Finance Friday: How to Achieve “Financial Flexibility” on a $65K/Year Salary

Mindy:
Hey there before we get to the show, I wanted to mention BiggerPockets is hiring a full-time supervising producer for our podcast network. This is a remote position and it’s a great opportunity if you have the right skillset. We’re looking for someone with at least a couple of years experience managing production teams and someone who will feel confident taking the lead when launching new podcast.
So would you or someone you know be a great fit? You can find the full job description at biggerpockets.com/jobs. That’s bigger pockets.com/jobs to apply for our open podcast, supervising producer job. Okay, now enjoy the show.
Welcome to the Bigger Pockets Money Podcast show number 270, Finance Friday edition, where we interview Kevin and talk about getting your spending under control.

Kevin:
Within the next year or so my credit cards going to be gone and then I’m going to have extra income to do something with, obviously a million things I could do with it. So I’m wondering what are the best ways to use that money once it becomes available to me so that I can find the most flexibility. And as Mindy said in the beginning, detach my time from my money more and more as time goes on.

Mindy:
Hello? Hello? Hello? My name is Mindy Jensen and with me as always is my chocolate chip cookie loving co-host Scott Trench.

Scott:
I’m trying to take a bite at a good response pun to this Mindy, but it’s not working.

Mindy:
Ugh, that was awful, they’re all awful, they’re terrible. Scott and I are here to make financial independence less scary, less just for somebody else. To introduce you to every money story because we truly believe financial freedom is attainable for everyone no matter when or where you are 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 state, start your own business or just start building wealth and paying off some credit card debt. 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 am so excited to bring today’s guest in today because he comes to us from our Facebook group, which you can join at facebook.com/groups/bpmoney if you’re not already a part of our fascinating conversations about all things, personal finance. It’s a lot of fun. We talk about money and people ask questions and you can learn a lot. I’ve learned a lot from our members and it is a safe place to go to ask those questions that you may have about your finances.
Anyway, Kevin posted about an experience he had about six months ago where he had gone out to dinner with his girlfriend and some friends to celebrate her birthday, swiped his card and it was declined. So I reached out to him after chatting with him on the group. I thought his story was really fun and I wanted to bring him on.

Scott:
Yeah, I think we had a great chat with him today and it’s really cool to hear a personal finance story from somebody who is getting started but has had an event transform their mindset with money, like getting a card declined or something like that. I think those are really powerful transformational moments that we go looking for. You probably have noticed when we interview people about their money stories on our Monday shows here on BiggerPockets Money.
And that event is a transformational pivot point where people’s behavior and mindset or attitude or the way that they handle or move or capital allocate their money, it changes from there. And it’s exciting to talk to somebody who’s recently had that event happen and is looking to accelerate and figure out how to improve and get their financials on the right track hopefully for life.

Mindy:
Yes, hopefully for life. Okay, Scott, let’s talk about our attorney. My attorney, our attorney makes me say the contents of this podcast are informational in nature and are not legal or tax advice. And neither Scott nor I, nor BiggerPockets is engaged in the provision of legal tax or any other advice. You should seek your own advice from professional advisors including lawyers and accountants regarding the legal tax and financial implications of any financial decision you contemplate.
Kevin posted a story in our Facebook group about how he had gone out for a birthday dinner with his girlfriend and a few others about six months ago and when he tried to put the whole thing on his credit card it was declined, bomp, bomp, bomp. Everyone joked about it and somebody else put it on their card but it stung.
Kevin said, “There I was, 29 years old with a corporate job in marketing and communications, with a take-home pay almost double my fixed monthly expenses. Yet I had two maxed out credit cards, a student loan, a car loan and not even enough in savings to cover a single month expenses if I were to lose my job.”
Kevin has made huge strides in the last six months, paying off one card entirely, building up a one month emergency reserve and starting to play the balance transfer game to help pay down his next credit card. But he wanted to know what to do next.
So this episode is for those of you who are just getting started on your financial journey or for those of you with high school or young adult children who may need to hear it from someone other than their parents. So Kevin, welcome to the Bigger Pockets Money Podcast.

Kevin:
Hey, thank you both for having me, excited to be here.

Mindy:
I’m super excited to talk to you. First of all, we need to celebrate the fact that you did not just swipe your card, have a decline to be like, “Oh, I guess, my life is just the life of debt. I’ll go get another card and try to max that out.” You felt the sting and you’re like, “I don’t want to live like this, I want to change this.”
So you’ve made huge strides, you paid off a whole card. That’s something we should celebrate. Yay, we don’t do the debt free scream here. But woo-hoo, you’ve paid off a card. Scream, yay. I think that’s fantastic and I want to say congratulations on that.

Kevin:
Thank you very much. And it’s kind of funny like the… I think the reason everyone was so easily laughing about it was because of just that. Because everyone’s like, “Ah,” kind of like it’s normal to have credit card debt. Like, “Ha ha, you made a payment hasn’t gone through yet? No big deal.” And it was a big deal in my head. I was like, “Ah, I don’t want to be here.”

Mindy:
It is normal. It is no big deal for a vast majority of Americans. So I’m glad that you didn’t like that and I’m glad that you made these changes. And I’m glad you posted about it because I want to show people who are listening right now. Yes, it’s embarrassing when your card gets declined and yes, you can change that. That doesn’t have to define you forever and that doesn’t have to define your financial situation. You can make changes and it starts with being conscious of where your money is and where it’s going. So with that very obvious segue, Kevin what’s coming in and where does it go?

Kevin:
Sure. So coming in is about, I’d say 3,300 a month at best take-home. So I make about 65 a year and I put about 10% into a 401(k). 5% of that is matched by my employer so I put beyond the match.
And then 3,300 comes home after that and about 1900, if I’m looking over here it’s because I have notes. But it’s about like 1900 of it is the fixed stuff so about 11 or 1200 for utilities. 550 for the car transportation so I have a car loan, car insurance, 125 for gas. And then another 150 on personal stuff so some vitamins, I have a compost service and then Hulu Spotify and stuff like that. And a charity, I give like $30 a month to a charity. So that’s the fixed stuff.
And then the big variable kind of sometimes black box is food and going out. And I look back and I had like $250 last month in cash withdrawals and I’m like, “I know some of that was food, some of that was groceries. Some of that I could not tell you where it went.” It’s like $5, $10 a year that just adds up real quick so that’s where it’s going right now. And then whatever’s left has been going to the debt sometimes, some months more than others.

Scott:
How would you quantify your average on a monthly basis the amount of cash you have to go towards debt?

Kevin:
Typically, it’s probably about 500 extra.

Scott:
Okay. So we can plan on 6,000 bucks a year as a pretty reasonable starting point for now?

Kevin:
Yeah, I’d say so.

Scott:
Awesome. And where is your net worth going? What’s it look right now?

Kevin:
It’s mostly just in the 401(k). I have a small rollover IRA from a job I had a few years ago that was a 401(k). And then I have the current 401(k) and then a small savings account if you count that towards net worth. But yeah, that’s where it all, is just basically 401(k) and some cash.

Scott:
Okay, awesome. And then if any debts, what were the levels of debts that you have?

Kevin:
The debts are, let me look down here, so it’s 7,700 on a credit card. And then I have a car loan that’s 13 and a student loan that’s a little over 10. So all in all, it’s like 30, 31.

Scott:
Okay, great. Can you walk us through the interest rates on those debts?

