The #1 Financial Fear Plaguing Gen X & Gen Z (And How to Address It)

The Number One Fear Plaguing Gen X and Gen Z (0:00)

Brian: The number one fear that’s plaguing both Gen X and Gen Z.

Bo: And Brian, I am so excited to talk about this because whenever I hear that there is somebody who is afraid of something or has some fear circled around a financial topic, I love that we get to speak into that and we can hopefully assuage some of those fears and make them feel better about them.

Brian: What I like, Bo, is that we, you know, we don’t beat around the bush. When we tell you a headline of like some common fears, we’re like, “Let’s go ahead and give the people what they want.” That big fear is feeling completely underprepared for their financial futures. Now, Bo, people are immediately going to go, “Wait a minute. You have two generations and we even skipped one. It was in between those millennials in between.” But I am the Gen Xers. You’re not Gen Z. But Gen Z is more of the children of Gen X. So if you look at this, Gen X is 45 to 60 years of age. I’m not 60, by the way. I’m dead in the middle of this thing. Gen Z is 13 to 28. So like I said, it’s the children of Gen X. We have some commonality here.

Why Are These Generations Fearful? (1:13)

Bo: And why are both of these two categories of people fearful? Like why do they have some anxiety as it relates to finances? Well, when you think about Gen Xers, they are rapidly approaching that phase where they’re going to be entering into retirement. They’re going to be thinking about what does this next phase look like? And I think a lot of folks are recognizing, uh-oh, I’m not where I need to be. And then when you think about Gen Zers, these are folks that are just starting out in the world. They’re just now beginning in their careers, and they’re recognizing that, man, finding a job might be difficult. Housing is expensive. Living expenses are expensive. Things are not perhaps as easy as I thought they would have been. And it’s interesting when you actually look at the statistics. 54% of teenagers right now, these are like young folks not out of the house, not fully adults yet, say they feel underprepared for their financial future.

Brian: I at least feel like we’re doing our part by sharing good financial education. But I understand the uncertainty because student loan burden. I mean the we it seems like every legislation coming out of Washington has some different impact on student loans. Plus colleges haven’t done them any favor on how expensive the cost of education is. If you look at cost of living on housing and other things, it is a unique time to be Gen Z and getting out on your own.

Bo: And I think one of the things that we’ve done poorly, and I don’t mean we as in The Money Guy Show. I mean we as in a society as a whole. We don’t do a great job training our young people early on how to make wise financial decisions. I mean a lot of times we will entrust 18-year-olds to make a huge decision that has hundreds of thousands of dollars of implications that they are going to carry for the rest of their lives when maybe perhaps they’re not quite at the point or have not been educated to the point where they should be able to make those decisions. So, there’s just a general lack of financial information and education with this populace that I think honestly we could do a lot better of a job on.

Gen X Concerns (3:08)

Brian: Well then now let’s talk about Gen Z. Let’s talk about Gen X so we can bring the commonality here. 52% of Gen Xers feel that they’re financially not prepared for retirement. That’s one out of two folks in your generation. And I kind of get it because realize, you know, we were the big science project for the future is because in the past everybody had pensions, social security was well funded. We are the first generation that’s this big experiment with 401ks and instead of being defined benefits, you know, we’re kind of now we’re on this defined we’re going to give you this certain amount of money every year and you good luck. Make sure you do it right.

Bo: Well, and a lot of Gen Xers had to learn this stuff early on. And a lot of 401ks became popularized during the Gen X upbringing. A lot of Roth IRAs came into being during that generation’s career. And if you look at the actual numbers, this is according to Investopedia. The average Gen X household has only saved about $40,000 for retirement. Remember, these are the folks that should be at least seeing the destination line. They’re not maybe the landing gear is not quite down yet, but they’re getting to that point and they’ve only got $40,000 saved for retirement. And 40%, four out of 10 Gen Xers say, “I have absolutely nothing saved. I’ve done none of the work thus far to prepare me for the next phase and season of life.”

How Both Generations Can Prepare Financially (4:29)

Brian: Well, look, I you know me, I’m an optimist. I don’t like just bogging down in all this negativity. Let’s talk about how both generations can kind of bring this together. What’s something that can hopefully unite and give you some daylight in this whole process? And I think it’s how to prepare financially.

Bo: Yep. I think the very first thing that you can do, whether you’re at the very beginning of your career or maybe you’re in the twilight years of your career, educate yourself. Are you doing things like watching The Money Guy Show, subscribing to the channel, reading the newsletter, reading articles, educating yourself on how you can make the best financial decisions possible? Because the better educated you are, the better you’re going to be able to navigate the decisions you’re going to have to make over the coming years.

Brian: Well, and even that lends itself right into the next thing, know the resources. We try every time there’s new tax legislation or new policies that we think are going to impact your wallet or your purses, we try to be on the front lines to load you up so you know how to navigate this as well because then I want you to be as proactive as possible. I mean, this made me sad on that previous slide to hear that my generation that the typical resources are around $40,000 saved and then 40% of them actually have absolutely nothing saved. Where were the Mr. Marrows? Meaning, where were the people, if you remember, that’s where I got motivated in my, you know, high school years where I had an economics teacher just in an off-brand, it wasn’t even part of the curriculum saying if we just save $100 a month, I could be a millionaire. And that’s what lit the spark. I want that for everyone. I don’t care if you’re millennials, Gen Z, Gen X, boomers, we want everybody to succeed. And that’s why you have to have a plan.

