Ask Paula: The Hidden Costs of Leverage

28:16It could be additional payments on a debt above and beyond the minimum required. So anything that builds your net worth is what I mean by savings. All of that goes into the savings bucket. So needs would be your mortgage, your utilities, grocery store, like that's all needs. Wants would be actually, honestly, even as I say this, target Amazon, Costco, half of that's probably needs and half of that's probably wants. But just pick one of the two, throw it in there and call it done. Like I think the problem with budgeting, and it's an issue that a lot of the design of these software programs really exacerbate is that they want us to have an uncapped number of categories.

29:00They want us to divide our budget into 7, 8, 9, 10, 15 different categories. So we know with precision, with undue precision, precisely how much we're spending on home and gardening versus how much we're spending on clothing and apparel. Who cares, right? Who cares? The point of a budget is to make sure that you're saving enough. I can see Joe shaking his head. He disagrees. I say the point of a budget is to make sure that you are saving enough. So start with the end in mind and design a budget with the fewest possible number of categories so that you can pay attention to what really matters, which is how much am I saving versus how much am I spending?

29:47I agree with that statement. And actually, when you were just there, I was with you and then you lost me halfway. I think beginning with why am I budgeting in the first place makes a ton of sense because if you're overly granular and there's no reason to do it besides your own OCD, which I know a bunch of those people, then you just have to put the OCD aside because Chris is going to totally frustrate you forever. The frustration comes from the fact that these companies can't look inside of your target pill. I mean, if they could get access inside of your target account or get access inside of your Amazon account, I'm sure they'd be happy to do that.

30:24But just think about the technology that goes into that. I think we might get there at some point, but we're not. But the place where you lost me, Paula, was that there was a time when I truly needed to know where every dime was going out the window and the contemplative and almost meditative aspect of taking that Costco bill and contemplating, is this truly something that I needed? Now, I don't need that anymore, but there was definitely a time when I needed to learn that I needed a bigger appreciation for a dollar and that tracking line by line made so much sense to me. But I would say to Chris, if you need that, I wouldn't complain about the time that you spend because the time that you spend is a time where your conscious and subconscious brain are going to work through the issues that you're having, making your budget balance.

31:19Sometimes it is, I'm spending way too much money on this category. I'm not thinking enough about expenses. Sometimes you find out it's an income problem. And maybe there's other ways for me to make money that I'm not making. But either way, I think you do one of two things, Paula. You either shrink the categories so it doesn't drive you flipping crazy, or you just become okay with the fact that I need to spend this time. So Joe, it sounds to me as though the distinction is the time spent. Is it a meditative practice or is it a chore? Yes, exactly. Because I do, Actually, I haven't done it recently, but you know how there's software that tracks your net worth?

32:00So for example, Personal Capital, right? It automatically tracks your net worth. Those are great, but I had a practice and I stopped doing it. I don't think I've done it since the pandemic, but I did it for years and years and years. And I intend to pick it up again. In which manually, twice a year, I would manually go through and calculate my net worth. I would manually log into every single account and find the balance in that account and input it on a spreadsheet. I mean, it took maybe four hours, right? Like to log into every different account, it took a very long time. That's why I only did it twice a year.

32:40But I bet it was a great use of time. Yeah, because that was meditative. Because as I logged in to Vanguard, to Schwab, to TD Ameritrade, I was able to think about the investments that I was making. What's the purpose? Yeah. Yeah, exactly. And so doing it with the intention of, this is my Tibetan sand mandala. If you wanted to create a work of art, there are more efficient ways to do it than dropping little grains of sand. And, you know, but the reason that Tibetan sand mandalas exist is because the very act of creating it is a meditative practice in and of itself. So if for you, this is your sand mandala.

33:20This is your woodworking in your woodshop. This is your making pesto from scratch, starting with growing the basil in your windowsill. It's something that you do because it's very meditative. It's you're using a mortar and pesto to grind the pine nuts, right? If that's the reason that you're doing it, great. But the mood that I got from hearing Chris's question was that to him, this is just a chore, a checkmark. Like, man, I got to do this. Then I got to clean the gutters. Then I got to buy some toilet paper. Yeah. And the answer is that technology doesn't yet exist. I think it will at some point, but I don't know if any technology does what he wants to do.

34:01The closest one, if we're going to go right after the technology question, it's a bear to set up. There's a monthly fee. You need a budget? Well, no, Tiller HQ. Oh, I thought you were going to say you need a budget. The cool thing about Tiller HQ is it's based on spreadsheets. And there's a lot of great financial nerds that have created these different budgeting programs inside of Tiller. It's kind of open AI. What's neat about it, what's great, is it embraces open banking, which the cool thing about open banking is it's the safest thing. So he talks about how a lot of systems don't play nicely with this two-factor authentication.

