Q&A: Breaking Up with Total Market Funds After 10 Years

26:57And I'm very happy that we started it right here. So. Oh, yeah. Causing chaos since 2024. Can we talk about this a little bit? Why I want to cause the chaos? Why? Okay. This is not so that you have more money. Don't get me wrong. If you have more money, you're going to be financially able to take care of yourself. And that's what, Paula, you and I are after. Right. But there are a lot of people in the personal finance community who say this BS of, I have enough for me and that's good. We live in these awesome communities that we want to be better. And in whatever way we choose, because we have this gift that we know how this stuff works, we can take this compounding interest that we create and make compounding interest for the community and the world around us.

27:49And that's what I'm interested in. So while I'm happy for the Afford Anything community to have more money, let's be clear. I want our communities to have more. And it's so easy. It's so much easier than we all think. And that's what gets me really excited about this. Yeah. Investing is so much simpler. Many people understand. And I think that's because there are a huge number of people out there. There are whole industries out there who get paid to make you think that it's complicated. That they are a wizard. Yeah, exactly. There are huge industries that make their money by convincing you that investing is complicated and therefore they intimidate you and make you kind of throw up your hands and say, here, just take my money.

28:37You handle it. There's the analogy, Paula, right there. They want you to think they're a wizard. We know they're a magician. Right. We know there's sleight of hand going on. And if you know what the sleight of hand is, how much more powerful are you? You're not a wizard. Yeah. You're not Harry Potter. You're just a... Yeah. You're a muggle.

28:59Muggles are great too. No one here is anti-muggle. But if you're pretending to be Harry Potter and you're a muggle. Yeah, yeah, yeah, yeah. You're not truly Harry Potter. You're just someone who's learned a couple of card tricks. Yeah, there it is. Well, thank you, Jackie, for the question. We're going to take a break to hear from the sponsors who make this show possible. And when we return, we will hear from a listener who just received an inheritance and is wondering if the advice that they got is sound. And we will also hear from a listener who has questions about how to juggle a whole bunch of different priorities.

29:37See you in a moment. The kids are back in school now, and I finally have some extra time to plan a weekend getaway for just us. We've been wanting to visit Lancaster County, Pennsylvania for a while now, because I've heard so many people rave about it. We love exploring new places, finding the cutest shops, and eating at restaurants that the locals love. DiscoverLancaster.com is the best place to learn about the unique things to do and upcoming events. Plan your trip alongside us at discoverlankaster.com slash amplified.

30:09This episode is brought to you by Progressive Insurance. Fiscally responsible, financial geniuses, monetary magicians. These are things people say about drivers who switch their car insurance to Progressive and save hundreds. Because Progressive offers discounts for paying in full, owning a home, and more. Plus, you can count on their great customer service to help you when you need it, so your dollar goes a long way. Visit Progressive.com to see if you could save on car insurance. Progressive Casualty Insurance Company and Affiliates. Potential savings will vary. Not available in all states or situations.

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32:24Welcome back. Our next question comes from Heidi. Hi, Paula. I'm a longtime listener and truly appreciate your thoughtful guidance. Sadly, my mother recently passed, leaving an annuity of about$500 ,000. The advisor suggested a 10-year distribution at around$5 ,000 monthly, but I'm considering a 15-year option to reduce the tax impacts. My husband and I are in early 30s and in the 22 % tax bracket with a combined income around$160 ,000. I love your insights on which approach might be beneficial as well as investing this money. Thank you so much for your time. Heidi, thank you for your question.

33:11And first of all, I'm very sorry to hear about your loss. With regard to how you handle this annuity, what I heard you talk about were the numbers. and also a concern about the tax implications. What I didn't hear, and what I'm curious to know, is what are your goals? What do you want to do with this money? What legacy or imprint do you want it to leave? You and your husband have a combined income of$160 ,000, and I don't want to make any assumptions about your bills or your spending, but in the absence of any other information, I'm going to assume that you're perfectly able to maintain your current quality of life to pay your bills.

33:57I'm going to assume that you don't have any significant financial stress. The assumption that I'm working from is that this money is purely discretionary and it's not going to pay any outstanding medical bills that you have or anything like of that nature. If that's the case, if this is discretionary money, then what you don't want to do is get into a situation where you have a couple thousand extra dollars every month or a few thousand extra. And as can so easily happen, when you have just a few thousand extra in your budget, it starts to get lost quickly. It goes to like an extra Uber here, an extra Uber there.

34:42It goes to ordering on DoorDash just a couple extra times. It goes to buying a few more sweaters in the winter than you otherwise would. What I don't want to happen is that 10 years passes and you look back and you're not quite sure where that money went. And it all went to Uber and DoorDash and clothing. I'm not finger pointing at that type of spending if it's conscious. But more times than not, it's unconscious lifestyle creep that allows money to flow away. So where I would start is by asking yourself, specifically, what do you want to do with this money? If you want to invest it for retirement, I think that would be a beautiful use of the money because then the legacy that your mom has created can remain with you.