Bo: Yeah. I think one of the key things you can do is no matter where you are, have you written down your plan of action? Maybe you’re someone that’s struggling with debt either at the beginning of your career or later on. Have you actually put pen to paper to figure out how am I going to pay this off? How am I going to systematically and strategically by making small decisions begin to knock this out? If you’re someone at the very beginning of your career and you’re looking for a job, have you put pen to paper saying, “Oh, I’m going to fill out this many job applications. I’m going to go get this certification or I’m going to make sure that I do XYZ so that you can stand out.” Do you actually have a plan of how you’re going to end up in the place you want to be based on the small decisions you’re making today to move you towards that goal?

Brian: Yeah. And then with the kind of the two closing things we have here is make the most of your time. And this is a loaded statement because we all know when we’re talking about the three ingredients to wealth building, whether it’s the discipline, whether it’s that margin of living on less than you make that creates the money leads to the third ingredient, which is time. And you have to kind of know are you ahead of the curve, behind the curve, or right where you’re supposed to be. So then you can triage and figure out, hey, how do I take the time that I have and be the most effective and efficient with implementation. We’re going to hopefully help you with that. If you go to moneyguy.com/resources, we’ll load you up with all kind of free stuff. And then the last thing is be kind to yourself. You’re not in this alone. There’s a whole community of people out there that are struggling with these things. And I think if you can just not get caught up in the negativity of these things and you figure out how do you do that glass half full way out, you’re going to be okay.

Bo: Yeah. I think it’s really interesting if you are a Gen Zer, time is on your side, opportunity is on your side. But even if you’re a Gen Xer, even let’s suppose for a moment you’re a Gen Xer who’s about to be 52 years old. I don’t know how that came. It just came to me. Do you realize that even just starting right now from scratch, if you can just save $1,000 a month and you can do that even starting at age 52, that could add another $300,000 to your portfolio by the time you get to 65. So even though you may feel like you’re behind, you may feel like you have to make up for lost time, you still can do it. The best time in the world to have figured all this stuff out was yesterday. Which means the second best time to begin figuring it out and taking strides towards your great big beautiful tomorrow is today. I don’t think that Gen X and Gen Z need to be scared about their financial future. I think they need to take hold of their financial future because if you do not own your financial future, your financial future will own you.

Brian: Well, and think about this. If you’re somebody like me who never plans on retiring or at least deferring it beyond normal retirement age, adding just three to five years on top of that, you could turn that $300,000 into $600,000. And then a lot of you are going to say 52, I know our audience, our audience is much younger than 52 years of age. Every one of you has a wealth multiplier that’s significantly higher than a 52-year-old Gen Xer has. So once again, go back to moneyguy.com/resources, see what your wealth multiplier is and then get energized, get motivated and know you can do this. You just have to put the effort in. Exactly what Bo was saying, choose your small decision today that’s going to have huge impacts for your great big beautiful tomorrow.

Bo: So, we love that we get to share this information. We love that we get to do this. We love we get to do things that can help remove some of the fear. And one of the ways that we do that is we love answering your questions. We love speaking to the things that you care about. That’s why every Tuesday at 10:00 a.m. our goal is to load you up. So with that, creative director Rebie, I’m going to throw it over to you.

Question from Paul T: HSA Deductible Increase (9:48)

Rebie: Yeah, I’ve got some questions queued up. The first one is from Paul T. It says, “Good morning. We are on steps three and four of the FOO, but the health insurance deductible for our HSA eligible plan has increased. Is that part of ground rule number three or should we return to step one?” And I think this is a timely question. So what do you think?

Brian: Great question. Especially new enrollments and you know and everybody’s kind of working through their benefits at year end without a doubt. This is why and now look when we talk about the Financial Order of Operations, I just did one of my walking tangents that I talked about the origin story of this and Bo I want to give you complete credit when we were walking through and trying to brainstorm the nine steps. It was Bo that kind of really fine-tuned step one. And I thought it was a great thing because every system, what are we trying to do? We’re trying to figure out how do we keep you protected from the desperate decisions becoming an emergency or something comes up. So that’s why we came up with highest deductible, not all of your deductibles, but it is one of those where I would encourage you pen and paper or spread, you know, a spreadsheet, whatever you need to do, try to go look at your homeowners, look at your automobile, look at all the different deductibles, and then whatever the highest deductible is. That does need to be step number one because that’s where we’re trying to protect you from some catastrophic thing, you know, derailing your whole life right there.