Kevin:
The credit card right now is zero because I just opened a new account and did the balance transfer so that’s 0% for 15 months. That started last month so I have 14 months left on that, no interest. The car loans 4.9 and the student loan is 4.2.

Mindy:
Okay, I have a couple of questions before we move on. The student loan is that a private loan or is that a federal loan?

Kevin:
No, it’s federal so it’s paused right now.

Mindy:
So it’s paused?

Kevin:
Yeah.

Mindy:
Okay, we had an episode that came out on January 17th about student loans. So if you haven’t listened to that one, I would suggest going back and listening to that one with Robert Farrington from The College Investor. That is a really great episode about what you can be doing for when it becomes unpaused.
But also some advice on, maybe the pause will be extended. It was extended right between the time we recorded the show and the time that it was released. They extended the payments till what? May, May 1st?

Kevin:
Yeah.

Mindy:
So they may extend them again, which would be great for you. You could work on paying down some of this other debt. A note about that 0% interest rate credit card, the balance transfer game that I mentioned in the intro.
You can traditionally get or typically get a teaser rate when you open up a new credit card and you transfer a balance. Now I know that there was a charge to transfer the balance but the balance sits there at 0%. And it only sits there at 0% until the end of the teaser rate and then the rate skyrockets again. So I would suggest throwing every dime you can at that because what’s the interest rate on that when it does come back to full interest?

Kevin:
Yeah, the funny thing is, it is still going to be sky high but it’s slightly lower than the credit card I just transferred it from.

Mindy:
Which is a net win.

Kevin:
Yeah, I guess. But yeah, you’re right. I’m a 100% paying that down before the end of the promo period and the fee on it was three and a half percent for the transfer fee. And I did the math on that and it was like you eat that three and a half percent right up front and I’m still going to save probably $1,500 to maybe possibly a little more than that over the course of the year. I would otherwise take me to pay it off at the old interest rate. But when it kicks back in, it would be 25%, it’s big.

Mindy:
Ooh, I think that’s nudging into usury issues but that’s not me.

Scott:
What are your goals? What’s the best way we can help you today?

Kevin:
So my goals if I could sum it up in one word it’s flexibility, I guess. But it’s the way I’m thinking about it right now. So I’m 29 so I’ve been thrown it to a 401(k) but I’ve already missed that boat that everyone talks about of invest in your early 20s and let the compound interest do the work for you. And so I know I still have time there to do that.
But within the next year or so, my credit cards going to be gone and then I’m going to have extra income to do something with. And I’m wondering what… There are obviously a million things I could do with it. So I’m wondering what are the best ways to use that money once it becomes available to me so that I can find the most flexibility? And as Mindy said in the beginning detach my time from my money, more and more as time goes on.

Scott:
How much do you currently have in a emergency fund in cash?

Kevin:
It’s probably a little over a month’s worth of expenses. It might be two months if something happens and I really tighten things up, probably last me two months.

Scott:
One of the things I like to think about… I think that the goal you have of flexibility is actually an awesome goal and we should spend just 30 seconds acknowledging that, that is the goal with finances. I think that most people should have is building a more and more flexible position.
And something to note is that, I’m sure you’re aware of here, is most of your wealth is in the 401(k) there. And you have about a month of savings along with a lot of debt, that’s not a very flexible position.
But what can happen within a couple of years if you’re doing things the right way is you might buy a house and keep contributing to that 401(k), pay off the debts and you’re still no more flexible because you still have one or two months expenses saved up and you have a higher net worth but it’s not really translating to flexibility in your life. So I think it’s an artful goal to have that in the first place.
And then the concept that I would introduce you to is this concept of financial runway, which is the amount of time that you can survive without depending on your paycheck which right now is one month I think of time for you with that.
So I think the bad news is that… I think that building out financial runway or that months of reserve is not a good idea until you’ve paid off the bad debt. The bad debt being your credit card debt right now. Yes, thank you for the plug Mindy on that. I don’t know if you’ve read, Set for Life, which is my book on personal finance. But that’s a concept that I try to build throughout the book and there is this concept of building out financial runway.
What I would advise is crush through credit card debt because if you don’t pay that you’re going to assume a 24% interest rate in 15 months. And it’ll take you about 12 months at your current run rate, perhaps a little bit less if you find some creative ways. Get a raise, get a bonus or otherwise you’re able to cut out a little bit of spending there over the course of the next 12 months.
But after that, if you can build out one year of flexible net worth after tax brokerage dollars or a combination maybe of money in a savings account or in an after tax brokerage account in some form of investments, that’s going to give you that flexibility.
And what can happen from there is a large number of options begin to materialize. You don’t have to know which option you’re going to take at that point in time. But it could be that you decide to house hack at that point in time using your year of savings or six months to a year of savings or your runway.
It could be that you decide to take a sales job or something with a commission opportunity that can increase your income. It could be that you decide to just keep doing what you’re doing, buy rental property or begin just plowing that into some other form. Or just begin piling money bit by bit into your retirement accounts or after tax brokerage accounts.
But either way that optionality, I think will give you a lot of good choices that you don’t have to know exactly what you’re going to do with right now. But you can just know that they will materialize with you.
And that at 29, early 30s, you’re saying you missed the boat. You’re right in the prime of being able to take a large number of shots in your life around starting a business, making a large investment, changing a career or whatever it is that you want to do.

Kevin:
Yeah, that makes a lot of sense because that was sort of what I started thinking. Where I’m like, I don’t want to find myself in a couple of years when I can finally afford a down payment on a house to then be just be sitting in a house and be like, “Yeah, I have a house but now I’m house poor and I still don’t have the flexibility that I would want.”
And so this is the first time I’m now starting to think through like, okay, I can see the end of the line with this debt and I can see me having more income, freed up to do things with. And now I’m trying to think through what all of those options are and what the path could be like I said to just separate the time from the money and make more flexibility.

Scott:
Yeah, you mentioned the concept of fixed expenses as well. So first of all, I love that. If you were to just go in a year from now, pay off the debt and then buy a house, you assume a mortgage payment. I think you said you were paying about a 1,000 bucks in rent right now.

Kevin:
Yeah.

Scott:
Your mortgage payments is 1500 bucks. You’re essentially at no better of a position from a life flexibility standpoint even though you now have a house from that. So again, that’s why I think the goal of flexibility is such a powerful one with that. The best way to flexibility is paying off that debt, not assuming any more high fixed expenses. And understanding that over a moving period like over five years… Let’s start with this, how much is left in your car loan?

Kevin:
A dollar amount? It’s 13.5.

Scott:
And how many years is left on that?

Kevin:
Oh, four.

Scott:
Four. Okay, great. So over the next four or five years, you could conceivably get to a position where you’ve paid off your credit card debt. You’ve bought a house hack so your monthly rent is down from a 1,000 to $400 or maybe zero depending on how good of a deal or how advantageous a thing you can find there. Your car loan is paid off and now over the course of those four years, you’ve slowly increased from that $500 a month in savings to a 1,000 to 1500 as each of these has fallen off.
And it’s not an overnight process and it won’t be, there’s not a quick path to getting to a million dollars right now. But that snowball will pick up bit by bit and will increase that monthly amount of savings, which will increase the amount of runway. As long as those goal posts don’t move, then that flexibility will continue to accrue to you in the form of these different types of investments.
And those options, like it’s impossible to say which path you should take when for an investing perspective right now. But those options will begin to appear I think as that progress is made. Go ahead, Mindy.