34:36Open banking does play nice with those. And because of the fact that spreadsheets come with shortcuts, it's a pain in the butt to set it up. But once you get it set up, you can go line by line very, very quickly and pop them in the right place. Because when I was using Mint, it would always just put it in the wrong place and I'd have to then go scan. Well, in Tiller, you're looking at every single transaction you are putting into yourself, but I can just press the K key and it'll automatically come up with this thing that it is every time. And boom, boom, boom, boom, boom. I go through all my daily transactions in a very short amount of time.

35:10And so I think Tiller's the closest. The cool thing about Tiller, by the way, is this small fee that you pay. Because as Peter Poulsen, the CEO says, if it's free, you are the product that's being sold, right? And with Mint, I think what a lot of people don't realize is they're scraping your data. I don't mind them scraping my data. If they want to watch my target, that's fine. That's whatever. But I do like the fact that I know that that fee means that my stuff is, I'm not being marketed in a different way. Right, right. I haven't checked out Tiller. You Need a Budget is another piece of thought.

35:47It's also, it's kind of a pain to set up and there's a monthly fee, but it's very well loved inside of the FIRE community. And I've recommended it to a couple of personal friends here in New York who have been struggling with budgeting. The thing I love about You Need a Budget is it's kind of the other side. I think Tiller for me is better at tracking your expenses, seeing where you've been. And it's great at that. You Need a Budget is really a philosophy of life that you're going to give every dollar a job before you earn it. So with you need a budget, you're actually, before you get paid, it's almost like you're creating this electronic envelope system of what envelope my dollars in.

36:29And when those dollars are gone, you're not going out to eat anymore because of that. Cube money does that pretty well as well, where you're setting up this electronic budget system. And Cube is Q-U-B-E. Yeah. And I see those programs as a little bit different than Tiller, where it really is a master at just tracking where you've been already. Yeah. Speaking of apps that begin with the letter Q, this is not a budgeting app per se, but one that I really like is Capital, which also starts with a Q. With a Q? Yeah. I don't know why. Why? Why do people name – it's like they're trying to be cute, but it only creates friction around adoption.

37:07I think it's also because the domain price was probably pretty cheap. Yeah, yeah. I'm sure there's – anyway, I'm not their marketing consultant. But Capital with a Q is an app in which you can designate a certain goal. So for example, maybe you want to buy your next car in cash. You designate a certain goal. You designate a particular amount of money. There are various ways that you can make contributions into that goal. So you could do recurring contributions, you know, and just make it like a weekly, biweekly, monthly thing. Or there are also kind of fun games that you can set up. So you could do$1 in week one,$2 in week two, you know, all the way up to like$52 in week 52, right?

37:52Yeah. There's all kinds of like cute, fun little ways that you can either automate it or you can make it a game. I love some of the gamification that's out there. It's so – Yeah. When they do it for the right reasons, I think gamification is awesome. And Acorns is basically the investing version of that, where Acorns, every purchase that you make, it rounds up. So I love Acorns. I've continued to use it. I've been using it for years and years and years. Every time that I swipe my credit card, it just rounds up my purchase to the nearest dollar. And then those remaining cents, if I'm buying something for$7.42, it just rounds it up to eight.

38:31it takes those remaining cents and it deposits it into an investment account. And so my Acorns balance just from those little roundups is, I think, maybe around$8 ,000 or$9 ,000 right now. And you can even set that so it rounds to the$5, the$5 instead of to the$1 or to the $10. So you can even play with what you rounded up to on Acorns, which is interesting. What's funny with me and Acorns is that you never feel it. You don't feel it in your budget. Yeah, you just don't notice it at all. The friction is so little. It's great. By the way, just briefly before we leave budgeting apps, I did do on the Stacking Benjamins YouTube channel, Paula, I did do a walkthrough of Cube just so people can see what it's all about.

39:15So if they go to the Stacking Benjamins YouTube channel, they can see the program in action if they're interested in looking at that. Nice. Very cool. Very cool. But yeah, to get back to, Chris, to your question, fundamentally your question is about friction. Joe and I are discussing what we like about an app like Acorns is that it removes the friction around investing because it's invisible. It's automated. It's invisible. You don't feel it. And what you're discussing is friction, right? When you have to manually go through all your transactions, when you have to, when it's a chore rather than a meditation, then it is friction.

39:54And anytime that there's high friction to something, you're just less likely to do it. And so to the question of what are the lowest friction ways to adhere to a budget, my work around has always been to reduce your budget to as few categories as possible because the work really happens in the segmentation, in the line itemization. And so the simplest budget, which I refer to as the anti-budget, and I've written about the anti-budget. I've even made speeches about it on stage. I spoke about it at the economy conference. The anti-budget is a two-category budget, what you save, what you spend. End of story.

