[0:00] So, we purchased a home thinking that we
[0:01] would probably stay in Pennsylvania for
[0:03] the long term, but job changes, life
[0:05] throws curveballs. You got married, you
[0:08] bought a house, change jobs, and you
[0:10] moved to another part of the country.
[0:11] All inside of a 12 years
[0:13] a thing that we're not struggling with
[0:16] is age 65. We're struggling with a
[0:17] near-term. As you guys think about this,
[0:19] how do you want the next 5 years to
[0:21] look?
[0:23] [Music]
[0:27] My name is Daniel. My name's Lindsay.
[0:29] We're 25 years old and we live in
[0:31] Boston. Welcome to Making a Millionaire.
[0:33] We're originally from Pennsylvania. We
[0:34] both grew up about an hour outside
[0:37] Philly. Then met in college in
[0:38] Philadelphia, got married a year later,
[0:41] bought a house in PA, and then I got a
[0:44] new job and Daniel had to ride along
[0:47] with me up to Boston. Tell us what each
[0:49] of you do for a living. Brag a little
[0:50] bit about yourself. I'm an apparel
[0:52] designer doing active wear. Yeah. And
[0:54] I'm a structural engineer. Aren't those
[0:56] cool jobs? You know, when I hear like
[0:58] apparel, athletic wear, athleisure, that
[1:00] gets me super excited. I love it. That's
[1:03] awesome. And so, it sounds like it was
[1:05] you had a job change and that job
[1:07] changed. What took you from Pennsylvania
[1:09] to Boston? How how long had you guys
[1:12] been married before that happened? About
[1:13] a year when that happened. So, you got
[1:16] married, uh, you bought a house, you
[1:18] changed jobs, and you moved to another
[1:20] part of the country, all inside of a 12.
[1:22] Starting to notice a trend here. Wow.
[1:24] You guys might be on the achievement
[1:27] track. Do y'all feel like are y'all
[1:29] running mental checklist of all the
[1:31] things that you're trying to to check
[1:33] off? Feel like we try not to. We we we
[1:35] might both have that tendency a little
[1:36] bit uh to lean that way, but um but
[1:39] don't want to be completely governed by
[1:40] that. Okay. Well, you guys have done a
[1:42] fantastic job because you you've already
[1:43] mentioned that you're 25 years old and
[1:45] you were so kind that you shared with us
[1:47] a net worth statement of where you guys
[1:48] are today and we thought it'd be helpful
[1:50] to kind of look at that to level set to
[1:52] kind of give people an idea of where you
[1:54] are presently today and then we're going
[1:55] to talk about okay well if we know where
[1:56] are today where do we want to go what
[1:58] are some of the things you guys are
[1:59] thinking through and you can see here
[2:01] you guys have done a fantastic job by 25
[2:04] years old I think a lot of people would
[2:06] look at this and be pretty envious of
[2:07] your situation right now in cash and
[2:10] cash equivalent Once you have about
[2:12] $64,000 saved up, h how did you guys
[2:15] come up with that? Cuz look, let's you
[2:16] have an emergency fund and then there's
[2:18] another thing called syncing fund. Walk
[2:20] us through what's the thought process
[2:22] between those two different buckets.
[2:23] Yeah, so the emergency fund is the kind
[2:25] of three months to six months of cash
[2:27] just to have on hand uh that we would
[2:28] just kind of keep no matter where we're
[2:31] at. And then the the syncing funds is a
[2:33] big combination of things. It's
[2:34] everything from a fund to buy a car in
[2:36] the future. Um, to other things we're
[2:39] saving up for, maintenance on our house,
[2:41] things like that. Haircuts. Haircuts. No
[2:44] haircuts.
[2:45] That's my hair. So that's not in the not
[2:47] in the budget. Your haircut. Your
[2:49] haircuts go into the sinking fun. It is
[2:52] It is a lot of things in there. Um, and
[2:53] then it's also actually just some other
[2:55] money that is now kind of in CDs. It's
[2:57] for a future house purchase. um some
[2:59] things that we don't have invested right
[3:01] now just because the time horizon might
[3:03] be a little shorter but um is above and
[3:05] beyond even the syncing funds. Now you
[3:07] say future house purchase you already
[3:09] own a home correct can you kind of walk
[3:11] us through that? So, we purchased a home
[3:12] thinking that we would probably stay in
[3:14] Pennsylvania for the long term, but you
[3:16] know, with job changes, life throws
[3:18] curveballs. So, we're thinking that we
[3:21] don't know exactly where we want to end
[3:22] up long term. It could be back near
[3:25] family in PA. It could be somewhere
[3:26] else. Even within Pennsylvania, our
[3:29] families are split between different
[3:30] towns. And so, we're just not positive
[3:33] where we might want to end up in the
[3:34] future. if the home that we bought would
[3:36] be a place that's big enough for the
[3:38] family that we want to grow into, things
[3:40] like that that we just anticipate could
[3:42] be a purchase in the future. What was
[3:44] the reasoning behind or how did you guys
[3:46] decide, okay, we're not going to sell
[3:47] the house and move, we're going to keep
[3:48] it. How'd that go down? Many
[3:50] conversations, many Yeah. lots of advice
[3:53] from family and friends, realtors,
[3:55] different people like that. We
[3:56] ultimately decided that since we had
[3:58] bought it so recently, we didn't want to
[4:00] have to go through closing costs and
[4:02] finding a buyer so quickly. And it just
[4:05] really worked out that we had friends
[4:06] who were looking for an apartment to
[4:08] rent and they were willing to rent from
[4:10] us. So we heard advice that, you know,
[4:12] having reliable renters who would be
[4:15] taking care of our home would help it to
[4:17] be an asset that could continue to grow.
[4:19] Are they still interested in staying in
[4:20] the house or is there a time certain
[4:22] that they want to move out? I said the
[4:24] next year they're planning on staying,
[4:25] but we haven't discussed long-term plans
[4:27] with them. And I'll just add also part
[4:29] of the decision to keep the house was
[4:30] looking into some things like capital
[4:32] gains tax and knowing that like we would
[4:33] have had to pay that for owning it for
[4:35] such a short time and yeah just some of
[4:37] the other money considerations. We had
[4:38] just done some renovations pretty much
[4:39] right when we moved in so we had sunk
[4:41] some money into it. Again we we really
[4:42] thought we were probably going to be
[4:44] there for a while um and life led us a
[4:46] different way but uh so that was part of
[4:47] the decision as well. Do you feel like
[4:49] you have that figured out the are you
[4:51] still trying to figure out what do we do
[4:52] with this house like or is it do you
[4:55] guys have a plan in place like okay I
[4:56] want to know anything else about that?
[4:57] We we feel okay with where it's at right
[5:00] now but we feel like we need some sort
[5:02] of plan moving into the future. Uh
[5:04] partially still because of capital gains
[5:05] taxes. I've looked into rules about like
[5:07] how long you have to live there in a
[5:09] certain period of time and some things
[5:10] like that that might make a difference
[5:11] of like should we move back for a time
[5:14] um and live in that house for a little
[5:15] longer, something like that. It
[5:16] obviously depends on what what life
[5:18] brings as well and there's so much
[5:19] unknown in the next few years. Um but we
[5:22] do and and we still question sometimes
[5:24] whether we should have kept it. Uh there
[5:25] have definitely been times where that's
[5:26] been like a big question mark. So we we
[5:28] still go back and forth. We don't feel
[5:30] totally settled. You both kind of looked
[5:31] at each other when you said there's been
[5:32] time. Did something happen? Was there a
[5:33] thing that made you question whether it
[5:35] was the right was the right choice? The
[5:37] day after we moved out of our house and
[5:39] then our friends moved into it, there
[5:41] was a big leak in the basement bathroom
[5:44] and there was like a nine grand
[5:46] replacement to replace a piece of the
[5:49] sewage pipe that was going out to the
[5:50] street. So, we were wondering like where
[5:53] was this issue when we lived there and
[5:54] had the right insurance coverage and
[5:56] everything. So, so literally your
[5:58] friends move in, you guys move out,
[6:00] you're out of state now and all of a
[6:01] sudden this leak happens. The joys of
[6:03] being a landlord, right? People talk all
[6:05] the time about like, "Oh, I'm going to
[6:07] have a rental property. I'm going to
[6:08] have someone else pay the mortgage. This
[6:09] beautiful thing, but sometimes like
[6:11] unknown unknown things happen, right?"
