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

26:57Who doesn't love to fly? I mean, OK, there's people who don't like to fly. Email Scott. at biggerpockets.com to tell him all about how much you don't like to fly. I think my fear or the excuse or reason for my behavior comes in from two areas. I think one is the divorce as far as the mindset shift that happened during that process where just my total world was just completely turned upside down and I thought everything was kind of going well and it was on a good track and then, you know, you get hit by a bus on Tuesday, kind of thing. And the fear of that happening again is tremendous. The second part comes from the fact that my daughter is only going to be in her formative years for so long.

27:45And the, I would like to be able to spend as much time as possible, essentially with her while, you know, I still am her dad and she wants to hang out with me kind of thing. so it's like I'm trying to push myself to get to where I have as many options as possible as soon as possible so that if I want to move to Baltimore and not fly at all that's a possibility if the commuting and the work becomes too much and I can't make her recitals or her games or what have you so I think those are my two areas of why intellectually what Scott says makes perfect sense and I think yeah Yeah, of course. I need to let loose a little bit and not be...

28:31To ease off the throttle. Exactly. Versus what I'm actually doing. Nice putt, man. Now, another component here, I'll say I can go back to back, is you have no runway. And I use the concept of financial runway a lot. But what you're doing with your money is you're putting all of your cash into paying off this debt. By the way, what is the interest rate in terms of this debt? I know it's with your parents. Well, part of it is personal loan. At this point, the largest part is personal loan, which has, he's not charging me any interest. The home equity line of credit portion is about$21 ,000 left at this point.

29:15And it's at a roughly eight, 8.25 % interest rate. What do you invest in in the stock market? What is the equity portion of your portfolio? It is 100 % U.S. stocks, a mix of, depending on the broker that I'm with, total stock market and S &P 500. Because I've done some tax loss harvesting, they're kind of split depending on... Okay. Before taxes, what do you expect that portfolio to return over a long period of time? I would say if we're talking inflation adjusted, probably I would say I like to use 7%. Occasionally I use 6%. So either 6 or 7. Perfect. Okay. So you got an 8 % loan and you've got an expectation of a 7 % highly volatile return in the other hand.

30:07So my thoughts are, why don't we have a reallocation event here, liquidate part of that stock portfolio, clean up this debt. And then I would encourage you to consider building out a runway of personal finance and building up a little bit more of an emergency reserve. From there, if you're sitting on$25 ,000, for example, which for you is five years of spending, two years of spending, uh, in, in this case, because your, your, your, your expenses are so low. Think about like that, that like freedom is a continuum here. Right. And that's a much, you're, I think you're much more free with that portfolio being, um, uh, debt-free, uh, you literally be debt-free right within, within a week and beginning to build out a, a, a financial runway.

30:57Yes. It would be involved liquidating some investments, but if that's what you believe, If that's your philosophy at 6-7 % and there's an 8 % guaranteed return over here, why not just consider doing that from a resource allocations perspective? And in six months, you've got$25 ,000,$30 ,000,$40 ,000 in your emergency reserve. You've also accumulated$41 ,000 in your 401k. That's a pretty good spot to look up from and have way more options than you have right now. That was an option that was brought to my attention, and I almost pulled the trigger on it. And I can't exactly say why I didn't. It was just some dumb fear or fallacy of logic that said, oh, I bought these shares in an after-tax brokerage account for a longer-term goal, such as a down payment for a house or any other number of things.

31:44And so I shouldn't sell them because that's what it wasn't for. And I don't know. And then I just dismissed it and thought I'll just take cash flow instead and shove all of it to the loans. Yeah. And the only reason I say it is because I think that's congruent with your goals, right? If you were to do that or something along those lines, again, you're going to accumulate, what,$3 ,000,$4 ,000,$5 ,000 a month in after-tax cash flow. You could make that much more if you didn't have any debt. And again, three, six months, I think there's a very realistic path of$25 ,000,$30 ,000,$35 ,000 in savings and a huge 401k.

