BiggerPockets Money Podcast 228: Finance Friday: Is “Random Spending” Ruining Your Budget?

BiggerPockets Money Podcast 228: Finance Friday: Is “Random Spending” Ruining Your Budget?

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“Beware of little expenses; a small leak will sink a great ship.” This is the topic of today’s episode, where we interview Jenny for a Finance Friday review. Jenny is finishing up her fourth degree and has been working throughout grad school to help her family. Her husband brings in a sizable income, but he wants to retire in 2030 and spend more time with their (future) kids.

Jenny has great control over her fixed expenses, but as for her variable expenses…not so much. Her family is consistently teetering between $1,000 a month and $2,400 a month in variable expenses, many of which can be resolved with some simple shopping tweaks (like leaving your credit card at home when you go to the grocery store). Luckily, they’ve invested a fair amount of their take-home pay, have a stellar 401(k) match, and are about to have dual incomes once Jenny is out of school.

If you’re having trouble keeping a hold on your variable expenses, such as random Amazon shopping, tune in for this episode for advice on exactly what to do.

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Mindy:
Welcome to the Bigger Pockets Money podcast, show number 228, Finance Friday edition, where we talk to Jenny about paying down a mortgage early, early retirement, and creating a budget based on actual spending.
Cancel your Amazon Prime account. I think that it is far too easy to go in and be like, “Ah, shipping’s free, I’ll just get that,” whereas if you had to drive to the store, would you have bought that item?

Jenny:
No. I don’t drive to stores when there’s an option.

Mindy:
Hello, hello, hello. My name is Mindy Jensen and with me as always is my young Bruce Springsteen lookalike cohost, Scott Trench.

Scott:
Mindy, you were born to run with these new adjectives each week. Thank you.

Mindy:
I saw the Born to Run video this weekend when I was at a water park. They had a big video screen over the wave pool and Born to Run came on and I’m like all I could think of was that’s Scott Trench, Bruce Springsteen looks like Scott Trench.

Scott:
I’ll have to get-

Mindy:
I mean, not now, he’s a little older than you now, but when he was your age, you guys are twins.

Scott:
I’ll have to get a denim short sleeve to see if that works.

Mindy:
That’s so off brand for you. Okay, back to our regularly scheduled intro. 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 are starting.

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

Mindy:
Scott, I’m super excited to talk to Jenny today because I think she’s got her budget kind of dialed in on the fixed expenses, but then her variable expenses are the ones that kind of get away from her and I think that she’s got … What she’s doing is what a lot of people are doing, so if you are going over your budget and every month you’re like, “Why am I over budget every single month?” this episode is definitely going to be helpful.

Scott:
Yeah, I think it was a great example of somebody who has dialed in every one of their expenses and has a budget, but is not using that budget to control their variable behavior, which is kind of the point. And so I think that’s a big call out that I think is important and hopefully very helpful to her.

Mindy:
I do need to remind you that 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, now let’s bring in Jenny.
Jenny and her husband keep to a fairly tight budget, in fact so tight that when spontaneous purchases happen it gives her a bit of anxiety. She’d like to loosen the purse strings, but wonders if they’re in the right place to do that. Hey, Jenny, I’m right there with you, stressing over the little things. They also want to pay off their mortgage, so he can retire early to focus on what makes him happy. Jenny, welcome to the BiggerPockets Money podcast. I really want to jump into your numbers and see what we can do to help ease those stresses, so you can buy a pair of jeans and be happy.

Jenny:
Thanks for having me, I’m really excited to be here.

Mindy:
So you live in a medium to high cost of living area on the East Coast. Let’s jump into your balance sheet, what kind of salary are you making and where’s it going?

Jenny:
So it gets a little bit complicated. My husband’s base is right about 94,000 a year, but he gets a cash bonus and equity grants every year as well. This year his bonus before tax was 17,200, so that can definitely make a big difference. My base, I am a graduate student, so my grad student income from last year was 36,000 I think I’m right around on track for that, that’s my consistent salary. And then I have a lot of side hustles and a lot of side hustle opportunity that I have to manage, and I expect that to be around 20,000 this year, it was right about there last year as well. A lot of opportunity. Like I said, I have to manage the opportunity with my time commitment and whatnot. So overall, between the two of us, that ends up being right around 167,000 per year.

Scott:
Awesome. How much do you spend and what are you able to keep and where is that bucketed?

Jenny:
So our fixed expenses end up at 3,780 and I can break that down. So our mortgage, which includes escrow, so that includes our property taxes and our home owners insurance, is $1,705 every month and we put in an extra 372. We recently refinanced, in December, and we have just put everything that we were budgeting last year into extra principal payments, so that’s where the 372 comes from.
We have a solar loan that we just took on. We just put solar on the house and that covers, or should cover all of our electric cost, which includes our heat and our cooling. So our solar loan is 245.83. It’s an expense and a debt. That loan is 1.49%. We will have an electric bill every month, just for the cost of hookup, which is $25.
Our cell phone bill is about 180, but I’m actually adding my parents to our plan soon and that’s actually supposed to decrease our cell phone cost. Pet insurance, we have two Great Danes, so pet insurance is 189.94. Dog food is $80 a month. We do get our house cleaned once a month, that’s kind of a luxury we’ve allowed ourselves and that’s 148.89. Internet is 56.94. We only have Hulu and Disney+ for television, so that’s 14.88 a month. Amazon Prime, although it’s an annual expense, we have it at, for the budget’s sake, $9.92 a month.
Car and umbrella insurance is 207.82 for both of us. That’s a $2 million umbrella policy. My husband, we just bought him a new to us car, low mileage, couple years old, and that is right now at 307, but we actually just got approved for a refinance at a lower rate and should go down to 240 a month.
My student loans, which we can get into, right now I’m paying $59 a month. I am not paying towards my federal loans at the moment while at 0% interest for a reason, we can talk about that. So I pay $59 a month for the one loan that I have that’s not a federal loan. And then approximate groceries and household consumables are 550 a month and we actually put all of those on a high cash rewards card, which has 6% cash rewards.

Scott:
So if I sum up everything you said there, how much is going out per month? What’s going in and what’s going out on a regular month, not a bonus month?

Jenny:
Sure. So fixed expenses are 3,780 a month. I have our spending, which is variable spending, at between a 1,000 and 2,400 a month, and I can break that down a little bit too if you’d like. Our monthly income, we end up … The way we have it is we each have a fixed amount going into our joint account and then all of those fixed expenses leave our joint account. So we have exactly the right amount, the 3,870 a month going into our joint account from both of us. But then extra, let’s see, it ends up being, with a very conservative guesstimate on my variable income, we end up taking home about $1,700 into our personal and another 1,000 that goes into savings. All of that is after 401K and IRA contributions as well.

Scott:
Okay, so just to sum … So are we saving $1,000 a month, $2,000 a month? How much do you think you’re saving after the 401K contributions and those types of things?

Jenny:
Sure.

Scott:
Saving or investing.

Jenny:
We’re saving about 1,100 a month just in straight savings, not stock market, not retirement, just straight savings.

Scott:
Okay, and then how much are you investing and stock market or other investments?

Jenny:
We max out my husband’s 401K. As a graduate student, I have health insurance benefits, but I don’t have retirement benefits, so we max out his 401K and he gets a 10% match, and that’s a traditional 401K. That is-

Mindy:
Wow.

