BiggerPockets Money Podcast 49: Wealth Transfer—How to Financially Prepare for Inheritance Money with Hari Mix

by | BiggerPockets.com

Hari Mix figured out money in grad school and started saving for his future before he graduated. He became an assistant professor at Santa Clara University—and then, his mother was diagnosed with terminal cancer and his whole focus shifted.

Today, Hari shares his experiences with his mother’s passing and how discussing it before she died made it easier for him to manage her estate afterwards. He shares some REALLY great tips for ways to handle an estate, including having all your documents in order and having a will.

This episode gets pretty deep into topics that no one ever wants to think about, but that everyone will have to deal with, both with their parents and for their children. Having a will is a great first step, but there are lots of other things you can do to ease the financial transfer burden—and things you need to know before making any moves. The more prepared you are, the easier this process will be during one of the most difficult times of your life.

If you’re in a position to inherit wealth from a parent or transfer wealth to heirs upon death, this is an episode you cannot miss.

Click here to listen on iTunes.

Listen to the Podcast Here

Read the Transcript Here

Welcome to the BiggerPockets Money Podcast, show number 49.

Really if you look at people managing windfalls across the board, a lot of people lose them, like a lot of people squander it. You hear about professional athletes you hear about lottery winners like being broke within five years after getting that money. So those are people who don’t have a plan to really hold onto it for the long term.

Now your audience is probably not in that crowd, if they’re listening to this they’re probably much more likely to have a plan for themselves and stick to it. But none of us are immune to these behavioral things and I think it becomes much less of a math problem and much more of a behavioral problem.

It’s time for a new American dream, one that doesn’t involve working in a cubicle for 40 years barely scraping by. Whether you’re looking to get your financial house in order, invest the money you already have or discover new paths for wealth creation, you’re in the right place.

This show is for anyone who has money or wants more, this is the BiggerPockets Money Podcast.

Scott: How’s it going everybody, I’m Scott Trench, and I’m here with my co-host, Ms. Mindy Jensen. How are you doing today Mindy?

Mindy: Scott I’m doing pretty good, I actually hit my finger with a hammer this morning I was trying to fix my daughter’s flooring and I think I broke the tip of my finger which is my pinkie finger. You wouldn’t think that that would be such a big part of your life, but when you spend a lot of time typing you would be astonished at how many letters you use your little pinkie finger for. So I always say that I’m having a great day, today is the tip, just the tip is really painful.

Scott: Oh well you nailed this episode.

Mindy: That’s awful, Scott.

Scott: Sorry I couldn’t resist. Sorry for that.

Mindy: Okay so today we are chatting with a man named Hari Mix who reached out to me when I commented that we were looking for guests who could speak to financial windfalls. And Hari has sort of a bitter-sweet story of inheriting a fairly nice chunk of change when his mother passed away. And he learned a lot about estate planning both through her illness and then after she passed.

And there’s a lot of different things that go into the transference of wealth at the end of a life. And this not necessarily like the most happy-go-lucky episode of our podcast, but if you have parents who’re living, you’re going to need this information at some point. And even if you don’t, if you are a parent if you have any sort of estate at all, you are going to need this information. So I really wanted to present this because there’s a lot of things that I learned during this episode as well.

Scott: I think that’s a great point and I think that he mentioned something really important on the episode which is that this is particularly important to you if you plan to build a large estate over the course of your life. Which is going to happen FYI newsflash if you’re listening to BiggerPockets Money Podcast and working toward early financial freedom.

Going to build a portfolio of millions of dollars in your 20s, 30s, 40s, you’re going to have very high odds of passing on a very large estate. And the importance of this kind of creeps up dramatically as the value of the estate gets bigger.

Mindy: Yeah. And even if you don’t have dependents, if you’re just piling up this big wad of cash, it’s all going to go away if you don’t tell it where to go.

Scott: Absolutely. Yeah there’s a whole bunch of different things you can do with it if you don’t have a dependent, you want to donate it or whatever set up a trust, he’s got a bunch of really good tips on how to just take control of that whole process. So definitely it was great episode and I think very important even though it’s going to be an uncomfortable topic for some people to hear.

Mindy: Yeah I think it’s going to be uncomfortable for most people to hear. And I do want to point out that Hari is nor an estate planning professional. He is a professor in Santa Clara, was that what he said? I think so, well he’ll tell you in a minute.

But this is all of the things that he discovered as a person who had to actually go through this fairly recently. So I thought it was really great that he could give more of layman’s perspective of what you need to do when you’re facing these same choices- choices is not the right word- when you’re facing these indecisions.

Scott: Yeah and facing the discussion even before you have a decision.

Mindy: Yeah facing the discussion and then the decision.

Scott: Thought I just phrased it.

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Mindy: Okay huge thanks to today’s show sponsor. Hari Mix, welcome to the BiggerPockets Money Podcast. How is it going today?

Hari: It’s going great, thanks so much for having me.

Mindy: Thank you so much for reaching out and answering our call for people who have happened into a financial windfall through whatever set of circumstances. And I’m really excited to start into your story. But first before we get into the whole how to deal with a financial windfall, let’s talk about your journey with money. And can you walk us through where your journey with money begins?

Hari: Sure. I think really a good starting place is just with my parents. My dad was a high school teacher and my mum was a nurse. And we were middle class but I never felt deprived with money. They were always very frugal, they had a good long term vision and they kind of prioritized savings and definitely didn’t like debt.

So that was kind of like where I got my vision with money and I started kind of having a long term vision with money, prioritizing experiences and bigger ticket items when I was growing up. Kind of let’s see here, coming out of college and starting into Grad School is really when I started to have my kind of money. And I was able to max out my Roth IRA each of those years.

So even with a small stipend I was able to kind of prioritize savings and long term goals for retirement. So that’s really where it kind of all started for me. Then kind of getting into post graduate school I got a job as a professor at St. Clara University. And that was when I kind of preparing for that is really when I started to have my main education around money.

And I just started reading a ton, I realized that I was already saving money in grad school and I knew that I’d be making a lot more money after that. So I really started to think about okay what do you actually do with major savings and things like that? And one of the kind of places that I initially found was the whole Bogleheads Community and kind of the Vanguard kind of diehards and all that stuff.

Actually when I was doing my Roth IRA and everything it was actually at Vanguard just by chance, but I was actually invested in active funds, I didn’t understand why do I want to be average? And I didn’t get what passive investing was all about but really in 2013 is when I started to get my knack for it and really understand what passive investing was about.

