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Finance Friday: Why Even Millionaires Still Have to Budget

The BiggerPockets Money Podcast
37 min read
Finance Friday: Why Even Millionaires Still Have to Budget

What is a millionaireBy definition, someone who has a million dollars or more in net worth. But what do you think of when we say “millionaire”? Are you picturing sports cars, expensive vacations, big houses? The reality is that most millionaires are people just like you and me, living in regular homes, still attending their jobs, and trying their hardest to budget. Being a millionaire doesn’t mean you’ve “made it,” but it does mean you’re on the fast track to building wealth.

Gracie is a millionaire, but she doesn’t feel like it. When she discovered financial freedom, she set an impressive goal to hit millionaire status by the time she and her husband hit their mid-30s. They worked hard, were diligent savers, and ended up hitting that goal right on time, but it came with a lot less flexibility than they had hoped. While Gracie was able to quit her job, her husband wasn’t able to, and even as he brings in a great salary, the family still is close to breaking even every month on their budget.

But Gracie isn’t doing anything wrong. She’s got a tame budget, regularly reviews her spending, and knows that something has to change if she wants to reach the life of financial freedom she had been promised. So what should she do, change her assets, completely revamp her budget, or move to a lower cost of living area to increase her monthly cash flow? Scott and Mindy give Gracie some good advice that will most likely apply to you, even if you’re not a millionaire yet.

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Mindy Jensen:
Welcome to the BiggerPockets Money podcast show number 324, Finance Friday edition, where we interview Gracie and talk about saving money and building wealth even when it doesn’t seem like there’s any easy options.

Gracie:
One of my thoughts was maybe someone just needs to tell me to get over myself and figure this out instead of just spending and then wondering what happens. So I’m good at that, I’ve done that for 10 years, I did the payoff and then we did FI. So I’m a little bit throwing a little tantrum inside because I didn’t want to get to this point and have to continue cutting the budget that much. But if we can do a three year model where I see flexibility opening up in the three years, we could do it, I think.

Mindy Jensen:
Hello, hello, hello. My name is Mindy Jensen. And with me as always is my carefully considering all angles co-host Scott Trench.

Scott Trench:
And with me as always is my thoughtful co-host Mindy. Great to be here.

Mindy Jensen:
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 Trench:
That’s right. Whether you want to retire early and travel the world, Coast FI go on to make big time investments in assets like real estate, or start your own business. We’ll help you reach your financial goals and get money out of the way, so you can launch yourself towards your dreams.

Mindy Jensen:
Scott, today, we’re talking to Gracie who has a great financial position if she wanted to do Coast FI as you mentioned, which we talked about on Monday’s episode with Jess, from the pioneers, and it’s funny how sometimes these shows just work out back to back like that.

Scott Trench:
Yeah.

Mindy Jensen:
And she’s she set herself up in a great position, but I think she wants a little bit more. So there are other options she can pursue.

Scott Trench:
Yeah. I think that there are definitely options, but there are no easy options and we want a lot of things. We want to be able to have plenty of time and we want to be able to have a surplus of money. We want to have passive income. We want to save for retirement. And sometimes you can’t do all of those things at once. You have to prioritize and pick and make sacrifices on some of those areas and that’s hard and that’s what we’re going to get into today.

Mindy Jensen:
Yep, absolutely right. So Scott, I want to remind you and our listeners that the contents of this podcast are informational in nature and are not legal or tax advice. And neither Scott, nor I, nor BiggerPockets is engaged in the provision of legal, tax, or any other advice. You should seek your own advice from professional advisors, including lawyers and accountants, regarding the legal, tax, and financial implications of any financial decision you contemplate. Gracie and her husband Frank, live in a high cost of living area. He works full-time while she stays home with currently two, turning to three kids in November. The shift from two incomes to one was a bit of a shock and their initial fine number now seems too low. They’re currently saving 14% of their income after taxes. And Gracie’s wondering if she should go back to work once the baby is born so they can increase their financial cushion. Gracie, welcome to the BiggerPockets Money podcast. I’m so excited to talk to you today.

Gracie:
Hi Scott and Mindy. So excited to talk to you. Thank you.

Mindy Jensen:
So we’re going to do something a bit differently today. I’m going to read Gracie’s financial snapshot. She and her husband make a salary of $101,000. They have additional income of approximately $24,000 for a grand total monthly income after taxes of 8750. Their expenses seem pretty good on this surface at 7135, we’ve got 2000 for mortgage, 400 for utilities, almost a thousand for groceries. So I see a point right there that we could work on, 150 for beverage 300 for home supplies, 115 at restaurants, you’re doing really good there. 125 for gasoline, $457 for giving, $388 for medical, which is really in America a steal, $159 insurance, miscellaneous at $700, $147 for car insurance and maintenance, and average, no questions asked spending fund of $973 a month, travel at 280. So just off the bat, I can see some areas where it would be easy to improve, but I don’t have any backstory on those.

Mindy Jensen:
So we’ll get to that in a moment. As far as investments go, we have retirement funds at $495,000. Nice job at age 35, mutual funds in $206,000. And I do want to clarify what mutual funds means. Other in 16,000, that makes me cringe and think maybe crypto, cash at $23,000.

Gracie:
Thank you. Thank you. Thank you.