Bo: Yeah. I don’t know, Paul, for sure because you said, “Hey, we’re in steps three and four.” And I’m like, ah, you’re not really supposed to be in steps three and four. You’re supposed to kind of like knock out step three and then you go to step four. But let me give you the benefit of the doubt and assume that you are in step four. One thing that people don’t realize is that once you have that fully funded emergency fund, that 3 to 6 months of living expenses in liquid cash that encapsulates step number one. It’s not like you have to have these two distinct buckets. I don’t have to have my deductibles covered in one savings account and then my emergency reserve in another. Those can be combined. So, what I hope has happened is that you are in step four and you do have a fully funded emergency reserve and now that the deductible on your health insurance has increased because of your HSA plan, no big deal. You’re still covered. No need to go back to step one. But if you do have that high interest debt, if you do have credit card debt, store debt, consumer debt, whatever it is, and you are sitting in step three, I would highly encourage you if it is high interest debt to begin vanquishing that. Make the hard decisions today to be able to knock that out so that it is no longer on your balance sheet because it is very hard to get ahead if you are paying exorbitant interest rates on debt every single month. So, I would encourage you knock out step three before you even try to begin navigating step four.

Rebie: That’s great, Paul T. Thank you for your question.

Question from Zach G: Fee-Only Fiduciary Advisors (12:46)

Rebie: Let’s move on to Zach G’s question. It says, “My dad is working with one of the bigger non-fee-only financial advisory firms. They have extremely high fees on investment products. How do I convince him to work with a fee only fiduciary?” And you have an opportunity to define some terms here with fee only and fiduciary. What do you have to say to Zach?

Bo: Well, you know what? How about this, Brian? Why don’t you answer the vocabulary? That’s a great thing. Let’s do some quick vocabulary of what does fiduciary mean and what are the different types of business models and then I’ve got some thoughts on how Zach might be able to do some conversational strategy with his dad on how to get him there.

Brian: Yeah. I mean, look, it all comes down to what is somebody selling you and where are their conflicts of interest. I like to think the fee only fiduciary model is the cleanest because it’s just it’s transparent. It tells you, hey, look, now full disclosure, everybody has a conflict of interest. I’ll explain a little bit further in a second, but at least with fee only, they have to disclose how they’re being paid and they’re only getting paid by you, the client. Whereas a lot of times when they’re not fee only, it’s commissions, it’s back-end, you know, fees that are coming in that it’s just not transparent. And it’s not uncommon like with product sales where people say actually you don’t pay us anything because the company is going to pay. Well, we all know that that’s just an imputed part of the cost that the company can only pay that because of what you’ve paid. That’s just a workaround to not disclose to you what they’re paying for it. The other thing you have to worry about is where is the motivation for the decision-making. And if you’re getting your financial planning from and I don’t when he says a larger one look there’s lots of larger players there are insurance companies that it’s amazing how all roads seem to end to an insurance product at the end of the day when you’re an insurance company there’s big brokerage houses where they’re going to have their own thing and you just have to ask yourself are they giving you the best advice for you or are they giving you the best advice for what the law allows them to do? And I’ve made this a point because there’s different standards there. The fee only fiduciary, the reason that word fiduciary is so strong is that they are legally required to put your interest ahead of their business model. Whereas suitability and other standards which are still legal, these are completely legal. It’s just that they don’t have the same legal standard to where your interest doesn’t have to trump the business because it’s more of are you suitable? Is this advice reasonable and suitable? It’s no different. And I made this analogy before because we just came through the Halloween season is that, you know, you can eat candy and it’s suitable for human consumption, but it’s not actually your best thing that’s going to provide nourishment, make you the best version of yourself. But legally, it’s okay if you if you know, if you had somebody who was just coming in every day and just giving you, you know, we’ll give you Reese’s for breakfast. We’ll give you, you know, some Snickers for lunch because it satisfies you. It all sounds delicious. It all sounds great, but you’re going to notice you get sicker and sicker. You’re not the best version of yourself. Whereas, you have a dietician who’s actually trying to feed you what you want. It’s not always great, but you at least know that you’re getting stronger, you’re getting better. That’s the way I look at it. Now, look, fee only has different flavors, too, is that because you have hourly, you have subscription, you have even assets under management, which is the way we work. And I don’t mind sharing, we’re unapologetic because I like long-term relationships. I don’t like I come from a public accounting background where you know that works on an hourly basis or even subscriptions that the structure there is going to be like how do we get you done as fast and then there’s even as a person who pays like hourly you’re probably not going to go ask every question because you’re like well gosh they’re going to send me a bill for 0.2 hours that’s annoying to me I don’t want I want somebody who’s going to answer whatever questions so that I can feel like it’s you know whatever it is it’s unlimited and that’s why I like ongoing because I also know relatives it’s kind of embarrassing when I give advice to a family friend or a relative and then they come to me four years in the future and say hey this is what you recommended to me four years later I mean four years ago and I’m like oh gosh we changed all that you know because the market the economy changed. That’s our thing I’d rather have an ongoing relationship and also I think we’re doing things differently because we’re doing true financial planning it’s not just investment management. I think that’s a whole another discussion.

