Radical Personal Finance: Financial Independence, Early Retirement, Investing, Insurance, Financial Planning

Q&A today and I handle these four questions!

  1. Does tax-loss harvesting really offer the kind of benefit that companies like Wealthfront, Betterment, Personal Capital, et al claim? And can a person do it on their own without relying on a firm to do it for them?
  2. Thought you should know something I recently found out. California child labor laws no longer apply once you have graduated from high school.  In addition, California has a method to graduate by exam (similar to a GED, but GEDs are only available to those 18 or older).  The high school proficiency exam (which is easy) can be taken by anyone who is 16 or older or who has completed 10th grade or will have completed 10th grade by the end of the academic year in which they take the test. My son, who is 15 1/2 and in 10th grade, took the exam and passed it. Nothing prevents him from continuing on in high school, but he's no longer subject to child labor laws. He's seriously considering switching to community college in September, doing that for 2 years, and then transferring to a University of California campus to finish off his college.  That'd get him a solid college degree by the time he's 19. During that entire time, he'd be eligible to work whatever hours he wants. Another option we're considering is self-study (with my help; I used to be a Computer Science professor), taking a bunch of AP exams, and then entering UC at age 18 with at least one year (and possibly more) of credits. 
  3. Joshua, Can you weigh in on your thought about being an accredited investor and the legal limitations around it?  As I understand it, I do not qualify as an accredited investor.  And certain investments cannot be invested in by those who are not accredited.  however, apparently the rules were supposed to have changed to allow people to make investments of these kinds without the government saying that I have to make X amount or have X amounts of savings.  but, as I learned by listening to the podcast Startup (episode 7) by alex blumberg, these rules have changed with the JOBS ACT, but the FCC has been sitting on the ruling and is way overdue for implementing it so that someone like me can invest in these previously off limits investments without being told that we can't.  That episode of startup really explained a lot to me, because I had wanted to invest a large amount with alex after listening to the very first episode of startup (i assumed he would be very successful because I've loved his stuff for years and he's leveraging some seriously big friends for his new venture), but I couldn't invest in something I really thought was going to be a huge success (or at least provide me with good cashflow) because of these rules.  I'm also about curious why these rules exist.  Were they implimented to protect people from being scammed out of their  money?
  4. Joshua, As a young engineer, who is single, making a salary of over $80,000 in Texas (no state income tax): Should I max out my 401k if my goal is to become very wealthy, before age 40? Or, should I invest some in my 401k and invest the rest in REITs/other, more risky assets. Of course, along the way, I will be very frugal, and live way below my means. Thank you, love the show. 

Enjoy the show!

Joshua

Direct download: RPF0205-Friday_QandA.mp3
Category:podcast -- posted at: 5:00am MDT

One of my goals for Radical Personal Finance is to bring more transparency to the world of professional finance. Today, I'm glad to shine the light on the life insurance industry.

I've invited a friend of mine onto the show to discuss his 30-year career as a life insurance broker.

Todd Simpson CLU®, ChFC® is a veteran of the life insurance business. His specialty is high-risk underwriting, so he brings not only a long career's worth of experience but also a unique perspective to the difficult-to-place cases.

I think you'll really enjoy this conversation. We cover:

  • The incredible changes that have occurred in life insurance product design over the last 30 years.
  • The most common medical problems that cause problems with life insurance underwriting.
  • The impact of drugs and drug use on your ability to get a life insurance policy.
  • And more!

Enjoy the show,

Joshua

Direct download: RPF0204-Todd_Simpson_Interview.mp3
Category:podcast -- posted at: 5:00am MDT

Many of find ourselves in a situation where we are concerned about the financial well-being of our parents. Obviously, we'd like to help, if possible.

But, this is rarely easy. There are many, many challenges that can emerge. In essence, to truly answer these questions you'd not only have to have all of the skills of a financial planner, but also the background of a relationship counselor, a life coach, and more!

It ain't easy!

I created this show as an overview of ideas that may be able to help you get involved and to help your parents. Some of the ideas are technical financial suggestions, others are more practical and relationship-oriented.

The show is structured around:

  1. Ideas to help create a great life of good health.
  2. Ideas to help in case of the need for long-term care.
  3. Ideas to help plan your parents' estate to make the estate settlement process smoother.

I hope it's useful to you!

Joshua

Direct download: RPF0203-Caring_for_Older_Parents.mp3
Category:podcast -- posted at: 5:00am MDT

My guest today is a author named Matthew Bracken. Matthew is a sailor, writer, and former Navy Seal. He's the author of four novels (all of which I've thoroughly enjoyed.)

