BiggerPockets Money Podcast 210: Finance Friday: Should I Leave Teaching to Pursue Greater Income?

BiggerPockets Money Podcast 210: Finance Friday: Should I Leave Teaching to Pursue Greater Income?

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Teachers do a lot more than we give them credit for (as shown throughout the past year and a half), but sadly, they don’t get paid terribly high salaries. Today’s guest, Stephanie, is a music teacher for young children and is debating whether or not she should make a career change to up her income to higher levels. Stephanie has a good amount in savings and investments but wants to take on a duplex to house hack and save money on monthly housing costs.

Scott and Mindy walk through the pros and cons of house hacking and answer questions about live in flips. The best part about Stephanie’s story is that she has the option to move anywhere in the United States. She has nothing holding her to New Jersey and may be keen to move out due to the high taxes she has to pay.

With the combination of a career change and the potential to do a live in flip/house hack on the horizon, Stephanie has a lot of great (and broad) options to help her reach financial independence!

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Listen to the Podcast Here

Read the Transcript Here

Mindy:
Welcome to the BiggerPockets Money Podcast, show number 210, Finance Friday edition, where we talk to Stephanie about changing careers to optimize your finances.

Stephanie:
Teaching, I love teaching, but it is not a high paying career, and there is a step … I see my salary scale and where I’ll be in 10 years, and it is not that much. It’s not the numbers I want to be making. So, I’ve thought about possibly moving into more of a corporate job that does have the potential for that growth.

Mindy:
Hello. Hello. Hello. My name is Mindy Jensen, and with me as always is my more fun than bubble wrap co-host, Scott Trench.

Scott:
Ah. There’s some sort of pop I can give in response to that, but I don’t know what to do.

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 that 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, start your own business, or simply decide on what to do next from your really strong financial foundation you’ve built, we’ll help you reach your financial goals and get money out of the way, so you can launch yourself toward those dreams.

Mindy:
Scott, I am excited to talk to Stephanie today. She is a teacher who has kind of the entire world open to her, as she is contemplating a change in careers, so that she can generate more income and boost her savings, so she can reach financial independence a little bit earlier.

Scott:
Yeah. I think it was a great discussion. I don’t want to spoil any of it, but I think in general she’s got a lot of options, the entire spectrum of options out there. It’s really about kind of getting clear on what you want and how to focus in on pursuing some of those, because she’s got a strong spot and she needs to decide and act. I think she’s going to be in a really good position in a few years.

Mindy:
I agree 100%. My attorneys want me to remind you that the contents of this podcast are informational in nature and are not legal or tax advice. 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.
Stephanie is joining us today. Stephanie is a teacher who lives in a high cost of living area. She’s looking to purchase a house hack fixer upper duplex in her area to help with housing expenses. She’s making smart decisions with her money and she’s looking for ways to secure a comfortable retirement on her terms. Stephanie, welcome to the BiggerPockets Money Podcast.

Stephanie:
Thank you so much. Thanks for having me.

Mindy:
I’m so excited to talk to you today. First of all, you’re a teacher. I love you. I’m so happy that you’re a teacher. I’m so happy that you help teach children, because I was a teacher last year and it kind of sucked.

Stephanie:
Yeah. For us too. Yeah.

Mindy:
Yeah. I can’t imagine. Whoa. I already appreciated you, because I knew I didn’t want to be a teacher, but then after last year, I super know I don’t want to be a teacher, so I’m very, very happy that you are in your profession. Let’s-

Scott:
What subject and year do you teach?

Stephanie:
I actually teach music to kindergarten and first grade students.

Scott:
Awesome.

Mindy:
Do you give them a recorder?

Stephanie:
No. They don’t get that until a little bit later, thank goodness.

Mindy:
Okay. I am not a fan of that piece of plastic. I’m not even going to call it an instrument. I was shopping the other day and some kid had a recorder. I’m like, really? Really? Sorry. I digress. This isn’t about me. Today it’s about you. Let’s talk about your finances. What is your salary? What’s coming in? What’s going out? Debts, expenses, all of that. Hit me.

Stephanie:
Sure. My salary is about $3,300 per month. That’s per month over a year, but I only get paid 10 months out of the year. So, I got my last paycheck June 15th, and now I am crossing my fingers and hoping that I make it to September, which should be fine, but, you know, there’s always that uncertainty. I also have a side hustle income, and I make anywhere from $600 to $800 a month. In the summer, it’s more, because I have more time that I can devote to it, but I actually teach English to kids online who are in China. I love it. So much fun. But I am an independent contractor, so I have to save my own money for taxes. That’s another long term, come to the end of the year and hope you have enough money saved kind of deal. So, 30% I just keep in an account that I don’t touch, don’t look at, don’t really think about. Then come tax time it’s usually enough. I’ve been doing it for three years, so that’s been fine.

Mindy:
Okay. I’m going to jump in here right now and commend you for that, because I am also a real estate agent, and I know a lot of real estate agents who are like, “Oh. It’s tax time. I’d better sell a house, because I got to pay my bills.” That’s really smart planning to put it in some place that I’m assuming it’s some sort of high … What is that? Scott, what am I saying?

Stephanie:
High yield.

Scott:
High yield savings. Yes.

Mindy:
High yield. Yes. I was going to say high deductible insurance plan. Don’t put it there. Put it in a high yield savings account, which is like 0.0% right now. But still, it’s not something to be invested in the stock market. It’s something to be saved and held, so that you can use it to pay your tax bill when it comes due. Yay for you. Congratulations. That’s a good job. Let’s keep going.

