Building a Strong Relationship with Your CPA w/ Heath Chavis

Heath

[00:00:00] Patrick McGrath: You're doing real estate, right? You have your, you got your agent, you got your loan officer, you got your inspector. I think that your CPA could, should be someone that you can bounce ideas off of and talk to before you go and make some of these big purchases or big decisions for yourself.

[00:00:20] intro: You're listening to the real fi podcast where we discuss time, tested tricks, techniques, and strategies for pursuing financial independence today, so that we can enjoy a better tomorrow. Financial independence. Isn't about getting rich quick. It's about cultivating a foundation to grow financially, mentally, physically, and spiritually.

[00:00:44] Let's figure out how to kick the nine to five. Here are your hosts, Patrick and James. 

[00:00:51] Join everybody. And welcome back to another episode of the real fi podcast. I'm your host, Patrick McGrath. My co-host James [00:01:00] Ripon. How you doing today, James? Good 

[00:01:01] Heath Chavis: man. No 

[00:01:02] James Rippeon: complaints over. 

[00:01:04] Patrick McGrath: Excellent. We got a great guest today.

[00:01:06] We got Heath Chavis, CPA. How's it going, Heath? 

[00:01:10] Heath Chavis: Very good. Thanks you so much for having 

[00:01:13] Patrick McGrath: excellent. Excellent. James, get us started, man. 

[00:01:16] James Rippeon: Yeah. So Heath, tell us a little bit about your background, man. Fill in our listeners. Tell us your life story, where you started, how you got to be, where you're at now.

[00:01:26] Just give us some details, start back as far back as you want to go. Bring us up to date. Bring 

[00:01:31] Heath Chavis: us current. Sounds good. Name's Heath Chivas. I'm a CPA at a Maryland. I I'm also a certified financial planner, so yeah, I've been trying to do that with my clients, combine both services as they're pretty complimentary, but little bit about myself from Baltimore, Maryland grew up there, went to university of Maryland for college.

[00:01:53] After that, I, when I graduated had a couple jobs at different CPA firms worked. Clients are just [00:02:00] starting out all the way up to, hundreds of clients that have hundreds of millions, if not billions of dollars, big firms, small firms, and about a couple years ago started my own tax accounting and financial advisory practice.

[00:02:15] And you just decided it was time for me to go out on my own and worked with a bunch of different places and try to take the best of everything from all there. And bring that to my clients best I. 

[00:02:27] James Rippeon: So what motivated you to start your own practice? It's no small feat to get off the, W2 train and take that risk to grow your own business, grow your own clients.

[00:02:38] Think. Yeah, absolutely. 

[00:02:39] Heath Chavis: So sorry. Yeah. So what I would do is I was working for other accounting practices. I would, I had my own little side practice the whole time, because I always felt that I'd never wanted to be just beholden to. Employer for whatever I was doing. So felt that it was important for me to have, an extra stream of income from, multiple [00:03:00] different sources.

[00:03:00] I've always had, different types of odd jobs, trying to make sure that I have been able to not just be dependent on one person. It was something that I was always taught very young and have tried to implement in my life. So got to the point where I had enough clients on my own, where I had a decent base and could say that.

[00:03:17] Definitely gonna be tough, but can go out and market myself and start working with the clients that I wanna work with. And you really build something from the way that I think it should be built. Personal service, a lot of accounting firms end up really just being, tax return shops and don't really give the type of personal service that I think.

[00:03:35] Clients need and deserve. So try to build my practice, working with small business owners, people that are you heavily invested in real estate to make sure that we're properly planning tax-wise and financial wise, for them. Cause like I said, they're all very intertwined. So as much as you can, buy yourself property, if you're doing a 10 31 or if you're starting your own business, making sure that you're.

[00:03:58] Overpaying in taxes that you're [00:04:00] reducing your tax liability and then making sure that with those tax savings you're becoming financially free is what I really try to do with my clients. Go ahead, 

[00:04:08] James Rippeon: James. I was gonna say, I can definitely attest to that. Having the personal services for an accountant goes a long way.

[00:04:14] Full disclosure, Heath is my accountant. So we're, we actually just got off a call earlier before this podcast talking about money. It's good conversations to have, but it's good when you can get someone on the. Have that personal relationship, especially with something as big as taxes, the biggest bill anybody's ever gonna pay is their tax bill.

[00:04:34] Some people think it's their primary residence, but when you look up how much you're paying annually in taxes, uncle, Sam's your number one bill. Having a good relationship with an accountant definitely a great thing to work on. 

[00:04:46] Patrick McGrath: Exactly. So what I was gonna ask Keith is for anyone out there.

[00:04:51] Who hasn't had an interaction with a CPA or a financial planner, what's that first meeting look like on what people need to [00:05:00] bring to the table to help you put a plan and a path together for them to be able to lower their tax liability and really get an overall understanding of, their financial.

[00:05:14] Heath Chavis: Absolutely. Yeah, I think your question touched on a little bit. The first step comes from the client end, making sure that they understand that they have gotten to the point. Where they really could use some professional assistance. Some people, yeah, they're just coming out or if they just have a W2 tax, situation's pretty simple.

[00:05:35] They don't really have any outside investments. It's not really much value that, I can bring there. I can certainly help them with their financial planning and, family planning, different things that they may need to do. But just from a pure tax perspective, if you just have a w two and you're an employee, sometimes there's not as much that I can.