40:32And again, we're defining save as anything that improves your net worth. So if you were to make additional payments towards a debt, for example, extra payments on a credit card or a car loan or towards a mortgage, that would be considered savings, right? Any net worth improvement falls under the save bucket and any spending falls under the spend bucket. And that's the anti-budget. It is a two-category budget. You can make it as simple as that, or you can make it save, wants, needs, or heck, do a four-category. Save, wants, needs, and then want-need combo, which would be the Amazon Target Costco.

41:14I mean, that could be your four-category budget right there. What you save, what you want, what you need, Amazon Target Costco. But you get there, Paula, by starting off with, why am I doing this in the first place? Yeah. Yeah, that's true. How am I using this information? Yeah. No matter how you slice it, a budget is supposed to help you be conscious of how you are spending your money, be conscious of how much you are saving, and reshuffle accordingly. It's there to make sure that you are saving as much as you intend to be saving. So thank you for that question, Chris. That was a fun one. Discussing cars and discussing budgeting.

41:53We haven't talked about either of those in a long time. No, it's a whole new world today. Yeah, this is fun.

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45:18I think our next question comes from somebody who's anonymous Paula, which means we get to give her a name. We get to name her. We get the naming rights to this caller. The naming rights. Wow. Wow. Yes. And if we pivoted back to movies, are we back on movies? No, you know what? I think I want to do something a little bit more on brand. Oh, we're going to shake it up. Ooh. Ooh, ooh, ooh, ooh. Madame C.J. Walker is the first female self-made millionaire in the United States. And if you want to give it a movie tie-in, apparently she will also be honored in Barbie's line of inspiring women dolls. That's fabulous.

46:05Yeah. So Madame C.J. Walker, first female self-made millionaire. Self-made is kind of a loaded term. People rightfully point out like nobody is ever truly – Right. No man is an island. Yeah. First generation millionaire or millionaire through effort rather than through. Inheritance. Yeah, inheritance or gift. Yeah. So I think first generation millionaire is maybe the most accurate. I don't know what alternate term people can use besides self-made, knowing how loaded that term is. But there's got to be a better one. Yeah, exactly. You know, actually, you know where how people why people like really reacted badly to the phrase self-made was when Forbes referred to Kylie Jenner as a self-made billionaire.

46:54Oh, I remember that. Yeah, like there is no comparison between Kylie Jenner versus someone like Sarah Blakely. Sarah Blakely is truly self-made. She started out with nothing and sold boxes. She had a stack of boxes in an apartment in Atlanta where she worked from her kitchen table to sell the first prototypes of Spanx. She is genuinely self-made versus Kylie Jenner. Come on. Sister's already paving the way for her from a family that has a ton of money already. Yeah. Yeah, exactly. It doesn't mean she didn't work hard, though. Because one thing that drives me crazy is when somebody puts some stank on somebody who does have some privilege and they had a pedestal and they go, well, they had this.

47:45But then you actually look at what that person does with that privilege and they still work their ass off. Right. We had that at American Express. We had a woman who was a fantastic advisor. advisor. She was in Seattle, Washington, and her dad was a Boeing executive. And so all I heard over and over was, well, you know, her dad was a Boeing executive. As these people retired, she would get them all as clients and she'd roll over the big pension and the 401k money. But then I met her. Her systems were amazing, Paula. The way she treated her clients was amazing. The referrals she got was amazing.

48:20So yeah, maybe her dad was a Boeing exec and worked with all these other people, but she actually took that and made it her own thing. Right. Because sometimes you see the opposite happen. You see people squander what they have. More often you see people squander it. And you see them squander it quickly. It's like a gym that does kettlebell workouts. I'm out. And it's$30 a class. That's expensive. That is freaking expensive. But I was thinking about it And I was like, if you see, because the instructors are like super fit. And I'm like, if you see somebody who is that fit, do you say, wow, they have the money to pay for a kettlebell class?

49:02Or do you say, wow, they showed up for the class and swung some kettlebells? Yeah. Right? Yeah. Because the easy thing to say is I can go buy a kettlebell and avoid the 30 bucks. Well, no, where I'm going with that is it is true that there are people who do not have the money to take a kettlebell class, but that does not negate the effort of the people who have the money but chose to spend it on that kettlebell class rather than sleeping in. That was also my point is that there are people I know who will buy the weight set, but they never use it. They will buy the whatever. I mean, this is the problem I have when people talk about, you know, my big platform is surround yourself with smart people.

