505 | Mailbag: Getting Started with FI, Debt vs. Investing, Dividends, 4% Includes Taxes?, Roth 401k | Rachael Camp

25:52It was a$10 share. I got a dollar and then I'm, I woke up and I'm like, oh man, these are only worth$9 now. What the heck happened? Like, how did this thing go down 10 %? And it's okay. Well, they just distributed literally 10 % of the company's value. Like that's the most clear example of what is functionally happening with the dividend. Now, a lot of investment types would say, oh, but the stock price is actually based on X number of times the earnings. And therefore, this is really like a minute amount. So it really is more akin to that free magical money, which is great that that's how you described it, because that is literally the words that I wrote to Melissa.

26:29I said, dividends are not free magical money. They really aren't. It's just part of the company that instead of them choosing to reinvest, they have nothing better to do and they distribute it as a dividend. And I think that's a really important thing that you touched on a little bit there is you're the owner of this company and that company's management has a lot of different options on what to do with excess cash. Cause that's what we're talking about here. We're talking about excess cash, right? Now, if you went down the list of things that you would want them to do, paying it back to you would in most experts and certainly my and Rachel's opinion be the last thing you would want.

27:06You would much rather them invest in capital to expand a business line or buy a new company or maybe pay down debt or even frankly like share buybacks are slightly more efficient still than dividends because frankly dividends are a forced taxable event. It is like the worst thing that somebody in the fight community could ever ask for is It's like taking away my flexibility for my tax optimization. It's like, what on earth are we talking about here? There was no world where I would ever want to take away my flexibility and buy something that by its very nature, that company has essentially given up.

27:44That's not to say it's a bad company. Usually these are older companies that are operating and they have a stable dividend and that's great, but frankly, they've given up on growing. So if you're looking at like, what is my highest likelihood of having the highest net worth 30 to 50 years from now? I think buying in these stale and stable dividend spitting off companies, let's say, is a vastly inferior and suboptimal decision than even just buying VTI or some type of ETF or index fund. Yeah. This is why I think it's so wild to see 20 or 30 something year olds who are dividend investors. and it's something for some reason I'm seeing a lot more online.

28:27And it really comes back to just not understanding the basics of returns and dividends and how it's made up. So total return is just dividends and appreciation. I don't really care at the end of the day how that gets made up. I just care about my total return. Now there are cons to dividends, which you already alluded to, Brad, with the tax impact. The other really big con though, and again, you also mentioned this, but it's just sector concentration. So if we're going to be dividend chasers, then we are going to exclusively focus on these huge, stable, yes, great companies, but that just don't have much growth left.

29:05I certainly don't want to exclude technology companies, which famously do not issue many dividends. I don't want to exclude small cap companies. These are small companies that are still in that growth period. So they're not issuing dividends. I want to include the growthy and the tech stocks. Absolutely. Especially if I'm young. So it's wild to me because it's so counterintuitive to see young people chasing a dividend yield because it's the same as just chasing these big, boring companies when we should be most aggressive during this time and going into these high growth companies. Yeah. And like you said, they have done a masterful job of selling themselves, these dividend investors.

29:47And I think it's a lot of these people who are like selling products and other other things and there also is something to these online communities like they feel like they're part of something and like oh look i'm getting this income every like i can understand it from a perspective but i think just with like the most cursory bit of research you realize like okay this is not really all that it's wrapped up to me yeah well and to go back to the question you know she mentions a four percent dividend yield which is actually quite conservative to what I see a lot of the people online spouting something like 10%, which is just wild and run from those people.

30:21But the point here is we can create our own dividends. And so I see the argument quite a bit of, well, I never have to sell my shares. Well, you do to create your dividend. You have to make that decision. And there's an illusion that their principle is protected, right? Which is just incorrect. Because like I mentioned earlier, the market's really efficient and it's going to price in that dividend really quickly. So we're not going to get one over on the market and grab that free return. It's just not how it works. So we really have to be completely agnostic to dividends and just care about total return.

30:57Outside of the fact that maybe we actually want to keep dividends a little bit lower, especially in a brokerage account, because those dividends are getting paid out and we're getting taxed on them. And it might not be the time that we want that income yet. If we are decades from retirement, it feels a little silly to have that income coming out from your portfolio when you're just going to be reinvesting it. So when you invest in the stock market, you invest in something like the S &P 500, you're going to have dividends. A lot of companies in the S &P 500 issue dividends, but chasing them and excluding a lot of these great companies that don't issue dividends just doesn't make sense to me.

31:36I'd rather keep them, get that appreciation, and then someday create my own dividend, my own income in the way that I want to. Here, here. That about covers it. And I think we were respectful to the dividend crew. Like I said, I understand it from a perspective, but I think there's just clearly a better way to maximize your overall net worth. And I think that at the end of the day is really what we're trying to do here. Thanks for listening to Chooseify and for all your support of our mission here. The absolute best way to support Chooseify is when you sign up for your next rewards credit card to use our cards page at chooseify.com slash cards.

