Hi, everyone. I have decided to re-air a couple of select episodes that we've had from the past that maybe if you become a recent listener to the podcast you haven't heard. And these specific episodes are very timely because our guests were heavily affected by the 2008 recession and some days it helps to see how others who are in times of uncertainty dealt with it, and how in the long run it became a blessing in disguise.
I was lucky enough to have the amazing Paula Pant on in my first year of doing this podcast. And if you don't know Paula, I will talk all about her in this intro and you should definitely check out her platform, afford anything. I think especially right now, the advice that she gives, she helps people reach financial independence and really plan your life in a way that you aren't beholden to a job. I think it's obviously even more important right now.
As she likes to say herself, Paula is unemployable. She quit her job more than a decade ago, has traveled to more than 40 countries, and refuses to work for anyone else. She runs the website Afford Anything, which holds a community of more than 53,000 email subscribers. She's the host of the Afford Anything podcast, which has enjoyed more than 4 million downloads. Both spread the idea that you can afford anything, but not everything.
After building financial independence through real estate investing, Paula is helping people all over the world figure out how to get out of debt and create financial independence for themselves. In this episode, we get into the details of her path to early retirement and how we can all get started on our own paths.
Here is what we chat about in this episode:
- What the FIRE movement is really about
- How Paula got started on her own journey to financial independence
- How freelancing gave her freedom to travel for over 2 years and the skills to never go back to a “job”
- Where the big opportunities in freelance writing are today
- How she built her rental property portfolio and the resources she offers her community to do the same
- What some possible downsides are to the FIRE movement and how to have the proper discussions to work around those issues
Resources mentioned in this episode:
- Email Series on Rental Properties: www.affordanything.com/viplist
- Free e-book on FIRE: www.affordanything.com/escape
Hi friends. Welcome back to another episode. I am so excited to have you guys here. I hope you're all doing well. I know it is a time of uncertainty and a lot of scary things are happening but I hope you all are maintaining some sanity, looking for the bright side in things and maybe enjoying a little bit of this time at home. I'm not in any way trying to diminish the hardships that a lot of people are undoubtedly going through, but I hope you're finding some silver lining in this time. I wanted to do something different over the next month. I have decided to re-air a couple of select episodes that we've had from the past that maybe if you become a recent listener to the podcast you haven't heard. And these specific episodes are very timely because our guests were heavily affected by the 2008 recession and some days it helps to see how others who are in times of uncertainty dealt with it, and how in the long run it became a blessing in disguise.
I know when you're in it, it’s very hard to see how it can be a good thing, but oftentimes it might just be the nudge that you need to get you on a different path, the path that you actually want to be on. And so over the next couple of weeks we're going to revisit some of the episodes where the 2008 recession, when everybody really felt like the sky was falling, it was like a free fall of businesses crashing and people's jobs weren't to be had and people didn't know what to do. And a lot of people have come out of that much stronger and in much better positions. Now, we recently had Janelle Copeland on the show and we talked all about her situation where her and her husband were laid off from their six-figure jobs in the 2008 recession and how even though they went through a lot of struggle, they came out of it starting The Cake Mamas that has become this incredible brand and bakery that they run for over 10 years.
And so I want to go back to some other episodes and some other situations. So we have people who were laid off and we have other people that still decided to just quit in this time of uncertainty. And that is today's episode. I was lucky enough to have the amazing Paula Pant on in my first year of doing this podcast. And if you don't know Paula, I will talk all about her in this intro and you should definitely check out her platform, afford anything. I think especially right now, the advice that she gives, she helps people reach financial independence and really plan your life in a way that you aren't beholden to a job. I think it's obviously even more important right now. But what was so interesting to me about her, the story and we will get into, is that she quit her job in 2008 when the sky was falling and everybody told her she was insane cause she had a job and she decided to leave to travel the world.
And everybody had told her that she would never find another job. And we'll talk to her about how that turned out. And I really wanted to highlight this because I've gotten some messages from a lot of people who were planning their exits or to start a side hustle or wanted to start a business or were thinking about what else they could do. And they sort of feel like, well that is all on hold right now because we're going through this recession and we don't know what's going to happen economically. And so we just have to hold on. Right. You know, for dear life and we have to stay with whatever job we have. And I don't think that's necessarily true. Now I'm not saying that maybe you have to make some economic decisions. And maybe you have to plan more, but I want you to understand that there are still a lot of opportunities out there.
And oftentimes in the recession there are a lot of new opportunities because new industries get born out of recessions. And so if you can calm yourself enough to not get caught up in the panic, you may find that this is still the best time for you to move forward with whatever plan you had for quitting or starting a business. And I really hope that Paula, her story can show you that it is not only possible that it might be a great time for you. So if you end up gaining something from this, please reach out and let Paula know. I'm sure she would appreciate it. And with that, let's jump into all of her good wisdom.
