Finance Friday: Is Your FI Number Overly-Conservative? with Kristine Lynch

Mindy:
Welcome to the BiggerPockets Money Podcast show number 184 where we interview Kristine and talk about saving, investing, and purposely increasing your monthly expenses with a new house.

Kristine:
Our expenses are drastically going to change when we move into this house, and we just want to be in the best situation possible. I want to be able to work part-time when we have kids. I want him to be able to retire young. So, I’m thinking if we can save… I mean, I don’t know. It’s really hard to plan for. Life is so unknown.

Mindy:
Hello, hello, hello. My name is Mindy Jensen and with me as always is my fan of real estate co-host, Scott Trench.

Scott:
These intros you give, Mindy, with the adjectives, they’re always a huge asset to the show. That was bad.

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 that financial freedom is attainable for everyone, no matter when or where you’re starting.

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 simply coast to financial freedom by earning a good income and saving most of it. We’ll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams.

Mindy:
Scott, I’m really excited to talk to Kristine today because I think she’s in a position with a lot of other people where she’s doing it right, but feels like she should be doing more, or is wondering what the next step is. And I think this is a lot of fun today to talk to her, and sometimes the answer really, truly is, no, you’re doing great. Just keep going.

Scott:
Yeah, I mean that there’s four levers in wealth building. You can spend less, you can earn more, you can invest more aggressively, or you can create assets such as through entrepreneurship. And Kristine and her fiance are choosing to just generate a lot of income, spend very little of it, and invest it passively. And so, when you choose that approach, which is very viable, it’s boring, right? You just do it, and you accumulate wealth at a pretty good clip and get rich over a moderate period of years, five, 10 years, you’re done. And so, it’s like, is it really that simple? Yeah.
I think Kristine’s story will show that, and they’re doing a great job. They’ve got a high… two high income earners about to get married, and are set up really wonderfully to begin their lives together and have a family and all those different types of things. It’s because they just grind it out and have for several years in a row earning these high incomes and spending very, very little like they’re earning both, like they’re earning two minimum wage incomes. Frankly, that’s about how they’re spending in aggregate combined. So, I think it’s fantastic. I think it’s a great example of what just hitting the fundamentals can achieve for you without doing anything fancy, except for of course, the two close to six figure, a little over six figure incomes.

Mindy:
You know what I didn’t hear when we talked to her today, I didn’t hear one instance of well, I bought this because I deserved it. There was none of this consumerism that can be the difference, really, frankly, between people who are going to hit financial independence and people who might not. They want things that they can’t afford, or don’t need, or both. What’s the phrase we buy things that we don’t need to impress people we don’t like?

Scott:
Yep, I don’t think that is Kristine and Brian’s problem at all.

Mindy:
No, not at all. Okay, before we bring in Kristine we should remind our listeners that the contents of this podcast are informational in nature and are not tax or legal advice. And neither Scott nor I, nor BiggerPockets is engaged in the provision of legal, tax, or any other advice. You should seek your own advice from professional advisors, including lawyers and accountants regarding the legal tax and financial implications of any financial decision you contemplate.
Okay, Scott, let’s go tell Kristine how to run her life. Today, we’re speaking with Kristine. Kristine lives in California, which is a notoriously expensive housing market. She’s just put down a deposit on a new build house, which can be a great way to get into a home without the bidding war that we have in this current ridiculous housing market that we find ourselves in. She is looking at financial independence to make her future secure while still being able to pursue meaningful work without worrying about how much it pays. Kristine, welcome to the podcast. I’m so excited to talk to you today.

Kristine:
I’m so excited to be here. Thank you so much for having me.

Mindy:
Let’s just jump right into it. Let’s look at what money’s coming in and where you’re putting it.

Kristine:
Okay. So, currently we take home about 145,000 a year and that’s after maxing out our 401(k)s. We currently spend about $45,000 on our expenses. That includes rent, groceries, everything and we save the rest aggressively.

Scott:
You’re saying that you bring home 145k after tax and after retirement account contributions?

Kristine:
Yes.

Scott:
Nice. Okay, great.

Mindy:
And you’re spending 45?

Kristine:
Yes. Currently, until we move into this new build.

Scott:
So, you’re generating nearly 100 grand a year and just after tax liquidity, after maxing your 401(k) out in California?

Kristine:
Yes.

Scott:
All right. So, can you tell us how this is happening?

Kristine:
Well, we rent a room right now. We pay $600 a month between the both of us. That includes everything utilities. So, that’s really helping.

