Finance Friday: I’ve Got $150K Student Debt at 6.95%, Should I Invest?

Mindy:
When combining finances is debt pay down The most important or should investing in real estate? Take the driver’s seat. Hello, hello, hello and welcome to the BiggerPockets Money podcast. BiggerPockets has a goal of creating 1 million millionaires. You are in the right place if you want to get your financial house in order because we believe financial independence is attainable for everyone, no matter when or where you are starting. My name is Mindy Jensen, and with me as always is my dollars and cents Co-host Scott Trudge.

Scott:
Mindy, thanks for your wonderful intro there. Today we’re going to talk with Lauren Heath, a physician’s assistant out of Canada who has her first house hack and no student loan debt, but she fears that there might be a glass ceiling in her current career. And today we’re going to discuss and get into how she is planning for her future with her partner and address some of the concerns that they have about combining finances. Last, we’re going to touch on how they allocate their funds to work for the best wind filled life that they want in retirement, which involves traveling the world and kite surfing together. Lauren, welcome to the BiggerPockets Money podcast. We are so excited to have you here today.

Lauren:
Thank you. I am even more excited to be here today. This what an honor. So thank you so much for having me.

Mindy:
I’m super excited to go look up what kite surfing is. I’ve never done that before.

Lauren:
Well, I have lots of details to share.

Mindy:
Well, when you come visit you can teach me how to kite surf. Lauren, I would like to know where we are starting from. So can you give us a really quick backstory with regards to your relationship with money?

Lauren:
Absolutely. So myself, I grew up in a sort of middle class family where we were very traditional in that my dad was in business, mom was a nurse. So very traditional gender roles in that dad looks after finances, mom looks after house and that is how things go. And so just through observing their behaviors, I was under the impression my entire life that money was not something that as a woman I needed to deal with. This is for the man to deal with. I’ll find some man eventually who can look after this for me, don’t even worry about it. And so growing up I was like, sweet, this is awesome. Easy. And then it wasn’t until I started working and I’ll dive into my career in a little bit, but when I started actually making pretty decent income right out of school, I was sitting there looking at my investments thinking, okay, I know enough to know that this can’t just be sitting here, but what in the world should I be doing with this? And so that’s what kind of was the igniting thought for me to dive a little bit deeper, learn, learn, and then just try and get my financial life in order.

Mindy:
And what year did you graduate and start working?

Lauren:
Yeah, so I am a physician assistant. So I went to PA school in and graduated in 2020, which means that I’ve been out of school for the last four years. Luckily, as Scott had alluded to, because we earned a decent income coming right out of school, I was able to pay off my student debt in the first year of practice. So that really set me up for a good runway for moving forward. But the other thing that I want to mention is that doing sciences, all my sort of educational life, never had I ever been exposed to finance in general in that I never took any courses on how to do your taxes, how to save for retirement, any of these things were totally not even in my ballpark and especially in the field of medicine, I find that money in general is such a taboo topic in that no one talks about it as compared to something like finance for instance, where it’s like your water cooler chitchat involves that. But in medicine it’s so much about the patient, we’re doing it for the good of the patient, we want what’s best for the patient and less so about ourselves, which I agree it is about the good of the patient, but we shouldn’t be disregarding our own financial wellness in the process. And so that is another thing that has ignited my financial journey and wanted me to set myself up for success in the future.

Mindy:
So you have no student loan debt, that’s something we should celebrate. Hooray. But also let’s look at your financial pain points.

Scott:
So you graduated in 2020. That’s

Lauren:
Right.

Scott:
You graduated from school in 2020, totally financially illiterate because you’re located in Canadian and they have a different way of doing student loan debt and all those types of things. You have much lower student loan debt and we’re able to pay it off quickly. But I understand that Canadian treats their physician’s assistants differently. I’m sorry, I’m going to use that one more time and then I’ll stop with that stupid joke of Canadian here. You feel like there’s a glass ceiling in that profession. We want to hear about that in a little bit here. And then you bought a house hack, you have a couple of side hustles, but you’ve generally been able to accumulate and it’s kind of like what’s going to happen? What should I do next? I’m in a reasonably strong position, got a good emergency reserve, all those kinds of things that will spell out in the numbers. But how do I now proceed from here and achieve some bigger financial goals? How am I doing?

Lauren:
Yeah, yeah, that’s totally accurate. Now one question for you is I’m not sure how much you want to involve my partner and his kind of income and debt. I guess we talked about that in the intro, but so he is a physician or will be come July and he has much higher earnings but also a lot of debt. He has 150 of a thousand dollars of student debt, which so one of our pain points is like, well how do we go about should we pay that down right away? But then how do I tie in other investments such as real estate and investing in the stock market and whatnot to help us achieve our goal of also like mortgage debt as well is another one.

Scott:
Alright, we’ve got a great snapshot of where you’re starting and what your concerns are. After this quick break, we’re going to get more into Lauren’s financials.

Mindy:
Welcome back. We are here with Lauren who is taking control of her finances

Scott:
As I see it, you bring in about seven grand a month between your job, your rent, and your coaching program. Your partner generates about $13,000 a month, but that is likely to dramatically increase it sounds like once residency’s finished and he becomes a full fledged doctor at that point earning full pay, your expenses for you alone are about $4,700 a month, which means that you alone are bringing in a net of about $2,300 per month in cash that is flowing into your life and available for a variety of investment purposes at the highest level. So that’s about, what is that 25,000 a year give or take? You’ve amassed about $40,000 in cash across various checking account, your emergency fund at a fund account, which I love. You have investments in the Canadian versions of your individual like a brokerage account and a Roth IRA here. Is that a Roth or a 401k equivalent. Could you remind me?

