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Jamila Souffrant

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Joseph Anderson

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Alan Clopine

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Published On

March 27, 2018

Save $85,000 annually: Jamila Souffrant from JourneyToLaunch.com explains how she can save $85,000 every year, and how you can save and invest more money too. Plus, 10 Financial Planning Tips for Young Investors, and the merits of buying company stock. And interest rates are on the rise – what does that mean for your bond portfolio?

Show Notes

(01:38) The Fed Raised Interest Rates – What Does This Mean For Bonds?
(11:59) Jamila Souffrant’s Journey to Launch
(28:11) Big Al’s List: Financial Planning Tips for Young Investors
(37:47) Big Al’s List: Financial Planning Tips for Young Investors, continued
(44:50) Joe and Big Al Debate the Merits of Buying Your Company Stock

Transcription

“My question is more of a strategy question, I guess.” “How do I know how much money to move into a Roth?” “I’d like to get some information, if I can, regarding donor-advised funds.” “Now I want to retire and preserve my capital. I want to invest in options.” Your Money, Your Wealth® listeners, it’s your turn! If you’ve got a burning money question, call (888) 994-6257 for your chance to have Joe and Big Al answer it live during Your Money, Your Wealth®. Whether it’s about retirement, investing, Social Security, taxes, or preparing your portfolio for the inevitable market volatility, there’s a pretty good chance these fellas can give you the insight that will help you make better money moves. That number again is (888) 994-6257.

Where was that extra $50,000 or $60,000 going before? And I really, honestly – we had other expenses obviously, but I couldn’t tell you exactly where it went. Which seems crazy. But I just think we were just not being intentional. And just that switch – investing first, making it a priority, really allowed us to get aggressive and start reaching our goals. – Jamila Souffrant, JourneyToLaunch.com

That’s Jamila Souffrant from JourneyToLaunch.com. On Today’s Your Money, Your Wealth, she shares her journey to saving and investing $85,000 per year – I’ll be taking notes during this one. Plus, Big Al’s got 10 Financial Planning Tips for Young Investors, and the fellas debate the merits of buying your company’s stock, whether or not your title has a C or a P in it. And, interest rates are on the rise, so what does that mean for your bond portfolio? Let’s find out, here are the P and the C, Joe Anderson, CFP® and “Big Al” Clopine, CPA.

01:38 – The Fed Raised Interest Rates – What Does This Mean For Bonds?

AC: So this week Joe, we had a couple things happen – we had the interest rates increase.

JA: Yeah, a quarter bips.

AC: Yes so the feds, they’ve been telling us that they’re probably going to raise the rates about three times this year. So this is perhaps the first of three.

JA: So what, it’s six times since ’15?

AC: Right, six times since 2015, and so the benchmark interest rate range is now between a percent and a half and 1.75%. It was basically nothing for a while. And remember, they were at one point talking about making it negative, which none of us really knew how that would work.

JA: Right, foreign countries had negative interest rates. So you look at people are buying safes. (laughs) It’s cheaper to buy a safe!

AC: Yeah, you put your money in a bank, you have to pay for it. (laughs) The bank says, “we’re gonna charge you a quarter point to hold your money.” (laughs) But I guess the thing is, we have a new Fed chairman, Jerome Powell. And it’s worth noting that our prior Fed chairman, Janet Yellen, pursued a gradual rate increase strategy, and kind of a choreographed selloff of portfolio bonds. Remember we bought all those bonds?

JA: Right, QE1, 2, 3.

AC: Right. And that helped the economy. But then you can’t just sell them all at once because that floods the bond market. So there was a very careful selloff, and it’s important to note that Mr. Powell was among the governors that voted for that approach. So he’ll probably kind of keep the gradual rate increases so that it’s not just too much too quickly. And just in case you didn’t take economics and high school or college, and I did, but I didn’t do that well in it, but what I do remember is that interest rates and inflation are kind of opposite from each other. So in other words, that’s partly why they raise the interest rates, is to keep inflation at bay. And if you’re over 50, Joe you’re not over 50, but if you’re over 50, you remember inflation of 12%, 14%, 16%. That was under the Jimmy Carter years, and we’re trying to avoid that at all costs. So, you raise interest rates. It kind of puts the brakes a little bit on the economy, and then, of course, there’s another factor here, which is unemployment. So unemployment has been continuing to go down as a percentage since the Great Recession. And at a certain point, when unemployment is too low, the economy gets too juiced up and inflation comes, and so that’s about as much as I know about economics.

JA: And then there are all sorts of pundits saying it’s under employment because the older generations are not getting jobs so they’re just retiring.

AC: Right. And the other thing they’re saying is, “well, we may have decent unemployment numbers, but people aren’t getting increases and raises, so the wages haven’t followed.

JA: But then we have an increase in wages and then the market blows up.

AC: That’s what I was going to say. And that had been true for maybe the last five years, until maybe last year or a year before, I’m not sure when this flipped, but now we are seeing some wage increase. So we could get Chris Thornberg on, and he could explain this. (laughs) Don’t take my word for it. Economics, that’s as much as I know. I think that’s right. I think what I said is basically true.

JA: Kinda. (laughs) Well if you think about it, back in the Jimmy Carter days, your interest rates were 18%.

AC: I know, I remember my dad getting a bank CD for 16%. And he said, “man, I got a four year at 16%.”

JA: But then the mortgage is 20.

AC: That’s right. My first mortgage was in 1985, it was 12.5%. And then I remember about two years later, two and a half years later, I learned of this thing called refinancing. You could actually refinance and lower your interest rate.

JA: How many years it took you to refinance?

AC: A couple of years.

JA: Oh I thought you said 12 years later. (laughs)

AC: Yeah 12 years I finally said, “what’s a refinance? That’s a foreign word.” (laughs) No, it was a couple of years later, and I was shocked that I could actually get an interest rate of 10%. That seemed unheard of. Of course, I was in my 20s, my young investment life. But anyway, now people are getting in the threes and 4% – it’s been going up. Now the last time I looked, a 30 year mortgage, the average is more like 4.5% – and remember it was like 3.5% for a long time.

