A Recession is Imminent? Do This Now.

Is a Recession Coming? Here’s What You Should Do (0:00)

Brian: So, a lot of folks are saying a recession is imminent. What should you do?

Bo: Brian, I am so excited about this because if you’ve been paying any attention at all, it seems like bad things are coming. There are a lot of people out there calling for a recession right now. There’s a lot of things going on in the world that have people concerned. And I’m excited that we can sit here and be the voice of reason.

Brian: Well, I mean, let’s face it, anytime we have conflicts going on in the world, the socioeconomic stuff, the geopolitical stuff, there’s just weird stuff everywhere. And then unemployment has popped up a little bit, the stock market — I mean, down. But depending upon what week we look at this, I mean, when we came up with this idea last week, it was actually underwater. Then when we record this show today live, we’re actually up 1%. So it starts making you wonder what’s going on. So surely somebody has this figured out. Off to save the day, as we see this stat according to the Wall Street Journal and Goldman Sachs — Goldman Sachs has gone out there and put their reputation on the line and says the probability of a recession has increased by 30%. 30% chance. That’s a pretty big number.

Bo: That’s a big number. It is certainly better than the odds that the house has in Vegas. And so you would say uh-oh, we should be worried.

Brian: Well, if you’re watching this, you probably noticed a smile came across my face and you’re like, “Well, why in the world would Brian smile about a — ” yeah, I speak in third person. Why would I be smiling about a recession probability going up by 30%? And the reality is because they don’t really know. It’s just a guess. I mean, whenever — I’ve been doing this long enough that I’ve caught on to the reindeer games, that yes, it creates clicks, it creates headlines, but they don’t really know. So if that’s the case, what should you do?

Bo: Yeah, I think it’s really interesting. Could there be a recession in the near future? Sure. Could there not be a recession in the near future? Also sure. One of the things that we know is we know that the future is uncertain and there will be uncertain things that come our way. But if we allow the past to be an educator to teach us something about what we’ve seen previously, it’s really really interesting. Look at this illustration. This is from First Trust. This looks at wartimes laid over with just stock market performance, the S&P 500 going back — well, it’s not all the S&P 500, but the global stock market going back to 1928. And what it shows is different conflicts that we’ve had globally over the last 100 or so years, mapped to what’s going on in the market. And you can see there’s not a whole lot of time where there is not conflict. There’s not a whole lot of eras or epochs where there’s not something going on in the world that would cause people to be nervous and unsettled and uncertain. And yet the market kind of just keeps climbing up that hill.

Brian: And that’s why — I mean, look, if you’re looking at this visual right now, there is so much conflict in the world that it’s almost impossible to read. The print is too small to make it out. And I want you to, when in doubt, zoom out. The teachable concept here is remember how I’m always talking about if you believe in this ever-expanding law of accelerating returns, that the market and the economy is growing — you don’t have to get caught up in this. All you have to do is realize, hey, I’ve got a yo-yo going up and down that I’m throwing down every day. Every day the stock market’s open is the yo-yo being thrown up and down. But the good news is every day we’re also walking higher and higher up this mountaintop. So look at this with that visual in mind — that you, the investor, are the one throwing the yo-yo up and down, but you’re walking to higher ground because of this ever-expanding economy that surrounds us. You can kind of say, yeah, look at this. This is pretty amazing that there’s lots of volatility, lots of things going on, but we’re going to higher ground in the long term. So it shouldn’t matter what’s going on with that day-to-day swing of the yo-yo.

Money Guy’s Take on Charles Schwab’s Recession Tips (5:08)

Bo: So there was an article that came out and Charles Schwab wanted to give some recession tips — like if we’re going into a recession or if that’s something that’s coming our way or we might be heading in that direction, what are some tips, what are some things we can do? And so we just kind of want to give you the Money Guy take on the Charles Schwab tips to see if this is something that financial mutants ought to be applying. The first was build up your cash reserves. Now I almost like this. I would argue hopefully before the recession comes, before it gets here, you will have already had a cash reserve built up. I don’t want you to wait for the recession and say, “Oh, now it’s time for me to start actually getting my financial house in order.” But we do love when you do have cash reserves, when you have that 3 to 6 months of living expenses in place, because when the unknown unknowns come your way, you can say, “You know what? It’s okay. I’ve got the next few months covered. I don’t have to make desperate decisions.” And so if you can have cash reserves, if you can have that buffer depending upon where you are in your accumulation or de-accumulation phase, it will allow you to weather that storm that much more smoothly.

Brian: So a lot of you are like, okay, give me some details. Cash reserves is pretty — what does that even mean? We try to help you out with that. We tell you the difference between three months or six months, and it really has to do with what your personal situation is because personal finance is personal. So if you have high job security, you’re not going anywhere, you feel like you are connected to this company and your job — that’s three months. Dual income, meaning you and your spouse both make about the same amount of money — that’s going to lean you towards three months. It’s easy to go find another job down the street doing what you’re doing. You don’t have dependents, flexible lifestyle — all that’s three months. Now, if maybe you were the primary breadwinner, we probably ought to have a little more cushion. If you’re worried that if you lost your job, you’d have to literally move across the country to find another opportunity because this is a hard job to replace — build up more margin. You’ve got to have more protection to keep you from those desperate decisions. If you have lots of debt, mortgages, high fixed costs, you’ve got to make sure you’re taking that into account. We want you to do exactly what Bo said — your cash reserves is what keeps you from making those desperate decisions when the sky and everything else is going to feel very chaotic.

Bo: All right, so building cash reserves or having an appropriate cash reserve is tip number one. The second tip that they give, and this one is critical and I think this is probably the most important one, is stay invested. Even when the market is going down, even when the recession looms, even when we enter bear market territory, one of the worst decisions you can make is hitting that capitulation point where you say, “You know what, I can’t take it anymore. I throw my hands up. I sell. I pull out. I go to cash.” There’s a high likelihood that if you do that, you’re going to miss out on the recovery. And if you miss out on those early days of recovery, there’s a big chance that you miss out on a lot of the recovery in total. So you have to make sure that you have a portfolio in place that allows you to stay the course. It’s one of the most heartbreaking things we see, Brian, when someone bails at the bottom.

