ABOUT THE GUESTS

Robert Farrington

ABOUT Robert

ABOUT HOSTS

Joseph Anderson

ABOUT Joseph

Alan Clopine

ABOUT Alan

Published On

March 20, 2018

The Student Loan Debt Movement: Robert Farrington from TheCollegeInvestor.com has a goal of helping people eliminate a million bucks in student loan debt. Join the movement, ditch your debt and win prizes! Plus, Americans have reached record-breaking net worth – but which Americans? And, 4 ways you might be attracting a tax audit without knowing it.

Show Notes

(01:24) Americans’ Wealth Pushes Further Into Record Territory
(12:03) Robert Farrington, The College Investor
(22:48) Robert Farrington: The Student Loan Debt Movement
(33:00) Big Al’s List: 4 Ways You Might Unknowingly Increase Your Chance of a Tax Audit

Transcription

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We are trying to pay off $1 million in student loan debt during the month of March. I put everything you can possibly do in one place. It’s easy to digest. But then you also need inspiration – no one wants to just learn what to do. You need a kick in the pants to get going on it. So we have some giveaways. We have some challenges. We have a leaderboard, where people are sharing how much they paid off and we’re ranking it, to just motivate people to take action on their loans. – Robert Farrington, TheCollegeInvestor.com

That’s Robert Farrington from TheCollegeInvestor.com, talking about his goal of helping people eliminate a million bucks in student loan debt in the Month of March. Join the movement, ditch your debt and win prizes! Plus, Americans have reached record-breaking net worth – but which Americans? And, 4 ways you might be attracting a tax audit without knowing it. Now, here are the 2018 CFO of the Year for a Medium Privately Held Company as chosen by San Diego Business Journal, Big Al Clopine, CPA and that one CFP® guy, Joe Anderson.

01:24 – Americans’ Wealth Pushes Further Into Record Territory

JA: Big Al Clopine, CFO of the Year? What did you get, the National… Lampoon’s?

AC: Yeah, (laughs) the San Diego Business Journal CFO of the Year. There are six categories, and our company Pure Financial was in the medium-sized, privately held companies, and I, for whatever reason, was chosen as Chief Financial Officer of the Year.

JA: Rigged.

AC: Rigged. (laughs)

JA: (laughs) Well congratulations.

AC: We’ve done stuff with the San Diego Business Journal before, we’ve been on the Fastest Growing Companies list, and typically when you’re right at the top, you know beforehand because they come out to your office and do videos, take pictures of ya. So anyway, none of that. So I told you and some others, “yeah, I’ve got less than 1% chance.” And sure enough, I won. There were about three or four hundred people there. I had to go up and give a speech, which – I had nothing. But I did move my lips and words came out for about 30-40 seconds. So I got something out. Mainly thanked everybody. (laughs)

JA: Well I thank you, Alan. (laughs)

AC: (laughs) Anyway, that was quite an honor. I gotta say, that was unexpected.

JA: Yeah that’s pretty cool. Congratulations. Hey, I don’t know, did you read this Wall Street Journal: “Americans wealth pushed further in record territory in the final quarter of last year, hitting $100 trillion thanks to the rising stock market and property prices.” So household net worth, the value of assets, such as stocks and real estate, minus liabilities, Al – this is net worth – like mortgages and credit card debt, rose more than $2 trillion last quarter to a record $98.76 trillion.

AC: Wow. OK.

JA: So I thought that was kind of interesting, but if you dive into the numbers – who do you think is reaping most of those rewards?

AC: The top 1% – the wealthy.

JA: Yeah, like the CFO.

AC: Certainly the CFO of the Year in San Diego is doing well- I think. I don’t know, but there’s a rumor there.

JA: Oh my goodness gracious. So I just started diving into a little bit deeper here, and I wanted to look at some stats of what’s going on last year. it’s interesting to me. It might be boring, but what the hell.

AC: Well for me, CFO, numbers guy. I’m all ears, Joe.

JA: Well there’s a couple of different categories, let’s dive in. So these were some studies looked at last year. Healthcare, let’s start there. So a study at Bankrate found that one quarter of Americans skipped necessary medical care costs due to the cost of the care. So they’re not getting the proper care that they need because it’s too expensive.

AC: What about that $98 trillion? They’re not using that.

JA: Another study by Transamerica Center for Retirement Studies – we had the CEO on from that company. They found that 40% of people globally, who retired sooner than planned, was due to poor health. So you can’t afford to get a doctor, so you gotta retire because you’re broke, and you can’t afford a doctor, let alone how are you going to retire?

AC: Vicious cycle. So what’s the moral? Get your medical treatments that you need?

JA: Well, I think so.

AC: Take care of yourself. Exercise, get your sleep, eat well.

