A Beautiful Balance Sheet: Wealth for MBAs, Docs, and High Earning Professionals in the First Few Years After School

April 23, 2021

By Matt Miner, MBA, CFP®

Today’s show is for MBAs, doctors, dentists, attorneys, engineers, PAs, pharmacists, and comp-sci types. In 2021 dollars, I’m talking to folks earning in the range of $100,000 to $250,000, mostly on a W2, though you may have a side hustle, rental homes, or other passive income sources.

Huge thank you to the Fuqua Finance Club and AWIB for the questions that became this episode! I share everything (or most everything) I wish I’d known about money as a fresh-faced MBA grad in 2009.

It’s about making your money work for you, so you can own your career, rather than the other way around.

And, WPF celebrates 20 episodes in the feed. Woot! This is a perfect show for the occasion.

Own Your Work, Not the Other Way Around

High-earners get where they are because they’re focused, driven, competitive, hate to lose, and have big goals. But the same excellent characteristics that enable people in their late 20’s to earn in the top 5% to 10% of all US earners – and to move, in just a few years, into the top couple percent of earners – can cause problems. These very successful people can end up feeling like their job owns them, rather than the other way around. That they’re on a treadmill that keeps getting faster and there’s no way to take a break.

My purpose is to help people make a plan to structure life and money to achieve flexibility, freedom, rest, and joy. Further, to help people avoid the pitfalls of burnout, resentment, and missed opportunities on the path to building wealth.

It starts with building a solid balance sheet.

Wherever you are with your money today, it’s the sum of the choices you’ve made up to this time. Whether you’re proud of your current balance sheet or depressed by it, the past is past. You can start now to build the foundation you want for your future wealth.

• General

• Taxes

• Loans

• Real Estate

• Budgeting

• Investing

GENERAL QUESTIONS

If you were about to graduate from business school, what would you be thinking about over the next several years regarding your personal balance sheet?

I’d be thinking about living way below my means for as long as I could stand it. I’d look to minimize big budget categories, like housing and auto to achieve a lot of surplus monthly cash flow. I’d aim for a savings rate as far north of 25% as I could stand. That savings rate includes student loan repayment, if applicable. I’d keep the austerity budget in place until all debts are paid. I’d saved an emergency fund in cash of at least six months of expenses and had saved up a down payment for a house.

How have you approached managing your personal balance sheet day-to-day versus over the long-term?

This is a great question. The answer is the long term is just the accumulation of the day to day. So while saving an extra few hundred or thousand dollars in a given month doesn’t feel like much, when done consistently over a long period of time, it adds up tremendously. Also remember, that it’ll never get easier to live cheaply. Life just gets more complicated and expensive as time goes by. Ask anyone who’s 40 or 50!

What advice would you share about future salary or benefit negotiations?

First, your comp comes in a variety of buckets. In any given offer, some or all are negotiable. Gently, without being a jerk, push on each element to understand what’s possible. Your comp may come as:

• Salary

• Bonus

• Signing bonus

• Equity compensation

• Relo benefits

• Expense reimbursements and training

• Healthcare

• Retirement

• Other fringe benefits

After your first job, second and third jobs will be easier to negotiate (but don’t exclude the possibility that first jobs, or even internships, have negotiable elements to the comp).

TAXES

What has been your approach to managing personal income taxes throughout various stages of your life and career?

I believe I’m a better manager of my wealth than the government. Therefore, I always seek to minimize taxes in a sensible way. You never want to get into a situation where you’re making a decision different than you otherwise would have made, because of taxes. This is called letting the tax tail wag the dog.

What tax implications that should be top of mind for students immediately after business school?

Most post-b-school students will have tax planning around:

• Their HSA and QHDHP

• Their employer retirement plan offering

• Roth conversions in business school, or in their first, partial year of work

• If you’re launching a firm, self-employed, or a side-hustler, more opportunities open up

• Backdoor Roth IRAs and charitable giving lumping strategies

When is the right time to start thinking about hiring someone else to perform your tax planning and filing?