Scott:
Who’s the both of us?

Kristine:
My fiance, and I. I’m just going to refer to him as Brian because that’ll be a lot easier.

Scott:
Okay. Good.

Kristine:
So Brian and I rent a room for $600 a month. We spend about $1,000 a month on food. That’s going out and groceries. We live pretty close to work, so we spend about $200 a month on gas. I think I have a breakout. Transportation, yeah, it’s $6200 a year, about $2400 a year for the gym. We go to the gym often. We have a pretty big travel fund, so about six grand a year for that. And then we have four grand for gifts, and everything else comes out to about five grand.

Scott:
What do you do for a living?

Kristine:
So, I’m an estimator. I went to school for mechanical engineering. And then I went over to estimating, so I estimate mechanical and plumbing systems in the construction industry. And then… Yeah, it’s really fun. So, I get to play in spreadsheets all day, and it’s definitely something I enjoy.

Scott:
What I’m hearing is you guys are before tax, you guys are probably close to about $100,000 salaries, maybe a little more. Then after tax you’re able to keep 145 of that, after the retirement accounts maxing out. And you guys are just all out in pursuit of this financial independence thing is what I gather based on what you just described. Is that right?

Kristine:
That’s correct. Yes.

Scott:
When did that start for you guys?

Kristine:
So we met about four years ago, three and a half years ago, and he had a house. He was renting out a room. And then I moved in a couple months later. And we just really… He was financially savvy. I always had big savings. And then we just looked at our finances together and like, let’s save aggressively because… I mean, we looked at real estate. It doesn’t really make a lot of sense to invest in real estate locally. It makes no sense number wise. So we’re like, “Okay, we’re just going to throw all the money that we can save into VTI, and it’s really worked out well over the past three years.

Scott:
So, you guys got really aggressive about this in partnership three, four years ago-

Kristine:
Yes.

Scott:
And moved… Can you walk me through what happened when he owned a house, but it sounds like you rent a room now. What’s going on with that?

Kristine:
So, he owned a house. He bought it in 2015 for 296. I moved in 2018. We lived there for two years. His brother actually moved in with us and rented out two of our rooms. So we’re only splitting between the two of us 600 bucks, then, but then his brother wanted to buy a house. And we thought about renting out this house that he was living in and it just didn’t make sense. I think we would cashflow 100 bucks a month. And I was like, “I don’t want to be a landlord for 100 bucks a month. That didn’t include property management in the numbers.” So we sold the house for 385, pocketed that, put that in investments, and then rented a room from his brother when he moved for 600. And we’re able to save just as aggressively for the last year and a half.

Scott:
So what’s been the story here? How much wealth Have you guys built or how do you manage your finances? You have 145k in income. It sounds like you’re managing them as a household right now. Is that right?

Kristine:
That’s correct. Yes. We have separate accounts, but we track things. How much do you have? Okay, cool. You’re doing good, and we keep in contact. We have a spreadsheet where I have everything both mine and his and we split everything pretty much 50/50. So currently we have 250 in our retirement accounts. We have 370 mostly in VTI. We have 90,000 in bonds, which we’re going to liquidate when we put our down payment down, 50,000 in cash.

Scott:
Hold on. One second here. We have 350 in the after tax brokerage accounts. Sorry, 250 in retirement accounts, 370 in after tax brokerage accounts-

Kristine:
Yes.

Scott:
Those are your two biggest buckets it sounds like.

Kristine:
Yes, absolutely.

Scott:
What were the other ones?

Kristine:
90,000 in bonds, and 50,000 in cash.

Scott:
All right. So, you guys are doing great. We’re getting real personal with all this stuff.

Kristine:
That’s okay.

Scott:
Can I ask how old you guys are?

Kristine:
I’m 28 and he is 32.

Scott:
All right, so you guys are just crushing it right now, and it sounds… You said fiance so you’re set to get married. When is that going to happen?

Kristine:
I think August. We’re like COVID and planning, we wanted to go elope. We don’t want to spend a ton of money on a wedding. So we wanted to go to Bali. We’re really excited about that. And yeah, that’s not going to happen.

Scott:
Well, I can relate to that one. We got married last year in 2020. So, okay, well, great. You’ve got a net worth of nearly 750 if I’m doing that mental math correctly. What’s the goal?

Kristine:
The goal… I mean, our expenses are drastically going to change when we move into this house. And we just want to be in the best situation possible. I want to be able to work part-time when we have kids. I want him to be able to retire young. So, I’m thinking if we can save… I mean, I don’t know it’s really hard to plan for. Life is so unknown.