32:12I keep this page constantly updated so it should always be the top resource for you. Thanks for being part of our community and for your support. All right, let's move on another fairly short one. So this one came in from Jessica. Jessica said, I have a Roth 401k with my current employer. When I leave this job, I plan to transfer this to my Roth IRA. When I transfer my total Roth 401k into my Roth IRA, does this transfer count as a contribution like it would in the Roth conversion ladder scenario? Thank you. And I think, Rachel, I'm sure you're going to dive into this, but there's a lot of very specific terminology when it comes to contributions and conversions.

32:51And can I pull this out? Do I have to wait five years? There's a seasoning period, like all this stuff. So I would love for you to walk through this. Yeah, this is just a straight technical question where we have to understand the wording here is obviously very important. And unfortunately, there's a lot of complexity with these Roth accounts. Now we get to take advantage of it in some ways. So that's why she mentions conversions. But when it comes to Roth accounts, so we have contributions, which are adding money to Roth accounts. There's conversion, which is where we take money from a pre-tax account and we convert it over to Roth.

33:30And then there's rollover, which is not a taxable event. It's not a conversion and it's not a contribution. This is when we're simply just consolidating our 401ks into IRAs. So we're taking that Roth 401k, we're transferring it over to the Roth IRA. So it's not classified as a conversion. It's not classified as a contribution. It's just simply a rollover, getting that account out of the Roth 401k and getting it into the Roth IRA. But one important point here, because she mentions the conversion ladder, and we do have to talk about the five-year rule, I think briefly with this one, because the way that it works, and a lot of people have questions around this, is when you take that Roth 401k, and let's say for the first time you're opening up a Roth IRA, but you've had your Roth 401k for a while, people get a little concerned like, is the five-year period, do I have to start over when I transfer it to the Roth IRA?

34:25And the way that it works is the Roth 401k basically inherits the timing of the Roth IRA. So if that Roth IRA is brand new, it does reset the clock. We have to wait five years, which is unfortunate. But if you have that Roth IRA already open, say you've had it open for 10 years, you transfer that Roth 401k over, you're good to go. There's no five-year period because it inherits that 10 years that's already there. That is very, very good to know. I would not have realized that, but that's huge. So right. And just to catch everybody up, and like I said, we dove really deep into this on episode 503 with Cody Garrett.

35:04So just go back a couple of weeks in the podcast feed and we talk about a decent bit of this, certainly. So Rachel, with a regular Roth IRA contribution. So let's say you put in, just for argument's sake, you're not even maxing, you're putting$4 ,000 a year in. At any point, you can pull those contributions to the Roth IRA out tax and penalty free, right? So that is just like a hard and fast rule. Now, when you make the Roth conversion, so basically you had a traditional IRA, you say, I'm going to convert this to Roth. That's a taxable event. So let's say you move $20 ,000. So$20 ,000 goes on your tax return as ordinary income.

35:46Now$20 ,000 then gets put into your Roth IRA at that point. Now that's where there's the five-year rule, right? Yes. For the penalty. So yeah, the conversion is taxed. So if you were to take out that amount that was converted, you're not going to pay tax on it again. But now we are still subject to that 10 % penalty if we haven't met the five-year rule. So I think this is where a lot of people get confused. They put money into their Roth and now they think, oh, well, it's locked up for five years. I can't touch it. But Brad, you mentioned this, the contributions we can always access tax and penalty free.

36:21So for most people, this is never a problem because worst case scenario, we can access those contributions and those contributions come out first. So we don't have to worry about that. So it's the contributions, it's the conversions where we get that penalty if it's within five years. And then the earnings, we get tax and penalty if it's under five years. Yes. Okay. That is hugely helpful. And then the Roth 401k is still like an enigma because it's the newest of all of these accounts. So a lot of people, myself certainly included, I've never had a Roth 401k. So I'm not in on the precise details.

36:56Is there something comparable where the contributions to that can come out tax and penalty free at any point if it's still either within the Roth 401k or then gets rolled into a Roth IRA? Yeah. The Roth 401k, even for myself, is a bit tricky at times because it's new and they're constantly changing the rules on it. So I have to try to keep up with that because at one point there's RMDs and I believe they took that requirement away. So that's complex as well. But But with the Roth 401k, my understanding is the withdrawals from the Roth 401k are prorated. So there's a percentage of contributions and the percentage of earnings that come out.

37:37Whereas the Roth IRA, it comes out in a specific order. It goes contributions, conversions, then earnings. So I rarely see it because we never really keep money in the Roth 401k if we're going to start pulling it out. But that is my understanding of how it were to work if you kept money in the Roth 401k. Okay. That is very helpful. And of course, as always, the caveat to all of this, this podcast, this is not financial advice for you. While Rachel's a CFP, I'm a CPA, I guess, nominally, this is not professional advice. Let's be clear. And some of this, like Rachel, if I asked you that question in your practice, you would go and do, knowing you, two hours of research and get dot every I and cross every tape.