Mindy Jensen:
Home equity of $210,000 for a grand total of $950,000. So with our debts at nothing except for a home mortgage, 2.75% interest rate, $490,000. All in all, I see this and I think you’re doing really good at age 35. I mean, you’re doing really good anywhere, Americans aren’t saving money. So this is a great picture of your financial situation, let’s look at how you grew up with your finances?

Gracie:
It will be helpful to go back just a little bit. So starting out, my family had very little money, and the money that we did have, we didn’t do very well with. I started working at the age of 15 and I’ve worked every year of my life. I spent every dollar of that and quickly wrapped up 60K in debt by the age of 24. And that did include about 30 grand in student loans, even though I started out college with a full ride, but they don’t give you a full ride back when you drop out of school and go back later. So anyways, in 2011, I did find Dave Ramsey thankfully, and was halfway through my college degree and actually started just paying off my debt and cash flowing the rest of my education.

Gracie:
I did everything Dave Ramsey suggest, multiple jobs, cash envelopes. The whole thing I even got out of an upside down vehicle loan, which was one of my greatest achievements. Around two years into that, and my original estimate was that would take four years. So about halfway into my process of paying off debt and finishing school, I met my husband, Frank. And he also came from a family without a ton of money. However, they were great with money. They were frugal and good savers. So we have a little bit of difference there. He had no debt other than a mortgage when we met and assets, non-home assets, so it was great. His family only paid for half of his college and he paid the rest with summer jobs. So he was doing well and he was okay with my situation just because I was cleaning up my mess.

Gracie:
So it was great. 2014, we get married, we finish paying off our debt. And I guess we were looking up what to do when you hate your job, because we started making plans to do a mini-retirement. I believe I was listening to Tim Ferris a lot. And I do recall finding, I don’t know how, but I read the Early Retirement Extreme book. I actually read that book. I loved it, but anyways, I haven’t read it in quite a few years. So anyways, we did that. We started our may retirement with a plan of one year of travel around the US and south America. That lasted five months.

Scott Trench:
And this was in 2015.

Gracie:
Yes, we started that trip in 2015, but we ended up moving to where we live now, which is a pretty high cost of living area, not the highest, but pretty up there considering where we both moved from originally.

Scott Trench:
And what state is that?

Gracie:
Colorado? So we moved here, we still continued hating our jobs. And that is when we discovered the infamous Mr. Money Mustache. So we went all in on reading that blog and we were just on the same page to really try this financial independence thing. So we began in 2016, and I think that’s about the time that Mindy and Carl, you guys finished your journey. I do remember we did see the 1500 blog. We knew all of the blogs. We knew everything, but our biggest thing was the Mr. Money Mustache. So we followed that. We set our goal for $1 million. We planned it out, it would take five to seven years. And approximately six years later, we did hit our number in December, 2021. So we hit our $1 million net worth number. Oh, we should celebrate, right? But yes, that was a big year in general. We had our second baby in 2021 February.

Gracie:
I quit my job in June and have been a stay-at-home mom since then. And we also bought a new house in July. So even though I wasn’t working half the year, we still hit our number. Well, now we have hit our goal and we’re in the middle of a potential recession. I know they haven’t declared it yet. And the largest inflation we’ve seen, and we’re not really sure what to do from here.

Scott Trench:
Congratulations, that’s awesome. You hit your goal. You have two kids and another on the way. So you’ve obviously been crushing it. Can I ask you, prior to you quit your job? What is Frank’s and yours profession?

Gracie:
Yeah, so I was an accountant. I have a CPA license, but I worked generally in industry, I did like one tax thing. So I was a general accountant and Frank is an engineer. So he actually works for a construction company and is now doing estimating.

Mindy Jensen:
Okay. So I see lots of awesomeness. And before we get any further, I want to highlight the fact that you are 35 years old, right, you’re 35?

Gracie:
Right, yeah. We are both about the same age. Yeah.

Mindy Jensen:
You’re 35. Yeah, I’m 35 too. You’re 35, you have $1 million in net worth. You have zero debt outside of your mortgage at a 2.5% interest rate. Your house is worth way more than you paid for it. Well, you bought in June of 2021. Your house is worth way more than you paid for it. And you have a marketable skill. So if something happens, people still need CPAs all the time. Worst case scenario, you can go do taxes the first part of next year. There’s a lot of optionality you have, but you’re sitting in a good financial position right now. It may not seem like you’re sitting in a good financial position because you hear from people who come on this show, they’re like, yeah, I’ve got no kids and I’m saving 97% of my income. Well, great that’s their story. Your story still has you at a $1 million net worth. That’s awesome, let’s celebrate that.

Gracie:
Thank you, yeah. And I have to say, accounting was not my favorite thing to do, but I did it for 10 years because we had these goals. And finally, I was like, I don’t think I should stay at a job that I do not like just to make a little more money when I could be with my children, hardest job in the world. But definitely I couldn’t see the trade off anymore. Especially given our position. It’s like, okay, we’re not underwater. We’re not in a bad position. So why trade more money for a job you hate, right?

Scott Trench:
Absolutely. So, what are the goals here? What, can we best help you with today?

