How to Build Wealth With A Negative Net Worth

Introduction – Carl and Laurel’s Financial Journey (0:00)

Bo: Every financial decision you make has an opportunity cost associated with it. If I pursue this goal, it’s likely at the expense of this goal to some extent. I’ve got these two goals I still want to satisfy. I want to be saving and investing, but I do still have a bunch of student loans that are 5%. We’re going to stop talking for a second. What would you guys do?

Carl: Well, whenever we started dating is right before I went to PA school and so it was kind of like this expectation like, hey, I’m going to go to school and this is going to come with some debt. And so, you know, kind of like a debt crusader for the longest, I would say. And so, we kind of carried that into our first couple years. And so, now today, our main goal is just to try to figure out like I know there’s a more efficient way to do that to kind of make the most out of our like prime earning and investing years. So, from the very beginning though, like we understood like we didn’t want any unnecessary debt. Credit cards, car payments, stuff like that. And the student loans were just next.

Bo: Got it. And you said you are a PA now? Is that right?

Carl: Yes.

Bo: Awesome. Laurel, what do you do?

Laurel: I’m a teacher.

Bo: Teacher. Yes. Awesome. What do you teach?

Laurel: Fifth grade English.

Bo: Fifth grade English. That’s awesome. My wife was an English teacher.

Current Financial Picture – Net Worth Analysis (1:02)

Bo: All right. So, you guys got married, already talked about finances, already kind of on the same page. You’re two years into this thing. You guys were kind enough to share with us a net worth statement. And right now you guys not unlike a lot of young newlywed couples, here you are even though things look great. You’ve got almost $35,000 in cash. You have about $23,000 in investments. But then you do have the other side of the column. You have the liability column, the debts. You’ve got student loans, a total of $110,000 for you Carl and Laurel. Yours are about $28,500. So when you look at that, your total net worth right now is negative $81,000. How’s that feel? You’re like, ah, this is awful or like ah, it just kind of is what it is.

Carl: I would say that when we started it was around like $228,000, $232,000 as far as student loans. So it does feel good knowing that we’ve at least got that number way down. So, I know that we got a lot of work to do.

Brian: So you really have been crusading way out there. Let me ask you this because obviously you’ve knocked down a lot. Were the other student loan rates that you paid off, were they much higher than what you currently have or were they much in line with the current student loans that you have left?

Carl: It was really just the snowball more than anything. So, I really just looked at the balance first.

Brian: Give us a feel. Were they all higher though or do you know they were all right around?

Carl: Yeah, the one I have is like 6%. That’s the highest one.

Financial Goals and Current Strategy (2:28)

Bo: Student loans is obviously you said it’s been a goal and it is the main goal. It seems like is it the main goal? Like, do you all have other financial goals? Like when you guys sit down and talk about what you want your money to do for you, you make almost $200,000 as a household. So that’s you got a really big shovel. What are you hoping to do with that shovel?

Laurel: We’re wanting to buy the house that we’re in. And so we’re wanting to pay off the student loans, buy the house, and just start investing in what will be the most beneficial long term for us.

Brian: So it’s kind of interesting. Y’all actually already live in the house you think you want to buy. I know in the notes I had to review that there’s like a family connection or something with it as well. Give us the lay of the land on this house.

Carl: So, it’s my great aunt’s house and so it’s like a house I grew up in. It’s up on the river. Spent a lot of summers up there growing up. Couple years ago, I was graduating PA school and then she went into assisted living just because it’s like 30 minutes outside of Cleveland and so we were having to go back and forth a lot to where like if she wouldn’t answer the phone, we were going to check on her. And so she ended up going to assisted living in Cleveland and then no one was in the house and so we kind of just had an understanding like, “Hey, I’m getting ready to graduate. We’re about to get married. Why don’t we stay there?” And now we’ve been there now about 2 years.

Laurel: We’ve really been able to go towards our loans. It’s been such a huge blessing. And we love the house. We’re very thankful. So that’s helped us a lot to just pay off a lot of our student debt.

The House Purchase Plan (3:53)

Bo: Is the house paid for? Like what is it? So, it’s a paid for house right now, but you guys are going to buy it from her?