Mindy:
I have a lot of comments. First, I think that at your current level of spending your biggest focus should be on tracking your spend and seeing where you can cut. I heard you say that you have a compost service and I don’t know if you live near somebody else who also has this compost service. I don’t know what this is money wise but if that’s something that you can cut out… Yes, composting is great. Can you dig a whole in the backyard and compost it that way? Or can you connect with a neighbor who has a half filled compost bin and then you split the cost?

Scott:
I can’t resist, that smells like a good opportunity, Mindy.

Mindy:
Oh God, I quit.

Scott:
You good.

Mindy:
It stinks, my compost bin is gross. Anyway, I also heard you say, cash withdrawals. You use a lot of credit cards and credit cards are this double edged sword. On the one hand, it’s super convenient to just swipe and it’s also really convenient to track when you have everything on a card. But you have cards, you have debt so the cash withdrawals are a lot harder to track. Have you heard of Qube? Q-U-B-E.

Kevin:
No, I haven’t.

Mindy:
It is a digital cash envelope system and it’s… I’m going to mangle this description. But it’s an app that’s tied to a debit card and you have to be conscious of where your money’s going by saying, “I’m going to put $500 in my grocery envelope, my digital envelope.” And then when you’re at the grocery store say, “Okay, take the grocery budget and charge it on this card,” and then your debit card works. So it’s still the trackable spending but it’s not credit card spending because it’s coming out of a debit card. Does that make sense?

Kevin:
It makes sense. But does that mean it like locks your debit card until you give it permission to spend the money? Is that how it works?

Mindy:
Yes, that’s exactly. That’s a great way to say it. Yes, your debit card has $0 on it until you, on your app, say, “I want to use this bucket to pay for this charge.” And if you have $500 in your grocery bill that you’ve earned in your grocery bucket. But you’re trying to charge $600 it won’t let it go through even if you have more money in your bank account because it’s coming out of your different buckets or envelopes. So it’s a great way to have the convenience and trackability of the credit card without adding more credit card spending. So something to look into, we call this a research opportunity, Q-U-B-E. I really like this app and I believe it’s free for you to use.

Kevin:
Okay-

Mindy:
So check into that, I really like this app.

Kevin:
That’s funny because the reason… Like I didn’t always have cash withdrawals but I started doing that for the sole purpose of trying to stop using my credit card. And then that’s what ended up happening is I just have this cash in my pocket. I’d walk around with and say, “All right, here’s my money for the week or here for my money for the month or whatever.” And then it would fritter away on 5, 10, 20 getting things here or there but also groceries. And then you try to look back on it and it’s just this black box you can’t track. So that makes a lot of sense.

Mindy:
Yeah, cash is really hard.

Scott:
Yeah, I think Mindy is right to point these out, this area of… We talk about spending, the two card tips are fixed and variable. So I was just talking about some of the fixed ones but maybe the house hack or the car loan, those could cut out hundreds or a $1,000 a month from your fixed overhead over time. Those will take you a few years to fully implement all of those. But those decisions have a huge impact on your long term savings rate and are automatic. They just put all that money back in.
The other part is the immediately actionable stuff. And that’s the part where it just comes down to day-to-day management and budgeting with that and whatever tips or tactics work for you.
So in addition to Mindy’s great suggestions one thing that I do is, I just have a little habit tracker. I’m a nerd and do these little daily goals almost every single day and I have a little weekly journal with my habits. And one of them is just personal finance 101 and I’ve settled on a number of things budget or whatever.
But when I write down personal finance 101, “Did I do at least one minute or two minutes of personal finance 101 today? Did I just check my Mint app? Did I categorize the few expenses I’ve done in the last couple of days?”
And if I do that, even if I missed a day or two, I’m really coming back to it just every few days. And I’m like, “Ugh, today was supposed to be pudding for breakfast and they canceled on me, very professionally, a week ahead. And I forgot to remove the calendar appointment so I bought myself breakfast alone sadly.”

Mindy:
Scott, you’re fired.

Scott:
That’s going to show up on my personal finance 101 tomorrow when I go and categorize all my expenses. And so that little stuff just helps me eliminate more and more those types of expenses.

Mindy:
I think it’s really helpful to note that Scott and I are supposedly these experts and we mess up our money all the time. So this isn’t just you Kevin, it’s not like we are perfect and you’re making the mistakes. So we’re like, “Hmm, Kevin, why can’t you be like us?”
I am starting to track my spending publicly. If anybody wants to follow on, biggerpockets.com/mindy’sbudget and you can watch me. Right now, I’m doing great. Haven’t gone overboard in any expense yet but we are recording this on January 4th. So, so far my $4,000 monthly budget, I have already spent $1,700. I’m almost halfway.
And of course, that’s my mortgage has already hit because on the 1st it hits at property taxes and homeowners insurance, but there’s also groceries. I really struggle at my groceries. And I see you at 850 as a single person, and I’m not here to make you feel bad, but I put 650 as my family of four budget. And I guess, I haven’t tracked my spending in a year, I don’t have a clue what I’m spending on groceries. But is 850 really what you need?
I also see vitamins and supplements that you’re taking and I’m not a doctor, I’m not an expert. Do you really need those? Are they super expensive? Is there a way to cut the cost of… Is there a mail order option that makes it less expensive? And that again is another research opportunity for you.
But when you have 850 as food, how much of that is groceries that you’re cooking at home and how much of that is restaurants, bars, and beer? I’ve got a very separate category for beer and I really enjoy beer. I live in a city that has something 13 microbreweries. I spend a lot of money on beer but that’s also a really easy category to cut out.
So my categories are… Some of them are specific and some of them aren’t and I purposely separated out parties at my house because I have a pool in my backyard. I have people over, we do a lot of hamburgers on the grill. I just got a pizza oven for Christmas. We’re going to do a lot of pizza outside this year but it’s also something that’s really easy to cut if my expenses start going crazy.
So I think looking at your breakdown, I would go super specific. You don’t have to do different grocery stores if you shop at Safeway and Kroger, that can be all lumped into one. But if you go to the grocery store and a restaurant, how frequently are you going to the restaurants? I would separate those out and see if there’s a clear easy way to cut that isn’t to change your life.
Because when you go bare bones like you could really get your expenses way down if you cut out absolutely every fun thing in your life. And then your life would suck and you would hate it and you would stop. So where can you make small changes that won’t be noticeable in your life?
But every $30 you cut out is 30 more dollars you can throw at your credit card bill and cut it out sooner. And 30 more dollars that you can then throw at your car and cut that out sooner and it starts to snowball.
And I don’t know if you like this but I start seeing, “Ooh, I wonder how little I can spend this month when I’m tracking my spending?” Scott called himself a nerd, I’m a nerd too. You’re surrounded, sorry.
But it starts to be a game, “How little can I spend this month? Oh, it’s the 27th of the month. Can I go for the rest of the month without spending any money? Well, the car’s on E and I have to go to work tomorrow so no I can’t. But I can find something in the cabinet so I don’t have to go to the grocery store and buy more food.” If you can turn it into a game it’s a little more fun.

