BiggerPocket Money Podcast 232: Finance Friday: What Would You Do With an Extra $100k Per Year?

BiggerPocket Money Podcast 232: Finance Friday: What Would You Do With an Extra $100k Per Year?

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Kari and her wife made some big moves over the past few years. They packed up their stuff and left the San Francisco Bay Area for a relocation in the midwest. Unlike the Bay Area, the Midwest has many affordable housing options with plenty of chances to house hack. So, that’s exactly what the couple did! They bought a duplex in rough condition, put in close to $80,000 of renovations, and now get $900 a month from the side they’re renting out.

Although this renovation allowed them to live for free, it put a $66,000 hole in their pockets, which they recently just paid off. Without much retirement savings or investments in general (save the house hack), Kari is wondering what she can do to maximize the extra $100,000 in after-tax income she and her wife bring in every year.

Should she go the index funds route, buy another rental, or help her wife pursue her dreams by investing in a restaurant? Scott and Mindy give Kari a lot of ideas in this episode, many of which could help you as well!

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Mindy:
Welcome to the BiggerPockets Money Podcast, show number 232 Finance Friday Edition where we interview Kari and talk about how to turn dreams into reality.

Kari:
We will hit a million in 10 years so that is really exciting, but it almost again doesn’t feel real yet because we’re in the beginning of this journey.

Mindy:
Hello. Hello. Hello. My name is Mindy Jensen, and with me as always is my big picture co-host Scott Trench.

Scott:
Thanks Mindy. It’s always great to be here with you, and you always zoom in on these clever intros.

Mindy:
Scott and I are here to make financial independence less scary, less just for somebody else. To introduce you to every money story because we truly believe that financial freedom is attainable for everyone no matter when or where you’re starting.

Scott:
That’s right. Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate, start your own business, or make a decision between three really good options, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams.

Mindy:
Scott, I am super excited to talk to Kari today. She and her wife are having a great problem, they have just paid off a ton of debt, $66,000 to be exact, and are now looking at what the future holds for them. And I think they’re at a crossroads that a lot of our listeners find themselves in, which amazing life decision do I make next?

Scott:
Yeah. I think there’s a lot of folks out there who earn a good income, or have recently begun earning a good income and are not sure what to do with all the extra cash that’s coming in with that and how to think about that strategically. They’ve done a really good job of I think cleaning up their spending over the last year or so, and are out of a lot of bad debt and now have big decisions to make. They’re good problems, but they’re very high stakes and important problems as well, and I think we had a great discussion around them.

Mindy:
Yes. We give Kari a lot of research opportunities today, things that she should look into that are specific to her situation, but that also people who are listening can find themselves in this similar situation. They need to go research this themselves as well. So my attorney makes me tell you that the contents of this podcast are informational in nature, and are not legal or tax advice. And neither Scott nor I, nor BiggerPockets are engaged in the provision of legal, tax or any other advice. You should seek your own advice from professional advisors, including lawyers and accountants regarding the legal, tax and financial implications of any financial decision you contemplate.
Kari and her wife have big, big dreams. Coming up with big plans for their future isn’t the issue, it’s the strategy and the process where they find themselves having questions. Today, we are going to look at where they’ve come from recently paying off $66,519 in debt, Hooray! And where they want to be in five to 10 years. Kari, welcome to the BiggerPockets Money Podcast.

Kari:
Hi, thank you for having me.

Mindy:
I am super excited to talk to you. I think this is going to be a really great episode. Kari, let’s jump right into this. Let’s talk about your income statement. Let’s look at what’s coming in, and where is it going.

Kari:
Okay, perfect. Okay, so as far as our income we have $900 a month that we have in rental income. Currently, we’re doing the house hack model, so we’re living in one unit and we’re renting out the other. And so in addition to that 900, my wife roughly brings in between four and 5000 a month, and then I’m roughly bringing 10 and some change with my just regular income. And then occasionally we’ll have some windfalls of a bonus that I get twice a year, once in August and another in February.

Scott:
Are these after tax numbers or pre tax numbers?

Kari:
These are all after tax.

Scott:
Awesome. So we got about $15,000 in after tax income hitting your bank account every month?

Kari:
Correct.

Scott:
Wow, that’s awesome.

Kari:
Yeah.

Scott:
Well, let’s go through to expenses.

Kari:
Okay. So for expenses if I just do the big bucket items, the mortgage right now has gone up from just a few months ago because of a tax situation that happened. I don’t know if you’re familiar with different tax issues from real estate, but basically they do things different here in the county that I live in and our taxes were raised. So that is currently 1400 a month on our mortgage, part of that is some tax repayment pieces of it, but for at least the next year that’s what it’s going to be.
We have roughly $60 that we give between different… Oh no, not 60 sorry, 120 that we give between different charitable sources. For other expenses, we do pay about 115 toward a HELOC, which is a smaller loan that we had at a low interest rate just to help with some of the house repairs that came up during this big debt paid down journey that we recently embarked on. And then let’s see, bigger items. We have a $628 car payment that is actually a lease not an owned vehicle. So even though we have six grand left to pay on that, it’s not like we come out of the other end of that or anything.
Roughly 182 toward a phone bill. We have a small loan for $222 a month towards… We put an AC actually, two AC units in our duplex that we live in. And then let’s see, Comcast is 150. And then utilities pretty much adds up between let’s see, water, lights, and gas, something around… Just doing some quick math here, but probably about 500, a little under 500. And that’s whenever we put these numbers in we always give really conservative estimates, we always anticipate paying more so that we have a little bit of wiggle room in our budget later on.
But if you were to add all of those up together, it would be roughly in monthly bills 3426. And then I have other what I call variable necessities, which is like groceries, dog food, gas, and then there’s subscriptions too. So the necessities that are variable are groceries, we spend roughly $900 a month in groceries although I will say that is not just food it’s also shampoo, and all those other things that come with it, but we grab at the grocery store. Dog food is $244 a month, we have two very big lab mixes, and they eat us out of house and home, we also give them pretty fancy food.
So that’s one of the other variable expenses, and then gas is roughly $150 a month. And then we have subscriptions like Amazon, we have a True Green subscription because we’re trying to get our lawns looking nicer than they had been, Netflix, things like that fall into that category. Also, I do a wine subscription, so that’s probably the bulk of that one. So the total that comes between all of the monthly bills, plus the variable necessities and subscriptions, comes out to be about $5,000 a month.
So I guess when I think about the number that you would need to have six months of emergency savings or whatever based off of, that’s the number that I’m going around somewhere between four and five for those very necessity items. And then what we had been doing for the most part of this year was had a discretionary spending amount between 800 and 1000, and that’s from anything like things that pop up with the dogs like a vet bill. We hadn’t really padded our emergency savings for most of the year, but $1,000 was really just a coverall like oh, we need a new pair of jeans or whatever, we want to go out to eat or something like that. That would encapsulate all of that.
So we were mostly spending about six grand a month in all of the bills plus necessities plus discretionary spending. Over the summer though, we have been spending a little bit more and that was actually intentional because we had a couple trips planned et cetera, so that discretionary spending amount went up by a couple grand. So all in, we have been spending over the past three months about eight grand, but that was after a big chunk of the debt paid down journey happened. So there was some wiggle room there we figured, for that to happen.