Carl: Yep.

Bo: Have you talked about what that transaction is going to look like and how that’s going to play out?

Carl: Like, as far as price-wise, I would say average around $450,000 and probably going the traditional mortgage route. I’d imagine, you know, you look online, there’s all kinds of like buying from a family member. You could have an attorney draw up XYZ and it can get pretty complicated. So, I think we were just looking to go probably the traditional mortgage route whenever we do decide to buy it.

Brian: Now, is $450,000 like a sweetheart deal? What’s the house probably worth?

Carl: There’s another house in the neighborhood going for like $930,000.

Brian: Wow. Okay. So, this is a really good deal that you’re getting on this house.

Carl: Yeah.

Brian: And truthfully, if y’all been living in it for the last few years, I know because houses they don’t work well unless somebody’s living in them. So, it’s actually it probably has been a win-win for the family members as well as for you guys because you don’t, you know, freezing pipes, all kind of things could happen.

Carl: Had all of it in just two years, it seems like. No, it’s been great for everybody because on the weekends or holidays, specifically the Fourth of July, bring her up to the house. We have like a whole family thing up there. So, it’s like everybody kind of benefits.

Brian: And I’m sure because it sounds like your great aunt bought it in the ’90s, there’s probably some if you did take ownership, you probably need to do some renovations and some other things to get it up to where it’s that $900,000 as well.

Carl: Yeah. And you know, there’s a few cosmetic, you know, like wood paneling, put up drywall, stuff like that. But like functionally, it’s in great shape. We’re in no urgency to try to fix anything anytime soon.

Bo: You could buy it and live in it just like it is. Just like you’re living in it right now.

Current Savings and Investment Strategy (5:23)

Bo: All right. So, you have these three goals. You said we want to buy this house. We want to pay off the student loans. And we want to like save for the future. You mentioned Roth IRA and that sort of thing. When you guys think about like how you’re going to attack these goals, do you already have a strategy in place? I mean, it sounds like student loans has been the number one like plowing every dollar. But you have some investments. So, you’ve been doing some of the other stuff too, right?

Brian: No. Go back to that net worth. Okay.

Bo: They got look, they got like $23,000, Brian. They’ve only paid off $100,000 of the student loans and they got $23,000.

Brian: And answer this for me, both of you. Are those just the minimum so you get the match?

Carl: So, her 401k is kind of just yeah, she contributes two. I think they contribute like four. The 401(a) is like the employer one I don’t contribute to. They contribute. They just put the money in there. Like last week, even though I submitted it earlier, I thought I submitted enough to get the match, like 4% to get the 2%. So, it hasn’t even like had any deposits in it yet.

Bo: When we actually look at your savings plan, there is money going in. You already mentioned 401A has about $300 a month going in there. Your 403b, you said you want to get you’re going to get the match on that. That’s going to be about $400. You’re going to get a $200 match on that. Laurel, you have money going into pension system right now, the teacher retirement system, about 5% of your pay. And then your 401k you’re doing about 100 bucks. So all in, you know, based on your income, you can still include the employer match for the moment. You can factor all that in, you guys have about $1,200, $1,300 a month going into like future financial independence, right?

Brian: So see, they’re saving, but most of that’s employer.

Bo: Okay, Brian. I’m trying to help here. Big shovel. Big shovel. Right.

The Ingredients of Wealth (7:10)

Brian: So, I’m just trying to and when you think about this because in a minute I’ll talk about we all have opportunity costs with every decision you make and y’all are also at this crucial age. I mean it gets me so excited about how big shovel, big ingredients because that’s ingredients of wealth. You have what it takes. You have good income coming in. So you obviously have discipline because you’ve been in college, you know, in education for all these years. You got a big income. So that creates the second ingredient which is the cash or the margin. And then y’all are young enough that you got time. So it’s like a perfect carrot cake recipe. You got it. It’s just that we actually put it all together and give it enough time to bake in the oven and I’m worried that you got something whispering in your ear over here going pay down that debt. Pretty much.

Carl: Something on the shelf.