JA: So then they started looking at retirement. So let’s look at retirement income. So they found that to make your portfolio last – so they do all sorts of different studies. What do you think the number one reason why people don’t necessarily have the assets that they should have? It should be lack of savings.

AC: Yeah lack of savings because their expenses are too high.

JA: Exactly. I get it. You want to have low-cost investments. We’ve talked about that a trillion times.

AC: But if you don’t save it doesn’t matter. Whether your expenses are a quarter of a point or two points.

JA: So they found that reducing portfolio expenses from 2% to 1%, increases the amount available for withdrawal from a million dollar portfolio by more than $20,000 for the next 25 years. So an additional $20,000 for 25 years. So if you reduce your expenses by 1%. But I guarantee you, it doesn’t have to do with expenses – it has to do with lack of savings. And then also, I think the more important moral here, is behavior.

AC: Yeah. Well, it always comes down to that.

JA: We’ve had this argument before. Let’s say I pay 2% and you pay 1%. If I’m educated on how markets work, and you’re getting in and out, little nervous Nelly, who’s going to have more money at the end of the day?

AC: You are, of course. I don’t think we have an argument on that. I’m saying if you have two equal investors, with equal competence, that have the same style of investing, the one with lower fees is going to do better.

JA: Yes of course. I agree with you 1,000%.

AC: But would I say is that the most important thing? No, the most important thing is savings – it always comes down to that.

JA: So they found that 47% of US workers reported having less than $25,000 in retirement savings. 47% of U.S. workers have less than $25,000. That excluding equity in their home. And 24% have less than $1,000.

AC: 24%. So about a quarter of the people basically have nothing.

JA: Only 20% of workers have $250,000 or more saved. 41% of workers or their spouses have done a retirement savings calculation. I guarantee you it’s not even close to 41%, because if they’ve done a retirement calculation, they probably have a little bit more – well I dunno.

AC: Well maybe. I also have a study from Bankrate.com, and they asked people how much of their annual income are they saving. And 19% of people said zero, and then 21% said 5% or less. We got about 40% saving 5% or less, and 25%, between 6 and 10%, 11 to 15%, 11%, and more than 15% at 16% – but Joe, we see these numbers and these studies, they go out, “how much are you saving?” And people just give numbers. And then we see their bank accounts. And the stats that you just said – what, almost half the people in the country have less than $25,000.

JA: But here’s another problem that I see. If you look at savings habits, 2008, so they looked at what percentage of people have a savings plan with a goal. 2008, remember 2008, pretty miserable time. 62% in 2008 bear down and had a plan. What do you think that is in 2017? Higher or lower?

AC: I’m going to say lower.

JA: Yeah, it’s 46%.

AC: Yeah, even though we’re doing better.

JA: Right! And the reason is because we’re doing better – your property values.

AC: You don’t even think about it.

JA: Yeah, “oh, I don’t have to save anymore, because the markets are going to continue to climb.” We’re running into the same thing that we did back in the early 2000’s.

AC: I remember thinking during the Great Recession, which, by the way, was an awful time financially. But one of the good things about the Great Recession, I felt like, was that it woke up my generation – the Baby Boomers – consumption, spending, spending, spending. It’s like, “all right, we can’t do this,” and I actually think that turned out to be a pretty healthy thing. Now, a lot of people are going to their old habits.

JA: It lasted a year. (laughs)

AC: (laughs) Yeah. Or two.

JA: (laughs) And I found this interesting. Let’s say you got a million bucks. You like to look at states, right? What’s the best state to retire in, what’s the worst state to retire in.

AC: The happiest state we know is South Dakota.

JA: (laughs) That’s where I’m goin’.

AC: We gotta go over and get some property. Gotta build our cabin.

JA: (laughs) Yes. I just met a nice couple, they bought some land in South Dakota, it was kinda ironic. So if you have a million dollars, and you’re looking to create some income, then they looked at how long will that million dollars last by state? What do you think is the number one state?

AC: South Dakota?

JA: No it’s close. It’s Mississippi. So if you got a million bucks, your million dollars will last you 26 years and 4 months. And then I’m not sure how much money that they’re spending. They didn’t say. But let’s say they’re spending the equal amount of money.

AC: Yeah, the average. Whatever that is.

JA: California?

AC: Yeah that’s near the bottom.

JA: It is – 16 years and five months. So lesson here is, you’re moving to Mississippi. I like Mississippi, you ever been to Mississippi?

AC: No. But I just went to Louisiana. New Orleans.

JA: You sure did. And then your favorite state, Hawaii. That’s the last. 11 years and 11 months.

AC: So that’s my plan to retire to Hawaii. I’ve only got 11 years for this to work?

JA: Right. So you’ve got to get your million bucks and wait until you’re about 80. (laughs) And then go.

AC: (laughs) Oh, you’re assuming I’m gonna live to 91.

