024R - The Friday Roundup

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Transcript

Time Speaker Text Tags
1 - 9 Jonathan Mendonsa It's a rainy week in an all too short season of spring and this morning Brad and I are going to be talking about financial independence. Hey Brad how are you doing today buddy.
9 - 26 Brad Barrett I am doing quite well Jonathan as I keep talking about my pool opens this week and so hopefully it's been a little bit rainy here in Richmond for for a couple of days now. So hopefully the skies clear and we'll be just hanging out at the pool like we intend to do for the next three months. So yeah good. Good times for sure. And yeah what's going on with you.
26 - 57 Jonathan Mendonsa Actually have this upcoming Memorial Day off so four day weekend and I fully plan on enjoying it. Well you know this past Monday we had the episode with Joel and Alexa's from FI 180 dot com and their story resonated with me for sure. But our audience really reached out to us and just let us know that this connected with them it was real and the fact that Joel and Alexis were willing to come on and share their wins are obvious when they are on this incredibly short path to FI. But also their vulnerabilities along the way. I think it is really neat to just get a chance to live that with them.
57 - 143 Brad Barrett Yeah I agree. They're such a fun couple. I just loved hearing from them again. You know obviously we met them as we mentioned at camp mustache in 2017. And it just as a quick note here we just learned from Steven the organizer that mustache tickets for 2018 in Gainesville Florida just went for sale. So hopefully by the time you're hearing this they won't have sold out. You can actually we'll just set up a real quick short code so you can go buy tickets if you're interested it'll just be a Choose FI dot com forward slash camp CAMP and yeah that'll take you right to the registration page and you'll get to meet a lot of these people that we have that we've talked about. So yeah hopefully a lot of you can join us. But yeah anyway they are just wonderful people and just really a lot of fun interesting smart. I mean just just great people to know and I think that came out on the episode certainly I know in speaking with my wife Laura about it she said wow they just sounds so cool and just like nice normal people and sometimes FI people can look a little bit different from the mainstream when you see it from afar but up close, all these people I know that are into FI are just regular people who are just making a couple little choices that are that are different. And Joel and Alexis are the perfect example of this right. They started at the polar opposite end at the 7 percent savings rate which I guess is better than some people. but stillit's pretty measly as as far as anything that we talk about here. And then they upped that to an 85 percent rate.
savings
143 - 220 Jonathan Mendonsa Yeah. Unbelievable. And you know that letter that Joel wrote to his younger self. How powerful was that. I know when I read it just the guest posts when I was prepping for that particular podcast. I had the single tear and the chills so excited about it that I read it to my wife and she was equally impressed. And so when we talked to Joel I said you've got to include that as part of this podcast because you created this beautiful picture of what these two sides of the same coin actually look like and you make the most compelling case for getting off the hamster wheel that I have ever heard. So I think one of the things that we're always thinking about is you know how do you introduce someone from the outside to this concept. What's the perfect place to start. I don't know if I figured that out yet. We kind of had a game plan when we started making these episodes but I don't know if I figured out the perfect place to start although I think they all do tell a story and you could certainly start with Episode 1 and work your way through it. Having said that Joel's picture that he painted with words of what the two sides of the hamster wheel look like to me would be an incredible place to start for anybody. And then from there you can figure out what you want to do. But a lady fire who has a blog at fire by 35 commented on the podcast as well and said Wow Joel's letter to himself made me tear up reading it even more so hearing it read aloud. Great interview. So Joel thank you for sharing that with us. It was a really fantastic article.
220 - 349 Brad Barrett Yeah I mean it's incredibly powerful no doubt about it to hear that. It really is two sides of the same coin. They are the same and that's the sad thing is most people are living that life and it just doesn't have to be that way. That's that's what struck me is that you're sacrificing your entire future for that lifestyle one right future one where everything's rainbows and ponies and you're spending money frivolously and it seems like that wonderful lifestyle but the sacrifice for that is is just astounding. And that really it reminds me again of that question from last week's round up of that Jason asked us about don't we miss certain things don't we miss driving in a BMW. Because as he said it it drives better. Truth or prime rib or prime beef and whatever else he said maine lobster. And while that stuff is great in theory it's not the real world that we're living in. You know we aren't living in a world where there are finite resources most of us don't make unlimited amount of money and we have to make choices of what is the best path forward. So the way that I look like to look at life it's almost like like if you've ever played poker it's you know you go in with the best possible hand and sometimes there's a great outcome and sometimes there's not a great outcome. But if you keep going in with the best possible hand you're going to win more times than not. Over the long haul and it almost reminds me in a sense of of index fund investing right it's the same concept. It's like a bet on the future because there's as many of these studies have done 90 plus percent chance that just sheerly picking the total stock market index fund with that tiny expense ratio you're going to outperform some miraculously good money manager and it's putting yourself in that best position to succeed in life. That's the most succinct way to say it. And I think that FI does that. And so to me it's not it's not this either or it's ok maybe I'm sacrificing the BMW. But to me it's to have this better to have a much greater chance at what I believe is a better live. So that's kind of my 30000 foot view of it and I'd be curious to hear what you think Jonathan.
indexfunds, stock
349 - 440 Jonathan Mendonsa Yeah I love that. You know I have gone back and thought about Jason's question you know several times and was there anything I missed and I felt like we did a pretty good job going through that one piece at a time. I think Joel's episode was the perfect cap to that particular question because it just rounded it out so nicely. I don't have a problem with you getting the BMW with you get in the steak the lobster. My gripe with it was in most cases you have to make a choice. And if you choose that stuff first if you choose the BMW First you choose the prime you choose the upgraded lifestyle First you never get the freedom you're always on the hamster wheel because you made that choice and Joel made that choice. Joel said I wanted the flights every weekend. John & Alexis said I want the unlimited shopping adventures. I want to spend every single dollar that came in because they didn't know what the other side looked like. But then when they did see what the other side looked like they were then able to make a choice with both sides of the equation. With all the information and because they made the choice that we're encouraging they're own a five year path to FI. And nothing changed with their finances. They didn't get raises. And one scenario one. Get all the stuff spend every penny scenario to choose fi. scenario one causes depression and a 40 year working career. choice two is a five year path to fi where they get to pursue their passions and their dreams. and maybe at the end of that path maybe they still say you know what I want to work a lot longer. But it's from a happier more fulfilled place. And they captured that picture and presented it to our audience perfectly and I just appreciate them taking the time to do that.
