Finance Friday: Why Retiring Early Isn’t As Simple As You Think

Mindy:
Welcome to the Biggerpockets Money podcast Finance Friday edition, where we interview Phil and talk about minimizing hours at a stressful job and overcoming the mental block to five. Hello, hello, hello, my name is Mindy Jensen and with me as always is my rock solid co-host, Scott Trench.

Scott:
All right, Mindy, I’m so glad you get bolder and bolder with these intros. I’ll never take them for granted. That said, I think you’ll still find that this episode is an absolute gem. Mindy.

Mindy:
Scott and I are here to make financial independence less scary, less just for somebody else. To introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you are starting.

Scott:
That’s right. Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate, start your own business or leave no stone unturned in your financial position. We’ll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams.

Mindy:
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.
All right, Scott. I am excited to talk to Phil today. I think that he has a great financial situation, but he is embarking upon the same decisions, the same problems that all early retirees have. When do I leave? And he’s actually got an unique situation because he likes his job. Well, guess what? If you are pursuing financial independence, once you get there, you don’t have to quit. How do I know this? Because I am a shining example. I am financially independent and I still have a job. So be like me, be like Phil, you don’t have to quit if you don’t want to. You can still like your job and still be financially independent.

Scott:
Love it. Shall, we bring him in, Mindy?

Mindy:
No, we still have to do our Money Moment, Scott. We have a new segment of the show called Money Moment, where we share a money hack tip or trick to help you on your financial journey. Today’s Money Moment is, are you an impulse shopper, Scott? One way to avoid overspending is the 30-day rule. If an item catches your eye, save it to your wishlist for 30 days. If you’re still thinking about it in 30 days, go ahead and purchase it. If you’re too impatient for that timeline, try 20, 48 hours. All right, now before we bring in Phil, let’s take a quick break.
And we are back. Phil is a father of two with a good job and a high salary. He has a great cash flow from a small rental portfolio and strong investments. However, his job is stressful and requires many hours. He would like to pivot his financial decisions so he can work less and spend more time at home. Phil, welcome to the Biggerpockets Money podcast. I am really excited to talk to you today because I think you have a decision to make that a lot of people listening to the show have to make as well.

Phil:
Thank you so much.

Mindy:
Let’s jump into your numbers. I see a salary of $20,000 a month. That is awesome. And are you hiring?

Phil:
We are, yep.

Mindy:
But that’s not all. I see 50 to $60,000 additional from short-term rentals. I see monthly expenses of $6,400. So clearly this is not the issue. As I’m looking at your expenses, what I note is normal even low for your income. $2,700 a month for your primary mortgage, $500 for groceries, 150 for restaurants, 300 for house supplies. The only thing that I would note is that everything is in round numbers. I’m assuming that’s just for convenience. I would make sure that all of these numbers are accurate, but since you’re on the show, they probably are.
So you’re essentially making three months of expenses for every month that you work. Your spending is not the problem. We don’t need to continue on there. Investments, well here’s where you don’t have a problem either. We have an investment portfolio that totals $1.15 million, not including the rentals. You have four additional rental properties. We’ve got $140,000 in a 403b approximately a million dollars in past 401ks in IRAs, $60,000 in an after tax brokerage, 140 in 529 plans, 90 in cash and $25,000 in crypto, which I won’t discuss because even if that went to zero, that would not hurt you. Debts, what are those debts? Just mortgages. We don’t care about those because they are tied to an asset that is producing income, producing quite a bit of income. I don’t really see a problem. What are you here for?

Phil:
Well, I think the main thing I’m trying to figure out is how can I work less in my W2 and be home more with the family and just have some more free time.

Mindy:
Just quit. No. Well let’s look into your money story. What does your money life look like?