JA: Well I don’t know, that’s probably normal life expectancy, but for you, it’s probably 101.

AC: Well if I keep up my workout regimen, and my good diet. (laughs)

JA: Well you look like you’re 41.

AC: Well thank you. Except for my neck. My neck’s a little saggy. (laughs)

JA: Oh my god. This just got weird. (laughs)

Man, no kidding. For some actual useful information, visit YourMoneyYourWealth.com to access white papers, articles, webinars and hundreds of video clips on important stuff 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 – and with any luck, no talk of saggy necks to be found. Now, student loan debt is a huge problem in this country. We are now holding over $1.5 trillion of it, and according to the Federal Reserve, over $400 billion of it is held by people over the age of 40. Let’s learn some ways to get rid of it.

12:03 – Robert Farrington: The College Investor

JA: We have a live guest.

AC: We do, this is a first. They actually are gonna see this nonsense. (laughs)

JA: I know. It’s like, “are you sure you want to have them live? Because it’s so much better when they don’t see us.”

AC: And I heard they’re going to put this on Facebook.

JA: Facebook Live.

AC: Do we really want that?

JA: I don’t think so.

AC: It’s going viral.

JA: It is. We’re going to get seven views. For you and I, but we’ve got Robert Farrington with us.

RF: Hey, what’s up guys?

JA: How’s it going buddy?

RF: It’s going great, I’m glad to be here, in studio.

JA: In studio! This guy is a legend. I don’t know what we paid him, but this is probably the lowlight of his career right now. (laughs)

AC: Well he has about 20 other engagements, and for some reason, he agreed to do ours.

JA: So he’s a founder of The College Investor. Tell us, what is The College Investor, how do you get started, tell us your story?

RF: Just like it sounds. I got started in college, sitting in the back row of my class, because I was bored. I was that guy with the laptop open. And I was just browsing the internet and I’m like, “I can start a blog and share my thoughts on investing.” And that is how I started it. But since then, we have skipped all of that, and we are all about getting out of student loan debt to start investing and building wealth for the future as early as possible.

AC: So you were getting your MBA and you thought, “you know what, I’m passionate about investing.” And it’s like that’s what your life’s passion is going to be, and you started blogging and getting out there, and your friends said, “well that’s cool, but I got all this debt before.” And so you’re thinking, “well maybe I should get into college debt.”

RF: No, that’s exactly what happened. I had no intention of writing about student loans. I want to talk about earning money, investing, making money in the stock market, like fun stuff to me. But people were like, “dude, I want to get out of debt. Sounds great,” and then I started sharing a lot about my story. I had some student loans as well, and I had to deal with a battle with my loan servicer. And so people were like, “Yeah, I like this stuff,” so I started writing more about it, and then I started learning about other people’s debt problems, and how this really is a big challenge that we’re facing. And so I kind of combined the two, because I think you can get that financial balance. I think getting out of student loans and investing can go hand in hand. And I think it’s super important that you do.

AC: And I think one of the first steps is when you have a big lump of student debt is to start coming up with a plan, start tackling it, maybe even pay extra principal.

RF: Yeah absolutely, I think start getting organized and getting that plan is definitely where to start. I’m so surprised how many people just need to get that organization down, because not easy. By the time you’re done with college, you could have 5, 6, 7 different loans, at different loan servicers, with different places. And then you probably move – like, none of us lived where we lived in freshman year. So whatever address you put down, you might not be getting your statements. You do gotta do a little organization and planning to even get started with this.

AC: So now that, let’s say I get organized, now what? What are some of the key things?

JA: The problem here Al is that one in 10 students, they’re at least 90 days behind their payments. One in 10.

AC: Totally, and that’s where that organization starts.

JA: About 5% of borrowers owe more than $100,000. You know what the problem is, Al. You just have to fund everyone’s college. (laughs)

AC: I just paid for it.

JA: That’s a sore subject with Big Al. One time we got a little hot. (laughs)

AC: And you who have no kids have no idea what I’m talking about. Someday when you’re 70 and have a 4-year-old, you’ll know what I mean. (laughs)

JA: (laughs) So the student loan debt is mounting.

RF: Right, it passed $1.5 trillion this week, outstanding in the United States. Isn’t that crazy.

JA: It’s unbelievable. This is pretty scary if you dive into the numbers.

RF: Exactly. And the average debt keeps going up. It was like $36,000 last year. I wouldn’t be surprised if we’re going to be pushing $40,000 when we get the numbers this summer, about how much the average graduate is having in student loans. That’s a ton of money.

JA: Then they interviewed the students afterward, and they were like, “OK well now you have all this debt, would you have made a different choice?” And most of them said, “yes, probably.” Because hey I picked this really cool school, but it was super expensive. And then getting the loans is fairly easy.

