025R | Friday Roundup | Paul Case Study Part 4

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Friday Roundup 025R

ChooseFI Favorite: top rewards card for beginners

Chase Sapphire Preferred Card​

Looking for the best credit card to start earning travel rewards points? The Chase Sapphire Preferred is our pick. With a 50,000 point signup bonus (after spending $4,000 in the first 3 months), the $95 annual fee waived the first year, and ultra-flexible points (transfers to 13 airlines & hotels!), this is our top choice!

ChooseFI Favorite: top rewards card for beginners

Chase Sapphire Preferred Card​

Looking for the best credit card to start earning travel rewards points? The Chase Sapphire Preferred is our pick. With a 50,000 point signup bonus (after spending $4,000 in the first 3 months), the $95 annual fee waived the first year, and ultra-flexible points (transfers to 13 airlines & hotels!), this is our top choice!

In today's Friday Roundup we discuss Episode 25 with Keith from the Wealthy Accountant, Part 4 of the case study with Paul including a look at his line-by-line expenses, plus questions and feedback from the audience.

In Today’s Podcast we cover:

  • Friday Roundup after Episode 25 with Keith from The Wealthy Accountant
  • The firehose of information that Keith unleashed was incredible!
  • Feedback from the audience about Keith’s episode
  • The value of an S-corp election for small businesses
  • How to find a top tier accountant with passion for helping you
  • When should you form an LLC when starting a side business and are there any benefits of doing so?
  • Danielle’s feedback about our working of “taxable savings.” She used “post-tax savings” which we really like
  • Dominic’s feedback about reinvesting dividends
  • Careers that help you get to FI: Nursing and feedback from the audience on why this is such a positive career on the path to Financial Independence
  • Announcing the ChooseFI private facebook group!
  • Discussion of Camp Mustache
  • Brad’s FI conversation in real life with his friend Justin about $2 per person per meal for dinners
  • How to portion out dinners to save money
  • Laura is going to share her recipes in the new private Facebook group
  • Frugal wins of the week from Jake and Brad
  • Mark Resnick from Student Loan Freedom: Voicemail with a hack on saving money on student loans
  • Discussion of Mark’s voicemail and our request to get one audience member to work with Mark on student loan forgiveness programs
  • Voicemail from Bryce on hacking college
  • How Brad and Jonathan wish they had the knowledge Bryce passed along when they went to college
  • How to start planning early to apply for these scholarships
  • Case study update: Going through Paul’s expenses and analyzing them. What does his post-FI expenses look like?
  • Paul’s expenses drop significantly in his post-FI life
  • $23,000 of his $73,000 annual expenses were on vacations and this can drop significantly in a post-FI life by using travel rewards points and pursuing slow travel
  • Looking at Paul’s actual expenses and what else is “fluff” on top
  • Our update on future case studies: We can’t do these once per month.  More likely 3-5 per year.
  • Jason from Winning Williams is putting together a ‘crowdsourced FI plan’ excel sheet
  • Travel rewards question on how to save on cruises. You can use a ‘fixed value’ card to offset cruise expense
  • Itunes reviews of the week and book giveaway

Links from the show:

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15 thoughts on “025R | Friday Roundup | Paul Case Study Part 4

  1. Hey Guys, love the show as always! Apologies to Danielle, but I’ve gotta disagree with the “post-tax savings” term here because I think it’s misleading. To me “post-tax” should refer to Roth IRAs or Roth 401ks because you fund them with money that’s already been taxed and then they grow tax free and can be withdrawn tax free (with some stipulations). If you’re talking about a checking account or savings account at a bank or you’re talking about a brokerage account for investing, these really aren’t “post-tax”. Sure, the money going into them has already been taxed, but you’re also going to be getting taxed on your earnings- whether it’s interest on a savings account or capital gains and dividends on a brokerage account. For that reason, “post-tax” is misleading because it implies the taxing is already over with, but it isn’t. I’d stick to calling them traditional bank accounts (checking and saving) and taxable brokerage accounts (where you’d buy VTSAX). I think those terms should hopefully get the meaning across. Hope that helps!

  2. Yeah, you should probably just call them “standard”, “ordinary” or “unrestricted” investment accounts, because they don’t have any special rules attached to accessing them. But I’m pretty agnostic.

    I thought the dial-in on “529s are always bad and you should overfund life insurance policies instead” is probably misleading and would only apply to certain people in certain situations. There was also an implication that 529s only apply only to certain designated schools, but that only pertains to certain specific state-run 529 programs. But perhaps it was designed to pique interest/controversy and drive traffic to the source as a marketing device (that’s what it sounded like to me).

