Log In Sign Up
Home Blog BiggerPockets Money Podcast

Are You Burning Out from Over-Saving? Finance Friday

The BiggerPockets Money Podcast
48 min read
Are You Burning Out from Over-Saving? Finance Friday

Having too much money in investment accounts seems like a good problem to have, but it’s a problem nonetheless. Today we talk to firefighter Nathan and teacher Kristen about their income, expenditures, and investments.

Nathan and Kristen own their home and multiple rental properties as well. Collectively they bring in a respectable income, but are being stretched thin due to time restraints. From 24 hour shifts as a firefighter, making cornhole game pieces as a side hustle, and taking overtime, Nathan is working a lot, while Kristen has her hands busy as a remote teacher and taking care of their kids at home.

Between the two of them, they’re contributing a generous amount to their investment accounts, but still want a solid emergency fund (or as Scott likes to say a “financial runway”) to help them sleep better at night.

Aside from that, they are donating heavily to charity and fostering one child while in the process of adopting another. Although this philanthropic couple has all the right things going for them, they still need some downtime to enjoy the fruits of their labor.

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Mindy:
Hey, hey, hey, Bigger Pockets Money listeners, Scott and I want to answer your questions. We’re hosting a live Q&A session exclusively in our Facebook group on February 4th at 5:00 PM Mountain Time. You can send questions in advance or ask in the comments section during the recording. If you can’t make it to the recording, please feel free to send a question in advance to [email protected] or [email protected], and we will see you there.
Welcome to the BiggerPockets Money Podcast, show number 166, Finance Friday Edition, where we interview Nathan and Kristen, and talk about paying off debt and being intentional with your money.

Nathan:
One of my hangups from reducing my 457 is over the years I’ve made some crazy investment mistakes or buying cars or just not managing the personal budget as well. As I’ve matured, obviously, a lot of that has been corrected and even this year after we… We didn’t start tracking our net worth until January this year, and so that’s helped a lot.

Mindy:
Hello, hello, hello, my name is Mindy Jensen, and with me, as always is my world’s worst Robert De Niro impressionist co-host, Scott Trench.

Scott:
You talking to me?

Mindy:
No. We’re talking to Nathan and Kristen. Scott and I are here to make financial independence less scary, less just for somebody else, and show you that by following the proven steps, you can put yourself on the road to early financial freedom and get money out of the way so you can lead your best life.

Scott:
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 maybe relax a little bit on the long-term wealth creation and enjoy the present a little more. We’ll help you build a position capable of launching yourself towards those dreams.

Mindy:
Scott, I am excited and a little nervously excited to bring this story today of Nathan and Kristen, because … Not because I don’t like their story, but because my advice to them is a little unconventional for me.

Scott:
Yeah. Mindy and I, I think we had a really raw, great discussion. This is a couple who is I think doing a lot of things really well and a lot of things right, but isn’t really able to have freedom in the present given a lot of their financial choices. They’re building wealth for the long-term at the expense of the present, which I think is an unusual one that we haven’t come across yet very much, not in our experience, Mindy, you and I.
I think it was a fascinating discussion, it was an emotional discussion, and Mindy and I actually disagreed on the right approach and I think Mindy was right. So, we’ll see how it turns out and what you guys think. But I’m excited to bring them in.

Mindy:
I agree. I am right, Scott. But, yes, I am excited to bring them in. I think that your idea has merit and I hope they are able to explore it and see how that would help their financial situation.
One more thing before we bring in Nathan and Kristen. My attorney makes me say, 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 provision of legal, tax, or any other advice. You should seek your own advice from professional advisors, including lawyers and accountants, regarding the legal, tax, and financial implications of any financial decision you contemplate.

Scott:
Now, should we go tell Nathan and Kristen what to do with their money?

Mindy:
Nathan and Kristen, welcome to the BiggerPockets Money Podcast Finance Friday Edition. I’m so excited to have you today. I’m really excited to share your story with people, because I think a lot of people are going to listen to this show and say, “Oh, I totally identify with these things that they’re doing.”

Kristen:
We’re glad to be here.

Nathan:
Yeah, we’re excited. Thank you.

Mindy:
Nathan and Kristen are a married couple with three children. He is a firefighter and she is part-time teacher for an online school. He also has a side hustle, building Cornhole game boards, the world’s worst named game ever, but it’s a lot of fun. Every time somebody brings that up, I’m-

Scott:
What’s wrong with the name Cornhole?

Mindy:
Look it up, Scott, Urban Dictionary, not at work. Once he’s retired, he will be eligible, potentially, for a pension, but he’s not relying solely on that for his post-work life. So, Nathan and Kristen, let’s talk about your income and expenses. First, let’s recap your income.

Nathan:
Yeah. So, where we’re at today is my income from my annual income typically from the Fire Department is around 140 to 150. That includes quite a bit of overtime. That’s kind of a regular occurrence for us, and then Kristen is making 22,500 for teaching online part-time. She has started in that in August.
Yeah. Our salaries are about 160 to 170, and then we also have some rental properties that cash flow about between 1500 to 1800 depending on expenses, but that money is just left in the LLC for the rental properties. So, that’s not money that we really count on as expenses or money to live on.

Mindy:
Good. I love that you keep that in there.

Scott:
Yeah. I’m really interested what your thoughts are for capitalizing that business when we get to assets a little bit here. With your income, can I ask what you base pay is and what percentage is overtime?

Nathan:
Yeah. My straight base pay is $107,000 a year. But then, there’s incentive pay for my certifications and education that they add on there. So, that’s automatically paid, whether I work any overtime or not. So, that bumps us up to about 120,000, and then overtime is typically anywhere between 20 and 30,000 a year.

Scott:
Great. What kind of hours are we talking about here? I understand firefighters are sometimes on for 24 hours in a row. Is that the case for you or how does that work for you?

Nathan:
Yeah. We work in a 24 on and 48 off schedule. So, it’s one day on, two days off, and then, typically, when I work in overtime shift, it’s 24 hours at a time. So, when I’m up for overtime, then that comes in a 24 hour bundle.

Scott:
Got it. Okay. Great. What I’m hearing here is you’ve got an unusual schedule with that, of course, but there is some time that you could tap into and that you can access for both recreation and potentially other income sources. Is that fair?

Nathan:
Yes.

Scott:
How about you, Kristen?

Kristen:
Yeah. It’s 20 hours a week and it is from home, but I’m also taking care of our one-year-old with that. It’s Nathan and I kind of juggling with her and it’s kind of however I get to 20 hours in a day. So sometimes it’s in the evening, sometimes it’s in the morning, but I usually try to do about 10:00 to 2:00 each day.

Scott:
Okay. This is great. Is that enabling you guys to not have any daycare expense or those types of things?

Kristen:
Right.

Scott:
Okay. That work is a huge contribution to your savings right here with us the way you set that up. Okay. Great. Let’s go through expenses. What are some of the big ones there?