Scott:
What’s your new housing situation going to be? I think that’s a great point that you guys bring up because you can’t sustain living in the room after starting a family, most likely, which it sounds like you’re planning to do. So, what’s going to change with your housing situation?

Kristine:
So, well, it’ll be a three bed, two bath. I don’t know, if we’re going to have roommates. We keep going back and forth. I think if we did have a roommate, we could save nine grand a year right there. That’s just one. We’ve had roommates since we’ve met. So, I don’t know if we’re kind of ready to like, “Let’s just be on our own.” But we’re toying around with that idea. And then everything else pretty much stays the same expense wise. Our mortgage goes up to 37 grand a year, so it’s quite a bit.

Scott:
Yeah, but I mean, right now you’re saving $95,000 a year. You could easily live off one salary, and you guys are in great shape with this. You could easily live off one. You know you all of that. It’s about how to get to retirement level of wealth as rapidly as possible from here, right?

Kristine:
Yes.

Scott:
You guys already have built the option for you to work part time if you have kids, for example, with your current state. So, I guess there’s a number of questions coming up here. But the overall story is, dang, you guys are doing great. This is clearly optimized for financial independence, and you’re generating cash at a rate of $100,000 a year, and maxing out your retirement accounts, and just clearly have all these things optimized here.

Kristine:
Yes. So I’m predicting that we’ll spend about $75,000 a year so 30k more when we have the house. And then in the future with kids, I’m guessing, I have no idea maybe 125 a year. And so, we won’t be able to build wealth as rapidly. And then another question is do we keep maxing out the 401(k)s? Or do we put them in brokerage accounts instead? Stuff like that. Those are my questions. What’s the best route?

Mindy:
Okay. Yeah, like Scott said, you are doing very well. Nice job. Congratulations. You are probably not going to go broke before you retire. I have a couple of questions, though. First of all, I love that you have money dates. It seems like you’re constantly talking about money just as part of your relationship, which normalizes it, and makes it more of a hey, let’s work on this together instead of wow, you’re doing everything wrong. And starting off of a money conversation, especially when you’re the one who’s money conscious and the partner is not can be difficult, and it can sometimes come from an accusatory standpoint. So I love that you guys are talking about money before you get married. I did not. I’m sure Scott did. But we got married at different times. You said you split everything 50/50. Does he make a similar salary?

Kristine:
He makes quite a bit more than I do, but I make a substantial amount. So I have no problem splitting.

Mindy:
Okay. And you said $90,000 in bonds. I don’t love bonds, and you are very young. So why is there so much money in bonds?

Kristine:
So, back when they cut the high yield savings account I thought I was being clever and I saw 2% yield on bonds. So I was like, “Oh, I’m just going to keep my money there for a year and let that build up with a little bit higher interest rate than 0.5%.” So that’s what I was thinking.

Scott:
That’s probably done real well for you.

Kristine:
Yeah, it hasn’t been too bad.

Scott:
So, that’s bonds they don’t generate much income at 2%. But when the yields decline you get a huge amount of leverage on that yield decline because when bond yields dropped by 25% the equity value goes up by 25%. So you’ve probably made a lot of money in that move.

Kristine:
I think mine did. Brian also did the same thing and he’s down five percent. He tells me every day. [crosstalk 00:14:36].

Scott:
Well, that’s it. You’ll never retire now.

Kristine:
I know.

Mindy:
So, it’s more of just a savings account than an actual way to invest.

Kristine:
It is.

Mindy:
Okay, okay. That makes sense, and I will allow it. Are you going to continue to live in California after you reach financial independence? Because California is so expensive.

Kristine:
I know but both of our families are here, and it’s really important for us to stay close.

Mindy:
Okay, that’s valid. You are welcome to live wherever you would like.

Kristine:
It is expensive, though.

Mindy:
It is expensive. You said you estimated $125,000 a year for spending and using the 4% rule or multiplying it by 25. I came up with $3.125 million is what your FI number would be if you were going to continue completely quit working. And you’re at 28, you’re not doing bad. What do you have $700,000-ish towards your $3 million goals? So, that’s doing okay.

Kristine:
So, we have to put a lot of that down for our down payment for the house. We’re going to put 20% down. So that’ll dwindle a little bit.

Scott:
And how much is the house?

Kristine:
The house is currently 557 without any upgrades. We’re conservatively projecting 600.

