456 | Taking a Step to FI | September Roundup with Ginger

0:00Hello and welcome to Chooseify. Today on the show we have our monthly roundup and I have my good friend Ginger back here joining me. And this should be a lot of fun. We each went back and listened in great detail to episodes 453, 454, and 455. We're going to really dive into our major takeaways so we can all consolidate what we've learned. And ultimately, the point is to take action. So this should be a lot of fun. And with that, welcome to Choose How Fine.

0:34all right ginger welcome back i missed you last month oh yeah i miss being here so thanks so much for having me back yeah this should be fun so you took your big trip using uh some travel rewards points right yeah we got it mostly paid for with points and stayed in a nicer hotel for one of the portions of it than i ever would have because of points and so that was one thing that was really fun. But overall, it was a really good trip. Nice. That is awesome. And this was the big Europe trip, right? Yes, it was the big Europe trip. Mostly we were in the Netherlands. And I did the thing that I think people often do on vacation where they're like, wait, maybe we should live here.

1:10Let's look up how to live here. But now I'm back and it's fine. It's fine to be back here. But yeah, we really enjoyed it. And I can definitely see the appeal. That's cool. Yeah, it's interesting. I definitely know there are people in the community who are making moves to Europe. I've seen a couple people move to Portugal and my friend Andy just moved to Barcelona, Spain. So that's quite cool. Yeah, I think there is some allure of that. And certainly, and we've talked about this before, is walkable cities. I think that to me is something that I just crave so significantly. And actually, after chatting about it with Chad Carson a couple of months ago, he actually just sent me a couple of books on walkable cities.

1:51So I know that's something he's really, really passionate about. So that's something we'll double back to in a future episode, but I'm just getting into it right now. Yeah, quality of life. Okay, well, Brad, before we jump into talking about the episodes this month, I wanted to ask you a question that I want you to put your CPA hat on. I hardly know how to ask the question because I feel like maybe it's obvious and other people know this, but probably if I have the question other people do as well. Well, Ginger, first off, if you have the question, undoubtedly people have the question. I think that's what's so beautiful about Chooseify is we're not afraid to ask what might be silly questions or what you might think are silly questions because that's the tactic I've always taken.

2:33It's like, if I'm curious about it, I suspect there are many, many, many tens of thousands of people out there who just want to know the same thing, but we're just afraid to ask. So lay it on me. Hopefully I can answer. Yeah, I agree with you. That's how I feel. I feel like this is my value. I'm a normal person who doesn't know the answer to these questions. So I will bring them to the person who knows. Okay. So I have an after-tax brokerage account that for me is set aside as my early retirement fund, right? Like this is the stuff that I'm not putting in my 401k. This is just my after-tax account with me.

3:08Okay. And I put some money into it every month and have done that for a couple years. So the situation isn't that I had a giant chunk of money and I put it in three years ago and I haven't put anything in since then, right? I just like many people, I put in a little bit every month. So I started thinking, okay, what if I take out some of that money today? Let's say I take out$5 ,000. Well, I've definitely had$5 ,000 in this account for more than a year. So I'm assuming then that it would count when it comes to tax time as the long term gains, right? Taxed that way instead of the short term. But my question is, how does Vanguard know to pull the funds that I did more than a year ago?

3:53Or how does the federal government know that? Or how, like, am I supposed to do anything to make sure that it's the money that I've been a long time ago? Okay. Yep. That is a brilliant question. And I think that's something that I suspect just about everybody has that exact question. So, okay. The reason why you want it to be longer than a year is for the preferential long-term capital gains tax. So that's really smart. Whereas if you sell something that you have purchased less than a year ago, and there's a gain on it, that gain is taxed at ordinary income tax rates, right? So it would be at your top marginal bracket, assuming all things equal.

4:31But then if it was sold more than a year after purchase, then it would be those preferential rates, which for most people are 15%. They're actually an interesting way, depending if how low your income is, could be 0%, which is actually really awesome. And then there's some higher rates for high income taxpayers. So let's think 15%. That's, I think, the way to look at it. So yeah, Vanguard makes this really, really easy. So yeah, you have a after tax, you're just taxable brokerage account is what we call it. So this is just your normal savings, right? Instead of having it under your mattress or at your bank, you have it in Vanguard and whatever you have it invested in.