Most importantly for our purposes, he is an expert on the topic of achieving a lifestyle of freedom through sailing.

He wrote an excellent essay called "Get Yourself a 30-Footer and Go!" which advocates a quick entry into the sailing world as a way to build economic opportunity for yourself.

During the course of the interview, we cover three primary topics:

  1. How to go about getting started in sailing and how quickly it's possible to achieve a lifestyle of freedom.
  2. Matt's experience establishing himself as an independent, self-published novelist in the semi-dystopian genre.
  3. The potential impact of societal changes and how to prepare for them.

Enjoy the show!

Joshua

Links:

Direct download: RPF0202-Matt_Bracken_Interview.mp3
Category:podcast -- posted at: 5:00am MDT

Q&A show today and I answer these two questions for you:

  • Joshua, My parents just moved to Florida last year and got wooed by an advisor that bought them dinner, gave them a free round of golf, etc. and now they're in an annuity and I can't figure out how badly they are getting screwed (not because there's anything inherently wrong with annuities but because the advisor is sadly not a fee-only advisor so I imagine he's taking a big cut of the action). I'm trying to convince them to find a good fee-only advisor to help them get set up for retirement but I'm not sure how to go about finding a good one. Thanks for the help!
  • Joshua, I can't thank you enough for starting Radical Personal Finance; been a fan since you did the interview with Jacob Fisker :) I have learnt so much from you and others in the personal finance community - I'm unable to quantify with an exact figure yet, but I know it's going to compound to a huge amount (possibly millions?) over my lifetime. This morning I just signed up via Patreon to support your show. It's a small amount, but one important thing I've learnt on my PF journey is learning to pay for value rather than simply focusing on cost. I have a question which relates to the investment part of building wealth. How should I invest an idle USD$20,000 that's sitting around in my savings account for maximum returns? I feel I'm sufficiently exposed to the stock market at this stage and diversified enough within and outside the publicly traded securities realm. I don't want to pour money into publicly traded stocks as due to mean reversion, future returns tend to be lower when markets are at highs. Please feel free to suggest the most radical ideas you have - that's why I love the show! Some background on myself: I'm 28 years old living in Singapore. My marginal tax rate is 7% but we are forced to contribute 20% to our own tax-free housing/medical/retirement accounts. Annual take home salary (post taxes and retirement etc contributions) is about USD$50,000. Invested USD$60,000 in semi diversified stocks, ETFs and REITs. USD$20,000 in alternative non-publicly traded investments. Have 6 months emergency fund. Have a 30 year level term insurance for USD $400,000. Time horizon: >20 years. I consider myself an aggressive investor willing to take large risk on small sums of money for the potential return, if the mathematics are in my favor (eg NO lotteries, YES to EM stocks). I know it's hard to provide investment suggestions without knowing the nuances of each individual situation. Right off the bat I know I should be focusing on: increasing my salary/earning potential and starting a side business. Should I be getting more insurance coverage? Should I be maxing out retirement accounts when my marginal tax rate is only 7%? Is there anything else I'm missing? As a goal oriented person (and my goal is to reach FI fast!), I can't stand the fact that my money is idling in my savings account earning a negative real rate of return. Keep doing great work!

Enjoy the show!

Joshua

Direct download: RPF0201-Friday_QA.mp3
Category:podcast -- posted at: 5:00am MDT

From time to time, I receive questions from listeners about the equipment that I use to produce my show. I also get questions about the mistakes I've made and what I would do differently if I were to do it over again.

Today, I share the workflow that I use to create my show and some of the lessons I've learned in 200 episodes of podcasting.

This show does not contain any specific financial planning or personal finance content. It does include a discussion of my thought process in creating the show and how I selected my Unique Selling Proposition for the show.

Resources mentioned:

Enjoy the show!

Joshua

Direct download: RPF0200-Podcast_Equipment.mp3
Category:podcast -- posted at: 5:00am MDT

Today, we continue the life insurance series with the valuable background of whole life insurance. Exciting stuff!

This show is an introduction to the various product features and design ideas. We cover:

  • Ordinary life insurance
  • Limited pay life insurance
  • Cash values
  • Policy loans
  • Nonforfeiture or Surrender Options:
    • Surrender for cash value
    • Reduced amount of paid-up whole life
    • Paid-up term
  • Annuity or retirement income
  • Policy conversion
  • Participating versus nonparticipating policies
  • Policy dividend options
    • Cash
    • Applied to premium
    • Used to purchase more insurance (fully paid up)
    • Left with insurer to earn interest
    • Used to purchase more insurance (term)
    • To overpay premiums until policy is fully paid up

Enjoy the show!