career
440 - 507 Brad Barrett Yeah I think what you just touched on there with with it being a happier life. That was the part that struck me as as as it always does. I know I do sound like a broken record here but but it's just so important that to me this is all about finding what you want out of life and not just sleepwalking through it. And and in Jole & Alexis case they were sleepwalking through spending 100 plus thousand dollars a year because they couldn't answer the question. Right Jonathan they they literally could not tell us when we first met them how they spent the money. I mean that's crazy considering they went from a 7 percent savings rate to an 85 percent at the top so that Delta that difference they couldn't even answer what it was. So what were they spending money on. You know obviously subsequently they went through and and did Line-Item it. But but it's astounding that that kind of stuff that kind of spending not only didn't bring them happiness but the path to FI and the pursuit of FI and making it a game and making it something they could do together. You know I love Joel's word of scheming which you know what.
savings
507 - 514 Jonathan Mendonsa Right. It's a little you know I actually did love it. I did because it is a game. It didn't sound nefarious though did it.
514 - 587 Brad Barrett Absolutely. But but but I know what he meant any man that obviously in the most good natured way like they're sitting there as a team. Right. Like how many husbands and wives are not teams. Unfortunately or is it not even husbands you know spouses significant other whatever you want to call it how many people go through life just as an individual and they don't have these conversations. Joel and Alexis were having fun with this. How many people just go through like not having fun just spending on whatever it is that will satisfy that little dopamine hit for that minute and and really get no lasting satisfaction from it. These people are happy and not only that but they're on this path to FI in some five years. I mean that is just truly astounding. And you know obviously many people think the undercurrent here. And Laura mentioned this when we talked after the episode was they obviously must make a decent amount of money to be able to get on a five year FI path. But but it doesn't have to be five years it can be seven years 10 years 15 years even like that's still an incredible game that you can play and you can scheme with your significant other too and have fun and try to figure out hey what can we cut from our lives that we don't need but will get us to FI faster. And to me that's that's what it's all about.
10yearstogo
587 - 665 Jonathan Mendonsa What's really interesting to me about what you just said was just this idea of it's something that they got to do together and that really stands out to me because this morning my wife was talking to me and she said one of her favorite things is that we do the grocery shopping together and it is genuinely one of her favorite events so it's not necessarily going and shopping and buying all new stuff. But it's we get to do these somewhat menial task as an event together so we go to Costco once every two weeks. That's our big bulk shopping trip and we get all most of our groceries and if you all read my Casco meal plan article you know basically what we buy. There's nothing fancy there but we get to spend that time together that dedicate a time that that is something that we get to do together and it's not expensive it's not lavish it's not over-the-top but it's just that is what the FI community is all about. We find ways to spend more time together to spend our energy on building these relationships. And I don't know if there's maybe some overarching thing but it did strike me that Joel and Alexis do that as well. And you could tell that they got a lot of enjoyment going to all these and doing the small things and finding the little frugal wins. But the overarching picture was that it's something that they did together. And I know we're still trying to get Brad to go to Aldies and go check it out. So when we have done that we'll have to give you all an update. But it doesn't really matter where they went. I just love the fact that one of their favorite things was the things that they got to do together.
mealplan, relationships
665 - 764 Brad Barrett Yeah that is really cool and just knowing them also. I love how they make everything into a game and I know we mentioned this a couple minutes ago but they are actually big game players so board game players as Jonathan and I saw down at camp mustache and it is neat. Just depending on your personality like maybe making something into a game can actually really supercharge not only your happiness and your level of fun and enjoyment with us but but your path to fi and actually this reminded me when they mentioned Liz from frugal Woods' 72 hour rule. We had talked about that on the episode with Liz I think which was Episode 12 and I had mentioned that we almost just reflexively bought something like we always would have but I actually remember that email that Liz sent about her 72 hour rule and it's kind of disruptive. Right. That's that's the key here is you're trying to disrupt your normal spending habits just a little bit. Just think about it. Right. So it's it's putting that little bit of space between the stimulus and the response. And that will just say at least help you think about spending as opposed to just doing. Which is I know even though I'm on the path to FI and I think I'm pretty frugal. There are times where I'll just go to the Amazon and just and just buy something because I got an e-mail from Tim Ferriss who sends out his five bullet Friday which is actually a pretty cool little thing and he always has some little gadget that he's that he's working on and I mentioned back again on the frugal Woods episode that we almost bought this card game and I had to say after some deliberation we did it. wound up buying it. And it's the most fun game of all time. It's called Monopoly deal. Jonathan have you heard of this.
764 - 768 Jonathan Mendonsa No but now I'm going to probably end up pulling the trigger on it.
768 - 771 Brad Barrett It's only like five or six bucks. It's fantastic.
771 - 772 Jonathan Mendonsa Alright you have to send me the link for it.
772 - 832 Brad Barrett I'll definitely you bet and we'll have that in the show notes. But guys if you it has nothing to do with you know boring old monopoly which takes three hours and there's really very little strategy. This is like this is the card game that takes between five and 10 minutes Laura. And I just play it and the girls I mean my girls are 5 and 8 and they're playing like an adult level. Even the 5 year old who can't read the cards she's like taught herself how to she'd memorized everything and so she's essentially playing in a foreign language. It's amazing. But it's a great game. So highly recommended and it's just a funny full circle that we're talking about a games which a lot of people in the community love. And that's that's why I'm putting this sidebar in here. And B the 72 hour rule from from Liz which was we we decided to not reflexively buy that game but we once we ran out of our other games that we had been playing for a while we said and you know what that monopoly deal game would be a good idea now. And it was five dollars. So it wasn't like a huge life decision obviously but anyway that's enough of my little sidebar here. I think it's a really good game I'd highly recommend it.
