Chasing FIRE by 35 WHILE Supporting Extra Family Members

Mindy:
Today’s finance Friday is a guest hoping to retire by the age of 35. Sarah has had financial odds stacked up against her from a young age, but by conventional standards was building an impressive portfolio. Then her circumstances shifted again when she became financially responsible for immediate family members, which shifted the goalposts of her FI number. How can you achieve fire with additional financial obligation? That’s the question we’re going to answer in today’s episode. Hello, hello, hello and welcome to the BiggerPockets Money podcast. My name is Mindy Jensen, and with me as always is my beef jerky loving co-host Scott Trench.

Scott:
Thanks, Mindy. Great to be here and we’re looking forward to helping Sarah have her financial situation cured. BiggerPockets is a goal of creating 1 million millionaires. You are in the right place if you want to get your financial house in order because we truly believe financial freedom is attainable for everyone no matter when or where you’re starting. And if you’re on the journey and doing a lot of things right, we can hopefully help you accelerate it by a few years. Sarah, thank you so much for joining us here on the BiggerPockets Money podcast today.

Sarah:
No, thank you. It feels such a pleasure to be here. I am a huge fan in an avid listener of the podcast.

Scott:
Awesome. We love the show too. So thank you so much. No, really appreciate the very nice note that you sent me here and couldn’t be more excited to get into the details here today.

Mindy:
Sarah, let’s look at a quick money overview. Let’s talk about your journey and how you got where you are today.

Sarah:
Yeah, absolutely. So I immigrated with my family to the US when I was very young, so that’s not where my money journey started, but it’s just a little background. I think the background is helpful because as a result of my parents being immigrants, it was a bit hard for them to find jobs. They worked menial, like minimum wage drop. So growing up we didn’t have too much. I mean resources were pretty scarce, but I think where my journey took a pivotal turn was when my brother was born. At that point, my mom actually stopped working and she became a stay-at-home mom, and as a result, that did put a pretty big crunch on the family finances. And I think at one point we had to move out of the apartment we were living in and move into my uncle’s house just so we could save a little bit on the rent and just help make that financial crunch a little bit easier.
But that was also around the time when I was getting ready to apply for colleges and get that whole process started. And again, my parents didn’t really know much about the process in terms of applications, financial aid and all of that. So that was something I kind of had to navigate all on my own with some help from my guidance counselor. I didn’t really qualify for good financial aid either and just taking out loans to go to college, especially when I already didn’t feel super confident that I could repay it depending on, I couldn’t tell what would end up happening in the future, but also I didn’t want to put myself so far behind, especially when I felt like I was already pretty behind in terms of finances. So I ended up going to community college for my first year, and in hindsight I think that was one of the best financial decisions I could have made in my early years because one, I didn’t have any loans and two, I didn’t have to worry about that after I graduated.
And so I spent one year at community college and I got my associates and then I transferred over and I know there’s a lot of guests on the show who have apply for scholarship and use that as one of their avenues to fund college. But I think my philosophy was I could apply for all these college scholarships, but there was no guarantee that I would get them. And so I didn’t want to put the fate of my future in other people’s hands. So I just went and got a job and I worked part-time, but I consistently worked I think about 30 to 35 hours a week. So I was almost working full-time with the full course load. So I was busy almost like every hour of every day everything was accounted for. So I had to be super diligent, make sure I was on top of all my deadlines, on top of all my shifts.
And I worked primarily as a server for three to four years. And it’s funny because I’ve listened to David Green come on the podcast and he talks about serving and how it was such a great job because you, it’s like your own little business that you’re operating. So I really like that. And what he said is true, you really can make as much as you want to. There’s always people who’s willing to give up shifts, always people who want to leave early and want you to take care of their tables and their last customers. So that was actually a really great way to make money and I was able to fund myself for the most part all throughout college with just working as a server.

Scott:
So can you tell us a little bit about your journey after college, which I think involves a little bit of real estate?

Sarah:
Like I mentioned, growing up we didn’t have too much. So when I graduated college, and I think this is something I’ve always wanted, my first year after I got my big girl job, I was talking with my parents and their lease was up at their current townhouse that they were living at. I was like, well, I can apply for a mortgage. I don’t see why not, and we can just try to see if this will work out. I think I got super lucky because I bought the house in 2019. My parents and I, we kind of went half seas on the down payment and my uncle actually helped co-sign as well just because my salary alone as my entry level role just wasn’t enough to cut it. So he was gracious enough to help. So I got my first house in 2019 and it was kind of under the caveat that yes, for all intents and purposes, legally it was under my name, but it was going to be my parents’ house and they were kind of responsible for it. But cut to a few years later, my stepdad actually ended up leaving the country, so he wasn’t able to pay for the house anymore. And my mom actually had an gone back to work ever since my brother was born. So it kind of just left me and myself and I to kind of take care of and manage all the bills and finances in the household.

Mindy:
How old were you when you were taking on all of the finances yourself?

Sarah:
Yeah, so I bought the house. It officially closed when I was 23 and then I was 25 when I officially took over everything.

Scott:
Well, that’s a really tough situation and fantastic that you’re able to do that and build the wealth that we’re going to preview here in a few minutes as we get into your situation for this. So if we kind of paint this picture coming out of 2021, we have you starting out your career, no college debt, two houses, is that right?

Sarah:
Just one at that time.