So as I was starting my career at age 28 is when I started maxing out on my retirement accounts that were available to me a work and really kind of all in on the index fund investing train. Fast forwarding a couple years is really when we enter I think kind of chapter two. And that’s when my mum got diagnosed with terminal cancer.

And I took leave from the university and I went home to Virginia to take care of her, and that’s when I really started to get a sense of like what her finances were like, what kind of her arrangements were like and her affairs were like. And I started taking over them. I was also taking over all my grandpa’s affairs at that time.

So he is over 100 and she was taking care of him and all his affairs. So I basically started managing both sets of their finances and I mean at its peak it was just a mess. I mean there were probably over 100 different accounts when you factor in everybody’s bills and utilities and taxes and insurance. And really it was just a monumental amount of work.

So I got this kind of crash course in estate planning and what happens at the end of life and also how to take care of someone who’s in advanced age that’s not you. And then I also started to kind of manage my own affairs. After my mum died I inherited some money and it was definitely enough to where it changed my financial position and my financial goals.

So I ended up creating my own estate plan. So kind of zooming ahead to today, I’m still taking care of my grandpa’s affairs he’s 104 and I’ve got my own affairs to take care of as well. And I’ve now wrapped up everything all the loose ends that were there from my mum’s life.

Scott: Did you say if you have any siblings?

Hari: I’m an only child. However my dad has remarried and I have some step siblings.

Scott: Okay.

Mindy: Okay so your step siblings I’m assuming don’t factor into your mother’s financial affairs. Is that correct?

Hari: Correct yeah.

Mindy: Okay. And shout out to your 104 year old grandfather.

Hari: Yeah. He’s doing it and his story also I don’t know if you want to go there but he’s really an unbelievable testament to the power of long term investing. I mean his entire life he’s just been invested entirely in the stock market. And he was unbelievably frugal like more than Mr. Money Mustache frugal.

Like there were years when he was spending $5,000 and investing the rest. I mean absolutely ridiculous so he was actually kind of the primary wealth generator of our family. And I really owe a lot to him I think there’s no way that I would have gotten through college debt free without my grandfather’s help.

So it’s pretty unbelievable and it’s a proof in the pudding right that if you actually stick to your plan and have enough of a long term vision a long term scale, you’ll do unbelievably well.

Scott: So what are some of the kind of first tips that you kind of say when you’re looking at a family member’s financial position? Like how do you begin approaching the problem of saying, “My loved one is going to pass away but there’s also this financial component I’ve got to deal with, like this is business I have to take care of business in the process as well.”

Hari: Yeah fortunately my mum was really honest with me. I didn’t know that much about her affairs before her diagnosis. I had a general sense but I didn’t know specifically what the accounts were, where things were held, how she did things, what her organizational strategy was. And it really helps if you’re open and honest with your family about this stuff. And if you’re not you’re going to leave a mess.

I think Mindy will probably say this in the podcast bus just because you pretend something isn’t there, it doesn’t mean that it’s not. So really making sure that you’re actually on the same page and just being open and having good line of communication. So when the time was ready I mean she was resistant to it.

I mean I think she was kind of grappling with the idea that she was dying. But she opened up to me and first just kind of shared things. Step two for us I think was getting me on some accounts. She added me as an owner to her checking account for example so I could take care of basics.

And then some of the other bigger investment accounts and things like that we ended up just having me sort out later. So it was kind of a combination. But getting the person up to speed. She had one big filing cabinet and there was a lot of information in there.

Mindy: Yeah. So I’m coming at this episode a little bit different than maybe Scott is. I don’t know the age of your parents Scott but my parents have, I think they’ve kind of accepted that at some point they’re going to pass away and they’ve started gathering up all their financial documents and putting them all in order.

They haven’t shared exact dollar figures with us but they have shared, here’s three people that you need to contact once we pass away. Here’s this guy does this and this person does that. My cousin is an accountant and he is the executor of their wills. So he’s been given all this information too which is really nice to have this all in.

And as uncomfortable as this subject is and as I want to just stick my head in the sand, like you said just pretending that it’s not going to happen isn’t going to happen. Spoiler alert, if your parents are still living they’re going to die. And that is not a happy thought at all but ignoring it is not going to make it go away. So that’s what this episode is today, is just sharing some tips.

And you’re going to have to have an uncomfortable conversation with your parents. If you’re older you’re going to have to have this uncomfortable conversation with your children. But do it so that it’s easier on everybody involved for when the time comes.

Hari: Well and just to your point like just take my family for example. My grandfather had both of daughters die before him, right. They both died of breast cancer so I’m charge. And that wasn’t the way that it was set up, nobody assumes that the children are going to die before the parent but it does happen and it just happened in my family. So it’s really remarkable and if you go all through one person or if you don’t have good organization, you’re kind of setting yourself up for a mess.

Scott: I think another piece of this to consider is making it really clear what you want to happen with your money prior to having these situations go through. Because if you’re not clear, I’ve observed in the past that it can have some really negative consequences when people are not understanding, what was the intention behind certain things?

Whose money is whose especially if there are multiple areas to the estate, which I think there can be a problem there. So I mean in your case it’s very simple because there’s one person you can be able to handle that and in some ways that might have helped simplify a couple of things. But in other cases it may not be quite as simple as that and your function becomes even more important in these types of situations.

Hari: And that’s the situation I’m in with my grandfather. There are multiple beneficiaries. It sounds really morbid to lay all this stuff out and actually put it on paper. But the exact opposite is the case that if you don’t say anything about it, you actually lose control. You lose control of what you wish for because nobody knows. So then it goes through whatever procedure is out there.

Mindy: That is a really good point. You will lose control of what you want. You want all of your beneficiaries to receive 30% each or 33% let’s say you have three of them as in my case there are three of us. Well but 100% isn’t divided by three evenly.

So somebody is going to get 33% somebody else is going to get 33% and then somebody else is going to get 34% or 33.3 and then 33.4. Like whatever it doesn’t go evenly. So you need to specify that and depending on the size of the estate that could be a sizable chunk of change. That’s a really great point that you lose control. I’m sorry Scott.

Scott: I was going to ask what happens if you don’t have this all set up? So what’s the kind of default process that goes in if you got nothing set up?