832 - 870 Jonathan Mendonsa Nice. Awesome. I am passionate about boardgames. And as soon as I get a recommendation from anybody I almost always go check it out. And I have a pretty bad buyer issue. I'm at a weak spot. I'm just going to go and be honest Board games are definitely a weak spot in my frugality. And I'm convinced that in the fi community time together is the ultimate win. Right. And I think Winning Williams illustrated that perfectly Mary Kate from winning Williams posted on her Twitter feed last night Monday night date with the hubby homemade pizza and listening to the @ choose FI podcast which is awesome. That's freaking cool that we got to be a part of that. And that to me sounds like the absolute perfect night at home with a homemade pizza. How cool is that Brad.
frugality
870 - 872 Brad Barrett Yeah that is really cool. I love it.
872 - 1067 Jonathan Mendonsa And the cool thing is this show Choose FI is not for any one particular income bracket. It's not for the people that make 30000 It's not necessarily for the people that make 180 or 500000. It's for everybody. And so one of the reasons that this show will have longevity is that we can explore for these different places and different income brackets you know we'll have some overlap in the tools they choose to use. And so this to me was so powerful how quickly they could turn this thing around. But for those of you that are making you know 30 or 40 and you're like well I can't save 85 percent of my income that's just not reasonable. There are certainly other options. And our goal is to track down people that have figured something out in those brackets and then bring them on and have them tell their story. And then for people that were making a certain amount and then figured a way out to maybe double or triple that income and it seems like something that could be replicable something that maybe you could incorporate in your life we'll find those people so we're going to try to find all these different tools and just tell a story with it. And I love this particular story that we got to tell this past Monday. So guys we had tons of feedback last week both from people in our community to in-house expert with different ideas they want to share with you in general. The one theme at ChooseFI is that we have and find and coalate information and we are desperate to get it out to you guys so that you can use it. And then we want to hear how you're using it and then share that with other people so they can use this. Rinse and repeat process that one of our people in our community Matt has told me about many times. And through that whole process it's becoming part of us becoming part of your identity. And that's the way that I certainly view this information as well. So we had this email from Austin and Austin was responding to basically me telling Brad certainly when you're committed to a 10 to 15 year FI plan and you find this information early enough the career choice that you make may be different. There may be other criteria that you're going to look at and you're going to want to find a job that maybe allows you to start without the bachelor's degree that gets your income high enough you don't have to. But if your goal is a 10 to 15 year FI plan you certainly can. And so I want to go and read this email from Austin real quick and he says hey guys I love this show and I've been listening since the beginning. Keep it up. I just listened to the Friday round up and I heard you guys talking about jobs. You can start out early and make a decent amount of money without wasting time and money on a lengthy educational period. I'm currently 25 and make six figures working for a local electric utility as a power grid system operator. I've also been making $50000 since I was 19 when I got a job working at a power plant as an operator. As a teenager I was dual enrolled so I had my associate's degree when I graduated high school for free. I'm not in this job because I had a degree but because I decided to work my way up through the ranks and gain some experience I gained some experience at the power plant also began working on some additional certifications. Then at 23 I moved to a different municipal utility within my area of Florida. I found that the largest influencer of me moving up into my current position was the fact that I worked on a certification to move into the job I am currently in now as a power grid operator. The energy industry is a great place to start and work up for somebody not choosing the typical path of a four year college education. As a side note the utility paid for me to work on my bachelor's degree. During this whole process so I didn't have to pay for that either on the path to FI in 10 to 15 years. Keep it up. Austin thank you Austin so much for sharing with us. Wow Brad how cool is that.
10yearstogo, career, college
1067 - 1115 Brad Barrett Yeah this is a great and I had no idea that you could move up like that in this industry. And what a brilliant play to get in. At 19 years old making $50000 and then essentially have your company paid for your bachelor's degree pay for the certification and move up to now making six figures at 25 years old. That's amazing and there are I assume many of these industries where where smart people can go and rise through the ranks even without taking the traditional four year college path. I'm of the belief that smart people and people who work hard more than smarts but people who actually care people who learn the rules take the time to learn the rules and work their butts off that they're going to succeed no matter where they are. And this is a just a perfect example in my opinion.
college, traditional
1115 - 1167 Jonathan Mendonsa Absolutely. And the cool thing is we don't have to go out and find these people. They've already found us and they're willing to share just like me and you want to share everything that we've learned. They want to share what they've learned. And then our entire audience can benefit from this not just for themselves but for second generation fire. And you know that's who I get passionate about you have now an entire group this this massive awesome motivated FI community that's figured this thing out. Different aspects of this thing they want to share it. And this is a place where you can learn about it and then you can decide is that something I want to do. Wow I really do want to do that how can I get started. And this is just going to continue to grow and we can figure this thing out as a group as a crowdsourced group we can figure this thing out and build all these different models for people that are in different places that want to pursue FI and get there as quick as possible. But go down these different avenues based on their own particular life situation and skills.
2ndgenfi
1167 - 1310 Brad Barrett Yeah and one of the most gratifying parts of this podcast generally is that people are reaching out to their friends and family and trying to inform them about FI and we have just we keep getting a lot of feedback about this. And Austin is a perfect example of where it man if you could start at 22. So he followed up with me and he found Mr. Money Mustache a 22 years old and now he's 25 and making six figures and is on the path to find 10 years. I mean that is that's just remarkable. Hopefully he's telling his friends about it and I know we actually just got one of the best iTunes reviews we've ever gotten. And it was from teaching my way to FI and I just want to read the end of this because because it talks about this second generation fire and this is now the second teacher who's written into us to say that that they're teaching their kids this after hearing it on choose FI and hearing how how simple this can be to explain. People are really going out of their way to explain it to kids in this case who I mean they can set these kids up for life. If they if they really internalize these lessons and just make better choices so I just want to read this real quick. And it's he said one quick story to end with I want Brad and Jonathan to know that my wife and I are both teachers. The reason this is important is because they changed part of my teaching for the last six weeks of this school year and hopefully for the rest of my career I truly believe if I was taught these things meaning FI early on my life could be so different right now. So it took hours to build the classroom currency for my fifth grade students. They are learning about budgeting with rent for their desks and cubbies along with fines for any classroom mistakes. They earn a salary for doing their classroom jobs and homework. And I also open up a bank where they can invest in an index stock and make compounding interest each day to see the power of investing. I work in a very high poverty school and if this one change in my teaching can reach and change one of my students future it is worth all the effort. The moral of the story is I would not even have thought of this if it wasn't for Jonathan always mentioning second generation fire. Thank you for the wonderful and life changing show and keep on bringing this content each week. And you too will change thousands of people's lives. All the best Derek. That is just incredible.
