Podcast #13: Commercial Lending and Real Estate

podcast 13 commercial lending and real estate
For this podcast about commercial lending I sat down with Angie Hoffman at U.S. Bank.  During the podcast we discussed investing in real estate, commercial lending, and how commerceial mortgages can help investors.  If you want to learn more about commercial loans this is a great pdocast for you.
I hope you enjoy the podcast and find it informative.  Please consider sharing with those who also may benefit. Listen via YouTube: You can connect with Angie on LinkedIn.  You can reach out to Angie for more information on their lending products by emailing her at angela.hoffman@usbank.com.
You can connect with me on Facebook, Pinterest, Twitter, LinkedIn, YouTube and Instagram.
About the author: The above article “Podcast #12:  Hard Money Lending” was provided by Luxury Real Estate Specialist Paul Sian. Paul can be reached at paul@CinciNKYRealEstate.com or by phone at 513-560-8002. If you’re thinking of selling or buying your investment or commercial business property I would love to share my marketing knowledge and expertise to help you.  Contact me today!
I work in the following Greater Cincinnati, OH and Northern KY areas: Alexandria, Amberly, Amelia, Anderson Township, Cincinnati, Batavia, Blue Ash, Covington, Edgewood, Florence, Fort Mitchell, Fort Thomas, Hebron, Hyde Park, Indian Hill, Kenwood, Madeira, Mariemont, Milford, Montgomery, Mt. Washington, Newport, Newtown, Norwood, Taylor Mill, Terrace Park, Union Township, and Villa Hills.
TRANSCRIPT
Commercial Lending Podcast
 