Scott:
Just one at that time. Okay. And a responsibility to your family to provide for your mother and your younger brother, is that correct? Correct. Let’s zoom into the present, and Mindy, maybe you could preview Sarah’s financial position here and we can talk about what’s next in the context of what has been a remarkable journey so far. So thank you for sharing that with us and yeah, looking forward to the next part of the discussion here.

Mindy:
Yeah, this is a good one because your numbers are pretty amazing. I have income between you and your partner of $271,000 a year. Do you share, you combine finances or are they separate?

Sarah:
It’s kind of a funny situation because, so when my partner and I, when we first got engaged and we moved in together, we did combine our finances, but my partner actually owns his own home too, but he’s kind of in a similar situation as me where his family also lives with them, so he’s kind of taking care of his parents as well, and they’re a little bit older and they’re nearing their retirement age as well. And so we combined our finances only to realize we didn’t combine any expenses. We both had our own set of bills and mortgage and everything still, and we didn’t get any synergy from combining our finances because none of our expenses combined. So in hindsight, maybe we shouldn’t have combined it, but it is combined now, but it’s a constant communication of being like, okay, what’s coming up of constantly having to be aware of each other’s schedules and bill payments and everything like that. So it gets a little hectic at times, but we’ve been able to manage it pretty well so far.

Mindy:
We need to take a quick break, but more from Sarah and whether or not she’ll be able to say goodbye to her W2 after this. Welcome back to the show.

Scott:
Is it fair to say then that you think of your finances as combined, but in practice they are being run through separate bank accounts, credit cards and all that kind of stuff, which makes it hard to get one clear picture at all times?

Mindy:
That’s right. Yeah. I have expenses of $5,400 a month. Is that all of yours or all of both of yours?

Sarah:
So it’s primarily mine. Some of the discretionary spending is combined between us, but that amount is just solely my bills. It would probably be twice the amount if it was both of ours completely.

Mindy:
And is he on the same path to financial independence that you are?

Sarah:
He comes along for the ride. I don’t think he’s as into my fire journey as I am, but he’s such a supportive person and he just kind of goes with what I say and he trusts me. So he’s good with whatever financial decisions I make. Of course I run the big things by him, but for the most part he’s comfortable with me kind of managing both of our assets and our accounts.

Mindy:
So we have some blended numbers here, but for the most part, I mean you’re still sitting in a great situation, $271,000 combined income, $5,400 of separated expenses and $11,000 combined expenses, debts of hold on listeners, 773,000, but that’s all mortgages. So take that with a grain of salt. You have a net worth of a little over $600,000 spread across retirement accounts, home equity, and traditional investments. So overall, just from a high level outlook, you’re doing great. How old are you right now?

Sarah:
I am 28, almost 29 in two days.

Scott:
And you support your mom and your brother? Yeah.

Mindy:
Are these 5,400 in expenses with supporting your mom and brother?

Sarah:
Yeah, so that includes the mortgage and the utilities and everything for that house that they’re currently living in.

Mindy:
So I think you’re sitting pretty, I know you’re sitting pretty, I mean, you’re 28 and you’ve got a $600,000 net worth while supporting your mother and your brother, so that’s awesome. But that will get you to financial independence. Let’s see how we can help get you there a little bit faster in your application to be on the show, you asked if we think it’s possible to step away from a traditional job by age 35, why is 35 your goalpost?

Sarah:
I love even numbers, especially multiples of five, and that was the closest, most realistic number that I think I could have set for myself. I think I’m kind of overshooting a little bit, but I wanted to kind of set that as a goal. So maybe I work a little bit harder to get there if I thought maybe wasn’t super feasible in a short timeframe. But I also, I’m super grateful for how my career has gone and I’m able to make enough to support my family, but I can’t say that the job and really I guess all of corporate America is something that I want to be in for the rest of my life. There’s certain aspects I enjoy, but I think I value and everyone else, I think in the fire committee, I value my freedom more and I want the flexibility to be able to work when I want to if I want to and not work when I want to and not have to be beholden to a set schedule to managers, to projects and deadlines that sometimes that feels arbitrary to me and I want to try to do something that has a little bit more purpose and that’s more meaningful for myself.
And I think that might mean taking on jobs that don’t pay as much unfortunately, or maybe nothing at all if I take on just volunteer work.

Scott:
There are two mortgages, is that correct?

Sarah:
That’s correct.

Scott:
Is one of these the house you live in and the house that your mom and brother live in or is one a rental property?

Sarah:
One is a rental. So to give a little bit background, so I bought the second house when I was 26, so two years after I got that first house. And so this was back in 2021 when there was that whole real estate craze. If you didn’t have a house, you were way behind and it was at that time there was zero interest rates until towards the end of 2021 and 2022 when they skyrocketed. And I think I might have gotten really lucky with my first house because I bought it right before the pandemic and I was able to refinance so that I had a really low rate. And because a lot of the management stuff went to my parents, I didn’t have to deal with really many house issues. So at the time when I was looking to buy that second house, I was like, oh, owning a house is great.
It’s not that much work. You just pay your mortgage and then you get to go and have fun. So I got that second house because when my stepdad left the country, I was a little bit, I guess, shocked. And so I had this stark realization like, holy crap, I’m the only one that can really support my family, and if anything happens, they’d be in a really tough spot. And so I was trying to figure out, okay, what are other ways I can kind of supplement my income and not have my job be the only or have myself be the only single point of failure in this situation? And of course, real estate is one of the first results that come up when people are trying to build their wealth and build up their assets. So I actually bought that house and I lived in there for a little bit, and when I was buying that house, it was already at that time when the rates were pretty high, the rate on that house is almost 7%.
But at that time, I was still very positive about it and it might’ve been more of an emotional decision to buy than really a hard fact. I didn’t look, I looked at the numbers, but I didn’t look at it too closely because I was going to live there. So whatever additional expenses that came up, I was okay covering them because it was my home and it was my investment for the future, and I was fine with that. But then a year later I got engaged and it didn’t seem feasible that my fiance would live there, so I ended up actually moving in with him into his house and then at that point it became a hundred percent full-time rental. And then so at that time, the numbers were still okay. I mean the property insurance and the taxes went up a little bit, but it was still enough that the rents were covering it.
I had a little bit like the HOA that was coming out of my pocket, but it was still manageable, but until recently, the property insurance again went up. The escrow as a result went up along with taxes. So it actually have just gotten to a point where the numbers just make no sense at all. I’m just paying more out of pocket now, and so I think I’m kind of at a point where I think I just need to cut my losses and move on. But I would love to hear your both thoughts on maybe there’s a way I could salvage it or if there’s a way I could keep the rental, but I’ve run the numbers, I’ve thought about it many sleepless nights and I’m just not sure if this is something I should hold onto anymore.

