Afford Anything

#154: Want to retire early? You'll need at least $5 million, more likely $10 million, says famous financial personality Suze Orman. I should know. She said that to me, directly, on my podcast. I asked Suze for her opinion about a frugal, flexible person who wants to retire early with a $2 million portfolio. She warned that retiring would be a massive mistake. "Two million dollars is nothing," Suze said. "It's nothing. It's pennies in today's world, to tell you the truth." Wait, what? "Listen," she said. "If you have $20 [million], $40 [million], $50 [million] or $100 million dollars, be like me, okay. If you have that kind of money ... and you want to retire, fine." "But if you only have a few hundred thousand dollars, or a million, or $2 million, I'm here to tell you ... if a catastrophe happens ... what are you going to do? You are going to burn up alive." But what's wrong with retiring early on $2 million? Assuming it's invested 50/50 in equities and bonds and harvested at a 4 percent withdrawal rate, a portfolio of $2 million could create annual investment income of $80,000. Surely that's enough, right? *Riiiight?* Nope. Suze says that's not enough. "I think that in the long run, $80,000, especially after taxes and as you get older, is not going to be enough. You may think it's going to be enough, but it's just not," she told me on the Afford Anything podcast. "You can do it if you want to. I personally think it is the biggest mistake, financially speaking, you will ever, ever make in your lifetime." I asked her if a $3 million portfolio at a more conservative 3 percent withdrawal rate would be okay for an early retirement. She said no. "Think about it logically," she said. Supporting a disabled family member who needs full-time care could cost $250,000 per year, she said. Ordinary cost-of-living would cost another $100,000 per year. This means you'll need $350,000 per year after taxes to cover your costs, which is $500,000 per year before taxes, which at a 5 percent withdrawal rate means that you'd need a portfolio of $10 million. If you don't have at least $5 million or $10 million, don't retire early, Suze said. "Here's what the FIRE people, you are not thinking about, so I'm going to give it to you straight here now," she said. She described the possibility of getting sideswiped by massive taxes and catastrophic emergencies. What if your home gets destroyed by an earthquake or flood and insurance denies your claim? What if you're in a tragic car accident and you need full-time care? What if the U.S. experiences 25 percent unemployment, which means you won't be able to find another job if you wanted one? What if your investment income gets consumed by massive future tax hikes? "When you get older things happen," Suze said. "You're hit by a car, you fall down on the ice, you get sick, you get cancer. Things happen." "Alright, you can do it if you want to," she said. "I'm just telling you, you will get burned if you play with fire." For more, visit the show notes at http://affordanything.com/episode154 Learn more about your ad choices. Visit podcastchoices.com/adchoices

In a candid conversation, Suze Orman, the famous personal finance educator and author, shares her strong dislike for the FIRE movement. She argues it's a dangerous path, discussing the risks of early retirement and the need for substantial financial reserves. Suze highlights the hurdles of later-life financial challenges, the importance of sustainable income, and the need for proactive financial planning. She also reflects on self-worth, ethical investing, and the significance of appropriate insurance to safeguard against unexpected challenges.

#152: Dr. Brian Portnoy is an expert in making decisions. He holds a Ph.D. from the University of Chicago, he's a Chartered Financial Analyst, and he's the Director of Investment Education at Virtus Investment Partners. Dr. Portnoy joins me on the podcast to discuss how to make smarter decisions -- not only about investments, but also generally in life. How do we sharpen our decision-making skills? How do we improve our critical thinking processes? Here are some of the takeaways from our conversation. 1. Beware of resulting. Great results can come from poorly-planned decisions. And wise decisions can lead to good results on occasion. Don't judge a decision based on its results; judge a decision based on the soundness of the thinking process through which you made that choice. 2. Manage your expectations. Your happiness with an outcome will depend on the gap between your expectations and reality. If you can't control reality (at least, not completely), then manage your expectations. It's the happiness variable that's most under your authority. 3. Don't make hasty evaluations. When you go to a restaurant, you order a (vegan?) cheeseburger, and based on the taste of that burger, you can immediately evaluate your decision. You can't do that with investments. When you make an investment decision, there's a huge time-gap between when you make the choice and when you see the results of that choice. This time-gap may last for decades. And this means that your decisions are tough to evaluate. Don't judge an investment decision on one-year or two-year results, as tempting as that may be. Judge your decisions based on the soundness of the thinking, not the short-term ramifications. 4. Automate. It's the best way to save you from yourself. 5. Define risk. Some people think that "risk" is synonymous with volatility. Others think that "risk" refers to the loss of capital. Know what "risk" means to you. Personally, I define it as probability x magnitude. Today's guest, Brian, points out that magnitude can happen in a multitude of dimensions and verticals. 6. Diversification, risk management, and behavior. When in doubt, pay attention to these three factors. In order to better manage your investing choices, manage these qualities. You cannot control broad market outcomes, but you can control your exposure, risk, and choices. 7. You're the average of the 5 people you spend the most time with. Surround yourself with frugal, ambitious, reasonable, wise, intelligent, kind, adventurous people -- and you will become stronger in those qualities. You are in charge of the community with whom you surround yourself. Even if you can't change your physical neighborhood, you can form an online or digital community of people who support your goals and reflect your philosophy. 8. Keep a decision-making journal. What gets measured, gets improved. If you want to improve your decision-making skills, keep a journal of the way in which you make decisions, e.g. your thinking process. Then in the future, when you have the benefit of hindsight, you can look back on your decision-making process. Remember, don't judge your choices based on outcome; judge your choices based on the soundness of the decision-making process itself. Dr. Portnoy dives into detail about how to make better decisions in today's episode. Enjoy!   For more, visit the website at https://affordanything.com/episode152 Learn more about your ad choices. Visit podcastchoices.com/adchoices