Paul Sian: Hello everybody. This is Paul Sian, Realtor with United Real Estate Home Connections, licensed in the State of Ohio and Kentucky. With me today is Angie Hoffman with US Bank. Angie how are you today?
Angie Hoffman: I’m doing great Paul. How are you?
Paul Sian:  Great. Thank you for being on my podcast. We’re gonna start off. Today’s topic is ‘Commercial Lending’. Angie is a commercial lender with US Bank, as I mentioned. Angie, why don’t you tell us a little bit by your background. What you do with the US bank, and how did you get started in that field?
Angie Hoffman: Sure. So, I am a Cincinnati resident, have been my entire life. Was previously with a company called the ‘Conner group’, which is located out of Dayton, Ohio. They’re a private investment real estate firm. I was with him for about five plus years, just learned a ton of information, really loved the financing portion of their group. So, that turned me to the banking portion, which I ended up going with US Bank just because of the knowledge and the breadth of what they can do as well. Just the culture within US Bank has been phenomenal. I’ve actually been with us Bank now for five years; in the last three years I’ve been within the commercial real estate side as well as the business banking side.
Paul Sian: Okay. Your primary focus is commercial loans.
Angie Hoffman: Correct. Yes, both investment real estate as well as owner-occupied and small to medium businesses. 
Paul Sian:  Okay. The investment side, I represent a lot of buyers of multifamily. I know with the form below we do, the conventional space generally, and then when you’re in the five units and above. You go into the commercial space, which is your space. I have also heard it being covered with mixed-use buildings, industrial properties, is there something else that commercial loans would cover?
Angie Hoffman: Correct. I mean it can really be quite an array of properties, office is one that we see pretty often, and can tend to be either hot in certain areas, whether it’s office Class B or Office Class A. Retail strip centers, we’ll look at Triple Net properties, and absolute not properties. We are very popular, if you’re looking at diversifying a multi-family portfolio and adding in some triple net properties. We also do, obviously owner-occupied properties too. When you have that small business or medium business owner who wants to own their own real estate. We do that as well, and that’s again part of what my position entails, and then we will also look at portfolios will do single-family homes. 
I’m actually working with somebody now who has a portfolio of several single-family homes, that were looking to kind of restructure and refinance for him. We can even utilize current equity and properties to purchase additional properties to help you grow your portfolio. We do try to have a full understanding of your portfolio or a full understanding of what your strategy is. How partner with you, as you continue to grow that portfolio short- and long-term goals.
Paul Sian: For our listeners, who don’t know. What Triple Net means, do you mind explaining that.
Angie Hoffman:  Sure. So, Triple Net is gonna tend to be your properties that have the tenant itself is paying the taxes, the insurance, you may have some pretty minimal depending upon the property, responsibilities that are usually restricted to the exterior of the building. It may be like a roof or a parking lot. Type of maintenance but generally speaking the great thing about the triple net is that for some clients, it’s a property that you can basically own, and you have to do pretty much nothing with. So, you’re gaining that income without having to do a very minimal type of responsibility or maintenance. 
The downfall of that is that typically they’re gonna be somebody, who is gonna be a longer-term lease, which is great. However, you still have the issue that it’s a bigger square footage generally. So, five, ten, twenty thousand plus square feet. If you lose a tenant obviously, that can be very impactful. It just depends upon your, again your focus of your portfolio, and if you want to add in that. But it can be great opportunity, but tends to again be a little bit less of a return. Because of the minimal responsibilities.
Paul Sian: Going back to single family. That is similar, I am using the same term your bank use but to ‘wrap mortgage’. Is that what you use for single families?
Angie Hoffman:  We do have the ability, from the perspective of what you say wrap mortgage.  We’re typically calling that like an umbrella, if you’re grouping all, let’s call it, if there’s ten single family homes. You’re grouping this all into one, it lies together. We have the ability to do that depending again on the structure that the client is looking for. 
We also have the ability to separate out those facilities, and do a simultaneous closing for each one of them to have them separated out from each other. Obviously, there’s some contingencies but that the properties itself have to be able to cash flow by themselves, things along those lines that we would underwrite to. But we do have ability to look at it from both perspectives.
Paul Sian: Okay. The biggest advantage of that if someone has reached the maximum ten convention mortgage loanlimit. They can step into your space there and you could cover them, and they can either restart that or. With something like that, let’s say somebody does get ten properties, and are they able to finance in additional properties into that same loan or is that has to re-finance each time?
Angie Hoffman: No. We would be able to add in. I mean, if you’re asking like if they want to refinance these properties, and they’re also looking to maybe either use some of the equity in them or they’re also buying at the same time. We can do all of that together, so that’s not an issue at all.
Paul Sian: Let’s say to somebody new coming to investment. What is the typical down payment on commercial loans? That are looking to buy in the mixed-use space or multifamily space?
Angie Hoffman: So, generally speaking. We’ll go up to 80% loan-to-value. The biggest factor within that is gonna be how much the capability of the property to hold that debt. We’re gonna have, we have a pretty. I don’t want to say complex but we do have  multiple factors that go within our cash flow, and net operating, income calculation, that we’re gonna want to see. It balanced to a certain point for it to be able to hold the debt at an 80% loan to value. Again, we tend to partner with our clients. I have several clients who will send me properties on a daily basis, that they’re interested in. We will let them know what the debt capacity would be on that property.
Paul Sian: Okay. Income from the rents per sale, let’s say, something’s got a ten-unit building. Then you’re looking at the rents that are coming in. You’re also considering the buyers income level, income to debt ratio, all that as well.
Angie Hoffman: Yes. When I talk about the capacity, the debt for the property is being the one of the first things we look at is. In order to get to that 80% LTV, if you’re looking at the actual depth, they’re wanting the property to take on. Compared to other rent they’re taking in and the expenses, as well as some vacancy factors, things like that. That’s what we’re looking at to have a certain ratio, then on top of that. When we get to the next step would be look at the client globally, and their personal debt to income, and that factor too.
Paul Sian: Looking at that commercial mortgages, can buyer use the mortgage to upgrade property, to build in some equity in the property. Does the building of the equity get taken into account, and do you have a loan that allows them to do that?
Angie Hoffman: That question is kind of twofold. If you have a property, let’s say, it’s multiple unit, and you’re continuing to kind of do some improvements and renovations. If the property has the equity, we can look at small lines of credit to help with that renovation cost. Then once everything’s complete to be able to wrap that together. If you’re looking at a property that’s completely distressed, and doesn’t have any type of income. Then that’s gonna be something that generally we’re gonna have a harder time with. Because it’s a speculative type of scenario, and we want to typically see the actual income.
Paul Sian: How about converting something, I am interested in buying warehouse, either in retail space or multifamily. Do you offer products for that, or is that a similar situation when you’re looking at the risk as being a little high?
Angie Hoffman: Yes. So, that is gonna be a similar situation. Once the actual project would be completed again from a speculative standpoint, it just it becomes a little bit more difficult from a risk perspective. However, we’ve been in scenarios where we’ve worked with clients and partnered clients, people we know who work in that space more than we do. We can look to, guide them to what we would look at if we wanted to refinance that once it was completed, and there were leases in place.
Paul Sian: Okay. So, that is one of the benefits working with a big bank like US bank, is you can reach across departments there, and tap other resources within your organization.
Angie Hoffman:  Even if it’s within the organization, we have other resources whether it’s our private wealth or wealth group, have some capabilities that are different than what we have as well as from a CUI or network basis. It may be somebody just within my network that I know works within that space to introduce that way and hopefully can get that client taken care of.
Paul Sian: Are you able to comment on the underwriting process of commercial loans compared to residential. Is there a big difference in that process? 
Angie Hoffman: So, yes and no. I know we touch on it already a little bit. One of the biggest differences is obviously we’re gonna look at the actual collateral in a very different way, especially on the investment real estate side. When you’re looking at investment real estate, the factors that the net operating income as well as the cash flow of the property become factors. Whereas, when you’re buying a home, obviously it’s a lot more about the loan to value of the property. However on the other side of that, if we are looking at a property that’s gonna be owner occupied by a small to medium business. It becomes a lot more about the loan-to-value as well. So, it can depend upon the situation.
Paul Sian: Okay. How important is the person’s experience when they come to loan, get a loan for you. If it’s a new first-time investor looking at multi families versus somebody who’s already got five to ten units and then either self-managing or running it for a couple years.
Angie Hoffman: I mean, generally speaking, if you have somebody brand new, one of the biggest things is if you’re not familiar in the scope. You don’t have experience, you gonna be partnering  potentially with a property management company or somebody else who is maybe a partnership within the LLC or the property that you’re buying that has the experience. Just being able to show you may not have previous experience in this but you are partnering with a property management company that has historical success in these properties. You’re partnering with somebody, for instance, who has historical success in the properties.
Paul Sian: So, yeah boils down to your team then. What you’re bringing to the team. What kind of document requirements are there to start a commercial loan process with US bank?
Angie Hoffman: Generally speaking, in every situation is different, every request is different, client is different. But it’s typically going to be two to three years of taxes, personal and business, personal financial statements pretty standard as well. If it’s a purchase, we’re gonna want to see a purchase agreement or understand the purchase agreement as well. As you’re gonna want to have financials whether it’s profit loss or the rent rolls preferably a Schedule E or 8852 from the client. Showing what the historical trends of that property of have been. That’s where we really try and partner with our clients of understanding their portfolios, understanding what purchase they’re trying to make. So, that, does it fit, and is there anything we see because we see them on a very regular basis that. Maybe we need to discuss or let the client know that we are suggesting maybe prying a little bit more information.
Paul Sian: How important is ones credit score when they come to apply for loan with you?
Angie Hoffman: It is a factor, I mean. In any type of just like the traditional mortgage, it is gonna be a factor. But there are so many different factors that, it’s only one of many.
Paul Sian: One of the important things when it comes to purchasing real estate is I always tell the buyers that have a pre-approval letter ready. Is there something similar in the commercial loans place? A pre-approval letter, pre-qualification letter. Just something that says, somebody sat down with you, they started the initial process. They’ve got access to certain amount that they can borrow to purchase this property. Do you have something like that?
Angie Hoffman: We do. So, on the commercial side it’s gonna be called a letter of interest, and it basically lays out that we are working with a client. We have a price range or up to a price range that we’re looking for with the client, and depending upon the collateral. We are looking to work with him on the financing, again depending upon what the collateral is, and then we also have once we’ve actually maybe gone through a more official process of underwriting and submitted an actual financial package. We do have, depending again on what the financing contingency is for that client. 
We do have a letter of commitment, which lays out that there is an approval but it goes through all of the conditions as well like your appraisal certain things like that, that we’re gonna have to clear.
Paul Sian: Okay. How long does that process take? If you are writing an offer today for a client, and then usually you have to write in how many days we’re gonna close in. 30 days, 40 to 45 days. I know conventional, it’s usually a little quicker, a little easier. So, we can do it in 30 days or so. I mean, what would you recommend for a commercial loan?
Angie Hoffman: I think 45 days is very practical. One of the biggest things that I always talk about with my clients is that 45 days really is incumbent of me having a full financial package, meaning those two years of tax returns. The financials, I spoke about from the client that you’re purchasing, and or if you’re refinancing. To me, having that full financial package is really the key and then, again from there it’s gonna be some of the factors of the appraisal as well as the title work that would go along with it. But generally speaking, 45 days to close is pretty.
Paul Sian: Reasonable.
Angie Hoffman: Yes.
Paul Sian: You mentioned the documents that was my blog article documents for the conventional mortgage process. You mentioned W2s, 1040, tax returns, that is pretty similar the document requirements for commercial loans that it is for residential space?
Angie Hoffman: Yes. It’s very similar. With the PFS is gonna be one of the biggest as well as the two years of tax returns. Potentially three years depending upon, again the request size. Like you said, I mean, if they’re a W2 income type of employee, then we may need additional pay stubs. like I said, for any client, it could be very different depending again on what their history is. If they’re a business owner, then we may mean some more details but generally speaking, again it would be two to three years of personal business has returns, personal financial statement, and potentially obviously purchase agreement or additional documentation from that side.
Paul Sian: Okay. When it comes to partnership, people coming together, those documents from everybody. Correct?
Angie Hoffman: Correct. So, depending on what the ownership structure is. Generally, if somebody’s over 20% ownership within the property, then we’re going to need that financial information from them as well.
Paul Sian: Okay. I know with the conventional space. Lending into an LLC is generally impossible. Most lenders will not allow conventional borrowers to use an LLC. How does that work on the commercial side?
Angie Hoffman: The vast majority of the lending that I do is going to be through an LLC in a holding company. The clients are still a personal guarantor but the lending itself in the title is all within the LLC.
Paul Sian: Is it a requirement in LLC or is it an option for the buyer?
Angie Hoffman: It’s an option. I mean, one that again depending from an attorney’s perspective, if you’re talking about liability. It may be a best-case scenario to have an LLC with that property. But we always reference stuff talk to your attorney about what makes sense for you.
Paul Sian: How much, do you have any minimum loan requirements and your maximum loan requirement?  
Angie Hoffman: Up to ten million on the investment real estate side, and then once it’s beyond that, we do have a commercial group that we would work with a real estate group as well as our middle marker group that would potentially be involved. As far as minimum typically, again if it’s under 2,50,000. It’s still something that we would do. It just, we pull in a different partner to work with us on that too, because it kind of goes into a little bit different of a space.
Paul Sian: Is there, under 250,000$ or is there a lower minimum. I know some conventional lenders won’t touch anything fifty thousand and under.
Angie Hoffman: It’s pretty common. Yes, under fifty thousand is gonna be a little bit more difficult. 
Paul Sian: 50,000 to 2,50,000, and above that.
Angie Hoffman: But keep in mind too. I mean, if you have properties itself. It may be again, you see this more with the single-family home portfolios. You may have multiple properties that are under fifty thousand. But we’re looking at the entirety of the portfolio, makes a little bit different of a scenario. I would caution that anything that somebody is looking at from the perspective of either total lending amount or even individual property. We’re happy to take a look at it, have an understanding of what you’re looking to do, and if for some reason it’s not something that is in our world necessarily. Again, from an internal and external standpoint. We typically have somebody who I can contact.
Paul Sian: Discussing interest rates from general perspective, everybody’s situation is different and unique. But in terms of paying more, having a lower LTV, 60% LTV rather than 80%. People get themselves a better interest rate or is it generally, can we same and more just depending on credit and history.
Angie Hoffman: So, from an interest rate standpoint, the commercial side is a little bit different. Then maybe the mortgage or lines of credit side, then you then you generally see. Ours is based off of what banks cost the funds are, and then there is a spread that is on top of that. That’s where you get the percent from. Right now, cost of funds are pretty minimal. So, interest rates are extremely competitive. But from that perspective, it doesn’t necessarily factor in the actual loan it saw or the guarantor itself or the property itself.
Paul Sian: So, there’s some risk-based consideration towards interest rates. I guess a little higher risk project is that something you would price a little higher in the interest rate or generally that it’s not considered as much?
Angie Hoffman: No. That’s not considered as much, generally.
Paul Sian: Okay. Great. That’s all the questions I have for you today Angie. Did you have any final thoughts to share with the group?
Angie Hoffman: Sure. One thing I would say is if anybody has any questions about property specific, cash flow, if this property may fit into their portfolio or something that we would look to land up to 80%.I’m happy to partner with anybody on that side as well, and be resource for them. On top of that, I did want to mention that obviously US Bank is across the country. That gives us the ability even, if I’m your contact in Cincinnati to lend out-of-state borrowers.
I’ve worked with quite a few clients obviously from California that are buying in Cincinnati as well Chicago. So, those are people that I’ve worked with quite frequently as well.
Paul Sian: That is perfect. I’ve got a number of out of state clients to. That is one of the biggest challenges that I’ve faced with some local lenders is that they don’t lend to out of state. That’s a great ability to have.
Angie Hoffman: So, the key with in that too is just as I want to mention too. I mean, anytime that scenario comes up. We are happy to discuss it. One of the biggest factors with out-of-state lenders is that we do look for them to be within US bank footprint. So, we are very much on the west coast and Portland, all of those areas. If they’re somewhere you’re not familiar, if we’re within that area, please reach out. Let me know, and I’m happy to take a look.
Paul Sian: Great. Thank you again. I will leave your contact information on my blog post once it gets published live. Thanks again for being on the podcast.
Angie Hoffman: Thanks for having me. 