Jenny:
Yeah.

Scott:
That’s awesome.

Jenny:
We’re very fortunate that he works for a great company. So annually, that is $26,085 including his employer match. Month to month, he is contributing $1,389 a month. We also max out his Roth IRA, and his Roth IRA is maxed out almost to the penny, and that’s 499 a month. And then we are slowly building up how much we contribute to my traditional IRA that I rolled over some other 401K’s into, and we’re contributing 166 a month to that.

Scott:
Okay, so we’ve got let’s call it 2,000 a month, give or take, that is going into various retirement accounts, and on top of that, 1,000 a month after all your expenses and debts that you’re putting into a savings account. Is that right?

Jenny:
That’s correct.

Scott:
Okay, awesome. So that’s really good cash flow with this, that’s awesome.

Jenny:
Thank you.

Scott:
How do we get a picture of your net worth? What do you have in total investments, cash, home equity, those kinds of things, versus your debts?

Jenny:
So net worth, as I calculate it, which is conservative on our home value because I just don’t think it’ll … It might not stay where it is right now because of the market. So net worth is 376,000. That’s a conservative estimate of 60,000 in home equity. My husband’s 401K is at 206,000. He has a medical savings account, which we’re not entirely sure what happens with that, but it’s a benefit that his company automatically enrolls him in that his company contributes to, that’s at 6,500. His Roth IRA is at 19,000. He has a savings account that is the majority of our emergency savings, which is just under 21,000. And then he has equity grants, like I said, part of his bonus is equity grants from his company and what’s accessible, those mature over time, he has 8,000 accessible now, but 23,000 currently that’s not accessible that’ll become accessible as he stays at the company.
I have an Acorns account, which is one of those accounts that just rounds up to the dollar and I started that three or four years ago and it’s actually done really well and I don’t even notice that I’m contributing to it, and that’s got 3,700. I have a trust that my grandmother set up for me a long time ago, that has 1,000. My IRA has 39,000. I have a savings with 6,000. I have a checking account that’s just for my car, that’s because I get mileage reimbursement for one of my side gigs, and so I put everything that would be just mileage, I put into a car checking account, so when I need repairs. That has a 1,000 in it right now. And then I have a side fund savings that’s got 1,600. So that’s where that net worth comes from.

Scott:
Okay, how about debts?

Jenny:
Debts? We have the mortgage, which is right now we owe 259,500. Our solar loan is at 67,900, but that will go down. We will give a big bulk payment of 17,000 next tax season after we get the federal solar credit of 26%, but currently it’s at the 67,000. My husband’s car loan is 15,500. And then my student loans are at 71,400. There’s a little bit more, I want to say about 15,000 that’s actually it’ll be forgiven once I get a faculty position after I finish my graduate training.

Scott:
And net, of all of that, those assets and debt, you’re saying the net worth is about 376,000?

Jenny:
Oh sorry. Our debt total is 414,000. Sorry. The value of our-

Mindy:
Including the mortgage?

Jenny:
Including the mortgage.

Mindy:
Okay.

Jenny:
The value of our assets is 376,000, so however you want to do that, balanced. I guess we’re at less than-

Scott:
I think I heard you have 60,000 in home equity, and then you have what appears to be probably about 300,000, maybe 275,000 in assets outside of home equity with that?

Jenny:
Mm-hmm (affirmative).

Scott:
Let’s call it 300,000 in assets outside of home equity, 60,000, 75,000 in home equity, and then you have, what is this, 180,000 or so in debt that offsets some of that?

Jenny:
Yeah, excluding the mortgage. Is that where you’re-

Scott:
Yeah.

Jenny:
Yeah.

Scott:
Okay, great.

Jenny:
I’m hoping … Well, my student loans I’m hoping will be forgiven.

Mindy:
Entirely?

Jenny:
Entirely.

Scott:
Well, let’s come back to that in a second here, but what are your financial goals, what are you looking to achieve right now?

Jenny:
So our big kind of shorter term goal is for my husband to be able to retire from his 9:00 to 17:00 job. Yeah, that’s our big short term goal. My career is really just starting, so I don’t anticipate even wanting to retire.

Scott:
How short term is that? What’s the timeline for that retirement goal?

Jenny:
We’re hoping he can retire in 2030.

Scott:
Okay, so nine years is what you’re calling the short term goal with this?

Jenny:
Yeah.

Scott:
Okay, great. And then you’re saying I’m happy to continue working for a long period of time?

Jenny:
Yeah. I’m hoping I will be graduating next year with my PhD and then doing a post doctoral fellowship and becoming a faculty researcher at a university. The work that I’m doing, it’s very untapped. I think I could spend 30 years making a big difference with what I’m doing and I’ll be happy doing that.

Scott:
Okay, great.

Mindy:
And what sort of income is that position? I don’t know what a post doctoral fellowship is or what it pays.

Jenny:
The post doc is low. The NIH pretty much regulates post doctoral salaries and under most circumstances you can get a little bit more by going through a private funder sometimes, but I don’t expect to get more than that, it’s 56,000, but as a salary. It would be a benefited position and that would be two years. But the idea behind that, I could get a faculty position straight out of my PhD, but what you get from having post doctoral fellowship is protected research time. So instead of entering a faculty position with, for me, maybe a dozen publications, I could enter one with 30 or 40 and a lot more research experience under my belt that I could then negotiate for a better salary and kind of already be hitting the ground running rather than just figuring out what I’m doing.

Scott:
Okay. So I think I have a pretty clear understanding of your trajectory, your position and all that kind of stuff, absent any changes, how things will play out for you and your husband over the next couple of years at least. The goal is have your husband retire in nine years while basically you continue with a long term trajectory in academics, or academia, with this from a research perspective primarily?

Jenny:
Correct. Our goal for him to feel comfortable retiring is really to have our house paid off, so that that feels secure.

Scott:
Okay, great. With your current situation, you are paying extra toward the mortgage, how long are you projecting with the current situation it’ll take you to pay off the mortgage?

Jenny:
So if we continued paying what we’re paying now, it would be, let’s see, it would be seven years lower than the 30 year term, so 23 years from now, so whatever that ends up being.

Scott:
Okay, great.

Jenny:
But we intend on once I get a faculty position, my salary should be able to cover all of our household expense and then we will basically funnel everything that he makes into paying off the house.

Scott:
Okay, so you’re currently making how much right now?

Jenny:
I am currently making approximately 56,000 a year.

Scott:
And you will be making how much after the faculty position is attained?

Jenny:
Hopefully around 100,000, but that should … That’s my goal starting out, but that’ll come with fairly regular pay increases every time I … If I go from assistant professorship to associate, it’s generally a 10% raise and then another 10% to full.

Scott:
And when will that raise to 100,000 occur? Is that one year out, two years out?

Jenny:
That would be after a two year post doc, so that would be in 2024.

