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BiggerPockets Money Podcast 202: Finance Friday: How Should I Plan Ahead to Leave College Debt-Free?

BiggerPockets Money Podcast 202: Finance Friday: How Should I Plan Ahead to Leave College Debt-Free?

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Most 21-year-olds aren’t thinking about Roth IRAs, early retirement, house hacking, or graduating college debt-free. But today’s guest, Anthony, is! Anthony is currently a student in community college, preparing to transfer to a four-year college next year. He has a paid-off car, no credit card debt, and makes around $2,000 a month, with $800 or so as extra income each month.

Anthony is wondering where the best place to put his extra income is. Should he invest in his Roth or should he save up money for college costs? Alternatively, he could house hack which could cash flow him through college and allow him to leave with a degree and a profitable rental property.

Scott and Mindy walk through the multiple different options Anthony has and push him to see what he can achieve within the next few years to put him on a path towards financial independence!

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Mindy:
Welcome to the BiggerPockets Money podcast show number 202, Finance Friday episode, where we interview Anthony and talk about getting started on the road to financial independence.

Anthony:
I don’t see myself retiring, probably before 30. I think what I would really want to do is just not really struggle with money as I started getting into bigger debts, like, $18,000 of school, or moving out, and stuff like that.

Mindy:
Hello, hello, hello! My name is Mindy Jensen and with me, as always, is my North Star co-host, Scott Trench.

Scott:
You’re always charting out a new, great intro for us, Mindy. Thank you.

Mindy:
Scott and I are here to make financial independence less scary, less just for somebody else, to introduce you to every money story, including those that are at the beginning of their financial independence journey to show you that financial independence is available for everybody, no matter when or where you’re starting.

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

Mindy:
Scott, I’m super excited to talk to Anthony today because he is a young gun living at home with his parents, who is just starting out on the road to financial independence, but he’s asking all the right questions. And I’m so excited for what his journey entails and I really think that he is going to crush life.

Scott:
I was really impressed with Anthony and the questions he’s asking at this stage in life and those types of things. He’s already very independent, more independent in terms of a lot of his spending and stuff than I was at 21. And I think, really start trying to think about these questions at this point while he’s got complete command over his finances. I was just really impressed and I think he’s going to be in a really good spot in a couple of years.

Mindy:
He really is. And as you’re listening to this episode today, think about if this is a good episode for your children to listen to with you. You don’t just learn this stuff in high school, unfortunately. So, we need to teach our children these lessons and Anthony’s asking a lot of right questions. I’m excited for where he’s going. And we’re going to check in with him again in a year to see what he has accomplished, all the things. I bet it’s going to be a huge list.
Before we bring in Anthony, 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 give him some financial decisions to contemplate.
Today’s guest is Anthony. He is just starting out on his journey to financial independence. He is 21 years old. He still lives at home with his parents while he’s going to school and his current investment grand total is $500. Why so low? Because he’s not sure what he should be doing. They don’t teach you stuff in high school, remember?
Anthony used to have a spending problem but has reined that in, which is also a very huge step towards fixing his finances and getting him on the path to financial independence. Anthony, welcome to the BiggerPockets Money podcast. I’m so excited to dive into your numbers.

Anthony:
Thank you, guys. I’m really excited to get advice from you guys too.

Mindy:
Okay. Step number one, what part of the world do you live in so we can see if you’re in a high cost of living or low cost of living area?

Anthony:
I live in Salt Lake City. So, it’s pretty costly.

Mindy:
Yeah, that’s like medium high because prices have gone through the roof right now. And let’s look at your… Scott, what am I calling this, an income sheet?

Scott:
P&L. Profit and loss or income statement, synonyms.

Mindy:
Let’s look at your income statement, your income and expenses. Do you have a job?

Anthony:
Yeah, so I’m working full time right now.

Mindy:
And what are you doing?

Anthony:
It’s just a warehouse job, but it pays pretty good, more than any other job that I could get right now.

Mindy:
Okay. That’s a great job to have. When I was in school, there was this push to go to college and get a white-collar job and you can make a lot of money in the trades. You can make a lot of money in a warehouse job. It’s a physical job. I bet you’re sore at the end of the day, but it’s a good paying job. Do you have any additional income besides this warehouse job?

Anthony:
So, I do Uber occasionally. But it’s nothing really big. It’s only like for a couple of hours. So, I’ll get maybe $40 a week. And it’s not something that I would even do weekly, just whenever I want or have time.

Mindy:
Okay. Okay. So, what is your take home pay on a monthly basis?

Anthony:
So, take home, I make around, let’s see… $1,950. So almost $2,000.

Mindy:
Okay. And let’s look at your expenses, Scott, or debts next?

Scott:
Let’s go to expenses here. So how much of that are you able to keep each month historically? What do you think? It sounds like you’re trying to get a rein in on that spending. How much do you think you should be saving each month?

Anthony:
So, I’ve heard the 10%, that you’re supposed to save like around 10 to 15. And like, 20 is really good. Right now, my debts are… Well, not debts, but my expenses are around half of what I make. So, about $800 and to the rest, that’s kind of what I don’t know what to do with. I have like $800 a month and I’m just like, “Oh that’s a lot of money.” And I don’t know what to do with $800.

Mindy:
I know what to do.

Scott:
So, what’s going on with the $800? Yeah, we’ll tell you what, we’ll help you deal with the problem of too much cash. That’s no challenge for us here. But what’s the $800 to $1,000 being spent on?

Anthony:
Okay. So, do you guys want me to break it down?

Scott:
Yeah, let’s walk through it real quick.