Phil:
Yeah, I think I grew up in an average middle class house. Paid my way through college with student loans and working during school and eventually went on and got some advanced degrees and tried to get those loans paid off as soon as I could. And to be honest, I wasn’t really tracking our finances and net worth until just a few years ago when started really diving into Biggerpockets and some other podcasts and I had accounts all over from all different employers and then I brought them together. And that’s when we started to realize that we did have some savings but also that maybe we should take that leap and get a rental property, which we did in 2019 as our first investment.
And so far that has gone well and we’ve been able to acquire a few more and now we’re starting to realize that as they’re growing could it offset some of my W2 income so I can try to be home more. Because I’ve always been one to pick up extra shifts and just work as many hours as I could. And I think lately we’ve come to the understanding that well maybe there’s other avenues that we could pursue and figure out if we can get to the end faster.

Scott:
I mean, going back to your financial position for a minute here. We said 1.15 million, but I counted well over that between the after tax brokerage. I mean just between after tax brokerage, your 401k and your 403b, that’s 1.2 million. We’ve got 90,000 in cash and 25,000 in crypto. And while the crypto probably used to be 75,000, you’re still doing really well overall with your vision there. And this doesn’t count the real estate. I’m counting 250K in your home equity. And how much equity would you estimate is in the rental property portfolio?

Phil:
I think there… Let me do the math real quick. I think we probably have over half a million if not maybe a little more in the rental properties.

Scott:
Okay. So we had half a million in rental properties, 250 in primary and then 1.3, 1.4. So you’re right around 2 million bucks in total net worth. Does that feel pretty right? Maybe just a hair under that?

Phil:
I think that’s, yeah.

Scott:
Awesome. And what do you do?

Phil:
I’m a physician assistant in the emergency room.

Scott:
Awesome. And does this job give you the option? You said extra shifts, can you reduce shifts? Is that an option that’s available to you?

Phil:
Yeah, so years ago I was looking at just trying to slowly eliminate a shift maybe every year or every two years to free up some time. I can always work more of course, but I’ve been working probably on average about 55 hours a week for the last 10 plus years. And I enjoy what I do, but at the same time my kids are growing fast and I want to be home as much as I can.

Scott:
And how old are your kids?

Phil:
11 and nine.

Mindy:
Do you want to continue to work?

Phil:
I do.

Mindy:
Or do you want to work zero? So how many hours a week feels good because if they’re 11 and nine, are you homeschooling or do they go to school?

Phil:
They go to school.

Mindy:
Okay, so they’re in school 35 hours a week and that’s a little bit different because if you’re in the ER here, let me tell you how the ER works. They don’t schedule their emergencies and it’s busy nights and weekends. So I’m wondering do you work more during the day or during the evenings?

Phil:
We do 12-hour shifts, so most of the time I go in kind of mid-morning and then I get home late at night and that also includes some nights and holidays and weekends and things. So it’s very sporadic as far as I don’t have a set schedule, so one week I could do seven shifts in a row and then have some time off or work three or four shifts.

Scott:
What would need to be true for you to feel comfortable with stopping entirely from your job? What does that look like for you right now? If you were to guess at a financial position, is there a number from a net worth perspective or flow?

Phil:
I think to walk away entirely, I think I would have to have somewhere around 150 annually is what I’m thinking that because I trying to purchase health insurance and other things, I think that would change that number depending on those costs. I don’t know if I could ever stop working completely. I’m always doing something on my days off or looking for the next project, which I enjoy being busy with those things. But I think, I guess I don’t know, I can’t see myself just sitting around.

Mindy:
From a physician perspective, how much time do you have to work to stay active and up to date on everything that’s going on? I was talking to the physician on fire and I asked him, I think a month or so after he left, could you still be an anesthesiologist? And he said I could right now, but in another month or so, I’m not going to feel comfortable doing that anymore because I have let it go for so long. If you worked once a week, like you worked every Tuesday for 12 hours, would that be enough to keep up your skills?

Phil:
Probably not.

Mindy:
Okay.

Phil:
But I could do eight shifts a month and still get the option for benefits through my employer and I think that would be terrific if I could.

Mindy:
Phil, could you be comfortable working eight shifts a month?

Phil:
I could. I think there’s an unknown and I went from doing 18 to 20 shifts a month and the thought of going down to age just seems uncomfortable in a way.