Scott:
Thank you for a lot of that detail, that’s fantastic with that. I think we will definitely have to spend a lot of time in the expenses on this because there’s a lot to unpack there, but let’s continue through and talk about net worth now. What are your current debts and investments right now?

Kari:
Let’s see. So debts I have, which is I know going to be probably a bigger topic of conversation, I have $18,000 in student loans. They’re a bunch of tiny little loans, but they average out to be 5.5% so I know that’s in your gray area, five to 7% what do you do with that kind of thing? So that’s 18K there. The window loan is 9,000, I don’t want to pay that off early just because it says zero interest same as cash deal if we pay it before July of next year which we already have a plan to do.
And then the other one is the HELOC so that’s at about 10K right now, and that really came from we had a little mini disaster in March where our sewer line broke under our house, and then they had to excavate our front yard and it was a whole mess. So that really covered that so that we wouldn’t have to add anything to our debt that we were already trying to pay off. That’s a pretty low interest rate too at 4% the HELOC, so again, I’m not super rushed to pay that off. And then the only other one is the mortgage, which is at 155.

Scott:
Awesome. And what about your investments?

Kari:
So investments is I think where we’re going to… That’s our next step so we don’t have a lot in terms of investments. I mean, I guess if you were to include the equity that we have in our house right now since we fixed that up and also saw appreciation in the market, we have roughly between 80 and 100K in equity on our home. Another question in this session today from us is going to be whether or not we sell the house because we are probably not looking at living where we’re currently living in the long term.
So we’re thinking through that strategy, but other than that I have some stock in my company that because we’re not public right now, I’m pretending it’s not there. If I get that windfall eventually one day, that’s cool, but I’m not going to bank on that. So that’s what I would say in terms of our investments.

Scott:
How about emergency reserve? How much do you have?

Kari:
Oh, emergency reserves, sorry I forgot about that. Emergency reserves, we are at 15K right now. We decided to basically whittle that down to nothing as we were going through the debt pay down journey, and then we only recently just in the past couple months started to build that back up.

Scott:
I love that. I think a huge part… So what I’m gathering here is you have a modest net worth probably just positive probably in that 50 to 100, maybe zero to $50,000 range. Does that sound about right?

Kari:
Yeah, I would guess. Yeah, not very much, but something around there.

Scott:
But what I’m gathering is that you just went through a remarkable debt pay down journey, could you fill us in on the backstory of your debt pay down and recent events? It sounds like there was a move from California to where you’re currently located? Can you walk us through maybe the last year or two or whatever that story is?

Kari:
Yeah. So there has been this trend I think in the tech space. I work in tech, but there’s been this trend in the tech space, this great migration out of the Bay Area into lower cost areas. And so my company was opening up an office in that Midwest, Eastern region, and as a part of that they asked me to move to help open up that office. And so we did relocate and a part of that relocation we wanted to really capitalize on the fact that hey, we couldn’t afford real estate where we were coming from so let’s do that here.
And so that’s where we bought this duplex that needed a ton, a ton of work. And we’re like, “Oh, great.” My wife is very handy, and she actually was a carpenter in what I call a past life, she’s had many lives, many career areas that she’s been in. But we decided to purchase the duplex, we completely renovated it top to bottom, and all inside and out, and so that was a really big part I think of what brought us into that debt was actually… It was more of strategic debt I guess. Some of it as I think Mindy had mentioned is some of it was just going to Gap and buying some things or whatever.
But I think the majority of it really did come from having to buy things for the house or pay things like material costs that kind of stuff. And then also eating out, buying pizza because you’re so tired at 2AM in the morning and you’re like, “I just need to eat something quick and fast,” and so you’re doing drive throughs and things like that. So that all added up.

Scott:
How old are you guys?

Kari:
So this is going to be another topic, there’s so many topics I have for you. We’re a 12 year age difference. So I’m 30 years old and she is 42 years old. Actually, she just turned 43 and I’m going to be turning 31, but there is an age difference there. And part of what I maybe wanted to talk about as well on the show is how do we think about that in terms of retirement? My 401(k) is only going to be helpful for when I’m that 59 and a half or whatever, so there is an age difference there as well.

Scott:
When did the discussion… We’ll definitely get to that I’m sorry, I’m just rapid fire peppering you with questions. When did the discussion about building wealth get serious in either your life or your joint life with this?

Kari:
Okay. So we have always wanted to invest in real estate and that was really appealing to us, so the decision to move out of the Bay Area was a financially motivated one, and then buying the house was also a financially motivated decision. I can’t say that we put pen to paper and actually we’re tracking our expenses and doing budgeting and all of that stuff, it was just a shoot from the hip kind of thing. So when we actually got serious and started tracking spending and doing all that, that was January of this year.

Scott:
You’ve been undergoing a process for the last year or two of getting more serious about money that has had multiple jump starts, and it’s paying off, you’re saving a ton of money right now and completely overhauling your financial position, but this is still relatively recent and you’re still picking up a couple of things. Let me ask you this, were both of you equally excited about the move away from California to the current location?

Kari:
There was definitely some hardships there. She was a managing owner of a restaurant, and so she had to essentially give that up for this move and so there was a little bit of a slow start for her to find work here. And so she’s just now getting on her feet with that, but I would say her two main skill sets are really in restaurants and anything that has to do with that, and then carpentry. So right now she’s doing carpentry work, but we do eventually, and this is another topic of conversation, we do also want to look at owning a restaurant one day too as a possible small business venture.

Scott:
Last question for me until we get back into more of the specifics of this, what are your goals? Or what are you looking to achieve from our call today?

Kari:
So I think goals for the call are just to really help us to create more focus and a better strategy for what we’re trying to accomplish here. I think you hit the nail on the head, there’s been a lot of starts, but they all seem to not go in the same direction. There’re many different philosophies that we’ve had over even just the past few years on building wealth, and I think that has slowed us down. And so what I would really like to get all of your take on is how we can build that in the right path, accelerate that wealth, and trying to get to the bigger goals that we have in the time range that we’re hoping to achieve those by.

Scott:
Well, let’s start with what you’re doing really well right now is you’re saving a tremendous amount of money each month. And that is the number one fundamental that makes all the other decisions right now relatively less important I think. The decisions about where you allocate investment capital and those types of things, we’ll get into that for sure about whether to pay off debt or invest and that stuff. But you have an incredibly strong position of eight grand in cash per month that is hitting your bank account after expenses, right?
And so that makes this discussion very easy in a lot of ways, and gives you a lot of luxury where you just do that problem and that masks the impact of a lot of these other investment decisions because you’re going to get rich quick either way if you keep that up on that. But I think that you still have more room there, and that may be the most important place to focus. So why don’t we start with those expenses and dive into a couple of ones that stood out to us?