38:16This is off the top of your head. But yeah, we feel pretty confident that that's accurate. But like you said, most importantly, it actually does seem to change with this Rothfunk, okay? which is why it's so frustrating. So we're not trying to paint a picture. Don't put money in a Roth 401k at all. It's a really cool new feature, but it is just so new that it's still kind of in flux. I was going to add one fun little wrinkle because I see people get this wrong a lot. But when we talk about a backdoor Roth IRA, a lot of people get confused and think that conversion is subject to the five-year rule.

38:49It's actually not. When you do the backdoor Roth process, you can actually take those out right away. There is no five-year rule with the backdoor Roth, which is a fun wrinkle there. The backdoor Roth is the craziest thing in the world that that exists to me. And I still almost like out of protest, I refuse to even learn about it because like, I don't think it should exist. So yeah, I mean, it's a loophole. Yeah. It's a total crazy, bizarre loophole. I think, yeah, if any loophole is going to get closed, that's going to get closed eventually, I think. But neither here nor there. I'm not prognosticating about future policy in the list.

39:24So, okay, let's move on to Robert's question. This is a long one, but it's a good one. Robert said, I have a situation that's a bit different from most of the people that you have on your five podcasts. I'm 56 and I have substantial assets, but also substantial debt. Many of your guests talk about reaching zero and then shooting for a 50 % savings rate and things like that. How about someone who has a$400 ,000 net worth,$200 ,000 equity in a home, but also a$300 ,000 mortgage, close to 100K in investments, but also 150K in debt. Where should I be concentrating my finances for now? I have close to a one-month emergency fund, but I've actually had to use it for an emergency, so I'm trying to refill it now.

40:06Is the best place to concentrate on paying off debt or to continue to invest? I do generate close to about$2 ,000 per month in cash flow for my investments, but I do not fund my SEP. And he said, I'm self-employed. I've read a lot of Dave Ramsey and his baby steps to pay off all debt and invest. But I've also read a lot of Kiyosaki and his ideas to concentrate on buying cashflow producing assets. And actually, this is so interesting that I followed back up with Robert and basically asked about that$150 ,000 in debt because that was somewhat nebulous. So he said, yes, about 50 ,000 of it is credit card debt, all at 0%.

40:43Interestingly, I do balance transfers to pay no interest while working on paying it off. Now that's, I don't know, Richard, that we'll talk about like how long you can continue to do that, but that's a really interesting way. And then he said, the rest is a timeshare condo and some solar panels for the house and two cars. So I guess those four items, I suppose, add to about a hundred thousand. And he said, along those same lines, I'm taking your advice and canceling my whole life insurance policy and getting a term policy, but I've got almost$35 ,000 in cash value for the whole life. Should I continue to treat that as retirement money and put it back into other investments or take the opportunity to pay off some debt?

41:24So that adds a little bit of flavor that I actually did not cure you up for, Rachel, but I think that's pretty helpful. Yeah, that's really helpful because it really depends when we're looking at the variables here and we're comparing paying down debt versus investing, because I think that's the core question here. We have to compare the interest rates on that debt versus a potential rate of return on the investment. That's really the key in all of this. Now there's a psychological component to it, of course, which we can get to. But on that credit card debt, now it is 0%, but let's say it wasn't.

42:00If it was more in line with typical credit card debt in the 20-something percent range, then we would certainly prioritize that. The other extreme here in the classic pay down debt versus invest question is if there's a 401k match, and that's your investing question. Most of the time, that 401k match is going to beat paying down any amount of debt. So those are kind of the two extremes. But when we get what I call the gray area with debt is kind of that four to 7 % range. And that's where we start asking some other questions about the debt. which is things like what is the account type that we are investing in?

42:39So he mentions that he has access to a SEP because he's self-employed. So accounts like that will give you a slight edge anytime there's a tax advantage. But anytime we're in that gray area, I also think it's really important to focus on time horizon, how close are we to retirement. So if we are within 10 years, then it can make a lot of sense to be more aggressive with our debt. If we are far from retirement, if we're in our 20s, we're just starting off, then I think aggressively paying down that low interest or even middle interest debt doesn't make a lot of sense when there's opportunity cost with the investing.

43:17In his situation, the answer honestly probably falls somewhere in the middle, right? Some type of mix of paying down that debt depending on the interest rate versus investing. Here's what you think, Brad. There's so many different variables going on here. Yeah, there's a lot going on here. And even that additional flavor of, hey, this is cars and solar panels and timeshare. While there's nothing especially actionable, I think it's more maybe prioritization. I think maybe that's what we're talking about here generally. I know my parents, for instance, bought a timeshare, like a very expensive one in New York city.

