Financial Advisors React To Money YouTubers (Part 2)

Introduction – Money Guy React (0:00)

Video Clip: It’s to actually start being accurate with your expenses. I’m not talking to anybody. But seriously, for you guys, you’re going to start budgeting. And we had just enough money to do one of two things. We could go to the beach for 3 days, or we could use the same money to buy a couch.

Brian: Oh, no. He chose the couch. Welcome to another episode of Money Guy React. Here’s the setup that the content team gave us. They have compiled a group of humdingers that they claim we’re going to like.

Bo: Hey, Brian. I am so excited about this because we never know what the internet is going to offer. Let’s dive right in.

The Best Time to Start a Roth IRA (0:32)

Video Clip: On one of my first Roth IRA ever videos, I received this comment about whether or not it was a good time to start and invest in a Roth IRA in 2020. If they had invested back then, they would have actually been up close to 35% today. Newer investors usually have this hesitation because they’re trying to figure out when the best time to enter the market is. But let me show you something. Here are the stock market returns for the past 30 years. You can see that some years are definitely negative for sure, like in 2008. But for the most part, they are in the green and positive. That means a $100 investment in 1992 would have become $1,641 after 30 years or a 9.5% annualized return. A Roth IRA is an individual retirement account that grows tax free, so you don’t pay any taxes on the earnings. And this year, the contribution limit was increased to $6,500. You can open one at a brokerage. And then what you can do is just buy the Vanguard 500 index ETF. That’s ticker symbol VOO. And that is going to invest you into the top 500 stocks in the United States.

Bo: We love to say that the absolute best time to start investing was yesterday. Which means that the second best time to start investing is today. That’s exactly what Humphrey said. Don’t worry about when you’re getting in or are you buying at the right time. If you can just start investing today and stay consistent, odds are when you look at your portfolio 10, 20, 30 years in the future, you’re going to be very happy with how it turned out. Automatic for the people. Set it and forget it and you will thank yourself later.

Millionaire Money Habits (1:54)

Video Clip: I’m a millionaire. Of course, I shop at Walmart for the best deals. I’m a millionaire. Of course, I drive a van to save money on taxes. I’m a millionaire. Of course, I don’t buy designer clothes to impress people. I’m a millionaire. Of course, I don’t waste my money on Starbucks. I’m a millionaire. Of course, I share my knowledge for free to help you grow your wealth.

Bo: Until he dumped out the cup of coffee, I was with him. But yes, a lot of people think that if you’re wealthy, you have to buy the nicest things and spend money on the nicest things and all this. What I often remind my friends of is someone who drives the fancy car, has the big house, wears the fancy clothes, that is not a sign that they have money. That is a sign that they have spent money. And those two are very different.

Brian: Look, it’s so much better to be rich than to look rich. So, make sure you understand when in the beginning when you start your journey, when you’re trading your time for money, that enough of that money is being put to work in your army of dollar bills. So, one day you do what you want, when you want, how you want.

Bo: Can we get that accent one more time?

Brian: By the way, I was not trying to be offensive. It’s just, you know, I speak with a southern accent. It doesn’t exactly translate to British.

Bo: It was spot on.

The Power of Compound Interest (3:03)

Video Clip: If you invest $500 and you get a 7% return, all right, cool. You made $35. But if you invest $10,000, now you’re making $700 a year just for having your money work for you. That’s actually real money. At $10,000, compound interest really starts to kick in. It stops being theoretical and it starts being noticeable and even transformational. It’s like getting a snowball rolling down a hill. At first, it’s small, falls apart, but the longer it rolls, the bigger it gets. And eventually, it’s moving faster than you could have ever imagined.

Bo: We say all the time when it comes to investing, the bigger the numbers get, the bigger the numbers get. Now, I would say maybe a little bit differently. Not that $10,000 is a small sum of money at all, but what I love seeing is where you can save and invest. And what happens is your portfolio gets so large that that interest that it’s earning, that amount that it’s growing is actually maybe more than you’re saving on a given month or more than you’re making in a given year. When that happens, that’s when you reach the critical mass. That’s when you reach the boiling point that absolutely gets so exciting when you’re looking at your financials.

