Finance Friday: Why FORCING Your Way to FIRE Isn’t The Way

Mindy:
Welcome to the Bigger Pockets Money Podcast, Finance Friday Edition, where we interview Sam, and talk about finances after a career change and a divorce. Hello, hello, hello, my name is Mindy Jensen, and with me as always, is my maverick co-host, Scott Trench.

Scott:
Thanks, Mindy. Great to be here and we’re going to save Sam from the danger zone in his finances.

Mindy:
Scott and I are here to make financial independence less scary, less just for somebody else. To introduce you to every money story, because we truly believe financial freedom is attainable for everyone, no matter when or where you are starting. So, arm those doors and crosscheck for something, because we are going to take off.

Scott:
That’s right. Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate, start your own business or build out your financial runway for a soft landing, we’ll help you reach your financial goals and get money out of the way, so you can launch yourself towards your dreams.

Mindy:
On today’s episode, we’re playing a little game. It’s called Count the Airline Puns. See how many you can find. Scott, I just joined an indoor soccer league.

Scott:
That’s awesome. Have you scored, are you the goalie, what position do you play?

Mindy:
I play over there. I have no idea. I don’t know the rules. We had our first game, I had my first game on Sunday, and I was like, I don’t remember the rules. I think that I haven’t played in longer amount of time than everybody else has been alive on my team. So, I play in the back. I haven’t scored any goals yet, but I’m having a lot of fun, and I’m so sore.

Scott:
I got to do that. My dad plays in a soccer league as well, and he’s always telling me about these crazy goals that he gets on. “I kicked the ball between the legs, [inaudible 00:01:45] this guy is 24.” Yeah. I’ve got to try that out. Sounds fun.

Mindy:
The next time your dad comes to visit, maybe he can give me some tips, because I have no idea what I’m doing. We have an awesome goalie, which is why we don’t lose.

Scott:
I love it. That’s awesome, Mindy. Again, I need to find a fun hobby. My recent one has been hot yoga.

Mindy:
Hot yoga. I just…

Scott:
Never pictured myself as a hot yoga guy, but it helps my back, feels good. Sweat it out.

Mindy:
Yeah. That sounds like zero fun. Yeah. It’s like 105 degrees in the room, right?

Scott:
Uh huh.

Mindy:
Yeah. I lived in Arizona. No thanks.

Scott:
There’s usually eight women and two men, but I’m cool with that. I love it, and I think it’s outstanding. I use Core Power down here in Denver.

Mindy:
Well, I am glad that you enjoy hot yoga.

Scott:
Thank you.

Mindy:
All right, Scott. We have a new segment on our show called, The Money Moment, where we share a money hack, tip or trick to help you on your financial journey. Today’s money moment is, if you’re looking for a side hustle and are in good health, consider donating plasma. You can make anywhere from $360 to $1,000 a month through your donations.

Scott:
Hard to achieve financial freedom without blood, sweat and tears, Mindy.

Mindy:
That was a good one, Scott. If you have a money hack, tip or trick that you would like to share, please email [email protected]. All right, before we bring in Sam, let’s take a quick break. We are back. Today we’re speaking with Sam, who is an airline pilot. Sam struggles with the line between frugal and cheap. You and me both Sam, and is considering a move to be closer to his daughter, and is also looking to start investing in real estate. Sam, welcome to the Bigger Pockets Money Podcast. I’m so excited to talk to you today.

Sam:
I’m excited to be here. I appreciate the opportunity.

Mindy:
So, Sam, let’s jump into it, because we have a lot to discuss. I’m showing a salary of $3,800 a month and that’s after your 401K, your taxes, and all the other deductions that come out. I see expenses that total $1,700, so that’s clearly not where we need to focus. The delta between your income and expenses is $2,000. You’re doing pretty good. Investments total $125,000, and Sam, how old are you again?

Sam:
33.

Mindy:
33. So, that’s not a bad net worth. I see debts of $48,000, which include payment for a personal loan to go to flight school. So, I think that that’s okay, because you took out a loan to go to school, just like a lot of people take out loans to go to school. I’m not seeing a huge problem in your overall net worth, which we’re going to ballpark around $70,000. What can we help you with today? What do you think your biggest pain points are?

Sam:
Yeah. I’d like to discuss the two sides of having wealth, building wealth, keeping wealth. Yes, it’s great to amass all this money, and I’m really excited how my net worth has grown over the last several years, but then maybe a little too much. I think that there’s a fine line between spending all your money and saving all your money, and I think I’m maybe too close to the saving all your money, and I don’t want that to affect my personal life and my relationships. So, it’d just be interesting to get your all’s perspective on that, while still making sure that I’m saving enough for my financial goals. But then also, I’d like to discuss potentially buying a house hack essentially, trying to decide between a house hack and renting, given the constraints that I face with my career, but also with my family life.

Scott:
Would you mind giving us a quick overview of how we got here? Brief history, your money story.

