Finance Friday: The Fastest Way to Pay Off $300k in Student Debt

Mindy:
Welcome to the BiggerPockets Money Podcast, show number 304, finance Friday edition, where we interview Colton, and talk about making a prioritized set of investment and debt pay down decisions.

Colton:
Here’s a problem noticing overall about your situation, I got student loans here. Some that I might pay off, some that might be forgiven. I’ve got this cash position. I’ve got a little bit 401(k). I’ve got this live in flip project I’m doing. I’m spending my free time flipping furniture that I’m driving around picking up and sending it around, right? I think what I would advise is you make a prioritized list of these opportunities, and then go more all in on your top one or two of them.

Mindy:
Hello. Hello. Hello. My name is Mindy Jensen and joining me today is my co-host, Scott, not just another pretty face, Trent.

Scott:
Thank you as always for the great looking introduction, Mindy.

Mindy:
Scott and I are here to make financial independence less scary, less just for somebody else, to introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you’re starting.

Scott:
That’s right. Whether you want to retire early and travel the world, go on to make big time investments and assets like real estate or start your own business, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams.

Mindy:
Scott, I am excited to talk to Colton today. He has a great set of circumstances with a little bit of a monkey wrench. He makes a great income, but he’s got some student loan debt to tackle.

Scott:
Yeah. Colton has a tremendous… He has positive cash flow, but he’s got huge amounts of student loan debt. He’s got a live in flip going on. He’s got a side hustle. His wife’s a veterinarian about to have a baby. There’s all these different convoluted things, and they’re tugging at different financial strategies. Today, we have to kind of unpack that convoluted situation between life, debt, investment options, house hack, live in flip and two different careers and come up with a prioritized set of initiatives and to design a financial plan around that.

Mindy:
Yup. I think he’s got a lot of great opportunities. We just have to focus on which one is the best for him given his different set of circumstances. Colton, I am required to tell you that the contents of this podcast are informational in nature, and are not legal or tax advice and neither Scott nor I nor BiggerPockets is engaged in the provision of legal tax or any other advice. You should seek your own advice for professional advisers, including lawyers and accountants regarding the legal tax and financial implications of any financial decision you contemplate.

Mindy:
Okay, Colton. Colton and his new wife have a great income, but they took out some hefty student loans to help finance their college degrees. Those loans are now in forbearance, and they’re looking for tips for what to do with the extra cash that they have on hand. I said extra cash in air quotes because as we all know, there is no such thing as extra cash. If you have extra cash, go ahead and send it to me. Colton, welcome to the BiggerPockets Money Podcast.

Colton:
Thank you so much. Great to be here, Scott and Mindy.

Mindy:
We’re going to jump right into it because we have lots of things to talk about. Colton, what is your income and where does it go?

Colton:
Yeah, absolutely. Roughly, we bring in around 11,000 to 11,500 depending on the month. That’s a combination of W2 income. Then, I do kind of a little some side hustle on the side doing some flipping of furniture and things like that on Facebook marketplace. That’s very minor in the scheme of things, but it does pay for some bills here and there, it pays for car payment. That’s kind of the main reason I do it is to pay for the truck. Justify that truck payment a little bit. That’s the income side of things. You want me to go into liabilities or expenses?

Scott:
Is that pretax or post tax?

Colton:
That’s net.

Scott:
It’s net?

Colton:
Yup.

Scott:
Okay. That’s cash coming into your bank accounts?

Colton:
Exactly. Yeah.

Scott:
11.6?

Colton:
Yeah. Approximate.

Scott:
$11,600, okay, great. Yeah. Where’s that going? What are your expenses like?

Colton:
Yeah, we just bought a house in January. The mortgage on that is 2,500. Our utility is a little bit south of 200 to 190, cell phone 98, internet’s 45.

Scott:
Where are you living?

Colton:
Reno, Nevada.

Scott:
Reno, Nevada. Okay.

Colton:
Yeah. Internet’s 45, car insurance for combined is 190, food, it varies on the month but we kind of average about 800. I know there’s room for improvement there but we buy organic and we eat pretty healthy, not to mention my wife’s pregnant so that kind of throws a wrench into things.

Scott:
Awesome.

Colton:
There is no choosing as to what we eat. The baby chooses at this point, at least, for the most part. Gas for the vehicles, we average about 180. We both work remotely. That’s why that number seems pretty low, kind of force ourselves to get out of the house sometimes to actually use that gas budget. We have a dog between his pet food and pet insurance, it’s about 175. That seems also kind of high, but my wife has a veterinarian background so that food is very expensive and pet insurance.

Colton:
Most people don’t have, is an expense that we justify. Our miscellaneous category, it’s kind of random things such as gym, gifts for friends and family, and some household expense up at that at about 400 per month and that varies really depends when you need to buy toothpaste or toilet paper, et cetera, things like that.

Colton:
Entertainment category also varies, it’s about 125 per month plus or minus, depending on the month. We have two cars, as I mentioned. We have a truck and an SUV. The combined car payment on that 624 with a little bit skewed towards the truck, because it’s a little nicer, a little newer. That breaks down to 322 and 302 on the SUV. We have an orthodontic payment that we have at 0% interest that we’re debating, killing with some FSA money. Right now it’s 246 a month. I think the term on that is, I think there’s about nine months left on it. We’re debating if we just keep it at 0%. Keep paying it or just knock it out with some FSA funds that need to be used regardless by the end of the year.

Colton:
Then, lastly, we have subscriptions, Spotify, I think Amazon is amortized over 12 months on that as well at $30, not terrible on the subscription side of things. If my math is right, or if Excel’s right, that’s about 5,603. Then, in August, is when student loans may or may not kick back in. That will be an expense of 20 to 40. It would be our minimum payments if it kicks back in in August. That will be added to our total expenses if that forbearance does not get extended.

Scott:
Great. What are your assets and liabilities? We had a lot of tactical items there to go in, so that’d be fun. We’ll come back to that.

Colton:
Yeah. The assets, our cash position, we try to keep it about one and a half to two months right now, just because we have some things that we’re trying to pay down such as the cars. There is a balance transfer card, which I’ll mention on liabilities that we’re going to strategically pay down here over the next six or nine months. Cash position really depends. We just bought the house too, so depends on home improvement matters as well. We just had a fun irrigation project. That’s a little damping on the cash position.

Colton:
Equity in the house is approximately 100. I mean, that’s really just based on the number that I was looking at as its estimate. We could probably list the house for a little more than that right now, but obviously we’re not looking to go anywhere. I just threw that in there. The truck technically has equity in it. Vehicles obviously are not assets in my but I mean, there’s still, if we needed to, if we could sell the vehicles downgrade and get something cheaper. It’s approximate 14,000 value in the truck. I’d put approximate, probably 8 to 10 value on the SUV. There’s only about 4,700 left on that loan.