10yearstogo, 2ndgenfi, families, indexfunds, podcaster, teacher, testimonial
1310 - 1348 Jonathan Mendonsa Wow. I have adrenaline in the form of Goosebumps all the way down my arm from that. That is amazing. Thank you Derek for sharing and for just on behalf of your kids thank you for them and that is you are going to have an impact on their life. With that there's no way that you couldn't. It's just it's amazing. So I hope they grab on to it. And thank you for being a part of this. All right. And we have another question from Jerry. Jerry ask my question is now that I have set up my VTSAX and VBTLX index funds do I set them up to reinvest the dividends automatically. The term for this is drip I believe. I haven't heard any conversation about this. I know what I've read but I would feel better with some input from you folks. Brad what are your thoughts.
indexfunds
1348 - 1449 Brad Barrett This is a very good question from Jerry and I definitely apologize for not being explicit enough about this. I think that's one of the things as you all know out there we're trying to do is make this actionable even these little details are important. And while they might seem obvious to someone who's done it 10 times the very first time you set up VTSAX Vanguard is going to ask you do you want to reinvest the dividends and the short answer is yes it helps the compounding because it just goes back and buys an additional fraction of a share or share or multiple shares whatever it may be. They automatically they just reinvest the dividends that get put into your account as opposed to sitting there as cash cash is a drag on your return because it's just sitting there essentially earning nothing. Whereas when you get these dividend distributions you can just immediately buy more shares and that just keeps the party going here essentially of compounding over years and decades so the short answer without getting into some technical analysis because it's unneeded in here it's just click the box that says yes I wanted reinvest my dividends so no question in my mind there as a total aside here dividend investing is a separate line of investing that some people believe in. And we are. Jonathan I really know very little about that other than you know maybe some some research we've done and some preconceived notions but we're going to try to bring some experts in the dividend investing world onto choose FI. So definitely stay tuned for that in the next probably six to 12 months. It's something that I know a lot of you asked about. So we will be touching on that but that is really largely unrelated to Jerry's question. Jerry's question is just just very simply yes you want to reinvest your dividends.
indexfunds
1449 - 1497 Jonathan Mendonsa All right. As long as we're talking about VTSAX we did have another question this is from John. He says I am ready to spend the $10000 to get into vanguards VTSAX. However I could really use some clarity. I'm already maxing out my employer TSB at eighteen thousand a year for long term retirement. If I want to retire early do I buy VTSAX a savings index fund as opposed to a retirement account. Obviously if I buy it as a traditional IRA I have to wait until I'm 59 and a half years old. So when you guys like mad Fientists Millennial revolution etc. all bought VTSAX. Was it as a regular savings index fund which if that is the case are you paying the taxes every time you put money into the account. How does this work. I've listened to all of your podcasts and I love the work you're doing you're bringing a lot of value to a lot of lives. Thanks John alright Brad What are your thoughts.
indexfunds, ira, savings, traditional
1497 - 1759 Brad Barrett Yeah there's certainly a lot to go through here I'm going to try to answer everything if I possibly can. So the short answer is yes. This is just a savings account. That's how you think about it. When Jonathan talks about his different buckets there are your tax advantages are tax deferred ones right. You have the traditional IRA you have 401K you have the 403B the 457 all those different things. Those are very specific buckets that are generally regarded as retirement accounts but other than that you have money just sitting there in your savings or checking account. That's just your normal life savings. But when it's sitting in your savings or checking account it's earning essentially nothing. So in order to put that money to work and to really truly see the value of compounding over many many decades you need to invest in the stock market. You just you just need to. And in our opinion and in the opinion of many of our guests VTSAX is the best way to do it. So yeah you're essentially just opening a standard brokerage account at Vanguard. And that might be the term they use or it might not be but it's just a standard account there. And you're just buying VTSAX within that bucket as opposed to being the money just sitting and checking account it's in Vanguard and you're buying VTSAX. with that money. Very very straightforward honestly nothing nothing to be concerned with there. Though I understand the confusion here because we are all used to thinking in terms of these buckets but just think about it as your checking account just the money just happens to be sitting in Vanguard instead. The next question you ask is about are you paying the taxes every time you put money into the account. How does this work. And so OK. This is a very good question and you definitely are not paying taxes every time you move money into the account. This again is just this is essentially as we call it your taxable savings. And I think that is part of the confusion here. And there's no better term than I know of if anybody out in the audience has has a better term that we can use just to adopt for the future. Please send it to us. But we just call it and most people called your taxable savings which means this is just your regular money. So there's no taxable event that goes on here whether you have the money sitting in your checking account or you have it sitting in Vanguard where you purchase the VTSAX because the taxable event has already happened. The taxable event is you earned income and that goes on your 1040 tax return each year. And of course you backout whatever deductions you may have standard deduction personal exemptions things like that that money is then taxed. And this is essentially the money left over. This is the money that you have in your regular savings. So there's no taxable event that goes on here at all. Nothing when you put the money in there's no concern here. Again not to beat a dead horse but instead of sitting your checking account it's actually working for you in Vanguard. And just last point that I do want to touch on because you did mention the taxes while there's no taxable event when you purchased these because they are traditional savings accounts essentially there are taxable events throughout the year. There are dividend distributions and there are capital gains. But that said investing in an index fund is the most efficient way to go about this because index funds just by their very nature have low turnover and there's very little selling of individual stocks inside that index fund. So there are very few opportunities for capital gains within within this fund whereas if you're in an actively managed fund that brilliant manager is going to try to prove his brilliance by buying and selling things and this will almost invariably lead to a significantly higher rate of capital gains within within that fund within those sells. So that's going to get passed on to you as the fund holder. So there actually will you'll see capital gains every year even though you're not actually seeing any cash. So you have to report that on your income tax return. But in many cases like it's not specifically coming through to you into your bank account if you will. So that said VTSAX is the most efficient way to do that and minimize your tax liability in in the current year as well. So we think it's a slam dunk and yeah hopefully we answered your question well enough.