Sam:
Yeah. Sure. Growing up I was unknowingly very lucky. I’d never really had to think about money. There was always plenty of food on the table. I had all of my needs and wants met. We took frequent vacations, at least one or one or two a year. I’d say we were solidly upper middle class. But I did not really understand how much my parents made. My mom raised us. She was a nurse prior to mine and my sibling’s birth, and then she was a stay-at-home spouse, and when it came time to apply for college, I applied for the FAFSA, and one of the questions was, what’s your household income? I just remember asking mom what dad made, and she said, “I really don’t know.” That really just always stuck with me. So, I think I grew up with money hidden, but because it wasn’t an issue I never felt the effects of that.
Fast forward a little bit, I ended up marrying a physician, and that came along with medical school student loans, and those totaled around $225,000 or so. We had decided to start a family and I was a stay-at-home dad, and a lot of my time was spent thinking, how in the world am I going to help pay all these off in any reasonable amount of time? So, that was the first time I really started thinking about finances and coming up with a strategy and a game plan. I started looking at all the available resources online, of which there were quite a few. Fast forward another few years, unfortunately I was blindsided by a divorce, and when that happened I was a stay-at-home spouse so I didn’t really have a career to fall back on, and I had to figure out life on my own. So, I became super invested, I had to make it. So, I put a plan in place and that’s worked wonderful so far, but now I just want to make sure that it continues to work as well as it has been in the upcoming five, 10, 15, 20 years.

Scott:
Walk us through why you chose to become a pilot and how you went about that process.

Sam:
So, both of my parents are in the medical field. My ex-spouse is still in the medical field, so that was an option that I had considered. I worked in the medical field as well, as an emergency physician scribe, as well as a nurse’s aide. That was definitely an option to potentially go to medical school. The other one was going to aviation school to become a pilot. I had a German foreign exchange student who lived with me in high school for a year, and he ended up becoming a helicopter pilot. My best friend from high school ended up becoming a pilot for the Navy.
So, I had these two pretty influential people in my life go through that. They loved it and I thought, well, maybe I’ll like it too. I randomly called the airport and said, “Is there anybody near me who does flight lessons?” I got the phone number and I called, and the guy said, “Yeah. Can you be here in 20 minutes?” I went up and I thought, man. If I can make a living just sitting in the front of a plane flying people around, that would be fantastic. I just stuck with it and kept after it, and some opportunities fell into my lap, as well as some really hard work, and now I’m here where I’m at today.

Scott:
Walk me through how much a pilot makes, because I was looking it up and it looks like the range is between 50,000 and $900,000 per year. So, how do I make sense of that range for a US airline pilot, and what do you expect to happen with your income over the next few years? How long you been a pilot? That’s six questions at once.

Sam:
Yeah. It’s actually, it’s even bigger than that range that you said. I made a lot less than 50 my first year, I made about 28,000 my first year, as a professional pilot. That’s immensely greater than what it used to be a decade ago. It used to be, you had to be on food stamps, that’s no joke. You were making minimum wage or thereabouts. I know that there are some pilots from airlines that make over a million a year, so it’s a huge range. The way it typically works is, the smaller the airline that you fly for, and if you are a first officer or a captain. So, when I started out, it was a tiny airline with really small prop planes that we flew nine people on. I was a first officer, I made the 28,000. Now I fly for a major airline, I’m still in the right seat, but because now I’m flying big jets, my salary right now, I’m on track to make about 110 to 120,000 this year roughly.

Scott:
Walk me through how that translates to $3,800 a month after taxes.

Sam:
Well, it didn’t get to that initially. Like I said, initially I was making 28,000. My expenses at that point were about 15 grand a year, and I saved the other 13 grand or so. Now, major airlines have really good benefits. It’s one of the best professional reasons to fly. I mean, I think every pilot likes it personally, but there’s a lot of benefits other than that. One is the wonderful 401K, I’ll call it a match, it’s not really though, it’s a non-elective contribution. So, 16% of my salary goes into my 401K, as the employer contribution, which is unbelievably good. I go ahead and I just plan to max that out. So, 25% roughly of what I make now will help me max that out. On the employee contribution side, I have access to the HSA, which is my first time having access to it. So, I was able to, because I started last year, I was able to contribute the full 3,650 for 2022, and then I just dollar cost average to do the 3,850 this year.
Then, let’s see. Is there any other investments? I did start contributing to a brokerage account when I felt like I could, when interest rates were low on my loans. I thought, it’s going to be a better return on investment to start an after tax brokerage account. I’ve since stopped that and then gone heavily into the loans, because they’re tied to the prime interest rates. So, right now I’m feeling that pain. So, after all that, its taken into account, plus taxes, and that leaves me with the roughly 3,800 take home pay. Most of that goes to loans. Right now, I live on about 1,350 a month. That’s like what I’m targeting, and then that difference goes to the loans.

Mindy:
Flight school’s really expensive, she said as though she knows what she’s talking about. I never looked into it because I could not hit the broad side of a barn. My eyesight is terrible and they won’t let me fly planes ever. Which is fine. I just sit in the back. But how did you pay for flight school? Because I understand it to be a lot more expensive than the loans that you took out.