Hari: It goes into probate court and it takes potentially over a years and it costs potentially tens or hundreds of thousands of dollars. It depends on the dollar amount of how big your estate is. And then the beneficiaries in all that just get distributed according to what the law is. I can say one thing about my grandfather’s estate.

He had it set up that basically my mum and my aunt were going to split it. But they both died before him and he didn’t have a set up. So we actually had to change all his estate planning documents so that it continued on to the grandchildren. So there are procedures for all these things.

But it’s much less pleasant to go through the probate process and what we might talk in a bit about setting up a trust which is one way to avoid probate. And that’s what my mum had and that’s what my grandfather has and I’ve actually set up a trust of my own. So yeah you can get a lot more control that way than you can get with just a will.

Mindy: Okay. So let’s start at the very beginning. Your mother gets this awful diagnosis and you fly back to-did you say Virginia to take care of her?

Hari: Virginia. Yeah.

Mindy: And the first thing you did is talk to your mum about her finances.

Hari: Yeah I mean obviously we were talking about other things.

Mindy: Not the very first thing.

Hari: But yes. She opened up kind of her financial world to me and showed me how to pay all her bills and which accounts she had where and all that. And we started to kind of get that organized. She added me on as a co-owner of some of her accounts like for example her main checking account so that I could at least pay basic bills and things like that.

There were some other accounts that she added me on as well but she basically kept her own kind of investment accounts and things like that. But basically she brought me up to speed on all of her kind of things. And she was very one of these manual type people like every single thing was done by hand, writing a check every single bill whatever.

So I actually was taking the lead in terms of when I was organizing her affairs I was starting to put everything I could on auto pay and on a credit card and just basic stuff so that kind of automate things and really simplify things down, and reduce her paperwork load.

She was signing some things even very late in life and I just felt horrible for her because she was so sick, and she was still insisting on writing the check. And that was becoming hard for her. So I just started taking more control and just taking more things off her plate as the time went on.

Scott: Let’s move on to the estate of your grandfather because that has some more moving parts it seems like. How did that discussion go with the other heirs? What did that process look like?

Hari: It was weird because they were kind of out of the loop and my aunt was still alive at the time so the kind question was really whether or not I was going to do it versus my aunt. But she wasn’t as fully functional as I was and I was probably the more logical person to do because I was already taking care of it at home with my mum, because my mum was really the one who was taking care of it.

So I had all my grandpa’s documents and everything like that I mean I was basically masquerading as my mum handling a lot of my grandpa’s bills and stuff and trying to put them on auto pay, and trying to get his property tax paid on time and all that kind of stuff. So I think I was the logical person to kind of take over that.

And I wasn’t actually in communication with the other grandchildren at the time. It was more of just like kind of rise to the occasion type of a moment where I just did what was most logical. And I was receiving my grandpa’s bills in the mail and I was paying them. It was kind of just fight or flight just we needed to do that to kind of keep everybody up and running.

Scott: Let’s think through, you said your grandfather owns real estate, right?

Hari: He has just a personal residence. But the rest is basically in the stock market, individual companies. He started investing long before index funds were out there. He was born in 1914, so he was investing probably in the 20s or in the 30s.

And so a lot of these companies that he was investing in have like merged several times. It’s just that no one today would ever design a portfolio like this. It’s extremely complicated. He’s got hundreds of individual securities because these go back to paper certificates in the great depression.

Scott: But let’s start what the property does. Suppose that that gets passed along in between three heirs, right. How do you kind of focus that? Is it just like a vote porality to sell or keep it as a rental or that kind of thing? Like how does that kind of work and what do you have to kind of do if you’re passing on real estate in a will?

Hari: Great question. So and I’m not an expert with this because that’s not what’s going to happen in my case. I have spoken with the other kind of grandchildren and nobody wants a house in Green Valley Arizona. So this is going to be easy we’re going to sell out and the proceeds are going to get distributed.

If it is that someone wants it, they can usually I think the way to do it is that they basically buy it out. Right say he’s got an equity portfolio and he’s got a house and somebody wants the house. Well then they can just deduct that amount from the remaining kind of liquid part of the portfolio.

I think things get messier when there aren’t really many assets and there is a house that’s not easily divided, then you have to have a much harder conversation about who’s going to get what and how. But in the case of my grandfather he’s got enough of a portfolio that if someone wanted the house they could just deduct the amount that they get from the proceeds of the portfolio.

Scott: Did you talk to a professional in this process?

Hari: Yes. And I highly recommend doing that.

Scott: Okay so who do you talk to? Who’s the professional that you talk to?

Hari: So in our case what we did is we looked up the American Academy of Estate Planning Attorneys, I think that’s AAEPA.org, don’t quote me on that. But yeah that’s what I did for my lawyer and for my mum’s lawyer. He was a member of that and actually the first lawyer I’d ever really met in a professional setting, was my mum’s estate planning attorney because we had to get some of her stuff changed.

And I asked him, I was like, “Who do I talk to if I want to find someone like you out in California?” so this is group that he was part of. So whenever you’re doing something that involves letting a trust or something like that, you’re going to want a real attorney. Although I do believe there are ways of doing this online if you want kind of lower key one, in the same way that you can get wills online I think you can get other documents online as well. But I don’t have experience with that.

Scott: Yeah I’ve seen those as well maybe we can link to a couple on the show notes but I don’t think I can remember any off the top of my head.

Mindy: Yeah.

Hari: Right LegalZoom or things like that, Nolo.

Mindy: Would you recommend contacting the estate planning attorney before your parent passes away? Like at what point do you contact them?

Hari: Well it’s whenever you kind of need anything but I would recommend kind of keeping the line of communication open. And then I would also recommend calling them for sure after the passing. So in my case with my mum’s stuff we had changed some stuff and we were in good communication beforehand.

And I didn’t actually need any of his assistance afterwards. In the case of my grandfather, we needed some things changed and I was in communication with him because that was really critical. Because my mum was dying and she was the one that was actually formally in charge of my grandpa. So we had to actually really quickly get documents available for me to take care of my grandfather.

So that was actually one of the more stressful aspects of my mum dying frankly was that my grandfather was still alive. And he still had needs on a day to day level and I couldn’t pretend to be my mum anymore. Like I had to actually step up and be legally in charge. So there were a lot of things that were really hard for me to do.

Right in the wake of my mum’s death I had to be in touch with the IRS I had to be in touch with social security and Medicare and his health insurance. And it’s hard to like convince the IRS that you’re in charge of someone else. You have to go through some serious hoops and that was one of the hardest things following my mum’s death.

