Radical Personal Finance

My guest for today's show is Dr. Alice Boyes, former clinical psychologist from New Zealand. She is an expert on overcoming anxiety (her new book "The Anxiety Toolkit: Strategies for Fine-Tuning Your Mind and Moving Past Your Stuck Points" comes out next month). She also happens to be quite tuned in to the financial independence and early retirement lifestyle! She's here today to give us some practical ideas and tools for how we can overcome anxiety about investing. The conversation includes: The impact that a fluid mindset vs a fixed mindset can make How to gain investment confidence in simple, small baby steps Tricks for how to get yourself to do what you know you should do. Enjoy the interview! Joshua Links: Order "The Anxiety Toolkit: Strategies for Fine-Tuning Your Mind and Moving Past Your Stuck Points" on Amazon. TheAnxietyToolkit.com Dr. Alice Boyes' blog posts on Psychology Today AliceBoyes.com

Good data is incredibly important to making good financial decisions. If you don't know where you are or where you've been, it's hard to know if you're on track and making measurable progress towards your goals. Today I've invited Ryan Marquez CPA, MSAT on the show to give an introductory overview. Ryan is an instructor in the Masters of Taxation program at Boise State University. He also runs a bookkeeping and tax business. Enjoy this introduction to business bookkeeping systems! Joshua Show Outline: Overall Theme Change Your Mind Set on Bookkeeping and Accounting Accounting is the Language of Business Don’t need an accounting degree or CPA designation However, should try to understand basic concepts. Bookkeeping = getting accounting information organized so that you can start to make better decisions about your business. Some information you can get out of good bookkeeping is: Which areas of my business make the most money? Getting a high level picture of expenses so you can analyze and see where costs can be cut. Accounting Needs to Be Simple If you follow one rule… accounting needs to be SIMPLE. Two Reasons: Complicated provides little value. Large spreadsheet hard to process and takes time. Complicated has less likelihood of getting done. Entrepreneurs want to be out running their business, not sitting around doing bookkeeping and analyzing reports. Simple system = less time doing and analyzing numbers. Source of Funds Open Business Checking Account & Credit Card Only run business expenses through this account AND run ALL business expenses through this account. Put business in this account and personal in another account. DO NOT mix the two. The reason you want to do this… Everything is in one place and electronic. Less likely to lose deductions. Everything will be on statements. One can go down and categorize. Avoids having a box of receipts that you have to sort through, figure out what is business vs. what is not, try to make sure nothing is double counted, etc… How to get a business account Go to a bank and open a business checking account and credit card (debit cards are fine… the point is an electronic payment method that will show up on a statement) Will likely need two things: EIN from IRS. Can do online. Will get letter by paper / electronic. SOS documentation. In Idaho, just fill out a one page form. The SOS will stamp and mail back. Avoid Cash I know a lot of people like to use cash. However, I like to recommend not using it for business purposes. The reason I recommend not using cash is. Easy to lose track of. Receipt could get lost, accidentally thrown away. Pay with wrong source of “funds” or “cash”. Main reason is the transaction is never recorded at all. Want an accurate picture of your business. Lose tax deductions. Gets more important if you have multiple businesses. Take what I just