Sam:
It can be. It’s a big range, depending on how you want to do it. You can go to a university, a four year university, and get all of the required flight hours to then become a flight instructor and start making some money. Those degrees typically run 120 to 150,000 all in. That’s very rough. There are what are called Part 61 schools, which are mom and pop schools that you can go to, that you just pay a flat fee for the plane, plus the instructor, plus maybe fuel potentially. That’s more or less what I did. I did a very as cheap as possible route to this. The way I got the money though was, I was a stay-at-home dad for part of it, but also, I got a personal loan from my dad, and he gave me about 25,000 to get started, and that got me a pretty good chunk of the way. But then we had to take out an additional 50,000, and unfortunately flight loans do not qualify for student loans, unless they are tied to a higher education degree.
So, the only option that we had, outside of paying cash for it, was a home equity line of credit. We had to prove that we were able to pay the full 50,000 upfront. So, at an immense amount of privilege for sure. But my parents said, “You know what? We’re totally okay with this. We know you’re going to work hard and you’ll be good for it, you’ll pay us back.” So, that’s what they did. So, I’m in the midst of paying that back right now. But you’re right. Flight school is incredibly expensive, and unfortunately I think it’s unfair because it’s like you have to be in this really good financial spot as a family to even be able to afford it in the first place. I wish there were other ways to go and do it, but that was where I found myself and so I just did what I had to do.

Mindy:
Are there any opportunities for pay increases as your experience level grows, or picking up extra shifts? I mean, there has to be some downtime, you have to be able to sleep. Walk us through that.

Sam:
Yeah. So, I’ve flown in two different arenas, and I’ll use some jargon, and I hate doing that on an interview because it doesn’t mean anything to you guys probably, and it’s not going to mean anything to anybody who’s not a pilot. But when I first started out flying those small planes that I talked about, I flew in a realm called Part 135, and that’s the regulation that the FAA ties the company and the pilots to, and they have a certain set of rules. Part 121 is the big jets, and that’s what I’m in now. When I was a Part 135 pilot, they have certain rules as far as how often you can work, and it’s the same with 121, the numbers are just slightly different. But you’re right, you have to have certain amounts of rest and you have to have a certain amount of days off in a certain window of days. You have to have 24 hours of rest every seven consecutive days, and lots of rules like that.
Typical pilots schedules for the 135, at least for where I flew, was I worked three to four days a week typically, and I had the rest of the days off. So, it’s a pretty good schedule. So, what I would do was fly on my days off as much as possible. Anytime our company had an incentive program or some sort of bonus for flying so many shifts in a certain time period, maybe over the summer when demand was going to be high, we would get paid a certain bonus and I just always tried to make sure that I hit that bonus, but then tried to fly no more than that. So, I maximized my time versus money. So, I did that as a first officer.
It was during COVID that I was flying as a first officer of that really small company, so there was really not a lot of demand to sit in a tiny little plane together, jammed with eight other people. But as a captain and the COVID restrictions were starting to become a little bit less stringent, I made a lot of money that second year for that small company as a captain. I worked, gosh, it had to have been 70 hours a week, 75 hours a week or so. I made more on the days off. I would work typically two days extra for the week, and I would make more in those two days than I did the four days flying regular. So, that helped tremendously.
In the 121 world, there’s maybe a little less opportunity to make extra money, because you’re divided based on your seniority in the airline. I’m a very junior pilot at my current airline, and so I’m on what’s called reserve. So, the way that works, and if I’m getting too long-winded let me know. But the way that works is, I take a call and I sit at home, and I just wait for the company to say, “Hey, we need you to come fly.” If so, then I go fly. If they don’t, then I’m free to sit in my pajamas all day and do whatever it is that I would like to do, as long as I can get to the airport within a certain amount of time. So, I may go a month without flying much, but there’s not a lot of opportunity to fly extra.
Once you have the seniority, you can hold a line, which is a very set amount of flying that you do on a schedule, that you know a month in advance. If you want to pick up on your days off, that pays extra. So, there will be times where I will be able to make extra money, just maybe when I get that seniority. Then of course, the biggest difference in pay and the way you increase your pay is through longevity at your company, because every single year there is a jump up in pay, and then what seat you fly. So, if you upgrade the captain, you get paid quite a bit more on anywhere between 30 to 70% more per each flight hour.

Mindy:
How do you upgrade to captain?

Sam:
The FAA has a set amount of time. You have to have at least 1,000 hours of what’s called Fixed Wing Turbine Time. So, fixed wing as in airplane and not helicopter, and turbine, meaning that you’re flying a turbine engine aircraft. Once you hit those, the only other small, and I say that sarcastically, factor is you have to have the seniority to hold that seat. So, if say if you work for a large airline that has 14,000 pilots, and you may need to be there seven years before you can hold that seat. So, when you bid for it, you bid against all the other people who want that seat. If you don’t make the cut, the number of captains that the company says, and they say, “Sorry, you’ll have to try again next month. Or try again next year.” So, it could be anywhere between… I could maybe upgrade next year, I could maybe upgrade in five years. It depends on the plane and on the base. It’s fairly complicated unfortunately, and I don’t know exactly when that might happen, but eventually that will happen and I look forward to it.

