Broke and in Debt at 50? How to Still Retire On-Time (Step-by-Step Plan)

23:08The second most expensive category for most American one-person households is transportation, the bulk of which is made up vehicle costs. What you're gonna do here is if you have a car, we know you have a car because we have$20 ,000 in vehicle debt. So we're gonna assume the car is worth$20 ,000 and that you have$20 ,000 in vehicle debt associated with that. You're gonna sell that car and you're gonna replace it with an eight to 12 year old economy car. My favorite is the Toyota Corolla. I drove that for 12 years. I think it's a wealth building cheat code for those who are in areas that are car dependent.

23:40And then last is food. Food is the third largest spending category. Nancy is going to start by meal planning every week, buying healthy food in bulk, and making those meals in advance so she can keep those costs low and control them in a planned fashion there. She's going to buy healthy foods. We're not going to say eat ramen noodles and rice and beans here necessarily. We're going to eat healthy foods, but we're going to plan it in advance and we're going to buy in bulk. And then last, we're going to talk about insurance here. Nancy is going to shift to higher deductible insurance plans for her auto, home, those types of things.

24:09She doesn't have a house because she's going to want to keep those premiums as low as possible. And I don't think in this case, Nancy's going to need to have life insurance. Why not? Well, Nancy, you're not providing for anybody in this particular situation. You are the one that needs to get your retirement in place here. And so you need to get that set up first. And I think we can go without life insurance in this particular situation. Scott, this is exactly the right choice for her. Nancy, you're going to have to sell that car. It's probably a nice car. You got a$20 ,000 loan on it, but because you're selling it for what you owe, you're not going to net anything.

24:41So you're going to have to go and get another car loan. It's probably going to have a higher interest rate, and that's okay because your total payment is less and therefore your debt load is less and you'll be able to pay it off quicker. So Nancy is going to start generating income and she's going to be spending less than she's generating. And this is on purpose. This is by design because Nancy has some things she needs to do with what we call extra money, except there's no such thing as extra money. Every dollar has a job, to quote Uncle Dave. We are going to make every one of her dollars have a job.

25:16This slide shows the investing order of operations. However, Nancy can't start investing yet because she's stuck on first, number one, build a$1 ,000 cash buffer, and two, pay off bad debt. So bad debt. What is bad debt? Bad debt is high interest rate debt in this particular example, the way we're defining it, right? So when we look at Nancy's debt schedule here, we see a car loan at 5.75%. We see credit card debt at 19%. We see medical debt at 5.45%. And we see student loan debt at 6%. Of these, the bad debt is the credit card debt. We also want to eliminate debt in a general sense as much as possible.

26:00And in this case, because we're recommending that Nancy sells her car and gets a new car, we're calling it a$7 ,000 10-year-old Toyota Corolla, she's going to get a new loan. And that loan is going to be at, I think, 8.25 % or somewhere in that range, 8.25%. That's also bad debt. So in this situation, we're going to have two bad debts for Nancy after she sells her car and gets a new car loan for a smaller balance, but at a higher interest rate. And that's going to be the credit card debt and the car loan. And we're going to prioritize attacking those and paying those off. And then once those are paid off, we're going to make the minimum payments on our medical debt and student loans and resume the order of operations.

26:41Next up on the order of operations is contributing to your 401k enough to get the company match if it's offered. Then we want you to start taking any other free money, employee stock purchase plans, for example. We want you to build and maintain a six-month emergency fund. This step is also going to take a while to build up because six months of expenses can be quite a lot, but we want Nancy to have a safety net should something happen. After that, we're going to have her max out her HSA, max out her 401k, max out her Roth IRA, and then contribute to her after-tax brokerage account. And right now, this seems like a lot.

27:26And she's not going to get here for several years. We're going to model all this out with all the numbers in just a minute. But this is the investment order of operations that we want Nancy to have in the back of her mind while she's at the first two steps, building the$1 ,000 cash buffer and paying off her bad debt. So her immediate action steps, Scott, are building the$1 ,000 cash buffer, selling that car and buying another used car that costs significantly less. So we looked up what a 10-ish year old car would cost. We found a Toyota Corolla for$7 ,000. The current interest rate is 8%, which is higher than what she had, but her monthly payment is much lower than it was before.

28:11We are going to apply every additional dollar to that credit card debt and then start thinking about taking the employer match, probably in year two or three. So right after Nancy has sold her car and saved up her$1 ,000 emergency fund, this is what Nancy's financial situation looks like now. She has a total net worth of negative$36 ,000, which is still negative, but it's$14 ,000 less negative than it was when she started. And all she did was sell her car and save up a thousand dollar emergency fund. So we're already seeing positive results, Nancy, just by these two actions that you took. But this is something you can achieve in 30 days, Nancy, I believe.