Brian: Well, this is one that’s easy to read and say, much harder to practice. And that’s why I would tell you, you need to ride or die with what you’ve got set up. You have to understand. And let me tell you how to do this. Let me go ahead and give you the jump ahead to how you think about things differently like a financial mutant. I think it’s better than stay invested — I think you go ahead, ride or die, and you say, let’s ABB this thing. Let’s always be buying, baby. Because if you can go ahead and set up an automatic investment plan that even during recessions or even during market volatility you’re still buying into it, it’s going to change your perspective. You’ll actually get excited, especially if you’ve got decades before you actually need to live off this money. You will say, you know what, this is where money is made — when everybody else is panicking, I’m actually going to be building and multiplying this money in years to come. Turn a negative upside down and turn it into something that’s working for you in the long term.

Bo: The next tip that Schwab gave us — they said, okay, if we’re heading into a recession, if you want to be able to survive some sort of recessionary pressure, figure out how to either boost your cash flow or cut your expenses. Well, you’ve heard us say this all the time. This is a huge Money Guy echo — that when it comes to changing and impacting our financial lives, most of us really only have two levers we can pull. We can either figure out how we make more money either at our current job with our current skill set, a side job, a side gig, something like that. Or how do we spend less money? How do we cut our expenses? How do we find resources that were being wasted? Well, if we’re heading into a recession and you can get as lean as possible on your expenses and as frothy as possible on your positive cash flow, again, you’re going to set yourself up that much better to be able to weather the storm.

Brian: Bo, the last tip — this one caught us a little bit. We thought it was interesting. This is what Schwab said: make strategic portfolio adjustments. What do you think of that?

Bo: I say eh, do not make strategic portfolio adjustments during a recession. Because if you are changing things when the bottom’s falling out, when things are scary, when the market has lost a lot of value, there’s a really good chance that you’re doing it at the wrong time. What you should have done instead is you should have had an appropriate portfolio that matched your unique risk tolerance, risk capacity, age, timeline, and goals before the recession happened. So that way you could do exactly what Brian said — you could ride or die through the recession with it. If you find yourself making changes and trying to tweak things out of fear at the bottom, then I’m worried that you’re doing it at the wrong time and you likely did not have the right portfolio going into the recession.

Brian: Look, when we started drafting these show notes, the market was down last week. There was more volatility. This week, who knows if we’re out of it. Like I said, this is going to change from a week-to-week, day-to-day basis. But as we’re recording this, the market’s actually up 1% for the year. This is one of those things where maybe we throw a little life raft to Charles Schwab with these rules and say — now that we realize, hey, maybe this is a time where you can level set. Does my portfolio actually reflect what I need for the long term? Because if you’re the 55 to 60-year-old that thinks you’re going to slam into retirement by taking your VUL for life and all of a sudden now you’ve added diversification the year you retire, this is probably a wake-up call for you. Go ahead and start doing the planning steps you need to do right now so that you do have that portfolio, you have the asset allocation, you have the cash reserves, so that you don’t have to make any adjustments no matter what the world throws your way, because you have a plan that reflects your goals, your desires, your risk.

How Recessions Hit Differently Depending on Where You Are in the Journey (12:30)

Brian: So here’s the thing that we’re trying to figure out now — you need to understand, and this is the mindset I want everybody to understand. Recessions and market volatility hit people differently depending upon where you are in this journey.

Bo: Yeah, if you’re someone who’s in your 20s early on, it’s probably going to look a lot different than someone who is about to retire, or maybe someone who’s already in financial independence living off of their portfolio.

Brian: So early accumulators, you should get excited. Let me go ahead and tell you — recessions, volatility, these things are amplifiers to your wealth more than they hurt you, because you just don’t have as much in critical mass assets yet. This is actually an opportunity for you to get assets at cheaper prices and let that money grow upon itself. For those of you with late accumulation — I resemble this — it’s now more about you focusing on the asset allocation, your diversification, because you’ve already got a lot to protect at this point. So you need to make sure that yes, you’re still trying to grow the assets in the long term, but let’s also make sure that we’re not taking crazy risk and running up the scoreboard when we already have a lot of successes built in the rearview mirror. And then the last group is decumulation. This is people who are actually living off the assets. Guys, it hits different when you are retired and you’re facing volatility. And that’s why this is going to not only add to the late accumulation stage of diversification and asset allocation, but now you want to boost up your cash reserves, you want to boost up areas that make sure that no matter even if the market is crazy for three to five years, you’ve got assets that keep you from making desperate decisions.

Bo: Yeah, we want you to have a plan that’s good before a recession-type thing happens, during a recession-type thing, and then even good after a recession-type thing. It’s one of the reasons why we’ve put together the Financial Order of Operations. If you’ve not gone to check it out, you can go get your free copy at moneyguy.com/resources. It is a nine-step process to tell you, hey, here’s what you ought to be thinking with your next dollar. Here’s how you can make sure your dollars are going in the places that they are supposed to be going. Whether the market’s looking good, the market’s looking bad, or the market is just flat, let it be your guide so that you can stay the course on building towards your great big beautiful tomorrow.

Brian: It’s almost like there’s a better way to do money. Kachow.

Bo: Kachow. Brian, I love that we get to sit here, that we get to hang out, that we get to do this. I love that we get to put this content out there. We get to talk about crazy stuff. I love that we have folks — Rebie, it sounds like — are willing to hang out with us even when the stream is going nuts. Sounds like we have all kinds of wild, wonky stuff going on. Thank you guys for hanging out with that. We love that we get to answer your questions and speak to the things that you guys care about and answer the stuff that you want us to weigh in on. So right now, if you have a question, we have the team out in the wings ready to collect your questions. So make sure you get them in there because we really do believe there’s a better way to do money. So with that, crypto director Rebie, I’m going to throw it over to you.

Rebie: I have questions queued up, but first I have a devastating poll to share some results.

Bo: Devastating.

Rebie: The question was asked: do we like Bo’s mustache? This is going to be devastating for you, I think. Here’s the good news — only 18% said no.

Bo: Okay. Okay.

Rebie: Here’s the bad news. Only 29% said yes. Because 53% said, “What mustache?”

Brian: Oh, that is cruel. Oh, devastating. That is cruel.

Rebie: As previously stated. So I needed to share that.