Brian: Then you’re like, “Okay, we’ll leave those ingredients up on that recipe, you know, up in the shelf in the cupboard just a little bit longer.” And that’s fine. We’re going to talk about that. But we’re going to build this cake one ingredient at a time.

Bo: So, it sounds like your strategy right now, if I am discerning correctly, is all right, we’re going to attack the student loans, and we’re going to knock that out as quickly as we can. And then we want to do the house, and then once we’ve knocked out those two things, then we’re going to start saving and investing for retirement.

Carl: Yeah, that was the original plan. And then kind of what’s been changing over the last like six, eight months was realizing that, you know, we’ve paid off the higher interest of the loans. We still have one that’s like 6% but I kind of wanted to focus more on the house right now. So that’s why I’ve been just like putting money in the Fairwinds and just seeing like okay after we get a plan.

Bo: The Fairwinds is your savings account loading up money in cash to figure out what to do with.

The Debt Crusading Backstory (8:49)

Brian: When you say it’s changed, is this kind of like when I know I’m going to the doctor, I fast for like the week before I quit eating, no sugar, everything else. So, when you say that this is all pivoted recently, is this like you’re coming to see your financial PAs?

Carl: Yeah.

Brian: Because everything I’ve seen on that net worth statement is you’ve been crusading. I mean, you practically got the plated, you know, and you even put your chain mail on. I mean, you were debt crusading all up and down. So, is this has your change been because you knew you were coming on this show to a degree, too?

Carl: I would say like the last year it’s been, you know, hammering out the loans, hammering out the loans, and then like we said about six months I started like discovering other YouTube channels, seeing like there’s probably a more efficient way to do this. So, you know, I’m perfectly comfortable if we buy the house and we still have loans. Like that’s okay with me because I know that we will get rid of them eventually. I just don’t want to miss an opportunity with the house.

Introducing the Financial Order of Operations (9:47)

Bo: We do believe that there is a better way to do money. And one of the ways that we kind of like try to navigate that is through this system we’ve put together called the financial order of operations. Maybe you guys have heard of this, right? It’s this idea of what should I be doing with my next dollar and how should I be navigating the financial decisions I’m making inside this context. Well, it’s really easy when you have things like student loans, right? Like, okay, well, where are the student loans? Where does that debt payoff fall in the financial order of operations? Becomes a little bit harder when you have things like buying a house because buying a house is not specifically in here. So, what we want to lay out for you is a framework of how we think that you guys might want to think about these three goals and three priorities, right? and how you can attack them in the most efficient manner. Because Brian already alluded to the fact that one of the greatest resources you have at your disposal right now is time. But time can be awfully cruel. And he’ll show you the mathematics on that that the older you get, the less powerful your time can be. So if you wait till you get through this one goal and then wait till you get to this other goal, you may have missed out on some real opportunity based on that resource that you have available to you.

Analyzing the Student Loans (10:48)

Bo: So we did some analysis on your student loans and you’ve kind of already alluded to this. When we break down all of your student loans, you can see most of them are right around that like 5% threshold. There is one student loan that’s up above 6% and you owe about $18,700 on that. Right? So, when we think about the financial order of operations, we think about step three high interest debt. We would argue that Carl that loan for you qualifies as high interest debt, something we should probably think about prioritizing and knocking out. All of those other debts around that 5%, we’re kind of teetering on the edge. Is it step three high interest or is it step nine low interest? And so we’re going to talk about how we would think about that. And I think one of the things you’ll be surprised to see is that we didn’t arrive at an all or nothing type solution. And we’ll kind of walk you through that. But there is one unique thing as it relates to your loans that we want to like bring into the picture. I think specifically Laurel, with your loans, there’s a unique thing. Can you tell us a little bit about what that is and how that might play out?

Laurel: If I work at a title one school for five years, they should pay $17,000 potentially.

Brian: Depending upon how your major, you know, what your specialty is and the students you work with. Yeah, for sure. We’ve helped people work through that. And you are currently at a title one school.

Laurel: I am. And I have friends who have done that.

Bo: So if you are someone who’s going to take advantage of teacher loan forgiveness, it probably would not make a ton of sense to rapidly pay off that debt if there’s a potential that you could actually earn it off through some of the loan forgiveness programs. Is that a safe assessment?