Stephanie:
Okay. Awesome. The 3,300 take home includes I also do bus duty, which is extra that I get paid for. This summer I signed up to be on the Curriculum Committee, so I’ll help rewrite the curriculum and rewrite the grading profiles, so that is a little bit extra. I try to do whatever I can at school to get whatever I can extra, too, but that includes all of that. Then as far as expenses, like you said, I do live in a relatively high cost of living area, so my rent is 1,465 and will go up in September. It’s just me in a one bedroom. That’s probably the part that gives me the most pause, because I would like to be investing in real estate and a house. But I guess we can get there. There’s not much around me that would work for what I would like. I’ll leave it there for now.

Scott:
Where do you live?

Stephanie:
New Jersey.

Scott:
New Jersey. Okay.

Stephanie:
Close to Pennsylvania, but we’re not allowed to live out of state if we work in New Jersey, well, teach at least.

Scott:
Got it.

Stephanie:
Yeah. That really does put a damper on those sorts of ideas. But my total expenses, I don’t know how far you want me to break it down, are about 2,800 a month with some built in for miscellaneous. Internet I just called and got down to $40 from 55, which I was really happy about. Groceries, about 350. Electric and gas, I put away 65 a month. In the winter, it’s not nearly that much. In the summer, it is. That’s another one of those that I have to budget an extra two months in there as well, and they’re summer, really hot months.
Then for my car I put about $70 for gas. My health I put $50, because I have some chronic things that I need to deal with every month. Car insurance, 130, which hopefully is also going down. I just took a defensive driving course to hopefully lower that, but it will only roll over in August, so they’ll give me the new quote. I don’t know what that is yet. Rental insurance is bundled in there. Then my car payment is 291.44. I had some questions about that as well, because I do have a sizable emergency fund/house down payment fund. Having any sort of debt makes me crazy, so I don’t want it, but I can afford to pay it now. But I could also afford to pay it off now. It’s just a matter of what is better, I guess.

Mindy:
What is your interest rate on your car payment?

Stephanie:
4.8%.

Scott:
Let’s keep rolling through the … I think that’s an interesting one with that. Let’s keep rolling through the financials here. You spend 2,800 a month and you have about 1,000 plus left over just from the salary for those 10 months. Then you have the extra income that comes in throughout the course of the year from the bus and the online tutoring and that kind of stuff. What do you have in terms of assets and liabilities?

Stephanie:
I have an emergency fund of about $15,000, which is six months comfortably where I am right now, but I figure if I get there, I’m moving out of this apartment immediately, so it will last me longer than that. Then I have a house fund, which could also be considered a second emergency fund, since it’s just been sitting there for a really long time, of about $12,000, which could go to a down payment, could pay off the car loan, could … or just wait for a house that’s the right one. I was very discouraged with my last encounter with a house. So, that’s there.
I also have a traditional rollover IRA, because I rolled over a pension from a different state when I was teaching in Pennsylvania. That had to rollover into an IRA. There’s about $16,000 in there. I have a Roth IRA that I try to max out every year, which is 20,000. I also have a 401k for my independent contractor work. There’s about 2,500 in there. Another question is I know recently you guys have been real on the Roth 401k wagon. I was looking into it, and it looks like I can have a Roth 401k, but I’m not sure what’s better or worse. I was about to talk to you, so I thought I’d hold off on doing anything major. Then I have a brokerage account with 40,000 in it, which was mostly inheritance from my grandpa.

Scott:
All right. What is your goal right now? Where do you want to be in a couple of years?

Stephanie:
Oh. I also have a car loan that I didn’t tell. Hold on.

Scott:
How much is the balance on that?

Stephanie:
I got to look on this page.

Scott:
That’s the 4.8%. Right?

Stephanie:
Yes. The balance on the car loan is 8,600 at the moment.

Scott:
Great. You’ve got a net worth in the ballpark of 80-85,000. Is that what I’m kind of eyeballing here? I probably am doing a little bit of mental math incorrectly with that.

Stephanie:
According to Personal Capital, it’s about 110,000.

Scott:
Oh. I’m way off. Okay. Nope. That makes sense. I think I was looking at a couple of … I wrote a couple down. Fair enough. 110,000 and 40, 53, 67 of that is theoretically liquid, in the sense that you have an emergency fund, the house down payment fund, and the brokerage account with that. Do you have any type of pension from your employer?

Stephanie:
Yes. I will. I can tell you what that’s worth if you give me a second. As of December 30th of 2020, it is worth $13,400.

Mindy:
Now, that is the cash out value right now?

Stephanie:
That’s what it said it was worth when I looked it up online in the pension system. I think it only updates once a year, because I looked it up mid-year and it still said only in December.

Mindy:
Okay.

Scott:
Often with pensions we’ve found that there’s an acceleration of the benefit at certain milestones in the career. Do you have any kind of insight into what that looks like for your situation.

Stephanie:
I don’t know about acceleration. I do know that to be vested, to be eligible for the benefits, you need to work 10 years in teaching or whatever the public piece is. I have five years, maybe four years I think, in New Jersey, because I had to cash out the Pennsylvania years and my first New Jersey year, because they didn’t talk to each other. So, that’s in the traditional right now. I think I’m only at four years. If I left, I would only be eligible to get back what I put in, and you need 10 to be able to do really much of anything.

Scott:
Okay. That makes sense. Let’s get to the challenge. What’s the challenge? What would we like to achieve over the next couple of years with this?

Stephanie:
My goal is to retire basically and be able to do what I’d like to do. I have a dream of being able to do that sooner, rather than later, maybe in 10 years, but I don’t know if that’s possible with my current salary, my current costs. I’d also love to buy a house hack. I looked at a duplex when the world ended in March of 2020 or just before, probably February. I was looking at a house. I put an offer in on a house, but it was not the right house for me. It was over 100 years old. It was going to tie up most of my cash just with the down payment, let alone the fact that the side I would live in had no kitchen.
My realtor was like, “No. This is great. You should do it. There’s not going to be anymore.” I was like, “All the things I’ve listened to said this is a bad idea.” I think I got a little further in the process than I probably should have by listening to her and then thankfully backed out and didn’t get the house. It didn’t wind up selling, because the world kind of stopped moving, but it has since. I’d love to find a duplex that’s not that one in the area, but I know that they are few and far between.