Mindy:
Okay. One of the issues that you have, or one of the issues that you said you have, is that you struggle with the difference between being frugal and being cheap. What do you think the difference is between being frugal and being cheap? Have you defined that for yourself?

Sam:
I think part of it is when you make decisions that do not align with what your stated values might be. Or an even easier way might be to say that, if you think you would enjoy doing something, but don’t do it because you are afraid of the $18 that it costs, plus tip or whatever it is, then I think you’re probably… You have your toes across that line in the sand between frugal and cheap.

Scott:
So, where are you right now?

Sam:
I think I’m jumping back and forth, depending on where I’m at in my own head. Because I feel, and this is probably not accurate, and there’s probably a 45 year old out there thinking, “This guy’s 33.” He’s yelling, “Shut up.” But it feels like I’m getting a late start in life. Being a part of the financial independence community just as far as reading blogs and watching videos and being immersed in the culture, it’s very difficult to not compare yourself against others. So, it feels like because I had to go through the divorce and had everything reset on me, that I have to really push myself to make as much as I can reasonably, but also save as much as I can, so that I can still… In my mind, I guess I equate retiring early with winning. I feel like if I don’t do that, then I might risk losing. IE not being able to retire early. Or at least not having the option if there ever comes a point at which time where I think, I don’t really want to fly anymore, or I don’t want to do work for pay anymore.

Scott:
Walk me through… Your salary is 110 pre-tax?

Sam:
Yeah. Roughly.

Scott:
Okay. You’re putting 25,000 into your 401K, and you’re getting 25%, is that what you said?

Sam:
Yeah, yeah. 25% about maxes it out.

Scott:
You’re getting a 16% non-elective match. We’ll call it a match for folks listening. But non-elective contributions, that’s 16 grand. That’s $41,000 that’s hitting your 401K on an annualized basis. Is that correct?

Sam:
Yeah. That sounds about right. Yep.

Scott:
Okay. How much of your loan are you going to pay off on an annual, in a year? How much money is going towards the debt repayments that you have?

Sam:
Right now I think I’m averaging about between 2,500… Between two and 3000 a month probably right now. I plan on continuing that until the loan is completely paid off.

Scott:
Great. So, you are generating $75,000, give or take, in wealth, on $110,000 annual salary right now, in your current situation. That is the best I’ve ever heard on the Money Show Podcast. Have you heard of a better savings rate than that, Mindy, in terms of wealth accumulation? Which I would consider debt repayment. Part of wealth accumulation.

Mindy:
I don’t think so. Maybe somebody making like 400,000, but that’s not the same.

Scott:
So, yeah. I think what your question is, yeah. You can definitely say, you know what? There’s a pace to go at, but maybe making $110,000 and spending $1,500 a month is not a good interim lifestyle. I think, yes. In your case, I would ease up a little bit and I’d allocate another 500 or $1,000 to fun and those types of things. So, I also think it’s a question of allocation of resources. You’re going to pile up an enormous amount in your… If you keep up this pace, you’re going to be debt free and you’re going to have hundreds of thousands of dollars in your 401K in a year or two, in two or three years. I mean, you’re already on that trajectory. But what’s that going to get you in…
You’re going to pop up, you’re going to have a bunch of money in your 401K and a good job, and you’re going to be starting from scratch outside of that. I think that’s where I would almost say, where do you want to point the direction of your finances and what portfolio do you want to have in three, five, seven years? Because the trajectory you’re on is going to get you a middle class output, which is fine. But you definitely, one, can ease up, and two, might want to think about where you’re directing those cash flows. I don’t know, is that helpful?

Sam:
It’s helpful. It’s like I intellectually know that, and emotionally, it’s a different story.

Mindy:
Have you written down your values? I thought you had a really great definition of the difference between frugal and cheap. You said, it’s when you make choices that go against your values, based on it’s going to cost $18 plus tip. So, have you written these down? We did an episode, episode 362, called Scott Trenches Step-By-Step Guide to Building Your Perfect One Page Investment Plan. You know approximately how much money you want to have as your fine number. But I also listened to somebody who was so excited about being a pilot. I listened to you describe the piloting stuff, and you seem to really love it. I think a lot of people focus on RE of fire, they don’t focus so much on the FI part.
You’re doing great financially. You don’t need to quit your job unless you wake up in the morning, “Ugh, I got to go pilot a plane.” I don’t know anybody who pilots a plane who’s like, “Ugh, I got to go pilot a plane.” They’re all like, “I get to go fly today. Hooray.” Because it’s an exciting thing. Who doesn’t love to fly? I mean, okay. There’s people who don’t like to fly. Email [email protected] to tell him all about how much you don’t like to fly.