Laurel: Yes.

Bo: Awesome.

Cash Flow Analysis (12:23)

Bo: Talk a little bit about cash flow for us. What do you guys have coming in every month? And then what’s your monthly burn rate?

Carl: I believe with my most recent 403b contribution, I want to say around $11,300 coming in and then our burn rate is about $4,100.

Brian: Public math is not my strong suit. I’m seeing around $11,300 to $11,000 coming in and around $4,100 to $4,000 going out. So that means we have what $7,000 with which to fund these goals.

Emergency Fund Assessment (12:52)

Bo: One of the first things we want to assess, again, we’re working through the financial order of operations, and we did just determine that you do have a single loan that would qualify as high interest. Well, so we want to go back to our net worth statement and say, okay, is the cash that we have on hand appropriate for what we’re trying to accomplish. Because you said your strategy right now is you just been dumping cash in there. Dumping cash, dumping cash, dumping cash in your savings account, right? If your monthly burn rate is $4,000 and we were to say that, we know we wanted you to have a six month fully funded emergency fund, that would be six months times four, check my math on that, $24,000, right? So, right now at $34,000, you have about $10,000 of excess inside of your cash. Safe assessment. How much did we owe on that student loan that was at 6%?

Brian: $18,700.

Understanding Past Debt Behavior (13:46)

Brian: I do have a question for you, Carl, though. Was some of the because you’ve paid off like over $100,000, right? Already some of those loans under 6%?

Carl: Yes.

Bo: He told you he did the snowball.

Brian: I know. I’m trying to just education sometimes it’s better if you’re going to be a good educator, you have to come back to the point because have you ever struggled with discipline?

Carl: Yeah, in the past.

Brian: Where tell me in your life because you and I want to hear from you in a minute if you think that Carl struggles with discipline.

Carl: Well, I would say like before we met, like when I was in 20 to 24 range, I did have some credit card debt. And so that’s kind of what started the whole Dave Ramsey thing and then kind of the snowball from there. And I was just scared of debt.

Brian: So wait a minute. Now look, I want to give Dave some credit. So you were so reckless with your credit card debt that you ran up a large balance were paying like 20% a month on or a year I should say annualized?

Carl: Yeah, I think the max at one point it was around $10,000 max.

Brian: So you loaded it up. Well good. Look I got to give Dave some credit because this is the thing that I think you know sometimes when people show that they can’t be disciplined with credit card debt, you’re just not a credit card debt type of person and you do have to be a teetotal it. So if that’s the case I stand corrected. Have you evolved or matured enough to where you still struggle or is this so now you think can we go back to the well with debt or do we need to stay on this path of knocking it out?

Carl: No, we have a credit card that we use. I mean only if I’m buying something.

Brian: How long have you been paying it off every month?

Carl: Like years since our honeymoon.

Brian: So for the last two years, no problem. Y’all pay this thing off in full every month?

Carl: We don’t use it for like daily expenses. Like if we were going to buy a couch and it was like $1,200 bucks, it was like if there’s not a 3% charge to use a credit card, I would just use that because some points and I would just pay it off.

Brian: What happened in your early 20s? Was it just young and just crazy or?

Carl: Yeah, just I didn’t really go on any like insane trips or do anything like that. I think it was just a whole lot of small purchases here and there.

Laurel: Was it through school? Is that when it started or was it just a credit card? I don’t remember.

Carl: Yeah, it was while I was in like undergrad.

Brian: How about you? Did you have any debt issues or any struggles?

Laurel: No, I-

Bo: Her dad was in finance.

Brian: I know, but I want to hear it from her.

Laurel: I am very much, I would say, a saver. I think because of how my dad taught me and I saw my family do that when I got my masters. That’s when I had the student debt.

Brian: Laurel said that it was modeled in her house to be disciplined, not run up debt and other things. Your background did you have somebody did you need to have just some time to live life to get that education or did you have it modeled in your house?

Carl: Not really modeled in the household. It’s more something that I kind of just came across. I just had that credit card debt. I just realized there’s got to be a more efficient way to do this. So that’s where I kind of went online, found all the stuff, ran from there. But as far as like the household, money wasn’t really talked about or enforced really.