[00:05:51] But as you do start to accumulate additional wealth, a rental property of business, a side business, anything that's there. [00:06:00] The first step that I have when somebody reaches out to me is trying to fully understand their situation. Generally have a consultation, with them 15 minutes, 30 minutes, just to get an idea of what they're doing.

[00:06:10] I'm a big trust, but verified person. So I'll review their, tax return. From the prior year, making sure that they're not missing anything and I'm not overlooking anything because a lot of times it's with other industries, know, if I'm buying a house or I'm doing something else, you don't know what you don't know.

[00:06:27] So sometimes when people are coming to me, they don't know what they don't know at first. So when you're starting a business, what's the best entity structure to have. When you're buying a house or a rental property, do I put it in an LLC? Do I own it personally? What do all these different things look like?

[00:06:41] And that's generally how I try to start. My relationship with anybody is understanding their situations. Make sure it's a good fit from both ends. Cause there are tons of different people out there, many different types of CPAs and know, other professionals. So you wanna make sure that who you're working with is someone that you can get along with and you mesh 

[00:06:59] James Rippeon: well.[00:07:00] 

[00:07:00] Definitely sounds like you're doing something a little bit beyond just filing taxes. It sounds like you're a consultant of sorts for small business centers, helping them see the bigger picture of what their finances mean in their business and how to mitigate tax liabilities. It's not just about filing that return at the end of the year before April 15th.

[00:07:20] Heath Chavis: And I don't think it should be. I think when you're becoming financially independent and you are. Going out on your own and, working with someone, for that there's turbo tax, for those things, tax returns, the service have really become commoditized in my opinion. So there's only so far that can go, however, you got companies like into it where they're, bringing everything together and they're doing their best to do but when you just go out, you start Googling something and you can really go down a rabbit hole. So yeah, I've done. I've done that research. I have a very good idea of what I think is the best way or most appropriate way that something can be structured, whether it's a real estate [00:08:00] transaction, a small business sale, when you start a business with other people we can go through those different scenarios and you can really make sure that you're being put in the best position possible.

[00:08:11] Patrick McGrath: All right, Heath. So all that makes a lot of sense. So I really kind. Take my relationship with my CPA as a partnership, right? You have a doctor when you're having a health issue. You've got all these different people in your life that are there to help you out, especially when you're doing real estate.

[00:08:28] You have your, you got your agent, you got your loan officer, you got your inspector. I think that your CPA could, should be someone that you can bounce ideas off of and talk to before you go and make some of. Big purchases or big decisions for yourself and your business. And it sounds like that is the type of service that you really offer.

[00:08:52] The, my only really experience before I got my most recent one was with one of those guys selling was it. [00:09:00] Whole life insurance kind of policies and everything like that. When I was like 23 , talked me into getting one of those. So that was my only, you're not the only one.

[00:09:09] And I think that's probably a lot of other people's experiences out there too. And for someone let's say there's somebody out there who's got one or two rental properties. They've made a purchase this year, or they've sold one this year. Someone like that. How often should they be speaking with their CPA to get an idea of where they're at.

[00:09:33] Heath Chavis: So it really, it depends on the specific situation when they're going through and they have, one or two, one of the properties, I would assume before they buy the property. It's no more than, a five or 10 minute call or at least to me a lot, my clients will call me for five or 10 minutes, say, this is what I'm thinking about doing.

[00:09:47] And I'll say, have you thought of this? Have you thought of that these are the different potential tax implications or. Ways to get money out of your rental property, different things that you can do. How much of a down payment should you make? If people are thinking about paying [00:10:00] something off entirely, we talk about their mortgage rate and, the opportunity costs them money, where if they put all their money and don't have a loan, it's fantastic, but money's still inexpensive right now that sometimes it's better to keep alone.

[00:10:13] So all of that can really be accomplished in 5, 10, 15 minute conversation. So understanding somebody's specific situ. Understanding their risk tolerance and what their emotional state is because it's not all just numbers a lot of time, everybody's got their different risk tolerance of what they're comfortable with.

[00:10:29] So understanding where that comes from, is, certainly important. But getting to your point, how often does somebody talk to you their CPA, or should they, I would say before any big transaction that you're gonna do, I try to talk to my clients at least two to four times a year, depending on who the client is right now.

[00:10:45] I was saying before, there's not a ton that you can do if you just have a W2 and say you have no rental properties, you just have a W2 right now. It's open enrollment. So could you take advantage of dependent care? Could you do an HSA type plan at work? How do [00:11:00] those work? What are they? Again, all of that.

[00:11:02] Yeah. I try to make sure my clients know that they can call me cause everybody's, situations, different companies offer different things. So making sure that. Know, the lines of communication are open to me. And I don't charge by the hour. I always try to come up with a fixed fee of what things are gonna be throughout the year.

[00:11:18] So that way people are encouraged to call. They know they're not gonna get a bill for, 150 bucks for a 20 minute phone call or something, whatever comes that some people send. So 

[00:11:27] Patrick McGrath: exactly, I've gotten a few of those. So 

[00:11:30] Heath Chavis: a lot of people have, and that was one of my, the frustrating things. When I worked for a CPA firm.

[00:11:36] You always had the client should always come first in my opinion. And when you do that, everything has to work. 

[00:11:42] James Rippeon: He, I don't know if you get the same feeling, but when I was an attorney I still am an attorney technically, but it feels like a life long gone. , I felt it was hard to put everybody in a position to be happy at the end of the day.