Kari:
Yeah, sounds good.

Mindy:
Okay. Yeah, I think that one thing Scott before we jump into her expenses, one thing we don’t do enough of on this show is commend people when they have paid off a huge amount of debt. You paid off $66,000 that’s fantastic. Hooray! Hooray! I’m so excited for you. That should be, and it seems like it is a huge motivator to continue that. You haven’t alone for windows that you said is the same as cash so you have a plan to pay it off during that same as cash period, which I think is fantastic. Why pay it off if you don’t have to?
It doesn’t cost you anything, it’s not negatively impacting you to have this money out, and you have the ability to pay it off. So I love that. Some of the expenses that popped up that I had questions about were the utilities, are you able to split those out at all and charge the tenants for utilities? Is that a thing in your area? I know sometimes, in this market utilities are included with all the rent, so in other markets it’s common to bill the tenants. So is that an option to get a little bit of help with the utilities?

Kari:
Yeah, actually our tenants do have a separate meter so this is just our gas, electric. Well, the water bill we have to pay because that’s for the whole house. So the water bill is 65 of that, and then I budget high for things because I feel like if I just put the number in of the highest I’ve ever seen it, then it will be lower than that so that’s how I do budgeting. Maybe that’s not necessarily the right approach, but the highest I’ve ever seen the lights is 120, and the highest I’ve ever seen the gas is 300 and that’s typically in the wintertime. So it’s usually less than that. That’s the highest basically, but we usually have a little bit of cushion.

Mindy:
Okay, I like that idea. Sometimes budgeting can be really daunting, so if you just use these high numbers then you’re coming in less every month, hooray! You win. If it continues to come in super high, I’m wondering if there’s a way to mitigate it. Like if you’re both not working from home can you turn it down during the day in the wintertime when it’s really cold? Get some sort of programmable thermostat so it starts to warm up again before you get home because I hate walking into a house that’s 40 degrees.
The car payment, it’s a lease so now there’s things to think about. I’m not going to tell you that a $628 a month lease is a really great idea, I’m not going to harp on it because there’s nothing we can do to change that, but what are you going to do with the car when the lease is up in next summer? Do you need two cars? Can you get rid of it? And cars are really expensive right now, I don’t have a lot of experience with leases. When you sign the lease do you have an opportunity to buy it at a specific price at that time or do they set the price when you bring it back?

Kari:
They’re good questions. That’s something that we have to look into, I know that you do have the option to buy it when you bring it back, and so I don’t know if that in the paperwork it was already agreed upon price and then we can buy it at that cost instead of doing a trade-in kind of thing. I am on the slow offensive front of trying to just get us to have a cheaper car, my wife is a very big car nerd and so that has been a journey. She has said on a couple of occasions if we can think about X then she’ll settle for a less expensive car. So I’m trying to massage that in, but yeah I think it’s expensive, I think it’s high for a car, but then again I don’t really care that much about cars.
I could drive a beat up Corolla and be fine, but I will say that I did get her to sell one of our cars. So once I became 100% remote with COVID and everything, we had two cars and she was really driving the SUV is the one that we have. That’s the $600 payment and so I got her to sell her car that she had which was impractical for where we’re living now anyway, it was a small, almost like a race car of sorts. It was just not necessary and so we did sell that so we don’t have that car payment anymore, and we did give a little bit of windfall that we put towards debt.

Mindy:
So right now with COVID and supply chain interruptions cars are really in short supply, I would look at your lease documentation now while you have the opportunity. If there’s already a set cost where you can pay for it and get the car, it might be so low that you could buy it for that price and then immediately turn around and sell it. But cars are in short supply, used cars are in short supply, I only know enough about this to be dangerous so I’m going to make you do all the work and go learn about that.
But definitely read your lease documentation way in advance, and then if you don’t have the opportunity to buy it at an already set price it may be really, really expensive to purchase this car, in which case it’s a better option to give it back at the end of the lease. But then what are you going to do for a car? So you have a little less than a year to decide on these things, hopefully the supply chain is back up to speed by then and your options are greater, but just something to think about as you’re going through this.

Kari:
Yeah, that’s a great idea. I wrote that down.

Mindy:
One other thing that I see is your cell phone bill. What was that again? Was that 180 or was that? Because I have 290 and maybe you have-

Kari:
Yeah, I got that down.

Mindy:
Yay!

Kari:
Actually after watching or listening to your show I called them up and it turns out that, which I didn’t even know this was a thing. My wife used to live in Chicago, she’s lived all over the country, but apparently in Chicago you pay higher taxes for stuff, I didn’t even know this, but that was adding something to our bill. And then I guess the other thing was that our phones, because we had purchased new phones and there was a payment that was as a part of that bill.
We’re not planning on getting new phones, thankfully that’s not something that she nerds out about so we’re going to keep our phones until they basically die. But the 180 is what we were able to get it down to from the 290 that does have an unlimited data package which I have tried unsuccessfully to get us lower, but we do use a lot of data and it’s difficult for us to pare back on.

Mindy:
There are less expensive options, I know that Republic Wireless has a 10 or $15 a month plan, and Mint Mobile has a 10 or $15 a month plan. Those are options to look into, they run on different networks, I think they run on the Sprint network or the T-Mobile network so make sure that that network comes in where you’re living and where you’re spending a lot of time making phone calls. But there are ways to get your cell phone down. Now this is all assuming that you don’t have a contract, if you have a contract that you have to break that can be very expensive. So again, just some homework to do is to read all of that information and make sure that you aren’t costing yourself money to break a contract to go down. Scott, what else did you see in the expenses?

Scott:
Now that I’m looking at when you discussed them, I think the car one was a big one. If you make a different decision to their long term, that could be hundreds of dollars, and then the cellphone was one. I don’t think there’s a lot in your discretionary spending, I mean, you can probably knock some of that down by being very disciplined, but then that’s going to impact your quality of day to day life. And you don’t need to, in order to create an enormous surplus of dollars that you can deploy how you will. Literally $100,000 annually is being created, and that’s a conservative estimate here not including the bonuses you’re going to get a few times a year and potential equity from your company.

Kari:
Yeah, I don’t include bonuses in any of that, so I think you’re spot on in terms of our savings rate here.

Scott:
Okay. Well, I think based on that let’s go to what should we do with this 100 grand annually that you’re going to begin generating and all that. What do you think? What are your instincts telling you that you want to do with that?

Kari:
We have to get into the stock market at some point soon, I feel a little bit of FOMO the fact that we have not invested in the stock market yet. I think just how we go about doing that, like I mentioned that 401(k) option versus an after tax brokerage account. That’s what I need a little bit of help with. I do want to finish padding our emergency savings, I mentioned we have about 15 grand in there right now. According to my little sheet here we should be closer to 22, no 20, yeah a little under 23 by the end of this month.
That’s with that savings rate that we have between that seven and 8K that we’re producing right now. So I feel like that would make me feel a little bit better to then start maybe investing in the October-ish timeframe. But yeah, I’m thinking index funds, other than that I don’t really know enough to say.