Nathan:
Yeah. Our monthly spending right now is at $6600 a month. That includes a $950 457, which is the government version of a 401k, so $950 a month loan repayment. Then, yeah, so for auto expenses, we’re spending about $600 a month including gas and insurance, service and toll road. Our utilities including phone, internet, gas, water, electric are around 500, 550. Life insurance for both of us, each of us have a policy is 120 total for the both of us.
One of those is a life insurance plan that I signed up early on in our marriage. It’s a return of premium policy. It’s a higher monthly expense. I might get the premium back, but probably would be doing a lot better if I had that money going in lower monthly, but I hadn’t really looked into what it would take to get out of that policy and into something else, and at this point, after 10 years if it’d be worth making the switch.
Groceries and my food fund at the Fire Department is 900. We spent 800 on family groceries and $100 on my food fund at the station.

Kristen:
Within the food budget is all toiletries and all of that, dog food, diapers. It’s not just food. It’s anything you buy at the grocery store.

Scott:
You’re a family of five, that’s right?

Nathan:
Mm-hmm (affirmative).

Scott:
Yeah. We just had somebody on here who had a same budget for a family of two. I’m curious. I imagine that you’re reasonably disciplined there. There’s not much to go hunting for in that budget, but I’m interested to see if there’s something-

Nathan:
We’ve tried to do less, just found that it’s better just to go ahead and plan for a little bit more, because we’re going to end up going over budget, and this way we’ve got in the budget we know how much we need to make up.

Scott:
I don’t know anything, but it sounds like kids get bigger as time goes on and eat more.

Nathan:
That’s how it works typically. Yeah.

Mindy:
Some of those little ones scarf down a ton of food too.

Nathan:
Yeah. We got a couple of here, for sure.

Mindy:
So do I.

Nathan:
Then, we have a gift and donations category. That includes our tithe to the church and some missionaries that we’re supporting, and so that’s about $900 a month. For home expenses, including our mortgage and our escrow, weed control in there, but for home improvement and we do house cleaning every two weeks. For just home improvement budget, we budget $100 a month that doesn’t always get spent, but can add up.
We have a cleaning every two weeks, and that’s $170 a month. That was a trade-off for Kristen being able to go back to work and watch the kids. That’s been actually a positive change for us. She’s making about $1600 a month, and so the trade-off there was $170 every month for a couple of cleanings so a good deal on my part I think.
Then, the mortgage and escrow, so our principal and interest is 1185 a month. Then, we do our own escrow into our savings account and we add $800 a month into that. That’s like a $6400 a year in taxes, $1500 per year in home insurance, and then about $700 a year in HOA fees.

Scott:
Is it 1185 in mortgage plus another $800 a month in those items?

Nathan:
Correct.

Scott:
We got about, bumping up against 2000 or 1900?

Nathan:
Yes. That’s correct, and then we’re in the works of doing a refinance on the house. We’re at like 3.875 and on 30 year, and then we’re looking at going to 2.75 on a 30-year and with about $1000 in closing costs, so that will reduce our monthly budget by about $170, our mortgage anyways by 170 a month.

Mindy:
Now you just made up your house cleaning.

Nathan:
Yeah. There you go. I haven’t looked at it like that before. That’s good.

Mindy:
I would say, three years ago Mindy would say, “Oh, my goodness, you should clean your house yourself.” Now, Mindy says, “Go ahead and pay that fee.” Nathan, you think you’re getting the best end of that deal? No. Kristen’s getting the best into that deal.

Nathan:
Oh, well, no. I think I am, because everybody’s happy, for sure. It does free us up. Before that, I was helping a little bit more with the house cleaning and stuff and trying to do side jig stuff, so it does free us up, just mind space, and opportunity for other money making ventures, and then just time to, and all that some time to just relax too. It’s been a big help.

Mindy:
That mind space is huge. Having mental space to just not be worried about, “Oh, I got to do all this.” That is not just mind space, that’s like a lift off your shoulders too. Three years ago Mindy was wrong.

Nathan:
Yeah. I think it’s just whatever season you happen to be in at the time, it just kind of changes with that.

Scott:
I’m doing some mental math here and I’m rounding a little bit. We’ve got 2100 or so for the mortgage and cleaning plus utilities puts us at about 2650 for your housing and related expenses, right?

Nathan:
Yes.

Scott:
Then, we layer in 600 bucks for the car, gas, insurance at about 3100 here. You’ve got another 900 for groceries. That puts us at about 4000. We’ve got 900 a month in giving and that puts us at about 30, or sorry 4900. We’ve got a little bit of life insurance there as well. On your income of 66, 6700 after tax. We’re talking about a $1700 net savings after that. Is that what you’re experiencing? Are we missing a couple of things still?

Nathan:
Yeah. We’ve also got clothing budgeted. We budget about $180 for the whole family per month. Again, that doesn’t always get spent, but we can either put that into savings or use it or let it add up for when we do need to spend more on clothing. Then, we have a miscellaneous budget of just our… Kristen and I both get $60 a month for just random stuff that comes up, and then family entertainment, we’ve got at $100 a month right now.
That all added up together including the loan repayment comes out to be about $6600, and then like we said, our take home is about $6100. That leaves us a negative cash flow each month of about 558, but that doesn’t include our 457 contributions, which we’re maxing out. It doesn’t include about $600 that goes from Kristen’s check directly into our savings account, and then that funds our Roth contributions of $500 each month.
Then, my pension takes out 7% of my check each month before taxes, before take home. Then, we also can contribute about $475 a month or we’re maxing out our HSA as well. Our employer matches or contributes $1500 a year to that, and then we contribute the rest to max out this year, the 7200, and then next year I think it’s $7300 a year for the HSA.

Scott:
Okay. I want to break that down in a second here, because you’re not coming up negative 500 a month short, you’re investing heavily with all that, but let’s talk real quick about that loan repayment that you just described. Can you describe that loan and what that is and what’s going on there?

Nathan:
Yeah. I took a $50,000 loan from my 457 plan in January. The original plan… At that time, we still had two car loans going on and we also had about… Let me see. Yeah. We had another $20,000 on rental property mortgage that we had in January. We had about $50,000 of auto loans and mortgage left on a rental property that we have.
We took that $50,000 loan initially to use that as money to buy more rental properties, use it kind of like a BRRRR, buy rental property, fix back up, refinance it, get that 50,000 and keep using that 50,000 as cash to purchase more rental properties. We ended up doing that. We bought one property in Oklahoma. We bought it off of auction.com for about $50,000. We put 15 into it, and then we refinanced it for 55, so we ended up leaving 10 to 15,000 in that property after closing costs.
Then, we had the rest of that money, we had about $40,000 of that loan left in our accounts, and so just going back and forth of deciding whether or not we wanted to keep using that money to buy more properties, but decided we really want to invest more in the future out of a position of strength instead of maxing out our dollars to buy the next property, and so we used that money and money that we have just saved over the year to finish paying off our vehicle loans.
We paid off $10,000 we had left at that point on our mortgage, on our rental property that we had in January. Then, we ended up selling one of our vehicles, the van, which was the more expensive car that we had and replaced it with a Honda Civic that we got for about half the price, and so paid off those, and then bought a cheaper vehicle to replace some of those funds into our…
Now, we’ve got our emergency fund built up. We’ve got some operating money in our LLC still, but we’ve got about $42,000 left on that 457 loan that we want to try and get paid off as quick as possible, and then that’s going to create the room in our personal budget each month to feel like we’ve got a little more freedom.