Colton:
I have a 401(k). It’s sitting at about 6k with my current employer. I have a rollover IRA. It’s just a traditional sitting at 25. A Roth IRA sitting at 5,500. Then, my wife has a 401(k) at approximately 10 plus or minus 7 check that 100% and then she has a Roth IRA as well sitting at about 6.

Scott:
Awesome. What do we pay your net worth at here?

Colton:
Not including student loans or including student loans, Mint technically says net worth is around a hundred, I think it is, but I don’t put my student loans on Mint because I don’t like to see that number pop up. That was assets. I mean, if you’re including the student loans, we’re technically negative. Negative approximate to 200 to mid-200. I actually haven’t done that calculation exactly which is because forbearance has been in place for so long that that we forgot about our student loans. It’s that the payments haven’t been required for this whole time.

Scott:
Got it. Okay. What are your goals? How can we help you here?

Colton:
Yeah. I had mentioned to Mindy, that I’m looking for some live in flip tips, because we just bought a nicer house that was mid renovation when we purchased it. Kind of curious on because Mindy has some experience on obviously live in flips and that’s her arena. That’s one topic I’m curious is we know some home improvement, how to help on the cost side of things when you’re doing that live in flip. How do you stay sane with your spouse, those types of things?

Colton:
Then, we were we just purchased in January, we put down 10%, so we have PMI. I’m curious about strategies that you might think about when we should think about doing an appraisal, because the market conditions, I think we’re pretty close to that 20% mark, which is kind of crazy. It’s only been about four months since purchasing. I think we got to hit maybe 5k more to be at that position where the PMI might be shut off.

Colton:
It’s the traditional loans. It’s not FHA. We’re not stuck with it for the course of the loan, but we’re kind of curious when might we start thinking about that, so you don’t want to pay for an appraisal, just for fun. Then, also a secondary point is thinking about a potential HELOC once there’s some equity in the property to do some of these renovations. Nothing is in dire need, but the kitchen is a little, it’s old as the house. It’s 21 years going on now. There’s some upgrades that could be done there. Kind of twofold on that as when might we start thinking about getting rid of that PMI?

Colton:
Kind of a naive question is, I assume that we’re paying for that appraisal. I don’t know the process behind that. I’m not sure if either of you have experience of shedding PMI. I know that FI community hates PMI. They’re allergic to PMI, but in our situation, we were comfortable taking on the PMI. Our lender was phenomenal. We got a really good rate at the end of 2021, closed early in 2022. Then, obviously, their rates have gone up since.

Colton:
Sitting at a very good interest rate on that mortgage at 2.99, PMI is only about $100 a month. It can improve our cash flow a little bit getting rid of that 100 bucks off of our mortgage. Yeah, I’m just kind of curious strategies on that point. Then, if we have time, I’m curious if you think that downgrading on the truck might be a good idea to get rid of that truck payment. I think my wife’s pretty set on keeping her vehicle. That’s not on the table at all.

Scott:
How about longer term goals? Is there anything like, what do you want to be in a couple of years from a financial standpoint?

Colton:
Yeah, a couple of years from now, my wife and I foresee paying down loans, targeting mine first because there are some strategies where she could pursue the forgiveness side of things. She’s on that pathway right now. We’re not 100% sure if we’re going to stay on that path because 20 years for forgiveness on her pathway. Well, she’s part of the way through already. Basically, you pay the minimums on that income based program, and then you are forgiven after the set timeframe.

Colton:
Mine, I’m just paying traditional. The goal would be to tackle those student loans on my side and then potentially tackle hers and maybe pay them down faster and just avoid the income-based program payments and get it paid off sooner. The way we’re thinking of doing that is through real estate. We just bought this house and I call it a live in flip. It’s a nicer live in flip. It wasn’t that dilapidated when we moved in. I foresee either renting out this property and moving to another house and doing another live in flip or house hacking to some extent if we can get a duplex or triplex, quadplex.

Colton:
As I mentioned earlier, our family situation has recently changed. We’re due in August. We’ll see if the baby dictates no house hacking or duplex will be fine. I mean, but house hacking, sharing bedrooms is probably not in the picture. We’re in a different stage in our life. I think 5 to 10 years ago, I probably, I could have house hacked a lot more. I could have done what was it a credit card [inaudible 00:15:24] that lives in his living room and rented out every single square foot of his house. It was possible. We’re a little beyond that phase, I think just because of family planning, and just where we’re at in our career and those types of things.

Colton:
Eventually, I think ramping up the real estate side of things and probably with property management, would be my thought. I don’t know if I really want to be on the ground doing all that irrigation, and toilets and all those types of things but we’ll see. We’ll see where things go.

Scott:
Great. Well, that’s super helpful. Thank you for sharing all that. Let me just make a couple of high level observations about your position here. We’ve got the, what? $300,000 plus in student loan debt, is that right?

Colton:
Yup.

Scott:
You’re accumulating cash at a great clip, you’re accumulating 5000, $5,500 per month after tax, right? That’s hitting your bank account right now on average.

Mindy:
Is it?

Colton:
Yeah.

Mindy:
Okay.

Scott:
That’s $60,000 per year, was that $65,000 per year. You’ve got five years. If you want to pay off your student loan debt, you could just do that for five years, and you paid it off, plus whatever the live in flip equity comes in if you’re able to generate equity on that.

Colton:
That’s what the caveat, that’s without student loans. We’ll see what happens with student loans. I don’t know if it will be a five-year timeline necessarily because we have student loans that takes our cash position down 20 to 40 each month.

Scott:
Well, that’s perfect. We need to face this problem head on, right? The bogey in your financial position is the student loans. You don’t include it in your Mint because you probably don’t like looking at it too much and there’s the forbearance and all that, but let’s approach it head on. That’s coming back in August. Maybe it’ll get postponed again, but that’s the elephant in the room for your financial position.

Scott:
I’ll tell you that it’s a lot but what you just told me from a savings rate perspective, it’s not that much. You’re saying, “Hey, yeah, I’ll have the baby in August.” There’ll be additional expenses that come with that. You’ll have to pay interest on the student loan debts whenever they come out of forbearance, but you’ll also get a raise, at some point in the next couple of years. Your wife will make more income at some point in the next couple of years, if she chooses to continue to pursue that or do this, it depends on the student loan forgiveness programs.

Scott:
Sometimes they don’t have quite as much income generation potential on those but you’ll have plenty of options to generate more income, in addition to some additional expenses. I’d say puts and takes on that. I’d still give you five years, maybe less if you get lucky with a couple of things with a live in flip audit. Is that a grind? Yes. But is it insurmountable? No.

Scott:
The other option you have there to eliminate these student loan debts is to invest instead of paying them down. If that’s the case, then you said you’re going to pay 2,200, 2,250 per month on those student loan debts as required payments, essentially, when they resume in August, is that right?

Colton:
Yes.

