BiggerPockets Money Podcast

BiggerPockets Money Podcast 162: Finance Friday: High Salary – But Nothing to Show For It. Cutting Unnecessary Expenses with Engineer Tracy

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As you go further along in your career, you should (hopefully) make more and more money, but does that justify spending more money? Most times, it doesn’t. We’re joined by Tracy, experienced engineer and retirement super saver to go through her budget, expenses, and investment portfolio.

Tracy has had a bit of a struggle with spending and expense tracking. A purchase here, some grocery shopping there, and by the time she added up her payments, she was consistently overspending by close to a thousand dollars, every month! Scott and Mindy have some great strategies to limit this type of random spending, and put your budget in the driver’s seat!

Tracy is also interested in acquiring a rental property in mid/late 2021, but she doesn’t have the cash savings she needs to do it. That doesn’t mean Tracy lacks money. Quite the contrary, Tracy has a very respectable amount of money stored between her different retirement accounts. She was lucky enough to take advantage of her company’s 15% 401(k) match (seriously, 15%)!

Now the question is: does she limit her contributions so she can save up for a rental property or does she continue to max out her retirement accounts so she has a big cushion when she decides to stop working?

This is a very common question we get from listeners and members of the BiggerPockets community. You may be in the exact same position, all we can suggest is to tune in to hear what Mindy and Scott have to say!

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Mindy:
Welcome to the BiggerPockets Money podcast show number 162, Finance Friday edition, where we interview Tracy and talk about reining in spending.

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Tracy:
And honestly guys, I did not just have this knock the ball out of the park year in terms of savings because every other day the boxes are showing up at the door from Amazon with something, from Target with something. So as much as I would like to have thought that this year of any other years would have been the year that I could save, it really put a mirror up to my spending habits. Because even sitting at home I did not just pile up and stack up lots of money in cash.

Mindy:
Hello, hello, hello. My Name is Mindy Jensen and with me as always is my coming in with the record of four and nine, definitely not the champion of the office fantasy football league, cohost, Scott Trench. Who’s going over … You need to watch this on YouTube because he’s going over to get his big world champion … Undisputed champion. Except on of the BiggerPockets fantasy football league Scott.

Scott:
This if from 2019’s fantasy football season so I will be relinquishing both this belt in my league with my rugby friends and obviously came in close to last in our office pool. So not such a great year for fantasy football this year but thank you for pointing that out Mindy.

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 financial freedom is attainable for everyone no matter when or where you're starting.

Scott:
Whether you want to retire early and travel the world, go on to make big time investments in assets like real estates, start your own business or simply begin building a little bit of wealth outside of just your home equity and retirement accounts, we'll help you reach your financial goals and get money out of the way so that you can launch yourself towards your dreams.

Mindy:
Scott, I am so excited for today’s episode because Tracy is I think experiencing a problem that a lot of people have. She’s a high income earner. She’s living in a low to middle cost of living area so she should be crushing it but her spending is a little bit out of control. And the reason that I say a lot of people can relate to it is she’s not spending $25,000 at a time. She’s spending $100 at a time, $150 at a time. And when you make the salary that she’s making, why would you even bother checking that one expense? Well, it’s not the one expense, it’s the one expense that happens multiple times a day or multiple times a week that is really starting to drain her cash accumulation activities. So I just think that there’s a lot of people in her situation that are doing the same thing.

Scott:
Yeah. I think the consequence of doing it the way that Tracy's done it … And by the way, let's take a step back and say Tracy's doing great. She's got the income. She's got a net worth … I think we peg it at $800,000. Very strong retirement account. Lots of things going right. It's just kind of again, a classic example of this problem of a person who seems like they're doing really well on paper but all their wealth is in their retirement account or their home equity and they just don't have a lot of the cash available to do investments like real estate or to have liquidity for a business opportunity or to otherwise have opportunistically available and feel like there's an abundance of money in the here and now. And so that is the problem that I think we're tackling with this episode. And I think the root cause is once that money hits your bank account, if you don't automate or have a plan for that money right away, it's just going to flow through your position unless you're controlling it and again, being very intentional about that cash. And that's what we talk about today.
I think Mindy really has the meat of the tips on how to manage those kinds of decisions here so thank you.

Mindy:
Yeah. I’m not going to suggest some fancy dancy app or newfangled techno gadget. I am going to go way back old school and suggest an old fashioned pen and paper to help Tracy out. I think that’s going to be hugely helpful for her because it was hugely helpful for me when I did it. It can be a longterm solution but it could also just be really, really eye opening short term that leads to something else that’s more convenient for you.
Before we bring in Tracy, Scott, I do need to tell you because my attorney makes me, the contents of this podcast are informational in nature and are not legal or tax advice and neither Scott nor I, nor BiggerPockets is engaged in the prevision 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. That good Scott? That cover the bases?

Scott:
That was great. I think we really covered ourselves. Now let’s go talk to Tracy about money.

Mindy:
Tracy, welcome to the BiggerPockets Money Podcast Finance Review. I am super excited for you to come on the show today.

Tracy:
Yes. I’m excited to be here.

Mindy:
Tracy is a single woman in her late 30s with an impressive six figure salary in a low cost of living area. Her retirement accounts are going to make you drool because she has an impressive 15% company match so it has a very healthy balance. Why is Tracy here today? Expenses. Tracy’s expenses are just about equal to her salary so today we’re going to talk about cutting spending. Tracy, I am super excited about your story because I can totally relate to it and I would like you to share with our listeners a little bit of your background. Your salary, your expenses, your debts, your investments, that sort of thing. Let’s start with salary.

Tracy:
Yeah. So with salary I make over 150,000 a year. I’m an engineer and so in that range there.

Scott:
Wow. Yeah.

Mindy:
So you got that down, check. Okay, now let’s look-

Scott:
Is that between base and bonus or is that combined or is that just the base salary?

Tracy:
That’s base because bonus can vary. Bonus can be for the range that I’m in, 15% or more annually. But in years like this year our company has said that’s going to be zero. Coming up. So I don’t really count it. So yeah, just base salary is in the range of over 150.

Scott:
Awesome. So how much would you say … What does that translate to per month in take home pay after taxes would you say?

Tracy:
I always struggled with the term take home because I’m like do I count deductions that I choose to have like 401K? But if we talk about literally just what I let hit my bank account and not including the things that I have taken out like company stock options and things that I don’t have to have taken out but that I choose to, I personally see about $8,000 a month.

Scott:
Great. So that means that you’re investing very heavily in some really smart matching programs and the stock purchase programs because what that tells me is that you’re taking out a lot of that paycheck for longterm investment with the company.

Tracy:
Yeah. As Mindy alluded to, my company is very generous with 401K. They do an automatic 10%. It’s not a match. It’s whether you put in a dime or not. It’s like we’re going to invest that in you. So it was on a scale. So my first five years it was two and a half percent and then the next five years, years five to 10, was 5%. And then once you reach 10 years of service all the way through until you’re no longer with the company, it’s an automatic 10.

Scott:
So they’re dumping 10% into your account before you even get to the match. Is that what I’m hearing?

Tracy:
Before you even decide to put in a dime yourself.

Scott:
Awesome. Great perk.

Tracy:
They’re putting 10% in.

Mindy:
Wow. I think BiggerPockets should do that too Scott.

Scott:
Yeah, that sounds like a great perk.

Tracy:
And then in addition to that I personally, when I first stared out from day one, was doing 10% and then I eventually increased. I would say probably the last three or four years I’ve been doing the whole 19,000 and then what became 19,500 and then what would be 20,000 I think in 2021 so I’ve been maxing out the 401K for the last probably three or four years and prior to that I was just in addition to the 10 the company was putting in, I was also putting in 10%.

Scott:
So you’re getting 15,000 from your employer just dumping into your account. There’s no match or anything like that. Then you’re putting 19,000 in. Is there a match on top of that as well?

Tracy:
No. So then that’s it. So that’s the total that goes in each year. So there were years on average I was close to $35,000 being put into my 401K.

Scott:
That’s fantastic.

Mindy:
Wow.

Scott:
That’s got to have done very well especially in the last couple of years. Now, do you know how that … How are you investing that within the 401K? Do you have an index fund option or something like that?