43:58And we eventually by the grace of whomever were able to give that away for$0. And that was like the best win we could have ever imagined. So timeshares are really tough. I think like buying solar panels, like sound like a great thing and they can be a pretty good return. You know, I've, I've installed solar panels about five years ago and, and they've gotten me maybe a seven or 8 % return, which I'm pretty happy with, but I don't think that was a slam dunk by any means. Maybe the overall prioritization now of, okay, in Robert's case, we bought this stuff. We have the two car payments. Let's concentrate on maybe getting some of this paid off because like you said, I'm maybe in a little different situation.

44:41I'm 56 and it sounds like he earned some decent income, but he's got$150 ,000 in debt. And it's not a slam dunk that he's going to be able to continue you doing that 0 % interest shell game with the credit card debt. So while I think it's absolutely brilliant what he's done, I mean, truly brilliant to do that, like if that's a tool available to you, and that's only going to be available in all likelihood to people with significant credit ratings, because they're not just handing out 0 % interest to anybody off the street with a 560 credit rating, right? So if you can do that, obviously that vastly beats the paying 20, 30 % on a credit card.

45:20But I always look at things, and maybe this says more about my internal state than I care to admit, is I always think about worst case scenario. And back in the day, Rachel, and this is dating me, and it was a little before your time, but in the 2006, 2007 time period, everybody who was buying any type of house or property, it was these five one arms, the adjustable rate mortgages. And it's like, I don't have the stats of what percentage, but it was like, it was shockingly high because everybody was just basically saying, oh, I can pay so much less per month now. And oh, I'll just deal with, I'll just refinance.

45:56But what if that interest rate goes way up? Like then you're in a situation where you have a balloon payment at the end of that five years. And like, what the heck are you going to do? So I never want to put myself in a scenario where it's like an existential crisis for my personal finances. And let's be clear. Robert is not in a situation where this is$50 ,000 is existential because he has$300 ,000 investments. Would it be optimal to sell that at a moment's notice and not do the planning on how to optimize taxes and stuff? No, it's not going to be best case scenario, but if he had to, he has a backstop.

46:31But frankly, most people don't have that backstop. So setting yourself up that like this only works if dot, dot, dot, like I can continue to get these 0%. Like that is a recipe for disaster for most people. Robert's in a better situation than that. But nevertheless, if it were me, that$150 ,000 in like just random debt, Rachel, like that is not a wonderful situation to be in. So like at the end of the day, this all comes down to like personal preference. I think like you said, it's a, there's a significant aspect yet again of psychology in this. I start paying a lot of that down. I really, really do.

47:07Yeah. I would rank it by interest rates. And of course, that credit card, we have to treat it a little differently. And it depends how long he has that 0 % for. If that was about to be due soon, then yeah, I would be a bit more aggressive with that. He mentions the emergency funds, how he had to deplete that. That would probably be my first priorities, getting that up to at least one month before maybe tackling some higher interest rate debt. But I would do the same thing. I would take that debt, I would rank it by interest rate, compare it to the potential return of investing. If I think I can get a better return investing, a reasonable, let's say 8%, something like that, then maybe I prioritize investing for a bit.

47:47But I'm similar to you, Brad. It's a lot of, I don't want to say random debt, but a lot of different types where I think psychologically, it would bother me. So I don't see anything wrong with maybe being a bit more aggressive with that whilst continuing to invest, as long as the interest rate isn't like 3%. That's where we can really see the difference. Yeah. Agreed. And there might be some aspect of a debt snowball in there also, since it's not just one monolithic$150 ,000 of debt. There's four different components. So presumably you're making at least minimum payments or whatever the normal...

48:24I don't even know, frankly, what a solar panel loan or a timeshare loan looks like. Let's say it's just like an amortizable amount that 10 years or whatever. Okay. Well, once that is gone, that payment you're making every month then can get put to the next debt and can help abbreviate that. So there's something to be said about in an odd, bizarre way about having those different components where like there will feel like some psychological satisfaction of making progress. So I think that's something that we can't discount. But my thought is that that one month of emergency fund. Now, again, a lot of us compartmentalize our money when it's largely fungible.

49:06The money is the money is the money, ultimately. And it's not ideal for Robert to have to sell any of his investments. But if those are just regular taxable accounts, because he said, I haven't been putting in my retirement account, so we have to assume those are just regular savings in investments, in essence. He has an emergency fund there. While that's not the ideal, I agree with you that he should try to build up the cash on hand, especially in this day and age where you can get 5 % in a high yield savings account. It's a really nice option. So I know it sounds like I'm speaking out of both sides of my mouth here, but I'm really not.

49:41It's like, okay, psychologically, you have the backs up because you know the money's there. Let's be clear. The money is the same money, but there is something to having that liquid cash that's available so that when that life is lumpy kind of thing comes up, which may or may not be an actual emergency, it might just be life. You have the cash and you don't have to sell investments. Yeah. And there's something too, to just creating a plan that's as simple as possible to follow. I think he mentioned he's a little bit new to the community. So my thought too, is what's a sustainable approach. And if we go all the way back to that overwhelmed mom, I could see this being really overwhelming to somebody as well.

