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BiggerPocket Money Podcast 233: How to Financially Plan for 2 Special Needs Family Members

BiggerPocket Money Podcast 233: How to Financially Plan for 2 Special Needs Family Members

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Life can be challenging at times. When you think you’re in a stable spot, the universe tends to throw you one (or many) curveballs. In the realm of financial education, the smart early decisions we make can help alleviate the stress of these curveballs. This has happened almost to the tee for today’s guest, Karen Ferrero.

Karen grew up in a small town to a middle-class family. She was a first-generation college graduate and worked throughout high school and college. She later took a job and began consulting in the tech world, which offered her a respectable salary. She got married and had two kids with her husband, but shortly after, her husband was paralyzed in a motorcycle accident. Not only that, her son was diagnosed with autism.

Now, Karen had to sell her house, find a new accessible one, take her son to therapy every day, and continue working her full-time job. This put her in a sizable debt hole, but through strategic debt payoff and intelligent investing, Karen has come out on top. She still has a very high-paying job, a loving family and some very, very profitable investment accounts for her children that she started decades ago.

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Listen to the Podcast Here

Read the Transcript Here

Mindy:
Welcome to the BiggerPockets Money Podcast Show Number 233 where we chat with Karen Ferrero and talk about what happens when life throws you a curveball.

Karen:
We have an almost two-and-a-half year old and one-year old. And my husband’s hospitalized for about five months. I have to sell my home. I have to buy a new home. I have to make the new home accessible. I have to find childcare. I have to find someone to take my son to therapies. And I have to keep working this whole time.

Mindy:
Hello, hello. Hello. My name is Mindy Jensen and with me as always is my capeless wonder cohost Scott Trench.

Scott:
Thank you for the billowing introduction, Mindy. Always great to be here.

Mindy:
I just snorted. Scott and I are here to do something. 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 financial freedom is attainable for everyone, no matter when or where you’re starting or what curveballs life throws at you along the way.

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 set up a large trust fund for a dependent, perhaps a disabled family member, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams.

Mindy:
Holy cow, Scott, today’s episode is so, so, so good. Karen started off life happy go lucky. And then life threw her a giant curveball and then another one. And today’s episode is about dealing with those financial curveballs and being able to weather those storms.

Scott:
Yeah. I think her story has a ton of different of these curveballs as Mindy alluded to her or I guess stated directly in there earlier. But yeah, I mean, Karen has been through a lot and her family’s been through a lot. And what I think you’ll see out of this is, hey, proper financial preparation can make things a lot easier and might have made things a little bit easier for her in some of those stages.
But her overwhelming grit, competence, ability, her career, all those things helped her get through a lot of those things and I think set her family up for success. And so, I think she’s a really shining success story here. And there’s a lot to learn from the way she did, do a lot of the things especially early in her career that I think we should all be cognizant of because life can happen to us. We have a choice right now while things are good if they are good for us, of course, at least assuming that. To maybe make some preparations for those types of things down the road.
And so I think this is a really powerful episode. I think you’ll learn a lot. I certainly did. And I really, really admire what she’s done and what she’s been through and how she’s handling it.

Mindy:
Yup. And her ability to look towards the future because she realizes that she does need to make some legacy plans and has taken steps to do that fairly easily.
Karen Ferrero, welcome to the BiggerPockets Money Podcast. I cannot wait to jump into your story today.

Karen:
Thank you. I’m really happy to be here, Mindy.

Mindy:
So, where does your journey with money begin?

Karen:
Yeah. I grew up in a very small town, middle-class family. And neither of my parents went to college. I was the first person in my family to go to college. It’s interesting that my father became disabled. And my mom worked part-time. And so, I really saw the struggle with my mom as a working woman in trying to support the family while my father was disabled.
And so, that really made an impression upon me early in life that I had to stand on my own two feet and be independent and support myself. So I think that was how things started with money for me.

Mindy:
Okay. And you said you’re the first one that went to college. What did your financial position look like graduating high school? And then, what did it look like in college?

Karen:
Sure. I worked my senior year in high school. I worked nights at the Illinois State Police to support myself and try to get to college. I got grants and loans and scholarships. My family didn’t really have a college savings account for me. So I went the student loan route.
I worked several jobs all through school and I was an engineering student. And I did start my career in tech and my whole career has been in tech which was lucrative and beneficial. So I was able to handle those student loans. But I really did put myself through school through scholarships and loans and working.

Scott:
Awesome. And what kind of tech are we talking about? Were you a software engineer?

Karen:
I was electrical engineer and software engineer. I started my career as a software engineer [crosstalk 00:05:09].

Scott:
Awesome. And so, what was your position upon graduation? Did you have any debt at all? What was your job? How did things go?

Karen:
I did. And it’s interesting because I went to my father for advice. I was offered a job. I was working as a software engineer while I was going to school and they offered me a job before I graduated. And my father’s advice is, “Take the money. It’s good money, take it, you can finish school later because you’re accumulating all this debt.”
So that’s what I did. I traveled a lot and was unable to stay in school. So I did drop out at that point in time. And I didn’t get my degree later when my employer paid for it. And that afforded me the opportunity to pay down my student loans earlier. I think I had around 40k, maybe a little bit less. And yeah, I was able to pay that off early.