Goli: Hello everybody. Happy new year. I cannot believe it is 2019 it is insane how fast time is flying. Thank you so much for joining me again and if you're new here, thank you for listening in. Really excited about all of the incredible guests that we have lined up for this year. I think it is going to be so inspiring and they teach so much about what we can do on our journeys to quit things that we don't like and create a better life for ourselves and we're so lucky to start off the new year with a bang by having Paula Pant on the show today as Paula would say herself. She is unemployable. She quit her job more than a decade ago, has traveled to more than 40 countries and refuses to work for anyone else. She has become extremely successful in her freelance writing career.
She now runs a website called Afford Anything and has a podcast by the same name which has had more than 4 million downloads. I would really recommend you guys check out her podcast. It is full of incredible advice as you will hear today on the show and you know her community is based on the idea that you can afford anything but not everything. And what we talk a lot about today is how she built financial independence through her real estate investing and what the F.I.R.E. movement really is about. Paula is a leader in the F.I.R.E. community, which stands for, “Financial Independence, Retire Early.” On episode 18, we had Matt and Alli Owen and they talked about how after joining the F.I.R.E. community and learning about saving and investing and paying down debt, they were able to quit their six-figure engineering careers and travel the Americas and their sprinter van and they're running their online businesses.
And I got an overwhelming response from you guys about how fascinated you were and how you hadn't heard about the F.I.R.E. movement. And so many people wanted to learn more. So I figured there's no better time than the new year when we're all working on our goals. And so many of us have financial goals of paying down debt or saving more money or being able to do the things we want to do, which can include quitting the job that you hate. And so, Oh, I'm so excited to have Paula on the show to tell us about how we can be smarter with our finances and what the fire movement really is all about. And so without further ado, I will let Paula do most of the talking. Hi Paula. Thank you so much for joining me today.
Paula: Thank you so much for inviting me. I'm glad to be here.
Goli: Oh, I am so glad to have you. And I know my audience is gonna love this episode and I know they're going to come start following you. So I want to jump right in. Typically I start with your journey, but before we get into it, I kinda want to clear up some terms so that people are on the same page as we talk about them. Can you let us know a little bit what F.I.R.E. stands for and what the F.I.R.E. movement generally is about?
Paula: Sure, absolutely. So F.I.R.E. is an acronym for “Financial Independence, Retire Early.” And those are kind of two separate concepts. So let's break it up for a minute. So financial independence is the concept of having enough money. And by money I mean usually assets, investments, things like that. Having enough such that work becomes optional. So if for example, you have enough rental properties that you can live totally off of your rental property income, which means that you don't have to go to a nine to five job anymore. That would be an example of financial independence or if you have enough stocks or mutual funds or index funds and you can draw down just a little bit of it so that you can live on just that little bit. Keeping the majority of it still in the market. That would be another example of financial independence.
Goli: Okay. Obviously I think it's very personal and it's going to be different for each person, but I know there's a lot of discussion about what kind of people can do this and what we're talking about how much do you really need? Can you let us know a little bit about how you got involved in this type of community? How you got onto your journey to financial independence?
Paula: Sure. Well, my story is really unusual because I became financially independent before I knew about the concept or about the movement or about the community around it. In my own story. I had graduated from college in 2005 and I started working at a newspaper. I had a liberal arts undergrad from a state university, so I was like, great, I'm never going to make any money. I started writing for a newspaper. I started as an unpaid intern and then eventually they gave me a paid internship and then eventually they gave me a full time job and my starting salary was $21,000 a year and that was in 2005 and by the time that I quit that job, which was in 2008 my salary at that time, it was $31,000 per year. So that's the most money I've ever made. Working for somebody else was 31,000 in my peak.
During that time, I started freelancing during the evenings and weekends and I made a lot more money freelancing than I did from my normal salary day job. My biggest client was paying me 50 cents a word and 50 cents a word was broken down as an hourly rate for that article that came to between $50 to $75 an hour and when you're making between $21,000 to $31,000 per year, but then you have the side gig that's paying you $75 an hour on the side. I mean it's a bit of a no brainer. I knew I needed more.
Goli: Yeah. How did you even find that at that time? The freelance writing work online. Was that something that you knew about or like you kind of happened upon?
Paula: Well, because I was a newspaper reporter, I would go to journalism conferences and there's a specific group, it's called the society of professional journalists. I would go to their conferences and the way that they organized their conferences, at least at that time, was that they broke out their tracks based on television, radio, newspaper, magazine, and then they had a particular track that they referred to as freelance and I was like, freelance? What's that? Never heard of it. And so I started at conferences just dropping in on sessions in the freelance track, just out of sheer curiosity and that was my aha moment. It was an inflection point. I discovered for the first time in my life that it was possible to make money outside of traditional employment before I went to those conferences. It hadn't even occurred to me that that would be possible.
Yeah, and I think that that was very early on. I mean obviously there were probably other types of freelance gigs, but I mean with the internet and doing freelance for things online, I think a lot of people… And one of the points I wanted to make with this podcast is to show people how possible it is to make money doing other things with the internet.
Goli: Now I think a lot of times when we are stuck in traditional businesses and we think it's just down a certain way, we fail to see all of the opportunities out there. So I think for you to be able to discover that back in 2005 2006 2007 is incredible. It's like when it was all just starting.