401k, 403b, 457, brokeragechoice, ira, savings, traditional
1759 - 1923 Jonathan Mendonsa You know this is really cool. Forcing Brad and I to think about these concepts and figure out where we've just glossed over something as opposed to really digging in and doing a good job explaining at a granular level it helps us and helps you. And I did actually want to take just a second to read this email that I got from Matt just just a small segment of it and he said because of choose FI I am inspired to keep digging deeper and deeper into these topics myself and this organic steeping so podcast listening thinking reading thinking and listening reading thinking writing rinse repeat is firing my brain and improving my financial life and I'm having fun doing it and that that really struck me because I'm seeing that more and more Brad and I have these thoughts that are maybe from an audience member and because they're sending it to us we're having to think about it and not just you know go and read an answer but then turn it into something that we understand and then can then present which is helpful but because we're doing that because we have such a disproportionate number of bloggers and personal finance authors that read our stuff they then take what we've talked about and they do their own thing with it and start that conversation all over again for their own community and they add stuff to it that maybe we missed or they add a level of depth that maybe we couldn't hit on the podcast so there's a couple other articles that just got released this week. And I really do like to give a shout out especially when they're expanding on an idea that maybe we talked about but they're getting a chance to put it in a written form. And I love to go read those and flush them out even further. So the first one is green swan and he took our never pay taxes again podcast and he wrote a really in-depth article on what his personal case study would look like for never paying taxes really going through the different levers that you can pull to make that happen in a real world application. So we're going to put a link to that in the show. I highly recommend that you check that out. And then Brian done by 40 skewered us on on the true cost of car ownership. But he really flushed out another way of looking at Car ownership which basically says ultimately it's only your savings rate that matters. And so there was another article that really flushed out outside as well. So we don't have all the answers but just by getting the conversation started we're all winning because of it. All right so Ken has a blog at the option to sell dot WordPress dot com. And he sent us a FI hack so powerful that it forced me to take a look at what I'm actually doing myself and decide whether or not I needed to make a change. And it involves using a tool that many of you have access to called the ESPP which stands for employee stock purchase plan. This is something that I have access to through my employer and frankly it's something that I had not even considered because I'm so set on index investing and I'm generally extremely happy with just that single form of investment over the course of my career. But Espp is such a powerful lever that it would be negligent for me not to share it with you guys and I'm excited to play this voicemail.
ESPP, blogger, career, indexfunds, savings
1923 - 2057 Ken - (voicemail contributor) Hi guys. This is Ken I put together some bullet points on hacking the Es p p E s p p means employee stock purchase plan and it's a program that a lot of large publicly traded companies have created as an added benefit to their employees. A lot of employees do not know about this benefit. It's a good way to get a guaranteed average return of 10 to 15 percent on extra after tax money. We all know the cardinal rule of not passing on free money such as minimum retirement contributions that get matched by your employer and tax free contributions to retirement or health care spending accounts that reduce your taxable income. The ESPP is another little known benefit where your employer is giving you free money. That's a little hard for me to find the specific benefits offered by the big companies online but from what I was able to dig up on the Internet some of the biggest and best employers such as Big retail and big tech for on average a 10 to 15 percent discount on their stock to qualifying employees. The holding investment and selling period for your stock averages between three and six months. This is the time you have to hold the stock before you can sell the stock. The average maximum from what I could find online is around $20000 per calendar year. You can either put in orders of lump sums or use paycheck deductions you have to call your H.R. or retirement department to find out more. In my scenario that I've put together here first up I leave a voicemail to the stock department at my company before 12:00 a.m. to put in my order for stock to purchase that day's closing price. I quickly mailed them a check for that amount. It was a 90 day holding period that I have to wait till I can do whatever I want with that stock. I sell the stock and transfer the money into my bank account. And lastly if my maximum yearly contribution is $25000 per year then I can come close to this by rolling eight thousand dollars through the process three times or $6000. Four times it's flexible. And so far I have beaten the 10 percent mark. Thank you Jonathan and Brad for your service to the FI community and let me know what you think.
ESPP, IT, health, stocks, tax
2057 - 2171 Jonathan Mendonsa Ken this is an amazing idea. It's not going to resonate with Brad. As someone that's an entrepreneur solely and it's not in big tech or big retail anymore. But I happen to be and I actually have access to the ESPP and I have been ignoring it for four or five years I think I have a cumulative like 300 dollars in one of those accounts right now they're just kind of had been neglected sitting in there because frankly I just didn't really know what to do with it. I'm pretty set on index investing and I'm pretty happy with that. And I just had never considered that there was a way to win here even though I knew that in theory I got some sort of discount. So after I got this voicemail I went to my H.R. department and actually printed off all the paperwork which is a pretty standard form you could see exactly what the rules were exactly how to use it and it basically matched up exactly to what Ken was saying you have to work for the company for at least three months. You have to work for the company for an average of at least 20 hours per week if you do that. You can purchase the stock at a 10 percent discount. Now what's important about this guys is that that does not mean that when you sell it you're automatically going to have to pay taxes on that 10 percent gain what's basically happening is your company is paying 10 percent for the stock for you. So let's say that you know you look at the the max contribution limits. So if you're allowed to contribute $25000 a year your company is willing to give you twenty five hundred dollars in order to purchase that stock and then you have a certain amount of time that you have to hold it before you can sell it and you'll have to look at your specific department. Mine was three months and then after that it's yours to do with what you will. So you could then sell the stock at whatever the market prices and you could immediately move it over to vanguard if you wanted to. And you've essentially gotten an extra $2500 and you've automatically captured a 10 percent increase basically tax free post-tax dollars. Even if it doesn't go up or down in fact in a perfect world you'd like for it to be the exact value that you bought it. How powerful is that Brad.
ESPP, indexfunds, tax
2171 - 2186 Brad Barrett Yeah that's incredible to have just a three month holding period and potentially be able to realize those those gains like that. So yeah. As you mentioned this is not something that's on my radar screen but but it is for a lot of people out there. So yeah. Ken thank you for sending this in.
