Bad debt is more common than it seems. Many people you know have a car loan, personal loan, credit card loan, or some other form of high(er) interest debt. If you find yourself with bad debt, the first thing to do is formulate a plan to get rid of it, unless you want your savings and potential investments to suffer the consequences.

Today’s guest, Stephanie is in a financially solid position, but she has some bad debt to take care of. She’s on her way to financial freedom by forty after already owning a home and having some retirement investments growing in the background. But, her $13,000 window loan at ten percent interest is causing leakage of investable cash flow.

Yet, Stephanie may be in a better position than she thinks. Since buying her house, she’s seen a big increase in her property value, which may enable her to secure some lower interest financing to pay off her window loan. Scott and Mindy also help Stephanie develop an expense tracking plan, debate whether or not whole life insurance is worth it, and put her in the driver’s seat to become a cash-flowing landlord only a few short years down the road!

Mindy:
Welcome to the BiggerPockets Money Podcast, show number 266, Finance Friday edition, where we talk to Stephanie about starting down the path to financial independence. There’s a lot of different options. There’s a lot of hybrid solutions you can do. You’re the only person that has to work for. There’s a lot of different options available, you just have to figure out what works for you. The fact you’re thinking about it at all, puts you head and shoulders above so many other people. Hello, hello, hello. My name is Mindy Jensen and with me as always is my, looks like he has a black eye co-host, Scott Trench.

Scott:
I think it’s really in style, stye, these days, Mindy, this eye.

Mindy:
That was terrible. Scott-

Scott:
I enjoyed it.

Mindy:
… claims he has a stye, but it really looks like he got punched in the eye. Either way, 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, going to make big time investments in assets like real estate, or simply get an overall understanding of personal finance and get started. We’ll help you reach your financial goals and get money out of the way. So you can launch yourself towards those dreams.

Mindy:
Scott, I’m super excited to talk to Stephanie today because Stephanie is basically right at the beginning. She doesn’t have a lot of debts, except for one with a criminal interest rate. I’m very angry at the window company that’s charging her 10% on her window loan. Like I say at the end of the show, I hope they stub their toe every day for the rest of their lives. I think it’s awful that they’re charging so much, but we’ve come up with a plan for Stephanie.
Stephanie is at the very beginning of her financial independence journey. And since this is the very beginning of a brand new year, I thought it would be great to have her join us today to share her story and her numbers. So other people who are also joining us for the first time or just on the beginning of their journey to financial independence could learn alongside her.
Before we bring in Stephanie, I need to tell you that my attorneys make me say, the contents of this podcast are informational in nature and are not legal or tax advice. And neither Scott, nor I, nor bigger pockets 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. Scott, what do you think of today’s episode?

Scott:
What I think was great is, Stephanie has good instincts and she’s doing a lot of things right. She’s built a reasonably positive financial position here, but I think she is diving into the world of personal finance here and it is another language. I’m sure a lot of us have gone through that where it’s just overwhelming, like, what is a Roth? She didn’t ask, she did this particular question, but I can imagine someone new to this thinking, what is it a Roth versus a 401(k)? What’s a HELOC? Why should I track and budget my expenses with that? How long does that take? Can it be done in 10 minutes or is there four to eight hour slog to get it done right the first time and set up and maybe iterate on a few times with that?
All of these little things are hard individual decisions that many of us have long ago mastered, but I think are really overwhelming to folks with that. They’re very powerful and need to be put in place, but it comes down to, this is a 100, 250 hour investment. I think of time to learn all the ins and outs of personal finance. And you have to want to do that and understand that the payoff of that is millions of dollars in lifetime wealth if you’re doing that in your 20s or 30s.
I think that was the best advice we could give Stephanie today, was really go and develop those frameworks and understand why behind all these nuanced decisions, by putting in that time over the next six months to a year, casually, passively just a couple of minutes a day, and she’ll get there with that stuff. And then secondly, it was fun to dissect the position, because there was a lot of items in there that we thought we could potentially optimize based on our understanding of the basics of personal finance.
Hopefully folks will get a lot of tactical knowledge about moves that were made there, that will reinforce principles and how we think about certain aspects of personal finance and reinforce the idea of just continuing to listen and learn, is probably the best way to master all these things gradually over the course of a [crosstalk 00:04:51].

Mindy:
This is not, I think I want to fix my finances, so I’m going to tomorrow. It’s a process and taking the first step is deciding to fix your finances. You have to make the decision that you want to get better with money, and then you have to actually do it, track your spending, spend less, earn more. We talk about pulling the four levers. We don’t get into discussing the four levers today, but this is going to be a really great first start. If you’re listening to this show thinking I want to get good with my finances, think about how you can take the information and the suggestions that we give Stephanie today and apply them to your own personal situation.
Not everything is going to apply to you the way it applies to her. Some things you will have that she doesn’t, but you can take information from this episode and apply it to your life and come out on the other side with a good solid plan to start yourself. Stephanie is on the path to financial independence. She’s 29 years old and would like to reach financial independence by age 40. Our podcast has interviewed literally hundreds of people who have reached financial independence within 10 years of starting their journey.
Her goal isn’t at all out of the question, but I want to read some of the things that she shared in her application. We have a form for you to fill out when you apply to be a guest on the show. That form is at biggerpockets.com/financereview, if you’d like to apply. One of the questions is, list your investments. Stephanie’s first line in her answer is, I have no idea what I’m doing here. I’m going to stop right there. My friend, Zena Kumak tweeted something that I thought was rather profound yesterday.
She said, “Learning about personal finance is like learning a language, it takes time and practice. Don’t assume that learning personal finance should be easy. If you wouldn’t blame yourself for not knowing how to speak a language, don’t blame yourself for not knowing how money works.” Stephanie don’t blame yourself, we are here to help. Okay. Back to Stephanie’s application. Another question we ask is about the challenges you’re facing. Stephanie said simplifying everything. It seems so simple, but I’m struggling. Right back to Zena’s tweet. “Don’t assume that learning personal finance should be easy.”
That’s okay, Stephanie, we got you. That’s why you’re here. We’re going to help you out. Scott and I didn’t just learn this yesterday. It’s this lifelong learning. I’m also going to stop you right there. While you and Scott might be slightly close in age, Scott is an anomaly, don’t even think about Scott. Sorry, Scott. You’re CEO, you don’t count. Another question we ask is, do you have a budget? Stephanie responded, not currently but kind of.
I really like that B word, budget. And the follow up to that question is, do you track your spending? She responded, I have before, but not currently. All of you regular listeners know that I’m going to make her track her spending. With this in mind, I want to say, Stephanie, before we start, this is not going to be, wow, look at all the things you’re doing wrong, what a terrible person, episode. This is going to be, let’s start at the beginning and get a plan in place to get you good with money.

Stephanie:
That sounds great.

Mindy:
Stephanie, welcome to the BiggerPockets Money podcast.

Stephanie:
Thank you. I’m happy to be here.

Mindy:
Okay. Well, we start off this episode with the profit and loss income statement. What is your income and where does it go?

