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BiggerPockets Money Podcast 186: Finance Friday: Using Student Loan Forgiveness to Catapult FI w/ Sammie

BiggerPockets Money Podcast 186: Finance Friday: Using Student Loan Forgiveness to Catapult FI w/ Sammie

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Today we talk to Sammie, a physician assistant out of the San Francisco Bay Area. Sammie makes a great income, around $140,000 a year, but is strapped with a very big $160,000 student loan debt. The good news? She’s eligible for public service loan forgiveness within only a few years, all she needs to do is continue paying her loan payments while keeping her job, and the debt will be wiped away!

This is fantastic for Sammie, because she wants to start investing more into assets so she can hit financial independence within the next decade.This should be more than possible seeing as she used to be spending a lot on her rent in San Francisco, but decided to move back home with her parents two years ago to not only help them, but save money.

Sammie has some options to work more hours at her job, invest more aggressively, or buy some rental properties. She has a good amount in cash savings and would be comfortable looking into rentals starting next year. She also has a $200,000+ investment portfolio, so not only does she have a positive net worth, when her student loans get forgiven, she’ll be sitting on a lot of money she’ll be able to play with!

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Read the Transcript Here

Mindy:
Welcome to the Bigger Pockets Money Podcast show number 186, Finance Friday Edition, where we interview Sammie and talk about student loan repayment plans, investing and, of course, real estate.

Sammie:
That just opened my eyes to just the idea that you could have such a high savings rate, and I think before I was like, “Well, why would I have such a high savings rate because do I want a really shiny coffin or something?” Then after finding FI, I’m like, “No, all this savings is actually time.” This is time that if for some reason I didn’t want to work, I wouldn’t have to work and that really changed my perspective.

Mindy:
Hello, hello. Hello, my name is Mindy Jensen and with me, as always, is my award winning Robert De Niro impressionist cohost Scott Trench.

Scott:
Three people can keep a secret, if two of them are dead.

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:
That’s right. Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate, or start your own business. We’ll help you reach your financial goals and get money out of the way so that you can launch yourself towards these dreams.

Mindy:
Scott, today we’re sitting down with Sammie, a physician’s assistant who lives in a rather expensive area of the world, the Bay Area, she’s sitting on quite the student loan balance, and she has a good plan for paying them back, which is really good. Because when I first saw her balance of $166,000 in student loan debt, I thought, “Oh my goodness, we have to talk about this.”

Scott:
Today was an episode of a lot of surprises, hey, I live in the Bay Area. But I live with my parents, which helps me offset a lot of those costs. I earn a good income. But I’ve got $160,000 in student loan debts and a plan to get them completely forgiven. So this is just a lot of nuance in today’s episode, and I learned a tremendous amount. And I think Sammie comes out with a really great plan to achieve FI in a very achievable amount of time in a low stress way.
This is a five-year to 10-year path to FI with 32-hour work weeks, so great for her and I think this is a really fun discussion.

Mindy:
Yeah, I really enjoy having Sammie on today. Before we bring her in, I have to read to you what 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. Okay, Scott, let’s go tell Sammie what to do with her money.
Sammy is 31, she’s single, has no kids, and has plans to stay this way. She makes a good salary, but is sitting on $166,000 in student loan debt. Sammie is doing well on the investing front, but would like to generate more income outside her job. She’d like to reach FI in four to five years but feels like nine years is a more realistic FI date. Sammie welcome to the BiggerPockets money podcast. I’m super excited to talk to you today.

Sammie:
I am too.

Mindy:
So let’s jump right into your situation. What part of the world do you live in? And what is your… Let’s look at your balance sheet, your net worth and your debts and expenses.

Sammie:
Yeah, so I live out here in the Bay Area near San Francisco, California. And I’m working here as a physician assistant, I’ve been working at my job for about five years. Last year, I brought in 140k from my job. But I actually think this year, I may be bringing in a little bit less like 110k because my company recently merged with another company and they’re no longer paying evening and weekend shift differential, which that’s the shifts that I typically work.
As far as what I bring in like month to month, most months I take home about $4500 and that is after taxes and after my 401(k). So I put about 1700 a month into my 401(k). And then after taxes then I have that $4500. And then as far as debts go, like you said I have the student loans which are now at about 160k with like a 6.7% interest rate. I do have a federal student loans so right now they do qualify for the 0% interest.
And so I don’t have to pay anything and I am doing the Public’s Service Loan Forgiveness Program. So if I work at a nonprofit for 10 years, then my student loans will be forgiven after those 10 years but I do have to pay like 15% of my income every year to participate in that program. But right now because of what’s going on I actually don’t have to pay as long as I’m working at my job, those months still count towards my public service loan forgiveness. So that’s pretty cool. In April, I will have four years left of the program, and then I also have a car loan with an interest rate of about 2.99. And the car loan, what I have left on it is $3,000.

Scott:
Awesome. Can you walk us through your expenses?

Sammie:
Yes. So for my expenses, I have monthly expenses of about $1200. As far as my recurring bills go, usually I would have the student loan payment, which would be around $1100. I don’t have that right now, like I said, but I otherwise have a car payment of $270. I have my Geico insurance bill for my car that’s like $85, I do pay my phone bill, which is $50, my Chase Sapphire reserve, it’s an annual fee, but I break it down by month, because it’s recurring. And that would be like 1250 a month, I had like a meditation app, which I paid $8. And then I have a PDF filler, which I pay like $8 for a month.

Mindy:
I love that you have the annual fee as a monthly charge. That’s great.

Sammie:
Yeah, just like easier mentally for me to manage it, then. So those are my recurrent expenses, and those now with COVID, because I’m not paying the student loans would be like around 433. But then I also, of course have other expenses, like my spending expenses. And I calculate that to be about 800 a month. If I broke those down, my top category’s actually gifts, and it comes to about $230 a month, then the next one is gas, which is about $100 a month. And that’s even now… I do work about 40 miles away from my job.
And usually I go to work every single day. But now I work two days from home, two days in clinic, but I still spend like a decent amount on gas. After that it’s groceries, which is about $70, then I group hygiene and cosmetic together, which is about $70 a month, then I have… This is based on last year spending. So my medical expenses were about $65 a month, clothing about $38 a month, fast food $31 a month, auto expenses like $25 a month, then household expenses $14 and everything else is kind of like negligible after that.