28:56Yep, absolutely. This is easy and this is a win that you are getting. So let's look at your budget. The average budget for a one-person household age 55 to 64 is on the right. We've got total spend of$48 ,000, which includes$18 ,000 for housing,$7 ,000 for transportation, $5 ,000 for food,$5 ,000 for pension,$3 ,000 for healthcare,$2 ,000 for entertainment, and$5 ,000 for miscellaneous. These numbers are coming from the Bureau of Labor Statistics. We're not just making those up. On the left side is Nancy's budget with a total spend of$32 ,000 versus$48 ,000 for the average person. And this is because Nancy's housing is about half the price.

29:42Nancy's transportation is less, her food, essentially everything on Nancy's side is less minus the miscellaneous. I do want Nancy to have a miscellaneous category because she's probably new to budgeting and she's going to get it wrong. I got to tell you, I'm not new to budgeting and I got it wrong. It's just it's a process, but it's giving you a start. Just for those who are serious number nerds out there who are screaming about the insurance and pensions difference here. Note that most of the expense of insurance and pensions for Bureau of Labor Statistics data is in the form of Social Security contributions, which are taken out of the paychecks of most wage earners.

30:21I'm simply accounting for those differently in Nancy's budget. Those will come out of her after tax income, and I'm not including them in her spending budget here for reasons that are part of my modeling process. So don't worry. We're not assuming that you're not paying Social Security taxes if you are looking at this and have a very sharp eye for finances. OK, Scott, so at the end of year one, let's take a look at Nancy's position. I calculate that if you agree with our assumptions here that, Nancy, you can generate about fifty five thousand dollars in gross income in year one. You're going to pay about$9 ,200 in income taxes and Social Security and FICA and those kinds of things.

30:58You're going to bring home, that means,$44 ,593 after taxes. And you're going to spend$32 ,377 on your lifestyle. If we believe in those numbers, you're going to also, you're going to be able to use that surplus to pay off about$12 ,000 in credit card debt. And you're going to have reduced your vehicle debt by$13 ,000 by downgrading your vehicle. Now, note that there's a circularity issue here. As you pay down your credit card debt, you're going to pay less interest. So the faster you can do that, the less interest you're going to pay in that year and the more you can save. And so that's a wonderful compounding part of this journey that we're going to see here.

31:34And so in the first year, because of that car sale and this math, we're going to be able to reduce your net worth from negative$50 ,000 or reduce your negative net worth from$50 ,000 in the hole to$19 ,000 in the hole. A$31 ,000 a year difference. Again, largely driven by that car sale and purchase and then by the compounding nature of beginning to pay off that high interest rate debt. You said, if we believe in these numbers, and we absolutely believe in these numbers. Scott and I spent a lot of time coming up with these numbers. We believe that$55 ,000 in gross pay at an entry level, no experience job is attainable because she's got$45 ,000 in her entry level and$10 ,000 in her side hustle income.

32:22We ran the numbers. This is the tax she's going to pay. We ran the numbers on all of this stuff and we have a spreadsheet. Of course, we have a spreadsheet. You've met Scott, right? He loves spreadsheets. We have a spreadsheet that details all of this. So Scott, you said, if we believe these numbers, I absolutely believe these numbers. Okay, Scott, how does she look on year two? All right. So in year two, let's assume nothing really goes that right for Nancy, right? She doesn't get a big raise or promotion at work. She gets a 3 % cost of living adjustment and she continues doing her side hustle, doesn't get any better at it and keeps having to trade her money for time at the same rate there.

32:58Just maybe a small inflation bump, just a bump there because we are adjusting all these numbers for inflation. If that continues, then Nancy will pay off another$10 ,000 in bad debt and she will be done paying off her bad debt. She will not have paid off all of her debt. She will be done paying off her bad debt because that bad debt, again, is the credit card loan at 19 % interest, credit card debt at 19 % interest and the car loan from the new car that she purchased that we have at about 8 % interest. And so now she's just going to be left with her relatively low interest student loan debt and her medical debt.

33:32Okay. With the high interest rate debt eliminated, we're going to continue moving along our order of operations. So in year two, we're going to actually begin investing. It didn't take us five years, 10 years to pay off all the debt and begin investing. It took us 18 months or so, maybe about 20 months, depending on how you want to think about the the circularity with interest payments on that debt. And we're now going to begin investing. So the first thing that Nancy's going to do after she pays off her bad debt is she's going to begin taking her 401k match if offered. In our model, we assume Nancy doesn't even get a 401k match at her employer.

34:06She's one of the employees at one of these firms that does not offer a 401k match. But if she does have that, she's going to take that. Even if she does not have the match, we will still begin contributing to a 401k or tax deferred retirement plan with the additional proceeds, which reduces her tax burden modestly and allows her to accumulate that much more. So now at the end of year two, we're still going to have negative net worth, but we're going to have begun investing about$5 ,000 into a tax deferred retirement account, which can begin compounding and putting that work to going on our side.