Stephanie:
I make about a little over 68,000 a year annually. And then I guess, as far as that it’s car insurance, gas, food, utilities, mortgage, and a large window loan, because I live in Florida and impact windows are a must.

Mindy:
Okay. Your monthly after tax is about $4,500?

Stephanie:
Yes.

Mindy:
Do you have any additional income?

Stephanie:
I do. My boyfriend moved in a few months ago and he gives me an additional 600 a month for rent.

Mindy:
Okay. Your monthly total income is 5,100?

Stephanie:
Yes.

Mindy:
Okay. Let’s look at your expenses.

Scott:
Can you give us a little bit more context as well about this? You live in Florida, what is it you do professionally?

Stephanie:
I am an environmental engineer and I work with a small consulting firm that does watershed model modeling and vulnerability assessments for coastal threats, rainfall threats, those things that need to be modeled and assessed.

Scott:
Great. We know we need to get better control of spending, we’ll talk about how to track spending and all that stuff going forward. But how much would you guess at the end of each month is piling up in your bank account? Are you on average saving 100, 500, 1000, what does that look like for you?

Stephanie:
Saving, I think it looks about 500 if I don’t go over and have a trip to HomeGoods that fulfills everything I want in my home, but nothing I want in my bank account.

Mindy:
Step number one, stay away from HomeGoods.

Scott:
I’m going to mentally think of that as about $3,000 a year, somewhere in that ballpark and savings. Is that a reasonable assumption?

Stephanie:
Yes. Yes. Because I am trying to focus more on paying off some debt. We can probably talk about this later, but the PMI off of my home loan, that would be a nice thing to not have. Trying to throw more money at certain things to then save other things.

Scott:
Well, now we can go to Mindy’s question with that. What are your investments or assets and debts with that? This is your net worth statement.

Stephanie:
I haven’t actually calculated it, but assets would be, I guess my home, but I have only about 8% in that or 8.2% equity. And then other than that, I have an account that’s a traditional IRA that I’m getting transferred to a Roth and that has about 18,000 in it. And then I have about 12,000 cash savings and another 1,800 in a brokerage account that I thought was being invested and it wasn’t, so it was just like a cash savings account the whole time.

Scott:
Okay. We’ve got about $30,000 in liquid assets between your retirement account, your cash savings and this brokerage account. Is that right?

Stephanie:
Yes. Yes.

Scott:
Awesome. What kind of debts do you have against those?

Stephanie:
Well, owing on the home, I still owe about 180,000 on my home and then I have another, my impact window loan, I still have another 13,500 on that. Those are my big debts.

Scott:
Do you have any other debts besides those?

Stephanie:
I don’t have any other debts. No car loans or anything.

Scott:
Great. You essentially have, I’m going to think of the window loan as part of your home mortgage with that. What’s the interest rate on that?

Stephanie:
That’s 9.9.

Scott:
Okay. I’m not going to think of that as part of your home mortgage, that’s a higher interest rate. Well, first thing I want to acknowledge is, I’m sensing that you feel a little overwhelmed by the vastness of the language of personal finance and all of the different decisions that we need to make across the spectrum to feel comfortable with every choice that we’re making with that. I think a good goal for today’s session should be, how do we help you come up with something that is very simple, that you can do for the next six months, that will almost certainly be a good choice for your financial position.
And then how do we help you in general build yourself a toolkit. So you’re able to make all of these decisions with confidence about what you’re investing in, how you’re investing in there, how you track all of this stuff and how you can measure progress against that. And again, want to continue to acknowledge this is great considering, it sounds like you’re very new to this world of personal finance and learning the ins and outs of these types of investments and this kind of stuff.

Stephanie:
Accurate.

Scott:
Well, great. The first thing, you want to become financially independent in 10 to 12 years, right? With that, and to do that, we’re going to have to invest. But before we invest, we need to think about attacking bad debts and building an emergency reserve with that. What stands out to me based on what we just discuss here, is that you have this window loan of 13,000 bucks, 13,500 at a 10% interest rate, 9.99%. Is that correct?

Stephanie:
Yes, that is correct.

Scott:
There’s not much that I can think of from an investment standpoint that has a better return than a 10% interest rate that’s guaranteed. You’re guaranteed to get a 10% interest return if you pay off your debt, versus invest in another asset class. To me, that looks like a really good place to start. Mindy and I were chatting earlier and she had a really good thought where, hey, why do we have a 12 or $13,000 cash savings position and $13,000 in what I would call bad debt? A 10% interest rate is a high interest rate. It’s not a favorable one with that.
One place to start here I would say, maybe you take all but 2,500 or all but 5,000 of that cash position and pay off this debt. And then apply your savings that you’re generating to this debt on top of that extra 250, 300 bucks a month that you’re doing. That’s a really easy decision to make that simplifies everything. It’ll probably take you three to six months between using some of that cash position to pay off that high interest debt. And in those three to six months we can work on building a tool kit for you to think about all of the personal financial decisions that you need to make through a reading list, some audio books.
We will be so cocky as to recommend maybe listening to some of our older, BiggerPockets Money podcasts, or maybe some other podcasts on personal finance out there as well. And just by absorbing that for half an hour, an hour a day, over the course of six months, you should be able to gather a ton of frameworks. You can think about, what is the right amount for an emergency reserve? Should I do an IRA or a 401(k)? What should I invest in within those IRAs or 401(k)s? If I’m going to do index fund investing, what does that mean? What do I need to be prepared for psychologically? And how do I think about that from a long term per perspective with that?
How do I get the PMI off of the mortgage? We can talk about all of these things today, but I think of reinforcing them with some cadence of self education over the next couple of months, would be my biggest tip to help you get comfortable with that. Aside from that, I’ll put that as my most important suggestion. And then we can talk about each of the line items that you do have, and try to answer them as best we can on the call today with all this other decisions.

Stephanie:
Okay. That sounds great.

Mindy:
Okay. I agree with everything that Scott just said.

Scott:
Great. What are some of your questions? Let me try this again. Are your questions more generally like, how do I begin putting together a plan, I don’t even know what questions to ask or do you have some specific questions that you’d like us to answer on the call here?

Stephanie:
I guess my biggest question was where to focus and paying off that window loan to then free up myself to focus on some thing else that’s kind of, kind of already answered that for the most part. But then what do you focus on next as far as, I do own a house and it’s in a rent super rentable area. I went in way under what I was allowed to get for a mortgage, got a house that I was comfortable living in. It was actually renovated, but it’s still a hundred years old. It does need some things. My washer, dryer’s very tiny. I guess, is that worth updating, spending money to do that, when I should maybe be for focusing on saving for a down payment for a duplex?
I guess, I don’t know where my next steps are and maybe it is just the education that you’re talking about and I’m jumping three levels ahead of where I should be.

Mindy:
Let’s talk about this. Step number one, I agree with Scott, should be paying off, or at least significantly paying down the window loan. What is your level of comfort with your emergency fund? A $12,000 emergency fund is awesome. Every time I start to think of something I’m like, wait before that we have to do this and before that, we have to do this. Let’s go back to tracking your spending, which we haven’t even talked about except at the very beginning.
How much does it cost you to live every month? You think it’s about $4,600. Where in your spending can you cut? First of all, stop going to HomeGoods. I’m not trying to be mean.