Scott:
When Mindy says fun, I’m not going to say use the word fun to describe this. If you’re like me, this is not going to be a fun activity for you. I think the way I approach it is, let’s just think rationally, and practically and calculatedly about the math behind our financial position with this.
There are four levers spend less, earn more create or invest. And right now the lever that is most controllable for you is spend less. That’d be the case for probably one, two, maybe three years before other before that flexibility kicks in and the investing or creating or earning more categories really open up in a really meaningful way perhaps via… They may be open to you currently but they may be much more open to you as your financial position becomes more flexible and you build out that financial runway. So the deal is right now, you’re giving a lot of power to your boss right now in your life because you don’t have that financial flexibility. And the way to buy that back…
The spending component of your finances is a very powerful lever to the concept of flexibility because the less you spend, the more you accumulate and the less runway you need in order to sustain your future spending. So if you can cut your spending from three grand a month to 2000 a month, you’re saving an extra 1,000 bucks. And instead of needing six grand for three months of ex…
I’m sorry, if you spend three grand, you need $9,000 in the bank to give you three months of flexibility versus $6,000 that will give you three times, $2,000 in monthly spending, I’m butchering that. That’s a really powerful concept.
And then you have to understand this is not a permanent state of affairs but it is a grind for a period of time to keep those expenses as low as possible while you build up flexibility, perhaps passive income, more scalable streams of income, alternative sources of those types of things. And then it can begin picking back up on the other side of that over the duration of a lifetime. And it’s that period of I think self-sacrifice that puts you in the position to build that flexibility and then ride it from there on.
So my spending is not as controlled as Mindy’s and I have some work to do before I would post it publicly on this. But it’s not the lever that matters right now in my personal financial position.
But when I was starting out from scratch and starting to build up my position, I was around that 2000, $2,500 a month in spending over that period of time while I was building up that flexibility on a $50,000 a year income. Because that was the biggest lever for a period of 4, 5, 6 years before it began to transition into managing my assets and expanding my career here at BiggerPockets with that.
So that’s one way to think about it is, whether it’s fun or not, it’s mathematically where the time should be spent and it’s work that goes into, I think… It’s just as much work in building an investment portfolio or trying to scale your income is really knocking down these expenses, planning out your meals, getting in control of those big categories and funneling every dollar to where you want it to go.

Mindy:
So I have a thought. So you’re a marketing communications person and I don’t know if you know this. But there’s this thing called the internet and there’s a lot of things going on, on the internet where people need marketing and communications.
I would first look at your employment documentation to make sure you don’t have any sort of non-compete or you can’t do any work for anybody else while you’re there. But if you can, start your own marketing and communications company now. Because if it completely fails, what have you lost? Nothing but $8 on a website name. And if you paid more than that, you paid too much.
But it can be a really easy way, like it’s not easy for me but I’m not in marketing communication, so that’s okay. But there’s all sorts of things that you can do for clients that are automated or easy or low time out of your day or even big upfront time and then it continues on. But having your own business and starting your own business while you have a source of income so you can try things and if they fail, that’s okay.
I think now it is a great time to start in the marketing, especially now because everybody’s budget is just opened up again. In December, it’s really difficult to get a dollar from anybody but in January, woo-hoo, they’re spending money everywhere.
So start out there. What is your area of expertise? What is your industry of expertise? What is your genre and go from there? What can you provide people and how can you do it in such a way that they send you a lot of money every month?

Kevin:
Yeah, that all makes a lot of sense. And I think I’m a little bit more in the Scott camp here where it’s not super fun for me to be just tracking all this stuff. But I think the thing that’s really changed has been like I’ve just… I guess part of what I’ve said earlier about my goal for flexibility it’s also the goal to not have to think about money all that much if I don’t have to.
And the mindset shift that’s just happening for me very recently is I need to think about it a lot more right now so that later on I don’t have to think about it as much. And the fact that I haven’t been thinking about it that much all these years has actually been driving me further and further into a position where now I need to think about it way more than I want to.

Scott:
Yeah, Mr. Money Moustache has a really good framework for thinking about money in one of his blog posts. And that’s a great blog for you to check out if you haven’t already, that extreme mentality. I would say he’s fairly extreme, I think most people would agree with me, on the savings front. But that really was a big motivator for me, was his blog and kind of embracing a lot of the concepts that he talked about. And that might be a good entry point for you to just start perusing a couple of random articles.
And there’s one of those he talks about, a healthy relationship with money may ultimately look like your relationship with tap water. And I’ve used this before on the podcast. But roll with me for one second here.
Tap water, you turn on the faucet, you take what you need, you use it, you shower, whatever and then you turn it off. You don’t waste it. You have complete control over where it’s all going but you don’t really think about it on a day-to-day basis. It’s not just something that’s there. That’s the ultimate goal, I think in finance with that.
But right now, what your story is telling us is that money is leaking through all these different holes or has been for a while in your ship and you need to plug all of those before you can really begin to turbocharge the income creation.
And you’re well on your way, you’ve clearly done most of the work. You just have a little bit more left to clean up particularly around the day-to-day side of money management. And yeah, it doesn’t have to be all consuming but it should be every single day or close to it that you’re tracking and managing those expenses. Go ahead, Mindy.

Mindy:
I have one more thing that may be a bit controversial so I’m going to post this in the Facebook group and I’m really going to do it, JT. I’m not going to just say I’m going to do it and then I’m actually going to put a calendar notification. My friend JT listens, he’s like, “You always say you’re going to do it and then you forget.” Well, yeah, I do.
So you have a $30 charitable giving line item in your current budget but you also have $7,000 in debt at what will be 24% interest rate. So at what point do you stop your charitable giving to focus on paying down your debt? And $30 is not just going to magically wipe out your credit card debt, and it’s not going to wipe out your student loan and that is a nominal fee. But if it was a $1,000 that would be a really easy place to tell you to maybe pull back a little bit. So I’m going to ask people in the Facebook group, where do you start and stop giving? And this is charitable giving, this isn’t like a tithe to a church, is that correct?

Kevin:
No, no, it’s not. It’s just a monthly donation to a group that I like the work they do.

Mindy:
Yeah, and like at 30 bucks… I just use the term $30. “Oh, every $30 is more $30, you can throw down your credit card.” But this is doing good work so where is the balance? But is that the only charitable giving you’re doing? Could you use that money to pay down your debt and then just throw a big bunch of money back at them now that you’re not making your $250 minimum credit card payment? I’m not encouraging not being charitable but also you have to look out for yourself. I’m just tripping all over this, Scott help me, you know what I’m trying to say.

Kevin:
I think what I’m hearing is you’re trying to tell me to look everywhere. Look everywhere where all of your money’s going and look every single thing and where could you cut something and where do you not want to cut things? And my immediate reaction to that is like, yeah, if it was a bigger number, I would look at it harder. But I know there are other places I can cut a lot more and cutting that first would make me feel a little weird inside.

Mindy:
Yeah, well, exactly.

Scott:
I’ll tell you another place to look. So I’ll see Mindy’s controversy and up her razor with this, go to the 401(k), take the match on that. But why are you investing in the 401(k) when you have credit card debt that’s going to be incurring a 24% interest rate with that?

Mindy:
I didn’t want to say that.

Scott:
And personally, I didn’t and probably if I were in your shoes, if the money’s going to hit my bank account, I’m going to waste it, put it in the 401(k), for sure. That’s a tax advantage place to do it. But if you’re going to intentionally manage every dollar flowing through your position and direct it towards the goal of flexibility, the 401(k) is not going to provide that.
So I didn’t and if I was to do it again, wouldn’t contribute to the 401(k) in the pursuit of building up that first year of financial runway. Because for me, I would intend to use that runway to jumpstart that next phase of my career, buy a house hack or do something else that’s going to have a way bigger impact on my flexibility early in life than the 401(k). Your thoughts on that?