35:36into your senior years if you want to use it to take a couple of very well-planned trips. I'm not just talking weekend on the beach. I'm talking core life memory. I don't know what interests or passions or hobbies your mom had, but if you want to use it to do something in that vein, maybe your mom was really passionate about animals and you want to spend it on the added costs that it would take to foster dogs from the local shelter. That's where I would start. What use of the money are you looking for? I would start with that. And then once you've determined that use, then pull out that money in the most tax efficient manner possible.

36:25But start with the use first. I love that approach to not just for tax consequences, which I think we can dive into even more, Paula. But I also like it because if that money's invested in a way that meets those goals, then why move it quickly? And then you can worry much more about tax efficiency. But if it's not meeting those goals, or if like a lot of annuities, it's a high expense account, and you can do it much more cheaply, and that offsets a lot of the tax bill you're going to have to move it more quickly, then hell yeah, let's get it out of there quickly. So starting with the goal, I think to your point solves all that stuff.

37:07Yeah. I think the first tax question that I had, which is a really important one is this, a lot of annuities, Heidi, have been sold inside IRAs or inside retirement plans. And if it's inside an IRA or a retirement plan, And that's going to have a different tax strategy than if it's just an annuity that's on its own. Annuities, for many different reasons, get sold inside of IRAs. Most of them aren't very good reasons. There's only a couple of good reasons. But if it's inside of an IRA, then we're following IRS rules on beneficial IRAs. If it's just an annuity, which is what you said it was. So again, Paula, in the absence of other information, that's what I'm going to assume is this is just an annuity.

38:02Here's how annuities get taxed when the money comes out. So in the absence of any other information, we'll assume that this is annuity outside of a retirement plan or an IRA, Paula. If that's the case, annuities do not get what's called a step up in basis, meaning that the tax treatment of your mom taking the money out is the same exact tax treatment for the beneficiary. So how does the tax work? Annuities are taxed in what's called a LIFO manner. LIFO is just short for last money in, first out. So what's the last money in? The last money in is the interest that the annuity makes. This is another reason a lot of people don't like annuities is because annuities become a big tax trap.

38:48The longer you have it, the more interest that accumulates, that's the first thing that comes out. And so because of that, people often leave annuities and take money from other places because of the same question we're answering here, Paula, they don't want to pay the tax. I don't want to pay the tax. So yeah. By the way, for people, so I just want to clarify with LIFO. I took an accounting class and I had some classmates who were struggling with FIFO and LIFO. They called it F my LIFO. So good. And that's how everybody feels, right? They're like, oh, crap. Yeah. And so I was actually kind of because I've been doing this show for so many years, I was actually able to explain that concept to them.

39:32And so I wanted to share that with this audience. So the way to think about FIFO and LIFO is, all right, you've got three chipmunks. You've got Alvin, Simon, and Theodore. Never heard of them. You get Alvin in October, you get Simon in November, and you get Theodore in December. In the new year, if it's FIFO, you're taking Alvin out. And if it's LIFO, you're taking Theodore out. That's how you think through it. There it is. Beautiful. Now I've got that song in my head too. The chipmunk song? Earworm. Yeah. The Christmas chipmunk song. I can't even think of what that sounds like. I guess that's for the best.

40:14Christmas, Christmas time. I'm here. Time for joy. Oh. No? Yeah. Yeah. Anyway. Oh, yeah. Back on LIFO. Back to the show. Back to LIFO. The first money out is going to be the interest. So the first thing that I want to know, Heidi, first thing you want to know, how much interest is there? Because you might be worried in your head about a lot, lot, lot of money that's going to come out of this thing that's going to be a big tax. When maybe it's one time if I just rip out$10 ,000 at once and it's all in my same tax bracket I'm in today, it doesn't matter if I take it out now or if I take it out 10 years from now.

40:59Because really, if we're playing the tax bracket game, Paula, what we're doing is we're figuring out how much income I have right now, which Heidi already said she's done. And then I look at where the top of that tax bracket is, and I can take out the rest of that tax bracket without any additional tax penalty above what I'm already paying. Like, I would consider going into another tax bracket to be something I probably don't want to do. But heck, if I can take out all the interest and still be in my same tax bracket, then let's do it. And I would also then make the plan around that tax bracket situation too.

41:37I wouldn't make it set 5, 10, 15. We can't predict the future that much. Let's just see how much I can take out without it costing me more than what I'm normally doing would cost me. Unless you know for certain that three or four years from now, let's say you're going to have a significant decrease in income. If that's going to happen, well, then maybe we wait for then. But then I'm still not doing 15 years, Paula. If I have a year where I have a heck of a smaller income coming in, is that the only case when you say hallelujah, by the way? Oh, good news. I didn't make any money this year. Here's what I could do.