Stephanie:
No, I know.

Mindy:
I went to HomeGoods the other day and I shouldn’t have gone, because you can’t walk out of there without spending a whole lot of money, because everything’s so cute. But again, just don’t go.

Scott:
I’ve never been to HomeGoods.

Mindy:
Wow. What a shock Scott? I bet Virginia has.

Stephanie:
And this is why you’re an anomaly.

Scott:
I’ve been to Home Depot.

Mindy:
Yeah, same. It’s not the same thing at all. Same, I’ve been to Home Depot-

Stephanie:
Is in the plant department.

Mindy:
Anyway, if you have $4,600 in expenses, can you get that down to 4,000? Can you get it down to 3,500 without feeling like you’re giving something up? Because when you feel deprived, you can go through it for a while, but then all of a sudden you explode and all of your gains are wiped out with some massive trip to HomeGoods. And now you have a brand new, amazing, cute house and your entire savings account is wiped out. Let’s see how comfortable you are with an emergency fund of $1,000 or 2,500.
I would love to see that window loan wiped out by the end of March or April if that is comfortable to you. Right now you said you’re paying $430 a month to the window loan. Once the window loan is gone, you can put $430 back into your emergency fund every month. You can build that up pretty quickly. But how much emergency fund feels comfortable? How secure is your job? How easy could you get another job? Do you work for the government or do you work for a private company?

Stephanie:
Private consulting firm.

Mindy:
Okay. I’m assuming that Florida gets a lot of rain, so there’s a lot of rain studies available. It seems to me that you would be able to get a job pretty easily, but I don’t know, I’m not in that field. These are questions that you have to ask yourself when you’re considering your emergency fund, how much money do I spend every month? What’s the bare minimum that I could get by with? How easy is it for me to get a new job and how comfortable am I in the job security that I have?
Let’s say you’re really comfortable in your job security, it would be super easy for you to get another job and you could cut your expenses down to almost nothing. Then you could have a much lower emergency fund, take that cash savings, almost all of it, pay all or almost all of the window loan off. And then you’re not paying that horrible 10% interest rate. They should be in jail for charging 10%. Step number two is to go to the HR department and get information on their retirement options. Do you have a 401(k) at work? And if you do, does the company offer any sort of match?

Stephanie:
We don’t offer. We don’t have a 401(k). It is something that the owner has been looking at for a while, but it hasn’t actually happened yet. That’s something I’m struggling with is how to do that on my own.

Mindy:
Okay, well that was easy. Okay. You mentioned that you are taking a traditional IRA and rolling it into a Roth IRA.

Stephanie:
Correct.

Mindy:
This is a taxable event, meaning you are going to have to pay taxes on the entire amount that you roll over. This could bump you into the next tax bracket. I’m not sure what the tax brackets are.

Scott:
Why are you doing that?

Stephanie:
That money, which actually this is going to be, I’m probably losing a lot here, the money in that traditional IRA was actually rolled over from two previous 401(k)s from previous jobs. I rolled it over into one account. I honestly thought I was rolling it over into another Roth. I don’t know how I understand when I’m researching and looking. I signed it up with a Vanguard account and I thought what I was getting was a Roth and it ended up not being. Would it be better to open a separate Roth and just keep this traditional IRA as is?

Scott:
My instinct is until you have a really good understanding about why you’re doing what you’re doing, to just leave the money where it is. Understand what you’re investing in, so if it’s in a traditional IRA and you want to invest it, you could consider putting it into an index fund and making sure it’s invested in something that you think will appreciate long term. But my instinct is to advise you not to roll it over from a traditional to a Roth at this moment in time, unless you have a fully formed strategy around that because you will pay taxes on that and then you’ll get the money into a Roth.
I would say, if it’s in a traditional IRA, you should check this. Is it a traditional IRA that is pre-tax or tax deferred. I would keep it there. And for future investments, if you’re looking for an easy answer, again, this comes down to, you have to do a lot of research to internalize these things, because the why’s behind it is a fun two hour discussion if you’re like me. with that. But I would say, keep it in the traditional IRA for now. Don’t take that money.
In the future, when you invest in retirement accounts or put money into retirement accounts, put the future money into a Roth IRA, would be the simple answer I’d have there for now. But again, that comes down to a personal preference and there’s a lot of nuance behind that.

Stephanie:
Well, I’ll definitely look into that.

Scott:
I would say don’t make a big move by rolling it from a pretax to a Roth right now, until maybe after a couple of months of really thinking through some of the personal finance nuances here. Zooming out to simplify all of this, with this, to get wealthy, you have to do two things, right? You have to generate cash and then you have to deploy it. Right? When we talk about tracking your spending with this, your income is 68,000 plus the 600 you get in rental income from your boyfriend with that. That’s hard to change.
You can always think about changing that by getting a new job, asking for a raise, waiting for the promotion, getting a bonus, whatever that is, but that’s not something you can immediately action, take action against following this call most likely, right? If you think there is, then we’d be happy to help you out and go into that. But that’s where I think Mindy and I are recommending on the expense side. If you’re just in control of that spending and where every dollar is going by tracking it and setting an intentionality behind that, there’s probably another 500 to $1,000 in your budget to pick up here on a monthly basis over the next couple of months.
You can do that by doing the grind of tracking your meals out and take out and whatever it is that you’re doing on a day-to-day expense profile. A two step process that might be more effective would be, great, do that, set a budget and say, I’m going to commit to spending no more than this amount on alcohol and this much on takeout and this much on whatever with that. That will help control to a certain extent, but even more powerful are things eliminating the monthly expenses that recur, your mortgage payment, canceling a subscription, or reducing your mortgage payments, or knocking out this window loan payment with that.
And so if you’re able to focus on that over time, you can save 200, 300 bucks a month by just being thrifty and controlling your expenses. You can save 500 to 1,000 a month by knocking out some of these payments that are recurring on here with that. That’s where we start with the tracking of the expenses. That’s I think a really good, day one, weekend project, is to sit down and say, I’m going to sign up for a service like Mint. How would you go about tracking your expenses? Maybe we can start there.

Stephanie:
Previously I used the EveryDollar app from Dave Ramsey. That was okay.

Scott:
That’s a great one.

Stephanie:
I don’t know if I found one for me yet, but maybe it’s just me not having that self-discipline and figuring it out.

Scott:
I think a part of it also is, it stinks. It is not fun work. You have to sit down and it is excruciating, especially the first time with this, where it’s going to take you four hours or the better part of a day to track your expenses over the course of the last couple of months with that. You’re going to have to figure out the system and then you have to figure out what the heck was that payment that with this arcane, that was a gap station in Nebraska that I stopped at with that. That’s why I can’t figure out what it was. I filled up half a tank because the amount doesn’t look.
This process is not fun, and for that, the encouraging advice I would have for you is, too bad, you have to do that in order to I think get control of your spending, at least at first, to really understand it and to make some of those changes. The trade off there is, by doing that for the first couple of months and getting comfortable with it and putting in the time to wrap your head around it, you will shave 10 years off of your working career, probably at minimum from that.
That is a really good return on time, but it is not a fun project if you’re like me, to go through and categorize every one of your expenses. It gets easier and it becomes less of a chore, I think, downstream. Some people genuinely like it, maybe that will be you, but that is not me, for sure. Hopefully that’s helpful context with the tracking your spending piece.