Tracy:
I do. My company actually … I say used to because unfortunately they just pulled most of them. But they used to have a very generous amount of mutual funds and index funds to choose from. And so I have a financial advisor who was taking advantage of that and using their expertise to diversify my portfolio using the options that we had and it was well over 100 options. But just this year they decided to pull back the number of options they offer. So my portfolio look a little bit different. But yeah, I’ve outpaced those, what they call those freedom funds where it says if you plan to retire in 2050 this portfolio will work for you. My portfolio, I think when I looked year to date this week, I think I was up at about 27% year to date.

Scott:
Great. Not only do you have a lot of money in that account but you’re doing really well within that account in terms of investing as well.

Tracy:
Yeah. Shout out to my advisor. He’s done very well by me. I’ve been working with him for over 10 years now and have no complaints.

Scott:
Awesome.

Mindy:
That kind of growth you really can’t argue with. That’s pretty nice.

Tracy:
I’ve probably more than doubled my account since I’ve been working with him. I know I have. In that amount of time.

Scott:
Well, since we’re also talking about assets here, what other assets do you have? Do you have a home, cash accounts or any investments outside of the 401K?

Tracy:
Yeah. The 401K right now is my main asset. And so when I look at my net worth it feels impressive but it’s not really my net worth until I’m 59 and a half. So outside of my 401k, which currently the balance is sitting at around 690,000-ish. So in that range. It depends on the day obviously. I have equity in my home. In the townhouse that I purchased, I did the whole 20% down and I’ve been there just under two years. So I would say based as what the market says my house is worth and I have, I have probably about $65,000, $70,000 worth of equity in my home. And then in terms of other stock options … My company also offers a stock purchase option where you are able to put in, I’ll just say for round numbers, $7,000 a year into your company stock. And then with that amount they’ll give you a 15% discount the first week of January. Unfortunately I let that money sit over the years. I say unfortunately because this year has not been good to my industry. So a portfolio that would normally be worth probably about 20,000 is only worth about 11 right now in terms of stocks. And then I have about another 10,000 or so in stocks.
So in addition to about the $70,000 in my home, the 401K account, I have about $20,000 just in stocks. I have some Apple. I’ve been playing around in the market. I have some really awesome friends who have really gotten into this this summer. Like we’ve kind of used COVID as an opportunity to really learn more about trading and investing and so they’ve really just been just a great circle for me and bouncing off ideas with them. And so I’ve played around in that space. So with that about 20,000. And then in terms of cash, I have about another 15,000.

Scott:
Awesome. This is a really good strong position. I love it. I love how the majority of your net worth is invested over the long run under the guidance of a financial advisor. Personally, I just use index funds but I think that approach is wonderful with your financial advisor with that. And you’re also … I think that while there’s this discussion about playing around in the stock market and whether that’s a good return or not, it sounds like … I think it’s a wonderful approach with the relatively in this case small amount of money that you’re using with those types of things. And I think that it’s a really good way to keep motivated and interested and you can definitely potentially generate some good returns if you find it an engaging hobby there. So I think your asset distribution is actually really strong in a lot of ways. But one thing I want to note is that you don’t really have as a percentage a lot of wealth outside of your home equity and retirement accounts which is a very, very common situation that a lot of folks find themselves in. And something that can be … Just maybe doesn’t feel like you’re doing as well as you are on paper sometimes.
What do you think? Is that-

Tracy:
That’s literally what drove me to write you guys. So when I saw Mindy’s Facebook post saying, “Hey, would you be interested?” That is what drive me here. Is I’ve been telling her I’m beating myself up because I see … I’m not in anyone else’s bank account obviously so I don’t know what my friends have but I have that game where you compare yourself to where you think other people are. And so I’m constantly feeling behind the eight ball. I’m seeing the opportunities that my friends are able to capture because they do have cash on hand and things like that and just feeling like I’m at this age, I’m almost 40 and I just feel like I don’t have the cash that I should have bases the salary that I make. And so that’s the part where I find myself constantly beating myself up is definitely over feeling like I should have more cash to jump on investments more quickly as other that I know are able to do because of the cash on hand.

Scott:
I wouldn’t beat yourself up too much. You’re pretty rich so things are going pretty well. You’ve made a lot of really good decisions with these types of things. But yeah, I think that that’s something that struck me when I was kind of starting on this journey was I think that there’s a power that comes and a control that comes with building some wealth in those other accounts that this concept I like to call financial runway. That readily accessible wealth that’s specifically not in retirement accounts or home equity that enables you to have many more of those options in those types of things so that you can realize that power in three, four, five years rather than in 15, 20 years at the age of traditional retirement. So is that kind of the goal is to kind of think about how to, in addition to maintaining some of the great things you’re already doing, begin building that excess runway or wealth outside of that home equity and retirement account?

Tracy:
Yeah, that’s definitely it. Like I said, I have been very blessed and fortunate to just throughout … From friends from high school all the way through college and those that I’ve made in my career, just surrounding myself with women who are driven in that space. We talk a lot about residual income and we have a lot of conversations about having diverse portfolios and now the whole fire model and concept comes into conversations that my friends and I have. And so it’s just really saying to myself … I have a friend who will say, I have enough rental income … I have actually multiple friends who have enough rental income from investments to cover their normal monthly expenses. So they’re nine to five paycheck, they’re able to build that to get more investments. That’s the type of goals that I’m looking for when you’re talking about how to build outside of the longer term savings. I’m looking for having enough residual income to where I could replace the money that I bring home on a monthly basis would be awesome. And then being able to use my income to then just build even more.

Scott:
Love it. So to me the elephant in the room is you’ve got this immense retirement account. The question is, do we begin siphoning money away from the retirement account or do we cut other spending in order to accumulate that in the short run? I think those are the two options in your situation right now, right? As things stand.

Tracy:
Right.

Scott:
And you have that big bonus every year which could be another way to produce that. Is that kind of how you’re assessing the situation, is really the biggest choice?

Tracy:
Yeah definitely. I have definitely spent my way through my 20s and my 30s and I’m at a point now where I’m definitely looking back and saying, where did it all go? I don’t have a Birkin bag to show for it. I don’t have closets full of frivolous designer things to at least say, this is where my money went. It’s just one of those situations where I ate it, it was on a plane with me in business class. It went with me to the other parts of the world that I’ve been blessed and fortunate enough to travel to in the way that I like to travel. And so it’s time to find that balance now where the Target runs and the Amazon runs that seem small in the moment are what’s really adding up over time. And if I stepped back and looked in a year in terms of what I’ve spent literally just between Target and Amazon, I’m probably sure I could have very close to a down payment on a rental property.

Scott:
Well let’s dive through those expenses one by one and create a-

Mindy:
Well, I was going to say this is not the beat up Tracy show. This is the … And I can see where you’re coming from. You look at your $8,000 that hits your bank account and you say, “Well, I can afford this at Target. It’s only $100.” $100 out of 8,000, that’s nothing. I can totally see the mindset and I bet there’s a lot of people who are listening who can see that too. “Oh, well why should I have to put myself on a budget? I make good money?” Well, you don’t have to put yourself on a budget, you want to put yourself on a budget. And putting yourself on a budget can be really, really restrictive and oh, I’m doing this to myself. It’s like being on a diet. Oh, I can’t have anything fun. And that’s not the case at all. But I think that you are starting to realize that you maybe need to curb that back a little bit. You can’t have cake every night, but that doesn’t mean you can’t have cake on Thursdays or have a nice eggs benedict on Saturday morning every Saturday morning just not every single morning. So let’s go through your expenses because right now you’re killing it in the income front but I know where those expenses are for November so I have a little bit more information than people who are listening.

Scott:
And I just want to reinforce that this is a very common situation that Mindy and I have come across where it’s just however much … If you don’t keep a budget over time, you just kind of spend up to the amount that you’re making. And you’ve got it all right. You’ve got a good solid emergency reserve. You’ve got hundreds of thousands of dollars in your retirement account. You’ve got a home. There’s nothing wrong with the situation that you’ve created here. It’s just I love that fact that you’re coming in and thinking, I could be over here doing these other opportunities and you’re right. And that’s why we do the budget and the focus on expenses, is not because it’s necessary for a traditional retirement but it is necessary to get way ahead on that journey to financial freedom and begin plopping down, $30,000, $40,000 on a rental property for example and building a serious passive income stream or portfolio over five to seven years. That’s where this power comes from. And you want to put yourself on a budget so you can do that because that opens up way more options in a few years than likely what the happiness level you’re getting from your current spending is in some but not all cases.