Mindy:
Okay.

Scott:
Okay. So what’s great about that, though, is that that is a year and a half of savings for you guys. For many people, their down payment is five to 10 years of savings, and they’re having to come up with that cash. So while it’s a lot, yeah, it’s just not… The stakes are not nearly as high because your fundamentals are so strong in terms of how much cash you’re able to generate because of the high incomes. I think you’ve got a number of interesting… Well, go ahead, more on the house. But do you have any questions on the house?

Kristine:
Well, we just won’t be able to save as rapidly once we get into the house. Our expenses go up by 30 grand a year.

Scott:
Well, you go from living in one room and paying $600 a month to living in a nice house. That’s going to happen. So, the thing is that you guys have obviously done this grind for three years. There’s a hill you have to climb in this journey and building wealth and you’re on the other side of the hill. You’re on the downhill slope because you’ve built up three quarters of a million dollars in assets, and have that tailwind behind you and all those kinds of things. That will follow you for the rest of your lives, I bet. And now you can buy the house and feel a lot better about it. Of course, it’s an anchor to a certain extent over living in a one bedroom, in a bedroom. But I think that [crosstalk 00:17:17]. If anyone’s in responsible position to buy a house that’s you guys as far as we can tell. We’ve got a book for you.

Mindy:
She said that they don’t plan on moving because both of their families are there. You mentioned having a roommate, going back and forth with that. Have you considered short term renting one of the rooms in the property as a way to have roommates but not have roommates?

Kristine:
I’ve looked into that. I don’t think that the nightly fee is really worth having a bunch of strangers in our house.

Mindy:
Okay.

Kristine:
It’s probably 60 bucks a night.

Mindy:
Oh, okay. Are there any people that that you would rent longer term?

Kristine:
I think so, but I’m not 100% sure. So maybe if that person comes along, we’ll definitely consider it.

Mindy:
Okay. And just because you have a tenant for a while doesn’t mean that you always have to have a tenant or a roommate forever. You can just the first couple of months. So the first couple of years just boost your savings a little bit.

Kristine:
Definitely.

Scott:
You gave us a ballpark of 40, 50 a year in annual spending. Is that right?

Kristine:
Yes. Currently.

Scott:
And you’re saying that you’re going to go up to 125k a year. Can you walk us through that projection?

Kristine:
Yes. So that’s I’m guessing how much kids are going to cost. I have no idea. So, I think about two grand a month per kid, so 48 grand a year. I have no idea.

Scott:
That would put you at 98. Well, I think that, that is the the key thing. It’s the key bogey in this is because you’re currently at 750 in wealth, but that seems so small I’m sure in the context of early retirement when your number is three and a half, 3.2 million that you need to get to. Now, people listening to that are thinking that’s a crazy statement, but that’s probably what’s going through you guys’ head in terms of this wealth building journey. And the bogey in here is how much that spending is actually going to be. And 2,000 per month per kid seems really high.

Kristine:
Maybe.

Scott:
But I don’t know what I don’t know about this. So, I don’t know. Mindy, what do you think about the cost per kid in this one?

Mindy:
Well, I do think it sounds high. I don’t spend that much for my two kids, but I love that you’re overestimating because if you think it’s going to be 2,000 and then it ends up being 500, great. You all of a sudden have $1500 a month extra in your budget. If you think it’s going to be 500 and it is 2,000 all of a sudden you’re scrambling. So, I think you’re overestimating, but I also think that’s great to overestimate because what are you going to do if it only cost 500? You’re just going to put that $1500 into some sort of investment, right?

Kristine:
Exactly, yes.

Mindy:
It’s better to have extra money. I want to know about your investments themselves. You said 250 in retirement accounts. I’m assuming that is a 401(k) or an IRA, a pre-tax investment. 370 after tax brokerage. Is any of that in a Roth?

Kristine:
So, no, the retirement, the 250 actually does include some Roths. Not a lot, maybe 40, 50 grand of that is in Roth IRAs.

Mindy:
Okay. And do you continue to max that out every year?

Kristine:
Yes. We do.

Mindy:
You are going to hit up on an income restriction soon, and I think there’s… I would love for somebody to correct me if I am incorrect on this, but I looked it up online, and it’s $139. I’m sorry, $139,000 in salary for a single person, but only 206,000 for married. So, you’re not currently… And that’s your adjusted after you’ve contributed to your other accounts. But you’re not hitting up on that right now, but it sounds like you could potentially hit up on the, I can’t contribute to my Roth anymore, which is a great problem to have.