Anthony:
Okay. So, for school, it varies depending on how many classes I’m taking. Right now, in the summer, it went up because it’s a shorter term. So, they’re squeezing in the payments in two, three months. So, my school payment right now is $200. On gas, I spend $60. On car insurance, I spent $100. I have a gym pass, it’s $20. My phone is $40, like the phone itself, and then my phone bill is $85. And then, I have a bunch of little Cloud services. So, Google Cloud, iCloud. So, it’s like $6 total.
I don’t really have too many subscriptions, just one, Spotify, and I have the student discount. So, it’s only $5. On my dog, I spent around $40 for just food. I don’t really budget her other, like shots and stuff, because that doesn’t come on a monthly basis. So, I just deal with it when it gets there. And then, I pay for therapy too, which is the most expensive thing on here. It’s $250 a month. And that’s it.

Scott:
Okay. A couple of questions. You mentioned, you have shots and stuff for the dog. There are items that come about infrequently, like car insurance, or shots for the dog, or other types of things like that. Do you have any framework for budgeting those? Or do you kind of need to scramble when those kind of come up? I mean, in frequent basis?

Anthony:
I think, right now, it hasn’t really come up, the shots. I haven’t had to get her shots this year and I adopted her like a year and a half ago. So, that hasn’t came up yet. I mean, I have a little bit of savings now. So, I don’t think I would have to scramble, but for bigger stuff, then yeah, maybe.

Scott:
Okay. Well, I think that’s just something to think about for your budget here for expenses as you’ve got a good handle on what is going out on a monthly basis. But it might be good to build in what we call, are you familiar with the term capital expenditures? Like looked at real estate or anything like that?

Anthony:
No.

Scott:
Okay. So, this is a large infrequent expense. So, in a rental property, it would be like replacing the fridge or the roof every 10, 20, 30 years with those kinds of things. These are the annual expenses that come up. If you kind of make a list of those one-time expenditures that are going to hit, either have hit in the past or will begin hitting in the future, that would be a good thing to think about as part of your budget, because that’s going to be a couple of $100 a month.
That is not really money that you’re able to save, but you have to see if you have to put it towards those big expenses once a year. So, maybe $50 to up to $200 a month might be there. But that would be one just kind of thing to think about for the budget here. You mentioned that you’re paying $150 a month for school. What school are you attending with that?

Anthony:
So, it’s actually $200, and now, for this summer semester, and I’m just doing community college.

Scott:
Okay.

Mindy:
Is that like a credit hour or that seems really low. I haven’t been in college in decades, but that seems really, really inexpensive.

Anthony:
Yeah, so they let you do payment plans. So really, I’m taking two classes, but it’s divided into three months. So, the whole summer semester, so I only have to pay 200 every month.

Scott:
Are you assuming debt in association coupled with this? Or is this just something you’re cash flowing?

Anthony:
So, I don’t have any debt right now for school. But once I do move on to a four-year college, then I’m not going to be able to pay out of pocket. Well, I might be able to, I don’t know. I mean, I have $800, but I don’t know if I would want to do that. But right now, I plan on just kind of letting it go and paying it after I get my graduate degree.

Scott:
Okay.

Mindy:
Okay. Here’s my first bit of advice is, take every class you can at community college. So, if you can get all your general education courses done at this $150 a credit hour or whatever it’s costing, as opposed to taking them at your four-year degree. That is, you still get the degree from the four-year school, but you’ve paid the lower rate at the community college. This is what I did for several of my classes and it was financially advantageous to do that.

Anthony:
Yeah, so that’s my plan. I’m just going to finish up the two years. And then after that, I would only have two years at the four-year institution.

Scott:
Love it. So, your cash flow in community college here. And then, you might have to take out a little bit of debt, you’re not sure yet. But you’re going to move on to the four-year school, but only do two years at that to get the undergraduate degree.

Anthony:
Right. And I forgot to add, the reason it’s so low, is because my mom is helping me with half. But that’s not going to happen when I go to the four year. But also, Mom works for the hospital, it’s like an extension of the university. So, I get half off my tuition there. So, $200 going to be…

Mindy:
… at the four-year university.

Anthony:
At the four-year.

Mindy:
Oh! It’s huge.

Anthony:
So, she is kind of helping me in a way, yeah. But…

Mindy:
She is still helping, it’s huge, absolutely helping you. Yeah.

Scott:
That’s great.

Mindy:
She’s paying for 50% of it. And then you pay the other 50%. She just gets it for free from work and that’s okay, too. Okay, well, that’s awesome. And what are you studying?

Anthony:
So, I’m doing communications. But I don’t know exactly what field I’m going into, because it just opens up to so much.

Mindy:
It does.

Scott:
And what is your goal here? Is it to become financially independent early? Is it just to make smart decisions with your money for the next couple of years? What is your North Star here?

Anthony:
I feel like it has fluctuated a little bit. When I first started listening to the BiggerPockets Money podcast, it was like, “Okay, I can be smart with my money. I don’t just have to throw it all away as soon as I get it.” And so, for a little while, it was just being smart with it. But now, I’m thinking about it, and I’m like, I don’t know if I would ever want to retire early. I don’t even know what I’m doing yet. How do I know if I hate my job, like everyone else?
But I don’t see myself retiring, like probably before 30. I think what I would really want to do is just not really struggle with money as I start getting into bigger debts like $18,000 of school, or moving out, and stuff like that.