Scott:
What do you want? Do you want to retire early? Do you want to build a lot of wealth and just save for retirement? Can you maybe restate your end goal?

Kari:
Okay. So this is one thing I think was probably pretty well captured in Mindy’s summary, but we have a lot of goals, we have a lot of dreams, and there’s never an end to coming up with what we want in life. It’s a matter of what’s more important, and then in what order do we have those things happen? So maybe if I just say the big ones and then we could reverse engineer it from there and figure out what the right financial strategy is. I will say this with a caveat, the stock market piece is the nice passive way of investing, but we are also pretty handy, right?
We know how to fix up homes, we know how to run restaurants, so that is an option for us as well. But I would say goal-wise my wife is getting to the point where we need to start actually thinking about kids sooner than later because I don’t want her to be 80 and sending our kids off to college. So having kids is one thing, having a single family home is a goal for us eventually. If it doesn’t make sense in the short term I think we’re both fine with that, but we do want a nice home eventually.
And I would say probably the other thing is it really is a goal for us to start that restaurant, or have that small business. So in terms of the short term things where we probably wouldn’t want to put that money in the stock market, we would need to think about the cash to get to those goals in the shorter term.

Scott:
So you want financial flexibility right now, and you believe that you are ready, willing and able to repair properties and start businesses?

Kari:
We are capable of doing it, we’re not in the financial position to do it if I understood your question correctly.

Scott:
You’ll be in financial position in one year to do that if that’s what you want based on what you just told us about your savings rate with that.

Kari:
Okay.

Scott:
You can accumulate $100,000 in liquidity, that would be plenty to purchase a restaurant most likely, or at least buy and then finance a restaurant, or buy and finance a one or two rental properties with that, from that perspective. And let’s also just pull out you are also in position right now to easily cover the cost of raising children even if one of you stays home, at least if your wife stays home since you earn the higher income with that. So that’s also something that I’m observing about your finance. You won’t save $8,000 a month following that, but you can still build wealth and do that from there.

Kari:
So I think what you’re saying is how do we envision our family once we do bring in children? And that is exactly how we did envision it, she would stay home with the kids and I would be working. I think in the next 10 years, a 10 year goal for us is for me to also not necessarily retire, but have the option to if I wanted to. And so when I think about what do we do first? I’m thinking this next year too in my mind is the continue to hustle hard, and then maybe that’s when we start to reap the benefits of what we’ve been doing.
But we’re at this weird point in time where we just came from a super high cost area where we weren’t really able to save anything, we come to a low cost area, put in a bunch of money in this investment that hopefully is going to pay off. And then now we have paid that down and debt’s down and now we’re on this. So I’m not really used to having money in the way that you’re talking about it in the future sense if that makes sense. I see it on paper, but I don’t believe it.

Scott:
That’s because you just crushed your debt, and you’ve only been doing this for a year, and you have no money right now. But if your accumulation is the way you just articulated it, you have the option to accumulate $100,000 in your bank account after tax, and probably have incredible credit and those types of things. Which will allow you the option to either invest in stocks through a 401(k) or through after tax brokerage accounts, to either buy a rental property, or to buy a small business with that.
Those are three good options, which one you choose depends on your goals, and I think that that’s where my advice would be, to have a money date and plot that out. And say, “Here are three things we can do next year, if I crushed the debt we can be debt free and have 40 grand leftover outside the mortgage with that. If we invest in stocks, we can have 36, 37,000 inside our 401(k)s plus our matches,” or those types of things ,or maybe if I have a Roth 401(k) option that or whatever I can have somewhere in that ballpark of money inside retirement accounts tax advantaged, and then also have this amount of cash left over.
Or we can have cash and we can just not invest or pay off the debt and just have this much cash and buy rental property and a restaurant or buy a restaurant. But I think those are the options available to you inside of one year to 18 months, and I think that having that conversation now and learning a little bit more about that will be hugely advantageous. Because you’ll be able to say, “Oh, that’s how much it cost to buy a restaurant or a franchise, or whatever it is. That’s how much it will cost to buy a rental property in one of these several locations we may consider moving in or a small portfolio.”
Or, “If we want to do the completely passive route here’s what that looks like.” The good news is, because you accumulate $100,000 annually without doing anything tax advantaged you’re going to accumulate a million dollars over 10 years. And if the market does even close to average returns after that, you’re going to have well more than a million dollars in 10 years which is likely to achieve most of your goals in your 10 year plan with that. So you don’t have any bad options, but why don’t you react to those three options I presented and maybe see if there’s other options as well that I haven’t thought of here.

Kari:
Yeah. Well, first of all I’ll just say my wife and I come from very, very humble… We were raised with modest living and so to say that we’ll be… And I’ve told her that before I was like, “You do realize if we just save the money, just not even talking about any rates of returns in the stock market if we just save it we will hit a million in 10 years?” So that is really exciting, but it almost again doesn’t feel real yet because we’re in the beginning of this journey. So I guess when you say these are the options, I mean, to me I just am a little confused, or not confused, but I’m challenged to figure out what should come first.
Because if I think about accelerating wealth in a real way, I don’t see it being in the stock market or the 401(k). That said, the stock market and the 401(k) feel like safer bets so I don’t want to just go all out on rental properties and small businesses, and then these things could potentially tank and that’s all of our wealth. So is there some maybe combination of doing all of those things, but then at a slower rate of getting to that small business goal/ more rental properties kind of thing?

Scott:
I don’t think you can do all of those things, and I think this is the struggle everyone goes through when they’re starting to invest. Is if you diversify at this point, you guarantee yourself a mediocre return and you delay on those things. Diversification is a luxury you have once you get past the several $100,000 mark in net worth. You can do it, you can buy a rental property and invest in stocks and buy a business in the next two or three years with that, but you can’t do all three in the next six months with that, right?

Kari:
Yeah.

Scott:
So you’re going to have to pick one to start with, with that, and I think which one you pick should be based on those goals, right? If you start a business right now in a restaurant, I don’t know all the difficulties and all those types of things, but that might take you a year or two to stabilize before it is now a good idea to begin your family with that.

Mindy:
I want to jump in here. Scott before you talk about investing in the stock market, I want to jump in. Right now it is so difficult to find people to work in restaurants. I don’t want to get into political commentary, I just want to say that restaurateurs are having an almost impossible time finding workers.

Kari:
Yeah, you’re right.

Mindy:
So what sort of restaurant does she want to open up? Maybe now is the time to put that on the back burner, not because it’s not a valid goal or a valid desire, but because it’s going to be an uphill battle with getting it set up and finding a place or finding people to work there. Now if she’s going to be a personal chef and all she has to do is rely on herself, that’s a different story. If she needs one other person, that’s a different story. But I went out to breakfast this weekend and it was a super long wait.

Scott:
You went out to breakfast Mindy? We host a money show.

Mindy:
I know. I know. You can send all of your nasty comments to [email protected], but we walked downtown, had a great breakfast, but it took forever to get a seat. It took 45 minutes for our food to come out, not because they were so busy, but because there was nobody to work. So I don’t want to throw cold water on your plans, I want to throw realistic content or realistic things to consider towards you.