50:22And the worst thing that could happen is that he doesn't take action on any of it. So I really do think there's something to, from both a psychological standpoint, but also from a financial standpoint to simplifying things and making it as easy as possible on yourself. If all of a sudden you only have to think about a mortgage and investing, there's a good chance that's going to be a lot easier to keep up with than trying to keep track of all these different types of debt, staying on top of them. It's just a lot to juggle at one time. And so I do see an argument there for let's bring this down to the simplest possible structure just to make sure that I can keep up with my financial plan.

51:03Yeah, agreed. And I think going back to your first statement on this and to appease all the math people out there who are probably yelling at me specifically here is you obviously have to look at the interest rates. Let's be clear. So if the solar panels you were able to get, it's 0.9 % interest and the timeshare to basically sell you this dopey thing, they gave it to you for 0 % interest. Is there a major rush to pay it off at these tiny minuscule amounts of interest? There's not as much of a rush. So I think that is a key missing piece that we just simply don't have. So I think we're talking more holistically here, assuming that these are kind of standard interest rates, but this might be a situation in Robert's very particular case where he has these amazing interest rates.

51:50And that would obviously change the entire mindset behind this and how we would approach it. But nevertheless, Rich, I think we covered that in both the broad terms and also in Robert's specific case. So, okay, Rachel, we've got something fun here. And this came in and this, I'm basically surprising both of us, but this was so much fun that I think we're going to take a shot at it. But what's cool about the FI community and the Choose a FI community specifically is we've always said this is a crowdsourced personal finance show. So I would love for this to actually be like a call to action for, hey, let's maybe come up with a way that people new to the community, especially maybe people getting started at a younger age, what are the actionable steps to take to get yourself on a path to five?

52:35So I don't want to steal Ava's thunder here, but here's her voicemail. And just a note to everybody, she says something in there like, oh, and like I said, I'm 17. She actually had some issues with our tech. It was our issue. So just assume that she said that in a prior voicemail and we'll go from there. Hi, my name is Ava. I love the podcast. I've been binging it for the last couple months and I'm just obsessed with it. And I'm so happy that I found it when I did because it's already given me the knowledge that I need to be able to set myself up financially for my future and for the future I want.

53:11So for you guys, I ask for someone in my situation, like I said, I'm 17. and I have some savings built up. I work part-time and I'm setting up my college plan by taking AP courses in high school. And I really just wanna know if you had a list of clear, actionable steps that you could take from the beginning, how would you set yourself up for FI from the very start so that you could really live the life that you want? What are the areas that I should be focusing on the most? Where I should be putting my money the most? and yeah, what are all your tips and tricks that you would give to someone my age for being able to do it right the first time?

53:53That's pretty cool, right? So cool. Love that. That is an amazing one. So yeah, it's a bit daunting because what are all of your tips and tricks? So we're probably 660 episodes in and I don't have a conclusive list of all the tips or tricks, which I would love to have. And yeah, maybe somebody, a couple of people will jump forward in the community and say, hey, I want to actually help with that. I want to help create something. And what's cool is that we actually had last week in episode 504, we had Devin on. And Devin, somebody who I met at the extraordinary event we put on with Alan and Katie Donegan in Las Vegas.

54:31And he's just a remarkable, remarkable young man. He's in his very early 20s. I think he might've turned 23, but I think either 22, 23. And he's just on this amazing path. And I could see someone like him jumping forward and helping create something like this. So Rachel, when you hear Ava's voicemail, what are your thoughts? Well, I'm blown away because how cool to be finding this at 17. I'm very jealous because I was not thinking about this at 17, but it's so cool to see somebody who is. So congratulations, because you found this so much quicker than most people do. And you're thinking about this at such a young age, which means you have so much opportunity.

55:13So I'm just thinking about if I could see myself at 17, what are some of the things I would say, some of the mistakes I would tell myself to avoid. She really wants to get a jumpstart on things and she has some savings. So maybe we assume she's got that emergency fund built up. But I would just really, really focus on investing. As soon as you can, get those dollars working and leave them alone. She's working part time. So I assume she's in a lower income year relative to where she's going to be for the rest of her career. So something like a Roth would be an amazing account to start because you're starting to build that tax-free wealth really quickly.

55:50Keep in mind that when we do something like a Roth, we are leaving it alone. That's for retirement. We're not touching that for a long time. But it seems like she's completely aware of this and she just wants to get started as soon as possible. So it's so cool because everything that she invests at 17 is just going to work so, so hard for her. And it's so cool to see this happening. I love it. It is so, so cool. And yeah, what's wild is when you talk about a timeline of a life, right? In our earlier example, I said$1 ,000 a month for 40 years, which seems like an incredible timeframe for a lot of us, Ava's 17, 40 years puts her at 57, right?