Brian: Well, think about this, Bo. He’s making a really good point. If you just start saving and investing, even if you’re just loading up your Roth IRA each year, it’s probably going to take about 9 to 10 years to get to your first $100,000. But what people don’t realize that even with the same rate of returns assumptions, the growth from $500,000 to a million is going to be 2 years faster typically than that first $100,000. But so many people just don’t give it enough time for their army of dollar bills to actually catch traction. Let that snowball roll down the hill and turn into something truly life changing and building your great big beautiful tomorrow.

Bo: You know, another great way to illustrate this if you go to moneyguy.com/resources and play with our wealth multiplier tool, you can see just how powerful because of compound interest, how powerful each dollar in your army of dollars can be. That’s why we say that $1 for a 20 year old can turn into $88. That is your money working for you.

Would You Rather – Money vs Vacation (5:08)

Video Clip: I kind of want to give you a cool test. Can I give you a cool test? Yes. Would you rather work in a company where you make $90,000 a year and everyone else earns $80,000 a year or would you rather work in a company making $100,000 a year where everyone else makes $110,000? Well, I’ll tell you most people if it’s only a $10,000 difference, they will choose out earning everybody. And that’s really a natural response. Let’s say now I change it and I say, “Would you rather work in a company where you get 3 weeks of vacation a year and everyone else gets one?” Or work in a company where you get six and everyone else gets nine. Everyone says more vacation because there’s no status in the vacation. But the money they want the status.

Brian: That’s fascinating because it shows you how just I don’t know if competitive is the right word but it’s definitely people is part of your happiness factor especially with relationship with money is how you perceive yourself among your peers. I mean that’s why when you hear the adage you ought to live in the cheapest house on the most expensive street. I always run from that advice because if you’re the poorest person in your friend group, you remember the whole Friends episode where Ross and Chandler actually got the promotion and everybody else just couldn’t afford to go out to eat and so forth. You don’t want to be that person. So, I can understand the pay. I was surprised to see the 6 weeks of paid time off. I guess that shows people want to own their time that much sooner and that’s why you have to invest with your army of dollar bills.

Bo: I think another thing you ought to do is when it comes to making these financial decisions, you should make it less about everyone else and more about you. What do you value? Do you value having a higher income? Do you value more vacation time? Do you value work from home? Do you value close proximity to fun stuff around the office? You have to define what things make the most important impact in your life and decide accordingly based on you, not based on your peers.

Teaching Friends to Budget (6:58)

Video Clip: Your friend needs 20 bucks because he blew his last paycheck on hot Cheetos. Here’s what you do. You sit him down, bring out a clipboard, and draw a circle. You tell him that this circle represents his next paycheck. 30% straight to needs like food and gas. Another 30% towards wants like shoes or even more hot Cheetos. And that last 40% towards savings, but not just in cash. Some of that is going to go into a custodial Roth IRA, which offers tax free growth and withdrawals in retirement.

Bo: Custodial Roth. I think this is a high schooler talking to a high school friend. I think that’s what’s going on here. That’s got to be the 40% makes a lot more sense. I love this. What he’s basically laying out is we have to have a plan for our money. All he was doing was doing a very simple budget. When money comes in, this is where my money is going to go. Well, if you can have a plan before the money shows up, you’re going to set yourself up to be in a much better position than if you try to make a plan after the money’s already been there. Because if you wait till the end of the month to see how much you have to save, often times you have way more month than you have money.

Brian: By the way, if you’re talking to any high school person and you’re convincing them to start investing the money, that person already is a billionaire of time and it doesn’t matter if we’re talking about $50 a month, $100 a month. The wealth multiplier on somebody who’s under 20 years of age is going to probably be of a factor of a hundred. So when you understand that concept, you’ll think about how you spend. You’ll think about how you save. All different because your army of dollar bills is more powerful than your brain, your back, and even your hands.