Mindy:
I love it. I love it. I love it. I love it. I love it. You don’t know that you want to retire early. But if you figure out your finances right now, it kind of doesn’t matter what job you get. “Oh, everything’s all taken care of. I’m already set up for retirement because I made smart decisions when I was 21 years old. And now, I can work at a job that I love but doesn’t pay me so much. Or I can work for a little bit and then quit and go travel for a while and then come back.”
I hear from so many people who say, “Oh, well, I don’t want to quit my job because I love it” or “Oh, I’m young. I don’t want to think about retirement.” I really hope you make it to retirement age. I hope everybody listening makes it to retirement age. And I hope you have a fully funded retirement when you get there. And there’s nothing worse, well I guess there’s lots of things worse, than getting to retirement and having no money, so you have to continue working a job that you hate for a boss that is a tyrant.
Or when you’re 21, you can think to yourself, “You know what? I’m just going to make smarter decisions.” What is that? I know I’ve said this a few times, I’m going to just say it again, and then you can go in, Scott.
But there was a study done, if you contribute monthly to a retirement plan from age 22 to 30, same amount every single month for eight years and then you never put another dime into that retirement account. Or if you start at age 30, and you go to 65, putting in twice as much as you would have from 22 to 30, you will have more money because of the power of compound interest. You’ll have more money at age 65 when you did that eight years and never put another dime than when you did it for 35 years and doubled your investment.
So, you’re 21 you’ve got eight years of savings for retirement and then you’re going to be golden. Okay.

Scott:
Yeah, I love it. And I will just say like that, one of the challenges is retirement is three lifetimes away for you at 60, 63, right?

Anthony:
Right.

Scott:
So that’s a long, long way away. It’s two times away for me. So, it’s not that different. But I think that it sounds like you need a shorter-term goal, like maybe right after college to begin working towards what’s the best possible position to be in upon graduation? Maybe, that would be a better way to frame the financial goal question here. Is that right? I’m searching to figure out how can we put ourselves towards a goal so that we can help give you a path to get there?

Anthony:
Yeah, so I do have one other big financial goal, which would be to move out. I just don’t know if I would want to, like right now with this extra money be saving for a house or move out into an apartment? Or what other options I could do. But I do want to move out, probably within the next five years.

Scott:
Okay. So, would it be fair to say then that a good goal or a potential goal to start our conversation would be, you want to graduate with a four-year undergraduate degree, with the strongest and most flexible financial position that we can, that allows you to live independently outside of the house right now?

Anthony:
Yeah, yeah, that’s great.

Scott:
Okay. Awesome. So…

Mindy:
Okay. Now, what do your parents think about your current living situation? Are they eager for you to get out of the house? Or are they fine with you living there while you go to college?

Anthony:
They’re fine with me living here, but I just, I don’t want to live here. I want to be independent. And before I was even going to college, my plan was just to move out. But that’s when I started listening to BiggerPockets. And I was like, “Wait, I can just go to school. My parents are fine with me staying here. Make more money, when I get my graduate degree, and then move out and not have to stress about money when I do.”

Scott:
Okay.

Mindy:
Well, let’s look at rent. What is rent for a one-bedroom apartment in Salt Lake City? Is $800 fair to say?

Anthony:
I think closer to 1,000.

Mindy:
Okay, so you only have $800 left after all of your expenses right now. You can’t afford to move out.

Scott:
What about a two or three bedroom, if you split it with roommates?

Mindy:
Scott, I’m trying to make a point of staying at home.

Scott:
Well, I’m trying [crosstalk 00:17:40]. I’m supportive of your point. You said 1,300 for two bedroom?

Anthony:
No, around 14, maybe 15.

Scott:
For a two-bedroom? So, that would bring it only down to 700 a person or 750 versus the 1,000.

Mindy:
Yeah. So, right now living at home is a really great choice and I support it 100%. I’m sure your mom loves to hear me say that, because she doesn’t want her baby leaving. But it’s kind of scary for your child to move out. And right now, I think it’s a better financial decision for you to continue to live at home. You do have some expenses. You don’t have a lot of expenses. I’m not sure about the, like if you use the gym membership, keep it 20 bucks is amazing.
The phone is $40 and the phone bill is $85. I’d love for you to look at some of the lower priced phone companies out there like Mint Mobile or Republic Wireless. You have to make sure they run on different plans or different networks, so make sure that that network works in your location. That’s the only downside with some of these companies is that, if you live in a Sprint dead zone, don’t get a Sprint network phone, but there’s a lot of different phone systems out there. They can be like $10 or $15 a month. So that right there is $100 savings that can go right into your Roth IRA.

Anthony:
Yeah, I was actually thinking of moving to Mint because I have tried it before. I had a free trial when I bought a phone once and it works great in my area. And I recently just switched to Verizon, which is why it’s so expensive, but because I just, I got tired of my plan. Before I was paying $25 for unlimited, which is crazy. But I just, I don’t know if I can get out of Verizon now because I just moved so soon. I don’t know if they have those fees to get out of there.

Mindy:
Yep, that’s something to consider when moving your plan. But if there is a fee to move, and it’s exorbitantly expensive, then stay there until the contract ends and then move again to Mint.

Anthony:
Yeah.

Mindy:
We haven’t talked about debts yet.

Scott:
Yeah, we should go to the balance sheet there. But just to piggyback on Mindy’s point, the fewer of these recurring subscriptions that you have, and the lower the subscriptions you have, the better off you’re going to be obviously with this.
And so that’s kind of like at the strategic level, just kind of understanding that. And your goal is to move out and have the strongest financial position or the goal that I just stated for you. You can change that and tweak it if you’d like. But within the next five years, it sounds like, do you think that will happen by the end of five years, you’ll graduate or what year do you think you would finish up? The degree?

Anthony:
I’m thinking I might finish when I’m 24. I don’t want to go to school full time, just because then I would have to work part time. And I feel like that it wouldn’t really be too helpful, even though I would finish faster. I just feel like I could save more during that time.

Scott:
Do you think you can graduate and work within three years? End of 2023?

Anthony:
Yeah.