Mindy:
Ooh, this is what we really need to explore because my husband went through this when he was leaving his job, you pursue financial independence then when you get there you’re like, ooh, do I really want it? Yes, you really do because he’s busier than he is ever been and he doesn’t have a job. I like to introduce him as this is my husband, he’s unemployed and most people are fine with it. Every once in a while somebody will know this and not know this and be like, oh, she’s got a problem with that. And it’s not an issue, but why is it uncomfortable for you to not work 18 to 20 shifts? If you worked 15, would that feel okay? If you worked 10, would that feel okay? How few could you work and still feel good about yourself?

Phil:
Well, since I submitted the information, I actually went, I’ve cut down to 15 as a trial, so the last couple months I’ve been doing that and I figured I’d give that up a period of time and see how it goes and reassess things later this year and then maybe make a decision and try to cut back a little more. Or in the months that we are busier and we have a trip, then I feel like I don’t have to work so much leading up to that and then also work a whole lot when I get back. So I’m trying to figure out that balance, but it’s just something I haven’t done for years. I’ve just always worked, worked, worked.

Mindy:
Well. Yes, and that’s how you get burnt out. How does it feel working 15 shifts a month, how long have you been doing that?

Phil:
Been doing that about the last two months. It’s been great. I’ve been able to take a week off every month and it just allows you to recharge and have a break from things and also just again, be home more. Being able to eat dinner with the kids and go to their events has been worth it.

Scott:
How much income does 15 shift shifts a month bring in? Is that still the 20,000 that we’re talking about?

Phil:
No, probably bring in about 15,000 a month gross.

Scott:
Awesome. So if you feel confident in your expending you had $6,400 a month in total spending really including everything. And that’s a pretty hefty mortgage too with that. So you have that under control. So that annualized a $77,000, your short-term rentals bring in 50 to $60,000 a year. Is that right from your rental portfolio? And do you feel pretty comfortable in that? Is that a pretty conservative projection?

Phil:
That is. The one number that we don’t have yet is that we bought a property at the end of last year that is we’re trying to make another short term rental out of, and I think it’ll depend on how the summer season goes to see where we end up with that. But so far we’ve been very fortunate with the other properties and what they’ve generated for us.

Scott:
So do you think that that number will go up once you stabilize this next property?

Phil:
I think it will. I think we have from looking at other properties in the area, I think we were underpriced. So I think this year we’ve tried to increase our rates a little bit and so far looks like our bookings are doing well.

Scott:
Awesome. So you mean you’re essentially there just with your short term rental portfolio in covering your living expenses, you’ll have a nice cushion, so you probably wouldn’t be comfortable with that. You won’t be building wealth and you probably should still be having some positive surplus and margin of safety there, but you’re really close and I think the reason why you’re feeling good about the drop in shifts is because you’ve gone from working way more than 40 hours a week till I just calculated it 42 hours a week with 15 shifts a month on a 30-day month. That’s how specific I got in that particular little quick math. So working 40 hours a week is way better than working 55 to 60 hours a month, especially in 12 hour shifts. So I bet that feels great.
I would keep just cutting down for the next six months just cutting a shift every quarter or two shifts every quarter and gradually kind of unwinding here until you find the magic place for your happiness and keep doing what you’re doing on the rental property stuff. I mean, if you just keep doing what you’re doing, you’re going to accumulate $10,000 a month from your income alone plus another five or $6,000 a month from the short term rentals in cash is what I’m calculating here back at the napkin.
So that’s 150 to $180,000 per year in straight cash accumulation. And I’m assuming that much of that is after your 401K contributions and after your other investments. Is that an accurate assumption?

Phil:
Yes.

Scott:
So I mean, yeah, you just keep doing what you’re doing with the later load and you’re still go, you’re going to continue to shoot way past fi and be able to spend that. If you got to a point where you just matched your household spending from your shifts, that would be one way to think about this as well. And then your short-term rental is all of your wealth building. That could be yet another way to think through this.

Phil:
Yeah, it sounds great. It’s just harder to imagine that and because it’s just something I’ve never done and I don’t know it, on the numbers, it looks good, but then it’s a matter of just doing it.