Scott:
You really got a lot of detail here, which is great and which tells me this isn’t really a problem area. I mean, you could cut out $70 here, $60 here, but it’s not really the story. What we’re hearing is outside of the student… If we ignore the student loan debt situation, you’ve got about $2,000 a month and after tax spending. Is that right?

Sammie:
Yeah, I got it to be around like 3300. But yeah, I think that’s probably more correct is about 2000.

Scott:
Yeah, we add in 1300 for the student loans and I get to 3300.

Sammie:
Yes, yes, yes. Exactly.

Scott:
So the big bogeys situation are? Well, the big things to note about your situation are, hey, we get the student loan debt, which is a huge chunk of your monthly cash flow. put that there. And then housing situation long term. Is there any timeline or are you… For what you’re going to do with your housing? You said you’re living at home with your parents?

Sammie:
Yeah, exactly. So right now I live with my parents. And I’ve been living here since 2019. Before that, I was living in San Francisco, and I was paying San Francisco rent. So I had monthly costs that were closer to like 3500, just on recurring bills. So that has cut down a lot. As far as like, how long am I going to be living with my parents? That’s a good question. I’m Indian, that’s my heritage. And it is more common for kids to live with their parents, even though for most of my adult life, I wasn’t living with them.
So they definitely really enjoy having me here, and I think it’s like a mutualistic relationship. Because in a way your parents, they’re not going to be here forever. And I can help with things like taking them to the doctors and things like that. And at the same time they cook food a lot. So a lot of my food costs are cut too. So it is nice, but with that said, certainly like if they retired, I think they would move back to Charleston, South Carolina, and that would cut down… So then, if they moved, and I was still working, I would stay here. So projected, I don’t know, I’m guessing maybe I live with them for like another few years, maybe more, maybe less, depending on what our situation is.

Mindy:
Okay, Sammie, let’s talk about investments. Have you made any investments? You mentioned the 401(k). What else do you have going on, if anything?

Sammie:
Yeah, so in total, I have like 205,000 in investments. So in my old 401(k), I have 147,000. And then my company when they merged, we have a 403(b) now, and I have about 6000 in there right now, I do have a Roth IRA with about 15,000 and I have a post tax brokerage account with about $36,000.

Scott:
Great, so you’ve got a lot of cash, if we ignored the student loan debt, we have a financial fortress here and a really good, a really healthy savings rate, you’ve got a year of expenses saved up, you’ve got good what sounds like quality investments across both the brokerage and the 401(k), which I think is awesome. So, how recently did you get on the FI journey? Or what was the switch for you with that?

Sammie:
Yeah, that’s a great question. Because it was very recently like in, I guess, November 2018. But before that time, I was very much not on the fire journey. Sometimes I hear you guys say, “I don’t know how someone could spend that much money,” I’m like, “I do.” Because I was definitely the type of person who would keep, at least if there’s a few 100 in the checking account, that’s good. And then the rest that’s for me to do whatever I want with. And I was spending all my money, unfortunately, I have a friend who was visiting.
And she was doing all the things, she was house hacking, she was living in Austria, she was growing her own plants too, for herbs and stuff. And I was at her place, I was like, “What is going on here?” A lot of interesting financially savvy moves here. And then she told me about FI and after that, I just dived in hardcore.

Scott:
Okay, I think this will be important to our discussion later. I could be wrong. But could you kind of walk us through some of the moves that you did make and what that progression has looked like very high level overview.

Sammie:
Yeah, you mean like, as far as like, what changes I made?

Scott:
Yes.

Sammie:
Yes. So the first one is my least favorite thing, tracking your spending. That was definitely the most important thing. I started tracking my spending, and I remember I had a friend visit one weekend. And we had a lot of visitors then because we’re not from the Bay Area… I’m from Michigan originally. So a lot of people would visit, friends and stuff. And I remember that weekend, I spent about $400. And I was like, “Wow, I spent 400 extra dollars, even though I was staying in the same place.” I didn’t fly anywhere, I didn’t have a hotel, and that just really made me appreciate all these things that I was doing were costing me money.
And not to say that I started putting a value on things based on how much they were costing me. But to some degree I did, I’m like, do I want to go to dinner all the time, or just like maybe once every few weeks? And yeah, tracking my spending was a big thing that allowed me to kind of monitor that. As far as like investments, I was already investing in my 401(k). But that just opened my eyes to just the idea that you could have such a high savings rate.
And I think before I was like, “Well, why would I have such a high savings rate? Do I want like a really shiny coffin or something?” And then after finding FI, I’m like, “No, all this savings is actually time.” This is time that if for some reason I didn’t want to work, I wouldn’t have to work. And that really changed my perspective.

Scott:
Love it. Were you a physician’s assistant this entire time? And I forget exactly how the timing of education works and how long it takes to get into that.

Sammie:
Yeah, it’s a usually two and a half three-year program. And I graduated the end of 2014. So this would be my sixth year as a physician assistant. So I was a physician assistant then so I was bringing in a decent income, but I was definitely spending it all.

Scott:
Okay, love it. And it sounds like there’s a lot of progress that came over the last three years from that. And perhaps that’s where much of your… What have you been doing with the student loan debt and investment decision over the last three years since you discovered FI?

Sammie:
Yeah, so I will say as far as the student loans, that is one thing. Luckily, I did think about because when I first graduated, I kind of realized that I’m either going to have to pay this off aggressively, or I’m going to have to do the Public Service Loan Forgiveness, those would be my two most realistic options that would be most efficient.
And I do think there’s a part of me in my mind that realized emotionally, I was not going to put that much money towards the student loans, because I did want to have a lot of fun, which I obviously did, because spending all my income. And it was kind of a good thing for me to be self aware enough to realize that because then I did do the Public Service Loan Forgiveness, which now has ended up being really beneficial for me, my first year out from school, I only made $65,000 because I was doing a fellowship.
So I was paying much less into the loan because my income was lower. And then now for the past year and a half. I haven’t had to pay anything, but I’m still counting towards the Public Service Loan Forgiveness. So I think the decision really worked out for me, even if maybe my intentions were not so good in the beginning.