Kari:
Yeah.

Scott:
That’s some lukewarm water.

Mindy:
Lukewarm water. A little chilly water. It’s a difficult time to invest in or to open up a restaurant right now. On the other hand, if so many people are having such a hard time finding workers maybe now’s a great time to buy a restaurant. I don’t know, I’m just again, throwing this out there for you to consider.

Scott:
I think it’s a research opportunity with that, I think Mindy makes some great points.

Mindy:
There you go.

Scott:
And I was going to bring in the point about maybe now that is a reason like she says, that this is now a great time to buy restaurants because people are selling them at very low prices or going out of business with that. And so it may be that that’s actually a really good opportunity depending on those types of things, but bottom line is you and your wife need to align on the goals that you have and what you think is the best opportunity and make a play on that best opportunity. That’s option one. Mindy, now go ahead with option two that you were about to go with.

Mindy:
Well, Scott suggested a money date. Scott and I sat down at the end of last year and laid out a great way to have a money date with your spouse. So I suggest listening to episode 157 of the BiggerPockets Money Podcast together with no expectations, not “Hey, we have to do this.” Just let’s listen to this show, let’s take notes as we’re listening, and let’s have a conversation so that we’re both on the same page. Because I think that’s a really great idea because you’ve paid off a chunk of debt, that is awesome and we really need to celebrate that, Yay! The Dave Ramsey debt free scream is really awesome, we should have a you paid off your debt, yay! scream. But anyways, Woo-hoo!

Kari:
It’s interesting that you say the money date, because I listen to your show all the time, if she were here and not at work she would say that I’m slightly obsessed, but the money date we did do together. This was at the start of our debt paid down journey, so this was just the we need to actually prioritize what we want because we’re going in 85 different directions and it’s causing us to accumulate debt at a rate that is honestly shameful for our income. So that has happened, it hasn’t happened recently, and that’s I think what probably is a good idea for this particular point in time, recalibrating on everything.

Scott:
You have good options, but the stakes are huge, right? You have the option to realize the life that you want years in different directions based on how you approach this with that, and it’s not like there’s one right option, right? Let’s suppose you say buying a restaurant’s the right option from a return perspective, well, maybe it’s the wrong option for the family perspective with that and stocks are the better option with that, right?

Kari:
Right.

Scott:
Because it’s passive and allows that to just continue over the next five, 10 years with your current state and still build up. So there is no right answer to that, but that’s the kind of discussion that if you guys have I think your outcome will become much clearer or at least have some instincts about where to look and dive in much further to investigate.

Kari:
So I agree with both of your assessment on the small business front, we have seen the struggle that small restaurateurs are running into with regard to the shortage of labor in that particular area. When it comes to rentals, I almost feel there’s a similar challenge is that it’s hard to find good deals on rentals because the housing market is up so much. And so that is also like, Do we maybe want to sit out on that a little bit? Or should we stop trying to time the market and just jump in when we are ready?” I mean, I don’t know how to think about that. That might lead into the next question around what we do with this place, but I’ll just pause for any thoughts there from you.

Scott:
I don’t know how you can make that call on rentals versus the stock market right now, right?

Kari:
Yeah, that’s true.

Scott:
They’re both up really high. It’s 2021, where’s the asset class? Is it cash? Oh, wait, there’s going to be a lot of inflation so I can’t put my money in cash. Is it Bitcoin? Is that a viable investing strategy to offset inflation with that? Is it real estate? Real estate prices are through the roof. Is it stocks? Stocks are through the roof?

Kari:
Yeah, that’s true.

Scott:
Is it small businesses? Business valuations are through the roof with that. So I don’t know how you can make a call on do I pay off debt? What if inflation happens and salaries continue to skyrocket and I’m paying off debt with dollars that are very expensive today and that are going to be really cheap tomorrow with that? And so I don’t know how you can make a market based decision on a lot of these things right now, other than continuing the fundamentals of what is the best asset class based on what I think the long term outlook is of it?
What gives me the best probability of achieving my goals over the next five to 10 years with that by concentrating more heavily in that area with that? Or do I want to build a diversified portfolio over 10 years slow and steady with that? I think you’re going to have to make that decision with that, but I don’t think you can say I want to hold on real estate because I have another alternative unless you feel confident in your analysis of all those other alternatives with it, which I think is impossible.

Kari:
Yeah, that’s definitely a good point. Everything is hot right now.

Scott:
Where are you going to put it instead? I think that’s going to be the thought process, and there’s problems with all the areas if you look for them.

Kari:
Yeah.

Mindy:
Wow Scott, that’s not happy at all. Okay, so what I’m going to-

Scott:
It is happy, it’s telling her, “Hey, she can be freed from having to worry about the market with this.”

Kari:
It’s a good problem to have I guess.

Mindy:
Yes, you have a great problem to have, but not choosing where to put the money it’s just going to sit there and lose value that way because inflation is most likely coming. We haven’t talked about any 401(k) match, do you have any match at your work?

Kari:
So we don’t, but as of January of 2022 we will, we will start having a 3% match of our salary. Yeah, 100% of our contributions up to 3% of our salary. So I planned to start doing that at least, but there’s a real question of do we reduce our taxable income right now by… We could literally by the end of the year max out my 401(k), that’s the cash flow that we have right now, but is that smart considering that we’re 12 years apart and we’re not going to see that $19,500 until I’m 59 and a half or will it be more?

Mindy:
So another question is, does your wife have any sort of 401(k) option? I believe she’s self-employed, you said something about contract work?

Kari:
Yeah. So that is another question that I had for you all. So she’s doing contract work, she doesn’t have an LLC and I know that there’s some benefits to doing that, and so should she officially do that? And then I think I’ve heard on your show that there’s a way to do a 401(k) for a small business, or I think you can even do it for an individual if you’re LLC. So should we do that and max that out there?

Mindy:
What I did, my husband is unemployed and then has a blog and some self employment income. He has no other employees besides me, I do some work through the LLC as well so we created an LLC, we have a self directed solo 401(k) plan for each of us. Because he is the primary member of the LLC and has no full-time employees other than his spouse, me, we are able to contribute up to 19,500 which is the traditional 401(k) contribution personally each one of us. And then the LLC, the company, can match our contributions up to 25% of our income.
The total amount, and I can’t ever remember if it’s 52, or 54, but I could have 52 or $54,000 contributed to my 401(k) every single year and the 19,5 comes out of my income so that’s tax deductible. I’m sorry, that’s taxed… What am I trying to say? I’m reducing my taxable income by that 19,5, and then additionally the company some them in. Does she have any 401(k) right now?

Kari:
No.

Mindy:
Does she have any money in any sort of 401(k) or IRA or tax deferred retirement plan of any kind?

Kari:
No, and honestly I don’t have much either in the way of that. I think I maybe have six or 7K which is very nominal.

