Real Life Planning Podcast Episode 19: Financial Planning for a Sabbatical with Jake Northrup

In Episode 19, I have a conversation with Jake Northrup of Experience Your Wealth about ways that people can take extended sabbatical. Find out how Jake is helping people do more of what they want in life right now and still stay on track for their other goals. Listen all the way through for our discussion of how my own career sabbaticals have changed my life.

“You don't want to climb a ladder your whole life to realize it was leaning the wrong way.” - Jake Northrup

This week on Real Life Planning Podcast, Cynthia will cover:

Takeaway Quotes:

“ It's not about necessarily maximizing your net worth. It's more about maximizing your life.” - Jake Northrup

“The idea of taking a sabbatical implies that it is a purposeful professional pause that is going to bring you more than you give up.” - Cynthia Meyer

“A sabbatical doesn't mean you're taking a step backwards. It doesn't mean you're taking a step forward. It just means you're hitting the pause button for a little bit and that's okay.” - Jake Northrup

Connect with Jake Northrup:

• https://www.experienceyourwealth.com
• Jake Northrup on Linkedin 
• Jake Northrup on Facebook 
• Jake Northrup on Instagram 
• jake@experienceyourwealth.com

Connect with Cynthia Meyer:

• Cynthia Meyer on Facebook
• Cynthia Meyer on LinkedIn
• Cynthia Meyer on Twitter
• Cynthia Meyer on Instagram
• Cynthia Meyer on Pinterest
• Duolingo: CynthiaCafe
• Email: cynthia@reallifeplanning.com  

About the Real Life Planning Podcast

Host Cynthia Meyer welcomes fascinating guests to share real life stories of how they are realizing their financial potential. Each episode explores practical, realistic steps to create results.

Transcript - Real Life Planning Podcast - Episode 19

[00:00:06] Cynthia Meyer: Have you ever thought about taking a sabbatical? Today's guest on the Real Life Planning podcast, Jake Northrup, from Experience Your Wealth, has been doing a lot of thinking and writing and sharing information about ways that people can take an extended sabbatical to do more of what they want in life right now and still stay on track for their other goals. 

[00:00:27] Jake, welcome today. I'm so happy to have you in this conversation. I've been reading a lot about what you've been writing among the financial planning press, about sabbatical planning and I really want to hear more about this concept and also just tell us a little bit about how you got started.

[00:00:45] Jake Northrup: Yeah. I appreciate the opportunity to join Cynthia. I'm excited for our conversation. 

[00:00:50] Cynthia Meyer: So what's important to know about you?

[00:00:54] Jake Northrup: Sure. Yeah. So I'm based in Rhode Island. I have my own financial planning firm called, Experience Your Wealth. We work with a lot of millennials; young families that love to travel. Underlying that, they don't really believe in the whole 9 to 5 work until you're 65 and retire concept. So they might want to do things differently, right? Whether it's start a business younger or go on a sabbatical or stay at home when the kids are young and go back and work when they're older.

[00:01:18] We love like that non-traditional life view and then helping align their money for it, too. So we've been in business for about three years now, overall and we love the work that we're doing everyday. 

[00:01:29] Cynthia Meyer: So when you were thinking about how to name your firm, right? So the name is so evocative, right?

[00:01:34] Experience Your Wealth. What does that mean to you? Why did you name your firm that name? 

[00:01:39] Jake Northrup: Yeah, such a good question. I remember this was something that my wife and I had like vision boards. We were trying to put two and two together around, what we do. Part of the name is okay, someone needs to see the name, understand what they do, so that's where the wealth part came in. We were trying to think through, related to the values that we wanted to preach to clients like what is the purpose of money? When you think about it, ideally for a lot of people, they place a lot more value on experiences as opposed to things. The stories that you tell, like when you're older to your kids or grandkids, it's typically, " We did this or as a family, we went here." As opposed to, " We bought that thing." We really dove into experiences and I was trying to figure out that is really like the core for a lot of people; how they can make their money decisions really memorable for them. So we put those together and I plotted it out and ultimately got to the name. 

[00:02:28] Cynthia Meyer: That's really cool and do you mostly work with younger folks or do you find that you have people maybe older gen X or younger boomers or even retirees who are also trying to live out their adventures in the same way?

[00:02:41] Jake Northrup: Yeah. Great question. So I think like the philosophy that we preach around life and money, it certainly applies to not just millennials. I think it applies to pre-retirees and retirees. We have a handful of pre-retirees, but we really try to stay in our target clientele of young families where they're just life is so drastically changing. They're having kids, getting married, changing jobs, buying houses. 

[00:03:01] Cynthia Meyer: So a lot of moving parts.