Scott:
So here’s how things are going to go for you guys most likely if you do not make any changes until 2024 with this. You are going to accumulate likely between $30,000 and $40,000 or so in retirement accounts annually with this, given the great match your husband has at the job with this stuff. You are going to accumulate roughly $1,000 a month or about $40,000 outside of those retirement accounts in your bank account, your savings account. And you’re going to pay off your mortgage slightly in advance, you’re going to be on a trajectory for a 23 year pay down instead of a 30 year pay down, however that math works out in three years with this, again, assuming nothing changes.
So at the end of that three year period in 2024, you’re going to be sitting with, let’s call it instead of 200,000 in your 401K, let’s call it 220,000, 250,000 in your retirement accounts, you’re going to be sitting with about 375,000 in those retirement accounts, 40,000 incremental in cash and a lower mortgage with that. And then, your trajectory’s going to pick up where you’re going to be able to either accumulate even more in the retirement accounts or you’re going to create a larger cash position.
Now, if I’m you guys and I’m thinking through the position with the end goal in mind of being retired, I would be much more worried about the other debts you have than your mortgage payment. I’d be much more worried about the car loan, the solar loan, and the student loans first, than I would be about having the house paid off, and the house would be the last component of that, that I would be personally worrying about with that.
Now, I get in the short term, in the next three years, there’s a lot of uncertainty around how things will play out with at least the student loans and you’re probably making payments on the car loan where that’s not going to be factor by the time you get there. But I think that the first thing that I would look into is what’s going to happen with the student loans when things end, and most likely even if they forgive 15,000 of those with the faculty position, I would love to learn more about why you think that the rest of the student loans will get forgiven in a general sense with that. And then I also want to go through the solar loan component of this, because I think those are huge question marks for me in the context of your overall strategy here to back into a nine year retirement for your husband.

Jenny:
Sure. So you want to start with the student loans?

Scott:
Mm-hmm (affirmative), sure.

Jenny:
The NIH offers a reimbursement program for doctorally prepared researchers, basically to entice them to stay in academia and in research. Though, the one I would be applying for is a clinical research reimbursement program and that comes with about a 50% acceptance rate, which is by far and large the highest acceptance rate you can get with anything NIH. And you can reapply, so if I don’t get it the first time, I can try again and again. And generally, I should be able to have all of my loans paid off in two years of that program.
There are some restrictions, I can’t work for any privately funded projects, but I could make extra money by adjunct teaching elsewhere or something like that. So I still have opportunities for some side hustle money. I’m hoping that that happens during my post doc and then I’m free of student loans by the time I enter an academic faculty position. But I think my chance is-

Scott:
Do you think there’s a very realistic chance?

Jenny:
I do.

Scott:
Do you think there’s a very realistic chance you have all of your student loans paid off and you’re making the 100,000 without having to pay more than the absolute minimum on these by 2024?

Jenny:
Which is why I’m not putting any money towards those loans while at 0%, because if I have … Even 50% feels like a really good chance. If I have that kind of chance of getting it all paid off, I don’t want to put money into it now and strain our budget now when hopefully it’ll get totally forgiven later.

Scott:
Okay, I buy that, I can’t argue with that. If that’s the probability you believe, that’s the right bet for sure is not to pay on those. Let’s talk about the car loan, how many years left on that?

Jenny:
We’re refinancing it. We’re actually refinancing it to a six year loan. It’s a 2019 with 30,000 miles and we can always pay it off shorter. The refinance rate is 3.44% and our monthly will be 240, and that we just bought in April.

Scott:
So no need to pay that off early and that’ll be gone by the time you’re backing into your 2030 plan.

Jenny:
Right.

Scott:
And wow about the solar loan?

Jenny:
The solar loan we just took on. It sounds like a really big amount, but it’s actually lower than our electric bill was. Our electric bill was about 360 a month, 340 a month because we’re a full electric house, so we heat and cool with electricity. And the solar loan is a 20 year loan at 1.49% fixed. Like I said right now it’s at 67,900, but we’ll put everything we get in our solar credit, which is 26% of the cost of the system towards it and it’ll decrease it by 17,000 next year. But as the cost-

Scott:
Will that affect your payment?

Jenny:
No. No, it’ll stay. So they pro-rated the payment. So we’re now accruing interest on that 17,000 that we technically borrowed, but as long as we pay it within 18 months, then we never accrue interest and we never are required to pay on it.

Scott:
Are the solar panels an asset that increase the value of your residence?

Jenny:
Yes, but not to the extent that we paid for them, so that’s something that when you’re considering solar you really have to think about. I think it’s about a 5% to 8% increase in the value, but it doesn’t end up equating to how much you actually pay for them. We purchased them rather than leasing them. I did a lot of research before making that purchase and it was going to cost us less than paying our eclectic bill and certainly in 20 years as electricity goes up, our cost will stay roughly the same and leasing would have cost us more.

Mindy:
What is that monthly payment again? I can’t find my note on that.

Jenny:
245.

Mindy:
245? Okay.

Scott:
So it doesn’t sound like paying off the loans early makes sense outside of the mortgage. The mortgage is probably your highest interest rate debt, if your goal is to become debt free. And you’re not thinking about the solar loan as a debt, you’re thinking about it as your electricity cost?

Jenny:
Pretty much yeah, and that’s really why we felt comfortable doing it. I mean, that’s a huge loan, it felt like a real burden if we didn’t feel like we were really being positively impacted by it, but like I said, it cost less than our electric costs.

Scott:
Okay, so if you do nothing but continue on the trajectory that you’ve got, by the end of nine years you will accumulate $400,000, $500,000 in contributions to your retirement accounts. You will likely have eliminated your car loan and student loan, and have chunked down your mortgage considerably, probably, let’s call it $150,000 to $180,000 remaining after the extra payments. I don’t know if that back of napkin math is actually accurate at all, but let’s pretend that that’s the reality for purposes of this discussion. You’ll also have accumulated about $100,000 in cash outside of the retirement accounts that you could apply to other investments with that. And that would have increased your net worth by let’s call $500,000 to $800,000 with this, so we’re approaching a million there.

Jenny:
Yeah, [crosstalk 00:30:06]-

Scott:
Do you feel like that’s a good position to achieve your goal from?

Jenny:
Yeah. We feel pretty comfortable with that because then the retirement will just coast until we’re ready to use it. Hopefully I’ll be in a position too that will have a pension, it may or may not, we’re not banking on it, but it’d be great if it did. And then the other thing that we’re not really talking about is my husband’s cash bonuses, which we put into savings, and his equity grants, which he projects by the time he would retire he would have between 70,000 and 100,000 available to him to take out, which we would then like to use for investment properties.

Scott:
Okay, great. So to me, I think your trajectory backing into a nine year financial goal seems sustainable and appropriate. There’s a number of I think tactics that we can go through bit by bit, but I think you had a great approach to handling your loans with that based on how I understand the situation. You have a complicated set of assets relative to the amount of the assets in there, so there’s probably some simplification that might be helpful for you guys. But I think we described a fundamentals-based approach that is going to get you to your goal in nine years very easily I think, especially if you continue, if the back up plan is long term, you’re going to continue to work, fund all family expenses, and build a pension program with that.
I don’t think based on my initial instincts on this that you’re going to have to doing much more or really tighten the ship that much in order to back into that and the goal there. I think you’re going to get there very comfortably would be my guess, barring market conditions and all that kind of other stuff that we can’t predict. But even if we’re assuming 0% returns, you’re there just from the contributions with that. If we get 7% to 10% returns on the investments, you’re going to be substantially beyond that million dollar range. So I guess that’s my … How do you feel about that initial reaction to it, of like yeah, good job, I think you’re on track?