Scott:
Does it have to be a duplex. Would you be open to a house with extra bedrooms, or a basement, or those types of things? What’s kind of the parameters of this option? Because I do think a house hack is an interesting choice for you. That could be really beneficial.

Stephanie:
I don’t think I can share my space with someone else, as far as extra bedrooms or anything. I have enough trouble when I go visit a friend to try and live in their space. I would be open to something, like if was an attached garage or something that was converted that they had their space and I had my space. No. The whole bedroom thing, it’s extremely lucrative and I would love to be able to do it, but I personally can’t.

Scott:
Okay. You’re interested in … What is a duplex going for in your local area, the few that are on the market?

Stephanie:
About 300,000.

Scott:
Okay. Do you feel like you would be able to qualify for the mortgage on that type of property?

Stephanie:
I was approved for up to 300, but then they were pushing 350. Now, they’re just crazy. Yes. I think I could do up to 300. Then I was looking at possibly just buying a house, inspired by Mindy a little bit, buying the ugliest house on the block, living there for two years, fixing what I can, hiring it as I can afford it, and then possibly turning that into a rental. The other agent that I was working with said, “That doesn’t make any sense, because if someone can come in and could afford it, they would just buy it instead. They wouldn’t rent it from you.”

Mindy:
I don’t like your agent. I’m sorry.

Scott:
Yeah. I think that with the live in flip, which is what that is, I don’t like it as a rental strategy for a completely different reason, which is that after you’ve added a bunch of value, $100,000 in value let’s call it, you can sell the property and get that tax free versus keeping it in a rental, where if you own it for more than a few years, you’re going to have to pay tax on the gain for that property. That’s the only reason I like the live in flip better than the live in rent. But it is I think a very viable strategy. With my purchases, I’ve purchased them with the intention of doing exactly that, to build a rental portfolio with that. Let me ask you, in the house hacking world, your goal is not to live with other people, but would you be able to consider it for a year or so to expand your option pool in those types of areas?

Stephanie:
It would be possible, I think. There would have to be an end date, like definitely it would be a year.

Mindy:
It’s valid to say no. I want to jump in here and say that Scott could live with 47 people and he wouldn’t care, but that doesn’t sound like something that you want to do. Another option is something that is duplex-ible, but isn’t quite a duplex right now, like a basement that’s finished or has a kitchenette. You could very easily find somebody who wants to live in the basement who doesn’t want to cook a lot, who is fine with a small, little stove, and a small refrigerator, and all of those things. There’s longer short term rentals, like traveling nurses and corporate rentals. I don’t know that they would want to live in the basement.
Would you want to live in the basement? If you could deck out the basement super awesome and then they could rent the space upstairs, could that be an option? There’s a lot of flexibility here. You don’t have to find an already duplexed house. You do need to permit it in such a way that when you do fix it, it is duplex-ible or you’re doing everything legally. There’s a lot of fluidity in this option. I like that you are open to other options. I totally understand not wanting to share a space with somebody else.

Scott:
When I look at your position overall, you are clearly hustling with this. You’re doing great with a lot of these things, in the sense that you’re able to accumulate what seems to be $1,000 to $2,000 a month. You’ve got a formula that will carry you to wealth over time if you keep doing what you’re doing with this investment approach. The question is all about acceleration of this plan, because you’ve clearly got the basics down and are moving towards wealth with this. Right? I’m sure you feel that. You’re like, “Oh. I’ve got these emergency reserves. I’ve got these options.” But how are you …?
The questions I want to know is how far are you willing to go to accelerate the plan, and where should we kind of be guiding our thoughts here? For example, ways to accelerate your journey to FI would be maybe to consider up and moving to another location, because you don’t seem to have a lot of ties to the area, other than maybe a small amount, maybe 10, 15% of your net worth maybe in this pension for that. That’s about a year of savings for you in that pension. You might be able to really pay that back really quickly with a move to a different location with better pay, or better benefits, or those types of things. You might be able to have options for house hack in a different town. You might be able to lever up and go a little bigger on a house hack in your local town, if you’re willing to do some work. I’m trying to get a feel for the areas you’ve been thinking about exploring and how far … where’s out of bounds and where’s inbounds for our discussion today with that?

Stephanie:
Okay. It’s funny that you mention that, because I’m ready to go. I want to do this. I feel like I have a little bit of trepidation with spending money. I always have. It’s in the stock market. I’m not spending it. I’m technically saving it. You know? That down payment is going to take a lot for me to find a house that I will put that money on. That’s a me thing that I’m working through.
But I’ve also said teaching, I love teaching, but it is not a high paying career. There is a step … I see my salary scale and where I’ll be in 10 years. It is not that much. It’s not the numbers I want to be making. I’ve thought about possibly moving into more of a corporate job that does have the potential for that growth. My masters is in leadership, which intentionally was very open ended and not focused in education, because I thought I’ve always wanted to be a manager. I’ve always wanted to do more than I am right now. I’ve always wanted to start my own business, but possibly … If it takes me moving to a different company, being a manager for a while, making that bank, moving to a different state, I would love to, and then get back to teaching kids music in a volunteer way, in a start my own business way, not in a you have to go to school every day, and do this, and follow all their rules, because I think there’s some parts of my job that I don’t see a point to, which I think most teachers will tell you.
I would like all the good stuff without all that stuff. If that means not teaching for a few years, however that might be, 10, whatever, I’m okay with that. I’ve looked at getting my resume set up to go someplace new. I just don’t really know … I know the skills are transferrable. I know I would be great at it, but convincing someone else that says, “Oh. You’ve taught for seven years,” is where I get hung up. What do I do?