[00:03:02] Jake Northrup: And we typically stay within there. When you go to a doctor, you want to work with someone who's your specialist. That's our specialty and then underlying that, a lot of clients about like equity compensation and student loans. But outside of that, we typically refer out to other planners. But I think the philosophy around life and money that certainly applies to all generations. 

[00:03:20] Cynthia Meyer: You've been writing and speaking a lot about sabbatical planning which I think is really important to a lot of younger families.

[00:03:30] So tell us a little bit about how you defined a sabbatical. What questions you should ask yourself if you're considering taking a sabbatical. 

[00:03:41] Jake Northrup: Yeah. Great question. I think a sabbatical can be defined different ways for people. The way that I typically define it is an extended time off from work, right? It could be three months. It could be six months. It could be 12. For some people, it could just mean staying at home and, spending a summer with their kids for others. It could be something more extreme as traveling around the world. But I think it's just the idea of taking a pause for yourself, for your family and also just taking like that mental break and also reassessing some of your priorities there. 

[00:04:09] What's really interesting, it's a lot more common in Europe than it is in the United States. Like you hear all the time of a lot of people in Europe when they're 18, in their early twenties, is they take extended time off to travel or go explore their passions or explore different parts of the world.

[00:04:24] I love the U.S. for sure. I think we definitely have that like hustle mentality of like you work, and it is one of the reasons why we're the most successful economy in the world, too. When you think about what's the purpose of money in life, for a lot of people, they think like we want to have that space to just really experience our money, experience our life.

[00:04:40] So I think a sabbatical is an awesome way to do it. I think it's starting to pick up in popularity. There was one book that I read early on that was really impactful for me and it was the Four Hour Work Week by Tim Ferris. Have you read that before? 

[00:04:53] Cynthia Meyer: Yes I have read it. I'm a big listener of the Tim Ferris podcast and it's a great book.

[00:05:00] Jake Northrup: Yeah, I love it. I love the framing that he used in that where the whole idea of work until you're 65 and then experience your life after, well you know, why don't you have some of these like mini retirements or sabbaticals along the way where you're previewing what does retirement look like for you in the future?

[00:05:16] You don't want to climb a ladder your whole life to realize it was leaning the wrong way. So it's you're going up your ladder. You're looking where it's going. Say, "Yep, we still want to go in that direction." "Okay, maybe we want to go somewhere different." 

[00:05:25] That's the power of your sabbatical; you're taking time for you and yourself. I think it's becoming a lot more, not just normal, but I think encouraged in society, especially with this next generation coming in. Now you have the Great Resignation where people are changing jobs and work is more remote. I could certainly see it gaining in popularity in the near future.

[00:05:43] Cynthia Meyer: Would you differentiate a sabbatical from a career break or a pause between jobs in, in any way? Is there some way that makes a sabbatical different say than taking a career break to stay home with young children? 

[00:05:55] Jake Northrup: Yeah, good question. Yeah, I think with a sabbatical it's not going to be as long as a career break; I think somewhere between three months to a year or a year and a half or so. Career breaks are awesome, too. Whether you have kids or a family member gets sick and you just say, " I just need time to focus on myself and my family." I think the differentiation there is sabbatical is you are planning to return to work in the near future. You're just intentionally taking a break and that could be with your current company and they're supporting it, but it could also be in between jobs. 

[00:06:24] That's something that we've started to proactively ask clients about if they're thinking about changing a job as, "Hey, have you ever considered taking a sabbatical? Or when we first started our process of working together, you mentioned if money wasn't an obstacle you would want to take extended time and go travel. That's interesting. Is this something you'd consider between jobs?" That's how I would distinguish between career break and a sabbatical. 

[00:06:46] Cynthia Meyer: Huh, I like that. I really like that and it's interesting we are in different generations. I'm on that cusp of, younger boomer, older gen X, right there. And certainly the idea of taking a sabbatical, that was something professors did, right? 

[00:07:01] When I was in my thirties and I left my career as political campaign manager and took well almost 18 months to figure out what I was going to do next before I started training to be a financial planner, I didn't think of it as a sabbatical. In retrospect, framing that period of time which was a purposeful pause to figure out, okay, I don't like what I'm doing. What am I going to do differently? I moved the ladder to lean against a different wall. If I thought about it as sabbatical, I think it would've been a lot less stressful.

[00:07:27] Jake Northrup: Yeah, absolutely. I love that you had that space to think through, "Hey, I'm in here now." Taking the time to figure out your next career move. I think from a a measure of happiness, it sounds like that's been an amazing decision for you. 

[00:07:40] But you could also say like financially, I think a lot of people think," Hey, if I'm taking a sabbatical, what happens to my long term financial future?"