Following my grandfather’s death or anticipating my grandfather’s death it’s not going to be nearly as hard because there isn’t anybody else that’s kind of a dependent so there’s no like kind of ruff. But I felt like I was really under pressure after my mum died because I still had a living grandfather.

Scott: I’m going to kind of maybe change the subject a little bit and get into investing the proceeds of an inheritance right investing an inheritance because that seems like it’s a lifetime of wealth accumulation that you’re going to inherit all at once in one kind of like lump sum. And do you have a different approach to doing that than maybe just like investing all of it in the index fund all at once or is that what you do? Like can you walk us through your kind of philosophy into to that?

Hari: I have a written investment policy statement. And I made in a modeling office some of the ones that are on the Bogleheads forum. So I plan on plugging the money into my plan and again I have my plan in writing in advance and it basically says where my newfound money goes from whatever source. I will say this and this is the standard advice for any type of solid inheritance, something that’s a sizeable amount of money.

If it’s large enough where it’s going to change your plan, they really emphasize not making any major decisions quickly. So setting the money away for six months or something like that at least, in my case it’s two years since my mum died and I’ve now bought a house that I wouldn’t have bought otherwise.

I had enough money for the down payment all that kind of stuff. So that was two years or maybe a little bit over a year before I bought the house. So basically don’t make any major decisions if it’s enough to really change your plan. So in my case I went from having a great start in my career and was solid investing plan maxing out all the retirement accounts and a taxable account.

But then I kind of jumped up with my mum’s wealth to being kind of lean fire I would say is where I am now. And that’s enough where it’s a big life change.

Scott: I love everything you just said like all that makes perfect sense, right. And you have a written investment policy statement that you refer back to whenever you have a different…

Hari: Right yeah.

Scott: Let’s go through that. Can you walk us through that?

Mindy: Scott smiled when you said that.

Hari: You want to walk through it? Is that what you want?

Scott: Yeah that’s it I’m very excited, yes I’m champing at the bit here you can see.

Hari: Alright. Right upfront I say this is my side hustle. Do it yourself, no one will care about your money as much as you do. When I get into kind of the investment philosophy, it’s a quote from Jack Bogle and again I’m actually plagiarizing this from where I found this online. But I liked it so much that I had to use it.

It says: Buy and hold long term, all market index strategies implemented at rock bottom costs are the first of all roots to the accumulation of wealth. And we won’t go through necessarily every single sentence on this but my asset allocation is basically 50% US 50% international all equity index portfolio. Most of it’s at Vanguard so my work stops at Fidelity. But that’s basically what I’m doing.

And that’s the plan that I think I can stick to and I’m keeping it aggressive. Even though I inherited money I’m keeping it aggressive because I’m 33, I feel like I’ve got a long enough time horizon where I would actually be able to see this stuff grow in the meantime. So I’m trying to just do that. Now I have added one thing to my asset allocation which isn’t on this plan.

And that’s that I have basically bought an investment in commercial solar and it’s basically a debt style investment and I’m running 7.5%. And the reason I did that is because I didn’t want this very volatile portfolio where I live in the Bay Area now where there’s really high housing costs. And so I wanted to basically be able to pay the mortgage with a really steady income.

So that’s basically what I’m doing. The solar is actually paying for the mortgage and then everything else is just kind of on auto pilot in the stock market just growing. So I’m trying to not really have very large withdrawal.

Mindy: Wait. What is this solar investment that is paying your mortgage? How does that work?

Hari: Well I mean I’m earning 7.5% and my mortgage is 3.75%, so I’ve got a sizable chunk in this commercial scale solar investment. And yeah basically I actually set up at Vanguard I have an account that basically is just a money market account. And I have ACH transfers come in from the solar and ACH transfers go out for the mortgage.

And yeah the solar is bigger than the mortgage. So I’m just on autopilot here and I’m loving it.

Mindy: That’s awesome.

Hari: Yeah. And again I did because I was scared of being in an economic downturn and then having to sell chunks to cover the mortgage. I didn’t like that idea so I took so chips off the table and put them into something else that I really care about. And it’s somewhat similar to having rental income in real estate. I know this is a real estate based kind of crowd.

And yeah it’s really hard to get good rental real estate in the Bay Area, I mean it’s ridiculously expensive. Basically none of the numbers work I mean you can’t cash flow a house out here like at all. So I wanted to do something similar and this was very easy and fit my needs really well. So yeah basically if I were in lower class of living area maybe I’d be a landlord or something. But being out here I wanted to do it solar route.

Scott: So I got a question here about the large chunk of money thing. So say I have this written philosophy and it’s invest everything in equity index funds long term buy and hold. So suppose that I inherit a million dollars and that’s way more than my yearlong accumulation. Let’s assume I’m accumulating 50k a year or 25k a year in savings.

And I accumulate a million dollars after tax from an inheritance. Now I’m at really extreme risk to the market going down next year rather than if I maybe dollar cost average. Is that what you’re talking about to kind of change your plan? Does that kind of change the philosophy a little bit in those types of circumstances or how would you think through that problem?

Hari: I’m not talking about dollar cost averaging and I’m actually not a big fan of dollar cost averaging. The math kind of shows that it’s just not as good as lump sum investing and the marketing is tending to go up. You could get really unlucky but you could also lose that dollar cost averaging as well. So I’m not a big fan of that.

What I would say is if you get a big chunk of money for any reason, if it’s big enough like you’re talking about where you had 50,000 and then you go to a million, you need to probably revisit your investing plan. So maybe you’ve got a written investment policy statement that made perfect sense for you before, but it doesn’t later.

So you can go and think about it, spend some time. I wouldn’t make any decisions right away. You can also meet with professionals like meet with a certified financial planner or somebody like that. And actually I did. I talked to a CFP at Vanguard after all this and wanted to kind of revisit my investing plan. He basically said, “Go for it.”

So that’s what I would do. I would definitely spend some time after a major chunk. If it really changes your whole financial picture, you should definitely revisit your investment plan and make sure it’s still going to work for you in the future.

If you’re the type that-I’m not but if you’re the type that once you’ve won the game stop playing kind of crowd, then you might actually take a bunch of risk off the table and go more into safer investments. Again I’m not but that’s also due to my kind of personality and my age.