Scott:
I love the concept that we’re introducing here and the way you’re thinking through the situation. Basically, if you’re listening and you’re wondering what a 457 loan is. Basically, it’s a loan against your retirement assets, right? This is a loan that you’re taking out against from yourself, and you’re paying interest back into your retirement plan. Is that correct? Is that how you’re understanding it?

Nathan:
Yes. We took the loan, the fees are almost nothing, and then we repay the loan at 5% interest, but that 5% interest is being repaid to ourselves. We’re paying ourselves back at 5% interest. The downside of taking a loan from your retirement account is you’re not making any interest on that money while you have your loan taken out.
Then, also the money that you’re paying back into the 457, which is like 401k is after tax dollars, and so you’re paying it back with after tax dollars, and then when you pull it back out, it’s going to be taxed again. There’s some different trade-offs when you decide to take a loan like that from your retirement account.

Scott:
I think you have some great points here. Generally speaking here’s what I like and don’t like about your thought process with this. I love the fact that you are thinking about how do I refinance basically certain debts and consolidate that and make it simpler, probably have a different interest rate those types of things. That’s a great thought.
I love both things. I love the fact that while you initially started out thinking about how do I use this to accelerate my real estate investing, you stop that thought process and you’re like, “No. We’re going to build a financial position of strength from which to invest.” I think that’s the root cause of a problem that you’re dealing with now, which is you got a $900 drag on your liquidity position per month. That’s $12,000 a year. That’s pretty impactful to your ability to do the next deal or whatever, because you have to pay back this loan into your 401k.
The root cause of that is not having the high savings rate and ability to build wealth outside of those retirement accounts or tax advantaged accounts. I think that should be I think a goal of you guys as a household is to over the next six months or a year, put yourself in a position where you can get that anchor out of your liquidity position, build a strong cash position and have a strong net savings rate even after all the great things you’re doing.
You’re doing a lot of things right. You’re in a great income. You are building wealth pretty aggressively with these pensions, Roths, HSA, 457 contributions. It’s just you’re not able to build liquidity, you’re not realizing any of that freedom that finance can give you in the here and now. Is that a fair articulation of the situation?

Nathan:
Yeah. That’s what we talk about a lot as far as having that freedom to really move our focus off of finances and really more… Less of just moving our focus off of finances, more about moving our focus off of how much do I need to work this month to make sure we cover the expenses or are still able to save? Get our expenses below our take home pay each month and have some extra room there and below take home pay before any overtime or before any side gigs, so that any of that is extra and we just do it when we want to do it and we can focus more on just our church and our friends at church and our family and, yeah.

Scott:
Yeah. I love it. I think that’s completely correct. When you think about that the elephants in the room in terms of your financial situation that are holding you back from that are your housing expense. You got 26, $2700. That’s nearly 50% that’s much more than even the average American household is spending on housing expense. That’s most what you got there.
Your other stuff is pretty tight, right? I think you got a pretty reasonable situation with the car, gas, and insurance for a family of five. I think you got a pretty reasonable grocery situation. I’m sure there’s something you can do there on the discipline side with that, and like who are we to say, “No. Stop donating and tithing to your church?” No. We’re not going to… That’s ridiculous advice.
I think that that’s your elephant in the room in terms on the expense side. I think a position to think about is how do you get to a place where you’ve got three to six months of liquidity just sitting there in the bank and you’re feeling pretty good, and you’ve got a 1, 2, $3000 a month net even after that after tax wealth, or the pre-tax wealth building stuff that you’re doing a great job of currently.
From there, you’re going to feel a lot better about real estate investing, because you’re not going to be buying more properties, which are then requiring you to suck more cash on an ongoing basis out of your position. They’re going to be adding cash to your financial position and beginning to multiply like that. Right?
I think that’s what’s going on with your portfolio right now is you’ve got this real estate portfolio, you’re not taking any cash out of it. You say its cash flowing, but it’s not contributing to your net position here. In fact, it’s taken out $1000 a month, because you got to go back to that 457 loan.

Nathan:
Yeah.

Scott:
What do you think, Mindy?

Mindy:
I think you’re correct. I’m wondering how we can pay that loan off faster or slower. Is the 940 the lowest, the minimum repayment?

Nathan:
Yeah. That’s the minimum. Any loan that we take out is required to be paid back in five years, and so I just put it at the maximum of five years, but I can’t make any extra payments until I have the lump sum as far as I know, and I can’t say I want to put $1000 extra in this month, but then go back to the 950 next month. Yeah.
The only way that I can get that paid off sooner is to add up the lump sum in my savings, and then pay it off all when I have the principal, whatever the principal is at that time to pay off my lump sum.

Scott:
I don’t have enough experience with this specific type of loan and you brought up some really good points about the pre-tax versus after tax arbitrage, so I got to think a little bit. I’m not sure I’m going to be able to give you on the spot feedback on that one, but are you forced to pay that back every month at that rate or is there a compounding interest situation there? What happens if you don’t, if you temporarily don’t pat that?

Nathan:
Well, the loan would go on default, and then they would just say that you have taken a withdrawal from your account, and then you get penalized plus tax on whatever the principal was left on that loan.

Mindy:
Yeah, and when you separate from service from your company, if you don’t repay it within three months, they just assume the same thing. They assume that it’s a disbursement, and then they tax you at your current income tax rate and also a 10% penalty. It’s just like withdrawing money early from the fund.

Nathan:
Right.

Mindy:
I’ve done this a couple of times and I like these loans because if I’m going to pay somebody 5% interest, I want to pay somebody, I want to pay me. The pre-tax versus post-tax money argument, I get it. Sometimes it’s just easier to take a loan from your retirement account, then go through all of the things to go pay somebody else 5%. Is there any help from the cash flow of the rental properties that you could put towards the 457 repayment, because that’s where you put the money in the first place was towards the rental properties? Can you use… It looks like $1600 a month coming into the LLC for the rental properties. Can you take that and make your payment instead?

Nathan:
The problem that we have there right now is right now we have about $15,000 in savings, and then about $6000 in our checking account on our LLC. I’d rather have that closer to $25,000 in our savings for the LLC, so I want to keep building that up, and then we’ve also got on one of our properties a rehab that’s… So, we had a bad tenant. It’s going to end. We’re replacing the furnace and a water heater all at that same time so within the next 15 days, I’ll have about $14,000 payment that I’ve got to make on one of those properties to get it back and rent-ready.

Scott:
You’re going to have to finance that with equity of the property like a [inaudible 00:26:34] or something?

Nathan:
Well, no. We’ve got the money in the savings account to make that, but then I don’t want to take any money out of the LLC right now until our savings account gets built back up.