Lauren:
So RSP is similar to 401k and then TFSA is similar to a Roth IRA.

Scott:
Perfect. So we got about 50 grand in those accounts. Love to hear it. And then we have a property which is a big part of your portfolio. This property is worth seven 90, it has a 30 year fixed rate mortgage of $621,000 on it financed at 5.7% and you each split this half and half.

Lauren:
Yes, but as Vandi looks like she’s about to say it’s actually three year fix. That’s another thing with Canadia is that we have shorter terms, so ours are one to five and so we chose just given what we had anticipated the rates to do, we chose three years.

Scott:
So that rate is going to hockey stick in a couple years if we’re not careful, we have to plan those Canadian on this if we’re not careful here. So that’s something to just kind of keep in the back of our minds that can go up pretty substantially in the next couple of years.

Lauren:
That’s right. And then the other thing with regards to my partner’s income, so I think that number that I put is the 13,000 is with his new job in July. So he makes 300,000 and then after taxes like 200,000 divided by 12, oh it’s a bit higher. So roughly like 16,000 a month or 17,000. So

Scott:
You guys are in great shape here with a ton of great prospects, but you’re still kind of just getting started on this financial journey. So the explosion of accumulation that will go on over the next five to 10 years now that the full income is being realized by your partner has yet to kind of manifest itself on your balance sheets at this point. And there’s some high stakes decisions to make now on which directions you begin to point your financial future to achieve your goals. So let’s talk about the partner dynamic here and how are you thinking about that today? And walk me through your thoughts on the pros and cons of combining or not combining your finances.

Lauren:
Absolutely. Right now my partner, he has the potential to earn a quite significantly higher than myself.

Scott:
What are you and your partner’s goals with money over the next 3, 5, 10 years?

Lauren:
So our goals together are to reach fi, which will allow us to achieve our goals in terms of our personal life goals, our extracurricular goals, and our goals with regards to our careers and how we want to feel fulfilled in our careers. And so we hope to reach FI within the next 20 years. And so my question to you both is how do you feel would be the best way to kind of point the needle in the direction to help us to take off to achieve FI in the next 20 years?

Scott:
Awesome. And then I can respond cheekily with a statement of once this income starts coming in at this higher level here, depending on what your total shared expenses, which it looks like are $57,000 a year, you guys are going to be able to cover that with just your income and generate $16,000 a month after tax, which is a fire hose of cash coming into your life to be the investor to deployed in there. And so if we just multiply 160 times 12, we get to roughly $200,000 a year, we multiply that by 20, we have $4 million in cash accumulated before we even invest. Have you thought about what that $4 million portfolio in 20 years might look like? Or even if you, let’s knock it down to 3 million because there’s probably lifestyle creep that will come in there at various points and all those types of things. But have you thought about what a good shape of that might look like to you guys that would enable you to kite surf in Belize and feel great about cashflow and those types of things?

Lauren:
Yeah, absolutely. So I want to just take a step back to and just say that our cumulative expenses are about 120,000 together. We’re at about 60,000 each right now. But to answer your question, so certainly we want to, our ideal portfolio would encompass a significant proportion of stocks like low cost e TF s and p 500, likely maybe a half or three quarters of our portfolio would be invested in that. And then the rest, I would love to get into real estate investing. It’s something that I’ve been researching for several years now and I see the benefit and I see the appeal and I recognize the amount of work and effort that is involved and I feel that that’s something that I am willing and able to take on. And so while my partner is going to be pretty focused on doing his career, I think that would be something that I would be open to managing for the both of us.

Mindy:
Are you talking real estate in Canada or real estate in the us?

Lauren:
Ooh, good question. Preferably in Canada just because of the proximity, I really like the idea of investing in my own local market for ease and simplicity’s sake. Now I haven’t discounted investing in the states because I do recognize and appreciate the market there and how it might be a little bit easier to achieve goals through that, but it seems to me as though it would be a couple additional hoops to jump through and learnings to had to understand how that would be feasible as a Canadian. Yeah.

Mindy:
Scott, do you know if Canadian citizens can get a mortgage in America? I think they can, but I don’t think it’s at the same rate that Americans can.

Scott:
I think that I am not very skilled in how foreigners access us real estate markets, so I’m actually not going to be very helpful on that front. I will be able to help you more with the frameworks to invest in, but we should probably bring on an expert in that world because I think it’s a big interest category for a lot of folks.

Mindy:
I think that’s correct. Just from the cost perspective. Canadian real estate is really expensive. I’m not trying to, not Canadian real estate, but you guys don’t have 30 year fixed mortgages, so you’re stuck with things fluctuating every one to five years, which gives me the heebie-jeebies. I like solid, solid 30 year fixed mortgages for my investing, but you can get a house in Louisville, Kentucky for like $150,000 and I don’t know of any Canadian city that has $150,000 houses, so that’s something to explore. I’ll give you that as a bit of a homework assignment. I’m wondering as you’re sharing your numbers, I’m wondering if there’s any opportunity or any interest in you leaving physician’s assistant and becoming a physician. Are you halfway there with education or would you have to start from the very beginning as a physician and take all of the education?

