Radical Personal Finance

On Fridays, I answer your questions! And, even though this is going out on Monday, I still answer your questions! :)

Today, I handle these four questions:

1. What practical steps can a couple take when planning for one spouse to stay at home?
2. Is it wise to borrow money on a paid-off house to fund a real estate investment?
3. How should I factor a defined-benefit pension plan into my asset allocation plan?
4. How should I set my personal financial goals and pull my life back together after a divorce?

Enjoy!

Joshua

On Fridays, I answer your questions! And, even though this is going out on Monday, I still answer your questions! :)

Today, I handle these four questions:

Enjoy!

Joshua

At this point, I'm honored to get about an email a week from someone asking about how to get into the financial planning business. Sometimes, I get multiple emails in a day!

Here are four examples that I mention on the show today:

• Hi Joshua, I consider personal finance and financial planning a hobby and I dole out my amateur advice to friends, colleagues and family. A little bit of background -- I'm 25 years old and currently working as an auditor in big 4 in my third year and I've just been early promoted to Senior Associate. The thing is I don't see myself auditing forever and I really want to get into financial planning. My plan is to start taking the courses for the CFP in May/June 2015 after my busy season is over. I feel secure in my job but I just don't love it. Do you have any advice for a 20 something wanting to transition to a career in financial planning with zero experience?
• Hi Joshua, I’m writing because I’d love to get your insight in a career as a financial advisor. A little background on myself, I’m a 28 year old CPA who has worked as an auditor at a large CPA firm for the past 4 years. I’ve been thinking about making a career change, and given my interests I’ve begun looking into possibly starting a career as a financial advisor. I really enjoy the technical side of financial planning, including the tax side of planning, but am also enjoying learning about the investing side as well. In talking with a few other people, I have heard that being a financial advisor is basically a sales job where you are asked utilize your own contacts to push financial products on. What I have heard is basically the only way to make money is to have rich friends or family to get established. I really like the fact that I could be helping people, but the cold calling/pushing financial products on people does not sound appealing. Also, I don’t believe I have the wealthy contacts needed to get established. I would love to get your insight on this matter, and to hear if the stories I hear about careers as a financial advisor are correct. Additionally, I would love to hear any recommendations you would have for somebody looking to get into a career as a financial advisor.
• Hi Joshua, In 2013 I became completely obsessed with all things finance. I first picked up books about "stock picking" because I thought that was the way to go, but within a month or two I was recommended The Intelligent Investor, and I've been going with the "boglehead" strategy since then. I have been very lucky in getting a job straight out of college that pays quite well (software industry) and since I started in July 2013 I've saved 70-80% of my take-home income. I figure within 2015 I will become "FI" at age 25. I've been listening to your podcast daily since I discovered it last month, and needless to say it has quickly become my favorite podcast. Keep up the awesome work, I listen to every new episode! I am interested in becoming a fee-only financial planner. Every time I get the opportunity to talk with someone who is also interested in finance (believe me, this is super rare!) I get very excited. Nothing makes me happier, basically. I have a bachelor's degree in Computer Engineering right now. I am wondering, what is the shortest path that I could take to get to the place where I can "hang out a shingle" and start advising people for a small fee? I am not interested in charging for "assets under management"; I simply want to share knowledge with people so they can make their own investments and financial decisions. I want to do the opposite of most advisors basically! I'd be okay charging very little money for just a consultation, because I will be FI. You mentioned in one episode that you got a master's degree in financial planning, and I know you need the CFP certification. With just my bachelor's degree, could I get this CFP and start taking clients? Or would I need other certifications as well?
• Hi, Joshua, I have realized over time that I am a poor candidate for the traditional early retirement, and instead, would like to focus my next 15-17 years (roughly age 52-67) on doing something that I like--be it an administrator in a medical business that I believe in, being a health coach for middle age guys trying to get back into shape, or opening a gelato shop in my neighborhood. Actually, my dream job would probably be selling tickets in a booth at a ski resort! Maybe later... I have also thought about becoming a personal finance coach or advisor for docs. I see them make stupid mistakes all the time. I could probably do a series of podcasts on stupid things my partners have done.

It's a great question and there are a bunch of ways to answer it. I decided for today to focus on the big picture answer which is primarily about having a good fit between your skills, your firm, your firm's abilities, and your prospective clients.

I might do another show on the actual steps needed to set up a firm if you want to do it independently.

In this show I go through:

• Historical practice models for financial planning
• Current practice models
• The importance of sales and sales skills
• Why you need to know what you bring to the table as a planner
• The importance of a great marketing plan
• The importance of a solid transition plan
• The importance of gaining clarity on what you want to do, who you want to work with, and how you want to work with them

Enjoy!

Joshua

We're continuing our college series with an in-depth discussion of 529 plans.

529 plans are incredibly popular in all their permutations. (Many people who are currently participating in a 529 plan don't actually realize it because they refer to it as a pre-paid tuition program.)

They're also under attack. President Obama's most recent budget proposal targeted them for change. (It also targeted Coverdell ESAs.)

Personally, I think 529 plans are often misused and mis-applied. The majority of the mass affluent who participate are simply not getting a huge benefit in exchange for giving up the freedom and flexibility of the money.

But, there are a number of things that can be done with these accounts that are really unique.

Enjoy part 1 of our class today and learn:

• What the differences are between various types of 529 plans.
• Who they're a great fit for.
• How to use them to pay for travel and real estate tax-free.
• The history of the legislation affecting these accounts.

Enjoy!