Paying Off the High Interest Loan (16:40)

Bo: Right now you have an extra $10,000 or so in cash that you’ve been stocking up above and beyond your emergency fund that we could potentially deploy for like a step three type endeavor. Well, and you said you have like $7,000 of free cash flow coming in. And so we think about $10,000 you have available right now and $7,000 of free cash flow. Realistically, you could knock out that 6% loan pretty quickly, right? Like you can make that 6% loan go away pretty fast like in the next month or two. So if we’re going to like think about prioritizing goals, high interest student loan debt, okay, we can kind of check that one off. We feel really good about that one.

Planning for the House Purchase (17:15)

Bo: Well, now let’s move to the second goal you guys mentioned, which was buying the house. Because obviously if we’re thinking through where we’re going, we always say you can’t buy a house or you shouldn’t buy a house unless you’re at least in step four of the financial order of operations. Meaning if you don’t have your deductibles covered, you can’t buy a house. And if you’re not getting free money, you probably shouldn’t buy a house. And if you have a bunch of credit card debt, you’re probably not ready for home ownership. And if you have no cash, then you’re also probably not ready. But once you’re at that point is where it kind of begins to start making sense. So, we said, “Okay, let’s look at the fundamentals of what a home purchase could look like for you guys based on the information you shared with us.” So, you’re going to buy this house for like $450,000, right? We said, or you told us that the timeline for which you’d want to be able to make this transaction somewhere between a year to a year and a half. Fair assumption.

Carl: Yeah.

Bo: Well, we said, okay, if we’re going to do a 5% down payment, now I don’t know what you’ve worked out with your great aunt and the conversation. Have you talked about you said you want some traditional financing that you’re going to do with a bank, right?

Carl: Yeah. I mean, pretty much that’s the path we decided to go down is just like do the traditional mortgage route and the one to one and a half years just came from, you know, just making sure that, you know, this is kind of her last asset that she has that can last her through everything. So, it’s like we kind of one to one and a half years seems pretty reasonable, get it on the books.

Bo: So, one of the things that’s not entirely clear to us is when you approach the financial institution to go buy this house and it has, let’s just say, $800,000. If it has an $800,000 market value and you’re asking them to loan you $450,000, there’s already a lot of embedded equity in there. So, it’s unclear to us whether or not you’ll have to come up with a down payment or not. But we said for illustrative purposes to show you how we would think about this if that is a requirement. If we wanted you to come up with 5% down payment plus about 3% for closing costs. We said, “Okay, how much would we need to save if we’re going to shoot for having that cash available either a year from now or a year and a half from now?” So, we know over the next few months we’re going to pay off this 6% student loan. Well, then if we want to save up that amount of cash in one year, we need to save about $3,560 per month. If we want to save it in one and a half years, we need to save about $2,200 per month. So, we said, “All right, we’re going to kind of we’re building a plan here. Let’s go right in the middle and say that for the house, we’re going to commit to saving $3,000 per month.” That means that at some point in the next year to year and a half, we will have enough cash built up to be able to satisfy the down payment. So, we’ve checked the box on the student loan. We paid that off in a few months. We know that we’re going to have $3,000 a month going towards the house. We also, again, just because we want to make sure we do the math on this, whenever you buy a house, we want to make sure you can answer three things. Did I put at least three to 5% down? That we’ve already satisfied that. Can I be in the house for five to seven years? You guys have already said that’s the case. And does the total monthly expense fall below 25% of my gross income? So, we did the math on what that mortgage would be, even doing the traditional financing route, and it’s around $3,000. So, it’s just kind of nice that the math worked out nice and even.

The Critical Decision – Balancing Goals (20:25)

Bo: So, if you have $7,000 of free cash flow, that means you got $3,000 going towards the house, got $4,000 to do other stuff with. Now, we know that inevitably there are other things that come up that might fall outside of that $4,000 monthly expense number. So, we just put in a $500 little, we call it a life buffer, right? So, maybe we don’t really have $4,000 to work with. We really have $3,500 to work with. The question then becomes, all right, I’ve got $3,500 and I’ve got these two goals I still want to satisfy. I want to be saving and investing, but I do still have a bunch of student loans that are 5%. We’re going to stop talking for a second. What would you guys do right now as it stands? How would you approach that if you had $3,500 to work with?