Source: cincinkyrealestate.com

15+ Crazy Deals For Bloggers and Those Wanting To Work From Home

Black Friday and Cyber Monday are now over, so I have removed the deals as they are outdated.

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The post 15+ Crazy Deals For Bloggers and Those Wanting To Work From Home appeared first on Making Sense Of Cents.

Source: makingsenseofcents.com

Let the Roaring 2020s Begin

First some great news: because of your support in reading and sharing this blog, it has been able to earn quite a lot of income and give away over $300,000 so far.

The latest $100k of that happens at the end of this article. Please check it out if you want to feel good, learn more, and even join me in helping out the world a bit.

As I type this, there are only a few days left in the 2010s, and holy shit what a decade it has been.

Ten years ago, a 35 year old MMM and the former Mrs. MM were four years into retirement, but not feeling very retired yet. We stumbled out of 2009 with a precious but very high strung three-year-old, a house building business that was way more stressful than it should have been, and a much more rudimentary set of life skills. It was a time of great promise, but a lot of this promise was yet to be claimed.

Ten years later, despite the fact that I have one less marriage, one less surviving parent, and ten years less remaining youth, I am in an even better place in life right now, and would never want to trade places with the 2009 version of me. And on that measure alone, I can tell it has been a successful decade.

This is a great sign and it bodes well for early retirees everywhere. Compared to the start of the decade, I am healthier and stronger physically, wealthier financially, and (hopefully) at least a bit wiser emotionally. I’ve been through so much, learned so much in so many new interesting fields, and packed so much living into these 3653 days. A big part of that just flowed from the act of retiring from my career in 2005, which freed me up to do so many other things, including starting this blog.

It has not always been easy, in fact the hard times of this decade have been some of the hardest of my life. But by coming through it all I have learned that super difficult experiences only serve to enrich your life even more, by widening your range of feelings and allowing you to savor the normal moments and the great ones even more.

Ten Years of Learning in Three Points

I think the real meaning of “Wisdom” is just “I’ve seen a lot of shit go down in my lifetime and over time you start to notice everything just boils down to a few principles.

The books all say it, and the wise older people in real life all say it too. And for me, it’s probably the following few things that stand out the most:

1) This Too Shall Pass: nothing is as big a deal as you think it is at the time. Angry or sad emotions from life traumas will fade remarkably quickly, but so will the positive surprises from one-time life upgrades through the sometimes-bummer magic of Hedonic Adaptation. What’s left is just you – no matter where you go, there you are.

2) But You Are Really Just a Bundle of Habits: most of your day (and therefore your life) is comprised of repeating the same set of behaviors over and over. The way you get up, the things you focus your mind on. Your job. The way you interact with other people. The way you eat and exercise. Unless you give all of this a lot of mindful attention and work to tweak it, it stays the same, which means your life barely changes, which means your level of happiness barely changes.

3) Change Your Habits, Change your Life: Because of all this, the easiest and best way to have a happier and more satisfying life is to figure out what ingredients go into a good day, and start adding those things while subtracting the things that create bad days. For me (and quite possibly you, whether you realize it or not), the good things include positive social interactions, helping people, outdoor physical activity, creative expression and problem solving, and just good old-fashioned hard work. The bad things mostly revolve around stress due to over-scheduling one’s life, emotional negativity and interpersonal conflict – all things I am especially sensitive to.