Mindy:
Oh. Let me answer this question. As a mom who had to be a teacher, I totally understand all of the skills that you have, because I had to do my job and juggle a lot of that stuff as well. I think right now is a really great time to be a teacher looking for a new job, not only because it’s fresh on everybody’s mind just all the things that you do, if they have kids of their own. Right now there’s a labor shortage. I keep seeing all these jobs, I’m sorry, all these articles that are saying people are quitting their jobs in record numbers. People are quitting in droves, because they have saved up this money. They hated their job. They left. There’s not a ton of applicants, not a ton of qualified applicants for the jobs that are out there right now. And right now’s a great time to start looking, because you have that fall back to, I don’t have to quit my job until I find a new one.
Get your resume updated. I say that to anybody listening. Update your resume and keep it updated no matter what, because it’s a lot easier to remember that you just got this certification, or created this project that increased revenue 12%, or did whatever when you do it, as opposed to now it’s time to update my resume. What have I been doing for the last three years. I think I did something. How do I fill it out? Keep your resume updated all the time, but also alter it. Your resume should be a fluid, living document. When you’re applying for a teacher job, this is what I’m focusing on, but when you’re applying for a more corporate job, all the things that your teacher job did that translates over to the corporate job should be in your resume. It isn’t I taught kindergartners and first graders music. It’s I managed the flow and all those things. God bless you for teaching music to kindergartners.

Scott:
Look. I think if you’re going to say, “Hey. I’m open to moving anywhere in the country and doing any other type of job,” that gives us a big blank check to begin working from with a lot of this stuff. That’s very exciting with that. And I think that you are in a great position, in the sense that you really only have a car as an asset that’s got a loan against it. You’re not making a lot of money this summer doing the contract work. It sounds like it’s some money, but it’s not a lot. Right?

Stephanie:
Right. It’ll wind up being closer to 900, possibly $1,000 each month, take home, without the taxes.

Scott:
How many hours are you putting in for that?

Stephanie:
It’s three a day six days a week.

Scott:
Love it. Okay. I would say if you consider the summer as your summer to have an eight hour day, which is designed to figure out that next life move with this kind of stuff, that might be a good thing. Look. As a man with no children and no teaching experience, I have no ability to comment on this, other than through observation with this kind of stuff. But I think that … My wife was a teacher. I think it’s a hard gig with this. Towards the end of a teaching career it seems like the benefits really kick into overdrive, where the salaries begin to really see that compounding effect and the pension begins to vest. You can certainly be a millionaire educator. We had the Millionaire Educator on this podcast talking about that path. But it’s not something that you can really drive acceleration for here, and it seems like you’ve had a couple of changes that have reset some of those benefits vestings there. I think in a lot of cases it can be underappreciated and underpaid in some of these things.

Stephanie:
One of the things, as you were talking, I realized that technically I can buy back years in the pension system. I have three technically that I could buy back in New Jersey’s pension system. I know that they’re very expensive and every year they get more expensive that you don’t buy them back. But that would put me at seven years, instead of four. But I still don’t think I’m going to make it the 35 years that they want you to, so I’ve never thought that that was worth it. I also, like I said, am looking right now. Staying three more years to get to 10 years to get anything doesn’t feel like the best idea either, but it’s just something that occurred to me while you were talking.

Scott:
I believe that with the right efforts there are other careers out there that would allow you the option of making 55,000 to 60,000 or more within the first year or two easily, which would far out pace that benefits profile. I think you should think about it. Given that we’re going … I don’t know if I put words in your mouth, so I don’t want to do that if I am. But I heard, “I am open to considering the complete universe of places to live on the East Coast or nationwide and the complete universe of corporate jobs for this.” If that’s the case, that I think change … Is that right?

Stephanie:
Yes. Definitely. Yeah.

Scott:
I think your benefits package at the school is just not going to compare to-

Stephanie:
I agree.

Scott:
… that spectrum of possibilities. I would keep that in the back of your mind and be like, my floor is 55 that I need to accept, or 52, or whatever is it for the full time job, given that I’m not going to have the two months of contract opportunity the way I do now and I’m not going to have the pension benefits. I don’t think that’s a huge ceiling or hurdle to cross, I would think. I don’t know. Mindy, what do you think?

Mindy:
As you were saying all of that, I started typing some notes. Don’t buy a house in New Jersey. New Jersey … and I’m sorry if you’re from New Jersey. This is not meant to be offensive. New Jersey is not one of my favorite states, because they have very tenant friendly landlord/tenant laws and very UN-landlord friendly laws. It’s very difficult to get a tenant out of your property once they have moved in, unless they have broken the lease. If they’re just a complete pain in the patoot and they pay their rent on time, you can’t not renew their lease. I don’t love that option at all. If you’re not tied to New Jersey, I … And they have horrible taxes.

Stephanie:
Yeah. They do.

Mindy:
They’re super close to New York City, and that’s great. It’s a way more affordable place than New York City itself, but if you don’t have any ties there, I wouldn’t buy a house there. You said duplexes are really difficult to come by. I would suggest, now that you’ve got this whole new world open to you, make a list of places that you want to live and make a list of places that you don’t want to live. I want to live in Colorado, California, and Idaho, and that’s it. Great. Start looking there. Look and see what the availability of a duplex or a triplex is. Look and see what job opportunities are available. Look and see what the house prices are. If you’re moving from New Jersey, where a duplex is $300,000, moving to California to make $60,000 a year and buy a $900,000 duplex may not be the best choice for you.
What are your hobbies? Are those available in those states? I really like to snowboard, so I moved to Colorado. Then I had two kids that don’t snowboard. That awesome. Where do your friends and family live? Do you have a support system? If the whole United States, and I’m assuming it’s the United States, but if it’s the world, even more opportunities there. Where do you have …? What’s really important to you, having a strong support system, having the ability to do hobbies, having a good job, having a lot of options? You’ve got the whole country that just opened up to you, while having this safety net of still having a job right now and being able to … I’m assuming you’re able to continue working next year if you don’t find a really awesome job.
When you are looking, you do your interview, and they offer you a job, and you say, “Hey. What is your 401k situation?” “Oh. We don’t offer one.” “Well, then nevermind. I’m not interested in that. What is this situation, that situation?” You’ve just got a lot of options when you’re open to it. I love that. I can talk forever, but I see Scott wanting to say something.