[00:07:48] You could also say, "Hey, I ended up deciding I want to work longer now because I love what I'm doing and financially I could actually be in a better spot now because I best aligned my energy and my use career-wise with what I'm really passionate about." 

[00:08:01] Cynthia Meyer: What are some of the really cool things that some of your clients have done on their sabbatical?

[00:08:08] Jake Northrup: Yeah. So we have one client right now, this is more of an extreme example, they are taking a 12 month trip and going all around the world. They're hitting up all the countries except for Antarctica, which is a lot more challenging. I went there actually last December, I can go into that more about how hard it is to get there.

[00:08:24] But they were very intentional in terms of, they position themselves financially to give themselves the ability to say, "Hey, we're not going to blow up our financial future in doing this. We're just going to hit the pause button." And I helped them figure out, hitting this pause, it doesn't have that big of an impact for you longer term, it means for them, financial independence was really important to them about when they could have that work optional age. Given some different projections and they're just projections; they're probably going to turn out wrong. So, it's like you don't earn income for a year. It means you going to make it up later to end up roughly in the same spot.

[00:08:55] It was really cool to see them have that confidence, financially. They could go to their companies that did not offer a sabbatical program. One was willing to leave a job. One really loved her job; just wasn't really sure what they would do.

[00:09:08] Both employers surprisingly said, "Hey, that's awesome. When you come back, your job is going to be there for you." They were ready to just go on this financially. They have the confidence where they could do it and not feel set back. That's certainly a cool example of someone that's just like doing something that's totally out of the norm. That's something that they're really going to talk about 20, 30, 40 years from now. 

[00:09:29] Cynthia Meyer: Yeah I think that's, I think that's fascinating. I have some clients, a couple who were taking sabbaticals from tech jobs. And in tech, people often change jobs every year or two. There are more frequent job changes than in other industries. They weren't really as worried about if they couldn't keep their current employer and work in their field as long as they kept their skills current. They weren't as worried about that. They planned for a complete time away from all work- all conference calls, all coding, those sorts of things- to travel while they were trying to figure out what it is that they really wanted in life. 

[00:10:06] Jake Northrup: Yeah, I love that. Especially, as you mentioned in the tech industry, you change jobs so often, right? 

[00:10:11] Assuming you have the skills that are there, taking a little bit of time off in between, I think years ago, if you see a gap in the resume you might think, "Oh, what happened there?" I'm currently hiring right now and at least how we view it as, "Oh, there's a gap in the resume and they put in there, I took a sabbatical to go to South America." I'm like, wow, that is so cool. I want to hear all about that. 

[00:10:31] Cynthia Meyer: Yeah! Wouldn't you want to know? One of the things that I love the most about the millennial generation, is sometimes just talking about things in a different way, opens massive horizons.

[00:10:45] This is Real Life Planning, we work with real estate and investors, right? So a tiny home is a trailer or a mobile home. But now ,it's a tiny home. Now it's a lifestyle. Now it's a lifestyle hack. Now it's a way of downsizing and getting rid of debt and student loans and positioning yourself up for growth in the future, by making your lifestyle expenses smaller. And that's just such a brilliant way of rethinking about it. 

[00:11:10] Taking a career break of any kind or a pause is normal, but the idea of taking a sabbatical implies that it is a purposeful professional pause that is going to bring you more than you give up.

[00:11:25] I just think that's a wonderful way of hacking the situation. 

[00:11:29] Jake Northrup: Yeah, I love that framing. Something that we do with some of our clients is there's something called Kinder's questions. It's a way to help people really uncover what's most important to them about money. If you took the need to earn income out, how would you live your life in certain ways? The second question gets into, if you went to the doctor and you were shocked with the news that you have 5 to 10 years left to live and the good news is you won't feel sick; like mentally, physically, you're still there. The bad news is you just don't know when it would occur. You take that time and you shrink it and then you ask yourself, " What would you do differently in your current life now? And are there certain aspects of that you feel like you can implement?"

[00:12:02] I love the philosophy of you always live within, like you had five to 10 years left there. It doesn't mean you pack up and like you blow up your whole financial future, but it's that nice reminder where you get caught up in just the day to day with work and kids and all of that, where sometimes you don't have the mental space to step back and say, "Hey, what do I want in the next five to 10 years for myself, my family, my friends?"

[00:12:23] That's a career break or sabbatical. You're just giving yourself that space to step back and make sure that you're really being intentional with your time going forward. 

[00:12:30] Cynthia Meyer: We're financial planners, obviously. We know that across the board in the United States, people are not saving enough to fund their retirement lifestyle that they would like to have, right?

[00:12:42] Social security starts at 67; is not going to cover every need. We know that across the population, people are under saving for retirement. Are there any guidelines or heuristics to think about how they should be adjusting their financial plan so that this doable without drastically affecting their long term security in their older years? 