So while I can’t control everything, I have found that the more I work to design those happiness creators into my life and step away from things that consistently cause bad days, the happier and richer life can become.

Speaking of Richer:

I recently read two very different books, which still ended up pointing me in the same direction:

This Could Be Our Future, by former Kickstarter cofounder and CEO Yancey Strickler, is a concise manifesto that makes a great case for running our lives, businesses, and even giant corporations, according to a much more generous and person-centric set of rules.

Instead of the narrow minded perspective of “Profit Maximization” that drives so many of the world’s shittier companies and gives capitalism a bad reputation, he points out that even small changes in the attitude of company (and world) leaders, can lead to huge changes in the way our economy runs.

The end result is more total wealth and happier lives for all of us – like Mustachianism itself, it really is a win/win proposition rather than any form of compromise or tradeoff. In fact, Strickler specifically mentions you and me in this book, using the FIRE movement as an example of a group of people who have adopted different values in order to lead better lives.

Die with Zero*, by former hedge fund manager and thrill seeking poker champion Bill Perkins sounds like a completely different book on the surface: Perkins’ point is that many people work too long and defer too much gratification for far too long in their lives.

Instead, he encourages you to map out your life decade by decade and make sure that you maximize your experiences in each stage, while you are still young enough to enjoy each phase. For example, do your time in the skate park and the black diamond ski slopes in your 20s and 30s, rather than saving every dollar in the hopes that you can do more snowboarding after you retire in your 60s.

Obviously, as Mr. Money Mustache I disagree on a few of the finer points: Life is not an experiences contest, you can get just as much joy from simpler local experiences as from exotic ones in foreign lands, and spending more money on yourself does not create more happiness, so if you die with millions in the bank you have not necessarily left anything on the table. But it does take skill to put these truths into practice, and for an untrained consumer with no imagination, buying experiences can still be an upgrade over sitting at home watching TV.

However, he does make one great point: one thing you can spend money on is helping other people – whether they are your own children, family, friends, or people with much more serious needs like famine and preventable disease.

And if you are going to give away this money, it’s better to do it now, while you are alive, rather than just leaving it behind in your estate, when your beneficiaries may be too old to benefit from your gift anyway.

So with this in mind, I made a point of making another round of donations to effective causes this year – a further $100,000 which was made possible by some unexpected successes with this blog this year, combined with finding that my own lifestyle continues to cost less than $20k to sustain, even in “luxury bachelor” mode.

And here’s where it all went!

$80,000 to GiveWell, who will automatically deliver it to their top recommended charities. This is always my top donation, because it is the most serious and research-backed choice. This means you are very likely doing the most good with each dollar, if your goal is the wellbeing of fellow human beings. GiveWell does constant research on effective charities and keeps an updated list on their results – which makes it a great shortcut for me. Further info in my The Life You Can Save post.

Strategic Note: I made this donation from my Betterment account where I keep a pretty big portion of my investments. This is because of tax advantages which multiply my giving/saving power – details here at Betterment and in my own article about the first time I used this trick.

$5000 to the Choose FI Foundation – this was an unexpected donation for me, based on my respect for the major work the ChooseFI gang are doing with their blog and podcast and meetups, and their hard-charging ally Edmund Tee who I met on a recent trip. They are creating a curriculum and teaching kids and young adults how to manage their money with valuable but free courses.

$2000 to the True Potential Scholarship Fund, set up by my inspiring and badass Omaha lawyer friend Ross Pesek. Ross first inspired me years ago by going through law school using an extremely frugal combination of community and state colleges, then rising to the top of the pack and starting his own firm anyway. Then he immediately turned around and started using some of the profits to help often-exploited immigrant workers in his own community with both legal needs and education.

$1000 to plant one thousand trees, via the #teamtrees effort via the National Arbor Day Foundation. I credit some prominent YouTubers and Elon Musk for promoting this effort – so far it has resulted in over 20 million trees being funded, which is a lot (roughly equal to creating a dense forest as big as New York City)

$5000 to Bicycle Colorado – a force for change (and sometimes leading the entire United States) in encouraging Colorado leaders and lawmakers to shift our spending and our laws just slightly away from “all cars all the time” and towards the vastly more effective direction of accommodating bikes and feet as transportation options. Partly because of their work, I have seen incredible changes in Denver, which is rapidly becoming a bike utopia. Boulder is not far behind, and while Longmont is still partially stuck in the 1980s as we widen car roads and build even more empty parking lots, these changes slowly trickle down from leaders to followers, so I want to fund the leaders.

$5000 (tripled to $15,000 due to a matching program that runs until Dec. 31) to Planned Parenthood. Although US-centric, this is an incredibly useful medical resource for our people in the greatest need. Due to emotional manipulation by politicians who use religion as a wedge to divide public opinion, this general healthcare organization is under constant attack because they also support women’s reproductive rights. But if you have a loved one or family member who has ever been helped during a difficult time by Planned Parenthood, you know exactly why they are such an incredible force for good – affecting millions of lives for the better.

And finally, just for reasons of personal and local appreciation, $1000 to the orchestra program of little MM’s public middle school. I have been amazed at the transformation in my own son and the hundreds of other kids who have benefited from this program. They operate a world-class program on a shoestring (violin-string?) budget which they try to boost by painstakingly fundraising with poinsettia plants and chocolate bars. So I could see that even a little boost like this could make a difference. (He plays the upright bass.)

You could definitely argue that there are places that need money more than a successful school in a wealthy and peaceful area like Colorado, and I would agree with you. Because of this, I always encourage people not to do the bulk of their giving to local organizations. Sure, it may feel more gratifying and you may see the results personally, but you can make a much bigger difference by sending your dollars to where they are needed the most. So as a compromise, I try to split things up and send the lion’s share of my donations to GiveWell where they will make the biggest difference, and do a few smaller local things here as a reward mostly for myself.

So those are the donations that are complete – $99,000 of my own cash plus an additional $10,000 in matching funds for Planned Parenthood. But because environment and energy are such big things to me, I wanted to do one more fun thing:

$5000 to build or expand a local solar farm.

This one is more of an investment than a donation, but it still does a lot of good. Because if you recall, last year I built a solar array for the MMM Headquarters coworking space, which has been pumping out free energy ever since. My initial setup only cost me $3800 and it has already delivered about $1000 in free energy, more than the total amount used to run the HQ and charge a bunch of electric cars on the side.

So, I plan to invest another $5000, to expand the array at HQ if possible, or to build a similar one on the roof of my own house, possibly with the help of Tesla Energy, which is surprisingly one of the most cost-effective ways to get solar panels installed these days. These will generate decades of clean energy, displacing fossil fuels in my local area while paying me dividends the whole time, which I can reinvest into even more philanthropy in the future.

What a great way to begin the decade. Let’s get on it!

* Die With Zero is not yet released, but I read a pre-release copy that his publisher sent me. The real book comes out on May 5th

** Also, if you find the scientific pursuit of helping the world as fascinating as I do, you should definitely watch the new Bill Gates documentary called Inside Bill’s Brain, which is available on Netflix.