Bo: Your question, Zach, the way you kind of tell, hey, how do I convince my dad to move to fee-only? I think you always have to be really careful when you use the word convince because I am more about in a conversation. I want someone to have some self-discovery. So, I would approach it with the Socratic method and start asking your dad some questions. You said that you noted with his current advisor with the current firm he works with, there’s a lot of really high fees on the investment products. But what I would do is I’d say, “Hey dad, let’s look at some of the funds you hold.” Hey, okay. This blank blank of America blank fund, right? Let’s go see what the internal operating expenses of this fund are. Okay, I see that man that’s like 0.75, 0.85. Well, what are they investing in? Well, they’re investing a lot of the names you see every day in the S&P 500. Okay. Well, Dad, do you realize for the same exposure that you’re getting this very high cost fund, you could go buy an S&P 500 index mutual fund or ETF and the internal operating expenses are like 0.015%. And I would just kind of go down the list of his funds and say, “Dad, you’re paying this. You realize you get the same thing for this. You get the same thing for this.” So, that’s a real easy way to solve the investment product part. But then I would take my line of questioning a step further. This is a little bit of like trade secret, industry secret, cheat code for those of you out there trying to figure out if you’re in a solid advisory relationship. I would ask your dad, “Hey dad, every year at tax time, does your adviser ask for a copy of your tax return? Does your adviser review and look over your tax return? Do you have conversations around that?” And a lot of folks say, “No, no, no, no. They tell me that’s my CPA. That’s my tax accountant.” No, no, no, Dad. I’m not talking about preparation. Obviously your accountant, your CPA, they’re going to do the tax preparation, but is your financial advisor talking with you about that and coordinating with your accountant? Oh, no, no, no. He says that’s not what he does. Oh, okay. Well, Dad, have you had your financial adviser, has he requested copies of your estate documents? Has he read through them to understand what happens if something happens to you and where the assets go and how the plan is supposed to flow? No, no, no, no. That’s up to my attorney. Well, no. Yeah, Dad. I know the attorney is the one that writes the documents, but has your advisor talked to you about that and are you on the same page? And you will begin to uncover very quickly if you were working with a true fiduciary financial adviser looking at your entire financial picture or if you just happen to be working with an asset manager, with a money runner, which not that there’s anything inherently wrong with that, but you want to know that going in because they are not the same. So I think if you can start asking your dad some of those questions, it will bring to light some of the holes that may exist and then it will provide the opportunity to say, “Hey dad, have you thought about looking at a fee only financial planning firm? Have you thought about talking with a fee only financial adviser?” Because that’s the kind of stuff that they do and that’s the kind of work that they can help you with.

Brian: Well, I have even some of these big companies, you’ll start talking about Roth conversions, education planning, and they say, “Hey, I can only give you advice on assets that I’m managing.” That’s a red flag because we all know that the holistic side of your financial life is not limited by the boundaries of what accounts your financial planner has. It’s just like property and casualty insurance and other things. You want somebody who’s actually trying to help you navigate because as you get seven figures and beyond, you’re the CEO of a seven-figure enterprise that you need to get good feedback so you can be the CEO and make great decisions. That doesn’t stop at the boundaries of just what is in that account. It just doesn’t.

Bo: Yeah. And by the way, go to moneyguy.com/resources. We have questions you should ask your financial adviser. Go to moneyguy.com/resources, download that or go to moneyguy.com/become-a-client and give us a crack at it. We would even love to potentially have a conversation with your dad about what fee only financial planning could look like for him.

Rebie: No, honestly do both. Go grab the resource and then go to become a client so you can schedule a call and ask all the questions. I love that for Abound Wealth. I love it. All right. Zach, thanks for the question.

Bo: You mentioned Halloween. Rebie, did your kids dress up for Halloween? Did y’all do the Halloween thing? What were your kids?

Rebie: We were Super Mario themed.

Bo: All of you?

Rebie: Oh, wow. All of us.

Brian: Who was who? Did you steal some of our costumes from the basement?

Rebie: I did. No, you know I did because I asked you. I didn’t just steal it.

Bo: We were Mario. You remember that back when we used to dress up for Halloween? We did a TikTok thing when we did that. Do you remember?

Rebie: I mean, we did a whole react with you guys dressed up as Mario and Luigi. That was pre-COVID. I still have pieces of your Mario costume. So, my husband was Mario, I was Princess Peach, my son was Yoshi, and our baby was Luigi. That’s it. It was very cute.

Bo: What about Preston household? How were Halloween costumes?

Brian: My youngest had two costumes. She was Wednesday to go to school because that got her a dress code pass. And then she was a bumblebee for the actual walking around the neighborhood. Two costumes. That’s a move. She really liked the bumblebee. It was actually comfortable because sometimes with Halloween costumes, you know, there’s how cool they look versus how functional they are to walk around the neighborhood.

Bo: I had a Hermione. I don’t know her last name. And I had a Ginny Weasley. Oh, so Harry Potter somehow. Yeah. Very cute.

Brian: I see a Universal trip in your future.

Bo: We’ll see. We’ll see. They’ll love the resort pool.

Brian: They like some Dollywood though, right?

Bo: Love Dollywood. My kids love that. It’s actually one of our family’s favorite little getaway things to do. I think because it’s so much more digestible. Like Disney’s big. Like there’s just a lot to go there. And my kids were younger then, but Dollywood get some of the not monkey bread. What’s it called? Cinnamon roll stuff. Yeah. Chef’s kiss. Chef’s kiss.