[00:13:09] Jake Northrup: Yeah, such a good question. You don't want to blow up your financial future in doing something like this. People have that concern of, "I know we should be saving. We want to position ourselves up for flexibility in the future and all that or retirement, whatever you want to call it. So the way that we've approached it with clients, and I think everyone is certainly different, is a sabbatical, it doesn't mean you're taking a step backwards. It doesn't mean you're taking a step forward. It just means you're hitting the pause button for a little bit and that's okay. As long as you're not going backwards. 

[00:13:37] For the client that we talked about earlier, taking that trip, you know what we ended up doing is in the month leading up to the sabbatical, we paused some of their long term savings into retirement accounts where they were still doing the minimum amount to get the match; that's really important. But outside of that, they were having some of those savings go into a dedicated high yield savings account and they named it like sabbatical savings. So they weren't taking out of a retirement account. They weren't taking out of an investment. They just weren't saving as much for the future.

[00:14:05] And there, as long as they have that saved up, when they go on the sabbatical is they're sticking to what they plan for from a budget standpoint. They'll be fine with the future, right? Like we ran some of those numbers and I'm sure you've seen it with clients, too.

[00:14:18] Where people really get into trouble is where they dip into their long term savings too early. So then you're not letting compound interest and investment markets do their thing longer. 

[00:14:26] Cynthia Meyer: So in that example, for a year, somebody is putting enough into their employer-sponsored plans to earn the full match, but taking any surplus they would contribute over and above that and putting that into their sabbatical savings account. Presumably in the year in which they are taking their sabbatical or in the period of time when they're taking sabbatical, however long that is, they're not contributing to their retirement accounts. So would somebody then, and again, it depends on the age of the client, would the sabbatical taker then have to really put the foot on the gas pedal for a couple more years or do most people decide, "Oh, I think I'm going to work longer in order to make up for the sabbatical or maybe adjust my lifestyle downward." 

[00:15:07] Jake Northrup: I think it's probably a combo of all those. For our clients that we've gone through and helped with some of this planning, it was primarily around maybe we're going to try to cut expenses in the years leading up to it where it wasn't them changing a job or anything.

[00:15:19] They were in W-2 jobs. They got income and bonus. But it's not like they were self-employed and could take on more clients or just earn more income there. So for them, it was a certainly a reduction of expenses in the near term, but it wasn't like we're start eating ramen noodles the whole time.

[00:15:34] Some of those big things like delaying a car purchase, or maybe not going on a trip this year so that you save up for next year. I think there's certainly trade offs that you have there. A big assumption with all of this, which we know is like a total guess. 

[00:15:47] Try to put some structure around what does a sabbatical mean to you. How long do you want to be gone for? Where would you like to go and try to get a guideline for the cost? Because if you don't know what that is, you're saving towards the target that you haven't defined. That's where people can get into trouble.

[00:16:01] With this client in particular, we had it was roughly like a hundred thousand dollars, for round numbers. We needed to get to that level before they felt like they were there.

[00:16:09] If they took the sabbatical beforehand, that's where they would be either sacrificing what their sabbatical goals were or dipping into some of their long term savings, which in hindsight, this has happened when the market was going down and thank God, we didn't have to dip into things. 

[00:16:23] Cynthia Meyer: They didn't have to put a lot on their credit cards and funding that travel at, 24% interest every year. So that's excellent. Before we dig into some of the things that people can do in their sabbatical year, are there any special considerations for young families who are still paying off their student loans? Maybe they've just gone into their first house. They've got some new kids. They're really in that juggling category where you can't fill every financial bucket completely every month. What do you say to those folks?

[00:16:54] Jake Northrup: Yeah, good question. So I think through the lens of how you can position your finances for just a near term sabbatical or career break; student loans are actually a unique type of debt where it's pretty flexible assuming you have federal student loans. Private student loans; it's not really flexible. It's like a mortgage where you have your set payments. You going to make it. But with federal student loans, you can enroll in a plan called an income based repayment plan where you pay based upon your certain level of income. If you have a really high student loan balance and in the years of a sabbatical, your income might be pretty low or it could even be zero.

[00:17:26] So there's actually plans where you can go and say, "Hey, my income is zero. I don't want to pay towards my student loans in the next 12 months or so." Some plans actually will cover the unpaid interest others won't. So there's certainly pros and cons with that.

[00:17:39] I know student loans can really handcuff people at times with that payment, but federal loans are flexible in terms of you're able to change the payment strategy based on what's going on in your financial life which is a big consideration before you actually refinance to private where yes, you get lower interest rate, however you lose some of that flexibility feature in the federal loans. 