Mindy:
I do it two different ways. I started off with a notebook, my husband and I were just really curious, why are we spending so much money? We started, I put the notebook on the countertop, which is where I walked in the house every single day. Every time I walked in, it was through the garage door. And I went to right there. That’s where I kept my keys. I would write down, I saw the notebook and I have to write down my expenses. It was a daily thing. It was a multiple times a day thing. I started noticing a pattern instantly, because it was in my face multiple times a day.
I made a mental note not to move the expense tracker. I added it up as I went and it was rather shocking how fast it added up and it was rather shocking. The trend, I was always going to the grocery store, every day I would go to the grocery store, and that was my spending problem. When I finally got that under control, we took the, wafflesonwednesday.com wrote an article about using a Google form to make a mobile spending tracker. It’s super customizable.
It’s literally everything that you, if you want to have a different category for beer and a different category for tasting rooms and a different category for wings like Scott has, you can make them all the different categories and get as precise and detailed as you want. As you fill it out on your phone, it goes into a spreadsheet. At the end of the month, you can just look through the spreadsheet. You don’t have to write everything down. The only issue with that is it isn’t in your face and sometimes you can forget. Every time you swipe your credit card, you have to remember to write it down.
But it gets to be a habit and it’s pretty easy to make it a habit. Maybe you do a hybrid. Maybe you put the notebook right where you come in everyday, and you’re like, I got to remember to do my expenses. You write down when you think of it. You’re at the gas station and you think of it with your phone there. Getting in the habit is really, really helpful. There’s also an app called Qube, Q-U-B-E. It’s a digital cash envelope system. You go into their app and you decide how much you’re going to put in each little envelope and you use a debit card and you have to say, hey, on this debit card, I want to pull from this envelope.
It puts all that money on the envelope. And if you don’t have enough money in your envelope, you can’t make the purchase. And so then if there’s not enough money, you have to move things around. It’s not really budgeting or tracking, but it’s forcing you to think about how you’re spending anyway. There’s a lot of different options. There’s a lot of hybrid solutions you can do. You’re the only person that has to work for. There’s a lot of different options available, you just have to figure out what works for you.
The fact that you’re thinking about it at all, puts you head and should above so many other people. Let’s call her the top 1% of Americans.

Scott:
I would agree with everything Mindy said there, with that, that there are numerous apps. There’s this Qube thing. There’s writing it down in a piece of paper. I used mint.com, which is a perfectly fine net worth tracking application that’s completely free to access. Although you’ll see ads on that. I used that for six, seven years. Now, I use, You Need a Budget, my wife and I moved to that software once we got married and merged our finances with that. And then EveryDollar that you’ve used in the past is also perfectly fine.
I think, you could spend two weeks trying to figure out which one of these is the best, I would pick one and EveryDollar, Mint or You Need a Budget are probably one of the best three to start with. They’re probably all fine for what you’re trying to do with that. If you already have paid for EveryDollar, I’d recommend just sticking with that. I’ve used that one as well with this. Man, I am a nerd with this kind of stuff. I would start there and just follow the instructions on how they do it.
Dave Ramsey, Zero-based budgeting works really, really well and I think will be really powerful for that. But whichever one you choose, you’ll have to put in all that time and effort. I like the ones that are digital versus Mindy system a little bit more for me, because they automatically get populated each time. I can just-

Stephanie:
I think that’s my problem.

Scott:
… I don’t have to actually physically write them down.

Stephanie:
We’ll see. I’ll probably-

Scott:
Definitely use the paid version of EveryDollar or the paid version of You Need a Budget, or if you want a free version use Mint. Mint will do the same thing, but be free.

Stephanie:
Okay. Sounds great. Good advice. Thank you.

Scott:
Remember we had two things that you need to think about in order to build wealth. One is generating cash and the second is deploying it, right? All of this budgeting stuff will help you generate more cash or at least not spend as much, or make sure that if you do spend as much, you’re really getting the value that you want from your lifestyle out of that spending. So nothing’s going wasted. Waste as little of that income as possible. And over next couple of years, think about obviously how you can increase that income if that’s something that you want to explore by changing jobs, advancing at your work, whatever that is.
Best leverage we can get over your generation of cash is on reducing expenses and by control, and the first step to do that is understanding it and then controlling those. The next piece comes down to, what do we do with the cash that we generate? What you’ve chosen to do to this point with your cash is you’ve piled up a $13,000 emergency reserve, a little over 12 to 13,000 in emergency cash savings. You’ve put a big chunk into these retirement accounts, and you’ve put a small chunk into a brokerage account. You’ve also put a down payment on a property and have equity in that property. That’s how you’ve deployed your cash.
That’s actually pretty good. I don’t see anything wrong with that to a large extent. I don’t think if you spent the next year reading up on things, you’ll make some tweaks that’ll be subtle and very important, but not fundamentally different than what you’re doing with this, in my opinion. The biggest deployment of cash decision that we have here, I think, has to do with that window loan, right? You are at this point, I would say, not an advanced investor, so you’re not expecting more than 10% annual returns from your investment profile.
That’s why reducing that cash position in your emergency reserve and paying off that debt to whatever extent you feel comfortable with, maybe leave a few thousand in there after that, but that makes a lot of sense. That’s a much better return than the 0% you’re getting in the cash reserve. And the point of the emergency reserve is to avoid accumulating bad debt, like a 10% interest rate. That’s a really good use of cash, is to redeploy it from your savings account to that debt. And then as you generate more cash, as you generate the couple hundred, maybe as much as $1,000 per month, depending on where you think you can get to, once you start tracking your spending, then you have to figure out that approach.
What we think, Mindy and I, I think is that it’ll take you a few months at least to pay down the window loan, even after you put a big chunk of your current cash towards that. From there, in those next couple of months, you need to self educate to figure out what the next piece should be. However, we can also give you some ideas on those last pieces, because there probably is a couple of things you can do on the home side to get there. How you generate cash, how you deploy it. That’s how we’re breaking this down for you at this point.

Stephanie:
Sounds great. Simple is great.

Mindy:
One last thing we didn’t talk about is your life insurance and long-term savings account. Let’s talk about this for a minute.

Stephanie:
That’s one of those things that I started financial advising, and it seems like a good idea. From their explanation, it’s basically a long term savings account. I asked specifically, should I just get a bonds account and be contributing to that? The financial advising staff told me that this is actually better because it’s, is it tax deferred when you pay taxes up front, or which is the opposite?

Mindy:
Tax deferred means you’re not paying taxes on the money that goes in.

Stephanie:
Okay. It’s the opposite of that. No, no, you are. I’m sorry. Basically it’s just better tax if you do it through their life insurance, because it’s the exact same account basically that they offer for a long term investment. I have-

Scott:
My belief is that you have a complicated product that you don’t understand in this.