Scott:
Okay. Great. Let’s go through your balance sheet next. So that was your income statement, that’s your income minus expenses. What do you have in savings, investments, and debts?

Anthony:
Okay, so for debts, I actually in the application, when I applied, I had more than I do now, which is awesome. I paid off all my credit cards. So, I don’t have a credit card bill anymore. Right now…

Scott:
And that was like three grand, right?

Anthony:
Yeah, it was around three grand. I just had it in my savings, so I was like, I might as well put it there. I don’t want to be paying for the interest.

Scott:
Fantastic.

Anthony:
So, what is left of my savings is really low, though. I pretty much only have debt on my phone, which is like $800. It’s not that much. But I paid off my car too, that was like $1900, and this was all within the last month. And then, I’m also counting on the debt that I’m going to have next year when I moved to the four-year institution, but I don’t have $18,000 yet. That is something just coming up.

Scott:
Great. And what was your savings previously? And what is it now before making these moves?

Anthony:
So, my savings was, I had $2000. And then, I think I got one of the stimulus checks. And I was like, “Okay, that’s what I’m going to use to pay off my car.” So, I used it and some of my savings to pay off my car. Then it felt kind of good to pay it off. So then, I just used the rest of my savings to pay off the other credit card, and that left me with $500 in my savings.

Scott:
So, you have $500 in savings and how much do you have in investments?

Anthony:
Investment, also $500.

Scott:
So, you have $1000 net worth and no debt?

Anthony:
Pretty much. Yeah.

Scott:
That’s fantastic.

Mindy:
That’s awesome.

Scott:
Yeah. That’s great. I think if you come on, and you’d asked us what we would have done with the savings, we would have done exactly, something we would have told you to prior to do something exactly like what you did, and get those things knocked out.

Mindy:
Yes. So, when you applied, you filled out the form, and you give all the numbers, and I was looking at that. Because I have that information, I’m going to share that you had roughly $3,500 in credit card balances at 13.9% interest. So that’s above Scott’s threshold of what 5% or 6% that he just paid that off immediately or paid it off as soon as you can.
You mentioned that you had more in savings and then now it’s pretty low. But that’s a safe move for you because you live at home. Is your mom going let you starve? Probably not. She sounds like a mom that isn’t going to do that. If she’s going to let you stay at home, she’s going to feed you too, right?

Anthony:
Yeah.

Mindy:
If you needed gas money to get to school, I bet she’d let you. Yeah, I bet she’d loan it to you. So, it sounds like that that was a safe move and a very smart move because now you are 21 years old and you have no debt. That’s fantastic. You said that you used to have a spending problem. Reining that in is enormous. That is so easy to let that get out of hand. So, you’re doing a lot of really, really great things. You’re not spending more than you make, you’re starting to invest in your Roth IRA, you understand the concept of having a savings account. That’s all fantastic.
I have a couple of questions. How do you handle your money? When you get a paycheck, do you pay your bills first and then just save whatever else is left over? Or do you put money into savings and then pay your bills with what’s left?

Anthony:
So, as soon as I get it, I just split it to where it has to go. So, some of it does stay in my checkings just for the bills. And then what I’m going to save, I put it in right away, and what I want to invest, I’ll put it in right away. But then I also give myself like $150 just to spend because then I feel like I would go crazy. So $150, so I guess $300 every month because I’d give myself $150 every paycheck, that also just stays in my checking.

Mindy:
Okay, I don’t think that’s obnoxious given your age and your income. Is there any opportunity for overtime at work? And does it pay extra, like time and a half or something?

Anthony:
Yeah. So, they have Saturdays open for six hours. So, I could do the full six hours, and they do pay the time and a half.

Mindy:
Oh, I would snap up every minute that you could do of that as long as it doesn’t affect your school, and as long as it doesn’t affect your sleep.

Scott:
And personal life.

Mindy:
And personal life, yes, okay. And personal life.

Anthony:
Yeah.

Mindy:
But right now is the time to take that money. And then just, I would even split that up. Or you know what, frankly, I would throw that into a Roth IRA, because you can only contribute to a Roth IRA when you are earning income. So, take all your Saturday money and throw it into your Roth. And how cool would that be If you could max that out this year?

Anthony:
Yeah.

Scott:
Well, let’s think about, I want to zoom back out here and say, we’re backing into a three-year goal. At the end of three years is the strongest, most flexible position we possibly can get into, from a standing start of zero, right? $1,000 in net worth, no debt, which is a great, great position to start out in. Right?
What does that look like in a general sense? To me, a perfect world would be something where you’ve got a really solid emergency reserve, $10,000, $15,000, something that would last you six months to a year independently with paying $1,000 or $750 a month in rent, or mortgage from there. It looks like having some money in Roth IRAs or other investments to a certain extent. It maybe looks like having a house hack. Are you familiar with that term?

Anthony:
Yeah.

Scott:
Yeah. So, it maybe looks like that. I think it looks like having finished your degree and getting a good job, something in the probably 50, 60 range. Is that kind of what you’re targeting after you graduate?

Anthony:
Yeah, around there.

Scott:
Yeah. And then, it maybe looks like having no student loan debt, right? Am I painting a good picture here? Does that sound like a good goal to back into?

Anthony:
Oh, yeah.

Scott:
So, the question is, can we have it all? Or do we have to make trade-offs in there, right? Like, it would be great for you to maximize your Roth IRA and save $20,000 in your bank account this year, so that you have that fully funded emergency reserve, before you even enter the college. That completely cash flow is your university or your full-time school schooling there without even having to work. Maybe you can work on top of that to cash flow without any debt.
However, is that realistic? I don’t know, given your current income and expenses with that. So those are the kinds of questions. And then from there, do we put that money into the Roth? We put some into the Roth, we put some into savings, that’s where I’m trying to back into. Do you agree with that position in three years? Is that kind of generally speaking what you’re kind of thinking you want in a couple of years?