[00:18:00] Cynthia Meyer: Yeah. And as we're seeing, if some of this student loan forgiveness goes through, those people who stayed in the federal program, many of them are going to get some loan forgiveness really shortly.

[00:18:09] Jake Northrup: Yeah, I think it's the same thing too, whether it's a sabbatical or for a lot of your clients, it's buying real estate, right? Maybe their first home or it could be like trying to build up their rental properties, those federal loans, you can manipulate around to say, "Hey, I want to have more cash go to real estate, less towards loans." You have that flexibility feature as opposed to some of the private. It's something that we certainly talk to clients about before they pull the trigger on private refinancing because you kiss away those forgiveness options or flexible features that happen with federal loans. 

[00:18:39] Cynthia Meyer: There are planning opportunities in the sabbatical year. This is a great reason to work with any financial planner who can help you discover those planning opportunities in year in which your income is lower? Talk to us a little bit about some of those planning opportunities and what people should be discussing as they go into their sabbatical year.

[00:19:00] Jake Northrup: Yeah, love it. This is where I'm sure we can nerd out and get into some of the use on it. But...

[00:19:04] Cynthia Meyer: It's get a little tech code-ish. Yeah. 

[00:19:07] Jake Northrup: Yeah. We'll try to keep it high level. It's pretty interesting where compare this to your retirement, right? Where you go from a pretty high tax rate to low, but typically you're going to be low for a long period of time. Here with a sabbatical, you could be high and then low one year and then high again, it's a very unique period. The basis of good tax planning is you defer income when your income is high and you take it out when it's low. In the case of a sabbatical, it might be an interesting opportunity for clients where they have just like this low income tax year.

[00:19:36] And you ask the question how can we capitalize on this? So there's certain vehicles that you could save into. For example, if someone works at a college or a hospital, there's a retirement plan called a 457B, where you can save into that and unlike other plans like a 401k, 403B, you can take those funds out without the 10% penalty before age 59 and a half.

[00:19:58] We have another client right now that's actively saving for our sabbatical and we've basically earmarked that account where they're saving into it pre-tax; when their income tax rate is pretty low and then they're just going to take the funds out during the sabbatical year when their tax rate is lower.

[00:20:12] So let's just say, for example, their current marginal tax rate is 32% and their sabbatical year could be 12. They're deferring income at 32 taking it out at 12 and that's like real quantifiable savings that you're able to do. So that's just one example. There's a lot of others I'm sure we could go into as well.

[00:20:28] Cynthia Meyer: The one that interests me the most is the idea of a Roth conversion. Of course, lots of contributing factors to whether or not this makes sense to any individual person. So if you're thinking about it and listening, make sure you get some tax and financial advice before you do it.

[00:20:42] But the idea that you'll take a traditional IRA or IRA rollover and convert it, pay taxes on any gains up until that point; you don't pay a 10% penalty on the conversion income. Then it goes into the Roth IRA and if it meets a certain set of criteria, you have it in there for five years or more, and you take it out after age 59 and a half, then it is completely tax free.

[00:21:04] So the idea that if you can take some of that conversion income taxed at that lower rate, in Jake's previous example of that client who's now down to a 12% rate, and do that during the sabbatical year; then you've got this tax free bucket going forward. Also a big opportunity.

[00:21:20] Jake Northrup: Yeah, for sure. An extreme example, let's say you have, no income or maybe like two spouses did it together, or you're single and did it, and you had no income in a year, what's interesting in the tax codes, there's something called the standard deduction and you get it's roughly 26, 27,000 something like that.

[00:21:37] But that can offset directly ordinary income. So if you don't have any other ordinary income from your job and you have some pre-tax money in a retirement, let's just say it is 27, I'm probably butchering that, but you could convert 27,000 from pre-tax to Roth and that 27,000 standard reduction offsets that and you pay zero tax there.

[00:21:57] It's a really cool strategy. Like whenever you're thinking about whether it's a sabbatical or not, if you have a low income year, I think that's a prompt to make sure you're talking to your financial planner, talking to your accountant and making sure that you're optimizing on that. 

[00:22:10] Cynthia Meyer: That's right. And for those people who are following along who are real estate investors and in the real estate investor universe that we work with, this could also be an opportunity if you're evaluating the sale of a property, for example, that is not a property that you live in and to weighing the pros and cons of doing that if you're thinking about taking the gains in that sabbatical year as opposed to another year where you might just do a 1031 exchange, a tax deferred exchange. That is fascinating. Now, Jake, have you and your wife taken sabbatical? 

[00:22:38] Jake Northrup: Good question. We have not yet. I think it's something that we eventually want to do in the future because we ended up starting businesses from scratch around the same time. We, I guess, view that as our sabbatical. As we're building up our team and the businesses get more developed, I think that's going to give us a lot of flexibility in the future for sure. But I don't know if I could do six months or a year because I absolutely love what I do.