Tracy:
For sure. Just looking back and saying, where did it all go is the part that’s quite frustrating on just a monthly basis or even looking at the end of the year and having that conversation with myself. And I’m one of those people with my little spreadsheet that I sent. I was telling Mindy I’ve kept this spreadsheet of every paycheck I’ve gotten in the last 15 years. The problem is, it’s not a budget, it’s just an account of what has been spent. So I can tell you what my light bill was in December of 2008. So I know how much the bills were but I can’t tell you in that same month how much went towards food or Target if that makes sense. So I’ve used this spreadsheet to just keep track of each paycheck and the bills that are paid out of each paycheck. But unfortunately I haven’t used it as a true budget or a form of accountability. So there may even be buckets you’ll see on there where I budget but I don’t use it to hold myself accountable.

Scott:
Well great. I’m really glad that you’ve tracked your spending because that makes this analysis easier. Could we kind of overview where you think on a monthly basis to summarize that money is typically going now that you’ve … Over the last maybe six months to a year.

Tracy:
Yeah. So the last six months to a year for me mostly, most of what I spend on a monthly bases in terms of home expenses, like if you just said pay your bills and you be done, I would say … And if you include my car note and things like that, I’m probably close to around $3,500 a month, maybe give or take. Because fortunately we talked about the cost of living where I live in Pittsburgh. I have a three bed, two bath townhouse. It’s not very big. It’s only about 1,400 square feet. But it was a newer condo when I got it in the sense that it was less than 10 years old. And my mortgage is under $1,200 a month.

Scott:
That’s not very significant given your income.

Tracy:
No. Correct. I’ve bought below my means in that respect in terms of my mortgage and then my car note is a little bit hefty but one of the things I wanted to talk you all about was potentially getting rid of that. So when it came to purchasing a new vehicle I decided to put down a substantial down payment. So I put down almost 30% on the value of the car in a down payment. About 30%. And then I financed the rest over three years. So I did 36 months. And I did it at 4%. So this was a couple of years ago before we kind of had the low interest rates we have now. So I do still have a car note that I’m thinking about rid of. I don’t have any other debt other than my mortgage in my home. And so when you add those things in and utilities, cell phone, subscriptions, all those things kind of start adding up. And again, I end up with about 3,000 to 3,500 a month in expenses.

Scott:
And how much is that car payment per month?

Tracy:
It’s 700.

Scott:
Okay great. So when I think about the car payment in general, what's happening … Why that feels like a huge chuck of money is because you've got this relatively short term loan over three years.

Tracy:
Mm-hmm (affirmative).

Scott:
And so that’s why you’re seeing a huge payment there. And while that feels like it’s a lot of cash coming out, I’m interested to see if after we go all this stuff we come back to that as the real source of this. But from my seat relative to what I think many of peers for example might be doing at your level of income, I think you’ve made a set of very responsible and good decisions that will set you up for success with this stuff around your mortgage and likely your car as well in a relative sense there.

Tracy:
Yeah. So that’s one of those things that I was looking at to say the end of this year, in the next couple of days I could just get rid of it. Would that be wise? So that’s definitely one area of advice I’m looking for from you all. Is it worth dumping the remaining balance, which is about $13,000 and then keeping the $700 a month, or is it worth keeping the 13,000 and continuing to pay the seven? Outside of that, I do give myself an allowance which is going to sound excessive to most because I think my friends think it’s excessive. Is I give myself $800 every other week. Now I don’t break down what that includes. So that $800 is supposed to be everything that’s not a bill. So gas, groceries, eating out, Target, Amazon. All of those things are supposed to fall … Back pre COVID, getting nails done and things like that. All of those personal care things were all supposed to be a part of this $800 every other week. So $1,600 a month allowance that I was giving myself. And the issue is that I have the Chase family of credit cards where the points system is pretty amazing. And so I justified using my card to earn the points.
And I pay the balance. Like I don’t pay interest. But if I’m honest with myself, that would technically mean that the balance every other week would only be $800 even between the three cards and that’s the problem. That’s not the case. I’ll get to the end of the month and now I’m having to pay $2,500 to keep the balance at zero versus paying 1,600. So that’s the problem too is that I’m not on a cash system. Even a debit card system. I’m using my credit cards for everything. A stick of gum, I’m using one of my Chase cards to purchase those things. And it’s giving me more wiggle room than I should allow for myself.

Scott:
Got it. It sounds like what I’m hearing is you’ve got 3,000 a month in what we call fixed expenses around your mortgage, housing expenses, car payment, those types of things, gas. All that kind of stuff that you need to run your household in a general sense. And then you’ve got 5,000 that’s leaking through if we’re talking about 8,000 in income after tax. More or less. Are you still saving a few hundred or a thousand or so a month after this in a general sense?

Tracy:
Yeah, in the general sense. So all of that money that comes home, I do put some of that into savings. I would say the 3,000 that goes towards the home expenses and then I have another 800 that I put into a savings account, another 600 that I put into a travel allowance account. So I take that money and it’s also automatically siphoned away from me.

Mindy:
Hi yield. I’m doing air quotes.

Scott:
Sorry about that.

Tracy:
[crosstalk 00:29:14]. Yeah, they got you in at 3.25 and now it’s like one.

Mindy:
Okay. I have a lot of things to say. You’ve asked about a lot of things. Should you pay off your car? I’m looking at these expenses and I have comments there too. But should you pay off your car? So let’s say you have 13,000 in cash that you can put into your car. Do you have additional money in January that you can put into your Roth IRA to max that out? I think that’s 6,000 next year.

Tracy:
Yeah. I think I would be left with … When I did the math I think I would be left with enough to still have probably close to six to 10,000 in cash to where I could either fund a Roth or I can leave it as my six month living expense or whatever the case may be. So it would not leave me cash poor so to speak to pay my car off. It would still leave me with cash.

Mindy:
Okay.

Scott:
How much is your car worth?

Tracy:
That’s a good question. It’s an Audi. It’s an A4. The value of the car … I would guess I could probably sell it for at least 25 to 28. It’s a 2017. It has a lot of miles on it.

Scott:
How much do you like the car?

Tracy:
I like it a lot. I’ve been driving Audi for now … That’s one of the other mistakes that I have kept a secret is I leased a car for six years. And that is also one of the reasons I find myself at this age and stage of life with a car note is because I got bit by the bug or wanting the nice fancy and so I leased a really expensive vehicle for six years. I had two vehicles over the course of six years. And then I decided to settle into a compromise. So this was the compromise car.

Mindy:
This is not the beat up Tracy show.

Tracy:
Right.

Scott:
Let me just say, this is all in the context of you having a net worth north of $800,000 before the age of 40, doing really well. So the Audi is a big problem for somebody who is just getting started and is trying to build that first 50 or 100 grand in wealth. That's a tough anchor on that. It's not for you. I was just wondering because it is an opportunity but it is not the … You can choose one of or a few of several levers here. You do not have to choose a cheaper car. You do not have to choose cutting back on your travel budget or whatever. But I think you're going to have to choose to cut back on some of those things and rank order prioritize them and say, "Which one of these do I like better than having that liquid net worth and my retirement account balance and which one's don't I like? Which ones do I like better and which ones am I … I'd really rather have a couple of those rental properties then that cash flow?"

Tracy:
Right.

Scott:
I think that's kind of the choice that you're going to have to make in terms of the spending here. Because really what I usually find is that the anchors in a person's spending situation are really the housing or the car payment or the monthly food budget and those types of things. In your case, your fixed expenses in terms of your grocery budget, your mortgage expense and then depending on what we do with this car payment, really aren't the anchors that are the leverage points. We do have something on the car payment that will free up cash flow. Depends on what costs we're going to talk about with that. But I think it's really in the discretionary spending piece here, which I think is really Mindy's forte is kind of dissecting those and moving through those. In your case, it really is that. Because we're saving 800 bucks a month on 8,000 in income and I think you could be saving three to 4,000 a month easily. You can have any of the things on your list, but I don't think you can have all of the things on your list and create that saving position as Paula Pant would say at Afford Anything.