Scott: And I’ll chime in that I think that this keep it your investing statement, your written policy for all this is critical to doing the right thing when it comes to this estate planning stuff. Because if you don’t have this in place then you’re doing a disservice I think at some level to maybe the person who passed on if you don’t have a plan that’s going to actually improve your life or the life of your children and your family going forward.

So I just love the fact that you did that and had this all in place. And that your first answer is go back to your written financial plan if you inherited an amount of money that is more than, that changes your plan.

Hari: Yeah and having it written down definitely helps keep you on path. The fact that you can write it down, print it out, whatever it is, that will keep you on track much more than if you just have an idea in your head because that idea can change on you. And really if you look at people managing windfalls across that board, a lot of people lose them.

Like a lot of people squander it. You hear about professional athletes you hear about lottery winners like being broke within five years after getting that money. So those are people who don’t have a plan to really hold onto it for the long term.

Now your audience is probably not in that crowd, if they’re listening to this. They’re probably much more likely to have a plan for themselves and stick to it. But none of us are immune to these behavioral things and I think it becomes much less of a math problem and much more of a behavioral problem.

Mindy: So how did you come up with your investing plan originally and how much did it change after your mother passed?

Hari: I think originally it was just reading like intensely. Reading this stuff like several hours a day. I was reading all these the same types of stories that I think a lot of your audience read, like a lot of the online blogs and things like that. I was reading quite a few books on investing and I was just becoming more convinced in the all equity kind of path that’s also internationally diversified.

So that was basically my plan and I basically haven’t changed it. I didn’t change it after my mum died. What I did do after my mum died again in some time was do this solar thing which is kind of at a left field and I bought a house. Beforehand I was pretty much a diehard renter and living very frugally. No car in California from 2004 to 2016 all that money was basically getting saved.

So I loosened the purse strings is one of the major things I did. I actually inflated my lifestyle. Hopefully not extravagantly and hopefully not in a way that’s going to like where there’s any financial disaster in the future. But I definitely inflated my lifestyle.

Mindy: Well so this is a not necessarily frugality podcast but definitely a be conscious of your money. How did you inflate your lifestyle? Because I think your idea of inflating your lifestyle might not be the same as what other people think.

Hari: Yeah I mean there are a few things like for example this year we’re doing a lot of different jobs on the house like major kind of CapX if you will. But I’m still keeping it within bounds in terms of safe withdrawal rates and things like that. And I know the 4% rule gets kind of cited a bunch.

But yeah I’m trying to keep basically my spending out of the portfolio at a very sustainable level. So I’m basically yeah doing that. The mortgage is large, like it’s California. So that’s one aspect of this that that alone has really led to an inflated lifestyle, having that big expense each month compared to where I was living before.

Mindy: Well but are you actually spending any money on your mortgage because you’ve got the solar that covers your mortgage?

Hari: Yeah that’s true.

Mindy: So isn’t your lifestyle a little bit less because now you’re not paying rent?

Hari: You’re right but at the same time money… so I mean money coming in, money going out. It’s nice mental accounting for me to say that I’m paying my mortgage with it. But really I just have income coming in and expenses going out.

Mindy: Okay. So we have I mean this is very interesting, how you’re investing and the plans that you have. That is all very interesting but we’ve kind of strayed a little bit from the estate planning and like the main topic that we were going to talk about today. So I would like to go through some of the documents that you filled out, and submitted while your mother was still alive and then after she passed.

And all the different things that we’ve talked about in regards to inheriting her estate. Once you got over the initial shock of your mother’s diagnosis and she started putting you on the checking accounts and all of that, what are some other things that people need to really start thinking about?

Hari: Well this is something that you can do no matter who you are and no matter what age you are whatever. If you’ve got an account like a checking account or a savings account, one simple way to have your wishes kind of met, is to add a POD or TOD, Payable on Death or Transfer on Death.

You can go into like your bank or whatever it is and you can write down who the beneficiaries of that account are going to be. And all this goes straight to that person. You can bypass all these other legal shenanigans by just having a Transfer on Death or Payable on Death designation for that account. Similarly-

Mindy: So the entire account would transfer over anything in that account would then transfer over to the person. Okay.

Hari: That’s right or it would split up too if you want to put multiple people on it. You can totally do that. It doesn’t have to be just one person. Similarly retirement accounts. You have to really keep on top of what those beneficiary designations are. If you don’t remember on your first day of work what you wrote down, I mean you really should go and figure out who the beneficiary of your 401K is or your IRA or whatever it is, like that.

So that’s another one that can just bypass any legal shenanigans and just go straight to the people that you care about and you got to stay up to date on it. And also I will say that those retirement accounts don’t go through the trust if you have a trust. So it’s especially important that you up to date with what those beneficiary designations are.

Because those kind of supersede anything that is played out in your will or your trust. so you can say in your will, “I want my 401k to go to Sally,” but if your ex-wife is on there instead or whatever it is, that’s who it’s going to go to. It’s going to kind of supersede it. Another thing just about inheriting real quick is the kind of peculiarities of inheriting in IRA.

If it’s a spouse, the spouse can just get the IRA like basically and it will become theirs just like normal. If it’s non-spouse say it’s a child or grandchild or something like that, it’s critical to do some things and it’s critical to kind of do them in the right order. You want to have a direct transfer kind of in the same way that if you’re like rolling over an IRA you want to go direct from institution to institution.

You don’t want to take any of that money personally because it’s very hard mechanically to get it back in the system without it incurring like a whole bunch of taxes. So you want to do a direct transfer and the other thing is that you probably if you are a grandchild or a child, want to do what’s called the Stretch IRA.

So IRAs have required minimum distributions starting at a certain age I think it’s 70.5. You’re going to have to start taking required minimum distributions if you are a child or grandchild immediately but you want to take them based on your life expectancy.

So you want to start taking them, get really small amounts of them out in the first year. So in my case for example I wanted just stretch my mum’s IRA over my life expectancy. So I was like 31 at the time, so that’s a really small amount that has to get pulled out

Scott: 104.

Hari: Yeah, 104. By the way I do know. I just looked up my grandfather’s, his IRA distributions are like roughly 50%, or something very high like that. So about half of his money has to come out each year. So the account is getting much smaller. So again, you want to do it over your life expectancy and not over his life expectancy. So again look up the stretch IRA if you have that.

Mindy: That’s an awesome tip.