[6:14] Uh, out of curiosity, how did you how'd
[6:16] you pay for the how'd you pay for the
[6:17] league, the 9,000 because you were able
[6:18] to do that? Did you have to go into debt
[6:20] or did you guys Yeah, we had plenty of
[6:22] cash at that point um in our emergency
[6:24] fund and and honestly, it some like
[6:26] finance was shuffling a little bit. So,
[6:28] it was kind of like even after we paid
[6:30] that nine grand, we still had our full
[6:31] emergency fund and just kind of then got
[6:32] things set from there. Something you
[6:34] keep saying I just wanted to get a
[6:35] little clarification on is the capital
[6:37] gains. Now, if y'all lived in this house
[6:39] for a period of time, even if you moved
[6:42] for another job and and y'all definitely
[6:44] moved far enough away that that there's
[6:47] a proration of the the the tax-free
[6:50] gain, did y'all look into that rule at
[6:51] all to see how that would apply apply to
[6:53] you? Uh, no. I guess it was my
[6:55] understanding. I I didn't look a ton
[6:57] into this, but I I thought that it was
[6:58] something about like two you have to
[6:59] live there for two of the last five
[7:01] years in order to not pay capital gains,
[7:02] but I didn't know anything about it. But
[7:03] there is there is a little asterric,
[7:05] okay, that if something because the
[7:07] government's somewhat reasonable that if
[7:08] you have to move for a job and they and
[7:11] you they have a distance test, they have
[7:13] these things you have to go through the
[7:14] checklist on. But for a lot of times,
[7:16] you can then take the for a married
[7:18] couple, it's $500,000 and depending upon
[7:21] how many months you lived in it, you
[7:22] could prrate the gain. And more than
[7:24] likely, y'all wouldn't have had that
[7:26] much of a gain if you had any after all
[7:27] the transaction costs. I only bring this
[7:29] up is because you said something that
[7:31] intrigued me is because when I was doing
[7:33] the research for the show, I was like, I
[7:34] wonder if they'd be willing to go move
[7:36] back into the place for a month or two
[7:38] because your biggest hangup is going to
[7:41] be you have to live in it two of the
[7:43] last five years. And I don't know, y'all
[7:45] only been moved away for a year, so
[7:47] you're still within the the 5year
[7:48] window. But you could you could
[7:50] definitely do some planning and work
[7:52] with your tax professional. We're not
[7:54] giving t professional tax advice, but I
[7:56] just know that there's a some some
[7:58] avenues or um some angles that you might
[8:01] actually qualify for more if you just
[8:03] needed another way to even think about
[8:06] the decision. Now, we're not saying sell
[8:07] it though because if you have great
[8:08] tenants and the place is appreciating, I
[8:11] mean, that might not be the perfect
[8:12] answer, but I just wanted you to know
[8:14] all the variables so you knew exactly
[8:15] what you were dealing with. And it
[8:17] sounds like there's some question
[8:18] around. Okay, how should we think about
[8:19] the house? But before we dive into that,
[8:22] I want to keep going through the net
[8:23] worth statement because that was I think
[8:24] we just stopped at cash. I think that's
[8:26] all we got. Uh when we look at your
[8:28] investments, you guys have done a great
[8:29] job of building up liquid investments at
[8:31] such an early age. You both have health
[8:33] savings accounts. Uh Daniel, yours has
[8:35] about $4,700 in it. Lindsay, yours has a
[8:37] little over 3,000. You both have Roth
[8:40] IAS. Daniel, yours is at almost 24,000.
[8:43] Lindsay, yours is at almost 14,000. And
[8:45] you both have 401ks. Daniel, yours is at
[8:47] a little over 6,000 and Lindsay, yours
[8:49] is almost 15,000. So when I see, okay,
[8:52] I've got HSAs, I've got Roth IAS, I've
[8:54] got 401ks, I've got cash. Where are you
[8:57] in the financial order of operation?
[8:59] First of all, are you familiar with the
[9:01] financial order of operations? This the
[9:02] thing that you've heard of, right? It's
[9:03] this ninestep process of what to do with
[9:06] your next dollar. We've literally
[9:07] written the book. If we were to ask you
[9:10] the question, where do you guys think
[9:11] you are in the financial order of
[9:13] operations? What answer would you give
[9:14] us? Uh, I would say that we're probably
[9:16] on step five. We we got very close to
[9:19] maxing out our our Roth IAS and HSAs
[9:21] this past year, but not not quite there.
[9:23] Um, although and I'm sure this will come
[9:25] up, we we've also jumped ahead a little
[9:27] bit and are doing some of step eight and
[9:28] some of step nine. Okay, at the same
[9:30] time, we're just kind of like bingo card
[9:32] in financial order, right? Well, this is
[9:34] the thing. I mean, I I I was when I
[9:36] looked at y'all's net worth, I was like,
[9:38] I'm so I'm just curious. So, when I look
[9:42] at the financial order of operations and
[9:44] then I look at your net worth statement
[9:46] and I ask you guys, did you max out your
[9:48] Roth IAS last year? Not quite. Not
[9:50] quite. Okay. So, first you're like,
[9:53] Brian, why are you being hard on them?
[9:55] And then I find out that there is a 529.
[9:58] If you look in the upper right hand
[9:59] corner on on there, how many children do
[10:01] y'all have? How old they are? How old
[10:03] are your kids? We have no zero. No kids.
[10:06] What are we doing? I mean, seriously,
[10:08] what are we doing? I mean this my
[10:10] favorite investment account is taxfree.
[10:13] Y'all are 25 years old. Every dollar you
[10:17] put to work is going to be
[10:19] multiplied 40 plus 40 times over. How in
[10:23] the world do we not max out the the Roth
[10:26] IRA? And then somebody I don't know
[10:28] y'all can tell on each other. One of you
[10:30] said, you know, I got a great idea. We
[10:32] don't have any kids yet, but why don't
[10:34] we go ahead and set up a 529. How did
[10:36] this even come to be? Well, we
[10:38] affectionately have a future child that
[10:40] we call Timmy. And Timmy is
[10:41] representative of just our future
[10:43] children that we want to support in
[10:46] college. And so Timmy, you already
[10:48] started kind of exist. Okay. Awesome.
[10:52] That's that's uh that's a that's a
[10:55] thing. That's an idea. Okay. We're we're
[10:57] obviously going to want to come back to
[10:59] this and really p hone in on how do you
[11:03] avoid the Roth
[11:05] maximization for Timmy when what do you
[11:09] do when the first child's actually a
[11:11] daughter? Is it still Timmy? No. No. No.
[11:14] No. Uh okay. So, we're gonna we'll come
[11:17] back to that. So, you've kind of bounced
[11:18] around. You have your primary home. Uh
[11:19] you said you just bought it a couple
[11:21] years ago. It's worth about $350,000
[11:23] presently. You have the 529 for Timmy
[11:26] that we just uncovered. And then you do
[11:28] have a mortgage on the home. Do the air
[11:30] quot sorry for it's not actually it's
[11:33] not it's not a real Timmy just yet. Uh
[11:36] and then you have the mortgage you owe
[11:37] about 240,000. The rate on that is about
[11:41] 5875%. So when we add all this up at 25
[11:44] years old you guys have a net worth of
[11:46] almost
[11:49] $241,000. I mean that that is reason.
[11:54] I mean, that's pretty impressive. I
[11:55] mean, you you have to feel pretty good
[11:57] about that. And do you guys recognize
[11:58] how unique that is? I mean, a lot of 25
[12:00] year olds are nowhere near. So,
[12:02] obviously, you're doing something right.
[12:04] You're making some decisions very very
[12:06] well. And you obviously have a really
[12:08] healthy income. Total household income
[12:09] for you guys is about
[12:11] $175,000. So, that's amazing. So, it's
[12:14] not like, uhoh, you guys are are not on
[12:17] the right course. It's okay. When you
[12:18] think about the course that you're on,
[12:20] are you on the best course? Are you on
[12:22] the course that you ultimately want to
[12:24] be moving on? So, can I just add
[12:26] something real quick? I just want to say
[12:27] like part of that how we've gotten to
[12:29] this point is we've been very lucky and
[12:30] like very blessed by family members who
[12:31] have helped us out along the way with
[12:33] everything from college to wedding to
[12:35] house purchase. So, really, we've we've
[12:37] been very blessed in order to be at the
[12:39] place we're at now. One of the things
[12:40] that kind of gives us concern and pause
[12:42] is what about the short-term goals? What
[12:43] about the things that happen between now
[12:45] and retirement? I'd love to just hear
[12:46] from you guys. You mentioned some of
[12:48] them. You mentioned going down to one
[12:50] income potentially. Uh we've
[12:52] exhaustively talked about Timmy thus
[12:54] far. What are some of the other like
[12:56] short-term goals that you have or what
[12:57] are some of the things that give you
[12:59] guys pause or anxiety or things you
[13:00] think might be difficult for you to
[13:03] achieve in the short to intermediate
[13:04] term? I think the biggest things are the
[13:07] uh college for kids that not that's not
[13:09] super short term obviously um and still
[13:11] theoretical but at least 18 years at
[13:14] least 18 years from where we have to ask
[13:18] did either one of y'all go to get any
[13:20] scholarships when you went to
[13:22] college I imagine your children just
[13:24] with the way y'all are wired as parents
[13:26] and stuff I bet they're going to do all
[13:28] right too the the other part of it that
[13:30] I think is more shorter term is the
[13:32] going down to one income so it just to
[13:34] have that flexibility when we have kids.
