013 - The Unfair Advantages of Being a Teacher

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Time Speaker Text Tags
0 - 53 Jonathan Mendonsa I'm back in the studio today with Brad and today we also have with us millionaire educator. This guy is just killing it and he's doing something that no one else is talking about. And every single teacher firefighter police officer and other state employee should be imitating this guy because he has got something that nobody else is discussing. And specifically I'm talking about his free money article that he post every single year. I heard him eight months ago on a mad fientist podcast and he literally blew my mind and I haven't heard anybody else talk about tax optimization the way he talks about it. And if you follow his advice you can be a teacher a firefighter a police officer and there is like zero chance that you can't retire a millionaire if you start implementing just a few of the principles that he goes over and we're going to start talking about those today. So I'm very excited to have him here. Welcome and welcome to the studio.
firefighter, podcaster, police, tax, teacher
53 - 55 Millionaire Educator Hey thanks for having me.
55 - 59 Jonathan Mendonsa I think you are just recently back from cancan. Am I right about that.
59 - 70 Millionaire Educator Yeah. We just spent two months in Mexico cancĂșn and small town north of Mexico called Progreso And we're back visiting family. We plan on going back in a few months.
families
70 - 75 Jonathan Mendonsa So all teachers should be thinking about going to Cancun. That is the best place to teach.
teacher
75 - 78 Millionaire Educator Oh not to teach. No. Just to enjoy life.
78 - 79 Jonathan Mendonsa OK. All right.
79 - 82 Millionaire Educator I'm not teaching in Cancun Just for fun.
82 - 90 Jonathan Mendonsa That's very cool. Well why don't we start just by talking just a little bit about your journey specifically kind of how you got where you are today.
90 - 129 Millionaire Educator Yeah. I'm from Georgia and from a family of five and a basketball family so I always tell people back and back in those days when there was no internet or cable TVs. Everyone gravitated towards sports and it's a typical family back then and was pretty good student in high school. And so that resulted in a basketball scholarship and I went off to school and played D1 basketball and that was pretty much my identity for many years. I have to say yeah I kind of was not a good student undergrad so I tell everyone that just because it seems that a lot of people in the FIRE space are great students and engineers.
families, scholarship
129 - 130 Jonathan Mendonsa Lots of software engineers out there.
130 - 166 Millionaire Educator Yeah. So you don't have to be one of those people you can have a checkered past or a really bad transcript and you can make everything work out fine. After college I played basketball in Argentina in El Salvador in LA and yeah I got a taste for living abroad and I learned some Spanish and from there I've learned more Spanish and traveled more. You know to Brazil and all through Central America I went to language school and that was a lot of fun and a lot of personal growth and took me down a different path. And from that strange twist of fate I became a Spanish teacher something I never planned on in my life. I could barely pass spanish college.
college, teacher, travel
167 - 172 Jonathan Mendonsa That's where I'm at I think that I probably would not pass Spanish took it for several years. But I'm not I'm not gifted for it.
172 - 242 Millionaire Educator Oh yeah. I mean I was the flow killer in class. I was you know everyone's answer and they'd come to me in like silence and everyone feel embarrased for me. Somehow I managed to get c's and get the heck out of there and get that requirement done but became a Spanish teacher and back when I first started in about 92 in the state of Georgia I think I made $18000 my first year and I realized there was no there were no long term prospects in teaching financially speaking. So I did what most people do. You don't know what to do with your life went to grad school and I did an MBA out in Laredo Texas and I did at the same time through a summer program in Southern Miss in Hattiesburg. I did a masters like a double emphasis in Spanish and TESOL education. You know to teach ESL English as a second language. So my fiance and I went out and did this graduate study in Texas and consequently we built up $45000 in debt, in student loans, and prior to that I never had any debt. So like a lot of people, you do it because you're told it's a great investment and you graduate and you've got your piece of paper and you've got to go to service debt.
college-loans, debt, teacher
242 - 247 Jonathan Mendonsa So how old are you with the well now that you have the 45000 debt at what age are you starting.
debt
247 - 251 Millionaire Educator Let's see. I mean think this through. Thirty three.
251 - 254 Jonathan Mendonsa So at The age of 33 your net worth is negative 45k.
networth
254 - 259 Millionaire Educator Mine was negative 20 my wife's was negative 25 Yes so yes.
259 - 263 Jonathan Mendonsa As a couple you're a long way from millionaires you don't have a silver spoon.
263 - 271 Millionaire Educator I mean I think back to I graduate 22 to 33. I mean what happened during those 11 years those are lost years financially.
271 - 298 Jonathan Mendonsa And I just want to point that out to our audience. We do have people that will be talking to that have just done it right. Everything from the age of 18 to 30 they just nailed it and they're doing great and that's fantastic, but you don't have to figure out in your 20s you know if you're listening to this and you're 35 years, old millionaire educator was starting out at 33 with a networth between him and his spouse of negative 45K. And you know there is room for you to learn these skills that we are going be talking about today and then move forward. So I think this is this is very cool.
networth
298 - 332 Millionaire Educator Yeah. Dealing with 45 thousand dollars of debt. I saw a job offer in Saudi Arabia. And so I went there and I taught ESL for about five and a half years then I came back after 9/11. But what I was able to do there is one pay off the debt. And and I was very aggressive in my debt payment I think Mr. Money Mustache describes debt as what your hair's on fire or it's a flashing red emergency. That's the way I viewed it. I would send the whole paychecks and I would take a check and squeeze as long as I could for living expenses. And so so I got mine done and then I got my wife's done.
debt
332 - 334 Jonathan Mendonsa How many years was that.