Scott:
So, how did your early career progress? What are some of the big milestones following this? You get your degree. You pay off your debt. Where you at maybe 5, 10, whatever point you want to …

Karen:
Yeah. My career progressed from a software engineer through projects and program management. And I was in corporate IT for the first several years of my career. And then I pivoted to consulting. And I started consulting in the mid-’90s with Netscape, little browser company if you all remember Netscape.
I decided I wanted to work there. And it was the best time of my life. I absolutely loved it. And I have been in consulting really ever since then. And in my 20s and at this time of my career, I wasn’t married, I had no kids, I traveled a lot. And I spent a lot of money because I thought that the money was always there to be made.
And I spent it on travel and handbags and shoes, and all that silly stuff that you spend it on when you’re in your 20s and you don’t have any other responsibilities.

Scott:
Can you give us an idea of the income over this period and the amount you spent and whether you did any type of investing, maybe like 401(k), or stock options, or those types of things?

Karen:
I did 401(k). I did not max anything out. I didn’t even max to meet the matching because I wanted more money in my paycheck at that time. I just didn’t. It’s not something that I did. I learned that a lot later in life, unfortunately. And I didn’t invest.
I started investing maybe in the late ’90s. I opened up an eTrade account. This was before I got married. And I just dabbled here and there. But I didn’t do the smart things like take advantage of 401(k). We have stock options. So, my stock option is at Netscape, I held on to. And AOL bought us and they were worth nothing after that.
Yeah, it took a while before I really came around. I think I read the Millionaire Next Door in the late ’90s or around 2000. And that started my shift I guess you could say. But even then, I was still a spender.

Scott:
So, the point of the shift, what was your financial position like?

Karen:
I was probably if you include my mortgage, I was probably negative net worth to the tune of $200k.

Scott:
And what was your income at this point?

Karen:
My income was around I want to say $125.

Mindy:
In the ’90s.

Karen:
Into about 2000.

Mindy:
Wow. Okay, that’s not bad.

Scott:
And what’s the debt comprised of?

Karen:
The debt would be mortgage, cars. Let me think. Mortgage and cars primarily and credit card, a lot of credit card.

Scott:
And did you have any assets against that?

Karen:
No. I mean, 401(k), probably around $30k in my 401(k).

Scott:
Okay. And how many years into your career are you at this point?

Karen:
Eight.

Scott:
Eight. So you’re approaching 30?

Karen:
Yes. Yeah, I’m about 30. I’m about 30 years old.

Mindy:
Okay. I hear her saying, “Oh, I made so many mistakes.” I also hear you saying, “I have a $30,000 net worth at age 30.” Scott, we have to remember, we run with some pretty big money nerds. We don’t run with real-life circles. That’s doing pretty good. With $30,000 in your 401(k) … I might have said that worth, I meant 401(k). $30,000 in your 401(k) at age 30, for the time, you were doing awesome.

Karen:
Yeah. I think hindsight is 2020. If I could turn back the clock, I would have done things a lot better.

Mindy:
Holy cow, would I have done a whole lot of things differently if I could turn back the clock? If you know how to do that, let me know.

Karen:
Right. And then in my 30s are when things really changed for me, I guess you could say.

Scott:
So what changes it? And is it a event or a process after reading the Millionaire Next Door?

Karen:
Yeah. So the process began and I started thinking, “Here’s what I need to do.” I upped up my 401(k) to get the maximum matching. I started getting more serious about paying myself first, all those little things, but it was very small. It wasn’t a big shift. It was very small.
And then, my husband and I got married. I was 31 years old. We got married in 2000. We immediately had kids, two kids, boom, boom. And then, I did a couple of things. I was really saving for my kids. I did all the things that I thought I was supposed to do. And I’ll talk about why those were mistakes later. But I opened an eTrade accounts when they were infants and just invested in stocks, and they were universal gift to minor. They were minor accounts. That’s important.
I opened up 529s because, of course, my kids are going to go to college. And so, this is the smart thing to do. I opened up 529s with College, Illinois. And I’ll talk about why that was a mistake later as well. When my older son was two, he was diagnosed with autism. My husband was a union ironworker. So he was making pretty good money.
And we decided at that time, he would quit working to be the stay-at-home dad, drive my son to his therapies every day. And my younger son was six months old. So I had a two-year-old and a six-month-old. And so, fast forward about five months, my husband was in a motorcycle accident and he broke his neck. And unfortunately, he became paralyzed at that time. This is June of 2004.
Okay. So he’s 35, 36 years old. Again, we have an almost two-and-a-half-year-old and a one-year-old. And my husband’s hospitalized for about five months. I have to sell my home. I have to buy a new home. I have to make the new home accessible. I have to find child care. I have to find someone to take my son to therapies still. And I have to keep working this whole time.

Scott:
Oh, my gosh.

Mindy:
So that sounds like your stress level was through the roof.

Karen:
For sure. Yeah, absolutely, 100%.

Mindy:
So, you had to sell the house in a time that you weren’t planning on selling it. I’m sure that that wasn’t a great experience.

Karen:
Well, this is important, too. So when we decided … my husband has been in the trades his whole entire life. And we sat down and we talked about how we’re going to make this work and that he would quit his job as an ironworker. But he was going to do home remodeling and things on the side.
So, we got a home equity line of credit. And he bought a work truck and all these tools and everything to do his side business a couple months before the accident.
So, I had a mortgage. Now, I had our second mortgage or a home equity line of credit. And yes, so that.

Scott:
Yeah. I mean, this is just a devastating turn of events, obviously, for a whole bunch of reasons with this. What is, I guess, your position in the month following the five months in the hospital with that? What is the state of affairs?