Mindy:
Well, it’s super easy for Scott to sit there in his cushy chair and say, oh, just don’t work anymore. It’s really easy to run the numbers on your paper and be like, yep, I’m fine. But it’s really hard to walk away from your life, not your life. You worked hard to become a physician assistant that you just don’t go to college for five minutes and they’re like, here you go. Go diagnose people. There’s a lot of work involved in that. Have you read the book Taking Stock by Doc G? Okay, that is this book right here. I want to grabbed it off of my cabinet before we started this show because I wanted to recommend this book. He’s a doctor, he talks about taking… It’s not just for doctors, it’s for anybody who is at a crossroads in their life. What do you want your legacy to be?
Who are you and what is it that you identify with? And being a doctor is awesome. It doesn’t sound like you want to stop being a physician’s assistant and it doesn’t sound like you have to. If you can step down over the course of a quarter, you’re at 15 shifts now stepping down one shift every quarter, it’ll take you a year and a half a year, and three quarters to get to eight shifts a month. What does your company say about eight shifts and maybe you decide that 10 feels better. You’re okay with ten because your kids will turn into teenagers and you’ll be like, hey, I don’t necessarily need to be home every minute of them yelling at me all the time. Looking at you girls, my kids.
But yeah, sometimes you can find a balance, maybe different than what you thought. But eight shifts a month, I mean, what is that two a week? It could be really advantageous, especially if you’re willing to pick up a shift when they’re running short or somebody calls off. There’s a lot of flexibility and I think your employer is willing to work with you when you’re willing to work with them. Hey, this is what I want, and then I can pick up to three shifts a month in a pinch.

Phil:
I think that’s where I’m trying to get to and it’s just a matter of probably me having to let go a little bit. But also one of the things that I just always respect with listening to your show is having you guys look at it from a different kind of perspective and set of eyes. And say, is there anything else that I should be doing or that you would recommend that’s going to make this transition over the next couple years easier?

Scott:
From a math perspective, so I think first is, I always started from the math, and Mindy rightfully so is starting from a different place because you don’t have a math problem here. But because I can’t help myself, I’m still going to go over the math problem. I’m trying to back into the math on this, but I think it looks like about a thousand dollars a shift is essentially what we’re looking at. Is that a reasonable approximation?

Phil:
Yeah. So eight shifts a month easily covers essentially all of your household spending. Right. And again, is that after tax for a thousand dollars a shift?
Yeah, close to that I think.

Scott:
Okay. So you’re pretty close to covering your expenses with eight probably with some cushion. And again, those expenses include a thousand dollars a month allocation for vacations, which is awesome. I love that. You certainly have a skillset and in a financial position that can support that very responsibly. That includes your $2,700 a month mortgage payment and 215 utilities and 3000 for housing. So you’re in great shape from financial perspective from that. But more than that, you’ve got about a 2 million net worth. If you assume that that’s going to grow at a 10% rate, maybe you can knock it down a few points, but 10% is 200 grand a year.
So you’re at this mathematical inflection point where the returns in your portfolio are beginning to outweigh the returns you can get from your active labor at your job from a financial and mathematical standpoint. And that’s I bet a weird feeling at this point because it’s that at inflection point sneaks up on you if you’ve been grinding for 5, 6, 7 years financially to accumulate cash and invest.
But when you pop out at the strategic level and think through that, it’s like, oh wow, by allocating this to another short term rental, I’m actually generating more real wealth in optimizing that portfolio than I am…. Or even at a certain point just stocking more money in your index funds, in your retirement accounts. Will be generating more wealth than what you’ll be making at your job. And that’s again, that’s a fun place to be. It’s what you work so hard for so long and grind and hustle and consume financial podcasts instead of Nickelback on the car each way to work for years. This is the reward that we reap from that activity.
And I think that’s what you’re probably struggling with from the mathematical perspective, but it’s probably even more than the math. It’s probably more the stuff that Mindy’s talking about and shifting away from your identity of having gone to school for 5, 6, 7 years maybe more to become a physician’s assistant and you also have a skillset that’s helping save lives. So all those things, I don’t know how person can feel all those things at once, but perhaps that’s something in the ballpark there. A couple of observations now that I’ve said all that. If you were to, for example, say I’m going to forget the math part of this in investing and I’m just going to pay off that mortgage, what would that do to the decision that you’re making here?