Scott:
Great. I think it’s perfect and I think you’re doing a smart thing there. You’re capitalizing your business appropriately to be able to handle this, right? If you don’t have that savings in the LLC, this is called a disaster and you become a motivated seller, because you have it, it’s called a capital expense and you’re going to rebuild your position there and it’s part of the deal.

Nathan:
Yeah, and then another thing that we have therewith the LLC is we have a $120,000 line of credit because… We have rental properties and one of them we have a 30-year mortgage on. It’s like a $299 monthly mortgage. Then, on the other three properties, I have a portfolio line of credit, but I don’t have any money pooled from that. It’s just sitting there. If we did have another emergency come up, then we could use that money if needed.

Scott:
Great. It sounds like you’re well-capitalized in your rental business. I think you’re very wise not to tap that line of credit because if you do and your wrong, or it doesn’t work out, you’re just compounding the current situation that you’ve got here where, again, you’re doing lots of good things right. In 10 years, these are all great moves that you’re making, you’re just going to be continuing to dip in this current period, which is probably very frustrating for you and probably the root problem. Am I kind of on it with this?

Nathan:
Yes.

Scott:
Great. Let’s talk about the solution set here. Your rental property situation is not going to provide cash flow that is meaningfully going to change the name of the game in its current situation. Is that correct?

Nathan:
Yeah. As far as our personal living expenses and day-to-day living is… Yeah. We’re just kind of pretending that money’s not there.

Scott:
Great. I think you have to make a decision here between these things and say you have a lot of wealth and you’re putting a lot of cash flow into three places right now. One is into your home living situation, which is your major leverage point on the expense side. The other is your retirement accounts, which I think you’re certainly going to be able to hit a goal of having a good amount of wealth in 10 years with that approach, I think. I think you said your pension, you’ll be eligible for a pension in 10 years?

Nathan:
Yes.

Scott:
Yeah. You’re going to be grinding it out between now and then, but I think at that point, you’re going to be sitting reasonably pretty if you continue with those, and then your real estate portfolio is your other source of significant assets per my understanding. Am I missing other assets or other areas where your money is going?

Nathan:
Yeah. Just the HSA as far as assets.

Scott:
Which is another pre-tax. Yeah. Pre-tax.

Nathan:
Right. As far as our home, we’ve talked about doing, buying a house that we could, a house hack, essentially that where we could either build a space or that already had space, we could rent out like a mother-in-law type suite or something like that.
What’s keeping us from being able to do that right now is we are foster parents to our third child, and so there’s a lot of home studies and requirements that go into being able to have a child placed in your home, and so changing that up right now would be difficult. Then, we’re also in the process of we would like to adopt but there’s some court stuff that’s going on with her case, and so we’ve got every two to three months of $4000 lawyer fee that we’re paying right now, and so that’s kind of indefinite until the situation gets straightened out, and so that’s kind of increased our drive to work overtime, work side gigs. That’s where a lot of our money’s going right now.

Scott:
This is amazing. I just admire the good work you guys are doing so much with this. It’s really impressive and the sacrifice that you’re making to do that good stuff. I mean wow. What a great reason to have this complicated wrench in your housing situation.
Okay. Well, let’s think about this. Your goal… I can’t see a way, a reason why your portfolio is not going to give you a really good shot at building wealth over the next 10 years. You’re not going to get rich quick with your current situation if nothing big changes, but I think your choices here are if you can just keep pushing through and clearing that $500 a month, a couple of things are going to happen over the next five years.
One, your one-year-old… I believe you said a one-year-old is going to go to school, and that’s going to enable you, Kristen, to work more hours and change the income situation. Two, you’re going to pay off that $940 loan, which will just happen over time, and gradually these items will clear up. I think you’ll continue to be tight on that budget and continue to change that cash flow. If that’s too slow for you, if you want a faster transition, you’re going to have to figure out a way with that to make a change in the housing situation, you’re going to have to consider re-capitalizing or selling off a portion of your real estate portfolio or you’re going to have to consider…
Well, I guess you have two more options after that. You have to consider changing how much money you’re allocating to your pre-tax retirement and Roth IRA situation, or four, you can grind out a lot more hours to try to generate more income, right? I think those are your four options that I’m seeing. What do you guys think? Am I missing something? Or Mindy, do you have any other things that you’re thinking about?

Mindy:
I don’t love to suggest cutting back on retirement contributions, but since he has a pension that is a little bit different, what is your pension versus what you’re making now? We just spoke with somebody who is military and when he retires, he gets 50% of his current salary.

Nathan:
Yeah. So the way my pension works is they have a formula that they calculate and they have an estimated year of death, and so from the time that you retire until that… I think it’s like 82 or something like that. So if you retire at 46 and the age of death is 82, then however many years that is divided into the amount of money that you have contributed to the pension plan with interest calculated into that over the years is the amount that you get paid per month for the rest of your life, whether you live to 60 or you live to 100.

Mindy:
Okay. Do they give you any sort of estimates in advance?

Nathan:
Yeah. We can run estimates and it’s all calculated on the amount of money that you’re making over the last couple of years, and so if that amount changes these estimates can go up or down, but if I retired at 46, which would be the first year that would be eligible for retirement, so they have all different options that you can take like 100% survivor benefit, and then you also have an option of taking a lump sum from your retirement when you retire.
What I would choose to do is take the full partial lump sum that I was eligible to take and roll that into my 457 plan, and then I would get a $4200 a month monthly payment if I retire at 46. At that point, if I roll the $200,000 into my deferred comp, which is by 457, I would have about $900,000 in that 457 plan, and then if I calculate 4% from that 457 plan that would give me another $3000 a month on top of the $4000 a month that I would be receiving for my pension.

Scott:
So you’re gonna have plenty of income in retirement?

Nathan:
Yeah. It should be good then.

Scott:
My first reaction to that is like, “Why have this kind of…” Look, again, I’m just getting inside your head, so please tell me if it’s different. But I presume, based on what I’m hearing here and you being on the show that there’s a little bit of frustration or disgruntledness or I don’t know what the current financial situation that you guys are going through, is that correct?

Nathan:
Yeah. Kristen can probably speak on this more than I can, because we have a little bit different goals on finances. I’m more focused on finances and I want to get to my goal like tomorrow. I want to get that 10-year goal tomorrow, and Kristen’s logically okay with reaching the 10-year goal in 10 years. I’m always focused on, “Okay. What can I do to make…” Sign up for more overtime or how can I make more money in the side job or… So that focus steals a lot of time from family and in our… Yeah. That free space that we need to have to feel like we can have better relationships, but I’ll let Kristen…

Kristen:
Yeah. I would just say when you brought up the option of keep grinding, I say that’s not an option. If he’s been grinding since we got married and he just has an incredible capacity for extra work, and not a lot of sleep and just doing, hanging Christmas lights and Cornhole boards. I mean he’s got a lot of skills and puts it a lot of places, but just I think he keep running at this rate, and then we could get to 46 and it’s all broken down in one way or another physically.
I’m at a point where I feel like I’m not willing to make the sacrifice of the lifestyle that we live where it’s just constantly working extra for our kids and for me and, yeah.