56:32And it's not to say she can save a thousand dollars a month starting at 17, but in fairly short order, she'll be able to, right? And I mean, that's$3.5 million after 40 years. And then just using the rule of 72, that's going to double nine years later, right? So I mean, that's$7 million and then 14 million, another nine years. I mean, we're talking deca-deca millionaires. She's going to be so wealthy. Right? I mean, seriously. So my advice is similar to yours. It's a broader look, which is, okay, you've found FI before you've made any mistakes. Frankly, like most of us have made mistakes or we've locked ourselves into an expensive lifestyle.

57:15And that is not to say that someone who's a late starter can't get started. FI is for everybody. We have all made mistakes. Do not beat yourself up. This is for you. It explicitly is for you. But man, if we could all go back to 17 and having not made mistakes, right? So I think she's well on her way with college, which is she talked about AP courses. I know we've had the millionaire educator come on and talk about CLEP testing. And I think he talked about Sophia.org and modern states. It was episode 238. It was one of the most important episodes. It was how to test out of college while you're still in high school.

57:55So episode 238, that was from about four years ago. So I suspect at the margins, some of the details like is Sophia still$30 a month or something? I mean, we can't promise that obviously, but that should be very, very accurate. And then Brian Ufinger came on the show last year on episode 460. And Rachel, this was an episode that changed my life. and frankly, the trajectory for my daughters, most likely, which was he talked about these merit aid scholarship grids that are now available and are put out by hundreds of schools, very specifically and broadly like the state schools in the Southeast is where he sees the majority of them.

58:38But this is not like the old days when I went to college and like, it was just like a total black box on merit aid scholarship. Now it's just, it's cut and dry. It's if you have this SAT score and that GPA, you get a full scholarship. If you have that minus 50 points or whatever, you get a half scholarship. It's just, it is clear as day. And I know for my older daughter, who's going into 11th grade, we went and looked at Mary Washington, which is a state school here in Virginia. It's a small little state school about an hour from us. It doesn't have the name recognition of UVA or William & Mary, of course, but we looked at the merit aid grid and there's a really high probability with her SET scores and GPA that she's going to get a full scholarship there.

59:22So I was like, okay, that's pretty darn cool. So Brian talked on that episode 460 about really studying for the SETs and the ACTs, not to tell your friends that you did well or the parents to feel proud that their kids got some silly score, but to actually just get tens of thousands of dollars of value, maybe$100 ,000 of value by just studying for a test that whether you like to test or not is irrelevant. These are the rules. These merit aid grids exist. So if you went from a 1360 to a 1450, which are obviously really hard scores, but if you studied and started off there and ended up there, that could mean the difference of$70 ,000.

1:00:02So I would say to Ava, listen to those two episodes and think about CLEP tests, think about dual enrollment, think about how can I maybe even go to a junior college or a community college, as they call them in some places. I know here in Virginia, and I know this exists in a couple of states where there is a guaranteed admissions program. So you can go to a community college for two years, get your associate's degree, and then you are guaranteed admission if you dot I's and cross T's. And you have, I think it's something like a 3.4 GPA at the community college, which is not in the scheme of things that hard.

1:00:39You are guaranteed admission to the University of Virginia and William & Mary, which are two top 50 schools in the country. That's remarkable. And you get it for half off. Okay. So you got to think about those kinds of things. So yeah, Rachel, I would start with the college and then we can move into other stuff. But do you have any thoughts on college? I think that's all really smart. Thinking back to the way I approached college was really lazy, but I also stumbled into making a pretty good financial decision with it. So I didn't really look into scholarships. I took AP classes, but never took the test.

1:01:12She's doing so much better than I already was. So I'm very impressed. But yeah, outside of that, I think an in-state public school is really underrated, especially at least maybe for the first few years. And then if you are looking at something where you really need to specialize or there's an advanced form of education, then certainly the payoff might be worth it. But I always say I stumbled into a really good financial decision by applying to one school, not thinking about it very much. It was in-state, it was Indiana University, and it's a great business school. So I transferred to the business school.

1:01:45And Mark Cuban has a much better story of how he ended up at IU. He ranked the top 10 business schools for undergrad, circled the cheapest one and went there and he's doing great. So I completely agree, Brad. I think there's something making sure that this is really affordable. I mean, this could potentially be one of the most expensive purchases of your life. And fortunately for Ava, she's thinking about it where a lot of 17-year-olds are not. And just be sure to look into every opportunity that you have with scholarships. That was a mistake I made where I really didn't look into it enough. Same.

1:02:19That is exactly... I look back with great regret on that. I, similar to you, made a somewhat optimized decision, but it kind of fell backwards into it rather than doing it with eyes wide open. So yeah, I don't pat myself on the back too much about that. But yeah, so for Ava, I guess where I would go from there is, okay, when you come out of college, I think one of the biggest things is to not succumb to lifestyle inflation. I think the very first thing a lot of people want to do is just like prove how like, I don't know, mature and tough they are and like, go get an apartment by themselves and buy a new car and all this stuff.