Phil:
I mean, I think it would take a lot of stress away knowing that we have that cushioning and that the house is taken care of. I struggle with, do I pay that off because our mortgage rate is low and use that money to put towards an investment somewhere else? But at the same time, I feel like right now also our rentals, we’ve been able to manage ourselves and if we grow bigger then we may have to take on some help. So I feel like, yeah, where do we go from here? Do we continue to try to find some short-term rentals? Do we pay down, eat one of the rentals or the primary house or do we leave it as it is and cut back my work and see how things go? I don’t know, it’s the honest answer.

Scott:
I think you’ve got a subjective problem to figure out there where I think I would throw out the math in your situation and say what feels right in that circumstance? Because again, you’re there regardless of which way you slice it. If you keep doing what you’re doing, the pile’s going to grow and grow and grow and grow and grow. 10 years from now, if you keep doing what you’re doing, you’re going to have accumulate another one and a half to $2 million in just straight-up cash before you even get the investing returns on that cash.
And that’s going to give you a really good circumstance. And that’s where I think, and I break out the journey to financial independence into three phases. There’s kind of this aha moment, oh, I discovered this. I’m going to now begin optimizing my position around financial independence. Then there’s a grind, which is 5, 7, 10, just various prime person, which I think you’ve just, you’ve kind of completed the grind.
And then there’s the transition to FI, which I think is the part that I understand the least well, but that Mindy and Carl have gone through and I think that’s the part that I’m still kind of learning about and interested and that’s what you’re going through right now is how does that transition actually transpire? And I have the hypothesis that it’s not a math problem, because to become FI, you actually have to start generating cash flow from your portfolio and harvesting it or reducing expenses in a way that you can actually spend against. And that always goes against the actual rules of investing, right? Paying down your mortgage is not a good financial return, but it frees up your cash flow.

Mindy:
If you take the rule of 72 and apply it to the stock market, you get approximately eight, 9% return rate, which means that your money will double approximately every 7, 8 years. This is based on past performance, it’s not an established fact. You are 45 now?

Phil:
Almost.

Mindy:
Okay. So you have in the stock market 1.4 million. At age 52 you will have 2.8 million. At age 59 you will have 5.6 million and at age 66 you will have 11.2 million. These numbers are not guaranteed. Please don’t come back to me in 20 years and say, you said I would have 11.2 million when I turned 66. But those numbers are going to cause a different problem in that then you will have to have required minimum distributions and start taking money out of your accounts even though you won’t need it because you’ll have all this cash flow from your short term rentals. So you are now going to have another, you are creating a problem for yourself down the road by continuing to work. So you should quit your job right now. You know, the whole transition to leaving your job is difficult and you don’t have to leave your job.
I think this is something that the [inaudible 00:27:18] fire movement gets wrong, is that people are like, oh, I can’t wait to quit. It’s not about quitting, it’s about living your best life. If you like being a physician assistant, if you like that fast-paced ER lifestyle, you don’t have to give it up. You can still do that and go and get your adrenaline rush and excitement for figuring out a problem and helping somebody and saving a life and then go home and spend time with your kids. Your kids want your time, they also don’t want your time. So if you’re gone one day a week or two days a week and they don’t see you on Tuesday and Wednesday, but they know they’re going to get you Thursday through the next Monday, they’ll be okay with that. You will also be okay with that because come Monday you’re like really looking forward to getting into that blood soaked ER room again. But you know, have to be comfortable with it. Have you had a conversation with your wife about this?

Phil:
Yes. I mean obviously she would love if I were home more because up until this point, I mean I’ve always just kind of worked. And then a few years ago, I think is when you really started to look at all of this and try to figure out where do we want to be down the road? And another thing that happened to me is my father passed away and spending time with him when he was sick. One thing he said was that he wished he was just around more or could share more experiences and it wasn’t about the things and the items, it was about time. And I think that’s when you know realize and you look up and your kids are growing and you just want to be there. And it has really, I think kind of set us down this path to say, how can we get more of my time to be home? Because I know that they’re not going to be here at home forever. And once they’re out of the house after high school, the bulk of the time that we spend with them has really taken up.