Joshua

 

 

Direct download: RPF0199-Whole_Life_Insurance.mp3
Category:podcast -- posted at: 5:00am MDT

I received a question from a listner which I decided to answer for you on today's show:

  • Joshua: So, this is a "fun question" that everyone loves to fantasize about. I hope it will be fun for you to answer, but it could have a really boring answer, but I'm sure you'll surprise me somehow! 
  • What would you do if you won the lottery?
  • As a financial planner, what advice would you give to a client who had won the lottery? What would the most optimal tax strategy be? Do you take the payments or the lump sum? Would the up-front tax hit be worth it for the long term capital gains? -Micah

So, today I tackled the question! Be prepared...my answer is a bit different from many people's answers to this question.

I do share very specifically with you what I would do. I share what I would buy and what I would invest in. But, I felt it was important to go ahead and address a few of the reasons why I feel the way I do.

This show is very personal to me and it involves a lot of how I see the world. I hope you enjoy it!

The show is divided into three parts. Feel free to pick and choose if you want to, but give it a shot listening straight through:

  1. The first 47 minutes of the show are about lotteries in general and why I'm not a fan.
  2. Starting at 47:00, I share the underpinnings of my worldview and the framework for how and why I handle money.
  3. At 1:41:00 I share specifically what I would buy and what I would invest in.

Enjoy!

Joshua

Direct download: RPF0198-If_I_Won_The_Lottery.mp3
Category:podcast -- posted at: 5:00am MDT

Today, I have a tightly focused show for you with a few key points from the CFP® Board curriculum. You will need this information on the CFP® Board exam and it will be useful for you as an individual.

First, I share with you how to choose between needing a 3-month emergency fund and a 6-month emergency fund.

Next, I share with you the manageable percentages of your income which you can allocate to debt payments.

Enjoy!

Joshua

Direct download: RPF0197-Size_of_Emergency_Fund.mp3
Category:podcast -- posted at: 5:00am MDT

Today, I'm cleaning out the voicemail inbox for my Friday Q&A show. Here are the questions for today:

  • What strategies for student loan payoff did I forget last week?
  • How do we help our young kids without enabling them?
  • Thoughts on consolidating retirement accounts.
  • What are the limits on retirement accounts for a stay-at-home spouse?
  • Thoughts on various retirement income distribution strategies.
  • Do I have additional services and options to help with coaching individual people?

Enjoy!

Joshua

Direct download: RPF0196-Friday_QandA.mp3
Category:podcast -- posted at: 5:00am MDT

How much do you spend each year on fuel costs for your car? What is your current mileage per gallon?

Before you rush out and buy a new hybrid to save money on gas, consider improving your driving techniques. It doesn't cost you anything except attention and focus and it can make a substantial difference.

As an example, check out this guy who got his 3/4 ton pickup truck from an EPA estimate of 15 mpg to almost 60 mpg!

In today's show I feature 109 tips for more efficient driving. These tips come from the good folks at the Ecomodder forum.

Listen to (or read) the list, choose a couple of techniques and start practicing! Enjoy the savings and put the money to work elsewhere in your life!

Joshua

Direct download: RPF0195-109_Hypermiling_Tips.mp3
Category:podcast -- posted at: 5:00am MDT

Today, we finish out the 3-part series on preparing for layoffs in the coming recession.

Today's show will be useful to you, even if you just got notice of your layoff and didn't do anything to prepare for it beforehand.

The major theme of today's show is that you need to take appropriate action with appropriate speed. If you're stuck with little savings and no preparation, that means take massive action, now! If you've planned a bit better in advance, it means be strategic and thoughtful.

We discuss:

  • The impact of self-confidence on your job hunt.
  • The importance of having work now and not being unemployed for a long time.
  • How to take massive action on your job hunt for quicker results.
  • What types of approaches are most successful for job hunters.
  • Some radical strategies you can plan for that will enable you to simply wait out and enjoy the recession instead of being stressed by it!

Enjoy!

Joshua

Direct download: RPF0194-You_Just_Got_Laid_Off.mp3
Category:podcast -- posted at: 5:00am MDT

Yesterday, we talked about ways to avoid losing your job in the coming recession. But obviously there are factors beyond your control which might result in your being laid off, even though you've done everything "right."

So, you need a backup plan.

Don't wait and wonder what you'll do. Make a simple plan now for what you'll do.

Think about some different scenarios and play some mental games with yourself. That way, you'll be able to better respond to events instead of being shell-shocked by them.