34:38Our net worth at the end of year two will be negative$9 ,000. Should we move on to the fun part, Mindy? Let's move on to the fun part. I can't wait to get into these numbers, Scott. That's the grind, right? So we put together this model here where we talk about, you know, what's going to happen over the future. And if Nancy does nothing else but maintain this situation through retirement age, she will gradually increase her contributions to about $30 ,000 per year in her 401k and end up with a balance of about$600 ,000 in her 401k at age 65. Adjusting that number for inflation, that's only going to be about$350 ,000 in today's terms, right?

35:18And all we're doing here is assuming that nothing changes about her job other than cost of living adjustments that keep up with inflation. She continues to live this very, very frugal lifestyle, continues to work her side hustle and just grinds for that point in time. And she invests in a passively managed index fund generating about a 10 % nominal or 7 % real return across that time horizon. Okay. So that's not enough. That's not enough. And this is, I think, where a lot of people, when they think about finances, it intimidates them because they think that this is how a financial plan or model works.

35:51And it doesn't work like this. Nancy, you are You are going to get a raise or promotion beyond a cost of living adjustment over a 15-year career where you work hard, show up every day, and better yourself. You're going to be able to find a job after a few years that will offer some bonus potential. You are going to be able to have the option to switch to an employer at some point in the next three to five years that offers you basic benefits like a 401k match. You're going to get better at your side hustle if you make that a priority in your life and think about ways to improve. You're going to have options one day to buy a house or some kind of real estate as long as you're not in one of these very high cost living areas.

36:35And if you're living in a high cost living area, you should have income opportunities that are much better than we're modeling and you got to turn your brain on and find those, right? And that no other creative opportunities present themselves. That's not how this works, guys. If you begin applying yourself, confront this, build a financial plan and model, and really study personal finance, you're going to find some opportunities. So let's assume a normal career progression, not anything special, a normal career progression for Nancy here, right? The average U.S. worker typically gets a 3 % to 4 % merit or cost of living increase on an annual basis.

37:08We're going to assume 3 % just to be conservative, just stays in line with inflation. The typical worker will see a promotion every three to five years in many fields, and average promotion rates are 6 % to 7 % company-wide, meaning that a solid performer can expect two to four promotions in 10 to 15 years. Nancy, we're going to call you a solid or slightly below average employee here, a performer, and we're going to just give you three promotions over 15 years from your entry-level starting point. You're going to get one promotion in year three. That's going to be a 12 % raise. You're going to get another in year seven, and you're going to get another in year 12, right?

37:44And those promotions are going to come with a 12 % bump, a 15 % bump, and a 10 % bump. You're going to end your career making$88 ,000. And that is nominal. That's not adjusting for inflation. This is not a spectacular earner at any point during this career. It's a normal career progression, though. And you need to know that this type of career progression is normal. And you should plan on it as part of the case. Because if you don't plan on it, you're going to give up. And you're not going to proceed with a plan that is realistic. A realistic plan does account for this kind of stuff. And I can hear somebody yelling at the computer right now saying, Well, but she's a receptionist.

38:18How do you make$88 ,000 a year as a receptionist? You don't. You get different types of promotions. Nancy has been running her household for the last 20 years. She is awesome at organization and she is awesome at running the entire office. So Nancy goes from receptionist to office supervisor to office manager. And then all of a sudden, because she's working in a medical field, the doctor she's working for is like, oh, I want to open up another facility, Nancy, I want you to run the whole thing. This is how you become someone at age 65 with$88 ,000 in salary. So you do need to take advantage of opportunities.

38:56But I think that Nancy is going to have opportunities. Scott, you said she works hard. You used to be a CEO. Did you ever have an employee that didn't work hard? Sure you did. The people who work hard stand out and Nancy is going to stand out to her employers. This is not going to happen every year, every two years, maybe even every three years, okay? But eventually, if you work hard and show up consistently for a very long period of time, you will find opportunities to advance, especially if you are always on top of your market value. And we're going to talk about ways to make sure that you increase your probabilities there.

39:27But we're going to assume some very basic stuff here, nothing special. Nancy's going to get three modest promotions over the next 15 years. As part of those promotions, she's at first in year three going to get a 5 % annual bonus potential, right? She's going to be eligible for a 5 % annual bonus. The second promotion is going to bump that potential 10%. And the third promotion is going to bump that bonus potential to 15%. We're not going to assume that Nancy even gets her bonus every year. We're going to assume that Nancy misses her bonus once every three years. That's a big miss rate. Many people will receive bonuses much more consistently than that over the course of a 15-year career.