The answer here is, “When you need help.” For most of my clients with simple returns, I recommend self-preparing. It’s really not hard, and though I don’t file returns, I provide support for self-preparing of taxes as part of my service offering. If you have a business, or many, many, state returns due to consulting income in many places, that may trigger a desire to get some help.

If you were a graduating MBA, how would you approach the tax implications of the various retirement investment options available to us? 401k? Roth IRA?

Given current tax regulations, I recommend diversifying not only the investments you hold, but the type of accounts they are in. My personal goal is to end out with 50% Roth, taxable, or directly-owned-real-estate, and 50% pre-tax dollars. Assuming the US tax code continues to resemble what it is today, they will allow me to choose when to realize taxable income from my investments and when to avoid taxable income.

LOANS

Given today’s market conditions, what would your approach be towards managing the often-large amount of student loans that can come with business school?

I would pay off the student loans very rapidly. With ongoing uncertainty about forgiveness programs, I might keep the last $10,000 to $50,000 in Federal student loans around – with the cash in a designated bank account to pay these off at any time – in the event some amount of these loans are forgiven in the future.

What is your immediate short-term advice for student loan management considering we have at least six more months of interest free student loans?

The correct financial planning answer is to pile up the cash to pay off the loans – but hold the cash and make a return. Since bank interest rates are incredibly low, I would take the time to get settled in my new job and place - to feel some comfort that things are likely to work out - and then I would attack the loans like a demon.

How would you think about the various choices one can make regarding their loans: refinancing, consolidating, moving from public to private, etc.

This goes beyond what I can tackle in an overview-type article. I will urge great caution in consolidation and refinancing. This step needs a careful analysis, as there are benefits and opportunities you LOSE when you consolidate or refinance.

If you have a chunk of money saved (from before school, singing bonus, bonus after first year of work, etc.), how would you approach the decision of applying it to paying down loans versus elsewhere?

This again is a personal decision. I would maintain an emergency fund before I chunk big dollars to the loans.

Something we hear a lot is “put your money where it earns the most.” When thinking about loans and interest rates, how do you make that decision if you’re not the savviest regarding all the various ways that money can be deployed?

This is really an investing question, so I’ll answer it that way:

• The first thing with money is, NEVER invest in anything you don’t understand. Good investing is BORING investing.

• Next, be aware, that avoiding interest on debt is probably one of the best returns you can get right now – yes, I understand you’re in the midst of interest forebearance. Certainly if you have consumer debt of any kind – auto or credit card – get rid of that right away.

• Finally, the way I talk to clients about this is that once you understand what the money is for, then the right place to put the money is usually obvious:

  • Money needed in less than five years belongs in cash

  • Money needed in more than ten years can be invested according to your investment plan

  • Money needed between five and ten years from now is tricky!

REAL ESTATE

What is the ideal down payment to put on a house? How does that answer change for each person with their own personal balance sheet?

I’ll answer the intent of the question and then share my thoughts on housing budgets.

First, the exception: If you’re military, look into VA loan options and compare them to conventional mortgages.

Everyone else who’s not a veteran: I always recommend conventional, fixed rate mortgages. I prefer a 15-year term. To qualify for this, you will need good credit and at least 5% down.

At 20% down, you avoid PMI. Here’s an example:

• We’ll pick a mid-range rate for PMI at 1% per $100,000 financed.

• We imagine a $450,000 house

• 5% down is $22,500

• 20% down is $90,000

• PMI under the 5% down scenario might be about $4275 per year, or $356 per month

• If instead you put the $90,000 down, you save this amount.

The difference between $90,000 and $22,500 is $67,500. The PMI savings is $4275 in year one. This is a 6.3% fully-predictable return in that first year, so if you have the cash, the $90,000 is a pretty good deal. There are no 6.3% predictable return available in market securities.

How do you know when it’s financially the right time to move from renting to buying a home?

• When you’re debt free, have an emergency fund, and can qualify for a conventional mortgage.

• If you want to be wealthy quickly, borrow less than 3X your gross pay in a mortgage – the less the better! If you want to build wealth at an average rate, you can afford a mortgage of 3X your gross pay. The bank may be willing to loan you as much as 5X your gross pay. DON’T DO IT! You’ll end up house-poor.

