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Ep 169: How Early Could Your Teen Retire?

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Episode Summary

Dan Sheeks, author of First to a Million, gives us a run-down of what early financial independence could look like for your teen and how they can get started on their journey. It’s not about making enough money to laze around all day–it’s about having more options.

Show NotesInterview TranscriptGuest Bio

Full Show Notes

Do you ever wish you learned smart financial planning earlier in life? Maybe if you’d just had some more information, you could have that sports car you’ve always fantasized about…or maybe you would’ve just avoided making some rough mistakes! In order to set our teens on a better path, it might be wise to get them started on a financial education while they’re still under our roofs–so that when they step into adult life, they’ll pay bills and crunch numbers like a boss.

The only problem is….kids don’t want to talk about money. They’d love to talk to you about the things they want to buy. But when it comes to investing, saving or planning, you might as well be talking to a wall. How can we get kids excited to learn more about their personal finances? 

Dan Sheeks is here to answer that question and many more! He’s a high school business teacher and author of the new book, First to a Million: a Teenagers Guide to Early Financial Independence. Dan’s been teaching business to teens for nearly two decades, making him pretty qualified to give financial advice to you and your kids. He knows just how to make finance palatable to teens, and all the juicy secrets for making money while you’re young!

In our interview, we’re talking about what we can say to teens to get them interested in financial planning. Plus, Dan is explaining the difference between real and false assets, outlining different kinds of debt, revealing how teens can get a “next level” job, and much, much more. This episode is bursting with great financial advice for both teens and parents!

Getting Teens To Care About Their Finances

Although kids may seem bored by discussions of dollars and cents, they probably aren’t tired of telling you their dreams. And it’s pretty likely that their dreams include travelling, making art or accomplishing things outside a 9-5 job. Even if teens do aspire to be lawyers or doctors, it might be because they’ve been conditioned to think this way their entire life, says Dan. He encourages parents to sit down with kids and ask them what they’d like to do with their lives, especially if money wasn’t a factor.

When prompted with questions like these, Dan finds that many of his students express frustration with what’s expected of them. They don’t want to be on a preset path for forty or fifty years; they want the freedom to explore, try new things and pursue their passions. Although it may seem impossible for them to have all this and still have a stable income, Dan believes the contrary. With Dan’s advice, teens might just be able to have it all.

Dan’s methods for saving money can help kids follow the path they dream of–making finance seem much more fascinating to them! If you can frame smart money-planning in a way that helps teens realize they can have their cake and eat it too, they’re much more likely to lend an ear when it’s time to chat about equity, savings accounts, index funds and tax breaks. 

But how is this possible? How can we make our money work in our favor? Well, Dan is giving us some expert advice this week to help both you and your teen make smart decisions and unlock the life you deserve.

Assets, Debt, and Jobs (Oh My!)

You may know a thing or two about assets, but did you know there are two different kinds? Dan explains in the episode the difference between false assets and real assets. No, false assets are not a scam…although they may cause you to lose money over time! False assets are assets that depreciate in value, meaning that by the time you sell them, they might not be worth as much as you bought them for. A car is a good example. Dan tells us in the interview about the incredible value of real assets over fake ones.

When it comes to losing money, Dan believes that not all debt is bad. Although debt like student loans and credit card debt are definitely not good, there are also ways a person can accumulate debt that will actually benefit them in the end! Dan recommends that teens look into the possibility of debt if it comes with purchasing a piece of property. Although they may find themselves paying off the purchase over time, they can also rent it out and not only make payments, but turn a profit! In this case, Dan believes it’s wise for teens to consider taking on some debt.

For teens getting a head start thinking about money, jobs are definitely on the table…but Dan thinks teens shouldn’t just go for any old job. In the episode, he explains the concept of a “next level job”, or a job kids can get now to help set them up for success later. This depends on what kids hope to do with their future, but it could be anything from  a secretary in an office to an unpaid internship. As long as it’s getting kids prepared for their future, it’s better than a simple part time employment that doesn’t round out their life, says Dan.

All this talk of assets and debt makes it seem like the only thing there is to do is spend…but what about saving? In our interview, Dan drops some expert tips for teens to save money the right way.

Secrets to Successful Saving

Dan doesn’t believe in budgeting. Well, ok, he’s not against it…but in the interview, he explains that it’s wiser to track expenses then create a fixed limit for doling out funds. When we create spending limits, we too often tend to start thinking of them as spending goals…and then we find ourselves going out to dinner one last time before the end of the month just to fulfill our $100 restaurant budget! Instead, he suggests we look at how much we naturally spend and see where we can cut down.