Mindy:
And I don’t think it has to be in either or. Either I work or I quit my job. It can be a really stepped down process. And going from 20 shifts a month to eight shifts a month might feel like a complete slam for you. But stepping back, li.e it was 20, now it’s 18, now it’s 15, stay at 15 and see how that feels. And then next month ask for 14. Ooh, that doesn’t feel good. Okay, then go back up to 15 or hey, that feels great. Chop down to 13, like step it back until it feels like a good fit. Or maybe you pulled back too much and then ask for more. And your HR department is desperate for people so they will be happy to be able to keep you instead of losing you completely. You’re on the cusp of finding the right balance, but that’s something that you and your wife need to talk about and see.
Does eight feel right for your mental space with your doctoring stuff? That’s an official term by the way. And does that feel right income wise? Have you run your fine number based on the 4% rule in your spending and all of that? Have you run, because I did a down and dirty fine number for you and I see 1.9 based on your portfolio, not including your rental properties? So if you’re at 1.45 or something, 1.5 just in the stock market, you’re 500,000 away and I don’t know how to amend the 4% rule based on rental property income, but I would guess that that 50,000 a year would make up for that. So you could be fi now, but it doesn’t sound like you want to walk away from that either.

Phil:
Well, I guess part of me feels that that money is not accessible. I mean, I know you can do conversions and all these things, but it just feels like to pull that out and not let it grow, I guess I don’t think of that money so much as being accessible right now. I know it will down the road.

Mindy:
That is a good point.

Scott:
I saw you nodding when I was going through the three phases. Did you have an aha moment for financial independence in the last few years?

Phil:
Yeah, I would say, I didn’t even know this was an option. I think I watched my parents, they worked their whole life. They lived in one house and I always thought that that’s what I was going to do. You just kind of grind until I was 65 and then you retire. And then about five years ago, I got into Biggerpockets and some other podcasts and then it just opened up a whole completely new world and mindset because you hear stories of other people and what they do. And then that’s taken me down this path to say, can we accelerate that and what would life look like? And I guess I still feel like I’m in that grind phase that you talk about just trying to continue to grow and invest. And I guess taking that next step is where I feel like, well, what do we do now? And it just feels like a big leap.

Scott:
So what I’m noticing about your position is you’ve got 300, I think 250k in your house and 1.2 in your retirement accounts out of a 2 million portfolio. And that component of your portfolio is what I call the middle class trap for the reasons you’ve self-identified there of yeah, am I going to really pull out my 401K and start spending that down to fund my current lifestyle? That’s, see that’s just very hard concept to wrap your mind around and very hard to endorse to you as someone trying to look out for your interest on the show. I wouldn’t say to do that even though there are strategies where you can do that, but what it does allow us to say is your retirement is probably set. So that Mindy’s math fair of 11 million with a doubling every seven years, seven and a half years, 7.2, that assumes you don’t put anything else into the plans, which is surely not going to happen, right?
You’re surely going to have some excess on an annual basis regardless of which path you choose that’s going to go in there. So even if those returns don’t come true, the fact that you’re adding more will probably make those numbers reasonable. Now they’re going to need to adjust for inflation, all this other kind of stuff, but it’s still a big pile of money. You are what we would easily call Barista Fi, if not totally fi at this point. You don’t have to contribute anything more to your retirement accounts or anything like that, most likely, and you and you’re set. All you got to do is make enough to cover your housing expenses and you’re good to go. But again, you’re going to want a cushion here. And I like the idea of just going to a smaller number of shifts and gradually winding down like we’ve discussed you. You’re going to be really comfortable with that.
One tip I’d have for this would be you spend a good amount on vacations appropriately so. I think that I would encourage you, what do you think about this? Going to one of these places that has a lot of sunshine or whatever it is that gets you feeling good. Maybe you’re a mountain guy, what is your favorite vacation spot?

Phil:
We like to go to the beach, but we also like to ski in the winter. So a little bit of both.