Jenny:
Thanks. That’s awesome. I mean, historically speaking, my husband and I come from different financial backgrounds. My parents lived very frugally because they had to, when I was a kid, and so I tend to just have a lot anxiety about spending. I grew up where we got pizza once a month and maybe once a month we went to the movies and that was the extent of our fun spending. And so I definitely, I struggle a little bit, and so that definitely helps me.
The one thing I would love to talk about is if there’s anything we could do to make it so that if my husband wants to, that he could retire sooner. Basically he’s got a great job and it’s working well for us and for our future, but he would be happier. And we’re hoping that he can stay home with future children in a effort to support my career. In addition to supporting them, opening up that freedom sooner would be nice, not necessary but it’d be nice.

Scott:
What’s your total expenses again? Did we say it was 5,000 a month?

Jenny:
Fixed expenses are 3,700 and then spending is somewhere between 1,000 and 2,500.

Scott:
I think that the biggest thing in your financial position is your job. When you graduate and finish the two year program with that and your student loans are gone and you’re making a 100 grand a year, that would, based on what I’m seeing here, cover all family expenses and allow you to continue a significant amount of investing. So the game is over from that perspective, if that’s truly the plan to just work for another 30 years at the post graduate and your career with this, then game over. That’s the moment in time … I would say after you sit on that for a year, you’ll probably have your answer about whether you can do that earlier or not with it-

Jenny:
Okay, that makes sense.

Scott:
… from my seat. If you’re finding yourself in trouble at that point that’s when you’re going to have to going back and say, “How do I eliminate more of my expenses? How do I increase income? How do I get assets outside of those retirement accounts that can produce free cash flow right now?” But you don’t need to do that if your plan is to stay in the job for a very long period of time yourself and those projections of that income level come true, because that will be all of the realized income that you need and everything else can go into the tax advantaged side of things with that.
And you can beat it and coast by probably within three, four or five years, certainly I would imagine within nine years barring a economic catastrophe nationwide, or something like that. But that would be how I’m reading your situation with this is game will be over when … If the events that you just said happen and you’re able to get that 50-50 shot, that goes well and you’ve got the student loans forgiven, and the $100,000 a year job in 2024, I think you might find that it’s game over right there and that he can stop right then.

Mindy:
Yeah, that’s how I’m seeing it too is that once you have your full time position … I mean, if he works another year, you bank all of his salary, all of that sweet 10%, 401K match, which is awesome, and at that time reevaluate. You said that’s 2024, so that’s what? Two and a half years from now?

Jenny:
Yeah, it’s-

Mindy:
Roughly three years?

Jenny:
Yeah, roughly. 2024 is the soonest, but I don’t anticipate doing more than two years of a post doc, so.

Mindy:
Okay. Yeah, I think that that will open up huge numbers for you when you’re able to not only pay for all of the household expenses through your salary, but also save part of your income and save his entire income, you’ll just watch your net worth jump so high.
Scott and I both are on the hey, we prefer not to pay off a mortgage early, especially when you have a 2.25% interest rate, which is … At your house, I’m not paying your bills, so that’s really easy for me to sit here and say, but what my husband and I did when we were in this same position, we were like, “Well, we’ve got such a low interest rate, we don’t want to pay it off.” We just saved that amount in an account that was easily accessible, so if we needed to pay it off we could, but we could also use that money for other things. We essentially had just a really big emergency fund. And eventually we decided his job’s secure, at the time he had a job, my job is secure, we’re just going to take this money and put in the stock market and see what happens, because both of us could continue to pay off our mortgage.

Scott:
To that point as well, you’re paying extra on the mortgage right now, if you stopped paying extra on that in three years when all these other events that you’re backing into take place, then your mortgage is going to be 1,700 bucks and again by that point you can probably cover all of the expenses very easily on that one $100,000 income with this, if you’re not paying the extra on that, and then allocate the additional as you will. So I don’t necessarily think you have to wait until the mortgage is paid off, or pay it off in order to back into the goal of having your husband retire early with that.

Jenny:
Okay.

Scott:
I think-

Jenny:
That’s been a topic of discussion. I think it’s more of an emotional kind of stress response of wanting the house to be paid off. I’ve mentioned a couple of times that it’s really cheap debt, that we got a great interest rate and we’re not paying a ton for it. But I think it’s a comfort thing more than anything. I like, Mindy, the way you guys did it. I do like the idea of having that money, even though it’s not directly towards the mortgage and now the money is with our mortgage company, but having it so that if we wanted to pay off the mortgage tomorrow we could, but we could also use it for other things and invest it.

Mindy:
Yeah, because once you give it to the mortgage company, they’re not going to give it back.

Jenny:
Not at 2%.

Mindy:
That extra 370 that you are giving them, they’re like, “Thank you very much.” I’m hoping that you are making sure that it’s marked as principal pay down instead of … because sometimes they’ll be like, “Oh, I’ll just put that towards interest.”

Jenny:
The app is pretty clear.

Mindy:
Oh good, good. I was very much on the we should pay off our mortgage, I want to be debt free, and then my husband ran some numbers because he didn’t want to pay off the mortgage, I’m like, “Why would you not want to be debt free?” But when you run the numbers … And Scott, this would be something good for you to do with your Excel spreadsheet brilliance. Run the numbers and see what could I get having this mortgage and paying it off early at this 2% interest, or what could I do if I paid the minimum payment on my mortgage and invested that at 7%, at 9%, at 3%.
I mean, if you invested the amount that you’re paying towards interest, you’re still coming out ahead by not paying off your mortgage early. But again, I’m not at your house, Jenny, I’m not paying your bills, and I’m not talking to your husband who may have these issues from childhood. And I say issues like that’s a bad thing, having no debt is awesome. That’s not a bad thing, there’s just more beneficial things you can do with that money, if you don’t give it to the bank who’s holding your mortgage, in my opinion. So that’s something to have a conversation with.
Scott, I am actually going to throw this out there on the air so now you have to do it, make a really quick mortgage calculator Excel spreadsheet and we will link to that in the show notes here, so you can just see what … Not mortgage calculator … this money invested at this percent is this much more over time. And sometimes it makes sense to have a mortgage for 30 years.

Scott:
Yeah. If you’re saying, hey, I want to pay off the mortgage in nine years, which is what I’m hearing as one of the goals with that coming into the call, is I want to accelerate that to nine years to get done with that, what’s the most efficient way to get into that? Well, here’s how I would approach it if that was the goal.
I would say, “I’m not making the extra principal payment, I’m taking the $400 a month, or five grand a year, I’m rounding a little bit there and I’m investing that in an index fund or something like that. I’ve an average chance of getting about a 10% return on that money, so that’s 500 bucks per year. On the first one, I add another 5,000, I’ve got 1,150, I get 10% on that 1,150, so on and so forth.” And that compounding each year on top of the $1,000 that you’re already saving towards your emergency reserve, you’d imagine that after nine years of compounding maybe that’s the whole mortgage that you could liquidate and then pay off all in one chunk.
Now, you’re taking market risk with that, the market could tank, but odds are, at least in a long term historical perspective, that you would have a much faster timeline for paying down that mortgage because you’re putting all of that into investments and then can choose at the end to liquidate and pay down the mortgage, instead of paying essentially zero, arbitraging the small amount of interest that you’re going to pay over, what is it? 3.4% that we said? So you’re getting that arbitrage on average, it can always go south with the market, as can real estate values, up or down. So you’re taking the same risk. It’ll feel different on your mortgage versus the stock market with that, but your house could implode in value over those nine years or go up in value, the same way that the stock market could with it.
So that would be one way I would think about it in an average scenario would be to just put it all towards the after tax brokerage account and then decide at the future date if you want to liquidate and pay down the mortgage in gigantic chunks, after letting them compound in the investments for some time.