#151: We’re back with another “Ask Paula” episode of the show! As usual, my friend and former financial advisor, Joe Saul-Sehy joins me in answering your questions! Let’s dive right in. Hailey: I just graduated from college with a major in Computer Science and minor in graphic design. The whole time - it was rough. I come from a family that didn’t have a lot to give me going into this journey of getting a college degree. So I did it basically on my own - they gave me things here and there - but college is expensive. I wound up getting scholarships and taking on student loans to get through. It was a lot of hard work. Some days, I wanted to quit. I felt like I was never ever going to see the benefits of what I was doing. Well, I am now at a point in my life where I was able to secure a job (I started a week after graduation) making $80k a year. Obviously, this is great - this is what you’re supposed to do when you graduate with a Comp Sci degree. But for some reason, I don’t know if it’s guilt or shame, but I feel bad watching my friends and family struggle, while I don’t have those struggles anymore. I find myself asking if I deserve this - to have a nice apartment, to have nice things. Inherently I know I deserve it because I worked so hard, but I don’t know … My question  is - do you have any advice for me to help me understand what it is I’m feeling? How I can feel better about it? Chris: I’m 45 and my plan is to retire early - not super early - at 57. To keep numbers straight, I’m hoping to have a million dollars in a 401(k) and a million dollars in a taxable account with stocks. My thought was to - at 57 since I won’t have any income - to convert the 401(k) over to an IRA and then start converting that to a Roth at the max, keeping me in the 12% tax bracket, which is roughly $77,000, potentially more, and live off of the stock which will be at 15% tax and that shouldn’t go against my AGI because it’s an asset. Then at 67 I would start taking full retirement Social Security. Hopefully by age 70 I’d have very little to none in the 401(k) and most of that money would be in the Roth. Thoughts? Am I overthinking this?   Rose: My goal is FI in about 5 years. After maxing out my 401(k), I make automatic monthly contributions to a robo-advised fund, specifically a Schwab intelligent portfolio. I like that it rebalances and has tax loss harvesting because I’m in a high tax bracket. To me, it feels somewhat safer than putting everything into VTSAX because it’s diversified, but I don’t fully understand all of the different funds that I’m invested in through the robo advisor. Should I keep putting money into the robo advisor, or should I switch to VTSAX? Does your answer change at all with ongoing economic uncertainty and the benefits of being balanced across stocks and bonds?   Juan: I’m 24 and I live in NYC. I just graduated from engineering school and found a full-time position earning $75k/year before taxes. There’s a possibility of overtime so I might be able to make another $5-10k a year. I have $15k saved in cold hard cash; I have $6k in a Robinhood account which is doing well; and I have $5k in a Wealthfront account. I am planning on maxing out my Roth IRA ($5,500 a year starting now) and I have $2k there already. I also plan on participating in the employer’s contribution for the 401(k) traditional - which is maybe a 4% match. I don’t know where exactly I should put the money that I’m going to save to get the most out of it (mostly to beat inflation). $75k after taxes is probably around $55k and I plan on saving around 50% of that, or $30k a year for the next 3-5 years. I live by myself but my expenses are not high. I am very good with budgeting and everything is on track. I just want to get your suggestions/advice on where to put my money or what to do with it starting now. I am going to open an online savings account where I can get at least 2%. Learn more about your ad choices. Visit podcastchoices.com/adchoices