Hari: Yeah, it’s huge. And by the way, if you don’t do this, it’s so bad. So if you don’t take RMDs, you get basically kicked out and you have to remove all of the money from the IRA within five years or else you get even bigger penalties. So it’s a huge deal, you got to set it up right.

My advice would be, go to the institution where you want to have the IRA and then work through them, and we get their professional assistance setting this up the right way. And make sure you know the required minimum distribution is calculated to the exact right amount and all that stuff.

Mindy: Is this something you can do prior to the passing of the parent?

Hari: No. Yeah, you have to do it afterwards.

Mindy: Great. Is there a timeframe that you have to do this in? Can you take a moment to breathe and just kind of process everything that’s happened? This is something that I really want to talk about. I know there are some things that have to be done instantly, and some things can be done a little bit later. And some things are like whenever.

Hari: Well ,you can breathe, but you have to do it on time so you have to start taking, like for example in my case I had to take my mum’s last remaining required minimum distribution for her. But you can’t like wait more than a year or something like that. If you miss an RMD that should have been taken out of that account the government is going to penalize you for doing that.

You can’t just leave money in your tax sheltered account and not take required minimum distributions out. So you better set it up somehow or else you’re going to get kicked out of the account within five years and get taxed on that full amount.

Mindy: Okay. That’s a really good point.

Hari: As income, right. So if it’s $100,000 and you magically increase your taxable income by $100,000 you’re to feel it.

Scott: And this is a problem, but the required minimum distribution really comes into effect. And I’m wondering this so, please I need education on this. If the person dying is over that age and has to take required minimum distributions. Suppose you’re 40 and passed away and you’re creating your will and you’re not taking any distributions yet, you pass along that to your wife or kids, they don’t have to start taking minimum distributions, is that right or?

Hari: Your wife doesn’t, your kids do.

Scott: Okay.

Hari: The spousal just becomes basically it’s as if it’s your IRA, if you leave it to your spouse. If you leave it to non-spouse, then they need to take it no matter what. So that’s where it becomes different than a regular IRA. It’s an inherited IRA, is what is called, or an inherited Roth IRA. Same thing with the Roth by the way, you still have to take required minimum distributions but they are Roth distributions, so they are after tax. But you still have to take them.

Scott: Okay.

Hari: So the other kind of thing are kind of these family of documents. So everybody has probably heard of a will. That’s probably kind of like the bare minimum especially for people in fire community or listeners of this podcast. If you’re going to accumulate a sizable amount of money in your life you really might want to think about something more than just a will.

At the very least I’d recommend that you get some ancillary documents to go along with the will. The ones that I’d suggest are Powers Of Attorney. And these don’t have to be invoked until you’re incapacitated or something like that. Power of attorney only happens when you’re alive. It’s not for anything after death.

And basically it’s going to let someone else that you designate, and ideally you have a few backups, right. That’s one of the things that we had to actually adjust with my mom and my grandpa’s estate plans for what those backups were. But in any case they’re going to make decisions for you. So there’s one power of attorney for healthcare, all healthcare related decisions.

And when you actually go and create one, there are going to be a million different decisions, like things like organ donation or can your body be used for science or would you rather be cremated or buried. These kind of decisions can come into play. So there is a Healthcare Power Of Attorney and there is a Durable Financial Power Of Attorney.

Somebody who can make decisions for you financially, someone who can pay your bills if you’re incapacitated or do anything like that. These are, almost in my mind, almost more important than having a will. It’s like these are really critical. These are things about you when you’re alive, what decisions you want to be made for you financially, what decisions you want made for you with regards to your body. So those are really key.

Then there is kind of trusts. And a trust is basically creating a legal entity. So it’s oftentimes like your name and then Revocable Trust or your name and then Living Trust. So you create this legal entity yourself and usually what you’ll do is you’ll create yourself as the sole person in-charge of it. So basically in the case of my trust I’ve have created the Hari Mix Revocable Trust and I’m the sole trustee of that trust.

You retitle your accounts and you put them into that. So I put my like investment account in there and my home is titled, it’s deeded to the name of my trust, everything goes in there. And then basically I get to decide in the trust who handles everything. So I get to decide who is the successor trustee should I pass away, who is following that, who’s following that.

You can basically put anything you want in there. All the beneficiary designations, all the kind of everything that you do with your assets after your death, if you want the home to go to somebody in particular, anything like that can go in. So the main power that people talk about with the trust in addition to basically giving you a lot of control over your affairs is that it also avoids the whole probate process.

And probate is where basically things go to court after you die. And this is so if you have a will you would have to go to probate court and get the will kind of verified, all your assets and everything would have to be inventoried, everything would have to be checked by the court, everything would have to be distributed through the court, it’s a very long and very expensive process.

Many months to over a year, or sometimes you hear about thing being even over a couple of years and the costs of it depend and the size of the gross estate. But they’re non-trivial, probably tens of thousands of dollars at the minimum for someone in fire community.

So trusts are a way of avoiding that. Trusts cost I think about two to $3,000 maybe two to $4,000 but at the same time you get a lot of control over your life as you are living and over your life after you die.

Scott: I mean this is just all just such good advice and just things that I have just never thought about, from this perspective before. Yeah like if you don’t make these decisions about healthcare or financial power of attorney or trusts or you don’t set this up, then somebody else is going to decide this for you.

And it’s probably going to be someone from the government basically interpreting it in a way that is not necessarily as what you’d want. Or your family is going to fight over who decides for you.

Hari: So you don’t want that either, like you leave a massive mess and a massive void behind and what do you think is going to happen? People are going to disagree on stuff, and if you didn’t lay it out or make yourself clear, and especially make yourself clear in a legal formal way then there you go. I’ll say this I’m only 33, but I’ve already used my estate planning documents.

I had a manic episode. I’m bi-polar apparently, so this was news to me I wasn’t planning on having a psychotic episode but I gave my girlfriend kind of full control, because I was scared that I was going to do something that I didn’t want to do. So I invoked my own power of attorney and basically told her that she was in charge of what happened.

And I don’t know if physically it would have prevented me from doing anything if I really wanted to but it basically in my mind I felt a lot more secure after I did that basically saying like, I can’t make these decisions right now, is basically the place that I got to. So for me it’s already worked out that it’s kept me on course during a true crisis that I had in my life, so yeah.

Scott: I think its great advice. Any other kind of things to keep in mind for folks. Like let’s assume that the majority of listeners are between their 20s and 50s and are kind of thinking through this stuff, any other kind of advice for them generally as they set up their own lives and estates or are planning for inheritance or such events.