Joshua

Links:

• A Comprehensive Guide to the Ultimate Education Account a.k.a. the Coverdell Educational Savings Account
• IRS Publication 970: Tax Benefits for Education

As we rattle around and around the iron triangle of wealth (income, expenses, and intelligent use of the difference), we come today to the topic of income. Specifically, how can you create some extra income?

The world is changing and there are more opportunities to earn some money from a side project than ever before. No longer are you limited to throwing papers early in the morning or delivering pizzas in the evening; now, you can work in all kinds of interesting ways with people from all over the world.

Listen to today's show and enjoy some of the ideas. But, if none of the ideas appeal to you, use them as a jumping off point and create your own idea.

Enjoy!

Joshua

Links:

• Nick's list of 86+ different side hustle opportunities.
• Nick's website and podcast

We need to get into some economics today and I'm going to do some prognosticating. This is a very rare event on the show, so here goes!

Prediction: there will be a global recession in the future. And gas will go up to $20/gallon.

Now that we have that out of the way, let's talk about what we can do to get ready for it! After all, that's the only thing that likely matters to you or me.

One of the keys to being financially successfully over the long term is to avoid the big mistakes. One big mistake (of many) might be getting laid flat by the coming recession and increase in gas prices.

Today I share with you some thoughts on some of the things you can do today to prepare for this eventuality.

I hope these ideas are useful to you!

Joshua

Links:

• "Consumer Prices in U.S. Drop Most in Six Years as Fuel Falls"
• "If the Price of Gas Matters to Your Family Budget, You Are Doing it Wrong"

Today's show is a bit of a pep talk--for you but also for me!

We are taught by society to compare ourselves with other people. Even though we're all supposed to be "unique and different, we're really not. After all, we're measured on our weight as a baby (compared to all other babies), our grades as a student (compared with our class ranking), and the amount of money we make and have (thus defining us as successful)!

Well, let's challenge that a bit. Sometimes we need a reminder to forget about what everyone else is doing and focus on what we're doing and why we're doing it.

Join me today for a bit of a pep talk. I hope you find it encouraging. I was encouraged as I created the show.

Joshua

Here are the influences on today's show:

1. Farnoosh Toorabi's new podcast.
2. This chapter in Richard Feynman's book: "The Chief Research Chemist of the Metaplast Corporation.
3. Gary North's publication today of his free new book "The Covenantal Structure of Christian Economics."

Q&A continues with two very interesting questions today:

• 2:30 "Should I incorporate my business in California or in Wyoming? Also, for my son, should I establish a corporation for my 16-year-old son?"
• 33:26 "I live in Sri Lanka and have some money saved. How should I decide my asset allocation strategy?"

Enjoy the show!

Joshua

We're continuing our Q&A series this week and today I handle these two questions:

• 00:01 Melissa heard about an idea of using a HELOC to pay off your primary mortgage as a method of paying off the loan faster and saving interest costs. This was referenced in the book "Master Your Debt" and the website TruthInEquity.com.
• 38:13 Robert asks about the safety of the deferred comp plan that he and his wife participate in at her Fortune 500 Public Utitlity company.

Enjoy the show!

Joshua

When I started recording the show, I planned to answer six questions. But, after finishing the first question and realizing how in-depth the show would be if I covered all six in one show, I decided to break it out into multiple shows.

Today, I cover these two questions:

• 8:41-I'm thinking about buying life insurance on my two kids' lives. What do I need to know?
• 47:53-Will it work for me to use the 72(t) rules to retire at 50 and then change the payment terms at 59.5?

Notes-Life insurance for kids:

• This is one of the most controversial areas in finanancial planning so I'll try to fairly represent the various points of view.
• It's tough to have a low-key discussion here because it's such an emotionally intense subject.
• There are three major philosophies that I've discovered:
  1. Buy lots of life insurance to protect your investment in your kids.
     • Few people in the US will go for this one; much of the world will understand it though.
     • The reality is more and more of us will in fact be depending on our kids as we age due to many factors including the amount of savings most retirees have and financial challenges facing social security and medicare.
  2. Buy just the minimum amount of insurance to cover burial costs.
     • The problem here is that the rich and middle class don't really need it and the poor often don't think of it and can hardly afford it.
     • It's also simply not very high as a priority due to the relatively low risk. Consider this model: http://radicalpersonalfinance.com/do-i-need-insurance-a-mental-model-to-analyze-methods-of-dealing-with-risk-rpf0091/
  3. Buy some insurance for now and as a hedge for the future.
     • Hedge for the future with an Additional Purchase Benefit.
• How to actually buy the policy?
  • The advice is conflicting.
  • People say to buy term policies for kids. But I've never been able to find a company that will sell a stand alone term product on a minor's life. (Let me know if you know of one, please.)
  • If you're buying a big policy (#1 above) and your child is over 18, it's easy. Buy an Annual Renewable Term policy for them.
  • If you're buying a big policy (#1 above) and your child is under 18, it's harder. If you want to get closer to term coverage, consider a stripped-out universal life policy. If you have the cash flow, go with a traditional whole life insurance contract. Make sure it's a contract that your kid will be happy owning forever. Shop carefully.
  • If you're buying a simple burial policy (#2), do it as a term rider on another policy. You can get these at work, bundled with a banking or property and casualty insurance product, or as a rider on your own term policy.
  • If you're hedging now and later (#3), buy a small whole life policy with an Additional Purchase Benefit. That way as health, hobbies, and occupations change, your child will be able to buy more insurance if necessary. Shop carefully.

Notes-72(t) Calculations

• Use this calculator to get an indication of the numbers: http://www.dinkytown.net/java/Retire72T.html
• IRS info: http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Substantially-Equal-Periodic-Payments