Source: mrmoneymustache.com

How to Travel Like a Minimalist and Save Money – MintLife Blog

If you want to travel more, it doesn’t have to be more expensive. There are many ways to travel like a minimalist— travel lighter while saving money for future traveling. Here are my six recommendation for traveling like a minimalist…. Full Story

Source: mint.intuit.com

The Power of Baby Steps

Today’s simple graphics will enlighten you on the power of baby steps and the potency of small repeated marginal gains.

A Baby’s Growth

It’s easy to overlook the rapid growth that humans undergo.

At first, we’re a helpless whiny lump that’s capable of only three things: eat, sleep, bathroom. This baby, one might assume, must have a pretty low ceiling.

Fast forward two full years and…ok, some progress has happened. Our baby is now zooming around of her feet, and she’s babbling, and she’s feeding herself, albeit poorly. These are some true baby steps. Small progress. But this is largely still a helpless child.

Walking Baby GIFs | Tenor

By age five, she’s talking. That’s cool. She can eat food without spilling, she can read (whoa!), and she can run around. Compared to an adult, she’s small and weak and dumb (sorry, it’s true!). But there’s been fantastic progress.

I won’t go much further. We know that brains and bodies continue to grow into adulthood. And we know that adult humans are capable of amazing accomplishments. But the path from helpless whiny lump to amazing adult—that path was walked one baby step at a time.

Let’s bring back Wallace

Remember Wallace from “The Best Time to Invest?”

He’s back, and he’s trying to improve himself via a similar baby step method. What’s he improving?

It could be anything, financial or otherwise. Perhaps Wallace wants a fully funded emergency fund. He wants to eat a healthier diet. Or maybe he wants to be a better writer.

I’m going to refer to these improvements as levels. Wallace is at Level 1 right now. He’s a whiny helpless lump, but he’s looking to grow.

Wallace is going to focus on building towards his goals using a simple 1% improvement every week. Whatever the goal, whatever the skill. Wallace’s wants to take baby steps of 1% improvement each week.

Wallace’s will improve from 1.00 to 1.01 in Week 1.

And then he’ll improve from 1.01 to 1.021 in Week 2.

Slowly but surely, Wallace will progress. His level will improve.

But baby steps are slow

Baby steps are slow. And that’s why baby step improvements can be frustrating (at least for adults—not so much for babies). Take a look at Wallace’s first year of progress. It’s that little blue streak at the bottom of the plot.

baby step year 1
After one year, Wallace has grown from 1.0 to 1.7

Whether he’s saving money or writing a blog or improving at chess, Wallace has barely made any progress (at least, based on my chosen Y-axis).

But Wallace is a grinder. He believes in the power of baby steps. So he continues to focus on weekly 1% improvements for two more years.

baby step year 3
After three years, Wallace is at Level 4.7

Ok! At least Wallace’s growth is no longer looking like a flat line. Let’s fast forward another couple years.

baby step year 5
After five years, Wallace is at Level 13.3

Wallace hits the curve

After five years, it’s apparent that Wallace is starting to “hit the curve.” His 1% improvements no longer look like a straight line. Instead, those improvements are building on one another in a compounding manner.

When he started, Wallace was at “Level 1.” His 1% improvement was tiny—1% of 1 is 0.01. But after hundreds of 1% improvements, he’s now around Level 13. The 1% improvements now increase his level by 0.13 each week. In ~6 weeks of Year 5, Wallace grows more than he did the entire Year 1.

All styles of exponential growth exhibit this behavior. Growth compounds on growth. The early steps feel slow, barely making progress. The last steps feel monumental. But those monumental steps wouldn’t have been possible without the years of slow progress beforehand.

Many 4-year olds can’t read, but many 9-year olds can read chapter books. Five years of consistent practice can bring a sea change of improvement.

It’s just like the parable of rice filling up a chessboard.

baby step year 10
After ten years, Wallace is at Level 177

The curve continues to steepen through Year 10. Now at level 177, the idea of being at level 1 is a distant memory for Wallace. It’s just like the idea that “a lot can change in ten years.”

But are baby steps always possible?

I’ve shown you an assumed scenario where Wallace is always able to make 1% improvements. And maybe that’s too ambitious of an assumption.

Even if Wallace hits the top of his game—like Lebron, Adele, or Meryl Streep—he will probably hit some sort of plateau. You can’t necessarily get better forever. But the goal doesn’t need to be infinite growth. Instead, the goal is to find an effective mindset to achieve growth. And that’s what the baby step method provides.

A widely shared story of baby steps involves coach Dave Brailsford’s leadership of the British Cycling team.

Have a Laugh with the 20 Best Cycling GIFs! - We Love Cycling magazine

Brailsford’s vision expanded beyond training and racing and physical attributes. Instead, Brailsford wanted to improve every aspect of a cyclist’s life—diet, sleep, even relationships. Of course, it included their training and recovery and equipment, too. Brailsford was thinking about baby steps. If he could find 70 different places to make a 1% improvement, the cyclists would end up 100% better (1.01 ^ 70 = 2). Sounds easy, right?

They bought more comfortable pillows to help the cyclists sleep through the night. They cut out refined foods, replacing them with something nutritious. The team considered every component on the bicycle where mass could be reduced, even if only by a gram.

These small improvements worked wonders.

Under Brailsford’s leadership from 2007 to 2017, British cyclists won 5 Tour de France titles. And they won 66 Olympic or Paralympic gold medals. Oh, and they won 178 world championships. British cycling dominated the world cycling scene.

Baby steps work.

Baby steps in personal finance

There are plenty of opinions about simple financial goals that you can add to your baby step to-do list.

Unburying yourself—from debt, from bad habits, etc.—isn’t a one step process. It takes time. And it requires small improvements. You know—baby steps.

You can earn money in bits and pieces. A little raise here, a side hustle there. You can find odd jobs or use smartphone apps that pay you money. Little baby steps all over.

College loans and mortgages can take decades to repay. Learning a new budgeting system requires patience. The math behind interest rates might take a few attempts to understand. Rome wasn’t built in a day. And your personal finance success will take time too. But it’ll come if you stick with it.

This plot shows the small baby steps I’ve made over the past two years. In blue are my slow and steady investments. In red is my slow and steady debt payoff. And the white circles combine the two to show a steady increase in net worth.

Winning the lottery would be cool. So would investing in next Amazon, Apple, etc. while they’re still a startup. But if I don’t get that lucky, I’ll be ok. My baby steps are slowly building up.

Keep on Growing

Take it away, Clapton!

And, as always, thanks for reading the Best Interest. If you enjoyed this article and want to read more, I’d suggest checking out my Archive or Subscribing to get future articles emailed to your inbox.

And thank you to Feedspot for including me in their Top 100 personal finance blogs. What an honor! Gotta keep on growing…

Source: bestinterest.blog

The Sweet Spot


“Success can get you to the top of a beautiful cliff,

but then propel you right over the edge of it.”

As a Mustachian, there’s a good chance that you are a bit of an overachiever. 

Maybe you fought hard to get exceptional grades in school, or perhaps you have always dominated in your career or your Ultramarathon habit or your hobbies – or maybe all of the above. 