32:21You're still investing again$41 ,000 annualized, which is going to be more than probably 85, 90 % of the population in the United States that's sucking away from a retirement perspective. So, well, try that on for size. And what's your reaction to that? So when I initially had that idea kind of tossed at me, I was around$30 ,000 of loans left. And I had pretty much exactly$30 ,000 in the after-tax brokerage account. And so I almost pulled the trigger, but then I decided not to. now that I'm at$21 ,000 and the brokerage account is still roughly at$30 ,000 because the market's kind of basically the same as when I first considered this.

33:01I think maybe I'm more likely to accept it now because I don't have to sell all of my brokerage account. It's just the portion of the interest accruing debt that I need to pay off. So I would have roughly$9 ,000 left in there. So maybe that would psychologically feel better, having the debt totally gone, but still having some of that after-tax brokerage still left. Well, and you don't have to sell it all. Right, yeah. You could sell$10 ,000 and pay down$10 ,000 and see how does this feel. Sit with this for a month. Oh, I like not having that extra$10 ,000 in debt. I'm going to sell$10 ,000 more, or I'm going to sell$5 ,000 more and slam this money as much as I can.

33:40Let's talk about your move to Boston. When does your lease come up? Where are you at currently? So I currently do not have a lease. I lucked out in the apartment that I found. And for whatever reason, and I'm not sure, the landlady did not pursue having any of the tenants sign a lease of any description. It was just a, hey, can you Venmo me the money? And you're good to go. I've never even met her. I mean, I talked to her on the phone, and that was about it. Um, so I just rent this little room from her, um, for very little money, relatively speaking in the Boston area. So I can leave at any time.

34:18Um, so I'm very flexible when that, when it comes to that, the only thing that would hold me back from moving is my schedule. So I have to be able, I have to be able to be at the airport within two and a half hours. And so if I moved to Baltimore, I cannot physically get there in two and a half hours from the time they call me. Cause I got to, you know, schedule a flight. So I have to wait until I have the seniority to be able to either do long call reserve, which gives me 14 hours to get to the airport, or actually hold a line where I said that they have give you an actual schedule for the month so that I can plan on when I need to be at the airport.

34:52So I do have to wait until I can get a little bit more seniority until the move happens. I'm guesstimating maybe six months to a year, hopefully. Do they not have a base that you can transfer to? I'm asking these questions like I have very little bits of information cobbled together from multiple airlines. So I don't know how yours specifically works. Can you transfer your base? You can transfer the base, but they don't have a base where I would be moving to. So either way you look at it, if I move to Baltimore, I have to commute to whichever base I decide to transfer to. Can you switch airlines?

35:29Not very easily. And that comes with a whole host of issues, not the least of which is that it resets your seniority. So you go back to year zero pay and you also always go back to the left seat. Almost always. I shouldn't use always, but as far as I know, that's how it works. So it wouldn't be as bad for me now because I'm still relatively junior, but I would take a pretty, I mean, I would take like a 60 % pay cut, which is, you know, that might be worth it. But it's pretty difficult. It's also a long process. For how long do you take that 60 % pay cut? For the first year, generally, it's like a probation year.

36:04And then after the first year, your pay increases roughly 60%. And how long do you expect your daughter to live in Baltimore? I am only assured for about two years because they are, she was in the Air Force and her, my daughter's stepfather is also in the military. And so they're going to be moving around. So only two years. I've considered potentially changing airlines, but because of the unknown nature of what their future is going to look like, I also feel like I need to retain my flexibility as well, just in case they move and then I want to move again. Oh, interesting. Well, then I completely agree with what your instinct is.

36:42You move to Baltimore. If you want to be near your daughter, you have no choice, really. And you commute to where you need to fly out of and you eat that expense. or you commute to Baltimore, um, on a regular basis to visit your daughter. Uh, and it's one, it's kind of six of one and half a dozen the other, it's whatever you think is going to be. That's what you value, right? So invest in that, spend, spend your money on, on, on, on making that happen. And I think that that, yeah, there's not like a good answer to that question. Now we've gone through that and I think those are, yeah, those are your choices.