Scott:
Okay, and we’ve glossed over this for a few times here. What exactly are you talking about? You said four years left, somewhere in the ballpark of a few years, portions of your loan or all of your loan will be forgiven, is that the way to understand this?

Sammie:
Yeah. So after four more years, I will have completed 10 years of Public Service Loan Forgiveness. So 10 years working for a nonprofit, and they will forgive all of my loan. And there’s no, what certain types of forgiveness, there’s like a tax penalty on that. But with this type of forgiveness, there’s no tax penalty, so it’ll be all forgiven.

Scott:
Okay, so why did your student loan balance go from 165 to 160? You mentioned that earlier, because that gives the impression that this is a moving number, even though you have 0% interest. And it sounds like you’re waiting for a forgiveness.

Sammie:
Yeah. So it moved probably like within the last three years, I would say. And the reason is, because in the beginning, maybe my income was lower. So when I’m paying off my loan, I’m just barely paying the interest on the loan, so I’m like staying even as far as the loan amount. And now because my incomes higher, even though I’m not deliberately trying to contribute more to the loan, it comes down more, because the percentage is higher, the amount that I’m paying towards the loan is higher.

Scott:
Great. So I will chime in here and say that I don’t even know what I don’t know about public service student loan debt forgiveness. So I’m really hesitant to discuss anything in detail there. And I’m just learning from you on this one. But what it sounds like is that you’re making a very intelligent decision. And this is the right way to approach it if… I’m just taking what you’re saying for granted here that, hey, in four more years, $160,000 have just wiped out. Why would I pay more towards that when the nature of my work is that I’m earning into a 10-year benefit, and I’m almost done. That seems to make a lot of sense to me.
And now I understand your four year FI timeline a lot better, I think that I did at the beginning of the call here. So is there anything you would add to that or that I would need to know or do you think you kind of got that? It sounds like you would know that one pretty well, given your situation. And that being the giant elephant in the room.

Sammie:
Yeah, I’m familiar with as far as the loans go, I feel pretty comfortable with my current plan. That stuff I’ve looked up a lot.

Scott:
Okay great.

Mindy:
Yeah. I’m glad that Scott brought that up because it’s gotten there very different. I have never let the fact that I don’t know about something stop me from talking about it and giving advice about it.

Scott:
I didn’t either. Just to know.

Mindy:
Scott doesn’t know what he doesn’t know, I know that I know enough just to be dangerous. But my sister-in-law is a speech therapist, and she was on that same plan. And she hasn’t been graduated long enough yet to have those loans be forgiven. But I know that there was a huge problem with the repayment loans or the forgiveness plan for a while. And I did just look it up, it said that 57% of denied applications are rejected due to too few qualifying payments. It sounds like you’ve been making your regular payments the whole time, which is good.

Sammie:
Yes, I did look up that statistic. And one thing is you could submit monthly if you wanted to, to see if the months qualify so it’s qualifying by month. So let’s say six months past, you can submit paperwork to see if those months pass. So I’m guessing what happened with these people is they realize that they were working at a nonprofit for 10 years after not deliberately being part of the program. And then they submit the paperwork, and then they don’t qualify. Because if you were deliberately trying to do the program, you would most likely know way before 10 years that you didn’t qualify.

Mindy:
It sounds like you’ve done the research. And this is more for people who are listening who are like, “Maybe I would qualify,” look into it, you don’t just decide you qualify, you don’t just get to choose that you do it or you’re paying for 10 years, and then you say, “Hey, forgive the rest of my loans,” but you didn’t sign up with us. So is there like a program… You have to sign up and say, “Hey, I want you to forgive my student loans.”

Sammie:
Not in advance, but what you can do is, so you do have to be making a certain type of payment, it can’t be like the standard payment, the standard payment is assuming you’ll pay off your loans in 10 years. And sometimes those payments are lower than income based payments for people, and that’s the reason that those payments might not qualify. I would still try applying because there are some programs that are trying to help those people. But you should be part of an income-based payment. And if you want to see if you qualify, if you go to either the FAFSA website or I think even your loan servicer will often have the, it’s like a one-page paper, you fill it out, and then your HR department or someone at your work signs off saying that you have been working and then you can see if those payments qualify.

Mindy:
And I know that… Oh my goodness Travis Hornsby-

Sammie:
Yes.

Mindy:
… from student loan planner has a lot of great information about this. I’m going to ping him and see if there’s some websites I can get for people or additional information because he does know what he’s talking about. And we’ll get this because I really do want to help people pay off their student loans. I mean, when I first saw $166,000, and they’re currently at zero interest and you’re not paying on them, I’m like, “Oh, let’s talk about that.” Because right now, if you do have 0% interest loans and you don’t have any payments due on them, there’s still an opportunity to really pay them forward, and just crank out all your money now. All your payment is going directly to the principal, you’re not paying any interest on them.
So you could get way ahead, my sister-in-law, I have another one who doesn’t qualify for the student loan forgiveness, she is actually doing that so that she can get ahead. I believe the program has been extended until September of this year, we’re recording this in March of 2021. So until September of 2021, is the 0% interest. So if you do have student loans right now, and you do have income and you are able to pay them, now’s the time to really crank those out, especially if you have these higher interest rate loans. Scott, what are you laughing at? You’ve got this-

Scott:
I’m laughing because I expected to tackle that problem on this show. But we do have to tackle that problem of this show. So somebody come in with the finance review that has a similar situation to Sammie, but you don’t qualify for the forgiveness. And let’s go into that and figure that out. Well, let’s get back to Sammie’s situation here. So I discovered FI in 2018, I am almost 10 years into a student loan forgiveness plan, which seems to make sense to me based on what I’m hearing here.
And so the debts going to get wiped out, you have basically no debt to speak of outside of that, besides your car loan of 3300 bucks, which just speaks to a lot of responsible decision making there and looks like that’s almost gone. So backing into a situation four years from now, the goal is how do I get as close as humanly possible to FI in four years it sounds like. Maybe have… My spreadsheet bottle says nine years, but how do we accelerate that? Is that kind of fundamentally the goal that I’m hearing from you?