mentioned, and multiply it by 2 or 3 times and that’s how complicated it can be. Tough to remember which business it was for. Cash adds complexity to the accounting system. Doesn’t sound too complex, but it’s just one more thing you have to do / remember. When you’re trying to rack your brain to figure out what was paid for… it can get complex, but most importantly it can become frustrating. You’re most likely not going to find cash on a bank statement, which makes it harder. Recording the Transaction Use Accounting Software Such As QuickBooks / FreshBooks You want to do this because… Saves you time. Mainstream accounting software is made for non-accountants to be able to follow and use the software. Use App or Other 'On the Go' Software Easy because you can pull up your phone and categorize transactions on the go. I’ve found people that do this almost feel like they’re not Keep A Balance Sheet The balance sheet is important because in business you're always going to have people that owe you money or people that you owe money to. In addition, you could have sales tax, payroll tax, deposits on hand, etc… that is money you have in your bank account but you'll have to pay to someone else at a later date. A simple excel spreadsheet or even something like Mint that tracks your income and expenses from your bank account won't be able to track this for you For example, if you're thinking about taking money out of the business or getting ready to make a large investment in a piece of equipment or something, you want to make sure that the money is available and that you don't need it to pay sales tax next month or something like that. Some things a balance sheet is helpful for: Record Deposits Correctly Don’t want to record income that isn’t income. Track Accounts Receivable / Payable Want to keep track of who owes you money and who you owe money to. Inventory / Payroll Liabilities / Sales Tax Inventory not an expense when purchased. Payroll liabilities are usually withheld from employee paychecks and need to be remitted to the government at a later date. Sales tax is collected when product is sold and needs to be remitted to the government at a later date. Documentation / Retention Write on Receipts / Invoices Immediately Helps to document the business purpose of the expense and can capture some valuable information that's easily forgotten later. Why is this beneficial? Quickly recall the purpose and payment method for each receipt that you have. Most questions from an auditor or bookkeeper / accountant can be answered by looking at the receipt. Helpful for locating a receipt from a specific transaction in your accounting software. How do I do this? Start to get in the habit of writing on all of your receipts and invoices. You don't need a dissertation for each receipt, just a brief description. An example of a meal receipt could be, "Amanda / Todd / Michelle… discussed the marketing campaign for the XYZ product launch". Create A Filing System Scan All Receipts Electronic system can cut down clutter and could potentially be easier to find something you're looking for. Can be backed up in the cloud or external hard drive in case something happens to the paper file. I see a lot of people wanting to do a bunch of folders to keep their receipts in. Either by year, month, vendor, or what have you. I'm a fan of less folders because for each folder you have, that's one more folder I have to click into to see what's in there if I can't find something. I usually name the PDF by the date (year, month, day) and then the vendor and category. Some apps / software allow you to take a picture of your receipt and link it to the expense. Getting It Done Set Specific Time to do Books Either weekly or monthly. Anything over that it starts to not get done.

