want to be and how you want to spend your time. You know, for me, growing up, my parents were both working really hard, so they weren’t around home that much. We were still extremely grateful for them, but I want to be a parent that’s there for my children whenever they — let’s say they have a play or they’re playing sports or we get to just enjoy our weekend time or go on vacation together, and I just want to be able to do all those things. Working W2 jobs, it’s great. You get great benefits, and I love my job. But you know, you’re still restricted to certain schedules. You have to meet certain quota, and you know, your schedule can always change — yours and your wife, right? Your spouse, you have to line up our schedules together and all of that’s considering I think that financial freedom and being able to build more time to spend with the loved ones, that’s all I want.

Tim Ulbrich: That’s great. And here, we’re talking about real estate investing being one vehicle in which you can achieve that goal of financial freedom, which of course means being able to do the things that you just said were most important. And so let’s jump into July 2019, you purchase your first property. So two years out from school, I want our listeners to hear, you know, obviously you’re at a point where making that transition post-residency into your first job and you pick up on real estate investing as an opportunity to pursue. So July 2019, tell us about that first property, where it was, what the property was like, what you purchased for it, what you spent to kind of get it ready for tenants, and then ultimately, what it means for you from a rental income standpoint.

Young Park: Sure. July 2019 was when I purchased my first property in Kansas City, Missouri. So I have a whole story about getting into Kansas City market, right, from Hawaii. But just to talk more about the property itself and the investment itself, it was purchased off-market. I actually got it from a wholesaler on Craigslist, believe it or not. Yeah. I didn’t know that was a thing. I was looking into a bunch of wholesalers group on Facebook, you could find that. I spoke with a bunch of realtors to get on their list, and you know, I was also searching on Craigslist to see if there are other owners that wanted to sell their properties or potentially wholesalers. So I found that property on Craigslist from a wholesaler. He actually posted it for — are we allowed to talk about numbers?

Tim Ulbrich: Yeah, go ahead.

Young Park: OK. So he listed the property at $65,000. And I offered $50,000. Of course, I kind of lowballed him. But he got back to me saying, “Hey, if you have the ability to close within five days, all cash, we can do it at $55,000.” And for a new practitioner coming out of pharmacy school, a year of residency, and you have about a year of actual job under your belt, you don’t have $50,000 in addition to me having a ton of student debt. So getting the cash was a — is a whole other story that I need to talk about. But I was able to pull that off, I had $50 in cash, so I close on the property, and we actually negotiated the route crosses. He actually wanted to close out within five days because he had a family reunion coming up the following week, so he just wanted to be done with it. We actually renegotiated so that we got it for $53,000 instead of $55,000. So I got that property at $53,000. And I actually have my mentor, who that’s how I got into Kansas City market. And I used his contractor, who’s been vetted, and they’ve been working 3, 4, 5 years together. So that contractor knows exactly how to turn a property, how everything should look, and I had my mentor, CJ, to be the project manager so that he’s just kind of managing everything and I’m just giving the rehab costs, I guess, on weekly, biweekly withdrawals so that I’m just continually funding it. And once I get some photos saying oh yeah, these were done, then I send in my next draw.

Tim Ulbrich: OK.

Young Park: So I did all that, and everything ended up — the rehab costed about $42,000, I want to say.

Tim Ulbrich: OK.

Young Park: So I’m all in $95,000. So I got that rented out — that was a whole other story about getting it rented out because it was during the holiday season, right around this time actually, and in the Midwest, I’m sure over there, it’s freezing cold, snowing, and no one wants to move during the holiday season.

Tim Ulbrich: Not a great time to find a tenant.

Young Park: It’s not. It’s really not. But you know, right after the new year, so it took a couple months, stayed vacant for a couple months, but I was able to get it rented out in January for $1,000 plus $25 in pet fee.

Tim Ulbrich: So $1,025. So just to rehash these numbers, you purchased it with some negotiation from a wholesaler, $53,000. $42,000 on the rehab, so you’re all in for $95,000. And you’re renting it for just over $1,000. And I’m guessing mortgage, interest, taxes, insurance, probably little less than $800?

Young Park: Correct, correct. But at that time, I didn’t refi yet.

Tim Ulbrich: Right.

Young Park: So I didn’t have any mortgage payments at that time. So after I was able to rent it out — so the strategy I used is the BRRRR strategy, right? So I bought it, I renovated, I rent it out, so I was able to refinance out and it appraised at $142,000.

Tim Ulbrich: Oh, wow. OK.

Young Park: Yeah. So there was a pretty decent chunk of spread there. So I was actually able to pull all my cash out and then some. So it covered all my purchase, my rehab, and then I think I — after closing costs and everything, I think I pocketed about $5,000.

Tim Ulbrich: $5,000. And for our listeners, we’ve talked about the BRRRR method on the show before, and I’d reference our listeners back to other episodes on real estate investing that we’ve done as well as the Bigger Pockets website, podcast, lots of great resources. They’ve got a book solely on the topic of BRRRR. But you know, the goal here — which Young’s story is a great example of that — is to with the cash investment of the property, be able to pull all of that money out or all that plus some, I guess ideal, or if not all of that, as close as you can, so that you can move on and repeat the process into the future, which you did in a second property, which we’ll talk about here in a moment. But I want to break down this one with a little bit more detail and get into some of the weeds here. When our listeners hear $53,000 purchase, $42,000 in rehab, $95,000 all in, rent a little over $1,000, how did you analyze or evaluate as you were projecting not only purchase price but rehab, potential rent? Talk us through your analysis process and determining what was or was not potentially a good deal.

Young Park: So yes, so you want to start before you purchase it, you want to start with the end in mind. You need to start from the ARV, which means After Repair Value. So you want to know what the property would appraise at at the end of the day. So from that point on, you want to figure out what the rehab costs would be and then that gives you what your purchase price can be. So that would be your offer price. So once I do that, I kind of analyze it. So let’s just say for this property as an example, I actually estimated this property to appraise at about $120,000-130,000. So I actually got really lucky. And $120,000-130,000 is actually — you know, if I really think about it, it’s on the conservative side. I always calculate it in the worst case scenario. And if everything works — if it makes sense for me, even if I were to pay like $10,000, $20,000, $30,000 out of pocket, would I be OK with that? And if I am, then I go with it because that’s the worst case scenario, and you can only get better. Whatever you do better, that’s all extra sauce on it, you know what I mean?

Tim Ulbrich: Absolutely.

Young Park: And so yeah. So I do that. So I analyze the property by finding the ARV. And then I estimated the rehab with me and my mentor because he’s done it for so long that he could kind of look at the pictures and see what the estimate would be. And it actually aligned pretty much what we thought it was going to be. So we got that rehab, and we were OK with the purchase price because I was thinking $53,000 purchase, about $40,000 rehab, and appraise it for $120,000. So that’s roughly about 75% of that $120,000 for me to do a full BRRRR.

Tim Ulbrich: Got it.

Young Park: The rehab was a little bit more, but the ARV was a lot higher than I thought. So I was able to actually do a whole run deal on my first deal.

Tim Ulbrich: And that makes sense, Young, if you had projected your numbers at an ARV that was $120,000-125,000 and it came out at $142,000, it makes sense when our listeners hear that you were able to pull out all your cash plus some because of the higher ARV, what ultimately came in at the appraisal when you went to go do the refinance. The other thing I wanted to touch on here, if I had to pick what I think are probably the two most common objections to getting started with real estate investing, they would be that one, I don’t feel like I have the knowledge or experience and two, I don’t have the cash, right, because of whatever. I’ve got student loan debt, I’ve got all of these other priorities of which we talk about on the show all the time, and I can’t necessarily save up $50,000, $70,000, $100,000 to be able to put down on a property. So talk us through how you addressed those two things. You mentioned student loan debt, so I’m sure our listeners are curious, you know, how did you go down this path while you still had student loan debt and how did you reconcile that? But how did you address this knowledge piece? And you’ve talked a little bit about a mentor. And then how did you address the capital and being able to have enough money to get started with investing?

Young Park: First of all, the knowledge portion. So you can get a lot of education just from — and they’re all available online. You can go on YouTube, you can listen to podcasts like the Bigger Pockets. You can read books. I read at least three books from Bigger Pockets and other investment books. However, these to me are just knowledge. And knowledge is important. And people say knowledge is power, but I really think it’s knowledge is just a potential power. It’s only powerful if you are able to take actions and apply it, right? If you just learn, learn and learn, it’s just information. But that doesn’t really get you anywhere. So you have to be able to take that action. And for me, just taking that mentorship was the action step that I needed. Through that mentorship program with CJ, I learned a lot. I learned every week. It was like a weekly phone call. But the biggest thing is that he guided me so that I can actually take the action that if I didn’t take that mentorship and have all these knowledge, who knows if I’d even have a property under my belt right now? Or maybe I bought a turnkey product. But yeah, to me, just learning, keep learning and just taking that step, leap of faith, to get into that deal, get to that first deal, that’s the biggest hurdle.

Tim Ulbrich: And how did you find, Young, that mentor? Because I think a lot of our listeners would say, “Hey, I’d love to have a Yoda in my life on the real estate side.” What steps did you take to say, to move from ‘I’m interested in real estate investing. I’ve read this book, and I’m ready to act and I need to find some people that can help me.’ Talk us through that process.

Young Park: Yes. So I started attending meetups. So after learning, learning, learning and Bigger Pockets, they always talk about, “Oh, come to our meetups.” People are always hosting in different cities. So I actually went on their website, found a meetup there, so I went to one of those meetups, and I learned a lot. And one of the guys that I met there actually pointed out to CJ and Jasmine, telling me that, “Oh, there’s this couple from Hawaii that invests in Kansas City. You should go check them out.” So I went to their meetup, and CJ was actually giving a presentation on investing out-of-state versus locally in Hawaii and how the numbers make so much more sense going out of state. The housing price here is ridiculous. The median housing price here is about $780,000.

Tim Ulbrich: Sheesh.

Young Park: Yeah, and your rents probably won’t even be .5% Rule, if you were to call that.

Tim Ulbrich: Yeah.

Young Park: So it just made more sense to go out of state. And they were doing exactly what I wanted to do, so I went up to go talk to CJ one-on-one and told him like, “Hey, I’m in this position right now. I really want to invest in real estate out of state as well.”

Tim Ulbrich: OK.

Young Park: And then that kind of led to us working together.

Tim Ulbrich: So that’s the knowledge/mentor piece. And I think the meetups is a great idea. We’ve been featuring more stories on this show with the hopes that we can connect more investors that can serve as a supporting community for one another. So that’s the knowledge piece, which led to a mentor, which led to some execution. What about the capital piece? I think many pharmacists may be in your shoes, three years out, five years out, seven years out, “Hey, Tim, I’ve got a boat load of student loan debt. I’d love to do real estate investing,” or, “I don’t even have student loan debt, but I just can’t imagine being able to save up $50,000-100,000.” Here, if you’re buying a property for $53,000, you’re doing a rehab for $42,000, you’re all in for $95,000. And the BRRRR method means that you’re bringing $95,000 of cash to get that done. Was that your money? Did you partner with other folks? How did you manage that?

Young Park: Yes, so I definitely didn’t have money. I had some money that I was getting from a W2 job, but this was actually one of the challenges or action steps that I needed to take during the mentorship course so that I can raise capital. So I had to go out and ask family and friends. I honestly — I think I raised $90,000 — I used some of my money too — from family and friends. And I got a ton of rejections. I asked over 30 people. And just to kind of explain to them what I’m doing, but you know, to them, of course I got a ton of rejections because I had zero track record.

Tim Ulbrich: Sure.

Young Park: I had no track record. People who invested in me — invested with me, invested in me because of our personal relationship. They just know me personally and they know my character. So I was able to raise that. And I think another thing that — I keep coming back to the mentorship. Because I had that guidance to show them like, “Hey, I’m not just going there blindly. I have the people there. I have someone who’s guiding me through the whole step,” I think that helped as well. So I was able to raise $90,000.

Tim Ulbrich: That’s awesome. Which makes that deal possible.

Young Park: It does. It does.