5:13I mean, frankly, the Vanguard brokerage account is just a shell. So it goes in there as cash. And then you would have purchased, let's say VTI or VTSAX or some other fund, whatever it may be. And like you said, you've been purchasing it in small, regular increments over a couple of years. So unquestionably, there are some of those items that are more than a year old. So Vanguard makes it easy in that there are a couple of different options in terms of selling mutual funds, but what you really want is the specific ID. So that's actually one of the options. And I believe, and this was certainly a couple of years ago, so maybe they've updated it where you don't have to opt into this anymore, but you used to have to actually check off in advance.

5:57And it could just be like a day in advance, basically. And this is taxing my memory. So there might be a couple little things at the margin that I'm getting wrong, but this is directionally accurate. So you have to basically say, I want to choose specific ID, which means that I can go in and choose exact mutual funds bought on exact dates for my sale. So it's like, Ginger, it's exactly what you're looking for in that sense. And the cool thing is each they're called lots. So each lot that you purchased on that day is listed on its own line and it'll tell you what actually the gain or losses, the current gain or loss on that specific lot.

6:36And I think another important thing to remember is that when you sell, let's say you sell$5 ,000, I think that was the number you had said. So if you sold$5 ,000, now that's proceeds. So that's the amount of current value that you sold. And that's called proceeds. It does not mean that that full$5 ,000 is taxable. That's the critical part. Because what they do is they look back to what's known as the basis, which is the amount you purchased it for. So let's say you bought 50 shares for$98 back in the day. Okay. So that would have been, let's say$4 ,900 that you bought at that time. Now, like you said, you've been putting in smaller amounts, so I don't imagine it's that high, but let's say that has risen to a hundred dollars per share.

7:25So you'd have a hundred dollars per share times the 50 shares. So it gets you to your magic 5 ,000, which is what you want to sell and get those proceeds back into your bank account. So when you sold those shares, those 50 shares of whatever this mutual fund is, you wouldn't be paying even long-term capital gains on the 5 ,000. It wouldn't be$750 in tax, because that would be 15 % of the 5 ,000. It would actually just be on a gain of$100 because your basis was 4 ,900. You sold it for 5 ,000. So you have$100 long-term capital gain, and that then is applied at the 15 % preferential rate. So it would literally be$15 of tax.

8:09So it be essentially negligible. There might be some of those lots in there, Ginger, that you have at a current loss even. So you can very specifically identify, hey, I want to sell this, I want to sell that, X number of shares, and just kind of Vanguard tells you specifically what your total gain or loss is. So I know that was a lot, but does that make sense? No, that was pretty clear. I didn't realize that you could go back and select the specific lot. I'm wondering if that is like an advanced thing that will be hard to find? Or is that pretty typical? Not just because some people aren't doing Vanguard.

8:43Yeah. Great question. So right. This would not be limited to Vanguard. We're only talking about Vanguard because you did say Vanguard. But yeah, it's a great question. Every brokerage firm, to my knowledge, has specific ID as an option. So it definitely would not be limited to Vanguard. But I would just suggest whatever your brokerage is, go and just do a Google search, how to sell a mutual fund specific ID or something like that. And there should be pretty clear instructions. So yeah, I mean, hopefully that was actually a fairly surprisingly comprehensive view at a long-term cap gains at understanding basis.

9:17And yeah, there's, there's a lot there. So, I mean, that was a brilliant question. No, that was really helpful because what you did was you took something that felt really stressful and secretive to me. And now I feel like, okay, I can absolutely figure this out. this is fine. That's awesome. That's absolutely awesome. So yeah, but just again, remember, your tax on this is gonna be very, very minimal in all likelihood, just because especially if you bought it not all that long ago, the likelihood there's gonna be a massive built in gain on this unrealized gain is pretty unlikely. And then, you know, we're talking$5 ,000 of proceeds.