Mindy:
Yeah, so my go to recommendation is track your spending. And I know that that sounds so boring and so repetitive because I know you’ve heard me say this a lot, but that is going to be so eye opening. And I don’t even want you to get some fancy phone app. What I want you to do is get some really old school notebook. I know you’re an engineer and you’re all smart but this is what you do. Get yourself a notebook. Well, get a big one. I’ve got a big stack of notebooks here. Hold on, I’m going to grab my notebook. Grab a whole sized notebook and open it up to the very first page that doesn’t have any writing on it. I’ve got so many that are just like … And make columns. Date, store, dollar amount, what it was, total. And start running every time you spend a dime on your credit card, write it down. Anytime you pay a bill. Anytime you do any money out of your pocket, goes on this page. At about three days in you’re going to be here on the page and you’re going to be like, “Wow, how did is spend so much in such a short time?”
And then as you get towards the end … This is supposed to be for one month. So when you turn the page on the 17th the first time you’re recording your expenses you’re like, “Oh wow, I’m already on page two. Oh my goodness. What is Mindy going to say?” She’s not going to say anything because Mindy’s not the boss of you. But Mindy is going to say, oh … No, Tracy’s going to say, “Oh, I better stop.” Because it becomes a game. And that’s the part that was so helpful for me, was having this in my face. I know everybody listening is young and super hip and cool and they use all these apps on their phones. I’m old and I want it in my face. I put it on the kitchen counter which is where I came into the house. And I would walk in and I would write it down. And the first time you’re like, “Oh, $1,300.” Because I had my mortgage payment too. Okay, no big deal. And then you start and then you’re like, “Wow, this is getting filled up real quick.” And this is such a powerful tool to see it in realtime.
Because the way that you’re doing it now, going back after the fact isn’t working. So I would love to see you do something super old school and just watch what happens. Because when you see it every single day, every single time you come home from work and you write it down, you’re like, “Oh wow, this is crazy. And then tomorrow I’m going to see if I’m going to spend no money.” And then the next day. “Oh, I didn’t spend any money yesterday. I wonder if I can go again today and spend no money.” And it just keeps compounding. But the first month, you’re going to do really, really awful and that’s okay. It’s just to open your mind. Just to see what’s going on. This is so powerful though. Recording it down on a piece of paper-

Tracy:
Yeah, writing it down.

Mindy:
In your face is so powerful. Another thing I want to see is you can have your $400 a week. Tracy makes a lot of money. Tracy can have $400 a week to spend how she wants on one credit card. Pick your favorite credit card. That is the Tracy’s $400 a week credit card. Put that in your wallet. Mark on the front of it, Tracy’s $400 a week credit card. And check that balance. Whenever you go to the store come home and check that balance. “Oh, I spent $25. There’s $25 on the card. Great.” Or, “I spent $400. I cannot use this card again this week.” And then that’s all you can have. Take that and put that on your Amazon account and put all the other credit cards off your Amazon account. And then when you feel tempted to go Amazon make sure you’re only putting it on your $400 credit card.

Tracy:
For sure.

Scott:
As you’re going through this … I completely agree with everything Mindy said there. I think that doing it in realtime in your case will be very helpful because I do the same thing as you. I track them arrears, and that results in poor financial controls over my spending. I don’t have as good controls as Mindy does over my household spending because I don’t do it the way that she does it. Now, I still spend so little in a general sense that that’s not really my lever but I think that is for you. And I’d also consider taking a leaf out of the Frugalwoods book where they kind of cut back on everything pretty substantially. Something that was unsustainable. And then they added back in the things that they really missed. Which could be something to consider. You’re like, “If I spend January or February without most of this stuff, really just kind of put myself in that position for one month and see which of the things do I really miss and which of the things did I not notice?” That will allow you to maybe put those things back in and it may change you 300, 400, 800 every two weeks. Whatever number that you peg. It may change that for you.
And then I’m going to give a wild out of left field suggestion and you can laugh it out and refuse it. But I would consider renting a newer Corolla or a Civic or something like that and driving it to work for three days. It’ll cost you a few hundred bucks and you might be blowing it. But there’s a chance, 25% chance maybe that you’re like, “You know what, this really isn’t that much worse than the Audi. And shoot, I should probably buy one of these and sell the Audi.” And that would have a thing there. If you’re thinking about the car thing, that could be a solution there. And then after that we will talk about the car payment and what we think is the right move there, whether paying that off or continuing with the payments in a general sense.

Tracy:
Yeah, a friend of mine before I got the Audi had definitely advised me, "Just get something that you can pay for in cash." Obviously I didn't take the advice. But that's what I was advised. And I definitely have other friends who have done that. They purchase their vehicles in cash and are happy and content. Or I have those who because they didn't lease or anything like that, they're now car note free. So they're driving without a car note. And so I do know that if I look back over the last 10 years in terms of some of the bigger money pits for me, it has definitely been the vehicles that I have chosen to drive through the years.

Scott:
I just think if you do that in the context for example of a month where you’re really just cutting back and just experimenting and seeing what life is like without that very large weekly allowance or twice monthly allowance, and as part of that you also try out a different car, that may help you make the decision about how much you value the nice car in relation to some of those other spending things all at once. That way you can just choose which ones you want to layer back in or keep with those. And I think that that might be a helpful exercise alongside the writing down of all the expenses that Mindy says. I would definitely write down the expenses first and then kind of potentially think about that extra month. And I also think the other part of it is when you zoom out and you look at it this from a vision perspective, there’s no reason why after you make some changes and track these things that again, you’re not accumulating 3,000 a month I think in savings. 2,000 to three 3,000 a month which is 24 to 36 grand per year. That’s a down payment every year on a rental property. You pile that up for three four years and they’ll start generating a little bit more cashflow.
The car payment, if you just choose to pay it off kind of slides out over the next year or two no matter what, regardless which path you use. Now all of a sudden you’re saving 4,000 a month. Then the snowball continues. Maybe a raise comes in, a big bonus. Now we’re saving 5,000 or 6,000 per month. Then another year or two goes on, 6,000, 7,000 a month and you’ve got a significant chunk of that passive income. That’s the vision that we’re playing for here from a financial perspective. And the why behind this, which might help as well in the context of some of these puts and takes on which expenses to keep and which to forgo.

Tracy:
Yeah. Because it’s just looking overall, like I said, with what comes in and what goes out, it’s just definitely a very frustrating exercise for me. Even in COVID. So in my mind I should be saving so much money. I’m not traveling, I’m not going anywhere. And honestly guys, I did not just have this knock the ball out of the park year in terms of savings. Because every other day the boxes are showing up at the door from Amazon with something, from Target with something. So as much as I would like to have thought that this year of any other years would have been the year that I could save, it really put a mirror up to my spending habits. Because even sitting at home I did not just pile up and stack up lots of money and cash.

Mindy:
I get it. You’re not the only one who did this. It’s so easy. You’re bored. “Oh, I wonder what’s on Amazon.” Or, “Oh, it’s prime day.” Or oh this. Or, “Oh I need one thing and then something else.” Those stupid little, “Oh, here’s a suggested item. Oh, I need that too.” And then all of a sudden like you said, all those stupid boxes keep coming. It is really fun to get those boxes all the time. And frankly when I don’t get a box on a day you’re like oh.

Tracy:
Yeah. Feels odd.

Scott:
I’m sitting here with my giant TV acquired this year.

Mindy:
Oh, the giant one on the back? Yeah. That’s pretty amazing Scott.

Scott:
So in the same boat. But I think one part of it though is also maybe accountability is another thing here. And it’s going to be difficult to pull this off maybe by yourself over a sustained period of time. While I think you could definitely do it for a couple of months following this episode maybe, perhaps something to consider also is … And this is a suggestion actually Mindy wrote down earlier in the show notes so I’ll give her credit. But perhaps consider creating an accountability group. You mentioned that you had some folks who invest and those types of things locally. Maybe you could create a little monthly little club or something where you bring some of those things and talk about those goals to other people so that you have some sort of structured accountability program. And if you feel like that would be uncomfortable with some of those friends, you could always try like the BiggerPockets Money Facebook group and see if some people there might be interested in that either locally or virtually.