[00:11:54] But I don't know how it is for you. CPA, for example, as an attorney, people are suing each [00:12:00] other's pants off. Everybody's upset with each other most of the time, except when you're doing transactional things. People can't be happy at the end of the transaction. If you're closing a real estate deal or you're selling a business, those are joyous moments and people get a lot of benefit from that.

[00:12:13] How would you rank people's just general interactions with CPAs? Is it generally positive or is it generally negative? Is it something that they're not looking forward to? Or is it something they appreciate at the end of the day? Because you're able to feel, figure out ways to save money and provide value to them.

[00:12:32] Heath Chavis: Yeah. I think that's the you kind hit right on it. When, what I try to make sure that I'm doing is bringing value to someone where either through putting together a tax plan or taking some of the tax savings that they've had, and coming up with a 5, 10, 15 year plan, where we know that we're gonna take these tax savings and put them to work for them.

[00:12:53] So they don't have to work as hard in the future. They are gonna have some sort of retirement and accomplish those financial goals. When people [00:13:00] understand what the plan is, then I think that everybody's. Because, there's obviously there's a fee for doing things like that. The fees, appropriate to make sure that they are certainly saving much more than they otherwise would be if they were not working with me.

[00:13:16] And whether it's through helping somebody through a 10 31 transaction where you'd be shocked, I know in this podcast, people that are listening to it, most people probably do know what a 10 31 exchange is. A lot of people out there have no idea what they are, which again is one of those reasons.

[00:13:32] I always try to encourage my clients to call me because based on their specific situation, it may or may not be appropriate, but at least they know the options out there. Once we get off the phone. Going through all those types of different scenarios is key. And if somebody can save hundred thousand dollars in capital gain stats, like somebody just did the other day completely, within the realm of the law and they can get a bigger, better property.

[00:13:55] Everybody's very happy with that. 

[00:13:57] James Rippeon: So I was talking to my wife earlier, too. [00:14:00] We were having that discussion and we were talking about, the fees paid to CPA. And I just came back to thinking listen, like Heath is gonna save us a lot of money in the long run. And the fees are minuscule compared to the benefit you get.

[00:14:13] When you see how compound returns on money work, especially with tax savings, you figure out that you can make contributions to an HSA. You figure out how to really work the 10 31 exchange. Those compound returns on the tens to hundreds of thousands of dollars you save are magnitudes greater than the fees that you would pay.

[00:14:32] To get those words of advice. So I think it probably matters how somebody perceives the value they're gonna get. They're either looking at the dollars they're spending today and prefer to just do the turbo tax and not really seeing the potentially not seeing the benefit in the future by thinking of the bigger picture.

[00:14:51] Heath Chavis: It's almost with any professional, you try to make sure that you are your valuable asset to someone as opposed to a sun cost expense. And I [00:15:00] try to frame my, myself and my practice that way. And it's a way of yeah, just expressing that value, making sure cause it that people can call because if they're not spreading yourself too thin, if they're.

[00:15:12] You wanna make sure people can call and I wanna be available, not 24, 7, but often enough whenever anybody needs. So I understand people are busy during the day. So try to make myself available, a couple evenings a week as well, to make sure that everything gets done and accomplished for whoever it needs to be done for, and that they know that they can always reach out.

[00:15:32] Patrick McGrath: That's really great. So when you're looking at these clients, you said you've got clients, couple hundred thousand net worth. To, million tens of millions what are some of the common things that you are seeing from these successful, high net worth individuals?

[00:15:51] Heath Chavis: The main thing, not the main thing, but one, one of the biggest things is, yeah, it's almost like when you listen to any of these interviews [00:16:00] from very successful people. They work very hard. They're very intelligent for the most part, but, it's where look meets opportunity and they're able to take advantage of an opportunity that's presented to them, right place, right time.

[00:16:12] But not just that, it's them being able to take advantage of it because maybe they're only one out of 30 people or 50 people that could take advantage of the situation that they're in. Many of them I've helped them, people that I've been working with for the past. Cause I told you, I have, I've had my own practice for a couple years, but I've been working with people for, the past 12 to 15 years.

[00:16:33] I've helped them start their small businesses and they started from nothing. And now they've got a business that grosses eight to 10 million a year. Very hard work. Anybody who's entrepreneurial, they know that. They're gonna keep a good set of books. We're gonna be able to make sure that we have an appropriate structure for them, but they work very hard is, you know what I've seen for the most part, you get to a point where you definitely work smarter, not always, harder, but definitely there's an [00:17:00] intelligence factor.

[00:17:00] And there's a work ethic that I found that many entrepreneurs have more often than not for for becoming successful. 

[00:17:08] Patrick McGrath: I think that's. I think that's huge right there, because there's so many people out there that think there's, a kind of get rich quick thing, or it doesn't necessarily take hard work.

[00:17:21] Or they just don't wanna do it. And the fact of the matter is you've gotta, you've gotta put in the time you've gotta put in the effort, whether it's the research and it's in nine times nine to 10, it's doing all of those things together. You. Being diligent, putting in the time, going above and beyond working nights and weekends, you've gotta grind and hustle, those first couple years until you're gonna start seeing things pay off.

[00:17:43] And it's the people that stick through it. Which is obviously what you've seen, who end up actually, making it out and once you're successful, you can, you can say, I was in the right place at the right time, but you. No 

[00:17:55] Heath Chavis: it's taking advantage of it though. You certainly do have to be in the place for the right time, but you have to be able to recognize [00:18:00] and take advantage of that with, and you see it now with cryptocurrency, right?