Gracie:
So big picture. We want to spend time with our children. Frank works full-time right now. And I will say that he’s in a better position with his job than he used to be, because we live closer to his office. He bikes to work, he has very pretty good hours. I don’t want to say easy, but he is not doing 60 hour week. So he’s in a pretty good place, but he would ideally like more of a flexible work schedule, maybe a four day work week, maybe something partially remote, so that he can spend more time with me and the children. I get to spend lots of time with the children and would love a little bit of maybe regularly scheduled childcare without necessarily putting them in a daycare. So that’s our big picture. More specifically, I would like a little more flexibility with our budget, because yes, we hit a big goal.

Gracie:
However, it’s not nearly as fun as I thought it was going to be to be a millionaire or whatnot. Although we’re a little lower given the market right now, but we still have to really carefully manage our budget and now, and like you said, in the intro, going from a dual income to half was quite a shock and it has taken us a year to adjust. And I still feel like we adjust every month. It’s like, oh my gosh. So I would like to spend more, but that’s like a long term play. Eventually I would like to spend more. Currently, we’re where we are and my questions are around, how do we live on what we’re making and spending? How do we get over the fact that we’re not saving 40 or 50% anymore? And is that okay I know there’s such a thing as Coast FI. Is that something that we should just accept in this position.

Scott Trench:
I think that’s helpful. And I think if I were to rephrase. Well, I think the best place to start would be to reframe or to restate the reality of your situation real quick, right? You are a millionaire or very close. However, almost all of that wealth is in your home equity or in your retirement accounts but the exception of it sounds like 200 grand in mutual funds at this point. So this wealth is not generating any material cash flow for your situation, certainly not more than 10% of monthly spending in a reliable way. Is that right?

Gracie:
That’s right. Yes. And can I just add on to that? In our current spending or saving, it’s a weird way to look at it, but in order to get our employer match, we put a certain amount in to the 401k. So we have as part of our saving, a big chunk going to a 401k and our of course, home principal going into our mortgage payment. So that makes up our savings, which puts us a little upside down. So if you look at the cash flow, we’re actually funding the savings from our currently liquid funds, which is around 200 right now. So it’s almost like we’re going even further into that middle class trap, I guess you would call it, where all of your money is locked away to until traditional retirement.

Scott Trench:
Perfect. I think that’s, I think it’s a great way to state the problem. Let’s go back to income real quick. You said you have a salary of Frank makes 101,000 and you have additional income of 24,000. Is there any more nuance to those two numbers, any bonuses, for example, what is that additional income?

Gracie:
Yes. So you mentioned the salary of 101, and that’s for just the current year and then they give you a medical bonus of a thousand. We discovered we have oil royalties at our current property, which was really amazing. So that’s estimated at about 4,000 per year and then a bonus of 15 and a 401k match of four.

Scott Trench:
Okay. So the 24 is going to be this oil royalty. Never heard of that, that’s awesome, bonus and then 401k match.

Gracie:
That’s right, yeah.

Scott Trench:
What, what I’m trying to understand as well here is we’ve got 8750 coming in per month after tax. So you’re funding your retirement accounts and having all that stuff. And we have spending of 7,100 per month. Are you saying, is that accurate or is the reality coming out differently and spending is more or less matching or even sometimes exceeding the cash inflow from your wage income?

Gracie:
Well, that’s a great question. I could admit that this budget is a little bit more what we would like it to be versus what it is. And so far, like I said in the past year, it’s like sometimes money just comes in and we can cover the deficits. So we haven’t truly had to sell any mutual funds yet. But when you look at the numbers, that’s what’s going to have to happen eventually.

Scott Trench:
What the reality of the situation that I’m hearing is this is an aspirational budget to some extent, and you’re treading water or that’s how it might feel right now from a cash flow standpoint.

Gracie:
That is right. That is definitely how it feels. And if we hit this budget, it’s like, okay, we’re only going to be upside down this amount. And upside down in that, our savings is just being moved around. Not that we’re going into debt, but-

Scott Trench:
Makes sense.

Gracie:
Yeah, it does feel that way.

Mindy Jensen:
Okay. And it can feel that way when you’re used to saving so much money and then you stop, but you also had so much more income and that went down. So the amount that you’re saving is going to go down. You mentioned several things. Number one, that Frank would like more time with the kids, has he asked for a reduced workload?

Gracie:
No, it’s not something he has yet asked for. It’s just something that he’s building his career experience towards that direction. So he used to be someone who was on site for construction projects in a management role that is not something you can do part-time or remotely. So he actually shifted into a role where he could eventually dial it back more. So he has done that, but he’s just trying to build his experience right now. But has he asked for it? No, not yet.

Mindy Jensen:
One of the things that Carl did when he was getting ready to retire, he wasn’t mentally able to wrap his mind around retiring. How can I just leave this? It’s a big step. So he went from full-time to part-time. He asked his boss, can I work three days a week? And his boss said, yeah I don’t care. But he built it up as this huge thing that was going to be this big conversation. And he was prepared for his boss to say no. And then his boss was like, yeah, I don’t care. So perhaps Frank could work it such that he could do for 10 hour days. He’s still getting all of the time in, because really what’s an eight hour day versus a 10 hour day? You’re already there at work. It’s an extra hour on either side or four nines, and then he does a half day on Friday. Or something like that.