37:16So how long would the commute be to, uh, uh, front from Baltimore to where you'd be working? Uh, it's, it's however long the flight is. I think it's roughly two hours. So thankfully pilots have the ability to fly, you know, fare free, um, whether it's for business or for, or for pleasure. So it's just a sense or a matter of figuring out what airline flies from Baltimore to Boston and then just listing myself for the flight. Um, so yeah, you would, I would look at roughly probably a two hour flight, um, to get to work and then two hours back at the end of whatever work I was doing in Boston. And how frequently?

37:51As frequently as the number of trips that I have in a month. Trips last anywhere between one day or five days. They typically last no longer than that. And then you have to get at least two or three days off between the trips. So I would imagine an average pilot who commutes probably does three to four commutes back and forth each month. Okay. So this is not, that's a lot, but this is not, hey, you're getting a plane three times a week to commute to work. It's three times a month to commute to work, three or four times a month, right? So, yeah, it is a lot. And it's unfortunate. But I think that that choice would be totally reasonable.

38:39And probably, frankly, what I would be doing in your shoes is moving nearby to spend time with my daughter and commuting there. I'd either do that or if you thought she was going to be there for longer than that, I'd switch airlines and reset because you can do that. But I don't think given the fact that there's no guarantee, that would be a really hard pill to swallow. So what do you think? What has your conclusion been? Yeah, exactly what you just said. I definitely want to just have the freedom to say, hey, I'm not working. Why don't you come over to my house today and go play or I'll go pick you up and I'll pick you up from school and we'll go eat dinner or whatever and create memories with her that are going to last forever.

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43:26Don't wait until next year. Give your family the gift of security today with PolicyGenius. Head to PolicyGenius.com. And so it kind of leads us into the other question that I wanted to ask of you guys, especially since you kind of know the constraints now, the decision between just renting and house hacking. And I think my mind says renting offers me the flexibility that I need to. because I don't know if two years is really long enough to do an effective house hack where it makes it worth it knowing that I'm probably going to be moving away from Baltimore after those two years. Well, my instantaneous reaction there is to zoom back out and say, okay, what's the portfolio?

44:07What is a realistic position you're going to back into three to five years from now, right? I use this all the time. This is how I reset almost every everything in my life when I'm thinking about things in business or personal life. And so I can zoom out and I can say right now you are on track to accumulate$75 ,000 a year in wealth, right? That may change slightly if we spend a little bit more and ease off the throttle again a little bit more. Um, but I think that, uh, that, that puts you at what? 75, 150, 300,$450 ,000, uh, in wealth accumulation. And you can invest that in a variety of ways.

44:46Right now you're choosing to invest most of that in your 401k. If you said, Hey, I want a really flexible financial position. I want the maximum flexibility. Uh, I want, uh, I'm going to accumulate that. I want, uh, uh, 350 ,000 of that to be in real estate. and I want it to be producing$2 ,500 to$3 ,000 a month in cashflow or as close as I can get to those numbers, if I can possibly get there, I would say, okay, then we need a house hack, right? And that's where we would go in and we'd say, no, the house hacking is going to be part of an intentional portfolio building strategy. You've got the income, you've got the inclination.

45:19Maryland's a great real estate market or parts of it are, and there's many opportunities. So that would be where you would use the house hacking as a tool in order to move that portfolio. And I think it has less to do with the flexibility piece because house hacking is the most flexible option, right? You buy the house hack and you live in it. And in your case, you could conceivably move in. You'd be fulfilling the requirements of your loan. And if your daughter happened to move away in two months from then, I think that would meet the... This is where we'd have to check with a lender. Maybe we can discuss in the Facebook group.

45:51But I have to imagine that that would be an event that would qualify you for an exemption to be able to move out from the one-year requirement that comes with a lot of owner-occupied loans. Was that too overwhelming or does that help frame the decision between house hacking or renting? I would say slightly overwhelming just because I'm so unfamiliar with real estate as a subject and all of the nuance that goes into that particular decision and all of the things that have to be considered and all of the ways in which things can happen. So, yes, I think a little overwhelming. Okay. Well, fair enough.