49:45Right. Get the thing, take the class, take the course, be around the people, do whatever. And I will meet people all the time who go, I don't really need to spend that money. before I had money, I had to find ways to still get in those rooms, but being in those rooms is the key to my success. And now I will pay to be in those rooms because without being in that room, Paula, I know I won't do the kettlebell workout. I could buy all the kettlebells I wanted to, I wanted to fill my house with kettlebells and I won't lift one. But if I got to show up at 6am on a random Tuesday for the workout, you better believe I'll be there.

50:25I will be there. Right. Exactly. There's a quote from Oscar Wilde, a cynic is a man who knows the price of everything and the value of nothing. Yes. Yeah, that's good. So with that lengthy intro. Here's CJ. Here's CJ. Yes. Named for the first female self-made millionaire in America. Hi, Paula and Jo. Thank you so much for taking my call. And thank you so much for everything that you do for this community. I have learned so much from listening to this podcast. So my question is, I'm currently in the market to buy my very first home. I'm in Southern California, so it's definitely been challenging being one income and just the market has been crazy.

51:14But I'm finally in escrow. The house is$510 ,000 and I plan to put in 5 % down so I can have more money towards repairs because it's a fixer-upper. I currently have some money in a brokerage account. I have approximately$300 ,000 in it. And I'm wondering, should I sell some of those assets so I can put it towards the mortgage? Just because my monthly payment for the mortgage with property taxes and all the fees will run me approximately almost$4 ,000, which is the max that I can really afford. I can continue to contribute to my 401k, but aside from any other savings, I probably won't be able to do it because of such a high mortgage.

52:07So if you were me, would you let the funds continue to grow in the brokerage account out in the market or would you put it towards your mortgage so you can have a little bit more free money every month? Thanks. Looking forward to your advice. CJ, thanks so much for that question. And Paula, this is where I think another one of our broadening out of the questions happens because here's the thing, CJ, from where I sit, and I'd love Paula to hear your take on this, but just the realization that no goal that you have exists in a vacuum. What she decides here is going to affect another goal. If she takes the money out of that brokerage account, that money was ostensibly slated for some other goal and now it's going into the house.

52:56And so then it transforms the nature of that money. So my first question is always before she does anything, if she takes the money out of the brokerage account, which sounds like what she wants to do and maybe what she probably should do. How does that affect the goal of what that money was already there for? And will she need to find a strategy then to somehow replace that money if it creates a shortfall in an area she really cares about later? So the real answer might be a two-step. It might be take the money out, but then adopt a side hustle that's going to earn X amount of money that she knows based on compounding is going to still get her to a goal that she was on track for and now is behind two.

53:46Do you see what I mean? Essentially, you're saying that money's got to come from somewhere. Yeah. Yeah. It's kind of the Stephen Covey. If you pick up one end of a stick, there's another end that you pick up with it. So my initial thought process is what's on the other end of that stick? Well, there's another goal at the end of that stick. And if she takes the money out, like as an example, a different example, when people decide, well, I'm going to put 5 % of my money into my 401k. I used to ask when I would go to companies, I'd say, how'd you decide I'm 5 %? And you know what they'd always say?

54:16It's what I can afford. And my question was, well, that's great today because it meets your goal today. But the other end of that stick is where is 5 % going to get you later? You may very comfortably be not reaching any goal. you're super comfortable today and you're not getting there. So the first question is, what do I need to do? And then can I afford to do it? And if I can't afford to do it, then what's the thing I need to do instead? So my advice probably is because it sounds like it's gonna be so tight at$4 ,000 a month. She didn't tell us about her entire budget, but I'm assuming that$4 ,000 is a big chunk of money for her budget.

54:54And if that is the case, then taking the money out of the brokerage account makes sense. But I would then ask myself, what's on the other end of that that now isn't being funded? Right, right. The thing that I'm most curious about, is that brokerage account meant to be a supplemental retirement account? Because if it is, then I would very much hesitate to take money out of it. I'm firmly of the belief that if there's money that you are specifically setting aside, and when I say retirement, what I mean is money for future you at age 65 or older, which is distinct from your occupational status. So when I say retirement, I'm not referring to an occupational status.

55:43That's just a shorthand term for once you are over the age of 65, when you are more likely to have, speaking frankly, you're more likely to have health problems that might preclude you from being able to work, even if you wanted to. And so you want to create some type of a safety net for the septuagenarian version of yourself. I'm very much of the mind that if you have money that is meant for age 65 plus you, you shouldn't touch that. And often people will put money in a brokerage account as a supplement to what they've put into a 401k or an IRA. If that's the purpose of the brokerage account, I wouldn't touch it.