In order to make the most of saving accounts, Dan recommends teens open up three different ones. That’s right, three accounts! One for emergencies, in case they fall out of a tree or crash their car. Another for future investments like a house can be helpful. And finally, Dan recommends having a third savings account for fun stuff! It’s not wrong to want to vacation in Costa Rica for a week or two, says Dan, and we should be able to save accordingly. He suggests teens create an automatic income transfer system, so that their money goes into those accounts on it’s own.

But what about investing? Should teens be risking their money in the stock market with the possibility of multiplying their cash? Maybe not, says Dan. Although the stock market can be lucrative, Dan suggests most people, including teens, simply stick some money in an index fund and leave it to collect compound interest, instead of throwing money around into different companies. Unless you’ve got the next Warren Buffet under your roof, Dan recommends teens play it safe when it comes to stocks.

In the Episode…

If you’re looking for some seriously sound financial advice for your family, this is the episode for you! On top of the topics discussed above, we talk about:

  • Why early financial independence is so valuable
  • What “house hacking” is and why you should know about it
  • How to talk to kids about the cost of college
  • Why we should always pay ourselves before our bills.

If you want to find some more wise words from Dan, check out his website, sheeksfreaks.com or email him directly at Dan@sheekfreaks.com. Thanks for listening and don’t forget to subscribe!

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Complete Interview Transcript

Andy: Talk to me about this. You have a new book just coming out here, First to a Million: Be Different about Money, Be Bold About Your Future, Be a FI Freak. Wow. Talk to me about where this came from. It says it’s a teenager’s guide to achieving early financial independence. What got you interested in teaching finance to teenagers? And why did you decide to write a book about it?

Dan: Yeah. I’ll try to keep it short. My main gig is I am a high school business teacher and so I’ve been teaching things like marketing and personal finance, entrepreneurship to teenagers for almost 20 years. I love my job, very passionate about my job, love what I do, excited to go to work every day. But then it was probably about six or seven years ago, my wife and I found this kind of newer movement called the FIRE movement, which stands for financial independence retire early. Although I’m not a big fan of that word retire as it fits in there but it does make for a nice acronym.

Andy: It sounds good.

Dan: Yeah. When we found that, we really dove into the ideas of passive income and real estate investing and frugality and savings rates, even side hustles. We have some side hustles and we started kind of mapping out our way to early financial independence or FI, some people call F-I, FI, financial independence, all the same thing. Once I got into that, two or three years and really kind of had my eyes opened to these different possibilities, these different options, it was kind of a natural next step for me to say, “All right, I want to take this stuff to my audience,” and my audience in the classroom are my students, these juniors and seniors, these teenagers that I have in class anyway.

Dan: I started teaching them about the early financial independent strategies topics concepts. And then I thought, why stop there? I created a website and an online community to do the same thing. And then when all that was going on, decided, why not write a book to reach even more people? Because this is stuff that I think young people just, well honestly, all people should be aware of these options. And since my niche is kind of the 15 to 25 year old, I thought, well, let’s write a book.

Andy: How do kids usually respond to this when you bring this into your classes and start talking to teenagers about these ideas? Is this kind of something that their eyes glaze over and they’re like, yeah, okay. Saving money, whatever. Or is this kind of exciting?

Dan: I think it’s pretty exciting. I think teenagers just like all the other generations that have come before them have been sold on the one option, the typical American Dream pathway. Which is not a bad one. There’s nothing wrong with it but that is the 9:00 to 5:00 till you’re 65 grind and then you get to retire. And it is proven and it’s a very noble way to live. I don’t have anything against it but my argument would be, there are other options and we should all know about the other options so we can make the choice that’s best for us.

Andy: You talk in here about some of the benefits of this, just in terms of having freedom, control of your life, freedom over your time. And you say, it gives you the ability to reclaim decades of your life. How is that?

Dan: Yeah. When someone reaches financial independence, the definition of that is that somebody has enough money saved plus money invested plus passive income to pay for their living expenses. And so when you get there, you don’t have to work anymore. It’s the same idea as when people get to age 65 and they’ve saved up enough in their retirement accounts or maybe a pension and they say, “You know what? I’m 65. I can spend the next 25, 30 years not working and live off of my investments and my savings and my pension and my retirement account.” It’s just about speeding that process up and making intentional money decisions that bring down your expenses and increase your savings rate and allow you to get there sooner and faster, which then gives you more years at the end of your life to do what you want.