Hari: Well I just think if you’re not planning on it, like you’re going to get there, you’re going to get to a situation where you have more assets that you initially planned on or that kind of stuff.

Like if you’re on this path where you’re listening to the Bigger Pockets Money podcast and you’re actually going to stick to these ideas for a while, you’re already in a situation or you’re going to soon find yourself in a situation where some of these types of legal and financial issues come into play.

And it’s part of your whole thing. We focus so much on investing. But these are the bigger questions that you’re going to have to solve about your life. And these are the bigger kind of ways of getting organized that everybody is going to have to do or they’re not going to do it and they’re going to leave a mess.

So this basically is pertinent to everybody. We started the podcast about well if you have a parent that is sick. Yeah, well, that’s one scenario. But everybody is going to be in that scenario at some point so you can’t really avoid it.

Mindy: Yeah, well, do you have a good recommendation of how to broach this subject with parents who are avoiding the idea? Like I said before, my parents have already started setting it up so it’s a conversation I don’t have to start. But let’s say Scott is going to call his parents and talk to them. Scott’s eyebrows go up if you’re not watching on the video Scott’s like, what?

What am I doing? But Scott has significantly younger parents than I do. So perhaps they haven’t had this conversation yet. They haven’t even started thinking about estate planning. What is something that he can do to sort of ease into this? I mean it’s going to be an uncomfortable conversation.

Hari: That’s like two of the worst taboos in our culture. Money and death at the same time. Right. It’s just, I don’t have a great advice. I’m really thankful to my mum that when push came to shove and the time was right, she opened her financial life to me and helped me make some of those decisions alongside her as opposed to just leaving me a bunch of a mess later.

Boy, I don’t know. I would just try. Try hard to communicate. Be gentle with it, people aren’t like eager to open up their finances. People aren’t eager to talk about death so, just be calm and gentle and see if you can get there at all with them. And maybe phrase it about you. That, “Hey I’ve been thinking about these kind of things lately and I was thinking about getting an estate plan.” I don’t know.

Mindy: That’s a really good one. “Hey mum I was thinking about this. I’ve got small children I want to start doing this. Have you done anything like this yet? Where did you start? Or what do you have? I think that’s a really good suggestion is to make it all about you.

Scott: Yeah.

Mindy: I like that. Okay.

Scott: Well should we head on to the famous four now?

Mindy: I think we should. Is there anything you’d like to add before we transition over to the famous four questions?

Hari: No, not at all.

Mindy: Okay, so Hari you’re a listener of the show you are familiar with the famous four questions but for those who’re just tuning in for the first time, the famous four questions are the same five questions that we ask everybody. It’s really four questions and a command. First one, what is your favorite finance book?

Hari: I think it has to be the Bogleheads Guide to Investing. But I will say that for this topic if you’re interested in learning more there is a really thorough research. It’s called the Everything Executor and Trustee Book, by Douglas Wilson. And I spent a lot of time reading and re-reading that book as my mum was dying because I was taking care of both her and my grandfather at that time.

So that book helped me out a lot. It’s pretty fat, you don’t need to read everything and it’s pretty dry because it’s all about estate planning documents. But if you need to learn more about that or want to learn more about that, that’s a good resource.

Mindy: Yeah. As I’m listening to this podcast I’m like, oh yeah my parents have already done this. I haven’t done this. I have two small children, I’m married, and we have an estate that I want to go to my children should we pass. But I’ve not actually planned anything.

So I feel kind of guilty about that especially after having talked to you. I do need to go and get this Everything Executor and Trustee Book. I’m going to go, my husband is at the library right now with the girls because they just got out of school. So I’m going to make sure he picks up a copy of that super fun book to read.

Scott: Yeah. Alright what was your biggest money mistake?

Hari: Fortunately I didn’t have all that much money at the time. I think it was in 2013 maybe 2012 when a friend and I were pretty much convinced that the crash was coming. And so I placed a bet on the Vix Volatility, and it was just stupid. And it lost a ton of money and I lost most of my investment there.

Fortunately only a few thousand dollars. But yeah, that was my last time speculating. That was kind of right before I kind of read the Bogleheads Guide to Investing and really understood what long term investing was about. And yeah just making a stupid speculative move.

Scott: How did you mechanically place that bet?

Hari: I bought an ETF that was triple leveraged on the Vix Volatility index and it was basically designed to lose money. It was only to be used by day traders but of course I didn’t read the prospectus, so it was basically this thing that basically lost money every single day because that’s the design of it. So it was horrible. 

Scott: Oopsies.

Mindy: Oopsies. Woopsies? You said Woopsies?

Scott: Hey good luck. It turned you into a lifetime Boglehead.

Hari: Yeah it did.

Scott: That’s great. By the way there’s a community called Bogleheads online where you can talk about this kind of stuff if you’re interesting in learning more about Jack Bogle’s philosophy, it’s a winning formula. I mean it’s you just spread out your entire financial philosophy statement in one sheet of paper. It’s super simple it’s going to work. It’s a fantastic place to kind of read up on all that kind of stuff and it’s more to the tune of trillions of dollars.

Hari: Yeah.

Mindy: Okay this next question I’ve discovered is a little bit ambiguous. What is your best piece of advice for people who’re just starting out? And it’s kind of as it pertains to your story. So what is your best piece of advice for people who’re just starting out with estate planning or something like that?

Hari: I don’t know about for estate planning. Maybe getting in touch with an estate planning attorney. But I would say in terms of just starting out in their financial life at all, I don’t think you need to start there. I think you should start by tracking your net worth. That’s a big one. If that’s too complex or sounds too amorphous, investing in a Roth IRA is probably a pretty good idea of you’re just starting out financially.

Mindy: That is a great tip.

Scott: Alright. What is your favorite joke to tell at parties?

Hari: I hope this isn’t too embarrassing. A bear and a rabbit are taking a poop in the woods. The bear turns to the rabbit and says, “Hey, do you have problems with poop sticking to your fur?” And the rabbit says, “No.” So the bear wiped his butt with the rabbit.

Mindy: I’ve heard that one before. Okay Hari Mix where can people find out more about you?

Hari: I have a blog it’s mostly a Climbing blog. I’m a high altitude climber H-M-I-X.org hmix.org. You can also email me at [email protected].