Paula: Yeah, absolutely. It's funny, like back then the whole notion of location independence, right? The idea that you could be in Thailand but still be working on the internet. That was considered out there. Very novel, at least anecdotally among the people who I talked to. I remember if I was taking a trip, if I was, I would not tell editors about it because I knew that if I told them, then there was a risk that they wouldn't give me the next assignment because in their minds operating from their paradigm, they'd be thinking, Oh, she's on vacation, she's taking time off, so I'm not going to give her this next article assignment. So yes, I just didn't mention it. I was like, we’re working from Bangkok, but you don't know that.
Goli: I mean, I know now there's an entire infrastructure in place for remote working, but back then, I mean when you were working from Bangkok or other places, was it relatively easy to do that and then be able to still find, good wifi all over and be able to get your assignments on time?
Paula: No, it was all terrible. So I mean I had a laptop with me, but the best internet was at cyber cafes and so it wasn't wifi. It was the internet at a cyber cafe. And so a lot of times I would use my laptop to write an article and then I would get just enough wifi to put it in a Google doc. And then I would use the wireless at an internet cafe to check email and do all of the heavy internet tasks. It was very inefficient.
Goli: But that's incredible that you did that. I think we take for granted a lot of the things that are now so easy, like this remote working and even freelancing and even the F.I.R.E. movement. There are now communities or movements and there's more of a path and you can read about it. And it's one thing. I mean, you've clearly figured out two very popular movements now, both remote working and the fire movement, without any of the guidelines, you kind of did it by yourself, which I think takes a lot of ingenuity and work. So that's impressive.
Paula: Thank you. Thank you so much.
Goli: No problem. So I'm assuming you left the newspaper gig and this is when you're traveling to do freelance work.
Paula: Yes, exactly. So I quit the newspaper in 2008 and at the time, first I was terrified, right? It was 2008 and the great recession just started. Everybody's getting laid off and so to have a job and voluntarily quit that job in the middle of the great recession, right. When all your friends are either getting fired or they've just graduated and they can't find a job and you're the one person who actually has one and yet you're quitting. For some reason it made no sense to anybody. And particularly because I worked for ad and print journalism… It was a shrinking industry.
The Seattle Post had shut down, The Rocky Mountain News had shut down. All these big papers were shutting down or they were reducing stats or they were having hiring freezes. So I was in a shrinking industry during a recession. It was the worst time possible to quit a job.
Goli: Right. And did you get pushback from your family or anybody when you were saying like, Hey, I'm going to quit this job. I mean, were people telling you, you're crazy?
Paula: Yeah. Everybody, every single person without exception said that I was committing career suicide and that I would never get a job again. And in hindsight I know they were right. I never did get a job again. Well I guess it was seven months ago. I celebrated my 10 year. I don't have a job.
Goli: Incredible. And actually that brings up a point that I really have wanted to talk about on the podcast and I haven't really known when... And this is perfect… We talk a lot about quitting and these stories and everyone is kind of waiting for the next downturn and it's like, Oh, we've been in a bull market for so many years and it's not going to continue like this. And they think people are really scared. It's the insecurity of not knowing what's going to happen in the future. And I love that you're saying this, that you took this jump while obviously there are certain things that you can't predict, there are still opportunities. It's funny because we've had a lot of guests that made their switch whether by choice or they were gently pushed out in the last recession.
But that's what led them to their new thing. And so I do think there's that little anxiety with people that don't want to make a change right now cause they think in the next year or two there's going to be a recession. And I love that you are saying that you did this in that recession. Absolutely. I would say whatever you want to do, don't try to gain out what's going to happen in the economy. A, you don't know. And B, you're strong and you're sourceful and you're smart and you'll figure it out. Everything is figureoutable. So just do the thing that calls to you and figure it out. I love that because I do think that we had a guest, Isaac Lidsky, who's, I love his line. He was saying that fear replaces the unknown with the awful. So we're always awfulizing, we're always thinking about the worst that's going to happen.
And I do think a lot of times we don't give ourselves credit for the fact that we are resourceful and we will figure things out and we just think there's like, Oh, I'm going to end up homeless. That's not going to happen. You're going to do something and you're going to take a step.
Paula: I couldn't agree more where you have to take the jump and then just figure it out as you go along.
Goli: Yeah, it's sometimes it helps if you take that fear that you have and then just exaggerate it in your mind like, and then what? I'll be homeless. I'll live under a bridge and I'll end up stabbing somebody in a bar fight. Really? I'm pretty sure I'm not going to do that. Right?
Paula: No, absolutely. I do think that at times our subconscious takes the best of us and we don't really even think about it. But once you start saying it, you realize that that's never going to happen. So you know, it's not as bad as I'm making it seem.
Goli: Okay. So you ended up traveling and so how long do you travel for and kind of do the freelancing?
Paula: I quit my job in spring of 2008 and then I traveled for the next 27 months. So I was on the road until early to mid 2010.
Paula: Thank you. Thank you.
Goli: What an experience.
Paula: Oh yeah, it was life changing.