RF: Oh my gosh, when I got my student loans, you get this e-mail from the financial aid office, in May, June, and it’s like, “Congratulations, here’s your financial aid award package,” you click a link. No one reads the Terms and Conditions, you scroll through it all, you hit “I accept.” Boom! You have $20,000 in student loans! It’s like oh my gosh! It’s just ridiculous.

AC: Why don’t we talk about, maybe right off the bat, looking at a return on investment or R.O.I., before you even get into college.

RF: And that’s what I advocate. I think it’s huge to have an ROI on your investment of education, just like you would with anything else. I don’t want to dismiss anyone from their career goals. If you want to be a teacher, that’s great. But realize that you might only be making $35-40,000 a year after you graduate, so you should take a loan that is reflective of that. I kind of recommend only borrowing what you expect to make in your first year after graduation. And there are so many tools out there now that you can figure out what salaries are nationwide, nothing is hidden. If you want to work in the state of California, every salary is posted on the internet, so you can find this stuff out and know. And then you can be responsible when you borrow.

AC: What about – I’ll go personal experience. Both my kids, in college, not sure what they wanted to do.

JA: I was just going to say that because I went to the University of Florida, and then I got student loans, and then I think I went to Key West about seven times with my student loans. (laughs) And it’s like what the hell do I want to do with my life?

RF: And I think for me, college isn’t the time to find yourself. I think we have done this disservice to our youth where we’re saying, “everyone has to go to college, and then you’ll figure it out as you go.” Well, it’s too darn expensive to be figuring it out as you go is. Honestly, I don’t think it’s a bad thing if you want to go work. I think you should work in high school. See some things in the world, kind of learn about yourself a little bit, and see what you want to do. When I went to college, I thought I wanted to be a computer programmer. I started doing that. I was in the basement over here at UCSD, and I was like, “this sucks. I do not want a program for the rest of my life,” and I changed my majors. But I took a couple of classes during summer, so that I still graduated on time, because it is expensive, and you don’t want to be going through this to decide that that’s not right for you.

JA: right, or find your social circles or your future wife. (laughs)

RF: And there’s community college. There are so many different things that you can do to help better yourself, and save money as you go.

JA: Do you think there’s a stigma with that? Let’s say hey, all my buddies, they’re going to USC, they’re going to UCLA. But I’m going to go to a Cuyamaca college for a couple years.

RF: Dude, there’s a huge stigma with it. But you’re seeing that stigma when you’re 18. But there’s also a huge stigma when you’re 25 and you can’t afford your student loans and you’re hating life. (laughs)

JA: (laughs) That is so true! It’s that delayed gratification again.

RF: It’s so delayed, and it’s hard because when you’re 18, it’s probably harder to deal with that challenge of going to Cuyamaca, versus when you’re 25 and you’re living on ramen still, when you think that you should be having this great career and you can’t afford anything.

AC: So now I want to go back to the person that already has the student debt, and so they’ve got debt more than their first year because they didn’t really know. That’s a great rule, by the way. So it’s too late for them. It’s too late for a lot of people. So now what? What are some strategies that you might recommend to start working on this?

RF: Yeah, after getting organized, it’s getting a repayment plan that works for you. So when you get your statement in the mail, you default into the 10-year standard repayment plan, which is the most expensive repayment plan. There are a lot of great income-driven repayment plans that you can get your loans capped at 10 to 15% of your discretionary income, which is a great deal – and if you don’t make a lot of money, like say you’re unemployed – your payment could legally be zero dollars per month, and that’s a legit payment that counts for your student loans.

AC: And that’s, of course, federal loans. Couldn’t do that with a private loan.

RF: You can’t do with a private loan and that’s the challenge. So typically, if you have private loans, which should be the last resort. You should always borrow federal first. You can look at refinancing. You might need a co-signer, and you’re probably just going to have to earn more to get through that. And that’s one of the things I do advocate – side hustling, or you’re going to have to work with the parent or the co-signer to help through that debt.

AC: Now what about the 10-year loan – there’s a forgiveness piece of that, is that right?

RF: There are over 80 different forgiveness programs in the United States. But public service loan forgiveness is the “best one.” And it’s a 10 year, 120 payments. You can actually take some gaps there.

AC: Is that payment based upon your income or is that something else?

RF: It is, so to qualify for public service loan forgiveness, you have to have an income-driven repayment plan as your repayment plan. You have to have direct loans, and you have to work in public service. And public service though is a hugely broad definition. You could be a teacher, you can be a firefighter. You can work in federal, state, local government, you could work in public health, there are so many jobs that you can work in any career in those things, so you could be, literally, a maintenance man at a college or a school, and you’d still get the same kind of public service loan forgiveness as a teacher or administrator would get.