Scott:
Well, I just think, again, if you give us this much opening for the entire spectrum of possibilities, we’re going to go to town painting that picture with this kind of stuff. Thank you for doing that. I completely agree with Mindy that you now have a completely open ended and exciting challenge that I think is probably a good goal to set yourself for the summer is can I narrow down five to 10 places in this country that I would like to live and work, and can I go visit them? Right? Can I go drive there or whatever? New Jersey is not renowned for its climate. It is my father’s second least favorite state, after Delaware. I think that there is a … Armpit of the Union. Sorry to our Delaware listeners. That’s not my feeling. We used to drive-

Mindy:
You can reach Scott’s dad.

Scott:
When we were going to Philadelphia to visit family, we would drive up I-95. We would get off and drive 20 miles around the Delaware toll, so that we would not have to give $4 each way to the state of Delaware growing up. Don’t move to Delaware. You can move to Delaware.

Mindy:
Wow. What did Delaware do to your dad?

Scott:
They put a toll right there and charged you four bucks each way. Anyways, but I would say, yeah, put a list together of five to 10 places that you’d be interested. What a good summer project. You can do that while doing your contract work, you’d imagine, for three hours a day, from anywhere in the country. Go visit and see what’s … It doesn’t have to be, oh, here are the places I would love to live if I had unlimited means, but here are the places that have relatively affordable housing that I can get. I can actually get one of these duplexes or begin doing some type of rental investing, that are reasonably equivalent to my standard of living that I’m accustomed to in New Jersey with this kind of stuff, that maybe have better options with that.
Then simultaneously, what are the jobs that I’d want to do either in those local areas? Is it another …? There’s teaching jobs there I’m sure. Or there’s potentially work remote options around the country. Or there’s potentially jobs on a different corporate track in some of those areas as well with that. I think that would be … I mean, that’s a very broad, open ended task list, but I think it’s as good a place to start as any with that, because it hits the two biggest problems that you have right now. You have no leverage over your income, besides the contract … by upping your hours at the contract work. Your investment opportunities are limited to basically index funds inside of your … or stock investing inside of your retirement accounts and you’re willing and able to accelerate that with a real estate thing. But you can’t do that, because of the very limited selection in your local town. I think that would be the two-pronged approach to address your two biggest levers with that. Does your lease allow you to Airbnb your place a few nights? Would that be an option for you while you’re traveling to help fund?

Stephanie:
No. No. Not here.

Mindy:
Scott, let’s talk about her car. She has a house fund of 12,000, an emergency fund of 15,000, and a car loan of 10,000. Something I want to say right now, there is, because of the pandemic, there is a chip shortage, a microchip shortage, which means that new cars aren’t being built as fast as they used to be. So, there’s a car shortage and there’s a rental car shortage. There’s a used car shortage. There’s a new car shortage. You have a car now. I wouldn’t recommend selling it if it’s your only car. But if you are listening and you have a car that’s extra and you don’t need it, sell it, because you can make a lot of money. Used cars are going for a lot more than they used to go for. You have one car. Is there an option to buy a different car? It doesn’t really sound like it.

Stephanie:
I just bought this car in August of 2020. I saved almost enough to buy it in cash, but it wasn’t quite enough. Then had to take out X number of dollars in a loan, which was ridiculous. I couldn’t just take out the remaining few thousand dollars. I wound up changing my tactic a little bit and invested most of the savings and then put down a large chunk on the loan. But now I’m in a place where I’m sitting on the house/emergency fund of enough to wipe out the whole thing. Also, to note, at the end of the summer, September, any money that I have extra will go towards the car loan. I just don’t know yet what that will be. It will probably be around about $1,000, maybe more, depending on how hard I hustle this summer as well. I also started driving for DoorDash. I haven’t really gotten that up and running, because the school year was so bananas, but I’m hoping now that I have more time during the day I can do a little bit more on that and all of that will also go towards the loan. That’s that story.

Mindy:
My personal opinion, if I was in this position, I would not take the house money and pay off the loan. I would keep the house money in its space. I would keep making my car payments, because the 4.8% falls into just under Scott’s five to seven gray area and then 7% and above he says pay off those loans as soon as possible. I would leave this for right now, because I do think that you’re going to be able to find another job that pays a lot more that will allow you to throw more money at this car loan down the way. Then you could keep your down payment for your house. I love that you have a house down payment plan or account. I love that you have an emergency account, because when you buy a house, something’s going to break. Buy the house and then be prepared to weather any financial storm that comes with that house.

Scott:
Yeah. I don’t like paying … It sounds like you have … What kind of car is it?

Stephanie:
It is a Honda Accord, 2017.

Scott:
Okay. You have a four year old used Honda Accord at this point with this, and you have 10,000, 12,000 on the loan?

Stephanie:
There’s eight on the loan, eight something.