42:12In that case, then I still take out as much as I possibly can at that lower tax bracket. So I think that's the way I design the tax game. Let me tell you, if the person you're talking to, because you're talking about the advisor, if the advisor is the person who sold the annuity, they may be being paid based on that asset staying where it is. And if they think you're moving it from them, well, then they may be all about, let's leave that money for 10 years. Now, the good news is it sounds like the advisor's telling you to take it out quicker and you want to maybe go longer. So that may not be the case.

42:51But I always want to know, how's the person being paid that's giving me that advice? I think that's the most important thing, though, is, is the money invested in a way right now that meets my goal? If so, then I feel comfortable slow playing it. If not, and it's invested in a way that is not going to be part of my asset allocation, well, then I want to get it there faster because I think I can make up for this short-term tax bill over the long term by having it in the right place. When I look at the taxes, is it inside an IRA or outside an IRA? If it's inside an IRA, I'm going to play by those rules.

43:28It's a whole different thing with an accountant. Or if it's LIFO, then I need to look at how much interest has this actually made and what's the tax bill going to be. And then how much room do I have until I hit the next tax bracket? But all of that, Paula, wrapped up in specifically where you started, which is see how all of what I just said is around what you said, which is what's the money for? Really starting off with what the goal is, is what's the money for? And we're going to get back to that with our next question too. Right. That's true. Yeah. So that core question, what's the money for?

44:08It's fundamentally the question of conscious spending. Joe, you and I yesterday, we had a conversation about regret. Often when it comes to financial regrets, people tend to regret money that they have spent unconsciously, that they've spent without a plan. When people say, I don't know where that money went, somehow it just slipped through my fingers. People often tend to regret money that was spent in that absent-minded, unconscious, non-thoughtful way, it's very rare that a person is thoughtful and deliberate about the use of money and that they later end up regretting that. Even if your priorities shift, right?

44:50I know people who maybe at one phase of their life, they were really into scuba diving and later in their life, they lose interest in it and they're not into scuba anymore, But they never regret the money that they spent scuba diving, even when their interests shift, because they recognize that that was deliberate, thoughtful money that they spent at a specific stage of their life when that was their passion at that stage. So even after that fades, even after they're like, I'm done, I never want to scuba again, I don't even want to look at the ocean. And sometimes that happens. They still don't regret it.

45:27That's the difference between conscious versus unconscious spending. And particularly when it comes to an inheritance, spending that money on very specific, discrete things that you can point to. So you can say, I spent the inheritance that I got from my mom on X, whether that X is your own retirement, whether it's a house that you pay for in cash, whether it's setting up a charity that addresses some type of issue that both you and your mom are passionate about. Whatever that might be, having a very, very discreet and specific X answer to what that money was spent on, that often can give people the psychological – I know that I honored that legacy.

46:18I love the idea of spending the money in a way that not only is prioritized based on your goals but also honors the person. Right. It's just amazing, even as you're talking, Paula, I'm just reliving this idea that money itself has no emotion. It's this green and white bill with a bunch of funky pyramid and eye on it and some president. Yeah. It has no emotion, and yet we bring so much emotion to it. Yeah, because it represents life. It represents time. It represents energy. So honoring somebody's money is honoring their life. Well, thank you, Heidi, for the question. We're going to take one final break to hear from the sponsors who make this show possible.

47:01And when we return, we will continue this conversation with a question about how to set priorities when there are a lot of things that you want to spend on. Stay tuned. This Friday, the NBA on Prime tips off with their debut doubleheader. First up, Boston brings the action to the garden as the Celtics face the New York Knicks. Then out west, it's a battle of the superpowers as the Lakers try to poster the relentless pace of the Minnesota Timberwolves. The Celtics and Knicks, who has the most hustle in defense? This game will come down to who wants it more. And the Timberwolves and the Lakers, it's two Western Conference heavyweights going toe-to-toe.

47:47Buckle up, folks. This one's going to be electric. Celtics, Knicks, T-Wolves, and Lakers. Coverage starts Friday, 7 o 'clock Eastern, only on Prime. Abercrombie Kids knows how to make outfitting easy. Mix and match sets are their ultimate outfit hack for fall. Their sweatshirts and sweatpants are super cozy, and they always have the cutest colors and patterns. Shop fall's easiest outfit at Abercrombie Kids in the app, online, and in stores.

48:34welcome back our final question today comes from an anonymous caller oh joe what should we name this anonymous caller i know not all of our audience is into all of these hallmark channel movies this time of year, the Christmas movies. But for people who are, there is a movie that has kind of defied the odds. In fact, there's been a lot of media about this film. It's called The Best Christmas Pageant Ever. It's after a book that a lot of people have really liked. It's a community that has the same Christmas pageant every year. And this year, the worst kids in the world, the Holdmans, somehow become the main people involved with this and try to ruin and take down the Christmas pageant.