My guest today is Nick O'Kelly. Nick is the co-author of Live On The Margin, a book about taking a different approach to regaining control of your time. (We previously interviewed Pat Schulte, his co-author, in Episode 50: "From an $8/hr Job After College to Financial Independence at Age 30 to 10+ Years of Global Travel With Family! Interview With Pat Schulte From Bumfuzzle.com") Nick is a meteorologist, a pilot, a captain, and an adventurer. He's also a writer, producer, and voiceover artist. Enjoy this in-depth interview in which we discuss: Nick's seemingly brilliant timing The advantages and drawbacks of travel How to learn to trade stocks And more! Enjoy! Joshua Links: Live on the Margin: Learn to Love Risk, Profit From Fear, and Retire Tomorrow Get Her On Board: Secrets to Sharing the Cruising Dream Antifragile: Things that Gain from Disorder The Options Playbook Option Volatility and Pricing

Today, I bring to you three very fun but straightforward questions. Here they are: Question #1: @01:56 Dear Joshua, My wife and I are well read in the areas of index fund investing, frugal living, early retirement, and financial independence (including your podcasts). We have been on the path to early retirement for many years and we think we are there. We both have high stress jobs and want to quit to raise a child and do whatever interests us whether it brings additional income or not. We want to have a significant financial cushion, but also don’t want to be so conservative that we work years longer than necessary. We are worriers and are very conservative in our estimates. Although we are fairly confident in our calculations for early retirement timing, we hired a fee only financial planner for an outside opinion, and the experience was positive, but we believe the timing recommended was extremely conservative (4 years from now without a child; 5-6 years from now with a child). We have a very good handle on our spending as we have been tracking it closely for several years. The financial planner did not seem to understand our frugal lifestyle and rather than reducing our current spending by the “cost of working” that we clearly communicated, he added $15,000 per year to our current spending, which significantly changes the projections for retirement. The explanation given was to account for “unexpected expenses”, but that amounts to >$20,000 per year in excess of our retirement spending estimate below. We would be very grateful for your opinion of our plan to retire NOW, given the following data, which we have abbreviated to the most important points. Ages: Him-45, Her-37 Debts: None (own a house and 2 cars free and clear) Assets ($1,300,646)$714,200 – His/Her TSP (Federal 401k)$347,554 – Taxable Account (Vanguard Index Funds)$216,165 – Cash/I-Bonds$22,727 – His/Her Roth IRA$31,000 – His Pension (starting at age 60)$6,000 – Her Pension (starting at age 62)(Minimum of $100,000 net after moving and downsizing our house – not included in assets total above) Asset Allocation:40% Total US Stock Market (Vanguard/TSP Index Funds)12% Total International Stock Market (Vanguard/TSP Index Funds)33% Bonds (TSP G Fund)15% Cash (CDs) Spending: Current Spending: $45,000Retirement spending estimate $37,000*This is after removing the easily calculated “costs of working” ($10,000 in property tax!; $3,000 in gas!) and adding estimated cost of health insurance ($5000?)Note: We will be moving from a very high cost area (suburban Chicago) to a very low cost area (rural Florida) Question #2 @26:20 Joshua, Came across your podcast and dig the advice/honesty. I've read numerous articles encouraging the use of fee-based financial advisors but haven't had a lot of luck finding the right person.. discouragement set in after numerous canned responses/what seemed like aggressive sales tactics. I made somewhat of a half ass attempt in my early 20s with regularly maxing out a roth/always contributing enough to various company 401k to get the contribution match. I've not paid a lot of attention and recently realized I'm holding roughly 50% of my total assets in a standard savings account yielding only 1%. Without pulling the actual figures that'd be ~90k in retirement accounts Roth/Traditional rollover and ~90k in straight up cash... terrible I know. My question is how do i fix/prevent it? I currently have one investment property with a mortgage that's less than what it's leasing for. I see a couple fix it options: Buy another house Pay down existing mortgage Invest outside of a retirement account I believe adjusting my 401k contribution may be a start to preventing it but what about after I max it out? I don't mind paying for advice but what I really want is someone that's hands on/up to date.. helping me get the most out of my money. Question #3: @46:37 Joshua My name is Joe and I’m 24 years old. I’ve been listening to your show for a while now and really enjoy it, keep up the good work. My question has to do with whether or not a Roth 401k is the right move for me. Currently my gross income is $58,616. This year, I’ve contributed 6% of my AGI into a regular 401k and my employer matches .80 cents on the dollar up to the first 5% of my pay. ($3,517+$2,344 = $5,861) I also contribute to my Roth IRA and will max it out at $5,500. My employer just recently began offering a Roth 401k option and my question is whether or not it is the best move for me to make to begin contributing to the Roth vs the regular 401k? I understand the tax benefits on the front end at my young age and do believe taxes will rise in the future and also that I will hopefully be in a higher tax bracket in retirement than I am now. In my mind, the advantage of the Roth is the higher contribution limit (18k vs 5,500) but the advantage of the Roth IRA is I have it at Schwab and have lower fees and more investment options than inside my 401k. I would like to keep my net take home pay the same and am having trouble running the math to figure out which would be the better option. In addition, I have the option to do a Roth 401k conversion on the $12k that’s in my Regular 401k. Your advice would be much appreciated. About me: Assets: $27k in Roth IRA, $12K in 401k, $3k in taxable investment acct, $6K in savings acct, $2k in checking acct Debts: $41,200 Federal Parent PLUS @ 7.65% and $16,500 @ 5.25%. I currently am on the standard repayment plan (10 yrs) and make an extra $100 payment each month on top of that. No credit card debt or any other type of loan, own a 2005 Camry that is paid off. *** Enjoy the show! Joshua