Scott:
I’m looking at a rental income of $4,000 a month and a just p and i payment of $3,500 a month. Is that right?

Sarah:
Yep.

Scott:
And the principal interest taxes and insurance is $4,300 per month.

Sarah:
Correct.

Scott:
So you need rents to rise 10% in order for this to just cover the mortgage payment before we get to property management maintenance, CapEx and all those types of things. And then we have a purchase price of 505,000, a current value of 550,000 and a remaining mortgage balance of 469,000. That gives you $81,000 in equity. You could realize. How much did you put into the property?

Sarah:
I put down 5%. So I think around with closing costs and everything around 30,000, but I’ve put in more since then for upkeep and maintenance and repairs and things like that. But initially it was around 30,000.

Mindy:
I don’t love a rental property that is losing money when I’m not hearing her say that rental properties are her passion, it feels more like, oh, I should get something because everybody else is getting something. If you could move to a short-term rental or a medium term rental, you might be able to make more money, but that comes at a cost of more time spent on it, either managing it, managing the cleaners, et cetera. Do you want to own rental properties?

Sarah:
If you asked me two years ago before I bought the house, like a hundred percent yes in all caps, but after actually being a landlord and managing a property, I realized it takes a lot of work. And for someone who’s also working a full-time W2 job, it is hard to manage. And especially now that I don’t live in my first house anymore, I have to answer to that as well. So it’s like two houses. I’m kind of managing as the property manager when I’m not there. So it’s just kind of gotten to be a little bit too much and I think I bit off a little bit more than I can chew.

Mindy:
Okay, so you don’t like it and it’s not making money, you should keep it. No, I think you should sell it, and I think that you should just chalk it up to, Hey, this is something that I tried and it didn’t work. I don’t think you should beat yourself up about it. There are people who are losing way more money than you are, and a lot of this money that you are losing is really losing on paper, right? Are you actually writing checks every month or are you losing money on paper because you’ve got, oh no, you’ve got insurance and water and all of that

Scott:
Cash is going out of her life on a regular basis for this property

Mindy:
CapEx, she’s got $500 for CapEx. Are you spending $500 a month on CapEx or are you just reserving that just in case?

Sarah:
So not every month, but there were some months that I’ve spent more than that, so I kind of just averaged it out to about 500 a month. But yeah, I think I probably have put in that much if you count it all up,

Mindy:
I would cut your losses and move on to a different type of investment. You make a good salary and you have the other property where your mother and your brother live, and you’re not going to sell that anytime soon, are you?

Sarah:
No. So I think I can’t because I have a 3% interest rate on that home and at this current environment, I’m not going to be able to find another comparable property or find a place of residence with that low payment monthly payment.

Scott:
Let’s sticking with the first property. I think you have two questions basically. One is, should I sell it? And then the second is when should I sell it? Is that right?

Sarah:
That’s right, yeah.

Scott:
Can you give us some insight on what you’re thinking about for the timing piece?

Sarah:
So I think I am holding off on that just in the short term. In the short term, I don’t really have any plans right now just because I want to deal with this rental property first, get that out of the way, and then I can kind of move on to that. But one of the options I have been exploring is potentially selling that house. It does have a pretty sizable equity and maybe using that as kind of a separate fund to use for my family’s expenses, and that way kind of gives me a little bit of a cushion and to continue to build on my reserves as I move further into my fire journey so that I don’t have a set monthly expenses that I’m always having to account for out of my paycheck and I can just save everything essentially that comes if I just save the equity from selling the house to fund my mom and my brother’s lifestyle.

Scott:
When we say the house, we’re saying there’s the rental property and then there’s the house that your mother and brother live in. You’re going to sell the rental property, pocket some percentage of this $80,000 in equity that we’ve got after fees and taxes and those types of things, and then use that to fund their life. Is that right?

Sarah:
Yes. And the first house as well, since I don’t really have any plans to move back there or use it for my personal use,

Mindy:
Stay tuned after one final ad break to hear what investment vehicles might be a good fit for Sarah’s goals and financial timelines right after this. Let’s jump back in with Sarah

Scott:
And then the timing consideration. It seems like you have a question around should you sell it now or should you sell it in the spring or summer when it’s peak season for sales, right? Can you walk us through your thoughts there?