Scott:
They may be hitting up on that because that’s 145k after tax, so they’re probably right in the bubble [crosstalk 00:21:17].

Kristine:
If we’re married, right?

Mindy:
Oh, yeah, if you were married it’s 206. When you’re not married it’s 139 each, which is better.

Scott:
So, one of them is probably under, one of them is probably over, I don’t know.

Mindy:
Yeah, that’s what I’m thinking. So, definitely look into that and continue to max the Roth as-

Kristine:
Long as we can.

Mindy:
Yeah, as long as you can. That is… Especially at your age. I really like when I see young people maxing out the Roth because that just continues to grow tax free forever. And then you take it out to buy a house. You can take it out to… The principal out, which I wouldn’t do because you’re sitting pretty elsewhere. But you can take it out for medical reasons, you can take it out to pay for college. My 14 year old I want her to start a pet sitting business and have everything go through the business so she can contribute to her Roth IRA at 14, which would be amazing. I wish I would have done that. But this isn’t my job, this is yours.

Scott:
When I zoom out on your portfolio and what’s going on here, I see two obviously capable individuals earning huge salaries and playing a tremendous amount of defense here. Your costs are completely under control, and you bring in what appeared to be relatively stable salaries. But with limited upside. I mean, when I say limited upside, you probably get to earn bots more over your careers. You’re still early in the career, and those will probably go up. But I wonder, have you guys considered getting much more aggressive about your position because your position, you have cash, you have at least a year of expenses right now. One of you could stop working and focus full-time on investing or entrepreneurship, which would create a risk in the short run, but potentially far greater outcomes in the long run with that. Have you guys considered that or discuss that at all?

Kristine:
So my fiance is a CPA. He already owns his own business within a partnership. So, I think that he might branch off maybe in the future, I’m not really sure. So that would be one avenue. I personally don’t have any desire to become an entrepreneur. But investing, yeah, I mean, passively is kind of my route. I don’t know that I would want to explore other opportunities.

Scott:
Fair enough. The reason I asked that is because that’s one way to really accelerate the gap between that $3 million moving target number that we have here. The other way given what you just said is probably really rethinking, and doing, and investigating what that baseline spending you need to work towards will be because that can move your target from… If you can move that target down to one and a half million and that’s reasonable that’s two years away, three years away from you versus 10 years away, or whatever your model is telling you on the financial independence side 125,000 annual spending.

Kristine:
Right. Yes, I think it’s 12 years last time I checked, and that would be three million, I believe.

Scott:
Yeah, I think that that number is way too conservative, and that you need… You should still be conservative in thinking through that, but you should really investigate that number and boil it back down. Because probably one of you guys is going to be able to work, generally speaking for a long time. I don’t know. I just think you’re closer than you think given your situation with this. I don’t know. Mindy, what do you think?

Mindy:
No, I agree with that. I think you are closer than 12 years, and what I have found in my personal experiences with money is you start off with a little bit, and then it grows a little bit, and then it grows a little bit. And then it hits a certain point, and it just grows like crazy like the snowball. It starts rolling down the hill, and then it just carries so much steam. What is it, the first million takes you 10 or 15 years to accumulate, but then the next million is like two years because you’re continuing to add to it, but it’s also growing on its own. So I don’t think that even if you keep the three million target, I don’t think that it will take 12 years. Of course, past performance is not indicative of future gains in the stock market. But it does if you look over the history of the stock market, it goes up into the right. What are you investing in?

Kristine:
VTI or the Fidelity equivalent.

Mindy:
Okay, okay. And you mentioned potentially working part-time, and Brian owns his own business or partnership. So he could technically go part-time whenever he wanted to. I think that also helps with the end number. Like, I need three million. Well, you need three million assuming you’re not generating any other income. Are there opportunities in your estimator world for part-time work? Because it seems like if you’re good they would work around what your schedule.

Kristine:
Yes, I do have someone in my office who works four days a week. So, that looks really enticing. And then they also have talked about hiring on estimators as contractors, which I think is really cool. So I could work totally my own hours, my own schedule, and that’d be a good part-time retirement gig.

Mindy:
Yeah, that would be. If you enjoy what you’re doing… What is that phrase? If you enjoy what you do you never work a day in your life. But if it’s fun to do, it’s not so hard to get into the office.

Kristine:
That’s right.

Scott:
Are you guys pretty… When are you buying the new house?

Kristine:
Why or when?

Scott:
When.