[13:35] We we look at that season and think that
[13:37] kind of the biggest factor that will
[13:39] allow or not allow us to do that is the
[13:41] cost of housing and like what our
[13:43] mortgage payment would be or what our
[13:44] rent is. Um so kind of doing whatever we
[13:47] can right now to be reducing that amount
[13:50] in order to give us that flexibility
[13:51] when we get there. So that's part of the
[13:53] reason that um we're like we're putting
[13:55] some extra money towards our mortgage
[13:56] payment right now, which the idea for
[13:58] that
[13:59] is uh Oh, no. It's totally fine.
[14:01] Everything's fine. Everything's fine. I
[14:03] know why Bo is breathing in deep is cuz
[14:05] how hard if you needed that money that
[14:08] you're putting prepaying on this
[14:09] mortgage in an out ofstate rental
[14:11] property. How hard is it do you think to
[14:13] get that money back out? Very pretty
[14:15] hard. Yeah. So if you're if you're
[14:16] thinking this is going to be your margin
[14:18] or cushion to get you into one income, I
[14:22] think it I guess the idea was that that
[14:24] money would then be used to if we were
[14:26] moving into a new house would be used as
[14:28] a down payment for a future house which
[14:29] would then reduce the monthly cost on
[14:31] that house. But what if you couldn't
[14:33] sell that house and you still needed to
[14:34] buy the house? I'm I don't know that we
[14:36] we
[14:39] probably but you see the point. But I'm
[14:41] just saying is that because margin is
[14:43] going to be your friend with these big
[14:44] life decisions and there might be a a
[14:46] better way to to kind of structure that.
[14:48] And what we want to do is we want to
[14:49] create a plan where you guys have the
[14:51] maximum amount of flexibility to be able
[14:52] to do the things that you ultimately
[14:54] want to do. And some of the decisions
[14:56] you make when you put funds into a
[14:58] specific thing like I'm going to prepay
[15:00] the mortgage or I'm going to put money
[15:02] into the 529 for the not yet established
[15:05] Timmy then those dollars become
[15:07] captivated there. And what we want to
[15:08] say is okay is there a better way for us
[15:10] to think about this? Is there a better
[15:11] way for us to kind of look at this? So
[15:14] let's talk a little bit about housing
[15:16] because we see we kind of keep coming
[15:17] back to that one uh for our audience so
[15:20] that they can kind of understand. walk
[15:21] us through right now when we think about
[15:24] your current mortgage payment, how much
[15:25] is your current mortgage payment and
[15:27] then how much rent do you have coming
[15:29] in? Uh, and then how much you're having
[15:30] to pay for rent in the place that you're
[15:32] renting now. So, we can kind of have
[15:33] those those numbers to level set. Those
[15:35] numbers are all pretty even. Our
[15:36] mortgage with the interest in taxes is
[15:38] about 2,300. Um, our the rent we're
[15:41] bringing in is 2150. Okay. And the rent
[15:44] we're paying is 2200. Awesome. So, yeah,
[15:47] they're all kind of in the same
[15:47] ballpark. Right around there. So, we are
[15:49] very close, it sounds like, on the
[15:52] Pennsylvania home to being cash flow
[15:54] neutral, right? It's a little little
[15:56] Now, are for these friends that are in
[15:58] there now, if they're listening, I'm
[15:59] sorry, friends, but I'm going to ask the
[16:00] question. Are they paying at market rent
[16:03] or is this a sweetheart deal? How how is
[16:05] that deal structured? It's it's at
[16:07] market. At market. Great. Okay. So,
[16:08] whenever I think about someone who has
[16:10] an out ofstate property, and it's an out
[16:12] ofstate property that they're not
[16:13] necessarily doing as an investment, per
[16:16] se, but they want it to be this thing
[16:18] that's sort of a contingency plan, if
[16:19] I'm if I'm describing that right. One of
[16:21] the things that we would love to see is,
[16:23] okay, is there a way to make it cash
[16:24] flow neutral so that it kind of is
[16:27] compartmentalized and sitting over here
[16:28] by itself rather than pulling from
[16:30] present- day consumption? Because right
[16:32] now when I think about your housing, it
[16:34] you're paying $2,200 in rent plus an
[16:37] outflow to cover the shortfall that the
[16:39] Pennsylvania house is generating. Would
[16:41] you agree with that assessment? Yes.
[16:43] Yeah. Y'all are reserving what is it
[16:44] 400? How much a month are you putting
[16:46] into repairs? Yeah, it's at least 300
[16:48] 350 maybe into that syncing fund. How
[16:50] many months have you had 350 $400 worth
[16:53] of repairs on the No, not zero. Right.
[16:56] That one single event. And that's why I
[16:58] think it is recency bias because I mean
[17:00] the houses look houses are great but
[17:02] they're also scary outside of your
[17:04] heating and air system, the sewer, and
[17:07] then your roof. A lot of I mean that's
[17:09] that's really your core systems. Y'all
[17:11] covered the sewer, it sounds like. How
[17:13] old is the the HVAC system on on on the
[17:16] on the house? Uh it doesn't have AC, but
[17:18] the heating system is on the older side.
[17:20] We know we're going to have to replace
[17:21] the boiler probably sometime in the next
[17:23] What does that cost? Do you know? Uh not
[17:24] really. No. Okay. Yeah. Several thousand
[17:27] is the number I have in my head, but
[17:28] that's rough. That's a pretty easy thing
[17:30] to figure out. Uh some quick quick AI or
[17:32] Google research or even just calling a
[17:33] local technician to ask them, hey, what
[17:35] would it cost to replace a boiler? And
[17:37] that way you at least know the number
[17:38] you're shooting for cuz it it seems to
[17:40] us we looked at because you were so it
[17:42] was so helpful that you sent us your
[17:43] scing fund breakdown. When it comes to
[17:44] cash management, we like for you to have
[17:46] an emergency fund that where you keep 3
[17:48] to six months of living expenses
[17:51] compartmentalized. And then some people
[17:52] like to use a syncing fund because they
[17:54] know they have short to intermediate
[17:56] term goals coming up. Hey, I know I'm
[17:57] going to have to replace the car or I
[17:59] know I'm going to have to have this
[18:00] vacation or I know I'm going to But it's
[18:02] interesting when we look at your syncing
[18:04] fund. There are a lot of different
[18:07] buckets here. Kind of walk us through
[18:09] these and how you guys are thinking
[18:10] about this excess cash. I get the
[18:12] haircut comment now.
[18:16] Yeah. So essentially this was a
[18:18] catch-all for all the expenses that
[18:20] aren't monthly expenses. Um so that's
[18:23] why something like haircut or clothing
[18:25] ended up its way on there. That's not
[18:26] sewing. Yeah. The sewing money. Um uh
[18:29] that that that's not something we can
[18:31] predictably uh allocate every month. So
[18:34] it just ends up in a scing fund where
[18:35] it's like a smaller amount that goes in
[18:36] there every month and we have it to like
[18:38] spend down. And then there's the bigger
[18:39] categories of um a future car down the
[18:41] road wanting to have money to for that.
[18:43] Um the car maintenance, same thing.
[18:46] just, you know, we get you get hit with
[18:48] several hundred dollars here and there,
[18:49] but not every month. Um, and then the
[18:51] house maintenance as well. Just thinking
[18:52] to have that for big expenses. Um, the
[18:55] the escrow is actually because we pay
[18:57] the taxes and insurance out of our
[18:59] pocket now. It's not part of our
[19:00] mortgage. So, that's why that's there.
[19:02] Um, but then yeah, the the smaller
[19:03] things are just kind of miscellaneous
[19:05] things sprinkled in there, I guess,
[19:07] allowing us to spend freely and I
[19:09] imagine this is sort of guilt relief,
[19:11] right? Hey, if we have this, so I don't
[19:12] feel guilty when we spend. Well, let me
[19:13] ask you a question. If I were to ask you
[19:15] what your monthly burn rate is based on
[19:16] your current because budgets are so
[19:18] unique to every every person every
[19:19] couple does it a little bit differently.
[19:21] So when I ask you guys what's your
[19:22] monthly burn rate what would your answer
[19:23] to that question be? 7327.