Tracy:
I have friends that I would completely trust who have volunteered to do this before. But because I knew they would do it very, very well, I turned down the offer multiple times.

Mindy:
Now it’s time to call them up and take them up on the offer.

Tracy:
Yeah. The friends … I definitely, like I said, I have been very blessed and fortunate to have surrounded myself with just very intelligent, successful women and there's plenty of them that I would trust with my personal information and that would truly with nothing but my best interest at heart hold me accountable. And I've been running from them because the offer had been made but because I knew that they would really do it and that they would really do it well, I wasn't ready. But now I'm definitely at the point where it's like okay, you've tried it your way. Your Excel spreadsheet. Oh I've done it. I've done Mint, I've done Personal Capital. All the apps and things like that. I've done it all. And now it's at the point where I've done everything but the envelopes method. The Dave Ramsey envelopes. I've done everything but envelopes. But Mindy's telling me to go back to old school paper and I can do that and then share that with those friends so that they can be like, "You didn't need that."

Scott:
And let’s also … We’ll point out something here. There is this problem I think in America in general where money is taboo to a certain extent. It feels like a competition. You feel inferior or whatever when you’re talking to other people about money and these types of things. You’re doing great. You are doing wonderfully with your financials and those types of thing. And you imagine how many people are listening to this who aren’t coming from a position from financial strength the way you are who think about that. Like no, the goal should be not be to compare or all these other things. It should be here’s my current situation and Mindy calls it, it’s me against the world. It’s not me against this person or whatever. It’s me against the world. It’s us in it together. And it’s progress, not perfection. There’s nobody we’ve ever talked to who’s been perfect with money. Mindy and I certainly are not perfect with money, not close.
And so it’s about just where am I at right now and how do I improve? And my life becomes better as I improve. And there’s no such thing and perfect. Even if there was somebody who was theoretically perfect, there’s so much art to how to invest and think about savings or whether to buy versus rent or whatever that it’s impossible. So it’s just progress, not perfection. And making sure that it’s a healthy fun environment that focused on just getting better each month rather than a relative comparison or whatever. But I think a lot of people have that problem when it comes to talking to other people about money because you might be comparing yourself to someone you think … They might not even be this way. But you might think has more wealth or is doing better than you.

Tracy:
Right. Yeah. Because I’m definitely not in anybody else’s wallet or bank account but just seeing kind of the habits and the decisions my friends have been able to make, the positions they’ve been able to make in terms of investing or the wiser decision they’ve made like I said with paying cash for vehicles and living below their means, I’ve just had really great examples. Just very fortunate to be surrounded by friends who don’t encourage my foolery and would definitely be willing to hold me accountable in that space. It’s just been really good to surround myself with that kind of sisterhood and that type of environment because it’s been very helpful for sure.

Mindy:
Yeah. I love your friends. Tell them I said I love them.

Tracy:
Will do.

Mindy:
They sound really, really supportive and that’s really what you need. You need somebody who isn’t going to be like, “Tracy, this is the dumbest thing on earth.” You need somebody who says, “Tracy, this is something you didn’t need, so next month let’s fix that.” When you were telling your story something jogged my memory. When we interviewed Rosemarie Groner way back on episode four from The Busy Budgeter, she said that one of her big things when she was budgeting was these little trips. These little, “Oh, I’m just going to the store, I’m going to grab one thing.” But one thing turns into 20 things. And what helped her a lot was to create a little pantry in her house. So you go through … I don’t even know how much deodorant somebody goes through because my kids … I don’t know if they’re writing letters with it or what, but I seem to go through a lot of deodorant. So I don’t go to Target to buy one deodorant. I go on Amazon and I buy a case and then I don’t have to buy deodorant for another week or whatever they’re doing with it.
So what are the things that you are constantly buying at Target specifically, at Amazon specifically that you need but you can store in your house? So like not milk but … Deodorant is a great one. Feminine hygiene products are a great one. Toothbrush, floss, toothpaste. Anything that you can use. I would say three or six month supply. Buy that and put it in your house. You have enough money … You are fortunate enough to be able to afford to stock up. So go through and think. I think I’m going to go through a deodorant a week for six months. I’ll need 27 or however that math works out. And just get that and put that in your house. Put it in the spare bathroom or even in one of the closets. Just have it so when you need to go to Target you don’t really need to go to Target. You can just go to your closet. Call that Target.

Tracy:
Yeah, that would be great because my other vice that hasn’t come up yet is Trader Joe’s. And it’s weekly trips to Trader Joe’s. And I swear whether I have 25 items or two, it’s always $120 before I leave out of the store. Every week. And then if you look at the eating out budget on top of that, there is no way one person should have $120 a week in groceries plus the amount that I’m spending eating out. It goes to show that there is definitely waste in there.

Scott:
How much do you think you’re spending on eating out?

Tracy:
So I did … Mindy’s had a preview of this conversation recently. On a really, really bad month I have spent as much at $900 in a month eating out.

Scott:
So what that tells me is that you could spend more on groceries if you cut down your spending on eating out to $50 to $100 a week which is still a lot but you could go up to 150, 175 in groceries which is a lot, and still be making a huge dent overall in your overall food budget here if you were to plan that a little bit more and even go a little bit more on the grocery budget in those types of things with some of those nice things.

Tracy:
Oh my goodness. My waistline would thank me in addition to my wallet. It would just be a win-win all around. Prior to moving to Pittsburgh I lived in New Orleans for nine years. So their motto is that we don’t eat to live. Food isn’t just nourishment. We live to eat. Like food is made to be enjoyed. And so that’s where I kind of cultivated this really insane food budget was living in New Orleans and eating out constantly. And moving to Pittsburgh has helped some because the food is just not as seasoned. Not quite as seasoned as it is in New Orleans. So I eat out less and there’s definitely more room and opportunity for really reining that in. I think for me though unfortunately Trader Joe’s has just become another place to fuel my shopping habit. It’s not even necessarily where I need … You guys, I drive an hour round trip to go to a Trader Joe’s.

Mindy:
Oh stop.

Tracy:
It’s not necessary. It’s 30 minutes each way.

Mindy:
Is there a place in your house … Do you have a garage that you could put a freezer? Like a chest freezer?

Tracy:
I do. Mm-hmm (affirmative).

Mindy:
Okay. There’s a chest freezer at Home Depot right now for like $199 or 250. I can’t remember which one. It’s a nice sized chest freezer. Fill up the bottom with ice because you don’t need that much space to fill with food. Fill up the bottom with bags of ice and then go to Trader Joe’s once a month.

Tracy:
Yeah.

Mindy:
Go out there, know that you’re going to go once a month. It’s going to be a larger expense. But fill up that freezer with Trader Joe’s food and then go shopping in your freezer instead of going shopping at actual Trader Joe’s. An hour. You didn’t tell me you drove an hour round … Round trip or one way?

Tracy:
One way is 30 minutes. Just there and back you’ve already wasted an hour and it’s become like a little cult thing. So I’m in this place-

Scott:
Well, that’s how she gets her BiggerPockets Money in.

Tracy:
I know, right? That’s how I listen to my podcasts right? I’m in this group that I just love. I call it jokingly a cult. It’s called Black Girls in Trader Joe’s. It’s a Facebook group. They have merchandise. It’s amazing. It’s a whole thing. And you just go through there and I’ll be in the store in the Facebook group. What did they tell me I need to try today?

Scott:
Well, just think about how amazing your contributions to the group are going to be when you do this enormous run once a month instead of these littler ones every week.

Tracy:
I know. I have to dial it back.

Mindy:
And let’s look at instead of going all in and going once a month, go once every two weeks at first and see how that feels and see did I get enough things for the week? Oh no, I should have gotten more of this or that. Wow. 30 minutes to Trader Joe’s. That keeps me from going to Trader Joe’s so much because it’s 30 minutes away.

Tracy:
I know.

Mindy:
I don’t want to be in the car that long.

Scott:
Let’s go back to the car loan thing though because I know that was one you specifically had and I think it’s helpful now to revisit that with all this other context we’ve had. So one of your questions is I think I have a $13,000 balance and a three and a half percent interest rate on that car loan. Is that right?