Sam:
I think my fear, or the excuse, or reason for my behavior comes in from two areas. I think one is the divorce, as far as the mindset shift that happened during that process, where just my total world was just completely turned upside down, and I thought everything was going well and it was on a good track, and then you get hit by a bus on Tuesday kind of thing. The fear of that happening again is tremendous. The second part comes from the fact that my daughter is only going to be in her formative years for so long, and I would like to be able to spend as much time as possible essentially with her, while I still am her dad and she wants to hang out with me kind of thing.
So, it’s like I’m trying to push myself to get to where I have as many options as possible as soon as possible, so that if I want to move to Baltimore and not fly at all, that’s a possibility. If the commuting and the work becomes too much, and I can’t make her recitals or her games or what have you. So, I think those are my two areas of why. Intellectually what Scott says makes perfect sense, and I think, yeah. Of course, I need to let loose a little bit and not be…

Scott:
To ease off the throttle.

Sam:
Exactly. Versus what I’m actually doing. Nice pun, man.

Scott:
Now, another component here, say I can go back-to-back, is you have no runway. I use the concept of financial runway a lot so that… But what you’re doing with your money is you’re putting all of your cash into paying off this debt. By the way, what’s the debt? What is the interest rate in terms of this debt? I know it’s with your parents.

Sam:
Well, part of it is personal loan. At this point, the largest part is personal loan, which he’s not charging me any interest. The home equity line of credit portion is about $21,000 left at this point, and it’s at roughly eight, eight and a quarter ish percent interest rate.

Scott:
What do you invest in in the stock market? What is the equity portion of your portfolio?

Sam:
It is 100% US stocks, a mix of, depending on the broker that I’m with, total stock market and S&P 500 because I’ve done some tax loss harvesting, they’re split depending on…

Scott:
Okay. Before taxes, what do you expect that portfolio to return over a long period of time?

Sam:
I would say, if we’re talking inflation adjusted, probably I would say I’d like to use 7%. Occasionally I use 6%, so either six or seven.

Scott:
Perfect. Okay. So, you got an 8% loan, and you’ve got an expectation of a 7% highly volatile return in the other hand. So, my thoughts are, why don’t we have a reallocation event here. Liquidate part of that stock portfolio, clean up this debt, and then I would encourage you to consider building out a runway of personal finance, and building up a little bit more of an emergency reserve. From there, if you’re sitting on $25,000 for example, which for you is five years of spending, two years of spending in this case, because your expenses are so low. Think about that freedom as a continuum here. I think you’re much more free with that portfolio being debt free.
You’d literally be debt free within a week, and beginning to build out a financial runway. Yes, it would involve liquidating some investments, but if that’s what you believe, if that’s your philosophy at six, 7%, and there’s an 8% guaranteed return over here, why not just consider doing that from a resource allocations perspective? In six months you’ve got 25, 30, $40,000 in your emergency reserve. You’ve also accumulated 41,000 in your 401K. That’s a pretty good spot to look up from and have way more options than you have right now.

Sam:
That was an option that was brought to my attention, and I almost pulled the trigger on it, and I can’t exactly say why I didn’t. It was just some dumb fear or fallacy of logic that said, oh, I bought these shares in an after tax brokerage account for a longer term goal, such as a down payment for a house or any other number of things. So, I shouldn’t sell them because that’s what it wasn’t for, and I don’t know. Then I just dismissed it and thought, I’ll just take cash flow instead and shove all of it to the loans.

Scott:
Yeah. The only reason I say it is because I think that’s congruent with your goals. If you were to do that or something along those lines, again, you’re going to accumulate what? Three, four, $5,000 a month in after tax cash flow. You could make that much more if you didn’t have any debt. Again, three, six months, I think there’s a very realistic path of 25, 30, $35,000 in savings, and a huge 401K, you’re still investing again $41,000 annualized, which is going to be more than probably 85, 90% of the population in the United States. That’s talking away from a retirement perspective. Try that on for size. What’s your reaction to that?

Sam:
So, when I initially had that idea tossed at me, I was around $30,000 of loans left, and I had pretty much exactly 30,000 in the after tax brokerage account. So, I almost pulled the trigger, but then I decided not to. Now that I’m at 21,000 and the brokerage account is still roughly at 30, because the market’s basically the same as when I first considered this, I think maybe I’m more likely to accept it now, because I don’t have to sell all of my brokerage account. It’s just the portion of the interest accruing debt that I need to pay off. So, I would have roughly $9,000 left in there. So, maybe that would psychologically feel better, having the debt totally gone, but still having some of that after tax brokerage still left.

Mindy:
Well, and you don’t have to sell it all.

Sam:
Right. Yeah.

Mindy:
You could sell 10,000, and pay down 10,000, and see how does this feel? Sit with this for a month. Oh, I like not having that extra 10,000 in debt. I’m going to sell 10,000 more. Or I’m going to sell 5,000 more and slam this money as much as I can. Let’s talk about your move to Boston. When does your lease come up, where you’re at currently?