#150: Chad Carson's friends called him a "nerdjock." When former college football linebacker Chad Carson graduated from Clemson University, he decided to start a business. But he didn't have any money. He was a 235-pound athlete who attended college on a football scholarship. He graduated debt-free with $1,000 in savings from various odd jobs. He wanted to become an entrepreneur, and he knew he was starting from zero. As Chad viewed it, starting from zero meant he had nothing to lose. He started jogging around local neighborhoods near the university. Whenever he noticed a property in disrepair, he'd ask if it was for sale. If he noticed a 'For Sale by Owner' sign in the yard, for example, he'd dial the number. If he noticed a home with an overgrown lawn and no curtains in the windows, he'd leave a note on the door, or he'd knock on the neighbor's doors to get the owner's phone number. By doing this, Chad started a real estate wholesaling business. He'd find off-market properties, enter into a sales contract with the owner, and then 'flip' the contract to an investor. He earned around $5,000 for each deal. The benefit to a wholesaling business, Chad discovered, is that he could get a foothold inside the real estate industry without much access to capital. He was a recent college graduate without any official employment, so most banks weren't interested in offering him loans. Wholesaling gave him a start in the industry. But after awhile, he wanted to chase bigger deals. He and a business partner decided to start flipping houses themselves. They earned profits of around $20,000 to $30,000 for each deal. While this was great, Chad wanted to transition into something that would provide a steady, stable income stream. He was running an active business; he wasn't accumulating a portfolio of passive investments. He and his business partner stopped flipping homes and began accumulating buy-and-hold rental properties. Today they have 90 units between the two of them. A few years ago, Chad realized that the passive income from his investments made him financially independent. He and his wife decided to enjoy their newfound freedom by moving to Ecuador with their two children, ages 3 and 5. They spent 17 months living in Ecuador, learning Spanish and enjoying a slower pace of life. They recently returned to the U.S. and are considering moving to either Spain or Germany -- or maybe Colorado? -- for their next adventure. In today's episode, Chad and I discuss real estate, financial independence, and international travel with children. Enjoy! Learn more about your ad choices. Visit podcastchoices.com/adchoices

#149: Welcome to the September 2018 First Friday bonus episode! We recorded this episode at Camp FI, which stands for Camp Financial Independence. It's a gathering of people who are pursuing financial independence; we spend a few days eating, drinking, and having late-night poolside conversations about money. There are several Camp FI's throughout the year; I recorded this bonus episode at the Camp FI at Joshua Tree National Park in Southern California in early August.    I invited several of the people at Camp FI to come to the microphone and share one thing: “Tell me a story about something you did that scared you."   Justin shared a story about getting invited by a corporate sponsor to take part in a mountainous 75-mile cycling ride, despite the fact that he wasn't trained or ready. Tim told the story of the first time he met his future father-in-law, and, to phrase it mildly, the meeting didn't go well. GingerFI shared a story about something she ate while traveling that ... well, I won't give away the ending, but let's just say that it's something she'll never forget.    Anna described moving from New Zealand to the U.S. to attend school, while Johanna talked about getting laid off from work and deciding to use her newfound joblessness as an opportunity to road trip from Maryland to Los Angeles. Jennifer described the resilience she discovered after surviving a disability, layoff and divorce. Wakefield talked about investing in real estate before he felt ready, and Vickie shared a childhood story of overcoming the intimidation she felt when she wanted to meet someone.    Listen to hear the stories they shared, and the life lessons they learned along the way.   Enjoy!   For more information, visit the show notes at http://podcast.affordanything.com/episode149 Learn more about your ad choices. Visit podcastchoices.com/adchoices