Kevin:
I thought about that, I’ve been thinking about that too. I’m contributing twice what my employer matches right now. And that was some of the feedback I heard from some of the people in the Facebook group too there.
Why don’t you take that other 5% and put it in a Roth IRA? And then you might be able to use that down the line as part of a down payment. And I don’t know exactly how that would work or if that even makes sense or if I could just keep it as cash.
If the house Act is going to happen in the next say five years, does it even make sense to put it through into an index fund through a Roth IRA? Or just to keep it as cash if I’m going to take it back out that soon? That’s a weeds question but it’s another thing I’ve thought about?

Scott:
I just wouldn’t be maxing out a Roth IRA when you have credit card debt so it’s all about arbitraging. So there’s some way to mathematically compute this that I can’t do in my head here. But you’ve 15 months and then the credit card rate is going to go to 24%. So you’re at 0% for now but you have to play either a timing game to do that and you’re going to take market risk.
So if you max out your Roth IRA and put $6,500 in there instead of paying off the credit card debt. You might, if things go really nicely, be able to pay off the credit card debt before that hits and have a year in the market. Big whoop, you’re going to get 10% on that Roth IRA return this year and have that sitting in there. I think it may be a game worth playing.
But to me it seems like a much simpler and clearer order of operations is, no, no. Cut all spending that I can, that’s reasonable, divert every dollar to where I want it to go. Doesn’t mean don’t have any fun. You clearly have enough savings to have the fun you want to have with this. But make sure I’ve got control of every dollar that’s going out.
I’m diverting all of my cash. I’m taking my employer match because that’s a 100% return, that’s going to dwarf your 24% interest rate on the credit card debt. But then after that, everything’s going toward the credit card rate debt then I’m building out my financial runway to the point that I’m comfortable with. And then I’m using that to go and pursue some sort of opportunity.
That’s going to have a really powerful impact on your situation if you think you’re actually going to use that flexibility to some sort of financial advantage like a house hack or changing careers or starting some sort of side hustle that requires capital or making another large investment. If you don’t think you’re going to use the financial runway, then start maxing out the Roth IRA or the 401(k) instead of building out the flexibility.

Kevin:
Yeah, I guess, my question was so even if I didn’t touch my 401(k) contribution right now, right now at the rate I’m paying credit card debt down, it will be gone well before this promo period is over. So if I was to then take that additional 5% that I’m putting in a 401(k) and stop doing that, should that just be stacking in a savings account for that runway you’re talking about? Is that like…

Scott:
I think it’s whatever flexibility means to you. So that’s the big question like where should I store my runway? So a lot of people put that in like, “Okay, I want a savings account that gives me flexibility.” Some people are like, “I’ll put it in an after tax brokerage account because I can spend that whenever I feel like it.” And some people put it in money… It can be a Spectrum, it’s whatever you’re comfortable with.
When I was getting started, I put it all into an index fund in my after tax brokerage account. I’m not sure that was a good idea but that worked out in 2013 for me at that point in time. And I really wanted to get started in investing and I was like, “Okay, I’ll just build double the amount of flexibility that I need in that brokerage account over time.” And that’s flexibility to me and then I pull out some of that to buy my first house act.
I learned later I could have used money in a Roth IRA that I had contributed and pulled out, I think up to $10,000 to be the down payment. So that’s a good option but it adds some complexity into the situation and there’s less uses of… I think it would be harder to pull that out to start a business from scratch, for example or at least the gains would be harder to pull out to start the business.
So there’s differences in what you think flexibility means. The obvious answer is a savings account but then you better take some advantage of it if you’re going to build that much of a runway in a savings account. And use that flexibility to your advantage because you’re just going to be destroying purchasing power to inflation if you leave it there too long.

Kevin:
Well, that makes sense too because about that piece you just said that I pulled out I wasn’t thinking through was the amount you can take out of a Roth or something like a down payment on a house is only the contributions. It’s not the gains that you might see in the next five years.

Scott:
Well, you can actually pull out $10,000 I think of the gains to be used as part of your house down payment. So you can pull out the contributions anytime but the gains, there’s a set of exceptions up to certain limits that you can use them for. So it’s reasonably flexible but it’s not quite as flexible as other.

Kevin:
Just like a brokerage account, yeah, yeah.

Scott:
Yeah. But yeah, I think that’s the way. So let’s pull out the next. So you’re saying, should I stop contributing the 401(k)? The question is should I stop contributing to the 401(k) and the Roth and pay off the credit card debt?
Well, if you think you’re going to pay off the credit card debt really fast, it doesn’t really matter. Let’s say you pay it down by the end of this year, then you can divert everything back to the 401(k) and still max it out next year, or to the Roth, and still max out as much as you can next year with that.
But I think that a simple, all out step by step approach might make a lot of sense rather than kind of piecemealing it here if the goal is flexibility over the next 12 to 24 months.

Kevin:
Yeah, I think that’s what I’m trying to think through. It makes a lot of sense. So I’m trying to think I could do all of these things at the same time or if I do them one at a time, what is the all order in which I do them? And that’s helpful.

Scott:
Yeah, to me that order screams, “Credit card, financial runway, then maxing out probably with Roth rather than the 401(k) in your situation.”

Mindy:
And then the 401(k).

Scott:
Yeah, but here’s the thing like there’s just no… At your income and your savings rate, you’re not going to be able to get through that whole list inside of the next year or two.

Mindy:
But that can be a goal.

Scott:
Yeah.

Mindy:
Also he’s going to start, Kevin’s really awesome, marketingandcommunicationscompany.com and then become a trillionaire.

Kevin:
Is that domain taken yet?

Mindy:
I don’t know. I didn’t look it up but probably not.

Scott:
Better take it before it’s there’s.

Mindy:
Yeah, so if you need Kevin and his really awesome marketing and communications company, just go to that .com. Okay, so I’m going to invite you to listen to episode 75 with Justin from the Saving Sherpa in regards to cutting your food budget because Justin is a master at cutting your food budget. What does he spend? A $1.50 a month on his grocery, Scott. It’s something really ridiculous and still doable because he shops the sales. God it’s been almost 200 episodes.

Scott:
I think he spends more than a $1.50.

Mindy:
It’s probably more than a $1.50 but it’s not much. It’s like 35 or $50 a month or something. And of course he’s not eating filet mignon every night. He’s not eating steak and he doesn’t have a lot of meals with meat in them. But when there is meat on sale, he will buy it in bulk and put it in the freezer so that he can have meals with meat down the road.
But he grew up without a lot of money and his mother would play a game with him. “What’s the lowest price you can find at the grocery store? What’s the cheapest meal we can make?” So they ate a lot of creative meals but beans go a really long way as a source of protein. And if you can cut the meat out of a meal once or twice a week, that is a huge gain in your grocery budget. I would look at what is your groceries? What kind of groceries are you buying and how are you shopping?
Oh, in episode three with, what was her name? Erin Chase from $5 Dinners. She has a plan where you can make dinners for $5. And Scott, she was… I’m sorry, I’m remembering this show and this is right when we first started. And she’s talking about shopping the sales and Scott’s like, “I’m going to change my whole way of grocery shopping.”

Kevin:
Yeah, that’s insane to me like $5 dinners is one thing. But yeah, I’ve listened to the show for a while and I’ve heard some of these episodes of families of five feeding themselves on $400 a month. And I’m like, “How the hell do you do that?”

Mindy:
Yeah, it can be really, really tough. I don’t know how is able to do that.