Tracy:
Yeah. 13,000 and I think 4% unfortunately is my current interest rate. And so the note is $700 a month and I have another year left on it.

Scott:
One year left.

Tracy:
Well, March will be a year. So I have about 16 months left on the car note. So I’m at the place where like I said, I could literally click a few buttons today and be done with it and then say okay, now I have this extra $700 a month to save or invest with or do I hold on to the $13,000 and just still pay the car note for the next year?

Scott:
Okay so let’s put this in perspective here. 4% of $13,000. This is how much interest you’re going to pay over the next year. It’s $520. So this is I think a good example of one of those things like it seems like it’s a big decision but it’s really not. You’re really talking about do I save $500 in interest or do I not? That’s the context of it. In your case I think you’ve got an emergency reserve of about 15 grand is what I heard?

Tracy:
Mm-hmm (affirmative).

Scott:
And your goal I think in general is to save up for a rental property in the next two years or so. Is that also right?

Tracy:
Yeah. In the next year or so hopefully I would have the $30,000. Yeah. In terms of cash right now I’m looking at having … Once my company stock purchase comes through because I’m not going to hold onto any more shares of that. So basically by the end of January I’ll be sitting on about 30,000 in cash plus the 20 some odd thousand in stocks. So that’s before I pay the car off. So I have about 50,000 I could play with if I wanted to.

Scott:
Okay. And when do you think your timeline is for buying a rental property? Do you think it’s going to be in January or do you think it’s going to be closer to the end of next year?

Tracy:
Middle to end. Because I really want to … All the learning I’ve done with BP, I want to be smart about it. It’s more than just having the down payment that I’ve learned from you all. So really for me … I’ve also talked about investing with friends. So it could be sooner just because I wouldn’t be the only one carrying the entire set of expenses. So in that case it could be as soon as three to six months.

Scott:
Okay great, so here’s how I’m going to think about it. If you’re going to have 30,000 at the end of January and you’re going to invest at the end of next year, there’s no point in paying the 3.5% interest. You may as well save yourself 500 bucks and pay off the loan now and not be arbitraging the three and a half percentage rate for the 0% or close to 0% you’re going to get in your checking account while you wait to invest at the end next year. If you’re going to invest sooner and need the money, in that case you shouldn’t pay off the car loan because you’ll need it there. But if the timeline were longer five years, I think I’d be an easier decision to say, don’t pay it off right now because you’ll want that cash sooner to invest. But since you only have one year left on the note anyways, you’re going to pay it off over the course of the next year, to me, I think the move is just pay it off now. Save yourself the interest if you’re not going to use those funds. That will slightly dampen your emergency reserves but it also sounds like you’re not going to use it right now.

Tracy:
Right. Yeah. It’s not something that … I know I don’t feel like I would be prepared to pull the trigger in January. So for me it would just be an opportunity to be rid of that debt. Because honestly the plan was to have done it in January of last year with that company stock I had sitting. So like I said, that stock today is only worth about 11,000 or 12,000 but in terms of value when I purchased it, it actually was worth, 20,000, 25,000. And that’s what it was at in January. So I said, “I’ll wait a few weeks to sell it and pay the car off.” And then March happened. The world stopped, the market crashed and I never recouped that money. So it’s kind of living in that regret of saying last year I was going to pay it off and then the money got tied up and didn’t.

Scott:
And let me just say something. That employee stock purchase plan, that is a no brainer to me. You buy the stock and then you sell it immediately or you hold onto it for two years or longterm or whatever. But you’re getting your 15% discount. That’s a high probability rate of return. You got unlucky with your timing in that situation. But I think you made the right decision. It’s kind of separating the good decision, bad outcome from bad decision, good outcome. You made a good decision, had a bad outcome with that. I would do that again and again and again and over the long run you’re going to win from that depending on … You don’t have to keep the stock right? You can sell the stock whenever the time is up right?

Tracy:
Right. Yeah. So you get it in the first week of January and by the time it hits your account, within a day or so you’re able to sell it. So assuming the market doesn’t do anything hugely or wildly crazy you can capture your 15% or more because they do the price between the lesser of January 1st and December 30th. So 15 is your minimum. There have been years where it was 30% on the dollar.

Scott:
I had the same thing at my old company and what I would do is I would just put … You could buy up to 25,000 in stock and so I only made like 45,000 at the time. And so I put all of my paycheck into it and arbitraged it and sold it immediately. Hit my account and sold it. And I took that extra stuff and they’re like, “What are you going to do? Are you going to pay taxes on that gain?” I’m like, “Yeah, that’s what you do with a raise. I’m not going to say no to a raise.” But yeah, I did the exact same thing. And yeah, you’re going to get unlucky every once in a while but it’s the right move I think to take that free money, that 15% spread and just arbitrage it or you can keep it invested for a few years. So if you’re listening and you have one of those I think it’s a no brainer to do it even though you might have a bad outcome every once in a while. It’s the right bet every time in my opinion.

Tracy:
Yeah. Just go for it.

Scott:
Okay so going back to the car thing in general, I just wanted to point out that in the context of your overall set of goals here, I mean, you could save three, 4,000 a month by really getting smart about your spending, writing things down like Mindy said, having an accountability group and really kind of getting those controls in place on your spending. This is not a high stakes decision, whether to refinance the car. Higher stakes decision would be selling and swapping out the car or changing up something else there. You don’t have to do that or any of those things. But I don’t think you have a big decision here. But if you’re not going to buy a rental property until the end of next year, I’d just save yourself the 500 bucks and pay off the debt now because you have a big enough emergency reserve and access to liquidity that you don’t need the cash. That’s a reasonable arbitrage of that cash I think versus paying the interest on it.

Tracy:
Yeah so it’s just something that I would love to just get rid of, if that makes sense.

Scott:
And you’ll feel better. You’ll be accumulating $700 more a month right away which will be a big difference in how much you’re accumulating on a month to month basis.

Tracy:
Mm-hmm (affirmative).

Mindy:
Yeah. And I would like to see that $700 a month going into your rental property down payment fund. And coinciding with that, do you hae a real estate agent in the area that you want to invest in? Are you investing locally?

Tracy:
So not sure. Again, I’ve seen friends carry different strategies. Some who invest local, some who have become realtors themselves. I have a few friends who have done that to help themselves with investment. I have a really good friend in a different market who is willing to become combination of realtor and potential investment partner. So I’m kind of a little bit all over the place when it comes to what strategy I want to kind of undertake with that. Because even my house … My job assignment is only a few more years left in it and because the mortgage versus the amount I could get in rent is quite a bit of a delta. Like I said, my mortgage is under 1,200 and I think I could probably get 2,000 a month in rent. So I’ve even toyed with the idea of turning my current property into one of my first investment properties.

Scott:
Does the tenant pay utilities typically in Pittsburgh?

Tracy:
They do. They pay their own. So I wouldn’t … It’s one of those deals where it literally would be someone renting the house almost like they owned it. They would have to get their own electric, their own gas. Everything would be in their name. I would probably even have them pay the HOA.

Scott:
Yeah. That’s a pretty good spread there if your property’s, it sounds like worth around 200,000-ish. You put down 30% and you get a $1,2000 mortgage. Tenant pays utilities and HOA. Now you’ve got $800 difference there. I think that covers CapEx, vacancy, a little bit of maintenance, those types of thing. And you’ve got a reasonable cash flow with that. That seems like back of the napkin a pretty reasonable place to go and you probably didn’t buy your place to optimize for a rental so you probably could do better than those numbers in some parts of the city.

Tracy:
And that's the other thing. Trying not to beat myself up as Mindy says I should not. But when I'm talking to younger people that come into my company, the first thing I tell them is about house hacking. Make sure your first property generates you income. I'm the person preaching that now because I'm thinking back to my 20s. And this is my second home that I've owned and just thinking back to how I've made those decisions and what I wish I could have done differently. I would have purchased a duplex. I had friends who encouraged getting a roommate. A trigger I can't quite pull.

Mindy:
That’s okay. You don’t have to get a roommate. But what about a duplex? It’s not like you can only buy them when you’re 20. You can buy them when you’re 38.

Tracy:
Right. Yeah.

Scott:
Yeah. You already live in a town home. It would be no different than living in a current town home. How many town homes are attached to yours?