[00:18:03] You've got some people that they do, they get rich quick and it's fantastic. It doesn't happen often. I think that's more the exception than the normal. 

[00:18:12] Patrick McGrath: Exactly. And anyone out there who has, made it rich or made a significant amount of money with their cryptocurrency. A hundred percent needs to reach out to their tax advisor, because I don't know about you, but I think the past two years, when you go to do your taxes, they have a little form that says, have you invested in cryptocurrency in the last year?

[00:18:34] I think it's 

[00:18:35] James Rippeon: page one. Now, page one. 

[00:18:37] Heath Chavis: It is the first page on the return right after. Do you want donate to the presidential campaign? 

[00:18:41] James Rippeon: Janet yell wants to know what you own. Don't 

[00:18:44] Patrick McGrath: forget. First on the page. So anyone out there with those ship gains with those Bitcoin gains from this year and that are be going into Q4 definitely reach out to.

[00:18:58] CPA to [00:19:00] do. I 

[00:19:00] James Rippeon: I know our listeners don't have that problem cuz they have diamond hands and they're never gonna sell they're strong willed 

[00:19:06] Patrick McGrath: individuals. I'm I'm paper, hands, pat over here. I'm not gonna lie, but get in, get out baby. But 

[00:19:11] Heath Chavis: yeah, 

[00:19:12] James Rippeon: speaking about crypto though let's just say that I don't want to pay taxes on it or I want to minimize taxes or I want to take actions that.

[00:19:21] Tax favorable SP specifically with cryptocurrencies and in my case, just Bitcoin what are some things that we can do and look to do to of plan along the volatility of what is cryptocurrency. 

[00:19:33] Heath Chavis: Yeah, absolutely. So cryptocurrency is gonna be treated, when you buy it, you wanna make sure that you have a good, spreadsheet of, unless you're doing it like Robin hood or something, but if you're just buying it yourself making sure you have basis and what you bought and sold.

[00:19:46] Your crypto currency score and what date you sold it, how much fees you paid, cuz every time you buy and sell, you've gotta pay some fees for that. But the biggest thing and the biggest, loophole that I've seen is if you do have cryptocurrency and you're able [00:20:00] to sell it at a loss and you, or you have losses in your cryptocurrency paper losses, you can sell that cryptocurrency and then buy it right back a couple minutes later.

[00:20:12] It's not subject to the wash sale rules, that many securities stocks, mutual funds and ETFs are now a wash sale is when you sell a security at a loss, you can't buy it back for at least 30 days. Or if you do buy it back within 30 days, you do not get credit for the loss on your tax return. The reason cryptocurrency is different is because the IRS has designated it as a commodity.

[00:20:39] As opposed to a security. So because of the IRS's designation, you can take advantage of some of those paper, cryptocurrency losses to offset some of those gains, if you are so inclined to sell. So if you are not James and you're inclined to sell. Into some of this, and you would like to reduce some of the taxes.

[00:20:59] You can [00:21:00] find some of those paper losses that have been there, sell those, buy it right back. You will have to pay some of those fees that are, involved the transaction fees. But oftentimes if you're able to take a $20,000 loss on your tax return, that more than offsets. Any kind of fees that you would have to pay for that.

[00:21:19] But just I'm going through and looking at it. That's one really big way to save some money on cryptocurrency transactions. 

[00:21:25] James Rippeon: So just to put a number on it, then let's say, someone gets into the, all the hype, Bitcoin's at $65,000, whatever it's at. They FOMO in, they got some cash sitting on the sidelines.

[00:21:35] They're like, I'm not waiting for it to go up down. I'm just gonna buy right in. They buy it in 65. Let's just say it drops. It gets a 50% haircut down to 30. So now they've got this $30,000 paper loss. So what you're saying is that they would sell it at 30 and then immediately buy back in at 30.

[00:21:52] And then after that point, whatever happens, but now they're carrying this $30,000 loss. What happens with that? How's that. [00:22:00] in regards to taxes. What's the importance of that loss? 

[00:22:03] Heath Chavis: So you can take up to a $3,000 loss over capital gains each year. So if they continue to buy cryptocurrency and never sell, they have this $30,000 loss that they can carry over for the next 10 years.

[00:22:16] If later in the year, there was another coin that they purchased. Maybe the cat lady coin. Or cat girl coin and then they hit it big over the course of a weekend and they made $25,000 on it. They can use that $30,000 loss from the Bitcoin sale that they still have to offset that $25,000 gain on the capital sale or cat girl coin, whatever was called.

[00:22:42] So that way they're not paying any taxes on that gain. From the other coin because they were able to offset, offset that game with the loss that they were able to recognize. 

[00:22:52] Patrick McGrath: That's that's extremely interesting. Now what about converting? Is that also considered a sale too? [00:23:00] Because I know that you can basically convert yes.

[00:23:02] One cryptocurrency into another cryptocurrency. You didn't sell it technically. I, what did 

[00:23:10] Heath Chavis: that is a sale, right? Correct. That is qualified as a sale. Just, if rebalance your portfolio, moved out of one stock and into another. And that would be one of the areas where this, quote, wash sale or non wash sale strategy would come into play.

[00:23:23] Because if you did want converse some coins and you had gains, you could recognize losses on other coins to offset some of those. Just imagine you have losses, hopefully, nobody's trading this to obviously to lose money, but exactly review your portfolio of cryptocurrencies and there are losses in there then you can offset that.