Anthony:
Yeah, yeah, that’s exactly what I’m looking to do. And you pretty much hit all the points that I wanted to ask about, like, I don’t know if I could, in a sense, have it all by the time I’ve set for myself, and I just don’t know. There’re so many different pools that I could put my money into and I just don’t know what is the best one right now.

Scott:
Great. Well, in general, there are four financial levers. You can earn more, you can spend less, you can invest your capital, and you can create assets, right? And right now, you’re working full time and you’re getting a degree. That’s going to end, so you’re doing all the right moves, in my opinion, to increase your earnings potential over the next couple of years at the highest level in a pretty smart way.
You’re spending less, it sounds like that was recently a very big problem for you, but you’ve kind of figured that out and gotten that under control and know what you need to do from the expense’s standpoint. You have low expenses because you live at home with that.
So that leaves us with the investment and creation of assets. Unless you feel like there’s leverage on the earning income side that we need to discuss still.

Anthony:
No, I don’t think so.

Scott:
What do you think, Mindy? Is it on the investing and creating assets side that you think is the opportunity here as well?

Mindy:
I see the opportunity in the investing and creating, but I also see that Saturday time and a half opportunity and I would encourage him to take that as well. I would also look at, I’m not sure which warehouse do you work in, but is that the best paying warehouse in the area? Or is that the warehouse that has the best opportunity for time and a half and overtime and things like that? Because there’s, I mean when you’re young, when you’re 21, you’ve got boundless energy. And you can go and work way more than I want to at my not 21 age and really rack up the overtime, I mean that just compounds.
But yeah, I think that investment is going to be a really important part of what you’re doing. I did a quick search on Google, what does a communications major, what are some salaries, and the range is huge. Of course, it’s always huge. It’s $31,000 to $110,000. So, something you can do right now, because you have more time than money, is look into the communications jobs that pay $110,000.
Look for what locations are those paying in Salt Lake City? Or would you have to move to Denver? Or would you have to, maybe Reno is better or Las Vegas or someplace near but not Salt Lake City? Or are there jobs in Salt Lake City that you want to do that pay closer to the top range? Because I mean, you could probably get a $31,000 communications job pretty easily. But is that something you’re going to want? Does that make sense?

Anthony:
Yeah, yeah. Yeah, I think I would…

Mindy:
So, start looking into different salaries. I’m sorry, I interrupted you.

Anthony:
Yeah. No, you’re good. I was thinking the same thing that I would definitely look for something higher. I mean, I’m already making $31,000. It would make sense to look for something like that. And also, I wouldn’t mind moving. I think it’d be kind of cool, move around, and potentially get paid a lot more.

Mindy:
Okay, when you’re thinking about moving, which I think is a valid… I mean, there’s planes everywhere. We’re coming out of COVID. So, flights are more plentiful and it’s not that far to get home and visit your parents. I know your parents aren’t going to be super excited about you moving away, really far away, but you can always come back and visit.
And I’m excited that you are saying that you might want to move. Because I just looked up the price of a small home in Salt Lake City, and that’s $350 to $450, $350,000 to $450,000. There are less expensive cities nearby. There’s lots of less expensive cities. And a communications major, it seems to me would be online a lot, where you can work from anywhere as opposed to having to be in the house. Like, you can’t do a warehouse job from home, but you could do a communications job from home.

Scott:
I’m moving, I’m jumping around here a little bit. When do you plan on attending university full time? What year?

Anthony:
So, that’s going to be maybe 2022 in the spring.

Scott:
Okay. So, we have one year before you’re going to attend university. And so, I think the question is, how do we maximize this year while you’re working full time and taking part time at the community college the most in the short run here?
And let me ask you this, what do you think you could accumulate with a good year of grind and hard work here? Do you think you could accumulate $10,000? Do you think you could accumulate $15? What does that look like?

Anthony:
I think I’ve looked or done the math. If I saved around $800 a month, it would be maybe like around $10,000 depending on how much of that I save. So, I think around $10,000 would be like the best bet.

Scott:
Okay. So, we have $10,000. What is the optimal use of that $10,000? What do you think it is?

Anthony:
I’m not sure. I just feel like I would want some of that just to have in my savings. You guys always talk about the emergency funds. My car is not that old, but it’s making some sounds. So, I’d want to be prepared in case anything happens there. But then, I’m not sure if it’d be good to use, like, let’s say I save half to use the rest of it towards college, have less debt, or put it in the Roth and just let it grow. And then have $18,000 of debt when I come out of college.

Scott:
How much is college going to cost you per year?

Anthony:
It’s $18,000 total, so I guess $9,000 for the 2 years I’m going to be there.

Scott:
Okay. So, $9,000 is $700 a month. Can you generate $700 a month in income and sustain your life? Can you generate $1,500 a month in income while going to school? How much could you think you can generate while going to school?

Anthony:
Aside from what I’m already making?

Scott:
Well, you’re not going to be able to work full time and go to school full time. I imagine, is that right?

Anthony:
Yeah, that’s another thing. I’m not sure. I don’t know if I want to do school full time and just finish or keep working the full time and go to school part time. [crosstalk 00:34:48]

Scott:
Okay, so that would say, so we have an option here of going to school, working part time, and going to school full time, which would be tough, but you would finish in two years. Or you can go to school part time and work full time while you’re going to school part time, right? And that would take you three years, four years.

Anthony:
Yeah, probably around… I do summer semester, so around three.

Scott:
Okay, so that’s the trade off. And both would take $18,000 in cost to achieve. Is that right?