335 - 459 Millionaire Educator I think it took about two years to get that done. OK. You know I still was probably spend too much money. I wasn't very frugal at the time. Wasn't the worst case scenario but I could have done it better in hindsight. But once that was paid off I remember returning to the States I had a net worth of roughly a hundred or maybe a hundred and ten thousand dollars. So I mean going from negative 45000 to up a hundred and ten that was an amazing feeling. And I want to mention another thing in Saudi Arabia there's not a lot to do. So you end up reading a lot. I came across two books there that kind of changed my life in a sense. I came across bogles what was on mutual funds. And that's where I understood the importance of low cost investing and also passive investing. And it became very clear to me what I need to do with my money at that point and then I also came across a book called tearhorse cashing in on the American Dream How to retire at 35 and the guy is an accountant a CPA and he retired at 35. He explained how he did it and that really gave me a vision. Those two books really got me thinking on what I needed to do. Keep in mind this would have been around 1990 -6-7. There was no such concept as fire. So we were kind of figuring out on our own just I was wanting to have enough money to go live in Mexico in Brazil and have a good time. This got me on the path to do that. So let's say after Saudi Arabia come back to the United States 2002 my wife and I took teaching jobs in a small town LaGrange Georgia. Initially our our idea was to get her certified as a teacher so that we could go teach on the International School circuit. And well one year led to seven years and we ended up teaching and public school in Georgia and that's where I learned about investing as a teacher in the various teacher specific products, our retirement plans, and these retirement plans namely the 403 B and 457 plans. Not only teachers have these but also other people that work in the public sector like policemen, firemen, government employees. These are typical plans that most state employees will have access to.
403b, 457, accountant, firefighter, networth, passiveincome, police, teacher
459 - 500 Jonathan Mendonsa That's awesome. So that is a specific audience. You know we try to figure out who is each one of these episodes that we're trying to do helping. So right now what we have millionaire educator he is going to basically go from a networth in the negatives in his 30s to now has reached it as a millionaire and specifically I think that information we're about to uncover would be very helpful for all state employees. So firefighters police officers teachers that is a massive segment in fact if I think about my friends back home I have probably 15 friends from back home and of those 10 of them that applies to that specific group of people. So that is a large segment and there is no reason that what you're doing could be replicated right.
firefighter, police, teacher
500 - 528 Millionaire Educator Oh yeah it's very formulaic. I think the way the way I went about it is I studied up on the 403 B's thanks to a site 403B wise guy named Dan Otter puts that out there everyone should take a look at that. And I learned that teachers essentially have two retirement plans right and I say wow you know. And you can fully fund both of them. So that's almost an unfair financial advantage you don't hear That said about teachers very often right.
403b, teacher
528 - 528 Jonathan Mendonsa Yeah they've got it made
528 - 530 Millionaire Educator Yeah they've got it made.
530 - 534 Brad Barrett What is fully funding. What's the definition of fully funding for the two accounts.
534 - 580 Millionaire Educator For 2017. If you're under 50 years old you can do 18000 in each account. So you could 30 say you could put $36000 back comes right off your taxes and it goes to your side of the ledger. It's your money for your retirement. And it also reduces your thing I just said that reduces your taxes so you get kind of the best of both worlds. I started in a 403 B and my wife in the first year we did the max in 2002 was $12000 and we did our IRAs and we ended up saving $30000. And since 2002 we've we've we've done a lot more than that every year and when we've gone as high as 106 thousand dollars in a year.
403b, ira, tax
580 - 582 Jonathan Mendonsa That is incredible.
582 - 683 Millionaire Educator On our savings. But I mean yeah the fact that you know my wife's a teacher and I'm a teacher we have two 401K's we have four we have two IRAs we have a health savings account. Those will be the main ones but 2002 we had roughly a net worth of 110. And within the next seven years we were using the four or three B and A 457 a little and in retrospect that was a mistake on my part. That's probably my biggest investment mistake. I didn't understand how useful the 457 could have been. I should have been maxing out that account too. But anyway we got to 2007 I was sitting on networth I believe roughly $400000 and that's when I decided I didn't feel like our plan even though our plan was good. You know here here's a guy complaining about saving let's say $300000 in seven years. It could have been a lot better. Believe it or not we were looking to change our scene change of scenery we were kind of burned out at our jobs in 2009 was a big year for us because that's the year we took a job in south Georgia in a small county Eckles County and we did the next phase of our retirement plan. One of the things that we did learn about 403B investing is that it's not cost efficient. There are very high fees. You know you can have over 200 basis point products as a teacher. So as we built up this money from 2002 to 2009 we had money basically sitting in a fixed account a cash position because the platform was too expensive to really invest in. OK. So we had a reason to want to leave our jobs so we could move our money. Yeah in a rollover form. So 2009 we get to this new job.
401k, 403b, 457, hsa, ira, networth, savings, teacher
683 - 700 Jonathan Mendonsa And real quick I think and I don't know if you wrote this article or just used it inside of you know another article but I think you mentioned exactly what you're talking about the power of quitting because when you quit a job it does give you all a single opportunity to use it. A technique that you can't do when you're when you're just in the job. Am I right about that.
700 - 722 Millionaire Educator Yes correct. It's called the separation of service clause which means you quit your job. You can move your money and what you want to do when you move your money is actually take it to better a better investment platform which for me and probably you guys is going to be Vanguard because of their low cost investments. And by the way if you know of a better platform than vangaurd please tell me.
722 - 729 Jonathan Mendonsa I've got nothing we're big fans of Vanguard as well. So how much are we talking about that you had in this 403B that you got moved over.
403b
729 - 813 Millionaire Educator Ah let's say I want to say it was let's say us about 150 or 180. I don't really remember how much the 457 money I left there because that was going to be used later for something else. So I needed to move 150 let's say $150000. And to get it into my Vanguard IRA rollover account. OK. So at the new job I still had I had $90000 from 457 plans and the 457 is a very special account. Make a note. Everyone it is it does not have the normal 10 percent penalty for pre 59 and a half withdrawals. So I could basically use that $90000 to fund living expenses and it worked out we basically took $30000 from it over three years. And what that allowed me to do at my new job was maxed out my 457 my 403 B IRAs in my last dream that health savings account and I did as savings account for my son in in three. Let me make sure that this number is right. Yeah in three years we saved $263000.