Mindy:
While realizing that past performance is not indicative of future gains and your investments could lose money in the short term.

Scott:
Absolutely.

Mindy:
But if you look at overall market, it goes up and to the right. It’s a bumpy ride, but it’s up and to the right.

Scott:
It’s about making the set of bets that you think is most appropriate and distinguishing that from the outcome. To me, I think about it in purely mathematical terms. I’m totally fine with getting hosed on the stock market side of things because I believe in making the mathematical bet with the approach that I outlined there, but not everybody is wired that way and can handle that enormous risk that I’m putting in there. But at the same time-

Mindy:
Yes, Scott, not everybody is wired like you. So I would invite you and your husband to listen to both episode 120 of the Money podcast and 153. 120 is Michael Kitces, and 153 is Bill Bengen, who invented the 4% rule. Basically, in a nutshell, both of those episodes say that when you invest and you’re planning on your investments to cover you for 30 years while taking out 4%, adjusting for inflation, in almost every scenario, the starting balance that you have at year one is lower than your ending balance in year 30. There was one or two years that it went below the starting balance and one year that it went to zero. And that was when you retire with no other additional sources of income at a period of super high inflation. So both of those men can say it much more eloquently than I can, but it’s a really good … Both of those episodes were among my favorites, because they just explained the 4% rule and the safe withdrawal rate so easily and you guys are going to be well on your way to your nest egg.
The good thing about this is presumably your husband will be able to go back to work should some catastrophic thing happen and he needs to generate more income. That’s the great thing about early retirement, you still have the option to go back. He’ll be what, 40 or something, in his 40s when he retires? So that’s still employable. Employers don’t really start shunning you until you’ve got gray hair and you’re 60. So if he needs to go back and generate some income for a couple of years, it seems like he would be able to based on knowing your numbers and watching your expenses.
You don’t get to this point of early retirement and then say, “I’m never going to look at my numbers again.” I don’t know any early retirees who are like, “Nah, just let it ride. I never look ever.” They’re all nerds who are always in their spreadsheets and always looking at their numbers. My husband has been retired for three years, he wakes up every morning, goes down stairs and opens up all the accounts and looks at everything, which doesn’t really have a lot of change from yesterday, but he does it anyway, every single day. And good for him, I don’t look, but I’m also not retired. But I mean, you will always have your mind on where that money is and where it’s at in relationship to what’s going on in the world and where you need it to be. So I think you’re doing great and I think you’re going to have a great financial future filled with early retirement.
Now, let’s go back to that I get the heebie-jeebies when I’m spending money. You are putting away at least $1,100 a month into a savings account. I would love to see a fun money account where you take and you put $50 a week, or $50 a month, or whatever, so when you need a new pair of jeans, you can go out and buy it from that fun money account and not worry about it. When you just don’t feel like cooking and you’re like, “Hey, let’s go out to dinner,” you pull it from that fun money account and you don’t worry about it. And whatever that amount looks like to you, talk to your husband, come up with an idea that this is great, or hey, this whole month we’re just going to put a $1,000 into our fun money account and now everything’s going to be fine.

Jenny:
That’s really where I think short term I struggle. What we’ve learned is it’s, for both of us, best to just … We put everything away before it ever shows up in our checking accounts. So savings goes in before it ever … We have all of the direct deposits and our W-2s, but the struggle that I have is most of our outside, other spending is from my hustle incomes and some weeks it’s nothing and some weeks it’s $5,000, and one of them is 1099. So those aren’t really things that I can shove away before I ever see them, and so it just ends up in my checking account. And then sometimes we say, “Oh, we want to do X, Y, and Z with the house. I have $4,000 coming in next month,” and it’s too easy to even spend it before the check has even arrived in the mail.
I wish that there was an easier way for me to basically have the envelope system when my money is just so variable. Luckily my base covers all of our fixed expenses, it’s everything outside of that. So I think that’s where a lot of my anxieties come from, from month to month, is it’s I like everything to be … I love spreadsheets. I like everything to be clear and easy to look at and manage and when it’s that variable, I don’t really have that, I haven’t figured that out yet.

Scott:
So it sounds like there’s a good chunk of spending that we didn’t cover that is happening outside of that umbrella that you walked us through that is highly variable. Is that right?

Jenny:
That’s that 1,000 to 2,500 a month that is all within our income, it’s just sometimes I look at my Amazon account and it’s within that 1,000 to 2,500, but why did I spend a $1,000 this month? I don’t even remember what that was. And how could I have ranged that it in, so that I could put 500 of it towards what Mindy is saying, which I love, a fun money account. But I really want to be intentional about it, why can’t I be intentional about these things?

Mindy:
Cancel your Amazon Prime account. I think that it is far too easy to go in and be like, “Ah, shipping’s free, I’ll just get that,” whereas if you had to drive to the store, would you have bought that item?

Jenny:
No. I don’t drive to stores when there’s an option.

Mindy:
So cancel. I have a huge problem paying shipping costs because I have an Amazon Prime account, so why would I pay for it when it’s free, which makes me go back to Amazon.

Jenny:
Lowe’s is another one that’s … It’s not as easy as Amazon, but it’s too easy. We’re home improvement people, we go to Lowe’s, go to the checkout, “Why is it $400? I don’t understand.”

Mindy:
Yeah, exactly. So when you cancel that, it makes you think about it, do I want this enough to pay $5 for shipping? Maybe I can go to the store, maybe I just don’t need it all together. I suggested that a few weeks ago on another episode, canceling your Amazon account when you get to the point that you’re like, “Why did I spend so much money at Amazon this month?” See what happens when you don’t have free shipping, are you still willing to … I mean, maybe you don’t care about free shipping, that’s definitely the reason why I spend so much on Amazon.

Scott:
It sounds like they have a budget, but they don’t really have a budget. That sounds like the problem, Jenny, is you track all of your expenses very thoroughly on all of what you call the fixed categories, but then you have this whole other section that’s the Wild West in your household with that, and that is the purpose of the budget, with that. So I think maybe you should think about going back to basics. In addition to Mindy’s great suggestion about making it harder to do the things that are the really big leaks in your budget, but if you put that together and say, “No, we’ve got $1,000 and that’s allocated across fun money, eating out and Lowe’s or whatever, and miscellaneous with that, and that’s it, and that’s all we’re going to be able to spend for this each month,” or 1,200, or somewhere in the middle between that 1,000 and 2,400 that’s sustainable for you, then you can get control of those types of things.
But I think you’re missing a big part of the formal benefit of the budgeting process the way you’ve constructed things. Because you’re so disciplined and have it nailed in on each one of those line items you walked us through earlier, but then you have this whole other section that’s really a major percentage of your spending, that you don’t have control over with that. So you’re still missing the fundamental benefit of the budget process is what I’m observing.