2186 - 2311 Jonathan Mendonsa Alright guys now Ken actually took the time to take all of that and write it up into an article which we will put a link to in the show notes as well if this is something that you're interested in and you want to find out what the limitations are and how you might go about using it. Definitely go to his site for more information that will be in the show notes. And if you'd like to get a copy to the link to all the shownotes in your inbox every Monday and Friday. You definitely need to be a part of our e-mail list and to get our e-mail list. Just text the word choose FI. to 44222 just text choose FI to 44222. Or you can go to chooseFI dot com slash subscribe right in our next segment guys. Brian I really want to keep the conversation going about starting either a side hustle or real estate. And you know that we did that first conversation with Coach Carson several months back in which we got a chance to really look at House hacking specifically but Coach Carson is one of our in-house experts. And the idea behind that is Brad and I going into 2018 and 2019 are going to be more and more looking at real estate as a if not a pillar of fire. Certainly a very viable side hustle for many people in the fi community. We talk about the four percent rule is basically that's when you're at FI. But when you have income coming in from other sources other than your monster portfolio that we encourage you to create. So for instance you've created a side hustle or you have some real estate on the side. That model changes dramatically because now you have this income that's coming in. That does not require you to go to your 9:00 to 5:00 corporate job. And so kind of everything changes and it's really cool avenue that we want to explore and we want to turn it into a conversation. And Coach Carson is the man at turning real estate into a conversation. And so we're kind of just exploring how to get this thing started. And one of the questions that we asked him during the house hacking episode that really carries over into where we're going to be taking this in the future is just how do you determine whether something is a good deal or not. And he answered that during the episode. But we talked to him since then and he really wanted to come back and really give us an even better answer going forward. And on the same topic he also created a couple of articles that really flush out these ideas. And we're going to link to those in the show notes also so definitely check that out.
househacking, housing, hustle
2311 - 2512 Chad "Coach Carson" Carson Hey guys. This is Chad Carson. I want to leave you a voicemail. let You know first of all that you guys are doing a great job. I love the shows love the guests you're bringing on and you're really rocking. So I'm a big fan of what you're doing. The second thing I wanted to say was I want to follow up with episode that I was actually a guest on about real estate investing. And Brad asked a really good question on that episode about deal analysis and how you run the numbers with investment properties and at the time I gave a short answer to a big question I gave an answer about something called the 1 percent rule which is sort of a quick rule of thumb that some investors use to look at a property and tell if it's good or not. And for those that didn't listen to it the 1 percent rule basically says that the gross rent the monthly rent that you bring in on a property should be about 1 percent of your total investment in the property. So for example a couple thousand dollars of gross rent you don't want to make sure that you won't have any more than $100000 or better or better. So that's that's the one percent rule. But there are also some other ways of looking at properties that I actually wrote in an article recently on my blog called How to Run the numbers using back of the envelope analysis and the basic idea was that real estate investors are out looking a lot of properties which is what you have to do to actually find deals. You might turn over dozens or hundreds of prospects before you get a really good deal. Beacuase you have to be real efficient really efficient with your analysis upfront. You know spreadsheets are great and that's something I use a lot during my due diligence but when you're analyzing deals it is more common to do something called a back a back of hte envelope analysis means write your numbers and your math on scrap paper that you have next to you. And so the general idea behind my back of the envelope analysis is that I have two main criteria that I use personlly one of those is how much income does the property produce. And the other is how much equity do I have. And so the income there's a few different ways you can measure it. One of those is the one percent rule which I gave you earlier. But one of the problems with the 1 percent or is that it just uses a gross rate on the property. But that's not actually the net rent that you take home and used to make your mortgage payments and use to put in the bank because you haven't taken out all your expenses like taxes insurance management vacancy. That kind of thing. So there's another analysis that we also do called a cap rate is very common in real estate cap rate is basically the ratio of what the net right after taking out all the expenses not counting your mortgage payments so not including any debt and figure out what that ratio of that net rent is to the total investment and that number might be. For example 6 percent or 10 percent depending on what your goals are. But You can use a cap rate and sort of evaluate how good the property is at producing income. And there's a few other measurements that I use things like net income and the gross rent multiplier which we're going to talk about will have a lot of time now but those are several different ways to look at income on a property measure and the other with equity is based is very simple. People probably have heard you buy low and you sell high. And so that's what I try to also look at is how low and buying this property are buying a below value because it's not like the stock market where a quoted hundred dollars per share that's the price that you can sometimes buy below the full value. So those two measurements and common equity are really what I'm always looking at. Trying to get a gauge on some deals have really good income not so good equity. Other deals have a lot of equity but not much income. So it's always a balancing act looking. So I just want to throw that out there to you and kind of give you a more complete picture of that kind of back of the envelope analysis. You're welcome to rip on that or talk about it on the podcast and I'll be happy to go into more detail about it on a future episode. Keep up the good work I love listening to ALL your episodes. Hope you all have a good weekend.
insurance, stocks, tax
2512 - 2637 Jonathan Mendonsa First of all Chad thank you so much for sharing that with us. That is absolutely helpful. And to our audience I hope you can see maybe where this might be going over the next couple of years. First of all you know how excited Brad and I both get about constantly learning new information and then turn it into a story and then actually using it and then following up on it and like Matt said it's that rinse and repeat mentality. And we're going to actually do this so in 2018 and 2019 as the show starts to pivot and we've covered some of the baselines and we move into some of these other concepts we're going to start some sort of real estate company and the Goal for That would be yes for us to create a business that will be fun but even more than that we want an opportunity to start something from scratch. Neither of us has any experience in real estate. And so the value there is we're both good at learning things and then talking about it and so if we can learn all these concepts and incorporate them in a live show and then model it to you guys the you can benefit from it as maybe you're deciding which levers you want to pull and if you decide hey wow what if I had two to five rental properties. How much faster would that speed up my path. Maybe that could be the option that you pull but along the way if we share everything that we're doing it's going to empower you to make or not make that choice. And certainly the conversation that you need to have is how to do a back of the envelope analysis. So Go check out his articles on that if that's something that you're interested in maybe you're slightly ahead of us in your own personal timeline. But then aside from that there are so many other components if you want to build something that's sustainable and so we're going to be talking with Chad our ideas so far are how to build a team. That to me sounds critical especially if you're going to scale something how to pick your niche and then how to do back of the envelope analysis. And then how to avoid analysis paralysis right which is where you're basically saying alright I'm going to go from just looking at the numbers to pulling the trigger on my first deal. And we're really going to build this concept out. And if you have ideas things that you'd like to see us cover if you have a guest you'd like for us to get if you have just general any information that you'd like to share with this community please send it to us at feedback at chooseFI dot com this is what we live for. So thank you.