403b, 457, hsa, ira, savings
813 - 815 Jonathan Mendonsa Oh my goodness.
815 - 818 Brad Barrett And your liability must have been virtually zero.
818 - 837 Millionaire Educator If it was it was low. Yeah. I mean I did have some of the remains of my paycheck and I had that 30000 coming in as income. You know I wasn't super. I wasn't I wasn't super frugal back then. You know I could've done that better. You know once again you don't have to do it perfectly you just want to get big wins.
837 - 855 Jonathan Mendonsa You know what I think one of the things you mentioned that we probably need to dive into is you talk about what side of the ledger is that going on that is really cool because you wouldn't be able to save $100000 in a taxable account. Oh you got to put it in there with post-tax dollars. You're leveraging another tool in order to get that full quantity in there.
tax
855 - 877 Millionaire Educator Yeah I had a bucket of money that I could use for current expenses. And so that allowed me to get my new job to go fill all those buckets to the max and I still remember the people on the human resources office and even the superintendent he's like What are you doing. Cuase he had to sign off on it. And I would get checks for two cents and.
877 - 889 Jonathan Mendonsa So all this is just going in Pretrax. So the government's not getting any of these states not getting any you're not paying anything towards some of the other taxes that the rest of us are pay you just throwing all that into pretax buckets.
tax
889 - 959 Millionaire Educator Yeah. And that job was particularly sweet because that district had no services Social Security the only things I was paying with Medicare. And so not only was not paying into Social Security they had another retirement plan in lieu of Social Security where I was getting 6 percent. OK. So and that worked out to be $20000 you know. Two hundred sixty three thousand I mentioned that's $20000. That was in that other plan. So it was incredible. It was it was a great three years and it was actually an enjoyable job. You know good kids nice people. It was very rural. I mean super rural 800 kids in the whole district K through 12. So it's like working at a private school. But at that point I guess it got to be 2012. My wife and I decided we wanted to take a break. You know we've been teaching at that point. Ten years straight and wow that's a long time to keep doing a job. And I just want a break. So we took a break and that break lasted the summer because we made a mistake and took jobs back in our old school and range they hired us back. I promptly quit after two weeks. I realize now.
socialsecurity
959 - 975 Jonathan Mendonsa You're 10 years into this and now you've racked up close to half a million and how many and unfortunately how many people I know that are in these same jobs and have the same opportunities that are just paycheck to paycheck and just trying to figure out what is it that you're doing differently. And I think that's cool some of the things that you're sharing with us today.
975 - 1022 Millionaire Educator Yeah. Well that first phase in LaGrange that was great from like say a hundred to 400 that second phase. We went from 400 to about's I think it was 700 maybe even 750. Well which we spent a year in Legrange and then we took a year off at that point and we did work at all. And we went and traveled and went to Cancun and just visited friends and slept in and enjoyed ourselves. But 2014 we decided look the blog says millionaire educator. Let's push through that mythical seven figure number and we took the next job which would be phase 3. And we went to Douglas Georgia and taught in high school there. And those two years we saved two hundred and thirty eight thousand dollars. Well yeah so.
blogger, travel
1022 - 1035 Jonathan Mendonsa I have trouble even comprehending been able to save that much money in such a short period of time. And I'm sure I'm not alone. I'm sure many people have trouble comprehending how to go about how to even start that. But I mean it sounds like you're making it pretty simple.
1035 - 1040 Millionaire Educator Well and see that the key is this is where the teacher advantage comes in.
teacher
1040 - 1041 Jonathan Mendonsa I love that the teacher advantage.
teacher
1041 - 1074 Millionaire Educator Yeah and public service employee advantage you know if you have a 403 b and a 457 and let's say you have some money to live on. You can just start filling those accounts to the brim. And that's what we we realized that was like wow if we have money to live on we can go all in all the time. So 2014 for example we saved roughly $42000 from August through December because we didn't take any checks and then the next year we of course would go to the human resource office again and we max them out again.
457
1074 - 1087 Jonathan Mendonsa I'm just imagining the person in human is knowing you're about to come in and I'm assuming you're the only one who's getting so there's a line of people I'm sure trying to send all their checks to pretax buckets.
1087 - 1105 Millionaire Educator Yeah you know and so we do that. My wife and I go in and do it right. Are you sure you want. I said yeah we know we're doing. And then in 2016 our checks for 2016 were a combined $2. And what was it 8 cents. It was 26 cents a month is what we netted. Together my wife and I.
1106 - 1108 Jonathan Mendonsa That is unbelievable. So what are you guys living off of.
1108 - 1129 Millionaire Educator That's a good question. Let's say in that phase two in South Georgia we we had that $90000 from the 457 and in phase three we had a couple of things going on there first. We were taking 72T distributions from our big rollover IRAs. And that was roughly it's eight a little over $18000 a year coming in.
457, ira
1129 - 1135 Jonathan Mendonsa Let me let me break that up into sections so in the first one the 90000. Is that a three year period that you're dropping.
1135 - 1138 Millionaire Educator So yeah we used all that money in three years.
1138 - 1141 Jonathan Mendonsa The $30000 a year was essentially covering your cost of living.
1141 - 1142 Millionaire Educator Correct.