56:24But if the brokerage account doesn't have a purpose or if it was going to be like a travel fund, yeah. One of my favorite things to do, Paul, is to run what-if scenarios. What-if, what-if, what-if. Here's a what-if scenario. What if that money has always been meant for above age 65, after age 65. So it is in that pot of money, but she's invested it over the last 10 years. It did really well until last year. So she made a bunch of money, but that didn't set her back the whole 10 years. How do you know she didn't bet it all on NVIDIA in January? Then take it out now. Please take it out now. She did it two years ago.

57:06Take it out But assuming it's, you're right. Assuming it's broadly diversified in a stock-based index kind of portfolio, if that's the case, she might be, even if she takes that money out, Paula, let's say that the what if scenario shows she could take out$40 ,000 and she's still going to be okay after age 65. Does that change your thinking? Man, I would need to see it in the context of the entire retirement plan, there's the math of it and there's the principle of it. And as a principle, if money is designated for 65 plus you, future you, as a principle, I don't like touching it because it's so easy to be flippant about the age 65 plus version of ourselves, to think that that day is so far into the future that we don't need to worry about it.

58:01And then you turn 50 or you turn 55 and you're like, oh, that's around the corner. So as a principle, I'm not a fan of it. In practice, though, in mathematical practice, of course, when you're gaming out how much you're going to have for retirement, as you know, Joe, there isn't one scenario. There's a range of scenarios. If she runs a range of scenarios and in the most conservative range where she gets hit with sequence of returns risk and she gets hit with like, we have Japan's economy from now until she retires. And then at that point, she gets hit with sequence of returns risk and she's still okay.

58:45All right, fine. At that point, you've modeled such a worst case scenario that there's room to spare. Yeah, the frustration that I always had was that there's two different types of people. There are people that aren't saving anywhere near enough money, and there are people that are saving gobs and gobs and gobs of money for a future that they will never experience. They're over-saving. for those people in principle i always wanted to lighten them up let's get used to flexing this spend muscle a little bit and i've told the story here before about the gentleman that thought that he had a terminal disease so he all of a sudden decided he was going to take these wonderful trips and then he got a second opinion and he found out that he didn't have a terminal disease and he immediately went back to work even though he didn't need the money and his family's going to be okay.

59:32And I felt so bad for his spouse who was so excited that he was finally going to loosen up. But it's so hard for us to change. Somebody who's been a saver their whole life, Paul, as you know, isn't going to turn into a spender overnight. And for him, just seeing the fact that, oh, I can make more money, just this thing in his head was very frustrating. So for me, the principle's not as strong because I've seen too many of those people that are going to have way more money then they'll have life. And I'd love for them to have more life. But to your point about sequence of returns to Japan's economy, which people don't know has been like a 0 % return forever.

1:00:11Yeah. The thing that you always want to do when you're doing these what if scenarios, these models is divide it by two or sometimes even by three. Meaning if I'm going to be okay using a regular scenario, let's say I get six or 7 % on my money and I'm going to be okay. And I've got$40 ,000 left over. I may then take 20 ,000 of the 40 and put it toward the mortgage and leave the other 20 or take a third, take a half or a third of what is going to be excess money toward that goal. So it's money that I'm sure that if I do need it, it's way at the end of my life. and it's only half of what's my projected surplus.

1:00:55You know, the other thing to bear in mind, and of course, I'm going to caveat this, always run the numbers with the interest rates that exist, not with what you hope future interest rates might be. But that said, if let's say two years from now or three years from now, once we are firmly out of the inflation danger zone, if at that point inflation rates go down, And CJ, at that point, you can refinance that property, lower your interest rate, and substantially lower your monthly payments. So that$4 ,000 payment that you're making, the good news actually is that the current high interest rate environment is in some ways forcing you to buy less house than you otherwise would have if you'd bought like two years.

1:01:43Oh, good point. And what that means is that two or three years from now, hopefully, if interest rates decline and you refinance, you'll have a much more doable monthly payment, like a much easier monthly payment. And you'll already be in the habit of having a higher monthly payment. So you refinance, the monthly payment drops, and you're like, woo, look at all this cash. Yeah. Go to Canada, you know? Well, and what you're seeing too, to your point, Paula, you're also seeing banks and credit unions are coming up with devices again in a higher interest rate market to try to get you to either do a refinance, which could be an awful idea, or to buy the new home because people are going, oh, interest rates are high.

1:02:28I probably don't want to. and there is a cool product that i'm finally seeing again i saw it at the beginning of my career and i'm starting to see it again which is you pay a small fee and instead of refinancing your house it just readjusts the rest of the mortgage and the rest of the table with the remaining years on your mortgage to the lower interest rate that is a fit we used to call it a rate and term mortgage different companies have different terms for it now yes you're going to pay a fee for that but the good thing is if you know anything about how amortization tables work that's That's where the win is.