Scott:
At that point, you’re going to generate $35,000 per year after tax in cash. That’s called 36, 37,000 per year, and after tax cash, again, with the opportunity to potentially expand that to some degree, and again, with the opportunity to have live in flip income. There’s another case there where you invest that and then pay off the student loans in lumps over the next 3 to 5 to 7 years, or 10 years depending on how you want to manage it and that will come with perhaps less linear gratification of paying off one loan then the next, and the next, and the next but maybe more wealth at the end of that 7 to 10-year time period. Have you kind of thought about it with that lens before?

Colton:
Yeah, and we’ve, we even have friends who… Being in the veterinary industry, she’s in one of the industries where you take on a lot larger of loans than the income potential justifies, I mean, there’s a debate on that. It’s a passion industry. A lot of people do it for the passion not for the money. The loans I mean, it’s crazy that there’s similar to being a doctor in human medicine. We’ve talked to people who have kind of done that grind, especially during COVID where they were looking at it as 0% interest, and we’re paying it down that whole time.

Colton:
Retrospectively, do we wish we would have done that? Probably. Were we in a position to do that? Probably not. We kind of checked all the boxes at once. We got married. We bought a house, and now we’re having a kid. We were kind of progressing through our relationship, family planning, all of that. I think, looking forward, we have thought about, we need to kind of do that grand, like you said, and potentially look at some of the buckets that we have, and see if we can pull back on some of them or see if we can increase our cash flow to some extent too because then that would accelerate that process even more, but even at our current position, I agree, we can just grind it in and get it done probably five, six-year mark, maybe faster, if our careers accelerate faster than we anticipated.

Scott:
Remember, all these different things will happen over that same time period, right? You have two cars, both of which are financed, right?

Colton:
Yup.

Scott:
How long is the loan term on those cars? When do you pay off the first one or the second one?

Colton:
The SUV is shorter term. It’s only got 4,700 left on it. I think that would be paid off, if we just kept paying by middle of next year, I think is approximately where we would be at. The truck was a 60-month and I just took it out last February. We’re still looking at four years and change on that. That’s another potential strategy is kill those car payments. Either paying them down or selling and downgrading to something a little, get a beater truck or get a beater.

Colton:
Ironically, I own the Corolla that was paid off before I bought this truck, so that I put down on my notes to Mindy. I was the five friendly Corolla paid off. Then, I decided I wanted to buy a truck because we camp and we hike and we kayak and you know, we cycle and all those types of things. The recreational piece living in Northern Nevada, we wanted a vehicle that was easy to do all of those things.

Colton:
Ironically, in 2021, we didn’t get to do a lot of that because of the crazy fires from California, Oregon, everybody was on fire and our air quality was probably, I think, it was the worst in the world. At the time. There was a lot of news articles about-

Scott:
We had a similar thing here. Probably it wasn’t quite as bad but yeah, we went on a trip to Fort Collins around that time, and it was raining ash from the sky, from one of the-

Mindy:
[inaudible 00:22:55] Fort Collins and it was raining ash in my pool. Yeah. Okay, I’ve got a couple of things. First of all, let’s go back to the student loan thing, because you had mentioned a forgiveness plan that is 20 years long. Are you any sort of timeline into this or have you not yet started the 20-year forgiveness plan yet?

Colton:
Yeah. It would apply to her loans only. All of her payments would qualify and also the forgiveness or forbearance months also supposedly qualify. There’s been some news articles about some servicers not properly applying them and things like that. I think that that’s probably been straightened out recently, but yeah, every payment she’s made since getting out of school has been towards that. I think she’s in the four or five-year mark on that, but really, the calculation is can we pay it down faster than waiting that additional 15, 16 years? Yeah, absolutely.

Mindy:
Yes. You can.

Colton:
Yeah.

Scott:
How much of the loans are hers?

Colton:
Approximately two thirds.

Scott:
Two thirds. Okay. It’s like 100k, 115?

Colton:
Two thirds of 300? No.

Scott:
Okay.

Colton:
She’s in the 200 range. Yeah.

Mindy:
Two hundred.

Scott:
Two hundred.

Mindy:
Yeah.

Colton:
It sounds like [inaudible 00:24:11].

Scott:
Wow, four seats. I’m not supposed to be doing this.

Colton:
No, yeah. She’s in the 200 range. I’m just north of 100.

Mindy:
Okay, what is not, I don’t think what is not really promoted in this forgiveness plan is that you will owe taxes on the amount forgiven and $200,000, taxes on that is going to be a fair penny. That’s not over the course of 20 years. That’s all in one year. I am with Scott, since you are five years into it, if you were 19 years into it, I would have way different advice, but you’re five years into it and you would have already been paying those loans anyway.

Mindy:
I would go with Scott’s advice to try and tackle, I mean, first tackle your loans and see where you are. Continue to pay on hers, when the forbearance is over, start back up with the payments, but tackle yours first because you don’t have any benefits to keeping yours for a super long time. Pay all of yours off, and then look at your financial position. Okay, now we’re seven years into her loans. It looks like we could just knock them out in a couple of years. Do that because 20 years, that’s you having to work for 20 years and pay for 20 years, whereas you could be done with it and on your way to financial independence.

Scott:
I would say, I’m not necessarily at camp, grind and pay them off. I’m definitely in camp grind but it’s camp grind, and then pay it off or grind and invest in alternative assets and ignore the student loans or make the minimums on them. Those are the two options that I see here. As a huge bet, one direction or the other about what’s going to happen over the next 5, 10, 15 years from an economic personal standpoint, to make that decision. There’s no right answer there. I think there’s something we can discuss at this point.

Scott:
I do think that it would be wise if the interest rates are close to pay off your student loan debts first, if you’re going to pay off the debt, and then attack hers, but if you find, “Hey, it took us a year and a half to pay off my student loans of 100,000 and I come back into and now a year and a half later, I got this promotion at work. My income’s at this level. Inflation has been really nice,” but inflation is your friend in this particular scenario because higher inflation means that the debt value is lower than a few years than in real terms than it is today and you’ll hopefully be earning more with that.

Scott:
Those are all positions to think through in terms of paying off, but I don’t see any reason why you guys would have to, in this situation, wait 20 years to get forgiveness on this. In 20 years, you can build a position that’s worth millions of dollars, literally, with compounding and investing. Why would you sacrifice that or box it off into a corner for 200 grand, 1/10 of the amount that I think you could reasonably accumulate with your income over a 20-year period.

Colton:
Absolutely. I agree on that. It’s just kind of an interesting calculation because if you were to go on a standard plan, that minimum would jump up surprisingly. It’s kind of a weird strategy to stay on the income based until mine is paid off. That’s what we’ve determined is the best way to do this. From a tax standpoint, it also throws a wrinkle into it because I don’t think she would qualify on the income base if we were married filed jointly. This year, it was our first test on that is we had to file, married filed separately in order for her to keep that income-based plan, which kind of threw a wrench. We’ll see what 2022 taxes look like.

Scott:
You should think through that once you have your regular strategy because those loans are still accruing interest, right? The pile is getting bigger and bigger. If you do decide to pay it off, that might be biting you because you’re paying more in joint taxes together. If you do decide to pay it off, you’re just going to be piling interest onto the pile. You’re going to pay off in the next couple of years anyways.