Carl: Get our investing percentage up.

Bo: He’s baiting the teacher. That’s not what they say. When they walk in, no, I’m going to pay off those student loans.

Brian: Well, and look, I want to because we’re going to show you what this becomes, but everything we’ve done is to try to be as conservative as possible. I bet y’all pay off that 6% loan even faster because we’ve tried and I bet this house decision, like I said, once you start talking to financial institutions, you start talking to your family members, you’ll figure out the path. You might be able to do that faster. We just wanted to, but we laid this out in a very measured way so that it would kind of lay out what’s the next step after those two points are made. If you had to out of 100% how would you if you know we got to squeeze the balloon, what are we doing to debt? What are we doing towards investing of the $3,500? Just curious.

Carl: I don’t know. That’s tough. Maybe like 70/30, 70 invest, 30 loans. I still want to do more than the minimum on those. I kind of want to keep chipping away at them.

Brian: I feel like a minimalist. I really do. You ever watch those shows and you’re like, man, I wonder what they’ll say. What my second grade teacher’s going to say. There’s some pretty good videos out there on them. The reason I feel like a minimalist is because we’re going to show you in a minute. We did exactly what and by the way, just so the audience knows, we didn’t know what you, matter of fact, even in some of the draft forms, there were some different percentages that were floated around to us. And I was like, look, and our number is arbitrary, too, because you guys once you this is the unique situation you’re in. You have options right now. And I think everybody with personal finance, there’s so many paths to success. But it is kind of funny because we did exactly what you just said without knowing is we did 70/30.

Understanding Opportunity Cost (22:45)

Bo: And we want you to understand that every financial decision you make has an opportunity cost associated with it. If I pursue this goal, it’s likely at the expense of this goal to some extent. And you guys are going to have to decide this is where personal finance is personal. Which ones are we willing to accept? Which costs are okay? And which goals do we want to pursue? So we want to show you what the implications of those decisions are. Well, if all you did for your loans was pay the minimum payment, it would take you about 14 years to pay off those loans. Let me pause there for a moment. Would you guys like to have student loans 14 years from now?

Carl: No.

Bo: Is there any chance that you guys will have student loans 14 years from now?

Carl: We’re definitely not taking out more. So, I mean, yeah, but it seems unlikely there’s a scenario where you’re just going to pay the minimum payments and you’re going to let these things go all the way out. Right. Right.

Brian: And this is where I think we get a bad rap sometimes because we talk about how we can use debt as a tool. But you’ll notice we don’t like debt either. We’re just trying to figure out how you balance that because there’s a because everybody you always hear when you talk about debt crusading, they always say, “Well, this is safer. This takes the risk out.” Well, I always remind people there’s a risk you won’t have as much in your army of dollar bills to pay for you when you’re not working. And as we already talked, you’re going to have a growing family. You’re going to want an army of dollar bills behind you so you own your time that much sooner and have more flexibility. That’s a risk, too.

Carl: And that’s been what’s kind of been gnawing at me the last year is like, yeah, the paying off the debt and everything’s great, but I know there’s a more efficient way to do this as far as in the future because it’s easy to be like, oh, in a year and a half we’ll have these loans done, then we can start investing. But it’s like that’s a year that we’re missing in investing time. And I want to go.

The Power of the Wealth Multiplier (24:24)

Brian: Bo, I want to give you some power in this. When should I talk to him about the diminishing power of the wealth multiplier?

Bo: I think right now, Brian, I think it’s a great time to talk to him about it. Laurel, you are 28 years of age currently.

Laurel: Yes.