Sam:
So, I currently do not have a lease. I lucked out in the apartment that I found, and for whatever reason, and I’m not sure, the landlady did not pursue having any of the tenants sign a lease of any description. It was just a, “Hey, can you Venmo me the money? You’re good to go.” I’ve never even met her. I mean, I talked to her on the phone and that was about it. So, I just rent this little room from her for very little money, relatively speaking, in the Boston area, so I can leave at any time. I’m very flexible when it comes to that. The only thing that would hold me back from moving is my schedule.
So, I have to be able to be at the airport within two and a half hours. So, if I move to Baltimore, I cannot physically get there in two and a half hours from the time they call me, because I’ve got to schedule a flight. I have to wait until I have the seniority to be able to either do long call reserve, which gives me 14 hours to get to the airport, or actually hold a line where I said that they have give you an actual schedule for the month so that I can plan on when I need to be at the airport. So, I do have to wait until I can get a little bit more seniority until the move happens. I’m guesstimating maybe six months to a year hopefully.

Mindy:
Do they not have a base that you can transfer to? I’m asking these questions. I have very little bits of information coupled together from multiple airlines, so I don’t know how yours specifically works. Can you transfer your base?

Sam:
You can transfer the base, but they don’t have a base where I would be moving to.

Mindy:
Oh.

Sam:
Either way you look at it, if I move to Baltimore, I have to commute to whichever base I decide to transfer to.

Scott:
Can you switch airlines?

Sam:
Not very easily. That comes with a whole host of issues, not the least of which is that it resets your seniority. So, you go back to year zero pay, and you also always go back to the left seat. Almost always. I shouldn’t use always, but as far as I know that’s how it works. So, it wouldn’t be as bad for me now because I’m still relatively junior, but I would take a pretty… I mean, I would take a 60% pay cut, which that might be worth it, but it’s pretty difficult. It’s also a long process.

Scott:
For how long do you take that 60% pay cut?

Sam:
For the first year generally, it’s like a probation year. Then after the first year your pay increases roughly 60%.

Scott:
How long do you expect your daughter to live in Baltimore?

Sam:
I am only assured for about two years, because she was in the Air Force and my daughter’s stepfather is also in the military, and so they’re going to be moving around. So, only two years. I’ve considered potentially changing airlines, but because of the unknown nature of what their future is going to look like, I also feel like I need to retain my flexibility as well, just in case they move and then I want to move again.

Mindy:
Oh, interesting.

Scott:
Well, then I completely agree with what your instinct is, you move to Baltimore, if you want to be near your daughter, you have no choice really. You commute to where you need to fly out of, and you eat that expense. Or you commute to Baltimore on a regular basis to visit your daughter, and it’s six one and half a dozen of the other. It’s whatever you think is going to be… That’s what you value. So, invest in that. Spend your money on making that happen. There’s not a good answer to that question. We’ve gone through that, and I think those are your choices. So, how long would the commute be from Baltimore to where you’d be working?

Sam:
It’s however long the flight is. I think it’s roughly two hours. So, thankfully pilots have the ability to fly fare free, whether it’s for business or for pleasure. So, it’s just a matter of figuring out what airline flies from Baltimore to Boston, and then just listing myself for the flight. So, yeah. I would look at roughly probably a two hour flight to get to work, and then two hours back at the end of whatever work I was doing in Boston.

Scott:
How frequently?

Sam:
As frequently as the number of trips that I have in a month. Trips last anywhere between one day or five days. They typically last no longer than that, and then you have to get at least two or three days off between the trips. So, I would imagine an average pilot who commutes probably does three to four commutes back and forth each month.

Scott:
Okay. So, that’s a lot, but this is not, hey, you’re getting a plane three times a week to commute to work, it’s three times a month to commute to work, three to four times a month. So, yeah. It is a lot and it’s unfortunate, but I think that that choice would be totally reasonable, and probably frankly what I would be doing in your shoes, is moving nearby to spend time with my daughter and commuting. I’d either do that, or if you thought she was going to be there for longer than that, I’d switch airlines and reset, because you can do that. But I don’t think, given the fact that there’s no guarantee, that would be a really hard pill to swallow. So, what do you think? What has your conclusion been?

Sam:
Yeah. Exactly what you just said. I definitely want to just have the freedom to say, “Hey, I’m not working. Why don’t you come over to my house today and we can go play, or I’ll go pick you up. I’ll pick you up from school and we’ll go eat dinner,” or whatever, and create memories with her that are going to last forever. So, it leads us into the other question that I wanted to ask of you guys, especially since you know the constraints now. The decision between just renting and house hacking, and I think my mind says renting offers me the flexibility that I need to, because I don’t know if two years is really long enough to do an effective house hack, where it makes it worth it. Knowing that I’m probably going to be moving away from Baltimore after those two years.