Sarah:
Yeah, so I have all my tenants are essentially moving out within the winter timeframe, so really the timing works great if I put it on the market come February, but I know that’s not the hottest time of year for houses to go on the market. I know spring and summer is a really popular time. So given both of your experience when real estate, I just wanted to get your opinion on whether maybe I should keep it for a few more months as a short-term rental and then sell it, or if you think it just doesn’t make sense to hold onto it any longer.

Scott:
Oh, all right. Let’s think about this. So to frame the answer to the question, you’re saying there’s a seasonal ebb and flow to housing prices, which you want to hit at peak, right? Your tenant will vacate the property in January, January, February, and so you’re either going to have to get a new tenant at that point and sign ’em to another lease and sell it as a rental property, or you’re going to have to sit on, you’re going to get no rental help and you’re going to shell out the entirety of this $4,300 mortgage payment plus any expenses and upkeep every month until you sell it. That’s the dilemma you’re facing, right?

Sarah:
Correct.

Scott:
So Mindy, you’re the big time agent here. What is the seasonal peak to trial for housing prices on an annual basis?

Mindy:
Well, Scott, that entirely depends on whatever market this property is located in. What state is this property located in?

Sarah:
It’s in Maryland.

Mindy:
Maryland. So we have winter to contend with, and Maryland is high taxes, right?

Sarah:
It is. Especially this county that this property is in, it has higher taxes than some of its neighboring counties.

Mindy:
Nice. Well, that’s awesome. So I would reach out to an agent in your area and say, ask them what is the ideal time to get my house on the market? Now you said that your tenants are leaving over the winter, they might not treat it totally perfect, and you might have some repairs that you’ll need to do in order to make this saleable. You’re not necessarily focusing on just investors, you’re focusing on anybody who wants to buy the house, right? So this could be an owner occupied property, in which case you want it to look amazing.

Scott:
Alright, so I just pulled this up though while we were talking. Redfin, this is Redfin’s data. This is median sales price by month every month for the last couple of years. If we look at January, 2023, right? Median home price was 382,000. By June the peak it was 425,000. So that’s a what, like a 40, $35,000 spread, $38,000 spread, something like that. Last year, January, 2024, the housing prices were 400, 2000 and by June they had gone up to 442,000. That’s a 10% increase. The 2022 peak of trial was 3 77 to, and let’s use June again, 4 28. So you’ve got a 50 ish thousand dollars spread on a US national basis. You said you’re in Maryland. Did we know what part of Maryland?

Sarah:
Heightsville,

Scott:
Okay, not big enough here. Let’s do, maybe there’s a DC Metro. This is too noisy. This is not helpful on this, but I think that that would be, let’s try Maryland State. Let’s just do the whole state of Maryland. Go from there. So okay, we got a little bit better, more helpful stuff here, right? So January, we’ve got a 3 56 and we’ve got a four 20 peak in June. We’ve got a 360 1 medium price point and we’ve got a 4 32. So Maryland is even more extreme than the nation is what this is telling us, 3 88 versus 4 53. But that data says you can eat, you could lose, you’ll definitely lose rent on a rental basis if you have it vacant waiting until June, but that June is when the prices will peak. And so you probably want to go under contract in April or May if this year performs anything like it has the last three years in Maryland. Is that helpful?

Sarah:
Yeah, no, that’s really helpful. I hadn’t thought to look at that price chart like that, Scott, so no, that’s really good to know. I did not think three months would make that huge of a difference.

Scott:
Me neither. That was really surprising to me. Would’ve been like there’s no big difference. Let’s prove it out right here. Nope, that is completely wrong. The data shows that there’s an enormous difference in median sales price by depending on time of year, and you should probably talk to a couple of agents to confirm that. Do note that the agents, while they are obviously they’re supposed to be fiduciary to you, there is a heavy incentive to sell now, no time like the present for that. So that advice will probably lean towards a faster and quicker sale than wait six months, come back in six months and then I’ll learn my commission from you. But that doesn’t mean you shouldn’t also talk to those agents and get their opinion on the seasonal curve of the market.

Mindy:
So if you hold the property, you are paying $17,000 in mortgage payments with nothing coming in. Is there any way to extend the tenants for a couple of months to help mitigate some of that?

Sarah:
So I actually have one tenant who wanted to stay six more months, but I just converted her lease to month to month. I just didn’t want to commit and put myself into, lock myself into that timeframe. So I do have one tenant who wants to stay longer. She pays the smallest rent though because she has the smallest room in the house, so it doesn’t help as much. And then the other two rooms are now vacant, so I would have to fill those if I wanted to keep it for a little bit longer.

Mindy:
So there’s several issues at play here. You’ve got a rent by the room situation, you want to sell it. It sounds like you want to sell it. It is my experience as a real estate agent that tenants don’t care how fast you sell your property and why would they don’t have any skin in the game? They’re actually going to lose their housing if you are selling it. So trying to schedule showings with tenants can be kind of tricky. They definitely don’t keep it in showing condition and pristine and tenant occupied properties typically look kind of dumpy when an agent goes to show them to their buyers. So I would suggest making a decision to sell, having your tenants out by X, Y, Z date, refreshing the property to however much it needs and then listing it. And that could take from now have you been in the property that could take from now until February or March and then you are on the market in time to capture that June closing date?

Sarah:
Yeah, I have been to the property. I can’t not stay away even if I wanted to because there’s always something that’s going on there. So yeah, no, that’s really helpful. I think looking at the pricing chart and just your suggestions mind, I think that gives me a lot to think about. So I’ll definitely go back to the drawing board and try to map out the pros and cons there and just see what the optimal time would be.