AC: So does that mean you make the 120 payments, in accordance with your payment schedule, and then if there’s still a balance, that goes away?

RF: Goes away tax-free, which is why it’s one of the best programs.

JA: How many people do you think know that?

RF: Sadly, not enough. So the government’s first wave was October 2017 – the first people that could qualify for it. And there were 564 people that qualified for it. (laughs) That is it! Because not a lot of people were submitting payments and doing all the certifications and stuff. Now, that number is growing exponentially now as the program is rolling out, but there is still not a lot of people – they estimate that almost 50% of borrowers qualify for some type of program. Maybe not total loan forgiveness or something, but too few people are taking advantage of the free money.

AC: You said there are 80 different loan forgiveness programs?

RD: There is. So you have the ones that are based on your repayment plan, you have a public service loan forgiveness. Then there’s a lot of what’s called repayment assistance programs. Now, these are programs that might not pay your full balance, but they might give you $10,000 or $25,000 to your loans, and that’s phenomenal too. And those are usually based on your state. What type of career you’re in, and a bunch of different factors. The military has different types of plans, different nonprofits, different things like that – they offer these types of plans. Even employers, private employers now are jumping on board.

Stick around, Robert’s got some carrots to help you pay down your own student loan debt in just a minute. In the meantime, how exactly does a couple save $85,000 a year, and how can you do it, too? Jamila Souffrant shares her Journey to Launch with us next time on Your Money, Your Wealth®. Subscribe to the podcast at YourMoneyYourWealth.com so you don’t miss a minute. While you’re there, catch up on the 10 Commandments of Retirement and sign up for our podcast newsletter. If you’re too busy to listen or if you just prefer to read your podcasts, transcripts are available too. Check it all out at YourMoneyYourWealth.com

22:48 – Robert Farrington: The Student Loan Debt Movement

JA: Well what about parents that are taking out loans?

RF: Oh… don’t get me started on that. (laughs)

JA: Because you see now that they’re taking away some of their Social Security because of student loans. It’s like, let me forget about my own retirement. Let’s put junior through college – what can they do?

RF: And that’s the worst. So I personally advocate that I don’t believe that parents should ever borrow for their kids’ education. You’ve got to take care of your own self first, and you have to plan for your retirement. You can’t get a loan for retirement. Your kids can get financing, they can work, they can get student loans, they can get scholarships, there’s a lot of ways they can pay for school. That’s not the case for when you retire. And so I see too many parents that take out these loans and can’t afford it. And then, there’s really only two options. You’re going to have to work together as a family unit to pay them back, or you’re not going to do that, and your kids are going to have to take care of you as a family unit when you’re trying to retire because you didn’t address the loans up front. There’s really no other way around it.

AC: Yeah. That’s a tough thing, because as the sole baby boomer representative in this studio, our generation, by and large, our parents, we paid for a lot of our college, because there wasn’t a lot of money, and so we thought, “OK, we’re going to make it easier on our kids.” And in some ways, that’s backfired. And that’s a whole ‘nother discussion. But that’s why this happened, and this is the problem with that is now a lot of parents are in trouble with their own retirement.

RF: And that’s the hard part because it’s like, you’re either going to be a burden on your kids when it comes to paying for college. And you have to have those tough conversations today, or if you don’t, when you’re trying to retire or when the money runs out when you’re 70, and then you’re going to be having those conversations with your kids about why you’re going have to move in with them, or how we’re going to make arrangements to provide for your parents. And that’s the hard part.

JA: When I was looking at schools, my parents would put pamphlets all over the place of Army, Navy, Air Force, Marines. I swear to god, I would go to my boxer drawer, it was like filled. I would go in my bed. My mom put thousands of them in there.

AC: And you had a military family.

JA: Yeah, they were like, “you are not going to college, you’re going to the military.” And guess what I did? “Go pound sand! I’m moving to Florida! Taking out some student loans!”

AC: But see, you were smart – so you took a year off to establish residency in Florida. So you had in-state tuition.

JA: Yeah, I worked at a country club and bartended.

RF: I think also that that job experience gives you real-world skills. So the other problem I see is the overeducated, under-experienced graduate. So outside of The College Investor, I was a store manager for Target for 16 years. I would see a lot of college graduates come to me, and they couldn’t interview if their life depended on it. They’ve never had a job, they had no interpersonal communication skills, and so I’m also a huge advocate of working – work in high school, work in college, taking a year off and work. But you got to do the work, in order to understand customer service, to understand how to talk to somebody, to understand business problem solving outside of the classroom. Education is great, but if you don’t combine education with experience, you’re also going to be at a huge disadvantage after you graduate.

JA: Life experience in so many ways is, I think, worth more than a fancy college degree.

