How would your life change if you reached Financial Independence and got to the point where working is optional? What actions can you take today to make that not just possible but probable. Jonathan & Brad explore the tactics that the FI community uses to reclaim decades of their lives. They discuss reducing expenses, crushing debt, tax optimization, building passive income streams through online businesses and real estate and how to travel the world for free. Every episode is packed with actionable tips and no topic is too big or small as long as it speeds up the process of reaching financial independence.
321 | Discovering the Power of FU Money
What You’ll Get Out Of Today’s Show Picking back up with our ChooseFI Households of FI family, Zach and Marilyn to hear about all of the incredible progress they’ve made since their last episode. Like most people, the last year has turned Zach and Marilyn’s life upside down, only their’s has been positive. Following their conversation with Paula Pant in Episode 247, they were felt encouraged to move forward with a real estate investment when the numbers made sense rather than waiting for a property that met all the specific criteria. Within two months of their conversation with Paula, they purchased the home they are currently living in. Since then, they have put money in renovations and just rented out the basement apartment. Although the original plan was to do a live-in flip, they are now house hacking after taking out a mortgage with a 2% interest rate thanks to their excellent credit, making their new mortgage the same as the mortgage on their previous home that was half the size. Plus, the basement apartment rent is covering the entire mortgage and then some. Zach finished school in 2020 and began working in his field earning a good raise. Rather than let the raise inflate their lifestyle, Zach put the entire raise into his 457 plan. Between saving more than $1,000 a month on a mortgage and putting $1,000 a month into a 457, Zach and Marilyn have created more than $24,000 of space in their financial lives. Although five years ago, they never would have dreamed of being in their current position, they attribute frugality and long-term planning for their success. Being on the path to FI feels so good that it’s something Zach talks to people in his everyday life about. He thinks if you adopt the long-term mindset and stick it out during the first five or six years, seeing the end from the beginning becomes less overwhelming. Marilyn says that not having debt hanging over their heads has improved their quality of life a hundredfold. While it did take them six or seven years to get there, it wouldn’t have happened at all if they hadn’t taken that first step. In looking toward the future, they have created FU money, which they’ve already reaped the rewards of. When Marilyn’s employer told her to come back to work 100% after successfully working from home during the last year, she decided to quit rather than put her kids back into daycare. Jonathan appreciates the power of no and says sometimes when you can say no to your employer, it puts you in a position of power where they might be willing to negotiate. Zach and Marilyn’s have no mortgage payment, drive paid-off cars, and have an abundance mindset that allows them to live off around $30,000 and want for nothing. In fact, Marilyn uses a hack from Brad and uses an Old Navy credit card for their spending, and earns points to buy clothes for his kids. In comparison, most other American families spend $30,000 on just shelter and car payments. When leaving previous jobs, Marilyn always felt a bit of panic, wondering how they would make things work, but with living expenses taken care of, they were in a different place. She felt none of that panic. Zach grew up without a lot of money and a scarcity mindset. When interacting with people who were well off, he often felt if that person was wealthy that he couldn’t be. The path to FI has been a mind shift to understanding that everybody can win and to a level of empathy. What’s next for Zach and Marilyn? Since they are saving more money than ever before, they are interested in optimizing what they do with it. They have considered more rental properties, but prices are high and inventory is low. Index fund investing is another option. Prices are high in their area and they looked into renting out their current home, but it doesn’t meet the 1% rule. They would need to geo-arbitrage a second rental. If they
320 | How Many Days a Month Do You Experience Stress Related to Work?