46:25If you move next month, maybe it's too soon for a house hack. Uh, but if you, if you decide to get into real estate and you said, Hey, that's the portfolio I want in three to five years, then I think it would be worthwhile to consider it at some point. Um, what do you believe you get a rent for in Maryland? What kind of place would you rent and what, what it would have cost? I did a little looking on, on Zillow. Um, and, and I think Redfin and the, it seemed to be to kind of, I mean, of course, location dependent, but anywhere between like 750 per bedroom, all the way up to like 1200. 150, depending on the years.

47:00I don't know if that's a large range, but that's the range that I found. Okay. I think you are uniquely positioned to have a house hack where you live near the airport and you have a slightly bigger house and you have a crash pad and you advertise this to everybody on every airline that you could possibly think of anywhere near BWI. You just say, hey, if you want to rent a space here, it is, I don't know how much Crash Pets go for,$100 a month or$300 a month or whatever. And you've got 500 roommates. Don't buy an HOA because they are not going to let you do this. So don't buy an HOA, but buy someplace that's super close where people can get there easily from the airport.

47:47There's one right by the parking lot. I'm in Denver. So there's a parking lot where the buses drive you to the off-site parking. And then there's a condo complex right there where people get out. They take the bus over there. They get out. And that's their crash pad. There's a bunch of apartments there for probably all the airline workers. And they come in. And I'm assuming that the way it works is you come in and you sleep. and then you take the sheets off the bed and you wash them and then you leave. And you remake the bed with new sheets or you put them in the dirty pile or whatever. You can have this system in place that makes it really easy for people to want to live in your house with you constantly coming and going.

48:37But it's making a lot of money for you because you have 500 roommates, but they're never there. You know what I mean? Do you have any experience with crash pads? I don't. I've always lived in the city in which I was based. But for whatever reason, I don't think I've ever considered that particular option. But that does seem, it just sounds exciting. Well, I don't know if you know this, but sometimes there's some downtime in the cockpit. You could talk to your fellow pilot, your fellow flight attendants. Just ask them because you've got a lot of time to do nothing. Yeah, I think that's the opportunity that you have is you're going to be away from your property for a good bit of time.

49:24So, look, in your situation, because you're planning on renting a room and it's so inexpensive relative to your overall take-home pay, like literally you're going to spend less than 10%, 15 % of your total pre-tax income on housing, which is outstanding because of that. And I think that if you were to make a big investment outside of traditional asset classes, something like what Mindy said sounds perfect, right? Because you can just turn this asset that you're not going to be using at least 20%, 30 % of the time, most likely, into something that produces income for you, potentially. And you're already connected to all these people who need this opportunity.

50:06I mean, you definitely need to talk to somebody who knows more about it than me, but that's a great opportunity. If you already need a place to live and you're going to buy a house, buy it close to the airport. I mean, who wants to drive two hours of the airport when they could drive two minutes? And look, again, zooming back out here, what's happened here is you had a devastating life impact, right? And it's kind of completely upended everything you're doing. You have – and I think that produced fear and uncertainty about the future. But now you're a pilot. You make over six figures. You've got a really stable profession here with this.

50:41You have great benefits. You're stocking away tens of thousands of dollars per year, almost in wealth. You've got an investment plan. You're going to be debt-free very shortly. You're less than six months away from being debt-free in the current phase. And you're in control, right? This just hasn't – you haven't had enough time to take off yet in your financial position. So I think it's just a matter of letting more time elapse here, and you're going to get very, very comfortable with your financial position within a year. You're going to be like, wow, I'm actually – I'm kind of rich is I think where you're going to end up pretty shortly here.