In the big picture, this usually leads to having a “successful” life, because of this basic math:

Traditional Success
 =
How much work you do
x
How much society happens to value your work

The Nitty Gritty of Traditional Success

Now, lest the Internet Privilege Police head straight to Twitter to start writing out citations, Traditional Success is not a measure of your worthiness as a human being. We’re just talking about the old-fashioned, Smiling 1950s Man definition of success.

 And since we’re all scientists here, we could break the “Work” side of it down a bit further:

And thus, you could say that on average, doing more stuff produces more traditional success. 

But then what?

This is the point where a lot of  smart, driven, born-lucky people drive themselves up the Winding Road of Challenge and then right off the edge of the Cliff of Success. 

If you’re still on the way up, or stuck at the bottom, it is difficult to even imagine the idea of “too much success”. But it’s a real thing, and it happens much more quickly than the modern overachiever would like to admit. Observe the following cautionary tale:

Diana is the director of engineering in a Silicon Valley tech startup. The work is intense, but they are almost over the hump – the company went public last month, and she owns shares that are worth over $10 million at today’s share price. They will vest over the next five years, so she just needs to grind this out and then she will be set for life.

Sounds great, right?

Except this is Diana’s third smashing success. She was already set for life after the second company was acquired, and even before that, her first decade as a rising star at a large company had already left her with over $2 million of investments and a paid-off house in hella expensive Cupertino, California. She had more than enough to retire, twenty years ago!

To many people who are less fortunate, the present situation would still sound like great fortune, and in some ways, it is. Becoming a Director of Engineering is (usually) far better than a punch in the face.

But Diana is now 52 years old, with a collection of increasingly severe back and neck problems and a few medical prescriptions piling up. She has two grown children in their twenties, but wishes she had been able to spend more time with them as they grew up. She has all the money in the world, but still almost no free time, and this next five years is starting to look like an eternity.

What happened here?

Diana is in good company, because many of our hardest-working people fall into this same trap. They have the talent and the great work habits figured out, but they are still missing one last concept – the idea of the sweet spot.

Fig. 1: What is the ideal length of a high-end career?

Diana could have stopped after the first company, or the second, but her career success took on a momentum of its own, so she kept doubling down without stopping to consider why she was doing it – and what she was giving up in exchange.

Once you learn to see the phenomenon of the sweet spot, you will start noticing it everywhere. And it is an amazingly useful thing to start watching and fine-tuning to get the most out of your own life.

Fig.2: What is the ideal amount of Anything?

The Sweet Spot of Physical Training

When a non-runner starts running, they will see immediate benefits. In the process of going from being unable to jog across a parking lot, to being able to easily jog a brisk mile, your entire body will transform for the better. Muscles and bones get stronger, heart and lungs expand and reach out to give your body a healthy embrace, brain functioning and mood and hormones smooth out and normalize. 

Training your way up to become a two mile runner still brings great benefits – just slightly smaller. The fifth through twentieth mile turn you into a hyper efficient machine, but some people start seeing joint injuries as they rise through the ranks.

And by the time you reach the fringe world of 100-mile runners, serious injuries and surgeries are completely normal – as well as unexpected organ failures in otherwise young, healthy people. The sweet spot for daily running for maximum health is somewhere the middle.

All around us, seemingly unrelated things follow this same pattern, from career work to physical exertion to parenting strategy.

Fame and Fortune – be careful what you wish for

Fame definitely has a sweet spot. Building up a good reputation in your community can open the door to better friendships, jobs, relationships, and more fun in general.

But as that reputation expands outwards to become fame, you get the “reward” of constant coverage in gossip magazines and waking up to find photographers and news reporters on your front lawn. At the extreme end, you need to mobilize a team of armored vehicles and line your route with snipers every time you leave your well-guarded compound.

Even money, our humble and ever-willing servant is subject to this phenomenon. It certainly helps us meet our basic needs, but there is a certain point at which Mo Money can become Mo Problems. 

The first bit of monetary surplus can be fun as you can afford a nice house and good food. Then the next chunk seems fun but also causes distractions as you rack up second and third houses and ever-more elaborate possessions and vacations that take a lot of energy to keep track of.

And from there it goes downhill as tabloids start keeping track of your wealth and scrutinizing your choices, hundreds of people mail in pleas for your generosity, and you end up with a full-time job just making sure that the surplus goes to good use. This life arrangement can still be enjoyable for some people, but I would definitely not wish it upon myself.

On and on this pattern goes. A curve with a sweet spot in the middle. The optimal amount of calories to consume in a day. The volume at which you will enjoy your music most. The right brightness of light to illuminate a room. The number of friends with whom you can have a meaningful relationship.

 Why does it occur in so many places? I believe it is because this is how our brains are wired in the first place. 

Humans are a ridiculously adaptable creature, but we do still come with limits.

And when you respect those limits and fine-tune your life within the sweet spot for all of the main pillars for happy living, you end up with the best possible chance at living a happy, prosperous life.

The Curse Of the Overachievers – Revisited

So now you see the problem – overachievers like us tend to get really good at a few things like a career or an athletic pursuit, often specializing so much that we neglect other things like overall health or personal relationships.

And our society notices and rewards us for the success, which just reinforces the behavior, so we take things to even higher extremes, often without stopping to think about the reason behind it.

Okay, So What Now?

Once you see the pattern of the sweet spot,  it is impossible to un-see it. So it becomes pretty easy to float up and look at your entire life from above, like an outside observer.

And from up there, you can see the areas where you have enough, and places where you may have already gone overboard, and the corresponding things that you have left neglected as the price of that success. 

Over the past year I’ve been looking at my own life from this perspective, coming up with quite a few of my own diagnoses:

Money: enough. Additional windfalls don’t seem to bring me any lasting joy, but I also don’t have so much money that it makes me nervous. It’s enough to feel safe and empowered, and that’s all I need. Meanwhile, giving away money has brought me lasting happiness, without creating a feeling of shortage or regret.

Career Success (blog): It Varies. When I was really working on this MMM job in the mid-2010s, it started to take over too much of my life. Emails, opportunities, travel and public attention all reached levels where I actually started to have less fun. So I tried dialing it back, as any long-term readers will have noticed. And sure enough, life improved. But then I went too far and started feeling a loss from letting this valued hobby slip away. I’ve been trying to get back into the groove, which revealed another problem – detailed at the end of this list.

Friendships: Not Enough. I have found myself not being able to keep up with close friends, and had difficulty making or keeping plans, partly out of  feeling overwhelmed with life details in general. Still, the opportunities abound here in my local community, and the people are wonderful. So I have the opportunity to keep working at this.

Health and Fitness: Enough. Since I was about fourteen years old, eating well and getting a lot of varied exercise has always been a kind of non-negotiable pillar for me. Nothing extreme, but just very consistent. I think this has been paying off as I feel healthy every day and have never had any physical or health problems in these 30+ years since.

Parenting and Kids: Enough (an A+!) Since 2005 I made “being a Dad” my primary goal in life, quitting my career to do so. It’s the only thing I can truly say I have done the best I could at, and I’m really proud of that. But part of this success came from only having one kid – both of us parents knew we couldn’t handle any more, given the overall conditions of life back then. So for us, the sweet spot was One Child – and absolutely no regrets in that department.