[00:23:40] Or if you have other regular securities you have losses. You can use those. As long as you don't buy 'em back. You 

[00:23:45] Patrick McGrath: can go onto to any of the major trading exchanges and click on the taxes section and it will generate a nice report for. Of every transaction that you've ever done. And 

[00:23:57] James Rippeon: for those who can't see, [00:24:00] Patrick is holding up all his losses that he's gotta not pay taxes 

[00:24:05] Heath Chavis: on.

[00:24:05] There's 

[00:24:06] Patrick McGrath: some of these, Bitcoin back in 2018, stuff like that on there. There you go. But yeah, so that's good. I, I wanted to touch base on that one for sure, because I know. There's a lot 

[00:24:16] Heath Chavis: of people, very topical right now, a lot of people are investing in the crypto currencies and it's that's definitely been one of the things that I've seen more and more, and, people ask me all the time as not just a CPA, but also as a certified financial planner, how much of my money should really be in cryptocurrency.

[00:24:30] And to me, my, my basic answer will be anywhere from, one to 5% of what you are, depending on how strongly you think of it. That's you know, an appropriate amount to be in there. If you at least wanna participate in there, some people wanna do more, someone wanna do less, but yeah, it's anything it's yeah, you have to be comfortable to lose whatever you're investing in there.

[00:24:57] Patrick McGrath: Exactly. It 

[00:24:59] James Rippeon: makes a ton of [00:25:00] sense. Keeping on the topical segment. We're gonna make this a little political we got conversations coming out of treasury and Congress talking about unrealized capital gains taxes. Don't necessarily need to know What your political stance is, but talk to us a little bit about what that means.

[00:25:18] How does this apply? Is this like a realistic thing that people are just chatting about? Or is this kind of just political showmanship? What are your thoughts on this unrealized capital gains tax? 

[00:25:30] Heath Chavis: My, my thoughts would be, I would love to see how they're gonna implement it. Because if you can obviously tax people on unrealized gains, but what will happen if there are, huge unrealized losses, how does that work?

[00:25:40] What do the mechanisms do? I always try not to opine on any of these until I actually see some of the tax and the proposals that come out because I'm just not sure how they would implement that. And I'm not sure anybody is because I haven't seen, I don't know if there is any. Concrete proposal out there on how they would do that.

[00:25:59] But [00:26:00] the interesting thing that I have been doing with a lot of my clients is because obviously, whichever way you buy it doesn't really matter. There are political realities out there that taxes may go up. Nothing may be done, you never know. So what I've been telling my clients is.

[00:26:15] We at least have to have a conversation about it and where most of the time you'd want to defer income as long as possible to defer the taxes on it. If tax rates are going to go up, sometimes it may be better to accelerate income into the current year, which is a little, it's counterintuitive, but if you're gonna pay a lower tax rate on that money, even paying it this year, tax on it in 2021.

[00:26:39] Maybe better than deferring it till 2022. So those are more, the conversations that I've had with my clients is depending, do I buy that new car this year? Or do I buy it next year? Do I, take that bonus depreciation on the piece of equipment or machine that I'm buying this year? Or do I do it next year?

[00:26:57] And that's really the main, reason to have these [00:27:00] conversations, quarterly or semi-annually depending on, the type of client it is. These are all things that go on and we've seen things change by the hour, by the minute, by the week depending on what Congress is doing. I have clients of all different political persuasions and a lot of times they're more than happy to let me know what their views are, but I always try to stay very apolitical through all of those things, because there are just certain realities that you may or may not be able to change, but you have to be able to.

[00:27:28] Know what they may be, what proposals are out there and be able to have a plan to adapt either way. That's good to know. Cause I 

[00:27:33] James Rippeon: just didn't have any idea how practical this was to be implemented. How realistic it is. Interesting concept, nonetheless. 

[00:27:41] Heath Chavis: It definitely is. And that's where like I said I always try to make sure that I at least stay on top of what proposals are potentially out there.

[00:27:49] And just to know what's gonna affect other people, cuz you're gonna have different credits out there. When you start to look at, I have some clients who own restaurants. So there was a specific credit out there last year for restaurant owners where they could apply [00:28:00] for different grants in DC.

[00:28:01] So understanding the industries that you work with and being able to, stay on top of those types of things can be very valuable to a lot of people. 

[00:28:11] Patrick McGrath: Exactly. 

[00:28:12] Heath Chavis: Exactly. I that was a very politically correct answer. I know 

[00:28:16] Patrick McGrath: it was, I really wanted to ask if for any of your high net worth individuals on both political leaning sides, are both of them fierce and want to pay as least taxes as possible or does one side prefer to not pay as much than the other?

[00:28:32] It 

[00:28:32] Heath Chavis: really depends on personality, which is interesting. Some people are more than happy. They say, I've been very successful and I'm happy to pay my, quote unquote fair share. And if people deem it that fair share needs to be higher, they're happy to pay it. And then there are others who, despite earning, five to 10 million a year, think that there's a way to, pay zero taxes.

[00:28:50] Way to really less that I know of is to be in real estate where you're taking huge depreciation losses on different things. So real estate income, a way. Exactly. If you can have zero [00:29:00] taxable income you that's one way to do it. But I think that I also find it interesting when I have people that I had been working with for a while, where they start off, obviously at the lower end of the income spectrum.