Brian: Your wealth multiplier, meaning every dollar that comes into your possession right now, if you put it to work or if you didn’t put it to work and spend it, you’ve, you know, that’s an opportunity lost. Every dollar could potentially become $29.70 at retirement from every dollar. One dollar turning to 30. That’s pretty awesome. That’s 30x. Look over here at your husband. He’s 32. So not much, you know. So you like, okay, so if you’re at close to 30, what happens to Carl? Well, he’s 32. So every dollar has potential to become $18. Do you see how hear that response? Oh, here’s what’s wild. For a 20 year old, we did, by the way, we’ve done surveys on our financial mutants who watch the show and then we have our Abound Wealth clients and we see their crazy numbers. This is what separates the general public from a financial mutant. A lot of them found out about personal finance in their 20s. So, they started actually saving and investing. For a 20 year old, every dollar has potential to become $88. Now, what y’all are older than 20, but y’all have a growing family potentially coming in the next few years. I want you to pay attention to that because for a newborn baby, as soon as your newborn baby comes on the planet, every dollar has the opportunity to become $647. Time is cruel. It’s powerful, but it’s also very unfair. Now, if you waited three years because you said you were debt crusading, if we waited until you’re 35 years of age, every dollar only has a chance to become $12.69. So, it’s down to 13. And here’s where I did some math. You realize the difference between you and Laurel is almost it’s a little less, a 40% diminished on what your wealth multiplier is. Yours is 40% less valuable than hers because like I said she currently is $29.70. Yours is $18.05. Yeah, I get it. You got to pay a 5% student loan. But we’ve also we got a clock in the background that is ticking and every dollar that doesn’t go into your army of dollar bills is just lost. It just doesn’t get a chance to catch back up because you just run out of time on compounding interest, the eighth wonder of the world. I want people to feel the equal weight of the pressure. Yes, the risk of the debt, but you also need to feel the risk that time can be your most valuable resource, but it can quickly turn into your enemy if you neglect the wealth building process too long.

The Power of Early Action (27:02)

Brian: What happens when somebody has, you know, you look at some of these the end of life decisions people have to make because of diabetes, heart disease, and other things. At some point, you turn into palliative care because they just don’t you can’t go tell them to go, “Hey, start walking every day.” That’s not going to do anything for you because you’ve let too much of life build up that it doesn’t. You’re young enough now that my corrective action on you guys will seem like a walk in the park. Go get more sunshine. Hey, maybe you only get to have dessert twice a week instead of, you know, these are the y’all are still in that young enough stage that we don’t have to make hard decisions. It breaks my heart though when people come to me in their 50s and 60s and then I have to be the bad guy and be like, “Yeah, you know, you just don’t get to have the easy decisions that somebody who’s in their 20s, somebody’s in their 30s, even 40s.” But y’all are young enough, you get to make easy decisions. And that’s why we want to kind of make sure we scare you a little bit because debt crusaders need a little scaring to know that there’s two different battles that you’re working through when you’re building wealth.

Carl: Yes.

The 70/30 Plan in Action (28:09)

Bo: And the wealth multiplier is a conceptualized number. We want to show you guys actual numbers for you. So if you were to pay this off more quickly, you’re going to put $1,050 on the loan. You would see that now instead of having student loans for 14 years and two months, you have it paid off in five years and two months. Let me pause there. Give me some feedback.

Carl: Yeah, you like that.

Bo: This is not even prioritizing the loans. This is doing the 30% to the loans, right? Huge drastic change.

Brian: Yeah.

Bo: Well, with that other 70% that you’re now putting to work, having it invest for you, look at what that money is able to do. Let’s say that on average, you can earn about 8.8% over the remainder of your working career. That $23,000 you have right now has the ability to turn into almost $7 million by the time you get to age 60. Give me some feedback on that.

Carl: Huge difference.

Laurel: Oh, yeah.

Brian: Well, I can even go deeper because I want to take you not only through the behavior of the saving and investing, but knowing what that $7 million can do for you. That is if we brought it back into today’s dollars and said, “Hey, what could this provide income wise all through my retirement?” That $7 million at age 60 is about $121,000 a year.

Carl: Yeah. And the five year payoff is fine with me if we’re adequately contributing to retirement because that’s, like I said, been like the itch in the back of my mind the last six months. I know that there was a better way.

Laurel: Yeah, that’s been the missing piece. I feel like that’s kind of how we found you guys. And then once we started watching your show, we were like, “Oh, there’s definitely something else we could be doing that we should be doing.” And then that’s what really sparked all of this. So, just needing to know where to look and how to move forward is huge. So, we appreciate it.