1:02:57And I don't suspect she's going to do that, but nevertheless, like a lot of her friends are going to do it. There's going to be some pressure. And I mean, frankly, like you just lived in a dorm for four years and you probably have the time of your life, right? Like because of the proximity and having friends around, like I long for those days. That was amazing, right? Like to have people around everywhere. What I would do, I think the perfect optimized way is house hacking. So can you buy some type of property, let's say even just single family house, we'll just do the regular version. You buy a four bedroom house and you rent out the other three rooms to friends of yours.

1:03:34And maybe in that scenario, you're paying very little for your own living expenses. And when we look at the pie of our life expenses, living expenses are the largest and usually somewhere in the vicinity of 30 to 40 % for a lot of people, if you can cut that down to virtually nothing, okay, you're way, way, way ahead of the game. Now, can you do that right away necessarily? Well, maybe, maybe not. I mean, if Ava's been saving all this time, she might have the ability to buy a property, obviously in a slightly lower cost of living area or part of town, but there are some preferential mortgage programs for first-time buyers and such.

1:04:12So that might be within reach. I mean, I know house hacking, Scott Trench from Bigger Pockets talks about this really, really extensively. And there are other methods of house hacking. Obviously, there's like buying a duplex or a triplex and renting out those other units. You could still rent out the other bedrooms in your own unit. So there are ways to do that. But getting my living expenses under control, not buying a fancy car, just trying to keep those structural expenses down as much as possible. And then I guess my last thing on the life expenses slash saving would be if you can just build that life where it's table stakes to save 50 % of your income, you can't go wrong.

1:04:52So before you've succumbed to an expensive lifestyle, just take straight off the top 50%, put it in low-cost funds like a VTI or VOO or something like that. And goodness, it's really, really, really hard to go wrong. I mean, Rachel, we could dive into the nuance of like you said, the Roth, if your income's low, if your income's higher, maybe you consider 401k, certainly up to the match from your employer. You consider maybe putting more in there, but there's always some more nuance that's maybe a little harder to get into. But thoughts on any of the house hacking, savings rate, that kind of stuff?

1:05:28Oh, my philosophy is the exact same as yours. It's just focus on those big expenses, the needle movers. So when I'm thinking about, okay, you graduated college, we're not starting our first job. Yeah. Focus on housing, transportation, food. And food can be a little bit difficult to control, but if you can get housing and transportation down, if you get those really below your means, you're going to do really well. And the great thing about being in your early 20s is you really don't need that much money to have fun. And most of your friends aren't going to have that much money. So I think it's a waste a lot of the times when I see somebody graduate college and they instantly want to get that nice car.

1:06:07They want a nice place, things like that. Those are just not the things I remember at all about my early 20s. I remember having a lot of fun with friends and a lot of the things I did did not cost any money. That being said, two things can be true at once, where having fun in your early 20s is really cheap, but also don't be so caught up with money that you forego some really valuable experiences. Some of the best things I did and some of my favorite memories from my 20s are those trips I took to Europe with my friends or going for a weekend trip, things like that, where maybe if I was really focused on saving every dollar, I would have said no to.

1:06:46So I want to make sure that there's a balance that she strikes there with, yes, let's just get those big things right. The housing, the transportation, but also don't say no to the fun experiences. Live your life in your 20s. They're so fun. Heck yeah. That is so spot on. And I'm so glad you went there because yeah, this goes back to Die With Zero, which we've talked about. And maybe I've talked about too much on the podcast over the last couple of years, but we did try to center that a little bit with episode 502. We had a question come in from Tanner about maybe going back to frugality a little bit more, which I totally, totally agreed with.

1:07:24But I think the concept from Dive is Zero that I think is most consequential is that seasons of life thing. And like you're saying, one of my best memories of my entire life was when I was 22 years old and I spent a month in Europe with my brother. And if I had worried about that costing a couple thousand dollars, which I mean, it probably didn't even cost more than$3 ,000 in the cost of scheme of things. But if I had been pennywise, pound foolish about that$3 ,000 and foregone that amazing trip that I'll remember forever. It would just have been a calamity. And obviously I never would have known, frankly, but on this timeline of my life, it would have been an absolute calamity.

1:08:04And yeah, it's very important to live your life. So do not wish away, Ava or anybody on the path to fight, whenever you are, do not wish away these years. Please, please, please don't wish away these years. Just trying to get to a number on the screen. That is not a healthy balance. That is not what financial independence is all about. We are not the old school caricature BS, frankly, of the fire movement, which was people eating rice and beans and being miserable until like, oh, ta-da, this number appears on a screen. That's a miserable life. Please don't do that. Please, please, please. So yeah, Rachel, I love that.