Mindy Jensen:
If he could propose several different structures to his boss, maybe his boss would say, hey, that’s awesome. And if Frank’s been there for a month and a half, that timing’s not good. But if Frank’s been there for years and years and years, and is a valuable asset to the company, his boss is going to want to keep him. So that’s more of a research opportunity for Frank to start thinking about, in what ways does he provide value to his company and how can he continue to do that on a reduced workload or reduced days in office kind of thing, because that’s going to give him a lot of mental space to help out. And if Frank is staying home with the kids on Friday, then Gracie can go back to work for one day a week or three days a week and the kids are in childcare for two days a week.

Mindy Jensen:
You’ve got another six years until baby three is in kindergarten, because baby three is in November, baby three’s starting kindergarten late. I have a November baby, but that’s only six years. And then you can start working again. So it’s not like you’re never going to be able to save money, ever, ever, ever, you’re just on hold right now. But then you said you are CPA. Holy cow! Everybody I know is firing all of their clients. All the CPAs I know are firing all of their clients because they’re sick of dealing with all of these pain in the patoot clients. You could be the pain in the patoot CPA. I’ll deal with you, tough people. And I’ll make a lot of money because I only have to deal with 10 clients, and I’m going to do all of your work, and here’s the story.

Mindy Jensen:
And you don’t have to be a full-time CPA to make a lot of money as a CPA. You just say, this is what I charge, I’m that good. If you can’t find anybody else, because you’re such a pain in the butt that everybody’s fired you. Well now you have to pay my rates or do it yourself.

Scott Trench:
When I think about your situation at a high level, zooming out, I think you’re treading water right now from a savings position. You are funding the 401k. That’s great. And you’re paying down the mortgage, so hose are automatically happening, but there’s not a lot of flexibility in your situation right now. And I’m having a hard time seeing how we can get you to that combination of having more time for both of you, with the family and be able to spend more at this point in time, without major creativity and big moves in that situation. So I think we should go through some of those options, major strategic pivots, and then see how any of those feel and what the reality, which path smells right to you that you’d like to think about more.

Scott Trench:
So on the one hand, like Mindy said, you’re in a situation where you’ve done a great job saving for retirement. You’re not accumulating lots of cash in your life or expendable cash flow from your situation. But if you want to just chill on your current situation for the next five years while your kids are young and entering school and then resume working at that point to begin accelerating other types of savings, you’d be fine. You’re way ahead of the pack for in terms of retirement savings, and your financial situation could easily weather that, right? You’re not going to be able to spend a lot more right now or make big shifts unless maybe there’s some tweaks like working four days a week, like Mindy mentioned there, but so that’s one avenue, right? It’s just, hey, we’ve got a good situation. We’re going to hang out here.

Gracie:
Yeah, to like Coast.

Scott Trench:
Yeah. Coast is fine.

Gracie:
And I agree. I think right now when I look at it’s like, well, we’re set up for traditional retirement. Like we can get all of these things when we’re 59. So yeah. So I agree with you that would take a major pivot to do anything right now.

Scott Trench:
So, the second thing would be, let’s look at our assets and how we’ve allocated capital to this point. And right now that has resulted in a situation where you’ve got 700 grand in stocks, most of which are in retirement accounts, you’ve got three months of spending in cash, and you’ve got another 200 grand’ish in your home equity with that. And the framework I used, I like to think about this as, if I were to give you a million dollars after tax right now, what would you do with it? How would you redeploy that? And that would be a great exercise to think through with Frank and say, what would that look like? Would I be feeling much better if my position looked like, for example, 100 grand in cash, and then 200 in the home equity, 200 in after tax stocks, 200 in retirement accounts and 300 in rental properties that are local.

Scott Trench:
Would I feel better about that position or worse? I don’t know. My preference, Scott, my preference here would be something that had a higher cash position, probably six months to a year of that cash reserve. And that had a little bit more real estate or after tax on wealth skew there and a little less pretax because it just gives me more flexibility and optionality to make big moves in a general sense. But that’s a personal decision and I think that would be a good exercise for you to think through. Once you’ve decided, hey, here’s what my portfolio looks like, then take, okay in three years, I’d like my portfolio to look more like this and less like my current state.

Scott Trench:
And that will tell you what to do. For example, if you wanted real estate, you might stop contributing to the 401k and piling up more cash so you can invest in that next rental property, for example. Or you might keep your current home and move into another property to reposition that home equity as rental property wealth, if that made sense. So that would be one area to consider. And the last is going to be on your income statement, right? And right now you’re not bringing in a major cash surplus.

Scott Trench:
And so you could make drastic changes there and say, how do I make some serious changes here? Is there a new way I could reimagine my day-to-day that would enable me to spend, 30% less overall. Is there something I can do with the food budget? Is there something I can do with the mortgage here? Is there something I can do with transportation in a general sense? Although you spend almost nothing there. What does that look like? And maybe we could walk through some of those line items or there’s a move in place, which of those feels right to you? Of those three areas, coasting on the current situation, redoing the net worth position and relocating your capital or focusing on that income statement.

Gracie:
I definitely think relocating our net worth position where everything is. And originally we had planned, we had put more in pretax thinking we would do the Roth conversion ladder, but we haven’t fully stopped working. So it’s not going to happen anytime soon, but I don’t know if I see other way to like reallocate our assets other than what she mentioned about stopping the 401k. And is it worth losing the match, which it’s 4,000. I mean, it’s not like a huge part of our world, but it’s nice to not lose extra money. Is it worth losing that to then redeploy that saving somewhere else? That would give us more flexibility. So it’s something to think about.