Lauren:
I’m really happy you brought that up Mindy, because that is actually one of the options that I have been considering because, so to me where I see that I can contribute to our cumulative nest egg would be kind of threefold in that either one would be through increasing my main income. And so that would be through something like that you propose going the next step to becoming a physician. Number two would be pursuing a side hustle seriously to the point where it would ultimately replace my main income or at least substantially help to fill that gap or pursue real estate as a full-time thing. Now that maybe would start as a side hustle and then grow, but that is another option for me as well as the other side hustle of the coaching business. So I think that to answer your question, that is certainly something that I am considering now with that in mind, it wouldn’t be a small feat in that would require probably eight years of opportunity cost in that I wouldn’t be earning in those eight years of schooling and applying and everything. Now with that in mind, coming out the other end, my income would be doubled if not tripled and so that is maybe that’s somewhere where I could crunch the numbers, but those eight years of lost income versus the earning potential that would be associated.

Mindy:
Okay. And tell me about this coaching that you’re doing

Lauren:
Doing Yeah, absolutely. So maybe you’re aware, but the physician assistant programs in Canada probably same as the US are very competitive and they have a very specific style of interview called the multi mini interview which consists of multiple different stations and it’s a tricky kind of application process. And so what I do is I coach applicants in how to excel in their application in how to be successful in achieving admission to the program. And so this is something that I’m very passionate about. I really enjoy working with these applicants, but it is seasonal in that it’s only two or three months of the year where we’re working with these students around the application season, so it’s not a steady income year round

Mindy:
And you enjoy doing that. How much time does that take during your week?

Lauren:
I would say it’s a significant amount of work. Let’s say I do each, it’s a coaching call which is over camera and each session is an hour and let’s say each evening I might have two to three calls and then plus prep time in between. So I would say at least four hours a night for week kind of thing in addition to my full-time job. So it’s a pretty heavy workload while it’s underway. And then like I said, nothing for the rest of the year and I bring in about roughly $5,000 a year through that.

Scott:
So this seems like a huge decision that I think is much more art than science in terms of career potential here. How do you feel about the eight year opportunity cost to become a doctor? Do you passionately want to become a doctor?

Lauren:
That’s a good question. It’s tricky because I might go on a ledge and say no. The reason being is that in my role right now, I actually do a lot of the same things and so from a patient care standpoint it is quite similar and so I don’t feel that I’m lacking in that where the real differentiator is through the income.

Scott:
I feel like in the path to becoming a doctor, I mean it’s so competitive. You got to be at the top of the class the whole time. It’s an eight year commitment and yeah, I mean you can make a lot of money but I find it interesting how many doctors then want to become PHI right after that. I’m like, if you just didn’t go to do all that, you could probably have been fine in 10 years anyways without the pain of med school and the crazy residency hours that are almost hazing to a certain degree with the amount of sleep in those types of things. It is really hard and I think a lot of doctors really struggle with that over time and I feel like that’s something that for me, I would want to be very passionate about the medical field and that as a career to go down that route and it would be hard for me to then take it as a path to fi because I don’t think that’s eight years before you earn the full income and there’s debt associated with that as well that is probably pretty serious as well.
So I don’t know how other doctors would feel about that, but I think that that’s what I’ve seen in talking to a number of physicians that are looking for the PHI path downstream is like, hey, I didn’t really become a doctor to get tophi. I became a doctor because it was a calling and something I wanted my whole life.

Mindy:
We will get into your fire interest and share our thoughts on the allocations based on your numbers after this quick break,

Scott:
Welcome back. We just got into Lauren’s financials before the break and now we want to hear about this path to financial independence.

Mindy:
Yeah, I think it’s really interesting that it would take eight years that first of all I have a physician’s assistant instead of a physician and she does everything that a physician would do. So for you to have to essentially go to start over to become a physician when you already have the experience and the education, I would personally, if I was in your position not do that, it just seems like you’re trading off eight years of a hundred thousand dollars salary for a few years of $200,000 salary and then you would retire. I think it would push down PHI quite a ways. What about medical adjacent medical device or pharmaceutical sales and I dunno how it works in Canada, but I had a friend who was in pharmaceutical or I’m sorry, medical device sales in America and he said in some cases he was making more than the surgeons that were inserting the device in the operating room. So there’s a lot of potential for income in America. I’m wondering how it is in Canada with the different insurance that you have.

Lauren:
Yeah, it’s a good question. I don’t know that I have the answer for sure, but it’s definitely something that I have looked into. Those types of roles seem to be more salesy, which is not a good or a bad thing. I’m just not a hundred percent if that is my personality type in that I don’t take rejection very well and so I think that if you were to commit to that, yeah, it would be a different career path. And the one thing I do like about my role right now is being able to help people and being really serving people in a very genuine way. I really like, I mean I wouldn’t say it’s off the table, but if I could reach FI in a way where I still continue to have that patient facing role and feel that I am really contributing to society in a helpful way, then I think I would prefer that route.

Mindy:
And that’s what I’m getting from our conversation is that you really enjoy being a physician’s assistant. You’ve already gone through the education, you’re actively working in the role for coming up on four years. I think that’s the route you go and it stinks that you’re not making the same amount of money that a physician is when you’re doing essentially the same job, but I don’t make those rules so we’ll call it what it is, but I think that’s a great, I think we’ve walked through a couple of these things. Do you want to be a doctor? Well, maybe, but I have to take off eight years. Okay, then that’s an easy no for me if I was in the same situation,

Scott:
I think that what you want to do really determines what you should then do with your money. If you’re going to go down the route of becoming a doctor, then I would say now is not a great time to get into real estate investment because you’re going to be consumed with medical school residency, those types of things. And then the first few years of being a two doctor household and managing your duplex on the side might be very difficult to manage from a time perspective. I’m assuming the hours for physician’s assistant are a little bit more reasonable and give you this flexibility. You feel that you will have some time to pursue an active role in a real estate investment capacity if things continue as they currently are. Is that right?

Lauren:
Yeah, that’s right. Okay.