JA: Well, I think we’re seeing a stronger economy. Before it’s like they created a wealth effect too. I remember Larry Swedroe talking about this. You flood and buy Treasurys. So when you buy things, the price goes up. So when you’re buying a lot of things, the price goes up fairly high. So with bonds, interest rates, and bond prices have an inverse relationship. So as interest rates go down, bond prices, historically, go up.

AC: Yeah, that’s a hard thing for people to understand, because bonds are interest-bearing investments. But the reason that happens is, when you have a bond, it’s a fixed interest. And if that interest rate is 3%, and now rates have moved up to 4%, you’re 3% bond is not as valuable to the open market as it was before, because you can get a new one for 4%. So you have to sell your bond at a discount. And the longer term, if it’s a one year, two year, three year term, not that big a deal. But if it’s a 30-year term, you’re going to have to have a pretty good discount. That’s why bond funds can actually go down in value. Now what tends to happen with the shorter term bonds is they may temporarily go down, but then as the bonds are redeeming and maturing, new bonds are purchased by the funds at higher interest rates, and so it tends to balance out. But those long-term bond funds in increasing interest rate environments are little tough.

JA: You just have to understand what the heck you buy. Because I think a lot of times, people will analyze their bond funds. Let’s say a normal 401(k) investor, and they’re getting closer to retirement, and they hear bonds are safe. So they look at their overall portfolio, and they’ve had a good run in the stock market over the last 6, 7, 8, 9 years. It’s like, “OK well now I’m in my 60s, I should tone down the risk because now I need to create income.” So they’ll look at choices in their 401(k) plan. And they’ll say, “this bond fund, over the last 10 years did 7%. This bond fund did 4%, the other one did 2%.” So most people will say, “well the one that did 7% must be a better investment. The people running the fund must be more educated or smarter or they have the crystal ball than the bond fund that did 2%, because 2%, that’s nothing.” But it’s arithmetic. That’s all it is. The 2% bond is not necessarily a bad investment, it’s just a lot safer.

AC: Yeah, it’s a different kind of investment.

JA: Right, you’re not buying in the profits of the overall organization. What you are doing is you’re lending your money to that organization, and they’re paying you an interest rate. Let’s say if I look at a government Treasury, versus J.C. Penney’s. Which is a stronger entity right now? J.C. Penney is OK, it’s a nice company, but they’re not that strong. They don’t have the balance sheet of the U.S. Government.

AC: Yeah, it’s not the US government, and J.C. Penney doesn’t print their own money like the US Government does.

JA: Exactly. So you have a choice. You can say, “I can give my money the U.S. Government, or I could give it to a corporation that’s not that great. Which one would I rather do? Which one is going to be stronger, where I can count on my interest?” Well, of course, the U.S. Government. So then what does J.C. Penney’s need to do? They need to increase the interest rate to entice us to purchase their bonds.

AC: Because there’s more risk. We saw that in a big way a few years ago with Greece. Companies in Greece and Puerto Rico. Some of the Puerto Rican bonds were paying 25%.

JA: For like a day until they defaulted. (laughs)

AC: So you got interest for a month or two. But that was about it. So yeah, it’s not necessarily widely understood with bonds, but bonds are just simply a loan to an entity. Now you can loan it to the U.S. government that prints its own money, or you can loan it to your neighbor that lost his job. And so which is safer? If you’re going to have the same chunk of money, you’re going to want a higher interest rate from your unemployed neighbor, because there’s a lot more risk on your sampling.

JA: Absolutely. But with these increases in interest rates, it’s just the Fed fund rate. And so people then, “if the Fed’s increasing rates by 25 basis points, oh my gosh.” No, it’s a gradual process, as you alluded to earlier. Maybe you want to take a checkup to see what type of bonds do I own? Do I have longer-term bonds, do I have shorter-term bonds? Do I have high credit quality bonds? Do I have lower credit quality bonds? Just take an inventory of what you have. You cannot analyze your bonds as you do stocks because you’re not buying into the profits, you’re just lending them money for a fixed interest rate. So make sure, because as interest rates do go up, those bond prices will fluctuate a little bit. And then can you handle that risk, or do you understand what’s going on in your portfolio I think is a better statement. I think most people don’t really understand the correlations of certain asset classes and how they all work together. Because if I have longer-term bonds, and all of a sudden those bonds go down and all my stocks go down, then that diversified portfolio, the correlations are almost equal, and everything is going down all at once. So stay tuned. We’ll see what happens with this crazy economy we live in.

We happen to have a new video on this very topic – “what happens to my bonds when interest rates go up?” Visit The Learning Center at YourMoneyYourWealth.com and click “Ask Pure” to learn more. That Learning Center is a great place to access white papers, articles, webinars and hundreds of video clips on things like tax planning, investing, retirement planning, Social Security, estate planning and small business strategies. Pretty much anything you need to know about your money is right there in the Learning Center at YourMoneyYourWealth.com. Check it out, and if you can’t find the answers to your questions, call Joe and Big Al at (888) 994-6257. That’s (888) 994-6257.

11:59 – Jamila Souffrant’s Journey to Launch

JA: Alan, you know what time it is?

AC: It’s time for a guest, we’ve got Jamila Souffrant on today’s show, she’s a Certified Financial Education Instructor, Joe, she’s a podcaster, she’s a blogger, she’s a money coach. And most importantly, she’s the founder of Journey to launch, a podcast where she shares her journey to reaching financial freedom, and helps others do the same. Jamila, welcome to the show.

JS: Hey guys, thanks for having me.

JA: How are you doing Jamila? This is awesome. Tell us about the genesis behind your podcast and your mission in life here?