Dan: And most people who are motivated enough to get there early are not the kinds of people who just stop. They don’t sit on the beach and drink margaritas for the next 20, 30, 40, 50 years. They continue to create and contribute and they choose what they do, when they do, how they do it, with who they do it but they’re still creating an earning many times but they have the freedom to do it on their own terms.

Andy: Yeah. Because I could see that being as something parents would be worried about like, well okay, if I get my kids all excited about these ideas, then are they just going to go and want to retire when they’re 25 and not do nothing? And I think that’s not the case. I think as you point out it really, it gives you freedom to make choices that are not motivated by money so you can do things that are meaningful to you and decide really how you want to spend your time in the most meaningful way possible.

Dan: Yeah. And I was going to say the book that I wrote, which is it is a personal finance book for teenagers but it’s really much more niche because it is about early financial independence. That’s the main message in the book. I would be honest and say that my book is not for every teenager. There are many great personal finance books out there that every teenager should read. Mine is more, it’s for that smaller, much smaller percentage of teenagers who are super motivated and interested to learn about their financial future now as a teenager. That is not every teenager. I can tell you from being in a classroom with teenagers every day that most teens, they do not want to think about their finances. They want to think about a lot of other things but their financial future, retirement, financial security that is way. But there are teenagers and young people who are thinking about that now and who are super motivated to learn about that now. Those teenagers, this book was written for them.

Andy: You talking here about a Ted Talk you really like, I guess with these questions every teenager needs to be asked and he asks, “What do you see yourself doing in 15 years? And what would you be doing in 15 years if you could do absolutely anything?” And I just love that. And I think that’s such an important conversation to have with your teenager is really get them thinking because so much of what we tell teenagers or what we get them thinking about in terms of their future is this preset path kind of or this, it feels things that they have to do or this track that they sort of have to be on. And I love this question because it just gets them thinking so much more creatively about what their future could be.

Dan: That Ted Talk you referred to was done by a teenager for teenagers. And it’s really good. And when he asked those two questions because he did some research. He asked a bunch young people those exact questions and the first one, he posed it and he worded it very carefully. He said, “What do you see yourself doing in 15 years?” And then they would answer the question. Those questions were formed, the teenagers answering that question based on all of their input, their family input, their teacher input, their counselor input, their societal input, their own input. And most people would say, “Well, I want to be a doctor, I want to be a lawyer, I want to be an engineer, I want to be a teacher, I want to be a nurse,”

Andy: Totally.

Dan: Whatever. Then he said, “Okay, forget that question. Completely clear your mind of everything you’ve ever been told and every other outside influence and answer this question, if you could be doing anything that you would want to do in 15 years from now, what would you be doing then? If you could do whatever you wanted to?” And the answers changed almost always, not always, some people still said, “I want to be a doctor. I really want to help people.” But some people said, “Instead of being an engineer, I kind of want to run a surf shop on the beach in California.” Or some people maybe said, “I’d like to be traveling and writing a travel blog. I really like to travel and review restaurants and hotels.”

Dan: And so his point was that we are to a certain degree, kind of put onto a path for 50, 45 years of our life from age 21 to 65 that we maybe don’t really want to be on but we’re just told this is the way you’re supposed to do it. He was trying to open our eyes up to say, “There are other options and your dreams can be the way that you go, if you just do it intentionally and with a game plan in place.”

Andy: And it’s we don’t give ourselves permission to even think those thoughts or even go there, consider what we would really want to be doing because we feel so trapped by what we’re supposed to do. And I love these questions to just kind of get you really thinking about that.

Dan: I would challenge parents to maybe even read my book themselves first to kind of open their eyes to the different, it’s a proven method to reach financial independence early. Hundreds and hundreds of people have done it. And I have speakers come to my class and talk to my kids who have done it. And it’s not a get rich quick scheme. It’s not a scheme of any kind. It’s not a scam. It’s just a different way of dealing with your money and making your financial decisions. I would say parents read it first, then give it to your kids and have them read it and then have these discussions about what do you really want to do with your life? If you didn’t have to do the work till you’re 65 plan, what would your life look like? And if you’re so motivated to go that direction, are you so motivated enough to do these things differently over the next five or 10 years of your life? Because not everyone is, which is why this book is not.

Andy: It’s not easy. I like that. I think that’s really cool. And I wonder, I think just even watching that Ted Talk together and starting to have these conversations with your kids would be so valuable.