Goli: And so the whole time you were doing freelance work while you were kind of also traveling from country to country?
Paula: I was, yeah. But I'll look just a little bit. I wasn't freelancing hardcore. I was working maybe five hours a week or so. I was mostly living on savings and I was living on a budget of 1000 us dollars per month and I was freelancing just enough to keep my skills fresh, keep my contacts fresh, have a collection of more recent articles that I had published, recent clips. I was basically freelancing just enough to stay in the game, but no more.
Goli: Okay. And then so what did you do when you came back to the States?
Paula: When I came back to the States, that was when I decided I really didn't want to get a job. I didn't want to go back into the normal nine to five working for somebody else paradigm. And so I decided to commit myself to becoming a full time freelancer. And in the beginning it was very slow. I took some very embarrassing low-paid, content farm type of gigs. But then over time just started picking up more and more clients. And the thing that really helped with regard to doing that was that I knew that I needed to niche down. If you just say that you're a writer, even if you have the job experience of having been a newspaper reporter, so you're a legitimate journalist, like a professional journalist, but even still with that type of credential, even then if you say that you write about everything, then you write about nothing.
Nobody's going to hire you cause that's not memorable. And so I knew that I needed to niche down and become well known within a smaller community. And so for a while I wasn't quite sure what that would be. I was like, should I become a wine writer? Should I write about pets? I don't know. And ultimately somebody gave me the advice to write about what I enjoy reading the most and as nerdy as it sounds, I've always loved reading about personal finance. So if that's what I enjoy reading, then it just made sense to me that that's what I should write about.
Goli: Oh that's so interesting. So then did you just start picking topics that you thought people would care about in personal finance and start writing for yourself or did you enjoy trying to find writing gigs and personal finance?
Paula: Oh, so I reached out to various clients who I knew would need a personal finance writer.
And my big break came when I got a job, a contract based independent contractor gig with about.com which is now known as the balanced.com but back then they were about.com they were owned by the New York times. And they brought me on as their budgeting and personal finance expert. And so I wrote eight articles a month for them as their budgeting and personal finance expert. And that was the big break where once I had that under my belt, then I could pitch other clients and say, Hey, you know, I've been published here and here and I'm the about.com budgeting personal finance expert. And they said, okay, you know, it was, it kind of gave me that instant credibility, but you know what, honestly, in order to get that, I just wrote a couple of guest posts for a few personal finance blogs and I sent that in when I was applying for that freelance gig. So you know, you just build on what you have and eventually it grows into something.
Goli: That's wonderful. And in your bio you'd said that that grew into a six figure freelance writing career, right?
Paula: It did, yeah. So it took approximately 18 months between when I actually committed myself to doing it full time too. When I hit my first five figure month, meaning made more than $10,000 in one 30 day time span in one calendar month.
Goli: That's incredible. Times have obviously changed and there are a lot, I feel like more opportunities and then also less opportunities. So do you think that it's possible for someone that feels stuck in their career, that loves writing, that wants to do freelance writing? Do you think it's still possible to build a career where you can make good money doing that?
Paula: Oh yes. Tons and tons. It's easier now than ever before. The thing is the big money. Now, the big opportunities come from startups within the space that you're writing about. So for example, if you want to write about health and fitness, don't just think about writing for health and fitness websites. Think about what are the startup companies like the venture backed Silicon Valley or New York or Seattle startup companies that are operating in the health and fitness and wellness space. Because every single one of those companies has a website and that website needs a blog. And that is where there's a ton of opportunity in any industry, whether it's finance or health or pets or wide, like anything.
Goli: That’s such great advice. I love that. And the reason I asked that is because I've heard and I talked to people, it's funny that when you know somebody that built something at a time when it was just starting, when it's always harder because there is no clear path. You're kind of figuring it out. A lot of people look at it now and it's too saturated. Before it was easier because there wasn't, and I always want to say, I mean now there's so much more opportunities now. Everybody has a blog that needs content and everyone has, I mean there's so many news outlets and there's so many places to write for, but I think it's again, that fear kind of coming in where it's like, Oh, I can't do that or whatnot. And so I love that you said that there is, you kind of have to think outside the box or see where would that need be, who needs that? And I kind of go after that. But there is still so much opportunity to make a living doing something that you enjoy.
Paula: Absolutely. And you know what? No matter what, people will always say, Oh, the market's too saturated. I started blogging in 2011 I remember facing a huge amount of self doubt because at that time, people were saying if you didn't start by 2006, 2007 then it's too late. The people who had their first mover advantage have already enjoyed their first mover advantage and now you know, you can't build a big blog if you start at this late, you know, maybe if you'd started it four years ago by 2011 it's way too late. I bought into that idea. I believed it for like a minute and then I thought, wait a minute. The internet is going to continue to exist for hundreds and hundreds of years. So you're telling me that in the entire future of the internet, all of the major blogs have been started prior to 2008 really? Is that what you're saying?