The nature of work has drastically changed over the last year. Has its impact on you been negative or positive? And does that impact your choices on the path to financial independence? As a result of these changes, how we do work is something we can now question and work to make it align with how we want our weeks and months to look like. The concept of a Red X month is something first introduced to us by Vincent Pugliese and one that has been sacred to the Barrett Family. Brad puts a big red X through the month of August each year so they can spend the month doing whatever they want. The ability to do that is a benefit of FI. In order to spend more time with family, this summer, the show will move from its standard two shows a week format, to just once a week. What is your why? Brad says the words “enough” and “balance” pop into his head. We are driven to get to the point of financial independence but it can sometimes be difficult to find balance or understand when it’s enough. Success isn’t how much money you have in your bank account or how high your savings rate is. It’s having balance and living a life by design. Jonathan is reminded of a phrase, “What got you here, won’t get you there.” All of the work that goes into earning more, spending less, and optimizing the difference puts you at risk of losing sight of your why. At some point, you need to wind it down and step away. The one-more-year syndrome where you worry you might not have enough comes from a scarcity mindset. It can be easier and less scary to keep doing what you are doing. The hard work is psychological and needs to be contemplated years before leaving work. You can start doing the work ahead of time by starting small and experimenting. Jonathan doesn’t know that he would be good at vacations. He’s always thinking about something related to this community or Talent Stacker. He realizes that comes at the cost of missing out on spending quality time with his family and his life may be out of balance. He thinks Brad is probably better at handling the contentment side of things. Many of us feel like if we aren’t actively trying to advance that we are failing. When you are in a position of strength and know what you value and where you can provide value, you can design a work life that works for you. A lot of employers are looking at how they can save money with less physical real estate. You have the chance to be a squeaky wheel and present your employer with a work proposal and provides them with an ROI they are looking for. Work is not always going to be stress-free. Where does it cross the line from reasonable to toxic? Brad thinks he feels stressed more than he should for his overall level of stress, but that it’s because he is out of balance. He suspects it’s due to a feeling of only being half there and a constant feeling of guilt. Life isn’t perfect and neither are we. We need to have some self-compassion, realize our issues, and try to get a little bit better every day. If you conduct a root cause analysis on your stress, you can figure out a way to solve it. Jonathan says that his pharmacy job was a former source of stress because it didn’t meet his needs for autonomy, mastery, purpose, identity, and connection. Having FU money enabled him to leave it behind to pursue ChooseFI instead. Knowing what your options are is one way of dealing with a toxic work situation. You can start by testing small and doing things to make your life a little bit better. You don’t need anyone else’s stamp of approval anymore. It’s not necessary to go into debt to start a business and there’s never been a better time to start learning for free. Balance has characteristics that are identifiable. It feels like you are in control of your time and you are able to allocate it where you want. If you have autonomy, mastery, purpose, id
319 | Make Your Kid a Millionaire
What You’ll Get Out Of Today’s Show Do you want to give your children the tools they need to guarantee their path to financial independence? If you give them the right skills, becoming a millionaire can be a mathematical certainty. Achieving the objective of becoming a millionaire isn’t nearly as important as the process of getting there. Success is in the journey. For many of us, we made a lot of mistakes before finding the right information and learning that there is a better way. When you understand the power of compounding, you know how plausible it is to become a millionaire, and what you need to put away each month to get there. Much of the journey comes down to mindset, empowerment, and believing that you can make changes to better your life. It starts with the little changes that make your life 1% better. It’s time to stretch the tactics we use and apply them to a different age bracket. We generally talk about investing timelines starting around the age of 20. But how early could you really get started and why would you want to get started at an earlier age? For Brad, the reason is dual-pronged. He thinks the concept of saving for retirement is misdirected and he would frame it differently. Retirement is so far in the future, it’s harder to get behind during your younger years. However, the concept of financial independence is something people are more willing to take action on. Financial independence means you can control your time and have the autonomy to make decisions and you can take advantage of retirement vehicles such as 401Ks and Roth IRAs to reach FI. Financial independence is a better framework for talking about and planning what it is you want to do with your life as well as giving yourself options. The Make Your Kid a Millionaire article emphasizes Roth IRAs. Bradd says there has never been a great explanation of how people can take advantage of a Roth IRA for children who have earned income. Most children don’t have jobs that allow them to contribute to a 401K, 403b, or 457. A source of earned income does allow them to make after-tax contributions to a Roth IRA where that money can grow tax-free forever. A 12-year-old will have 47 years of compound growth before making withdrawals. All of the growth, dividends, and capital gains distributions will be tax-free compared to an investment account where they would be taxed. The current limit for Roth IRAs is $6,000, but you may only put as much of that limit in as you have earned. A child earning $5,000 in a year would only be able to contribute $5,000, not the $6,000 limit. Although ChooseFI doesn’t generally suggest the Roth IRA as the first investment vehicle to use, the strategy is different for children. For adults, some financial independence strategies help to control your marginal tax rate using specific pre-tax retirement accounts. When adults are in a low marginal tax bracket, an argument can be made for locking in the low tax rate with Roth contributions. However, children with much lower incomes, already have low marginal tax rates. Since they can generally only choose from traditional or Roth IRAs, it’s likely in their best interest to pay the small amount of tax and then shelter that income from taxes for the rest of their lives. Although allowance and pay for chores around the house don’t count for earned income, there are some categories of work kids may do that do count but you’ll want to be careful documenting, such as newspaper routes, babysitting, mowing lawns at other people’s homes, acting, photography, acting, modeling, or working for a parental-owned business. Regular jobs at private or public companies that comply with your state’s child labor laws definitely count as earned income. In the article, an example used discusses a child who mows lawns and earns $4,000. His parents decide to contribute $3,000 to