Karen:
So, we sold the home at a loss because of just all the investment in his remodeling business. We sold the home at a loss. And then, when we moved, we bought a house near our families because I knew he’d need support. But that house, it was being built but not completely finished but it wasn’t fully accessible. So, I had to spend additional money to make the home accessible for a wheelchair and all of that.
And so, it was pretty devastating financially because as I said, I was a spender and we didn’t have reserves. And we took out the second line of credit on the home for his business. And it was really bad situation financially.
What I did at that time, over a period of time, I think some people, I don’t know if they don’t have the income or means how they would have got through that without filing for bankruptcy, quite honestly. I did not. I went to a debt consolidation. And this was a couple of years later. I went to, it was called Novadebt at the time, it’s now called Navicore, and consolidated all my medical bills. There were a lot. Credit card, everything else, and worked out payment plans. And I paid that off.
And now, I have perfect credit today but I was able to avoid any kind of a bankruptcy situation. And what I’ve learned is there’s forgiveness everywhere. And I think people have learned that with COVID. COVID has really shined a light on forgiveness and hardship. But you have to ask. You have to ask and it’s amazing how forgiving or flexible people can be if you just ask. Some people just don’t know what’s available when they don’t ask.

Scott:
Well, let’s walk through it. I mean, you have this two-and-a-half and one-year-old. You’re coming out of a lot of hospital debt and that kind of stuff. How do you manage things in the interim and then afterwards? Do you have to hire someone to come in and watch the kids while you work? Or how does that work?

Karen:
Yes. I did hire someone to come into the house and watch the kids. We put a camera system in. I also hired a cab service and my brother-in-law and different people took turns taking my son with autism to his therapy sessions every day. And we did have people come into the home like physical therapy and nursing staff and things probably for the first year that my husband was home after his accident.

Scott:
How much do you think it costs to run the household with all these things in that period?

Karen:
$30,000.

Scott:
Oh, my gosh. And what happens? And is that all get it formed into debt that you have to then consolidate later? Is that what we’re talking about with the Navicore?

Karen:
Yes, 100%. All the medical, all the credit card, it was all rolled in together which was nice. It was one payment for me. It was just a load off my mind. Mentally, it made it easy to just have that one payment.

Scott:
Absolutely. And what is the financial position following your husband’s return back to home?

Karen:
Yes. Again, we had to liquidate the work truck and all of that kind of things. Really, the focus was not on finances at all. The focus was on what is his capability. I was worried about my son’s progress with his autism and what his outcome is going to be, but also my husband. Nobody really knows until you get home. And it was a long process.
But that first year, he had a lot of occupational therapy and learning to do things again. And I will say it did take time. But now, fast forward to all these years, it was some years later, he got his driver’s license. He drives with hand controls. He does all the cooking and cleaning, thank God, because I hate to clean the house. And he does all that and the child care. It took a while.
During that time, I did outsource a lot of things. But the financial impact of that just accumulated over time. And I would say that, Scott, that was about three years, probably the first three years.

Scott:
And that makes perfect sense. I’m asking these questions because we’re a finance podcast, but yeah that makes sense. And yeah, obviously there’s many more important things than that. And it sounds like for three years, you had to put them on hold to make sure that you could take care of your family and put all these pieces into place with these kinds of things.
And it does sound like though that things begin to gradually improve for your family members during that period of time. And that is a process but there was some light at the end of the tunnel and folks gotten to do much better. Things are much better over that period. Is that right?

Karen:
Yes. I mean, I wouldn’t want him to be paralyzed but I think he’s fully independent and we are functioning. And, yes, everything is good. And like I said, I put the eTrade accounts and the 529 someplace for the kids when they were babies so that I didn’t think about for a while.
And we did get insurance, life insurance and disability insurance when we first had kids, too. That was important. I’m probably over-insured but insurance is never cheaper than when you’re younger. And my husband now is not insurable. So that I guess was one lesson learned. I can always get more insurance on myself but he is not insurable.

Mindy:
Did you have insurance on him?

Karen:
We did.

Mindy:
Okay. So did that pay for …

Karen:
It was small. No. But the plan, I mean … so fast forward, we got through all the hard stuff. He really learned how to do the day-to-day things. He got his driver’s license. And then we realized, “Okay, now we need to get our house in order again.” We’ve neglected this.
I turned to Novadebt which I said is now Navicore, did the debt consolidation. I paid that off early. Again, I’ve been very blessed to have a career in tech. I’m just so grateful. We have had good medical insurance as well which I don’t know what we would have done without it.

Mindy:
That’s really important. You had a great paying job. You had great health insurance. I remember the ’90s in the 2000s, I don’t remember when HMOs fell out of favor because there’s not a ton of those now anymore. But getting anything paid was a nightmare.
So, having good health insurance is really, really important for situations such as this. There’s a lot of skeezy outfits out there that call themselves debt consolidation, but this one is a reputable company. How did you find them?

Karen:
Mindy, that’s why I wanted to mention that. Again, this was pre-COVID if you remember. So I think since COVID, a lot of shady organizations had popped up. Novadebt was around back then and they have changed her name to Navicore. That’s why I wanted to mention it because they’ve been around forever and they are truly legit.
You have to be careful because people are going to take advantage. And there are a lot of scams out there particularly since COVID, unfortunately.

Mindy:
Yeah. So, Navicore, we will include a link to that in our show notes which can be found at BiggerPockets.com/moneyshow233. And yeah, I definitely want to make sure that if you are listening and you need to do some debt consolidation, make sure you’re going with a reputable company.
Scott, we should really look into how to vet that because there are some really shady operations out there.