Stephanie:
Yes.

Scott:
Is that right?

Stephanie:
Absolutely.

Scott:
Okay. Without knowing anything more, my guess is that you have been sold a whole life or permanent life insurance policy with that. You’ve got somewhere in the ballpark probably of three to $500,000 in coverage, would be my guess. Does that sound something like what has been discussed with your financial advisor?

Stephanie:
Yes.

Scott:
Do you know what the payout benefit is?

Stephanie:
Yes.

Scott:
What is that?

Stephanie:
Okay. The payout benefit is, sorry I just had to pull it up. Depending on your age, it goes up. If I’m 29, so it starts to being at 30, death benefits, 130,000, right now.

Scott:
You have really expensive life insurance with this, in my opinion. When you think about life insurance, we had a great call with Joe Saul-Sehy. Mindy, do you remember what episode that was?

Stephanie:
139.

Scott:
Okay, awesome. Biggerpockets.com/moneyshow139 has a great discussion on life insurance with that. My big takeaway from that discussion was, why are you buying life insurance? What is the point? Why do you buy insurance for anything like a car accident? Well, it’s in case I get an accident, I want to cover those types of payouts with that. And so, why do you buy life insurance? Well, I want to buy life insurance so that my dependents or the people who might depend on me are covered and have some sort of financial security in the event of my death.
So suppose, let’s say your goal it to become a millionaire by 40, that’s 11 years from now. Well, if you have a million dollars and your financially free, and you said, my family needs million dollars to live this lifestyle forever, I’m retired at that point, then you need no insurance, right? You could buy insurance to continue padding that, but you don’t need any insurance from this, because you’re self-insured. You have built a lifetime of wealth. You don’t need a million dollar check, because you’ve already got a million bucks in assets with that.
As a single person, before I got married, I didn’t carry any life insurance. I probably, I may never carry life insurance personally, because I have enough assets that I think that my family will not need those types of things. A great way to think about this is, if you’re not married and have no dependents, you may not need life insurance. You may want to have a net worth of 20, $30,000, so that any expenses that would cover your untimely death get covered and do not have to be covered by your family and putting a burden on there.
But you’re already at that. You’ve already got 20 or 30,000 bucks with that. Morbidly that would cover any funeral expenses most likely if you were to pass away untimely with this. If you get married and have kids, okay, maybe then you want to say, I want one, $1.5 million life insurance policy in case I die, so that there is a check there because I’m earning this income that’s not going to get generated to fund my family’s lifestyle. For that, you can use a different type of policy called a term life insurance policy, which will cost 1/15th of this amount per dollar.
Instead of being $160 a month for $130,000 payout, it might be $10 a month for that payout. The difference is, if you don’t die during the term, or hey, if I die in the next 30 years, I get this benefit, then you don’t get anything. The policy you have now is guaranteed to pay out, but it’s 15 to 20 times more expensive. It’s $160 a month drag on your finances. You can’t invest with these types of things. If you are a very advanced investor, then maybe some of the arcane, in my opinion, gibberish, that the whole life insurance policy salesperson spouts can be applied to some benefit if you’re going to apply an advanced long term strategy.
But there’s no way, I think in my opinion, based on where you are right now, that you’re going to be able to apply that or that you’re going to want to apply that. I think it’s a very, very low probability that this is a good, either a whole or permanent life insurance policy is a really strong choice in your situation versus a term insurance policy. And again, this is another one of those things that you got to spend an hour, a couple hours digesting this over the course of some of that self education, a great place to start is that episode 139, with Joe Saul-Sehy where he breaks this down much better than I could there. Is that helpful?

Stephanie:
Yes. I guess, I came into that with this same idea and they basically, which obviously they’re trying to sell their product, is also that this was more of an investment account. My 160 is actually being invested every month. And then there’s an annual dividend that I also get from the company into that investment account. It’s just very slow growing, which is how they got me. Because I was like, if it’s an investment account and my 160 is actually being used for something, that’s a different story than just paying $160 a month for life insurance I don’t really need yet.

Mindy:
They’re trained to-

Scott:
I think a great-

Mindy:
… talk really good.

Stephanie:
Yeah. I know

Mindy:
They sell this product as a great investment and it just might not be. I would ask, and this is a research opportunity, I wouldn’t just say cancel everything, give me all my money back right now. I would look into it. Maybe they have you invested in some amazing product and your $160 a month is now $46 million, but it’s probably not. I would look, I would do research, ask them questions. What are you investing in for me? How much has it grown? What is this costing me? Because it is absolutely going to cost you money to have it invested with them too.
There’s got to be some fees of involved in there. You’re not just giving them $160 and it’s growing and they’re investing for you out of the goodness of their heart. There has to be fees involved in that. What is it costing you and what is your current balance and what happens if you decide to stop, say, I don’t want this anymore? I want my money or I want to stop investing or I want to stop giving you more money. These are all the questions that you want to know what happens when you decide to stop this account. How long have you had this account?

Stephanie:
Only a few months.

Mindy:
Okay. So it’s like five or 600 a dollars in there.

Stephanie:
Yeah. I just started the financial planning process.

Mindy:
Okay.

Scott:
Here’s the thing, if you don’t know what you’re doing or why you signed it up for this and you feel you were sold, I would argue against what Mindy said there. I would bias towards canceling the policy. You can always restart another one with that, when you have a better framework. This is just, I think general advice for anyone listening, if you’re going to a financial planner, you need to ask them, are you a fiduciary to me? I will bet you, 97.5 to one, that this person was not a fiduciary to you, that this person made a commission by selling you this product. That’s how they earn earned money with that. A better way, was the visit free to you, did you have to pay anything?

Stephanie:
The visit’s free. She did say she was a fiduciary. It’s actually, I think with this company, it ends up being that having life insurance feels like it is in my best interest to her. There’s always those kinds of lines to cross.

Mindy:
I will say I rescind my advice. Since you have only been there for a couple of months, I would say, just call her up and be like, I don’t want this anymore, cancel, give me my money. Because if it is pre-tax, you will incur taxes, it’s a taxable event. But it’s like 500 bucks, it’s not going to kick you into the next tax bracket.

Scott:
I’m going to exert some executive privilege here with this. Here’s some advice go to XY Planning Network and look for a fee only financial planner that you think you might like from there, and schedule a virtual or in person call with them. BiggerPockets will cover the cost of that first call with a fee only financial planner, with that. Because I bet you that that person will be able to in that next level, get you a deeper dive into whether this is a good bet. I’ll bet, like I said, 97.5 to one, that the right move is going to be likely to cancel this insurance policy and restart with either a term policy or no policy with that. But we’ll see.

Stephanie:
Okay. That sounds great. Thank you.

Mindy:
We’ll work all of that out outside of this call, but yes, I’ve got that. I’m taking notes on all of your steps to work on.

Stephanie:
Me too. Thank you.

Mindy:
Okay. Scott, now, can we talk about her house?

Scott:
Yes. I’m sorry.