1142 - 1152 Jonathan Mendonsa And because you're drawing it out and that's all you're living off of and you don't have to pay a 10 percent tax are you paying a federal tax on that at your federal tax rate based on how much you draw out.
tax
1152 - 1157 Millionaire Educator Yeah. That comes in as regular income so it's subject to federal income tax.
tax
1157 - 1168 Jonathan Mendonsa So if you're living off of this or going into your we have an article we're going to talk about but basically because you're in a low marginal tax bracket when you draw it out you're really not paying much on that even then. Right very little I would think is.
tax
1168 - 1191 Millionaire Educator Correct. I mean you can stay in the 10 percent tax bracket if you kind of do some tax planning and maybe you know worst case scenario you go a little bit into the 15 percent tax bracket. So and bear in mind that during those three years we also had some of our paycheck left to have some of us come in and so we had that even to live off of in the phase two. We had that like I said the 72 t distributions of $18000.
tax
1191 - 1194 Jonathan Mendonsa Can you give us an overview of how the 72 t works.
1194 - 1275 Millionaire Educator Yeah this is I would say this is kind of graduate school level fire concept. And the reason I say that is because if you do the calculation wrong apparently there are retroactive fees that go back to the first withdrawal. And so you would want to pay a big penalty. But at any rate I feel comfortable enough making the calculation after. Oh let me just talk about what the calculation is. Basically you're turning your IRA into you're annuntiezing it you're taking out the same amount of money per year based on your life expectancy and you have to take those withdrawals for at least five years or till you're 59 1/2 Whatever is this longer so in my case I started at age 50 and I'll be taking these withdrawals out until I'm 59 1/2. But it's the kind of thing most people might well let an accountant or a CPA make that calculation for you but it would allow you to do is access your IRA money without paying a penalty. The 10 percent penalty for getting into your funds early. And I believe we had was like $550000 in these IRAs between us and you know that money just sits there and can't do anything with it. Well this allowed us to set up a stream of income from it and use it for our expenses so that's what we've lived off since 2013 2015 November. I sold my house and so I came into some cash there and I used that as like for example you know the concept of front loading.
accountant, ira
1275 - 1279 Jonathan Mendonsa Yes. But actually this is perfect because we have not introduced it to our audience yet.
1279 - 1305 Millionaire Educator Oh OK. Well front loading just means that when you have an opportunity of fund something I for example an IRA or a health savings account. And you know you're going to earn income that year. You've got the money sitting there you put it in there so 2016 I front loaded all the accounts I could I did the savings account health savings account and I think that was it actually but you know I was able to put in $7000 right off of the bat.
hsa, ira
1305 - 1322 Jonathan Mendonsa And essentially in that particular situation you're saying all right yeah I'm not dollar cost averaging but I'm taking advantage of the fact that I have a bunch of time and I think that the time will end up working to my advantage more than I would get the benefit of dollar cost averaging it over the next 12 months. That's essentially front loading.
1322 - 1327 Millionaire Educator Yes. And but the other thing about that to me is let's face it when you got money in your pocket.
1327 - 1328 Jonathan Mendonsa Oh it's going to burn a hole.
1328 - 1355 Millionaire Educator Yeah. So I don't like to have big cash position sitting around if I got somewhere to put it and that's going to be come off my taxes and once again on my side of the ledger I'm going to put it there. And what I was doing also with human resources like the zeroing out my paychecks that's another form of front loading. And I'm just trying to say what the 72 T and the remains of my house sale which was about 40000 bucks. And you know even some of that I think are used to fund an IRA.
ira, tax
1355 - 1359 Jonathan Mendonsa And when you say Ira you're referring to your 403 B. That's a word.
ira
1359 - 1371 Millionaire Educator No no. Actually I had an IRA account that had some more money I could put in there and I used that. I think I'm talking about for the year 2015. It gets kind of I can't remember all the details of it.
ira
1371 - 1382 Jonathan Mendonsa But there are different accounts here 72T distributions. The ones that you're living off of now is that coming from your 403B. Or is that from another account or the role over money.
403b
1382 - 1400 Millionaire Educator Yeah exactly. It's my rollover account. And so you know over the years as I put my traditional IRA money in there and then I rolled in my 403 B money to there and so it served as kind of like a pot of money where I would just funnel everything and take out really big.
ira, traditional
1400 - 1415 Jonathan Mendonsa That totally makes sense. So you had this massive amount in your 403B that you accumulated when you quit your job and move to a different place you rolled into the IRA and then you used your IRA to do the 72 T and that's what you're using to fund your the basis of your expenses.
403b, ira
1415 - 1419 Millionaire Educator Yeah I just realized now I need to make a flowchart.
1419 - 1421 Jonathan Mendonsa I love flowcharts.
1421 - 1472 Millionaire Educator I have to learn how to make one. But so that's what we've been living off of. And it's not all. Well let me say where it where I'm next on my 72T obviously. Eighteen thousand a year and I'm sitting on about I mean I just wrote an article I'm trying to recall the number I believe it's ninety thousand dollars again in 457 money. OK. So I can pull that money out strategically you know and and to live off of and the way I pull that money this will go into my free money article. Like most people I like to have some control over how much tax I pay. You know most people they just bring their income in and then they don't save anything in their tax advantage accounts, retirement accounts, and at the end of the year they always complain about oh it's not fair. I just want to just ring people by the neck because it's like you control your tax rate.