49:20It's hilarious. It's funny. It makes you realize for people that celebrate Christmas what the season maybe should be about versus all this stuff. But the woman who's the mom in this wonderful movie, her character's name is Grace. And she's just trying to hold it all together while everything is coming down. And so as you're going to hear from our caller, her. She's trying to hold a lot together, Paula. And so I think we should call her Grace. Oh, Grace is such a beautiful name. I've always loved that name. Nice. Joe, you never struck me as a Christmas movie guy. I prefer to talk about my love of Die Hard and, you know, manly man movies.

50:06But yeah, this one, I looked at Cheryl at one point. I'm like, I'm not crying. You're crying. shut up. I just recently learned that Die Hard is a Christmas movie. I had no idea. Oh, those are fight words, Paula. You just opened up a... Oh, I've never seen it. That is a wound. I made the mistake of showing my kids when they were maybe eight years old. I'm like, oh yeah, this is a Christmas movie. They're having a Christmas. Oh, and there's a little bit of action. I totally forgot the main line in the movie is yippee-ki-yay bleep yeah how old were your kids at the time eight years old oh yeah my twins are eight and Cheryl's looking at me going what the hell are you doing Joe what are you doing showing our eight-year-olds yippee-ki-yay oh yeah I forgot how violent that movie was too so lesson learned do not show your eight-year-olds die hard they turned out okay they're doing all right not scarred for life all right well our final question today comes from grace hi paula and joe i'm calling with a question about how to prioritize financial goals a little bit about me i'm 34 my husband is 40 and we have two kids one and a half and five years old.

51:34We make about$265 ,000 pre-tax. I have$200 ,000 in a traditional retirement account and my husband has$100 ,000 in a traditional retirement account. We both have 5 % match and we would both be eligible for pensions when we retire, but we're not sure how much we would make in our pension. We have$8 ,000 in a taxable brokerage account,$9 ,000 in a 529 for the five-year-old and$1 ,000 in a 529 for the one-and-a-half-year-old. We also have$12 ,000 in savings and we own a townhome which is worth about$600 ,000 with$415 left on the mortgage. Now here are our priorities. We'd like to retire well and have enough for travel and to live an enjoyable retirement without having to worry at all about finances.

52:26We've calculated that out to be about three to four million dollars between the two of us by the time we're 60. We'd also like to buy a new home in the next five to ten years that would be bigger than our townhome but we have a very nice interest rate of 2.5 percent so if possible we'd like to keep the townhome and rent it out because we live in an area with a lot of college students. The other priority we have is we'd like to buy our next car with cash. We'd also like to fund our children's 529s so that we can pay for their college tuition. And then lastly, we'd like to travel and have at least two vacations each year, one in the summer and one in the winter for Christmas to visit family.

53:13We're really struggling right now with trying to figure out how to prioritize these different financial goals. I understand that we need to be saving more and building up our savings for multiple goals, but I'm not really sure how to visualize how to save. Should we just be dumping as much money as possible into a general savings account? Should we be focusing on one goal over another? Is it based on time horizons or is it based on the amount of money we need? Any help you could give would be really beneficial to us. We're considering looking into a fee-only financial planner to help us prioritize and build out a plan, but I figured I'd ask you guys first.

53:58Thank you. Grace, I love this question. This is the heart and soul of financial planning. Here's a limited pool of resources and here's an unlimited life. And how do I make these limited resources fit this big, wide, beautiful, unlimited life, right? This is really the heart of what money management is all about. I just wish Paula, we knew somebody who wrote a book about this topic. Joe is not so subtly pimping his own book right now. If only there were a book that addressed this. Oh man. Because this is, this is my favorite question too, Grace. It's my favorite question, Paula. You know, it's my favorite question.

54:44Yes, absolutely. People think I get excited about the efficient frontier. This is awesome. Grace, I'm going to say a couple of things right off the bat because I can tell that Joe is he's about to go wild. Joe gone wild. I can see it in his eyes. Before I unleash Joe upon this microphone, a few things I'll say right away. One is, this is very kind of tactical, but if you can, for your shorter term goals, for money that you're saving, use a bank that lets you put that money into different saving sub-accounts. Basically, if everything is commingled together into one big giant savings account, it doesn't feel like money that's being used for X and Y and Z.

55:31If XYZ is all commingled together in the same account, it just feels like a giant big pile of money that you haven't mentally bucketed and assigned emotional weight to. So any bank that has sub accounts, I know, I don't know what the current ones are. Ally Bank, I think did that for a while. They may still do, they may not. Ally does it. That's what I use. Okay, perfect. I know my credit union, a lot of credit union accounts will do it. All of those are either FDIC insured or the similar insurance that the credit union equivalent. Yeah. That credit unions have. Yeah. There was a bank. I don't know if they even still exist.