I've been looking for an expert on self-directed IRAs to bring on the show and I was thrilled to meet Kirk Chisholm at FinCon last year. Kirk is an expert in both the self-directed IRA niche and the alternative investments world. His firm, Innovative Advisory Group, helps serve clients in this space with advice. Self-directed IRAs can be a powerful tool in your arsenal. Just think of the magic of Mitt Romney's $100,000,000 IRA! When you combine an IRA with alternative investments, you might really be able to work some magic. What is an Alternative Investment? Well, right from Kirk's site: "The term “alternative investment” has become a trendy term in the financial services industry to describe new approaches to investing. It is frequently used to describe different asset classes or investment types such as: hedge funds, structured products, managed futures, or even Timber REITs. If you describe traditional assets as stocks, bonds and mutual funds, then by contrast everything else is an alternative investment. "We look at the term “alternative investments” differently. We take a step beyond the current industry definition and use it to describe assets or investments such as physical real estate, tax liens, physical gold and silver, structured settlements, horses, livestock, farmland, timberland, and more. We would characterize alternative investments as an asset or investment which is: not publicly traded, has a low-correlate to most traditional investments, is too small for institutional investors, is illiquid, is not easily able to be securitized, or is not reliant on the publicly traded markets to be profitable. "The characterization of what is a suitable asset for diversification purposes is a fluid concept. Some asset classes, which have traditionally provided a low or negative correlation to other assets, have become much more highly correlated since early 2000. Asset classes such as managed futures, timberland, farmland, and certain types of hedge funds in the past did provide a low correlation to the traditional markets, however, due to a higher level of institutional interest in these areas, as well as changing market conditions, they have become more highly correlated to traditional markets. This minimizes the effects of diversification as a risk management tool." This interview is super fun and super deep. Enjoy! Joshua Links: Kirk's firm: Innovative Wealth GAO report on multi-million dollar IRAs

I designed a potential financial planning practice structure a year or so ago. It has been my backup plan if Radical Personal Finance were unable to be financially productive. (It's probably still a backup of a backup.) In light of the Episode 139: "My Advice for People Interested In Getting Into Financial Planning," I decided to follow up with some specific ideas for a practice I considered creating. Here are my ideas. The show includes a discussion of: The problem of providing planning for middle-income households The idea of a planning model for a monthly fee How to align advisor and client incentives The benefits of a virtual financial planning meeting The importance of having a clear marketing plan for your practice Ideas for building trust The importance of demonstrating expertise The importance of a niche market focus Limitations on income with this model Enjoy the show! Links: XY Planning Network

The most popular episode--by a long shot--of the Radical Personal Finance podcast is Episode 40: "Making $80k on 1/3 Acre With an Urban Farm Without Owning Land? Yes, Please! Interview With Curtis Stone." Today, Curtis is back for another appearance. We set out to record a show with a basic overview of how to get into urban farming with some practical steps lined out. The first step is to get your mindset right. Although our interview got stuck on step one, it wound up being a fascinating discussion of business principles. We discuss: Setting intelligent goals for urban farming Focusing on a triple bottom line: 1) economic 2) social 3) environmental The value of education and especially specific, focused education I hope you enjoy! Joshua NOTE: Curtis is on the road over the coming weeks with seminars in Florida, California, Washington, British Columbia and Mexico. Details are here: http://www.greencityacres.com/events/ Links: Curtis's farm: Green City Acres Curtis's new (future) course: Profitable Urban Farming SoilMate.com: Local Farmers, Local Food Out Of Our Own Backyards: Ooooby app Genetic Roulette: The Gamble of Our Lives

On Fridays, I answer your questions! And, even though this is going out on Monday, I still answer your questions! :) Today, I handle these four questions: What practical steps can a couple take when planning for one spouse to stay at home? Is it wise to borrow money on a paid-off house to fund a real estate investment? How should I factor a defined-benefit pension plan into my asset allocation plan? How should I set my personal financial goals and pull my life back together after a divorce? Enjoy! Joshua