2637 - 2675 Brad Barrett And just to jump in with one extra thing. This is your best chance to speak with some of these experts and to ask them questions as you can tell we we can get in touch with these people so if you hear a guest and you have a question for them shoot us an email or even better. And you can actually speak to them. So in essence just go to choose FI dot com and leave a voicemail. We can send that voicemail to that guest or that expert they can listen to it and reply to it and we'll do it on the show. So this is really as we always talking about this is a way to crowdsource FI. So any questions you have. Please just send them to us guys.
2675 - 2701 Jonathan Mendonsa We do have a travel rewards question today and this is from Don. And he says is there some way to review and compare flights from all travel partners looking to go from Detroit to Taiwan in December and I've been checking every airline website separately for example on Delta. There was a roundtrip flight for $1700. But when I checked on Korean Air it was double that amount. How would I know which alliance partners to check. Anyone with a suggestion or a trick I'd love to hear it. Alright Brad What are your thoughts.
travelrewards
2701 - 2959 Brad Barrett OK. So the one part that I'm struck by a little bit is him quoting the $1700. Now one of the cool aspects of travel rewards points is that for the vast majority of these airlines the traditional airlines the Delta United American that you know the old school the airlines the price of the flight has essentially nothing whatsoever to do with how many miles you're spending. OK. It just has to do with the award chart and what that award chart says. A flight let's say a roundtrip flight between the United States and Europe costs or the United States and Asia or the continental U.S. and Hawaii. You know they have these very specific award charts that are delineated by where you're flying from and to. That's the cool thing here is with travel rewards it's a rethink on how you look at travel in almost every way. And I'm going to actually kind of take a little pivot here which is it does require you to think again to think about travel a little bit differently in that you can't just do your normal stuff which for most people it's hey it's the end of May. Now I want to travel somewhere in the summer. Let me just hop on Travelocity or kayak and you know I'll find find the best price I can. It'll be for two months from now and I'll be on my merry way. OK. You know that works for traditional travel but with rewards seats it comes down to award availability. You have to find these saver level tickets which are the seats that we always want to reserve are the quote saver tickets. OK because those are the seats that cost the fewest number of points. So when we say it's 60 thousand miles for a round trip to Europe that's at the saver level they for the standard you can pay at least double that. Or more potentially. So you very rarely want to book a standard ticket. So with award travel you really do need to be a flexible and b plan in advance because people book these award seats. That's just that's the reality. So we would say you do need to think about travel a little bit differently if you want to travel the world for free or close to free. So I think that's that's an important thing that that I don't mention often enough is flexibility is essential if you know for most people it's I want to travel on June 7th and come back June 14th and come hell or high water. Those are the days that I'm traveling. Well that doesn't always work with award travel because one day plus or minus on either side of those are certainly one week or two weeks. You know any flexibility you can build into this the better because you're going to have a much higher likelihood of finding those award seats. So that's just my little sidebar here. It's very important to think about travel a little bit differently. So going back to the question it's the $7800 has nothing to do with this. It's just can I find saver level availability on these flights and that's all that it comes down to so that that flight could be five hundred dollars or 10000. And as long as their Savior level availability it's the same price for it in miles for that seat. So that's a very very important. I usually do a very low tech version which is just go to a couple of my go to sites like United dotcom or American Airlines dot.com or Delta and just try to find availability and that's a very low tech way of doing this. Sunwoo Lee are our good buddy who always has something intelligent to add. Actually when I mentioned this on a prior roundup he turned us on to a site that I had never heard of before which is called award hacker dot com and we'll have a link to this in the show. But he said that this is this is his go to method for as he said instead of worrying about the alliances. I would just use award hacker dot com. So this evidently gives you some visibility into the price in miles with all these different currencies and all the different airlines so I have not spent a lot of time here. But but if Sun Woo says that this is a top tier site then I certainly would feel very comfortable recommending it to everyone out there. So I think that's that's really the way to go about this is find the availability and book it and don't worry about. Don't worry about the cash price because it's not relevant.
traditional, travel, travelrewards
2959 - 2973 Jonathan Mendonsa Except when you want to brag to people about your valuation. That's one thing that it's so when you're at go curry Kracker and you want to let us know that you've got 20 cents per mile valuation. Yes definitely look at the cash price but that is it just for bragging rights.
2973 - 3224 Brad Barrett That is very very true very very true. And hey we got one other question. I'm going to try to paraphrase here which is it's about Chase ultimate rewards points. And the question is can I combine old nontransferable chase ultimate rewards points with a new premium transferable card to make them all transferable. And this is a wonderful question and it's yet another one of the benefits of Chase ultimate rewards that as discuss many many times these are my absolute favorite points because there are top tier transfer partners like Hyatt Southwest United and British Airways among among many. And you know just by having these Chase ultimate rewards points you can transfer to any of those programs. And in my case we took a trip to San Francisco Bay Area last year just using chase points we transfer them to Hyatt. We transfer them to Southwest and boom we had a 10 night vacation for the four of us so very very valuable. And to answer this question if you have one of the premium cards there are three of these current premium cards there the sapphire preferred the sapphire Reserve and the ink business preferred. And there are technically some some older cards if you have them the ink plus in the ink bold but you can no longer apply for that. So if you have any other chase card that Chase calls ultimate rewards points which include but are not limited to the freedom the freedom unlimited. There was an old sapphire card there is an ink cash card and I assume there are some other ones back back years ago but you can combine all of those points which those points are not transferable. OK so they are not nearly as valuable as the points that you have from the premium cards but you can combine those if you have all of those cards or any combination of those cards. Let's say you have an old freedom card with 80000 points on it. Well you can combine that those old freedom points into your new premium card and then all of those points those 80000 in addition to whatever you have currently. Those are then all the more valuable transferable points. So that is a phenomenal benefit. And actually just as an aside another benefit is if you have the sapphire reserved now that's the new card with that significant 400 plus dollar annual fee those that card has an additional bonus which is if you book travel through the chase. Ultimate rewards portal which in most cases is not as valuable as transferring to partners but in many cases people get value from that so that card gives you a 50 percent bonus on travel booked through the chase portal so you actually get 1.5 cents per point for travel booked through the chase portal. When you have a sapphire reserve so the benefit there would be to transfer all of your points into the sapphire reserve even if you had another premium card like sapphire preferred or the ink card you would want to put them all into the sapphire reserve so they're all the more valuable points not only can you transfer them but if you decided to book through Chase you could get one point five cents per point in value. So just trying to paint a picture here of how to go about this and and really how to think about it. But yeah the short answer is yes you absolutely can do this. Its super easy to just log into your chase portal and there is a usually I think its in the unless they changed it in the last couple of days. In the upper right hand corner youll see your point balance you just hover over that. And there is a drop down menu and it just says combine points a couple of clicks later. You have you combine your points and your all set. So yeah this is really really straightforward and yeah. Jonathan just to sum up like as we always want to tell people challenge Awards is a really simple fi hack and were trying to explain it here weekly on these Friday round ups and also we have our main section on our website which is choose FI dot com slash travel where we have a link to our podcast episode 9 and we have our recommended cards and we have a bunch of articles so highly recommend everyone check that out. And this is a real easy and straightforward way to get into a pretty valuable Fi hack.