Bo: The only thing that I would change in this one is he had that 40% as the last thing he represented. I’d want to make it the first thing, right? Whenever that money comes in, if you can save first before you allocate the 30%, before you allocate the 30%. Now, maybe he’s going to do it that way, but whenever my money comes in, I want to pay myself first so I know exactly where those dollars are going before I even see them hit my checking account.

Bo: The old force scarcity tactic. I love it.

Strategic Debt Payoff Strategy (8:50)

Video Clip: Here’s my debt payoff strategy as someone with $57,000 of debt, but also wants to retire in my 40s. I have two private loans and six federal loans. My first private loan is at 2.67% interest rate, which is crazy. I refinanced this so many times. Just paying the minimum payments. This will be paid off by December 2027, which I feel comfortable with, so I’m not doing any extra payments to this debt. My next private loan is at 3.99%. I refinanced this most recently with SoFi, and I do have a $300 referral bonus if you’re looking to refinance. With minimum payments, the payoff date is November 2029. Since the interest rate is under 4%, I’ll continue making the minimum payments, but I’ll definitely keep looking at refinancing over the next couple of years. And lastly, my six federal loans. I group these all together. They have an average interest of 3.87%. However, there are a couple over 4% interest. So, I’m going to use all of the interest I earn in my high yield savings account every month and put it directly towards the highest interest debt. My high yield savings account interest from February was $218. So, that is going to be my extra payment this month. I always add my extra payment into my debt payoff tracker. The crazy thing is just by doing this one extra payment, my payoff date is reduced by 2 months. Overall, I’m mostly doing minimum payments because my interest rates are low, but using my high yield savings account interest each month to go towards that highest interest debt. This accomplishes two things. Number one, it forces me to not keep saving cash because I have a tendency to save way too much cash. And number two, I get to make progress on my debt without it feeling like I’m actually putting money towards it because it’s just high yield savings account interest. That is my debt payoff strategy so I can focus on most of my cash flow going towards investments. This is so important if you have a goal towards early retirement. Investing early and often is the secret.

Brian: I loved it. And I like that she gave the disclaimer there at the end because what I was feeling like that was missing was the focus on investing because there’s so many people out there in the marketplace, Bo, that want to be debt crusaders, meaning they find out how good it feels to pay off debt. They start off with credit cards and then they move to student loans and other things. But everything she showed was low interest. I would be sad if you were not funding your Roth IRA with a 2.87% interest rate, but I think she’s doing that. She’s just shown how she’s gamified the process in a very effective way.

Bo: The other thing that I would maybe just think through is she said she lumped all of her federal loans together. I’m not sure why she did that to arrive at the average interest rate, but she said some of them were even above four and the average I think was 3.87%. I would argue if she’s in her 20s, which I’m going to guess she’s probably in her 20s, anything below 6% I would probably consider to be low interest debts. I don’t even know if I would prioritize paying off those 4% loans just yet because if she went to moneyguy.com/resources and checked out her wealth multiplier, she would see just how powerful every one of the dollars she saves is. So, not just the interest on her high yield savings account, but the other dollars that she’s throwing against investments can do a lot. There’s a really good chance she’ll make more on her money than that 4% or a little over 4% she’s paying in interest. I think I may even be a little more aggressive not paying off even those student loans before she’s 30. It’s kind of like low interest debt is a step nine of the financial order of operations. There’s a few steps in between there. That’s what I am picking up on.

Signs You’re Not Saving Enough (11:59)

Video Clip: But here are some signs that you might not yet be saving enough. Failing to use your accounts to their full potential can be a clear indicator. This might look like taking a withdrawal from your 401k account or your Roth IRA account to cover expenses that pop up, but these accounts are meant for long term growth. This could also manifest through tapping into your emergency fund to cover non emergency related expenses. When your income goes up, so too should the amount that you’re saving. The easiest way to be sure that you’re going to be contributing more to your savings and investments over time is to make sure that you’re contributing a percentage of your pay. Finally, needless to say, if you are living paycheck to paycheck, you are unlikely to be saving enough because quite frankly, you likely don’t have enough breathing room in your budget to be contributing a significant amount to savings or investments. If you find yourself in this situation, find a way to create a little bit of flexibility in your budget.