Tim Ulbrich: So and before we talk about your second property, your most recent property — unless you’ve done more since we touched base last — I’m sure our listeners are as curious as I am when somebody hears, “Hey, Young’s living in Hawaii, he’s investing thousands of miles away in Kansas City,” you know, what challenges — we’ve talked about the opportunity, right, obviously you have a more affordable market, you’ve got a group there that has connections through your mentor, through contractors, so you’ve got some track record and experienced people that know the market. So the opportunities I think are obvious. But the challenges may be not so much, or folks may hear that and think, eh, it’s not for me. You know, I can’t see the property, per se, I don’t know it, I’ve got to trust people, this is my first time. Talk to us about some of those challenges with the out-of-area investing and how you were able to overcome those.

Young Park: Good question. Yeah, of course. I think the biggest challenges that people can’t get out of their head is not being able to see and feel, touch the property. I personally have not been to Kansas City yet. And I did get a third property recently, by the way.

Tim Ulbrich: Oh, cool.

Young Park: Yeah. So just working remotely and you have to be able to — at one point, just go with your gut so you can trust people. And I’m not just doing that blindly. I’m starting out with the people I know. So I start with let’s say a realtor or I start with my mentor CJ, and he’s giving me referrals so I try this other contractor, which I used for my second property and now again for my third property. I’m just slowly building a network, building relationships, building my team. And when you’re able to do that, you’re putting a lot of pressure off of you. Right? You have people that are doing the jobs for you. You know, really, at the end of the day, you really don’t have to see the property. Don’t attach your emotion to the property. It’s the numbers. But of course you still need to figure out how can you trust those people? And you just — at one point just have to trust them, right? They’re not intentionally trying to rip you off. They’re good people trying to make their living as well. And we’re giving them opportunity, they’re sharing their experience by working with us. So I think it’s almost the same. You just don’t see them face-to-face. But working remotely has been a good system for me.

Tim Ulbrich: Yeah, and that’s one thing, Young, that I think about, you know, one of the takeaways. And I’d recommend to our listeners Bigger Pockets, David Green has a book, “Long Distance Real Estate Investing: How to Buy, Rehab, Manage Out-of-State Rental Properties.” That was the takeaway I had from that book was it in part forces you to think about your systems and your processes because there’s certain things you just can’t do, right? You’re not getting on the plane often to go to Kansas City. Not happening.

Young Park: Nope.

Tim Ulbrich: So you’ve got to have a team there that you trust, that you have systems for communication, that you have systems for vetting contractors, for paying those invoices. Then obviously with more experience will come more of a track record, and I think that will become a magnet to other investors and other partners along the way as well. So tell us a little bit about your second property, which I knew of, April 2020. Didn’t know you added the third, so congratulations. Tell us a little bit more about those and the numbers as you’re willing to share.

Young Park: Sure. The second property, as you can imagine, was April 2020. Right in the start of COVID. So that deal was so — I was scared, honestly. I thought about backing out from the deal multiple times. But I’m so glad I went with it. So this property was actually listed on the MLS, Multiple Listings Service. I saw that on Zillow, and I spoke with the realtor who posted it. And it was actually a HUD property, which if I’m trying to define it, I think it’s a property that was purchased with an FHA loan. And the person who purchased it couldn’t make the payments, so it was like a foreclosure. So it was bank-owned property. And that property actually had some plumbing issues, so it wasn’t eligible for a bank- or like Fannie Mae-backed loans.

Tim Ulbrich: OK.

Young Park: So you only — you could only buy it cash. So that was actually an opportunity for investors like us because most people who are paying down payments wouldn’t be able to afford that. Right? So that property was listed at $79,000. And I used a current contractor that I have and I had to trust him. I had not used him before. We had some ups and downs, but at the end of the day, he did me right, and we are working on the third property together.

Tim Ulbrich: Awesome.

Young Park: Those are the things you actually have to work on as an investor or with anyone, in fact. You know, people have different expectations. Right? So you know, his expectation and my expectations were different. But we talked it out like, “Hey, this is kind of like the finished product that I would like.” He’s like, “Alright, let’s do that moving forward.” So anyways, going back to my second property, so it was about a $25,000 rehab. So $79,000, $25,000, what is that? Like $104,000?

Tim Ulbrich: Yep.

Young Park: So that was my all-in. And I actually got it rented out, and it was rented out in September, I believe. Or maybe before. Oh, I’m sorry. I think it actually rented out in July. And this one was a lot higher because it was during the summer, so I got a tenant in there for $1,100 plus two pets, so $1,150 per month for the rent. And then I was actually able to refi out of that last month, less than a month ago, and it appraised at $144,000.

Tim Ulbrich: You like that $140,000 range.

Young Park: I didn’t go for that one, but it just ends up being that way. And to me, like when I was doing that conservative analysis, I was expecting it to be somewhere between $120,000-130,000.

Tim Ulbrich: OK.

Young Park: So with this one, I was actually expecting to have some of my money left in the deal, which was totally OK with me. But I ended up doing another home run. Maybe I have a couple thousand dollars in the deal at the end of the day.

Tim Ulbrich: So after the second one, if I’m doing my math right here, you’ve got about $286,000 worth of appraised property, and monthly cash flow in rent of just over $2,100, almost $2,200.

Young Park: Right, the gross rent is that.

Tim Ulbrich: Great. And then break down the third one for us.

Young Park: Third one, so I just got it under contract maybe — ooh, maybe two days after I refi’ed out of the other one or before. Somewhere around the same time. And oh man, this was an interesting one. So it was listed on the MLS since March. And it was initially listed at $115,000.

Tim Ulbrich: OK.

Young Park: And no one — there was like absolutely no interest on that property because it was still available by the time I purchased it. So every month, they’re cutting down by maybe $10,000. And in November — or actually, toward the end of October — they listed it at $85,000.

Tim Ulbrich: Wow. OK.

Young Park: Yeah. And I offered $65,000.

Tim Ulbrich: OK.

Young Park: And they came back to me saying, “Hey, we could do it for about maybe $75,000.” And I said, “There’s no way I could, I’m going to do it.” And this one actually was not an owner that was selling. It’s a huge investment firm that’s just purchasing these properties from auction, and they just keep the ones they like and they sell off the ones they don’t. So this was obviously one of the ones they didn’t like. So they were selling it, and I told them, “Hey, it’s $70,000 or nothing.” And then we agreed into the deal. So we got it under contract at $70,000. And then I sent in my contractor and got the estimated bid for it, and it was a little bit higher than I thought because they had a really good photographer, I guess, taking really nice pictures that looked a lot better than what it actually was.

Tim Ulbrich: OK.

Young Park: So yeah, my bid came back a little higher. So I went back to them and said, “Hey, I want another $10,000 discount or else I can’t do it.” And eventually, after a couple negotiations, they did settle for $60,000.

Tim Ulbrich: Awesome.

Young Park: So I got it from $85,000 down to $60,000. And my estimated rehab is about $40,000 on it.

Tim Ulbrich: And you’re still doing the rehab right now or starting that?

Young Park: Just starting, uh huh. We just — I believe we just finished demo, and they’re buying materials. Yeah.

Tim Ulbrich: OK. And what’s your estimated After Repair Value on that one?

Young Park: Right around the same, $120,000-130,000.

Tim Ulbrich: OK. And we won’t jinx it, but likely it could come in the $140,000s. So.

Young Park: Right, right.

Tim Ulbrich: Well, that’s crazy. So you got it at $60,000 through negotiation after you got the estimated bid higher than you thought. You said that it was originally listed at what? $115,000?

Young Park: Right, back in March.

Tim Ulbrich: Wow.

Young Park: Yeah.

Tim Ulbrich: Crazy. You know, what I love about this too, Young, too, it’s just a methodical, steady approach to getting that first deal done, learning from it, building from it, developing the team, you know, that’s the value of the BRRRR method. You’re getting your cash back out or as much as you can. Obviously through the refinance, going onto the second, going onto the third. And I suggest you’re just getting started. You know, my next question, as I suspect if you and I were to talk in three years, it’s probably not three properties but maybe it’s 10 or 20 properties and you’re probably helping and coaching others along this as well, is I mentioned two objections that I often hear, which were, “Hey, I don’t have the money to get started,” and, “I don’t feel like I have the knowledge or the experience to get started.” The third one I would add to that would be time. So as I hear you kind of going through all this, I think, man, where are you finding time to do all this not only in getting the deals done but then also in managing them? Talk to us about your approach to saving time, especially once you have them rehabs done and then you’re obviously managing these properties longer term. What have you done to minimize your time that’s invested?

Young Park: Good question. So first of all, I live in Hawaii and invest in Kansas City. So we are four or five time zones behind, so I start really early in the day. I usually wake up around 5 a.m. and get started and spend maybe an hour or hour and a half either analyzing or talking to my property manager or realtor or wholesaler or sending out emails and working on that. So I do that. Some days I come home and then if I see some properties that came through the email, I analyze them. And the other portion as far as maximizing my time, I have my property manager, who is managing everything. I would not recommend anyone to get into managing their own properties because your time is important. Yeah, you might be saving 8-10% of the rent, but you know, if you’re analyzing everything correctly and have that number included into your analysis, hey, it all works out. Another thing is I think more recently, I found a realtor that I really like, who is willing to write these low offers because most realtors think it’s a waste of time with the offers that they don’t think it’s going to go through. And you know, most of the time, it doesn’t. They’re correct. But if they find an investor who can actually close on the property, even though they’re on the lower price point, we could do multiple deals with them over the years. So that’s like an incentive for them as well. But kind of going back to that, I have my realtor, I just tell him, “Hey, John, I want to offer $60,000 on this property.” And then he just sends me the documents, and I just sign it online and he forwards it. So that saves a lot of time for me.

Tim Ulbrich: And I’m seeing a theme here of team. You know, you mentioned the mentor, you mentioned the agent that is willing to work with you on that, you mentioned the property management piece, you mentioned the contractors that you’ve gotten comfortable with, so I sense the team here has been incredibly important. And my last question for you is if we were to fast forward five years, what does success look like for you as it relates to your real estate investing?

Young Park: You know, I have to put more thought into that. I definitely — so personally for me, I don’t have x number of properties that I want because you know, number of property doesn’t mean really much. It’s really how much cash flow you’re getting. I would like to have maybe $5,000 worth of cash flow and I would like to go part-time if I can to free up time a little more and spend more time with my family and my loved ones and also be able to help my parents. I think that’s where I would like to be within five years. Sooner the better. We’ll see.

Tim Ulbrich: That’s awesome. And I love how you brought that full circle. I think it’s easy, especially as you’re having some success, you know, you kind of keep going, keep going, but what’s the purpose? Again, back to why you are doing this in the first place. And I sense for you that the time was important, the financial independence was important, the being able to provide for family and making sure that you’re investing in good cash flowing, profitable properties that will allow you to achieve those goals. So Young, thank you so much for taking time to come onto the show to share your story as a new practitioner that’s been active in real estate investing out of the area, what’s worked, and I think your story is going to be an inspiration and perhaps a guide for some that are recent graduates or have been out for awhile and wanting to figure out how they can get started in real estate investing. So again, thank you for coming on the show.

Young Park: Yeah. Thank you so much for having me, Tim.

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YFP 181: How YFP is Different Than Most Financial Planning Firms

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How YFP is Different Than Most Financial Planning Firms

Tim Baker, YFP co-founder and Director of Financial Planning, talks about his journey becoming a financial planner. He discusses why all financial planning is not created equal, how and why YFP Planning services differ from traditional firms, and the importance of fee-only, fiduciary, and comprehensive distinctions.

Summary

Tim Baker, CFP®, joins Tim Ulbrich on the show to dig into how YFP Planning was born and how and why it is different from many traditional financial planning firms.

After working for a traditional firm himself, Tim realized that there were a lot of gaps that he wanted to fill in supporting people on their financial planning journey. Tim decided to launch his own firm and began working with pharmacists from the start. After meeting Tim Ulbrich, Tim Baker joined the YFP team and merged his financial planning firm with YFP. Now YFP offers comprehensive, fee-only financial planning for pharmacists.