Scott:
Now if we stay in that role and things continue exactly as they are, including the coaching side hustle, I’m estimating revised estimate that you will accumulate about $120,000 in cash after tax year. That’s 7,000 from you plus $16,000 from your partner minus $12,000 in expenses. Is that pretty close? Yeah,

Lauren:
Yeah, I think that’s right. Yep.

Scott:
Okay, so let’s round to a hundred grand, a hundred grand a year is going to come in and we want to deploy that somehow. Well it sounds like you want a mixed real estate and stock portfolio in the long run and so to get there, a lot of the benefits of real estate and the freedom that real estate provides over a 20 year time horizon will come from investing now in real estate, letting leverage do its work in the early years and then having leverage be very light, relatively speaking on the portfolio in later years to produce more cashflow. So to me that says that if this is the interest, then now is a perfect time to take those proceeds in the next year or two and invest a hundred grand in 1, 2, 3, 4 rental properties over the next four to five years. You can still continue, I think to make baseline contributions to the TFSA and RRSP, the Roth and the 401k up in Canada, but then you could take the majority of those proceeds and invest in real estate in these early years, amass a couple of properties and then in the later years really round out the after tax stock portfolio.
That would seem to me like a great way to get to that mixed portfolio while getting most of the benefits from the real estate in the early days and most of the benefits of the cashflow in the later years. When you approach buy, what’s your initial reaction to that as a high level framing?

Lauren:
Yeah, yeah, I mean that’s sort of along the lines of where I’ve been thinking the one sort of a wrench in the plan is this lingering $150,000 of debt that my partner is taking on. Well sorry, has, and so as you can tell, he would be a big contributor to our collective investments and so he’s a little bit held up right now dealing with that debt. And so I guess one of our questions is now, I guess I should also say that he could potentially, he has the ability to pay it off in let’s say one to two years if he really wanted to focus and just kind of get that out of the way and then we could start investing in real estate and after that, but I wanted to know your guys’ opinion on how to tackle that debt in that should we be should just sit with it. And I say we because we’re kind of a team just working on it together though he would be paying it down himself. Should we be trying to pay it off and be done with it? Should we try to invest in real estate and manage the debt? I should say too that the interest rate on that is 6.95 and so it’s relatively high.

Mindy:
Is that a fixed rate 6.95 or does that fluctuate? It

Lauren:
Fluctuates, so it’s prime minus 0.25.

Mindy:
Let’s see. Are you planning on combining finances 100%.

Lauren:
Oh, another good question. So no, the philosophy that we are taking is we like the idea of having our own accounts and having a shared account, which we use for shared expenses. We call it the yours, mine, and ours philosophy where we’ll have a joint account that we each contribute X amount per month and then we use that account to pay down our grocery bills, our mortgage payments, yada yada, and then we’ll still have our own accounts. So to answer your question, no, not necessarily.

Scott:
Yeah, help me understand more about how long you’ve been together, what long-term plans are, those types of things because are you going to need to each achieve a separate financial independence or will this financial independence be achieved jointly with equal ownership in the assets?

Lauren:
Yeah, so we have been together for many years. We’re definitely a long-term couple looking to get married probably within the next year or so. And so our vision together, our vision for FI is that of a shared vision and so this is actually something I wanted to get your guys’ opinion on is how to best go about achieving our goals together and while kind of maintaining our separate accounts to some extent, but still having that cumulative nest egg.

Mindy:
We did an episode with Craig way back, episode 35 where he shared how he didn’t pay down his debt and instead he focused on accumulating real estate. He’s American, he’s accumulating American real estate back in 20 18, 20 17, so different market that we’re in, but he was able to get, I think he had three house hacks by the time he decided to pay off his student loan debt. So we paid the minimum and instead saved up for these down payments and then kind of snowballed his student loan debt once he had all of these house hacks up and running. So that’s an option, but again, we’re in a different market. You’ve got higher interest rate, you don’t have fixed rate for 30 years. How do you both feel about the concept of debt? He’s got essentially one or 75% of his annual salary in debt. So technically you could live off of your salary, tighten the belt, pay that all off in one fell swoop or well in one year and then just be done with it. Some people really feel the weight of debt on their shoulders and they will do anything they possibly can to get rid of it and some people are like, nah, I don’t care. I’ll pay it off when I pay it off.

Scott:
Yeah. I also want to point, I want to just piggyback two more things on what MIDI said here as well. Craig, when he decided not to pay off his debt, lived in the living room, which was cordoned off by a curtain so that he could Airbnb all the remaining units in his duplex in an up and coming neighborhood in Denver, which I know very well because I too lived in that place three or four years ahead of him in that general area there. Craig’s student loan debt was not 7% interest rate at that point in time and Craig was not paying his long-term partners debt at that point in time. He was deciding not to pay his own debt to make highly leveraged real estate bets on the side. So anyways, just those are some additional considerations there to point some differences.

Lauren:
Yeah, absolutely. So it’s a good question and we had the discussion prior to this podcast and both of our thoughts were we are okay with some debt but in this circumstance specifically with the student debt, we feel that just getting it off our plate, getting rid of it, just doing away with it will create more mental sort of runway to be able to move forward and have a free kind of thing. I

Mindy:
See the answer.