Scott:
Yeah. I have no opinion of Navicore coming into this show or any of these consolidators with that. So I’m just learning here and maybe that would be a good thing to study. And if anybody knows an expert, let’s get them on the show and we can talk about that as an option for folks.

Mindy:
Yeah, that’s a good idea. Okay. And I’m going to post this question in the Facebook group when this show comes out. And just ask how do you vet a debt consolidation company? Because there seems to be a lot of need for oversight in that field and it seems like there just isn’t.

Karen:
For sure.

Scott:
Karen, you obviously can’t plan for what happened to you and your family in this period of time. But if you could go back and give advice to yourself in that period, maybe when you’re 30, 31, get married, and think about starting a family, what would you say?
Are there some things that you, knowing what you know now, you might have been able to do to other folks families in the event that the unfortunate happens and they have to go through something similar?

Karen:
Absolutely. And I just want to say 26% of adults in the US are disabled or have some kind of a disability. And accidents happen all the time. So, at some point in your life as an adult, you probably are going to become disabled or somebody in your family will, at least like short-term disability. I would say flexibility is key.
So, if I think back to what I did for my kids, I opened up the eTrade accounts and I opened them up as minor accounts, I would have changed them to trust. Now, my older son does have a special needs trust. My younger son does not. My stepson did not. What happened, 90% of portfolios of Apple purchased at a price of $4 in the year 2002, so I looked it up.
So, the gain on that is over 33,000%. So they’re going okay. My younger son knows the time value of money and he knows he doesn’t have to, “I don’t want to work for the man, Mom. I’m going to do my YouTube.” And I was like, “You are.” But my stepson, when he turned 21, he cashed it out. It’s gone.
How do I have this in a trust? We could have set that age at 25, 30 or something else. My younger son is a lot mature. So that was a mistake to put it in as a minor account. The other mistake I made was the 529.

Mindy:
Hold on. Before we jump into the 529, let’s clarify again. The mistake that you made was not putting it into a trust. You just put it into a minor account which is in their name so when they turn 18, 21, they could just take all of it. Okay. So, how old is your oldest son?

Karen:
So my older son is 19. My younger son is 18.

Mindy:
Okay. So 19 and 18 and they have Apple from 2002.

Karen:
Yes, from 2002 and 2003, a lot.

Scott:
And did you say one of them has already cashed out or do you think that they’re going to cash out?

Karen:
When I got married, my stepson was 10. We did the same thing for him. He cashed out. He turned 21. I think that day, that money was gone and he bought a car. And I don’t know. It’s gone. My younger son, he does a lot of individual stocks. He picks his own stats. He has from a very young age.
He’s really smart about it. And he’s not a spender at all. He has a lot of good habits. My older son is 19. Like I said, he has autism. On the spectrum, he’s lower functioning. So he just became potty-trained at 18. He doesn’t communicate well. He’s verbal but doesn’t communicate well. And he probably will never be independent.
So the 529s, again, when my son was a baby, I have no way of knowing what their outcomes are going to be, that he was going to have autism or whatever. So I bought the 529s. And I went with College Illinois. We live in Illinois but I did look at all the state plans. And College Illinois is a prepaid plan, meaning you pay for so many semesters and you can pay for a semester at a state school or you can pay for a semester at a private college.
And you pay the price at that time. So in 2003, you’re locked into that price. And then, when your child graduates, you’ve paid for at semesters. Now, my older son is not going to go to college, ever. That money can only be used for tuition or education expenses.
And now, my younger son sees his eTrade account and doesn’t want to work for the man. I mean, he’s going to junior college now just because he wants to run across country but he’s not … I don’t know. I mean, I’ve encouraged him to go to … we can use it for coding bootcamp. “I am locked in. Now, can I get that money out?”
They have 10 years to use it. So, if he changes his mind 10 years and wants to go to a university, that money is there, I can transfer my older son’s to me younger. I can do those things. I can take it out. Only, I can take out what I’ve invested in it in 2003 which sucks. You know what I mean? Not that gaining the whole time. See what I mean?
I mean, of course, I thought my kids were going to go to college and this was a great idea. But I could have invested that on my own, Mindy and Scott, and Ben so much further ahead. My son could buy a house with it or he could go to college. There’s just so much more flexibility. I think in hindsight, the 529s are too …

Scott:
So, what I’m hearing you say is what you would have done is either put the money into a trust that you could have a lot more control over and invest the money on your children’s behalves or invest it yourself in some other type of plan or some other type of investment that then you could have used the equity or cash flow from that to then fund the educations or give to your children, those types of things. Is that …

Karen:
Yes, absolutely.

Scott:
That’s really interesting in saying, “Hey, there’s one outcome that I can do with this account. I can really pigeonhole a lot of things.” Experts have thought about like HSAs for example because they have a similar type of thing with that even though they’re … we’ve talked about them as such a powerful account. Is there a similar type of risk that you’re running by having too much of your wealth in an HSA with that?

Mindy:
That’s a good question, Scott, because I know that it’s only for medical expenses. But the definition of medical expenses is really broad like Band-Aids are a medical expense and contact solution is a medical expense. So, you can buy a lot of things with your HSA money. It also grows tax free. You can pull it out tax free.
And as you get older, you can still use it. I think when you get to 59-and-a-half, you could just pull it out for anything.