Scott Trench:
Are you maxing the 401k or are you taking the match?

Gracie:
Just the match.

Scott Trench:
Okay. I think that’s, yeah. So I think that makes sense. And so you don’t really have much to redeploy from a cashflow perspective, it’s going to the mortgage and to the 401k. So that leaves us with coasting or the P&L.

Gracie:
Yeah. And our biggest thing is, at least from what I’m seeing is this house, it’s a big part of our world right now. So that would be a pretty major thing to change. So I don’t know if that would be worth it, just to give us more flexibility. I mean, and just to be clear, Frank the house that he loves set up it’s close to his work. He has no issues with any of this. So it’s more of me trying to find flexibility in our spending and where we’re going. I know if I called Dave Ramsey, he would be like, sell the house. It’s way too much of your world, budget-wise.

Mindy Jensen:
So knowing the front range market like I do, where are you going to go?

Gracie:
It’s a great question. And actually we were planning to move. So we come from different states. Neither of our families live in Colorado. So we had actually thought we would move closer to family and ended up staying. So there is still the idea that we could move close to family. One of us has family in a lower cost of living state, one of us does not. So it’s just a matter of, now do we pull that trigger? Do we pick one of our families to go live by? And is it worth it to basically location arbitrage, our financial position?

Scott Trench:
Yeah. Well, that compounding, that is probably your incredibly low interest rate on your property that you have right now.

Gracie:
Yeah, what we would buy is probably going to not really change or the payment probably wouldn’t change that much. I haven’t run the numbers, but yeah, you’re probably right. Even in a lower cost of living, I don’t know how much lower of a payment we could get at this point, unless we just pay cash for our house. Yeah. I don’t know if that would give us the flexibility we’re looking for.

Mindy Jensen:
But in a lower cost of living area, what sort of income can you make? And I believe, I know what state is your lower cost of living area. And they have very high property taxes. They have very high sales tax. So you are changing your absurdly low property taxes here for unrealistically high property taxes out there. I don’t know that is-

Gracie:
Are you talking about Wisconsin?

Mindy Jensen:
I am.

Gracie:
Okay. So I actually, I consider that the higher cost of living.

Mindy Jensen:
Oh, okay.

Gracie:
Because of what you’re talking about is the property tax. It’s one of the highest in this country. So it would be very high. But the other option is Tennessee. Oh, so no state income tax, the property tax I think is right around what it is here and we wouldn’t be going to Nashville. So that would be good because they’re crazy over there. Cost of living is high there.

Mindy Jensen:
I would run some spreadsheets, Miss CPA. I would look at all of the things, pro and con it, and see what are the benefits of moving versus the benefits of staying because Tennessee is actually a really nice state. You don’t have your winters. I knew Wisconsin was one of those states. I’m like, oh, Wisconsin’s great, but it’s also like winter last 12 months a year. And I’ve lived in Wisconsin, don’t send me emails about how great Wisconsin is. I know it is. It’s just really hard to live there for seven solid months. But yeah. I mean, there’s a lot of different opportunities. What sort of income would he be making in Tennessee? I’ve never lived there, I’m not sure what their salaries are.

Gracie:
That’s a great question. Yeah, and question on that. Do you think it would be worth trying to get an offer just to see because yeah, Frank has never looked, so how do we know, how do you know what you’re going to make there?

Mindy Jensen:
I think it would certainly be worth a couple of hours of searches on indeed.com to look up, what are salaries in Tennessee for whatever his job is. I can’t remember what his job is, but if he’s making 101 here and he can make 30, there that’s a real easy answer.

Gracie:
Yeah, that’s a hard no.

Mindy Jensen:
But if he’s making 101 here and he could make 85 there, that makes the decision a lot more like neck and neck, and then you’ve got family there, which is really valuable. That’s time away that you can get a breather.

Gracie:
Another big part of our budget, speaking of do we cut our expenses somehow, a big part of that is travel back to see our families. That travel budget is not, oh, let’s go to the beach and rent a hotel and all this, no, we go stay with our families and it’s basically just airplane rides to get back to both of our families. So that would be another win if we did that. But yeah, it’s a little bit outside the scope, because it’s a big lifestyle choice. Do you want to live here or here? So it’s a hard choice to make.

Scott Trench:
I think there are definitely, I don’t think there’s an easy answer to any of these things. The easy answer is, cut that spending down by 30 or 40% and go to town on that. And that solves half of these problems. That’s a painful, methodical, slow grind to do that. And I think that we should acknowledge it as an answer to your situation, that there are probably items to shave and things that you could get more disciplined on with that and really settle on that, not the aspirational 7,100 a month, but actually bring that down to a reality where you’re spending four, or five and a half, six grand a month, and having that net cash accumulation tick back up, that will bring flexibility. So I think that’s something we should acknowledge there because there is no other major life move that you seem like really able or willing to make at this point in time on that front, we can get creative about income on those things. And we can think about a big move here, but I ask you this, do you like Colorado better than Tennessee or Wisconsin?