Brian: I haven’t been to Dollywood in probably three to four years. Time to go back. But I did find myself. I watched a 35-minute video because I guess on November 1st they started doing all the Christmas lights. Yeah. And I just my wife thought it was crazy, but I was just enamored. I mean, I was just mesmerized by walking this guy who’s walking around doing all the things at Dollywood. And I was like, why have we not gone back? Well, and the cinnamon bread looks really good. That’s really the main reason. You know, if I can’t get my family to do it, we ought to do the content team just go over there.

Rebie: You’ve been saying that. It’s just right down the street. It’s only three hours away.

Bo: Say less. We’re down the street. Love it.

Question from Mr. Trib 12: Downgrading Car with Negative Equity (24:13)

Rebie: All right. Want to do some more personal finance?

Bo: Yes, ma’am.

Rebie: We’ve got a question from Mr.Trib12. It says, “I drive a car that is not 20/3/8, sadly. Maybe that was before he found The Money Guy Show. I don’t know. And I am looking to downgrade to a car that is around $6,000 to $9,000. My current vehicle is worth about $17,000, but I owe $19,000. Without the cash, how can I make the switch?”

Bo: I’ll make sure I got my numbers right. The car is worth $17,000, but we owe $19,000. I need to go buy a car that is $6,000 to $9,000. All right, I’ve got a thought, but I hate my thoughts, so I want to hear yours. So, I have time to come up with a better one.

Brian: Well, I mean, look, there is a delicate balance here because fortunately with interest rates being dropped here recently, that car loan potentially could qualify as not high interest debt in some of even in the used car market. I think that I’ve seen stuff I wonder if 6% but I wonder if the part of 20/3/8 that’s really getting him is the 8%. I bet that this car loan that he has out is taking a big chunk of his income and that’s what the… I get it’s a cash flow issue and that’s why probably a reset does make sense. It’s just what I don’t love is that negative equity component. I would almost rather level I mean if he could look I you’re in a crappy situation, bad situation. So I think you need to wear that a little bit in the fact that we got to have a few months of pain to get you out of this is that I would love to get rid just completely eat up that negative equity before I made any transaction. Like really I mean you just go full stop on all your expenses, see if you can clean out that $2,000. And then now when you go and buy whatever the reasonable used car is that you can get for less than $10,000, you then respect the 20/3/8 at that point because, you know, and just promise yourself you’ll never make that mistake again.

Bo: Yeah. I wrote down what I want you to do and then what you could do. And what I want you to do is exactly what Brian said. I want you to tighten the belt, batten down the hatches, do everything you can to knock down that car payment so that you are not underwater. Because 20/3/8 is 20% down. And if you got negative equity, that’s not 20% down. So, I want you to cancel the subscriptions. I want you to really watch the grocery budget. I’m not going to tell you eat cereal every meal because it’s super unhealthy, but it is a way to save some money. I want you to figure out the things that you can do in a short term to really right that ship. Because basically what you got to do, you got to do two things. You got to pay down the negative equity of two grand, but then you do need to come up with 20% for that $6,000 to $9,000 car that you’re going to get into so that you can actually do. We got a $4,000 delta. I mean, change that’s got to happen here. So that’s what I want you to do. Like that’s the thing that I want you to do. But I don’t know how dire your circumstance is. I don’t know how desperate you are in this moment because Brian alluded to this. There is this thing where you could trade in that car, roll the negative equity into a car, and now instead of having a $19,000 loan and a $17,000 car, you’re going to have an $11,000 loan on a $9,000 car. You’re still negative equity, but hopefully what you’ve done is if you reset your payments to get them back into the threshold to where they’re sustainable. But that’s like the I don’t want you to do that one. I want you to do the first one and make the hard decisions that are going to set you up better than just exacerbating and rolling on this bad.

Brian: I think he’s got a $4,000 hole he’s got to fill. It’s the $2,000 in negative equity. It’s 20% you got to put down. I think you look at four grand and you treat this like, you know, all the caper movies that we saw growing up where, you know, there’s dance-offs and things like that. So, you have to go. Well, I don’t know if you want there’s some type of side hustle. Well, I know the vehicle is not going to fix that because you’re just going to depreciate yourself into a pickle, but there’s got to be a way take extra hours. You got to figure out some way to get past that $4,000 hole because it just I do not love the idea of negative equity because it just pushes it defers facing the music of what got you in this situation.

Bo: That’s right.

Rebie: No, that was a great answer. And Mr.Tribe 12, we’re really glad you’re here and I hope that helps you think through a difficult financial situation, but hopefully you can move past that wisely and continue on with the FOO and you’ll be better for it.

Question from Walker P: 529 Plans to Custodial Roth IRAs (28:58)

Rebie: All right, Walker P has a question. It says, “With two under two, when should we move our kids savings from 529 plans to custodial Roth IRAs?” Why would you want to do that? What’s the comparison?

Brian: Realize these are two distinctly different vehicles.