Today's show covers:

  • The importance of planning to avoid emotional stress when you get laid off.
  • The direct impact of losing your income and how to plan for it.
  • The impact that losing your group benefits can have on your financial life.
  • Why you should consider establishing lines of credit before you need them.
  • How you can stockpile both money and the simple necessities of life.
  • The simple things you can do that will make it much easier to get your next job.
  • The importance of proactively building and maintaining a network.
  • How thinking like a consultant will help you now and help you later.

Enjoy!

Joshua

 

Direct download: RPF0193-Backup_Plan_For_Layoffs.mp3
Category:podcast -- posted at: 10:00am MDT

For most of us, our jobs are the economic engine that drive every aspect of our financial plan. One of the worst things that can happen is to lose a job.

If the engine on your car dies, you're going to be stuck by the side of the road for a while. That's not pleasant for anyone, even if you're stuck in a safe area. But, if you're driving up a mountain (paying off debt and digging yourself out of a hole), having your engine die can be disastrous. And, if you have a destination in mind (financial independence), losing the engine in your car will at least delay you from reaching your destination.

So, the key is plan in advance to not lose the engine. Make sure you're doing the things you need to be doing now to avoid being laid off.

Obviously, you can't guarantee that you'll never be laid off, but you can do a lot to improve your possibilities!

On today's show, we cover:

  • The need to proactively improve your position within your company, your company's position within the industry, and your industry's overall prospects in advance.
  • Some ways to know if you've got a big target on your back or a small target on your back with the HR people are figuring out who to cut.
  • The importance of competing with your fellow employees and of collaborating and cooperating with them and why both are valuable.
  • Ways to stand out and produce up to 4x the output of your fellow employees.

Enjoy the show!

Joshua

Direct download: RPF0192-Dont_Lose_Your_Job.mp3
Category:podcast -- posted at: 10:00am MDT

Today, I handle these four questions:

  • 3:02 Joshua, I just started listening to your show and I've learned a lot already. I originally started listening because I have an interest in one day becoming a personal finance consultant, but that's a long way off, for now I just need help with a crazy student loan issue! I am currently paying almost $600 a month for a $102k student loan at 7%, couple of key things, credit is shot due to bk filed last year, the loan is with the nelnet through dept of Ed, the question is should I pay down the loan, or find an investment that will pay me $600 to offset payment? Right now the $600 is preventing me from moving forward on anything financial, I'm expecting a lump some of money in February, like $60k, I would love to invest it where I can earn $600 or more a month to offset the payment! Any ideas?
  • 28:56 Joshua, I recently stumbled upon your podcast and just started listening to it from the very beginning. Your approach to each podcast has been a from a very practical point of view which I really appreciate and hence enjoy listening to it! Please keep up the great work! At the time of writing this, I just finished with the episode "rfp-0009 - Why is your house a terrible investment." I myself am in the stage of having signed a contract on a home and waiting for closing date. All through the show James and yourself have made many, many valid points. I myself have already tracked down my cost (also factoring in an average monthly maintenance expense) to owning a home in an excel spreadsheet and even-though most often than not, one usually tends to buy a home which is slightly bigger in area that the what one was renting (same with me), the numbers for buying a home vs renting still look better (to me) in the long run. I live in the slightly expensive Northern VA area. I have been renting for the last 7.5 years (in various capacities from being a full-time student to full-time employee to full-time employee + part-time student) and can definitely say that annual rent increase adds up over each year. In order to keep the rents at a reasonable rates you will have to move every 2 or 3 years. This would add moving expenses, cleaning expenses, security deposits and a peace-less mind to your rent calculations. But this has not been factored into the James' calculations. Yes, when you own a home your property taxes may also go up as the home appreciates, but this won't be as much as how much the rent would increase year-in year-out. Also your home may or may not appreciate every year for this to happen. Would like to know what your comments are to this.
  • 36:09 Joshua, I have a 1 year old son and am married.  My wife is in school earning her PhD.  Can my wife and I create two separate 529 plans to double our tax benefits (one in my son's name and one for my wife)?  Indiana's benefit is 20% tax credit ($1000 max credit).  If not should we create a 529 anyway?  We have the money to pay for her $30,000 education already saved to be spread over the next 3 years.  Thoughts?
  • 40:06 Joshua, My parents just recently started working with a fee-only financial adviser after their recent retirement. She has been doing a nice job with them so far helping them come up with their financial goals, seeing if they are able to achieve them with their current assets, and choosing the most appropriate Social Security choice for their needs and goals. I have been attending the meetings with them. Either in the next meeting or the meeting after, the question of converting their traditional IRA to a Roth IRA will come up. Other than their paid-off house, most of their portfolio is in traditional IRAs. She is of the belief that it doesn't make sense to convert any of the traditional IRA to Roth because they don't have the taxable funds to pay the necessary taxes. I'm of the opinion that since the income they currently receive from their IRAs is well under the $74,900 limit (filing jointly) keeping them in the 25% bracket, that they should convert some of it and pay the 25% tax rate before they have to start taking much larger RMDs in the future at higher tax rates. Of course that also ignores future potential tax hikes. They understand the benefits of having some flexibility for the future as well as the benefits of passing a Roth to me and my sister on their deaths (another one of their goals). The question I have is: What are the appropriate questions to ask the financial advisor as to how to look into whether converting makes sense outside of the generalities that you shouldn't because you don't have taxable funds? How do you 'run the numbers' so to speak to determine if converting is in their best interest? And also, how do you come up with that sweet spot amount in order to stay inside the 25% tax bracket and not pay taxes outside that bracket? Is that a question for a tax accountant or should a financial adviser be able to answer that question as well? Thanks for all you do.