How have you thought about real estate as an investment?

Absolutely. This is on the agenda at the right time. About 50% of my clients are also real-estate investors, by which I mean they have directly-owned income producing real-estate.

BUDGETING

Could you provide your perspective on the appropriate ratio of income that should be sent to mortgage or rent?

You guys are about to get paid well – though you may have debt you’re dealing with. If you can stay below 15% of gross pay to rent, that will really help. 20% of gross pay at the outside.

Can you talk about strategies for balancing loan debt and building savings after grad school?

Most of us do best when we focus on one thing rather than many. We can bring more intensity and energy to bear on a single project or problem, rather than a shapeless lump of priorities! I recommend limiting your investing to realizing the employer-match portion of your retirement plan until you’ve saved an emergency fund and cleared all debt.

For saving for big purchases in the medium term (i.e. weddings or home down payments), where should we keep the money so to earn a return but maintain relative liquidity? How does that change over time?

Again, if the money is needed in less than five years, it probably belongs in cash. Shop online savings accounts and CDs for the best rates, but they’re pretty depressing here in the spring of 2021!

INVESTING

Many people choose to pay off mortgages and auto loans early, but is there any benefit to that given the low interest rates and opportunity cost of placing that money in alternative investments?

Most wealthy people I know choose to be debt free, including their house, and I like to copy rich people. They like the freedom and flexibility it gives them. We paid off our house in 2019 and have absolutely loved it. I’ve never met anyone with a paid off house who didn’t like the feeling.

The thing to understand about competing rates of return is, even if you can realize them, there may be tax implications. Also, expected market returns are averages, not guarantees. Mortgage interest you save is about as certain of a guarantee as you can get.

How do you think about your personal discount rate when evaluating different investment opportunities?

You have to evaluate risk preference, what the money’s for, and how soon you need it. Sometimes avoiding risk of loss is a more important consideration than maximizing gain. The right answer is nuanced, though, and this is the kind of thing I work through with clients.

For those of us encountering stock-based compensation for the first time, how would you recommend that we think about the decision between taking RSUs vs Options? Pros and cons of each?

This needs a whole show. The short version here is to understand what’s being offered as well as the tax code related to the type of equity compensation you encounter. If you don’t understand it, I’d talk to the right financial advisor or a CPA who helps clients with stock compensation.

Any advice for individuals interested in making sustainably focused investments?

Historically, these investments cost more and provide lower return than low-cost index investing. In addition, Wall Street is targeting ESG investing as a way to sell new, higher priced products.

Philosophically, I recommend buying the market and avoiding doing BUSINESS with companies you disagree with – basically, boycotting. This is a much more direct path to get someone’s attention than avoiding their shares to punish them. At most, ESG investing hopes to raise the cost of capital a teensy bit for firms deemed bad actors. I prefer a more direct approach.

What about impact investing?

I don’t have direct experience with impact investing, so I’m theorizing here. For small amounts, you’re probably better off making appropriate gifts, or sharing your time and talents to help someone. For example, if there’s a minority-owned business you want to help in Durham, you could help them build a website, run a social media campaign, or perhaps do some kind of cash-flow analysis about an investment they’re considering. This kind of direct help is probably more useful than trying to lend the owner money or invest in their business. As ever, be alert for unintended consequences for both impact investing and philanthropy!.

Freedom

I got into the personal finance and financial advice business because I’m motivated to help high-income folks kill debt, build wealth, and avoid the wage-slave trap.

Why? So my clients can do what they want with their time. Sooner rather than later, I want my clients to be able to choose their own path in work or business. As my friend Rob Berger at the Dough Roller Money Podcast says: The best thing money can buy is freedom.

TRANSCRIPT

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[00:00:05] Matt Miner: Today's show is for MBAs, doctors, dentists, attorneys, engineers, physicians' assistants, pharmacists, and comp side types. In 2021 dollars, I'm talking to folks earning in the range of $100,000 to $250,000 each year, mostly on a W2, though you may have a side hustle, or rent house, or other passive income source. If you want your money to work for you so you can own your career rather than it owning you, today's show's got your name on it.