[00:22:58] I get so much energy from it every day, but I do believe in having some of that mental space overall, that's a step back. But I'm curious for you, have you ever considered, or have you done it outside of that career break that you did? 

[00:23:09] Cynthia Meyer: I didn't really think of it as sabbatical at the time. So I've done this twice, right?

[00:23:13] The first was when I was in my early thirties and I was working as a professional political campaign manager in the Democratic party and I was really burnt out on doing that. I also felt like I just was not contributing to what moving the world forward. It's a lot more negative now, but it was still pretty negative then.

[00:23:30] I wanted to leave that and do something different. And so I just left. I'm just going to live off my savings until I run out of money and figure out what I'm going to do next. That was financially challenging because I didn't plan for it. It was a really sudden decision.

[00:23:41] I was just like, "Okay, I'm done." So I ended up having to make a lot of changes during that period. I gave up my fancy apartment and I gave up my car and I lived on a very strict budget and it was that experience that led me to become a financial planner because I realized I had to get it together. It was that process of getting it together that made me think, "Oh, I think I'd like to use my life and help other people find a way forward that way." 

[00:24:07] Jake Northrup: Yeah, I love that. I've always viewed that successful financial planning, it gives you the confidence to say, screw it and go do something on your own terms.

[00:24:15] I think a lot of times there are unfortunate instances where you might be surprised by something where just like burnout happens and you're like, "Hey, just need to leave. I don't even care about finances." Yeah. Like I just... 

[00:24:25] Cynthia Meyer: That's what happened to me. 

[00:24:25] Jake Northrup: ...to take a break. Or if you had a child and you felt I just want to be home now or if you lose your job. I think that's the importance of having an emergency fund or just like flexibility in how you're saving to give you that peace of mind to say, "Hey, I can make a professional and personal decision and not feel too constrained financially too." But sometimes it just happens without really expecting it.

[00:24:45] Cynthia Meyer: Everybody needs their life happens fund. And as we were chatting a little bit before we started recording, about the idea that we both believe that your financial plan is your life expressed in numbers. Your financial plan doesn't tell you what to do.

[00:24:58] You're making decisions in your life and then you're using your money to try and support that. 

[00:25:03] Jake Northrup: Yeah, I love that framing. Yeah. The other clients, like successful planning, you don't end up with too much or too little when you think about it, right?

[00:25:09] You want to have just that sweet spot where those things that you really value and you think are important is you're using your money to support it. If you end up with too much, unless your goal is inheritance and generational wealth, that's great too, but there's like that balance that you want to have with everything. It's not about necessarily maximizing your net worth. It's more about maximizing your life. 

[00:25:27] Cynthia Meyer: Ah, love that. That's very quotable. Yeah, the idea that you're enjoying life now, but you're also putting a significant amount towards saving, investing in things that grow for later goals. 

[00:25:38] The other time that I took time off, and again, the time that I was completely away from work was relatively short, was about a year or so, when my daughter, Samantha, was a baby, and my husband got an offer- I was on maternity leave from Merrill Lynch where I was working at the time and he got an offer to work in Bermuda. First of all, who doesn't go to Bermuda, right? But it was hard because we were in California and I had a career and a team and we worked for a really family friendly company.

[00:26:04] We decided to take advantage of that and I didn't have a work permit. So I was home with her for a year. And then I started studying for the CFA, which you have your CFA charter so you know how much work that is. 

[00:26:16] Jake Northrup: Better studying in Bermuda though. 

[00:26:17] Cynthia Meyer: Yeah. But again, had a new baby too, I wasn't like getting a lot of sleep. But yes, it's, it was much more fun taking that test in Bermuda than it was taking the other two ones in New Jersey.

[00:26:27] And then I working in a regulated profession, I really had to stick to financial education during the years that I was in Bermuda. When we came back to the United States that's when we started buying real estate. So if that career break or pause, if you will, hadn't happened for me, where I was just basically doing financial education and not working one to one with clients as a financial planner, I don't think we ever would've bought all these rental properties or we certainly wouldn't have bought as many of them.

[00:26:55] Jake Northrup: Yeah. I'm so curious to hear what was it during that career break, if you don't mind me asking, that led you afterwards to start buying up real estate? 

[00:27:03] Cynthia Meyer: I've talked about this before on the podcast in different ways. We sold our house in California when we moved to Bermuda, because it was going to be too far to manage as a rental and the time difference and the distance, it was going to be very hard to get back and forth. So we decided to sell it at the time. We really wanted to get back into the U.S. housing market. At the beginning of the recession, we just saw prices fall precipitously. We were good savers and so we were able to take advantage of that opportunity because we were well positioned with saving, we were regularly saving and investing a good chunk of income, like maybe 50% over income. We're first generation real estate investors. We had seen a lot of our friends and my clients who owned a mix of securities and investment real estate. We were real estate curious, but we were doing it for the first time. It really catapulted us as a couple.