1:08:43Live your life. But I think it's also a mindset. Like you said, two things can be true at the same time. It can be true that you can save somewhere in the vicinity of 50%, and please don't be like diehard about 50%. It's an arbitrary number, but you can save some crazy percentage, and you can also have a mindset of abundance at the exact same time, and you really should and you need to. That's what's fun, I think, about FI is by imposing these little constraints on ourselves, which the sidebar is the constraints are getting us wildly wealthy. So how much of a constraint is it really? But by putting this constraint on, we're able to then maybe we have to think a little more creatively.

1:09:23We have to do things that like, it's not just the sleepwalking through life. If you put this constraint on and you only have 50 % of your income, well, you can still live an amazing life. And maybe it's even more fun looking at it as this game. Like, okay, how can I have a boatload of fun, the same fun that everybody else is having and still get wildly wealthy. Yeah, I completely agree with that point. That's why I really drive home the point of getting those large expenses down, focusing on like what actually is the difference in your happiness, your fulfillment. And I think that's where a lot of people go wrong because they chase the nice apartment, the nice car, the nice clothes thinking, oh, well, I really want to live life right now.

1:10:04I really want to maximize life. And Well, maybe for a handful of people, they really do get that satisfaction from a nice car, things like that. I always have to give that disclaimer. For the vast majority of us, we don't. And we're humans. We get used to things really quickly. So that nice car does not excite you in the same way every single day that it did on day one of purchasing it. But those memories you have from a trip, even if it's Europe and you're staying in hostels and you're sleeping overnight on trains like what I did, that will stay with you. Not even if, especially. Yeah, exactly.

1:10:36Well, that's the irony of it, right? If I had gotten a really nice hotel and stayed somewhere, I don't think the memories would be as great as going in hostels, meeting a ton of people and just focusing on better, more important experiences. So again, it comes back to that, both things can be true. We can choose to buy our freedom back. That was the mindset shift that was really monumental to me in my 20s is realizing that with my paycheck, I could take a portion of it and buy my freedom back. And I do that by investing it and taking care of myself and also realizing that a lot of these things that other people are chasing, like they don't seem too happy with it and I don't need it, but I'm not going to give up those experiences, the trips, you know, maybe the nights out with friends, things like that.

1:11:22And I truly believe you can have both when you're chasing financial independence. Here, here, could not agree more. Rachel, this was a ton of fun. We got through all six that we set out to do. And yeah, I think this is a really valuable, valuable episode. So as always, people can find you at rachelcampwealth.com. And your first name is spelled R-A-C-H-A-E-L. Of course, we'll have that in the show notes. But where else can people find you? Where do you hang out? Yeah, I mean, from there, you can find me everywhere. It's Camp Wealth on most social media. On Twitter, quite a bit at Camp underscore Wealth.

1:11:58I got YouTube, Instagram, all of those places. It's Camp Wealth. Beautiful. All right. Well, until next time, we'll have another mailbag, I'm sure, in the next month or two. These are a ton of fun. For everybody out there listening, thanks for being part of the Choose to Buy community. And as always, if you have any feedback, if you want to be part of that project we talk about, you can always reach me at feedback at choose to buy.com and get on my newsletter. That's an easy way to reach me, choose to buy.com slash subscribe. And that, of course, is also in the show notes. I send out a newsletter every Tuesday morning.

1:12:29And I think honestly, it's almost, if not just as important as the podcast, it's really like the up to date, Hey, what are these important things that are happening? Plus a little bit of motivation from, Hey, what are these other people in the five community doing to make their lives better? There's nothing better than seeing people taking these little actions to make their life better. It's just an incredible, incredible motivator. So with that, thanks for being here until next time. Thank you for listening to today's show and for being part of the Chooseify community. If you haven't already, the best ways to get involved are first subscribe to the podcast.

1:13:05So you're listening to this on a podcast player and just hit subscribe and then subscribe to my weekly newsletter. I actually sit down every Monday and write this by hand and I send it out Tuesday morning. So just head over to chooseify.com slash subscribe. And it's really, really easy to get on the newsletter list right there. and I would greatly appreciate it. It's the best way to get in touch with me. You can actually just hit reply to any of those emails and it comes directly to my inbox. So that's the way that I keep a pulse of the community and how we keep this the ultimate crowdsource personal finance show.

1:13:39And finally, if you're looking to join an in real life community, we have Chooseify local groups in 300 plus cities all around the world. So head to chooseify.com slash local and you'll find a list of all of those cities in 20 plus countries all across the world. And if you're just getting started with FI or you have a family member or a friend who you think would be interested, two easy ways. Choose a FI episode 100 is kind of our welcome to the FI community. And even though it's a couple years old at this point, it still stands up and it's a really great just starting point to get an understanding of what is financial independence?

1:14:15What are we doing here? Why are we looking to live a more intentional life where we save money and use it as a springboard to live a better life. And then Choose a Vi created a Financial Independence 101 course. That's entirely free. Just head to choosefi.com slash fi101. And again, thanks for listening.