WPF celebrates 20 episodes in the feed. This is a perfect show for the occasion. I got into personal finance and financial advice because I'm motivated to help high-income folks kill debt, and build wealth, and avoid the wage-slave trap. Why? So my clients can do what they want with their time. Sooner rather than later, I want my clients to be able to choose their own path in work or business.

As my friend Rob Berger at the Dough Roller Money Podcast says, "The best thing money can buy is freedom." Hey, and welcome to the Work Pants Finance Podcast. I'm Matt Miner, your money guide, and Work Pants Finances the show for MBAs, entrepreneurs, and other professionals who want their financial plan to work as hard as they do.

Now, here's your money guide quick tip. As you listen, pick one item that you're motivated to go after, then apply your considerable tenacity, brains, and resources to complete that single task. Afterwards, cross it off your list and move on to one more task. Then lather, rinse and repeat.

Today's show is A Beautiful Balance Sheet, Wealth for MBAs, Docs, and High-Earning Professionals in the First Few Years After School. Read more at workpantsfinance.com/20.

High earners get where they are because they're focused, driven, competitive, hate to lose, and have big goals. But the same excellent characteristics that enable people in their late 20s to earn in the top five to 10% of all US earners and to move in just a few short years into the top couple percent of earners can also cause problems.

These very successful people sometimes end up feeling like their dream job owns them rather than the other way around, that they're on a treadmill that keeps getting faster and there's no way to take a break. My purpose is to help people make a plan to structure life and money in order to achieve flexibility, freedom, rest, and joy, and to avoid burnout, resentment, and missed opportunities along the way as you build wealth.

It starts with a solid balance sheet. Wherever you are with your money today, it's the sum of the choices you've made up to this time. Whether you're proud of your current balance sheet or depressed by it, the past is past. You start where you are and build the foundation you want for your future wealth.

Today's shows got student loan payoff tactics, how, when, and how much house to buy, an introduction to savings rate, an outline financial plan, the order that you should do things, and then when to seek help with tax preparation and financial advice as well as much, much more. It's important you understand, my replies are general, your situation is unique. In fact, Steve, let's bring the disclosure statement up here rather than at the end of the show.

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[00:03:22] Female Speaker: Matt Miner is a fee-only fiduciary financial advisor employed by PLC Wealth Management LLC, a North Carolina registered investment advisor where Matt provides personalized, unconflicted advice to clients for a fee. He's also my dad, so please be nice when you talk to him. Matt is a certified financial planner professional and holds a Series 65 securities license.

He earned his bachelor's degree in finance from Arizona State University, and his MBA from Duke University's Fuqua School of Business. Work Pants Finance is Matt's financial media business where he talks about work, entrepreneurship, taxes, investing, and personal finance topics.

Workpantsfinance.com exists to share wisdom and provide general financial information. It's not financial tax or legal advice. You are an individual and probably need personal advice for your specific situation, you should consider building relationships with helpful, caring, and competent professionals who understand your unique context and can provide advice that is tailored to your needs.

[music]

[00:04:19] Matt: All right, back to our regular programming. Today's show came from a list of questions sent to me by Duke University's Fuqua School of Business Class of 2021 in preparation for a panel discussion I did there on post-MBA personal balance sheet. Huge thanks to the Fuqua Finance Club, [unintelligible 00:04:34] for the opportunity, and hat tip to all who contributed to these great topics. I love answering questions. It makes my work super easy. It's putting a nickel in the jukebox, and here we go.

If you were about to graduate from Business School, what would you be thinking about over the next several years regarding your personal balance sheet?

Well, I'd be thinking about living way below my means for as long as I could stand it. I'd look to minimize big budget categories like housing and auto to achieve a lot of surplus monthly cash flow. I would aim for a savings rate as far north of 25% as I could stand. That savings rate, of course, includes student loan or other debt repayment, if that's applicable to you. I'd keep the austerity budget in place until all my debts were paid, and I'd save an emergency fund in cash of at least six months of expenses. From there, I would consider saving up a down payment for a house.