[19:26] Uh but who's counting exactly right? So
[19:29] okay study up. So if our monthly burn is
[19:32] about 73 $7,500 a month and we would say
[19:36] okay you're a twoinome household where
[19:39] you both earn about the same. You don't
[19:41] have any other dependents counting on
[19:43] you. You could reasonably argue that
[19:45] three months would be an appropriate
[19:46] emergency fund for you guys. In your
[19:49] minds, instead of thinking through all
[19:51] of these different like syncing funds
[19:53] and contingencies for all these
[19:54] different things, what if we just
[19:56] increased the monthly cover to four
[19:59] months or five months? And we know that
[20:01] what those additional months are going
[20:02] to do are cover some of these other
[20:04] costs. Because what it looks like is
[20:05] happening is you have a bunch of
[20:07] different contingencies that are likely
[20:09] not going to all happen at once. I mean,
[20:11] you've already said right now you have
[20:13] $8,700 in your rental maintenance
[20:15] budget. You're adding to that every
[20:16] month, waiting for the sewer line to
[20:18] break again, and you just had that
[20:20] happen, right? Yeah. So, it seems to me
[20:22] that it might be practical or prudent.
[20:23] Instead of having three months of living
[20:25] expenses, you could have five months or
[20:27] six months of living expenses, then you
[20:28] know what your true cash exposure is.
[20:31] Because what I worry about with you
[20:32] guys, and we see this with clients all
[20:33] the time, is that we compartmentalize
[20:35] this cash and what we end up doing is
[20:37] being way, way, way cash heavy. where
[20:39] instead of having our money actually
[20:41] working for us, doing the things to help
[20:43] us move our financial circumstance
[20:45] along, we're way overly conservative and
[20:47] we're way cash heavy. And I think for a
[20:49] 25-year-old couple at your stage, you
[20:51] probably are a little bit more cash
[20:53] heavy than you have to be. Especially
[20:56] when you didn't max out the Roth IRA.
[20:57] Especially when you did
[20:59] not I know you said it was only $1,000.
[21:02] But in in my book, I detailed how I went
[21:05] back and calculated what every year that
[21:07] I didn't get like the full maximum Roth.
[21:10] Mhm. It was only $10,000 total, but I
[21:13] calculated it out and it turns out to be
[21:15] the equivalent of close to $400,000 by
[21:18] the time I'm retired. So those little
[21:20] decisions of here and there because it's
[21:22] taxfree. So, I'm going I'm not going to
[21:24] let that go because I think that y'all
[21:26] have the cash. It's not like you had to,
[21:29] you know, you were in the this squeeze
[21:30] of life to where you had to make this
[21:33] sacrifice and the wroth was the the
[21:34] thing that you just out of your shaking
[21:36] hands, you just couldn't do it. Y'all
[21:38] actually had it sitting in your sewing
[21:41] and your hair budget.
[21:46] Nobody's taking anything away from you.
[21:49] It's just it's just that that you have
[21:50] way too much cash when you're not
[21:52] maximizing some of these investment
[21:54] goals that that should come be
[21:56] prioritized earlier. You guys laid out
[21:58] for us how you currently think about
[21:59] your saving. Like when we think about
[22:01] how we're deploying our paychecks every
[22:03] single month, you put together for us
[22:04] your saving strategy. And this is what
[22:06] it looks like. Now, every month you have
[22:08] about uh $360 going into your HSAs. You
[22:11] have about almost $1,100 going into your
[22:14] 401ks because you have match and you're
[22:16] doing enough to get the maximum match
[22:18] available. You have about $900 a month
[22:20] going into your Roth IAS. So, not maxing
[22:23] them out, but you still are contributing
[22:25] there. But then we have $400 a month
[22:27] going to the 529 that we've already
[22:28] established perhaps if we're following
[22:30] the financial order of operations is a
[22:32] little out of whack. That's like a step
[22:34] eight when we haven't even fully done
[22:36] step five yet. I thought about giving it
[22:38] a family feud.
[22:40] I just did not like that. Did not like
[22:42] it. And then we have the home equity,
[22:44] which that's part of that is for the
[22:46] down. You have a down payment fund for a
[22:48] future house that you said you would
[22:50] only you said you'd only buy the next
[22:53] house if you sold the current house. And
[22:55] if you sold the current house, you have
[22:56] equity in that house for down payment,
[22:57] but you're also building another down
[22:59] payment fund to go on top. And they're
[23:01] sending extra money like $400 or $500 a
[23:04] month towards the mortgage. That's built
[23:06] into the house. And you're putting both
[23:07] of those. So, this is like an additional
[23:09] down payment fund, an additional equity
[23:10] fund, and you know, it's not it's not
[23:12] like your mortgage is super low
[23:14] interest, but it ain't exactly high
[23:15] interest, right? Um, so when we think
[23:17] about your savings rate where you guys
[23:19] are, we would call it 16%. Because we
[23:21] know that, you know, prepaying the
[23:23] mortgage as well as 529, that's like 8 N
[23:25] that does not go into my savings rate.
[23:27] If we were going to improve upon this,
[23:28] like if we were going to think about
[23:30] truly letting your dollars maximize
[23:33] their potential for you with every
[23:34] decision you make, we put together a
[23:36] different savings plan that we think
[23:37] could potentially make sense for you
[23:38] guys. Rather than on your HSAs, not
[23:41] maxing out, what if we did $713 every
[23:44] month to get those to fully max out?
[23:47] 401ks, leave those the same. Get the
[23:49] employer match that you're getting, but
[23:51] now get the Roth IAS maxed out. Instead
[23:53] of $900 every month, have
[23:56] 1,167 going across both of those and
[23:58] you'll max them out. Let's stop
[24:00] contributing to Timmy's 529 because
[24:02] we're going to have plenty of time for
[24:04] doing that. And instead of having an
[24:06] additional down payment fund and instead
[24:08] of having additional morning on the
[24:09] mortgage, let's cut that out. And so if
[24:12] we actually look at this and we think
[24:14] about the cash outflow, what this does
[24:17] is it frees up an additional
[24:19] $481 for you guys every month. And the
[24:22] question then becomes, okay, well, what
[24:24] do we do with that 481? How do we think
[24:26] about that? What's the best way for us
[24:28] to deploy that? We could obviously look
[24:30] at the financial order of operations and
[24:32] we could say, okay, we're maxing Roth
[24:34] and we're maxing HSA. And so, the
[24:36] natural next step would be, let's just
[24:37] dump that into our 401k. But you've
[24:40] already expressed to us, hey, there's
[24:41] some anxiety we have around being able
[24:44] to fund some of these short-term goals.
[24:45] And one of the short-term goals, and I
[24:47] think you've said it a few times now,
[24:48] is, hey, what if we wanted to go to one
[24:50] income? What if we did want to start a
[24:51] family? What if we want to do that?
[24:52] What's that look like? Well, one of the
[24:54] things that we think would likely be
[24:56] necessary for you to go to one income is
[24:58] you have to figure out how to
[25:00] compartmentalize that Pennsylvania house
[25:02] over on its own, right? So that way it's
[25:04] not actually pulling away from current
[25:06] living expenses from current cash flow.
[25:08] It kind of self- sustaining because you
[25:10] already let us know that the rent you
[25:12] have coming in doesn't quite cover the
[25:13] mortgage, especially when you take in
[25:15] account the maintenance budget and other
[25:16] stuff. So, uh, what we thought would be
[25:18] interesting is to walk you through a few
[25:20] different ways that we could think about
[25:21] making that cash flow neutral or maybe
[25:23] even cash flow positive. And as we were
[25:25] kind of spitballing this, we think
[25:26] there's really three ways we could
[25:28] potentially do this. The first is you
[25:29] can just increase rent over time. If the
[25:31] rent that you have coming in has a
[25:33] natural cost of living adjustment where
[25:35] it goes up by 3 or 4% annually,
[25:38] naturally, that's going to move you into
[25:39] a place where it's going to become cash
[25:41] flow neutral, cash flow positive. So,
[25:42] first question, does the lease that you
[25:44] have with your friends have automatic
[25:46] rent adjustments built into it? No, we
[25:48] manually negotiated that with Okay. So,
[25:51] is that something are they just one year
[25:52] at a time doing that lease? Okay, great.
[25:54] Do you guys have any desire to do a
[25:56] longer term lease where it would be
[25:58] something where you rent to them for 3
[26:00] years or 5 years or is that too
[26:02] uncertain still? Because it's too
[26:03] uncertain, I think, just with Yeah. what
[26:05] we want to do. Okay. So, increasing rent
[26:07] is one solution. The next solution, and
[26:09] we all love this one, is you could
[26:10] potentially consider refinancing your
[26:12] mortgage. Right? We know that your
[26:13] mortgage right now was what was it?