1:03:00Right. You don't have to restart that clock. Yeah. If you've got a 30-year loan and you refinance your loan after the first 10 years, you didn't pay 8 % or whatever it was. You paid like 40 % or 35 % or some monster number. Here, you still get to keep the same mortgage but lower the rest of the interest you're going to pay, which could be tons and tons of money. So look for those if you can find them. Right. Well, and also that's going to depend on how long you've held the mortgage. Because if you held the mortgage for two years, you're not that deep into the amortization clock. So it would make less of a difference.

1:03:34But yeah, absolutely. If you held that mortgage for eight years, you don't want to restart the clock. No way. You see people do that all the time. I saved 2%. No, you didn't. You spent a bunch. You spent a bunch. So what's our answer for Siege? What's our final answer? It's maybe take money out of the brokerage account, but only if you first clarify what the goal of that brokerage account money is and how that goal will be met. As we do with a lot of our answers, we're answering CJ's question with a question. What was that money for and what happens to that goal if you do it? Assuming then that you've run those numbers incredibly conservatively and you can get away with it.

1:04:19Maybe take half of the surplus and apply it toward the mortgage and then I'm good with it myself. Thank you, CJ, for the question. And congratulations on buying this property and future congratulations on when you refi it and that interest rate drops, then you're going to be even happier. Cha-ching. All right, Joe, we've got one more question today. It comes from Cam. Hi, Paul and Joe. I'm an American working in the Middle East. I try to save and invest as much as I can with the goal of retiring early in about three years. I recently learned that expats working from my company are eligible to take a loan of up to$200 ,000 from a local bank at about 1.75 % interest with a three-year payback period.

1:05:10Many of my colleagues have taken these loans and sent the money back to the States either to buy a house or just invest. Theoretically, I could just put it in my savings account that is currently earning 4.1 % and come out ahead, or do something with a bigger upside. My question is, is this a good idea? If not, why not? And if so, what might be some good ways to use it that aren't overly risky? Thank you so much. Okay. Before we answer his question, Paula, I've got a very serious question. Okay. Why aren't the Middle East and the Midwest like right next to each other? I've never understood that.

1:05:42Oh my God, Joe. Like the Middle East, the Middle East is on one side of the globe. The Midwest is on a whole different side of the globe. Really? And I just don't get it. I just don't. For those of you who can't see me on YouTube right now, I literally have my face in my hands. I can't believe it. Who named these places, Paula? I want a refund. So the Midwest are the former Northwest Territory states. It was before Manifest Destiny, before the United States was coast to coast. But the Middle East was not the Northeast territory of the world? Middle East is the prime trading route. If you think of Eurasia, right?

1:06:20Sure. The Middle East is like that prime, prime trading route. So, yeah. Anyway, just always wondered that before you – my bad. Let's continue. What do you think about Cam, Paula? Do you have any commentary on Middle Earth as well while we're at it? How come Middle Earth is in somebody's fantasy and Middle East is over there and Midwest is over somewhere else? And why are we so Northern Hemisphere centric? Oh, right. The phrase, the phrase Middle East is so Eurocentric. Yeah. Yeah. Yeah. Anyway. Absolutely. I won't go on my rant about how I think that all of Asia being one continent from Mongolia to Sri Lanka, that's kind of a Eurocentric concept as well.

1:07:06But that's a different conversation for a different day. A whole different deal. Yeah, exactly. At any rate, Cam. Cam, how are you doing? How are you doing, Cam? I'm so curious as to what country he's in right now. But wherever you are, Cam, that sounds like an amazing deal. If I were in your shoes, I would absolutely do it. But I have a couple of questions for you. First of all, what is your experience as an investor? When you are investing, especially when you are investing borrowed money, you want to be incredibly cognizant of risk. As an individual investor who is not subject to a board of directors, who does not have to justify their choices in a deck, a slide deck, who does not have the checks and balances that a team of investors who work for an institution have, right?

1:08:03As an individual investor who's able to do whatever he wants, the biggest risk that you face is the risk that you pose to yourself because it can be very easy to go down a couple of internet rabbit holes and all of a sudden you're buying GameStop stock or AMC theaters or Bed Bath and beyond. Even if you know better, it can be very easy to get carried away. So how much experience do you have as an investor? What types of checks and balances are you putting on yourself? What external board of directors, quote unquote, do you answer to? Those are my questions to you. Those are all various ways of saying, knowing that, and not you Cam, but knowing that the human tendency is for one to become one's worst obstacle.