JS: Sure! So Journey to Launch was born out of my desire to share my journey to launch to financial freedom. And initially, when I started, it was a blog, just sharing what I was doing, how I was saving my money, investing my money and reaching my goals. And people started taking notice, and they wanted to understand and learn how to do the same. Because my husband and I gather were able to accomplish a lot. So in the past two years, we were able to save and invest $169,000 which is almost half our income over those two years. And before doing that, we weren’t saving and investing a fraction of that. And so when I started Journey To Launch, it was initially just for me to share that with other people, and then I started to realize that I want to bring this notion of financial freedom, financial independence to more people. I want to help more people figure out how to do this. And that’s when I kind of also switched it to be helping others, providing information, so that they can launch to financial freedom too.

JA: Hey, so what triggered? So something must have happened. So you were saving a fraction of that, and then all of a sudden you and your husband sat down and said, “enough’s enough, now let’s save $85,000 a year?” How did that happen? Let’s start doing this.

JS: So this is a little backstory. So in my 20s, when I first graduated from college, I always knew that I never really wanted to work for anyone for the rest of my life. I had this dream of retiring – not even retiring, just quitting my corporate job by 30. I knew that at 22 when I graduated that I didn’t want a boss forever. And I tried a couple things and it didn’t work. I opened a couple businesses and nothing seemed to pan out because I thought the only way that you can do that, to not work for someone else, was to create some big business or the next Google. And I wasn’t able to do that. So I kind of just resigned to a life like what most people do, and said, “well, I guess I will have to work until I’m 65.” And what happened was, in my early 30s I was pregnant with my first son, and I never let that dream go. But I didn’t know how to get there. I was pregnant with my first son, I have a pretty long commute, and I usually it’s like an hour, hour and a half one way. This time, because of some crazy traffic, it took me four hours to get home and I was pregnant. And I remember, it was just devastating. I’ve had those long commutes before where it was just like horrible traffic. But the fact that I was pregnant really just sent me over the edge. So I remember having a break down in my car, a break down at home, saying to my husband, “I don’t want to do this forever. I have to figure something out.” And so it took me a while after that, but what started to happen was, I just started to look out for more resources and ways in which I could figure out a way to not have to work in something that I wasn’t happy in forever. And it wasn’t only about the commute because I I could also look for a job closer to where I lived. It was more about feeling just kind of stuck and unhappy. And I knew I wasn’t fulfilling my purpose. And I then stumbled upon the personal finance blogs and podcasts and discovered this thing called financial independence, where people were retiring early, and they weren’t doing it – not everyone has six figures. Or they weren’t millionaires already, they were doing it on a regular income. They were just very strategic about what they spent and how they invested. And I remember thinking, “well if someone out there can do this, surely I can figure out a way to create a plan to also do this.” And I came home to my husband and said, “let’s think of how we can also make this happen.” And that’s basically what we did. And my husband, for the most part, this is all new to him. So I for a while, I was listening to the podcasts, I was reading the blogs. And when I came home and told him about it, this was the first time he’s hearing anything about “retiring early”. So it was a surprise to him, but over some time, over a couple of months after sitting down and working through some stuff, he got on board and we just started to take advantage of all the investment opportunities that we have available to us, which is what got us started.

JA: That’s very lucky for you to have because the biggest reason for divorce is probably finances, in most cases. To say, “I want to do something different. I want to save, invest, I want to be financially independent.” You have to get both people on board, I would imagine. If he’s a spender and you’re saving, that would’ve probably blew you up.

JS: Yeah, I was lucky enough to where he’s not a crazy, crazy spender. Now, he is not necessarily the most frugal person either, and neither am I, but I would say for him, I really needed him on board, because he’s a teacher, and I realized after learning about all the instruments people are using to retire early, that he, my husband, had access to two pre-tax retirement accounts. And so as a teacher, he had access to the 457 account and a 403(b) plan. And I knew that if we were going to be able to save aggressively, we would need to invest as much in those accounts as possible. And so one of the key things I asked him when we started talking about it was, “what would it take for you to have a good life now?” And then, “what would a good life look like when you retire, or when you’re 55?” And so I think phrasing the conversation in that way helped because I wasn’t suggesting that we become totally frugal and strip away everything that he loved. I wished to be more intentional about how we save, invest and spend our money, and figure out how we can have the best of both worlds – how we can still enjoy today, but set ourselves up for a really good tomorrow. And another key thing that I did is I realized that he also involved and dedicated to the journey. Things like cable – we still have cable. I would love to get rid of that. But he loves it. So we keep it. And there are just certain things that I make sure that I’m listening to him and making sure that it’s not just about what I want on this financial journey. “How can I make sure that he’s also content too?”

AC: Hey, I’ve got a question, because I’m thinking about, you’re in your 30s, early 30s, and you’ve got a baby on the way. Or maybe the baby is already born, and you’re living in New York City, which is a high-cost area. And you go from saving very little to 80 plus thousand per year? I just don’t – how did you do that? I get why you did it, but how? How did you do that?

JS: Right. So it’s important to note that my husband and I combined, have decent salaries for living in New York. That’s about half our income. So what really happened was because we started funneling everything pre-tax – so we started to work on investing the maximum in his two accounts. And then the maximum in my 401(k). So before we even saw our check, that money came out. And then it was up to us the budget what was left. And so we started budgeting, and then any extra money – so as a teacher my husband also works extra jobs, he does morning school, he does night school, he coaches. So he was getting extra income on the side, and we would just dedicate that income to saving and investing. And then I work in corporate America, I get bonuses on top of my salary. So we just dedicated the extra money to our Roth IRAs and our investment accounts. So it really was a fact of automating it, putting the maximum amount away, budgeting what was left, and making the investment and savings goals a priority. And then cutting back on the things that we were spending on that we just didn’t need, like we had gotten rid of more expensive vehicles and just got more economical vehicles. We started to watch how much we were going out to eat. And we enjoy that. So we still had a line item for restaurants and enjoying life, but it definitely wasn’t as much as what we were spending before.