Sammie:
Yeah, that’s pretty similar. So yeah, in four years, my student loans will be forgiven. And I don’t realistically think I’ll be FI at that time, maybe based on my current spending, but I think I’d feel more comfortable with like one to 1.5 million to consider that my FI number, even though my current spending’s much lower, just because I do think my situation right now is a little bit abnormal. But my main thing is, I know in four years when my loans are forgiven, I’ll have the option to… Right now because I’m part of the program I do have to work at least 30 hours.
So at that time, I’ll have an option to either go part time, or maybe work only parts of the year or take a sabbatical. And I really would love the option just to work less hours, because I love my job. But it does, every four hours that I work, I’m probably going to have to put an additional hour in after work to doing other things like following up with patients or refilling prescriptions, and things like that. So I would love to have just more time. So my biggest thing I think is, what I’m thinking about is maybe having more… I don’t know, if I need more investments, more cash flow, something to make me feel more comfortable if I wanted to work less, pretty much.

Scott:
Okay, so there’s four things you can do to generate wealth. One is you can control your spending, check. Boxes, check there, you seem to be doing a great job with that. The second is earning more income. The third is investing your assets for a better return. And the fourth is creating assets and businesses. If you want we could probably walk through… Do you have any ideas about where you want to go and want advice on or do you want to kind of have an open ended discussion about where to potentially begin looking?

Sammie:
Yeah, I mean, one thing as far as creating assets go, me and my sister just started a podcast called Status Post Adulting. And we’re not making any income on that. It’s just kind of like a passion project. But something like that, if it ever did monetize, would be cool. And then another thing is, of course, I’m listening to you guy’s podcast. So real estate is something I’ve been considering.

Scott:
Okay, great. So you have a side hustle. That’s just kind of in infancy stages right now. And you have the investing interest? Do you have the ability or desire to work more hours and get overtime, for example, as well? Is that not really something that you’re interested in?

Sammie:
Yeah. I mean, that’s actually a great question. Because I think last week, or the week before, my medical director came up to me, and he was like, “Do you want to consider a promotion to be PA lead?” And one thing is that would involve more administrative hours. And I already am doing some meetings and stuff that are taking away from my patient care time. So I was like, “Well, I would want to do that. But I don’t want to cut into my patient time because I’m already cutting into my patient time.”
And he was like, “Well, you work 32 hours right now, we could increase you to 36 hours or to 40 hours a week.” And I had to really think about it because that would come with a promotion. I don’t know actually how much it would have been. But what I did is I tracked my time for like two weeks to see, where’s my time actually going. And I realized, I really don’t want to take away from the things that I’m currently doing to invest more time in my current job.

Scott:
Okay, so what this tells me is two things. One, there is opportunity for you to earn more income as a backup, if you ever really need that as the option if you exhaust other things, and two 32 hours a week, it sounds like you will have time to devote to a side hustle or to alternate investing activities, and you clearly have the desire to do so. So it sounds like that’s where you really want to explore with your time is on this side investing and side business worlds. Is that right?

Sammie:
I couldn’t have said it better myself.

Scott:
And loved that you tracked your time, that’s the second resource here. Money and you got time, where is your time going and where are you spending it? That’s great thing to do, not just at work, but in your personal life as well. Something to revisit, I probably should do that myself. I haven’t done that in a few months. But I love that, that’s a huge lead indicator that a lot of this is going to go really well with that. Okay, so let’s talk about your real estate inside hustle interests. Where do want to start?

Sammie:
Maybe start with real estate. So I live in California, and I have no intention of investing here in the Bay Area. That would take up my whole net worth. But I used to live in Michigan. My parents have a home in Charleston, South Carolina. I used to live there and I went to school in Knoxville, Tennessee, and I did a fellowship in Charlotte, North Carolina. And those areas seem a little bit better for investing and I’m more open to like investing there.

Mindy:
Do you have any sort of infrastructure in any of those cities? Like do you have any friends who do property management or real estate agents who would be able to connect you with handymen? That sounds weird, repair person.

Sammie:
Handy people.

Mindy:
Handy people. Do any of those cities, because those are all good investment cities as opposed to San Francisco, where it’s really difficult to cashflow. All of those other cities that you listed are typically… Well you didn’t state which one in Michigan, but Michigan’s a good… It’s the Midwest, and the Midwest is a good cash flow area. So those are all great cities, but I would not try to reinvent the wheel, if there’s one person in one of those cities. I’d started that one first.

Sammie:
Yeah, my parents, they have their home in Charleston, South Carolina. And I’m assuming they have a real estate agent there and contractors there as well. I know they did some work like on the kitchen and stuff. I think that would be the most likely area that I’d want to do, somewhere near Charleston, South Carolina.

Mindy:
Yeah. Charleston hoping though. It’s not as expensive as San Francisco. But it’s-

Sammie:
Yes, yes. And I’m definitely open to probably anywhere in South Carolina, because it’s relatively still easy to get to.

Scott:
With the out estate investing, I would just encourage you that, that’s a several 100 hour investment of time in learning about how to do that appropriately, and making the right connections and those types of things. And a trap that some investors fall into that we’ve seen here on the show is, “Hey, I’m making 110, $130,000 a year, I’m going to buy a property that cash flows $200 with a $25,000 investment, $200 a month.” That is an annoyance to you if relative to your financial position, that level of income, the ROI may be good over time. But that level of income is completely inconsequential and will be completely unnoticeable to you.
So my advice to you would be to have a plan where you can buy multiple of those properties on a consistent basis to get to some level of meaningfulness over a period of years, rather than just buying one and setting it and forgetting it, plan everything around, how do I get in there, but then approach this in a scalable manner. It is not about what my first property does, it’s about what the 10 properties I purchased over the next five years do to get me a collective $200 a month times 10, 2000, $3,000 in income.
That would be a meaningful set of investments that would change your trajectory on your profile versus just one out of state in one random market would be my advices. And look, this is a new world with a lot of people trying out lots of different things. And people have properties sprawling across a couple of different areas. But the tendency we see is that those tend to be confusing to a certain extent.
Why does this work for military people, but not for Sammie? It’s because the military folks are going into these different areas and buying with VA loans in markets that they know and have lived in and have a chance to set up infrastructure. So you’re going to see… I think I would have a different story for a military person who will have a sprawling portfolio because they get stationed at different duty stations. But for you, my advice would be to encourage you to pick a market, invest consistently and make that a meaningful investment over time.