[26:15] 5.875. Is that the number? Ideal time to
[26:17] refinance. Rates likely right now are
[26:20] not a whole lot lower, but that doesn't
[26:22] mean that rates might not go lower in
[26:25] the future. I mean, we know that
[26:26] historically interest rates kind of go
[26:28] up and down and we're probably still
[26:30] sort of more towards the higher range
[26:32] right now. And we said, okay, well, what
[26:34] if rates did change? What if something
[26:36] happened economically that allowed them
[26:38] to to fall and you had the opportunity
[26:39] to refinance? Look at what happens to
[26:41] your payment. We know that right now, if
[26:43] we just factor in your principal and
[26:45] interest, uh your current mortgage
[26:47] payment is
[26:48] $1,666 a month, and that's at
[26:51] 5.875%. Well, if you were to refinance
[26:54] now, and let's just say that 5% was the
[26:57] prevailing rate now. Well, just doing
[26:59] that and continuing to pay your mortgage
[27:01] on the same timeline. So, not recasting
[27:02] it another 30 years would drop your
[27:05] payment from 1666 down to 1286. Wow.
[27:08] That's pretty exciting, right? Yeah. But
[27:11] maybe rates don't fall just yet. Maybe
[27:13] it takes some time for rates to get down
[27:15] in there. But in the future, and let's
[27:16] say 5 years, that's just sort of an
[27:18] arbitrary number that we're using. What
[27:20] if even in 5 years, you could
[27:22] potentially refinance? Well, obviously
[27:23] your mortgage will have continued to be
[27:24] paid down, but at that point in time,
[27:27] you could refinance to 5% and your
[27:29] mortgage payment goes from
[27:31] $1,666 to a little under $1,100 a month.
[27:35] Well, if you have 21,00 coming in, your
[27:37] mortgage is only $1,100, that's a pretty
[27:39] great spot to be in. The question you
[27:41] have to ask yourself, okay, well, when
[27:42] are we thinking about wanting to start
[27:44] the family and go to one income and
[27:46] those sort of things, but here are some
[27:47] options you have. We also did the math
[27:49] on how it changes if you were to have a
[27:51] 4 and a.5% refinance option. Now, the
[27:54] thing that is unfortunate about
[27:56] refinancing is we don't get to control
[27:58] when rates change. I mean, I think we're
[28:00] all hopeful that rates will come down to
[28:03] provide people who recently bought an
[28:04] opportunity, but it's not guaranteed.
[28:06] It's not something you can bank on. So,
[28:08] we said, "Okay, well, what is something
[28:10] that you likely could influence? what is
[28:12] a strategy that you could potentially
[28:14] deploy to try to get the Pennsylvania
[28:16] house to be cash flow neutral? Uh, and
[28:19] one of the things we came in was
[28:20] potentially looking at some sort of
[28:21] mortgage recast. Now, do you guys know
[28:24] what a mortgage recast is? Not really.
[28:27] Awesome. Great. Perfect. All right. So,
[28:29] we put together sort of a theoretical
[28:30] example. You know, we we borrow money
[28:32] and we pay out a mortgage over like a
[28:34] 30-year time period, right? And they
[28:36] calculate at the beginning of the
[28:37] mortgage what that mortgage payment's
[28:38] going to be in order for us to pay it
[28:40] off in 30 years. Well, a lot of times
[28:42] mortgage companies will say, "Hey, if
[28:44] you are building up and you get to a
[28:47] place where you want to make a capital
[28:49] infusion, you have some money on the
[28:50] side and you just want to pay down the
[28:52] principal. You can pay down the
[28:53] principal and keep paying your same
[28:54] mortgage and you'll just pay it off more
[28:55] quickly." Or one of the things that some
[28:57] mortgage companies will let you do is
[28:58] they will let you recast the mortgage
[29:00] where you put a big principal payment
[29:02] down and you ask them to recalculate
[29:04] what the mortgage payment would be to
[29:06] pay it over the same timeline. So,
[29:07] you're not stretching it out. You're not
[29:09] changing your interest rate. You're just
[29:10] saying, "Hey, we put a big capital
[29:13] amount down. Recalculate our payment."
[29:15] So, you can see sort of graphically you
[29:17] were paying along the gold line and
[29:20] let's say that 10 years in this example
[29:22] on the line, you had $50,000 that you
[29:24] could just pay on the mortgage. You
[29:25] asked them to recalculate your payment.
[29:27] You get a lower payment and pay it off
[29:29] in the same amount of time. Does that
[29:30] make sense? Yeah. The margin between the
[29:32] two lines would be the interest that you
[29:33] ultimately save because you're paying it
[29:35] off and you're just asking to
[29:36] recalculate. So, what we said for you
[29:38] guys is if we had this five-year
[29:40] timeline and we had this
[29:42] $481 excess that you have right now and
[29:44] you kept saving that towards cash
[29:46] building towards an amount to recast,
[29:48] you're looking at a scenario where
[29:50] potentially 5 years in the future, if
[29:51] this were to manifest, you could drop
[29:54] your mortgage payment from
[29:57] $1,666 down to
[29:59] $1,666 even if interest rates don't
[30:01] change. Can you do that at any time when
[30:03] when you have money to put towards? very
[30:05] it's dependent upon the mortgage
[30:07] company. So, one of the pieces of
[30:08] homework we're going to give you is,
[30:09] hey, call your mortgage company and say,
[30:11] "Hey, I would like to think about a
[30:13] recast. Is this something you allow? Are
[30:14] there any costs associated? How do I go
[30:16] about doing it?" This is this is kind of
[30:18] related. We whenever we talk about
[30:20] refinance shows, the first thing I
[30:21] always tell people before you refinance
[30:24] your mortgage, call your lender and ask
[30:26] if they'll do what's called a rate
[30:27] modification. Because realize lenders,
[30:30] they've already they don't want to pay
[30:32] the friction cost either of going
[30:33] through the whole process of going
[30:35] through underwriting and everything
[30:36] else. So sometimes it's easier for them
[30:39] to keep an existing customer, especially
[30:40] a customer that pays their bill on time.
[30:43] So like a rate modification, there's
[30:45] typically a fee associated with that.
[30:46] And just like with a mortgage recasting,
[30:48] there likely would be a fee associated,
[30:52] just a few hundred. Sure. But that's why
[30:54] you wouldn't want to do it every You
[30:55] wouldn't want to call them, hey, it's me
[30:56] again. I just sent you another000 bucks.
[31:00] So, so it's going to be more of a
[31:02] deliberate and intentional transaction
[31:03] to where that's why 50,000 is what we
[31:06] use in the example is it's it would be
[31:08] something y'all are making a decision
[31:10] that you would like to have a little
[31:11] additional margin because you're living
[31:13] off one income and you had this excess
[31:15] cash and but you don't get better rates.
[31:18] How do we make the best of this
[31:19] situation? This was just an option that
[31:20] we thought we'd at least share with you.
[31:22] I honestly wish we had known about that.
[31:24] We, now looking back on this, this might
[31:26] have been a bad decision, but we did put
[31:28] a pretty big amount of money down on our
[31:30] our mortgage payment from a gift that we
[31:32] had gotten. Yeah. Um, probably last
[31:34] year, we put like $25,000 down on it.
[31:36] So, not knowing that this was an option
[31:38] maybe to to recast it when we did that.
[31:40] Well, so here's a wonderful thing. I
[31:41] would tell you call your mortgage
[31:42] company and say, "Hey, just last year we
[31:44] put a big amount down on this. Would it
[31:47] be possible to recast our payment?"
[31:48] Because even though you've already made
[31:49] the principal, now they may say no or
[31:51] they may say, "Oh, we would have had to
[31:53] have done that before you made the
[31:54] deposit." But there's a good chance they
[31:55] still could. The fact that you've
[31:57] already done that, you're already ahead
[31:58] of schedule. You've already paid that
[32:00] principal down. So, it's at least worth
[32:01] asking the conver asking the
[32:02] conversation. Uh the second best answer
[32:05] they can give you is no, right? Like
[32:07] that's the second. So, you might as well
[32:09] ask. And then what you do is you tell
[32:10] them, "Hey, mortgage company, rates are
[32:12] looking pretty good right now." I talked
[32:13] to another bank and they said that right
[32:14] now they would let me refi at my current
[32:16] rate. And I if you are not interested in
[32:19] the ratecast, I'll just move my mortgage
[32:21] over to someone else who's willing to
[32:22] do. Now, you want to make sure you
[32:23] actually have the leverage and somebody
[32:24] that's willing to do that. But that is a
[32:26] way that you can make your mortgage
[32:28] company fight to keep you as a client or
[32:30] as a customer instead of just telling
[32:32] you, "No, tough, we're not going to do
[32:34] that." Now, I loved that when we asked
[32:36] what your monthly burn rate was, it was
[32:39] 7,327.