Colton:
Yeah, good point. That’s an analysis that we have yet to do, but it’s a point that we were looking towards because of the tax deadline that just passed. We did it married filed separately just for this year, just to kind of keep it a little less complicated. I don’t think we’re going to change it in the short term. I think that that loan minimum would bump up to, because my minimum is 1,590, which is almost a mortgage payment in itself.

Colton:
Obviously, our mortgage is more than that, but I just listened to one episode where the woman in Southern California had a $1,600 mortgage and I’m just like, that’s my student loan payment. I was over there cringing. I’m like, I wish I lived in, I think it was San Diego or wherever she lived in Southern California. She said she has $1,600 mortgage payment. I’m like, yeah, I would take that, but yeah, I mean, I think that the analysis there is there’s going to be restricting our cash flow significantly if we were both on standard payments.

Colton:
I mean, we probably still would have made like, it could be backing into that math by 2,000 or 1,500 leftover if we bump up those student loan payments to standard plan on both, but yeah, I mean, we will do that analysis. There’s definitely an analysis to be had thereof.

Scott:
That’s going to be the right choice. If you decide I’m going to spend five years and pay these things down aggressively, then you combine the income, you get the taxes advantages and aggressively pay them down. If, for example, you go the other avenue and say, I’m going to buy a bunch of real estate and stocks and invest, or I’m going to invest, and try to arbitrage the spread between my interest rate and what I can get from a return perspective, then what you’re doing may make sense because you’ll preserve more cash flow to invest in those types of assets.

Colton:
Yeah, that’s what gives me pause is the opportunity cost to work with that cash be deployed in investments, I think. Could we generate significantly more money by doing investments rather than paying them down on those standard plans? There’s definitely an analysis that happens, maybe is to happen there.

Scott:
Which of you has more time to invest outside of your work activities?

Colton:
We’re pretty even as far as spare time.

Scott:
Okay. Are you both kind of jointly interested in the real estate space?

Colton:
I would say I’m more interested than her. I’m sitting here, listening to BiggerPockets two to three times a week. She’s a FI, all these types of FI, podcasts, things like that. I tell her about it and she kind of just, “Yeah, yeah, yeah. We’ll get there. We’ll get there.”

Colton:
I’m definitely the one that’s the more frugal one, the one that’s saying we should do this. We should have a game plan for this. I think I would be the one sort of starting those conversations, but we did pretty well. I mean, we do our money dates about once a week trying to stay on the same page. That’s something that definitely picked up from you guys. It’s an awesome tip of staying on the relationship page as far as finances go.

Colton:
These conversations have come up on student loans. How do we, do we invest and just ignore them, so to speak, and keep these minimums or do we both go to standard plan? There’s definitely an analysis that needs to happen there, but I don’t know what the right answer is. You just kind of got to pick a path and go with it.

Scott:
Yeah. That’s going to be the big thing is you have to make a large decision with imperfect information. The sooner you make the decision, the better off you’re going to be, either way, right? It’s like, I’m going to either pay down these things aggressively, or I’m going to invest and go all out in that, because you’re going to generate $60,000 in cash this year. It’s a question of whether it goes to student loan payments, or whether it goes to real estate. You’re going to generate at least 35, 40,000 in cash this next year. Where are you going to put it?

Scott:
The question is, if I’m going to sustain real estate as a 10-year plan for my wealth building approach, then maybe that makes sense. If I feel like I’m going to be very casual participant and kind of in and out of that while I’ve got all these other demands on my time, then maybe the student loan payments make a lot more sense. That’s super simple. You just pile on the money into the student loans, and you passively invest in index funds, once you get them paid off and have a little party and then and then go on.

Scott:
Either way, in 15 years, when your student loans would have been forgiven, you will have a much larger pile of money, in my opinion, doing it this way and 10 years of your life with optionality, for your wife at least, that you wouldn’t have had otherwise, or 15 years that you wouldn’t have otherwise.

Colton:
Yeah, it’s kind of funny. The conversation shifted on that forgiveness, because it seemed like that was what she was gung ho about when I first met her. She met with a financial planner. She knew about the tax penalty. She was kind of setting some money aside planning for that. I kind of was scratching my head, like, “Does that really make sense?” You could tackle that a lot faster than 20 years. Even if you had a 10-year timeline on it, you could pay it down faster.

Colton:
Yeah, I think the conversation shifted towards, yeah, we’re going to kill both sides of the student loans, mine and hers. It’s just picking that strategy that we want to go with. There’s a little bit more analysis that I think we need to do there. Then, we need to just pull the trigger and do it.

Scott:
Yup.

Mindy:
Something that we haven’t talked about is the fact that there are 7% interest and their federal student loans. When we spoke with Robert Farrington from The College Investor back on Episode 267, he said for everybody who has already refinanced out of their federal student loans, the forbearance doesn’t apply, but if you have not financed out, now’s not the time to finance out because you have a 0% interest rate, and it’s in forbearance, so you don’t have to make any payments.

Mindy:
Once it comes out of forbearance, and it is currently at the end of August as we record this today on April 26th, but who knows, maybe every time I record an episode about student loans, that next day, the government’s like, “Hey, we’re going to extend it.” It’s probably going to be extended. There you go, Colton. That’s my gift to you and I’ve extended your student loans by talking about them.

Mindy:
Once they come out of forbearance, 7% seems like a high interest rate. I would look at what you could refinance out. I think SoFi refinancing student loans, well, I know SoFi. I don’t know who else refinances student loans. This is one area of the world where Scott and I are actually rather uneducated is because we didn’t have student loans, but Robert Farrington from The College Investor, and Travis Hornsby from Student Loan Planner, both have a lot of information on their websites about student loans and where you can refinance and repayments and things like that.

Mindy:
The forgiveness plans, et cetera, they can help you make a more informed decision about your choices, but I think once you do come out of forbearance, look into refinancing and interest rates are going up, maybe that’s going to be a really great rate. It certainly has helped you over the last two years to have a 0% interest rate.

Scott:
I like the real estate and the house hacking for this as well, right? You add value to your house via the live in flip in a really calculated way and then you cash out refinance or you have the option to cash out refinance, if and when interest rates are, interest resumes, forbearance ends on these student loans.

Scott:
Now, you’re swapping that 7% rate for three and a half or four or maybe 5%, depending on where rates go this year and your home equity on a 30-year amortization period, which may be more advantageous than your payments for your, well, for owner occupant, I think the rates will be, I can imagine the rates jumping past 6%, Mindy, on owner occupant loans this year. I mean, payments last words, but we’ll see.

Mindy:
I don’t know that they’re not there now.

Scott:
For owner occupants?

Colton:
Yeah, they’re close to five and a half right now. I wouldn’t be surprised if they’re at six.

Scott:
I’m going on an investment property at 5.8 right now, but I didn’t realize that was the case for owner occupants as well.