56:07Smarty Pig. And their whole bread and butter was that the whole concept of Smarty Pig was the user interface was like a giant piggy bank and they would have these separate sub accounts and you could label every single one and you could get really granular with it. You could be like, these are the funds that I'm setting aside to pay to go to my best friend's wedding. You could be as granular as these little $700 goals, or you could have bigger goals, whatever it was. And what was great about that is by virtue of putting a label, putting a name on every single one of those buckets, it really allows you to mentally see what pools of money are being saved for what goal.

56:55So it avoids that jumble. Smarty Pig, not only, Paula, is still a thing. It's a product of Sally Mae. Oh, look at that. So big name, big name agency. Big name acquisition. Yeah. Yeah. Oh, good for them for getting acquired. I knew them back when. I remember when they were young. my kids growing up. The other thing that I will say before you do this, Paula, let me expand upon what you said, because it's not about ally, which is what I use or smarty pig or your credit union, whatever. Yeah. It's actually about when you give your fund a name, all of the behavioral studies show that that makes the money stickier.

57:44If I don't say this is my smarty pig account, I say, this is my sub account that is for my next car fund. I love this for the next car fund, right? Yeah, I love that next car fund. This is my next car fund account. I don't think of it as Smarty Pig anymore. I'm going to not only leave that money there when the next thing happens, so I'm not going to touch it. I'm also going to continue to put money in it more aggressively because it's the car fund and not just a savings account. So labeling your accounts is phenomenal for better behavior. Right. Yeah, exactly. And with the car fund, the way that I like to reframe it is making a car payment to myself, right?

58:24It's like, well, I just have a car payment every month. And so you just make that car payment, but you make it to yourself. That's what Cheryl and I do. Yeah. Yeah, yeah, exactly. And so by virtue of doing that, by calling it a car payment, it feels more like a bill. And so you're less likely to skip out on it because you're like, I got to make my car payment this month. So good. Yeah. It's money that you're sending straight into a savings account. The other thing I would say, and this is where there's some difference in opinion about tactics. Dave Ramsey has this debt payoff method called the debt snowball in which he makes a minimum payment on the majority.

59:04If a person has five debts, you make the minimum required payment on four out of the five, and then you throw every spare penny that you have into the smallest of those five debts. And by virtue of doing that, you wipe one of those five debts off of the board really quickly and that creates a psychological victory that keeps you going. I like to take that model and apply it to savings and turn it into a savings snowball in which you make the quote-unquote minimum payment. And so that's, you get the employer match on your retirement accounts. Maybe you have a certain minimum threshold of the amount of money that you want to put into a kid's college fund.

59:49Like you never want to go under$200 a month per child, right? So you have a certain like quote unquote minimum that you give yourself. You make that minimum payment to all of these different goals. And then every spare penny gets concentrated towards one goal. And that could be the goal that either has the smallest amount of money, similar to the Dave Ramsey debt snowball, or it could be the goal that has the shortest timeframe. But either way, you get the psychological victory of maxing out a goal and then just checking that off your list and being done with it. And I think there's a lot of power to that.

1:00:33Yeah. I think it's really interesting to see how often behavior Trump science, right? I mean, especially you talked about debt pay down. Look at all the smart people out there that had a mortgage at less than 3 % and still paid it off early anyway. Yeah. Me. Yeah. I mean, just sounds like the dumbest, dumbest thing when it comes to math, but it's not all about math. It's about mindshare. Yeah, exactly. I had a lot of very, very, very low interest mortgages. I paid them all off and I do not regret it for a second. It's fabulous. When you get to the point that it's no longer about math and it can be about mindshare, I think for people really, really close to the goal, it has to be about the math, right?

1:01:15But when you get to the point that you don't have to worry about the math and instead I can just do the thing that makes my heart sing, that's the ultimate place to be. There were times that I'm like, hey, listen, I don't want to slow play this thing. But if we don't, you're not going to make it to the big goal. Yeah. Well, and not to talk about myself too much, but the reason that I, just to clarify this for everyone, the reason that I specifically made the decision to pay off all of the mortgages on my seven rentals was because I'm an entrepreneur. I run a small business. So not only am I self-employed, but I also employ others, a small team.

1:01:51and that is inherently a risky way to earn a living. If I'm not mistaken too, it was also the time that you decided to move to Manhattan, which was going to be adding a bunch of new expenses that would also be because you're in Manhattan, you're closer to opportunities. Honestly, Manhattan hasn't actually added expenses. It shrank the square footage that I got for the same amount of money. my housing payment in Manhattan is pretty similar to my housing payment in Las Vegas. Okay. I just have a fraction of the square footage for that. Right. Like a friend of mine says, it's really spacious. I can fit a water bottle and a pencil.