AC: So I heard a couple of things I think are really good concepts. One is automatically saving. And you and your husband had a couple retirement plans. So between the between the two of you, you could put away about $54,000 just right there, so that’s fantastic. But then it also sounds like you were pretty intentional with the rest of your dollars coming in. I think a lot of people have no idea where they’re spending their money, and it just slips away.

JS: Yes that’s right. That’s what was happening because let’s take taxes out, where was that extra 50 or $60,000 going before, and I really honestly don’t know – we had other expenses obviously, but I couldn’t tell you exactly where it went. Which seems crazy, but I just think we were just not being intentional. And just that switch – investing first, making it a priority, really allowed us to get aggressive and start reaching our goals.

AC: So you do a lot of podcasts, what are some of the questions that your podcast listeners are requesting? What are the topics that they want to know about?

JS: So it’s interesting because I feel like I have a wide – I call the people who listen to my stuff or like my content, “journeyers” as a play on Journey to Launch, and I come to find that I get journeyers at different points on the journey. And so some people are just starting, they didn’t even know that this was possible. And when I say retire early, it doesn’t mean that I’m going to retire and do nothing. It just means I just don’t want to depend on a corporate paycheck. I just want to be financially independent and do the things I love. And so when I talk like that, and people realize that it’s possible like there are people out in the real world doing this? They’re interested, but then they have a lot of other things they need to get over because they have debt or mental blocks. So some of it is like basic stuff that they want to understand how to overcome so they can start working to growing wealth and investing, and then some of it is just logistical. They just want the inspirational stories of, “OK, like give me examples of couples doing this. Give me examples of maybe – you and your husband live in New York, you earn a decent amount, give me an example of someone who’s not earning that much in being able to do that.” So they tend to ask for more examples, and strategic ways, like step by step ways in which they can reach it too.

JA: Hey I got a just off the wall question. Does your employer know that you have this Journey to Launch and leave the corporate life? You’re like, “hey, I hate this life! I’m doing everything I possibly can to get the hell out of this job, and I’m blogging, and I’m very popular on the airwaves.” (laughs)

JS: (laughs) Well this is actually a very funny question. So no, I do not go around at my job now talking about this. But I’m also very careful to be respectful, because at the end of the day, it’s not that I hate my job, and it’s not like it’s a horrible place. This job has allowed me to do what I do. So I’m very mindful in the way I frame it because I am very blessed and lucky to have worked my way up. I’ve been working in corporate America since I graduated at 22, I’m 35 now. And so the reason why I was able to buy my condo when I was 22 was, in part, because I interned at this job, and got paid to do it and saved that money to buy it. And the reason why I’m able to save as much is because of this job, because of the income. And so I try not to be disrespectful in the way I talk about it. And so the answer is no, I don’t talk about it much here, but if anyone Googled me from here, they would find, it but I don’t think anyone has done that yet. (laughs)

AC: So you’re not hiding it. But you’re not broadcasting it.

JS: No, I’m not hiding it.

JA: You don’t wear a t-shirt saying “Journey To Launch. Check me out, cause I’m outta here!” (laughs)

AC: “I want more subscribers!” (laughs)

JS: Well it’s funny, because I had a piece that ran on CBS, and a couple people saw me on it, but it wasn’t talking about Journey to Launch, it was just more my saving story. And so a couple people at my job said, “hey, I think I saw you on TV.” And I’m like, “you did? Really?” It was funny but it’s kind of a delicate situation. But again, I try to be very careful about how I frame it and talk about it.

ACA: Any final thoughts before we wrap up here?

JS: I would say that my goal is to bring financial independence, financial freedom to the masses. Bringing it to a wider audience, let people know that it is possible, and it’s not going to happen overnight. It all depends on your starting point and how much debt you have, and how much you need to overcome. But it is possible, and it’s one of the things that I wish I would’ve known in my 20s, that it was possible, because I would have started saving and investing and being more intentional back then. But it’s never too late to start. And so I would just say, if this interests you, if you’re wanting to understand it more, or you think that you’re unhappy maybe with the what you’re doing, and you think there’s more to life, that there is more to life, and you can do that by really being intentional and strategic with your finances.

AC: And so how can people find out about you?

JS: Well, you can go to JourneyToLaunch.com, and from there, you find my podcast and my blog. I’m on all social media as Journey to Launch, so that’s Instagram, Twitter, Facebook. And the podcast. So you can find it on Apple Podcasts or anywhere you listen to podcasts, on Android phones, any Android app that downloads podcasts, on YouTube. So essentially everywhere. (laughs)

JA: Jamila, it was awesome to talk to you. I think a lot of times, people sometimes feel a sense of helplessness. It’s like, “man, I can’t save a dime,” and with what you’re doing, you kind of give both sides. You give the inspiration to say yes you can. All you have to do is do a little bit of planning, and then also on the other side, for people that have the means potentially to save, you get them motivated even to take it another step further. There’s a lack of information and education out there when it comes to financial independence or just good savings habits. So we really appreciate what you’re doing. So hats off to you.

JS: Thanks so much.

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LIST: Time now for Big Al’s List: Every week, Big Al Clopine scours the media to find the best tips, do’s and don’ts, mistakes, myths, and advice to improve your overall financial picture – in handy bullet-point format. This week, Financial Planning Tips for Young Investors

28:11 – Big Al’s List: Financial Planning Tips for Young Investors

AC: This is something I found in Newsmax by Richard Paul. And you’ve gotta love people that have two names. Richard Paul. Because you never know whether to call them Paul or Richard. (laughs) So I thought this was kind of good. So for our younger listeners or even our older listeners that haven’t yet started. I think anyone can get me out of this. The first one is to automate your contributions, and the second point in this title is use index funds. The easiest way to invest is to automatically direct a portion of each paycheck into your investment accounts. Clearly Joe, that works best when your company has a 401(k) or a 403(b) because then it’s out of sight, out of mind. A lot of us now get direct deposits in our checking account, and so it goes first to the 401(k) and you don’t even see it. So you don’t even think about it.