Sammie:
I think that’s a good idea. I think definitely what’s been keeping me from considering real estate is just the fact that I already had so much debt. Now that I feel like I at least have a positive net worth, I feel like a little bit more better about thinking about real estate.

Mindy:
Well, let’s look at your student loans for a second, again, how much of that is going to… You get to your 10 years, you’ve done all of the payments, and you’ve done everything to get it forgiven? When they forgive it, they just wipe out the whole balance? Is that how that works? Okay, so that’s really… You just said, I had all this debt, I wouldn’t really consider that all this debt, because you’re on that forgiveness plan?
Is there any way to check in with the forgiveness program to make sure that you’re on the right track? Have you done that? And you know that you’re on the right track? And I’m not like questioning you. I’m just making sure that, that you’re doing it right, because that’s a huge amount of money that you’re counting to be removed. But once that’s gone, your shoulders are going to be up here. It’s just going to be…

Sammie:
I’m excited for that day.

Mindy:
So I like what Scott said, I think he’s right, focusing on one market. And because you have so many, I can see how tempting it would be to be, “Michigan, I know somebody there and South Carolina, because I have ties there.” And South Carolina is a great market, the Charleston market. And I’m looking… I just jumped on Zillow really quickly to see what listings are there. And I’m seeing 250, $300,000 listings. And I’m assuming that they rent out for it, enough that it would cash flow.
So that’s where your parents are already, that would be a good market to start looking into, reach out to their real estate agent and have her or him sorry, being sexist, have that person send you listings and see what’s on the market, see what sort of rents you’re getting. And if that agent doesn’t work out, if that agent isn’t somebody who does a lot of investments, you can find a real estate agent at biggerpockets.com/agents, that’s agents with an S on the end. And that’s a great place to find an investor focused real estate agent. I also want to look at your investments that you currently have, you mentioned a 403(b). That is a government plan if I’m correct?

Sammie:
Yeah, it is. And they’re kind of notorious for having high fees. But I will say I did look into it and ours actually doesn’t have high fees. And they do have index funds options that are not like actively managed. And it’s actually better than our previous 401(k) as far as fees go. So it’s solid in that way.

Mindy:
Hooray. Do you have a 457 option?

Sammie:
Not right now, they were considering doing that, but not right now.

Mindy:
Okay. And I think we need to bring Kyle Mass back on Scott to talk about when is it best to choose a Roth plan versus a traditional plan? You have a decent amount of income? I’m wondering if the Roth would be a good option for you in the… Do you have a Roth option in the 403(b)?

Sammie:
From what I heard no. Well, I think we can do it instead of doing the pretax. But I don’t know how much we can do in addition to… Because I know that some places you can do like an additional Roth investment on top of the 401(k). And I think we aren’t able to or there’s like a limit to how much we can do.

Scott:
Will you work when you hit FI? Do you think that you’ll continue to do that on a long term basis?

Sammie:
I do think I’ll most likely work at least part time or being a PA, there’s the option to do locum. So where you work a few months a year, I think I would do either of those.

Scott:
Okay, the reason I asked that is because in your case, you’re in a pretty good income in a high tech state. And the 401(k) is clearly going to be saving you a lot of money on taxes right now, if you go through your journey and have a large number of low income years ahead of you, because that’s your goal. And that is what you’re going to do, the 401(k) makes a lot of sense because you just roll over or you do the Roth conversion in those years after you hit FI, or even in between if in five years, you’re sitting at 750 and decide to take a little later load for a year or two.
That would be a good case for the 401(k), and it just comes down to knowing yourself, knowing myself while it’s possible I have a year like that. I believe they will be really few and far between for me and my career just because of the nature of what I do and I’ll always have some side project that may generate a lot of income. And so for me, I put almost everything into the Roth at this point, the Roth 401k, which I just offered through our workplace.
But depending on what you know about yourself and what your kind of timeline will look like and journey, maybe that’s helpful context in helping kind of paint that picture and make that decision.

Sammie:
Yeah, that’s really helpful to know. I hadn’t really considered a Roth until this year when I was like, “Wow, like most of my investments are pretax.” And then I was like, “Well, I don’t know what to do from here.” So that’s a good thing to consider and I’ll definitely think about that.

Mindy:
Yeah, that was a good point about the high tax state, Scott. Any dollar you can save on taxes is better in your pocket than Uncle Sam’s. That’s my personal opinion.

Scott:
But you’re going to need after tax outside of the 401(k) and the Roth within the next four to nine years, depending on how things go in order to retire early or have that option. So you’ve got to begin baking those out. It sounds like you’ve got a lot of post tax investments right now. But still, it looks like that’s around 40k, which is about 1/3 or 1/4, of what you got in the 401(k).
And so yeah, I think it’s time to start thinking about how do I deploy my cache. And in general, begin really boosting that after tax, immediately accessible net worth that I can spend in order to achieve my goal, because I think it’s better than 160k and student loan debt, we’ve heard that story, you’re in really good situation to have a fighting chance at this in the next four, five, six years.

Mindy:
Yeah, I want to talk about your Roth IRA balance now. It’s a sub $10,000, and it’s still it’s great that you have any money in there, I’m not sure you’re ever going to reach… You don’t want to work 5000 hours a week, you might not reach the cutoff for contributions to the Roth IRA. But I just really love a Roth IRA for younger people, because it has so long to grow. You pay taxes, when you put it in, you don’t pay any taxes when you pull it out. And with you 20 or 30 years of growth time, you could have an enormous balance in that Roth IRA that could fund until you need to start taking out from the 401(k).
So I would like to see more contributions in there, if you’ve just got money lying about, you’re waiting to put it in there somewhere. We’re waiting to deploy it someplace. I like the Roth IRA there. Do you have any match with your company?

Sammie:
Yes, I have 4% match.

Mindy:
Nice. Are you maxing out your 401(k) every year?

Sammie:
Yes.

Mindy:
Okay, perfect. Let’s see, I had one other question. Back to the promotion to PA lead, that isn’t what you want long term, but I would be interested to see what that pays versus what you’re making now. Because that could be a significant jump for an extra four hours of paperwork that might help propel you down the path towards financial independence a lot faster or help you get to the downpayment for your first rental property, or your second rental property. And if it’s going to be like $1, an hour or more, forget it. That’s not worth it.
But if it’s a significant jump, that could be something that you do for a couple of years. And then Scott, I’m not really… I’ve never been concerned about my career. So I don’t worry about stepping back, but what sort of implications would there be to take the promotion, and then say, “Okay, I’m done. I don’t want to do that anymore.”