Tim breaks down several reasons why YFP Planning is so different from traditional firms. To start, YFP CERTIFIED FINANCIAL PLANNERS™ carry a CFP® designation. He explains that the barrier to enter the financial planning world is fairly easy and many people pass as financial planners without much education or experience. However, having a CFP® designation means that the YFP Planning team went through more rigorous training and testing and had to lock in between 4,000 to 6,000 hours of experience.

Tim shares that YFP Planning offers comprehensive financial planning. Many financial planners only focus on life or disability insurance or investments, however YFP Planning supports every part of your life that carries a dollar sign. YFP Planning offers support, guidance, and financial planning in the following areas: debt management, savings, insurance, investments, tax planning and filing, retirement, estate planning, budgeting, student loans, open enrollment navigation, credit, education planning, FIRE, real estate investing, and buying a home, among others.

Lastly, YFP Planning offers fee-only financial planning. This means that clients are paying for advice, not for the sale of a product like most traditional firms. In addition, YFP Planning follows the fiduciary standard. By law, YFP CFPs® are bound to act in your best interest.

If you’re ready to take stock on where you are and where you want to go in 2021 and create a financial plan to support your life plan, book a free discovery call with YFP Planning today.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Tim Baker, excited to have you back on the mic. How’s everything going?

Tim Baker: Things are going well, yeah. Looking to turn the page here on 2020 fairly soon. So good to be meeting with you and Tim and our crew to figure out what YFP looks like in 2021, get a plan in place. So been a tough year but excited to look forward, look ahead and what’s to come for our team here in the future.

Tim Ulbrich: Man, I’m with you. It’s been a tough year. Looks like the first half of the year may be tough as well. But hopeful that we’re going to turn the corner here with the pandemic. Obviously we know many of our listeners, community has been impacted by that. And hopefully our community who’s been on the frontlines is going to get a little bit of a break here and some relief and hopefully get some time to refresh. I know we’ve talked with many pharmacists that I think are probably feeling burned out given the pressures, the circumstances, trying to manage work, trying to manage home, but we’re thinking of you all often, appreciate what you guys do, and yeah, we’re excited about 2021, lots of exciting things planned for YFP. And here, today, wanted to talk a little bit more knowing that we have grown a lot in the last few years, knowing that we obviously have many of our community members that are aware of what we do at YFP Planning, some that are not, and knowing that one of the things I find myself often talking about when I speak on the topic of personal finance is hey, when you’re looking for a financial planner, it’s really important not all financial planners and financial planning services are created equal. And it’s important to understand what you’re looking for, what’s a good fit, what’s not a good fit. And so we wanted to spend some time here today talking about why we do what we do, what some of the terms mean around fee-only comprehensive financial planning, how we got to this point, and ultimately what’s included in the types of planning that we do. So we’re going to do that. But Tim, before we dig into that, I think it was all the way back maybe Episode 015, somewhere around there, we had you on to chronicle your career path, your journey into financial planning. But it’s been awhile. And I don’t want to assume that the listener here in 2020 necessarily listened to Episode 015, so take us back into your trajectory into financial planning, all the way back to obviously your time at West Point, what you did from there, and then how you got into the work that you’re doing now and offering fee-only comprehensive financial planning to pharmacists.

Tim Baker: Oh man, I feel like it’s been awhile since I kind of told this story. So I’ll try to dust it off a bit. I feel like now it’s more about like the team that we’ve assembled and everything.

Tim Ulbrich: Yeah.

Tim Baker: But yeah. I took a very kind of a different route to becoming a financial planner. I — like to your point, Tim, out of high school, you know, I was pretty set on the United States military academy at West Point. And my trajectory for my career I thought would be very much intertwined with service, military service. So I worked my tail off to get into the academy. The world changed very — very quickly when I was there my freshman year, I think my first day at West Point was July 2, 2001. And obviously, a couple months later, you know, 9/11 happened and really changed the tone of what our job was and why we were there. So you know, I graduated four years later with a degree in international relations, you know, again, thinking that my career would follow more of a service track and commissioned as a Second Lieutenant and as an Armor Platoon leader, so tanks. But I quickly found out that, you know, sometimes you have a plan and life happens, you get punched in the face, and that plan goes out the window. So unfortunately, I was involved in a training accident that kind of derailed my military career, and I medically was separated from service. And I found myself a civilian, not really knowing what I wanted to do and really lost for a bit. So I backpacked Europe for about four months, saw 20-some odd countries and came back and started a career in material management, actually in Columbus, Ohio, where we recently moved back to. So my job was to basically move — manage the department that moved boxes from A to B for a big retailer here in Columbus. So I did that for a span of years and then moved out to southern California to work for a construction company kind of doing the same type of stuff of moving materials from A to B. And I would say it was around this time that I kind of had a — kind of a quarter-life crisis. I liked my job, but I felt like it didn’t like me. I was working way too many hours for a six-figure income, which was great. I didn’t really necessarily get a warm and fuzzy of what I was doing from a day-in and day-out. And you know, I had a relationship that kind of ended at that time and I was just not living the best version of myself. So I took some time off. I took probably about 9-10 months off to kind of figure out what I wanted to do. And I kind of came to this epiphany, kind of from some of the input from two different family members that said, “Hey, we think that you’d be actually really good as a financial planner.” And I didn’t really know anything about it. You know, finance had always interested me, but I decided to pursue that path and I moved from southern California back to the East Coast to work with a solo practitioner in Baltimore, Maryland, who was actually a Naval Academy grad, and basically started at the very bottom of the ladder. And I was more or less a glorified assistant and took probably a third of the pay of what I was making previously to really kind of introduce — or reinvent myself and really get into this profession of financial planning.

Tim Ulbrich: Well, I’m grateful — and I mean this genuinely — as my own financial planner but also knowing the impact you have had on the pharmacy community that you found this career pathway. I mean, I think it’s safe to say — and we’ll talk more about the team and the services that this transition and quarter-life crisis, whatever you want to call it, one of the results has been really putting a positive dent on helping pharmacists in managing their personal finances, obviously debt is one part of that, debt management, student loans, but also the rest of the financial plan, like we talk about often on the show. And I genuinely think the work that you did and the work that you continue to do has had an incredible impact, not only on our community but on others as well. So you’re working with a solo practitioner, and you decide to make a jump to start your own firm. So why, why, why take on that risk? Why take on that journey? And what was enticing about going down that path?

Tim Baker: Yeah. So again, not really knowing what I was getting into — and I think sometimes I talk to pharmacists, and they say the same thing when they go to school. I think the big difference is the debt that’s often taken on, you know, with becoming a pharmacist, which is a good and a bad thing from a barrier to entry perspective. So I completely just shifted and pivoted from what I was doing from a professional standpoint. And you know, to kind of back up to that, when I was trying to reinvent myself, my resume was written in a way that like that I just kept going back to material management. So I really need to do something bold, and it actually came down to networking. I know, Tim, you talked about that, to kind of get into that firm and really be super vulnerable to say, like, I don’t know anything. Like when I got into material management, I used to say like I didn’t really know what a forklift was. When I got into financial services, like the only thing that I really knew about financial planning was you would hire a person to help you, and I knew that credit card debt was bad and investments were good and buy a house, that was a good investment, which is what my parents had said. That might not necessarily be true. So I get into this world, and I’m working with a solo practitioner, and it’s very much kind of like you work with people who have hundreds of thousands of dollars and you’re working with them to help them with insurance and their investments and maybe give them a little bit of tax advice and things like that. And I quickly realized that me as a 20-something-year-old, I didn’t resonate — I wasn’t really resonating with the people that I was working with. You know, I was supporting the guy who was working with a lot of like pre-retirees and things like that. And then I quickly realized that there’s a lot of gaps.

Tim Ulbrich: Right.

Tim Baker: So after I started the process of getting my licensing and working on my CFP and getting that in place and getting everything that I needed to actually do the job, I started working with pharmacists fairly early on after that because I had friends — most of my friends in Baltimore were pharmacists, one of the guys I went to West Point with, one of my best friends, married a pharmacist. They were very much champions of me and what I was trying to do. And I found with pharmacists and that type of client that most financial planners will say, “Well, you have $150,000-200,000 in debt. I can’t help you. Come back to me when you have a couple hundred thousand dollars in your investments, and we’ll go from there.” Or they would say, “We can help you. We’ll invest your IRA, we’ll sell you a crappy insurance product. And then we’ll talk to you once every three or four years.” And when I looked a the student loans, in particular, I’m like, you know, and you’re not getting supportive advice, like that’s not good. You know, most financial planners — I think it’s gotten a lot better — but most financial planners, at least at that time, would say, “Oh, don’t worry about the loans. They’ll figure themselves out. And invest or buy this product.” And that’s not good advice. We say with pharmacist-type debt, it’s not hyperbole to say it’s a six-figure decision on which way you go. And I think you and Church would attest that like if you would have went a different path for your loans, maybe like a forgiveness route, it would have been a different result. So I was starting to see this gap in the market, and you know, a lot of it was like, “Hey, find your niche.” And I kind of had stumbled into this niche already of working with pharmacists. And it just steamrolled from there. So I stumbled upon a group called XY Planning Network, who was a group of fee-only CFPs, Certified Financial Planners, that really focused on Gen X and Gen Y, who are typically those individuals that maybe have a lot of debt, maybe decent incomes, but are not being serviced the financial planning sector. So that was really the main drivers as I was thinking like, hey, like I think I can do this better, more efficiently, more targeted to who I was serving anyway. And that’s what I decided to do.

Tim Ulbrich: So you started the firm Script Financial.

Tim Baker: Yep.

Tim Ulbrich: And I actually have in my hand right now as we’re recording right now my Script Financial pen, which is just an awesome, awesome piece of history. So you started Script Financial, and then you meet this other chump named Tim who knew this other chump named Tim that was also talking personal finance.

Tim Baker: Yeah.

Tim Ulbrich: And the paths started to align, right?

Tim Baker: Yeah. So I think one of the other reasons that I decided to go out on my own — and it wasn’t necessarily feasible in the model that I was in — was I wasn’t fee-only in that first, in that solo practitioner. And I think that’s a good distinction to make. So what I often tell a prospective client today when I talk to them, I’m like, for me, like whether you work with us or not, you know, that’s obviously a decision you need to make. But to me, table stakes are are you a Certified Financial Planner? So unlike a PharmD, a JD, an MD, you know, those are professions where there’s an education requirement, experience requirement, an ethics requirement. To become a financial planner, there’s none of that. You take what’s called the Series 65, you study for 8-12 weeks, and then you take a test, you know, and you can do exactly what I do or what we do today. So there’s often a lot of sales people that parade as financial advisors but that are really just hawking crappy products, to be honest. So sometimes people get upset with me, but it’s like thinking about like a real estate agent. Like the barrier to entry to become a real estate agent is really low. Now, to be a good real estate agent, you have experience and all those — good ethics and things like that. But the CFP designation is something that’s really, really important. And then the other thing that’s kind of table stakes is really if you’re fee-only. So this is really confusing, and it actually confused me because I was probably about a year, year and a half into my career as a financial planner before I even knew what fee-only was. And fee-only is where you basically separate the sale of a product like an insurance policy or an investment with advice. So anytime that you have an overlap between the sale of product and advice, there’s a conflict of interest because I would say, “Hey, Tim, you’re my client. If you buy this insurance product, it’s better for me in terms of commission, maybe not so great for you.” And the same thing with the investments. So in the fee-only world, you are — we’re what’s called “product agnostic.” So if I say, “Hey, buy this life insurance policy,” it’s not because I’m enriching myself anymore. It’s because that’s what I believe is a tool to better protect yourself and your family. So I kind of use the medical analogy. It’s why physicians are not supposed to get kickbacks from pharmaceutical companies because it taints their ability to prescribe medications without strings. The difference in our profession, you know, “profession,” is not only is it legal in our profession, it’s prevalent. So there’s something like 95% of advisors out there can sell you a product that enriches themself, i.e., commissions or kickbacks, that a lot of times the advisor doesn’t know. So that was a main catalyst for me to move. I wanted to very much niche down. Most financial planners, they want to be everything to everyone. That’s not our game. So we are very niche to the pharmacy profession and really wanted to provide services that kind of ease those pains that they were having. And then the other thing is to put myself out as fee-only or as a fiduciary, meaning that our — we are legally bound to act in the client’s best interest, which most people, you know, if you say, “Hey, your advisor can put their own interests ahead of yours,” they would be surprised by that. But that’s actually the case. So yeah, once I made that leap, I started to network and to figure out how to get myself out there. I came across Your Financial Pharmacist on Twitter, and you know, I always say like, “Who’s this imposter Tim talking about personal finance and pharmacy?” And I read your stuff, and I really liked it. And it resonated, what you were saying resonated with a lot of the conversations that I was having with pharmacists at the time. And you know, I reached out to you, and we decided to meet in Bob Evans in Ohio, and I think our first collaboration was the podcast, which now has almost 500,000 downloads, I think is where we’re at right now.