[00:29:11] And then they start to realize as they become more success. The amount of taxes that they need to pay. And many of them, become surprised by that as much as we're able to reduce their liability through different planning mechanisms that we utilize. There's still a time where if you have, you know, X, X dollars of income, you there's gonna be some tax liability that's owed and making sure that doesn't come as a surprise to people it's to see people's reactions sometimes is.

[00:29:39] Favorite part of my day. 

[00:29:41] Patrick McGrath: exactly. No, I don't care who you are, when you're making a little bit, 10%, 15% doesn't seem that much. But then when you're making a big bit, 10% or 15%, you're like, whoa, that's, that could be, one and a half million, plus. Yep. So are you. So I've been seeing this [00:30:00] kind of new trend, not necessarily new trend, but new trend for people that they talk about on on TikTok a lot.

[00:30:06] Isn't about life insurance. Like everybody on there is pitching life insurance to where they're saying high net worth individuals, ares, basically putting their money in these life insurance plans and then loaning the money back to themselves acting as their own bank. Yep. I think this concept is extremely interesting, but I haven't really dove into it too much.

[00:30:30] I don't know if you know anything about that, but I would love to get a high level aspect of how someone like myself might be able to participate in that and the benefits. 

[00:30:42] Heath Chavis: Yeah, absolutely. In addition have my life insurance licenses as well, and, as part of the financial planning process, I help my clients make sure that they're having an appropriate policy.

[00:30:52] For them and their, family planning and also financial planning. So there are two main types of life insurance. You've got [00:31:00] term insurance, which is just for a set term of time, 10, 20, 30 years. It's gonna be the least expensive type of insurance and not what we're talking about here. The the second type of insurance is permanent insurance.

[00:31:12] , there's two main types of permanent insurance. There's whole life insurance, and then there's universal life insurance. The one that you're talking about is more along the universal life insurance side. Gotcha. And what, where I find that to be appropriate and where I've utilized that for my clients is definitely on the higher network side 

[00:31:29] Patrick McGrath: insurance, a million net worth 5 million, 10 million.

[00:31:34] I'd 

[00:31:34] Heath Chavis: say at least if you may, if you have at least two to 3 million, you can start to have this conversation because I try not to use life insurance as an in. And this is just a personal philosophy. Some people will think differently, but life insurance is a very expensive investment. If you're going to be doing it, I think that you should be filling up all of your other qualified accounts.

[00:31:53] First, whether that's a 401k step, IRA, solo, 401k, IRA, whatever it is, all of [00:32:00] your other qualified accounts should be filled up. You should have a healthy emergency fund. And you really shouldn't need to have this money. This is more of a luxury type investment, cause it is such an expensive investment.

[00:32:09] Patrick McGrath: That's where I, that's why I really was interested in that because people are pushing this like really hard 

[00:32:15] Heath Chavis: when you have to remember, it's, it is more expensive to get the premium on this policy, life insurance salesman, get a commission really of the first year first year premium of whatever it is.

[00:32:24] So there's. There's an incentive to do that. But I think that it's a great thing to do because when you, the way that you structure this type of policies, you have the lowest death benefit for the highest amount of premium that you can afford. And the reason to do it that way is because the way these life insurance policies are structured is that there's a life insurance component.

[00:32:49] And then there's an underlying. The underlying account can be invested into various different investments, whether it's a security mutual funds, stock, et whatever the insurance company will allow [00:33:00] you to do different insurance companies, different investments in their life insurance policies. So if you, for instance, are able to put in a $50,000 premium every year, but only 5,000 of that is going to the cost of insurance.

[00:33:15] 45,000 of that can go to this underlying account. The underlying account will grow tax. and you can then take those funds out as a loan against your policy tax rate. It just reduces the death benefit that you have. So when you talk about being your own bank, if you're able to put in $50,000 a year for the next 20 years now, you've got a million dollars or probably a lot more.

[00:33:37] That's built up in the life insurance policy and the cash value, which you can then take a loan against the policy tax free, and it just reduces your death benefit. So when you're gonna use a policy like. It can certainly be a great tool to finance real estate finance, your lifestyle.

[00:33:54] If you need to take a distribution from a qualified plan in retirement when the market's down. So you're [00:34:00] not reducing that investment account or that IRA retirement account when the market's down in a dip. So it can be used for a few different things. But in my opinion it's a very expensive type investment where it's definitely appropriate for people that have in millions of net worth, but not necessarily for a 23 year old kid coming outta school.

[00:34:20] I gotcha. 

[00:34:21] Patrick McGrath: And I appreciate that cuz I, I really, even for myself, cuz I was like, is this something that I should start considering? For myself and it's again, it's having those conversations, with your financial planner. With your CPA, talking about these types of things.

[00:34:37] So you can put a plan, have a roadmap in place to go, Hey, that's a great option. I could see how you could utilize that, but you need to do, be C and D first, somebody 

[00:34:49] Heath Chavis: maybe gonna have they made, have a large inheritance that's coming to them. So they don't need to worry about retirement accounts.

[00:34:54] And you say, you know what? Hey. This is appropriate for you in that point, because exactly, works so many [00:35:00] different types of situations out there, but it definitely involves, sometimes I'm a little too forward in, in what those conversations are and trying to get as much information as possible because yeah if I don't know the full situation makes it very difficult to advise one way or the other.