Mindy:
Okay. I got this one, Scott, because I am in Kristen’s position. I am married to Nathan too. My husband never stops ever, and on the one hand that’s awesome. It’s so much better to be married to somebody who is ambitious than somebody who is lazy, but you see them working so hard and you want them to take a break, you want them to relax. Like, “Hey, it’s okay to read a book that isn’t teaching you something.”
Getting that through my husband’s head was amazing, because all he wants to do is keep learning and keep learning and, well, when are you enjoying yourself? So, I completely understand what you’re saying, Kristen, on that front. Also, I am on the other side of 46 and you are not wrong. You hit 45 and all of a sudden your body’s like, “Well, we’re old now, everything hurts.”
Yes. It’s great to keep in shape. You absolutely should keep in shape, but I completely hear what you’re saying, Kristen, and the pension, if you didn’t have a pension, I would have different advice, but this is all for you guys and this is based on your personal experience and based on your pension, I would maybe pull back on the 457 contributions for next year until the loan is repaid and the adoption goes through and these big fees are just taking money out of your liquidity.
I like the Roth contributions still, because that’s a lower amount. The pension is, it kind of sounds like it’s involuntary. You get 7% taken out automatically all the time. Scott, I would be interested in hearing your thoughts on that, but $4000 every couple of months is going to be… I mean that’s like $2000 a month that we didn’t actually include in your list of money here, and the 940, that’s another $1000 rounded up. Scott, what do you think about maybe pulling back on the 457 contributions for a little bit because they have the pension?

Scott:
I really respect that advice. I think I’ll take a completely different tactic though with it, because I think my favorite outcome is that you guys really sit down and you say how with regards to your housing situation, because to me, one of the things about like Texas is that there is a little bit, there are some cheaper housing options in many cases than perhaps, for example, here in Colorado. I’m not sure about Denton specifically, but I really think that is if you can figure out a way to somehow reduce that housing expense by 1000 or 1500 bucks and that’s net of your mortgage escrows and your utilities that are going into that, that’s going to make everything so much easier. That allows you to not stop anything with those types of things.
The second place I’d look if that becomes truly not an option is, and this is bigger pocket. Yes. I’m here at BiggerPockets and I like real estate. I wonder if your real estate portfolio isn’t costing you more in the here and now than you need. We just talked about that you’re probably going to be working for the next 10 years to get that pension. So, within 10 years, you’re going to be, if you just keep up the 457, the Roth, the HSA, and the pension, you’re going to be done, right?
So, if you can have a much better here and now right now, get that six-month liquidity position fortified, get some solid savings, pay off that debt, and get a really solid financial foundation, I wonder if you might not benefit more from that than the real estate portfolio, and then you can always come back to the real estate portfolio and rebuild it in a few years.
Frankly, those are the first two places my instincts are telling me to look, which is completely different from Mindy’s there frankly. So, what’s your reaction to that guys? How do you feel about those two conflicting opinions or different areas?

Kristen:
I think we’ve tried to look at options for housing and Denton is pretty expensive. I feel like we’ve tried to… There wouldn’t be any other houses. I mean I think the only other option that we could possibly consider would be like having a college girl live in one of our rooms. But, again, that goes back to the whole fostering and background check, which we could do, but I just don’t know that we… Our house just feels like chaos and I just don’t know that anyone wants to live with us. I don’t know.

Nathan:
Yeah. I think that the housing, so we went through season of looking for some housing that we could find a house that we could rehab and have a lower monthly expenses on housing or like you said, do some type of house hack where they could really have a separate space of whoever the renter was and bring that down, but right now in the season we’re in and with our kids being so little and with the foster restrictions, it seems like that just, again, it’s just a mind space trade-off of searching for the perfect house that would reduce our monthly expenses enough and/or finding the house that needed rehab, and then putting the work into the rehab.
I think for the housing we like, because we have moved quite a bit, and so just being stable in housing for the season we’re in is a good option for us. Then, we do have an upstairs extra bathroom, living space, bedroom, and if we do stay in his house once the [inaudible 00:41:53] kids got a little bit older and got a little less chaos, then consider having a college girl move in and take some of that housing down, we really like the idea of that or even…
Yeah. Once we get a little more settled, then being able to look at just the perfect house for our situation would be good. Then, looking at if we were to sell off some of our rental properties right now, when we did get back into them, we bought these properties for… Three of them that we’ve got in the St. Louis area. We bought them for 20 to $30,000. We’d never be able to find those deals again in that area getting back in. It’s nice that they’re paid off over there.

Scott:
When you go through that real estate thing, by the way, that’s wonderful. Right. I got the same problem. I bought a property for a while back for like 240, a duplex, and now it’s worth 450. What a fantastic problem. I’m never going to buy that again for 240, right? But that’s not the analysis right now.
The analysis is right now, every day I’m not selling it. I’m buying a property or holding a property that’s worth 450 and rents for X. Is that still a good investment today is the question, right? Net of transaction fees, because I’m buying it with no transaction fees if I continue to hold it, and so when I sell it, I’m going to be incurring transaction fees. There is an advantage to holding rather than selling and going somewhere else, but just think.
I would just encourage you when you think about it to acknowledge that good problem be like, “Man, I made a lot of money. That’s a great problem. Am I deploying it right now?” Be ruthless with in that analysis [crosstalk 00:43:36]-

Nathan:
Yeah. So, our return on not the initial investment, but what the properties are worth now.

Scott:
What’s it going to do in the next five years in your opinion in your best guess? That would be how I would think about that one.

Nathan:
Okay. Got it.

Mindy:
Yeah. When you go to sell those rental properties remember you do incur a lot of fees when you’re selling a rental property. You have to recapture depreciation regardless if you took it or not. You have to recapture that. You have to pay capital gains taxes if you’re not going to 1031 into something else. You have to pay commissions to the real estate agent and on and on and on. So selling shouldn’t be something that you just do on a whim, really run through those numbers and see if it’s worth it that…

Scott:
On that note, I was just going to say, we’ll set you up with the BiggerPockets pro account and go ahead and just use our rental property calculator and analyze it as if you’re buying it fresh with the amount of equity that you’ve got in the property right now and see what your return is on that, and ask yourself, “Is that high enough to justify my continuation of this slog if I’m not willing to do the housing or the 457 or whatever on that?”

Nathan:
Yeah. Just rough numbers on those, each of those properties are worth around $70,000. It averaged out and I’m getting $900 rent on two of them, 825 on the other with minimal fees for… Taxes are pretty low up there and all daily expenses that typically come out. It’s still a decent return on [crosstalk 00:45:06]-

Scott:
Yeah. That’s a good move. I’m not doing that. That’s fair. But those are the places to look. Those are the big places I think you can look without going into the stuff that’s really going to impact your day to day. It’s going to be the housing, it’s going to be that real estate portfolio or it’s going to be these pre-tax retirement situations.