[00:27:56] It was hard being a securities focused investor and I don't know how much of your savings you had in the market in 2008 to 2011, but it was really hard time to be a securities investor. So it was a strong motivation to diversify. 

[00:28:10] Jake Northrup: I love that you had that like space of what are the sabbatical represented for you. It was mental space to think about taking a CFA. It sounds like being close with your daughter too. And then for you and your husband, as you mentioned, is wandering into this next space, which is had a huge impact on your life. I think that's something that you can't even measure like the impact of that financially. But more importantly, it was just how enjoyment wise, how that changed you.

[00:28:32] Cynthia Meyer: Yeah. Of course I do sound like an evangelist for people considering incorporating real estate into their overall strategy and it doesn't have to be direct ownership of properties. For some people, it could be shares of real estate securities, or it could be if they're a high net worth investor, could be real estate syndications.

[00:28:48] In general, lots of academic research has shown that incorporating a mix of asset classes, makes your overall portfolio stronger and the downside is a little less down. 

[00:28:59] Now do you get situations sometimes where you have two spouses who are not on board with taking sabbatical and what would you do in that situation? 

[00:29:12] Jake Northrup: Yeah, such a good question. You certainly do. I think that's the challenging part of financial planning especially with a couple is it's okay to have different views. It's more around like we want a shared vision and how can we support your money decisions to support that? I think a sabbatical, it could just be time away from work where they're still present with their family and they're with their kids and you can show couples the financial impact so then they can feel more comfortable with that together.

[00:29:37] From what I've seen in the past is some clients might feel like, we do want to take a career break, but we're worried about the financial implications of this, or if one person is a higher earning spouse then they're doing something differently. I think it naturally causes the question of how does this change our current financial situation? Are we going to have to move? Are we going to have to do something different? As a financial planner, you can be their guide there to say, "Hey, this is what, if you did make this decision, this is what it means for you financially."

[00:30:02] You can do X, Y, and Z. What do you feel like as a couple is more important? It's really just creating an environment where ideally you are empowering the clients to make a more informed decision together. When you take the financial question mark out of it, and then they're able to ask, what's more impactful for us in our life?

[00:30:16] It is challenging if one person is saying, hey, I want to take six months to go travel around the world, another person doesn't; that's something to certainly talk through more about. Is that something we can do as a family? What is it about traveling for the next six months that's important to you? It could just be that person really wanted to go to Italy for two weeks and maybe that's something they can do together, too. 

[00:30:37] Cynthia Meyer: When did you adopt what I like to call the financial mentorship model? The fact that you are giving some advice, but you're guiding and coaching people to make their own wiser, more confident financial decisions. That isn't necessarily the common model in financial planning in terms of how people think of practice management.

[00:30:54] You did mention the George Kinder questions; that's a little bit of a financial planning celebrity. So did you come to that through life planning? Did you come to that just through your own life experience? How did you develop these convictions? 

[00:31:07] Jake Northrup: Yeah, good question. I do think there's been a shift in the financial planning industry where 15, 20 years ago, a financial planner was you called them up and you're like, what should I buy? They go execute and tell you what to do investment wise. The role of a financial planner has really shifted to being more hands on and helping clients put their life first, so their money follows. I think a natural transition from that is, how can you help clients make the best informed decisions for their life financially?

[00:31:34] A lot of people actually don't implement advice. It could be medically. It could be professionally. It could be something else because you're less likely actually do something if someone tells you as opposed to you coming up to the solution and having a guide help you navigate option A, B and C.

[00:31:48] I think it's certainly something that I've learned over the years, but also digging into psychology, digging into behavioral finance, we can really have a much greater impact on our clients' lives when we're helping co-create and make decisions together, as opposed to just telling them you need to cut spending, right? If someone just tells you need to cut spending and the client might say yes and they're not going to actually do it. 

[00:32:07] Cynthia Meyer: It's like, oh, you shouldn't eat junk food. Yeah, 

[00:32:09] Jake Northrup: Exactly. Yeah. Like versus saying something like, if you want X, Y, and Z in the future, it looks like we need to make some changes in here. This is how your current spending is. How do you think we can reduce things to get most aligned with what is later? That's such a different framing. I think it really helps clients remind themselves to put their values in life first. And it just makes those decisions easier for them. 

[00:32:29] Cynthia Meyer: I agree. Financial planning is a process. It's not a document. It's not this big book that somebody puts on your desk and say, okay, here's your life, go do this. It's the process that you go through making decisions.