Tim Ulbrich: So fun story for our listeners about the podcast. I was reflecting on this recently — and then we’ll get to the meat of what we’re actually talking about here — is we at one point, Tim — I remember it vividly. I was on vacation with my family, we were down in Hilton Head, we were actually working on “Seven Figure,” wrapping it up, and we’re like, man, what should we call the podcast? Like should it be, you know, like — I was thinking of like Mike and Mike on ESPN, which are no longer a thing, right?

Tim Baker: Right.

Tim Ulbrich: I was thinking about other names. And then, I mean, clear as day, you’re like, “Maybe we should call it the Your Financial Pharmacist podcast.” Ahhh.

Tim Baker: Yeah.

Tim Ulbrich: So sometimes, it just hits you in the face, and you know, you don’t know it. But it was a good time as we were getting that started.

Tim Baker: Yes, yes.

Tim Ulbrich: So we’re going to come back, I want to come back and break down a little bit further in a moment fee-only, fiduciary, comprehensive, and compare some of the terms: fee-only versus fee-based, fiduciary suitability, talk more about why that’s important. But take us for a moment down the path of — so you start Script Financial, we merge efforts at YFP, obviously we start the company, you’re kind of doing — not kind of — you are doing all of the planning. Obviously now it’s a team that really believes in what we’re doing and really embodies obviously what you have built and the beliefs that we have around planning. So what’s your current role at YFP? What’s the YFP Planning team look like? And what can folks expect from that team?

Tim Baker: Yeah, so my role at YFP today is a bit different than when we started. My role is Director of Financial Planning. It’s really more about kind of managing the RIA or the Registered Investment Arm, advisor arm of the business. So I manage the team that basically brings financial plans to the pharmacists that we work with all over the country. And I think we’re in like 38 states now. So it’s really managing that team and our process and making sure that we are delivering plans consistently and kind of with — in line with our belief system. It’s the business development, so like the prospect meetings. It’s the IT stuff, the HR stuff, the compliance stuff. You know, we’re now overseen by the SEC, which is good but also compliance can be a bit of a tough thing to crack. So yeah, my day-to-day is more, you know, managerial now and the great team that we’ve assembled, we now have two lead planners, Robert Lopez and Kelly Redy-Heffner, who basically are in Arizona and Pennsylvania, respectively. And these are the individuals that really quarterback the financial plans for our clients. And they have the help of a support system, you know, Paul is our Director of Tax, Kim, Tom and Heather are really support to them. And really my vision with financial planning is that it takes a village. Oftentimes, financial planners, they’ll have themselves and maybe another person in support. We kind of employ the diamond team model that is the group that supports the client’s effort. So that’s kind of the makeup of our team. And I’m really excited about the team that we have. I look at across — and obviously, we’re pharmacy-owned, which is very unique. But we have CFPs that are both married to healthcare professionals — Kelly’s married to a physician, and Robert, I think his wife Shirley is a psychologist — and they’ve worked in their own firms dedicated to helping healthcare professionals. We have an MBA, we have a CFP-in-training, we have an IRS-enrolled agent. So I really like the team that we have, and I think it’s imperative that the team is in place to really support the efforts of delivering the financial plans. And like I said, this is — I think, Tim, you struck a chord with talking about your experience and your initial blog posts, you know, five years ago, with Your Financial Pharmacist. And we’re seeing that year-in and year-out as more and more pharmacists raise their hand and really are excited about putting their financial plan in place and improving kind of where they’re at currently from a finance perspective.

Tim Ulbrich: Absolutely. And a shout out to the team, they have done incredible work and I think have been so integral to our vision of helping as many pharmacists as we possibly can on their path towards achieving financial freedom. And as I mentioned, Tim, I want to come back to digging a little bit deeper into comprehensive, fee-only, fiduciary. And I really like what you said, whether somebody ends up working with us or not, I think it’s really important that they understand what they should be looking for that will point them in the direction of the services that meet their needs and that have their best interests in mind. And I can attest to what you said earlier about it may catch many people off guard when they hear that about the variety of these services but also the realization that most legally don’t have to act in the best interests of the client and may be charging for services in a way that may not align with their interests or needs. And I know for me as a pharmacist when I first started that work and did some of the exploration into the types of services, that was certainly eye-opening for me coming from a training where it is drilled into us over and over and over again that your job as a pharmacist is you need to obviously take care of the patient, but you need to be acting in their best interests at all times. So when you say comprehensive, what does that look like? Paint the picture of comprehensive financial planning.

Tim Baker: Yeah. So when you go to school to become a CFP, which I guess there’s schools now. I feel like that wasn’t there even when I was doing it. But they have a curriculum that kind of follows really I think the six main components. It’s kind of your fundamentals, which you think about like debt management and savings, insurance, investment, tax, retirement, estate planning. And a lot of people, you know, the last one there is estate planning. What is that? So you know, just to break those down, again, when we talk to prospective clients, the things that we talk about for us, we go a little bit further. Like we look at like banking, like how you bank, your cash flow and budgeting. Most financial planners kind of provide kind of ongoing cash flow and budget support, they’ll say, “Hey, you’re a good saver or you’re not,” and that’s it. We provide — because it’s behavioral. And I think a lot of pharmacists were saying, like, “Hey, I just want to be efficient with this resource, this income that I have.” The big piece and the fundamentals are the student loan analysis, which a lot of financial planners, you know, there’s a stat there that says 70% of financial planners don’t advise on student loans. Obviously with working with pharmacists, that’s huge. And then really a savings plan. You know, most financial planners will say, “Hey, just put that in your emergency fund.” And I’m like, man, I just want more. There needs to be more than just that. So we take it a step further. We really try to line up in a savings plan what we’re actually trying to achieve with the dollars that we’re setting aside. But insurance is typically your life, your disability, your professional liability if you’re a pharmacist. We do a lot more I think with like employer-provided benefits, so we do like a lot of open enrollment optimization meetings, so hey, Tim, it’s open enrollment, it ends this month, like what do I do? And we just log on — because that’s a big part of your compensation package. Investments, so we manage the client’s investments both at their job, so like 401k’s and 403b’s. Most financial planners don’t do that. So we can actually do that for you. And also, at our custodian, we do that at TD Ameritrade, so IRAs, Roth IRAs, you know, kind of the back door conversions, that type of thing. The big thing that I think that — I think a lot of financial advisors will do — is kind of like a nest egg calculation, are you on track or off track? I feel like most advisors will say, “Hey, you need this amount of money,” and then that’s it. We kind of like zero it in on like you’re either on track or you’re off. So we do the nest egg calculation and we dial that back. Another big differentiator is that we do taxes. Most financial planners don’t. They’ll say, “Hey, work with this accountant.” And in my experience, that’s what we said in my last firm, there was never really any cross-planning between the accountant that we are sending them to and their investments or anything that they had going on tax-wise, which I think is a major misstep. And I think the other reason that we do taxes now, Tim, is that most financial planners don’t understand student loans and kind of the tax ramifications to student loans. And by proxy, neither do accountants. So I got tired of sending people elsewhere to do their taxes and then completely mess up the benefits of what we’re trying to do from a student loan perspective by not aligning the tax strategy. So to me, keeping that all in house. And then finally, the estate plan, do we have the proper wills, power of attorneys and things like that? So that’s where most planners begin and end. And when we say comprehensive, we mean comprehensive. We go through credit, so credit score, credit report, especially if we’re leading up to a big purchase like a home purchase. Because we work with so many — I mean, we work with people of all ages, 50s, 60s, 70s, even 20s and 30s — but because a lot of our, initially our clients we’re in their 20s and 30s, a home purchase was a big thing that they hadn’t figured out. And when I bought my first home right before the housing market crashed, I didn’t know what a home inspection was or what an appraisal was, what I should be spending, how to get financing, where to find a good agent. So we kind of do that from A to Z, you know, whether it’s using our concierge with Nate Hedrick, going through the home purchase worksheet of what they should be spending and what their must-haves and nice-to-haves are, helping with financing. It’s such a big thing that most financial planners are going to be working with people in their 50s and 60s that they’ve run that race already. So I kept seeing like mistakes on the home purchase, and I think I’ve made them, Tim, you’ve made them. And I’m like, there’s got to be a better mousetrap here that we can build. And I think that we’ve done that. Salary negotiation is another thing. I kept hearing like, “Ah, I just accepted a job,” and I’m like, “Well, did you negotiate at all?” “No, not really. I was happy to have the job.” And I’m like, “Yeah, I’m with you.” But I feel like — and we’ve had some clients on recently that have experienced that and how to negotiate and things like that, so like, I think that that’s another thing to be able to advocate for yourself. Real estate investing is another one. Most financial planners are not going to encourage you to do that because a lot of financial planners are really incentivized by you investing traditionally in your IRA, 401k, etc., not something like real estate. But we feel as a team that is a viable way to build wealth, has lots of good tax — it’s not correlated, etc. Small businesses, we work with a lot of pharmacy entrepreneurs, and we’re expanding our services there. Education planning, so hey, you have kids, how do we tackle that, more people are interested in the FIRE, Financially Independent Retire Early. So that’s a completely different way to tackle the financial plan. And I think the thing that we do differently too is most financial planners, they’ll say, “Hey, here’s a 30-page document of what you need to do.” We don’t do that. So we’re very much education-focused of like, “Hey, this is kind of what you need to know,” enough to make you dangerous but not enough to bore you to death and then recommendations, really looking through the lens of how can we help you grow and protect income, which is the lifeblood of the financial plan, grow and protect net worth, which means increasing the asset efficiently and decreasing the liabilities efficiently. Most financial planners just care about hey, I got you a great return on your investments in terms of the IRA. But they could care less about the $20,000 in credit card debt or the $250,000 in student loans. And I think that’s a big misstep. So it’s income, it’s net worth, while keeping your goals in mind. And I think I put them in descending order of importance. So income is important, not as important as net worth, but not as important as your goals. And what I typically say is, the client is like, we might work together for 10, 20, 30 years, and at the beginning of our journey, we might say, “Hey, Tim, you need $5 million to retire.” And that’s typically where you look at me like I have 5 million heads because it’s such a big number and way in the future that we discount back to the present value. But let’s pretend that we do work together for decades and you have $10 million. That’s a great accomplishment, it’s a great thing, but if you’re miserable because you haven’t achieved or done the things that you wanted to do in life, what’s the point?

Tim Ulbrich: Amen.

Tim Baker: So to me, the hard part about financial planning — it’s not the technical aspect just like you need to be technical to be a pharmacist, that’s not really the hard part. The hard part is the human element. It’s really threading the needle between what — your present day self and your self that’s 30 years older, 40 years older, in the future. And I feel like if you’re not — if you don’t feel that push and pull, we’re probably doing something wrong. So that’s it, you know. It’s using all of these tools that are in front of us and trying to work with a client in the most efficient manner that is delivering a plan that is, you know, the best version of what a wealthy life is to them. And that’s what we try to achieve here every day.

Tim Ulbrich: Yeah, and as you say and I think articulate so well, it’s not just about the 1s and the 0s in the bank account, right? We’ve got to be thinking about the goals, we’ve got to keep that front and center. It’s got to be the framework from which we make decisions. And I think a fee-only fiduciary model allows a planner to invest the time and attention to putting goals front and center, even if that does not necessarily mean all the time that you’re dumping more money into investments, it might mean paying down debt, it might mean philanthropic assets, it might mean real estate, it might mean — insert any other goal that might not have a direct tie to compensation in a fee-only model but is the best for that client, for their goals, for the plan. And I think that’s the beauty of comprehensive, right, is you say all the time is that when it comes to planning and YFP Planning, comprehensive, anything that has a dollar sign on it, you want the planner to be involved and engaged with the client because everything impacts one another when it comes to decisions that are being made.