[32:42] What did we say the dual income goes
[32:44] down to one income looks like? because
[32:46] I' i'd like to have some discussion on
[32:47] that too. Yes. So, we built you uh sort
[32:49] of two separate budgets. Well, we know
[32:51] that if you were to go down to one
[32:53] income after we factor in taxes, we
[32:56] think that your gross income take-home
[32:58] goes from 10,200 down to about
[33:01] $7,800. There are some changes we've
[33:03] already said we're going to make. If
[33:04] we're able to like recast the mortgage
[33:06] and get the mortgage a little bit
[33:07] cheaper, it goes from666 down
[33:10] to,66. We've already argued that $400
[33:13] maintenance on the rental may be a
[33:14] little aggressive. So, what if we were
[33:15] to cut that down to like 200? So, what
[33:18] we're calculating is if you were to go
[33:19] to one income right now, present day,
[33:22] you'd have about $7,800 of income, about
[33:24] $8,000 of outflow, you have negative
[33:27] cash flow, about 250 bucks. And so then,
[33:30] if you were to continue saving 10%,
[33:32] because remember, you said, I feel like
[33:34] it's not hard to think about saving for
[33:36] the future and saving for retirement. We
[33:37] wouldn't want you to cut that down
[33:38] completely. But if you were to still
[33:40] save 10% of the single income, you would
[33:44] be at about $1,000 deficit per month as
[33:47] it stands today. So the question we have
[33:49] for you is, okay, if you were going to
[33:51] go to one income today, is there a
[33:53] $1,000 that you could either cut out of
[33:57] your budget or is there a way to create
[33:59] $1,000 of additional income right now?
[34:03] Probably. And that's something we've
[34:04] talked about that if we do go down to
[34:05] one income, someone working part-time a
[34:06] little bit or there are probably some
[34:08] areas of our budget we can tighten up a
[34:10] little bit too and some combination of
[34:11] those things. That that sounds a lot
[34:13] more realistic than I would have
[34:14] thought. Well, here's where I want to
[34:16] get into the coaching part is because
[34:19] right now I I still feel like you're a
[34:21] little divided in in your attention.
[34:24] It's just like we know that you're
[34:26] prepaying the mortgage. It sounds like
[34:28] you got a gift and you you sent more to
[34:29] that mortgage. you're kind of being
[34:31] you're playing the part of a debt
[34:32] crusader and and it feels good to pay
[34:34] down that that mortgage debt. But I will
[34:36] tell you what I see coming up is this
[34:38] whole life decision on you guys doing
[34:40] the family planning figuring out y'all
[34:42] are both successful. That's going to be
[34:44] a lot of discussion to figure out which
[34:45] one of you or is it going to be a hybrid
[34:47] where one of you works from home but you
[34:49] still have to hire somebody to come help
[34:51] out on some services. So there's going
[34:53] to be a discussion and that's why
[34:54] whenever we have big life decisions I
[34:57] tell everybody to put on their 3D
[34:58] glasses. And what I'm when I say that is
[35:00] that I want you to essentially and you
[35:02] I've seen your spreadsheets. You'll have
[35:04] no problem. I was like, is this
[35:06] legitimately their spreadsheet? So,
[35:08] you're gonna have no problem putting on
[35:09] your 3D glasses is because I do want you
[35:11] to write out kind of a fiveyear or
[35:13] whatever period of time y'all want to do
[35:15] your family planning with and and and
[35:18] create the dream plan. This is where
[35:20] everything works out beautifully. You
[35:22] all get payraises. You know, you keep
[35:24] getting promoted. You're getting these
[35:26] huge bonuses. you know, you tell them
[35:28] you want to work from home and you're
[35:29] going to have screaming kids in the
[35:31] background. They go, "Great, no problem.
[35:34] That's the that's the dream plan." But I
[35:37] also want you to do the down to earth.
[35:38] Meaning that maybe when you go talk to
[35:40] your employers or one of your careers is
[35:43] doing something that the other one's
[35:44] not, and you start making real
[35:46] determinations on what you think will
[35:48] happen for you from a cash flow. And
[35:50] then don't skip the doodoo plan. That's
[35:52] where you actually do another tab on
[35:54] your spreadsheet says, "Oh my gosh, what
[35:56] if things don't go like we plan?" And
[35:58] and here's why I want you to do do the
[36:00] doodoo plan. I don't how many dues can I
[36:02] put in there? Um is that you right now
[36:06] you're allocating so much cash to like
[36:08] debt and all these other things. If you
[36:10] did this exercise, you'd probably
[36:12] quickly realize, man, maybe what we need
[36:14] to do in this transition, not only save
[36:16] for the Roth, do the 401k and these
[36:18] things because that's already getting us
[36:19] close to 20%. But maybe we could start
[36:21] building up an aftert tax account. And
[36:24] then you could figure out is that cash
[36:25] or should it be slightly invested? You
[36:27] know, you you'd have you would know
[36:29] because you've done the three plans to
[36:31] kind of know when you would need cash
[36:33] flow. And then you get to control the
[36:35] access to it. Whereas right now, you
[36:38] have a lot of variables. You you're very
[36:40] disciplined, but you don't control the
[36:42] access because that mortgage that that
[36:44] $25,000 you sent to the mortgage
[36:46] company, if you called them and said,
[36:47] "Hey, just kidding. we've decided we're
[36:49] going to have a baby next year. Can um
[36:51] can I get the 25 grand back? They're
[36:54] just not they're going to make it very
[36:55] hard. It's hard to you have to
[36:56] refinance. It's not like they just send
[36:58] you the money back. And that's why I I
[37:00] want to caution you, build it into the
[37:03] plan so that you have maximum
[37:05] flexibility and you get to address this
[37:07] stuff headon and also control the access
[37:10] to it because that also allows you if
[37:12] you have lean months. Do you know what
[37:14] gets you through lean months? having
[37:16] extra cash and extra capital that you
[37:18] control. And that's that's what's going
[37:20] to get you through this. Y'all y'all are
[37:22] so successful, but it's just these
[37:24] little nitpick things that I think would
[37:26] really improve your plan and also take
[37:29] down the stress level. Kids are already
[37:30] going to be stressful. This is going to
[37:32] give you all just maximum flexibility so
[37:35] that you you you hit that and you don't
[37:36] even feel it doesn't even feel like a
[37:37] speed bump to you. You know, it's
[37:39] interesting. One of the things a lot of
[37:40] times we'll show people a projection.
[37:42] Hey, if you do the things that we're
[37:43] recommending, this is what age 65 will
[37:46] look like for you. This is what
[37:47] financial independence. You guys have
[37:49] already said, hey, we're not the thing
[37:50] that we're not struggling with is age
[37:52] 65. We're struggling with a near-term.
[37:54] So, we thought, man, wouldn't it be
[37:55] helpful if instead of showing them
[37:57] something, you know, 30 years, 40 years
[37:59] in the future, what if we showed them
[38:01] just 5 years in the future? If we think
[38:02] about where they are today and they were
[38:04] to implement some of these changes, if
[38:06] they were to make some of these
[38:07] adjustments, how might their situation
[38:09] look at the time when they're seriously
[38:11] considering going to one income or
[38:12] starting a family or making some of
[38:14] those changes? And so we actually did
[38:15] project that out for you. So we said,
[38:17] what if we assume that your investments
[38:19] over the next 5 years can grow at 8%
[38:21] annualized? That seems reasonable for a
[38:24] couple that's 25 years old. Let's assume
[38:26] that the house that you currently own
[38:27] appreciates in value at the rate of
[38:29] inflation about 3%. Let's assume that
[38:31] cash does the same about 3%. And then
[38:34] we're going to assume that your
[38:35] emergency reserve actually doesn't grow
[38:36] at all. We're just going to have it be
[38:37] finite. Same number. Pick a number.
[38:39] Stick to it. Well, when we look at where
[38:42] you are today and we lay it side by side
[38:43] with where you'll be, it's pretty
[38:45] exciting. You can see that just
[38:47] contributing the same amount to your
[38:48] 401ks that you're doing right now, your
[38:49] 401k, Daniel, goes from 6,300 to almost
[38:52] 36,000. Lindsay, your 401k goes from
[38:56] 15,000 to almost 76,000. Again, this is
[38:58] just five years in the future. Daniel,
[39:00] your Roth goes from 23,000 to 78,000.
[39:04] Lindsay, your Roth goes from 14,000 to
[39:07] 63,000. Your HSAs go from about 8,000 to
[39:11] 64,000. So now your liquid portfolio,
[39:14] without necessarily putting tons of
[39:16] focus on that, without really throwing
[39:18] the kitchen sink at it, still over the
[39:20] next 5 years, you're able to grow it
[39:21] from
[39:22] $66,000 up to
[39:25] $317,000 by the time that you guys get
[39:27] to 30 years of age. And do y'all know
[39:29] when we do our net worth by age, we
[39:31] always say you should have an
[39:32] aspirational goal of having your net
[39:34] worth beet one times your income annual
[39:39] salary. Yeah. But and
[39:42] and we haven't gotten into net worth
[39:44] yet. I mean, if you look at all the
[39:46] assets, I mean, y'all are you will be
[39:48] three to four times what you're amazing.