Mindy:
That’s okay. That’s okay. Okay. Stephanie, let’s look at your house. Tell me all about your house, what kind of beds and baths, is it Airbnbable? You said it was in a rentable location. Tell me all the things.

Stephanie:
It’s in Florida. A lot of my neighbors are renters. It’s not, I wouldn’t say it’s Airbnbable because there is the other side of the train tracks is where all the other Airbnbs are. It’s not a bad neighbor, but it’s not high priority where people would stay to be closer to the beach. I am technically still only two miles from the beach though, so possibly. It’s a 3:1, which it’s a hundred year old house. All of them in this area are actually 2:1s. A 3:1, the garage has been turned into a third bedroom. I’ve been looking in to see if it was feasible to get a second bathroom or even a half bath.
At the moment it’s just not, it would be very, very expensive. But the things I want to do to it even to make it more comfortable while I’m sitting in it, staying, planning for the future, and maybe a future investment property, is getting a full size washer, dryer, which wouldn’t fit in the house. I’d have to close in the back patio, put it outside. I was told it’s already going to be $1,500 in just permits. That’s going to be an expensive endeavor as well.
And then I really want a bathtub, especially if you’re renting it. It’s a decently low income neighborhood and there’s a lot of families. If I do rent it, someone’s going to want to a bathtub, not just me. That’s where I’m at with the house. My PMI, it’s actually, I just looked into it. It’s only $50 a month, which is worth it for right now, but still something I’d rather not have. I should focus on the windows and then maybe work on the PMI.

Scott:
What do you think it would rent for if you moved out?

Stephanie:
I’ve been looking, it would rent probably 15 or 1600 a month.

Scott:
Great.

Mindy:
When did you buy it?

Stephanie:
July 2020, right before the whole market went up.

Mindy:
Nice.

Stephanie:
Yeah, right before.

Mindy:
Scott, are you familiar with a rate and term refinance?

Scott:
No, I would love to learn about this.

Mindy:
I don’t know either. I was going to ask you because I wanted you to talk about it. You have PMI which stays on the loan until you have the equivalent of 20% equity. If you bought it a year ago, it’s entirely possible that you have the equivalent of 20% equity, but you can’t request that the PMI comes off unless you refinance, which isn’t going to make much sense because PMI is only 50 bucks a month. I wonder if there’s another way except with, I wonder if you could pay for an appraisal. If you’re a lender and you’re listening to this, let me know if there is a way for her to potentially get her PMI removed.
She has a conventional loan. It’s a 30 year, 2.875 rate. So she isn’t really excited about getting rid of that rate or doing a refinance and incurring all of those costs, just to get rid of her $50 a month PMI. If you know of another way to do this, please hit me up, [email protected] or comment in our Facebook group, which can be found at facebook.com/groups/bpmoney. Okay. What other things can we talk about, Scott?

Scott:
Well, let’s stay on the house here. How much do you think the house is worth right now?

Stephanie:
Initially it appraised for 220 and then once the market started going up, there’s another 3:1 down the street that went for 250. There’s a 2:2, 3 doors down that they just put on the market for 340. I’m thinking maybe 260, 280, if I’m lucky is how much it would, the house.

Scott:
Your mortgage is 180?

Stephanie:
My mortgage is 1200. 1225.

Scott:
Sorry. What’s the balance?

Stephanie:
Mortgage. Sorry. Yes. It’s 180, correct.

Scott:
Okay. That actually changes a couple of items for me. I didn’t realize you had that much equity. I thought you had 8% equity with that. You have much [crosstalk 00:53:13].

Mindy:
You have 50% equity.

Stephanie:
How so?

Scott:
You have about $7,000 in equity in the property. Because if you sold it, you would pocket 250 after closing. Before closing costs enough to get all that stuff. You’d sell it for 250, you’d pay off the mortgage in 180 and you’d pocket $70,000, minus transaction costs. Right? Those would be substantial. Those would be, let’s call it 25,000. You’d pocket somewhere in the ballpark of 45 to 50,000 on selling this property. Okay. That actually changes a few things. I told you that the ways to build wealth were to generate cash and then deploy it. Well, you also have built wealth with this deployment of cash, your net worth has increased.
And so that gives a few more minor options to play with here, with that. One is thinking about a refinance. It probably doesn’t make sense to knock off $50 in monthly PMI, but it is something to, I think ask in the BP money Facebook group, or we can ask that for you and see if any lenders have any advice on what to do. Since you do have so much equity in that proper, there may be some options that we’re just not quite in tune enough with the world of mortgages, to discuss here on the show with that.
Second, you can consider what’s called a home equity line of credit, or HELOC. H-E-L-O-C. That could be a really good option for you to say, great, I’m going to use 7,000 of my cash savings. 7,500 from that 12,500 in cash savings. I’m going to pay down my window loan with that. And then I’m going to take out a home equity line of credit, you may get approved for somewhere in the ballpark of 20 or $30,000 for a home equity line of credit, with that. That will be at a low interest rate, like three to 4%. You can use 5,000 of that, a very small chunk of that to then pay off the remaining window loan.
And then you can pay off, so instead of paying a 10% interest rate on that window loan, you’re paying a three to 4% rate on your home equity line of credit. That would be another option to pursue there, to talk to your local banker. Again, one of those things that I would spend a few hours listening to some podcast or reading up to get familiar with what is a HELOC and can I use that? And where can I go get one? But that would be, I think a potential option for you that has materialized knowing that your property might be worth $250,000 instead of $188,000. That’s great.

Mindy:
Yes. I was going to suggest that as well, get a HELOC and pay down your window loan, completely pay it off completely, and then pay off your HELOC. Now, your HELOC might be, you might be approved for $25,000. You don’t have to borrow all of it. It’s like a credit card where you can borrow some and then pay it back and then borrow again and pay it back. Whereas if you did a cash out refi, you take out the entire amount and then when you pay it back, you don’t get to borrow it again. It’s like this line of credit. It’s this amount of money that you’re able to borrow.
Now, they could close it out. That happens rarely, but it’s just there available for you to borrow. I recommend not borrowing it unless you need to. And it’s a short term loan. I wouldn’t borrow it for long term money, but if you need a quick pay off your window loan, then you still have your cash available, your cash cushion. That’s your only debt, right? I That’s your only debt.

Stephanie:
I learned from you guys not to take out a car loan, so thank you.

Mindy:
Yay.

Scott:
Awesome.

Mindy:
Hooray.