Gracie:
Well, this is part of the problem is that I glamorize moving back to Tennessee. We actually, Frank and I met there and we had a great time living there, however, he just had to come back to the mountains, the big mountains, he had lived here for a short time. So I don’t really care. I think the mountains are great, but I think this area has its downfalls. For example, it’s getting way busier, you can’t really get into the mountains for under four hours some days. So yeah, so that’s another thing where maybe outside the scope of the show where it’s a marriage negotiation, like where do we live? So there’s that. And then of course the culture, I love that everyone out here is so active and fit. That’s an awesome benefit, and we would love our kids to be raised where it’s normal to go hiking on the weekend or whatnot.

Scott Trench:
And the same is true for everyone in Tennessee, well, you can’t badmouth people in Tennessee.

Mindy Jensen:
No.

Gracie:
And that’s true. That’s true. When we lived there, we had found like the group of outdoors people. So we found them, but it’s not as out here, you just go and you’re being passed on the trail by an 80 year old, and you’re like, oh my gosh. So I think the ideas that I’m hearing that’s coming to mind is maybe we reset another goal of opening up our cash flow for a reason, that’s not spending, but it’s more like opening up our cash flow to invest in a way that we can later access income. Like you said, rental maybe. And to do that, we would need to cut 30 to 40% of our spending. Question is, what areas do you see? What are the biggest red flags when you look at our spending, but you would just be like, get rid of this or work on this really hard.

Mindy Jensen:
Groceries, no questions asked, spending and miscellaneous because I don’t know what’s in miscellaneous.

Scott Trench:
And groceries for example are 978. Miscellaneous is 700 and no questions asked is 973 a month.

Mindy Jensen:
Yes.

Scott Trench:
Just for folks who are-

Mindy Jensen:
So that is $2,700 right there. That’s a third of your budget. I’m making that up, I didn’t do the math, but that’s a third of your budget in three categories. Groceries is going to be high. It’s going to be, and I’m struggling. Everybody’s aware that I am tracking my spending publicly at Mindy’sbiggerpockets.com/Mindy’sbudget. You can see that I am blowing my grocery budget every single month. I am hardly the right person to talk about, about this, but I’m really trying to get my grocery spending under… And my kids are 15 and 12 and they eat like linebackers after a game. So I do think you can get your grocery budget down. Scott, Daphne eats more than you. They’re just hoovers. Nice. But I do think you can get your grocery budget down. I’m wondering if you do anything like grocery planning, meal planning or-

Gracie:
I do. Yeah.

Mindy Jensen:
Where is that thousand dollars going? Is it all organic stuff? Is it grass fed Kobe beef? And is there a reason behind it? Because sometimes people are like, I spend a thousand dollars and it’s very regimented and it’s just, meal, food allergies and things like that. And some people are like, I just spend it because I have no idea where it’s going.

Gracie:
Yeah. And I think we’re neither of those. I actually have starting in December last year, we spent 2000.

Mindy Jensen:
Oh well, that’s great. You’ve done huge improvements.

Gracie:
Well, I was like, we can’t do that. So I started tracking it very detailed. I won’t bore you with that, but I know exactly what we’re spending it on. I do meal plan every week and we don’t eat out. So we are eating a lot home and I will say we have a, three year old and 18 month old. And gosh, I feel like we throw away so much stuff because they don’t eat what I give them, but I don’t think that’s killing us. Diapers aren’t killing us. So even though I know where it’s all going, it’s like, I feel out of control with it still. And every time I buy groceries, I feel shocked. And, I definitely don’t know what to do with that. And you mentioned, is this wild game or organic? No, we do eat a lot of fruit and vegetables.

Gracie:
I make sure we have nice produce, but not like nice, but there’s produce and fruit, but Frank is a hunter and we have a lot of wild game that we use every week. So we don’t even buy that much meat. Probably we could just quit buying meat altogether. So that’s an option, but yeah, I don’t know what to do about it. And I even split out supplies and stuff because I was like, I think this is really inflating my number for groceries. So that number is actually just the food. It’s not even, paper towels and stuff.

Scott Trench:
I think it’s hard. And I think that’s where, I think this is really helpful. I bet you, there are a lot of people who are feeling exactly the way you do about budgets like this, but again, I don’t think it’s going to be… I think that’s why it’s the easy answer is to say, let’s cut back on spending, but we get it. That’s going to be hard. There’s going to be, it sounds like you have great command over these things or at least track it very thoroughly each month with that. It doesn’t change that these are the numbers. And we have to go to where we think the leverage and the numbers are, and there’s no leverage in the income front.

Scott Trench:
And we don’t have too many action notable items on the net worth category. And so what can we do here on that? And so I think I would like to wrap it up with three big points for you for advice. First, I would sit down and I would model out, what is the reality of your situation going to look like over the next three years with a couple of standard assumptions? Spend some time, build out an Excel model or a spreadsheet and go and say, what’s going to happen to us in three years, in five years, in 10 years, if the current trajectory holds? Reasonable assumptions for income growth, expenses, these types of things, and say, how does that change if I was able to make these cuts in these areas, what would have to be the reality?

Scott Trench:
And what does that do to my model over in three to five years? What happens if I move to Tennessee? What happens if we move to Wisconsin for these areas? And then using those numbers, I would sit down with Frank and say, what do we want to do? Are we happy? We want to just keep hanging out here in Colorado and living the good life with this. Do we want to move to Tennessee, do we want to go to Wisconsin? Do we want to make some change? And how does that change my outputs here that are going at, and what do we want to do? And the artifact that you should construct there, the document I think is the vision, right?