9:48So you should be good. But yeah, definitely go in there and test it out. And we'll maybe report back next month. Okay, should we move on to talking about the first episode this month? Yeah, let's do it. So the first one that we published here in September was episode 453, which was titled From Food Stamps to Phi. And it was with community member Teresa. Ginger, I thought this was really a very impressive episode, just an amazing story to see what she's overcome, where she's been, and really the fact that her and her husband are really at Phi at this point. And it's just such a testament to just keep pushing forward, keep taking action.

10:30Right. Yeah. I really loved this episode and we would encourage people to listen to it. I feel like a lot of times in this space and not just this show, but just in the FI space, there's often attention to the post-FI struggle. Oh, I have so many millions of dollars, but it's hard for me to buy a beer. are very entertaining and interesting, but they're not inspiring, right? They don't move me to take action. And so even though I like listening to those, it's the stories like Teresa that get me fired up and make me feel like this is available to anyone. And, you know, here's someone who could connect to what my struggles have been, you know?

11:13And so, I mean, for that reason too, I re I know we didn't have a chance to talk about it, but I loved the Becky Ian Bill episode that you did last month, it was sort of the same thing where it's like, okay, here are some people who are really different from what you usually hear in this space. And so I found them to be really inspiring. Yeah, that's great. And I have tried so hard over the years to make it so that there's not just one type of person that we hear. But yeah, there just is that caricature. It's funny. It just is like the caricature that will not die. And it's because it's extreme, so it sticks out.

11:46So I more easily bring those to mind, even though it might be that you don't really hear that story as often. Yeah, agreed. And I loved how Teresa talked about Dave Ramsey's baby steps. And she said, it gave her her first real plan for her finances. And her quote was, those baby steps gave me a framework and something to build off of to establish some type of structure in my financial life. And I think that is critical, right? Because most people, most people have no structure. Most people don't know anything about personal finance. And that's why I have gone out of my way repeatedly to say just what a marvelous job Dave Ramsey has done for the world.

12:27I mean, obviously there are lots of things that we disagree with, with him and his organization on, but at their essence, what they're doing is remarkable. It's taking people who are in really desperate, dire need and giving them that rudimentary information and giving them these very specific, precise steps and almost like dogmatic type of view on, hey, you can do this. You can't do that. So it's there's no moderation here when it comes to Dave Ramsey. It's OK, rip up all your credit cards. Don't ever think about it. Do X, Y and Z. And while I think the world operates in shades of gray instead of in black and white, I fully admit and appreciate that for people who are in really dire straits that black and white, I think that's probably the best way to start, frankly.

13:18I'd be curious what your thoughts are on that. Well, I think you're getting at the important thing there is about having a plan, about knowing what is my next step. And so we can apply that even if we're not doing that same plan, we can say, okay, well, it's really helpful for people to have a structure and that structure isn't going to be external. So I have to think about what that's going to look like for me. And I was thinking about this yesterday when a new friend asked me, he said, how much should I save for retirement? And I said, I don't know. And I saw his face drop. And it's like, there's something funny about it because of course, I don't know.

13:55Of course, I don't know what that number is for you. But you can see, I could see in the drop of his face, how much we just want to know something so that we can know what am I supposed to do today? And so I think recognizing, all right, we have to make that structure for ourself. We have to make that plan and see what that end game is so that we can know, okay, when my next paycheck comes in, I'm going to do this and I'm going to do this because it's going to help me to get to this next step. Yeah, that's interesting. So, right. I wonder if there's some bridge for FI in terms of, okay, there might not be one specified plan, but maybe, and this goes back to something that we both think is really important, is automating your finances.

14:38Maybe that's the plan. At the beginning, okay, you set up a plan and then you enact it and then you kind of tweak it little by little as you get more comfortable, as your savings rate increases, you can start sending more money like you do to the Vanguard taxable brokerage account or wherever it may be. Yeah, I wonder because on some levels, I do feel like we let people down in the sense that there is nothing prescribed. Because I think it's so important to say this journey is really personal and you can buy based on what you value, all of these things that are the hallmarks of ChooseFI and the financial independence community now.