Scott:
I like this plan a lot, I like it for so many reasons. I think this is the most obvious approach for your guys’ situation once you’re married and moving on this path. I like what I just talked about, right? If you want to back into a long-term portfolio, focus on real estate for the first couple of years and then put everything into stocks after that, but for this next year, this is a great plan. You guys are not married yet. You haven’t figured out how and when to combine finances. That will probably become clearer I would think post-marriage at that point. This is a 7% guaranteed return, you just get 7% as you pay down this debt. That’s pretty darn good here. This will give you time to evaluate and educate on real estate investment opportunities in the local area or out of country if you’re going to do that and you can chunk it down in one year, makes life super simple for and you can pursue this separately. Your partner can chunk down the student loan debt and the line of credit in this next year while you continue your investment approach here and then when you combine when you’re married, it’s a really clean balance sheet and a really great place to I think start that journey together in an official or combined finance capacity. I’m stretching there with a couple of things. Any reactions to that? Any piece of that or that overall

Lauren:
I do agree with everything that you’re saying. Another wrench for you here is just with regards to sinking fund expenses. And so what I mean by that is specifically we were talking about getting married so as we know weddings are gone awfully expensive and unfortunately we want to pursue one and as well as a honeymoon and ultimately saving for kids in the next two to three years. And so with all that in mind as we know, those can be quite expensive. I was calculating it to be almost a hundred thousand as a somewhat conservative number in terms of what these things cost to be put towards sinking fund expenses within the next, let’s call it even three to four years. And so my hesitation is how do we fit that in to paying off debt while investing in real estate?

Mindy:
If I was in your position with your same parameters, I would look at this as we want our debt gone and do you have any specific timeline for getting married

Lauren:
Just in the next one to two years is what we had talked about, but if it makes more financial sense to adjust that, we’re open to it.

Mindy:
So I was speaking with Aaron Thomas who is the prenup guy and at the economy conference recently and he suggested when there is income disparity like there is in this situation that each of you contribute a percentage of your income, let’s use 50% so you each take 50% of your income and put it into the combined account and now you have 50% of your income to do what you want and he has 50% of his income to do what he wants, but you have this giant pile and now you can use that to save for retirement or say for the rental property or it’s put down on the wedding or however you’re planning on allocating that money. So I would look at a conversation with your partner, what feels fair to throw into this pot if he’s putting 50% of his income into this pot that’s going to help fund the wedding, but then he’s also got 50% of his income, so a hundred thousand dollars to throw at his debt, he’s going to be able to still pay that off in maybe a little bit more than a year, but you’re not necessarily postponing what it is that you’re looking to do with regards to the real estate and the weddings and all of that.
I don’t know how weddings, it’s been so long since I’ve been married. I dunno if you can get a loan for that. I don’t love that idea, but you could. There’s a lot of opportunities to swipe the credit card and get credit card points and that sort of thing, but also a wedding doesn’t have to cost a hundred thousand dollars. I think mine costs $5,000 but like I said, it’s been a hundred years and it was very small.

Scott:
Just a couple of things here as well. It does not make sense to me for your partner to save at 5% in a savings account for a wedding when he’s currently paying interest on 7% student loans. So to me it just makes better mathematical sense for him to just chunk that out as much as possible in the next year or two and then you guys could get married whenever and that would bump up the line of credit essentially by a little bit at that point from the wedding. But at least I think your position, you got to just zoom out here and say how good it is at the highest level as a couple here, there’s going to be plenty of income and plenty of spread between that income and expenses for you accumulate a lot of cash over the next three to five years.
You can’t right now without making a change, pay off all the student loan debt and have a hundred grand leftover to pay for all these expenses and buy a rental property. But this is a luxurious set of trade-offs here. You guys are in good shape here. The only reason there’s any debt in your entire combined financial picture is because the student loans and the house hack that you bought, this is not an irresponsible use of debt. This is a great use case for debt in this situation. So I think if you just kind of zoom out in that picture, you guys are totally fine here at the highest level and if you say, hey, for the next 18 months we want to get married, go into honeymoon and chunk down this debt as much as possible, you’re going to get pretty close to cover all of those things and maybe have like 20 to 30 grand left over there and still be just set up for a wonderful wealth accumulation lifestyle journey in your thirties here. So I think that that’s the perspective I’d have at the highest level in all this. Now on that, if you’re going to have a 40 5K wedding, I assume a lot of people are going to come to that wedding, is that right? Yes.
Awesome. And are these people that are going to come to the wedding, are some of them going to want to or be able to give a gift that is of some material value? I

Lauren:
Would hope so.

Scott:
Now part of that $45,000 in wedding expense is going to go on a credit card, your credit card or your partner’s credit card, right? That’s right. I see a combination outcome here if that’s what you want to do of being able to knock that honeymoon expense down to close to zero between those two observations here. There’s a travel hack here, be smart about that, educate yourself on that, figure out where you want to go and which credit cards and travel rewards will get you there and use that in the process of planning for the wedding and then have a registry that has the things that are most important to you and encourage people to after those few items are filled, donate to the honeymoon fund. That’s an easy button for a wedding attendee. You’re like, great, now I can send some money there. Go and have a good time.
Easy peasy. That’s what they want. I see a way to knock out a good chunk or release that component and then again, as long as you don’t let lifestyle creep get in the way, you’re going to have the cash and emergency reserves to cover some of these other things around home improvement or future children in there at that time. So I don’t see that as a now problem to save for and I think if you think about it that way, that will greatly simplify things because then you can just say, great, we already have an emergency reserve. We’re going to chunk down the student loans. If we decide to have a wedding, we can because you both invested so well in your careers and your future here that you’re going to have to be able to cashflow and accumulating a little debt in your situation for that if that’s what you really want is no big deal to me. It’ll just delay your real estate investment by a couple months essentially. What do you think Mindy?

Mindy:
I think that’s really spot on Scott. I like the way that you explained that too. Yeah, I would, based on everything we have discussed, I would throw all the money at the student loans and get those taken care of and then start looking at rental properties. I would also look into American rental properties. You don’t have to invest locally, you can invest in a place, I mean you’re going to save up a hundred thousand dollars for a down payment, whereas if you come south of the border you can pay a hundred thousand dollars for a whole house.