Mindy:
Okay. So that could be an option again, this is a research opportunity to look into that’s a great way to reduce your taxable income. Your adjusted gross income is too high right now to contribute to a Roth option, is there any benefit for you guys to contribute to a Roth self-directed solo 401(k)? Because that’s an option if you set it up that way. Does your company have a Roth option? We talked to Kyle Mast on episode 200 about how he feels that the Roth option is going to be one of the easiest places for Congress to cut, to help increase income for the government coming in because we’ve just been writing checks for the last year and a half so we have to pay for that somehow.
So he thinks that the Roth option could go away in the future. So right now contributing to a Roth might be the best choice. And again, you have to weigh my taxable income reduction versus the tax free growth in the Roth, but those are things to look at. Ask your company if they have a Roth option.

Kari:
I think I’m not eligible to contribute to that. Isn’t my salary above the threshold?

Mindy:
You’re not eligible to contribute to a Roth IRA on your own, I’m wondering if your company has a Roth 401(k) option. Scott, do you know if there’s an income limit on the Roth 401(k) contributions? I don’t think there is, right?

Scott:
I don’t think there is. I max out a Roth 401(k) through my employer.

Kari:
Okay. Got it. Okay. I think I was mistaken then on how that works, or maybe I was getting that confused with the IRA.

Scott:
I think it’s hard to say don’t take the match. You definitely should take the match in there and get insured enough to do that, that should be your standing policy on an annualized basis. And then after that, I think that again comes back to the discussion that you need to have with your wife about what is the goal here? What are we trying to back into? What’s your timeline for those different types of things? The world is your oyster, how do you want to approach this with that?
And if it is, I’m making this up, but we want to go and start our family in the next six months, there’s no reason you can’t do that right now and be responsible financially with that. That might be a good way to be like, “Okay, then we’re going to just crush our 401(k) contributions right now and reduce taxable income, and back into that wealth over a 10 year period, or 15 year period with that.” Because it’s totally passive in there, right?

Kari:
Got it.

Scott:
But if you said, because you told me earlier, Mindy and I earlier, that you feel very handy and competent around rental properties and those types of things, if you feel that way, you may be able to get a better return depending on where you move and where you live, which is another part that’s going to come out of the money date with this theme. Where that may be a better option for you than putting the money into an index fund inside of the even a tax advantaged retirement account with this. So I think it’s hard to argue don’t take the match, and maybe consider things a HSA if you have that, or those types of things. But then, with the huge amount of money that’s going to be left over after those contributions, it could be that real estate or the restaurant is a better option, it’s just going to depend on your goals and timeline with that.

Mindy:
Okay. So here’s something that I just looked up, your modified adjusted gross income under 198,000 you can contribute to a Roth IRA if you are married filing jointly. If you are married filing separately-

Scott:
She’s going to be way above that if she brings home 15K a month after tax from her household.

Mindy:
I did 15 times 12 is 183.

Scott:
But she’s making 250 on that.

Kari:
I didn’t include my bonuses in that, and I think that counts towards that.

Scott:
And that’s after tax.

Mindy:
Oh, okay. So well, if you both contribute, you both max out your 401(k), you reduce your taxable income and now I mean, that’s almost $40,000 you could reduce it by. So that’s another research opportunity to go in and see if there’s an opportunity to max out your Roth IRA, or to even be able to contribute to a Roth IRA. With children on the horizon, my love for the restaurant is even less, and I don’t mean to discount this goal, I just know how much energy it takes to run a restaurant and I know how much energy it takes to raise kids. And it just seems like I mean, index fund investing, stock market investing is really you put the money into the stock or the index fund, and then that’s the limit of your involvement in it. I mean, the best thing to do is not to have any more involvement in it at all.

Scott:
The trade off with it though in your context, is that you’re setting yourself up for mathematically if long term averages hold true, a 10 year grind where your position will improve, but you will not really become that much more free from that perspective over that 10 year period. That’s the trade off with the index fund investment with that. You guys have a great situation because you spend so much less than you bring in, so you’ll be able to do lots of things and have that luxury of choice there, but you will not generate a large amount of passive income that can fund your lifestyle passively for about 10 years if you decide to go in that direction with the index funds.

Kari:
Right. So for the rental option can we maybe double click into that a little bit more? Because I think the biggest point of contention right now, we disagree on whether or not we should hold on to this property or sell it, so it’s a little bit of a tangled thing.

Mindy:
So what I hear you saying is that you want to invest in more rental real estate?

Kari:
Yes.

Mindy:
And if that’s the case, how long have you owned this property? Your mortgage probably has a 12 month residency requirement, once you’ve lived there for 12 months you can move out. You don’t have to refinance your property if you choose not to, you can move out, buy another property, and get the same owner occupied lower down payment, lower interest rates, and do it again. Find another house hack and rent out a part and live in a part for 12 months, and do it again, and again, and again, if that’s what you want. Or do it one more time and then buy the single family home that you mentioned.
So there are options for if you’re okay continuing to move, there’s options to find… If you find a good deal. You had mentioned before should we even bother because the market is so hot right now? Yes, the market is hot and I think you should absolutely be keeping an eye on the market, continue to look for something when it works out, but having the ability to move into another property as an owner occupant could help you get in there sooner than if you had to save up 25% down.

Kari:
Yeah. So here’s I think the nuance to this, because we were all over the place when we were first getting into this real estate investment journey, we bought the house, we fixed it up. Okay? The thing that we initially planned on doing is refinance it, take money out of it, and then buy the next one. And then we quickly realized, oh, wait with all this debt that’s not smart, and a lot of that insight actually came from your show so thank you. But I stopped feeling comfortable with that, and I think she did as well and so we’ve put the brakes on that, and so now what we have is this HELOC where we were originally planning to pull money from.
The refinance cost nine grand, okay, we were also not very great at keeping… So these are lessons learned of a novice real estate investor, but we also weren’t tracking the spending of what all those costs were adding up to. I think it’s somewhere in the ballpark of 75 to 80 I think that we spent in total of everything. I mean, this is a complete renovation of a duplex, right? So I fear that I know that the market’s hot and we could sell high so to speak, but I think that’s probably not as likely that you’re going to sell super high to someone who’s buying to invest in real estate versus someone who’s buying their forever home that they’re going to dream about having kids in and stuff.
So I just worry that we’re not going to get the return, it’s hard for me to stomach that we would get not a good return on this as much as we’ve put into it, but the caveat here is that we’re moving five hours away that’s already a decision that’s been made. We need to be closer to my parents, there’s a lot of reasons health wise, and so would we keep real estate five hours away when this is the only one we have?

Scott:
Do you have a BiggerPockets pro membership?

Kari:
Actually, I think we do. Yep.

Scott:
Okay, here’s what you should do. Run the numbers on your duplex as a rental property in the calculator. Just put them in, put in conservative assumptions, put in property management, put in your utility bills, what you think rents will be in the site you have when you move out and say I am “purchasing” this rental property with… Right now if you sold the place and you have $100,000 in equity, how much is it worth?