Scott:
Okay, well it’s getting close to beach time. So this is a long season here, but maybe go to the beach and what’s the best part of your day? Is it after a cup of coffee or a workout or when are you feeling like your preppiest?

Phil:
Usually after some coffee in the morning. So that

Scott:
Like go there, have a meeting with your wife, let your boys do whatever they’re doing and sit down once you had your cup of coffee at the beach and your next vacation and say, my ideal life, my ideal day or week looks like this and I don’t have to worry about money at all. What is that going to look like? I betcha you have something that involves a shift or two at your work saving lives, and I bet you have other days that are doing different things. And if you can back into that, maybe some of the answers will become clear. And then the second part of that challenge that I do, maybe the next day after you’ve kind of noodled on that is I would sit down and say, if I gave you 2 million in cash, which is approximately what you have or what you will have at the end of this year if you keep up what you’re doing. Unless the market crashes course, but if I gave you $2 million in cash, how would you deploy it from scratch to build the lifestyle that you want?
That maps the first part of that, right? And you won’t be able to transition in your portfolio to the ideal one. But if you came up and said, I want 500… If maybe you reconstruct exactly what you have, maybe you start with something completely different. Maybe you have three options that you’re not sure of, but if you can start from that premise, I think that will be very freeing. And my big encouragement in that process is treat this less like a optimized portfolio problem because you got an optimized portfolio. Treat it like a, what’s freedom to me? What makes the decision to pursue the life that I wanted in that first part? Very easy. And again, that’s where I think that the paid off mortgage suddenly becomes attractive even though it’s terrible financial advice to tell you to pay off your mortgage probably at 2% or something, right?
Three and eighth it looks like. But maybe that’s what makes you feel super comfortable with eight shifts a month. If you just spend the next year or two, hey, I’m just going to knock that out and I’m going to refinance something else and knock it out, then I only need to make $3,700 a month and I’m good to go. Kids colleges are funded, everything is set. I’ve got cash flow. I work on a short term rental every other year because I like it and the wealth continues to build. I don’t know, that’s an example, but what do you think about those two approaches?

Phil:
Yes, I think that’s what we’re trying to figure out. And I like the idea of just sitting down and just trying to design this and then figure out, okay, well how’d we get there? And Mindy, we talked about the book Taking Stock. Last summer, I read that while we were on the beach, and I think either I was just in the right place for that book and it just really, I think opened up my eyes to a lot of things and it’s a good book to make you think about life and some of these questions and I’m trying to work through that.

Mindy:
Yeah, it’s not a light read at all, but it’s a really good book. As you come to the end of your work life, the end of a big crossroads, what are you looking for and what are you going what legacy are you going to leave behind? I think it’s a really great, great book. It’s called Taking Stock by Jordan Grimmett, a Hospice Doctor’s Advice on Financial Independence, building Wealth and Living a Regret Free Life.
Phil, this was really a great show. I had a lot of fun with your situation. When I first read your numbers, I’m like, what does he need help with? But this transition is really difficult and I think you have some homework to do. And number one is talking to your wife, like Scott said, what does your ideal portfolio look like? What does your ideal life look like? I think you’re on the right track just by starting to step back your shifts naturally anyway. But you are in a fantastic financial position. You’ve done a great job. It’s really easy to just spend every dime that comes in. So you’ve done an excellent job not doing that. Congratulations.

Phil:
And thank you.

Scott:
And my parting thought will be, your position is optimized right now, right? Still, you’re working full-time at a high paying gig. You’re highly leveraged in your real estate portfolio. Doesn’t see appear to be irresponsibly leveraged, but you’re leveraged. Your maximize returns, that includes with your primary mortgage. You are in essentially an all stock portfolio downstream that is optimized. Your math is perfect. You can’t argue with any of it. That may be your problem. You may have to sacrifice that optimization in order for the very simple reality of the fact that you are wealthy and have all the options in the world to begin hitting home and for you to be able to feel the actual impact of that position.
Again, if you had only two of these properties, but they were paid off, you’d have way more cash flow essentially, even though it would not be the same IRR. And I think that grappling with that and forgetting what you’ve learned all this time to build your portfolio and starting from a clean piece of paper could be very freeing for you. And that’s going to be the challenge. Can you, as clearly a mathematical optimizer who’s who has really internalized a lot of the best practices in investing and managing your money, can you break out of that and actually build a portfolio that will allow you to live the life you want? So that’s a hard question.