457, tax
1472 - 1512 Jonathan Mendonsa And what I think is so interesting about the way you've done it and it makes total sense to me now what you're doing and very few are the people that are not in our spaces. You actually are deciding how much you want your cost of living to be you have a set number. That's how. And you know it. It doesn't deviate too much from that. And then from there instead of just generating your income as a paycheck all your income goes to accounts that are on your side of the ledger and what I mean by that for our audience pretax so he doesn't pay any taxes it goes into all of these pretax they accounts and then based on your tax strategy you then pull it out on an as needed basis or with a strategy that gives it back to you at the lowest tax bracket possible. Am I more or less somewhere on the same page here.
tax
1512 - 1562 Millionaire Educator Yeah that is correct. And the formula is pretty easy. All I'm doing is I'm taking three elements. I take the standard deduction based on my situation we're a family of three. And then I that that yields three person like exemptions and I have a child who is almost 11 so he qualifies for the child tax credit. So when you add those up and I'm looking here at my numbers for 2017 the standard deduction is twelve thousand seven hundred dollars three personal exemptions is twelve thousand 150. And then the child tax credit is the equivalent of 10000 extra dollars. So I have I can earn thirty four thousand eight hundred fifty dollars and oh no tax in 2017.
childtaxcredits, families, tax
1562 - 1575 Jonathan Mendonsa So from a strategy perspective when you're looking at your cost of living and let's say you're trying to achieve all these other goals you're thinking man if I could keep my cost of living for everything below 34 grand that would be great.
1575 - 1580 Millionaire Educator Yes and that's I owe nothing to the federal income tax at that level.
tax
1580 - 1595 Brad Barrett We need to stress that zero dollars in federal tax. So what you just said about wringing people's necks. That is especially important here. People just complain about paying too much in tax. But you're saying you can literally cut it to zero just by being smart.
1595 - 1615 Jonathan Mendonsa If you and your spouse are making 80 to 100000 and you're able to figure out how to keep your cost of living below 34000 which by the way is is pretty simple if you don't have debt and you don't have car payments that means you get put 60 grand on your side of the ledger. Wow that is powerful. I mean take a couple of years of that. When you combine compound interest you're just crushing it.
debt
1615 - 1657 Millionaire Educator Yeah I mean some days I've been doing this for years and I look at the numbers just like what is shocking still. And there's another component to that in our case. We still have some of the 10 percent tax bracket left. So the next step I do is figure out how much money I can earn at only the 10 percent rate. And in my case that's another 86 fifty eight thousand six hundred fifty dollars. So I can really take this year. Forty three thousand five hundred dollars. And I will have an effective tax rate of one point ninety nine percent two percent and I'll only owe 8 hundred and sixty five dollars in federal income tax. OK. Forty three thousand five hundred. And I owe 865.
tax
1657 - 1661 Jonathan Mendonsa In contrast Currently I think my federal tax bill was like 26000.
tax
1661 - 1665 Millionaire Educator You know this year. Whoa. Yeah. If you're planning for a different level.
1665 - 1684 Jonathan Mendonsa Well no it's a loan it's because you know I got debt. I got a significant amount of debt that I had to pay off and you got to pay debt off with post-tax dollars so if you can get past that point get out of that phase and into the phase that Ed is in gosh I would know I would get such a big smile on my face if I get away with paying the government the federal government. A hundred bucks. I mean I would just I would be guilty of it. It would be amazing.
debt
1684 - 1697 Millionaire Educator Well know that's one of my four fire concepts is debt avoidance because debt is paid with after tax dollars. And when you have to take your money it screws up the whole plan. And yes I feel for you on that.
debt, tax
1697 - 1704 Jonathan Mendonsa So I want to be more like you. I'm getting close to everything that was that was that was the plan had to get through that phase. Now I'm going to be where you're at.
1704 - 1719 Millionaire Educator Oh yeah. More power to you because it's very powerful when you start you know saving six figures a year. And I mean it's very liberating. I heard you guys talking to your podcast about just having options and you have time and you can sleep when you take weekend trips it's just incredible.
podcaster
1719 - 1742 Jonathan Mendonsa And the thing is you're doing all that. I mean and from what I understand you're just three or four years farther down that path. And one thing that you do that probably a lot of other people may not feel that they can do or are going to do. But when you find someone that really does it it obviously makes a cool story is this idea of geo arbitrage you are perfectly willing just to pick it up and move somewhere else and start. And that's I mean it's really cool.
geoarbitrage
1742 - 1775 Millionaire Educator And it fits into the plan in this sense that if you're in a high cost state or part of a state you can probably go somewhere else like for example small town these last two towns I taught in my rent was 750. My last job I paid five hundred bucks for a two bedroom one and a half bath apartment. And it was a nice living arrangement we had a pool and no yard work. But I totaled my expenses I've spent about 1500 to a $2000 a month at the most. Wow. Yeah and that's living in America. And I can replicate that in Mexico.
1775 - 1786 Jonathan Mendonsa These little These towns are going to get upset with us because we keep saying their names and they got a flood of people that aren't paying any taxes. Legrange we're coming for you. We're coming for you.
tax
1786 - 1832 Millionaire Educator Well and that's the thing you know it's not that they look at this town. Oh that's a podunk town I don't want to go live there. They got all the retirement plans you need. They have nice people low cost of living. You might be you know a little piece of paradise for you especially financially so geoarbitrage, you know a lot of people they know that term from Tim Ferriss and they're thinking about going to some low cost country. Yeah you can do it that way. You can do it within your own county and you should you know keep that in mind if you have to jump jobs to get a better lifestyle arrangement. By all means do it because not only will it increase your savings possibly it will also give you an avenue to move your money to a better investment option. For example when I left those jobs I knew where I was going to be sending money to Vanguard and I did.
geoarbitrage, globalgeoarbitrage, savings
1832 - 1847 Brad Barrett Yeah that's really cool. If you don't mind I want to just go back real quick to the 457 so being able to pull out penalty free at any age that's any 457. Is that just like the definition of how the 457 withdrawal rules work.
457
1847 - 1874 Millionaire Educator Yes to my knowledge is that 457 it's often referred to as a deferred compensation plan for whatever reason it's the only one that does not have that pre 59 a 1/2 penalty. Now you can roll it over to an IRA if you want and I have done that with some funds before but I don't really recommend that because I like having that there is a good example. I have no emergency fund. You know why. Because I need some $90000 in my 457.