Tracy:
Probably close to 70.

Scott:
Oh okay, 70. So yeah. But if you could find a four plex for example, there might be one that’s very comparable to where you live and you just happen to live in one of those units. It’s a whole nother thing there. But I think it’s all worth considering in the context of your overall spending. And you’re like, “Do I really love that $800 every two weeks allowance and still want to save? If so, do I like that more than the car or the way I’m living in my household right now?” Again, you can have any of the things that you want. You can have all the things you want and you’re still going to be a multimillionaire by the time you reach traditional retirement age. If you want that extra stuff, I think that’s where you’re just going to have to figure out which of these trade offs do I want to make and which ones mean more to me? Is it the house, the car, the discretionary spending, the restaurants, the groceries? You’ve got a good set of options there and you got to cut some of them and keep the ones you really like with those. That’s the real meat of the decision I think that you’re going to face and I’m interested to see what you end up choosing.

Tracy:
Yeah. I’m definitely … Just doing this podcast with you guys hasn’t come at a better time. Everyone’s making their resolutions. I’m looking back on the last year. Looking forward to what I want to accomplish in 2021. So the timing for this is definitely perfect for me in terms of the space that I’m in and in terms of making decisions about what I want to do to go forward so that I don’t look back on another year and feel like I didn’t reach my goals. And I had a friend that just asked me straight up, “What is your goal? What are your financial goals?” And that was a conversation we were having literally just a few days ago and they’re like, “You’ve put all this money into your longterm savings but you talk about wanting rental properties. Is there a way for you to go a little bit differently about what you’re doing?” Because I was like, “Oh, now if I pay the car off I could put that $700 into a mutual fund.” And they’re like, “But what is your goal? What are you stashing all of this money for retirement for?” So they weren’t discouraging me of course from maxing out the 401K but they’re saying now you’re talking about putting even more money into longterm savings beyond that. Is that really wise? Is that really getting you towards your goal? The goals that you really have.
And so I thought that was a really good challenge.

Scott:
Yeah. I think that’s smart because you have a good retirement situation. Even if you don’t contribute anything, your company’s contributing like 15 grand a year to your retirement account which is more than most. You’re going to have well over a million depending and how the returns go. Maybe close to 1.5, 2 million by the time you hit traditional retirement age. Even if you stop contributing to them. I’m not saying to stop contributing to your retirement accounts because I don’t think you need to. I think you can have all the liquidity you want and all the rental properties you want while continuing to max out your 401K given your level of income. But if you were to do this exercise and decide, I don’t want to pay off the car early, I don’t want to give up any of my discretionary spending, I don’t want to do any of those other things, that’s when I think the discussion to stop maxing out the 401k might kick in as long as you were to use that towards these other financial goals. But again, I just don’t think you need to go there given your overall situation.

Tracy:
Yeah. I’m definitely looking forward to implementing that using my notebook and writing down my expenses, allowing my friends who’ve already volunteered to hold me accountable, allowing them to hold me accountable and looking at the car situation and taking that seriously into account and just kind of really going into a new year with a different outlook on how I spend.

Scott:
Well, love it.

Mindy:
I think that’s going to be huge. I think once you start writing it down on the notebook every time you come in the house it’s going to be just astonishing. Because I was in that same position. “Oh, I’m not paying attention to my spending. I know I’m frugal.” Well yeah, you’re only frugal if you’re buying the stuff you need not all the other extra stuff that I was buying. So once I started writing it down I don’t even think I got through the whole first month before I was like, “Ooh, I got to make this a game now. How little can I spend?” And that’s a fun game. It’s fun for us money dorks but it’s a fun game to be how little can I spend? And every time you don’t spend all of your $400 take that cash and put it-

Tracy:
Put it into savings.

Mindy:
Into a savings account. And then the next week you only have $400 and you come in at 382. Take that and put it in the savings account. And then the next week you’ll be like, “Oh, I’m going to come in under 350,” and then the next week, “I’m going to come in under 300.” The pantry is going to help a lot. Having your own little personal Tracy’s Target right at home is going to be super helpful because you don’t go in and grab just one thing that turns into 20.

Tracy:
Mm-hmm (affirmative).

Mindy:
I’m sure everybody listening can understand that because you can’t come out from Target with one thing.

Tracy:
You can’t.

Mindy:
It’s like a law.

Scott:
I do.

Mindy:
Shut up Scott. This isn’t about you.

Tracy:
[crosstalk 01:11:09]It’s impossible. And I’ve even just psychologically … Like the little things, the triggers, I’ve said I was going to delete the Amazon and Target apps off my phone.

Mindy:
Oh yeah, do that.

Tracy:
Delete them. Delete them all. Because the few clicks of a button just make it so insanely easy. So just little things like that. If I make it more difficult for myself to be able to access those and then I like the idea of going down to one card because spreading it out over multiple cards allows it to get out of hand very quickly.

Mindy:
It does. It really does. As you start to pay attention would where your spending is going it gets easier to … It doesn’t feel like such a burden. It doesn’t feel like such a chore to … Oh, I can’t do anything fun. It does get easier. I think we need to recap that you’re doing awesome. You really are doing fantastic. And I don’t remember who said this but I thought it was so powerful. Don’t compare where you are to where somebody else is because they started at a different time, they’ve had different circumstances, they’ve made different choices. Start where you are. Compare yourself to Tracy last month. Tracy last month spent a lot of money. Tracy this month didn’t spend so much. Yay for Tracy. Tracy next month is going to spend less than Tracy this month spend and on and on and on. And sometimes Tracy next month does spend more because she has to replenish her pantry or whatever but it’s a more intelligent, thoughtful spending process because now you’re paying attention. And I am going to just give a big confession. I haven’t checked my spending in months and it’s getting out of hand so starting January one, we are back to doing-

Tracy:
[crosstalk 01:12:56].

Mindy:
The spending tracker. And I don’t do the notebook anymore. I do the app but it’s the personalized app from the Waffles on Wednesday couple. But that’s right on my home screen. Anytime I’m at the cash register I’m like, “I know. I know I’m taking up time.” But I’m typing it in right then and there because I’ll forget. And then I know I have to share it with my husband and I don’t want him to ask me why I spent so money so I just don’t spend it. That’s helpful.

Scott:
To recap kind of all the things we discussed today, again, you’re doing fantastic. You’ve got a strong net worth. A really good retirement account situation. You’ve automated the huge parts of building wealth and that’s where you’ve been really, really successful with those types of things. Your income’s great. You got a bonus which you do not depend on for your spending and those types of things. You’ve got an emergency reserve. House, car is almost paid off. You’re a year out from that. Things are going really well overall.
Asset allocation is really a fundamental issue for you. You have one tactical choice around the car payment and those things. A $500 choice. But just depends on how soon you need access to that liquidity for other investing purposes. But again, the fundamental problem here I think is that you’ve got a good situation but you don’t have the freedom over the next 15, 20 years that you’d like to have that I think you can have by building wealth intentionally in addition to that wealth you have in retirement accounts and that you’re building automatically month by month in your home equity. And for that your spending is going to be the key challenge I think. And it’s going to be, how do you get that under control? Really make some choices that automate or make it difficult for you to spend outside of those boundaries that you place. And then maybe I think also …
My last point here would be, thinking about some sort of accountability mechanism. Could be the tracking of your spending. Could be a mastermind group with some of those ladies that you know. It could be a number of things. That would be really helpful for that. And there’s no reason why you can’t be sitting here a year or two from now accumulating three, four, five grand a month on a very regular basis outside of your retirement accounts after an investment or two, a raise perhaps in the years ahead and then these controls in your spending with that.

Tracy:
Yeah. I totally agree. I truly appreciate everything that you guys have shared with me. I am walking away with lots of ideas and optimistic about the new year. Yay.

Scott:
Nice. Well, that’s very exciting. Thank you so much for coming on and sharing all this stuff. I know it’s very personal and a lot of detail here but we really appreciate it and I think you’re going to help a lot of people who get to hear your story and all the things you’re going through right now.

Tracy:
Yes. Well thank you guys again so much for the time. I appreciate it.

Mindy:
Tracy, Thank you for your time. And to make your real estate location choice a little easier I am going to send you a copy of our long distance real estate investing book to see if that’s interesting to you or see if you to stay more close to home where you are right now.