Mindy:
When did you lock it in?

Scott:
Four weeks ago?

Mindy:
Yeah, it’s oh, there’s been a lot of change in the last four weeks. It’s unreal how fast rates have moved, but yeah, I think that’s a good point. Hey, if you’re looking at rates, get quotes early, get quotes often because they’re changing rapidly. That 2.9% interest rate that you have on your house, I would not pay an extra dime towards that because that is, I’m assuming that’s a fixed rate.

Colton:
Yeah.

Mindy:
Yeah.

Colton:
[inaudible 00:37:41].

Mindy:
[inaudible 00:37:41] on that. Your truck is at 1.9%. I wouldn’t pay extra on that. Your SUV is at 3.5%? In my opinion, with 4,700 leftover and you’re generating 5,400 extra in cash, knock it out now, pay it off, and then take that payment and put it towards something else. I mean, it’s six of one half a dozen of the other, but you don’t have to think about that anymore. You casually mentioned that maybe you could get rid of your truck. I don’t see your truck as being a huge burden to you financially.

Scott:
Yeah. I agree.

Mindy:
However, if you want to free up $14,000 or $28,000, take that truck and sell it. Get a tow hitch on the back of the SUV and buy a trailer off of Craigslist. I just quickly looked in your area. There’s one for $1,500. Sell the truck. Get whatever kind of car you want. You have a tow hitch on the SUV.

Mindy:
Now, you can pull the trailer around and still pick up your Craigslist items, still take your kayaks. You’re not going kayaking anytime soon with the baby on the way or biking. Maybe you don’t even need the trailer right away. You probably do if you’re going to do more of that Craigslisting stuff but I think that that would be a personal decision. I don’t think that’s the difference between success and failure financially for you.

Scott:
I agree. You got a really strong income, 11,000 after tax, that’s probably like 175 a year in combined income, and somewhere in that ballpark for pretax, is that about right?

Colton:
Yeah, it’s a little it’s a little more than that, because we have health insurance 401(k) backs out of that. Our employers don’t cover 100% of the health insurance. It’s a little bit more than that, but yeah, it’s a strong position. And I don’t see that as a breaking point. It’s just, it’s an easy target in my mind like that 14k equity in the track could be applied towards other things and then or you can put it in a brokerage account, put it in VTSAX and let it ride, right? There are strategies there.

Scott:
I think you’re in great shape from an overall strength. Ten years looking back, if you look back from 10 years from now, you’re going to be able to accumulate a large amount of wealth If you stick with one of these variations of the plan and crush it and continue to generate that cash flow and put it towards your financial future instead of buying things with that, but you can afford to have a few luxuries along that journey, and still crush your financial goals, because of the income and expense gap you have.

Scott:
This truck may be one of them that’s super reasonable in your position, if that’s something that you’re going to use and enjoy. If you’re not, then I think Mindy’s suggestion is great, and do something else, but you can definitely, both of you have a $500 a month expense, guilt-free, I think in this particular situation. That’ll delay you somewhat, but it won’t change the game for you in a huge way. You’ve got a huge surplus, you can take 10% of that surplus and, and enjoy life a little bit here.

Colton:
Yeah, absolutely. We try not to live this super frugal life, but we try to be frugal where it makes sense. When I was looking at trucks, I went to Toyota and like Chevy and test drove the brand new shiny one for $45,000 and I didn’t see a difference between that one and then the used one that I bought on Facebook. The guy on Facebook was a firefighter. He had 60,000 miles on the truck and it’s like a brand new truck to me. I paid half the price for that truck. That was kind of a frugal win in itself that I was like, “Oh cool. I found this truck that was four years old, not a brand new off the lot but brand new to me.”

Colton:
It just kind of hurts on the car payment because I just haven’t had a car payment in so long. Going from that Corolla, which was very, very frugal, very gas friendly, very, everything about it was cheap. The registration was cheap. Insurance was cheap. Then, everything about the truck is polar opposite. It’s not, crazy guzzler but it definitely is a luxury. That’s just why. It’s low hanging fruit is all.

Mindy:
It is and if it weighs heavily on your mind, then sell it. But I don’t see it as a big problem.

Scott:
I agree.

Mindy:
A moment ago, Scott said that he is on team grind. I am going on record as being opposed to team grind. A lot of people know that my husband has a blog, and he wrote an article called, My Death March to Financial Independence. It was kind of, he published it in 2017 and it was kind of a recap of all the things that we did. We didn’t enjoy ourselves. We pushed and pushed and pushed and pushed and it was a big grind and he was working full time and flipping a house full time. I was momming full time and it was just this like, we never took a break ever.

Mindy:
You have a similar income to what our income was when he was working. It wasn’t any fun. I want to send you that article. I’m going to link to it in the show notes because I think it’s really important to read and remind yourself that life is still meant to be enjoyed.

Mindy:
I’m saying this right here like I live it now. I’m still learning this lesson, but if I can take my years of knowledge and pass them on to you at your age to enjoy your life instead of just push, push, push, if you get to financial independence three years later, but you enjoyed the whole journey. That’s better.

Colton:
Yeah. I agree.

Scott:
Yeah, I would completely agree with that, with the caveat that you need to set up a lane that you’re comfortable swimming in for a number of years, knowing that if you do what you’re currently doing right now, and the student loan debts, for example, remain, with that you’re going to generate $60,000 in cash per year, ideally a little bit more than that with puts and takes over the next couple of years, baby coming in, but also hopefully raises promotions, income increases at work with that. That’s the journey, right?

Scott:
If you want to delay that to six years or seven years to have more of the comforts during that journey, that would be totally fine, but set up the grind and you can use a different word if you want, the journey and the parameters, and you just need to cruise with that over a period of time either investing or paying down the debt.

Scott:
That’s the reality of your situation. It’s not a bad situation. You’re going to be able to accumulate a lot of wealth if you stick with that, but you can’t escape the fact that there’s going to be time that needs to pass while you generate this surplus and put it towards the debt and/or investments here.

Mindy:
Yes. Agree.

Colton:
Yeah.

Scott:
That’s what I call the grind. My grind was brutal all out for three, four or five years to get to the end state. I think I enjoyed my life but I definitely said no to lots of trips and other types of things with that. For me, I didn’t mind that so much, but I definitely wouldn’t go to a place that makes you and your family miserable.

Mindy:
I don’t think we knew that we were miserable in the moment, but reflecting back, we’re like, “Wow, that really kind of sucked.” Yeah, just read the article and you’ll get a sense. I mean, I just reread it and it’s like, “Oh, there’s a lot of despair in here.” You had asked about a reappraisal to get rid of PMI? I am going to send you to your lender or whoever is currently holding your mortgage, it would really, really stink to pay like $700 for an appraisal, only to come back $5,000 short, and you can’t get rid of the PMI?

Colton:
Yeah.

Scott:
That would not be the end of the world because if you think you’re close, you can gamble and do that and then just pay $5,000 more towards your mortgage to get out the PMI, right?