40:01We're also going to assume that Nancy gets an employer with her job change or promotion in year three that gives her a basic 401k match, which is very common in employment situations in America. And that's going to give her a 3 % 401k match. That's going to start in year three. If we just assume these things and she keeps her expending consistent, then Nancy will be a millionaire by age 65, right? She'll have 770 grand in her deferred financial portfolio, another 53 ,000 that has grown from her employer matches. The 3 % stacks up over 15 years. She's going to have another $143 ,000 in her Roth.

40:38Remember, we're going to max out our Roth after we've maxed out our deferred portfolio. And she's even going to have a little bit left over to invest after tax in her after tax portfolio, about$43 ,000. And that puts us at a million bucks. So Nancy, we've got you to a million bucks, but we haven't adjusted for inflation. That one million bucks by age 65 is going to be closer to$650 ,000 in today's dollars, right? So we need something on top of it. So remember, at the beginning of this presentation, we said we're going to earn, earn, save, and invest. And we're going to follow a formulaic approach to build wealth.

41:09This is it. If you do something like this, you should have the option to build a reasonable nest egg if you are disciplined, frugal, and work hard over a 15-year period. But it's still not enough in your situation to get us to what we promised, a million bucks adjusted for inflation. And now we have to layer in the second component to financial plans that makes a lot of people uneasy, right? Which is the creative part. How do we layer in some additional creative twists that can help Nancy finish that play to a million bucks in net worth? I also want to call out that I think Nancy, you must be creative in your situation because you don't want to live with the fricking roommate for the next 15 years to get to your financial goal, right?

41:51You don't want to like be in the bottom quartile of spend for your age bracket that entire time. If you're willing to work hard. You need to find other ways to boost this journey and get ahead of it so you can ideally approach a median level of spend for your position and still achieve your goal, right? And again, our model is telling us you can't do that unless you get creative. So let's list some of the obvious opportunities here, Mindy. What are some of the obvious opportunities Nancy has to surpass the outputs of our model? So some of her obvious opportunities are advancing faster in her career than a normal trajectory.

42:23And she's taking her life experience and applying that to her job and making herself look like the rock star employee that she is. Or she's going to be job hopping because she realizes that this job doesn't have any growth potential. It's great while I go find another job with a lot more growth potential. She's going to develop more skills, more of these in-demand job skills in the first one to three years. She's going to take certificate programs. She's going to not necessarily go back to school, but she's going to get education that's going to signal to her employer, hey, I need to pay this lady more.

42:59One item there that, by the way, just to call out on that, is I think you used the example of a receptionist at a dental office, right? Is there an opportunity for her to study to become a dental hygienist? Oh, there sure is. And if we can boost our starting pay to something closer to$70 ,000 or$80 ,000 a year, in two or three years after the training is completed, good gosh, that makes a huge difference on this model and makes the game much easier from an overall standpoint. So that's a huge one there, and that surely is possible for a good number of folks watching this. To use some kind of scrap of their history from education or other skills or begin diving into something that is a true hard skill that will be in demand for the next 15 years.

43:3915 years is a long time, right? So if you spend the first two, developing a hard skill to jumpstart that initial pay, man, that makes a huge difference on this. Scott, would you guess that a dental hygienist is an AI proof job? Yes. I ain't having a robot clean my teeth. Thank you very much. Yeah. There's a lot of jobs you can get right now that you might not have in 15 years, but everybody's got teeth and everybody's going to need to continue to have teeth. Well, maybe not your little daughter, Scott. She might not have teeth yet, but everybody's going to have teeth. Everybody's going to need them to get it cleaned.

44:12So dental hygienist is a really great job that she can absolutely expect to work in until she's 65. Nancy, this is your life and your career. I don't know you specifically and your background on this, but I know if you go online and look for, you know, 60, 70, 80,$90 ,000 a year jobs in your area, if they exist, this is not, this is, you know, I'm assuming you're in one of the top 50-year-ish metros for that particular example. But go look. What is it out there that would be reasonably enjoyable to you from a work perspective? Would you like to fly a lot and be a flight attendant? Is dental hygiene interesting?

44:47Is nursing interesting? What are these jobs that would be interesting to you? Are you entrepreneurial? Are you sales-oriented? Would you want to get your real estate license? Think about those things. There are plenty of ways to develop a hard skill that can get you a salary that can be higher than the starting point we discussed. If you invest in the training and actually finish it and see it through, there are other options for the more entrepreneurial inclined, those willing to take some risk or have some at-risk compensation, for example, in sales that can boost your income significantly beyond the projections in our model here.