At this point, I'm honored to get about an email a week from someone asking about how to get into the financial planning business. Sometimes, I get multiple emails in a day! Here are four examples that I mention on the show today: Hi Joshua, I consider personal finance and financial planning a hobby and I dole out my amateur advice to friends, colleagues and family. A little bit of background -- I'm 25 years old and currently working as an auditor in big 4 in my third year and I've just been early promoted to Senior Associate. The thing is I don't see myself auditing forever and I really want to get into financial planning. My plan is to start taking the courses for the CFP in May/June 2015 after my busy season is over. I feel secure in my job but I just don't love it. Do you have any advice for a 20 something wanting to transition to a career in financial planning with zero experience? Hi Joshua, I’m writing because I’d love to get your insight in a career as a financial advisor. A little background on myself, I’m a 28 year old CPA who has worked as an auditor at a large CPA firm for the past 4 years. I’ve been thinking about making a career change, and given my interests I’ve begun looking into possibly starting a career as a financial advisor. I really enjoy the technical side of financial planning, including the tax side of planning, but am also enjoying learning about the investing side as well. In talking with a few other people, I have heard that being a financial advisor is basically a sales job where you are asked utilize your own contacts to push financial products on. What I have heard is basically the only way to make money is to have rich friends or family to get established. I really like the fact that I could be helping people, but the cold calling/pushing financial products on people does not sound appealing. Also, I don’t believe I have the wealthy contacts needed to get established. I would love to get your insight on this matter, and to hear if the stories I hear about careers as a financial advisor are correct. Additionally, I would love to hear any recommendations you would have for somebody looking to get into a career as a financial advisor. Hi Joshua, In 2013 I became completely obsessed with all things finance. I first picked up books about "stock picking" because I thought that was the way to go, but within a month or two I was recommended The Intelligent Investor, and I've been going with the "boglehead" strategy since then. I have been very lucky in getting a job straight out of college that pays quite well (software industry) and since I started in July 2013 I've saved 70-80% of my take-home income. I figure within 2015 I will become "FI" at age 25. I've been listening to your podcast daily since I discovered it last month, and needless to say it has quickly become my favorite podcast. Keep up the awesome work, I listen to every new episode! I am interested in becoming a fee-only financial planner. Every time I get the opportunity to talk with someone who is also interested in finance (believe me, this is super rare!) I get very excited. Nothing makes me happier, basically. I have a bachelor's degree in Computer Engineering right now. I am wondering, what is the shortest path that I could take to get to the place where I can "hang out a shingle" and start advising people for a small fee? I am not interested in charging for "assets under management"; I simply want to share knowledge with people so they can make their own investments and financial decisions. I want to do the opposite of most advisors basically! I'd be okay charging very little money for just a consultation, because I will be FI. You mentioned in one episode that you got a master's degree in financial planning, and I know you need the CFP certification. With just my bachelor's degree, could I get this CFP and start taking clients? Or would I need other certifications as well? Hi, Joshua, I have realized over time that I am a poor candidate for the traditional early retirement, and instead, would like to focus my next 15-17 years (roughly age 52-67) on doing something that I like--be it an administrator in a medical business that I believe in, being a health coach for middle age guys trying to get back into shape, or opening a gelato shop in my neighborhood. Actually, my dream job would probably be selling tickets in a booth at a ski resort! Maybe later... I have also thought about becoming a personal finance coach or advisor for docs. I see them make stupid mistakes all the time. I could probably do a series of podcasts on stupid things my partners have done. It's a great question and there are a bunch of ways to answer it. I decided for today to focus on the big picture answer which is primarily about having a good fit between your skills, your firm, your firm's abilities, and your prospective clients. I might do another show on the actual steps needed to set up a firm if you want to do it independently. In this show I go through: Historical practice models for financial planning Current practice models The importance of sales and sales skills Why you need to know what you bring to the table as a planner The importance of a great marketing plan The importance of a solid transition plan The importance of gaining clarity on what you want to do, who you want to work with, and how you want to work with them Enjoy! Joshua

We're continuing our college series with an in-depth discussion of 529 plans. 529 plans are incredibly popular in all their permutations. (Many people who are currently participating in a 529 plan don't actually realize it because they refer to it as a pre-paid tuition program.) They're also under attack. President Obama's most recent budget proposal targeted them for change. (It also targeted Coverdell ESAs.) Personally, I think 529 plans are often misused and mis-applied. The majority of the mass affluent who participate are simply not getting a huge benefit in exchange for giving up the freedom and flexibility of the money. But, there are a number of things that can be done with these accounts that are really unique. Enjoy part 1 of our class today and learn: What the differences are between various types of 529 plans. Who they're a great fit for. How to use them to pay for travel and real estate tax-free. The history of the legislation affecting these accounts. Enjoy! Joshua Links: A Comprehensive Guide to the Ultimate Education Account a.k.a. the Coverdell Educational Savings Account IRS Publication 970: Tax Benefits for Education