    The first question is whether you (you or junior) intend to take out significant student loans to begin with. If not, then trying to hack FAFSA is a waste of time. But if you are trying to hack that, recognize that colleges are still all over the map as to what they consider and whether they augment FAFSA with other criteria. Here’s an example with respect to which colleges account for or ignore home equity, which could be another way to hack it for some people by hiding their college savings in their house and then using a home equity line to access it later: http://www.thecollegesolution.com/will-your-home-equity-hurt-financial-aid-chances/

    That being said, I’ve found 529s to be only of limited utility. You would want to max out all other tax advantaged retirement plans first, which also usually don’t count for FAFSA. The best thing I can say about them in Virginia is that they give an immediate deduction on state income taxes up to $4K per year per kid, which is really the only reason we have used them. The holding period of 10-18 years is really just too short to expect big tax-free returns.

    But there is another unusual feature to them that I rarely hear people mention, which might be good for your future grandchildren/other family you want to help, and your estate planning: You keep control of the funds and they are transferable. So you could put money in one in the name of junior who is done with college or not going, and then transfer that money to someone else who is not even born yet right now after they apply for FAFSA or its equivalent when the money is NOT in an account in their name. Think about that — 30 or 40 years of compounding tax free will make a big difference over the standard 10-18 years that most people get.

    Yeah, its a strange idea, but I feel like there are a lot of other ways of using these accounts that people just have not fully explored.

    Anyway, great show and great engagement.

  3. “Post-tax” should (and usually does) refer to both Roth and normal accounts, since both are funded with post-tax dollars. If you need to distinguish between those (and you very often do), you could use the terms Roth and “taxable-gain”. That’s kind of cumbersome, so I would just use “regular”, or “taxable” since that’s pretty standard.

    No offense to the person who was confused by the term “taxable”, but if you are that unfamiliar with the types of accounts available to you and how they all work (as we all are at some point), it is absolutely worth your time to learn the landscape and the standard terminology. You can earn hundreds or thousands of dollars per hour of effort by learning it now vs a couple of years from now.

    • I just had a thought about a way to explain why a taxable account is called taxable. A taxable account is taxable in (roughly) the same way that a person is a taxable person, or a business is a taxable business. You aren’t taxed just for being a person. A business isn’t taxed just for being a business. But taxable people, businesses and accounts can create taxable events when they do certain things…generally earning income or some kind of profit.

  4. I’m very skeptical of the “hack” from studentloanfreedom.com. First of all, 529’s count as parental assets, not student assets. So they don’t count against FASFA as much as student assets would. Second, permanent life insurance is typically expensive and primarily a way to line the pockets of an insurance agent. Most reputable financial advisors are skeptical of this approach: https://www.forbes.com/sites/barbaramarquand/2015/12/16/life-insurance-fails-as-a-college-savings-plan/#37be0227e236

    This call sounded like an advertisement for insurance or a debt-relief scam. I’m surprised you guys played it without any skepticism or warning to the listeners!

    • Sorry, I wasn’t right to say you played it without any skepticism or warning. You had a lot of skepticism, just not as much as I did. 🙂

      • Hahaha Sam thanks so much for the addendum ***

        Brad and I are appropriately leery of whole/cash life insurance (see episode 20) , and if Mark had been an insurance salesman it wouldn’t have been aired. But Edmund who I have said before is a next level FI thinker has posed something similar to me so I really want to flesh this out. Brad and I have no vested interest in Mark or any service currently so we are in a unique position of just being able to search for “truth” not to be cliche.

        Sometimes its hard to get people(audience) to flesh out their ideas, but they will share their opinion of a perceived “bad” idea. It’s human nature and thats a good thing for all of us. I have learned so much about 529’s (advantages /disadvantages) and now I can share that information in a future show.

        Because Brad and I are not dogmatic about any single idea. we get a chance to flesh out these ideas in the ring and see what Ideas can stand up to inspection from you and other high level fire thinkers (think cage match). If an idea survives after several weeks. then its worth sharing, if not then our entire audience benefits from all the reasons it doesn’t work. (crowd sourced show) we come back to ideas week after week to hone them

        By doing this we are avoiding group think and benefitting from different perspectives.

        we want to constantly learn from our guest and our audience. Controversy is a tool that benefits all of us. So I am actually super excited about this conversation. in 30 days I will have received close to 100 value added emails and comments either validating or trashing this idea and that can become its own show 🙂 it’s amazing really

        Thanks for your input Sam we appreciate having you

        • Thanks. I agree with everything you say. I’m sure that Mark’s idea is great for a slice of families, but I didn’t like the claim that it was much better that 529s. Glad you plan to do a deep-dive. 🙂

  5. Big thanks to Jonathan and Brad for sharing my comment, quite an honor to hear my comment “on the air!”

    The interview with Keith from http://www.wealthyaccountant.com really was a firehose, and sure enough the second listen was even better than the first!