Jenny:
Yeah, I would agree. And even when I look at my spreadsheet … And I have other spreadsheets that I track all of our spending from month to month, but I do it after the fact and then I think why. And I go back and I say, “Why did we spend $50 on I don’t know what?” and I don’t even remember where it ended up in our house. So yeah, I agree 100% on that. And-

Scott:
You could play games with that too, for yourself, where you can say, “Hey, I’m just going to use a secured credit card or a credit card that has a limit of $500 or a $1,000 or whatever with that, so that I can’t go past that limit with that,” if your system won’t allow you to track it. But those would be ways to do it like, “Hey, we’re each going to get a $500 limit credit card or a $500 secured credit card or whatever that is for this fun money spending,” that could be one tip or trick with that. I haven’t tried it, but it might be-

Jenny:
Right. And it’s all me, I’m the one who buys all the house stuff. My husband will say, “Oh, we need X,” and then I’ll go and buy it. He doesn’t really … I think it’s like $250 pay period that ends up in his checking account. He doesn’t do much in terms of spending and most of the time it’s for me, it’s house stuff. So I have thought … Yeah, I don’t know.
And a lot of the time I think part of it is well, we work hard, we can do this. I think 1,000 to 2,000 or 2,500 isn’t horrible for our income, but I don’t want that to be where it’s going. I don’t want it just to be going into who knows where. I’d rather it be going into something intentional that we then enjoy or remember, and then the rest of it going towards our goals.

Scott:
I think you think with the end in mind, right? Nine years from now you want your husband to be able to retire and in four years from now you want to be in a position where you’re making the $100,000 with the students loan paid off in that position, capable of at least giving you the option of allowing him potentially to retire early in advance of the mortgage being paid down. You won’t have the mortgage paid down in three years, unless something dramatic changes with that, but you could have it done in nine with that.
And so in that context, what is an acceptable amount for your family to spend on that? Between 1,000 and 2,400 seems very reasonable. Do you want it closer to 1,000, do you want it closer to 2,400? It sounds like your fundamental thing where it’s causing you anxiety in the short run is you’re not in control of that amount, and that to me says, “Hey, that’s going back to basics.” You think you have a strong budget and you came in real strong with all those things, but I think you’re missing a big chunk of that budgeting process in the variable side of things, and using that to actually control your day to day spending. Go ahead, Mindy.

Mindy:
I have a solution. So I just made a video, it came out last week. We’re recording this in advance, so it came out several weeks ago. If you go to biggerpockets.com/mindymethod, M-I-N-D-Y, M-E-T-H-O-D, you will get a video from me that is called How to Budget and Track Expenses Successfully. And if you’ve listened to this show before, you’ve heard me talk about how I wrote down everything on a piece of paper and I’m watching it, every single expense, every time a dime comes out of your pocket, you write it down and you add it up as you go.
And what you’ll discover is you have little triggers that are little things that are where you spend your money. For me it was the grocery store, I was going to the grocery store literally every single day. And you know, you just go in for one thing, but you come out with five, which is no big deal, but every single day that adds up a lot. So Amazon might be your trigger and maybe deleting or canceling your Amazon Prime will make you think more about what you’re spending. And maybe it doesn’t, maybe you’re just going to end up spending money on shipping that you didn’t have to do before, but I think that that could be … I know personally, I would never spend money on shipping. I’m so cheap.

Jenny:
I’m a bargain … That’s part of what gets me is if I see a sale rack, it’s easier for me to buy stuff that I wouldn’t otherwise buy. I don’t generally go to stores, that’s not really where I’m spending money, it is Amazon or projects that we go to Lowe’s for and it ends up costing more than we expect, or those kinds of things. I did try to rein in my grocery budget, six months ago I had no idea how much I was spending on groceries. We don’t have delivery where we are, but we do one of those programs where you pick all your stuff out online, they pack it for you, and then they load it into my car when I show up, and that seems to help a lot.

Mindy:
So another thing to think about, just like you did with your groceries … By the way, that’s fantastic that you were able to rein that in. You looked for a solution and you found that. I think that’s a real strong suit of yours, is being able to okay, I don’t want to spend that much in this category, I’m going to figure out a way to reduce that. You look at the different options available and you make the best choice. The solar loan sounds very shocking, we didn’t say how much your electric bill was. When you applied, you said it was $460 a month because your whole house is heated and cooled by electricity, which gives me the heebie-jeebies because there’s natural gases-

Jenny:
360, but it’s still significant.

Mindy:
Oh, 360. Okay, that’s a little bit better, but that’s still, that’s a lot of money.

Jenny:
Well, I only anticipate it to go up also.

Mindy:
Exactly, exactly. Nobody’s going to just … Hey, do you want to pay less? No, it’s going to go up, everything’s going to go up.

Jenny:
It went up last July where we are and then we signed our solar contract in September because I said, “I’m done with this.”

Mindy:
It gets to be a lot. So looking back at your Amazon purchases and your Lowe’s purchases, same advice for both, for two different categories. What are you buying at Lowe’s and how can you reduce that? Are you going to Lowe’s to buy the toilet flapper repair kit for 20 bucks because your toilet flapper broke? That’s an emergency.

Jenny:
My husband has jerry rigged that thing in both of our toilets I think three or four times. We don’t go to Lowe’s to buy something like that, he uses zip ties, but we do go to Lowe’s for anything else we can need. We do almost everything ourselves, so we built a, I don’t know, 600 square foot patio all ourselves, and I budgeted everything and got everything delivered in bulk and all of this stuff last year, but it was still … We hoped it was going to be 2,000, it ended up being 3,000 or 3,500. I will identify one of my known short, I don’t want to say shortcomings, but weaknesses, thank you therapy for years, is that I am a perpetual optimist and so I will always, because I want to believe it, say or believe that something is going to cost less than it actually is. That’s just in my nature.

Mindy:
Yes. Yes. My husband is a perpetual optimist in that he thinks it will only take an hour and no, it took 40 hours. You need to be honest with your optimism, but I get it, I get it. So I challenge you to the next time you have a planned build, a planned repair as opposed to the toilet flap, which is an emergency repair, you go … And the thing’s always 20 bucks, it’s not going to be on sale for three in six months and it doesn’t matter, you need your toilet to stop running because that’s a multiple cost.
So when you have a planned expense, go to Lowe’s without your wallet, go there and say, “Okay, I need concrete, I need 40 pounds of concrete. A bag is 60 ponds and it costs 20 bucks. Great. Now I know that that’s a $20 charge, put that on the list. I need 2X4s, they’re all over the place.” So go in and get the quote and then just add 10% for that because who knows what they’re going to be, and if you save money, great. And tile, I know I’m going to need 120 square feet of tile. Well, this one’s really pretty and it’s $5 a square foot. This one’s really like 90% of the $5 a square foot in beautifulness, but it’s a $1 a square foot, go with that one, because your life is not going to be four times as happy with the four times as expensive tile.
So look and then create an actual budget. Oh, I thought it was going to cost 2,000, it’s actually going to cost 3,500. I’m going to now increase my budget for this to 3,500, or I’m going to wait and see if I can get some things on sale. Not everything goes on sale.

Jenny:
I think then to go one step further is if it’s going to cost 3,500 and we budgeted for 2,000, we then need to wait until we have 3,500 to do it. I think that it’s oh, we can do it anyways, we’ll pay it off, within the next few weeks we can do it. But you do that too many times and it doesn’t end up panning out.