Investment Order of Operations (29:54)

Bo: There’s one more thing that we’d like to equip you with because obviously we’ve kind of walked you through your financial order of operations, how should we think about prioritizing our next dollar? We kind of gave you an example of what you could do to satisfy those three goals that you have, but we also want to share with you sort of an investment order of operations because if you do decide, hey, we’re going to deploy more of these, you have a couple different pieces and parts to choose from. So, we just want to show you your investment order of operations, how we would think about dollars flowing, putting them to work. So, obviously, we’re going to get the employer money that’s going to happen right off the gate, your 401a, Carl, and then your pension. You have an employee and employer amount going into TRS. Well, then we for sure want you getting the match. That’s step two of the financial order of operations. We want you to maximize the match in the 403b, which you’re already doing. Once you do that, and I think one of the things we saw in the notes, hey, I opened a Roth IRA just because I want to see what that looked like. I want to see what that was all about, which not put anything in there yet, right?

Carl: Right.

Bo: Those get really, really excited. So, for some of the very first dollars you’re going to put to work for yourself that you’re not putting to work right now, we’d love to see you max out a Roth for each one of you. We’d love to see you open up an HSA if you have a high deductible health plan and start getting those tax free dollars growing. And then once you’ve done those things, you can double back to the retirement accounts, double back to the 403b, double back to the 401k. Does that make sense? Is this aligned with the plan that you already had in place?

Carl: Yeah, I knew we would be contributing to the Roth to an extent. So that’s and we’ll open one up for her as well.

Bo: That’s $2,450. If you take our numbers per month, you’ll be able to max those things out, which is pretty awesome. I know a guy, Orlando’s career didn’t quite max them out all the way. Still regrets it this day. Well into his 50s.

Brian: It’s in the book. I’m telling you, you can make a lot of mistakes, but I’m telling you, you will look back and go, even though I’ve come out this well, could have done a little bit better. And that’s your Roth. There’s, like I said, the government restricts how much you can put in and who can put in because if you make too much, you’re like, “No, no, not for you.” You got to get in there. I mean, because that’s powerful at y’all’s age. I mean, thinking about tax free millionaire status on some of these assets gets me. It’s tingly. It cracks me up that you opened a Roth account, but we haven’t really started funding this. That once again, that is that’s the first step. That’s like me fasting before the physical. It really is. That is you’re not we got to get you actually doing the actions to actually create the wealth.

Carl: Absolutely.

Laurel: We’re excited to do that.

Your Homework (32:15)

Bo: Here’s your homework. First thing, re-evaluate your emergency fund. Determine if some of that money you have sitting in Fairwinds should be applied to that high interest 6% loan that you have. Then, based on free cash flow, consider paying off that loan before the end of the year. You’re going to have enough free cash flow to do that. Once you’ve done that, I would have a conversation with a bank. I’d go ahead and reach out to whoever you’re thinking about doing traditional financing with for the house to figure out what they’re going to require in terms of capital down at closing. If you’re getting an $800,000 house for $450,000, you might not have to come up with any and it might accelerate your timeline. If you do have to save for a down payment, we think that 5% is a great target to shoot for. That would involve saving about $3,000 per month towards housing over the next year to year and a half to build up that down payment. Once you’ve done that, figure out your split with the free cash flow. Do we want to go 70/30? Do we want to go 80/20? Do we want to go 60/40 and whatever the rest of that is all the way up to 100? You figure out what makes sense and what works for you guys and then check the numbers. Rinse, repeat, re-evaluate and start building your great big beautiful tomorrow.

Carl: I really appreciate it.

Brian: If somebody else wants to apply to come on Making a Millionaire, where should they go?

Bo: Yeah, if you’d like to be a guest on Making a Millionaire, you can go to moneyguy.com/apply. Or if you want to check out any of our resources or free tools, you can go to moneyguy.com/resources.

Brian: Carl, Laurel, it’s been an absolute pleasure. Thanks for coming on. This has been an absolute blast, guys. I’m your host, Brian. Mr. Bo, Money Guy Team out.