Tim Baker: Yeah, it’s true. And I think like — and I’ll invoke a conversation that I recently had, actually before we started recording this. We had a client that signed on with us early this year, and we were kind of doing a review. And their net worth when they started with us was like -$328,000 I think it was. And this was in February is when we actually like, you know, did I think our get organized meeting. Today, so we’re talking 10 months later, their net worth is -$188,000, right around there. So that’s a net worth increase of about $140,000 in less than a year. And again, I will stipulate — we were talking about compliance — this isn’t necessarily indicative of all results, all client situations, but I look at that, and I’m like, man that is great progress. That’s really — you know, we got the debt buttoned up, the investments are humming, they’re doing a lot better job budgeting and savings, but there’s — for one of the people in the marriage, like the work situation is almost to the point of being unbearable. And that to me is what’s on fire, it’s nothing really anything that’s really tied into the financial plan, it’s the anguish that she’s feeling with kind of her day-in and day-out job. And I’m like, we have to figure this out immediately because it’s just not sustainable. So like the 1s and 0s, like impressive, but like, one of the things we talked about early this year is to potentially look for a pathway out of her current position. And we just haven’t done enough, and then obviously COVID happened, but to me, like they’re wealthier than they were in a lot of ways, but in a lot of ways, we’re still stagnant. And I think it’s kind of making sure that all of those important pieces and those goals that are out there we’re working towards and we’re being — the word that we always say is we’re being intentional to that. So you know, to me, I think that’s what it’s really about. And it’s going to be different for everybody, right? And life changes. I have a lot of people that look at their goals and then 12 months later, they laugh because they’re like, they were in such a different place. So to me, I mean, I think part of this is like why we are so comprehensive in a lot of ways is maybe it’s ego on my part. You know, I think the finances permeate everything.

Tim Ulbrich: Absolutely.

Tim Baker: And I just — and for me, it’s like, alright, we would talk early on about salary negotiation. I’m like, I need to be a better resource to clients to help with that because you know, that should be something that pharmacists, our clients, are really putting themselves in a position to get the best deal that they can. Home purchase, I’m like, I really need to understand this from A to Z so when they make this biggest purchase of their life, they’re confident. And even like going into retirement, to talk about the other end of the spectrum, is I don’t think that financial advisors are really trained well to provide like a retirement paycheck and really figure that out. It’s all about accumulation in masses. But what happens when we then pivot into retirement? And not just the 1s and 0s and the mechanics of that, but also like what does a wealthy retirement look like? These are things that are I think a good financial planner is coaching and talking about to their clients on a continuous basis.

Tim Ulbrich: So I think the comprehensive nature, you know, as I’ve talked with many individuals, that resonates a lot with people, right? Because they understand that they’ve got multiple things going on. And I think with some background information, they can understand that the traditional industry may focus more on investments or insurance, but as you go down the list of the other topics, you gave the stat about student loans, not so much and certainly many others along the way, which we’ve mentioned here during this recording. So I think yes, I think many people will hear this and say, “Yes, comprehensive, comprehensive, comprehensive. I get it.” When it comes to fee-only, this is an area where I see people confused or perhaps sometimes get in trouble where they may work with maybe with an advisor that may advertise being fee-only but really come to find out that they’re fee-based. They’re not always in a fee-only situation. So tell us the distinction of that briefly between fee-only, fee-based, and why it’s so important. I know you’ve already mentioned, defined fee-only. But the fee-based specifically.

Tim Baker: Yeah, so when I was in my first firm and I was working with clients, you know, but when they do, typically for the planner or for the advisor, they kind of squirm in their seat a little bit because one, it’s not very transparent to the client. So like if someone were to say, “Hey, Tim, before you started Script Financial, how would you get paid?” or if a client would say, “How would you get paid?” I would say, “Pull up a chair because it’s going to take awhile for me to explain this to you. So in the fee-based model, what those advisors — and again, I don’t want to demonize, they’re good people — but again, like if I was a consumer, I would want to be in a position where I was treated as a fiduciary at all times or treated by a fiduciary at all times. So in the fee-based model, the previous model, if someone said, “Hey, how do you get compensated?” I would say, “Look, I could charge you hourly, an hourly rate like what an attorney does. I could sell you a mutual fund that pays me x% upfront plus a trail or a bigger upfront and no trail, so like an ongoing fee that basically takes away from the investment. I could charge you a percent of the assets that I’m managing, which is by and large what a lot of planners do. And even fee-only planners, that’s how they mainly do it. They’ll say, “Hey, you have $500,000, it’s 1%, it’s $5,000 a year.” I could charge you to sell you a life insurance policy, and typically those are the worst ones for you or better for me in terms of what they pay out. It could be an annuity. There’s just so many different ways to do it. It could be a flat fee. There’s so many different ways to do it, and it could be a combination of those too. So when I would work with like young pharmacists at first, I would be like, “Alright, well, I can charge you a flat fee for the financial plan, and then I’ll charge you x% of whatever I’m managing in terms of dollars, which is typically not a lot. And then I’ll charge you a commission to sell you this life insurance policy and this disability policy.” At the end of the day, it’s just so confusing to the consumer because they don’t even know what they’re being charged. And that’s why like — like when I talk to a lot of younger pharmacists, you know, I’ll say, like, “Who’s making the decision on who you’re going to hire as a financial planner?” And they’re like, “Well, it’s me, but I’ll talk to my parents about this.” And I’ll say, like, “Ask your parents what they pay their financial planner. They’re not going to know.” The first thing that my parents said to me when I decided to — after I was going through my quarter-life crisis and I’m like, I think I want to be a financial planner, they’re like, “Well, why would you do that? We have a financial planner, we don’t pay them anything.” And when we peeled back the onion, it was actually very, very significant of what they were paying. But it’s not an industry that’s known for being transparent. So in fee-only, you are not enhanced or enriched by any of the products that you’re selling. So if I sell you a life insurance product, I don’t get any commission for that. If I sell you a mutual fund or some type of investment, I don’t get any additional commission for that. So you’re paying for advice, not the sale of a product. And when I was in the other model, Tim, I would — you know, we would get taken out to lunch by mutual fund wholesalers that would show up in their fancy suits and take us out to an expensive lunch and show us these glossies of why their funds were so good. And they would say, “Hey, when your pharmacists bring money over, sell our funds,” wink, wink. So it’s almost like a drug rep almost — no offense to drug reps out there. But it’s almost like that type of relationship. And you kind of feel beholden to them, like, ugh, they took me out to a nice lunch. So it’s just kind of like icky. It was kind of like gross.

Tim Ulbrich: Yeah.

Tim Baker: So by separating the advice from like the tools and the products that you use, you’re not in bed with anybody, so to speak. So you’re really clear to advise on the client’s best interests. Now, that’s not to say that there aren’t conflicts of interest. There are. You know, if you’re in a AUM model, an Assets Under Management model, where you’re charging a percent of the assets that you’re managing, if a client has inherited $50,000 and they have $50,000 in debt or they could put $50,000 into their investments, from that perspective, you’re better off for them to — in terms of your compensation — for them to invest. So there are conflicts, even in the fee-only world, so it’s important to understand what those are. But in fee-only, it’s much, much less. And that’s important.

Tim Ulbrich: Yeah, and I think that speaks to the importance of fiduciary as well and that they are obligated to act in your best interests, that situation being a good one. And kind of putting a bow around this, as you talked, Tim, the words that stand out to me are — as you’re evaluating a planner — is do they have the credentials? What’s the scope of the service they’re providing? And how are they deriving their fees? So obviously we talk here, we believe firmly in the CFP given its rigorous education requirements, given its hours of experience, the examination someone has to be able to pass, their competencies. So the credential is No. 1. Second would be the scope. We talked about the importance of comprehensive planning, making sure that they’re addressing all parts of the financial plan and aren’t incentivized to spend their time in one area more than the other. And then their fee, where are they deriving their fee? Where’s that fee coming from? Is it transparent? Do you understand it? And is it being done in a way that has your best interests in mind. And that’s what I always tell people, one of the things I’m most proud of of the service that we built — you really built — at YFP Planning is that the fee is the fee, right? The service is the service, the fee is the fee. It’s there, it’s on the table. We’ve got nothing to hide, and we obviously stand behind the quality of what we do in that service. So Tim, for our listeners that are hearing this episode saying, “You know what, I’ve been thinking about a planner for some time, I see the value, I heard about all of the things that are covered in that planning engagement, that planning relationship, and I’d love to learn a little bit more and figure out are the services offered by YFP Planning,” are they a good fit for the individual and what their considering with their own financial plan? What would be the best next step for them as they vet that decision further?

Tim Baker: Yeah, so you can go to YourFinancialPharmacist.com, there’s a big green button, two big green buttons that say “Book a Free Financial Planning Call,” so that would be either with myself or Tim Ulbrich, and we would see, again, if we would be a good fit. So that would be the best avenue. Like I said, a lot of people right now are thinking about man, this has been a tough year, I really want to get my stuff together as we transition into a new year. So it’s a busy time of year, but I think it’s kind of the best time to take stock of where you’re at and really where you want to go and have the financial plan, support that life plan that we talk about where it’s not just about the 1’s and 0’s. So YourFinancialPharmacist.com, click the button, “Book a Free Call,” and we’d be happy to see if we’re a good fit.

Tim Ulbrich: Yeah, and we hope we’ll have a chance to talk with many of you here as we wrap up 2020, head into 2021, looking forward to setting those goals, setting that plan for the New Year. And as always, we appreciate you joining us on this week’s episode of the Your Financial Pharmacist podcast. And if you haven’t already done so, we would love to have you leave us a rating and review on Apple Podcasts or wherever you listen to this show each and every week, which will help other pharmacy professionals find the work that we’re doing on the podcast. And we also would love to have you join us at the Your Financial Pharmacist Facebook group, a community of more than 7,000 pharmacy professionals all across the country that are committed to helping one another on their path towards achieving financial freedom. Thanks again for joining, and have a great rest of your week.

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YFP 180: How Allyson Used Her Pharmacy Skills to Build a Natural Skincare Company

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How Allyson Used Her Pharmacy Skills to Build a Natural Skincare Company

Allyson Brennan, founder and owner of Emogene & Co., a natural skincare company, joins Tim Ulbrich on the show. Allyson talks about her background in pharmacy, why and how she started Emogene & Co., how she has had success in such a short period of time, and what lies ahead as she prepares for growth in 2021 and beyond.

About Today’s Guest

Allyson Brennan is a pharmacist with 13 years’ experience specializing in Neurology and is now a hospital Clinical Pharmacy Manager in Nashville, TN. She received a B.S. in Psychology minor in chemistry/biology as an undergraduate from Millsaps College and then went on to receive her B.S in Pharmaceutical Sciences and her PharmD. from The University of Mississippi.

This year, Allyson founded and created her own natural skincare company called Emogene & Co. focusing on effective natural skincare and the science behind purposeful ingredients. She created this company after noticing the skincare industry producing products full of toxic and ineffective filler ingredients. As a child, she was inspired by her grandmother, Emogene, who had a remedy for every skin issue or ailment. Throughout her professional career as a pharmacist, she noticed how she was drawn to medicinal chemistry and how specific molecules affected organs in the body. After becoming a mother, she began to focus on what molecules are available straight from the Earth to provide nutrition for our largest organ, our skin.

In less than a year, Allyson has grown her company organically, filled over 5000 individual orders and is also available in 11 locations including dermatology clinics and medical spas, all while continuing to work full-time in Pharmacy Administration during the day.

Summary

Allyson Brennan, a clinical pharmacy manager, started using a vitamin C serum on her skin after having her daughter and looked at the ingredients listed in the product. She quickly went down the rabbit hole of researching natural versus synthetic ingredients and active versus inactive ingredients in skincare products. Allyson realized that because of her clinical pharmacy and compounding skills she was able to create a vitamin C serum using natural ingredients. She soon discovered that she had tapped into a passion that she never knew was there. Friends started asking what she was using on her skin and Allyson began making the serum for them.