[00:35:14] I 

[00:35:14] Patrick McGrath: think that should be, you never lie to your doctor right. About your. And you definitely shouldn't lie to your CPA. Your financial planner or your wife or husband, those are the three people out 

[00:35:25] Heath Chavis: doctors, one of the commandments, 

[00:35:26] Patrick McGrath: just don't lie. Yeah. You never know, depending on your situation, you might need your CPA to help you with the wife or the husband, there you go.

[00:35:32] Yeah, you need to be honest about those types of things. If you honestly want to grow your wealth and, be financially in. And be successful. You need to have that full in depth scope of what's going on because I'm sure you've had some conversations where people thought everything was rosy and the money was flowing in.

[00:35:51] And, you've got people that are high income earners that aren't doing as well as they thought. 

[00:35:56] Heath Chavis: It comes down to, it does also, it comes down to your [00:36:00] household budget, lifestyle, CRE people start to do a little bit better and Hey, now I want a boat or I want that second home, or I want something else.

[00:36:06] It's, definitely being able to live within your means and having a plan to say, if this is the place I wanna get to making sure that you're not spending more than what you're making, you're putting away that I, I try to tell people to put away 20% of your gross. Income. It's tough to do for a lot of people.

[00:36:21] Whatever you can start with, but if you can get up to that 20% or 15% of your gross income, after a few years, as that starts to accumulate, whether you're investing in stock market, your retirement account, real estate, whatever it may be you're going to be able to become financially free.

[00:36:37] And that's all, if you're making $60,000 or, 600,000 or 6 million as long as you can be financially free and you're not spending more than what you're making. I think that ends up really being the key for most people. I think that's 

[00:36:48] James Rippeon: super important. And I think you were touching on this earlier.

[00:36:51] You gotta fill up your buckets first in the priority that they're. Need to be filled. Contribute to your Roth IRA or your traditional IRA, pay up on your [00:37:00] HSA, make those contributions beforehand. So you're doing that, saving up front, your saving and investing and your financial planning should not be the afterthought should be your first thought be 

[00:37:11] Heath Chavis: yourself first.

[00:37:12] Yep. Pay yourself first. And then anything else is left over for you is exactly. Try to tell people. 

[00:37:19] Patrick McGrath: I so I was terrible at doing this. Everybody thinks that they can have a couple savings accounts in their ch in their online banking. And they're never gonna transfer the money when they're running low.

[00:37:29] So what I did is I went to my company and I asked them to split my check and I created a separate savings account at a bank that I don't have a debit or online banking to. And I got them to. The first 10% of my check went into that account. And the rest of my check went into my one that I have my online app and I started at 10 and I said, Hey, if I can live like this for two months, I'll up it.

[00:37:58] And I upped it to [00:38:00] 15. And then two months later I upped it to 20. I got up to 25%. I was saving 25% of, my hourly and commission. For almost four years. And that's how I saved to invest in real estate and invest in cryptocurrencies and everything else was because I couldn't see it. And I physically had to drive to the bank to go pull out that money.

[00:38:26] And that right now it's about an hour away from me that hour drive. You're like, ah, do I really need this? 

[00:38:33] Heath Chavis: And that's, if you can learn to live on less and yeah. Have a budget that, you know what you're doing, you had a goal in mind. Which you know, is really what it all starts having that goal. And then how do you reach that goal?

[00:38:43] Patrick McGrath: And people spend what's in their account, most people, so if it's not there and you don't know, it's there Hey, and then all of a sudden, like you said, 10 to 15% in a couple months, it doesn't matter if you're making $12 an hour or 20, $20,000 an hour in a couple months.

[00:38:59] [00:39:00] All of a sudden you now have a couple thousand dollars. you're on your way. 

[00:39:04] Heath Chavis: Patrick 

[00:39:04] James Rippeon: what you're talking about. Great for building great habits. Like that's rule number one is putting friction in between you and your bad habit. If you're trying to, stop drinking, maybe don't put the beers in an accessible place.

[00:39:17] If you're trying to save money, make sure it's going out to somewhere. That's hard to get your hands on. Easily. So you gotta drive an hour. If you're trying to not sell your investments, maybe you should work with a financial advisor if you're just trading in and outta stocks and assets arbitrarily.

[00:39:32] And that's what these professional advisors do. They act as that friction between you and bad decision making and they operate the enforce good habit. I think that's key for people to key in on, and look at and examine with their own personal financial situations is how do you make those bad decisions harder to do?

[00:39:50] And that's gonna be, that money comes in. Sometimes it doesn't even come in. It goes directly somewhere else. I did the same thing with my investment money, my income, when it came in, it just went [00:40:00] directly automatically the same day. I got my check into all the investment accounts that it was going to the five 20 nines.

[00:40:05] The Roth the regular investment accounts came in and went out just as fast. And then whatever's left is what you have to live on and, have fun with 

[00:40:13] Patrick McGrath: that's the smartest way to do it to not even. You don't even have access to it. It's just there. My dad always said, you pay yourself first after the government.

[00:40:22] Cuz they take taxes out of your check before you get it. Pay yourself first and no one ever regretted paying themselves first. And I think that's huge, especially. Around, around tax time when tax time's coming up, you gotta have, you gotta have a decent savings in case you had a really great year and now you owe the government money, and hopefully you have a good CPA or financial planner, and you've been going to your meetings.

[00:40:46] You've been mitigating that but you have to have the emergency fund. You've gotta have those funds that you're putting aside. And I think that's huge for everybody listening out there. And yeah I think that was great. I think it's time for us to get into the big picture.[00:41:00] 

[00:41:00] So James, why don't you why don't you kick us off on that, man? 