Scott:
I think that you have a really good framework here to think about it. I’ll be really interested to what you do there. Wonder if there’s a deal to be made with the tenant saying, Hey, can you stick around for three more months, give you a really good bargain on that or whatever so that they’re some of those expenses, fill it up to the best of your ability for that period of time just to offset it. Even a loss, even though a really good deal to somebody that’s still a loss for you is better than losing all of the economic yield to vacancy in that interim period. And then you have maybe selling it in the summer if your further research corroborates our initial instinct here from the data.

Mindy:
Sarah, one other question that you had was in terms of family planning, how should I budget for supporting two generations of family members? I think this is a really interesting question and I don’t think there’s an easy answer for, well, I mean there’s a super easy answer for this that’s just a line item in your budget, but there’s not a real easy way to do it. Oh, just don’t, is not the answer for you or your mother or your brother or it sounds like your partner either. So that just needs to be a line item. So are you spending on average $5,000 a month supporting them? Then that gets added to your monthly budget? Is your partner spending 5,000 for his supporting his parents? Then that just gets added to his budget or combining them all together. I’m wondering if there is some sort of alternative housing situation that might make this a little bit easier. Perhaps you could buy a duplex or a triplex and you and your partner live in one unit, your mother and brother live in another unit. Your partner’s parents live in another unit, and then you’re all right there. Your mother can help take care of his parents if they need something and you’re not around or vice versa, maybe his parents can help with your brother, depending on how old he is and he needs a babysitter. Is there any opportunity to build anything on your property or can you start just peaking at triplexes?

Sarah:
Yeah, so I have looked, because I think I was looking at duplexes when I was, well, when me and my partner were trying to figure out where to move, we had two options. We could have moved into my house or I could move in with him, but I kind of lost that battle. So I’m here. Yeah, so I have looked into that, but unfortunately around this area, I feel like duplexes and triplexes are not very common. It’s a lot of townhomes and single residences. I don’t see a lot of duplexes, and maybe I’m not looking in the right area, but I feel like within the DMV area, there’s not that many. I feel like you’ve got to go out into the little bit of outside of the city, DC metropolitan area to see those. But maybe I’m just not looking in the right area and I need to ask an agent, a real estate agent or something.

Scott:
I’m going to push back a little bit playfully with Mindy’s advice here because yes, there is an economic advantage to moving in with that, but that may not be what you want to do with your life at this point in time. And you may be more comfortable with just a number that is needed to fund to provide the support that you want to provide. What is the amount of money that is needed to ensure the quality of life that you want to provide for your mother and brother?

Sarah:
My number, my personal number, not combined with my partner, just my expenses. I think I am at around 1 million, a pretty even number just because the expenses aren’t too much.

Scott:
How much do you need to provide? What is the monthly budget or allowance or funding that your mother and brother require to live their life?

Sarah:
If I do a quick math, I think around 4,000 a month, $4,000 a month should be sufficient.

Scott:
And do you provide all of that?

Sarah:
I do,

Scott:
Yeah. There any income that your mother can contribute to the situation whatsoever?

Sarah:
Yeah, so she actually did start working again, unfortunately, it’s just a little bit more challenging for her. She doesn’t drive, so it’s just hard to get to a place where you can work that that’s metro or bus public transportation accessible. So she just started working and it actually kind of did reduce my monthly expenses because now then I’m not aside. I’m only really just providing for the essentials now. I’m not paying for the extra wants and things and additional shopping and things like that anymore. So that actually did help grade a bit, which reduced the monthly number down.

Scott:
And right now that has stopped. So you’re forced to plan on $4,000 a month in cash outlays in various formats, the mortgage payment, utilities, whatever, or direct cash payments to your mother to fund her and your brother’s life. Is that right?

Sarah:
That’s right.

Scott:
So I think that’s a conversation here. I think that’s the first one is, hey, there are other ways. There are multiple ways to make this work. There’s public transit, there’s moving to a place that is more proximate to jobs and there’s remote work opportunities. And I think that having that discussion around there, I wonder if at this point it’s worth kind of maybe having a harder conversation around, Hey, I’m going to continue contributing around here, but I would feel better if you are working 32 hours a week or some number that is reasonable here and even 32 hours a week at 15 bucks an hour goes a huge way to doing this. And I think that’s from an outside observer’s standpoint, something that needs to be discussed, pushback. Tell me if I’m pushing it appropriately or going in the wrong direction with that reaction or response.

Sarah:
No, that’s a valid answer. No, I think that’s a valid point. I probably do need to have that tough conversation with my mom. I think part of it feels, part of it is I just feel guilty she gave up her whole life so she can come to the US and I can have a better education and I can have a better job. So it feels a little bit like I’m being ungrateful to be like, oh, you need to work more so I can pay less out of my paycheck to help your lifestyle.

Scott:
Perfect. Well, that’s exactly the kind of pushback I was hoping for. With that, I’m stating that you’re coming on the BiggerPockets Money podcast asking us how to improve your financial position. That is the most obvious thing that I can come back with is to say, well, $4,000 a month in direct subsidies to your mother and brother is a very big item that we have to kind of cover here. And I think that that’s a really wonderful, wonderful mindset to have in the place here. I would then challenge and kind of say, could I counter with, is there a conversation that can be had and saying, Hey, what is a reasonable number here? Do you think that you can generate $250 a week mom or $500 a week? I’m still going to provide several thousand dollars a month in support here, but could you offset, because you commit to offsetting some percentage of that, here are the various options. What do you think is a reasonable number that you could arrive at if that conversation were to happen?