45:17You need to know yourself and what you're interested in, but surely you can find those. And if you can't get that job on day one, probably you can get it in year three, maybe year four. Yep. Scott, I'm going to push back on a couple of things. Number one, flight attendants don't really make a lot of money until they've been there for a while and are part of a union. And number two, I don't think you have to enjoy a job. I think that in this particular situation, Nancy needs to do everything she can to generate as much income as she can. So I am so thankful for my dental hygienist. I have no interest in becoming a dental hygienist.

45:50I think Nancy doesn't have that luxury and Nancy needs to look at how fast can I make good money? That's right. The third option we have is increasing your side hustle income. When people talk about entrepreneurship, I'm going to throw this in the bucket of entrepreneurship or creative money making. They say nine out of 10 businesses fail. And that's true, right? But if nine out of 10 businesses fail, I think the wrong reaction is don't start a business. It's try 10 ideas and nine of them will fail and one will work out. And if you try those every 90 days, I bet you that in two and a half years, you're eventually going to hit a winner and it's going to be, it's going to compound, right?

46:26You're going to say, you know, I didn't really like tutoring and I hated Uber driving and I didn't like bartending. Oh, I really liked setting up this event, this 5k event that happens in my, my town every year. And it actually paid me really well. Can I find more of those? I don't know what that's going to look like for you, but if you go in with an experimental mindset and you try new things and are constantly experimenting and tinkering with these, eventually I think you're going to find a very lucrative little niche that you can do, right? We've had a whole bunch of these things like Christmas light decorating and taking down business, right?

46:57We've, you know, lawn care, landscaping, organized, like there's, these are going to appear to you over time. They're going to be really hard to identify at first, but over the course of three to five years, I think you're going to be able to find some really good options if you apply yourself in that category, right? That can really be meaningful eventually. Scott, we've got a friend, Nick Loper over at Side Hustle Nation. He has a podcast with more than 700 episodes highlighting a different side hustle every single week. And our friend, Jay Money over at Budgets Are Sexy has a list of something like 80 or more side hustles that you can do.

47:35Just really creative ideas. Not all of them are creative. Some of them are like drive for Uber. Okay, great. Drive for Uber. That'll generate some income. But maybe on one of these lists or one of these podcast episodes, you're like, oh, that's the one for me. I know I can crush that. So go and look for side hustle opportunities, not just the standard ones, but ones that are interesting to you, ones that you know that you can do really, really well on. If you listen to Nick Loper's podcast, you know, once a week for the next two or three years on your way to work one day and you try out the best five ideas you hear over that point in time, do you think you're going to make some more money than what we put in into our model?

48:11I certainly do. And I think that that's all this is, is letting time compound and letting these opportunities compound and learning about them. Okay. The last item for our creativity push here is going to be real estate, right? This is a favorite of Mindy's and mine. We believe strongly that real estate is a cheat code to building wealth towards financial independence. And there are two primary strategies that we recommend Nancy bias herself towards. Those are going to be the live-in flip and or the house hack. A live-in flip is when Nancy buys a property that needs a lot of work, puts in sweat equity by fixing up the place or working on it herself, and then sells it for a gain, like a fix-and-flip project.

48:51The catch is that if Nancy lives in that house for two years in a row and sells it within the next five years, you must have lived in the property for two out of the last five years. A big portion, up to$250 ,000 if you're single or$500 ,000 if you're married, of the capital gain on that flip can be excluded from capital gains tax. That's huge, right? If Nancy can make$100 ,000 once or twice in that journey, that can potentially push her over the ledge here and get to that million dollars in inflation-adjusted wealth. Now, that's not going to be possible in every area, right? In New York City, that may not be a realistic goal for Nancy for this particular area.

49:27Ideally, if Nancy's in New York City, the income generation or side hustle opportunities will be much greater than we've modeled into our base scenario. But it may be possible here in Denver in years five or six. It may be possible in many Midwestern cities. It may be possible in many Sunbelt cities that are not in California or very expensive, very high cost living areas. So that's something we would bias you towards is saying, hey, if I live in one of these places where housing is more accessible and I already have a roommate, can I buy a duplex, triplex, quadplex, or a house with extra bedrooms and move in and rent them out or even better, Airbnb that property while I live an additional dwelling unit.

50:01Those can be absolute cheat codes on the journey to financial independence. And how many times have we heard a story about someone achieving early financial independence here on the BiggerPockets Money podcast, Mindy, and a live-in flip or house hack was a core part of that journey? It's part of my journey. It's part of how Carl and I built wealth was to buy a house, fix it up over the course of two years, sell it, put a little bit towards the next house, and put the rest in the stock market. We really boosted our wealth generation. I did a talk once and I added it all up. $700 ,000 in tax-free money I have generated through live-in flipping.