Kristine:
Oh, September is supposedly when it is complete.

Scott:
Okay, so you’ve already… Okay, so yeah, so that’s going to happen there. So your life is about to get… You’re about to begin reaping the benefits of the grind that you’ve put in place in September, August, as a couple of big events transpire, getting married and the house. I mean, if you’re not really interested in entrepreneurship, and you’re not really interested in more active investing, then it’s kind of just keep doing what you’re doing, and none of the tweaks really make that big of a difference. Like, do we invest in the 401(k) or the Roth. I like the Roth a little better personally. I’m in a high income bracket, so 401(k) on paper would make a lot of sense. And you guys are in California where you have a high income bracket, and the state and local taxes that are really high.
So that makes me think the 401(k) is an option. But I just personally wonder if taxes are going to be higher in 20, 30 years than they are today. And if you guys are nearly millionaires at the average age of 30 then you’re probably going to be at a high income tax bracket come retirement age unless you really screw it up. So, I think the Roth may make sense there, but 401(k) is not a bad option. And we’re talking about splitting hairs there, really, I think at the end of the day with a lot of these things. So, I just think that the answer is you’re going to have to keep doing what you’re doing. But I really don’t think you should keep the… I don’t think you need to keep the… What clearly on paper speaks to me as a intense grind with your finances. I know it because I’ve been there and done that for years in a row. You’re over the hump. You don’t need to do that anymore to continue building wealth.
And so, I would just consider like, “Hey, I’m going to relax and chill out about this house. Yeah, I’m going to get a housing expense in here, but I’ve done the work to put me on the other side of the snowball with that.” And I can back into a much more reasonable number here that doesn’t require me to grind and stress out about this. You can’t buy yourself into a place where you’re racking distress because of the spending with that, but I don’t think you need to go all out in order to coast to retirement here very early. You could accelerate it, of course, with entrepreneurship or active investing. And you’re in a perfect position to do that if you so choose, but it doesn’t sound like you’re interested.

Kristine:
Yes. Yeah.

Scott:
I don’t know if that’s helpful, but that’s my take-

Mindy:
I don’t have anything to add because Scott is correct. You’re doing really well. But once you discover financial independence you’re like, “Oh, I have to get there.” Jacob Lund Fisker from Early Retirement Extreme ate beans and rice and lived in the basement of somebody’s crawlspace or something. He really was extreme in his pursuit of financial independence. It doesn’t have to be that way. And if what you’re doing-

Scott:
And so are they. So are they. They live in a one bedroom for $600 a month in California.

Kristine:
That’s our sacrifice.

Scott:
And that’s great, and I am completely complimentary of that. I think it’s wonderful, and you guys now have optionality for the rest of your lives that very few people in human history have ever had. So, that’s like… I think it’s awesome. Sorry, Mindy. I just skipped you. I’m just excited about that. I think more people should do what they’re doing and try to earn that high… Clearly, a lot of things over a decade have transpired to make this possible where like good grades, getting a certain degree, dedicated work in the field to earn average $100,000 salaries, and extreme defense in the defensive side. That doesn’t make any sense. But those spending, so lots of good things transpired to get here, and it is an all out approach. It is extreme what you guys are doing, and it’s awesome. Sorry, continue Mindy.

Mindy:
I think that she has had the conversations with her fiance, and made the decision, this is what we find important. You want to go to the gym. Somebody could see $2,400. Oh, that’s a lot of money. Well, that’s $200 a month. I don’t think that’s anything crazy for a gym membership, especially if you use it. Now, if you were like, “Oh, I really hate going to the gym, but I paid $2,400 a year for the gym.” Well, you should cut that out because that’s not doing anything for you. You have a travel fund. There are people who are pursuing financial independence, they’re like, “Nope, I can’t spend any money on travel.” It seems like you are choosing what’s important to you, spending where it counts, and not spending where it doesn’t count. And that’s kind of like everything we preach here. So, I think Kristine is the poster girl for financial independence.

Kristine:
Thank you, Mindy.

Mindy:
I think you’re killing it.

Scott:
I agree.

Mindy:
And I think you are… If you want to spend a little bit more on something, it’ll be okay because you know that that’s just one thing. I wouldn’t recommend going out and getting an all new wardrobe, and a brand new car that you lease. A cell phone that’s $300 a month with all the things and getting the big package on the TV, and it doesn’t sound like that’s what you want.

Kristine:
No.

Mindy:
So continue doing what you’re doing, and you’ll make it.