RF: Totally. And I think you see a lot of like the Silicon Valley CEOs and stuff, they’re saying the same things these days – engineers are valuable and they’re needed, and you’re always going to have that. But you also need these people that have soft skills: communication, problem-solving, that they can go and sell something. If you don’t have that, you’re also not going to be successful. So I think, for young adults and even parents that are trying to steer these young adults in the right way, it’s OK to accept kids that aren’t going to be engineers and don’t need to go to a four-year college. There are so many different skills that are needed. And you can make huge salaries – you can make huge salaries online. You can make huge salaries in trades and vocations.

JA: Like Mike Rowe does. I think there’s a lack of information of how much a plumber actually makes.

RF: Right. There are not a lot of people becoming plumbers, and so there’s also a shortage. And they’re going to need to be owners of plumbing companies, and shoot, you go out East County or up in Carmel Valley, and the owners of plumbing companies are the ones buying two million dollar houses and set up for retirement. (laughs)

JA: (laughs) While everyone is still paying off their student loans. So you started you started a movement. Tell us all about this.

AC: Yeah, the March movement.

JA: The gospel. We’re here, let’s do this.

RF: We are trying to pay off $1 million in student loan debt during the month of March.

JA: So how much, Al, are you going to put into this?

AC: It’s all paid off.

RF: So that’s the goal. So we have over 2,500 people that have signed up, that have committed to make progress on their student loans, and we’re only at the halfway point of the month, and we’ve already cleared $400,000 in student loan debt that’s been paid off. And that’s the goal is, how much can we pay. My goal is a million but I’m hoping to clear that. And it’s really exciting to see the momentum that people are making around their student loans.

JA: So you’re just saying, hey, let’s get motivated here. Let’s try to figure out what do we need to do. So you’re just kind of cheering them on, to say there’s not lost hope. Let’s put it down on paper and then let’s chip away at this thing.

RF: Yeah. Through a combination of things – so I’ve learned that it requires education like we just talked about, there are so many different plans and options and things to do, it becomes overwhelming. So I put everything you can possibly do in one place. It’s easy to digest. But then you also need inspiration – no one wants to just learn what to do. You need a kick in the pants to get going on it. So we have some giveaways. We have some challenges. We have a leaderboard, where people are sharing how much they paid off and we’re ranking it, to just motivate people to take action on their loans. And so yes, there’s a carrot there, we’re dangling it out so people participate, but really, the end goal is to take action, pay off as much student loans as you possibly can.

AC: I think that’s right. I think it’s human nature, it’s so hard to get started in anything. I can think of my college days – and I know that was a while ago, particularly compared to you two guys. (laughs) But I would write a term paper, and half of the term paper would be the first sentence. And then once I got that one, and maybe two sentences, I was rolling. And it was the first step, and that’s why I think this is a great program.

RF: It is, and that’s what I’ve learned. I’ve been sharing this information online for almost ten years now, and I always wanted to see what actions people were taking, and I was trying to put together something that I could validate, that yes, people were paying off their loans. But I wanted to be an inspiration to others, because yeah, some people want to participate for the giveaways, but other people like the challenge. Everyone likes to dive in and see what other people are doing.

JA: Right, competition is key.

RF: Competition, and that little voyeurism of seeing what other people are doing with their money – they like that. And so that’s why I want to put all that together in a nice challenge, to really encourage people to pay off their loans.

JA: And I think too, if you have a lot of student loans, and it’s like, man, I can’t afford it. I’d rather put my money elsewhere. But if you start getting motivated, and you’re like “there are other people out there that have a ton of debt just like me, and they’re doing it, why can’t I?” Then you’ll figure it out, and you’re like, “OK now I’ve got to side hustle. I’ve got to figure out, how do I make a little bit more money, and then just throw money at it.”

RF: Exactly right. First, get on the best plan for you. But then, how can you find extra things. So we’re seeing a lot of different things right now. Some of the biggest achievers are using tax refunds to pay off their student loans, so a little extra money they would have gotten right now. Some people worked an extra day. They were side hustling. So every little bit helps, and goes towards those loans. But other people are learning their options – some people were refinancing their loans, they didn’t know that was a thing that they could save a bunch of money. So it’s cool to see the different combinations that people are putting together to pay off their debt.

AC: Can you address that? Because there’s debt consolidation, there’s refinancing.

JA: There are a lot of prey activities there too.

AC: What should people look out for?

RF: So if you have federal loans student, loan consolidation is putting all your federal loans into one loan. And it can be very helpful, because like we said, you might have 6 or 7 loans after you graduate, and you’re making all these different payments. Well, having one loan streamlines things, it can make it easier. And that’s a free service. You can do that on StudentLoans.gov or by calling up your lender and asking for your loans to be consolidated. You don’t need to pay a third party company. Doesn’t cost you anything. It’s free. Student loan refinancing is taking out a private loan to replace your loans. It could be federal loans or other private loans. And just like refinancing your mortgage, it means getting a new loan that’s probably a lower interest rate, or maybe a different term, which could save you a lot of money on your student loan debt.