Kari:
So when we got it appraised which was a year ago, it was 225, but all indicators from other duplexes which ours are nicer than those, are 250-ish. We’re in a hot area though.

Scott:
Okay, so if you sell it for 250, we don’t need the specifics of that, but if you sell it for 250 let’s assume, you will need the specifics in your analysis, but for now we don’t. But if you sell it for 250, you’re going to incur seven to 8% in closing costs to get your money out on that, and that will be… 1% is 2500 times… It would be about 20 grand, and so if you have $100,000 in equity you’d be left with 80,000 after selling it.
So say I’m putting down $80,000 in cash on this property, I have no buyer closing costs because you already own the property and run the analysis as an investment duplex. And see would I make that investment right now, or would I take the $80,000 and apply it somewhere else to get a better return? And you’ll have your answer about what you should do with the property with that. My instinct is that because you already own the property, and because to sell it you’d have to incur those closing costs, and because it’s a duplex, and an investment property.
My instinct says it’s likely going to be turned out, hey, that’s probably a reasonable investment, and you got to install property management and you’re going to do just fine. You’re probably also going to be surprised at how much rents have increased over the last year, and be pleasantly surprised with that and that will I think help some of the income situation, but I think running that analysis will give you your answer. How long have you lived in the property?

Kari:
We have been here since September of 2019, so we’ll be two years now.

Mindy:
Oh.

Scott:
If you sell the property you may… Go ahead Mindy, this is your trick.

Mindy:
I was going to say if you sell the property after two years of owning it you’d pay no capital gains taxes on the portion of the property that has been your primary residence. So I’m not exactly sure because I’ve never done a duplex personally, but I know that you would pay capital gains and depreciation recapture on the part that you’ve been writing off with your depreciation that you’ve been renting out. But you pay no capital gains on the part of your unit that has contributed to the increase in the property value.

Scott:
Mindy, I think we’ve actually discovered our first best investment for Kari here. Where you should talk to a CPA because you have a house hack and that’s a very complicated situation, and all the analysis I just gave you was pre tax, I did not factor in taxes. And the tax side of the equation is going to be treated, your primary versus your secondary residence is going to be treated differently. And so your decision, an 80,000 plus dollar decision right now at least, is going to be heavily impacted by tax strategy.
So there’s no higher use of money than spending 500 to $1,000 to consult with a CPA or whatever that turns out to be for a few hours for advice on how to handle that situation from a tax angle. And then you can figure out your investment decision first without the tax situation, and then layer in the taxes on top of that and see if that changes the game for you, would be my advice there.

Kari:
Okay, yeah-

Mindy:
Yes, and all of my suggestions I had missed when you had said that you were moving five hours away. On that level, having one property five hours away doesn’t necessarily make a lot of sense. I certainly wouldn’t advise you to buy this property five hours away from where you’re going to live, but since you already own it, running all the numbers in all the different ways is a really great research opportunity, that’s my new catchphrase for this episode, just to see what makes the most financial sense.
If you want to continue to own real estate and this property works out, then yeah keep it. Going forward when you move to the new property or to the new area… It sounds you’re moving to a place that you’re semi familiar with?

Kari:
Mm-hmm (affirmative). Yeah, I would have a good lay of the land and where we should invest.

Scott:
By the way we don’t do this enough, congratulations on your great problem. Because you house hack you now have a very good problem, and we’re talking about it very seriously. I’m all business today with this, but you have a very good issue on your hands with this particular property. And likely that you have a great investment as a rental property, or a tidy profit if you sell, so that’s good.

Kari:
Yeah.

Mindy:
Are you moving to a low cost of living, another low cost of living area, or is it more of a high cost of living area?

Kari:
It’s about comparable, it’s about comparable. I would even say where we’re living is maybe even a little bit higher. Just slightly though, it’s not that much of a difference, but I guess the thing that I’m worried about is that if we were to sell, I’m worried that appreciation hasn’t had enough time to do its magic for this to have been a good return. I think we do a little bit better than breakeven, but if you just think of how much money we put in because we put in 80, that’s what we put in. And then with closing costs and everything, I feel like we’d just break even and that breaks my heart because literally blood, sweat and tears went into this house.

Scott:
It’s not possible for you to do this, or at least if you’re a normal human being, but because we’re looking in it is possible for us to say this, that is what we call sunk cost, right? And theoretically, we should not worry about those costs.

Kari:
Okay.

Scott:
Hey, what’s done is done, what I put in is put in, the situation is what it is, going forward here’s my current situation and here’s what I expect to happen in the future, I’m going to make a decision based on that. That may be not possible for you because you’ve put so much blood, sweat and tears into the property, lived there and had all that, so I want to acknowledge that. But I think from a purely rational decision standpoint if you can, if you can pop out and just think of it as a piece of property, that is what it is with it, that will help you in your analysis at least in running the numbers with it.
Because I think that appreciation could be better or the same in your new town, and you’ll have more cash flow on it or whatever that is, right? And so that’s something you need to think about with that, but I also recognize that sounds great to say and it’s much harder to translate into practice in reality.

Kari:
Yeah. Well, I think it makes a lot of sense though. I mean, in some ways that’s what Victoria has been saying is if hiring a property management company for one property, and we’re five hours away is not going to get… We don’t want to cause an issue where it’s we’re losing out over the long term, so if we have to maybe lose out a little bit now or less than what we would hope to have made then maybe that’s better than just drawing it out for however long.

Mindy:
Let’s see. So then if I was in your position in the new location, I would find a real estate agent who is knowledgeable about the area, knowledgeable about investments, and start seeing what’s available. Maybe you get a really amazing property right off the bat, maybe you’re going to need to rent for a little bit. Do you have an imminent time that you need to be there, or is it just you know that very soon you’re going to move there?

Kari:
I think we had put the goal out to like a year-ish. We said we would do two if necessary, but I think from both my wife and my perspective it’s we don’t want to continue to put down roots here if we’re going to have to move eventually anyway. And so things like investing in real estate and all of that stuff, it’s I mean, let’s get there and then do it. That’s how we’re thinking about it, just speeding up the process a little bit, but yeah, about a year timeframe.

Mindy:
Okay, so you’ve got a lot of options. I mean, what I love so much about every part of your story is there’s a lot of optionality. You can start looking now, but you don’t have to be there tomorrow. You can start keeping an eye on the market, and Scott has a really great way to look for properties where you don’t look at what’s available, you look at what has recently sold. If you know that you want a duplex or a triplex or a fourplex, look at what has recently sold in the area.
Oh, there’s a lot that’s older. Hey, there’s no multi families there, maybe I should just look for single families. Seeing what has sold in the last three months based on what you’re looking for, your price range et cetera, can give you an idea of where you should start looking, can show you how much those properties are actually going for so when a good deal pops on the market you can act very quickly. We discussed that in our book, First-Time Home Buyer, so if you don’t have a copy I would love to send you a copy. It looks like this.

Kari:
That’s awesome. Yeah.