Enjoy the show!

Joshua

Direct download: RPF0191-Friday_QandA.mp3
Category:podcast -- posted at: 10:00am MDT

Today we dig into the topic of trading stocks. And who better to speak with than the guy who started a "university" to teach the subject?

My guest today is Steve Burns, founder of www.NewTraderU.com

Here's some background about Steve, directly from his About page

"After a lifelong fascination with financial markets, Steve Burns started investing in 1993, and trading his own accounts in 1995. It was love at first trade. A natural teacher with a unique ability to cut through the bull and make complex ideas simple, Steve took to blogging and social media by founding New Trader U in 2011.

"Since then, New Trader U has attracted hundreds of thousands of visits a month, becoming the go-to resource for people wanting to build a strong, trading foundation. New Trader U offers an extensive blog resource with more than 1,000 original articles (Steve posts daily).

"Asked daily if he could mentor, Steve realized that there weren’t enough hours in the day to give everyone the attention they deserved, so New Trader 101 was born. Developed to help beginning traders survive their first year in the markets, New Trader 101 quickly became Steve’s passion."

The interview covers:

  • Steve's personal story as it relates to financial independence
  • His suggestions for individual investors to protect their portfolios
  • Learning to manage the psychology of investing
  • Teaching kids the skills of investing

Enjoy the show!

Joshua

Direct download: RPF0190-Steve_Burns_Interview.mp3
Category:podcast -- posted at: 10:00am MDT

Today we continue our life insurance series dig into the topic of term life insurance.

Term life insurance is an incredible financial product and extremely useful. It also has some options that are not commonly understood or explored.

We discuss:

  • What is term life insurance useful for?
  • Normal life insurance policy designs:
    • level term insurance
    • annual renewable term insurance
    • decreasing term insurance
    • increasing term insurance
  • Key policy features:
    • renewability
    • convertibility
    • disability waiver of premium
    • reentry term insurance
    • return of premium rider
  • Group term insurance
  • How to analyze costs
  • What about those who say term insurance is the only appropriate solution?
  • How to find a policy
  • How to get insurance with a medical condition

Enjoy!

Joshua

  • If you'd like access to the spreadsheet with return of premium rate of return calculations and the annual renewable term vs. level term discussion, support Radical Personal Finance on Patreon! http://radicalpersonalfinance.com/patron
Direct download: RPF0189-Term_Life_Insurance.mp3
Category:podcast -- posted at: 10:00am MDT

I'm not able to record and release a show for you today so I'm releasing an interview that I gave on the Work Strong America podcast with Rick Seigmund.

This interview was originally released on Rick's show on February 4, 2015.

Enjoy the show!

Joshua

Links:

Direct download: WSA_Episode_005_Joshua_Sheats_Interview.mp3
Category:podcast -- posted at: 9:00pm MDT

Years ago, I learned an extremely valuable thinking process from Brian Tracy called Zero-Based Thinking. Today, I share it with you.

Here's the question: Is there anything in your life that, knowning what you now know, you wouldn't get into again today if you had to do it over?

If the answer is yes, then you follow up with these questions: How do I get out? How fast do I get out?

By consistently applying this question to every area of our lives, we can avoid much of the impact of the sunk cost fallacy. As humans, we tend to want to keep doing something because we've invested a lot of time, money, or emtion into it in the past.

But, for the most part, those costs are gone. They're sunk. You can't recover them.

Rather, you have to zero the decision out, ignore the past, take the information you have today and determine if you want to continue what you're doing.

This type of thinking can be extremely challenging and freeing.

I hope it's a useful concept to you!

Joshua

Direct download: RPF0188-Zero_Based_Thinking.mp3
Category:podcast -- posted at: 8:10pm MDT