AC: But you want to be careful refinancing a federal loan into a private loan.

RF: Darn right you do. So, it could make sense. We think it makes sense for about 10% of borrowers. So those are the ones that are making their standard payments, and they’re paying extra on their loans. Student loan refinancing can make sense to save the interest while you’re making huge progress. But if you’re on an income-driven plan, or you’re expecting to get loan forgiveness, don’t refinance, because now you’ve lost your federal loans, you’ve lost access to those programs. So that’s why it doesn’t make sense for a lot of borrowers.

AC: A private lender is not gonna forgive your debt.

RF: (laughs) A private lender is not gonna forgive your debt, nope.

JA: Hey, where can someone go to get information?

RF: Go to StudentLoanDebtMovement.com and you can find out all about this program. And then StudentLoans.gov, the government’s website is phenomenal. They have calculators, they have everything you could ever want to know. You don’t need to trust me or any third party. You can go find out for yourself. (laughs)

JA: Talking to Robert Farrington folks, TheCollegeInvestor.com, check him out.

Man, now I wish I had some student loan debt just so I could get involved with the movement! So once you’ve paid off that albatross, it’s time to focus on getting ready for retirement. How will you manage market volatility and risk, and what will be your sources of retirement income? If you’re in Southern California, 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 retirement classes in San Diego, Orange County or Los Angeles, just visit The Learning Center at YourMoneyYourWealth.com or call (888) 994-6257.

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, 4 Ways You Might Unknowingly Increase Your Chance of a Tax Audit.

33:00 – Big Al’s List: 4 Ways You Might Unknowingly Increase Your Chance of a Tax Audit

AC: You don’t really want to have an audit on your tax return, do you?

JA: Not at all.

AC: Not particularly. And as if filing taxes weren’t stressful enough, to get the dreaded audit. I think that’s one of people’s most feared things in life is to have an IRS audit. So I want to talk about a few ways to minimize your chance of being audited.

JA: I have a question first, because if this happened, and the person got audited, what would happen? So a hypothetical individual

AC: Yourself? (laughs)

JA: No. Who I met with. What, do you do the question?

AC: No.

JA: You wanna take a guess at what it is? (laughs)

AC: I’m all ears.

JA: So, filed their taxes for 2017 recently. And they owed $10,000 of additional state tax. They wrote the check to the Franchise Tax Board, here in California, and paid their federal tax. But they wrote off 100% of their state tax on their tax return because they didn’t know that they were supposed to pre-pay that prior to the end of the year.

AC: Oh, they paid it this year. They paid it in 2018, but they deducted it on 2017.

JA: So let’s say it was a $30,000 state tax bill. So they had withholding, and they had this bonus or something like that. It wasn’t enough, and so they owed extra to the state of California. So that extra was $10,000. So they wrote the check to the Franchise Tax Board, $10,000. But on their tax return, they wrote off the full $40,000 because it was a 2017 tax liability.

AC: Yes. So, a couple of questions. One is, “is that OK?” And the answer’s no, that’s not OK. You actually get to write off that in the year that you pay for the bill, which is why a lot of folks were pre-paying their state tax liability in December. Now the question is will that cause an audit. Probably not, in and of itself, because that would mean that the feds would have to be talking to the states, and they do have communication, the feds and the states, but not typically on the timing of payments. So I don’t think that’s gonna cause an audit. But if that person is audited, that will be disallowed.

JA: Got it.

AC: It turns out that your chances of being audited are less than 1%. So know that right off the bat – you’ve got a 99% chance of not being audited.

JA: That’s why they call it the honor system. But some people are not very honorable.

AC: That’s true. Many are, some are not. But there are a few things that you can do to increase your likelihood that you won’t be audited.

JA: Well, don’t do something stupid and illegal.

AC: Yeah, that would be one. This is a tax guide from CNN Money, by the way, these are their suggestions, and I think they’re pretty good. So the first one is rushing through your taxes – doing your taxes last minute. And a lot of times when that happens, Joe, there’s just not enough time to gather your documents properly. And so you end up estimating and guessing, and a lot of times they’re wrong, and it turns out the IRS and in California, Franchise Tax Board, and in other states, they know quite a bit about you before you file the return in terms of your income for the year. They know your W-2, they know your wages, they know your interest income, dividends, they know what stock you sold. In many cases, they know what property, what real estate you sold. If you have a side business or are self-employed, they may know your 1099 income. They know your mortgage statement. What you’re paying in interest. If you have a partnership investment, they know what that looks like. And so they match these things, and a lot of times when you rush your return at the very end, you don’t have time to pick up everything, or you make dumb mistakes, you put things on the wrong lines. You put your salary on the interest income line, or whatever it may be.