Nathan:
Yeah. I do kind of like the idea of changing any of those, maybe reducing the 457 right now and leaving the real estate alone just for a little more diversification as far as once we do get to retirement to be able… If stocks are down or whatever, then I can reduce the amount of money that I’m taking out of the 457 and use some of that real estate money to offset some of that.

Mindy:
How stable is your pension plan? I know that some union pensions can be… I think it was the Chicago Teachers Union pension was invested in something that wasn’t doing very well and they were down quite considerably. Do you know about the strength of your pension?

Nathan:
Yeah. So, as far as in Texas, we have one of the strongest pensions. It’s a municipal retirement system that several cities are in. It’s not based off of just one city’s ability to… It’s really scrutinized by the state of Texas. Yes. From our knowledge, it’s one of the stronger ones in the state-

Mindy:
Good.

Nathan:
…if not the country. Yeah.

Mindy:
What is your adoption timeline?

Kristen:
Well, because of COVID, everything’s been pushed back in the court system. It truly is indefinite. It could even be 12 to 18 more months. Had her since she was 2 weeks, she’s 18 months, so she could be almost 2 or 3. It’s just indefinite, and then the lawyer bills are intermittent and end up… There’s just no way to know.

Nathan:
Yeah. Sometimes there’s more activity in the case, and so a lawyer obviously has to spend more hours on it and sometimes there’s less, and so there may be several months before we have to pay the fee again, but we’ve been really well taken care of so even our family has assisted a little bit in those lawyer fees. There has been plenty of overtime for me to… I mean which is a trade-off, but it’s been really good that we’ve been able to get enough overtime to cover that.
Then, in November, I hang Christmas lights, and so that’s a really big boost during the month of November 4th. We’ve been able to pay those fees and still our net worth would increase, has increased each month even with all those extra expenses. That’s been… Yeah. The big goal there is just to pay those as they come in without having to dip further into savings than we typically would.

Mindy:
Yeah. That’s a great call.

Scott:
I think I’m super comfortable for my seat that you’re going to be pretty wealthy over the next 10 years, but the concern is not really how you’re building wealth, I think. It’s about how your… Again, you’re building… I have this concept called financial runway. That’s what you’re lacking right now. You have no financial runway or you’re not building it, you’re depleting it on average basis unless you put in a lot of extra grind to build financial runways the cash or liquidity you have access to net of your household expenses.
For example, you spend about 600 a month, one month of financial runways is $6600 in savings or cash. To have three to six months of runway, I think you’re going to feel a lot better about your situation, and if you’re having a surplus on top of that, that you can actively choose to then allocate however you want whenever you want. I think you’re going to be feeling a lot more comfortable, and that’s going to allow you, Nathan, to potentially ease back a little bit on what I sense is an extreme sense of urgency on earning that next dollar or finding that next income opportunity and really think about, “Hey, how do I not earn an extra dollar? How do I strategically develop a portfolio that just makes this game really easy for me on an ongoing basis?”
Then, maybe you find a passion project that’s just fun that you can invest just heavily in, but you’re not doing it out of this sense of I’m trying to claw out of this pit to get my finances in order. Again, we’ve just talked about multiple ways to do that. I’m very interested… I don’t think we’re going to come to a decision on the show here today with you guys.
I’m interested to see what you guys kind of discuss amongst yourselves and think about and which path you choose to go of the ones who outlined or if you find a new creative one. I don’t know, but I think that should be the goal. I think you should, “Hey, how do I get three to six months of financial runway and a position where I’m accumulating at least 1000 or 2000, 1000 to 1500 a month in runway, not this stuff that I can’t access that’s frustrating our financial position on an ongoing basis?”

Nathan:
Yeah. That’s another frustrating point for Kristen is I’ll tell her, “Hey, we put this much money into our 457 or we put this money, much money into Roth, our net worth increased by such and such this month.” It’s all like fun numbers, but she’s like, “Okay. Well, that’s not money that we can… None of that money has been in our lives right now.”

Scott:
You’re seeing your spreadsheet grow and she saying you’re working harder and harder and the hamstring wheel is spinning faster and faster, right?

Kristen:
Yeah.

Scott:
This is where I get into trouble with this, because retirement accounts are very powerful, but I didn’t invest in retirement accounts when I first got started with my financial position because of this very reason, right? It’s just a position of control that you’re lacking right now, because it’s going so heavily into retirement accounts and real estate equity, both in your house and your portfolio that is not actively helping you gain control over your life.
How much different is your situation if you have $50,000 in savings in the bank and a $3000 monthly accumulation rate, but less on those retirement accounts? I wonder and this is a dangerous thing to wonder, but I’m going to do it anyways. I wonder if you had way less in your retirement accounts, but that position with your work ethic and clear passion for building wealth, in particular, Nathan, whether you might find ways to generate a lot more real control from that and wealth over a 10-year period than with your current approach?
I don’t know how drastic to take that or how far to take that or whether to… But I think that’s a worthwhile thought to consider as you’re thinking through your portfolio.

Nathan:
Yeah. I think one of my hang ups from reducing my 457 is over the years I’ve made some crazy investment mistakes or buying cars or just not managing the personal budget as well. As I’ve matured, obviously, some of that, a lot of that has been corrected and even this year after we… We didn’t start tracking our net worth until January this year, and so that’s helped a lot, but the thing that has kind of saved me up to this point is that the 457 was just automatically taken out and I never even really thought about… I didn’t really know what I was investing until January this year.
It was a managed account. The fees were stupid, but at least that money which is going, I wouldn’t have to… What’s got us at this point, and now that we have a decent amount in that retirement account, I like the security of it just being automatically taken down, I don’t have to think about it and I can’t mess it up, but I also agree with you that now that we’re kind of on this other side of maturity financially, I think that we can make some better decisions if we did reduce our 457.

Scott:
Nice. So, Mindy for the win.

Mindy:
My advice would be different if you didn’t have the pension, but that pension is so big. I mean that’s a huge chunk of change that you’re going to get every month only if you work till 46 if you continue to love your job and you want to stay at it until 51, that’s even higher. I’m wondering what your house is worth versus what you paid for it. You don’t want to sell it and lose money or sell it and break even just to find a house hack potential, but it sounds like you’ve lived there for several years.

Kristen:
2017.

Nathan:
Yeah. Beginning of 2017, we bought it for 285. We calculated in our net worth, I calculated at 310, but it’s probably worth more around 330 just with the houses that have sold around here on our street in the last couple of months, but I estimated a little bit lower.

Scott:
How much does it cost to rent in your local area?

Nathan:
To rent a similar house, it would probably be like $2200 a month to $2300 a month.

Scott:
Would utilities be included in that rent?

Nathan:
No. That’s just rent. Just looking at Zillow and looking for people who are renting similar houses for.

Scott:
Okay.

Mindy:
Scott’s really excited about you getting a different house. I think something to consider is just reaching out to a real estate agent who understands what a house hack is and just have them start sending you listings. Here’s what we want. We want something either with a second unit attached or detached or the ability to build a mother-in-law suite or the ability to build an ADU somewhere on the property.
Then, just look and start learning the market and see what’s out there. Just because you’re getting these listings doesn’t mean you have to jump on them as soon as something pops up, but you can see, “Oh, so I could sell my house and buy this house with the income potential and the expenses of buying versus the expenses of selling is a wash, and then I can now start generating income,” or you would at least know that there’s nothing out there, if there’s nothing out there. That’s something to just consider is talking to an agent and just getting on a list of getting rentals, or I’m sorry, listings that so you could potentially move.