50:40And I mean, some of these are really big flips, but my first flip, I did$25 ,000 over four years on a condo that wasn't all that amazing, wasn't like anything special. And I didn't like overhaul the whole thing or pop the top. It's a condo. You can't do that. I just made it so much better than it was when I bought it. I've got to go back and calculate that for myself, but I'm up, I'm up several hundred thousand dollars, maybe, maybe closer to a million dollars when I consider reinvested proceeds, look, uh, cost savings and not just the equity that I've built in the house hacks that I did, uh, for the better part of 10 years.

51:15It's a powerful wealth generation. While we're doing this, one of the things that I think is going to be an undercurrent that's going to drastically propel Nancy's progress here and allow her to absolutely crush the inputs that we have in our base model is going to be self-education. Nancy, you are feeling very disempowered when it comes to personal finances when we started today's episode. by the end of the first year or two, that should change dramatically. And the way you do that is you buy a pair of headphones or you get a library card and you just pick up a book on personal finance or self-improvement or business basics or economics and you read it.

51:52You put it on instead of music on the drive to work, you put it on instead of music on the drive home from work, pick one, right? You put it on while you're at the gym or walking. If you have downtime at work, will you put an earbud in and do that? If you're in between tasks, if you're at lunch break, whatever. And if you can consume a book every two weeks or even better yet, a book a week, my God, your skill set is going to drastically transform. You're going to rewire your brain from someone who feels helpless with respect to personal finance to someone who's bursting with ideas, making connections and finding opportunities.

52:24And that is going to compound to helping you get better at work, at your job and perform better. It's going to help you find better opportunities when it comes to side hustles. or it's going to help you be more confident when it comes to asking for that next raise or promotion or finding the next job opportunity. It's going to help you make sure that you're actually implementing all of the best practices we talked about in personal finances and investing appropriately. It's going to help you feel empowered to buy real estate or make a better decision one day if that's what you choose to do. It's just a invaluable way to get better every day.

52:54You can do it for free or for very low cost nowadays with the internet, audible, library subscriptions and the like. Next, we're going to get to know our market value really well. So related to what I just said, one of the things that I think a lot of people have if they go through a long career and don't really see the outcomes they want is they're not aggressive enough or assertive enough at least in understanding what needs to happen for them to advance. Nancy, this comes down to you having a crystal clear set of expectations for what is needed for the next promotion or major salary increase at your company at all times.

53:29That's all it is. Mindy, you have a great toolkit for making sure that this happens. Can you share that real quick? Scott, I want Nancy to go and research her market value. There's a lot of different ways you can do this. Glassdoor lists salary ranges reported anonymously by employees that work at that company. LinkedIn Salary is a great place to look for location-based compensation data. Indeed Salaries kind of aggregates pay information from job postings and employee reports. Levels.fyi is especially helpful for tech roles and shows compensation by company and level. And in addition to professional associations in your field.

54:10And once you've gathered all this information, you're going to want to compare that to where you're at, not only the level of comfort you have with the company that you work at, but also the level of comfort that you have with where you're being paid. If everybody in your field is making between 50 and 60 and you're at 48 and you just started, that's a great place to stay. If you are at 28, you need to find a new job. So obviously it's not going to be that clear cut, but you know what? Sometimes it kind of is. So knowing what you are worth in your job is super, super important. And I think tell your manager or if it's a small business, the owner of the company that you are ambitious to increase your income and that you would like to take on special projects that give you the opportunity to prove your skill set, develop new skills, make the company more money or save the company money that are outside of your job description if they become available.

55:09Make that known regularly and ask, hey, what do I need to do to get to the next promotion? Can I get a written set of requirements there on this year's performance plan? And if I hit those, well, I know I'm going to be on track to get that next raise or promotion. And if you do that once or twice a year and have those check-ins regularly and are clear, you're not always going to get your raise. You're not always going to get a nice formulaic model, but you will increase your odds over time and that will compound greatly. Two other things on increasing your income here. In combination with that self-education, if you spend very little and are amassing wealth fairly quickly, then you are able to take advantage of opportunities that other people wouldn't even consider.

55:52So for example, let's look at this. Let's say that it's year three or four and Nancy still lives very frugally, but is now debt-free or has very, very low debt, has piled up some investments and is spending 30 grand. Let's say that she's making$48 ,000 to$52 ,000 a year in total income, but because she spends so little, she can take a job in a sales role that has a base pay of$35 ,000 and lots of commission potential if she sells. Guess what? That's a job Nancy can take, but her peer, let's call her Emily, Emily can't take advantage of that because she spends all that she makes, right? And so she can't take a job with a base salary that's lower than her core expenses because that's a threat to her lifestyle or her financial position.

56:35But Nancy can do that. So keeping your expenses low and being on the lookout for those types of extra opportunities, especially in conjunction with reading and the synapses and the connections that that begins to form over time can lead to huge opportunities. I think that this all again is the odds of these outcomes coming about increase if Nancy is networking, right? If there is free time and there are situations that she can take advantage of, can she go to networking events? Can she go to classes that are related to her field after hours? Can she go to these situations and put herself out there in a way that will potentially lead to opportunities?