Lauren:
That’s pretty crazy to me.

Mindy:
And that a hundred thousand dollars I believe you can get a mortgage, but your down payment is going to be more than my down payment because I’m a US citizen, but it’s still not going to be a hundred percent down payment. So there’s the opportunity to invest sooner, start making money quicker just by looking in a different location. So I would definitely look into that and see start looking at the cashflow markets in America. Those are going to be the ones that are kind of in the middle of the country. So your Kansas City, Indianapolis, I know Florida was cash flowing for a while, but I’m starting to hear stories about homeowners insurances. The insurance companies are just leaving Florida, so Florida’s not my favorite place to invest right now simply because they have hurricanes whereas Kansas City does not.

Scott:
One other thing I want to ask about here because I think it’s important to your long-term plan is could you describe what the PHI lifestyle looks like to you and your partner? What is your day to day once you’re done?

Lauren:
Yeah, absolutely. So I’ll talk, I kind of section it in my brain in categories of career, family and relationships and then hobbies and investment too. I would say those are kind of my four pillars of how I frame it in my brain from a career standpoint. Taking the time off to have personally time with my family and raising kids is extremely important to me. And also just probably healthcare is a slippery slope to burn it let’s say just because it’s quite exhausting. And so to me the remedy for that is decreasing the number of hours worked. So whether it be a part-time thing where you’re working 20 hours a week, same thing with my partner. So continuing to provide care to patients in some regard but at a much more flexible schedule. And the other kind of big piece to go along with that is just the ability to pursue our hobbies.
So we are both avid kite surfers, so kite surfing is a sport where you on the water, you have a board on your feet that looks kind of like a wakeboard and then you have this harness around your waist and then a big long ropes with kind of looks like a parachute that you fly around in the sky and it sounds funny to describe, but it’s very, very fun. That’s how we met actually was doing this sport. And so one of our ultimate goals would be to travel the world and try and in search of the ultimate kite surfing destinations. So whether it be driving across Africa to find these cool deserted beaches or going to Brazil to one of the windiest cities in the world to find some of the really expert kite surfers. That is what our vision of consists of and not all the time, but I would say at least one to two pretty big trips a year to be able to pursue that and of course get our family and friends along the way, but having the financial means to do that but also the time and the flexibility in our schedules to be able to pursue that is what is the most appealing or gets me most excited about fi.
Is

Mindy:
Kite surfing an expensive hobby?

Lauren:
Is it ever? It is crazy expensive in that. So to give you an example, a kite that I, you’re going to roll your eyes, but a kite that I am buying soon is a six or $1,700 kite, which is one piece of equipment and let me tell you, you need multiple of these pieces of equipment and so you can see in my expenses listed here that I actually have what’s called a fun account, and so that is the income that I take from my coaching business. I put my revenue into that account in which I spend on these expensive pieces of kiting equipment is from that.

Scott:
But once you own the equipment, the activity is free. So you could buy this kite, it could last you 10 years, right? That’s right. So once you’re set up with equipment you like, I mean I’m sure like any hobbyist, you just can’t stop buying new equipment to keep a thing going, but this trip around the world that you’d want to do, you would not be able to buy a cereal, keep buying equipment. You’d have to pick one and take it with you to all these locations. One get up as I’ll refer to this, the set of things that you need here,

Lauren:
One or three or sometimes five,

Scott:
Would you be able to take five kites and surf across the world?

Lauren:
You would be surprised. But these bags, they look like picture like a large golf bag or like a body bag almost where you just shove equipment into it and you haul it all over the world. It definitely can be done.

Scott:
Okay, so we need a baseline level of equipment, let’s call it 25 grand. Does that sound like a high enough number to easily cover all of the kite surfing equipment you’d each need to do this or do you need 50?

Lauren:
No, no, no, no. 25 is fair.

Scott:
Okay. So I think that your plan here you have to really sit down and think about with your partner is that activity that you described is not conducive with young children. So you will have to do that now or in the next few years and then again in 10 years when you may not want to do that the same way at that point in time when your kids are well old enough to the point where you’re going to be comfortable taking ’em to these remote locations around the world, it’s like that’s something to think about here is that’s not really a PHI consideration. You’re just not going to be able, I think to do that the way that you are envisioning it if you don’t do that soon. And so maybe that in your case is even a reason to delay. Do you really need that first rental property investment? I think physician and physician assistant jobs will be waiting for you when you get back from this trip. So something that’s probably the opposite of what you expected me to say on BiggerPockets money, but just something to consider in your situation if that trip is really the driving force there. I don’t know if you have a reaction to that bad financial advice, Mindy, from your seat.

Mindy:
I think that you can travel with children but it is exponentially more difficult. So I would in your same position, look at when you want to start having kids and when you want to start traveling to do these kite trips and I can’t imagine kite surfing with a baby. I don’t even know what kite surfing is, but it’s on the water so you’re not going to strap your baby to you, so you’d have to have somebody or maybe you will,

Scott:
Hey Virginia, will you hold Katie for an hour or three while I’m on the lake?

Mindy:
I am always shocked when I see somebody on the ski slopes with a baby on their back as they’re trying to teach their other kid how to ski. I’m like, oh no, don’t do that. Yeah, this kind of puts some different parameters in there. I mean if you do have a baby and then you go on this trip, somebody’s going to have to watch those kids while you are kite surfing and I don’t even know what age you can start kite surfing. Do they have baby kite surfers?

Lauren:
I hope mine are, but I don’t know.