15:18But yet, are we basically hanging people out to dry by not giving them some type of plan? So I don't know, maybe that's it. But I would say what you have encouraged people to do is to take action. And even though you're saying, oh, no, we didn't say what the action is, I think the important part is the getting started part. And so I feel like what we're saying, or what ChooseFI is saying, is lift up your foot. And I don't know where you should plant it, but you're going to be in a better position if you start moving to get some momentum. And it makes me think of this conversation I had yesterday where I told this guy, open your Vanguard account.

15:57You don't have put anything in it. You don't have to decide the perfect amount today. We can always tweak that later. But today you can open that account. And that's what I think your message is always like, what is the equivalent of opening the account? What is the equivalent of picking up your foot? Yeah, that's cool. So, right. What is the action you're taking today or this week? Realizing that, right, you're not going to be able to take some action every single day. And to do that would be setting up something unrealistic. But every week, every month, you can take many actions that make your life better.

16:29And I think, yeah, it's those 1 % things, those very, very small things. So, okay. Well, Ginger, you've made me feel a little bit better here. Happy to help. Happy to help. But I love the, it takes a village concept. Yes. You said something about that in the episode where you said that this is no longer in fashion to say, or there's something like that people criticize about it takes a village. And I wondered what you meant by that because I just thought, oh my gosh, so much of what we're doing in this community is about saying you're not alone. And of course, it's okay to ask for help. Yeah, I hear you.

17:05And I obviously like to steer clear of politics as much as possible. I think someone in the political sphere who's popular for saying that is, let's say, vilified by many people. So I think that's where I was going with it, but trying to steer clear. But you were absolutely right that what we're doing is building a worldwide community, right? Like that's really the point of ChooseFI at this point, right? So actually one of the things that I wanted to mention was our local groups. And we don't mention this that often on the podcast anymore because it's almost like, oh, people know about them, but there's so many new people to the community at this point.

17:40And if you go to choosefi.com slash local, we have hundreds of ChooseFI local groups all across the world. And you can join a community of like-minded people, maybe for the first time ever. You can talk to and interact with and be friends with people who share the same values as you when it comes to money and your overall outlook on life. And I think that has been really just such a game changer for a lot of people, those local groups. I know we have other, these aren't related to us, but there's Camp Fi. So Camp Fi, I think it's campfi.org. Stephen Boyer does an amazing job there. And I think the final, just thinking about the local easy ones to get to, there is the Economy Conference in Cincinnati.

18:24I think that's coming up in March of 24. And Diana Merriam, who's been on the show a number of times, just puts on the most remarkable event. I mean, there's like, it's the biggest FI gathering in the whole world. And I just, I can't wait to go back to that. Actually, she gives our community a 10 % discount. So there's a choose fi coupon code just put that in at checkout so uh ginger these groups these weekends right that's what camp fi and economy are it makes you realize you're not alone truly and i think that's what theresa realized right she had help from her church from her family from those multiple cousins who helped from the government from the food pantry at the church and she said they are a bridge to something better for me.

19:08And I think so many people feel either ashamed to ask for help or to lean on other people. Or again, many of these programs are unfortunately maligned and vilified and they really can be a bridge for people. And I mean, Teresa is the perfect example to imagine what she went through from being a young single mother of two kids to having$20 ,000 dollars of debt. But then she kept taking action. She kept having all these people in her life who provided that bridge, who wanted to help her. And it just really warmed my heart. I mean, truly warmed my heart to see a case study of how this is done right.

19:48And it was just, it was awesome. Yeah. One thing that I thought might be interesting to discuss from that episode was her strategy for making a big decision where she was saying, okay, I did the pros and I did the cons, and then the cons really outweighed the pros, but I just did it anyway. And it made me think about the different models that we have for making decisions. And since this is a show about taking action, I thought maybe I could share one of those models that might be helpful for someone. Oh, I would love that. And this hits on some of your professional expertise, right? There it is.

20:22Yeah. And so it made me think of it because she was saying, oh, my list didn't really matter. Ultimately, I still made another decision. And it highlighted how pro-con lists aren't really very helpful. So the problem with the pro-con list is that what we usually do is we say, oh, okay, well, there's three things in the con and there's five in the pro, so I should do the pro, right? But of course, they're not weighted. And it doesn't take into account the emotional weight behind those things. And so ultimately, it becomes not a great tool for making a decision. So there are lots of other ways to make it.