Bo: I do not know who put that poll together, but it’s time for your annual review. Brian will be conducting your review personally.

Rebie: Wow, that’s good stuff. That is good stuff. So I had to share that first.

Bo: Someone said, “Try dyeing the mustache.” What if I came in jet black on Tuesday?

Brian: It would look just like my koozie. It’d be very much on brand at that point. Do the mustache and the eyebrows.

Bo: Oh, why you got the eyebrows? Nobody even said anything about the eyebrows. You have eyebrows.

Brian: Oh my gosh, that’s messed up. We haven’t gathered the first question yet. Really, we haven’t. That was first on the agenda.

Bo: She did choose violence. All right, man.

Q&A: When Should Old 401(k)s and HSAs Be Moved? (17:04)

Rebie: First question is from FOO for All. “I’m 50 years old and married. When should old 401(k)s be moved to a rollover IRA or into the current 401(k), plus old HSAs invested above the threshold moving to a new employer?” So he’s got all these old accounts. When should they move over? The benefits of leaving them versus moving them. What do you think?

Brian: I mean, for most people — look, first of all, FOO for All, you’re like everybody else. As financial advisors, we get to see behind the curtain of what people are actually doing in their personal financial life. And I make jokes in prospect meetings that when I look at what somebody brings to me, it’s like the quilt of their financial life. I can see what they were investing in by decade. I can see where they had accounts by different jobs. So people just leave stuff scattered all over the place. That’s less than ideal. Because we want you to have a concise — we want this to be a system. We want it to be working harder than you can with your back, your hands, and your brain. So the way you do that is you know exactly what’s going on with every dollar in your army of dollar bills. And the best way to be active on that is I like when you leave a job, let’s try to figure out — if that 401(k) was outstanding, then maybe it’s okay that you left it. But at least I want it to be a deliberate decision. And that’s why I want to encourage you to go to moneyguy.com/resources. We actually have a great decision matrix on what to do with old 401(k) assets, you know, when to do rollover IRAs. We try to build this out for you because I like you taking a proactive role and actually doing it right after you leave a job or starting a new job so you’re not scattering assets all over the place over your career.

Bo: Yeah. Again, that deliverable — you can go to moneyguy.com/resources. And what it’s going to tell you is really there are four choices that you can make whenever you leave an employer and have an old 401(k). Now, I say four — it’s really only three because cashing it out is almost never a good option, right? Because especially if you’re under 59 and a half, you’re going to pay ordinary income taxes as well as a 10% penalty to do so. So we’re going to rule that out. Well, I can leave it where it is. I might want to do that if the current options are really really good, the plan is really really low cost, and maybe I’m executing some kind of strategy like a backdoor Roth where I don’t want to have any IRA assets. I could roll it into the new employer 401(k) again if the options are good, the plan is low cost, and I want to keep my IRA balances to zero for some strategic reason. Or number three, I can roll it over to an IRA rollover. Then I can choose a custodian. I can invest in the entire investment universe. There are no plan costs associated with that. There’s only the underlying investment costs of the investments that I choose. That might be a viable option. So you should go check out that deliverable, follow the flowchart. And then HSAs are sort of the same thing. You may not recognize this, but not all HSA providers are created equal. Some will give you the option of like four or five options, and some have monthly fees if you want to take advantage of the investments, whereas other providers like Fidelity — really really easy to open up an HSA, roll dollars into there, get it invested in low-cost index funds. So you have to assess how good is the one I’m with, how good is the one that I could move it to, and does it make sense to consolidate? But in almost all circumstances, consolidating down to as few different unique pieces as possible is going to give you the highest likelihood of making sure you have a cohesive picture put together.

Rebie: That’s great. Well, that’s great, FOO for All. Thank you for asking the question. It is your lucky day because it is tumbler day. So if you would like to have a Tumblr of your very own, just email [email protected].

Brian: Rebie, can I — oh, Tumbler. I didn’t even make the sound because the icon — quack quack quack quack. I’m a little delayed there. I notice you have a Masters mug.

Rebie: I do.

Brian: On display. Bo is wearing a Masters shirt. I’m wearing a Masters shirt. I would like to share a huge human realization I had over last week.

Rebie: All right.

Brian: So I was blessed that I got to go to the Masters last week. And what was really cool is I got to take my youngest daughter with us. She qualified under the Young Patron program, which is just a fantastic program. And the fact that Augusta National has a member shake your hand and greet your child — it’s just a really cool experience. But here’s the bigger point I wanted to bring up to our audience. It is a big sociology experiment. Because if anybody’s been to the Masters — and I ran into quite a number of you guys there — you realize the big trade-off is you have to surrender your phone. You don’t get to take it in whatsoever. And that, you know, at first on paper that doesn’t sound like a big deal, but if you’re walking in at 7:30 in the morning and you’re not coming out until 6 to 6:30 at night, I mean, there’s almost a 12-hour period where you’re completely disconnected from this new world we live in. And doing this for multiple days, I had a realization hit me that kind of hit really hard on some human elements. And here’s what I mean by this — I think every time I go now to the airport, the doctor’s office, the DMV, anywhere where you sit around, what do we all do as humans now is we all immediately look down and we kind of put up our guard and just bury ourselves in our phone to pass the time. When you’re at Augusta National for the Masters, nobody has that comfy blanket to just dial into the data and so forth. So you’re just sitting there with the other humans all around you. And what I realized in this sociology experiment was humans can’t coexist in the same area for more than a period of time without just starting to have social interactions. So my social motor is fully woken up and engaged because I spent the last four days just talking to random strangers, just building relationship. And you realize how much good as humans we are. I think this is because we’re all in these echo chambers now — that’s why the politics is so divisive. That’s why we all go home for Thanksgiving and we fight with our relatives and others, because the world’s different. But if we all could gin up our social motors to what we used to take for granted — just being in the room with other humans, we talked and engaged with each other — it was incredible. And that’s something I’m trying to be a little more mindful of now that I’ve come out of that. And I don’t know if I’ll be like my granddad was at the grocery store, going and talking to everybody in the deli aisle or at the pastries, but I’m probably going to be closer to that, because I think that there is just something in the human condition. And it hit me — the iPhone smartphone came out in 2008. We are quickly about to be at the 20-year anniversary, where we’ve now had almost a full generation of people who have never experienced what it was like before we had smartphones. And I think we all need to be very careful and mindful of what that means. And I don’t mean to be the old man on the porch screaming at the sky, but it is one of those big revelations that I had, being without a mobile phone for multiple days and then just the sweetness of understanding the human condition a little bit better.