Scott:
Eight on the loan. And it’s a 4.8%. Yeah. I think, look, if your plan is I’m going to teach for the next 10, 15, 20 years and I’m going to continue this up and steadily chip away at my investment accounts, I think it’s six of one, half a dozen of the other, same thing, to either pay off the loan or invest it. Probably a little better on average to invest it than pay off a loan, but not really a high stakes decision. But if you’re going to pop up into the clouds with Mindy and I and say, okay, I’m going to assess my life at a holistic level and assess the universe of possibilities, maybe make a big move and a big career change in the next six months, the cash is where you want …
That cash is going to earn 0%, but it’s going to earn infinitely more than that, because it’s going to allow you to make the move into the next lease or the down payment on the next property, if you choose to move immediately into a house hack, or go month to month for a few months while you do that comfortably, or whatever, as you kind of reset a couple of those things, or bridge the gap for three weeks between jobs or whatever that is. I think if you kind of zoom out and look at it from that perspective, like, oh, I’m really going to actually really seriously consider a couple of these different options, then it no longer becomes half on one, six on the other. It becomes definitely don’t pay off the car loan yet, because that cash is going to be put to so much better use in forming a new strategy about how I’m going to live my life and build wealth going forward with that. I don’t know if that’s too far above reality with it, but that’s how I would be thinking about it I think, looking at your picture, if you are going to consider that whole big move thing.

Stephanie:
Well, that’s why I was keeping it liquid. That’s why I have for so long and didn’t throw all of it at the car, because even then I was thinking this gives me a lot more rom to pivot, if that is where I decide to go. If I don’t, I just pay off the car loan, and that’s over. Yeah. Having the flexibility, I really enjoy that aspect. I also hate having a loan though. I did have a question about the Roth 401k or-

Mindy:
Oh. Yes. Yes. Yes. Good. Good. Okay.

Stephanie:
My investments are with Vanguard. I was on their website and something somewhere said, “Roth solo 401k or the traditional solo 401k?” I don’t know if it makes sense to take what I have and roll it over. I don’t even know if you can do that. Or if I could open a separate one, if that’s legal, having two 401ks. Do you know any of that?

Mindy:
I have two 401ks. Your plan needs to allow for a Roth. If your plan does not currently allow for a Roth, I would … Who is your solo 401k provider?

Stephanie:
Vanguard.

Mindy:
Did you set it up through Vanguard?

Stephanie:
I did.

Mindy:
I set mine up through a different company, but my investments are in Vanguard. Maybe it’s a custodian. What is Dmitriy Fomenchenko? Do you know, Scott? Do you know what his-

Scott:
I forget the name. It’s-

Mindy:
He’s the custodian? He’s Sense Financial, but is he the custodian or-

Scott:
Mindy does some wacky stuff, because she’s got a self-directed [inaudible 00:42:58] plan there-

Mindy:
I do some wacky stuff.

Scott:
… as a self-employed agent.

Mindy:
Yeah. With the real estate agent stuff.

Scott:
Those options become available. I don’t think that those apply to your situation most likely.

Mindy:
Oh. I’m not sure. If she’s self-employed, because she’s running her own company teaching on the side, then she could have this option.

Scott:
That could be. You’re right.

Mindy:
That’s something to look into. The Roth versus traditional, if your current plan doesn’t allow for a Roth, you could just open up another plan that does allow for a Roth. This was perfect timing that you asked this question, because Matt the Dentist, he’s Matt the Dentist on Twitter or @matthewlee7 on Twitter, he says, “I like Roth IRAs, not because I think my tax rate will be higher later, but because I don’t even want to think about what my tax rate might be later.” I love that. There’s so many things you have to think about with this finance stuff all the time. That’s a really great endorsement, in my opinion, of why you’d choose a Roth version of any plan instead of a traditional version. I am a recent convert to the Roth, because I always thought that it would be more advantageous to reduce my current taxable income, but I think the …
When we talked to Karl Mask on episode 200, he made a really great point. We are going to be most likely seeing some inflation. Where can we cut expenses? Where can we generate more income for the government? Getting rid of a Roth plan or grandfathering in what’s there and not allowing any in the future makes a lot of sense, as a level that the government would pull. I like that. Thank you, Matt.

Scott:
I think that at a simpler level, at a strategy level, you are in a low tax bracket, a relatively low tax bracket now. If you continue investing and buying real estate, maybe make a career change, you will likely be in a higher tax bracket later potentially. And if you agree with me, you’re probably thinking that taxes are not going to decrease on average over the next 30 to 50 years, regardless of what tax bracket you’re in. They’re probably going to increase with that. I think there’s a lot to like about the Roth over a 401k in a general sense. Your question I think is specifically about rolling it over with that, right, from the 401 to the Roth?

Stephanie:
Since I already have one, I just was wondering if you knew if you could roll it over or if I just cut my losses and start a different one?

Scott:
I think that it’s one of those things where because of the penalties and the complexities of moving the money, the simplest answer is just leave what it is and change your approach going forward with that. If you’re interested in making the move, the questions you want to ask are am I going to incur a penalty when I move it over? Because that I think changes the math quite a bit on some of that. And if I’m not going to incur a penalty, most likely there’s going to be a taxable event. If I take 10,000 out of the 401k and roll it over to the Roth, 10,000 of taxable income will likely appear on your return, and you will owe three … or whatever your tax bracket is on that, in taxes. That’s something to plan around and be like, okay, that’s actually going to reduce my emergence fund, for example, to do that rollover mostly likely, if I’m able to do that without incurring those things. I should know the details of this a little bit more specifically, but that would be where I would go hunting for trouble if I’m examining that approach.

Stephanie:
Okay. Okay. Thank you.

Mindy:
Hunting for trouble.

Scott:
I think we’ve had a pretty good discussion here about some high level things. Where else should we go, or how are you feeling right now? What are some other question areas you might have?

Stephanie:
Those were my big questions. I guess really in terms of real estate, like looking for a house hack versus a live in flip kind of thing. I know they’re so different and you can’t really say one is better than the other probably.

Mindy:
I can.

Stephanie:
Yeah. Mindy prefers one.

Mindy:
You could do both.

Stephanie:
Okay.