Sarah:
Yeah, I think I haven’t had that conversation, but I think I could. I’ve just kind of operated under that mentality like, Hey, I can help out and cover everything so you don’t have to worry so much. So I’ll do that because I can, and my partner’s great because he doesn’t ask me to pay for anything for his home. He just kind of covers everything and he doesn’t ask me to cover anything. So I’ve just kind of continued making all the payments and I do make a pretty great salary, so I haven’t really felt the need to go back. But it is something that I have been thinking about because if I do want to retire by 35, I definitely do need to probably cut away at some of the expenses so I can get there. But yeah, you’re right, that is a conversation I do need to have at some point. I think right now I just haven’t, and I think part of it, I just feel guilty, and part of it is has just been I have the resources and the means to do it, so I’ve just been doing it.

Scott:
I think you just need a number to plan around. And if that number is 3,230 $500 a month or whatever, that’s 40 grand a year. That’s a million dollars in your asset base that you’re going to need to cover before you even get to any of your expenses. And so that’s one of the biggest things. That’s one of the biggest observations I’d have coming in immediately to your financial situation is that has to be covered to some degree. And that’s wonderful that you’re doing that. And I’d wonder if there’s some contribution that can be made from your mom if she’s able to work in good health and those kinds of things to do that because you’re being very generous,

Mindy:
But it’s also a cultural difference. This is not something that people born in America, I don’t want to say Americans because Sarah is also an American, but people who are born here, I don’t have the obligation to the cultural and societal obligation to support my parents at all. And I would, but I am totally butchering this and I am okay with that. I want people to know that I understand that there’s different obligations that Sarah feels than what we feel, but also I would postulate that your culture has you working till 65, right? They don’t do this early retirement garbage, right?

Sarah:
Yeah, no. And retirement doesn’t exist. It’s not a concept, right? Between my culture and my fiance’s culture, it’s like they work till they can work, right? There’s not a set retirement number. They’re not contributing to a 401k that lets them take contributions at 59 and a half or whatever the age that they had set. They don’t have a set age. They’re just going to work till they can work.

Scott:
I think you’re being very generous in supporting your mom and your brother. That’s wonderful. And it doesn’t appear to me right now based on our conversation that there is a really good reason why your mom can’t work to produce some income to offset the situation. That’s a conversation between you and your mom, probably not. That may be an uncomfortable or unpleasant one, but you’re coming on BiggerPockets money asking for how do I move towards financial independence faster? And I’m telling you that more so than the timing of your rental property, this conversation is the number thing you’re going to do in the next year that will challenge that. And a couple of other things to think about here is if your mom is not working, she’s not paying into social security, and so she won’t receive social security. And so that’s another issue for you to consider as you go through this around there is there’s a conversation you had is that needs to start happening here.
If she’s going to be nearing retirement age in the next couple of years, there’s nothing, any income coming from that to defray this. And this situation could continue to be something that you are responsible for many, many years here. So if you’re asking, Hey, can I retire at 35? The answer is no. You cannot retire at 35 with your current situation. If you have to assume a three to $4,000 monthly cash outlay to pay for your mother and mother’s housing and living expenses on that period of time, if you want to fund your current lifestyle expenses of 5,500 in seven years, you’ve got an excellent shot at doing that, excluding those cash outlays. So I’m not holding back very well on stating the reality of the situation, but hopefully it’s just putting it out there for a discussion that is useful for you to react to anything you’d react to on that.

Sarah:
Yeah, no, you’re right. I think this is going to, if I continue to support my family, this is going to be an expense I’m going to have to carry on my balance sheet, like you said, Mindy, from here into perpetuity. But I was kind of being optimistic and hoping when my brother is of age, he can kind of contribute to, he’s 12 right now, so he can’t work. But I’m hoping maybe in five or six years maybe he can pull a little bit of weight. But yeah, you’re right. I mean, I think my mom does kind of help out a little bit. Like I said, she started working part-time this year, so she’s helping buying the groceries and all that additional extraneous stuff that’s not an essential. So like I said, that really helped. But yeah, no, you’re absolutely right, Scott. If you look at it from a pure numbers perspective, it is something I would have to either account for into my timeline and my number or have that difficult conversation so I can chip away at it a little bit and reduce that.

Scott:
I would just also posit that you have the means and you have the income generation and you seem to be very grateful and credit your mom with enabling some of the things that have gotten you to be as successful as you are to this point. And I think there’s ability to do that. And I don’t think that it’s, Hey, you’re on your own. Your mindset doesn’t seem to be, Hey, you’re on your own. Go figure it out. I’m done here. Again, I just think there’s a conversation around, Hey, is there some acceptable thing we could do here that would be pleasant for you and doing something? And your brother’s now 12, so I’m assuming he’s in school all day and able to take care of himself. So it’s not like that’s there. And another piece to this that I would just kind of conjecture is like let’s say 10 years go by your brother’s 22 and starting off in the workforce here, entry level job, that’s going to be a hard conversation to say kick in equivalently there’s going to be some pro rata percentage because your income power is going to be whatever it’s going to be in 10 years, and he’ll be at the very beginning of it.
So that day that you’re hoping for in terms of support, maybe a long ways off here, if the issue is not addressed sooner rather than later in some way that is loving and respectful and productive.

Sarah:
Yeah, you’re right. And there’s no guarantee that he could even contribute if he takes a job across the country. Well, that’s just a little bit unrealistic to expect him to help out.

Mindy:
He can still send money. You can mail a

Sarah:
Check. That’s true. Venmo exists.