Scott Trench:
It’s a half a page or a page log description of where you want to be in three years and you can cascade the goals from there. And I think that will at least give you clarity where you can say, this is the decision we made, and these are the outputs of that decision, what they’re likely to be. And we’re aligned with that. We can live with that from that, and that will help you inform, do I want to go to town, trying to find more in my budget. I probably don’t have much of my groceries. Is there anything in miscellaneous? Is there anything, why am I not actually accumulating the $1,600 per month that my budget says we should be accumulating? Am I forgetting an overhead allocation or a CapEx account equivalent for our lives that should be in that category?

Scott Trench:
Or what is that? So, sorry. We have model, we have money, date and vision, which you can just put as a draft and repopulate every couple of months until you settle on what you want to do there. And then I think you have, the outputs of that will be, do I want to concentrate on spending, do I want to concentrate on income? Do I want to concentrate on capital allocation and realigning my accounts? But unfortunately I think that you have brought us a hard problem here where we can have any of the things you listed, but we can’t have the combination of things that you want without making major financial changes and lifestyle changes most likely with that. And so hopefully this artifact will be the way to negotiate or make those trade offs with Frank. How’s that sound?

Gracie:
I think that makes a lot of sense. And really, halfway to our million dollar number, we did realize, oh, I don’t think this is going to be enough. We’ll figure it out when we get there, what to do next and what we got there. And we never figured out what to do next. And so yeah, I do think that’s where we are stuck is we haven’t done another projection out for three years. Where do we want to be? Now that we’re here, where should we go? It’s more like, well, here we are. So I do think that would be helpful just to run a few scenarios out. And I actually really appreciate hearing your thoughts on cutting 30 to 40%. One of my thoughts was maybe someone just needs to tell me to get over myself and figure this out instead of just spending and then wondering what happened.

Gracie:
So I’m good at that. I’ve done that for 10 years, I did the payoff and then we did FI. So I’m a little bit throwing a little tantrum inside because I didn’t want to get to this point and have to continue cutting the budget that much. But if we can do a three year model where I see flexibility opening up in the three years, we could do it, I think.

Mindy Jensen:
Well, how much money do you want to be saving?

Gracie:
That’s a good question. And, that’s where I think we’ll have to look at what our options are. So for example, if we want to buy a property, I’m just going to throw that in there. I mean, we haven’t fully talked that one out, but if we wanted to buy a property that would increase our cash flow in three years or a couple of properties, I don’t know anything, but then that would help us back into how much to save above the 401k. And so that could give us a new saving goal. So I guess right now we don’t really have a saving goal. It’s like, okay, save enough, hit the match, and then our forced home principle. And so we have no other goal right now.

Scott Trench:
Personally, I revised Set For Life. So, well, I guess that is a shameless plug in this particular show, but, I’m going back and rereading that, and I’m like, good God. When I was five years ago, six years ago, I was another person. I was spending only this much, every day I was doing this, I was reading a book every like two days on this. I was working out five, six times a week. Now I look in the mirror. I’m like, that’s what two beers a night, three nights, four nights a week have done to your stomach there. That’s what this is like. And it just gave me a kick in the pants personally to reignite, what was I doing four or five, six years ago.

Scott Trench:
And I slowly drifted away from some of those things to get into this spot where I’m not really feeling as good about some of those things. And I wonder allowed if maybe some of those things may have happened in your budget to a certain degree? Not obviously the…I just was like, huh, something about what I was doing a few years ago, I was happier in some ways with a couple of things and I was saving more and things were going good.

Scott Trench:
How can I get back to that one step at a time, piece by piece with this? And so that was my goal. And so the last six months I’ve gotten back into that. I’m not a 24 year old Scott that’s for sure. But I’m definitely doing a little better than I was this time last year during the pandemic, when I really let a lot of my best practices about how I run my life, go out. And perhaps some of that is happening to you, I don’t know. But perhaps that’s helpful. If not, you can feel free to leave it.

Gracie:
Oh yeah. I mean, we definitely have slowly slid away from our original, I don’t know, discipline around spending, big time. So yeah, there’s a lot of work we could do there.

Scott Trench:
And, that made me unhappy to realize that, and I’m much happier now that I’m never going to get back to the $3,000 a month or whatever crazy glow number I was spending at that point in time. But I’m definitely getting back into shape in a number of ways right now. And it feels good and it’s a process and it’s definitely, you can give yourself permission and we’ll to wax and wane over those things. But perhaps after you set that vision, you can be like, you know what? This next year, we’re going to continue getting every month, a little better here and getting this thing back into the shape that I was in four or five years ago, which is what got us to this millionaire status in the first place. So perhaps that’s one bit of motivation that could be helpful.

Gracie:
Yes. Thank you. Love it.

Mindy Jensen:
And I’m going to throw back out there, the tracking your spending, because when you’re not consciously tracking every single expense, it is so easy for $20 here and $50 there, and $70 there and $90 there. And all of a sudden, you’re like, why am I not able to save any money? Where is all of this money going? And then looking backwards is one thing, you can see, oh, wow, that was a big $250 expense at Ikea that I really didn’t need. But when you’re in it every single day, and you’re looking at your numbers, go look at my numbers, they add up, thanks to my friend, Mr. Waffles on Wednesday. They add up every single time I put an expense in there. And they turn red when I go over my budget. So that is a great big, Mindy you’re doing it wrong.