1:09:01How do you put safeguards in place that protect you from your own whims, such that you know that you will invest this conservatively. I liked what you said about, theoretically, you could just put it in a CD, put it in a savings account. You could put it in a CD. I mean, you could put it in a money market account. You could put it in T-bills. Man, of all of those options, T-bills are probably the best because a money market account, as our mutual friend Len Penzo pointed out, in theory, if a bank collapses, you might not be able to get the money out of the money market account. But even in the event of a bank collapse, you can get your money out of T-bills.

1:09:43So in theory, you can buy a bunch of T-bills and call it a day. I like that plan. When you find these arbitrage situations, always take advantage of them and you'll see people online. Think about the, you know, in the past you saw these people that would buy things off of Alibaba and they would resell them on Etsy or Amazon and just use the arbitrage in their favor. Arbitrage works. And when you can find it, it is fleeting usually. So grab onto it. And because you have this situation. And I know these exist out there because I know some other people who get preferential treatment from banking organizations because of the specific work that they do.

1:10:28And they know that there are great risks. So the bank has decided to give these people that type of a loan. But I still, Paula, I still think Cam has to watch out for a few things before he even gets into this, because you definitely got to know what you're getting into and that this is as good a deal as you think it is. Number one is, is there a prepayment penalty if you decide to pay it off early. That could wreck everything. If you get into a situation where something happens to the money for who knows what reason, and now you want to pay it off right away and you can't, there's going to be monster penalties.

1:11:03That's a big thing. Other gotchas like fees for the loan on the front end side, they might not call it an interest rate. There might just be a big fee slapped on the front end that can make the effective interest rate much, much bigger. So I would have somebody, preferably somebody in the lending industry, look at the loan paperwork with you, look at that fine print very carefully. Because while I don't think this is too good to be true, you don't want to find out after you've signed the paperwork. But then afterwards, Paula, you know, when you do these strategies, the question is, is what is the repayment term going to look like when you have to start repaying the loan?

1:11:43If he has to start paying it right away, as an example, you talked about T-bills, fantastic opportunity, but we're going to lock up the money for some amount of time. So I'm going to have to leave some money in a spot where I can make the payment while the rest of the money sits in the T-bill. So you want to be careful there. If it's a long time of repayment, like 30 years, that he's repaying this over? He said three years, didn't he? Or something? It's a very short-term, relatively short-term loan. Three-year payback period, yeah. Okay, I'm sorry. Interest rate, three-year payback period. Well, I missed that.

1:12:19That answers it. But for other people listening, if you've got a long repayment term, then you can go into some long-term assets. With a three-year timeframe, you don't want to go into anything with any type of variability. So the T-bill answer is a fine answer. Find the highest fixed interest rate you can get from a reliable institution like the U.S. government, which would be a T-bill. Don't have any risk of downside. Yeah. Don't get T-bills from the Nepalese government. Might not be the same risk profile. Is that what you're saying? Exactly. Exactly. But just the rule of thumb, if it's under five years, you're even gambling if you go into any type of bond, right?

1:13:01Yeah. So under five years, you're gambling into bonds. Under 10 years, you're gambling if you're going into real estate or stocks. So real estate stocks and bonds that vary on the open market out of the equation with a three-year timeframe. Exactly. I think T-bills are the way to go. Or if you need some amount of money in order to be able to make that payment, if there's a monthly payment or a quarterly payment that's associated with it, laddered CDs for that portion, the portion that you set aside for repayment purposes. What's nice about laddered CDs is that then you can, with the longest duration CDs, you can get the highest interest rate repayment, but you can get the highest yield.

1:13:45But with the shorter term CDs, you can preserve some of that liquidity so that you would be able to make payments on it at whatever periodic payment needs to be made. A combo of T-bills and laddered CDs is specifically what I would choose. But beyond that, I think, again, your biggest risk is it's going to be so tempting when you have this money in hand to be like, free money. But look at AI and look at the potential. And do you really think three years from now, all of these AI companies are going to be worthless? Certainly, they're going to be worth more. It's so, so tempting when you have the money in hand to then take a look at more speculative of assets and mistake potential returns for yield.

1:14:40And I think the way to frame that in your brain so you don't even think about gambling is just realize that every dollar you make on this is already free money. Don't F it up by gambling it away. You're getting free guaranteed money. Right. Don't mess up that strategy. Yeah, exactly. Don't mess with the risk for your return. All right. Well, thank you, Cam, for asking that question. I apologize for Joe's little Middle East, Midwest. I just wonder. I'm not allowed to wonder. Is that the deal? Boy, boy. That's all I can say. But thank you, Cam, for asking that question. Have fun with your work, with wherever it is that you're living, and with this opportunity.