In January 2020, Allyson created an LLC called Emogene & Co., a company focusing on effective natural skincare and the science behind purposeful ingredients. Nine months later (November 2020), Emogene & Co. carries 21 products, has sold over 5,000 individual orders, has an online shop and is sold in 11 locations, including 3 medical spas and a dermatology clinic. Emogene & Co. is made in small batches mostly by Allyson, however she has brought on two full-time employees to help with production and labeling. Allyson still works full-time as a clinical pharmacy manager and focuses on the business in the evening to the early morning.

Allyson believes that Emogene & Co. has an advantage over other skincare products because of her pharmacy background. She explains that she stands by natural products and ingredients and offers education to people about how effective her products are. On this episode Allyson also talks about becoming an entrepreneur, what the next year of the business will look like, and how she balances running Emogene & Co. with a family and a full-time pharmacy job.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Allyson, welcome to the show.

Allyson Brennan: Hey, Tim, how are you? Thank you so much for having me.

Tim Ulbrich: Really excited to have you, been looking forward to this interview ever since you and I had met actually through Adam Martin, The Fit Pharmacist, and had a chance to learn more about the work that you’re doing at Emogene & Co. And really excited to share that story as well as some of your pharmacy background and to expose our listeners to I think what has been a very unique career path and obviously some success you’ve had with the business and would like to get an inside look into that. And so let’s start with your pharmacy career. Tell us about your background in clinical practice and then administration and management since you graduated with your PharmD from the University of Mississippi.

Allyson Brennan: Sure. So my background actually started before I even went to pharmacy school. I originally thought I wanted to go to vet school. I am an avid horse rider. I was a competitive horsewoman growing up. And so I wanted to start and go to vet school. And ultimately, fast forwarding through all of those decision-making pieces of my life, I shadowed a veterinarian. I wanted to be an equine leg surgeon, so that would entail about 16 years of post-undergrad study, a lot of time, a lot of decisions that go into pushing you into a different path because when times are tough, you know, people might take care of themselves before they take care of their animal ultimately. So I decided against vet school with the veterinarian that I shadowed, she just gave me so much amazing advice. And as I started to look into what I wanted to go into, I knew that a passion for me is really breaking things down — I wouldn’t say at that point to molecular structure but very much like how I build this but from a very kind of unpiecing things, if that makes sense.

Tim Ulbrich: Sure.

Allyson Brennan: So I love chemistry. I’m a total chemistry nerd. So I had heard about pharmacy, right? And so I’ve been out for 13 years. Back then, pharmacy was a very different ball game. And I heard that through kind of talking to people that knew about pharmacists, what really it entailed, and I was able to balance a family life with a career. And so I went for it and was accepted to University of Mississippi pharmacy school after I completed a undergrad BS degree in psychology with a biology and chemistry minor. And went into pharmacy school at University of Mississippi or Ole Miss, you end up with your PharmD, your doctorate, as well as another BS degree. So I was ready to go. Once I got out of pharmacy school, I was looking into residencies because I knew I ultimately wanted to be in clinical practice in a hospital setting. I applied to some residency programs in Nashville, Tennessee, because I had done some undergrad rotations there but ended up getting an offer from a wonderful hospital, Huntsville Hospital, in Huntsville, Alabama, a very large — I believe at that point they were 881 beds. And it was a clinical position without needing the residency, and it was everything I was looking for. So I interviewed, I was accepted, and the next year, they started to require residencies for this because it is so clinically based. And so for me, my career started with no residency in a facility, a large facility, and I started with an ortho and neuro kind of concentration. So I really built that niche of pharmacy in hospital practice for about three years there. And then I ended up moving to Nashville and practiced specifically neuro, neuro-endovascular, under surgery and just neuro intensive patients for close to nine years at Centennial Medical Center in downtown Nashville. From there, I really built a lot of relationships with the providers and physicians that entailed in that specialty. So the neurosurgeons, the neuro-intensivists, the neurologists. And once I built those relationships, they offered me a just heap of opportunities to build my clinical knowledge as well as build into things that were the building blocks for me to move into administration. So order set development, process improvement, committee-sitting, PNT, presentations, just a wonderful group of physicians and after about eight years, I was loving clinical practice, but I knew that I was ready to kind of push on. And Centennial, where I was, is part of the HCA, Hospital Corporation of America, group. It’s a large privately owned corporation that owns hospitals. So there’s several sister facilities in Nashville, in the Nashville area. And there was a clinical manager position at a smaller sister facility about 11-12 miles from downtown Nashville. And I knew the director. He actually was a resident under me that I trained him at Centennial. He is a wonderful guy, and he had called me and said, “I really think that you’re ready for this position. I would love to work with you.” And I ultimately went ahead and interviewed, uncertain that it would be a good fit because it was so much smaller. And when I went, I loved the staff, I felt very much at home there. It was what I was looking for because I had become a mother at that point, so it was very much a community feel. And working with that director was a goal of mine because he was a wonderful leader. And so now I’ve had my two-year anniversary as the pharmacy clinical manager at a facility. So I manage about 20 pharmacists and elevate the clinical program there to really help them succeed with their interdisciplinary rounds and their clinical responsibilities within the facility for patient care.

Tim Ulbrich: That’s great. And I appreciate you chronicling the journey. We’re going to come back here in a little bit as we dive into the work that you’re doing with Emogene & Co. as how that pharmacy management experience and how your pharmacy experience at large has helped you as you’ve been working to get that company off the ground and now continue to grow that company. Let’s start with kind of the basics around Emogene & Co. What is it? Why is it important? And ultimately, what problem is it solving? Because I really believe every business is ultimately trying to solve a problem. So tell us more about the backstory of Emogene.

Allyson Brennan: Absolutely. So for me personally, I was just chugging right along being a pharmacist and about two years ago, I was maybe 37.5-38 years old, and I decided I wanted to start to focus to take a little better care of my skin. I had taken care of my skin all my life, but you’re getting older and I was like, what can I do that I’m not doing that is good for my skin. And the interesting thing about this is that this journey is really a full circle of the creativity that I feel like I lost as a kid and really started focusing more on this logistical math and science, black and white kind of thinking. And I’m really loving this journey because I am at this place in my life where I’m opening up kind of the Pandora’s Box of creativity but in a very different way than I ultimately thought I would. So it started for me, honestly, Tim, with a Vitamin C serum. Vitamin C serums, for those that don’t know, is kind of your ultimate go-to that every female and male should have for antioxidant protection against environmental stressors and to prevent further aging. It’s natural. There can be synthetic versions of it, but it’s kind of your go-to for just preventing your aging, starting in your 20s. So I spent about $150 on a Vitamin C serum. And I turned it on the back and looked at the label and was like, what am I paying for? Just the chemistry nerd came out, and I usually don’t do that, which is crazy. And so I turned it on the back, and being a pharmacist with the chemistry and science background that we all have, I was like, well, I don’t see ascorbic acid. Where is it?

Tim Ulbrich: Right.

Allyson Brennan: I did notice an ingredient that looked like some sort of derivative of that. So I went to Google. And I Googled this specific ingredient and found out, you know, that it’s a synthetic ester version. So then before I knew it, I had dropped down into a very deep rabbit hole of synthetic versus pure of all ingredients and natural versus synthetic, active versus inactive, and really started to pull apart the skincare game, if you will. I started then. It grew arms. I started into essential fatty acid concentrations and what that looks like for your skin, yadda, yadda. And so before I knew it, I had tapped into a passion I never knew I had. When I looked at this Vitamin C serum, I was like, I can make that. Like I can make that. And I’m not a real DIYer. So I actually made some and didn’t tell anybody and started to apply it to my face. And I would say about two weeks later, I had friends that were asking me, what are you doing to your skin? Like something looks different. So I told them, I’m making a bootleg Vitamin C serum.

Tim Ulbrich: Good old compounding labs back, right, from pharmacy school.

Allyson Brennan: Yes. I tell you, I tapped into all this knowledge that you never think comes back. So I started to really appreciate that they asked me to make some for them. I was not charging anybody, it was just more of you know, friends sharing with friends. And then ultimately, in about November of 2019, I was like, maybe I should try something on the side. Maybe I should try to do this. Now, for understanding a little background on me, I am a very driven person. I’m someone who puts their head down and thinks well, I’ll do a little side project. If I’m going to throw my time into something, I’ve put blinders on, and I go. I’m all in. And if you’re familiar at all with the Enneagram or if anyone on that on this podcast that listens is, I am a Type 3.

Tim Ulbrich: I’m with you there.

Allyson Brennan: OK. I’m a 3w2, 3 wing 2. And I am the poster child for 3, The Achiever. And so I really think that learning the Enneagram helped me understand what drove me to this place. So I’ve never been an entrepreneur, I never, ever, ever, not even for a second, thought about owning my own business, my own pharmacy, let alone a skincare company. So I just went for it. So in January, I went ahead and created the company through an LLC. The name, Emogene & Co. speaks to, it pays homage to my grandmother Emogene. And I am named after her Allyson Gene, and my daughter is Parker Emogene. And that’s where the Co. comes in. But my grandmother was someone who could make something from nothing and had the most amazing skin. And that generation was very much a make-it-work type and create anything. And for me, I love science, I love chemistry, I love — as a pharmacist, we all know that there’s a time and a place for medication and chemicals. But I wanted to really focus on natural ingredients because I think that in the skincare industry — and I’m a baby in this — I think that the skincare industry can be extremely misleading to consumers. And the reason why is that there’s a lot of terms and titles that are thrown around without the knowledge behind that. I think that there is a time and a place, like I said, for chemicals. But if you can have things that come from the Earth naturally that are extremely effective, I want to focus on that. And that all came into play when I became a mother. What I started with a Vitamin C serum. And I started with a couple of other items that I actually made, a stretch mark prevention cream when I was pregnant, and I did a lot of tweaks to it and offered that. And then I offered a body scrub that is amazing for increasing the circulation in the blood to the skin, which creates a different kind of solution for your skin. I’ve been making that for three years just for myself. I offered that. And then I really focused on facial oils and essential fatty acid nutrition for your skin. So here I am, almost a year later, and I offer 21 products. And I’m offered in 11 locations as wholesale clients, so they’re my stockist list. And that includes three MedSpas and a dermatology clinic, which was kind of my moment for really taking this to a level where being taken seriously in a dermatology field, in a medical field, that it’s a natural product. I have done a little bit over 5,000 individual orders in this time. And I am still a full-time pharmacist and mom and wife. There’s not a lot of sleep in my life right now, but I am so driven by the passion for this, and it ultimately all comes down to I want to offer the ability for people to No. 1, age gracefully, No. 2, to improve the quality and the nutrition to their skin because we all take so much advantage of our skin. It’s the largest organ that we have. And I want it to be an accessible option for people. I don’t think skincare should be a luxury. I don’t think that people should not be able to afford to take care of an organ for themselves. And so my price points are at a place where I want people to be able to access that but feel good about the science that kind of marries the natural skincare for them. So it really boils down to a lot of relationship-building with customers. Anything starts out as a family-and-friend trying your items. And then once they are like, wow, OK, you really have something, they spread by word of mouth. And then word of mouth starts to go to the right people that are the really big word-of-mouthers, you know?

Tim Ulbrich: Yep.

Allyson Brennan: And then ultimately, you start to have stores that want to carry you. And it’s based off of the fact that it is skincare, which is a very saturated market, but it is natural rather than stating it’s natural, it is natural. But I get to really flex that pharmacist science arm with it, so that is the solution I wanted to offer. Like I said, it’s a saturated market in the skincare industry. I’m learning that also it is an absolutely overpriced industry. But it really comes down to do you believe and trust what someone is selling you? And I, being a psychology background, I want to develop that trust relationship for people to know that I ultimately have their best interest at heart for what is best for their skin. So that’s the solution I wanted to offer. And I hope I do that and I continue to do that. And I don’t want to sacrifice the integrity of the ingredients or the integrity of that brand.