Dan: Yeah. And if I could give parents some other advice, just general personal finance advice for your teenagers, I think unfortunately, most parents are like everyone else in America. Most of us, our society is financially illiterate. We know enough to get by but we really don’t know a lot about money and how it works. And that’s okay. If you’re a parent and you’re not confident about your own money knowledge, that’s okay. Don’t let that be the barrier that stops you from talking to your kids about money. Learn with them, learn along with them. But I think one of the best things you can do as parents is to include your teenagers or younger. Even if they’re 10, 11, 12, include them in the small business that is your family household and include them in paying the bills, include them in show them how much money you make, show them your monthly bank statement, show them where you invest your money. Have them run the computer and click the mouse to pay your monthly bills, to balance your checkbook or to make investments into your brokerage account, your 401(k), whatever, have them run it.

Dan: And another thing is to give your teenager, make them an authorized user on your credit card, which is a phenomenal way to let them learn and make the mistakes while they’re at your house, while they’re still controllable. Rather than when they’re off to college or off in the real world and then they make mistakes much, much bigger than they would’ve made while they were at home with you.

Andy: Yeah, yeah, yeah. You worry that, oh man, what’s going to happen if I let them do that? But it seems like it’s going to be not as bad as what might happen if they don’t have any experience with a credit card until they’re totally off on their own.

Dan: Exactly.

Andy: What is the difference between a real asset and a false asset?

Dan: Yeah. There’s a whole chapter in the book about that, Andy. I’m glad you asked that question. Because most people define asset the same way. It’s something you own that has value.

Andy: It’s worth money and contributes to your net worth.

Dan: Yeah. If you had to sell your bike, you could get a $100 so that’s an asset. And that’s the standard definition. In the financial independence world, they treat it a little differently and they break assets into two classes, real assets and false assets. False assets are things that you own that do have value but they cost you money. They take money from your wallet or from your bank account. A car is a great example. A car is worth money but when you add up the expenses of depreciation especially and gas and insurance and registration and wear and tear and maintenance and repairs, that asset is costing you money every single day that you own it very versus other assets, real assets that put money into your pocket every day. That book that you’re holding, that is my book. It is something I own. It’s my book. And now that I own it, it will contribute money to me. I don’t own every copy but I own the rights to the book so it’s going to make money for me.

Dan: A real estate investment property is my favorite example of a real asset. It’s something that you own but your tenants pay you rent and that covers your expenses and it appreciates overtime. You get some cash flow, you get some tax benefits. It’s an asset that you own. You could sell it and get money for it but if you don’t sell it’s going to increase your net worth every single day.

Andy: Yeah. You got to rent your bike out to all your friends.

Dan: You could rent your bike. You can rent your car out. Turo is a great thing. You can turn that false asset into a real asset by renting it out when you don’t use it.

Andy: Yeah. It’s about kind of how you use the thing or it’s not even necessarily about the thing itself.

Dan: Yeah. You can change your strategy on how you use your assets to change them from false to real.

Andy: It’s an interesting exercise to start going through all the things you own.

Dan: There’s a new trend going on out there, people who have swimming pools in their backyards can rent out their swimming pools to people. It’s kind of like an Airbnb. They come over, they use your swimming pool and then they leave. It’s kind of weird but if you do that three or four times a month, it probably pays for all of the maintenance and up keep and repairs and chemicals and cleaning of your pool. And so now that false asset is now a real asset. It’s making you money plus you get to use it whenever you want.

Andy: Similarly, there are also different kinds of debt. You say there is a bad debt and there’s good debt. What is the difference?

Dan: Yeah. There’s a chapter about that too. And it’s kind of similar to the asset thing. Bad debt is debt that costs you money. Student loan debt is bad debt, credit card debt, a car loan debt, that is bad debt. It’s costing you money in the form of interest and the net value of that debt is not creating a higher net worth. Good debt however, I’ll go back to the real estate investment property. You don’t have to get a mortgage but likely you’re going to get a mortgage to buy that real estate investment property. But again, the tenant’s rent covers all the expenses, including the loan payments, the interest and principal for that loan payment. And so that by virtue of having that mortgage on that investment property allows you to make the cash flow and appreciation and tax benefits and building more equity in that property as your tenants pay down your mortgage. Good debt is debt is increasing your net worth, bad debt is debt that’s taking away from it.

Andy: You kind of point out there’s different kinds of jobs and you refer to something that you call next level jobs. What are those? And how do I get one?

Dan: For teenagers, a next level job is something that you do while you’re a teenager, that is going to allow you to reach your goals. And so if the teenager reading this book, if their goal is early financial independence, and you’re going to have a job, get a job that’s going to catapult you down this pathway. For example, instead of working at the local restaurants, well, there’s a caveat there, if your goal is to own a restaurant, then work at the restaurant.