Mindy:
Scott details that in a really, really great way, but looking at what is on the market now you may see only not great deals. By looking at what has sold, you can see what these properties are selling for, what people are valuing them at, and make a better educated decision.

Scott:
I agree. I think I think it comes back to you’re going to have to research. You have to have that discussion with your wife and figure out what you want to do, and then heavily research the options available to figure out, hey, what is the best one for us? What’s going to achieve our goals the best across the three large categories or decisions we discussed around buying rental property, investing in stocks, or whatever? You’re going to have the option to do all of the above in the next two or three years, but you’re going to have to start somewhere and likely go hard in that area.
Or you can just keep paying down debt as a fourth option with that, but I think that will come out of that discussion, and then that research I think will further help you decide on that. Maybe you say, “Hey, real estate’s perfect and because we feel competent in new market and our ability to repair and manage the properties.” Or maybe you decide that’s not for you, but I think it comes down to that discussion and then researching all of the alternatives. I think it comes back down to, you’re going to have to have that money date with your wife, and then figure out where do we want to go with our lives from here, and heavily researched the options we discussed here.
We had three around a tax advantaged index style fund investing approach, or other stock market approach there that would be mostly passive. We have the real estate option which is going to be semi passive, but may play to your skills in remodeling properties and your interests in learning about that, and could drive more cash flow or better returns than other alternatives. And then thirdly, we have the entrepreneurial restaurant option that might play to your wife’s skill set and experiences, and be the highest upside opportunity but the most work.
You also have the option to just keep paying down debt. You have good options because of your income and your savings rate and your home equity with that, but I think those are big decisions and the strategy will be impacted based on what you want and when you want it with that. And so research will come into play no matter what.

Kari:
Yeah. And just from a purely numbers standpoint, that fourth option that you’re mentioning with the rest of the debt that we have. Considering that the rest of the debt is pretty low interest rate debt, and considering what our goals are, would that be a viable fourth? Or is that down here in comparison to the top three that we had talked the majority of the time about?

Scott:
It doesn’t seem to be a high priority based on your philosophy and what I’ve picked up based on our conversation. You don’t seem in an urgent or in a rush to get completely debt free right now, and you seem much more interested in getting a better mathematical return. But the right answer for many folks we’ve had on the show is pay off that debt and knock it out and be debt free, because that’s just much cleaner. Doesn’t seem to be the way you’re wired, but if it is and I’m wrong, then that becomes a much higher option or a much better option.

Kari:
I guess the approach that I have been taking is we wanted to pay off any high interest debt, but anything that was below or just at that 5% threshold is what we have been ignoring, and that is what we’re left with, anywhere between zero and 5.5.

Scott:
That’s what I’d do in your situation personally.

Kari:
Okay. That’s what I wanted to hear.

Scott:
So for whatever that’s worth, I think that’s right.

Kari:
Okay. This was really helpful, I think we have three very clear directions that we can go into. It sounds like picking one of them and concentrating hard in one area and maybe contributing to at least the 401(k) and doing a little bit of stuff with the stocks is what I’m hearing from the conversation, but I think that money date is probably way past due.

Mindy:
Great, that’s awesome. Yeah, I think the money date, having it regularly is going to help keep you on track and keep you both discussing it together. Because you’re coming from slightly different positions, and slightly different mindsets having the conversation in, “Hey, remember this is what we want to do.” “Oh, yeah, yeah.” It just keeps you excited about it. My husband and I have ongoing money discussions, all we do is talk about money. My kids are like, “Uh, mom I don’t want to hear it anymore.”

Kari:
Yeah.

Scott:
I do think also just because we presented a few options here does not mean that in discussion with your wife and the money date more options won’t present themselves. You’re not limited to those, but those are three that seem apparent based on the discussion you gave us today. So many good options right now.

Kari:
Yeah. And those are the three main ones for sure, I think anything else would probably be less either playing to our skill sets or less in our passions or interests, so I do think it’s between those three. And I think right now we’re just in this place where we had a very high momentum for about eight or nine months as we were on this debt pay down journey, and now we’re at just like, “Okay, we don’t have any debt yay, but we also don’t really have any money right now.” So we’re at the valley of all of this, and now we’re headed back up to actually seeing some of that cash coming in. And I think we’ll start getting more excited for the trajectory once we start to actually build some of it up. Well, thank you so much.

Mindy:
Kari, thank you for joining us today. This was a lot of fun.

Kari:
I agree. Thank you so much.

Mindy:
Okay, we’ll talk to you soon. Okay, Scott that was Kari, and those were some really great decisions she has made in the past, and some really awesome opportunities she has headed her way and now she just needs to figure out which way she wants to go.

Scott:
Yeah. Again, I think it was a great discussion like we mentioned in the introduction here, and I think that she and her wife are going to be very wealthy over time if they continue to have such a strong fundamental position that they have with their income less expenses there, the savings rate that they’ve achieved. I think they’re going to have a lot of good options, and they’re going to get wealthy one way or another as long as that fundamental remains in place, but it is a matter of several years and certain lifestyle outcomes depending on which strategy they choose from an investing standpoint.
So I think it’s still a great discussion with that, and good on them for getting into that position. It’s eye opening I think for some folks to think about, “Oh, yeah I’ve never had money before, but in a year I’m going to have $100,000.” Wow, I think it’s a wake up call to some folks who are maybe in a similar position, like just because you’re coming out of a grind right now and have gotten the fundamentals right, all of a sudden you’re going to have more cash than you know what to do with or that maybe more than you’ve ever had.
If you’re applying the fundamentals that we talk about on BP money week after week, within a year or maybe two from today, and how are you going to set that up? Because how you do that can have major ramifications for your life in a really positive way depending on your goals and your circumstances.

Mindy:
Yeah. I’m excited for all of their opportunities, and after we stopped recording we had a bit more of conversation about how she has had this life changing event where now the debt is gone and now she’s looking to the future. And one of the things that came up is she’s like, “We make all this money, but we don’t have a ton of cash.” So something she’s focusing on is building up her cash reserve so she can look at that and see, “Oh, I am doing great. I am having success now.” And I just wanted to add to the recording of the actual show that now she’s in this mind shift and psychological game where she needs to have psychological wins that allow her to see the growth, the phenomenal growth that she is experiencing, and I’m just really excited for all the things that her future holds. Yeah, they’re going to be millionaires really, really easily, and they could be millionaires quickly if they tighten their belt just a little bit more.

Scott:
Should we get out of here Mindy?

Mindy:
Okay Scott, now we should get out of here. From Episode 232 of the BiggerPockets Money Podcast, he is Scott Trench and I am Mindy Jensen saying I’ll give you a call baby doll.

 

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In This Episode We Cover

  • Using “strategic debt” to grow your investments and income
  • Planning your future finances when trying to start a family
  • Investing in your 401(k), Roth IRA, Self-Directed 401(k), and other investment accounts
  • Using the “Live in Flip” model to avoid paying capital gain taxes 
  • Why you shouldn’t diversify when you are in a low to moderate net worth category
  • And So Much More!

Links from the Show

Books Mentioned from the Show