Nathan:
Yeah. We did do that about six months ago. Again, I like the idea, I like your suggestion of we don’t have to do it right now, but when we were looking six months ago, it’s kind of my same mindset that gets me into trap a lot is if this is something I want to do, I want to do it right now and every house that would have maybe a slight chance of working out, I was calling the realtor. I want to go look at the house. Again, it was just another thing that kind of sucked time and mind space away from family and being focused here.
Yeah. We stopped that, but like you said, it’s not their exact right season for us to do that to be able to get those listings and to even talk about them together and just have a [inaudible 00:56:02] for to open up conversation about that possibility when we are ready to know the market when it comes out. Then, I think that’s not a bad suggestion. What do you think?

Kristen:
Yeah. So, we’re in a college town.

Nathan:
That’s probably [crosstalk 00:56:17]-

Mindy:
Then, Kristen should get the listings.

Scott:
Yeah.

Mindy:
Don’t share them with Nathan, because you’re not going to want to go see them every five seconds.

Kristen:
Yeah.

Mindy:
Just to review what’s out there. It takes a while to find something, so you start looking and you’re seeing, “Oh, $300,000 gets me nothing, nothing, nothing. Oh, look, this one’s 275. This one’s 285 and it needs new flooring and it’s got ugly paint. Oh, that’s something I could do.” There’s a deal for everybody at some point and if you’re not looking you’re not going to find it.
Nathan’s not allowed to look at them. Only Kristen can look at them, and then you can decide. “Oh, Nathan, you know what? This does look kind of nice. Let’s go see it,” or he’s going to want to see that and I have no interest. You both have to agree that you want to buy the new house before you go buy it, and sometimes that takes a while, but learning what’s out there is also really helpful.

Nathan:
Yeah. I think that’s good.

Scott:
I think you guys are doing so many things right. I love the fact that the work ethic is clearly there. You guys are willing to grind, but that’s been the answer for a long time and you’re saying, “No more. We’re going to work smarter not harder with the stuff and build a foundation there.”
I think I love the fact that you’re at least willing to explore every component of the financial position there. I love the fact that I think we got to the root of the problem, which is just you’re earning good income, you’re not being unreasonable in your day-to-day spending. It feels like a grind and something’s got to give on the way, on your ability to accumulate liquidity and improve your day-to-day life.
I don’t know what that’s going to be, but I think that now you’ve got the problem to find that you guys are going to come up with, again, that really good solution there. I’m really excited to see what that is. Maybe we could have you back on in a couple of months to hear what it is you decided and how you’ve been going about that.

Nathan:
Yeah. That’d be great.

Kristen:
Yeah. Thank you so much.

Nathan:
A lot of good things to think about, to talk about. Yeah. I think one of the things I’ve been most excited about coming on the show is just a way for Kristen and I to, again, another reason for us to talk about this stuff and to be more focused on it together as a team and to figure out what goal we want to tackle and just preparing for the show has been good.

Scott:
There’s no reason with your income and the way you’re doing it that you can’t have a great relaxing wonderful year, next year in 2021, and continue to move well on your way to be a multi-millionaire before you’re 50, by the age of 46 with that and have all that. I just think that there’s a way to have your cake and eat it too, but you can have anything you want, but you can’t have all the things you want there.
Then, lastly, we talked about one last thing here, which [inaudible 00:58:59], but a big chunk of the limiting and flexibility and your cash outflow is the amount that you guys give, and while that’s very admirable in those types of things, you guys are doing much more really than any guest I’ve talked to relative to your position, at least, on that, and so that’s something to think about as time goes, is there a way to be… Do we need to kind of have our situation fixed and really feeling very strong and flexible and what if that allows you to instead of paying 900 a month in tithing or giving or supporting other folks, what if that allows you to donate way more of your time, which could be way more valuable to that or allows you to donate more in a few years?
Just something to consider along with that. It doesn’t have to be something you change now, but just know that you guys are in the top 1% in my experience of givers relative to your position. I don’t know about how you think about that, Mindy, but…

Mindy:
Yeah. No. Top one, not even 1%. Top one in the givers and I’m glad you said that, Scott, because I couldn’t think of a nice way to say that, but I mean that is $1000 almost every month that is coming out of your pockets, but I also think that there’s a way to… I mean really, again, I don’t like to suggest cutting back on the contributions to a retirement plan, but with the pension, that’s a huge advantage that so many people don’t have.
BiggerPockets should make a pension plan, Scott. Let’s do that. Scott’s like, “No way. It’ll never happen.” Not reducing them forever, just reducing them until the adoption goes through, until the loan is paid back, and continuing to max out the Roth IRA and the HSA, because the HSA with three kids, somebody’s going to break something and appendicitis… I had my appendix out in 1996 and it cost like $17,000 in 1996.
You’re fine. You wake up, you’re fine, and you go to bed in a hospital bed and after having surgery, it’s like the craziest thing. So, continuing to max out the HSA I think is a great plan for future you guys, because even if you never use it, even if you can cash flow all your medical expenses right now, that is a great retirement plan.
I’m going to bring up the Mad Fientist’s HSA article every single time that we talk about this, because he’s got an article called, HSA, the best retirement account… I should actually look this up before I even sit down. It’s the first thing when I type in Mad, HSA, the ultimate retirement account by the Mad Fientist. It provides the benefits of the traditional IRA with the… It’s like a super IRA. If you can cash flow your medical expenses, if you’re healthy enough to do that, that’s just a great way to sock away an extra $7300 a year.
Let’s see. We’re going to set you up with a pro account on BiggerPockets. Do you have an account now?

Nathan:
I’ve got a free account right now.

Mindy:
Okay. Great. I will make you a pro account, so that you can go and run the numbers on your rental, on the potential new property, on your current property, and see how they shake out and see how it’s working out for you.

Nathan:
Thank you.

Mindy:
Yeah. I think that just little tweaks here with the 457 contribution reduction will help you get through the part of the… That $4000 attorney fee is… Let me tell you, it’s not that much fun. But it’s so worth it.

Nathan:
It is.

Mindy:
But it is still $4000.

