Greta is tired of financial modesty. She wants to achieve financial independence through diversified income streams, and has her eyes set on owning local duplexes. What should she focus on to make this happen?
Jeannie wants to know: should you scale back 401k contributions so you can invest in something else, like real estate?
Steph and her husband came into $25,000 and aren’t sure what to do with it. Should they pay off their student loans, save it towards a house and starting a family, or purchase her company stock options?
J from California is curious: how do you strike a balance between optimization and simplicity in your financial plan?
Dawn has $65,000 in a 403b through Ameriprise and the fees associated with it are outrageous. Should she take the money out and put it elsewhere, or leave it?
My friend and former financial planner, Joe Saul-Sehy, joins me to answer these five questions. Enjoy!
Greta asks (at 3:03 minutes):
How can I go from having modest financial stability to becoming financially independent with diversified income streams? My long-term goal is to own a few local duplexes, and I’m looking for my next steps to make this possible.
Here are my details:
I’m 34, single, and earned $32,700 after taxes in 2020. (I earned $22,000 from my full-time job, $3,500 from side gigs, and $7,200 from renting out my two spare bedrooms, which I may still need to pay taxes on.)
I’ve saved one year of my deductible in my HSA, and I’m working toward saving one year of my out-of-pocket maximum there. I max out my Roth IRA each year, which has a total of $53,000, and I have $5,000 in my 403b (I contribute enough to get my employer match). I also have $20,000 in a savings account, which is divided into different sub-accounts.
My only debt is my mortgage, which is $76,000 at a fixed 4.125 percent interest rate. I pay extra every month: the minimum payment is $744, and I pay $1,060. My house is worth $120,000. The twist is that I purchased my house with a renovation grant, which requires that my house serves as my primary residence for ten years. If I move, I’m required to pay a prorated portion of the grant back, and I can’t refinance my mortgage. I have eight and a half more years before I can move out.
Should I continue to pay extra on my mortgage? What will allow me to purchase duplexes in the not-so-distant future?
J in California asks (at 24:43 minutes):
How do you strike a balance between optimization and simplicity with financial planning?
I’ve heard Paula and Joe say that when we feel uncomfortable with an idea, we should listen to that little voice of resistance and take it as a legitimate sign of a path we shouldn’t take. On the other hand, sometimes it’s good to push through that discomfort and educate ourselves.
I used to fear investing because it felt safer to keep my money in the bank, and education helped me invest so much that I stumbled across the mega backdoor Roth IRA strategy.
This is what’s driving my question. Executing a mega backdoor Roth IRA seems so convoluted, and I’m feeling a lot of resistance toward it. I’d have to redesign my husband’s Solo 401k, hire a good CPA, move money around, and fill out forms. It’s such a weird legal loophole, our tax code is a mess, and I don’t like playing that game. I realize this kind of optimization is valuable for early retirement, but the mega backdoor Roth IRA feels squirrely.
What are your thoughts on this strategy, and how can I weigh my resistance to complexity against the potential opportunity cost?
Dawn asks (at 44:53 minutes):
I was a high school teacher and I was duped into a 403b through Ameriprise. I broke up with my financial advisor four years ago, at which time I tried to take the money out of my 403b only to find that the fees I paid left me with as little as a 5 percent return from 2010 to 2017. This has been a source of shame – I didn’t know this was happening until I started listening to financial podcasts. I took all of my money out except for the RiverSource 403b that I still have. The amount in the RiverSource 403b is $65,000. It’s conservative and, with all the fees, likely to only earn a four percent return.
What do I do now? I’m at a loss. The articles I’ve read say different things: take a portion out, take all of it out, or leave it. If I take it out, I’d have to pay $2,500 in surrender charges, and I would put it into something like a Fidelity FIHFX Retirement Index Fund.
What route should I take?
Steph asks (at 56:19 minutes):
My husband and I recently came into $25,000 and we’re wondering what to do with it.
I earn $125,000 per year and my husband earns $90,000 per year. We have $20,000 in our emergency fund, and we have $50,000 in student loan debt with interest rates ranging from 2.5 to 4 percent.
We’d like to own a home in the next three to five years, so we’re putting $1,000 per month into a downpayment fund. We live in the Bay Area, but our goal is to move to a lower cost of living area like Denver or Washington. When we do, I expect that my income will decrease to around $100,000 per year.
We’d also like to start a family, though that may or may not happen due to my age (I’m 37 years old).
I also have stock options available through my company.
How can we think through how best to use our $25,000 with all of these goals and options? Should we save, invest, pay off debt, put it toward a downpayment, or purchase my stock options (roughly $30,000)?
Jeannie asks (at 1:09:31 minutes):
I’m 33 years old, earn $150,000 per year, and plan to FIRE (financial independence retire early).
I have $300,000 saved in retirement accounts, and I’m wondering if I should scale back my contributions so I can invest more in real estate. My $300,000 will grow to a large amount by the time I’m 59 ½, and I plan to contribute enough to get my employer match (six percent).
What do you think about this plan?
Resources Mentioned:
- The E-Myth by Michael Gerber
- Steal Like an Artist by Austin Kleon
- The War of Art by Steven Pressfield
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