Rebie: I love that. That’s awesome. Good tangent time and report from the Masters.

Brian: But I think that’s why there are restaurants that are now having people put their phones in these bags. I know some comedy clubs do it too. I think I might look for some of that stuff.

Bo: So it sounds like what Brian’s saying — obviously we have our Discord channel where we all get to interact and kind of communicate and become friends digitally. But Brian’s advocating for like an in-person thing, right? Maybe we should do a Money Guy meetup or something like that where everybody has to put their phone away and you have to meet and talk to their financial meetings.

Brian: Well, I think there is a human — I’ve often said this, like I love music, and there is something about you go to a concert even for an artist that you don’t love, but if you see an artist perform in person, there is something in us that makes us connect with other humans. And I think that we need to make sure we’re just not disrespecting that, because there is something wired in us to connect with each other more than there is to fight with each other, which it seems like the digital stuff hasn’t necessarily — there’s a lot of efficiencies that have been brought to life, but it doesn’t necessarily make the relationship side of things better in my eyes.

Bo: Can you do a chat for me? I’m just curious. Ask these folks — hey, if we did like a Moneyverse meetup, would you travel to come to that? Let’s ask them that. Would you travel to come to — I would love that. I would love that. I mean, if we’re going to talk about meeting face to face, we might as well figure out if our people — let’s do it. I like it. I like the idea.

Brian: I’m not going. Come on. You know me. You get to hear me pontificate on things in person. Why not?

Rebie: A tangent time breakout session. We’ll see. All right. Well, for now, we’ve got Kyle S’s question.

Q&A: What If You Can Live on Less Than 80% of Pre-Retirement Income? (26:23)

Rebie: “How do you navigate retirement planning when you can comfortably live below the 80% of pre-retirement income you guys normally recommend? I’m a bit of a debt crusader now and plan to live modestly. What do you think?”

Bo: Yeah, early on we’re talking about horseshoes, right? We want you moving directionally in the right direction. Want you saving 25% of your gross income to move directionally towards this financial independence, this number that you have. But as you’re moving along your financial journey, rather than you just implementing like general advice — hey, I should generally invest in a target retirement index fund and I should generally be saving 25% and I should generally be doing these steps of the Financial Order of Operations — at some point, we want you to graduate from sort of the general guidance to the very specific guidance. Hey, for me in my personal situation, this is the goal that I’m trying to achieve. I want to at age 60 be able to live off of 60% of my pre-retirement income, or I know that I’m going to have expenses of $4,000 a month that I need to be able to replace. And as that picture begins to become more and more clear of the ultimate finish line that you’re moving towards, the steps that you’ll take and the tactics that you’ll begin employing will become more unique and specialized to your situation. So how do you navigate retirement planning when you can comfortably live below the 80%? You should arrive at the realization that perhaps 80% income replacement is not what’s necessary for me. What I really need is a 60% or 50% income replacement. And based on my savings rate, because I have such a low standard of living relative to my income, I’m going to be able to save very very aggressively and I might be able to get there much more quickly than the standard path. That’s totally okay. You’ve got to figure out and define what that is for yourself.

Brian: Yeah, I mean, Kyle, what Bo’s basically sharing is expenses. When you get within five years of retirement, use your actual expenses. That’s what’s going to be more of the driving force of your success — how good your nest egg or your financial assets you’ve built up are. I do want to address something you said there with the second part of this — you’re a bit of a debt crusader now and plan to live modestly. What I don’t know — you didn’t put your age in this, so maybe you can share that with us. Because what I worry about is somebody who’s in their 20s, 30s, and even early 40s — before 45 years of age is when your wealth multiplier is most powerful. If you don’t know what that is, go to moneyguy.com/resources. You can see what every dollar in your army of dollar bills could actually become if you invest it. Because I worry that a lot of people when they do the debt crusading before 45 — you need to build your army of dollar bills up to kind of be there for you to actually work harder for you in retirement versus you just counting on your modest lifestyle to get through. And I also worry about folks in their 20s and 30s when they’re basing their retirement off of how modest they live now. I’m like, you still have a lot of life that’s still going to happen. There’s a lot of people that, if you don’t think kids are going to blow up what’s going on when you start planning for what their life looks like, all their activities, even college funding and those types of things for the future — you’re misleading yourself. Because kids will definitely have a big impact on what your household expenses are. So you just need to be further beyond that so you can fully understand how am I going to have all my debt paid off once I’m 50 and beyond? How am I going to make sure that I know what my living expenses are? How do I make sure I get full launch on my children getting them out of the house? All those things are going to help shape. But the driving factor you need to focus on is when you are five years from retirement, make sure you’re using actual expenses to now start running all the Monte Carlo simulations and the risk factors and seeing how stress-tested this plan is versus just doing the rules of thumb. That’s why the safe withdrawal rates and all those things are great for napkin planning. You need a real plan with real stress tests when it’s actually going to be on the line and you have to live off this money.

Rebie: Thanks Kyle S for the question. If you’d like a Money Guy Tumblr, just email [email protected]. It’s time to get your rapid fire questions in the live stream chat. Just put RF at the beginning of your question and we will add it to our rapid fire segment pool of questions. We will be throwing in a fun twist today along with the normal rules that Bo and Brian cannot say “it depends” in their rapid fire answers. So go ahead and get those questions in, and then in the meantime we will ask our next long form question.

Brian: I’m ready for the twist to be that in rapid fire, “it depends” is a totally acceptable answer. Like we can say that — that’s fine. That’s what I’m saying.

Rebie: I still — we had a great brainstorm. I don’t think I’m going to say it publicly what it is. I don’t know why we’re not doing that — there ought to be a hat, maybe a Masters hat, here right now for us to pull some things out of.

Brian: Did you get us one? I can probably find one at the house.