51:20And you just haven't had – enough time hasn't elapsed yet for you to kind of feel that confidence, but you're there. So I think it's about putting together a strategy. Like you, it's hard to internalize after all that you've been through. Oh, I'm going to accumulate 450 grand. If I keep this up over the next, uh, uh, what is that? 425 grand over, uh, no, sorry. 375 grand is 75 times five over the next five years. That's a large amount of money. That's probably more than you were conceiving was, was reasonable two or three or four years ago when you're making, or how much you were, you know, you're making$28 ,000 a year, but you still have a very real problem of you have to make an intentional decision about where you're going to allocate that and how you and when you're going to ease off here and allow yourself to enjoy life a little bit from a spending perspective because you're there you've got a very strong financial foundation uh that you're about to pour keep grinding until you k off the debt and then pop up and say what i want the next five years of my life to look like and what i want the financial position to be after that um make those intentional choices i completely agree with the decision to move to Baltimore and commute if that's the best way to see your daughter in your circumstances.

52:29It's sad that that's the reality, but I think it's hard to argue with. Yeah, it is hard to argue with. I can't argue with any of that. All right. Well, should we land this episode? Thank you for all the airline puns today, Scott. Well, thank you guys. Sam, thanks for coming on the show. Really appreciated talking to you. great. You just have built such a strong financial foundation. And I think, again, you're going to pop up in the next six months to a year and realize how strong your situation is and how much room to run you have. I think you're going to be feeling really good about things. And I wish you luck with the move if that's what you decide to do.

53:08And many happy memories with your daughter. Yeah, I appreciate it. Appreciate all the advice from both of you. And it's always It's good to just talk with somebody else because I feel like so often people can feel like their own little islands, whether their situation is good or bad. So it's just nice to get feedback and kind of chit chat about personal hires. Thank you, Sam. And we'll talk to you soon. All right. Thanks. All right, Scott. That was Sam. And that was actually a lot of fun. First of all, kudos to all of you who counted every one of his airline puns. Nice job, Scott, on the airline puns.

53:41Those were not scripted. He just comes up with them because he is so good. They weren't that good. I can do better. Next time, I'll get some more fun ones in there. Okay. Well, let's make a note to our wonderful producer, Kalen, to give us some topics for puns so Scott can slip them in. All right. But that was a fun conversation that we had with Sam. I think he has a lot of opportunity ahead of him. And like you said, grind it out until you pay off that loan. experiment with the employee stock purchase plan, and then pull back on the throttle a little bit and enjoy life. Yeah. I mean, I think he's going to just ascend to new heights with his financial position over the next couple of years.

54:25And again, this is a common situation, I think, for us on the money show is folks kind of get into finance, they start dabbling, they clean up their position. And when they pop up, they haven't sat on a position that's really well constructed with their new high income and their high savings rate and their new investment philosophy for very long. And it's really hard to see, oh, I spent all my life getting to this point, but the next five years, if I just sit at this point, don't even improve. I just go sustain where I'm at. I'm going to accumulate 375 grand. Wow. That's like a pretty big thing to pop out of.

55:02And I think, you know, it's years in the making to get to that kind of run rate. And again, I think it's just hard. That's why we got to keep popping Sam out. And if you're in the shoes of a Sam, if that's relevant to your situation, that's probably what I would encourage you to do as well as pop out, zoom out, think about five years, what's the trajectory, how much total cash am I going to accumulate over those next five years? Where do I want to allocate it? And what do I want to allocate to my values, like moving next to my daughter? Because there is, there are plenty of things. This is not about sacrificing all of life for the next five, 10 years to get to financial dependence.

55:36It's about spending in alignment with your values, but not wasting anything so that all of the excess that's not spent on your values is going towards buying your freedom and giving you the maximum optionality at the end of that journey. That was very well said, Scott. Absolutely agree. All right. Should we get out of here? Let's do it. That wraps up this episode of the BiggerPocketsMoney podcast. He is Scott Trench and I am Mindy Jensen, hoping that these Finance Friday episodes help you stay out of the danger zone. Bigger Pockets Money was created by Mindy Jensen and Scott Trench. Produced by Kaylin Bennett.

56:09Editing by Exodus Media. Copywriting by Nate Weintraub. Lastly, a big thank you to the Bigger Pockets team for making this show possible.

56:37We'll see you next time.