#148: Welcome to a special episode of Ask Paula! Today I’m answering questions about real estate investing, and I’ve brought a special guest on the show to join me. His name is Lucas Hall, and he’s a landlord with 5 properties in three locations (D.C., Virginia and Colorado). He’s also the founder of Landlordology and head of investor relations with Cozy. We met about five or six years ago through blogging about rental properties, and I invited him on the show today to answer questions alongside me. Anonymous asks: If you have significant equity in a home due to market appreciation, what’s the best way to leverage the value of this equity? Should you sell? Refinance? Something else? Here’s a quick snapshot of the answer: You have three options: sell, cash-out refinance, or take out a HELOC. If you’re unhappy with the property, sell it. There’s no reason to hang onto an undesirable or underperforming property. If you choose to sell, use a 1031 exchange to defer taxes on the capital gains and use the proceeds to purchase another property. Be aware, however, that the rules regarding a 1031 exchange are onerous, and there’s a chance that you might either miss the cutoff or you may be forced into trading one mediocre property for another. That said, wanting to tap equity is not a sufficient reason to sell. If you’re happy with the property, keep it and either use a cash-out refi or HELOC to tap the equity. On today’s episode, Lucas and I discuss the pro’s and con’s of both of these strategies, and explain which one is our favorite. (Lucas prefers the HELOC and I prefer the cash-out refi; on the episode you’ll hear each of us explain why.) Richard from Massachusetts asks: I’ve been listening to this podcast regularly, and thanks to this podcast I’ve opened a Roth IRA. I’ve saved $54,000 and I’m interested in investing in a Class B or Class C neighborhood in an out-of-state location. How can I find out if a neighborhood is Class B/C without visiting it? Catherine asks: I’m 27 and need investing advice. I make $75,000 per year and I have $60,000 in retirement savings. I max out an HSA. I have $12,000 in an emergency fund. I live in Los Angeles and I’d like to invest in real estate, but I don’t want to travel to another state. I’ve been thinking about Roofstock; what are your thoughts? Anonymous in Atlanta asks: My wife and I have $500,000 in savings, in addition to our 401k. We keep $130,000 of this in the market. We had an advisor that was charging a 1.6% fee, and we recently fired him. What should we do with the remainder of the cash in our savings accounts? Should we put this in Vanguard funds? I’d also like to get into real estate, but many homes in Atlanta don’t meet the one percent rule. Should we look at foreclosure auctions? Should we look further outside the city? We’re in our early 30’s and would like to retire in around 15 years. We answer these questions in today’s episode. Enjoy! Learn more about your ad choices. Visit podcastchoices.com/adchoices

#147: Which of the following two attitudes describes you? "I'm crunched for time." -- or -- "I have all the time in the world." I'm guessing your answer is the first, rather than the second. But what if you could feel like your time is expansive and abundant, without drastic changes to your schedule? Most of us want to feel "off the clock," enjoying an existence in which we can linger, without feeling pressure from the demands and stresses on our schedules. According to Laura Vanderkam, even the busiest, most-scheduled people can achieve this feeling. We can live off-the-clock. Laura is a time management expert, but her latest book isn't about *management* in the traditional sense of the word. Rather, it focuses on *time perception* -- getting into the headspace of believing time is abundant, regardless of the demands imposed upon it. The brain stores memories efficiently, which means it vividly recalls novel experiences -- such as the one-week trip to Belize -- while compressing repetitive experiences, like a commute, into a single memory. For that reason, time feels like it passes more quickly when we encounter situations that are routine and familiar, and slows when we experience new situations. That's how a one-week conference feels long, but a routine week at the office flies by. Of course, we can't eschew familiarity; there are many benefits to adopting a routine. But we can slow time by savoring our everyday experiences. The more we engage mindfully in everyday activities -- from savoring each bite of food to noticing the flowers during our commute to work -- the more we're likely to feel relaxed about our time. We create happy memories, rather than compressing our experiences in our minds. Treating our hours with intention can also lengthen our experience of time. We plan and structure our workdays, deciding how to spend our hours between 8 am and 6 pm. But often, we aren't deliberate about how we'll craft the hours from 6 pm to 11 pm, and therefore can feel like we rarely see family, even if we're with them for three to four hours each evening. Deliberately crafting hours doesn't mean jam-packing our schedule in 30-minute increments. Scheduling a two-hour block of time to linger over a long dinner can blend intentionality with the art of savoring. In fact, Laura notes, those who are the most disciplined about their time are also more likely to feel that they enjoy plenty of free time. Structure creates freedom. Today on the podcast, Laura and I talk about how to make time feel abundant. For more information, visit the show notes at https://affordanything.com/episode147 Learn more about your ad choices. Visit podcastchoices.com/adchoices