Mindy: [email protected]. Okay before we go I want to say that Harry has very generously offered to share his experiences but he’s not an estate planner professional. So if you’re thinking about emailing him with very specific questions it’s probably not your best choice. We will link to that academy of estate planning whatever in the show notes which can be found at biggerpockets.com/moneyshow49.

So we will link to all of that in the show notes so we can give you a better place to go for this estate planning. I’m going to have to get an estate planning attorney too. This was really helpful I really feel like if something happened to me and my husband at the same time right now, my kids would be out of sorts. I mean they’re like 11 and I guess Stephanie is nine now.

They’re 11 and nine so it’s not like they’re going to be doing much with the planning anyway but there would be a lot or problems. And I need to just get over the fact that I don’t want to talk about my own death because I don’t want to talk about it, I just want to live forever. But I’m going to die too, spoiler alert.

Hari: My estate planning attorney actually asked me what he calls the Exploding Turkey Scenario where you and everyone you like love dies at the same time. And it’s ridiculous that lawyers think this stuff up. But the point being that like you should have a flexible plan with lots of backups and lots of other options and ideas in it. So yeah that’s what they’re for like thinking up these horrible scenarios and then coming up with solutions for you.

Mindy: Yeah that’s a really great plan. And I mean if you have kids you need to do this. You owe it to the children that you brought into this world to have a plan so they’re not stuck with all this stuff. And if I were to pass today I don’t know, what is the death tax, like 55% or something, they would be hit with a sizable tax from my estate. I don’t want that to go to Uncle Sam I want that to go to my daughters.

Hari: That’s only if your like estate is over 11million now if you’re single and more if you’re married.

Mindy: Oh no we’re not there yet.

Hari: Fortunately yeah. Most people if you have to pay the estate tax you’re doing pretty well.

Scott: But perhaps in the future we can have a discussion with someone who- hey that’s a valid concern. If you’re going to become a millionaire in your early 30s, multimillionaire you’re going to potentially have an estate debt.

Hari: Yeah and this is I think they use life insurance to get around that. But I don’t know how.

Scott: It doesn’t really pertain to me. But if you’re going to become a millionaire in your 30s or late 20s or whatever, like you’re going to have tens of millions or hundreds of millions of dollars potentially estate by the time you live to 104.

Hari: That’s right.

Scott: If you’re interested in passing that along there are ways to do that I think that are really advantageous and that’s where you need to get really kind of crafty and get some real professional help and think about a professional help yeah.

Mindy: Well Scott we already know you need professional help.

Scott: Oh man.

Mindy: Come on, you didn’t think of that first? Okay. Woo-hoo Mindy wins one out of what, 50, 49? Okay anyway Hari Mix thank you so much for answering my call and thank you for coming on and sharing your experiences today. I know this is going to be super helpful for everybody who’s listening. It was very helpful for me. And I’ve know I need to do this for a long time but this really is kind of the kick in the pants that I needed to really put this place into motion. So thank you very much.

Hari: Thank you.

Mindy: Okay and we will talk to you later.

Hari: Alright take care. Bye-bye.

Scott: Alright that was Hari Mix. Mindy what did you think?

Mindy: Scott I got a lot out of this episode. There is a lot of information that Hari learned kind of the hard way, he had to kind of slug through it. And it’s really shed a light on the fact that I need to get off my butt and get this done. I have two small kids and I want my estate to go to them. I don’t want it to go to Uncle Sam so I need to just do it.

I need to sit down and make it happen and it’s not my favorite topic obviously I don’t want to think about not being there for my kids. But I need to just get over that. What did you get out of this episode?

Scott: I thought it’s a very difficult subject and I think you got think about first what you want to happen which I think is a very fundamental philosophical question right in terms of how you want your estate to be carried out. And then you need to be prepared to assume that estate if loved ones do pass away and leave you something and put that to the best use the way that they would want it to be used, right.

Whether that’s giving yourself freedom and achieving financial freedom early as a result of that and kind of going on to make a big contribution to live your best life. Just having that in place ahead of time I think is a critical thing to think through. And it’s not going to get easier if you just avoid the discussion, in fact it’ll be harder.

Right, this kind of thing can rip families apart not handled appropriately, not though right. So one of the worst things you can do is potentially either way be honest towards your loved ones.

Mindy: Yeah you have a finite amount of time on this planet, except unless you’re Hari’s grandfather who apparently is just going to be here forever, 104 years, I love his grandpa. But you have a finite amount of time on this planet, you are going to leave. Make a plan so that you can do what you want with your money. Okay Scott, shall we get out of here?

Scott: Let’s get out of here.

Mindy: Okay, from episode 49 of the BiggerPockets Money podcast this is Mindy Jensen and Scott Trench and we are leaving.

[End of Recording] [59:49]

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In This Episode We Cover:

  • Hari’s journey with money
  • Why prioritizing saving and long-term goals for retirement is so vital
  • The steps he took to handle his mother and grandfather’s financial affairs
  • How he ended up creating his own estate plan
  • The importance of being open and honest with your family about financial affairs
  • Steps for approaching your loved ones’ financial affairs
  • How to avoid the probate process
  • How he fielded the discussion with the other heirs in his grandfather’s financial affairs
  • The importance of talking to a professional
  • The right time to contact an estate planning attorney
  • Tips for investing an inheritance
  • His written investment policy statement
  • How he came up with his investing plan
  • What he did after his mother died
  • His idea of inflating his lifestyle
  • The checklist you need for when somebody dies
  • Peculiarities of inheriting money and IRAs
  • And SO much more!

Links from the Show

Books Mentioned in this Show

Tweetable Topics:

  • “If you don’t say anything about it, you will actually lose control. You lose control of what you’re wishing for.” (Tweet This!)
  • “Buy-and-hold, long-term, all market-index strategies, implemented at rock bottom cost, are the surest of all routes to the accumulation of wealth.” (Tweet This!)
  • “No one will care more about your money than you do.” (Tweet This!)

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The BiggerPockets Money Podcast is for anyone who has money… or want to have more! Join BiggerPockets Community Manager Mindy Jensen and Director of Operations Scott Trench weekly for the BiggerPockets Money Podcast! Each week, financial experts Mindy and Scott interview unique and powerful thought leaders about how to earn more, keep more, spend smarter, and grow your wealth. You'll get tips for getting your financial house in order and actionable advice from guests who have been in your shoes - and found their way out.

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