Mindy:
You can find a property that isn’t necessarily a shining star, but is habitable. You move into one side and you make it beautiful while either renting out the other side that is also not a shining star, but is habitable, to generate some income. Then when you’re done with your side and the lease is up, you switch places. Now, you’ve got a beautiful house to rent out and your back to living in the dump, which is how I do it. That move from the nice to the dump is kind of a bit of a heartbreaker, but then you’re like, oh, I like all this money. There’s that option.
There’s always just the option of buying the live in flip to do. I mean, you could just do a house hack where it’s already nice. I would weigh the options. I can get this needs work property for slightly less than the already fixed up property. Great. Go with the already fixed up property, because it is a lot of work to do a live in flip. It is not small potatoes. There can be this misconception that a live in flip would take it to the studs, completely gutted, horrible, do everything to it. You could just need to paint it. You could just need to paint it. You could need to put in flooring. Flooring’s actually really easy to install. You just take your time and do it.
Anybody can paint a wall. Whether you start replacing windows, and roof, and drywall, that gets messy and very expensive. There are some jobs that I won’t do myself, but there’s a lot of jobs … I mean, most every job I will do myself or my husband will do, just because we’ve been doing it for so long. My first flip was paint on the walls, tile in the kitchen, that’s it. I think I got a new toilet maybe. No. I got a new refrigerator, because it broke. But that was it. That was a very cosmetic flip, but it made me a lot of money, because it was really ugly when I bought it.

Scott:
Yeah. Maybe we could send you the book on house hacking-

Mindy:
Oh. Yes.

Scott:
… by Craig Curelop, if you’d be interested in some further reading. We could mail you a copy, or email it, or audio, whatever you’d like there. I think what I’m gathering is you’re wondering where to start in narrowing the universe of house hacking or live in flip options. Is that right?

Stephanie:
A little bit. Yeah. I love having options. Looking at the whole universe of options is fantastic, but then I’m like, oh, that’s shiny. Look, I can do this. Oh. This place has really nice houses but no jobs. I hear what you’re saying to make the list and really narrow that down. But then I do go on Zillow, and Redfin, and all that and go, “Oh. These are gorgeous. I want that,” but I don’t want that. I want the ugly one. You know?

Mindy:
What do you know how to do, and what are you comfortable doing? What work are you comfortable doing?

Stephanie:
Not much.

Mindy:
That’s fine. That’s valid. You don’t have to do it all yourself.

Stephanie:
I love the school of YouTube. I want to and I’ve always wanted to fix up a house. Okay. This week is flooring. Let’s watch somebody tile their kitchen. Then I do it. It might incur some costly mistakes, and that’s okay, but I’m going to learn. I love learning. I’m a teacher. I want to know how to do that. I’ve listened, and everybody says the first one is a giant learning curve, but you did it. Then the second one is easier, because one is done.

Scott:
Yeah. I just want to chime in here and say, yes, this is a great approach to building wealth with this, but a live in flip is also a big … That’s why you make probably 80 to $100,000 over a two year period if you’re doing an extensive live in flip is because you’re doing real work with this kind of stuff. Yeah. I think it’s a great approach. Some of it was not for me when I remodeled my first place with some of those things. Mindy mentioned, “Oh. Tiling is so easy.” I got tennis elbow, so I had to stop. Then, “Cabinets are really heavy, but, oh, there’s ways to do it.”

Mindy:
There are. I do have a rosy approach to it, but you can still do a live in flip where you’re hiring out the work. I’m sorry, Scott. I get really … I like doing this stuff.

Scott:
Oh. I know. You’re just like, “Oh. It’s so easy.” I got tennis elbow. I had to stop. I got an injury. Okay. But, no. Look. I think what I’m hearing you say is you’re interested. You have a lot of shiny objects with these types of things. I think you are in a position where you can have anything, but you can’t have everything, and you’re going to have to make a list and narrow down those trade offs across to what you’re interested in. You can have a nice place that’s ready to house hack. You can have a place that’s a live in flip that you’re going to be doing lots of very sweaty, manual work for those types of things. You can work wherever you want in the world with the way you set up your financial position and your life, but you’re going to have to at some point make some sort of commitment to one of these new strategies that’s going to then limit your options for a period of years while you pursue them.
That’s going to be the turning point with it. I think that’s just a matter of really getting aggressive about saying, here’s when I’m going to do that by. I’ll never have all the information, but I’ll have enough to make a great bet for my life sooner rather than later, maybe in 90, 180, or less than one year would be how I think I would frame it like that is I need to make a big move here, because my current approach is not really what I want. Even if they don’t work out, think about it in terms of bets. Maybe that’s the way to think about it.
Ever read the book, Thinking In Bets? Annie Duke is a poker player. She wrote a book called Thinking In Bets, which is all about, hey, I’m going to live my life making decisions that I think are the right bet. I’m going to separate bet from outcome here. You can feel really good about your decision if you say, based on all the information, I have a 70% chance of this working out really well. It didn’t work, but it was the right bet. That helps you feel a lot better about lots of decisions you make. That’s a big part of my day as CEO, right, is I make plenty of mistakes, and people get very mad about some of the decisions I make and disagree violently with them. But as long as I can say across this spectrum of the hundreds of bets I’ll make in a year that I did a good job on 65-70% of them, I’ll feel good about that with those kinds of things. That helps me take action very quickly on those things. What are you laughing at, Mindy?

Mindy:
You said they disagree violently. That makes it sound like people are throwing punches at the office.

Scott:
Oh, yeah.

Mindy:
I would say vehemently maybe.

Scott:
People vehemently, violently … Yeah. Maybe not literally violently, but people will get heated about certain decisions we make with a lot of these things with that. But what I’m trying to … Is the concept is you can be wrong, but if you make the right bet, you can feel great about being wrong in those circumstances.

Mindy:
Yeah. I’m excited for your options, because you aren’t married to the job, the location. Everything has opened up. You have a lot of really great possibilities. When you’re starting to look for a job, keep in mind that … How long have you been a teacher?