Kristine:
Yeah, we’ll get there.

Mindy:
If you don’t make it, there’s a catastrophic thing that happens, and nobody else will make it either. So, that’s [crosstalk 00:32:57]-

Scott:
Yeah, I agree.

Mindy:
That’s not really helpful or hopeful.

Scott:
What are some… Besides complementing your great work so far, and telling you it doesn’t really matter on the 401(k) versus the Roth, take your guess about where tax rates are going to be 30 years from now, where can we help you if there’s anything else that you want to discuss here?

Kristine:
So, I’m not allowed to get a new car, that’s totally out of the picture.

Scott:
You’re almost a millionaire. Millionaires can buy new cars.

Kristine:
Okay, so I probably will. Those things are going to add up over time, but I guess I’ll try to be smart about it. Currently, I’m doing 50% towards the Roth 401(k), 50% towards traditional in my 401(k). So, I think that’s a good idea.

Scott:
That’s a good hedge there. Yeah, Mindy looks like she has some words of wisdom, but is muted.

Mindy:
I quit. I quit. That’s the end. I like that split because you’re reducing your taxable income while also growing tax free in the Roth. And at your age and your income level I think that’s a good solution. I’m struggling with the should I reduce my taxable income or should I contribute to a Roth 401(k)? And I’m not really sure what the answer is. I have a bunch of questions around that. But this isn’t my show, this is your show, but I like what you’re doing.

Kristine:
Thank you.

Mindy:
Yeah, in your application, you mentioned that you were saving for retirement, financial independence, and kids’ college. Are you doing anything towards kids’ college right now? I mean, there’s no kids-

Kristine:
No, I’m going to wait. I’m going to wait till they’re born and then I think I’ll start up some funds. And I don’t know if I’ll have a joint kids fund, like a 529 plan or I’m not really sure how I’m going to approach that or if it’s just going to be a brokerage account with their names on it to give more flexibility. What do you guys think?

Scott:
Just because we’re BiggerPockets, one option that I really like that Brandon I don’t know if invented, but I think maybe as made more popular is the idea of this is a good case for real estate, I think because you put down 60k on a rental property, and you put on a 15 year note, and you don’t really cash flow from it, but you let the property just pay down the note and self capitalize. And by the end of 15 years when your kid is 15 you have a paid off property, and then you cash out REFI on a 30 year note, and that is what is used for the kids’ college fund. And after the 30 years, that note gets completely paid down. Now you funded the second generation as well with one rental property, which I think is a really powerful intuitive concept with that. So, something to consider if you like real estate, but otherwise the 529 plan will work just as well.

Kristine:
No, I like that idea. That’s a good idea.

Mindy:
Yeah, I’m going to link to that article in the show notes because that’s a really fun article. Brandon wrote how I used real estate to pay for my newborn daughter’s college education. And he lists out some really great points. Scott did a nice little overview of that.

Scott:
Kristine, any last questions before we kind of wrap up here?

Kristine:
There’s one thing we’re a little nervous about is locking in an interest rate. We’ve noticed that they kept climbing. They were like at 2.875 I think in January, and we don’t get the lockers until probably August or July. And they’re climbing pretty rapidly.

Mindy:
That is… I hear what you’re saying. So the Fed is meeting actually today when we’re recording. It’s going to meet later today. They are expected to say that they are not going to raise rates till 2023, but clearly it hasn’t happened yet, so I can’t predict what they’re going to say. Rates have been climbing and rates were in the absolute toilet for a long time. And I guess that’s not really… In the basement, can’t say toilet because toilet implies bad, and they were awesomely low. Historically, 3% is still an awesome rate. I’m at 3.5. I couldn’t take advantage of the refinancing window last year because I just refinanced and they want you to wait six months before you refinance again, and by the time I was ready to refinance it didn’t make sense again. So, I lost out on that ridiculously low rate, but I still have a 3.5% interest rate, which is the second lowest rate I’ve ever had on any property ever.
So it is tough to watch these rates go up. Fannie and Freddie just came out with more guidance that they’re not going to buy as many second homes and investment property in loans. So you’ll see rates going up even more for those as well. But I think you can rent… I’m sorry, I think you can lock in 60 or 90 days out. I would connect with a lender and just continue to ask them, “Hey, September is about to happen. Or we can close in September, when can I lock in my rate?” I’m wondering if you could close sooner on the property to lock in the rate. And I don’t do a lot of new build purchases, so I don’t know what that entails. I always thought you had to wait till it was actually done before you could close. So I would reach out to the lender, reach out to… Are you working with the lenders? I’m sorry, I would reach out to the builder. Are you working with the builder’s lender?