Brian: So many people just are reactionary with their money. And that’s what I do love that she just shared about budgeting. I like having a plan to where every dollar in your army of dollar bills is not left behind because it’s actually a proactive plan to what you’re going to do with your money. So, you’re not just sitting out there waiting to see what’s left over. If you do that, you’re never going to have enough money working.

Bo: You know, she said that, okay, yeah, I can cut my expenses and look at that. That’s actually only one of two levers when it comes to impacting your finances. Most people really have two levers they get to pull. I want to make sure that you focus on how big is your shovel. That is going to also accelerate your journey to building true wealth. And a lot of people don’t know where to start. That’s why we came up with the financial order of operations. One of the ways you can figure out how not to fall into that trap of, you know, living paycheck to paycheck is okay, what do I need to do first? And then what’s the very next thing? And then what’s the very next thing? When it comes to building wealth, we think there are three ingredients to wealth creation. There’s discipline, then there’s margin or money, and then the third one is time. Well, she was really laying into that second one. You have to figure out how in your financial life you can create some margin so that you can take that margin and you can put it to work for you for the future.

Brian: And if you never live on less than you make, you’ll never be wealthy. That’s just a fact.

Budgeting Takes Practice (14:06)

Video Clip: Yes, exactly. No one gets their budget right the first time. On average, it takes at least 90 days or 3 months to actually start being accurate with your expenses. I’m not talking to anybody. But seriously for you guys, if you’re going to start budgeting and you’re going to do it each and every month, don’t be so hard on yourself. When it comes to listing all your expenses and having those budget categories down, you’re not going to be accurate when it comes to your utilities. You’re not going to be accurate when it comes to how much you spend on grocery shopping. But each month, you’re going to understand how you actually spend in your day to day. And then once you hit that 90 day mark, you won’t have to spend so much time trying to make a budget.

Brian: There are so many correlations with health and wealth. And the fact that when you start working out, you’re sore and a lot of people just quit because it just made them uncomfortable. It wasn’t fun. It didn’t feel like you saw any results immediately. Money is the exact same way. I mean, when you budget, nobody wants to track where every dollar goes, but you do it so that you can get better with saving and investing money. You’re either going to take a little bit of today to build something pretty spectacular because those small decisions will build on themselves or you can procrastinate and make the hardest decision of all and have to basically allocate all of your money to building for the future because you just let it get away from you.

Bo: And I think the biggest value is now you have some insight into where your money is going. All the time I’ll ask folks, hey, what do you spend money on? They’re like, oh, not very much. I’m like, why aren’t you saving more? Oh, well, there’s no money left over. Well, then your money must be going somewhere. Budgeting allows you to see what are the behaviors that are actually taking place in your pocketbook and in your wallet that you can impact to hopefully change and improve your financial life.

Don’t Attach Identity to Unsustainable Things (15:43)

Video Clip: I think it’s super dangerous in any life to attach your identity to something that’s unsustainable. If you attach your identity to something that you cannot sustain, when it ends, you’re going to be morally crushed. The variable that I want to maximize for is not can I earn the highest returns, it’s can I maintain this investing strategy for another 50 years. I know that I could earn a higher return this year and over the next 5 years if I did something different, but I’m way less confident that I could keep it going. And I think it’s the same for relationships. You might be able to find a more attractive or a wealthier spouse or partner, but can you keep that going? Is it something you can maintain? I’m not interested in anything that’s not sustainable. Friendships, investing, careers, reading habits, exercise habits. If I can’t keep it going, I’m not interested in it. And I think the only way to really do that is if you are going out of your way to live life at 80 to 90% potential. If you’re always trying to squeeze out 100% potential for something, almost certainly it’s going to lead to burnout. Whether it’s a friendship or relationship or an investing strategy, it’s not easy thing to do. And if you’re a type A person, it’s almost impossible. But going out of your way to live life at 80% has always been a strategy that I want to do just because I want to keep it going for a long time.