Goli: Yes, I love that. I agree and I think that again, it's just something that we want to come up with an excuse of why we don't want to try something or why something is hard. And the reality of it is, even if it wasn't the blog, like I think if you start the blog and that leads to something else, who knows what's going to happen with technology, it constantly changes and so if you put something out there and in five years maybe it'll look different. But there's always the opportunity. It doesn't go away. Businesses don't just stop existing or new businesses never stop starting. So it's very good advice. I know that you got to kind of your financial independence through your rental real estate portfolio. So how did you start building that up?
Paula: As I was freelancing, I was terrified that whenever you're self employed, whenever you're a freelancer, there's going to be volatility. No matter what you're doing. There are going to be months that are good and months that are bad. There's feast, famine. So I was very scared that I might encounter a situation in which I go through some prolonged dry spell and several of my clients all drop me at the same time. And I would be forced to apply for jobs. Basically, my worst case scenario, what if I have to get a job, which seems silly if you say it that way. Like, well okay, I hope it doesn't come to this, but if things get really, really, really bad, I guess I could get a job. Oh God no. And so in order to offset the risk of having to get a job, the first thing that I decided to do really was to get my own costs down to as low as possible because the less money that I had to spend on my own life, the more that I could hold out.
Right. And so I was sharing an apartment with five people, like we're all randos from Craigslist and it was a three bedroom apartment, five of us living there. And so my personal share of the rent was $200 a month. This is in Atlanta, Georgia. I noticed that the house across the street was for sale and buy house. What I mean was it was a triplex, so it's a building with three units and really not knowing anything about how to analyze rental properties. I would just doing like really rough back of the envelope calculation, and I figured that if I bought the triplex, moved into one of the units with all of my roommates, like move the whole gaggle of roommates with me and we lived in one of the units and then I rented out the other two. I figured out that I could get my $200 a month rent payment down to zero and that was as big as I was thinking.
I wasn't really thinking past that. I was like, let me see if I can get my own housing costs to nothing now with eight years later with the benefit of hindsight that there's a word for this and the word is house hacking. But at the time I had never heard of that. I was just trying to get my own costs to zero. I didn't know there was a word for it. And so that's what I did with a down payment of $26,000 that was split between myself and my partner at the time we bought this triplex and that's exactly what happened. I got my own housing costs to zero. And then once you do that, when you are simultaneously not paying anything out of pocket for your rent or mortgage, cause you've got a whole bunch of roommates and tenants who are all covering that bill. When that is happening simultaneously with your freelance businesses growing and now you've just had your first five figure month, well that gives you this extremely accelerated power to save. Then I just started taking all of my savings and I started buying more and more rental properties with it.
Goli: It's kind of like trial by fire. You got into the whole real estate rental real estate investment by trying and figuring out. But how did you know it was a good investment? You know, I mean rental real estate isn't always, it depends on so many factors.
Paula: Yeah. So between my first purchase and my second purchase, there was a year of learning. So for the first purchase, don't do what I did because the first purchase I did not know what I was doing and did a back of the napkin calculation and it happened to work out but don't do that because that is not a sound or viable strategy. And then after I bought that first property then I was like, huh, I should learn what I'm doing. That was when I went down the rabbit hole of just learning as much as I could, reading everything that I could about rental properties and going to investor meetups and just going on meetup.com and looking up the local investor groups and going there and staying up until three in the morning reading every blog on the internet related to rental property investing. That was just when I went deep down that rabbit hole, you know, checking out books at the library. Just reading as much as I could.
Goli: Right. And can you tell us what it means when you were saying that you became financially independent based on just that rental income? Like what does that look like?
Paula: Last year, buy rental properties in total and I've got seven units now between all seven of those combined, they brought in gross income of 125,000 and net income after expenses of 43,000 so after I pay all expenses, including the mortgage and repairs and maintenance and everything else, last year I was left with $43,000.
Goli: Oh wow. And then you obviously have your expenses and such a way that you can live off of $43,000 and so that's how you determine that you're financially independent.
Paula: Yeah, yeah, exactly. And I mean for me, so the definition of financial independence is fairly subjective. Fundamentally, financial independence is when you have enough. So what is your benchmark for enough? Right. For me, I definitely know that I could live on 43,000 because the highest amount that I ever earned was 31,000 when I was working for someone else. And so what I get now as passive income from my rentals is higher than the maximum amount that I ever made as a W2 salaried worker.
Goli: I have a couple of questions. One, I know that we were just saying that you shouldn't try to obviously gain the market and you should make decisions kind of going for what you want to do. But right now, with even rental real estate, you know, because there are these concerns. I mean, do you take into consideration, obviously not the market, like price and whatnot, but let's say if somebody wants to get involved, is it something that you kind of advise against right now getting along because you don't know what's going to happen in the next couple of years? Or is it like, no, it's on, you know, each area has different factors and they're still like good rental real estate investments that people can be making to kind of get on those road to financial independence.