Scott:
Well, let’s summarize what we’ve discussed here so far with this, right? First and foremost is, think about it as, how do I get equivalent of 10 books under my belt. That’s a hundred hours of passive learning about personal finance and over the next year, right? That’s an audio book in the car once a month or a podcast in the morning when you work out or whatever that looks like to you, just getting some sort of way to absorb this stuff so that it’s not all a foreign language with that. And then in the meantime, we have generate cash and deploy it with those two things.
On the generating cash thing, it’s all going to come down to expenses for you in the short term, right? You can always think about the career moves later with that. The first step is just tracking your expenses and getting control over the day-to-day. There might be as much as 200, $300 a month, maybe more in there, just from that, with that. We said, if you remember that we were saving 250 to 300 a month, maybe it was a good ballpark guess as to what was currently going on prior to this call.
If we get another 300 that’s $600 per month in savings, let’s call it 500 a month in savings to be conservative with that. This window loan is killing you. You’re spending $430 a month on it. And if you can wipe that out and refinance with a HELOC, maybe you spend 7,500 from your cash position, knock out big chunk of the window loan, and then take out the remaining $5,000 in a HELOC. That might knock down the amount you have to pay on that from 430 to $100 per month, because you’re paying on a much lower interest rate and a much lower balance towards your HELOC. Great.
Now we’ve increased your savings by another 300 bucks, right? Now we’re at $800 in savings. If we cancel this life insurance policy, then that’s another 160 bucks, which brings us to $960 per month in cash saving with that. I think those are all really potentially achievable items for you in the next three months that you could get to. Now you’re saving a thousand bucks a month. That’s $12,000 a year. That’s enough for another down payment, if you want to do another move into a property and fix it up and live in it and rent out the bedroom, a couple bedrooms, keep this one is a rental, right?
Now you’re beginning to start a portfolio. That’s enough to fully fund an emergency reserve with that, that’s really stable and think about just aggressively pursuing other investment options. You may find you’re able to start saving more than what I just described there, especially as you pay off the HELOC and get rid of that extra a hundred bucks on that debt with that. A lot of options begin to present themselves with that. And there’ll be I think, more that next level of decisions to make about how you want to invest or allocate your portfolio going forward.
Probably sometimes towards late summer, fall of next year in 2022, we’re recording this in late 2021, this will release in January, 2022. But there will probably be some good options for you in around that time, September, October of this year. How does that sound? Does that sound rational or like it makes make sense and is achievable?

Stephanie:
Yes, definitely a lot more research to do. I’ve heard the word HELOC, I’ve never thought in my mind I would look into it for myself. It’s exciting. Thank you.

Mindy:
Now that we have HELOC money available, I would suggest looking into getting quotes for putting a bathroom in the garage bedroom. The reason being, if you are two miles from the beach and you can rent out your house for six nights a month at $100 a night or 12 nights a month at $50 a night, somebody else is paying your part of the mortgage. And now your housing cost is zero. If they have their own bathroom, then that’s better. Because I don’t want to share an Airbnb with somebody that I have to share a bathroom with, I think that’s gross.
Call me a diva, I don’t care. I want my own bathroom when I go to an Airbnb and I specifically choose Airbnbs that I don’t have to share a bathroom with. I think that a lot of people are like me and I’m sure you’re lovely and wonderful in every single way, but I don’t want to share a bathroom with you. Having that bathroom could help you, if it’s going to cost $50,000 to put a bathroom in, don’t do it. That’s not worth it. But if it’s going to cost, I don’t know, $5,000, how much does the bathroom cost? I’m so out of touch with how much a bathroom costs because I do it myself.

Stephanie:
I was told definitely over 10, the way my house is laid out.

Mindy:
I would get a couple of quotes. If one guy says-

Scott:
It may have some sort of complication with-

Mindy:
Plumbing. Yeah.

Scott:
I think Mindy is right. That you have to think about what is the highest domestic use of this property and can I invest 10, 15, 20, 25,000 into the property to allow it to generate more rent or become more valuable when I move out, especially if the plan is to potentially buy more rental properties. That’s a really good idea, but I definitely don’t think that’s a short term move for you. I think that the first couple of steps would be getting out of that window loan by paying it down or refinancing it with a HELOC, doing a lot of research, getting comfortable with that financial foundation and then putting together this as the next piece to that.
But if you’re able to get a really strong savings rate in three to six months with that, and you feel you’re in command of those types of things and you’ve got this HELOC available, and you’re like, great, if I had a bathroom onto that bedroom, I could generate 200, 300 bucks a night on Airbnb. That might be a great move. It would be a gamble. I would definitely say that would be something to spend another 50 to $100 thinking about prior to executing on, because it’ll be a big risk relative to your financial position currently, but that could be a great, a great option with that. That is your biggest asset, is this house.

Stephanie:
I’m of the mindset that even just making this a 3:2 instead of a 3:1, or even a 1.1 bath, just adding another bathroom is going to even make the value go way up. Because there aren’t a lot of those in this neighborhood and that’s why our house is down the street selling or listed for a 100,000 over what I paid. That kind of thing.

Mindy:
Yeah. Two toilets is always infinitely more valuable than one toilet in a house. When you are-

Scott:
My wife was very thrilled when we moved to a place that had a second toilet.

Mindy:
Yes.

Stephanie:
Rightfully so.

Mindy:
Okay. Out of the bathroom into different types of real estate. You have mentioned saving up a down payment for a duplex. Is that your goal to become a real estate investor?

Stephanie:
Yes. My real goal is to have some passive income. Real estate investing, I love it. I love the house hunting. I love properties, even old historic ones that need help. I want to help them, but I also don’t know how to fund that situation to make it worth it and not just buy a house that needs a lot of work, because I love how old it is. It’s not a good investment either.

Mindy:
Okay. Let’s see, where am I? Step six? Step seven. Watch the movie, The Money Pit with Tom Hanks and Shelley Long, and don’t buy historic houses is my personal recommendation. But if you enjoy real estate while you are saving up for your next down payment, I would say, see every house that’s available, go to every open house. When you’re not in a position to buy, I wouldn’t take your real estate agent and take their time to go see all these houses. I would absolutely reach out to the person that helped you buy your house. If you like them and want to work with them again, I would reach out to them and have them start sending you listings.
Go to every open house there is. And they ask you, do you have an agent? Say yes, unless you’re looking for a new agent and then say no. But if you have an agent that you like, get listings and start looking and start watching the market and seeing what’s going on the market, seeing what’s selling and for how much. Just because they listed that house down the street for 260, doesn’t mean it’s going to sell for 260. Maybe it sells for 280. Maybe it sells for 220. You want to keep an eye on what’s going on.
If you want to buy in your area again, send out letters to every house that looks interesting, hey, I’m looking for a house, I’d like to buy yours if you’re thinking about it. Or do you know anybody in the neighborhood who I live down the street and I would love to buy another house in this neighborhood and see what happens. There’s a lot of people that are sending out those same letters too, and you never know which one’s going to stick, but starting to look and starting to learn the market again, because the market that you bought in a year ago, isn’t the market that you’re in now, which is unfortunate.

Stephanie:
Yeah. Very, very true.

Mindy:
Continue to learn the market and see what houses, if you want Airbnb houses, go see where the houses are Airbnbing the most. If it’s a mile away, start looking in that neighborhood instead and, find that sweet spot where it’s super affordable and also super desirable.

Stephanie:
Sounds great. Thank you.

Scott:
Agreed. I’ll just piggyback on that and say, it’s the same framework here. It’s several hundred hours, if personal finance is 100, to really master the language or get to know it well enough to feel confident, real estate might be 250 of that, to really feel comfortable. What is cash flow? What really does add value? How do I know my market and what makes sense with that? And so that would be the investment of time I’d be prepared to commit going into that.
I obvious think it is a great avenue to build wealth and do it personally with that, would be fully supportive of you pursuing that. This next year, I think we’ll be one of fortifying your financial position and getting things ready, so that you could make those kinds of investments in 2023 and beyond, would be my estimate.