How have you approached managing your personal balance sheet day-to-day versus over the long term?

I love this one. The answer is the long term is just the accumulation of the day-to-day. While saving an extra few $100 or $1,000 in a given month, doesn't feel like a lot. When it's done consistently over a long period of time, it adds up to big dollars. Also, remember, it'll never get easier to live cheap than it is right now. Life just gets more complicated and expensive as time goes by. If you're curious, ask anyone who's 40 or 50.

What advice would you share about future salary or benefit negotiations?

All right, this is a big one. First, understand that your comp comes in a variety of buckets. In any given offer, some or all of these are negotiable. What you want to do is gently, without being a jerk, push on each element of the comp plan to understand what may be possible. Your comp may come as salary bonus, signing bonus, equity comp, relocation benefits, expense reimbursements, and training, healthcare, retirement, and other fringe benefits.

I'm just going to briefly talk about these as they relate to your first job, and then maybe talk about them as they relate to your second and third and fourth job. In your first job, if you're coming in as part of a big cohort, for example, at Bain, or BCG, or a corporate employer that hires a lot of you guys, your salary is probably not negotiable. It's probably the same for you and everyone else that they're bringing in at your level.

Now, if you're coming in as the only MBA they're hiring that year, that may be different. Your bonus is probably set by some kind of a formula that is applied to many different people in your situation, but it may be more negotiable than salary. Your signing bonus is something that they may have flexibility to work with you on, even in your first job, or especially if it can be described as some tuition reimbursement.

The signing bonus and tuition reimbursement are typically treated the same from a tax perspective. Equity comp, maybe an area that has greater flexibility, for example, than salary. Relocation benefits may be an area that the company has some greater flexibility.

In my summer internship, my internship actually provided housing allowance because I had to move to Kansas City to do the job. We ended up being able to find a house to house sit for less than the amount of the housing reimbursement that was available through my employer. Amazingly, they were willing to pay me the difference in cash between the plan housing benefit and the house sitting arrangement that I'd come up with. That ended up being a few $1,000 extra just in the summer, but real benefits are a place to look for flexibility in your comp.

Now, expense reimbursements in training, this is typically fairly small dollars. Mostly, you just want to understand what's going to be available to you once you get started. Healthcare and retirement are usually not areas that you can negotiate in your compensation package because they are by regulation the same for all employees, at least until you get to very senior levels of the company.

Other fringe benefits, these may be things that you can negotiate. Again, they don't add a lot to your package one way or the other. Now, as you move from your first job, to your second, third, and fourth job, you will find that you have increasing flexibility to negotiate salary bonus, signing bonus, and equity comp. You're no longer one of 100 MBAs that they're hiring for the exact same job. You're now you, and if they make you an offer, they probably want you. You should understand that there is some flexibility in these things. Again, the key is to not be a jerk. It also can help if you can offer rationale along the way. For example, if you're changing jobs, a rationale for a signing bonus can be, "I'm going to lose a portion of my employer match that's uninvested in my 401k, and I'd like you to make me whole for that."

The next round of questions are on everybody's favorite topic, taxes. Says here, what has been your approach to managing personal income taxes throughout the various stages of your life and career?

I believe that I'm a better manager of my wealth than the government, therefore, I always seek to minimize taxes within the framework of what makes sense. You never want to get into a situation where you're making a decision different than you otherwise would've made because of taxes. This is called letting the tax tail wipe the dog.

What would you consider the tax implications that should be top of mind for students immediately after business school?

Now, I address this one a little bit more in the financial plan answer in terms of the order of operations that I lay out. Most post-business school students will have tax planning opportunities around their HSA, their employer, retirement plan, perhaps Roth conversions while they're still in business school, or in their first partial year of work.

If you're launching a firm, are self-employed or a side hustler, you have a lot more opportunities for tax planning. Other than that, strategies that may be relevant include backdoor Roth IRAs and charitable giving lumping strategies. When is the right time to start thinking about hiring someone else to perform your tax planning and filing? The answer here of course is when you need the help.