JA: Yeah that’s key. It’s so key. Just pay yourself first. You have to do it. The younger you are, it’s not going to be a lot of money. Couple hundred bucks. Then as you feel more comfortable, then just kind of keep socking more away.

AC: Yeah, and I think that’s the key. I think a lot of people that I talk to, they don’t get started because they think, “well, what I’m doing is so minimal, it doesn’t make any difference.” I don’t care if it’s $25 a month. You get started.

JA: You have to create that habit. It’s the habit.

AC: It’s the habit. I think that’s well said. And then next year you get a little raise, and so, OK let’s make it $75 instead of 25, and then you get a bonus. Let’s put a couple thousand dollars of that bonus in, or whatever, and then, next year let’s do $150. And the next thing you know, because it’s gets a little discouraging at first, because you’re looking at your statements and there’s nothing in it. But it starts snowballing after awhile, and you just have to have faith that if you keep doing this, and you keep adding more and more to it, you’ll be so glad you did when you get to your 50s and 60s.

JA: I think to take that a step further is if people would do a simple exercise first, and say, “I’m going to retire at some point.” If you’re in your 20s 30s 40s 50s 60s I don’t care how old you are, you say, “I want to maintain a certain level of lifestyle.” If you’re in your 20s, you probably have no clue, but it’s still a good exercise to go through. You might be making 50 grand a year, and then you’re like, “this is decent. I don’t want to go down.” So you look, “well, if I want to maintain this lifestyle, but I’m not going to retire for another 30-40 years,” you take the $50,000, and if you can get a financial calculator, you can go online for a future value calculation, maybe use a 3% inflation rate. Maybe a little bit higher, a little bit lower, depending on what you feel. We believe 3, 3.5% is a pretty good number. Fairly conservative. And then you say, “this $50,000 in 30 years is X.” I don’t know what – $200,000.”

AC: Or $100,000 or $125,000 or whatever. Yeah. In other words, you’re going to have to spend more in the future to pay for what $50,000 would pay for today.

JA: Right. And then you just kind of back it out, and say, “how much money do I need to save to make sure that I can provide myself that same level of lifestyle?” And then you will receive a number, maybe you need to save $500 a month. $1,000 a month but you can’t save that $1,000 a month right now, or $500.

AC: And so when you give up.

JA: Yeah, but at least you know what the number is. So you start with $100, but you can tell yourself, “I got to get to that $500.”

AC: “I got to get there as soon as I can – I can’t do it now because I’m paying off my credit card, saving for a down payment for a home,” or whatever it is. But I’m a firm believer in that too, Joe, which is, you want to look at all your goals and be working towards all of them at once. I think when all you do is pay off your student loan and credit card debt, and then 20 years later you haven’t saved a dime for retirement, I don’t think that’s a great exercise – particularly when you have a 401(k) and your employer’s matching it. That’s free money.

JA: Right. Or you see a lot of people in their 50s and 60s are throwing a ton of money at their mortgage, but they’re not saving anything else.

AC: Right. And then they retire and they’ve got a paid off mortgage and no income.

JA So now I’ve got to sell it.

AC: I’ve got to sell the house so I can have some money. (laughs) Number two Joe is to tax diversify. So particularly when you’re entering the workforce, and maybe your salary is lower when you’re starting out then later on. So you might want to look at Roth IRA contributions, Roth 401(k)s if your employer has one. The thing about a Roth IRA is, you don’t get a tax deduction, but that money goes in and it grows tax-free. Meaning that, when you pull it out in retirement for your retirement bills, you don’t pay any taxes on that. You contrast that with a regular IRA, or a regular 401(k) – yes, you get a tax deduction today, but when you pull those dollars out in the future, they’re all 100% taxable. So it’s actually good to have some of both, but when you’re younger and a lower tax brackets, those tax deductions aren’t as significant for you. Make sure you load up on some of that Roth IRA.

JA: I would like to poll our clients and say, “if you could go back in time, and if you could change anything about your savings, besides increasing the amount of savings that you have” – life is life. But if they would go back in time and say, if I would’ve done something a little bit differently, what would they do? I would believe, and I’m just guessing here, that a lot of them would say, “I would have been more diversified in my taxes.” Because all they have is a large sum of money. But everything is in the retirement account. 401(k)s, IRAs, everything that’s going to come to them as income, is going to be taxed at ordinary income rates.

AC: Right. And if they want to keep that same lifestyle they’re in the same tax bracket.

JA: Yeah, very well could be.

AC: And in some cases, we see people in higher bracket markets because they have Social Security, maybe they have pensions, and maybe they did a good job saving, and now their required minimum distributions push them into higher brackets, and those are folks that desperately would prefer or would have liked to have some tax diversification.

JA: Right. So I would look at it like this: if I have a 401(k) plan, and if I do not have a Roth option in the 401(k) plan, save into the 401(k) plan to the match. So you get the free money. That’s just a no-brainer. And then from there, I would start filling up my Roth IRA. If I’m married, have the spouse fill up hers. So she does the same thing, or he does the same thing. And then fill up the Roths, and if you still save some more money, then go back to the 401(k). Then try to max the 401(k) out, or whatever defined contribution plan that you have. And then take it another step further after that. Then say, “what tax bracket am I in now? And do I have room to maybe convert some of those dollars into a Roth IRA?” Maybe it’s a little amount, but then you’re still building that Roth. You’re still building your tax-deferred accounts, but you’re getting a lot more balance. Because if you just fast forward, let’s say if you’re going to retire in 10 years, 20 or 30 years, whatever, and if you have a little bit more balance, you have money in a tax-deferred account, you have money in a tax free account, then you can control your taxes a lot better in retirement, because I’m only going to pull out of my 401(k), because that’s taxed at ordinary income, to a certain tax bracket. But I still want more income so I’m going to pull that from the Roth IRA. So I’m living in a higher tax bracket, but I’m staying in a low bracket world,because I’ve diversified throughout my savings career.