Nathan:
Yeah. It really is. It’s not something we’re frustrated over. It’s something that we see as definitely an expense that we are very willing to pay for… Yeah. It doesn’t feel like a sacrifice. It just feels, it’s just a number that we have to [crosstalk 01:03:04]-

Mindy:
Yeah. It’s a line item in the budget. I’m going to plug the challenge Everything Challenge from Budgets Are Sexy. In 2016, J Money decided, “I am going to see every line item in my budget and I’m going to challenge it. My insurance, how can I reduce that? My phone bill, how can I reduce that? My cable bill, how can I reduce that? Is there anything around my house I can sell that I don’t use anymore? What can I do to get more income or more money coming in and less money going out?”
I’m going to link to that in the show notes. It’s at budgetsaresexy.com/challenge-everything, but that’s a really great article for, and inspiring you to just… You don’t even have to challenge everything. Challenge one thing. Challenge another thing in the month and see how much you can reduce your expenses and watch your balance kind of shift in the right direction, but I do really like… I want to check back in with you in a few months.
I will reach out after we’re done recording and set that up as well. Do you have a joke for us? Some of the Finance Friday people have a joke and some don’t, so that’s like you can tell us [crosstalk 01:04:17]-

Nathan:
Well, I mean I’ve listened to the show a lot, so I was a little bit prepared, but it’s not really a joke, it’s more of a story, we’re in Texas. I heard a story about a rancher recently and he got a new bull, and let it out to pasture with his cows and it was a young bull and just wasn’t performing like he was hoping it would.
He was troubled and he called the vet and the vet came out, of course, gave the bulls some medicine and all of a sudden the bull was ready to go and just taking care of all the cows in the pasture, trying to jump the fence to the cows in the next pasture and he had a buddy that came up and said, “Man, what did that vet give to the bull?” He said, “I do not know, but it tastes like mint.”

Scott:
Nice. I love it.

Nathan:
That’s it.

Scott:
We’ll steer that toward a more appropriate direction here, but that was my attempt at bringing in a steer pun. That was awesome.

Mindy:
Oh, I didn’t even get that steer pun at first, Scott. That’s hilarious. Okay. Okay, Kristen and Nathan, I am super excited for the next few months for you and I’m very excited to talk to you again. Let’s circle back in about three months.

Nathan:
Great.

Kristen:
Thank you so much.

Mindy:
Okay. Thank you. It was nice to meet you.

Kristen:
You too.

Scott:
Bye. Thanks so much guys.

Mindy:
Bye-bye. That was Nathan and Kristen. Scott, what did you think of that episode?

Scott:
I really like this new format, Mindy. I think we’re going to do a lot more of them, so hopefully, you, listeners like them as well. Let’s do [inaudible 01:05:52] as well too, because I just learned a lot here. I think we’re able to get a lot more into the details. It’s just fun to attack the leverage points in someone’s financial position, and sometimes it brings up the elephant in the rooms, right? The elephants in the room.
There were four today that we came across, right? It was the housing expense. It was the pre-tax retirement accounts. I think it was the real estate portfolio, although no one else did. Then, also, the grind. The fact that the solution for so long has seemed to be just work harder, find more ways to make money so that I can finance all this investing that I’m trying to do.
Again, I want to flip that on its head. The way I approach investing, the way I think most people should approach investing is I invest from a position of financial strength and each investment I make allows my position to snowball and become easier, not harder. That’s I think the work that they’re going to have to undo one way or another here.

Mindy:
I know I said in the intro that I am right and you should, of course, I agree with you that I’m right, but it was very hard for me to say you should stop contributing to your retirement account or reduce, reduce, not stop completely, but reduce the contributions, because they have special circumstances such as the pension and the adoption fees and the loan from the 457 plan, I think that that is something that they should really consider toning down just a little bit to see where they can create a little bit more breathing room in their current financial situation, but I completely agree with you, Scott.
The rental properties, I wouldn’t encourage them to buy any more at this time. They got such a great deal that it’s hard to sell them, but I really hope that they’re able to run the numbers through the BiggerPockets calculators and see what that gets them.

Scott:
Yeah. Look, I just wonder, A, we didn’t get enough of a chance to dive in there, but I just wonder if those properties are sucking cash out of their lives rather than putting cash into their lives. I don’t invest in rental properties in order to continually commit more capital on an ongoing basis to the portfolio at the expense of my day-to-day life. I invest so I can pull cash out over time that continues to snowball my position.
I think that that’s hard and that can be difficult in many markets, especially here in 2020, but I think if it can’t happen, what are you, why are we doing it, right? That’s my worry about their portfolio is that it’s still several years away from being able… He’s so responsible. He’s could pull some cash out, but he wants to build a better liquidity position. That’s exactly what he should do and exactly what I do with my portfolio, but I think… Look, he’s just so many years away from I think realizing that in a literal sense from his portfolio and being able to pull that cash flow out.
That was where I was kind of feeling about that, so if you’re listening, maybe just… It’s not a stay away from real estate, but maybe to understand like, “Hey, if…” Think about that real long and hard before each deal you go into to make sure that it will enhance your position rather than suck cash out of your position.

Mindy:
I 100% agree, Scott. Okay. This episode wraps up our very first month of Finance Friday review episodes, and Scott and I just really love this. So, if you would like us to review your finances, please fill out the application at biggerpockets.com/financereview. We are looking for a diverse set of applicants. We’re looking for people with kids, without kids, with great retirement plans, with no retirement plans.
We’re looking for anybody who would like to share their information with us. We’re not here to put you on the spot or make you feel bad about past money mistakes. We are here to share your story because what you are going through is not special. Somebody else is going through it too. In fact, a lot of somebody else’s are going through it too.
Scott and I have a collective 38 years of adulting. Most of that comes from me, but Scott’s been an adult for a couple of months now too. We just want to share a neutral third party’s take on what’s going on in your life and your finances, because sometimes we can look at it from a different point of view and see where little tweaks can be made where you can’t see them because you’re sitting in the middle of it and you feel like, “Oh, I’m making all these mistakes.”
So far people aren’t making a ton of mistakes and little tweaks I think are going to send them on a brand new trajectory almost straight up.

Scott:
Don’t think you’re alone in this. Look, we’re sitting here and it’s opening up, because we’re doing this all day long. It seems sometimes we’re able to find some of these situations maybe, maybe not. I don’t know. That’s up to you guys to decide, but I will say that it’s hard to judge it from the inside, so hard that I’m personally struggling with that and I just went to Mindy for advice the other day and she was able to give me a lot of really good things by just looking at my situation from an outsider’s perspective.
I understand we all struggle with this, with kind of assessing the situation from inside, from the inside of it.

Mindy:
Wow. Scott, I think you just said Mindy knows everything. So sweet.

Scott:
Mindy knows everything. Mindy is right. Listen to Mindy.

Mindy:
I do not know everything, even though sometimes I think I do. I certainly act like I do. Okay. Scott, should we get out of here?

Scott:
Let’s do it.

Mindy:
From episode 166 of the BiggerPockets Money Podcast, he is Scott Trench and I am Mindy Jensen saying be sweet parakeet.

 

Watch the Podcast Here

Help Us Out!

Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds. Thanks! We really appreciate it!

In This Episode We Cover

  • How much money to keep in your emergency fund 
  • How to assess whether or not you’re over-contributing to retirement accounts
  • Paying off rental properties for added peace of mind
  • Developing side hustles to bring in even more income
  • Why everyone needs a “financial runway” so their investments can take off
  • Paying down a 457 plan loan
  • Putting yourself in a favorable “liquidity position
  • And So Much More!

Links from the Show

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.