For most of my clients with simple returns, I recommend self preparing because it's really not that hard. Even though I don't file returns, I provide support for people who are self preparing their taxes as part of my service offering. If you have a business or if you have many, many state returns due to consulting income in many places, that may trigger a desire to get some help with your tax prep.

If you were a graduating MBA, how would you approach the tax implications of the various retirement investment options available to you, like 401ks and Roth IRAs?

Well, since it's my podcast, I'm going to answer this question the way I want. Given current tax regulations, I recommend diversifying not only the investments you hold, but also the type of accounts that they are in. My personal goal is to end out with 50% Roth, or taxable, or directly owned real estate asset, and 50% pre-tax dollars. Assuming the US tax code continues to resemble what it is today, that will allow me to choose when to realize taxable income from my investments and when to avoid taxable income.

This next section is on loans, everybody's favorite topic.

Given today's market conditions, what would your approach be towards managing the often large amount of student loans that can come with business school?

This is probably a good place to say what I've said many other places. When we came out of business school, we had $225,000 in total debt. We paid it off in about three and a half years, and if we could go back, we would do the exact same thing again.

I'd answer this by saying, I would pay the student loans very rapidly. Given uncertainty about forgiveness programs right now, I might keep the last $10,000 to $50,000 in federal student loans around, but I would go ahead and have the cash in a bank, in a sinking fund, or designate a bank account to pay all these loans off at any time.

That way, if some of the loans are forgiven, you'll benefit from the forgiveness program. If ultimately they are not forgiven for whatever reason, you've already got the money set aside to finish killing your student loan debt.

What is your immediate short term advice for student loan management, considering we have at least six months of interest free student loans?

The correct financial planning answer here is to pile up the cash to pay off the loans, but to hold the cash and try to earn a return on the cash. Given the bank interest rates are not very much above zero, what I would actually do is take the time to get settled in the job and feel comfortable that that likely to work out for at least a period of time, get comfortable in a place. Then I would begin to just attack the loans like a demon.

How would you think about the various choices one can make regarding their loans, refinancing, consolidating, moving from public to private, et cetera?

This is the most complex question, and really goes beyond what I can address in a professional way on a podcast. I would simply urge great caution in consolidating and refinancing because these steps need careful analysis. There are benefits and opportunities that you can lose when you consolidate or refinance.

If you have a chunk of money saved from before school, or a signing bonus, or a first year's bonus, how would you approach the decision of applying that money to paying down loans versus using it elsewhere?

This again is a personal decision. I'll just say that I would maintain an emergency fund before I put a big chunk of dollars to the loans. Something we hear a lot is put your money where it earns the most.

When thinking about loans and interest rates, how do you make that decision if you're not the savviest regarding all the various ways that money can be deployed?

It turns out-- this is really an investing question, and I'll answer it that way. The first thing with investing is, never invest in anything you don't understand. Good investing is boring investing.

Next, be aware that avoiding interest on debt is probably one of the best returns you can get right now. Yes, I certainly understand you're in the midst of an interest forbearance. Certainly, if you have consumer debt of any kind, like auto or credit card debt, you should get rid of that right away.

Finally, the way I talk to clients about this is that once you understand what the money is for, then the right place to put the money is usually obvious. Money that's needed in less than five years probably belongs in cash. Money that's needed in more than 10 years can be invested according to your investment plan. Money that's needed between five and 10 years from now is a tricky spot.

The next topic on our list is real estate. What is the ideal down payment to put on a house? How does answer change for each person with their own individual balance sheet?

Well, I'll answer the intent of this question, and then share my thoughts on housing budgets. First, the exception. If you're military, look into VA loan options and compare them to conventional mortgages. For everyone else who's not a veteran, I always recommend conventional fixed rate mortgages. I prefer 15 year terms. To qualify for this, you'll need good credit, and at least 5% down.

Now at 20% down, you start to avoid PMI, that's private mortgage insurance. We'll pick a mid-range PMI rate of 1% per $100,000 financed. We'll imagine a $450,000 house, and 5% down is $22,500. 20% down on the other hand is $90,000, quite a bit more. PMI under the 5% down scenario might be about $4,275 per year, or $356 each month. If instead you put the $90,000 down, you'd save the $4,275 each year.