Anthony:
Yep.

Scott:
Okay, so I think you have a question there is, is this year, like a good, maybe potential moving target would be to say, “Hey, if it’s going to cost me $18,000 to go to school, can I bring that cost down, so that I’m only accumulating instead of $18,000 in debt, $6,000 in debt, or no debt across that time, because I’m making money while I am attending school to some degree that is sustainable? We can’t work 80 hours a week, every week for four years unless you’re an investment banker, I guess. But that’s a tough lifestyle, I think, for the next couple of years with that. So, what do you think? What do your instincts tell you is the right move between those two options?

Anthony:
Right now, I’m thinking of doing school part time, just because I have the potential to earn more right now. And I’m also able to get raises here, nothing like too big, but maybe like $1000 every year. But I’ve asked my supervisor, that’s not capped. So, it’s a raise either way. But I just don’t know if that’s the smartest thing. But for me, that’s what it sounds like.

Scott:
I think that’s a very reasonable way to go about it. I don’t think there’s like a right or wrong answer here. There’re just trade-offs with it. But I think the goal, the challenge I would pose to you would be, if you’re going to go school part time, how do you keep all of the $10,000 you’re going to save this year? And like, pad your emergency reserve, maybe up to $5,000 or so. Put another five, the remaining chunk into the Roth IRA, and begin starting some of that investment.
And then put yourself in a position where you’re actually cash flowing college to the best of your ability or dwindling your emergency reserves slowly over the course of that year, maybe taking on only a few thousand dollars in debt, if feasible there.
But if you can graduate in three years with no debt and maybe even sustaining a few payments to the emergency reserve or the Roth IRA during that period, that would be a really strong position to graduate in.

Mindy:
Have you looked into any other ways to help pay for college like scholarships or grants or things like that?

Scott:
Oh, great idea.

Anthony:
Yeah. So, doing communications, I can do a lot of journalism stuff, which I don’t know if I like it, but that means I could join the school paper. And I was looking at the school paper website at the university. And apparently, you can get a scholarship. So, I don’t know how much it was, but any money is good to pay it off.

Mindy:
Any money is good to pay it off.

Scott:
Well, that’s another one. And this is a big mistake I made, to my shame is, I should have done a lot more searching for scholarship applications. So right now, at $31,000 a year, you’re making about 15 bucks an hour. But if you can do scholarship applications, maybe even instead of or in addition to that overtime Mindy suggested on Saturdays, that might be much higher dollar per hour activity. What if you can get $5,000 in scholarships by looking at some of those sites, and we have an episode on this. Do you remember which episode it was, Mindy, with the scholarships?

Mindy:
That was Episode 64 with Zach Gautier. And he goes through a bunch of different ways to pay. It’s not just scholarships and grants. It’s also, if you work for Home Depot, they have a tuition reimbursement or Tuition Assistance Program. I think Starbucks does too. Where either of your parents in the military, they can pass on any unused military education endowment dollars to you as well. There’s a lot of different options there that Zach shares, and that’s Episode 64. So, I’ll send you a link to that episode when we’re finished recording.
But that’s a great episode. We should have a back in actually to give us more information. Has anything changed? But yeah, that’s the, oh, man, I wish I could remember who it was. They said, I went into my school’s admissions office and spoke to somebody about scholarships there and there are scholarships that are available through the school that may or may not be really well known. And every year, what? Tens of millions of dollars in scholarships goes unclaimed simply because nobody applies for that scholarship.
So, start looking, talk to high schools, go to your high school guidance counselor and ask for information about scholarships available. They should have a ton of stuff, because that’s where the scholarships are going there. They’re talking to the high schools and saying, “Hey, this is a scholarship that’s available. Help your people apply for it.”

Anthony:
Yeah, I actually remember that episode. I thought that was really cool and I didn’t think of that right now. But that’s, I guess that’s a good way to just apply for a scholarship. It’s not too well known, I can potentially get it.

Scott:
Yeah. Think about this, too. If you can accumulate 10 grand over the next year roughly, and then begin attending school part time, that means that if you can cashflow school, you would be able to accumulate $18,000 outside of that. So instead of graduating with $10,000 net worth, now you’re graduating with $28,000 in net worth, and that’s an even stronger position, and every scholarship, you get knocks that amount down to a certain degree. I think it’d be really beneficial for you.

Anthony:
Yeah.

Scott:
How aggressive would you be willing to get here? Would you be willing to consider grinding way over time or whatever to build up $20,000 this next year, if you can, and then using that to house hack, for example, during college, and potentially starting to build wealth like that?

Anthony:
I’m not sure because sometimes I have an easy semester. I feel like,” Oh, my gosh, I have so much time that I could be doing other stuff.” That’s like, for example, when I would do Uber or something, because why not just make more money? For the overtime, I think I would be down to do some, I just don’t know how much. Because again, it depends on how heavy the school load is. But I didn’t think to do the overtime to find the Roth IRA. So, I think if I was able to put that onto the Roth IRA until it maxes out, then I feel like that would be more motivational for me, because then I have a reason to do overtime. It’s not just, “Oh, it’s extra money.”

Scott:
Yeah, I like that. I think, like an emergency reserve of around five grand is probably about six months of emergency reserve for you in your current life right now. When you graduate, you’re going to need more because your expenses are going to go up because you can start paying rent and a couple of other things with that.
But I think, that would be a good way to think about is get the emergency reserve to five and pile everything else into the Roth after that until you maxed it. That would be a great goal for this year. But I’m trying to get at, what if we get to houses in Salt Lake City… Mindy, looked this up. It seemed to cost around $350 to $450,000. Is that about right for you? Is that in the ballpark?

Anthony:
Yeah. Mm-hmm (affirmative).