Karen:
Yes, that’s true.

Mindy:
So, I think it’s a lot less restrictive than the 529 plan. But I also had no idea that the 529 plan was so restrictive. On the surface, it makes sense because you see college prices going up and up and up and you buy them, like you said, when he’s a baby and you don’t know …

Karen:
Yeah. It does depend on your plan. So, College Illinois, like I said, was prepaid so you pay the price for a semester, either a private school or public school at that time. And that’s what I did. So, yes, they’re transferable. I know this. Yes, I have 10 years. And yes, I know I can take it out and just recoup the original investment 20 years ago.
I do know this but …

Mindy:
Better than nothing. But yeah, we’re here to prevent people from making these same …

Karen:
And I mean, regardless of my son wasn’t disabled, I mean, there’s nothing to say that he would have wanted to go to college either.

Mindy:
Yeah. Right now, my older daughter wants to and my younger daughter is like, “Nope, I’m not even going to work.” I’m like, “That’s not how finance …

Scott:
I thought she’s going to retire from school?

Mindy:
Yeah. She wants to. I’m financially independent, sweetheart, you’re not. That’s my money.

Scott:
Let me ask you this, backing up as well. Would you have any advice around insurance or anything like that as well on those friends as you got married and had your kids?

Karen:
Absolutely. I mean, we did get insurance early. And I would say that it’s always going to be cheaper when you’re younger. The longer you wait, the more expensive insurance is going to be. And I’m thankful we had the insurance that we had. I wish we had more. But yes.
And I’ve used I’ve used Policygenius. They’re fantastic. Quotewizard is good, too. Quotewizard I think is LendingTree but I’ve use Policygenius and they do all the work for you. And it’s super, super easy to get additional policies for myself.

Scott:
One of your son, your older son, has autism with that, how do you handle insurance today with his situation?

Karen:
I’m not sure I understand the question. How I handle it? So we have guardianship of him. We have guardianship of him. And he’s covered through my employer benefits through the age of 26.

Mindy:
And then what happens after 26?

Karen:
That’s a very good question.

Mindy:
Because if you have guardianship, I thought legal guardianship meant something different with regards to insurance, although I only know enough to be dangerous. I don’t know …

Karen:
It does. And I did know this but I’m not exactly sure. I’m not sure how much longer he can be covered given that we do have legal guardianship of him. I haven’t looked into that yet on, unfortunately. He’ll get social security and Medicare as well at some point.

Scott:
Let’s go back to the … I think we picked up the story around three to five years following your husband’s accident. And you’re beginning to consolidate your debt. And things are improving in your household and all that kind of stuff. How did the story progress from there, the financial journey?

Karen:
Yeah. So that’s when I really started doing all the things. The Novadebt situation was humiliating, I guess you could say. I’m a really private person. And I had a lot of anxiety about coming on the podcast. But I think it’s an opportunity to help people.

Scott:
Yeah, thank you. This has already I think been so helpful to a lot of people. I bet you, a lot of people haven’t thought about the possibility that something like what’s happened to you guys could happen to them. There may be other folks that are experiencing parts of that. And I think this is going to be really valuable. So, thank you so much for coming on.

Karen:
That’s when the behaviors really changed. Things really clicked. That’s when I started maxing out the 401(k), not just to the match, but just maxing out everything. That’s when I really clamped down on the spending and took a look at … I started tracking, just tracking.
It’s like when you track your calories and you’re like, “Holy crap, look at all what I’m eating. How can I do that?” Same thing with the spending, you’re tracking it and not really doing anything with it, just like tracking it. It was quite an eye opener. And that’s when things really changed around here, in our household, I would say.
And again, super fortunate to work for great companies that I have like Cisco and Box and Microsoft. And I know I’m very fortunate. And so, it was easier to dig out of that hole and turn things around.

Scott:
So, same question asked earlier, was this a process or an event that changed things for your household? Was there an event that triggered it? How did that work? What was the change?

Karen:
Yeah. I think really the event was … I think a low was the Novadebt. And just conceding that I need help, I just need help getting out of this situation. I’m not going to be able to do it by myself. And it was a process. After that, it was a process.
And I think just seeing that … it wasn’t even like day over day or month over month, but year over year getting out of that hole and making progress. It just incented you to do more. And start listening to podcasts, reading more books, doing all the things. Leveraging the vehicles like the HSA. That all came over time. It wasn’t a single event. It was a learning process for me.

Scott:
And what did that look like for you? Well, first of all, what year did you consolidate the debt?

Karen:
2007.

Scott:
How would you peg your net worth around that time?

Karen:
Probably negative $150k.

Scott:
Negative $150. And that’s when you consolidated. And from there, how did things proceed over the next couple of years until … what’s kind of another milestone that you …

Karen:
Sure. While we’re paying off the Novadebt, and I say me because my husband, if I pull out a spreadsheet or talk about finances, he just glazes over. As I’m paying off the debt consolidation, my husband’s getting his driver’s license.
Now, when you got a vehicle, it’s accessible with hand controls which are insanely expensive. And he needs a power wheelchair which is insanely expensive. So we still have to buy the things that we need. So, it was very, very slow progress.
And then, once the Novadebt was paid off, and that took maybe two-and-a-half, three years, then that’s when things really, really kicked in. So, the spending as far as the fun spending, the shopping and the trips, that stopped. But that was replaced with improvements to the home, accessible vehicles, power wheelchair, medical bills.
So, it took probably a good 10 years to really feel like now we’re able to save. We’re realizing we don’t have any credit card debt. We don’t have any car payments.