457, ira
1874 - 1905 Jonathan Mendonsa You make me feel better about myself. I don't have an emergency fund and I go back and forth between thinking that I'm being irresponsible and then you don't have one but you have another plan. We are talking to frugal woods. You know they don't they don't use an emergency fund because they live so far beneath their means they have options. When something does go awry I think it's interesting I never thought of it like this but I guess a 457 you could view it as an emergency fund that is funded pretax. Oh wow. But when you're funding yours is what 12 or 18 months of expenses and you're saving that after tax. How long is that going to take.
457, emergencyfunds, tax
1905 - 1909 Jonathan Mendonsa Brad is the challenge in you a little bit with what to do with your emergency fund.
emergencyfunds
1909 - 2010 Brad Barrett Yeah I mean I'm overinvested in cash. Unfortunately we're a little I don't know what our problem is but we realize that that it should all be in the market obviously and you know even what you're talking about before about front loading to your point about it doesn't have to be perfect. I think that's a crucial point for everybody listening to this is you should who glean what you can from conversations like this. Ed is just rocking it. I mean this is truly amazing. I mean I'm in awe just listening. But you can do if you're at 0 percent of what he's doing right now. If you do 20 percent 50 percent 70 percent that is going to put you in such a positive position it may not be the perfectly optimized version. But man you can take take what you can from this and for me full disclosure like we have an issue psychologically with front loading even though you know I've read the mad fientist article about it just like I'm sure you have. And the math makes sense. I know that it does but I still have this mental hang up about oh my income's going to go away some day. As ridiculous as this is you know I had this conversation with my wife Laura yesterday which is hey I put my Since it's the beginning of the year. We're recording this in February 2017. I actually put my 401k my employee deferral down to zero. Now that's crazy according to front loading. That's crazy according to math. But psychologically for me it's let me make sure my businesses are doing OK in 2017 and then in let's say June or July I'll put it back up to 100 percent and however long it takes me to fund that 18 K a month two months three months whatever it may be then I'll deal with that. But again I know that's crazy. But that works psychologically for me. Whereas the right answer is to do what you do. But I think that's kind of a cool perspective for people listening is you have to do what works for yourself. So there's no perfect answer.
401k
2010 - 2055 Millionaire Educator Yeah. And full disclosure on my end I was doing an article on my FAQ series on how do you invest your money. And so I got the personal capital charts out and I see my allocation. I'm sitting on 29 percent cash. That is not where I want to be. And part of that is some of that money is in that 457. I'm going to pull from the future part of that is my 72 T distributions I've got those waiting for me in a money position and then I have that those that money from four or three B's and I'm rolling over still. It's coming in from a platform it's very expensive so I have to park in cash till I get it to Vanguard. So yeah it was kind of tearing me up I'm like wow some investor you are 20 percent in cash. Oh sorry I can't be perfect. I
457
2055 - 2056 Brad Barrett think you don't have to but you're doing amazingly well.
2056 - 2090 Jonathan Mendonsa So we'll try to cover for your flaws. It's one of the things I did I try to go to your blog when I was prepping for this interview and I was looking at a few different things and I noticed a comment which I'm going to read. I thought it was I think it's useful I think it probably reflects what a lot of our audience is thinking right now. And this person commented on your blog that my husband and I have been talking about doing this very same thing. But I'm confused where teachers were in year 9 and we don't take home but about 37000 each year. How in the world did you save so much. And I think he had some comments and enough maybe you wanted to just jump off on that.
blogger, teacher
2090 - 2154 Millionaire Educator Anyone ever read The Millionaire Next Door and Dr. Stanley talked about playing offense and playing defense playing defense is being frugal and smart with your money right play and often is learning how to generate income. And fortunately Georgia is a pretty good state to teach in now because the salaries isn't good but it's decent. But when you look at a salary scale in Georgia you'll notice pretty quickly that if you get your next degree say a Masters and then at a specialist degree and then your next won't be a Ph.D. for all those leaks you get six thousand dollar pay increases. Well my wife and I started with master's degrees so we were already at the Master's level and we both did a specialist degree together. So we basically studied our way to another $12000 a year between us every year. It's not a one one time race. So that was one of the ways we played offense in a sense when I was at La Grange. I did all seven years. I did what's called extended day. I did not have a planning period. That got me a 25 percent raise also on top of my bank.
2154 - 2160 Jonathan Mendonsa One question on those don't you have to pay $50000 though to get take up 50 thousand dollars in student loan debt to get those degrees.
college-loans
2160 - 2184 Millionaire Educator That's what I'll tell you right. You know they don't care if your degrees from Harvard or Karachi's state it doesn't matter if you have a EDS degree that is credited. So I went to a state school here in Georgia and I think I paid $6000 for my degree and I just would kind of piecemeal it and pay as I took the course I didn't take out a student loan or anything for it. So yeah the $6000 investment got me $6000 a year.
college-loans
2184 - 2185 Jonathan Mendonsa Wow.
2185 - 2187 Millionaire Educator And the same for my wife. Yes.