Colton:
Good point.

Scott:
That will get you to your equity level with that.

Mindy:
Okay. That’s a good point.

Scott:
That wouldn’t be efficient, because you’re not really avoiding the interest payments, you’re just speeding them up by a handful of months or whatever. It’s not a great investment but if you think you’re close enough that you’re in the bubble, you want to take the gamble, that’s how you would get around that problem.

Colton:
Even that’s not a breaking point like that $100 cash flows’ not going to change our position very much. Maybe we just wait and when we know, for certain/ that it’s crossed that benchmark, we just do it. Yeah, unlocking that $100 cash flow, pretty minor point but if we kill the ortho pay, that we kill the car payments, we kill that, we take that down 100 bucks, there’s some extra accumulation there that can be had.

Mindy:
Yeah.

Scott:
That’s what I’m talking about where you grind, if you don’t like the term, accelerates, right? You just knock out 100 bucks here, the car payment here, the orthodontist bill here, one of the student loan debt there, right? Then, that all just continues to snowball your cash generation.

Mindy:
I’m glad you brought up the ortho. With the FSA, that is a use it or lose it plan. I believe 250 or $500 rolls over to the next year depending on your plan documents, and definitely read those ahead of time, but I would plan to use that in the last month of the year that you can since it is a 0% interest loan. Just in case something else that’s FSA eligible doesn’t come up.

Scott:
You’re going to have a baby.

Mindy:
Well, but I think they-

Colton:
Yeah, I don’t think we’re going to have any issue spending that money to be honest.

Mindy:
Yeah, well but FS, do you have an HSA plan or a regular plan?

Scott:
He can have both.

Mindy:
Okay. You can but FSA is only for teeth and eyes. You can, but FSA is for teeth and eyes only if you have an HSA plan and it’s for anything.

Colton:
Yeah, it’s a different type of FSA.

Mindy:
Yeah.

Scott:
I did not know that.

Colton:
We actually have an HSA from a prior employer. I just don’t know what the balance is, now that you say that. She has an HSA with, I don’t know, probably 2 or 3,000 bucks in it. That’s why I forgot about it, because it was just sitting there. We might, well, I’m just going to let that one ride, though. That’s an investment account as far as I’m concerned. I’m not going to use it.

Mindy:
I would definitely look into that as being an investment account. I’m not sure how that works with regards to current expenses. I thought you could only use the HSA account for expenses incurred when you had the high deductible plan.

Colton:
Good point. That might be a research point to look into.

Mindy:
Yeah, research opportunity and we’re going to ask that in the Facebook group, HSA expenses question. I’ll just make a note so I put it up there, but yeah, definitely make plans to spend all of that on that just because why pay for that with post tax dollars if you don’t have to. Yeah, going into next year, the baby’s due in August, you’ll probably be able to spend all of that FSA money.

Mindy:
Next year, you’ll have a lot of doctor’s visits just because babies go to the doctor all the time for well checkups and things like that. Look into your FSA for that as well. Now, if you both, do you both have separate insurance plans?

Colton:
Yeah. I might get on hers when it goes up for open enrollment because hers is way better than mine. Her plan says that to have a baby, it’s like 300 bucks. That’s unheard of. It’s this crazy grandfathered in plan that is awesome.

Mindy:
That is fantastic.

Colton:
We’re separately paying through our employers right now because we weren’t married until late last year, but yeah. There’ll be some changes in that arena moving forward, but nothing that it’s going to be too drastic.

Mindy:
Okay.

Scott:
Great.

Mindy:
Then, you wanted to talk about live in flips. I’ve saved the best for last.

Colton:
Yeah.

Mindy:
How do you save on costs? DIY. How do you have time for DIY with the baby? I can’t even remember those days anymore. I had no sleep. I have no recollection of how we did this DIY, but we basically did everything DIY. We popped the top and we hired somebody to add on and then we finished all the interior work. I don’t do roofs. I don’t do cement flat work. I don’t do gutters. You can hire these out way cheaper than you can do it yourself, but Home Depot and Lowe’s teach classes on how to do things and the University of YouTube is an excellent place to learn.

Mindy:
Like you said, you have a basically cosmetic flip. All of these things that, all these jobs you’re going to do, are going to be fairly easy to DIY. Definitely check with your city’s building code to make sure that you can do them yourself. Some cities require that you hire everything out or hire out things like electrical and plumbing. Some cities will allow you, the homeowner, to do the work yourself so long as you live there for X number of time afterwards. My city says I have to live here for a year after I do all the work myself.

Mindy:
We just DIY-ed solar panels. I mean, you can DIY anything you want here in the lovely City of Longmont, Colorado. You just have to live there afterwards. That’s the number one tip for saving on costs. If you don’t have time, or don’t have the knowledge to do it, and you don’t, I mean, learning how to do electric is going to be a tough job. I should say that my father in law was an electrician for 40 years. We had kind of an in. We’ve learned with real help. Electric and plumbing is kind of the same thing. It’s not the same thing, but it’s like they’re easy to do if you know what you’re doing.

Mindy:
Step number one is turned off the source. Turn off the electric, turn off the water, and then it’s not so hard. If you make a mistake, you know real quick that you made the mistake, but I can understand why people would be very leery to do these themselves. If you’re going to do a plumbing job, all the plumbing all at once have the guy come in and the person, I’m sorry, the provider, I don’t want to be sexist, have the provider come in and do all the work at once.

Mindy:
Have all the faucets you’re going to have changed out, all of the work that you need to be done all at once so they’re not coming out multiple times, and you’re incurring multiple charges just to come visit the site. Think about what you really, really, really want to have done. You can paint yourself. You can install flooring yourself. I’m such a proponent of DIY.

Colton:
Yeah. We’ve already passed that route.

Mindy:
I’m such a proponent of DIY, because it’s so easy to do and renting a tool versus buying a tool. I mean, I have every tool just because I’ve used it at least once and it doesn’t all have to be done right now. I mean, you’ve got a baby coming. You’ve just moved in. You’ve got two years in order to hit the capital gains exclusion. Make a plan for how you want to tackle it and then just get to it when you get to it.

Scott:
I also think, in addition to all of Mindy’s great tips, here’s a problem I’m noticing overall about your situation, I got student loans here, some that I might pay off, some that might be forgiven. I’ve got this cash position. I’ve got a little bit in 401(k)’s. I’ve got this live in flip project I’m doing. I’m spending my free time flipping furniture that I’m driving around, picking up and sending around. I think what I would advise is you make a prioritized list of these opportunities, and then go more all in on your top one or two of them.

Scott:
For example, here’s an incongruency in your situation, I’m trying to pay off my student loans, but I’m also trying to flip my house at the same time, right? One strategy is conducive to having a very small cash position, finding all the dollars in your budget, knocking out expenses and keeping that grind consistent and paying off all the surplus into your student loan debt.