318 | 100 Ways to Get 1% Better
After four years of talking about the aggregation of marginal gains and the idea of getting 1% better, ChooseFI has accumulated quite a lengthy list you can stack together. If you can invest a little bit of time to fix something, you’ll never have to invest that time again. Brad recently decided to move away from paper files and bills to join the digital age, while Jonathan has been using a subscription service to stop the paper junk mail sent to him. Chris Hutchins shared a final hack with Brad after the end of the last episode that didn’t make it into the recording. Chris uses a browser extension to view book availability at his local library and borrow or place a hold on it. Brad and Jonathan selectively pick from the list of 100 ways to get 1% better with your finances, starting with #3, Reading (or Listening) to One New Finance or Investing Book Each Month. Jonathan thinks this tip could be expanded to include non-fiction books that improve you in some way. #4 on the list is to learn a new skill. It could be for obtaining background knowledge, gaining a marketable skill, or simply for interest’s sake. Although complacency can be seen as a bad thing, don’t mistake complacency for contentment. Other tips include getting outside to exercise or try a new hiking or biking trail every week. Mix things up. There is a never-ending stream of free YouTube exercise classes to choose from. Are you aware of your local FI group? While COVID has kept us physically apart, we are coming to the other end. You can invest in your local community. As for dealing with debt, Brad says you need to sit down and be honest with yourself. Understand what you owe, who you owe it to, how much you make each month, and how much you spend. If you spend more than you make, you need to stop right now, and at least get to the point where you aren’t adding more debt. Once you get to that place, Jonathan says you can look for ways to optimize your debt payoff, such as zero balance transfers. And then work to improve your credit score by putting a system in place, like autopay, to ensure you never miss a payment. If you do not have $1,000, you don’t need an emergency fund, you need a crisis fund. You need $1,000 that doesn’t have a bill attached to it that you could draw on in a crisis. Once you have that, then you can think about building an emergency fund. Use your tax refund to establish your crisis fund. Next, don’t give the government an interest-free loan and work it so that you don’t get a tax refund. The opportunity cost of having the government hold your money for a year is potentially big. When financially responsible and on the path to FI, you don’t want a big refund. You want to be saving and investing it all year long. You can learn to do just about anything on YouTube, especially do-it-yourself home repair tutorials that will save you money. Even replacing your incandescent bulbs with LED is easy to do and saves on energy costs. While lowering your hot water heater temperatures and adjusting the thermostat won’t make you wealthy overnight, stacking these tips with others is the whole point of getting 1% better. Declutter your home and donate or sell items to simplify your life. Owning a car costs a lot. Trying to manage the payment for a new car every 5 years versus buying a car and driving it for 15 years can have a dramatic impact on your path to FI. The one decision to drive a new car for 15 years, made just three times over an adult’s lifetime can result in a $742,000 difference. If you can stack car ownership savings with other money savings hacks on food, or housing, it can mean a difference of multiple millions. It doesn’t need to be about deprivation but just doing a little better than average to end up with millions more than your counterpart who is drifting through their financial life. #33 on the list is t
317 | All the Hacks | Chris Hutchins
Life gets busy when you have a new baby, so Chris Hutchins is on a quest to learn all the hacks, optimize his life, and share what he’s learned with you in his new podcast, All the Hacks. The goal of the podcast is to help listeners upgrade their lives by living more exciting, fulfilling lives without spending a lot more money and optimizing it all along the way. Life hacks tend to fall into one of three camps. It clicks with and becomes second nature, you find a way to automate it so you don’t even have to think about it, or it’s too much work and you never do it again. If you can find where optimization and excitement intersect, it’s a huge win for you and your family. When Chris thinks about life hacks, he thinks about different aspects of his life and what the important parts are, such as family, work, finances, shopping, travel, and self. Categories may also be broken down into multiple subcategories. Jonathan says the idea of life hacks and living his life in a slightly more optimized way is what led him to financial independence which he says is the ultimate life hack as it helps us reclaim our most precious non-renewable resource, our time. Coming out of a year of lockdown, it seems like everyone is planning to travel somewhere. Chris recommends using Google Flights to get quick insight into flight prices with flexibility on airports and dates. For hotel planning, Chris says it’s often a choice between a better price or a better experience. Trip Advisor recently launched Trip Advisor Plus, a paid membership service that allows them to offer hotel rates around 7-8% off because the rates are not available to the general public. However, booking directly with the hotel will likely get you a better experience. In addition to booking directly, reaching out to someone on the sales team or the general manager will often get you an upgrade or some