    I really appreciate the integrity that you both bring to sharing what you’ve learned, it comes through that you are here to help, share and learn together, to build a community and collect the best ideas from wherever we can. As the FIRE community grows, maintaining this integrity will only become more important and I’m proud of you for setting such a good example.

    So glad to be sharing this work with you both and with everyone here.

  6. Hi guys. I’m interested in the idea of paying into my kids Roth to work for my side business. What further resources would you recommend for this? The age mentioned was 6. How do child labor laws play into that?

    • No child labor laws apply for your children working for you if you are a sole proprietor. Just have them earn the bucks and put it into the Roth. Keep records of how many hours they work, what the work is and how much they were paid per hour (has to be “reasonable”) in case you’re audited. I believe the irs case that allowed this involved children as young as seven. If you’re that tied in knots about something so simple, ask an accountant. Don’t let them tell you you can’t do it, though.

      If your biz is an entity, there’s a bit more to it. They can’t be working for your entity, or you’ll have to pay the FICA. For example, maybe have them work for a sole proprietorship that your wife runs for the purpose of providing service to your entity.

      Good luck.

      • Thank you, Mary. That’s very helpful. My child. Sole proprietor. Keep records. Avoid FICA. And I like the round-about through my wife. Thank you!

  7. As usual – great episode. Glad to hear the results of Paul’s analysis – and appreciate him “putting it out there” – it was very relevant to us.

    One ask – there was much discussion about his budget and expenses. I’d love to see where he is spending and not spending – I trust this is on a spreadsheet. I’d be happy to share mine – I’d love to understand where he’s lower than me, and how he categorizes expenses – and try to standardize this. I know you mentioned Jason from Winning Williams was doing something like this (possibly). Thanks guys – you’re making a difference!

  8. Im convinced a stay at home wife can take any smart kids and steer them to free college. All three of my millennial kids got free room and board, tuition, fees and books. College cost them and us nothing. A 29 or 30 ACT is enough to get governors or chancellors scholarships to a state school. They have zero loans and two engineering and one business degree between the three of them. They are also in jobs they enjoy and totally self sufficient.

  9. Do NOT get student loans. DO NOT GET STUDENT LOANS. There are many strategies for paying for college without student loans. Did I mention that you should NEVER GET A STUDENT LOAN?

    Save money for college in an ESA and your own IRA and plan to use that money. Discuss the truth about college with your children, that it is a total scam. For many professions, a college degree is not necessary. What your children will get is the next level brainwashing for four long years with you paying for it. Antifa, anyone? If they are hell bent on a career that requires a bachelor’s, tell them that they have to “pay for” their first two years. They can do that very easily by taking AP tests, and going to community college for their last two years of high school, or taking courses online from accredited universities. Then send them to either a cheap state school, or apply to private colleges that have ample scholarship money. This is not rocket science. All it takes is breaking the brainwashing–because that’s what it is, thinking that the college scam is required for success.

    Our daughter wanted to go to college. She paid for her first two years by acing eight AP tests (had she not spent a year teaching English in Mexico, she would have taken probably 4-5 more), taking community college classes and on line courses from BYU. She entered our local state university as a junior. She lived at home for the junior year, saving even more money. Total cost around $30k, which we saved by putting $2k into her esa account since she was born. One of the biggest gifts we have given her is a debt free beginning to her career. And lest you think that this is for losers, she is currently in a Chemistry PhD program at a top university studying under one of the most prominent professors in the country. (If you didn’t know, PhD candidates in the science to NOT pay tuition. In fact, she is paid a stipend for teaching and research, and has also received a grant.)

    Our son was not interested in college. After attending a handful of community college classes, and sharing a house with college kids a few years older than he for two years, he concluded that college is not only a total scam, but an unbearable one. So the money we put aside for him he can do with as he pleases. So far he bought two cash flowing rental properties. He also plans to travel through asia next year.

    Did I mention that college is a scam? And that you should NEVER get a student loan?

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