Phil:
Well, I appreciate everything that you guys do in the whole Biggerpockets community. It’s truly life changing. So thank you.

Mindy:
Thank you, Phil.

Phil:
Thank you.

Mindy:
And we’ll talk to you soon. All right, Scott, that was Phil, and that was fun. I did a little bit of reliving when Carl was trying to come up with the idea that he wanted to quit his job. Well, he had had it for a while, but then once you get to the actual, do I want to quit? I don’t know. Am I ready to go? Carl ended up stepping down to three days a week, and then he ended up leaving completely. And maybe Phil will decide that eight shifts a month really fits him and continues to do that for many, many years. Or maybe he decides, you know what? I really like the time that I am not working and decides to pursue the RE part of fire, but I think he’s hit the FI part pretty handily. How about you?

Scott:
I think I was going back to that framework, I’m not sure it’s right for all the stories in fi, it’s certainly not right for all the stories in fi, but I think it’s becoming more and more convinced that those are kind of like, that is a good way to break down the journey to financial independence, right? The aha moment when someone discovers financial independence, they can do that from a position of being really heavily in debt or in perhaps a position of a couple hundred thousand dollars in net worth, but most of that in their 401k or home equity. The grind to rebuild a financial position that can actually establish financial independence perhaps through real estate, perhaps through after tax, stock portfolios, side hustles or whatever. And then this transition to actually, whoa, I’m worth close to $2 million. I have tens of thousands of dollars in passive cash flow. I’m there.
I can make these decisions about my life. What do I do and how does that impact my identity as a physician’s assistant in this case? And again, I come back to this concept of once you’ve built that position and so unoptimized the portfolio for so long with index fund investing, all these best practices that are really well validated, and I believe fundamentally. I still think that most people who are truly financially independent and actually can make that leap, have an ace in the hole. And that ace in the hole typically has to do with, well, it doesn’t, there is no typical a military pension. I’m going to continue to work a few shifts. I’m going to get a job at Biggerpockets hosting the Money Show podcast. I’m going to have a real estate portfolio or be an agent, or I’m going to break some of the rules around best practices investing in leverage real estate with the 4% rule. And I’m going to actually invest in something that is probably not optimized, but generates spendable taxable income that I can actually use to sustain financial independence.
And I think that’s hard after you’ve spent years or decades optimizing a financial position to begin breaking some of those rules in order to actually achieve the benefits that we’ve gone after for so long.

Mindy:
That would be a very interesting show. How did you start to break these rules once you got past the FI hump? That would be, that’s a very good question for our Facebook group. If you have started to change your mindset after reaching financial independence, shift from saving to spending, we would love to hear how you got over that because it is a big struggle for me currently.

Scott:
I would be really interested in that discussion, and my hypothesis is there is no typical way. We’re not going to get a set of answers that are all in a pattern other than the fact that everyone’s going to have, or 95% of the people who are actually financially independent and have left work or materially reduce the amount of hours that they work, have some kind of ace in the hole beyond the 4% rule. And pass a cash flow from a leveraged real estate portfolio. That would be my hypothesis. I’d be really interested to hear from folks that have left their jobs or made a big career change because of the padding that their financial independence position has gotten them.

Mindy:
All right, Scott, should we get out of here?

Scott:
Let’s chalk it up.

Mindy:
That wraps up this episode of the Biggerpockets Money podcast. He is Scott Trench, and I am Mindy Jensen saying bye-bye, butterfly.

Scott:
If you enjoyed today’s episode, please give us a five star review on Spotify or Apple. And if you’re looking for even more money content, feel free to visit our YouTube channel at youtube.com/Biggerpocketsmoney.

Mindy:
Biggerpockets Money was created by Mindy Jensen and Scott Trench, produced by Caitlin Bennett, editing by Exodus Media, copywriting by Nate Weintraub. Lastly, a big thank you to the Biggerpockets team for making this show possible.