AC: Yes. And in order to do that, as you say, you need to get money to a Roth IRA. And I gotta say, Joe, that we may be, in our lifetimes, the best time to consider a Roth conversion, because the tax rates are very low right now. And we just don’t know how long these are going to be here. But right now, we’ve got a 12% tax bracket. Fr single taxpayers, it goes up to almost $78,000 of taxable income. For married taxpayers, it’s about $38,000. And so in other words, if your combined salaries minus your standard deduction is lower than those amounts, you’re in a very low tax bracket. It would make a lot of sense for you to be converting some of your dollars into a Roth.

JA: Right. Because if you think of it just last year, the 15% tax bracket moved to 12. We had a 25% tax bracket that moved to 22. The 28% tax bracket move to 24. We were converting – it was almost a no-brainer to convert to the top of the 25 for a lot of people. So now if you convert to the top of let’s say the 24, because it’s due to sunset in 2025. So then you’re looking at, what are the tax rates? What tax bracket am I in? And if it reverts back to where it was last year in 2025, well, you have a phenomenal opportunity to really start getting a lot of money into Roth IRA’s that Al and I believe is a very cheap tax rate.

Southern California, whether you’re planning for an early retirement or taking the traditional route, preparing for a successful retirement requires a little more than listening to Your Money, Your Wealth. How will you manage market volatility and risk, and what will be your sources of retirement income? Our two-day retirement courses and our free monthly Lunch ’n’ Learn events can give you the tools and confidence you need to help you plan for the retirement you’ve always dreamed of. For dates, times and locations for our Lunch n Learn events and our retirement classes in San Diego, Orange County or Los Angeles, visit The Learning Center at YourMoneyYourWealth.com or call (888) 994-6257.

37:47 – Big Al’s List: Financial Planning Tips for Young Investors, continued

JA: We’re counting down some ten rules to save better when you’re younger.

AC: Ten financial planning tips for younger investors. Next one is take control of your health.

JA: Yes because all you’re going to do when you retire is smoke, drink and watch TV.

AC: It’s true though. I mean exercise and diet – and you exercise like every day, right?

JA: I do.

AC: Seven days a week. You take one day off?

JA: No. Usually not.

AC: So there you go. You’re going to live to 120.

JA: Gonna try. ‘Cause I’m going to be smoking cigars and drinking and watching TV and working out.

AC: (laughs) Related to that, Joe, is if you’ve got an HSA – Health Savings Account. You’re with an employer or you have your own health savings health insurance, you want to put money into this account because three things happen. One is, you get a tax deduction up to certain levels. Two is the money grows tax-free. Not tax-deferred, tax-free. And number three is you can use it for qualified medical expenses and still pay no taxes on it.

JA: Yeah I guess it grows tax-deferred, so it’s the triple whammy. It’s a triple whammy – pre-tax, tax-deferred, tax-free coming out.

AC: That’s right. And I thought I had those levels, but it’s about, give or take, around $3,400 for single and about $6,600 for married – give or take, in that range is the total you can do per year. Next thing I want to bring up Joe, is get out of debt.

JA: Snowball.

AC: So here’s the stats. The average American under age 35 has between $23,000 and $30,000 of debt from credit cards, student loans, auto loans and other forms of personal debt. That’s tough. Because a lot of these, particularly credit cards, can be 15% interest rate, 18% interest rate, whatever they may be. So that would tell us then, that the average American family is making over $1,000 a year just in interest payments.

JA: It’s tough because a close friend of mine, he’s into all sorts of different businesses. He’s the idea guy. So he came up with this idea, put $100,000, into it – flop. Another idea. “Oh, this is going to kill it this time.” So he’s racked up a little bit of debt, probably more than he wants, and when you get in your 40s, it’s like OK, well what the hell here. All my great ideas that I thought I was going to be a millionaire didn’t come through. So I got this debt, now he’s got a couple kids. And so I was like, “you gotta snowball it.” He’s like, “snowball? What the hell are you talking about?” I was like, “we could be Dave Ramsey for a minute here.”

AC: (laughs) We sure can, because that’s said he likes.

JA: So you take a list of all of your debt, and there are two ways – there’s the Avalanche and the Snowball – and I get those two confused, but I think the snowball is this. So I take a look, I list all of my debt out. So I got credit card debt, I got a car loan, I got a HELOC. Whatever. But you do it with the lowest debt balance. And to the largest debt balance.

AC: Correct. So you pay off the debt that has the lowest balance.

JA: So even though it’s 22%, but maybe it’s only $2,000. My next debt is $5,000, and I’m paying 6%. My next debt is $10,000. It doesn’t matter what the interest rate is, just name the lowest balance first. Because as soon as you start paying some of these bills or credit cards or whatever off, it motivates you to get excited about paying off your debt.

AC: Yeah that’s right. The way this works, like let’s say your minimum payment on the first one is $100 and you can afford another $100. So you put it towards that lowest debt. And as soon as you get that paid off, now you have another $200 that you can apply to the next debt. And then maybe that’s $300 a month and you get that paid off, and then you can apply $500 a month on the next bill. The snowball is really good for your emotions. I think that’s probably one of the most important things here because if you’re seeing progress, you’re going to keep on it.

JA: Well I think anything with a well thought out financial plan, is we get this question, hey, should I pay off my debt? Should I pay off my mortgage or not? Well financially if you ran the numbers, it probably makes sense not to pay it off, but emotionally it’s going to make better sense. So you’re going to do what you feel is right, because if you’re not doing what you feel comfortable with, or that you still have anxiety about, why do it? Do what you feel comfortable with as long as it’s logical.

AC: Yeah and we are emotional beings. That debt avalanche just simply means you pay off the debt with the highest interest rate.

JA: That’s more of the CPA role.