1:02:37Yeah, exactly. So yeah. And in Manhattan, I don't have a car. So if you look at the amount of money that I was spending when I lived in Las Vegas. If you look at my mortgage plus the amount that I spent and my car I bought in cash, but there's still insurance, there's still gasoline, there's still maintenance and repairs. I don't have any of those expenses anymore. And so if you look at the amount of money when I lived in Las Vegas that I spent on my mortgage plus my car related expenses, if you add those two up, that's the rent that I'm paying in New York right now. So actually, moving to Manhattan did not increase my costs.

1:03:19It definitely shrank the square footage. Thousand percent, it shrank the square footage. I had to learn how to live in a much tinier footprint. What freaks me out is always looking at, heck, even hearing Grace, Paula, go through all these goals, you can see why you'd be overwhelmed. I want this thing for my one and a half year old. I want this thing for my five year old. I want to keep the town home. I want the house. I have these pensions. I don't know how they're going to work. I want to retire at 60. We want to travel twice a year. We've got all of these competing goals. How do I make sense of any of that stuff?

1:03:56And the thing that has been so effective for me, and back when I was a financial planner for my clients, was this idea, Grace, called timelining your goals. and by timelining everything out, you will see, you'll put them out in front of you in a way that they're not listed like we just did. Because when you list, that makes my heart rate go faster and faster and faster. My blood pressure go higher and higher and higher because I'm like, another one. And oh yeah. And oh yeah. And, and, and, and, and, and, and another one. If I lay it out graphically, then I can see them. And the magic of these goals is this, and this is basic Stephen Covey stuff, right?

1:04:39Seven habits of highly effective people. When you pick up one end of the stick, the other end of the stick comes with it. Meaning in this case, Grace, what you do toward one of these goals also affects what happens with the other goals. So as an example, let's look at age 60 and the fact that you have a one and a half year old and a five year old. You're going to be in your early to mid fifties when your kids start going to college and you want to retire at 60. those two goals are going to have friction against each other. They're totally going to have friction against each other. And then if you're trying to look at this hugely expensive cost of college, this five to 10 years townhome, if the townhome is 10 years from now, your oldest is 15 at 15.

1:05:28You're starting to think about those college wheels. That's going to play against these goals. the car to stand ahead on your next car is going to affect all of these things, right? Can I do that? Can I not do that? So with a limited check, how do I look at the relationship between all these goals? And the best way to do it is graphically, because I found it's the only thing that decreases the blood pressure because now we see, oh, this is happening here, this ball of money I need for my five-year-old. and then three years later, I've got the one and a half year old that now is entering college.

1:06:06Am I going to have two in at the same time? Depends on birthdays, right? Depends on what happens then, but maybe I've got two in the same time. I don't know. But when I see these things start to intersect, my conscious mind and my subconscious mind begin working on the goal together. And Paula, this is where it gets really powerful because then on that timeline, so I've got me as a stick person over here on one side of the, of just take a regular piece of copy paper. And then across the bottom, put your timeline with you passing away on the far other side, way, way, way on the other side. And then put ages that these things are going to happen and put these little balls of money I'm going to need.

1:06:43I'm going to need a ball of money when I retire at 60. I'm going to need a ball of money when my five-year-old goes to college. I need a ball of money when my one-half-year-old goes to college. I need a ball of money for the townhome. and then I look at those and they bring up, Paula, then some obvious questions. Obvious question one, let's take retirement. Retirement then is, okay, what's that going to cost? Well, she's already predicted what she thinks it's going to cost, but we don't know because she doesn't know what the effect of the pension is, which you and I both know, hugely important to find.

1:07:14That is job number one to find out what that pension is going to be conservatively. I also want to know how secure is that pension? Absolutely. The institution that is providing that pension, how secure are they? What are the risks of insolvency? Yeah. I mean, think about that already. We think about the way we save for it's going to change based on what happens with that pension. So solving that pension is going to look at that one bubble. And then I can take a look once I get some idea of what my plan would be. Okay. Based on all these factors, I think I'm going to need to save this. I can draw a line back to today and I can do this.

1:07:56I'm going to need to save X amount of money times Y rate of return. And the cool thing about that, that also then sets up benchmarks along the way. Because when I look at these, some of our listeners might be 25, 30 years old, you hear number like$5 million, Paul, you freak out. Like, are you kidding me? Even a million dollars. Like, I'll never get there. But you and I know how quickly that compounding works over time. So celebrating the fact that you got to$2 ,000 is a big celebration. If that's your first milestone and you're number one to get there, I got to get to 2000. The next year I got to get to 5 ,000.