Q&A: How Long Should You Keep a Car After the 20/3/8 Rule? (31:21)

Rebie: All right. Next question is from Noweeman. It says, “Hey guys, after following your 20/3/8 car buying advice, how long do you recommend keeping the car to make owning it worthwhile? Is it seven years like home buying, or something else?”

Brian: No, for — look, I don’t mind — now look, I just said “look” a lot. Well, during my wealth accumulation and building years, so I would say sub-45, I was driving cars for over a decade. I know I’ve given up my tight wad card in a lot of ways, but it hasn’t been to my detriment. Because there was a time and a place. I mean, you and I traded that Lexus back and forth a few times. I mean, I drove that car for 12, 13 years and my wife’s cars were always driven for a decade. You drive them as long as you feel safe in them.

Bo: Yep.

Brian: That’s what I’ve always done. Now there will be issues — like my wife’s Acura. We ended up having to give it away. She got a bad oil change where they stripped out the bolt that holds the oil and it had a leak and then the oil ran too low and then that car never ran the same. It started burning oil and doing other things and I felt like, crud, if we had just — if this thing had not had the issue, we probably would have been able to run this thing for another two years, but it just got to where it wasn’t safe anymore for my wife when it started burning oil. That’s what I always based it off of. But that Lexus — until I got it to you and you tore the engine all apart — that car would have ran for another 30 years. It had a few drips. If you don’t realize a car that’s 12 or 13 years old is going to have a few drips probably coming out of it — it’s okay.

Bo: When I sold it back to you, it was a peach. I got it, put a bunch of money into it, made it a lot better, then sold it back to you. It was awesome. This is not science, but you know, me and Brian make this joke all the time when someone tells us, “Oh hey, I just finished paying off my car.” We’re like, “Man, it sure does drive better, doesn’t it?” Because it always drives better when it’s paid off. If you did 20/3/8, meaning you financed it for three years or 36 months at a minimum — and look, there’s no science to this, you can write this in pencil — at a minimum, I think you ought to drive it for as long paid off as it took you to pay it off. So if you’re going to buy it and pay it off in three years, at a minimum, I want you to drive it for three years with no car payment. Now, in reality, I want you to go farther than even six years total. But if you’re buying used cars, I get it. But if you’re buying a relatively new car and you can get seven, eight, 10 years out of it, I think that is awesome. And your future financial self will likely thank you for it. My wife right now desperately wants to get into a new car. Like, she wants a new car.

Brian: Oh, I’ve heard some of those conversations.

Bo: Like literally — yeah, she wants to be in a new car. But I’m like, “Hey babe, there’s a few reasons. One, the car that we’re in right now is only like four years old, right? So it’s still relatively new. And at this stage of life, any new car that we get, any nice car — the kids are not at the age where they take care of it and do the right thing. So some of it is like, hey, if you’re in the messy middle and you have a car that has a bunch of chicken nuggets in it, maybe drive that car for a little bit longer so you can save future chicken nugget mishaps in the new car.”

Brian: The big thing to know is frequent car transactions work against your wealth building. So the fewer transactions you can have while you’re in that accumulation or make-wealth phase, the better for your long-term success.

Rebie: That’s fantastic. Now Eeman, if you would like a Money Guy Tumblr, just email [email protected].

Bo: Can I throw one thing out there?

Rebie: You can.

Bo: This part’s for free. If you’re someone who trades cars often, like you get a new car every three years, every four years, something like that — you’re not at least driving for five years. You should at least entertain the idea of looking at leases. Because if the number of transactions is what is working against you and you’re buying a car and buying a car and buying a car, there’s a really good chance you’re just paying for depreciation, paying for depreciation, paying for depreciation. You might be one of those people that are better off leasing. So you at least ought to do the mathematics around that to make sure. I think that ought to be a step eight thing, though.

Brian: Oh, of course.

Bo: If you’re flipping cars before you’re at step eight, you really are probably working against that make-wealth phase first.

Brian: Well, that’s why somebody was being funny — if I pay cash, I mean, I have to drive it for a year. No, if you only drive your car for a year, it’s back to the key point. The lowest common denominator is vehicles. Now look, somebody’s going to point out, “I got a ’67 Mustang, I got a ’57” — I’m like, no, those are different types of cars. The 99% of cars that people are driving out there are working against their wealth building.

Rebie: All right, with that it is time for our rapid fire segment. Our “It Does Not Depend” rapid fire segment where Brian and Bo have a combined answer in 30 seconds or less to your burning questions and they cannot say the words “it depends.” The added twist is that if you can work in the name of a fruit or vegetable into your answer, you get 10 points and whoever has the most points at the end wins. Now, you cannot just say it — it’s got to be organically worked in, right?

Bo: Yeah. You can’t just like — just because you say it —

Rebie: Oh, y’all do it how you want to do it. I’m not going to give points if you just start throwing out random vegetables for no reason.

Brian: I will say yummy, yummy, yummy. Fruit salad.

Rebie: What?

Brian: I just threw some wiggle wiggles in there.

Rebie: Wow. All right. Cool. Okay, with that, we are going to dive in. We’re going to get 30 seconds on the clock and get to our first question. You guys ready?

Bo: Yes, ma’am.

Rapid Fire: It Does Not Depend (37:37)

Rebie: All right. “I’m getting married in a month. Do y’all have any marriage advice, financial or non-financial? You pick.”

Brian: I would figure out which chores — cuz the first two years of marriage are the hardest for me — figure out what chores y’all are going to be doing around the house and figure out which ones you hate. Maybe outsource some, or at least have clear rules on how y’all are going to integrate everything.

Bo: Yeah, I think communication is key in the chores. Some of you might like apples, some of you like bananas. You’ve got to make sure you understand which one is which. And understand what the other person values. If you can do that early on in the marriage, you’re likely going to set yourself up for long-term success.

Rebie: 20 points to Bo Hanson. And that’s time. All right, next question.

Brian: My brain just doesn’t. I’m struggling. I feel like this is what Bo feels like in the ocean because I am just trying to get an answer out. Had to take you down.

Rebie: Okay, question number two is what is the benefit of traditional accounts for those who have pensions?

Bo: Well, even if you have a pension, but you’re someone who’s in a higher income situation, those pre-tax accounts will likely provide you with a very valuable current-year tax benefit.