Scott:
What does a four-bed, two-bath or three-bath home, that’s pretty nice, where you can maybe get a couple of roommates look like nearby where you’d go to college? And would that be a potential rent by the room solution after that? Would that be something that you’re interested in?

Anthony:
I’ve thought of doing something like that. But the problem is my dog. I can’t move into an apartment. It would have to be like an actual house. And I haven’t looked into house rentals, I just feel like it sounds a little harder. I don’t know if that’s the case. But an apartment, it just sounds a lot easier. But to get a house with some roommates, I don’t know if it would be as easy to do as just getting an apartment, but I would consider it. But I don’t think I would leave my dog behind.

Scott:
That would be an aggressive move. But what I’m saying is, there’s a concept called house hacking, which you’ve probably heard about at this point.

Anthony:
Yeah.

Scott:
Let’s say it’s a $400,000 house. If you could put down 5%, which would be $20,000, and for example, convince or discuss or work together with your parents to help them co-sign on the loan, and you could responsibly manage it. Let’s say that that loan is $2,400 a month. If you could get three roommates in there, each paying $800 or something like that, that covers your mortgage. You’re still going to have expenses like maintenance. Maybe this wouldn’t work in this example. But if you could get it for 300, for example, in a place that require a little bit of fixing up. Now your mortgage might cost you, let’s call $1800…

Mindy:
I’m going through a mortgage calculator.

Scott:
Yeah, I’m doing some bad math here. But if you could get three roommates, for example, and they’re paying $2,400, and your mortgage is $1,800, now you’re actually cash flowing a little bit, and you’re able to move out a little sooner, and you’re able to start building wealth and paying down that home. And when you move out, you’d have a fourth person come in. Now, you’d be getting $3,200 in rent across those in something that you were reasonably comfortable with.
So, that would be a really aggressive move but something that could be potentially beneficial for you as you go into school full or part time and an interesting way to begin building wealth and creating assets.

Anthony:
Yeah. I haven’t really, I mean, I thought about the idea of it, but I haven’t really thought of me doing that. It does sound aggressive, it sounds interesting and I would consider it. But I don’t know, it’s just not something that [crosstalk 00:45:25].

Scott:
Right now, it’s impossible because you have $1,000.

Anthony:
Yeah.

Scott:
But if a year or two go by, and you have $20,000 or $25,000, because you’re able to beat that $800 a month savings rate. And maybe you get a couple of raises or you are able to cut back on some of these subscriptions and so on. And that goes from $800 a month to $1,500 a month over the next two years. That would begin to become much more realistic as you stockpile more cash, and might be a shorter term goal to begin thinking about moving towards.

Mindy:
Scott, let’s jumpstart his short term thinking about this by sending him a copy of The House Hacking book by Craig Curelop, and a copy of the First-Time Home Buyer book, so that while he’s buying his house hack, he can make a smart choice. First-Time Home Buyer, of course, is written by Scott and I. Both those of those books will give you an idea of the possibilities that can open up, if you just think outside the box a little bit.
You could still live for free, just like you’re doing now, while having roommates and the freedom that you’re looking for. And maybe that happens in your senior year, maybe that happens after you graduate and you get a job. But when you are removing the entire expense of your housing, it’s so freeing in your budget, then you can maybe just knock out all that extra college debt really quickly. Because instead of paying $1,200 rent payment, you’re paying $0 towards your mortgage, because your roommates are paying it. And now, that $1,200 can go towards your student loan debt.
So, there’s a lot of ways to get creative about financing your life, but you just have to think about it. You have to be aware of them. So, I’m really excited for that. I’m excited for your future. I think there’s a whole lot of wide-open spaces that you’re just going to crush it.

Scott:
Yeah. You’re asking all the right questions. And you just need to let a couple of months go by and let that cash blossom, right? You just hit this inflection point of getting back to zero in terms of debt and all that kind of stuff. And now, it’s all uphill, and it should escalate forever if you’re able to do it right and limit the amount of debt you accumulate from here on out and move towards it.
And it’s just about, first, getting the fundamental of the cash flow coming in. And then thinking about how to intelligently stockpile asset after asset into your equation over the long term. So, the best case that your current run rate without doing anything special is probably graduating debt free with $10,000, $15,000 or so in net worth.
But I think there’s a lot of creativity and options available to you or hustle or grind or different types of things that if you really keep thinking about it, you might be able to beat that number substantially by the time you graduate in three years. With a little bit of luck and a couple of experimentation and thinking about some creative things, like a house hack, like different side hustle ideas, like scholarships, those kinds of things.

Anthony:
Yeah. No, I didn’t even think of using the house hack to cash flow for college. I think that would be awesome if I could do that. But I think right now, it’s just the cash accumulation stage. But it is not the time to think about.

Scott:
You have no cash… Yeah, it’s totally unrealistic. It seems to me, it may be totally unrealistic to buy a house when you have $1,000. But if you get back into your strategy three years from now, that’s when you can begin really thinking, “Okay, I’m not saving up so that I can stockpile for my Roth for 50 years from now, that’s why I am doing that a little bit. I’m stockpiling because in three years, I’m going to be sitting pretty in a house hacker and Airbnb that totally cashflow is my living situation, and it’s actively contributing to my wealth in a way that’s almost comparable to my total earned income right now. That would be a really powerful thought to begin marching towards, if possible.

Anthony:
Yeah, that is awesome. Thank you.