Scott:
Well, my instantaneous reaction there is to zoom back out and say, okay. What’s the portfolio… What is a realistic position you’re going to back into three to five years from now? I use this all the time. This is how I reset almost everything in my life when I’m thinking about things in business or personal life. So, I can zoom out and I can say, right now, you are on track to accumulate $75,000 a year in wealth. That may change slightly if we spend a little bit more, and ease off the throttle again a little bit more. But I think that that puts you at what? 75, 150, 300, $450,000 in wealth accumulation. You can invest that in a variety of ways. Right now, you’re choosing to invest most of that in your 401K.
If you said, “Hey, I want a really flexible financial position, I want the maximum flexibility. I’m going to accumulate that. I want 350,000 of that to be in real estate and I want it to be producing 2,500 to $3,000 a month in cash flow, or as close as I can get to those numbers, if I can possibly get there.” I would say, “Okay. Then we need a house hack.” That’s where we would go in and we’d say, “No. The house hacking is going to be part of an intentional portfolio building strategy. You’ve got the income, you’ve got the inclination, Maryland’s a great real estate market, or parts of it are, and there’s many opportunities.” So, that would be where you would use the house hacking as a tool in order to move that portfolio.
I think it has less to do with the flexibility piece because house hacking is the most flexible option. You buy the house hack, and you live in it. In your case you could conceivably move in, you’d be fulfilling the requirements of your loan, and if your daughter happened to move away in two months from then, I think that would meet… This is where we have to check with a lender. Maybe we can discuss it in the Facebook group. But I have to imagine that that would be an event that would qualify you for an exemption to be able to move out, from the one-year requirement that comes with a lot of owner-occupied loans. Was that too overwhelming or does that help frame the decision between house hacking or renting?

Sam:
I would say slightly overwhelming, just because I’m so unfamiliar with real estate as a subject, and all of the nuance that goes into that particular decision, and all of the things that have to be considered, and all of the ways in which things can happen. So, yes. I think a little overwhelming.

Scott:
Okay. Well, fair enough. If you move next month, maybe it’s too soon for a house hack. But if you decide to get into real estate and you said, “Hey, that’s the portfolio I want in three to five years,” then I think it would be worthwhile to consider it at some point. What do you believe you get a rent for in Maryland? What kind of place would you rent and what it would’ve cost?

Sam:
I did a little looking on Zillow, and I think Redfin, and it seemed to be… I mean, of course location depended, but anywhere between 750 per bedroom, all the way up to 1,250, depending on the area. I don’t know if that’s a large range, but that’s the range that I found.

Mindy:
Okay. I think you are uniquely positioned to have a house hack, where you live near the airport, and you have a slightly bigger house, and you have a crash pad, and you advertise this to everybody on every airline that you can possibly think of, anywhere near BWI. You just say, “Hey. If you want to rent a space here, it is…” I don’t know how much crash pads go for. $100 a month, $300 a month or whatever, and you’ve got 500 roommates. Don’t buy an HOA because they are not going to let you do this. So, don’t buy an HOA, but buy someplace that’s super close, where people can get there easily from the airport. There’s one right by the parking lot. I’m in Denver, so there’s a parking lot where the buses drive you to the offsite parking, and then there’s a condo complex right there, where people get out, they take the bus over there, they get out and that’s their crash pad.
There’s a bunch of apartments there for probably all the airline workers. They come in and I’m assuming that the way it works is, you come in and you sleep, and then you take the sheets off the bed and you wash them and then you leave. You remake the bed with new sheets, or you put them in the dirty pile or whatever. You could have this system in place that makes it really easy for people to want to live in your house with you. Constantly coming and going, but it’s making a lot of money for you because you have 500 roommates, but they’re never there. You know what I mean? Do you have any experience with crash pads?

Sam:
I don’t. I’ve always lived in the city in which I was based. But for whatever reason, I don’t think I’ve ever considered that particular option. But that does seem… It just sounds exciting.

Mindy:
Well, I don’t know if you know this, but sometimes there’s some downtime in the cockpit. You could talk to your fellow pilot, your fellow flight attendants. Just ask them because you’ve got a lot of time to do nothing.

Scott:
Yeah. Look, I think that’s the opportunity that you have, is you’re going to be away from your property for a good bit of time. So, look. In your situation because you’re planning on renting a room, and it’s so inexpensive relative to your overall take home pay. Literally you’re going to spend less than 10, 15% of your total pre-tax income on housing, which is outstanding. I think that if you were to make a big investment outside of traditional asset classes, something like what Mindy said sounds perfect. Because you can just turn this asset that you’re not going to be using at least 20, 30% of the time most likely, into something that produces income for you potentially.

Mindy:
And you’re already connected to all these people who need this opportunity. I mean, you definitely need to talk to somebody who knows more about it than me, but that’s a great opportunity if you already need a place to live and you’re going to buy a house, buy it close to the airport. I mean, who wants to drive two hours of the airport when they could drive two minutes?