Brian: I like the fact that you can build Roth assets too, which grow completely tax-free and nothing gets you banana happy like a — I can’t even say it. It’s so dumb. I’m so horrible at this. Nothing gets you banana happy.

Bo: Really? Have you never seen a minion?

Rebie: You know what? 10 points to Brian. A for effort.

Brian: Rebie loves me.

Bo: This thing is so rigged.

Rebie: You’re still winning, Bo. Okay, next question I’m really looking forward to. What counts as a luxury car? Is it a dollar amount, a brand, a percentage of something?

Bo: Well, look, it can’t just be a limit. You want to make sure that you’re getting a car that you can actually drive for a long time. You don’t want to get one of these luxury cars that’s in the shop all the time. So when you think about luxury brands, I’m thinking like Mercedes, BMW, those types of things.

Brian: No, you want your car to be a peach. That’s the big thing. So it needs to really reflect what you feel about vehicles and your financial goals. See, this is the problem. I was so focused on the peach that I can’t even answer the dagum question.

Rebie: That was so good too. All right, 10 points for each of you. We’re going to come back to this one. Luxury brand — that’s one that people need to know. All right, question four. When does step seven end and step eight begin?

Brian: Yeah, with step seven you’re basically thinking how, instead of just accumulating for the sake of accumulating, you think of how you actually use the money. So once you’ve kind of done the efforts of actually looking at your three buckets — pre-tax, after-tax, and tax-free — you can go — I’m not going to do it. Go ahead.

Bo: One through six is the main course. And even getting into seven, that’s the main course. Once you get into eight, once you get to 25%, you graduate past. Now we’re adding the dessert. We’re adding that peach pie, the apple pie, the cobbler. We’re adding those pieces that make financial life so much happier. But you’ve got to do the base stuff first.

Rebie: The man is good. I mean, he is so dag — point to Bo. If you ever want proof of whose brain works faster, it is Bo Hanson.

Brian: But you know, this isn’t a game of speed, you know what I mean? It’s a game of quality. And if we’re going for quality over time, my money’s on you.

Bo: True that. Been doing this for — you have 20 years. Oh, podcasting — yeah, you’re the OG.

Rebie: All right, next question. What was your favorite hole in Augusta and why?

Bo: Did somebody really ask that?

Rebie: Yeah.

Brian: Hole 10. My father-in-law is the reason we even get together for the Masters. And he always — the three times I got to go with him, he took us to Hole 10. We’d set up on Hole 10. It’s got a false front. It’s fascinating. And it just makes me so kiwi happy.

Bo: I was fortunate enough to get to go to the Masters a few years ago. I love setting up on — getting to go see Amen Corner. I love being on eight. We walked to 18 for a little bit and watching people come in and finish. That made me kiwi happy.

Rebie: Brian, 10 points for you. All right, next question. Is it best to take a lump sum or monthly pension payments and why?

Brian: Look, you want to make sure you don’t eggplant this thing up. So you’ve really got to make sure you do the math. I mean, it really comes down — it is a math question because I’ve done this so many times that sometimes the lump sum is best and sometimes the pension. So you have to actually do the math on the situation. It’s not a one-size-fits-all.

Bo: It’s not always the same either. One person may determine that lump sum made more sense. Another person might determine that the annuitized option made more sense. So like you said, you have to do the math.

Rebie: All right, 10 points to Brian. Next question. If I’m saving in a Roth 401(k), is it okay to use my Roth IRA for a first-time home purchase?

Bo: It’s less than ideal. No watermelon.

Rebie: That does not count. All right. Is that all you have to say?

Brian: I want to squash that because it just works against your tax-free growth. You need this money in retirement. So that’s why we give you the 3% down payment to work around this so you don’t have to go use these type of really growing assets.

Rebie: Hats off to you, my friend. 10 points. You guys are now tied up on the fruits and veggies game. So we only have a few more questions left. So do with that what you will.

Bo: If only you didn’t have all that horsepower going to growing the stash. I could use that right now.

Rebie: All right, next question. 29-year-old going to law school next year. Should I pay for it out of my investment account or take out a loan and why?

Brian: Now, see, we need more.

Rebie: Brian just sat back. He was like, I refuse to answer this.

Brian: No, it’s just I need more information.

Bo: If you have a large investment account, you could likely use that to pay for education, but there’s a real opportunity cost of that. If you’re going to borrow, you want to see what the interest rates are and that sort of thing. Taking out a loan, you have to measure the pros and cons of each.

Brian: I would typically say pay for it. Yeah, we’ve got to come back. We’ll come back to that.

Rebie: All right, next question. What is your suggestion for combining assets after marriage?

Brian: I really do think it’s bananas to go separate accounts. I mean, but I’m biased. I mean, I’ve been married almost 30 years and — I don’t know what that even was, but — I was like, did you say something bad? No, actually, never mind. I’ve been married almost 30 years and it’s just hard when — to do things separately because power — you want to take the power out of the money.

Bo: I think combining stuff on the front end makes a ton of sense.

Rebie: Great answers. 10 points to Brian. He’s crushing you. All right, last one. If we all vote for it, would Brian grow a matching mustache to Bo’s?

Brian: Before we agreed to that, I would need to check with my wife. That’s a very — because if my wife doesn’t like mustaches, I’m not going to grow a mustache.

Bo: Orange you sure? I was trying to come up with one.

Rebie: That wasn’t bad. That wasn’t bad. Should I give it to him?

Bo: I think what’s in the room — I think you 100% should. And I think that Mrs. Preston would say yeah — absolutely there is no way my wife is going to agree to a mustache.

Rebie: All right, with that, last 10 points to Bo. We have ended the “It Does Not Depend” rapid fire with a tie of 60-60. Look at that. Honestly, well done. You had a few drop-ins in there that I was very proud of.

Bo: That makes me mango happy.

Brian: I think I had kiwi happy.

Rebie: Honestly, if I took out Brian’s two fruit-happy ones, then maybe it would be different.

Brian: We drink carbonated beverages. I’ve been doing this for 20 years as y’all said. I’ve never had where that created where I almost belched on air. You just had — that’s what that was. I was so horrified. That would have been so good. I was just — I was mortified by it. So that’s what the reaction — I shouldn’t be so confessional, but I wanted y’all to know what happened.

