We start this episode with two anonymous callers who have opposite problems: one says her bills are too high, while the other is worried that she’s saving too much.
Anonymous (“Izzy”) saves A LOT. She wants to relax about her spending more, and start including more joy into her life. How should she approach the next 10 or 20 years, so that she can enjoy her financial security?
A different anonymous caller (“Starlight”) has the opposite problem: her expenses are mounting. Her bills make her uncomfortable. She wants to shake up her investments so that she can tap her assets in order to make her payments. Ideally, she’d also like to buy a house in Europe within the next 10 years. How should she do this?
John liked the episode with Bill Bengen, where we discussed the 4% rule. However, he questions whether that rule should really be applied to the FIRE community.
Steve is a landlord who needs his property to cash flow, but doesn’t like to raise rents. What should he do?
Do you have a question on business, money, trade-offs, financial independence strategies, travel, or investing? Leave it here and we’ll answer them in a future episode.
Enjoy!
Anonymous asks (at 04:91 minutes):
I am 45-years-old and I recently separated from my live-in partner, which has left me with the full responsibility of the mortgage on my house.
I currently owe $290,000 on it, at a 2.75% fixed interest and it’s worth about $550,000.
I live in a high property tax state, so my mortgage with taxes and insurance is about $2,300 monthly. I earn about $125,000 per year, contribute 16% of my salary to my pre tax 401k, and I max out my Roth IRA every year.
I don’t have any other debt, but I am a little worried about the full responsibility for home maintenance and this mortgage payment. It takes up more of my monthly cash flow than I’m comfortable with.
I have approximately $400,000 in my 401k, $200,000 in my Roth IRA, $30,000 in an after tax brokerage and $150,000 in my emergency fund in a high yield savings account.
I know this is a lot, but it gives me comfort to have a solid emergency fund.
I also own a four bedroom rental property in another state that I have rented below market.
I intend to raise the rent this summer, but it will still be rented below market, at $1,150 a month. The monthly mortgage is $630. This house is currently worth approximately $300,000 with $69,000 owed on it, at a 3.75% interest rate.
In order to improve my cash flow and optimize should I:
- Sell my rental property, apply the proceeds less costs and capital gains to my current mortgage, and then recast my loan?
- Or, should I take $69,000 from my emergency fund, continue renting this property, pay it off and then apply the additional monthly rental proceeds to my monthly cash flow?
I don’t want to make a short term decision that will end up costing me more in the long run. My goal is to stop working by around age 60 and perhaps buy a house in Europe in my 50s.
Anonymous asks (at 36:39 minutes):
I’m in my mid-forties and have been extremely fortunate to have a well paying career that I enjoy.
I have about $1.7 million in savings, split evenly between tax deferred and taxable brokerage accounts, all of it in low cost mutual funds.
I save about $200K a year and my only debt is my 15 year mortgage on which I owe $200K at a 3% interest and have 60% equity.
I’m single, likely will not have any kids, and a third of my living expenses go to my mortgage.
I’m naturally a saver, but in one of your shows you talked about how some of us may be saving too much. This made me reconsider and readjust so I can enjoy more of the things that bring me joy.
My number one goal is having financial freedom, where money is not a limiting factor in the things I’d like to do. I’m not looking to retire early, but would like to have that option if I changed my mind.
Same with location – happy where I live now, but would like to be able to move or retire elsewhere if I decide, even if it’s at a higher cost.
I also want to be able to financially help my mom if she ever needs it. She is 70, retired, and healthy at the moment. Her nest egg is about $500K and her pension covers only about half of her living expenses. I’m concerned she may not have enough.
On top of it, she’s very risk averse and keeps it all in cash.
I would love to hear your thoughts on how to think about the next 10, 20, and beyond years, given my goals. What should I consider? What should I prepare for?
I was so focused on saving and investing to reach financial security, but I’m at a point where I should shift my perspective to think about the future in a different way.
John asks (at 59:29 minutes):
My question is about the 4% rule.
There recently was an Afford Anything episode that interviewed Bill Bengen about the 4% rule, and it was great.
How does the 4% apply to folks in the FIRE community and how might that differ for those who have retired at the traditional age?
One of the things that I think many of us forget about when we’re thinking about retirement is the emotional component of it and seeing fluctuations in the market and your money going up and down.
I think in retirement at a traditional age, folks can lean on Social Security. They have access to Medicare and things that provide them with not just financial support, but also emotional support.
If you’re in the FIRE community, you don’t have those same safety nets.
I’m curious about your thoughts on whether 4% is appropriate for those in the FIRE community – not just from a mathematical perspective but from an emotional perspective or a behavioral perspective – because seeing your account go up and down, knowing that you might need that for 50 or 60 years, is different from knowing that you need it for 20 or 30.
Steve asks (at 1:09:28 minutes):
I have been investing in real estate for about 20 years and have five multifamily properties. I’m looking to purchase my sixth and I come across a problem regularly.
The market has appreciated, and the rents have also gone up, so some of these multi-family properties do actually cashflow at these new market rents.
The problem is the tenants that live there are sometimes paying substantially below market rent.
If you’re going to purchase a property and need to have market rents to have cash flow, you would need to really disrupt the tenant’s lives, sometimes raising the rent from $600 to $1,200. That is difficult.
I have a heart and care about people. I would like to avoid situations like that.
Additionally, if you had to raise rent, it would be difficult with evictions, etc.
I want to know what your advice is, because I believe that this happens a lot.
Resources Mentioned:
- Episode 141: The Gap Between Knowing and Doing, with Dr. Stephen Wendel
- Episode 344: How I Discovered the 4% Rule, with Bill Bengen
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