[00:41:03] Heath Chavis: Cool. 

[00:41:04] James Rippeon: So Heath, when you're communicating with people who are on their path to working towards financial independence, what's that one thing that you think you could tell them that would make the biggest difference if they implemented it along their journey, what's that one thing that they should focus on first?

[00:41:21] Heath Chavis: The first thing is to make sure I always give somebody a financial questionnaire, cuz you want to have your goals identified the goals to change from the time when you're young to when you have kids, but you need to have something that you're actually working towards because it's great to save money.

[00:41:34] It's great to have it accumulate. It's good to have it be there, but if it's not going towards anything, you're not working towards anything, it makes it demo much harder to stay motivated and working towards that goal, whatever it. 

[00:41:45] Patrick McGrath: Yeah, I think that's huge. Everybody out there's gotta have their goals aligned with, what they're working towards.

[00:41:51] So there's a ton of podcasts out there. There's a ton of books out there, Instagram influencers, all this kind of stuff. If you [00:42:00] had to pick, one podcast or news source that you would recommend to anyone out. That's got great nuggets and would help them out. And possibly, one book that, made a huge impact on you and how you view finance what would they be?

[00:42:17] Heath Chavis: It's funny. I didn't really know this question was coming, but I'm glad I know now. The first one is I think the great book is the millionaire next door, I think is a great, hold on one second. Let me at my dog to go upstairs real quick.

[00:42:33] Patrick McGrath: All right. So there's a million podcasts out there. Tons of books, Instagram influencer. All of that, if you had to pick, one podcast or news source that is providing great content, that's gonna help people out. And 

[00:42:49] what 

[00:42:49] Patrick McGrath: book one. Yeah. What book, really you could say this one, of course, changing lives and what book, really made an impact on you and your financial.

[00:42:58] Heath Chavis: Absolutely. When I was young the [00:43:00] millionaire next door, I was actually walking through a Costco, saw it sitting on the shelf and thought it was not really, I was, I think 11 or 12 did not really realize what it was about. Thought it was some sort of, murder, mystery or something, but turned out to be a great book about finances.

[00:43:16] It was just, more along the lines of how do you become financially independent? How does, the gas station worker become a millionaire making 40,000 year? It doesn't matter how much you make. You can always, start to accumulate as long as you pay yourself. And. Time value of money is excellent.

[00:43:30] I thought that was a great book. I think everybody should read that. The other one is a podcast that, I've started listening to called the money guy podcast and gentleman's a, CPA or was a CPA, but now he's just a financial advisor but has a lot of good nuggets of information with things that are out there that I find to be, so I'm walking a dog, very.

[00:43:50] Yeah, informative, topical and interesting. Interesting listens 

[00:43:55] Patrick McGrath: gets the brain churning 

[00:43:58] Heath Chavis: a little bit. Yeah. Just different ways to [00:44:00] think about things, should you finance or lease a car or should you buy or lease a car, different ratios to live by? Once a year they put out how should you be doing at a certain age?

[00:44:08] So interesting things like that. Great content 

[00:44:13] James Rippeon: there. So on your personal journey. I know we didn't get into this specifically during this episode, but tell us a little bit about where you're gonna be in five years. Where does your personal financial independence journey? Look and where's it heading in five years time?

[00:44:30] Heath Chavis: Yeah. So where it started is understanding I need multiple streams of income or would like to have multiple streams of income. So I start to invest in different types of real estate whether it's residential commercial, trying to make sure the investments cash flow putting money away each month, regardless of whether the market's doing well or not.

[00:44:46] So well putting some money away into retirement accounts. Yeah. Having different types of side businesses, not, I have income that comes from both the financial advising side and tax and accounting side. So while they're both very [00:45:00] related to each other, making sure that you're able to diversify yourself.

[00:45:03] And I think that anybody should be, yeah, if you have a w two job, or if you have your own business, just not reliant on, one particular client, one particular business, one particular. The more that you can diversify yourself the better it's gonna be. Just to, for me to be able to continue to do that is what I try to do.

[00:45:21] James Rippeon: Add streams and diversify and make those incomes 

[00:45:24] Heath Chavis: grow and then pay yourself first. That's number one will always be number one, because you pay yourself first. The money's always gonna go to you. Gotcha. 

[00:45:34] James Rippeon: Cool. I think with that I think we can wrap it up if people want to get in touch with you, Heath how what's the best way for them to reach out to you?

[00:45:40] Heath Chavis: People can either call or email me my my phone number's (301) 327-1040. And then my email address would be H Shas H C H a V I S. At I B C [00:46:00] group.com. I 

[00:46:01] James Rippeon: got one recommendation for your phone number. You gotta change the last four digits to 10 

[00:46:06] Heath Chavis: 31. That's right. Instead of 10 40, 

[00:46:09] James Rippeon: think that'd be pretty cool.

[00:46:10] With that we appreciate everybody joining us and we'll catch you guys next time. 

[00:46:15] Heath Chavis: See you guys. Thanks. 

[00:46:15] outro: Thank you for listening to the real fi podcast where you learn from the investors that have lived, the hard lessons for you to connect with us during your pursuit of financial independence.

[00:46:26] Be sure to join our community by following us on Instagram or emailing us@infoattherealfi.com. If this content made you. Mentally physically or spiritually richer, please make sure to leave us a positive review on your preferred content platform. Cheers to kicking the nine to five.