#146: My friend and former financial advisor, Joe Saul-Sehy, joins me to answer a multitude of questions on retirement savings and investing, so let's dive in. Elyse has two questions: 
#1: Through her job, Elyse has a 401(a) hybrid. Right now, she contributes 0.5% as her employer will contribute 2.5% only when she contributes 4%. Should she contribute the full 4%, or keep her contribution as low as possible, save it, and invest it on her own (which is what she's been doing)? #2: Elyse also has $18,600 invested in a mutual fund through her bank. Everything that she has read says to invest in index funds. So, should she pull her money out of the mutual fund and into Vanguard to avoid high fees? Anonymous also has a few questions:
 She has a 9-year job history with the state and local government, during which she has been enrolled in the Florida pension plan. Her new job offers a 457 Plan and/or a 403(b) Plan to supplement the pension earning. Her first question is: is a 403(b) better than a 457 Plan? Or should she enroll in both? Second, in her most recent job, she had a 457 deferred compensation Vanguard account which has $22,000 in it. Should she roll the Vanguard account over into one of the above plans, or leave it alone? Lastly, she has a 3-month old and wants to put a lump sum of $10,000 toward an account she can make contributions to, but she isn't sure which account would be best. Florida has a pre-paid program, but are there better options? Rachel has a question on retirement accounts as well!: 
Rachel recently left a government job where she had a TSP. In addition to that, she also has two IRAs - a small traditional IRA and slightly larger Roth IRA. She's actively contributing to the Roth IRA. When she left her job, she started an S-corp, and as she looks forward to business picking up, she wants to know how to best organize her retirement savings moving forward to make it easier to manage. She's also interested in tax optimization. What actions do we recommend she take? Stephen, a new listener, asks: 
If we're following the 4% rule route, does it make sense to fund an HSA, Roth IRA, Traditional IRA, or 401(k) at work? Or should we put all of the money in a Vanguard fund? Essentially, if you're planning to retire in 10 years or less, which is more beneficial: splitting up your money, or focusing on one account? P.S. If you have a question you want me to answer on an upcoming Ask Paula episode, leave it here! Learn more about your ad choices. Visit podcastchoices.com/adchoices

#145: When Rand Fishkin was 25 years old, he carried $500,000 in credit card debt. Less than a decade later, Rand was the Founder and CEO of a company that grossed $35 million in annual revenue. In this podcast episode, Rand shares the story of hitting his financial rock-bottom and making the ultimate comeback. _______ The saga began in 2001, when then-22-year-old Rand dropped out of his senior year of college to grow a business with his mom. His mom Gillian owned a small marketing company that helped local businesses with tasks like placing ads in Yellow Pages. (If you don't know what that is, ask someone over 30.) Rand had an early entrepreneurial streak, and had spent the late 1990's and early 2000's working part-time for his mom's business. By his senior year, he was ready to dive in full-time. Gillian and Rand both realized the internet was more than a passing fad. Households were switching from dial-up modems to broadband connections. Clients were more interested in websites than Yellow Pages ads. The mother-son duo decided to start designing websites for local businesses. From 2001 to 2004, they hired contractors, rented office space, hosted booths at conferences, and purchased advertising. They paid for most of this with personal credit cards in Rand's name. By 2004, they'd accumulated $150,000 in credit card debt. Then they defaulted. They couldn't make the minimum payments anymore. The interest and late fees grew this balance to an astronomical $500,000. They decided not to declare bankruptcy. Instead, they took a two-pronged approach: Rand's mom spent the next three years negotiating with creditors, getting big chunks of the interest and late fees waived in exchange for making payments on the principle balance. Meanwhile, Rand focused on growing the business. Several of his clients needed help with a specific aspect of internet marketing called search engine optimization, or SEO. Rand began researching SEO tactics and started a blog to share his findings. This blog attracted new clients, and soon Rand developed a reputation as an SEO expert. He created a company called SEOMoz, later rebranded as Moz, to offer consulting services for businesses. After a few years, his company started developing and selling subscriptions to SEO software tools, as well. By the time Rand stepped down from his role as CEO, the company had raised multiple rounds of funding and was collecting $35 million in annual revenue. But there's a difference between a company's earnings and the personal income of its founders. Today, Rand and his wife still have a liquid net worth that's less than one million. How did Rand transition from carrying $500,000 in debt to becoming the founder and CEO of a successful eight-figure company? Why isn't he a millionaire yet? And what lessons about entrepreneurship and finance can he share with the world? Find out in this podcast episode. ___ P.S. Rand's wife, Geraldine DeRuiter, is a hilarious travel writer and an alumni guest of this podcast. You can listen to her interview in Episode 77. http://podcast.affordanything.com/9-years-nonstop-travel-geraldine-deruiter-everywhereist/ P.P.S. If you'd like to learn more about starting a blog, check out this free tutorial. Learn more about your ad choices. Visit podcastchoices.com/adchoices