2187 - 2195 Jonathan Mendonsa So once again because these are going in pretax buckets is a pure $6000 year is not 4000 it's not 3000 years.
tax
2195 - 2244 Millionaire Educator That's a right. Yeah because I always tell people if you're going to study your way or work your way to this pay increase you've got to save it. That doesn't mean you get to go. I have extra drinks on Friday and Saturday night and because you could. Let's face it we could pass all the money away all of us could. You know that's just the way we are as humans. And like I said in addition to that I did extended day and got 25 percent more a year. I was a coach so I was getting supplements coaching supplements and they worked a lot. But let's say I'm a thousand dollars in coaching supplements doing basketball and cross-country. They were going in my accounts. I was never seeing those post-tax. And my wife sponsored clubs so we would save all that money. And I think we were making I think the most we ever made between us was 132 thousand. Sounds about right now.
tax
2244 - 2274 Brad Barrett How intentional was all of that was it. We can put away 72000 between the two of us in the 4:03 be in the 4:57. You know I actually kind of want to hear the math if I think you said you see 106 one year. Like if that HSA's and IRA's you know there's there's additional pretax buckets right. Did you get to sit down and say OK if I work the extended day and I get the 25 percent raise and I do teach basketball in cross country it's X thousands additional like. Was that intentional or did it evolve organically.
hsa, ira, tax
2274 - 2307 Millionaire Educator When we were in LaGrange Georgia it wasn't quite that intentional. I was doing all that work and we were maxing out all the counts we could but we never really sat down and said all this will be fund this and this will fund that. But as the plan kind of evolved I give you example this last job 2015 I turned 50 right so I'm past 50 and I knew I could get 24000 because 18000 plus the six catch up amount I could do is after 403B and a 457 So that's times two I am going to get Math nerdy with you Brad.
403b, 457
2307 - 2309 Brad Barrett I like it. Keep it coming.
2309 - 2311 Millionaire Educator You're going to regret prompting me on this.
2311 - 2314 Jonathan Mendonsa He's a CPA he's getting very excited over here.
2314 - 2314 Brad Barrett I'm thrilled.
2314 - 2317 Jonathan Mendonsa I'm leaning back in my chair just to take a couple of minutes off.
2317 - 2442 Millionaire Educator OK. And then I could also do my IRA. What the catch up provision which is another thousand So that's a total of six thousand five hundred. So I'm doing this right here on piece of this paper as I talk to you. Right. Right there I could do fifty fourth fifty four thousand five hundred. Just me and I. And I did that my wife. She wasn't 50 yet she is now she could do 18 and both of her counts the 457. For me that's thirty six thousand plus her five and a half thousand. So we're looking at what is at forty one thousand five hundred. She can do it together. We're looking at $96000. Yeah. And that's what we did. But wait there's more there's the HSA which I believe was six thousand six hundred and fifty. All right. So that's right. What is that we're at 100 and 2000 and change. And I did the savings account two thousand more. I now had some 529 plans so yeah as I kind of became more aware of this we would just sit down and basically the math that we would do is we put all our accounts down and put the max for all of them and add them up and that's the goal. It's that simple. Those are going to be met. And let me mention this a little bit. I guess this is kind of like the people that are really big into systems and uber optimization. I don't have a problem doing what I'm going to explain here I just got my W2s and I told you guys I had two dollars in income from my paychecks. I got my diabetes. Between us we still had like sixty seven hundred dollars. OK. Well that money kind of blows up my tax plan a little bit it pushes me $6000 beyond where I want to be. Well being that I'm sitting on a good cash position right now I have no problem taking that money that I have now and making that 2016 W-2 money disappear by using an IRA now. Now some people would argue well you know you're recycling. Yeah I see your point. But my thing is I'm always trying to fill my buckets while also keeping my tax efficiency. Does that makes sense.
457, 529, hsa, ira, savings, tax
2442 - 2472 Jonathan Mendonsa I love the game that you've created I mean clearly it's so different. Of all the people that I've met in my entire thirtysomething years now I've never met anybody that goes into tax plan on a personal level that does it like this. So I have a feeling that everybody that's listening to this podcast and will listen to this podcast this is going to change their world. Now whether or not they decide to actually do it or not that's a completely different thing. But just the way of looking at this is so mindblowing. Awesome. Very very cool.
podcaster, tax
2472 - 2526 Brad Barrett And if I could just jump in with one more thing it's it seems as if to me there's a structural advantage for public employees with that 457. I don't want to keep harping on that but that is the coolest thing I've ever heard in this kind of planning where you can pull that money out without penalty. So for me it's always been. And this was before I read a lot of the personal finance articles the Roth IRA ladder from the mad fientist which was exactly what I thought of when you mentioned that you can pull out of 457. But for me it's always been I'm putting all this money away tax deferred but I can't touch it until I'm 59 1/2. And obviously we know you know 72 and there are ways to get it out but it's somewhat convoluted. Whereas with the 457 you just pull it out whenever you want. I mean that that is such a game changer to me whereas many public employees say oh I can't get wealthy on a public employee salary. You guys have these structural advantages that I wish I had and you are a millionaire now.
457, roth, rothladder, tax
2526 - 2530 Jonathan Mendonsa So you're now the millionaire millionaire educator.
2530 - 2534 Millionaire Educator We're a millionaire household. Yeah that's my next goal is I want just me to be a millionaire.
2534 - 2537 Jonathan Mendonsa Oh you're So selfish.
2537 - 2539 Millionaire Educator You need to read need to read my post my trillionaire plan.
2539 - 2546 Jonathan Mendonsa Oh I did I did I sis pretty cool Yeah. Yeah I'm rooting for you I think you can do it just give yourself 60 years you'll be just you'll be just fine.
2546 - 2549 Millionaire Educator I'm Going to live. till Two hundred and everyone's going to have to eat it.
2549 - 2582 Jonathan Mendonsa OK well Ed I have absolutely loved what you've put together here. I have so many friends that I want to hear this specific podcast because I believe this information can be so valuable for them. Like I said at least 10 of my friends are state employees at least five of those are firefighters. I have five friends that are teachers I probably have some more there in like the sheriff's department that sort of thing. But I want every single one of my friends to retire a millionaire and I think it's totally doable and I think that you are someone that they should be able to relate to. I don't think I mean would you say that there's anything that you've done that is not something that can be replicated.
firefighter, podcaster, teacher
2582 - 2586 Millionaire Educator No. Yeah. And on top of that I've made a trillion mistakes.