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1:00:19Thanks for sticking with us. I actually really love the idea of sales for Nancy. provided that she is at all outgoing and not a complete introvert. Because I don't know if you remember way back on episode 32, we interviewed Mr. and Mrs. Pop. And Mr. Pop is a salesperson, and he has generated so much income just from those sales commissions. I think his base salary is like nothing, but his commissions are hundreds of thousands of dollars a year. And he's selling like office supplies, I think, or like something that business people need and is easy to sell because business people need it. So they'll just like, they're buying it with company dollars.

1:01:02It's not their own money that they're buying it with. So sales, I think he's even said in this episode, anybody can do sales. Sales is the number one way to jumpstart your income. So yeah, you've got this nominal base pay, but you have this amazing opportunity for the unlimited commission growth. You read 10 books on sales, just one of the best 10 books for salespersons, and you put a list out there and you read those, maybe you will reframe your brain to really love that. But if you do that over the course of the year and then you rule it out, guess what? You've taken a real shot at building that skill.

1:01:36You move on to the next thing. That's the power of self-education on this front. Okay. We talked about house hacking and the power there. We're not going to go through the detailed numbers here today because we're so far over on time, but we've done plenty of other episodes on this. You can just see that if you have a roommate paying you rent to cover a big portion of the mortgage cost, you're going to spend less on your housing and actually turn your housing into a wealth generator over time versus the wealth destroyer, the expense that either buying or renting typically is for the average American here.

1:02:06Let's go back to investment basics here. And what, as we wrap up, Nancy, there's plenty more detail out there. You're going to spend a lot of time self-educating, but at the core of your personal finance strategy, as you invest in the early stages of your journey, you're going to to be very aggressive. You're going to have that three to six month emergency reserve and cash. That's going to be your defensive position. Everything else is going to be fairly aggressive, right? This could look like a hundred percent stock portfolios. It could look like rental properties, especially if you house hack a few times and keep a few of them as rentals.

1:02:34That's going to, you're going to use debt. Those would be levered. You're going to have an aggressive position that is conducive to building wealth, perhaps more like a young person's approach, these a hundred percent stock portfolios, because you have nothing to protect. There's no reason to protect a very tiny amount of money in year one. But as you approach 80 % of your financial target or about five years out from your retirement date, you will want to transition or begin transitioning to a more traditional retiree portfolio. That's going to look like a diversified portfolio where you're going to include bonds, maybe some international and US exposure, maybe some value and growth exposure in different buckets there.

1:03:13Maybe you're going to pay off or reduce the leverage on your rental properties. Maybe you're going to pay off your home if you choose one day to buy a home in a year. Maybe you're going to expand that cash position to a year or maybe even 18 months to two years in savings. That's going to be the transition approach there. Let's go over very quickly the overall rationale and theory guiding our approach today. The most important thing for Nancy is going to be her savings rate. You increase your savings rate via two factors, right? One is increasing your income, and the second is decreasing your expenses.

1:03:48Extreme frugality is a must for Nancy to get the ball rolling. You have to do it. You may not have to be extremely frugal for the entirety of your journey, but I think it is a requirement for the first two to three years, at the very least, to get a roommate and do many of those more hardcore frugal tactics to get that out of that debt hole and begin, you know, at least make the snowball, not working against you. At least begin to push it down the hill via compounding interest. The biggest medium term factor, so after we get into the immediate most, first and most immediate factor is going to be your savings rate and extreme frugality.

1:04:22The medium term factor that's going to make the biggest difference over the next five years is just how far she can push her income generation. Again, we're assuming she starts with an entry level job, but there are multiple ways to really boost that income by year five, including sales or entrepreneurial entrepreneurial pursuits, side hustle expansion, developing a hard skill that just resets that starting pay at a much higher level, and more. Because Nancy has no assets to protect and is in the hole, we can invest very aggressively in the early years of this journey like a 23-year-old might.

1:04:55Housing is a really important consideration here. And after a few years, as her income rises and her savings rate expands, she may have the option to buy a house. And if she is in an area, area, maybe a medium cost living area where that could be accessible to her, we highly encourage her to seriously consider a house hack or a live-in flip in order to complement that aggressive stock portfolio. And then as we approach that goal, we're going to approach that goal, we're going to approach traditional retirement eventually. There needs to be the education in place to know how to switch from that aggressive portfolio to something more conducive to supporting a long retirement.