[39:51] It really is. You can see that the
[39:52] Pennsylvania home goes from 350 to
[39:54] 400,000. the 529 we're gonna stop
[39:57] contributing to it but it's still gonna
[39:59] grow for little Timmy it's going to be
[40:01] at almost 7,000 where your cash if we're
[40:04] going to do the recasting scenario and
[40:06] we're going to focus on that goal you
[40:07] could grow that from 10,000 up to 43,000
[40:10] and then we still have your emergency
[40:11] fund that 54,000 stays intact and your
[40:14] mortgage just paying it on the normal
[40:16] pace is still going to go from 240,000
[40:18] out of 24. your net worth in a fiveyear
[40:21] span just by redirecting how you're
[40:24] pointing your dollars and optimizing
[40:26] your situation. You could go from
[40:29] $240,000 today to
[40:32] 616,000 five years from now and be
[40:35] primed and positioned to go to one
[40:38] income to move back to Pennsylvania to
[40:40] start. And you don't have to wait five
[40:42] years. I always No, this is the old man.
[40:44] My kids, my oldest. Everybody buckle up.
[40:48] But it is my my oldest is, you know, a
[40:50] junior in college. I wish we'd had more
[40:53] and I wish we'd had them sooner cuz my
[40:54] wife and I were married close to six
[40:56] years before we had our first child.
[40:57] Money is good making the planning for
[41:00] it. But y'all already kind of laid it
[41:02] out in your interview with us. You don't
[41:04] want it's just a tool. It's not what
[41:06] it's not the center of your life. As you
[41:08] guys think about this, how do you want
[41:10] the next five years to look? I think the
[41:12] biggest thing is I I like hear a lot
[41:14] about retirement and retirement planning
[41:16] and that's always kind of a big thing in
[41:17] the financial world as it should be like
[41:19] for for good reasons, but um to kind of
[41:22] see these numbers laid out of looking at
[41:24] it and analyzing it for the short term
[41:26] is super helpful. I it's not something
[41:27] that we've done a ton. It's not
[41:29] something I would have even known how to
[41:30] go about exactly, but it's it's
[41:32] comforting to see that like this is
[41:34] possible and having some different
[41:35] strategies to do that with the house
[41:36] like recognizing that that that payment
[41:38] is going to be one of the most critical
[41:39] things for us. But there are other ways
[41:41] to kind of figure that out rather than
[41:43] just how much money can we throw at it.
[41:46] So that's I think that really helps and
[41:48] it it seems like a simpler way to look
[41:49] at it. And what I love is this is not uh
[41:52] it's not still putting emphasis and
[41:54] power into the long term. You'll notice
[41:56] your assets are still building towards
[41:58] retirement. Your retirement portfolio is
[42:00] still growing. It is one of those things
[42:02] though that as life happens, it is a
[42:04] journey and you are on a path and money
[42:07] is nothing more than a tool that allows
[42:08] us to accomplish the goals that we have.
[42:10] And if some of those goals are
[42:12] short-term or intermediate term, then we
[42:13] ought to use our money accordingly. And
[42:15] so in this season of life, if that's the
[42:17] way that you guys need to prioritize,
[42:18] that's totally okay. You're you're not
[42:21] going to have a 25% savings rate going
[42:23] towards financial independence and
[42:24] building towards retirement, but you
[42:26] still have something going there. You're
[42:27] still using the financial order of
[42:28] operations. you're still maxing your
[42:29] Roth, maxing your HSA, so that even
[42:31] though you're not doing it necessarily
[42:33] by the book, you're still moving towards
[42:36] that common goal, and you're not
[42:37] sacrificing these years, they're going
[42:39] to be so so valuable in your long-term
[42:41] wealth buildinging journey. What about
[42:42] you? What do you think? I think I just
[42:44] get a little bit deflated when I see the
[42:46] 529 amount and I'm just wondering kind
[42:49] of your thoughts about how we would go
[42:50] about getting that up to where it would
[42:52] need to be when our kids are old enough
[42:54] to go to college. So you would be a So
[42:55] we we tend to um overestimate what we
[42:59] can do in the short term and
[43:00] underestimate what we can do in the long
[43:01] term. In 18 years you can do a
[43:05] remarkable amount of saving in 18 years.
[43:07] You can do something crazy when it comes
[43:09] to saving kids college. And you've
[43:11] actually lived this. Yeah. I mean like I
[43:13] said my my oldest is a junior in
[43:14] college. Soon as she was born I started
[43:17] setting up doing quarterly 529
[43:20] contributions. And it wasn't a ton and
[43:21] it I was just trying to maximize the tax
[43:23] savings in the state of Georgia at the
[43:25] time because they they they actually
[43:26] gave you 6% off your taxes. Um and it's
[43:31] paid all the way through her junior
[43:32] year. Now she got some scholarships just
[43:35] like your kids will. She got a
[43:36] scholarship that covered 60% of her
[43:38] tuition through achievement. Um so um
[43:41] but we've covered the rest of it. And
[43:43] then yes, the four her senior year I'm
[43:45] going to have to come out of cash flow.
[43:46] But I think that's okay, you know,
[43:47] because realize y'all are looking at
[43:49] life through the eyes of 25 year olds.
[43:51] When your kids are this level of
[43:54] success, that tuition is going to be
[43:57] like you're just paying it forward to to
[43:59] children that you love. You're going to
[44:01] have plenty of resources to make that
[44:03] and you'll still feel well rewarded for
[44:06] for the starting that fund when they're
[44:09] born. Not not now. Look, you might
[44:11] already have the gap covered just
[44:13] because Timmy's already got a fund set
[44:16] up before Timmy's even on the planet
[44:18] yet. But it's um but I I just tell you
[44:20] that's that's one of those worries that
[44:22] I think is going to fix itself. You
[44:23] know, be deliberate and active, but also
[44:26] know that your children will probably
[44:30] qualify for some scholarships. You're
[44:32] going to set up these automatic
[44:34] investment plans and the money will be
[44:36] there because that same discipline
[44:38] that's built you guys up to a quarter of
[44:39] a million dollars at 25 is going to be
[44:41] the same discipline that's going to have
[44:42] college waiting for them and any other
[44:44] financial goals that y'all desire to
[44:47] conquer. We definitely need the
[44:48] perspective. So, appreciate that. So,
[44:50] before I give you the homework, what
[44:52] questions do you have for us? What else
[44:53] can we answer that might be valuable for
[44:54] you guys? This is a bit of a
[44:55] miscellaneous question about budgeting,
[44:57] but it but it ties in with as we're
[44:58] setting that up for the future. We've
[45:00] had some tension about um how to budget
[45:03] in terms of not between the two of us, I
[45:05] mean, but just between two. I was like,
[45:06] "Oh, this is about to be good. We've
[45:08] had news to her." Um between the idea of
[45:12] budgeting for what we see in a normal
[45:14] month, and that's kind of how we have
[45:15] our budget set up right now. It's for
[45:17] two paychecks, which is we each get we
[45:19] get paid by weekly, so that's normally
[45:20] what we see, but that actually leaves
[45:22] two paychecks a year out of the budget.