Mindy:
Then you wonder why where’s my money because when you say, “Oh, it’s going to cost $2,000,” that’s the price in your head, so when it costs $3,500 it doesn’t register, you just continue to think it was 2,000. I’m not saying that you’re a bad person, Jenny, I do that exact same thing.

Jenny:
And in general, we’re really thrifty in terms of … especially in our house. We have a lot of things we would like to change, but we’re waiting because the difference, and we did this calculation at some point, the difference between spending $10,000 on our floors to replace carpets that we absolutely loathe now, versus putting that into the market or getting it to work for us is a much bigger deal in 10 years than … If we did it now, it’d cost us a lot more than if we do it in 10 years, and so we’re choosing not to do those things.
And when we do, do those things, we’re going to do them ourselves, but the daily, weekly, monthly spending they’re going to … I mean, just a couple of days ago, we needed new sprinklers for our garden and it ended up being $120. I don’t understand how it ended up being $120, then you look at the invoice and say, “Oh okay, I get it, but that’s not what I thought it was going to be, but we need them, so move on.”

Mindy:
Yeah. It’s really easy to be like, “Oh, it’s only going to be 20 bucks,” and then … I challenge you to attack this like you attacked your food budget. Whenever you have a planned project, make sure that you have it in mind and in your budget for the actual costs and not just what you think it will cost, because everybody who’s been there, to Lowe’s, understands I know how much it’ll cost, it’ll be about this much. And then you get to the checkout and you’re like, “How is this $400?” Well, it all adds up.

Jenny:
Yeah, absolutely.

Scott:
I think we’ve had a great discussion with this so far. Do you have any other key concepts you want us to go over before we wrap up?

Jenny:
We’ve been kind of back and forth as to when we should start getting some multi family properties. So just recently, we decided that we would prioritize the house, prioritize paying off the house for comfort and personal freedom reasons, but we have thought about getting into real estate sooner, like just in the next couple of years. Our savings trajectory would allow for it, it’s just where we put that savings. And so the thought behind paying the house off first and then doing real estate investment was really from a comfort and security perspective and that in those nine years before my husband retires, if we were to invest in real estate instead, early, it wouldn’t be doing a ton for us until later. And so from a security and freedom perspective, we kind of decided that we would put that on the back burner, but I am curious what your perspective is on that.

Mindy:
So my thought on this is that you are not comfortable with one mortgage, how are you going to get comfortable with two mortgages, because not only is this going to add another mortgage payment to your budget, it will push back your ability to pay off your mortgage? I think having a conversation with your husband about where are we, comfort level. Also, let’s look at the eviction moratorium which was just extended, how comfortable are you paying two mortgages if you have no income from the property itself? So I hope that that never happens, but the reality is that that does happen and right now you can’t remove somebody.
So I think it’s more of a mental security comfort discussion than a financial discussion. And if you do get to the point where you are okay with having an extra mortgage and pushing back your ability to pay off your primary mortgage, then I would start looking at the market and just see what’s out there. That’s a step you can take now, start learning the market. A duplex goes for $100,000, it goes for $850,000. I don’t know your market, so I’m not sure what prices are right now. But what does that mortgage look like? Let’s say it’s an $850,000 mortgage, does that look like … I don’t even know what that is, $7,000 a month?

Jenny:
Our market for a duplex would be somewhere between 150,000 and 220,000.

Mindy:
Okay, and what does that rent out for?

Jenny:
The intentionality behind our financial position really started because my husband was listening to regular BiggerPockets and got interested in real estate.

Scott:
I think investing in real estate and rental properties is incongruent with paying down your mortgage early and how you are allocating your assets. Your strategy, you can do any of the above, you can keep plowing the vast majority of your accumulated wealth into retirement accounts, and end this state, wipe out your student loans and get $100,000 job and game over most likely, in terms of achieving the stated goal that you came in with where your husband has the option to retire. That will probably happen in three or four years, almost certainly will happen in nine years with your current trajectory.
If you want to invest in real estate, you have to fundamentally change your asset allocation with this, because you cannot do that with your current spending and invest in real estate in any regular basis right now. You’re saving only a 1,000 or so a month on average with that outside of the retirement accounts. If you want to do that you’d probably have to stop paying the extra principal, you’d probably have to stop contributing to some of those retirement accounts at some level, so you can accumulate more cash and begin sustaining that investment approach.
I’d be all for that, that’s what I’d do or did for a long time with this. So I think it’s a good approach, it just requires a different mindset shift in terms of how you’re allocating your capital at the highest level with that. And if you have a 30 year outlook, you might well have a much stronger financial position at the end of that 30 years doing that than by doing your current approach, but you’ll have to grapple with the massive implications of where you are allocating your money right now in order to do that.

Jenny:
I think that makes a lot of sense. Your perspective really validates the conversation that we had in terms of our comfort level and where we want to be. The biggest thing is for my husband not to feel stuck, and so that makes a lot of sense. Doing real estate earlier would probably just make him feel more like he had to stay where he is and not have options even before he retires. So that makes a whole bunch of sense, thank you.

Mindy:
And then also look at what would the property rent for. If it’s going to cost you $200,000 to buy, what is that, like a $1,500 mortgage payment, $1,000 a month mortgage payment? If it’s a $1,000 a month mortgage payment and you can rent it out for $1,100 that’s not a good investment. If it’s a $1,000 mortgage payment and you could rent it out for $4,000 that would change my answer. So run the numbers based on actual numbers and see what sort of additional income you could generate from that. It could be that it’s worth it to you to invest in real estate, maybe in a few years, maybe when your mortgage payment is down a little bit more. I think from your perspective, it’s not so much a money conversation, as a mental health and security conversation.

Jenny:
That’s makes sense, thank you. I think we’ve covered-

Mindy:
Okay. This has been a lot of fun. I think that this has value for multiple different listeners. I hope that you also found value in it, it sounds like you did.

Jenny:
I sure did, thank you.

Mindy:
Awesome. Okay, so your homework is to watch the Mindy Method, biggerpockets.com/mindymethod, it’s on our new YouTube channel. Episode 120 with Michael Kitces, listen to that with your husband. And episode 153 with Bill Bengen, also listen to that with your husband, just to create a talking point because the whole purpose of this is to make the best choices for your specific situation. If you have a partner, then you make those choices together. I’m super excited for what you’ve got. You’re doing great. The overall wrap up is that you’re doing an awesome job.

Jenny:
Thank you.

Scott:
I completely agree.

Jenny:
It helps to hear somebody else think that.

Mindy:
Okay, Jenny, it is now time for the Famous Four, are you ready?

Jenny:
I am.

Mindy:
What is your favorite finance book?

Jenny:
These actually come from my husband because he’s the reader, but the one that really got us thinking about money was The Millionaire Next Door, absolutely right off the top. But he also told me The Little Book of Common Sense Investing and The Bogleheads’ Guide to Investing. We’re also big for him and I guess instrumental in getting us to where we are now.

Scott:
Awesome. I have not read the last two, but I love The Millionaire Next Door. I’ll have to check out the other two. What was your biggest money mistake?

Jenny:
I think living above our means when we were both in college and my husband was in graduate school. Although we were a little later in life in that time, it was my second bachelors degree and his graduate program, we just weren’t thinking forward, we were really thinking in the now. So luckily at this point, about two years ago we made up for all of that, but if we hadn’t, we would be in an even better position.