sort of amenity. You may be able to find the names of individuals by seeing who is responding to reviews on Trip Advisor. Having status with the hotel can help as well. A family life hack Jonathan and his wife began doing is creating a shared family photo library and build a slideshow of their favorites from the year. Brad believes another life hack is just being a good person and making personal connections because it makes others want to go to bat for you. A lot of customer service reps have the discretion to do things for you that they wouldn’t if you get angry with them. Website account hacks are becoming more commonplace and passwords are frequently stolen so using the same password for everything can be trouble. Check to see if your account has been part of a data breach at Haveibeenpwned. A password manager makes it easier to use unique passwords for all your accounts. Increasing security with two-factor authentication helps make your accounts even more secure. Chris has a fireproof box in his home where he keeps important documents and the one password he uses with his password manager 1Password. In the event of death or incapacitation, a legacy binder has all the information loved ones need to manage your affairs. As mentioned on the show previously, Brad uses ToDoist to track all his tasks. Chris says that you can’t use any software system like ToDoist for an hour and see the magic. Commit to it. When it comes to renting cars, Chris rents with Avis using a Costco discount. He says to make sure if you’re a member of something, you find out if they have deals for you. Autoslash and Turo are additional ways to possibly save money on rental cars. Chase and American Express credit cards have offers to save many when using their cards. Listener Jessica asked about life hacks for type A career women and mothers on the path to FI. Chris thinks there is power in being incredibly passionate about a company you want to work for. He also says you can negotiate your sa
316 | Is Your Pension Healthy? | Grumpus Maximus
Back in another installment of ChooseFI’s Households of FI series are Troy and Lindsay. In episode 241, Brad helped them calculate their FI number, but Lindsay is a teacher with the potential to earn a pension. In this episode, they touch base with Grumpus Maximus to discuss the health of their pension. While the conversation is geared toward the health of the Virginia Retirement system, others who are eligible for pensions will learn where to access data about their own pensions and interpret it to assess its health. Linsday is 32 and in her seventh year of teaching under the Virginia Retirement System. Troy is 34 and an IT professional working on government contracts and does not have access to a pension. Troy and Linsday have a young son. Grumpus Maximus is a retired military officer who lives in New Zealand with his wife and two kids. Grumpus experienced a post-traumatic breakdown around year 16 of his military career that had him calculating whether or not it was worth staying in the military for the additional years required to earn his pension. Many defined benefit plans these days have different levels because they are so expensive. The Virginia Retirement System (VRS) has 3 options, 1, 2, and a hybrid plan. Linsday is on option 2. Both COVID and having their son have had Troy and Lindsay thinking about the future of their careers. The possibility of working from home or retiring early were things they began to consider, but the VRS’s calculators would allow Lindsay to play with numbers to look at retirement before the age of 58. After some investigation, Grumpus found that 30 years is the standard full vestment period, but partial vesting is reached at just five years, although it wouldn’t pay out until also reaching the minimum retirement age. Option 2 appears to be tied to the social security retirement age, so taking it earlier likely results in a reduced benefit. Lindsay wants to understand how to calculate what her pension would be. Grumpus says there is a way to calculate it but warns that doing it this far in advance will require a lot of assumptions. The retirement budget Troy and Lindsay are shooting for is around $4,000 per month. They can go online to calculate the pension amount and then see how big the gap is. The smaller the gap is, the more valuable the pension is. Lindsay’s pension has a COLA which hopefully negates inflation and makes her pension more valuable and allows her pension’s purchasing power to remain the same. The VRS pension also does not replace social security, so she will have social security income coming in as well. Her pension also has other earned pension benefits (OEPB), like life insurance, health insurance, and the option of survivorship. The Grumpmatic method of calculating a pension’s worth includes a pros and cons list, which includes pension benefits, but also personal issues. It takes into account the non-mathematical considerations, such as happiness, job satisfaction, and potential changes to the pension system. He encourages everyone to write the list down on paper to create a physical record of why the decision is being made because it shouldn’t be purely a numbers-based decision. When asked about how Grumpus and his wife came to the decision that they did, he said several factors played into the decision. It was a transition for his wife to go from career to full-time parent wasn’t easy. They even had marriage counseling. Troy had trouble even finding information on Lindsay’s pension. Grumpus says because he’s been looking t pensions for so long, he knows what to look for. In addition, Boston College runs The Center for Retirement Research and has a public plan database with most of the major state and city plans in it. With Public Plan Database, you can get an overall view of what the pension plan looks like. It also compares the plans to nation
Glad I came across this podcast!
Heard about this podcast while reading Playing with FIRE and now I’m binge listening. I like when I find a podcast with really likeable hosts. Makes you really want to keep listening to every episode! Thanks guys!
Life changing informations
I never rate anything but I had to. I wish everybody would listen to this. I just binged listened the eleven first episodes and I am so inspired and confident. I know I'm in good hands with these two gentlemen. I just signed up on their site too and I feel so lucky to have access to all this information. They make life easier. If only I didn't have to sleep, I could listen to more podcasts!! Sorry for my english, not my first language!
This concept is presented in such an actionable way. The topics are life changing, and I think everyone could learn something from these episodes.