Tim Ulbrich: Yeah, and that really resonates, Allyson, when you and I had talked several weeks ago, that really resonated with me is wanting to keep the integrity of the brand, wanting to focus on the natural and pure ingredients, wanting to bring this at a price point that was more affordable. And when I think of the timeline — and I know you mentioned and you honored it, but I don’t want our listeners to gloss over it — one year ago, November 2019, you know, if I heard you correctly, kind of idea was coming to be, that was starting to form, but it wasn’t until the beginning of 2020 that you actually formed the company. And here we are, just over 10 months into this journey, you mentioned 21 products, 11 locations, obviously an active e-commerce online, over 5,000 units sold, and so of course there’s a trajectory here. And my natural next question, which I’m guessing our listeners are thinking as well, is like, break down the operations. Like how are you doing this? You mentioned starting with the compounding. So are you up late at night and compounding? Do you have a team? Do you have a distribution facility? Like this happened so quickly, so tell us how you’ve been able to scale up to be able to fulfill those orders while also being an N of 1 when you started.

Allyson Brennan: An N of 1. I’m still an N of 1, but I do have maybe .25s on the side, and I’m so grateful for those. So for me, my first sale was — I formed the LLC and all of the background information you do to form a business in January — and my first sale was January 26. It started, you know, social media, no website, I had Square, which the majority of people are familiar with. And so it was literal orders coming through email, text, Facebook messaging or Instagram messaging.

Tim Ulbrich: Instagram, yeah.

Allyson Brennan: Yeah. And then invoicing them to their email. And then they would pay. So it started out really just grassroots. I don’t know how much more grassroots you could be. As far as the compounding goes, let’s say for instance, let’s speak of this Vitamin C serum. OK, there’s 21 products now, but let’s just speak to this. So I was starting only making batches of eight. Eight at a time. That was it. And I would say now, I’m making those in batches of 120. So in this amount of time, I’ve learned that scale because I was still white-knuckling it, you know, really holding those reins of wanting to know that I’m putting out — I mean, everything is made by me, filled by me, packaged by me, labeled by me, heat-sealed by me, sold by me. And that’s a lot process once you reach a certain point in time. So I was really only just, if you will, dog paddling through life. I was making what I needed to fill those orders and then trying to still be a mom and a wife and be a pharmacist manager. So I think at some point, I really had to stop holding onto that control and start to hire the right team around me. But I have a very specific thing I look for in that team. So before I got to that point, it really looked like let’s say — so I create a sterile field at my home in my kitchen. I am still working from my home. This was maybe one closet upstairs in my house that had, you know, the packaging, the raw ingredients, whatever. And then I would fill the orders literally fresh made, on the spot, and I would fill those orders. Let’s say three months into that, I was still making the same amount of batches of things, but I was maybe expanding to another closet, you know? So nine months in, I am in six closets, the entire garage, my dining room is my office per se where I fill orders. I have a shipping station in that room, and I have my entire dining room is not even used anymore other than Emogene & Co. I have complete shelving in the entire room. But I still create this sterile field in the kitchen, and so now the batches are larger, I finally — you know, I’ve had a lot, I’m so grateful for it. I’ve had a lot of females that love my products, offer to help. “I love what you’re doing, I’m so passionate about it, I see that you’re passionate about it, let me help you.”

Tim Ulbrich: Sure.

Allyson Brennan: And I’m grateful for that. But when you have something like this, you don’t want people to do it just because they like the products. You want someone who has the same drive and the same passion to grow.

Tim Ulbrich: That’s right. Yep.

Allyson Brennan: And those are very specific qualities that I look for. So for me personally, I have two women that are full-time employees that are — one is a pharmacy tech who’s a chemotherapy technician I’ve worked with for 10 years. And the other is a pharmacist who is on staff, and I’m her manager at work. She’s a workforce. These are people that don’t know how to stop. But it’s not a work that they grovel in. They love it, they’re passionate about it, they’re positive, their attention to detail and specifics is second to none, and that was ultimately why I chose to say yes to them. What they’re helping me with now is — the chemotherapy technician has six products that she now compounds herself. And these do not — the products that I offer, there are some that are just mixed dry ingredients, there are some that are mixed liquid ingredients, and then there are others that are very complicated where they’re a lot more chemistry lab type with an oil phase, water, phase, heat phase, cool phase. She mixes just the solid and the liquid ingredients. So she has six products that she makes. And she forms a sterile field in her home and does those, and she heat seals and labels her own. And then she passes them to me. The other employee, she is a mother of two and a full-time pharmacist, and so what she does for me is she does the labeling, which is crazy that she is — it’s crazy how helpful it is.

Tim Ulbrich: Oh sure, yeah.

Allyson Brennan: Yeah, so she literally does the labeling as well as now we have a holiday product with a local company that’s a big collaboration and it’s a dry ingredient body scrub. And she — I taught her that recipe and checked her off on a competency like I would a pharmacist. And she mixes that now. And we pass off bulk everything in the parking lots before we go into our day jobs. And it used to look like maybe staying up until 10-11, and now every single night, I’m up until 2 o’clock in the morning, and I’m up at 6-6:30, depending on what time I have to be at the hospital. So I look very tired. But I am so passionate about it, and so I very much have fallen into a routine of what pieces of the night are where I start certain products.

Tim Ulbrich: Absolutely.

Allyson Brennan: Yeah. So it’s a lot of compounding at the very beginning after putting my daughter to bed. It’s compounding if I’m low — I have PAR sheets. And we have margins, and we have all of the background that you need for those pieces. There’s ordering that happens every Friday, and I do all of the ordering. But I focus on their PAR sheets filled out, and they pass those to me with their time sheets. So yeah, I start with making the products while I’m still kind of fresh. And then once maybe 11 or 12 rolls around, I’m usually finished that compounding and I have put up, boxed them up for the pharmacist to pass off the next day that she’ll do the labeling. And then I start the admin of anything that’s needed, and I fill orders until usually about 2, and then I go to bed. And then I do it all over the next day.

Tim Ulbrich: Start over.

Allyson Brennan: Right.

Tim Ulbrich: And I love that, Allyson, because I think we all know the hustle that needs to be there. And obviously as you continue to build, you’re going to have an opportunity to bring more folks in and efficiencies will happen over time and obviously as you continue to scale. But when you’re getting something off the ground like this, like anybody listening that wants to get any company or initiative, side hustle, whatever you want to call it — this obviously is much bigger than that — you’ve got to hustle, you’ve got to work. And I think when you’re that passionate about the mission or the why of what you’re doing, I can speak from firsthand experience, I suspect you may feel the same way that as exhausting as it can be, it doesn’t necessarily feel like the type of work that somebody hearing it may think that it feels like because the mission is so clear on why you’re trying to do what you’re trying to do. And although you described it, Allyson, as being pretty homegrown and still distribution happening out of your home, kudos to you, I think you guys have done an awesome job on the marketing side, on the packaging side, my wife and I purchased and ordered several products before we did this interview — I wanted to get kind of a feel of the experience — and have really enjoyed not only the products but also kind of seeing the behind-the-scenes of how you have distributed and packaged and marketed those. And I think you’ve done a fantastic job, so especially when you think about this as 10 months into the journey, so it’s really, really incredible. One of the questions I have as I think about just purely from the lens of a business owner is help me break down a little bit further, like what is the differential advantage of Emogene & Co. And the reason I ask that is obviously you’ve had success, but when I hear you talk about like natural and pure, like that marketing of skincare products — while I certainly don’t consider myself an expert in the space — is out there already and even if it isn’t natural or pure, how do you overcome that perception from the consumer that you can separate yourself from those products? So what is the differential advantage for you and your company?

Allyson Brennan: Yeah. First of all, thank you so much for such kind words. That really means a lot to people that start out and second guess themselves and they go back and forth and they’re passionate and the next night they’re like, am I doing the right thing? So I really appreciate that. But ultimately, Tim, it does fall back on “seeing what got you there.” It falls back on my pharmacy background, and I’m very thankful, and that’s not lost on me that I would not have the knowledge base to do this and feel good about what I’m putting out and solid and confident of what I’m putting out if I did not have that medicinal chemistry background and the pharmacy background in general. So you’re right, the skincare industry, like I said earlier and like you just alluded to, you know, there’s terms that are thrown around that people just don’t know what they mean. And as consumers, we are drawn to bright, shiny objects. And in the skincare industry, that looks like wonderful packaging, it smells good, feels good, but you fall for it might state that it’s natural but it’s actually not natural. And so — and I’ve turned down opportunities for a couple of collaborations with larger medical-scale type opportunities of products because they — it was not going to be a natural product. It was going to be synthetic. Because I do stand by wanting to stay with the natural because there’s — it’s just a world that is just wide. You can cast a wide net and get some really amazing, effective skincare that way. But my goal with this company was to offer natural skincare that’s effective, right? So I don’t want it to just be something that’s another option for people to not know what to do with their skincare, but I want it to be accessible, like I mentioned, but I want it to not be fussy. There’s a lot of options for people to take care of their skin, and I don’t want people to be confused about how to best take care of their skin. The other piece of this that I’m hoping to offer and that I really do hang my hat on with my company is the scientific background of the natural ingredients. Just because they’re natural does not mean that they don’t have the science behind them. They come from the earth, there’s science behind them. So I want people to know that there is legitimate education that is there behind that and lastly, where I really thrive and where I really know that I thrive and I love it and I really try to build on this is to offer that education to people.

Tim Ulbrich: Yeah.

Allyson Brennan: So as a small skincare company, which is sometimes labeled as indie skincare companies, you know, I’m not competing with the big guys. It’s an opportunity to really dial in with your customer base and with your clientele and to get personal with them. And the majority of how this business started was, like I said, those messages where people would say, “You offer these items. This is my skin type. Go. Like tell me what I need.” And for me, it is not about offering every item that I need them to buy. It’s really about building that trust. Honestly it is. So I will have women that will come and say, “Alright, I want the whole thing.” And I will say, “First of all, let’s talk about your skin type. But let’s start with these three things because I don’t want you to overwhelm your skin and then you might not appreciate the products or your skin might not just because it’s too much for you at one time. And then let’s build on it. So I want you to start with something that works for you, and let’s go from there.” So my goal is to offer yes, natural skincare, but that has a scientific background that can actually be spoken and related to but also there’s the education behind it. So to grow this company is not just to offer more products. It is to scale, that is a — it’s a pivotal point that I’m at now that is a new problem that I don’t know how to solve because I’m new at this. So you know, 2021 is a year of scaling. It’s a year of working efficiently, moving into a warehouse space, SEO and strategic marketing. I do have a girl that I’m about to bring on for that who is wanting to build a company because she’s worked for larger companies. I have a delivery lady that helps me part-time now so that gives me some time back in my day. But that still offers a customer experience for people to have the deliveries. So yeah, it’s really a combination of all of those things. But I want to separate myself apart by the pharmacist piece of it to speak to the actual education of what you’re putting on your skin.

Tim Ulbrich: Yeah, that’s great. And one of the things you said regarding scale in 2021, I mean, it certainly feels like that, sounds like that, based on the trajectory you’ve had for the last 10 months. But as you sort of alluded to and didn’t say directly necessarily is scaling can have its challenges for a variety of reasons. And so the question I have for you is if we fast forward a year from today and you’re now looking at wrapping up almost the second year of the business, heading into the third year, what does success look like for you and for the business as a whole?

Allyson Brennan: Oh, man. It’s so funny, I was recently on a podcast, and that same question was given to me but in five years. And you know, I feel like as pharmacists, we’re so — we’re trained when we’re students going into trying to get a job or maybe getting into a residency of answering that five-year question. It is a different ball game for me now.

Tim Ulbrich: Absolutely.