Scott:
Again, I just keep going back to this trip. Sounds like once you have the equipment, it’s not going to cost you more than like 25 grand to do this for a while because you’re basically be camping at remote lakes around the world and taking this out on there and drinking local beers and eating local campfire food. So it seems to me that’s not really, you don’t need a lot of money to do that relative to your overall position. You might want to not have this debt looming over your heads and those types of things, but is that the honeymoon there? Is that something that can be combined there like hey, we’re going to do a three month trip and just live this dream here and then chunk out things a little bit more because that’s my big worry about your five plan here. If that’s the dream, you may chase it for the next two decades and then not be able to live it, which would be super unfortunate.

Lauren:
Which is so funny that you say that, Scott, because I too agree. I agree with you a hundred percent and as I kind of want to do this right now because it’s our dream, but I can’t help this nay feeling of being like, well, is this really the smartest financial decision to be doing right now? Would my investment grow exponentially if it were to be invested in real estate? Is it an opportunity cost kind of thing. But I think you also have a really good point that the opportunity cost is also in our physical ability and willingness at our young and free lifestyle that we have right now. So it’s a good point.

Scott:
Yeah, my hobby was rugby, right? It’s very different to play rugby at 26 than 33. I don’t know how Kate surfing probably ages a little better than that one, but it is a little different. So just something to consider there. I think that it would be irresponsible to go on a trip for three to six months right now with $140,000 in student loan debt hanging over and some of these other things not figured out, but you might regret it if you try to amass 2 million in capital over a decade or two instead of taking this trip at some point earlier in that journey and with a 20 year time horizon, you’re going to delay your FI date by a year, six months to a year if you just make this an earlier part of your travel plans investment you made was in your incomes and these jobs, physician assistant and doctor aren’t going to be going away in 5, 6, 7 years I think, or at least that’s a bet I’d be willing to make can always lose those, but that’s not, I wouldn’t be that scared there. So anyways, that’s something to consider. Maybe that changes my thoughts here of can you use that honeymoon and all the things that are coming up to take that triple lifetime now and then get back to work for a year or two, take another one, get back to work for a year or two, take another one and then life will hit and at that point you’ll be in the grind moving towards the FI and that’ll be just fine and you’ll love it then too.

Mindy:
Yeah. I wonder what sort of opportunities there are for sabbaticals at your hospital or doctor’s office or wherever you’re employed because if you could take a one month sabbatical, then you go out and you discover, Hey, I thought I liked kite surfing, but I like it on the weekends. I don’t like it 30 days in a row. Or you discover that you do in fact love kite serving so much, you want to sell your house and just go and kite surf all the time and hop around and come back and do a quick stint to generate some income and then go back out and kite surf again. I think it’s a great test of a long-term trip is a great test of your desire to actually do it. I love snowboarding, but I don’t want to do it every single day.

Lauren:
Yeah, yeah, absolutely. Those are all very valid points and I really like your advice from both of you about almost seizing the day or seizing the moment now because that’s when you have the energy and freedom and ability to do so, and I’m not sure Mindy about sabbaticals, but I’m sure you could negotiate something or figure something out and get that exposure. So yeah, thank you for those suggestions. Those are really great.

Scott:
Yeah, those options are all yours right now because your expenses have stayed flat relative to this enormous junket jump in income from your partner. So as long as that is true, then you will have these options. When that starts getting closer, if you have kids and you decide, Hey, I’m going to stop working there, which you said was something that you wanted to consider that then those things would be less true at that point, but because you spend less than half of what you bring in after taxes right now as a combined household here, you have so much optionality with all of these things and you can really rely on that. But again, factor in whether those goalposts are going to move for the lifestyle expenses because that then changes the math and what’s responsible, what’s responsible and what’s not for your position.

Lauren:
I have one final question to get your guys’ take on, if that’s all right. Just with regards to our current primary residence, as we said it is, the interest rate on this is nothing. It’s 5.69 with the three year fixed term, and so my question to you both is how would you approach paying down this mortgage? Would you be in a rush to pay it down or would you be trying to leverage by using, by investing in other properties rather than trying to pay this down? How would you go about tackling this kind of primary residence?

Mindy:
So in the next three years, I would pay $0 towards the interest rate, and if I was looking to pay down debt, I would focus on the student loans instead. After three years, we don’t know what it’s going to jump up to. I’m going to guess seven or 8% at that time. I would be more willing to put additional money towards this mortgage with the understanding that I was going to be living there for a long time. I’m going to be living there until I pay off the mortgage. If your plans change, does this house work? If you have one kid but not two, does it work? If you have 27 kids and it doesn’t matter, it’s your dream house, it’s your forever house, then once the rate goes higher than the 5%, I would focus on paying it down. However, you’ve got what, two, three years of salary in this mortgage, so it’s not going to take you a long time to pay it down. I would look at, again, the lower cost markets to see if there’s any way to generate other income through investing in those lower cost markets rather than a Canadian market just because it’s so expensive. I mean, I’m trying to think when the last time I heard of a Canadian house that was less than like $750,000, whereas you can buy a rental property in Kansas City for 150,000.