1:08:35Then the next year I got to get to whatever. Celebrate these small milestones along the way. But once I know what that is, I do the same thing then with college because she said college is important. So these 529 plans, we know how much money she's going to want for the new house, ostensibly. the same thing, draw a line back to, and that will tell me, okay, I need to save X for my retirement. I need to save Y for these colleges. I need to save Z for the new car. And then I need to save whatever the next letter would be for the house goal. Omega. I should have started a W. you. I should have started earlier.

1:09:18I know now, but now I know what my saving amount is that I need for all four of those things. And then I look at my budget and either I can do it or I can't do it. And if I can't do it, this is where the magic starts. Because in most of the cases, when I was a financial planner, my client couldn't do all these things. They couldn't do it. We had to start making some decisions. And these decisions are lovely. And this is when Joe Saul, Cihai, and Paula Pant start to intersect with our friend, Vicki Robin, because this is not about money. Again, this is about priorities. And I want to put all these priorities in a cage, like it's an MMA match.

1:09:58And I want to say this, if I can't get that house the way I want or when I want, and I can't pay for all of my kids college and I can't retire age 60, which one gives first? And the cool thing is, is everybody listening to this has the answer that, well, of course I'd give her to the college or of course I'd retire later. Or of course the new house isn't that important. Like everybody has their thing, but it's different for everybody. But when you would tell me that when I was your financial planner, now I know, oh, that's not the priority. This is the priority. And so let's say we push back retirement from 60 to 62 because you don't care.

1:10:38Now we can fully fund the kids' college. And now I know college is the main goal. Retirement's the number two goal. Or maybe the house is the main, whatever it is, you've got priority one, priority two, priority three. And with that third priority, you might be able to make it work in other ways you haven't thought of. Maybe I can find a way to expand the budget by either decreasing expenses are increasing my income, right? I know if only somebody had a negotiation class here, speaking of Hocken products. Thank you, Joe. Thank you, Joe. We're running it through beta right now and it's going through a huge number of improvements.

1:11:17So it's not going to be fully ready until sometime in early 2025. But that's still good news, right? Yeah. It's going to be fantastic. Yeah, yeah. We're going through it with the beta testers right now, getting a lot of feedback. So, and you and I know, Paula, all the studies show your boss wants to give you a raise. They have other priorities and they're not just going to throw you money. You need to make your case. So increasing your income, maybe starting that side hustle you've thought about is an option. The second is to decrease expenses. Really look at, do I value these things? But now it's not so much about a budget.

1:11:55Everybody hates a budget. But if I tell you, Paula, if we can find another$200, you can retire when you want to, guess how motivated you are if that's your number one goal. Right. All of a sudden, you're on a mission. You're like, oh, yeah, I don't need to eat at restaurants twice a week. I'm good without that. If you tell me that I can make this happen earlier, heck yeah, because that's my number one goal. All of a sudden, your money starts lining up with your priorities, and that's where this gets fun. So I would timeline these out again, look at then what does that mean I have to do today for each of these, look at my budget and see if that's possible, and then set up your plan for each one individually realizing that they're all part of a unified whole.

1:12:40I like the MMA analogy. I know I laughed when you made it, but it truly is a battle of resources. And it should be, shouldn't it? And the stronger goal should win the resource. Right. And how often are we not doing that? Yeah, exactly. And within that battle, goals get either modified or their timeline gets extended. It's pretty exciting to know that you have all these levers. I can either set a more aggressive asset allocation, which is fraught with risk. I could push the goal back. I can lower the goal. So instead of paying for all of my kids' college, go, okay, they're going to have to figure out a quarter of it.

1:13:28And I'm going to just do two-thirds. Nice math, Joe. Not a math major in college. Wow. We're leaving that in, by the way. Thank you. Paula's like, that's what an idiot I work with right there. That's funny. Let's go with three quarters, Paula. Maybe I fund three quarters of it, or maybe I do two thirds and they get scholarships for that piece that Joe left out. And then the other quarter, whatever. Yeah. But you know what I mean? I can lower the goal. I can push it back. People think there's no options. But when it is the MMA thing, to your point, then we realize we have lots of options around these goals.

1:14:17Yeah. And you know what strikes me when it comes to the time around the goals is there are certain goals. Many parents, and you certainly don't have to do this, but many parents want to be prepared for their children to start college at the age of 18, straight out of high school. Obviously, every family is different and plenty of people don't go to college at 18. Plenty of people go when they're 22 or 25 or 30 or older. But a lot of parents for planning purposes will hold that as a goal that has a fixed timeframe. whereas there are certain other goals like when you purchase a home or when you retire that have a much more flexible timeframe.