Stephanie:
Awesome. That really sounds great. Definitely this is exactly what I needed.

Mindy:
Awesome. Well, I think that this is a good start and I think in six to nine months, we need to circle back and see what you have accomplished. Celebrate the paying off of that window loan and go on to the next step.

Stephanie:
Am in it.

Mindy:
Awesome. Okay. I’m going to send you a note then in about six months. I’m going to send her a note in six months. I just need to make a note here to myself to send that note. But yeah, this is going to be great. The fact that you’re paying attention, the fact that you actually want this to happen is huge. Now you have to take the steps, but we’ve given you several things to look into. The steps that I have written down are, pay off the window loan, leave the traditional IRA where it is until you have a reason and a plan for rolling it over into the Roth IRA.
It’s not a bad idea to roll it over into the Roth if you have a reason to do so. But just because I heard that I might want to, is not necessarily reason enough. Let’s come up with a plan and you can do that anytime. Step number three-

Scott:
What was her financial planning session?

Mindy:
Yes, yes. Talk to your financial planner at XY Planning Network, which is step five. We haven’t gotten there yet, Scott. Step number three is specify the brokerage account investments. When you set up a brokerage account, that’s a great first step, but then you actually have to say, I want this money to be invested in this thing. If it is not yet invested in this thing, it will just sit there until it is invested. The personal finance community is really big on index funds. It’s a set and forget it. You decide there are VTSAX, the Vanguard Total Stock Market Index fund is the darling of the personal finance community. It’s the entire American stock-

Scott:
We of course can’t specifically recommend a specific fund or whatever with that.

Mindy:
Yes. We would never.

Scott:
That’s just one that happens to have been mentioned by Jay Collins, with that.

Mindy:
VTI, another one [crosstalk 01:10:40]. There’s a bunch. Look into different indexes, look into specific stocks. Although I would not recommend a specific stock for you personally, unless you have a lot of time. Scott said 200 hours for real estate. If you have 10,000 hours to devote to researching one company, then you can invest in their company. But until then I would personally, if I was in your shoes, I would go into an index fund. I’m not in your shoes and I go into an index fund.
Step number four is listen to episode 139 with Joe Saul-Sehy, review your life insurance. I wrote this out before we decided that we hate your life insurance company. You’ve only been in there a few months. If I was Stephanie, I would call them up and say, I don’t want this plan anymore. Cancel it. Stop taking my money, give me all the money that you have. This is what I would do if I was you. It is a research opportunity for you. I would listen to the Joe Saul-Sehy episode 139 and learn about life insurance.

Scott:
Again, because this is so specific with this, we need to be careful from a legal perspective with that kind of stuff. All this is entertainment purposes anyways with that, but canceling the life insurance policy, I would talk to your XY Planning Network, fee only financial advisor about that. What I’ll say is, I bet you I’m going to up it from 97.5 to 99 to one odds, that canceling that is going to be a smart, long term financial move. There is a tiny percentage of the population that can benefit from that if you’re willing, but I think the profile of that person is more like an executive that’s going to work for 40 years and is going to have a specific and detailed plan for regularly borrowing against and adding into the cash balance and that life insurance policy. I don’t think that’s you.

Mindy:
Yes. Okay. I will say specifically-

Scott:
I’ll leave it at that level of odds.

Mindy:
… specifically to Stephanie. However, in a broader sense, if you are listening to this show, if you have a life insurance plan and you’re not quite sure what you should do, if you should keep it or not, listen to episode 139 of the BiggerPockets Money podcast with Joe Saul-Sehy, review your life insurance plan to see exactly what you have, what happens to that plan if you no longer pay the premium, does it automatically cancel? Do you have some sort of investment account like Stephanie does? Does the money stay in the account? Do they write you a check? What happens when you cancel all of this?
Make sure that you’re not making, Stephanie has had this account for a few months. She doesn’t have any dependents. She doesn’t have a real definite need for life insurance at this moment in her life. That’s why this advice is specific for her. We would, if we were in her specific position, not continue to pay it. But again, that’s a good point, Scott. If you have life insurance and you’re listening to this, definitely do a little bit of research before you just jump in with both feet. Step five is, we’ll talk after the show, Stephanie, to reach out to the XY Planning Network, to get you a session with a planner that you like.
And step six is to contact some lenders and look into getting a HELOC to help you with step one, paying off that window loan. This has been so much fun. I’m so glad you had some time to talk to us Stephanie, because this was great. I hope that this gives you some steps to take. I hope this has you feeling good about your financial situation, because you really are doing great. You’re not sitting here in hundreds of thousands of dollars of debt. You don’t have bad debt besides the window. You got windows out of it, it’s not like it’s horrid, horrid debt.
They’re the nasty ones for are charting you 10% interest. They should feel ashamed. I hope they stab their toe every single day for the rest of their lives.

Scott:
Wow.

Stephanie:
Well, thank you. This was really great.

Mindy:
The pinky one too.

Scott:
I just want to thank you as well. Thank you for coming on the show and bringing this to us. The fact that there was, again, I think you’re doing a lot of fundamentals really right, even though you feel overwhelmed, you’re making a lot of really good choices here with that. You’re doing something we call house hacking already, intuitively, by having a place and getting some of your roommate, your boyfriend to pay off some of that mortgage. You’re investing in all that kind of stuff. A lot of really good stuff going on here.
Because a lot of this is new, we had a lot of chances to make some tweaks that we think might be beneficial and hopefully some of those would be helpful.

Stephanie:
Yes. Thank you so much. That’s what I was hoping for, was a perspective that wasn’t overwhelmed personally to look at what I have and share your knowledge. Thank you so much.

Scott:
Great. Well, we will be in touch about this list and to follow up in about six months.

Stephanie:
Sounds great. Thank you.

Mindy:
Thank you, Stephanie. We’ll talk to you soon. Okay, Scott, that was Stephanie. I’m so excited for her plan. I’m excited for her path. I think she is going to start and take a couple of steps and then take a couple of more steps and then just start running. I really think she is going to be in a vastly different financial position in December of 2022, than she is here in January of 2022.

Scott:
I agree. I think she’s doing a lot of things right and she’s looking to advance her position and figure things out. I would agree that she’s not in a bad position right now. I think she’ll be in a much stronger position this time, next year. I’m optimistic, I’ve been accused of being too optimistic in the past with this, but I’m optimistic that if she can make this change, she could stockpile as much as 10 to 15,000 in incremental cash over the course of the next year, maybe more with that, and begin having that next set of options present themselves from an investment perspective.

Mindy:
I think she is, the world is her oyster and I think she has so many opportunities and she’s really, really, really just going to fly by the end of the year. I can’t wait to check in with her. Should we get out of here, Scott?

Scott:
Let’s do it.

Mindy:
From episode 266 of the BiggerPockets Money podcast, he is Scott Trench and I am Mindy Jensen, saying, may your pillow always be cool on both sides.

 

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