Bo: Yeah. This is not an age-based thing. The age of your kids has nothing to do with the answer to this question. It’s the why.

Brian: I mean, because 529s, the why on 529s is education funding. They originally were started for college funding. That has been expanded many times over to where now it can be for K through 12 education. It can be for trade schools. It can be for of course for college. It can even be for education supplies and other things. And 529 is just to give everybody the kind of why everybody loves these things is some states depend upon what if you do a state specific plan and it’s your state and they offer some tax benefits in some states. Do your research on that. So it can even be incentivized to fund a 529. But if you use it for qualified education expenses, part of those that list I just went through all the growth is tax-free. So it sets up an incredible thing since you have your kids, you know, if you use college, which was the initial thing, close to 20 years of compounding growth. And I having a senior in college myself, I’ve seen the power of these accounts. I mean, I was just saving small little things. $100 here, $200 here, and it turned into, you know, thousands of dollars that paid for my daughter’s college. Now, Roth IRAs, and now this new component of custodial Roth, the why on these is tax-free growth for retirement, but they have a huge asterisk next to them, is that you’re required to have earned income. That can be from wages, that can be self-employment income. You can’t open these accounts just because, you know, so that’s why a transfer doesn’t make any sense.

Bo: Yeah. Let me speak to that for a second because I’ve actually had this conversation two times in the past two weeks with two clients. Oddly enough, both of them pilots. It wasn’t until I thought, right now, both of these clients are pilots. Both of them have young kids. One is like 12 years old, the other’s like 14. And they’ve been listening to the show and they love the stuff we talk about, like guys, I want to do the custodial Roth. I’m ready to do it. I’m ready to do it. My kids have been helping. They’ve been doing odd jobs around the house. I’ve been paying them for chores. I’m, you know, building this building out in the back and my kids been helping out with that. I’m going to pay him for that. I really want to do the custodial Roth. And what I told him was like, “Hey, I love that. I think that’s great. I think that’s amazing. But you have to be able to show earned income.” And so, in order to do that, you have to file a tax return. You have to claim that income and it has to be something that you do. One of the things that I really encourage parents to think about, and I know this is a hot take because in the financial world, people want to be as specific and esoteric as possible. Well, they’re hiring babies as models. Yeah. Don’t over complicate it. And this is what I told both these clients said, “Hey, look, in the next couple years, your kid’s going to go get a job where they get a W2 or 1099. There’s going to be some natural tax reporting that’s going to be required anyways. You’re only a year, two, three years away from that. Right now, don’t over complicate it. Forcing the tax return, trying to create the income. There’s nothing wrong with doing a custodial account because you’re still going to be able to do the same sort of thing. If you want to be able to do some sort of parental match, you can do that into a custodial account. You want your kid to be able to put money in, you can do that in a custodial account, keep it simple. There’s no need to complicate it until it actually makes sense to introduce in that complication. So, as you have these two under two, college is a great thing to begin saving for. It’s a great thing to just start putting the money and you don’t have to think a lot about it. You can kind of set it, forget it. Pick a target retirement index age-based or aggressive age-based type plan. Have your contributions go in and then you can focus on other stuff. And then as your kids get older, then you can introduce in the custodial account. And then as they start working, then you can graduate to Roth. So it’s like this natural progression. You don’t have to have all these accounts all established and all funded two years into their lives.

Brian: It’s almost like there’s an order of operations to the way finances work.

Bo: We should do a kids order of operation. Like a KOO. Oh, and that’s kind of clever because it’s like-

Brian: That’s not how you spell kids.

Bo: Like, well, I guess C. Well, yeah. Yeah, but I was it was like play, you know, like you know the literacy. Okay. Like K-O, right? Like kids order of operations. If you were going to say the word KO, how would you say? Let’s ideate on that. And you see, you know what? It’s clever because that’s the sound a baby makes, right? So, it’s kind of like there’s a I’m in branding children’s order of operations. I’m getting a thumbs up from our producer. He said it’s a great idea. Did you see that?

Brian: I think I just saw another one do a thumbs down. I think we would just, you know, if this was the Roman coliseum that idea is not making it out.

Rebie: That was pretty painful. Fun though.

Bo: Agree to disagree.

Rebie: Walker, thank you for your question. Glad you’re here.

Brian: Two-year-olds probably not doing a custodial Roth.

Bo: Two under two. That’s a that’s messy. Awesome and amazing and incredible. Messy though. Don’t blink though. Don’t blink. It goes quick.

Question from Matt Y: Emergency Preparedness (34:29)

Rebie: All right. An interesting one from Matt Y up next. It says, “On which step would you spend some of your saved money on emergency preparedness or disaster preparedness?” And then he qualifies. “I am not talking about doomsday prepping. But would a hurricane, fire, blackout, or earthquake preparedness kit fall into step one, step four, or step eight? Personally, we happen to live on the West Coast where earthquakes and wildfires are not rare. And this sort of future preparedness is something we need to think about.” It’s interesting, right? I want to know what you’re going to say because we talk about the unknown unknown, but there’s some nuances. So, what do you think?