Bo: I love that that lines up so well with what we talk about all the time. Always be buying when it comes to investing. We want you to be buying every paycheck, every month, every cycle. And always have your dollars working for it. You don’t have to over complicate it. Rather than going trying to pick the next hot dot com or the stock that’s going to blow it out, just buying good low cost index funds on a consistent basis can be an incredibly profitable long term investing strategy that’s sustainable for 10, 20, 30, 40, 50, 70, 80 years even. And you can do that without having to waste a ton of mental cash.

Brian: Well, I think a key thing that Morgan’s hitting on there that I love is because even if you chose that perfect high flying investment, when it tripled, quadrupled, went up fivefold, and you sold it, you’re going to be ticked when it goes up 10 fold beyond, and you’re going to tell everybody and their brother for the next 10 years that you would have, should have, could have made a gazillion dollars off this one investment. This is why these boom bust cycles is just so dangerous to you emotionally. And that’s why I like what Morgan talked about there is if you can do things that you can stay consistent and your behavior will stay through the path and actually reach success. That’s what’s actually mission critical. It’s not getting everything perfect at 100%. It’s just doing enough so that you actually come out at the end and finish the journey. Well, Bo, you’ve made the correlation before that if you’re in a race, just because you were leading the race for 30 out of the 50 laps, that’s actually not valuable at all if you don’t finish the race. So, I think that’s where Morgan really nailed it is that you have to do things that are sustainable. And I think a lot of people just don’t understand that key concept.

Beach vs Couch – Creating Lasting Memories (18:23)

Video Clip: 32 years ago, my wife and I were having this knockdown dragout fight, ironically, about how to celebrate our first wedding anniversary. And we had just enough money to do one of two things. We could go to the beach for 3 days, or we could use the same money to buy a couch. And so my wife is Spanish. She’s all about the beach. And I’m a thrifty, practical American. So I’m like, the couch. So you’re thinking utility, she’s thinking fun. The beach is over in 3 days, man. The couch is forever. I mean, it makes perfect sense. So, we’re going back and forth. Beach, couch, beach. Finally, we compromise and we go to the beach. And that’s why I’ve been married 33 years. But we thought about that recently and we got the couch 6 months later, right? Because we had the money and got the couch. I don’t remember the couch. I don’t remember what color it was, but I remember that beach vacation. Everything that we did because we were in love and we still are. So, your experiences with the people that you love are truly permanent.

Bo: Experiences that we create, they actually blossom. They actually get better over time as they pass. And that’s exactly what he’s saying there. I mean, we joke about, “Ah, you should have picked the couch.” But I think you probably made the right choice picking the beach.

Brian: No, I think there’s especially when it comes to relationships because we only get this life, you know, to make as many memories as possible. And I see so many people that think they’re making the smart decision. Or even think about couples who’ve been together 15, 20 years but and they’re starting to have success but yet one spouse is still requiring the other spouse to give them every receipt. I mean there’s so many things you have to understand this relationship with money, your relationship with your loved ones and you have to figure out how do you actually maximize this journey to where you don’t have regrets. So, your 20 and 30 year old self is feeling maximized and respected, but also your 50 to 60 year old version of yourself is like, well done while you’re younger and had the power of compounding growth working for you. I would have chosen, by the way, give me the chance to go on vacation with my wife for an anniversary over a couch trip all day long.

Closing Thoughts (20:27)

Bo: We know that there is more to wealth than money. And that’s what we love that all these kind of play into. And building wealth does not have to be incredibly complicated. It’s not easy, but it’s remarkably simple if you can recognize some of these things and implement them inside of your financial life. Guys, we have a blast creating these React episodes. We just want you to know that your money should work harder than you do. And so, pay attention, tune in, and go make sure you take advantage of our resources. Moneyguy.com/resources. We’ll load you up for free.

Brian: I’m your host Brian Preston. Mr. Bo Hansen, Money Guy Team out.