Scott:
I don’t think Gen Z will ever mail a check. I think many of them will go through, we’ll see, he’s Gen A, he’s not even Gen Z. We’re past Gen Z. Yeah,

Mindy:
Okay, well, you know what? He could still mail a check or Venmo or wire transfer, PayPal. There’s lots of ways to send money to somebody.

Scott:
Once you’ve had the conversation around this or kind of figured out what that number ought to be, then I think the rest of it from a financial planning standpoint becomes very simple, right? It is just, here’s a lineup under your budget that is for housing the payments you are making on your mother’s behalf, and here are the cash payments directly to your mother on top of this. And that becomes very simple. And the pool of capital that you’re using to do that I don’t think really matters quite as much. It’d be wonderful to think about, oh, here’s an asset base that just does that, but I don’t think you’re there yet from a portfolio perspective to do that. And I think I would just put it as a line item in your monthly budget for now and not think about taking the equity from a rental property and using it to fund that. I think you just think about your asset base as one pool and we can talk about that next.

Sarah:
Okay. Yeah, that makes sense.

Scott:
Okay, so that was a hard conversation, but I hope hopefully an important one there. What’s next? What would you like to talk about next year?

Sarah:
I guess my question is, is there anything else on my expenses and my finances that you can see where maybe there’s areas of improvement or maybe some things I’m not doing that I should be doing that you can see or can think of?

Mindy:
I would say that I would like to see you and your partner have a discussion about how your finances are going to work moving forward. Let’s just assume that we keep these three houses, your house and his house, I’m sorry, the two houses, your mother’s house and his house and his payment. What are all of the expenses that are out there right now? Can anything be reduced easily in your numbers that you shared with us? Your expenses all end in zero, and you said you like round numbers and that’s awesome, but I want to make sure that you truly are spending this much on each and every category. The category I’m going to call out is the restaurants category. That seems a little high to me and I don’t see any. Oh, I see. Yeah. So I see $200 in groceries and $2,000 in restaurants. I see something you can cut.

Sarah:
Yeah, so the eating out has definitely gone up this year a bit. And I think part of that is twofold. One ever since I got engaged and I felt like, okay, I truly have a partner, a life partner to do things with and to kind of help take the offloads, I’ve kind of loosened the purse strings a little bit. I’m not super saving. I mean, I just have a set amount that I save and it’s a direct deposit to my savings account. I have my 401k contributions and everything, so all that’s taken care of. And so I don’t really track my budget line item by line item. It’s kind of more like, okay, as long as I’m saving as the amount that I’m comfortable with and that’s taken care of, I’m kind of okay with spending the remaining amount. But you’re right, Mindy, that is pretty high. And the second part, you might laugh at this, but it’s also, so ever since I moved into my partner’s home, they’re a different culture than myself and they have a different cuisine and they cook a lot of things I don’t eat. So that’s part of the problem. And so as a result, I think my partner and I have just gotten into a really bad habit of just going out to eat a lot because one, I don’t really have too much of a kitchen space to cook at home.
And then when his parents do cook and stuff, a lot of the cuisine I don’t eat. So that kind of is a challenge there. But yeah, it’s not a major issue. It’s a minor thing and it’s something I could fix, and I just haven’t just taken the easy route and just have been relying on Uber Eats and just going out to eat. So

Scott:
I would say my biggest reaction to this is that I don’t think that the numbers you provided us, Sarah, are as helpful as they need to be in terms of understanding your overall spending and the cash coming in and out of your life. Because we just said that when we look at your expenses, you said $5,475 per month in expenses, and the first line in there is 1900 bucks for a mortgage payment, but that mortgage payment is for your mom’s house. And then we have the next item there is going to be $2,000 for restaurants, which we just talked about that one. That’s the thing that stands out. Okay, everything else is 1500 bucks around there. And I don’t know if that, we know from our earlier part of our conversation that that’s not true because we know that there’s several hundred to maybe a thousand dollars a month in net negative cashflow from your rental property that’s not showing up on this that we can get rid of once we sell the property on a future basis. So I think that Mindy’s spot on with her statement of, Hey, there’s a conversation that needs to happen here and a more formal combination of finances or when do you get married?

Sarah:
We haven’t figured that out because we have all this other stuff that we need to figure out.

Scott:
Totally makes sense with that. But yeah, once you get married or whatever, at whatever point in the future between now and your marriage or your wedding, sorry, that would be, or after that would be a good time to have that conversation and really get more prescriptive on these and turn these from estimates that are rounded to the nearest hundred to actuals for the last 12 months for the household. I think you’ll have a more realistic view on that. I bet you that number is going to climb to $12,000 per month or somewhere in that ballpark. When you consider the mortgage payment for the house that you are both living in right now, the expenses you list here, additional cash that goes to your mother and brother and the negative cashflow from your property, I’m making that up. But that would be my guess is that it’ll be a plus or minus 10% of $12,000 a month, which is great.
It sounds like a big number, but it’s great in the context of a 270,000 a year household income environment. And you should be able to save 50, 60, $70,000 a year on that and invest it. But that will give you one of the starting point for one of the two big numbers that I’m always looking for. What is the annual accumulation of cash that you’re going to be able to put to work in some kind of investment? I’m betting your household for your household, that’ll be 50, $60,000 a year right now. And then the second is what do you currently have, which is $600,000 in net worth right now, and how are we going to invest that? And your investment allocation there is perfectly reasonable 401k, a little bit of cash and the two properties that we talked about.