Personal Projects and Daily Habits: Not Enough. I get great satisfaction from working on challenging things and making progress. But far too often, I just can’t get it together and I squander entire days on accidental distractions. Planning to go out for a day of work can lead to searching for lost sunglasses which can lead to finding a lost to-do list which can lead to opening the computer to look something up and several hours disappearing. On and on these tangents can go, often leading to me not getting my primary, happiness-creating goals for the day accomplished. 

I discovered that I have a pretty severe and textbook case of Adult Attention Deficit Disorder, which gets magnified if there are any sources of stress in my life. So I’m working on that (keeping stress down and also targeting habits, diet, exercise and even trying some medication), which will hopefully improve all other areas of life as well.

What am I missing? I’m still working on thinking it all through, so this list will surely grow.

Your Turn

Your life surely has a completely different array of surpluses, shortages and sweet spots than mine. Your assignment is therefore to write them all out tonight, and see where you stand in each area, and decide what to change. Many of the changes are quite easy to make, and yet the results are nothing short of life-changing.

In the comments: what are your own areas of surplus and shortage? And what’s your plan to help restore balance to your life?

Source: mrmoneymustache.com

Two Years Without Health Insurance (and What I’m Doing Now)

Two years ago, I was unsatisfied with my options for health insurance. The premiums were rising even as the quality dropped in the form of an ever-increasing deductible. I am guessing that you might feel the same way these days – most of us Americans are in the same boat.

I felt like I was being squeezed from both ends and it was starting to piss me off. So I decided to take some action, by doing the math for myself using a spreadsheet. I needed to answer the question, “Is this insurance really as bad a deal as I think it is?”

Sure enough, the risks and rewards of the coverage did not justify the premiums, so I decided to try an experiment and simply drop out of the market and insure myself. In other words, just rolling the dice and going through life with no form of health insurance at all.

Doubling down on the bikes, barbells and salads, I did my best to eliminate any risk factors that are in my control, while accepting that there are still much less likely but more random factors that are not.

Figure 1 – DIY Health Care

Almost two years and $10,000 in premium savings later, I have found the experiment to be a success: I have slept well and not worried about the fact that I could be on the hook for a big bill if I did ever need major care. And as luck would have it, I also enjoyed the same good health as always over this time period – probably the best in my life so far because the extra healthy living has been working its magic.

But.

This situation has not been quite ideal, because my life is not a very useful model for everyone to follow. Most people don’t have the luck of perfect health, many have a larger family than I do, and very few people are in a financial position to self-insure for all possible medical bills.

Also, I found myself wishing I had a doctor that actually knew me, who I could call or visit on short notice if I ever did need help.

Finally, I wanted to switch back to having some form of insurance so that I could learn about it and write about it as time goes on. But was I really willing to be part of that unsatisfying and broken insurance model?

Then something magical happened: I learned about the new and vastly improved world of Direct Primary Care physicians.

What is DPC?

DPC is a fairly new trend in the US, but it is also a return to a very old tradition: a direct relationship between you and your doctor, with no insurance company in the way. 

As a customer, you pay for a monthly subscription (somewhere around $100), and in exchange you get unlimited access to super elite, personalized medicine for the vast majority of your medical needs. Diagnoses, prescriptions, skin conditions, stitches, even fixing a broken bone if you don’t need surgery. All covered, with no co-pay and in an environment that feels to me like Presidential-level health care, in striking contrast to some of my past experiences where I felt like an anonymous numbered ticket in a sloshing sea of bureaucratic institutional medicine.

Oh, and direct email, phone and text message contact with your doctor, prescriptions over phone or video call, and in some cases even house calls depending on the practice and the situation.

Through some sort of magic, the Direct Primary Care model offers much better medical care and much lower prices, at the same time.

How could it be? It’s because of the incentives.

Figure 2: The Insurance Model for Health Care

In our famously broken US healthcare model, an insurance company is wedged in between you and your doctors, and it has different objectives than you do.

You just want the best overall health for yourself, and when the shit does hit the fan and you need medical care, you want it to be quick, effective, and at minimum cost. And you don’t want to be hounded with years of stressful stray bills after an expensive medical procedure.

Your Doctor wants to help as many people as possible and make a good living, without having to wade through a sea of paperwork or stress or lawsuits.

Your Insurance company wants to make as much profit as possible, which means maximizing the amount they collect from you, and minimizing the amount they pay to your doctor. In theory, they benefit from helping you to stay healthy. But they have also developed elaborate contracts (putting in as many loopholes as possible to allow them to drop your coverage or deny claims), become masters of delaying payments, limiting which procedures and tests they will authorize doctors to do, and just generally throwing the biggest monkey wrench into the system that they can.

Over the decades, there has been a complex battle of lawmaking, lobbying, compromise and complexity to try to regulate away some of these problems. Sometimes the new laws help, sometimes they don’t, but the end result will never be optimal simply because there are a lot of people involved, and big crowds of humans make for slow and shitty decision making.

The Direct Primary Care Model

Figure 3: The Direct Primary Care Model

With DPC, it’s just you and your doctor. You both have the same incentives, but now the model works much better because there is no chaotic and expensive force in the middle to mess things up.

And because you operate on a subscription, the doctor gets paid whether you come into the office or not. At the same time, you are free to come in whenever you do need something, at no additional cost. So she has an incentive to keep you healthy, so that you have no need to come into the office in the first place. 

On top of this, you get to decide together what is the best course of healthy prevention and treatment, without the overhead and complexity of constantly fighting with insurance companies. This drastically cuts the costs by eliminating the large staff of paper-pushers and attorneys that you normally need to operate a medical office, and frees up the doctor to spend more time with each patient during each visit.

How could the doctor possibly make a living with such low fees?

As it turns out, a small practice with one or two doctors and a few credentialed medical assistants can handle over 1000 subscribers while still giving each person much more time than they get under the old model. At $100 per month, this is $1.2 million in annual gross subscriber income, which is enough to pay everybody well, and rent a suitable clinic space. And as you scale up the operation, some economies of scale on things like space and equipment make it even better.

Just as importantly, running a practice like this tends to make a dramatic improvement in a doctor’s quality of life. It’s better medicine, with more flexibility and less hassle and stress. No wonder this model is growing rapidly and has become a favorite of physicians who happen to be MMM readers, as I hear from more of them every month.

Direct Primary Care is now a nationwide movement, with many hundreds of practices spanning the country and many more opening each year. Today’s screenshot of https://mapper.dpcfrontier.com/ shows the current state of the market. 

Direct care locations everywhere

In fact, it turns out this whole trend might even be a Mustachian-originated phenomenon, as I joined my own local practice called Cloud Medical, met the founder Dr. David Tusek, and he revealed halfway through our introductory visit that he was both a founder of DPC pioneer Nextera Healthcare in 2009, and a lurking reader of this blog for several years before I discovered him right here in my own town. 