Brian: Hey, I’d be curious in your like I don’t know where you keep your stuff. Do you have do you have any preparation stuff in like a closet somewhere in your house?

Rebie: My I mean, we don’t have any earthquakes and wildfire risk.

Bo: My mother-in-law who I love dearly, Lauren, if you’re listening, she is very good about gifting us like here’s a meal kit, here’s a fire starter kit, here’s all this. And I’m like, Lauren, we live in the middle of the burbs, but that’s all right. So, I have…

Brian: So, you don’t have like a water filter, you know, those water filter sticks. You don’t have a fire starter kit. You don’t have emergency blankets.

Bo: We are picking up my wife and I are picking up hiking now. And so, I am going to get one of the straws, you know, one of like the water conversion straws. I know that’s not emergency preparedness, but it’s a cool thing that is in the same vein. Because here’s my thought to how I’d answer your question, Matt. What step of the FOO does this fall into? What’s beautiful about personal finance is that money is nothing more than a tool that allows us to achieve our goals. And the people that get to decide what our goals are are us. And so for you, as you think about all the financial goals you have, one of the goals it sounds like is, hey, I want to make sure that I’m prepared for an emergency. If there were a wildfire, if there were an earthquake, one of my goals is to satisfy that. Now you have to decide how far up my priority list does that goal fall. And if it’s like, hey man, I’m losing sleep at night. I am really anxious about this. I’m really nervous about this. Then yeah, that may be one of like the step one, step four, early on risk management things that you need to have in place. But if this is like a nice to have, not like a have to have, I would love to see that come into play later on in the Financial Order of Operations somewhere around like step seven, step eight, so that you’re not and again I don’t know how much you’re planning on spending because if you’re spending a couple hundred bucks, it’s different. But if you’re going to put like a whole home generator, that’s like an expensive endeavor.

Brian: No, I mean look, now we’re getting to the point is that I think everybody I mean there’s nothing wrong. There’s nothing wrong with a family. I don’t understand why this is not even a Financial Order of Operations question to say you should have in your house. I think it’s just good planning that if you were without power and other things for 3 days, your family’s going to be okay. You should think about and that’s not even that expensive to prepare. And by the way, think about it now while you don’t have the emergency because you can and by the way, you can go on Amazon. This is probably a few hundred bucks solves this problem. Now look, it doesn’t mean it’s going to be the life of luxury. It’s not like a Looney Tunes where, you know, the world has trouble and all of a sudden you got generators firing up and, you know, and all the food’s preparing itself. You know, it doesn’t work that way. This stuff doesn’t have to be expensive.

Rebie: I did realize I need more flashlights or something when I lost power. I was like, “Oh, I can’t see anything.”

Brian: But flashlights versus a whole home generator are a different matter. And look, I looked into whole home generators. And what’s funny is parts of the country matter, too, because I have a buddy down in Atlanta. His house is bigger than mine. He was able to put a whole home generator for half the cost because I live in a part of the country where everybody just thinks you open a door and money falls out. So, they double charge for everything. So, I don’t have a generator on my house. I mean, because it’s also now I found out I’m on the 911 power grid. So, for the tower, it’s out back on the hill.

Bo: That means you’re locked in a little bit better, right?

Brian: Well, it means we can lose power, but we have underground utilities and we’re on the grid for the 911 system for the county. So, it’s just we don’t have a lot of…

Bo: Yeah. So, look, if there’s some major cataclysmic event, I’m just going to drive to your house. It sounds like you’re covered. You got food and power. I’m golden.

Brian: But it is I think this is an important part of just good financial management. But I don’t want you to create anxiety for yourself. I think it’s one of those things. Hey, write down be reasonable. Don’t get into where now you are going into and if you want to be a prepper that’s fine, but it doesn’t have to be part of a Financial Order of Operations. And I think that this is a solution that can be found with a reasonable amount of money that even comes in before step one.

Bo: And look, if you have like a ton of crippling credit card debt, though, I don’t know that I get super excited about you spending a ton of your resources on emergency preparedness and not knocking out that high interest credit card debt.

Brian: Right I mean, this shouldn’t be super expensive.

Bo: I

Rebie: I did Google one of these earthquake preparedness kits, so I’m not as schooled in this. And they were only they were like a couple hundred bucks. They weren’t crazy. I will say based on my cursory research.

Brian: Years ago, we used to have some Amazon affiliate links where we’d put our favorite things. This would be like based upon this question. We could put up these water filters and other things. These straws I mean they are pretty amazing. I think I would encourage everybody to go buy something so you could at least provide water for your household if something bad and it’s not that expensive. There’s technology that’s pretty amazing and can even turn swimming pools into water sources.

Bo: Now there’s an idea hadn’t thought of. Send me that link.

Rebie: Oh that was an interesting one. Matt Y, we get it. Good thing to think about and we hope that our varying thoughts around the subject helps you think through it.