Tracy:
Oh thank you. Appreciate that.

Mindy:
You’re welcome. You’re welcome.

Tracy:
Yeah, that would be awesome.

Mindy:
Do you have a joke for us?

Tracy:
I do not.

Mindy:
That’s okay. Scott does.

Scott:
What do you call a Christmas wreath covered in $100 bills?

Tracy:
Christmas wreath covered in 100 … Something about the benjamins. I don’t know.

Scott:
Close, Aretha Franklin. Who gets credit for that in the money group? I stole this from the money channel and somebody posted it and it got like a bagillionn likes. I told him I would use it on the podcast so who was it?

Mindy:
I have to find that in the group.

Scott:
It was fantastic. Thank you whoever that was. We’ll mention you shortly. But Tracy, thank you so much for coming on the show and sharing your story and all this with us. We really enjoyed it and we hope that you have a great and very successful 2021.

Tracy:
You guys too. Thank you so much. Happy new year.

Mindy:
Happy new year Tracy. Thank you for coming again and we’ll talk to you soon.

Tracy:
All right, bye.

Mindy:
Bye. Scott, that was Tracy from Pittsburgh. What did you think of her story?

Scott:
I think it’s a really good example of this kind of phenomenon that happens to middle class America where things look like they’re going really well. We’re making a good income. Got the house. Got the car. The retirement account is huge. But yet I just do not feel freedom. I do not feel like I’ve got options, freedom, liquidity, those types of things. And I think a lot of people are in a similar situation where the vast, vast majority, I would say north of 90%, 95% of her net worth is in just her retirement accounts and a little bit of home equity. Some people will have much more in home equity if they bought in a place that appreciated for a while over the last five years and a little bit less in retirement accounts, but that story I think is repeated all across middle class America. And I think it’s a really big frustrating point for the country as a whole. I think it’s a huge thing that’s going on in our society these days. And I think the root cause of that is just a lack of intentionality about really attempting over a long period of time to build wealth outside of those two places that gives you those options.
And that is what I heard as her overarching goal or desire today was to really reorient her finances around that and I think we’ve got a clear path to do so. It really comes down to being intentional with every dollar that’s coming into her bank account after tax and making sure that there’s plenty left over on a monthly basis and then let a couple years go by with $3,000, $4,000 savings rate and a couple of investments with that cash and all of a sudden the word begins to look a lot different I think.

Mindy:
I peeked at realtor.com while we were talking to Tracy and I’m seeing houses that are 100,000, 150,00, 200,000 in Pittsburgh. I don’t know the market. I’m sure not all of those are in neighborhoods that she wants to invest in. But if she can save $5,000 a month, which is totally attainable for her I think once she reins in the spending a little bit, that’s $60,000 a year. Should can buy a new rental house every single year and then tagging off of what Rich Carey said on episode 155, she could start paying those off and then her rental properties buy her more rental properties. He has 20 rental properties in Alabama that are all paid off and he’s having a great time with it. And he’s got enough income from those rental properties that he doesn’t need to work anymore. He’s retired from the military so he also has his pension. But I see huge things for Tracy.

Scott:
Absolutely. And we didn’t really talk about the longer term stuff here. Because her short term goal I think is really … Short to medium term is really to build more wealth in general outside of those retirement accounts and have some of these options available. But longterm we just talked to the Mad Fientist and he had some great points about how … Look, if you want to retire early, traditional retirement is part of early retirement. And she’s got all that money in a 401K. If she were to really begin backing into some of these things and looking at some of those more advanced things that we talked about with the Mad Fientist, she may realize that she’s really not that far away from being able to retire in a general sense with the 700,000 or so in the retirement account and some of these Roth conversion ladders and all these other types of things, the games she could play. There could be some really good options in her future there and I think it just comes down to now she’s got to really focus on buckling down and building that wealth outside of those retirement accounts to bridge that gap between today, or whenever, if she were to make that a goal and want to retire early, and then traditional retirement age.
Another thing I think that’s going to be really critical to her achieving that goal is that accountability piece. And it’s something we haven’t really thought of or considered here, but I’d encourage you, if you’re interested in something like that or feel like that would be helpful, to go on the BiggerPockets Money Facebook group and we will start a thread when this episode releases, which I believe is January 15th. And we’ll go ahead and have a little discussion there and see if anybody else is interested in creating a little bit of an accountability group. It could be a little virtual one with a couple of people across the country. And we’ll see if that works and if people like them and they’re helpful.

Mindy:
I love that Scott. And she said that she’s got friends who have offered in the past and she wasn’t ready in the past. Now she is at a point in her life where she’s ready and she wants to do this and I think it’s so important to note that if you ready to do it, that’s the best time to start. Don’t listen to this episode and think, “Oh yeah, I should probably do that. I guess I’ll do it.” If you’re ready to do it, you’re going to have so much more success than when you feel obligated to do it. And I am so excited for Tracy because I know she is just going to kill it. She’s going to sit down with her girlfriends and say, “Okay. Mindy and Scott told me I have to do this and I’m ready to do it. And I need you to keep me accountable. I only want to spend this much money this month.” And they will help her out. And I think it’s so fortunate she has those people in her life.
But yeah, like you said, if you don’t have those people in your life … Because it’s kind of hard to find people who have the same money values that you do or who will be willing to talk about it. We’ve got a whole Facebook group full of people who have the same money values that you do or similar and would love to talk about it. They don’t have anybody in their life either. They can’t wait to talk more about it.

Scott:
Yep. Absolutely.

Mindy:
So you can find that group at Facebook.com/groups/bpmoney. And jump in and say hi. Tag Scott. Give him a really terrible joke. He loves those. Also this is our third Finance Friday. We have actually recorded several more in advance and we are fairly male heavy on these episodes. Not that I don’t love the men, but ladies please reach out and let us review your finances too. I don’t want you to think that you’re not welcome in the Finance Friday episodes. We love the ladies too.
Does that sound weird?

Scott:
Absolutely. I think the key is for these to be as helpful as possible and for us to learn as many lessons as possible, to have all different types of folks. And I would say in general our applicants have been a little towards the higher end of the higher income range. A lot of applicants for example with north of 100,000 in earnings and those types of things. And I think that it would be great to have some folks with maybe a little less earnings. It’d be great to have some more folks with families and the challenges that those present in terms of having the additional expenses and maybe a little bit less free time. And I think that there’s a lot to be learned from more diversity in the finance reviews.
That said, we’ve had a wonderful time doing this and I think we’ve learned a lot from the folks that we have had on the show.

Mindy:
I have learned so much. There’s an episode coming up where I suggest that they stop contributing to their 401K. I suggest that. That’s not me. But the situation for them makes it a really intriguing possibility and I hope that they look into it. But I am opening my mind and opening my horizons to different possibilities and it’s helping me in my finances too. Like I said, I have not actually been checking my spending lately and that’s gotten me into some trouble. And I host a podcast every week about money. So that is our January resolution to start tracking our spending again and it’s just really helpful. So I am practicing what I am preaching.

Scott:
Wonderful.

Mindy:
Okay Scott, should we get out of here?

Scott:
Let’s do it.

Mindy:
From episode 162 of the BiggerPockets Money podcast, he is Scott Trench, I am Mindy Jensen saying we can’t stay bluejay.

 

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In This Episode We Cover

  • Why employee match programs are so valuable for retirement investing
  • Whether or not you should keep an expensive car loan (or sell and get a cheaper option)
  • How to fight lifestyle creep and focus on your spending and investing
  • The importance of manual expense tracking and budgeting
  • How bigger shopping runs can minimize your food budget every month
  • What type of savings you should have before buying a rental property
  • And So Much More!

Links from the Show

Book Mentioned in this Show:

The BiggerPockets Money Podcast is for anyone who has money… or want to have more! Join BiggerPockets Community Manager and Podcast Director Mindy Jensen and CEO Scott Trench weekly for the BiggerPockets Money Podcast! Each week, financial experts Mindy and Scott interview unique and powerful thought leaders about how to earn more, keep more, spend smarter, and grow your wealth. You'll get tips for getting your financial house in order and actionable advice from guests who have been in your shoes—and found their way out.