[45:24] So there's this extra chunk of money and
[45:25] and like this past year we used that to
[45:27] honestly most of it to put into um our
[45:30] like end of the year HSA and 401ks to
[45:32] like or Roth IAS to get them closer to
[45:35] the max. Um so but it's just a question
[45:37] of should we be budgeting on the actual
[45:39] amount that we see like our annual
[45:41] income divided by 12 or what we see in a
[45:43] normal month just those two paychecks. I
[45:45] think the safest way is you budget on
[45:47] the base. Like you budget on what you
[45:49] actually see. So, if you know you're
[45:50] going to have x amount coming in this
[45:52] two weeks, you budget based on how much
[45:54] is going to flow out in that two weeks,
[45:55] right? Do it over a month because it's a
[45:56] little bit easier to think about 12. But
[45:58] I would base it on that. And then what
[45:59] happens is is as you have those
[46:01] additional paychecks that weren't
[46:02] accounted for come in. That is where you
[46:04] can do some of the other miscellaneous
[46:05] stuff. Hey, I didn't quite get the Roth
[46:07] maxed out. I'll do that. Or hey, now
[46:09] instead of having a scing fund that I
[46:10] built every month, I've got this one
[46:12] extra paycheck that's going to be what
[46:14] we're going to go on our trip with or
[46:15] that's going to be how I'm going to fund
[46:16] this goal. Because if you can make life
[46:19] work on the base, when that additional
[46:22] income comes in, it's just gravy. And
[46:23] you don't have to have any guilt about
[46:25] using that for the things you actually
[46:27] want to use it for. I look at your
[46:28] expenses as like monthly things. And
[46:30] then of course you've got your one-offs
[46:32] like the property taxes, but you're
[46:33] already putting that in a sync fund. But
[46:36] then when you think about saving for
[46:38] your retirement, you know, you're
[46:39] getting 26 pay periods. you you think
[46:43] about that in the terms of the
[46:44] percentage okay and then what that turns
[46:46] out to be on an annual basis so you can
[46:48] do both believe me I've seen your
[46:50] spreadsheets you are multiaceted
[46:52] talented is so you can look at your
[46:54] expenses more on the you know what do we
[46:56] need to do monthly or quarterly
[46:57] depending upon how these things hit but
[46:59] then on the income meaning ver saving
[47:02] side of it it's okay to think about it
[47:04] in those 26 pay periods and then plan
[47:06] accordingly as a percentage okay is that
[47:08] how do you do do you do everything on we
[47:10] noticed you did everything on a spread
[47:11] spreadsheet. Any reason why you don't
[47:13] use some sort of software or some sort
[47:15] of tracking app? Biggest thing is I
[47:16] don't want to pay we don't want to pay
[47:17] for anything. We're frugal. Frugal. I
[47:20] also enjoy doing it every month and then
[47:22] it's something like we can talk about
[47:23] after I run through everything like how
[47:24] do we do this month where where should
[47:26] we adjust and and do you find that you
[47:27] guys actually adjust like if you go over
[47:29] in a category budgeting do you actually
[47:31] switch your behavior moving forward or
[47:32] you just say oh we went over and then
[47:34] you move on? It's a good question. More
[47:35] mentally noted I think. Yeah, we not
[47:38] Yeah, I think that's a good point. We
[47:39] don't do anything super concrete. more
[47:41] tracking than fully budgeting probably.
[47:43] Yeah, that's fair. Yeah. Well, it seems
[47:45] like you're doing okay. I mean, I'm not
[47:46] I'm not going to pick on you. I I
[47:47] wouldn't even encourage I think down the
[47:49] road you guys could graduate to what we
[47:51] call money management plan. The cash
[47:52] management plan is is is when because I
[47:55] don't like to budget anymore. I mean,
[47:57] once your income gets to a level and you
[47:59] can automatically set up where you I
[48:01] call it force scarcity where all the
[48:04] money is going in the places it's
[48:05] supposed to so that you know you've
[48:06] checked the box. Then what's left over
[48:09] you can spend with reckless abandonment
[48:12] and not feel guilty about it. Seriously,
[48:14] because you you've that's what the whole
[48:15] force scarcity is is if you ever feel
[48:17] like you've like you get a pay raise or
[48:19] something or you get a bonus, you can
[48:21] always allocate more towards the
[48:23] automatic bucket. But then what you know
[48:26] what's left is for for expanding
[48:28] lifestyle or going on trips and making
[48:30] memories and doing all the cool stuff.
[48:32] So you don't have regrets when you get
[48:34] to be older. As we're thinking about how
[48:36] our money is invested in those
[48:38] retirement accounts, um right now we
[48:40] have most of it in target retirement
[48:42] funds or like index funds. I'm wondering
[48:44] is that what you'd recommend? Is there a
[48:46] different way you'd allocate that and
[48:47] how would that change moving forward?
[48:48] Yeah, I mean I noticed like you're in
[48:50] the vanguard. I mean way out there in
[48:52] the and that's probably it's done really
[48:54] well. So I mean I I think in the
[48:56] beginning for sure because what I we
[48:59] like about index target retirement funds
[49:01] and that's the key thing is are they
[49:02] index meaning super low cost? yours is
[49:04] in Vanguard and all you have to do is
[49:07] think about how much can I save and when
[49:09] do I need it because your savings rate
[49:11] is so much more powerful than really
[49:13] anything else if I got into the minutia
[49:15] of the asset allocation and they're
[49:17] doing all that for you automatically now
[49:19] look once y'all y'all are going to get
[49:21] there really quick probably about the
[49:23] time you're 30 sure you guys are going
[49:25] to be getting close to
[49:27] that six to seven figure mark well then
[49:29] yeah asset allocation starts making a
[49:31] lot more sense but but since these are
[49:33] retirement accounts. You can change
[49:35] asset allocations without tax impact,
[49:38] without any problem whatsoever in those
[49:40] retirement accounts. And we'd rather you
[49:41] focus on the things that have the
[49:42] largest impact on your financial life.
[49:44] And that's going to be budgeting and
[49:46] where your dollars are going and how
[49:47] much you're saving and what buckets
[49:48] you're saving to efficiently. It's going
[49:50] to be way more valuable than trying to
[49:52] tweak the assets. The target retirement
[49:54] funds are going to be good enough to get
[49:56] you from where you are now to the next
[49:58] stage you ultimately want to be at.
[49:59] Okay. All right. Here's your homework.
[50:01] You ready? Yes. All right. First thing I
[50:02] wrote down is we got to fix the foo. You
[50:04] guys were kind of like going along and
[50:06] then you kind of like went scatter
[50:08] foolish foolish. You know, we want you
[50:10] to be in straight foo. So, what fixing
[50:12] the food is going to mean is going to be
[50:13] maxing out your Roth IRA. It's going to
[50:15] be maxing out your HSA. It's going to
[50:17] probably mean cutting off the 529 and
[50:20] it's probably going to mean cutting off
[50:21] the prepaying on the mortgage and
[50:23] thinking about, okay, we're building
[50:24] those dollars towards some other common
[50:26] goal. Another thing that we want you to
[50:28] do is we want you to call your mortgage
[50:29] company and ask them, "Hey, what options
[50:31] are available to us if we want to recast
[50:33] our payment? Is it something we can
[50:35] already do since we've made a large
[50:38] capital infusion or is it something we
[50:39] can do in the future if we want to make
[50:40] an additional capital infusion? And what
[50:42] would that look like? What are the
[50:44] costs?" The other thing I want you to do
[50:46] is we want you to talk about your
[50:47] timeline. All right, we got this plan.
[50:48] We know what five years could look like.
[50:50] When do we actually think we want to do
[50:51] that? When do we want to go to one
[50:53] income? When do we want to potentially
[50:54] move back to Pennsylvania? When do we
[50:56] want to start a family? What's that look
[50:58] like? And we want you to look at that
[50:59] through the 3D glasses. What's the dream
[51:01] plan? What's the down to earth plan? And
[51:03] then what's the doodoo plan? And then
[51:05] plan and then plan accordingly. And then
[51:08] the last thing I have on here is get
[51:10] excited that you are and are going to be
[51:12] able to continue building your great big
[51:14] beautiful tomorrow. You guys are in
[51:16] thankfully an amazing spot and I think
[51:18] it's only going to keep getting sweeter
[51:20] and sweeter and sweeter and sweeter.
[51:21] Y'all are doing awesome. Thank you. This
[51:23] was a lot of fun because I saw so much
[51:25] potential. You're already crushing it. I
[51:27] just want to make sure you're taking in
[51:29] deep breaths. Enjoy each phase of your
[51:32] life, which it sounds like you are. So,
[51:33] but just don't put so much pressure on
[51:35] yourself because a lot of this stuff is
[51:36] just going to build itself based upon
[51:38] your good discipline and your good
[51:40] decision-m. Awesome. Thank you. Thank
[51:42] you, Bo. If others wanted to find out
[51:44] how they could also come on making a
[51:47] millionaire, what should they do? That's
[51:49] right. If you would like to be on Making
[51:50] a Millionaire, you can go to
[51:52] moneyguide.com/apply. Or if you want to
[51:54] check out all of our free resources, you
[51:56] can go to
[51:58] moneyguide.com/resources. Guys, I'm your
[51:59] host Brian Preston. Mr. Bo Hansen, Money
[52:02] Got Team out. Making a Millionaire is
[52:05] hosted by Brian Preston and Bo Hansen.
[52:08] Brian and Bo are partners at Abound
[52:10] Wealth Management. A bound wealth
[52:11] management is a registered investment
[52:13] advisory firm regulated by the
[52:14] Securities and Exchange Commission in
[52:16] accordance in compliance with the
[52:17] securities laws and regulations. A bound
[52:19] wealth management does not render or
[52:21] offer to render personalized investment
[52:23] or tax advice through making a
[52:25] millionaire. The information provided is
[52:26] forformational purposes only. May not be
[52:29] suitable for all investors and does not
[52:31] constitute financial tax investment or
[52:33] legal advice. All investments involve a
[52:35] degree of risk including the risk of
[52:37] loss. The guests featured on Making a
[52:39] Millionaire are not clients of Abound
[52:41] Wealth Management at the time of
[52:42] recording. Their participation should
[52:44] not be considered a testimonial or
[52:46] endorsement of Abound wealth management.