Question from Anonymous User: Saving Money While Working Hourly (40:52)

Rebie: All right, we’ve got a question from anonymous user. Uh oh. It’s not that juicy of a question either. I’m like, wow, they really wanted to be anonymous. It’s a good question though. They wanted to be anonymous or that’s their name. It seems like they wanted to be anonymous from the information that I have because imagine how early on in YouTube you would have had to pick your thing to get that user. This came from another platform actually. So do with that what you will. It says, “I was curious what advice you all would give to someone who is working hourly, not salaried, on how to save money.”

Bo: Same rules apply, right? When we say that we want you saving 25% of your gross income, gross income does not matter how it comes to you. So whether you’re paid hourly, salary, bonus, commission, whatever that is, as you have inflow coming in, even if it’s irregular and sporadic, we want you to be saving 25% of that gross. Now, what happens for a lot of folks is they’re not able to save that 25% consistently. So perhaps you’re someone who works hourly and for one week you might work 80 hours and the next week you might not work and the next week. So you might have to smooth your savings so that it makes sense from a cash flow standpoint. But I think if you’re hourly you should think about saving and the way you structure your dollars the exact same way as someone who’s paid salary.

Brian: Yeah. My thing is just be honest with yourself. Know thyself is because I think sometimes people who work hourly, some jobs will let you work a gazillion hours and you’re like, well, I could do that, you know, because I’m trying to get out of debt. I’m trying to do this. Be realistic with your assumptions on what you’re doing because planning is only as good as the data you put into it. So, be honest with yourself on what the income coming in. And also, if you have an employer that’s not giving you the hours that you want, put that into the assumptions as well. I’m just saying make sure that the assumptions are as smooth as possible because that’s sometimes the harder part is because instead of you knowing what’s coming in monthly automatically, it’s more on you based upon how often you’re working and the planning and you choosing which hours you’re working here and there. So, you have to be very honest with yourself and responsible with those assumptions.

Bo: Yeah. And I would budget conservatively. I mean, one of the things being responsible with that is don’t assume, oh, I’m hourly. This is my hourly rate. I’m going to work 120 hours and this is how much I’m going to come in. So, I’m going to spend at that level. I would pick some more conservative number to base your budget off of so that you give yourself a little bit of margin, a little bit of wiggle room in the system.

Brian: Yeah. And like overtime and things like that, those one-offs, just like I said, be honest with yourself so that you’re not making expectations that break the plan.

Rebie: Yeah. That’s really good stuff. I also wasn’t sure if it was like a freelance hourly thing and that’s even more so because that’s even more varied income.

Bo: If that is the case, one of the things I do want you for all my freelancers out there or side gig people, one of the things that like we think about saving, how do I save? How do I save? How do I save? Don’t forget there is also a tax bill that’s going to be associated with that income. You got to pay ordinary income tax on the money that you earn, but then you also get hit with self-employment taxes. So, make sure you’re factoring that in. That’s one of the most heartbreaking things I see. Either someone strikes out on their own or their side gig becomes profitable quickly and they go to do their taxes like, “Hey guys, I thought I did what I was supposed to. I set 20% aside of the money I made in my side gig for taxes.” And I’m like, “I don’t think you did enough.”

Brian: Yeah. 15.3% is just the self-employment. I mean, most of us when you work for somebody don’t pay notice that because your employer is paying 7.65% of that and then you pay the other 7.65%. So seven doesn’t feel that crazy, but when you’re out on your own paying 15% plus income taxes, you realize this whole thing about taxation, it’s real.

Closing Thoughts (44:48)

Rebie: You know, we are in the most wonderful time of the year when so many financial questions are coming up. Maybe you’re getting a year-end bonus. Maybe you’re spending more because of the Christmas holiday season. Maybe you just know January is coming and you’re going to get more serious or set new goals or just have a reset on your finances. Those are all super common things we hear and experience and that’s why we’re right here for you. We will be continuing to put out great content throughout the holiday season and year end and the start of the new year. And moneyguy.com/resources is there as you start thinking through all of your personal finance questions because we know personal finance is personal and that’s why we love to take your questions right here on the show every Tuesday at 10 a.m. Central. But we understand you may want to go a little deeper or be reminded or have something tangible that you can go work through and customize for your situation. And so that’s what moneyguy.com is for. Be sure to check out our resources as we’re coming up on the year end.

Brian: I’m just thankful for every one of you. I don’t take for granted that starting in January, this will be 20 years of broadcasting for The Money Guy Show. That wouldn’t be possible without everyone out there who just keeps supporting us. We are the longest running podcast that’s going to be an overnight sensation any time now. So, I mean, it really does it means a lot to me that so many of you are so supportive of us. And hopefully you can tell the heart of this thing is that we really are trying to be educators. So, you get to live your best life. And if you’re one of those people, maybe you were riding around in middle school and your parents were listening to The Money Guy Show, the podcast, and now you’re a titan of industry and you’re crushing it and you’re like, “Man, those are the guys that inspired me, motivated me, and now here I am.” Don’t skip out on the abundance cycle. We’ll leave the porch light on for you. Love for you to check us out. If you go to aboundwealth.com or go to moneyguy.com and look at work with us, that’s not why this started, but it sure is a way we continue the relationship and we don’t take anything for granted. I’m your host Brian, Mr. Bo, Rebie and the rest of the content team. Money Guy team out.