Kristine:
Not necessarily. If they have the best options I think we’re going to shop rates a little bit and chose the best one.

Mindy:
Okay. Yeah, I have found that the builder’s lender in many cases will offer so many incentives that it makes sense to go with them. They have a credit for closing costs or a credit for other things that other lenders can’t compete with. But that’s not always the case. I have had other lenders who will be able to beat the rates or beat the closing costs or both the builder’s lender, so I would definitely shop that around. I have a great lender. I’m going to send you his contact information when we’re done here. He’s really good at just explaining the options better than I am.

Scott:
Are you being offered the option to lock in rates right now?

Kristine:
No, they said 60 days. At least the builder lender did say 60 days.

Scott:
Yeah, I think this is a good one to crowdsource. Let’s post this in the Facebook group and see if anybody… We have a couple of lenders in there and see if anybody knows about options to do this. My belief is that it will be a non standard thing to lock in a rate this far in advance of your closing. It’s possible they exist, but my guess not knowing anything. We’ll see what the discussion brings is that, that will be some form of option that you’ll have to pay for. My belief is that typically buying options to lock in rates or calls or puts in any type of industry is typically a loser for you. You are in a position where you can afford to buy what is effectively insurance. But insurance is typically a good bet for the insurance provider, the option seller, not the option buyer, the insurance buyer.
So, I think mathematically or statistically, if I’m right at all on that hunch, it’ll be a little bit of a loser to try to lock that in this far in advance because you’re paying for that uncertainty. [inaudible 00:40:39] get that uncertainty. But you are certainly in position where it will not be a major consequence if that option even exists. So let’s find out from the Facebook group and see if I’m right on that, and if that option even exists in the first place.

Mindy:
Yep. So hop on over to the Facebook group. I will have posted a question that I’m holding on at the top and see what we can crowdsource for you, Kristine.

Kristine:
Okay, thank you very much.

Mindy:
Okay. Well, Kristine, I really appreciate your time today. This was a lot of fun. This was super helpful. I think that it can be kind of like, “Okay, what do I do next?” And just continue on. Maybe if there’s an opportunity to do something that you really want to do it’s okay to do it, because you’ve set yourself up for so long with such a strong position.

Scott:
Yep.

Kristine:
Thank you so much for having me. I really appreciate it.

Scott:
Yeah. Thanks for coming on and sharing this. This is great.

Mindy:
Yeah. Okay. And we will talk to you soon. Okay, that was Kristine. Scott, what did you think?

Scott:
I think it was great. It was a shorter episode. We didn’t have that much advice for Kristine. I mean, the decisions are, hey, what do you think about this money in bonds? What do you think about this money in the 401(k) versus the Roth? I mean, these are complete guesses over 30 year periods about what is going to happen with interest rates. Are they going to continue dropping and the bond portfolio is going to go up faster than stocks like they did for a period of 2020 when interest rates fell? I don’t know. I think generally, Mindy and I’s bet is on equities over the long run over bond returns.
I think generally speaking, I kind of have a slight lean towards the Roth, but who knows how that’s going to turn out over 30 years? Whether you’re going to be happier you put money in a 401(k) versus the Roth. So it’s like, I think she’s just going to crush it on the journey to FI and really just needs to peg how much spending she thinks she’s going to need to do in five, 10 years. And that number is super high right now, which I think is a good conservative estimate. But I think that could come at the expense of nearly a decade of not really reaping the benefits of the incredible position that they’ve already built. So, I think it’ll be interesting to see what she decides.

Mindy:
I think so too. And I love that she’s estimating high because like I said you can always spend less, invest more, and then keeping an eye on what you think you’ll need, and keeping an eye on where you’re at is a really great way to just be conscious of what’s going on with your money. Of course, she can continue to work for another decade. She probably won’t have to, and I’m excited for what the future brings for Kristine because I know she’s going to kill it.

Scott:
Absolutely.

Mindy:
Should we get out of here, Scott?

Scott:
Let’s do it.

Mindy:
Scott and I are really having a good time with this finance Friday and if you would like your finances reviewed, please apply at biggerpockets.com/financereview. We would love to look into your finances and see if there’s any suggestions we can make for you. From Episode 184 of the BiggerPockets Money Podcast, he is Scott Trench and I am Mindy Jensen saying, be sweet, parakeet.