1:05:34At the beginning of this presentation, we said we're going to do six things for Nancy. We said that we are going to, one, acknowledge where she is emotionally. Two, in a clear starting point. Three, describe a realistic end goal. Four, deliver a specific, detailed, and actionable financial plan. Five, layer in additional creative hacks to build wealth. And then six, bring her to community so that she can be supported and not be alone on this very daunting journey, right? What we just presented here is a very daunting journey. And for that, that's the last step here. Step six, we have a couple of resources that we really recommend with some friends in the community.

1:06:12Mindy, do you want to talk about some of these? Yeah. Hatching Up to Fi is a podcast and Facebook group specifically directed to Nancy's and Barb's. This is a group of people who are getting a later start in life. Bill is a late starter himself. Jackie was a late starter. and together they have combined to create this supportive community to let you know, yes, you can still get to a position of financial independence. Yes, you can still do this. Here's how. Their Facebook group is fantastic. The Simple Path to Wealth is a personal finance book that everybody in the entire personal finance community recommends.

1:06:50It is a very clear, easy to read, step-by-step how to start investing in the stock market, specifically in index funds. Bigger Pockets Money, we have a Facebook group as well. Facebook.com slash groups slash BP money. And Choose Fi, I love, Choose Fi started, I think in 2017, they started as a main Facebook group. They broke off into local groups once the main Facebook groups got so big. You probably have a local group in your area. Go to ChooseFi.com slash local, and you will find a group near you, which is so helpful to not only be chatting with online friends, but also in person. Hey, I'm having this problem.

1:07:35Here's a solution. All right, Scott, we have some immediate action steps. We're going to include links to all of these episodes in our show notes. But if you're looking for more stories of people who have actually done this, Episode 130, Susan and Norm started from literally negative and became financially independent within 10 years. Episode 152, Kathy from Baby Boomer, Super Saver, also late starter. Deb Witten, Courtney Robinson, Monica Scudieri, Tracy Conan, Becky Heptig and Bill Yount, the original Catching Up to Fi hosts. And then Jackie Cummings, Kosky and Bill Yount have been on our show multiple times.

1:08:16Catching Up to Fi episode 100, The Late Starter's Guide to the Galaxy. All of these episodes links are going to be in our show notes. And these are all excellent episodes to keep reinforcing the idea that, yes, you can, in fact, reach financial independence, even when you're starting late. And just to wrap all this up, guys, we are trying to give Nancy hope about how she can move her life forward. And so this is our latest iteration of an attempt to do that. We will be doing updates on this show and many others like it every year to incrementally get better based on feedback. So please give us some feedback in the comments section if you're watching here on YouTube.

1:09:00Email us at scott at biggerpocketsmoney.com or mindy at biggerpocketsmoney.com. and if you liked what you saw or you want to begin using this but want to have any access to the resources, go to biggerpocketsmoney.com slash resources and that's where you can find that financial statement template. You'll find the slides that we just talked about today called Nancy's Financial Plan. Just search for that and you'll be able to find that and you can download all that for free. You don't have to give us your email address. You don't have to pay us anything. It's just for free available for you. You are, of course, welcome to join our email newsletter, and we encourage you to do so.

1:09:35But you don't need to in order to download any of the resources at biggerpocketsmoney.com slash resources. We just want them to be a starting point that gives you some ideas or inspiration to move on your financial journey. So excited for people to download these resources that we have for Nancy and start playing with them. These are all going to be available on our site. You will be directed to make a copy so that any changes you make are just for you and don't mess up Scott's amazing pivot tables and all of his numbers that are in those. It's a very simple spreadsheet with a tax calculation to help you understand.

1:10:09It is not a very simple spreadsheet. It is a very complicated spreadsheet that Scott spent a ton of time on. But making a small change here, you can see all the changes that happen at the end just by these different things. So if you don't think 40 ,000 is enough and you want to be making 60 ,000, you can see how that compounds. It's just, it's an excellent calculator. It's an excellent spreadsheet. And I am super excited for people to get in and start playing with it. Well, thank you guys for making it this far. We really appreciate you sticking with us and listening. We look forward to your feedback and we will continue to iterate and improve on this type of plan based on your feedback with each passing year and update them for inflation, all those kinds of good things.

1:10:50And Scott, I just want to give one more plug to our 31 day DIY personal finance challenge. If you find yourself in Nancy's position or not, and you want to get a better handle on your finances, go to biggerpocketsmoney.com slash 31 days to enroll in a free 31 day email challenge every day. I email you a task. And even though you're not starting on January 1st, you will still be getting day one's email. We're not going to throw you into the middle of it and be like, ah, too bad. Nope. You start right at day one. So this is a really, really awesome challenge. I encourage you to join if you have not already.

1:11:27All right, Scott, should we get out of here? Let's do it. That wraps up this episode of the Bigger Pockets Money podcast. He is Scott Trench. I am Mindy Jensen saying ciao for now, Hereford cow.