Scott:
I bet it helps because sometimes if you live far away in a pretty rural or remote area, you’ve got to buy in bulk and plan it all out for the month or whatever. So I bet that also helps and may skew some of that. Because like Mindy, I think does a pretty good job, is that 650? And I’m probably at 650 or 700 at groceries for the two, me and my wife. So I’m not so great at this one, I probably need to go back and listen to that episode.

Kevin:
And it makes sense though, because the house I live in now, I just moved into a few months ago and before that I was living in the city in Boston. And just by moving like 20 minutes out into the suburbs where now the closest things to me are grocery stores instead of the million takeout joints that aren’t around on my block in Boston, I immediately started spending less. I was spending even more before, I still have a ton of room to cut.
But I knew that was going to happen too like just the act of moving out here. Where now it’s like the two or three closest food places are grocery stores and not the 12 takeout joints I pass on my way home from work. Immediately made it easier but that was a passive thing. And now I’m at the phase of like, now it’s time to get into the active phase basically.

Mindy:
My 650 I need to qualify that with again, we’re recording this on January 4th, so far I’m doing great but it’s only four days in. My 650 is a guess. I really hope to come in under a 1,000. I mean, it’d be really nice to come under 650 but I really think I’m going to blow that out of the water and need to really figure out how to fix my grocery budget. But also Scott said the P word, plan. When you go to the grocery store, do you have a list or do you just grab of what looks nice?

Kevin:
Oh, I have a list but I also grab a few things that look nice sometimes.

Mindy:
Ooh, so here’s an idea, spend money to save money. Have you tried the grocery shopping apps where they shop for you? Because if you give them a list of things, they only give you that stuff. They don’t think, “Oh, maybe you would like these bananas, and this milkshake and these grill bars that I thought looked good.” They only give you what’s on that stuff or a reasonable substitute. So that could be something interesting to try when you’re trying to cut your budget. “Oh, I need 17 things,” only buy 17 things. And if you can’t maybe have somebody else do it for you so that you don’t buy other things. Also don’t go to the grocery store hungry.

Kevin:
Yeah, that also is a mistake.

Scott:
One of my things is I… Well, and by the way my wife will make fun of you because I don’t really go to the grocery store quite as much anymore. So thank you Virginia, for a lot of… But when I was doing this like I would just make the same thing every week and I learned from Erin Chase that it’s a mistake because if you’re a more masterful cook, then I was with three or four recipes that I could make. She can say, “Okay, I’m going to actually modify my whole plan on the fly based on what is on sale and I can see that through the apps or whatever that the stores have and all that kind of stuff.” So that’s probably another tip that is better than I ever did but that might be helpful.

Kevin:
Yeah, I make a lot of the same things despite whether it’s on sale or not.

Scott:
Yeah, so she knows-

Mindy:
Aw, I see a way to cut. But yeah, having a plan and you don’t have to have a whole actual like I stick to this plan specifically. But if you have a week’s worth of groceries or a week’s worth of meals planned out and you say to yourself, “Oh, I thought I had chicken breast and I don’t. But I do have pork chops and that was what I was supposed to make tomorrow.” You don’t have to go and buy that stuff because you know in advance, “Oh, I’ve already got this for the next meal.” So then you can go get chicken later.
Because when you go to the grocery store like you just said, I also did the same thing. You go with the list but you come home with extras. All the things that you’re saying you do, I do too. I’m just sitting here like, “Oh, this is what you should do.” Is that what I do?

Scott:
Well, but again it comes down to, it’s all about the lever in your financial position. And this is the one that is immediately actionable to you in the next couple of months that will save you several $100 with this. Is it going to get you to a million dollars in net worth? No, way. But it will get you to start, begin building you the flexibility. And then you need to leverage that flexibility within the next two years to make a big investment and/or start a business or take an income opportunity or whatever. And the power of this activity right now is, is in accelerating the time when those opportunities are going to be more accessible to you.

Kevin:
Yeah, like I said, I think all this stuff makes sense. All this stuff conceptually makes a whole lot of sense. I think this whole thing is coming down to mindset for me and it’s coming down to this the way that I think about money. It’s always looked like something that was in the way or that was a burden or that was something I didn’t want to think about.
And now I’m seeing it as an opportunity and that’s helping make it easier to make these decisions and help it easier for me to get excited about making these kinds of plans. Because I see that it’s an opportunity and it’s not just like something that I have to do and that money is in the way and I’m like, “Ugh, I don’t want to do this or that.” I’m like, “No, if I do this or that, I get to do this because then I’ll get to do X, Y, and Z down the line.” And that mindset shift has been a game changer for me.

Scott:
Yeah, it’s power over your life and every aspect of it with that, that will accrue over time with that. So this process that we talked about, I think this should be a Q1 goal for you. “I’m going to master this and knock this out so that in Q2, maybe my strategy fundamentally doesn’t change with where the dollars go. But I’ve got such a lock on my spending that I feel like, you know what? Maybe there’s more I can do but it’s really just not a lever anymore. I’m not going to go after 30 bucks in my giving budget at this point with that, I’m good there. Now it’s about income generation or my investment approach that I’m working towards. How I read a bunch of books to become a master of real estate investing or this other thing.”
But just knock this one out as a lever, get control over it so that it’s not so that it’s not a variable in your equation. You can focus on the more fun ones of earning more or investing which I sense that you want to get to.

Kevin:
Oh yeah, I definitely want to get there and that’s why I’m here talking to you all right now. I feel like I can finally see beyond the phase that I’m in right now and I’m starting to think about what the next thing is. And getting a lock on the spending now would just basically, part of that’s going to free up my time and I’m like, “All right…” Just my time and every day of what I might spend doing like hobbies and things.
Now that I’m excited about this and what I can do next. I’m like, “What do I want to learn about next that’s going to be one of those options I can then actually take when I have the money to invest in it?” Whether it’s real estate or whatever it is. That one I’m definitely thinking a lot about is like, how to do I spend that?
I think it was a recent episode I was listening to you both where you say, “Are you willing to spend 500 hours learning about something to really get good at it?” And I was like, “Wow.” I could probably spend 500 hours in the next year or in the next year while I’m paying down this debt so that when it’s gone, I’ve learned a lot and I can just be ready to take the next step.

Scott:
I think that’s perfect. I also think if you’re looking to get more aggressive that we’ve described here… So we talked about, “Hey, cut expenses.” You really have that one category of variable expenses right now with that. The other ones are going to be the bigger fixed ones like when you move next time, can you cut that rent even more with some sort of creative strategy? I don’t know, Airbnbing somebody’s property. I don’t know, maybe there’s a way to do that, the house hack in the interim or something like that.
But it’s really about those variable expenses in the short run and then having a plan for when the expiration date hits on your car payment and your housing payment and whatever. So that you don’t reassume those and you can knock them out and you’re spending permanently decreases by that level ideally for the rest of your life. Because the next time you buy a car, hopefully it’s in cash when you have the financial position to do so.
So then I think it’s like, what are you going to do with the excess cash? Will you put it into some logical order? My preference personally if the goal remains flexibility and that’s actually the primary goal, would be to do an order of operations.
Take the match because that’s a 100%. If it’s a 100% match, it’s a 100% gain on day one. But funnel essentially every other dollar towards the highest and best next use. Pay off the credit card, build out the emergency reserve or whatever you consider to be financial runway. That’s something you’ll have to internalize about your own risk tolerance there where you want to plop that money.
And then I think in the meantime, once you’ve locked that down on the spending side and figured that out you now know, “Great, I’m saving 500 bucks a month, maybe 650, 700, depending on how much control I can get over those variable expenses. It’s going to take me this long to pay off my credit card debt. What can I do in the meantime if I’m motivated to do more in my free time and it’s not going to distract from my quality of life?”
So what I tried to do is I tried to start various businesses every 90 days that required little to no capital or some side hustle. And most of them failed for the first two and a half years. I tried to start a company that sold winter gloves for driving. I brought a proposal to my mastermind group that I had joined about winter tire rentals, the theme there.
And that was a terrible idea because if you buy a set of tires and you rent it out for a year, I pay 400 bucks for the tires, I make 250. But then the next year they may not rent and I just have a pile of inventory that is only going to last me three years and I got to buy more tires for all… Like the cars just have-

Kevin:
Renting tires they’re not rentable for very long.