Scott:
So that’s around 2015, ’16, ’17.

Karen:
Yes, I would say probably 2017.

Scott:
How are things at 20 … I mean, we’re skipping over large swathes of time so we’ll come back and go over any of that. But how do things look at that point? What is the financial position around that milestone?

Karen:
Right. So, debt consolidation is gone. We have the mortgage on the … our primary mortgage. We have three car payments and small credit card debt that’s usually paid off every month.

Scott:
And what was the goal at that point? Did your financial goals or thought processes change at that point?

Karen:
Yes. The goals then became, I guess, more motivating because it wasn’t just get out of this big debt hole, but it’s pay off my car, pay off race car. So, something more, I guess, tangible that something you felt better about, that then we could move into our asset column, if you will.
So, that was the plan and we did that. Once a year, we paid off each of the three cars. That takes us to 2020. I think we paid off my car maybe in 2019. So, all the cars are paid off. No credit card debt or very low credit card debt, it’s monthly. Savings, we have a nice solid savings.
And again, I’m maxing out 401(k). I’m over 50 so I get the extra for the late bloomers and need to catch up. I’m doing that. And so here’s the goal for me. And I’m a little obsessed about this now. I have peers and I love them. And we’re so fortunate and they’re buying vacation homes and they’re doing all this.
I’m working for my son because he’s never going to be independent. And I want him to have a good quality of life. And unfortunately, in this country, good care costs a lot of money. And so, that’s what I’m working for. I’m not working for my retirement. I could retire today. I’m working so he has a good quality of life and he’s well taken care of. And I don’t know how much money that’s going to take. So I’m a little obsessed about that.

Scott:
Well, I think that is an awesome goal. And I think that it is tough that that’s the reality of that. But I think we can help a lot of people I think by going into that and saying like, “What are the uncertainties around that? What are some of the basic things that you’ve discovered so far?”
More is always better but how do you begin to approach that problem of setting up finances for a dependent like in your situation? I think that’s a great topic if we can go into that and learn from you about what you’re doing there.

Karen:
Yeah. So we set up the special needs trust. And now, any gifting that our families do, they should write … instead of writing a check to my son, they write it to the trust. He will have an ABLE account.

Scott:
And how does that work? Can we just go to the very, very basics of that? Why that particular instrument? How does that work? What are the advantages there? And what comes with that?

Karen:
Yeah. I’m not an expert but there are tax benefits to having an interest. There’s also how it’s dispersed. And the big one is the taxes. And then, it won’t factor into those government benefits. So, he’s still be able to get full government benefits and social security and all that. And they won’t look at that as an asset that he has, like his asset, it’s a trust.

Scott:
So, it’s similar to you can defer it or not pay taxes on it like a 401(k). And then the disbursements, will those be income to your son in the future?

Karen:
I believe so, yes. And they’re used for certain things. So I have an ABLE account for his housing and that. And then this is used anything toward his care. So, whether it’d be medical or clothing or anything that he needs for his care will all come out of the trust.

Mindy:
And is his trust comprised of the same Apple stock from 2002? Or is that a separate eTrade account for him?

Karen:
No, it’s all the same. It’s all together now. And then, we have discovered if our family gives him anything, I have a high-yield savings account that’s a trust account. And his special needs trusting, that’s where that goes. So I’m not touching. And to be clear, none of those will, I guess, go into a factor until my husband and I pass away.
So we’re paying all of his financial care now, of course, but this is like legacy, a legacy.

Scott:
Okay. And do you manage the investments in this?

Karen:
I do. Again, I don’t touch them but I made the investments 20 years ago. And like I said, I love tech. It’s what I know. And so, it’s Apple, it’s Amazon, it’s Microsoft, and they did really well. And I didn’t buy any for me but I did for my kids, for my boys. But yeah, it’s just done extremely, extremely well.

Scott:
That’s great.

Mindy:
Did you buy Amazon way back then, too?

Karen:
Yes. Not as much. It was heavy Apple. PayPal, eBay.

Scott:
That’s great.

Karen:
But now my son, starting when he was about eight or nine, he started making his own investments. And he was super smart. So he has an EpiPen. He’s like, “Mom, who makes the EpiPens? Is that Merck or Pfizer? I think we need to invest in Merck or Pfizer,” as a nine-year-old. And so, he’s picked some pretty good stats too like Roblox, what the kids like but I let him pick his own stuff.

Mindy:
That’s brilliant on his part.

Scott:
What are some of the expenses that go along … what does good quality of life and care look like for someone like your son? How do you go about thinking through that and the cost of that?

Karen:
Of course. Right now, our school district pays for his education and his therapists and his one-on-one aides and everything. So we won’t have to worry about that till he turns 22. He will need 24/7 care. He will need supervision. And that’s going to be probably the largest expense, that and his housing.
Yeah, he just needs a lot of therapy. So, just the day-to-day reinforcement of regular hygiene and how you clean up after yourself. And we cook with him a little bit but it’s not safe. He’ll never be able to be independent and be safe I guess you could say.

Scott:
And how does one think through how much that might cost on an annual basis or something like that? I know I’m asking tough questions. I’ve just wondered if these are …

Karen:
Yes. So the short answer is and for the … if you don’t have means, I think there’s always government programs. The problem with those are I think they’re overcrowded, I think they’re not realistic as far as how many people in the future are going to need that kind of support. And again, unfortunately in this country, the level of care really equates to dollars.
We’re looking into different states where we could live and where the best quality of services are. It might not be in Illinois, probably not in Illinois. But yeah, it depends and it varies greatly. And so, that’s why I’m over-insured. And I don’t think you can estimate it, Scott. That’s a tough one.