Rebie: All right. Literally, we had no idea. 20 years. I’ve never had that happen. So, it is now time for our “Maybe It Does Depend” segment where you get to go back to any questions where you didn’t get a chance to say all that you needed to say. The first one I had flagged was question three about luxury cars. What actually counts?

Maybe It Does Depend: Deeper Dives on the Rapid Fire Questions (46:26)

Bo: What is luxury as a luxury car? Because there’s some nuance here. Obviously it’s the fancy brands you might be thinking, right? It’s BMWs, it’s Mercedes, it’s those types of automobiles. But I would also argue even if you’re buying a normal brand — you’re buying a Honda, you’re buying a Toyota — if you’re going out and buying a Land Cruiser, that’s still a luxury automobile. If you’re going out and buying the highest end, top of the line. So yeah, it’s a little bit subjective because some brands have luxury versions of their cars and non-luxury versions, and some brands only have luxury versions and no non-luxury. So you have to be realistic about what you’re buying, because what may be luxury to you may not be luxury to someone else. But you have to make sure you’re doing that well so you don’t blow up your finances.

Brian: Remember, the umbrella that sits on top of all this is the fewer amount of car transactions you can do while you’re in the accumulation years, the better you’re going to be. And the lower the footprint of each one of those transactions, the better. That’s why the first probably three cars I drove after I graduated were all used cars. And then when I transitioned to new cars, they were not luxury brands. And when I say luxury brands, I mean we can all say the BMWs, the Mercedes. I used to say Tesla. No, I will tell you that the threes and Ys are some of the most affordable cars out there. Well, they don’t even make the X’s and S’s anymore. Those are going away. So now pretty much you just have — I mean, and if you don’t think that, go look down your street. I guarantee you people are driving Model 3s and Ys like you do Honda Accords and Toyota Camrys. So I don’t think they’re luxury cars anymore. But definitely minimize the automobile transaction as much as you possibly can while you’re in the accumulation and wealth-building years.

Bo: The next one I had was about the law school one. Will you reread that one to me because there’s some stuff in there.

Rebie: Yeah, I know there’s truly a lot of factors here. 29 years old, going to law school next year. Should he pay for it out of his investment account? Apparently he’s got some investments. Or take out a loan.

Brian: Here’s the things that hit me immediately. I don’t know the account structure because — is all of this after-tax assets? Is some of this like Roth assets or traditional assets? I just didn’t know that. And then I didn’t know what they’re offering on student loans — is this a 7% interest rate? Is this a 4% interest rate? I needed to know just a few more variables. I mean, but I would prefer obviously if you have resources, if you can pay it off — but here’s the thing. It also goes into a third tangent, which is I want you to be thinking about the cost of the education in general too. I don’t want you, just because you have resources, to like, well, let’s just go pay and go to school here or do this. I mean, there’s so many things that go into the answer like where you live on campus, how you’re building up the things, because that’s what a lot of people will take student loans even for — lifestyle — and that drives me crazy as well. So I kind of need — I’d want to have a discussion about what goes into education to give you the best result. Because what’s the best result? Get out of college and get into your professional life as cheaply as possible with the least amount of hangover from debt so that you can go live your best financial life.

Bo: And I even want to know like — how much is the loss? Like are you talking about a $20,000 law school education or a $200,000 law school education? Because $20,000 — you have a big portfolio and you can pay cash, great. If you have to liquidate everything and go pay cash for that $200,000 education, one, I want you to assess why am I going to do the $200,000? Is there a justifiable reason to do that? And then two, is the opportunity cost of taking all of those dollars off of the playing field actually worth it? So there’s a lot of deep nuance to that. Yeah, there’s not — that is not a rapid fire question. And yet it was.

Rebie: Bo, you didn’t really get to finish your answer on your favorite hole in Augusta. Did you say all you needed to say?

Bo: It was just cool. So when I went to the Masters I got to go with Brian, which was awesome. And it was cool getting to see — cuz I had never experienced anything like that. Like it was just a wild, unbelievable experience. I wish I could remember specifically what hole was my favorite. I just remember seeing the holes that I’ve watched on TV so much. So just kind of cool getting to see it in real life.

Brian: 10 is special to me. It really is because it makes me — I feel like when I’m out there, the Masters does — I think it really is like I said, it was a very big experience thinking about the social motor and the way they’ve crafted that thing. It does make you feel like you’re connected to something. And being at Hole 10 — because like I said, my father-in-law has been deceased for a number of years now. And knowing how special that hole was for him, it kind of gives you some — hair on your arms kind of stands up a little bit and gives you the tingles. Thinking about the legacy of having those memories and the blossoming memories that — I go back and that thing’s going to still look the same. They’re going to put the pin on day two at the front of that false front there and the golfers are going to hit up there and it’s going to be as slick as a tabletop and it’s going to fall off for some of them. It’s just fascinating and it’s just cool.

Rebie: I figured you would have a good answer for that and you did not disappoint. I appreciate that. All right, fun rapid fire segment, guys. Let’s do a couple more long form questions to wrap out this Ask Money Guy show.

Q&A: Can I Factor Accrued PTO Into My Emergency Fund? (52:20)

Rebie: Next one is from BatmanFOOrever. It says, “I live in a state where my employer must pay out my vacation days if I leave my job for any reason. Can I factor my accrued PTO into my emergency fund?”

Brian: I don’t think that I — I think that move goes more into the retirement plan than it does into the PTO because I know a lot of my educator clients — we did use their excess retirement to kind of work on building the retirement plan to leave early. Look, it’s not a fruit or vegetable — but you can’t count those eggs till they hatch. That’s a thing that could happen. That’s a thing that likely could come your way. I don’t think you can count it towards your emergency fund or even your retirement plan until that manifests. Because one of the things the emergency fund is there for are for emergencies. Losing your job could be one of those.

Bo: But what if you don’t leave your job? What if your emergency is a medical thing or an HVAC or something? It’s not like you get that PTO paid out. You said you have to leave the job. Well, that’s one emergency that it would be there for. There’s a plethora of other emergencies that could come your way.