1:15:01And Joe, to your point about you can dial up the risk, but that makes it riskier. It makes it riskier when the timeframe is fixed. With college, that timeframe, depending on your set of values, for many parents, that timeframe is fixed. And so the risk has to be dialed down due to the inflexibility of the goal date. Whereas other goals that have a flexible timeline, all right, you can actually keep that risk high, even if the timeline is relatively short, because it's also a flexible date. We would have this happen in non-risky asset classes. So what a fan I am of Ginny Mays. You like Ginny Mays, but you and I also know that Ginny Mays have some pretty bad years sometimes.

1:15:52And sometimes for like that house goal, Paula, that's in the middle of that five to 10 year region, I would use a Ginny May knowing that we can beat FDIC insured rates over long periods of time, but also knowing and making sure my client knew very well that, hey, this thing could go down by 5 % in a year and then we'd have to make it up later. But if the goal of the new house didn't have a specific date and we're okay with living where we are another two years, if that happens, if we're going to have more money by doing it that way, well then heck yeah, I'm going to take that risk, which is not a huge risk to take.

1:16:30Right. So even in the non-risky part of your investing, you can flex a little bit if the goal is flexible. This is exciting though. I love where Grace is at. I love the questions. They're the right questions to be asking. It's the right time to be asking them because these goals are still far enough away that there's plenty of things that you can do to meet them all. I would have people come into my office at 55 and go, I want to retire at 60. What can I do? And there are some things a 55-year-old can do, but not as many things as you can do. in your thirties. It's a powerful time to be asking these questions.

1:17:04Well, so thank you, Grace, for the question. And I do recommend Joe's book. Can we supersize it, Paula? Oh yeah, absolutely. Go for it. Last year for the first time, I took a small number of people. This is not going to be for everybody, but Grace said that she's looking at hiring a financial planner. Maybe she wants to do that. If she wants to understand how all this works before she makes that decision, I'm taking a small cohort of people again this year, starting in late January through my book, and we're getting all the achievements. The book has all these achievements like you're in Cub Scouts.

1:17:36And so we're going to start with things like timelining and setting up your dashboard. We're going to talk about investing the same stuff we talked about early on today, about keeping it easy and then the efficient frontier and how that works. Estate planning, maximizing, heck, a lot of the stuff we talked about today. we're going to go through how to understand all of these things, 90 minutes with me and a small group of people. And we work together to build your financial plan over a 10 week period. If you can't make it live, we will record it, but you really want to try to be there live. It's going to be not, like I said, not for everybody, but if you want to know how this works, it's stackingbedjamins.com slash book club.

1:18:16And this is not like my mom's book club where she has some friends over and they, it's really about drinking wine, Paula for my mom. So stackingbeduments.com slash book club, if you want to dive in, or if you just want to read the book, just go get stacked. You know what? It's the holiday season. Have somebody else buy you stacked.

1:18:35And definitely read, what is it? Page 17? Is that the one? It's so weird that Paula has the exact page that she's on. Yes. Was I right? It's either page 13 or 17. I can't. I think it's 13. Is it 13? Okay. Yeah. And what's cool is that an audio book actually is really good too because you have the actual interviews, but we take audio from actual interviews that I've done with experts in these different areas. And Paula, that section of the book is a transcription from you and I in the Afford Anything show and you leading a discussion around timelining. Oh, wow. I should listen to the audio book.

1:19:15Yeah. Yeah. And so on the audio book, it's you and me answering somebody from the afford anything communities exact question about kind of like Grace's question. But we also have at the end of every chapter of either a transcription in the book of something from the podcast, from the stacking Benjamin show, usually, except for this one afford anything from either the afford anything show or from stacking Benjamins. And so you'll hear people like Laura Adams, Money Girl, you'll hear Gene Chatzky, Jill Schlesinger, lots of the big names in finance talking about their expertise in the area that we just went over in the book.

1:19:53And plus there is a cameo several times throughout the book from my mom. My mom is in the book. Yes. And actually what's funny is I'll even pull the curtain back further. It's not really my mom. It's the actor who plays my mom. That's a whole nother story. well joe i would ask where people can find you if they'd like to hear more but i think you've just told us but i think that was it yeah come join me stackingbenjamins.com slash book club and again it's not gonna be for everybody but if you want to be in the small group doing this i'd love to love to hang out with you for 10 weeks and build your financial plan nice well grace thank you for the question and to all of you thank you for being part of this community this is the afford anything podcast if If you enjoyed today's episode, please sign up for our newsletter, affordanything.com slash newsletter.

1:20:45It's active again, finally. Woohoo! I know, right? I have tried and tried and tried to revive this newsletter and we're finally doing it. So this newsletter is now active again. You will be getting insights delivered hot and fresh to your inbox. This is not stuff that's on the podcast. You will only get it on the newsletter. So affordanything.com slash newsletter. Absolutely zero cost. affordanything.com slash newsletter. Thank you so much for tuning in. This is the Afford Anything podcast. I'm Paula Pant. I'm Joe Solcija. And we'll meet you in the next episode.