Paula: So first of all, I never ever make decisions based on any type of guests about what might happen in the future. I look at the income that this property is creating today. I have the saying appreciation is speculation, right? If you're making guesses about what might or might not happen in the future, you're making guesses, right? Projection is just a fancy word for educated guests. And so I don't believe in making six figure decisions based on thinking that you have a crystal ball even though you actually don't. And the future is anybody's guess. So the way that I analyze a property is through a formula that's called cap rate, which is a shortening of a term called capitalization rate. And conceptually, here's what that means. So any investment doesn't matter if it's a rental property or a stock, like any investment that you make makes its money in two different ways.
There is the value of the asset itself and then there is the dividend or the income stream that that asset pays out. So if you have a stock, you own a share of Coca Cola, right? That share of the Coca-Cola company, the Coca-Cola stock could go up in value and that's referred to as appreciation. And that share will pay out a dividend, which is a little of income to its shareholders. And those are the two ways in which your share of Coca-Cola stock could make money. Same thing is true with a house. A house can make money in two major ways. One is appreciation, which means that house might go up in value in the future or it might go down in value or it might stay the same. And then the other is that dividend or that income stream that that house creates. And so cap rate is a formula that calculates purely based on the income stream relative to the value of that house. So it looks at that relative income stream based on what you've paid for the house. That's what the cap rate formula looks at. And it doesn't factor for any financing interest rates. Or I borrowed this much and I only put this much into the, it doesn't factor for any of the financing and it doesn't factor for any market appreciation. It looks purely at that dividend.
Goli: Oh, okay. And you right now, are it kind of in the process of developing a course, right, that teaches people how to do these rental real estate purchases?
Paula: I am, yeah. If you go to affordanything.com/viplist, I've got a free seven-day email series that kind of deep dives into rental property investing. So every day is a different lesson. Like yeah, how do I look for a property? Where do I look, how do I find good tenants? So each day is a different free lesson and then if you sign up there on that email list, then I will announce when that course is going to be available for sale. It'll be available in 2019 and we haven't officially announced the dates yet, but basically we're going to make it available. Enrollment is going to be open at three different times during 2019 we don't have the dates firmly nailed down yet.
Goli: Very cool. Yeah, I will link to that so that if anybody who can't write it down right now, you can just go to the show notes and get on that list. And that's one of the things I also love about your podcast is that you do a lot of episodes where it's Q and A where your audience gets to call and leaves you a voicemail and you go into a lot of details about different types of investments including rental real estate portfolios and all the different questions that come up about what makes a good investment and what not. And so there's a lot of value just even in your podcast episodes about this stuff.
Paula: Oh, thank you so much. On the Afford Anything podcast, every other episode is what's called an ask Paula episode and those ask Paula episodes. I alternate between questions about general money management and then questions about real estate investing.
Goli: Yeah, yeah. You guys should all check it out. Again, I will link that to, I think your podcast is incredible. In a recent interview that you were talking to one of your friends who was also on the financial independence path, I think her name is Emma. And you guys were talking about kind of the regrets that you have or the downsides of narrowly focusing on planning for the future much. I do think that outside of even financial independence, it resonated a lot with me for people that I think are planning so much about getting to a certain place, constantly fearing trying something new because they want to achieve something. I feel like you end up missing out on a lot. And so what do you find has been the downside of really focusing so much on getting to this financial independence?
Paula: Well, one story that I shared in that podcast episode on the Afford Anything podcast, when my parents sold the childhood house that I grew up in, I was living in Colorado and that house was in Ohio and my parents were selling it and I didn't fly back to see it one last time cause I didn't want to spend the money on an airline ticket. That's one of my big, big regrets to just to not walk through that home and say goodbye to it. One final time. Things like that. You know, times when I valued money more than meaningful experience. Those are my major regrets.
Goli: Yeah, I think that's relatable. I mean I think in both instances, one when you're kind of trying to save and whether or not you're on the F.I.R.E. path or not, I think a lot of times we may get too focused on something and not see the value in other things. I mean I think that that relates so much just to the whole obsession of making more and more money. I think a lot of times people are stuck in certain fields that they hate because they don't think that they can replace the income that they have because it's so much or you know, and they have a certain status in life. But I mean you, how many times do you hear, you know, going back then it's like that focus on getting to a certain place or making a certain amount, you end up giving up a lot of things that later in life realize that is kind of important stuff in life. So I do think it's really relatable. A lot of us need to be more conscious of what we need to be happy and what is important? What should we be spending our money on?
Paula: Exactly. Exactly. And in that regard, I'm glad that you brought up the whole fear of walking away from a high income because in my own story, in terms of quitting my job, that was a counterintuitively that was a bit of an advantage that I had. I walked away from a $31,000 salary and walking away from a $31,000 salary is not that scary. It's not like I walked away from a hundred thousand dollars salary. Right. I walked away from 31,000
Goli: Right, right. I mean you say that and I, I can see that. But it's funny because I've had the same exact conversations and it happens to just be different lawyers that I know. And I've had lawyers that are not making that much, you know, and they may be working freelance or they're working, you know, in government work or whatnot. And they'll say, Oh, you know, if I was making hundreds of thousands of dollars like X lawyers in this law firm, I would walk away easily. I would have saved enough money and I would be out, but I'm only making 40 or $50,000. And so I'm kind of tied to this cause I need this income. I'm living paycheck to paycheck. And then I hear the opposite where it's like, Oh, if I was making $40,000, there's no way I would do something I hate.