Dan: But if your goal is to, I don’t know if your goal is to buy some rental properties eventually or if your goal is to just have some side hustles, find a job that’s going to network you into future jobs or find a job that’s at least in that industry so that down the road, when you decide I’m going to be a full-time real estate investor or really try to invest in real estate. Work with a real estate agent today or a property management manager today or a mortgage broker today so that you’re getting the experience as well as a paycheck and you’re networking with people who can help you further your path in the future.

Andy: Yeah. It’s like you’re going to be putting in a hours and getting a paycheck, no matter kind of what type of work you do, you might as well find some work that’s going to be moving you towards where you want to be going.

Dan: Yeah. Some people call that working to learn instead of working to earn. And I work with young people. I work with a lot of young people and some of them are so interested in certain industries or career fields or jobs that they’ll volunteer. They’ll go to the real estate agent office and they’ll say, “I just want to volunteer. I just want to come here 10 or 15 hours a week. I will do it for free.” But then what usually happens is once that office, the office manager sees that this young person is motivated, hardworking, they show up on time. They’re professional. They dress well, they’re dependable. They’re going to find a job for them and they’re going to start giving them a paycheck but that’s not the real reason they’re there. Even if they never do get a paycheck, it’s about the connections. It’s about the free education that they’re getting while they’re there doing the work for the real estate office or whatever business it happens to be.

Andy: Yeah. And that’s where that whole exercise of what you really want to be doing in 15 years and thinking through those possibilities for your future then can give you some ideas of how to start finding next level jobs that can start working you towards that.

Andy: You talk about a few concepts in here that are pretty cool and another one is house hacking. What is that? Is that somehow getting past the cybersecurity systems of a house so that you can disable the security system and get inside?

Dan: Yeah, it kind of sounds like that’s what it is but house hacking is a real estate investing strategy that I think is by far the best strategy for young people to get started into real estate. And I’ve mentioned real estate quite a bit on this episode. My book, it’s not about real estate investing. It’s a piece of it but house hacking is definitely something I think all young people should at least consider. And young people I work with are buying properties to house hack at age 19, age 20, age 21, pretty early. And so what it looks like is what house hacking is, is you buy a property and there’s a lot of different ways to do it but let’s say you buy a house that has four bedrooms, five bedrooms. That teenager or that young person is going to live in one bedroom and then they’re going to rent out the other bedrooms and they’re going to be the property manager because it’s their house.

Dan: They’re going to manage that property while living there, which teaches them a whole nother skillset and different strategies. But you always want to run the numbers first, analyze the property because the goal is then that the rent from those four bedrooms pays for all of the expenses so that that young person is basically living there for free. Now they’re spending their time to manage the property and they have to be mature enough to do that. But what that does is it allows them to start learning how to manage properties. It allows them to start building equity because they are every month that their tenants pay the mortgage, they’re building equity because the mortgage is getting paid down. The property’s probably going to appreciate, real estate does tend to appreciate really, really well.

Dan: And they get great tax benefits and it’s doable because as a primary residence, which it is, this young person’s going to live there for at least a year. There are loans out there that you can get into that property for as little as three and a half percent down and so that’s not a lot of money for a young person to save. It’s definitely doable if they save for three, four, five years to come up with that down payment. Now you want to have some extra money, some emergency fund money for that property. And there might be some initial fix up that needs to be done, depending on the property’s condition. But again, you just kind of roll all those numbers in when you analyze the property and it is an amazing way to start building net worth, building real estate investing strategies and putting your money to work. You’re investing three and a half percent into an asset. You’re leveraging that money into a much more expensive asset that generally speaking is going to do well over time.

Andy: And wow, think of all the responsibility you develop having to deal with renters and drama and getting people to pay on time every month and having a fund for when things go wrong and you need to redo the roof and fix the flood in the basement and whatever else comes up. I love that idea. It’s really cool.

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About Dan Sheeks

Dan Sheeks is the author of First to a Million. He is the owner and founder of SheeksFreaks LLC, an online community to help young people live their best lives by making smart money decisions. He has been a high school business teacher in Denver, CO for eighteen years, and he’s passionate about teaching teenagers personal finance, passive income, real estate investing, and early financial freedom strategies so they can live their best lives. Dan and his wife own fifteen units using a variety of rental property investing techniques—including multifamily, short-term rentals, and the BRRRR strategy. 

In his free time, Dan likes to run, bike, cross-country ski, and attend bluegrass music festivals.

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