Well, the difference between $90,000 and $22,500 is $67,500. If we then take that PMI savings of $4,275 and divide it by $67,500, we come up with a return of 6.3% in that first year. If you have the cash, the $90,000 down payment is a pretty good deal. There are no 6.3% returns available in the market that are guaranteed in the way that avoiding PMI cost is guaranteed.

How do you know when it's financially the right time to move from renting to buying a home?

This is a pretty Dave Ramsey ask answer here. When you're debt free, have an emergency fund and can qualify for a conventional mortgage, you're in a position to think about buying a home. Now, if you want to be wealthy quickly, you need to borrow less than three times your gross pay in a mortgage, and the less, the better.

If you want to build wealth at an average rate, you can afford a mortgage of three times your gross pay. You need to be aware that the bank may be willing to loan you as much as five times your gross pay, and you need to run in the opposite direction. This is the bank serving the bank. You will end up house poor if you borrow north of three times your gross pay in a mortgage. What house poor means is you won't have enough cash available to fund wealth producing investments. It'll all be going to your house.

Have you thought about real estate as an investment?

Absolutely. This is on the agenda at the right time. For us, this is started by paying off our personal home.

I would also say that about 50% of my clients are real estate investors. By which I mean that they have directly owned income producing real estate. It's on our list to do as well, but hasn't been a priority so far.

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[00:18:05] Matt: Work Pants Finance is brought to you by the classes of 2021 at Duke's Fuqua School of Business, and UVA's Darden School of Business. Thank you for the chance to talk to you guys at this exciting time in your lives. B-school is a rocket ship ride, and now you're on threshold of a ginormous opportunity to do well by doing good in your careers. Put your values to work with your money. Congratulations.

If you like today's content and want lots more of it, please subscribe to the Work Pants Finance podcast. To receive a copy of the MBA money e-book, and I got to say here, fancy bloggers I know offer e-books on their websites, so I'm imitating them. It's really just a PDF of my MBA money presentation, created a PowerPoint. To get it though, go to workpantsfinance.com/resources, and sign up for my email list. I will send a copy and an invitation to schedule time to talk to the list there.

This next group of questions is around budgeting.

Would you provide your perspective on the appropriate ratio of income that should be sent to mortgage or rent?

Now, you guys are about to get paid well. Though you may have debt you're dealing with, if you can stay below 15% of your gross pay going to rent, that will really help. 20% of gross pay would be at the high end. The farther below 20% you are, the more money you'll have for other priorities or for wealth building.

Can you talk about strategies for balancing loan debt and building savings after grad school?

To this one, I just say that most of us do best when we focus on one thing rather than many. We can bring more intensity and energy to bear on a single project or problem, rather than a shapeless lump of priorities. I recommend limiting your investing to realizing the employer match portion of your retirement plan until you've saved an emergency fund and cleared all debt.

For saving for big purchases in the medium term, like weddings or home down payments, where should we keep the money to earn a return, but maintain relative liquidity? How does this change over time?

I said above if the money is needed in less than five years, it probably belongs in cash. You can shop online for savings accounts and CDs with the best rates, but they are pretty depressing here in the spring of 2021.

This next set of questions is about investing.

Many people choose to pay off mortgages and auto loans early, but is there any benefit given the low-interest rates and the opportunity cost of placing that money against loans versus other investments?

What I can say to this is most wealthy people I know choose to be debt-free, including their house, and I like to copy rich people. They like the freedom and flexibility that it gives them. In fact, we paid off our own house in 2019, and have absolutely loved it. I've never met anyone with a paid-off house who didn't like the feeling.

I would also add that I would probably ride a bicycle rather than have a car payment. I just don't want debt on a depreciating asset. The thing to realize about competing rates of return on investments versus loan payoff is that even if you can achieve those competing rates, there may be tax implications when getting the rate.

I would also say that expected market returns are averages, not guarantees. Whereas interest that you save by debt that you pay early is about as close to a guarantee as you can get.

How do you think about your personal discount rate when evaluating different investment opportunities?