I'm only making $40,000 but I'm tied to this because I'm making 300,000 so I do think it just becomes this thing that whether it's a lot or a little, it's what we are fearful of losing or not being able to make up in other ways. It's just that fear of the unknown that makes us think our situation is harder, you know?
Paula: Yeah, absolutely. Absolutely.
Goli: But with that said, I do think, you know, I know a lot of people that I've talked to are really interested in the fire movement, but I think when you just hear about it, they are maybe their spouse or they have kids or what not are not as comfortable living a fully minimalist life or really paring down to what I think a lot of times when you look at people in the fire movement are living on, but do you think it works for people that want to have a bigger spending range? Like they want to live off a six figure salary, like a hundred thousand dollars or something a year. Do you think it's possible to do F.I.R.E. with that kind of end goal in mind?
Paula: Yeah, absolutely. There's also a term for that. It's called fat fire. There's a term for everything. I know, right? If you put a word to it, it makes it real. Yeah. Great to know. So these two concepts, one is called Lean F.I.R.E. and the other is Fat F.I.R.E. and Lean F.I.R.E. is to live on a very small amount of money and emphasize frugality and lean couponing, maybe homesteading type of living. Right. And then Fat F.I.R.E. is like, no, I want my Henri Bendel candles and my dinners at... I'm trying to think of the name of a fancy restaurant. The only thing that's popping into my head is the Cheesecake Factory. My dinners at the cheesecake factory.
Goli: Right, right. Well that's good to know that there's room in the movement, I think for flexibility.
Paula: Yeah, exactly. Exactly. And it goes back to the whole idea that fire is so subjective, right? If we define fire as the point at which your passive income typically through investments is enough to cover your basic needs. I mean how much is enough? Right. That's the question and I write about this on my blog Afford Anything. I've written several articles about this where it just kind of exploring that notion that there's so many people who want to put a formula to fire and they want to say, well you've reached fire when you're investments are 25 times your annual spending or you've reached fire when your passive income equals your annual spending. And even that is a flawed definition.
Are we talking about my annual spending at the time that I started this project or at the time that I ended this? If your annual spending fluctuates throughout your life, then are you going to choose your annual spending on any one arbitrary date or year and peg that as the barometer like interest. The more you try to quantify it, the less sense it makes because there are so many logical flaws with any attempt to quantify it. I think that's what F.I.R.E. is. You are F.I.R.E. when you genuinely truly believe that you are F.I.R.E. And of course there have to be those minimum
parameters there, right?
Goli: Like you can't be in $200,000 in credit card debt and be like, I think I'm fine. But I do think though, you know, even for me, I honestly didn't know much about F.I.R.E. until I was talking to some previous guests that were going to be on the show. And when I started thinking about it, it was interesting because maybe not having any intention of trying to reach financial independence are, you know, retiring early or whatever it may be.
Fundamentally, it started shifting for me like, Oh my God, what do I spend my money on? And just getting to think more deeply about, it's not beyond budgeting, but really could I? What would I need to get financially independent and how much would I need to save and what could I live off in a year? And so I think even if you're not pursuing it with the expectation of wanting to fully retire early or you know, live completely off of investments, I do see such a huge value in just the things that are talked about and the different investments and all this stuff to start really figuring out like, Hey, if I'm making six figures, maybe I should be saving a lot more than I'm saving right now so that if I want to make a jump, you know, I can make it easier for myself.
So I do appreciate that aspect of it.
Paula: Yeah, absolutely. Absolutely. There's another concept within the fire movement that's referred to as F U money, and that's the concept of you don't have to be fully F.I.R.E., you don't have to have enough passive income to cover all of your expenses in perpetuity. But if you had even just a runway, if you have one year or two years worth of your expenses saved up, and remember there's a distinction between one or two years worth of your income versus one or two years worth of your expenses. Right. But if you have one or two years of your expenses saved up, that's enough money that you could, if things got really bad at work, you could tell your boss F you.
Goli: Right, right. You recently had Susie Orman on your show and I know, I love that you laugh because it caused quite a stir I guess within your fire community. And she basically said that, you know, even having $2 million that you were living off of, you know, the interest on it was not enough to retire early. And she called it kind of, you know, she tends to have very strong opinions and she was saying in your thirties or forties you have so much life left and you have no idea what's going to happen. And there's always then expected. And so for anyone that's trying to, you know, quote unquote retire early is stupid. You should constantly be working. I know you got a lot of feedback from back.
Paula: Yeah. So, I mean I do think that she was saying, Oh, if you want to retire but also do what you love, which is I think what the point of retire early for a lot of people is that you were saying the F you might like to do that. You don't have to work for the boss that you don't want to, but most people are trying to do some kind of side hustle. They're not just trying to lay on a beach and not do anything.