1:15:27Joe, we did it. I can't believe it. We did it. over already. Yeah, it's happened. And how weird is it? We had so many questions we haven't answered in a long time. Yeah, I loved it. I've not talked about either cars or budgeting in a long time. You know, we do talk about, though, nearly free returns from the Middle East all the time. So that was kind of boring. We haven't talked about that either. You know, I saw this headline in the Financial Times today that Dubai is now more high-priced homes, luxury homes, are sold in Dubai than in any other location worldwide. More than Hong Kong, more than London, more than New York.

1:16:09Dubai is now, if you're looking for a$10 million plus home, that's where it's at. I'm in the market for one, so I should probably - You're like, this is my Texarkana home, and this is my home in Dubai. They're so similar. They're both hot. Middle East, Midwest, you know, they are both hot, but, but in Dubai, at least it's a dry heat in Texarkana right now, it's 95 degrees and 140 % humidity. I think. In Fahrenheit. Good point. Good point. Celsius. It'll be a bad deal. Dead, dead. Joe, where can people find you if they'd like to hear the weather in Texarkana? Yeah. Yeah, that and much more. You will find me at the Stacking Benjamin Show every Monday, Wednesday, Friday.

1:16:57On most Fridays, you'll also find one, Paula Panther with us, competing. We talk about great stuff. Lately, we were debating a great piece from Ryan Holiday about lessons that we've wanted ourselves to learn when we were younger. That was a great episode. We talked about how to roll over 401ks recently. That was a fun episode, Paula, that we did. and the dangers that come with that. But in the middle of those episodes, we have this completely ridiculous year-long trivia competition. And Paula Pant, one of the smallest, smartest, I almost said one of the smallest people, maybe both. That's also true, yeah, five foot one.

1:17:34Probably both. Five foot one here. One of the smallest and smartest people I know, always perennially last in our trivia competition, mostly because the questions are just nonsensical. But you're not losing this year. Yes, I am in second place. second out of a total of three. And you're beating the two-time champion. I remember actually when I came back into the contest, Joe told me, he was like, Paula, you're in a three-way tie for first. I was like, wait a second. There are only three contestants. No, right? Are you saying I'm in a three-way tie for last? Yeah, that means I'm also in a three-way tie for last and I'm in a three-way tie for middle.

1:18:13So anyway, we've broken out of the three-way tie. I am now in second place out of three. It is. so amazing. It's so thrilling. Yes. And just to give people a little more carrot, we gave Paula some hometown trivia. I know. Botched it. Womp womp. Womp womp. Is that a spoiler alert? Do we need to put a spoiler alert? We probably should have at the beginning. Well, you know, people worry about that. Like, oh, you just spoiled the trivia. On the ridiculous question this week. I'm sure people are completely bothered by that. I was watching a YouTube video recently and this woman was, she was talking about lessons from King Lear.

1:18:55She was talking about the link between King Lear and succession. I love that play. And so she then spoke about some stuff that happened at the end of King Lear. And then she kind of stopped herself and she was like, wait a second, spoiler alert? Do I need to put a spoiler alert on King Lear? You've had 400 years to read it. If you don't know what happens at King Lear. Yeah. Yeah, exactly. I think it's on you. Probably on you. So anyway, so yeah, now I'm brain is tuned to spoiler alerts. There it is. Stacking Benjamins every Monday, Wednesday, Friday. It's a lot of fun. All right. Well, thank you so much for joining us.

1:19:33This is the Afford Anything podcast. If you enjoyed today's episode, please subscribe to the show notes, affordanything.com slash show notes, and please open up your favorite podcast playing app and And make sure that you are following this podcast in that app. And check us out on YouTube, youtube.com slash afford anything. We are putting video on YouTube with our faces. You can see it's a much more animated conversation. You can see what we look like as we talk. And you can see how often I'm rolling my eyes or clapping or doing a little dance or, you know. Oh, and all the – I'm holding command strips right now for some reason.

1:20:13They're on my desk, so you can see how I fidget. You can watch it all. You can see Joffrey doing laps. Yeah, my turtle, my pet turtle. He's in the background. Oh, and if I can figure out how to put it on screen or really if my trusty team can help me figure it out, if they can figure it out, my car, my 23-year-old$400 car. If I can find those photos, that's going to be on YouTube. youtube.com slash afford anything. There's a carrot right there.

1:20:49I'm sure the car has more nutritional value than a carrot. In the business people, they call that a lead magnet. A lead magnet. You get to see Paula's car and you get the YouTube channel. No extra fee. Yes, exactly. Exactly. All right. Well, Thank you so much for tuning in. I'm Paula Pant. I'm Joe Solcihai. And we will catch you in the next episode.

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1:22:39All right, there's your disclaimer. Have a great day.