You have to evaluate your own risk preference, what the money is for, and how soon you need it. Sometimes avoiding the risk of loss is a more important consideration than maximizing gain. The right answer is pretty nuanced, and this is the kind of thing that I love to work through with clients.

For those of us encountering stock-based compensation for the first time, how do you recommend that we think about the decision between RSUs and options, the pros and cons of each type of equity award?

Well, this needs a whole show. The short version here is to understand what's being offered as well as the tax code as it relates to the equity compensation that you encounter. If you don't understand it, I recommend talking to the right financial advisor or a CPA who helps clients with stock compensation.

Any advice for individuals interested in making sustainably focused investments?

Historically, these types of investments cost more and provide lower returns than low-cost index investing. In addition, as we speak, Wall Street is targeting ESG investing as a way to sell new higher-priced products to investors who are concerned with ESG stuff. Philosophically, I recommend buying the market, and then avoiding doing business with companies who disagree with, basically boycotting. This is a much more direct path to get a business's attention than is avoiding their shares to punish them. At most, ESG investing hopes to raise the cost of capital a teensy bit for firms that are deemed bad actors. I like the more direct approach.

What about impact investing?

To be fair, I do not have direct experience with impact investing, so I'm theorizing here. For relatively small amounts of money, I think you're better off making appropriate gifts or sharing your time and talents to help someone.

For example, if there is a minority owned business you want to help interim, you could help them build a website, run a social media campaign, or perhaps do some kind of cash flow analysis about an investment that they're considering. This kind of personal and direct help is probably more useful than trying to lend the owner money or invest in their business.

As ever, with this kind of stuff, be alert for unintended consequences for both impact investing and philanthropy. All right, as promised, here is the outline financial plan. First, fund your basic budget, things like taxes, housing, utilities, food, transportation, clothing, insurance, charitable giving, necessities like that.

Next, save an adequate emergency fund, at least three to six months of expenses, but as you progress in your career, you may find that you want to keep as much as a year's worth of expenses in cash. Third, add small luxuries, things like coffee and meals out with friends. Fourth, make sure that you are getting your full 401k employer match. You may be doing these things all at once, 1,2,3 and 4 could possibly be on day one of your financial plan.

The fifth thing in your financial journey is to pay off all debt, except the home mortgage. Number six to max out your health savings account, your Roth or traditional IRAs or your backdoor Roth IRA. Seven, to enjoy additional luxuries like travel, home improvement, car upgrades. After that, you could look at five to nine investing, if children's education is a goal. From there, you would max out your 401k, including your solo 401k if applicable.

Only after that comes everything else, the things that people like to think of when it comes to investing. Making investments in a taxable brokerage account, or pre-paying your mortgage, or increasing your five to nine contributions, buying rental real estate or making other sorts of specialized investments, like angel investing. Here is also a great time to do things like make more and larger gifts, and to buy more things or experiences that you want.

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[00:25:21] Matt: No fancy wrap up today. The key takeaways are the show. Just speaking from the heart, things I wish I'd known when I was in your shoes. Once again, congratulations to the classes of 2021 at Fuqua and Darden. I hope this show helps you. If it did, please share it, and please leave a rating and review wherever you listen to podcasts. If I can help you, get in touch directly.

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[00:25:45] Female Speaker: Matt Miner is a fee-only fiduciary financial advisor, and founder and CEO of Miner Wealth Management, a North Carolina registered investment advisor where Matt provides personalized, unconflicted advice to clients for a fee. He's also my dad, so please be nice when you talk to him. Matt is a certified financial planner professional and holds a Series 65 securities license.

He earned his bachelor's degree in finance from Arizona State University, and his MBA from Duke University's Fuqua School of Business. Work Pants Finance is Matt's financial media business where he talks about work, entrepreneurship, kids, and money, taxes, investing, and personal finance topics. Workpantsfinance.com exists to share wisdom and to provide general financial information. It's not financial tax or legal advice.

If you're an individual and probably need personal advice for your specific situation, you should consider building relationships with helpful, caring, and competent professionals who understand your unique context and can provide advice that is tailored to your needs.

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