Allyson Brennan: So you know, I’m really back to that baby step, you know, of learning something brand new. So ultimately for me, where I find the most passion is the creative piece of this. Now, creativity is going to look different for me, like I said. I feel like I’m coming full circle to the little girl — I used to be an artist. Like I really loved to draw and paint and just be extremely creative in that sense. And there was some point in time, I would say maybe 8 or 9 years old, where something switched for me and I just became more math and science based. But I think what this company is really doing for me personally is opening back up that creative side. It looks at it in a different because I can tap into skills that I now have, right? So for a year from now, I need for me to keep my sanity to be at that place of efficiency. I want to always keep the creative edge. I always want to keep creating. There’s a lot of things I’ve created that just were terrible, you know, that I would never put on the market. But to really better streamline what I’m doing now, and that looks like a lot of things that are not in the lab creating. It looks like very much a business model, so having the right people around me that know that sense, that I trust and they really believe in this little company to grow, that’s a goal for me in a year. A year from now, a goal is to be in a third space because I’ve completely outgrown my house and also to create — still create that need and want. I mean, I’m tapping into a southern market here with my wholesalers and in clinics and my customer base. But it’s to continue to scale that. But I am only one person, and I only have 24 hours in a day, and I need about 30 hours, honestly. So

Tim Ulbrich: Yeah, amen. Yeah.

Allyson Brennan: Yeah. You understand. And so I really want to learn how to segregate what that looks like for me but still continue that growth. And it might look like scaling back in pharmacy. I truly, truly hang my hat on pharmacy is what got me here. So I am not that person who is going to be cold turkey leaving pharmacy, you know? No matter how big the company gets, it’s a building block, baby step approach for me to step down as this grows. But I want to do it the right way. I don’t want to do it too fast. That’s very important to me.

Tim Ulbrich: And let me prod there a little bit because one of the things I’m thinking about this as, you know, I believe one of the challenges, especially of a successful business like this or for others that maybe have started a side hustle that grows quickly and can quickly outgrow the time that one has available to dedicate to it, you know, is that one of the risks is that it may not reach its full potential, which matters when you’ve got a really clear purpose and vision, right? Because ultimately, you know, there’s only so many hours in the day, and obviously you’ve got a purpose and a vision and a mission for why you’re doing what you’re doing. You’re not just selling products to sell products. So is that something that hangs on your mind, crosses your mind, that you’re not allowing the business to reach its full potential? Or is that an area, as you’ve kind of alluded to, that bringing the right people around you and putting you in the area that you can provide the most value to the company, that you’re going to be able to continue to see and scale that growth while also making sure the vision and the mission stays front and center?

Allyson Brennan: I mean, great question, Tim. Yes. It’s on my mind daily. Daily. And I would say it’s on my mind daily at this point because starting out, you know, last year or two years ago, you know, when I was literally just a consumer or even just January, taking my first order, I wouldn’t have known what to expect. I, like I said, didn’t go into this without really taking it seriously and growing and pushing. And I’m a hustler. I mean, I am. And that’s something that I understand about myself. So I use that to my advantage now, but I also really, really appreciate and thrive on relationships with people. So those are two things that are not something I do lip service to. They’re a part of who I am, and they’re a part of what this business is. So when I talk about am I doing a service, it’s funny, my dad — I’m very close to my dad. My dad is a farmer. And my dad knows how to grow something from the ground. It might not be skincare, but he knows what it looks like to start and then reach a certain level and then basically at the very end, reap what you sow.

Tim Ulbrich: Yeah.

Allyson Brennan: No pun intended, really. So he told me, I would say seven months in, he said, you’re behind and don’t even know it. And that has stuck with me so much because I was like, he doesn’t know what he’s talking about. And not even a month after that, it hit a whole new level. A whole new level. So yeah, it’s on my mind every day. I also have to say that I am the type of person, if I want to feel like — so there’s overwhelmed, right? And there’s underwhelmed or bored. And then there’s whelmed. And I think that everyone, everyone kind of thrives at a different threshold. For me, what I thrive is at overwhelmed for a lot of people. But I want to stay whelmed. Does that make sense?

Tim Ulbrich: Absolutely. Yep.

Allyson Brennan: I want to stay plugged in. I want to stay alive. I want to stay with my finger on the pulse of what is happening with this. So to do that, I have to feel like I’ve got a little bit of control with that, which for a lot of people seriously feels like they are spinning out, it is chaos — and it is chaos. I mean, it’s full-blown chaos.

Tim Ulbrich: Controlled chaos, right?

Allyson Brennan: It’s controlled chaos. 100%. So I’m starting to get much friendlier with the idea of bringing the right people in and making a team effort at this. And that is the way that me personally, I think that I can grow this and not feel like what you were saying where I’m not doing it a service because when I’m at work during the day in a hospital, I am 100% there. I am managing people, putting out fires, you know, provider and physician conversations, building formularies. And there is no time for all this. So then it is overwhelming when the minute I leave the hospital, right? So I want it to be something that when I leave, I am managing from that CEO perspective where I’ve got the right team underneath me that I trust, they’re just as invested as I am, but they are the people that will help that grow. And it’s not that they are employees of me. I want them to be a piece of what that is because they believe in it. So that is where I am now of looking at 2021 right now, I’m a baby in a product-based market. It’s the holidays, and I’m slightly terrified of what is coming. I’ve already had double the sales that I had last month at the end of the month.

Tim Ulbrich: Oh, gees.

Allyson Brennan: And we’re on — yeah. And I’m exhausted. And I’m overwhelmed, for me.

Tim Ulbrich: And for our listeners, it’s only Nov. 10 when we’re recording this.

Allyson Brennan: Right.

Tim Ulbrich: So.

Allyson Brennan: Yeah, so it’s — you know, it’s that Type 2 fun where it’s chaos in the moment and you look back on it and you’re like, wow. So I’m extremely proud of it, but I’m trying to stay very aware of what that is and then, you know, come 2021, I need to take a little bit of time to say, OK, we need to take some time, not do the logistics of filling the order, let’s gather my team and let’s look at what this looks like. And that is what is what my goal is for January 2021 so then we can approach the new year with the next products we put out are very smart, efficient products. I’m scaling back a couple of products that are my slowest movers, right? Hiring that SEO management, the marketing and strategic management, that is just not my forte. Hiring on a couple other girls that might not be full-time that I truly believe their attention to detail. And then from there, what happens? I did not see this happening with word of mouth in almost a year. So I really am so grateful but also very optimistic. But I do keep myself in check that if I reach a level that it doesn’t grow beyond that, I need to be OK with it. I need to know that I have exceeded what expectations were, and that’s a tough thing for me to swallow because I am not someone who celebrates the wins all the time because of how I am programmed. I tend to keep going and going and going and let’s keep building without sacrificing what your ultimate mission was in the first place. So I have to tell myself that, that’s a daily mantra that I tell myself, if this reaches a certain pinnacle and it wasn’t what you ultimately thought it would be, you need to be OK with it.

Tim Ulbrich: And I think, Allyson, as an outside observer, just kind of talking out loud as I hear you reflect on the journey and from our previous discussion, I think the business potentially gets bigger and more successful than it already has, which is incredible, and further achieves the mission and vision that you have with the business with less of you. And I mean that in the most sincere, kind way of like, you have built an incredible, incredible thing, but as I hear you talk about scaling up, bringing other people in, and I think putting yourself in the position where the company gets the most value from Allyson that nobody else can do as well, and then those other areas that maybe aren’t areas of interest or strength or that you have other areas of expertise you can bring in. But I think like the relationship piece, that certainly feels like a strength here, setting the vision, making sure you’ve got the right people on the team, on the bus, and bringing other people in that perhaps Emogene grows and will continue to grow and scale with more even balance of your time. And one of the questions I have for you is I know one of the daily struggles I have is pouring my time and energy into YFP because I believe its mission is that important but also balancing the time that I treasure, deeply treasure, with my wife Jess and our four boys. And so I suspect many of our listeners may be wondering what I’m wondering here, which is how do you reconcile how you spend your time and work on work and on the business and what that may mean for time away from family and friends, whether that’s short term or long term?

Allyson Brennan: Oh, man. This is the tough one for me. So we all have our strengths and our weaknesses and our opportunities for improvement. Let’s leave it at that. This is my opportunity for improvement with just who I am as a person. Let’s say — I’ll give you an example. I leave the hospital, it’s been a full day of meetings, committee meetings, building things, process improvements, yadda, yadda. And then my only alone time is the 35-minute drive home. That is it. I am not good at sitting. I’m not good at just listening to the radio, listening to a podcast. I am having business meetings for Emogene & Co. on the phone, I am — I shouldn’t say this — I’m texting and driving — but I’m still multitasking. And then I get home, I’ll pick my daughter up from school, and I will start with that piece of, you need to take — Allyson needs to take an hour, an hour to put the phone away, put all of the productivity away, you need to have a transition time between the first job and the second job, right? And I’ll say, OK, that means that I come in, I’ll lay things down, I’ll unpack the packages, the bulk packages that have come in, I will open them to see what it was today. And that’ll be it. Sometimes — more times than not, and I’m very transparent about this — two hours later, I’m still in the thick of now I’m processing orders, you know?

Tim Ulbrich: Sure.

Allyson Brennan: And what that does is that does take away time from my family. And I have — again, transparently speaking — this year has been a completely rebalancing of what it looks like for our family. I’m not saying it’s been easy. And now, I do have a support system. You know, my husband has supported, now he’s the cook for dinner every night, not me. But ultimately, I don’t want to be at that frequency. I want to be able to manage that better. And that is the ultimate growth for me. I think — I mean, this is just true and this is my psychology background speaking — we are all works in progress our entire lives.

Tim Ulbrich: Absolutely.

Allyson Brennan: And the quicker that you learn as an entrepreneur or as a new person starting out, you give yourself some grace, you take a breath easier.

Tim Ulbrich: Amen.

Allyson Brennan: Instead of thinking that overnight, it’s got to be built. And that’s coming from someone who thought that overnight, it’s got to be built. I don’t — I don’t take the baby steps easily. But I know for my sanity and for the quality of life and for me ultimately to build a business, I have to learn that. That is a muscle I’m learning to flex and to build. So you have to start somewhere and you have to decide what it looks like and then block out all the other noise because the noise is what will get you off the path. The noise is what overwhelms you and makes you stop before you’ve started. And I’ve been there. So the balancing of the family life is something that is a daily struggle and on my mind. I’m getting better at it, and it’s because I know myself well enough now. I know myself well enough now that someone has to physically remove the phone from my hand. I know myself well enough now that someone has to physically take me away for me to vacate. I don’t do staycations. I don’t do weekend-long weekends. I don’t do any of that. That is not who I am, and I accept it.

Tim Ulbrich: The business is right there, yeah.

Allyson Brennan: The business is there. I accept it for me. My husband and I were huge travelers before we had our daughter. And now with COVID, it’s a little difficult. But for me to truly vacate, to let go of everything, to help reset your mind because we need that, I have to be gone. It’s got to be a certain type of trip that still speaks to me needing to be active, but I cannot tap into the things that drain you because you’re wanting to build them. So I think it’s — you’ve got to know how you’re programmed and how you’re built. And you have to just start somewhere and block out noise.

Tim Ulbrich: And that’s fantastic. And I love the self-reflection, the self-awareness. What you said really resonates with me and I think too just giving yourself permission, forgiveness, where you’re not going to get it right. It’s a life-long — I believe as well — it’s a life-long journey, and there’s going to be stumbles along the way. And I think that’s part of the process. And having those around you that can help keep you accountable and being willing to admit those areas where input and help would be valuable. So as we wrap up here, Allyson, where can our listeners go to learn more about you and the work that you’re doing?

Allyson Brennan: Sure. So for me, I have a website that’s available, it’s www.Emogene&Co.com — that’s all one word. And Emogene is interesting, it’s spelled Emogene. It’s an old-school spelling of the name a lot of people are not used to. Again, it pays homage to my grandmother, so Emogene&Co.com is the website. On Instagram, I am @__Emogene&Co__. And then on Facebook, I am Emogene & Co. So I am tapped into those resources all day, every day, if you can imagine from the podcast. And then email address, you can sign up for a subscriber, and you can contact me directly through the website.

Tim Ulbrich: Great stuff. And we will link to all of those in the show notes. And Allyson, this has been fantastic. You know, when I had first learned of the work that you’re doing, I got really excited of kind of the intersection of pharmacy administration, management, and entrepreneurship. And we both have some experiences in those areas. And I suspected this would be a fantastic story to share, and it certainly has. So thank you so much for taking the time to come on the show. I wish you the best of luck and success with the work that you’re doing, and we’ll be touching base in the future to see how things are going.

Allyson Brennan: Oh, it’s an honor, Tim. Thank you so much for your time. I really appreciate it.

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