[00:32:42] Hearkening back to the question about the couple who's not on the same page, right? It's the process that gets people on the same page. Sometimes the process is messy or bumpy, and it's hard to choose; but it's trusting the process with a good mentor guide, if you need one, to take you through that process.

[00:32:58] So changing it up a little bit, Jake. Tell me a little bit about what are you curious about right now? 

[00:33:04] Jake Northrup: I'm super curious about the intersection between behavior psychology; past experiences and our money decisions.

[00:33:11] I think it's such a evolving field. As a financial planner, you need to be a technical wizard. But that means nothing if you can't convert it to how clients need to hear it and how they behave and how they can actually help implement. So I think in my natural progression in my career, I feel very good on the technical side.

[00:33:27] I still obviously want to learn and stay up to date with that, but I'm just getting a lot more curious in terms of more certifications or training as it relates to the psychology around money. How do you know biases or past experiences show up in our current behaviors? What are some things that are holding us back? How can we create environments for clients and make more decisions there that are aligned with their life? That's something that I'm super curious in now and reading more books and trying to carve out some more education for it. 

[00:33:53] For the person listening or watching who is starting to think about, oh, I'd like to take a sabbatical. I'd like to start planning for this. What are some things that they should listen to or read? 

[00:34:06] Yeah, great question. I think we alluded to it earlier, Four Hour Work Week by Tim Ferris. I think it's a very easy read that goes quick. It's a lot of fun to read. So I would definitely say, just read that. Learn more about the sabbatical.

[00:34:17] I think it is a question of start with the end in mind of what does this. Sabbatical mean to you, right? How much time would you want to take off? What would you want to do? Start to put some like loose structure around that, and then you can maybe back into how much do you need to have saved up financially to do it right?

[00:34:32] A 12 month trip around the world is going to cost way more than you just taking three months driving an RV around and seeing the U.S. national parks. I think you really want to focus in on take the worries out of it. What does that end look like for you? And then it's okay, how do we actually put our finances in place to position ourselves there? Are we going to cut expenses? Are we going to save less in two retirement accounts? Ideally you have the peace of mind when that comes up. And that's why we love the dedicated high yield sabbatical savings; you know what you're saving for. When that time comes, you have the confidence that you have the cash on hand to support it.

[00:35:05] Cynthia Meyer: Good guidance. So what's the best piece of advice that you've ever received? 

[00:35:10] Jake Northrup: Yeah. Tough question. What comes to mind for me is that flexibility is an asset. We try to think about certainty in the future, whether it's planning, whether it's physical, whether it's mental. If you asked us five or 10 years ago where we think we'd be now, the decision is drastically different, right?

[00:35:25] The ability to make changes in your life; career wise, personal wise, financially, you can't put a dollar value on how valuable that is. What you mentioned of having the flexibility to say, we're interested in real estate investing and we didn't lock all our money away in retirement accounts so we can pursue that.

[00:35:42] So, think it comes through financially in terms of having enough cash on hand or having investments that are liquid, meaning you can take money out without penalty. 

[00:35:51] If you buy a really expensive home or something like that, and you tie yourself to a high mortgage, which then ties yourself to a high income. No right or wrong there. You limit some of your career opportunities or decisions down the line. So I think you plan for the unexpected and you give yourself the ability to say yes or no to things in the future, depending on how that unfolds.

[00:36:10] Cynthia Meyer: So where can people find you online? 

[00:36:12] Jake Northrup: Yeah, I think the best place is LinkedIn. So if you just search Jake Northrup, I should come up there. You can also go to our website www.experienceyourwealth.com. You can find our Twitter, Facebook, LinkedIn; Instagram too. I'm not as good as on Instagram as others, but I try to post every now and then.

[00:36:28] Usually LinkedIn, professionally, and then Instagram more personally with a mix of professional. 

[00:36:33] Cynthia Meyer: Jake, thank you so much for taking some time to chat with me today about a fascinating topic. I really admire the way that you've taken a, what is a not uncommon question that clients often, especially busy professional clients often come and ask us is this doable? You've created a paradigm for how to think about it, how to plan for it. It's super effective. It's going to mean that there are a lot more happy people taking sabbaticals.

[00:37:02] Jake Northrup: I appreciate the opportunity for it to come on and love the conversation and hopefully someone listening to this thinks like, Hey, whether it's sabbatical or something different and starting to explore more of what that looks like and then know that money's just that tool that needs to be navigated properly to help you do it.

[00:37:17] Cynthia Meyer: For everybody listening, if you've got a topic that you'd like us to tackle on the Real Life Planning podcast, please email us at podcast@reallifeplanning.com. Go ahead and subscribe to the channel or follow us on social and we look forward to seeing you next time. 

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