Stephanie:
Seven years.

Mindy:
Okay. You’re not a beginner level employee. You have seven years of project management skills that aren’t necessarily exactly what they’re looking for, but you’re real good at herding cats. That’s what project management is. That’s what management in general is. Chief cat herder for PS134, whatever your school is, that is … I would hire a teacher to do project management, because I have seen you guys juggle 57 balls at once and catch them all, and nothing breaks. Those are great skills to translate. I’m saying this to you and to other people who are contemplating a career change. Don’t sell yourself short, and don’t think, “Oh. Well, because I’m starting new, I’m looking at entry level jobs.” You’re not entry level. You are the five to seven years of education level jobs. That is the salary you want to research. That’s the jobs you want to apply for. If something sounds interesting, apply for it, because they’re not going to call you up and say, “Hey, Stephanie. Are you looking for a job?” But they will if they like your skillsets. I think every parent out there appreciates teachers right now. If they don’t, they’re horrible.

Stephanie:
Thank you.

Mindy:
Okay. Well, I think this was really fun today, Stephanie. Thank you so much for your time. I really enjoyed talking to you, and I’m so excited to live vicariously through you and all the excitement that you have and the opportunities that you have coming up.

Stephanie:
Thank you. Thank you. I’m excited, too. There’s a lot to do now this summer.

Scott:
Yeah. Thank you for coming on the show. We gave you very general … This is I think the least specific advice we have given so far on the Money Show, but was it what you were looking for? Was it helpful?

Stephanie:
Yeah. It’s helpful, because I knew I had a lot of options. Saying I’ll move anywhere is very open ended. But I didn’t really know how to close that down at all. You were very helpful in saying these are the things you need to look at, and this is what you want to decide. I love the idea of visiting a place before you move there. I’ve never done that before. I just take the next teaching job, and that’s where I live. That seems like the right thing to do if you’re moving across the country or even nextdoor.

Mindy:
Yes. Absolutely. I have only done that once, and boy did I hate my move. It all worked out in the end, but, yeah.

Scott:
I think a couple of road trips and Airbnbs might be the best investment you could make over the next three to six months for some of that excess cash you’re generating, rather than putting it into the investment, because I think if you find the right place with that, that’s where you can make the really huge ROI on the house hack, or find the next job, or those types of things. That’ll be a fun investing activity.

Stephanie:
That’s true. Kind of a vacation and investment.

Scott:
Mm-hmm (affirmative).

Mindy:
Stephanie, thank you so much for your time today. This was a lot of fun. I definitely want you to check back in with us when you have a new career.

Stephanie:
I will. Thank you so much.

Mindy:
Okay. We’ll talk to you soon.

Stephanie:
All right. Bye bye.

Mindy:
All right. That was Stephanie. Scott, I have to say I am a little jealous of her opportunities, because she really has nothing tying her down. She can sit back, take a minute to say, what does my ideal life look like, and then go make her life happen. That just is so exciting to me.

Scott:
Yeah. I think it is really exciting, and I think that this is a problem that I think … I think that’s Stephanie’s biggest challenge right now is … We talk to a lot of folks on the show, and I think that Stephanie has the most flexible position and I think the least kind of clear clarity about where she would like to be in a couple of years with that kind of stuff. We talked after the show actually just for a minute there about maybe how goal setting or visioning could be a really powerful exercise for that, because if you have … It’s impossible to act across when you have every conceivable option available to you and really kind of the guiding … I would say that part of her maybe guiding philosophy has been to enable that flexibility or to create that flexible environment to a certain extent. That may be a part of the output, the reason that she has the financial position she has, for example, with the current situation.
I think if you’re listening and you’re in a similar position, maybe a good exercise would be to embrace the cheesiness of the voodoo and la la land of goal setting and those types of things and just kind of pt some ideas about what your perfect day would be like, or where you want to live, or how you want to wake up, what you want to see out the window, those types of things. Put them on a piece of paper and begin somewhere with this, so that you can kind of begin narrowing down a path that will lead you towards something that might be a better life or that better day to day life at least that you would love to move towards.

Mindy:
Yeah. I really like that advice, Scott. Sit down and think about what you want, and then go make it happen. I’m so excited for Stephanie’s opportunities, because she really, really does have the whole world open to her, and she can do what she wants. Isn’t that kind of the point of FI anyway?

Scott:
That’s right. I mean, that’s the whole point of FI. I think you’ve got to figure out what you want first and then use FI as the means towards it with that. But in the absence of knowing what you want, because a lot of people don’t know what they want … Like college kids. You’re expected to choose a major before you have any idea what you want with that. In the absence of not knowing what you want, you might as well do what Stephanie did and build a really flexible, strong financial foundation that gives her all of those options. Kudos to her for doing that. I think that’s the right approach in that period while you’re still figuring it out is just build a strong financial foundation that gives you that flexibility.

Mindy:
Yeah. I hear from a lot of people who say, “Oh. I don’t want to quit my job. I love my job.” Well, that’s why you’re financially independent, so you can lead the life that you love. If that entails continuing in the job that you are doing now, great. If it doesn’t, then you have more options. Stephanie, boy, there’s just not even one option that isn’t available to her. It’s fabulous. Okay, Scott. Should we get out of here?

Scott:
Let’s do it.

Mindy:
He is Scott Trench, and I am Mindy Jensen saying [foreign language 01:02:31].

 

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In This Episode We Cover

  • Changing careers to maximize financial independence goals
  • Starting a side hustle so you can earn extra income
  • Roth IRAs, 401(k)s, and Solo IRAs
  • House hacking as a means to not only cut housing expenses but build wealth
  • Who should (and shouldn’t) do a live in flip
  • Should you pay off low-interest debt or invest?
  • And So Much More!

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