Scott:
The other situation calls for a very large cash position so you’re able to make these calls and say, “I’m going to do this project myself and I’m going to buy all the materials and spend these couple of weekends doing it and it’s going to cost me three grand.” This one, I need to do call the plumber and do all of the plumbing all at once and it’s going to cost me 15 grand. It’s going to be much cheaper to do it all at once but 15 grand, right?

Scott:
That’s going to be your challenge here in the next couple of months is you need to pick a framework, prioritize these things and stick with them. There’s no wrong answer or there’s no right answer to it, except to attempt to dabble in all of these different avenues a little bit. You’d be much better off, in my opinion, kind of pick one and go on with that. Mindy, I imagine, all that said, Mindy, did you have a large cash position or make that a component of your situation when you were doing some of these live in flips?

Mindy:
We had a large cash position and the ability to find more cash if we needed to. We also could have benefited from that advice, Scott. Where were you 15 years ago? Because we don’t even do that now. We’re like, “We’ll do it all. We can do everything and we’re going to prioritize. Everything’s number one.”

Mindy:
Then that’s how you get to the position where, on your days off, you’re laying flooring in your daughter’s bedroom, until 8:00 at night while she’s like, “I’m tired. I want to go to bed.” You’re like, “No. I just have three more pieces to put in.” It just kind of exacerbates itself over and over.

Mindy:
I like Scott’s advice even better than mine. Make a list of the things that you want to do, make a list of the extracurricular you want to do. Make a list of all the things you want to do on your house and prioritize one or two at a time because yeah, that baby’s going to come in. You made a comment, “Well, the baby might dictate,” the baby will dictate.

Colton:
Absolutely.

Mindy:
The baby will say, “I demand all the things.”

Colton:
Yeah, Scott, you hit that point. I hit that nail on the head. My wife is going to listen to this and be like, “Yeah, that’s exactly who you are.” Pinball brain, back and forth. We’re going to do this. We’re going to do this. We’re going to do this. I think the student loans we kind of ignore right now just because they’re in forbearance. That’s not something we’re like, super focused on.

Colton:
I think the house is really the focus right now. The flip activity really doesn’t take a lot of my time. It’s actually on an auction site. I don’t like to run around town all day. I buy things on this auction site, put them in my garage, put them together, like maybe an hour to a week and then, people come to your house for Facebook marketplace. That’s kind of interesting… Like last month, I made six, almost [inaudible 00:57:10] for two hours of my time, which is I thought it was a decent ROI.

Scott:
That’s awesome. That’s your hobby, it sounds like.

Colton:
Yeah, it’s kind of a hobby side hustle thing. It’s kind of funny, but yeah, definitely not a huge-

Scott:
If your house is the priority, which makes perfect sense, right? Say, what’s my after repair value? What’s the project plan to get there? That is the first priority. I’m going to talk about the money date each week or each month when I have that and I’m going to go in and say, “Great.” Is the rest of my plan backing into that as the number one priority, right?

Scott:
First thing I would do, if the house is your number one priority, is bump up that cash position from 1.5 to 2 months to 6 months and that’s your first financial priority, because you’re going to need that cash in order to make judgment calls about that project, to execute the project plan, right? That’s totally fine. That makes perfect sense.

Scott:
Once you have the equity realized in the house, what am I going to do with it next? Am I going to cash out refi? Am I going to pay off the HELOC? Am I going to sell the place and go on to the next one? That’s great but I would have no problem as an outsider looking in saying that the house is a good first step there.

Colton:
Do you do the six-month emergency fund before paying off the balance transfer? In my mind, the balance transfer probably needs to be paid off. I mean, technically, it’s August 2023. It’s a sitting at a $6,600 balance. It’s not something we couldn’t tackle in the next four to six months.

Scott:
What’s the interest rate going to be on it right now or when?

Colton:
Right. I mean, it’s 0%, so August of next year, and then I think of bumps to like 19 or 20. Definitely, it’s not something we want to be sitting there [inaudible 00:58:46].

Scott:
We’ll do sixth month cash position right now, and sit on it and use that to fund your house. Then, when the when that comes up, you can decide to pay it off, just like you will with the student loans. You’ll have the cash. You’ll be able to allocate it and say, “But there’s no interest accruing on it right now and you have all that liquidity to build. You could spend the next couple of months building the equity in the house and do that. You’re not going to run out of liquidity unless a catastrophe happens to your family right now. Right?

Scott:
You have to juggle some balls. You can have it all perfect all at once, until you go through, let some time pass and your position but I would build a liquidity position right now and begin using that to attack your number one priority, knowing that you’ll have to allocate 6,600 by the end of the year to this balance transfer in order to avoid accrue in 20% interest. There’ll be no higher use of your dollars than avoiding 20% but it’s not 20% right now. It’s zero.

Colton:
Yup.

Scott:
The return on cash is going to be huge if you’re using it to flip your house or it’s a good bet.

Mindy:
That’s only one month of spend spending. If you have a six-month emergency fund, you use the six-month emergency fund to pay that off, and then you rebuild your emergency fund. I mean, that’s slightly more than one month of your extra.

Scott:
Yeah. Now, once your house is finished as a project, you have another decision plant, am I going to do another live in flip? In which case keep the six to month emergency reserve and maybe move it to 12 months? Because you need a lot of cash to continue doing these projects, especially you take on a bigger one or am I going to sit? Am I going to sit? Am I going to show him his house, refinance to something that gets rid of the PMI or get out of the PMI, and I’m going to start granting the student loan debt.

Scott:
Okay, at that point, I’d go down to 1.2 to 2 months, or what you currently have, essentially, keep a small bank thing and just drive all the excess cash flow to the next highest debt payment. That’s where I think, if you can come up with a prioritized set of investments in a plan for the next couple of years, you’d be much better off, because you’re able to prioritize where things go and build your whole position around those priorities.

Colton:
Yeah, absolutely.

Mindy:
Okay, the last thing I want to tell you before we let you go is you asked about staying sane with your spouse during a live in flip, we generally tend to jump in with both feet and rip out everything and that is not the way to go. The way to go, the way to stay sane with your spouse is to have one room with a door that closes that is untouched. Usually, your master bedroom or a different bedroom if you’re working on the master bedroom where you can retreat away from the dust, because every once in a while, you’ll have a day, and she’ll have a day and the baby’s off schedule and you’re just like, I can’t handle this. I can’t concentrate on this at all.

Mindy:
You go into your bedroom, you close the door, you watch a movie, you eat in bed, you just don’t flip the house that day, and it recharges your batteries but when you’re in the middle of dust and all the walls are ripped out and you can’t find any place to not be in the middle of your flip, it’s really weighing on your conscience. I’ve only had a few days like that in every single house that I’ve lived in flipped and it passes but you just need a space that you can retreat to that is door closed that is untouched on the inside. That can be the first room that you do. You work on that room and then you move into it as a nice space. Right now we’re in our master bedroom and it’s still ugly. I have wallpaper from the 1970s, the foil guy that’s really, really gross.