Brian: Okay. So I don’t think you can count it towards that. I do think you can factor it into your accounting on when you retire and when you go into financial independence, especially if you’re banking it. But I’m probably not listing that as a line item on my net worth statement every year because company policy could change. They may change the policy at some point in the future and say, “Hey, we used to do this thing, but now we don’t do that thing anymore.” And so I’d just be careful counting money that hasn’t shown up and isn’t like a verifiable source of funds like a pension or something like that. And don’t be trying to cut the corner off of emergency reserves. Financial mutants do this stuff all the time. We do mental accounting to figure out how we can get our cash reserves to be as small as possible because we think cash is trash or other things. No, this is going to be your layer of protection. Think about it as like a bulletproof vest in this crazy world we live in. The more margin and protection you can give yourself, the more protection you’ll be from desperate decisions. And I often have said that in step eight, an extra healthy cash reserve also turns into — because my cash reserves have expanded over the years — and that’s what’s allowed me to buy assets when everybody else is panicking and freaking out, when it comes to real estate and other things. All of a sudden, cash reserves can become a superpower when everybody else is without that very powerful resource.

Rebie: Good stuff. I thought that was quite the leap to get from PTO to —

Brian: It made you twitch a little bit, seeing the Batman, because you remember when you had to dress up as Robin.

Bo: No, Brian, it didn’t. I kind of blocked that out. Thanks for bringing back those memories. We just had a magical moment talking about the Masters and you’re going to bring that up.

Brian: By the way, talking — bring it back. I want to give you a compliment because I do pick on you a lot, but I want to give you a compliment because I bought you a large shirt last year too. This year they don’t fit your arms anymore. My goodness. I mean, you are — when I walked in on you wearing this, I was like, Bo, do I need to get you an extra large just for your biceps? I mean, it’s kind of crazy. I don’t know what your diet is, right?

Bo: Well, just like with investing, it’s about consistency and time. Consistency and time. Same thing when you go to the gym. You wake up, you go to the gym, good things happen.

Brian: And y’all should know Bo gets up at like 4:15.

Bo: 4:13 every morning.

Brian: I don’t know when you sleep, but he is like at the gym with all these other bod men, you know, and they’re just doing this thing. Oh, me and the bod men. It’s awesome.

Rebie: I also need to give BatmanFOOrever a Tumblr if you would like one since we answered his question. Just email [email protected]. Wanted to make sure you got your chance. All right, let’s do another question, guys.

Q&A: What Is the Goal of the Three-Bucket Strategy? (56:24)

Rebie: Blair T asks, “For the three-bucket strategy, is the goal to be even? I’m 25 and can contribute more to my Roth 401(k) beyond 25%. But I don’t want to be retirement rich and individual brokerage poor. Roth has $53K and individual is $34K. I believe that means two different accounts. Would you agree with that? Being —”

Bo: Yes. Yep. Being retirement rich is not necessarily a bad thing if it’s all Roth and you’re going to retire after 59 and a half, because then the Roth dollars are great. Most people, however, find themselves in a situation where they get an employer match. So that likely is going to go in the pre-tax bucket. And then most people want to leave the workforce, especially at higher savings rates, before 59 and a half, or at least have some sort of flexibility to be able to do that. And so that’s where the after-tax bucket comes in. A lot of people think three buckets, it should be a third, a third, a third. But the way that we’re able to accumulate obviously doesn’t allow us to arrive in that place. I mean, you think about just in terms of limits — IRA limits are $7,500, but 401(k) limits are $23,500. And so it’s a difficult thing to get them in nice even buckets. The ideal mix is unique and specialized to you depending on what you want to do with the dollars and when you want to be able to utilize it.

Brian: Look, people’s structure, their tax structure, is like fingerprints. I mean, they really are different for everybody. But I know that just from the Financial Order of Operations, there’s a good chance when you get through step six, you’re going to be weighted towards retirement assets, and there’s a good reason for that. If your employer is offering you dollar-for-dollar match, you’ve got to get in there and get that because these are amplifiers that are going to help make your journey to building wealth that much faster. If you’re saving, you’re a young person at a low tax rate — you’re crazy if you’re not taking advantage of the tax-free growth opportunity of those Roth assets. That’s why we built in step seven, though, is because that’s when you say, “Whoa, I’ve just come through all this tax-favored or free money that my employer’s given. Now let’s think about how we’re going to use this, because I don’t want to be 42 years old and not paying cash for vehicles because all my money — I’m a millionaire in my retirement accounts.” But that’s what step seven is going to help you look at. You’re going to say, “Okay, maybe now I’m at the phase where let’s start figuring out how we get some after-tax assets so that I can get into real estate, or I can pay cash for my vehicles, or I can retire at 55 versus 65.” That’s why I love having step seven. And it’s kind of a — woo, take a deep breath. Think about how we’re going to use this money. And now let’s move on to step eight, which is abundance goals and prepaid expenses. That’s why we — this thing really is your all-terrain vehicle. We’ve been managing money for, collectively between the two of us, 50 years. We’ve built this into the system so that it works and we haven’t been able to break it. I mean, that’s what I’m very proud of what we’ve created, because it really does help you live your best financial life.

Rebie: Good stuff, Blair. If you would like a Money Guy Tumblr, just email [email protected] and we’d love to send you one. This episode of Ask the Money Guy has made me kiwi happy, I’ll tell you what. So thank you for joining us today. We really appreciate it. We make this content for you. And remember, go to moneyguy.com/resources for a huge library of free stuff that is all based on the topics we share here on the show. It’s going to give you a little bit of a deeper dive, different calculators, different downloads that will help you continue to figure out what’s going on in your personal finance situation and hopefully help you feel just that much more confident about your path forward, because that’s what it’s all about. So thanks for joining us and be sure to check out moneyguy.com.

Brian: Guys, I mean, I’ve gone on some tangents about what I got to experience last week at Augusta National with the Masters, and I appreciate y’all just hanging in there with me on that. But it is more highlighting of the fact that money is only a tool. And if you’re not doing things in your life to build up that social motor, to also make blossoming memories with your friends, family, and have connections, you know, you’re missing out. That’s why we try to teach you so that you can understand — don’t just be building up money for the sake of having money. Let’s make it purposeful. Let’s make it where it actually reflects who you are so you can live your best life and own your time that much sooner. I’m your host Brian, joined by Mr. Bo, Rebie, and the rest of the content team. Money team out.