AC: That’s what I’d probably do, because I’m a CPA, although maybe not. I really kind of like the snowball method myself, just because you feel some early wins. It’s like you have 4 credit card bills, now you got three, then two, then all of a sudden it’s gone.

JA: So I taught him the snowball. He goes, “man, my snowball is like slush. I got nothin’! I’m trying to make a snowball, it’s just water!” (laughs)

AC: Well related to that is the next tip, live within your means. And that’s kind of an obvious statement. But the truth is, most Americans are not doing that. It’s amazing. And that’s why we’re incurring all this debt. Now I get it when you’re younger because you’ve got student debt. In many cases, you needed to incur that debt to get your college degree. I understand that. But you’d then want to get that debt paid off, and for those that are really not living within their means, the only way you can do that is by borrowing. And typically that’s on a credit card.

JA: Or you’re just spending every last dime.

AC: Yeah well that happens too. In either of those two cases, you’re not saving anything for the future.

JA: Well I think we went through some of those stats – half the people in the population (laughs) – I don’t know how many people they polled – but.. they surveyed five people.

AC: (laughs) They did you and me. Half were on track.

JA: (laughs) Half were on track and half were not. But there’s a lot of people that, if they had a $1,000 emergency, that would blow them up.

AC: Yeah, that’s exactly right. Here’s an interesting one Joe. The next one is don’t buy your company’s stock. What do you think of that?

JA: Oh, I don’t know, 100% of my net worth is in my company stock. (laughs)

AC: Maybe that’s not a good idea. (laughs)

JA: (laughs) Unfortunately it’s illiquid.

AC: Being an employee does not give you an edge, and it never will, unless your title begins with a C. CEO, CFO, COO.

JA: I don’t have that in my title. I got a P.

AC: Yours starts with a P. That’s pretty close. (laughs) President.

44:50 – Joe and Big Al Debate The Merits of Buying Your Company’s Stock

JA: OK well there’s two rules of thumb. Not rules of thumb – thoughts, I guess, I have.

AC: (laughs) Rules of thumb according to Joe?

JA: Do you ever say things and as soon as it comes out it’s just like, “god, you’re just so stupid.”

AC: Of course. Well, you and I talk for two hours. It’s bound to happen multiple multiple times. (laughs)

JA: Multiple times. But let’s say that I am working for a large corporation, and they have company stock, I might have restricted stock, I might have stock options, where we see this is that someone might load up a little bit too much on company stock. So I’m working for a Fortune 500 company. I have company stock. So they match me the company stock, and then hey I’m working my way up the chain and have bonuses, they might give me shares of stock, and my entire net worth is all tied up within this Fortune 500 company. I could see where that’s a little rich. Because A, your paycheck is coming from that company. And your 401(k) is now loaded up in that company, and all your shares of stock and everything else.

AC: So something happens to that company, you’re sunk.

JA: Right, because you lose your job, you don’t have an income. The stock price goes down, your 401(k) is shot. And then you thought you’re going to be a millionaire but your stock options are now all underwater. So yes, I could see to that extent.

AC: And I think that’s where that point came from.

JA: Well that’s Enron. Enron and all those poor people that lost everything, because a lot of their 401(k) – and people still get confused here. The 401(k) didn’t blow up. It was what was inside their 401(k) that blew up.

AC: Yeah, and if they had all Enron stock, then their 401(k) is now worth nothing.

JA: Right. And a lot of those individuals did.

AC: Yeah, and in fact, I think what I heard in different documentaries is, people were not encouraged to buy Enron, it was somewhat of a loyalty thing – that you had to buy Enron, otherwise you’re not a company man or woman.

JA: You got it. You’re not invested in company stock? What, are you looking for another job?

AC: What are you thinking? I mean this is the best company in the world.

JA: If you don’t like the stock then I guess you don’t like your job. (laughs)

AC: I do believe there was some of that pressure there.

JA: So that’s one aspect of it. The second aspect of it is that no, I would encourage some of you, if you have a 401(k) plan – and I’ve worked for a Fortune 500 company – it’s OK to have some company stock within the 401(k) plan, because there is some tax advantages of having that company stock within the 401(k) plan. There’s something that’s called net unrealized appreciation, where you can take the company stock outside of the 401(k) plan, you pay ordinary income on the basis, on whatever you purchased it, or whatever the stock price was when the stock was purchased, and if you have highly appreciated stock within the 401(k) plan, you move it out, pay a little bit of tax to do it, but then all of that growth is now taxed at a capital gains rate. It could be a cool tax strategy. But I think people get overconfident within their own company.

AC: Yeah I think so too.

JA: It’s like well I know, because I’m working here, and we’re doing great things, and the analysts say it’s doing this, but we really believe that it’s going to be a 40% per year stock.

AC: Another thing Joe is is when you work for a company that small, and you believe the prospects for the future look good. And when it’s a newer startup or smaller company. First of all, there’s a lot of risk. I’m not saying you go all in. But if you can get into a company when it’s small enough, and when the cost of the shares are low enough where you actually don’t even have to invest that much, then that can be a great way to go. People that were part of Qualcomm in the early days ended up making a fortune.

JA: Yeah I play golf with one of the early founders of Qualcomm’s kids. Yeah, they’re not hurtin’.

AC: Yeah no, they’re not hurting at all.

JA: But then here’s where I think the moment is going too, people want equity. And so, we’re a private company at Pure Financial Advisors. Al and I both have equity within our company. That’s a large component of our net worths. You look at, okay, well, you’re a little bit more tied. And we want our employees, potentially – if you would like to have some company stock, and most of them want a lot more than what they have. And that just kind of ties them into the productivity of the overall firm.

AC: It does. They become owners, we have a stock option plan, and so they feel more like owners, and when they’re acting more like owners, they pay more attention to their job and other things around, to make sure things are running efficiently. And then you have people that maybe are in one department. They get an idea for another department, and there’s more coordination, and things run a lot better.