Scott:
Look, again, zoom back out here. What’s happened here is you had a devastating life impact, and it’s completely upended everything you’re doing. I think that produced fear for an uncertainty about the future, but now you’re a pilot. You make over six figures, you’ve got a really stable profession here with this. You have great benefits. You’re stacking away tens of thousands of dollars per year, in wealth. You’ve got an investment plan, you’re going to be debt free very shortly. You’re less than six months away from being debt free in the current phase. You’re in control. You haven’t had enough time to take off yet in your financial position. So, I think it’s just a matter of letting more time elapse here, and you’re going to get very, very comfortable with your financial position within a year.
You’re going to be like, “Wow. I’m actually kind of rich,” is where I think you’re going to end up pretty shortly here. Enough time hasn’t elapsed yet for you to feel that confidence. But you’re there. So, I think it’s about putting together a strategy. It’s hard to internalize after all that you’ve been through, “Oh, I’m going to accumulate 450 grand if I keep this up over the next…” What is that, 425 grand? No. Sorry. 375 grand is 75 times five, over the next five years. That’s a large amount of money. That’s probably more than you were conceiving was reasonable two or three or four years ago, when you were making however much you were making, $28,000 a year. But you still have a very real problem of, you have to make an intentional decision about where you’re going to allocate that, and when you’re going to ease off here, and allow yourself to enjoy life a little bit, from a spending perspective, because you’re there.
You’ve got a very strong financial foundation that you’re about to pour. Keep grinding until you pay off the debt and then pop up and say, “What do I want the next five years of my life to look like, and what do I want the financial position to be?” After that, make those intentional choices. I completely agree with the decision to move to Baltimore and commute, if that’s the best way to see your daughter in your circumstances. It’s sad that it’s the reality, but I think that… I think it’s hard to argue with.

Mindy:
Yeah. It is hard to argue with. I can’t argue with any of that.

Scott:
All right. Well, should we land this episode?

Mindy:
Thank you for all the airline puns today, Scott.

Scott:
Well, thank you guys. Sam, thanks for coming on the show. Really appreciated talking to you. Great. I mean, you just have built a such a strong financial foundation, and I think again, you’re going to pop up in the next six months to a year, and realize how strong your situation is and how much room to run you have. I think you’re going to be feeling really good about things. I wish you luck with the move if that’s what you decide to do. Many happy memories with your daughter.

Sam:
Yeah. I appreciate it. Appreciate all the advice from both of you. It’s always good to just talk with somebody else because I feel like so often people can feel like their own little islands. Whether their situation’s good or bad. So, it’s just nice to get feedback and chit chat about personal finance.

Mindy:
Thank you, Sam, and we’ll talk to you soon.

Sam:
All right. Thanks.

Mindy:
All right, Scott. That was Sam, and that was actually a lot of fun. First of all, kudos to all of you who counted every one of his airline puns. Nice job, Scott, on the airline puns. Those were not scripted. He just comes up with them because he is so good.

Scott:
They weren’t that good. I can do better. Next time I will get some more fun ones in there.

Mindy:
Okay. Well, let’s make a note to our wonderful producer, Kailyn, to give us some topics for puns so Scott can slip them in.

Scott:
All right.

Mindy:
But that was a fun conversation that we had with Sam. I think he has a lot of opportunity ahead of him, and like you said, grind it out until you pay off that loan. Experiment with the employee stock purchase plan, and then pull back on the throttle a little bit and enjoy life.

Scott:
Yeah. I mean, I think he’s going to just ascend to new heights with his financial position over the next couple of years. Again, this is a common situation I think for us on the money show, is folks get into finance, they start dabbling, they clean up their position. When they pop up, they haven’t sat on a position that’s really well constructed with their new high income, and their high savings rate, and their new investment philosophy for very long. It’s really hard to see, oh. I spent all my life getting to this point, but the next five years if I just sit at this point, don’t even improve, I just sustain where I’m at, I’m going to accumulate 375 grand. Wow. That’s a pretty big thing to pop out of. I think it’s years in the making to get to that kind of run rate.
Again, I think it’s just hard. That’s why we had to keep popping Sam out. If you’re in the shoes of a Sam, if that’s relevant to your situation, that’s probably what I would encourage you to do as well, is pop out, zoom out, think about five years. What’s the trajectory? How much total cash am I going to accumulate over those next five years? What do I want to allocate it, and what do I want to allocate to my values, like moving next to my daughter? Because there are plenty of things. This is not about sacrificing all of life for the next five, 10 years to get to financial independence. It’s about spending in alignment with your values, but not wasting anything, so that all of the excess that’s not spent on your values is going towards buying your freedom, and giving you the maximum optionality at the end of that journey.

Mindy:
That was very well said, Scott. Absolutely agree. All right. Should we get out of here?

Scott:
Let’s do it.

Mindy:
That wraps up this episode of The Bigger Pockets Money Podcast. He is Scott Trench, and I am Mindy Jensen, hoping that these Finance Friday episodes help you stay out of the danger zone. Bigger Pockets Money was created by Mindy Jensen and Scott Trench, produced by Kailyn Bennett. Editing by Exodus Media. Copywriting by Nate Weintraub. Lastly, a big thank you to The Bigger Pockets team for making this show possible.