Scott:
It’s rare that someone takes a promotion and then walks back successfully. It’s not unheard of, but it is rare. I would view it as kind of there’s probably no going back. But it does happen from time to time. It sounds more like that the trade off will be in the here and now with your lifestyle and those types of things. And you don’t need to do that to get to FI in a reasonable period of time. If you’re here saying, I want to go all out aggressively and make this happen in four years, you have a clear answer to this question.
But that’s not what I’m hearing from you, I’m hearing I save 35 on a bad year, easily, maybe closer to 50,000 after tax and after maxing out my 401(k) on an annualized basis. And I’m looking to deploy that slightly better and if I get there in four or five years because one of my things I like to do takes off, great if I get there. If I don’t, it’ll be nine years and I’m good to go.
And that’s what I’m hearing from you. But yeah, if you were like, “How do I get there as fast as possible?” Then it’s like take the promotion and the money and work as many hours as you can because you can just crank it out and the turn the dial and move… And probably jack your income closer to 200 if you were really ambitious about it in this situation. I don’t know but maybe that’s a bold statement. But that’s kind of how I’m assessing it right from here.

Sammie:
Yeah, that’s correct Scott. I would say that’s right.

Mindy:
Okay, good. I wanted to bring up the counter point. Because not everybody who is listening is on the slower path. Some people really do want to just crank it out, if you want to crank it out, take every dollar you can get and crank it out. But there is something to be said for going the slow route, and after my husband and I reached financial independence, he’s like, “Wow, I really wish we would have gone slower.” I’m like, “Wow, too bad your wife never said anything like, hey stop.”

Scott:
I went all out for five, six years in this journey. And guess what? That works, I house hacked, I was able to jumpstart my income, I have multiple side projects, and that kind of stuff. But it was all out, it was a complete lifestyle and work commitment and that’s great. And that’s how you get really rich in five years from a standing start. But you don’t need to do it in your situation, it would be a complete lateral move, and I don’t think it’s necessary from what I’m hearing or desired.
So you’re going to be pretty wealthy in five, six years, with what you’re doing. And man, you’re working 32 hours a week versus the 85, or whatever that I was putting in on a regular basis across my work and all my other projects. This is a better approach from your seat, you could probably increase your odds dramatically of getting there in two, three, four years. But I don’t know, this is a good discussion, I think.

Sammie:
I think that’s a really good point. Because I think that’s kind of how I was thinking about it without explicitly stating that. It’s like I could be super aggressive, and then I would definitely take the promotion, and then I would be able to hit FI sooner for sure or I can have more time for myself and work on stuff that I want to work on. And then I would have more quality of life, I guess.

Scott:
Yeah, I think that’s a much more balanced and appropriate approach here. Let’s talk about your podcast real quick. You may not know this, but we also run a podcast here at BiggerPockets, a couple of them. And let me just tell you about the unit economics of podcasting. So not to scare you, but just give you kind of a grasp on reality with this, when we record this show, we have a software that we use, you can use Zoom or whatever. You can always change on these costs, we have to select the guests through an application process where time and energy or money is being expended to find great people like Sammie.
Then somebody has to edit the audio for this podcast, someone has to select a title for the podcast, someone has to transcribe the podcast, someone has to cut and edit the podcast and produce social media clips, and those types of things. And so I would estimate that the cost of production sustained over time for a podcast such as ours is about $500 per episode. Now, you can offset some of that with advertising. But maybe you get… And then by the way, the hosts generally like to get payment in some form for their services over time.
If you’re the owner, that would be through ad revenue, but you’d have to say okay, great. In order to make money on this podcast, I will have to generate somewhere in the ballpark of $500, just to cover the cost of operating the podcast over a long period of time. And I’ll do that myself, or I’ll skip parts of that production process or whatever. But now you’re just trading your very high skill labor, which is 50, $60 an hour, at the very minimum as a physician’s assistant, you’re doing the work of labor that is really 10 to $15 an hour in many cases across parts of that production pipeline.
So just know that, that’s a trap that a lot of podcasters, I think fall into over time as they discount those costs by doing it all themselves. And therefore they’re doing four or five, six hours of labor per podcast each time, or having to pay somebody else to do that, which is sucking money out of your portfolio. So just understand like, “Hey, I’m going to have to get to a certain amount of listeners just to break even on this podcast,” and then I’m going to have to actually sell a spot or a sponsorship to make that happen.
So this is not to scare you away from that, it’s just to kind of give you a framework to think about the cost benefit of running a podcast over time. And I believe that, that breakeven point is somewhere in the ballpark of 10,000 listens per episode of your podcast overtime.

Sammie:
Yeah, I mean that’s what it seems like from what I’ve been looking at, too. It’s not very easy to monetize on podcast and it’s definitely a lot of work. I think one thing with me and my sister with our podcast is it’s like a time we get to spend together, we pick a topic, we get to research that topic. It’s kind of enjoyable for us. And I will say when I was tracking my time, I’m like, “We’re putting in like 16 hours a week on the podcast.” And it’s more like monetizing, and something I’m doing anyway, because I enjoy it rather than making a podcast to monetize on it.

Scott:
Great. Then that’s wonderful. So this could be a good boost for you guys over time or it could be a little bit of time or money there. But I think that’s perfect. If you’re doing as a hobby that’s great. It could make money and I’m happy to discuss that as much as you’d like offline or if you have any questions here about that. We obviously do, do this as part of our business here at BiggerPockets. So I just wanted to kind of give you that framework around profitability of a podcast in particular.
Now, the podcast can also support other parts of your business, like, for example, our podcast it supports the rest of BiggerPockets, where we have promemberships and books and other advertising and conferences and those types of things. So there are lots of opportunities out there. Again, wanted to give you that framework as one of those. It’s possible, but it’s a little challenging, and it will take several years to get I think to that break even point for the podcast.