travelrewards
3224 - 3305 Jonathan Mendonsa And we have a lot of Dave Ramsey fans that come our way and so its a little bit of a culture shock to come from Dave Ramsey and then find us then we're just we're talking about this nonstop. So if you want kind of a nice introduction to our philosophy on travel rewards and credit cards yeah choose F-I dotcom slash 0 0 9 where all of our travel rewards stuff like Brad said at Choose FI dot com slash travel and yeah welcome to our community. Hope you enjoy it. All right guys so you may have noticed that our hot seat intro changed and I think it's worth just taking a second just to talk about it. That was my brainchild that I created when we first got this thing rolling. And you know it was not created to be like a political thing it was more like I wanted to create this dystopian type universe where the superheroes are the FI bloggers and the people that have kind of figured out this more optimized path. But we did feel like it was becoming a little bit of a distraction and that maybe it had too much of a negative overtone which really wasn't our intent. So we went back to the drawing board and I think we recaptured the heart of what we wanted to get across which is the normal path sucks and there is a better way and we want to help encourage you to make a better choice and choose FI. And we're making the case every single Monday and Friday on why you should do that. And that's what I hope. I hope they like it. I love your feedback. Let me know what you think. It is going to be our Hot Seat going forward. And yeah. All right. Brad Are you ready to go ahead and talk about some iTunes reviews.
blogger, ramsey, testimonial, travel, travelrewards
3305 - 3375 Brad Barrett Yeah let's do it so. As always here on Friday we have our iTunes review book giveaway. And as we've mentioned previously one of the best ways you can support us is to just take 30 seconds head over to iTunes and leave us a written review and hopefully a five star rating. It is absolutely invaluable to help us get the word out. Get us ranked higher on iTunes and and have more people join this community. Because as we've as we've discussed at length this community thrives because of you because of the community because of all the input you're sending us so this is this perfect virtuous circle here. So what we've done to help incentivize a little bit. But really just get this book into your hands which is for every five written reviews we receive and that you just send to us. Just take a quick screenshot of you leaving the review or picture whatever whatever it is you want to do just send it to us at feedback choose FI dot com and we'll enter you into a drawing to win. Jim Collins' the simple path to wealth. So every Friday we take all the submissions we've gotten over the previous week and we pick a couple of winners and we're going to do that now. All right. And our first winner is Cody.
testimonial
3375 - 3481 Jonathan Mendonsa And Cody says hey guys I have been consumed by your podcast ever since my roommates put the vision of the road to FI into sight so you can give the props to MC for that. I have never written a review for anything before so apologies if it winds up being a tad long. I'm 25 years old and pretty much broke at the moment. However I plan on implementing everything that I can use from the information you've brought together to achieve my post FI goal a goal that I had not previously known how to achieve. Until now that is utilizing a lifestyle to help my parents and family reach the same heights and then pass on that knowledge to a younger aspiring FI road travellers. I plan on documented my journey down this road and use what your podcast and other sources such as JL Collins blog Mrs frugal Woods articles and the mad fientist takes on achieving a FI lifestyle. I realize and know that I have a long way to go yet if I remember and focus on my goal with your help in certain aspects I have no doubt that I will see you both and others at the end of the never ending road. I would like to leave off on a small but positive note. I started on baby steps of frugality and savings by quitting going out to lunch. It seemed so miniscule at the time to have a simple 7 or 8 dollar Chick-Fil-A lunch for four days of the workweek until I sat down and added it up. To my amazement I calculated that I was spending roughly $1700 per year as opposed to around $100 by creating a more healthier lunch myself. I also found that this has improved my mindset due to me loving to cook. I have saved another 1400 dollars annually by sacrificing certain social activities. So a massive thank you guys for helping me kickstart my way to a healthier and more satisfying road to FI. 5 stars is not enough. One does not simply listen to you for enjoyment but rather for enlightenment to a better life. Keep going strong. Wow Cody I am unbelievably excited for you and thank you for sharing that with us. We look forward to following you on your journey.
families, frugality, health, mindset, savings, testimonial, travel
3481 - 3519 Brad Barrett All right. Our second winner this week is ever learning never stopping. And they said I devoured every available episode in about a week and a half. I was honestly oblivious to the fire lifestyle before I randomly searched financial podcasts in hopes of taking some control over my own financial situation. That's where Jonathan and Brad stepped in and showed me there are alternatives to working 40 plus years paycheck to paycheck trying to keep up with the Joneses just as my father before me did. I'm excited to use their actionable tips to get started. It makes working 60 hours a week in a dirty factory have meaning and puts an end game in sight. Thanks choose FI.
testimonial
3519 - 3528 Jonathan Mendonsa Very very cool guys thank you so much for sharing that with us. We'll get those books right out to you. The fire is spreading my friends and we'll see you next time. As we continue to go down the road less traveled.
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