JA: If Bill Gates sold his Microsoft shares, do you think he’d be the richest man in the world? No! And you know, I think you said this – some of the richest people that you’ve ever met were small business owners. But then also some of the poorest people that you’ve ever met are what? Small business owners.

AC: It goes both ways. So if you’re working in a small business and you feel good about the prospects, yeah by all means, own some company stock. But just make sure it’s not 100%. In other words, you’ve got to have a side plan. I think in some of Robert Kiyosaki’s early books they did a good job explaining that. You’re probably not going to become really wealthy on saving $25 a month into your 401(k). On the other hand, you want to have that at least, if you’re planning on making a big with a small business or real estate, you gotta have a backup plan, because there are no guarantees that’s going to work out.

JA: Right. And a lot of our clients that are wealthy, had a decent equity stake within their overall organization. It was smaller at the time when they started, and they took on the risk to join a small company, and then being able to build that smaller company into a larger company. But, if you take the risk, and you’re saying, hey, I’m going to take a lot lesser income. I’ve got kids, but I have a bigger chunk of equity. If that company doesn’t necessarily perform, because most companies, small companies fail.

AC: Yeah, that’s correct.

JA: So you just have to identify, with any investment, of course, you have to identify that risk and expected return are related. And the more risk means the likelihood of you losing everything is high.

AC: That’s right. They are related. And that’s what we’re talking about. If you’re with a startup company when it’s small, your opportunity is the greatest, but your risk is the greatest too. And I agree with what your premise is: don’t take this statement at face value, “don’t buy your company stock,” because there are many cases where you would want to, just be careful about it. Because we have seen this, we’ve seen people all in with their company stock.

JA: What about your neighbor?Didn’t they have a net worth of over $10 million and then a year later went to almost a couple hundred grand?

AC: I did know somebody that had a multimillion dollar net worth and it was all in one company. And then that company hit hard times with the dot com bust, and it was gone. And as a consequence, what I tell people nowadays is, if you’ve got stock options or you got some equity in your company, and it becomes a meaningful amount to you, maybe you should take at least some off the table.

JA: And a good exercise, and I think a lot of good advisers talk about this, is that if you have a highly concentrated position in a stock and it’s made you a lot of money. Like my grandmother, for instance, my grandfather worked for GE for 40 years. So they had a GE pension. They had GE stock. And that’s all they had was GE. It’s like OK well what happens to GE? “Nothing will happen to GE!” I mean it was like almost sacrilegious to say anything bad about it because it put food on the table, it provided a retirement, and everything else. But if they would’ve diversified a little bit, because they had a meaningful amount, and that meaningful amount lost a ton of dough. But then that’s the emotional side, it’s really difficult to let go.

AC: It is. It’s true. If you look at the lifespan of companies, it’s not necessarily forever. Just look at Kodak a couple of decades ago.

JA: Kodak is coming back.

AC: Who would have thought.

JA: Blockbuster is coming back too, bro. (laughs) I want to get in my car and drive to rent a VHS tape. Who doesn’t want to do that?

You got other errands to run.

AC: That’s right. So anyway, it’s important if you have an opportunity to buy company stock. I wouldn’t just completely discount it, I would just be careful with it. And Joe, another item here on the list is buy into panic not excitement.

JA: That’s Warren Buffett. Stealing Warren Buffett’s quote and using different words.

AC: That’s exactly right. And actually, to paraphrase Warren Buffett, he said something like, don’t market-time, stay invested. But if you have to market-time, buy when there’s blood in the streets, and sell when there is a lot of excitement. (laughs) I really hosed that, but that was the essence.

JA: (laughs) Oh my god I thought you were going to nail it! And then all of a sudden…

AC: I went off the rails. What did he say? (laughs)

JA: Buy when people are fearful.

AC: Oh yeah that’s right. (laughs) I remember now that you say it.

JA: (laughs) But what did this person say? Buy when they’re panicked?

AC: Buy into panic, not excitement. So if you listen to our show, you’ll know that Joe and I are big believers in staying invested, not making these big all in, all out, all in, all out – which is market timing. However, I think there’s some truth in that. And the way that we do this is what’s called rebalancing. So you have some stocks, more aggressive, you have some safe stuff, bonds, and when the stocks go down, the bonds either go up a little bit or down a little bit. But they’re holding their value, relative to the stocks. So now you’re underweighted in stocks, and so you take some of the bonds, you buy some of the stocks when they’re down, which forces you to buy when they’re lower. And your emotions, you want to do the opposite, because everyone wants to buy when the market is going gangbusters, which means you’re buying high, and everyone wants to sell when the market crashes. So you’re buying high and selling low.

JA: It is “be greedy when people are fearful, and be fearful when people are greedy.”

AC: See, you’ve got quite a memory.

JA: It came full circle. All right.That’s it for us today, thanks for listening. For Big Al Clopine, I’m Joe Anderson. The show’s called Your Money, Your Wealth, we’ll see you next time.

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So, to recap today’s show: Rising interest rates aren’t necessarily a bad thing for your bond portfolio, and buying company stock isn’t necessarily a bad thing – it all depends on your strategy. The most important thing is to make sure you have one.

Special thanks to our guest, Jamila Souffrant. Learn more about her blog, her podcast, and her journey to launch at JourneyToLaunch.com

Subscribe to the podcast at YourMoneyYourWealth.com, through your favorite podcatcher or on Apple Podcasts on iTunes, where you can also check out our ratings and reviews. And remember, if you’ve got a burning money question for Joe and Big Al to answer on Your Money, Your Wealth, just email info@purefinancial.com, or call 888-994-6257! Listen next week for more Your Money, Your Wealth, presented by Pure Financial Advisors. For your free financial assessment, visit PureFinancial.com

Pure Financial Advisors is a registered investment advisor. This show does not intend to provide personalized investment advice through this broadcast and does not represent that the securities or services discussed are suitable for any investor. Investors are advised not to rely on any information contained in the broadcast in the process of making a full and informed investment decision.