Sammie:
I appreciate you saying that, especially since I’m obsessed with you guys’s podcasts. And I listen to every episode, and I’m guessing a lot of people listen to it too. And to know that even with a really successful podcast, it can take a long time to even notice, to monetize pretty much or to [crosstalk 00:46:40].

Scott:
Absolutely, we like this because it’s fun, it helps people, it’s rewarding, it makes enough money to sustain the podcast. But this is not really the profit center for BiggerPockets by any means here.

Sammie:
Yes. I did want to ask you guys about real estate. So I have like 60,000, or I guess 69,000 in savings right now. And I’m thinking if I did invest in real estate, and it was like maybe 100, $200,000 property, what do you guys recommend putting down? If you kind of want to… I don’t know. I mean, I just I’m really hesitant like accumulate a lot of debt pretty much.

Mindy:
So is your goal to pay it off as soon as possible, the rental property?

Sammie:
That was what I was thinking my goal would be although I guess that might not be very useful.

Scott:
Well, and here’s me going into minmaxing and going all this stuff. I’m backing into a date, if I’m in your situation, right? I’m saying, “Hey, what is it? Is it going to be four years or five years, six years, nine years.” Maybe pick one and say it’s seven years. The goal is how much cash flow and wealth can I get for my real estate portfolio in year seven. And that’s where… And if you kind of approach it with that mentality, that can answer a bunch of those questions, or that may not be the goal, the goal may be, I don’t really know what my timeline is.
And I just want to get safe conservative diversified investments here and just keep stacking up at 50,000 a year, and I’ll take a lower ROI. But for more sleeping better at night and being better capitalized with less debt or more reserve. So depending on your answer to that question, you kind of have two approaches. One is that hey I am going to put down as much as possible and then just pay it off. And then I’ll have a cash flow machine for that one property, and I’ll just repeat that one or two times and be sitting pretty, or I’m going to buy as much property as I can with the lowest amount down, leverage aggressively and back into a seven-year time frame.
And at that point appreciation and my debt pay down will kick in, and I’ll be at this really great level of cash flow in seven years, coinciding with my other FI activities, and helping me out there. Sounds like a very high level framework from [inaudible 00:49:07] and that can be… But any reaction to that?

Sammie:
Yeah, I actually had never thought of it like that. And I appreciate you breaking it down like that and definitely the first one where it’s paid off, and it’s like a cash flowing property versus like leveraging a ton.

Scott:
Great. Well, in that case, you say, “Hey, if I’m buying a $200,000 property,” then you’re going to have to put down 15% if it’s a single family rental. And you’re going to have a minimum of 25% if it’s a two, three or four unit property. So you’re already putting down 50,000, which is a huge chunk of your cash and the rest is really got to be left over for reserve in your personal life and business. So you’re kind of maxed out if you’re buying a two, three or four unit at the 200,000 mark. You probably can get away with a little less in the single family mark, but I don’t know, does that answer your question [crosstalk 00:50:00].

Sammie:
Yeah. That’s really helpful actually because that kind of gives me a timeline of like, okay, I wouldn’t buy a property now because I know that would eat up like all my cash. But maybe if I’m thinking in one year or in two years, I want to start buying properties, I’ll save X amount, and then I can start putting a reasonable amount down, and I can feel comfortable that I’m investing in a property without completely depleting my cash.

Scott:
And if your goal is to pay the property off earlier, which is not my goal, but I would employ a totally different strategy potentially. And that’s where the 15-year mortgage comes in, which is Mindy’s, the bane of Mindy’s existence, with the lower interest rates there. And just kind of like firing away at paying that off, it’s going to be a lower return investment, but it’ll be a cash flowing one that will help you sleep at night.

Sammie:
Okay, very good. That’s helpful.

Mindy:
And another option for the mortgage is the 30 year that you pay more on. So if the 30-year mortgage has a lower monthly payment, you can make more additional payments to the principal. And I reached out to my lender John, and he said that if you get the 15-year loan, you pay it off in 15 years, if you get the 30-year loan, you pay it off in 30 years, if you get the 30-year loan, but you make the 15-year loan payment, you’re paying it off in something like 16 years and eight months. So you have the flexibility, you’re only adding like almost two years to your repayment. But then if your roof goes out, and your air conditioning goes out, and you need to buy a new refrigerator all in the same month, you can pull back on your payments a little bit.
I like the 30-year loan for the flexibility, but I’m also not looking to pay off my mortgage. So just something to think about, you can always pay a 30-year loan off sooner, you can’t pay a 15-year loan off later. When you’re comparing rates, and right now, I mean, the difference in rates is so negligible that it’s really the just the length of time that contributes to your massive, larger payment with the 30-year loan, if you pay it off in 30 years. In fact, I should pull these numbers up because I’m just guessing.

Scott:
I always make people uncomfortable with the way my mind works on this kind of stuff. But you basically, another way of thinking about what Mindy just said is you got to be 85, 90 plus percent sure that you are going to pay it off early, in order to go with the 15-year mortgage, which is a really high probability. I’m very rarely 90% sure about anything in my life. So I’ll bet on things that are, and I need to with that, but you got to be real sure that it’s the paying off to go with the 15.

Sammie:
I like that. Because if something happens in your life where you are not able to make the payments, or it would be a struggle, you have the option to not be so aggressive.

Scott:
Yep. Any other things that you wanted us to get to here? I think we’re making some good progress.

Sammie:
I think those are my big things actually. We really covered them, and I feel like I have a much better plan because I think my idea with real estate was so vague. And I was like, “Should I be doing that right now?” And if something happened right now, where the prices dropped should I be buying something right now? Now I know like okay, you would be spending all your cash so wait until you have more cash. I feel like I have a better plan now. So I like that a lot.

Scott:
Awesome.