Scott:
No, absolutely.

Mindy:
For someone who’s listening to this, they might just be starting this journey, where can they start looking? Where did you start looking?

Karen:
For what specifically, Mindy?

Mindy:
For legacy care, because not everybody is going to be able to go back to 2002 and invest in Apple.

Karen:
This is very, very important. I would say anybody who’s going through any kind of a crossroads, please get professional advice and surround yourself with professional help. So, never, never, never make a decision under stress or duress. Never, never.
And my go-to people are my family, great advice, but they’re completely out of their element to help me. It’s not a good outcome. Also, for trust situation, make sure you get someone who specializes specifically in trust if it’s special needs trust, specifically special needs trust. Do not go to your family attorney because they’re not … you could get well intended but misinformation and it could really be harmful in the long run. You might not get the asset protection that you think you’re getting if it’s not set up properly.

Scott:
It sounds like a family attorney who specializes in special needs? Is that how I would describe this person? Or how would you articulate the professional you need?

Karen:
Right. Someone who is expert in setting up special needs trust?

Scott:
And would that be a lawyer or a CPA?

Karen:
It would be an attorney. No, it would be very an attorney. For sure, it would be an attorney. So, you might also have a financial advisor that also focuses on legacy gifting and special needs or estate planning. And that could partner with, but I would say beyond just a typical estate planning attorney, a special needs trust attorney is best.
If you don’t know where to turn for that, you can … if you have a local chapter of the Autism Society of America, every state has a chapter, you can contact them for resources or Easterseals. And they have resources and references they can pass on to you.

Scott:
This is phenomenal advice. Thank you. I think a lot of people are going to be overwhelmed about even where to begin looking for those recommendations with that. But that’s a really good place I think to start that search there.
And I think it is great advice. These are all huge, high-stakes decisions, and you’ve got to be able to know not only do I want access here, here, here, but also which type of trust and how to set that up for my dependent on that.

Karen:
Yeah.

Mindy:
Yeah. I did a quick Google search and just special needs trust and a bunch of things came up. So, it looks like there is a lot of information online if you find yourself in this position. I think that’s great advice. Never make a decision under stress or duress and talk to people who can help you make a smart decision.
I will say that attorneys vary in level of competency and level of communication skills, so talk to a couple. If you talk to someone and they make you feel bad or you don’t like the way they communicate, find somebody else. Get somebody that you think is going to represent your interest as well.

Scott:
How about this for another … I know I’m throwing a lot of tough questions your way so thank you for all of this. But how do you make the decision between where and when and the art of how much to contribute for personal retirement versus into your son’s trust with these things? How did you handle that and what would you think a framework for other people thinking about that might be?

Karen:
Yeah. So, my son’s trust currently what is funded there right now, and normally, a trust isn’t funded until after death. This is important. Ours is just because he had this eTrade account. And so, we converted it from a minor account to a trust account. That’s the only reason there’s assets in it. But typically, you wouldn’t have assets in a trust account until after death, in my understanding.
So, I invested that 20 years ago, Scott, and let it ride. I never touched it. Never. And then, I just maxed out my 401(k) for my retirement. But again, I’m just going to keep working as long as I can and I’m letting that ride, too. And I think that, eventually, I will use that but I just max it out. I’ll use that for retirement whenever I get around to retiring. And then my life insurance will further fund my son’s trust.

Scott:
I see. So, you’re really thinking about it differently. You’re just saying, “I’m going to maximize my personal net worth as much as I can.” And that will go into the trust. And that’s really the essence of the strategies. That actually makes it very simple in some ways around the approach there.

Karen:
Yeah.

Scott:
Okay. So that wasn’t a tough question. But thank you. I wasn’t aware of that context.

Karen:
No worries.

Scott:
Awesome. What else do you think we should be asking you about or that might be some important topics to touch on?

Karen:
Let’s see. Well, I think for somebody just starting, I took a while to get started with investing. I did pick single stocks myself and I got pretty lucky. But I know we talked about when you invest and for fee advisors and things like that, I would say start out like take baby steps and incrementally get better.
So I go with an Edward Jones or somebody that’s going to have for fee and let them put everything in place, then you can transition everything away and manage things yourself. It’s okay to get started but just get started. I would say it took me a while and was later in life. And again, I’m fortunate that I was able to turn things around. But I wish I had started things sooner, I guess.
I know you hear that all the time, “I wish I invested sooner. I wish I maxed out my 401(k) sooner.” That time, you can’t get it back.

Mindy:
That’s so powerful. You can’t get that time back. Let me quote that.

Scott:
I think that’s the deal. It’s time and the compounding and rate of return and how much you put in, how early you do it.

Karen:
And then just the flexibility, just having the control and flexibility. Most people aren’t going to find themselves in a situation where they have … I mean, my situation is quite rare. But everybody is going to face soon or later some kind of a hurdle and obstacle. And I just think that flexibility is key.

Scott:
Hey, Karen, what is your job right now?

Karen:
Yeah. I am a technical director at Microsoft. I have a team of technical specialists report to me in state and local government and the focus on teams and intelligence. So, that’s where I’m at right now.