Mindy:
That’s okay, everybody makes mistakes. I certainly was not perfect when I was in college, spent every dime that came in.

Jenny:
Mm-hmm (affirmative).

Mindy:
What is your best piece of advice for people who are just starting out?

Jenny:
So one is looking even farther back in my … I have two I guess. One is that it’s okay not to go to college right away. I went to college for my first bachelor’s degree, I’m now almost done with four degrees later, when I was 18 because that’s what I was supposed to do. I don’t blame my parents or anything for that, but I really thought I knew what I wanted to do and it took some life experience, which I didn’t have at 18 and I think a lot of people don’t, to figure out what I really wanted down the road. So we really, even though both my husband and I are big proponents of education, we don’t want our kids to feel rushed or pressured into making a decision like that early.
And then my other suggestion is really what we learned from Millionaire Next Door initially is that spending a little bit extra now makes a huge difference later. So whether it’s that $5 trip to Starbucks every day, or even $50 more on a car payment because you want the premium version instead of the basic version, it just makes such a huge difference when you look 10, 20, 30 years down the road and it’s not worth it. We got a basic level car and we’re perfectly happy with it.

Scott:
Love both those pieces of advice. What is your favorite joke to tell at parties?

Jenny:
I have a lot, but I picked one … It’s actually two jokes, but they’re very much related. What do you call a cow with no legs?

Scott:
I don’t know, what?

Jenny:
Ground beef.

Scott:
Nice.

Jenny:
And what do you call a cow with two legs?

Scott:
Patty.

Jenny:
Lean beef.

Mindy:
Scott files those away for later.

Scott:
I love it.

Jenny:
I have a lot. We could go on for a while. I used to be a-

Scott:
We can milk the cow jokes for a long time.

Jenny:
I used to be an adventure guide with groups of small children.

Mindy:
Oh my goodness, you and Scott can have a joke off.

Jenny:
Oh my goodness, there’s so many.

Mindy:
Okay, Jenny, this was a lot of fun. I had a great time talking to you today. Thank you so much for taking the time to share your story with us.

Jenny:
Likewise, thank you very much.

Mindy:
Okay, we will talk to you soon.
Scott, what I loved most about Jenny’s story is that what I’m hearing her say over and over again is that she looked at a specific situation, ran the various scenarios, and came up with the best course of action. And she’s done this over several things, the solar lease with regards to her exorbitant electric expenses. Just because she’s over in the colder area of the world, she needs to run electric heat. I think the solar is going to be a great trade off for that.
Then, her food budget she’s really dialed in. I really think that things like home improvement spending at Lowe’s and Amazon … In fact, I challenge everybody who’s listening to look at what you’ve been spending on your Amazon account, look at the amounts you’re spending, and look at what you’re actually buying. Did you really need those things, is that a leak in your budget and can you plug that leak by canceling your Amazon Prime account and see what happens, see how quick you are to hit that buy button when you have to pay for shipping, which is a huge block for me?
Frankly, that’s kind of a brilliant thing that Amazon did to oh, we’ll give you free shipping. I mean, how much is it? $119 a year or something like that? You pay it once and then you’ve got free shipping for the year, of course I spend more. I save more free shipping costs than I would have, then I paid the $119, but I also buy a lot more crap than I need. So brilliant marketing idea on their part.

Scott:
I completely agree with that. I think if you start with a budget and then as that’s not working to control certain expenses, you’ve got to do things like what Mindy suggests here in making it harder to have that money leak through in unproductive ways. Go to the store without your credit card, that was a great tip from Mindy because you can’t spend without a credit card, you have to put together the plan for those kinds of things, and you’re going to think twice about it with that stuff. So I think that’s a great … I would say the order of operations is put together that budget and use it to drive your spending and if it’s not working and you need additional help, put in place those barriers to make it much more difficult for you to spend on those things, if you want to take control of that spending of course.

Mindy:
I have one more personal anecdote that I want to share before we get out of here, Scott. My husband and I paid cash for the house that we’re in right now because we needed to, we won the bid because we could close very quickly. And then we didn’t want to have all that money tied up in your house, so we cashed out and refinanced in April of 2020. And since then we have paid approximately $12,000 in interest on our mortgage, but with the money that we have taken out of the equity of our home, we put it into the stock market. We have made $122,000 off of that invested money and if we had strictly put it into VTSAX, we would have made about $95,000. But as regular listeners of this show know, my husband is a nerd about Tesla, so he threw some in there too. So we have a slightly higher risk, slightly higher reward with putting some of it into Tesla and some of it into the index funds.
But that’s just an example of what you can do with the money when you don’t pay off your mortgage. Of course, if you’re just going to spend that money on random stuff, then pay off your mortgage, have it sit in your house instead of a car in the driveway. Like we heard from Steve earlier this week, Steve Adcock had a Corvette, that’s not a good use of your money, unless you already have so much that it doesn’t matter, but at the time he didn’t. I just wanted to share that. We have made some money off of it by not paying off our mortgage.

Scott:
No, I’m completely aligned and I did the same thing fundamentally where I refinanced the rental properties that I’ve owned for several years, pulled a bunch of cash out, and bought another rental property with that. I try to maintain a good capital reserve and a strong cash position, I try to maintain strong cash flow on that portfolio, but just like Mindy, I cash out refinanced against my real estate to buy more assets instead of paying down low interest rate debt.

Mindy:
That’s just the choice that I make. When I was listening to Jenny talk about what she and her husband have come up with, it’s more of a mental stability, security, I don’t have to worry about having debt position, which is really where the argument comes in from should I have a mortgage, should I not. So I understand what they’re going through and I think it just gives them something else to talk about. Personal finance is personal like I keep saying all the time.
So I have a favor to ask of our listeners. If you are listening to this episode, you have made it all the way to the end. Thank you so much for listening. Do you know somebody in your life that could use this information, or information from anyone of our past episodes? I was recently at a podcast conference and they say the number one way that people learn about new podcasts is from introductions by family and friends, so I would love for you to share this episode with a family member or a friend, if you think they could learn from this, or your favorite episode. I keep recommending episode 120 from Michael Kitces because it’s so good. Oh my goodness he’s so good. 153 with Bill Bengen, like I mentioned in this show. 157, the Money Date if you know somebody who wants to be financially independent but their spouse is not, maybe they could listen to episode 157 of the BiggerPockets Money podcast, where Scott and I talk about how to have a Money Date with your spouse or partner, you don’t have to be married.
And, if you would like us to review your finances on this show, please fill out the form at biggerpockets.com/financereview. Okay, all of that. Thank you again, for listening, so much, we really appreciate you. Scott, should we get out of here?

Scott:
Let’s do it.

Mindy:
From episode 228 of the BiggerPockets Money podcast, he is Scott Trench and I am Mindy Jensen saying see you, wouldn’t want to be you.

 

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In This Episode We Cover

  • How to plan for retirement with two full-time incomes
  • Paying off your home vs. investing in assets like index funds and real estate
  • Taking advantage of 401(k) matches and maxing out retirement accounts
  • Leveraging a future job to pay off student loans 
  • How to curtail your variable expenses and reduce “random spending”
  • Why someone with “mortgage anxiety” should be wary of real estate investing
  • And So Much More!

Links from the Show

Books Mentioned from the Show