2586 - 2609 Jonathan Mendonsa All right and yet potentially they're even maybe starting before you really got started. So yes I'm going to try to share this with them. I really think there is some potential there but now I'm very excited to introduce you to the Hotseat. wait for it.
2609 - 2645 Speaker In a world over run by greedy corporations. And an overreaching government. Five Questions. Highlighting. The secrets. Of. Those. That are Broken. free Welcome to the choose F-I hot seat.
2645 - 2655 Jonathan Mendonsa All right. So and our first question for you on the hot seat and these are these are very dangerous questions. Number one your favorite blog that's not your own.
hotseat-blog
2655 - 2664 Millionaire Educator Root of Good and Go Curry Cracker I'd say because of tax optimization. And I'm a nerd I guess. And their awesome low cost lifestyle.
tax
2664 - 2675 Jonathan Mendonsa Awesome. Very cool you know I love it when people come up with blogs that I haven't read a lot of because it kind of gives me a new place to start. Everybody just said the same one probably get a little bit repetitive to you.
blogger
2675 - 2680 Millionaire Educator Those two you'll love them they put their tax returns out there to see what they've done so you can pick through their their minds.
tax
2680 - 2685 Jonathan Mendonsa Go curry cracker I have read root of good I have I have not read. What is his focus.
2685 - 2701 Millionaire Educator Well he retired at 33 I believe and he was a state employee in North Carolina. He has a family of three kids and a wife and he lives an awesome existence roughly. I don't know. Forty five thousand a year. And he just. And he's a millionaire also he's getting close to two.
2701 - 2702 Brad Barrett Yeah. He publishes his net worth.
networth
2702 - 2706 Jonathan Mendonsa All right number two favorite article of all time this.
2706 - 2732 Millionaire Educator Oh that's an easy one for me. It's a root of good. That's Justin Mcurry's article on $150000 of income $150 of income tax. Oh wow. Yeah. Point point 0 1 percent income tax I believe or one whatever it works out of all the crap that you talk about tax optimization. It was I thought I was doing great and I read that and I felt like a loser.
tax
2732 - 2736 Jonathan Mendonsa We will we'll link to that in the show. It's I've never read the article. I'm very excited to read it.
2736 - 2737 Millionaire Educator It's classic you'll love it.
2737 - 2740 Jonathan Mendonsa Number three your favorite life hack.
hotseat-lifehack
2740 - 2751 Millionaire Educator I've just kind of got an overall approach on this frugal living. Once you learn how to live frugally and can optimize your life you know it's like doubling your money. It's like getting a raise.
2751 - 2767 Jonathan Mendonsa It really is. And you've done it I mean you are the extreme example. And honestly it totally is something that everybody should be thinking of and doing. But it is so cool what you're doing. I love how you packaged it and that has huge life hack pretax buckets. Number four your biggest financial mistake.
hotseat-mistake
2767 - 2788 Millionaire Educator There have been a lot but I think I missed a golden opportunity in 2002. I should have started using my 457 immediately. I have sitting on a $100000 position and I had a rent of 650 I should have just been loading up all the accounts from day one but had no example to follow so I missed that seven years of incredible savings.
457
2788 - 2816 Jonathan Mendonsa It's all about having that example having someone else model it for you. That's what I hope that we're communicating to our audience with this podcast is giving you people that have modeled it or someone that you can relate to. It's not a guru. it's not someone that's out there and essentially kind of like a Tim Ferriss and you like man he's really cool but he has nothing in common with me. He's totally out there. What I love is finding someone that I can identify with. I can see their decision tree and I'm like that totally makes sense. I could do that.
podcaster
2816 - 2818 Millionaire Educator Yeah you don't have to be a genius to do that.
2818 - 2822 Jonathan Mendonsa All right. Number Number Five. The advice you would give your younger self.
hotseat-advice
2822 - 2843 Millionaire Educator I would tell my younger self save it all. I'm a big believer in hardcore savings that will speed you on the path to wealth more than your investment knowledge more than your frugal living. When you're putting stuff to your side of the ledger your wealth grows. And I would. I don't know I would just hold myself load up on all your accounts. Load them up you'll figure it out later.
savings
2843 - 2845 Brad Barrett Yeah that's brilliant advice.
2845 - 2848 Millionaire Educator The traditional advice is what 10 to 15 percent yeah.
traditional
2848 - 2849 Jonathan Mendonsa If you're being aggressive.
2849 - 2861 Millionaire Educator Yeah that put you on a path of what seven years 40 years for some crazy you know the heck with that. You know you'll pay taxes for 40 years. They can charge your account for 40 years with these. No. Do 100 percent retire in 7 to 10 years.
tax
2861 - 2875 Jonathan Mendonsa I love it 100% savings rate. Yes absolutely. All right. So and how can people connect with you. Millionaire educator what will be the best way that someone can really just throw themselves into your content.
savings
2875 - 2893 Millionaire Educator Well my web site has millionaire educator dot com. And I also am on Twitter and I just kind of forward a few articles that are there occasionally and I do have a little Facebook presence don't do much with it. But that way you can at least see my articles in your feed. And that's like I said millionaire educator dotcom.
2893 - 2935 Jonathan Mendonsa So much valuable information here. It really is hard to even figure out where to begin and end with it. But I hope you got something out of this. I hope that if you are in one of these categories the state employees so the teachers the firefighters the police officers. I hope you latched onto this fact that there are tools in place for you already that almost give you an unfair advantage at crushing this game of financial independence. Go today go find out whether or not you have access to the 457. Go dig into Ed's content over at millionair educator and come up with your own FI plan that will allow you to absolutely crush this game and supercharge your path to fi. Hope you enjoyed this episode my friends and we'll see you next time. As we continue to go down the road less traveled.
457, Jonathan_Catchphrases, firefighter, police, teacher

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