Mindy:
Okay, so my lender Jon Lallande from CrossCountry Mortgage sent me a note that said, on a $500,000 purchase, assuming 25% down and good credit, because your credit will definitely affect your rate. And these were rates a couple of weeks ago. And this show is going to be released later. This is just an example. This is not a quote, but he said a 30-year loan is 3.375, a 15-year loan is 2.75. Those are fabulous rates. Just in general, a 3.375 is an amazing rate, I don’t even have a 3.375.
So the 30-year principal and interest payment is $1658 a month, the 15 year is $2545 a month. So that’s like 800-ish dollars more every month that you’re making the payment for. Your total paid over 30 years with a 30-year loan is $596,829. Your total paid over a 15-year loan is $458,069. So that’s like $132,000 difference in interest that you’re paying. And then he went further and said fun fact if you kept the 30-year option, but made the 15-year payment, you would only be adding one year and eight months to your mortgage.
So just I love the flexibility and you can always make more payment that’s saying that you get the 30 year, but you make the $2500 a month 15-year payment, you could pay $3,000 a month, if that’s what you wanted, if you had extra sitting around. I love the flexibility of the 30-year loan, and are you going to own the property for 30 years? I’ve never owned a house for more than six in my whole life but I’m a mover. So I do that live and flip where I’m moving every couple of years. My parents have never owned a house for more than five or six years, either so I come from movers. But there’s other people who live in the same house their whole life. I mean, Warren Buffett’s lived in his house since what? The 80s. So not everybody moves around.

Sammie:
Yeah, I think that’s a really helpful description of the different options because I could see how like with my mentality, I’d be like, “I just want to get it paid off.” But then I’d be taking a huge loss by not considering doing the 30 year, but just paying it off faster.

Mindy:
Yeah, and I think you have enough money in savings to start looking at the market. And right now is frankly, a ridiculous market. Everything is… I’m sorry, I shouldn’t say everything. Most markets have an extremely short supply. So there are people who are trying to take advantage of the interest rates, they have to move there. There’s people who are looking for just investments and they don’t care what the money return is.
So right now may not be the best time for you to buy a property, but it’s always a good time to start learning the market. Talk to somebody in Charleston, South Carolina, talk to somebody in Michigan, talk to somebody in North Carolina, talk to somebody in Knoxville. And maybe Knoxville makes the most sense for you or maybe South Carolina does make the most sense for you. See what the markets are looking like, “Wow, I have to pay 300,000 in the Carolinas. But in Knoxville, it’s 150 and I can get in a similar cash flow, that might be a better choice.”
So right now is a great time to start looking for a market and analyzing the market and see what houses are renting for. And maybe a fabulous house comes on the market, and you can jump because you are prepared. But if you’re not prepared, and a fabulous house comes on the market, you might be timid, what do you say Scott? Calmly prepare to act aggressively.

Scott:
That’s right, a wise man.

Mindy:
So now is the time to calmly prepare. I think this is a lot of fun. I think we looked at a lot of things. Did you have any other questions for us? Or did you have any other items that you wanted us to look at? Or you wanted to discuss?

Sammie:
Those were my main questions, and you guys really answered them. I mean, I think the biggest thing for me was I kept feeling this pressure to look at real estate but at the same time feeling anxious about whether that’s going to deplete my cash savings, and now I have a better idea. If I wait one or two years, I’m going to be in a better position. But then also, like you said Mindy to start looking at the market so I’m at least familiar. And if something comes up earlier, I can invest earlier, or even if I wait till one or two years, I’m going to be very knowledgeable about what’s normal.

Mindy:
That’s about as perfectly said as we could ever do. So I’m going to leave it at that. Scott, do you have any final thoughts?

Scott:
This is great. I think you’re in a really good situation. When you walked in and your numbers on a piece of paper without knowing the context, four years is a little aggressive. But I think that given what you talked about with the student loan situation, and a lot of your great habits, it could be as early as four years, it may be longer with those types of things. But I think you’re making all the right choices, your fundamentals are really sound.
And I completely respect and love the decision to not put the foot all the way down on the accelerator, and try to move this forward. I think you got a great, what it sounds like is a great quality life now and can reach FI within five to 10 years easily.

Sammie:
Yeah, thank you. Thank you guys so much. I really appreciate it. I mean, I listen to you guys all the time. So I think just the opportunity to come and talk to you guys in person and get advice like on my personal finances is just absolutely amazing. It’s just been a great experience.

Mindy:
Sammie, thank you for coming on the show today and for sharing your information and your numbers. I think it’s going to be really helpful for people who are maybe in some point on their student loan repayment journey, thinking or assuming that they would qualify for that repayment plan. We’re going to get to talk to Travis Hornsby and get some good resources and we’ll share those in our show notes which can be found at biggerpockets.com/moneyshow186. But thank you so much for sharing today. It was lovely to talk to you and thank you for listening to the show.

Sammie:
Thank you guys.

Scott:
Thank you.

Sammie:
Appreciate it.

Mindy:
And we will talk to you soon. Have a good day. Okay, that was Sammie. Scott, what are your impressions of Sammie’s path to financial independence?

Scott:
I thought it was great. I think she started with getting control of her spending and I love it. There’s that moment in time you discover FI and then you get really serious about all of this stuff. And then a couple years go by, you optimize, you optimize, you optimize, and you get on this path. Eventually, if you’re a full-time worker where it kind of gets boring. Every month she saves three, four, $5,000, and hers is still a little exciting, because there’s a couple of big moving parts like her 401(k), and a couple of little ideas to crystallize around how much she wants business or real estate investing to be part of her portfolio.
But those are going to crystallize for her within the next two years, for sure. And it will just be a month after month grind to financial independence. And what I love about the word grind conjures up this horrible years long beans and rice diet and all this other kind of stuff. Her grind is going to be about as pleasant a grind as you ever going to see because of the 32-hour work weeks, the great living situation, and all the other good stuff that she’s doing and it’s just a simple, she tracks her money, she tracks her time. She makes value-oriented decisions on both. And wow, what a refreshing discussion around that. I love that. I think she’s making a great set of choices and in a really good spot.

Mindy:
Yeah, I think she has a huge future ahead of her and she’s just killing it. Okay, should we get out of here, Scott?

Scott:
Let’s do it.

Mindy:
From episode 186 of the BiggerPockets Money podcast, he is Scott Trench and I am Mindy Jensen saying move out brussel sprout.

 

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In This Episode We Cover

  • Public service loan forgiveness for student loans
  • Moving back home in order to save money on rent 
  • Creating more streams of income to hit FI faster and so you can retire more comfortably
  • Choosing to stay at your job even if you’ve hit your FI number 
  • Investing in your 401(k), Roth IRA, and Traditional IRA
  • Keeping monthly expenses as low as possible on your road to retirement
  • And So Much More!

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