Colton:
I think that is our master bedroom right now.

Mindy:
Yeah.

Colton:
For us, it’s still the safe space. The rest of the house, the 80% of the house has no baseboards. It just seems like the whole house is unfinished to us because you see like the old paint where the baseboard used to be and it’s just, it’s funny. When we moved in, I came in and sprayed the whole house with fresh paint because the walls were like yellow from nicotine. Disgusting.

Mindy:
Yeah. That’s my house too.

Scott:
Smells like money.

Mindy:
It smells like money, sure did. Nobody else smelled that money, but yeah, now, go in and get the baseboards. Make that your next priority, and it will feel more finished. Maybe she will be more excited about the house in general because it’s not unfinished.

Mindy:
My daughter really hated the fact that we didn’t have any window trim up for a long time. She was embarrassed that we lived in such a disaster of a house. I said to her, then if your friends care. They walk through the house to go to the pool. That’s part of the reason that we got such a great deal on the house is because they had this pool that’s in terrible shape, but it holds water. She can have a pool party. None of the kids care that the house is a disaster because they don’t spend any time in it.

Mindy:
She’s so embarrassed by it. Once we got that finished now she’ll invite friends over. Little things can make a really big difference. That is my advice to you, have a place that you can go, to get away from it all and also put in baseboards.

Colton:
I appreciate it. Thank you.

Mindy:
Okay, Colton, is there anything else we can talk about today for you or answer any questions for you?

Colton:
I don’t think so. I think we hit most of the high points there. Obviously, it’s just picking a lane and going for it like Scott said.

Mindy:
Yeah, I agree with Scott.

Scott:
Yeah, I don’t think you have any wrong or right choices here. It’s art. There’s no, you have to make huge guesses about the economy, your personal situation, interest rates, all this other kind of stuff. I think you pick one that you’re comfortable with. Pick a prioritization, a list of prioritization that you’re comfortable with and design your whole situation around the top priorities and you will be just fine.

Scott:
You’ll be cruising out of this in over the next five to seven years with a significant increase in wealth and/or students debts paid down depending on what you decide with it as long as you kind of keep the income and expenses relatively consistent over that period.

Colton:
Awesome.

Mindy:
Okay. Well, Colton, thank you so much for your time today. This is a lot of fun. I think you’ve got a great position ahead of you and congratulations on your baby.

Scott:
Yeah, congrats.

Colton:
Yeah, thank you so much.

Mindy:
Send me pictures when the baby’s born.

Colton:
Absolutely.

Mindy:
Okay, we’ll talk to you soon.

Colton:
All right. Thanks so much. Have a good rest of your day guys.

Scott:
Bye.

Mindy:
All right. That was Colton with his great set of circumstances, his not so great set of student loan debts, but a good opportunity to pay them back. I think that does some great ideas for him and some great research opportunities for him, Scott?

Scott:
Yeah, I think this theme, this probably applies to a lot of people who are in similar situations to Colton, right? I’ve got some debt. I’ve got some investment opportunities. I’ve got a hankering for real estate. I want to become financially free. I want financial flexibility. How do I allocate my surplus dollars here, once I get into a strong fundamental financial position, which is what he is in his way of have a strong and have a strong positive net household cashflow, and are likely to continue that for many years to come barring a problem.

Scott:
When you have that situation, you can do anything. There’s a lot of good options out there, but you can’t do everything. You have to prioritize a set of initiatives, one by one, and build your strategy around that. That decision, we’ve harped on that, we have done that multiple times throughout the show so I don’t want to beat a dead horse, but you have to make that decision. You have to prioritize it, there’s no right or wrong answer, but once you do, you go from there.

Scott:
This problem is going to affect the $200,000 a year household income family like Colton’s family, and it’s going to impact the $50,000 person who’s just getting started the same way. That’s where we have all these tradeoffs around, retirement account, investing, or building financial runway, or your emergency reserve.

Scott:
You can’t do all of those things. You can’t take all the advice out there, you have to prioritize according to a plan, and then stick with it. The worst thing you can do is have a little bit in all these different areas and diversify away your chance of actually moving aggressively towards any of the financial goals, debt free or long term wealth or passive cash flow or whatever it is you want.

Mindy:
Yeah, ultimately, you can only take that dollar and deploy it in one place at a time. Now, it’s just up to Colton, to decide where is this dollar going to go and sit down with his wife and his weekly money dates, I love that, and decide where are we going to deploy these dollars? Where are we going to deploy these dollars? What’s the best use of these dollars at this time? Then, you can change your mind down the road, but right now they need to just formulate a plan. I think they’re going to have a huge amount of success. I’m just super excited for all the opportunities that they have.

Scott:
Absolutely. You can think about a couple of different situations, though, where, hey, I’ve got a, one case A, I’ve got a paid off all my student loan debt, paid off my house completely, have relatively few investments, and a six-month emergency reserve and five years, it was called seven years. That’s a great position to be in, completely debt free, and have an emergency reserve and are now able to invest.

Scott:
Another great situation to be in is, I’ve got $800,000 in assets that I’ve invested in across real estate and stocks and 250,000 down from 300,000 in total student loan debt and still have a mortgage on the house, right? That’s another position that could be very, very, very strong, but a position that would probably be very weak is, I don’t have much cash, I have a smattering of investments, mostly in retirement accounts, a little bit of home equity, and still have my student loan debt in seven years.

Scott:
That’s the least flexible position with the least promising outcome. You have to make one of those extreme choices in one of those two directions to get to that more positive situation. You can see that playing out with many of the folks that we’ve talked to on BP money where you want an ideal, what is your ideal portfolio and how are you backing into it?

Scott:
A debt free, modest portfolio that can sustain financial independence is a great outcome with that. A optimized for long term value creation portfolio with a healthy amount of leverage, is a great outcome. A mixed bag where I’ve got money in my 401(k), mostly in my home equity, a little bit of cash and relatively few investments outside of that, that’s the middle class trap that’s going to lead to the least amount of freedom. You’re not going to be able to realize that benefits, that financial position until retirement age unless you make very drastic life, and 401(k) penalizing decisions, which is really hard.

Scott:
I think that’s where we come back to make a decision, go into direction. There’s lots of good ways to go about it but have a plan and go with it and know your to make tradeoffs. You’re not going to be able to go down the whole stack, maxing out your 401(k), and having real estate, and having a paid off house, and having no debt and having stocks and get to your end goal soon. You have to make a choice.

Mindy:
Yes. Oh, that’s great. That’s a great wrap up, Scott. Great recap.

Scott:
Mindy’s telling me my rant is going too long. We need to wrap up.

Mindy:
No, I’m saying that’s a good wrap up. That’s what a great way to phrase it. Okay, but you’re right, you’re going on too long. We got to go. Are you ready?

Scott:
Let’s do it. From episode 304 of the BiggerPockets Money Podcast, he is Scott Trench and I am Mindy Jensen saying Get in the Truck, Cock.