Mindy Jensen:
The whole world can see at biggerpockets.com/mindy’sbudget. But then I know, that’s open on my computer screen all the time. And I see it and I think to myself, oh, my budget was 750 for groceries, and I’m at 700 and I’ve got a week left. I am going to do everything I can to eat out of the pantry so I don’t have to go over budget. Or, wow, I already hit 800 and it’s week two of the month. Holy cannoli, I am in a mess. So at least it’s like, it’s conscious. And I can be thinking of other things in my budget that I can, like, oh, I’m definitely not going out to restaurants the rest of this month to try and keep everything more in line. I mean, having it there to see where everything is going can be kind of eye-opening.

Gracie:
Yeah. I agree with that. And we track it all the time, but we still don’t follow. We don’t see the red, oh, we went over because it used to be like, oh, 1% of our income off here or there, no big deal, but now it’s kind of a big deal. So I don’t know how to get back into that. But I do think you’re right. We need together to actually agree on the numbers we don’t want to go over.

Mindy Jensen:
Yeah. And that’s the money date.

Scott Trench:
Pick one and make it the goal and get it back on track. I was tracking my alcohol consumption on a daily basis, I’m like, there’s a four, what the heck am I doing? But then there’s a three this week. There’s a five, it is like, what am I doing? That’s so much booze that I’m consuming. It’s so bad for me. Obviously this is not your issue. You have a baby on the way from that. So I’m using an example that clearly does not apply, but that’s like kind of perhaps, put them on, stare at them, and then pick one and fix that one, and then pick another one and fix that one, and pick another one and fix that one. And give yourself permission to have it be a six month or a year process to do it because you’re not going to be able to go cold Turkey and cut all this stuff out.

Scott Trench:
But perhaps that would be a good way to attack the challenge here. And, you know you can do it because you’ve been there. You’ll never get quite back to the financial shape you were in before you had two kids soon to be three and all these other things going on. But perhaps you can say, I’m going to buckle up here and figure out a couple of these points bit by bit and make it a point of pride to get to where old Gracie would’ve been very admiring of the discipline that’s in there, five, six years later.

Gracie:
Great, love the motivation. Yeah, we need it.

Mindy Jensen:
Awesome. Well, Gracie, thank you so much for sharing your story with us. I thought this was a lot of fun and I really appreciate your time.

Gracie:
Thank you so much. So helpful.

Mindy Jensen:
We’ll talk to you soon.

Gracie:
All right, bye.

Mindy Jensen:
Okay, Scott, I think that the only piece of advice we didn’t give Gracie was maybe she should try winning a lottery, which is actually really crappy advice. I like her story, she has set herself and her husband up in a good financial position. And I think now you’ve said it pretty succinctly, she’s got three options to choose from, which one does she want? Or which combination does she want to use? Which combination of levers does she want to use to move herself forward?

Scott Trench:
And one thing we didn’t touch on during the show, but we talked a little bit afterwards in the post-recording, was this concept of maybe earning more income, perhaps with her tax background, there are seasonal parts of the year where she could work and hire out childcare during those periods of time. And that might help her bring in some seasonal income that might be very high dollar per hour, for example. So a couple of options, that was one option we didn’t discuss in the show, but one that we wanted to call out there. I think that the reality though, is that it’s a tough situation from that. It is a tough mental situation. She’s obviously done really well and has won in some way, she’s a millionaire, and probably is set from a Coast FI perspective.

Scott Trench:
But we couldn’t find a way to say, hey, here’s how to stay home or have both of you guys stay home. And here’s how to spend more in a general sense. And here’s how to accumulate more wealth and produce flexibility. She’ll have to go and make a determination along with Frank about what they want a few years from now and in the presence and be realistic about what will happen if they choose those paths and then live with those choices. So there are a number of good ways to approach things, but none of them get all of the things that we want. And from the goals that she stated at the beginning of the show, hopefully it was still helpful for her and Frank though.

Mindy Jensen:
I think it will be. Yeah, I think they have a lot of things to talk about and what they decide today doesn’t have to be the only thing that they can do forever. Let’s make a plan. And I think that they have been really good at creating a plan to get her out of debt and creating a plan to reach FI, in six years, that’s awesome. And creating a plan for this, but then I think that they don’t currently have a plan and that’s where they are needing to work on. So I think you gave some great ideas and I would love to check back in with her in about six months and see where they pivoted to. Okay, Scott, should we get out of here?

Scott Trench:
Jinx

Mindy Jensen:
From episode 324 of the BiggerPockets Money podcast. He is Scott Trench, and I am Mindy Jensen [inaudible 00:55:01].

 

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In This Episode We Cover

  • Coast FI and using it as an alternative to traditional financial independence
  • Budgeting, expense tracking, and knowing where your monthly income is going
  • Pivoting to part-time when trying to slowly leave a job you don’t love 
  • Increasing your “financial flexibility” without sacrificing a ton of time
  • Budgeting red flags and where most families fail in saving money
  • Whether or not being heavy in retirement funds is a wise move in early retirement 
  • And So Much More!

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.