Scott:
Yeah, look, I think for someone in your shoes with a relatively long-term outlook on their finances, you’re not in a hurry to become a millionaire in three years and willing to just totally upend everything to do that. You have more, I think maybe realistic, more a reasonable approach on there. I would say for you, less than 5% don’t pay it off five to 8%, it’s dealer’s choice and over 8%, then it becomes a priority, right? It’s hard to get a better than 8% guaranteed return in this market. And so because that 6.95% is there for the student loans, I think that makes life very easy for that decision. Just crush that. That’s a great guaranteed rate of return. Don’t stop contributing to the individual, the retirement accounts here, especially if there’s a match or anything, but after reasonable contributions are made there, chunk that down.
That mortgage is a joint expense and so that’s a good one to leave relatively untouched for now and to really kind of figure out how you want to handle that once you’re married. I think that would complicate things. If for example, he’s paying the student loans and you’re starting to chunk out the mortgage, I think that would kind of complicate your situation just a little bit in the next couple months. So good one to kind of leave off until that point for a variety of reasons, but that’s how I’d think about it. And then in three years, if that rate jumps then and it goes upper, mid, upper sevens or into the eights, God forbid, great. Then that’s your primary investment from there.

Lauren:
I sure hope not, but that would be scary if so. Yeah, that’s a very valid point for sure. Thank

Mindy:
You. Alright, Lauren, this was a really interesting conversation. Thank you so much for joining us today.

Lauren:
Thank you both so much. For all your valuable insights and your honesty, both of you, about just taking life by the reigns and pursuing your passions. Now all you can, I appreciate both of your insights. Thank you so much.

Mindy:
And send us pictures from your trip on the kite surfing.

Lauren:
Absolutely, will do.

Scott:
So Lauren, I know that they do it different in Canadian, but you may want to check out episode five 14, travel Hacking 1 0 1, how to Travel for free with these credit cards. We interviewed Eli Facenda and really kind of got some wow information from him. So again, it might be different where you live, but something to look into and see if the similar opportunities do exist to help fund this trip of a lifetime or the honeymoon to a different location if that’s what you choose to do.

Lauren:
Cool, thank you. I will certainly check those out.

Scott:
Thank you so much.

Mindy:
Awesome. Lauren, thank you again for your time and we will talk to you soon.

Lauren:
Thanks.

Mindy:
Alright, Scott, that was Lauren and that was a lot of fun. What did you think of the show,

Scott:
Mindy? I thought it was really interesting here because when I was hearing that, and I think this has come up with a lot of doctors, I bet you this is a problem that a lot of doctors face. They start their career and they’re like, I’m broke. I’m negative net worth because, and I’m like late twenties, early thirties, and I’m a doctor and it’s like, Hey man, let’s zoom out here and remember the strategy here. You’re among the best and the brightest in your country to become a doctor. You have great income potential downstream. You’ll have the opportunity to build lots of wealth and achieve lots of financial outcomes in your life, but probably trying to pursue fire in three years is not congruent with the approach of becoming a doctor. Let’s go and enjoy and reap some of the benefits of that and live a great life and build lots of wealth over the next 10, 15, 20 years for the most part.
Of course, if you want to do it and you want to sacrifice and cut costs and go do it, you can achieve a multimillion dollar net worth early in life. But remember what the goal is. If the goal is to go kite surfing or traveling the world backpacking around foreign countries with very physically strenuous activities, you might want to do that on a break in your early thirties or mid thirties and not in your fifties or sixties. Some things are more important than early financial independence. You have to decide an individual basis what those are for you.

Mindy:
Scott, I love that you brought up goals. It’s not just about the money and if your goal is to retire so that you can just travel the world and see the seven wonders of the world or whatever. That is something you can do when you’re 40 or 50 years old. But kite surfing, I mean, I can’t even imagine kite surfing now at slightly older than our guest, Lauren. It just is a physical activity that I am not going to be able to do right now. So I love that that was your advice to them, to her to focus on what she can do now to accomplish this kite surfing goal. And again, I cannot imagine trying to go on a kite surfing adventure with small children, which is what it sounds like would have been the goal. So I really like that you reframed that and they’ve got such great income potential. Yeah, check out the sabbatical. Check out a longer vacation just to see if you can do this. If you want to do this, if this is really the goal that you think it is or the dream that you think it is,

Scott:
It’s totally okay to not know what you want to do when you achieve fire and just aggressively pursue it because you want that freedom. I can totally empathize with that. I did not have a dream of kite surfing or anything like that. In fact, I buy a lot of real estate so I can sleep inside, not outside on a regular basis. And so it’s totally okay to have those and just pursue fire with a will and really make the sacrifices and changes to do that because it does bring a lot of options that you can then see from the other side. But if you know exactly what you want your life to look like after fire and it involves taxing your body to the limit and doing these things that require balance, speed, coordination, strength, all those types of things, you got to really weigh that in the context of your overall financial position that may not be congruent with fire unless you’re going to really crank it and get it done in three to five, seven years and really incorporate it into huge punks of your life. So I thought it was a really good lesson and a good, I think we learned a lot from Lauren. Hopefully we helped her with some of the decision making in terms of how she’s going to prioritize cashflow.

Mindy:
Yes, and what I like so much about finance Fridays is all of the specific scenarios we talked about were Lauren’s, but a lot of our listeners are going to identify with different aspects of her story. So that’s why we do finance Friday. And if you have an interesting story or an interesting problem, we would love to talk to you. Please reach out to [email protected] [email protected]. Or if you would like to apply to be on our show, go to biggerpockets.com/finance review. Alright, Scott, this was a super fun show, but it’s time to hit the road. Oh, it’s time to hit the wind. Are you ready to get out of here?

Scott:
I sure am. Any.

Mindy:
Alright. That wraps up this episode of the BiggerPockets Money Podcast. He is Scott Trench and I am Mindy Jensen saying, go fly a kite, but I’m saying it in a nice way. BiggerPockets money was created by Mindy Jensen and Scott Trench. This episode was produced by Eric Knutson, copywriting by Calico Content, post-production by Exodus Media and Chris Micen. Thanks for listening.