Scott:
So they talked me out of that. But I tried those and most of them were terrible ideas but then over time things started hitting. My house hack was one of the things that I did which I consider to be one of those things. I wrote the book. And so a number of those began to over time become valuable contributions I learned from each of those.
So that could be a framework to deploy is like every 90 days I’m going to start something that has some potential to either help me learn but won’t cause me a lot of grief and losing my money. And those opportunities will get better and better as your flexibility improves. So that would be another thing to think about once you’ve locked down your spending, focusing on that second lever of these opportunities.

Mindy:
I want to point out that all of your failed endeavors involved, not all of them, but most of them involved holding physical inventory, which is something that you have to put money into in advance and hope that somebody comes and buys it.
Whereas Kevin’s super-duper amazing, marketingandcommunicationscompany.com is $8 for the website or nine or whatever. And then Kevin, I’m assuming that Kevin can put together the website or know somebody who can and then it’s just his time. So if it is a big flop, he spent eight bucks or nine bucks. And he already has a computer, he already has the capacity to do it, he already has the ideas. It’s just your mental space, which is free. And I don’t mean that in a bad way, although it sounds bad. You’re not paying right for that so if it doesn’t work out, you’re not out a huge amount.
And Alan Donegan was on episode 17 or 18 and he has this thing called PopUp Business School, where he teaches people how to do a super lean startup. Don’t go out and buy all the things and then test the idea. Test the idea first.
So I love Scott. I love that your mastermind people told you don’t rent winter tires because I don’t love that idea. I love the creativity behind it but even kevin’ssuper-dupermarketingcompany.com will be able to get you a lot of business there. Or maybe it would, oh, maybe that’s a really great success story, kevin’ssuper-duper marketing. We’re so good we can even sell Scott’s rentable snow tires. But anyway, I just wanted point that out.

Scott:
One day I’ll prove them wrong.

Kevin:
Yeah, if you ever revive the idea call me, will set up the website.

Scott:
That’s great. Okay, what was it? kevinsuper-dupermarketing.com?

Kevin:
Marketing-

Mindy:
Super-duper marketing and communications-

Kevin:
Yes, marketingandcommunications.com.org.

Mindy:
Or if you can’t remember that email Mindy at biggerpockets.com and I can connect you to Kevin.

Scott:
I’m going to remember super-dupermarketingandcommunications.com for the rest of my life. So hopefully this is getting at least some ideas sparking the strategy in the short run with what your cash is going be doing? Is pretty clear cut I think for me, for the most part with that. Depends on how far you want to go without reallocating the capital you’re accumulating, perhaps away from the 401(k) to the debt or not. But it’s probably credit card until it’s paid off and then into that flexibility.
And then if you can knocking it out and saying, “Can I set myself up to try some of these ideas whatever ones look good do at the time?” And if you can go and look back and say, “Hey, in two and a half years I’m going to look back. Where am I at?” Well, I’ve paid off my credit card debt. I’ve built out a year of runway. So I have the FU money if I ever need it from my job. I’m using that to my advantage somehow and I’ve tried 10 businesses or scaled one 10 times over 10 quarters to get to something.
Surely some good outcome in excess of what the formulaic math would tell you would happen over that two and a half year period that would put you ahead of just saving 500 bucks a month times 30 months.

Kevin:
Yeah, that makes a lot of sense.

Scott:
What are your thoughts? Is this answering your questions? Is this helpful?

Kevin:
Yeah, no, it is. Yeah, it absolutely is. It’s real like I said, I keep coming back to the mindset thing. I keep coming back to the framework of, should I be trying to spread things across multiple or should I just focus down and do things one at a time? And that makes a lot of sense. And the thing you just said about the formulaic math versus the unseen opportunities or the compounding effect of what you can do with flexibility, that’s motivating to me.

Scott:
Awesome. And you can’t diversify right now, this is not a good time to diversify. Diversification is great, I’ll vouch for diversification but you have to diversify when you have assets to diversify. So I love the idea of just going all in on the thing that you think is best for a year or two. And then you can diversify when you have hundreds or thousands dollars in assets into 2.5 years to begin diversifying with that. That’s a point where I think it makes more sense to begin with those types of things. Otherwise, you’re just going to ensure that you have a small pile that doesn’t lose money versus using that flexibility to go after big opportunity.

Kevin:
Right, okay. Well, it sounds I need to talk to you in two and a half years when I have my super-dupermarketingcommunications.com-

Scott:
90 days, 90 days.

Kevin:
Oh yeah, that the website will be in 90 days. Yeah, okay, makes sense. I’ll call you and we’ll spin up that tires idea.

Scott:
Sounds great.

Mindy:
Oh, did you hear that Scott? We’ll spin up that tires idea, he’s just like you-

Scott:
Yeah, I like that.

Mindy:
Thanks Kevin.

Kevin:
Yep, that’s what I do.

Scott:
He’s like, “I’m not sure I’ll give us some credit for that one.”

Mindy:
Okay, Kevin, when you have your website up and running, let me know and I will make the announcement in the Facebook group. “Hey, remember Kevin from episode 270? Well, now kevin’ssuper-dupermarketingandcommunications.com is up and running-”

Scott:
Rolling.

Mindy:
“So I will give you a plug…” Oh, it’s rolling, yes. “His first client is Scott so he’s lost money on Scott’s stupid idea. So he needs more clients so call him up.” And then, because self promotion is not allowed in the Facebook group but it’s my group so the rules don’t apply to me and I can post anything I want. So I will post that for you so let me know. So hurry up.

Kevin:
Will do, I got nine bucks.

Mindy:
Okay, Kevin?

Kevin:
So I got nine bucks.

Mindy:
What? You got nine bucks, there you go. Okay, Kevin, this has been so much fun. I’m super excited for you, you’ve got a slog ahead of you. But just by talking to you today I know you are going to crush it.
And when we check back in on you in two and a half years, you have to reach out to me, remind me that you have crushed life and you want to come back and share it with everybody. Everybody else will know too that you have absolutely crushed it and you are well on your way to becoming a millionaire by age 40 simply because you are doing what is different.
You’re not swiping your card, getting the decline and saying, “Oh, I guess, that’s just part of my life. You are taking action to make changes and that’s how it works. So thank you so much for your time today and we will talk to you soon.”

Kevin:
All right, thank you both.

Mindy:
Okay, that was Kevin. That was his fantastic story and that again you can find him at kevin’ssuper-dupermarketingandcommunicationscompany.com, maybe. He’ll probably shorten that because that’s kind of a mouthful. Scott, what do you think of his story?