Goli: So I know she said, yeah, that's fine as long as you're making an income. But what do you make of that? Like of somebody saying, I mean, well you can't live your life like trying to predict, but I guess there is truth to the fact that you know, if you're going to live another 40 50 years and you have no idea what's going to happen, that there is that like fear that people have it. Like what if I get hit by a bus or really expensive healthcare and other factors that you don't know.
Paula: Yeah. So a couple of things here. Number one is long term care insurance and long term disability insurance. So long term disability covers if you can't work and long term care covers if you need a caretaker. And those are two insurances that you can get in addition to getting health insurance, which for the last more than 10 years now I've bought yo on the open market, just an individual health insurance plan. Those are all of the various insurances that you can get that can provide a safeguard.
Goli: Okay. Is that something that is generally recommended within the F.I.R.E. community?
Paula: You know, one of the big benefits of the podcast interview that I did with Susie Orman is that it brought that conversation piece to the forefront of a lot of people's minds. I don't think that that was talked about enough and I'm very grateful that the Susie Orman episode grazed that and really brought that into people's consciousness and that said, there is still a debate. Anytime there's a question about anything, people are always going to debate it, right? There are absolutely people who say, well, you know, you're probably not going to need to buy long term care insurance until you reach your fifties and maybe at that time you should start shopping for it. There are all kinds of opinions, but at a minimum, I think that everyone should look into, read all of the various opinions about it, weigh those pros and cons, weigh the costs and benefits, and then come to a decision, but don't let that be the thing that stops you. Like don't chain yourself to a job that you dislike because you're worried that you might have to hire a caretaker.
Goli: Yeah, no, I agree. I mean, I think whether that even happens, I'm not saying it doesn't happen to some people, but like to live your life for the next 30 years, being scared of something that may or may not happen is generally not the best plan.
Paula: In my followup episode on my podcast, the followup to the Susie Orman interview, I read some of that feedback that you talked about and I read a note toward the end of the episode. I read a note from a listener named Ben, this personal, he gave their initials and they told the story about how their father worked very, very, very hard. His entire, you know, early mornings, late nights almost never taking a vacation, just working super, super, super hard. And then shortly after he retired, he was diagnosed with Alzheimer's. You know, he worked so hard to have enough money to have a retirement and then when he reached that retirement he didn't have it anyway.
Goli: Yeah, no, absolutely. I mean we had on episode six I had Pye Jirsa on the podcast and he is a very successful photographer and you know, he used to be accountant and he quit and he talked about the same story about how his father, who is a government working civil engineer and said, you know, he was one of the hardest working people and he was really, you know, risk averse and was really upset when PI quit his job as an accountant and didn't believe in starting businesses and all this stuff. And he was saying the irony of it is that his father worked so hard that he had to go into early retirement because he was having hard issues and he had so much stress and he was so miserable and in that position and it's, you know, it really makes you think like what is the stability in that?
Paula: Right, exactly. There's a quote, if you don't risk anything then you risk even more...
Goli: Yeah, that's perfect. And there's another actually the Afford Anything podcast... Your tagline is you can afford anything but not everything. And you talk about that. You say that's even more than just with the money. It's really with everything in life. And I think even with this stuff is you got to pick what's important to you and really focus on what you want to put your energy in because you can't have it also what is the most important thing to you?
Paula: Exactly. Exactly. And that applies, you know, the afford anything but not everything applies to your time. It applies to your energy. It applies to everything in your life, these are resources that we need to manage and saying yes to one thing means saying no to something else. Like that money's got to come from somewhere. That time has got to come from somewhere.
Goli: Yes. Yeah. I love it. I think everybody should check out your podcast. You are full of wisdom. I really appreciate you being here. If people want to get started with the fire movement, I know that they can get tons of resources for anything but are there any other books or our resources that you think people should check out on the beginning of their journey?
Paula: Yeah, I've got a free ebook. It's at affordanything.com/escape and it's about 70 pages long. It's totally free and it's a good introduction to this notion of, it's funny because I don't actually talk about fire by name. I illustrate the concept but I don't think I actually call it financial independence or retire early. I'd have to go back and repeat it actually to see if I do, if I even say those words or not, because there can be within the F.I.R.E. movement, this cult-like you're in the movement or you're not, you're part of the community or you're not. It's not about being part of a movement. It's about being conscious and deliberate about how you spend your life. Right,
Goli: Right. Well, I will link to that too. I think that's an awesome resource. Thank you for sharing that with us. And where can people find you? I know besides affordanything.com on social media, where can they kind of contact you?
Paula: I'm obsessed with Instagram, so I'm on there everyday. I post at least once a day on Instagram and that's Instagram at Paula Pant, which is P. A. U. L. A. P. A. N. T.
Goli: Perfect. Thank you so much for being here, Paual. I really appreciate it.
Paula: Oh, thank you. Thank you for having me on.
Goli: Thank you so much for listening. I can't tell you how much it means to me. If you liked the podcast, please rate and review us on iTunes. It'll help other people find the show. If you want to connect or reach out, follow along on Instagram and Facebook at lessons from a quitter and on Twitter at quitter podcast. I would love to hear from you guys and I'll see you on the next episode.