A note for locals: if you are considering joining Cloud, mention that you would like the MMM discount to save a further $12/month! (we have no affiliation, they are just looking to expand the practice and I’ll remove this notice if they fill up)

My experience (so far) with Cloud Medical

Cloud Medical’s Longmont office – definitely a step up over past medical office experiences! (although they do need to add a proper bike rack)

I signed up with Cloud this past summer, about five months ago. Although I have been feeling great, I figured it was time to put myself through an extensive battery of “middle-aged man” tests just to make sure I am not missing any hidden problems. 

With the doctor’s guidance, I did a very thorough blood test, plus an electrocardiogram scan of my heart performance and ultrasound Carotid artery scan which involves a practitioner lubing up your neck and sliding a Star-Trek-style probe around on it while recording images of your body’s most critical plumbing to check for signs of clogging. Plus the usual checks of an annual physical exam. All clear.

I also finally got around to a long-awaited diagnosis and prescription for my Adult Attention Deficit Disorder condition, something which took me seven years to get organized enough to achieve, paradoxically one of the crippling effects of ADD. Although this is a very personal health detail, I mention it here because there are many friends and readers who also suffer from this condition, and I encourage you to learn more about it and seek help if appropriate. It can be life-changing.  I found this process was much easier in a DPC environment, because of the more personal nature of the doctor-patient connection. 

This DPC model addresses perhaps 90% of typical medical needs in-house, and a “menu” of optional specialists knocks out another 5%. 

Cloud and other DPC practices have a “menu” of standardized prices, typically much lower than traditional offices. Full PDF here.

But there is still a chance you will need the more rare (and expensive) services of a hospital or specialist. In this case, your DPC physician can provide referrals and guidance to allow you to get the right help at a discounted, direct-pay price, or even handle your needs with a conventional insurance company.

Part Two: But What About Bigger Expenses?

Health share options, with the one I chose (Sedera) in the center.

At this point, you can add another layer of protection: High deductible conventional insurance, or a health share membership which offers a similar end-result while being careful not to be classified as insurance. 

A Disclaimer before we begin:

I think of health shares as a form of “emergency medical bill reimbursement”, rather than full fledged insurance. They are suitable for mostly-healthy people who want financial protection in the event of a major medical event. But they are not insurance, and often not too useful for someone with an existing, expensive condition.

Update 11/12: This blog post has triggered lots of fine-print-reading and discussion among readers, which led us to follow up with various insurance and health share companies.

The final word on one issue of debate: most conventional insurance and health shares do not cover voluntary abortions, while they do cover medically necessary ones, just under the different name of “Maternal Complications”.

Health shares in particular also don’t offer much ongoing drug reimbursement, which includes a lack of coverage for birth control. While I disagree with this policy, from a practical perspective it just means you need to budget for this expense separately.

For situations where a health share membership falls short, the subsidized and regulated insurance available through employer-based plans or the state exchanges via the Affordable Care Act, are probably a better bet.

But with all that in mind, I still chose one for myself, so let’s get into it!

Health sharing groups started out catering only to members of certain religions. Then a provider called Liberty Health Share opened up the market slightly while still requiring some fairly specific spiritual affirmations.

The latest incarnation is a company called Sedera* , which has addressed some of the shortcomings of earlier companies, has far less religious basis, and now seems to be the place that most of my more analytical friends and their families are ending up. Even my DPC physician Dr. Tusek is now recommending Sedera.

Sedera is worth a whole separate article in itself, and in fact I am starting a dedicated page for questions and answers and discussion on the experience. But for now, we’ll take a shortcut and just say that I was convinced and willing to give it a try, so I signed myself up as a Sedera customer.

A quick comparison of the closest standard insurance plan I could find on the standard Colorado health insurance exchange, versus what I got from Sedera (click for larger version):

For me, Sedera cuts my monthly cost in half, even while delivering better coverage.

Another thing I like about all this is that there is no concept of “in network” and “out of network” doctors or hospitals. You can even use hospitals in other countries while traveling, and get reimbursed in US dollars after you return home. It’s simpler, cheaper and more flexible.

So in the end, by combining DPC with a health share membership, I am hopefully ending up with the best of all worlds:

  • The best personalized, advanced medicine and quick response time, possibly anywhere in the world through my DPC subscription, with unlimited “free” (zero co-pay) doctor visits.
  • Flexible coverage for any additional needs and support for decision-making and billing, even when traveling internationally
  • A financial backstop just in case things get really expensive
  • At a total monthly cost that is still lower than the most basic ho-hum plan on standard insurance
  • A further bonus – Sedera incentivizes you to be a member of a DPC, with a solid discount if you are, because they know their costs to cover you will be lower if you are healthier and have hassle-free access to a doctor.

This all sounds good to me, but it is important to state that this is an experiment. I still don’t have much experience with the US healthcare system – it helped deliver my son in 2006, and then repair that same boy’s broken arm in 2016. Conventional insurance offered some halfhearted support for both of those expenses, but aside from that I don’t have many stories to tell. 

By collecting more information from readers and from my new helpers at Cloud Medical and Sedera, we should be able to make more sense of all this. And hopefully continue to expand and improve this new, better form of health care so it is accessible to more US residents.

If it gets big enough, we might end up solving this whole problem together – better, cheaper health care for everyone.

But What About the Affordable Care Act?

I think that DPC and ACA could work together perfectly – we keep the idea of the personal relationships, the subscription-based model, and the open and competitive pricing from hospitals for all procedures. But we just don’t need conventional insurance companies. If our society wants to help less-wealthy people to afford the best health care (which I think is a great idea), we could just subsidize their DPC memberships and offer a public insurance option at low or zero cost which covers hospitalizations. The reason this is better than the ACA: direct care and no insurance companies.

Conclusion

My past articles and experiences have shown that for many of us, a big hurdle when considering early retirement or self-employment is “what about health insurance”? Hopefully the is DPC + Healthshare method will put that question to rest for many of us. After all, shouldn’t our career and life choices be separate from our healthcare?

—–

Interested in Learning More?

A long-time friend of mine (and fellow early-retiree, and co-owner of the HQ coworking space) Bill and his family have been Sedera customers and enthusiasts for about two years. So much that he even took it upon himself to meet the company’s management, sign himself up as a representative to streamline some of the inefficiencies he perceived when joining, and then teach me about the whole thing.

Because of that, I am sharing Bill’s Sedera signup link in this article. His is unique among the Sedera affiliates in that he charges zero administrative fee, typical brokers charge $25 per month and up.

https:/sedera.community/thefireguild1

*note: Sedera does pay its affiliates a small referral fee for new customers, which does not affect your monthly bill – in fact, this link offers a lower price than subscribing directly through the company’s website. Thus, we believe this is the lowest cost way on the Internet to get this coverage.

As mentioned above, I’m giving Bill his own page to maintain on this site, where he can share his ongoing research and updates and answer questions: mrmoneymustache.com/sedera

Further Reading:

I was quite moved by this piece that Cloud Medical’s Dr. David Tusek wrote about “the ten heartbreaks” that led him to work since 2009 towards accelerating this better way to do healthcare.

An interesting story from Bill’s hometown, from a doctor who took this path way back in 2013:

South Portland Doctor Stops Accepting Insurance, Posts Prices Online
(from the Bangor Daily News)

Source: mrmoneymustache.com

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