20:55So I was just going to share one that I have found helpful and that I think some of my clients have found helpful. And this is one that comes from Elizabeth Stanley from a book called Wide in the Window. And it's a book about how to increase your ability to handle distress. So anyone who might be interested in that, but she talks about, okay, there's this, you can do this visualization. And what you do is you think about your two things. So let's say I'm deciding whether to take job A or job B. So first I focus on job A and I imagine myself fully having made that decision. So I'm going to actually in my imagination picture being in my office at my new job.

21:37I'm going to notice the things that I would notice in that room and think about what was on my schedule. So as best you can really visualizing what that feels like and noticing your energy when you're imagining it. So is it, I'm feeling excited when I think about that, or I'm feeling a little bit of dread or I'm feeling nervousness, but to notice whether it's an energy that's going towards, or it's kind of a stalling energy. And then you do the same for B, right? Okay, if I was in B, here's what my office would look like. And here's what that would feel like. And then what's the energy? Is it going towards, or is it sort of stalling?

22:17And it's something that I've used in my own life. It's never led me astray. You know, it's usually pretty clear. You don't have to do a lot of dissecting to say, oh, this one feels like there's energy to this decision and this one doesn't. And so it can be just a quick check. And again, you really want to do the visualization. So you want to take five or 10 minutes to do it, but something to give a try. That's very cool. I like that a lot. Yeah, there's definitely, I've heard something. This is obviously a much less impressive version, But if you can't decide between two options, it's like flip a coin.

22:49But in midair, you kind of know which way you actually want it to come up is what I've heard. Again, that's silly and anecdotal. But yeah, definitely the key point is following your energy. And you can really feel that, especially when you lean into it. Yeah, it's a way to take a step back from the intellectual and tune into what your emotions are telling you. Yeah, that's very cool. I guess for me, the final thing on Teresa's episode was I just, I absolutely loved how she's focusing on her daughters and how she said the quote, my family story changes here. And she was just so emphatic about it.

23:26And she said that she opened a Roth IRA for each of her daughters and matched the amount they put in. And I think I forget the exact number, but one of her daughters had like a fantastic net worth. It was like 50 or a hundred thousand, something crazy. and they're just rocking it. I mean, talk about remarkable to think where she was at their age and now in one generation that she's completely changed the story. So Teresa's is a really inspiring story and a really emotional one to listen to. Let's transition now to talking about one that was really, I want to say the opposite, you know, like it's so fricking smart and strategic.

24:04So let's transition now to talking about a conversation that was really strategic and can be helpful, I think, to people for different reasons. And that's the salary negotiation and early retirement by the financial mechanic. And I got to say, Brad, I realized how old I was after listening to this episode because one of my first thoughts was like, oh, her parents must be so proud of her because she's just so articulate and so smart and she is just crushing it. She is absolutely crushing it. And yeah, she's amazing. It's just a real treat to get to go back over this again, right? Because she was on originally in episode 211 and to have an update.

24:46I think one of truly the enduring legacies of this show and really to me, one of the most surprising things is how much people have latched on to negotiation. And I think it was way back when there was a guest, Mr. Refined by Fire. And he said, his quote was, everything is negotiable. And then to have Tory Delmap on, and then to have Financial Mechanic on multiple times, to really drill into our heads that, hey, look, this is uncomfortable. Our society has not been set up for us to learn how to negotiate in our lives. It feels uncomfortable. It feels weird. It feels like something we shouldn't do.

25:25It feels like something that's a little maybe combative, If you think about it, like just on the face of it, but it's none of those things when it's framed properly. Yeah. And I think Ginger, to me, that's the coolest part is like that win-win mentality. I think that was the game changer for me that ultimately the employer wants happy employees. The employer wants continuity of employees in a perfect world, right? You can start negotiating ahead of time before you get the job. You can start negotiating and get on their radar six to eight months before your next review. And how can we make this win-win?