Scott:
Well, thank you. It sounds like an awesome career. And it sounds like you’re doing very well on the career front with all that kind of stuff and obviously been very successful there. Well, let’s move on to the Famous Four if we’re feeling good about a lot of these things. We’re ready for that?

Karen:
I’m ready.

Mindy:
Okay. Karen, what is your favorite finance book?

Karen:
Okay. So, my favorite … I don’t know it’s my favorite. The first one I started with, I think I mentioned Millionaire Next Door. That’s when things started clicking and that was maybe in the year 2000.
But one I love that’s recent is Never Split the Difference by Chris Voss. I love that book. And I call it a finance book because really, it’s like the art of negotiating so your life depends on it and how to negotiate like the price of buying a car. And I think that’s just fantastic. So that’s my new favorite, I guess.

Scott:
We actually had Chris Voss on the BiggerPockets Real Estate Show back in the day. I know this because I was the guest interviewee on that one. So, I’ll find the episode number here in a second here. But what was your biggest money mistake?

Karen:
Overspending, overspending and not maxing out my 401(k)s earlier. That’s boring but that’s the answer.

Mindy:
Yeah. We hear that a lot. Scott, that was Episode 260 of the BiggerPockets Real Estate Podcast.

Scott:
Thank you.

Mindy:
The Chris Voss’ Episode. Karen, what is your best piece of advice for people who are just starting out?

Karen:
Yeah. Think about the flexibility. Like I said, don’t get locked into something that is too restrictive like a 529 or a minor account, just it’s too constraining. Think about that flexibility and how you can control your money.

Scott:
I love it. Now, you’re making a lifetime decision that is impacting your life and somebody else’s with those types of things. You got to have control or get committed with that.

Karen:
And don’t make it under severe stress or duress. Get advisors to help you with those big decisions because sometimes it can be overwhelming.

Scott:
What is your favorite joke to tell at parties?

Karen:
Okay. All right, this one I feel a little dated. And it’s like, “Why did the Terminator upgrade to Windows 10?” “Why,” I asked him and he said, “I still love Vista, baby.”

Scott:
That’s awesome.

Karen:
[crosstalk 00:56:04] to Microsoft crowd, okay?

Scott:
That is fantastic.

Mindy:
My husband was Microsoft Certified for something for a long time. So, I know all those jokes. I haven’t heard that one, though. That’s awesome. Okay, Karen, do you have anything that you want to promote? Where can people find out more about you?

Karen:
Okay. My website, karenferrero.com. I’m at Twitter @karenferrero and LinkedIn @karenferrero. And anybody who is going through a tough situation or wants some advice, either career advice, getting into tech or going through some kind of a hard time, I am completely open and you can contact me directly.

Scott:
Awesome. We’ll link to those in the show notes here at biggerpockets.com/moneyshow233.

Mindy:
Yeah, that’s awesome. That’s a very generous offer. Thank you, Karen. This was really, really good. This was so helpful. I know there are people listening who are contemplating, balancing out financial independence with known medical expenses or known expenses outside of the little five bubble.
And I think you’ve given people a lot of things to think about. I certainly learned a lot. And I’m sure you will hear me referring to this episode in future episodes, “Oh, you should listen to Karen Ferrero, Episode 233 because she talks about special needs trusts.” I didn’t even know that was something that existed. So thank you so much for sharing with us today. This was really, really great.

Karen:
Thank you.

Scott:
Yeah, thank you.

Mindy:
And we will talk to you soon.

Karen:
Okay. Sounds good. Thank you so much.

Mindy:
Thank you. Okay. That was Karen Ferrero. And holy cow does she have an awesome story. I want to highlight the one thing she said. She said, “If we didn’t have the means to do this, I would have had to declare bankruptcy.” And unfortunately in America where our health insurance is tied to our job, if you don’t have really great health insurance and you have this big old curveball coming at you, you could be medically bankrupt, medical bill bankrupt.
And I mean, her husband’s medical bills, easily in the hundreds of thousands of dollars. Her son’s medical bills, also easily in the hundreds of thousands of dollars, and to be able to weather this storm. This is why you strive to be financially independent. So, things like this, curveballs like this don’t just completely derail your entire life forever.

Scott:
Yeah. I think financial independence, even if the worst happens and life throws you a couple of curveballs that are going to set you back significantly, it’s better to have the assets and the income from what would have been financial independence to help weather those storms than to not have them.
So, financial independence in addition to being a great angle that can make your life really, really wonderful in a lot of ways, it also is in itself a big insurance, a big insurance fund. So it’s worth pursuing for a number of reasons.

Mindy:
Right, exactly. You know what, I’m going to highlight that, Scott. It’s worth pursuing for a number of reasons. It isn’t just so you can quit your job. It’s so that you don’t have to always be focused on money. You can open up your mind and think about other things.

Scott:
Absolutely.

Mindy:
Okay. Scott, we ran a little bit long today. So, should we get out of here?

Scott:
Let’s do it.

Mindy:
From Episode 233 of the BiggerPockets Money Podcast, he is Scott Trench and I am Mindy Jensen saying put on your cape and escape, ape.

 

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In This Episode We Cover

  • How to plan for when life changes your course by force
  • The importance of having good insurance when you’re young 
  • Why you should always take advantage of the 401(k) match when presented to you
  • Investing as early as you can to capitalize on massive gains
  • Why you should put education accounts in a trust
  • The extra costs that come with taking care of special needs family members
  • And So Much More!

Links from the Show

Books Mentioned from the Show

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