JA: So I’m imagining this, and I don’t know. But all of that goes into a central computer because let’s say if I get a 1099 from Vanguard. And then I get my W-2 from Pure Financial Advisors, and I have a side gig that I’m teaching class and I get a W2 from the universities or state colleges. So that all goes to the IRS as well as it goes to me. It’s all under my Social Security number. And then they tabulate what that income is, and then I’m going to file my tax return, and let’s say that my income does not match up. I would imagine a giant computer just goes through everything and says, “oh, this doesn’t match up,” and that’s flagged, and then those people that are flagged, would then create the audit?

AC: Yeah they create the audit. And nowadays, a lot of audits are just in the mail. It’s a letter. In fact, about 1.6 million letters go out each year.

JA: Is that the 1% still, or is the 1% is a physical audit and you have Will Smith come to your door?

AC: No that’s inclusive, that’s everything. (laughs) Will Smith like in the movie? In other words, the person that comes to your door, or the office audit, or the letter. Those are all considered audits. So most audits are actually not in front of the dreaded IRS agents.

JA: See, that was the first movie reference I’ve made in a long time that you actually got. (laughs)

AC: Yeah, right? It’s a miracle. (laughs)

JA: (laughs) Because it had to do with an IRS agent.

AC: (laughs) Anyway, the second thing is filing on paper. And most of us now file electronically, I don’t know what the stats are. 90% plus. But it turns out that the error rate for an electronic return is less than 1%. The error rate for a paper-filed return, a handwritten return is about 21%. So 1 in 5 make a mistake.

JA: Math is off, on the wrong line.

AC: Whatever, you forgot to do this form or that form was wrong – whatever. So that would be the second thing. And another would be guessing at numbers. And a lot of people do that, particularly when they wait to the end. You can file an extension, this year the tax return is due April 15th, individual returns, and you have until October 15th, if you extend your return – to file your tax return. Bear in mind, the extension does not delay the time of the payment of tax. So you have to pay whatever tax you think you owe with the extension. And if you’re wrong, if you underpay, you get penalized. So bear that in mind, but you don’t have to actually file the return, as long as you extend (stumbles) October 15th is the filing date. (laughs)

JA: How long have you been a CPA? (laughs)

AC: Too long, apparently. I’m mixing up my dates. But that happens, Joe, particularly when people wait till October 14th. It’s like, well, how much did you have in meals and entertainment? Oh, I don’t know, about $600. How much did you have in telephone, cell phone for your business? About $1,600. And people will put those on their tax return. And you think the IRS knows these are guesses when they’re nice round even numbers? Now sometimes, just out of pure statistical averages, sometimes you have a number that’s equal.

JA: Yeah but I suppose it would have to be flagged for them to look at it first, and then they look at it and it’s all round numbers, and then that’s when Will Smith comes into play.

AC: Right. And that’s a good point. How these audits happen. It’s not like there are one or two people looking at every single turn.

JA: (laughs) You got a guy with that visor on. “Hey Myrtle, how many are you on?” (laughs)

AC: No, it’s all computers. And so the computers check your return. It does a few things, probably at least three things, maybe more that I don’t even know. But one thing I know it does is it checks your income and deductions versus what it knows about you. We just talked about that – W-2s, 1099s, mortgage statements. So they check and see that the numbers match. That’s the first thing they check. So maybe you pass that test. The second thing they check is, are your deductions out of line, relative to your income. Like maybe your salary is $50,000 and your charitable deduction is $600,000. That looks kind of weird. (laughs) That’s the extreme example. They have these average ranges for deductions, and they never tell us what they are. They’re super secret. And I guess the third thing that they do is, every single year, they focus on either certain industries, or certain deductions or credits, and if you were an unfortunate one to be in that industry or claim that deduction or credit, you’ll have a much greater chance of being audited.

JA: All right, that’s it for us, for Big Al Clopine, I’m Joe Anderson. The show is called Your Money, Your Wealth. Thanks for listening.

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So, to recap today’s show: America’s overall net worth is now $100 trillion, but we hold $1.5 trillion in student loan debt, and a quarter of us skip medical treatment because we can’t afford it. Is there something wrong with this picture? The big duh of the day: you might get audited if you do anything stupid or illegal on your taxes. And, you’ll want to retire to Mississippi if you want your money to last the longest, South Dakota if you want to be the happiest, or Hawaii if you’re CFO of the Year.

Special thanks to our live in-studio guest (and if I have any say in it, future regular contributor to this podcast), Robert Farrington of TheCollegeInvestor.com. Join the Student Loan Debt Movement and ditch your debt today – visit TheStudentLoanDebtMovement.com

You can 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.