Scott:
I thought it was great. I don’t think he’ll probably be filing for trademark for that particular corporate name in spite of your great suggestion, Mindy. But I think it was a good episode.
One of the observations there is, and I have to imagine this is frustrating to Kevin and perhaps a lot of people in his situation that are just getting started. Is we talk about the four levers and there’s so many different ways to think through.
Hey, if someone comes on our show and they have five properties and some syndication investments and a 401(k), these other assets and two or three different sources of income and a variety of different expense buckets that look like they’re a little over.
Now we can go through and we have a complicated discussion about which area to focus on and which is the biggest lever in that situation that depends on their net worth, their income sources, their spending. If they have a business or any income that they can control? How we can think about those?
And when it comes to Kevin’s situation and folks are just getting started on this journey or have debt and are in the hole, we really have to keep that focus on that first lever of spending less and getting complete control over every dollar is going. And say that the strategy here is understanding that it’s a grind to get through that and control that and sustain it for years really to pay off that debt and build that financial position. And then the game begins to open up a little bit more when that flexibility is built and there’s investment opportunities or income opportunities with that.
But really that’s the most powerful lever when someone’s just getting started. And it’s getting control of every dollar, knock it out and know that I’m going to have to sit on that. Self educate and prepare myself for that opportunity that’s going to come a year or two years down the road as I build out that stronger and stronger financial position to make that first house hack investment or that first serious business opportunity or that career change or whatever to scale my income. And begin applying those other levers in the journey.
But in the meantime, there’s one major lever that makes the big difference and it’s that control of that spending, that’s the one that is within your control and ability to change in the short run.

Mindy:
I was struck by the parallels between our advice for him at the start of his journey and our advice for people who are in the middle of their journey and doing well and just waiting for their wealth to grow. It’s a slog. And right now he’s paying down his debt before he can start waiting for his wealth to grow. But it’s a slog to pay it down and you have to just keep going and keep doing what you’re doing. And it’s proven that this will work.
But it’s just like the higher net worth individuals that we talk to who are, “I have $200,000 in net worth and I want to retire with a million or 2 million.” “Well, keep doing what you’re doing. You’re doing great, keep going.”

Scott:
Well, actually, I’ll call that out. I think that is an important takeaway and I have a slightly different twist on that, now that you said that with that. I think his situation parallels to an extraordinary degree a household that might have two or $300,000 in 401(k) assets and $200,000 in home equity and a net worth in the four to $500,000 range but still only has one to three months of emergency reserve. They may have a cleaner financial position but they’re really not any closer to flexibility than Kevin is in terms of his journey with that.
I think it’s a powerful takeaway for me from this is, if he can build that out and build that flexibility so it’s outside of those retirement accounts and outside of that home equity as the primary drivers of his financial position. He may be able to get into a flexible financial position that is capable of supporting him for several years or at least a year within two and a half years and sustaining that for life.
So I think that’s an important takeaway of where you build your wealth can have a huge impact on your flexibility if that is in fact one of your goals from finance, which I think it should be.

Mindy:
I think that’s really key Scott, where you build your wealth has a huge impact on where your flexibility is. Because yeah, I’m a big proponent of the 401(k). I like the 401(k) for the multiple benefits. It reduces your taxable income, it gives you a way to invest for your future.
But you also, especially if you’re planning on retiring early, you need to invest for the years between the time you retire and the time that you can take your 401(k) without penalty because you’ll always pay taxes on your 401(k). But why pay a 10% penalty if you don’t have to?

Scott:
And personally I’m a little cocky or arrogant perhaps with that. But I thought and think that if I was repeating my journey, that money that was in my bank account or accessible to me was going to do me far more advantage because I would find a way to use that to pursue an opportunity in excess of what was in the 401(k).
Not that I’m averse to the 401(k) or the Roth or retirement accounts in general, I do contribute to them, especially today with that. But in the first four, five years of building wealth, I really didn’t contribute that much to my retirement accounts. And I instead put all those dollars into my savings account essentially and buying rental property or investing after tax in index funds that I would have that flexibility.
And to me, I thought that that gave me a great advantage in my life in seizing opportunities or going after investments that I couldn’t have done if I had tried to max out those tax advantaged accounts in the early years. I don’t know what the right answer there is. I think it’s an art but I think that flexibility needs to be considered and is a worthwhile debate.

Mindy:
Another person who did that was Craig Curelop in episode 35. He had $80,000 of student loan debt and chose to pay the minimums on those and aggressively pursue rental properties. And renting his property out on Airbnb and living behind the curtain and sleeping on the couch so he could rent out his bedroom. And really aggressive, I think that’s the best word to describe his journey, is he aggressively pursued different ways to generate income so that he could pay off his student loan debts without having to sacrifice from his job.

Scott:
One thing that I’m really interested in is, I think that there’s a lot of Baby Boomer businesses like the services businesses, HVAC Plumbing, janitorial carpet cleaning. And I go on Colorado buy biz sells sometimes and look at these businesses and they’re selling for one times cash flow. So that’d be like a rental property selling for 300 grand, that produces 300 grand in cash flow next year with that. You can buy these businesses with 50 or 60 or $70,000 down with a small business loan and perhaps seller financing because there’s nobody buying these businesses. There’s nobody that’s in those markets with that.
And I think that if I was starting over again right now and trying to do that, I would buy the house hack with my finance runway. But I would be thinking about is there an opportunity in some sort of business like that, that’s earning the two, $300,000 a year range, that’s got an owner that wants to sell? And is there a way to put myself in position for that? I don’t know why I’m thinking that but that’s something that I would be interested in I think right now, if I was starting over.

Mindy:
Oh, sounds like we’re going to have a conversation as soon as I hit stop recording, Scott.

Scott:
Yeah. If anyone is doing that, if anyone owns a business like that or has bought a business like that or interested in exploring that, please reach out to me. It’s [email protected]. I’d love to hear from you and maybe that would be a good BiggerPockets Money Podcast show. We’ve also had a number of shows on that on the BiggerPockets Business Podcast if you want to go back and listen to any of the archived episodes on that, especially the one with Nigel. I’ll find that one in a moment here.

Mindy:
Nigel with the hard last name?

Scott:
Yes, Nigel. I’m not going to try to pronounce it right now.

Mindy:
No, no, try to pronounce it, that’ll be fun.

Scott:
Nigel Geisinger, Geisinger.

Mindy:
Geisinger.

Scott:
Geisinger, Geisinger, yes.

Mindy:
Geisinger.

Scott:
All right, Nigel. Oh, but that BiggerPockets Business episode 51 talks about this concept a lot and I really enjoyed that episode. So go back and listen to that one if you’re interested in this. And if you have bought a business or operated business of the type that I just described, I’d love to hear from you or hear about your experience and maybe bring you on the BiggerPockets Money Podcast here.

Mindy:
Yes, that’ll be a lot of fun. Okay, this episode wraps up our January 2022 month, and Finance Friday episodes. We are always looking for more Finance Friday guests so if you would like to join us and have us go through your finances, please reach out or please apply at biggerpockets.com/financereview.
And if you’re not part of our Facebook group, go join. We have a lot of fun talking about money and nerd stuff. So facebook.com/groups/bpmoney. Okay, Scott, should we get out of here?

Scott:
Let’s do it.

Mindy:
From episode 270 of the BiggerPockets Money Podcast, he is Scott Trench and I am Mindy Jensen saying, may the raisins in your cookies always turn out to be chocolate chip instead.