Sarah:
Yeah, I could probably get a little bit more granular on the numbers. I think sometimes, like I said, I think I bit off a little bit more than I can chew with the rental property and then having another property, which is no longer my, I guess, primary residence. So I’m not there to upkeep and deal with everything that happens there. So I think as of recent, just going through every single number has honestly become a little bit overwhelming for me. And so I’ve kind of taken this method of, okay, as long as I have a set percentage that I’m saving and that’s good and we’re not touching that, then whatever is left is we can spend on bills and things that come up. And you’re right, and things do come up a lot, and that’s not accounted for. So you’re probably right, it is probably going to be a 10% increase. Got my mom needed dental crowns and that was like $3,000 that wasn’t accounted for. So those kinds of things, they come up and sometimes I’m not super diligent about entering them into the budget, but you’re right, I probably do need to formalize that a little bit more and have that and involve my partner into it more because right now I’ve just kind of taken the lead on a lot of the stuff, especially when it comes to our finances.

Scott:
Awesome. Well, look, none of that takes away from the fact that you are rocking it, you’re crushing it. You have a several hundred thousand dollars net worth, you make a great income, you’re 28, you’re going to be a millionaire before you know it on all these fronts. So congratulations on all the success so far. And to recap, we got three homework assignments for you. One is figure out what you’re going to do with that rental property and sounds like we’re probably going to sell it. Do you sell it now or wait till June? You should run that math. Talk to some agents and figure out the timing there. That’s a 50, $60,000 potential decision. So that’s one to take seriously and think about how to mitigate the issues there. Then you have a 10 to $15,000 conversation to have with your mom about are reasonable items here in there.
And that all comes from a position of extraordinary generosity on your behalf on there. And hopefully there can be a productive conversation that just says, okay, here’s what the number ought to be, or Here’s at least what your mom can contribute and what’s reasonable and what you can both agree to there. And then the third one would be to formally combine the finances and upgrade the sophistication with which you present your household spending with your fiance, how you think about combining your net worth and the investment approach that you guys want to take as a couple going forward. And that will be a big body of work as well that will not take 30 minutes. That will be all of a Saturday or maybe two or three Saturdays to fully refine and finalize there. So does that sound good?

Sarah:
That all sounds good. One final thing I did want to ask, in terms of, I guess continuing on the family planning in terms of kids, do you think that’s something where we need to include as an expense if we did have kids in the future that we’re looking at twice as expenses that we need to spend or you think it’ll just be kind of a marginal increase in our spending, which I’m assuming it’s not the latter, but you both tell me how much of a change you think that will bring on in terms of the finances.

Scott:
Okay, let’s forget about diapers. Food, entertainment, life, anything. All the stuff you got to get for the kids. Let’s just think about health insurance and daycare. So daycare is going to cost you 400 bucks a week, probably closer to five 50 in the DC ish area that I think you’re in around there a week. So that’s going to be kind of in that 25 ish, $26,000 a year range per kid. That expense goes to zero if you stay home with the kid and do not have a babysitter, for example. Or for example, if you have a grandma nearby who might be able to help offset that cost pending a conversation that you might have about financial arrangements between the family and those types of things. So that’s one, and maybe that’s an answer to the question there. If you’re thinking about family planning, right? You’re telling out a lot of money here to make sure that your mother doesn’t have to work.
Can she watch kiddo while you’re working as part of that, there’s probably something reasonable conversation to have there. Maybe that’s even the preferred outcome for everybody. And then the second component is going to be health insurance. Health insurance will probably cost you, I’m making this up, so let’s go research it after this, but I want to say somewhere in the 500 incremental per month in premiums range on top of your family plan in there. And that gets much easier. Spouses is working in that period, or it becomes much more if one of the spouse is working, then the employer presumably will cover most of, or all of the premium for the health insurance for the family, right? 70, 80, 90, a hundred percent, whatever your employer offers on that front. So if that is not there, you’re looking at probably close to 1500 plus somewhere in that ballpark in health insurance premium for the family.
So those two things make it, if you just combine the daycare and the health insurance premium, that’s 40 grand a year, which is another million on your asset base. But why would you fire? Then there’s the question naturally becomes why would you fire and put your kid in daycare full time? So that is I think a concept that I think a lot of folks with families probably struggle with when they’re thinking about how do you plan around all of that from a fire perspective on there. So I don’t have a better answer than posing those questions right now, but hopefully that was at least a little bit helpful.

Sarah:
No, that is helpful. I knew the cost of the daycare, I knew that was astronomical and one of the biggest expenses, but I actually didn’t think about the health insurance, right? Kids need to go see a doctor every three, six months when they’re really young. So yeah, no, that’s really helpful to think about

Scott:
And I’m sure some listeners will correct me with those numbers, but I would say I would plan on at least that amount for the kiddo for health insurance incrementally.

Sarah:
Thank you, and please give my thanks to Mindy. This has been really great. I really enjoyed our conversation and you guys both gave me a lot to think about and again, it was such a privilege to be on here and get advice from you both. Really appreciate it.

Scott:
Awesome. Thank you for listening. Thank you for coming on the show and sharing your awesome, tough questions that you had here. So I really appreciate it and congratulations on all your success.

Mindy:
Alright. We were super excited to record this episode with Sarah because we haven’t covered this topic before and we know that there are lots of people in a similar situation. We hope you found this episode helpful and that wraps up this episode of the BiggerPockets Money podcast. He is Scott Trench, and I am Mindy Jensen saying, get on the train Candy Cane.