Mindy:
Yeah, I am so excited for what the future holds for you. I am going to give you one bit of motherly advice, because I’m like that. I can’t just keep my opinions to myself. But when you do get your first job, start off right away with the 401K. As soon as you can contribute to your 401K’s, I would look into the Roth option, if they have one. We just had Kyle Mast on episode 200, talking about the difference between a Roth option and a traditional option.
So, if you haven’t listened to that episode, you could back and listen to that one as well. There’s a lot of really great bits of information from Kyle, who is a CFP, and is really, really helpful explaining the benefits of the Roth.
If the Roth is not available, still contribute to the traditional 401K. And when you get your first paycheck and it’s $3,000, and you’re like, “Oh, okay, I make $3,000.” Then, when you start contributing to the 401K, it’s kind of like, “Oh, now I only make $2,600.” As opposed to if you start off with $2,600, you never missed that 400 that you didn’t have to begin with. So that’s my last bit of lecturely advice.

Anthony:
Yeah. Very cool.

Scott:
Do you have any questions for us before we wrap up that maybe, things you’re wondering that we have an answer to touched on yet?

Anthony:
Yeah, so just one, it’s kind of about getting a house or even a house hack later on. If I’m putting all this money into a Roth IRA, I know within, I think, like five years, you can take out the initial investment. Would that be something that would be like a good idea to do to put towards the house hack or not something you guys would recommend?

Scott:
That’s what I did. I forewent my Roth IRA and I pulled some out of it in order to buy my first house hack. Because the math is so compelling, right? I put down $12,000 on a $240,000 property. And then the rent covers the mortgage, you have a lot of appreciation potential, you can work on the property, you’re paying down the mortgage. I think I did the math, and it was like a 200% or 300% ROI, which is just what blows away whatever I could get in the Roth.
I think there’s very few opportunities like that, that are that strong, besides maybe starting a business or a house hack. There’s probably a few more out there that if you’re creative. But really most alternatives, I think the Roth is really a superior alternative too. But there are a few exceptions, where I think that there’s a good, reason to forego the Roth, bigger for opportunity cost and those types of things, and house hacking can be one of them.
But there’s a lot of research you need to do between now and then. And I think you’ll definitely need at least about $20,000, $25,000 at minimum in liquidity to kind of safely enter in there.

Mindy:
Yeah, and one of the things that you need to weigh, like Scott said, is the earning potential of your Roth balance. When you pull it out, that’s no longer available. It’s not like a 401K loan where you can borrow the money and then put it back. Once you pull it out from the Roth, you’re not paying taxes on it, because you’ve already paid taxes. You’re not being penalized for it if you’re using it for specific purposes, but you also can’t re-contribute that same amount down the road.
So, I would just weigh my options. If it’s a smoking hot deal on a property and you need funding right away, that might be a good option. But if it is just a mediocre property, a mediocre deal, I would maybe look at other ways to fund that or just aggressively save for a while. But I love that you’re thinking about that. I mean, so many people your age don’t even think about that option. And that’s, you’re on the right path.

Scott:
Yeah, I love it. I think that the key is, you have a formulaic approach to graduating debt free from college with a few thousand dollars, that’s great. But I would just challenge you, “Hey, you’ve got an opportunity here over the next three, four years where you’re able to live at home and get your degree part time with those types of things.” How can you kind of think a little bigger and pop out and be, “Hey, what are some ways to really maybe create or acquire or build some real assets here that will give me some freedom? Is that an option? Or can I do that right after I graduate? How to put myself in those position to go just a little bigger, not crazy, taking on a ton of risk, but maybe starting to think about some of those types of things.”
And so maybe a good next step also would be to just really start reading and learning about some of these real estate or entrepreneurial type kind of ideas.

Anthony:
Okay, okay. Sounds good.

Mindy:
Awesome.

Scott:
All right, man.

Mindy:
Anthony, thank you so much for joining us today. This was a lot of fun. And I think that people are going to get a lot out of it. I think I can hear parents saying to themselves, “Oh, I have to listen to this with my 16, 17, 18-year old son, daughter, child.” If girls could listen to that too.

Anthony:
Well, thank you guys.

Scott:
Yeah, absolutely. Thanks for coming on the show and thank you for applying.

Anthony:
My pleasure.

Mindy:
Okay. We’ll talk to you soon.

Anthony:
Bye.

Mindy:
Okay, that was Anthony. Scott, tell me, how excited you are for Anthony’s journey?

Scott:
I think it’s great. I think Anthony is, it sounds like recently gotten a hold of the basics of personal finance. I love that he had a little bit of debt, not too much knocked it out before he even came on the show. And then began asking us questions about like, what the heck do I do next with all this stuff? Which I think what a shame that what next question is not answered in a high school or college finance setting with a lot of that stuff. Because money is not the most important thing in life. But it is one very important thing in life. And it seems like one that could be, I don’t know, discussed more with this. And I just love the fact that he’s going out and finding out the answers for himself with this kind of stuff. I wish more people would do that.

Mindy:
He is definitely asking all the right questions. And like I said, in the beginning of the show, we’re going to check back in with him in about a year to see all the amazing things that he’s accomplished.
As I say in the beginning of the podcast, we are here to introduce you to every money story. And if you have not heard yours yet, we would love to hear from you. We would love to share your story with our listeners so that they can learn from your experience as well. You can apply to be on the [email protected]/finance review. And we would love to have you. Scott, should we get out of here today?

Scott:
Let’s do it.

Mindy:
From Episode 202 of the BiggerPockets Money podcast, he is Scott Trench and I am Mindy Jensen saying, peace out, rainbow trout.

 

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In This Episode We Cover

  • Planning for retirement at a very early age
  • Maxing out your Roth IRA and 401(k) match every year you can
  • Paying off credit card debt and car loans
  • Finding side income streams like driving for Uber
  • House hacking during college and leaving with a cash-flowing rental
  • Keeping your spending habits low (especially as you’re starting out)
  • And So Much More!

Links from the Show